As filed with the Securities and Exchange Commission on March 14, 2003
Registration Statement No. 333-
U. S. Securities and Exchange Commission
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
IBIZ TECHNOLOGY CORP.
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(Name of small business issuer in its charter)
Florida 86-0933890
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7379
----
(Primary Standard Industrial
Employer Classification Code
Number)
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
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(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 (1) maximum aggregate registration fee
offering price offering price
per share (2)
- ------------------------------- -------------------- ---------------- ------------------ --------------------
Common stock, $.001 par value 869,565,216 $.0025 $2,173,913.04 $200.00
(3)
- ------------------------------- -------------------- ---------------- ------------------ --------------------
Common stock, $.001 par value 5,000,000 $.0025 $12,500.00 $1.15
(4)
- ------------------------------- -------------------- ---------------- ------------------ --------------------
874,565,216 $2,186,413.04 $201.15
- ------------------------------- -------------------- ---------------- ------------------ --------------------
(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 and exercise of warrants. 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 to
account for market fluctuations, and anti-dilution and price protection
adjustments, respectively. 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 March 11, 2003.
(3) Represents shares underlying convertible debentures.
(4) Represents shares underlying common stock purchase warrants.
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.
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED MARCH 14, 2003
iBiz TECHNOLOGY CORP.
874,565,216 shares of our common stock
This prospectus relates to the resale by the selling stockholders of up
to 874,565,216 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 March 11, 2003, was
$.0025.
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INVESTING IN THESE SECURITIES INVOLVES SIGNIFICANT RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE _.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is March __, 2003.
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 sale
is not permitted
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 is distributed through large retail chain stores
and e-commerce sites. iBiz also markets LCD monitors, OEM notebook 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 874,565,216 shares, based on current
warrants)................................................................. market prices and assuming full conversion
of the convertible debentures and full
exercise of the warrants. This number
would represent 82.59% of our current
outstanding stock
Common stock to be outstanding after the offering......................... Up to 1,058,801,048 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 184,235,832 shares of common stock outstanding as of March 11,
2003;
o subsequent conversions of our issued convertible debentures;
o exercise of the warrants and subsequent sale of the common stock
underlying the warrants by our selling stockholders; and
The information above does not include the potential issuance and resale of
up to 329,020,000 shares of our common stock upon the conversion of convertible
securities and the exercise of warrants. Such shares of common stock have been
registered on a prior registration statement that is effective.
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, 2002, we sustained a loss of
approximately $6,490,465 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.
2
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 March 11, 2003, 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 to recover the amounts due which ultimately
could require the disposition of some or all of our assets. 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 our common stock. 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.
In addition to the shares of common stock included for resale in this
prospectus, 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. 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 $0.0025 as of March 11, 2003:
With
Discount Number of Shares Percentage of
% Below Market Price Per Share of 50% Issuable Outstanding Stock
- -------------- --------------- ------ -------- -----------------
25% $.001875 $.0009375 533,333,333 74%
50% $.00125 $.000625 800,000,000 81%
75% $.000625 $.0003125 1,600,000,000 90%
3
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 January 17, 2003, our independent auditors stated
that our financial statements for the year ended October 31, 2002 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, 2002 in the amount of $6,490,465 and an accumulated deficit of
$20,336,150 as of October 31, 2002. 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.
4
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.
5
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" and then to "IBZT" on September 30, 2002 as a result of
a 1 for 10 reverse stock split. The following charts indicate the high and low
sales price for our common stock for each of our fiscal quarters for the past
two years, and subsequent interim period, 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.
Quarter Ended High LOW
- --------------------------- --------------- ----------------
January 31, 2001 0.419 0.177
April 30, 2001 0.220 0.135
July 31, 2001 0.200 0.010
October 31, 2001 0.550 0.020
January 31, 2002 0.015 0.004
April 30, 2002 0.014 0.005
July 31, 2002 0.007 0.0015
October 31, 2002 0.006 0.0001
January 31, 2003 0.035 0.00381
As of March 11, 2003 0.004 0.0021
- --------------------------- --------------- ----------------
* Table reflects a 1 for 10 reverse stock split of our common stock effectuated
on September 30, 2002.
As of March 10, 2003, 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.
6
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
iBiz Technology Corp. through its wholly-owned 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
YEAR ENDED
- ---------------------------------------------------------------------------------------
10/31/02 10/31/01
Statement of Operations Data $ $
Sales 356,278 1,966,665
Gross profit (Loss) (23,162) 541,909
Loss from continuing operations (6,010,861) (4,640,715)
Net loss after tax (5,455,728) (6,748,794)
Net loss per share
Continuing operations (.23) (.83)
Discontinuing operations (.02) (.38)
Balance Sheet Data At 10/31/02 At 10/31/01
Total assets 439,120 923,858
Total liabilities 4,373,436 4,868,336
Stockholders' equity (deficit) (4,941,782) (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
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses. In consultation with our Board of Directors, we have identified eight
accounting principles that we believe are key to an understanding of our
financial statements. These important accounting policies require management's
most difficult, subjective judgments.
(1) ACCOUNTS RECEIVABLE
Accounts receivable are reported at the customer's outstanding balances less any
allowance for doubtful accounts. Interest is not accrued on overdue accounts
receivable.
(2) 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 probable losses. Management
determines the adequacy of the allowance based on historical write-off
percentages and information collected from individual customers. Accounts
receivable are charged off against the allowance when collectibility is
determined to be permanently impaired (bankruptcy, lack of contact, account
balance over one year old, etc.).
7
(3) INVENTORIES
Inventories are stated at the lower of cost (determined principally by average
cost) or market. Inventories consist only of purchased finished products.
(4) ACCOUNTING FOR CONVERTIBLE DEBT SECURITIES
The Company has issued convertible debt securities with non-detachable
conversion features. The Company has recorded the fair value of the beneficial
conversion features as interest expense and an increase to Additional Paid in
Capital.
(5) 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.
(6) GOING CONCERN
As shown in the accompanying financial statements, the Company has incurred
significant losses, has negative working capital and needs additional capital to
finance its operations. These factors create substantial doubt about the
Company's ability to continue as a going concern. The financial statements do
not include any adjustments that might be necessary if the Company is unable to
continue as a going concern. The Company also intends to finance its operations
through sales of its securities as well as entering into loans and other types
of financing arrangements such as convertible debenture.
(7) DISCONTINUED OPERATIONS
As of October 31, 2001, management elected to discontinue non-profitable
segments of the Company's operations and to focus on profitable business units.
For the year ended October 31, 2002, the Company continued to "wind-down" its
discontinued operations.
(8) CONSULTING AGREEMENTS
The Company issued common stock for payment of consulting services. The cost of
the consulting services was determined by multiplying the common shares issued
by the market price of the shares at the inception date of the agreement.
RESULTS OF OPERATIONS
Fiscal year ended October 31, 2002 compared to fiscal year ended October 31,
2001.
REVENUES. Sales from continuing operations decreased by approximately 82% to
$356,278 in the fiscal year ended October 31, 2002 from $1,966,665 in the fiscal
year ended October 31, 2001. The decrease was mainly a result of the focus by
management on raising financing for iBiz, Inc., a transition to a new line of
industry unique products and the overall slow down in the national economic
conditions.
COST OF SALES. The cost of sales of $379,440 in the fiscal year ended October
31, 2002 decreased from $1,424,756 for the fiscal year ended October 31, 2001.
This decrease of 73% reflects a drop in purchaser due to the drop in sales
volume.
GROSS PROFIT. Gross profit as a percentage of sales was a negative 6.5% in the
fiscal year ended October 31, 2002 as compared to 28% for the fiscal year ended
October 31, 2001. The decrease in gross profit resulted from reductions in
sales, the write-off of obsolete inventory, and sales at reduced margins in
order to generate cash.
8
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased approximately 61% to $1,516,776 in the fiscal
year ended October 31, 2002 from $3,885,435 in the fiscal year ended October 31,
2001. The decrease in expenses resulted from reductions in overall expenses,
especially payroll, rent, travel and professional fees.
INTEREST EXPENSE. Interest expense increased 10% to $250,057 in the fiscal year
ended October 31, 2002 from $226,863 in the fiscal year ended October 31, 2001.
The increase in interest was primarily on accrued interest on the convertible
debentures.
INTEREST EXPENSE - CONVERTIBLE DEBENTURES-BENEFICIAL CONVERSION FEATURE. The
Company has issued convertible debt securities with a non-detachable convertible
feature that were "in-the-money" at the date of issuance. The Company has
recorded the fair value of the beneficial conversion feature as interest expense
and an increase in paid-in-capital. Interest expense on the convertible
debentures was $4,283,930 and $1,336,793 for the years ended October 31, 2002
and 2001, respectively.
NET LOSS FROM CONTINUING OPERATIONS. Net loss from continuing operations
increased 30% to $6,010,861 for the fiscal year ended October 31, 2002 from a
net loss of $4,640,668 for the fiscal year ended October 31, 2001. The increase
in net loss was primarily the result of the reduction in sales, the increase in
beneficial conversion interest less the decrease in selling, general and
administrative expenses.
DISCONTINUED OPERATIONS. Loss from discontinued operations decreased 77% from
$2,108,076 for fiscal year ended October 31, 2001 to $479,554 for fiscal year
ended October 31, 2002. The reason for the decrease is that the Company had a
full year of discontinued operations in fiscal year ended October 31, 2001 and
only "winding-down" expenses in fiscal year ended October 31, 2002.
The three months ended January 31, 2003 compared to the three months ended
January 31, 2002.
REVENUES. Sales from continuing operations decreased by approximately 45% to
$75,310 in the three months ended January 31, 2003 from $135,737 in the three
months ended January 31, 2002. The decrease was mainly a result of the focus by
management on raising financing for IBIZ, Inc., a transition to a new line of
industry unique products and the overall slow down in the national economic
conditions.
COST OF SALES. The cost of sales of $91,735 in the three months ended January
31, 2003 increased from $83,516 for the three months ended January 31, 2002.
This increase of 10% is a result of higher product costs and increases in
employee salaries.
GROSS PROFIT. Gross profit as a percentage of sales was a negative 22% in the
three months ended January 31, 2003 as compared to a positive 38% for the three
months ended January 31, 2002. The decrease in gross profit resulted from
reductions in sales, higher product costs and increases in employee salaries.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased approximately 2% to $441,229 in the three
months ended January 31, 2003 from $449,278 in the three months ended January
31, 2002. The minimal decrease in expenses resulted from reductions in overall
expenses.
INTEREST EXPENSE. Interest expense decreased 4% to $82,352 in the three months
ended January 31, 2003 from $85,753 in the three months ended January 31, 2002.
The minimal decrease in interest is a result of lower interest rate convertible
debentures being converted and new higher interest rate convertible debentures
being issued.
INTEREST EXPENSE - CONVERTIBLE DEBENTURES-BENEFICIAL CONVERSION FEATURE. The
Company has issued convertible debt securities with a non-detachable convertible
feature that were "in-the-money" at the date of issuance. The Company accounts
for such securities in accordance with Emerging Issues Task Force Topic D-60.
9
The Company has recorded the fair value of the beneficial conversion feature as
interest expense and an increase in paid-in-capital. Interest expense on the
convertible debentures was $837,998 and $116,214 for three months ended January
31, 2003 and 2002, respectively.
NET LOSS FROM CONTINUING OPERATIONS. Net loss from continuing operations
increased 147% to $1,378,004 for the three months ended January 31, 2003 from a
net loss of $556,993 for the three months ended January 31, 2002. The increase
in net loss was primarily the result of the reduction in sales, higher product
costs, increases in employee salaries and the increase in beneficial conversion
interest.
DISCONTINUED OPERATIONS. Loss from discontinued operations was $240,847 for
three months ended January 31, 2002 as a result of management's election to
discontinue non-profitable segments of the Company's operations and to focus on
profitable business units as of October 31, 2001. The Company completed the
discontinuance at October 31, 2002 and incurred no further expenses from that
date.
LIQUIDITY.
Net cash (used) by operating activities for the three months ended January 31,
2003 was $225,339 compared to $60,651 (used) by operating activities for the
three months ended January 31, 2002. The $164,688 change was primarily due to:
a. Increase in accounts receivable resulting from the Company's major
customer paying on approximately 60 day terms instead of the
agreed upon terms of 45 days.
b. Increase in inventories resulting from the purchase of new product
line for shipment in the second quarter of this fiscal year
c. Increase in prepaid expenses resulting from the purchase of
packaging to accompany the new product line
d. Decrease in accounts and notes payable and accrued liabilities and
taxes
e. Increase in net loss after adjustments for non-cash activities.
