AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 13, 2004
REGISTRATION NO. 333-______
=======================================================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
__________
IBX GROUP, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
FLORIDA 7374 65-0969433
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Organization) Classification Code Number) Identification No.)
EVAN R. BROVENICK
350 JIM MORAN BOULEVARD 350 JIM MORAN BOULEVARD
DEERFIELD BEACH, FL 33442 DEERFIELD BEACH, FL 33442
(954) 312-1660 (954) 312-1660
(Address and telephone number (Name, address, and telephone
of principal executive offices) number of agent for service)
Copies to:
Clayton E. Parker, Esq. Christopher J. DeLise, Esq.
Kirkpatrick & Lockhart LLP Kirkpatrick & Lockhart LLP
201 South Biscayne Boulevard 201 South Biscayne Boulevard
Suite 2000 Suite 2000
Miami, FL 33131 Miami, FL 33131
Telephone: (305) 539-3300 Telephone: (305) 539-3300
Telecopier: (305) 358-7095 Telecopier: (305) 358-7095
Approximate date of commencement of proposed sale of the securities to the public: AS SOON AS PRACTICABLE
AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis
pursuant to Rule 415 under the Securities Act of 1933, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the
Securities Act of 1933, 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 of 1933,
check the following box and list the Securities Act registration statement number of the earlier of the effective
registration statement for the offering. [_]
If this is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act of 1933, 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 under the Securities Act of 1933,
check the following box. [_]
CALCULATION OF REGISTRATION FEE
_______________________________________________________________________________________________________________________
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF OFFERING PRICE PER SHARE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED AMOUNT TO BE REGISTERED (1) PRICE (1) REGISTRATION FEE
_______________________________________________________________________________________________________________________
Common Stock, par value 272,193,282 shares (2) $0.0035 $952,676 $120.75
$0.005 per share
_______________________________________________________________________________________________________________________
TOTAL 272,193,282 Shares (2) $0.0035 $952,676 $120.75
_______________________________________________________________________________________________________________________
(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(c) under the
Securities Act of 1933, as amended. For the purposes of this table, we have used the last trade price on
September 30, 2004.
(2) Of these shares, 25,000,000 are being registered under the Standby Equity Distribution Agreement, 200,000,000
are being registered under the Convertible Debenture, 27,941,176 are being registered under the Compensation
Debenture, and 17,781,518 are being registered for other selling shareholders.
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 this
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 October 13, 2004
PROSPECTUS
IBX GROUP, INC.
272,193,282 SHARES OF COMMON STOCK
This prospectus relates to the sale of up to 272,193,282 shares of
common stock of IBX Group, Inc. by certain persons who are, or will become,
stockholders of IBX. The selling stockholders consist of:
o Cornell Capital Partners, L.P. which intends to sell up to an aggregate
amount of 252,941,176 shares of common stock, which includes 25,000,000
shares of IBX common stock pursuant to a Standby Equity Standby Equity
Distribution Agreement, 200,000,000 shares of common stock underlying a
Secured Convertible Debenture, and 27,941,176 shares of common stock
underlying a Compensation Debenture issued as a one-time commitment fee
pursuant to the Standby Equity Distribution Agreement.
o Newbridge Securities Corporation, an unaffiliated registered
broker-dealer retained by IBX in connection with the Standby Equity
Distribution Agreement, which intends to sell 1,470,588 shares of
common stock issued as a placement agent fee.
o Other selling shareholders, which in the aggregate intend to sell
17,781,518 shares of our common stock that were previously issued.
Please refer to "Selling Stockholders" beginning on page 15 of this
prospectus.
IBX is not selling any shares of common stock in this offering and
therefore will not receive any proceeds from this offering. IBX will, however,
receive proceeds from the sale of common stock under the Standby Equity
Distribution Agreement. All costs associated with this registration will be
borne by IBX.
The shares of common stock are being offered for sale by the selling
stockholders at prices established on the Over-the-Counter Bulletin Board during
the term of this offering. These prices will fluctuate based on the demand for
the shares of our common stock. On September 30, 2004, the last trade price of
our common stock was $0.0035 per share.
Cornell Capital Partners is an "underwriter" within the meaning of the
Securities Act of 1933, as amended, in connection with the sale of common stock
under the Standby Equity Distribution Agreement. Pursuant to the Standby Equity
Distribution Agreement, Cornell Capital Partners will pay IBX 98% of the lowest
volume weighted average price of the common stock during the five consecutive
trading-day period immediately following the notice date. The 2% discount on the
purchase of the common stock to be received by Cornell Capital Partners and the
$190,000 one-time commitment fee are underwriting discounts. In addition,
Cornell Capital Partners is entitled to retain 5% of the proceeds raised by IBX
under the Standby Equity Distribution Agreement. IBX has agreed to pay Cornell
Capital Partners a one-time commitment fee in the form of a $190,000
Compensation Debenture that is convertible into shares of our common stock at a
price per share equal to 100% of the lowest volume weighted average price of
IBX's common stock, as quoted by Bloomberg, LP, for the three days immediately
preceding the conversion date. Based on a recent stock price of $0.0035 per
share, the Compensation Debenture would be convertible into 27,941,176 shares of
IBX common stock.
IBX engaged Newbridge Securities Corporation, an unaffiliated
registered broker-deal, to advise IBX in connection with the Standby Equity
Distribution Agreement. Newbridge Securities Corporation was paid a one-time fee
of $10,000 by the issuance of 1,470,588 shares of IBX's common stock.
IBX's common stock is deemed to be "penny stock" as that term is
defined in Rule 3a51-1 promulgated under the Securities Exchange Act of 1934, as
amended. Broker-dealers dealing in penny stocks are required to provide
potential investors with a document disclosing the risks of penny stocks.
Broker-dealers are required to determine whether an investment in a penny stock
is suitable investment for a prospective investor.
IBX's common stock is dually quoted on the Over-the-Counter Bulletin
Board and Pink Sheets under the symbol "IBXG.OB."
THESE SECURITIES ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK.
PLEASE REFER TO "RISK FACTORS" BEGINNING ON PAGE 6 OF THIS PROSPECTUS.
ii
With the exception of Cornell Capital Partners, which is an
"underwriter" within the meaning of the Securities Act of 1933, as amended, no
other underwriter or person has been engaged to facilitate the sale of shares of
common stock in this offering. This offering will terminate 24 months after the
accompanying registration statement is declared effective by the Securities and
Exchange Commission. None of the proceeds from the sale of stock by the selling
stockholders will be placed in escrow, trust or any similar account.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATORS HAVE 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 October __, 2004.
iii
TABLE OF CONTENTS
Page
----
PROSPECTUS SUMMARY.............................................................1
THE OFFERING...................................................................3
SUMMARY CONSOLIDATED FINANCIAL INFORMATION.....................................4
RISK FACTORS...................................................................6
FORWARD-LOOKING STATEMENTS....................................................14
SELLING STOCKHOLDERS..........................................................15
USE OF PROCEEDS...............................................................18
DILUTION......................................................................19
STANDBY EQUITY DISTRIBUTION AGREEMENT.........................................20
PLAN OF DISTRIBUTION..........................................................22
MANAGEMENT'S DISCUSSION AND ANALYSIS..........................................24
DESCRIPTION OF BUSINESS.......................................................32
MANAGEMENT....................................................................39
FISCAL YEAR-END OPTIONS/SAR VALUES............................................41
DESCRIPTION OF PROPERTY.......................................................43
LEGAL PROCEEDINGS.............................................................44
PRINCIPAL STOCKHOLDERS........................................................45
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................46
MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER STOCKHOLDER MATTERS....................................................48
DESCRIPTION OF SECURITIES.....................................................53
EXPERTS.......................................................................58
LEGAL MATTERS.................................................................58
HOW TO GET MORE INFORMATION...................................................58
FINANCIAL STATEMENTS.........................................................F-i
PART II ....................................................................II-2
EXHIBITS
PROSPECTUS SUMMARY
OUR BUSINESS
IBX develops and deploys innovative, cost-effective methods for
integrating financial, administrative and information services for the
healthcare industry. During the past two years, we expanded our capabilities.
Our business initially focused on healthcare transaction services, primarily
assisting providers with billing and collection of receivables. We have since
added regulatory compliance, transcription services, staffing and technology
solutions. We have also devoted resources towards developing various strategic
partnerships and opportunities to better address the needs of the healthcare
marketplace. These investments in our product development and infrastructure
resulted in considerable expenditures and we are now starting to recognize new
revenue from these initiatives.
IBX consists of five operating divisions:
o IBX TECHNOLOGIES, which seeks to enable healthcare organizations to
maximize collection of their accounts receivables;
o FLORIDA HEALTHSOURCE, a network of physical therapy and wellness
centers;
o MEDICOMPLIANT SOLUTIONS, which seeks to ensure medical practices'
compliance with today's complex legal requirements;
o IBX TRANSCRIPTION SERVICES, which offers physicians quick
turn-around and Web-accessible progress reports; and
o NURSESSTAT, which deploys leading-edge staffing administration
technology to healthcare facilities and provides cost-effective
temporary staffing solutions.
IBX also recently re-launched SportshealthNet.com and TheNetDigest.com,
interactive Web portals providing patients with comprehensive healthcare
information and advice, and increasing physician referrals.
IBX's Florida HealthSource subsidiary recently opened a
multi-disciplinary clinic in a medical center in Boca Raton, Florida. The
healthcare clinic will offer physical therapy, occupational medicine, pain
management, chiropractic care and wellness services. The new clinic is part of
IBX's strategic plan to capitalize on the emerging "wellness" trend in
healthcare by bringing together various services under one roof. Florida
HealthSource centers will also serve as showcases for IBX's menu of products and
services specially designed for the healthcare industry. For example, Florida
HealthSource provides case managers and adjusters with a state-wide referral
network of over 100 pre-approved, qualified service providers for their insured
patients. This allows the payer to control costs by sending the patients to
providers with negotiated fees.
OUR HISTORY
IBX was organized under the laws of the State of Florida on July 28,
1997 as VidKid Distribution, Inc., a wholly-owned subsidiary of
emailthatpays.com, Inc., for the purpose of owning, distributing and producing
children's intellectual properties. In February of 2001, IBX was spun-off from
its parent company. On September 25, 2001, VidKid acquired all of the
outstanding capital stock of Primed Technologies, Inc., a Florida corporation,
in a stock-for-stock exchange. Primed was organized under the laws of the State
of Florida on February 4, 1999 as a limited liability company and converted into
a corporation on January 1, 2000. Primed's shareholders, Evan Brovenick and
David Blechman, received 11,550,000 shares or approximately 81% of the
outstanding common stock of VidKid on a fully-diluted basis pursuant to this
exchange. At that time, VidKid's name was changed to "IBX Group, Inc." On
January 4, 2002, our stock started trading on the Over-the-Counter Bulletin
Board under the symbol "IBXG."
IBX cannot predict the actual number of shares of common stock that
will be issued pursuant to the Standby Equity Distribution Agreement, in part,
because the purchase price of the shares will fluctuate based on prevailing
market conditions and IBX has not determined the total amount of advances it
intends to draw. Nonetheless, IBX can estimate the number of shares of its
common stock that will be issued using certain assumptions. Assuming IBX issued
the number of shares of common stock being registered in the accompanying
registration statement to be available under the Standby Equity Distribution
1
Agreement, at a recent price of $0.0035 per share, IBX would issue 25,000,000
shares of common stock to Cornell Capital Partners to receive maximum gross
proceeds of $85,750. These shares would represent approximately 9.7% of IBX's
outstanding common stock upon issuance. We are registering 25,000,000 shares of
common stock to be resold by Cornell Capital Partners pursuant to the Standby
Equity Distribution Agreement, and an additional 27,941,176 shares of common
stock as a one-time placement fee pursuant to the Standby Equity Distribution
Agreement, which will also be resold by Cornell Capital Partners.
IBX cannot predict the actual number of shares of common stock that
will be issued pursuant to the Standby Equity Distribution Agreement, in part,
because the purchase price of the shares will fluctuate based on prevailing
market conditions and IBX has not determined the total amount of advances it
intends to draw. It may be necessary for IBX's shareholders to approve an
increase in IBX's authorized common stock for IBX to register additional shares
of common stock in order to have sufficient authorized shares available to draw
down the full amount under the Standby Equity Distribution Agreement and make
acquisitions using IBX common stock.
The sale of shares pursuant to the Standby Equity Distribution
Agreement will have a dilutive impact on IBX stockholders. At a recent stock
price of $0.0035 per share, IBX would have to issue 4,373,177,843 shares of
common stock to draw down the entire $15,000,000 available under the Standby
Equity Distribution Agreement. IBX is only registering 25,000,000 shares of its
common stock under the Standby Equity Distribution Agreement in the accompanying
registration statement, which at a recent stock price of $0.0035 per share, IBX
would be able to receive maximum gross of $85,750 proceeds under the Standby
Equity Distribution Agreement. Upon issuance, these shares would represent
approximately 9.7% of IBX then issued and outstanding common stock as of
September 30, 2004.
The significant downward pressure on IBX's stock price caused by the
sale of a significant number of shares under the Standby Equity Distribution
Agreement could cause IBX's stock price to decline, thus allowing short sellers
of IBX stock an opportunity to take advantage of any decrease in the value of
IBX stock. The presence of short sellers in IBX's common stock may further
depress the price of IBX's common stock.
IBX is registering 272,193,282 shares of common stock in this offering.
These shares represent approximately 54% of IBX's authorized capital stock and
would upon issuance represent approximately 60% of the then issued and
outstanding common stock and IBX anticipates all such shares will be sold in
this offering. If all or a significant block of these shares are held by one or
more shareholders working together, then such shareholder or shareholders would
have enough shares to exert significant influence on IBX in an election of
directors.
ABOUT US
IBX's principal place of business is located at 350 Jim Moran
Boulevard, Deerfield Beach, Florida 33442. IBX's telephone number is (954)
312-1660.
2
THE OFFERING
This offering relates to the sale of common stock by certain persons
who are, or will become, IBX stockholders. The selling stockholders consist of:
o Cornell Capital Partners, which intends to sell up to an aggregate
amount of 252,941,176 shares of common stock, which, based on a recent
stock price of $0.0035 per share, includes 25,000,000 shares pursuant
to the Standby Equity Distribution Agreement, 200,000,000 shares
underlying a Secured Convertible Debenture, and 27,941,176 shares
underlying the Compensation Debenture, in the principal amount of
$190,000, issued as a one-time commitment fee pursuant to the Standby
Equity Distribution Agreement.
o Newbridge Securities Corporation, an unaffiliated broker-dealer
retained by IBX in connection with the Standby Equity Distribution
Agreement, which intends to sell up to 1,470,588 shares of IBX common
stock issued as a placement agent fee.
o Other selling shareholders, which in the aggregate intend to sell
17,781,518 shares of IBX common stock that were previously issued.
Pursuant to the Standby Equity Distribution Agreement, IBX may, at its
discretion, periodically issue and sell to Cornell Capital Partners shares of
its common stock for a total purchase price of $15,000,000. Cornell Capital
Partners will purchase the shares of common stock for 98% of the lowest volume
weighted average price of IBX common stock during the five trading days
immediately following notice of IBX's intent to make a draw down under the
Standby Equity Distribution Agreement. In addition, Cornell Capital Partners is
entitled to retain 5% of the proceeds raised by IBX under the Standby Equity
Distribution Agreement. Cornell Capital Partners intends to sell any shares
purchased under the Standby Equity Distribution Agreement at the then-prevailing
market price.
Based on IBX's recent stock price of $0.0035 per-share, IBX would have
to issue to Cornell Capital Partners 4,373,177,843 shares of its common stock in
order to draw down the entire $15,000,000 available to IBX under the Standby
Equity Distribution Agreement. As of September 30, 2004, IBX had 231,654,515
shares of common stock issued and outstanding.
COMMON STOCK OFFERED 272,193,282 shares by selling
stockholders
OFFERING PRICE Market price
COMMON STOCK OUTSTANDING BEFORE 231,654,515 shares
THE OFFERING (as of September 30, 2004)
USE OF PROCEEDS IBX will not receive any proceeds from
the shares offered by the selling
stockholders. Any proceeds IBX receives
from the sale of common stock under the
Standby Equity Distribution Agreement
will be used for general corporate and
working capital purposes and
acquisitions. See "Use of Proceeds."
RISK FACTORS The securities offered hereby involve a
high degree of risk and immediate
substantial dilution. See "Risk Factors"
and "Dilution."
OVER-THE-COUNTER BULLETIN BOARD SYMBOL "IBXG"
3
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The following is a summary of IBX's financial statements, which are
included elsewhere in this prospectus. You should read the following data
together with the "Management's Discussion and Analysis of Financial Condition
and Results of Operations" section of this prospectus as well as with IBX's
financial statements and the notes thereto.
STATEMENT OF OPERATIONS DATA
FOR THE QUARTER FOR THE QUARTER FOR THE YEAR FOR THE YEAR
ENDED 6/30/04 ENDED 6/30/03 ENDED 12/31/03 ENDED 12/31/02
(UNAUDITED) (UNAUDITED) (AUDITED) (AUDITED)
----------- ----------- --------- ---------
Total Revenues: ......................... 78,372 979,672 $ 3,327,852 $ 3,220,104
Operating Expenses:
Salaries and payroll taxes ............ 411,799 576,783 2,301,790 1,300,563
Depreciation and amortization ......... 33,775 43,774 172,374 115,826
Consulting fees ....................... 73,909 -- 1,022,268 --
Professional fees ..................... 96,752 46,479 274,185 191,106
Rent .................................. 80,439 81,141 446,829 230,275
Other selling, general and
administrative ........................ 923,225 503,465 1,696,843 1,077,836
Loss from impairment of intangible
assets ................................ -- -- 592,604 --
Total Operating Expenses ................ 1,619,899 1,251,642 6,506,893 2,915,606
Income (loss) from Operations ........... (1,541,527) (271,970) (3,179,041) 304,498
Other Income (Expenses):
Settlement expense .................... -- -- (64,770) --
Gain on forgiveness of debt ........... -- -- -- 289,662
Interest Expense ...................... (181,657) (27,137) (354,752) (430,867)
Total Other Income (Expenses) ........... (181,657) (27,137) (419,522) (141,205)
Net (Income) Loss ....................... (1,723,184) (299,107) (3,598,563) 163,293
Net Income (Loss) Per Common Share -
Basic ................................... (0.02) (0.00) (0.06) 0.00
Net Income (Loss) Per Common Share -
Diluted ................................. (0.02) (0.00) (0.06) 0.00
Weighted Common Shares Outstanding -
Basic ................................... 105,698,209 46,646,743 60,604,049 37,003,110
Weighted Common Shares Outstanding -
Diluted ................................. 105,698,209 46,646,743 60,604,049 55,176,341
4
BALANCE SHEET DATA
FOR THE YEAR FOR THE YEAR
JUNE 30, 2004 JUNE 30, 2003 ENDED 12/31/03 ENDED 12/31/02
(UNAUDITED) (UNAUDITED) (AUDITED) (AUDITED)
----------- ----------- --------- ---------
Current Assets:
Cash ................................ 9,823 54,669 22,133 23,304
Restricted Cash ..................... 450,535 -- 438,091 --
Accounts receivable, net ............ 143,165 649,782 541,692 144,854
Due from related parties ............ -- -- 94,382 --
Other current assets ................ 60,561 27,011 88,637 20,955
-------------------------------------- ---------- ---------- ---------- ----------
Total Current Assets .................. 664,084 731,462 1,184,935 189,113
Property and Equipment, net ........... 238,179 357,815 291,117 285,198
Other Assets .......................... 341,459 616,976 28,136 98,807
Total Assets .......................... 1,243,722 1,706,253 1,504,188 573,118
Current Liabilities:
Note payable, current maturities .... 784,622 413,678 544,771 516,421
Checks outstanding in excess of
Balance ............................. 260,172 6,468 42,324 25,064
Accounts payable .................... 853,095 666,412 446,332 475,393
Accrued expenses .................... 265,849 121,939 480,957 102,535
Payroll taxes payable ............... 1,880,993 1,183,054 1,538,609 978,352
Customer deposits ................... -- -- -- 185,925
Deferred revenue .................... -- 33,301 14,467 187,500
Due to related party ................ 120,878 -- 18,436 454
-------------------------------------- ---------- ---------- ---------- ----------
Total Current Liabilities ............. 4,165,609 2,424,852 3,085,896 2,471,644
Long-term debt, less current portion .. 506,750 -- -- 132,293
Total Liabilities ..................... 4,672,359 2,424,852 3,085,896 2,603,937
Stockholders' Deficit:
Preferred stock ..................... -- -- -- --
Class A Non-voting convertible
preferred stock ..................... 165 400 285 40,000
Series B convertible preferred
stock ............................... 44 -- -- --
Common stock ........................ 602,190 255,086 453,650 203,760
Common stock issuable ............... 1,910 15,000 10 3,000
Additional paid-in capital .......... 6,811,779 2,242,319 4,542,706 669,442
Accumulated deficit ................. (9,869,011) (3,080,101) (6,413,941) (2,815,378)
Less: Stock subscriptions
receivable .......................... (90,000) (67,070) (90,000) (20,070)
Less: Deferred compensation and
consulting .......................... (885,714) (84,233) (74,481) (111,573)
Total Stockholders' Deficit ........... (3,428,637) (718,599) (1,581,708) (2,030,819)
Total Liabilities and Stockholders'
Deficit: .............................. 1,243,722 1,706,253 1,504,188 573,118
5
RISK FACTORS
IBX's business involves a high degree of risk. You should carefully
consider the following risk factors and the other information in this
prospectus, including IBX's financial statements and the related notes. If any
of the following risks actually occurs, IBX's business, operating results,
prospects or financial condition could be seriously harmed.
IBX IS SUBJECT TO VARIOUS RISKS THAT MAY MATERIALLY HARM ITS BUSINESS,
FINANCIAL CONDITION, AND RESULTS OF OPERATIONS. YOU SHOULD CAREFULLY CONSIDER
THE RISKS AND UNCERTAINTIES OR DESCRIBED BELOW AND THE OTHER INFORMATION IN THIS
PROSPECTUS BEFORE DECIDING TO PURCHASE IBX'S COMMON STOCK. IF ANY OF THESE RISKS
OR UNCERTAINTIES ACTUALLY OCCURS, IBX'S BUSINESS, FINANCIAL CONDITION, AND/OR
OPERATING RESULTS COULD BE MATERIALLY HARMED. IN THAT CASE, THE TRADING PRICE OF
IBX'S COMMON STOCK COULD DECLINE AND YOU COULD LOSE ALL OR PART OF YOUR
INVESTMENT.
RISKS RELATED TO OUR BUSINESS
IBX LOST MONEY FOR THE YEAR ENDED DECEMBER 31, 2003 AND LOSSES MAY CONTINUE IN
THE FUTURE
For the six months ended June 30, 2004 and 2003, we incurred a net loss
of $3,455,070 and $264,723, respectively. For the year ended December 31, 2003,
we incurred a net loss of $3,598,563. For the year ended December 31, 2002, we
generated net income of $163,293. We anticipate that we will in all likelihood
have to rely on external financing for all of our capital requirements. Future
losses are likely to continue unless we successfully implement our business
plan. Our ability to continue as a going concern will be dependent upon our
ability to draw down on the Standby Equity Distribution Agreement which we have
entered into with Cornell Capital Partners. If we incur any problems in drawing
down or the Standby Equity Distribution Agreement, we may experience significant
liquidity and cash flow problems. If we are not successful in reaching and
maintaining profitable operations, we may not be able to attract sufficient
capital to continue our operations. Our inability to obtain adequate financing
will result in the need to curtail business operations and will likely result in
a lower stock price.
WE HAVE BEEN SUBJECT TO A GOING CONCERN OPINION FROM OUR INDEPENDENT AUDITORS
Our independent auditors have added an explanatory paragraph to their
audit opinion issued in connection with the financial statements for the year
ended December 31, 2003 relative to our ability to continue as a going concern.
