SB-2 1 ibiz_sb2-100702.txt As filed with the Securities and Exchange Commission on October 9, 2002 Registration Statement No. 333- U. S. Securities and Exchange Commission Washington, D.C. 20549 FORM SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 IBIZ TECHNOLOGY CORP. --------------------- (Name of small business issuer in its charter) Florida 7379 ------- ---- (State or other jurisdiction of (Primary Standard Industrial incorporation or organization) Employer Classification Code Number) 86-0933890 ---------- (I.R.S. Employer Identification No.) 2238 West Lone Cactus Drive, Suite 200, Phoenix, Arizona 85021, (623) 492-9200 ------------------------------------------------------------------------------ (Address and telephone number of principal executive offices) 2238 West Lone Cactus Drive, Suite 200, Phoenix, Arizona 85021 -------------------------------------------------------------- (Address of principal place of business or intended principal place of business) Mr. Kenneth Schilling, President iBIZ Technology Corp. 2238 West Lone Cactus Drive, Suite 200 Phoenix, Arizona 85021 ---------------------- (Name, address and telephone number of agent for service) Copy to: Gregory Sichenzia, Esq. Sichenzia Ross Friedman Ference LLP 1065 Avenue of the Americas, 21st flr. New York, New York 10018 Approximate date of proposed sale to the public: As soon as practicable after this registration statement becomes effective. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_| If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_| If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_| If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. |_| CALCULATION OF REGISTRATION FEE
------------------------------- -------------------- ---------------- ------------------ -------------------- Title of each class of Amount to be Proposed Proposed maximum Amount of securities to be registered registered maximum aggregate registration fee offering price offering price per share (2) ------------------------------- -------------------- ---------------- ------------------ -------------------- Common stock, $.001 par value 313,600,000 $.01 $3,136,000 $288.51 (1) ------------------------------- -------------------- ---------------- ------------------ -------------------- Common stock, $.001 par value 420,000 $.01 $4,200 $00.39 (3) ------------------------------- -------------------- ---------------- ------------------ -------------------- 314,020,000 $288.90 ------------------------------- -------------------- ---------------- ------------------ --------------------
(1) Includes shares of our common stock, par value $0.001 per share, which may be offered pursuant to this registration statement, which shares are issuable upon conversion of secured convertible debentures. We are also registering such additional shares of common stock as may be issued as a result of the anti-dilution provisions contained in such securities. The number of shares of common stock registered hereunder represents a good faith estimate by us of the number of shares of common stock issuable upon conversion of the debentures and upon exercise of the warrants. For purposes of estimating the number of shares of common stock to be included in this registration statement, we calculated 200% of the number of shares of our common stock issuable upon conversion of the debentures and upon exercise of the warrants. Should the conversion ratio result in our having insufficient shares, we will not rely upon Rule 416, but will file a new registration statement to cover the resale of such additional shares should that become necessary. (2) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(c) of the Securities Act, based on the closing bid price on the NASD OTC Bulletin Board on October 3, 2002. (3) Includes 200% of the shares underlying warrants exercisable at $.05 per share. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. PROSPECTUS Subject to Completion, Dated October 9, 2002 iBIZ TECHNOLOGY CORP. 314,020,000 shares of our common stock This prospectus relates to the resale by the selling stockholders of up to 314,020,000 shares of our common stock, based on current market prices. The selling stockholder may sell common stock from time to time in the principal market on which the stock is traded at the prevailing market price or in negotiated transactions. The selling stockholders may be deemed to be underwriters of the shares of common stock, which they are offering. We will pay the expenses of registering these shares. Our common stock is registered under Section 12(g) of the Securities Exchange Act of 1934 and is listed on the Over-The-Counter Bulletin Board under the symbol "IBZT." The last reported sales price per share of our common stock as reported by the Over-The-Counter Bulletin Board on October 3, 2002, was $.01. --------------- INVESTING IN THESE SECURITIES INVOLVES SIGNIFICANT RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 3. --------------- THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE NOT APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The information in this prospectus is not complete and may be changed. This prospectus is included in the registration statement that was filed by iBIZ Technology Corp., with the Securities and Exchange Commission. The Selling Stockholders may not sell these securities until the registration statement becomes effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. The date of this prospectus is __________ __, 2002. 1 Prospectus Summary GENERAL OVERVIEW iBIZ Technology, Corp. designs, manufactures, through subcontractors, and distributes a line of accessories for personal digital assistants and handheld computer market which are distributed through large retail chain stores and e-commerce sites. iBIZ. also markets LCD monitors, OEM debenturebook computers, third party software, and general purpose financial application keyboards. Our principal offices are located at 2238 West Lone Cactus Drive, Suite 200, Phoenix, Arizona 85021, and our telephone number is (623) 492-9200. Our web site is located at www.ibizcorp.com. iBIZ was formed under the laws of the state of Florida.
THIS OFFERING Common stock offered by selling stockholders (includes 200% of the shares underlying convertible debentures and Up to 314,020,000 shares, based on current warrants)................................................................. market prices and assuming full conversion of the convertible debentures, with interest for one year and the full exercise of the warrants. This number would represent 88.13% of our current outstanding stock. Common stock to be outstanding after the offering......................... Up to 359,020,000 shares Use of proceeds........................................................... We will not receive any proceeds from the sale of the common stock. Over-The-Counter Bulletin Board Symbol.................................... IBZT
The above information is based on: o 45,000,000 shares of common stock outstanding as of October 3, 2002; o subsequent conversions of our convertible debentures, with interest, and subsequent sale of the common stock underlying the debentures by the selling stockholders; o exercise of the warrants and subsequent sale of the common stock underlying the warrants by our selling stockholders; and o a 1 for 10 reverse stock split of our common stock, effectuated on October 3, 2002. 2 RISK FACTORS INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CONSIDER THE FOLLOWING DISCUSSION OF RISKS AS WELL AS OTHER INFORMATION IN THIS PROSPECTUS. THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE NOT THE ONLY ONES. ADDITIONAL RISKS AND UNCERTAINTIES NOT PRESENTLY KNOWN TO US OR THAT WE CURRENTLY DEEM IMMATERIAL ALSO MAY IMPAIR OUR BUSINESS OPERATIONS. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS COULD BE HARMED. IN SUCH CASE, THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE. EXCEPT FOR HISTORICAL INFORMATION, THE INFORMATION CONTAINED IN OUR SEC PROSPECTUSES ARE "FORWARD-LOOKING" STATEMENTS ABOUT OUR EXPECTED FUTURE BUSINESS AND PERFORMANCE. OUR ACTUAL OPERATING RESULTS AND FINANCIAL PERFORMANCE MAY PROVE TO BE VERY DIFFERENT FROM WHAT WE MIGHT HAVE PREDICTED AS OF THE DATE OF THIS PROSPECTUS. WE HAVE A HISTORY OF LOSSES AND ANTICIPATE FUTURE LOSSES WHICH WILL COMPEL US TO SEEK ADDITIONAL CAPITAL. For the fiscal year ended October 31, 2000, we sustained a loss of approximately $5,455,728 and for the fiscal year ended October 31, 2001, we sustained a loss of $6,748,794. Future losses are anticipated to occur. We continue to have insufficient cash flow to grow operations and we cannot assure you that we will be successful in reaching or maintaining profitable operations. WE HAVE A LIMITED PRODUCT RANGE WHICH MUST BE EXPANDED IN ORDER TO EFFECTIVELY COMPETE. To effectively compete in our industry, we need to continue to expand our business and generate greater revenues so that we have the resources to timely develop new products. We must continue to market our products and services through our direct sales force and expand our e-commerce distribution channels. At the present time, we have no other products in the development process. We cannot assure you that we will be able to grow sufficiently to provide the range and quality of products and services required to compete. WE HAVE FEW PROPRIETARY RIGHTS, THE LACK OF WHICH MAY MAKE IT EASIER FOR OUR COMPETITORS TO COMPETE AGAINST US. We attempt to protect our limited proprietary property through copyright, trademark, trade secret, nondisclosure and confidentiality measures. Such protections, however, may not preclude competitors from developing similar technologies. "PENNY STOCK" REGULATIONS MAY IMPOSE CERTAIN RESTRICTIONS ON MARKETABILITY OF OUR STOCK, WHICH MAY AFFECT THE ABILITY OF HOLDERS OF OUR COMMON STOCK TO SELL THEIR SHARES. The Securities and Exchange Commission has adopted regulations that generally define a "penny stock" to be any equity security that has a market price of less than $5.00 per share. Our common stock is currently subject to these rules that impose additional sales practice requirements. For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchase of the common shares and must have received the purchaser's written consent to the transaction prior to the purchase. The "penny stock" rules also require the delivery, prior to the transaction, of a risk disclosure document mandated by the SEC relating to the penny stock market. The broker-dealer must also disclose: o the commission payable to both the broker-dealer and the registered representative, o current quotations for the securities, and o if the broker-dealer is the sole market maker, the broker-dealer must disclose this fact and the broker-dealer's presumed control over the market. Finally, monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. 3 These rules apply to sales by broker-dealers to persons other than established customers and accredited investors (generally those with assets in excess of $1,000,000 or annual income exceeding $200,000, or $300,000 together with their spouse), unless our common shares trade above $5.00 per share. Consequently, the "penny stock" rules may restrict the ability of broker-dealers to sell our common shares, and may affect the ability to sell the common shares in the secondary market as well as the price at which such sales can be made. Also, some brokerage firms will decide not to effect transactions in "penny stocks" and it is unlikely that any bank or financial institution will accept "penny stock" as collateral. IF WE ARE REQUIRED FOR ANY REASON TO REPAY AN AGGREGATE OF $3,796,064 WORTH OF CONVERTIBLE DEBENTURES WE CURRENTLY HAVE OUTSTANDING, WE WOULD BE REQUIRED TO DEPLETE OUR WORKING CAPITAL, IF AVAILABLE, OR RAISE ADDITIONAL FUNDS. OUR FAILURE TO REPAY THE CONVERTIBLE DEBENTURES, IF REQUIRED, COULD RESULT IN LEGAL ACTION AGAINST US, WHICH COULD REQUIRE THE SALE OF SUBSTANTIAL ASSETS. As of October 3, 2002, we had an aggregate of $3,796,064 worth of convertible debentures outstanding. We anticipate that the full amount of the convertible debentures, together with accrued interest, will be converted into shares of our common stock, in accordance with the terms of the convertible debentures. If we are required to repay the convertible debentures, we would be required to use our limited working capital and raise additional funds. If we were unable to repay the debentures when required, the debenture holders could commence legal action against us and foreclose on all of our assets to recover the amounts due. Any such action would require us to curtail or cease operations. THE CONTINUOUSLY ADJUSTABLE CONVERSION PRICE FEATURE OF OUR CONVERTIBLE DEBENTURES MAY ENCOURAGE THE DEBENTURE HOLDERS TO MAKE SHORT SALES OF OUR COMMON STOCK, WHICH COULD HAVE A DEPRESSIVE EFFECT ON THE PRICE OF OUR COMMON STOCK AND COULD REQUIRE US TO ISSUE A SUBSTANTIALLY GREATER NUMBER OF SHARES. Our outstanding convertible debentures are convertible into shares of our common stock at a discount to the trading price of the common stock either prior to the issuance of the debentures or prior to the conversion, whichever is lower. The conversion feature may encourage the debenture holders to make short sales of the common stock prior to their conversions. Such sales could significantly depress the price of the common stock, allowing the debenture holders to convert into a substantially larger number of shares of common stock. OUR COMMITMENTS TO ISSUE ADDITIONAL COMMON STOCK MAY DILUTE THE VALUE OF YOUR STOCKHOLDINGS, ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON STOCK AND IMPAIR OUR ABILITY TO RAISE CAPITAL. We currently have outstanding commitments in the form of convertible debentures and warrants to issue a substantial number of new shares of our common stock. The shares subject to these issuance commitments are included in this prospectus and thus will be freely tradable. Furthermore, the number of shares issuable upon conversion of these securities is subject to adjustment, depending on the market price of our common stock. To the extent that the price of our common stock decreases, we will be required to issue additional shares upon conversion. There is essentially no limit to the number of shares that we may be required to issue. The following is an example of the amount of shares of our common stock that are issuable, upon conversion of the debentures, based on the market prices 25%, 50% and 75% below the current market value of $0.01 as of October 3, 2002:
With Discount Number of Shares Percentage of % Below Market Price Per Share of 50% Issuable Outstanding Stock -------------- --------------- ------ -------- ----------------- 25% $.0075 $.00375 209,066,667 83% 50% $.005 $.0025 313,600,000 88% 75% $.0025 $.00125 627,200,000* 100% * exceeds our authorized capital of 450,000,000.
