-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ds4dSwVygb+R2SNWBfbeyZ/ntCEhxEOKt+lDQldz0ocNq6zwRhwNj7qe1/FQ/EGg aAuwz1u8iGSz47IQT3QY0Q== 0000950153-00-000026.txt : 20000202 0000950153-00-000026.hdr.sgml : 20000202 ACCESSION NUMBER: 0000950153-00-000026 CONFORMED SUBMISSION TYPE: SB-2 PUBLIC DOCUMENT COUNT: 8 FILED AS OF DATE: 20000111 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IBIZ TECHNOLOGY CORP CENTRAL INDEX KEY: 0001079893 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER TERMINALS [3575] IRS NUMBER: 860933890 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SB-2 SEC ACT: SEC FILE NUMBER: 333-94409 FILM NUMBER: 505383 BUSINESS ADDRESS: STREET 1: 1919 WEST LONE CACTUS CITY: PHOENIX STATE: AZ ZIP: 85201 BUSINESS PHONE: 6239200 MAIL ADDRESS: STREET 1: 1919 WEST LONE CACTUS CITY: PHOENIX STATE: AZ ZIP: 85201 SB-2 1 SB-2 1 U. S. Securities and Exchange Commission Washington, D.C. 20549 FORM SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 iBIZ Technology Corp. --------------------- (Name of small business issuer in its charter) Florida 3571 86-0933890 (State or jurisdiction of (Primary Standard Industrial (I.R.S.Employer incorporation or Classification Code Number) Identification No.) organization) 1919 West Lone Cactus Drive, Phoenix, Arizona 85021, (623) 492-9200 ------------------------------------------------------------------- (Address and telephone number of principal executive offices) 1919 West Lone Cactus Drive, Phoenix, Arizona 85021 --------------------------------------------------- (Address of principal place of business or intended principal place of business) Robert L. Lane, Lane & Ehrlich, Ltd ----------------------------------- 4001 N. Third St., Suite 400, Phoenix, Arizona 85012-2065 (602) 264-4442 ------------------------------------------------------------------------ (Name, address and telephone number of agent for service) Copy to: Stephen R. Boatwright, Esq. Daniel A. Larson, Esq. Gammage & Burnham, PLC Two North Central Avenue, 18th Floor Phoenix, Arizona 85004 (602) 256-0566 Approximate date of proposed sale to the public: February 28, 2000 If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_| _____________ If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_| _____________ If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_| _____________ If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. |_| _____________ 2 CALCULATION OF REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------- Title of each class of securities to Amount to be Proposed Proposed maximum Amount of be registered registered(1) maximum aggregate registration offering price offering price fee per share(6) - ------------------------------------------------------------------------------------------------------------- Common stock, $.001 par value 5,039,252(2) $1.47 $7,407,700.00 $2,059.34 - ------------------------------------------------------------------------------------------------------------- Common stock, $.001 par value 1,000,000(3) $1.47 $1,470,000.00 $ 408.66 - ------------------------------------------------------------------------------------------------------------- Common stock, $.001 par value 500,000(4) $1.47 $ 735,000.00 $ 204.33 - ------------------------------------------------------------------------------------------------------------- Common stock, $.001 par value 300,000(5) $1.47 $ 441,000.00 $ 122.60 - -------------------------------------------------------------------------------------------------------------
(1) Represents the shares of common stock being registered for resale by the selling securityholders. (2) Pursuant to a registration rights agreement between us and a selling securityholder, the number of shares represents 200% of the maximum number of shares which would be issuable as of the date of filing this registration statement upon conversion of two seven percent convertible debentures. Pursuant to Rule 416, the shares of common stock offered hereby also include such presently indeterminate number of shares of common stock as shall be issued by us to the selling securityholder upon conversion of the debentures. That number of shares is subject to adjustment under anti-dilution provisions included in the debentures covering the additional issuance of shares by iBIZ resulting from stock splits, stock dividends or similar transactions. This presentation is not intended to constitute a prediction as to the future market price of the common stock or as to the number of shares of common stock issuable upon conversion of the debentures. (3) Pursuant to a registration rights agreement among us and a selling securityholder, the number of shares includes 200% of the maximum number of shares which would be issuable as of the date of filing this registration statement upon exercise of warrants to purchase an aggregate of 300,000 shares of common stock. Pursuant to Rule 416, the shares of common stock offered hereby also include such presently indeterminate number of shares of common stock as shall be issued by us to the selling securityholder upon exercise of the warrants. That number of shares is subject to adjustment under anti-dilution provisions included in the warrants covering the additional issuance of shares by iBIZ resulting from stock splits, stock dividends or similar transactions. This presentation is not intended to constitute a prediction as to the future market price of the common stock or as to the number of shares of common stock issuable upon exercise of the warrants. (4) Issuable upon conversion of options. (5) Issuable upon conversion of the selling securityholders' eight percent convertible debentures. (6) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(c) and (g) of the Securities Act of 1933, as amended (the "Securities Act"); based on the average ($1.47) of the bid ($1.44) and asked ($1.50) price on the NASD OTC Bulletin Board on January 3, 2000. The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to Section 8(a), may determine. 3 CROSS REFERENCE SHEET
CAPTION IN FORM SB-2 CAPTION IN PROSPECTUS -------------------- --------------------- 1. Front of Registration Statement and outside front of Front cover cover of Prospectus 2. Inside front and outside back cover of Prospectus Inside front cover of Prospectus 3. Summary information and Risk Factors Summary; Risk Factors 4. Use of Proceeds Use of Proceeds 5. Determination of Offering Price Plan of Distribution 6. Dilution Not Applicable 7. Selling Security Holders Selling Securityholders 8. Plan of Distribution Plan of Distribution 9. Legal Proceedings Business 10. Directors, Executive Officers, Promoters and Control Directors and Executive Officers Persons 11. Security Ownership of Certain Beneficial Owners and Security Ownership of Certain Beneficial Owners Management and Management 12. Description of Securities Description of Securities 13. Interest of Named Experts and Counsel Not Applicable 14. Disclosure of Commission Position of Indemnification Indemnification for Securities Act Liabilities for Securities Act Liabilities 15. Organization in last five years Not Applicable 16. Description of business Business 17. Management's Discussion and Analysis or Plan of Management's Discussion and Analysis Operations 18. Description of Property Business 19. Certain Relationships and Related Transactions Certain Relationships and Related Transactions 20. Market for Common Equity and Related Stockholder Market for Common Equity and Related Shareholder Matters Matters 21. Executive Compensation Executive Compensation 22. Financial Statements Financial Statements 23. Changes in Disagreements with Accountants on Not Applicable Accounting and Financial Disclosure
4 IBIZ TECHNOLOGY CORP. 1919 WEST LONE CACTUS DRIVE PHOENIX, ARIZONA 85021 (623) 492-9200 www.ibizcorp.com 6,839,252 SHARES COMMON STOCK 6,839,252 shares of common stock are being offered by our securityholders named under the heading "Selling Securityholders" appearing at page 10. We will not receive any of the proceeds from the sale of common stock by the securityholders. However, we will receive amounts upon exercise of outstanding options or warrants. Some of the securityholders have agreed to pay a portion of the expenses related to this offering, and all securityholders will pay sales or brokerage commissions or discounts with respect to sales of their shares. The shares of common stock described in this prospectus are for resale. The shares offered are being registered due to iBIZ's obligations to those securityholders. The securityholders may elect to sell shares of common stock described in this prospectus through brokers at the price prevailing at the time of sale or at negotiated prices. The common stock may also be offered in block trades, private transactions or otherwise at prices to be negotiated. Our common stock is traded on the National Association of Securities Dealers, Inc., OTC Bulletin Board under the symbol "iBIZ." On January 6, 2000, the price for our common stock was $1.63 per share. INVESTING IN THE COMMON STOCK INVOLVES CERTAIN RISKS, SEE "RISK FACTORS" ON PAGE 4. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. January 10, 2000 The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. 5 TABLE OF CONTENTS
PAGE ---- PROSPECTUS SUMMARY..................................................... 1 RISK FACTORS........................................................... 4 SELLING SECURITYHOLDERS............................................... 10 USE OF PROCEEDS....................................................... 11 PLAN OF DISTRIBUTION.................................................. 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION............. 12 DESCRIPTION OF BUSINESS............................................... 16 DIRECTORS AND EXECUTIVE OFFICERS...................................... 29 EXECUTIVE COMPENSATION................................................ 30 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT........ 32 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................ 33 MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.............. 34 DESCRIPTION OF SECURITIES............................................. 35 INDEMNIFICATION FOR SECURITIES ACT LIABILITIES........................ 37 EXPERTS............................................................... 37 LEGAL MATTERS......................................................... 37 FINANCIAL STATEMENTS.................................................. F-1
6 PROSPECTUS SUMMARY YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED INFORMATION REGARDING OUR COMPANY, OUR COMMON STOCK AND OUR FINANCIAL STATEMENTS AND NOTES APPEARING ELSEWHERE IN THIS PROSPECTUS. OUR COMPANY OVERVIEW Our Company is incorporated in Florida. Our executive offices are located at 1919 West Lone Cactus Drive, Phoenix, Arizona 85021, and our telephone number is (623) 492-9200. Our world wide web address is http://www.ibizcorp.com. Information contained on our website is not part of this prospectus. Through our wholly-owned operating subsidiary, INVNSYS Technology Corporation, we design, manufacture and distribute desktop computers, monitors, transactional printers, financial application keyboards, numeric keypads and related products. We also market a line of original equipment manufacturer notebook computers and distribute transactional and color printers. We recently expanded our business to include network integration services and digital subscriber line high-speed Internet connection services. We have also recently acquired assets from a company engaged in the business to business sale of software and intend to incorporate software sales into our business. Founded in 1979, INVNSYS has evolved from a distributor of bank automation computer systems to a provider of a variety of computer products targeted at both the commercial and personal markets. Throughout its history, INVNSYS has provided innovative products to satisfy its customers' demands. PRODUCTS Our product groups currently include: - Business Application Small Footprint Computers. Designed for limited space environments, we believe our iT-8000 has the smallest base or footprint of any desktop in the personal computer industry. - Personal Computers. We offer two small footprint personal computers, the Safari and the Sahara. - Keyboards. We market a range of keyboards and numeric keypads targeted at financial institutions. We recently introduced an innovative keyboard called "KeySync," specifically designed for use with hand-held personal organizers such as 3COM's Palm Pilot. 1 7 - Displays and Monitors. We sell a line of space-saving, zero-emission LCD flat panel displays. We believe our LCD panels take up less than one-tenth of the space needed for an equivalent cathode ray tube monitor and are some of the thinnest available on the market. We also offer a line of traditional monitors. - Notebook Computers. We market a complete line of competitively priced, build-to-order notebook computers under the name "iBook." Currently, we sell three models, the Roadrunner, the Apache and the Phoenix. - Printers and Peripherals. We are an authorized distributor of Epson printers and peripherals and currently offer two transactional printers. We recently began offering Tektronix color printers. SERVICES We recently began offering the following services: - Network Integration Services. We have hired a Chief Technology Officer with significant industry contacts and now have contracts with American Express and Motorola. - Digital Subscriber Line Services. In December 1999, we started offering high-speed Internet connection services marketed to commercial customers. MARKETING, SALES AND DISTRIBUTION We market our products directly to end users through a direct sales force, regional re-sellers, value-added providers in the banking and point-of-sale markets and Internet commerce sites. We market our full range of products directly to retail customers through our website at www.ibizcorp.com. MANUFACTURING Our products are engineered and manufactured by various entities in Taiwan. Manufacturers build our products to our specifications with non-proprietary components. We engage in final assembly, functional testing and quality control in our Phoenix, Arizona facility. SERVICE AND SUPPORT We provide our customers with a comprehensive service and support program. Technical support is provided to customers via a toll-free telephone number as well as through our website. Our products have either a one or three year limited warranty covering parts and service. In addition, we offer extended service agreements, which may extend warranty coverage for up to two additional years. 2 8 THE OFFERING [PIE CHART] Shares Registered in this Prospectus 7% Debentures ..... 5,039,252(1) Warrants .......... 1,000,000(1) Options ........... 500,000 8% Debentures ..... 300,000
Total shares registered in this prospectus..................... 6,839,252 Shares outstanding after the offering.......................... 30,791,006(2) OTC Bulletin Board symbol...................................... iBIZ
- -------------------- (1) Under the terms of registration agreements between iBIZ and the selling securityholder, iBIZ has agreed to register 200% of the shares of common stock issuable upon conversion of two 7% convertible debentures and exercise of warrants to purchase an aggregate of 300,000 shares. The number of shares issuable upon conversion of the debentures and exercise of the warrants were calculated as the date of filing this prospectus. (2) Assumes the conversion of all of the debentures and exercise of all of the options and warrants at 100% of the maximum number of shares issuable, but excludes shares issuable upon exercise of options and warrants not registered in this prospectus. RISK FACTORS Investing in the common stock involves certain risks. You should review these "Risk Factors" beginning on page 4. PLAN OF DISTRIBUTION Selling securityholders may sell common stock in the over-the-counter market or on any exchange on which our common stock is listed. Shares may also be sold in block transactions or private transactions or otherwise, through brokers or dealers. Brokers or dealers may be paid commissions or receive sales discounts. The selling securityholders must pay their own commissions and absorb the discounts. Brokers or dealers used by the selling securityholders may be deemed to be underwriters under the Securities Act. In addition, the selling securityholders will be underwriters under the Securities Act with respect to the common stock offered. 3 9 This prospectus contains certain forward-looking statements which involve substantial risks and uncertainties. These forward-looking statements can generally be identified because the context of the statement includes words such as "may," "will," "except," "anticipate," "intend," "estimate," "continue," "believe," or other similar words. Similarly, statements that describe our future plans, objectives and goals are also forward-looking statements. Our factual results, performance or achievements could differ materially from those expressed or implied in these forward-looking statements as a result of certain factors, including those listed in "Risk Factors" and elsewhere in this prospectus. RISK FACTORS INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CONSIDER THE FOLLOWING DISCUSSION OF RISKS AS WELL AS OTHER INFORMATION IN THIS PROSPECTUS BEFORE EXERCISING DEBENTURES, WARRANTS OR OPTIONS. THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE NOT THE ONLY ONES. ADDITIONAL RISKS AND UNCERTAINTIES NOT PRESENTLY KNOWN TO US OR THAT WE CURRENTLY DEEM IMMATERIAL ALSO MAY IMPAIR OUR BUSINESS OPERATIONS. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS COULD BE HARMED. IN SUCH CASE, THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT. EXCEPT FOR HISTORICAL INFORMATION, THE INFORMATION CONTAINED IN THIS PROSPECTUS AND IN OUR SEC REPORTS ARE "FORWARD LOOKING" STATEMENTS ABOUT OUR EXPECTED FUTURE BUSINESS AND PERFORMANCE. OUR ACTUAL OPERATING RESULTS AND FINANCIAL PERFORMANCE MAY PROVE TO BE VERY DIFFERENT FROM WHAT WE MIGHT HAVE PREDICTED AS OF THE DATE OF THIS PROSPECTUS. We Have A History Of Losses And Anticipate Future Losses For the fiscal year ended October 31, 1999, we sustained a net loss of approximately $954,099. Future losses are anticipated to occur. Our success in obtaining additional funding will determine our ability to continue operations. We have insufficient cash flow to sustain or grow operations. We cannot assure you that we will be successful in reaching or maintaining profitable operations. We Will Require Additional Capital In the Future We have spent, and will continue to spend, substantial funds on product research and development and expansion of our sales and marketing efforts. As a result, we will need to raise short-term capital to maintain our ongoing business. We are actively seeking to obtain a significant capital infusion to avoid continuing reliance on short-term capital sources. On December 29, 1999, we issued convertible debentures in the amount of $1,000,000. We currently anticipate the proceeds will be sufficient to maintain our ongoing business until March 2000. However, we cannot assure you that unforeseen events will not result in the need for additional capital sooner than we currently anticipate. If at any time we are unable to raise additional financing, we may be forced into insolvency. 4 10 If we do raise additional funds, your stock ownership may be diluted. Further, new securities may have rights, preferences or privileges senior to yours. Additionally, debt financing may include restrictive covenants, such as restrictions on incurring additional debt. If we are unable to raise additional funds when necessary, we may have to reduce planned expenditures, scale back our product developments, sales or other operations, enter into financing arrangements on terms that we would not otherwise accept or be forced into insolvency. The Market is Highly Competitive The market for our products is intensely competitive. We expect to experience significant and increasing levels of competition. We compete principally in the following areas: - Product Quality and Reliability - Product Performance - Level of Customer Service - Ability to Meet Customer Requirements - Brand Awareness - Price In many of our markets, traditional computer hardware manufacturing companies provide the most significant competition. Our competitors include a substantial number of large public companies, including IBM, Compaq Computer Corporation, Dell Computer Corporation, Toshiba, Gateway 2000 and NEC. Most of our competitors are much larger, benefit from greater name recognition and have significantly greater resources than we do. This subjects us to numerous competitive disadvantages. For example, our current revenue levels limit our ability to market and advertise on a national or international level. This in turn makes it more difficult for us to increase brand awareness. We could be forced to reduce prices and suffer reduced margins or market share due to increased competition from manufacturers or distributors of products similar to or competitive with our product. We Need to Expand our Product Range To effectively compete, we need to continue to expand our business and generate greater revenues so that we have the resources to timely develop new products. We must continue to market our products and services through our direct sales force and expand our e-commerce distribution channels. We cannot assure you that we will be able to grow sufficiently to provide the range and quality of products required to compete. We Must Keep Pace with Rapid Technological Change to Remain Competitive The computer industry is characterized by rapidly changing technology, evolving industry standards, frequent new product introductions and enhancements and changing customer demands. We must develop and introduce new products that keep pace with technological developments. If we fail to introduce progressive new products in a timely and cost-effective manner, our financial performance may be negatively affected. 5 11 Some of Our Products Target Niche Markets We sell a line of "small footprint" computers. (The footprint is the amount of desk space a computer requires.) We are also currently developing a "thin client" computer system designed to utilize thinly equipped terminals with limited memory and no local storage capability connected to central servers. We believe that the small footprint and thin client computer segments of the industry present business opportunities because they are underdeveloped markets. However, we also believe that the number of competitors offering these products will grow over the next several years. For example, competitors such as Gateway 2000 and NEC have recently introduced computers targeted to consumers requiring less desk space. We compete in the thin client market segment with well established companies such as Wyse Technology. We believe that Wyse may hold over 45% of the world-wide general purpose terminal market. We cannot guarantee you that small footprint products will gain or even sustain current market share or that our thin client products will achieve market acceptance. In addition, our products could be rendered obsolete and unmarketable if our competitors introduce new technology or new industry standards emerge. Recent Consolidations May Limit Our Markets One of our primary markets is the banking and financial institution industry. Recently, many banking and financial institutions have begun to consolidate. Although the number of potential customers decrease during consolidation, many banking and financial institutions upgrade their computer networks. We cannot assure you that the demand for our products by banking and financial institutions will not decrease as a result of the consolidation. Our Products Must Be Compatible With Third-Party Software Although we market computer hardware and peripherals, we currently do not develop software. Consequently, we are dependent upon third-parties to develop software applications that operate on our hardware platforms. If software providers do not continue to provide software acceptable to our customers, our sales may suffer. We cannot guarantee that all available software will be compatible with our products or that we will have the technical personnel necessary to evaluate and fix software compatibility problems that may arise. If we do not have technical personnel available, our sales may decline. We Are Dependant On Our Manufacturers And Suppliers Our business depends upon obtaining adequate quantities of products from our manufacturers and suppliers. Consequently, our results of operations are dependant, in part, upon our manufacturers' and suppliers' ability to produce reasonably priced products in adequate amounts to meet our demands. 6 12 Currently, our computers and peripherals are engineered and manufactured by various entities in Taiwan. Although we have not experienced significant problems with our manufacturers and suppliers in the past, we may experience such problems in the future. We are also subject to risks of fluctuations in our component prices. If prices charged by our vendors increase, our costs of goods sold and net income would be adversely affected. Currently, we believe there is a shortage of liquid crystal display monitors. To date, we have not experienced difficulty in obtaining these monitors. In addition, we have preliminarily agreed with Harsper Company, Ltd. to act as the exclusive distributor for their liquid crystal display monitors. To date, a final agreement has not been executed. We cannot assure you that a final agreement will be signed or that we will distribute Harsper products. If our business expands and monitor supplies remain low, we may experience difficulty in meeting customer demand. We cannot assure you that our positive relationships will continue or that in the event of a termination of a relationship with a manufacturer or supplier, we would be able to obtain alternative sources of manufacturing or components without a material disruption in our ability to provide products to our customers. A material disruption of our ability to supply computers and peripherals to our customers would have a material adverse effect on our sales and results of operations. We Must Continue to be Authorized to Incorporate Manufacturer Authorized Products We are dependant on our continued authorization to provide manufacturer authorized products, including certain software products. Currently, the Company is authorized by industry-leading software developers, such as Citrix Systems, Inc. and Microsoft to incorporate their software in our products. Without such authorization, we would be unable to provide the same range of products currently offered. We cannot assure you that manufacturers will continue to authorize use of their software in our computers and peripherals. We Have Recently Added New Lines of Business We recently began offering network integration services and digital subscriber line or DSL high-speed Internet communications services. To aid in the development of these services, we have hired a Chief Technology Officer with significant experience and industry contacts. However, we cannot assure you that we will develop and implement successful marketing strategies for these new services. In addition, as DSL services are an emerging technology, we cannot assure you that this technology will gain market acceptance. Our Network Integration and DSL Services Face Intense Competition We recently began offering network integration services and DSL high-speed Internet communications services. The market for these products is highly competitive. Our network integration services will compete against a wide range of competitors from large established companies such as IBM and AT&T to smaller private entities. Our DSL services will compete with companies such as U.S. West Communications, COX Communications and Rhythms NetConnections. Although these companies are more established, we believe their 7 13 greater resources may increase market awareness and acceptance of DSL services. This, in turn, may make it easier for us to sell DSL services. We cannot assure you, however, that our new DSL services will enable us to expand our customer base and generate greater revenues. We Have Few Proprietary Rights We attempt to protect our limited proprietary property through copyright, trademark, trade secret, nondisclosure and confidentiality measures. Such protections, however, may not preclude competitors from developing similar technologies. Currently, we hold no patents and most of the technology used in the design and manufacturer of our computers and peripherals is known and available to others. Although we are exploring patent protection for one of our keyboard products, we believe that our competitive position is based on the ability to successfully market innovative computers and peripherals rather than on patented technologies. Although we believe that our products do not infringe on any third party's intellectual property rights, we cannot be certain that we will not become involved in litigation involving proprietary rights. Intellectual property rights litigation entails substantial legal and other costs. We do not know if we will have the necessary financial resources to defend or prosecute our rights in connection with any litigation. There Is A Limited Market For Our Common Stock Currently only a limited trading market exists for our common stock. Our common stock trades on the OTC Bulletin Board under the symbol "iBIZ." The Bulletin Board is a limited market and subject to substantial restrictions and limitations in comparison to the NASDAQ system. Any broker/dealer that makes a market in our stock or other person that buys or sells our stock could have a significant influence over its price at any given time. We cannot assure you that the market in our common stock will be sustained. As a result, holders of our common stock may be unable to readily sell the stock they hold or may not be able to sell it at all. Our Stock Price has Been Volatile The history relating to the prices of newly public companies indicates that there may be significant volatility in the market price of our common stock. More particularly, since trading began in July 1998, the market price of our common stock has fluctuated between a low of $0.56 per share and a high of $3.06 per share, a 545% variance. As a result, holders of our common stock may be subject to wide fluctuations in the value of their investment. We Are Dependent on Key Personnel Our future success is dependent, in part, upon our five executive officers and other key employees. A loss of one or more of our current officers or key employees could negatively impact our operations. However, we have entered into employment agreements with our executive officers and other key employees. 8 14 We currently do not carry key-man life insurance policies for our executive officers. We cannot assure you that we will not suffer the loss of key human resources. Our Officers and Directors Can Exercise Control Over All Matters Submitted to a Vote of Shareholders As of January 6, 2000, our executive officers and directors beneficially owned an aggregate of approximately 55% of our outstanding common stock. These officers, acting together, will be able to effectively control matters requiring approval by our shareholders, including election of members to our board of directors. As a practical matter, current management will continue to control iBIZ for the foreseeable future. Management Will Have Broad Discretion To Use Proceeds We will not receive the proceeds from conversion of the debentures or the sale of shares by the selling securityholders. However, we will receive funds upon the exercise of options and warrants to purchase our common stock. We intend to use the proceeds principally for working capital and general corporate purposes, including marketing and product development. Our management and board of directors have broad discretion with respect to the application of the proceeds. Sales of Common Stock Registered in this Offering Could Cause a Decline in Our Stock Price Assuming all shares registered in this offering are sold and anti-dilution provisions do not trigger issuance of additional shares, we will have 30,791,006 shares outstanding after this offering is completed. In addition to the shares to be sold under this offering, we have outstanding 14,677,400 shares of "restricted securities" held by our officers and directors. The remaining 12,093,980 shares held by persons other than our officers and directors are currently, or will be available in the future for sale under Rule 144(k). Under Rule 144(k), restricted securities may be sold by non-affiliates of iBIZ without restrictions on volume limits. All shares registered in this offering will be freely tradable. If all of the 6,839,252 shares registered are issued it will increase the available free trading shares as of the date of this prospectus by approximately 83%. A significant amount of common stock coming on the market at any given time could result in a decline in the price of such stock or increased volatility. We Have Not And Do Not Anticipate Paying Dividends. To date, we have not paid dividends to our shareholders and we do not contemplate paying dividends in the future. We anticipate retaining earnings, if any, to finance and develop our business. As a result, the return on your investment will depend upon any appreciation in the market price in the common stock. WHERE YOU CAN FIND MORE INFORMATION ABOUT US We file annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any document we file at the SEC's public reference rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Our SEC 9 15 filings are also available to the public over the Internet at the SEC's website at http://www.sec.gov. We have filed a registration statement with the SEC on Form SB-2 to register the shares being offered. This prospectus is part of that registration statement and, as permitted by the SEC's rules, does not contain all the information included in the registration statement. For further information with respect to us and our common stock, you should refer to the registration statement and to the exhibits and schedules filed as part of the registration statement, as well as the documents discussed below. The SEC allows us to "incorporate by reference" the information we file with them, which means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is an important part of this prospectus, and information that we file later with the SEC will automatically update or supersede this information. This prospectus may contain summaries of contracts or other documents. Because they are summaries, they will not contain all of the information that may be important to you. If you would like complete information about a contract or other document, you should read the copy filed as an exhibit to the registration statement or incorporated in the registration statement by reference. We incorporate by reference the document listed below and any future filings we make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 until all of the shares are sold: - Form 10-SB, filed October 13, 1999, File No. 027619, including the amendments filed on December 1, 1999 and December 15, 1999 You may request a copy of these filings, at no cost, by writing to us at 1919 West Lone Cactus Drive, Phoenix, Arizona 85021, Attention: Terry S. Ratliff. You can review and copy the registration statement, its exhibits and schedules at the public reference facilities maintained by the SEC as described above. The registration statement, including its exhibits and schedules, are also available on the SEC's website. SELLING SECURITYHOLDERS The following table lists the selling securityholders, the number of shares of common stock held by each selling securityholder as of the commencement date of this offering, the number of shares included in the offering and the shares of common stock held by each such selling securityholder after the offering. The shares included in the prospectus are issuable to the selling securityholders upon conversion of the debentures or the exercise of options or warrants. 10 16
Shares of Percentage of Common Common Stock Ownership Ownership Stock Included in Before the After the Owned After Name Prospectus(1) Offering(4) Offering(5) Offering(6) ---- ---------- -------- -------- -------- Scott Bishins 180,000(1) 700,000 520,000 1.5% Dr. Fred Stelzer 45,000(1) 155,000 110,000 * % Richard Schiff 30,000(1) 215,000 185,000 * % Marc Nissenbaum 45,000(1) 230,000 185,000 * % Lance Mullins 300,000(2) 300,000 0 * % Kim Moore 100,000(2) 100,000 0 * % Douglas Dragoo 100,000(2) 100,000 0 * % Scott Waldman 400,000(2) 400,000 0 * % Globe United Holdings, Inc. 5,639,252(3) 5,639,252 0 * %
(1) Issuable upon conversion of the 8% Debentures. (2) Issuable upon conversion of options or warrants. (3) Under the terms of a registration rights agreement between iBIZ and the selling securityholder, iBIZ agreed to register 200% of the shares issuable as the date of filing this prospectus upon conversion of the 7% Debentures and warrants to purchase an aggregate of 300,000 shares. iBIZ is registering 5,039,252 shares which represent 200% of the shares issuable upon conversion of the 7% Debentures and 600,000 shares which represent 200% of the shares issuable upon conversion of the warrants. (4) Consists of all shares owned by the selling securityholders as of January 5, 2000, plus the shares included in this prospectus. (5) Assumes the sale of all shares registered in this offering. (6) *Represents less than one percent. USE OF PROCEEDS Some of the selling securityholders have agreed to be responsible for a portion of the expenses of this Offering which are estimated at $60,000. iBIZ will not receive any proceeds from the sale of the common stock by the selling securityholders. iBIZ will, however, receive up to $1,007,000 upon the exercise of options and warrants. iBIZ intends to use the net proceeds from exercise of options or warrants primarily for working capital needs and general corporate purposes, including product research and development and sales and marketing expansion. There can be no assurance that any options or warrants will be exercised. PLAN OF DISTRIBUTION iBIZ is registering the shares on behalf of the selling securityholders. As used herein, "selling securityholders" includes donees and pledgees selling shares received from a named selling securityholder after the date of this prospectus. All costs, expenses and fees in connection with the registration of the shares offered hereby will be borne by some of the selling securityholders. Brokerage commissions and similar selling expenses, if any, attributable to the sale of shares will be borne by the each selling securityholder. Sales of shares may be effected by selling securityholders from time to time in one or more types of transactions (which may include block transactions) in the over-the-counter market, in negotiated transactions, through put or call options transactions relating to the shares, through short sales of shares, or a combination of such methods of sale, at market prices prevailing at the time of sale, or at negotiated prices. Such transactions may or may not involve brokers or dealers. The selling securityholders have advised iBIZ that they have not entered into any agreements, understandings or arrangements with any underwriters or broker-dealers regarding the sale of their securities, nor is there an underwriter or coordinating broker acting in connection with the proposed sale of shares by the selling securityholders. 11 17 The selling securityholders may effect such transactions by selling shares directly to purchasers or to or through broker-dealers, which may act as agents or principals. Such broker-dealers may receive compensation in the form of discounts, concessions, or commissions from the selling securityholders or the purchasers of shares for whom such broker-dealers may act as agents or to whom they sell as principal, or both (which compensation as to a particular broker-dealer might be in excess of customary commissions). The selling securityholders and any broker-dealers that act in connection with the sale of shares might be deemed to be "underwriters" within the meaning of Section 2(11) of the Securities Act, and any commissions received by such broker-dealers and any profit on the resale of the shares sold by them while acting as principals might be deemed to be underwriting discounts or commissions under the Securities Act. iBIZ has agreed to indemnify some of the selling securityholders against certain liabilities, including liabilities arising under the Securities Act. The selling securityholders may agree to indemnify any agent, dealer or broker-dealer that participates in transactions involving sales of the shares against certain liabilities, including liabilities arising under the Securities Act. Because selling shareholders may be deemed to be "underwriters" within the meaning of Section 2(11) of the Securities Act, the selling securityholders will be subject to the prospectus delivery requirements of the Securities Act. iBIZ has informed the selling securityholders that the anti-manipulative provisions of Regulation M promulgated under the Exchange Act may apply to their sales in the market. Upon the Company being notified by a selling securityholder that any material arrangement has been entered into with a broker-dealer for the sale of shares through a block trade, special offering, exchange distribution or secondary distribution or a purchase by a broker or dealer, a supplement to this prospectus will be filed, if required, pursuant to Rule 424(b) under the Securities Act, disclosing (i) the name of each such selling shareholder and of the participating broker-dealer(s); (ii) the number of shares involved; (iii) the price at which such shares were sold; (iv) the commissions paid or discounts or concessions allowed to such broker-dealer(s), where applicable; (v) that such broker-dealer(s) did not conduct any investigation to verify the information set out or incorporated by reference in this prospectus; and (vi) other facts material to the transaction. In addition, upon iBIZ being notified by a selling securityholder that a donee or pledgee intends to sell more than 500 shares, a supplement to this prospectus will be filed. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION Through its operating subsidiary, INVNSYS, iBIZ designs, manufactures, and distributes small footprint desktop computers, transaction printers, general purpose financial application keyboards, numeric keypads, CRT's, LCD monitors and related products. INVNSYS also markets a line of OEM notebook computers and distributes a line of transactional and color printers. iBIZ recently began offering network integration services, digital subscriber line high-speed Internet connection services, and business to business software sales. 12 18 SELECTED FINANCIAL INFORMATION.
