-----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, LJocI3g4jXpEibgM/bkCq+6JdZjXeV4ALimCcDxRN9MXe1y6oBTJE3pqrLTqjeJN kWcKACl3nPu/gIAyU4474w== /in/edgar/work/20000728/0000950153-00-001026/0000950153-00-001026.txt : 20000921 0000950153-00-001026.hdr.sgml : 20000921 ACCESSION NUMBER: 0000950153-00-001026 CONFORMED SUBMISSION TYPE: SB-2 PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 20000728 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IBIZ TECHNOLOGY CORP CENTRAL INDEX KEY: 0001079893 STANDARD INDUSTRIAL CLASSIFICATION: [3575 ] IRS NUMBER: 860933890 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SB-2 SEC ACT: SEC FILE NUMBER: 333-42414 FILM NUMBER: 680468 BUSINESS ADDRESS: STREET 1: 1919 WEST LONE CACTUS CITY: PHOENIX STATE: AZ ZIP: 85201 BUSINESS PHONE: 6239200 MAIL ADDRESS: STREET 1: 1919 WEST LONE CACTUS CITY: PHOENIX STATE: AZ ZIP: 85201 SB-2 1 sb-2.txt SB-2 1 U. S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 iBIZ TECHNOLOGY CORP. (NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER) FLORIDA 3571 86-0933890 (STATE OR JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.) ORGANIZATION) 1919 WEST LONE CACTUS DRIVE, PHOENIX, ARIZONA 85021, (623) 492-9200 ------------------------------------------------------------------- (ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES) 1919 WEST LONE CACTUS DRIVE, PHOENIX, ARIZONA 85021 --------------------------------------------------- (ADDRESS OF PRINCIPAL PLACE OF BUSINESS OR INTENDED PRINCIPAL PLACE OF BUSINESS) ROBERT L. LANE, LANE & EHRLICH, LTD - -------------------------------------------------------------------------------- 4001 N. THIRD ST., SUITE 400, PHOENIX, ARIZONA 85012-2065 (602) 264-4442 - -------------------------------------------------------------------------------- (NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE) COPY TO: STEPHEN R. BOATWRIGHT, ESQ. DANIEL A. LARSON, ESQ. GAMMAGE & BURNHAM, PLC TWO NORTH CENTRAL AVENUE, 18TH FLOOR PHOENIX, ARIZONA 85004 (602) 256-0566 Approximate date of proposed sale to the public: September 1, 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. |-|-------------- 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 780,000(2) $.735(3) $573,300(3) $161. - -------------------------------------------------------------------------------------------------------------------
(1) Represents the shares of common stock being registered for resale by the selling securityholders. (2) Pursuant to a one year, non-exclusive Financial Consulting Services Agreement between us and a selling securityholder, 150,000 of the shares above represent initial compensation for financial, business and strategic planning services provided to us by the security holder. This agreement also provides the securityholder an option to purchase an additional 150,000 shares of common stock and those underlying shares are also included above. Pursuant to the agreement among us and two selling securityholders, 480,000 of the shares represents compensation for the construction and development of an interactive CD-ROM presentation, an interactive web-site, brochures relating to us and our products, an outline of a tradeshow presentation, and an Internet Advertising Campaign at RodeoIsland.com and Up-Tic.com, among other services provided. This presentation is not intended to constitute a prediction as to the future market price of the common stock. (3) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(c) and (g) of the Securities Act, based on the average ($.735) of the bid ($.69) and asked ($.78) price on the NASD OTC Bulletin Board on July 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. 2 CROSS REFERENCE SHEET
CAPTION IN FORM SB-2 CAPTION IN PROSPECTUS -------------------- --------------------- 1. Front of Registration Statement and Front cover outside front of cover of Prospectus 2. Inside front and outside back cover Inside front cover of Prospectus 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, Directors and Executive Officers Promoters and Control Persons 11. Security Ownership of Certain Security Ownership of Certain Beneficial Owners and Management Beneficial Owners 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 for Securities Act Indemnification for Securities Liabilities Act Liabilities 15. Organization in last five years Not Applicable 16. Description of business Business 17. Management's Discussion and Analysis Management's Discussion and or Plan of Operations Analysis 18. Description of Property Business 19. Certain Relationships and Related Certain Relationships and Related Transactions Transactions 20. Market for Common Equity and Related Market for Common Equity and Stockholder Matters Related Shareholder Matters 21. Executive Compensation Executive Compensation 22. Financial Statements Financial Statements 23. Changes in and Disagreements with Not Applicable Accountants on Accounting and Financial Disclosure
3 iBIZ TECHNOLOGY CORP. 1919 WEST LONE CACTUS DRIVE PHOENIX, ARIZONA 85021 (623) 492-9200 www.ibizcorp.com 780,000 SHARES COMMON STOCK 780,000 shares of common stock are being offered by our securityholders named under the heading "Selling Securityholders" appearing on page 12. We will not receive the proceeds from the sale of common stock by the securityholders, but will receive amounts upon exercise of outstanding options. 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 April 25, 2000, the price for our common stock was $.6875 per share. INVESTING IN THE COMMON STOCK INVOLVES CERTAIN RISKS, SEE "RISK FACTORS" ON PAGE 4. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. 4 TABLE OF CONTENTS
PAGE ---- PROSPECTUS SUMMARY ..................................................... RISK FACTORS ........................................................... WHERE YOU CAN FIND MORE INFORMATION ABOUT US ........................... SELLING SECURITYHOLDERS ................................................ USE OF PROCEEDS ........................................................ PLAN OF DISTRIBUTION ................................................... MANAGEMENT'S DISCUSSION AND ANALYSIS ................................... DESCRIPTION OF BUSINESS ................................................ DIRECTORS AND EXECUTIVE OFFICERS ....................................... EXECUTIVE COMPENSATION ................................................. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ......... CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ......................... MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS ............... DESCRIPTION OF SECURITIES .............................................. INDEMNIFICATION FOR SECURITIES ACT LIABILITIES ......................... EXPERTS ................................................................ LEGAL MATTERS .......................................................... FINANCIAL STATEMENTS ...................................................
5 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, digital subscriber line high-speed Internet connection services, the business-to-business sale of software and a co-location and computer data center. Founded in 1979, INVNSYS has evolved from a distributor of bank automation computer systems to a provider of a variety of computer products and services 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: - Personal Computers. We offer two small footprint personal computers, the Sahara and the Tomato. - 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. 6 - 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. In January 2000, we became the exclusive distributor of Harsper Co. LCD panels. We also offer a line of traditional monitors. - Notebook Computers. We market a complete line of competitively priced, build-to-order notebook computers. 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, in January 2000 we began reselling third-party hardware, software, and related supplies. SERVICES We recently began offering the following services: - Network Integration Services. We now have contracts with Intel and Motorola. - Digital Subscriber Line Services. We offer high-speed Internet connection services marketed to commercial customers. - Colocation Facility. We offer the outsourcing of computer server and data management for companies which no longer desire to manage those systems internally. MARKETING, SALES AND DISTRIBUTION We market our products directly to end users through a direct sales force, regional resellers, retail stores, 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 South 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. 2 7 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 SHARES REGISTERED IN THIS PROSPECTUS Shares ------------- 780,000 Total shares registered in this prospectus .............. 780,000(1) Shares outstanding after the offering ................... 31,242,728(2) OTC Bulletin Board symbol ............................... iBIZ
- ---------------- (1) iBIZ has agreed to register the shares of common stock issuable upon exercise of the 150,000 options. The number of shares issuable upon exercise of the options was calculated as of July 25, 2000. (2) Assumes (1) the exercise of all of the options at 100% of the maximum number of shares issuable and (2) the sale of all shares registered. However, this amount excludes shares issuable upon conversion of debentures and exercise of options and warrants not registered in this prospectus. 3 8 RISK FACTORS Investing in the common stock involves certain risks. You should review these "Risk Factors" beginning on page 4. PLAN OF DISTRIBUTION Selling securityholders may sell common stock in the over-the-counter market or on any exchange on which our common stock is listed. Shares may also be sold in block transactions or private transactions or otherwise, through brokers or dealers. Brokers or dealers may be paid commissions or receive sales discounts. The selling securityholders must pay their own commissions and absorb the discounts. Brokers or dealers used by the selling securityholders may be deemed to be underwriters under the Securities Act. In addition, the selling securityholders will be underwriters under the Securities Act with respect to the common stock offered. 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 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. 4 9 We Have A History Of Losses And Anticipate Future Losses For the fiscal year ended October 31, 1999 and during the six month period ended April 30, 2000, we sustained net losses of approximately $1,053,563 and $1,550,946, respectively. Future losses will occur as we develop new business sectors. Our success in obtaining additional funding will determine our ability to continue operations and expand our business. 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 our sales and marketing efforts. We will need working capital to meet the demand for manufacturing our products to supply our retail customers. We also need additional capital to complete our co-location server facility and to market the co-location facility to potential customers. 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. Between November 1999 and March 2000, we issued convertible debentures in an aggregate amount of $3,200,000. We anticipate the proceeds will be sufficient to maintain our ongoing business until January 1, 2001 although we would be forced to significantly downsize our operations if we fail to receive additional short term financing in August, 2000. However, we cannot assure you that even with the receipt of additional financing that unforeseen events will not result in the need for additional capital sooner than we currently anticipate. 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, or enter into financing arrangements on terms that we would not otherwise accept. 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. 5 10 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 local (with respect to our new co-location facility and digital service) and national or international level with respect to our products. 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 products. We Have Recently Added New Lines of Business We recently began offering network integration services, digital subscriber line or DSL high-speed Internet communications services and a co-location and data warehousing hosting facility. 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 or not become obsolete in the future. Our service lines of business require increasing attention by management and do not provide much synergy or economies of scale with our existing products. Heightened focus of management on our service business may cause a decline in the revenues or margins of our products business. Our Network Integration, DSL Services, and Co-location Facility Face Intense Competition We recently began offering network integration services, DSL high-speed Internet communications services and a co-location and data warehouse hosting facility. The market for these services is highly competitive. Our network integration services compete against a wide range of competitors from large established companies such as IBM and AT&T to smaller private entities. Our DSL services compete with companies such as Qwest Communications (formerly U.S. West Communications), COX Communications, Covad Communications and Rhythms NetConnections, as well as numerous local and national traditional Internet service providers. Co-location and warehouse data center competitors include large, public companies such as Exodus Communications, GST, Above.Net and Global Center. Many DSL and co-location service providers have much greater capital and can deploy a significant amount of their employees to assist customers obtain their services and respond to issues arising related to their services. Many of our competitors have substantial advertising and marketing budgets giving them the ability to capture market share quickly. While we believe that the quality of our service and the location and completion of our co-location facility before many of our competitors will give us a competitive advantage, we don't know how long we will maintain our lead over the competition. Although many DSL and co-location providers are more established, we believe their greater resources may increase market awareness and acceptance of DSL and co-location services. This, in turn, may make it easier for us to sell DSL and co-location services. We cannot assure you, however, that our new DSL and co-location services will enable us to expand our customer base and generate greater revenues. We Need to Expand our Product and Service 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 and services. 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 and services 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 and services that keep pace with technological developments. If we fail to introduce progressive new products and services in a timely and cost-effective manner, our financial performance may be negatively affected. 6 11 Some of Our Products Target Niche Markets We sell a line of "small footprint" computers. (The footprint is the amount of desk space a computer requires.) We also sell 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 introduced computers targeted to consumers requiring less desk space. We compete in the thin client market segment with well established companies such as Wyse Technology. We believe that Wyse may hold over 45% of the world-wide general purpose terminal market. We cannot guarantee you that small footprint products will gain or even sustain current market share or that our thin client products will achieve market acceptance. In addition, our products could be rendered obsolete and unmarketable if our competitors introduce new technology or new industry standards emerge. Recent Consolidations May Limit Our Markets One of our primary markets is the banking and financial institution industry. Recently, many banking and financial institutions have begun to consolidate. Although the number of potential customers decrease during consolidation, many banking and financial institutions upgrade their computer networks. We cannot assure you that the demand for our products by banking and financial institutions will not decrease as a result of the consolidation. Our Products Must Be Compatible With Third-Party Software Although we market computer hardware and peripherals, we currently do not develop software. Consequently, we are dependent upon third parties to develop software applications that operate on our hardware platforms. If software providers do not continue to provide software acceptable to our customers, our sales may suffer. We cannot guarantee that all available software will be compatible with our products or that we will have the technical personnel necessary to evaluate and fix software compatibility problems that may arise. If we do not have technical personnel available, our sales may decline. We Are 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. 7 12 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. We cannot assure you that our positive relationships will continue or that in the event of a termination of a relationship with a manufacturer or supplier, we would be able to obtain alternative sources of manufacturing or components without a material disruption in our ability to provide products to our customers. A material disruption of our ability to supply computers and peripherals to our customers would have a material adverse effect on our sales and results of operations. We Must Continue to be Authorized to Incorporate Manufacturer Authorized Products We are dependent on our continued authorization to provide manufacturer authorized products, including certain software products. Currently, we are 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 Recently Began Offering Third-Party Hardware, Software, and Related Supplies In January 2000, we began reselling third-party hardware, software, and related supplies in the highly competitive, business-to-business market. A significant portion of revenues is 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. 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. 8 13 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 is 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 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-person life insurance policies for our executive officers. We cannot assure you that we will not suffer the loss of key human resources. Our Officers and Directors Can Exercise Control Over All Matters Submitted to a Vote of Shareholders As of July 26, 2000, our executive officers and directors beneficially owned approximately 48% of our outstanding common stock. These officers, acting together, will be able to control matters requiring approval by our shareholders, 9 14 including election of members to our board of directors. As a practical matter, current management will continue to control iBIZ for the foreseeable future. No Additional Proceeds We will not receive the proceeds from the sale of shares by the selling securityholders and therefore have no additional proceeds to assist us with our need for capital. However, we will receive funds upon the exercise of options 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 780,000. A significant amount of common stock coming on the market at any given time could result in a decline in the price of our stock or increased volatility. We Have Not And Do Not Anticipate Paying Dividends. To date, we have not paid dividends to our shareholders and we do not contemplate paying dividends in the future. We anticipate retaining earnings, if any, to finance and develop our business. As a result, the return on your investment will depend upon any appreciation in the market price in the common stock. 10 15 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 public over the Internet at the SEC's website at http://www.sec.gov. We have filed a registration statement with the SEC on Form SB-2 to register the shares being offered. This prospectus is part of that registration statement and, as permitted by the SEC's rules, does not contain all the information included in the registration statement. For further information with respect to us and our common stock, you should refer to the registration statement and to the exhibits and schedules filed as part of the registration statement, as well as the documents discussed below. The SEC allows us to "incorporate by reference" the information we file with them, which means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is an important part of this prospectus, and information that we file later with the SEC will automatically update or supersede this information. This prospectus may contain summaries of contracts or other documents. Because they are summaries, they will not contain all of the information that may be important to you. If you would like complete information about a contract or other document, you should read the copy filed as an exhibit to the registration statement or incorporated in the registration statement by reference. We incorporate by reference the documents 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: - Annual Report on Form 10-KSB filed January 27, 2000, File No. 027619. - Quarterly Report on Form 10-QSB filed March 16, 2000, File No. 027619. - Quarterly Report on Form 10-QSB filed June 14, 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. 11 16 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.
