SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
(AMENDMENT NO. 1)
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): January 4, 2001
EBIZ ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
Nevada 0-27721 84-1075269
(State or other Jurisdiction of (Commission File No.) (IRS Employer
Incorporation Identification No.)
15695 North 83rd Way
Scottsdale, Arizona 85260
(Address of Registrant's Principal Executive Offices) (Zip Code)
(480) 778-1000
(Registrant's telephone number, including area code)
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
Effective January 4, 2001 (the "Effective Time"), JBSI Acquisition, Inc.
("Merger Sub"), a newly formed Texas corporation and wholly-owned subsidiary of
EBIZ Enterprises, Inc., a Nevada corporation (the "Company"), merged (the
"Merger") with and into Jones Business Systems, Inc., a Texas Corporation
("JBSI") pursuant to an Agreement and Plan of Merger dated November 17, 2000
(the "Merger Agreement"). The description contained in this Item 2 of the
transactions consummated pursuant to the terms and conditions of the Merger
Agreement is qualified in its entirety by reference to the full text of the
Merger Agreement, and the amendments thereto, which are incorporated herein by
reference and are filed as Exhibits to this Current Report on Form 8-K (this
"Form 8-K").
At the Effective Time, each outstanding share of the common stock, $0.01
par value per share, of JBSI ("JBSI Common Stock") was converted into the right
to receive and be exchangeable for 1.549 shares of common stock of the Company,
par value $.001 per share ("EBIZ Common Stock"), and each outstanding share of
the Series A Convertible Preferred Stock, $0.01 par value per share, of JBSI
("JBSI Preferred Stock") was converted into the right to receive 13.019 shares
of EBIZ Common Stock. In addition, each unexpired outstanding option to purchase
JBSI Common Stock was converted into an exercisable option to purchase a number
of shares of EBIZ Common Stock equal to the number of shares of JBSI Common
Stock that could have been purchased under such option multiplied by 1.78, at a
price per share of EBIZ Common Stock equal to the per share exercise price of
such option divided by 1.78.
On a pro rata basis, five percent of the shares of EBIZ Common Stock issued
to the holders of JBSI Common Stock and JBSI Preferred Stock will be held in
escrow pending the resolution of any indemnification claims. Indemnification
claims must be made within nine months following the effective date of the
Merger. The maximum indemnity liability of the JBSI shareholders is $1,000,000
and no indemnification claims will be paid if the net indemnification amount is
less than $250,000.
The Merger was intended to qualify as a tax deferred reorganization under
Section 368(a) of the Internal Revenue Code of 1986, as amended, and to be
accounted for on a purchase basis. Neither the Company nor any of its
affiliates, directors, or officers or any affiliate of any of the Company's
directors or officers had any material relationship with the holders of
securities of JBSI at or before the Effective Time. JBSI assembles markets and
sells customized computer servers.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Business Acquired.
INDEX TO JONES BUSINESS SYSTEMS, INC. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of December 31, 1999 and 2000............ 6
Statements of Operations for the Years Ended December 31, 1999
and 2000................................................................ 8
Statements of Stockholders' Equity for the Years Ended
December 31, 1999 and 2000.............................................. 9
2
Statements of Cash Flows for the Years Ended December 31, 1999
and 2000................................................................ 10
Notes to Consolidated Financial Statements.............................. 11
(b) Pro Forma Financial Information
INDEX TO EBIZ ENTERPRISES, INC. PRO FORMA FINANCIAL INFORMATION
Pro Forma Financial Statements (unaudited).............................. 27
Pro Forma Condensed Combined Balance Sheets (unaudited)................. 28
Pro Forma Condensed Combined Statements of Operations (unaudited)....... 29
Pro Forma Condensed Combined Statements of Operations (unaudited)....... 30
(c) Exhibits
Exhibit No. Description
- ----------- -----------
2.1 Agreement and Plan of Merger, dated November 17, 2000, by and
among Ebiz Enterprises, Inc., a Nevada corporation, Jones
Business Systems, Inc., a Texas corporation, and JBSI
Acquisition, Inc., a Texas corporation. (Incorporated by
reference to Exhibit 2.1 to the Form 8-K filed by the Company on
January 19, 2001.)
2.2 First Amendment to Agreement and Plan of Merger, dated December
22, 2000. (Incorporated by reference to Exhibit 2.2 to the Form
8-K filed by the Company on January 19, 2001.)
2.3 Second Amendment to Agreement and Plan of Merger, dated January
3, 2001. (Incorporated by reference to Exhibit 2.3 to the Form
8-K filed by the Company on January 19, 2001.)
2.4 Registration Rights Agreement, by and among Ebiz Enterprises,
Inc., a Nevada corporation, and Shareholders of Jones Business
Systems, Inc., dated as of January 4, 2001. (Incorporated by
reference to Exhibit 2.5 to Form 8-K filed by the Company on
January 19, 2001.)
2.5 Lock-Up Letter Agreement, by and among Ebiz Enterprises, Inc., a
Nevada corporation, and Shareholders of Jones Business Systems,
Inc., dated as of November 30, 2000. (Incorporated by reference
to Exhibit 2.6 to Form 8-K filed by the Company on January 19,
2001.)
2.6 Shareholder Voting Agreement and Proxy, by and among Ebiz
Enterprises, Inc., a Nevada corporation, and certain shareholders
of Jones Business Systems, Inc., dated December 28, 2000.
(Incorporated by reference to Exhibit 2.4 to Form 8-K filed by
the Company on January 19, 2001.)
23.1 Consent of Semple & Cooper, LLP
23.2 Consent of PricewaterhouseCoopers LLP
3
INDEPENDENT AUDITORS' REPORT
To The Stockholders and Board of Directors of
Jones Business Systems, Inc.
We have audited the accompanying consolidated balance sheet of Jones Business
Systems, Inc. as of December 31, 2000, and the related consolidated statements
of operations, changes in stockholders' equity, and cash flows for the year then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Jones
Business Systems, Inc. as of December 31, 2000, and the results of its
operations, changes in stockholders' equity, and its cash flows for the year
then ended, in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 12 to
the financial statements, the Company's significant operating losses and working
capital deficit raise substantial doubt about its ability to continue as a going
concern. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/ Semple & Cooper, L.L.P.