Year Ended ---------- 10/31/97 10/31/98 -------- -------- Statement of Operations Data Net sales $ 2,350,459 $ 3,402,681 Gross profit $ 771,019 $ 1,182,885 Operating income (loss) $ (403,889) $ 112,882 Net earnings (loss) after tax $ (321,109) $ 7,863 Net earnings (loss) per share $ (32.11) $ 0.79 10/31/97 10/31/98 -------- -------- Balance Sheet Data Total assets $ 1,309,954 $ 1,653,998 Total liabilities $ 1,821,151 $ 1,999,231 Stockholders' equity (deficit) $ (511,197) $ (345,233) Year Ended ---------- 10/31/98 10/31/99 -------- -------- Statement of Operations Data Net sales $ 3,402,681 $ 2,079,331 Gross profit $ 1,182,885 $ 470,602 Operating income (loss) $ 37,600 $ (983,264) Net earnings (loss) after tax $ 7,863 $ (954,099) Net earnings (loss) per share $ 0.79 $ (.038) Balance Sheet Data Total assets $ 1,653,998 $ 1,081,956 Total liabilities $ 1,999,231 $ 1,511,019 Stockholders' equity (deficit) $ (345,233) $ (429,063)
RESULTS OF OPERATIONS. Fiscal year ended October 31, 1998 compared to fiscal year ended October 31, 1997. Revenues. Sales increased by approximately 45% from $2,350,459 for the fiscal year ended October 1997 to $3,402,681 for the fiscal year ended October 1998. The increase was mainly as a result of greater demand for INVNSYS' iT business application products and new product introductions and shipments for its keyboards. Cost of Sales. The cost of sales increased by approximately 41% from $1,579,440 in the fiscal year ended October 1997 to $2,219,796 in the fiscal year ended October 1998. The 13 19 increase in cost of sales is attributable to a similar percentage increase in sales and reflects hardware costs which remained fairly stable over the two-year period. Gross Profit. Gross profit increased from approximately $771,019 in October 1997 to $1,182,885 in October 1998. The increase resulted primarily from the increase in revenues coupled with a slight decline in the costs of products components. Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased approximately 9% in the fiscal year ended October 1997 to the fiscal year ended October 1998. The decrease resulted primarily from cost reductions in promotion, insurance, payroll, payroll taxes, rent, telephone and entertainment. Interest Expense. Interest expense of $75,282 for the fiscal year ended October 1998 and of $74,147 for the fiscal year ended October 1997 was accrued on notes payable to Community First National Bank (primarily extended for working capital purposes). Income Taxes. Because INVNSYS incurred a loss of approximately $471,130 for the fiscal year ended October 1997, INVNSYS obtained a refund of $150,021. For the fiscal year ended October 1998, INVNSYS incurred taxes of $75,372 even though income before taxes was only $83,235. The significant tax on nominal income resulted from certain non-deductible expenses. Net Earnings. A loss in fiscal year October 1997 of $321,109 increased to a profit of $7,863 for fiscal year ended October 1998. Profitability resulted primarily from a dramatic increase in sales and a decrease in selling, general and administrative expenses. Fiscal year ended October 31, 1999 compared to fiscal year ended October 31, 1998. Revenues. Sales decreased by approximately 64% from $3,402,681 in the fiscal year ended October 1998 to $2,079,331 in the fiscal year ended October 1999. The decrease was mainly as a result of the focus by management on raising financing for iBIZ and a transition to a new line of products. INVNSYS experiences short product life cycles and the declining revenues reflect declining sales volumes for existing products which were not replaced by any significant sales of new products, and which management estimates did not exceed $10,000. Cost of Sales. The cost of sales of $2,219,796 in the fiscal year ended October 1998 declined to $1,608,729 in the fiscal year ended October 1999, or an approximate 38% decrease. This decline reflects a coinciding decrease in the sale of products resulting in the purchase of less hardware from INVNSYS' overseas suppliers. Gross Profit. Gross profit decreased by approximately 60% from $1,182,885 in the fiscal year ended October 1998 to $470,602 in the fiscal year ended October 1999. The significant decrease resulted primarily from the decrease in revenues coupled with the cost of sales which did not decrease in direct proportion to the decrease in revenues. Gross profits also decreased as a result of selling more products to retailers at lower prices and a decline in maintenance service income, both of which reflected greater competitiveness in the product sector. 14 20 Selling, General and Administrative Expenses. Selling, general and administrative expenses increased approximately 36% from $1,070,003 in the fiscal year ended October 1998 to $1,453,866 for the fiscal year ended October 1999. The increase was primarily due to costs of consulting paid in connection with the acquisition, legal and accounting fees associated with the acquisition and an increase in the salaries of INVNSYS' key employees. Interest Expense. Interest expense of $49,537 for the fiscal year ended October 1999 and of $75,282 for the fiscal year ended October 1998 was accrued on notes payable to Community First National Bank primarily extended for working capital purposes. The decline in interest expense resulted from repayment of most of the principal of the notes in June, 1999. Net Earnings. Net earnings decreased from $7,863 for the fiscal year ended October 1998 to a loss of $954,099 for the fiscal year ended October 1999. The loss resulted from an increase in the selling, general and administrative expenses, a cost of sales decrease which was not in proportion to the significant decrease in revenues, and a substantial decrease in revenues for the fiscal year ended October 1999. Liquidity and Capital Resources For the year ended October 1997, INVNSYS supplemented cash flow with proceeds from notes payable of approximately $138,000. At year end, INVNSYS had an overdraft of $14,133. For the year ending October 1998, INVNSYS received an advance from iBIZ Technology Corp. (prior to the acquisition) for approximately $158,101. INVNSYS also repaid notes of approximately $211,631. For the fiscal year ended October 1998, INVNSYS had an overdraft of $13,500. Historically, INVNSYS has had and now iBIZ has significant problems with liquidity. The Company has been unable to generate sufficient internal cash flow to fund all of its obligations. Outside sources of financing consisting of bank loans have been insufficient. While INVNSYS pays most of its suppliers in full prior to delivery of product by its manufacturers of hardware in Taiwan, its banking customers are not obligated to make payments until 30 days after delivery of products. INVNSYS is in an industry subject to rapid obsolescence and change. It will continue to need to raise additional substantial funds for research and development and production of new products. During 1999, INVNSYS repaid $225,000 on an outstanding loan from Community First National Bank in the amount of $350,000 and delinquent payroll taxes, penalties and interest of approximately $260,000. By letter agreement dated December 14, 1999, iBIZ engaged Josephthal & Co. Inc. ("Josephthal"), to provide financial communication services. iBIZ paid Josephthal a one-time retainer fee of $50,000, and is obligated to pay Josephthal $10,000 per month for advisory fees commencing June 1, 2000. The agreement is effective for a period of one year and may be terminated by either party upon 10 days written notice. Beginning in November 1, 1998, and continuing through January 7, 2000, iBIZ raised approximately $3,120,411 though sales of iBIZ common stock and convertible debentures which it used to finance the working capital needs of its wholly-owned subsidiary, INVNSYS. 15 21 Management believes that iBIZ has sufficient reserves and will generate sufficient cash flow from operations to operate through March 31, 2000. However, iBIZ will need to raise additional short term capital to maintain its ongoing business beyond March 31, 2000. iBIZ is actively seeking to obtain a significant capital infusion to avoid continuing reliance on short term capital sources. There is no assurance that iBIZ will raise the necessary capital to remain in business beyond March 31, 2000 or that unforeseen events may result in the need for additional capital sooner than March 31, 2000. If at any time iBIZ is unable to raise financing through additional sales of common stock it may be forced into insolvency. DESCRIPTION OF BUSINESS iBIZ HISTORY iBIZ Technology Corp. (the "Company" or "iBIZ") was originally incorporated under the laws of the State of Florida in 1994. From its incorporation through December 31, 1998, the Company operated as a development stage company with no operations or revenues while it sought to identify a strategic business combination with a private operating company. To facilitate the acquisition of a private company doing business outside of its initial purpose upon incorporation, the Company changed its name to EVC Ventures, Inc. in May 1998 and to INVNSYS Holding Corporation in October 1998. Effective January 1, 1999, the Company entered into a Plan of Reorganization and Stock Exchange Agreement with INVNSYS Technology Corporation ("INVNSYS") and various shareholders of INVNSYS (the "Reorganization"). As a result of the Reorganization, INVNSYS became a wholly-owned subsidiary of the Company. On February 1, 1999, the Company changed its name to iBIZ Technology Corp. While operating as a development stage company, the Company's officers and directors were not compensated for their services. From incorporation through December 31, 1994, Mr. Julio A. Padilla served as President and sole Director. Mr. Eric P. Littman served as President and sole Director from January 1, 1995 through July 9, 1998. Thereafter, Mr. John Xinos served as President, Secretary, and Treasurer from July 10, 1998 through December 31, 1998. Messrs. Padilla, Littman and Xinos are no longer involved in the management of iBIZ and are believed not to be shareholders. BUSINESS HISTORY OF INVNSYS The Company conducts business solely through its operating subsidiary INVNSYS. For your convenience, this prospectus will refer to the parent company as the Company or iBIZ and the wholly-owned operating company as INVNSYS. INVNSYS (formerly known as SouthWest Financial Systems, Inc.) was founded in 1979. Under the direction of INVNSYS' founder, Kenneth Schilling, the company initially focused on distributing front-end bank branch automation computer systems for networking applications. INVNSYS acted as a regional distributor for SHARP Electronics ("SHARP"), a privately held Japanese manufacturer of computers and electronic devices. In addition, INVNSYS also distributed the products of Billcon Company, Ltd., and Glory, manufacturers of bank automation and money processing systems. 16 22 In 1985, INVNSYS became a master distributor of SHARP products and acquired the exclusive rights to distribute SHARP products to financial institutions in the western United States. Between 1987 and 1990, INVNSYS won various awards from SHARP for outstanding sales performance. Also during this time, INVNSYS began to participate in the design of computer systems for financial institutions. In cooperation with Wells Fargo Bank and SHARP, INVNSYS produced the first plain paper facsimile machine in 1990. In 1992, INVNSYS began to design and build its own computer systems, focusing on integrated systems for the banking industry. In 1993, INVNSYS terminated its relationship with SHARP and focused on developing its own products. In approximately 1994, INVNSYS began working in conjunction with Epson America ("Epson"), a leading manufacturer of point-of-sale computer products, in the development of products for the banking industry. For example, INVNSYS designed a software program which enabled Epson transactional printers to produce cashier's checks, an industry innovation. In addition, in cooperation with Epson, INVNSYS designed and marketed a stackable computer system for financial institutions. In 1996, INVNSYS produced its first entry into the market for complete computer systems with its Vision 2000 Multimedia Notestation, an Intel Pentium-based computer/printer combination. In October 1998, INVNSYS began to market its current line of business transaction computers, the iT series. iBIZ's principal offices are located at 1919 West Lone Cactus, Phoenix, Arizona 85021. iBIZ maintains a website at www.ibizcorp.com. The information on the website is not part of this prospectus. Statements regarding the various hardware products offered by the Company, joint ventures and marketing agreements are forward looking and you should not rely on them or assume that the products discussed will ever be shipped in quantities sufficient to generate material revenue or that marketing agreements will generate any revenue. Many products discussed in this prospectus may ultimately not be sold or may only be sold in limited quantities. Marketing agreements may not result in anticipated revenue for the Company. Technology used in computer products is subject to rapid obsolescence, changing consumer preferences, software advancements, and competitor's products time to market. These factors, among others, may result in unforeseen changes in the products ultimately sold by the Company. PRODUCTS INVNSYS engages in the business of designing, manufacturing and distributing small-footprint desktop computers, transaction printers, general purpose financial application keyboards, numeric keypads, cathode ray tube ("CRT") and liquid crystal display ("LCD") monitors and related products. INVNSYS also markets a line of original equipment manufacturer ("OEM") notebook computers and distributes a line of Epson transactional printers. In addition to hardware, INVNSYS recently entered in an agreement by which it intends to offer software as a reseller. INVNSYS' continued success is dependant upon the introduction of new products and the enhancement of existing products. INVNSYS is actively engaged in the design and development of additional computers and peripherals to augment its present product line. Currently, INVNSYS designs many of its products in-house. INVNSYS employs a four-person product design and development staff which is managed directly by Kenneth Schilling. During 1998, INVNSYS did not incur costs specifically allocated to research and development. During fiscal 1999, INVNSYS spent Five Thousand Fourteen Dollars ($5,014.00) on expenses directly allocated for research and development. For financial accounting purposes INVNSYS has historically not allocated any significant expenses to research and development because its equipment manufacturers actually implement the innovations of senior level management of INVNSYS. However, iBIZ considers salaries paid to senior level management involved in product design and development as costs related to research and development. 17 23 Because of the rapid pace of technological advances in the personal computer industry, INVNSYS must be prepared to design, develop, manufacture and market new and more powerful hardware products in a relatively short time span. While INVNSYS believes that it has been successful to date in accomplishing that goal, there can be no assurance that it will continue to do so in the future. Business Application Small Footprint Computers INVNSYS believes its iT-8000 has the smallest footprint of any desktop personal computer in the industry. (A "footprint" is the amount of desk space the computer terminal covers.) The iT-8000 provides the convenience of a small footprint and the power of a traditional desktop unit. The iT-8000's compact dimensions allow it to be installed in areas where the physical space available to install a computer is limited. These applications include corporate workstations, branch bank teller platforms, supermarkets and other retail point-of-sale ("POS") machines. The iT-8000 is also suited to other space-conscious settings such as a hospital patient bedside. Standard features include extra serial ports for attaching peripheral devices such as magnetic card readers or check readers and a built-in local area network ("LAN") connection. Currently, the iT-8000 may be configured with Intel Pentium processors with MMX Technology (75Mhz through 233Mhz), from 2 to 256 megabyte ("MB") random access memory ("RAM"), a standard 2.5" hard drive, providing current industry capacity of up to 13 gigabyte ("GB"), and 10.4", 12.0" or 13.3" color LCD panels. INVNSYS recently introduced a line of "thin-client" computers. Thin-client computers are scaled down devices with limited memory and no local storage capability designed to be integrated with a centralized server. In a thin-client environment, network software applications remain on the server, while the terminal functions as the gateway to the system. INVNSYS believes thin-client systems offer increased manageability and better security as all applications run on the server and not the terminal. INVNSYS' thin-client computer, the iTerm-8000 (a derivative of the iT-8000), supports up to a 233 Mhz processor, 128 MB RAM, optional floppy and hard drives, and offers an attached LCD monitor. The iTerm 8000 will support Citrix Systems, Inc. ("Citrix") Independent Computing Architecture ("ICA") as the server application which is compatible with Citrix MetaFrame and WinFrame software. Personal Computers Capitalizing on its knowledge and success in designing computer systems for the financial institution industry, INVNSYS has expanded its product line to include personal home computers. Sahara. The Sahara Databook is a small footprint desktop computer which integrates optional Intel Pentium II/III processor power, simplified networking and sophisticated manageability features into a compact form. INVNSYS believes its flexible design allows original equipment manufacturers ("OEMS") to deliver a range of uses, from a fully-featured corporate workstation to a stripped-down network personal computer. The Sahara is sold in four 18 24 basic configurations, each allowing customers to pick the options most suitable for their purposes. Safari. The Safari is a small footprint computer with a full array of LAN, P.O.S., entertainment and Internet applications. The Safari is offered with a range of processors including Intel Pentium, Cyrix, IBM, and AMD, may provide up to 256 MB RAM, and can be equipped with an optional LCD panel, 20X Slim Size CD-ROM drive and a 3D full duplex sound module. Keyboards Historically, INVNSYS has designed and marketed a range of keyboards and numeric keypads for financial institutions. Such products currently include the Geno 628 data pad, the Serial data numeric-only key pad, the ACK-540GP keyboard, and the TV-3682, a space-efficient keyboard designed for bank branch teller applications. The TV-3682 is encoded with a proprietary software which allows the keyboard to be used with any computer without the need to install a driver. To aid numeric input, the numeric pad is given prominence over the alpha pad. The TV-3682 also incorporates a touchpad mouse with no moving parts, which saves space and improves reliability. Capitalizing on the expanding market for powerful, handheld organizers, in September 1999, INVNSYS introduced its KeySync Keyboard ("KeySync"). The KeySync directly connects to all Palm devices, including the PalmVII, produced by 3COM, and allows users to more easily input data into their organizers. The KeySync is integrated with the Palm products through KeyLink software, exclusively designed for and licensed to INVNSYS. The KeySync's dimensions are 10" x 4-1/2" x 1-1/4" (LxWxH), and it offers a sixty-two (62) key keyboard, six (6) programmable function keys and uses three (3) "AAA" batteries to minimize draining the Palm's battery. In addition to Palm products, the KeySync is currently compatible with Microsoft CE handheld organizers. Palm Pilot Accessories In December 1999, INVNSYS began selling a foldable cradle to hold the various Palm Pilot products. Management believes this cradle is easier to use than the products offered by competitors. INVNSYS also began selling a 12-volt power adapter to enable recharging of the batteries used in the Palm Pilot in a vehicle's cigarette lighter. Displays and Monitors INVNSYS offers a line of space-saving, zero-emission LCD flat panel displays. INVNSYS believes these LCD monitors provide superior viewing angles, graphic display and brightness over conventional monitors while consuming less energy. Moreover, LCD panels do not flicker like conventional CRT monitors, thus reducing eye strain and user fatigue. INVNSYS' LCD panels take up less than one-tenth of the space needed for an equivalent cathode ray tube ("CRT") monitor and are some of the thinnest available on the market. INVNSYS believes that the flat LCD panel gives the monitor a competitive edge over conventional CRT products by providing equivalent screen sizes in less space. 19 25 In December 1999, INVNSYS and Harsper Company, Ltd. ("Harsper") preliminarily agreed to name INVNSYS as the exclusive distributor of Harsper LCD panels. In addition, the parties have agreed that INVNSYS will handle service and support functions for Harsper. The LCD panels will be marketed under the iBIZ name and will include 12.1", 14.1", 15.1" and 18.1" computer displays. INVNSYS will also offer Harsper's "high-style" LCD panels with metal cases and flat glass fronts designed for the executive or deluxe home office. INVNSYS currently anticipates offering Harsper LCD panels in the first quarter of 2000. To date, a final agreement has not been executed. No assurance can be made that a final agreement will executed or that INVNSYS will distribute Harsper LCD panels. The computer industry is currently experiencing a shortage of LCD panels. To date, INVNSYS has been able to obtain adequate supplies of LCD panels and has not experienced any significant production delays as a result of the shortage. However, if the shortage continues and INVNSYS' demand increases, INVNSYS may experience difficulties in meeting customer demand. INVNSYS also offers a range of conventional CRT monitors in sizes 14 to 21 inches with digital controls. Planned Product Introductions iT-9000. INVNSYS is currently developing a new small footprint Pentium II/III computer with attachable LCD monitor, currently called the iT-9000. The iT-9000 combines numerous technologies into less than one square-foot of desktop space. As a highly flexible, open-architecture platform, the iT-9000 can be configured for multiple computing roles. The iT-9000 will provide functions for visual Internet access, in-home video monitoring, family message center, home security, home control and high-resolution television reception. INVNSYS believes that by eliminating the necessity of assembling numerous electronic components, the iT-9000 will present an all-in-one solution to office desktop overcrowding. With its optional under-cabinet mounting, INVNSYS believes the iT-9000 will provide a solution to extremely limited home and office work areas. The iT-9000 will offer a flip-down LCD panel, and will utilize the latest Pentium III processor technology. The iT-9000 is undergoing product evaluation and management has not yet determined a customer delivery date. Lapboard. INVNSYS is also developing a wireless keyboard to be marketed under the name "Lapboard." This keyboard incorporates RF wireless technology and is suitable for a variety of applications including general computing, Web TV and Dish Technology. The Lapboard is ergonomically designed and features an elevated palm rest allowing the hands to be in a more natural position above the alpha keys, thus alleviating stress on the wrist. In addition, the Lapboard will offer a "bottom case" contoured for the user's lap. INVNSYS has incorporated several flexible design elements into the Lapboard, such as an interchangeable pointing device for users who prefer a trackball instead of the standard mouse touchpad. A joystick module and a sixteen (16) key programmable keypad have also been designed as interchangeable elements. 20 26 INVNSYS has filed a patent application for the Lapboard with the United States Patent and Trademark Office. INVNSYS is conducting product evaluation and testing and management is currently evaluating the capital resources necessary to begin production. OEM Notebook Computers In addition to designing its own products, INVNSYS also offers a complete line of competitively priced, build-to-order notebook computers manufactured by Twinhead Corporation ("Twinhead") and marketed under the name "iBook." Currently, INVNSYS offers three notebook models, the Apache, Phoenix and RoadRunner. RoadRunner. INVNSYS believes the RoadRunner offers powerful computing power in a lightweight design. At only 1.28" high and 4.4 pounds, INVNSYS believes the RoadRunner is half the weight of most competing notebooks. The RoadRunner offers Intel Pentium II processors with up to 366Mhz, as well as Pentium III processors, a built in 56k fax/modem, external FDD/24X CD-ROM module or 2X/4X DVD drive, a full size keyboard and a full 12.1" TFT screen offering resolution as high as 800 x 600 pixels. The RoadRunner offers 64 MB of memory, which can be upgraded to 192 MB. Utilizing Twinhead's patented (pending) battery auto calibration system and the notebook's Advanced Configuration and Power Interface ("ACPI") power management standard, which automatically monitors and optimizes battery use, the RoadRunner provides up to 2.5 hours of full battery usage. Apache. The Apache offers high performance in an ultra-slim (1.54" high), compact unit. Models have a range of central processing units ("CPU's") from the Celeron MMC1 366Mhz to Intel Pentium II 400Mhz. The Apache has a 16-bit stereo sound system with built-in stereo speakers and microphone supporting full-duplex sound, a 3D graphics system with 2 MB of video RAM operating over a 64-bit memory bus and a built-in 24X CD-ROM, which is interchangeable with a 2X DVD-ROM drive. The Apache offers resolution as high as 1024 x 768 pixels with its 13.3" (XGA) or 12.1" (SVGA) built-in TFT screen. The Apache can be installed with up to 256 MB of memory using industry-standard Synchronous Dual in-line Memory Modules ("SO DIMM"). To improve slow input/output, the Apache also features up to 6.4 MB hard disk drive, an optional built-in 56 Kbps modem and a 32-bit CardBus PC card drive. The Apache also offers an infrared port which allows wireless file transfer and printing to other infrared-enabled systems. INVNSYS believes power saving is a major concern for notebook users. To address this issue, the Apache offers a processor which consumes up to forty percent (40%) less energy than a comparable desktop processor. In addition, the Apache has numerous user-controlled power management routines including suspend to RAM and suspend to disk. The Apache comes with Twinhead's patented (pending) battery auto calibration system, which monitors and optimizes battery use automatically. Using ACPI in tandem with battery auto calibration, battery life can be extended to more than three (3) hours on one charge. The battery will automatically recharge in approximately four (4) hours when the AC adapter is plugged in and the notebook is in suspend mode. 21 27 INVNSYS believes the Apache is designed to be user friendly. It offers OSD (On-Screen Display), which allows the user to see volume and brightness changes as made. Screen brightness can be changed with special hot keys. The modular 9.5 mm hard disk drive may be removed, thus allowing users to switch hard disk drives quickly and keep data secure. Phoenix. The Phoenix provides the user with accelerated graphics in a portable package. This notebook is designed to provide all the functions of a powerful desktop multimedia system in a compact, lightweight notebook format. The Phoenix weighs 6.8 pounds and measures 12.2" x 9.8" x 1.6" (LxWxH). INVNSYS believes it is slimmer and lighter than most other notebooks while providing superior performance and convenience. The Phoenix utilizes the Intel Pentium II 333 to 400 MHz processors. The notebook features a 10 GB hard disk drive, an optional built-in 56 Kbps modem, two (2) PC Card slots with integrated CardBus and Zoomed Video, an infrared port and a built-in 24X CD-ROM, which is interchangeable with a 2X DVD-ROM drive. The Phoenix incorporates the 2X AGP-bus interface, which is four (4) times faster than the fastest PCI-bus. In addition, the Phoenix offers 4 MB of video RAM operating over a 64-bit memory bus, a VGA chip, and a hardware DVD accelerator with MPEG II support which allows users to watch full-screen video without dropping frames. The Phoenix may be configured with a 1024 x 768 pixel built-in 13.3" or 14.1"(XGA) FTF screen and may be connected to an external monitor or television via built-in ports. For sound applications, the Phoenix offers the ESS Maestro-2M PCI, which is the latest industry standard, is compatible with the 16-bit Sound Blaster Pro, and supported by Microsoft DirectAudio and Direct 3D for use in Windows NT 5.0 or Windows 98 systems. It features integrated 3D audio effects as well as dual channel full duplex operation. The Phoenix comes with an Intel MMC2 CPU module, which allows for easy upgrades. In addition, the notebook's modular design allows for several configurations. The notebook may be configured with anywhere from 32 to 256 MB of RAM. The modular hard disk drive may be removed and replaced with an alternate drive. Also available in the Phoenix is an LS-120 drive, which reads and writes to 120MB Superdisks as well as standard 3.5" floppy disks. An additional expandability option for the Phoenix is Twinhead's proprietary port replicator, which duplicates all of the connectors that are available on the rear side of the notebook and adds one extra PS/2 port, one stereo line-out connector and a Game/MIDI port. For communications, the Phoenix offers an optional 56 Kbps fax/modem which facilitates dial-up networking, a full duplex sound system and built-in microphone and stereo speakers which allow the Phoenix to be installed with voicemail and speakerphone functions. Network connections are possible through a 32-bit CardBus slot. In addition, the Phoenix offers an infrared port which allows wireless file transfer and printing to other infrared-enabled systems. 22 28 The Phoenix supports all the new functions provided with the Windows 98 operating system. Power management is optimized with an advanced power management system. Whenever the notebook's processor is not operational for a short time, the processor becomes idle so that it consumes less power. When the processor resumes working, it returns to full speed almost instantaneously with no loss of performance. The Phoenix also supports Twinhead's patented (pending) battery auto calibration system, which monitors and optimizes battery use at the touch of a key, ensuring longer battery life. Printers and Peripherals INVNSYS is an authorized distributor of Epson printers and peripherals. INVNSYS distributes the Epson TM-U325, a low cost, high speed transaction printer. In addition, INVNSYS distributes the Epson TM-U375, a high speed transaction printer which has the ability to prepare and print cashier's checks and money orders, including signatures. Management believes this feature is not available in competing products and the inclusion of this product increases INVNSYS' ability to offer proprietary products in the marketplace. In December 1999, INVNSYS began offering color printers manufactured by Tektronix, Inc. Printers include the Phaser 840 solid ink color printer, which management believes is twice as fast as most color printers. Software In December 1999, iBIZ acquired certain assets from PC Solutions, Inc., a business-to-business and retail software provider. The Company also hired two employees formerly associated with PC Solutions. Through this acquisition, iBIZ intends to begin offering third-party software. To date, iBIZ has not recognized significant revenues from software sales. SERVICES Responding to market demand for complete network solutions, INVNSYS began providing network integration services in the last quarter of 1999. Through previous contacts developed by its Chief Technology Officer prior to joining the Company, INVNSYS acquired network integration service accounts with American Express and Motorola. Expanding its networking capabilities, in November 1999, INVNSYS entered into an agreement with Northpoint Communications. Through this agreement, INVNSYS began offering digital subscriber line ("DSL") services to commercial customers. DSL service is an emerging technology providing high-speed Internet connections over existing phone carriers' copper wiring at connection speeds ranging from 144 kbps to 1.5 mbps. Management believes DSL service offers a lower cost alternative to competing products such as T-1 and frame relay services which provide similar connection speeds but require additional infrastructure expenditures. Management believes that the addition of network integration and DSL services will allow INVNSYS to expand its customer base by enabling the Company to offer complete networking solutions. To date, INVNSYS has not recognized significant revenues from these 23 29 new services. There can be no assurance that INVNSYS will be successful in developing, integrating and profiting from its network integration or DSL services. MARKETING, SALES AND DISTRIBUTION INVNSYS markets and distributes products directly to end users through a direct sales force, regional re-sellers, value-add providers in the banking and POS market and Internet commerce sites. INVNSYS has a direct sales force of six employees, directed by Mr. Schilling, who market INVNSYS' products to financial institutions. In addition to direct sales, INVNSYS also sells its full range of products directly to retail customers through its website at www.ibizcorp.com. The website is linked to an Online Consumer site on Yahoo! Recently, INVNSYS entered into an agreement with Cyberian Outpost, Inc. to market INVNSYS' products on its website www.outpost.com. To date, iBIZ has recognized only nominal revenues from Internet retail sales. Management believes that direct sales to end users should allow INVNSYS to more efficiently and effectively meet customer needs by providing products which are tailored for the customer's individual requirements at a more economical price. INVNSYS distributes a line of Epson transactional printers. INVNSYS participates in Epson's MasterVar program which provides INVNSYS a non-exclusive right to sell, support and service Epson computer peripherals in the United States and Canada. INVNSYS also distributes its products to regional resellers and, to a lesser extent, national distributors. For example, INVNSYS has entered into a vendor agreement for KeySync with MicroAge, Inc., one of the largest hardware distributors in North America. To date however, INVNSYS has not recognized significant revenues from its vendor agreement with MicroAge. In February 1999, INVNSYS entered into a marketing agreement with Global Telephone Communication, Inc. ("Global"), whereby Global will market INVNSYS' products in the Pacific Rim. Management believes that Global, through a joint venture with Pacific Assets International, will provide access to numerous banks throughout Asia, including Mainland China, Hong Kong, Taiwan, South Korea, Malaysia, Indonesia and Japan. To date however, INVNSYS has not recognized revenues from its marketing agreement with Global. MANUFACTURING INVNSYS' products are engineered and manufactured by various entities in Taiwan. Currently, INVNSYS has an agreement with DataComp, a private Taiwanese company, to manufacture INVNSYS' keyboards and keypads. INVNSYS' iT-8000 computers are currently manufactured by Puritron, a Taiwanese company. INVNSYS' LCD's are manufactured by Sampo Technology, a Taiwanese manufacturer, and receive varying customization ranging from cosmetic items to enhancing components such as stereo speakers and touchpad screens from Acana Peripherals Corporation, a Taiwanese company. In the event INVNSYS executes a final agreement with Harsper Company, Ltd, the LCD panels will be manufactured in South Korea. INVNSYS' Sahara and Safari desktop computers are currently manufactured by First International Computer in Taiwan. 24 30 These manufacturers build INVNSYS' products to INVNSYS' specifications with non-proprietary components. Therefore, the vast majority of parts used in INVNSYS' products are available to INVNSYS' competitors. Although INVNSYS has not experienced difficulties in the past relating to engineering and manufacturing, the failure of INVNSYS' manufacturers to produce products of sufficient quantity and quality could adversely affect INVNSYS' ability to sell the products its customers demand. INVNSYS engages in final assembly, functional testing and quality control of its products in its Phoenix, Arizona facility. Management believes INVNSYS' completion of the final stages of manufacturing allows INVNSYS to ensure quality control for its products manufactured overseas. INVNSYS has entered into an agreement with Twinhead Corporation, a Taiwanese manufacturer of notebook computers ("Twinhead") to produce build-to-order notebook computers. The design, engineering and manufacturing of INVNSYS' notebook computers is done entirely by Twinhead. Management believes this relationship allows INVNSYS to offer a broader range of products to its customers without the cost of research and development and manufacturing. LICENSES Citrix Systems, Inc. On December 30, 1998, INVNSYS entered a licensing agreement with Citrix Systems, Inc. ("Citrix") for the use of Citrix Independent Computing Architecture ("ICA"), an emerging industry standard for server-based computing (the "ICA Agreement"). Under the ICA Agreement, INVNSYS is granted a non-exclusive, non-transferable right to incorporate ICA into Citrix-approved iBIZ computers. The license is for a term of two years and automatically renews for successive one year periods unless either party gives notice of an intent to allow the agreement to expire at the end of the then current term. In addition, INVNSYS and Citrix have entered into a Citrix Business Alliance Membership Agreement dated February 22, 1999 (the "CBA Agreement"). For a membership fee, CBA membership entitles INVNSYS to engineering, sales, and marketing support by Citrix, as well as access to beta releases of new Citrix products and discounted current software products. Microsoft, Inc. In June 1999, INVNSYS entered into an agreement with Microsoft, Inc. to become an OEM system builder. Participation in this program will allow INVNSYS to install genuine Microsoft operating systems in selected applications with full support from Microsoft. In addition, this agreement entitles INVNSYS to pre-production versions of Microsoft products and enables INVNSYS to provide input into development and design of new products. KeyLink Software License. iBIZ has an exclusive, perpetual license to use, distribute and offer for sale with associated hardware, the software which facilitates the connection between the KeySync keyboard and the 3COM Palm devices. 25 31 PATENTS AND TRADEMARKS INVNSYS holds no United States or foreign patents for its products. However, iBIZ has filed a patent application for its Lapboard keyboard. In general, INVNSYS believes that its continued success will depend primarily upon the technical expertise, creative skills, and management abilities of its officers, directors, and key employees rather than on patent ownership. iBIZ has filed an application with the United States Patent and Trademark Office for the use of the names "iBIZ" and "KeySync" and is currently investigating various other product trademarks. YEAR 2000 ISSUES Management believes that all of INVNSYS' current products are Year 2000 compliant. In December 1999, INVNSYS completed a conversion of its internal systems, such as accounting programs and management believes all internal systems are Year 2000 compliant. Management estimates the Company incurred costs of approximately $20,600 to address the Year 2000 computer issue. To date, iBIZ has not experienced any material disruptions related to the Year 2000 computer issue. However, iBIZ can give no assurance that future failures of third-party systems will not have a material effect on INVNSYS' operations. SERVICE AND SUPPORT INVNSYS provides its customers with a comprehensive service and support program. Technical support is provided to customers via a toll-free telephone number as well as through the iBIZ website. The number is available Monday through Friday 8:00 a.m. to 5:00 p.m., Mountain Standard Time. INVNSYS maintains a staff of approximately 10 technical and customer support representatives who respond to telephone inquiries. Also available on iBIZ's website are links to files for software patches and drivers used for software updates. INVNSYS' products have either a one year or three year limited warranty covering parts and service. In addition, INVNSYS offers extended service agreements, which may extend warranty coverage for up to two additional years. Under the Virtual Spare program, INVNSYS provides replacement units by next-day shipment in the event a customer's unit fails. Under this program, customers have, at no additional expense, the option to have their existing hard-drive configuration installed on the replacement unit. The customer's units are then returned to INVNSYS' Phoenix facility for service. Under INVNSYS' On-Site program, customers have the ability to have a Company-owned spare on-site for immediate availability in the event of a failure. Failed units are then returned to INVNSYS' facility for service and returned to replace the spare for future needs. INVNSYS believes its Virtual Spare and On-Site programs eliminate the need for on-site technical support for the replacement units and reduce set-up time at customer facilities. 26 32 COMPETITION Personal Computers The personal computer industry is highly competitive. INVNSYS competes at the product level with various other personal computer manufacturers and at the distribution level primarily with computer retailers, on-line marketers and the direct sales forces of large personal computer manufacturers. At the product level, the personal computer industry is characterized by rapid technological advances in both hardware and software development and by the frequent introduction of new and innovative products. There are approximately 100 manufacturers of personal computers, the majority of which have greater financial, marketing and technological resources than INVNSYS. Competitors at this level include IBM, Compaq, Dell, and Gateway 2000. Gateway 2000 and NEC, among other competitors, have recently introduced smaller desk top computers than have been manufactured in the past. However, those computers are targeted for the consumer and not for the corporate customer and are more expensive than the computers offered by INVNSYS. INVNSYS' main competitors for its planned product line of thin-client computer systems include specialty manufacturers such as WYSE Technology. Competitive factors include product quality and reliability, price to performance characteristics, marketing capability, and corporate reputation. In addition, a segment of the industry competes primarily for customers on the basis of price. Although the INVNSYS' products are price competitive, INVNSYS does not attempt to compete solely on the basis of price. The intense nature of competition in the computer industry subjects INVNSYS to numerous competitive disadvantages and risks. For example, many major companies will exclude consideration of INVNSYS' products due to limited size of the company. Moreover, INVNSYS' current revenue levels cannot support a high level of national or international marketing and advertising efforts. This, in turn, makes it more difficult for INVNSYS to develop its brand name and create customer awareness. Additionally, INVNSYS' products are manufactured by third parties in Taiwan. As such, INVNSYS is subject to numerous risks and uncertainties of reliance on offshore manufacturers, including, taxes or tariffs, non-performance, quality control, and civil unrest. Also, as INVNSYS holds no patents, the vast majority of parts used in its products are available to its competitors. Management believes that it can compete effectively by providing computers and peripherals utilizing unique designs and space-saving qualities, such as small footprints. Although Management believes it has been successful to date, there can be no assurance that INVNSYS will be able to compete successfully in the future. Services INVNSYS recently began offering network integration services and DSL high-speed Internet connection services. Although management believes these services will enable INVNSYS to expand its customer base through the offering of complete network solutions, each service will experience intense competition. For example, network integration services are 27 33 offered by a wide range of competitors, including large established companies such as IBM and AT&T, as well as small private entities. Many of INVNSYS' competitors in network integration services will be more established and have greater resources. INVNSYS has hired a Chief Technology Officer with significant network integration experience and industry contacts. However, as this is a new line of business, no assurance can be given that INVNSYS will be able to expand its business through network integration services. Similarly, the market for Internet connection services is highly competitive. INVNSYS' agreement with Northpoint Communications enables it to offer DSL high-speed Internet connection services. DSL is an emerging technology which allows for higher speed connections over existing copper phone lines. Currently, large established companies such as U.S. West Communications, COX Communications and Rhythms NetConnections, Inc. offer DSL services. Management believes that these companies' greater resources may increase market awareness and acceptance of DSL services. However, as INVNSYS has only recently entered the market for Internet connection services, there can be no assurance that it can successfully compete in the marketplace. CUSTOMERS Throughout its history, INVNSYS' ability to deliver innovative product designs and quality customer service has enabled it to provide products to major financial institutions including Wells Fargo, Bank of America, Security Pacific, Northrim Bank, and First Interstate Banks. Currently, no single customer accounts for more than 10% of INVNSYS' revenues. EMPLOYEES; LABOR RELATIONS As of January 6, 2000, INVNSYS had approximately 30 full-time employees. No employee of INVNSYS is represented by a labor union or is subject to a collective bargaining agreement. INVNSYS has never experienced a work-stoppage due to labor difficulties and believes that its employee relations are good. FCC REGULATIONS The Federal Communications Commission (the "FCC") has adopted regulations setting radio frequency emission standards for computing equipment. Management believes all of INVNSYS' current products meet applicable FCC and foreign requirements. INVNSYS is in the process of exploring foreign operations. Many foreign jurisdictions require governmental approval prior to the sale or shipment of personal computing equipment and in certain jurisdictions such requirements are more stringent than in the United States. Any delays or failures in obtaining necessary approvals from foreign jurisdictions may impede or preclude INVNSYS' efforts to penetrate such markets. DESCRIPTION OF PROPERTY On July 1, 1999, iBIZ began leasing an approximately 15,000 square foot custom-built office building located at 1919 West Lone Cactus, Phoenix, Arizona. The facility is used for administration, design, engineering and assembly of products. iBIZ's lease ("Lease") is for a 28 34 term of twenty-six and one-half years (26.5), with monthly rental payments of $12,800, subject to annual increases, plus taxes and operating costs. The facility is leased from Lone Cactus Capital Group, L.L.C., a limited liability company in which Kenneth Schilling is a member. The Lease is personally guaranteed by Mr. Schilling and his wife, Diane. Management believes this new facility will provide adequate space to accommodate the iBIZ's current plan of growth and expansion. LITIGATION iBIZ is not currently a party to any lawsuit or proceeding. However, from time to time, iBIZ is subject to lawsuits occurring in the regular course of business. Most such lawsuits involve claims for money damages. iBIZ carries insurance to protect itself against such claims, subject to any applicable deductibles. iBIZ can give no assurances that future lawsuits will not have a material adverse effect on its financial condition or results of operations. iBIZ has been assessed approximately $62,000 in penalties and interest by the IRS. The Company is disputing the assessment and is currently negotiating with the IRS. iBIZ can give no assurance that any settlement can be reached for an amount less than $62,000. USE OF TRADEMARKS AND TRADENAMES All trademarks and tradenames used in this prospectus are the property of their respective owners. DIRECTORS AND EXECUTIVE OFFICERS
NAME AGE POSITION ---- --- -------- Kenneth W. Schilling 47 President, Chief Executive Officer, Director Terry S. Ratliff 41 Vice President, Controller, Director Mark H. Perkins 35 Vice President of Operations, Director Richard A. Christopher 34 Chief Technology Officer Jeffrey A. Slosky 41 Director of Marketing
Kenneth W. Schilling, founded INVNSYS' predecessor, SouthWest Financial Systems, in 1979, and has been Chief Executive Officer, President and a Director since INVNSYS' founding. Mr. Schilling studied for a B.S. in electrical engineering at the University of Pittsburgh from 1970 to 1972 but left for military service prior to receiving his degree. Terry S. Ratliff, joined INVNSYS in 1989 as controller and currently serves as Vice President, and Controller. Ms. Ratliff was appointed to iBIZ's Board of Directors on March 5, 1999. Ms. Ratliff graduated from Nicholls State University in Thibodaux, Louisiana where she received a B.A. in accounting. 29 35 Mark H. Perkins, joined INVNSYS in 1994 and currently serves as Vice President of Operations. Mr. Perkins was appointed to iBIZ's Board of Directors on March 5, 1999. Prior to his joining INVNSYS, Mr. Perkins was employed at American Express as a project manager for major systems implementation, a position he held for eight years. Mr. Perkins earned a degree in business management from California State University-Sonoma. Richard A. Christopher, joined iBIZ September 1, 1999, and currently serves as Chief Technology Officer. Prior to joining iBIZ, Mr. Christopher was the President of A Better Computer Solution, Inc., a provider of network integration and related services he founded in 1991. He also served in the U.S. Navy from 1982 through 1994. Mr. Christopher attended Arizona State University where he studied engineering. Jeffrey A. Slosky, joined iBIZ as a marketing consultant in January 1999 and became a full-time employee in July 1999. Mr. Slosky currently serves as Director of Marketing where he is responsible for product and corporate marketing, including the design of advertising and products sheets. From October 1991 through November 1998, he was the founder and partner of Scottsdale Cellular, LLC, a provider of cellular telecommunications technology. Mr. Slosky earned a B.S. in Marketing/Advertising from Arizona State University in 1980. EXECUTIVE COMPENSATION The following table sets forth certain compensation paid or accrued by the Company to Mr. Schilling, iBIZ's current chief executive officer during fiscal years ended 1998 and 1999.
