10KSB 1 oct01k.txt U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-KSB ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR FISCAL YEAR ENDED OCTOBER 31, 2001. 000-027619 Commission File Number IBIZ TECHNOLOGY CORP. (Name of small business issuer in its charter) Florida 86-0933890 State or other jurisdiction IRS Employer of incorporation Identification No. 2238 West Lone Cactus Drive, #200, Phoenix, Arizona 85021, (623) 492-9200 (Address and telephone number of principal executive offices) Securities registered under Section 12(b) of the Exchange Act: None. Securities registered under Section 12(g) of the Exchange Act: Common Stock, par value $0.001 Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act, during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [] Check if disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [X]. The registrant's revenues from continuing operations for the year ended October 31, 2001 were $2,607,517. As of February 26, 2002, the aggregate market value of the common stock held by non-affiliates computed by reference to the average bid and asked prices of such stock was $1,407,478. As of February 26, 2002, the registrant had 223,409,275 shares of common stock, par value $.001 per share, outstanding. PART I ITEM 1. 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. BUSINESS HISTORY OF INVNSYS The Company conducts business solely through its operating subsidiary INVNSYS. For your convenience, this report 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. As of October 31, 2001, the Company discontinued these 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 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 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 custom built enclosures. The iBIZ-designed infrastructure includes 3 primary environmental control systems and 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. As of October 31, 2001, the Company discontinued this service. In March 2000, the company introduced the Keysync Keyboard and a line of products specific to the personal digital assistant (PDA) market. Through October 31, 2001, the company has expanded the product mix to more than fifty different individual PDA products. iBIZ's principal offices are located at 2238 West Lone Cactus, #200, Phoenix, Arizona 85021. iBIZ maintains a website at www.ibizcorp.com. The information on the website is not part of this report. Statements regarding the various hardware products offered by the Company, joint ventures, marketing agreements and web-hosting services 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 and web-hosting services will generate any revenue. Many products discussed in this report may ultimately not be sold or may only be sold in limited quantities. Marketing agreements and web-hosting services 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 and services offered by the Company. See Risk Factors, below. PRODUCTS AND SERVICES For the year ended October 31, 2001, INVNSYS engaged 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 thin-film transistor liquid-crystal-display ("TFT-LCD") monitors and related products. INVNSYS also markets a line of original equipment manufacturer ("OEM") notebook computers and distributes color printers. In addition to hardware INVNSYS sells third-party hardware, software, and related supplies. INVNSYS' 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. 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 small footprint personal computers, including the Sahara and the Safari. - Keyboards. We market a range of keyboards and numeric keypads targeted at financial institutions. We market our "KeySync" keyboard specifically designed for use with PDAs. - Displays and Monitors. We sell a line of space-saving, zero-emission Harsper TFT-LCD flat panel displays. We believe our TFT-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, including the Apache and the Phoenix. - Printers and Peripherals. We are an authorized distributor of Epson printers and peripherals and currently offer two transactional printers. - Third-Party Hardware, Software, and Related Supplies. In an effort to provide our customers a wider range of products, we recently began reselling third-party hardware, software, and related supplies. INVNSYS completed a co-location facility in August, 2000 and opened it for service on September 14, 2000. "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. The potential for fire, theft, or vandalism is much greater locating such equipment in their offices or warehouse. Our 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. 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, Motorola, and Intel. 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. DISCONTINUED OPERATIONS AND CONSOLIDATION OF OPERATIONS As of October 31, 2001, management elected to discontinue non profitable segments of company operations and to focus on profitable business units. The discontinued segments include the network integration services, digital subscriber line (DSL), and co-location computer data and server facility. The company is focusing it's current business on the PDA accessory business as well as industry specific products, which include financial application keyboards, LCD Monitors, and small footprint computers. The company sold the co-location operations to Arizona Internet LLC. and netted approximately $188,000 from the sale. In addition the company kept approximately $250,000 of assets, which it is holding currently for resale. MARKETING, SALES AND DISTRIBUTION INVNSYS markets and distributes products directly to end users through a direct sales force, regional resellers, value-added providers in the banking and point-of-sale ("POS") market and Internet commerce sites. In addition to direct sales, INVNSYS also markets its full range of products directly to retail customers through its website at www.ibizcorp.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 also distributes its products to regional resellers and, to a lesser extent, national distributors and to retail stores such as CompUSA, Inc. and Fry's Electronics. 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. The Harsper TFT-LCD panels are manufactured in South Korea. First International Computer in Taiwan currently manufactures INVNSYS' 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 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 PDA's PATENTS AND TRADEMARKS INVNSYS holds United States and or foreign patents for its products. iBIZ filed a patent application for its Lapboard keyboard and was awarded patent 09/765169 on January 3, 2002. In general, INVNSYS believes that its 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 received a trademark award for the iBIZ name on January 8, 2002. The Company is currently investigating various other product trademarks. 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. Also available on iBIZ's website are links to files for software patches and drivers used for software updates. COMPETITION 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, peripherals, and PDA accessories utilizing unique designs and space-saving qualities. 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. CUSTOMERS FOR PRODUCTS 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. USE OF TRADEMARKS AND TRADENAMES All trademarks and tradenames used in this report are the property of their respective owners. Employees As of October 31, 2001, INVNSYS had approximately 15 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. ITEM 2. DESCRIPTION OF PROPERTY. On February 1, 2002, iBIZ began leasing approximately 4,343 square feet of custom built office space located at 2238 West Lone Cactus, #200, Phoenix, Arizona. The facility is used for administration, design, engineering and assembly of products. iBIZ's lease is for a term of 3 years, with monthly rental payments from $2,172 to $4,343 plus taxes and operating costs. ITEM 3. LEGAL PROCEEDINGS. iBIZ has been assessed approximately $62,000 in penalties and interest by the IRS in connection with payroll taxes due through the first quarter of 1999. The Company has paid the taxes, interest, and some portion of the penalty, but has requested an abatement of the remaining penalty imposed. The Company is awaiting a final disposition by the IRS. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. MARKET FOR COMMON EQUITY Our common stock is currently traded on the Over The Counter 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, we changed our trading symbol to "IBIZ." The following charts indicate the high and low sales price for the common stock for each fiscal quarter between November 1, 1998, and October 31, 2001, as quoted on the Over The Counter Bulletin Board. These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions.
Price Quarter Ended High Low ---------------------- ----------------- ---------------- January 99 2.563 1.156 April 99 1.875 0.750 July 99 2.266 0.625 October 99 1.500 0.844 January 00 2.063 0.969 April 00 3.188 0.938 July 00 1.281 0.625 October 00 1.219 0.375 January 01 0.419 0.177 April 01 0.220 0.135 July 01 0.200 0.010 October 01 0.550 0.020 Through November 0.030 0.010 30, 2001 ---------------------- ----------------- ----------------
As of November 30, 2001, management believes there to be approximately 7,142 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. RECENT SALES OF UNREGISTERED SECURITIES The shares described below represent certain equity securities of iBIZ sold by iBIZ during the period covered by this report that were not registered under the Securities Act, all of which were issued by iBIZ pursuant to exemptions under the Securities Act. Underwriters were involved in none of these transactions. In each case, the securities were sold to accredited investors, as determined by an investor questionnaire executed in conjunction with the respective subscription agreements. During 2000, the Company issued an aggregate of 5,680,713 shares of common stock to seven purchasers upon conversion of convertible debentures at effective prices between $.30 and $.805 per share. The sales were made to accredited investors in reliance on Rule 506 or Section 4(2) under the Securities Act. In September 2000, the Company issued an aggregate of 368,364 shares of common stock to four individuals or entities at prices ranging from $.45 and $.55 per share. the Securities Act. In connection with such sale, the Company issued warrants to purchase 424,114 shares of Common Stock, exercisable for a period of three years at prices between $.90 and $1.00 per share. The shares and warrants were issued in reliance on Section 4(2) of the Securities Act to an accredited investor. During 2000, the Company issued an aggregate of 620,000 shares of common stock to four purchasers upon exercise of warrants at $.75 per share. The sales were made to accredited investors in reliance on Rule 506 or Section 4(2) under the Securities Act. The Company entered into a certain stock purchase agreement with various individuals and institutions in which they agreed to purchase an aggregate of $5 million of 8% Convertible Notes (the "Notes"). 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. In connection with the issuance of the Notes, the Company issued an aggregate of 1,050,000 warrants to purchase common stock to two institutions. The warrants are exercisable for a period of five years at prices ranging from $.2275 to $.4755. All of the foregoing securities were issued in reliance on Section 4(2) of the Securities Act of 1933 to accredited investors. In January 2000, the Company issued 250,000 shares of common stock to one investor at a price of $1.10 per share. The sale was made to an accredited investor in reliance on Rule 506 or Section 4(2) under the Securities Act. During September and October 2000, the Company issued an aggregate of 3,237,252 shares of common stock to 12 investors at prices ranging from$.30 to $.55 per share. The sales were made to accredited investors in reliance on Rule 506 or Section 4(2) under the Securities Act. During September 2000, the Company issued an aggregate of 48,888 shares of common stock at an effective price of $.45 per share to four individuals in payment of outstanding invoices totaling $22,000. The sales were made in reliance on Rule 506 or Section 4(2) under the Securities Act. During December 2000 and January 2001, the Company issued an aggregate of 205,542 shares of common stock to five entities in connection with conversion of or interest payments on convertible debentures. Such shares were issued at effective prices ranging from $.12 to $.21 per share. The sales were made to accredited investors in reliance on Rule 506 or Section 4(2) under the Securities Act. During February 2001 through November 2001, the Company issued an aggregate of 61,298,682 shares of common stock to five entities in connection with conversion of or interest payments on convertible debentures. Such shares were issued at effective prices ranging from $.0120 to $.0195 per share. The sales were made to accredited investors in reliance on Rule 506 or Section 4(2) under the Securities Act. ITEM 6. 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, TFT-LCD monitors and related products. INVNSYS also markets a line of OEM notebook computers and distributes a line of transactional and color printers. iBIZ also offered 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 resells third-party hardware, software and related supplies. Selected Financial Information.