4 As illustrated, the number of shares of common stock issuable upon conversion of the outstanding convertible debentures will increase if the market price of our stock declines, which will cause dilution to our existing stockholders. An increase in the number of shares of our common stock that will become available for sale in the public market may adversely affect the market price of our common stock and, as a result, could impair our ability to raise additional capital through the sale of our equity securities or convertible securities. OUR INDEPENDENT AUDITORS HAVE EXPRESSED DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN, WHICH MAY HINDER OUR ABILITY TO OBTAIN FUTURE FINANCING. In their report dated February 8, 2002, our independent auditors stated that our financial statements for the year ended October 31, 2001 were prepared assuming that we would continue as a going concern. Our ability to continue as a going concern is an issue raised as a result of a loss for the year ended October 31, 2001 in the amount of $6,748,794 and an accumulated deficit of $13,845,685 as of October 31, 2001. We continue to experience net operating losses. Our ability to continue as a going concern is subject to our ability to generate a profit and/or obtain necessary funding from outside sources, including obtaining additional funding from the sale of our securities, increasing sales or obtaining loans and grants from various financial institutions where possible. The going concern qualification in the auditor's report increases the difficulty in meeting such goals and there can be no assurances that such methods will prove successful. 5 USE OF PROCEEDS We will not receive any proceeds from the sale of the common stock offered by this prospectus. iBIZ intends to use the net proceeds from exercise of warrants, if any, primarily for working capital needs and general corporate purposes. There can be no assurance that any warrants will be exercised. 6 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 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." On October 3, 2002, we effectuated a 1 for 10 reverse stock split of our common stock and as a result our symbol was changed to "IBZT." 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 ---------------------- ----------------- ---------------- October 00 12.19 3.75 January 01 4.19 1.77 April 01 2.20 1.35 July 01 2.00 .10 October 01 5.50 .20 January 02 .115 .04 April 02 .14 .055 July 02 .07 .015 October 02* .06 .001 ---------------------- ----------------- ---------------- * As of October 3, 2002. In addition, all numbers reflect a 1 for 10 reverse stock split effectuated on October 3, 2002. As of October 3, 2002, 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. 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION Through its operating subsidiary, iBIZ Inc. designs, manufactures, and distributes personal digital assistant accessories (PDA accessories), small footprint desktop computers, transaction printers, general purpose financial application keyboards, numeric keypads, TFT-LCD monitors and related products. iBIZ also markets a line of OEM debenturebook computers and distributes a line of transactional and color printers. To provide a greater range of products, iBIZ resells third-party hardware, software and related supplies. SELECTED FINANCIAL INFORMATION
------------------------------------------------- ------------------------------------------------------- NINE MONTHS ENDED ------------------------------------------------- ------------------------------------------------------- 7/31/01 7/31/02 Statement of Operations Data $ $ ---------------------------- Sales 1,628,144 303,462 Gross profit (loss) 485,182 (45,044) Loss from continuing operations (3,093,929) (1,399,018) Net loss after tax (3,750,228) (1,838,065) Net loss per share Continuing operations (.06) (.00) Discontinuing operations .01 .00 Balance Sheet Data At 10/31/01 At 7/31/02 ------------------ Total assets 923,858 551,419 Total liabilities 4,868,336 3,956,344 Stockholders' equity (deficit) (3,944,478) (4,481,969) ------------------------------------------------- ------------------------------------------------------- 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 Loss from continuing operations (5,094,864) (4,640,715) Net loss after tax (5,455,728) (6,748,794) Net loss per share Continuing operations (.17) (.01) Discontinuing operations (.08) (.04) Balance Sheet Data At 10/31/00 At 10/31/01 ------------------ Total assets 4,016,882 923,858 Total liabilities 3,135,576 4,868,336 Stockholders' equity (deficit) 881,306 (3,944,478)
CRITICAL ACCOUNTING POLICIES Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgements that affect the reported amounts of assets, liabilities, revenues and expenses. In consultation with our Board of Directors and Audit Committee, we have identified five accounting principles that we believe are key to an understanding of our financial statements. These important accounting policies require management's most difficult, subjective judgements. 8 ACCOUNTS RECEIVABLE Accounts receivable are reported at the customer's outstanding balances less any allowance for doubtful accounts. ALLOWANCE FOR DOUBTFUL ACCOUNTS The allowance for doubtful accounts on accounts receivables is charged to income in amounts sufficient to maintain the allowance for uncollectible accounts at a level management believes is adequate to cover any possible losses. INVENTORIES Inventories are stated at the lower of cost (determined principally by average cost) or market. ACCOUNTING FOR CONVERTIBLE DEBT SECURITIES We have issued convertible debt securities with non-detachable conversion features. We account for such securities in accordance with Emerging Issues Task Force Topic D-60. We recorded the fair value of the beneficial conversion features as interest expense and an increase to Additional Paid in Capital. REVENUE RECOGNITION 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. STOCK-BASED COMPENSATION We have elected to follow Accounting Principles Board Opinion No. 25 Accounting for Stock Issued to Employees (APB 25) and the related interpretations in accounting for its employee stock options. Under APB 25, because the exercise price of employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recorded. We have adopted the disclosure -only provisions of Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation" (Statement No. 123). RESULTS OF OPERATIONS NINE MONTHS ENDED JULY 31, 2001 COMPARED TO THE NINE MONTHS ENDED JULY 31, 2002. SALES REVENUE The current economic downturn has seriously impacted the Company's sales revenues. A number of the Company's major retail customers retroactively cancelled many of their open purchase orders for our PDA products. The Company did not have sufficient working capital to begin a marketing program to acquire more customers and sales. We reported sales revenues of $52,401 for the three month period ended July 31, 2002 as compared to $418,857 for the quarter ended July 31, 2001 resulting in a decrease of $366,456 or 87%. This decrease lead to an overall 81% decrease in sales revenue for the nine month period ended July 31, 2002 as sales declined to $303,462 for the nine months ended July 31, 2002 from $1,628,144 for the nine months ended July 31, 2001. 9 GROSS MARGINS The Company's gross margin (loss) for the nine months ended July 31, 2002 and 2001 were (15%) and 30% and for the three months ended July 31, 2002 and 2001 were (275%) and 30%. The change in the gross margin is due to the fact that the Company discontinued selling many less profitable products and liquidating inventories to increase cash flow. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses decreased 68% to $149,002 in the three months ended July 31, 2002 from $467,349 in the three months ended July 31, 2001 and decreased 57% to $1,024,409 in the nine months ended July 31, 2002 from $2,364,197 in the nine months ended July 31, 2001. The decreases were primarily due to staff reductions and reductions in rent, utilities and voluntary salary reductions from officers. INTEREST EXPENSE Interest expense increased 28% to $97,519 in the three months ended July 31, 2002 from $76,379 in the three months ended July 31, 2001 and increased 30% to $220,804 for the nine months ended July 31, 2002 from $169,703 for the nine months ended July 31, 2001. The changes in interest expenses is due to changes in the amounts of convertible debentures redeemed for common stock and minimum factor charges. INTEREST EXPENSE-CONVERTIBLE DEBENTURE-BENEFICIAL CONVERSION FEATURE The Company has issued convertible debt securities with a non-detachable conversion feature 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. Interest expense was $0 for the three months ended July 31, 2002 compared to $506,021 for the three months ended July 31, 2001 and $182,880 for the nine months ended July 31, 2002 compared to $1,317,438 for the nine months ended July 31, 2001. NET LOSS Net loss from continuing operations decreased to $358,841 for the three months ended July 31, 2002 from a loss of $910,736 for the three months ended July 31, 2001 and $1,399,018 for the nine months ended July 31, 2002 compared to $3,093,929 for the nine months ended July 31, 2001. The loss resulted primarily from the decrease in sales. DISCONTINUED OPERATIONS For the period ended July 31, 2002, the Company completed the process of discontinuing certain segments of its operations. The losses from the discontinued operations were $21,345 for the three months ended July 31, 2002 and $446,334 for the nine months ended July 31, 2001. 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 2001a drop of consumer spending for PDA products. Also the lack of an economic recovery from the effects of September 11, 2001. 10 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 and reduction in total sales. 