-----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, WUt57LgiyE3qjGVmsCZYyfS32k1tD8vx90o48nOiEr+53cea5cb3Nv0JOyQoKUiE RzAbmfDbwx2mjGW1p7tfPA== 0000950153-00-000096.txt : 20000203 0000950153-00-000096.hdr.sgml : 20000203 ACCESSION NUMBER: 0000950153-00-000096 CONFORMED SUBMISSION TYPE: SB-2/A PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 20000131 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/A SEC ACT: SEC FILE NUMBER: 333-94409 FILM NUMBER: 517728 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/A 1 SB-2/A 1 U. S. Securities and Exchange Commission Washington, D.C. 20549 PRE-EFFECTIVE AMENDMENT NO. 1 TO 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: January 31, 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 - ------------------------------------ ------------ -------------- ---------------- ------------ Common stock, $.001 par value 5,039,252(2) $1.47(7) $7,407,700.00(7) $2,059.34(7) Common stock, $.001 par value 1,000,000(3) $1.47(7) $1,470,000.00(7) $ 408.66(7) Common stock, $.001 par value 500,000(4) $1.47(7) $ 735,000.00(7) $ 204.33(7) Common stock, $.001 par value 300,000(5) $1.47(7) $ 441,000.00(7) $ 122.60(7) Common stock, $.001 par value 305,000(6) $1.16(8) $ 353,800.00(8) $ 93.40(8)
(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) These shares are being registered pursuant to our obligations to the selling securityholders. (7) These amounts were previously paid with the filing of our Form SB-2, File No. 333-94404 on January 11, 2000. The fees were 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. (8) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(c) of the Securities Act; based on the average ($1.16) of the bid ($1.13) and asked ($1.18) price on the NASD OTC Bulletin Board on January 25, 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. ii 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 and Disagreements with Accountants on Not Applicable Accounting and Financial Disclosure
iii 4 iBIZ TECHNOLOGY CORP. 1919 WEST LONE CACTUS DRIVE PHOENIX, ARIZONA 85021 (623) 492-9200 www.ibizcorp.com 7,144,252 SHARES COMMON STOCK 7,144,252 shares of common stock are being offered by our securityholders named under the heading "Selling Securityholders" appearing at page 14. 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 27, 2000, the price for our common stock was $1.31 per share. INVESTING IN THE COMMON STOCK INVOLVES CERTAIN RISKS, SEE "RISK FACTORS" ON PAGE 6. 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 31, 2000 1 5 TABLE OF CONTENTS PAGE
---- PROSPECTUS SUMMARY ..................................................... 3 RISK FACTORS ........................................................... 6 SELLING SECURITYHOLDERS ................................................ 14 USE OF PROCEEDS ........................................................ 15 PLAN OF DISTRIBUTION ................................................... 15 MANAGEMENT'S DISCUSSION AND ANALYSIS ................................... 16 DESCRIPTION OF BUSINESS ................................................ 21 DIRECTORS AND EXECUTIVE OFFICERS ....................................... 35 EXECUTIVE COMPENSATION ................................................. 37 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ......... 39 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ......................... 40 MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS ............... 40 DESCRIPTION OF SECURITIES .............................................. 41 INDEMNIFICATION FOR SECURITIES ACT LIABILITIES ......................... 44 EXPERTS ................................................................ 44 LEGAL MATTERS .......................................................... 45 FINANCIAL STATEMENTS ................................................... F-1
2 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. 3 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. - Third-Party Hardware, Software, and Related Supplies. In an effort to provide our customers a wider range of products, we recently began reselling third-party hardware, software, and related supplies. 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 resellers, 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 or Korea. 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. 4 8 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. THE OFFERING [PIE CHART] Shares Registered in this Prospectus 7% Debentures.................... 5,039,252(1) Warrants......................... 1,000,000(1) Options.......................... 500,000 Shares........................... 305,000 8% Debentures.................... 300,000