Certified Public Accountants
Phoenix, Arizona
March 24, 2001
4
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of
Jones Business Systems, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Jones
Business Systems, Inc. and its subsidiaries at December 31, 1999, and the
results of its operations and its cash flows for the year then ended in
conformity with accounting principles generally accepted in the United States.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit of these statements in accordance with
auditing standards generally accepted in the United States, which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 12 to
the financial statements, the Company's significant operating losses and working
capital deficit raise substantial doubt about its ability to continue as a going
concern. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/ PricewaterhouseCoopers LLP
Houston, Texas
March 15, 2000, except as to Note 12,
which is as of May 16, 2001
5
JONES BUSINESS SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
ASSETS
(in thousands, except shares and par value) 2000 1999
------- -------
Current assets:
Cash and cash equivalents $ -- $ 1
Accounts receivable, net of an allowance for doubtful
accounts of $472 and $227, respectively 2,722 6,984
Notes receivable 20 340
Other receivables 287 513
Related party notes receivable 11 95
Inventory, net of inventory reserve of $531 and $205,
respectively 810 3,218
Other current assets 92 291
------- -------
Total current assets 3,942 11,442
Property and equipment, net 1,309 1,713
Related party notes receivable 194 289
Other assets, net 1,869 3,640
------- -------
Total assets $ 7,314 $17,084
======= =======
The accompanying notes are an integral part of these
consolidated financial statements.
6
JONES BUSINESS SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands, except shares and par value) 2000 1999
-------- --------
Current liabilities:
Current portion of indebtedness $ 4,356 $ 612
Accounts payable 4,527 8,010
Related party payable -- 317
Other liabilities and accrued expenses 553 654
-------- --------
Total current liabilities 9,436 9,593
Noncurrent portion of indebtedness 415 5,797
Subordinated convertible debentures 185 185
-------- --------
Total liabilities 10,036 15,575
-------- --------
Commitments and contingencies (Note 11) -- --
Mandatorily redeemable preferred stock:
Series A noncumulative, convertible, 6% redeemable
preferred stock, 1,000,000 shares authorized; 117,360
and 194,738 respectively shares issued and
outstanding, stated at redemption value (Note 7) 2,081 2,363
-------- --------
Stockholders' equity (deficit):
Common stock, $.01 par value - 20,000,000 shares
authorized; 3,674,975 and 4,108,975 shares
issued and outstanding, respectively 37 40
Additional paid-in capital 1,948 2,402
Notes receivable for common stock (249) (593)
Accumulated deficit (6,539) (2,703)
-------- --------
Total stockholders' equity (deficit) (4,803) (854)
-------- --------
$ 7,314 $ 17,084
======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
7
JONES BUSINESS SYSTEMS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
(in thousands) 2000 1999
-------- --------
Sales $ 31,825 $ 49,289
Cost of goods sold 27,683 41,879
-------- --------
Gross profit 4,142 7,410
Selling, general and administrative expenses 6,187 6,508
Depreciation and amortization 522 571
-------- --------
Operating income (loss) from continuing operations (2,567) 331
Other (expense):
Other revenue 22 --
Interest, net (980) (849)
-------- --------
Loss from continuing operations before income taxes (3,525) (518)
Benefit (provision) for income taxes (1,450) 143
-------- --------
Loss from continuing operations (4,975) (375)
Gain on sale of investment 1,139 --
Discontinued operations:
Loss from operations of Clark Technologies, net
of income tax benefit of $1,001 -- (1,991)
Loss on disposal of Clark Technologies, net of
applicable income tax benefit of $110 -- (998)
-------- --------
Net loss $ (3,836) $ (3,364)
======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
8
JONES BUSINESS SYSTEMS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
(in thousands except shares) Notes Retained
Common Stock Additional Receivable Earnings
------------------- Paid-In for Common (Accumulated
Shares Amount Capital Stock Deficit) Total
------ ------ ------- ----- -------- -----
Balance at December 31, 1998 4,141,840 $ 41 $2,445 $(713) $ 661 $ 2,434
Stock forfeiture (6,115) -- (25) -- -- (25)
Employee stock bonus 65,000 -- 78 -- -- 78
Collection of notes receivable for common stock -- -- -- 23 -- 23
Stock redemptions in lieu of collection on
related party notes receivable (91,750) (1) (96) 97 -- --
Net loss -- -- -- -- (3,364) (3,364)
---------- ------ ------ ----- ------- -------
Balance at December 31, 1999 4,108,975 40 2,402 (593) (2,703) (854)
Stock forfeiture (65,000) -- -- -- -- --
Stock redemptions in lieu of collection on (329,000) (3) (398) 344 -- (57)
related party notes receivable
Stock redemption for note receivable (40,000) -- (56) (56)
Net loss -- -- -- -- (3,836) (3,836)
---------- ------ ------ ----- ------- -------
Balance at December 31, 2000 3,674,975 $ 37 $1,948 $(249) $(6,539) $(4,803)
========== ====== ====== ===== ======= =======
The accompanying notes are an integral part of these
consolidated financial statements.
9
JONES BUSINESS SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
(in thousands) 2000 1999
------- -------
Operating activities:
Net loss $(3,836) $(3,364)
Adjustments to reconcile net loss to net cash
provided by continuing operations:
Loss on disposal of discontinued operation -- 998
Accretion of interest on mandatorily redeemable
preferred stock 133 113
Depreciation and amortization 620 571
Deferred income taxes 1,323 (1,219)
Employee stock bonus -- 78
Discount on sale of note receivable -- 11
Gain on sale of investment (1,139) --
Changes in operating assets and liabilities, net
of effect of acquisitions:
Accounts receivable, net 4,262 1,756
Unbilled revenue -- 168
Other receivables 226 1,068
Inventory 2,408 3,426
Other current assets 199 164
Accounts payable (3,483) (1,475)
Related party payable (317) --
Other liabilities and accrued expenses (350) (324)
------- -------
Net cash provided by operating activities 46 1,971
------- -------
Investing activities:
Purchases of property and equipment (33) (364)
Cash proceeds from sale of Clark Technologies -- 1,000
Collections on notes receivable 341 412
Disbursements for notes receivable (131)
Proceeds from sale of other assets 1,801
Purchases of other assets (125) (6)
------- -------
Net cash provided by investing activities 1,853 1,042
------- -------
The accompanying notes are an integral part of these
consolidated financial statements.