OTHER RESTRICTED NAME AND ANNUAL STOCK LTIP ALL OTHER PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION AWARD(S) OPTIONS(1) PAYOUT COMPENSATION ($) ($) ($) ($) (#) ($) ($) - -------------------------------------------------------------------------------------------------------------------- Kenneth W. Schilling, 1998 $200,000 ---- President, Chief Executive 1999 $200,000 250,000
(1) Includes 50,000 options granted for service as a director of the Company. OPTION GRANTS IN LAST FISCAL YEAR INDIVIDUAL GRANTS
PERCENT OF TOTAL NUMBER OF SECURITIES OPTIONS UNDERLYING OPTIONS/SARS /SARS GRANTED TO EXERCISE OF BASE NAME GRANTED(1) EMPLOYEES PRICE EXPIRATION DATE (a) (b) IN FISCAL YEAR ($/SH) (e) (c) (d) - -------------------------------------------------------------------------------------------------------------------- Kenneth W. Schilling 250,000 -----% $0.75 4/21/09
(1) Includes 50,000 options granted for service as a director of the Company. 200,000 options vested upon granting on April 22, 1999, and 25,000 will vest on April 22, 2000 and April 22, 2001 respectively. (2) These amounts represent assumed rates of appreciation in the market value from the date of grant until the end of the option term, at the rates set by the SEC. Therefore, these amounts are not intended to forecast possible future appreciation, if any, in the Common Stock. 30 36 AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS SHARES ACQUIRED ON VALUE FISCAL YEAR END AT FISCAL YEAR END EXERCISE (#) REALIZED EXERCISABLE/ EXERCISABLE/ NAME ($) UNEXERCISABLE UNEXERCISABLE(1) - -------------------------------------------------------------------------------------------------------------------- Kenneth W. Schilling -0- -0- 250,000/200,000 $227,500/$182,000
(1) Based on closing price of the Common Stock on October 29, 1999 of $0.91. Compensation of Directors Pursuant to the terms of their employment agreements, effective April 22, 1999, Messrs. Schilling, Perkins and Ms. Ratliff each received fifty thousand (50,000) options to purchase fifty thousand (50,000) shares of common stock in consideration for their services as directors of iBIZ. Each director holds office until the next annual meeting of shareholders or until their successors are elected and qualified. Employment Agreement for Kenneth W. Schilling Effective March 5, 1999, Kenneth W. Schilling and iBIZ entered into an Employment Agreement (the "Agreement"), as amended as of September 8, 1999. Under the Agreement, Mr. Schilling has been retained to act as President and Chief Executive Officer of iBIZ. The Agreement is for a term of two years ending March 4, 2001. Under the Agreement, Mr. Schilling shall receive an annual base salary of $200,000.00. In addition, effective April 22, 1999, Mr. Schilling received two hundred fifty thousand (250,000) options to purchase two hundred fifty thousand (250,000) shares of common stock of iBIZ at an exercise price of $0.75 per share. Two hundred thousand (200,000) options were issued in consideration of Mr. Schilling's services as an officer of iBIZ and fifty thousand (50,000) options were issued in consideration for services as a director. Two hundred thousand (200,000) options vested upon granting on April 22, 1999, and twenty-five thousand (25,000) options will vest on April 22, 2000 and April 22, 2001, respectively. The Agreement provides that upon total and permanent disability, as defined in the Agreement, iBIZ shall pay Mr. Schilling such benefits as may be provided to officers of iBIZ under any Company provided disability insurance or similar policy or under any iBIZ adopted disability plan. In the absence of such policy or plan, iBIZ shall continue to pay Mr. Schilling for a period of not less than six months the compensation then in effect as of the effective date of his termination. Mr. Schilling may terminate the Agreement upon written notice, within thirty (30) days following the occurrence of an event constituting "Good Reason," as defined below. Upon the termination by Mr. Schilling for Good Reason, Mr. Shilling will be entitled to receive a payment equal to the lesser of: (1) an amount equal to one-half of his annual base salary in effect at the time of termination; or (2) the remaining compensation due to Mr. Schilling under the terms of the Agreement. If Mr. Schilling fails to exercise his rights to terminate the Agreement for Good Reason within thirty (30) days following an event constituting Good Reason, such rights shall expire and be of no further force or effect. 31 37 "Good Reason" is defined to mean the occurrence of any of the following events without Mr. Schilling's consent: (1) assignment of Mr. Schilling to any duty substantially inconsistent with his position or duties contemplated by the Agreement or a substantial reduction of his duties contemplated by the Agreement; (2) the removal of any titles bestowed under the Agreement; (3) any material breach or failure of iBIZ to carry out the provisions of the Agreement after notice and an opportunity to cure; and (4) the relocation of Mr. Schilling, his corporate office facilities, or personnel outside the Phoenix metropolitan area. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information regarding the beneficial ownership of the Company's common stock as of January 6, 2000 by: - all directors - each person who is known by the Company to be the beneficial owner of more than five percent (5%) of the outstanding common stock - each executive officer named in the Summary Compensation Table below - all directors and executive officers as a group The number of shares beneficially owned by each director or executive officer is determined under rules of the SEC, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under the SEC rules, beneficial ownership includes any shares as to which the individual has the sole or shared voting power or investment power. In addition, beneficial ownership includes any shares which the individual has the right to acquire within sixty (60) days of January 6, 2000, through the exercise of any stock option or other right. Unless otherwise indicated, each person listed below has sole investment and voting power (or shares such powers with his or her spouse). In certain instances, the number of shares listed includes (in addition to shares owned directly), shares held by the spouse or children of the person, or by a trust or estate of which the person is a trustee or an executor or in which the person may have a beneficial interest.
Number of Shares of Common Stock Beneficially Owned - --------------------------------------------------------------------------------------------------------------------------- Name and Address of Vested Beneficial Owner Shares Options(1) Total(1) Percent(1) - --------------------------------------------------------------------------------------------------------------------------- Kenneth W. Schilling(2) -------- 200,000 200,000 0.7 % 1919 W. Lone Cactus Drive, Phoenix, AZ 85021 Moorea Trust(2) 11,120,000 --------- 11,120,000 41.3% 1919 W. Lone Cactus Drive, Phoenix, AZ 85021 Terry S. Ratliff 1,771,200 300,000 2,071,200 7.6% 1919 W. Lone Cactus Drive, Phoenix, AZ 85021 Mark H. Perkins 1,771,200 300,000 2,071,200 7.6% 1919 W. Lone Cactus Drive, Phoenix, AZ 85021 All directors and officers as group 14,015,400 1,675,000 15,690,400 54.9% (5 persons)
(1) Includes options vested on January 6, 2000 and options which will become vested on or before March 7, 2000. (2) Kenneth and Diane Schilling are husband and wife and hold the shares as trustees under the Moorea Trust dated December 18, 1991. 32 38 iBIZ Technology Corp. Stock Option Plan The iBIZ Technology Corp. Stock Option Plan (the "Stock Option Plan") provides for the grant of stock options to purchase common stock to eligible directors, officers, key employees, and service providers of iBIZ. The Stock Option Plan covers an aggregate maximum of five million (5,000,000) shares of common stock and provides for the granting of both incentive stock options (as defined in Section 422 of the Internal Revenue Code of 1986, as amended) and non-qualified stock options (options which do not meet the requirements of Section 422). Under the Stock Option Plan, the exercise price may not be less than the fair market value of the common stock on the date of the grant of the option. As of January 6, 2000, two million nine hundred thousand (2,900,000) options ("the Options") had been granted under the plan at exercise prices of $0.75 and $1.00. The Options are granted for a period of ten (10) years, subject to earlier cancellation upon termination of employment, resignation, disability and death. The Options vest pursuant to the terms of each individual option, which to date have ranged from immediate to a five (5) year period. The Board of Directors (the "Board") administers and interprets the Stock Option Plan and is authorized to grant options thereunder to all eligible persons. In the event the Board has at least two (2) members who are not either employees or officers of iBIZ or of any parent or subsidiary of iBIZ, the Stock Option Plan will be administered by a committee of not less than two (2) persons who are such independent directors. The Board designates the optionees, the number of shares subject to the options and the terms and conditions of each option. Certain changes in control of iBIZ, as defined in the Stock Option Plan, will cause the options to vest immediately. Each option granted under the Stock Option Plan must be exercised, if at all, during a period established in the grant which may not exceed ten (10) years from the date of grant. An optionee may not transfer or assign any option granted and may not exercise any options after a specified period subsequent to the termination of the optionee's employment with iBIZ. The Board may make such amendments to the Stock Option Plan from time to time it deems proper and in the best interests of iBIZ provided it may not take any action which disqualifies any option granted under the Stock Option Plan as an incentive stock option or which adversely effects or impairs the rights of the holder of any option under the Stock Option Plan. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Prior to the Reorganization, INVNSYS operated as a closely-held private corporation. While a private company, INVNSYS made loans totaling $992,037 to Kenneth Schilling. These loans are payable on demand and accrued interest at eight percent (8%) during 1997 and six percent (6%) during 1998 and 1999. As of October 31, 1999, the balance of the loans payable by Mr. Schilling to INVNSYS totaled Three Hundred Fifty-six Thousand Eight Hundred Ten Dollars ($356,810.00). Effective October 31, 1999, Mr. Schilling, as trustee of the Moorea Trust, pledged 500,000 shares of iBIZ common stock to secure this debt. iBIZ leases its facility from Lone Cactus Capital Group, L.L.C., a limited liability company in which Kenneth Schilling is a member. iBIZ believes the terms of the lease are at an arms-length fair market rate. 33 39 MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS The Company's common stock is currently traded on the OTC Bulletin Board. The common stock was initially listed under the symbol "EVCV" on June 3, 1998, and trading began on July 16, 1998. On October 26, 1998, the Company changed its trading symbol to "IBIZ." The following charts indicate the high and low sales price for the Company's common stock for each fiscal quarter between September 30, 1998 and December 1999. [BAR CHART] 1998 COMMON STOCK PRICES EVCV-iBIZ
HIGH LOW Sept. 98 $3.06 $2.25 Dec. 98 $2.69 $1.88
[BAR CHART OMITTED] 1999 COMMON STOCK PRICES iBIZ
HIGH LOW March 99 $2.06 $0.94 June 99 $2.44 $0.56 Sept. 99 $2.22 $0.94 Dec. 99 $1.81 $.084
As of January 6, 2000, Management believes there to be 126 holders of record of iBIZ's common stock. To date, iBIZ has not paid any dividends on its common stock. iBIZ does not currently intend to pay dividends in the future. 34 40 DESCRIPTION OF SECURITIES General. iBIZ's Articles of Incorporation authorize the issuance of 100,000,000 shares of common stock, $.001 par value. As of January 6, 2000, there were 26,771,380 shares of common stock outstanding and an aggregate of 3,300,000 options and warrants to purchase common stock. Common Stock. Holders of shares of common stock are entitled to one vote for each share of common stock held of record on all matters submitted to a vote of the shareholders. Each share of common stock is entitled to receive dividends as may be declared by the Company's Board of Directors out of funds legally available. Management, however, does not presently intend to pay any dividends. In the event of liquidation, dissolution or winding up of the Company, the holders of common stock are entitled to share ratably in all assets remaining after payment in full of all creditors of the Company and the liquidation preferences of any outstanding shares of preferred stock, if any. There are no redemption or sinking fund provisions applicable to the common stock. Debentures. iBIZ has issued Two Hundred Thousand Dollars ($200,000.00) of 8% Debentures. The 8% Debentures are due on June 21, 2000, bear interest at eight percent per annum, and are unsecured. Under the terms of the 8% Debentures, iBIZ is obligated to include the shares issuable upon conversion of the debentures in this SB-2 registration statement. Upon the effectiveness of this registration statement, the 8% Debentures will automatically convert to 300,000 fully paid and nonassessable shares of common stock. On November 6, 1999, iBIZ issued Six Hundred Thousand Dollars ($600,000.00) of 7% Debentures (the "600k 7% Debentures") to Globe United Holdings, Inc. ("Globe"). Thereafter, on December 29, 1999, iBIZ issued to Globe additional 7% Debentures in the amount of One Million Dollars ($1,000,000.00) (the "1000k 7% Debentures"). The 7% Debentures accrue interest at seven percent per annum and are due November 9, 2004, and December 29, 2004, respectively. iBIZ is obligated to make payments of accrued interest semi-annually; interest on the 600k 7% Debentures is due on the first day of April and November and interest on the 1000k 7% Debentures is due on the first day of May and December. At Globe's option, iBIZ may make interest payments in the form of shares of common stock (calculated as if a portion of principal, as described below). Globe may at any time convert all or a portion of the outstanding principal amount, together with any accrued but unpaid interest, into that number of shares of common stock equal to the quotient obtained by dividing (i) the principal amount of the debenture to be converted by (ii) the Applicable Conversion Price. On December 6, 1999, Globe converted $200,000 of the 7% Debentures, plus accrued interest to date. Pursuant to the conversion formula, iBIZ issued 300,962 shares of common stock. In consideration for the purchase of the 1000k 7% Debentures, iBIZ agreed to amend the Applicable Conversion Price of the remaining amount of the 600k 7% Debentures. The Applicable Conversion Price, as amended, is defined as the lesser of (i) $0.675 or (ii) the 35 41 product obtained by multiplying (x) the Average Closing Price (as defined in the 7% Debentures) by (y) .80. The Applicable Conversion Price for the 1000k 7% Debentures, is the lesser of (i) $0.94 or (ii) the product obtained by multiplying (x) the Average Closing Price (as defined in the 7% Debentures) by (y) .80. In addition, Globe may require iBIZ to redeem the 7% Debentures for cash at a redemption price equal to 120% of the aggregate principal and accrued interest outstanding in the event of a Change in Control of iBIZ (as defined in the 7% Debentures). In connection with the sale of the 7% Debentures, iBIZ agreed to file a registration statement to cover the resale of the common stock issuable upon conversion of the 7% Debentures and the exercise of the warrants (described below) by January 7, 2000, and to use its best efforts to cause the registration statement to be declared effective by February 21, 2000. If the registration statement is not filed by January 7, 2000, or is not effective by February 21, 2000, iBIZ is obligated to pay liquidated damages equal to 2% of the purchase price of all the 7% Debentures and the warrants (described below) for each 30 day period the registration statement is not filed or effective. Pursuant to the terms of the 7% Debentures, iBIZ may not, without the prior written consent of Globe, offer or sell, shares of its capital stock or any security or other instrument convertible into or exchangeable for shares of common stock, for the period ending on the earlier of (i) one hundred eighty (180) days after the date on which this registration statement is declared effective by the SEC or (ii) the date on which Globe shall have converted all of the Debentures into common stock (the "Lock-Up Period"), except that iBIZ (i) may issue securities for the aggregate consideration of at least Seven Million Five Hundred Thousand Dollars ($7,500,000.00) in connection with a bona fide, firm commitment, underwritten public offering under the Securities Act; and (ii) may issue additional shares of common stock upon the exercise or conversion of outstanding options, warrants and other convertible securities issued prior to November 15, 1999; (iii) may issue options, in addition to all options previously issued as of November 15, 1999, to purchase up to 1,000,000 shares of its common stock to its directors, officers and employees in connection with its existing stock option plans. In addition, iBIZ is restricted from registering any shares of its capital stock (other than shares to be received upon exercise by option and warrant holders as of November 15, 1999) until the later to occur of (i) the expiration of the respective Lock-Up Periods or (ii) the registration statement filed by iBIZ covering shares to be issued to Globe upon conversion of the 7% Debentures or exercise of the warrants has been effective under the Securities Act for a period of at least one-hundred and eighty (180) days. In addition, the 7% Debentures grant Globe a right of first refusal on purchases of additional securities for a period of eighteen (18) months from the date of execution. So long as the 7% Debentures or warrants are outstanding, iBIZ may not (i) declare or pay any dividends or make distributions to any holder of common stock or (ii) acquire any common stock of iBIZ. Options and Warrants Included in Prospectus. Of the total 6,839,252 shares registered for sale by the selling securityholders, 900,000 shares are issuable upon exercise of options and warrants issued to consultants. These consultants warrants and options are 36 42 immediately exercisable, have an exercise price of $0.75 or $1.00 per share and have terms from three to ten years. In addition, in connection the issuance of the 7% Debentures, iBIZ has issued a warrant to purchase 100,000 shares of common stock and a warrant to purchase 200,000 shares of common stock. As the registration rights agreement between the selling securityholder and iBIZ requires the registration of 200% of the original shares issuable under the warrants, this prospectus covers the sale of 600,000 shares. The terms of these warrants are as follows:
Shares Exercise Price Vesting Expiration - ------ -------------- ------- ---------- 100,000 $0.94 Immediate November 9, 2004 200,000 $0.94 Immediate December 29, 2004
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES iBIZ's Articles of Incorporation, as amended, provide to the fullest extent permitted by Florida law, a director or officer of iBIZ shall not be personally liable to iBIZ or its shareholders for damages for breach of such director's or officer's fiduciary duty. The effect of this provision of iBIZ's Articles of Incorporation, as amended, is to eliminate the right of iBIZ and its shareholders (through shareholders' derivative suits on behalf of iBIZ) to recover damages against a director or officer for breach of the fiduciary duty of care as a director or officer (including breaches resulting from negligent or grossly negligent behavior), except under certain situations defined by statute. iBIZ believes that the indemnification provisions in its Articles of Incorporation, as amended, are necessary to attract and retain qualified persons as directors and officers. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to its directors, officers and controlling persons pursuant to the foregoing provisions or otherwise, iBIZ has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. EXPERTS The financial statements for iBIZ as of October 31, 1997 and 1998 and for the one year period ended October 31, 1999, included in this prospectus have been audited and reviewed, respectively, by Moffitt & Company, P.C., independent public accountants, as indicated in their reports with respect thereto, such statements and are herein included in reliance upon the authority of such firm as experts in accounting and auditing in rendering the reports. LEGAL MATTERS Certain legal matters with respect to the validity of the common stock offered will be passed upon by iBIZ's legal counsel, Gammage & Burnham, P.L.C., Phoenix, Arizona. 37 43 FINANCIAL STATEMENTS INVNSYS TECHNOLOGY CORPORATION FORMERLY KNOWN AS SOUTHWEST FINANCIAL SYSTEMS, INC. FINANCIAL STATEMENTS OCTOBER 31, 1998 AND 1997 F-1 44 TABLE OF CONTENTS
PAGE NO. -------- INDEPENDENT AUDITORS' REPORT ..................................... 1 FINANCIAL STATEMENTS Balance Sheets............................................. 2 Statements of Income....................................... 3 Statement of Changes in Stockholders' Equity............... 4 Statements of Cash Flows................................... 5-6 Notes to Financial Statements.............................. 7-18
F-2 45 INDEPENDENT AUDITORS' REPORT To The Board of Directors and Stockholders Invnsys Technology Corporation Formerly known as Southwest Financial Systems, Inc. Phoenix, Arizona We have audited the accompanying balance sheets of Invnsys Technology Corporation formerly known as Southwest Financial Systems, Inc., as of October 31, 1998 and 1997, and the related statements of income, changes in stockholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on the financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion the financial statements referred to above present fairly, in all material respects, the financial position of Invnsys Technology Corporation as of October 31, 1998 and 1997, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. MOFFITT & COMPANY, P. C. SCOTTSDALE, ARIZONA June 14, 1999 (original issuance date) November 22, 1999 (reissue date) F-3 46 INVNSYS TECHNOLOGY CORPORATION FORMERLY KNOWN AS SOUTHWEST FINANCIAL SYSTEMS, INC. BALANCE SHEETS OCTOBER 31, 1998 AND 1997 ASSETS
1998 1997 ---------- ---------- CURRENT ASSETS Cash $ 200 $ 412 Accounts receivable, trade 153,536 91,073 Other receivables 1,500 1,000 Corporation income tax refund 0 19,919 Inventories 323,397 202,320 Prepaid expenses, current 24,577 3,882 ---------- ---------- TOTAL CURRENT ASSETS 503,210 318,606 ---------- ---------- PROPERTY AND EQUIPMENT 76,536 97,069 ---------- ---------- OTHER ASSETS Note receivable, related party 906,620 666,103 Deposits 20,155 17,765 Prepaid expenses, long term 2,423 5,655 ---------- ---------- TOTAL OTHER ASSETS 929,198 689,523 ---------- ---------- TOTAL ASSETS $1,508,994 $1,105,195 ========== ==========
F-4 47 LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
1998 1997 ----------- ----------- CURRENT LIABILITIES Bank overdraft $ 13,700 $ 14,545 Accounts payable, trade 780,815 691,944 Customer deposits 395,264 267,630 Notes payable, current 28,378 215,976 Accrued liabilities 63,243 30,713 Sales and payroll taxes payable 255,410 61,840 Corporation income taxes payable, Current 17,841 13,741 Deferred income 71,031 110,797 ----------- ----------- TOTAL CURRENT LIABILITIES 1,625,682 1,407,186 ----------- ----------- LONG - TERM LIABILITIES Notes payable 365,325 389,358 ----------- ----------- TOTAL LONG - TERM LIABILITIES 365,325 389,358 ----------- ----------- STOCKHOLDER'S EQUITY Common stock, $1.00 par value, 100,000 shares authorized, 10,000 shares issued and outstanding 10,000 10,000 Advance from IBIZ Technology Corp. 158,101 0 Retained earnings (deficit) (650,164) (701,346) ----------- ----------- TOTAL STOCKHOLDER'S EQUITY (DEFICIT) (482,063) (691,346) ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT) $ 1,508,944 $ 1,105,198 =========== ===========
F-5 48 INVNSYS TECHNOLOGY CORPORATION FORMERLY KNOWN AS SOUTHWEST FINANCIAL SYSTEMS, INC. STATEMENTS OF INCOME FOR THE YEARS ENDED OCTOBER 31, 1998 AND 1997
1998 1997 ----------- ----------- SALES $ 3,402,681 $ 2,350,459 COST OF SALES 2,219,796 1,579,440 ----------- ----------- GROSS PROFIT 1,182,885 771,019 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,070,003 1,174,908 ----------- ----------- INCOME (LOSS) FROM OPERATIONS 112,882 (403,889) ----------- ----------- OTHER INCOME (EXPENSES) Interest expense (75,282) (74,147) Interest income 40,320 27,848 Miscellaneous income 3,815 10,835 Gain/loss on disposition of assets 1,500 (6,177) Loss on Investment property 0 (25,600) ----------- ----------- TOTAL OTHER INCOME (EXPENSE) (29,647) (67,241) ----------- ----------- INCOME (LOSS) BEFORE INCOME TAXES (REFUND) 83,235 (471,130) INCOME TAXES (REFUND) 32,053 (30,128) ----------- ----------- NET INCOME (LOSS) $ 51,182 $ (501,258) =========== =========== NET INCOME (LOSS) PER COMMON SHARE Basic and Diluted $ 5.12 $ ( 50.13) =========== =========== AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 10,000 10,000 =========== ===========
F-6 49 INVNSYS TECHNOLOGY CORPORATION FORMERLY KNOWN AS SOUTHWEST FINANCIAL SYSTEMS, INC. STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE YEARS ENDED OCTOBER 31, 1998 AND 1997
ADVANCE COMMON STOCK FROM IBIZ ---------------------- TECHNOLOGY RETAINED SHARES AMOUNT CORP. EARNINGS ------ ------ ----- -------- BALANCE, NOVEMBER 1, 1996 10,000 $ 10,000 $ 0 $(200,088) NET (LOSS) FOR THE YEAR ENDED OCTOBER 31, 1997 0 0 0 (501,258) --------- --------- --------- --------- BALANCE, OCTOBER 31, 1997 10,000 10,000 0 (701,346) ADVANCE FROM IBIZ TECHNOLOGY CORP 0 0 158,101 0 NET INCOME FOR THE YEAR ENDED OCTOBER 31, 1998 0 0 0 51,182 --------- --------- --------- --------- BALANCE, OCTOBER 31, 1998 10,000 $ 10,000 $ 158,101 $(650,164) ========= ========= ========= =========
F-7 50 INVNSYS TECHNOLOGY CORPORATION FORMERLY KNOWN AS SOUTHWEST FINANCIAL SYSTEMS, INC. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED OCTOBER 31, 1998 AND 1997
1998 1997 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 51,182 $(501,258) Adjustments to reconcile net income (loss) to net cash provided by operating activities Depreciation 38,604 92,407 Gain/loss on disposition of equipment and investment properties (1,500) 31,777 Increase (decrease) in Accounts receivable, trade (62,463) 29,242 Other receivables (500) 3,000 Income tax refunds 19,919 56,146 Inventories (121,077) 98,263 Prepaid expenses (17,463) 8,794 Deferred tax asset 16,383 (24,607) Deposits (2,390) 73 Accounts payable 88,871 (32,201) Customer deposits 127,634 267,630 Accrued liabilities and taxes 226,100 (32,104) Corporation income taxes payable (12,283) 12,469 Deferred income (39,766) 30,136 --------- --------- NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES 311,251 39,767 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of property and equipment (18,071) (97,923) Loans to related party (240,517) (35,000) Proceeds from sale of property and equipment 1,500 0 --------- --------- NET CASH FLOWS (USED) BY INVESTING ACTIVITIES (257,088) (132,923) --------- ---------
F-8 51 INVNSYS TECHNOLOGY CORPORATION FORMERLY KNOWN AS SOUTHWEST FINANCIAL SYSTEMS, INC. STATEMENTS OF CASH FLOWS (CONTINUED) FOR THE YEARS ENDED OCTOBER 31, 1998 AND 1997
1998 1997 --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Bank overdraft $ (845) $ 0 Advance from IBIZ Technology Corp. 158,101 0 Proceeds from notes payable 0 138,000 Repayments of notes payable (211,631) (32,364) --------- --------- NET CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES (54,375) 105,636 --------- --------- NET INCREASE (DECREASE) IN CASH (212) 12,480 CASH BALANCE (OVERDRAFT), BEGINNING OF YEAR 412 (26,613) --------- --------- CASH BALANCE, END OF YEAR $ 200 $ 412 ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during year: Interest $ 61,117 $ 74,108 ========= ========= Taxes $ 850 $ 50,913 ========= =========
F-9 52 INVNSYS TECHNOLOGY CORPORATION FORMERLY KNOWN AS SOUTHWEST FINANCIAL SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1998 AND 1997 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS Invnsys Technology Corporation, formerly known as Southwest Financial Systems, Inc., was incorporated in the State of Arizona on July 30, 1980 and is in the business of selling retail and wholesale financial, computing and communication equipment. They also provide repair services and sell maintenance contracts. The corporation currently operates a service center in Phoenix, Arizona. ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS Uncollectible accounts receivable are written off at the time management specifically determines them to be uncollectible. In addition, the allowance for doubtful accounts is provided at an amount determined by management. A summary of accounts receivable and the allowance for doubtful accounts is as follows:
1998 1997 -------- --------- Accounts receivable $ 156,036 $ 98,073 Allowance for doubtful accounts 2,500 7,000 --------- --------- Net accounts receivable $ 153,536 $ 91,073 ========= =========
INVENTORIES Inventories are stated at the lower of cost (determined principally by the first-in, first-out method) or market. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Major renewals and improvements are charged to the asset accounts while replacement, maintenance and repairs, which do not improve or extend the lives of the respective assets, are expensed. At the time property and equipment are retired or otherwise disposed of, the asset and related accumulated depreciation accounts are relieved of the applicable amounts. Gains or losses from retirements or sales are credited or charged to income. The company depreciates its property and equipment for financial reporting purposes using the straight-line method based upon the following useful lives of the assets: F-10 53 INVNSYS TECHNOLOGY CORPORATION FORMERLY KNOWN AS SOUTHWEST FINANCIAL SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 1998 AND 1997 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) PROPERTY AND EQUIPMENT (CONTINUED) Tooling 3 Years Machinery and equipment 5-10 Years Office furniture and equipment 5-10 Years Vehicles 5 Years Leasehold improvements 5 Years ACCOUNTING ESTIMATES Management uses estimates and assumptions in preparing financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could vary from the estimates that were used. REVENUE RECOGNITION The company recognizes revenue from product sales when the goods are shipped and title passes to customers. SALES OF MAINTENANCE AGREEMENTS The revenue received for the maintenance agreements is being reported evenly over the life of the contracts. Such unearned portion is recorded as deferred income. INCOME TAXES Provisions for income taxes are based on taxes payable or refundable for the current year and deferred taxes on temporary differences between the amount of taxable income and pretax financial income and between the tax bases of assets and liabilities and their reported amounts in the financial statements. Deferred tax assets and liabilities are included in the financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled as prescribed in FASB Statement No. 109, Accounting for Income Taxes. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. F-11 54 INVNSYS TECHNOLOGY CORPORATION FORMERLY KNOWN AS SOUTHWEST FINANCIAL SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 1998 AND 1997 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) NET EARNINGS PER SHARE The company adopted Statement of Financial Accounting Standards No. 128 that requires the reporting of both basic and diluted earnings per share. Basic earnings per share is computed by dividing net income available to common shareowners by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. RISKS AND UNCERTAINTIES The company is in the computer and computer technology industry. The company's products are subject to rapid obsolescence and management must authorize funds for research and development costs in order to stay competitive. NOTE 2 DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The company has financial instruments, none of which are held for trading purposes. The company estimates that the fair value of all financial instruments at October 31, 1998 and 1997, as defined in FASB 107, does not differ materially from the aggregate carrying values of its financial instruments recorded in the accompanying balance sheet. The estimated fair value amounts have been determined by the company using available market information and appropriate valuation methodologies. Considerable judgment is required in interpreting market data to develop the estimates of fair value, and accordingly, the estimates are not necessarily indicative of the amounts that the company could realize in a current market exchange. NOTE 3 INVENTORIES At October 31, 1998 and 1997, inventories were comprised of:
1998 1997 -------- -------- Computer equipment $208,725 $161,212 Office equipment 25,693 25,689 Depot 9,343 9,343 Demo units 77,576 4,016 Parts 2,060 2,060 -------- -------- Totals $323,397 $202,320 ======== ========
F-12 55 INVNSYS TECHNOLOGY CORPORATION FORMERLY KNOWN AS SOUTHWEST FINANCIAL SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 1998 AND 1997 NOTE 4 PROPERTY AND EQUIPMENT At October 31, 1998 and 1997, property and equipment and accumulated depreciation consisted of:
1998 1997 -------- -------- Tooling $ 68,100 $ 68,100 Machinery and equipment 30,656 75,104 Office furniture and equipment 60,406 45,476 Vehicles 39,141 59,596 Leasehold improvements 18,044 18,044 -------- -------- 216,347 266,320 Less accumulated depreciation 139,811 169,251 -------- -------- Total property and equipment $ 76,536 $ 97,069 ======== ========
The depreciation expenses for the years ended October 31, 1998 and 1997 were $38,604 and $92,407, respectively. NOTE 5 NOTE RECEIVABLE, RELATED PARTY
1998 1997 ------------- -------- The related note is unsecured, payable on demand and accrues interest at 6% for 1998 and 8% for 1997. At October 31, 1998 and 1997, management believed the notes would not be collected within the current operating cycle and classified the asset as a long-term asset. $615,250 of the loan was repaid in 1999 Total $ 906,620 $666,103 ============= ========
F-13 56 INVNSYS TECHNOLOGY CORPORATION FORMERLY KNOWN AS SOUTHWEST FINANCIAL SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 1998 AND 1997 NOTE 6 CUSTOMER DEPOSITS It is the company's policy to obtain a portion of the sales price when orders are received. These funds are recorded as customer deposits and are applied to the customer invoices when the merchandise is shipped. NOTE 7 INCOME TAXES
1998 1997 --------- --------- Income (loss) from continuing operations before income taxes $ 83,235 $(471,130) --------- --------- The provision for income taxes were estimated as follows: Currently payable $ 0 $ 0 Deferred 32,053 (30,128) --------- --------- A reconciliation of the provision for income taxes compared with the amounts at the U.S. Federal Statutory rate was as follows: Tax at U.S. Federal Statutory income tax rates $ 32,053 $ (30,128) --------- --------- Deferred income tax assets and liabilities reflect the impact of temporary differences between amounts of assets and liabilities for financial reporting purposes and the basis of such assets and liabilities as measured by tax laws. The net deferred tax assets is $ 136,830 $ 180,139 --------- ---------
Temporary differences and carry forwards that gave rise to deferred tax assets and liabilities included the following:
1998 1997 ---- ---- Deferred Tax Deferred Tax Assets Liabilities Assets Liabilities ------ ----------- ------ ----------- Net operating loss $116,382 $ 0 $176,591 $ 0 Accrued expenses and miscellaneous 8,497 0 7,990 0 Tax credit carryforward 20,175 0 20,175 0 Depreciation 0 8,224 0 24,607 -------- -------- -------- --------
F-14 57 INVNSYS TECHNOLOGY CORPORATION FORMERLY KNOWN AS SOUTHWEST FINANCIAL SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 1998 AND 1997 NOTE 7 INCOME TAXES (CONTINUED)
1998 1997 ---- ---- Deferred Tax Deferred Tax Assets Liabilities Assets Liabilities --------- --------- --------- --------- Subtotals $ 145,054 $ 8,224 $ 204,756 $ 24,607 Less valuation allowance (145,054) (8,224) (204,756) (24,607) --------- --------- --------- --------- Total deferred taxes $ 0 $ 0 $ 0 $ 0 ========= ========= ========= =========
Realization of the net deferred tax assets is dependent on future reversals of existing taxable temporary differences and adequate future taxable income, exclusive of reversing temporary differences and carryforwards. Although realization is not assured, management believes that is more likely than not that the net deferred tax assets will not be realized. NOTE 8 TAX CARRYFORWARD The company has the following tax carryforwards at October 31, 1998:
EXPIRATION YEAR AMOUNT DATE ---- ------ ---- Net operating loss October 31, 1997 $342,302 October 31, 2012 Capital loss October 31, 1997 25,600 October 31, 2002 Contribution October 31, 1995 1,536 October 31, 2000 October 31, 1996 2,068 October 31, 2001
NOTE 9 PAYROLL TAXES PAYABLE At October 31, 1998, the company was delinquent in the payment and filing of payroll tax returns in the amount of $236,923. The payroll taxes were paid in 1999. F-15 58 INVNSYS TECHNOLOGY CORPORATION FORMERLY KNOWN AS SOUTHWEST FINANCIAL SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 1998 AND 1997 NOTE 10 NOTES PAYABLE
1998 1997 -------- -------- Note payable to Community First National Bank due in monthly payments of interest of approximately $3,100. Interest is computed at national prime as stated in the Wall Street Journal plus 3 percent. The principal amount is due July 31, 2000. This note is secured by accounts receivable, general intangibles and all equipment and leasehold improvements. The shareholder has personally guaranteed the loan and the bank is the beneficiary of an insurance policy on the life of the shareholder $340,613 $334,890 Note payable to Community First National Bank due in monthly installments of principal and interest of $3,754 until May 7, 1999 Interest is computed at national prime as stated in the Wall Street Journal plus 3 percent. This note is secured by accounts receivable, general intangibles and all equipment and leasehold improvements. The shareholder has personally guaranteed the loan and the bank is the beneficiary of an insurance policy on the life of the shareholder The loan was paid off in 1999 23,737 64,798 Note payable to Community First National Bank due in monthly payments of principal and interest of $545 with interest at 7 percent until March 7, 2004. The note is secured by an automobile 29,353 33,646
F-16 59 INVNSYS TECHNOLOGY CORPORATION FORMERLY KNOWN AS SOUTHWEST FINANCIAL SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 1998 AND 1997 NOTE 10 NOTES PAYABLE (CONTINUED)
1998 1997 -------- -------- Note payable to an individual payable in one payment of $50,000 on February 1, 1998 and a final balance and accrued interest on May 21, 1998. The note is secured by a houseboat owned by a stockholder of the company $ 0 $100,000 Unsecured note payable from an individual with interest computed at 14%. Principal and accrued interest is due December 5, 1997 0 72,000 -------- -------- 393,703 605,334 Less: current portion of long-term debt 28,378 215,976 -------- -------- Net long-term debt $365,325 $389,358 ======== ========
Maturities of long-term debt are as follows:
1998 1997 ------------ ------------ Year ended October 31, 1998 $ 0 215,976 1999 28,378 29,790 2000 345,588 339,865 2001 5,336 5,336 2002 5,721 5,721 2003 & thereafter 8,680 8,646 ------------ ------------ $ 393,703 $ 605,334 ============= =============