Total shares registered in this prospectus .............. 7,144,252 Shares outstanding after the offering ................... 31,371,006(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 of January 10, 2000. (2) Assumes (1) 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 and (2) the sale of all shares registered. However, this amount excludes shares issuable upon exercise of options and warrants not registered in this prospectus. 5 9 RISK FACTORS Investing in the common stock involves certain risks. You should review these "Risk Factors" beginning on page 6. 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. 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 CONVERTING OR EXERCISING DEBENTURES, WARRANTS OR OPTIONS OR PURCHASING COMMON STOCK. 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. 6 10 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 $1,053,563. 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. 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. As a reseller, we compete against well established companies such as Comp USA, Computer Discount Warehouse and Insight Enterprises. 7 11 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. 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 also recently introduced 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. 8 12 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 Dependent 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 dependent, in part, upon our manufacturers' and suppliers' ability to produce reasonably priced products in adequate amounts to meet our demands. Currently, our computers and peripherals are engineered and manufactured by various entities in Taiwan and South Korea. 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 12.1" liquid crystal display monitors. To date, we have not experienced difficulty in obtaining these monitors. In addition, we recently agreed with Harsper Co., Ltd. to act as the exclusive distributor for their liquid crystal display monitors. 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. 9 13 We Must Continue to be Authorized to Incorporate Manufacturer Authorized Products We are dependent 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 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 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 Recently Began Offering Third-Party Hardware, Software, and Related Supplies We recently began reselling third-party hardware, software, and related supplies in the highly competitive, business-to-business market. Management anticipates a significant portion of revenues will be generated by sales of hardware, software, and related supplies developed by third-parties. Should third-party suppliers decide to sell their products through their own direct sales forces or should competitors develop hardware, software, and related supplies which replace that provided by our suppliers, the revenues generated by these sales could materially decline. 10 14 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 manufacture 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 six 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. 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. 11 15 Our Officers and Directors Can Exercise Control Over All Matters Submitted to a Vote of Shareholders As of January 27, 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 Currently Registered for Resale Could Cause a Decline in Our Stock Price If all the shares registered in this offering are sold and antidilution provisions do not trigger issuance of additional shares, this offering will increase our outstanding shares by 4,324,626. We have also filed a registration statement to register 3,025,000 shares issuable upon exercise of options granted to our employees. As of the date of this prospectus, 1,490,000 employee options are exercisable. As a result, a total of 5,814,626 shares registered by iBIZ are currently eligible for resale. In addition to the shares to be sold under these offerings, we have outstanding 14,677,400 shares of "restricted securities" held by our officers and directors. The remaining 12,368,980 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 will be freely tradable. If all of the 4,324,626 shares registered in this offering (which does not include the shares registered pursuant to anti-dilution provisions) and the 1,490,000 shares currently issuable upon exercise of employee options are issued, it will increase the available free trading shares as of the date of this prospectus by approximately 71%. 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 12 16 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 filings are also available to the pubic 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. - Annual Report on Form 10-KSB filed January 27, 2000, File No. 027619. 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. 13 17 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.
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 1.9% 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 * % Albert Neufeld 10,000 10,000 0 * % Art Nemeth 20,000 20,000 0 * % Bruce Jackson 40,000 52,000 12,000 * % Dan Taillefer 14,000 14,000 0 * % Darren Ponak 18,000 20,200 2,200 * % Deborah Halvorsen 10,000 10,000 0 * % Doug Bilesky 10,000 10,000 0 * % Douglas Wolters 10,000 10,000 0 * % Ed Dyck 10,000 11,200 1,200 * % Frank Flanagan 6,000 6,000 0 * % Frank Roberto 10,000 10,000 0 * % Grant Vanderhoek 20,000 20,000 0 * % Jim Armstrong 10,000 10,000 0 * % John Baggio 20,000 20,000 0 * % Mark Brandsma 13,000 18,000 5,000 * % Rob Jackson 12,000 12,000 0 * % Scott Tarasuk 10,000 10,000 0 * % Simeon Leschied 12,000 12,000 0 * % Steve Hansen 10,000 10,000 0 * % Thomas Gleig 10,000 10,000 0 * % Wesley Heppell 30,000 30,000 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 of January 10, 2000, 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 31, 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. 14 18 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. 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. 15 19 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 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. To provide a greater range of products, iBIZ recently began reselling third-party hardware, software and related supplies. 16 20 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 $ 2,082,515 Gross profit $ 1,182,885 $ 399,610 Operating income (loss) $ 37,600 $(1,074,180) Net earnings (loss) after tax $ 7,863 $(1,053,563) Net earnings (loss) per share $ 0.79 $ (.04)