Our ability to obtain additional funding will determine our ability to continue
as a going concern. Accordingly, there is substantial doubt about our ability to
continue as a going concern. Our financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
THERE IS SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN DUE
TO INSUFFICIENT REVENUES TO COVER OUR OPERATING COSTS, WHICH MEANS THAT WE MAY
NOT BE ABLE TO CONTINUE OPERATIONS UNLESS WE OBTAIN ADDITIONAL FUNDING
There is substantial doubt about our ability to continue as a going
concern due to our Company's losses from operations and the fact that our
current liabilities exceed current assets. We anticipate that we will incur net
losses for the immediate future. We expect our operating expenses to increase
significantly, and, as a result, we will need to generate monthly revenue if we
are to continue as a going concern. To the extent that we do not generate
revenue at anticipated rates, that we do not obtain additional funding, stock
increases in our operating expenses precede or are not subsequently followed by
commensurate increases in revenue, or that we are unable to adjust operating
expense levels accordingly, we may not have the ability to continue on as a
going concern. Our financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
WE MAY NOT BE ABLE TO ACCESS SUFFICIENT FUNDS WHEN NEEDED UNDER THE STANDBY
EQUITY DISTRIBUTION AGREEMENT AND THE PRICE OF OUR COMMON STOCK WILL AFFECT OUR
ABILITY TO DRAW DOWN ON THE STANDBY EQUITY DISTRIBUTION AGREEMENT
Currently, we are dependent upon external financing to fund our
operations. Our financing needs are expected to be provided, in large part, by
the Standby Equity Distribution Agreement. The amount of each advance under the
Standby Equity Distribution Agreement is subject to a maximum amount equal to
$600,000. Because of this maximum advance restriction, we may not be able to
access sufficient funds when needed. If the market price of our shares of common
stock declines, we would be required to issue more shares of common stock in
order to draw down the same dollar amount of an advance than if our stock price
was higher. Our Articles of Incorporation currently authorize IBX to issue
6
500,000,000 shares. In the event that it becomes necessary for us to increase
our authorized common stock, and we do not obtain shareholder approval to amend
our Articles of Incorporation and increase our authorized common stock, we will
obtain lower net proceeds under the Standby Equity Distribution if the price of
our common stock declines.
In addition, we are not registering enough shares to draw down the
entire $15,000,000 available to us under the Standby Equity Distribution
Agreement. Specifically, there is an inverse relationship between the price of
our common stock and the number of shares of common stock which will be issued
under the Standby Equity Distribution Agreement. Based on our recent stock price
of $0.0035, we would have to issue to Cornell Capital Partners 4,373,177,843
shares of our common stock in order to draw down the entire $15,000,000
available to us under the Standby Equity Distribution Agreement. We are
registering 25,000,000 shares of our common stock under the Standby Equity
Distribution Agreement (plus, based on a recent stock price of $0.0035 per
share, an additional 27,941,176 shares being registered under the Compensation
Debenture in the principal amount of $190,000 which is a one-time commitment fee
pursuant to the Standby Equity Distribution Agreement, plus an additional
200,000,000 shares underlying the Secured Convertible Debenture) in the
accompanying registration statement. Based on our recent stock price of $0.0035
and the fact that we are registering 25,000,000 shares of our common stock under
the Standby Equity Distribution Agreement in the accompanying registration
statement, we could only draw down a maximum gross amount of $85,750 under the
Standby Equity Distribution Agreement after paying the one-time commitment fee
of $190,000 in the form of a Compensation Debenture to Cornell Capital Partners.
Our Articles of Incorporation currently authorize IBX to issue 500,000,000
shares and, as of September 30, 2004, we had 231,654,515 shares of common stock
issued and outstanding. In the event we desire to draw down any available
amounts remaining under the Standby Equity Distribution Agreement after we have
issued the 25,000,000 shares being registered under the Standby Equity
Distribution Agreement in the accompanying registration statement, we will have
to file a new registration statement to cover such additional shares that we
would issue for additional draw downs on the Standby Equity Distribution
Agreement. Unless we obtain profitable operations, it is unlikely that we will
be able to secure additional financing from external sources other than our
Standby Equity Distribution Agreement. Therefore, if we are unable to draw down
on our Standby Equity Distribution Agreement, we may be forced to curtail or
cease our business operations.
In addition, pursuant to the terms of Standby Equity Distribution
Agreement, Cornell Capital Partners may not own more than 9.9% of our
outstanding shares of common stock. In the event Cornell Capital Partners is
unable to sell the shares of our common stock that are issued after we receive
an advance in order to keep them below 9.9% beneficial ownership, we might not
be able to draw down additional funds when needed under the Standby Equity
Distribution Agreement. Therefore, if we are unable to draw down on our Standby
Equity Distribution Agreement, we may be forced to curtail or cease our business
operations.
WE HAVE NEGATIVE WORKING CAPITAL
We had negative working capital of $1,900,961 at December 31, 2003 and
$3,501,525 at June 30, 2004, and continue to need cash for operations. Further,
due to the changes in the physical therapy and rehabilitation business, our
receivables and the collection cycle have greatly increased thus negatively
impacting our cash flow and causing IBX trouble in meeting some of our current
obligations. We have relied on significant external financing to fund our
operations. As of June 30, 2004, we had $9,823 of cash on hand and $450,535 of
restricted cash, total current assets were $664,084, and our total current
liabilities were $4,165,609. We will need to raise additional capital to fund
our anticipated operating expenses and future expansion. Among other things,
external financing may be required to cover our operating costs. Unless we
obtain profitable operations, it is unlikely that we will be able to secure
additional financing from external sources. If we are unable to secure
additional financing or we cannot draw down on the Standby Equity Distribution
Agreement, we believe that we have sufficient funds to continue operations for
approximately one month. We estimate that we will require $1,470,588 to fund our
anticipated operating expenses for the next 12 months. The sale of our common
stock to raise capital may cause dilution to our existing shareholders. Our
inability to obtain adequate financing will result in the need to curtail
business operations. Any of these events would be materially harmful to our
business and may result in a lower stock price. Our inability to obtain adequate
financing will result in the need to curtail business operations and you could
lose your entire investment. Our financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
WE NEED ADDITIONAL CAPITAL TO BE SUCCESSFUL, WHICH WILL POTENTIALLY DILUTE THE
VALUE OF OUR SHAREHOLDERS' SHARES
We need substantial capital to execute our business plan. To finance
our operations to date, we have relied on private offerings, exercises of
warrants, and loans. As of September 30, 2004, we have issued an aggregate of
7
231,654,515 shares of common stock to finance our operations. We will issue up
to an additional 35,000,000 shares if all of the outstanding preferred stock and
debentures are converted and all warrants exercised. The terms on which we
obtain additional financing, including the exercise of outstanding warrants, may
dilute the existing shareholders' investment, or otherwise adversely affect
their position. It is also possible that we will be unable to obtain the
additional funding we need as and when we need it. If we are unable to obtain
additional funding as and when needed, we could be forced to curtail or cease
our operations.
OUR ASSETS ARE SUBJECT TO A LIEN, AND IF JUDGMENTS ARE ENTERED AND ENFORCED, IT
MAY SHUT DOWN OUR OPERATIONS
We have granted a lien on all of our assets in connection with a
financing transaction. We are current in the repayment obligation and as of
September 30, 2004 owed this creditor approximately $56,000. Unless we are
successful in repaying this obligation, our business may be shut down if this
creditor is able to collect on its judgment.
ALL OF OUR ASSETS ARE SECURING OUR OBLIGATIONS TO CORNELL CAPITAL PARTNER
Pursuant to the terms contained in that certain Security Agreement
dated August 18, 2004, by and between IBX Group and Cornell Capital Partners,
all of our obligations under the Securities Purchase Agreement, the Secured
Convertible Debenture, the Compensation Debenture, the Investor Registration
Rights Agreement, and the Irrevocable Transfer Agent Instructions are secured by
all of our assets as of such date or thereafter acquired by us. Accordingly, if
we are unable to satisfy any of our obligations under the foregoing agreements,
our assets may be foreclosed upon and our business may be shut down.
THERE ARE MANY COMPETITORS IN OUR MARKETS AND WE MAY NOT BE ABLE TO COMPETE
EFFECTIVELY AGAINST THEM
There are many companies that compete with us in both transaction
management and physical therapy and rehabilitation businesses. Many of these
companies compete with us for hospitals and medical practices, which are our
primary customers. We expect competition to continue to increase as there are no
substantial barriers to entry in our market. Increased competition could result
in reductions in the fees we receive for our services, lower margins or loss of
clients. Any of these occurrences could materially and adversely affect our
business, financial condition, and/or results of operations. Competition is also
likely to increase significantly, not only as new entities enter the market, but
also as current competitors expand their services.
Our ability to compete depends on a number of factors, many of which
are outside of our control. These factors include ease of use, timing, and
market acceptance of new and enhanced services, and level of sales and marketing
efforts. Many of our existing competitors, as well as a number of potential new
competitors, have longer operating histories, greater name recognition, existing
relationships with pharmaceutical and other healthcare companies, and
significantly greater financial, technical and marketing resources than we do.
This may allow them to devote greater resources than we can to the development
and promotion of their services. These competitors may also engage in more
extensive development efforts, undertake more far-reaching marketing campaigns
and adopt more aggressive pricing policies. Our competitors may develop services
that are equal or superior to those we provide or that achieve greater market
acceptance and brand recognition than we achieve. We may not be able to compete
successfully or competitive pressures may have a material adverse effect on our
business, results of operations and/or financial condition, which could force us
to curtain or cease our business operations.
OUR BUSINESS HAS BEEN CONCENTRATED WITH A FEW CUSTOMERS AND SUPPLIERS
As of June 30, 2004, our three largest customers accounted for
approximately 57% of revenues and 66% of accounts receivable. Consequently, our
success is materially dependent on our relationship with these customers and
their continued viability.
OUR SUCCESS IS BASED ON INCREASING DEMAND FOR OUR PRODUCTS AND SERVICES
We depend on the continued demand for outsourcing of health information
technology services, on the growing use of the Internet for healthcare commerce
and communication, and on favorable general economic conditions. We cannot
assure you that our business strategy will be successful or that we will
successfully address these risks or difficulties. If we should fail to
adequately address any of these risks or difficulties, we could be forced to
curtail or cease our business operations.
8
THE SUCCESS OF OUR NEW PHYSICAL THERAPY AND REHABILITATION CENTERS IS HIGHLY
DEPENDENT ON REIMBURSEMENT FROM THIRD-PARTY PAYORS
Substantially all of our revenues are derived from private and
governmental third-party payors such as Medicare, Medicaid, commercial insurers,
managed care plans, workers' compensation payors and other private pay revenue
sources. There are increasing pressures from many payors to control healthcare
costs and to reduce or limit increases in reimbursement rates for medical
services. There can be no assurances that payments from government or private
payors will remain at levels comparable to present levels. In attempts to limit
federal spending, there have been, and we expect that there will continue to be,
a number of proposals to limit Medicare reimbursement for various services. We
cannot now predict whether any of these pending proposals will be adopted or
what effect the adoption of such proposals would have on our business.
OUR NEW PHYSICAL THERAPY/REHABILITATION BUSINESS IS SUBJECT TO EXTENSIVE FEDERAL
AND STATE REGULATION THAT CAN AFFECT OUR OPERATIONS
Our business is subject to extensive federal and state regulation with
respect to financial relationships among healthcare providers, physician
self-referral arrangements, and other fraud and abuse issues. Penalties for
violation of federal and state laws and regulations include exclusion from
participation in the Medicare and Medicaid programs, asset forfeiture, civil
penalties and criminal penalties, any of which could force us to curtain or
cease our business operations. The Office of Inspector General of the Department
of Health and Human Services ("DHHS"), the Department of Justice, and other
federal agencies interpret healthcare fraud and abuse provisions liberally and
enforce them aggressively.
WE NEED TO ENSURE THAT OUR CUSTOMER DATA THAT IS TRANSMITTED ONLINE IS SECURE
A significant part of our business involves transmitting patient and
other healthcare-related data online. We are required to comply with federal and
state regulations relating to this data. If a compromise of security were to
occur, it could have a material adverse effect on our reputation, business,
prospects, financial condition and/or results of operations. We may be required
to expend significant capital and other resources to protect against such
security breaches or to alleviate problems caused by such breaches. To the
extent that our activities involve the storage and transmission of proprietary
information, security breaches could damage our reputation and expose us to a
risk of loss or litigation and possible liability. There can be no assurance
that our security measures will prevent security breaches or that failure to
prevent such security breaches will not have a material adverse effect on our
business, prospects, financial condition and results of operations, which could
force us to curtail or cease our business operations.
WE RELY ON OUR SENIOR MANAGEMENT AND WILL BE HARMED IF ANY OR ALL OF THEM LEAVE
Our success is dependent on the efforts, experience and relationships
of Evan R. Brovenick, Alvin Brovenick, and other essential staff. If any of
these individuals become unable to continue in their role, our business or
prospects could be adversely affected. Although we have entered into employment
agreements with each of our executive officers, we cannot assure you that such
individuals will continue in their present capacity for any particular period of
time.
FLUCTUATIONS IN OUR OPERATING RESULTS MAY ADVERSELY AFFECT OUR STOCK PRICE AND
PURCHASERS OF OUR SHARES OF COMMON STOCK MAY LOSE ALL OR A PORTION OF THEIR
INVESTMENT
Historically, there has been volatility in the market price for our
common stock. Our quarterly operating results, the number of shareholders
desiring to sell their share, changes in general conditions in the economy, the
financial markets or the healthcare industry, or other developments affecting us
or our competitors, could cause the market price of our common stock to
fluctuate substantially. We expect to experience significant fluctuations in our
future quarterly operating results due to a variety of factors. Factors that may
adversely affect our quarterly operating results include:
o the announcement or introduction of new products by us and our
competitors;
o our ability to retain existing clients and attract new clients at a
steady rate, and maintain client satisfaction;
o the amount and timing of operating costs and capital expenditures
relating to expansion of our business and operations;
o government regulation; and
9
o general economic conditions and economic conditions specific to the
healthcare industry.
As a result of these factors, in one or more future quarters, our
operating results may fall below the expectations of securities analysts and
investors. In this event, the market price of our common stock would likely be
materially adversely affected. If the selling shareholders all elect to sell
their shares of our common stock at the same time, the market price of our
shares may decrease. It is possible that the selling shareholders will offer all
of the shares for sale. Further, because it is possible that a significant
number of shares could be sold at the same time, the sales, or the possibility
thereof, may have a depressive effect on the market price of our common stock.
OUR COMMON STOCK MAY BE AFFECTED BY LIMITED TRADING VOLUME AND MAY FLUCTUATE
SIGNIFICANTLY
Our common stock is currently traded on the Over-the-Counter Bulletin
Board. Prior to this offering, there has been a limited public market for our
common stock and there can be no assurance that an active trading market for our
common stock will develop. This could adversely affect our shareholders' ability
to sell our common stock in short time periods, or possibly at all. Our common
stock is thinly traded compared to larger, more widely known companies in our
industry. Thinly traded common stock can be more volatile than common stock
traded in an active public market. The average daily trading volume of our
common stock from approximately June 30, 2004 through September 30, 2004 was
1,970,241 shares. The high and low trading price of our common stock for the
last 52 weeks has been $0.17 and $0.0031, respectively. Our common stock has
experienced, and is likely to experience in the future, significant price and
volume fluctuations, which could adversely affect the market price of our common
stock without regard to our operating performance. In addition, we believe that
factors such as quarterly fluctuations in our financial results and changes in
the overall economy or the condition of the financial markets, could cause the
price of our common stock to fluctuate substantially.
OUR COMMON STOCK IS DEEMED TO BE "PENNY STOCK," WHICH MAY MAKE IT MORE DIFFICULT
FOR INVESTORS TO SELL THEIR SHARES DUE TO SUITABILITY REQUIREMENTS
Our common stock is deemed to be "penny stock" as that term is defined
in Rule 3a51-1 promulgated under the Securities Exchange Act of 1934, as
amended. Penny stocks are stock:
o with a price of less than $5.00 per share;
o that are not traded on a "recognized" national exchange;
o whose prices are not quoted on the NASDAQ automated quotation system
(NASDAQ-listed stock must still have a price of not less than $5.00
per share); or
o stock in issuers with net tangible assets less than $2,000,000 (if
the issuer has been in continuous operation for at least three
years) or $5,000,000 (if in continuous operation for less than three
years), or with average revenues of less than $6,000,000 for the
last three years.
Broker-dealers dealing in penny stocks are required to provide
potential investors with a document disclosing the risks of penny stocks.
Moreover, broker-dealers are required to determine whether an investment in a
penny stock is a suitable investment for a prospective investor. These
requirements may reduce the potential market for our common stock by reducing
the number of potential investors. This may make it more difficult for investors
in our common stock to sell shares to third parties or to otherwise dispose of
them. This could cause our stock price to decline.
WE MAY NEED TO AMEND OUR ARTICLES OF INCORPORATION TO AUTHORIZE ADDITIONAL
COMMON STOCK IN ORDER TO DRAW DOWN THE ENTIRE $15,000,000 UNDER THE STANDBY
EQUITY DISTRIBUTION AGREEMENT
Our Articles of Incorporation currently authorize 500,000,000 shares of
common stock. We are only registering 25,000,000 shares of our common stock
under the Standby Equity Distribution Agreement in the accompanying registration
statement, which based on a recent stock price of $0.0035 per share, would
result in our being able to receive maximum gross proceeds of $85,750 under the
Standby Equity Distribution Agreement. Based on our recent stock price of
$0.0035, we would have to issue to Cornell Capital Partners 4,373,177,843 shares
of our common stock in order to draw down the entire $15,000,000 available to us
under the Standby Equity Distribution Agreement. If this becomes necessary, we
will hold a shareholders meeting to seek approval to amend our Articles of
Incorporation so as to increase our authorized shares of common stock.
10
WE MAY BE UNABLE TO MANAGE GROWTH
Successful implementation of our business strategy requires us to
manage our growth. Growth could place an increasing strain on our management and
financial resources. To manage growth effectively, we will need to:
o establish definitive business strategies, goals and objectives;
o maintain a system of management controls; and
o attract and retain qualified personnel, as well as, develop, train
and manage management-level and other employees.
If we fail to manage our growth effectively, our business, financial
condition and/or operating results could be materially harmed, and our stock
price may decline.
THE STANDBY EQUITY DISTRIBUTION AGREEMENT COULD HAVE AN ADVERSE EFFECT ON OUR
ABILITY TO MAKE ACQUISITIONS WITH OUR COMMON STOCK
We cannot predict the actual number of shares of common stock that will
be issued pursuant to the Standby Equity Distribution Agreement, in part,
because the purchase price of the shares will fluctuate based on prevailing
market conditions and we have not determined the total amount of advances we
intend to draw. In addition, we are not registering enough shares to draw down
the entire $15,000,000 available under the Standby Equity Distribution Agreement
given our recent stock price of $0.0035. At such price, we would have to issue
4,373,177,843 shares to draw down the entire $15,000,000 under the Standby
Equity Distribution Agreement. It may be necessary for us to seek approval from
our shareholders to increase our authorized common stock so as to permit us to
register additional shares of common stock in order to have sufficient
authorized shares available to make acquisitions using our common stock. As we
issue shares of common stock pursuant to the Standby Equity Distribution
Agreement, we may not have sufficient shares of our common stock available to
successfully attract and consummate future acquisitions.
SALE OF SHARES ELIGIBLE FOR FUTURE SALE COULD ADVERSELY AFFECT THE MARKET PRICE
All of the approximate 33,721,527 shares of common stock which are
currently held, directly or indirectly, by management have been issued in
reliance on private placement exemptions under the Securities Act of 1933, as
amended. Such shares will not be available for sale in the open market without
separate registration except in reliance upon Rule 144 under the Securities Act
of 1933, as amended. In general, under Rule 144 a person (or persons whose
shares are aggregated), who has beneficially owned shares acquired in a
non-public transaction, for at least one year, including persons who may be
deemed affiliates of IBX, as defined, would be entitled to sell within any
3-month period a number of shares that does not exceed the greater of 1% of the
then outstanding shares of common stock, or the average weekly reported trading
volume during the four calendar weeks preceding such sale, provided that current
public information is then available. If a substantial number of the shares
owned by these stockholders were sold under Rule 144 or a registered offering,
the market price of the common stock could be adversely affected.
11
RISKS RELATED TO THIS OFFERING
FUTURE SALES BY OUR STOCKHOLDERS MAY ADVERSELY AFFECT OUR STOCK PRICE AND OUR
ABILITY TO RAISE FUNDS IN NEW STOCK OFFERINGS
Sales of our common stock in the public market following this offering
could lower the market price of our common stock. Sales may also make it more
difficult for us to sell equity securities or equity-related securities in the
future at a time and price that our management deems acceptable or at all. Some
of our stockholders, including officers and directors, are the holders of
"restricted securities". These restricted securities may be resold in the public
market only if registered or pursuant to an exemption from registration. Some of
these shares may be resold under Rule 144. As of September 30, 2004,
approximately 77,490,832 shares of our common stock are deemed restricted.
Upon completion of this offering, and assuming all shares registered in
this offering are resold in the public market, there will be an additional
225,000,000 shares of common stock outstanding. All of these shares of common
stock may be immediately resold in the public market upon effectiveness of the
accompanying registration statement.
EXISTING SHAREHOLDERS WILL EXPERIENCE SIGNIFICANT DILUTION FROM OUR SALE OF
SHARES UNDER THE STANDBY EQUITY DISTRIBUTION AGREEMENT AND THE CONVERSION OF
CONVERTIBLE DEBENTURES
The sale of shares pursuant to the Standby Equity Distribution
Agreement will have a dilutive impact on our stockholders. At a recent stock
price of $0.0035, we would have to issue 4,373,177,843 shares of common stock to
draw down the entire $15,000,000 available to us under the Standby Equity
Distribution Agreement. We are only registering 25,000,000 shares of our common
stock under the Standby Equity Distribution Agreement in the accompanying
registration statement. These shares would represent approximately 9.7% of our
outstanding common stock upon issuance.
THE SELLING STOCKHOLDERS INTEND TO SELL THEIR SHARES OF COMMON STOCK IN THE
MARKET, WHICH SALES MAY CAUSE OUR STOCK PRICE TO DECLINE
The selling stockholders intend to sell in the public market the shares
of common stock being registered in this offering. That means that up to
272,193,282 shares of common stock, the number of shares being registered in
this offering, may be sold. Such sales may cause our stock price to decline.
CORNELL CAPITAL PARTNERS WILL PAY LESS THAN THE THEN-PREVAILING MARKET PRICE AND
WILL HAVE AN INCENTIVE TO SELL ITS SHARES
Cornell Capital Partners will purchase shares of our common stock
pursuant to the Standby Equity Distribution Agreement at a purchase price that
is less than the then-prevailing market price of our common stock. Cornell
Capital Partners will have an incentive to immediately sell any shares of IBX
common stock that it purchases pursuant to the Standby Equity Distribution
Agreement to realize a gain on the difference between the purchase price and the
then-prevailing market price of our common stock. To the extent Cornell Capital
Partners sells its common stock, our common stock price may decrease due to the
additional shares in the market. This could allow Cornell Capital Partners to
sell greater amounts of common stock, the sales of which would further depress
the stock price.
In addition, pursuant to the Standby Equity Distribution Agreement,
Cornell Capital Partners has the ability to sell shares of IBX common stock
corresponding to a particular advance notice by IBX even if such shares of
common stock have not yet been delivered to Cornell Capital Partners. Such sales
may cause our stock price to decline.