The Company plans to remedy the deficiency of operating cash flows by increasing
income from its new product line.
Our investing activities for the three months ended January 31, 2003 provided no
cash, as compared to $48,635 which was provided in the three months ended
January 31, 2002. The primary change was that the Company received cash from the
sale of assets for during the three months ended January 31, 2002 and had no
investing activities in the three months ended January 31, 2003.
Our financing activities for the three months ended January 31, 2003 provided
cash of $359,581 compared to $142,923, for the three months ended January 31,
2002. The primary change was that the Company obtained $360,000 of new debenture
financing for the three months ended January 31, 2003 compared to $201,236 for
the three months ended January 31, 2002. The Company also repaid $58,313 on its
note payable, factor during the three months ended January 31, 2002 and $0
during the three months ended January 31, 2003.
Capital Resources
- -----------------
Working capital is summarized and compared as follows:
January 31, 2003 January 31, 2002
---------------- ----------------
Current assets $ 333,706 $ 656,677
Current liabilities 5,126,364 3,807,888
---------------- ----------------
Working capital (deficit) $ (4,792,658) $ (3,151,211)
================ ================
The increase in the deficit in working capital was primarily due to the net loss
sustained from operations, liquidation of net assets held for sale and the
increase in the convertible debentures, current portion.
10
At January 31, 2003, stockholders' deficit was $5,337,469 as compared to a
stockholders' deficit of $4,941,782 at October 31, 2002. The $395,687 change in
stockholders' deficit was accounted for as follows:
Increase in Stockholders' Equity
Issuance of common stock $ 29,228
Conversion of convertible debentures,
net of costs 115,091
Interest expense - convertible
debentures - beneficial conversion
feature 837,998
Decreases in stockholders' equity
net loss (1,378,004)
--------------
Net Change $ (395,687)
==============
The Company currently has no material commitments for capital expenditures.
The Company has $3,108,927 and $850,000 of debt payments related to convertible
debentures due within the next year and next two to five years, respectively.
11
RECENT ACCOUNTING PRONOUNCEMENTS
The FASB recently issued the following statements:
FASB 144 - Accounting for the impairment or disposal of long-lived assets
FASB 145 - Rescission of FASB statements 4, 44 and 64 and amendment of
FASB 13
FASB 146 - Accounting for costs associated with exit or disposal
activities
FASB 147 - Acquisitions of certain financial institutions
FASB 148 - Accounting for stock based compensation
These FASB statements did not, or are not expected to, have a material impact on
the Company's financial position and results of operations.
SUBSEQUENT EVENTS
To obtain funding for our ongoing operations, we entered into a
Securities Purchase Agreement with three accredited investors on January 31,
2003 for the sale of (i) $500,000 in convertible debentures and (ii) warrants to
buy 2,500,000 shares of our common stock. This registration statement covers the
resale of the common stock underlying these securities. The investors are
obligated to provide us with the funds as follows:
- $300,000 was disbursed on January 31, 2003
- $100,000 will be disbursed within ten days of filing this
prospectus with the Securities and Exchange Commission
- $100,000 will be disbursed within ten days of the effectiveness of
this prospectus.
The debentures bear interest at 12%, mature one year from the date of issuance,
and are convertible into our common stock, at the investors' option, at the
lower of (i) $0.01 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 the
convertible debentures. The warrants are exercisable until seven years from the
date of issuance at an exercise price of $0.01 per share.
In addition, we have granted the investors a security interest in
substantially all of our assets and registration rights.
12
DESCRIPTION OF BUSINESS
iBiz Technology Corp., through its wholly-owned operating subsidiary
iBiz Inc., designs, manufactures and distributes personal digital assistant
(PDA) accessories and other handheld computing devices. Our expanding product
line for the growing PDA market is distributed through large retail chains and
distributors throughout the United States.
In March 2000, we introduced the Keysync Keyboard and a line of
products specific to the personal digital assistant market. Through October 31,
2002, we have expanded our product mix to more than eighty different individual
PDA products manufactured to iBiz's specifications by various overseas
manufacturers.
On July 11, 2002, iBiz acquired the intellectual property and marketing
rights for the Xela Case Keyboard, which is currently scheduled for mass
production and shipping at the beginning of the second quarter of fiscal year
2003.
iBiz's principal offices are located at 2238 West Lone Cactus, #200,
Phoenix, Arizona 85021. iBiz maintains a website at www.ibizcorp.com. The
information on the website is not part of this report.
Statements regarding the various hardware products offered by the
Company, joint ventures, marketing agreements and web-hosting services are
forward-looking and you should not rely on them or assume that the products
discussed will ever be shipped in quantities sufficient to generate material
revenue or that marketing agreements and web-hosting services will generate any
revenue. Many products discussed in this report may ultimately not be sold or
may only be sold in limited quantities. Marketing agreements and web-hosting
services may not result in anticipated revenue for the Company. Technology used
in computer products is subject to rapid obsolescence, changing consumer
preferences, software advancements, and competitors' products time to market.
These factors, among others, may result in unforeseen changes in the types of
products ultimately sold and services offered by the Company. See Risk Factors,
below.
PRODUCTS AND SERVICES
iBiz Inc.'s success is dependent upon the introduction of new products
and the enhancement of existing products. iBiz Inc. is actively engaged in the
design and development of additional peripherals to augment its present product
line. Currently, iBiz designs many of its products in-house.
Because of the rapid pace of technological advances in the personal
computer industry, iBiz must be prepared to design, develop, manufacture and
market new and more powerful hardware products in a relatively short time span.
iBiz Inc. also provides third-party hardware, software, and related
supplies. in an effort to provide our customers a wider range of products.
MARKETING, SALES AND DISTRIBUTION
iBiz markets and distributes products directly to end users through a
direct sales force, regional resellers, value-added providers in the banking and
point-of-sale ("POS") market and Internet commerce sites.
In addition to direct sales, iBiz also markets its full range of
products directly to retail customers through its website at www.ibizcorp.com or
www.ibizpda.com. To date, iBiz has recognized only nominal revenues from
Internet retail sales, however, we are continuing to see moderate revenue
increases through this venue. Management believes that direct sales to end users
should allow iBiz 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.
13
iBiz also distributes its products to regional resellers and, to a
lesser extent, national distributors and to retail stores such as CompUSA, Inc.,
Fry's Electronics, Staples, Mobileplanet, Micro Center, RC Willeys, Baillios,
Pdamart and Outpost.com.
MANUFACTURING
iBiz products are engineered and manufactured by various entities in
Taiwan and mainland China. Currently, these manufacturers build iBiz products to
iBiz specifications with non-proprietary components. The vast majority of parts
used in iBiz products are available to iBiz competitors. Although iBiz has not
experienced difficulties in the past relating to engineering and manufacturing,
the failure of iBiz' manufacturers to produce products of sufficient quantity
and quality could adversely affect iBiz's ability to sell the products that its
customers demand.
iBiz engages in final assembly, functional testing and quality control
of its products in its Phoenix, Arizona facility. Management believes iBiz's
completion of the final stages of manufacturing allows iBiz to ensure quality
control for its products manufactured overseas.
iBiz has entered into an agreement with Catronics, a Chinese
manufacturer, to build the Xela Case Keyboard. The engineering and manufacturing
of the Xela Case Keyboard is done entirely by Catronics. Management believes
this relationship allows iBiz 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, iBiz entered into an agreement with
Microsoft, Inc. to become an OEM system builder. Participation in this program
allows iBiz to install genuine Microsoft operating systems in selected
applications with full support from Microsoft. In addition, this agreement
entitles iBiz to pre-production versions of Microsoft products and enables iBiz
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
iBiz holds United States and 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, iBiz believes that its success will
depend primarily upon the technical expertise, creative skills, and management
abilities of its officers, directors, and key employees rather than on patent
ownership.
iBiz has filed an application with the United States Patent and
Trademark Office for the use of the names "iBiz" and "KeySync" and received a
trademark award for the iBiz name on January 8, 2002.
On July 11, 2002, iBiz purchased intellectual property assets for the
Xela Case Keyboard including the patent application S/N T001 P00547-US1,
trademark application S/N: 78/139,898 and resale rights from ttools, LLC, a
Rhode Island limited liability company. Currently Patent and Trademark
applications are in due process with the United States Patent and Trademark
Office. The trademark application for XELA was published by the Patent and
Trademark office in the Official Gazette on January 7, 2003 for the purpose of
opposition.
SERVICE AND SUPPORT
iBiz 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.
14
Also available on iBiz's website are links to files for software
patches and drivers used for software updates.
COMPETITION
The handheld computer industry is highly competitive. iBiz competes at
the product level with various other handheld computer manufacturers and at the
distribution level primarily with computer retailers, on-line marketers and the
direct sales forces of large PDA manufacturers.
At the product level, the PDA 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 14
manufacturers of personal computers, the majority of which have greater
financial, marketing and technological resources than iBiz. Competitors at this
level include Palm, HP, Dell, Sony, and Handspring, however, most key PDA
manufacturers outsource or private label PDA accessory products from companies
similar to iBiz.
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 iBiz's products are price competitive, iBiz does not
attempt to compete solely on the basis of price.
The intense nature of competition in the computer industry subjects
iBiz to numerous competitive disadvantages and risks. For example, many major
companies will exclude consideration of iBiz's products due to limited size of
the company. Moreover, iBiz's current revenue levels cannot support a high level
of national or international marketing and advertising efforts. This, in turn,
makes it more difficult for iBiz to develop its brand name and create customer
awareness. Additionally, iBiz's products are manufactured by third parties in
Taiwan or China. As such, iBiz 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 iBiz holds few
patents, the vast majority of parts used in its products are available to its
competitors.
Management believes that it can compete effectively by providing PDA
accessories utilizing unique designs and space-saving qualities. Although
management believes it has been successful to date, there can be no assurance
that iBiz will be able to compete successfully in the future.
CUSTOMERS FOR PRODUCTS
Throughout its history, iBiz's ability to deliver innovative product
designs and quality customer service has enabled it to provide products to major
retailers and distributors. For the year ended October 31, 2002, we had 2
customers that accounted for 14% and 13% our total revenues.
USE OF TRADEMARKS AND TRADENAMES
All trademarks and tradenames used in this prospectus are the property
of their respective owners.
EMPLOYEES
As of February 10, 2003, iBiz had approximately 5 full-time employees.
No employee of iBiz is represented by a labor union or is subject to a
collective bargaining agreement. iBiz 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.
15
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.
16
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Name Age POSITION
- -------------------------------- -------- ---------------------------------------------------------------
Kenneth W. Schilling 51 President, Chief Executive Officer, Acting Principal
Accounting Officer, and Director
Mark H. Perkins 39 Executive Vice President, and 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 $20,000 civil
penalty.
Mark H. Perkins joined INVNSYS in 1994 and currently serves as
Executive Vice President. Mr. Perkins was appointed to iBiz's Board of Directors
on March 5, 1999. Prior to his joining INVNSYS, Mr. Perkins was employed at
American Express as a project manager for major systems implementation, a
position he held for eight years. Mr. Perkins earned a degree in business
management from California State University-Sonoma.
EXECUTIVE COMPENSATION
The Board believes that leadership and motivation of our executives are
critical to establishing iBiz's preeminence both in the marketplace and as an
investment for stockholders. The Board is responsible for ensuring that the
individuals in executive positions are highly qualified and that they are
compensated in a manner that furthers our business strategies and aligns their
interests with those of the stockholders. To support this philosophy, the
following principles provide a framework for the compensation program:
o offer competitive total compensation value that will attract the
best talent to iBiz; motivate individuals to perform at their
highest levels; reward outstanding achievement; and retain those
individuals with the leadership abilities and skills necessary for
building long-term stockholder value.
o encourage executives to manage from the perspective of owners with
an equity stake in iBiz.
o iBiz's compensation program for executive officers is targeted to
provide highly competitive total compensation levels (including
both annual and long-term incentives) for highly competitive
performance.
17
EXECUTIVE COMPENSATION
The following table sets forth certain compensation paid or accrued by
us to certain of our executive officers during fiscal years ended 2002, 2001 and
2000.