10
JONES BUSINESS SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
(in thousands) 2000 1999
------- -------
Financing activities:
Payments under revolving line of credit, net (1,228) (4,111)
Repayments on term notes (351) (645)
Payments on subordinated convertible debentures -- (249)
Payments on capital lease obligations (155) (187)
Sale of note receivable with recourse to affiliate -- 485
Repayments on sale of note receivable with
recourse to affiliate -- (168)
Advances to stockholders and affiliates -- (17)
Collection of notes receivable for common stock -- 23
Proceeds from sale-leaseback of equipment -- 551
Repurchase of mandatorily redeemable preferred stock (166) --
------- -------
Net cash used by financing activities (1,900) (4,318)
------- -------
Net decrease in cash (1) (1,305)
Cash at beginning of year 1 1,306
------- -------
Cash at end of year $ -- $ 1
======= =======
(in thousands) 2000 1999
---- ----
Supplemental disclosure of cash flow information:
Interest paid $ 847 $ 1,093
Income taxes paid 127 1
Noncash investing and financing activities:
Conversion of debentures into mandatorily redeemable
preferred stock -- 2,250
Note receivable resulting from sale of Clark Technologies -- 207
Preferred stock received from sale of Clark Technologies -- 1,000
Stock forfeiture -- 25
Stock redemptions in lieu of collection on related party
notes receivable 457 97
Property acquired through capital lease obligations 95 --
Acquisition of other assets through reduction of note
..receivable 175 --
The accompanying notes are an integral part of these
consolidated financial statements.
11
JONES BUSINESS SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
- --------------------------------------------------------------------------------
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
NATURE OF OPERATIONS AND USE OF ESTIMATES
- --------------------------------------------------------------------------------
NATURE OF OPERATIONS
Jones Business Systems, Inc. (the Company) manufactures and sells its Terian
general purpose application computer servers as a packaged computing solution
with software applications provided by its independent software vendor partners
and vertical channel partners. The Company also distributes and serves as a
value-added reseller of computer equipment and software. The Company is based in
Houston, Texas and has sales offices in six states.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Jones Business
Systems, Inc. and its subsidiary. All intercompany accounts and transactions
have been eliminated in the consolidated financial statements.
REVENUE RECOGNITION
Distribution revenues are recognized upon shipment of product under confirmed
customer purchase orders. A provision is made for estimated returns.
The Company has authorized distributorship agreements with various
manufacturers. Products sold under the most significant of these individual
agreements comprised 24%, 17%, 15%, and 11% during 2000 and 20%, 19% and 11% of
the Company's revenues during 1999. These agreements also provide for periodic
reimbursement of a portion of the Company's advertising expenses and credit
toward purchases based on the Company's transaction volume. During the years
ended December 31, 2000 and 1999, the Company recorded reductions of $874 and
$1,233, respectively, in selling, general and administrative expenses related to
these reimbursements and credits, $287 and $510 of which are included in other
receivables at December 31, 2000 and 1999, respectively.
ADVERTISING AND PROMOTION
All costs associated with advertising and promoting products are expensed in the
year incurred.
STOCK BASED COMPENSATION
The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standard (SFAS) No. 123, "Accounting for Stock-Based
Compensation Issued to Employees." SFAS No. 123 prescribes using the fair value
method of accounting for stock-based compensation issued to employees; however,
the Company has elected, as permitted by SFAS No. 123, to continue to use the
intrinsic value method in its primary financial statements. The intrinsic value
method records compensation expense for stock based upon the difference between
the exercise price and the fair market value of the Company's stock at the date
of grant, recognized over the vesting period of the options.
12
JONES BUSINESS SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
- --------------------------------------------------------------------------------
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, NATURE OF OPERATIONS
AND USE OF ESTIMATES (CONTINUED)
- --------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS
The Company considers highly liquid investments with an original maturity of
three months or less from the date of purchase to be classified as cash and cash
equivalents.
INCOME TAXES
The Company accounts for income taxes using an asset and liability approach that
requires the recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been recognized in the Company's
financial statements or tax returns. In estimating future tax consequences, all
expected future events are considered other than enactments of changes in the
tax law or rates.
CONCENTRATION OF CREDIT RISK
Financial instruments which subject the Company to concentrations of credit risk
consist primarily of cash equivalents and accounts receivable. The Company
maintains a majority of its cash equivalent balance in overnight sweep
investments. Management believes that concentrations of credit risk with respect
to accounts receivable are limited because the Company's customer base is large
and dispersed across many different industries and geographic regions. The
Company performs ongoing credit evaluations of its customers to minimize risks.
INVENTORY
Inventory consists of microcomputers and related peripheral products and
software and is valued at the lower of cost (first-in, first-out) or market. The
inventory balance at December 31, 2000 and 1999 is shown net of an allowance for
obsolescence of $531 and, $205, respectively.
PROPERTY AND EQUIPMENT
Property and equipment is carried at cost. The cost of additions and
improvements is capitalized, while maintenance and repairs are charged to
operations when incurred. Depreciation is recorded using the straight-line
method over the estimated useful life of the asset.
LONG-LIVED ASSETS
The Company reviews for the impairment of long-lived assets and certain
identifiable intangibles whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The carrying amount
of a long-lived asset is considered impaired when anticipated undiscounted cash
flows, expected to result from the use of the asset and its eventual
disposition, is less than its carrying amount. The Company believes that no
material impairment exists at December 31, 2000.
13
JONES BUSINESS SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
- --------------------------------------------------------------------------------
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, NATURE OF OPERATIONS
AND USE OF ESTIMATES (CONTINUED)
- --------------------------------------------------------------------------------
MANDATORILY REDEEMABLE PREFERRED STOCK
The carrying value of mandatorily redeemable preferred stock is increased by
periodic accretions so that the carrying amount will equal the redemption amount
at the redemption election date. These increases are recorded as interest
expense in the period incurred.
The Company authorized the redemption of a portion of its mandatorily redeemable
preferred stock on January 25, 2000 for approximately $169.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company enters into various types of financial instruments in the normal
course of business and in connection with acquisitions and divestitures. The
Company does not hold or issue financial instruments for trading purposes nor
does it hold interest rate, leveraged or other types of derivative financial
instruments. The carrying values of cash and cash equivalents, accounts
receivable, notes receivable, related party receivables, accounts payable and
indebtedness reflected in the December 31, 2000 and 1999 consolidated balance
sheets approximate their fair value at that date.
TRANSFER OF FINANCIAL ASSETS
In 1999, the Company adopted Statement of Financial Accounting Standards No. 125
(SFAS 125), "Accounting for Transfer and Servicing of Financial Assets and
Extinguishment of Liabilities." During 1999, the Company sold a note receivable
to a related party for $485 (Note 9). In accordance with SFAS 125, the balance
of the note receivable at December 31, 1999 of $317 is reflected as a note
receivable and a corresponding related party payable, as there is full recourse
to the Company in the event the note receivable is not collected. As of December
31, 2000 the note was fully collected.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Management believes these
estimates are reasonable.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current year
presentation.