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 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 debentures 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. IBiz has issued convertible debt securities with a non-detachable conversion feature that was "in-the-money" at the date of issue. IBiz accounts for such securities in accordance with Emerging Issues Task Force Topic D-60. IBiz 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 iBiz'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 iBiz'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 iBiz had a full year of operating expense with revenues that weren't sufficient to cover the expenses. WRITE DOWN OF ASSETS HELD FOR SALE. IBiz wrote off $1,401,372 of assets from it discontinued operations in accordance with FASB 121. LIQUIDITY AND CAPITAL RESOURCES WORKING CAPITAL Working capital deficit at July 31, 2002 was $3,734,072 compared to a deficit of $3,349,057 at October 30, 2001. The decrease was a result of payments of Company debt through the issuance of common stock. LONG-TERM DEBT As of July 31, 2002, long-term debt was $1,076,774 compared to $758,811 at October 31, 2001. 11 CASH FLOWS FROM OPERATING ACTIVITIES Net cash used by operating activities for the nine months ended July 31, 2002 was $297,871 and $2,088,981 for the nine months ended July 31, 2001. Reduced sales volumes and increased losses were the main causes for the cash used by operating activities. CASH FLOWS FROM INVESTING ACTIVITIES For the nine months ended July 31, 2002 and 2001, the cash flows used and provided were from purchases and sales of property and equipment. CASH FLOW FROM FINANCING ACTIVITIES Cash flows provided by financing activities for the nine months ended July 31, 2002 and 2001 were $297,407 and $1,751,073. The increases in cash flow were predominately from receipt of the proceeds from issuance of convertible debentures. GOING CONCERN The Company has continued to incur operating losses. Management is seeking new national retail customers for its products and is negotiating with various investors to receive new financing to provide working capital. SUBSEQUENT EVENTS To obtain funding for our ongoing operations, we entered into a Securities Purchase Agreement with three accredited investors on August 15, 2002 for the sale of (i) $700,000 in convertible debentures and (ii) warrants to buy 210,000 shares of our common stock. The investors are obligated to provide us with the funds as follows: - $350,000 was disbursed on August 15, 2002 - $175,000 will be disbursed within ten days of filing this prospectus with the Securities and Exchange Commission - $175,000 will be disbursed within ten days of the effectiveness of this prospectus. The debentures bear interest at 12%, mature on one year from the date of issuance, and are convertible into our common stock, at the investors' option, at the lower of (i) $0.05 or (ii) 50% of the average of the three lowest intraday trading prices for the common stock on a principal market for the 20 trading days before but not including the conversion date. The full principal amount of the convertible debentures are due upon default under the terms of convertible debentures. The warrants are exercisable until three years from the date of issuance at a purchase price of $0.05 per share. In addition, we have granted the investors registration rights and a security interest in all of our assets. 12 DESCRIPTION OF BUSINESS iBIZ HISTORY iBIZ was incorporated under the laws of the State of Florida in 1994. From its incorporation through December 31, 1998, iBiz 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, iBiz changed its name to EVC Ventures, Inc. in May 1998 and to INVNSYS Holding Corporation in October 1998. Effective January 1, 1999, iBiz 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 iBiz. On February 1, 1999, iBiz changed its name to iBIZ Technology Corp. BUSINESS HISTORY OF INVNSYS IBiz conducts business solely through its operating subsidiary INVNSYS. For your convenience, this report will refer to the parent company as iBiz 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, iBiz 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 Debenturestation, 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, iBiz began offering network integration services. In March 2000, iBiz began offering digital subscriber line (DSL) services. As of October 31, 2001, iBiz discontinued these services. On September 18, 2000, iBiz 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 13 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, iBiz discontinued this service. In March 2000, iBiz introduced the Keysync Keyboard and a line of products specific to the personal digital assistant (PDA) market. Through October 31, 2001, iBiz 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 iBiz, 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 iBiz. 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 iBiz. 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") debenturebook 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. 14 - 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. - Debenturebook Computers. We market a complete line of competitively priced, build-to-order debenturebook 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 iBiz, 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. IBiz 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. IBiz sold the co-location operations to Arizona Internet LLC. and netted approximately $188,000 from the sale. In addition iBiz 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. 15 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 debenturebook computers ("Twinhead"), to produce build-to-order debenturebook computers. The design, engineering and manufacturing of INVNSYS' debenturebook 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 PDAs. 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. 16 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. IBiz 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 iBiz. 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. 17 USE OF TRADEMARKS AND TRADENAMES All trademarks and tradenames used in this report are the property of their respective owners. EMPLOYEES INVNSYS currently has 7 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. 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. 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. IBiz has paid the taxes, interest, and some portion of the penalty, but has requested an abatement of the remaining penalty imposed. IBiz is awaiting a final disposition by the IRS. 18 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS ------------------------ -------- --------------------------------------------- Name Age POSITION ------------------------ -------- --------------------------------------------- Kenneth W. Schilling 50 President, Chief Executive Officer, Director Mark H. Perkins 38 Executive Vice President, Director ------------------------ -------- --------------------------------------------- The term of each director continues until the next annual meeting. No director holds any other directorships in reporting companies. 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. On February 28, 2001, the Securities and Exchange Commission filed a federal court action in the District of Arizona against Mr. Schilling. Mr. Schilling, however, has reached a settlement with the Commission in which he neither admits nor denies the allegations made against him. Pursuant to this settlement, Mr. Schilling will be permanently enjoined from violating Section 10(b) of the Exchange Act or Rule 10b-5 thereunder. Mr. Schilling will also be required to pay a $20,000 civil penalty. Mark H. Perkins joined INVNSYS in 1994 and currently serves as Executive Vice President. Mr. Perkins was appointed to iBIZ's Board of Directors on March 5, 1999. Prior to his joining INVNSYS, Mr. Perkins was employed at American Express as a project manager for major systems implementation, a position he held for eight years. Mr. Perkins earned a degree in business management from California State University-Sonoma. EXECUTIVE COMPENSATION The Board believes that leadership and motivation of our executives are critical to establishing iBIZ's preeminence both in the marketplace and as an investment for stockholders. The Board is responsible for ensuring that the individuals in executive positions are highly qualified and that they are compensated in a manner that furthers our business strategies and aligns their interests with those of the stockholders. To support this philosophy, the following principles provide a framework for the compensation program: o offer competitive total compensation value that will attract the best talent to iBIZ; motivate individuals to perform at their highest levels; reward outstanding achievement; and retain those individuals with the leadership abilities and skills necessary for building long-term stockholder value. o encourage executives to manage from the perspective of owners with an equity stake in iBIZ. o iBIZ's compensation program for executive officers is targeted to provide highly competitive total compensation levels (including both annual and long-term incentives) for highly competitive performance. 19 The following table sets forth certain compensation paid or accrued by us to certain of our executive officers during fiscal years ended 2001, 2000 and 1999.
SUMMARY COMPENSATION TABLE --------------------------------------------------------------------------------------------------------- Fiscal Name and Principal Position Year Salary ($) Bonus OPTIONS(1) (#) --------------------------------------------------------------------------------------------------------- Kenneth W. Schilling, President & CEO 2001 200,000 26,138 30,000 2000 200,000 40,000 1999 200,000 25,000 Terry S. Ratliff, Vice President, Chief Financial Officer, Director* 2001 150,000 26,138 30,000 2000 88,000 40,000 1999 88,000 30,000 Mark H. Perkins, Executive Vice President, Director 2001 150,000 26,138 30,000 2000 88,000 $40,000 1999 88,000 30,000
* As of October 31, 2001, Ms. Ratliff resigned from iBiz. (1) Reflects the 1 for 10 reverse stock split effectuated on October 3, 2002. OPTIONS GRANTED DURING MOST RECENT FINANCIAL YEAR. The following table sets out information relating to options granted during the most recent financial year to the Named Executive Officers.
