-----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, SsB0ML6lu3SeQ3ifDZ1cw2Cn71VHjdBXZ7CPs5EBgHeJZC3mmT61Hqbc3ONuBJyJ sRK1k7dTTrliyigTZmYh7A== /in/edgar/work/0000950153-00-001582/0000950153-00-001582.txt : 20001123 0000950153-00-001582.hdr.sgml : 20001123 ACCESSION NUMBER: 0000950153-00-001582 CONFORMED SUBMISSION TYPE: SB-2 PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 20001122 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: 333-50564 FILM NUMBER: 775970 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 p64237sb-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 (Primary Standard (I.R.S. Identification No.) of incorporation or Industrial Employer organization) Classification Code Number) 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. Gammage & Burnham, PLC Two North Central Avenue, 18th Floor, Phoenix, Arizona 85004 (602) 256-0566 Approximate date of proposed sale to the public: December 11,2000. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]_________ If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]_________ If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]_________ If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ]_________ 2 CALCULATION OF REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------- Proposed maximum Proposed maximum AMOUNT OF Title of each class of securities to Amount to be offering price aggregate REGISTRATION be registered registered(1) per share(3) offering price(3) FEE(3) - ------------------------------------------------------------------------------------------------------------- Common stock, $0.001 par value 50,000,000(2) $0.325 $16,250,000.00 $4,290.00 Common stock, $0.001 par value 223,000(4) $0.325 $ 72,475.00 $ 19.14 Common stock, $0.001 par value 278,750(5) $0.325 $ 90,593.75 $ 33.92 - -------------------------------------------------------------------------------------------------------------
(1) Represents the shares of common stock being registered for resale by the selling securityholders. (2) Pursuant to a registration rights agreement between us and certain selling securityholders, we were required to register a sufficient number of shares so that upon conversion of certain of our eight percent convertible notes and certain warrants issued in connection therewith, the selling securityholder could resell all registered securities. Pursuant to Rule 416, the shares of common stock offered hereby also include such presently indeterminate number of shares of common stock as shall be issued by us to the selling securityholders upon conversion of the notes. That number of shares is subject to adjustment under anti-dilution provisions included in the notes covering the additional issuance of shares by iBIZ resulting from stock splits, stock dividends or similar transactions. This presentation is not intended to constitute a prediction as to the future market price of the common stock or as to the number of shares of common stock issuable upon conversion of the notes. (3) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(c) of the Securities Act, based on the average ($0.325) of the bid ($0.300) and asked ($0.350) price on the NASD OTC Bulletin Board on November 20, 2000. (4) Represents Shares Issued pursuant to Subscription Agreements. (5) Represents Warrants Issued pursuant to Subscription Agreements. The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to Section 8(a), may determine. ii 3 CROSS REFERENCE SHEET
- --------------------------------------------------------------------------- CAPTION IN FORM SB-2 CAPTION IN PROSPECTUS - --------------------------------------------------------------------------- 1. Front of Registration Statement Front cover and outside front of cover of Prospectus 2. Inside front and outside back Inside front cover of cover of Prospectus 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 Indemnification for Securities Securities Act Liabilities Act Liabilities 15. Organization in last five years Not Applicable 16. Description of business Business 17. Management's Discussion and Management's Discussion and Analysis or Plan of Operations Analysis 18. Description of Property Business 19. Certain Relationships and Certain Relationships and Related Transactions Related Transactions 20. Market for Common Equity and Market for Common Equity and Related Stockholder Matters Related Shareholder Matters 21. Executive Compensation Executive Compensation 22. Financial Statements Financial Statements 23. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not Applicable - ---------------------------------------------------------------------------
iii 4 iBIZ TECHNOLOGY CORP. 1919 West Lone Cactus Drive Phoenix, Arizona 85021 (623) 492-9200 www.ibizcorp.com 50,501,750 SHARES COMMON STOCK 50,501,750 shares of common stock are being offered by our securityholders named under the heading "Selling Securityholders." We will not receive any of the proceeds from the sale of common stock by the securityholders. However, we will receive amounts upon exercise of outstanding warrants. The Company has agreed to pay all of the expenses related to this offering, but the securityholders will pay sales or brokerage commissions or discounts with respect to sales of their shares. The shares of common stock described in this prospectus are for resale. The shares offered are being registered due to iBIZ's obligations to those securityholders. The securityholders may elect to sell shares of common stock described in this prospectus through brokers at the price prevailing at the time of sale or at negotiated prices. The common stock may also be offered in block trades, private transactions or otherwise at prices to be negotiated. Our common stock is traded on the National Association of Securities Dealers, Inc., OTC Bulletin Board under the symbol "iBIZ." On November 20, 2000, the price for our common stock was $0.32 per share. Investing in the common stock involves certain risks, see "Risk Factors." 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. 1 5 TABLE OF CONTENTS PROSPECTUS SUMMARY.................................................... 3 RISK FACTORS.......................................................... 5 SELLING SECURITYHOLDERS............................................... 13 USE OF PROCEEDS....................................................... 14 PLAN OF DISTRIBUTION.................................................. 14 MANAGEMENT'S DISCUSSION AND ANALYSIS.................................. 15 DESCRIPTION OF BUSINESS............................................... 20 DIRECTORS AND EXECUTIVE OFFICERS...................................... 31 EXECUTIVE COMPENSATION................................................ 32 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT........ 33 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................ 35 MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.............. 35 DESCRIPTION OF SECURITIES............................................. 36 INDEMNIFICATION FOR SECURITIES ACT LIABILITIES........................ 41 EXPERTS............................................................... 41 LEGAL MATTERS......................................................... 41 PART F/S.............................................................. F-1 PART II............................................................... 43 SIGNATURES............................................................ 49
2 6 PROSPECTUS SUMMARY YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED INFORMATION REGARDING OUR COMPANY, OUR COMMON STOCK AND OUR FINANCIAL STATEMENTS AND NOTES APPEARING ELSEWHERE IN THIS PROSPECTUS. OUR COMPANY OVERVIEW Our company is incorporated in Florida. Our executive offices are located at 1919 West Lone Cactus Drive, Phoenix, Arizona 85021, and our telephone number is (623) 492-9200. Our World Wide Web address is http://www.ibizcorp.com. Information contained on our website is not part of this prospectus. Through our wholly-owned operating subsidiary, INVNSYS Technology Corporation, we design, manufacture and distribute desktop computers, monitors, transactional printers, financial application keyboards, numeric keypads and related products. We also market a line of original equipment manufacturer notebook computers and distribute transactional and color printers. We recently expanded our business to include network integration services, digital subscriber line high-speed Internet connection services, the business-to-business sale of software and a co-location and computer data center. The Company completed construction of a server co-location facility in August and began offering its services to customers on September 14, 2000. Founded in 1979, INVNSYS has evolved from a distributor of bank automation computer systems to a provider of a variety of computer products targeted at both the commercial and personal markets. Throughout its history, INVNSYS has provided innovative products to satisfy its customers' demands. PRODUCTS Our product groups currently include: personal computers, keyboards, displays and monitors, notebook computers, printers and peripherals, and 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 that 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, value-added providers in the banking and point-of-sale markets and Internet 3 7 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. 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 Total shares registered in this prospectus ........... 50,501,750 Shares outstanding after the offering ................ 88,314,174(1) OTC Bulletin Board symbol ............................ iBIZ
(1) Assumes (1) the conversion of all of the notes and warrants at 100% of the maximum number of shares issuable and (2) the sale of all shares registered. However, this amount excludes shares issuable upon exercise of options and warrants not registered in this prospectus. RISK FACTORS Investing in the common stock involves certain risks. You should review these "Risk Factors." 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 that 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. 4 8 RISK FACTORS INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CONSIDER THE FOLLOWING DISCUSSION OF RISKS AS WELL AS OTHER INFORMATION IN THIS PROSPECTUS BEFORE CONVERTING OR EXERCISING CONVERTIBLE NOTES, WARRANTS OR OPTIONS OR PURCHASING COMMON STOCK. THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE NOT THE ONLY ONES. ADDITIONAL RISKS AND UNCERTAINTIES NOT PRESENTLY KNOWN TO US OR THAT WE CURRENTLY DEEM IMMATERIAL ALSO MAY IMPAIR OUR BUSINESS OPERATIONS. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS COULD BE HARMED. IN SUCH CASE, THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT. EXCEPT FOR HISTORICAL INFORMATION, THE INFORMATION CONTAINED IN THIS PROSPECTUS AND IN OUR SEC REPORTS ARE "FORWARD-LOOKING" STATEMENTS ABOUT OUR EXPECTED FUTURE BUSINESS AND PERFORMANCE. OUR ACTUAL OPERATING RESULTS AND FINANCIAL PERFORMANCE MAY PROVE TO BE VERY DIFFERENT FROM WHAT WE MIGHT HAVE PREDICTED AS OF THE DATE OF THIS PROSPECTUS. We Have A History Of Losses And Anticipate Future Losses For the fiscal year ended October 31, 1999, we sustained a net loss of approximately $1,053,563 and for the nine-month period ended July 31, 2000, we sustained a net loss of $2,322,540. Future losses are anticipated to occur. Our success in obtaining additional funding will determine our ability to continue operations. We continue to have insufficient cash flow to grow operations. We cannot assure you that we will be successful in reaching or maintaining profitable operations. We May Require Additional Capital In The Future We have spent substantial funds on product research and development, construction and installation of our new co-location facility, and expansion of our sales and marketing efforts. As a result, we have needed to raise short-term capital to maintain our ongoing business. Since December 1, 1999, the Company has raised approximately $5,000,000 through the sale of convertible debentures, convertible notes, common stock and warrants to various individuals. The Company relied upon either Section 4(2) or Regulation D, Rule 506 promulgated under the Securities Act of 1933 with respect to these sales of common stock. The Company currently has commitments for an additional $4,000,000, subject to meeting certain representations, warranties, covenants, and conditions. We believe that the amounts committed (assuming the Company meets the representations, warranties, covenants, and conditions to receive those amounts) should be sufficient to finance the Company's business plans through the Company's fiscal year ended October 31, 2001. However, we cannot assure you that unforeseen events will not result in the need for additional capital sooner than we currently anticipate. If at any time we are unable to raise additional financing, we may be forced into insolvency. If we are unable to raise additional funds when necessary, we may have to reduce planned expenditures, scale back our product developments, sales or other operations, 5 9 lay-off employees and enter into financing arrangements on terms that we would not otherwise accept or be forced into insolvency. 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. We Have A Limited Operating History On Which You May Judge Our Performance. While our operating subsidiary, INVNSYS, has been in operation since 1979, iBIZ has only commenced operations in the Internet access business only since September 2000. Consequently, the Company has a limited combined operating history upon which an evaluation of the Company's performance and prospects can be made. The Company's prospects must be considered in light of the numerous risks, liquidity, shortages, expenses, delays, problems and difficulties frequently encountered in the establishment of a new business in an industry characterized by intense competition and high cost utilization. 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 in obtaining 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, 6 10 however, that our new DSL and co-location services will enable us to expand our customer base and generate greater revenues. We Face Intense Pricing Pressure. Our Internet access business competes or expects to compete directly or indirectly with the following categories of companies: (i) national and regional commercial Internet Service Providers; (ii) established online services that offer Internet access, such as America On-Line and Earthlink; (iii) national long distance telecommunication carriers, such as AT&T, MCI Worldcom and Sprint, which offer electronic messaging services; (iv) regional Bell operating companies, such as Pacific Bell; (v) cable operators, such as Cox Cable Systems; and (vi) nonprofit or educational Internet service providers and other service providers currently in the market or who may enter the market in the future. We Depend On Our Telecommunication Carriers And Other Suppliers. We are dependent on telecommunication carriers for access to high speed Internet communications. We currently operate pursuant to agreements with UUNet (MCI Worldcom), ELI (Electric Lightways), Cox, and Genuity. In the event of termination or nonrenewal of any agreement, there can be no assurance that we will be able to provide continued access to high-speed Internet connections at a reasonable price. In such case, our operations may have to be curtailed. We Must Rely On Our Strategic Partners To Keep Pace With Rapid Technological Change And Evolving Industry Standards. The markets for telecommunication services are characterized by rapidly changing technology, evolving industry standards, merging competition and frequent new services, software and other product introductions. Because we are primarily a marketer and reseller of Internet services and technological products, we must rely on our strategic partners to keep pace with technological change. There can be no assurance that our strategic partners can successfully identify new service opportunities or products and develop and bring new products and services, if any, to market in a timely and cost effective manner. We also cannot assure that software, services, products or technologies developed by others will not render the services, technologies or products of our strategic partners less competitive or obsolete. In addition, there can be no assurance that any product or service developments, or [enhanced or] that are introduced by strategic partners, will achieve or sustain market acceptance or be able to effectively address the compatibility and operability issues raised by technological changes or new industry standards. We Face The Risk Of System Failure. Our success is largely dependent upon our ability to deliver high quality, high speed uninterrupted access to the Internet. System failures could have an adverse effect on our operations and business. As we attempt to expand our network and daily traffic grows, there will be increased stress on network hardware and traffic management systems. We have little technical control over the Northpoint network and there can be no assurance that our customers will not experience failures relating to that network. Our operations are also dependent on our ability to successfully expand our network and to integrate new and emerging technologies and equipment into the network, which is likely to increase the risk of system failure and cause unforeseen strains on the network. 7 11 Significant or prolonged systems failures, or difficulties for subscribers in accessing and maintaining connection with the Internet could damage our reputation and result in the loss of subscribers. We Face Security Risks. Despite the implementation of network security measures, such as limiting physical and network access to its routers, our Internet infrastructure is potentially vulnerable to computer viruses, break-ins and similar disruptive problems caused by customers or other Internet users. Computer viruses, break-ins or other problems caused by third parties could lead to interruption, delays or cessation of service to customers. Furthermore, such inappropriate use of the Internet by third-parties could also potentially jeopardize the security of confidential information stored in the computer systems of our customers and other parties connected to the Internet, which may deter potential customers from using our services. Highly Competitive Market For Products 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, and, in the thin-client computer terminal market, with Wyse Technology, a private company we believe may have as much as 45% of the total thin-client terminal market. As a reseller, we compete against well established companies such as Comp USA, Computer Discount Warehouse and Insight Enterprises. 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 a 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. 8 12 We Need To Expand Our Product Range To effectively compete, we need to continue to expand our business and generate greater revenues so that we have the resources to timely develop new products. We must continue to market our products and services through our direct sales force and expand our e-commerce distribution channels. We cannot assure you that we will be able to grow sufficiently to provide the range and quality of products 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 that keep pace with technological developments. If we fail to introduce progressive new products in a timely and cost-effective manner, our financial performance may be negatively affected. 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 decreases during consolidation, many banking and financial institutions upgrade their computer networks. We cannot assure you that the demand for our products by banking and financial institutions will not decrease as a result of the consolidation. Our Products Must Be Compatible With Third-Party Software Although we market computer hardware and peripherals, we currently do not develop software. Consequently, we are dependent upon third-parties to develop software applications that operate on our hardware platforms. If software providers do not continue to provide software acceptable to our customers, our sales may suffer. We cannot guarantee that all available software will be compatible with our products or that we will have the technical personnel necessary to evaluate and fix software compatibility problems that may arise. If we do not have technical personnel available, our sales may decline. We Are Dependent On Our Manufacturers And Suppliers Our business depends upon obtaining adequate quantities of products from our manufacturers and suppliers. Consequently, our results of operations are dependent, in part, upon our manufacturers' and suppliers' ability to produce reasonably priced products in adequate amounts to meet our demands. Currently, our computers and peripherals are engineered and manufactured by various entities in Taiwan and South Korea. Although we have not experienced significant problems with our manufacturers and suppliers in the past, we may experience such problems in the future. We are also subject to risks of fluctuations in our component prices. If prices charged by our vendors increase, our cost of goods sold and net income would be adversely affected. 9 13 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, the Company is authorized by industry-leading software developers, such as Citrix Systems and Microsoft, to incorporate their software in our products. Without such authorization, we would be unable to provide the same range of products currently offered. We cannot assure you that manufacturers will continue to authorize use of their software in our computers and peripherals. We Recently Began Offering Third-Party Hardware, Software, And Related Supplies In January 2000, we recently 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. Currently, we hold no patents and most of the technology used in the design and manufacture of our computers and peripherals is known and available to others. Although we are exploring patent protection for one of our keyboard products, we believe that our competitive position is based on the ability to successfully market innovative computers and peripherals rather than on patented technologies. Although we believe that our products do not infringe on any third party's intellectual property rights, we cannot be certain that we will not become involved in litigation involving proprietary rights. Intellectual property rights litigation entails substantial legal and other costs. We do not know if we will have the necessary financial resources to defend or prosecute our rights in connection with any litigation. There Is A Limited Market For Our Common Stock Currently only a limited trading market exists for our common stock. Our common stock trades on the OTC Bulletin Board under the symbol "iBIZ." The Bulletin Board is a limited market and subject to substantial restrictions and limitations in 10 14 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 $0.32 per share and a high of $3.19 per share. 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 four executive officers and other key employees. A loss of one or more of our current officers or key employees could negatively impact our operations. However, we have entered into employment agreements with our executive officers and other key employees. We currently do not carry key-man life insurance policies for our executive officers. We cannot assure you that we will not suffer the loss of key human resources. Our Officers And Directors Can Exercise Control Over All Matters Submitted To A Vote Of Shareholders As of November 20, 2000, our executive officers and directors beneficially owned an aggregate of approximately 38.9% of our outstanding common stock. These officers, acting together, will be able to effectively control matters requiring approval by our shareholders, including election of members to our board of directors. As a practical matter, current management will continue to control iBIZ for the foreseeable future. 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 warrants to purchase our common stock. We intend to use the proceeds principally for working capital and general corporate purposes, including marketing and product development. Our management and board of directors have broad discretion with respect to the application of the proceeds. Sales Of Common Stock Currently Registered For Resale Could Cause A Decline In Our Stock Price If all the shares registered in this offering are sold and even if antidilution provisions do not trigger issuance of additional shares, this offering will increase our outstanding shares by a substantial amount. 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. 11 15 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. We Are Subject To Government Regulation And Changes In Laws That Could Adversely Effect Our Business. We provide Internet services, in part, through data transmission over public telephone lines as well as through the private Northpoint network. These transmissions are governed by State and Federal regulatory policies establishing charges and terms for wireline communications. While we are not currently subject to direct regulation by the Federal Communication Commission (the "FCC"), we could become subject to regulation by the FCC or another regulatory agency as a provider of basic telecommunication services. Such a regulation, if enacted, would create substantial barriers to our entry into the Internet telephone market. Moreover, we are subject to a variety of risks that could materially effect our business due to the rapidly changing legal and regulatory landscape governing the Internet access providers. For example, the FCC currently exempts Internet access providers from having to pay permanent access charges that long distance telecommunication providers may charge local telephone companies for the use of the local telephone network. In addition, Internet access providers are currently exempt from having to pay a percentage of their gross revenues as a contribution to the Federal Universal Service Fund. Should the FCC eliminate these exemptions and impose such charges on Internet access providers, this would increase our cost for providing dial-up Internet access service and could have a material adverse effect on our business, financial condition and results of operations. We Face Risk Due To Possible Changes In The Way Our Competitors Are Regulated Which Would Have An Adverse Effect On Our Business. For example, the FCC is considering measures that could stimulate the development of high speed telecommunication facilities to make it easier for operators of these facilities to obtain access to customers. Such favorable regulatory measures could enhance the viability of our competitors in the Internet access marketplace. In addition, changes in the regulatory environment may provide competing Internet service providers the right of access to the cable systems of local franchise cable operators. The adoption of local access cable systems by Internet service providers could harm our business. 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 12 16 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: - Form 10-SB, filed October 13, 1999, File No. 027619, including the amendments filed on November 30, 1999 and December 15, 1999. - Form SB-2, filed January 11, 2000, File No. 027619, including the amendment filed on January 31, 2000. - 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. - Form SB-2, filed April 17, 2000, File No. 027619. - Quarterly Report on Form 10-QSB filed June 14, 2000, File No. 027619. - Form SB-2, filed July 28, 2000, File No. 027619, including the amendment filed on September 25, 2000. - Quarterly Report on Form 10-QSB filed September 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. 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 13 17 prospectus are issuable to the selling securityholders upon conversion of the notes or the exercise of options or warrants.