F-17 60 INVNSYS TECHNOLOGY CORPORATION FORMERLY KNOWN AS SOUTHWEST FINANCIAL SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 1998 AND 1997 NOTE 11 OPERATING LEASE - REAL ESTATE The company leases office space under a non-cancelable operating lease agreement expiring on July 15, 1999. The lease provides for annual rentals of approximately $40,000 plus increases due to changes in the consumer price index and building operating costs. The lease is guaranteed by the major stockholders of the company. Future minimum lease payments, excluding taxes and expenses, are as follows for the years ending October 31:
1998 1997 ------------ ------------ 1998 $ 0 $ 47,320 1999 35,128 35,128 ------------ ------------ $ 35,128 $ 82,448 ============ ============
NOTE 12 ADVERTISING The company expenses all advertising as incurred. For the years ended October 31, 1998 and 1997, the company charged to operations $89,656 and $24,721, respectively, in advertising costs. NOTE 13 INTEREST The company incurred interest expenses for the years ended October 31, 1998 and 1997 of $75,282 and $74,147, respectively. NOTE 14 WARRANTY RESERVE In 1998, the company established a warranty reserve of $ 10,000 to cover any potential warranty costs on computer equipment that are not reimbursed by the computer manufacturer's warranty. NOTE 15 ECONOMIC DEPENDENCY The company purchases the majority of its computer equipment from three suppliers. NOTE 16 PLAN OF REORGANIZATION AND STOCK EXCHANGE AGREEMENT On January 1, 1999, the company issued 16,000,000 shares of newly issued restricted common stock for 100% of the issued and outstanding stock of Invnsys Technology Corporation. Invnsys Technology Corporation became a wholly-owned subsidiary of IBIZ Technology Corp. and the acquisition was accounted for as a reverse acquisition. On the consolidated financial statements, the reverse acquisition method requires that the net assets of Invnsys Technology Corporation be transferred to IBIZ Technology Corp. at book value and the statement of operations include the operations of both companies from the beginning of their fiscal years which was November 1, 1998 for both companies. F-18 61 INVNSYS TECHNOLOGY CORPORATION FORMERLY KNOWN AS SOUTHWEST FINANCIAL SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 1998 AND 1997 NOTE 16 PLAN OF REORGANIZATION AND STOCK EXCHANGE AGREEMENT (CONTINUED) The following unaudited pro-forma combined financial date as of October 31, 1998, has been derived from the historical financial statements of IBIZ Technology Corp. and Invnsys Technology Corporation giving effect to the business combination using the reverse acquisition method of accounting. This information is for illustration purposes only and is not necessarily indicative of the consolidated financial position or results of operations which would have been realized had the acquisition been considered to occur as of the date for which the pro-forma financial statements are presented. The pro-forma financial statements also are not necessarily indicative of the consolidated position or results of operations in the future. Pro-Forma Consolidated Balance Sheet
Invnsys IBIZ Technology Technology Pro-forma Pro-forma Corporation Corp. Adjustments Consolidated ----------- ----------- ----------- ----------- Assets Cash $ 200 $ 0 $ 0 $ 200 Accounts receivable 153,536 0 0 153,536 Inventories 323,397 0 0 323,397 Other 26,077 247,175 (247,175) 26,077 ----------- ----------- ----------- ----------- Total current assets 503,210 247,175 (247,175) 503,210 Property and equipment 76,536 0 0 76,536 Other assets 929,198 0 0 929,198 ----------- ----------- ----------- ----------- Total $ 1,508,994 $ 247,175 $ (247,175) $ 1,508,994 =========== =========== =========== =========== Liabilities Accounts payable $ 780,815 $ 9,048 $ (247,175) $ 542,688 Customer deposits 395,264 0 0 395,264 Other liabilities 449,603 0 0 449,603 ----------- ----------- ----------- ----------- Total current liabilities 1,625,682 9,048 (247,175) 1,387,555 Long-term debt 365,325 0 0 365,325 ----------- ----------- ----------- ----------- Total liabilities 1,999,007 9,048 (247,175) 1,752,880 Stockholders' equity (482,063) 238,127 0 (243,936) ----------- ----------- ----------- ----------- Total $ 1,508,944 $ 247,175 $ (247,175) $ 1,508,944 =========== =========== =========== ===========
F-19 62 INVNSYS TECHNOLOGY CORPORATION FORMERLY KNOWN AS SOUTHWEST FINANCIAL SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 1998 AND 1997 NOTE 16 PLAN OF REORGANIZATION AND STOCK EXCHANGE AGREEMENT (CONTINUED) Pro-Forma Consolidated Statement of Income
Invnsys IBIZ Technology Technology Pro-forma Pro-forma Corporation Corp. Adjustments Consolidated ------------ ------------ ------------ ------------ Sales $ 3,402,681 $ 0 $ 0 $ 3,402,681 Cost of sales 2,219,796 0 0 2,219,796 ------------ ------------ ------------ ------------ Gross Profit 1,182,885 0 0 1,182,885 Selling, general and administrative expenses $ 1,070,003 $ 71,766 $ 0 $ 1,141,769 ------------ ------------ ------------ ------------ Income from operations 112,882 (71,766) 0 41,116 Other income (expense) (29,647) 0 0 (29,647) ------------ ------------ ------------ ------------ Income before income taxes 83,235 (71,766) 0 11,469 Income taxes 32,053 0 0 32,053 ------------ ------------ ------------ ------------ Net income (loss) $ 51,182 $ (71,766) $ 0 $ (20,584) ============ ============ ============ ============ Loss per common share $ (.001) ============ Weighted average number of shares of common stock 24,000,000 ============
Pro-forma financial information for the year ended October 31, 1997 is not presented as IBIZ Technology Corp. was an inactive public shell and had no activity. NOTE 17 OFFICERS' COMPENSATION On March 5, 1999, the company entered into three employment agreements with the following officers:
PRESIDENT VICE AND CHIEF VICE PRESIDENT EXECUTIVE PRESIDENT/ OF OFFICER COMPTROLLER OPERATIONS ------- ----------- ---------- Annual compensation $ 200,000 $ 88,000 $ 88,000
F-20 63 INVNSYS TECHNOLOGY CORPORATION FORMERLY KNOWN AS SOUTHWEST FINANCIAL SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 1998 AND 1997 NOTE 17 OFFICERS' COMPENSATION (CONTINUED)
PRESIDENT VICE AND CHIEF VICE PRESIDENT EXECUTIVE PRESIDENT/ OF OFFICER COMPTROLLER OPERATIONS Options for IBIZ Technology Corp. stock 250,000 350,000 350,000 shares shares shares Exercise price per share $ 0.75 $ 0.75 $ 0.75
NOTE 18 INCOME TAXES FOR YEAR ENDED OCTOBER 31, 1998 The net income before taxes was $83,235 and the corporation income taxes was $75,372. The large tax was due to the fact that the following expenses were incurred but not deductible for income tax purposes: Penalties $ 70,661 Travel and entertainment 5,184 Country club dues 8,920 Warranty reserves 10,000 Other (64) --------- Total $ 94,701 =========
F-21 64 iBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 1999 F-22 65 TABLE OF CONTENTS
PAGE NO. ACCOUNTANTS' REPORT .............................................. 1 FINANCIAL STATEMENTS Consolidated Balance Sheet................................. 2 Consolidated Statement of Operations....................... 3 Consolidated Statement of Changes in Stockholders' Deficit. 4 Consolidated Statement of Cash Flows....................... 5-6 Notes to Consolidated Financial Statements................. 7-19
F-23 66 ACCOUNTANTS' REPORT To The Board of Directors and Stockholders IBIZ Technology Corp. and Consolidated Subsidiary Phoenix, Arizona We have reviewed the accompanying consolidated balance sheet of IBIZ Technology Corp. and Consolidated Subsidiary as of October 31, 1999, and the related consolidated statements of operations, changes in stockholders' deficit, and cash flows for the year then ended, in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. All information included in these financial statements is the representation of the management of IBIZ Technology Corp. and Consolidated Subsidiary. A review consists principally of inquiries of company personnel and analytical procedures applied to financial data. It is substantially less in scope than an audit in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the company will continue as a going concern. As shown in the financial statements, the company incurred a net loss of $954,099 during the year ended October 31, 1999, and, as of that date had a working capital deficit of $897,121 and a shareholders' deficit of $429,063. In addition sales have declined significantly from prior years. As discussed in note 22 to the financial statements, the company's significant operating losses and capital needs raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. MOFFITT & COMPANY, P. C. SCOTTSDALE, ARIZONA November 18, 1999 F-24 67 iBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY CONSOLIDATED BALANCE SHEET OCTOBER 31, 1999 ASSETS CURRENT ASSETS Cash $ 25,343 Accounts receivable, trade 212,537 Inventories 317,360 Prepaid expenses 38,984 ---------- TOTAL CURRENT ASSETS $ 594,224 PROPERTY AND EQUIPMENT 124,747 OTHER ASSETS Note receivable, related party 346,226 Deposits 16,759 ---------- TOTAL OTHER ASSETS 362,985 ----------- TOTAL ASSETS $ 1,081,956 ===========
F-25 68 LIABILITIES AND STOCKHOLDERS' DEFICIT CURRENT LIABILITIES Accounts payable, trade $ 840,856 Customer deposits 115,408 Notes payable, current 67,497 Accrued liabilities 92,369 Sales and payroll taxes payable 98,082 Corporation income taxes payable 19,078 Deferred income 58,055 Convertible debentures payable 200,000 ------------ TOTAL CURRENT LIABILITIES $ 1,491,345 LONG - TERM LIABILITIES Notes payable 19,674 ------------ TOTAL LONG - TERM LIABILITIES 19,674 STOCKHOLDERS' DEFICIT Common stock Authorized - 100,000,000 shares, par value $.001 per shares Issued and outstanding - 26,370,418 shares 26,370 Paid in capital in excess of par value of stock 1,086,266 Retained earnings (deficit) (1,541,699) ------------ TOTAL STOCKHOLDERS' DEFICIT (429,063) ------------ TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 1,081,956 ============
F-26 69 iBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 1999 SALES $ 2,079,331 COST OF SALES 1,608,729 ------------ GROSS PROFIT 470,602 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,453,866 ------------ (LOSS) BEFORE OTHER INCOME (983,264) OTHER INCOME (EXPENSE) Cancellation of debt $ 154,933 Other income 32,339 Interest income 28,260 Interest expense (49,537) ------------ TOTAL OTHER INCOME, NET 165,995 ------------ (LOSS) BEFORE INCOME TAXES (817,269) INCOME TAXES 136,830 ------------ NET (LOSS) $ (954,099) ============ NET (LOSS) PER COMMON SHARE Basic and Diluted $ (.038) ============ AVERAGE NUMBER OF COMMON SHARES OUTSTANDING Basic and diluted 25,116,013 ============
F-27 70 iBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT FOR THE YEAR ENDED OCTOBER 31, 1999
COMMON STOCK ------------------------- SHARES AMOUNT ---------- ------- BALANCE, NOVEMBER 1, 1998 8,000,000 $ 8,000 ISSUANCE OF COMMON STOCK FOR ACQUISITION OF INVNSYS TECHNOLOGY CORPORATION AND TRANSFER OF NET ASSETS AT BOOK VALUE PER REVERSE ACQUISITION 16,000,000 16,000 ISSUANCE OF COMMON STOCK FOR CASH AT .35(CENTS)PER SHARE 640,318 640 AT .50(CENTS)PER SHARE 1,730,100 1,730 FEES AND COSTS FOR ISSUANCE OF STOCK 0 0 NET (LOSS) FOR THE YEAR ENDED OCTOBER 31, 1999 0 0 ---------- ------- BALANCE, OCTOBER 31, 1999 26,370,418 $26,370 ========== =======
F-28 71
PAID IN CAPITAL IN EXCESS OF ADVANCES RETAINED PAR VALUE ON STOCK EARNINGS OF STOCK SUBSCRIPTIONS (DEFICIT) ----------- --------- ----------- $ 145,282 $ 154,111 $ (74,266) (6,000) 0 (513,334) 223,471 0 0 863,320 (154,111) 0 (139,807) 0 0 0 0 (954,099) ----------- --------- ----------- $ 1,086,266 $ 0 $(1,541,699) =========== ========= ===========
F-29 72 iBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED OCTOBER 31, 1999 CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) $ (954,099) Adjustments to reconcile net (loss) to net cash (used) by operating activities Depreciation 42,104 Increase (decrease) in Accounts receivable, trade (59,001) Other receivables 1,500 Inventories 6,037 Prepaid expenses (11,984) Deferred tax asset 145,054 Deposits 3,396 Accounts payable 50,993 Customer deposits (279,856) Accrued liabilities and taxes (126,965) Deferred income (12,976) ----------- NET CASH FLOWS (USED) BY OPERATING ACTIVITIES $(1,195,797) CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (90,315) Repayment of related party loans 644,614 ----------- NET CASH FLOWS PROVIDED BY INVESTING ACTIVITIES 554,299
F-30 73 iBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED) FOR THE YEAR ENDED OCTOBER 31, 1999 CASH FLOWS FROM FINANCING ACTIVITIES: Bank overdraft $ (13,700) Net proceeds from issuance of common stock 786,873 Proceeds from issuance of convertible debentures 200,000 Decrease in notes payable (306,532) ---------- NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES $ 666,641 --------- NET INCREASE IN CASH 25,143 CASH BALANCE, NOVEMBER 1, 1998 200 --------- CASH BALANCE, OCTOBER 31, 1999 $ 25,343 ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during year: Interest $ 56,766 ========= Taxes $ 0 ========= NON CASH INVESTING AND FINANCING ACTIVITIES Issuance of company stock for investment in Invnsys Technology Corporation $ 16,000 =========
F-31 74 iBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 1999 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS The company was organized on April 6, 1994, under the laws of the State of Florida. In January, 1999, the company acquired Invnsys Technology Corporation, an Arizona corporation. Per the acquisition agreement, the company issued 16,000,000 shares of newly issued restricted common stock for 100% of the issued and outstanding stock of Invnsys Technology Corporation. Invnsys Technology Corporation is in the business of selling retail and wholesale, financial, computing and communication equipment. They also provide repair services and sell maintenance contracts. The corporation currently operates a service center in Phoenix, Arizona. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of iBIZ Technology Corp. and its wholly owned subsidiary, Invnsys Technology Corporation. All material inter-company accounts and transactions have been eliminated. CORPORATION NAME CHANGES The corporation has changed its name as follows: 1. At date of incorporation - Exotic Video City, Inc. 2. May 28, 1998 - EVC Ventures, Inc. 3. October 10, 1998 - Invnsys Holding Corporation 4. January 21, 1999 - IBIZ Technology Corp. ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS Uncollectible accounts receivable are written off at the time management specifically determines them to be uncollectible. In addition, the allowance for doubtful accounts is provided at an amount determined by management. INVENTORIES Inventories are stated at the lower of cost (determined principally by first-in, first-out method) or cost [MARKET?]. F-32 75 iBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 1999 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Major renewals and improvements are charged to the asset accounts while replacement, maintenance and repairs, which do not improve or extend the lives of the respective assets, are expensed. At the time property and equipment are retired or otherwise disposed of, the asset and related accumulated depreciation accounts are relieved of the applicable amounts. Gains or losses from retirements or sales are credited or charged to income. The company depreciates its property and equipment for financial reporting purposes using the straight-line method based upon the following useful lives of the assets: Tooling 3 Years Machinery and equipment 5-10 Years Office furniture and equipment 5-10 Years Vehicles 5 Years Leasehold improvements 5 Years ACCOUNTING ESTIMATES Management uses estimates and assumptions in preparing financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could vary from the estimates that were used. REVENUE RECOGNITION The company recognizes revenue from product sales when the goods are shipped and title passes to customers. SALES OF MAINTENANCE AGREEMENTS The revenue received for the maintenance agreements is being reported evenly over the life of the contracts. Such unearned portion is recorded as deferred income. INCOME TAXES Provisions for income taxes are based on taxes payable or refundable for the current year and deferred taxes on temporary differences between the amount of taxable income and pretax financial income and between the tax bases of assets and liabilities and their reported amounts F-33 76 iBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 1999 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INCOME TAXES (CONTINUED) in the financial statements. Deferred tax assets and liabilities are included in the financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled as prescribed in FASB Statement No. 109, Accounting for Income Taxes. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. NET EARNINGS PER SHARE The company adopted Statement of Financial Accounting Standards No. 128 that requires the reporting of both basic and diluted earnings per share. Basic earnings per share is computed by dividing net income available to common shareowners by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. In accordance with FASB 128, potentially dilutive warrants and options that would have an anti-dilutive effect on net loss per share are excluded. RISKS AND UNCERTAINTIES The company is in the computer and computer technology industry. The company's products are subject to rapid obsolescence and management must authorize funds for research and development costs in order to stay competitive. NOTE 2 DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The company has financial instruments, none of which are held for trading purposes. The company estimates that the fair value of all financial instruments at October 31, 1999, as defined in FASB 107, does not differ materially from the aggregate carrying values of its financial instruments recorded in the accompanying balance sheet. The estimated fair value amounts have been determined by the company using available market information and appropriate valuation methodologies. Considerable judgement is required in interpreting market data to develop the estimates of fair value, and accordingly, the estimates are not necessarily indicative of the amounts that the company could realize in a current market exchange. NOTE 3 ACCOUNTS RECEIVABLE A summary of accounts receivable and allowance for doubtful accounts is as follows: Accounts receivable $ 215,037 Allowance for doubtful accounts 2,500 -------- $ 212,537 ========
F-34 77 iBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 1999 NOTE 4 INVENTORIES Inventories are comprised of the following: Computer and components: Finished products $ 218,018 Demonstration and loaner units 56,009 Depot units 18,302 Office 24,712 Parts 319 ---------- Total inventories $ 317,360 ==========
NOTE 5 PROPERTY AND EQUIPMENT Property and equipment and accumulated depreciation consisted of: Tooling $ 68,100 Machinery and equipment 39,032 Office furniture and equipment 105,627 Vehicles 39,141 Leasehold improvements 17,031 ---------- 268,931 Less accumulated depreciation 144,184 ---------- Total property and equipment $ 124,747 ==========
The depreciation expenses for the year ended October 31, 1999 is $ 42,104. NOTE 6 NOTE RECEIVABLE, RELATED PARTY The related note is secured by 500,000 shares of common stock in the company, payable on demand and accrues interest at 6%. At October 31, 1999, management believed the notes would not be collected within the current operating cycle and classified the asset as a long-term asset. $ 346,226 ==========
F-35 78 iBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 1999 NOTE 7 CUSTOMER DEPOSITS It is the company's policy to obtain a portion of the sales price when orders are received. These funds are recorded as customer deposits and are applied to the customer invoices when the merchandise is shipped. NOTE 8 INCOME TAXES (Loss) from continuing operations before income taxes $(954,099) --------- The provision for income taxes is estimated as follows: Currently payable $ 0 Deferred 136,830 --------- A reconciliation of the provision for income taxes compared with the amounts at the U.S. Federal Statutory rate was as follows: Tax at U.S. Federal Statutory income tax rates $ 136,830 --------- Deferred income tax assets and liabilities reflect the impact of temporary differences between amounts of assets and liabilities for financial reporting purposes and the basis of such assets and liabilities as measured by tax laws. The net deferred tax assets is: $ 0 ---------
Temporary differences and carry forwards that gave rise to deferred tax assets and liabilities included the following:
Deferred Tax Assets Liabilities ------ ----------- Net operating loss $ 261,863 $ 0 Accrued expenses and miscellaneous 9,030 0 Tax credit carryforward 20,175 0 Depreciation 0 6,199 ---------- -------
F-36 79 iBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 1999 NOTE 8 INCOME TAXES (CONTINUED)
Deferred Tax Assets Liabilities ------ ----------- Subtotals $ 291,068 $ 6,199 Valuation allowance (291,068) (6,199) --------- ------- Total deferred taxes $ 0 $ 0 ========= =======
As discussed in note 22, there is substantial doubt about the company's ability to continue as a going concern. Consequently, the company must maintain a 100% valuation allowance for the deferred taxes as there is doubt that the company will generate profits which will be absorbed by the tax differences. A reconciliation of the valuation allowance is as follows: Balance, October 31, 1998 $145,054 Addition to allowance for year ended October 31, 1999 146,014 -------- Balance, October 31, 1999 $291,068 ========
NOTE 9 TAX CARRYFORWARD The company has the following tax carryforwards at October 31, 1999:
EXPIRATION YEAR AMOUNT DATE ---- ------ ---- Net operating loss October 31, 1997 $342,302 October 31, 2012 October 31, 1999 796,236 October 31, 2019 Capital loss October 31, 1997 25,600 October 31, 2002 Contribution October 31, 1995 1,536 October 31, 2000 October 31, 1996 2,068 October 31, 2001 October 31, 1999 2,081 October 31, 2004
F-37 80 iBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 1999 NOTE 10 NOTES PAYABLE Note payable to Community First National Bank due in monthly payments of interest of approximately $3,100. Interest is computed at national prime as stated in the Wall Street Journal plus 3 percent. The principal amount is due July 31, 2000. This note is secured by accounts receivable, general intangibles and all equipment and leasehold improvements. The shareholder has personally guaranteed the loan and the bank is the beneficiary of an insurance policy on the life of the shareholder $62,426 Note payable to Community First National Bank due in monthly payments of principal and interest of $545 with interest at 7 percent until March 7, 2004. The note is secured by an automobile 24,745 ------- 87,171 Less: current portion 67,497 ------- Net long-term debt $19,674 =======
Maturities of long-term debt are as follows:
Year ended October 31, 2000 $ 67,497 2001 5,336 2002 5,721 2003 6,135 2004 2,482 -------- $ 87,171 ========
F-38 81 iBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 1999 NOTE 11 COMMON STOCK PURCHASE WARRANTS The company has issued the following common stock purchase warrants:
NUMBER EXERCISE DATE OF SHARES TERM PRICE May 7, 1999 100,000 3 years $ 0.75 May 13, 1999 100,000 3 years $ 1.00 May 7, 1999 300,000 3 years $ 0.75 May 7, 1999 300,000 10 years $ 0.75 May 13, 1999 100,000 10 years $ 1.00
NOTE 12 CONVERTIBLE DEBENTURES On June 30, 1999, the company authorized $200,000 of convertible debentures. The debentures bear interest at 8%, are unsecured and are due on June 21, 2000. Upon the effectiveness of the required registration statements, the debentures will automatically convert into 300,000 fully paid and nonassessable shares of common stock of the company. NOTE 13 REAL ESTATE LEASE On June 1, 1999, the company leased a new facility from a related entity. The lease commenced on July 1, 1999, requires initial annual rentals of $153,600 (with annual increases) plus taxes and operating costs and expires on December 31, 2024. The company has also guaranteed the mortgage on the premises. Future minimum lease payments, excluding taxes and expenses, are as follows: October 31, 2000 $ 156,160 October 31, 2001 163,968 October 31, 2002 172,168 October 31, 2003 180,780 October 31, 2004 189,820 November 1, 2004 - December 31, 2004 6,676,000
NOTE 14 ADVERTISING The company expenses all advertising as incurred. For the year ended October 31, 1999, the company charged to operations $15,492 in advertising costs. F-39 82 iBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 1999 NOTE 15 INTEREST The company incurred interest expenses for the year ended October 31, 1999 of $49,537. NOTE 16 RESEARCH AND DEVELOPMENT COSTS The company incurred research and development costs for the year ended October 31, 1999 of $5,014. NOTE 17 WARRANTY RESERVE The company established a warranty reserve of $10,000 to cover any potential warranty costs on computer equipment that are not covered by the computer manufacturer's warranty. NOTE 18 ECONOMIC DEPENDENCY The company purchases the majority of its computer equipment from three suppliers. NOTE 19 OFFICERS' COMPENSATION On March 5, 1999, the company entered into three employment agreements with the following officers:
PRESIDENT VICE AND CHIEF VICE PRESIDENT EXECUTIVE PRESIDENT/ OF OFFICER COMPTROLLER OPERATIONS ------- ----------- ---------- Annual compensation $ 200,000 $ 88,000 $ 88,000 ========== ========== ========
NOTE 20 STOCK OPTIONS On January 31, 1999, the corporation adopted a stock option plan for the purpose of providing an incentive based form of compensation to the directors, key employees and service providers of the corporation. The stock subject to the plan and issuable upon exercise of options granted under the plan are shares of the corporation's common stock, $.001 par value, which may be either unissued or treasury shares. The aggregate number of shares of common stock covered by the plan and issuable upon exercise of all options granted shall be 5,000,000 shares, which shares shall be reserved for use upon the exercise of options to be granted from time to time. F-40 83 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 1999 NOTE 20 STOCK OPTIONS (CONTINUED) The company issued the following options:
DATE OF NUMBER VESTING ISSUANCE OF SHARES RECIPIENT PERIOD TERM -------- --------- --------- ------ ---- April 22, 1999 800,000 Officers One year 10 years 50% immediately 50% in six months April 22, 1999 240,000 Employees Five years 10 years 20% per year April 22, 1999 200,000 Employee Five years 10 years 10% immediately balance over four years April 22, 1999 150,000 Directors Two years 10 years 50% per year May 7, 1999 500,000 Employee Immediately 10 years May 7, 1999 85,000 Employees Five years 10 years 10,000 shares immediately balance over five years May 7, 1999 375,000 Employee After two years, 10 years --------- 50% per year 2,350,000 =========
The exercise price is the fair market value of the shares (average of bid and ask price) at the date of the grant which was .75(cent) per share. The company applied APB Opinion 25 and related interpretations in accounting for this stock option plan. Had compensation costs for the company's plan been determined based on the fair value at the grant date consistent with the method of FASB Statement 123, the company's net F-41 84 iBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 1999 NOTE 20 STOCK OPTIONS (CONTINUED) income and earnings per share would not have changed. The fair value of the option granted is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 30%, (3) risk-free interest rate of 6.40%, and (4) expected life of 10 years. A summary of the stock options is as follows: SHARES ------ Outstanding at November 1, 1998 0 Granted during the year 2,350,000 --------- Outstanding at October 31, 1999 2,350,000 =========
Information regarding stock options outstanding as of October 31, 1999 is as follows:
OPTIONS OUTSTANDING --------------------------------------- WEIGHTED WEIGHTED AVERAGE AVERAGE REMAINING PRICE EXERCISE CONTRACTUAL RANGE SHARES PRICE LIFE ----- ------ ----- ---- $ .75(cents) 2,350,000 $ .75 9 years, 6 months
OPTIONS EXERCISABLE ------------------- WEIGHTED AVERAGE PRICE EXERCISE RANGE SHARES PRICE ------ ------- --------- $ 0 0 N/A
Since the exercise price and the fair market value of the stock were the same, there is no compensation costs to report and required pro-forma net income and earnings per share are the F-42 85 iBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 1999 NOTE 20 STOCK OPTIONS (CONTINUED) same as the historical financial statement presentations. NOTE 21 PLAN OF REORGANIZATION AND STOCK EXCHANGE AGREEMENT On January 1, 1999, the company issued 16,000,000 shares of newly issued restricted common stock for 100% of the issued and outstanding stock of Invnsys Technology Corporation. Invnsys Technology Corporation became a wholly-owned subsidiary of iBIZ Technology Corp. and the acquisition was accounted for as a reverse acquisition. The details of the results of operation (unaudited) for each separate company, prior to the date of combination, that are included in the current net income are:
INVNSYS iBIZ TECHNOLOGY TECHNOLOGY CORPORATION CORP. --------- -------- Sales $ 402,127 $ 0 Cost of sales 239,704 0 --------- -------- Gross profit 162,423 0 Selling, general and administrative expenses 243,094 27,742 --------- -------- (Loss) before income taxes (refund) (80,671) (27,742) Income taxes (refund) (20,150) 0 --------- -------- Net (loss) $ (60,521) $(27,742) ========= ========
There were no adjustments in the net assets of the combining companies to adopt the same accounting policies. Each of the companies had an October 31 fiscal year so no accounting adjustments were necessary. An (unaudited) reconciliation of revenues and earnings reconciled with the amounts shown in the combined financial statements is as follows: Net (loss) on iBIZ Technology Corp. at December 31, 1998 $ (27,742) Add Invnsys Technology Corporation (loss) for November 1, 1998 to December 31, 1998 (60,521) Additional net (loss) from January 1, 1999 to October 31, 1999 (865,836) --------- Net (loss) for the year ended October 31, 1999 $(954,099) =========
F-43 86 iBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 1999 NOTE 22 GOING CONCERN These financial statements are presented on the basis that the company is a going concern. Going concern contemplates the realization of assets and the satisfaction of liabilities in the normal course of business over a reasonable length of time. The accompanying financial statements show that current liabilities exceed current assets by $897,021 and a shareholders' deficit of $429,063. In addition, sales have declined significantly from prior years. As described in note 23, the company obtained $600,000 of additional capital in November 1999. NOTE 23 SUBSEQUENT EVENT In November 1999, the company issued $600,000 of 7% convertible debentures under the following terms and conditions: 1. Due date - November 9, 2004. 2. Interest only on April 1 and November 1 of each year commencing January 1, 2000. 3. Warrants to purchase 100,000 shares of common stock at $ 0.94 per share. 4. Conversion terms - The debenture holder shall have the right to convert all or a portion of the outstanding principal amount of this debenture plus any accrued interest into such number of sales of common stock as shall equal the quotient obtained by dividing the principal amount of this debenture by the applicable conversion price. 5. Conversion price - Lesser of (i) $ 0.94 (fixed price) or (ii) the product obtained by multiplying the average closing price by $0.80. 6. Average closing price - The debenture holder shall have the election to choose any three trading days out of twenty trading days immediately preceding the date on which the holder gives the company a written notice of the holders' election to convert outstanding principal of this debenture. 7. Redemption by company - If there is a change in control of the company, the holder of the debenture can request that the debenture be redeemed at a price equal to 125% of the aggregate principal and accrued interest outstanding under this debenture. 8. The debentures are unsecured. 9. Any further issuance of common stock or debentures must be approved by debenture holders. 10. Debenture holders have a eighteen month right of first refusal on future disposition of stock by the company. 11. Restriction on payment of dividends, retirement of stock or issuance of new securities. F-44 87 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS Limitation of Liability and Indemnification Matters. iBIZ's Articles of Incorporation, as amended, provide to the fullest extent permitted by Florida law, a director or officer of iBIZ shall not be personally liable to iBIZ or its shareholders for damages for breach of such director's or officer's fiduciary duty. The effect of this provision of iBIZ's Articles of Incorporation, as amended, is to eliminate the right of iBIZ and its shareholders (through shareholders' derivative suits on behalf of iBIZ) to recover damages against a director or officer for breach of the fiduciary duty of care as a director or officer (including breaches resulting from negligent or grossly negligent behavior), except under certain situations defined by statute. iBIZ believes that the indemnification provisions in its Articles of Incorporation, as amended, are necessary to attract and retain qualified persons as directors and officers. Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Securities Act") may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The follow table sets forth the estimated costs and expenses incurred by the selling securityholders in connection with this Offering. SEC Registration Fee $ 2,794.93 Legal Fees and Expenses $60,000.00 Accounting Fees and Expenses $20,000.00 Printing Expenses $ 5,000.00 Blue Sky Fees and Expenses $ 6,000.00 TOTAL $93,794.93
1. Except for the SEC registration fee, all fees and expenses are estimates. II-1 88 ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES iBIZ Technology Corp. On July 10, 1998, iBIZ issued 3,000,000 shares of common stock, $.001 par value, at a sales price of $.05 per share totaling $150,000. iBIZ relied upon Regulation D, Rule 504 promulgated under the Securities Act with respect to these sales. Between November 13, 1998 and January 13, 1999, iBIZ issued 540,318 shares of common stock, $.001 par value, at a sales price of $.35 per share totaling $189,111.30. iBIZ relied upon Regulation D, Rule 506 promulgated under the Securities Act with respect to these sales. Effective January 1, 1999, iBIZ entered into a Plan of Reorganization and Share Exchange Agreement with INVNSYS and the below referenced individuals. Pursuant to the Reorganization, iBIZ issued 16,000,000 shares of common stock, $.001 par value, in exchange for one hundred percent (100%) of the outstanding shares of INVNSYS. The shares were allocated as follows:
NO. OF SHARES ------------- Moorea Trust dated December 18, 1991 12,120,000 Terry Ratliff 1,771,200 Mark Perkins 1,771,200 Paul Russo 46,400 Frank Ligammari 33,600 Richard Bielfelt 28,800 Terry Neild 228,800
The shares issued by iBIZ were issued pursuant to the exemption provided by Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act"). From March 8, 1999 through November 18, 1999, iBIZ issued 1,730,100 shares of common stock, $.001 par value, at a sales price of $.50 per share and 640,318 shares of common stock, $.001 par value, at a sales price of $.35 totaling an aggregate of $1,089,161. iBIZ relied upon Regulation D, Rule 506 promulgated under the Securities Act with respect to these sales. From April 22, 1999 through May 13, 1999, iBIZ issued options to purchase 2,850,000 shares of common stock, $.001 par value to employees and various consultants. The exercise price of the options is the fair market value on the date of grant, which ranged from $0.75 to $1.00 per share. iBIZ relied upon either Rule 701 or Section 4(2) with respect to the granting of the options. On June 30, 1999, iBIZ issued Two Hundred Thousand Dollars ($200,000.00) of 8% Debentures. The 8% Debentures are due on June 21, 2000, bear interest at eight percent (8%) per annum, and are unsecured. Under the terms of the 8% Debentures, iBIZ is obligated to include the shares issuable upon conversion of the 8% II-2 89 Debentures in this registration statement. Upon the effectiveness of this registration statement, the 8% Debentures shall automatically convert to 300,000 fully paid and nonassessable shares of common stock, $.001 par value. Effective May 1999, iBIZ issued a warrant entitling the holder to acquire 400,000 shares of common stock, $.001 par value, at an exercise price of $0.75 per share for the first 300,000 shares and $1.00 per share for the remaining 100,000 shares. In November 1999, iBIZ issued Six Hundred Thousand Dollars ($600,000.00) of 7% Debentures (the "$600k 7% Debentures") to Globe United Holdings, Inc. ("Globe"). Thereafter, in December 1999, iBIZ issued to Globe an additional One Million Dollars ($1,000,000.00) of 7% Debentures (the "$1000k 7% Debentures). On December 6, 1999, Globe converted $200,000 of the $600k 7% Debentures, plus accrued interest to date. Pursuant to the applicable conversion formula, iBIZ issued 300,962 shares of common stock. In connection with the issuance of the $600k 7% Debentures, iBIZ issued a warrant to purchase 100,000 shares of common stock at a purchase price of $0.94 per share. The warrant is immediately exercisable and expires November 9, 2004. In connection with the issuance of the $1000k 7% Debentures, iBIZ issued a warrant to purchase 200,000 shares of common stock at a purchase price of $0.94 per share. The warrant is immediately exercisable and expires December 29, 2004 (collectively the "Warrants). iBIZ relied upon Regulation D, Rule 506 promulgated under the Securities Act with respect to the issuance of the 7% Debentures and the Warrants. On January 7, 2000, iBIZ issued 250,000 shares of common stock, $.001 par value, at a sales price of $1.10 per share for a total amount of $275,000. iBIZ relied upon Regulation D, Rule 506 promulgated under the Securities Act with respect this sale. II-3 90 ITEM 27. EXHIBITS INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION ----------- ----------- 2.01(1) Plan of Reorganization and Stock Exchange Agreement dated January 1, 1999 3.01(1) Articles of Incorporation, as amended 3.02(1) Bylaws 5.01(3) Opinion of Gammage & Burnham, P.L.C. 10.01(1) Citrix Business Alliance Membership Agreement dated February 10, 1999, between INVNSYS and Citrix Systems, Inc. 10.02(1) Client Software License Agreement dated December 30, 1998, between INVNSYS and Citrix Systems, Inc. 10.03(1) iBIZ Technology Corporation Distributed Software License Agreement dated June 2, 1999, between iBIZ and Jeremy Radlow 10.04(1) 3Com Designed for Palm Computing Platform Logo License Agreement, between iBIZ and Palm Computing, Inc. 10.05(1) IBIZ Technology Corp. Stock Option Plan dated January 31, 1999 10.06(1) Form of Stock Option 10.07(1) Lease Agreement dated June 1, 1999, between iBIZ and Lone Cactus Capital Group, L.L.C. 10.08(1) Strategic Teaming and Marketing Agreement dated February 18, 1999, between iBIZ and Global Telephone Communication, Inc. 10.09(1) Form of iBIZ Technology Corp. Common Stock Purchase Warrant 10.10(1) Form of iBIZ Technology Corp. Convertible Debenture 10.11(1) Employment Agreement dated March 5, 1999, as amended, between iBIZ, INVNSYS and Kenneth Schilling 10.12(1) Employment Agreement dated March 5, 1999, as amended, between iBIZ, INVNSYS and Terry Ratliff 10.13(1) Employment Agreement dated March 5, 1999, as amended, between iBIZ, INVNSYS and Mark Perkins 10.14(2) Securities Purchase Agreement dated November 9, 1999, between iBIZ and Globe United Holdings, Inc. 10.15(2) 7% Convertible Debenture Due November 9, 2004, between iBIZ and Globe United Holdings, Inc. 10.16(2) Warrant dated November 9, 1999 10.17(2) Registration Rights Agreement dated November 9, 1999, between iBIZ and Globe United Holdings, Inc. 10.18(3) Securities Purchase Agreement dated December 29, 1999, between iBIZ and Globe United Holdings, Inc. 10.19(3) 7% Convertible Debenture Due December 29, 2004, between iBIZ and Globe United Holdings, Inc.