Balance Sheet Data - ------------------ Total assets $ 1,653,998 $ 1,043,030 Total liabilities $ 1,999,231 $ 1,411,019 Stockholders' equity (deficit) $ (345,233) $ (433,527)
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. 17 21 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 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 63% from $3,402,681 in the fiscal year ended October 1998 to $2,082,515 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 $1,682,905 in the fiscal year ended October 1999, or an approximate 32% 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 66% from $1,182,885 in the fiscal year ended October 1998 to $399,610 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 18 22 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. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased approximately 38% from $1,070,003 in the fiscal year ended October 1998 to $1,473,790 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 $28,260 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 $1,053,563 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 1999, INVNSYS had an overdraft of $13,700. 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 must continue to raise additional substantial funds for research and development and production of new products. Entry into additional lines of business have required ever increasing capital infusions. 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. In November 1999 and December 1999, iBIZ issued an aggregate of $1,600,000 of convertible debentures to Globe United Holdings, Inc. ("Globe"). On December 6, 1999, Globe 19 23 converted $200,000 of the convertible debentures. Pursuant to the applicable conversion formula, iBIZ issued 300,962 shares of common stock. Effective November 15, 1999, iBIZ and Equinet, Inc. ("Equinet") entered into a Financial Project Management Agreement (the "Agreement"), whereby iBIZ engaged Equinet to implement a program to increase shareholder value through equity investment or a business combination (the "Program"). For the earlier of six (6) months or until completion of the Program, iBIZ is obligated to pay Equinet a monthly fee of $3,500. In addition, iBIZ will pay Equinet a fee on a sliding scale ranging from 10% to 1% of the amount of equity funding raised from investors introduced by Equinet. At its option, iBIZ may elect to pay Equinet in common stock of the Company. In connection with the first $5,000,000 raised under the Program, iBIZ will grant to Equinet warrants to purchase three (3) shares of the Company's common stock for each $20.00 raised, up to a maximum of 750,000 shares. The warrants will be issued concurrently with the closing of each equity funding transaction. The exercise price of the warrants will be the average closing price for the immediately preceding 10 business day prior to closing of the funding. As of January 10, 2000, investors introduced by Equinet had purchased $1.875 million of securities from the Company. iBIZ has issued warrants to purchase 281,250 shares of the Company's common stock. iBIZ agreed to provide Equinet a discounted exercise price of $0.99 per share for these warrants if the first $1.875 million were received by January 10, 2000. 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. 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. Management believes that its recent diversification into third-party software sales should improve its liquidity and cash flow. This sector of its business is already generating approximately $100,000 per month in sales revenues and is not as capital intensive as its hardware assembly and manufacturing sector. There is no assurance, however, that its favorable 20 24 relationship with its third party suppliers will continue or that its customers will continue to purchase hardware and the software packages and upgrades necessary to generate the revenue experienced since December 1999. DESCRIPTION OF BUSINESS iBIZ HISTORY 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. 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 21 25 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 competitors' products time to market. These factors, among others, may result in unforeseen changes in the types of 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 transactional and color printers. In addition to hardware, in December 1999, INVNSYS began reselling third-party hardware, software and related supplies. INVNSYS' continued success is dependent 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 22 26 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. 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. 23 27 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 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 24 28 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. In January, 2000, INVNSYS and Harsper Co., Ltd. ("Harsper") entered into an agreement whereby INVNSYS will act as the exclusive United States distributor of certain current and all future models of Harsper LCD panels. In addition, INVNSYS will handle service and support functions for Harsper. The LCD panels will be marketed under both the iBIZ and Harsper names 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. The computer industry is currently experiencing a shortage of 12.1" LCD panels. To date, INVNSYS has been able to obtain adequate supplies of these 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. 