- ------------------------------------------------------------------------------------------------------------ PERCENTAGE OF Shares of Common COMMON STOCK Stock Included in Ownership Before Ownership After OWNED AFTER Name Prospectus(4)(6) the Offering(1) the Offering(2) OFFERING(3) - ------------------------------------------------------------------------------------------------------------ Celeste Trust Reg. 5,500,000(5) 0.0 5,000,000 6% Esquire Trade & Finance, Inc. 8,000,000(5) 0.0 8,000,000 9% The Keshet Fund L.P. 5,000,000(5) 0.0 5,000,000 6% Keshet, L.P. 20,500,000(5) 0.0 20,500,000 23% Talbiya B. Investments Ltd. 9,000,000(5) 0.0 9,000,000 10% Libra Finance S.A. 1,500,000 0.0 1,500,000 2% Cong. Sharith Hapleton 501,750 0.0 501,750 * - ------------------------------------------------------------------------------------------------------------
(1) Consists of all shares owned by the selling securityholders as of November 20, 2000. (2) Assumes the sale by iBIZ to the warrant or convertible note holders of all shares registered in this offering. (3) Notwithstanding the figures in the chart, the Subscription Agreement provides that no Subscriber may own more than 4.99% of the stock at any one time. "*" means less than one percent. (4) Consisting in whole or in part of shares issuable upon conversion of options and exercise of the warrants. (5) Issuable upon conversion of convertible notes. (6) A presently indeterminate amount of shares will be allocated pro rata from the shares registered in this Registration Statement to issue certain warrants to the Finders, equal to 12% of the shares to be issued upon conversion of the final $2 million of Notes. USE OF PROCEEDS The Company is solely responsible for the expenses of this Offering, which are estimated at $32,333.06. iBIZ will not receive any proceeds from the sale of the common stock by the selling securityholders. iBIZ may, however, receive proceeds upon the exercise of the warrants. iBIZ intends to use the net proceeds from exercise of options or warrants primarily for working capital needs and general corporate purposes, including payment of contractors for the work they did to complete the co-location facility and marketing expenses related to developing the customer base of the co-location facility. There can be no assurance that any warrants will be exercised. PLAN OF DISTRIBUTION iBIZ is registering the shares on behalf of the selling securityholders. As used herein, "selling securityholders" includes donees and pledgees selling shares received from a named selling securityholder after the date of this prospectus. All costs, expenses and fees in connection with the registration of the shares offered hereby will be borne by the Company. Brokerage commissions and similar selling expenses, if any, attributable to the sale of shares will be borne by each selling securityholder. Sales of shares may be effected by selling securityholders from time to time in one or more types of transactions (which may include block transactions) in the over-the-counter market, in negotiated transactions, through put or call options transactions relating to the shares, through short sales of shares, or a combination of such methods of sale, at market prices prevailing at the time of sale, or at negotiated prices. Such transactions may or may not involve brokers or dealers. The selling securityholders have advised iBIZ that they have not entered into any agreements, understandings or arrangements with any underwriters or broker-dealers regarding the sale of their securities, nor is there an underwriter or coordinating broker acting in connection with the proposed sale of shares by the selling securityholders. The selling securityholders may effect such transactions by selling shares directly to purchasers or to or through broker-dealers, which may act as agents or principals. 14 18 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 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, a co-location server facility and business-to-business software sales. To provide a greater range of products, iBIZ recently began reselling third-party hardware, software and related supplies. SELECTED FINANCIAL INFORMATION. 15 19
- -------------------------------------------------------------------------------------------------------------- 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 $ (501,258) $ 51,182 Net earnings (loss) per share $ (50.13) $ 5.12 Balance Sheet Data Total assets $ 1,105,198 $ 1,508,944 Total liabilities $ 1,796,544 $ 1,991,007 Stockholders' equity (deficit) $ (691,346) $ (482,063)
- -------------------------------------------------------------------------------------------------------------- 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) $ 112,882 $ (1,074,180) Net earnings (loss) after tax $ 51,182 $ (1,053,563) Net earnings (loss) per share $ 5.12 $ (.04) Balance Sheet Data Total assets $ 1,508,944 $ 1,043,030 Total liabilities $ 1,991,007 $ 1,476,557 Stockholders' equity (deficit) $ (482,063) $ (433,527)
16 20
- -------------------------------------------------------------------------------------------------------------- NINE-MONTH PERIOD ENDED 7/31 - -------------------------------------------------------------------------------------------------------------- 7/31/99 7/31/00 ------- ------- Statement of Operations Data Net sales $ 1,804,064 $ 3,207,019 Gross profit $ 270,247 $ 517,084 Operating income (loss) $ (897,975) $ (2,266,955) Net earnings (loss) after tax $ (749,040) $ (2,322,540) Net earnings (loss) per share $ (0.03) $ (0.08) Balance Sheet Data Total assets $ 818,169 $ 3,715,708 Total liabilities $ 1,241,036 $ 3,597,604 Retained earnings (deficit) $ (1,401,810) $ (3,963,703)
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 that remained fairly stable over the two-year period. Gross Profit. Gross profit increased from approximately $771,019 in October 1997 to $1,182,885 in October 1998. The increase resulted primarily from the increase in revenues coupled with a slight decline in the costs of products' components. Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased approximately 9% in the fiscal year ended October 1997 to the fiscal year ended October 1998. The decrease resulted primarily from cost reductions in promotion, insurance, payroll, payroll taxes, rent, telephone and entertainment. Interest Expense. Interest expense of $75,282 for the fiscal year ended October 1998 and of $74,147 for the fiscal year ended October 1997 was accrued on notes payable to Community First National Bank (primarily extended for working capital purposes). Income Taxes. Because INVNSYS incurred a loss of approximately $471,130 for the fiscal year ended October 1997, INVNSYS obtained a refund of $150,021. For the fiscal year ended October 1998, INVNSYS incurred taxes of $75,372 even though 17 21 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 $501,258 increased to a profit of $51,182 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 that 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. 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 $51,182 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 that was not in proportion to the significant decrease in revenues, and a substantial decrease in revenues for the fiscal year ended October 1999. 18 22 Nine-Month Period Ended July 31, 2000 Compared to Nine-Month Period Ended July 31, 1999. Revenues. Sales increased to $3,207,019 for the nine-month period ended July 31, 2000, which is approximately 178% of the $1,804,064 for the nine-month period ended July 31, 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 175% from $1,533,817 in the nine-month period ended July 31, 1999, to $2,689,935 for the nine-month period ended July 31, 2000. The increase in cost of sales is attributable to an 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 recently completed, Internet connection services and software. Gross Profit. Gross profit increased from approximately $270,247 for the nine-month period ended July 31, 1999, to $517,084 for the nine-month period ended July 31, 2000. Although the increase was insignificant, it 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 238% from $1,168,222 for the nine-month period ended July 31, 1999, to $2,784,039 for the nine-month period ended July 31, 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 support of the new 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 $73,645 for the nine-month period ended July 31, 2000, and of $35,357 for the nine-month period ended July 31, 1999, was accrued primarily on notes payable to Community First National Bank (primarily extended for working capital purposes). Net Earnings. Net losses increased from $749,040 for the nine-month period ended July 31, 1999, to $2,322,540 for the nine-month period ended July 31, 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. Liquidity and Capital Resources During the quarter ended July 31, 2000, the Company had not engaged in capital-raising activities. However, in August 2000, the Company raised approximately $441,000 through sales of unregistered shares of common stock at prices ranging from $0.35 per share to $0.55 per share. In September, Globe United Holdings, Inc., converted debentures totaling $350,000 and received 1,163,432 shares of common stock and Lites Trading, Inc. converted debentures totaling 320,961 and received 1,036,475 shares of common stock, including stock paid for interest due. If the Company receives all of the 19 23 capital presently committed, Management believes that it can remain in business until October 31, 2001. There is no assurance, however, that the Company's capital needs will be met, particularly if the Company's co-location facility fails to generate anticipated revenues. If the Company cannot raise financing, downsizing and modification to planned growth initiatives may be necessary. 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 server co-location facility, which was completed in August, opened on September 14, 2000. The server co-location facility has so far generated only nominal revenues. 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. Beginning in June and continuing through October, 2000, the Company received orders from CompUSA totaling approximately $800,000 and from another retailer totaling approximately $600,000 for PDA accessories. To fill orders, the Company may pay certain manufacturing costs to its Taiwanese suppliers prior to shipment. The security interest that the Company gave in all of its assets to Sonoma Bank in conjunction with its move to a new facility in July, 1999, has been released, so the Company now has unencumbered assets available to obtain receivables or other debt financing. Third-party software sales currently generate approximately $100,000 per month in sales revenues. 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 since January 2000. There is no assurance that the high 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 margins. 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. 20 24 While operating as a development stage company, the Company's officers and directors were not compensated for their services. From incorporation through December 31, 1994, Mr. Julio A. Padilla served as President and sole Director. Mr. Eric P. Littman served as President and sole Director from January 1, 1995 through July 9, 1998. Thereafter, Mr. John Xinos served as President, Secretary, and Treasurer from July 10, 1998 through December 31, 1998. Messrs. Padilla, Littman and Xinos are no longer involved in the management of iBIZ and are believed not to be shareholders. BUSINESS HISTORY OF INVNSYS The Company conducts business solely through its operating subsidiary INVNSYS. For your convenience, this prospectus will refer to the parent company as the Company or iBIZ and the wholly-owned operating company as INVNSYS. INVNSYS (formerly known as SouthWest Financial Systems, Inc.) was founded in 1979. Under the direction of INVNSYS' founder, Kenneth Schilling, the company initially focused on distributing front-end bank branch automation computer systems for networking applications. INVNSYS acted as a regional distributor for SHARP Electronics ("SHARP"), a privately held Japanese manufacturer of computers and electronic devices. In addition, INVNSYS also distributed the products of Billcon Company, Ltd., and Glory, manufacturers of bank automation and money processing systems. In 1985, INVNSYS became a master distributor of SHARP products and acquired the exclusive rights to distribute SHARP products to financial institutions in the western United States. Between 1987 and 1990, INVNSYS won various awards from SHARP for outstanding sales performance. Also during this time, INVNSYS began to participate in the design of 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 that 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 a line of business transaction computers, the iT series. In January 2000, the Company began offering network integration services. In March 2000, the Company began offering digital subscriber line (DSL) services. On September 18, 2000, the Company announced the opening of its new data center/Web-hosting server co-location facility, located in Phoenix. The data center allows clients to run their Web-based activities over the Internet without having to 21 25 maintain internal IT and other systems-related staffing and equipment. Through this facility, iBIZ provides Web-hosting services, including hardware connections, scalable bandwidth, and back-up, or redundant, servers to ensure clients of continuous data traffic and Internet-based operations with uninterrupted connectivity. iBIZ also provides high levels of physical and systems security and around-the-clock maintenance, monitoring and technical support. The facility has an extensive raised floor, with secured cabinet space for up to 390 clients, 11 full-size, individually secured data suites, and a mezzanine level with rack space for 1200 leased computer servers. Additionally, the facility has space available for client oriented, custom built enclosures. The iBIZ-designed infrastructure includes 3 primary environmental control systems, uninterruptible power systems with battery and generator back-up functions. The facility is connected by 3 diverse optical fiber routes, and by 4 major access providers, delivering Internet traffic directly to the Internet backbone. 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. 22 26 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 services to commercial consumers through an agreement with Northpoint Communications, Inc. and began offering co-location services on September 14, 2000. INVNSYS' continued success is dependent upon the introduction of new products and the enhancement of existing products. INVNSYS is actively engaged in the design and development of additional computers and peripherals to augment its present product line. Currently, INVNSYS designs many of its products in-house. INVNSYS employs a seven-person product design and development staff that is managed directly by Kenneth Schilling. 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. 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. - 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 market the "KeySync," specifically designed for use with hand-held personal organizers such as 3COM's Palm Pilot. - Displays and Monitors. We sell a line of space-saving, zero-emission LCD flat panel displays. We believe our LCD panels take up less than one-tenth of the space needed for an equivalent cathode ray tube monitor and are some of the thinnest available on the market. We also offer a line of traditional monitors. - Notebook Computers. We market a complete line of competitively priced, build-to-order notebook computers. 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. 23 27 - Third-Party Hardware, Software, and Related Supplies. In an effort to provide our customers a wider range of products, we recently began reselling third-party hardware, software, and related supplies. SERVICES Responding to market demand for complete network solutions, INVNSYS began providing network integration services in the last quarter of 1999. Through previous contacts developed by its Chief Technology Officer prior to joining the Company, INVNSYS acquired network integration service accounts with American Express and Motorola. 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 that 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 recognized approximately $170,000 in revenue 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 completed a co-location facility in August, 2000 and opened it for service on September 14, 2000. The facility will accommodate 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 economics of scale or obtain the customer base necessary to achieve long term profitability. "Co-location" is providing network connections, such as Internet leased lines, to several servers housed together in a server room. Typically, we provide a server, usually a Web server, located at our dedicated facility designed with resources which include a secured cage or cabinet, regulated power, dedicated internet connection, security and support. Our co-location facility offers our customers a secure place to physically house their hardware and equipment as opposed to locating it in their offices or warehouse where the potential for fire, theft, or vandalism is much greater. Our co-location facility also offers high-security, including cameras, fire detection and extinguishing devices, multiple connection feeds, filtered power, backup power generators and other items to ensure high-availability, which is mandatory for all Web-based, virtual businesses. 24 28 Our customers prefer co-location because the server owner wants their machine to be on a high-speed Internet connection and/or they do not want the security risks of having the server on their own network. MARKETING, SALES AND DISTRIBUTION INVNSYS markets and distributes products directly to end users through a direct sales force, regional resellers, value-add providers in the banking and point-of-sale ("POS") market and Internet commerce sites. INVNSYS has a direct sales force of nine employees, directed by Mr. Schilling, who market INVNSYS' products to financial institutions. In addition to direct sales, INVNSYS also sells its full range of products directly to retail customers through its website at www.ibizcorp.com. The website is linked to an Online Consumer site on Yahoo! Recently, INVNSYS entered into an agreement with Cyberian Outpost, Inc. to market INVNSYS' products on its website www.outpost.com. To date, iBIZ has recognized only nominal revenues from Internet retail sales. Management believes that direct sales to end users should allow INVNSYS to more efficiently and effectively meet customer needs by providing products which are tailored for the customer's individual requirements at a more economical price. INVNSYS distributes a line of Epson transactional printers. INVNSYS participates in Epson's MasterVar program that provides INVNSYS a non-exclusive right to sell, support and service Epson computer peripherals in the United States and Canada. 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 25 29 company. The Harsper LCD panels are manufactured in South Korea. First International Computer in Taiwan currently manufactures INVNSYS' Sahara desktop computers. These manufacturers build INVNSYS' products to INVNSYS' specifications with non-proprietary components. Therefore, the vast majority of parts used in INVNSYS' products are available to INVNSYS' competitors. Although INVNSYS has not experienced difficulties in the past relating to engineering and manufacturing, the failure of INVNSYS' manufacturers to produce products of sufficient quantity and quality could adversely affect INVNSYS' ability to sell the products its customers' demand. INVNSYS engages in final assembly, functional testing and quality control of its products in its Phoenix, Arizona facility. Management believes INVNSYS' completion of the final stages of manufacturing allows INVNSYS to ensure quality control for its products manufactured overseas. INVNSYS has entered into an agreement with Twinhead Corporation, a Taiwanese manufacturer of notebook computers ("Twinhead") to produce build-to-order notebook computers. The design, engineering and manufacturing of INVNSYS' notebook computers is done entirely by Twinhead. Management believes this relationship allows INVNSYS to offer a broader range of products to its customers without the cost of research and development and manufacturing. LICENSES Citrix Systems, Inc. On December 30, 1998, INVNSYS entered into 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 allows 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 that facilitates the connection between the KeySync keyboard and the 3COM Palm devices. 26 30 PATENTS AND TRADEMARKS INVNSYS holds no United States or foreign patents for its products. However, iBIZ has filed a patent application for its Lapboard keyboard. In general, INVNSYS believes that its continued success will depend primarily upon the technical expertise, creative skills, and management abilities of its officers, directors, and key employees rather than on patent ownership. iBIZ has filed an application with the United States Patent and Trademark Office for the use of the names "iBIZ" and "KeySync" and is currently investigating various other product trademarks. YEAR 2000 ISSUES Management believes that all of INVNSYS' current products are Year 2000 compliant. In December 1999, INVNSYS completed a conversion of its internal systems, such as accounting programs and management believes all internal systems are Year 2000 compliant. Management estimates the Company incurred costs of approximately $20,600 to address the Year 2000 computer issue. To date, iBIZ has not experienced any material disruptions related to the Year 2000 computer issue. However, iBIZ can give no assurance that future failures of third-party systems will not have a material effect on INVNSYS' operations. SERVICE AND SUPPORT INVNSYS provides its customers with a comprehensive service and support program. Technical support is provided to customers via a toll-free telephone number as well as through the iBIZ website. The number is available Monday through Friday 8:00 a.m. to 5:00 p.m., Mountain Standard Time. INVNSYS maintains a staff of approximately 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 27 31 The personal computer industry is highly competitive. INVNSYS competes at the product level with various other personal computer manufacturers and at the distribution level primarily with computer retailers, on-line marketers and the direct sales forces of large personal computer manufacturers. At the product level, the personal computer industry is characterized by rapid technological advances in both hardware and software development and by the frequent introduction of new and innovative products. There are approximately 100 manufacturers of personal computers, the majority of which have greater financial, marketing and technological resources than INVNSYS. Competitors at this level include IBM, Compaq, Dell, NEC, and Gateway 2000. Gateway 2000 and NEC, among other competitors, have recently introduced smaller desk top computers than have been manufactured in the past. However, those computers are targeted for the consumer and not for the corporate customer and are more expensive than the computers offered by INVNSYS. INVNSYS' main competitors for its line of thin-client computer systems include specialty manufacturers such as WYSE Technology. Competitive factors include product quality and reliability, price to performance characteristics, marketing capability, and corporate reputation. In addition, a segment of the industry competes primarily for customers on the basis of price. Although INVNSYS' products are price competitive, INVNSYS does not attempt to compete solely on the basis of price. The intense nature of competition in the computer industry subjects INVNSYS to numerous competitive disadvantages and risks. For example, many major companies will exclude consideration of INVNSYS' products due to limited size of the company. Moreover, INVNSYS' current revenue levels cannot support a high level of national or international marketing and advertising efforts. This, in turn, makes it more difficult for INVNSYS to develop its brand name and create customer awareness. Additionally, INVNSYS' products are manufactured by third parties in Taiwan or South Korea. As such, INVNSYS is subject to numerous risks and uncertainties of reliance on offshore manufacturers, including, taxes or tariffs, non-performance, quality control, and civil unrest. Also, as INVNSYS holds no patents, the vast majority of parts used in its products are available to its competitors. Management believes that it can compete effectively by providing computers and peripherals utilizing unique designs and space-saving qualities, such as small footprints. Although Management believes it has been successful to date, there can be no assurance that INVNSYS will be able to compete successfully in the future. Services INVNSYS recently began offering network integration services and DSL high-speed Internet connection services. Although management believes these services will enable INVNSYS to expand its customer base through the offering of complete network solutions, each service will experience intense competition. For example, network integration services are offered by a wide range of competitors, including large established companies such as IBM and AT&T, as well as small private entities. Many of INVNSYS' competitors in network integration services are more established and have greater resources. INVNSYS has a technology manager with significant network 28 32 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 of 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 that allows for higher speed connections over existing copper phone lines. Currently, large established companies such as U.S. West Communications, COX Communications and Rhythms NetConnections, Inc. offer DSL services. 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 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 COMPUSA, 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 software has generated sales of approximately $100,000 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 FOR PRODUCTS 29 33 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' product revenues. EMPLOYEES; LABOR RELATIONS As of November 20, 2000, INVNSYS had approximately 53 full-time employees. No employee of INVNSYS is represented by a labor union or is subject to a collective bargaining agreement. INVNSYS has never experienced a work-stoppage due to labor difficulties and believes that its employee relations are good. FCC REGULATIONS The Federal Communications Commission (the "FCC") has adopted regulations setting radio frequency emission standards for computing equipment. Management believes all of INVNSYS' current products meet applicable FCC and foreign requirements. INVNSYS is in the process of exploring foreign operations. Many foreign jurisdictions require governmental approval prior to the sale or shipment of personal computing equipment and in certain jurisdictions such requirements are more stringent than in the United States. Any delays or failures in obtaining necessary approvals from foreign jurisdictions may impede or preclude INVNSYS' efforts to penetrate such markets. DESCRIPTION OF PROPERTY On July 1, 1999, iBIZ began leasing an approximately 15,000 square foot custom-built office building located at 1919 West Lone Cactus, Phoenix, Arizona. The facility is used for administration, design, engineering and assembly of products. iBIZ's lease ("Lease") is for a 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. Mr. Schilling and his wife, Diane, personally guarantee the Lease. The lease is also secured by all of the assets of the Company. Management believes this new facility provides adequate space to accommodate the iBIZ's current plan of growth and expansion. LITIGATION INVNSYS Technology Corporation, d.b.a. 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, attorneys fees, incurred costs and expenses, together with accruing costs. iBIZ is seeking to recover additional commissions that it believes Epson owes it and intends to file a counterclaim in the amount of $480,100. 30 34 There is no assurance that a settlement will be reached, and the parties have failed to reach an amicable agreement. 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. DIRECTORS AND EXECUTIVE OFFICERS
- ------------------------------------------------------------------------------- Name Age POSITION - ------------------------------------------------------------------------------- Kenneth W. Schilling 49 President, Chief Executive Officer, Director Terry S. Ratliff 43 Vice President, Chief Financial Officer, Director Mark H. Perkins 37 Vice President of Operations, Director James A. Ratliff(1) 43 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 has served as Vice President since March 1999, and was appointed Chief Financial Officer on July 1, 2000. Ms. Ratliff was appointed to iBIZ's Board of Directors on March 5, 1999. Ms. Ratliff studied accounting at Nicholls State University in Thibodaux, Louisiana. 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. 31 35 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.
- ------------------------------------------------------------------------------------------------------------------------------- Restricted Other Annual Stock LTIP ALL OTHER Salary Bonus Compensation Award(s) Options(1) Payout COMPENSATION Name and Principal Position Year ($) ($) ($) ($) (#) ($) ($) - ------------------------------------------------------------------------------------------------------------------------------- Kenneth W. Schilling, President, Chief Executive 1998 $200,000 Officer 1999 $200,000 250,000 - --------------------------------------------------------------------------------------------------------------------------------
(1) Includes 50,000 options granted for service as a director of the Company. OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS - ---------------------------------------------------------------------------------------------------------------------- Percent of Total Number of Securities Options/SARs Granted Underlying Options /SARs to Employees In Fiscal Exercise of Base Expiration Name (a) Granted (1) (b) Year (c) Price ($/Sh) (d) Date (e) Kenneth W. Schilling 250,000 ___% $0.75 4/21/09
(1) Includes 50,000 options granted for service as a director of the Company. 200,000 options vested upon granting on April 22, 1999, and 25,000 vested on April 22, 2000. An additional 25,000 will vest on April 22, 2001. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
- ------------------------------------------------------------------------------------------------------------------------ VALUE OF UNEXERCISED Number of Unexercised IN-THE-MONEY OPTIONS AT Shares Options at Fiscal FISCAL YEAR END Acquired on Value Year End Exercisable/ EXERCISABLE/ UNEXERCISABLE Name Exercise (#) Realized ($) Unexercisable (1) - ------------------------------------------------------------------------------------------------------------------------ Kenneth W. Schilling -0- -0- 250,000/200,000 $227,500/$182,000 - ------------------------------------------------------------------------------------------------------------------------
(1) Based on closing price of the Common Stock on October 29, 1999 of $0.91. Compensation of Directors Pursuant to the terms of their employment agreements, effective April 22, 1999, Messrs. Schilling, Perkins and Ms. Ratliff each received fifty thousand (50,000) options to purchase fifty thousand (50,000) shares of common stock in consideration for their services as directors of iBIZ. Each director holds office until the next annual meeting of shareholders or until their successors are elected and qualified. Employment Agreement for Kenneth W. Schilling Effective March 5, 1999, Kenneth W. Schilling and iBIZ entered into an Employment Agreement (the "Agreement"), as amended as of September 8, 1999. Under the Agreement, Mr. Schilling has been retained to act as President and Chief Executive Officer of iBIZ. The Agreement is for a term of two years ending March 4, 2001. Under the Agreement, Mr. Schilling shall receive an annual base salary of $200,000.00. In addition, effective April 22, 1999, Mr. Schilling received two hundred fifty thousand (250,000) options to purchase two hundred fifty thousand (250,000) shares of common stock of iBIZ at an exercise price of $0.75 per share. Two hundred thousand (200,000) options were issued in consideration of Mr. Schilling's services as an officer of 32 36 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 vested on April 22, 2000. An additional 25,000 will vest on April 22, 2001. The Agreement provides that upon total and permanent disability, as defined in the Agreement, iBIZ shall pay Mr. Schilling such benefits as may be provided to officers of iBIZ under any Company provided disability insurance or similar policy or under any iBIZ adopted disability plan. In the absence of such policy or plan, iBIZ shall continue to pay Mr. Schilling for a period of not less than six months the compensation then in effect as of the effective date of his termination. Mr. Schilling may terminate the Agreement upon written notice, within thirty (30) days following the occurrence of an event constituting "Good Reason," as defined below. Upon the termination by Mr. Schilling for Good Reason, Mr. Shilling will be entitled to receive a payment equal to the lesser of: (1) an amount equal to one-half of his annual base salary in effect at the time of termination; or (2) the remaining compensation due to Mr. Schilling under the terms of the Agreement. If Mr. Schilling fails to exercise his rights to terminate the Agreement for Good Reason within thirty (30) days following an event constituting Good Reason, such rights shall expire and be of no further force or effect. "Good Reason" is defined to mean the occurrence of any of the following events without Mr. Schilling's consent: (1) assignment of Mr. Schilling to any duty substantially inconsistent with his position or duties contemplated by the Agreement or a substantial reduction of his duties contemplated by the Agreement; (2) the removal of any titles bestowed under the Agreement; (3) any material breach or failure of iBIZ to carry out the provisions of the Agreement after notice and an opportunity to cure; and (4) the relocation of Mr. Schilling, his corporate office facilities, or personnel outside the Phoenix metropolitan area. 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 November 20, 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 that the individual has the right to acquire within sixty (60) days of November 20, 2000, through 33 37 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 Beneficial Owner Shares Vested Options (1) Total (1) PERCENT (1) - ----------------------------------------------------------------------------------------------------------------------------------- Kenneth W. Schilling(2) 1919 W. Lone Cactus Drive, Phoenix, AZ 85021 -- 225,000 225,000 * Moorea Trust(2) 1919 W. Lone Cactus Drive, Phoenix, AZ 85021 9,710,480 -- 9,710,480 11% Terry S. Ratliff 1919 W. Lone Cactus Drive, Phoenix, AZ 85021 1,771,200 325,000 2,096,200 2% Mark H. Perkins 1919 W. Lone Cactus Drive, Phoenix, AZ 85021 1,771,200 325,000 2,096,200 2% James A. Ratliff 1919 W. Lone Cactus Drive, Phoenix, AZ 85021 -- 500,000 500,000 * All directors and officers as group (6 persons) 13,252,880 1,150,000 14,627,879 17% - ----------------------------------------------------------------------------------------------------------------------------------