II-4 91 10.20(3) Warrant dated December 29, 1999 10.21(3) Registration Rights Agreement dated December 29, 1999, between iBIZ and Globe United Holdings, Inc. 10.22(3) Subscription Agreement for Common Stock of iBIZ Technology Corp. 21.01(1) Subsidiaries of Registrant 23.01(3) Consent of Moffitt & Company 27.01(2) Financial Data Schedule
- --------------- (1) Incorporated by reference from iBIZ's Form 10-SB, File No. 027619, filed with the SEC on October 13, 1999. (2) Incorporated by reference from iBIZ's Form 10-SB/A, File No. 027619, filed with the SEC on December 1, 1999. (3) Filed herewith. ITEM 28. UNDERTAKINGS (a) The undersigned Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made of the securities registered hereby, a post-effective amendment to this Registration Statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act; (ii) reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information set forth in this Registration Statement; and (iii) include any additional or changed material information on the plan of distribution. (2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is II-5 92 asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. II-6 93 SIGNATURES In accordance with the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements of filing on Form SB-2 and authorized this registration statement to be signed on its behalf by the undersigned, in the City of Phoenix, State of Arizona on January 11, 2000. iBIZ Technology Corp., a Florida Corporation By:/s/ Kenneth W. Schilling ----------------------------------------- Kenneth W. Schilling, President, Director By:/s/ Terry S. Ratliff ----------------------------------------- Terry S. Ratliff, Vice President, Comptroller, Director By:/s/ Mark H. Perkins ----------------------------------------- Mark H. Perkins, Vice President of Operations, Director II-7 94 INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION ----------- ----------- 2.01(1) Plan of Reorganization and Stock Exchange Agreement dated January 1, 1999 3.01(1) Articles of Incorporation, as amended 3.02(1) Bylaws 5.01(3) Opinion of Gammage & Burnham, P.L.C. 10.01(1) Citrix Business Alliance Membership Agreement dated February 10, 1999, between INVNSYS and Citrix Systems, Inc. 10.02(1) Client Software License Agreement dated December 30, 1998, between INVNSYS and Citrix Systems, Inc. 10.03(1) IBIZ Technology Corporation Distributed Software License Agreement dated June 2, 1999, between iBIZ and Jeremy Radlow 10.04(1) 3Com Designed for Palm Computing Platform Logo License Agreement, between iBIZ and Palm Computing, Inc. 10.05(1) IBIZ Technology Corp. Stock Option Plan dated January 31, 1999 10.06(1) Form of Stock Option 10.07(1) Lease Agreement dated June 1, 1999, between iBIZ and Lone Cactus Capital Group, L.L.C. 10.08(1) Strategic Teaming and Marketing Agreement dated February 18, 1999, between iBIZ and Global Telephone Communication, Inc. 10.09(1) Form of iBIZ Technology Corp. Common Stock Purchase Warrant 10.10(1) Form of iBIZ Technology Corp. Convertible Debenture 10.11(1) Employment Agreement dated March 5, 1999, as amended, between iBIZ, INVNSYS and Kenneth Schilling 10.12(1) Employment Agreement dated March 5, 1999, as amended, between iBIZ, INVNSYS and Terry Ratliff 10.13(1) Employment Agreement dated March 5, 1999, as amended, between iBIZ, INVNSYS and Mark Perkins 10.14(2) Securities Purchase Agreement dated November 9, 1999, between iBIZ and Globe United Holdings, Inc. 10.15(2) 7% Convertible Debenture Due November 9, 2004, between iBIZ and Globe United Holdings, Inc. 10.16(2) Warrant dated November 9, 1999 10.17(2) Registration Rights Agreement dated November 9, 1999, between iBIZ and Globe United Holdings, Inc. 10.18(3) Securities Purchase Agreement dated December 29, 1999, between iBIZ and Globe United Holdings, Inc. 10.19(3) 7% Convertible Debenture Due December 29, 2004, between iBIZ and Globe United Holdings, Inc. 10.20(3) Warrant dated December 29, 1999
II-8 95 10.21(3) Registration Rights Agreement dated December 29, 1999, between iBIZ and Globe United Holdings, Inc. 10.22(3) Subscription Agreement for Common Stock of iBIZ Technology Corp. 21.01(1) Subsidiaries of Registrant 23.01(3) Consent of Moffitt & Company 27.01(2) Financial Data Schedule
- --------------- (1) Incorporated by reference from iBIZ's Form 10-SB, File No. 027619, filed with the SEC on October 13, 1999. (2) Incorporated by reference from iBIZ's Form 10-SB/A, File No. 027619, filed with the SEC on December 1, 1999. (3) Filed herewith. II-9 EX-5.1 2 EX-5.1 1 EXHIBIT 5.01 January 10, 2000 Board of Directors iBIZ Technology Corp. 1919 West Lone Cactus Phoenix, Arizona 85027 Re: Registration Statement on Form SB-2 Gentlemen: In connection with the registration by iBIZ Technology Corp. (the "Company"), on Form SB-2 (the "Registration Statement") providing registration under the Securities Act of 1933, as amended, of not to exceed 6,839,252 shares of Common Stock issuable upon exercise of Warrants and Options and upon conversion of Debentures, we are furnishing the following opinion as counsel to the Company. We have examined such corporate records, certificates of public officials and officers of the Company, and other documents and records as we have considered necessary or proper for the purpose of this opinion. Based upon the foregoing, and having regard to legal considerations that we deem relevant, we are of the opinion that the shares of Common Stock of the Company issuable upon exercise of the Options and Warrants and upon conversion of the Debentures when issued and sold in accordance with the transactions described in the Registration Statement, and in accordance with the federal securities laws and the securities laws of the various states in which the Common Stock may be issued, will be validly issued, fully paid and nonassessable. As counsel to the Company, we hereby consent to the reference to this firm under the caption "Legal Matters" contained in the Prospectus which is part of the Registration Statement and to the filing of this opinion as Exhibit 5 to the Registration Statement. Very truly yours, GAMMAGE & BURNHAM P.L.C. /s/ Gammage & Burnham P.L.C. --------------------------------------- EX-10.18 3 EX-10.18 1 EXHIBIT 10.18 SECURITIES PURCHASE AGREEMENT THIS SECURITIES PURCHASE AGREEMENT, dated as of December 29, 1999 (this "Agreement"), is entered into by and between iBIZ TECHNOLOGY CORP., a Florida corporation (the "Company"), and Globe United Holdings, Inc., a British Virgin Islands corporation (the "Purchaser"). W I T N E S S E T H: WHEREAS, the Company and the Purchaser are executing and delivering this Agreement in reliance upon the exemptions from registration provided by Regulation D ("Regulation D") promulgated by the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended (the "Securities Act"), and/or Section 4(2) of the Securities Act; WHEREAS, the Purchaser wishes to purchase, and the Company wishes to issue and sell, for an aggregate purchase price of $1,000,000 upon the terms and conditions of this Agreement, $1,000,000 aggregate principal amount (the "Debentures") of the Company's 7% Convertible Debentures which Debentures shall be in the form attached as Exhibit A, and warrants (the "Warrants") to purchase 200,000 shares of the Company's Common Stock, par value $.001 per share (the "Common Stock"); and WHEREAS, the Debentures are convertible into shares of the Company's Common Stock on the terms set forth therein, and the Warrants (which shall be in substantially the form attached as Exhibit B) may be exercised for the purchase of Common Stock, on the terms set forth therein. NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. AGREEMENT TO PURCHASE; PURCHASE PRICE a. PURCHASE OF DEBENTURES. Purchaser hereby agrees to purchase from the Company, and the Company hereby agrees to issue and sell to the Purchaser, the Debentures and the Warrants for an aggregate purchase price of $1,000,000 which shall be payable on the date hereof in next day funds. b. CLOSINGS. The Debentures and Warrants to be purchased by Purchaser hereunder, in definitive form, and in such denominations as 2 Purchaser or its representative, if any, may request upon at least forty-eight hours' prior notice to the Company, shall be delivered by or on behalf of the Company for the account of Purchaser, against payment by the Purchaser of the aggregate purchase price of $1,000,000 therefor by wire transfer to an account of the Company, all at the offices of Laufer, Halberstain & Karish, 39 Broadway, 14th Floor, New York, New York 10006, New York time on the date hereof, or at such other time and date as Purchasers or their representative, if any, and the Company may agree upon in writing, such date being referred to herein as the "Closing Date." 2. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER; ACCESS TO INFORMATION; INDEPENDENT INVESTIGATION The Purchaser represents and warrants to, and covenants and agrees with, the Company as follows: a. The Purchaser is (i) experienced in making investments of the kind described in this Agreement and the related documents, (ii) able, by reason of the business and financial experience of its management, to protect its own interests in connection with the transactions described in this Agreement and the related documents, and (iii) able to afford the entire loss of its investment in the Debentures and Warrants. b. All subsequent offers and sales of the Debentures and Warrants and the Common Stock issuable upon conversion or exercise of, or in lieu of interest payments on, the Debentures and Warrants, it shall have purchased shall be made pursuant to an effective registration statement under the Securities Act or pursuant to an applicable exemption from such registration. c. The Purchaser understands that the Debentures and the Warrants are being offered and sold to it in reliance upon exemptions from the registration requirements of the United States federal securities laws, and that the Company is relying upon the truth and accuracy of the Purchaser's representations and warranties, and the Purchaser's compliance with its agreements, each as set forth herein, in order to determine the availability of such exemptions and the eligibility of the Purchaser to acquire the Debentures and the Warrants. d. The Purchaser: (A) has been provided with sufficient information with respect to the business of the Company and such documents relating to the Company as the Purchaser has requested and Purchaser has carefully reviewed the same including, without limitation, the Company's Form 10-SB (the "Form 10") filed with the Securities and Exchange 2 3 Commission on October 13, 1999 (the "Commission") as amended by Amendment No. 1 filed with the Commission on December 1, 1999 and Amendment No. 2 filed with the Commission on December 15, 1999, (B) has been provided with such additional information with respect to the Company and its business and financial condition as the Purchaser, or the Purchaser's agent or attorney, has requested, and (C) has had access to management of the Company and the opportunity to discuss the information provided by management of the Company and any questions that the Purchaser had with respect thereto have been answered to the full satisfaction of the Purchaser. e. The Purchaser has the requisite corporate power and authority to enter into this Agreement and the registration rights agreement, dated as of the date hereof, between the Company and the Purchaser (the "Registration Rights Agreement"). f. This Agreement and the Registration Rights Agreement and the transactions contemplated hereby and thereby, have been duly and validly authorized by the Purchaser; and such agreements, when executed and delivered by each of the Purchaser and the Company will each be a valid and binding agreement of the Purchaser, enforceable in accordance with their respective terms, except to the extent that enforcement of each such agreement may be limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar laws now or hereafter in effect relating to creditors' rights generally and to general principles of equity. 3. REPRESENTATIONS OF THE COMPANY The Company represents and warrants to the Purchaser that: a. ORGANIZATION. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Florida. Each of the Company's subsidiaries, if any, is a corporation duly organized, validly existing and in good standing under the laws of its respective jurisdiction. Each of the Company and its subsidiaries, if any, is duly qualified as a foreign corporation in all jurisdictions in which the failure to so qualify would have a material adverse effect on the Company and its subsidiaries taken as a whole. Schedule 3a lists all subsidiaries of the Company and, except as noted therein, all of the outstanding capital stock of all such subsidiaries is owned of record and beneficially by the Company. b. CAPITALIZATION. On the date hereof, the authorized capital of the Company consists of 100,000,000 shares of Common Stock, par value $.001 per share, of which 26,671,380 shares are issued and outstanding. Schedule 3b sets forth all of the options, warrants and convertible securities of the Company, and any other rights to acquire securities of the Company 3 4 (collectively, the "Derivative Securities") which are outstanding on the date hereof, including in each case (i) the name and class of such Derivative Securities, (ii) the issue date of such Derivative Securities, (iii) the number of shares of Common Stock of the Company into which such Derivative Securities are convertible as of the date hereof, (iv) the conversion or exercise price or prices of such Derivative Securities as of the date hereof, (v) the expiration date of any conversion or exercise rights held by the owners of such Derivative Securities and (vi) any registration rights associated with such Derivative Securities. Schedule 3b also sets forth all registration rights associated with the Common Stock. c. CONCERNING THE COMMON STOCK AND THE WARRANTS. The Debentures and Warrants, and Common Stock issuable upon conversion of, or in lieu of interest payments on, the Debentures, and upon exercise of the Warrants so issued, when issued, shall be duly and validly issued, fully paid and non-assessable, will not be subject to preemptive rights and will not subject the holder thereof to personal liability by reason of being such a holder. There are currently no preemptive rights of any stockholder of the Company, as such, to acquire the Debentures or the Warrants, or the Common Stock issuable to the Purchaser pursuant to the terms of the Debentures or the Warrants. d. REPORTING COMPANY STATUS. The Company files reports with the Commission pursuant to Section 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Company has duly filed all materials and documents required to be filed pursuant to all reporting obligations under either Section 13(a) or 15(d) of the Exchange Act. The Common Stock is listed and traded on the OTC Bulletin Board ("OTC"), and, except as described in Schedule 3m the Company is not aware of any pending or contemplated action or proceeding of any kind to suspend the trading of the Common Stock. e. AUTHORIZED SHARES. The Company has available a sufficient number of authorized and unissued shares of Common Stock as may be necessary to effect the conversion of the Debentures and the exercise of the Warrants. The Company understands and acknowledges the potentially dilutive effect to the Common Stock of the issuance of shares of Common Stock upon the conversion of the Debentures and the exercise of the Warrants. The Company further acknowledges that its obligation to issue shares of Common Stock upon conversion of the Debentures and upon exercise of the Warrants is absolute and unconditional regardless of the dilutive effect that such issuance may have on the ownership interests of other stockholders of the Company and notwithstanding the commencement of any case under 11 U.S.C. Section 101 et seq. (the "Bankruptcy Code"). In the event the Company becomes a debtor under the Bankruptcy Code, the Company hereby waives to 4 5 the fullest extent permitted any rights to relief it may have under 11 U.S.C. Section 362 in respect of the conversion of the Debentures and the exercise of the Warrants. At the direction of Purchaser, the Company agrees, without cost or expense to the Purchaser, to take or consent to any and all action necessary to effectuate relief under 11 U.S.C. Section 362. f. LEGALITY. The Company has the requisite corporate power and authority to enter into this Agreement and the Registration Rights Agreement, and to issue and deliver the Debentures, the Warrants and the Common Stock issuable upon conversion of, or in lieu of interest payments on the Debentures and the exercise of the Warrants. g. TRANSACTION AGREEMENTS. This Agreement, the Registration Rights Agreement, the Debentures and the Warrants (collectively, the "Primary Documents"), and the transactions contemplated hereby and thereby, have been duly and validly authorized by the Company; this Agreement has been duly executed and delivered by the Company and this Agreement is, and the other Primary Documents, when executed and delivered by the Company, will each be, a valid and binding agreement of the Company, enforceable in accordance with their respective terms, except to the extent that enforcement of each of the Primary Documents may be limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar laws now or hereafter in effect relating to creditors' rights generally and to general principles of equity. h. NON-CONTRAVENTION. The execution and delivery of this Agreement and each of the other Primary Documents, and the consummation by the Company of the transactions contemplated by this Agreement and each of the other Primary Documents, does not and will not conflict with or result in a breach by the Company of any of the terms or provisions of, or constitute a default under, the Articles of Incorporation or By-laws of the Company, or any indenture, mortgage, deed of trust or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which they or any of their properties or assets are bound, or any existing applicable law, rule, or regulation or any applicable decree, judgment or order of any court or United States or foreign federal or state regulatory body, administrative agency, or any other governmental body having jurisdiction over the Company, its subsidiaries, or any of their properties or assets. Except as set forth on Schedule 3(h), neither the filing of the registration statement required to be filed by the Company pursuant to the Registration Rights Agreement nor the offering or sale of the Debentures or the Warrants as contemplated by this Agreement gives rise to any rights, other than those which have been waived or satisfied on or prior to the date hereof, for or relating to the registration of any shares of the Common Stock. Schedule 3(h)(1) hereto lists all material 5 6 agreements and instruments to which the Company or any of its subsidiaries is a party or by which any of their properties or assets are bound. i. APPROVALS. No authorization, approval or consent of any court, governmental body, regulatory agency, self-regulatory organization, stock exchange or market or the stockholders of the Company is required to be obtained by the Company for the entry into or the performance of this Agreement and the other Primary Documents. j. SEC FILINGS. None of the reports or documents filed by the Company with the Commission contained, at the time they were filed, any untrue statement of a material fact or omitted to state any material fact required to be stated therein, or necessary to make the statements made therein, in light of the circumstances under which they were made, not misleading. k. STABILIZATION. Neither the Company, nor, to the knowledge of the Company, any of its affiliates, has taken or may take, directly or indirectly, any action designed to cause or result in, or which has constituted or which might reasonably be expected to constitute, the stabilization or manipulation of the price of the shares of Common Stock. l. ABSENCE OF CERTAIN CHANGES. Except as disclosed in the Company's public filings with the Commission, since the filing of Amendment No. 2 to the Form 10, there has been no material adverse change nor any material adverse development in the business, properties, operations, financial condition, prospects, outstanding securities or results of operations of the Company. m. FULL DISCLOSURE. Other than as set forth in Schedule 3m, there is no fact known to the Company that has not been disclosed in writing to the Purchaser (i) that could reasonably be expected to have an adverse effect upon the condition (financial or otherwise) or the earnings, business affairs, properties or assets of the Company or (ii) that could reasonably be expected to materially and adversely affect the ability of the Company to perform the obligations set forth in the Primary Documents. n. TITLE TO PROPERTIES; LIENS AND ENCUMBRANCES. The Company has good and marketable title to all of its material properties and assets, both real and personal, and has good title to all its leasehold interests, in each case subject only to mortgages, pledges, liens, security interests, conditional sale agreements, encumbrances or charges created in the ordinary course of business. 6 7 o. PATENTS AND OTHER PROPRIETARY RIGHTS. The Company has sufficient title and ownership of all patents, trademarks, service marks, trade names, internet domain names, copyrights, trade secrets, information, proprietary rights and processes necessary for the conduct of its business as now conducted and as proposed to be conducted, and such business does not and would not conflict with or constitute an infringement on the rights of others. p. PERMITS. The Company has all franchises, permits, licenses and any similar authority necessary for the conduct of its business as now conducted, the lack of which would materially and adversely affect the business or financial condition of the Company. The Company is not in default in any respect under any of such franchises, permits, licenses or similar authority. q. ABSENCE OF LITIGATION. Except as disclosed in the Company's public filings with the Commission, there is no action, suit, proceeding, inquiry or investigation before or by any court, public board or body pending or, to the knowledge of the Company or any of its subsidiaries, threatened against or affecting the Company or any of its subsidiaries, in which an unfavorable decision, ruling or finding would have an adverse effect on the properties, business, condition (financial or other) or results of operations of the Company and its subsidiaries, taken as a whole, or the transactions contemplated by the Primary Documents, or which would adversely affect the validity or enforceability of, or the authority or ability of the Company to perform its obligations under, the Primary Documents. r. NO DEFAULT. Each of the Company and its subsidiaries is not in default in the performance or observance of any obligation, covenant or condition contained in any indenture, mortgage, deed of trust or other instrument or agreement to which it is a party or by which it or its property may be bound which default could result in a material adverse effect on the Company. s. TRANSACTIONS WITH AFFILIATES. Except as disclosed in the Company's public filings with the Commission, there are no agreements, understandings or proposed transactions between the Company and any of its officers, directors or affiliates that, had they existed on the date Amendment No. 2 to the Form 10 was filed, would have been required to be disclosed in the Company's Form 10 or an amendment thereto. t. EMPLOYMENT MATTERS. The Company is in compliance in all respects with all presently applicable provisions of the Employee Retirement Income Security Act of 1974, as amended, including the regulations and published interpretations thereunder ("ERISA");___ no 7 8 "reportable event" (as defined in ERISA) has occurred with respect to any "pension plan" (as defined in ERISA) for which the Company would have any liability; the Company has not incurred and does not expect to incur liability under (i) Title IV of ERISA with respect to termination of, or withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of the Internal Revenue Code of 1986, as amended, including the regulations and published interpretations thereunder (the "Code"); and each "pension plan" for which the Company would have any liability that is intended to be qualified under Section 401(a) of the Code is so qualified in all material respects and nothing has occurred, whether by action or by failure to act, which would cause the loss of such qualification. u. INSURANCE. The Company maintains property and casualty, general liability, personal injury and other similar types of insurance that is adequate, consistent with industry standards and the Company's historical claims experience. The Company has not received notice from, and has no knowledge of any threat by, any insurer (that has issued any insurance policy to the Company) that such insurer intends to deny coverage under or cancel, discontinue or not renew any insurance policy covering the Company or any of its Subsidiaries presently in force. v. TAXES. All applicable tax returns required to be filed by the Company and each of its subsidiaries have been prepared and filed in compliance with all applicable laws, or if not yet filed have been granted extensions of the filing dates which extensions have not expired, and all taxes, assessments, fees and other governmental charges upon the Company, its subsidiaries, or upon any of their respective properties, income or franchises, shown in such returns and on assessments received by the Company or its subsidiaries to be due and payable have been paid, or adequate reserves therefor have been set up if any of such taxes are being contested in good faith; or if any of such tax returns have not been filed or if any such taxes have not been paid or so reserved for, the failure to so file or to pay would not in the aggregate have a material adverse effect on the business or financial condition of the Company and its subsidiaries, taken as a whole. The Company is disputing certain tax penalties and interest thereon as set forth on Schedule 3v hereto. w. FOREIGN CORRUPT PRACTICES ACT. Neither the Company nor any of its directors, officers or other employees has (i) used any Company funds for any unlawful contribution, endorsement, gift, entertainment or other unlawful expense relating to any political activity; (ii) made any direct or indirect unlawful payment of Company funds to any foreign or domestic government official or employee; (iii) violated or is in violation of any provision of the Foreign Corrupt Practices Act of 1977, as amended; or (iv) 8 9 made any bribe, rebate, payoff, influence payment, kickback or other similar payment to any person. x. INTERNAL CONTROLS. The Company maintains a system of internal accounting controls sufficient to provide reasonable assurances that (i) transactions are executed in accordance with management's general or specific authorization; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management's general or specific authorization; and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences. y. INVESTMENT COMPANY ACT. The Company is not conducting, and will not conduct, its business in a manner which would cause it to become, an "investment company," as defined in Section 3(a) of the Investment Company Act of 1940, as amended. z. BROKERAGE FEES. Other than an amount equal to $100,000 payable by the Company as a placement fee, the Company has not incurred any liability for any consulting fees or agent's commissions in connection with the offer and sale of the transactions contemplated by this Agreement. aa. PRIVATE OFFERING. Subject to the accuracy of the Purchaser's representations and warranties set forth in Section 2 hereof, (i) the offer, sale and issuance of the Debentures and the Warrants, (ii) the issuance of Common Stock in lieu of interest payments on the Debentures and the Warrants and (iii) the conversion and/or exercise of such securities into shares of Common Stock, each as contemplated by this Agreement, are exempt from the registration requirements of the Securities Act. The Company agrees that neither the Company nor anyone acting on its behalf will offer any of the Debentures and the Warrants, or any similar securities for issuance or sale, or solicit any offer to acquire any of the same from anyone so as to render the issuance and sale of such securities subject to the registration requirements of the Securities Act. The Company has not offered or sold the Debentures or the Warrants by any form of general solicitation or general advertising, as such terms are used in Rule 502(c) under the Securities Act. bb. FULL DISCLOSURE. The representations and warranties of the Company set forth in this Agreement (and the schedules thereto) do not contain, any untrue statement of a material fact or omit any material fact necessary to make the statements contained herein, in light of the circumstances under which they were made, not misleading. 9 10 4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS a. TRANSFER RESTRICTIONS. The Purchaser acknowledges that, except as provided in the Registration Rights Agreement, (1) none of the Debentures, the Warrants or the Common Stock issuable upon conversion of, or in lieu of interest payments on, the Debentures or upon exercise of the Warrants, have been, or are being, registered under the Securities Act, and such securities may not be transferred unless (A) subsequently registered thereunder or (B) they are transferred pursuant to an exemption from such registration; and (2) any sale of the Debentures, the Warrants or the Common Stock issuable upon conversion or exchange thereof (the "Securities") made in reliance upon Rule 144 under the Securities Act may be made only in accordance with the terms of said Rule. The provisions of Section 4(a) and 4(b) hereof, together with the rights of the Purchaser under this Agreement and the other Primary Documents, shall be binding upon any subsequent transferee of the Debentures and the Warrants. b. RESTRICTIVE LEGEND. The Purchaser acknowledges and agrees that, until such time as the Securities shall have been registered under the Securities Act or the Purchaser demonstrates to the reasonable satisfaction of the Company that such registration shall no longer be required, such Securities shall bear a restrictive legend in substantially the following form: THESE SECURITIES (INCLUDING ANY UNDERLYING SECURITIES) HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL OR OTHER EVIDENCE REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION SHALL NO LONGER BE REQUIRED. c. FILINGS. The Company undertakes and agrees that it will make all required filings in connection with the sale of the Securities to the Purchaser as required by United States laws and regulations, or by any domestic securities exchange or trading market, and if applicable, the filing of a notice on Form D (at such time and in such manner as required by the Rules and Regulations of the Commission), and to provide copies thereof to the Purchaser promptly after such filing or filings. 10 11 d. NASDAQ LISTING. The Company undertakes and agrees that it will file an application with the NASDAQ market within 30 days after meeting the criteria required by the NASD Bylaws for listing to list the Company's Common Stock (including, but not limited to, all of the shares of Common Stock issuable upon conversion of, or in lieu of interest payments on, the Debentures, and upon exercise of the Warrants) on the NASDAQ Small-Cap Market. The Company further agrees and covenants that, once the Company's Common Stock becomes listed on the NASDAQ Small-Cap Market it will not seek to have the trading of its Common Stock through the NASDAQ Small-Cap Market suspended or terminated, will use its best efforts to maintain its eligibility for trading on the NASDAQ Small-Cap Market (including, the filing of a listing application with NASDAQ to list all of the shares of Common Stock issuable upon conversion of, or in lieu of interest payments on, the Debentures and upon the exercise of the Warrants) and, if such trading of its Common Stock is suspended or terminated, will use its best efforts to requalify its Common Stock or otherwise cause such trading to resume. e. REPORTING STATUS. So long as the Purchaser beneficially owns any of the Securities or any Debentures and any shares of Common Stock issuable upon conversion thereof (collectively with the Securities, the "Collective Securities"), the Company shall timely file all reports required to be filed with the Commission pursuant to Section 13 or 15(d) of the Exchange Act and shall not terminate its status as an issuer required to file reports under the Exchange Act even if the Exchange Act or the rules and regulations thereunder would permit such termination. f. STATE SECURITIES FILINGS. The Company shall from time to time promptly take such action as the Purchaser or any of its representatives, if applicable, may request to qualify the Collective Securities for offering and sale under the securities laws (other than United States federal securities laws) of the jurisdictions in the United States as shall be so identified to the Company, and to comply with such laws so as to permit the continuance of sales therein. g. USE OF PROCEEDS. The Company will use all of the net proceeds from the issuance of the Debentures and the Warrants to make investments in the Company's subsidiaries and for working capital. h. RESERVATION OF COMMON STOCK. The Company will at all times have authorized and reserved for the purpose of issuance a sufficient number of shares of Common Stock to provide for the conversion of the Debentures and the exercise of the Warrants. The Company will use its best efforts at all times to maintain a number of shares of Common Stock so 11 12 reserved for issuance that is no less than two (2) times the maximum number that could be issuable upon the conversion of the Debentures and the exercise in full of the Warrants. i. SALES OF ADDITIONAL SHARES. The Company shall not, directly or indirectly, without the prior written consent of the Purchaser, offer, sell, offer to sell, contract to sell or otherwise dispose of any shares of its capital stock or any security or other instrument convertible into or exchangeable for shares of Common Stock, in each case for a period commencing on the date hereof and ending on the earlier of (i) one hundred eighty (180) days after the date on which a registration statement relating to Common Stock issuable upon conversion of any of the Warrants and the Debentures, is declared effective by the Securities and Exchange Commission or (ii) the date on which Purchaser shall have converted all of the Debentures into Common Stock (the "Lock-Up Period"), except that the Company (i) may issue securities for the aggregate consideration of at least $7.5 million in connection with a bona fide, firm commitment, underwritten public offering under the Securities Act; and (ii) may issue shares of Common Stock upon the exercise or conversion of currently outstanding options, warrants and other convertible securities; (iii) may issue options to purchase up to 1,000,000 shares of its Common Stock to its directors, officers and employees in connection with its existing stock option plans. In addition, the Company agrees that it will not cause any shares of its capital stock that are issued in connection with a transaction of the type contemplated by such clause (or upon the conversion or exercise of other securities that are issued in connection with such transaction) or that were issued in connection with any financing, acquisition or other transaction that occurred prior to the date of this agreement to be covered by a registration statement that is declared effective by the Commission until the later to occur of (A) the expiration of the Lock-Up Period or (B) the registration statement filed by the Company pursuant to its obligations under the Registration Rights Agreement has been effective under the Securities Act for a period of at least one-hundred and eighty (180) days. j. RIGHT OF FIRST REFUSAL. Subject to Section 4(i), if during the 18 month period following the Lock-Up Period the Company shall desire to sell, offer to sell, contract to sell or otherwise dispose of any shares of its capital stock or any security or other instrument convertible into or exchangeable for shares of Common Stock (collectively, the "Offered Securities") to a prospective investor (the "Prospective Investor"), the Company shall notify (the "Offer Notice") the Purchasers in accordance with Section 11 hereof of the terms (the "Third Party Terms") on which the Company proposes to sell, contract to sell or otherwise dispose of the Offered Securities to the Prospective Investor. If, within the 5 business day period following the Purchaser's receipt of the Offer Notice, the Purchaser desires to 12 13 purchase all and not less than all of the Offered Securities on the Third Party Terms, the Company shall be required to sell the Offered Securities (or any portion thereof so desired by the Purchasers) to the Purchaser and the Company shall not be permitted to sell such Offered Securities to the Prospective Investor. k. ADDITIONAL REGISTRATION STATEMENTS. At any time during the period ending on the first date that follows a period of 180 consecutive days following the effectiveness of the Registration Statement (as defined in the Registration Rights Agreement) during which there has been no Blackout Event (as defined in the Registration Rights Agreement) relating to such Registration Statement, the Company agrees that it will not cause any registration statement (other than the Registration Statement) to be declared effective by the Commission. l. STOCKHOLDER APPROVAL. The Company agrees to use its best efforts (including obtaining any vote of its stockholders required by applicable law or Nasdaq Bylaws) to authorize and approve the issuance of the Common Stock issuable upon conversion of the Debentures and upon exercise of the Warrants, to the extent that such conversion or issuance results in the issuance of 20% or more of the Company's outstanding Common Stock; provided, however, that the failure to obtain any such stockholder approval shall not limit any of Purchaser's rights hereunder or pursuant to any Primary Document. m. OWNERSHIP. At no time shall the Purchaser (including its officers, directors and affiliates) maintain in the aggregate beneficial ownership (as defined for purposes of Section 16 of the Securities Exchange Act of 1934, as amended) of shares of Common Stock in excess of 4.9% of the Company's outstanding Common Stock unless the Purchaser gives the Company at least sixty-one days notice that it intends to increase its ownership percentage. n. RETURN OF DEBENTURES ON CONVERSION AND WARRANTS ON EXERCISE. (i) Upon any conversion by Purchaser of less than all of the aggregate principal amount of Debentures then outstanding, the Company shall issue and deliver to Purchaser within three (3) days of the Conversion Date (as defined herein), a new certificate or certificates for, as applicable, the total principal amount of Debentures which Purchaser has not yet elected to convert (with the number of and denomination of such new certificate(s) designated by Purchaser). (ii) Upon any partial exercise by Purchaser of Warrants, the Company shall issue and deliver to Purchaser within three (3) days of the date on which such Warrants are exercised, a new Warrant or Warrants 13 14 representing the number of adjusted shares of Common Stock covered thereby, in accordance with the terms thereof. o. REPLACEMENT DEBENTURES AND STOCK PURCHASE WARRANTS. (i) The certificate(s) representing the Debentures held by Purchaser shall be exchangeable, at the option of Purchaser, at any time and from time to time at the office of Company, for certificates with different denominations representing, as applicable, an equal aggregate principal amount of Debentures, as requested by Purchaser upon surrendering the same. No service charge will be made for such registration or transfer or exchange. (ii) The Warrants will be exchangeable, at the option of Purchaser, at any time and from time to time at the office of the Company, for other Warrants of different denominations entitling the holder thereof to purchase in the aggregate the same number of shares of Common Stock as are purchasable under such Warrants. No service charge will be made for such transfer or exchange. p. DIVIDENDS OR DISTRIBUTIONS; PURCHASES OF EQUITY SECURITIES. So long as any portion of the Warrants or the Debentures remain outstanding, the Company agrees that it shall not (a) declare or pay any dividends or make any distributions to any holder or holders of Common Stock, or (b) purchase or otherwise acquire for value, directly or indirectly, any shares of Common Stock or equity security of the Company. q. NO SENIOR INDEBTEDNESS. Other than indebtedness relating to a credit line in the aggregate principal amount not in excess of $1,000,000, until the expiration of the Lock-up Period, the Company agrees that neither the Company nor any direct or indirect subsidiary of the Company shall create, incur, assume, guarantee, secure or in any manner become liable in respect of any indebtedness, or permit any liens, claims or encumbrances to exist against the Company or any direct or indirect subsidiary of the Company or any of their assets, unless junior to the Debentures in all respects. r. NO AMENDMENT OF CURRENTLY OUTSTANDING DEBENTURES. So long as any portion of the Debentures or the Warrants remain outstanding, the Company covenants and agrees that the Company shall not, without the consent of the Purchaser, amend any of the terms of any currently outstanding debentures. 5. TRANSFER AGENT INSTRUCTIONS a. The Company warrants that no instruction, other than the instructions referred to in this Section 5 hereof prior to the registration and sale under the Securities Act of the Common Stock issuable upon conversion of the 14 15 Debentures or upon exercise of the Warrants, will be given by the Company to the transfer agent and that the shares of Common Stock issuable upon conversion of, or in lieu of interest payments on, the Debentures or upon exercise of the Warrants, shall otherwise be freely transferable on the books and records of the Company as and to the extent provided in this Agreement, the Registration Rights Agreement and applicable law. Nothing in this Section shall affect in any way the Purchaser's obligations and agreement to comply with all applicable securities laws upon resale of the Collective Securities. If the Purchaser provides the Company with an opinion of counsel that registration of a resale by the Purchaser of any of the Collective Securities in accordance with Section 4(a) of this Agreement is not required under the Securities Act, the Company shall permit the transfer of the Collective Securities and, in the case of the Common Stock, promptly instruct the Company's transfer agent to issue one or more certificates for Common Stock without legend in such names and in such denominations as specified by the Purchaser. b. Purchaser shall exercise its right to convert the Debentures or to exercise the Warrants, by faxing an executed and completed Notice of Conversion or Form of Election to Purchase, as applicable, to the Company, and delivering within three (3) business days thereafter, the original Notice of Conversion (and the related original certificates representing the Debentures) or Form of Election to Purchase (and the related original Warrants) to the Company by hand delivery or by express courier, duly endorsed. Each date on which a Notice of Conversion or Form of Election to Purchase is faxed in accordance with the provisions hereof shall be deemed a "Conversion Date." The Company will transmit the certificates representing the Common Stock issuable upon conversion of any Debentures or upon exercise of any Warrants (together with the certificates representing the Debentures not so converted or the Warrants not so exercised) to the Purchaser via express courier as soon as practicable, but in all events no later than three (3) business days of the Conversion Date relating to Debentures or Warrants (each such delivery date, together with the Interest Delivery Date referred to in paragraph c below, is referred to herein as a "Delivery Date"). For purposes of this Agreement, any conversion of the Debentures or the exercise of the Warrants shall be deemed to have been made immediately prior to the close of business on the Conversion Date. c. The Company will transmit the certificates representing the Common Stock issuable in lieu of any dividends payable on any Debentures, to the Purchaser via express courier as soon as practicable, but in all events no later than three (3) business days after the interest (or dividend) payment date applicable to which such Common Stock is delivered (the "Interest Delivery Date"). 15 16 d. In lieu of delivering physical certificates representing the Common Stock issuable upon the conversion of, or in lieu of interest payments (or dividends) on, the Debentures, or upon the exercise of the Warrants, provided the Company's transfer agent is participating in the Depositary Trust Company (" DTC ") Fast Automated Securities Transfer program, on the written request of the Purchaser, who shall have previously instructed the Purchaser's prime broker to confirm such request to the Company's transfer agent, the Company shall cause its transfer agent to electronically transmit such Common Stock to the Purchaser by crediting the account of the Purchaser's prime broker with DTC through its Deposit Withdrawal Agent Commission ("DWAC") system no later than the applicable Delivery Date. e. The Company understands that a delay in the issuance of Common Stock beyond the applicable Delivery Date could result in an economic loss to the Purchaser. As compensation to the Purchaser for such loss, the Company agrees to pay to the Purchaser for late issuance of Common Stock upon conversion of, or in lieu of interest payments (or dividend payments) on, the Debentures, or upon exercise of the Warrants, the sum of $1,000 per day for each (i) 10,000 shares of Common Stock purchased upon the exercise of Warrants, or (ii) 10,000 shares of Common Stock purchased upon conversion of Debentures. The Company shall pay any payments that are payable to the Purchaser pursuant to this Section 5 in immediately available funds upon demand. Nothing herein shall limit the Purchaser's right to pursue actual damages for the Company's failure to so issue and deliver Common Stock to the Purchaser. Furthermore, in addition to any other remedies which may be available to the Purchaser, in the event that the Company fails for any reason to effect delivery of such Common Stock within five (5) business days after the relevant Delivery Date, the Purchaser will be entitled to revoke the relevant Notice of Conversion or Form of Election to Purchase by delivering a notice to such effect to the Company, whereupon the Company and the Purchaser shall each be restored to their respective positions immediately prior to delivery of such Notice of Conversion or Form of Election to Purchase. For purposes of this Section 5, "business day" shall mean any day in which the financial markets of New York are officially open for the conduct of business therein. 6. CONDITIONS TO THE COMPANY'S OBLIGATION TO ISSUE THE DEBENTURES AND WARRANTS The Purchaser understands that the Company's obligation to issue the Debentures and the Warrants on the Closing Date to the Purchaser pursuant to this Agreement is conditioned upon: a. The accuracy on the Closing Date of the representations and warranties of the Purchaser contained in this Agreement as if made on the 16 17 Closing Date and the performance by the Purchasers on or before the Closing Date of all covenants and agreements of the Purchasers required to be performed on or before the Closing Date. b. The absence or inapplicability of any and all laws, rules or regulations prohibiting or restricting the transactions contemplated hereby, or requiring any consent or approval which shall not have been obtained. 7. CONDITIONS TO THE PURCHASERS' OBLIGATION TO PURCHASE THE DEBENTURES AND THE WARRANTS The Company understands that the Purchaser's obligation to purchase the Debentures and the Warrants on the Closing Date is conditioned upon: a. The accuracy on the Closing Date of the representations and warranties of the Company contained in this Agreement as if made on the Closing Date, and the performance by the Company on or before the Closing Date of all covenants and agreements of the Company required to be performed on or before the Closing Date. b. On the Closing Date, the Purchaser shall have received an opinion of counsel for the Company, dated the Closing Date, in substantially the form as attached in Exhibit D. c. The Company shall have executed and delivered to the Purchaser (i) a signed counterpart to the Registration Rights Agreement, (ii) the Debentures and (iii) the Warrants. d. On the Closing Date, the Purchaser shall have received a certificate executed by the President or the Chairman of the Company and by the Chief Financial Officer of the Company, stating that all of the representations and warranties of the Company set forth in this Agreement are accurate as of the Closing Date and that the Company has performed all of its covenants and agreements required to be performed under this Agreement on or before the Closing Date. e. On the Closing Date, the Purchaser shall have received from the Company such other certificates and documents as it or its representatives, if applicable, shall reasonably request, and all proceedings taken by the Company in connection with the Primary Documents contemplated by this Agreement and the other Primary Documents and all documents and papers relating to such Primary Documents shall be satisfactory to the Purchaser. 17 18 f. On or prior to the Closing Date, there shall not have occurred any of the following: (i) a suspension or material limitation in the trading of securities generally on the New York Stock Exchange, NASDAQ or the NASDAQ Bulletin Board; (ii) a general moratorium on commercial banking activities in New York declared by the applicable banking authorities; (iii) the outbreak or escalation of hostilities involving the United States, or the declaration by the United States of a national emergency or war; or (iv) a change in international, political, financial or economic conditions, if the effect of any such event, in the judgment of the Purchasers, makes it impracticable or inadvisable to proceed with the purchase of the Debentures and the Warrants on the terms and in the manner contemplated in this Agreement and in the other Primary Documents. g. The Company shall have delivered to the Purchaser reimbursement of the Purchaser's out-of-pocket costs and expenses incurred in connection with the transactions contemplated by this Agreement (including fees and disbursements of the Purchaser's legal counsel in an amount not to exceed $17,500). 