25 29 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. 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. 26 30 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 as of the date of this prospectus 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. 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. 27 31 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. 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, as of the date of this prospectus, twice as fast as most color printers. Third-Party Software and Hardware Reselling In December 1999, iBIZ acquired certain assets from PC Solutions, Inc., a business-to-business and retail software provider. The Company also hired three employees formerly associated with PC Solutions. Through this acquisition, INVNSYS began selling third-party software. To date, INVNSYS is recognizing approximately $100,000 per month in revenues from third-party software sales. 28 32 In addition, INVNSYS recently began reselling various companies' hardware and related supplies. Management believes the ability of INVNSYS to offer the products of numerous companies will allow it to more effectively provide complete networking solutions. 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 phone carriers' existing 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 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. 29 33 In January, 2000, INVNSYS was named the exclusive United States distributor of certain current and all new Harsper Co., Ltd. products and services. The Master Distribution Agreement is effective until September 31, 2000, subject to annual renewal unless terminated by either party prior to the then effective renewal date. After the initial period, the agreement may be terminated subject to mutual acceptance of the parties and upon 30 days written notice. 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. The Harsper LCD panels are manufactured in South Korea. INVNSYS' Sahara and Safari desktop computers are currently manufactured by First International Computer in Taiwan. 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 30 34 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. 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. 31 35 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. 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, NEC, 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 32 36 computers offered by INVNSYS. INVNSYS' main competitors for its 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 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 or South Korea. 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 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 are 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 33 37 market for Internet connection services, there can be no assurance that it can successfully compete in the marketplace. Reselling As part of its efforts to provide complete networking solutions, in December 1999, INVNSYS began reselling third-party hardware, software, and related supplies to business customers. The market for reselling these products is highly competitive. INVNSYS competes against a wide range of competitors, including the direct sales forces of companies such as COMP USA, and ASAP Software Express, a division of Corporate Express, Inc., and mail order companies such as Insight Enterprises, and Computer Discount Warehouse. Many of INVNSYS' competitors are more established and have greater resources. Management believes that INVNSYS can compete effectively in this market segment in that INVNSYS can provide complete network solutions in conjunction with competitively priced third-party hardware, software and related supplies. To date, management estimates that the reselling of third-party software has generated sales of approximately $100,000 per month. However, there is no assurance that INVNSYS' relationship with its third-party suppliers will continue, that such revenue levels will be sustained or that the Company will be able to effectively compete in the third-party reselling market segment. 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 27, 2000, INVNSYS had approximately 27 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. 34 38 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 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 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 assurance 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 James A. Ratliff(1) 42 Chief Operating Officer
(1) James Ratliff and Terry Ratliff, were, but are not currently, husband and wife. 35 39 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. 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. James A. Ratliff, joined iBIZ as Chief Operating Officer in January, 2000. Prior to joining the Company, Mr. Ratliff held the position of Director of Global Procurement at American Express from February 1998 to December 1999. From August 1995 to January 1998, Mr. Ratliff served as International Program Manager for AlliedSignal Aerospace, where he was responsible for the development of international partnerships. From 1991 through July 1995, Mr. Ratliff served as an International Buyer for Amoco Corporation. Mr. Ratliff earned an MBA and a BS in Purchasing Materials and Logistics from Arizona State University, where he graduated summa cum laude in 1991. 36 40 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 $200,000 250,000 Officer