(1) Includes options vested on September 25, 2000 and options which will become vested on or before January 1, 2001. "*" means less than one percent. (2) Kenneth and Diane Schilling are husband and wife and hold the shares as trustees under the Moorea Trust dated December 18, 1991. iBIZ Technology Corp. Stock Option Plan The iBIZ Technology Corp. Stock Option Plan (the "Stock Option Plan") provides for the grant of stock options to purchase common stock to eligible directors, officers, key employees, and service providers of iBIZ. The Stock Option Plan covers an aggregate maximum of five million (5,000,000) shares of common stock and provides for the granting of both incentive stock options (as defined in Section 422 of the Internal Revenue Code of 1986, as 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 November 20, 2000, 3,385,000 options ("the Options") had been granted (net of cancelled and exercised) under the plan at exercise prices of $0.53 and $5.00. The Options are granted for a period of one (1) 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 34 38 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 that may not exceed ten (10) years from the date of grant. An optionee may not transfer or assign any option granted and may not exercise any options after a specified period subsequent to the termination of the optionee's employment with iBIZ. The Board may make such amendments to the Stock Option Plan from time to time it deems proper and in the best interests of iBIZ provided it may not take any action which disqualifies any option granted under the Stock Option Plan as an incentive stock option or which adversely effects or impairs the rights of the holder of any option under the Stock Option Plan. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Prior to the Reorganization, INVNSYS operated as a closely-held private corporation. While a private company, INVNSYS made loans totaling $992,037 to Kenneth Schilling. These loans are payable on demand and accrued interest at eight percent (8%) during 1997 and six percent (6%) during 1998 and 1999. As of November 20, 2000, the balance of the loans payable by Mr. Schilling to INVNSYS totaled Four Hundred Thirty-Two Thousand Two Hundred Sixty-Three Dollars and Ninety-One Cents ($432,263.91). Mr. Schilling, as trustee of the Moorea Trust, pledged 500,000 shares of iBIZ common stock to secure this debt. iBIZ leases its facility from Lone Cactus Capital Group, L.L.C., a limited liability company in which Kenneth Schilling is a member. iBIZ secured all of its assets with a lender that loaned Mr. Schilling the money to purchase the facility. iBIZ believes the terms of the lease are at an arms-length fair market rate. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS The Company's common stock is currently traded on the OTC Bulletin Board. The common stock was initially listed under the symbol "EVCV" on June 3, 1998, and trading began on July 16, 1998. On October 26, 1998, the Company changed its trading symbol to "IBIZ." The following charts indicate the high and low sales price for the Company's common stock for each fiscal quarter between October 1, 1999, and September 2000. 1998 - 2000 Common Stock Prices EVCV - iBIZ
--------------------------------------- Price Quarter Ended High LOW --------------------------------------- Dec 99 $2.06 $0.94 Mar 00 $3.19 $0.94 Jun 00 $1.94 $0.75 Sep 00 $1.22 $0.38 ---------------------------------------
As of November 20, 2000, management believes there to be 160 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. 35 39 DESCRIPTION OF SECURITIES General. iBIZ's Articles of Incorporation authorize the issuance of 100,000,000 shares of common stock, $0.001 par value. As of November 20, 2000, there were 37,812,424 shares of common stock outstanding and an aggregate of 6,169,489 options and warrants to purchase common stock, net of cancelled and exercised. Common Stock. Holders of shares of common stock are entitled to one vote for each share of common stock held of record on all matters submitted to a vote of the shareholders. Each share of common stock is entitled to receive dividends as may be declared by the Company's Board of Directors out of funds legally available. Management, however, does not presently intend to pay any dividends. In the event of liquidation, dissolution or winding up of the Company, the holders of common stock are entitled to share ratably in all assets remaining after payment in full of all creditors of the Company and the liquidation preferences of any outstanding shares of preferred stock, if any. There are no redemption or sinking fund provisions applicable to the common stock. Debentures. 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 ("$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. Globe has now converted all of its 7% Debentures into shares of Common Stock. Lites Trading has converted all but $750,000 of its outstanding Debentures into Common Stock. 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 March 27, 2005. iBIZ is obligated to make payments of accrued interest semi-annually and interest 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 (as defined in the Debentures). 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 36 40 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. iBIZ may not, without the prior written consent of Lites, offer or sell, shares of its capital stock or any security or other instrument convertible into or exchangeable for shares of common stock, for the period ending on the earlier of (i) one hundred eighty (180) days after the date on which this registration statement is declared effective by the SEC or (ii) the date on which Lites 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 Lites 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. Lites has a right of first refusal on purchases of additional securities for a period of eighteen (18) months from the date of execution of the $1600k 7% Debentures. So long as the 7% Debentures or warrants issued to Lites 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. Lites has waived certain of these rights so that the most recent financing could be accomplished. Securities Included in this Prospectus. THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE ACTUAL SUBSCRIPTION AGREEMENT ATTACHED HERETO AS EXHIBIT 10.35. General Terms Various individuals and institutions have agreed to purchase an aggregate of $5 million of 8% Convertible Notes (the "Notes"). Of the Notes, the Company has already raised $1 million in principal amount. The remaining $4 million of Notes will be executed and funds received if the Company exercises Puts as described below. The $1 million Note matures on October 30, 2002 and interest only payments are due quarterly commencing January 1, 2001, and the 37 41 principal is due in one lump sum on October 30, 2002. Commencing on October 27, 2000, the initial $1 million was subscribed (the "Initial Offering"). The Company also issued warrants to purchase 1,750,000 shares of Common Stock at an exercise price as calculated below in connection with the financing. The warrants will give the holder the right to purchase common stock for 105% of the average of the three lowest closing bid prices of the Common Stock for the ten (10) trading days preceding the date of the Initial Offering. Other warrants will be issued in connection with the later financings, which will give the holder the right to purchase common stock for 105% of the average of the three lowest closing bid prices of the Common Stock for the ten (10) trading days preceding the date on which the later financings are subscribed (the "Put Purchase"). Subject to meeting certain representations and warranties, an additional $2 million will be received within 30 days after the effective date of this registration statement. The final $2 million will only be received if the Company meets certain minimum trading volume requirements (as described below) in addition to compliance with various representations and warranties. The Conversion Price for all of the Notes is the lesser of (i) 80% of the average of the three lowest closing bid prices of the Common Stock on the Principal Market for the twenty-two (22) trading days prior to the Closing Date, or (ii) 80% of the average of the five lowest closing bid prices of the Common Stock on the Principal Market for the sixty (60) trading days prior to the Conversion Date, as defined in the Note. The maximum share of the Company that any Subscriber may own after conversion at any given time is 4.99%, unless the Subscriber gives 75 days prior notice. A presently indeterminate amount of shares will be allocated pro rata from the shares registered in this Registration Statement to issue certain warrants to the Finders, equal to 12% of the shares to be issued upon conversion of the final $2 million of Notes. The parties have made mutually agreeable standard representations and warranties. The Company has also entered into certain covenants including, but not limited to, the following: (i) the Company may not redeem the Notes without the consent of the holder of the Notes; (ii) the Company will pay to certain finders a cash fee of ten percent (10%) of the principal amount of the Notes for location of the financings; (iii) the Company has agreed to incur certain penalties for untimely delivery of the shares. If the Company cannot deliver the shares for any reason, then the Company must pay in cash 130% of the principal of the Notes which the Subscribers are seeking to convert, with unpaid interest, and the debt will be extinguished. The Company and the Subscriber have mutually agreed to indemnify the other for damages from any misrepresentation, breach of any warranty, and any uncorrected breach of the Subscription Agreement. As compensation to Subscribers for delays in the delivery of shares, the Company will pay late payments to Subscribers in the amount of $100 per business day after the Delivery Date or Mandatory Redemption Payment Date, as the case may be, for each $10,000 of Note principal amount being converted or redeemed. If the Company requests an injunction forbidding conversion, it must post a surety bond for 130% of the amount of the Note until the dispute is resolved. If the Company does not deliver the shares, the Subscriber may buy them on the open market and be reimbursed by the Company. Registration Rights. On or before December 14, 2000, the Company must file a registration statement, which must be effective within 90 days, registering twice as many shares as can reasonably be expected to be issued upon conversion of all the Subscribers' 38 42 securities assuming all of the Notes are converted. The Company must reserve these registered shares for distribution to Subscribers only, and shares for other purchasers (with one exception) may not be registered on the same filing. The filing of this Registration Statement in intended to comply with this covenant. After 120 days, a majority of those holding conversion shares may demand that the Company register any or all conversions shares (including those who did not demand at first, if they later request), at which time the Company must register them. At any time, if the Company is registering other shares, those holding conversion shares have a right to have their shares registered too. If the Company misses the deadlines for filing or effectiveness, or effectiveness significantly lapses, the Subscribers will receive penalty cash payments. Obligation To Purchase; Puts. If the Company so demands, the Subscribers must collectively purchase $4 million worth of additional convertible securities ("Put notes") after the registration statement for the securities has gone effective, if the Company meets the same representations and warranties as required for the initial $1 million Note. The conversion value of first $2 million in Put notes will be computed in the same way as the notes, above, and will mature 2 years from the date of issue. The conversion value of the second $2 million will be 86% of the average of the three lowest closing bid prices of the Common Stock on the principal market on which the shares trade for the 10 trading days prior to the conversion date. The put demand must be made pro rata to the Subscribers as a whole. The Company cannot demand that a Subscriber own more than 4.99% of the Company, purchase more than $4 million in Put notes, or exercise its put rights for more than $1.5 million in any calendar month. During any calendar month, the Company may not exercise Put notes in principal amount of more than 10% of the cash value of the average trading volume in the Company's traded shares that month, EXCEPT DURING THE FIRST 30 DAYS FOLLOWING THE EFFECTIVENESS OF THE REGISTRATION STATEMENT, DURING WHICH TIME THE COMPANY MAY DEMAND SUBSCRIBERS TO PURCHASE THE 2 MILLION OF THE 4 MILLION PUT NOTES. In the event [for any reason except for Subscriber's unwillingness to purchase greater amounts of Put Notes because of the beneficial ownership limitations of Section 11.2(e)(i)] Puts in the aggregate amount of at least $1,000,000 of the Put Note Purchase Prices set forth on the signature pages to the Subscription Agreement entered into in connection with the Initial Offering ("Initial Put Amount") has not been exercised as of the first anniversary of the Effective Date, then the Company will issue Put Warrants to the Warrant Recipients in an amount determined by: subtracting the actual amount of Put Note Principal for which Put Notices have been validly given from the Initial Put Amount (the result being the "Unexercised Put") and issuing Put Warrants to purchase the amount of Common Shares which would have been issued had the Unexercised Put been exercised, the corresponding Put Notes issued, and such Put Notes converted as of the first anniversary of the Closing Date with such date being the Conversion Date of such Put Notes. In the event [for any reason except for Subscriber's unwillingness to purchase greater amounts of Put Notes because of the beneficial ownership limitations of Section 11.2(e)(i)] Puts in the aggregate amount of at least $2,000,000 of the Put Note Purchase 39 43 Prices set forth on the signature pages to the Subscription Agreement entered into in connection with the Initial Offering ("Interim Put Amount") has not been exercised as of the second anniversary of the Effective Date, then the Company will issue Put Warrants to the Warrant Recipients in an amount determined by: subtracting the actual amount of Put Note Principal for which Put Notices have been validly given from the Interim Put Amount (the result being the "Interim Unexercised Put") and issuing Put Warrants to purchase the amount of Common Shares which would have been issued had the Interim Unexercised Put been exercised, the corresponding Put Notes issued, and such Put Notes converted as of the second anniversary of the Closing Date with such being the Conversion Date of such Put Notes. In the event [for any reason except for Subscriber's unwillingness to purchase greater amounts of Put Notes because of the beneficial ownership limitations of Section 11.2(e)(i)] Puts in the aggregate amount of $3,000,000 of the Put Note Purchase Prices set forth on the signature pages to the Subscription Agreement entered into in connection with the Initial Offering ("Final Put Amount") has not been exercised as of the third anniversary of the Effective Date, then the Company will issue Put Warrants to the Warrant Recipients in an amount determined by: subtracting the actual amount of Put Note Principal for which Put Notices have been validly given and the amount of Put Note Principal deemed converted pursuant to the preceding two paragraphs from the Final Put Amount (the result being the "Final Unexercised Put") and issuing Put Warrants to purchase the amount of Common Shares which would have been issued had the Final Unexercised Put been exercised, the corresponding Put Notes issued, such Put Notes converted as of the third anniversary of the Closing Date with such date being the Conversion Date of such Put Notes. The put obligation is assignable, within reason. Except for existing obligations, the Subscribers will have a right of first refusal to purchase Company securities until 180 days after this registration has gone effective or a year (whichever is later). The Company may not sell its securities at any discount below their publicly traded value until at least 180 days from the effective date of this registration statement. Underlying shares of common stock to be received upon the exercise of warrants that are included in this Prospectus are as follows:
- ------------------------------------------------------------------------- Shares(1) Exercise Price Vesting EXPIRATION - ------------------------------------------------------------------------- 500,000 $0.4755 Immediate 5 years 1,500,000 $0.4755 Immediate 5 years 278,750 $0.90 Immediate 3 years
(1) A presently indeterminate amount of shares will be allocated pro rata from the shares registered in this Registration Statement to issue certain warrants to the Finders, equal to 12% of the shares to be issued upon conversion of the final $2 million of Notes. 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, net of cancelled or exercised, 3,385,000 options to employees under the Stock Option Plan. The shares underlying these options have been registered on a registration statement on Form S-8, File No. 333-95475, filed on January 27, 2000. In connection with the 7% Debentures, as of the date of this prospectus, iBIZ has issued to Equinet warrants to purchase 281,250 shares of common stock. The warrants issued to Equinet 40 44 have an exercise price of $0.99 per share, have a term of five years and are immediately exercisable. INDEMNIFICATION FOR SECURITIES ACT LIABILITIES iBIZ's Articles of Incorporation, as amended, provide to the fullest extent permitted by Florida law, a director or officer of iBIZ shall not be personally liable to iBIZ or its shareholders for damages for breach of such director's or officer's fiduciary duty. The effect of this provision of iBIZ's Articles of Incorporation, as amended, is to eliminate the right of iBIZ and its shareholders (through shareholders' derivative suits on behalf of iBIZ) to recover damages against a director or officer for breach of the fiduciary duty of care as a director or officer (including breaches resulting from negligent or grossly negligent behavior), except under certain situations defined by statute. iBIZ believes that the indemnification provisions in its Articles of Incorporation, as amended, are necessary to attract and retain qualified persons as directors and officers. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to its directors, officers and controlling persons pursuant to the foregoing provisions or otherwise, iBIZ has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. EXPERTS The financial statements for iBIZ as of October 31, 1997, 1998 and 1999, included in this prospectus have been audited by Moffitt & Company, P.C., independent public accountants. As indicated in their reports with respect thereto, such statements are herein included in reliance upon the authority of such firm as experts in accounting and auditing in rendering the reports. The unaudited financial estimates were prepared by the Management of the Company, and have not been examined or compiled by independent certified public accountants or counsel. The accountants and legal counsel have not participated in the preparation or review of the financial estimates. Accordingly, the Company's counsel and accountants cannot provide any level of assurance thereon. 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. 41 45 FINANCIAL STATEMENTS INVNSYS TECHNOLOGY CORPORATION FORMERLY KNOWN AS SOUTHWEST FINANCIAL SYSTEMS, INC. FINANCIAL STATEMENTS OCTOBER 31, 1998 AND 1997 F-1 46 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 47 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 48 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 49 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 50 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 51 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 52 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 53 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 54 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 55 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 56 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 57 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 58 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 59 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 60 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 61 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 62 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 63 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 64 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 65 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 66 FINANCIAL STATEMENTS IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 1999 F-22 67 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 68 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 69 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 70 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 71 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 72 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 73
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 74 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 75 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 76 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 77 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 78 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 79 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 80 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 81 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 82 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 83 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 84 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 85 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 86 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 87 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 88 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 89 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 90 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 91 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 2000 AND 1999 F-47 92 TABLE OF CONTENTS
PAGE NO. -------- INDEPENDENT ACCOUNTANTS' REVIEW REPORT .......................... F-49 FINANCIAL STATEMENTS Consolidated Balance Sheets .................................... F-50 - F-51 Consolidated Statements of Operations .......................... F-52 - F-53 Consolidated Statement of Changes in Stockholders' Equity ...... F-54 - F-57 Consolidated Statements of Cash Flows .......................... F-58 - F-59 Notes to Consolidated Financial Statements ..................... F-60 - F-74
F-48 93 MOFFITT & COMPANY, P.C. - -------------------------------------------------------------------------------- CERTIFIED PUBLIC ACCOUNTANTS 5040 East Shea Blvd. Suite 270 Scottsdale, Arizona 85254 (480) 951-1416 Fax (480) 948-3510 moffittcpas@uswest.net 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 July 31, 2000 and 1999, and the related statements of operations for the three and nine months then ended, statement of stockholders' equity as of July 31, 2000 and statements of cash flows for the nine months ended July 31, 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 21, 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. /s/ MOFFITT & COMPANY, P. C. MOFFITT & COMPANY, P. C. SCOTTSDALE, ARIZONA August 25, 2000 F-49 94 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY CONSOLIDATED BALANCE SHEETS JULY 31, 2000 AND 1999 (UNAUDITED) ASSETS
2000 1999 ---------- -------- CURRENT ASSETS Cash and cash equivalents $ 142,461 $ 23,884 Accounts receivable 656,847 187,987 Loan receivable, officer 38,980 0 Inventories 263,036 139,383 Prepaid expenses 492,978 24,122 ---------- -------- TOTAL CURRENT ASSETS 1,594,302 375,376 ---------- -------- PROPERTY AND EQUIPMENT, NET OF ACCUMULATED DEPRECIATION 1,626,205 85,920 ---------- -------- OTHER ASSETS Note receivable, related party 425,876 339,111 Deposits 60,401 17,762 Customer list, net of accumulated amortization 8,924 0 ---------- -------- TOTAL OTHER ASSETS 495,201 356,873 ---------- -------- TOTAL ASSETS 3,715,708 $818,169 ========== ========
F-50 95 LIABILITIES AND STOCKHOLDERS' EQUITY
2000 1999 ---------- ----------- CURRENT LIABILITIES Accounts payable, trade $1,382,594 583,492 Customer deposits 0 109,618 Notes payable, current 4,911 79,668 Accrued liabilities 94,829 29,155 Sales and payroll taxes payable 211,049 107,267 Corporation income taxes payable 19,078 18,666 Deferred income 118,984 91,914 ---------- ----------- TOTAL CURRENT LIABILITIES 1,831,445 1,019,780 ---------- ----------- LONG - TERM LIABILITIES Convertible debentures payable 1,750,000 200,000 Notes payable 16,159 21,256 ---------- ----------- TOTAL LONG - TERM LIABILITIES 1,766,159 221,256 ---------- ----------- STOCKHOLDERS' EQUITY Common stock Authorized - 100,000,000 shares, par value $.001 per shares Issued and outstanding - 31,092,828 shares in 2000 31,093 0 26,571,000 shares in 1999 0 26,571 Paid in capital in excess of par value of stock 4,050,714 952,372 Retained earnings (deficit) (3,963,703) (1,401,810) ---------- ----------- TOTAL STOCKHOLDERS' EQUITY 118,104 (422,867) ---------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,715,708 $ 818,169 ========== ===========
See Accompanying Notes and Independent Accountants' Review Report. F-51 96 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED JULY 31, 2000 AND 1999 (UNAUDITED)
2000 ------------------------------------- THREE MONTHS NINE MONTHS ENDED ENDED July 31, 2000 July 31, 2000 ------------- ------------- SALES $ 1,142,040 $ 3,207,019 COST OF SALES 914,814 2,689,935 ------------ ------------ GROSS PROFIT 277,226 517,084 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 955,483 2,784,039 ------------ ------------ (LOSS) BEFORE OTHER INCOME (EXPENSE) (728,257) (2,266,955) ------------ ------------ OTHER INCOME (EXPENSE) Interest income 13,187 30,160 Interest expense (44,424) (73,645) Miscellaneous income 0 0 Cancellation of debt (12,100) (12,100) ------------ ------------ TOTAL OTHER INCOME (EXPENSE) (43,337) (55,585) ------------ ------------ (LOSS) BEFORE INCOME TAXES (771,594) (2,322,540) INCOME TAXES 0 0 ------------ ------------ NET (LOSS) $ (771,594) $ (2,322,540) ============ ============ NET (LOSS) PER COMMON SHARE Basic and Diluted $ (.03) $ (.08) ============ ============ WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING Basic and diluted 28,741,267 28,741,267 ============ ============
F-52 97
1999 ------------------------------------- THREE MONTHS NINE MONTHS ENDED ENDED JULY 31, 1999 JULY 31, 1999 ------------- ------------- $ 382,495 $ 1,804,064 398,937 1,533,817 ------------ ----------- (16,442) 270,247 375,401 1,168,222 ------------ ----------- (391,843) (897,975) ------------ ----------- 5,012 15,768 (10,738) (35,357) 20,491 20,491 148,033 148,033 ------------ ----------- 162,798 148,935 ------------ ----------- (229,045) (749,040) 0 0 ------------ ----------- $ (229,045) $ (749,040) ============ =========== $ (.01) $ (.03) ============ =========== 26,571,000 26,571,000 ============ ===========
See Accompanying Notes and Independent Accountants' Review Report. F-53 98 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY JULY 31, 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
F-54 99
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
See Accompanying Notes and Independent Accountants' Review Report. F-55 100 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (CONTINUED) JULY 31, 2000 (UNAUDITED)
COMMON STOCK ---------------------- SHARES AMOUNT ---------- -------- JUNE, 2000 - ISSUANCE OF COMMON STOCK FOR SERVICES 150,000 $ 150 JUNE, 2000 - ISSUANCE OF COMMON STOCK FOR SERVICES 362,653 363 JULY, 2000 - ISSUANCE OF COMMON STOCK FOR SERVICES 480,000 480 NET (LOSS) FOR THE NINE MONTHS ENDED JULY 31, 2000 0 0 ---------- -------- BALANCE, JULY 31, 2000 31,092,828 $ 31,093 ========== ========
F-56 101
PAID IN CAPITAL IN EXCESS OF ADVANCES RETAINED PAR VALUE ON STOCK EARNINGS OF STOCK SUBSCRIPTIONS (DEFICIT) ------------ ------------- ------------ $ 131,100 $ 0 $ 0 226,295 0 0 383,520 0 0 0 0 (2,322,540) ------------ ------------- ------------ $ 4,050,714 $ 0 $ (3,963,703) ============ ============= ============
See Accompanying Notes and Independent Accountants' Review Report. F-57 102 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED JULY 31,2000 AND 1999 (UNAUDITED)
2000 1999 ------------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) $ (2,322,540) $ (749,040) Adjustments to reconcile net (loss) to net cash (used) by operating activities Depreciation and amortization 38,643 30,956 Issuance of common stock for interest, services and payroll bonuses 349,532 0 Changes in operating assets and liabilities Accounts receivable (444,547) (32,951) Inventories 5,051 184,014 Prepaid expenses (3,545) 2,878 Deposits 358 2,393 Accounts payable 619,629 (197,323) Customer deposits (115,408) (285,646) Accrued liabilities and taxes 68,905 (44,576) Deferred income 64,022 20,883 ------------- ---------- NET CASH FLOWS (USED) BY OPERATING ACTIVITIES (1,739,900) (1,068,412) ------------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (1,507,284) (40,340) Loans to related parties (108,046) 567,509 Purchase of customer list (11,900) 0 Deposits on property and equipment (44,000) 0 ------------- ---------- NET CASH FLOWS (USED) PROVIDED BY INVESTING ACTIVITIES (1,671,230) 527,169 ------------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Bank overdraft 0 (13,700) Net proceeds from issuance of common stock 394,349 671,406 Proceeds from issuance of convertible debentures 3,200,000 200,000 Changes in notes payable (66,101) (292,779) ------------- ---------- NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES 3,528,248 564,927 ------------- ----------
See Accompanying Notes and Independent Accountants' Review Report. F-58 103 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) FOR THE NINE MONTHS ENDED JULY 31,2000 AND 1999 (UNAUDITED)
2000 1999 ---------- ------- NET INCREASE IN CASH AND CASH EQUIVALENTS $ 117,118 $23,684 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 25,343 200 ---------- ------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 142,461 $23,884 ========== ======= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during year for: Interest $ 78,623 $25,109 ========== ======= 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 $1,486,712 $ 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-59 104 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 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 July 31, 2000, inventories are stated at the lower of cost (determined principally by first-in, first-out method) or cost. At July 31, 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-60 105 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JULY 31, 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 5-10 Years Vehicles 5 Years Leasehold improvements 5 Years Computer software 3 Years
The construction in progress equipment and co-location assets will be depreciated when they are completed and placed in service. 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 basis 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 See Accompanying Notes and Independent Accountants' Review Report. F-61 106 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JULY 31, 2000 (UNAUDITED) NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INCOME TAXES (CONTINUED) 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 (LOSS) PER SHARE The company adopted Statement of Financial Accounting Standards No. 128 that requires the reporting of both basic and diluted (loss) per share. Basic (loss) per share is computed by dividing net (loss) available to common shareowners by the weighted average number of common shares outstanding for the period. Diluted (loss) 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 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 July 31, 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 3 ACCOUNTS RECEIVABLE A summary of accounts receivable and allowance for doubtful accounts is as follows:
2000 1999 --------- --------- Accounts receivable $ 756,847 $ 190,487 Allowance for doubtful accounts 100,000 2,500 --------- --------- $ 656,847 $ 187,987 ========= =========
See Accompanying Notes and Independent Accountants' Review Report. F-62 107 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JULY 31, 2000 (UNAUDITED) NOTE 4 INVENTORIES The inventories at July 31, 2000 are comprised of the following: Finished products $ 183,266 Depot units 15,412 Office 50,855 Parts 319 Demo 11,241 Car stock 1,943 --------- Total inventories $ 263,036 =========
The inventories at July 31, 1999 were computed, in total, by using the gross profit method for determining costs. NOTE 5 PROPERTY AND EQUIPMENT Property and equipment and accumulated depreciation consists of:
2000 1999 ---------- --------- Tooling $ 68,100 $ 68,100 Machinery and equipment 52,266 54,473 Software 117,463 0 Office furniture and equipment 124,452 72,926 Vehicles 39,141 39,141 Construction in progress co-location equipment 469,276 0 Construction in progress co-location (improvements) 882,338 0 Leasehold improvements 23,179 22,047 ---------- --------- 1,776,215 256,687 Less accumulated depreciation (150,010) 170,767 ---------- --------- Total property and equipment $1,626,205 $ 85,920 ========== =========
The depreciation expense for the nine months ended July 31, 2000 and 1999 was $35,667 and $30,956, respectively. NOTE 6 CUSTOMER LIST The customer list and accumulated amortization consists of:
2000 1999 --------- ------- Cost $ 11,900 $ 0 Less accumulated amortization 2,976 0 --------- ------- Total customer list $ 8,924 $ 0 ========= =======
The amortization expense for the nine months ended July 31, 2000 and 1999 was $2,976 and $0, respectively. See Accompanying Notes and Independent Accountants' Review Report. F-63 108 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JULY 31, 2000 (UNAUDITED) NOTE 7 NOTE RECEIVABLE, RELATED PARTY
2000 1999 --------- --------- At July 31, 2000, the related note is $ 425,876 $ 339,111 secured by 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 July 31, 1999, the note was not secured. NOTE 8 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 9 INCOME TAXES
2000 1999 ------------ ---------- (Loss) from continuing operations before income taxes $ (2,322,540) $(749,040) ------------ ---------- 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-64 109 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JULY 31, 2000 (UNAUDITED) NOTE 9 INCOME TAXES (CONTINUED)
DEFERRED TAX ---------------------- ASSETS LIABILITIES ------ ----------- Net operating loss $830,000 $ 0 Accrued expenses and miscellaneous 8,100 0 Tax credit carryforward 38,424 0 Depreciation 0 6,199 -------- -------- Subtotals 876,524 6,199 Valuation allowance 876,524 (6,199) -------- -------- Total deferred taxes $ 0 $ 0 ======== ========
As discussed in Note 21, 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 nine months ended July 31, 2000 and 1999 519,886 176,946 -------- -------- Balance, end of period $876,524 $322,000 ======== ========
NOTE 10 TAX CARRYFORWARD The company has the following tax carryforwards at July 31, 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-65 110 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JULY 31, 2000 (UNAUDITED) NOTE 10 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 11 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 $ 75,000 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. 21,070 25,924 -------- -------- 21,070 100,924 Less: current portion 4,911 79,668 -------- -------- Net long-term debt $ 16,159 $ 21,256 ======== ======== Maturities of long-term debt are as follows: Year ended July 31 2000 $ 0 6,540 2001 6,540 6,540 2002 6,540 6,540 2003 6,540 6,304 2004 1,450 0 -------- -------- $ 21,070 $ 25,924 ======== ========
See Accompanying Notes and Independent Accountants' Review Report. F-66 111 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JULY 31, 2000 (UNAUDITED) NOTE 12 COMMON STOCK PURCHASE WARRANTS AND OPTIONS The company has issued the following common stock purchase warrants at July 31, 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 May 17, 2000 125,000 5 years $ 1.04-5.00 June 16, 2000 150,000 1 year $ 1.50-2.00 --------- 1,967,500 =========
NOTE 13 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: 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.
See Accompanying Notes and Independent Accountants' Review Report. F-67 112 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JULY 31, 2000 (UNAUDITED) NOTE 13 CONVERTIBLE DEBENTURES (CONTINUED)
CURRENT $600,000 DEBENTURE TOTAL PORTION ------------------ ----- ------- 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. $250,000 of debentures were converted into 389,900 shares of common stock. $1,600,000 UNSECURED DEBENTURE On March 27, 2000, the company issued $1,600,000 of $ 1,400,000 $ 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.