SUMMARY COMPENSATION TABLE
Other
Annual Restricted Options LTIP
Name & Principal Salary Bonus Compen- Stock SARs Payouts All Other
Position Year ($) ($) sation ($) Awards ($) (#)(1) ($) Compen-sation
- --------------------- --------- ------------ ----------- ------------ -------------- ----------- ------------ --------------
Kenneth W. 2002 68,750.00 0 0 57,691.82(1) 0 0 0
Schilling, 2001 200,000.00 26,138 0 0 300,000 0 0
President, CEO, 2000 200,000.00 40,000 0 0 0 0 0
Acting Principal
Accounting Officer,
and Director
- --------------------- --------- ------------ ----------- ------------ -------------- ----------- ------------ --------------
Mark H. Perkins, 2002 69,791.69 0 0 57,021.48 0 0 0
Executive Vice 2001 150,000.00 26,138 0 0 300,000 0 0
President, Director 2000 88,000.00 40,000 0 0 0 0 0
- --------------------- --------- ------------ ----------- ------------ -------------- ----------- ------------ --------------
(1) Represents 57,691,823 restricted shares issued at the market price
of $0.001 on August 22, 2002.
(2) Represents 57,021,476 restricted shares issued at the market price
of $0.001 on August 22, 2002.
OPTIONS GRANTED DURING MOST RECENT FINANCIAL YEAR. The following table sets out
information relating to options granted during the most recent financial year to
the Named Executive Officers.
None.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
- ------------------------------------------------------------------------------------------------------------
Number of Unexercised Value of Unexercised
Shares Options at Fiscal Year In-the-Money Options at
Acquired on Value End Exercisable/ Fiscal Year End Exercisable/
Name Exercise (#) Realized ($) Un-exercisable Un-exercisable (1)
- ------------------------------------------------------------------------------------------------------------
Kenneth W. Schilling -0- -0- 625,000/25,000 $0/$0
Terry S. Ratliff -0- -0- 625,000/25,000 $0/$0
Mark H. Perkins -0- -0- 625,000/25,000 $0/$0
- ------------------------------------------------------------------------------------------------------------
(1) None of the options are "in-the-money."
There were no long-term incentive plans or rewards made in fiscal 2000.
18
EMPLOYMENT AGREEMENTS
Employment Agreement For Kenneth W. Schilling. Effective July 12, 2001,
Kenneth W. Schilling and iBiz entered into an Employment Agreement (the
"Agreement"). Under the Agreement, Mr. Schilling has been retained to act as
President and Chief Executive Officer of iBiz. The Agreement is for a term of
three years ending July 12, 2004. Under the Agreement, Mr. Schilling shall
receive an annual base salary of $250,000. Mr. Schilling will also receive three
hundred thousand (300,000) options to purchase three hundred thousand (300,000)
shares of common stock of iBiz at an exercise price to be determined by the
Board based upon the closing price of the Company's common stock. In addition,
Mr. Schilling will also receive a bonus equal to one percent 1% of the total
sales of the Company recorded in the preceding fiscal quarter.
Employment Agreement For Mark Perkins. Effective July 12, 2001, Mark
Perkins and iBiz entered into an Employment Agreement (the "Agreement"). Under
the Agreement, Mr. Perkins has been retained to act as Executive Vice-President
of iBiz. The Agreement is for a term of three years ending July 12, 2004. Under
the Agreement, Mr. Perkins shall receive an annual base salary of $150,000. Mr.
Perkins will also receive three hundred thousand (300,000) options to purchase
three hundred thousand (300,000) shares of common stock of iBiz at an exercise
price to be determined by the Board based upon the closing price of the
Company's common stock. In addition, Mr. Perkins will also receive a bonus equal
to one percent 1% of the total sales of the Company recorded in the preceding
fiscal quarter.
In addition to the foregoing, each Agreement contains the following
termination provisions:
"(a) Termination By The Company For Cause: The Company shall have the right to
terminate this Agreement and to discharge Employee for cause (hereinafter
"Cause"), and all compensation to Employee shall cease to accrue upon discharge
of Employee for Cause. For the purposes of this Agreement, the term "Cause"
shall mean (i) Employee's conviction of a felony; (ii) the alcoholism or drug
addiction of Employee; (iii) gross negligence or willful misconduct of Employee
in connection with his duties hereunder; (iv) the determination by any
regulatory or judicial authority (including any securities self-regulatory
organization) that Employee directly violated, before or after the date hereof,
any federal or state securities law, any rule or regulation adopted thereunder;
or (v) the continued and willful failure by Employee to substantially and
materially perform his material duties hereunder.
(b) Termination By The Company Without Cause: In the event Employee's employment
hereunder shall be terminated by the Company for other than Cause: (1) the
Employee shall thereupon receive as severance in a lump sum payment from the
Company the amount of one (1) year of Salary in effect at the time of such
termination.
(c) Resignation: In the event Employee resigns without Reason, he shall receive
any unpaid fixed salary through such resignation date and such benefits to which
he is entitled by law, and shall also receive a lump sum payment from the
Company in the amount of six (6) months Salary in effect at the time of such
resignation.
(d) Change of Control: In the event of a Change in Control, as hereinafter
defined, the Company shall pay the Employee in a lump sum the amount of three
(3) years of annual Salary in effect at the time of such Change in Control. Such
payment and grant shall be made regardless of the continuation or termination of
Employee's employment with the Company after a Change of Control, and shall be
in addition to, and not in lieu of, any other payments or issuances due pursuant
to the terms of this agreement. For purposes hereof, a Change in Control shall
be deemed to have occurred (i) if there has occurred a "change in control" as
such term is used in Item 1 (a) of Form 8-K promulgated under the Securities
Exchange Act of 1934, as amended, at the date hereof ("Exchange Act") or (ii) if
there has occurred a change in control as the term "control" is defined in Rule
12b-2 promulgated under the Exchange Act."
19
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 ten million (10,000,000) shares of common stock and
provides for the granting of both incentive stock options (as defined in Section
422 of the Internal Revenue Code of 1986, as amended) and non-qualified stock
options (options which do not meet the requirements of Section 422). Under the
stock option plan, the exercise price may not be less than the fair market value
of the common stock on the date of the grant of the option. As of January 31,
2003, 3,145,000 options had been granted to 37 persons (net of cancelled and
exercised) under the plan at exercise prices of between $0.53 and $5.00. As of
March 11, 2003, the market price of the stock was $0.0025. 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.
20
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
While a private company, INVNSYS (now iBiz) made loans totaling
$992,037 to Kenneth Schilling. These loans are payable on demand and accrued
interest at eight percent (8%) during 1997 and six percent (6%) during 1998 and
1999. As of January 31, 2001, the balance of the loans payable by Mr. Schilling
to INVNSYS totaled approximately Three Hundred Eighty-Four Thousand Nine Hundred
Eighty-Eight Dollars and Ninety-Four Cents ($384,988.94). Mr. Schilling, as
trustee of the Moorea Trust, pledged 2,000,000 shares of iBiz common stock to
secure this debt. As of October 31, 2001, this loan was considered uncollectible
because there is no longer collateral guaranteeing the loan.
In November 2001, the Board of Directors approved a resolution
authorizing us to accept 9,285,600 shares of our common stock from Mr. Ken
Shilling, and that we apply such shares to our authorized and un-issued capital
stock so that it may be used for future offerings. To compensate Mr. Schilling
for his contribution of the 9,285,600 shares, the Board of Directors agreed to
issue 15,000,000 shares of our common stock to Mr. Schilling upon the increase
of our authorized common stock from 100,000,000 to 450,000,000.
21
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of March 11, 2003, there were 184,235,832 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 March 11, 2003 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 March 11, 2003, 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(1) Shares Vested Options Total Percent
- ----------------------------------------------------------------------------------------------------------
Kenneth W. Schilling 48,533,569 625,000 49,158,569 27%
Mark H. Perkins 47,033,892 625,000 47,658,892 26%
All directors and officers as group
(2 persons)(2) 95,567,461 1,250,000 96,817,461 54%
- ----------------------------------------------------------------------------------------------------------
(1) 2238 West Lone Cactus Drive, #200, Phoenix, AZ 85021.
(2) Includes Kenneth Schilling and Mark Perkins.
22
DESCRIPTION OF SECURITIES
GENERAL. iBiz's articles of incorporation, as amended, authorize the
issuance of 5,000,000,000 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.
23
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.
24
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 Beneficial of Common
Issuable Upon Stock, Common Stock Ownership Percentage of Ownership Stock Owned
Conversion of Assuming Included in Before the Common Stock After the After
Name Debentures Full Prospectus Offering Owned Before Offering Offering
and/or Warrants Conversion (1) (2) Offering (7) (7
- ---------------------- ------------------ ------------- -------------- ------------ --------------- ------------ --------------
AJW Partners, LLC 174,913,043 (4) 48.70% Up to 9,544,223 4.99% -- --
(3) 349,826,086
shares of
common stock
- ---------------------- ------------------ ------------- -------------- ------------ --------------- ------------ --------------
AJW Offshore, Ltd. 174,913,043 (5) 48.70% Up to 9,544,223 4.99% -- --
(3) 349,826,086
shares of
common stock
- ---------------------- ------------------ ------------- -------------- ------------ --------------- ------------ --------------
AJW Qualified 87,456,522 (6) 32.18% Up to 9,544,223 4.99% -- --
Partners, LLC (3) 174,913,044
shares of
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.
(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 debenture 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.
(2) 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.
25
(3) The selling stockholders are affiliates of each other because they are
under common control. AJW Partners, LLC is a private investment fund that
is owned by its investors and managed by SMS Group, LLC. SMS Group, LLC, of
which Mr. Corey S. Ribotsky is the fund manager, has voting and investment
control over the shares listed below owned by AJW Partners, LLC. AJW
Offshore, Ltd., formerly known as AJW/New Millennium Offshore, Ltd., is a
private investment fund that is owned by its investors and managed by First
Street Manager II, LLC. First Street Manager II, LLC, of which Corey S.
Ribotsky is the fund manager, has voting and investment control over the
shares owned by AJW Offshore, Ltd. AJW Qualified Partners, LLC, formerly
known as Pegasus Capital Partners, LLC, is a private investment fund that
is owned by its investors and managed by AJW Manager, LLC, of which Corey
S. Ribotsky and Lloyd A. Groveman are the fund managers, have voting and
investment control over the shares listed below owned by AJW Qualified
Partners, LLC. We have been notified by the selling stockholders that they
are not broker-dealers or affiliates of broker-dealers and that they
believe they are not required to be broker-dealers.
(4) Includes 1,000,000 shares of common stock underlying warrants exercisable
at $.01 per share.
(5) Includes 1,000,000 shares of common stock underlying warrants exercisable
at $.01 per share.
(6) Includes 500,000 shares of common stock underlying warrants exercisable at
$.01 per share.
(7) 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 January 31,
2003 for the sale of (i) $500,000 in convertible debentures and (ii) warrants to
buy 2,500,000 shares of our common stock. This registration statement covers the
resale of the common stock underlying these securities. The investors are
obligated to provide us with the funds as follows:
- $300,000 was disbursed on January 31, 2003
- $100,000 will be disbursed within ten days of filing this
prospectus with the Securities and Exchange Commission
- $100,000 will be disbursed within ten days of the effectiveness of
this prospectus.
The debentures bear interest at 12%, mature one year from the date of
issuance, and are convertible into our common stock, at the investors' option,
at the lower of (i) $0.01 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 the
convertible debentures. The warrants are exercisable until seven years from the
date of issuance at an exercise price of $0.01 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 debentures and 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.
We have granted the selling stockholders a security interest in all of
our assets against the convertible debentures.
26
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
debenture is determined by dividing that portion of the principal of the
debenture to be converted and interest, if any, by the conversion price. For
example, assuming conversion of $500,000 of debentures on March 11, 2003, a
conversion price of $0.00115 per share, the number of shares issuable upon
conversion would be:
$500,000 = 434,782,608 shares
--------
$0.00115
27
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 transactions 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 stockholder 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. 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.
28
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 prescribed 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.
29
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.
30
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.
EXPERTS
The balance sheet and financial statements of iBiz Technology Corp. for
the year ended October 31, 2002 in this registration statement in reliance upon
the reports of Farber and Hass, CPA, independent certified public accountants,
and upon the authority of such firm as experts in accounting and auditing.