(1) Includes 50,000 options granted for service as a director of the Company. OPTION GRANTS IN LAST FISCAL YEAR INDIVIDUAL GRANTS
PERCENT OF TOTAL NUMBER OF SECURITIES OPTIONS UNDERLYING OPTIONS/SARs /SARs GRANTED TO EXERCISE OF BASE NAME GRANTED (1) EMPLOYEES PRICE EXPIRATION DATE (a) (b) IN FISCAL YEAR ($/SH) (e) (c) (d) - -------------------------------------------------------------------------------------------------------------------- Kenneth W. Schilling 250,000 -----% $0.75 4/21/09
(1) Includes 50,000 options granted for service as a director of the Company. 200,000 options vested upon granting on April 22, 1999, and 25,000 will vest on April 22, 2000 and April 22, 2001 respectively. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS SHARES ACQUIRED ON VALUE FISCAL YEAR END AT FISCAL YEAR END EXERCISE (#) REALIZED EXERCISABLE/ EXERCISABLE/ NAME ($) 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. 37 41 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. "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. 38 42 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 27, 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 27, 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 40.8% 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 14,677,400 1,675,000 16,352,400 56.9% (6 persons)
(1) Includes options vested on January 27, 2000 and options which will become vested on or before March 27, 2000. (2) Kenneth and Diane Schilling are husband and wife and hold the shares as trustees under the Moorea Trust dated December 18, 1991. 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 39 43 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 27, 2000, three million four hundred thousand (3,400,000) 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. 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. 40 44 [BAR CHART]
1998 COMMON STOCK PRICES EVCV - iBIZ QUARTER ENDED HIGH LOW - ------- ---- --- Sept. 98.................. $3.06 $2.25 Dec. 98................... $2.69 $1.88
[BAR CHART]
1999 COMMON STOCK PRICES iBIZ QUARTER ENDED HIGH LOW - ------- ---- --- Mar-99.................... $2.06 $0.94 Jun-99.................... $2.44 $0.56 Sep-99.................... $2.22 $0.94 Dec-99.................... $1.81 $0.84
As of January 27, 2000, management believes there to be 127 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. iBIZ is prohibited from declaring or paying dividends while certain debentures or warrants are outstanding. 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 27, 2000, there were 27,046,380 shares of common stock outstanding and an aggregate of 4,506,250 options and warrants to purchase common stock. 41 45 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 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 42 46 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 7,144,252 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 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 43 47 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 28, 2004
Options and Warrants Not Included in Prospectus. In addition to the shares issuable upon exercise of options and warrants included in this prospectus, iBIZ has issued 3,025,000 options to employees under the Stock Option Plan. The shares underlying these options have been registered on a registration statement on Form S-8, File No. 333-95475, filed on January 27, 2000. In connection with the 7% Debentures, as of the date of this prospectus, iBIZ has issued to Equinet warrants to purchase 281,250 shares of common stock. The warrants issued to Equinet have an exercise price of $0.99 per share, have a term of five years and are immediately exercisable. 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 by Moffitt & Company, P.C., independent public accountants. As indicated in their reports with respect thereto, such statements are herein included in reliance upon the authority of such firm as experts in accounting and auditing in rendering the reports. 44 48 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. 45 49 FINANCIAL STATEMENTS INVNSYS TECHNOLOGY CORPORATION FORMERLY KNOWN AS SOUTHWEST FINANCIAL SYSTEMS, INC. FINANCIAL STATEMENTS OCTOBER 31, 1998 AND 1997 F-1 50 TABLE OF CONTENTS PAGE NO. -------- INDEPENDENT AUDITORS' REPORT ......................................... F-3 FINANCIAL STATEMENTS Balance Sheets ................................................ F-4 Statements of Income .......................................... F-6 Statement of Changes in Stockholders' Equity .................. F-7 Statements of Cash Flows ...................................... F-8 Notes to Financial Statements ................................. F-10 F-2 51 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 52 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 53 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 54 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 55 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 56 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 57 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 58 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 59 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 60 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 61 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 62 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 63 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 $ ========= ========= ========= =========