THE SALE OF MATERIAL AMOUNTS OF COMMON STOCK UNDER THE ACCOMPANYING REGISTRATION
STATEMENT COULD ENCOURAGE SHORT SALES BY THIRD PARTIES
The significant downward pressure on our stock price caused by the sale
of a significant number of shares under the Standby Equity Distribution
Agreement could cause our stock price to decline, thus allowing short sellers of
our stock an opportunity to take advantage of any decrease in the value of our
stock. The presence of short sellers in our common stock may further depress the
price of our common stock.
12
THE PRICE YOU PAY IN THIS OFFERING WILL FLUCTUATE
The price in this offering will fluctuate based on the prevailing
market price of the common stock on the Over-the-Counter Bulletin Board.
Accordingly, the price you pay in this offering may be higher or lower than the
prices paid by other people participating in this offering.
THE ISSUANCE OF SHARES OF COMMON STOCK UNDER THIS OFFERING COULD RESULT IN A
CHANGE OF CONTROL
We are registering 272,193,282 shares of common stock in this offering.
These shares represent approximately 54% of our authorized capital stock and
would upon issuance represent approximately 60% of the then issued and
outstanding common stock and we anticipate all such shares will be sold in this
offering. If all or a significant block of these shares are held by one or more
shareholders working together, then such shareholder or shareholders would have
enough shares to exert significant influence on IBX in an election of directors.
13
FORWARD-LOOKING STATEMENTS
Information included or incorporated by reference in this prospectus
may contain forward-looking statements. This information may involve known and
unknown risks, uncertainties, and other factors which may cause our actual
results, performance or achievements to be materially different from the future
results, performance or achievements expressed or implied by any forward-looking
statements. Forward-looking statements, which involve assumptions and describe
our future plans, strategies, and expectations, are generally identifiable by
use of the words "may," "will," "should," "expect," "anticipate," "estimate,"
"believe," "intend" or "project" or the negative of these words, or other
variations on these words, or comparable terminology.
This prospectus contains forward-looking statements, including
statements regarding, among other things: (a) our projected sales and
profitability, (b) our growth strategies, (c) anticipated trends in our
industry, (d) our future financing plans, and (e) our anticipated needs for
working capital. These statements may be found under "Management's Discussion
and Analysis or Plan of Operations" and "Business," as well as in this
prospectus generally. Actual events or results may differ materially from those
discussed in forward-looking statements as a result of various factors,
including, without limitation, the risks outlined under "Risk Factors" and
matters described in this prospectus generally. In light of these risks and
uncertainties, there can be no assurance that the forward-looking statements
contained in this prospectus will in fact occur.
14
SELLING STOCKHOLDERS
The following table presents information regarding the selling
stockholders. A description of each selling stockholder's relationship to IBX
and how each selling stockholder acquired or will acquire the shares to be sold
in this offering is detailed in the information immediately following this
table.
PERCENTAGE OF
OUTSTANDING SHARES TO BE PERCENTAGE OF
SHARES SHARES ACQUIRED UNDER THE SHARES
BENEFICIALLY BENEFICIALLY STANDBY EQUITY SHARES TO BE BENEFICIALLY
OWNED BEFORE OWNED BEFORE DISTRIBUTION SOLD IN THE OWNED AFTER
SELLING SHAREHOLDER OFFERING OFFERING (1) AGREEMENT OFFERING OFFERING (1)
------------------- -------------- ------------- ------------------ --------------- ------------
Cornell Capital Partners, L.P. ...... 12,166,677 (2) 4.99% 25,000,000 252,941,176 (3) 0%
Newbridge Securities Corporation .... 1,470,588 * -- 1,470,588 0%
Knightsbridge Holdings, LLC ......... 8,400,000 3.63% -- 8,400,000 0%
Phoenix Capital Partners, LLC ....... 2,400,000 1.036% -- 2,400,000 0%
Alexly Resources, LLC ............... 6,000,000 2.590% -- 6,000,000 0%
Robert Pozner ....................... 981,518 * -- 981,518 0%
TOTAL: 31,418,783 12.25% 25,000,000 272,193,282 0.00%
========== ===== ========== =========== ====
* Less than 1%.
(1) Applicable percentage of ownership is based on 231,654,515 shares of common stock outstanding as of September
30, 2004, together with securities exercisable or convertible into shares of common stock within 60 days of
September 30, 2004. Beneficial ownership is determined in accordance with the rules of the U.S. Securities and
Exchange Commission and generally includes voting or investment power with respect to securities. Shares of
common stock subject to securities exercisable or convertible into shares of common stock that are currently
exercisable or exercisable within 60 days of September 30, 2004 are deemed to be beneficially owned by the
person holding such securities for the purpose of computing the percentage of ownership of such person, but
are not treated as outstanding for the purpose of computing the percentage ownership of any other person.
(2) The 12,166,677 shares of common stock represent shares underlying a one-time commitment fee in the form of a
Compensation Debenture in the principal amount of $190,000 pursuant to the Standby Equity Distribution
Agreement. Please note that the terms of the Compensation Debenture held by Cornell Capital Partners provides
that in no extent shall Cornell Capital Partners be entitled to convert the Compensation Debenture for a
number of shares which upon giving effect to Conversion, would cause the aggregate number of shares
beneficially own by Cornell Capital Partners and its affiliates to exceed 4.99% of the total outstanding
shares of IBX following such conversion. We are registering 25,000,000 shares of common stock to be resold by
Cornell Capital Partners under the Standby Equity Distribution Agreement. In the event we desire to draw down
any available amounts remaining under the Standby Equity Distribution Agreement after we have issued the
25,000,000 shares being registered in the 272,193,282 shares being registered in the accompanying registration
statement, we will have to file a new registration statement to cover such additional shares that we would
issue for additional draw downs under the Standby Equity Distribution Agreement.
(3) The total amount of shares to be sold in the offering by Cornell Capital Partners is comprised of: (a)
27,941,176 shares which are being registered pursuant to the Compensation Debenture in the principal amount of
$190,000 which was issued as a one-time commitment fee pursuant to the Standby Equity Distribution Agreement,
(b) 25,000,000 shares under the Standby Equity Distribution Agreement, and (c) 200,000,000 shares which
represent the approximate number of shares underlying the Secured Convertible Debentures that may be converted
by Cornell Capital Partners. Please note that the terms of the secured Convertible Debenture held by Cornell
Capital Partners provides that in no event shall Cornell Capital Partners be entitled to convert the secured
Convertible Debenture for a number of shares which, upon giving effect to the conversion, would cause the
aggregate number of shares beneficially owned by Cornell Capital Partners and its affiliates to exceed 4.99%
of the total outstanding shares of IBX following such conversion. Please also note that for the secured
Convertible Debenture conversion, we are assuming a market price of $0.01 per share for the Secured
Convertible Debenture. Because the conversion price may fluctuate based on the market price of our stock, the
actual number of shares to be issued upon conversion of the Convertible Debentures may be higher or lower.
The following information contains a description of each selling
stockholder's relationship to IBX and how the selling stockholder acquired the
shares to be sold in this offering. The selling stockholders have not held a
position or office, or had any other material relationship, with IBX, except as
follows:
SHARES ACQUIRED IN FINANCING TRANSACTIONS WITH CORNELL CAPITAL PARTNERS
o CORNELL CAPITAL PARTNERS. Cornell Capital Partners is the investor
under the Standby Equity Distribution Agreement and the holder of the
Convertible Debentures. All investment decisions of Cornell Capital
Partners are made by its general partner, Yorkville Advisors, LLC. Mark
Angelo, the Managing Member of Yorkville Advisors, makes the investment
decisions on behalf of Yorkville Advisors. Cornell Capital Partners
acquired all shares being registered in this offering in financing
transactions with IBX. These transaction are explained below:
o SECURITIES PURCHASE AGREEMENT. On August 18, 2004, we entered into a
Securities Purchase Agreement with Cornell Capital Partners. Pursuant
to the Securities Purchase Agreement, IBX may sell to Cornell Capital
Partner, and Cornell Capital Partner may purchase from IBX, up to
15
$400,000 worth of secured convertible debentures pursuant to the terms
contained in the Secured Convertible Debenture. The Securities Purchase
Agreement obligates IBX to enter into an Investors Registration Rights
Agreement, Escrow Agreement, Irrevocable Transfer Agent Instructions,
and Security Agreement, all in connection with the performance of IBX's
obligations under the Standby Equity Distribution Agreement and Secured
Convertible Debenture, both of which are described below.
o STANDBY EQUITY DISTRIBUTION AGREEMENT. On August 18, 2004, we entered
into a Standby Equity Distribution Agreement with Cornell Capital
Partners. Pursuant to the Standby Equity Distribution Agreement, we
may, at our discretion, periodically sell to Cornell Capital Partners
shares of our common stock for a total purchase price of up to
$15,000,000. For each share of common stock purchased under the Standby
Equity Distribution Agreement, Cornell Capital Partners will pay IBX
98% of the lowest volume weighted average price of our common stock on
the Over-the-Counter Bulletin Board or other principal market on which
our common stock is traded for the five trading days immediately
following the notice date. Further, Cornell Capital Partners will
retain a fee of 5% of each advance under the Standby Equity
Distribution Agreement. In connection with the Standby Equity
Distribution Agreement, Cornell Capital Partners received a one-time
commitment fee in the form of a Compensation Debenture in the principal
amount of $190,000 that is convertible into shares of our common stock
at a conversion price per share equal to 100% of the lowest volume
weighted average price of IBX's common stock, as quoted by Bloomberg,
LP, for the three days immediately preceding the conversion date. Based
on a recent stock price of $0.0035 per share, the Compensation
Debenture would be convertible into 27,941,176 shares of IBX common
stock.
We are registering 25,000,000 shares in this offering that may be
resold by Cornell Capital Partners pursuant to the Standby Equity
Distribution Agreement in addition to the 27,941,176 shares being
registered in this offering in connection with the $190,000 one-time
commitment fee in the form of a Compensation Debenture pursuant to the
Standby Equity Distribution Agreement.
o SECURED CONVERTIBLE DEBENTURE. The Secured Convertible Debenture is
convertible at the holder's option any time up to maturity at a
conversion price equal to the lower of (i) 120% of the closing bid
price of the common stock as of the date of issuance, or (ii) 80% of
the average of the lowest daily volume weighted average price of our
common stock for the five trading days immediately preceding the
conversion date. At maturity, the remaining unpaid principal and
accrued interest under the Convertible Debenture shall be, at our
option, either paid or converted into shares of common stock at a
conversion price equal to the lower of (i) 120% of the closing bid
price of the common stock as of the date of issuance or (ii) 80% of the
lowest closing bid price of the common stock for the lowest trading
days of the five trading days immediately preceding the conversion
date. The Secured Convertible Debenture is secured by all of IBX's
assets. The Secured Convertible Debentures accrues interest at a rate
of 5% per year and has a 3-year term. In the event the Secured
Convertible Debenture is redeemed, then IBX will issue to Cornell
Capital Partners a warrant to purchase 50,000 shares for every $100,000
redeemed at an exercise price of 120% of the closing bid price as of
August 18, 2004. Cornell Capital Partners purchased the Secured
Convertible Debenture from IBX on August 18, 2004. IBX is registering
in this offering 200,000,000 shares of common stock underlying the
Secured Convertible Debenture. IBX received $200,000 from the issuance
of the Secured Convertible Debenture on August 18, 2004, and will
receive $200,000 from the issuance of a second Secured Convertible
Debenture when we file the accompanying registration statement with the
Securities and Exchange Commission.
There are certain risks related to sales by Cornell Capital Partners,
including:
o The outstanding shares are issued based on a discount to the market
price. As a result, the lower the stock price around the time Cornell
Capital Partners is issued shares, the greater chance that Cornell
Capital Partners gets more shares. This could result in substantial
dilution to the interests of other holders of our common stock.
o To the extent Cornell Capital Partners sells its common stock, our
common stock price may decrease due to the additional shares in the
market. This could allow Cornell Capital Partners to sell greater
amounts of common stock, the sales of which would further depress our
stock price.
16
o The significant downward pressure on the price of our common stock as
Cornell Capital Partners sells material amounts of common stocks could
encourage short sales by Cornell Capital Partners or others. This could
place further downward pressure on the price of our common stock.
o NEWBRIDGE SECURITIES CORPORATION. Newbridge Securities Corporation is a
registered broker-dealer that we engaged to advise us in connection
with the Standby Equity Distribution Agreement. Guy Amico makes the
investment decisions on behalf of Newbridge Securities Corporation. We
paid Newbridge Securities Corporation a fee of $10,000 payable in
1,470,588 shares of our common stock. IBX is registering these shares
in this offering.
OTHER SHARES TO BE SOLD
o KNIGHTSBRIDGE HOLDINGS, LLC. Alyce Schreiber is a control person who
makes the investment decisions on behalf of Knightsbridge Holdings.
Knightsbridge received its shares of common stock in connection with
certain consulting services rendered to IBX and assigned a portion of
these shares to each of the three entities/persons noted below. Neither
Knightsbridge nor any of the three entities/persons noted below are
broker-dealers.
o PHOENIX CAPITAL PARTNERS, LLC. Jeffrey Sternberg makes the investment
decisions on behalf of Phoenix Capital Partners. Phoenix received its
shares of IBX common stock pursuant to an assignment by Knightsbridge.
o ALEXLY RESOURCES, LLC. Heather Burch makes the investment decisions on
behalf of Alexly Resources. Alexly received its shares of IBX common
stock pursuant to an assignment by Knightsbridge.
o ROBERT POZNER is a resident of the State of New Jersey. He makes his
own investment decisions. Robert Pozner received his shares of IBX
common stock pursuant to an assignment by Knightsbridge.
17
USE OF PROCEEDS
This prospectus relates to shares of our common stock that may be
offered and resold from time-to-time by the selling stockholders. There will be
no proceeds to us from the resale of shares of common stock in this offering.
However, we will receive the proceeds from the sale of shares of common stock to
Cornell Capital Partners under the Standby Equity Distribution Agreement. The
purchase price of the shares purchased under the Standby Equity Distribution
Agreement will be equal to 98% of the lowest volume weighted average price of
our common stock on the Over-the-Counter Bulletin Board for the five days
immediately following the notice date. IBX will pay Cornell Capital Partners 5%
of each advance as an additional fee.
IBX is registering 25,000,000 shares of common stock for issuance under
the Standby Equity Distribution Agreement. At a recent price of $0.0035 per
share, IBX would receive gross proceeds of $85,750.
For illustrative purposes, we have set forth below our intended use of
proceeds for the range of net proceeds indicated below to be received under the
Standby Equity Distribution Agreement. The table assumes estimated offering
expenses of $85,000 plus 5% retainage payable to Cornell Capital Partners.
Gross Proceeds: .................. $ 1,000,000 $ 5,000,000 $ 15,000,000
Less: 5% retainage ............. (50,000) (250,000) (750,000)
Less Offering expenses ......... (85,000) (85,000) (85,000)
----------- ----------- ------------
Net Proceeds ..................... $ 865,000 $ 4,665,000 $ 14,165,000
=========== =========== ============
USE OF PROCEEDS:
Corporate and Working Capital .... $ 692,000 $ 3,732,000 $ 11,332,000
Acquisitions ..................... $ 173,000 $ 933,000 $ 2,833,000
----------- ----------- ------------
TOTAL ............................ $ 865,000 $ 4,665,000 $ 14,165,000
=========== =========== ============
IBX has represented to Cornell Capital Partners that the net proceeds
IBX receives under the Standby Equity Distribution Agreement will be used for
general corporate purposes and acquisitions. In no event will the net proceeds
IBX receives under the Standby Equity Distribution Agreement be used by IBX for
the payment (or loaned to any such person for the payment) of any judgment, or
other liability, incurred by any executive officer, officer, director or
employee of IBX, except for any liability owed to such person for services
rendered, or if any judgment or other liability is incurred by such person
originating from services rendered to IBX, or IBX has indemnified such person
from liability.
18
DILUTION
The net tangible book value of IBX as of June 30, 2004 was ($3,428,637)
or ($0.03) per share of common stock outstanding on June 30, 2004. Net tangible
book value per share is determined by dividing the tangible book value of IBX
(i.e., total assets less total tangible assets less total liabilities) by the
number of outstanding shares of our common stock. Since this offering is being
made solely by the selling stockholders and none of the proceeds will be paid to
IBX, our net tangible book value will be unaffected by this offering. Our net
tangible book value, however, will be impacted by the common stock to be issued
under the Standby Equity Distribution Agreement. The amount of dilution will
depend on the offering price and number of shares to be issued under the Standby
Equity Distribution Agreement. The following example shows the dilution to new
investors at an offering price of $0.00343 per share, which is 98% of a recent
share price of $0.0035.
If we assume that IBX had issued 4,373,177,843 shares of common stock
under the Standby Equity Distribution Agreement (i.e., the maximum number of
shares needed in order to draw down the entire $15,000,000 available under the
Standby Equity Distribution Agreement), at an assumed offering price of
$0.003430 per share, less retention fees of $750,000 and offering expenses of
$85,000, our net tangible book value as of June 30, 2004 would have been
$9,492,641 or $0.002112 per share (note, however, that at an offering price of
$0.00343 per share, based on the number of shares registered in this offering
under the Standby Equity Distribution Agreement (i.e., 25,000,000), IBX would
only receive gross proceeds of $85,750). Such an offering would represent an
immediate increase in net tangible book value to existing stockholders of
$0.040907 per share and an immediate dilution to new stockholders of $0.001318
per share. The following table illustrates the per share dilution:
Assumed public offering price per share ................ $0.003430
Net tangible book value per share before this offering . $(0.038795)
Increase attributable to new investors ................. $ 0.040907
----------
Net tangible book value per share after this offering .. $0.002112
---------
Dilution per share to new stockholders ................. $0.001318
=========
The offering price of our common stock is based on the then-existing
market price. In order to give prospective investors an idea of the dilution per
share they may experience, we have prepared the following table showing the
dilution per share at various assumed offering prices:
ASSUMED NO. OF SHARES TO BE DILUTION PER SHARE TO
OFFERING PRICE ISSUED (1) NEW INVESTORS
-------------- ---------- -------------
$0.003430 4,373,177,843 $0.0013180
$0.002573 5,830,903,790 $0.0009775
$0.001715 8,746,355,685 $0.0006440
$0.000858 17,492,711,370 $0.0003185
(1) IBX is registering 25,000,000 shares of common stock issued pursuant
to the Standby Equity Distribution Agreement.
19
STANDBY EQUITY DISTRIBUTION AGREEMENT
SUMMARY. On August 18, 2004, we entered into a Standby Equity
Distribution Agreement with Cornell Capital Partners. Pursuant to the Standby
Equity Distribution Agreement, we may, at our discretion, periodically sell to
Cornell Capital Partners shares of our common stock for a total purchase price
of up to $15,000,000. For each share of common stock purchased under the Standby
Equity Distribution Agreement, Cornell Capital Partners will pay us 98% of the
lowest volume weighted average price of our common stock on the Over-the-Counter
Bulletin Board or other principal market on which our common stock is traded for
the five days immediately following the notice date. Cornell Capital Partners is
a private limited partnership whose business operations are conducted through
its general partner, Yorkville Advisors, LLC. Further, Cornell Capital Partners
will retain a fee of 5% of each advance under the Standby Equity Distribution
Agreement. We also paid Cornell Capital Partners a one-time commitment fee
pursuant to the Standby Equity Distribution Agreement in an amount equal to
$190,000, which was paid by the issuance of a Compensation Debenture in the
principal amount of $190,000.
In addition, we engaged Newbridge Securities Corporation, a registered
broker-dealer, to advise us in connection with the Standby Equity Distribution
Agreement. For its services, Newbridge Securities Corporation received a fee of
$10,000 paid in 1,470,588 shares of our common stock. IBX is registering
25,000,000 shares of common stock for the Standby Equity Distribution Agreement
pursuant to the accompanying registration statement. The costs associated with
this registration will be borne by us. There are no other significant closing
conditions to draws under the Standby Equity Distribution Agreement.
STANDBY EQUITY DISTRIBUTION AGREEMENT EXPLAINED. Pursuant to the
Standby Equity Distribution Agreement, we may periodically sell shares of common
stock to Cornell Capital Partners to raise capital to fund our working capital
needs. The periodic sale of shares is known as an advance. We may request an
advance every seven trading days with a maximum of $600,000 per advance. A
closing will be held six trading days after such written notice at which time we
will deliver shares of common stock and Cornell Capital Partners will pay the
advance amount.
We may request advances under the Standby Equity Distribution Agreement
once the underlying shares are registered with the Securities and Exchange
Commission. Thereafter, we may continue to request advances until Cornell
Capital Partners has advanced $15,000,000 or 24 months after the effective date
of the accompanying registration statement, whichever occurs first.
The amount of each advance is limited to a maximum draw down of
$600,000 every seven trading days. At a recent stock price of $0.0035, we would
have to issue 174,927,114 shares of common stock to Cornell Capital Partners to
draw down the maximum advance amount of $600,000. The amount available under the
Standby Equity Distribution Agreement is not dependent on the price or volume of
our common stock. Our ability to request advances are conditioned upon our
registering the shares of common stock with the Securities and Exchange
Commission. In addition, we may not request advances if the shares to be issued
in connection with such advances would result in Cornell Capital Partners owning
more than 9.9% of our outstanding common stock. We do not have any agreements
with Cornell Capital Partners regarding the distribution of such stock, although
Cornell Capital Partners has indicated that it intends to promptly sell any
stock received under the Standby Equity Distribution Agreement.
We cannot predict the actual number of shares of common stock that will
be issued pursuant to the Standby Equity Distribution Agreement, in part,
because the purchase price of the shares will fluctuate based on prevailing
market conditions and we have not determined the total amount of advances we
intend to draw. Nonetheless, we can estimate the number of shares of our common
stock that will be issued using certain assumptions. Based on our recent stock
price of $0.0035 and that we are registering 25,000,000 shares of our common
stock under the Standby Equity Distribution Agreement in the accompanying
registration statement, we could draw down a maximum gross amount of $85,750
under the Standby Equity Distribution Agreement. These 25,000,000 shares would
represent approximately 9.7% of our outstanding common stock upon issuance. We
are registering 25,000,000 shares of common stock to be resold by Cornell
Capital Partners pursuant to Standby Equity Distribution Agreement.
You should be aware that there is an inverse relationship between our
stock price and the number of shares to be issued under the Standby Equity
Distribution Agreement. That is, as our stock price declines, we would be
required to issue a greater number of shares under the Standby Equity
Distribution Agreement for a given advance. The issuance of a larger number of
shares under the Standby Equity Distribution Agreement may result in a change of
20
control. That is, if all or a significant block of such shares are held by one
or more shareholders working together, then such shareholder or shareholders
would have enough shares to assume control of IBX by electing its or their own
directors.
You should also be aware that in order for us to utilize the full
$15,000,000 available under the Standby Equity Distribution after the conversion
of the $400,000 Secured Convertible Debentures, it may be necessary for our
shareholders to approve an increase in our authorized common stock and for us to
register additional shares of common stock. This is currently the case based on
our stock price of $0.0035 as of September 30, 2004. IBX is authorized in its
Articles of Incorporation to issue up to 500,000,000 shares of common stock. As
of September 30, 2004, IBX had 231,654,515 shares of common stock outstanding.
IBX is registering 25,000,000 shares of common stock hereunder to be issued
under the Standby Equity Distribution Agreement.
Proceeds under the Standby Equity Distribution Agreement will be used
in the manner set forth in the "Use of Proceeds" section of this prospectus. We
cannot predict the total amount of proceeds to be raised in this transaction
because we have not determined the total amount of advances we intend to draw.