Percentage Shares of of Common Ownership Common Stock Ownership Before the Included in After the Names Offering(1) This Offering Offering(2) - ------------- ------------ ------------- ------------ Travis Morgan 75,000 225,000(3) * Securities Kirojoba, Inc. 37,500 37,500 * Jack Naventi 37,500 37,500 * Blaine Ruzycki 640,000 400,000 * Anthony Sklar 80,000 80,000 *
(1) Consists of all shares owned by the selling securityholders as of July 26, 2000, plus the shares included in this prospectus. (2) *Represents less than one percent. (3) Includes 150,000 shares to be received on the exercise of options. USE OF PROCEEDS iBIZ will be responsible for the expenses of this registration, which are estimated at $18,000. iBIZ will not receive any proceeds from the sale of the common stock by the selling securityholders. 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 us. 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 12 17 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. 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 13 18 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. iBIZ is scheduled to complete its co-location server facility in August, 2000. 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)
14 19
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)
Six Month Period Ended ------------------------ 4/30/2000 4/30/99 --------- ------- Statement of Operations Data - ---------------------------- Net sales $ 2,064,979 $1,421,569 Gross profit $ 289,858 $ 286,689 Operating income (loss) $(1,538,698) $ (506,132) Net earnings (loss) after tax $(1,550,946) $ (519,995) Net earnings (loss) per share $ (.06) $ (.02)
4/30/2000 4/30/99 --------- ------- Balance Sheet Data - ------------------ Total assets $ 3,058,493 $ 1,202,004 Total liabilities $ 2,910,703 $ 1,621,828 Retained earnings(deficit) $(3,192,109) $(1,244,425)
RESULTS OF OPERATIONS. Fiscal year ended October 31, 1998 compared to fiscal year ended October 31, 1997. Revenues. Sales increased by approximately 45% from $2,350,459 for the fiscal year ended October 1997 to $3,402,681 for the fiscal year ended October 1998. The increase was mainly as a result of greater demand for INVNSYS' iT business application products and new product introductions and shipments for its keyboards. Cost of Sales. The cost of sales increased by approximately 41% from $1,579,440 in the fiscal year ended October 1997 to $2,219,796 in the fiscal year ended October 1998. The 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 15 20 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 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. 16 21 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. Six month period ended April 30, 2000 compared to six month period ended April 30, 1999. Revenues. Sales increased to $2,064,979 for the six month period ended April 30, 2000, which is approximately 146% of the $1,421,569 for the six month period ended April 30, 1999, The increase was mainly as a result of the contribution to revenue from the Company's business-to-business software sales, network services, and enhanced hardware sales resulting from the business-to-business software sales. Cost of Sales. The cost of sales increased by approximately 56% from $1,134,880 in the six-month period ended April 30, 1999 to $1,775,121 for the six month period ended April 30, 2000. The increase in cost of sales is attributable to a similar percentage increase in sales and also reflects higher labor and marketing expenses associated with the increase in work force necessary to sell and support the co-location facility currently under construction, Internet connection services and software. Gross Profit. Gross profit increased from approximately $286,684 for the six month period ended April 30, 1999 to $289,858 for the six month period ended April 30, 2000. The increase failed to match the significant increase in revenues because of the higher costs associated with the introduction of the new lines of business. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased approximately 130% from $792,821 for the six month period ended April 30, 1999, to $1,828,556 for the six month period ended April 30, 2000. The increase was primarily due to business expansion into the Internet, software, broadband and business-to-business sectors, increased staffing costs and salaries for technical personnel in anticipation of the opening of a server co-location facility, costs of fees paid for capital raising and investor relations, and legal and accounting fees related to registration of the Company's common stock. Interest Expense. Interest expense of $29,221 for the six month period ended April 30, 2000 and of $24,619 for the six month period ended April 30, 1999 was accrued primarily on notes payable to Community First National Bank (primarily extended for working capital purposes). A nominal amount of interest was paid in the quarter ended April 30, 2000 to debenture holders. Net Earnings. Net losses increased from $519,995 for the six month period ended April 30, 1999 to $1,550,946 for the six month period ended April 30, 2000. The increase in losses resulted primarily from a significant increase in selling, general, and administrative expenses and higher operating costs associated with the Company's new lines of business. 17 22 Liquidity and Capital Resources During the quarter ended April 30, 2000, the Company raised $1,600,000 through issuance of convertible debentures to Lites Trading Co. ("Lites"). On May 31, 2000, Lites converted $100,000 and on June 21, 2000 Lites converted an additional $100,000 of the convertible debentures. Pursuant to the applicable conversion formula, iBIZ issued 362,653 shares of common stock to Lites. The Company has no cash reserves remaining. Reserves were used for the construction and development of the server co-location facilities scheduled to be completed sometime in August. Historically, iBIZ has had problems with liquidity. The Company has been unable to generate sufficient internal cash flow to fund all of its obligations. The Company needs additional funding to support the manufacture of certain hardware being sold to retail stores and to pay salaries and marketing expenses related to its co-location facility prior to it reaching the level of customers needed to support itself from cash flows. There is no assurance that iBIZ will raise the necessary capital to remain in business beyond January 31, 2001 and if it fails to raise the capital on or before August 15, may be forced to downsize operations. If at any time iBIZ is unable to raise financing through additional sales of common stock or alternate financing sources, it may be required to delay or modify planned growth initiatives. Management believes that its recent diversification into broadband connectivity services, third-party software sales, and its server co-location facility should improve its liquidity and cash flow. iBIZ recently expanded its distribution of certain hardware into certain retail stores. Third-party software sales currently generate approximately $200,000 per month in sales revenues. Since May 19, CompUSA has ordered $240,000 of hardware and Frys Electronics is now ordering hardware from Invnsys. There is no assurance, however, that its favorable relationship with its third-party suppliers will continue or that its customers will continue to purchase the broadband connectivity services, hardware and the software packages and upgrades necessary to generate the revenue experienced. There is no assurance that the margins currently anticipated from the co-location facility will materialize. Entry of additional competitors with substantially greater resources than those of the Company could put additional downward pressure on the anticipated digital subscriber line high-speed Internet connection service and co-location facility margins. 18 23 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, 19 24 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 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 AND SERVICES 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 provides DSL service to commercial consumers through an agreement with Northpoint Communications, Inc. and is scheduled to begin offering a co-location service in August, 2000. 20 25 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 has a seven-person product design and development review committee which is managed directly by Kenneth Schilling. During 1998, INVNSYS did not incur costs specifically allocated to research and development. During fiscal 1999, INVNSYS spent Five Thousand Fourteen Dollars ($5,014.00) on expenses directly allocated for research and development. For financial accounting purposes INVNSYS has historically not allocated any significant expenses to research and development because its equipment manufacturers actually implement the innovations of senior level management of INVNSYS. However, iBIZ considers salaries paid to senior level management involved in product design and development as costs related to research and development. 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. 21 26 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. Tomato. The Tomato is designed to provide customers the advantage of a small footprint book-size PC (10-3/4" x 113/5" x 3-1/4") with home and corporate networking, home theater and full Internet capability. It may be configured with Intel Celeron 300 to 500Mhz processors and comes with a 52X IDE CD ROM or an optional DVD drive, TV connectors, four channel speakers and AC3 audio out/in support. 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 most Windows CE and Microsoft Pocket PC devices. 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. 22 27 Palm Pilot Accessories In December 1999, INVNSYS began selling a foldable cradle to hold the various Palm Pilot products. Management believes this cradle is easier to use than the products offered by competitors. INVNSYS also began selling a 12-volt power adapter to enable recharging of the batteries used in the Palm Pilot in a vehicle's cigarette lighter. Displays and Monitors INVNSYS offers a line of space-saving, zero-emission LCD flat panel displays. INVNSYS believes these LCD monitors provide superior viewing angles, graphic display and brightness over conventional monitors while consuming less energy. Moreover, LCD panels do not flicker like conventional CRT monitors, thus reducing eye strain and user fatigue. INVNSYS' LCD panels take up less than one-tenth of the space needed for an equivalent cathode ray tube ("CRT") monitor and are some of the thinnest available on the market. INVNSYS believes that the flat LCD panel gives the monitor a competitive edge over conventional CRT products by providing equivalent screen sizes in less space. 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 handles service and support functions for Harsper. The LCD panels will be marketed under both the iBIZ and Harsper names and will include 12.1" through 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 also offers a range of conventional CRT monitors in sizes 14 to 21 inches with digital controls. Planned Product Introductions 23 28 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. iT-9000. INVNSYS was developing a new small footprint Pentium II/III computer with attachable LCD monitor called the iT-9000. Management has decided to focus on its other business sectors and has discontinued development of the iT-9000. 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"). Currently, INVNSYS offers three notebook models, the RoadRunner, the Apache and the Phoenix. 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 III 650Mhz. 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 24 29 interchangeable with a 4X DVD-ROM drive. The Apache offers resolution as high as 1024 x 768 pixels with its 13.3" (XGA) or 12.1" (SVGA) built-in TFT screen. The Apache can be installed with up to 256 MB of memory using industry-standard Synchronous Dual in-line Memory Modules ("SO DIMM"). To improve slow input/output, the Apache also features up to 12 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 may be configured with Celeron 466 to Intel Pentium III 650 MHz processors. The notebook features a 12 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 4X 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 is configured with a 1024 x 768 pixel built-in 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 25 30 Microsoft DirectAudio and Direct 3D for use in Windows NT 5.0 or Windows 98 systems. It features integrated 3D audio effects as well as dual channel full duplex operation. The Phoenix comes with an Intel MMC2 CPU module, which allows for easy upgrades. In addition, the notebook's modular design allows for several configurations. The notebook may be configured with anywhere from 32 to 256 MB of RAM. The modular hard disk drive may be removed and replaced with an alternate drive. Also available in the Phoenix is an LS-120 drive, which reads and writes to 120MB Superdisks as well as standard 3.5" floppy disks. An additional expandability option for the Phoenix is Twinhead's proprietary port replicator, which duplicates all of the connectors that are available on the rear side of the notebook and adds one extra PS/2 port, one stereo line-out connector and a Game/MIDI port. For communications, the Phoenix offers an optional 56 Kbps fax/modem which facilitates dial-up networking, a full duplex sound system and built-in microphone and stereo speakers which allow the Phoenix to be installed with voicemail and speakerphone functions. Network connections are possible through a 32-bit CardBus slot. In addition, the Phoenix offers an infrared port which allows wireless file transfer and printing to other infrared-enabled systems. 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. INVNSYS offers 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 $200,000 per month in revenues from third-party software and hardware sales. 26 31 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 Director of Technology prior to joining the Company, INVNSYS acquired network integration service accounts with American Express and Motorola. INVNSYS now has a contract with Intel as well. 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. INVNSYS is scheduled to complete a co-location facility in August, 2000. The facility will accomodate content providers' needs and outsource the management of web servers and bandwidth "traffic congestion" while providing the desired content security and hardware configurations. There can be no assurance that INVNSYS will develop the economies of scale or obtain the customer base necessary to achieve long term profitability. MARKETING, SALES AND DISTRIBUTION INVNSYS markets and distributes products directly to end users through a direct sales force, regional resellers, retail stores value-add providers in the banking and POS market and Internet commerce sites. INVNSYS has a direct sales force of nine employees, directed by Mr. Schilling, who market INVNSYS' products to commercial customers. 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! and for other consumer sites. 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. 