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 64 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 65 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 66 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 67 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 68 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 69 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 70 FINANCIAL STATEMENTS IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 1999 F-22 71 TABLE OF CONTENTS
PAGE NO. -------- INDEPENDENT AUDITORS' REPORT ....................................... F-24 FINANCIAL STATEMENTS Consolidated Balance Sheet .................................. F-25 Consolidated Statement of Operations ........................ F-27 Consolidated Statement of Changes in Stockholders' Deficit .. F-28 Consolidated Statement of Cash Flows ........................ F-30 Notes to Consolidated Financial Statements .................. F-32
F-23 72 INDEPENDENT AUDITORS' REPORT To The Board of Directors and Stockholders IBIZ Technology Corp. and Consolidated Subsidiary Phoenix, Arizona We have audited the accompanying balance sheet of IBIZ Technology Corp. and Consolidated Subsidiary as of October 31, 1999, and the related statements of operations, changes in stockholders' deficit, and cash flows for the year 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 IBIZ Technology Corp. and Consolidated Subsidiary as of October 31, 1999, and the results of its operations and its cash flows for the year then ended 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 $1,053,563 during the year ended October 31, 1999, and, as of that date had a working capital deficit of $912,169 and a shareholders' deficit of $433,527. 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 these uncertainties. MOFFITT & COMPANY, P. C. SCOTTSDALE, ARIZONA January 10, 2000 F-24 73 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY CONSOLIDATED BALANCE SHEET OCTOBER 31, 1999 ASSETS
CURRENT ASSETS Cash and cash equivalents $ 25,343 Accounts receivable, trade 212,300 Inventories 268,087 Prepaid expenses 38,984 -------- TOTAL CURRENT ASSETS $ 544,714 PROPERTY AND EQUIPMENT 124,747 OTHER ASSETS Note receivable, related party 356,810 Deposits 16,759 -------- TOTAL OTHER ASSETS 373,569 ---------- TOTAL ASSETS $1,043,030 ==========
F-25 74 LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES Accounts payable, trade $ 762,965 Customer deposits 115,408 Notes payable, current 67,497 Accrued liabilities 138,199 Sales and payroll taxes payable 98,774 Corporation income taxes payable 19,078 Deferred income 54,962 Convertible debentures payable 200,000 ----------- TOTAL CURRENT LIABILITIES $ 1,456,883 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 1,106,266 Advance on stock subscription 75,000 Retained earnings (deficit) (1,641,163) ----------- TOTAL STOCKHOLDERS' DEFICIT (433,527) -------------- TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 1,043,030 ==============
F-26 75 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 1999
SALES $ 2,082,515 COST OF SALES 1,682,905 ------------ GROSS PROFIT 399,610 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,473,790 ------------ (LOSS) BEFORE OTHER INCOME (1,074,180) OTHER INCOME (EXPENSE) Cancellation of debt $ 154,933 Other income 32,339 Interest income 28,260 Interest expense (58,085) ------------ TOTAL OTHER INCOME, NET 157,447 ------------ (LOSS) BEFORE INCOME TAXES (916,733) INCOME TAXES 136,830 ------------ NET (LOSS) $ (1,053,563) ============ NET (LOSS) PER COMMON SHARE Basic and Diluted $ (0.04) ============ AVERAGE NUMBER OF COMMON SHARES OUTSTANDING Basic and diluted 25,116,013 ============
F-27 76 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 ADVANCES ON STOCK SUBSCRIPTION 0 0 NET (LOSS) FOR THE YEAR ENDED OCTOBER 31, 1999 0 0 ---------- ---------- BALANCE, OCTOBER 31, 1999 26,370,418 $ 26,370 ========== ==========
F-28 77
PAID IN CAPITAL IN EXCESS OF ADVANCES RETAINED PAR VALUE ON STOCK EARNINGS OF STOCK SUBSCRIPTIONS (DEFICIT) ------------ ------------- ----------- $ 145,282 $ 154,111 $ (74,266) 0 0 (513,334) 223,471 0 0 863,320 (154,111) 0 (125,807) 0 0 0 75,000 0 0 0 (1,053,563) ------------ -------- ------------ $ 1,106,266 $ 75,000 $(1,641,163) ============ ======== ============
F-29 78 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) $(1,053,563) Adjustments to reconcile net (loss) to net cash (used) by operating activities Depreciation 42,104 Increase (decrease) in Accounts receivable, trade (58,764) Other receivables 1,500 Inventories 55,310 Prepaid expenses (11,984) Deferred tax asset 145,054 Deposits 3,396 Accounts payable (26,898) Customer deposits (279,856) Accrued liabilities and taxes (80,443) Deferred income (16,069) ----------- NET CASH FLOWS (USED) BY OPERATING ACTIVITIES $ (1,280,213) CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (90,315) Repayment of related party loans 634,030 ----------- NET CASH FLOWS PROVIDED BY INVESTING ACTIVITIES 543,715