The balance sheet and financial statements of iBiz Technology Corp. for
the year ended October 31, 2001 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.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
On October 11, 2002, iBiz Technology Corp., (the "Company") was
notified by Moffitt & Company, P.C., ("Moffitt") that it resigned as the
Company's independent auditors effective October 11, 2002. On October 17, 2002,
the Company engaged Farber and Hass, CPA as independent auditors of the Company
for the fiscal year ending October 31, 2002. The action to engage Farber and
Hass, CPA, was taken upon the unanimous approval of the Audit Committee of the
Board of Directors of the Company.
During the last two fiscal years ended October 31, 2000 and October 31,
2001 and through October 11, 2002, there were no disagreements between the
Company and Moffitt on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure which, if not
resolved to the satisfaction of Moffitt would have caused Moffitt to make
reference to the matter in its reports on the Company's financial statements.
During the last two most recent fiscal years ended October 31, 2000 and October
30, 2001 and through October 11, 2002, there were no reportable events as the
term described in Item 304(a)(1)(iv) of Regulation S-B. Moffitt's opinion in its
report on the Company's financial statements for the year ended October 31, 2000
and 2001, expressed substantial doubt with respect to the Company's ability to
continue as a going concern.
During the two most recent fiscal years and through October 11, 2002,
the Company has not consulted with Farber and Hass, CPA, regarding either:
1. the application of accounting principles to any specified
transaction, either completed or proposed, or the type of audit opinion that
might be rendered on the Company's financial statements, and neither a written
report was provided to the Company nor oral advice was provided that Farber and
Hass, CPA, concluded was an important factor considered by the Company in
reaching a decision as to the accounting, auditing or financial reporting issue;
or
2. any matter that was either subject of disagreement or event, as
defined in Item 304(a)(1)(iv)(A) of Regulation S-B and the related instruction
to Item 304 of Regulation S-B, or a reportable event, as that term is explained
in Item 304(a)(1)(iv)(A) of Regulation S-B.
The Company requested that Moffitt furnish it with a letter addressed
to the Securities and Exchange Commission stating whether it agrees with the
above statements. A copy of such letter, dated October 17, 2002, was filed as
Exhibit 16.1 to a Form 8-K filed with the Securities and Exchange Commission on
October 18, 2002.
31
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 SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2002 AND 2001
TABLE OF CONTENTS
PAGE NO.
--------
INDEPENDENT AUDITORS' REPORTS..................................... F-3 - F-4
FINANCIAL STATEMENTS
Consolidated Balance Sheet................................. F-5 - F-6
Consolidated Statements of Operations...................... F-7 - F-8
Consolidated Statement of Stockholders' (Deficit).......... F-9 - F-10
Consolidated Statements of Cash Flows...................... F-11 - F-12
Notes to Consolidated Financial Statements................. F-13 - F-36
F-2
INDEPENDENT AUDITORS' REPORT
To The Board of Directors and Stockholders IBIZ Technology Corp. and
Subsidiaries
We have audited the accompanying consolidated balance sheet at October 31, 2002
and the related consolidated statements of operations, stockholders' (deficit)
and cash flows of IBIZ Technology Corp. and Subsidiaries for the year then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statements based on our audit.
We conducted our audit 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 audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respect, the financial position of the Company at
October 31, 2002 and the results of its operations and its cash flows for the
year then ended, in conformity with accounting principles generally accepted in
the United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 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 1. The consolidated financial
statements do not include any adjustments that might result from the outcome of
these uncertainties.
/S/ FARBER & HASS, LLP.
- -----------------------
OXNARD, CALIFORNIA
January 17, 2003
F-3
INDEPENDENT AUDITORS' REPORT
To The Board of Directors and Stockholders IBIZ Technology Corp. and
Subsidiaries
We have audited the accompanying consolidated statements of operations,
stockholders' (deficit) and cash flows of IBIZ Technology Corp. and Subsidiaries
for the year ended October 31, 2001. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on the financial statements based on our audit.
We conducted our audit in accordance with 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 audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respect, the results of operations and cash flows of
IBIZ Technology Corp. and Subsidiaries for the year ended October 31, 2001, in
conformity with accounting principles generally accepted in the United States of
America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 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 1. The consolidated financial
statements do not include any adjustments that might result from the outcome of
these uncertainties.
/S/ MOFFITT & COMPANY, P.C.
- ---------------------------
SCOTTSDALE, ARIZONA
February 8, 2002
F-4
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
OCTOBER 31, 2002
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 948
Accounts receivable, net 11,867
Inventories 95,601
Prepaid expenses 18,000
--------------
TOTAL CURRENT ASSETS $ 126,416
PROPERTY AND EQUIPMENT, NET OF
ACCUMULATED DEPRECIATION 110,204
OTHER ASSETS
Intellectual Properties Rights 200,000
Note receivable, officer 373,159
Less allowance for doubtful accounts (373,159)
Deposits 2,500
--------------
TOTAL OTHER ASSETS 202,500
--------------
TOTAL ASSETS $ 439,120
==============
F-5
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
CURRENT LIABILITIES
Accounts payable, trade $ 564,715
Note payable, Gammage and Burnham 30,000
Accrued wages and bonuses 512,688
Accrued interest 428,810
Other accrued expenses 49,864
Taxes payable 147,715
Deferred income 5,916
Convertible debentures, current portion 2,612,608
Note payable, factor 15,000
Note payable, other, current portion 6,120
----------------
TOTAL CURRENT LIABILITIES $ 4,373,436
LONG -TERM LIABILITIES
Convertible debentures , long-term portion 1,005,000
Note payable, other 2,466
----------------
TOTAL LONG -TERM LIABILITIES 1,007,466
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' ( DEFICIT)
Preferred stock
Authorized - 50,000,000 shares, par
value $.001 per share
Issued and outstanding -0- shares;
3,500,000 shares reserved
Common stock
Authorized - 450,000,000 shares, par
value $.001 per share
Issued and outstanding - 45,000,097 shares 45,000
Additional paid in capital 15,349,368
Accumulated deficit (20,336,150)
----------------
TOTAL STOCKHOLDERS' (DEFICIT) (4,941,782)
----------------
TOTAL LIABILITIES AND
STOCKHOLDERS' (DEFICIT) $ 439,120
================
SEE ACCOMPANYING NOTES AND INDEPENDENT AUDITORS' REPORTS.
F-6
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED OCTOBER 31, 2002 AND 2001
2002 2001
------------ ------------
SALES $ 356,278 $ 1,966,665
COST OF SALES 379,440 1,424,756
------------ ------------
GROSS PROFIT (LOSS) (23,162) 541,909
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 1,516,776 3,885,435
RESEARCH AND DEVELOPMENT 0 6,034
------------ ------------
OPERATING (LOSS) (1,539,938) (3,349,560)
------------ ------------
OTHER INCOME (EXPENSE)
Cancellation of debt 44,754 223,369
Interest income 18,310 28,651
Interest expense (250,057) (226,863)
Interest expense - convertible debentures-beneficial
conversion feature (4,283,930) (1,336,793)
Other income 0 20,528
------------ ------------
TOTAL OTHER INCOME (EXPENSE) (4,470,923) (1,291,108)
------------ ------------
(LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (6,010,861) (4,640,668)
INCOME TAXES 50 50
------------ ------------
(LOSS) FROM CONTINUING OPERATIONS (6,010,911) (4,640,718)
------------ ------------
DISCONTINUED OPERATIONS
(Loss) from operations of discontinued business segments (383,168) (706,704)
(Loss) from abandoned equipment (96,386) 0
Write-down of net assets held for sale 0 (1,401,372)
------------ ------------
(LOSS) FROM DISCONTINUED OPERATIONS (479,554) (2,108,076)
------------ ------------
NET (LOSS) $(6,490,465) $(6,748,794)
============ ============
SEE ACCOMPANYING NOTES AND INDEPENDENT AUDITORS' REPORTS.
F-7
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE YEARS ENDED OCTOBER 31, 2002 AND 2001
2002 2001
----------------- ------------------
NET (LOSS) PER COMMON SHARE
Basic and Diluted:
Continuing operations $ ( 0.23) $ ( 0.83)
Discontinued operations ( 0.02) ( 0.38)
----------------- ------------------
NET (LOSS) $ ( 0.25) $ ( 1.21)
================= ==================
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING
Basic and diluted 26,404,820 5,566,081
================= ==================
SEE ACCOMPANYING NOTES AND INDEPENDENT AUDITORS' REPORTS.
F-8
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIT)
FOR THE YEARS ENDED OCTOBER 31, 2002 AND 2001
PREFERRED STOCK COMMON STOCK ADDITIONAL
-------------------- -------------------------- PAID IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------- --------- ------------- ---------- ------------- ------------- -------------
BALANCE, NOVEMBER 1, 2000 0 $ 0 3,781,338 $ 3,781 $ 7,974,416 $ (7,096,891) $ 881,306
CONVERSION OF DEBENTURES
FOR COMMON STOCK 0 0 6,204,982 6,205 974,481 0 980,686
FEES AND COSTS FOR ISSUANCE
OF COMMON STOCK 0 0 0 0 (394,468) 0 (394,468)
INTEREST EXPENSE - CONVERTIBLE
DEBENTURES - BENEFICIAL
CONVERSION FEATURE 0 0 0 0 1,336,792 0 1,336,792
NET (LOSS) FOR THE YEAR ENDED
OCTOBER 31, 2001 0 0 0 0 (6,748,794) (6,748,794)
--------- --------- ------------- ---------- ------------- ------------- -------------
BALANCE, OCTOBER 31, 2001 0 0 9,986,320 9,986 9,891,221 (13,845,685) (3,944,478)
CONVERSION OF DEBENTURES FOR
COMMON STOCK:
PRINCIPAL 0 0 6,077,099 6,077 336,199 0 342,276
ACCRUED INTEREST 0 0 440,934 441 21,648 0 22,089
FEES AND COSTS FOR ISSUANCE OF
COMMON STOCK 0 0 0 0 (73,777) 0 (73,777)
ISSUANCE OF COMMON STOCK FOR:
PAYMENT OF ACCOUNTS
PAYABLE 0 0 3,121,200 3,122 314,740 0 317,862
PAYMENT OF SALARIES AND
RETENTION BONUSES 0 0 18,778,104 18,778 228,287 0 247,065
CONSULTING FEES 0 0 2,200,000 2,200 85,800 0 88,000
LEGAL FEES 0 0 825,000 825 99,675 0 100,500
CASH 0 0 3,000,000 3,000 76,500 0 79,500
DONATION OF STOCK BACK TO THE
COMPANY FOR TREASURY STOCK 0 0 (928,560) (929) (131,355) 0 (132,284)
F-9
SEE ACCOMPANYING NOTES AND INDEPENDENT AUDITORS' REPORTS.
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIT) (CONTINUED)
FOR THE YEARS ENDED OCTOBER 31, 2002 AND 2001
PREFERRED STOCK COMMON STOCK ADDITIONAL
-------------------- -------------------------- PAID IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------- --------- ------------- ---------- ------------- ------------- -------------
ISSUANCE OF COMMON STOCK TO THE
PRESIDENT TO REIMBURSE HIM FOR
SHARES GIVEN TO DEBENTURE
HOLDERS FROM:
TREASURY STOCK 0 $ 0 928,560 $ 929 $ 131,355 $ 0 $ 132,284
NEW SHARES 0 0 571,440 571 85,145 0 85,716
INTEREST EXPENSE - CONVERTIBLE
DEBENTURES - BENEFICIAL
CONVERSION FEATURE 0 0 0 0 4,283,930 0 4,283,930
NET (LOSS) FOR THE YEAR
ENDED OCTOBER 31, 2002 0 0 0 0 0 (6,490,465) (6,490,465)
--------- --------- ------------- ---------- ------------- ------------- -------------
BALANCE, OCTOBER 31, 2002 0 $ 0 45,000,097 $ 45,000 $ 15,349,368 $(20,336,150) $ (4,941,782)
========= ========= ============== ========== ============= ============= =============
SEE ACCOMPANYING NOTES AND INDEPENDENT AUDITORS' REPORTS.