27 32 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 and to retail stores such as Comp USA, Inc. and Frys Electronics. INVNSYS has 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' 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 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 28 33 done entirely by Twinhead. Management believes this relationship allows INVNSYS to offer a broader range of products to its customers without the cost of research and development and manufacturing. LICENSES Citrix Systems, Inc. On December 30, 1998, INVNSYS entered a licensing agreement with Citrix Systems, Inc. ("Citrix") for the use of Citrix Independent Computing Architecture ("ICA"), an emerging industry standard for server-based computing (the "ICA Agreement"). Under the ICA Agreement, INVNSYS is granted a non-exclusive, non-transferable right to incorporate ICA into Citrix-approved iBIZ computers. The license is for a term of two years and automatically renews for successive one year periods unless either party gives notice of an intent to allow the agreement to expire at the end of the then current term. In addition, INVNSYS and Citrix have entered into a Citrix Business Alliance Membership Agreement dated February 22, 1999 (the "CBA Agreement"). For a membership fee, CBA membership entitles INVNSYS to engineering, sales, and marketing support by Citrix, as well as access to beta releases of new Citrix products and discounted current software products. Microsoft, Inc. In June 1999, INVNSYS entered into an agreement with Microsoft, Inc. to become an OEM system builder. Participation in this program will allow INVNSYS to install genuine Microsoft operating systems in selected applications with full support from Microsoft. In addition, this agreement entitles INVNSYS to pre-production versions of Microsoft products and enables INVNSYS to provide input into development and design of new products. KeyLink Software License. iBIZ has an exclusive, perpetual license to use, distribute and offer for sale with associated hardware, the software which facilitates the connection between the KeySync keyboard and the 3COM Palm devices. 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 29 34 accounting programs and management believes all internal systems are Year 2000 compliant. Management estimates the Company incurred costs of approximately $20,600 to address the Year 2000 computer issue. To date, iBIZ has not experienced any material disruptions related to the Year 2000 computer issue. However, iBIZ can give no assurance that future failures of third-party systems will not have a material effect on INVNSYS' operations. SERVICE AND SUPPORT INVNSYS provides its customers with a comprehensive service and support program. Technical support is provided to customers via a toll-free telephone number as well as through the iBIZ website. The number is available Monday through Friday 8:00 a.m. to 5:00 p.m., Mountain Standard Time. INVNSYS maintains a staff of approximately 20 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 30 35 are targeted for the consumer and not for the corporate customer and are more expensive than the computers offered by INVNSYS. INVNSYS' main competitors for its 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 DSL high-speed Internet connection services and a web server co-location facility service. 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 a technology manager 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 Qwest Communications, COX Communications, Covad Communications and Rhythms NetConnections offer DSL services. Co-location and data warehousing competitors include large public companies such as Exodus Communications, GST, Above-Net and Global Center. Management believes that these companies' greater resources may increase market awareness and acceptance of DSL and co-location services. However, as 31 36 INVNSYS has only recently entered the market for Internet connection services, there can be no assurance that it can successfully compete in the marketplace. INVNSYS' DSL services also compete with numerous local and national conventional dial-up Internet service providers such as America Online and MindSpring. Although capable of providing higher connection speeds than traditional modem dial-up services, the market for DSL services is currently limited by the technological requirement that customers be located within a fixed proximity of a central office which provides the service. In contrast, conventional dial-up Internet services, while providing slower connection speeds, may be accessed by any telephone line. There can be assurance that the market for DSL services will develop to successfully compete against conventional dial-up Internet service providers or that INVNSYS will successfully market its DSL services. There can be no assurance that the changes in technology will not make co-location services obsolete or that INVNSYS will achieve the necessary market penetration in its geographic region necessary to achieve profitability in its co-location facility. 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, 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 hardware and software has generated sales of approximately $200,000 per month. However, there is no assurance that iBIZ's 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 July 26, 2000, INVNSYS had approximately 45 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. 32 37 FCC REGULATIONS The Federal Communications Commission (the "FCC") has adopted regulations setting radio frequency emission standards for computing equipment. Management believes all of INVNSYS' current products meet applicable FCC and foreign requirements. INVNSYS is in the process of exploring foreign operations. Many foreign jurisdictions require governmental approval prior to the sale or shipment of personal computing equipment and in certain jurisdictions such requirements are more stringent than in the United States. Any delays or failures in obtaining necessary approvals from foreign jurisdictions may impede or preclude INVNSYS' efforts to penetrate such markets. DESCRIPTION OF PROPERTY On July 1, 1999, iBIZ began leasing an approximately 15,000 square foot custom-built office building located at 1919 West Lone Cactus, Phoenix, Arizona. The facility is used for administration, design, engineering and assembly of products. iBIZ's lease ("Lease") is for a term of twenty-six and one-half years (26.5), with monthly rental payments of $12,800, subject to annual increases, plus taxes and operating costs. The facility is leased from Lone Cactus Capital Group, L.L.C., a limited liability company in which Kenneth Schilling is a member. The Lease is personally guaranteed by Mr. Schilling and his wife, Diane. Management believes this new facility will provide adequate space to accommodate the iBIZ's current plan of growth and expansion. LITIGATION Invnsys Technology Corporation, dba iBIZ Technology Corporation ("iBIZ"), is the defendant in a civil matter filed by Epson America, Inc. ("Epson"), in the Superior Court of the State of Arizona. The complaint alleges that over the past three (3) years, iBIZ became indebted to Epson in the amount of $151,665.96. Since February 2, 2000, no payment has been made to Epson, leaving an unpaid balance of $102,636.05 plus interest. Epson seeks to recover $102,636.05 plus interest accruing at a rate of ten percent (10%) from February 2, 1999, attorney's fees, incurred costs and expenses, together with accruing costs. iBIZ is seeking to recover additional commissions that it believes Epson owes it. Although there is no assurance that a settlement will be reached, iBIZ intends to settle the matter with representatives of Epson. For accounting purposes, the full amount that Epson is seeking to recover has already been accrued as a liability in iBIZ's financial records. 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. 33 38 DIRECTORS AND EXECUTIVE OFFICERS
NAME AGE POSITION ---- --- -------- Kenneth W. Schilling 48 President, Chief Executive Officer, Director Terry S. Ratliff 42 Vice President, Secretary, Controller, Director Mark H. Perkins 36 Vice President of Operations, Director James A. Ratliff(1) 42 Chief Operating Officer
(1) James Ratliff and Terry Ratliff, were, but are not currently, husband and wife. 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 Chief Financial Officer, Vice President, and Controller. Ms. Ratliff was appointed to iBIZ's Board of Directors on March 5, 1999 and appointed Ms. Ratliff Chief Financial Officer on July 1, 2000. Ms. Ratliff attended Nicholls State University in Thibodaux, Louisiana where she studied 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. 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. The Company has two key employees as well. Richard A. Christopher, joined iBIZ September 1, 1999, and currently served as Chief Technology Officer from November 17, 1999 to July 1, 1999 when he resigned. He now serves as a Director of Marketing. 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. 34 39 The Company has a technology review committee consisting of Ken Schilling, Mark Perkins, Brad Senff, Philip Senff, Richard Christopher, James Ratliff and Jeff Slosky. The technology committee reviews products to take to the market and determines the technology direction of the Company. 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 $200,000 250,000 Officer
(1) Includes 50,000 options granted for service as a director of the Company. OPTION GRANTS IN LAST FISCAL YEAR INDIVIDUAL GRANTS
PERCENT OF TOTAL OPTIONS NUMBER OF SECURITIES /SARS GRANTED TO EXERCISE OF BASE UNDERLYING OPTIONS/SARS EMPLOYEES PRICE NAME GRANTED (1) IN FISCAL YEAR ($/SH) EXPIRATION DATE (a) (b) (c) (d) (e) - ---------------------------------------------------------------------------------------------------------- Kenneth W. Schilling 250,000 -----% $0.75 4/21/09
(1) Includes 50,000 options granted for service as a director of the Company. 200,000 options vested upon granting on April 22, 1999, and 25,000 vested on April 22, 2000. An additional 25,000 will vest on April 22, 2001. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS VALUE FISCAL YEAR END AT FISCAL YEAR END SHARES ACQUIRED ON REALIZED EXERCISABLE/ EXERCISABLE/ NAME EXERCISE(#) ($) 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. 35 40 Compensation of Directors Pursuant to the terms of their employment agreements, effective April 22, 1999, Messrs. Schilling, Perkins and Ms. Ratliff each received fifty thousand (50,000) options to purchase fifty thousand (50,000) shares of common stock in consideration for their services as directors of iBIZ. Each director holds office until the next annual meeting of shareholders or until their successors are elected and qualified. Employment Agreement for Kenneth W. Schilling Effective March 5, 1999, Kenneth W. Schilling and iBIZ entered into an Employment Agreement (the "Agreement"), as amended as of September 8, 1999. Under the Agreement, Mr. Schilling has been retained to act as President and Chief Executive Officer of iBIZ. The Agreement is for a term of two years ending March 4, 2001. Under the Agreement, Mr. Schilling shall receive an annual base salary of $200,000.00. In addition, effective April 22, 1999, Mr. Schilling received two hundred fifty thousand (250,000) options to purchase two hundred fifty thousand (250,000) shares of common stock of iBIZ at an exercise price of $0.75 per share. Two hundred thousand (200,000) options were issued in consideration of Mr. Schilling's services as an officer of iBIZ and fifty thousand (50,000) options were issued in consideration for services as a director. Two hundred thousand (200,000) options vested upon granting on April 22, 1999, and twenty-five thousand (25,000) options will vest on April 22, 2000 and April 22, 2001, respectively. The Agreement provides that upon total and permanent disability, as defined in the Agreement, iBIZ shall pay Mr. Schilling such benefits as may be provided to officers of iBIZ under any Company provided disability insurance or similar policy or under any iBIZ adopted disability plan. In the absence of such policy or plan, iBIZ shall continue to pay Mr. Schilling for a period of not less than six months the compensation then in effect as of the effective date of his termination. Mr. Schilling may terminate the Agreement upon written notice, within thirty (30) days following the occurrence of an event constituting "Good Reason," as defined below. Upon the termination by Mr. Schilling for Good Reason, Mr. Shilling will be entitled to receive a payment equal to the lesser of: (1) an amount equal to one-half of his annual base salary in effect at the time of termination; or (2) the remaining compensation due to Mr. Schilling under the terms of the Agreement. If Mr. Schilling fails to exercise his rights to terminate the Agreement for Good Reason within thirty (30) days following an event constituting Good Reason, such rights shall expire and be of no further force or effect. "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 36 41 Agreement after notice and an opportunity to cure; and (4) the relocation of Mr. Schilling, his corporate office facilities, or personnel outside the Phoenix metropolitan area. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information regarding the beneficial ownership of the Company's common stock as of July 26, 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 - 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 July 26, 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 Total Percent - ----------------------------------------------------------------------------------------------------------- Kenneth W. Schilling(1) -------- 225,000 225,000 0.8% 1919 W. Lone Cactus Drive, Phoenix, AZ 85021 Moorea Trust(1) 9,920,000 --------- 9,920,000 32.6% 1919 W. Lone Cactus Drive, Phoenix, AZ 85021 Terry S. Ratliff 1,771,200 325,000 2,096,000 7% 1919 W. Lone Cactus Drive, Phoenix, AZ 85021 Mark H. Perkins 1,771,200 325,000 2,096,000 7% 1919 W. Lone Cactus Drive, Phoenix, AZ 85021 James A. Ratliff --------- --------- 500,000 ------- All directors and officers as group 13,462,400 875,000 14,837,000 48.7% (6 persons)
(1) 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 37 42 employees, and service providers of iBIZ. The Stock Option Plan covers an aggregate maximum of five million (5,000,000) shares of common stock and provides for the granting of both incentive stock options (as defined in Section 422 of the Internal Revenue Code of 1986, as amended) and non-qualified stock options (options which do not meet the requirements of Section 422). Under the Stock Option Plan, the exercise price may not be less than the fair market value of the common stock on the date of the grant of the option. As of July 26 2000, four million three hundred eighty thousand (4,380,000) options ("the Options") had been granted under the plan at exercise prices between $0.75 and $2.00. The Options are granted for a period of three (3) to 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 $992,037.00 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 and 2000. As of July 26, 2000, the balance of the loans payable by Mr. Schilling to INVNSYS totaled $368,082.04. Mr. Schilling, as trustee of the Moorea Trust, has 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 38 43 "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 June 2000. [BAR GRAPH OMITTED] 1998 - 2000 Common Stock Prices EVCV - iBIZ
Stock Price -------------- Quarter Ended High Low - ------------- ---- --- Sep 98 $3.06 $2.25 Dec 98 $2.66 $1.88 Mar 99 $2.06 $0.94 Jun 99 $2.44 $0.56 Sep 99 $2.22 $0.94 Dec 99 $1.81 $0.94 Mar 00 $3.00 $1.00 June 00 $1.94 $ .75