========================== ============== =================== ================= =============== Securities % of Total Under Options Granted Name Options to Employees in Exercise price Expiration Granted (1) Financial Year ($/Security) Date -------------------------- -------------- ------------------- ----------------- --------------- Kenneth W. Schilling, President & CEO 30,000 25% $0.20 July 2011 -------------------------- -------------- ------------------- ----------------- --------------- -------------------------- -------------- ------------------- ----------------- --------------- Terry S. Ratliff, Vice 30,000 25% $0.20 July 2011 President, Chief Financial Officer, Director -------------------------- -------------- ------------------- ----------------- --------------- -------------------------- -------------- ------------------- ----------------- --------------- Mark H. Perkins, 30,000 25% $0.20 July 2011 Executive Vice President, Director ========================== ============== =================== ================= ===============
(1) Reflects the 1 for 10 reverse stock split effectuated on October 3, 2002.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES (1) -------------------------------------------------------------------------------------------------------- Number of Unexercised Value of Unexercised Shares Options at Fiscal Year In-the-Money Options at Acquired on Value End Exercisable/ Fiscal Year End Exercisable/ Name Exercise (#) Realized ($) Un-exercisable Un-exercisable -------------------------------------------------------------------------------------------------------- Kenneth W. Schilling -0- -0- 62,500/2,500 $0/$0 Terry S. Ratliff -0- -0- 62,500/2,500 $0/$0 Mark H. Perkins -0- -0- 62,500/2,500 $0/$0 --------------------------------------------------------------------------------------------------------
(1) Reflects the 1 for 10 reverse stock split effectuated on October 3, 2002. 20 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 thirty thousand (30,000) options to purchase thirty thousand (30,000) shares of common stock of iBIZ at an exercise price to be determined by the Board based upon the closing price of iBiz's common stock. In addition, Mr. Schilling will also receive a bonus equal to one percent 1% of the total sales of iBiz 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 thirty thousand (30,000) options to purchase thirty thousand (30,000) shares of common stock of iBIZ at an exercise price to be determined by the Board based upon the closing price of iBiz's common stock. In addition, Mr. Perkins will also receive a bonus equal to one percent 1% of the total sales of iBiz recorded in the preceding fiscal quarter. In addition to the foregoing, each Agreement contains the following termination provisions: "(a) Termination By IBiz For Cause: IBiz 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 IBiz Without Cause: In the event Employee's employment hereunder shall be terminated by iBiz 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 iBiz 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, iBiz 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 iBiz 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." 21 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 one million (1,000,000) (post 1 for 10 reverse stock split) 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, 314,500 options had been granted to 37 persons (net of cancelled and exercised) under the plan at exercise prices of between $50.00 and $5.30. As of October 3, 2002, the market price of the stock was $0.01. 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. 22 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 200,000 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 928,560 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 928,560 shares, the Board of Directors agreed to issue 1,500,000 shares of our common stock to Mr. Schilling upon the increase of our authorized common stock from 100,000,000 to 450,000,000. 23 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT As of October 3, 2002, there were 45,000,000 shares of common stock, par value $0.001 outstanding. The following table sets forth certain information regarding the beneficial ownership of the our common stock as of October 3, 2002, by: o all directors o each person who is known by us to be the beneficial owner of more than five percent (5%) of the outstanding common stock o each executive officer named in the Summary Compensation Table o 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 October 3, 2002, 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 7,415,122 625,000 8,040,122 17.87% 1919 W. Lone Cactus Drive Phoenix, AZ 85021 Mark H. Perkins 1919 W. Lone Cactus Drive Phoenix, AZ 85021 6,304,267 325,000 6,629,267 14.73% All directors and officers as group (2 persons) 13,719,389 950,000 14,669,389 32.60% ---------------------------------------------------------------------------------------------------------
(1) Includes options vested on or before July 31, 2002. (2) Includes Kenneth Schilling, and Mark Perkins. 24 DESCRIPTION OF SECURITIES GENERAL. iBIZ's Articles of Incorporation authorize the issuance of 450,000,000 shares of common stock, $0.001 par value and 50,000,000 shares of preferred stock. COMMON STOCK. Holders of shares of common stock are entitled to one vote for each share of common stock held of record on all matters submitted to a vote of the shareholders. Each share of common stock is entitled to receive dividends as may be declared by our Board of Directors out of funds legally available. Management, however, does not presently intend to pay any dividends. In the event of liquidation, dissolution or winding up of iBIZ, the holders of common stock are entitled to share ratably in all assets remaining after payment in full of all our creditors and the liquidation preferences of any outstanding shares of preferred stock, if any. There are no redemption or sinking fund provisions applicable to the common stock. PREFERRED STOCK. The Preferred Stock may be issued in one or more series, with such voting powers, designations, preferences, rights, qualifications, limitations and restrictions as shall be set forth in a resolution of iBiz's Board of Directors providing for the issue thereof. 25 DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES. iBIZ's Articles of Incorporation, as amended, provide to the fullest extent permitted by Florida law, a director or officer of iBIZ shall not be personally liable to iBIZ or its shareholders for damages for breach of such director's or officer's fiduciary duty. The effect of this provision of iBIZ's Articles of Incorporation, as amended, is to eliminate the right of iBIZ and its shareholders (through shareholders' derivative suits on behalf of iBIZ) to recover damages against a director or officer for breach of the fiduciary duty of care as a director or officer (including breaches resulting from negligent or grossly negligent behavior), except under certain situations defined by statute. iBIZ believes that the indemnification provisions in its Articles of Incorporation, as amended, are necessary to attract and retain qualified persons as directors and officers. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to its directors, officers and controlling persons pursuant to the foregoing provisions or otherwise, iBIZ has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. 26 SELLING SECURITY HOLDERS The table below sets forth information concerning the resale of the shares of common stock by the selling stockholders. We will not receive any proceeds from the resale of the common stock by the selling stockholders. We will receive proceeds from the exercise of the warrants. Assuming all the shares registered below are sold by the selling stockholders, none of the selling stockholders will continue to own any shares of our common stock. The following table also sets forth the name of each person who is offering the resale of shares of common stock by this prospectus, the number of shares of common stock beneficially owned by each person, the number of shares of common stock that may be sold in this offering and the number of shares of common stock each person will own after the offering, assuming they sell all of the shares offered.
---------------------- ------------------ ------------- -------------- ------------ --------------- ------------ -------------- Total Total Shares of Percentage Percentage Common Stock of Common Shares of Beneficial of Common Issuable Upon Stock, Common Stock Beneficial Percentage of Ownership Stock Owned Conversion of Assuming Included in Ownership Common Stock After the After Name Debentures Full Prospectus Before the Owned Before Offering Offering and/or Warrants Conversion (1) Offering Offering (6) (6) ---------------------- ------------------ ------------- -------------- ------------ --------------- ------------ -------------- AJW Offshore, Ltd. 62,804,000 (3) 58.26% Up to 2,363,435 4.99% -- -- 125,608,000 (2) shares of common stock ---------------------- ------------------ ------------- -------------- ------------ --------------- ------------ -------------- Up to AJW Qualified 62,804,000 Partners, LLC (2) 31,402,000 (4) 41.102% shares of 2,363,435 4.99% -- -- common stock ---------------------- ------------------ ------------- -------------- ------------ --------------- ------------ -------------- Up to 125,608,000 AJW Partners, LLC (2) 62,804,000 (5) 58.26% shares of 2,363,435 4.99% -- -- common stock ---------------------- ------------------ ------------- -------------- ------------ --------------- ------------ --------------
The number and percentage of shares beneficially owned is determined in accordance with Rule 13d-3 of the Securities Exchange Act of 1934, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rule, beneficial ownership includes any shares as to which the selling stockholders has sole or shared voting power or investment power and also any shares, which the selling stockholders has the right to acquire within 60 days. The actual number of shares of common stock issuable upon the conversion of the convertible preferred stock is subject to adjustment depending on, among other factors, the future market price of the common stock, and could be materially less or more than the number estimated in the table. 27 (1) Includes 200% of the shares issuable upon conversion of the convertible debentures and exercise of warrants, based on current market prices. Because the number of shares of common stock issuable upon conversion of the convertible note is dependent in part upon the market price of the common stock prior to a conversion, the actual number of shares of common stock that will be issued upon conversion will fluctuate daily and cannot be determined at this time. However the selling stockholders have contractually agreed to restrict their ability to convert or exercise their warrants and receive shares of our common stock such that the number of shares of common stock held by them and their affiliates after such conversion or exercise does not exceed 4.99% of the then issued and outstanding shares of common stock. (2) The selling stockholders are under common control. In accordance with rule 13d-3 under the securities exchange act of 1934, Corey S. Ribotsky may be deemed a control person of the shares owned by such entities. (3) Includes 84,000 shares of common stock underlying warrants exercisable at $.05 per share. (4) Includes 42,000 shares of common stock underlying warrants exercisable at $.05 per share. (5) Includes 84,000 shares of common stock underlying warrants exercisable at $.05 per share. (6) Assumes that all securities registered will be sold. TERMS OF CONVERTIBLE DEBENTURES To obtain funding for our ongoing operations, we entered into a Securities Purchase Agreement with three accredited investors on August 15, 2002 for the sale of (i) $700,000 in convertible debentures and (ii) warrants to buy 210,000 shares of our common stock. The investors are obligated to provide us with the funds as follows: - $350,000 was disbursed on August 15, 2002 - $175,000 will be disbursed within ten days of filing this prospectus with the Securities and Exchange Commission - $175,000 will be disbursed within ten days of the effectiveness of this prospectus. The debentures bear interest at 12%, mature on one year from the date of issuance, and are convertible into our common stock, at the investors' option, at the lower of (i) $0.05 or (ii) 50% of the average of the three lowest intraday trading prices for the common stock on a principal market for the 20 trading days before but not including the conversion date. The full principal amount of the convertible debentures are due upon default under the terms of convertible debentures. The warrants are exercisable until five years from the date of issuance at a purchase price of $0.05 per share. The conversion price of the debentures and the exercise price of the warrants may be adjusted in certain circumstances such as if we pay a stock dividend, subdivide or combine outstanding shares of common stock into a greater or lesser number of shares, or take such other actions as would otherwise result in dilution of the selling stockholder's position. The selling stockholders have contractually agreed to restrict their ability to convert or exercise their warrants and receive shares of our common stock such that the number of shares of common stock held by them and their affiliates after such conversion or exercise does not exceed 4.99% of the then issued and outstanding shares of common stock. 