We expect to incur expenses of approximately $85,000 in connection with
this registration, consisting primarily of professional fees. In connection with
the Standby Equity Distribution Agreement, we paid Cornell Capital Partners a
one-time commitment fee in the form of a Compensation Debenture in the principal
amount of $190,000 that is convertible into shares of our common stock at a
price per share equal to 100% of the lowest volume weighted average price of
IBX's common stock, as quoted by Bloomberg, LP, for the three days immediately
preceding the conversion date. In addition, we issued 1,470,588 shares of common
stock to Newbridge Securities Corporation, a registered broker-dealer, as a
placement agent fee in connection with the Standby Equity Distribution
Agreement.
21
PLAN OF DISTRIBUTION
The selling stockholders have advised us that the sale or distribution
of our common stock owned by the selling stockholders may be effected directly
to purchasers by the selling stockholders, and with the exception of Cornell
Capital Partners as principal or through one or more underwriters, brokers,
dealers or agents from time-to-time in one or more transactions (which may
involve crosses or block transactions) (i) on the over-the-counter market or in
any other market on which the price of our shares of common stock are quoted or
(ii) in transactions otherwise than on the over-the-counter market or in any
other market on which the price of our shares of common stock are quoted. Any of
such transactions may be effected at market prices prevailing at the time of
sale, at prices related to such prevailing market prices, at varying prices
determined at the time of sale or at negotiated or fixed prices, in each case as
determined by the selling stockholders or by agreement between the selling
stockholders and underwriters, brokers, dealers or agents, or purchasers. If the
selling stockholders effect such transactions by selling their shares of common
stock to or through underwriters, brokers, dealers or agents, such underwriters,
brokers, dealers or agents may receive compensation in the form of discounts,
concessions or commissions from the selling stockholders or commissions from
purchasers of common stock for whom they may act as agent (which discounts,
concessions or commissions as to particular underwriters, brokers, dealers or
agents may be in excess of those customary in the types of transactions
involved). The selling stockholders and any brokers, dealers or agents that
participate in the distribution of the common stock may be deemed to be
underwriters, and any profit on the sale of common stock by them and any
discounts, concessions or commissions received by any such underwriters,
brokers, dealers or agents may be deemed to be underwriting discounts and
commissions under the Securities Act of 1933, as amended.
Cornell Capital Partners is an "underwriter" within the meaning of the
Securities Act of 1933, as amended, in connection with the sale of common stock
under the Standby Equity Distribution Agreement. Cornell Capital Partners will
pay us 98% of the lowest volume weighted average price of our common stock on
the Over-the-Counter Bulletin Board or other principal trading market on which
our common stock is traded for the five days immediately following the advance
date. In addition, Cornell Capital Partners will retain 5% of each advance under
the Standby Equity Distribution Agreement. The 2% discount, the 5% retention,
and the one-time commitment fee in the form of a Compensation Debenture in the
principal amount of $190,000, are all underwriting discounts. We engaged
Newbridge Securities Corporation, a registered broker-dealer, to advise us in
connection with the Standby Equity Distribution Agreement. For its services,
Newbridge Securities Corporation received $10,000, which was paid by the
issuance of 1,470,588 shares of our common stock. Pursuant to a Placement Agent
Agreement, Newbridge Securities Corporation provided services consisting of
reviewing the terms of the Standby Equity Distribution Agreement and advising us
with respect to those terms. The Placement Agent Agreement is coterminous with
and will terminate upon the same terms as the Standby Equity Distribution
Agreement.
Cornell Capital Partners was formed in February of 2000 as a Delaware
limited partnership. Cornell Capital Partners is a domestic hedge fund in the
business of investing in and financing public companies. Cornell Capital
Partners does not intend to make a market in our stock or to otherwise engage in
stabilizing or other transactions intended to help support our stock price.
Prospective investors should take these factors into consideration before
purchasing our common stock.
In consideration of Cornell Capital Partners' execution and delivery of
the Standby Equity Distribution Agreement, IBX will indemnify Cornell Capital
Partners, and all of its officers, directors, partners, employees and agents,
from and against any and all actions, causes of actions, suits, claims, losses,
costs, penalties, fees, liabilities and damages incurred by the indemnified
party as a result of, or relating to: (i) any misrepresentation or breach of any
representation or warranty made by IBX in the Standby Equity Distribution
Agreement or Registration Rights Agreement in connection therewith or any other
document contemplated thereby; (ii) any breach of any covenant, agreement or
obligation of IBX contained in the Standby Equity Distribution Agreement or the
Registration Rights Agreement executed in connection therewith or any other
document contemplated thereby; or (iii) any cause of action, suit or claim
brought against such indemnified party and arising out of or resulting from the
execution, delivery, performance or enforcement of the Standby Equity
Distribution Agreement or any document in connection therewith.
Under the securities laws of certain states, the shares of common stock
may be sold in such states only through registered or licensed brokers or
dealers. The selling stockholders are advised to ensure that any underwriters,
brokers, dealers or agents effecting transactions on behalf of the selling
stockholders are registered to sell securities in all 50 states. In addition, in
certain states the shares of common stock in this offering may not be sold
unless the shares have been registered or qualified for sale in such state or an
exemption from registration or qualification is available and is complied with.
22
We will pay all the expenses incident to the registration, offering,
and sale of the shares of common stock to the public hereunder other than
commissions, fees, and discounts of underwriters, brokers, dealers and agents.
We have agreed to indemnify Cornell Capital Partners and its controlling persons
against certain liabilities, including liabilities under the Securities Act of
1933, as amended. We estimate that the expenses of the offering to be borne by
us will be approximately $85,000. These offering expenses consist of a
Securities and Exchange Commission registration fee of $120.75, printing and
engraving fees and expenses of $2,500, accounting fees and expenses of $20,000,
legal fees and expenses of $50,000, and miscellaneous expenses of $12,379.25. We
will not receive any proceeds from the sale of any of the shares of common stock
by the selling stockholders. We will, however, receive proceeds from the sale of
common stock under the Standby Equity Distribution Agreement.
The selling stockholders should be aware that the anti-manipulation
provisions of Regulation M under the Securities Exchange Act of 1934, as
amended, will apply to purchases and sales of shares of common stock by the
selling stockholders, and that there are restrictions on market-making
activities by persons engaged in the distribution of the shares. Under
Registration M, the selling stockholders or their agents may not bid for,
purchase, or attempt to induce any person to bid for or purchase, shares of our
common stock while such selling stockholders are distributing shares covered by
this prospectus. The selling stockholders are not permitted to cover short sales
by purchasing shares while the distribution is taking place. The selling
stockholders are advised that if a particular offer of common stock is to be
made on terms constituting a material change from the information set forth
above with respect to the Plan of Distribution, then, to the extent required, a
post-effective amendment to the accompanying registration statement must be
filed with the Securities and Exchange Commission.
23
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following information should be read in conjunction with the
consolidated financial statements of IBX and the notes thereto appearing
elsewhere in this filing. Statements in this "Management's Discussion and
Analysis" and elsewhere in this prospectus that are not statements of historical
or current fact constitute "forward-looking statements." For an overview of IBX,
please see the section of this prospectus entitled "Description of the
Business," which follows this section.
OVERVIEW
IBX was organized under the laws of the State of Florida in July of
1997 as VidKid Distribution, Inc. to own, distribute and produce children's
intellectual properties. In February of 2001, we were spun-off from our parent
company, emailthatpays.com, Inc. On September 25, 2001, VidKid acquired all of
the outstanding capital stock of Primed Technologies, Inc., a Delaware
corporation, in a stock-for-stock exchange. Primed was organized under the laws
of the State of Florida on February 4, 1999 as a limited liability company and
converted into a corporation in the State of Delaware on January 1, 2000.
Primed's shareholders, Evan Brovenick and David Blechman, received 11,550,000
shares or approximately 81% of the outstanding common stock of VidKid on a fully
diluted basis. VidKid's name was concurrently changed to "IBX Group, Inc."
We are engaged in providing administrative services such as accounting,
billing and collection, and claims. We develop and deploy innovative,
cost-effective methods for integrating financial, administrative and information
services for the healthcare industry. During the last two years, we
significantly expended our capabilities. Our business initially focused on
healthcare transaction services, primarily assisting providers with billing and
collection of receivables. We have since added expertise in regulatory
compliance, transcription services, staffing and technology solutions. We have
devoted significant resources towards developing various strategic partnerships
and opportunities to better address the needs of the healthcare marketplace.
These investments in our product development and infrastructure resulted in
significant expenditures and we are now starting to recognize new revenue from
these initiatives.
IBX operates five divisions:
o IBX TECHNOLOGIES, which enables healthcare organizations to maximize
their accounts receivables;
o FLORIDA HEALTHSOURCE, a network of physical therapy and wellness
centers
o MEDICOMPLIANT SOLUTIONS, which ensures medical practices' compliance
with today's complex legal requirements;
o IBX TRANSCRIPTION SERVICES, which offers physicians quick
turn-around and Web-accessible progress reports; and
o NURSESSTAT, which deploys leading-edge staffing administration
technology to healthcare facilities and provides cost-effective
temporary staffing solutions.
IBX also recently re-launched SPORTSHEALTHNET.COM and THENETDIGEST.COM,
interactive Web portals providing patients with comprehensive healthcare
information and advice, and increasing physician referrals.
Our Florida HealthSource subsidiary recently opened a
multi-disciplinary clinic in a medical center in Boca Raton, Florida. The
healthcare clinic will offer physical therapy, occupational medicine, pain
management, chiropractic care and wellness services. The new clinic is part of
IBX's strategic plan to capitalize on the emerging "wellness" trend in
healthcare by bringing these various services under one roof. Florida
HealthSource centers will also serve as a showcase for IBX's menu of products
and services specially designed for the healthcare industry. Florida
HealthSource provides case managers and adjusters with a statewide referral
network of over 100 pre-approved, qualified service providers for their insured
patients. This allows the payer to control its costs by sending the patients to
providers with negotiated fees.
An aggregate of 11,550,000 shares of IBX held by Evan Brovenick and
David Blechman, our principal officers, and the assets of certain of our
operating subsidiaries are subject to a creditor's lien. Failure to comply with
the terms and conditions of the related loan documents could result in a default
and the forfeiture of these shares and/or assets to the lender.
24
GOING CONCERN
Our independent auditors have added an explanatory paragraph in
connection with the December 31, 2003 financial statements, which stated that
IBX's current liabilities at such time exceeded IBX's current assets. These
conditions give rise to substantial doubt about IBX's ability to continue as a
going concern. IBX's ability to fully commence its operation and generate
revenues or its ability to obtain additional funding will determine its ability
to continue as a going concern. Our financial statements do not include any
adjustments that might result form the outcome of this uncertainty.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from those estimates. We believe the
following critical accounting policies affect our more significant judgments and
estimates used in the preparation of our consolidated financial statements.
REVENUE RECOGNITION
IBX follows the guidance of the Securities and Exchange Commission's
Staff Accounting Bulletin No. 104 for revenue recognition. In general, IBX
records revenue when persuasive evidence of an arrangement exists, services have
been rendered or product delivery has occurred, the sales price to the customer
is fixed or determinable, and collectability is reasonably assured. The
following policies reflect specific criteria for the various revenues streams of
IBX.
Revenue derived from billing and collections and administrative
services is recognized at the completion of the service performed. For billing
and collection services, IBX receives a commission from the customer based on a
percentage of amounts actually collected. Revenues are recognized as a net
amount equal to the percentage commission once the customer's receivable had
been received. Software application revenue (from licensing) is recognized in
accordance with the terms of the specific agreements.
Maintenance and support revenues are recognized over the term of the
related agreements.
IBX's Florida HealthSource ("FHS") subsidiary primarily acts as a
referral network for physical therapy patients who are referred by insurance
carriers. Revenue from providing physical therapy services was recognized upon
completion of the patient services and was recorded net of amounts due to
service providers for the fiscal year ended December 31, 2002. In 2003, IBX
reevaluated this revenue recognition policy of the Florida HealthSource
subsidiary and determined that it qualifies for the use of the Gross Method
under EITF 99-19, "Recording Revenues Gross as a Principal versus Net as an
Agent". The cumulative effect of the change in accounting principal was not
material.
Revenues from providing medical staffing application services will be
recognized as services are provided.
Customer prepayments from outsourced legal compliance services are
deferred and recognized as earned over the service period.
STOCK-BASED COMPENSATION
IBX accounts for stock options issued to employees in accordance with
the provisions of the Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations. As such,
compensation cost is measured on the date of grant as the excess of the current
market price of the underlying stock over the exercise price. Such compensation
amounts are amortized over the respective vesting periods of the option grant.
IBX adopted the disclosure provisions of the Federal Accounting Standard Board's
("FASB's") Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation," which permits entities to provide pro
forma net income (loss) and pro forma earnings (loss) per share disclosures for
employee stock option grants as if the fair valued based method defined in SFAS
No. 123 had been applied.
IBX accounts for stock options and stock issued to non-employees for
goods or services in accordance with the fair value method of SFAS No. 123.
None of these policies had any material or substantial effect upon our
operations.
25
NEW ACCOUNTING PRONOUNCEMENTS
In December of 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation-Transition and Disclosure." Statement No. 148 provides
alternative methods of transition to SFAS No. 123's fair value method of
accounting for stock-based employee compensation. It also amends the disclosure
provisions of SFAS No. 123 and APB Opinion No. 28, "Interim Financial
Reporting", to require disclosure in the summary of significant accounting
policies of the effects of an entity's accounting with respect to stock-based
employee compensation on reported net income and earnings per share in annual
and interim financial statements. SFAS No. 148's amendment of the transition and
annual disclosure requirements of SFAS No. 123 are effective for fiscal years
ending after December 15, 2002. SFAS No. 148's amendment of the disclosure
requirements of APB Opinion No. 28 is effective for interim periods beginning
after December 15, 2002. The implementation of SFAS No. 148 is not expected to
have a material effect on IBX's financial statements.
In January of 2003, the EITF finalized a consensus on Issue No. 02-16,
"Accounting by a Customer (Including a Reseller) for Cash Consideration Received
from a Vendor." The Task Force concluded that cash consideration in excess of
specific identifiable costs, including sales incentives, allowances, discounts,
coupons, rebates and price reductions, when meeting certain criteria, constitute
a reduction in vendor price, and should therefore be reflected as a reduction in
cost of sales when the related merchandise is sold. The EITF concluded that this
literature should be applied to new arrangements, including modifications of
existing arrangements, entered into after December 31, 2002. We adopted EITF
02-16 as of January 1, 2003. The adoption of EITF 02-16 had an immaterial impact
on our consolidated financial position and results of operations.
In May of 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity." SFAS
No. 150 establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. In
addition, SFAS No. 150 requires an issuer to classify certain instruments with
specific characteristics described in it as liabilities. SFAS No. 150 is
effective for financial instruments entered into or modified after May 31, 2003,
and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. The implementation of SFAS No. 150 is not
expected to have a material effect on IBX's financial statements.
None of these policies had any material or substantial effect upon
IBX's operations.
RESULTS OF OPERATIONS
For financial reporting purposes, IBX operates in two reportable
business segments: healthcare transaction management and technology services
(collectively, "administrative services"); and physical therapy and
rehabilitation services.
FOR THE THREE MONTHS ENDED JUNE 30, 2004, AS COMPARED TO THE THREE
MONTHS ENDED JUNE 30, 2003
REVENUE
Revenue for the three months ended June 30, 2004 was $78,372 compared
with $979,672 for the three months ended June 30, 2003. This decrease was the
result of a decrease in collections on behalf of customers under service
contracts, and the fact that we are experiencing cash flow problems and
accordingly have decreased our marketing and advertising budgets which has
curtailed new business activity.
EXPENSES
Our total operating expenses were $1,619,899 for the three months ended
June 30, 2004 as compared to $1,251,642 for the three months ended June 30,
2003, an increase of $368,257. This resulted primarily from the costs associated
with increased staffing levels, as well as an increase in professional fees
related to our SEC filings and filings of our registration statement on Form
SB-2.
NET INCOME (LOSS)
The net loss for the three months ended June 30, 2004 was $1,723,184 as
compared to a net loss of $299,107 for the three months ended June 30, 2003, an
increase of $1,424,077. This increase in loss resulted primarily from decreased
26
collections on behalf of our customers, reduced marketing and advertising
efforts as a result of our budget in these areas being decreased, and higher
expenses associated with increased staffing levels and professional fees.
FOR THE SIX MONTHS ENDED JUNE 30, 2004, AS COMPARED TO THE SIX MONTHS
ENDED JUNE 30, 2003
REVENUE
Revenues for the six months ended June 30, 2004 were $404,871 as
compared to revenues for the six months ended June 30, 2003 of $2,205,483, a
decrease of $1,800,612 or 81.6%. Revenues from our health transaction management
and technology segment decreased to $318,311 for the six months ended June 30,
2004 as compared to $1,815,310 for the six months ended June 30, 2003, a
decrease of $1,496,999. The decrease was attributable to the following:
o a decrease in collections on behalf of customers under IBX's service
contracts. Our collection rate has decreased as we wind-up certain
portfolios. With the addition of new portfolios, we expect our
revenue to increase in the third and fourth quarters of 2004.
Additionally, in June of 2003, Hilco modified their service
agreement with us. The modification of this agreement had an adverse
effect on our revenues.
o we are currently experiencing cash flow problems and, accordingly,
have decreased our marketing and advertising budget.
In July of 2004, in connection with a reconciliation of patient
accounts and collections for one of our customers, we calculated that based on
our collection efforts, we believe that we are owed in excess of $1,400,000 in
commission income. Although persuasive evidence of an arrangement exists,
services have been rendered, and the sales price to the customer is fixed or
determinable, collectability is not reasonably assured. Accordingly, we have not
recorded revenue related to these collections. We are in negotiations with this
customer and expect to collect these funds in the near future; however,
collection is not assured. Revenues from our physical therapy and rehabilitation
services segment decreased to $86,560 for the six months ended June 30, 2004 as
compared to $390,173 for the six months ended June 30, 2003, a decrease of
$303,613. The decrease was attributable to abandonment of our Jacksonville,
Florida office, the closing of our Jacksonville clinic, and a lack operating
capital to properly operate our other facilities.
EXPENSES
Operating expenses were $3,068,506 for the six months ended June 30,
2004 as compared to $2,424,364 for the six months ended June 30, 2003, an
increase of $644,142. IBX's operating results for the 6-month period were
materially impacted by costs associated with several acquisitions that were
consummated during 2003, including Florida HealthSource, IBX Transcription,
NursesSTAT, and MediCompliant, while the core business also recorded a loss due
to expenses in closing the Jacksonville facility, marketing expenses, and
non-cash charges due to the sale of debenture instruments and issuance of
$400,000 of promissory notes for services and related 40,000,000 warrants for
services, and non-cash penalties incurred related to our loans payable.
Salaries and payroll taxes were $1,018,227 for the six months ended
June 30, 2004 as compared to $1,020,094 for the six months ended June 30, 2003.
Salaries, which consist of salaried and hourly employees, include staff used for
our administrative services, our technical development staff, marketing staff
and office personnel, and clinic staff. Overall, for the six months ended June
30, 2004, salary and payroll expenses decreased by $1,867. The decrease is
attributable to an increase in staff related to our physical therapy and
rehabilitation segment and increased staff related to our acquisitions during
the 2003 period offset by a decrease in staff in the second quarter of fiscal
2004 due to the reduction of staff in order to cut our operating expenses. We
expect that this expense will be lower in the third and fourth quarters of 2004.
Depreciation and amortization expense for the six months ended June 30,
2004 was $71,943 as compared to $77,321 for the six months ended June 30, 2003.
We regularly review the carrying value of our assets and a loss is recognized
when the unamortized costs are deemed unrecoverable based on the estimated cash
flows to be generated from the applicable assets.
Consulting expense was $85,892 for the six months ended June 30, 2004
as compared to $0 for the six months ended June 30, 2003. During the six months
ended June 30, 2004, we recorded non-cash consulting expense related to
debenture agreements of $84,447.
27
Professional fees were $182,333 for the six months ended June 30, 2004
as compared to $140,534 for the six months ended June 30, 2003, an increase of
$41,799 or 29.7%. We experienced an increase in professional fees related to our
SEC filings and the filing of our registration statement on Form SB-2.
Rent expense was $183,917 for the six months ended June 30, 2004 as
compared to $187,950 for the six months ended June 30, 2003, a decrease of
$4,033. Currently, we offset our rent expense by subleasing office space to
certain entities on a month-to-month basis. In July of 2004, we relocated our
offices to a smaller space in order to cut our rent expense.
For the six months ended June 30, 2004, we recorded bad debt expense of
$223,735 related to receivables for which collections may be doubtful.
Other selling, general and administrative expenses, which include
advertising, insurance, contract labor, stock-based compensation expense, travel
and entertainment, telephone, and other expenses, were $1,302,459 for the six
months ended June 30, 2004 as compared to $998,465 for the six months ended June
30, 2003. In May of 2004, we issued to our chief executive officer 7,500 shares
of Series B Preferred Stock convertible into 15,000,000 shares of common stock.
The preferred shares were value at the quoted trading price of the underlying
15,000,000 shares of common stock of $375,000 or $0.025 per common share and
charged to operations. This increase was offset by a decrease in outside
services and other expenses due to cost cutting measures.
Interest expense was $791,435 for the six months ended June 30, 2004 as
compared to $45,842 for the six months ended June 30, 2003. The increase was
attributable to charges recorded due to the beneficial conversion of our notes
payable and debentures payable and a default penalty on a promissory note of
$309,654 and $248,571 in 2004 and 2003, respectively. Additionally, in 2004, we
defaulted on our installment agreement with the U.S. Internal Revenue Service
relating to unpaid payroll taxes. In connection with this default, interest and
penalty expense related to the unpaid payroll taxes was recorded in the amount
of $116,000.
NET INCOME (LOSS)
As a result of the foregoing, IBX's net loss for the six months ended
June 30, 2004 was $3,455,070 as compared to a net loss of $264,723 for the six
months ended June 30, 2003, an increase of $3,190,347.
FOR THE YEAR ENDED DECEMBER 31, 2003, AS COMPARED TO THE YEAR ENDED
DECEMBER 31, 2002
REVENUE
Revenue is generated from our administrative services, including
accounting, billing and collection, claims processing and information
management, and from our physical therapy and rehabilitation business. Revenue
for the year ended December 31, 2003 was $3,327,852 as compared to revenue for
the year ended December 31, 2002 of $3,220,104. The increase was primarily due
to revenue of $2,480,717 from the core business compared to $3,145,504 in 2002
revenue of $643,400 from our physical therapy business compared to $74,600 in
2002, and new revenue of $203,735 from three of the acquired companies in 2003,
as we shifted our focus towards these new segments.
EXPENSES
Operating results for 2003 were materially impacted by the start-up
costs for the several acquisitions that were consummated during 2002 and 2003,
including Florida HealthSource, IBX Transcription, NursesSTAT, and
MediCompliant, while the core business also recorded a loss due to expenses in
closing the Jacksonville facility and marketing expenses. IBX expects that these
new businesses will increase revenues and lower expenses in 2004. Approximately
80% of our operating expenses related to the healthcare transaction management
and technology services, and physical therapy and rehabilitation services, while
approximately 85% of the expenses related to that segment.
Salaries and payroll taxes were $2,301,790 for 2003 as compared to
$1,300,563 for 2002. Salaries, which consist of salaried and hourly employees,
include staff used for our administrative services, our technical development
staff, marketing staff and office personnel. Overall, our salary and payroll
expense increased $1,001,227. During 2003, we increased our employee count from
29 to 47.
28
Depreciation and amortization expense for 2003 was $172,374 as compared
to $115,826 for 2002 due to an increase in depreciable assets from additions
primarily in IBX's subsidiary, Florida HealthSource and NursesSTAT. We regularly
review the carrying value of our assets and a loss is recognized when the
unamortized costs are deemed unrecoverable based on the estimated cash flows to
be generated from the applicable assets. During the fourth quarter of 2003, we
recognized an impairment charge of $592,604 primarily from the NursesSTAT,
Florida HealthSource, IBX Transcription Services and Theratouch transactions due
to the level of revenues and cash flows from these businesses in 2003.