YEAR ENDED ---------- 10/31/00 10/31/01 ------------------------------------------------------------------------- Statement of Operations Data $ $ Net sales 3,992,349 1,966,665 Gross profit 428,806 541,909 Operating income from continuing operations(loss) (5,094,864) (4,640,715) Net earnings (loss) after tax (5,455,728) (6,748,794) Net earnings (loss) per share (0.18) (0.12) Balance Sheet Data Total assets 4,016,882 923,858 Total liabilities 3,135,576 4,868,336 Stockholders' equity (deficit) 881,306 (3,944,478)
RESULTS OF OPERATIONS. Fiscal year ended October 31, 2001 compared to fiscal year ended October 31,2000. Revenues. Sales from continuing operations decreased by approximately 51% to $1,966,665 in the fiscal year ended October 2001 from $ 3,992,349 in the fiscal year ended October 2000. The decrease was mainly a result of the loss of DSL services we provided through Northpoint Communications who filed for bankruptcy in March of 2001, the stop of demand for co-location and network integration services and a drop of consumer spending for PDA products. Also the lack of an economic recovery from the effects of September 11, 2001. Cost of Sales. The cost of sales of $1,424,756 in the fiscal year ended October 2001 decreased from $3,563,543 in the fiscal year ended October 2000, or approximately a 80% decrease. This reduction reflects a drop in purchases from our overseas suppliers as well as the decrease in costs related to providing DSL services. Gross Profit. Gross profit increased by approximately 26% to $541,909 in the fiscal year ended October 2001 from $428,806 in the fiscal year ended October 2000. The increase resulted primarily from the decrease in the cost of sales from providing higher margin products and decrease in costs relating to discontinued services. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased approximately 7% to $3,891,469 in the fiscal year ended October 2001 from $3,638,731 for the fiscal year ended October 2000. The increase was primarily due to costs of developing new lines of business (principally DSL and co-location services) and fees paid in connection with financing activities. Interest Expense. Interest expense of $101,563 for the fiscal year ended October 2000 and of $226,863 for the fiscal year ended October 2001 was accrued on notes payable to Community First National Bank primarily extended for working capital purposes and on convertible debentures issued to various investors as described herein. Interest Expense -- Convertible Debenture - Beneficial Conversion Feature. The Company has issued convertible debt securities with a non-detachable conversion feature that was "in-the-money" at the date of issue. The Company accounts for such securities in accordance with Emerging Issues Task Force Topic D-60. The Company has recorded the fair value of the beneficial conversion feature as interest expense and an increase to Paid-in Capital in Excess of Par Value of Stock. Interest expense of $1,336,793 for the fiscal year ended October 2001 was incurred under the Company's convertible debenture-beneficial conversion feature. Net Loss. Net loss from continuing operations decreased to $4,640,718 for the fiscal year ended October 2001 from a net loss of $5,094,864 for the fiscal year ended October 2000. The loss resulted from the increase in the selling, general and administrative expenses and the imposition of interest expenses for the Company's convertible debenture-beneficial conversion feature. Discontinued Operations. Net Loss from discontinued operations increased from $360,864 in fiscal year ended October 31, 2000 to $706,704 in fiscal year ended October 2001. The reason for the increase was the company had a full year of operating expense with revenues that weren't sufficient to cover the expenses. Write down of assets held for sale. The company wrote off $1,401,372 of assets from it discontinued operations in accordance with FASB 121. Fiscal year ended October 31, 2000 compared to fiscal year ended October 31,1999. Revenues. Sales increased by approximately 17% from $3,402,681 in the fiscal year ended October 1999 to $3,992,349 in the fiscal year ended October 2000. The increase 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 $1,682,905 in the fiscal year ended October 1999 increased to $3,563,543 in the fiscal year ended October 2000, or an approximate 112%increase. This increase reflects a coinciding increase in the sale of products resulting in the purchase of more hardware from INVNSYS' overseas suppliers. Gross Profit. Gross profit increased by approximately 7% from $399,610, in the fiscal year ended October 1999 to $428,806 in the fiscal year ended October 2000. The increase resulted primarily from the increase in Revenues of our PDA products. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased approximately 147% from $1,473,790 in the fiscal year ended October 1999 to $3,638,731 for the fiscal year ended October 2000. The increase was primarily due to costs of legal and accounting fees, and an increase for additional employee expense. Interest Expense. Interest expense of $75,282 for the fiscal year ended October 2000 and of $58,085 for the fiscal year ended October 1999 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. Net Loss. Net Loss increased from $1,053,563 for the fiscal year ended October 2000 to a loss of $5,455,728 for the fiscal year ended October 2000. 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. LIQUIDITY AND CAPITAL RESOURCES The Company has spent substantial funds on construction and installation of its co-location facility and expansion of its sales and marketing efforts. As a result, the Company has needed capital to maintain the business as a going concern. Since December 1, 1999, the Company has raised approximately $5,900,000 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 $2,900,000, subject to meeting certain representations, warranties, covenants, and conditions. Working Capital decreased $3,585,904 from year end October 31, 2000 to October 31, 2001. The decrease in working capital was primarily caused by the increase in the net loss for the year. The company anticipates that the liquidity will increase in the next fiscal year due to the following measures it has instituted: 1. Reduction in selling, general and administrative expenses especially from: a)Reduction in payroll from approximately 50 employees to 8. b)Reduction in rent by $200,000 per year due to moving to new facilities. 2. Discontinued non profitable business segments. 3. Sale of assets held for sale. 4. Payments of some, but not all payables and wages through the issuance of common stock. 5. Obtained new debenture financing of $222,000 which enabled the company to purchase new products to fulfill sales orders. The Company believes 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 revised business plans through the Company's fiscal year ended October 31, 2002. IBIZ TECHNOLOGY CORP. AND SUBSIDIARY CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 2001 AND 2000
TABLE OF CONTENTS PAGE NO. INDEPENDENT AUDITORS' REPORT.................................................................... 1 FINANCIAL STATEMENTS Consolidated Balance Sheets.............................................................. 2 Consolidated Statements of Operations.................................................... 3 - 4 Consolidated Statement of Stockholders' Equity (Deficit)................................. 5 Consolidated Statements of Cash Flows.................................................... 6 - 7 Notes to Consolidated Financial Statements............................................... 8 - 29
INDEPENDENT AUDITORS' REPORT To The Board of Directors and Stockholders IBIZ Technology Corp. and Subsidiary We have audited the accompanying consolidated balance sheets of IBIZ Technology Corp. and Subsidiary as of October 31, 2001 and 2000 and the related consolidated statements of operations, stockholders' equity (deficit), 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 audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 audits provide 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 Subsidiary as of October 31, 2001 and 2000, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 25 to the financial statements, the Company has incurred significant operating losses, has negative working capital, lacks sufficient operating cash to purchase products to fill sales orders, is delinquent in the payment of payroll taxes and is delinquent in payment of some wages. These conditions raise substantial doubt about its ability to continue as a going concern. Management's plans regarding these matters also are described in Note 25. The financial statements do not include any adjustments that might result from the outcome of these uncertainties. MOFFITT & COMPANY, P.C. SCOTTSDALE, ARIZONA February 8, 2002 IBIZ TECHNOLOGY CORP. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS OCTOBER 31, 2001 AND 2000
ASSETS 2001 2000 ----------------- ------------------ CURRENT ASSETS Cash and cash equivalents $ 6,981 $ 631,375 Accounts receivable 93,747 432,113 Inventories 166,742 439,582 Prepaid expenses 54,127 104,874 Net assets held for sale 438,871 0 ----------------- ------------------ TOTAL CURRENT ASSETS 760,468 1,607,944 ----------------- ------------------ PROPERTY AND EQUIPMENT, NET OF ACCUMULATED DEPRECIATION 147,378 1,948,715 ----------------- ------------------ OTHER ASSETS Notes receivable, officers 0 391,332 Customer list, net of accumulated amortization 0 7,932 Deposits 16,012 60,959 ----------------- ------------------ TOTAL OTHER ASSETS 16,012 460,223 ----------------- ------------------ TOTAL ASSETS $ 923,858 $ 4,016,882 ================= ================== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) 2001 2000 ----------------- ------------------ CURRENT LIABILITIES Accounts payable, trade $ 797,585 $ 973,894 Notes payable, trade 57,500 0 Accrued liabilities 727,050 198,019 Sales and payroll taxes payable 121,483 89,023 Corporation income taxes payable 19,028 19,028 Deferred income 4,495 85,798 Convertible debentures payable, current portion 2,305,929 0 Note payable, factor 70,734 0 Notes payable, other, current portion 5,721 5,335 ----------------- ------------------ TOTAL CURRENT LIABILITIES 4,109,525 1,371,097 ----------------- ------------------ LONG - TERM LIABILITIES Convertible debentures payable 750,000 1,750,000 Notes payable, other 8,811 14,479 ----------------- ------------------ TOTAL LONG - TERM LIABILITIES 758,811 1,764,479 ----------------- ------------------ STOCKHOLDERS' EQUITY( DEFICIT) Common stock Authorized - 100,000,000 shares, par value $.001 per share Issued and outstanding October 31, 2001 - 99,862,248 shares 99,862 0 October 31, 2000 - 37,812,425 shares 0 37,813 Additional paid in capital 9,801,345 7,940,384 Accumulated deficit ( 13,845,685) ( 7,096,891) ----------------- ------------------- TOTAL STOCKHOLDERS' EQUITY (DEFICIT) ( 3,944,478) 881,306 ----------------- ------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 923,858 $ 4,016,882 ================= ===================
See Accompanying Notes and Independent Auditors' Report. 2 IBIZ TECHNOLOGY CORP. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED OCTOBER 31, 2001 AND 2000
