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
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(State or other jurisdiction of (Primary Standard Industrial
incorporation or organization) Employer Classification Code
Number)
86-0933890
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(I.R.S. Employer
Identification No.)
2238 West Lone Cactus Drive, Suite 200, Phoenix, Arizona 85021, (623) 492-9200
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(Address and telephone number of principal executive offices)
2238 West Lone Cactus Drive, Suite 200, Phoenix, Arizona 85021
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(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.
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ITEM 27. EXHIBITS.
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Exhibit No. DESCRIPTION
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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
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Exhibit No. DESCRIPTION
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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)
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(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