8. INDEMNIFICATION A. Indemnification of Purchaser by the Company. The Company hereby agrees to indemnify and hold harmless the Purchaser, its affiliates and their respective officers, directors, partners, shareholders, employees and members (collectively, the "Buyer Indemnitees"), from and against any and all losses, claims, damages, judgments, penalties, liabilities and deficiencies (collectively, "Losses"), and agrees to reimburse the Buyer Indemnitees for all out-of-pocket expenses (including the fees and expenses of legal counsel), in each case promptly as incurred by the Buyer Indemnitees and to the extent arising out of or in connection with: 1. any misrepresentation, omission of fact or breach of any of the Company's representations or warranties contained in this Agreement, the annexes, schedules or exhibits hereto or any instrument, agreement or certificate entered into or delivered by the Company pursuant to this Agreement; or 2. any failure by the Company to perform any of its covenants, agreements, undertakings or obligations set forth in this Agreement, the annexes, schedules or exhibits hereto or any instrument, agreement or certificate entered into or delivered by the Company pursuant to this Agreement. 18 19 B. Indemnification of the Company by Purchaser. Purchaser hereby agrees to indemnify and hold harmless the Company, its affiliates and their respective officers, directors, partners and members (collectively, the "Company Indemnitees"), from and against any and all Losses, and agrees to reimburse the Company Indemnitees for all out-of-pocket expenses (including the fees and expenses of legal counsel), to the extent arising out of or in connection with any breach of any of Purchaser's representations or warranties contained in this Agreement, the annexes, schedules or exhibits hereto or any instrument, agreement or certificate entered into or delivered by Purchaser pursuant to this Agreement. C. Third Party Claims. Promptly after receipt by either party hereto seeking indemnification pursuant to this Section 8 (an "Indemnified Party") of written notice of any investigation, claim, proceeding or other action in respect of which indemnification is being sought (each, a "Claim"), the Indemnified Party promptly shall notify the party against whom indemnification pursuant to this Section 8 is being sought (the "Indemnifying Party") of the commencement thereof; but the omission to so notify the Indemnifying Party shall not relieve it from any liability that it otherwise may have to the Indemnified Party, except to the extent that the Indemnifying Party is materially prejudiced and forfeits substantive rights and defenses by reason of such failure. In connection with any Claim as to which both the Indemnifying Party and the Indemnified Party are parties, the Indemnifying Party shall be entitled to assume the defense thereof. Notwithstanding the assumption of the defense of any Claim by the indemnifying Party, the Indemnified Party shall have the right to employ separate legal counsel and to participate in the defense of such Claim, and the Indemnifying Party shall bear the reasonable fees, out-of-pocket costs and expenses of such separate legal counsel to the Indemnified Party if (and only if): (x) the Indemnifying Party shall have agreed to pay such fees, out-of-pocket costs and expenses, (y) the Indemnified Party and the Indemnifying Party reasonably shall have concluded that representation of the Indemnified Party by the Indemnifying Party by the same legal counsel would not be appropriate due to actual or, as reasonably determined by legal counsel to the Indemnified Party, potentially differing interests between such parties in the conduct of the defense of such Claim, or if there may be legal defenses available to the Indemnified Party that are in addition to or disparate from those available to the Indemnifying Party, or (z) the Indemnifying Party shall have failed to employ legal counsel reasonably satisfactory to the Indemnified Party within a reasonable period of time after notice of the commencement of such Claim. If the Indemnified Party employs separate legal counsel in circumstances other than as described in clauses (x), (y) or (z) above, the fees, costs and expenses of such legal counsel shall be borne exclusively by the Indemnified Party. Except as provided above, the Indemnifying Party shall not, in connection with any Claim in the same jurisdiction, be liable for the fees and expenses of more than one firm of legal counsel for the Indemnified Party (together with appropriate local counsel). The Indemnifying Party shall not, without the prior written consent of the Indemnified 19 20 Party (which consent shall not unreasonably be withheld), settle or compromise any Claim or consent to the entry of any judgment that does not include an unconditional release of the Indemnified Party from all liabilities with respect to such Claim or judgment. D. Other Claims. In the event one party hereunder should have a claim for indemnification that does not involve a claim or demand being asserted by a third party, the Indemnified Party promptly shall deliver notice of such claim to the Indemnifying Party. If the Indemnified Party disputes the claim, such dispute shall be resolved by mutual agreement of the Indemnified Party and the Indemnifying Party or by binding arbitration conducted in accordance with the procedures and rules of the American Arbitration Association. Judgment upon any award rendered by any arbitrators may be entered in any court having competent jurisdiction thereof. 9. EXPENSES The Company covenants and agrees with the Purchaser that the Company will pay or cause to be paid the following: (a) the fees, disbursements and expenses of the Purchaser's counsel in connection with the issuance of the Collective Securities payable on the Closing Date (not to exceed $17,500), (b) all expenses in connection with registration or qualification of the Collective Securities for offering and sale under state securities laws as provided in Section 4(f) hereof, and (c) all other costs and expenses incident to the performance of its obligations hereunder which are not otherwise specifically provided for in this Section, including the fees and disbursements of the Company's counsel, accountants and other professional advisors, if any. If the Company fails to satisfy its obligations or to satisfy any condition set forth in this Agreement, as a result of which the Collective Securities are not delivered to the Purchaser on the terms and conditions set forth herein, the Company shall reimburse the Purchaser for any out-of-pocket expenses incurred in making preparations for the purchase, sale and delivery of the Collective Securities not so delivered. 10. GOVERNING LAW; MISCELLANEOUS This Agreement shall be governed by and interpreted in accordance with the laws of the State of New York, without regard to principles of conflict of laws. Each of the parties consents to the jurisdiction of the federal courts whose districts encompass any part of the City of New York or the state courts of the State of New York sitting in the City of New York in connection with any dispute arising under this Agreement or any of the transactions contemplated hereby, and hereby waives, to the maximum extent permitted by law, any objection, including any objections based on forum non conveniens, to the bringing of any such proceeding in such jurisdictions. This Agreement may be signed in one or more counterparts, each 20 21 of which shall be deemed an original. The headings of this Agreement are for convenience of reference only and shall not form part of, or affect the interpretation of this Agreement. This Agreement and each of the Primary Documents have been entered into freely by each of the parties, following consultation with their respective counsel, and shall be interpreted fairly in accordance with its respective terms, without any construction in favor of or against either party. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement or the validity or unenforceability of this Agreement in any other jurisdiction. This Agreement shall inure to the benefit of, and be binding upon the successors and assigns of each of the parties hereto, including any transferees of the Warrants and the Debentures. This Agreement may be amended only by an instrument in writing signed by the party to be charged with enforcement. This Agreement supersedes all prior agreements and understandings among the parties hereto with respect to the subject matter hereof. 11. NOTICES Any notice required or permitted hereunder shall be given in writing (unless otherwise specified herein) and shall be effective upon personal delivery, via facsimile (upon receipt of confirmation of error-free transmission) or two business days following deposit of such notice with an internationally recognized courier service, with postage prepaid and addressed to each of the other parties thereunto entitled at the following addresses, or at such other addresses as a party may designate by five days advance written notice to each of the other parties hereto. COMPANY: iBiz Technology Corp 1919 West Lone Cactus Phoenix, Arizona 85021 Att.: Kenneth W. Schilling, President Tel.: 623-492-9200 Fax: 623-492-9921 WITH A COPY TO: Gammage & Burnham Two North Central Avenue, Suite 1800 Phoenix, AZ 85004 Att: Steven Boatwright, Esq. Tel.: 602-256-4439 Fax: 602-256-4475 21 22 PURCHASER: Globe United Holdings, Inc. Akara Building Wickhams Cay #1 Road Town Tortola British Virgin Islands WITH A COPY TO: Laufer Halberstam & Karish 39 Broadway, 14th Floor New York, New York 10006 Attn: Michael J. Halberstam, Esq. Tel.: (212) 422-8500 Fax: (212) 422-9038 12. SURVIVAL The agreements, covenants representations and warranties of the Company and the Purchaser shall survive the execution and delivery of this Agreement and the delivery of the Securities hereunder. IN WITNESS WHEREOF, this Securities Purchase Agreement has been duly executed by each of the undersigned. iBIZ TECHNOLOGY CORP By:_____________________ Kenneth Shilling President GLOBE UNITED HOLDINGS, INC. By:_____________________ Title: Authorized Person 22 23 EXHIBIT INDEX EXHIBIT A FORM OF DEBENTURE EXHIBIT B FORM OF WARRANTS EXHIBIT C FORM OF REGISTRATION RIGHTS AGREEMENT EXHIBIT D OPINION OF COUNSEL 23 EX-10.19 4 EX-10.19 1 EXHIBIT 10.19 THESE SECURITIES (INCLUDING ANY UNDERLYING SECURITIES) HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL OR OTHER EVIDENCE REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION SHALL NO LONGER BE REQUIRED. 7% CONVERTIBLE DEBENTURE DUE DECEMBER 28, 2004 $1,000,000 December 29, 1999 New York, New York 1. CONSIDERATION. FOR VALUE RECEIVED, IBIZ TECHNOLOGY CORP., a Florida corporation (the "undersigned" or the "Company"), hereby promises to pay to the order of GLOBE UNITED HOLDINGS, INC., a British Virgin Islands corporation at its offices located at Akara Building, Wickhams Cay #1, Road Town Tortola, British Virgin Islands or at such other place as the holder hereof (the "holder" or the "Registered Holder") shall designate to the undersigned in writing, in lawful money of the United States of America or in New York Clearing House Funds, the principal amount of One Million Dollars, and to pay interest (computed on the basis of a 360-day year and the actual number of days elapsed) on the unpaid principal amount hereof at the rate of seven (7 %) percent per annum. The undersigned promises to pay the said principal sum and interest in accordance with the terms of this Debenture. 2. PAYMENT. Until this Debenture is completely retired the undersigned shall make payments of accrued interest on this Debenture on the first day of April and November in each year (commencing with April 1, 2000), computed at the rate of 7% per annum on the unpaid principal balance of this Debenture for the period from the date of this Debenture until the date of such interest payment. On December 28, 2004 (the "Maturity Date") the undersigned shall pay the holder all unpaid principal and interest on this Debenture. Principal and interest shall be payable at the most recent address as the Registered Holder shall have designated to the Company in writing. No payment of the principal of the Debenture may be made prior to the Maturity Date by the Company without the consent of the Registered Holder, except as otherwise provided herein. At the Registered Holder's option, any interest payments on this Debenture may be made in the form of the issuance to the holder of the Company's common stock, par value $.001 per share (the "Common Stock"), with the number of shares of 2 such Common Stock to be payable in respect of such interest payments to be determined in accordance with the provisions of Section 6, as if such interest payment were a portion of the principal amount of the Debenture to be converted into Common Stock. 3. OVERDUE INTEREST PAYMENTS. Interest on the indebtedness evidenced by this Debenture after default or maturity accelerated or otherwise shall be due and payable at the rate of eighteen (18%) percent per annum, subject to the limitations of applicable law. 4. HOLIDAYS. If this Debenture or any installment hereof becomes due and payable on a Saturday, Sunday or public holiday under the laws of the State of New York, the due date hereof shall be extended to the next succeeding business day and interest shall be payable at the rate of seven (7%) percent per annum during such extension. All payments received by the holder shall be applied first to the payment of all accrued interest payable hereunder. 5. ISSUANCE OF DEBENTURES. This Debenture has been issued by the Company pursuant to the authorization of the Board of Directors of the Company (the "Board") and issued pursuant to a Securities Purchase Agreement, dated as of the date hereof, by and between the Company and the Purchasers identified therein (the "Securities Purchase Agreement"). Pursuant to the Securities Purchase Agreement, the Company issued an aggregate of $1,000,000 principal amount of the Debentures and warrants to purchase 200,000 shares of Common Stock (the "Warrants"). The Securities Purchase Agreement contains certain additional terms that are binding upon the Company and each Registered Holder of the Debentures. A copy of the Securities Purchase Agreement may be obtained by any registered holder of the Debentures from the Company upon written request. Capitalized terms used but not defined herein shall have the meanings set forth in the Securities Purchase Agreement. The Debentures, together with any debentures from time to time issued in replacement thereof, whether pursuant to transfer and assignment, partial conversion thereof or otherwise, are collectively referred to herein as the "Debentures." 6. CONVERSION. (a) Subject to and in compliance with the provisions hereof, the holder shall have the right to convert all or a portion of the outstanding principal amount of this Debenture into such number of shares of Common Stock (the shares of Common Stock issuable upon conversion of, and issuable in respect of interest payments on, this Debenture are hereinafter referred to as the "Conversion Shares") as shall equal the quotient obtained by dividing (x) the principal amount of this Debenture to be converted by (y) the Applicable Conversion Price (as hereinafter defined) and by surrender of this Debenture, such surrender to be made in the manner provided herein. 2 3 (b) For purposes hereof the term "Applicable Conversion Price" shall mean the lesser of (i) $0.94 (the "Fixed Price") or (ii) the product obtained by multiplying (x) the Average Closing Price (as hereinafter defined) by (y) .80. For purposes hereof the "Average Closing Price" with respect to any conversion elected to be made by the holder shall be the average of the daily closing bid prices (each such price is referred to individually as a "Floating Reference Price" and, collectively, as the "Floating Reference Prices") for any three trading days, as selected by the holder, out of the twenty trading days immediately preceding the date on which the holder gives the Company a written notice of the holder's election to convert outstanding principal of this Debenture. The closing bid price on any trading day shall be (a) if the Common Stock is then listed or quoted on either the NASD Bulletin Board, the NASDAQ SmallCap Market or the NASDAQ National Market, the reported closing bid price for the Common Stock as reported by Bloomberg, L.P. ("Bloomberg") or The Wall Street Journal (the "Journal") on such day (or, if not so reported, as otherwise reported by The Nasdaq Small Cap Market), (b) if the Common Stock is listed on either the American Stock Exchange or New York Stock Exchange, the last reported sales price for the Common Stock on such exchange on such day as reported by Bloomberg or the Journal or (c) if no such prices are reported for the Common Stock by Bloomberg or the Journal, then the average of such prices of any market makers for such security as reported in the "pink sheets" by the National Quotation Bureau, Inc. If the prices of the Common Stock cannot be calculated on such date on any of the foregoing bases, such prices on such date shall be the fair market value as determined by an unaffiliated investment bank selected by Registered Holder for which the calculation is required in order to determine the Applicable Conversion Price. "Trading day" shall mean any day on which the Company's Common Stock is traded for any period on the principal securities exchange or other securities market on which the Common Stock is then being traded. (c) If, during any period following the issuance of this Debenture, as a result of the occurrence of any of the events set forth in Section 3(f) or 3(g) of the Registration Rights Agreement, dated as of the date hereof, by and between the Company and the purchasers set forth therein (the "Registration Rights Agreement"), the Purchasers set forth therein are not able to sell shares of Common Stock issuable upon conversion of, or in lieu of interest payments on, this Debenture pursuant to a registration statement filed pursuant to such agreement, the Registered Holder shall have the right, for any purpose under this Debenture during such period and thereafter, to designate as the Applicable Conversion Price any Conversion Price that would have been applicable during such period had the Registered Holder delivered a Notice of Conversion with respect to any portion of this Debenture. "Conversion Date" shall have the meaning given such term in Section 5(b) of the Securities Purchase Agreement. (d) The Registered Holder shall convert this Debenture in accordance with Section 5 of the Securities Purchase Agreement. If the Company 3 4 fails to deliver to the holder a certificate or certificates for shares of Common Stock in the period set forth in the Securities Purchase Agreement, the Company shall pay a penalty to the Registered Holder as set forth in Section 5(e) of the Securities Purchase Agreement. (e) If the entire outstanding principal amount of this Debenture is not converted, the Company shall also issue and deliver to such holder a new Debenture of like tenor in the principal amount equal to the principal which was not converted and dated the effective date of conversion. Each conversion shall be deemed to have been effected immediately prior to the close of business on the date on which a Notice of Conversion shall have been delivered as aforesaid, and the person or persons in whose name or names any certificate of certificates for shares of Common Stock shall be issuable upon such conversion shall be deemed to have become the holder or holders of record of the shares represented thereby at such time on such date. (f) All shares of Common Stock delivered upon conversion of this Debenture will, upon delivery, be duly authorized, validly issued and fully paid and nonassessable. (g) No fractional shares of Common Stock shall be issued upon conversion of this Debenture. Instead of any fractional share of Common Stock which would otherwise be deliverable upon the conversion of a principal of this Debenture the Company shall pay to the holder an amount in cash (computed to the nearest cent) equal to the Average Closing Price multiplied by the fraction of a share of Common Stock represented by such fractional interest. (h) The issuance of certificates for shares of Common Stock upon any conversion of this Debenture shall be made without charge to the payee hereof for any tax or other expense in respect to the issuance of such certificates, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued only in the name of the registered holder of this Debenture. 7. REDEMPTION BY COMPANY. (a) If while this Debenture is outstanding there shall occur a Change in Control of the Company (as defined below), then, at the option of the Registered Holder, the Company shall, on the effective date of and subject to the consummation of such Change in Control, redeem this Debenture for cash from the Registered Holder at a redemption price equal to 125% of the aggregate principal and accrued interest outstanding under this Debenture. Nothing in this subsection shall limit the Registered Holder's right to convert this Debenture on or prior to such Change in Control. For purposes hereof, a "Change in Control" shall be deemed to have occurred if (A) any person or group (as defined for purposes of Regulation 13D of the Securities Exchange Act of 1934, as amended) (excluding persons who on the date hereof are beneficial owners of shares of the Company's voting stock and affiliates of such persons) shall have become the 4 5 beneficial owner or owners of more than 50% of the outstanding voting stock of the Company; (B) there shall have occurred a merger or consolidation in which the Company or an affiliate of the Company is not the survivor or in which holders of the Common Stock of the Company shall have become entitled to receive cash, securities of the Company other than voting common stock or securities of any other person; (C) at any time persons constituting the Existing Board of Directors cease for any reason whatsoever to constitute at least a majority of the members of the Board of Directors of the Company; or (D) there shall have occurred a sale of all or substantially all the assets of the Company. For purposes hereof, the term "Existing Board of Directors" shall mean the persons constituting the Board of Directors of the Company on the date hereof, together with each new director whose election, or nomination for election by the Company's stockholders is approved by a vote of the majority of the members of the Existing Board of Directors who are in office immediately prior to the election or nomination of such director. (b) At any time that the number of shares of Common Stock issued upon conversion of the Debentures and in respect of interest payments on the Debentures, shall equal 4,750,000 (a "Redemption Event"), the Corporation shall, at its election, either (x) redeem all of the principal amount then outstanding under this Debenture for cash in an amount equal to (A) the quotient of (i) the aggregate principal and accrued interest outstanding under this Debenture and (ii) the Applicable Conversion Price as if this Debenture had been converted on the Debenture Redemption Date multiplied by (B) the Average Closing Price of shares of Common Stock for the five (5) trading days immediately preceding the Debenture Redemption Date, or (y) if required, call a special meeting of its stockholders for the purpose of approving the transactions contemplated by the Securities Purchase Agreement, including the issuance of the Debenture on the terms set forth therein, together with any other approvals that shall be required so as to cause the transactions contemplated by the Securities Purchase Agreement to remain in compliance with the Rules and Regulations of The Nasdaq Stock Market (including Rules 4300 and 4310 of Nasdaq's Non-Qualitative Designation Criteria in connection with conversions of Debentures; such approvals are referred to herein as the "Required Approvals"). The Corporation shall determine within five (5) business days following the receipt of a Notice of Conversion which of such actions it shall take, and shall promptly furnish notice to each of the holders of Debenture as to such determination, including, if applicable, a notice of redemption. (c) If the Corporation elects to call a special meeting of its stockholders pursuant to Subsection 7(b) of this Debenture to obtain the Required Approvals, the Corporation shall use its best efforts to obtain such Required Approvals within forty five (45) days (or 75 days if the information statement is reviewed by the Commission) of the Initial Closing Date (such forty five (45) day (or seventy five (75) day) period is referred to herein as an "Approval Period"). If the Corporation does not obtain the Required Approvals within the Approval Period and the Corporation receives a Notice of Conversion after the termination of the Approval 5 6 Period, the Corporation must redeem, in accordance with this Section 7 of this Debenture, any principal amount of Debentures outstanding after the Corporation has issued in excess of 4,750,000 shares of Common Stock in connection with conversions of this Debenture. (d) If the Corporation elects, pursuant to this Section 7, to redeem this Debenture on the occurrence of a Debenture Redemption Event, it shall redeem such Debenture at the price determined in accordance with Subsection 7(b) of this Debenture. If the Corporation shall have elected, pursuant to this Subsection 7(b), to obtain the Required Approvals but shall not have done so by the later of the occurrence of the Debenture Redemption Event or the expiration of the Approval Period, it shall furnish a redemption notice to the Purchasers within three (3) business days after the expiration of the Approval Period. (e) If the Company elects to redeem the Debentures pursuant to any of the terms or conditions set forth in this Section 7, the Company shall remit the redemption price to the Registered Holder thereof immediately upon such redemption. 8. COVENANTS. (a) The Company will pay all taxes, assessments and governmental charges lawfully levied or assessed upon it, its property and any part thereof, and upon its income for profits, and any part thereof, before the same shall become delinquent; and will duly observe, and conform to, all lawful requirements of any governmental authority relative to any of its property, and all covenants, terms and conditions upon or under which any of its property is held; provided that nothing in this Section shall require the Company to observe or conform to any requirement of governmental authority or to pay any such tax, assessment or governmental charges so long as the validity thereof shall be contested in good faith. (b) Subject to the other provisions of this Debenture, the Company at all times will maintain its corporate existence and right to carry on its business and will duly procure all necessary renewals and extensions thereof and use its best efforts to maintain, preserve and renew all of its rights, powers, privileges and franchises; provided, however, that nothing herein contained shall be construed to prevent the Company from ceasing or omitting to exercise any rights, powers, privileges or franchises which, in the judgment of the Board, can no longer be profitably exercised, nor to prevent the consolidation, merger or liquidation of any subsidiary or subsidiaries of the Company with or into the Company. (c) The Company will at no time close its stock transfer books against the transfer of any shares of Common Stock issued or issuable upon the conversion of, or in lieu of payments on, the Debentures, in any manner which interferes with the timely conversion of such Debentures. 6 7 (d) As used in this Debenture, the term "Common Stock" shall mean the Company's authorized common stock, par value $0.001 per share. The Company shall not, without the prior written consent of the Registered Holder of this Debenture, issue any shares of its capital stock, other than as permitted by the Securities Purchase Agreement or in exchange for Debentures as provided hereunder. The term "Common Stock" includes all stock of any class or classes (however designated) of the Company, authorized on or after the date hereof, the holders of which shall have the right, without limitation as to amount, either to all or to a share of the balance of current dividends and liquidating dividends after the payment of dividends and distributions on any shares entitled to preference, and the holders of which shall ordinarily be entitled to vote for the election of the directors of the Company. (e) As used in this Debenture, the term "Primary Documents" shall have the meaning set forth in the Securities Purchase Agreement. The Company will not, by amendment of its Articles of Incorporation or By-laws or through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder or pursuant to any of the Primary Documents by the Company, and will at all times assist in good faith in the carrying out of all the provisions of this Debenture and the Primary Documents and in the taking of all such action as may be necessary or appropriate in order to protect the conversion rights of the Registered Holders of the Debentures against impairment. (f) In the event of any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend) or other distribution, any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, the Company shall mail to each Registered Holder of the Debentures, at least ten (10) days prior to the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right. 9. LIMITATION ON CERTAIN CORPORATE ACTS. The Company hereby covenants and agrees that upon any consolidation or merger or upon the transfer of all or substantially all of the property or assets of the Company, the due and punctual payment of the principal and interest on all the Debentures according to their tenor and the due and punctual performance and observance of all the terms, covenants and conditions of the Debentures and the Primary Documents to be kept and performed by the Company shall be expressly assumed by the corporation formed by such consolidation, or into which the Company shall have merged or by the purchaser of 7 8 such property or assets; and such assumption shall be an express condition of such merger or consolidation agreement or agreement for the transfer of property or assets. 10. EVENTS OF DEFAULT. In case one or more of the following events of default shall have occurred: (a) default in the due and punctual payment of interest upon or principal of any of the Debentures as and when the same becomes due and payable either at maturity or otherwise; or (b) failure to deliver the shares of Common Stock required to be delivered upon conversion of Debentures or exercise of the Warrants in the manner and at the time required by Section 5 of the Securities Purchase Agreement; or (c) failure of the Company to have authorized the number of shares of Common Stock issuable upon conversion of the Debentures or exercise of the Warrants; or (d) failure on the part of the Company to duly observe or perform any of its other covenants or agreements contained in the Debentures or in the Primary Documents, or to cure any material breach in a material representation or covenant contained in the Primary Documents for a period of ten (10) days after the date on which written notice of such failure or breach requiring the same to be remedied has been given by a Registered Holder to the Company; or (e) a decree or order by a court having jurisdiction has been entered adjudging the Company (or any Material Subsidiary) a bankrupt or insolvent, or approving a petition seeking reorganization of the Company (or any Material Subsidiary) under any applicable bankruptcy law and such decree or order has continued undischarged or unstayed for a period of thirty (30) days; or a decree or order of a court having jurisdiction for the appointment of a receiver or liquidator or trustee or assignee in bankruptcy or insolvency of the Company (or any Material Subsidiary) or of all or substantially all of its property, or for the winding-up or liquidation of its affairs, has been entered, and has remained in force undischarged or unstayed for a period of thirty (30) days; or (f) the Company (or any Material Subsidiary) institutes proceedings to be adjudicated a voluntary bankrupt, or consents to the filing of a bankruptcy proceeding against it, or files a petition or answer or consent seeking reorganization under applicable law, or consents to the filing of any such petition or to the appointment of a receiver or liquidator or trustee or assignee in bankruptcy or insolvency of it or of all or substantially all of its property, or makes an assignment for the benefit of creditors, or admits in writing its inability to pay its debts generally as they become due; or if the Company (or any Material Subsidiary) shall suffer any writ of attachment or execution or any similar process to be issued or levied against it 8 9 or any significant part of its property which is not released, stayed, bonded or vacated within thirty (30) days after its issue or levy; or if the Company (or any Material Subsidiary) takes corporate action in furtherance of any of the aforesaid purposes or conditions; or (g) if any default shall occur under any indenture, mortgage, agreement, instrument or commitment evidencing or under which there is at the time outstanding any indebtedness of the Company (or a Material Subsidiary, as hereinafter defined), in excess of $25,000, or which results in such indebtedness, in an aggregate amount (with other defaulted indebtedness) in excess of $25,000 becoming due and payable prior to its due date and if such indenture or instrument so requires, the holder or holders thereof (or a trustee on their behalf) shall have declared such indebtedness due and payable; or (h) if any of the Company or its subsidiaries shall default in the observance or performance of any material term or provision of a material agreement to which it is a party or by which it is bound, and such default is not waived or cured within the applicable grace period; or (i) if a final judgment which, either alone or together with other outstanding final judgments against the Company and its subsidiaries, exceeds an aggregate of $25,000 shall be rendered against the Company (or any Material Subsidiary) and such judgment shall have continued undischarged or unstayed for thirty (30) days after entry thereof; then, and in each and every such case, so long as such event of default has not been remedied and unless the principal of all the Debentures has already become due and payable, the holders of not less than fifty-one percent (51%) in principal amount of the Debentures then outstanding, by notice in writing to the Company, may declare the principal of all the Debentures then outstanding and the interest accrued thereof, if not already due and payable, to be due and payable immediately, and upon any such declaration the same shall become and shall be immediately due and payable, anything herein contained to the contrary notwithstanding. For purposes of this Section 10, "Material Subsidiary" means any subsidiary with respect to which the Company has directly or indirectly invested, loaned, advanced or guaranteed the obligations of, an aggregate amount exceeding fifteen percent (15%) of the Company's gross assets, or the Company's proportionate share of the assets or net income of which (based on the subsidiary's most recent financial statements) exceed fifteen percent (15%) of the Company's gross assets or net income, respectively, or the gross revenues of which exceed fifteen percent (15%) of the gross revenues of the Company based upon the most recent financial statements of such subsidiary and the Company. 9 10 11. TRANSFERABILITY. This Debenture is transferable, in whole or in part, only in accordance with the terms of the Securities Purchase Agreement. The Registered Holder may submit a written request, in person or by his duly authorized attorney, for a transfer of the Debenture on the register of the Company maintained at its principal offices. The Company may deem and treat the person in whose name this Debenture is registered as the absolute owner hereof, for the purpose of receiving payment of the principal thereof and interest hereon, whether or not the same shall be overdue, and for all other purposes whatsoever, including but without limitation, the giving of any written notices required hereunder, and the Company shall not be affected by any notice to the contrary. 12. STOCK SPLITS; DIVIDENDS; ADJUSTMENTS; REORGANIZATIONS. (a) If the Company, at any time while the Debentures are outstanding, (i) shall pay a stock dividend or otherwise make a distribution or distributions on any equity securities (including investments or securities convertible into or exchangeable for such equity securities) in shares of Common Stock, (ii) issue any securities payable in shares of Common Stock, (iii) subdivide the outstanding shares of Common Stock into a larger number of shares, (iv) combine outstanding shares of Common Stock into a smaller number of shares, the Fixed Price and each Floating Reference Price prior to the date of any such occurrence (collectively, the "Reference Prices") shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock outstanding before such event and of which the denominator shall be the number of shares of Common Stock outstanding after such event. Any adjustment made pursuant to this Section 12(a) shall become effective immediately after the record date for the determination of shareholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of an issuance, a subdivision or a combination. (b) In the event that the Company issues or sells any Common Stock or securities which are convertible into or exchangeable for its Common Stock or any convertible or exchangeable securities, or any warrants or other rights to subscribe for or to purchase or any options for the purchase of its Common Stock or any such convertible or exchangeable securities (other than shares or options issued pursuant to the Company's employee or director option plans or shares issued upon exercise of options, warrants or rights outstanding on the date of the Securities Purchase Agreement and listed in the Company's most recent periodic report filed under the Exchange Act) at an effective purchase price per share which is less than the Fixed Price then in effect, then the Fixed Price in effect immediately prior to such issue or sale shall be reduced effective concurrently with such issue or sale to an amount determined by multiplying such Fixed Price then in effect by a fraction, (x) the numerator of which shall be the sum of (1) the number of shares of Common Stock outstanding immediately prior to such issue or sale, plus (2) the number of shares of Common Stock which the aggregate consideration received by the Company 10 11 for such additional shares would purchase at such Fixed Price then in effect; and (y) the denominator of which shall be the number of shares of Common Stock of the Company outstanding immediately after such issue or sale. For the purposes of the foregoing adjustment, in the case of the issuance of any convertible or exchangeable securities, warrants, options or other rights to subscribe for or to purchase or exchange for, shares of Common Stock ("Exchangeable Securities"), the maximum number of shares of Common Stock issuable upon exercise, conversion or exchange of such Exchangeable Securities shall be deemed to be outstanding, provided that no further adjustment shall be made upon the actual issuance of Common Stock upon exercise, exchange or conversion of such Exchangeable Securities. (c) If the Company, at any time while the Debentures are outstanding, shall distribute to all holders of Shares of Common Stock evidences of its indebtedness or assets or rights or warrants to subscribe for or purchase any security (excluding those referred to in Section 12(b) above) then in each such case the Fixed Price thereafter shall be determined by multiplying the Fixed Price in effect immediately prior to the record date fixed for determination of shareholders entitled to receive such distribution by a fraction of which the denominator shall be the Market Price for Shares of Common Stock (as defined below) determined as of the record date mentioned above, and of which the numerator shall be such Market Price for Shares of Common Stock on such record date less the then fair market value at such record date of the portion of such assets or evidences of indebtedness so distributed applicable to one outstanding share of Common Stock as determined by the Board in good faith; provided, however that in the event of a distribution exceeding 25% of the net assets of the Company, such fair market value shall be determined by a nationally recognized investment banking firm or firm of independent chartered accountants of recognized standing (which may be the firm that regularly examines the financial statements of the Company) (an "Appraiser") selected in good faith by the Board and holders of a majority in interest of the Debentures. In either case the adjustments shall be described in a statement provided to all holders of Debentures of the portion of assets or evidences of indebtedness so distributed or such subscription rights applicable to one outstanding share of Common Stock. Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date mentioned above. "Market Price for Shares of Common Stock" shall mean the price of one share of Common Stock determined as follows: (i) If the Common Stock is listed on NASDAQ, the closing bid price on the date of valuation; 11 12 (ii) If the Common Stock is listed on the New York Stock Exchange or the American Stock Exchange, the closing bid price on such exchange on the date of valuation; (iii) If neither (i) nor (ii) apply but the Common Stock is quoted in the over-the-counter market, another recognized exchange, on the pink sheets or the OTC Bulletin Board, the lesser of (A) the lowest sales price or (B) the mean between the last reported "bid" and "asked" prices thereof on the date of valuation; and (iv) If neither clause (i), (ii) or (iii) above applies, the market value as determined by a nationally recognized investment banking firm or other nationally recognized financial advisor retained by the Company for such purpose, taking into consideration, among other factors, the earnings history, book value and prospects for the Company, and the prices at which shares of Common Stock recently have been traded. Such determination shall be conclusive and binding on all persons. (d) (1) In the event that at any time or from time to time after the Closing Date, the Common Stock issuable upon the conversion of the Debentures is changed into the same or a different number of shares of any class or classes of stock, whether by merger, consolidation, recapitalization, reclassification or otherwise (other than a subdivision or combination of shares or stock dividend or reorganization provided for elsewhere in this Paragraph 12), then and as a condition to each such event provision shall be made in a manner reasonably acceptable to the holders of Debentures so that each holder of Debentures shall have the right thereafter to convert such Debenture into the kind of stock receivable upon such recapitalization, reclassification or other change by holders of shares of Common Stock, all subject to further adjustment as provided herein. In such event, the formulae set forth herein for conversion and redemption shall be equitably adjusted to reflect such change in number of shares or, if shares of a new class of stock are issued, to reflect the market price of the class or classes of stock (applying the same factors used in determining the Fixed Price) issued in connection with the above described transaction. (2) If at any time or from time to time after the Closing Date there is a capital reorganization of the Common Stock, including by way of a sale of all or substantially all of the assets of the Company (other than a recapitalization, subdivision, combination, reclassification or exchange of shares provided for elsewhere in this Paragraph 12), then, as a part of and a condition to such reorganization, provision shall be made in a manner reasonably acceptable to the holders of the Debentures so that the holders of the Debentures shall thereafter be entitled to receive upon conversion of the Debentures the number of shares of stock or other securities or property to which a holder of the number of shares of Common Stock deliverable upon conversion would have been entitled on such capital 12 13 reorganization. In any such case, appropriate adjustment shall be made in the application of the provisions of this Paragraph 12 with respect to the rights of the holders of the Debentures after the reorganization to the end that the provisions of this Paragraph 12 shall be applicable after that event and be as nearly equivalent as may be practicable, including, by way of illustration and not limitation, by equitably adjusting the formulae set forth herein for conversion and redemption to reflect the market price of the securities or property (applying the same factors used in determining the Market Price for Shares of Common Stock) issued in connection with the above described transaction. (e) If at any time during the period ending twelve (12) months after the Closing Date, the Company sells or agrees to sell (including pursuant to a letter of intent, term sheet, or similar means) shares of Common Stock or securities or options convertible into, exercisable for, or exchangeable for, shares of Common Stock (other than (i) a sale pursuant to a bona fide registered public offering of shares of Common Stock by the Company conducted on the basis of a firm commitment underwriting raising at least $10,000,000 or (ii) shares or options issued pursuant to the Company's employee, director or consultant stock option plans) then, if the effective or maximum sales price of the shares of Common Stock with respect to such transaction (including the effective or maximum conversion exercise or exchange price) ("Other Price") is less than the Fixed Price of the Debentures at such time, the Company, at the option of a holder exercised by written notice to the Company, shall adjust the Fixed Price applicable to the Debentures of such holder not yet converted in form and substance reasonably satisfactory to such holder of Debentures so that the conversion price applicable to those Debentures shall, in no event, be greater, after giving effect to all other adjustments contained therein, than the Other Price. (f) Whenever any element of the Applicable Conversion Price is adjusted pursuant to Section 12(a), (b), (c), (d) or (e), the Company shall promptly mail to each holder of the Debentures, a notice setting forth the Applicable Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. (g) In the event of any taking by the Company of a record date of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, any security or right convertible or exchangeable into or entitling the holder thereof to receive additional shares of Common Stock, or any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, the Company, shall deliver to each holder of Debentures at least 20 days prior to the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution, security or right and the amount and character of such dividend, distribution, security or right. 13 14 13. REMEDIES CUMULATIVE. The rights, powers and remedies given to the payee under this Debenture shall be in addition to all rights, powers and remedies given to it by virtue of the Purchase Agreement, any document or instrument executed in connection therewith, or any statute or rule of law. 14. NON-WAIVER. Any forbearance, failure or delay by the payee in exercising any right, power or remedy under this Debenture, the Primary Documents, any documents or instruments executed in connection therewith or otherwise available to the payee shall not be deemed to be a waiver of such right, power or remedy, nor shall any single or partial exercise of any right, power or remedy preclude the further exercise thereof. 15. MODIFICATIONS AND WAIVERS. No modification or waiver of any provision of this Debenture, the Primary Documents or any documents or instruments executed in connection therewith shall be effective unless it shall be in writing and signed by the payee, and any such modification or waiver shall apply only in the specific instance for which given. 16. ATTORNEY'S FEES. If this Debenture shall not be paid when due and shall be placed by the Registered Holder hereof in the hands of an attorney for collection, through legal proceedings or otherwise, or if this Debenture shall not be converted into shares of Common Stock on the Conversion Date, and an action is brought by the Registered Holder with respect thereto, the Company shall pay attorney's fees to the Registered Holder hereof, together with reasonable costs and expenses of collection or enforcement incurred in connection with any such action. 17. ENFORCEMENT; SPECIFIC PERFORMANCE. (a) In case any one or more Events of Default shall occur and be continuing, a Registered Holder of a Debenture then outstanding may proceed to protect and enforce the rights of such holder by an action at law, suit in equity or other appropriate proceeding, whether for the specific performance of any agreement contained herein or for an injunction against a violation of any of the terms hereof or thereof, or in aid of the exercise of any power granted hereby or thereby or by law. (b) The Company expressly agrees that each Registered Holder may not have adequate remedies at law if the Company does not perform its obligations under this Debenture. Upon a breach of the terms or covenants of this Debenture by the Company, the Registered Holder shall, each in addition to all other remedies, be entitled to obtain injunctive relief, and an order for specific performance of the Company's obligations hereunder. 18. This Debenture and the rights and obligations of the parties hereto, shall be governed, construed and interpreted according to the laws of the State of New York. The Company agrees that any final judgment after exhaustion of all appeals or the expiration of time to appeal in any such action or proceeding shall be 14 15 conclusive and binding, and may be enforced in any federal or state court in the United States by suit on the judgment or in any other manner provided by law. Nothing contained in this Debenture shall affect or limit the right of the Registered Holder to serve any process or notice or motion or other application in any other manner permitted by law, or limit or affect the right of the Registered Holder to bring any action or proceeding against the Company or any of its property in the courts of any other jurisdiction. The Company hereby consents to the jurisdiction of the federal courts whose districts encompass any part of the City of New York or the state courts of the State of New York sitting in the City of New York in connection with any dispute arising under this Debenture, and hereby waives, to the maximum extent permitted by law, any objection, including any objections based on forum non conveniens, to the bringing of any such proceeding in such jurisdictions. 19. PAYEE DEFINED. The term "payee" as used herein shall be deemed to include the payee and its successors, endorsees and assigns. 20. WAIVER OF PRESENTMENT, ETC. The undersigned hereby waives presentment, demand for payment, protest, notice of protest and notice of non-payment hereof. 