14
JONES BUSINESS SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
- --------------------------------------------------------------------------------
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, NATURE OF OPERATIONS
AND USE OF ESTIMATES (CONTINUED)
- --------------------------------------------------------------------------------
COMMON STOCK
During the year ended December 31, 2000 the board of directors authorized a 5
for 1 common stock split and a change in the par value from $1.00 to $.01. The
accompanying financial statements give retroactive effect to the stock split and
change in par value.
- --------------------------------------------------------------------------------
NOTE 2
ACQUISITIONS
- --------------------------------------------------------------------------------
On May 12, 1998, the Company acquired all of the assets and liabilities of Clark
Data Systems, Inc. (Clark), a computer services and integration business and all
of the outstanding stock of Cadsys Texas, Inc. (Cadsys), a computer software
reseller business and affiliate of Clark. Both were headquartered in Houston,
Texas. The Company paid consideration of 122,500 shares of the Company's common
stock, valued at $6 per share, and assumed $6,283 of Clark liabilities. The
acquisition was recorded using the purchase method of accounting, and
accordingly, the acquired combined operations of Clark and Cadsys have been
included in the results of operations since the date of acquisition. The
allocation of the purchase price included $3,615 of goodwill.
On May 31, 1998, the Company acquired certain assets of Computer Support of
Sioux City, Ltd. (CSSC), a computer manufacturing business headquartered in
Sioux City, Iowa. The consideration for the purchase was $589 in cash, a $100
subordinated debenture with detachable stock warrants and the assumption of $150
of CSSC liabilities. The debenture has a stated rate of interest of 6%, provides
for quarterly interest payments with all principal being paid on maturity on
October 18, 2002. The detachable stock warrants give CSSC the right to buy up to
5,000 shares of the Company's common stock at $20 per share at any time prior to
maturity. The acquisition was recorded using the purchase method of accounting,
and accordingly, the acquired operations of CSSC have been included in the
results of operations since the date of acquisition. The allocation of purchase
price included $713 of goodwill.
- --------------------------------------------------------------------------------
NOTE 3
DISCONTINUED OPERATIONS
- --------------------------------------------------------------------------------
During 1998, the Company combined the acquired business of Clark with its
service division and created Clark Technologies, Inc. (Clark Technologies), a
computer services and integration business focused on integrating computer
solutions for small to mid-sized businesses. The Company operated Clark
Technologies until its disposal in December 1999. Accordingly, the consolidated
statement of operations has been reclassified for all periods presented to
report separately the results of the discontinued operation.
15
JONES BUSINESS SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
- --------------------------------------------------------------------------------
NOTE 3
DISCONTINUED OPERATIONS (CONTINUED)
- --------------------------------------------------------------------------------
On December 7, 1999, the Company completed the sale of Clark Technologies to
VeriCenter, Inc. (VeriCenter) (Note 9), for cash of $1,000, one million shares
of VeriCenter preferred stock valued at $1.00 per share, and a note receivable
of $207. The note receivable bears interest at 7% and is due in quarterly
installments of $19 beginning March 7, 2000 with final maturity at December 7,
2002. Several of the VeriCenter stockholders own, in the aggregate, a
significant amount of the outstanding shares of the Company. VeriCenter had no
operations prior to this transaction.
The results of the discontinued Clark Technologies operations through December
7, 1999 are as follows:
1999
-------
Sales $ 7,376
Cost of sales 6,200
-------
Gross margin 1,176
Selling, general and administrative expenses 3,613
Depreciation and amortization 268
-------
Operating loss from discontinued operations (2,705)
Interest expense, net 287
-------
Loss from discounted operations before taxes (2,992)
Income tax benefit 1,001
-------
Net loss from discontinued operations $(1,991)
=======
The net loss on the disposal of Clark Technologies at December 7, 1999 is as
follows:
Proceeds from disposal of discontinued operations $ 2,207
Net book value of assets sold (3,315)
-------
Loss on disposal of discontinued operations (1,108)
Income tax benefit 110
-------
Net loss on disposal of discontinued operations $ (998)
=======
16
JONES BUSINESS SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
- --------------------------------------------------------------------------------
NOTE 4
PROPERTY AND EQUIPMENT
- --------------------------------------------------------------------------------
Property and equipment consists of the following at December 31:
Estimated
useful life 2000 1999
----------- ------- -------
Computer equipment 3 to 5 years $ 1,998 $ 1,893
Furniture and fixtures 7 years 100 98
Automobiles 5 years -- 19
Property under capital lease 5 years 655 641
Leasehold improvements 5 years 174 332
------- -------
2,927 2,983
Accumulated depreciation (1,618) (1,270)
------- -------
$ 1,309 $ 1,713
======= =======
In March 1999, the Company entered into a sale-and-leaseback transaction related
to certain of its property and equipment with proceeds of approximately $551. No
gain or loss was recognized on this transaction. The leases are classified as
capital leases in accordance with SFAS No. 13 "Accounting for Leases".
- --------------------------------------------------------------------------------
NOTE 5
OTHER ASSETS
- --------------------------------------------------------------------------------
Other assets consist of the following at December 31:
2000 1999
------ ------
Goodwill, net of accumulated amortization of $303 and $209 $1,199 $1,318
Investment in VeriCenter preferred stock (Note 3) 638 1,000
Deferred tax asset (Note 8) -- 1,299
Other assets 32 23
------ ------
$1,869 $3,640
====== ======
17
JONES BUSINESS SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
- --------------------------------------------------------------------------------
NOTE 5
OTHER ASSETS (CONTINUED)
- --------------------------------------------------------------------------------
Goodwill is being amortized on a straight-line method over a 15-year period.
In December 1999, the Company disposed of certain assets related to Clark
Technologies (Note 3) including related goodwill, with a net book value of
$3,429. The Company received one million shares of VeriCenter preferred stock
with an estimated fair value of $1,000 on December 7, 1999. On February 25,
2000, the Company sold 400,000 shares of VeriCenter preferred stock for $1,600.
On January 25, 2000, the Company granted options to purchase an aggregate of
337,500 shares of VeriCenter preferred stock (currently owned by the Company) to
the holders of its mandatorily redeemable preferred stock. The options grant the
holders the right to purchase the shares at a price of $3.00 per share or 80% of
the share price of any private financing in excess of $2,000 undertaken by
VeriCenter. In connection with the options grant, the Company committed to using
the proceeds received from the exercise of the options to redeem, at face value
plus accrued interest, the Company's mandatorily redeemable preferred stock,
subject to the approval of the Company's lender, and subject to the action being
in the best interest of the Company.