Professional fees were $274,185 for the year ended December 31, 2003 as
compared to $191,106 for the year ended December 31, 2002. The increase was
attributable to higher legal and accounting fees as a result of the acquisition
activity and increased reporting applicable to public companies.
Rent expense was $446,829 for the year ended December 31, 2003 as
compared to $230,275 for the year ended December 31, 2002. The increase related
to the new leases for the Florida HealthSource facilities and the remainder for
scheduled rent increases in existing facilities. We have offset our rent expense
by subleasing office space to certain entities on a month-to-month basis. Due to
our growth and need for additional space, reductions in rent expense due to
sublease income has decreased.
Other selling, general and administrative expenses, which include
contract labor, travel and entertainment, insurance, provider expenses, and
other expenses, were $1,696,843 for the year ended December 31, 2003 as compared
to $1,077,836 for the year ended December 31, 2002. The increase was primarily
due to marketing expenses and additional personnel as operations expanded.
Additional increases were attributable to increased advertising, health
insurance expense, and commissions offset by a decrease in outside services and
other expenses due to cost cutting measures. The physical therapy and
rehabilitation services segment did not exist in the prior period.
Consulting expense was $1,022,268 in 2003 compared to $0 in 2002. This
amount primarily consisted of one-time expenses relating to the issuance of
stock and fees for exercise of warrants. It is expected that this amount will
decrease in 2004.
Total expenses from operations in 2003 were $6,506,893 compared to
$2,915,606 in 2003. Loss from operations for 2003 was $3,243,811 compared to
income from operations of $304,498 in 2002.
During 2002, we recognized a gain on settlement of debt of $289,662 for
our loan to Mr. Dudziak as part of the loan described below.
Interest expense was $354,742 for the year ended December 31, 2003 as
compared to $430,867 for the year ended December 31, 2002. The decrease was
attributable to the fact that we renegotiated our primary loan to more favorable
terms in October of 2002, reducing our interest rate from 25% to 12.5% and had a
lower principal amount outstanding in 2003 as we paid down principal.
Additionally, we entered into an installment agreement with the U.S. Internal
Revenue Service in October of 2002 relating to unpaid payroll taxes. In
connection with this installment agreement, interest expense related to the
unpaid payroll taxes has decreased.
NET INCOME (LOSS)
As a result of the foregoing, we reported a net loss of $3,598,563 for
the year ended December 31, 2003 as compared to net income of $163,293 for the
year ended December 31, 2002.
LIQUIDITY AND CAPITAL RESOURCES
During the first-part of 2004, our overall performance continued to be
hampered due to continuing inadequacy of funding to meet our needs to, among
other things, ramp-up sales and deploy our services. In 2003, we received
approximately $3,088,428 in proceeds from the exercise of our warrants. During
the six months ended June 30, 2004, we received proceeds of $200,000 from the
sale of convertible debentures, proceeds of $119,000 from the sale of common
stock, proceeds of $100,000 from the sale of Series B preferred stock, and
proceeds of $60,975 from the exercise of warrants. We are currently experiencing
a cash shortage, which has effected our operations. Our ability to continue as a
going concern is dependent upon our ability to attain a satisfactory level of
profitability, have access to suitable financing, satisfy our contractual
obligations with creditors on a timely basis and develop further revenue
sources.
29
At June 30, 2004, we had a stockholders' deficit of $3,428,637. We have
an accumulated deficit from losses of $9,869,011. Our operations during 2004
have been funded from loans from third parties amounting to $362,523 and from
the sale of stock of $219,000. These funds were used for working capital and
capital expenditures.
We entered into an installment agreement with the U.S. Internal Revenue
Service in October of 2002 relating to unpaid payroll taxes through June of
2002, which requires us to pay $12,000 per month for 84 months. We have incurred
additional payroll tax liabilities subsequent to June 30, 2002 which have been
accrued on the accompanying balance sheet. We are currently in default under
this agreement. Additionally, we have accrued penalties and interest on payroll
tax liabilities incurred subsequent to June 30, 2002. At June 30, 2004, accrued
payroll taxes and penalties aggregated to $1,880,993.
We have no other material commitments for capital expenditures. Other
than cash generated from our operations, exercise of warrants, loans and
advances from shareholders, we have no external sources of liquidity.
We may not have sufficient cash flow from operations to sufficiently
meet all of our cash requirements for the next 12 months. Our future operations
and growth is dependent on our ability to raise capital for expansion, and to
seek additional revenue sources.
Net cash used in operations during the six months ended June 30, 2004
was $(887,918) as compared net cash used in operations of $(429,251) for the six
months ended June 30, 2003. The increase in cash used was primarily a result of
net losses for the six months ended June 30, 2004 of $3,455,070, offset by
non-cash items such as stock-based compensation of $595,693, beneficial interest
and penalties recorded on debentures and loans payable of $574,708, and an
increase in our allowance for doubtful accounts of $207,354, as well as
increases in accounts receivable, increases in accounts payable, and increases
in payroll taxes payable and related interest.
Net cash used in investing activities during the six months ended June
30, 2004 was $30,464 relating to the purchase of property and equipment of
$18,020 and an increase in restricted cash of $12,444 compared to net cash used
in investing activities of $112,198 for the six months ended June 30, 2003
relating to the purchase of property and equipment.
Net cash provided by financing activities for the six months ended June
30, 2004 was $906,072 as compared to net cash provided by financing activities
of $572,814 for the six months ended June 30, 2003. During the six months ended
June 30, 2004, we received proceeds from the sale of common stock of $119,000,
proceeds from the sale of Series B preferred stock of $100,000, proceeds from
increased loan borrowings of $362,523, proceed from advances from related
parties of $121,414, proceeds from the exercise of warrants of $60,975, and an
increase in checks outstanding in excess of bank balances of $217,848, offset by
loan repayments of $75,688. During the six months ended June 30, 2003, we
received proceeds from the exercise of warrants of $826,900 offset by a decrease
in checks outstanding in excess of bank balances of $18,596, and loan repayment
of 235,036.
During 2004, we entered into a line of credit agreement with a
financial institution pursuant to which we can borrow up to $450,000. Interest
is payable on the outstanding principal balance at an annual rate of prime. The
loan is payable on demand and at June 30, 2004, $450,000 was outstanding. The
line is secured cash deposits at a financial institution, which is reflected as
restricted cash.
We believe that our working capital will improve as our profitability
improves and as we pay-off certain debt settlements. Nevertheless, we can
provide no assurance as to our future profitability or access to capital
markets, or successful re-negotiation of existing debt.
In February of 2004, we issued two convertible notes in the aggregate
amount of $374,000. We also sold $100,000 of units consisting of shares of
convertible preferred stock and warrants.
On August 18, 2004, we entered into a Standby Equity Distribution
Agreement with Cornell Capital Partners. Pursuant to the Standby Equity
Distribution Agreement, we may, at our discretion, periodically issue and sell
shares of our common stock for a total purchase price of $15,000,000. If we
request advances under the Standby Equity Distribution Agreement, Cornell
Capital Partners will purchase shares of common stock of IBX for 98% of the
lowest volume weighted average price on the Over-the-Counter Bulletin Board or
other principal market on which our common stock is traded for the five days
immediately following the advance notice date. Cornell Capital Partners will
retain 5% of each advance under the Standby Equity Distribution Agreement. We
may not request advances in excess of a total of $15,000,000. The maximum of
each advance is equal to $600,000. There is an inverse relationship between the
price of our common stock and the number of shares of common stock which will be
30
issued under the Standby Equity Distribution Agreement. Based on our recent
stock price of $0.0035, we would have to issue to Cornell Capital Partners
4,373,177,843 shares of our common stock in order to draw down the entire
$15,000,000 available to us under the Standby Equity Distribution Agreement. We
are registering 25,000,000 shares of our common stock under the Standby Equity
Distribution Agreement in the accompanying registration statement. Based on our
recent stock price of $0.0035, and that we are registering 25,000,000 shares of
our common stock under the Standby Equity Distribution Agreement in the
accompanying registration statement, we could draw down a maximum amount of
$85,750 under the Standby Equity Distribution Agreement. Our Articles of
Incorporation currently authorize IBX to issue 500,000,000 shares of common
stock and, as of June 30, 2004, we had 120,437,877 shares of common stock issued
and outstanding and 382,053 common shares issuable and outstanding. In the event
we desire to draw down any available amounts remaining under the Standby Equity
Distribution Agreement after we have issued the 25,000,000 shares being
registered in the accompanying registration statement, we will have to seek
stockholder approval for an increase in our authorized common stock and file a
new registration statement to cover such additional shares that we would issue
for additional draw downs under the Standby Equity Distribution Agreement.
On August 18, 2004, we issued a secured Convertible Debenture to
Cornell Capital Partners in the principal amount of $200,000. The Convertible
Debenture accrues interest at the rate of 5% per year. At IBX's option, the
entire principal amount and all accrued interest can be either: (i) paid to the
holder of the Convertible Debenture on its third-year anniversary or (ii)
converted into shares of IBX common stock. The Convertible Debenture is
convertible into shares of our common stock at a price per share that is equal
to the lesser of: (i) an amount equal to 120% of the closing bid price of our
common stock as of the date of the Convertible Debenture or (ii) an amount equal
to 80% of the average of the lowest daily volume weighted average price of our
common stock for the five trading days immediately preceding the conversion
date. The Convertible Debenture accrues interest at a rate of 5% per year and is
convertible at the holder's option. The Convertible Debenture has a term of 3
years and is secured by all of our assets. At IBX's option, the Convertible
Debenture may be paid in cash or converted into shares of our common stock
unless converted earlier by the holder. Except after an event of default, as set
forth in the secured Convertible Debenture, the holder is not entitled to
convert such debenture for a number of shares of our common stock in excess of
that number of shares which, upon giving effect to such conversion, would cause
the aggregate number of shares of common stock beneficially held by such holder
and its affiliated to exceed 4.99% of our outstanding shares of common stock.
After we file a registration statement with the Securities and Exchange
Commission registering the shares of common stock underlying the Convertible
Debenture, we will issue a second secured Convertible Debenture to Cornell
Capital Partners in the principal amount of $200,000 upon the same terms and
conditions as the first secured Convertible Debenture above.
On August 18, 2004, we issued a convertible Compensation Debenture to
Cornell Capital Partners in the principal amount of $190,000. The Compensation
Debenture accrues interest at the rate of 5% per year. At IBX's option, the
entire principal amount and all accrued interest can be either: (i) paid to the
holder of the Convertible Debenture on the third-year anniversary of the
Convertible Debenture or (ii) converted into shares of IBX common stock. The
Compensation Debenture is convertible into shares of our common stock at a price
per share equal to 100% of the lowest volume weighted average price of IBX's
common stock, as quoted by Bloomberg, LP, for the three days immediately
preceding the conversion date. Based on a recent stock price of $0.0035 per
share, the Compensation Debenture would be convertible into 27,941,176 shares of
IBX common stock. The Compensation Debenture has a term of three years. At IBX's
option, the Compensation Debenture may be paid in cash or converted into shares
of our common stock unless converted earlier by the holder. Except after an
event of default, as set forth in the Compensation Debenture, the holder is not
entitled to convert such debenture for a number of shares of our common stock in
excess of that number of shares which, upon giving effect to such conversion,
would cause the aggregate number of shares of common stock beneficially held by
such holder and its affiliated to exceed 4.99% of our outstanding shares of
common stock.
We may not have sufficient cash flow from operations to sufficiently
meet all of our cash requirements for the next 12 months. Our ability to
continue as a going concern is dependent upon our ability to attain a
satisfactory level of profitability, have access to suitable financing, satisfy
our contractual obligations with creditors on a timely basis, and develop
further revenue sources. In August of 2004, we commenced negotiations with
creditors to convert debt into equity. As of September 30, 2004, no agreements
have been reached.
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DESCRIPTION OF BUSINESS
IBX develops and deploys innovative, cost-effective methods for
integrating financial, administrative and information services for the
healthcare industry. IBX operates five divisions:
o IBX TECHNOLOGIES, which enables healthcare organizations to maximize
their accounts receivables;
o FLORIDA HEALTHSOURCE, a network of physical therapy and wellness
centers;
o MEDICOMPLIANT SOLUTIONS, which ensures medical practices' compliance
with today's complex legal requirements;
o IBX TRANSCRIPTION SERVICES, which offers physicians quick
turn-around and Web-accessible progress reports; and
o NURSESSTAT, which deploys leading-edge staffing administration
technology to healthcare facilities and provides cost-effective
temporary staffing solutions.
IBX also recently relaunched SPORTSHEALTHNET.COM and THENETDIGEST.COM,
interactive Web portals providing patients with comprehensive healthcare
information and advice, and increasing physician referrals.
IBX TECHNOLOGIES
IBX Technologies creates and deploys innovative solutions for the
healthcare industry, including equipment integral to the operations of IBX
Transcription Services, and technology used for the development of paperless
offices, medical record management and storage, inventory control, and other
developing applications.
IBX Technologies has created online order entry/inventory control
systems, hand-held wireless PC applications and other interactive, real-time
applications that help reduce administrative paperwork and expedite data input
and updating. With the help of IBX Technologies, healthcare providers are now
able to access current inventory or billing files from their office workstations
or wireless hand-held devices, and instantly update operating and accounting
files.
IBX also developed an Internet-enabled application for patient
functional capacity evaluations, which is now available at Florida HealthSource
clinics and other physical therapy centers nationwide.
In addition, this division operates IBX's core business, accounts
receivables management, which enables a wide array of hospital-based physician
groups, large medical practices and ancillary healthcare organizations to
achieve their financial objectives. Through work-flow analysis, reporting and
online access to data, IBX Technologies seeks to enhance communication between
all involved parties. By reducing administrative costs, IBX strives to provide
solutions that help healthcare organizations meet their revenue goals and
improve overall patient satisfaction. The division is continuing to promote the
outsourcing of self-pay receivables, a more labor-intensive segment of accounts
receivable management.
FLORIDA HEALTHSOURCE
IBX is the owner of Florida HealthSource, LLC, a statewide network of
healthcare clinics and a workers' compensation referral network for
rehabilitation services throughout Florida. During 2003, Florida HealthSource
brought several existing clinics under management, and in early-2004, opened a
multi-disciplinary healthcare facility in Boca Raton, Florida that offers
physical therapy, occupational medicine, pain management and chiropractic care.
The new clinic is part of IBX's strategic plan to capitalize on the emerging
"wellness" trend in healthcare by bringing these various services under one
roof. Florida HealthSource centers will also serve as showcases for IBX's menu
of products and services specially designed for the healthcare industry. IBX
recently acquired a pulmonary rehabilitation clinic in Delray Beach, Florida and
is exploring opportunities in several other medical disciplines.
In addition, Florida HealthSource also provides comprehensive
healthcare services in the areas of chronic pain and job-related injuries,
meeting the needs of Florida's employers and payers. Its mission is to reduce
32
lost time and medical and indemnity costs by combining board-certified pain
management physicians, physical and occupational therapists, transportation and
translation services at locations throughout Florida. Florida HealthSource has
been established as the preferred provider network for more than 450,000
employees throughout the state of Florida.
Since its acquisition by IBX, Florida HealthSource has entered into two
new vendor agreements, including a contract that establishes IBX as a preferred
physical and occupational therapy vendor for a major U.S. retailer. In January
of 2003, Florida HealthSource entered into a contract with First Health Group
Corp., the largest directly contracted medical network for workers'
compensation, group health and government in the U.S. In March of 2003, this
division received national referral status through a contract with CorVel Corp.,
a California-based independent provider of leading-edge managed care services
and solutions for workers' compensation, group health and auto insurance
markets.
Florida HealthSource provides case managers and adjusters with a
statewide referral network of over 100 pre-approved, qualified service providers
for their insured patients. This allows the payer to control its costs by
sending the patients to providers with negotiated fees.
MEDICOMPLIANT SOLUTIONS
IBX's MediCompliant Solutions division is a healthcare legal services
organization that seeks to enable healthcare providers to achieve and maintain
compliance with today's increasingly complex government regulations. IBX is
currently focused on providing legal expertise regarding the comprehensive
patient privacy and portability requirements of the Health Insurance Portability
and Accountability Act ("HIPAA") and the new electronic billing standards
required for Medicare reimbursement.
In February of 2003, MediCompliant Solutions entered into an agreement
with Paris Health Services, a developer of comprehensive EDI transaction and
compliance software for the healthcare industry, to provide hospitals, large
physician groups and ancillary healthcare organizations access to all general
Medicare compliance risk areas identified by the U.S. Office of the Inspector
General, as well as the wide-ranging issues covered by the HIPAA privacy and
security standards. This agreement, together with a new, more competitive
pricing structure, has allowed MediCompliant Solutions to offer cost-effective
compliance "insurance policies" to healthcare providers
MediCompliant Solutions also makes available several products to help
healthcare providers create paperless offices, as well as document their efforts
to comply with HIPAA and Medicare regulations. These include an electronic
tablet that captures patient signatures upon arrival at doctors' offices and on
all standard forms, and "HIPAAdb", an Internet-based tracking system to
facilitate healthcare compliance.
IBX TRANSCRIPTION SERVICES
IBX Transcription Services offers healthcare providers complete medical
transcription and dictation services, and provides a platform for IBX's digital
online dictation/transcription product and document management service, along
with the workflow services associated with it. IBX offers several unique
features that differentiate it from its competitors, including compliance with
all current healthcare legislation, including HIPAA and Medicare regulations,
and state-of-the-art technology that gives users several options in dictating
and retrieving medical records.
IBX offers physicians substantial savings by eliminating the need for
an in-house transcriptionist; a secure web-based application providing file
upload, tracking and download capabilities; archiving of original voice
dictation files; archiving of transcribed reports; and an event log of both
outgoing and incoming Internet transfers.
NURSESSTAT
The mission of IBX's NursesSTAT division is two-fold: to help hospitals
manage nurses more effectively and, in so doing, to improve working conditions
for nurses. Hospitals find it labor-intensive and difficult to schedule nurses,
and rely extensively on expensive outside staffing agencies to fill increasing
vacant positions. NursesSTAT offers a technological solution to this ongoing
issue: an Internet-enabled, automated system that puts nurses and hospitals
together, allowing hospitals to better utilize their own nursing pools, reduce
dependence on staffing agencies and provide nurses with greater autonomy and job
satisfaction. The system has been received very positively because it allows
nurses to set their own supplemental schedules and avoid disruptive phone calls,
and allows hospitals to lower costs. Hospitals are then able to redirect some of
these available funds to nurse recruitment and retention programs.
33
SPORTSHEALTHNET.COM
IBX owns SportsHealthNet.com, an interactive Web portal that attracts
high levels of consumer traffic by providing comprehensive healthcare
information and advice, and helps participating physicians increase the number
of referrals to their practices. SportsHealthNet specializes in sports
medicine-related issues and provides information regarding exercise, nutrition
and ways to prevent common injuries, as well as links to other health-related
sites. An interactive forum gives consumers 24x7 access to sports medicine
professionals and allows them to receive personalized replies to specific health
questions.
SportsHealthNet has been integral to the success of IBX's Florida
HealthSource division, which maintains a statewide referral network with access
to 450,000 Florida residents. SportsHealthNet provides orthopedic surgeons,
chiropractors, physical therapists and other healthcare providers with a source
of additional referrals, helping them to potentially increase their visibility
and maximize revenue.
A newly upgraded SportsHealthNet.com is equipped with a number of new
features, including a format that allows physicians to advertise their services,
an exclusive membership program, and sophisticated e-commerce capabilities that
enables consumers to purchase sports and sports injury-related products. IBX has
also launched an integrated marketing campaign designed to increase traffic to
the site, as well as maximize commissions and e-commerce fees.
SALES AND MARKETING
The current marketing focus for our financial, administrative and
technology services is the 14,000-plus physician market in the South Florida
area. We believe that the majority of these practices are not currently using
Windows-based practice management software, but many have made the transition to
outsourcing their medical document management needs. We believe that physicians
are trained to concentrate on the professional rather than business aspects of
their practices. They do, however, appear to recognize that their income is
being limited by the prevailing healthcare system while their cost of doing
business has increased substantially and, consequently, they are becoming
more-and-more receptive to the types of cost-effective solutions we offer.
We intend to continue to offer our services through physician office
administrators and hospital accounts receivable managers who make most service
provider selection decisions. We believe that administrators are often
over-worked, underpaid and looking for reasonable means to increase their
productivity while decreasing the time demands with which they are faced. These
practices typically pay between $75,000 to $350,000 annually for their current
suite of services.
We also intend to expand our target market geographically and through a
segment-oriented approach by contacting hospitals and large physician groups
outside the South Florida market in areas that we can already demonstrate
expertise, results and third-party endorsements.
A formal marketing campaign, consisting of a full-service website, a
variety of printed materials and public relations outreach, is in place, and we
are continuing to maintain word-of-mouth referrals from medical professionals,
attorneys and accountants within the healthcare industry. In addition, we are in
the early stages of a nationwide public relations and marketing campaign to
create awareness of our TheraTouch and ActiPatch products.
CONCENTRATION OF CUSTOMERS
As of June 30, 2004, our three largest customers accounted for
approximately 57% of 2004 consolidated revenues and 66% of consolidated accounts
receivable. Consequently, our success is materially dependent on our
relationship with these customers and their continued viability. We are not
reliant on any single vendor.
COMPETITION
The market for medical business solutions is highly competitive and is
characterized by rapidly changing technology, evolving user needs, and frequent
introduction of new products. Each of our products and services have material
competition from other companies, however we believe that few, if any, of our
competitors offer their clients the comprehensive services available from us.
Our principal competitors in the practice management market include
WebMD and ProxyMed, which have substantial reputations in the Internet medical
services market. However, we believe that they do not concentrate on providing
34
primary services such as accounts receivable management, billing and collections
processing or standard day-to-day operational services designed to increase
physicians' profits. In addition, many well-known accounting and consulting
firms have entered into the medical practice management market by advertising
business management services specifically to physicians on the basis that their
expertise can enhance physician receivable collections and better manage their
work flow. We view these companies as significant competitors in a market where
knowing physician nuances requires extreme sensitivity, empathy and
understanding of their dynamic work environment.
There are many companies offering physical therapy and rehabilitation
services in Florida, ranging from large companies, like HealthSouth, to single
office centers owed by chiropractors and physical therapists. IBX believes that
the most important issue in obtaining new business is the source of referral,
which is often from a physician or an insurance company.
We believe that competition will continue to increase as a result of a
number of factors, including the aging of baby boomers and their resulting
medical-related needs, the growth of the Internet and physicians' evolving
awareness of what the Internet can do for their business, and the continuing
consolidation of Internet companies' services. We believe that the primary
factors affecting competition in our markets include:
o product functionality,
o performance, flexibility and features,
o use of open standards technology,
o quality of service and support,
o reputation,
o product and service pricing, and
o overall cost of ownership.
Government Regulation And Healthcare Reform
The healthcare industry is subject to changing political, economic and
regulatory influences that may affect the procurement practices and operations
of healthcare organizations. Our products are designed to function within the
structure of the healthcare financing and reimbursement system currently being
used in the U.S. During the past several years, the healthcare industry has been
subject to an increase in governmental regulation of, among other things,
reimbursement rates.
Proposals to reform the U.S. healthcare system have been and will
continue to be considered by the U.S. Congress. These programs may contain
proposals to increase governmental involvement in healthcare and otherwise
change the operating environment for our existing and potential customers.
Healthcare organizations may react to these proposals and the uncertainty
surrounding those proposals by curtailing or deferring investments, including
those for our products and services. On the other hand, changes in the
regulatory environment have in the past increased and may continue to increase
the needs of healthcare organizations for cost-effective information management
and thereby potentially enhance the marketability of our products and services.
We cannot predict what impact, if any, such proposals or healthcare reforms
might have on our results of operations, financial condition, and business.