2001 2000 ----------------- ------------------ SALES $ 1,966,665 $ 3,992,349 COST OF SALES 1,424,756 3,563,543 ----------------- ------------------ GROSS PROFIT 541,909 428,806 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 3,891,469 3,638,731 ----------------- ------------------ OPERATING (LOSS) ( 3,349,560) ( 3,209,925) ----------------- ------------------ OTHER INCOME (EXPENSE) Cancellation of debt 223,369 39,950 Interest income 28,651 37,178 Interest expense ( 226,863) ( 101,563) Interest expense - convertible debentures-beneficial conversion feature ( 1,336,793) ( 1,860,454) Other income 20,528 0 ----------------- ------------------ TOTAL OTHER INCOME (EXPENSE) ( 1,291,108) ( 1,884,889) ----------------- ------------------ (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES ( 4,640,668) ( 5,094,814) INCOME TAXES 50 50 ----------------- ------------------ (LOSS) FROM CONTINUING OPERATIONS ( 4,640,718) ( 5,094,864) ------------------- -------------------- DISCONTINUED OPERATIONS (Loss) from operations of discontinued business segments ( 706,704) ( 360,864) Write-down of net assets held for sale ( 1,401,372) 0 ----------------- ------------------ (LOSS) FROM DISCONTINUED OPERATIONS ( 2,108,076) ( 360,864) ------------------- ------------------ NET (LOSS) $ ( 6,748,794) $ ( 5,455,728) =================== ===================
See Accompanying Notes and Independent Auditors' Report. 3 IBIZ TECHNOLOGY CORP. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED) FOR THE YEARS ENDED OCTOBER 31, 2001 AND 2000
2001 2000 ----------------- ------------------ NET (LOSS) PER COMMON SHARE Basic and Diluted: Continuing operations $ ( 0.08) $ ( 0.17) Discontinued operations $ ( 0.04) $ ( 0.01) ----------------- ------------------ NET (LOSS) $ ( 0.12) $ ( 0.18) ================= ================== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING Basic and diluted 55,660,810 30,425,004 ================== ===================
See Accompanying Notes and Independent Auditors' Report. 4 IBIZ TECHNOLOGY CORP. AND SUBSIDIARY CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) FOR THE YEARS ENDED OCTOBER 31, 2001 AND 2000
Common Stock Shares Amount BALANCE, NOVEMBER 1, 1999 .......................... 26,370,418 $ 26,370 CONVERSION OF DEBENTURES FOR COMMON STOCK .................................... 5,318,062 5,319 ISSUANCE OF COMMON STOCK FOR: CASH ........................................ 3,613,918 3,614 ADVANCES ON STOCK SUBSCRIPTIONS ............. 100,000 100 CASH FROM WARRANTS .......................... 520,000 520 CASH FROM STOCK OPTIONS ..................... 90,000 90 ACCOUNTS PAYABLE ............................ 100,000 100 SERVICES .................................... 1,242,653 1,243 PAYROLL BONUSES ............................. 50,000 50 FEES AND COSTS FOR ISSUANCE OF STOCK ........ 407,374 407 FEES AND COSTS PAID FOR ISSUANCE OF COMMON STOCK ........................................... 0 0 INTEREST EXPENSE - CONVERTIBLE DEBENTURES - BENEFICIAL CONVERSION FEATURE ................... 0 0 NET (LOSS) FOR THE YEAR ENDED OCTOBER 31, 2000 ..... 0 0 ---------- ---------- BALANCE, OCTOBER 31, 2000 .......................... 37,812,425 37,813 CONVERSION OF DEBENTURES FOR COMMON STOCK .......... 62,049,823 62,049 FEES AND COSTS FOR ISSUANCE OF COMMON STOCK ........ 0 0 INTEREST EXPENSE - CONVERTIBLE DEBENTURES - BENEFICIAL CONVERSION FEATURE ...... 0 0 NET (LOSS) FOR THE YEAR ENDED OCTOBER 31, 2001 ..... 0 0 ---------- ---------- BALANCE, OCTOBER 31, 2001 .......................... 99,862,248 $ 99,862 ========== ==========
See Accompanying Notes and Independent Auditors' Report. 5
Additional Advances Paid in on Stock Accumulated Capital Subscriptions Deficit Total $ 1,106,266 $ 75,000 $ ( 1,641,163) $ ( 433,527) 2,529,575 0 0 2,534,894 1,474,688 0 0 1,478,302 74,900 ( 75,000) 0 0 389,480 0 0 390,000 67,410 0 0 67,500 49,900 0 0 50,000 951,415 0 0 952,658 50,450 0 0 50,500 483,147 0 0 483,554 ( 1,097,301) 0 0 ( 1,097,301) 1,860,454 0 0 1,860,454 0 ( 5,455,728) ( 5,455,728) ------------------ ---------------------- -------------------- ------------------- 7,940,384 0 ( 7,096,891) 881,306 918,637 0 0 980,686 ( 394,468) 0 0 ( 394,468) 1,336,792 0 0 1,336,792 0 0 ( 6,748,794) ( 6,748,794) ------------------ ---------------------- -------------------- ------------------- $ 9,801,345 $ 0 $ ( 13,845,685) $ ( 3,944,478) ================== ====================== ===================== ===================
See Accompanying Notes and Independent Auditors' Report. 5 IBIZ TECHNOLOGY CORP. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED OCTOBER 31, 2001 AND 2000
2001 2000 ------------- ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) ........................................... $( 4,640,718) $(5,094,864) Adjustments to reconcile net (loss) to net cash (used) by operating activities of continuing operations: Loss from discontinued operations ................ (2,108,076) (360,864) Write-down of net assets held for sale ........... 1,401,372 0 Depreciation ..................................... 246,019 35,667 Amortization ..................................... 53,460 37,690 Loss on disposition of property and equipment .... 0 21,081 Interest expense - convertible debentures-beneficial conversion feature ............................. 1,336,793 1,860,454 Common stock issued for expenses ................. 0 1,003,158 Allowance for uncollectible accounts ............. 453,693 97,500 Changes in operating assets and liabilities: Accounts receivable .............................. 257,832 (317,313) Inventories ...................................... 272,840 (171,495) Prepaid expenses ................................. 50,747 (65,890) Deposits ......................................... 44,947 (44,200) Accounts and notes payable ....................... (118,809) 260,929 Accrued liabilities and taxes .................... 561,491 50,019 Customer deposits ................................ 0 (115,408) Deferred income .................................. 81,303 30,836 ------------- ------------ NET CASH (USED) IN OPERATING ACTIVITIES ................................. (2,107,106) (2,772,700) ------------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment .................. (165,736) (1,918,232) Purchase of intangible assets ........................ 0 (11,900) ------------- ------------ NET CASH (USED) IN INVESTING ACTIVITIES .................................. (165,736) (1,930,132) ------------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from issuance of common stock ........... 0 1,355,319 Net proceeds from issuance of convertible debentures payable ................................ 1,954,328 4,055,424 Proceed from note payable, factor .................... 70,734 0 Repayment of notes payable ........................... (5,282) (67,357) Changes in notes receivable, officer ................. (371,332) (34,522) ------------- ------------ NET CASH PROVIDED BY FINANCING ACTIVITIES .................................. $ 1,648,448 $ 5,308,864 ------------- ------------
See Accompanying Notes and Independent Auditors' Report. 6 IBIZ TECHNOLOGY CORP. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) FOR THE YEARS ENDED OCTOBER 31, 2001 AND 2000
2001 2000 ----------------- ------------------ NET INCREASE IN CASH AND CASH EQUIVALENTS $ ( 624,394) $ 606,032 CASH AND CASH EQUIVALENTS, AT BEGINNING OF YEAR 631,375 25,343 ----------------- ------------------ CASH AND CASH EQUIVALENTS, AT END OF YEAR $ 6,981 $ 631,375 ================= ================== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during year for: Interest $ 1,202 $ 83,801 ================= ================== Taxes $ 50 $ 50 ================= ================== NON-CASH INVESTING AND FINANCING ACTIVITIES Issuance of common stock for convertible debentures $ 980,686 $ 2,333,859 ================= ================== Issuance of common stock for fees, services and expenses $ 0 $ 1,486,312 ================= ================== Issuance of common stock for advances on stock subscriptions $ 0 $ 75,000 ================= ================== Issuance of common stock for accounts payable $ 0 $ 50,000 ================= ================== Interest expense - convertible debentures-beneficial conversion feature $ 1,336,793 $ 1,860,454 ================= ==================
See Accompanying Notes and Independent Auditors' Report. 7 IBIZ TECHNOLOGY CORP. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 2001 AND 2000 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Business IBIZ Technology Corp. (hereinafter referred to as the Company) was organized on April 6, 1994, under the laws of the State of Florida. The Company operates as a holding company for subsidiary acquisitions. Invnsys Technology Corporation (hereinafter referred to as Invnsys) designs, manufactures (through subcontractors), and distributes a line of accessories for the PDA and handheld computer market which are distributed through large retail chain stores and e-commerce sites. Invnsys provided Web- enabling services which included Co-Location services, Web design and development, and data center technical management services. These segments of the Company's operations were discontinued on October 31, 2001. Invnsys also markets LCD monitors, OEM notebook computers, third party software, and general purpose financial application keyboards. 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. Cash and Cash Equivalents For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. Inventories Inventories are stated at the lower of cost (determined principally by average cost) 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. See Accompanying Notes and Independent Auditors' Report. 8 IBIZ TECHNOLOGY CORP. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 2001 AND 2000 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Property and Equipment (Continued) Invnsys 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 10 Years Office furniture and equipment 5-10 Years Vehicles 5 Years Computer software 5 Years
Accounting for Convertible Debt Securities The Company has issued convertible debt securities with a non-detachable conversion feature that was "in the money" at the date of issue. The Company accounts for such securities in accordance with Emerging Issues Task Force Topic D-60. The Company has recorded the fair value of the beneficial conversion feature as interest expense and an increase to Additional Paid in Capital. 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 Invnsys recognizes its revenue as follows: Product sales - When the goods are shipped and title passes to the customer. Maintenance agreements - Income from maintenance agreements is being recognized on a straight-line basis over the life of the service contracts. The unearned portion is recorded as deferred income. Service income - When services are performed. Internet sales (DSL and Co-Location) - When services are performed and completed. See Accompanying Notes and Independent Auditors' Report. 9 IBIZ TECHNOLOGY CORP. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 2001 AND 2000 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Prepaid Expenses The Company's prepaid expenses are being amortized over a one year period. Long-Lived Assets Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long- Lived Assets and for Long-Lived Assets to be Disposed Of," requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the historical cost-carrying value of an asset may no longer be appropriate. The Company assesses the recoverability of the carrying value of an asset by estimating the future net cash flows expected to result from the asset, including eventual disposition. If the future net cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset's carrying value and fair value. The Company wrote-off $1,401,372 of assets from discontinued operations in the year ended October 31, 2001. 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 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. Shipping and Handling Costs The Company's policy is to classify shipping and handling costs as part of cost of good sold in the statement of income. 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 stockholders 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. See Accompanying Notes and Independent Auditors' Report. 10 IBIZ TECHNOLOGY CORP. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 2001 AND 2000 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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. Common Stock Issued for Non-Cash Transactions It is IBIZ's policy to value stock issued for non-cash transactions at the stock closing price at the date the transaction is finalized. 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, 2001 and 2000, 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:
2001 2000 ----------------- ------------------ Accounts receivable $ 143,747 $ 457,113 Allowance for doubtful accounts 50,000 25,000 ----------------- ------------------ Net accounts receivable $ 93,747 $ 432,113 ================= ================== Allowance for doubtful accounts Balance, at beginning of year $ 25,000 $ 2,500 Additions for the year 80,534 97,500 Write-off of uncollectible accounts for the year ( 55,534) ( 75,000) ----------------- ------------------ Balance, at end of year $ 50,000 $ 25,000 ================= ==================
See Accompanying Notes and Independent Auditors' Report. 11 IBIZ TECHNOLOGY CORP. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 2001 AND 2000 NOTE 4 INVENTORIES
The inventories are comprised of the following: 2001 2000 ----------------- ------------------ Finished products $ 161,742 $ 391,479 Demonstration and loaner units 0 4,070 Office 5,000 44,033 ----------------- ------------------ $ 166,742 $ 439,582 ================= ================== NOTE 5 PROPERTY AND EQUIPMENT Property and equipment and accumulated depreciation consists of: 2001 2000 ----------------- ------------------ Co-Location equipment Computer equipment $ 0 $ 566,761 Rack system 0 297,317 Cabling and leasehold improvements 0 855,401 Tooling 68,100 68,100 Machinery and equipment 41,821 49,404 Office furniture and equipment 81,027 123,308 Vehicles 39,141 39,141 Leasehold improvements 0 23,179 Software 90,159 96,858 ----------------- ------------------ 320,248 2,119,469 Less accumulated depreciation 172,870 170,754 ----------------- ------------------ Total property and equipment $ 147,378 $ 1,948,715 ================= ==================
Depreciation expense for the years ended October 31, 2001 and 2000 was $ 246,019 and $35,667, respectively. NOTE 6 NET ASSETS HELD FOR SALE As stated in Note 1, the Company discontinued its Co-Location computer data and server operations. In January 2002, the Company sold a majority of its Co-Location assets to Arizona Internet LLC for $188,953. The following is a summary of the assets held for sale at October 31, 2001:
Sold to Arizona Internet LLC $ 188,953 Other property and equipment held for sale 249,918 ------------------ $ 438,871 ==================
See Accompanying Notes and Independent Auditors' Report. 12 IBIZ TECHNOLOGY CORP. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 2001 AND 2000 NOTE 6 NET ASSETS HELD FOR SALE (CONTINUED) The Co-Location operations are included in Discontinued Operations for the years ended October 31, 2001 and 2000. At October 31, 2001, the Company applied the provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," to net assets held for sale. SFAS No. 121 requires assets held for sale be valued on an asset-by- asset basis at the lower of carrying amount or fair value less costs to sell. In applying those provisions, Invnsys management considered recent appraisals, valuations, offers and bids, and its estimate of future cash flows related to those business assets. As a result, Invnsys recorded a loss of $1,401,372. This amount is shown in write-down of net assets held for sale in the accompanying statement of operations for the year ended October 31, 2001. In accordance with provisions of SFAS No. 121, the assets included in net assets held for sale will not be depreciated commencing November 1, 2001. NOTE 7 NOTES RECEIVABLE, OFFICERS
2001 2000 ----------------- ------------------ IBIZ Technology Corp. $ 0 $ 12,079 ----------------- ------------------ Notes due from two corporation officers. The notes were unsecured, accrued interest at 6% and are due on January 7, 2002. Invnsys Technology Corporation A note due from the president of the Company, which is payable on demand and accrues interest at 6%. The note was secured by 2,000,000 shares of the IBIZ's stock but during the year, the president removed the collateral and secured other corporation obligations with the 2,000,000 shares. In addition, the officer retracted his transfer of a 35% interest in the building lease as payment on the note, as reported on previous forms 10QSB. Management believes the note is uncollectible since IBIZ no longer has collateral for the note. The Company elected to write-off the loan as uncollectible by establishing an allowance for doubtful collec- tions for the total amount due on the note. Total amount of note 373,159 379,253 Less allowance for doubtful collection ( 373,159) 0 ----------------- ----------------- Net note 0 391,332 ----------------- ------------------ $ 0 $ 391,332 ================= ==================
See Accompanying Notes and Independent Auditors' Report. 13 IBIZ TECHNOLOGY CORP. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 2001 AND 2000 NOTE 8 CUSTOMER LIST The customer list and accumulated amortization consists of:
2001 2000 ----------------- ------------------ Cost $ 0 $ 11,900 Less accumulated amortization 0 ( 3,968) ----------------- ------------------ Net customer list $ 0 $ 7,932 ================= ==================
The amortization expense for the year ended October 31, 2001 and 2000 was $7,932 and $3,968, respectively. NOTE 9 TRADE NOTE PAYABLE TO GAMMAGE AND BURNHAM In July 2001, the Company issued a note to Gammage and Burnham, PLC for the payment of $80,000 of legal fees previously recorded in accounts payable. The note is secured by accounts receivable but the security is waived in favor of the note payable to Platinum Funding Corporation provided Gammage and Burnham PLC receives $2,500 each time that Invnsys draws against its factoring line. NOTE 10 ACCRUED LIABILITIES
Accrued liabilities consist of the following: 2001 2000 ----------------- ------------------ Interest $ 201,987 $ 25,790 Officers' bonuses 104,552 0 Bonuses, other 41,140 0 Wages 231,806 98,283 Severance wages 75,000 0 Vacation pay 41,238 33,713 Other 31,327 40,233 ----------------- ------------------ $ 727,050 $ 198,019 ================= ================== NOTE 11 INCOME TAXES 2001 2000 ----------------- ------------------ (Loss) from continuing operations before income taxes $ ( 4,640,718) $ ( 5,094,864) ----------------- ------------------ The provision for income taxes is estimated as follows: Currently payable $ 50 $ 50 ----------------- ------------------ Deferred $ 0 $ 0 ----------------- ------------------
See Accompanying Notes and Independent Auditors' Report. 14 IBIZ TECHNOLOGY CORP. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 2001 AND 2000 NOTE 11 INCOME TAXES (CONTINUED)
2001 2000 ----------------- ------------------ Significant components of the Company's deferred tax assets and liabilities are as follows at October 31: Deferred tax assets: Net operating loss carryforwards $ 2,241,000 $ 1,096,190 Accrued expenses and miscellaneous 134,700 23,651 Tax credit carryforward 38,424 38,424 ----------------- ------------------ 2,414,124 1,158,265 Less valuation allowance 2,414,124 1,158,265 ----------------- ------------------ Net deferred tax asset $ 0 $ 0 ================= ================== A reconciliation of the valuation allowance is as follows: Balance, at beginning of year $ 1,158,265 $ 356,638 Addition to allowance for the years ended October 31, 2001 and 2000 1,255,859 801,627 ----------------- ------------------ Balance, at end of year $ 2,414,124 $ 1,158,265 ================= ==================
NOTE 12 TAX CARRYFORWARDS The Company has the following tax carryforwards at October 31, 2001: Expiration Year Amount Date Net operating loss October 31, 1995 . $ 2,500 October 31, 2010 October 31, 1997 . 253,686 October 31, 2012 October 31, 1998 . 71,681 October 31, 2013 October 31, 1999 . 842,906 October 31, 2019 October 31, 2000 . 3,574,086 October 31, 2020 October 31, 2001 . 5,051,232 October 31, 2021 ---------------- $9,796,091 ========== Capital loss October 31, 1997 25,600 October 31, 2002 See Accompanying Notes and Independent Auditors' Report. 15 IBIZ TECHNOLOGY CORP. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 2001 AND 2000 NOTE 12 TAX CARRYFORWARDS (CONTINUED) Expiration Year Amount Date Contribution October 31, 1997 $ 545 October 31, 2002 October 31, 1999 2,081 October 31, 2004 October 31, 2000 3,008 October 31, 2005 October 31, 2001 1,000 October 31, 2006 Research tax credits 38,424 NOTE 13 CONVERTIBLE DEBENTURES
2001 2000 ------------------ ------------------ Lites Trading Company - $1,600,000 Debenture $ 750,000 $ 750,000 --------------------------------------------- On March 27, 2000, the Company issued $1,600,000 of 7% convertible debentures under the following terms and conditions: 1. Due date - March 27, 2005. 2. Interest only on May 1 and December 1 of each year commencing May 1, 2000. 3. Default interest rate - 18%. 4. Warrants to purchase 375,000 shares of common stock at $1.45 per share. 5. Conversion terms - The debenture holder shall have the right to convert all or a portion of the outstanding principal amount of this debenture plus any accrued interest into such number of shares of common stock as shall equal the quotient obtained by dividing the principal amount of this debenture by the applicable conversion price. 6. Conversion price - Lesser of (i) $1.45 (fixed price) or (ii) the product obtained by multiplying the average closing price by .80. 7. Average closing price - The debenture holder shall have the election to choose any three trading days out of twenty trading days immediately preceding the date on which the holder gives the Company a written notice of the holder's election to convert outstanding principal of this debenture. 8. Redemption by Company - If there is a change in control of the Company, the holder of the debenture See Accompanying Notes and Independent Auditors' Report. 16 IBIZ TECHNOLOGY CORP. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 2001 AND 2000 NOTE 13 CONVERTIBLE DEBENTURES (CONTINUED) 2001 2000 ------------------ ------------------ 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. $5,000,000 Convertible Debenture $ 1,891,456 $ 1,000,000 -------------------------------- On October 31, 2001, the Company issued 8% convertible debentures as follows: 1. Due date - October 30, 2002. 2. Interest payable quarterly from January 1, 2001. 3. Default interest rate - 20%. 4. On the first $ 1,000,000 of financing, the Company issued warrants to purchase 500,000 shares of stock at $ 0.48 per share. The Company reserved an additional 1,240,000 shares for future borrowing on this debenture line. 5. Put note purchase price - $4,000,000. 6. Fees and costs - 7% - 10% of cash received for debentures and warrants plus legal fees. 7. The Company must reserve a number of common shares equal to not less then 200% of the amount of common shares necessary to allow the debenture and warrant holder to be able to convert all such outstanding notes and put notes to common stock. 8. Conversion price for put notes. The initial 50% of the put notes shall be the lesser of: (i) 80% of the average of the three lowest closing bid prices for the stock for twenty two days or (ii) 80% of the average of the five lowest closing bid prices for the stock for sixty days. The conver- sion price of the balance of the put notes shall be 86% of the average of the three lowest closing bid prices for ten days. 9. The debentures have penalty clauses if the common stock is not issued when required by the debenture holder. See Accompanying Notes and Independent Auditors' Report. 