Effective January 25, 2000, the Company transferred 200,000 shares of its
VeriCenter preferred stock to various stockholders who are personal guarantors
of the Company's term note. In addition, the Company issued, to the same
individuals, 200,000 warrants that enable the holders to purchase an aggregate
of 200,000 shares of the Company's common stock at a price of $7.50 per share.
The warrants expire on January 25, 2005.
On February 25, 2000, the Company sold 400,000 shares of its VeriCenter
Preferred stock for $1,600.
During the year ended December 31, 2000 the Company distributed 400,000 shares
of VeriCenter preferred stock to an investment banker for fees and an additional
62,500 shares were distributed to members of the Board of Directors for director
fees.
In addition, during the year ended December 31, 2000, the Company acquired
157,895 shares of VeriCenter Series B Convertible Preferred Stock for the
conversion of $175 of notes receivable and $125 of accounts receivable.
18
JONES BUSINESS SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
- --------------------------------------------------------------------------------
NOTE 6
INDEBTEDNESS
- --------------------------------------------------------------------------------
The components of indebtedness at December 31 are summarized as follows:
2000 1999
------- -------
Financial institution borrowings:
Line of credit, as amended in 1998 - $20,000, interest
at prime minus 1.5% to plus 2%, matures July 2001 $ 1,588 $ 2,816
Term note, as amended in 1998 - $3,000, due in monthly
installments of $40, which escalates to $55 in 2001
(depending on amounts outstanding) with the balance
due July 2001, interest at prime plus 2.0% to 3.5% 2,360 2,480
Other borrowings:
Subordinated convertible debentures from acquisitions (Note 2) 185 185
Note payable resulting from acquisition (Note 2), interest at 10.5%,
payable in equal quarterly installments beginning February 12, 1999
with principal due May 12, 2001 225 450
Note payable resulting from acquisition (Note 2), interest at 6%,
payable quarterly with all principal due October 18, 2002 100 100
Capital leases, with aggregate monthly payments approximating $12
and bearing interest at rates between 9% and 11% 498 559
Other 4
------- -------
4,956 6,594
Less - current maturities (4,356) (612)
------- -------
$ 600 $ 5,982
======= =======
Borrowings under the line of credit are limited to 85% of eligible accounts
receivable and 50% of eligible inventory. The line of credit is secured by all
accounts receivable, inventory and property and equipment of the Company. The
term note is secured by property and equipment. These borrowings contain various
covenants which require, among other things, the maintenance of certain working
capital and financial ratios and limitations on the declaration of dividends.
The Company was not in compliance with certain covenants of the line of credit
and the term note with regard to minimum tangible capital funds, debt to
tangible capital funds, senior debt service coverage ratio and total debt
coverage ratio as of December 31, 1999. However, the lender has waived these
violations pertaining to these covenants through March 31, 2000. In March 2000,
the lender modified the covenants related to these borrowings and suspended all
principal payments on the term note until April 1, 2001. Accordingly, the note
balance is classified as noncurrent indebtedness at December 31, 1999.
19
JONES BUSINESS SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
- --------------------------------------------------------------------------------
NOTE 6
INDEBTEDNESS (CONTINUED)
- --------------------------------------------------------------------------------
The Company is in violation of certain financial covenants under a $450 note
payable resulting from an acquisition and has included the balance as a current
maturity in the accompanying consolidated balance sheet as of December 31, 1999.
Effective February 28, 1999, a vendor converted a $2,000 subordinated debenture
into redeemable preferred stock (Note 7). Three other subordinated debentures
totaling $250 were converted into redeemable preferred stock on the same terms,
on the same date.
The aggregate maturities of indebtedness described above are as follows: $4,356
in 2001; $445 in 2002, $120 in 2003 and $35 in 2004.
- --------------------------------------------------------------------------------
NOTE 7
MANDITORILY REDEEMABLE PREFERRED STOCK
- --------------------------------------------------------------------------------
On February 28, 1999, a total of $2,250 in subordinated convertible debentures
were converted into 194,738 shares of preferred stock having a par value of
$0.01 per share. These shares, designated as Series A Convertible Redeemable
Non-Cumulative Preferred Stock (Series A Preferred Stock), are entitled to one
vote per share on all matters upon which common stockholders are entitled to
vote and have a redemption value equal to the original issue price plus an
amount equal to 6% of the original issue price per annum from the date of
issuance. Redemption of the Series A Preferred Stock may be requested at the
option of the holders for any or all the outstanding shares provided that the
Company does not consummate an underwritten public offering or other defined
liquidity event by February 28, 2001. The redemption would be made in six equal
quarterly installments of principal plus interest, at an interest rate equal to
the price rate adjusted quarterly, at the redemption election date. Under
certain circumstances within the Company's control, the holders may redeem the
Series A Preferred Stock at a redemption value equal to the original issue price
plus an amount equal to 12% of the original issue price, adjusted annually, from
the date of issuance. The total redemption value of the shares outstanding at
December 31, 2000 and 1999, in the amounts of $2,081 and $2,363, respectively,
are classified on the Company's balance sheets as mandatorily redeemable
preferred stock.
The Series A Preferred Stock may be converted into a number of shares of the
Company's common stock, determined by dividing the original issue price of the
Series A Preferred Stock by the conversion price applicable to such share (the
initial conversion price equals the original issue price of the Series A
Preferred Stock, resulting in a one-to-one conversion rate). In the event of any
liquidation, dissolution or winding up of the affairs of the Company, holders of
the Series A Preferred Stock shall be paid the greater of (1) the original
20
JONES BUSINESS SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
issuance price plus any accrued or unpaid dividends to the date of liquidation,
dissolution or winding up of affairs or (2) the amount per share such holder
would receive if the Company's assets were ratably distributed among the holders
of common stock and Series A Preferred Stock (determined on an as-converted
basis with respect to outstanding shares of Series A Preferred Stock).
- --------------------------------------------------------------------------------
NOTE 8
INCOME TAXES
- --------------------------------------------------------------------------------
The provision for income taxes (from both continuing operations and discontinued
operations) for the years ended December 31, 2000 and 1999 consists of the
following:
2000 1999
------- -------
Current tax expense $ -- $ 75
Deferred tax expense (benefit) 1,450 (1,329)
------- -------
Income taxes expense (benefit) $ 1,450 $(1,254)
======= =======
The Company's provision for income taxes exceeds the federal statutory rate
primarily due to state income taxes and the recording of the valuation allowance
during the year ended December 31, 2000.