RELATIONSHIPS WITH PHYSICIANS AND OTHER PROVIDERS
Various state and federal laws regulate relationships among providers
of healthcare services, including employment or service contracts and investment
relationships. These restrictions include a federal criminal law prohibiting (a)
the offer, payment, solicitation or receipt of remuneration by individuals or
entities to induce referrals of patients for services reimbursed under the
Medicare or Medicaid programs; or (b) the leasing, purchasing, ordering,
arranging for or recommending the lease, purchase or order of any item, good,
facility or service covered by such programs (the "Fraud and Abuse Law"). In
addition to federal criminal sanctions, violators of the Fraud and Abuse Law may
be subject to significant civil sanctions, including fines and/or exclusion from
the Medicare and/or Medicaid programs.
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In 1991, the Office of the Inspector General ("OIG") issued regulations
describing compensation arrangements which are not viewed as illegal
remuneration under the Fraud and Abuse Law (the "1991 Safe Harbor Rules"). The
1991 Safe Harbor Rules create certain standards ("Safe Harbors") for identified
types of compensation arrangements which, if fully complied with, assure
participants in the particular arrangement that the OIG will not treat that
participation as a criminal offense under the Fraud and Abuse Law or as the
basis for an exclusion from the Medicare and Medicaid programs or an imposition
of civil sanctions.
In 1992, regulations were published in the Federal Register
implementing the OIG sanction and civil money penalty provisions established in
the Fraud and Abuse Law. The regulations provide that the OIG may exclude a
Medicare provider from participation in the Medicare Program for a five-year
period upon a finding that the Fraud and Abuse Law has been violated. The
regulations provide that if one purpose of remuneration that is offered, paid,
solicited or received is to induce referrals, then the statute is violated. The
regulations also provide that after the OIG establishes a factual basis for
excluding a provider from the program, the burden of proof shifts to the
provider to prove that it has not violated the Fraud and Abuse Law.
The OIG closely scrutinizes healthcare joint ventures involving
physicians and other referral sources. In 1989, the OIG published a Fraud Alert
that outlined questionable features of "suspect" joint ventures, and has
continued to rely on such Fraud Alert in later pronouncements. The 1991 Safe
Harbor Rules do not expand the scope of activities that the Fraud and Abuse Law
prohibits, nor do they provide that failure to fall within a Safe Harbor
constitutes a violation of the Fraud and Abuse Law; however, the OIG has
indicated that failure to fall within a Safe Harbor may subject an arrangement
to increased scrutiny.
The so-called "Stark II" provisions of the Omnibus Budget
Reconciliation Act of 1993 amended the federal Medicare statute to prohibit the
making by a physician of referrals for "designated health services" including
physical therapy, occupational therapy, radiology services or radiation therapy,
to an entity in which the physician has an investment interest or other
financial relationship, subject to certain exceptions. In January of 1998, the
Department of Health and Human Services (the "DHHS") published proposed
regulations (the "Proposed Stark Regulations") under the Stark II statute and
solicited comments thereon. On January 4, 2001, the DHHS published final
regulations relating to part of the Stark II statute (the "Phase I Final Stark
Regulations") and announced its intention to publish a second "Phase II" set of
regulations covering the remainder of the statute and responding to comments
received on the Phase I Final Stark Regulations at some unspecified future date.
The Phase I Final Stark Regulations, which differ substantially in many respects
from the Proposed Stark Regulations, had a specified effective date of January
4, 2002. In addition, a number of states have passed or are considering statutes
which prohibit or limit physician referrals of patients to facilities in which
they have an investment interest. IBX's current businesses are exempt from the
above statutes since no physician has any direct interest in any of its
facilities.
THE HEALTH INSURANCE PORTABILITY AND ACCOUNTABILITY ACT OF 1996
In an effort to combat healthcare fraud, Congress included several
anti-fraud measures in the Health Insurance Portability and Accountability Act
of 1996 ("HIPAA"). HIPAA, among other things, amends existing crimes and
criminal penalties for Medicare fraud and enacts new federal healthcare fraud
crimes. HIPAA also expands the Fraud and Abuse Law to apply to all federal
healthcare programs, defined to include any plan or program that provides health
benefits through insurance that is funded by the federal government. Under
HIPAA, the Secretary of the DHHS (the "Secretary") may exclude from the Medicare
program any individual who has a direct or indirect ownership or control
interest in a healthcare entity that has been convicted of a healthcare fraud
crime or that has been excluded from the Medicare program. HIPAA directs the
Secretary to establish a program to collect information on healthcare fraud and
abuse to encourage individuals to report information concerning fraud and abuse
against the Medicare program and provides for payment of a portion of amounts
collected to such individuals. HIPAA mandates the establishment of a Fraud and
Abuse Program, among other programs, to control fraud and abuse with respect to
health plans and to conduct investigations, audits, evaluations, and inspections
relating to the delivery of and payment for healthcare in the U.S.
HIPAA prohibits any person or entity from knowingly and willfully
committing a federal healthcare offense relating to a health care benefit
program. Under HIPAA, a "health care benefit program" broadly includes any
private plan or contract affecting interstate commerce under which any medical
benefit, item, or service is provided to any individual. Among the federal
health care offenses prohibited by HIPAA are healthcare fraud and making false
statements relative to healthcare matters. Any person or entity that knowingly
and willfully defrauds or attempts to defraud a healthcare benefit program or
obtains by means of false or fraudulent pretenses, representations or promises,
36
any of the money or property of any healthcare benefit program in connection
with the delivery of healthcare services is subject to a fine and/or
imprisonment. In addition, HIPAA provides that any person or entity that
knowingly and willfully falsifies, conceals or covers up a material fact or
makes any materially false or fraudulent statements in connection with the
delivery of or payment of healthcare services by a healthcare benefit plan is
subject to a fine and/or imprisonment.
HIPAA further expands the list of acts which are subject to civil
monetary penalties under federal law and increases the amount of civil penalties
which may be imposed. HIPAA provides for civil fines for individuals who retain
an ownership or control interest in a Medicare or Medicaid participating entity
after such individuals have been excluded from participating in the Medicare or
Medicaid program. HIPAA further provides for civil fines for individuals who
offer inducements to Medicare or Medicaid eligible patients if the individuals
know or should know that their offers will influence the patients to order or
receive items or services from a particular provider, practitioner or supplier.
In addition, HIPAA mandates, for all healthcare providers,
standardization in the use, storage, and transfer of electronically transmitted
healthcare data and also requires that healthcare providers, payors and
clearinghouses adopt detailed new procedures for ensuring the privacy and
security of individually identifiable health information. In August of 2000, the
DHHS published final regulations adopting standards for electronic transactions
and for code sets to be used in those transactions. Those regulations have a
specified effective date of October 16, 2002 for most providers, including us.
In December of 2000, the Department released final regulations establishing
standards for the privacy of individually identifiable health information. The
final privacy regulations, which differ substantially from previously proposed
regulations, impose significant limitations on the use and disclosure of
individually identifiable health information by providers, including us, as well
as payors and clearinghouses. The final regulations take effect in April of
2003. The final privacy regulations have been significantly criticized by many
parts of the healthcare industry, and further changes in such regulations or
delays in their implementation are possible.
Compliance with the HIPAA privacy and electronic standards regulations
will require significant changes in current information and claims processing
practices utilized by most healthcare providers, although we believe we are
compliant at this time.
We cannot predict whether other regulatory or statutory provisions will
be enacted by federal or state authorities which would prohibit or otherwise
regulate relationships which we have established or may establish with other
healthcare providers or the possibility of materially adverse effects on its
business or revenues arising from such future actions. We believe, however, that
we will be able to adjust our operations so as to be in compliance with any
regulatory or statutory provision that may be applicable.
INTELLECTUAL PROPERTY
We seek to protect our proprietary information through nondisclosure
agreements with our employees. Our policy is to have employees enter into
nondisclosure agreements containing provisions prohibiting the disclosure of
confidential information to anyone outside IBX, requiring disclosure to us of
any new ideas, developments, discoveries or inventions conceived during
employment, and requiring assignment to IBX of proprietary rights to such
matters that are related to our business.
We also rely on a combination of trade secrets, copyright and trademark
laws, contractual provisions and technical measures to protect our rights in
various proprietary methodologies, systems and products and knowledge bases. We
believe that because of the rapid pace of technological change in the healthcare
industry, trade secret and copyright protection are less significant than
factors such as the knowledge, ability, experience and integrity of our
employees, frequent product enhancements, and the timeliness and quality of
support services.
Although we believe that our products do not infringe on the
intellectual property rights of others, we cannot assure you that such a claim
will not be asserted against us in the future. If asserted, such a claim could
cause us to lose revenues and/or incur substantial litigation expense.
EMPLOYEES
As of December 31, 2003, we had 47 full-time employees, of which three
were executive, three were administrative, and three were technical employees.
No employees are presently represented by any labor unions. We believe our
relations with our employees to be good, however additional employees will need
to be recruited to meet our growth projections.
37
RECENT DEVELOPMENTS
IBX Diagnostics, Inc., a joint venture between Medical Capital Group,
LLC and IBX Technologies, Inc., has a contract as a premiere distributor of the
in2itTM, in-office, blood-testing device created by Provalis Diagnostics. The
machine has received final approval from the U.S. Food and Drug Administration.
This approval should allow our aggressive sales and distribution plans to take
effect immediately. IBX Diagnostics will market an administrative component to
the users of the product and add additional diagnostic equipment to its
distribution network.
As a result of an extensive internal cost review, we plan on selling or
closing any under-performing subsidiaries or segments. In an effort to reduce
labor expenses and overhead throughout IBX, we will commit our selves to the
most current and potentially profitable segments of the healthcare industry.
38
MANAGEMENT
The following persons are members of our board of directors and/or
executive officers, in the capacities indicated, as of September 30, 2004:
NAME AGE POSITION
---- --- --------
Evan Brovenick 43 President, Chief Executive Officer, and Chairman of
the Board
David Blechman 53 Vice President, Secretary, and Director
Alvin Brovenick 73 Principal Financial and Accounting Officer, and
Director
Mitchell Hershey 45 Director
The directors hold office until the next annual meeting of the
shareholders and until their successors have been duly elected or qualified.
Officers hold their positions at the will of the board of directors, absent any
employment agreement. There are no arrangements, agreements or understandings
between non-management shareholders and management under which non-management
shareholders may directly or indirectly participate in or influence the
management of IBX's affairs.
EVAN R. BROVENICK
Mr. Brovenick has been Chairman of the Board, President and Chief
Executive Officer since the acquisition of PriMed in September of 2001 and was a
founder, President and Chief Executive Officer of PriMed and its predecessors
since its inception in 1999. From January of 1994 until March of 1999, Mr.
Brovenick served as the Director of Marketing and Business Development for
ManageMed, a healthcare services company.
DAVID J. BLECHMAN
Mr. Blechman has been Vice President, Secretary, and Director since the
acquisition of PriMed in September 2001 and was a founder, President and Chief
Executive Officer of PriMed and its predecessors since its inception in 1999.
From January of 1994 until March of 1999, Mr. Blechman served as the Director of
Technical Services for ManageMed.
ALVIN BROVENICK
Mr. Brovenick has served as a member of IBX's board of directors since
its inception. Mr. Brovenick served a materially similar role with PriMed LLC
prior to its merger with PriMed. During the immediately preceding five years, in
addition to his roles with PriMed and its predecessors, Mr. Brovenick served as
the Treasurer of ManageMed. He is the father of Evan Brovenick, PriMed's founder
and President. Mr. Brovenick is a retired certified public accountant. Mr.
Brovenick also serves as IBX's Principal Financial and Accounting Officer.
MITCHELL HERSHEY
Mr. Hershey has served as a member of IBX's board of directors since
June of 2004. He is currently the Director of Field Operations for Zimmerman &
Partners of Fort Lauderdale, Florida. Prior to this position which he has held
for the past two years, Mr. Hershey spent 1996 through 2000 at Saatchi & Saatchi
Advertising in New York, as General Manager for Toyota Motors, U.S. Previous
positions have included advertising and marketing for corporations like Proctor
& Gamble, General Mills, Dr. Pepper, Hertz, Budget Rent A Car, RJ Reynolds,
Hueblein, Pabst Brewing and Club Med. Mr. Hershey holds an MBA in Marketing from
Pace University in New York City and a B.S. in Management from the University of
Florida.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires our directors and executive officers, and persons who own more than 10%
of a registered class of our equity securities, to file with the Securities and
Exchange commission initial reports of ownership and reports of changes in
ownership of common stock and other of our equity securities. Such persons are
required by SEC regulations to furnish us copies of all Section 16(a) forms they
file.
39
Based on available information, IBX believes that all filings by our
officers, directors, and 10% shareholders with respect to Section 16(a) are
current.
CODE OF ETHICS
IBX has adopted a formal code of ethics that applies to our principal
executive officer and principal accounting officer, and all other officers,
directors and employees of IBS. This code of ethics is being filed with the SEC
as an exhibit to the accompanying registration statement.
COMMITTEES
IBX currently has no audit committee because there is only one
independent director, Mitchell Hershey, who does not qualify as a financial
expert. The Board of Directors will form an audit committee at such time as
there are at least two independent directors.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------- -------------------------------------------------------
AWARDS PAYOUTS
------------------------- ---------------------------
RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION AWARD(S) OPTIONS/SARS LTIP PAYOUTS COMPENSATION
POSITION YEAR ($) ($) ($) ($) (#) ($) ($)
------------------- ---- ------ ----- ------------ ---------- ------------ ------------ ------------
(A) (B) (C) (D) (E) (F) (G) (H) (I)
Evan Brovenick, 2003 -- 87,000 12,586 (1) 14,700 (2) -- -- --
President and Chief 2002 125,000 -- 15,476 (1) -- -- -- --
Executive Officer 2001 100,000 -- 15,000 (1) -- -- -- --
David Blechman, 2003 125,000 -- 7,996 (1) 14,000 (3) -- -- --
Vice President 2002 125,000 -- 12,359 (1) -- -- -- --
2001 100,000 -- 15,000 (1) -- -- -- --
---------------
(1) Includes car allowance, health coverage and life insurance.
(2) Represents 210,000 shares valued at $0.07 per share.
(3) Represents 200,000 shares valued at $0.07 per share.
The following table contains information regarding options granted
during the year ended December 31, 2003 to IBX's named executive officers.
OPTION/SAR GRANTS TABLE
% TOTAL OPTIONS/SARS
NO. OF SECURITIES GRANTED TO EMPLOYEES IN
UNDERLYING OPTIONS/SARS YEAR ENDED DECEMBER 31 EXERCISE OR BASE
GRANTED 2003 PRICE
NAME (#) (%) ($ PER SHARE) EXPIRATION DATE
---- ----------------------- ----------------------- ---------------- ---------------
Evan Brovenick,
President and Chief
Executive Officer -- -- -- --
David Blechman,
Vice President -- -- -- --
The following table contains information regarding options exercised in
the year ended December 31, 2003, and the number of shares of common stock
underlying options held as of December 31, 2003, by IBX's named executive
officers.
40
AGGREGATED OPTIONS/SAR EXERCISES
IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTIONS/SAR VALUES
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS/SARS IN-THE-MONEY OPTIONS/SARS
SHARES ACQUIRED AT FY-END AT FY-END
ON VALUE ----------------------------- ---------------------------
EXERCISE REALIZED (#) ($)
--------------- -------- ----------------------------- ---------------------------
NAME (#) ($) EXERCISABLE UNEXCERSIABLE EXERCISABLE UNEXCERSIABLE
---- --------------- -------- ----------- ------------- ----------- -------------
Evan Brovenick,
President and Chief
Executive Officer -- -- -- -- -- --
David Blechman,
Vice President -- -- -- -- -- --
STOCK OPTION GRANTS IN THE PAST FISCAL YEAR
No options were granted to the executive officers named above in 2003.
COMPENSATION OF DIRECTORS
We do not currently pay any compensation to our outside directors.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT, AND CHANGE IN CONTROL
ARRANGEMENTS
On December 19, 2001, we entered into an employment agreement with Evan
Brovenick for a period ending on December 31, 2006. Mr. Brovenick's
responsibilities involve all services, acts, or things necessary or advisable to
serve as IBX's President and Chief Executive Officer including but not limited
to assistance in establishing our policies and strategic planning, identifying
potential acquisition candidates, assisting in financial planning and capital
formation, and overseeing our day-to-day operations.
As compensation for his services, Mr. Brovenick received an annual base
compensation of $125,000 in 2003. Subject to board approval, the annual base
salary in each succeeding year will be equal to at least 110% of the annual base
salary from the prior year.
In addition to the monthly compensation, Mr. Brovenick was issued
6,600,000 shares of our common stock that vest only if during the term of Mr.
Brovenick's employment, we have a net pre-tax profit of at least $1.00 as
determined by our year-end audited financial statements. Until such time as the
shares have vested, Mr. Brovenick will have no right to vote the shares nor may
he have the right to pledge, encumber, hypothecate or in any way transfer these
shares. These shares vested as a result of the 2002 financial results. Mr.
Brovenick will also be entitled to such other bonuses based upon our performance
as determined in the sole and absolute discretion of the board of directors;
will be offered health insurance coverage at no cost; be entitled to participate
in such employee benefit programs as are offered to other employees; and be
entitled to annual paid vacation. Mr. Brovenick will also be reimbursed for
out-of-pocket expenses incurred by him in the performance of his duties. We have
the right to terminate the agreement for good cause or by reason of Mr.
Brovenick's disability on 30 days' prior written notice to Mr. Brovenick. As
used in the agreement, "disability" means Mr. Brovenick's inability caused by
mental or physical illness to satisfactory perform his obligations and duties
for a consecutive period in excess of 120 days during the term of the agreement
or for a period of 180 out of a total of 360 work days; and, "good cause" means
any breach by Mr. Brovenick of his obligations under the agreement, habitual
neglect of duties, continued incapacity or inability to perform the obligations
set forth in the agreement or the conviction of any felony. If Mr. Brovenick is
terminated for any other reason than good cause, we will be obligated to pay Mr.
Brovenick a severance payment equal to the greater of $100,000 or the remaining
sums due under the agreement. The agreement also contains non-competition and
confidentiality provisions.
David Blechman's agreement is identical to Mr. Brovenick's except that
he has not been granted any restricted stock as compensation for services, only
as a year-end bonus, like other IBX employees.
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OTHER COMPENSATION
There are no annuity, pension or retirement benefits proposed to be
paid to officers, directors, or employees of IBX in the event of retirement at
normal retirement date as there is no existing plan provided for or contributed
to by IBX. No remuneration is proposed to be paid in the future directly or
indirectly by IBX to any officer or director since there is no existing plan,
which provides for such payment, including a stock option plan.
42
DESCRIPTION OF PROPERTY
Our principal place of business is located at 350 Jim Moran Boulevard,
Deerfield Beach, Florida, 33442. This is an office park setting where others
businesses are administrative or professional in nature. We occupy approximately
10,000 square feet of space pursuant to a lease ending on August 31, 2005. The
rent is currently $21,700 per month. We lease three Florida HealthSource
facilities in Boca Raton, Delray Beach, and Oakland Park. The aggregate annual
rent is approximately $200,000 and the leases expire at various times from 2006
to 2008.
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LEGAL PROCEEDINGS
We are not a party to any material litigation, nor are we aware of any
potential material litigation, other than as set forth below.
SECURITIES AND EXCHANGE COMMISSION SUBPOENA
In June of 2003, Evan Brovenick, IBX's President and Chief Executive
Officer, received a subpoena from the SEC in an investigation entitled "In the
Matter of Yankee Companies, LLC and Leonard M. Tucker". The requested
information related to transactions between Tucker, Yankee, and IBX as well as
information relating to press releases issued by IBX in connection therewith.
IBX provided all of the information requested by the SEC. Since the information
was supplied, IBX has not had any contact with the SEC's Division of Enforcement
but understands that the investigation is ongoing. At this time, IBX and Mr.
Brovenick do not know if either is a subject of said investigation or a witness.
WILLIAM DUDZIAK V. PRIMED TECHNOLOGIES, L.L.C., EVAN BROVENICK, ET. AL., CASE
NO. CL 00-7488AO
Mr. Dudziak loaned PriMed approximately $870,000 on November 28, 1999,
repayment of which was secured by all ownership interests in PriMed L.L.C. The
proceeds of the loan were used by PriMed to repurchase the PriMed stock held by
Primus Physician Services. A lawsuit was filed against PriMed, L.L.C., Evan
Brovenick, Natalie Brovenick, Alvin Brovenick, Susan Brovenick and David
Blechman. It was originally agreed between the parties that this money would be
paid back within 30 days.
Since the defendants failed to repay the money in a timely fashion, in
2001 a stipulation of settlement was executed between the parties whereby it was
agreed that Mr. Dudziak would suspend the litigation pending efforts by PriMed
and Evan Brovenick to comply with certain terms set forth in the stipulation.
IBX did not stay current with that agreement. In October of 2002, IBX made a
payment of $275,000 and the parties entered into an amended settlement agreement
effective November 7, 2002 whereby Dudziak agreed to dismiss his action.
Pursuant to the terms of that agreement, IBX is obligated to make certain
monthly payments. IBX has made approximately $370,000 in payments under the
amended settlement agreement; however, IBX is currently in default under that
agreement. A default under the amended settlement agreement gives Mr. Dudziak
the right to file an affidavit ex parte and obtain a judgment for the full
amount owed under the amended settlement agreement ($870,000) less any payments
already made by IBX (approximately $370,000). Pursuant to the amended settlement
agreement, Mr. Dudziak has a lien and perfected security interest on all of the
assets of IBX Technologies, Inc., which is IBX's primary operating subsidiary,
and on 11,550,000 shares of IBX common stock owned by Evan Brovenick and David
Blechman. IBX anticipates repaying the entire remaining balance by December 31,
2004 at which point all obligations under the amended settlement agreement will
be satisfied.
NORMANDY VILLAGE LIMITED PARTNERSHIP V. FLORIDA HEALTHSOURCE, LLC, ET AL., CASE
NO. 16-2004-CA-003721-XXXX-MA
Florida HealthSource, LLC, a subsidiary of IBX, entered into a
multi-year lease with Normandy Village Limited Partnership for its
rehabilitation facility located in Jacksonville, Florida. The lease was
guaranteed by IBX. IBX subsequently abandoned the lease. The space has been
re-let, but Normandy Village claims that approximately $150,000 is still owed
under the lease for the deficiency due Normandy Village. The parties are
scheduled to go to mediation on December 1, 2004.
LHI DELRAY CORP. AND SOUTH FLORIDA THERAPY I, LLC, CASE NO.
50-2004-CA-007188-XXXX-MB
In June of 2004, LHI Delray Corp. filed a complaint against South
Florida Therapy I, LLC, which is a subsidiary of IBX. IBX is not named in this
lawsuit. The action is for eviction of South Florida Therapy I from space
located in Delray Beach, Florida, which was leased from LHI Delray Corp., and
payment by South Florida Therapy I of approximately $24,000 in back rent. IBX
intends to resolve this matter on behalf of its subsidiary. A settlement
conference is scheduled for October 11, 2004.
44
PRINCIPAL STOCKHOLDERS
The following table presents certain information regarding the
beneficial ownership of all shares of common stock at September 30, 2004 for
each executive officer and director of IBX and for each person known to us who
owns beneficially more than 5% of the outstanding shares of our common stock.
The percentage ownership shown in such table is based upon 231,654,515 common
shares issued and outstanding at September 30, 2004 and ownership by these
persons of options or warrants exercisable within 60 days of such date. Also
included is beneficial ownership on a fully-diluted basis showing all
authorized, but unissued, shares of our common stock at September 30, 2004 as
issued and outstanding. Unless otherwise indicated, each person has sole voting
and investment power over such shares.
We are registering 272,193,282 shares of common stock in this offering.