28 We have granted the selling stockholders a security interest in all of our assets against the convertible debentures. A complete copy of the Securities Purchase Agreement and related documents was filed with the SEC as exhibits to our Form SB-2 relating to this prospectus. SAMPLE CONVERSION CALCULATION The number of shares of common stock issuable upon conversion of a note is determined by dividing that portion of the principal of the note to be converted and interest, if any, by the conversion price. For example, assuming conversion of $700,000 of debentures on October 3, 2002, a conversion price of $0.05 per share, and the payment of accrued interest in the approximate amount of $2,152 in additional shares rather than in cash, the number of shares issuable upon conversion would be: $700,000 + $2,152 = 140,430,400 shares ----------------- $0.005 29 PLAN OF DISTRIBUTION The selling stockholders and any of their respective pledgees, donees, assignees and other successors-in-interest may, from time to time, sell any or all of their shares of common stock on any stock exchange, market or trading facility on which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices. The selling stockholders may use any one or more of the following methods when selling shares: -- ordinary brokerage transactihons and transactions in which the broker-dealer solicits the purchaser; -- block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction; -- purchases by a broker-dealer as principal and resale by the broker-dealer for its account; -- an exchange distribution in accordance with the rules of the applicable exchange; -- privately-negotiated transactions; -- short sales; -- broker-dealers may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share; -- through the writing of options on the shares -- a combination of any such methods of sale; and -- any other method permitted pursuant to applicable law. The selling stockholders may also sell shares under Rule 144 under the Securities Act, if available, rather than under this prospectus. The selling stockholders shall have the sole and absolute discretion not to accept any purchase offer or make any sale of shares if they deem the purchase price to be unsatisfactory at any particular time. The selling stockholders may pledge their shares to their brokers under the margin provisions of customer agreements. If a selling stockholders defaults on a margin loan, the broker may, from time to time, offer and sell the pledged shares. The selling stockholders may also engage in short sales against the box, puts and calls and other transactions in our securities or derivatives of our securities and may sell or deliver shares in connection with these trades. The selling stockholders or their respective pledgees, donees, transferees or other successors in interest, may also sell the shares directly to market makers acting as principals and/or broker-dealers acting as agents for themselves or their customers. Such broker-dealers may receive compensation in the form of discounts, concessions or commissions from the selling stockholders and/or the purchasers of shares for whom such broker-dealers may act as agents or to whom they sell as principal or both, which compensation as to a particular broker-dealer might be in excess of customary commissions. Market makers and block purchasers purchasing the shares will do so for their own account and at their own risk. It is possible that a selling stockholder will attempt to sell shares of common stock in block transactions to market makers or other purchasers at a price per share which may be below the then market price. The selling stockholders cannot assure that all or any of the shares offered in this prospectus will be issued to, or sold by, the selling stockholders. Except for Sichenzia Ross Friedman Ference, the selling stockholders and any brokers, dealers or agents, upon effecting the sale of any of the shares offered in this prospectus, may be deemed "underwriters" as that term is defined under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, or the rules and regulations under such acts. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. We are required to pay all fees and expenses incident to the registration of the shares, including fees and disbursements of counsel to the selling stockholders, but excluding brokerage commissions or underwriter discounts. 30 The selling stockholders, alternatively, may sell all or any part of the shares offered in this prospectus through an underwriter. No selling stockholder has entered into any agreement with a prospective underwriter and there is no assurance that any such agreement will be entered into. The selling stockholders and any other persons participating in the sale or distribution of the shares will be subject to applicable provisions of the Securities Exchange Act of 1934, as amended, and the rules and regulations under such act, including, without limitation, Regulation M. These provisions may restrict certain activities of, and limit the timing of purchases and sales of any of the shares by, the selling stockholders or any other such person. Furthermore, under Regulation M, persons engaged in a distribution of securities are prohibited form simultaneously engaging in market making and certain other activities with respect to such securities for a specified period of time prior to the commencement of such distributions, subject to specified exceptions or exemptions. All of these limitations may affect the marketability of the shares. We have agreed to indemnify the selling stockholders, or their transferees or assignees, against certain liabilities, including liabilities under the Securities Act of 1933, as amended, or to contribute to payments the selling stockholders or their respective pledgees, donees, transferees or other successors in interest, may be required to make in respect of such liabilities. The selling stockholders have agreed to indemnify us against certain losses, claims, damages and liabilities, including liabilities under the Securities Act. If the selling stockholders notifies us that they have a material arrangement with a broker-dealer for the resale of the common stock, then we would be required to amend the registration statement of which this prospectus is a part, and file a prospectus supplement to describe the agreements between the selling stockholder and the broker-dealer. PENNY STOCK The Securities and Exchange Commission has adopted Rule 15g-9 which establishes the definition of a "penny stock," for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require: o that a broker or dealer approve a person's account for transactions in penny stocks; and o the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased. In order to approve a person's account for transactions in penny stocks, the broker or dealer must o obtain financial information and investment experience objectives of the person; and o make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks. The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prepared by the Commission relating to the penny stock market, which, in highlight form: o sets forth the basis on which the broker or dealer made the suitability determination; and o that the broker or dealer received a signed, written agreement from the investor prior to the transaction. Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. 31 LEGAL MATTERS The validity of the shares of common stock offered hereby will be passed upon for the Registrant by Sichenzia Ross Friedman Ference, LLP, 1065 Avenue of the Americas, 21st Floor, New York, NY 10018. The firm has received shares of common stock, for services rendered, which are being offered in this prospectus. EXPERTS The balance sheet and financial statements of iBIZ Technology, Corp. for the years ended October 31, 2000 and 2001 and for the nine months ended July 31, 2001 and 2002 in this registration statement in reliance upon the reports of Moffitt & Company, P.C., independent certified public accountants, and upon the authority of such firm as experts in accounting and auditing. AVAILABLE INFORMATION We have filed a registration statement on Form SB-2 under the Securities Act of 1933, as amended, relating to the shares of common stock being offered by this prospectus, and reference is made to such registration statement. This prospectus constitutes the prospectus of iBIZ Technology Corp., filed as part of the registration statement, and it does not contain all information in the registration statement, as certain portions have been omitted in accordance with the rules and regulations of the Securities and Exchange Commission ("SEC"). We are subject to the informational requirements of the Securities Exchange Act of 1934 (the "Exchange Act") which requires us to file reports, proxy statements and other information with the Securities and Exchange Commission. Such reports, proxy statements and other information may be inspected at public reference facilities of the SEC at Judiciary Plaza, 450 Fifth Street N.W., Washington D.C. 20549; Northwest Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661; and 5670 Wilshire Boulevard, Los Angeles, California 90036. Copies of such material can be obtained from the Public Reference Section of the SEC at Judiciary Plaza, 450 Fifth Street N.W., Washington, D.C. 20549 at prescribed rates. Because we file documents electronically with the SEC, you may also obtain this information by visiting the SEC's Internet website at http://www.sec.gov. We furnish our stockholders with annual reports containing audited financial statements. 32 IBIZ TECHNOLOGY CORP. AND SUBSIDIARY CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 2002 AND 2001
TABLE OF CONTENTS PAGE NO. FINANCIAL STATEMENTS Consolidated Balance Sheets.............................................................. F-1 Consolidated Statements of Operations.................................................... F-3 - F-4 Consolidated Statement of Stockholders' Equity (Deficit)................................. F-5 Consolidated Statements of Cash Flows.................................................... F-6 - F-7 Notes to Consolidated Financial Statements............................................... F-8 - F-13
PART I ------ Item 1. Financial Information IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS JULY 31, 2002 (UNAUDITED) ASSETS CURRENT ASSETS Cash and cash equivalents $ 5,152 Account receivable, officer 1,861 Inventories 207,051 Prepaid expenses 8,208 ----------- TOTAL CURRENT ASSETS 222,272 ----------- PROPERTY AND EQUIPMENT, NET OF ACCUMULATED DEPRECIATION 117,837 ----------- OTHER ASSETS Deposits 11,040 Patent 200,000 ----------- TOTAL OTHER ASSETS 211,040 ----------- TOTAL ASSETS $ 551,149 =========== F-1 LIABILITIES AND STOCKHOLDERS' (DEFICIT) CURRENT LIABILITIES Accounts payable, trade $ 577,062 Note payable, trade 30,000 Accrued liabilities 1,027,917 Taxes payable 123,226 Deferred income 18,633 Convertible debentures payable, current portion 1,972,469 Notes payable, other, current portion 7,037 Note payable, patent 200,000 ------------- TOTAL CURRENT LIABILITIES 3,956,344 ------------- LONG - TERM LIABILITIES Convertible debentures payable 1,072,500 Notes payable, other 4,274 ------------- TOTAL LONG -TERM LIABILITIES 1,076,774 ------------- STOCKHOLDERS' EQUITY (DEFICIT) Preferred stock Authorized - 50,000,000 shares, par value $.001 per share Issued and outstanding -0 shares Common stock Authorized - 450,000,000 shares, par value $.001 per share Issued and outstanding July 31, 2002 - 286,659,275 shares 286,659 Additional paid in capital 10,915,122 Accumulated deficit (15,683,750) ------------- TOTAL STOCKHOLDERS' (DEFICIT) (4,481,969) ------------- TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) $ 551,149 ============= F-2 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED JULY 31, 2002 AND 2001 (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED JULY 31, JULY 31, --------------------------- --------------------------- 2002 2001 2002 2001 ------------ ------------ ------------ ------------ SALES $ 52,401 $ 418,857 $ 303,462 $ 1,628,144 COST OF SALES 196,772 291,356 348,506 1,142,957 ------------ ------------ ------------ ------------ GROSS PROFIT (LOSS) (144,371) 127,501 (45,044) 485,187 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (149,002) (467,349) (1,024,409) (2,364,197) SETTLEMENT OF LAWSUIT 0 0 0 101,369 CANCELLATION OF DEBT 32,051 0 74,082 122,000 OTHER INCOME 0 5,253 0 26,215 ------------ ------------ ------------ ------------ OPERATING (LOSS) (261,322) (334,595) (995,371) (1,629,426) ------------ ------------ ------------ ------------ OTHER INCOME (EXPENSE) Interest income 0 6,259 37 22,638 Interest expense (97,519) (76,379) (220,804) (169,703) Interest expense - convertible debentures-beneficial conversion feature 0 (506,021) (182,880) (1,317,438) ------------ ------------ ------------ ------------ TOTAL OTHER INCOME (EXPENSE) (97,519) (576,141) (403,647) (1,464,503) ------------ ------------ ------------ ------------ (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (358,841) (910,736) (1,399,018) (3,093,929) INCOME TAXES 0 0 0 0 ------------ ------------ ------------ ------------ (LOSS) FROM CONTINUING OPERATIONS (358,841) (910,736) (1,399,018) (3,093,929) ------------ ------------ ------------ ------------ DISCONTINUED OPERATIONS (Loss) from operations of discontinued business segments (21,345) (446,334) (267,505) (656,299) Write-down of net assets held for sale 0 0 (171,542) 0 ------------ ------------ ------------ ------------ INCOME (LOSS) FROM DISCONTINUED OPERATIONS (21,345) (446,334) (439,047) (656,299) ------------ ------------ ------------ ------------ NET (LOSS) $ (380,186) $(1,357,070) $(1,838,065) $(3,750,228) ============ ============ ============ ============ F-3