See Accompanying Notes and Independent Accountants' Review Report. F-68 113 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JULY 31, 2000 (UNAUDITED) NOTE 13 CONVERTIBLE DEBENTURES (CONTINUED)
CURRENT $600,000 DEBENTURE TOTAL PORTION ------------------ ----- ------- 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 $1,750,000 $ 0 ========== =======
$200,000 of debentures were converted in to 362,653 shares of common stock. NOTE 14 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 in the amount of $943,475 and given a security interest in all of the assets of the company. Future minimum lease payments excluding taxes and expenses, are as follows: July 31, 2000 $ 156,160 July 31, 2001 163,968 July 31, 2002 172,168 July 31, 2003 180,780 July 31, 2004 189,820 November 1, 2004 - December 31, 2024 6,638,500
Rent expense for the nine months ended July 31, 2000 and 1999 is $116,037 and $38,612, respectively. See Accompanying Notes and Independent Accountants' Review Report. F-69 114 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JULY 31, 2000 (UNAUDITED) NOTE 15 ADVERTISING The company expenses all advertising as incurred. For the nine months ended July 31, 2000 and 1999, the company charged to operations $393,747 and $74,555 in advertising costs. NOTE 16 INTEREST The company incurred interest expenses for the nine months ended July 31, 2000 and 1999 of $73,645 and $35,357, respectively. NOTE 17 WARRANTY RESERVE The company established a warranty reserve of $47,921 to cover any potential warranty costs on computer equipment that are not covered by the computer manufacturer's warranty. NOTE 18 RESEARCH AND DEVELOPMENT The company incurred research and development cost for the nine months ended July 31, 2000 and 1999 of $5,224 and $4,693, respectively. NOTE 19 OFFICERS' COMPENSATION At July 31, 2000, officers' compensation was as follows: President and Chief Executive officer $200,000 Vice President/Comptroller 88,000 Vice President/Operations 88,000 Chief Operating Officer 96,200 Vice President/Marketing 75,000 Vice President/Technology 80,000
NOTE 20 EMPLOYEE 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. See Accompanying Notes and Independent Accountants' Review Report. F-70 115 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JULY 31, 2000 (UNAUDITED) NOTE 20 EMPLOYEE STOCK OPTIONS (CONTINUED) A summary of the stock option activity for the nine months ended July 31, 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 (275,000) .75 --------- Balance at end of period 3,315,000 =========
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 $.58 and $0.00, respectively. The per share weighted average remaining life of the options outstanding at July 31, 2000 and 1999 is 7.2 and 0 years, respectively. 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 proforma net income and earnings per share are the same as the historical financial statement presentations. NOTE 21 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 net losses of $2,322,540 for the nine months ended July 31, 2000. NOTE 22 FINANCIAL PROJECT MANAGEMENT AGREEMENTS 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. See Accompanying Notes and Independent Accountants' Review Report. F-71 116 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JULY 31, 2000 (UNAUDITED) NOTE 22 FINANCIAL PROJECT MANAGEMENT AGREEMENTS (CONTINUED) 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. In May 2000, the company entered into a fourteen month agreement with Silverman Heller Associates, to promote financial and corporate communication activities. The project manager will be compensated as follows: 1. A monthly fee of $5,500 beginning on May 17, 2000. 2. In connection with the services the project manager will provide, warrants to purchase 75,000 shares of common stock at the closing price on May 17, 2000 and an additional 50,000 shares at $5.00 per share. These warrants and the shares to be issued upon the exercise of the warrants will vest and be exercisable as of May 17, 2000 and expire five years from the issue date. The warrants will be granted registration rights on the next stock registration within the five-year term. In June 2000, the company entered into a one year agreement with Travis Morgan Securities, to provide financial consulting to facilitate long-range strategic planning and to advise the company on business and or financial matters. The project manager will be compensated as follows: 1. Certificates representing an aggregate of 150,000 shares of common stock. 2. An option 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
3. The project manager will be granted the first right of refusal to participate in any subsequent mergers or acquisitions, registrations, IPOS or secondary offerings. In July 2000, the company entered into an agreement with two individuals, to provide computerized CD-Rom presentations, website services and construction, brochures, trade shows and webcasts on bNet-TV. See Accompanying Notes and Independent Accountants' Review Report. F-72 117 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JULY 31, 2000 (UNAUDITED) NOTE 22 FINANCIAL PROJECT MANAGEMENT AGREEMENTS (CONTINUED) The individuals will be compensated as follows: 1. 80,000 shares of common stock valued at $.80 per share on or before June 15, 2000. 2. 400,000 shares of common stock valued at $.80 per share on or before June 15, 2000. NOTE 23 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 $102,619 in the accounts payable. NOTE 24 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. See Accompanying Notes and Independent Accountants' Review Report. F-73 118 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JULY 31, 2000 (UNAUDITED) NOTE 24 PLAN OF REORGANIZATION AND STOCK EXCHANGE AGREEMENT (CONTINUED) 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 July 31, 1999 (431,732) --------- Net (loss) for the nine months ended July 31, 1999 $(519,995) =========
NOTE 25 UNAUDITED FINANCIAL INFORMATION The accompanying financial information as of July 31, 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-74 119 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 $ 4,333.06 Legal Fees and Expenses $15,000.00 Accounting Fees and Expenses $ 3,000.00 Printing Expenses $10,000.00 Blue Sky Fees and Expenses $ 0.00 ------------------------------------------------------------ TOTAL(1) $32,333.06 ------------------------------------------------------------
1. Except for the SEC registration fee, all fees and expenses are estimates. ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES iBIZ Technology Corp. II-1 120 On July 10, 1998, iBIZ issued 3,000,000 shares of common stock, $0.001 par value, at a sales price of $0.05 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, $0.001 par value, at a sales price of $0.35 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, $0.001 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, $0.001 par value, at a sales price of $0.50 per share and 640,318 shares of common stock, $0.001 par value, at a sales price of $0.35 totaling an aggregate of $1,089,161. iBIZ relied upon Regulation D, Rule 506 promulgated under the Securities Act with respect to these sales. From April 22, 1999 through May 13, 1999, iBIZ issued options to purchase 2,850,000 shares of common stock, $0.001 par value to employees and various consultants. The exercise price of the options is the fair market value on the date of grant, which ranged from $0.75 to $1.00 per share. iBIZ relied upon either Rule 701 or Section 4(2) with respect to the granting of the options. On June 30, 1999, iBIZ issued Two Hundred Thousand Dollars ($200,000.00) of 8% Debentures. The 8% Debentures are due on June 21, 2000, bear interest at eight percent (8%) per annum, and are unsecured. Under the terms of the 8% Debentures, iBIZ is obligated to include the shares issuable upon conversion of the 8% Debentures in this registration statement. Upon the effectiveness of this registration statement, the 8% Debentures shall automatically convert to 300,000 fully paid and nonassessable shares of common stock, $0.001 par value. Effective May 1999, iBIZ issued a warrant entitling the holder to acquire 400,000 shares of common stock, $0.001 par value, at an exercise price of $0.75 per share for the first 300,000 shares and $1.00 per share for the remaining 100,000 shares. II-2 121 In November 1999, iBIZ issued Six Hundred Thousand Dollars ($600,000.00) of 7% Debentures (the "$600k 7% Debentures") to Globe United Holdings, Inc. ("Globe"). Thereafter, in December 1999, iBIZ issued to Globe an additional One Million Dollars ($1,000,000.00) of 7% Debentures (the "$1000k 7% Debentures). On December 6, 1999, Globe converted $200,000 of the $600k 7% Debentures, plus accrued interest to date. Pursuant to the applicable conversion formula, iBIZ issued 300,962 shares of common stock. In connection with the issuance of the $600k 7% Debentures, iBIZ issued a warrant to purchase 100,000 shares of common stock at a purchase price of $0.94 per share. The warrant is immediately exercisable and expires November 9, 2004. In connection with the issuance of the $1000k 7% Debentures, iBIZ issued a warrant to purchase 200,000 shares of common stock at a purchase price of $0.94 per share. The warrant is immediately exercisable and expires December 28, 2004 (collectively the "Warrants). iBIZ relied upon Regulation D, Rule 506 promulgated under the Securities Act with respect to the issuance of the 7% Debentures and the Warrants. On January 7, 2000, iBIZ issued 250,000 shares of common stock, $0.001 par value, at a sales price of $1.10 per share for a total amount of $275,000. iBIZ relied upon Regulation D, Rule 506 promulgated under the Securities Act with respect this sale. On January 10, 2000, iBIZ issued warrants to purchase 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. The warrants have terms of five years and are immediately exercisable. iBIZ relied upon either Section 4(2) or Regulation D, Rule 506 promulgated under the Securities Act with respect to these warrants. 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 June 1, 2000 and June 21, 2000, the $1,600,000 debenture holder converted $200,000 of debentures into 362,653 common shares. On September 6, 2000, and on September 14, 2000, $650,000 of the principal amount of the Debentures was converted into 2,172,247 shares of common stock. 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 II-3 122 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. Between August 1, 2000 and September 25, 2000, the Company issued 3,040,918 shares of Common Stock to 18 different parties at sales prices ranging from $0.30 to $0.55 cents per share for a total amount of approximately $1,050,000. The Company also issued warrants to purchase approximately 805,000 shares of Common Stock at exercise prices ranging from $0.50 to $5.00. iBIZ relied on either Regulation D, Rule 506 or Section 4(2) under the Securities Act with respect to these sales. ITEM 27. 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 5.06(9) 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.
II-4 123 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. 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. 10.33(4) Form of Warrant dated August 30, 2000 (six warrants by and between iBIZ Technology Corp., and various warrant holders) 10.34(3) Form of Warrant dated May 17, 2000 (four warrants by and between iBIZ Technology Corp., and various warrant holders) 10.35(9) Subscription Agreement for Notes Convertible into Common Stock of iBIZ Technology Corp. 10.36(9) Form of 8% Convertible Notes Due Oct. 30, 2002 10.37(9) Funds Escrow Agreement 10.38(9) Form of Warrant dated Oct. 30, 2000. 21.01(1) Subsidiaries of Registrant 23.04(9) 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 September 14, 2000. (8) Incorporated by reference from iBIZ's Form 10-QSB, File No. 027619, filed with the SEC on July 27, 2000. (9) 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: II-5 124 (i) To include any prospectus required by Section 10(a)(3) of the Securities Act; (ii) reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information set forth in this Registration Statement; and (iii) include any additional or changed material information on the plan of distribution. (2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered that 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-6 125 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 November 22, 2000. iBIZ Technology Corp., a Florida Corporation By: /s/ Kenneth W. Schilling ---------------------------------------- Kenneth W. Schilling, President, Director By: /s/ Terry S. Ratliff ---------------------------------------- Terry S. Ratliff, Vice President, Comptroller, Director By: /s/ Mark H. Perkins ---------------------------------------- Mark H. Perkins, Vice President of Operations, Director II-7 126 EXHIBIT INDEX 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 5.06(9) 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.
II-8 127 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. 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. 10.33(4) Form of Warrant dated August 30, 2000 (six warrants by and between iBIZ Technology Corp., and various warrant holders) 10.34(3) Form of Warrant dated May 17, 2000 (four warrants by and between iBIZ Technology Corp., and various warrant holders) 10.35(9) Subscription Agreement for Notes Convertible into Common Stock of iBIZ Technology Corp. 10.36(9) Form of 8% Convertible Notes Due Oct. 30, 2002 10.37(9) Funds Escrow Agreement 10.38(9) Form of Warrant dated Oct. 30, 2000. 21.01(1) Subsidiaries of Registrant 23.04(9) 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 September 14, 2000. (8) Incorporated by reference from iBIZ's Form 10-QSB, File No. 027619, filed with the SEC on July 27, 2000. (9) Filed herewith. II-9 EX-5.06 2 p64237ex5-06.txt EX-5.06 1 Exhibit 5.06 [GAMMAGE & BURNHAM LETTERHEAD] November 22, 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 50,501,750 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-10.35 3 p64237ex10-35.txt EX-10.35 1 EXHIBIT 10.35 SUBSCRIPTION AGREEMENT Dear Subscriber: You (the "Subscriber") hereby agree to purchase, and iBIZ Technology Corp., a Florida corporation (the "Company") hereby agrees to issue and to sell to the Subscriber, 8% Convertible Notes (the "Notes") convertible in accordance with the terms thereof into shares of the Company's $.001 par value common stock (the "Company Shares") for the aggregate consideration as set forth on the signature page hereof ("Purchase Price"). The form of Notes is annexed hereto as Exhibit A. (The Company Shares included in the Securities (as hereinafter defined) are sometimes referred to herein as the "Shares" or "Common Stock"). (The Notes, the Company Shares, Common Stock Purchase Warrants ("Warrants") issuable to the recipients identified on Schedule B hereto, the Common Stock issuable upon exercise of the Warrants, and the Put Securities (as herein defined) are collectively referred to herein as, the "Securities"). Upon acceptance of this Agreement by the Subscriber, the Company shall issue and deliver to the Subscriber the Note against payment, by federal funds (U.S.) wire transfer of the Purchase Price. The aggregate Purchase Price of Notes to be issued to Subscribers purchasing Notes is One Million Dollars ($1,000,000). The aggregate Put Note Purchase Price (as defined in Section 11.1(a) hereof) of Put Notes to be issued to Subscribers purchasing Put Notes is Four Million Dollars ($4,000,000). The following terms and conditions shall apply to this subscription. 1. Subscriber's Representations and Warranties. The Subscriber hereby represents and warrants to and agrees with the Company that: (a) Information on Company. The Subscriber has been furnished with the Company's Form 10-KSB for the year ended October 31, 1999 as filed with the Securities and Exchange Commission (the "Commission") together with all subsequently filed forms 10-QSB, and Forms SB-2 and amendments thereto filed January 11, 2000, January 31, 2000, April 17, 2000, July 28, 2000 and September 25, 2000 (hereinafter referred to as the "Reports"). In addition, the Subscriber has received from the Company such other information concerning its operations, financial condition and other matters as the Subscriber has requested, and considered all factors the Subscriber deems material in deciding on the advisability of investing in the Securities (such information in writing is collectively, the "Other Written Information"). (b) Information on Subscriber. The Subscriber, and if a partnership, limited liability company or any other "pass-through" entity, all of the Subscriber's equity holders are "accredited investors", as such term is defined in Regulation D promulgated by the Commission under the Securities Act of 1933, as amended (the "1933 Act"), is experienced in investments and business matters, has made investments of a speculative nature and has purchased securities of United States publicly-owned companies in private placements in the past and, with its representatives, has such knowledge and experience in financial, tax and other business matters as to enable the Subscriber to utilize the information made available by the Company to evaluate the merits and risks of and to make an informed investment decision with respect to the proposed purchase, which represents a speculative investment. The Subscriber has the authority and is duly and legally qualified to purchase and own the Securities. The Subscriber is able to bear the risk of such investment for an indefinite period and to afford a complete loss thereof. The information set forth on the signature page hereto regarding the Subscriber is accurate. (c) Purchase of Note. On the Closing Date, the Subscriber will purchase the Note for its own account and not with a view to any distribution thereof. (d) Compliance with Securities Act. The Subscriber understands and agrees that the Securities have not been registered under the 1933 Act, by reason of their issuance in a transaction that does not require 1 2 registration under the 1933 Act (based in part on the accuracy of the representations and warranties of Subscriber contained herein), and that such Securities must be held unless a subsequent disposition is registered under the 1933 Act or is exempt from such registration. (e) Company Shares Legend. The Company Shares, and the shares of Common Stock issuable upon the exercise of the Warrants, shall bear the following legend: "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO IBIZ TECHNOLOGY CORP. THAT SUCH REGISTRATION IS NOT REQUIRED." (f) Warrants Legend. The Warrants shall bear the following legend: "THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO IBIZ TECHNOLOGY CORP. THAT SUCH REGISTRATION IS NOT REQUIRED." (g) Note Legend. The Note shall bear the following legend: "THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO IBIZ TECHNOLOGY CORP. THAT SUCH REGISTRATION IS NOT REQUIRED." (h) Communication of Offer. The offer to sell the Securities was directly communicated to the Subscriber. At no time was the Subscriber presented with or solicited by any leaflet, newspaper or magazine article, radio or television advertisement, or any other form of general advertising or solicited or invited to attend a promotional meeting otherwise than in connection and concurrently with such communicated offer. (i) Correctness of Representations. The Subscriber represents that the foregoing representations and warranties are true and correct as of the date hereof and, unless the Subscriber otherwise notifies the Company prior to the Closing Date (as hereinafter defined), shall be true and correct as of the Closing Date. The foregoing representations and warranties shall survive the Closing Date. 2. Company Representations and Warranties. The Company represents and warrants to and agrees with the Subscriber that: (a) Due Incorporation. The Company and each of its subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the respective jurisdictions of their incorporation and have the requisite corporate power to own their properties and to carry on their business as now being conducted. The Company and each of its subsidiaries is duly qualified as a foreign corporation to do business and is in good standing in each jurisdiction where the nature of the business conducted or property owned by it makes such qualification necessary, other than those jurisdictions in which the failure to so qualify would not have a material adverse effect on the business, operations or prospects or condition (financial or otherwise) of the Company. 2 3 (b) Outstanding Stock. All issued and outstanding shares of capital stock of the Company and each of its subsidiaries has been duly authorized and validly issued and are fully paid and non-assessable. (c) Authority; Enforceability. This Agreement has been duly authorized, executed and delivered by the Company and is a valid and binding agreement enforceable in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights generally and to general principles of equity; and the Company has full corporate power and authority necessary to enter into this Agreement and to perform its obligations hereunder and all other agreements entered into by the Company relating hereto. (d) Additional Issuances. As of the Closing Date, there will not be outstanding agreements or preemptive or similar rights affecting the Company's common stock or equity and no outstanding rights, warrants or options to acquire, or instruments convertible into or exchangeable for, or agreements or understandings with respect to the sale or issuance of any shares of common stock or equity of the Company or other equity interest in any of the subsidiaries of the Company, except as described in the Reports or Other Written Information. (e) Consents. As of the Closing Date, no consent, approval, authorization or order of any court, governmental agency or body or arbitrator having jurisdiction over the Company, or any of its affiliates, the NASD, NASDAQ or the Company's Shareholders will be required for execution of this Agreement, and all other agreements entered into by the Company relating thereto, including, without limitation issuance and sale of the Securities, and the performance of the Company's obligations hereunder. (f) No Violation or Conflict. Assuming the representations and warranties of the Subscriber in Paragraph 1 are true and correct and the Subscriber complies with its obligations under this Agreement, neither the issuance and sale of the Securities nor the performance of its obligations under this Agreement and all other agreements entered into by the Company relating thereto by the Company will: (i) violate, conflict with, result in a breach of, or constitute a default (or an event which with the giving of notice or the lapse of time or both would be reasonably likely to constitute a default) under (A) the articles of incorporation, charter or bylaws of the Company or any of its affiliates, (B) to the Company's knowledge, any decree, judgment, order, law, treaty, rule, regulation or determination applicable to the Company or any of its affiliates of any court, governmental agency or body, or arbitrator having jurisdiction over the Company or any of its affiliates or over the properties or assets of the Company or any of its affiliates, (C) the terms of any bond, debenture, note or any other evidence of indebtedness, or any agreement, stock option or other similar plan, indenture, lease, mortgage, deed of trust or other instrument to which the Company or any of its affiliates is a party, by which the Company or any of its affiliates is bound, or to which any of the properties of the Company or any of its affiliates is subject, or (D) the terms of any "lock-up" or similar provision of any underwriting or similar agreement to which the Company, or any of its affiliates is a party; or (ii) result in the creation or imposition of any lien, charge or encumbrance upon the Securities or any of the assets of the Company, or any of its affiliates. (g) The Securities. The Securities upon issuance: (i) are, or will be, free and clear of any security interests, liens, claims or other encumbrances, subject to restrictions upon transfer under the 1933 Act and State laws; 3 4 (ii) have been, or will be, duly and validly authorized and on the date of issuance and on the Closing Date, as hereinafter defined, and the date the Note is converted, and the Warrants are exercised, the Securities will be duly and validly issued, fully paid and nonassessable (and if registered pursuant to the 1933 Act, and resold pursuant to an effective registration statement will be free trading and unrestricted, provided that the Subscriber complies with the Prospectus delivery requirements); (iii) will not have been issued or sold in violation of any preemptive or other similar rights of the holders of any securities of the Company; and (iv) will not subject the holders thereof to personal liability by reason of being such holders. (h) Litigation. There is no pending or, to the best knowledge of the Company, threatened action, suit, proceeding or investigation before any court, governmental agency or body, or arbitrator having jurisdiction over the Company, or any of its affiliates that would affect the execution by the Company or the performance by the Company of its obligations under this Agreement, and all other agreements entered into by the Company relating hereto. (i) Reporting Company. The Company is a publicly-held company whose common stock is registered pursuant to Section 12(g) of the Securities Exchange Act of 1934, as amended (the "1934 Act"). The Company's common stock is trading on the NASD OTC Bulletin Board ("Bulletin Board"). Pursuant to the provisions of the 1934 Act, the Company has timely filed all reports and other materials required to be filed thereunder with the Securities and Exchange Commission during the preceding twelve months. (j) No Market Manipulation. The Company has not taken, and will not take, directly or indirectly, any action designed to, or that might reasonably be expected to, cause or result in stabilization or manipulation of the price of the common stock of the Company to facilitate the sale or resale of the Securities or affect the price at which the Securities may be issued. (k) Information Concerning Company. The Reports and Other Written Information contain all material information relating to the Company and its operations and financial condition as of their respective dates which information is required to be disclosed therein. Since the date of the financial statements included in the Reports, and except as modified in the Other Written Information, there has been no material adverse change in the Company's business, financial condition or affairs not disclosed in the Reports. The Reports and Other Written Information do not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. (l) Dilution. The number of Shares issuable upon conversion of the Note may increase substantially in certain circumstances, including, but not necessarily limited to, the circumstance wherein the trading price of the Common Stock declines prior to conversion of the Note. The Company's executive officers and directors have studied and fully understand the nature of the Securities being sold hereby and recognize that they have a potential dilutive effect. The board of directors of the Company has concluded, in its good faith business judgment, that such issuance is in the best interests of the Company. The Company specifically acknowledges that its obligation to issue the Shares upon conversion of the Note and exercise of the Warrants is binding upon the Company and enforceable, except as otherwise described in this Subscription Agreement or the Note, regardless of the dilution such issuance may have on the ownership interests of other shareholders of the Company. (m) Stop Transfer. The Securities are restricted securities as of the date of this Agreement. The Company will not issue any stop transfer order or other order impeding the sale and delivery of the Securities, except as may be required by federal securities laws. 4 5 (n) Defaults. Neither the Company nor any of its subsidiaries is in violation of its Articles of Incorporation or ByLaws. Neither the Company nor any of its subsidiaries is (i) in default under or in violation of any other material agreement or instrument to which it is a party or by which it or any of its properties are bound or affected, which default or violation would have a material adverse effect on the Company, (ii) in default with respect to any order of any court, arbitrator or governmental body or subject to or party to any order of any court or governmental authority arising out of any action, suit or proceeding under any statute or other law respecting antitrust, monopoly, restraint of trade, unfair competition or similar matters, or (iii) to its knowledge in violation of any statute, rule or regulation of any governmental authority which violation would have a material adverse effect on the Company. (o) No Integrated Offering. Except as described on Schedule 2(o) hereto, neither the Company, nor any of its affiliates, nor any person acting on its or their behalf, has directly or indirectly made any offers or sales of any security or solicited any offers to buy any security under circumstances that would cause the offering of the Securities pursuant to this Agreement to be integrated with prior offerings by the Company for purposes of the 1933 Act or any applicable stockholder approval provisions, including, without limitation, under the rules and regulations of the Bulletin Board, as applicable. Neither the Company nor any of its affiliates or subsidiaries will take any action or steps that would cause the offering of the Securities to be integrated with other offerings. (p) No General Solicitation. Neither the Company, nor any of its affiliates, nor to its knowledge, any person acting on its or their behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D under the Act) in connection with the offer or sale of the Securities. (q) Listing. The Company's Common Stock is listed for trading on the Bulletin Board and satisfies all requirements for the continuation of such listing. The Company has not received any notice that its common stock will be delisted from the Bulletin Board or that the Common Stock does not meet all requirements for the continuation of such listing. (r) No Undisclosed Liabilities. The Company has no liabilities or obligations which are material, individually or in the aggregate, which are not disclosed in the Reports and Other Written Information, other than those incurred in the ordinary course of the Company's businesses since July 31, 2000 and which, individually or in the aggregate, would not reasonably be expected to have a material adverse effect on the Company's financial condition. (s) No Undisclosed Events or Circumstances. Since July 31, 2000, no event or circumstance has occurred or exists with respect to the Company or its businesses, properties, prospects, operations or financial condition, that, under applicable law, rule or regulation, requires public disclosure in the Reports prior to the date hereof by the Company but which has not been disclosed in the Reports. (t) Correctness of Representations. The Company represents that the foregoing representations and warranties are true and correct as of the date hereof in all material respects, will be true and correct as of the Closing Date, and, unless the Company otherwise notifies the Subscriber prior to the Closing Date, shall be true and correct in all material respects as of the Closing Date. The foregoing representations and warranties shall survive the Closing Date. 3. Regulation D Offering. This Offering is being made pursuant to the exemption from the registration provisions of the Securities Act of 1933, as amended, afforded by Rule 506 of Regulation D promulgated thereunder. On the Closing Date, the Company will provide an opinion acceptable to Subscriber from the Company's legal counsel opining on the availability of the Regulation D exemption as it relates to the offer and issuance of the Securities. A form of the legal opinion is annexed hereto as Exhibit C. The Company will provide, at the Company's 5 6 expense, such other legal opinions in the future as are reasonably necessary for the conversion of the Note and exercise of the Warrants. 4. Reissuance of Securities. The Company agrees to reissue certificates representing the Securities without the legends set forth in Sections 1(e) and 1(f) above at such time as (a) the holder thereof is permitted to and disposes of such Securities pursuant to Rule 144(d) and/or Rule 144(k) under the 1933 Act in the opinion of counsel reasonably satisfactory to the Company, or (b) upon resale subject to an effective registration statement after the Securities are registered under the 1933 Act. The Company agrees to cooperate with the Subscriber in connection with all resales pursuant to Rule 144(d) and Rule 144(k) and provide legal opinions necessary to allow such resales provided the Company and its counsel receive all reasonably requested representations from the Subscriber and selling broker, if any. If the Company fails to remove any legend as required by this Section 4 (a "Legend Removal Failure"), then beginning on the tenth (10th) day following such failure, the Company continues to fail to remove such legend, the Company shall pay to each Subscriber or assignee holding shares subject to a Legend Removal Failure an amount equal to one percent (1%) of the Purchase Price of the shares subject to a Legend Removal Failure per day that such failure continues. If during any twelve (12) month period, the Company fails to remove any legend as required by this Section 4 for an aggregate of thirty (30) days, each Subscriber or assignee holding Securities subject to a Legend Removal Failure may, at its option, require the Company to purchase all or any portion of the Securities subject to a Legend Removal Failure held by such Subscriber or assignee at a price per share equal to 120% of the applicable Purchase Price. 