These shares represent approximately 54% of our authorized capital stock and
would upon issuance represent approximately 60% of the then issued and
outstanding common stock and we anticipate all such shares will be sold in this
offering. If all or a significant block of these shares are held by one or more
shareholders working together, then such shareholder or shareholders would have
enough shares to effect a change in control of IBX.
PRINCIPAL SHAREHOLDERS
------------------------------------------------------------------------------
AMOUNT OF
TITLE OF BENEFICIAL PERCENT OF
CLASS NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP CLASS (1)
-------- ------------------------------------- -------------- ----------
Common Evan Brovenick
350 Jim Moran Boulevard
Deerfield Beach, FL 33442 31,285,027 (2) 13.50%
Common David Blechman
350 Jim Moran Boulevard
Deerfield Beach, FL 33442 2,286,500 *%
Common Alvin Brovenick
350 Jim Moran Boulevard
Deerfield Beach, FL 33442 0 *%
Common Mitchell Hershey
350 Jim Moran Boulevard
Deerfield Beach, FL 33442 150,000 *%
Common All officers and directors as a group
(i.e., the 4 persons named above) 33,721,527 14.51%
Common Mana Holdings LLC
200 E. 89th Street, 445
New York, NY 10128 20,000,000 8.634%
------------------
* = Less than 1%.
(1) Applicable percentage of ownership is based on 231,654,515 shares of common
stock outstanding as of September 30, 2004 together with securities
exercisable or convertible into shares of common stock within 60 days of
September 30, 2004 for each stockholder. Beneficial ownership is determined
in accordance with the rules of the Securities and Exchange Commission and
generally includes voting or investment power with respect to securities.
Shares of common stock subject to securities exercisable or convertible into
shares of common stock that are currently exercisable or exercisable within
60 days of September 30, 2004 are deemed to be beneficially owned by the
person holding such options for the purpose of computing the percentage of
ownership of such person, but are not treated as outstanding for the purpose
of computing the percentage ownership of any other person.
(2) Includes 16,285,027 shares, plus 15,000,000 shares issuable upon conversion
of 7,500 shares of Series B Preferred Stock.
45
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In 2000 and 2001, Evan Brovenick, an officer and director of IBX,
loaned IBX $175,000 and $93,000, respectively. As of December 31, 2002, the 2000
advances have been repaid in full to Mr. Brovenick. The 2001 advances have been
treated as a contribution to capital.
In September of 2001, IBX issued to Steven Adelstein, a former director
of IBX, 250,000 options with an exercise price of $0.50 per share in 2001 for
his service as President of VidKid.
In 2001, IBX issued to Evan Brovenick 2,000,000 Class C warrants with
an exercise price of $0.10 per share, and 2,000,000 Class D warrants with an
exercise price of $0.20 per share. Mr. Brovenick subsequently assigned 1,140,000
of the Class C warrants to Mr. Adelstein and 500,000 to Mr. Adelstein's adult
son. Mr. Adelstein assigned 1,140,000 of these warrants to his adult children.
During 2002, Todd Adelstein and Tammi Shnider, the adult children of
Steven Adelstein, lent IBX an aggregate of $46,036 to cover operating expenses.
In May of 2002, the $46,036 loan from Mr. Adelstein and Ms. Shnider and $25,000
from an unrelated person was converted into a purchase of restricted stock at a
price of $0.10 per share. The Calvo Family Spend Thrift Trust and the Tucker
Family Spend Thrift Trust each cancelled 425,000 Class A warrants as part of
this transaction.
During 2002, the Calvo Family Spend Thrift Trust and the Tucker Family
Spend Thrift Trust lent IBX an aggregate of $94,237. This amount was used to
convert 942,366 outstanding warrants.
In May of 2002, the Calvo Family Spend Thrift Trust and the Tucker
Family Spend Thrift Trust each agreed to transfer 425,000 Class A warrants to
lenders to IBX.
Effective May 29, 2002, IBX entered into an Exchange Agreement with the
Calvo Family Spend Thrift Trust pursuant to which the trust exchanged 8,000,000
of the 9,682,325 shares of common stock it then held for 80,000 shares of
non-voting Class A preferred stock. The agreement provides that the trust cannot
own 5% or more of our voting securities. We decided to enter into the Exchange
Agreement because William A. Calvo, a beneficiary of the trust, was found guilty
of violating Section 5 of the Securities Act of 1933 by reselling, or by being a
necessary or substantial participant in the resale of, unregistered Systems of
Excellence shares and that Diversified Corporate Consulting Group, a limited
liability company of which Mr. Calvo was a Member, had violated Section 17(a) of
the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of
1934 with respect to the fraudulent and manipulative trading in Systems of
Excellence shares. The conversion into the Class A preferred stock will help us
to limit any control that Mr. Calvo may have over IBX. In 2003, 23,000 shares of
this preferred stock was converted into common stock and in March of 2004,
24,000 shares were converted.
In December of 2002, IBX issued 1,470,588 shares of common stock to
consultants, employees and an outside director, Steven Adelstein, at $0.046 per
share, for services rendered and to be rendered in the future.
In April of 2003, Irv Freiberg entered into separate agreements with
the Tucker Family Spend Thrift Trust and the Calvo Family Spend Thrift Trust
pursuant to which he has the right to purchase all of the Class A warrants from
the Tucker Family Spend Thrift Trust and all of the Class E warrants from the
Calvo Family Spend Thrift Trust. The Trusts have agreed with Mr. Freiberg to not
exercise the warrants so long as Mr. Freiberg purchases 1,470,588 warrants per
month from each Trust. IBX agreed to pay Brett Finkelstein, a selling
shareholder or his designees a fee of $0.005 for each warrant that is purchased
by Mr. Freiberg and subsequently exercised. An aggregate of 19,790,000 warrants
were exercised by Mr. Freiberg. IBX paid Mr. Freiberg $550,000 in 2003 for
marketing and consulting services. An entity unaffiliated with Mr. Freiberg also
purchased an aggregate of 13,500,000 warrants from the Trusts on the same terms
as Mr. Freiberg.
As of December 31, 2003, each of the Calvo Family Spend Thrift Trust
and the Tucker Family Spend Thrift Trust were deemed to no longer be affiliates
of IBX since their ownership was less than 10% of the outstanding shares and
both parties have waived their rights to designate nominees to the board of
directors. Given that each had also held their shares for over two years, each
trust was eligible to request that the legend be removed on their shares and
that the shares could be sold without restriction under Rule 144(k). However,
each agreed that without approval of the Chief Executive Officer of IBX, it
would not sell more than 500,000 shares in any calendar month. In January of
2004, IBX's Chief Executive Officer agreed to allow the Tucker Family Spend
Thrift Trust to sell 1,470,588 shares in January and February of 2004 because
IBX did not pay to the trust on a timely basis funds owed upon the sale of
warrants. IBX owed the Tucker Family Spend Thrift Trust approximately $74,000
46
and the Calvo Family Spend Thrift Trust approximately $115,000 with respect to
the purchases of the warrants described above. In March of 2004, the Tucker
Family Spend Thrift Trust loaned to IBX $100,000 and agreed to convert the
$74,000 to IBX on the same terms. Also in March of 2004, the Calvo Family Spend
Thrift Trust agreed to convert their amount into a half unit of the private
placement, with the remainder paid in monthly payments until paid in full. The
half unit represents 500 shares of Series B Preferred Stock and 500,000 warrants
to purchase common stock at an exercise price of $0.10 per share. The Tucker
note provides for 8% interest, a maturity date of March 12, 2005, and a security
interest in all of IBX's assets. IBX is required to provide the holder with 90
days' notice of any prepayment, although there is no prepayment penalty. The
note is convertible to common stock. The conversion price is the lowest of
$0.035, 70% of the closing bid price on the date of conversion, or 70% of the
offering price of any offering by IBX until March of 2005. IBX agreed to include
the shares issuable upon the exercise of this note in this registration
statement to be filed by IBX. In early-April of 2004, the holder of the note
indicated that the note was in default because of IBX's failure to timely file
this registration statement; however, IBX registered these shares pursuant to
its Form SB-2 filing with the SEC on April 2, 2004 , which was subsequently
amended on April 30, 2004.
During 2003 and 2004, Mr. Brovenick loaned IBX funds at various times,
which have been repaid as cash flow permitted. IBX never intentionally loaned
Mr. Brovenick any funds; however, on December 31, 2003, there was a balance owed
by Mr. Brovenick that was repaid in early-2004 when Mr. Brovenick loaned funds
to IBX. Section 402 of the Sarbanes-Oxley Act of 2002 and Section 13(k) of the
Securities Exchange Act of 1934 make it "unlawful for any issuer, directly or
indirectly to extend or maintain credit...in the form of a personal loan to or
for any director or executive officer of that issuer." These advances may
constitute a violation of these laws. As a potential violation may have
occurred, Section 307 of the Sarbanes-Oxley Act of 2002 requires notification of
this issue. As the loan has already been repaid in 2004 and the effects of the
potential violation have been reversed, no further action on the part of IBX is
required, other than to employ procedures designed to ensure that no violations
of this type occur in the future.
On March 29, 2004, 2004, IBX issued to Jericho State Capital Corp. of
Florida, or its designee, a convertible note in the principal amount of $200,000
and 20,000,000 warrants, at an exercise price of $0.10 per share, for payment of
accrued fees as payments of amounts owed to it under a consulting agreement for
2003, 2004 and 2005 and also issued to Big Time Capital Group or its designee a
convertible note in the principal amount of $200,000 and 20,000,000 warrants, at
an exercise price of $0.10 per share, for payment of accrued fees.
On July 6, 2004, IBX issued to Evan Brovenick 3,609,500 shares of
common stock as compensation. Such shares were valued at their market value on
the date of issuance at $0.0235 per share. IBX recorded compensation expense of
$84,823 related to these services.
During May of 2004, IBX issued to Mr. Brovenick 7,500 shares of Series
B Preferred Stock, which is convertible into 15,000,000 shares of IBX common
stock. These preferred shares were valued at $375,000 or $0.025 per common
share, which equaled the quoted trading price of the underlying 15,000,000
shares of common stock at the time these preferred shares were issued. These
preferred shares were charged to operations included in other selling, general
and administrative expenses of IBX.
47
MARKET PRICE OF AND DIVIDENDS
ON THE REGISTRANT'S COMMON EQUITY AND OTHER STOCKHOLDER MATTERS
Our common stock began trading on January 4, 2002 on the
Over-the-Counter Bulletin Board under the trading symbol "IBXG". Our stock is
dually quoted on the Pink Sheets and the Over-the-Counter Bulletin Board. The
following table sets forth the range of high and low closing sale price as
reported by the Over-the-Counter Bulletin Board for our common stock for the
fiscal quarters indicated. The Over-the-Counter Bulletin Board quotations
represent quotations between dealers without adjustment for retail mark-up,
markdowns or commissions and may not represent actual transactions.
2002 HIGH LOW
---- ---- ---
January 1 to December 31 $0.70 $0.1300
April 1 to June 30 $0.43 $0.1700
July 1 to September 30 $0.18 $0.0900
October 1 to December 31 $0.17 $0.0400
2003 HIGH LOW
---- ---- ---
January 1 to March 31 $0.19 $0.1000
April 1 to June 30 $0.21 $0.1600
July 1 to September 30 $0.19 $0.1100
October 1 to December 31 $0.14 $0.0500
2004 HIGH LOW
---- ---- ---
January 1 to March 31 $0.09 $0.0400
April 1 to June 30 $0.04 $0.0035
July 1 to September 30 $0.03 $0.0031
On September 30, 2004, the last trade price of our common stock as
reported on the Over-the-Counter Bulletin Board was $0.0035 per share. On
September 30, 2004, we believe we had in excess of 192 holders of common stock
and 231,654,515 shares of our common stock were issued and outstanding. Many of
our shares are held in brokers' accounts, so we are unable to give an accurate
statement of the number of shareholders.
DIVIDENDS
We have not paid any dividends on our common stock and do not
anticipate paying any cash dividends in the foreseeable future. We intend to
retain any earnings to finance the growth of the business. We cannot assure you
that we will ever pay cash dividends. Whether we pay any cash dividends in the
future will depend on the financial condition, results of operations and other
factors that the board of directors will consider.
RECENT SALES OF UNREGISTERED SECURITIES
During the last three years, IBX sold the securities listed below
without registration under the Securities Act of 1933, as amended, in reliance
on the exemption from registration requirements cited. All transactions were
exempt from registration under the Securities Act of 1933, as amended, pursuant
to Section 4(2) thereof and all persons were given sufficient information about
IBX to make an informed investment decision.
2001
In September of 2001, IBX issued to Steven Adelstein, a former director
of IBX, 250,000 options with an exercise price of $0.50 per share in 2001 for
his service as President of VidKid.
Also in September of 2001, IBX issued 11,550,000 shares of common stock
to two individuals pursuant to the acquisition of Primed.
In November of 2001, IBX issued to each of two consultants 125,000
shares, at $0.025 per share, and 125,000 stock options, with an exercise price
of $0.01 per share as compensation for services rendered to IBX.
48
In December of 2001, IBX issued to three accredited investors upon
conversion of outstanding convertible bonds originally issued by Primed
10,062,500 shares, at $0.018 per share.
Also in December of 2001, IBX issued to Market Watch Corporation as
partial payment under a corporate information services agreement 750,000 shares
of common stock, at $0.018 per share.
Also in December of 2001, IBX issued an aggregate of 1,000,000 shares
of common stock, at $0.018 per share, to 31 persons, all of whom were employees
or consultants of IBX, for services rendered.
On December 19, 2001, IBX concluded a private placement of $200,000
worth of units comprised of an aggregate of 10,937,500 shares of common stock,
at $0.018 per share, Class A warrants entitling the holders to purchase up to
20,000,000 shares of common stock at an exercise price of $0.10 per share; and
Class B warrants entitling the holders to purchase up to 20,000,000 shares of
common stock at an exercise price of $0.20 per share.
In 2001, IBX issued to Evan Brovenick, an officer and director of IBX,
2,000,000 Class C warrants with an exercise price of $0.10 per share, and
2,000,000 Class D warrants with an exercise price of $0.20 per share. Mr.
Brovenick subsequently assigned 1,140,000 of the Class C warrants to Steven
Adelstein, and 500,000 to Mr. Adelstein's adult son. Mr. Adelstein assigned
1,140,000 of these warrants to his adult children.
2002
In May of 2002, IBX issued an aggregate of 1,081,880 shares, at $0.10
per share, to one entity in exchange for cancellation of a $90,618 portion of a
$104,588 promissory note and a subscription receivable of $17,570. This entity
subsequently transferred the shares to its four shareholders.
In May and June of 2002, an aggregate of 850,000 Class A warrants, with
an exercise price of $0.10 per share, were exercised by three persons using the
repayment of a loan. In 2002, as described under "Certain Relationships and
Related Transactions", the Calvo Family Spend Thrift Trust, a principal
shareholder, converted 8,000,000 shares of common stock into 80,000 shares of
Class A Non-Voting Convertible Preferred Stock.
In December of 2002, IBX issued 1,000,000 shares of common stock to
consultants, employees and an outside director, at $0.046 per share, for
services rendered and to be rendered in the future.
2003
In December of 2003, IBX issued to employees and consultants for
services rendered 1,500,000 shares of common stock, at $0.07 per share.
Also in December of 2003, IBX sold 592,366 unregistered shares of
common stock, at $0.05 per share, to an investor for net proceeds of $29,618.
In 2003, IBX issued or is obligated to issue an aggregate of 3,850,000
shares, at prices ranging from $0.13 to $0.18 per share, in three acquisitions
to a total of 41 persons.
In December of 2003 and January of 2004, IBX issued an aggregate of
2,972,366 shares, at $0.05 per share, without any restrictive legend. At the
time of issuance, IBX believed that it was issuing the shares upon exercise of
outstanding warrants and that the shares issuable upon the exercise of these
warrants were registered pursuant to a registration statement then in effect.
However, due to an accounting error by IBX, all of the warrants included in the
registration statement had been exercised. Accordingly, the 2,972,366 shares
were issued without a valid registration statement in effect, which is a
violation of Section 5 of the Securities Act of 1933, as amended. Since an
effective registration statement was not in effect for these shares, these
issuances may have violated Section 5 of the Securities Act of 1933, as amended.
IBX is currently exploring appropriate corrective actions.
2004
In January of 2004, IBX issued to Northbar 2,380,000 shares of its
common stock for net proceeds of $199,000 or $0.05 per share.
49
In February of 2004, in connection with a securities purchase
agreement, IBX issued 500,000 shares of common stock. The shares were valued at
the quoted trading price on the date of the securities purchase agreement of
$35,500. The $35,500 was treated as a discount on the convertible debenture and
is being amortized into interest expense over the debenture term.
On February 19, 2004, IBX entered into a securities purchase agreement
to issue and sell 7.5% convertible debentures, in the aggregate amount of
$200,000, convertible into shares of common stock of IBX. As of June 30, 2004,
$200,000 in convertible debentures were issued to investors. The holders of this
debt have the right to convert all or any amount of this debenture into fully
paid and non-assessable shares of common stock at the conversion price with the
limitation that any debenture holder may not convert any amount of the
debentures if after conversion that debenture holder would beneficially hold
more than 4.99% of the total outstanding common stock of IBX. The conversion
price generally is the lesser of (i) 65% of the average of the three lowest
closing bid prices of the common stock during the five trading days immediately
prior to the conversion date or (ii) $0.08. Interest is payable at the
conversion date, in cash or in shares of common stock, at the option of IBX. The
convertible debentures mature three years from the debenture issuance date. For
the six months ended June 30, 2004, IBX recorded an imbedded beneficial
conversion amount of $107,693 as interest expense since the debentures were
immediately convertible. In connection with these convertible debentures issued,
warrants to purchase 500,000 common shares were issued to the holders at an
exercise price per share of $0.05. The warrants are exercisable immediately and
expire on March 15, 2007. These warrants were treated as a discount on the
convertible debenture and in 2004 were valued at $18,068 under SFAS No. 123
using the Black-Scholes option pricing model to be amortized over the debenture
term. Amortization expense for the six months ended June 30, 2004 was $7,132 and
is included in interest expense. In May of 2004, the investor converted $50,000
of debentures payable into 3,379,953 shares of common stock.
In March of 2004, IBX issued a convertible note for $174,000, of which
$105,000 was for cash and $69,000 for the cancellation of outstanding
liabilities to an existing shareholder. The note provides for 8% interest, a
maturity date of March 12, 2005 and a security interest in all of IBX's assets.
IBX is required to provide the holder with 90 days' notice of any prepayment,
although there is no prepayment penalty. The note is convertible to common
stock. The conversion price is the lowest of $0.035, 70% of the closing bid
price on the date of conversion, or 70% of the offering price any offering by
IBX until March of 2005.
Also in March of 2004, IBX issued 1,250 shares of Series B Preferred
Stock, at $100.00 per share, and 1,250,000 warrants, at an exercise price of
$0.10 per share, of which 1,000 shares of Series B Preferred Stock and 1,000,000
warrants were for $100,000 in cash and 250 shares of Series B Preferred Stock
and 250,000 warrants were issued in payment of outstanding liabilities. Each
share of Series B Preferred Stock is convertible into 2,000 shares of common
stock.
On March 29, 2004, IBX entered into securities purchase agreements to
issue and sell 7.5% convertible debentures, in the aggregate amount of $400,000,
convertible into shares of common stock of IBX. As of June 30, 2004, the
$400,000 in convertible debentures were issued to consultants for services
rendered and to be rendered in the future. The holders of this debt have the
right to convert all or any amount of this debenture into fully paid and
non-assessable shares of common stock at the conversion price with the
limitation that any debenture holder may not convert any amount of the
debentures if after conversion that debenture holder would beneficially hold
more than 4.99% of the total outstanding common stock of IBX. The conversion
price generally is the lesser of (i) 90% of the average of the three lowest
closing bid prices of the common stock during the five trading days immediately
prior to the conversion date or (ii) $0.08. Interest is payable at the
conversion date, in cash or in shares of common stock, at the option of IBX. IBX
recorded an imbedded beneficial conversion amount of $44,444 as interest expense
on March 29, 2004 since the debentures were immediately convertible.
Also on March 29, 2004, in connection with a consulting contract, IBX
granted an aggregate of 40,000,000 warrants to purchase shares of IBX's common
stock at an exercise price of $0.10 per share. The fair value of this warrant
grant was estimated at $0.023 per warrant on the date of grant using the Black
Scholes option pricing model with the following weighted-average assumptions:
dividend yield of 0%, expected volatility of 85%, risk-free interest rate of
4.50%, and an expected holding period of three years. In connection with these
warrants, IBX recorded compensation expense of $186,715 for the six months ended
June 30, 2004 and deferred compensation of $727,204, which will be amortized
over the service period. The warrants expire on March 29, 2007.
In May of 2004, IBX issued to Northbar an additional 500,000 shares of
common stock. The shares were valued at the quoted trading price on the date of
the securities purchase agreement of $10,500. The $10,500 was treated as a
discount on the convertible debenture and is being amortized into interest
expense over the debenture term. For the six months ended June 30, 2004,
amortization of the discount on the convertible debentures amounted to $13,686.
50
On May 14, 2004, certain consultants to IBX assigned their warrants to
a third party, whereby the third party has the right to purchase warrants from
the consultants. IBX agreed to reduce the exercise price of the warrants
purchased by the third party in exchange for the exercise of such warrants. The
exercise price of these warrants has been set to a percentage of market, not to
exceed 70% of the bid price of IBX's common stock. As of June 30, 2004, the
third party exercised 9,000,000 warrants at an exercise price of $0.00667 for
net proceeds of $60,000. There is no financial accounting effect of these
transactions other than offsetting the fee paid against paid in capital as an
offering cost.
On May 28, 2004, certain warrant holders sold, for nominal
consideration, warrants for 8,000,000 shares of common stock to a consultant for
services rendered and to be rendered in the future on behalf of IBX. For
accounting purposes, this transaction was treated as a contribution of the
warrants by the selling warrant holder to IBX and a new grant of warrants to the
consultant resulting in a consulting expense. The options had exercise prices of
$0.005 per share and expire on November 28, 2004. The fair value of each option
grant was estimated on the date of grant using the Black Scholes option pricing
model with the following weighted-average assumptions: dividend yield of 0%,
expected volatility of 105%, risk-free interest rate of 4.50%, and an expected
holding periods of six months. In connection with the sale of these options, IBX
recorded non-cash compensation of $19,461 and deferred compensation of $97,306.
In June 2004, the consultant exercised these warrants for 1,950,000 common
shares for net proceeds of $975.
In May and June of 2004, in connection with the conversion of
debentures and loans payable, IBX issued 13,379,953 shares of common stock for
debt of $70,000. As of June 30, 2004, 379,953 of these common shares had not
been issued and are included in common stock issuable on the accompanying
balance sheet.
In June of 2004, in connection with the exercise of stock warrants, IBX
issued to consultants 10,950,000 shares of common stock for net proceeds of
$60,975.
During the six months ended June 30, 2004, the Class A preferred
shareholder converted 24,000 Class A preferred shares into 2,400,000 shares of
common stock.
Also during the six months ended June 30, 2004, IBX cancelled 22,000
shares of common stock previously issued. On July 6, 2004, IBX issued to Evan
Brovenick 3,609,500 shares of common stock as compensation. Such shares were
valued at their market value on the date of issuance at $0.0235 per share. IBX
recorded compensation expense of $84,823 related to these services.
In July of 2004, the Series B preferred shareholder converted 1,000
Series B preferred shares into 2,000,000 shares of common stock.
In July and August of 2004, in connection with the conversion of
debentures and loans payable, IBX issued 18,577,482 shares of common stock for
debt of $109,000. As of August 16, 2004, 677,482 of these common shares remain
issuable.