F-30 79 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 806,873 Advances on stock subscription 75,000 Proceeds from issuance of convertible debentures 200,000 Decrease in notes payable ( 306,532) --------------- NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES $ 761,641 ---------------- 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 80 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 and offering network integration services, digital subscriber line high speed internet connection services and business-to-business software sales. 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. F-32 81 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 in the financial statements. Deferred tax assets and liabilities are included in the financial statements at currently enacted income. F-33 82 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) ------------------------ 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 $ 214,800 Allowance for doubtful accounts 2,500 ------------ $ 212,300 ============
F-34 83 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 $ 217,236 Demonstration and loaner units 5,731 Depot units 20,089 Office 24,712 Parts 319 --------------- Total inventories $ 268,087 ===============
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. $ 356,810 ==================
F-35 84 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 $(916,733) --------- 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 $294,800 $ 0 Accrued expenses and miscellaneous 23,414 0 Tax credit carryforward 38,424 0 Depreciation 0 6,199 -------- --------
F-36 85 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 $ 356,638 $ 6,199 Valuation allowance (356,638) (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, November 1, 1998 $291,068 Addition to allowance for year ended October 31, 1999 65,570 -------- Balance, October 31, 1999 $356,638 ========
NOTE 9 TAX CARRYFORWARD The company has the following tax carryforwards at October 31, 1999:
EXPIRATION YEAR AMOUNT DATE ------------------- -------- ---------------- Net operating loss October 31, 1995 $ 2,500 October 31, 2010 October 31, 1996 24,028 October 31, 2011 October 31, 1997 192,370 October 31, 2012 October 31, 1998 71,681 October 31, 2013 October 31, 1999 991,162 October 31, 2019 Capital loss October 31, 1997 25,600 October 31, 2002 Contribution October 31, 1997 545 October 31, 2002 October 31, 1999 2,081 October 31, 2004 Research tax credits 38,424
F-37 86 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 87 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, 2024 6,676,000
F-39 88 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-40 89 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 $50,000 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. The company issued the following options: F-41 90 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 1999 NOTE 20 STOCK OPTIONS (CONTINUED)
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 10% immediately balance over five years 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 Immediately 10 years --------- 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 cents 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 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. F-42 91 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 1999 NOTE 20 STOCK OPTIONS (CONTINUED) 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 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 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. F-43 92 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 1999 NOTE 21 PLAN OF REORGANIZATION AND STOCK EXCHANGE AGREEMENT (CONTINUED) 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 (965,300) ----------- Net (loss) for the year ended October 31, 1999 $(1,053,563) ===========
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 statement show that current liabilities exceed current assets by $912,169 and a shareholders' deficit of $433,527. In addition, sales have declined significantly from prior years. As described in note 23, the company obtained $1,600,000 of additional financing in November 1999 and December 1999. F-44 93 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 1999 NOTE 23 SUBSEQUENT EVENT $600,000 DEBENTURE ------------------ In November 1999, the company issued $600,000 of 7% convertible debentures under the following amended 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 shares 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) $ 0.675 (fixed price) or (ii) the product obtained by multiplying the average closing price by .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. 12. On December 6, 1999, $200,000 plus $3,149 of accrued interest was converted to 300,962 shares of common stock. FINANCIAL PROJECT MANAGEMENT AGREEMENT -------------------------------------- In December 1999, the company entered into a six month agreement with Equinet, Inc., the project manager, to promote the growth of, or increase in the shareholder value of the company. The project manager will be compensated as follows: 1. A monthly fee of $3,500 for the first 6 months of the agreement payable in cash or stock. 2. A fee of 1% - 10% based upon the funding received from the project manager's recommendations. 