As of July 26, 2000, management believes there to be 154 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 July 26, 2000, there were 30,462,827 shares of common stock outstanding and an aggregate of 5,347,500 options and warrants to purchase common stock. Common Stock. Holders of shares of common stock are entitled to one vote for each share of common stock held of record on all matters submitted to a vote of the shareholders. Each share of common stock is entitled to receive dividends as may be declared by the Company's Board of Directors out of funds legally available. Management, however, does not presently intend to pay any dividends. In the event of liquidation, dissolution or winding up of the Company, the holders of common stock are entitled to share ratably in all assets remaining after payment in full of all creditors of the Company and the liquidation preferences of any outstanding shares of preferred stock, if any. There are no redemption or sinking fund provisions applicable to the common stock. 39 44 Debentures. Between November 1999 and March 2000, iBIZ issued a series of three 7% Debentures totaling an aggregate of $3.2 million. 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 March 27, 2000, iBIZ issued One Million Six Hundred Thousand Dollars ($1,600,000.00) of 7% Debentures (the "$1600k 7% Debentures) to Lites Trading, Co. ("Lites Trading"). The material terms of all the 7% Debentures are the same, except for purchase amounts, certain relevant dates and time periods and related warrants. Where the rights of Globe and Lites Trading conflict, Globe has agreed to waive its rights in favor of Lites Trading. On December 6, 1999, Globe converted $200,000 of the $600k 7% Debentures, plus accrued interest to date, on March 2, 2000, Globe converted $1,000,000 of the $1000k 7% Debentures, plus accrued interest to date and on April 14, 2000, Globe converted $50,000 of the $600k 7% Debentures, plus accrued interest to date. Pursuant to the applicable conversion formula, iBIZ issued 300,962 shares of common stock, 1,292,481 shares of common stock and 88,938 shares of common stock, respectively. Accordingly, as of April 15, 2000, Globe's remaining $600k 7% Debentures totaled $200,000, plus accrued interest. On June 1 and on June 21, 2000, Lites Trading converted an aggregate of $200,000 of principal and of debentures into a total of 362,653 shares of Common Stock. The remaining 7% Debentures accrue interest at seven percent per annum and are due November 9, 2004, and March 27, 2005, 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 $1600k 7% Debentures is due on the first day of May and December. At the holders' option, iBIZ may make interest payments in the form of shares of common stock (calculated as if a portion of principal, as described below). The holder 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. 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 $1600k 7% Debentures, is the lesser of (i) $1.45 or (ii) the product obtained by multiplying (x) the Average Closing Price (as defined in the 7% Debentures) by (y) .80. In addition, the holders may require iBIZ to redeem the 7% Debentures for cash at a redemption price equal to 120% of the aggregate principal and accrued interest outstanding in the event of a Change in Control of iBIZ (as defined in the 7% Debentures). 40 45 In connection with the sale of the $600k and $1000k 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). This Registration Statement on Form SB-2, File No. 333-94409, was declared effective February 1, 2000 and has remained continuously effective through the date hereof. In connection with the sale of the $1600k 7% Debentures, iBIZ filed a second registration statement to cover the resale of the common stock issuable upon conversion of the 7% Debentures and the exercise of the warrants on Form SB-2, File No. 333-34936, which was declared effective May 1, 2000 and has remained continuously effective through the date hereof. Pursuant to the terms of the 7% Debentures, iBIZ may not, without the prior written consent of the holders, 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 the respective registration statement is declared effective by the SEC or (ii) the date on which the holders 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 March 27, 2000; (iii) may issue options, in addition to all options previously issued as of March 27, 2000 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 March 27, 2000) 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 the holders 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 $600k and $1000k 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. In connection with the sale of the $1600k 7% Debentures, Globe agreed to waive its right of first refusal in favor of Lites Trading. In the event Lites Trading elects not to exercise its rights, such rights will revert back to Globe. 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 780,000 shares registered for sale by the selling securityholders 41 46 150,000 shares are issuable upon exercise of options issued to consultants. These consultants options are exercisable in 50,000 share increments at certain strike prices, have an exercise price between $1.50 and $2.50 per share and have terms of one year. In addition, in connection the issuance of the $1600k 7% Debentures, iBIZ has issued a warrant to purchase 375,000 shares of common stock. The warrant is immediately exercisable, has an exercise price of $1.45 per share and expires March 27, 2005. 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 3,550,000 options to employees under the Stock Option Plan. The shares underlying these options have been registered on registration statements on Form S-8, File No. 333-95475, filed on January 27, 2000, and File No. 333-34926 filed on April 17, 2000. In addition, iBIZ has registered an aggregate of 1,496,250 shares issuable upon conversion of warrants granted to consultants on registration statements on Form SB-2. 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, as of October 31, 1999, and for the six month period ended April 30, 2000, included in this prospectus have been audited or reviewed 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. 42 47 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. 43 48 FINANCIAL STATEMENTS INVNSYS TECHNOLOGY CORPORATION FORMERLY KNOWN AS SOUTHWEST FINANCIAL SYSTEMS, INC. FINANCIAL STATEMENTS OCTOBER 31, 1998 AND 1997 F-1 49 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 50 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 51 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 52 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 53 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 54 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 55 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 56 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 57 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 58 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 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) 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 60 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 61 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 62 INVNSYS TECHNOLOGY CORPORATION FORMERLY KNOWN AS SOUTHWEST FINANCIAL SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 1998 AND 1997 NOTE 7 INCOME TAXES (CONTINUED)
1998 1997 ---- ---- Deferred Tax Deferred Tax ------------ ------------ Assets Liabilities Assets Liabilities ------ ----------- ------ ----------- Subtotals $ 145,054 $ 8,224 $ 204,756 $ 24,607 Less valuation allowance (145,054) (8,224) (204,756) (24,607) --------- --------- --------- --------- Total deferred taxes $ 0 $ 0 $ 0 $ 0 ========= ========= ========= =========
Realization of the net deferred tax assets is dependent on future reversals of existing taxable temporary differences and adequate future taxable income, exclusive of reversing temporary differences and carryforwards. Although realization is not assured, management believes that is more likely than not that the net deferred tax assets will not be realized. NOTE 8 TAX CARRYFORWARD The company has the following tax carryforwards at October 31, 1998:
EXPIRATION YEAR AMOUNT DATE ---- ------ ---------- Net operating loss October 31, 1997 $342,302 October 31, 2012 Capital loss October 31, 1997 25,600 October 31, 2002 Contribution October 31, 1995 1,536 October 31, 2000 October 31, 1996 2,068 October 31, 2001
NOTE 9 PAYROLL TAXES PAYABLE At October 31, 1998, the company was delinquent in the payment and filing of payroll tax returns in the amount of $236,923. The payroll taxes were paid in 1999. F-15 63 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 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 (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 65 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 66 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 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) 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 68 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 69 FINANCIAL STATEMENTS IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 1999 F-22 70 TABLE OF CONTENTS
PAGE NO. -------- INDEPENDENT AUDITORS' REPORT ..................................... F-24 FINANCIAL STATEMENTS Consolidated Balance Sheet................................. F-25 Consolidated Statement of Operations....................... F-26 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 71 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 72 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 73 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 74 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 75 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 .354 PER SHARE 640,318 640 AT .504 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 76
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 77 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 78 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 79 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 80 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 81 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 82 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 83 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 84 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 85 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 86 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
NOTE 14 ADVERTISING The company expenses all advertising as incurred. For the year ended October 31, 1999, the company charged to operations $15,492 in advertising costs. F-39 87 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-40 88 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 .754 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-41 89 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 ----- ------ ----- ---- $ .754 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-42 90 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-43 91 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 a discounted exercise price of $0.96 per share in connection with the warrants for these funds. F-44 92 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-45 93 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-46 94 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY CONSOLIDATED FINANCIAL STATEMENTS TABLE OF CONTENTS
PAGE NO. INDEPENDENT ACCOUNTANTS' REVIEW REPORT................................... F-48 FINANCIAL STATEMENTS Consolidated Balance Sheets....................................... F-49 Consolidated Statements of Operations............................. F-51 Consolidated Statement of Changes in Stockholders' Equity ........ F-53 Consolidated Statements of Cash Flows............................. F-55 - F-56 Notes to Consolidated Financial Statements........................ F-57 - F-71
F-47 95 [MOFFITT & COMPANY, P.C. LETTERHEAD] INDEPENDENT ACCOUNTANTS' REVIEW REPORT To The Board of Directors and Stockholders IBIZ Technology Corp. and Consolidated Subsidiary Phoenix, Arizona We have reviewed the accompanying balance sheets of IBIZ Technology Corp. and Consolidated Subsidiary as of April 30, 2000 and 1999, and the related statements of operations for the three and six months then ended, statement of stockholders' equity for the six months ended April 30, 2000 and statements of cash flows for the six months ended April 30, 2000 and 1999, in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. All information included in these financial statements is the representation of the management of IBIZ Technology Corp. and Consolidated Subsidiary. A review consists principally of inquiries of company personnel and analytical procedures applied to financial data. It is substantially less in scope than an audit in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in conformity with generally accepted accounting principles. As discussed in Note 22, certain conditions indicate that the company may be unable to continue as a going concern. The accompanying financial statements do not include any adjustments to the financial statements that might be necessary should the company be unable to continue as a going concern. MOFFITT & COMPANY, P.C. SCOTTSDALE, ARIZONA June 5, 2000 F-48 96 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY CONSOLIDATED BALANCE SHEETS APRIL 30, 2000 AND 1999 (UNAUDITED) ASSETS
2000 1999 ---- ---- CURRENT ASSETS Cash and cash equivalents $1,303,453 $ 53,194 Accounts receivable, trade 635,948 154,094 Loan receivable, officer 38,404 0 Inventories 264,135 189,329 Prepaid expenses 29,658 14,522 ---------- ---------- TOTAL CURRENT ASSETS 2,271,598 411,139 ---------- ---------- PROPERTY AND EQUIPMENT, NET OF ACCUMULATED DEPRECIATION 340,996 53,186 ---------- ---------- OTHER ASSETS Note receivable, related party 419,582 717,829 Deposits 16,401 19,850 Customer list, net of accumulated amortization 9,916 0 ---------- ---------- TOTAL OTHER ASSETS 445,899 737,679 ---------- ---------- TOTAL ASSETS $3,058,493 $1,202,004 ========== ==========
F-49 97 LIABILITIES AND STOCKHOLDERS' EQUITY
2000 1999 ---- ---- CURRENT LIABILITIES Accounts payable, trade $ 510,135 $ 767,090 Customer deposits 0 212,458 Notes payable, current 5,265 351,703 Accrued liabilities 158,498 69,894 Sales and payroll taxes payable 132,301 79,276 Corporation income taxes payable 19,078 17,841 Deferred income 118,373 101,283 ----------- ----------- TOTAL CURRENT LIABILITIES 943,650 1,599,545 ----------- ----------- LONG - TERM LIABILITIES Convertible debentures payable 1,950,000 0 Notes payable 17,053 22,283 ----------- ----------- TOTAL LONG - TERM LIABILITIES 1,967,053 22,283 ----------- ----------- STOCKHOLDERS' EQUITY Common stock Authorized - 100,000,000 shares, par value $.001 per shares Issued and outstanding - 30,100,175 shares in 2000 30,100 0 24,540,000 shares in 1999 0 24,540 Paid in capital in excess of par value of stock 3,309,799 800,061 Advance on stock subscription 0 0 Retained earnings (deficit) (3,192,109) (1,244,425) ----------- ----------- TOTAL STOCKHOLDERS' EQUITY 147,790 (419,824) ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,058,493 $ 1,202,004 =========== ===========
See Accompanying Notes and Independent Accountants' Review Report. F-50 98 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED APRIL 30, 2000 AND 1999 (UNAUDITED)
2000 ---------------------------------- THREE MONTHS SIX MONTHS ENDED ENDED APRIL 30, 2000 APRIL 30, 2000 -------------- -------------- SALES $ 1,436,126 $ 2,064,979 COST OF SALES 1,224,326 1,775,121 ------------ ------------ GROSS PROFIT 211,800 289,858 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,028,002 1,828,556 ------------ ------------ (LOSS) BEFORE OTHER INCOME (EXPENSE) (816,202) (1,538,698) ------------ ------------ OTHER INCOME (EXPENSE) Interest income 11,575 16,973 Interest expense (36,199) (29,221) ------------ ------------ TOTAL OTHER INCOME (EXPENSE) (24,624) (12,248) ------------ ------------ (LOSS) BEFORE INCOME TAXES (840,826) (1,550,946) INCOME TAXES 0 0 ------------ ------------ NET (LOSS) $ (840,826) $ (1,550,946) ============ ============ NET (LOSS) PER COMMON SHARE Basic and Diluted $ (.03) $ (.06) ============ ============ WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING Basic and diluted 27,799,927 27,799,927 ============ ============