Deferred income tax assets (liabilities) at December 31, 2000 and 1999 consist
of the following:
2000 1999
------- -------
Accounts receivable allowance $ 160 $ 77
Inventory 181 86
Less: valuation allowance (341) --
------- -------
Net deferred tax asset - included in other current assets $ -- $ 163
======= =======
Operating loss carryforward $ 1,997 $ 1,190
Capital loss carryforward 110 110
Miscellaneous other (3) (1)
Less: valuation allowance (2,104) --
------- -------
Net noncurrent deferred tax asset (liability) $ -- $ 1,299
======= =======
The Company's net operating loss carryforward totaled approximately $5,874 at
December 31, 2000, and expires through 2020. The Company's capital loss
carryforward totaled approximately $336 at December 31, 2000 and expires in
2004.
21
JONES BUSINESS SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
The net change in the valuation allowance for the year ended December 31, 2000
was an increase of $2,445. In assessing the realizability of deferred tax
assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future
taxable income during the periods in which those temporary differences become
deductible. Management believes that the inability to utilize net operating loss
carryforwards to offset future taxable income within the carryforward periods is
more likely than not. Accordingly, a 100 percent valuation allowance has been
recorded against the net deferred tax assets.
- --------------------------------------------------------------------------------
NOTE 9
RELATED PARTY TRANSACTIONS:
- --------------------------------------------------------------------------------
In August 1999 the Company sold a note receivable to the Chairman of the
Company's Board of Directors for $485. The note receivable was sold at a
discount of $11 from its carrying value at the time of the sale. The balance of
the note receivable at December 31, 1999 of $317 is reflected as a note
receivable and a corresponding related party payable to the Chairman, because
the Chairman has recourse to the Company in the event the note receivable is not
collected. As of December 31, 2000 the note was fully paid.
In December 1999 the Company completed the sale of Clark Technologies to
VeriCenter, a company created by a stockholder and former president of the
Company (Note 3). In connection with the transaction, the Company agreed to
provide a turn-key office environment, including offices and administrative
services, to VeriCenter for a minimum monthly fee of $29 for a two-year period
ending December 7, 2001. Fees received for these services during 2000 and 1999
were approximately $367 and $31, respectively. Either party has the ability to
terminate the arrangement prior to expiration by paying a termination fee of
$115. As of December 31, 2000 the agreement was terminated by VeriCenter and the
$115 termination fee was waived by the Company.
The Company holds various notes receivable for common stock from officers and
stockholders of the Company. The loans are collateralized by 94,100 shares of
the Company's common stock at December 31, 2000 and 1999. The notes receivable
are shown on the balance sheet as a reduction in stockholders' equity.
The Company has contracted for printing services from a company which is
majority owned by the Company's stockholders for a monthly rate of $17.
The Chairman of the Company's Board of Directors provides legal services to the
Company. Fees paid for these services during 2000 and 1999 were approximately
$78 and $67, respectively.
The stockholders of the Company participate in a Buy-Sell Agreement that
provides them with the right of first refusal to purchase the shares of a
stockholder wishing to sell stock under a bona fide offer. The Agreement also
provides for the possible sale of stock to the Company in the event of a
stockholder's death or disability.
The Company also entered into an agreement to obtain its technology solution
services from VeriCenter. These services will be rendered at a rate of 1.5 times
the base payroll rate of the VeriCenter consultant performing the services. Fees
for these services during 2000 and 1999 were approximately $391 and $33,
respectively.
22
JONES BUSINESS SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
- --------------------------------------------------------------------------------
NOTE 9
RELATED PARTY TRANSACTIONS (CONTINUED)
- --------------------------------------------------------------------------------
Related party receivables at December 31 include the following:
2000 1999
----- -----
Note from VeriCenter; interest at 7% annually, due in
quarterly installments of $19, beginning March 7, 2000
with final maturity at December 7, 2002 $ -- $ 207
Note from affiliated printing company in original amount
of $122; interest at 12% annually, eight quarterly
installments of interest only, monthly installments of $4,
beginning November 8, 2000; final maturity, September 8, 2003 169 122
Notes from three officers of the Company; interest at 8% annually,
monthly installments of interest only through September 2000;
total monthly installments of $1 beginning October 5, 2000
with final maturity at February 5, 2004 36 39
Other -- 16
----- -----
205 384
Less - current portion (11) (95)
----- -----
Noncurrent portion $ 194 $ 289
===== =====
23
JONES BUSINESS SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
- --------------------------------------------------------------------------------
NOTE 10
EMPLOYEE COMPENSATION
- --------------------------------------------------------------------------------
401K PLAN
The Company sponsors a defined contribution 401(k) Savings Plan for its
employees. Company contributions to the plan are discretionary and totaled $43
and $72 for the years ended December 31, 2000 and 1999, respectively.
STOCK OPTION PLAN
The Company has granted stock options to certain stockholders and employees.
Options granted vest ratably on an annual basis over a period of five years or
immediately upon the sale of the Company. The options have dilution provisions,
therefore the information below for the year ended December 31, 1999 has been
restated to give effect to the 5 for 1 common stock split.
Information with respect to stock options is as follows:
2000 1999
---------- ----------
Options outstanding at beginning of year 3,146,575 1,486,575
Granted 80,000 2,260,000
Exercised
Canceled (984,640) (600,000)
---------- ----------
Options outstanding at end of year 2,241,935 3,146,575
Options exercisable at end of year 1,820,595 1,835,760
2000 1999
---------- ----------
Weighted-average exercise price:
Granted $ 1.25 $ .84
Exercised
Canceled 1.20 1.20
Outstanding at end of year .72 .93
Exercisable at end of year .62 .62
Information with respect to stock options outstanding and stock options
exercisable at December 31, 2000 is as follows:
24
JONES BUSINESS SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
- --------------------------------------------------------------------------------
NOTE 10
EMPLOYEE COMPENSATION (CONTINUED)
- --------------------------------------------------------------------------------
Options Outstanding Options excercisable
------------------------------------ ------------------------
Number Weighted- Number
outstanding average Weighted- exercisable Weighted-
at remaining average at average
Range of December 31, contractual exercise December 31, exercise
exercise prices 2000 life price 2000 price
- --------------- ---- ---- ----- ---- -----
$.50 1,500,000 1.80 $ .50 1,500,000 $ .50
$1.10 - $1.20 364,435 11.10 $1.18 245,095 $1.16
$1.25 77,500 14.50 $1.25 15,500 $1.25
$1.50 300,000 8.60 $1.50 60,000 $1.50
---------- ----------
2,241,935 1,820,595
========== ==========
During 1999, the Company granted 300,000 options that were exercisable upon
issuance, with an exercise price of $2.50 ($.50 after giving effect to the 5 for
1 stock split) per share to certain employees and directors. No compensation
expense has been recognized as the exercise price of the options at the date of
grant did not exceed the fair value of the stock.