F-10
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED OCTOBER 31, 2002 AND 2001
2002 2001
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) from continuing operations $(6,010,911) $(4,640,718)
Adjustments to reconcile net (loss) to
net cash (used) in operating activities of
continuing operations:
Loss from discontinued operations (479,554) (706,704)
Depreciation 24,504 246,019
Amortization 3,333 53,460
Interest expense - convertible debentures-beneficial
conversion feature 4,283,930 1,336,793
Common stock issued for expenses 253,216 453,693
Provision for uncollectible accounts 14,798
Changes in operating assets and liabilities:
Accounts receivable 67,082 257,832
Inventories 71,141 272,840
Prepaid expenses 36,127 50,747
Deposits 13,512 44,947
Accounts and notes payable 509,519 (118,809)
Accrued liabilities and taxes 540,671 561,491
Deferred income 1,421 81,303
------------ ------------
NET CASH (USED) IN OPERATING ACTIVITIES (671,211) (2,107,106)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (50,000) (165,736)
Purchase of Intellectual Property Rights (200,000) 0
Proceeds from assets held for sale 48,635 0
------------ ------------
NET CASH (USED) IN INVESTING ACTIVITIES (201,365) (165,736)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock 79,500 0
Net proceeds from issuance of convertible
debentures payable 848,723 1,954,328
Repayments on note payable, factor (55,734) 70,734
Repayment of note payable, other (5,946) (5,282)
Changes in notes receivable, officer 0 (371,332)
------------ ------------
See Accompanying Notes and Independent Auditors' Reports.
F-11
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED OCTOBER 31, 2002 AND 2001
2002 2001
------------ ------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES $ 866,543 $ 1,648,448
------------ ------------
NET (DECREASE) IN CASH AND
CASH EQUIVALENTS (6,033) (624,394)
CASH AND CASH EQUIVALENTS, AT
BEGINNING OF YEAR 6,981 631,375
------------ ------------
CASH AND CASH EQUIVALENTS, AT
END OF YEAR $ 948 $ 6,981
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Cash paid during year for:
Interest $ 33,209 $ 1,202
============ ============
Taxes $ 50 $ 50
============ ============
NON-CASH INVESTING AND FINANCING
ACTIVITIES
Issuance of common stock for convertible debentures $ 364,365 $ 980,686
============ ============
Issuance of common stock for fees, services and
expenses $ 274,216 $ 0
============ ============
Issuance of common stock for accounts payable
and accrued liabilities $ 564,927 $ 0
============ ============
Interest expense - convertible debentures-beneficial
conversion feature $ 4,283,930 $ 1,336,793
============ ============
See Accompanying Notes and Independent Auditors' Reports.
F-12
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2002 AND 2001
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.
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 throughout
the United States. IBIZ Inc. also markets LCD monitors, OEM notebook computers,
third party software, and general purpose financial application keyboards.
Invnsys Technology Corporation (hereinafter referred to as Invnsys) is an
inactive entity.
Qhost, Inc. provides Web-enabling services which included Co-Location services,
Web design and development, and data center technical management services. This
segment of the Company's operations was discontinued on October 31, 2001.
PRINCIPLES OF CONSOLIDATION
---------------------------
The consolidated financial statements include the accounts of IBIZ Technology
Corp. and its wholly owned subsidiaries - IBIZ, Inc., Invnsys Technology
Corporation and Qhost, Inc.
All material inter-company accounts and transactions have been eliminated.
REVERSE STOCK SPLIT AND RESTATEMENT OF COMMON STOCK
---------------------------------------------------
On September 6, 2002, the Company effected a one-for-ten reverse stock split of
the Company's common stock. The stock split has been retroactively recorded in
the financial statements as if it occurred at the date of inception.
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.
F-13
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2002 AND 2001
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ACCOUNTS RECEIVABLE
-------------------
Accounts receivable are reported at the customers' outstanding balances less any
allowance for doubtful accounts. Interest is not accrued on overdue accounts
receivable.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
-------------------------------
The allowance for doubtful accounts on accounts receivable is charged to income
in amounts sufficient to maintain the allowance for uncollectible accounts at a
level management believes is adequate to cover any probable losses. Management
determines the adequacy of the allowance based on historical write-off
percentages and information collected from individual customers. Accounts
receivable are charged off against the allowance when collectibility is
determined to be permanently impaired (bankruptcy, lack of contact, account
balance over one year old, etc.).
INVENTORIES
-----------
Inventories are stated at the lower of cost (determined principally by average
cost) or market. The inventories are comprised of finished products at October
31, 2002.
PREPAID EXPENSES
----------------
The Company's prepaid expenses are being amortized over a one year period.
PROPERTY AND EQUIPMENT
----------------------
Property and equipment are stated at cost. Major renewals and improvements are
charged to the asset accounts while replacements, 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.
F-14
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2002 AND 2001
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT (CONTINUED)
----------------------------------
The Companies depreciate their 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
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.
ACCOUNTING FOR CONVERTIBLE DEBT SECURITIES
------------------------------------------
The Company has issued convertible debt securities with non-detachable
conversion features. The Company has recorded the fair value of the beneficial
conversion features as interest expense and an increase to Additional Paid in
Capital.
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, 2002, as defined in FASB 107, does not differ materially from the
aggregate carrying values of its financial instruments recorded in the
accompanying balance sheet. The estimated fair value amounts have been
determined by the Company using available market information and appropriate
valuation methodologies. Considerable judgement is required in interpreting
market data to develop the estimates of fair value, and accordingly, the
estimates are not necessarily indicative of the amounts that the Company could
realize in a current market exchange.
F-15
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2002 AND 2001
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
AMENDMENT OF ARTICLES OF INCORPORATION
--------------------------------------
The Articles of Incorporation were amended in November 2002 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.
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.
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.
ADVERTISING
-----------
All direct advertising costs are expensed as incurred. The Company charged to
operations $23,167 and $204,058 in advertising costs for the years ended October
31, 2002 and 2001, respectively.
RESEARCH AND DEVELOPMENT
------------------------
The Company expenses research and development costs as incurred.
F-16
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2002 AND 2001
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
------------
Provisions for income taxes are based on taxes payable or refundable for the
current year and deferred taxes on temporary differences between the amount of
taxable income and pretax financial income and between the tax bases of assets
and liabilities and their reported amounts in the financial statements. Deferred
tax assets and liabilities are included in the financial statements at currently
enacted income tax rates applicable to the period in which the deferred tax
assets and liabilities are expected to be realized or settled as prescribed in
FASB Statement No.109, "Accounting for Income Taxes". As changes in tax laws or
rates are enacted, deferred tax assets and liabilities are adjusted through the
provision for income taxes.
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.
CONCENTRATION OF RISK
---------------------
INDUSTRY
The Company's products are directed to the computer and technology-related
industry. This industry experiences a high degree of obsolescence and changes in
buying patterns. The Company must expend funds for research and development and
identification of new products in order to stay competitive.
F-17
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2002 AND 2001
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATION OF RISK (CONTINUED)
---------------------------------
FINANCIAL INSTRUMENTS
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of trade accounts receivable.
Concentrations of credit risk with respect to trade receivables are normally
limited due to the large number of customers comprising the Company's customer
base and their dispersion across different geographic areas. The Company
routinely assesses the financial strength of its customers. The Company normally
does not require a deposit to support large customer orders.
At October 31, 2002, two customers accounted for 69% (49% and 13%, respectively)
of net receivables.
PURCHASES
The Company relies primarily on two suppliers for its products. The loss of
either supplier could have a material impact on the Company's operations.
Purchases for the year ended 2002 totalled 81% and 23% from each supplier.
REVENUES
For the year ended October 31, 2002, the Company had two customers which
exceeded 10% of total revenues (14% and 13%, respectively). For the year ended
October 31, 2001, the Company had one customer which accounted for 24% of total
revenues.
PERVASIVENESS OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-18
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2002 AND 2001
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS
The FASB recently issued the following statements:
FASB 144 - Accounting for the Impairment or Disposal of Long-Lived Assets FASB
145 - Rescission of FASB Statements 4, 44 and 64 and Amendment of FASB 13 FASB
146 - Accounting for Costs Associated with Exit or Disposal Activities FASB 147
- - Acquisitions of Certain Financial Institutions FASB 148 - Accounting for
Stock-Based Compensation
These FASB statements did not, or are not expected to, have a material impact on
the Company's financial position and results of operations.
RECLASSIFICATIONS
-----------------
Certain 2001 amounts have been reclassified in order to conform to 2002
presentation.
GOING CONCERN
-------------
These consolidated 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:
A. Continued operating losses
B. Negative working capital
C. Lack of cash from continuing operations
D. Delinquent payroll taxes
E. Unpaid wages
F. Decline in national economy
F-19
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2002 AND 2001
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
GOING CONCERN (CONTINUED)
-------------------------
Management's plans to eliminate the going concern situation include, but are not
limited to:
A. Arranged for new financing through issuance of convertible debentures (see
Note 9) B. Paid, some but not all, delinquent payables and unpaid wages through
the issuance of common stock C. Increase sales through new line of products
acquired on July 11, 2002 D. Requested abatement of delinquent payroll tax
penalties
Should the Company be unsuccessful in its plans, the operations of the Company
could be discontinued.
NOTE 2 ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
A summary of accounts receivable and allowance for doubtful accounts is as
follows:
Accounts receivable $ 69,976
Allowance for doubtful accounts 58,109
-------------
Net accounts receivable $ 11,867
=============
Allowance for doubtful accounts
Balance, at November 1, 2001 $ 50,000
Additions for the year 14,798
Write-off of uncollectible accounts
for the year (6,689)
-------------
Balance, at October 31, 2002 $ 58,109
=============
F-20
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2002 AND 2001
NOTE 3 PROPERTY AND EQUIPMENT
Property and equipment and accumulated depreciation at October 31, 2002 consists
of:
Tooling $ 68,100
Machinery and equipment 37,641
Office furniture and equipment 81,027
Vehicle 39,141
Molds 50,000
------------
275,909
Less accumulated depreciation 165,705
------------
Total property and equipment $ 110,204
============
NOTE 4 INTELLECTUAL PROPERTY RIGHTS AND RELATED ROYALTY AGREEMENT
On July 11, 2002, the Company purchased the Xela Case Keyboard and all related
Intellectual Property and Resale Rights from ttools, LLC for $200,000. The
Company is obligated to pay a royalty of $2.00 per unit sold on the first one
million units. In accordance with FASB 142, the Company will amortize the
Intellectual Property Rights over its estimated useful life of three years from
the date the products are fully developed and ready for sale.
Estimated Amortization Expense:
-------------------------------
For the year ended October 31, 2003 $ 66,666
For the year ended October 31, 2004 66,667
For the year ended October 31, 2005 66,667
---------------
Total Estimated Amortization Expense $ 200,000
===============
F-21
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2002 AND 2001
NOTE 5 NOTES RECEIVABLE, OFFICERS
INVNSYS TECHNOLOGY CORPORATION
A note due from the President of the Company, which is payable on demand and
accrues interest at 6%. 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 collections for the
total amount due on the note.
Total amount of note receivable $ 373,159
Less allowance for doubtful collection (373,159)
------------
Note receivable, net $ 0
============
NOTE 6 NOTE PAYABLE, 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, providing Gammage and Burnham
PLC receives $2,500 each time that Invnsys draws against its factoring line. As
of October 31, 2002, the Company is in default of their loan agreement.
NOTE 7 TAXES PAYABLE
Taxes payable consists of the following:
Payroll taxes payable, current and deferred $ 128,687
California income tax payable 19,028
-----------
$ 147,715
===========
F-22
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2002 AND 2001
NOTE 8 INCOME TAXES
DEFERRED TAXES
--------------
The components of deferred tax assets are as follows:
Net operating loss carryforwards $ 2,327,000
Accrued expenses and miscellaneous 12,000
Tax credit carryforwards 38,424
--------------
2,377,424
Less valuation allowance (2,377,424)
--------------
Net deferred tax asset $ 0
==============
A reconciliation of the valuation allowance is as follows:
Balance, at November, 2001 $ 1,158,265
Addition for the period 1,219,159
--------------
Balance, at October 31, 2002 $ 2,377,424
==============
TAX CARRYFORWARDS
-----------------
The Company has the following tax carryforwards at October 31, 2002:
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
October 31, 2002 1,838,129 October 31, 2022
-------------
$ 11,634,220
=============
F-23
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2002 AND 2001
NOTE 8 INCOME TAXES (CONTINUED)
EXPIRATION
YEAR AMOUNT DATE
---- ------ ----
Contribution
October 31, 1999 $ 2,081 October 31, 2004
October 31, 2000 3,008 October 31, 2005
October 31, 2001 1,000 October 31, 2006
-----------
$ 6,089
===========
Research tax credits $ 38,424
===========
NOTE 9 CONVERTIBLE DEBENTURES
UNSECURED CONVERTIBLE DEBENTURES
--------------------------------
CURRENT
TOTAL PORTION
------------ ------------
LITES TRADING COMPANY - $1,600,000 DEBENTURE $ 750,000 $ 0
---------------------------------------------
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 37,500 shares of common stock at
$14.50 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) $14.50 (fixed price) or
(ii) the product obtained by multiplying the average
closing price by .80.