21. HEADINGS. The headings contained in this Debenture are for reference purposes only and shall not affect the meaning of interpretation of this Debenture. IN WITNESS WHEREOF, the Company has caused this Debenture to be executed as of the date first written above. By:_____________________________________ Name: Kenneth W. Schilling Title: Chairman NOTICE OF CONVERSION The conversion form appearing below should only be executed by the Registered Holder desiring to convert all or part of the principal amount of the Debenture attached hereto. CONVERSION FORM Date: __________________________ TO: iBIZ TECHNOLOGY CORP. 1919 West Lane Cactus Phoenix, Arizona 85027 15 16 The undersigned hereby exercises the conversion privilege upon the terms and conditions set forth in the attached Debenture, to the extent of the maximum number of shares of Common Stock issuable pursuant to the terms of Section 6 of the Debenture, and accordingly, authorizes the Company to apply $_______________ principal amount of the attached Debenture to payment in full for such shares of Common Stock. Please register such shares and make delivery thereof as follows: Registered in the Name of (Giving First or Middle Name in Full) Name ______________________________________ (Please Print) Address ___________________________________ DELIVERY INSTRUCTIONS To be completed ONLY if Certificates are to be mailed to persons other than the Registered Holder. Name _____________________________________ (Please Print) Address __________________________________ Signature ________________________________ ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfer unto the within Debenture and all rights thereunder, hereby irrevocably authorizing the Company to transfer said Debenture on the books of the Company, with full power of substitution in the premises. Dated: _________________________________________ Signature: _____________________________________ Print Name: ____________________________________ 16 EX-10.20 5 EX-10.20 1 EXHIBIT 10.20 THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE TRANSFERRED IN VIOLATION OF SUCH ACT, THE RULES AND REGULATIONS THEREUNDER OR ANY STATE SECURITIES LAWS OR THE PROVISIONS OF THIS WARRANT. No. of Shares of Common Stock: 200,000 WARRANT To Purchase Common Stock of IBiz Technology Corp. THIS IS TO CERTIFY THAT GLOBE UNITED HOLDINGS, INC., a British Virgin Islands corporation, or registered assigns, is entitled, at any time from the Warrant Issuance Date (as hereinafter defined) to the Expiration Date (as hereinafter defined), to purchase from IBiz Technology Corp., a Florida corporation (the "Company"), 200,000 shares of Common Stock (as hereinafter defined and subject to adjustment as provided herein), in whole or in part, including fractional parts, at a purchase price per share equal to $ 0.94 (subject to any adjustments made to such amount pursuant to Section 4 hereto) on the terms and conditions and pursuant to the provisions hereinafter set forth. 1. DEFINITIONS As used in this Warrant, the following terms have the respective meanings set forth below: "Additional Shares of Common Stock" shall mean all shares of Common Stock issued by the Company after the Closing Date, other than Warrant Stock. "Book Value" shall mean, in respect of any share of Common Stock on any date herein specified, the consolidated book value of the Company as of the last day of any month immediately preceding such date, divided by the number of Fully Diluted Outstanding shares of Common Stock as determined in accordance with GAAP (assuming the payment of the exercise prices for such shares) by a firm of independent certified public accountants of recognized national standing selected by the Company and reasonably acceptable to the Holder. 2 "Business Day" shall mean any day that is not a Saturday or Sunday or a day on which banks are required or permitted to be closed in the State of New York. "Closing Date" shall have the meaning set forth in the Securities Purchase Agreement. "Commission" shall mean the Securities and Exchange Commission or any other federal agency then administering the Securities Act and other federal securities laws. "Common Stock" shall mean (except where the context otherwise indicates) the Common Stock, $.001 par value, of the Company as constituted on the Closing Date, and any capital stock into which such Common Stock may thereafter be changed, and shall also include (i) capital stock of the Company of any other class (regardless of how denominated) issued to the holders of shares of Common Stock upon any reclassification thereof which is also not preferred as to dividends or assets over any other class of stock of the Company and which is not subject to redemption and (ii) shares of common stock of any successor or acquiring corporation received by or distributed to the holders of Common Stock of the Company in the circumstances contemplated by Section 4.4. "Convertible Securities" shall mean evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable, with or without payment of additional consideration in cash or property, for shares of Common Stock, either immediately or upon the occurrence of a specified date or a specified event. "Current Warrant Price" shall mean, $ 0.94 subject to any adjustments to such amount made in accordance with Section 4 hereof. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, or any successor federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect from time to time. "Exercise Period" shall mean the period during which this Warrant is exercisable pursuant to Section 2.1. "Expiration Date" shall mean December 28, 2004. "Fully Diluted Outstanding" shall mean, when used with reference to Common Stock, at any date as of which the number of shares thereof is to be determined, all shares of Common Stock Outstanding at such date and all shares of Common Stock issuable in respect of this Warrant, outstanding on such date, and other options or warrants to purchase, or securities convertible into, shares of Common Stock outstanding on such date which would be deemed outstanding in 2 3 accordance with GAAP for purposes of determining book value or net income per share. "GAAP" shall mean generally accepted accounting principles in the United States of America as from time to time in effect. "Holder" shall mean the Person in whose name the Warrant or Warrant Stock set forth, herein is registered on the books of the Company maintained for such purpose. "Market Price" per Common Share means the average of the closing bid prices of the Common Shares as reported on the National Association of Securities Dealers Automated Quotation System for the National Market, ("NASDAQ") or, if such security is not listed or admitted to trading on the NASDAQ, on the principal national security exchange or quotation system on which such security is quoted or listed or admitted to trading, or, if not quoted or listed or admitted to trading on any national securities exchange or quotation system, the closing bid price of such security on the over-the-counter market on the day in question as reported by the National Association of Security Dealers, Inc., or a similar generally accepted reporting service, as the case may be, for the five (5) trading days immediately preceding the date of determination. "Other Property" shall have the meaning set forth in Section 4.4. "Outstanding" shall mean, when used with reference to Common Stock, at any date as of which the number of shares thereof is to be determined, all issued shares of Common Stock, except shares then owned or held by or for the account of the Company or any subsidiary thereof, and shall include all shares issuable in respect of outstanding scrip or any certificates representing fractional interests in shares of Common Stock. "Person" shall mean any individual, sole proprietorship, partnership, joint venture, trust, incorporated organization, association, corporation, institution, public benefit corporation, entity or government (whether federal, state, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof). "Registration Rights Agreement" shall mean the Registration Rights Agreement dated a date even herewith by and between the Company and Globe United Holdings, Inc., as it may be amended from time to time. "Restricted Common Stock" shall mean shares of Common Stock which are, or which upon their issuance on the exercise of this Warrant would be, evidenced by a certificate bearing the restrictive legend set forth in Section 9.1(a). 3 4 "Securities Act" shall mean the Securities Act of 1933, as amended, or any successor federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Securities Purchase Agreement" shall mean the Securities Purchase Agreement dated as of a date even herewith by and between the Company and Globe United Holdings, Inc., as it may be amended from time to time. "Transfer" shall mean any disposition of any Warrant or Warrant Stock or of any interest in either thereof, which would constitute a sale thereof within the meaning of the Securities Act. "Transfer Notice" shall have the meaning set forth in Section 9.2. "Warrant Issuance Date" shall mean any date on which Warrants are issued pursuant to the Securities Purchase Agreement. "Warrants" shall mean this Warrant and all warrants issued upon transfer, division or combination of, or in substitution for, any thereof. All Warrants shall at all times be identical as to terms and conditions and date, except as to the number of shares of Common Stock for which they may be exercised. "Warrant Price" shall mean an amount equal to (i) the number of shares of Common Stock being purchased upon exercise of this Warrant pursuant to Section 2.1, multiplied by (ii) the Current Warrant Price as of the date of such exercise. "Warrant Stock" shall mean the shares of Common Stock purchased by the holders of the Warrants upon the exercise thereof. 2. EXERCISE OF WARRANT 2.1. Manner of Exercise. From and after the Warrant Issuance Date and until 5:00 P.M., New York City time, on the Expiration Date, Holder may exercise this Warrant, on any Business Day, for all or any part of the number of shares of Common Stock purchasable hereunder. In order to exercise this Warrant, in whole or in part, Holder shall deliver to the Company at the office or agency designated by the Company pursuant to Section 12, (i) a written notice of Holder's election to exercise this Warrant, which notice shall specify the number of shares of Common Stock to be purchased, (ii) payment by cash, check or bank draft payable to the Company of the Warrant Price in cash or by wire transfer or cashier's check drawn on a United States bank or by the Holder's surrender of Warrant Stock (or the right to receive such number of shares) having an aggregate Market Price equal to the Warrant Price for all shares then being 4 5 purchased and (iii) this Warrant. Such notice shall be substantially in the form of the subscription form appearing at the end of this Warrant as Exhibit A, duly executed by Holder or its agent or attorney. Upon receipt of the items referred to in clauses (i), (ii) and (iii) above, the Company shall, as promptly as practicable, and in any event within three (3) Business Days thereafter, execute or cause to be executed and deliver or cause to be delivered to Holder a certificate or certificates representing the aggregate number of full shares of Common Stock issuable upon such exercise, together with cash in lieu of any fraction of a share, as hereinafter provided. The stock certificate or certificates so delivered shall be, to the extent possible, in such denomination or denominations as Holder shall request in the notice and shall be registered in the name of Holder or, subject to Section 9, such other name as shall be designated in the notice. This Warrant shall be deemed to have been exercised and such certificate or certificates shall be deemed to have been issued, and Holder or any other Person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the Warrant has been exercised by payment to the Company of the Warrant Price. If this Warrant shall have been exercised in part, the Company shall, at the time of delivery of the certificate or certificates representing Warrant Stock, deliver to Holder a new Warrant evidencing the rights of Holder to purchase the unpurchased shares of Common Stock called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant. The Holder shall be entitled to exercise the Warrant notwithstanding the commencement of any case under 11 U.S.C. Section 101 et seq. (the "Bankruptcy Code"). In the event the Company is a debtor under the Bankruptcy Code, the Company hereby waives to the fullest extent permitted any rights to relief it may have under 11 U.S.C. Section 362 in respect of the Holder's exercise right. The Company hereby waives to the fullest extent permitted any rights to relief it may have under 11 U.S.C. Section 362 in respect of the exercise of the Warrant. The Company agrees, without cost or expense to the Holder, to take or consent to any and all action necessary to effectuate relief under 11 U.S.C. Section 362. 2.2. Payment of Taxes and Charges. All shares of Common Stock issuable upon the exercise of this Warrant pursuant to the terms hereof shall be validly issued, fully paid and nonassessable, and without any preemptive rights. The Company shall pay all expenses in connection with, and all taxes and other governmental charges that may be imposed with respect to, the issue or delivery thereof. Fractional Shares. The Company shall not be required to issue a fractional share of Common Stock upon exercise of any Warrant. As to any fraction of a share which Holder would otherwise be entitled to purchase upon such exercise, the Company shall pay a cash adjustment in respect of such final fraction in an amount equal to the same fraction of the Market Price per share of Common Stock on the relevant exercise date. 5 6 Continued Validity. A holder of shares of Common Stock issued upon the exercise of this Warrant, in whole or in part (other than a holder who acquires such shares after the same have been publicly sold pursuant to a Registration Statement under the Securities Act or sold pursuant to Rule 144 thereunder), shall continue to be entitled with respect to such shares to all rights to which it would have been entitled as Holder under Sections 9, 10 and 14 of this Warrant. The Company will, at the time of exercise of this Warrant, in whole or in part, upon the request of Holder, acknowledge in writing, in form reasonably satisfactory to Holder, its continuing obligation to afford Holder all such rights; provided, however, that if Holder shall fall to make any such request, such failure shall not affect the continuing obligation of the Company to afford to Holder all such rights. 3. TRANSFER, DIVISION AND COMBINATION 3.1 Transfer. Subject to compliance with Sections 9, transfer of this Warrant and all rights hereunder, in whole or in part, shall be registered on the books of the Company to be maintained for such purpose, upon surrender of this Warrant at the principal office of the Company referred to in Section 2.1 or the office or agency designated by the Company pursuant to Section 12, together with a written assignment of this Warrant substantially in the form of Exhibit B hereto duly executed by Holder or its agent or attorney. Upon such surrender, the Company shall, subject to Section 9, execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denomination specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. A Warrant, if properly assigned in compliance with Section 9, may be exercised by a new Holder for the purchase of shares of Common Stock without having a new Warrant issued. 3.2 Division and Combination. Subject to Section 9, this Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office or agency of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by Holder or its agent or attorney. Subject to compliance with Section 3.1 and with Section 9, as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. 3.3 Expenses. The Company shall prepare, issue and deliver at its own expense the new Warrant or Warrants under this Section 3. 3.4 Maintenance of Books. The Company agrees to maintain, at its aforesaid office or agency, books for the registration and the registration of transfer of the Warrants. 6 7 4. ADJUSTMENTS The number of shares of Common Stock for which this Warrant is exercisable, or the price at which such shares may be purchased upon exercise of this Warrant, shall be subject to adjustment from time to time as set forth in this Section 4. The Company shall give Holder notice at the time of such event. 4.1. Stock Dividends, Subdivisions and Combinations. If at any time the Company shall: (a) take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend payable in, or other distribution of, Additional Shares of Common Stock, (b) subdivide its outstanding shares of Common Stock into a larger number of shares of Common Stock, or (c) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock, then (i) the number of shares of Common Stock for which this Warrant is exercisable immediately after the occurrence of any such event shall be adjusted to equal the number of shares of Common Stock which a record holder of the same number of shares of Common Stock for which this Warrant is exercisable immediately prior to the occurrence of such event would own or be entitled to receive after the happening of such event, and (ii) the Current Warrant Price shall be adjusted to equal (A) the Current Warrant Price multiplied by the number of shares of Common Stock for which this Warrant is exercisable immediately prior to the adjustment divided by (B) the number of shares for which this Warrant is exercisable immediately after such adjustment. 4.2. Certain Other Distributions. (a) If at any time prior to the Expiration Date the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive any dividend or other distribution of. (i) cash, (ii) any evidences of its indebtedness, any shares of its stock or any other securities or property of any nature whatsoever (other than cash, Convertible Securities or Additional Shares of Common Stock), or 7 8 (iii) any warrants or other rights to subscribe for or purchase any evidences of its indebtedness, any shares of its stock or any other securities or property of any nature whatsoever (other than cash, Convertible Securities or Additional Shares of Common Stock), then Holder shall be entitled to receive such dividend or distribution as if Holder had exercised the Warrant. A reclassification of the Common Stock (other than a change in par value, or from par value to no par value or from no par value to par value) into shares of Common Stock and shares of any other class of stock shall be deemed a distribution by the Company to the holders of its Common Stock of such shares of such other class of stock within the meaning of this Section 4.2 and, if the outstanding shares of Common Stock shall be changed into a larger or smaller number of shares of Common Stock as a part of such reclassification, such change shall be deemed a subdivision or combination, as the case may be, of the outstanding shares of Common Stock within the meaning of Section 4.1. (b) In case the Company shall issue any Common Stock or any rights, options or warrants to all holders of record of its Common Stock entitling all holders to subscribe for or purchase shares of Common Stock at a price per share less than the Market Price per share of the Common Stock on the date fixed for such issue, the Current Warrant Price in effect immediately prior to the close of business on the date fixed for such determination shall be reduced to the amount determined by multiplying such Current Warrant Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to the close of business on the date fixed for such determination plus the number of shares of Common Stock which the aggregate of the offering price of the total number of shares of Common Stock so offered for subscription or purchase would purchase at such Market Price and the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to the close of business on the date fixed for such determination plus the number of shares of Common Stock so offered for subscription or purchase, such reduced amount to become effective immediately after the close of business on the date fixed for such determination. For the purposes of this clause (b), (i) the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company and (ii) in the case of any rights, options or warrants which expire by their terms not more than 60 days after the date of issue, sale, grant or assumption thereof, no adjustment of the Current Warrant Price shall be made until the expiration or exercise of all rights, options or warrants, whereupon such adjustment shall be made in the manner provided in this clause (b), but only with respect to the shares of Common Stock actually issued pursuant thereto. Such adjustment shall be made successively whenever any event specified above shall occur. In the event that any or all rights, options or warrants covered by this clause (b) are not so issued or expire or terminate before being exercised, the Current Warrant Price then in effect shall be appropriately readjusted. 8 9 4.3. Other Provisions Applicable to Adjustments under this Section. The following provisions shall be applicable to the making of adjustments of the number of shares of Common Stock for which this Warrant is exercisable and the Current Warrant Price provided for in this Section 4: (a) When Adjustments to Be Made. The adjustments required by this Section 4 shall be made whenever and as often as any specified event requiring an adjustment shall occur. For the purpose of any adjustment, any specified event shall be deemed to have occurred at the close of business on the date of its occurrence. (b) Fractional Interests. In computing adjustments under this Section 4, fractional interests in Common Stock shall be taken into account to the nearest 1/10th of a share. (c) When Adjustment Not Required. If the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend or distribution or subscription or purchase rights and shall, thereafter and before the distribution to stockholders thereof, legally abandon its plan to pay or deliver such dividend, distribution, subscription or purchase rights, then thereafter no adjustment shall be required by reason of the taking of such record and any such adjustment previously made in respect thereof shall be rescinded and annulled. (d) Challenge to Good Faith Determination. Whenever the Board of Directors of the Company shall be required to make a determination in good faith of the fair value of any item under this Section 4, such determination may be challenged in good faith by the Holder, and any dispute shall be resolved by an investment banking firm of recognized national standing selected by the Holder. 4.4. Reorganization, Reclassification, Merger, Consolidation or Disposition of Assets. In case the Company shall reorganize its capital, reclassify its capital stock, consolidate or merge with or into another corporation (where the Company is not the surviving corporation or where there is a change in or distribution with respect to the Common Stock of the Company), or sell, transfer or otherwise dispose of all or substantially all its property, assets or business to another corporation and, pursuant to the terms of such reorganization, reclassification, merger, consolidation or disposition of assets, shares of common stock of the successor or acquiring corporation, or any cash, shares of stock or other securities or property of any nature whatsoever (including warrants or other subscription or purchase rights) in addition to or in lieu of common stock of the successor or acquiring corporation ("Other Property"), are to be received by or distributed to the holders of Common Stock of the Company, then Holder shall have the right thereafter to receive, upon exercise of the Warrant, the number of shares of common stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and Other 9 10 Property receivable upon or as a result of such reorganization, reclassification, merger, consolidation or disposition of assets by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such event. In case of any such reorganization, reclassification, merger, consolidation or disposition of assets, the successor or acquiring corporation (if other than the Company) shall expressly assume the due and punctual observance and performance of each and every covenant and condition of this Warrant to be performed and observed by the Company and all the obligations and liabilities hereunder, subject to such modifications as may be deemed appropriate, subject to the Holder's consent, in order to provide for adjustments of shares of Common Stock for which this Warrant is exercisable which shall be as nearly equivalent as practicable to the adjustments provided for in this Section 4. For purposes of this Section 4.4, "common stock of the successor or acquiring corporation" shall include stock of such corporation of any class which is not preferred as to dividends or assets over any other class of stock of such corporation and which is not subject to redemption and shall also include any evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable for any such stock, either immediately or upon the arrival of a specified date or the happening of a specified event and any warrants or other rights to subscribe for or purchase any such stock. The foregoing provisions of this Section 4.4 shall similarly apply to successive reorganizations, reclassifications, mergers, consolidations or disposition of assets. 4.5. Other Action Affecting Common Stock. In case at any time or from time to time the Company shall take any action in respect of its Common Stock, other than any action taken in the ordinary course of the Company's business or any action described in this Section 4, which would, in the opinion of an unaffiliated investment bank selected by Holder, have a materially adverse effect upon the rights of the Holder, the number of shares of Common Stock and/or the purchase price thereof shall be adjusted in such manner as may be equitable in the circumstances, as determined in good faith by an unaffiliated investment bank selected by Holder. 4.6. Certain Limitations. Notwithstanding anything herein to the contrary, the Company agrees not to enter into any transaction which, by reason of any adjustment hereunder, would cause the Current Warrant Price to be less than the par value per share of Common Stock. 4.7. No Voting Rights. This Warrant shall not entitle its Holder to any voting rights or other rights as a shareholder of the Company. 5. NOTICES TO HOLDER 5.1. Notice of Adjustments. Whenever the number of shares of Common Stock for which this Warrant is exercisable, or whenever the price at which a share of such Common Stock may be purchased upon exercise of the Warrants, shall be adjusted pursuant to Section 4, the Company shall forthwith prepare a 10 11 certificate to be executed by an executive officer of the Company setting forth, in reasonable detail, the event requiring the adjustment and the method by which such adjustment was calculated, specifying the number of shares of Common Stock for which this Warrant is exercisable and (if such adjustment was made pursuant to Section 4.4 or 4.5) describing the number and kind of any other shares of stock or Other Property for which this Warrant is exercisable, and any change in the purchase price or prices thereof, after giving effect to such adjustment or change. The Company shall promptly cause a signed copy of such certificate to be delivered to the Holder in accordance with Section 14.2. The Company shall keep at its office or agency designated pursuant to Section 12 copies of all such certificates and cause the same to be available for inspection at said office during normal business hours by the Holder or any prospective purchaser of a Warrant designated by the Holder. 5.2. Notice of Corporate Action. If at any time (a) the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend or other distribution, or any right to subscribe for or purchase any evidences of its indebtedness, any shares of stock of any class or any other securities or property, or to receive any other right, or (b) there shall be any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company or any consolidation or merger of the Company with, or any sale, transfer or other disposition of all or substantially all the property, assets or business of the Company to, another corporation, or (c) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Company; then, in any one or more of such cases, the Company shall give to Holder (i) at least 30 Business Days' prior written notice of the date on which a record date shall be selected for such dividend, distribution or right or for determining rights to vote in respect of any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, dissolution, liquidation or winding up, and (ii) in the case of any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, dissolution, liquidation or winding up, at least 30 Business Days prior written notice of the date when the same shall take place. Such notice in accordance with the foregoing clause also shall specify (i) the date on which any such record is to be taken for the purpose of such dividend, distribution or right, the date on which the holders of Common Stock shall be entitled to any such dividend, distribution or right, and the amount and character thereof, and (ii) the date on which any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, dissolution, liquidation or winding up is to take place and the time, if any such time is to be fixed, as of which the holders of Common Stock shall be entitled to exchange their shares of 11 12 Common Stock for securities or other property deliverable upon such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, dissolution, liquidation or winding up. Each such written notice shall be sufficiently given if addressed to Holder at the last address of Holder appearing on the books of the Company and delivered in accordance with Section 14.2. 6. NO IMPAIRMENT The Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder against impairment. Without limiting the generality of the foregoing, the Company will (a) not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above the amount payable therefor upon such exercise immediately prior to such increase in par value, (b) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant, and (c) use its best efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof as may be necessary to enable the Company to perform its obligations under this Warrant. Upon the request of Holder, the Company will at any time during the period this Warrant is outstanding acknowledge in writing, in form reasonably satisfactory to Holder, the continuing validity of this Warrant and the obligations of the Company hereunder. 7. RESERVATION AND AUTHORIZATION OF COMMON STOCK From and after the Closing Date, the Company shall at all times reserve and keep available for issue upon the exercise of Warrants such number of its authorized but unissued shares of Common Stock as will be sufficient to permit the exercise in full of all outstanding Warrants. All shares of Common Stock which shall be so issuable, when issued upon exercise of any Warrant and payment therefor in accordance with the terms of such Warrant, shall be duly and validly issued and fully paid and nonassessable, and not subject to preemptive rights. Before taking any action which would cause an adjustment reducing the Current Warrant Price below the then par value, if any, of the shares of Common Stock issuable upon exercise of the Warrants, the Company shall take any corporate action which may be necessary in order that the Company may validly and legally 12 13 issue fully paid and non-assessable shares of such Common Stock at such adjusted Current Warrant Price. Before taking any action which would result in an adjustment in the number of shares of Common Stock for which this Warrant is exercisable or in the Current Warrant Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof 8. TAKING OF RECORD: STOCK AND WARRANT TRANSFER BOOKS In the case of all dividends or other distributions by the Company to the holders of its Common Stock with respect to which any provision of Section 4 refers to the taking of a record of such holders, the Company will in each such case take such a record and will take such record as of the close of business on a Business Day. The Company will not at any time close its stock transfer books or Warrant transfer books so as to result in preventing or delaying the exercise or transfer of any Warrant. 9. RESTRICTIONS ON TRANSFERABILITY The Warrants and the Warrant Stock shall not be transferred, hypothecated or assigned before satisfaction of the conditions specified in this Section 9, which conditions are intended to ensure compliance with the provisions of the Securities Act with respect to the Transfer of any Warrant or any Warrant Stock. Holder, by acceptance of this Warrant, agrees to be bound by the provisions of this Section 9. 9.1. Restrictive Legend. The Holder by accepting this Warrant and any Warrant Stock agrees that this Warrant and the Warrant Stock issuable upon exercise hereof may not be assigned or otherwise transferred unless and until (i) the Company has received an opinion of counsel for the Holder that such securities may be sold pursuant to an exemption from registration under the Securities Act or (ii) a registration statement relating to such securities has been filed by the Company and declared effective by the Commission. Each certificate for Warrant Stock issuable hereunder shall bear a legend substantially worded as follows unless such securities have been sold pursuant to an effective registration statement under the Securities Act: "The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended (the "Act") or any state securities laws. The securities may not be offered for sale, sold, assigned, offered, transferred or otherwise distributed for value except (i) pursuant to an effective registration statement under the Act or any state securities laws 13 14 or (ii) pursuant to an exemption from registration or prospectus delivery requirements under the Act or any state securities laws in respect of which the Company has received an opinion of counsel satisfactory to the Company to such effect. Copies of the agreement covering both the purchase of the securities and restricting their transfer may be obtained at no cost by written request made by the holder of record of this certificate to the Secretary of the Company at the principal executive offices of the Company." a) Except as otherwise provided in this Section 9, the Warrant shall be stamped or otherwise imprinted with a legend in substantially the following form: "This Warrant and the securities represented hereby have not been registered under the Securities Act of 1933, as amended, or any state securities laws and may not be transferred in violation of such Act, the rules and regulations thereunder or any state securities laws or the provisions of this Warrant." 9.2. Notice of Proposed Transfers. Prior to any Transfer or attempted Transfer of any Warrants or any shares of Restricted Common Stock, the Holder shall give five days' prior written notice (a "Transfer Notice") to the Company of Holder's intention to effect such Transfer, describing the manner and circumstances of the proposed Transfer, and obtain from counsel to Holder an opinion that the proposed Transfer of such Warrants or such Restricted Common Stock may be effected without registration under the Securities Act or state securities laws. After the Company's receipt of the Transfer Notice and opinion, such Holder shall thereupon be entitled to Transfer such Warrants or such Restricted Common Stock, in accordance with the terms of the Transfer Notice. Each certificate, if any, evidencing such shares of Restricted Common Stock issued upon such Transfer and the Warrant issued upon such Transfer shall bear the restrictive legends set forth in Section 9.1, unless in the opinion of such counsel such legend is not required in order to ensure compliance with the Securities Act. 9.3. Required Registration. Pursuant to the terms and conditions set forth in the Registration Rights Agreement, the Company shall prepare and file with the Commission not later than the 45th day after the Closing Date, a Registration Statement relating to the offer and sale of the Common Stock issuable upon exercise of the Warrants and shall cause the Commission to declare such Registration Statement effective under the Securities Act as promptly as practicable but no later than 90 days after the Closing Date. 9.4. Termination of Restrictions. Notwithstanding the foregoing provisions of Section 9, the restrictions imposed by this Section upon the 14 15 transferability of the Warrants, the Warrant Stock and the Restricted Common Stock (or Common Stock issuable upon the exercise of the Warrants) and the legend requirements of Section 9.1 shall terminate as to any particular Warrant or share of Warrant Stock or Restricted Common Stock (or Common Stock issuable upon the exercise of the Warrants) (i) when and so long as such security shall have been effectively registered under the Securities Act and applicable state securities laws and disposed of pursuant thereto or (ii) when the Company shall have received an opinion of counsel that such shares may be transferred without registration thereof under the Securities Act and applicable state securities laws. All Warrants issued upon registration of transfer, division or combination of, or in substitution for, any Warrant or Warrants entitled to bear such legend shall have a similar legend endorsed thereon. Whenever the restrictions imposed by this Section shall terminate as to any share of Restricted Common Stock, as hereinabove provided, the holder thereof shall be entitled to receive from the Company, at the Company's expense, a new certificate representing such Common Stock not bearing the restrictive legends set forth in Section 9.1. 9.5. Listing on Securities Exchange. If the Company shall list any shares of Common Stock on any securities exchange, it will, at its expense, list thereon, maintain and, when necessary, increase such listing of, all shares of Common Stock issued or, to the extent permissible under the applicable securities exchange rules, issuable upon the exercise of this Warrant so long as any shares of Common Stock shall be so listed during any such Exercise Period. 10. SUPPLYING INFORMATION The Company shall cooperate with Holder in supplying such information as may be reasonably necessary for Holder to complete and file any information reporting forms presently or hereafter required by the Commission as a condition to the availability of an exemption from the Securities Act for the sale of any Warrant or Restricted Common Stock. 11. LOSS OR MUTILATION Upon receipt by the Company from Holder of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of this Warrant and indemnity reasonably satisfactory to it (it being understood that the written agreement of the Holder shall be sufficient indemnity), and in case of mutilation upon surrender and cancellation hereof, the Company will execute and deliver in lieu hereof a new Warrant of like tenor to Holder; provided, in the case of mutilation, no indemnity shall be required if this Warrant in identifiable form is surrendered to the Company for cancellation. 15 16 12. OFFICE OF THE COMPANY As long as any of the Warrants remain outstanding, the Company shall maintain an office or agency (which may be the principal executive offices of the Company) where the Warrants may be presented for exercise, registration of transfer, division or combination as provided in this Warrant, such office to be initially located at 1919 West Lone Cactus, Phoenix, Arizona 85021, fax: 623-492-9921, provided, however, that the Company shall provide prior written notice to Holder of a change in address no less than 30 days prior to such change. 13. LIMITATION OF LIABILITY No provision hereof, in the absence of affirmative action by Holder to purchase shares of Common Stock, and no enumeration herein of the rights or privileges of Holder hereof, shall give rise to any liability of Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. 14. MISCELLANEOUS 14.1. Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice Holder's rights, powers or remedies, notwithstanding all rights hereunder terminate on the Expiration Date. If the Company fails to make, when due, any payments provided for hereunder, or fails to comply with any other provision of this Warrant, the Company shall pay to Holder such amounts as shall be sufficient to cover any direct and indirect losses, damages, costs and expenses including, but not limited to, reasonable attorneys' fees, including those of appellate proceedings, incurred by Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder. 14.2. Notice Generally. Except as may be otherwise provided herein, any notice or other communication or delivery required or permitted hereunder shall be in writing and shall be delivered personally or sent by certified mail, postage prepaid, or by a nationally recognized overnight courier service, and shall be deemed given when so delivered personally or by overnight courier service, or, if mailed, three (3) days after the date of deposit in the United States mails, as follows: 16 17 (1) if to the Company, to: iBiz Technology Corp. 1919 West Lone Cactus Phoenix, Arizona 85021 Fax: 623-492-9921 Attention: Kenneth Schilling, President (2) if to the Holder, to: Globe United Holdings, Inc. Akara Building Wickhams Cay #1 Road Town Tortola British Virgin Islands With a copy to: Laufer Halberstam & Karish, LLP 39 Broadway 14th Floor New York, New York 10006 Attention: Michael J. Halberstam, Esq. Tel: (212) 422-8500 Fax:(212) 422-9038 The Company or the Holder may change the foregoing address by notice given pursuant to this Section 14.2. 14.3. Indemnification. The Company agrees to indemnify and hold harmless Holder from and against any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, attorneys' fees, expenses and disbursements of any kind which may be imposed upon, incurred by or asserted against Holder in any manner relating to or arising out of any failure by the Company to perform or observe in any respect any of its covenants, agreements, undertakings or obligations set forth in this Warrant. 14.4. Remedies. Holder in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive the defense in any action for specific performance that a remedy at law would be adequate. 17 18 14.5. Successors and Assigns. Subject to the provisions of Sections 3.1 and 9, this Warrant and the rights evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the successors and assigns of Holder. The provisions of this Warrant are intended to be for the benefit of all Holders from time to time of this Warrant and, with respect to Section 9 hereof, holders of Warrant Stock, and shall be enforceable by any such Holder or holder of Warrant Stock. 14.6. Amendment. This Warrant and all other Warrants may be modified or amended or the provisions hereof waived only with the prior written consent of the Company and the Holder. 14.7. Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Warrant. 14.8. Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant. 14.9. Governing Law. This Warrant shall be governed by the laws of the State of New York, without regard to the provisions thereof relating to conflict of laws. [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK] 18 19 IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed and its corporate seal to be impressed hereon and attested by its Secretary or an Assistant Secretary. Dated: December 29, 1999 iBIZ TECHNOLOGY CORP. By:______________________________ Name: Ken Schilling Title: President/CEO Attest: By:_____________________________ Name: Title: 19 20 EXHIBIT A SUBSCRIPTION FORM [To be executed only upon exercise of Warrant] The undersigned registered owner of this Warrant irrevocably exercises this Warrant for the purchase of _______ Shares of Common Stock of IBiz Technology Corp. and herewith makes payment therefor in cash or by check or bank draft made payable to the Company, all at the price and on the terms and conditions specified in this Warrant and requests that certificates for the shares of Common Stock hereby purchased (and any securities or other property issuable upon such exercise) be issued in the name of and delivered to _______________ whose address is _________________ and, if such shares of Common Stock shall not include all of the shares of Common Stock issuable as provided in this Warrant, that a new Warrant of like tenor and date for the balance of the shares of Common Stock issuable hereunder be delivered to the undersigned. ________________________________________ (Name of Registered Owner) ________________________________________ (Signature of Registered Owner) ________________________________________ (Street Address) ________________________________________ (City) (State) (Zip Code) NOTICE: The signature on this subscription must correspond with the name as written upon the face of the within Warrant in every particular, without alteration or enlargement or any change whatsoever. 1 21 EXHIBIT B ASSIGNMENT FORM FOR VALUE RECEIVED the undersigned registered owner of this Warrant hereby sells, assigns and transfers unto the Assignee named below all of the rights of the undersigned under this Warrant, with respect to the number of shares of Common Stock set forth below: Name and Address of Assignee No. of Shares of Common Stock and does hereby irrevocably constitute and appoint ______________ attorney-in-fact to register such transfer on the books of IBiz Technology Corp. maintained for the purpose, with full power of substitution in the premises. Dated: ______________________ Print Name:_____________________ Signature:______________________ Witness:________________________ NOTICE: The signature on this assignment must correspond with the name as written upon the face of the within Warrant in every particular, without alteration or enlargement or any change whatsoever. EX-10.21 6 EX-10.21 1 EXHIBIT 10.21 REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT, dated as of December 29,1999 (this "Agreement"), is made by and between IBIZ TECHNOLOGY CORP., a Florida corporation, with headquarters located at 1919 West Lone Cactus, Phoenix, Arizona 85027 (the "Company") and GLOBE UNITED HOLDINGS, INC., a British Virgin Islands corporation, (the "Purchaser"). WITNESSETH: WHEREAS, pursuant to a Securities Purchase Agreement, dated as of the date hereof, among the Purchaser and the Company (the "Securities Purchase Agreement"), the Company has agreed to issue and sell to the Purchaser, (i) $1,000,000 aggregate principal amount of the Company's 7% Convertible Debentures (the "Debentures") and (ii) warrants (the "Warrants") to purchase 200,000 shares of the Company's Common Stock, par value $.001 per share (the "Common Stock"); WHEREAS, pursuant to the terms of the Debentures and the Warrants, (i) upon the conversion of the Debentures, (ii) in lieu of dividend payments on the Debentures and (iii) upon exercise of the Warrants, the Company will, in each case, issue to the Purchaser shares of Common Stock (such shares of Common Stock are collectively referred to herein as the "Shares"); and WHEREAS, to induce the Purchasers to execute and deliver the Securities Purchase Agreement, the Company has agreed to provide certain registration rights under the Securities Act of 1933, as amended (the "Securities Act"), and applicable state securities laws. NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Purchaser hereby agree as follows: 1. DEFINITIONS. As used in this Agreement, the following terms shall have the following meanings: (a) "Effectiveness Deadline" shall have the meaning set forth in section 2(a)(i) hereof. 2 (b) "Filing Deadline" shall have the meaning set forth in Section 2(a)(i) hereof. (c) "Registration Statement" means a registration statement or registration statements of the Company filed under the Securities Act covering Registrable Securities relating to the Debentures and Warrants. (d) "Register," "Registered," and "Registration" refer to a registration effected by preparing and filing a Registration Statement or Statements in compliance with the Securities Act and pursuant to Rule 415 under the Securities Act or any successor rule providing for offering securities on a continuous basis ("Rule 415"), and the declaration or ordering of effectiveness of such Registration Statement by the United States Securities and Exchange Commission (the "Commission"). (e) "Registrable Securities" means the Shares. Capitalized terms used herein and not otherwise defined herein shall have the meanings set forth in the Securities Purchase Agreement. 