F-51 99
1999 ----------------------------------- THREE MONTHS SIX MONTHS ENDED ENDED APRIL 30, 1999 APRIL 30, 1999 -------------- -------------- $ 588,050 $1,421,569 413,219 1,134,880 ---------- ---------- 174,831 286,689 661,814 792,821 ---------- ---------- ( 486,983) ( 506,132) ---------- ---------- 10,756 10,756 ( 8,735) ( 24,619) ---------- ----------- 2,021 ( 13,863) ---------- ---------- ( 484,962) ( 519,995) 0 0 ---------- ---------- $( 484,962) $( 519,995) ========== ========== $ ( .02) $ ( .02) ========== ========== 24,540,000 24,540,000 ========== ==========
See Accompanying Notes and Independent Accountants' Review Report. F-52 100 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE SIX MONTHS ENDED APRIL 30, 2000 (UNAUDITED)
COMMON STOCK ------------ SHARES AMOUNT ------ ------ BALANCE, NOVEMBER 1, 1999 26,370,418 $ 26,370 NOVEMBER, 1999 - CONVERSION OF DEBENTURES FOR COMMON STOCK 300,962 301 NOVEMBER, 1999 - ISSUANCE OF COMMON STOCK FOR CASH 100,000 100 JANUARY, 2000 - ISSUANCE OF COMMON STOCK FOR CASH 250,000 250 NOVEMBER, 1999 TO JANUARY, 2000 - FEES AND COSTS FOR ISSUANCE OF STOCK 0 0 FEBRUARY, 2000 - ISSUANCE OF COMMON STOCK FOR ADVANCES ON STOCK SUBSCRIPTIONS 100,000 100 FEBRUARY, 2000 - CONVERSION OF DEBENTURES FOR COMMON STOCK 300,000 300 MARCH, 2000 - CONVERSION OF DEBENTURES FOR COMMON STOCK 1,292,482 1,293 APRIL, 2000 - CONVERSION OF DEBENTURES FOR COMMON STOCK 88,938 89 APRIL, 2000 - ISSUANCE OF COMMON STOCK FOR CASH FROM WARRANTS 420,000 420 APRIL, 2000 - ISSUANCE OF COMMON STOCK FOR CASH FROM STOCK OPTIONS 70,000 70 APRIL, 2000 - ISSUANCE OF COMMON STOCK FOR ACCOUNT PAYABLE 100,000 100 APRIL, 2000 - ISSUANCE OF COMMON STOCK FOR SERVICES 250,000 250 APRIL, 2000 - ISSUANCE OF COMMON STOCK FOR PAYROLL BONUSES 50,000 50 APRIL, 2000 - ISSUANCE OF COMMON STOCK FOR FEES AND COSTS FOR ISSUANCE OF STOCK 407,375 407 FEBRUARY, 2000 TO APRIL, 2000 - FEES AND COSTS FOR ISSUANCE OF STOCK 0 0 NET (LOSS) FOR THE SIX MONTHS ENDED APRIL 30, 2000 0 0 ---------- ---------- BALANCE, APRIL 30, 2000 30,100,175 $ 30,100 ========== ==========
F-53 101
PAID IN CAPITAL IN EXCESS OF ADVANCES RETAINED PAR VALUE ON STOCK EARNINGS OF STOCK SUBSCRIPTIONS (DEFICIT) -------- ------------- --------- $ 1,106,266 $ 75,000 $(1,641,163) 200,734 0 0 49,900 0 0 274,750 0 0 (188,000) 0 0 74,900 (75,000) 0 199,700 0 0 1,039,585 0 0 59,944 0 0 314,580 0 0 52,430 0 0 49,900 0 0 210,500 0 0 50,450 0 0 483,147 0 0 (668,987) 0 0 0 0 (1,550,946) ----------- ----------- ----------- $ 3,309,799 $ 0 $(3,192,109) =========== =========== ===========
See Accompanying Notes and Independent Accountants' Review Report. F-54 102 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED APRIL 30, 2000 AND 1999 (UNAUDITED)
2000 1999 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) $(1,550,946) $ (519,995) Adjustments to reconcile net (loss) to net cash (used) by operating activities Depreciation and amortization 25,924 25,870 Issuance of common stock for interest, services and payroll bonuses 287,913 0 Changes in operating assets and liabilities Accounts receivable, trade (423,648) 942 Inventories 3,952 134,068 Prepaid expenses 9,326 12,478 Deposits 359 305 Accounts payable (252,830) (13,725) Customer deposits (115,408) (182,806) Accrued liabilities and taxes 53,826 (169,483) Deferred income 63,411 30,252 ----------- ----------- NET CASH FLOWS (USED) BY OPERATING ACTIVITIES (1,898,121) (682,094) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (240,189) (2,520) Loans to related parties (101,176) 188,791 Purchase of customer list (11,900) 0 ----------- ----------- NET CASH FLOWS (USED) PROVIDED BY INVESTING ACTIVITIES (353,265) 186,271 ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Bank overdraft 0 (13,700) Net proceeds from issuance of common stock 394,349 582,234 Proceeds from issuance of convertible debentures 3,200,000 0 Changes in notes payable (64,853) (19,717) ----------- ----------- NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES 3,529,496 548,817 ----------- -----------
See Accompanying Notes and Independent Accountants' Review Report. F-55 103 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) FOR THE SIX MONTHS ENDED APRIL 30, 2000 AND 1999 (UNAUDITED)
2000 1999 ---- ---- NET INCREASE IN CASH AND CASH EQUIVALENTS $1,278,110 $ 52,994 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 25,343 200 ---------- ---------- CASH AND CASH EQUIVALENTS, END OF PERIOD $1,303,453 $ 53,194 ========== ========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during year for: Interest $ 19,196 $ 22,384 ========== ========== Taxes $ 50 $ 50 ========== ========== NON CASH INVESTING AND FINANCING ACTIVITIES Issuance of common stock for convertible debentures $1,501,946 $ 0 ========== ========== Issuance of common stock for fees, services and payroll $ 744,804 $ 0 ========== ========== Issuance of common stock for advances on stock subscriptions $ 75,000 $ 0 ========== ========== Issuance of common stock for accounts payable $ 50,000 $ 0 ========== ==========
See Accompanying Notes and Independent Accountants' Review Report. F-56 104 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS APRIL 30, 2000 (UNAUDITED) NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS IBIZ Technology Corp. was organized on April 6, 1994, under the laws of the State of Florida. The company is a holding company and owns 100% 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 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. 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 At April 30, 2000, inventories are stated at the lower of cost (determined principally by first-in, first-out method) or cost. At April 30, 1999, the inventories were computed by using the gross profit method for determining cost. 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: See Accompanying Notes and Independent Accountants' Review Report. F-57 105 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) APRIL 30, 2000 (UNAUDITED) 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 5-7 Years Vehicles 5 Years Leasehold improvements 5 Years Co-location equipment 5 Years Computer software 3 Years
CUSTOMER LISTS The customer list is recorded at cost and is being amortized on a straight-line basis over three 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. The 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. See Accompanying Notes and Independent Accountants' Review Report. F-58 106 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) APRIL 30, 2000 (UNAUDITED) NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) NET (LOSS) 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, any anti-dilutive effects 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 CASH IN BANK The company has $1,181,479 deposited in one banking institution. Only $100,000 of the balance is insured by the Federal Deposit Insurance Corporation. NOTE 3 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 April 30, 2000 and 1999, as defined in FASB 107, does not differ materially from the aggregate carrying values of its financial instruments recorded in the accompanying balance sheets. 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 4 ACCOUNTS RECEIVABLE A summary of accounts receivable and allowance for doubtful accounts is as follows:
2000 1999 ---- ---- Accounts receivable $660,506 $156,594 Allowance for doubtful accounts 24,558 2,500 -------- -------- $635,948 $154,094 ======== ========
See Accompanying Notes and Independent Accountants' Review Report. F-59 107 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) APRIL 30, 2000 (UNAUDITED) NOTE 5 INVENTORIES The inventories at April 30, 2000 are comprised of the following: Finished products $199,574 Depot units 15,956 Office 48,286 Parts 319 -------- Total inventories $264,135 ========
The inventories at April 30, 1999 were computed, in total, by using the gross profit method for determining costs. NOTE 6 PROPERTY AND EQUIPMENT Property and equipment and accumulated depreciation consists of:
2000 1999 Tooling $ 68,100 $ 68,100 Machinery and equipment 58,705 30,656 Software 22,878 0 Office furniture and equipment 127,367 62,926 Vehicles 39,141 39,141 Co-location equipment 125,788 0 Leasehold improvements 27,145 18,044 Deposit on equipment 39,996 0 -------- -------- 509,120 218,867 Less accumulated depreciation 168,124 165,681 -------- -------- Total property and equipment $340,996 $ 53,186 ======== ========
The depreciation expense for the six months ended April 30, 2000 and 1999 was $23,940 and $25,870, respectively. NOTE 7 CUSTOMER LIST The customer list and accumulated amortization consists of:
2000 1999 Cost $11,900 $ 0 Less accumulated amortization 1,984 0 ------- ------- Total customer list $ 9,916 $ 0 ======= =======
The amortization expense for the six months ended April 30, 2000 and 1999 was $1,984 and $0, respectively. See Accompanying Notes and Independent Accountants' Review Report. F-60 108 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) APRIL 30, 2000 (UNAUDITED) NOTE 8 NOTE RECEIVABLE, RELATED PARTY
2000 1999 At April 30, 2000, the related note is secured by $419,582 $717,829 500,000 shares of common stock in the company, payable ======== ======== on demand and accrues interest at 6%. Management believed the notes would not be collected within the current operating cycle and classified the asset as a long-term asset At April 30, 1999, the note was not secured
NOTE 9 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 10 INCOME TAXES
2000 1999 ---- ---- (Loss) from continuing operations before income taxes $(1,550,946) $ (519,995) ----------- ----------- The provision for income taxes is estimated as follows: Currently payable $ 0 $ 0 ----------- ----------- Deferred $ 0 $ 0 ----------- ----------- 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 $ 0 $ 0 ----------- ----------- 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 liability is: $ 0 $ 0 ----------- ----------- The net deferred tax assets is: $ 0 $ 0 ----------- ----------- Temporary differences and carry forwards that gave rise to deferred tax assets and liabilities included the following:
See Accompanying Notes and Independent Accountants' Review Report. F-61 109 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) APRIL 30, 2000 (UNAUDITED) NOTE 10 INCOME TAXES (CONTINUED)
DEFERRED TAX ASSETS LIABILITIES Net operating loss $ 708,172 $ 0 Accrued expenses and miscellaneous 8,100 0 Tax credit carryforward 38,424 0 Depreciation 0 6,199 --------- --------- Subtotals 754,696 6,199 Valuation allowance 754,696 (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:
2000 1999 ---- ---- Balance, beginning of period $ 356,638 $ 145,054 Addition to allowance for six months ended April 30, 2000 and 1999 398,058 47,946 ------- ------ Balance, end of period $ 754,696 $ 193,000 ========= =========
NOTE 11 TAX CARRYFORWARD The company has the following tax carryforwards at April 30, 2000:
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
See Accompanying Notes and Independent Accountants' Review Report. F-62 110 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) APRIL 30, 2000 (UNAUDITED) NOTE 11 TAX CARRYFORWARD (CONTINUED)
EXPIRATION YEAR AMOUNT DATE Contribution October 31, 1997 545 October 31, 2002 October 31, 1999 2,081 October 31, 2004 Research tax credits 38,424
NOTE 12 NOTES PAYABLE
2000 1999 -------- ------- 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. The company canceled this line in the year 2000. $ 0 $344,866 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. The note is secured by accounts receivable, general intangibles and all equipment and leasehold improvements. A principal 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. 0 2,032 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 which costs $31,141. 22,318 27,088 ------ ------- 22,318 373,986 ====== =======
See Accompanying Notes and Independent Accountants' Review Report. F-63 111 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) APRIL 30, 2000 (UNAUDITED) NOTE 12 NOTES PAYABLE (CONTINUED)
2000 1999 ---- ---- Less: current portion 5,265 351,703 ------- -------- Net long-term debt $17,053 $ 22,283 ======= ========
Maturities of long-term debt are as follows: Year ended April 30 2000 $ 0 $ 6,540 2001 6,540 6,540 2002 6,540 6,540 2003 6,540 6,540 2004 3,698 928 ------- ------- $22,318 $27,088 ======= =======
NOTE 13 COMMON STOCK PURCHASE WARRANTS The company has issued the following common stock purchase warrants at April 30, 2000:
NUMBER EXERCISE DATE OF SHARES TERM PRICE ---- --------- ---- ----- May 13, 1999 100,000 3 years $ 1.00 May 7, 1999 180,000 10 years $ 0.75 May 13, 1999 100,000 10 years $ 1.00 November 9, 1999 100,000 4 years $ .94 December 14, 1999 75,000 3 years $ 1.66 December 28, 1999 200,000 4 years $ .94 January 10, 2000 281,250 5 years $ .99 March 27, 2000 656,250 5 years $ 1.45 - 2.05 --------- 1,692,500 =========
NOTE 14 CONVERTIBLE DEBENTURES
CURRENT $600,000 DEBENTURE TOTAL PORTION ------------------ ----- ------- In November 1999, the company issued $600,000 of $350,000 $ 0 7% convertible debentures under the following amended terms and conditions:
See Accompanying Notes and Independent Accountants' Review Report. F-64 112 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) APRIL 30, 2000 (UNAUDITED) NOTE 14 CONVERTIBLE DEBENTURES
CURRENT $600,000 DEBENTURE TOTAL PORTION ------------------ ----- ------- 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.
The company converted $250,000 of debentures into common stock. See Accompanying Notes and Independent Accountants' Review Report. F-65 113 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) APRIL 30, 2000 (UNAUDITED) NOTE 14 CONVERTIBLE DEBENTURES (CONTINUED)
CURRENT $1,600,000 UNSECURED DEBENTURE TOTAL PORTION On March 27, 2000, the company issued $1,600,000 of $1,600,000 $ 0 7% convertible debentures under the following terms and conditions: 1. Due date - March 27, 2005. 2. Interest only on May 1 and December 1 of each year commencing May 1, 2000. 3. Default interest rate - 18%. 4. Warrants to purchase 375,000 shares of common stock at $1.45 per share. 5 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. 6. Conversion price - Lesser of (i) $1.45 (fixed price) or (ii) the product obtained by multiplying the average closing price by .80. 7. 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 holder's election to convert outstanding principal of this debenture. 8. 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. 9. The debentures are unsecured. 10. Any further issuance of common stock or debentures must be approved by debenture holders. 11. Debenture holders have a eighteen month right of first refusal on future disposition of stock by the company. 12. Restriction on payment of dividends, retirement of stock or issuance of new securities. ---------- ---------- Total $1,950,000 $ 0 ========== ==========
On May 31, 2000, the $1,600,000 debenture holder converted $100,000 of debentures into 192,853 common shares. See Accompanying Notes and Independent Accountants' Review Report. F-66 114 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) APRIL 30, 2000 (UNAUDITED) NOTE 15 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, (based upon fiscal years ending October 31) 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