F-24
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2002 AND 2001
NOTE 9 CONVERTIBLE DEBENTURES (CONTINUED)
CURRENT
TOTAL PORTION
------------ ------------
7. Average closing price - The debenture holder shall have
the election to choose any three trading days out of
twenty trading days immediately preceding the date on
which the holder gives the Company a written notice of the
holder's election to convert outstanding principal of this
debenture.
8. Redemption by Company - If there is a change in control of
the Company, the holder of the debenture can request that
the debenture be redeemed at a price equal to 125% of the
aggregate principal and accrued interest outstanding under
this debenture.
9. The debentures are unsecured.
10. Any further issuance of common stock or debentures must be
approved by the debenture holders.
11. Debenture holders have an 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 $ 1,683,704 $ 1,683,704
--------------------------------
On October 31, 2001, the Company issued 8% convertible
debentures as follows:
1. Due date - October 31, 2003.
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 50,000 shares of stock at $4.80 per share.
The Company reserved an additional 124,000 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.
F-25
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2002 AND 2001
CURRENT
TOTAL PORTION
------------ ------------
7. The Company must reserve a number of common shares equal
to, but 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 conversion 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.
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. $ 328,904 $ 328,904
------------------------
In April and July 2001, the Company issued $500,000 and $150,000
of 8% convertible debentures under the following terms and
conditions:
F-26
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2002 AND 2001
NOTE 9 CONVERTIBLE DEBENTURES (CONTINUED)
CURRENT
TOTAL PORTION
------------ ------------
1. Due date - October 31, 2003.
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 150,000 shares of common stock at the lesser of
$1.23 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 $6.67 per share. On
the second financing, the Company issued warrants to
purchase 150,000 shares of common stock at the lesser of
$0.48 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.
7. Prepayment - The debenture may not be paid prior to the
maturity date without the consent of the holder.
ALPHA CAPITAL $ 255,000 $ 0
-------------
In January and April 2002, the Company issued an 8% convertible
debenture as follows:
1. Due dates- January 30, 2004 and April 25, 2004.
2. Interest payable quarterly from March 31, 2002.
3. Default interest rate - 20%.
F-27
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2002 AND 2001
NOTE 9 CONVERTIBLE DEBENTURES (CONTINUED)
CURRENT
TOTAL PORTION
------------ ------------
4. Warrants to purchase 800,000 shares of common stock at
$.60 per share.
5. Fees and costs - 7% - 10% of cash received for debentures
and warrants plus legal fees.
6. Conversion price -
(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 three lowest closing bid
prices for the stock for sixty days.
7. The debentures are unsecured. ------------ ------------
Total unsecured convertible debenture $ 3,017,608 $ 2,012,608
------------ ------------
SECURED CONVERTIBLE DEBENTURES 600,000 600,000
------------------------------
AJW ENTITIES
------------
In August and October 2002, the Company issued 12% secured
convertible debentures as follows:
1. Due dates - August 15, 2003 and October 9, 2003.
2. Interest payable quarterly.
3. Default interest rate - 15%.
4. Warrants to purchase 180,000 shares of common Stock at $0.05 per
share.
5. Conversion Price
(i) 50% of the average of the three lowest closing bid
prices for the stock for twenty days or
(ii) Fixed conversion price of $0.05. 6. The convertible
debentures are secured by all the assets of the
Company. ------------ ------------
Total Secured Convertible Debentures $ 600,000 $ 600,000
============ ============
Total Debentures $ 3,617,608 $ 2,612,608
============ ============
F-28
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2002 AND 2001
NOTE 9 CONVERTIBLE DEBENTURES (CONTINUED)
Maturities of convertible debentures are as follows:
2003 $ 2,612,608
2004 255,000
2005 750,000
-------------
Total $ 3,617,608
=============
NOTE 10 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%. At October 31, 2002, the Company is no longer using the services of
Platinum Funding Corporation and plans to settle the account balances for an
estimated $15,000.
NOTE 11 NOTE PAYABLE, OTHER
Note payable to Community First National Bank, due in monthly payments of
principal and interest of $545 with interest at 7% until March 7, 2004. The note
is secured by an automobile which
cost $36,000 and
has a book value of $0. $ 8,586
Less: current portion 6,120
-------------
Net long-term debt $ 2,466
=============
Maturities of long-term debt are as follows:
2003 $ 6,120
2004 2,466
-------------
$ 8,586
=============
F-29
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2002 AND 2001
NOTE 12 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 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 13 COMPUTATION OF EARNINGS PER SHARE
2002 2001
------------- -------------
From continuing operations
Net (loss) from continuing operations $ (6,010,911) $ (4,640,718)
------------- -------------
Weighted average number of common
shares outstanding 26,404,820 5,566,081
(Loss) per share $ (.23) $ (0.84)
From discontinued operations
Net (loss) from discontinued operations $ (479,554) (2,108,076)
------------- -------------
Weighted average number of common
shares outstanding 26,404,820 5,566,081
(Loss) per share $ (0.02) $ (0.38)
The Company has outstanding warrants to purchase 1,907,116 shares of its common
stock which have not been included in the above computation, as they are
anti-dilutive
F-30
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2002 AND 2001
NOTE 14 CANCELLATION OF DEBT
2002 2001
----------- -----------
Settlement of lawsuit $ 0 $ 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. 0 122,000
Settlement of prior year liabilities 44,754 0
----------- -----------
$ 44,754 $ 223,369
=========== ===========
NOTE 15 COMMITMENTS AND CONTINGENCIES
OPERATING LEASE
---------------
The Company leases its office and warehouse facilities under the following terms
and conditions:
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
F-31
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2002 AND 2001
NOTE 15 COMMITMENTS AND CONTINGENCIES (CONTINUED)
Future minimum lease payments excluding taxes and expenses, are as follows:
October 31, 2003 $ 39,744
October 31, 2004 50,163
October 31, 2005 13,029
--------------
$ 102,936
==============
Rent expense for the years ended October 31, 2002 and 2001 was $44,644 and
$190,551, respectively.
PAYROLL TAXES
-------------
The Company is negotiating a settlement regarding delinquent payroll taxes of
approximately $65,000. Interest is being accrued on the outstanding balance. No
amounts have been accrued for any penalties.
WORKERS' COMPENSATION INSURANCE
-------------------------------
Through January 2003, the Company did not carry general liability or workers'
compensation coverage, nor was it self-insured. The Company accrues liabilities
when it is probable that future costs will be incurred and such costs can be
reasonably estimated. As of January 17, 2003, there were no known liability
claims. No amounts have been accrued for any penalties which may be assessed by
the State of Arizona for non-compliance with the laws and regulations applicable
to workers' compensation insurance.
LEGAL
-----
The Company is the defendant in one lawsuit for unpaid wages. Management has
recorded a liability in the amount of $20,000.
F-32
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2002 AND 2001
NOTE 15 COMMITMENTS AND CONTINGENCIES (CONTINUED)
REAL ESTATE
-----------
The Company has pledged all of its assets, except inventory, to guarantee a
mortgage of $910,000 on the premises it previously occupied at 1919 W. Lone
Cactus Drive, Phoenix, Arizona. Ken Schilling, the President of the Company has
an ownership interest in the property at 1919 W. Lone Cactus Drive.
OFFICERS' COMPENSATION
----------------------
As of October 31, 2002, the Company has employment agreements with two 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 officer.
3. Options for 120,000 shares of common stock which will vest and be exercisable
for a period of ten years.
4. Option price of $0.20 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.
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.
NOTE 16 EMPLOYEE STOCK OPTIONS
On October 31, 2002, the Company cancelled its employee stock option plan.
F-33
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2002 AND 2001
NOTE 17 COMMON STOCK PURCHASE WARRANTS
As of October 31, 2002 the Company has issued the following common stock
purchase warrants:
NUMBER EXERCISE
DATE OF SHARES TERM PRICE
---- --------- ---- -----
December 28, 1999 20,000 5 years $ 9.40
January 10, 2000 28,125 5 years $ 9.90
March 27, 2000 61,500 5 years $ 14.50 - 20.50
May 17, 2000 12,500 3 years $ 10.20 - 50.00
August 30, 2000 3,413 5 years $ 9.37
August 30, 2000 25,000 3 years $ 5.00
August 30, 2000 25,000 3 years $ 7.50
August 30, 2000 3,636 3 years $ 10.00
September 3, 2000 10,900 3 years $ 10.00
September 27, 2000 27,875 3 years $ 9.00
October 31, 2000 50,000 2 years $ 4.76
December 20, 2000 40,000 5 years $ 2.28
December 20, 2000 15,000 5 years $ 2.28
April 26, 2001 150,000 5 years $ 1.23
June 22, 2001 150,000 5 years $ 0.42
June 27, 2001 150,000 5 years $ 0.21
August 21, 2001 52,500 5 years $ 0.39
October 9, 2001 35,000 5 years $ 0.26
January 15, 2002 16,667 5 years $ 105% of Closing
January 15, 2002 50,000 5 years $ 105% of Closing
January 30, 2002 500,000 5 years $ 0.06
April 23, 2002 300,000 5 years $ 0.06
August 15, 2002 105,000 5 years $ 0.05
October 9, 2002 75,000 5 years $ 0.05
----------
1,907,116
1,907,116 shares are exercisable at October 31, 2002.
F-34
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2002 AND 2001
NOTE 18 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. The Company has not designated any other rights or dividend
policy in regard to the Preferred Stock.
NOTE 19 RELATED PARTY TRANSACTION
On February 1, 2002, the Company transferred $249,918 of net assets held for
sale in full payment of delinquent rent and property taxes in the amount of
$78,376 on property previously rented by the Company. Ken Schilling, the
President of the Company has an ownership interest in this property.
NOTE 20 4TH QUARTER INTERIM RESULTS OF OPERATIONS (UNAUDITED)
Revenues $ 52,816
Costs and expenses (523,301)
--------------
Loss from operations $ (470,485)
==============
NOTE 21 SUBSEQUENT EVENTS (UNAUDITED)
NEW CONVERTIBLE DEBENTURES
--------------------------
1. On November 5, 2002, the Company issued three additional 12%, secured
convertible debentures to the AW entities for $100,000 with the following terms:
1. Due dates - November 5, 2003
2. Interest payable quarterly
3. Default interest rate - 15%
4. Warrants to purchase 30,000 shares of common stock at $0.05 per share
5. Conversion price -
(i) 50% of the average of the three lowest closing bid prices for the twenty
days or
(ii) Fixed conversion price of $0.05
6. The convertible debentures are secured by all the assets of the Company
F-35
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2002 AND 2001
NOTE 21 SUBSEQUENT EVENTS (CONTINUED)
NEW CONVERTIBLE DEBENTURES (CONTINUED)
--------------------------------------
2. On January 31, 2003, the Company issued three additional 12% secured
convertible debentures to the AJW entities for $300,000 with the following
terms:
1. Due dates - January 31, 2004
2. Interest payable quarterly
3. Default interest rate - 15%
4. Warrants to purchase 1,500,000 shares of common stock at $0.01 per share
5. Conversion price -
(i) 50% of the average of the three lowest closing bid prices for the stock for
twenty days or
(ii) Fixed conversion price of $0.01
6. The convertible debentures are secured by all the assets of the Company
STOCK ISSUANCES
---------------
1. On November 26, 2002, the Company filed an S-B Registration Statement with
the SEC and subsequently issued 9,000,000 shares of common stock to individuals
for consulting services.
2. On December 6, 2002, the Company issued 1,500,000 shares of restricted common
stock in consideration of services rendered.