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED) FOR THE THREE AND NINE MONTHS ENDED JULY 31, 2002 AND 2001 (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED JULY 31, JULY 31, --------------------------- --------------------------- 2002 2001 2002 2001 ------------ ------------ ------------ ------------ NET (LOSS) PER COMMON SHARE Basic and Diluted: Continuing operations $ .00 $ (.02) $ .00 $ (.06) Discontinued operations .00 (.01) .00 (.01) ------------ ------------ ------------ ------------ NET (LOSS) $ .00 $ (.03) $ .00 $ (.07) ============ ============ ============ ============ WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING Basic and diluted 286,659,275 55,660,810 286,659,275 55,660,810 ============ ============ ============ ============
Stock options and warrants to purchase 20,186,155 shares of common stock were not included in the computations of diluted loss per common share amounts. F-4 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIT) FOR THE NINE MONTHS ENDED JULY 31, 2002 (UNAUDITED)
PREFERRED STOCK COMMON STOCK ADDITIONAL ------------------ ----------------------------- PAID IN ACCUMULATED SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL -------- -------- ------------- ------------- ------------- ------------- ------------- BALANCE, NOVEMBER 1, 2001 0 $ 0 99,862,248 $ 99,862 $ 9,801,345 $(13,845,685) $ (3,944,478) CONVERSION OF DEBENTURES FOR COMMON STOCK: PRINCIPAL 0 0 58,415,455 58,416 276,361 0 334,777 ACCRUED INTEREST 0 0 4,305,172 4,305 17,453 0 21,758 FEES AND COSTS FOR ISSUANCE OF COMMON STOCK 0 0 0 0 (28,777) 0 (28,777) ISSUANCE OF COMMON STOCK FOR: PAYMENT OF ACCOUNTS PAYABLE 0 0 31,212,000 31,212 286,648 0 317,860 PAYMENT OF SALARIES AND RETENTION BONUSES 0 0 26,900,000 26,900 91,460 0 118,360 CONSULTING FEES 0 0 17,000,000 17,000 31,000 0 48,000 LEGAL FEES 0 0 5,750,000 5,750 74,750 0 80,500 DONATION OF STOCK BACK TO THE COMPANY FOR TREASURY STOCK 0 0 (9,285,600) (9,286) (122,998) 0 (132,284) ISSUANCE OF COMMON STOCK TO THE PRESIDENT TO REIMBURSE HIM FOR SHARES GIVEN TO DEBENTURE HOLDERS FROM: TREASURY STOCK 0 0 9,285,600 9,286 122,998 0 132,284 NEW SHARES 0 0 5,714,400 5,714 80,002 0 85,716 INTEREST EXPENSE - CONVERTIBLE DEBENTURES - BENEFICIAL CONVERSION FEATURE 0 0 0 0 182,880 0 182,880 ISSUANCE OF COMMON STOCK FOR: Consulting fees 0 0 5,000,000 5,000 35,000 0 40,000 Legal fees 0 0 2,500,000 2,500 17,500 0 20,000 Cash 0 0 30,000,000 30,000 49,500 0 79,500 NET (LOSS) FOR THE NINE MONTHS ENDED JULY 31, 2002 0 0 0 0 0 (1,838,065) (1,838,065) -------- -------- ------------- ------------- ------------- ------------- ------------- BALANCE, JULY 31, 2002 0 $ 0 286,659,275 $ 286,659 $ 10,915,122 $(15,683,750) $ (4,481,969) ======= ======== ============= ============= ============= ============= =============
F-5 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED JULY 31, 2002 AND 2001 (UNAUDITED)
2002 2001 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) $(1,399,018) $(3,093,929) Adjustments to reconcile net (loss) to net cash (used) by operating activities of continuing operations: Loss from discontinued operations (439,047) (656,299) Write-down of net assets held for sale 171,542 0 Depreciation 116,596 204,922 Interest expense - convertible debentures-beneficial conversion feature 182,880 1,317,438 Common stock issued for expenses 188,500 33,174 Allowance for uncollectible accounts, net (10,154) 0 Changes in operating assets and liabilities: Accounts receivable, trade 93,747 168,757 Accounts receivable, factor 0 0 Inventories (40,309) 60,606 Prepaid expenses 45,919 (16,701) Deposits 4,972 (4,053) Accounts and notes payable, trade 607,141 (339,292) Accrued liabilities and taxes 165,222 265,941 Customer deposits 0 9,559 Deferred income 14,138 (39,104) ------------ ------------ NET CASH (USED) BY OPERATING ACTIVITIES (297,871) (2,088,981) ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (50,000) (144,093) Proceeds from loans by related party 0 23,699 Proceeds from sale of net assets held for sale 48,635 0 ------------ ------------ NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (1,365) (120,394) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock 79,500 0 Net proceeds from issuance of convertible debentures payable 293,723 1,754,997 Repayment of note payable, factor (70,734) 0 Repayment of notes payable, other (3,221) (3,924) Changes in notes and loan receivable, officer (1,861) 0 ------------ ------------ NET CASH PROVIDED BY FINANCING ACTIVITIES 297,407 1,751,073 ------------ ------------ F-6
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) FOR THE NINE MONTHS ENDED JULY 31, 2002 AND 2001 (UNAUDITED)
2002 2001 ------------ ------------ NET (DECREASE) IN CASH AND CASH EQUIVALENTS $ (1,829) $ (458,302) CASH AND CASH EQUIVALENTS, AT BEGINNING OF PERIOD 6,981 631,375 ------------ ------------ CASH AND CASH EQUIVALENTS, AT END OF PERIOD $ 5,152 $ 173,073 ============ ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during period for: Interest $ 64,124 $ 44,795 ============ ============ Taxes $ 0 $ 0 ============ ============ NON-CASH INVESTING AND FINANCING ACTIVITIES Issuance of common stock for convertible debentures $ 334,777 $ 0 ============ ============ Issuance of common stock for fees, services and expenses $ 218,083 $ 33,174 ============ ============ Issuance of common stock for accounts payable and accrued liabilities $ 339,618 $ 0 ============ ============ Interest expense - convertible debentures-beneficial conversion feature $ 182,880 $ 1,317,438 ============ ============ Fees paid for issuance of debentures by reduction of notes receivable, officer $ 0 $ 25,000 ============ ============ F-7
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 2002 AND 2001 (UNAUDITED) 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) is a management company that administers subsidiary companies. IBIZ, Inc. 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. IBIZ Inc. also markets LCD monitors, OEM notebook computers, third party software, and general purpose financial application keyboards. Qhost, Inc. provides 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. PRINCIPLES OF CONSOLIDATION --------------------------- The consolidated financial statements include the accounts of IBIZ Technology Corp. and its wholly owned subsidiaries - Invnsys Technology Corporation, IBIZ, Inc. and Qhost, Inc. 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. ACCOUNTS RECEIVABLE ------------------- Accounts receivable are reported at the customers' outstanding balances less any allowance for doubtful accounts. F-8 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 2002 AND 2001 (UNAUDITED) NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) ALLOWANCE FOR DOUBTFUL ACCOUNTS ------------------------------- The allowance for doubtful accounts on accounts receivables is charged to income in amounts sufficient to maintain the allowance for uncollectible accounts at a level management believes is adequate to cover any possible losses. 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. 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 Molds 5 Years ACCOUNTING FOR CONVERTIBLE DEBT SECURITIES ------------------------------------------ The Company has issued convertible debt securities with non-detachable conversion features. 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 features 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. F-9 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 2002 AND 2001 (UNAUDITED) NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) REVENUE RECOGNITION ------------------- 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. 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. 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. F-10 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 2002 AND 2001 (UNAUDITED) NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) SHIPPING AND HANDLING COSTS --------------------------- The Company's policy is to classify shipping and handling costs as part of cost of goods sold in the statement of operations. 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. RISKS AND UNCERTAINTIES ----------------------- IBIZ, Inc. is in the computer and computer technology industry and its 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 the Company's policy to value stock issued for non-cash transactions at the stock closing price at the date the transaction is finalized. NOTE 2 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES THREE MONTHS ENDED NINE MONTHS ENDED JULY 31, JULY 31, -------------------------- -------------------------- 2002 2001 2002 2001 ------------ ------------ ------------ ------------ Payroll $ 62,569 $ 280,213 $ 439,050 $ 1,214,817 Consulting, net 22,907 27,270 127,206 69,911 Legal 21,416 (11,324) 115,940 98,182 Other 42,110 171,190 34,213 981,287 ------------ ------------ ------------ ------------ $ 149,002 $ 467,349 $ 1,024,409 $ 2,364,197 ============ ============ ============ ============ F-11 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 2002 AND 2001 (UNAUDITED) NOTE 3 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 July 31, 2001 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 NOTE 4 COMPUTATION OF EARNINGS PER SHARE
JULY 31, JULY 31, 2001 2002 RESTATED -------------- -------------- From continuing operations Net (loss) from continuing operations $ (1,399,018) $ (3,093,929) -------------- -------------- Weighted average number of common shares outstanding 286,659,275 55,660,810 (Loss) per share $ (.00) $ (.06) From discontinued operations Net (loss) from discontinued operations $ (439,047) (656,299) -------------- -------------- Weighted average number of common shares outstanding 286,659,275 55,660,810 (Loss) per share $ (.00) $ (.01)
NOTE 5 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 uncertainty as to the Company's ability to continue as a going concern: F-12 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 2002 AND 2001 (UNAUDITED) NOTE 5 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 7. 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. 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. Purchased products to complete sales orders from funds received from the new debenture financing. NOTE 6 LEGAL PROCEEDINGS The Company is the defendant in three lawsuits for unpaid accounts payable and wages. Management has recorded a liability in the amount of $45,000 for these debts and is negotiating with the creditors to reduce the amounts of the final settlements. NOTE 7 UNAUDITED FINANCIAL INFORMATION The accompanying financial information as of July 31, 2002 is unaudited. In management's opinion, such information includes all normal recurring entries necessary to make the financial information not misleading. F-13 IBIZ TECHNOLOGY CORP. AND SUBSIDIARY CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 2001 AND 2000