3. In connection with the first $5,000,000 raised by the project manager, the company will issue to the project manager warrants to purchase three shares of common stock for each $20 raised, up to a maximum of 750,000 shares. In the event the first $1,875,000 is received by January 10, 2000, the Company will provide Equinet a discounted exercise price of $0.99 per share in connection with the warrants for these Funds. F-45 94 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 1999 NOTE 23 SUBSEQUENT EVENT (CONTINUED) $1,000,000 DEBENTURE -------------------- In December 1999, the company issued an additional $1,000,000 of 7% convertible debentures under the following terms and conditions: 1. Due date - December 28, 2004. 2. Interest only on May 1 and December 1 of each year commencing April 1, 2000, payable in cash or stock. 3. Warrants to purchase 200,000 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 shares 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 .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 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. 12. The company paid a $100,000 brokerage fee for obtaining the $1,000,000 debentures. 13. The debenture agreement provides monetary penalties in the event the company delays the issuance of the conversion stock. STOCK ISSUANCE On November 29, 1999, the company received $50,000 and issued 100,000 shares of restricted stock. INVESTOR COMMUNICATION AGREEMENT -------------------------------- In December 1999, the company entered into an agreement with an investment company for the purpose of providing investor communications and enhancing shareholder values. The agreement is for one year and requires the following payments by the company: F-46 95 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 1999 NOTE 23 SUBSEQUENT EVENT (CONTINUED) INVESTOR COMMUNICATION AGREEMENT (CONTINUED) -------------------------------------------- 1. Non-refundable retainer of $50,000. 2. $10,000 per month advisory fee commencing June 1, 2000. 3. Warrants to purchase 75,000 shares of the company's common stock at 120% of the last trade price as of the execution of the agreement and the warrants must be exercised within three years from date of issuance. ASSET PURCHASE AGREEMENT ------------------------ On December 23, 1999, the company purchased the customer and vendor list from PC Solutions, Inc. for a purchase price of $11,250. In addition, the company acquired two key-employees of PC Solutions, Inc, and entered into two employment contracts with the following terms and conditions:
EMPLOYEE ONE EMPLOYEE TWO ------------ ------------ Effective date December 9, 1999 December 23, 1999 Salary annual $60,000 $0 Salary - per each half-day $0 $250 Commissions 2% Options -December 9, 1999 25,000 shares 0 Options - January 3, 2000 0 25,000 shares Options - January 2, 2001 25,000 shares 0 Options - January 2, 2002 50,000 shares 0 Options - January 2, 2003 50,000 shares 0 Each month after January 3, 2000 monthly 5,000 share options to a maximum of 50,000 shares 0 50,000 shares Option price $1.00 per share $1.00 per share Option vesting period Immediate Immediate Option expiration dates 10 years 10 years Term of employment contract 3 years Mutually agreed date Automatic renewal Annually 0
F-47 96 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 $ 2,888.33 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(1) $ 93,888.33
- ---------- 1. Except for the SEC registration fee, all fees and expenses are estimates. 97 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. 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 January 2000, iBIZ issued options to purchase 3,400,000 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 98 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% 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 28, 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. On January 10, 2000, iBIZ issued warrants to purchase and aggregate of 281,250 shares of common stock at a purchase price of $0.99 per share. The warrant is immediately exercisable and expires December 29, 2004 The warrants have terms of five years and are immediately exercisable. iBIZ relied upon either Section 4(2) or Regulation D, Rule 506 promulgated under the Securities Act with respect these warrants. 99 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.
100
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. 10.23(4) Master Distribution Agreement dated January 12, 2000, between iBIZ and Harsper Co. Ltd. 21.01(1) Subsidiaries of Registrant 23.01(3) Consent of Moffitt & Company 27.02(4) 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. Incorporated by reference from iBIZ's Form SB-2, File No. 333-94409, filed with the SEC on January 11, 2000. 4. Incorporated by reference from iBIZ's Form 10-KSB, File No. 027619, filed with the SEC on January 27, 2000. 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 101 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. 102 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 31, 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 103 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
104
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. 10.23(4) Master Distribution Agreement dated January 12, 2000, between iBIZ and Harsper Co. Ltd. 21.01(1) Subsidiaries of Registrant 23.01(3) Consent of Moffitt & Company 27.02(4) 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. Incorporated by reference from iBIZ's Form SB-2, File No. 333-94409, filed with the SEC on January 11, 2000. 4. Incorporated by reference from iBIZ's Form 10-KSB, File No. 027619, filed with the SEC on January 27, 2000. -----END PRIVACY-ENHANCED MESSAGE-----