5. Redemption. The Company may not redeem the Securities without the consent of the holder of the Securities except as otherwise described herein. 6. Fees/Warrants. (a) The Company shall pay to counsel to the Subscriber its fees, up to a maximum of $35,000 (of which $7,500 has been paid) for services rendered to Subscribers in connection with this Agreement and the other Subscription Agreements for aggregate subscription amounts of up to $1,000,000 (the "Initial Offering"), and aggregate Put Purchase Price (defined in Section 11.1(a) hereto) of $4,000,000, and acting as escrow agent for the Initial Offering. The Company will pay to the Finders identified on Schedule B hereto a cash fee in the amount of: ten percent (10%) of the initial $3,000,000 of Purchase Price and aggregate Put Purchase Price, and set forth on the signature page hereto ("Finder's Fee") and of the actual cash proceeds received by the Company in connection with the exercise of the Warrants issued in connection with the Initial Offering ("Initial Warrants"), and Warrants issuable in connection with the Put ("Put Warrants") ("Warrant Exercise Compensation"); 7% of the following $8,000,000 of such actual cash proceeds; and 5% of all cash proceeds thereafter. Collectively, the Initial Warrants and Put Warrants are referred to herein as Warrants. The Finder's Fee must be paid each Closing Date and Put Closing Date with respect to the Notes issued on such date. The Warrant Exercise Compensation must be paid within ten (10) days of Warrant exercise to the Finders identified on Schedule B hereto. The Finder's Fee and legal fees will be payable out of funds held pursuant to a Funds Escrow Agreement to be entered into by the Company, Subscriber and an Escrow Agent. On the Closing Date, the Company will pay the entity identified on Schedule B hereto, the sum of $2,500 as a non-accountable expense allowance ("Non-Accountable Expense Allowance"). (b) The Company will also issue and deliver to the Warrant Recipients identified on Schedule B hereto, Warrants in the amounts designated on Schedule B hereto in connection with the Initial Offering and exercise of the Put. A form of Warrant is annexed hereto as Exhibit D. The per share "Purchase Price" of Common Stock as defined in the Warrant shall be equal to one hundred and five percent (105%) of the average of the three lowest closing bid prices of the Common Stock for the ten (10) trading days preceding but not including the Closing Date or Put Closing Date, as the case may be, as reported on the NASD OTC Bulletin Board, NASDAQ SmallCap Market, NASDAQ National Market System, American Stock Exchange, or New York Stock Exchange (whichever of the foregoing is at the time the principal trading exchange or market for the Common Stock, the "Principal Market"), or such 6 7 other principal market or exchange where the Common Stock is listed or traded. The Company shall issue common stock purchase warrants in connection with the Section 11.2(e) Put Amount (sometimes referred to herein as "Initial Put Warrants"). The aggregate number of Common Shares purchasable upon exercise of the Initial Put Warrants is set forth on Schedule B hereto. The number of Common Shares issuable upon exercise of the balance of the Put Warrants is equal to 12% of the Common Shares to be issued upon conversion of the final $2,000,000 of Put Notes issued in the aggregate to Subscribers to the Initial Offering. The Initial Warrants must be delivered at the Closing Date. The Put Warrants issuable in connection with the Section 11.2(e) Amount must be issued and delivered no later than the date the corresponding Section 11.2(e) Amount Put Notes are delivered. The remaining Put Warrants must be delivered no later than the Delivery Date (defined in Section 9.1(b) hereof) in relation to the relevant Conversion Date. Failure to timely deliver the Warrant Exercise Compensation, the Warrants or Finder's Fee shall be deemed an Event of Default as defined in Article III of the Note and Put Note. (c) The Finder's Fee and legal fees will be paid to the Finders and attorneys only when, as, and if a corresponding subscription amount is released from escrow to the Company and out of the escrow proceeds. All the representations, covenants, warranties, undertakings, and indemnification, other rights including but not limited to registration rights, and rights in Section 9 hereof, made or granted to or for the benefit of the Subscriber are hereby also made and granted to the Warrant Recipients in respect of the Warrants and Company Shares issuable upon exercise of the Warrants. (d) The holders of the Warrants are granted all the rights, undertakings, remedies, liquidated damages and indemnification granted to the Subscriber in connection with the Note, including but not limited to, the rights and procedures set forth in Section 9 hereof and the registration rights described in Section 10 hereof. 7. Covenants of the Company. The Company covenants and agrees with the Subscriber as follows: (a) The Company will advise the Subscriber, promptly after it receives notice of issuance by the Securities and Exchange Commission, any state securities commission or any other regulatory authority of any stop order or of any order preventing or suspending any offering of any securities of the Company, or of the suspension of the qualification of the Common Stock of the Company for offering or sale in any jurisdiction, or the initiation of any proceeding for any such purpose. (b) The Company shall promptly secure the listing of the Company Shares, and Common Stock issuable upon the exercise of the Warrants upon each national securities exchange, or automated quotation system, if any, upon which shares of Common Stock are then listed (subject to official notice of issuance) and shall maintain such listing so long as any other shares of Common Stock shall be so listed. The Company will maintain the listing of its Common Stock on a Principal Market, and will comply in all respects with the Company's reporting, filing and other obligations under the bylaws or rules of the National Association of Securities Dealers ("NASD") and such exchanges, as applicable. The Company will provide the Subscriber copies of all notices it receives notifying the Company of the threatened and actual delisting of the Common Stock from any Principal Market. (c) The Company shall notify the SEC, NASD and applicable state authorities, in accordance with their requirements, of the transactions contemplated by this Agreement, and shall take all other necessary action and proceedings as may be required and permitted by applicable law, rule and regulation, for the legal and valid issuance of the Securities to the Subscriber and promptly provide copies thereof to Subscriber. (d) Until at least two (2) years after the effectiveness of the Registration Statement on Form SB-2 or such other Registration Statement described in Section 10.1(iv) hereof, the Company will (i) cause its Common Stock to continue to be registered under Sections 12(b) or 12(g) of the Exchange Act, (ii) comply in all respects with its reporting and filing obligations under the Exchange Act, (iii) comply with all reporting requirements that is applicable to 7 8 an issuer with a class of Shares registered pursuant to Section 12(g) of the Exchange Act, and (iv) comply with all requirements related to any registration statement filed pursuant to this Agreement. The Company will not take any action or file any document (whether or not permitted by the Act or the Exchange Act or the rules thereunder) to terminate or suspend such registration or to terminate or suspend its reporting and filing obligations under said Acts until the later of (y) two (2) years after the effective date of the Registration Statement on Form SB-2 or such other Registration Statement described in Section 10.1(iv) hereof, or (z) the sale by the Subscribers and Warrant Recipients of all the Company Shares, Securities and Put Securities issuable by the Company pursuant to this Agreement. Until at least two (2) years after the Warrants have been exercised, the Company will use its commercial best efforts to continue the listing of the Common Stock on the Bulletin Board and will comply in all respects with the Company's reporting, filing and other obligations under the bylaws or rules of the NASD and NASDAQ. (e) The Company undertakes to use the proceeds of the Subscriber's funds for working capital purposes generally, and as may be determined by the Company's Board of Directors, acting in their fiduciary capacity on behalf of the Company, and expenses of this offering. (f) The Company undertakes to reserve pro rata on behalf of each holder of a Note, Put Note or Warrant, from its authorized but unissued Common Stock, at all times that Notes, Put Notes or Warrants remain outstanding, a number of Common Shares equal to not less than 200% of the amount of Common Shares necessary to allow each such holder to be able to convert all such outstanding Notes and Put Notes, at the then applicable Conversion Price and one Common Share for each Common Share issuable upon exercise of the Warrants. 8. Covenants of the Company and Subscriber Regarding Idemnification. (a) The Company agrees to indemnify, hold harmless, reimburse and defend Subscriber, Subscriber's officers, directors, agents, affiliates, control persons, and principal shareholders, against any claim, cost, expense, liability, obligation, loss or damage (including reasonable legal fees) of any nature, incurred by or imposed upon Subscriber or any such person which results, arises out of or is based upon (i) any misrepresentation by Company or breach of any warranty by Company in this Agreement or in any Exhibits or Schedules attached hereto; or (ii) after any applicable notice and/or cure periods, any breach or default in performance by the Company of any covenant or undertaking to be performed by the Company hereunder, or any other agreement entered into by the Company and Subscribers relating hereto. (b) Subscriber agrees to indemnify, hold harmless, reimburse and defend the Company and each of the Company's officers and directors at all times against any claim, cost, expense, liability, obligation, loss or damage (including reasonable legal fees) of any nature, incurred by or imposed upon the Company or any such person which results, arises out of or is based upon (i) any misrepresentation by Subscriber in this Agreement or in any Exhibits or Schedules attached hereto; or (ii) after any applicable notice and/or cure periods, any breach or default in performance by Subscriber of any covenant or undertaking to be performed by Subscriber hereunder, or any other agreement entered into by the Company and Subscribers relating hereto. (c) The procedures set forth in Section 10.6 shall apply to the indemnifications set forth in Sections 8(a) and 8(b) above. 9.1. Conversion of Note. (a) Upon the conversion of the Note or part thereof, the Company shall, at its own cost and expense, take all necessary action (including the issuance of an opinion of counsel) to assure that the Company's transfer agent shall issue stock certificates in the name of Subscriber (or its nominee) or such other persons as designated by 8 9 Subscriber and in such denominations to be specified at conversion representing the number of shares of common stock issuable upon such conversion. The Company warrants that no instructions other than these instructions have been or will be given to the transfer agent of the Company's Common Stock and that the Shares will be unlegended, free-trading, and freely transferable, and will not contain a legend restricting the resale or transferability of the Company Shares provided the Shares are being sold pursuant to an effective registration statement covering the Shares to be sold or are otherwise exempt from registration when sold. (b) Subscriber will give notice of its decision to exercise its right to convert the Note or part thereof by telecopying an executed and completed Notice of Conversion (as defined in the Note) to the Company. The Subscriber will not be required to surrender the Note until the Note has been fully converted or satisfied. Each date on which a Notice of Conversion is telecopied to the Company in accordance with the provisions hereof shall be deemed a Conversion Date. The Company will or cause the transfer agent to transmit the Company's Common Stock certificates representing the Shares issuable upon conversion of the Note (and a Note representing the balance of the Note not so converted, if requested by Subscriber) to the Subscriber via express courier for receipt by such Subscriber within five (5) business days after receipt by the Company of the Notice of Conversion (the "Delivery Date"). To the extent that a Subscriber elects not to surrender a Note for reissuance upon partial payment or conversion, the Subscriber hereby indemnifies the Company against any and all loss or damage attributable to a third-party claim in an amount in excess of the actual amount then due under the Note. (c) The Company understands that a delay in the delivery of the Shares in the form required pursuant to Section 9 hereof, or the Mandatory Redemption Amount described in Section 9.2 hereof, beyond the Delivery Date or Mandatory Redemption Payment Date (as hereinafter defined) could result in economic loss to the Subscriber. As compensation to the Subscriber for such loss, the Company agrees to pay late payments to the Subscriber for late issuance of Shares in the form required pursuant to Section 9 hereof upon Conversion of the Note or late payment of the Mandatory Redemption Amount, in the amount of $100 per business day after the Delivery Date or Mandatory Redemption Payment Date, as the case may be, for each $10,000 of Note principal amount being converted or redeemed. The Company shall pay any payments incurred under this Section in immediately available funds upon demand. Furthermore, in addition to any other remedies which may be available to the Subscriber, in the event that the Company fails for any reason to effect delivery of the Shares by the Delivery Date or make payment by the Mandatory Redemption Payment Date, the Subscriber will be entitled to revoke all or part of the relevant Notice of Conversion or rescind all or part of the notice of Mandatory Redemption by delivery of a notice to such effect to the Company whereupon the Company and the Subscriber shall each be restored to their respective positions immediately prior to the delivery of such notice, except that late payment charges described above shall be payable through the date notice of revocation or rescission is given to the Company. (d) Nothing contained herein or in any document referred to herein or delivered in connection herewith shall be deemed to establish or require the payment of a rate of interest or other charges in excess of the maximum permitted by applicable law. In the event that the rate of interest or dividends required to be paid or other charges hereunder exceed the maximum permitted by such law, any payments in excess of such maximum shall be credited against amounts owed by the Company to the Subscriber and thus refunded to the Company. 9.2. Mandatory Redemption. In the event the Company is prohibited from issuing Shares or fails to timely deliver Shares on a Delivery Date or during the pendency of an Approval Default, or for any reason other than pursuant to the limitations set forth in Section 9.3 hereof, then at the Subscriber's election, the Company must pay to the Subscriber five (5) business days after request by the Subscriber or on the Delivery Date (if requested by the Subscriber) a sum of money determined by multiplying the principal amount of the Note designated by the Subscriber by 130%, together with accrued but unpaid interest thereon ("Mandatory Redemption Payment"). The Mandatory Redemption Payment must be received by the Subscriber on the same date as the Company Shares otherwise deliverable or within five (5) business days after request, whichever is sooner ("Mandatory Redemption Payment Date"). Upon receipt of the 9 10 Mandatory Redemption Payment, the corresponding Note principal and interest will be deemed paid and no longer outstanding. 9.3. Maximum Conversion. The Subscriber shall not be entitled to convert on a Conversion Date that amount of the Note or Put Note in connection with that number of shares of Common Stock which would be in excess of the sum of (i) the number of shares of Common Stock beneficially owned by the Subscriber and its affiliates on a Conversion Date, and (ii) the number of shares of Common Stock issuable upon the conversion of the Note or Put Note with respect to which the determination of this proviso is being made on a Conversion Date, which would result in beneficial ownership by the Subscriber and its affiliates of more than 4.99% of the outstanding shares of Common Stock of the Company on such Conversion Date. For the purposes of the proviso to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13d-3 thereunder. Subject to the foregoing, the Subscriber shall not be limited to aggregate conversions of only 4.99%. The Subscriber may void the conversion limitation described in this Section 9.3 upon 75 days prior notice to the Company. The Subscriber may allocate which of the equity of the Company deemed beneficially owned by the Subscriber shall be included in the 4.99% amount described above and which shall be allocated to the excess above 4.99%. 9.4. Injunction - Posting of Bond. In the event a Subscriber shall elect to convert a Note or part thereof, the Company may not refuse conversion based on any claim that such Subscriber or any one associated or affiliated with such Subscriber has been engaged in any violation of law, or for any other reason, unless, an injunction from a court, on notice, restraining and or enjoining conversion of all or part of said Note or Put Note shall have been sought and obtained and the Company posts a surety bond for the benefit of such Subscriber in the amount of 130% of the amount of the Note or Put Note, which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the dispute and the proceeds of which shall be payable to such Subscriber to the extent it obtains judgment. 9.5. Buy-In. In addition to any other rights available to the Subscriber, if the Company fails to deliver to the Subscriber such shares issuable upon conversion of a Note or Put Note by the Delivery Date and if after the Delivery Date the Subscriber purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by such Subscriber of the Common Stock which the Subscriber anticipated receiving upon such conversion (a "Buy-In"), then the Company shall pay in cash to the Subscriber (in addition to any remedies available to or elected by the Subscriber) the amount by which (A) the Subscriber's total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (B) the aggregate principal and/or interest amount of the Note or Put Note for which such conversion was not timely honored, together with interest thereon at a rate of 15% per annum, accruing until such amount and any accrued interest thereon is paid in full (which amount shall be paid as liquidated damages and not as a penalty). For example, if the Subscriber purchases shares of Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of $10,000 of note principal and/or interest, the Company shall be required to pay the Subscriber $1,000, plus interest. The Subscriber shall provide the Company written notice indicating the amounts payable to the Subscriber in respect of the Buy-In. 10.1. Registration Rights. The Company hereby grants the following registration rights to holders of the Securities. (i) On one occasion, for a period commencing 121 days after the Closing Date, but not later than four years after the Closing Date ("Request Date"), the Company, upon a written request therefor from any record holder or holders of more than 50% of the aggregate of the Company's Shares issued and issuable upon Conversion of the Note and the Put Notes which are actually issued (the Common Stock issued or issuable upon conversion or exercise of the Securities, Put Securities and securities issued or issuable by virtue of ownership of the Securities, and Put Securities, being, the "Registrable Securities"), shall prepare and file with the SEC a registration statement under the Act covering 10 11 the Registrable Securities which are the subject of such request, unless such Registrable Securities are the subject of an effective registration statement. In addition, upon the receipt of such request, the Company shall promptly give written notice to all other record holders of the Registrable Securities that such registration statement is to be filed and shall include in such registration statement Registrable Securities for which it has received written requests within 10 days after the Company gives such written notice. Such other requesting record holders shall be deemed to have exercised their demand registration right under this Section 10.1(i). As a condition precedent to the inclusion of Registrable Securities, the holder thereof shall provide the Company with such information as the Company reasonably requests. The obligation of the Company under this Section 10.1(i) shall be limited to one registration statement. (ii) If the Company at any time proposes to register any of its securities under the Act for sale to the public, whether for its own account or for the account of other security holders or both, except with respect to registration statements on Forms S-4, S-8 or another form not available for registering the Registrable Securities for sale to the public, provided the Registrable Securities are not otherwise registered for resale by the Subscriber or Holder pursuant to an effective registration statement, each such time it will give at least 30 days' prior written notice to the record holder of the Registrable Securities of its intention so to do. Upon the written request of the holder, received by the Company within 30 days after the giving of any such notice by the Company, to register any of the Registrable Securities, the Company will cause such Registrable Securities as to which registration shall have been so requested to be included with the securities to be covered by the registration statement proposed to be filed by the Company, all to the extent required to permit the sale or other disposition of the Registrable Securities so registered by the holder of such Registrable Securities (the "Seller"). In the event that any registration pursuant to this Section 10.1(ii) shall be, in whole or in part, an underwritten public offering of common stock of the Company, the number of shares of Registrable Securities to be included in such an underwriting may be reduced by the managing underwriter if and to the extent that the Company and the underwriter shall reasonably be of the opinion that such inclusion would adversely affect the marketing of the securities to be sold by the Company therein; provided, however, that the Company shall notify the Seller in writing of any such reduction. Notwithstanding the forgoing provisions, or Section 10.4 hereof, the Company may withdraw or delay or suffer a delay of any registration statement referred to in this Section 10.1(ii) without thereby incurring any liability to the Seller. (iii) If, at the time any written request for registration is received by the Company pursuant to Section 10.1(i), the Company has determined to proceed with the actual preparation and filing of a registration statement under the 1933 Act in connection with the proposed offer and sale for cash of any of its securities for the Company's own account, such written request shall be deemed to have been given pursuant to Section 10.1(ii) rather than Section 10.1(i), and the rights of the holders of Registrable Securities covered by such written request shall be governed by Section 10.1(ii). (iv) The Company shall file with the Commission within 45 days of the Closing Date (the "Filing Date"), and use its reasonable commercial efforts to cause to be declared effective a Form SB-2 registration statement (or such other form that it is eligible to use) within 90 days of the Closing Date in order to register the Registrable Securities for resale and distribution under the Act. The registration statement described in this paragraph must be declared effective by the Commission within 90 days of the Closing Date (as defined herein) ("Effective Date"). The Company will register not less than a number of shares of Common Stock in the aforedescribed registration statement that is equal to 200% of the Company Shares issuable at the Conversion Price that would be in effect on the Closing Date or the date of filing of such registration statement (employing the Conversion Price which would result in the greater number of Shares), assuming the conversion of 100% of the Notes and the Put Notes which are issuable, and one share of common stock for each common share issuable upon exercise of the Initial Warrants and Put Warrants which are issuable in connection with the Put, employing the Conversion Price that would result in the greater number of Shares. The Registrable Securities shall be reserved and set aside exclusively for the benefit of the Subscriber and Warrant Recipients, as the case may be, and not issued, employed or reserved for anyone other than the Subscriber and Warrant Recipients. Such registration statement will be promptly amended or additional registration statements will be 11 12 promptly filed by the Company as necessary to register additional Company Shares to allow the public resale of all Common Stock included in and issuable by virtue of the Registrable Securities. No securities of the Company other than the Registrable Securities will be included in the registration statement described in this Section 10.1(iv), except as set forth on Schedule 10.1 hereto. 10.2. Registration Procedures. If and whenever the Company is required by the provisions hereof to effect the registration of any shares of Registrable Securities under the Act, the Company will, as expeditiously as possible: (a) prepare and file with the Commission a registration statement with respect to such securities and use its best efforts to cause such registration statement to become and remain effective for the period of the distribution contemplated thereby (determined as herein provided), and promptly provide to the holders of Registrable Securities copies of all filings and Commission letters of comment; (b) prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective until the latest of: (i) six months after the latest exercise period of the Warrants; (ii) twelve months after the Maturity Date of the Note or Put Note; or (iii) two years after the Closing Date, or Put Closing Date and comply with the provisions of the Act with respect to the disposition of all of the Registrable Securities covered by such registration statement in accordance with the Seller's intended method of disposition set forth in such registration statement for such period; (c) furnish to the Seller, and to each underwriter if any, such number of copies of the registration statement and the prospectus included therein (including each preliminary prospectus) as such persons reasonably may request in order to facilitate the public sale or their disposition of the securities covered by such registration statement; (d) use its best efforts to register or qualify the Seller's Registrable Securities covered by such registration statement under the securities or "blue sky" laws of such jurisdictions as the Seller and in the case of an underwritten public offering, the managing underwriter shall reasonably request, provided, however, that the Company shall not for any such purpose be required to qualify generally to transact business as a foreign corporation in any jurisdiction where it is not so qualified or to consent to general service of process in any such jurisdiction; (e) list the Registrable Securities covered by such registration statement with any securities exchange on which the Common Stock of the Company is then listed; (f) immediately notify the Seller and each underwriter under such registration statement at any time when a prospectus relating thereto is required to be delivered under the Act, of the happening of any event of which the Company has knowledge as a result of which the prospectus contained in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing; (g) make available for inspection by the Seller, any underwriter participating in any distribution pursuant to such registration statement, and any attorney, accountant or other agent retained by the Seller or underwriter, all publicly available, non-confidential financial and other records, pertinent corporate documents and properties of the Company, and cause the Company's officers, directors and employees to supply all publicly available, non-confidential information reasonably requested by the seller, underwriter, attorney, accountant or agent in connection with such registration statement. 12 13 10.3. Provision of Documents. (a) At the request of the Seller, provided a demand for registration has been made pursuant to Section 10.1(i) or a request for registration has been made pursuant to Section 10.1(ii), the Registrable Securities will be included in a registration statement filed pursuant to this Section 10. (b) In connection with each registration hereunder, the Seller will furnish to the Company in writing such information and representation letters with respect to itself and the proposed distribution by it as reasonably shall be necessary in order to assure compliance with federal and applicable state securities laws. In connection with each registration pursuant to Section 10.1(i) or 10.1(ii) covering an underwritten public offering, the Company and the Seller agree to enter into a written agreement with the managing underwriter in such form and containing such provisions as are customary in the securities business for such an arrangement between such underwriter and companies of the Company's size and investment stature. 10.4. Non-Registration Events. The Company and the Subscriber agree that the Seller will suffer damages if any registration statement required under Section 10.1(i) or 10.1(ii) above is not filed within 60 days after written request by the Holder and not declared effective by the Commission within 120 days after such request [or the Filing Date and Effective Date, respectively, in reference to the Registration Statement on Form SB-2 or such other form described in Section 10.1(iv)], and maintained in the manner and within the time periods contemplated by Section 10 hereof, and it would not be feasible to ascertain the extent of such damages with precision. Accordingly, if (i) the Registration Statement described in Sections 10.1(i) or 10.1(ii) is not filed within 60 days of such written request, or is not declared effective by the Commission on or prior to the date that is 120 days after such request, or (ii) the registration statement on Form SB-2 or such other form described in Section 10.1(iv) is not filed on or before the Filing Date or not declared effective on or before the sooner of the Effective Date, or within five days of receipt by the Company of a communication from the Commission that the registration statement described in Section 10.1(iv) will not be reviewed, or (iii) any registration statement described in Sections 10.1(i), 10.1(ii) or 10.1(iv) is filed and declared effective but shall thereafter cease to be effective (without being succeeded immediately by an additional registration statement filed and declared effective) for a period of time which shall exceed 30 days in the aggregate per year but not more than 20 consecutive calendar days (defined as a period of 365 days commencing on the date the Registration Statement is declared effective) (each such event referred to in clauses (i), (ii) and (iii) of this Section 10.4 is referred to herein as a "Non-Registration Event"), then, for so long as such Non-Registration Event shall continue, the Company shall pay in cash as Liquidated Damages to each holder of any Registrable Securities an amount equal to two (2%) percent per month or part thereof during the pendency of such Non-Registration Event, of (i) the principal of the Notes issued in connection with the Initial Offering, whether or not converted; (ii) the principal amount of Put Notes actually issued, whether or not converted, then owned of record by such holder or issuable as of or subsequent to the occurrence of such Non-Registration Event. Payments to be made pursuant to this Section 10.4 shall be due and payable immediately upon demand in immediately available funds. In the event a Mandatory Redemption Payment is demanded from the Company by the Holder pursuant to Section 9.2 of this Subscription Agreement, then the Liquidated Damages described in this Section 10.4 shall no longer accrue on the portion of the Purchase Price underlying the Mandatory Redemption Payment, from and after the date the Holder receives the Mandatory Redemption Payment. After the Filing Date, it shall also be deemed a Non-Registration Event to the extent that an amount less than 130% of the amount of all the Common Stock underlying the Registrable Securities is not included in an effective registration statement as of and after the Effective Date at the Conversion Prices in effect from and after the Effective Date. Except in a No-Review circumstance and provided the Company has filed the registration statement on or before the Filing Date, in the event the registration statement described in Section 10.1(iv) hereof is declared effective on or before 30 days after the Effective Date, Liquidated Damages arising from the Company's failure to obtain effectiveness on or before the Effective Date shall not be payable by the Company, nor shall such non-timely effectiveness be an Event of Default under Article III of the Note in connection only with such default. 