2. REGISTRATION. (a) MANDATORY REGISTRATIONS. (i) Registration Statement. The Company shall prepare, as soon as practicable, but in no event later than 45 days after the Closing Date (as defined in the Securities Purchase Agreement) (the "Filing Deadline"), file with the Commission a Registration Statement or Registration Statements (as necessary) on Form SB-2, covering the resale of all of the Registrable Securities. In the event that Form SB-2 is unavailable and/or inappropriate for such a registration, the Company shall use such other form as is available and appropriate for such a registration. Any Registration Statement prepared pursuant hereto shall register for resale at least that number of shares of Common Stock equal to the product of (x) 2.0 and, (y) the sum of (i) the maximum number of Shares that are issuable upon conversion of the Debentures, on the date of filing, and (ii) the maximum number of Shares issuable upon exercise of the Warrants, in each case, without regard to any limitation on any holder's ability to convert any of the Warrants or the Debentures. Such Registration Statement shall state that, in accordance with Rule 416 under the Securities Act, it also covers such indeterminate number of additional Shares as may become issuable upon conversion of such Debentures or exercise of such Warrants (i) resulting from any adjustment in the applicable Conversion Price of such Debentures or the Exercise Price of such Warrants or (ii) to prevent dilution resulting from stock splits or stock dividends. If at any time two (2.0) times the sum of (i) the maximum number of Shares into which the Debentures may be converted and (ii) the maximum number of Shares issuable upon exercise of the Warrants, exceeds the total number of Shares so registered, the Company shall, within five (5) business days after receipt of a written 2 3 notice from the Purchaser, either (i) amend the Registration Statement or Registration Statements filed by the Company pursuant to this section, if such Registration Statement has not been declared effective by the Commission at that time, to register all of the Shares into which the Debentures and the Warrants may be converted, or (ii) if such Registration Statement has been declared effective by the Commission at that time, file with the Commission an additional Registration Statement on Form SB-2, or such other appropriate form, to register the number of Shares into which the Debentures may be converted that exceed the number of Shares already registered. The Company shall use its best efforts to have the Registration Statement declared effective within the earliest to occur of (i) ninety (90) days following the Closing Date (ii) if the Commission elects not to conduct a review of the Registration Statement, the date which is three (3) business days after the date upon which either the Company or its counsel is so notified, whether orally or in writing that the Commission will not conduct a review of such Registration Statement; or (iii) if the Registration Statement is reviewed by the Commission, the date which is three (3) business days after the date upon which the Company or its counsel is notified by the Commission, whether orally or in writing, that the Commission has no further comments with respect to the Registration Statement or that the Registration Statement may be declared effective (the earliest of such dates is referred to herein as the "Effectiveness Deadline.") Notwithstanding anything to the contrary contained herein or in any of the Securities Purchase Agreement, the Debentures or the Warrants (collectively, the "Primary Documents"), the Company shall take all action necessary to ensure that the Registration Statement includes only the Registrable Securities and those securities set forth on Schedule 1 hereto. (ii) The Company shall keep each Registration Statement effective pursuant to Rule 415 at all times until such date as is the earlier of (i) the date on which all of the Registrable Securities have been sold and (ii) the date on which the Registrable Securities (in the opinion of counsel to the Purchaser) may be immediately sold without restriction (including without limitation as to volume by each holder thereof) without registration under the Securities Act (the "Registration Period"). (b) PAYMENTS BY THE COMPANY. (i) (A) If the Registration Statement covering the Registrable Securities is not filed with the Commission on or prior to the Filing Deadline, (B) if the Registration Statement covering the Registrable Securities is not effective on or prior to the Effectiveness Deadline, (C) if the number of Shares listed for trading on the OTC Bulletin Board or reserved by the Company for issuance shall be insufficient, for any period of five (5) consecutive days at any time after the Effectiveness Deadline, for issuance upon the conversion of the Debentures and the exercise of the Warrants, or (D) upon the occurrence of a Blackout Event (as described in Section 3(f) or Section 3(g) below), for any period of five (5) consecutive days at any time after the Effectiveness Deadline (each of the events 3 4 described in clauses (A) through (D) of this paragraph are referred to herein as a "Registration Default"), the Company will make payments to the Purchaser in such amounts and at such times as shall be determined pursuant to this Section 2(b). (ii) The amount (the "Periodic Amount") to be paid by the Company to the Purchaser as of each thirty (30) day period during which a Registration Default shall be in effect (each such period, a "Default Period") shall be equal to two percent of the purchase price paid by such Purchaser for all of the Debentures and Warrants (the "Purchase Price"); provided that, with respect to any Default Period during which the relevant Registration Defaults shall have been cured, the Periodic Amount shall be pro rated for the number of days during such period during which the Registration Defaults were pending; and provided, further, that the payment of such Periodic Amounts shall not relieve the Company from its continuing obligations to register the Warrants and Shares pursuant to Section 2(a). (iii) Each Periodic Amount shall be payable by the Company in cash or other immediately available funds to the Purchaser monthly, without demand therefor by the Purchaser. (iv) The parties acknowledge that the damages which may be incurred by the Purchaser if the Registration Statement is not filed by the Filing Deadline, if the Registration Statement has not been declared effective by the Effectiveness Deadline, or if the provisions of Section 3(e) or 3(f) become applicable, may be difficult to ascertain. The parties agree that the Periodic Amount represents a reasonable estimate on the part of the parties, as of the date of this Agreement, of the amount of such damages. (c) PIGGYBACK REGISTRATION. (i) If at any time or from time to time, the Company shall determine to register any of its securities, for its own account or the account of any of its shareholders, other than a Registration relating solely to employee share option plans or pursuant to an acquisition transaction on Form S-4, the Company will: (A) provide to the Purchaser written notice thereof as soon as practicable prior to filing the Registration Statement; and (B) include in such Registration Statement and in any underwriting involved therein, all of the Registrable Securities specified in a written request by the Purchaser made within fifteen (15) days after receipt of such written notice from the Company. (ii) If the Registration is for a registered public offering involving an underwriting, the Company shall so advise the Purchaser as a part of the written notice given pursuant to this Section. In such event, the rights of the Purchaser hereunder shall include participation in such underwriting and the inclusion 4 5 of the Registrable Securities in the underwriting to the extent provided herein. To the extent that the Purchaser proposes to distribute its securities through such underwriting, the Purchaser shall (together with the Company and any other security holders of the Company distributing their securities through such underwriting) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by the Company. Notwithstanding any other provision of this Section, if the managing underwriter of such underwriting determines that marketing factors require a limitation of the number of shares to be offered in connection with such underwriting, the managing underwriter may limit the number of Registrable Securities to be included in the Registration and underwriting (provided, however, (a) the Registrable Securities shall not be excluded from such underwritten offering prior to any securities held by officers and directors of the Company or their affiliates, (b) the Registrable Securities shall be entitled to at least the same priority in an underwritten offering as any of the Company's existing security holders, and (c) the Company shall not enter into any agreement that would provide any security holder with priority in connection with an underwritten offering greater than the priority granted to the Purchaser hereunder). The Company shall so advise any of its other security holders who are distributing their securities through such underwriting pursuant to their respective piggyback registration rights, and the number of shares of Registrable Securities and other securities that may be included in the registration and underwriting shall be allocated among the Purchaser and all other security holders of the Company in proportion, as nearly as practicable, to the respective amounts of Registrable Securities held by the Purchaser and such other security holders at the time of the filing of the registration statement. If the Purchaser disapproves of the terms of any such underwriting, it may elect to withdraw therefrom by written notice to the Company. Any Registrable Securities so excluded or withdrawn from such underwriting shall be withdrawn from such Registration. (d) INTENTIONALLY OMITTED. (e) PRIORITY IN FILING. Subject to the terms of the Securities Purchase Agreement, from the date hereof until 180 days following the effective date of the Registration Statement pursuant to Section 2(a) of this Agreement, the Company shall not permit the registration of any of its securities under the Securities Act to become effective, other than those covered by this Agreement and that certain Registration Rights Agreement dated as of November 9, 1999 between Globe United Holdings, Inc. and the Company, without the prior written approval of the Purchaser. The foregoing notwithstanding, the Company may permit a registration statement to become effective during the foregoing period provided that such registration statement relates to a firm commitment underwritten offering of the Company's securities that provides the Company with at least $7.5 million. 3. OBLIGATIONS OF THE COMPANY. In connection with the registration of the Registrable Securities, the Company shall do each of the following: 5 6 (a) Prepare and file with the Commission the registration statements required by Section 2 of this Agreement and such amendments (including post-effective amendments) and supplements to the Registration Statement and the prospectuses used in connection with the Registration Statement, each in such form as to which the Purchaser and its counsel shall not have objected, as may be necessary to keep the Registration current at all times during the Registration Period, and, during the Registration Period, comply with the provisions of the Securities Act with respect to the disposition of all of the Registrable Securities until such time as all of such Registrable Securities have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof as set forth in the Registration Statement; (b) Furnish to the Purchaser, if the Registrable Securities of the Purchaser are included in the Registration Statement, and its legal counsel identified to the Company, promptly after the same is prepared and publicly distributed, filed with the Commission, or received by the Company, a copy of the Registration Statement, each preliminary prospectus, each final prospectus, and all amendments and supplements thereto and such other documents, as the Purchaser may reasonably request in order to facilitate the disposition of its Registrable Securities; (c) As soon as practicable, furnish to the Purchaser and its counsel copies of any correspondence between the Company and the Commission with respect to any registration statement or amendment or supplement thereto filed pursuant to this Agreement; (d) Use all best efforts to (i) register and qualify the Registrable Securities covered by the Registration Statement under such other securities or blue sky laws of such jurisdictions as the Purchaser may request, (ii) prepare and file in those jurisdictions such amendments (including post-effective amendments) and supplements to such registrations and qualifications as may be necessary to maintain the effectiveness thereof at all times during the Registration Period, (iii) take such other actions as may be necessary to maintain such registrations and qualifications in effect at all times during the Registration Period and (iv) take all other actions necessary or advisable to qualify the Registrable Securities for sale in such jurisdictions; (e) List such securities on the OTC Bulletin Board and all the other national securities exchanges on which any securities of the Company are then listed, and file any filings required by the OTC Bulletin Board and/or such other exchanges; (f) As promptly as practicable after becoming aware of such event, notify each Purchaser of the occurrence of any event of which the Company has knowledge, as a result of which the prospectus included in the Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein in order to make the statements therein, in light of the circumstances under which they were made, not misleading, and to use its 6 7 best efforts to promptly prepare a supplement or amendment to the Registration Statement or other appropriate filing with the Commission to correct such untrue statement of omission, and to deliver a number of copies of such supplement or amendment to the Purchaser as the Purchaser may reasonably request; (g) As promptly as practicable after becoming aware of such event, notify the Purchaser who holds Registrable Securities being sold (or, in the event of an underwritten offering, the underwriters) of the issuance by the Commission or any stop order or other suspension of the effectiveness of the Registration Statement at the earliest possible time, and to use its best efforts to promptly obtain the withdrawal of such stop order or other suspension of effectiveness; (h) As promptly as practicable after becoming aware of such event, notify each Purchaser who holds Registrable Securities being sold (or, in the event of an underwritten offering, the managing underwriters) of the issuance by the Commission or any stop order or other suspension of the effectiveness of the Registration Statement at the earliest possible time, and to use its best efforts to promptly obtain the withdrawal of such stop order or other suspension of effectiveness (the occurrence of any of the events described in paragraphs (f) and (g) of this Section 3 is referred to herein as a "Blackout Event"); (i) During the period commencing upon (i) the Purchaser's receipt of a notification pursuant to Section 3(f) above, or (ii) the entry of a stop order or other suspension of effectiveness of the Registration Statement described in Section 2(a) above, and ending at such time as (y) the Company shall have completed the applicable filings (and if applicable, such filings shall have been declared effective) and shall have delivered to the Purchaser the documents required pursuant to Section 3(e) above, or (z), such stop order or other suspension of the effectiveness of the Registration Statement shall have been removed, the Company shall be liable to remit the payments required to be paid pursuant to Section 2(b) above; (j) If the offering is underwritten, at the request of a Purchaser, to furnish on the date that Registrable Securities are delivered to the underwriters for sale pursuant to such registration: (i) an opinion dated such date of counsel representing the Company for the purposes of such registration, addressed to the underwriters and to any Purchaser selling Registrable Securities in connection with such underwriting, stating that such registration statement has become effective under the Securities Act and that (A) to the best knowledge of such counsel, no stop order suspending the effectiveness thereof has been issued and no proceedings for that purpose have been instituted or are pending or contemplated under the Securities Act and (B) the registration statement, the related prospectus and each amendment or supplement thereof comply as to form in all material respects with the requirements of the Securities Act (except that such counsel need not express any opinion as to financial statements or other financial data contained therein) and (ii) a letter dated such date from the Company's independent public accountants addressed to the 7 8 underwriters and to such Purchasers, stating that they are independent public accountants within the meaning of the Securities Act and that, in the opinion of such accountants, the financial statements of the Company included in the registration statement or the prospectus, or any amendment or supplement thereof, comply as to form in all material respects with the applicable accounting requirements of the Securities Act, and such letter shall additionally cover such other financial matters (including information as to the period ending no more than five (5) business days prior to the date of such letter) with respect to such registration as such underwriters may reasonably request; and (k) Cooperate with the Purchaser to facilitate the timely preparation and delivery of certificates for the Registrable Securities to be offered pursuant to the Registration Statement and to enable such certificates for the Registrable Securities to be in such denominations or amounts, as the case may be, as the Purchaser may reasonably request, and registered in such names as the Purchaser may request; and, within three (3) business days after a Registration Statement which includes Registrable Securities is ordered effective by the Commission, the Company shall deliver, and shall cause legal counsel selected by the Company to deliver, to the transfer agent for the Registrable Securities (with copies to the Purchaser) an appropriate instruction and opinion of such counsel. 4. OBLIGATIONS OF THE PURCHASER. In connection with the registration of the Registrable Securities, the Purchaser shall furnish to the Company such information regarding itself, the Warrants and Registrable Securities held by it, and the intended method of disposition of the Warrants and the Registrable Securities held by it, as shall be reasonably required to effect the registration of such Warrants and such Registrable Securities, and the Purchaser shall execute such documents in connection with such registration as the Company may reasonably request. At least five (5) days prior to the first anticipated filing date of the Registration Statement, the Company shall notify the Purchaser of the information the Company included in the Registration Statement. 5. EXPENSES OF REGISTRATION. All expenses, other than underwriting discounts and commissions and other fees and expenses of investment bankers and other than brokerage commissions, incurred in connection with registrations, filings or qualifications pursuant to Section 3, but including, without limitation, all registration, listing, and qualification fees, printing and accounting fees, and the fees and disbursements of counsel for the Company. 6. INDEMNIFICATION. In the event any Registrable Securities are included in a Registration Statement under this Agreement: (a) The Company will indemnify and hold harmless the Purchaser, each of its officers, directors and shareholders, and each person, if any, who controls the Purchaser within the meaning of the Securities Act or the Exchange Act (each, an 8 9 "Indemnified Person"), against any losses, claims, damages, liabilities or expenses joint or several) incurred (collectively, "Claims") to which any of them may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such Claims (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon: (i) any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or any post-effective amendment thereof or the omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances in which they were made, not misleading, (ii) any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus if used prior to the effective date of such Registration Statement, or contained in the final prospectus (as amended or supplemented, if the Company files any amendment thereof or supplement thereto with the Commission) or the omission to state therein any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading, or (iii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any state or foreign securities law or any rule or regulation under the Securities Act, the Exchange Act or any state or foreign securities law (the matters in foregoing clauses (i) through (iii) being, collectively, "Violations"). The Company shall, subject to the provisions of Section 6(b) below, reimburse the Purchaser, promptly as such expenses are incurred and are due and payable, for any legal and other costs, expenses and disbursements in giving testimony or furnishing documents in response to a subpoena or otherwise, including without limitation, the costs, expenses and disbursements, as and when incurred, of investigating, preparing or defending any such action, suit, proceeding or investigation (whether or not in connection with litigation in which the Purchaser is a party), incurred by it in connection with the investigation or defense of any such Claim. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6(a) shall not (i) apply to any Claim arising out of or based upon a modification which occurs in reliance upon and in conformity with information furnished in writing to the Company by or on behalf of any Indemnified Person expressly for use in connection with the preparation of the Registration Statement or any such amendment thereof or supplement thereto; (ii) with respect to any preliminary prospectus, inure to the benefit of any such person from whom the person asserting any such Claim purchased the Registrable Securities that are the subject thereof (or to the benefit of any person controlling such person) if the untrue statement or omission of material fact contained in the preliminary prospectus was corrected in the final prospectus, as then amended or supplemented, if such final prospectus was timely made available by the Company pursuant to Section 3(b) hereof; (iii) be available to the extent that such Claim is based upon a failure of the Purchaser to deliver or to cause to be delivered the prospectus made available by the Company, if such prospectus was timely made available by the Company pursuant to Section 3(b) hereof; or (iv) apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of the Company, which consent shall not be unreasonably withheld. Such indemnity shall remain in full force 9 10 and effect regardless of any investigation made by or on behalf of the Indemnified Person and shall survive the transfer of the Registrable Securities by the Purchaser pursuant to Section 9. Each Purchaser will indemnify the Company and its officers and directors against any Claims arising out of or based upon a Violation which occurs in reliance upon and in conformity with information furnished in writing to the Company, by or on behalf of the Purchaser, expressly for use in connection with the preparation of the Registration Statement, subject to such limitations and conditions as are applicable to the Indemnification provided by the Company in this Section 6. (b) Promptly after receipt by an Indemnified Person under this Section 6 of notice of the commencement of any action (including any governmental action), such Indemnified Person shall, if a Claim in respect thereof is to be made against any indemnifying party under this Section 6, deliver to the indemnifying party a written notice of the commencement thereof, and the indemnifying party shall have the right to participate in, and to the extent that the indemnifying party so desires, jointly with any other indemnifying party similarly notified, to assume control of the defense thereof with counsel mutually satisfactory to the indemnifying party and the Indemnified Person, provided, however, that an Indemnified Person shall have the right to retain its own counsel with the reasonable fees and expenses to be paid by the indemnifying party, if, in the reasonable opinion of counsel retained by the indemnifying party, the representation by such counsel of the Indemnified Person and the indemnifying party would be inappropriate due to actual or potential differing interests between such Indemnified Person and any other party represented by such counsel in such proceeding. In such event, the Company shall pay for only one separate legal counsel for the Purchaser, and such legal counsel shall be selected by the Purchaser. The failure to deliver written notice to an indemnifying party within a reasonable time after the commencement of any such action shall not relieve such indemnifying party of any liability to the Indemnified Person under this Section 6, except to the extent that the indemnifying party is materially prejudiced in its ability to such action. The indemnification required by this Section 6 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as such expense, loss, damage or liability is incurred and is due and payable. (c) No indemnifying party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Person of an unconditional and irrevocable release from all liability in respect of such claim or litigation. (d) Notwithstanding the foregoing, to the extent that any provisions relating to indemnification or contribution contained in the underwriting agreements entered into among the Company, the underwriters and the Purchaser in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in such underwriting agreements shall be controlling as to the Registrable 10 11 Securities included in the public offering; provided, however, that if, as a result of this Section 6(d), the Purchaser, its officers, directors, partners or any person controlling the Purchaser is or are held liable with respect to any Claim for which they would be entitled to indemnification hereunder but for this Section 6(d) in an amount which exceeds the aggregate proceeds received by the Purchaser from the sale of Registrable Securities included in a registration pursuant to such underwriting agreement (the "Excess Liability"), the Company shall reimburse the Purchaser for such Excess Liability. 7. CONTRIBUTION. To the extent any indemnification by an indemnifying party is prohibited or limited under applicable law, the indemnifying party agrees to contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage, liability or expense in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and the Indemnified Person on the other hand in connection with the statements or omissions which resulted in such Claim, as well as any other relevant equitable considerations. The relative fault of the indemnifying party and the Indemnified Person shall be determined by reference to, among other things, whether the untrue statement of a material fact or the omission to state a material fact on which such Claim is based relates to information supplied by the indemnifying party or by the Indemnified Person, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. Notwithstanding the forgoing, (a) no contribution shall be made under circumstances where the payor would not have been liable for indemnification under the fault standards set forth in Section 6, (b) no seller of Registrable Securities guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any seller of Registrable Securities who was not guilty of such fraudulent misrepresentation and (c) contribution by any seller of Registrable Securities shall be limited in amount to the net proceeds received by such seller from the sale of such Registrable Securities. The Company and the Purchaser agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by pro-rata allocation (even if the Purchaser and any other party were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in this Section. 8. REPORTS UNDER EXCHANGE ACT. With a view to making available to the Purchaser the benefits of Rule 144 promulgated under the Securities Act or any other similar rule or regulation of the Commission that may at any time permit the Purchaser to sell securities of the Company to the public without registration ("Rule 144"), the Company agrees to: (i) make and keep public information available, as those terms are understood and defined in Rule 144; 11 12 (ii) file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; and (iii) furnish to the Purchaser so long as the Purchaser owns Registrable Securities, Debentures or Warrants promptly upon request, (i) a written statement by the Company that it has complied with the reporting requirements of the Securities Act and the Exchange Act, (ii) a copy of the most recent annual or periodic report of the Company and such other reports and documents so filed by the Company and (iii) such other information as may be reasonably requested to permit the Purchaser to sell such securities pursuant to Rule 144 without registration. 9. ASSIGNMENT OF THE REGISTRATION RIGHTS. The rights to have the Company register Registrable Securities pursuant to this Agreement shall be automatically assigned by Purchaser to any transferee of all or any portion of the principal amount of Debentures or the Warrants, or the underlying Common Stock held by Purchaser (collectively, the "Securities") if: (a) Purchaser agrees in writing with the transferee or assignee to assign such rights, and a copy of such agreement is furnished to the Company within a reasonable time after such assignment; (b) the Company is, within a reasonable time after such transfer or assignment, furnished with written notice of the name and address of such transferee or assignee; (c) at or before the time the Company receives the written notice contemplated by clause (b) of this sentence, the transferee or assignee agrees in writing with the Company to be bound by all of the provisions contained herein; and (d) the transfer of the relevant Securities complies with the restrictions set forth in Section 4 of the Securities Purchase Agreement. 10. AMENDMENT OF REGISTRATION RIGHTS. Any provision of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the Purchaser. Any amendment or waiver effected in accordance with this Section 10 shall be binding upon Purchaser and the Company. 11. MISCELLANEOUS. (a) A person or entity is deemed to be a holder of Warrants or Registrable Securities whenever such person or entity owns of record such Warrants or Registrable Securities. If the Company receives conflicting instructions, notices or elections from two or more persons or entities with respect to the same Warrants or Registrable Securities, the Company shall act upon the basis of the instructions, notice or election received from the registered owner of such Warrants or Registrable Securities. 12 13 (b) Any notice required or permitted hereunder shall be given in writing (unless otherwise specified herein) and shall be effective upon personal delivery, via facsimile (upon receipt of confirmation of error-free transmission) or two business days following deposit of such notice with an internationally recognized courier service, with postage prepaid and addressed to each of the other parties thereunto entitled at the following addresses, or at such other addresses as a party may designate by ten (10) days advance written notice to each of the other parties hereto. COMPANY: iBIZ TECHNOLOGY CORP. 1919 West Lone Cactus Phoenix, Arizona 85027 ATTN: Kenneth Schilling Tel.: 623-492-9200 Fax: 623-492-9921 WITH COPIES TO: Gammage & Burnham 2 North Central Avenue Phoenix, Arizona 85004 ATTN: Steven Boatwright, Esq. Tel.: 602-256-4439 Fax: 602-256-4475 PURCHASER: Globe United Holdings, Inc. Akara Building Wickhams Cay #1 Road Town Tortola British Virgin Islands WITH COPIES TO: Laufer Halberstarn & Karish, P.C. 39 Broadway, 14th Floor New York, New York 10006 ATTN: Michael J. Halberstam, Esq. Tel.: (212) 422-8500 Fax: (212) 422-9038 (c) Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof (d) This Agreement shall be governed by and interpreted in accordance with the laws of the State of New York, except for 13 14 provisions with respect to internal corporate matters of the Company which shall be governed by the corporate laws of the State of Florida. Each of the parties consents to the jurisdiction of the federal courts whose districts encompass any part of the City of New York or the state courts of the State of New York sitting in the City of New York in connection with any dispute arising under this Agreement and hereby waives, to the maximum extent permitted by law, any objection, including any objection based on forum non conveniens, to the bringing of any such proceeding in such jurisdictions. This Agreement may be signed in one or more counterparts, each of which shall be deemed an original. The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such validity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement or the validity or enforceability of this Agreement in any other jurisdiction. Subject to the provisions of Section 10 hereof, this Agreement may be amended only by an instrument in writing signed by the party to be charged with enforcement. This Agreement supersedes all prior agreements and understandings among the parties hereto with respect to the subject matter hereof. (e) This Agreement constitutes the entire agreement among the parties hereto with respect to the subject matter hereof. This Agreement supersedes all prior agreements and understandings among the parties hereto with respect to the subject matter hereof. (f) Subject to the requirements of Section 9 hereof, this Agreement shall inure for the benefit of and be binding upon the successors and assigns of each of the parties hereto. (g) All pronouns and any variations thereof refer to the masculine, feminine or neuter, singular or plural, as the context may require. (h) The Company acknowledges that any failure by the Company to perform its obligations under Section 2(a), or any delay in such performance could result in direct damages to the Purchaser, and the Company agrees that, in addition to any other liability the Company may have by reason of any such failure or delay, the Company shall be liable for all direct damages caused by any such failure or delay. Nothing herein shall limit the Purchaser's right to pursue any claim seeking such direct damages. 14 15 IN WITNESS WHEREOF, this Agreement has been duly executed by the undersigned. "COMPANY" iBIZ TECHNOLOGY CORP. By:_____________________________________ Name: Kenneth Schilling Title: President/CEO IN WITNESS WHEREOF, this Agreement has been duly executed by the undersigned. "PURCHASER" GLOBE UNITED HOLDINGS, INC. By:_____________________________________ Title: Authorized Person 15 EX-10.22 7 EX-10.22 1 EXHIBIT 10.22 SUBSCRIPTION AGREEMENT FOR COMMON STOCK OF iBIZ TECHNOLOGY CORP. This Subscription Agreement (this "Agreement") is made and entered into as of this ___ day of January, 2000, by and between iBIZ Technology Corp. a Florida corporation, and _______ (the "Purchaser") RECITALS: A. The Company and the Purchaser are executing and delivering this Agreement in reliance upon the exemptions from registration provided by Regulation D ("Regulation D") promulgated by the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended (the "Securities Act"), and/or Section 4(2) of the Securities Act. B. The Purchaser wishes to purchase, and the Company wishes to issue and sell 250,000 shares of the Company's Common Stock, $0.001 par value (the "Common Stock" or "Shares") for an aggregate purchase price of $275,000 upon the terms and conditions of this Agreement. THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. PURCHASE AND ISSUANCE OF SHARES. Upon execution of this Agreement, the Company will, subject to the terms of this Agreement, issue and sell to the Purchasers, and the Purchasers will purchase from the Company, 250,000 shares of the Common Stock, for a purchase price of $1.10 per share for an aggregate purchase price of $275,000. 2. DELIVERY OF CERTIFICATES. After delivery of the consideration set forth in Section 1 by the Purchaser, the Company shall promptly deliver to the Purchaser one or more certificates representing the Shares purchased by the Purchaser. The certificates for the Common Stock will bear a notice referencing certain restrictions on transfer for the purpose of complying with securities laws and a notice referencing restrictions on transfer contemplated in Section 5 of this Agreement. 3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF PURCHASERS. The Purchaser warrants and covenants to the Company as follows: 3.1 Investor Sophistication. The Purchaser is (i) experienced in making investments of the kind described in this Agreement; (ii) able, by 16 2 reason of its business and financial experience, to protect its own interests in connection with the transactions described in this Agreement; and (iii) able to afford the entire loss of its investment in the Common Stock. 3.2 Subsequent Offers or Sales. All subsequent offers and sales of the Common Stock shall be made pursuant to an effective registration statement under the Securities Act or pursuant to an applicable exemption from such registration. 3.3 Reliance on Representations and Warranties. Purchaser understands that the Common Stock is being offered and sold in reliance upon exemptions from the registration requirements of the United States federal securities laws, and that the Company is relying upon the truth and accuracy of the Purchaser's representations and warranties, and the Purchaser's compliance with its agreements, each as set forth herein, in order to determine the availability of such exemptions and the eligibility of the Purchaser to acquire the Common Stock. 3.4 Access to Information. Purchaser (i) has been provided with sufficient information with respect to the business of the Company and such documents relating to the Company as the Purchaser has requested and the Purchaser has carefully reviewed the same including, without limitation, the Company's Form 10-SB, and all amendments thereto (the "Form 10") filed with the Securities and Exchange Commission on October 13, 1999; (ii) has been provided with such additional information with respect to the Company and its business and financial condition as the Purchaser, or the Purchaser's agent or attorney, has requested; and (iii) has had access to management of the Company and the opportunity to discuss the information and any questions that the Purchaser had with respect thereto have been answered to the full satisfaction of the Purchaser. 3.5 Valid Authority; Enforceability. The Purchaser has the requisite corporate power and authority to enter into this Agreement. This Agreement has been duly and validly authorized by the Purchaser and when executed and delivered by the Purchaser will be a valid and binding agreement of the Purchaser, enforceable in accordance with its respective terms, except to the extent that enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar laws now or hereafter in effect relating to creditors' rights generally and to general principles of equity. 3.6 Dilution. Purchaser is aware that its percentage ownership of Common Stock is subject to subsequent issuances as permitted by the Company's Articles of Incorporation and Bylaws, which could cause the percentage of outstanding shares held by the Purchaser to decrease. 17 3 4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY. The Company hereby represents, warrants and covenants to the Purchasers as follows: 4.1 Organization and Standing; Articles and Bylaws. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Florida and has all requisite corporate power and authority to carry on its business as proposed to be conducted. Each of the Company's subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of its respective jurisdiction. Each of the Company and its subsidiaries is duly qualified as a foreign corporation in all jurisdictions in which the failure to so qualify would have a material adverse effect on the Company and its subsidiaries taken as a whole. Schedule 4.1 lists all subsidiaries of the Company and, except as noted therein, all of the outstanding capital stock of all such subsidiaries is owned of record and beneficially by the Company. 4.2 Corporate Power; Authorization. The Company has all requisite corporate power to enter into this Agreement. All corporate action on the part of the Company, its officers and directors necessary for the consummation of the transactions contemplated by this Agreement, the performance of the Company's obligations hereunder, and the sale and issuance of the Common Stock pursuant hereto, has been or will be taken. 4.3 Capital Stock and Related Matters. On the date hereof, the authorized capital of the Company consists of 100,000,000 shares of Common Stock, par value $0.001 per share, of which 26,671,380 shares are issued and outstanding. Schedule 4.3 sets forth all of the options, warrants and convertible securities of the Company, and any other rights to acquire securities of the Company (collectively, the "Derivative Securities"). 4.4 Reporting Company Status; SEC Filings. The Company files reports with the Commission pursuant to Section 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Common Stock is listed and traded on the OTC Bulletin Board ("OTC"). The Company is not aware of any pending or contemplated action or proceeding of any kind to suspend the trading of the Common Stock. 4.5 Valid Issuance. The Common Stock, when issued in compliance with the provisions of this Agreement, will be validly issued, fully paid and nonassessable and will be free of any liens or encumbrances. 4.6 No Conflict. To the knowledge of the Company, the execution and delivery of this Agreement by the Company will not violate or 18 4 conflict with any agreement or other obligation to which the Company is subject, or result in any default or other adverse action. Schedule 4.6 lists all material agreements and instruments to which the Company or any of its subsidiaries is a party or by which any of their properties or assets are bound. 4.7 Litigation. Except as disclosed in the Company's public filings with the Commission, or on Schedule 4.7, there is no action, suit, proceeding, inquiry or investigation before or by any court, public board or body pending or, to the knowledge of the Company or any of its subsidiaries, threatened against or affecting the Company or any of its subsidiaries, in which an unfavorable decision, ruling or finding would have an adverse effect on the properties, business, condition (financial or other) or results of operations of the Company and its subsidiaries, taken as a whole, or the transactions contemplated by this Agreement, or which would adversely affect the validity or enforceability of, or the authority or ability of the Company to perform its obligations under this Agreement. 4.8 Title to Properties; Liens and Encumbrances. The Company has good and marketable title to all of its material properties and assets, both real and personal, and has good title to all its leasehold interests, in each case subject only to mortgages, pledges, liens, security interests, conditional sale agreements, encumbrances or charges created in the ordinary course of business. 4.9 Insurance. The Company maintains property and casualty, general liability, personal injury and other similar types of insurance that is adequate, consistent with industry standards and the Company's historical claims experience. The Company has not received notice from, and has no knowledge of any threat by, any insurer (that has issued any insurance policy to the Company) that such insurer intends to deny coverage under or cancel, discontinue or not renew any insurance policy presently in force covering the Company or any of its subsidiaries. 4.10 Taxes. All applicable tax returns required to be filed by the Company and each of its subsidiaries have been prepared and filed in compliance with all applicable laws, or if not yet filed have been granted extensions of the filing dates which extensions have not expired. All taxes, assessments, fees and other governmental charges upon the Company, its subsidiaries, or upon any of their respective properties, income or franchises, shown in such returns and on assessments received by the Company or its subsidiaries to be due and payable have been paid, or adequate reserves therefor have been set up if any of such taxes are being contested in good faith. If any of such tax returns have not been filed or if any such taxes have not been paid or so reserved for, the failure to so file or to pay would not in the aggregate have a material adverse effect on the business or financial condition 19 5 of the Company and its subsidiaries, taken as a whole. The Company is disputing certain tax penalties and interest thereon as set forth on Schedule 4.10 hereto. 4.11 Brokerage Fees. Other than an amount equal to $__________ payable by the Company as a placement fee, the Company has not incurred any liability for any consulting fees or agent's commissions in connection with the offer and sale of the Common Stock contemplated by this Agreement. 4.12 Knowledge. The phrase "to the knowledge of the Company" shall mean to the actual knowledge of the parties executing this Agreement on behalf of the Company. 5. CERTAIN COVENANTS AND ACKNOWLEDGEMENTS. 5.1 Transfer Restrictions. The Purchaser acknowledges that, (i) except as may be provided for below in Section 6 the Common Stock has not been registered under the Securities Act, and such securities may not be transferred unless (A) subsequently registered thereunder or (B) they are transferred pursuant to an exemption from such registration and (ii) any sale of the Common Stock made in reliance upon Rule 144 under the Securities Act may be made only in accordance with the terms of said Rule. The provisions of Sections 5.1 and 5.2 hereof, together with the rights of the Purchaser under this Agreement shall be binding upon any subsequent transferee of the Common Stock. 5.2 Restrictive Legend. The Purchaser acknowledges and agrees that, until such time as the Common Stock is registered under the Securities Act or the Purchaser demonstrates to the reasonable satisfaction of the Company that such registration shall no longer be required, the Common Stock shall bear a restrictive legend in substantially the following form: THESE SECURITIES (INCLUDING ANY UNDERLYING SECURITIES) HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL OR OTHER EVIDENCE REASONABLY 20 6 SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION SHALL NO LONGER BE REQUIRED. NOTWITHSTANDING THE RESTRICTIONS IMPOSED BY STATE AND FEDERAL SECURITIES LAWS, THESE SECURITIES SHALL NOT BE SOLD, PLEDGED, HYPOTHECATED, EXCHANGED OR OTHERWISE TRANSFERRED UNTIL ON OR AFTER JUNE 1, 2000. 5.3 Filings. The Company undertakes and agrees that it will make all required filings in connection with the sale of the Common Stock to the Purchaser as required by United States laws and regulations, or by any domestic securities exchange or trading market. If applicable, the Company agrees to file a notice on Form D (at such time and in such manner as required by the Rules and Regulations of the Commission), and to provide copies thereof to the Purchaser promptly after such filing or filings. 5.4 Reporting Status. So long as the Purchaser beneficially owns any of the shares of Common Stock purchased under this Agreement, the Company shall timely file all reports required to be filed with the Commission pursuant to Section 13 or 15(d) of the Exchange Act and shall not terminate its status as an issuer required to file reports under the Exchange Act even if the Exchange Act or the rules and regulations thereunder would permit such termination. 5.5 State Securities Filings. The Company shall from time to time promptly take such action as the Purchaser or any of its representatives, if applicable, may request to qualify the Common Stock for offering and sale under the securities laws (other than United States federal securities laws) of the jurisdictions in the United States as shall be so identified to the Company, and to comply with such laws so as to permit the continuance of sales therein. 6. REGISTRATION RIGHTS. 6.1 The Company shall use reasonable best efforts to, on or after June 1, 2000, but not later than July 31, 2000, include the Common Stock in a registration statement ("Registration Statement") filed with the Commission under the Securities Act, and have such Registration Statement declared effective no later than December 31, 2000 or amend an effective registration statement appropriate for the registration of the Common Stock so that the Common Stock will thereafter become freely tradeable, provided that the Purchaser shall furnish to the Company all appropriate information in connection therewith as the Company may reasonably request. 21 7 6.2 The Company shall (i) bear the costs, expenses and fees incurred in connection with any such registration, excluding any broker fees, selling commissions and out-of-pocket costs and expenses of the Purchaser; (ii) supply prospectuses and other documents as the Purchaser may reasonably request; (iii) use its reasonable best efforts to register and qualify the Common Stock for sale in such states as the Purchaser designates; (iv) do any and all other acts and things that may be necessary or desirable to enable the Purchaser to consummate the public sale or other disposition of the Common Stock; and (v) enter into cross-indemnification arrangements with the Purchaser with respect to matters arising from such Registration Statement and public offering. 7. REMEDIES; ATTORNEYS' FEES. In the event of any default hereunder, the parties shall have all rights available at law or equity, including without limitation the right to specific performance, the right to damages and the right to rescind this Agreement. All remedies shall be cumulative and not exclusive. In the event of a dispute between the parties arising out of this Agreement, the prevailing party shall be entitled to reimbursement from the nonprevailing party of reasonable attorneys' fees and court costs arising out of that dispute. 8. SURVIVAL. The representations, warranties and covenants made herein shall survive the closing of the transactions contemplated hereby. 9. GOVERNING LAW; MISCELLANEOUS. This Agreement shall be governed by and interpreted in accordance with the laws of the State of Arizona, without regard to principles of conflict of laws. Each of the parties consents to the jurisdiction of Arizona in connection with any dispute arising under this Agreement or any of the transactions contemplated hereby, and hereby waives, to the maximum extent permitted by law, any objection, including any objections based on forum non conveniens, to the bringing of any such proceeding in such jurisdictions. No provision of this Agreement shall be deemed amended, or modified by any party unless a written amendment is signed by the parties or a form of waiver is signed by the party against whom the waiver is asserted. This Agreement may be signed in one or more counterparts, each of which shall be deemed an original and may be executed and delivered by facsimile or other reasonable means. The headings of this Agreement are for convenience of reference only and shall not form part of, or affect the interpretation of this Agreement. This Agreement has been entered into freely by each of the parties, following consultation with their respective counsel, and shall be interpreted fairly in accordance with its respective terms, without any construction in favor of or against either party. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement or the validity or unenforceability of this Agreement in any other jurisdiction. This Agreement shall inure to the benefit of, and be binding upon the successors and assigns of each of the 22 8 parties hereto. This Agreement supersedes all prior agreements and understandings among the parties hereto with respect to the subject matter hereof. 10. NOTICES. Any notice required or permitted hereunder shall be given in writing (unless otherwise specified herein) and shall be effective upon personal delivery, via facsimile (upon receipt of confirmation of error-free transmission) or three business days following deposit of such notice with an internationally recognized courier service, with postage prepaid and addressed to each of the other parties thereunto entitled at the following addresses, or at such other addresses as a party may designate by five days advance written notice to each of the other parties hereto. COMPANY: iBIZ Technology Corp 1919 West Lone Cactus Phoenix, Arizona 85021 Attn.: Kenneth W. Schilling, President Tel.: 623-492-9200 Fax: 623-492-9921 WITH A COPY TO: Gammage & Burnham, PLC Two North Central Avenue, Suite 1800 Phoenix, AZ 85004 Attn: Stephen Boatwright, Esq. Tel.: 602-256-4439 Fax: 602-256-4475 23 9 PURCHASER: 11. FURTHER ACTS AND INSTRUMENTS. Each party to this Agreement hereby agrees, for themselves, their heirs, personal representatives, assigns and other successors, to do such further acts and execute and deliver such further instruments as may be reasonably necessary to effectuate and comply with the provisions of this Agreement. [SIGNATURE PAGE FOLLOWS] 24 10 IN WITNESS WHEREOF, the undersigned have executed this Agreement effective as of the date first signed above. iBIZ Technology Corp., a Florida corporation By:________________________________________ Name:______________________________________ Its:____________________________________ ______________________________________ ______________________________________ By:________________________________________ Name:______________________________________ Its:____________________________________ 25 EX-23.01 8 EX-23.01 1 EXHIBIT 23.1 [MOFFITT & COMPANY, P.C. LETTERHEAD] January 7, 2000 iBIZ Technology Corp C/O Gammage & Burnham Two North Central Avenue Phoenix, AZ 85004 As independent Certified Public Accountants for iBiz Technology Corp, we hereby consent to the use of our financial statements and reports dated June 14, 1999, reissued on November 22, 1999 and November 18, 1999, and to all references to our firm in your SB-2 registration statement. /s/ Stanley M. Moffitt Moffitt & Company, P.C. Scottsdale, Arizona -----END PRIVACY-ENHANCED MESSAGE-----