F-36
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JANUARY 31, 2003
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 135,190
Accounts receivable, net 29,845
Inventories 132,671
Prepaid expenses 36,000
----------
TOTAL CURRENT ASSETS $ 333,706
PROPERTY AND EQUIPMENT, NET OF
ACCUMULATED DEPRECIATION 104,736
OTHER ASSETS
Intellectual Properties Rights 200,000
Note receivable, officer $ 373,159
Less allowance for doubtful accounts 373,159 0
----------
Deposits 2,500
---------
TOTAL OTHER ASSETS 202,500
----------
TOTAL ASSETS $ 640,942
==========
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 620,292
Note payable, Gammage and Burnham 30,000
Accrued wages and bonuses 556,513
Accrued interest 507,714
Other accrued expenses 102,012
Taxes payable 177,603
Deferred income 2,183
Convertible debentures, current portion 3,108,927
Note payable, factor 15,000
Note payable, other, current portion 6,120
-----------
TOTAL CURRENT LIABILITIES $ 5,126,364
LONG-TERM LIABILITIES
Convertible debentures payable, long-term portion 850,000
Note payable, other, long-term portion 2,047
-----------
TOTAL LONG -TERM LIABILITIES 852,047
STOCKHOLDERS' ( DEFICIT)
Preferred stock
Authorized - 50,000,000 shares, par
value $.001 per share
Issued and outstanding -0- shares
3,500,000 shares reserved
Common stock 0
Authorized - 450,000,000 shares, par
value $.001 per share
Issued and outstanding - 74,228,725 shares 74,228
Additional paid in capital 16,302,457
Accumulated deficit (21,714,154)
-------------
TOTAL STOCKHOLDERS' (DEFICIT) (5,337,469)
-------------
TOTAL LIABILITIES AND
STOCKHOLDERS' (DEFICIT) $ 640,942
=============
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JANUARY 31, 2003 AND 2002
(UNAUDITED)
2003 2002
------------ ------------
SALES $ 75,310 $ 135,737
COST OF SALES 91,735 83,516
------------ ------------
GROSS PROFIT (LOSS) (16,425) 52,221
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 441,229 449,278
------------ ------------
OPERATING (LOSS) (457,654) (397,057)
------------ ------------
OTHER INCOME (EXPENSE)
Cancellation of debt 0 42,031
Interest expense (82,352) (85,753)
Interest expense - convertible debentures
-beneficial conversion feature (837,998) (116,214)
------------ ------------
TOTAL OTHER INCOME (EXPENSE) (920,350) (159,936)
------------ ------------
(LOSS) FROM CONTINUING OPERATIONS (1,378,004) (556,993)
DISCONTINUED OPERATIONS
(Loss) from operations of discontinued business segments 0 (240,847)
------------ ------------
NET (LOSS) $(1,378,004) $ (797,840)
============ ============
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE THREE MONTHS ENDED JANUARY 31, 2003 AND 2002
(UNAUDITED)
2003 2002
--------------- ---------------
NET (LOSS) PER COMMON SHARE
Basic and Diluted:
Continuing operations $ (0.02) $ (0.05)
Discontinued operations (0.00) (0.02)
--------------- ---------------
NET (LOSS) $ (0.02) $ (0.07)
=============== ===============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING
Basic and diluted 59,250,249 11,072,185
=============== ===============
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIT)
FOR THE THREE MONTHS ENDED JANUARY 31, 2003
(UNAUDITED)
PREFERRED STOCK COMMON STOCK ADDITIONAL
--------------------- ---------------------------- PAID IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------- ---------- ------------- ------------- ------------- ------------- -------------
BALANCE, NOVEMBER 1, 2002 0 $ 0 45,000,097 $ 45,000 $ 15,349,368 $(20,336,150) $ (4,941,782)
CONVERSION OF DEBENTURES FOR
COMMON STOCK:
PRINCIPAL 0 0 17,943,270 17,943 40,738 0 58,681
ACCRUED INTEREST 0 0 505,930 506 1,364 0 1,870
INTEREST EXPENSE 0 0 279,428 279 489 0 768
FEES AND COSTS FOR ISSUANCE OF
COMMON STOCK 0 0 0 0 (40,000) 0 (40,000)
ISSUANCE OF COMMON STOCK FOR:
CONSULTING FEES 0 0 8,500,000 8,500 90,500 0 99,000
LEGAL FEES 0 0 2,000,000 2,000 22,000 0 24,000
INTEREST EXPENSE - CONVERTIBLE
DEBENTURES - BENEFICIAL
CONVERSION FEATURE 0 0 0 0 837,998 0 837,998
NET (LOSS) FOR THE THREE MONTHS
ENDED JANUARY 31, 2003 0 0 0 0 0 (1,378,004) (1,378,004)
--------- ---------- ------------- ------------- ------------- ------------- -------------
BALANCE, JANUARY 31, 2003 0 $ 0 74,228,725 $ 74,228 $ 16,302,457 $(21,714,154) $ 5,337,469)
========= ========== ============= ============= ============= ============= =============
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JANUARY 31, 2003 AND 2002
(UNAUDITED)
2003 2002
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) from continuing operations $(1,378,004) $ (556,993)
Adjustments to reconcile net (loss) to
net cash (used) in operating activities of
continuing operations:
Loss from discontinued operations 0 (240,847)
Write down of net assets held for sale 0 137,534
Depreciation 2,968 8,381
Amortization 2,500 0
Interest expense - convertible debentures
-beneficial conversion feature 837,998 116,214
Common stock issued for expenses 123,768 89,816
Provision for uncollectible accounts 3,100 (10,154)
Changes in operating assets and liabilities:
Accounts receivable (21,078) 54,404
Inventories (37,070) 2,833
Prepaid expenses (18,000) (1,338)
Accounts and notes payable 55,577 90,641
Accrued liabilities and taxes 206,635 250,438
Deferred income (3,733) (1,580)
------------ ------------
NET CASH (USED) IN OPERATING ACTIVITIES (225,339) (60,651)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets held for sale 0 48,635
------------ ------------
NET CASH PROVIDED BY
INVESTING ACTIVITIES 0 48,635
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of
convertible debentures payable 360,000 201,236
Repayments on note payable, factor 0 (58,313)
Repayment of note payable, other (419) 0
------------ ------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 359,581 142,923
------------ ------------
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE THREE MONTHS ENDED JANUARY 31, 2003 AND 2002
(UNAUDITED)
2003 2002
--------- ---------
NET INCREASE IN CASH AND
CASH EQUIVALENTS $134,242 $130,907
CASH AND CASH EQUIVALENTS, AT
BEGINNING OF PERIOD 948 6,981
--------- ---------
CASH AND CASH EQUIVALENTS, AT
END OF PERIOD $135,190 $137,888
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Cash paid during year for:
Interest $ 2,334 $ 22,486
========= =========
Taxes $ 0 $ 0
========= =========
NON-CASH INVESTING AND FINANCING
ACTIVITIES
Issuance of common stock for convertible debentures $ 58,681 $183,681
========= =========
Issuance of common stock for fees, services and
expenses $123,768 $ 94,666
========= =========
Issuance of common stock for accounts payable
and accrued liabilities $ 1,870 $401,935
========= =========
Interest expense - convertible debentures-beneficial
conversion feature $837,998 $116,214
========= =========
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2003
(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.
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.
Invnsys Technology Corporation (hereinafter referred to as Invnsys) is
an inactive entity.
Qhost, Inc. is an inactive entity.
PRESENTATION
------------
The interim consolidated financial statements of the Company are
condensed and do not include some of the information necessary to
obtain a complete understanding of the financial data. Management
believes that all adjustments necessary for a fair presentation of
results have been included in the unaudited consolidated financial
statements for the interim periods presented. Operating results for the
three-month period ended January 31, 2003 are not necessarily
indicative of the results that may be expected for the year ended
October 31, 2003. Accordingly, your attention is directed to footnote
disclosures found in the October 31, 2002 Annual Report and
particularly to Note 1 which includes a summary of significant
accounting policies.
PRINCIPLES OF CONSOLIDATION
---------------------------
The consolidated financial statements include the accounts of IBIZ
Technology Corp. and its wholly owned subsidiaries - IBIZ, Inc.,
Invnsys Technology Corporation and Qhost, Inc.
All material inter-company accounts and transactions have been
eliminated.
INVENTORIES
-----------
Inventories are stated at the lower of cost (determined principally by
average cost) or market. The inventories are comprised of finished
products at January 31, 2003.
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2003
(UNAUDITED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
----------------------
Property and equipment are stated at cost. Major renewals and
improvements are charged to the asset accounts while replacements,
maintenance and repairs, which do not improve or extend the lives of
the respective assets, are expensed. At the time property and equipment
are retired or otherwise disposed of, the asset and related accumulated
depreciation accounts are relieved of the applicable amounts. Gains or
losses from retirements or sales are credited or charged to income.
The Companies depreciates their 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.
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.
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.
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.
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2003
(UNAUDITED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ADVERTISING
-----------
All direct advertising costs are expenses as incurred. The Company
charged to operations $4,481 and $12,621 in advertising costs for the
three months ended January 31, 2003 and 2002, respectively.
RESEARCH AND DEVELOPMENT
------------------------
The Company expenses research and development costs as incurred.
INCOME TAXES
------------
Provisions for income taxes are based on taxes payable or refundable
for the current year and deferred taxes on temporary differences
between the amount of taxable income and pretax financial income and
between the tax bases of assets and liabilities and their reported
amounts in the financial statements. Deferred tax assets and
liabilities are included in the financial statements at currently
enacted income tax rates applicable to the period in which the deferred
tax assets and liabilities are expected to be realized or settled as
prescribed in FASB Statement No.109, Accounting for Income Taxes. As
changes in tax laws or rates are enacted, deferred tax assets and
liabilities are adjusted through the provision for income taxes.
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.
CONCENTRATION OF RISK
---------------------
INDUSTRY
The Company's products are intended for the computer and
technology-related industry. This industry experiences a high degree of
obsolescence and changes in buying patterns. The Company must expend
funds for research and development and identification of new products
in order to stay competitive.
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2003
(UNAUDITED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FINANCIAL INSTRUMENTS
---------------------
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade accounts
receivable.
Concentrations of credit risk with respect to trade receivables are
normally limited due to the large number of customers comprising the
Company's customer base and their dispersion across different
geographic areas. The Company routinely assesses the financial strength
of its customers. The Company normally does not require a deposit to
support large customer orders.
At January 31, 2003, three customers accounted for 51% of net
receivables.
PURCHASES
---------
The Company relies primarily on two suppliers for its products. The
loss of either supplier could have a material impact on the Company's
operations. Purchases for three months ended January 31, 2003 totaled
97% and 3% from each supplier.
REVENUES
--------
For the three months ended January 31, 2003, the Company had one
customer which exceeded 10% of total revenues.
PERVASIVENESS OF ESTIMATES
--------------------------
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
RECENT ACCOUNTING PRONOUNCEMENTS
--------------------------------
The FASB recently issued the following statements:
FASB 144 - Accounting for the impairment or disposal of long-lived
assets
FASB 145 - Rescission of FASB statements 4, 44 and 64 and
amendment of FASB 13
FASB 146 - Accounting for costs associated with exit or disposal
activities
FASB 147 - Acquisitions of certain financial institutions
FASB 148 - Accounting for stock based compensation
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2003
(UNAUDITED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
--------------------------------------------
These FASB statements did not have a material impact on the Company's
financial position and results of operations.
GOING CONCERN
-------------
These consolidated 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:
A. Continued operating losses
B. Negative working capital
C. Lack of cash from continuing operations
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. Paid some, but not all, delinquent payables and unpaid wages
through the issuance of common stock.
B. Increase sales through new line of products acquired on July
11, 2002.
C. Requested abatement of delinquent payroll tax penalties.
Should the Company be unsuccessful in its plans, the operations of the
company could be discontinued.