13 14 10.5. Expenses. All expenses incurred by the Company in complying with Section 10, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel and independent public accountants for the Company, fees and expenses (including reasonable counsel fees) incurred in connection with complying with state securities or "blue sky" laws, fees of the National Association of Securities Dealers, Inc., transfer taxes, fees of transfer agents and registrars, and costs of insurance are called "Registration Expenses". All underwriting discounts and selling commissions applicable to the sale of Registrable Securities, including any fees and disbursements of any special counsel to the Seller, are called "Selling Expenses". The Seller shall pay the fees of its own additional counsel, if any. The Company will pay all Registration Expenses in connection with the registration statement under Section 10. All Selling Expenses in connection with each registration statement under Section 10 shall be borne by the Seller and may be apportioned among the Sellers in proportion to the number of shares sold by the Seller relative to the number of shares sold under such registration statement or as all Sellers thereunder may agree. 10.6. Indemnification and Contribution. (a) In the event of a registration of any Registrable Securities under the Act pursuant to Section 10, the Company will indemnify and hold harmless the Seller, each officer of the Seller, each director of the Seller, each underwriter of such Registrable Securities thereunder and each other person, if any, who controls such Seller or underwriter within the meaning of the 1933 Act, against any losses, claims, damages or liabilities, joint or several, to which the Seller, or such underwriter or controlling person may become subject under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such Registrable Securities was registered under the Act pursuant to Section 10, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Seller, each such underwriter and each such controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Company shall not be liable to the Seller to the extent that any such damages arise out of or are based upon an untrue statement or omission made in any preliminary prospectus if (i) the Seller failed to send or deliver a copy of the final prospectus delivered by the Company to the Seller with or prior to the delivery of written confirmation of the sale by the Seller to the person asserting the claim from which such damages arise, (ii) the final prospectus would have corrected such untrue statement or alleged untrue statement or such omission or alleged omission, or (iii) to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in conformity with information furnished by any such Seller, or any such controlling person in writing specifically for use in such registration statement or prospectus. (b) In the event of a registration of any of the Registrable Securities under the Act pursuant to Section 10, the Seller will indemnify and hold harmless the Company, and each person, if any, who controls the Company within the meaning of the Act, each officer of the Company who signs the registration statement, each director of the Company, each underwriter and each person who controls any underwriter within the meaning of the Act, against all losses, claims, damages or liabilities, joint or several, to which the Company or such officer, director, underwriter or controlling person may become subject under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the registration statement under which such Registrable Securities were registered under the Act pursuant to Section 10, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Company and each such officer, director, underwriter and controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action, provided, however, 14 15 that the Seller will be liable hereunder in any such case if and only to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with information pertaining to such Seller, as such, furnished in writing to the Company by such Seller specifically for use in such registration statement or prospectus, and provided, further, however, that the liability of the Seller hereunder shall be limited to the gross proceeds received by the Seller from the sale of Registrable Securities covered by such registration statement. (c) Promptly after receipt by an indemnified party hereunder of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party hereunder, notify the indemnifying party in writing thereof, but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to such indemnified party other than under this Section 10.6(c) and shall only relieve it from any liability which it may have to such indemnified party under this Section 10.6(c), except and only if and to the extent the indemnifying party is prejudiced by such omission. In case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate in and, to the extent it shall wish, to assume and undertake the defense thereof with counsel satisfactory to such indemnified party, and, after notice from the indemnifying party to such indemnified party of its election so to assume and undertake the defense thereof, the indemnifying party shall not be liable to such indemnified party under this Section 10.6(c) for any legal expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation and of liaison with counsel so selected, provided, however, that, if the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there may be reasonable defenses available to it which are different from or additional to those available to the indemnifying party or if the interests of the indemnified party reasonably may be deemed to conflict with the interests of the indemnifying party, the indemnified parties shall have the right to select one separate counsel and to assume such legal defenses and otherwise to participate in the defense of such action, with the reasonable expenses and fees of such separate counsel and other expenses related to such participation to be reimbursed by the indemnifying party as incurred. (d) In order to provide for just and equitable contribution in the event of joint liability under the Act in any case in which either (i) the Seller, or any controlling person of the Seller, makes a claim for indemnification pursuant to this Section 10.6 but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that this Section 10.6 provides for indemnification in such case, or (ii) contribution under the Act may be required on the part of the Seller or controlling person of the Seller in circumstances for which indemnification is provided under this Section 10.6; then, and in each such case, the Company and the Seller will contribute to the aggregate losses, claims, damages or liabilities to which they may be subject (after contribution from others) in such proportion so that the Seller is responsible only for the portion represented by the percentage that the public offering price of its securities offered by the registration statement bears to the public offering price of all securities offered by such registration statement, provided, however, that, in any such case, (y) the Seller will not be required to contribute any amount in excess of the public offering price of all such securities offered by it pursuant to such registration statement; and (z) no person or entity guilty of fraudulent misrepresentation (within the meaning of Section 10(f) of the Act) will be entitled to contribution from any person or entity who was not guilty of such fraudulent misrepresentation. 11.1. Obligation To Purchase. (a) The Subscriber agrees to purchase from the Company convertible notes ("Put Notes") in up to the principal amount set forth on the signature page hereto for up to the aggregate amount of Put Note principal ("Put Purchase Price") designated on the signature page hereto (the "Put"). Collectively the Put Notes, Warrants issuable in connection with the Put, and Common Stock issuable upon conversion of the Put Notes and exercise of the Warrants 15 16 are referred to as the "Put Securities".) The Warrants issuable in connection with the Put Notes are referred to herein as Warrants or Put Warrants. Except as described in Section 11.1(c) hereof, each Put Note will be identical to the Note except that the Maturity Date will be two years from each Put Closing Date (as hereinafter defined). The Holders of the Put Securities are granted all the rights, undertakings, remedies, liquidated damages and indemnification granted to the Subscriber in connection with the Note, including but not limited to, the rights and procedures set forth in Section 9 hereof and the registration rights described in Section 10 hereof. (b) The agreement to purchase the Put Notes is contingent on the following any, some or all of which may be waived by the Subscriber: (i) As of a Put Date and Put Closing Date (as hereinafter defined), the Common Shares issuable upon conversion of a Put Note and exercise of Put Warrants must be included in an effective registration statement described in Section 10 hereof. (ii) As of a Put Date and Put Closing Date, the Company will be a reporting company with the class of Shares registered pursuant to Section 12(g) of the Securities Exchange Act of 1934. (iii) No material adverse change in the Company's business or business prospects shall have occurred after the date of the most recent financial statements included in the Reports. Material adverse change is defined as any effect on the business, operations, properties, prospects, or financial condition of the Company that is material and adverse to the Company and its subsidiaries and affiliates, taken as a whole, and/or any condition, circumstance, or situation that would prohibit or otherwise interfere with the ability of the Company to enter into and perform any of its obligations under this Agreement, or any other agreement entered into or to be entered into in connection herewith, in any material respect. There shall not have been a material negative restatement of the Company's financial statements included in the Reports. (iv) An Event of Default as described in Article III of the Note shall not have occurred. (v) The execution and delivery to the Subscriber of a certificate signed by its chief executive officer representing the truth and accuracy of all the Company's representations and warranties contained in this Subscription Agreement as of the Put Date, and Put Closing Date and confirming the undertakings contained herein, and representing the satisfaction of all contingencies and conditions required for the exercise of the Put. (vi) The Company's listing on, and compliance with the listing requirements of the Principal Market. (vii) The Company's not having received notice from the Bulletin Board, or any Principal Market that the Company is not in compliance with the requirements for continued listing. (viii) The execution by the Company and delivery to the Subscriber of all required documents in relation to the Put set forth in Section 11.2 below and such other documents which may be reasonably requested by the Subscriber. (ix) No issuance of an SEC stop trade order. (x) The Company shall have no knowledge that any of the foregoing conditions shall not be true and accurate as of a date fifteen days after a Put Closing Date. 16 17 (c) Subject to the adjustments set forth in the Note, the Conversion Price of the Put Note shall be as follows: (i) The Conversion Price of the initial 50% of the Put Note Purchase Price set forth on the signature page hereto shall be the lesser of (i) 80% of the average of the three lowest closing bid prices of the Common Stock on the Principal Market for the twenty-two (22) trading days prior to the Closing Date, or (ii) 80% of the average of the five lowest closing bid prices of the Common Stock on the Principal Market for the sixty (60) trading days prior to the Conversion Date, as defined in the Note. The Maturity Date of the Put Notes shall be two years from the respective Put Closing Dates. (ii) The Conversion Price of the balance of the Put Note Purchase Price shall be 86% of the average of the three lowest closing bid prices of the Common Stock on the Principal Market for the ten (10) trading days prior to the Conversion Date. 11.2. Exercise of Put. (a) The Company's right to exercise the Put commences on the actual effective date of the registration statement described in Section 10.1(iv) hereof and expires three (3) years after the Effective Date ("Put Exercise Period"). (b) The Put may be exercised by the Company by giving the Subscriber written notice of exercise ("Put Notice") not more often than one time each calendar month during the Put Exercise Period in relation to up to the maximum principal amount of Put Note that the Subscriber has agreed to purchase subject to the limits described in this Agreement. The date a Put Notice is given is a Put Date. Each Put Notice must be accompanied by (i) the officer's certificate described in Section 11.1(b)(v) above; (ii) a legal opinion relating to the Put Securities in form reasonably acceptable to Subscriber substantially similar to the opinion annexed hereto as Exhibit C; (iii) proof of effectiveness of the registration statement described in Section 10 above, together with five copies of the prospectus portion thereof; and (iv) such other documents and certificates reasonably requested by the Subscriber. (c) Unless otherwise agreed to by the Subscribers, Put Notices must be given to all Subscribers in proportion to the amounts agreed to be purchased by all Subscribers undertaking to purchase Put Notes in the Initial Offering. (d) Payment by the Subscriber in relation to a Put Notice relating to a Put must be made within seven (7) business days after receipt of a Put Notice and the items set forth in Section 11.2(b) above. Payment will be made against delivery to the Subscriber or an escrow agent to be agreed upon by the Company and Subscriber, of the Put Securities, and delivery to the Finders of the Put Commissions relating to the Put being exercised which the Company may elect to be paid out of funds deposited with the escrow agent. (e) The Company may exercise the Put subject to the following limitations: (i) The Company may not give the Subscriber a Put Notice in connection with that amount of Put Note which could be converted as of the Put Date into a number of shares of Common Stock which would be in excess of the sum of (y) the number of shares of Common Stock beneficially owned by the Subscriber and its affiliates on such Put Date, and (z) the number of shares of Common Stock issuable upon the conversion of the Put Note with respect to which the determination of this proviso is being made on a Put Date, which would result in beneficial ownership by the Subscriber and its affiliates of more than 4.99% of the outstanding shares of Common Stock of the Company on such Put Date. For the purposes of the proviso to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and 17 18 Regulation 13d-3 thereunder. Subject to the foregoing, the Subscriber shall not be limited to aggregate conversions of only 4.99%. The Subscriber may revoke the restriction described in this paragraph upon 75 days prior notice to the Company. The Subscriber shall have the right to determine which of the equity of the Company deemed beneficially owned by the Subscriber shall be included in the 4.99% described above and which shall be allocated to the excess above 4.99%. (ii) The aggregate amount of all Put Notices to all Subscribers of the Initial Offering may not exceed $4,000,000. The aggregate maximum principal amount of Put Notes for which Put Notices may be given during any calendar month to all Subscribers in the Initial Offering may not exceed ten (10%) of the daily weighted average price of the Common Stock on the Principal Market as reported by Bloomberg Financial using the AQR function for the thirty calendar days prior to but not including the Put Date, multiplied by the reported daily trading volume of the Common Stock for each such day ("Trading Volume Limitation"). The foregoing Trading Volume Limitation notwithstanding and provided all other preconditions to Put exercise are satisfied, the Company may exercise the Put for up to the amount designated on the signature page hereto as "Section 11.2(e) Put Amount" during the first thirty (30) days following the actual effective date of the registration statement described in Section 10.1(iv) hereof. (iii) Anything to the contrary herein notwithstanding, except for the Section 11.2(e) Put Amount, the Company may not exercise the Put for aggregate Put amounts from Investors to the Initial Offering in excess of $1,500,000 during any calendar month. 11.3. Put Finders Fees. The Finders identified on Schedule B hereto shall receive on each Put Closing Date aggregate Finder's Fees as described in Section 6 hereof in connection with the closing of each Put as set forth on Schedule B hereto. Put Finder's Fees shall be payable only in connection with the Put Purchase Price actually paid by a Subscriber. The Put Finder's Fees and reasonable legal fees for counsel to the Subscriber shall be paid at each Put Closing. 11.4. Warrants. (a) The Company shall issue Put Warrants to the Warrant Recipients in the amounts designated on Schedule B hereto and as described in Section 6 of this Subscription Agreement. The Put Warrants will be in the form of Exhibit D hereto. The Put Warrants will be exercisable immediately upon issuance and for five years thereafter. (b) In the event [for any reason except for Subscriber's unwillingness to purchase greater amounts of Put Notes because of the beneficial ownership limitations of Section 11.2(e)(i)] Puts in the aggregate amount of at least $1,000,000 of the Put Note Purchase Prices set forth on the signature pages to the Subscription Agreement entered into in connection with the Initial Offering ("Initial Put Amount") has not been exercised as of the first anniversary of the Effective Date, then the Company will issue Put Warrants to the Warrant Recipients in an amount determined by: subtracting the actual amount of Put Note Principal for which Put Notices have been validly given from the Initial Put Amount (the result being the "Unexercised Put") and issuing Put Warrants to purchase the amount of Common Shares which would have been issued had the Unexercised Put been exercised, the corresponding Put Notes issued, and such Put Notes converted as of the first anniversary of the Closing Date with such date being the Conversion Date of such Put Notes. (c) In the event [for any reason except for Subscriber's unwillingness to purchase greater amounts of Put Notes because of the beneficial ownership limitations of Section 11.2(e)(i)] Puts in the aggregate amount of at least $2,000,000 of the Put Note Purchase Prices set forth on the signature pages to the Subscription Agreement entered into in connection with the Initial Offering ("Interim Put Amount") has not been exercised as of the second anniversary of the Effective Date, then the Company will issue Put Warrants to the Warrant Recipients in an amount 18 19 determined by: subtracting the actual amount of Put Note Principal for which Put Notices have been validly given from the Interim Put Amount (the result being the "Interim Unexercised Put") and issuing Put Warrants to purchase the amount of Common Shares which would have been issued had the Interim Unexercised Put been exercised, the corresponding Put Notes issued, and such Put Notes converted as of the second anniversary of the Closing Date with such being the Conversion Date of such Put Notes. (d) In the event [for any reason except for Subscriber's unwillingness to purchase greater amounts of Put Notes because of the beneficial ownership limitations of Section 11.2(e)(i)] Puts in the aggregate amount of $3,000,000 of the Put Note Purchase Prices set forth on the signature pages to the Subscription Agreement entered into in connection with the Initial Offering ("Final Put Amount") has not been exercised as of the third anniversary of the Effective Date, then the Company will issue Put Warrants to the Warrant Recipients in an amount determined by: subtracting the actual amount of Put Note Principal for which Put Notices have been validly given and the amount of Put Note Principal deemed converted pursuant to Sections 11.4(b) and (c) above from the Final Put Amount (the result being the "Final Unexercised Put") and issuing Put Warrants to purchase the amount of Common Shares which would have been issued had the Final Unexercised Put been exercised, the corresponding Put Notes issued, such Put Notes converted as of the third anniversary of the Closing Date with such date being the Conversion Date of such Put Notes. (f) In the event the Company has properly given a Put Notice and the Subscriber has wrongfully failed to comply with the Put Notice then Put Warrants will not be issuable in connection with such defaulted amounts. (g) Failure to timely pay Finder's Fees, legal fees or deliver any Warrants issuable in connection with the Initial Offering and Put shall be deemed an Event of Default under the Note and a material breach of the Company's obligations hereunder, for which no notice to cure is required. 11.5 Assignment of Put. Anything to the contrary herein notwithstanding, the Subscriber may assign to another party, reasonably acceptable to the Company, either before or after exercise of the Put by the Company, the Subscriber's obligations and right to pay all or some of the Put Purchase Price and receive the corresponding Put Securities. Such assignment must be in writing. The assignment will be effective only if the assignee consents in writing to be bound by all of the Subscriber's obligations to the Company in connection with such assignment. Upon an effective assignment, the assignee will succeed to all of the Subscriber's rights under this Subscription Agreement, and all other agreements relating to the assigned portion of the Put. 11.6 Adjustments. The Conversion Price and amount of Shares issuable upon conversion of the Notes and Put Notes shall be adjusted consistent with customary anti-dilution adjustments. 12. (a) Right of First Refusal. Until the later of 180 days after the actual effective date of the Registration Statement described in Section 10.1(iv) hereof, or one year after the Closing Date, the Subscriber shall be given not less than ten (10) business days prior written notice of any proposed sale by the Company of its common stock or other securities or debt obligations except as disclosed in the Reports or Other Written Information or stock or stock options granted or to be granted in the future pursuant to a stock option plan approved by the Company's shareholders, to employees or directors of the Company (these exceptions hereinafter referred to as the "Excepted Issuances"). The Subscriber shall have the right during the ten (10) business days following the notice to agree to purchase an amount of Company Shares in the same proportion as being purchased in the Initial Offering of those securities proposed to be issued and sold, in accordance with the terms and conditions set forth in the notice of sale. In the event such terms and conditions are modified during the notice period, the Subscriber shall be given prompt notice of such modification and shall have the right during the original notice period or for a period of ten (10) business days following the notice of modification, whichever is longer, to exercise such right. In the event the right of first refusal described in this Section is exercised by the Subscriber and the Company thereby receives net proceeds from such exercise, then commissions and 19 20 fees will be paid by the Company to the Finders in the same amounts as would be payable in connection with the offering described in the notice of sale. (b) Offering Restrictions. Except with respect to securities otherwise disclosed in the Reports or Other Written Information or Excepted Issuances, the Company will not issue any equity, convertible debt or other securities at a price below the lesser of (i) the Conversion Price, or (ii) closing price of the Common Stock on the Principal Market on the date of issuance, conversion and exercise of such offered equity, convertible debt or other securities prior to the expiration of 180 days after the actual effective date of the registration statement described in Section 10.1(iv) above (the "Exclusion Period"). 13. Miscellaneous. (a) Notices. All notices or other communications given or made hereunder shall be in writing and shall be personally delivered or deemed delivered the first business day after being telecopied (provided that a copy is delivered by first class mail) to the party to receive the same at its address set forth below or to such other address as either party shall hereafter give to the other by notice duly made under this Section: (i) if to the Company, to iBIZ Technology Corp., 1919 West Lone Cactus, Phoenix, AZ 85021, telecopier number: (623) 492-9921, with a copy by telecopier only to: Gammage & Burnham, 2 North Central, 18th Floor, Phoenix, AZ 85021, Attn: Stephen Boatwright, Esq., telecopier number: (602) 256-4475, and (ii) if to the Subscriber, to the name, address and telecopy number set forth on the signature page hereto, with a copy by telecopier only to Grushko & Mittman, P.C., 551 Fifth Avenue, Suite 1601, New York, New York 10176, telecopier number: (212) 697-3575. (b) Closing. The consummation of the transactions contemplated herein shall take place at the offices of Grushko & Mittman, P.C., 551 Fifth Avenue, Suite 1601, New York, New York 10176, upon the satisfaction of all conditions to Closing set forth in this Agreement. The closing date shall be the date that subscriber funds representing the net amount due the Company from the Purchase Price are transmitted by wire transfer to the Company (the "Closing Date"). The closing date for the Put shall be the date on which Subscriber funds representing the net amount due the Company from the Put Purchase Price is transmitted to or on behalf of the Company ("Put Closing Date"). (c) Entire Agreement; Assignment. This Agreement represents the entire agreement between the parties hereto with respect to the subject matter hereof and may be amended only by a writing executed by both parties. No right or obligation of either party shall be assigned by that party without prior notice to and the written consent of the other party. (d) Execution. This Agreement may be executed by facsimile transmission, and in counterparts, each of which will be deemed an original. (e) Law Governing this Agreement. This Agreement shall be governed by and construed in accordance with the laws of the State of New York without regard to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated by this Agreement shall be brought only in the state courts of New York or in the federal courts located in the state of New York. Both parties and the individuals executing this Agreement and other agreements on behalf of the Company agree to submit to the jurisdiction of such courts and waive trial by jury. The prevailing party shall be entitled to recover from the other party its reasonable attorney's fees and costs. In the event that any provision of this Agreement or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement. 20 21 (f) Specific Enforcement, Consent to Jurisdiction. The Company and Subscriber acknowledge and agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent or cure breaches of the provisions of this Agreement and to enforce specifically the terms and provisions hereof or thereof, this being in addition to any other remedy to which any of them may be entitled by law or equity. Subject to Section 13(e) hereof, each of the Company and Subscriber hereby waives, and agrees not to assert in any such suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such court, that the suit, action or proceeding is brought in an inconvenient forum or that the venue of the suit, action or proceeding is improper. Nothing in this Section shall affect or limit any right to serve process in any other manner permitted by law. (g) Confidentiality. The Company agrees that it will not disclose publicly or privately the identity of the Subscriber unless expressly agreed to in writing by the Subscriber or only to the extent required by law. (h) Automatic Termination. This Agreement shall automatically terminate without any further action of either party hereto if the Closing shall not have occurred by the tenth (10th) business day following the date this Agreement is accepted by the Subscriber. [THIS SPACE INTENTIONALLY LEFT BLANK] Please acknowledge your acceptance of the foregoing Subscription Agreement by signing and returning a copy to the undersigned whereupon it shall become a binding agreement between us. IBIZ TECHNOLOGY CORP. A Florida Corporation By:_________________________________ Dated: October _____, 2000 Purchase Price: $125,000.00 PUT Put Note Purchase Price (including Section 11.2(e) Put Amount): $500,000.00 Section 11.2(e) Put Amount: $250,000.00 ACCEPTED: Dated as of October ____, 2000 CELESTE TRUST REG. - Subscriber C/o Trevisa-Treuhand-Anstalt 21 22 Landstrasse 8 Furstentums 9496 Balzers, Liechtenstein Fax: 011-431-534-532895 By:______________________________ 22 23 Please acknowledge your acceptance of the foregoing Subscription Agreement by signing and returning a copy to the undersigned whereupon it shall become a binding agreement between us. IBIZ TECHNOLOGY CORP. A Florida Corporation By:_________________________________ Dated: October _____, 2000 Purchase Price: $175,000.00 PUT Put Note Purchase Price (including Section 11.2(e) Put Amount): $700,000.00 Section 11.2(e) Put Amount: $350,000.00 ACCEPTED: Dated as of October ____, 2000 ESQUIRE TRADE & FINANCE, INC. - Subscriber Trident Chambers P.O. Box 146 Road Town, Tortola, B.V.I. Fax: 011-41-41-760-1031 By:______________________________ 23 24 Please acknowledge your acceptance of the foregoing Subscription Agreement by signing and returning a copy to the undersigned whereupon it shall become a binding agreement between us. IBIZ TECHNOLOGY CORP. A Florida Corporation By:_________________________________ Dated: October _____, 2000 Purchase Price: $115,000.00 PUT Put Note Purchase Price (including Section 11.2(e) Put Amount): $460,000.00 Section 11.2(e) Put Amount: $330,000.00 ACCEPTED: Dated as of October ____, 2000 THE KESHET FUND L.P. - Subscriber 135 West 50th Street, Suite 1700 New York, NY 10020 Fax: 212-541-4434 By:______________________________ 24 25 Please acknowledge your acceptance of the foregoing Subscription Agreement by signing and returning a copy to the undersigned whereupon it shall become a binding agreement between us. IBIZ TECHNOLOGY CORP. A Florida Corporation By:_________________________________ Dated: October _____, 2000 Purchase Price: $460,000.00 PUT Put Note Purchase Price (including Section 11.2(e) Put Amount): $1,840,000.00 Section 11.2(e) Put Amount: $920,000.00 ACCEPTED: Dated as of October ____, 2000 KESHET, L.P.- Subscriber Ragnall House, 18 Peel Road Douglas, Isle of Man 1M1 4L2, United Kingdom Fax: 011-44-1624-661594 By:______________________________ 25 26 Please acknowledge your acceptance of the foregoing Subscription Agreement by signing and returning a copy to the undersigned whereupon it shall become a binding agreement between us. IBIZ TECHNOLOGY CORP. A Florida Corporation By:_________________________________ Dated: October _____, 2000 Purchase Price: $125,000.00 PUT Put Note Purchase Price (including Section 11.2(e) Put Amount): $500,000.00 Section 11.2(e) Put Amount: $250,000.00 ACCEPTED: Dated as of October ____, 2000 TALBIYA B. INVESTMENTS LTD. - Subscriber Ragnall House, 18 Peel Road Douglas, Isle of Man 1M1 4L2, United Kingdom Fax: 011-44-1624-661594 By:______________________________ 26 27 SCHEDULE B TO SUBSCRIPTION AGREEMENT