Rent expense for the six months ended April 30, 2000 and 1999 is $76,931 and $25,745, respectively. NOTE 16 ADVERTISING The company expenses all advertising as incurred. For the six months ended April 30, 2000 and 1999, the company charged to operations $282,277 and $68,712 in advertising costs. NOTE 17 INTEREST The company incurred interest expenses for the six months ended April 30, 2000 and 1999 of $29,221 and $24,619, respectively. NOTE 18 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 19 RESEARCH AND DEVELOPMENT The company incurred research and development cost for 2000 and 1999 of $2,798 and $0, respectively. NOTE 20 OFFICERS' COMPENSATION At April 30, 2000, officers' compensation was as follows: President and Chief Executive officer $200,000 Vice President/Comptroller 88,000
See Accompanying Notes and Independent Accountants' Review Report. F-67 115 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) APRIL 30, 2000 (UNAUDITED) NOTE 20 OFFICERS' COMPENSATION (CONTINUED) Vice President/Operations $88,000 Chief Operating Officer 96,200 Vice President/Marketing 75,000 Vice President/Technology 80,000
NOTE 21 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. Vesting terms of the options range from immediately to five years and generally expire in ten years. A summary of the stock option activity for the six months ended April 30, 2000 and 1999, pursuant to the terms of the plan is set forth below:
WEIGHTED NUMBER AVERAGE OF EXERCISE OPTIONS PRICE ------- ----- Balance at beginning of period 2,350,000 $ .75 Granted 1,310,000 1.15 Exercised (70,000) .75 Canceled (180,000) .75 --------- Balance at end of period 3,410,000 =========
The weighted average fair value of options granted in 2000 and 1999 was estimated as of the date of grant using the Black-Scholes stock option pricing model, based on the following weighted average assumptions: annual expected return of 0%, annual volatility of 50%, risk-free interest rate ranging from 6.75% and expected option life of 10 years. The per share weighted-average fair value of stock options granted during 2000 and 1999 was $.71 and $0.00, respectively. The per share weighted average remaining life of the options outstanding at April 2000 and 1999 is 7.5 and 0 years, respectively. See Accompanying Notes and Independent Accountants' Review Report. F-68 116 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) APRIL 30, 2000 (UNAUDITED) NOTE 21 STOCK OPTIONS (CONTINUED) The company has elected to continue to account for stock-based compensation under APB Opinion No. 25, under which no compensation expense has been recognized for stock options granted to employees at fair market value. There is no additional compensation costs to report and required pro-forma net income and earnings per share are the same as the historical financial statement presentations. NOTE 22 GOING CONCERN These financial statements are presented on the basis that the company is a going concern. Going concern contemplates the realization of assets and the satisfaction of liabilities in the normal course of business over a reasonable length of time. The accompanying financial statements show that the company incurred a net loss of $1,550,946 for the six months ended April 30, 2000. NOTE 23 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: 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. NOTE 24 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, Inc. a discounted exercise price of $0.99 per share in connection with the warrants issued for these funds. See Accompanying Notes and Independent Accountants' Review Report. F-69 117 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) APRIL 30, 2000 (UNAUDITED) NOTE 25 LITIGATION Epson America, Inc. vs, Invnsys Technology Corporation. Civil Cause #CV 2000-008155 - Superior Court of Arizona. Epson America, Inc. is suing the corporation for $114,785 to collect past due accounts payable. The company is disputing the $114,785 as it believes that Epson has not offset the debt by commissions earned and due by Invnsys Technology Corporation. However, the company has accrued the $114,785 in the accounts payable and is attempting to negotiate a final settlement with Epson. NOTE 26 PLAN OF REORGANIZATION AND STOCK EXCHANGE AGREEMENT On January 1, 1999, the company issued 16,000,000 shares of newly issued restricted common stock for 100% of the issued and outstanding stock of Invnsys Technology Corporation. Invnsys Technology Corporation became a wholly-owned subsidiary of IBIZ Technology Corp. and the acquisition was accounted for as a reverse acquisition. The details of the results of operation (unaudited) for each separate company, prior to the date of combination, that are included in the current net income are:
INVNSYS IBIZ TECHNOLOGY TECHNOLOGY CORPORATION CORP. Sales $ 402,127 $ 0 Cost of sales 239,704 0 --------- --------- Gross profit 162,423 0 Selling, general and administrative expenses 243,094 27,742 --------- --------- (Loss) before income taxes (refund) (80,671) (27,742) Income taxes (refund) (20,150) 0 --------- --------- Net (loss) $ (60,521) $ (27,742) ========= =========
There were no adjustments in the net assets of the combining companies to adopt the same accounting policies. Each of the companies had an October 31 fiscal year so no accounting adjustments were necessary. An (unaudited) reconciliation of revenues and earnings reconciled with the amounts shown in the combined financial statements is as follows: Net (loss) of 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 April 30, 1999 (431,732) --------- Net (loss) for the six months ended April 30, 1999 $(519,995) =========
See Accompanying Notes and Independent Accountants' Review Report. F-70 118 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) APRIL 30, 2000 (UNAUDITED) NOTE 27 UNAUDITED FINANCIAL INFORMATION The accompanying financial information as of April 30, 2000 and 1999 is unaudited. In management's opinion, such information includes all normal recurring entries necessary to make the financial information not misleading. See Accompanying Notes and Independent Accountants' Review Report. F-71 119 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 $ 161 Legal Fees and Expenses $12,000 Printing Expenses $5,000 Blue Sky Fees and Expenses $1,000 TOTAL(1) $ 18,161
1. Except for the SEC registration fee, all fees and expenses are estimates. II-1 120 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 March 9, 2000, iBIZ issued options or warrants to purchase an aggregate of 4,375,000 shares of common stock, $.001 par value to employees and various consultants. The exercise price of the options or warrants is the fair market value on the date of grant, which ranged from $0.75 to $2.00 per share. iBIZ relied upon either Rule 701 or Section 4(2) with respect to the granting of these options and warrants. On June 30, 1999, iBIZ issued Two Hundred Thousand Dollars ($200,000.00) of 8% Convertible Debentures. Upon the effectiveness of iBIZ's registration statement on Form SB-2, File No. 333-94409, dated January 11, 2000, as II-2 121 amended January 31, 2000, the 8% Debentures automatically converted to 300,000 fully paid and nonassessable shares of common stock, $.001 par value. Between November 1999 and March 2000 iBIZ issued a series of three 7% Debentures totaling an aggregate of $3.2 million. In November 1999, iBIZ issued Six Hundred Thousand Dollars ($600,000.00) of 7% Debentures (the "$600k 7% Debentures") to Globe United Holdings, Inc. 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 March 27, 2000, iBIZ issued One Million Six Hundred Thousand Dollars ($1,600,000.00) of 7% Debentures (the "$1600k 7% Debentures) to Lites Trading, Co. On December 6, 1999, Globe converted $200,000 of the $600k 7% Debentures, plus accrued interest to date, on March 2, 2000, Globe converted $1,000,000 of the $1000k 7% Debentures, plus accrued interest to date and on April 14, 2000, Globe converted $50,000 of the $600k 7% Debentures, plus accrued interest to date. Pursuant to the applicable conversion formula, iBIZ issued 300,962 shares of common stock, 1,292,481 shares of common stock and 88,938 shares of common stock, respectively. Accordingly, as of the date of this registration statement, Globe's remaining $600k 7% Debentures totaled $350,000, plus accrued interest. 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 In connection with the issuance of the $1600k 7% Debentures, iBIZ issued a warrant to purchase 375,000 shares of common stock at a purchase price of $1.45 per share. The warrant is immediately exercisable and expires March 27, 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 December 14, 2000, iBIZ issued a warrant to purchase an aggregate of 75,000 shares of common stock at a purchase price of $1.66 per share. The warrant is immediately exercisable and expires December 14, 2004. iBIZ relied upon either Section 4(2) or Regulation D, Rule 506 promulgated under the Securities Act with respect this warrant. On January 7, 2000, iBIZ issued 250,000 shares of common stock, $.001 par value, at a sales price of $1.10 per share for a total amount of $275,000. iBIZ relied upon Regulation D, Rule 506 promulgated under the Securities Act with respect this sale. II-3 122 On January 10, 2000, iBIZ issued a warrant to purchase an 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. iBIZ relied upon either Section 4(2) or Regulation D, Rule 506 promulgated under the Securities Act with respect this warrant. On March 27, 2000, iBIZ issued a warrant to purchase an aggregate of 240,000 shares of common stock at a purchase price of $2.05 per share. The warrant is immediately exercisable and expires March 27, 2005. iBIZ relied upon either Section 4(2) or Regulation D, Rule 506 promulgated under the Securities Act with respect this warrant. On May 31, 2000 and June 21, 2000, the $1,600,000 debenture holder converted $200,000 of debentures into 362,653 common shares. iBIZ relied upon either Section 4(2) or Regulation D, Rule 506 promulgated under the Securities Act with respect to the issuance of these shares. In April of 2000, 1,297,375 shares of common stock were issued in lieu of payment of payroll bonuses, in lieu of payment for services rendered, for fees and costs for issuance of stock, for an account payable, and for cash from warrants and stock options. iBIZ relied upon either Section 4(2) or Regulation D, Rule 506 promulgated under the Securities Act with respect to the issuance of these shares. On June 16, 2000, a Financial Consulting Services Agreement was entered into between iBIZ Technology Corp., and Travis Morgan Securities. The consultant was initially paid with 150,000 shares of iBIZ common stock, with a right of first refusal to participate in any subsequent offerings or mergers. An option for an additional 150,00 shares was also granted to the consultant, with a term of one year. These options are exercisable in 50,000 increments at certain strike prices. On July 6, 2000, an Agreement was entered into between iBIZ Corporation, Anthony Sklar and Blaine Ruzycki. Both Sklar's and Ruzycki's compensation is in the form of iBIZ common stock. Sklar received 80,000 shares valued at $0.80 per share, and Ruzycki received 400,000 shares valued at $0.80 per share. II-4 123 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 5.04(8) Opinion of Gammage & Burnham, P.L.C. 10.01(1) Citrix Business Alliance Membership Agreement dated February 10, 1999, between INVNSYS and Citrix Systems, Inc. 10.02(1) Client Software License Agreement dated December 30, 1998, between INVNSYS and Citrix Systems, Inc. 10.03(1) iBIZ Technology Corporation Distributed Software License Agreement dated June 2,1999, between iBIZ and Jeremy Radlow 10.04(1) 3Com Designed for Palm Computing Platform Logo License Agreement, between iBIZ and Palm Computing, Inc. 10.05(1) IBIZ Technology Corp. Stock Option Plan dated January 31, 1999 10.06(1) Form of Stock Option 10.07(1) Lease Agreement dated June 1, 1999, between iBIZ and Lone Cactus Capital Group, L.L.C. 10.08(1) Strategic Teaming and Marketing Agreement dated February 18, 1999, between iBIZ and Global Telephone Communication, Inc. 10.09(1) Form of iBIZ Technology Corp. Common Stock Purchase Warrant 10.10(1) Form of iBIZ Technology Corp. Convertible Debenture 10.11(1) Employment Agreement dated March 5, 1999, as amended, between iBIZ, INVNSYS and Kenneth Schilling 10.12(1) Employment Agreement dated March 5, 1999, as amended, between iBIZ, INVNSYS and Terry Ratliff 10.13(1) Employment Agreement dated March 5, 1999, as amended, between iBIZ, INVNSYS and Mark Perkins 10.14(2) Securities Purchase Agreement dated November 9, 1999, between iBIZ and Globe United Holdings, Inc. 10.15(2) 7% Convertible Debenture Due November 9, 2004, between iBIZ and Globe United Holdings, Inc. 10.16(2) Warrant dated November 9, 1999 10.17(2) Registration Rights Agreement dated November 9, 1999, between iBIZ and Globe United Holdings, Inc. 10.18.(3) Securities Purchase Agreement dated December 29, 1999, between iBIZ and Globe United Holdings, Inc. 10.19.(3) 7% Convertible Debenture Due December 29, 2004, between iBIZ and Globe United Holdings, Inc. 10.20(3) Warrant dated December 29, 1999
II-5 124 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. 10.24(5) Letter Agreement dated December 14, 1999, between iBIZ and Josephthal & Co., Inc. 10.25(5) Financial Project Management Agreement dated January 20, 2000, between iBIZ and Equinet, Inc. 10.26(6) Securities Purchase Agreement dated March 27, 2000, between iBIZ and Lites Trading, Co. 10.27(6) 7% Convertible Debenture Due March 27, 2000, between iBIZ and Lites Trading, Co. 10.28(6) Warrant dated March 27, 2000 10.29(6) Registration Rights Agreement dated March 27, 2000, between iBIZ and Lites Trading, Co. 10.30(6) Letter Agreement dated March 27, 2000, from Globe United Holdings to iBIZ 10.31(8) Financial Consulting Services Agreement dated June 16, 2000 with Travis Morgan Securities. 10.32(8) Agreement with the Partnership of Sklar and Ruzycki dated July 6, 2000. 21.01(1) Subsidiaries of Registrant 23.02(8) Consent of Moffitt & Company 27.02(7) 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. 5. Incorporated by reference from iBIZ's Form 10-QSB, File No. 027619, filed with the SEC on March 16, 2000. 6. Incorporated by reference from iBIZ's Form SB-2, File No. 333-34936, filed with the SEC on April 17, 2000. 7. Incorporated by reference from iBIZ's Form 10-QSB, File No. 027619, filed with the SEC on June 14, 2000. 8. Filed herewith. ITEM 28. UNDERTAKINGS (a) The undersigned Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made of the securities registered hereby, a post-effective amendment to this Registration Statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act; (ii) reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information set forth in this Registration Statement; and (iii) include any additional or changed material information on the plan of distribution. II-6 125 (2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. II-7 126 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 July 27, 2000. iBIZ Technology Corp., a Florida Corporation By: /s/ Kenneth W. Schilling ------------------------------- Kenneth W. Schilling, President, Director By: /s/ Terry S. Ratliff ------------------------------- Terry S. Ratliff, Vice President, Comptroller, Director By: /s/ Mark H. Perkins ------------------------------- Mark H. Perkins, Vice President of Operations, Director II-8 127 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 5.04(8) 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 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.