17 IBIZ TECHNOLOGY CORP. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 2001 AND 2000 NOTE 13 CONVERTIBLE DEBENTURES (CONTINUED) 2001 2000 ------------------ ------------------ 10. The debentures are unsecured. 11. The Company's right to exercise the put commences on the actual effective date of the SEC Registration Statement and expires three years after the effective date. 12. Right of first refusal - The debenture holders have the right to purchase a proportionate amount of new issued shares in order to maintain their ownership interest percentage. Laurus Master Fund, Ltd. $ 414,473 ------------------------ In April and July 2001, the Company issued $500,000 and $150,000 of 8% convertible debentures under the following terms and conditions: 1. Due dates - April 2002 and July 2002. 2. Interest on September 30, 2001 and quarterly thereafter. 3. Default interest rate - 20%. 4. On the first financing, the Company issued warrants to purchase 1,500,000 shares of common stock at the lesser of $.1225 per share or an amount equal to the average of the three lowest closing prices for a ten day trading period. The Company may redeem the warrants for $.666 per share. On the second financing, the Company issued warrants to purchase 1,500,000 shares of common stock at the lesser of $.048 or an amount equal to 105% of the average of the three lowest closing bid prices for the common stock for the ten trading days prior to but not including the date the warrants are exercised. 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 - Lower of eighty percent of the average of the three lowest closing bid prices for a specified three day or twenty-two day period. See Accompanying Notes and Independent Auditors' Report. 18 IBIZ TECHNOLOGY CORP. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 2001 AND 2000 NOTE 13 CONVERTIBLE DEBENTURES (CONTINUED) 2001 2000 ------------------ ------------------ 7. Prepayment - The debenture may not be paid prior to the maturity date without the consent of the holder. ------------------ ------------------ Total debentures $ 3,055,929 $ 1,750,000 Less current portion 2,305,929 0 ------------------ ------------------ Long-term portion $ 750,000 $ 1,750,000 ================== =================
NOTE 14 NOTE PAYABLE, FACTOR On October 9, 2001, the Company entered into a two year factoring agreement with Platinum Funding Corporation. The terms of the agreement provide that Platinum Funding Corporation may purchase Invnsys' accounts receivable, without recourse, by advancing 70% of the sales invoice to Invnsys. The interest charged on the loan is based upon the period of time an invoice is unpaid and ranges from 3% to 15%. NOTE 15 NOTE PAYABLE, OTHER
2001 2000 ------------------ ------------------ 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 $36,000 and has a book value of $2,400. $ 14,532 $ 19,814 Less: current portion 5,721 5,335 ------------------ ------------------ Net long-term debt $ 8,811 $ 14,479 ================== ================== Maturities of long-term debt are as follows: Year ended October 31 2001 $ 0 $ 5,476 2002 5,721 5,721 2003 6,135 6,135 2004 2,676 2,482 ------------------ ------------------ $ 14,532 $ 19,814 ================== ==================
See Accompanying Notes and Independent Auditors' Report. 19 IBIZ TECHNOLOGY CORP. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 2001 AND 2000 NOTE 16 DISCONTINUED OPERATIONS APB 30 requires that an entity restate prior year financial statements to disclose the results of subsequent discontinued operations. The network integration services, digital subscriber line high speed internet connection services, and Co-Location computer data and server facility were discontinued on October 31, 2001. The October 31, 2000 statements of operations and cash flows were restated to segregate the (loss) from discontinued operations from continued operations. The following information is presented for the discontinued operations: A. Segments discontinued - as indicated above B. Discontinued date - October 31, 2001 C. Manner of disposal - write-down of assets to fair market value and sale of segments D. Remaining assets - asset held for sale of $438,871 after write-down of assets E. Income or loss on October 31, 2001 - none F. Partial proceeds from disposal of assets - $188,953. NOTE 17 COMPUTATION OF EARNINGS PER SHARE
Restated 2001 2000 ------------------ ------------------ From continuing operations Net (loss) from continuing operations $ ( 4,640,718) $ ( 5,094,864) ------------------ ------------------ Weighted average number of common shares outstanding 55,660,810 30,425,004 (Loss) per share $ ( 0.08) $ ( 0.17) From discontinued operations Net (loss) from continuing operations $ ( 2,108,076) $ ( 360,864) ------------------ ------------------ Weighted average number of common shares outstanding 55,660,810 30,425,004 (Loss) per share $ ( 0.04) $ ( 0.01) NOTE 18 CANCELLATION OF DEBT Settlement of lawsuit $ 101,369 Invnsys settled its lawsuit with Epson America, Inc. for $2,500 which generated $101,369 of income. Account payable The Company negotiated a cancellation of $122,000 account payable with a supplier. This cancellation resulted in $122,000 of income. 122,000 ------------------ $ 223,369 ==================
See Accompanying Notes and Independent Auditors' Report. 20 IBIZ TECHNOLOGY CORP. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 2001 AND 2000 NOTE 19 REAL ESTATE LEASE On June 1, 1999, Invnsys leased a new facility from a related entity. The lease commenced on July 1, 1999, required initial annual rentals of $153,600 (with annual increases) plus taxes and operating costs and expires on December 31, 2024. Invnsys has also guaranteed the mortgage on the premises in the amount of $929,514 and given a security interest in all of its assets, excluding inventory in the amount of $757,116. Future minimum lease payments excluding taxes and expenses, are as follows: October 31, 2002 ................... $ 169,344 October 31, 2003 ................... 177,816 October 31, 2004 ................... 186,708 November 1, 2004 - December 31, 2024 6,482,145 ---------- Total .............................. $7,016,013 ========== Rent expense for the years ended October 31, 2001 and 2000 was $ 190,551 and $160,311, respectively. In February 2002, the Company moved out of its facilities and the building was leased to Arizona Internet LLC. However, the Company is still liable for the conditions on the lease in the event Arizona Internet LLC defaults on the lease. NOTE 20 ADVERTISING All direct advertising costs are expensed as incurred. Invnsys charged to operations $204,058 and $764,595 in advertising costs for the years ended October 31, 2001 and 2000, respectively. NOTE 21 RESEARCH AND DEVELOPMENT Invnsys incurred research and development cost for the years ended October 31, 2001 and 2000 of $6,034 and $7,942, respectively. NOTE 22 WORKERS' COMPENSATION INSURANCE As of the date of this report, the Company does not have workers' compensation insurance for its employees. NOTE 23 OFFICERS' COMPENSATION The Company entered into employment agreements with four of its corporate officers. The contracts are for three years beginning July 2001 and provide for the following: 1. Salaries from $150,000 to $250,000 for each officer 2. Bonuses of 1% of total sales for each of its four officers See Accompanying Notes and Independent Auditors' Report. 21 IBIZ TECHNOLOGY CORP. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 2001 AND 2000 NOTE 23 OFFICERS' COMPENSATION (CONTINUED) 3. Options for 1,200,000 shares of common stock which will vest and be exercisable for a period of ten years 4. Option price of $.02 a share 5. Termination - Termination by the Company without cause - the employee shall receive six months salary Change of control - in the event of change of control, the Company shall pay the employee a lump sum payment of three years annual salary NOTE 24 BUSINESS SEGMENT INFORMATION The Company organizes its business based principally upon products and services. The Company operated in three reportable segments until October 2001, when it discontinued its Co- Location services, Web design and development and data center technical management services. Prior to the discontinuance of the above operations, the segment operations were classified as follows: Internet sales - Provided Co-Location and DSL income Product sales - Sales of Co-Location equipment, software and licenses, computer equipment and PDA'S Service segment - Provided miscellaneous services to Invnsys' customers A summary of business segments for the year ended October 31, 2001 and as of October 31, 2001 is as follows:
Services General Internet Product and and Sales Sales Other Administrative Consolidated Sales $ 640,851 $ 1,686,680$ 279,985 $ 0 $ 2,607,517 Operating (loss) ( 706,702) ( 61,702) ( 70,204) ( 5,910,186) ( 6,748,794) Identifiable assets 0 484,987 0 438,871 923,858 Expenditures for Long-term assets 162,924 0 2,812 0 165,736
NOTE 25 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 following factors raise substantial doubt as to the Company's ability to continue as a going concern: See Accompanying Notes and Independent Auditors' Report. 22 IBIZ TECHNOLOGY CORP. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 2001 AND 2000 NOTE 25 GOING CONCERN (CONTINUED) A. Continued operating losses B. Negative working capital C. Lack of cash to purchase products to complete sales orders D. Delinquent payroll taxes E. Unpaid wages F. Decline in national economy Management's plans to eliminate the going concern situation include but are not limited to: A. Reduction in operating overhead. The Company reduced its payroll from approximately 50 employees to 8. B. Moved its office and warehouse facility. The Company anticipates that rent, utilities and property taxes will be reduced by $200,000 per year. C. Discontinued segments that were not profitable. D. Partial sale of assets held for sale. E. Arranged for new financing through convertible debentures. F. Paid, some but not all, delinquent payables and unpaid wages through the issuance of common stock. G. Requested abatement of delinquent payroll tax penalties. H. Arranged for officers of the Company to defer payment of their salaries until working capital increases. I. Purchased products to complete sales orders from funds received from the new debenture financing. NOTE 26 CASH IN BANK At October 31, 2000, the Company had $995,583 deposited in one banking institution. Only $200,000 of the balance was insured by the Federal Deposit Insurance Corporation. NOTE 27 EMPLOYEE STOCK OPTIONS On January 31, 1999, the corporation adopted the 1999 stock option plan for the purpose of providing an incentive based form of compensation to the officers, directors, key employees and service providers of the Company. 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 10,000,000 shares, which shares shall be reserved for use upon the exercise of options to be granted from time to time. See Accompanying Notes and Independent Auditors' Report. 23 IBIZ TECHNOLOGY CORP. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 2001 AND 2000 NOTE 27 EMPLOYEE STOCK OPTIONS (CONTINUED) The exercise price is the fair market value of the shares (average of bid and ask price) at the date of the grant of the options. Vesting terms of the options range from immediately to five years. 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. A summary of the option activity for the years ended October 31, 2001 and 2000, pursuant to the terms of the plan is as follows:
Shares Weighted Under Average Option Exercise Price Options outstanding at November 1, 1999 2,350,000 $ 0.75 Granted 1,655,000 0.75 Exercised ( 90,000) ( 0.75) Cancelled and expired ( 530,000) 0 ------------ Options outstanding at October 31, 2000 3,385,000 $ 0.92 ============ Options outstanding at November 1, 2000 3,385,000 $ 0.92 Granted 1,200,000 .02 Exercised 0 Cancelled and expired ( 1,440,000) ( 0.95) ------------ Options outstanding at October 31, 2001 3,145,000 $ 0.56 ============
1,885,000 shares are exercisable at October 31, 2001
Information regarding stock options outstanding as of October 31, 2001 and 2000 is as follows: 2001 2000 ----------------- ---------------------- Price range $0.02 - $2.00 $0.53 - $2.00 Weighted average exercise price $0.56 $0.92 Weighted average remaining contractual life 8 years, 4 months 8 years, 8 months Options exercised Price range 0 $0.75 Shares 0 90,000 Weighted average exercise price 0 $0.75
See Accompanying Notes and Independent Auditors' Report. 24 IBIZ TECHNOLOGY CORP. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 2001 AND 2000 NOTE 27 EMPLOYEE STOCK OPTIONS (CONTINUED)
2001 2000 ---------------------- ---------------------- The weighted average fair value of options granted in the years ended October 31, 2001 and 2000 were estimated as of the date of grant using the Black- Scholes stock option pricing model, based on the following weighted average assumptions: Dividend yield 0 0 Expected volatility 50 % 50 % Risk free interest rate 5.13% - 6.65 % 5.13% - 6.65 % Expected life 10 years 10 years
For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information follows:
2001 2000 ---------------------- ---------------------- Net (loss) from continuing operations As reported $ ( 4,640,718) $ ( 5,094,864) Pro forma $ ( 5,538,095) $ ( 5,453,662) (Loss) per share attributable to common stock As reported $ ( .08) $ ( .17) Pro forma $ ( .10) $ ( .18)
NOTE 28 COMMON STOCK PURCHASE WARRANTS As of October 31, 2001 the Company has issued the following common stock purchase warrants:
Number Exercise Date of Shares Term Price -------------------- ------------------ ------------------ ------------------ May 13, 1999 100,000 3 years $ 1.00 May 7, 1999 80,000 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 615,000 5 years $ 1.45 - 2.05
See Accompanying Notes and Independent Auditors' Report. 25 IBIZ TECHNOLOGY CORP. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 2001 AND 2000 NOTE 28 COMMON STOCK PURCHASE WARRANTS (CONTINUED)
Number Exercise Date of Shares Term Price -------------------- ------------------ ------------------ ------------------ May 17, 2000 125,000 5 years $ 1.04 - 5.00 August 30, 2000 34,125 5 years $ .937 August 30, 2000 250,000 3 years $ .50 August 30, 2000 250,000 3 years $ .75 August 30, 2000 36,364 3 years $ 1.00 September 3, 2000 109,000 3 years $ 1.00 September 27, 2000 278,750 3 years $ .90 October 31, 2000 500,000 2 years $ .4755 December 20, 2000 400,000 5 years $ .2275 December 20, 2000 150,000 5 years $ .2275 April 26, 2001 1,500,000 5 years $ .1225 June 22, 2001 1,500,000 5 years $ .042 June 27, 2001 1,500,000 5 years $ .048 August 21, 2001 525,000 5 years $ .039 October 9, 2001 350,000 5 years $ .0256 ----------------- 9,059,489
9,059,489 shares are exercisable at October 31, 2001. NOTE 29 LEGAL PROCEEDINGS Invnsys had five lawsuits filed against it for unpaid accounts payable and wages. Three of the lawsuits totaling $73,000 were settled with an agreement to issue stock to the debtor or to make payments on the debt. Two of the lawsuits for unpaid wages totaling $9,300 are being negotiated for final settlements. The $82,300 on the lawsuits is included in accounts payable and accrued liabilities. NOTE 30 ECONOMIC DEPENDENCY For the year ended October 31, 2001, Invnsys had sales of approximately 24% of its PDA's to one customer. Invnsys purchased approximately 18% of its PDA's from one supplier. For the year ended October 31, 2000, Invnsys purchased the majority of its computer equipment from three suppliers. See Accompanying Notes and Independent Auditors' Report. 26 IBIZ TECHNOLOGY CORP. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 2001 AND 2000 NOTE 31 SECURITIES AND EXCHANGE PROCEEDING On February 28, 2001, the Securities and Exchange Commission commenced an administrative proceeding against the Company. The Company has negotiated and submitted a settlement offer, which has been formally approved by the Commission. Pursuant to this settlement agreement, an administrative order has been issued which orders the Company to cease and desist from committing or causing any future violations of Section 10(b) of the Securities and Exchange Act of 1934 and Rule 10b-5 thereunder. No other relief against the Company is being sought. NOTE 32 SUBSEQUENT EVENTS The following events occurred after the year end October 31, 2001: A. Amendment of Articles of Incorporation The Articles of Incorporation were amended to increase the number of authorized shares of common stock from 100,000,000 to 450,000,000 and authorized the creation of 50,000,000 shares of blank check preferred stock. B. 2001 Stock Option Plan On November 21, 2001, the stockholder approved the IBIZ Technology Corp. 2001 stock option plan. The plan provides for the grant of stock options to purchase common stock to eligible directors, officers, key employees and service providers to IBIZ. The 2001 stock option plan covers an aggregate maximum of 10,000,000 shares of common stock and provides for the granting of both incentive stock options and non-qualified stock options. 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. In July, 2001, 1,200,000 options had been granted at exercise prices of between $0.53 and $5.00. The options have been granted for periods ranging from one to ten years. The options vest from dates that range from immediate to five year periods. C. Payment of Accounts Payable The Company paid and settled $274,625 of accounts payable by the issuance of 22,750,000 shares of IBIZ's common stock. D. Stock Issued to Employees to Pay Prior Year Bonuses and for Employee Retention The Company issued 18,700,000 shares of common stock as follows:
Shares Amount Issued Bonuses payable at October 31, 2001 $ 41,140 9,350,000 Retention 41,140 9,350,000 ------------------ ------------------ $ 82,280 18,700,000 ================== ===================
See Accompanying Notes and Independent Auditors' Report. 27 IBIZ TECHNOLOGY CORP. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 2001 AND 2000 NOTE 32 SUBSEQUENT EVENTS (CONTINUED) In addition 8,200,000 shares of common stock were issued to the president of the Company. 4,200,000 shares were issued for employee retention and 4,200,000 were issued for payment of unpaid wages. E. Increase in Convertible Debentures In January 2002, the Company received $222,500 cash for new convertible debentures. F. Decreases in Convertible Debentures From November 2001 to January 18, 2002, the convertible debenture holders converted $284,844 of principal plus $17,622 of interest for 48,370,704 shares of the Company's common stock. G. Share Exchange Between Debenture Holders and the President of the Company. In the year ended October 31, 2001, the Company did not have sufficient authorized shares to enable the debenture holders to convert their debentures. The president of the Company transferred 9,285,600 shares of his stock to the debenture holders in lieu of their conversion. On November 8, 2001, the debenture holders gave back to the corporation 9,285,600 shares which became treasury stock. On December 5, 2001, the Company reimbursed the president for giving his shares to the debenture holders by issuing him the 9,285,600 treasury shares plus 5,714,400 of new common stock of the Company. H. Sale of Assets Held for Sale On December 21, 2001, Invnsys sold all of the properties, rights and assets used in connection with the internet service segment of Invnsys' operations. The services sold include the provision of dial up Internet access, dedicated internet access, Web hosting and Web page development services, Co-Location and bandwidth and managed server services to residential and commercial customers. The purchase price was paid in cash and amounted to $188,953. After the sale, Invnsys still owned $249,818 of property and equipment held for sale. I. New Subsidiary Corporations On November 1, 2001, the Company formed the following new subsidiary corporations: IBIZ, Inc. Q HOST, Inc. Management believes the Company will be able to attract new financing through these subsidiary corporations. J. Lease of New Facilities On January 8, 2002, IBIZ, Inc. leased its office and warehouse facilities under the following terms and conditions. See Accompanying Notes and Independent Auditors' Report. 28 IBIZ TECHNOLOGY CORP. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 2001 AND 2000 NOTE 32 SUBSEQUENT EVENTS (CONTINUED)
1. Term - Three years from February 1, 2002 to January 31, 2005 2. Size of facility - 4,343 square feet 3. Base rent - Monthly rentals plus taxes and common area operating expenses 4. Base rental schedule - Months Rent 1 - 12 $ 2,172 13 - 24 3,692 25 - 36 4,343
K. Unpaid Officers' Salaries On December 20, 2001, the Board of Directors authorized the issuance of convertible debentures to the officers of the Company as consideration for their unpaid wages. As of the date of this report, the debentures have not been issued. L. Increase in Warrants From January 15, 2002 to January 29, 2002, the Company issued an additional 5,666,666 warrants to purchase the Company's common stock. The warrants are for 5 years and may be exercised at 105% of the average closing price of the shares over a specified period of time. M. Preferred Stock On December 20, 2001, the Board of Directors authorized the issuance of 3,500,000 shares of preferred stock to three officers and one director in lieu of their annual bonus and retention incentives. The preferred stock will have a 10:1 conversion rate from common stock to preferred stock and will have a "super" voting right of 100:1. As of the date of this report the preferred stock had not been issued. N. Convertible Lock Agreement In January 2002, the debenture holders agreed that they would not convert any debentures for 60 days and further that they would not convert any debentures for six months unless the market price of the stock exceeds $0.02. See Accompanying Notes and Independent Auditors' Report. 29 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
Name Age Position Kenneth W. Schilling 50 President, Chief Executive Officer and Director Mark Perkins 38 Executive Vice President and Director
Directors serve until the next annual meeting and until their successors are elected and qualified. Officers are appointed to serve for one year until the meeting of the board of directors following the annual meeting of stockholders and until their successors have been elected and qualified. There are no family relationships between any of our directors or officers. Kenneth W. Schilling founded INVNSYS' predecessor, SouthWest Financial Systems, in 1979, and has been Chief Executive Officer, President and a Director since INVNSYS' founding. Mr. Schilling studied for a B.S. in electrical engineering at the University of Pittsburgh from 1970 to 1972 but left for military service prior to receiving his degree. Mark H. Perkins joined INVNSYS in 1994 and currently serves as Executive Vice President. Mr. Perkins was appointed to iBIZ's Board on March 5, 1999. Prior to his joining INVNSYS, Mr. Perkins was employed at American Express as a project manager for major systems implementation, a position he held for eight years. Mr. Perkins earned a degree in business management from California State University-Sonoma. ITEM 10. EXECUTIVE COMPENSATION. The following table sets forth certain compensation paid or accrued by us to certain of our executive officers during fiscal years ended 2001, 2000 and 1999.