- ------------------------------------------------------------------------------------------------ FINDERS INITIAL OFFERING - PUT CASH FINDER'S PUT CASH FINDER'S CASH FINDER'S FEES FEES 11.2(e) FEES - PROPORTION OF PUT AMOUNT PUT CASH FINDER'S FEES - ------------------------------------------------------------------------------------------------ LIBRA FINANCE S.A. $15,000 $30,000 (50% of 50% of Put Cash P.O. Box 4603 Finder's Fees Finder's Fees Zurich, Switzerland payable in payable in Fax: 011-411-201-6262 connection with connection with investment by investment by Celeste Trust Reg. Celeste Trust Reg. and Esquire Trade & and Esquire Trade & Finance Inc.) Finance Inc. - ------------------------------------------------------------------------------------------------ ALON ENTERPRISES LTD. $85,000 $170,000 (Balance of Balance of Put Cash Ragnall House, 18 Peel Road Cash Finder's Fees) Finder's Fees Douglas, Isle of Man 1M1 4L2, United Kingdom Fax: 011-44-1624-661594 - ------------------------------------------------------------------------------------------------ TOTAL $100,000 (100%) $200,000 (100%) - ------------------------------------------------------------------------------------------------
PROPORTIONATE SHARE OF AGGREGATE WARRANTS ISSUABLE
- ------------------------------------------------------------------------------------------------------------- WARRANT RECIPIENTS INITIAL WARRANTS PUT WARRANTS IN CONNECTION WITH PUT WARRANTS ** INITIAL $1,000,000 OF AGGREGATE PUT FUNDS * ("INITIAL WARRANTS") - ------------------------------------------------------------------------------------------------------------- TALBIYA B. INVESTMENTS LTD. 175,000 175,000 Warrants issuable in Put Warrants issuable in Ragnall House, 18 Peel Road connection with investments by connection with Douglas, Isle of Man The Keshet Fund L.P. and Keshet investments by The Keshet 1M1 4L2, United Kingdom L.P. Fund L.P. and Keshet L.P. Fax: 011-44-1624-661594 - ------------------------------------------------------------------------------------------------------------- LIBRA FINANCE S.A. 75,000 75,000 Warrants issuable in Put Warrants issuable in P.O. Box 4603 connection with investments by connection with Zurich, Switzerland Celeste Trust Reg. and Esquire investments by Celeste Fax: 011-411-201-6262 Trade & Finance Inc. Trust Reg. and Esquire Trade & Finance Inc. - ------------------------------------------------------------------------------------------------------------- TOTAL 250,000 250,000 100% - -------------------------------------------------------------------------------------------------------------
* Warrants to purchase 1,500,000 Common Shares will be issued pro rata in connection with the $1,000,000 Initial Offering and $2,000,000 Section 11.2(e) Put Amounts, payable in the aggregate by all Subscribers to the Initial Offering. 27 28 ** This column describes the Put Warrants issuable in connection with the final $2,000,000 of Put Purchase Price. WARRANT EXERCISE COMPENSATION
- ------------------------------------------------------------------------------ FINDERS PROPORTIONATE SHARE OF CASH COMMISSIONS PAYABLE ON WARRANT EXERCISE - ------------------------------------------------------------------------------ LIBRA FINANCE S.A. 50% of Cash Commissions payable in connection P.O. Box 4603 with investments by Celeste Trust Reg. and Zurich, Switzerland Esquire Trade & Finance Inc. Fax: 011-411-201-6262 - ------------------------------------------------------------------------------ ALON ENTERPRISES LTD. Balance of Commissions Ragnall House, 18 Peel Road Douglas, Isle of Man 1M1 4L2, United Kingdom Fax: 011-44-1624-661594 - ------------------------------------------------------------------------------ TOTAL 100% - ------------------------------------------------------------------------------
Recipient of $2,500 Non-Accountable Expense Allowance described in Section 6(a): KCM LLC. 28 EX-10.36 4 p64237ex10-36.txt EX-10.36 1 Exhibit 10.36 THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO IBIZ TECHNOLOGY CORP. THAT SUCH REGISTRATION IS NOT REQUIRED. CONVERTIBLE NOTE FOR VALUE RECEIVED, IBIZ TECHNOLOGY CORP., a Florida corporation (hereinafter called "Borrower"), hereby promises to pay to ___, [address], Fax No.___ (the "Holder") or order, without demand, the sum of ___ (___), with simple interest accruing at the annual rate of 8%, on October 30, 2002 (the "Maturity Date"). The following terms shall apply to this Note: ARTICLE I DEFAULT RELATED PROVISIONS 1.1 Payment Grace Period. The Borrower shall have a fifteen (15) day grace period to pay any monetary amounts due under this Note, after which grace period a default interest rate of 20% per annum shall apply to the amounts owed hereunder. 1.2 Conversion Privileges. The Conversion Privileges set forth in Article II shall remain in full force and effect immediately from the date hereof and until the Note is paid in full. 1.3 Interest Rate. Subject to the Holder's right to convert, interest payable on this Note shall accrue at the annual rate of eight percent (8%) and be payable quarterly commencing January 1, 2001, and on the Maturity Date, accelerated or otherwise, when the principal and remaining accrued but unpaid interest shall be due and payable, or sooner as described below. ARTICLE II CONVERSION RIGHTS The Holder shall have the right to convert the principal amount and interest due under this Note into Shares of the Borrower's Common Stock as set forth below. 2.1. Conversion into the Borrower's Common Stock. (a) The Holder shall have the right from and after the issuance of this Note and then at any time until this Note is fully paid, to convert any outstanding and unpaid principal portion of this Note, and/or at the Holder's election, the interest accrued on the Note, (the date of giving of such notice of conversion being a "Conversion Date") into fully paid and nonassessable shares of common stock of Borrower as such stock exists on the date of issuance of this Note, or any shares of capital stock of Borrower into which such 2 stock shall hereafter be changed or reclassified (the "Common Stock") at the conversion price as defined in Section 2.1(b) hereof (the "Conversion Price"), determined as provided herein. Upon delivery to the Company of a Notice of Conversion as described in Section 9 of the subscription agreement entered into between the Company and Holder relating to this Note (the "Subscription Agreement") of the Holder's written request for conversion, Borrower shall issue and deliver to the Holder within five business days from the Conversion Date that number of shares of Common Stock for the portion of the Note converted in accordance with the foregoing. At the election of the Holder, the Company will deliver accrued but unpaid interest on the Note through the Conversion Date directly to the Holder on or before the Delivery Date (as defined in the Subscription Agreement). The number of shares of Common Stock to be issued upon each conversion of this Note shall be determined by dividing that portion of the principal (and interest, at the election of the Holder) of the Note to be converted, by the Conversion Price. (b) Subject to adjustment as provided in Section 2.1(c) hereof, the Conversion Price per share shall be the lower of (i) eighty (80%) of the average of the three lowest closing bid prices for the Common Stock on the NASD OTC Bulletin Board, NASDAQ SmallCap Market, NASDAQ National Market System, American Stock Exchange, or New York Stock Exchange (whichever of the foregoing is at the time the principal trading exchange or market for the Common Stock, the "Principal Market"), or if not then trading on a Principal Market, such other principal market or exchange where the Common Stock is listed or traded for the twenty-two (22) trading days prior to but not including the issue date of this Note ("Maximum Base Price"); or (ii) eighty percent (80%) percent of the average of the three lowest closing bid prices for the Common Stock on the Principal Market, or on any securities exchange or other securities market on which the Common Stock is then being listed or traded, for the sixty (60) trading days prior to but not including the Conversion Date. (c) The Maximum Base Price described in Section 2.1(b)(i) above and number and kind of shares or other securities to be issued upon conversion determined pursuant to Section 2.1(a) and 2.1(b), shall be subject to adjustment from time to time upon the happening of certain events while this conversion right remains outstanding, as follows: A. Merger, Sale of Assets, etc. If the Borrower at any time shall consolidate with or merge into or sell or convey all or substantially all its assets to any other corporation, this Note, as to the unpaid principal portion thereof and accrued interest thereon, shall thereafter be deemed to evidence the right to purchase such number and kind of shares or other securities and property as would have been issuable or distributable on account of such consolidation, merger, sale or conveyance, upon or with respect to the securities subject to the conversion or purchase right immediately prior to such consolidation, merger, sale or conveyance. The foregoing provision shall similarly apply to successive transactions of a similar nature by any such successor or purchaser. Without limiting the generality of the foregoing, the anti-dilution provisions of this Section shall apply to such securities of such successor or purchaser after any such consolidation, merger, sale or conveyance. B. Reclassification, etc. If the Borrower at any time shall, by reclassification or otherwise, change the Common Stock into the same or a different number of securities of any class or classes, this Note, as to the unpaid principal portion thereof and accrued interest thereon, shall thereafter be deemed to evidence the right to purchase such number and kind of securities as would have been issuable as the result of such change with respect to the Common Stock immediately prior to such reclassification or other change. C. Stock Splits, Combinations and Dividends. If the shares of Common Stock are subdivided or combined into a greater or smaller number of shares of Common Stock, or if a dividend is 2 3 paid on the Common Stock in shares of Common Stock, the Conversion Price shall be proportionately reduced in case of subdivision of shares or stock dividend or proportionately increased in the case of combination of shares, in each such case by the ratio which the total number of shares of Common Stock outstanding immediately after such event bears to the total number of shares of Common Stock outstanding immediately prior to such event. D. Share Issuance. Subject to the provisions of this Section, if the Borrower at any time shall issue any shares of Common Stock prior to the conversion of the entire principal amount of the Note (otherwise than as: (i) provided in Sections 2.1(c)A, 2.1(c)B or 2.1(c)C or this subparagraph D; (ii) pursuant to options, warrants, or other obligations to issue shares, outstanding on the date hereof as described in the Reports and Other Written Information, as such terms are defined in the Subscription Agreement (which agreement is incorporated herein by this reference); or (iii) Excepted Issuances, as defined in Section 12(a) of the Subscription Agreement; [(i), (ii) and (iii) above, are hereinafter referred to as the "Existing Option Obligations"] for a consideration less than the Conversion Price that would be in effect at the time of such issue, then, and thereafter successively upon each such issue, the Conversion Price shall be reduced as follows: (i) the number of shares of Common Stock outstanding immediately prior to such issue shall be multiplied by the Conversion Price in effect at the time of such issue and the product shall be added to the aggregate consideration, if any, received by the Borrower upon such issue of additional shares of Common Stock; and (ii) the sum so obtained shall be divided by the number of shares of Common Stock outstanding immediately after such issue. The resulting quotient shall be the adjusted conversion price. Except for the Existing Option Obligations, for purposes of this adjustment, the issuance of any security of the Borrower carrying the right to convert such security into shares of Common Stock or of any warrant, right or option to purchase Common Stock shall result in an adjustment to the Conversion Price upon the issuance of shares of Common Stock upon exercise of such conversion or purchase rights. (d) During the period the conversion right exists, Borrower will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of Common Stock upon the full conversion of this Note. Borrower represents that upon issuance, such shares will be duly and validly issued, fully paid and non-assessable. Borrower agrees that its issuance of this Note shall constitute full authority to its officers, agents, and transfer agents who are charged with the duty of executing and issuing stock certificates to execute and issue the necessary certificates for shares of Common Stock upon the conversion of this Note. 2.2 Method of Conversion. This Note may be converted by the Holder in whole or in part as described in Section 2.1(a) hereof and the Subscription Agreement. Upon partial conversion of this Note, a new Note containing the same date and provisions of this Note shall be issued by the Borrower to the Holder for the principal balance of this Note and interest which shall not have been converted or paid. ARTICLE III EVENT OF DEFAULT The occurrence of any of the following events of default ("Event of Default") shall, at the option of the Holder hereof, make all sums of principal and interest then remaining unpaid hereon and all other amounts payable hereunder immediately due and payable, all without demand, presentment or notice, or grace period, all of which hereby are expressly waived, except as set forth below: 3 4 3.1 Failure to Pay Principal or Interest. The Borrower fails to pay any installment of principal or interest hereon when due and such failure continues for a period of ten (10) days after the due date and any applicable grace period. 3.2 Breach of Covenant. The Borrower breaches any material covenant or other term or condition of this Note in any material respect and such breach, if subject to cure, continues for a period of ten (10) days after written notice to the Borrower from the Holder. 3.3 Breach of Representations and Warranties. Any material representation or warranty of the Borrower made herein, in the Subscription Agreement entered into by the Holder and Borrower in connection with this Note, or in any agreement, statement or certificate given in writing pursuant hereto or in connection therewith shall be false or misleading in any material respect. 3.4 Receiver or Trustee. The Borrower shall make an assignment for the benefit of creditors, or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business; or such a receiver or trustee shall otherwise be appointed. 3.5 Judgments. Any money judgment, writ or similar final process shall be entered or filed against Borrower or any of its property or other assets for more than $100,000, and shall remain unvacated, unbonded or unstayed for a period of forty-five (45) days. 3.6 Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings or relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Borrower and if instituted against Borrower are not dismissed within 45 days of initiation. 3.7 Delisting. Delisting of the Common Stock from the Principal Market or such other principal exchange on which the Common Stock is listed for trading unless such delisting is followed within three trading days by a listing on the NASDAQ SmallCap Market or NASD OTC Bulletin Board; Borrower's failure to comply with the conditions for listing; or notification that the Borrower is not in compliance with the conditions for such continued listing. 3.8 Concession. A concession by the Borrower, which does not include a settlement, after applicable notice and cure periods, under any one or more obligations in an aggregate monetary amount in excess of $200,000. 3.9 Stop Trade. An SEC stop trade order or Principal Market trading suspension which is in effect for more than five trading days. 3.10 Failure to Deliver Common Stock or Replacement Note. Borrower's failure to timely deliver Common Stock to the Holder pursuant to and in the form required by this Note and Section 9 of the Subscription Agreement, or if required a replacement Note. 3.11 Registration Default. The occurrence of a Non-Registration Event as described in Section 10.4 of the Subscription Agreement. 4 5 ARTICLE IV MISCELLANEOUS 4.1 Failure or Indulgence Not Waiver. No failure or delay on the part of Holder hereof in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. All rights and remedies existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available. 4.2 Notices. Any notice herein required or permitted to be given shall be in writing and may be personally served or sent by fax transmission (with copy sent by regular, certified or registered mail or by overnight courier). For the purposes hereof, the address and fax number of the Holder is as set forth on the first page hereof. The address and fax number of the Borrower shall be iBIZ Technology Corp., 1919 West Lone Cactus, Phoenix, AZ 85021, telecopier number: (623) 492-9921. Both Holder and Borrower may change the address and fax number for service by service of notice to the other as herein provided. Notice of Conversion shall be deemed given when made to the Company pursuant to the Subscription Agreement. 4.3 Amendment Provision. The term "Note" and all reference thereto, as used throughout this instrument, shall mean this instrument as originally executed, or if later amended or supplemented, then as so amended or supplemented. 4.4 Assignability. This Note shall be binding upon the Borrower and its successors and assigns, and shall inure to the benefit of the Holder and its successors and assigns, and may be assigned by the Holder. 4.5 Cost of Collection. If default is made in the payment of this Note, Borrower shall pay the Holder hereof reasonable costs of collection, including reasonable attorneys' fees. 4.6 Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of New York. Any action brought by either party against the other concerning the transactions contemplated by this Agreement shall be brought only in the state courts of New York or in the federal courts located in the state of New York. Both parties and the individual signing this Agreement on behalf of the Borrower agree to submit to the jurisdiction of such courts. The prevailing party shall be entitled to recover from the other party its reasonable attorney's fees and costs. 4.7 Maximum Payments. Nothing contained herein shall be deemed to establish or require the payment of a rate of interest or other charges in excess of the maximum permitted by applicable law. In the event that the rate of interest required to be paid or other charges hereunder exceed the maximum permitted by such law, any payments in excess of such maximum shall be credited against amounts owed by the Borrower to the Holder and thus refunded to the Borrower. 4.8 Prepayment. This Note may not be paid prior to the Maturity Date without the consent of the Holder. 5 6 IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by its Chief Executive Officer on this _____ day of October, 2000. IBIZ TECHNOLOGY CORP. By: ------------------- WITNESS: - ------------------- 6 7 NOTICE OF CONVERSION (To be executed by the Registered Holder in order to convert the Note) The undersigned hereby elects to convert $_________ of the principal and $_________ of the interest due on the Note issued by IBIZ TECHNOLOGY CORP. on October ____, 2000 into Shares of Common Stock of IBIZ TECHNOLOGY CORP. (the "Company") according to the conditions set forth in such Note, as of the date written below. Date of Conversion:____________________________________________________________ Conversion Price:______________________________________________________________ Shares To Be Delivered:________________________________________________________ Signature:_____________________________________________________________________ Print Name:____________________________________________________________________ Address:_______________________________________________________________________ _______________________________________________________________________ EX-10.37 5 p64237ex10-37.txt EX-10.37 1 Exhibit 10.37 FUNDS ESCROW AGREEMENT This Agreement is dated as of the 30th day of October, 2000 among iBIZ Technology, Corp., a Florida corporation (the "Company"), the Subscribers identified on Schedule A hereto ("Subscriber" or "Subscribers"), and Grushko & Mittman, P.C. (the "Escrow Agent"): W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Company and Subscriber have entered into a Subscription Agreement ("Subscription Agreement") calling for the sale by the Company to the Subscribers of Convertible Notes ("Notes") and issuance of Common Stock Purchase Warrants ("Warrants") to certain Warrant Recipients, in the aggregate principal amounts and in the denominations set forth on Schedule A hereto; and WHEREAS, the parties hereto require the Company to deliver the Notes against payment therefor, with such Notes and payment to be delivered to the Escrow Agent to be held in escrow and released by the Escrow Agent in accordance with the terms and conditions of this Agreement; and WHEREAS, the Escrow Agent is willing to serve as escrow agent pursuant to the terms and conditions of this Agreement; NOW THEREFORE, the parties agree as follows: ARTICLE I INTERPRETATION 1.1. Definitions. Whenever used in this Agreement, the following terms shall have the following respective meanings: (a) "Agreement" means this Agreement and all amendments made hereto and thereto by written agreement between the parties; (b) "Notes" means convertible Notes of the Company issued to the Subscribers in the aggregate amount of up to $1,000,000 in the form of Exhibit A annexed to the Subscription Agreement. (c) "Escrowed Payment" means the sums set forth on Schedule A hereto. (d) "Subscription Agreement" means the Subscription Agreement to be entered into by the parties in reference to the Notes and the exhibits thereto. (e) "Legal Opinion" means the original signed legal opinion referred to in Section 3 of the Subscription Agreement. (f) "Warrants" means the common stock purchase warrants of the Company described in Section 6 of the Subscription Agreement and set forth on Schedule A hereto. (g) "Finder's Fee" means the fees to be paid to the Finders as described in Section 6 of the Subscription Agreement and set forth on Schedule A hereto. 2 (h) "Non-Accountable Expense Allowance" means the $2,500 Non-Accountable Expense Allowance to be paid to the entity identified on Schedule A hereto. (i) Collectively, the Subscription Agreement, Legal Opinion, Warrants and Finder's Fee are referred to as "Company Documents." (j) Collectively, the Escrowed Payment and Subscription Agreement without exhibits thereto are referred to as "Subscriber Documents." 1.2. Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto pertaining to the Company Documents and Subscriber Documents and supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written, of the parties. There are no warranties, representations and other agreements made by the parties in connection with the subject matter hereof except as specifically set forth in this Agreement. 1.3. Extended Meanings. In this Agreement words importing the singular number include the plural and vice versa; words importing the masculine gender include the feminine and neuter genders. The word "person" includes an individual, body corporate, partnership, trustee or trust or unincorporated association, executor, administrator or legal representative. 1.4. Waivers and Amendments. This Agreement may be amended, modified, superseded, cancelled, renewed or extended, and the terms and conditions hereof may be waived, only by a written instrument signed by all parties, or, in the case of a waiver, by the party waiving compliance. Except as expressly stated herein, no delay on the part of any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of any party of any right, power or privilege hereunder preclude any other or future exercise of any other right, power or privilege hereunder. 1.5. Headings. The division of this Agreement into articles, sections, subsections and paragraphs and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation of this Agreement. 1.6. Law Governing this Agreement. This Agreement shall be governed by and construed in accordance with the laws of the State of New York without regard to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated by this Agreement shall be brought only in the state courts of New York or in the federal courts located in the state of New York. Both parties and the individuals executing this Agreement and other agreements on behalf of the Company agree to submit to the jurisdiction of such courts and waive trial by jury. The prevailing party (which shall be the party which receives an award most closely resembling the remedy or action sought) shall be entitled to recover from the other party its reasonable attorney's fees and costs. In the event that any provision of this Agreement or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement. 1.7. Specific Enforcement, Consent to Jurisdiction. The Company and Subscriber acknowledge and agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent or cure 2 3 breaches of the provisions of this Agreement and to enforce specifically the terms and provisions hereof or thereof, this being in addition to any other remedy to which any of them may be entitled by law or equity. Subject to Section 1.6 hereof, each of the Company and Subscriber hereby waives, and agrees not to assert in any such suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such court, that the suit, action or proceeding is brought in an inconvenient forum or that the venue of the suit, action or proceeding is improper. Nothing in this Section shall affect or limit any right to serve process in any other manner permitted by law. 1.8. Fees. The Company shall pay the Escrow Agent the fee described in Section 6 of the Subscription Agreement. This fee shall be payable by proportionate deduction from the Escrowed Payment, but only if the corresponding balance of the Escrowed Payment is to be released to or on behalf of the Company pursuant to this Agreement. ARTICLE II DELIVERIES TO THE ESCROW AGENT 2.1. Delivery of Company Documents to Escrow Agent. On or about the date hereof, the Company shall deliver to the Escrow Agent the Company Documents. 2.2 Delivery of Subscriber Documents to Escrow Agent. On or about the date hereof, the Subscriber shall deliver to the Escrow Agent the Subscriber Documents. The Escrowed Payment will be delivered pursuant to the following wire transfer instructions: Citibank, N.A. ABA Number: 0210-00089 For Credit to: Grushko & Mittman IOLA Trust Account Account Number: 45208884 2.3. Intention to Create Escrow Over Company Documents and Subscriber Documents. The Subscriber and Company intend that the Company Documents and Subscriber Documents shall be held in escrow by the Escrow Agent pursuant to this Agreement for their benefit as set forth herein. 2.4. Escrow Agent to Deliver Company Documents and Subscriber Documents. The Escrow Agent shall hold and release the Company Documents and Subscriber Documents only in accordance with the terms and conditions of this Agreement. ARTICLE III RELEASE OF COMPANY DOCUMENTS AND SUBSCRIBER DOCUMENTS 3.1. Release of Escrow. Subject to the provisions of Section 4.2, the Escrow Agent shall release the Company Documents and Subscriber Documents as follows: (a) Upon receipt by the Escrow Agent of the Company Documents and the corresponding Subscriber Documents, the Escrow Agent will simultaneously release the Company Documents to the Subscribers and Warrant Recipients and release the corresponding Subscriber Documents to the Company except that (i) the Finder's Fee will be delivered to the finders; (ii) the Non-Accountable Expense Allowance will be released to the entity identified on Schedule A hereto; and (iii) 3 4 the fee described in Section 1.8 above will be released to the Escrow Agent. At the request of the Escrow Agent, the Company will provide written facsimile or original instructions to the Escrow Agent as to the disposition of all funds releasable to the Company. (b) In the event the Escrow Agent does not receive Company Documents and the corresponding Subscriber Documents prior to October 31, 2000, then the Escrow Agent will promptly return the Company Documents to the Company, and promptly return the Subscriber Documents to the Subscribers. (c) Upon receipt by the Escrow Agent of joint written instructions ("Joint Instructions") signed by the Company and the Subscriber, it shall deliver the Company Documents and Subscriber Documents in accordance with the terms of the Joint Instructions. (d) Upon receipt by the Escrow Agent of a final and non-appealable judgment, order, decree or award of a court of competent jurisdiction (a "Court Order"), the Escrow Agent shall deliver the Company Documents and Subscriber Documents in accordance with the Court Order. Any Court Order shall be accompanied by an opinion of counsel for the party presenting the Court Order to the Escrow Agent (which opinion shall be satisfactory to the Escrow Agent) to the effect that the court issuing the Court Order has competent jurisdiction and that the Court Order is final and non-appealable. 3.2. Acknowledgement of Company and Subscriber; Disputes. The Company and the Subscriber acknowledge that the only terms and conditions upon which the Company Documents and Subscriber Documents are to be released are set forth in Sections 3 and 4 of this Agreement. The Company and the Subscriber reaffirm their agreement to abide by the terms and conditions of this Agreement with respect to the release of the Notes and Escrowed Payment. Any dispute with respect to the release of the Notes and Escrowed Payment shall be resolved pursuant to Section 4.2 or by agreement between the Company and Subscriber. ARTICLE IV CONCERNING THE ESCROW AGENT 4.1. Duties and Responsibilities of the Escrow Agent. The Escrow Agent's duties and responsibilities shall be subject to the following terms and conditions: (a) The Subscriber and Company acknowledge and agree that the Escrow Agent (i) shall not be responsible for or bound by, and shall not be required to inquire into whether either the Subscriber or Company is entitled to receipt of the Company Documents and Subscriber Documents pursuant to, any other agreement or otherwise; (ii) shall be obligated only for the performance of such duties as are specifically assumed by the Escrow Agent pursuant to this Agreement; (iii) may rely on and shall be protected in acting or refraining from acting upon any written notice, instruction, instrument, statement, request or document furnished to it hereunder and believed by the Escrow Agent in good faith to be genuine and to have been signed or presented by the proper person or party, without being required to determine the authenticity or correctness of any fact stated therein or the propriety or validity or the service thereof; (iv) may assume that any person purporting to give notice or make any statement or execute any document in connection with the provisions hereof has been duly authorized to do so; (v) shall not be under any duty to give the property held by Escrow Agent hereunder any greater degree of care than Escrow Agent gives its own similar property; and (vi) may consult counsel satisfactory to Escrow Agent, the opinion of such counsel to be full and complete authorization and protection in 4 5 respect of any action taken, suffered or omitted by Escrow Agent hereunder in good faith and in accordance with the opinion of such counsel. (b) The Subscriber and Company acknowledge that the Escrow Agent is acting solely as a stakeholder at their request and that the Escrow Agent shall not be liable for any action taken by Escrow Agent in good faith and believed by Escrow Agent to be authorized or within the rights or powers conferred upon Escrow Agent by this Agreement. The Subscriber and Company, jointly and severally, agree to indemnify and hold harmless the Escrow Agent and any of Escrow Agent's partners, employees, agents and representatives for any action taken or omitted to be taken by Escrow Agent or any of them hereunder, including the fees of outside counsel and other costs and expenses of defending itself against any claim or liability under this Agreement, except in the case of gross negligence or willful misconduct on Escrow Agent's part committed in its capacity as Escrow Agent under this Agreement. The Escrow Agent shall owe a duty only to the Subscriber and Company under this Agreement and to no other person. (c) The Subscriber and Company jointly and severally agree to reimburse the Escrow Agent for its reasonable out-of-pocket expenses (including outside counsel fees, to the extent authorized hereunder) incurred in connection with the performance of its duties and responsibilities hereunder. (d) The Escrow Agent may at any time resign as Escrow Agent hereunder by giving five (5) days prior written notice of resignation to the Subscriber and the Company. Prior to the effective date of the resignation as specified in such notice, the Subscriber and Company will issue to the Escrow Agent a Joint Instruction authorizing delivery of the Company Documents and Subscriber Documents to a substitute Escrow Agent selected by the Subscriber and Company. If no successor Escrow Agent is named by the Subscriber and Company, the Escrow Agent may apply to a court of competent jurisdiction in the State of New York for appointment of a successor Escrow Agent, and to deposit the Company Documents and Subscriber Documents with the clerk of any such court. (e) The Escrow Agent does not have and will not have any interest in the Company Documents and Subscriber Documents, but is serving only as escrow agent, having only possession thereof. The Escrow Agent shall not be liable for any loss resulting from the making or retention of any investment in accordance with this Escrow Agreement. (f) This Agreement sets forth exclusively the duties of the Escrow Agent with respect to any and all matters pertinent thereto and no implied duties or obligations shall be read into this Agreement. (g) The Escrow Agent shall be permitted to act as counsel for the Subscriber or the Company, as the case may be, in any dispute as to the disposition of the Company Documents and Subscriber Documents, in any other dispute between the Subscriber and Company, whether or not the Escrow Agent is then holding the Company Documents and Subscriber Documents and continues to act as the Escrow Agent hereunder. (h) The provisions of this Section 4.1 shall survive the resignation of the Escrow Agent or the termination of this Agreement. 