Pro forma stock-based compensation costs, if calculated using the fair value
method prescribed by SFAS No. 123, would have increased pretax loss by $13 in
2000 and by $9 in 1999. In calculating the fair value of the options, the
Company used a Black-Scholes model and the minimum value method with the
following assumptions: 5.5% risk-free interest rate, an expected life of five
years, volatility of 0% and no dividend yield.
- --------------------------------------------------------------------------------
NOTE 11
COMMITMENTS AND CONTINGENCIES
- --------------------------------------------------------------------------------
Aggregate rental expense under noncancelable operating leases for the year ended
December 31, 2000 and 1999 was approximately $371 and $272, respectively. The
aggregate future rental payments under noncancelable operating leases are as
follows:
25
JONES BUSINESS SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
2001 $ 210
2002 223
2003 206
-----
$ 639
=====
- --------------------------------------------------------------------------------
NOTE 12
GOING CONCERN
- --------------------------------------------------------------------------------
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern, which contemplates the
realization of assets and the satisfaction of liabilities in the normal course
of business. The Company has experienced a significant loss for the year ended
December 31, 2000. The loss from operations has resulted in a deficiency in
working capital of approximately $5,245 and an accumulated deficit of
approximately $6,539.
There can be no assurances that the Company will be able to continue as a going
concern in view of its financial condition. The Company's continued existence
will depend upon its ability to obtain sufficient additional capital in a timely
manner to fund its operations and to further develop its long-term business
plan. Any inability to obtain additional financing will have a material adverse
effect on the Company, including possibly requiring the Company to significantly
reduce or cease its operations.
These factors raise substantial doubt about the ability of the Company to
continue as a going concern. The consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
- --------------------------------------------------------------------------------
NOTE 13
SUBSEQUENT EVENTS
- --------------------------------------------------------------------------------
Effective January 4, 2001 the Company merged with JBSI Acquisition, Inc., a
wholly-owned subsidiary of EBIZ Enterprises, Inc. (EBIZ), a Nevada corporation
pursuant to an Agreement and Plan of Merger dated November 17, 2000. At the
effective date, each outstanding share of $.01 par value common stock of the
Company was converted into the right to receive 1.549911636 shares of common
stock of EBIZ common stock and each outstanding share of the Series A Preferred
Stock was converted into the right to receive 13.01925775 shares of EBIZ common
stock. A total of 8,300,000 shares of EBIZ common stock was issued in the
merger. In addition, each unexpired outstanding option to purchase JBSI common
stock was converted into an exercisable option to purchase that number of shares
of EBIZ common stock equal to the number of shares of JBSI common stock that
could have been purchased under such option multiplied by 1.78, at a price per
share of EBIZ common stock equal to the per share exercise price of such option
divide by 1.78. Options to acquire a total of 3,695,912 shares of EBIZ common
stock were issued in the merger.
26
EBIZ ENTERPRISES, INC. PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
On January 4, 2001, Ebiz Enterprises, Inc. ("EBIZ") completed the acquisition of
Jones Business Systems, Inc. ("JBSi") by merger of JBSi into a newly formed
wholly owned subsidiary of Ebiz. Under the terms of the final transaction, Ebiz
paid $8.7 million for the acquisition comprised of 8.2 million shares of Ebiz's
common stock valued at $6.0 million, options for 3.7 million shares of Ebiz's
common stock valued at $1.7 million and related transaction costs totaling $0.1
million. The fair value of all shares to be issued to acquire JBSi equals
approximately $6.0 million or $0.73 per share. In addition, Ebiz assumed $3.7
million in net liabilities for total consideration of $11.5 million. The
transaction will be accounted for under the purchase method of accounting in
accordance with APB 16. The Company has engaged a third party to determine the
purchase price allocation of the intangible assets acquired. The anticipated
useful life of intangibles and goodwill will be 2-5 years.
The liabilities assumed were comprised of notes payable, trade accounts payable
and accrued expenses.
The following unaudited pro forma condensed combined balance sheet gives effect
to the acquisition of LinuxMall as if the transaction occurred on December 31,
2000. The following unaudited pro forma condensed combined statements of
operations for the year ended June 30, 2000 and the six months ended December
31, 2000, combine the historical results of operations of the Company and JBSi
and assume that the acquisition had been effective as of the beginning of each
respective period. The acquisition, which was a stock purchase, will be
accounted for as a purchase. The pro forma adjustments are based upon the
estimated fair value of the assets and liabilities of JBSi as of December 31,
2000, and are based on the preliminary estimates, evaluations and other data
which are currently available and may change as a result of information gained
subsequent to December 31, 2000.
The pro forma statements of operations are not necessarily indicative of the
actual results which would have occurred had the acquisition been consummated at
the beginning of such period or of future consolidated operations of the Company
and, accordingly, do not reflect results that would occur from a change in
management and planned restructuring of the operations of JBSi. The pro forma
financial information has been prepared by the Company and all calculations have
been made by the Company based upon assumptions deemed appropriate by the
Company. Certain of these assumptions are set forth under the notes to the
unaudited pro forma condensed combined financial statements. These statements
should be read in conjunction with the historical consolidated financial
statements and notes thereto of the Company and JBSi.
27
EBIZ ENTERPRISES, INC.