NOTE 2 PROPERTY AND EQUIPMENT
Property and equipment and accumulated depreciation at January 31, 2003
consists of:
Tooling $ 68,100
Machinery and equipment 37,641
Office furniture and equipment 81,027
Vehicle 39,141
Molds 50,000
------------
275,909
Less accumulated depreciation 171,173
------------
Total property and equipment $ 104,736
============
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2003
(UNAUDITED)
NOTE 3 INTELLECTUAL PROPERTY RIGHTS AND RELATED ROYALTY AGREEMENT
On July 11, 2002, the Company purchased the Xela Case Keyboard and all
related Intellectual Property and Resale Rights from ttools, LLC for
$200,000. The Company is obligated to pay a royalty of $2.00 per unit
sold on the first one million units. In accordance with FASB 142, the
Company will amortize the Intellectual Property Rights over its
estimated useful life of three years from the date the products are
fully developed and ready for sale.
Estimated Amortization Expense:
-------------------------------
For the year ended October 31, 2003 $ 39,000
For the year ended October 31, 2004 66,667
For the year ended October 31, 2004 66,667
For the year ended October 31, 2005 27,666
------------
Total Estimated Amortization Expense $ 200,000
============
NOTE 4 NOTES RECEIVABLE, OFFICERS
Invnsys Technology Corporation
A note due from the president of the
Company, which is payable on demand and
accrues interest at 6%. 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 collections for the
total amount due on the note.
Total amount of note receivable $ 373,159
Less allowance for doubtful collection (373,159)
------------
Note Receivable, Net $ 0
============
NOTE 5 NOTE PAYABLE, 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
providing Gammage and Burnham PLC receives $2,500 each time that
Invnsys draws against its factoring line. As of January 31, 2003, the
Company is in default of their loan agreement.
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2003
(UNAUDITED)
NOTE 6 TAXES PAYABLE
Taxes payable consists of the following:
Payroll taxes payable, current and deferred $ 158,575
California income tax payable 19,028
-----------
$ 177,603
===========
NOTE 7 TAX CARRYFORWARDS
The Company has the following tax carryforwards at January 31, 2003:
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, 20l9
October 31, 2000 3,574,086 October 31, 2020
October 31, 2001 5,051,232 October 31, 2021
October 31, 2002 1,838,129 October 31, 2022
January 31, 2003 540,006 January 31, 2023
-------------
$ 12,174,226
=============
NOTE 8 CONVERTIBLE DEBENTURES
See detail of terms and conditions in Form 10-KSB for the year ended
October 31, 2002.
CONVERTIBLE DEBENTURES
----------------------
CURRENT
TOTAL PORTION
------------ ------------
UNSECURED DEBENTURES
Lites Trading Company - $1,600,000 debenture $ 750,000 $ 0
$5,000,000 convertible debenture 1,681,737 1,681,737
Laurus Master Fund, Ltd. 328,190 328,190
Alpha Capital 240,000 140,000
------------ ------------
Total Unsecured Debentures $ 2,999,927 $ 2,149,927
============ ============
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2003
(UNAUDITED)
NOTE 8 CONVERTIBLE DEBENTURES (CONTINUED)
CURRENT
TOTAL PORTION
----------- -----------
SECURED DEBENTURES
------------------
AJW Entities $ 959,000 $ 959,000
----------- -----------
Total Secured Debentures $ 959,000 $ 959,000
=========== ===========
Total Debentures $ 3,958,927 $ 3,108,927
=========== ===========
Maturities of convertible debentures are as follows:
2003 $ 3,108,927
2004 100,000
2005 750,000
-----------
Total $ 3,958,927
===========
NOTE 9 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%. At
October 31, 2002, the Company is no longer using the services of
Platinum Funding Corporation and plans to settle the account balances
for an estimated $15,000.
NOTE 10 CANCELLATION OF DEBT
2003 2002
---------- ----------
Settlement of prior year liabilities $ 0 $ 42,031
---------- ----------
$ 0 $ 42,031
========== ==========
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2003
(UNAUDITED)
NOTE 11 COMMITMENTS AND CONTINGENCIES
OPERATING LEASE
---------------
The Company leases its office and warehouse facilities under the
following terms and conditions:
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
Future minimum lease payments excluding taxes and expenses are as
follows:
January 31, 2004 $ 44,304
January 31, 2005 52,116
----------
$ 96,420
==========
Rent expense for the three months ended January 31, 2003 and 2002 was
$10,442 and $27,829, respectively.
PAYROLL TAXES
-------------
The Company is negotiating a settlement regarding delinquent payroll
taxes of approximately $65,000. Interest is being accrued on the
outstanding balance. No amounts have been accrued for any penalties.
WORKERS' COMPENSATION INSURANCE
-------------------------------
Through February 2003, the Company did not carry general liability or
workers' compensation coverage, nor was it self-insured. The Company
accrues liabilities when it is probable that future costs will be
incurred and such costs can be reasonably estimated. As of February 28,
2003, there were no known liability claims. No amounts have been
accrued for any penalties which may be assessed by the State of Arizona
for non-compliance with the laws and regulations applicable to workers'
compensation insurance.
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2003
(UNAUDITED)
NOTE 11 COMMITMENTS AND CONTINGENCIES (CONTINUED)
LEGAL
-----
The Company is the defendant in one lawsuit for unpaid wages.
Management has recorded a liability in the amount of $20,000.
REAL ESTATE
-----------
The Company has pledged all of its assets, except inventory, to
guarantee a mortgage of $905,000 on the premises it previously occupied
at 1919 W. Lone Cactus Drive, Phoenix, Arizona. Ken Schilling, the
President of the Company has an ownership interest in the property at
1919 W. Lone Cactus Drive.
OFFICERS' COMPENSATION
----------------------
As of January 31, 2003, the Company has employment agreements with two
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 officer.
3. Options for 120,000 shares of common stock which will vest and be
exercisable for a period of ten years.
4. Option price of $0.20 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.
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 filing, the debentures
have not been issued.
NOTE 12 COMMON STOCK
STOCK ISSUANCES
---------------
1. On November 26, 2002, the Company filed an S-B Registration
Statement with the SEC and subsequently issued 9,000,000 shares of
common stock to individuals for services rendered.
2. On December 6, 2002, the Company issued 1,500,000 shares of
restricted common stock in consideration of services rendered.
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2003
(UNAUDITED)
NOTE 12 COMMON STOCK (CONTINUED)
STOCK PURCHASE WARRANTS
-----------------------
As of January 31, 2003, the Company has issued the following common
stock purchase warrants:
NUMBER EXERCISE
DATE OF SHARES TERM PRICE
----------------- --------- ------- ------------------
December 28, 1999 20,000 5 years $ 9.40
January 10, 2000 28,125 5 years $ 9.90
March 27, 2000 61,500 5 years $ 14.50 - 20.50
May 17, 2000 12,500 3 years $ 10.20 - 50.00
August 30, 2000 3,413 5 years $ 9.37
August 30, 2000 25,000 3 years $ 5.00
August 30, 2000 25,000 3 years $ 7.50
August 30, 2000 3,636 3 years $ 10.00
September 3, 2000 10,900 3 years $ 10.00
September 27, 2000 27,875 3 years $ 9.00
October 31, 2000 50,000 2 years $ 4.76
December 20, 2000 40,000 5 years $ 2.28
December 20, 2000 15,000 5 years $ 2.28
April 26, 2001 150,000 5 years $ 1.23
June 22, 2001 150,000 5 years $ 0.42
June 27, 2001 150,000 5 years $ 0.21
August 21, 2001 52,500 5 years $ 0.39
October 9, 2001 35,000 5 years $ 0.26
January 15, 2002 16,667 5 years $ 105% of Closing
January 15, 2002 50,000 5 years $ 105% of Closing
January 30, 2002 500,000 5 years $ 0.06
April 23, 2002 300,000 5 years $ 0.06
August 15, 2002 105,000 5 years $ 0.05
October 9, 2002 75,000 5 years $ 0.05
November 5, 2002 30,000 5 years $ 0.05
January 31, 2003 1,500,000 5 years $ 0.01
------------
3,437,116
============
3,437,116 shares are exercisable at January 31, 2003.
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2003
(UNAUDITED)
NOTE 13 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. The Company has
not designated any other rights or dividend policy in regard to the
Preferred Stock.
NOTE 14 RELATED PARTY TRANSACTION
On February 1, 2002, the Company transferred $249,918 of net assets
held for sale in full payment of delinquent rent and property taxes in
the amount of $78,376 on property previously rented by the Company. Ken
Schilling, the President of the Company has an ownership interest in
this property.
NOTE 15 SUBSEQUENT EVENTS
On February 24, 2003, the Articles of Incorporation were amended to
increase the number of authorized shares of common stock from
450,000,000 shares to 5,000,000,000 shares.
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 $201.15
Legal Fees and Expenses $15,000.00
Accounting Fees and Expenses $5,000.00
TOTAL(1) 20,201.15
(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.
34
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.
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 debentures bear interest at 12%, mature 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.
To obtain funding for our ongoing operations, we entered into a
Securities Purchase Agreement with three accredited investors on January 31,
2003 for the sale of (i) $500,000 in convertible debentures and (ii) warrants to
buy 2,500,000 shares of our common stock. The debentures bear interest at 12%,
mature one year from the date of issuance, and are convertible into our common
stock, at the investors' option, at the lower of (i) $0.01 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 the convertible debentures. The warrants are
exercisable until seven years from the date of issuance at an exercise price of
$0.01 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.
During the three month period ending October 31, 2002, we issued an
aggregate of 160,881,021 shares of our common stock to 6 employees in lieu of
salaries equaling $128,704.82.
In February 2003, we issued an aggregate of 105,775,711 restricted
shares of our common stock to 5 employees in lieu of past due wages in an
aggregate amount of $92,553,75.
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.
36
ITEM 27. EXHIBITS.
Exhibit No. DESCRIPTION
- --------------------------------------------------------------------------------
2.01(1) Plan of Reorganization and Stock Exchange Agreement dated
January 1, 1999
3.01 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
37
Exhibit No. DESCRIPTION
- --------------------------------------------------------------------------------
10.31(8) Form of 8% Convertible debentures Due October 9, 2002
10.32(8) Form of Warrant dated October 9, 2001
10.33(10) Form of Subscription Agreement for Debentures Convertible into
Common Stock of iBiz 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(14) Securities Purchase Agreement, dated August 15, 2002
10.53(14) Registration Rights Agreement, dated August 15, 2002
10.54(14) Security Agreement, dated August 15, 2002
10.55(14) Guaranty Agreement, dated August 15, 2002
10.56(14) Debenture dated August 15, 2002 - AJW Qualified Partners, LLC
10.57(14) Debenture dated August 15, 2002 - AJW Offshore, LTD.
10.58(14) Debenture dated August 15, 2002 - AJW Partners, LLC
10.59(14) Warrant dated August 15, 2002 - AJW Qualified Partners, LLC
10.60(14) Warrant dated August 15, 2002 - AJW Offshore, LTD.
10.61(14) Warrant dated August 15, 2002 - AJW Partners, LLC
10.62(14) Modification Agreement, dated ______________
10.63 Securities Purchase Agreement dated January 31, 2003
10.64 Registration Rights Agreement dated January 31, 2003
10.65 Security Agreement dated January 31, 2003
10.66 Guaranty Agreement dated January 31, 2003
10.67 Debenture January 31, 2003 - AJW Qualified Partners, LLC
10.68 Debenture January 31, 2003 - AJW Offshore, LTD.
10.69 Debenture January 31, 2003 - AJW Partners, LLC
10.70 Warrant January 31, 2003 - AJW Qualified Partners, LLC
10.71 Warrant January 31, 2003 - AJW Offshore, LTD.
10.72 Warrant January 31, 2003 - AJW Partners, LLC
21.01(1) Subsidiaries of Company
23.01(1) Consent of Moffitt & Company, P.C.
23.02(1) Consent of Farber and Hass, CPA
23.03(1) Consent of Sichenzia Ross Friedman Ference LLP (see exhibit
5.1)
38
(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.
(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.
(14) Incorporated by reference from iBiz's Form SB-2, File No. 333-100450,
filed with the SEC on October 9, 2002.
39
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.
40
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 March 14, 2003.
iBiz TECHNOLOGY CORP.
By: /s/ KENNETH W. SCHILLING
------------------------------------
Kenneth W. Schilling, President,
Acting Principal Accounting Officer,
and 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 March 14, 2003.
By: /s/ KENNETH W. SCHILLING
---------------------------------------
Kenneth W. Schilling, President, Acting
Principal Accounting Officer
Director (Principal executive officer)
By: /s/ MARK H. PERKINS
---------------------------------------
Mark H. Perkins, Vice President of
Operations, Director
41