TABLE OF CONTENTS PAGE NO. INDEPENDENT AUDITORS' REPORT.................................................................... F-1 FINANCIAL STATEMENTS Consolidated Balance Sheets.............................................................. F-2 Consolidated Statements of Operations.................................................... F-3 - F-4 Consolidated Statement of Stockholders' Equity (Deficit)................................. F-5 Consolidated Statements of Cash Flows.................................................... F-6 - F-7 Notes to Consolidated Financial Statements............................................... F-8 - F-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 F-1 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. F-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. F-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. F-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. F-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. F-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. F-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. F-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. F-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. F-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. F-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. F-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. F-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. F-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. F-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. F-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. F-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. F-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. F-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. F-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. F-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. F-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. F-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. F-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. F-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. F-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. F-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. F-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. F-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. F-29 PART II. INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS. iBIZ's Articles of Incorporation, as amended, provide to the fullest extent permitted by Florida law, a director or officer of iBIZ shall not be personally liable to iBIZ or its shareholders for damages for breach of such director's or officer's fiduciary duty. The effect of this provision of iBIZ's Articles of Incorporation, as amended, is to eliminate the right of iBIZ and its shareholders (through shareholders' derivative suits on behalf of iBIZ) to recover damages against a director or officer for breach of the fiduciary duty of care as a director or officer (including breaches resulting from negligent or grossly negligent behavior), except under certain situations defined by statute. iBIZ believes that the indemnification provisions in its Articles of Incorporation, as amended, are necessary to attract and retain qualified persons as directors and officers. Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Securities Act") may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The follow table sets forth the estimated costs and expenses incurred by the selling security holders in connection with this Offering. SEC Registration Fee $288.90 Legal Fees and Expenses $15,000.00 Accounting Fees and Expenses $5,000.00 TOTAL(1) $20,288.90 (1) Except for the SEC registration fee, all fees and expenses are estimates. ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES. The securities described below represents certain securities of iBIZ sold by iBIZ 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. In January 1999, iBiz issued an aggregate of 640,318 shares of common stock to five purchasers for $.35 per share. The sales were made to accredited investors in reliance on Rule 506 or Section 4(2) under the Securities Act. On March 10, 1999, iBiz issued an aggregate of 16,000,000 shares of common stock to seven persons or entities in exchange for the outstanding stock of iBIZ by iBiz. The sales were made in reliance on Section 4(2) under the Securities Act with respect to such sales. From March to July 1999, iBiz sold an aggregate of 1,732,475 shares of Common Stock at $.50 per share. In connection with services in selling such shares, iBiz issued warrants to purchase 100,000 shares of Common Stock, exercisable for five years at $1.00 per share. The shares and warrants were issued in reliance on Section 4(2) of the Securities Act to accredited investors. 33 In May 1999, iBiz sold an aggregate of $200,000 of convertible debentures to four purchasers. In connection with such sale, iBiz issued warrants to four individuals and entities to purchase an aggregate of 700,000 shares of common stock at prices ranging from $.30 to $1.00. The warrants are exercisable for a period of five years. The debentures and warrants were issued in reliance on Section 4(2) of the Securities Act to accredited investors. In October and December 1999, iBiz sold an aggregate of 505,000 shares of common stock to two purchasers at a price of $.50 per share. The sales were made to accredited investors in reliance on Rule 506 or Section 4(2) under the Securities Act. In November 1999, iBiz sold an aggregate of $1,600,000 of convertible debentures. In connection with such sale, iBiz issued warrants to purchase an aggregate of 540,000 shares of Common Stock for a period of three years, at prices from $.94 to $.99 per share. The debentures and warrants were issued in reliance on Section 4(2) of the Securities Act to accredited investors. In November 1999, iBiz issued a warrant to purchase 75,000 shares of Common Stock for a period of five years, exercisable at $1.66 per share. The warrant was issued to one entity in connection with public relations services provided to iBiz. The warrant was issued in reliance on Section 4 (2) of the Securities Act to an accredited investor. In January 2000, iBiz sold 250,000 shares of Common Stock to one purchaser at $1.10 per share. In connection with such sale, iBiz issued warrants to purchase 41,250 shares of Common Stock, exercisable for a period of three years at $.99 per share. The shares and warrants were issued in reliance on Section 4(2) of the Securities Act to an accredited investor. In February 2000, iBiz issued a warrant to purchase 100,000 shares of Common Stock for a period of five years, exercisable at $.75 per share. The warrant was issued to one person in connection with the execution of a lease for iBiz's property. The warrant was issued in reliance on Section 4 (2) of the Securities Act to an accredited investor. In March 2000, iBiz sold an aggregate of $1,600,000 of convertible debentures. In connection with such sale, iBiz issued warrants to purchase an aggregate of 615,000 shares of Common Stock for a period of three years, at prices from $1.45 to $2.05 per share. The debentures and warrants were issued in reliance on Section 4(2) of the Securities Act to accredited investors. In May 2000, iBiz issued warrants to purchase 125,000 shares of Common Stock for a period of five years, of which 75,000 are exercisable at $1.04 per share and 50,000 are exercisable at $5.00 per share. The warrant was issued to one entity in connection with public relations services provided to iBiz. The warrant was issued in reliance on Section 4 (2) of the Securities Act to an accredited investor. In June 2000, iBiz issued an aggregate of 150,000 shares of Common Stock to three entities in exchange for financial consulting services. The shares were issued in reliance on Section 4(2) of the Securities Act to accredited investors. In September 2000, iBiz sold 650,000 shares of Common Stock to one purchaser at $.35 per share. In connection with such sale, iBiz issued warrants to purchase 34,125 shares of Common Stock, exercisable for a period of three years at $.937 per share. The shares and warrants were issued in reliance on Section 4(2) of the Securities Act to an accredited investor. During 2000, iBiz 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, iBiz 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, iBiz 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, iBiz 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. 34 IBiz 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 debentures (the "Debentures"). The Conversion Price for all of the Debentures 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 Debenture. The maximum share of iBiz 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 Debentures, iBiz 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, iBiz issued 250,000 shares of common stock to one investor at a price of $1.10 per share. The sale was made to an accredited investor in reliance on Rule 506 or Section 4(2) under the Securities Act. During September and October 2000, iBiz issued an aggregate of 3,237,252 shares of common stock to 12 investors at prices ranging from$.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, iBiz 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, iBiz 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, iBiz 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. The securities described below represent equity securities of iBIZ sold by iBIZ during the three month period ended January 31, 2002 that were not registered under the Securities Act of 1933, as amended (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. PRIVATE PLACEMENTS OF COMMON STOCK AND WARRANTS FOR CASH None. SALES OF DEBT AND WARRANTS FOR CASH Convertible debentures were issued to three accredited purchasers during our first quarter of 2002. The debentures were in the aggregate principal amount of $222,500. The debentures were convertible into common stock at a conversion price of the lower of 80% of the average of the three lowest closing bid prices for the common stock twenty two days prior to the closing date or 80% of the average of the three lowest closing bid prices for the common stock sixty days prior to conversion. In addition, these same purchasers received an aggregate amount of 5,666,666 warrants to purchase common stock. The offering of convertible debentures and warrants was exempt from registration under Rule 504 of Regulation D and under Section 4(2) of the Securities Act. No advertising or general solicitation was employed in offering the securities. All persons were accredited investors, represented that they were capable of analyzing the merits and risks of their investment. 35 A convertible debenture was issued to one accredited investor during our second quarter of 2002. The debenture was in the principal amount of $100,000. The debenture is convertible into common stock at a conversion price of the lower of 80% of the average of the three lowest closing bid prices for the common stock twenty two days prior to the closing date or 80% of the average of the three lowest closing bid prices for the common stock sixty days prior to conversion. In addition, this same investor received 3,000,000 warrants to purchase common stock. The offering of convertible debentures and warrants was exempt from registration under Rule 506 of Regulation D and under Section 4(2) of the Securities Act. No advertising or general solicitation was employed in offering the securities. All persons were accredited investors, represented that they were capable of analyzing the merits and risks of their investment. To obtain funding for our ongoing operations, we entered into a Securities Purchase Agreement with three accredited investors on August 15, 2002 for the sale of (i) $700,000 in convertible debentures and (ii) warrants to buy 210,000 shares of our common stock. The investors are obligated to provide us with the funds as follows: - $350,000 was disbursed on August 15, 2002 - $175,000 will be disbursed within ten days of filing this prospectus with the Securities and Exchange Commission - $175,000 will be disbursed within ten days of the effectiveness of this prospectus. The debentures bear interest at 12%, mature on one year from the date of issuance, and are convertible into our common stock, at the investors' option, at the lower of (i) $0.05 or (ii) 50% of the average of the three lowest intraday trading prices for the common stock on a principal market for the 20 trading days before but not including the conversion date. The full principal amount of the convertible debentures are due upon default under the terms of convertible debentures. The warrants are exercisable until three years from the date of issuance at a purchase price of $0.05 per share. OPTION GRANTS None. ISSUANCES OF STOCK FOR SERVICES OR IN SATISFACTION OF OBLIGATIONS In November 2001, we issued 15,000,000 million shares of our common stock valued at $1,5000 to our president, Ken Schilling, as compensation for his contribution of 9,285,600 shares of common stock to iBiz prior to iBiz receiving shareholder approval to increase its authorized capital. In December 2001, we issued 21,750,000 shares of common stock valued at $217,500 to four consultants as payment for consulting services. The above offerings and sales were deemed to be exempt under Regulation D and Section 4(2) of the Securities Act. No advertising or general solicitation was employed in offering the securities. The offerings and sales were made to a limited number of persons, all of whom were business associates of iBiz or executive officers and/or directors of iBiz, and transfer was restricted by iBiz in accordance with the requirements of the Securities Act. All unregistered shares of common stock outstanding, except those issued in November 2001, were registered through our Registration Statement on Form S-8, which was declared effective in January 2002. 36 ITEM 27. EXHIBITS.