4.2. Dispute Resolution: Judgments. Resolution of disputes arising under this Agreement shall be subject to the following terms and conditions: 5 6 (a) If any dispute shall arise with respect to the delivery, ownership, right of possession or disposition of the Company Documents and Subscriber Documents, or if the Escrow Agent shall in good faith be uncertain as to its duties or rights hereunder, the Escrow Agent shall be authorized, without liability to anyone, to (i) refrain from taking any action other than to continue to hold the Company Documents and Subscriber Documents pending receipt of a Joint Instruction from the Subscriber and Company, or (ii) deposit the Company Documents and Subscriber Documents with any court of competent jurisdiction in the State of New York, in which event the Escrow Agent shall give written notice thereof to the Subscriber and the Company and shall thereupon be relieved and discharged from all further obligations pursuant to this Agreement. The Escrow Agent may, but shall be under no duty to, institute or defend any legal proceedings which relate to the Company Documents and Subscriber Documents. The Escrow Agent shall have the right to retain counsel if it becomes involved in any disagreement, dispute or litigation on account of this Agreement or otherwise determines that it is necessary to consult counsel. (b) The Escrow Agent is hereby expressly authorized to comply with and obey any Court Order. In case the Escrow Agent obeys or complies with a Court Order, the Escrow Agent shall not be liable to the Subscriber and Company or to any other person, firm, corporation or entity by reason of such compliance. ARTICLE V GENERAL MATTERS 5.1. Termination. This escrow shall terminate upon the release of all of the Company Documents and Subscriber Documents or at any time upon the agreement in writing of the Subscriber and Company. 5.2. Notices. All notices, request, demands and other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given one (1) day after being sent by telecopy (with copy delivered by overnight courier, regular or certified mail): (a) If to the Company, to: iBIZ Technology, Corp. 1919 West Lone Cactus Phoenix, AZ 85021 (623) 492-9921 (Telecopier) Attn: President With a copy to: Gammage & Burnham 2 North Central, 18th Floor Phoenix, AZ 85021 Attn: Stephen Boatwright, Esq. (602) 256-4475 (Telecopier) (b) If to the Subscriber, to: the addresses and fax numbers set forth on Schedule A hereto. (c) If to the Escrow Agent, to: 6 7 Grushko & Mittman, P.C. Attorneys at Law 551 Fifth Avenue, Suite 1601 New York, New York 10176 (212) 697-3575 (telecopier) or to such other address as any of them shall give to the others by notice made pursuant to this Section 5.2. 5.3. Interest. The Escrowed Payment shall not be held in an interest bearing account nor will interest be payable in connection therewith. 5.4. Assignment; Binding Agreement. Neither this Agreement nor any right or obligation hereunder shall be assignable by any party without the prior written consent of the other parties hereto. This Agreement shall enure to the benefit of and be binding upon the parties hereto and their respective legal representatives, successors and assigns. 5.5. Invalidity. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal, or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be in any way impaired thereby, it being intended that all of the rights and privileges of the parties hereto shall be enforceable to the fullest extent permitted by law. 5.6. Counterparts/Execution. This Agreement may be executed in any number of counterparts and by different signatories hereto on separate counterparts, each of which, when so executed, shall be deemed an original, but all such counterparts shall constitute but one and the same instrument. This Agreement may be executed by facsimile transmission. [THIS SPACE INTENTIONALLY LEFT BLANK] 7 8 5.7. Agreement. Each of the undersigned states that he has read the foregoing Funds Escrow Agreement and understands and agrees to it. IBIZ TECHNOLOGY, CORP. - the "Company" By: ----------------------------------- -------------------------------------- CELESTE TRUST REG. - "Subscriber" -------------------------------------- ESQUIRE TRADE & FINANCE INC. - "Subscriber" -------------------------------------- THE KESHET FUND, L.P. - "Subscriber" -------------------------------------- KESHET, L.P. - "Subscriber" -------------------------------------- TALBIYA B. INVESTMENTS LTD. - "Subscriber" ESCROW AGENT: ----------------------------------- GRUSHKO & MITTMAN, P.C. 8 9 SCHEDULE A TO FUNDS ESCROW AGREEMENT
- ------------------------------------------------------------------------------------------------------------ SUBSCRIBER PRINCIPAL NOTE AMOUNT - ------------------------------------------------------------------------------------------------------------ CELESTE TRUST REG. $125,000.00 C/o Trevisa-Treuhand-Anstalt Landstrasse 8 Furstentums 9496 Balzers, Liechtenstein Fax: 011-431-534-532895 - ------------------------------------------------------------------------------------------------------------ ESQUIRE TRADE & FINANCE, INC. $175,000.00 Trident Chambers P.O. Box 146 Road Town, Tortola, B.V.I. Fax: 011-41-41-760-1031 - ------------------------------------------------------------------------------------------------------------ THE KESHET FUND, L.P. $115,000.00 135 West 50th Street, Suite 1700 New York, New York 10020 Fax: 212-541-4434 - ------------------------------------------------------------------------------------------------------------ KESHET L.P. $460,000.00 Ragnall House, 18 Peel Road Douglas, Isle of Man 1M1 4L2, United Kingdom Fax: 011-44-1624-661594 - ------------------------------------------------------------------------------------------------------------ TALBIYA B. INVESTMENTS LTD. $125,000.00 Ragnall House, 18 Peel Road Douglas, Isle of Man 1M1 4L2, United Kingdom Fax: 011-44-1624-661594 - ------------------------------------------------------------------------------------------------------------ TOTAL $1,000,000.00 - ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------ FINDERS FINDER'S FEES - ------------------------------------------------------------------------------------------------------------ ALON ENTERPRISES LTD. $85,000.00 Ragnall House, 18 Peel Road Douglas, Isle of Man 1M1 4L2, United Kingdom Fax: 011-44-1624-661594 - ------------------------------------------------------------------------------------------------------------ LIBRA FINANCE S.A. $15,000.00 P.O. Box 4603 Zurich, Switzerland Fax: 011-411-201-6262 - ------------------------------------------------------------------------------------------------------------ TOTALS $100,000.00 - ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------ WARRANT RECIPIENTS NUMBER OF WARRANTS - ------------------------------------------------------------------------------------------------------------ TALBIYA B. INVESTMENTS LTD. 175,000 Ragnall House, 18 Peel Road Douglas, Isle of Man 1M1 4L2, United Kingdom Fax: 011-44-1624-661594 - ------------------------------------------------------------------------------------------------------------ LIBRA FINANCE S.A. 75,000 P.O. Box 4603 Zurich, Switzerland Fax: 011-411-201-6262 - ------------------------------------------------------------------------------------------------------------ TOTAL 250,000 - ------------------------------------------------------------------------------------------------------------
NON-ACCOUNTABLE EXPENSE ALLOWANCE RECIPIENT: KCM LLC EX-10.38 6 p64237ex10-38.txt EX-10.38 1 Exhibit 10.38 THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO IBIZ TECHNOLOGY CORP. THAT SUCH REGISTRATION IS NOT REQUIRED. Right to Purchase ___ Shares of Common Stock of iBIZ Technology Corp. (subject to adjustment as provided herein) COMMON STOCK PURCHASE WARRANT No. 2 Issue Date: October 30, 2000 IBIZ TECHNOLOGY CORP., a corporation organized under the laws of the State of Florida (the "Company"), hereby certifies that, for value received, ___, or assigns, is entitled, subject to the terms set forth below, to purchase from the Company from and after the Issue Date of this Warrant and at any time or from time to time before 5:00 p.m., New York time, through five (5) years after such date (the "Expiration Date"), up to ___ fully paid and nonassessable shares of Common Stock (as hereinafter defined), $.001 par value per share, of the Company, at a purchase price of $.4755 per share (such purchase price per share as adjusted from time to time as herein provided is referred to herein as the "Purchase Price"). The number and character of such shares of Common Stock and the Purchase Price are subject to adjustment as provided herein. As used herein the following terms, unless the context otherwise requires, have the following respective meanings: (a) The term "Company" shall include iBIZ Technology Corp. and any corporation which shall succeed or assume the obligations of iBIZ Technology Corp. hereunder. (b) The term "Common Stock" includes (a) the Company's Common Stock, $.001 par value per share, as authorized on the date of the Subscription Agreement referred to in Section 9 hereof, (b) any other capital stock of any class or classes (however designated) of the Company, authorized on or after such date, the holders of which shall have the right, without limitation as to amount, either to all or to a share of the balance of current dividends and liquidating dividends after the payment of dividends and distributions on any shares entitled to preference, and the holders of which shall ordinarily, in the absence of contingencies, be entitled to vote for the election of a majority of directors of the Company (even if the right so to vote has been suspended by the happening of such a contingency) and (c) any other securities into which or for which any of the securities described in (a) or (b) may be converted or exchanged pursuant to a plan of recapitalization, reorganization, merger, sale of assets or otherwise. (c) The term "Other Securities" refers to any stock (other than Common Stock) and other securities of the Company or any other person (corporate or otherwise) which the holder of the Warrant at any time shall be entitled to receive, or shall have received, on the exercise of the Warrant, in lieu of or in addition to Common Stock, or which at any time shall be issuable or shall have been issued in exchange for or in replacement of Common Stock or Other Securities pursuant to Section 4 or otherwise. 2 1. Exercise of Warrant. 1.1. Number of Shares Issuable upon Exercise. From and after the date hereof through and including the Expiration Date, the holder hereof shall be entitled to receive, upon exercise of this Warrant in whole in accordance with the terms of subsection 1.2 or upon exercise of this Warrant in part in accordance with subsection 1.3, shares of Common Stock of the Company, subject to adjustment pursuant to Section 4. 1.2. Full Exercise. This Warrant may be exercised in full by the holder hereof by delivery of an original or fax copy of the form of subscription attached as Exhibit A hereto (the "Subscription Form") duly executed by such holder, and surrender of the original Warrant within seven days of exercise to the Company at its principal office or at the office of its Warrant agent (as provided hereinafter), accompanied by payment, in cash, wire transfer, or by certified or official bank check payable to the order of the Company, in the amount obtained by multiplying the number of shares of Common Stock for which this Warrant is then exercisable by the Purchase Price (as hereinafter defined) then in effect. 1.3. Partial Exercise. This Warrant may be exercised in part (but not for a fractional share) by surrender of this Warrant in the manner and at the place provided in subsection 1.2 except that the amount payable by the holder on such partial exercise shall be the amount obtained by multiplying (a) the number of shares of Common Stock designated by the holder in the Subscription Form by (b) the Purchase Price then in effect. On any such partial exercise, the Company, at its expense, will forthwith issue and deliver to or upon the order of the holder hereof a new Warrant of like tenor, in the name of the holder hereof or as such holder (upon payment by such holder of any applicable transfer taxes) may request, the number of shares of Common Stock for which such Warrant may still be exercised. 1.4. Fair Market Value. Fair Market Value of a share of Common Stock as of a particular date (the "Determination Date") shall mean the Fair Market Value of a share of the Company's Common Stock. Fair Market Value of a share of Common Stock as of a Determination Date shall mean: (a) If the Company's Common Stock is traded on an exchange or is quoted on the National Association of Securities Dealers, Inc. Automated Quotation ("NASDAQ") National Market System or the NASDAQ SmallCap Market, then the closing or last sale price, respectively, reported for the last business day immediately preceding the Determination Date. (b) If the Company's Common Stock is not traded on an exchange or on the NASDAQ National Market System or the NASDAQ SmallCap Market but is traded in the over-the-counter market, then the mean of the closing bid and asked prices reported for the last business day immediately preceding the Determination Date. (c) Except as provided in clause (d) below, if the Company's Common Stock is not publicly traded, then as the Holder and the Company agree or in the absence of agreement by arbitration in accordance with the rules then standing of the American Arbitration Association, before a single arbitrator to be chosen from a panel of persons qualified by education and training to pass on the matter to be decided. (d) If the Determination Date is the date of a liquidation, dissolution or winding up, or any event deemed to be a liquidation, dissolution or winding up pursuant to the Company's charter, then all amounts to be payable per share to holders of the Common Stock pursuant to the charter in the event of such liquidation, dissolution or winding up, plus all other amounts to be payable per share in respect of the Common Stock in liquidation under the charter, assuming for the purposes of this clause (d) that all of the shares of Common Stock then issuable upon exercise of all of the Warrants are outstanding at the Determination Date. 1.5. Company Acknowledgment. The Company will, at the time of the exercise of the Warrant, upon the request of the holder hereof acknowledge in writing its continuing obligation to afford to 2 3 such holder any rights to which such holder shall continue to be entitled after such exercise in accordance with the provisions of this Warrant. If the holder shall fail to make any such request, such failure shall not affect the continuing obligation of the Company to afford to such holder any such rights. 1.6. Trustee for Warrant Holders. In the event that a bank or trust company shall have been appointed as trustee for the holders of the Warrants pursuant to Subsection 3.2, such bank or trust company shall have all the powers and duties of a warrant agent (as hereinafter described) and shall accept, in its own name for the account of the Company or such successor person as may be entitled thereto, all amounts otherwise payable to the Company or such successor, as the case may be, on exercise of this Warrant pursuant to this Section 1. 2. Delivery of Stock Certificates, etc. on Exercise. The Company agrees that the shares of Common Stock purchased upon exercise of this Warrant shall be deemed to be issued to the holder hereof as the record owner of such shares as of the close of business on the date on which this Warrant shall have been surrendered and payment made for such shares as aforesaid. As soon as practicable after the exercise of this Warrant in full or in part, and in any event within 7 days thereafter, the Company at its expense (including the payment by it of any applicable issue taxes) will cause to be issued in the name of and delivered to the holder hereof, or as such holder (upon payment by such holder of any applicable transfer taxes) may direct in compliance with applicable Securities Laws, a certificate or certificates for the number of duly and validly issued, fully paid and nonassessable shares of Common Stock (or Other Securities) to which such holder shall be entitled on such exercise, plus, in lieu of any fractional share to which such holder would otherwise be entitled, cash equal to such fraction multiplied by the then Fair Market Value of one full share, together with any other stock or other securities and property (including cash, where applicable) to which such holder is entitled upon such exercise pursuant to Section 1 or otherwise. 3. Adjustment for Reorganization, Consolidation, Merger, etc. 3.1. Reorganization, Consolidation, Merger, etc. In case at any time or from time to time, the Company shall (a) effect a reorganization, (b) consolidate with or merge into any other person, or (c) transfer all or substantially all of its properties or assets to any other person under any plan or arrangement contemplating the dissolution of the Company, then, in each such case, as a condition to the consummation of such a transaction, proper and adequate provision shall be made by the Company whereby the holder of this Warrant, on the exercise hereof as provided in Section 1 at any time after the consummation of such reorganization, consolidation or merger or the effective date of such dissolution, as the case may be, shall receive, in lieu of the Common Stock (or Other Securities) issuable on such exercise prior to such consummation or such effective date, the stock and other securities and property (including cash) to which such holder would have been entitled upon such consummation or in connection with such dissolution, as the case may be, if such holder had so exercised this Warrant, immediately prior thereto, all subject to further adjustment thereafter as provided in Section 4. 3.2. Dissolution. In the event of any dissolution of the Company following the transfer of all or substantially all of its properties or assets, the Company, prior to such dissolution, shall at its expense deliver or cause to be delivered the stock and other securities and property (including cash, where applicable) receivable by the holders of the Warrants after the effective date of such dissolution pursuant to this Section 3 to a bank or trust company having its principal office in New York, NY, as trustee for the holder or holders of the Warrants. 3.3. Continuation of Terms. Upon any reorganization, consolidation, merger or transfer (and any dissolution following any transfer) referred to in this Section 3, this Warrant shall continue in full force and effect and the terms hereof shall be applicable to the shares of stock and other securities and property receivable on the exercise of this Warrant after the consummation of such reorganization, consolidation or 3 4 merger or the effective date of dissolution following any such transfer, as the case may be, and shall be binding upon the issuer of any such stock or other securities, including, in the case of any such transfer, the person acquiring all or substantially all of the properties or assets of the Company, whether or not such person shall have expressly assumed the terms of this Warrant as provided in Section 4. In the event this Warrant does not continue in full force and effect after the consummation of the transaction described in this Section 3, then only in such event will the Company's securities and property (including cash, where applicable) receivable by the holders of the Warrants be delivered to the Trustee as contemplated by Section 3.2. 4. Extraordinary Events Regarding Common Stock. In the event that the Company shall (a) issue additional shares of the Common Stock as a dividend or other distribution on outstanding Common Stock, (b) subdivide its outstanding shares of Common Stock, or (c) combine its outstanding shares of the Common Stock into a smaller number of shares of the Common Stock, then, in each such event, the Purchase Price shall, simultaneously with the happening of such event, be adjusted by multiplying the then Purchase Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such event and the denominator of which shall be the number of shares of Common Stock outstanding immediately after such event, and the product so obtained shall thereafter be the Purchase Price then in effect. The Purchase Price, as so adjusted, shall be readjusted in the same manner upon the happening of any successive event or events described herein in this Section 4. The number of shares of Common Stock that the holder of this Warrant shall thereafter, on the exercise hereof as provided in Section 1, be entitled to receive shall be increased to a number determined by multiplying the number of shares of Common Stock that would otherwise (but for the provisions of this Section 4) be issuable on such exercise by a fraction of which (a) the numerator is the Purchase Price that would otherwise (but for the provisions of this Section 4) be in effect, and (b) the denominator is the Purchase Price in effect on the date of such exercise. 5. Certificate as to Adjustments. In each case of any adjustment or readjustment in the shares of Common Stock (or Other Securities) issuable on the exercise of the Warrants, the Company at its expense will promptly cause its Chief Financial Officer or other appropriate designee to compute such adjustment or readjustment in accordance with the terms of the Warrant and prepare a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based, including a statement of (a) the consideration received or receivable by the Company for any additional shares of Common Stock (or Other Securities) issued or sold or deemed to have been issued or sold, (b) the number of shares of Common Stock (or Other Securities) outstanding or deemed to be outstanding, and (c) the Purchase Price and the number of shares of Common Stock to be received upon exercise of this Warrant, in effect immediately prior to such adjustment or readjustment and as adjusted or readjusted as provided in this Warrant. The Company will forthwith mail a copy of each such certificate to the holder of the Warrant and any Warrant agent of the Company (appointed pursuant to Section 11 hereof). 6. Reservation of Stock, etc. Issuable on Exercise of Warrant; Financial Statements. The Company will at all times reserve and keep available, solely for issuance and delivery on the exercise of the Warrants, all shares of Common Stock (or Other Securities) from time to time issuable on the exercise of the Warrant. This Warrant entitles the holder hereof to receive copies of all financial and other information distributed or required to be distributed to the holders of the Company's Common Stock. 7. Assignment; Exchange of Warrant. Subject to compliance with applicable Securities laws, this Warrant, and the rights evidenced hereby, may be transferred by any registered holder hereof (a "Transferor") with respect to any or all of the Shares. On the surrender for exchange of this Warrant, with the Transferor's endorsement in the form of Exhibit B attached hereto (the Transferor Endorsement Form") and together with evidence reasonably satisfactory to the Company demonstrating compliance with applicable Securities Laws, the Company at its expense but with payment by the Transferor of any applicable transfer taxes) will issue and deliver to or on the order of the Transferor thereof a new Warrant or Warrants of like tenor, in the name of the Transferor and/or the transferee(s) specified in such Transferor Endorsement Form (each a "Transferee"), 4 5 calling in the aggregate on the face or faces thereof for the number of shares of Common Stock called for on the face or faces of the Warrant so surrendered by the Transferor. 8. Replacement of Warrant. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction of this Warrant, on delivery of an indemnity agreement or security reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, on surrender and cancellation of this Warrant, the Company at its expense will execute and deliver, in lieu thereof, a new Warrant of like tenor. 9. Registration Rights. The Holder of this Warrant has been granted certain registration rights by the Company. These registration rights are set forth in a Subscription Agreement entered into by the Company and Subscribers of the Company's 8% Convertible Notes at or prior to the issue date of this Warrant. The terms of the Subscription Agreement are incorporated herein by this reference. Upon the occurrence of a Non-Registration Event as described in the Subscription Agreement, in the event the Company is unable to issue Common Stock upon exercise of this Warrant that has been registered in the Registration Statement described in Section 10.1(iv) of the Subscription Agreement, within the time periods described in the Subscription Agreement, which Registration Statement must be effective for the periods set forth in the Subscription Agreement, then upon written demand made by the Holder, the Company will pay to the Holder of this Warrant, in lieu of delivering Common Stock, a sum equal to the closing price of the Company's Common Stock on the Principal Market (as defined in the Subscription Agreement) or such other principal trading market for the Company's Common Stock on the trading date immediately preceding the date notice is given by the Holder, less the Purchase Price, for each share of Common Stock designated in such notice from the Holder. 10. Maximum Exercise. The Holder shall not be entitled to exercise this Warrant on an exercise date, in connection with that number of shares of Common Stock which would be in excess of the sum of (i) the number of shares of Common Stock beneficially owned by the Holder and its affiliates on an exercise date, and (ii) the number of shares of Common Stock issuable upon the exercise of this Warrant with respect to which the determination of this proviso is being made on an exercise date, which would result in beneficial ownership by the Holder and its affiliates of more than 4.99% of the outstanding shares of Common Stock of the Company on such date. For the purposes of the proviso to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13d-3 thereunder. Subject to the foregoing, the Holder shall not be limited to aggregate exercises which would result in the issuance of more than 4.99%. The restriction described in this paragraph may be revoked upon 75 days prior notice from the Holder to the Company. The Holder may allocate which of the equity of the Company deemed beneficially owned by the Subscriber shall be included in the 4.99% amount described above and which shall be allocated to the excess above 4.99%. 11. Warrant Agent. The Company may, by written notice to the each holder of the Warrant, appoint an agent for the purpose of issuing Common Stock (or Other Securities) on the exercise of this Warrant pursuant to Section 1, exchanging this Warrant pursuant to Section 7, and replacing this Warrant pursuant to Section 8, or any of the foregoing, and thereafter any such issuance, exchange or replacement, as the case may be, shall be made at such office by such agent. 12. Transfer on the Company's Books. Until this Warrant is transferred on the books of the Company, the Company may treat the registered holder hereof as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary. 13. Notices, etc. All notices and other communications from the Company to the holder of this Warrant shall be mailed by first class registered or certified mail, postage prepaid, at such address as may have been furnished to the Company in writing by such holder or, until any such holder furnishes to the Company an address, then to, and at the address of, the last holder of this Warrant who has so furnished an address to the 5 6 Company. 14. Miscellaneous. This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. This Warrant shall be construed and enforced in accordance with and governed by the laws of New York. Any dispute relating to this Warrant shall be adjudicated in New York State. The headings in this Warrant are for purposes of reference only, and shall not limit or otherwise affect any of the terms hereof. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision. [THIS SPACE INTENTIONALLY LEFT BLANK] 6 7 IN WITNESS WHEREOF, the Company has executed this Warrant under seal as of the date first written above. IBIZ TECHNOLOGY CORP. By: ------------------------------ Witness: - ------------------------------ 7 8 EXHIBIT A FORM OF SUBSCRIPTION (To be signed only on exercise of Warrant) TO: iBIZ Technology Corp. The undersigned, the holder of the within Warrant, hereby irrevocably elects to exercise this Warrant for, and to purchase thereunder, _______________ shares of Common Stock of iBIZ Technology Corp. and herewith makes payment of $_______________ therefor, and requests that the certificates for such shares be issued in the name of, and delivered to _______________ whose address is __________________________________________ The undersigned represents and warrants that all offers and sales by the undersigned of the securities issuable upon exercise of the within Warrant shall be made pursuant to registration of the Common Stock under the Securities Act of 1933, as amended (the "Securities Act") or pursuant to an exemption from registration under the Securities Act. Dated:___________________ -------------------------------------------- (Signature must conform to name of holder as specified on the face of the Warrant) -------------------------------------------- (Address) 9 Exhibit B FORM OF TRANSFEROR ENDORSEMENT (To be signed only on transfer of Warrant) For value received, the undersigned hereby sells, assigns, and transfers unto the person(s) named below under the heading "Transferees" the right represented by the within Warrant to purchase the percentage and number of shares of Common Stock of iBIZ Technology Corp. to which the within Warrant relates specified under the headings "Percentage Transferred" and "Number Transferred," respectively, opposite the name(s) of such person(s) and appoints each such person Attorney to transfer its respective right on the books of iBIZ Technology Corp. with full power of substitution in the premises.
====================================== ===================================== =================================== Transferees Percentage Number Transferred Transferred - -------------------------------------- ------------------------------------- ----------------------------------- - -------------------------------------- ------------------------------------- ----------------------------------- - -------------------------------------- ------------------------------------- ----------------------------------- ====================================== ===================================== ===================================
Dated: , ----------------- ---- ----------------------------------------- (Signature must conform to name of holder as specified on the face of the warrant) Signed in the presence of: ------------------------------- ------------------------------ (Name) (address) ------------------------------ ACCEPTED AND AGREED: (address) [TRANSFEREE] - --------------------------------- (Name) EX-23.04 7 p64237ex23-04.txt EX-23.04 1 Exhibit 23.04 [MOFFITT & COMPANY, P.C. LETTERHEAD] November 22, 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 nine months ended July 31, 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-----