II-9 128 10.23(4) Master Distribution Agreement dated January 12, 2000, between iBIZ and Harsper Co. Ltd. 10.24(5) Letter Agreement dated December 14, 1999, between iBIZ and Josephthal & Co., Inc. 10.25(5) Financial Project Management Agreement dated January 20, 2000, between iBIZ and Equinet, Inc. 10.26(6) Securities Purchase Agreement dated March 27,2000, between iBIZ and Lites Trading, Co. 10.27(6) 7% Convertible Debenture Due Mach 27, 2000, between iBIZ and Lites Trading, Co. 10.28(6) Warrant dated March 27, 2000 10.29(6) Registration Rights Agreement dated March 27, 2000, between iBIZ and Lites Trading, Co. 10.30(6) Letter Agreement dated March 27, 2000 from Globe United Holdings to iBIZ 10.31(8) Financial Consulting Services Agreement dated June 16, 2000 with Travis Morgan Securities 10.32(8) Agreement with the Partnership of Sklar and Ruzycki dated July 6, 2000 21.01(1) Subsidiaries of Registrant 23.02(8) Consent of Moffitt & Company 27.02(7) 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. 5. Incorporated by reference from iBIZ's Form 10-QSB, File No. 027619, filed with the SEC on March 16, 2000. 6. Incorporated by reference from iBIZ's Form SB-2, File No. 333-34936, filed with the SEC on April 17, 2000. 7. Incorporated by reference from iBIZ's Form 10-QSB, File No. 027619, filed with the SEC on June 14, 2000. 8. Filed herewith. II-10 EX-5.04 2 ex5-04.txt EX-5.04 1 Exhibit 5.04 [GAMMAGE & BURNHAM LETTERHEAD] July 27, 2000 Board of Directors iBIZ Technology Corp. 1919 West Lone Cactus Phoenix, Arizona 85027 Re: Registration Statement on Form SB-2 Gentlemen: In connection with the registration by iBIZ Technology Corp. (the "Company"), on Form SB-2 (the "Registration Statement") providing registration under the Securities Act of 1933, as amended, of 780,000 shares of Common Stock, we are furnishing the following opinion as counsel to the Company. We have examined such corporate records, certificates of public officials and officers of the Company, and other documents and records as we have considered necessary or proper for the purpose of this opinion. Based upon the foregoing, and having regard to legal considerations that we deem relevant, we are of the opinion that the shares of Common Stock of the Company when issued and sold in accordance with the transactions described in the Registration Statement, and in accordance with the federal securities laws and the securities laws of the various states in which the Common Stock may be issued, will be validly issued, fully paid and nonassessable. As counsel to the Company, we hereby consent to the reference to this firm under the caption "Legal Matters" contained in the Prospectus which is part of the Registration Statement and to the filing of this opinion as Exhibit 5.04 to the Registration Statement. Very truly yours, GAMMAGE & BURNHAM P.L.C. By: /s/ Stephen R. Boatwright Stephen R. Boatwright EX-10.31 3 ex10-31.txt EX-10.31 1 Exhibit 10.31 Travis Morgan Securities 18952 MacArthur Blvd., Suite 315 Irvine, CA 92612 (949) 261-2101 Fax (949) 261-9571 FINANCIAL CONSULTING SERVICES AGREEMENT This Financial Consulting Services Agreement (the "Agreement") is entered this 16th day of June, 2000 by and between Travis Morgan Securities, Inc., a Colorado Corporation (the "Consultant") and iBIZ Technology Corp., a Florida Corporation (the "Client") with reference to the following: recitals A. The Client desires to be assured of the association and services of the Consultant in order to benefit itself of the Consultant's experience, skills, abilities, knowledge, and background to facilitate long range strategic planning, and to advise the Client in business and/or financial matters. The Client is therefore willing to engage the Consultant upon the terms and conditions set forth herein. B. The Consultant agrees to be engaged and retained by the Client and upon the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the foregoing, for the mutual promises Hereinafter set forth, for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Engagement-Client hereby engages Consultant on a non-exclusive basis, and Consultant hereby accepts the engagement to become a financial consultant to the Client and to render such advice, consultation, information, and services to the Directors and/or Officers of the Client regarding general financial and business matters including, but not limited to: A. Capital sources - debt and equity, Institutions, Banking methods and systems, and other financial transactions. B. Capital structures, Mergers and Acquisition advisory, reorganizations, Offerings -private and public, reverse mergers, divestitures, and due diligence studies. C. Corporate financing to establish and/or increase manufacturing capabilities to expand the markets for its products. D. Broker/dealer and Institutional corporate relations for Client. E. Periodic reporting as to the developments concerning the industry, public securities market, and general financial markets as they relate or may be of interest or concern to the client and/or the client's business. F. Corporate promotion & marketing advisory, Investor relations. 2 It shall be expressly understood that Consultant shall have no power to bind Client to any contract or obligation or to transact any business in Client's name or on behalf of Client in any manner. 2. Term. The term ("Term") of this Agreement shall commence on the date hereof and continue for one year unless cancelled by either party. Either party may cancel this Agreement upon thirty (30) days written notice in the event either party violates any material provision of this Agreement and fails to cure such violation within five (5) days of written notification of such violation from the other party. Such cancellation shall not excuse the breach or non-performance by the other party or relieve the breaching party of its obligation incurred prior to the date of cancellation. The Client shall honor the compensation agreements for two (2) years after the termination of this agreement). 3. Compensation and Fees. As consideration for Consultant entering into this Agreement, Client shall pay Consultant the following: A. Certificates representing an aggregate of One hundred fifty thousand (150,000) shares of common stock, $ 0.01 par value, of iBIZ technology (the "Shares") payable on the date hereof and due within 60 days of the signing of this agreement. The Shares, when issued to Consultant, will be duly authorized, validly issued and outstanding, fully paid and nonassessable and will not be subject to any liens or encumbrances. B. Consultant will be granted the first right of refusal to participate in any subsequent Mergers or Acquisitions, Private Offerings, Registrations, Initial Public Offering, or Secondary Offering. C. Client shall, at its' sole discretion, establish a five thousand dollar ($5,000) monthly consulting fee 90 days prior to any additional Merger or Acquisition. In addition to said fees, a 5% transaction fee will be paid to the Consultant for assistance in any Merger or Acquisition transaction. The engagement fee shall be satisfied by issuing certificates of iBIZ Technology (iBIZ) representing the aggregate of 150,000 shares of free trading non-encumbered common stock (the "shares"). The Certificates for the shares should be issued as follows: 75,000 Travis Morgan Securities 37,500 Kirojoba Inc 37,500 Jack Naventi An option shall be granted from the client to the consultant, for free trading stock with respect to the following quantities and strike prices. The term of the option shall be one year from the contract date. The option is executable after reaching the execution price for 10 days. 50,000 shares $1.50 exercise price $3.00 execution price 50,000 shares $2.00 exercise price $4.00 execution price 50,000 shares $2.50 exercise price $5.00 execution price
4. Exclusivity, Performance, Confidentiality. The services of Consultant hereunder shall not be exclusive, and Consultant and its agents may perform similar or different services for other persons or entities whether or not they are competitors of Client. Consultant shall be required to expend only such time as is necessary to service Client in a commercially reasonable manner. Consultant acknowledges and agrees that confidential and valuable information proprietary to Client, obtained during its engagement by the Client, shall not be directly or indirectly disclosed without the prior expressed written consent of the Client. Unless or until such information is otherwise known to the public generally or is not otherwise secret and confidential. 5. Independent Contractor. In its performance hereunder, Consultant and its Agents shall be an independent contractor. Consultant shall complete the services required hereunder according to his own means and methods of work and shall not be subject to the control or supervision of Client, except as to the results of the work. Client acknowledges that nothing in this Agreement shall be construed to require Consultant to provide services to Client at any specific time or in any specific place or manner. Payments to consultant hereunder shall not be subject to withholding taxes or other employment taxes as required with respect to compensation paid to an employee. 6. Miscellaneous. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision and no waiver shall constitute a continuing waiver. No waiver shall be binding unless executed in writing by the party making the waiver. No supplement, modification, or amendment of this Agreement shall be binding unless executed in writing by all parties. This Agreement constitutes the entire agreement between the parties and supersedes any prior agreements or negotiations. 3 IN WITNESS HEREOF, the parties have entered into this Agreement on this 16th day of June, 2000. The signature by an officer of each party duly empowered to sign and execute this agreement is on the accompanying page. "Client Company" Signature: --------------------------- Print: Jim Ratliff Title Officer Company: iBIZ Technology Corp. Address: 1919 W. Cactus Loan Road Phoenix, AZ 85027 "Consultant" Signature: --------------------------- Print: Barry Migliorini Title: Vice President, Investment Banking Travis Morgan Securities 18952 MacArthur Blvd #315 Irvine, Ca 91612 Delivery Instructions: DTC Sterne, Agee and Leach, Inc. Birmingham, AL DTC # 0750 FBO: Travis Morgan Securities Account # 1045 6954 EX-10.32 4 ex10-32.txt EX-10.32 1 Exhibit 10.32 THIS AGREEMENT MADE AS OF THE 6TH DAY OF JULY, 2000 BETWEEN: Anthony Sklar and Blaine Ruzycki, a Partnership having an office located at 10 Fairway Drive, Suite 307 Deerfield Beach, Florida 33441 (hereinafter referred to as "the Parties") and IBIZ Corporation, a company duly incorporated pursuant to the laws of the State of Arizona and having an office located at 1919 E. Lone Cactus, Phoenix, Arizona 85027 (hereinafter referred to as "IBIZ") WHEREAS: 1. IBIZ is desirous of THE PARTIES performing certain tasks on its behalf as more specifically stated in the Appendices attached hereto. 2. AND WHEREAS THE PARTIES have reviewed the attached Appendices and is desirous of performing the stated tasks for IBIZ. 3. AND WHEREAS both parties hereto have agreed each with the other that THE PARTIES will perform the tasks stated in the attached Appendices upon the terms and conditions hereinafter recited. IT IS HEREBY AGREED BY AND BETWEEN THE PARTIES THAT: 1. The Appendices attached hereto and marked as Appendix A, B, C, D, E, F and G respectively are integral parts of this Agreement and the duties therein stated are binding upon the parties hereto. 2. Upon execution of this Agreement THE PARTIES shall immediately commence: a) Construction of the Interactive CD-ROM presentation in accordance with the provisions of Appendix A; b) Construction and hosting of an interactive web-site for IBIZ in accordance with the provisions of Appendix B; c) Construction of Brochures relating to IBIZ and its products in accordance with the provisions of Appendix C; d) Development of an outline of tradeshows where the products of IBIZ may be displayed in accordance with the provisions of Appendix D; e) Provide IBIZ with weekly time on "bNETTV.COM" in accordance with Appendix E; f) Provide IBIZ with a lease premise on RodeoIsland.com in accordance with Appendix F; g) Develop an Internet Advertising Campaign at RodeoIsland.com and Up-Tic.com in accordance with Appendix G. 3. The term of this Agreement shall be TWELVE (12) MONTHS from the date of execution hereof. 2 4. IBIZ hereby grants THE PARTIES the right to assign any or all of its obligations incurred hereunder to any entity which is an affiliation of THE PARTIES and by this Agreement does hereby consent to any said Assignment upon THE PARTIES advising IBIZ of said assignment in writing to IBIZ's address for service noted herein and that subsequent to said assignment IBIZ's relationship with THE PARTIES is severed in its entirety provided however that IBIZ is in no manner responsible for any further costs or expenses to said affiliate save and except for those said costs noted in this Agreement which have not been paid to THE PARTIES. 5. IBIZ acknowledges that THE PARTIES in performing the services noted in the attached Appendices is relying exclusively upon the information provided it by IBIZ and therefore notwithstanding anything to the contrary herein contained IBIZ acknowledges that it is solely responsible for the truthfulness of the information provided to THE PARTIES and therefore completely, wholly and without reservation indemnifies and saves THE PARTIES, its Officers, Directors, Agents, Employees or Assigns from any and all liability respecting the performance of THE PARTIES duties herein including but not restricted to any and all legal fees incurred. 6. Not to restrict the foregone paragraph 5 IBIZ further acknowledges that it has an exclusive duty to review any and all information prepared by THE PARTIES and therefore any and all errors and/or omissions contained in any of the services provided IBIZ by THE PARTIES are hereby waived in their entirety and IBIZ agrees to be totally and without reservation responsible for same should they occur and waives any action it can or may have against THE PARTIES, it's Agents, Employees, Directors, Officers or Assigns for any damage or loss occasioned as a result of any said error and or omission and further should any damage be occasioned to any third party as a result of any said error or omission that IBIZ fully and completely indemnifies THE PARTIES, its Directors, Officers, Employees, Agents or Assigns for any and all said damages including but not restricted to legal fees incurred. 7. THE PARTIES shall have the right hereunder to conduct any investigation of IBIZ or the IBIZ products as it deems necessary in order for it to be assured that IBIZ is following the term and the spirit of this Agreement and in the event that THE PARTIES in the course of its investigation forms the reasonable belief that IBIZ is or may not be able to fulfill it's obligations hereunder (such as not having sufficient inventory available to satisfy consumer needs or is conducting it's business affairs in a manner not consistent with the standards and ethics of typical business' conducting business via an Internet Retail Store) the and in that event the cost of the Investigation shall be borne by IBIZ and THE PARTIES shall, at it's sole option, be entitled to forthwith terminate this Agreement without Notice or Penalty. 8. This Agreement shall be governed by the laws of the State of Florida and any court proceedings commenced hereunder shall be commenced and concluded at the venue of THE PARTIES's direction within the State of Florida and that should any legal action be commenced by IBIZ against THE PARTIES that IBIZ shall provide THE PARTIES with FOURTEEN (14) DAYS Written Notice to THE PARTIES to select a venue within the State of Florida to commence its action and should THE PARTIES refuse or neglect to advise IBIZ of said venue within the time period noted herein then and in that event IBIZ shall be at liberty to select its own venue within the State of Florida. 9. THE PARTIES's address for service hereunder shall be in care of THE PARTIES at 9th Floor, 840 7th Avenue SW, Calgary, Alberta, Canada T2P 3G2. 10. IBIZ's address for service hereunder shall be 1919 Lone Cactus Dr., Phoenix, Arizona 85027. 11. Should any provision of this Agreement be ruled invalid, unenforceable or illegal then and in that event the offending provision shall be struck here from and be of no further force and effect but that the remainder of this Agreement shall remain in full force and effect. 12. In consideration of THE PARTIES performing the services noted in the attached Appendices IBIZ shall pay to Anthony Sklar the sum of EIGHTY (80,000) THOUSAND Shares by way of IBIZ Common Stock valued at US EIGHTY (US$0.80) CENTS per share through IBIZ's S-8 Registration Statement with the Security and Exchange Commission said shares to be deposited with Anthony Sklar prior to any services contracted to be provided for IBIZ by THE PARTIES being released to IBIZ and in any event on or before July 15, 2000. 13. In consideration of THE PARTIES performing the services noted in the attached Appendices, IBIZ shall pay to Blaine Ruzycki the sum of FOUR HUNDRED (400,000) THOUSAND Shares by way of IBIZ Common Stock valued at US EIGHTY (US $080) CENTS per share through IBIZ's S-8 or a SB-2 Registration Statement with the Security and Exchange Commission said shares to be deposited with Blaine Ruzycki prior to any services contracted to be provided for IBIZ by THE PARTIES being released to IBIZ and in any event on or before July 15, 2000. 3 14. The parties acknowledge each to the other that this Agreement has been approved by IBIZ Board of Directors and is a binding Agreement on both parties as evidenced by the execution hereof by an authorized signatory of each party. ANTHONY SKLAR BLAINE RUZYCKI - ----------------------- ------------------------ Authorized Signatory Authorized Signatory IBIZ CORPORATION Per: - ----------------------- Authorized Signatory James Ratliff 4 APPENDIX A DETAILS OF THE CD-ROM PRESENTATION 1. THE PARTIES will commence with the construction of an interactive multimedia CD-ROM with elements that will be produced from and by bNET-TV and THE PARTIES ISD (Internet Solutions Division). 2. This CD-ROM's presentation contents will be a series of video press releases and video interviews of IBIZ Management and a behind the scenes of the IBIZ corporate offices. 3. The CD-ROM will detail the business of IBIZ, a leader in "small-footprint computer systems and peripherals"; and any other business' that IBIZ chooses to highlight according to the business model outlined in the IBIZ corporation. 