----------------- ------------------------------------------------------------------------------------------- Exhibit No. DESCRIPTION ----------------- ------------------------------------------------------------------------------------------- 2.01(1) Plan of Reorganization and Stock Exchange Agreement dated January 1, 1999 3.01(1) Articles of Incorporation, as amended 3.02(1) Bylaws 5.01 Opinion of Sichenzia, Ross, Friedman & Ference LLP 10.01(1) IBIZ Technology Corporation Distributed Software License Agreement dated June 2, 1999, between iBIZ and Jeremy Radlow 10.02(1) 3Com Designed for Palm Computing Platform Logo License Agreement, between iBIZ and Palm Computing, Inc. 10.03(1) IBIZ Technology Corp. Stock Option Plan dated January 31, 1999 10.04(1) Form of Stock Option 10.5(1) Employment Agreement dated March 5, 1999, as amended, between iBIZ, INVNSYS and Kenneth Schilling 10.6(1) Employment Agreement dated March 5, 1999, as amended, between iBIZ, INVNSYS and Mark Perkins 10.7(2) Securities Purchase Agreement dated November 9, 1999, between iBIZ and Globe United Holdings, Inc. 10.8(2) 7% Convertible Debenture Due November 9, 2004, between iBIZ and Globe United Holdings, Inc. 10.9(2) Warrant dated November 9, 1999 10.10(2) Registration Rights Agreement dated November 9, 1999, between iBIZ and Globe United Holdings, Inc. 10.11(3) Securities Purchase Agreement dated December 29, 1999, between iBIZ and Globe United Holdings, Inc. 10.12(3) 7% Convertible Debenture Due December 29, 2004, between iBIZ and Globe United Holdings, Inc. 10.13(3) Warrant dated December 29, 1999 10.14(3) Registration Rights Agreement dated December 29, 1999, between iBIZ and Globe United Holdings, Inc. 10.15(6) Securities Purchase Agreement dated March 27, 2000, between iBIZ and Lites Trading, Co. 10.16(6) 7% Convertible Debenture Due March 27, 2000, between iBIZ and Lites Trading, Co. 10.17(6) Warrant dated March 27, 2000 10.18(6) Registration Rights Agreement dated March 27, 2000, between iBIZ and Lites Trading, Co. 10.19(6) Letter Agreement dated March 27, 2000, from Globe United Holdings to iBIZ 10.20(10) Form of Warrant dated August 30, 2000 (six warrants by and between iBIZ Technology Corp., and various warrant holders) 10.21(10) Form of Warrant dated May 17, 2000 (four warrants by and between iBIZ Technology Corp., and various warrant holders) 10.22(8) Subscription Agreement for Debentures Convertible into Common Stock of iBIZ Technology Corp. 10.23(8) Form of 8% Convertible debentures Due Oct. 30, 2002 10.24(8) Funds Escrow Agreement 10.25(8) Form of Warrant dated Oct. 30, 2000. 10.26(6) Modification and Waiver by and among iBIZ Technology and Subscribers to 8% Convertible debentures Agreement, dated as of April 17, 2001 10.27(6) Subscription Agreement for Debentures Convertible into Common Stock of iBIZ Technology Corp., dated as of April 26, 2001 10.28(6) Form of 8% Convertible debentures Due April 26, 2003 10.29(6) Form of Warrant dated April 26, 2001, 2000 10.30(6) Form of Subscription Agreement for Debentures Convertible into Common Stock of iBIZ Technology Corp., dated as of October 9, 2001 10.31(8) Form of 8% Convertible debentures Due October 9, 2002 10.32(8) Form of Warrant dated October 9, 2001 Form of Subscription Agreement for Debentures Convertible into Common Stock of iBIZ 37 ----------------- ------------------------------------------------------------------------------------------- Exhibit No. DESCRIPTION ----------------- ------------------------------------------------------------------------------------------- 10.33(10) Technology Corp., dated as of August 21, 2001 between iBiz Technology and Laurus Master Fund, Ltd. and Keshet, L.P. 10.34(10) Form of 8% Convertible Debenture Due October August 21, 2002 between iBiz Technology and Laurus Master Fund, Ltd. 10.35(10) Form of Warrant dated August 21, 2001 issued to Laurus Master Fund, Ltd. 10.36(10) Form of 8% Convertible Debenture Due October August 21, 2002 between iBiz Technology and Keshet, L.P. 10.37(12) Form of Subscription Agreement for Debentures 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. 10.38(12) Form of 8% Convertible Debenture Due October July 30, 2002 between iBiz Technology and Laurus Master Fund, Ltd. 10.39(12) Form of Warrant dated July 30, 2001 issued to Laurus Master Fund, Ltd. 10.40(12) Form of 8% Convertible Debenture Due October July 30, 2002 between iBiz Technology and Esquire Trading & Finance, Inc.. 10.41(12) Form of Warrant dated July 30, 2001 issued to Esquire Trading & Finance, Inc. 10.42(12) Form of 8% Convertible Debenture Due October July 30, 2002 between iBiz Technology and Celeste Trust Reg. 10.43(12) Form of Warrant dated July 30, 2001 issued to Celeste Trust Reg. 10.44(12) Form of Subscription Agreement for Debentures Convertible into Common Stock of iBIZ Technology Corp., dated as of June 22, 2001 between iBiz Technology and The Keshet Fund, L.P. 10.45(12) Form of 8% Convertible Debenture Due October June 22, 2002 between iBiz Technology and The Keshet Fund, L.P. 10.46(12) Form of Warrant dated July 30, 2001 issued to The Keshet Fund, L.P. 10.47(13) Alpha Capital Subscription Agreement 10.48(13) Alpha Debenture for $162,500 10.49(13) Alpha Debenture for $100,000 10.50(13) Alpha Warrant for 5,000,000 shares 10.51(13) Alpha Warrant for 3,000,000 shares 10.52 Securities Purchase Agreement 10.53 Registration Rights Agreement 10.54 Security Agreement 10.55 Guaranty and Pledge Agreement 10.56 Debenture - AJW Qualified Partners, LLC 10.57 Debenture - AJW Offshore, LTD. 10.58 Debenture - AJW Partners, LLC 10.59 Warrant - AJW Qualified Partners, LLC 10.60 Warrant - AJW Offshore, LTD. 10.61 Warrant - AJW Partners, LLC 10.62 Modification and Waiver Agreement 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) ----------------- -------------------------------------------------------------------------------------------
------------- (1) Incorporated by reference from iBIZ's Form 10-SB, File No. 000-27619, filed with the SEC on October 13, 1999 (2) Incorporated by reference from iBIZ's Form 10-SB/A, File No. 000-27619, filed with the SEC on November 30, 1999. (3) Incorporated by reference from iBIZ's Form SB-2, File No. 333-94409, filed with the SEC on January 11, 2000. 38 (4) Incorporated by reference from iBIZ's Form 10-KSB, File No. 000-027619, filed with the SEC on January 7, 2000. (5) Incorporated by reference from iBIZ's Form 10-QSB, File No. 000-027619, filed with the SEC on March 16, 2000. (6) Incorporated by reference from iBIZ's Form SB-2, File No. 333-34936, filed with the SEC on April 17, 2000. (7) Incorporated by reference from iBIZ's Form SB-2, File No. 333-42414, filed with the SEC on July 28, 2000. (8) Incorporated by reference from iBIZ's Form SB-2, File No. 333-50564, filed with the SEC on November 22, 2000. (9) Incorporated by reference from iBIZ's Form 8-K, File No. 000-027619, filed with the SEC on January 19, 2001. (10) Incorporated by reference from iBIZ's Form 10-KSB, File No. 000-027619, filed with the SEC on January 29, 2001. (11) Incorporated by reference from iBiz's Form SB-2, File No. 333-63808, filed with the SEC on June 25, 2001. (12) Incorporated by reference from iBiz's Form SB-2, File No. 333-74496, filed with the SEC on December 4, 2001. (13) Incorporated by reference from iBiz's Form SB-2, File No. 333-88274, filed with the SEC on May 15, 2002. ITEM 28. UNDERTAKINGS. The undersigned registrant hereby undertakes to: 1. File, during any period in which it offers or sells securities, a post-effective amendment to this registration statement to: (i) Include any prospectus required by section 10(a)(3) of the Securities Act; (ii) Reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in the registration statement; and Notwithstanding the forgoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation From the low or high end of the estimated maximum offering range may be reflected in the form of prospects filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in the volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement. (iii) Include any additional or changed material information on the plan of distribution. 2. For determining liability under the Securities Act, treat each post-effective amendment as a new registration statement of the securities offered, and the offering of the securities at that time to be the initial bona fide offering. 3. File a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the offering. 4. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. 39 SIGNATURES In accordance with the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements of an amendment to a filing on Form SB-2 and authorized this amendment to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Phoenix, State of Arizona on October 9, 2002. iBIZ TECHNOLOGY CORP. By: /s/ KENNETH W. SCHILLING --------------------------------------- Kenneth W. Schilling, President Director In accordance with the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities stated, on Ocotber 9, 2002. By: /s/ KENNETH W. SCHILLING --------------------------------------- Kenneth W. Schilling, President, CFO Director (Principal executive officer) By: /s/ MARK H. PERKINS --------------------------------------- Mark H. Perkins, Vice President of Operations, Director 40