Summary Compensation Table ----------------------------------------------------------------------------------------------------------- Fiscal Salary Name and Principal Position Year ($) Bonus ($) Options(#) ----------------------------------------------------------------------------------------------------------- Kenneth W. Schilling, President & CEO 2001 200,000 26,138 300,000 ----------------------------------------------------------------------------------------------------------- 2000 200,000 40,000 1999 200,000 250,000 Terry S. Ratliff, Vice President, Chief Financial Officer, Director* 2001 150,000 26,138 300,000 2000 88,000 40,000 1999 88,000 300,000 Mark H. Perkins, Executive Vice President, Director 2001 150,000 26,138 300,000 2000 88,000 40,000 1999 88,000 300,000
* As of October 31, 2001, Ms. Ratliff resigned from the Company. Options Granted During Most Recent Financial Year. The following table sets out information relating to options granted during the most recent financial year to the Named Executive Officers.
========================== ============== =================== ================= =============== Securities % of Total Under Options Granted Name Options to Employees in Exercise price Expiration Granted Financial Year ($/Security) Date -------------------------- -------------- ------------------- ----------------- --------------- Kenneth W. Schilling, President & CEO 300,000 25% $0.02 July 2011 -------------------------- -------------- ------------------- ----------------- --------------- Terry S. Ratliff, Vice 300,000 25% $0.02 July 2011 President, Chief Financial Officer, Director* -------------------------- -------------- ------------------- ----------------- --------------- Mark H. Perkins, 300,000 25% $0.02 July 2011 Executive Vice President, Director ========================== ============== =================== ================= =============== * As of October 31, 2001, Ms. Ratliff resigned from the Company.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values ------------------------------------------------------------------------------------------------------------ Name Shares Value Number of Unexercised Value of Unexercised Options at Fiscal Year In-the-Money Options at Acquired on End Exercisable/ Fiscal Year End Exercisable/ Exercise (#) Realized ($) Un-exercisable Un-exercisable (1) ------------------------------------------------------------------------------------------------------------ Kenneth W. Schilling -0- -0- 625,000/25,000 $0/$0 Terry S. Ratliff -0- -0- 625,000/25,000 $0/$0 Mark H. Perkins -0- -0- 625,000/25,000 $0/$0 ------------------------------------------------------------------------------------------------------------
(1) None of the options are "in-the-money." There were no long-term incentive plans or rewards made in fiscal 2000. Compensation of Directors Employment Agreements Employment Agreement For Kenneth W. Schilling. Effective July 12, 2001, Kenneth W. Schilling and iBIZ entered into an Employment Agreement (the "Agreement"). 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 three years ending July 12, 2004. Under the Agreement, Mr. Schilling shall receive an annual base salary of $250,000. Mr. Schilling will also receive three hundred thousand (300,000) options to purchase three hundred thousand (300,000) shares of common stock of iBIZ at an exercise price to be determined by the Board based upon the closing price of the Company's common stock. In addition, Mr. Schilling will also receive a bonus equal to one percent 1% of the total sales of the Company recorded in the preceding fiscal quarter. Employment Agreement For Mark Perkins. Effective July 12, 2001, Mark Perkins and iBIZ entered into an Employment Agreement (the "Agreement"). Under the Agreement, Mr. Perkins has been retained to act as Executive Vice-President of iBIZ. The Agreement is for a term of three years ending July 12, 2004. Under the Agreement, Mr. Perkins shall receive an annual base salary of $150,000. Mr. Perkins will also receive three hundred thousand (300,000) options to purchase three hundred thousand (300,000) shares of common stock of iBIZ at an exercise price to be determined by the Board based upon the closing price of the Company's common stock. In addition, Mr. Perkins will also receive a bonus equal to one percent 1% of the total sales of the Company recorded in the preceding fiscal quarter. In addition to the foregoing, each Agreement contains the following termination provisions: "(a) Termination By The Company For Cause: The Company shall have the right to terminate this Agreement and to discharge Employee for cause (hereinafter "Cause"), and all compensation to Employee shall cease to accrue upon discharge of Employee for Cause. For the purposes of this Agreement, the term "Cause" shall mean (i) Employee's conviction of a felony; (ii) the alcoholism or drug addiction of Employee; (iii) gross negligence or willful misconduct of Employee in connection with his duties hereunder; (iv) the determination by any regulatory or judicial authority (including any securities self-regulatory organization) that Employee directly violated, before or after the date hereof, any federal or state securities law, any rule or regulation adopted thereunder; or (v) the continued and willful failure by Employee to substantially and materially perform his material duties hereunder. (b) Termination By The Company Without Cause: In the event Employee's employment hereunder shall be terminated by the Company for other than Cause: (1) the Employee shall thereupon receive as severance in a lump sum payment from the Company the amount of one (1) year of Salary in effect at the time of such termination. (c) Resignation: In the event Employee resigns without Reason, he shall receive any unpaid fixed salary through such resignation date and such benefits to which he is entitled by law, and shall also receive a lump sum payment from the Company in the amount of six (6) months Salary in effect at the time of such resignation. (d) Change of Control: In the event of a Change in Control, as hereinafter defined, the Company shall pay the Employee in a lump sum the amount of three (3) years of annual Salary in effect at the time of such Change in Control. Such payment and grant shall be made regardless of the continuation or termination of Employee's employment with the Company after a Change of Control, and shall be in addition to, and not in lieu of, any other payments or issuances due pursuant to the terms of this agreement. For purposes hereof, a Change in Control shall be deemed to have occurred (i) if there has occurred a "change in control" as such term is used in Item 1 (a) of Form 8-K promulgated under the Securities Exchange Act of 1934, as amended, at the date hereof ("Exchange Act") or (ii) if there has occurred a change in control as the term "control" is defined in Rule 12b-2 promulgated under the Exchange Act." ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICAL OWNERS AND MANAGEMENT. As of February 26, 2002, there were 223,409,275 shares of common stock, par value $0.001 outstanding. The following table sets forth certain information regarding the beneficial ownership of our common stock as of February 26, 2002: - all directors - each person who is known by us 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 60 days of September 30, 2001, through the exercise of any stock option or other right. Unless otherwise indicated, each person listed below has sole investment and voting power (or shares such powers with his or her spouse). In certain instances, the number of shares listed includes (in addition to shares owned directly), shares held by the spouse or children of the person, or by a trust or estate of which the person is a trustee or an executor or in which the person may have a beneficial interest.
--------------------------------------------------------------------------------------------------------- Number of Shares of Common Stock Beneficially Owned ---------------------------------------------------------------------------------------------------------- Name and Address of Beneficial Owner Shares Vested Options (1) Total (1) Percent (1) ---------------------------------------------------------------------------------------------------------- Kenneth W. Schilling(2) -------- 625,000 625,000 * 1919 W. Lone Cactus Drive Phoenix, AZ 85021 Moorea Trust(2) 1919 W. Lone Cactus Drive Phoenix, AZ 85021 9,710,480 --------- 9,710,480 4.4% Mark H. Perkins 1919 W. Lone Cactus Drive Phoenix, AZ 85021 1,771,200 625,000 2,096,200 * All directors and officers as group (2 persons)(3) 11,148,680 1,250,000 12,731,680 5.7% ----------------------------------------------------------------------------------------------------------
(1) "*" means less than one percent. (2) Kenneth and Diane Schilling, husband and wife, hold the shares as trustees under the Moorea Trust dated December 18, 1991. (3) Includes Kenneth Schilling, and Mark Perkins. iBIZ Technology Corp. Stock Option Plan The iBIZ Technology Corp. 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 (10,000,000) 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 October 31, 2001, 3,145,000 options had been granted to 37 persons (net of cancelled and exercised) under the plan at exercise prices of between $0.53 and $5.00. As of February 26, 2002, the market price of the stock was $0.006. The options have been granted for periods ranging from 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 stock option plan benefits currently have no value, as all of the outstanding options were issued at exercise prices greater than the current price of our common stock. The Board of Directors administers and interprets the stock option plan and is authorized to grant options thereunder to all eligible persons. In the event the Board has at least two (2) members who are not either employees or officers of iBIZ or of any parent or subsidiary of iBIZ, the stock option plan will be administered by a committee of not less than two (2) persons who are such independent directors. The Board designates the optionees, the number of shares subject to the options and the terms and conditions of each option. Certain changes in control of iBIZ, as defined in the stock option plan, will cause the options to vest immediately. Each option granted under the stock option plan must be exercised, if at all, during a period established in the grant 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 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. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. While a private company, INVNSYS (now iBIZ) 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 January 31, 2001, the balance of the loans payable by Mr. Schilling to INVNSYS totaled approximately Three Hundred Eighty-Four Thousand Nine Hundred Eighty-Eight Dollars and Ninety-Four Cents ($384,988.94). Mr. Schilling, as trustee of the Moorea Trust, pledged 2,000,000 shares of iBIZ common stock to secure this debt. As of October 31, 2001, this loan was considered uncollectible because there is no longer collateral guaranteeing the loan. In November 2001, the Board of Directors approved a resolution authorizing us to accept 9,285,600 shares of our common stock from Mr. Ken Shilling, and that we apply such shares to our authorized and un-issued capital stock so that it may be used for future offerings. To compensate Mr. Schilling for his contribution of the 9.285,600 shares, the Board of Directors agreed to issue 15,000,000 shares of our common stock to Mr. Schilling upon the increase of our authorized common stock from 100,000,000 to 450,000,000. ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K. No reports were filed on Form 8-K for the last quarter of our fiscal year ending October 31, 2001.