PRO FORMA CONDENSED COMBINED BALANCE SHEETS (UNAUDITED)
DECEMBER 31, 2000
Pro Forma
Company (f)(h) JBSi (I) Adjustments Pro Forma
------------- ------------ ------------ ------------
Assets:
Cash $ 287,059 $ -- $ -- $ 287,059
Restricted cash 1,782,381 -- -- 1,782,381
Receivables, net 1,127,914 3,040,367 -- 4,168,281
Inventories 1,532,301 810,182 -- 2,342,483
Other 31,988 91,991 -- 123,979
Total Current Assets 4,761,643 3,942,540 -- 8,704,183
Property and Equipment, net 1,661,531 1,309,346 -- 2,970,877
Goodwill and Other intangibles 22,847,864 -- 10,111,395 (b) 32,959,259
Other Noncurrent Assets 91,761 2,061,641 -- 2,153,402
Restricted Cash 2,100,528 -- -- 2,100,528
------------ ------------ ------------ ------------
Total Assets $ 31,463,327 $ 7,313,528 $ 10,111,395 $ 48,888,250
============ ============ ============ ============
Liabilities :
Accounts Payable $ 4,390,238 $ 4,526,512 $ -- $ 8,916,750
Accrued Expenses 3,036,615 553,379 50,000 (b) 3,639,994
Related Party on Demand Note 230,000 -- -- 230,000
Current Portion of Note Payable 1,000,000 4,356,000 -- 5,356,000
Convertible Debentures 320,525 -- 320,525
------------ ------------ ------------ ------------
Total Current Liabilities 8,977,378 9,435,891 50,000 18,463,269
============ ============ ============ ============
Long-Term Debt -- 415,335 -- 415,335
Convertible Debentures 6,216,095 184,765 -- 6,400,860
Redeemable stock 1,200,000 -- -- 1,200,000
Manditorily Redeemable Preferred Stock -- -- --
Stockholders' Equity:
Preferred Stock 366,737 2,081,250 (2,081,250) 366,737
Common Stock 22,424 37,151 (28,908)(a)(b) 30,667
Additional Paid In Capital 34,426,154 1,947,849 5,631,640 (a)(b) 42,005,643
Notes Receivable for Stock -- (248,800) -- (a) (248,800)
Accumulated Deficit (19,745,461) (6,539,914) 6,539,914 (a) (19,745,461)
------------ ------------ ------------ ------------
Total Stockholders' Equity 15,069,854 (2,722,464) 10,061,395 22,408,786
------------ ------------ ------------ ------------
Total Liabilities and Stockholders' Equity $ 31,463,327 $ 7,313,528 $ 10,111,395 $ 48,888,250
============ ============ ============ ============
The accompanying notes to the unaudited proforma condensed combined
financial statements are an integral part of this unaudited condensed
combined balance sheet
28
EBIZ ENTERPRISES, INC.
PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED DECEMBER 31, 2000
Pro Forma
Company (g)(h) LinuxMall(e) JBSi(i) Adjustments Pro Forma
-------------- ------------ ------- ----------- ---------
Net Revenues $ 5,589,458 $ 480,065 $ 14,611,273 $ -- $ 20,680,796
Cost of Sales 4,583,544 1,204,335 12,750,026 -- 18,537,905
------------ ------------ ------------ ------------ ------------
Gross Profit 1,005,914 (724,270) 1,861,247 -- 2,142,891
Selling, General & Administrative expenses 5,400,439 2,304,229 3,310,693 3,715,895(d) 14,731,256
------------ ------------ ------------ ------------ ------------
Loss From Operations (4,394,525) (3,028,499) (1,449,446) (3,715,895) (12,588,365)
Other Income (Expense), net (3,065,554) (116,713) (1,881,184) 76,027(c) (4,987,424)
------------ ------------ ------------ ------------ ------------
Net Loss (7,460,079) (3,145,212) (3,330,630) (3,639,868) (17,575,789)
Dividends on Preferred Stock 37,950 -- -- -- 37,950
------------ ------------ ------------ ------------ ------------
Net Loss Attributable to Common Stockholders $ (7,498,029) $ (3,145,212) $ (3,330,630) $ (3,639,868) $(17,613,739)
============ ============ ============ ============ ============
Basic and diluted earnings per share $ (0.49) $ (0.75)
============ ============
Weighted average number of shares 15,368,505 23,611,232
============ ============
The accompanying notes to the unaudited proforma condensed combined
financial statements are an integral part of this unaudited combined statement
29
EBIZ ENTERPRISES, INC.
PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS (UNAUDITED)
YEAR ENDED JUNE 30, 2000
Pro Forma
Company (g)(h) LinuxMall JBSi (I) Adjustments Pro Forma
-------------- --------- -------- ----------- ---------
Net Revenues 11,900,667 3,301,436 40,714,216 -- 55,916,319
Cost of Sales 11,087,068 2,492,640 34,594,451 -- 48,174,159
------------ ------------ ------------ ------------ ------------
Gross Profit 813,599 808,796 6,119,765 -- 7,742,160
Selling, General & Administrative expenses 7,877,833 3,606,510 6,575,462 7,431,791(d) 25,491,596
------------ ------------ ------------ ------------ ------------
Loss From Operations (7,064,234) (2,797,714) (455,697) (7,431,791) (17,749,436)
Other Income (Expense), net (2,952,981) (179,732) 112,609 69,769(c) (2,950,335)
------------ ------------ ------------ ------------ ------------
Net Loss (10,017,215) (2,977,446) (343,088) (7,362,022) (20,699,771)
Dividends on Preferred Stock 104,089 -- -- -- 104,089
------------ ------------ ------------ ------------ ------------
Net Loss Attributable to Common Stockholders $(10,121,304) $ (2,977,446) $ (343,088) $ (7,362,022) $(20,803,860)
Basic and diluted earnings per share $ (1.32) $ (0.89)
============ ============
Weighted average number of shares 7,685,232 23,286,937
============ ============
The accompanying notes to the unaudited proforma condensed combined
financial statements are an integral part of this unaudited combined statement
30
NOTES TO PRO FORMA CONDENSED CONBINING FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2000
AND THE SIX MONTHS ENDED DECEMBER 31, 2000
(a) Reflects the elimination of JBSis' stockholders deficit comprised of
preferred stock of $2,081,250, common stock of $37,151, additional paid in
capital of $1,947,849 and accumulated deficit of $6,539,914.
(b) Reflects the additional amount of net liabilities to the purchase price
of JBSi and other intangibles totaling $10,111,395 and transaction costs related
to the acquisition of JBSi by the Company totalling $50,000.
(c) Reflects the decrease in interest expense related to convertible
debentures.
(d) Reflects pro forma amortization of the goodwill resulting from the
LinuxMall and JBSI acquistions and other purchased intangibles over the
estimated useful lives of 2-5 years.
(e) Represents the operations for LinuxMall for the period July 1, 2000
through October 4, 2000, the date of acquisition.
(f) Includes the accounts of Ebiz and its wholly-owned subsidiary,
LinuxMall.
(g) Includes the operations of LinuxMall for the period from the date of
acquisition, October 5, 2000 through December 31, 2000.
(h) The Company's proforma balance sheet and proforma statement of
operations for the year ended June 30, 2000 and statement of operations for the
six months ending December 31, 2000 have been changed from amounts presented in
the original 8K-A filed on March 20, 2001 . The change was to update the amounts
to match the amounts filed in the Company's restated 10KSB-A dated 06/30/00 and
restated 10QSB-A dated 09/30/00.
(i) The JBSi proforma balance sheet and proforma statement of operations
for the six months ending December 31, 2000 have been changed from amounts
presented in the original 8K-A filed on March 20, 2001 . The amounts presented
in the original 8K-A filed on December 20, 2000 were from internally prepared
financial statements.The change was to due to adjustments resulting from the
audit which began in March 2001.
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