5 APPENDIX B DETAILS OF THE WEBSITE SERVICES AND CONSTRUCTION The following outline will briefly give an estimate as to how the development process will be executed. Stage One; Planning During our initial consultation, THE PARTIES will obtain a basic understanding of what IBIZ is and has accomplished in developing their web presence. THE PARTIES will define, under the direction of IBIZ, the basic goals, and mission behind the project (Estimate time: 1-2 days) After this information gathering session has be completed the following categories will be outlined with detailed explanation. - A Schedule for Site Completion - Basic Site Content - Technical Arrangements - Site Architecture - Hosting parameters Time to complete: 1 week Stage Two: Development After agreeing and signing thereto development will commence. THE PARTIES will set aside space on a designated THE PARTIES web server, and begin to layout the ideas and concepts discussed for the IBIZ website. Photographs, illustrations, and internet architecture will be approved by IBIZ on a timely basis. All back end issues will be addressed, and corrected, and the site is approved by IBIZ before final publication. Time to complete: 2-8 weeks Stage Three: Implementation Implementation is the process of building the website according to its design. Web implementers create hypertext markup language (HTML), Common Gateway Interface (CGI) programs, and/or Java scripts and/or applets. The implementation process resembles software development because it involves using a specific syntax for encoding web structures or a programming language in a formal language in computer files. Although there are automated tools to help with the construction of HTML documents, a thorough grounding in HTML enriches the web implementers' expertise. THE PARTIES uses the most advanced technical web development tools and therefore cannot be responsible for their compliance and adhesion with other programs. Time to complete: 1-2 weeks Stage Four: Testing After THE PARTIES has implemented the website onto THE PARTIES' Internet servers, THE PARTIES will begin a comprehensive review of aspects and traffic through the site ensuring that qualified hits will be at optimal levels. Cross platform testing will commence in this phase. All interactive components in the website will be subjected to a highly specialized group for pier testing. Testing will allow us to streamline and optimize the website for maximum efficiency. Stage Five: Exposure *Note this process is outlined in further detail in Appendix G Exposure is the process of handling all the public relations issues of a website. These include making the existence of a web known to online communities through publicity as well as forming business or other information alliances with other webs. Promotion may involve using specific marketing strategies or creating business models. This concluding step allows THE PARTIES to completely enhance your company's ability to maximize exposure to the predefined target markets. *Note this process is outlines in further detail in Appendix G 6 APPENDIX C DETAILS OF THE BROCHURES 1. THE PARTIES will construct a corporate information package which will include all corporate information and also to include a die cut for CD-ROM presentation and business card. 2. THE PARTIES will facilitate a mail out of this promotional package to existing shareholders and customers of IBIZ and also to prospective clients and shareholders. IBIZ will be responsible for all costs of postage related with this mail out. 3. Brochure design elements and copy content will be discussed extensively with our team at THE PARTIES and IBIZ Corp. 4. Ownership of content will be the sole ownership of IBIZ Corp. 7 APPENDIX D DETAILS OF THE TRADES SHOWS 1. THE PARTIES will detail a list of trade shows that THE PARTIES recognizes IBIZ should attend. These tradeshows can be used by IBIZ for the purpose of promoting their "small-footprint computer systems and peripherals" and for expanding business and business contacts. 2. THE PARTIES will provide at no additional cost one Fall Internet World 2000 tradeshow 10 x 10 booth for IBIZ to display the "small-footprint computer systems and peripherals" this booth may be part of a larger space provided by THE PARTIES. 3. THE PARTIES will setup and detail the components needed for each trade show in the list provided to IBIZ at an extra cost to IBIZ. This cost will be outlined in detail upon written request from IBIZ. 4. These trade shows will consist of relevant stages for IBIZ to show their company profile on retail, private and public platform. These trade shows will be manned with THE PARTIES and IBIZ technical and retail promotional staff. IBIZ will be solely responsible for all costs of IBIZ personnel to attend any and all trade shows, such as food, travel, lodging, etc. 8 APPENDIX E DETAILS OF THE TIMES IBIZ WILL APPEAR AT BNET-TV THE PARTIES's live streaming media affiliation bNETTV.com (Business Network Television) is at the forefront of new media providing video conferencing, movie programming, live broadcasting and archived programming over the Internet through the latest streaming technologies. BNET-TV is comprised of a team of qualified professionals with a robust combination of Television and Internet experience. We develop winning video productions optimized for the Internet, CD's, or videocassette. IBIZ will be provided with the ability to do "live" or "taped" Webcasts to the World Wide Web. IBIZ will be afforded the opportunity to appear on bNETTV.com's once a week, for the two-month term of the contract, for a one Fifteen minute show, via videoconference. These one Fifteen minute segments will be hosted with bNETTV.com's host and up to two (2) representatives from IBIZ Corporation. These one Fifteen minute segments will be archived for viewing at the IBIZ website as well as the bNET-TV website. Archived streams from the website will be limited to only the previous webcast of IBIZ. All Webcast will remain the property of THE PARTIES. However, IBIZ may request up to one hundred additional copies of each Webcast at no additional cost provided written request is submitted to THE PARTIES for the copies. Additional copies of each webcast may be given on terms outside this contract. 9 APPENDIX F DETAILS OF THE LEASING AGREEMENT AT RODEOSLAND.COM Hereinafter IBIZ Corporation will be referred to as "the customer" 1. THE PARTIES is the owner of a "rodeoisland.com" (an Internet Virtual Realty Shopping Mall hereinafter called "Rodeo Island") and the Customer is desirous of retailing it's products via "Rodeo Island" on the terms and conditions hereinafter recited. 2. The customer's store will not contain content, images or other materials which THE PARTIES, in its sole and unfettered discretion, deems to be offensive, obscene or otherwise not suitable for inclusion on "Rodeo Island." 3. The "construction" of the customers store shall be completed within 7 days of the customer's signing of this agreement with THE PARTIES, the ownership of the graphics to be and remain the customers subject to a $250.00 fee for THE PARTIES to retrieve, store and ship the graphics to the customer said fee to be pre-paid THE PARTIES with the written instructions of the customer directing THE PARTIES to so act. 4. Once the "construction" of the store has been completed the customer shall approve the design, content and correctness of the "construction" and thereafter THE PARTIES shall prepare the store posting on "Rodeo Island" under an address (URL) the ownership of which shall be and remain THE PARTIES's. 5. Once THE PARTIES has posted the store to "Rodeo Island" the customer shall have one (1) business day in which to advise THE PARTIES that the posting does not conform with the "construction" approval given under paragraph 4 herein whereupon THE PARTIES shall forthwith and without delay, at no cost to the customer, remedy the posting to confirm with the said "construction" approval and upon the posting confirming with the "construction" approval the customer shall provide THE PARTIES with "posting" approval after which THE PARTIES shall cause the store to be opened for business. 6. It is agreed that should the customer require any amendments, alterations, modifications or any other change to the store pertaining to the construction of the store after the construction stage approval has been provided THE PARTIES by the customer or to the posting of the store after the posting approval has been provided THE PARTIES by the customer that THE PARTIES shall cause said amendments, alterations, amendments or changes to be made at a maintenance cost covered by IBIZ In its maintenance contract which is part of this overall agreement. Additional maintenance will be charged on a hourly basis of $125.00 per hour. 8. The customer agrees with THE PARTIES that THE PARTIES and only THE PARTIES shall be allowed to make any amendments to the customer's store on "Rodeo Island". 9. The parties acknowledge that it is the customer's responsibility to review it's "Rodeo Island" store on a regular basis and in the event that the store content is amended without customer approval for whatever reason then and in that event the cost of restoring the store to the customer's latest approved state will be borne by the customer unless THE PARTIES caused the store content amendment without the approval of the customer and THE PARTIES shall not be responsible for any damages, direct or indirect, occasioned by the unauthorized amendment to the Customer's store. 10. It is an express term of this Agreement that the Customer has reviewed and approved the security measures taken by THE PARTIES in an attempt to thwart any unauthorized entrance to the customer's store by third parties and hereby covenants to hold THE PARTIES blameless in all respects should such authorized entry occur occasioning damage or loss to the customer ("hacking"). 11. The term of the Customer's rental of the store space on "Rodeo Island" shall be month to month at a lease cost of $________ per month payable in advance on the first day of each and every month hereafter it being agreed that either party may elect to terminate this agreement upon providing the other with thirty days written 10 notice of it's intention to terminate the effective date of said termination to be the first day of the immediately subsequent month after the 30 day notice period noted herein has completed It being further agreed that failure of the customer to pay the said monthly rental to THE PARTIES is sufficient grounds for THE PARTIES to immediately terminate this Agreement with notice. 12. In addition to the lease cost noted in the immediately preceding paragraph the Customer shall pay, as additional rent hereunder, an amount equal to a percentage of gross sales received through the sale of products by the Customer's store on "Rodeo Island" the percentage of the gross sales to be determined by the customer and THE PARTIES on a piece by piece basis and agreed to in writing by the parties prior to any item of merchandise being placed for sale on the Customer's "Rodeo Island" store. 13. It is a term of this Agreement that all sales from the Customer's store shall be made pursuant to the "e-commerce banking facilities" obtained by THE PARTIES (a copy of the Agreement specifying said facilities being attached hereto and forming part of this Agreement as Schedule "A") and accordingly the Customer agrees to abide by all the terms and conditions noted in said Schedule "A" which includes but is not limited to providing all consumers with a "money back guarantee". 14. Unless specifically agreed to in writing between the Customer and THE PARTIES the Customer is solely and completely responsible for the shipment of all merchandise purchased from the customer's store on "Rodeo Island" and to this end agrees with THE PARTIES if the "e-commerce" package utilized by THE PARTIES is not able to be tied into the Customer's inventory and accounting computer package then and in that event the Customer will, at it's own cost, utilize THE PARTIES's inventory and accounting computer package. 15. It shall be the Customers responsibility to ensure that all merchandise featured on the customer's store shall be available for delivery to consumers within ____ days of an order being received by the customer and that proof of delivery be provided THE PARTIES (the sufficiency of said proof of delivery to be at THE PARTIES's sole and unfettered discretion) within ____ days of the order being so received failing which THE PARTIES may elect to obtain from other sources the merchandise ordered but for which no proof of delivery has been received by it and deliver said merchandise to the consumer all at the Customers cost which shall be the greater of twice THE PARTIES's actual costs in obtaining and shipping the merchandise or $1,000.00. 16. Any merchandise provided by THE PARTIES to consumers due to the Customer's failure to provide delivery to the consumer or proof of delivery of merchandise to THE PARTIES as agreed shall be THE PARTIES providing said merchandise as agent for the Customer and the Customer agrees and covenants to indemnify and hold THE PARTIES totally blameless in all respects relating thereto. 17. THE PARTIES retains the right to at any time to cancel this Agreement, upon the Customers inability or refusal after a Ten (10) Day Notice to Rectify any action or inaction of the Customer whether related to "Rodeo Island" or not by which THE PARTIES has reasonable grounds to believe that the overall Integrity of the "Rodeo Island" shopping mall is being adversely affected which shall include but not be restricted to: a) the sale of merchandise of quality inferior to that described by the store; b) late shipping or non-shipment of merchandise to consumers; c) any action, whether or not related to the store on "Rodeo island" by the Customer which in THE PARTIES's sole and unfettered opinion has the potential to bring the operation of "Rodeo Island" into disrepute which shall include but not be limited to the Customer or any party acting on the Customer's behalf engaging in any form of an unsolicited e-mail campaign ("spamming"). 18. Payment to the Customer from THE PARTIES for sales from the Customer's store on "Rodeo Island" shall be effected in the following manner, namely; a) the order is booked through THE PARTIES's "e-commerce banking facilities" and THE PARTIES advises the Customer, in writing. of the 11 sale within one (1) business day of monies being received by THE PARTIES from the consumer for the purchase; b) the Customer will cause the merchandise to be shipped to the consumer, at the Customer's sole cost and expense, within ___ days of the Customer being advised of the sale by THE PARTIES and to provide THE PARTIES with verifiable proof of delivery within ____ days thereafter; c) within twenty one days of the products delivery being proved by the Customer to THE PARTIES, THE PARTIES shall cause payment to be made to the Customer for the merchandise by way of an electronic transfer of funds to the banking facility requested by the Customer; d) Payments from THE PARTIES to the Customer shall be made on the 1st business day subsequent to the 15th of each and every month and the last business day of each and every month; e) THE PARTIES shall be entitled to retain and transfer to itself any and all moneys received by it by way of deposit. from the sale of the Customer's merchandise or otherwise on the Customer's account to satisfy any financial obligation of the Customer to THE PARTIES then due and owing (including the "construction" of the Customer's store); f) In the event that the Customer does not honor any "money back guarantee" or agreed refund or does not ship or has any other dispute with a consumer, then and in that event THE PARTIES shall have the option of settling any said disputes as agent for the Customer at the Customer's sole cost and expense and THE PARTIES shall in all respects arising therefrom be indemnified and held blameless by the customer. 19. THE PARTIES shall have the right hereunder to conduct any investigations of the Customer or the Customer's products as it deems necessary in order for it to be assured that the Customer is following the term and the spirit of this Agreement and in the event that THE PARTIES in the course of its investigation forms the reasonable belief that the Customer is or may not be able to fulfill it's obligations hereunder (such as not having sufficient inventory available to satisfy consumer needs or is conducting it's business affairs in a manner not consistent with the standards and ethics of typical business' conducting business via an Internet Retail Store) then and in that event the cost of the investigation shall be borne by the Customer and THE PARTIES shall, at it's sole option, be entitled to forthwith terminate this agreement without Notice or Penalty. 20. Notwithstanding anything to the contrary herein contained the Customer acknowledges that it is solely responsible for any errors or omissions contained on it's "Rodeo Island" store and thus specifically waives any action it can or may have against THE PARTIES, its agents, employees, directors, officers or assigns for any damage or loss occasioned to the customer as a result of any said error and or omission. 21. In the event that the Customer requires any amendments to it's store once THE PARTIES has completed the construction and posting of same then and in that event said amendments shall be carried out by THE PARTIES utilizing the same approval process has hereinbefore stated in paragraphs 4, 5, 6 and 7 with such reasonable modifications as appropriate under the circumstances. 22. THE PARTIES does not warrant uninterrupted service of the Customer's store on "Rodeo Island" and in this respect the customer hereby waives any action it may have against THE PARTIES, it's employees, agents, representatives, Officers and Directors respecting any interruption of service to or from the Customer's store on "Rodeo Island" or respecting THE PARTIES's e-commerce facilities. 23. This Agreement shall be governed by the laws of the state of Florida and any court proceedings commenced hereunder shall be commenced and concluded at the venue of THE PARTIES's direction within the state of Florida. 24. THE PARTIES's address for service hereunder shall be 9th Floor, 840 7th Avenue SW, Calgary, Alberta, Canada, T2P 3G2. 25. The Customer's address for service hereunder shall be __________________. 26 Any reference contained herein to currency shall be interpreted as being in American funds. 12 27. Any and all notices required to be provided herein shall be sent by way of facsimile transmission and are deemed to have been received on the date said transmission was sent or received by THE PARTIES. 28. Should any provision of this Agreement be ruled invalid, unenforceable or illegal then and in that event the offending provision shall be struck herefrom and be of no further force and effect but that the remainder of this Agreement shall remain in full force and effect. 29. Wherefore the parties hereto have executed these presents and agree to be bound by the terms hereof on the date hereinbefore noted at the ________________ of ______________ in the _____________________________________ of ________________. EX-23.02 5 ex23-02.txt EX-23.02 1 Exhibit 23.02 [MOFFITT & COMPANY, P.C. LETTERHEAD] July 27, 2000 iBIZ Technology Corp. 1919 West Lone Cactus Drive Phoenix, AZ 85027 Dear Sir or Madam: We hereby consent to the incorporation of our audited financial statements for the fiscal years ended October 31, 1997 and October 31, 1998, dated June 14, 1999, and reissued on November 22, 1999, audited financial statements for the fiscal year ended October 31, 1999, dated January 10, 2000; and reviewed financial statements for the six months ended April 30, 2000, in the Form SB-2 Registration Statement, and all amendments thereto filed with the Securities and Exchange Commission. Yours Very Truly, /s/ Stanley M. Moffitt Stanley M. Moffitt, CPA Moffitt & Company, P.C. -----END PRIVACY-ENHANCED MESSAGE-----