----------------- ------------------------------------------------------------------------------------------- Exhibit No. Description ----------------- ------------------------------------------------------------------------------------------- 2.01(1) Plan of Reorganization and Stock Exchange Agreement dated January 1, 1999 3.01(1) Articles of Incorporation, as amended 3.02(1) Bylaws 5.01 Opinion of Sichenzia, Ross, Friedman & Ference LLP 10.01(1) Citrix Business Alliance Membership Agreement dated February 10, 1999, between INVNSYS and Citrix Systems, Inc. 10.02(1) Client Software License Agreement dated December 30, 1998, between INVNSYS and Citrix Systems, Inc. 10.03(1) IBIZ Technology Corporation Distributed Software License Agreement dated June 2, 1999, between iBIZ and Jeremy Radlow 10.04(1) 3Com Designed for Palm Computing Platform Logo License Agreement, between iBIZ and Palm Computing, Inc. 10.05(1) IBIZ Technology Corp. Stock Option Plan dated January 31, 1999 10.06(1) Form of Stock Option 10.07(1) Lease Agreement dated June 1, 1999, between iBIZ and Lone Cactus Capital Group, L.L.C. 10.08(1) Strategic Teaming and Marketing Agreement dated February 18, 1999, between iBIZ and Global Telephone Communication, Inc. 10.09(1) Form of iBIZ Technology Corp. Common Stock Purchase Warrant 10.10(1) Form of iBIZ Technology Corp. Convertible Debenture 10.11(1) Employment Agreement dated March 5, 1999, as amended, between iBIZ, INVNSYS and Kenneth Schilling 10.12(1) Employment Agreement dated March 5, 1999, as amended, between iBIZ, INVNSYS and Terry Ratliff 10.13(1) Employment Agreement dated March 5, 1999, as amended, between iBIZ, INVNSYS and Mark Perkins 10.14(2) Securities Purchase Agreement dated November 9, 1999, between iBIZ and Globe United Holdings, Inc. 10.15(2) 7% Convertible Debenture Due November 9, 2004, between iBIZ and Globe United Holdings, Inc. 10.16(2) Warrant dated November 9, 1999 10.17(2) Registration Rights Agreement dated November 9, 1999, between iBIZ and Globe United Holdings, Inc. 10.183 Securities Purchase Agreement dated December 29, 1999, between iBIZ and Globe United Holdings, Inc. 10.193 7% Convertible Debenture Due December 29, 2004, between iBIZ and Globe United Holdings, Inc. 10.203 Warrant dated December 29, 1999 10.213 Registration Rights Agreement dated December 29, 1999, between iBIZ and Globe United Holdings, Inc. 10.223 Subscription Agreement for Common Stock of iBIZ Technology Corp. 10.234 Master Distribution Agreement dated January 12, 2000, between iBIZ and Harsper Co. Ltd. 10.245 Letter Agreement dated December 14, 1999, between iBIZ and Josephthal & Co., Inc. 10.255 Financial Project Management Agreement dated January 20, 2000, between iBIZ and Equinet, Inc. 10.266 Securities Purchase Agreement dated March 27, 2000, between iBIZ and Lites Trading, Co. 10.276 7% Convertible Debenture Due March 27, 2000, between iBIZ and Lites Trading, Co. 10.286 Warrant dated March 27, 2000 10.296 Registration Rights Agreement dated March 27, 2000, between iBIZ and Lites Trading, Co. 10.306 Letter Agreement dated March 27, 2000, from Globe United Holdings to iBIZ 10.317 Financial Consulting Services Agreement dated June 16, 2000 with Travis Morgan Securities. 10.327 Agreement with the Partnership of Sklar and Ruzycki dated July 6, 2000. 10.3310 Form of Warrant dated August 30, 2000 (six warrants by and between iBIZ Technology Corp., and various warrant holders) 10.3410 Form of Warrant dated May 17, 2000 (four warrants by and between iBIZ Technology Corp., and various warrant holders) 10.358 Subscription Agreement for Notes Convertible into Common Stock of iBIZ Technology Corp. 10.368 Form of 8% Convertible Notes Due Oct. 30, 2002 10.378 Funds Escrow Agreement 10.388 Form of Warrant dated Oct. 30, 2000. 10.393 Modification and Waiver by and among iBIZ Technology and Subscribers to 8% Convertible Notes Agreement, dated as of April 17, 2001 10.4011 Subscription Agreement for Notes Convertible into Common Stock of iBIZ Technology Corp., dated as of April 26, 2001 10.4111 Form of 8% Convertible Notes Due April 26, 2003 10.4211 Form of Warrant dated April 26, 2001, 2000 10.43 Form of Subscription Agreement for Notes Convertible into Common Stock of iBIZ Technology Corp., dated as of October 9, 2001 10.44 Form of 8% Convertible Notes Due October 9, 2002 10.45 Form of Warrant dated October 9, 2001 Form of Subscription Agreement for Notes Convertible into Common Stock of iBIZ Technology 10.46 Corp., dated as of August 21, 2001 between iBiz Technology and Laurus Master Fund, Ltd. and Keshet, L.P. 10.47 Form of 8% Convertible Note Due October August 21, 2002 between iBiz Technology and Laurus Master Fund, Ltd. 10.48 Form of Warrant dated August 21, 2001 issued to Laurus Master Fund, Ltd. 10.49 Form of 8% Convertible Note Due October August 21, 2002 between iBiz Technology and Keshet, L.P. 10.50 Form of Subscription Agreement for Notes Convertible into Common Stock of iBIZ Technology Corp., dated as of July 30, 2001 between iBiz Technology and Laurus Master Fund, Ltd., Esquire Trading & Finance, Inc. and Celeste Trust Reg. 10.51 Form of 8% Convertible Note Due October July 30, 2002 between iBiz Technology and Laurus Master Fund, Ltd. 10.52 Form of Warrant dated July 30, 2001 issued to Laurus Master Fund, Ltd. 10.53 Form of 8% Convertible Note Due October July 30, 2002 between iBiz Technology and Esquire Trading & Finance, Inc.. 10.54 Form of Warrant dated July 30, 2001 issued to Esquire Trading & Finance, Inc. 10.55 Form of 8% Convertible Note Due October July 30, 2002 between iBiz Technology and Celeste Trust Reg. 10.56 Form of Warrant dated July 30, 2001 issued to Celeste Trust Reg. 10.57 Form of Subscription Agreement for Notes Convertible into Common Stock of iBIZ Technology Corp., dated as of June 22, 2001 between iBiz Technology and The Keshet Fund, L.P. 10.58 Form of 8% Convertible Note Due October June 22, 2002 between iBiz Technology and The Keshet Fund, L.P. 10.59 Form of Warrant dated July 30, 2001 issued to The Keshet Fund, L.P. 21.01(1) Subsidiaries of Company 23.01 Consent of Moffitt & Company 23.02 Consent of Sichenzia, Ross, Friedman & Ference LLP (contained in opinion filed as Exhibit 5.01) 99.019 Press Release dated January 12, 2001 ---
Incorporated by reference from iBIZ's Form 10-SB, File No. 000-27619, filed with the SEC on October 13, 1999 Incorporated by reference from iBIZ's Form 10-SB/A, File No. 000-27619, filed with the SEC on November 30, 1999. Incorporated by reference from iBIZ's Form SB-2, File No. 333-94409, filed with the SEC on January 11, 2000. Incorporated by reference from iBIZ's Form 10-KSB, File No. 000-027619, filed with the SEC on January 7, 2000. Incorporated by reference from iBIZ's Form 10-QSB, File No. 000-027619, filed with the SEC on March 16, 2000. Incorporated by reference from iBIZ's Form SB-2, File No. 333-34936, filed with the SEC on April 17, 2000. Incorporated by reference from iBIZ's Form SB-2, File No. 333-42414, filed with the SEC on July 28, 2000. Incorporated by reference from iBIZ's Form SB-2, File No. 333-50564, filed with the SEC on November 22, 2000. Incorporated by reference from iBIZ's Form 8-K, File No. 000-027619, filed with the SEC on January 19, 2001. Incorporated by reference from iBIZ's Form 10-KSB, File No. 000-027619, filed with the SEC on January 29, 2001. Incorporated by reference from iBiz's Form SB-2, File No. 333-63808, filed with the SEC on June 25, 2001. SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. iBIZ Technology Corp., a Florida Corporation By:/s/ Kenneth W. Schilling ---------------------------------------- Kenneth W. Schilling, President, Director Dated: February 27, 2002 In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By:/s/ Kenneth W. Schilling ---------------------------------------- Kenneth W. Schilling, President, Director Dated: February 27, 2002 By:/s/ Mark H. Perkins ---------------------------------------- Mark H. Perkins, Vice President of Operations, Director Dated: February 27, 2002