Also in July and August of 2004, in connection with the exercise of
stock warrants, IBX issued to consultants 21,545,798 shares of common stock to
consultants for a subscription receivable of $3,025 and net proceeds of
$137,500.
On August 18, 2004, IBX entered into a Securities Purchase Agreement
with Cornell Capital Partners, whereby IBX shall issue and sell up to $400,000
of secured convertible debentures, which shall be convertible into shares of
IBX's common stock. The debenture holder is entitled, at its option, to convert
the debentures into shares of IBX's common stock at a per share price equal to
the lesser of (a) an amount equal to 120% of the closing bid price of the common
stock as quoted by Bloomberg L.P., or (b) an amount equal to 80% of the lowest
closing bid price of IBX's common stock for the five trading days immediately
preceding the conversion date. IBX, at its option, has the right to redeem the
outstanding convertible debentures at a redemption price of 120% of the amount
redeemed plus accrued interest. In the event IBX exercises a redemption, the
debenture holder will receive a warrant to purchase 50,000 shares of IBX's
common stock for every $100,000 redeemed, pro rata. The warrants have an
exercise price of 120% of the closing bid price of IBX's commons tock and expire
two years from the closing date. In August of 2004, IBX issued $200,000 of
debentures under this agreement for net proceeds of approximately $165,000. So
long as these convertible debentures are outstanding, IBX shall not, without
prior written consent of the debenture holders: (i) issue or sell shares of
common stock or preferred stock without consideration or for a consideration per
share less than the Bid Price of the common stock determined immediately prior
to its issuance, (ii) issue or sell any warrant, option, right, contract, call,
or other security instrument granting the holder thereof, the right to acquire
common stock without consideration or for a consideration per share less than
51
the Bid Price of the common stock determined immediately prior to its issuance,
(iii) enter into any security instrument granting the holder a security interest
in any and all assets of IBX, or (iv) file any registration statement on Form
S-8.
Also on August 18, 2004, IBX entered into a standby Equity Distribution
Agreement with Cornell Capital Partners, whereby IBX shall issue and sell to
investors up to $15,000,000 of IBX's common stock at a purchase price equal to
98% of the volume weighted average price of IBX's common stock, as quoted by
Bloomberg, L.P., five consecutive trading days after the Advance notice date.
The advances under the Standby Equity Distribution Agreement may commence after
the effective date of a registration statement. IBX was required to prepare and
file, prior to September 18, 2004, with the Securities and Exchange Commission a
registration statement on Form SB-2 under the Securities Act of 1933 for the
registration of common shares to be issued upon conversion of the convertible
debentures issued pursuant to the Securities Purchase Agreement and the
investors' shares. IBX must use its best efforts (i) to have the registration
statement declared effective by the Securities and Exchange Commission no later
than 90 days from August 18, 2004. As a result of the registration statement not
being filed by September 18, 2004 or is not declared effective by the Securities
and Exchange Commission on or before the scheduled effective date, IBX will pay
as liquidating damages to the holder equal to 2% the liquidating value of the
convertible debentures outstanding as liquidating damages each 30-day period.
Also on August 18, 2004, IBX issued a secured Convertible Debenture to
Cornell Capital Partners in the principal amount of $200,000. The Convertible
Debenture accrues interest at the rate of 5% per year. At IBX's option, the
entire principal amount and all accrued interest can be either: (i) paid to the
holder of the Convertible Debenture on the third-year anniversary of the
Convertible Debenture or (ii) converted into shares of IBX common stock. The
Convertible Debenture is convertible into shares of our common stock as a price
per share that is equal to the lesser of: (i) an amount equal to 120% of the
closing bid price of our common stock as of the date of the Convertible
Debenture or (ii) an amount equal to 80% of the average of the lowest daily
volume weighted average price of our common stock for the five trading days
immediately preceding the conversion date. The Convertible Debenture accrues
interest at a rate of 5% per year and is convertible at the holder's option. The
Convertible Debenture has a term of three years and is secured by all of our
assets. At IBX's option, the Convertible Debenture may be paid in cash or
converted into shares of our common stock unless converted earlier by the
holder. Except after an event of default, as set forth in the secured
Convertible Debenture, the holder is not entitled to convert such debenture for
a number of shares of our common stock in excess of that number of shares which,
upon giving effect to such conversion, would cause the aggregate number of
shares of common stock beneficially held by such holder and its affiliated to
exceed 4.99% of our outstanding shares of common stock. After we file a
registration statement with the Securities and Exchange Commission registering
the shares of common stock underlying the Convertible Debenture, we will issue a
second secured Convertible Debenture to Cornell Capital Partners in the
principal amount of $200,000 upon the same terms and conditions as the first
secured Convertible Debenture above.
Also on August 18, 2004, we issued a convertible Compensation Debenture
to Cornell Capital Partners in the principal amount of $190,000. The
Compensation Debenture accrues interest at the rate of 5% per year. At IBX's
option, the entire principal amount and all accrued interest can be either: (i)
paid to the holder of the convertible debenture on the third-year anniversary of
the Convertible Debenture or (ii) converted into shares of IBX common stock. The
Compensation Debenture is convertible into shares of our common stock as a price
per share that is equal to 100% of the lowest volume weighted average price of
IBX's common stock, as quoted by Bloomberg, LP, for the three days immediately
preceding the conversion date. Based on a recent stock price of $0.0035 per
share, the Compensation Debenture would be convertible into 27,941,176 shares of
IBX common stock. The Compensation Debenture has a term of three years. At IBX's
option, the Compensation Debenture may be paid in cash or converted into shares
of our common stock unless converted earlier by the holder. Except after an
event of default, as set forth in the Compensation Debenture, the holder is not
entitled to convert such debenture for a number of shares of our common stock in
excess of that number of shares which, upon giving effect to such conversion,
would cause the aggregate number of shares of common stock beneficially held by
such holder and its affiliated to exceed 4.99% of our outstanding shares of
common stock.
Except as otherwise indicated above, IBX believes that all of the above
transactions were transactions not involving any public offering within the
meaning of Section 4(2) of the Securities Act of 1933, as amended, since (a)
each of the transactions involved the offering of such securities to a
substantially limited number of persons; (b) each person took the securities as
an investment for his/her/its own account and not with a view to distribution;
(c) each person had access to information equivalent to that which would be
included in a registration statement on the applicable form under the Act; (d)
each person had knowledge and experience in business and financial matters to
understand the merits and risk of the investment; therefore no registration
statement needed to be in effect prior to such issuances.
52
DESCRIPTION OF SECURITIES
Our Articles of Incorporation, authorize us to issue 500,000,000 shares
of common stock ($0.005 par value per share), and 5,000,000 shares of preferred
stock ($0.005 par value per share), the attributes of which are to be determined
prior to issuance by our board of directors. At September 30, 2004, 231,654,515
shares of common stock, 33,000 shares of Class A Preferred Stock, and 7,750
shares of Class B Preferred Stock were outstanding.
COMMON STOCK
The holders of common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders and have no cumulative voting
rights. Holders of common stock are entitled to receive ratably such dividends,
if any, as may be declared from time-to-time by the board of directors out of
funds legally available therefor. In the event of the liquidation, dissolution,
or winding up, the holders of common stock are entitled to share ratably in all
assets remaining after payment of liabilities. The common stock has no
preemptive or conversion rights or other subscription rights. There are no
redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are fully paid and non-assessable, and the
shares of common stock offered hereby will also be fully paid and
non-assessable.
PREFERRED STOCK
The preferred stock may be issued in classes and series, and shares of
each class and series will have such rights as the board of directors in the
resolutions authorizing the issuance of that particular series fixes. In
designating any series of preferred stock, the board of directors may, without
further action by the holders of common stock:
o fix the number of shares constituting that series;
o fix the dividend rights, dividend rates, conversion rights, voting
rights (which may be greater or lesser than the voting rights of the
common stock); and
o fix the rights and terms of redemption (including any sinking fund
provisions), and the liquidation preferences.
The holders of any preferred stock, when and if issued, are expected to
have priority claims to dividends and to any distribution upon liquidation, and
they may have other preferences over the holders of the common stock.
The board of directors may issue series of preferred stock without
action by our shareholders. Accordingly, the issuance of preferred stock may
adversely affect the rights of the holders of the common stock. In addition, the
issuance of preferred stock may be used as an anti-takeover device without
further action on the part of the stockholders. Issuance of preferred stock may
dilute the voting power of holders of common stock. One example of this dilution
would be the issuance of preferred stock with super-voting rights. The issuance
of preferred stock may render more difficult the removal of current management,
even if such removal may be in the stockholders' best interest. We have no
current plans to issue any additional preferred stock.
SERIES A NONVOTING CONVERTIBLE PREFERRED STOCK
On May 17, 2002, our board of directors adopted an Articles of
Amendment for 300,000 shares of the 5,000,000 shares of preferred stock
designating it as "Class A Non-Voting Convertible Preferred Stock" or "Class A
Preferred Stock." The holder of shares of the Class A Preferred Stock will be
entitled to all dividends declared by the board of directors at a rate per share
100 times that paid per share of common stock, and will be entitled to convert
each share of Class A Preferred Stock for 100 shares of common stock, subject to
adjustment upon the occurrence of certain events as specified in the Articles of
Amendment, but only to the extent that the aggregate number of shares of common
stock held by the holder and any other person with whom the holder must
aggregate shares is less than 5% of our outstanding common stock so that the
holder will not be deemed to have "control" within the meaning of Securities and
Exchange Commission rules. The Articles of Amendment further provides:
o for liquidation rights that treat one share of Class A Preferred
Stock as if it were 100 shares of common stock in the event of our
liquidation, dissolution or winding up;
53
o that the Class A Preferred Stock will have no voting rights; and
o that no holder of Class A Preferred Stock may serve as an officer or
director, or serve in any capacity with IBX that would render such
person a "control person" within the meaning of the Securities Act
of 1933, as amended, or the Securities Exchange Act of 1934, as
amended.
Effective May 29, 2002, we entered into an Exchange Agreement with the
Calvo Family Spend Thrift Trust pursuant to which the trust exchanged 8,000,000
of the 9,682,325 shares of common stock it held for 80,000 shares of the
non-voting Class A preferred stock. The agreement provides that the trust cannot
own 5% or more of our voting securities. The exchange will be effected in
reliance on the exemption from registration provided by Section 3(a)(9) of the
Securities Act of 1933, as amended. We decided to enter into the Exchange
Agreement since William A. Calvo, a beneficiary of the trust, was found guilty
of violating Section 5 of the Securities Act of 1933, as amended, by reselling,
or by being a necessary or substantial participant in the resale of,
unregistered Systems of Excellence shares, and that Diversified Corporate
Consulting Group, a limited liability company of which Mr. Calvo was a member,
had violated Section 17(a) of the Securities Act of 1933, as amended, and
Section 10(b) of the Securities Exchange Act of 1934, as amended, with respect
to the fraudulent and manipulative trading in Systems of Excellence shares. The
conversion into the Class A Preferred Stock will help us to limit any control
that Mr. Calvo may have over IBX. An aggregate of 47,000 shares have been
converted.
CLASS B CONVERTIBLE PREFERRED STOCK
On February 17, 2004, our board of directors adopted an Articles of
Amendment for 1,470,588 shares of the 5,000,000 shares of preferred stock
designating it as "Series B Convertible Preferred Stock" or "Series B Preferred
Stock." The holder of shares of the Series B Preferred Stock will be entitled to
all dividends declared by the board of directors at a rate of $80.00 per share.
Dividends are not cumulative and will not accrue. The holder will be entitled to
convert each share of Series B Preferred Stock for 2,000 shares of common stock,
subject to adjustment upon the occurrence of certain limited events as specified
in the Articles of Amendment. Each share will be entitled to a liquidation
preference of $1,000 per share plus any declared but unpaid dividend. The Series
B Preferred Stock will have voting rights as if converted into common stock and
will vote as a class with the common stock on all matters.
WARRANTS
As of September 30, 2004, we had the following warrants outstanding:
SHARES UNDERLYING RANGE OF AVERAGE
OPTIONS AND WARRANTS EXERCISE PRICE EXERCISE PRICE EXPIRATION DATE
-------------------- ---------------- -------------- -----------------
31,330,000 $0.0005 to $0.50 $0.01 December 31, 2005
DEBENTURES
We have issued a secured Convertible Debenture to Cornell Capital
Partners in the principal amount of $200,000. The Convertible Debenture accrues
interest at the rate of 5% per year. At IBX's option, the entire principal
amount and all accrued interest can be either: (i) paid to the holder of the
Convertible Debenture on the third-year anniversary of the Convertible Debenture
or (ii) converted into shares of IBX common stock. The Convertible Debenture is
convertible into shares of our common stock as a price per share that is equal
to the lesser of: (i) an amount equal to 120% of the closing bid price of our
common stock as of the date of the Convertible Debenture or (ii) an amount equal
to 80% of the average of the lowest daily volume weighted average price of our
common stock for the five trading days immediately preceding the conversion
date. The Convertible Debenture accrues interest at a rate of 5% per year and is
convertible at the holder's option. The Convertible Debenture has a term of
three years and is secured by all of our assets. At IBX's option, the
Convertible Debenture may be paid in cash or converted into shares of our common
stock unless converted earlier by the holder. Except after an event of default,
as set forth in the secured Convertible Debenture, the holder is not entitled to
convert such debenture for a number of shares of our common stock in excess of
that number of shares which, upon giving effect to such conversion, would cause
the aggregate number of shares of common stock beneficially held by such holder
and its affiliated to exceed 4.99% of our outstanding shares of common stock.
After we file a registration statement with the Securities and Exchange
Commission registering the shares of common stock underlying the Convertible
Debenture, we will issue a second secured Convertible Debenture to Cornell
Capital Partners in the principal amount of $200,000 upon the same terms and
conditions as the first secured Convertible Debenture above.
54
We have issued a convertible Compensation Debenture to Cornell Capital
Partners in the principal amount of $190,000. The Compensation Debenture accrues
interest at the rate of 5% per year. At IBX's option, the entire principal
amount and all accrued interest can be either: (i) paid to the holder of the
convertible debenture on the third-year anniversary of the Convertible Debenture
or (ii) converted into shares of IBX common stock. The Compensation Debenture is
convertible into shares of our common stock as a price per share that is equal
to 100% of the lowest volume weighted average price of IBX's common stock, as
quoted by Bloomberg, LP, for the three days immediately preceding the conversion
date. Based on a recent stock price of $0.0035 per share, the Compensation
Debenture would be convertible into 27,941,176 shares of IBX common stock. The
Compensation Debenture has a term of three years. At IBX's option, the
Compensation Debenture may be paid in cash or converted into shares of our
common stock unless converted earlier by the holder. Except after an event of
default, as set forth in the Compensation Debenture, the holder is not entitled
to convert such debenture for a number of shares of our common stock in excess
of that number of shares which, upon giving effect to such conversion, would
cause the aggregate number of shares of common stock beneficially held by such
holder and its affiliated to exceed 4.99% of our outstanding shares of common
stock.
SHARES ELIGIBLE FOR FUTURE SALE
231,654,515 shares of common stock are outstanding on the date of this
prospectus and an additional 35,000,000 shares will be issued if all of the
outstanding warrants are exercised and all of the preferred stock and notes are
converted to common stock. All of the shares that may be sold pursuant to this
prospectus will be freely tradable without restriction or further registration
under the Securities Act of 1933, as amended, except that any shares issued to
our affiliates, as that term is defined in Rule 144 under the Securities Act of
1933, as amended, may generally only be sold in compliance with the provisions
of Rule 144 described below. In general, our affiliates are any persons that
directly, or indirectly through one or more intermediaries, control, or are
controlled by, or are under common control with us.
Of the 231,654,515 shares of common stock outstanding as of the date of
this prospectus, approximately 36,285,027 shares are held our affiliates and
will be restricted securities as that term is defined in Rule 144. These
restricted shares may only be sold if they are registered under the Securities
Act of 1933, as amended, or are exempt from such registration requirements.
25,000,000 shares of common stock are being registered in this offering
for resale by Cornell Capital Partners pursuant to the Standby Equity
Distribution Agreement, in addition to the 27,941,176 shares being registered in
this offering for resale by Cornell Capital Partners in connection with IBX's
payment of a $190,000 one-time commitment fee paid to Cornell Capital Partners
pursuant to the Standby Equity Distribution Agreement in the form of a
Compensation Debenture.
200,000,000 shares of common stock are being registered in this
offering for resale by Cornell Capital Partners pursuant to the secured
Convertible Debenture.
1,470,588 shares of common stock, in payment of a one-time $10,000
placement fee, are being registered in this offering for resale by Newbridge
Securities Corporation, a registered broker-dealer that we engaged to advise us
in connection with the Standby Equity Distribution Agreement.
17,781,518 shares of common stock are being registered in this offering
for resale by other selling stockholders of IBX who have acquired such shares in
various transaction with us.
RULE 144
In general, under Rule 144 of the Securities Act of 1933, as amended, a
shareholder who owns restricted shares that have been outstanding for at least
one year is entitled to sell, within any 3-month period, a number of these
restricted shares that does not exceed the greater of 1% of the then outstanding
shares of common stock immediately on the date of this prospectus, or the
average weekly reported trading volume in the common stock during the four
calendar weeks preceding filing of a notice on Form 144 with respect to the
sale.
In addition, affiliates must comply with the restrictions and
requirements of Rule 144, other than the one-year holding period requirement, to
sell shares of common stock that are not restricted securities. Sales under Rule
144 are also governed by manner of sale provisions and notice requirements, and
current public information about us must be available. Under Rule 144(k), a
shareholder who is not currently and who has not been for at least three months
before the sale an affiliate and who owns restricted shares that have been
outstanding for at least two years may resell these restricted shares without
compliance with the above requirements.
55
TRANSFER AGENT & REGISTRAR
The transfer agent and registrar for our common stock is StockTrans,
Inc., 7 West Lancaster Avenue, Ardmore, Pennsylvania, 19003.
LIMITATION OF LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
Florida law and our Articles of Incorporation and bylaws authorize IBX
to indemnify its directors, officers, employees and agents. Our officers and
directors are required to exercise good faith and high integrity in the
management of our affairs. Our Articles of Incorporation and bylaws, however,
provide, that the officers and directors will have no liability to the
stockholders for losses sustained or liabilities incurred which arise from any
transaction in their respective managerial capacities unless they violated their
duty of loyalty, did not act in good faith, engaged in intentional misconduct or
knowingly violated the law, approved an improper dividend or stock repurchase,
or derived an improper benefit from the transaction. As a result, a stockholder
may have more limited right to action than he/she/it would have had if such
provision were not present. Our Articles of Incorporation and bylaws also
provide for us to indemnify the officers and directors against any losses or
liabilities they may incur as a result of the manner in which they operate our
business or conduct the internal affairs, provided that in connection with these
reasonably believe to be in, or not opposed to, our best interests, and their
conduct does not constitute gross negligence, misconduct or breach of fiduciary
obligations.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF FLORIDA STATE LAW AND OTHER TAKEOVER
DEFENSES
We may be or in the future we may become subject to Florida's Control
Share Act. A corporation is subject to such act if it has more than 200
stockholders, at least 100 of whom are stockholders of record and residents of
Florida, and it does business in Florida or through an affiliated corporation.
Florida enacted the act to deter and hinder takeovers of Florida corporations.
The Florida Control Share Act generally provides that shares acquired in a
"control share acquisition" will not possess any voting rights unless such
voting rights are approved by a majority of the corporation's disinterested
shareholders. A "control share acquisition" is an acquisition, directly or
indirectly, by any person of ownership of, or the power to direct the exercise
of voting power with respect to, issued and outstanding "control shares" of a
publicly held Florida corporation. "Control shares" are shares, which, except
for the Florida Control Share Act, would have voting power that, when added to
all other shares owned by a person or in respect to which such person may
exercise or direct the exercise of voting power, would entitle such person,
immediately after acquisition of such shares, directly or indirectly, alone or
as a part of a group, to exercise or direct the exercise of voting power in the
election of directors within any of the following ranges:
o at least 20% but less than 33.33% of all voting power;
o at least 33.33% but less than a majority of all voting power; or
o a majority or more of all voting power.
The Florida Affiliated Transactions Act generally requires
supermajority approval by disinterested shareholders of certain specified
transactions between a public corporation and holders of more than 10% of the
outstanding voting shares of the corporation (or their affiliates).
In addition to the Florida Control Share Act, Florida has a business
combination law which prohibits certain business combinations between Florida
corporations and "interested stockholders" for three years after the "interested
stockholder" first becomes an "interested stockholder" unless the corporation's
Board of Directors approves the combination in advance. For purposes of Florida
law, an "interested stockholder" is any person who is (i) the beneficial owner,
directly or indirectly, of 10% or more of the voting power of the outstanding
voting shares of the corporation, or (ii) an affiliate or associate of the
corporation and at any time within the three previous years was the beneficial
owner, directly or indirectly, of 10% or more of the voting power of the then
outstanding shares of the corporation. The definition of the term "business
combination" is sufficiently broad to cover virtually any kind of transaction
that would allow a potential acquiror to use the corporation's assets to finance
the acquisition or otherwise to benefit its own interests rather than the
interests of the corporation and its other stockholders. The effect of Florida's
business combination law is to potentially discourage parties interested in
taking control of a company from doing so if it cannot obtain the approval of
its board of directors.
In addition to the above laws, we also may use authorized but unissued
shares of our common stock to deter potential takeovers. Specifically,
authorized but unissued shares of our common stock are available for future
issuance without our stockholders' approval. These additional shares may be
utilized for a variety of corporate purposes including but not limited to future
56
public or direct offerings to raise additional capital, corporate acquisitions
and employee incentive plans. The issuance of such shares may also be used to
deter a potential takeover that may otherwise be beneficial to stockholders by
diluting the shares held by a potential suitor or issuing shares to a
stockholder that will vote in accordance with our board of directors' desires. A
takeover may be beneficial to stockholders because, among other reasons, a
potential suitor may offer stockholders a premium for their shares of stock
compared to the then-existing market price.
The existence of authorized but unissued and unreserved shares of
preferred stock may enable the board of directors to issue shares to persons
friendly to current management which would render more difficult or discourage
an attempt to obtain control of us by means of a proxy contest, tender offer,
merger or otherwise, and thereby protect the continuity of our management.
57
EXPERTS
Our consolidated financial statements as of December 31, 2003 and for
the years ended December 31, 2003 and 2002 have been audited by Salberg &
Company, P.A., independent registered public accounting firm. We have included
our consolidated financial statements in this prospectus in reliance on the
report of Salberg & Company, P.A., given on their authority as experts in
auditing and accounting.
LEGAL MATTERS
The validity of the shares of common stock offered through this
prospectus will be passed on by Kirkpatrick & Lockhart LLP. A copy of their
legal opinion will be filed by an amendment to this prospectus.
HOW TO GET MORE INFORMATION
We have filed with the Securities and Exchange Commission a
registration statement on Form SB-2 under the Securities Act of 1933, as
amended, with respect to the securities offered by this prospectus. This
prospectus, which forms a part of the registration statement, does not contain
all the information set forth in the registration statement, as permitted by the
rules and regulations of the Securities and Exchange Commission. For further
information with respect to us and the securities offered by this prospectus,
reference is made to the registration statement. Statements contained in this
prospectus as to the contents of any contract or other document that we have
filed as an exhibit to the registration statement are qualified in their
entirety by reference to the exhibits for a complete statement of their terms
and conditions. The registration statement and other information may be read and
copied at the Securities and Exchange Commission's Public Reference Room at 450
Fifth Street N.W., Washington, D.C. 20549. The public may obtain information on
the operation of the Public Reference Room by calling the Commission at
1-800-SEC-0330. The Commission maintains a website at www.sec.gov that contains
reports, proxy and information statements, and other information regarding
issuers that file electronically with the Securities and Exchange Commission.
58
IBX GROUP, INC.
INDEX TO
FINANCIAL STATEMENTS
PAGE(S)
-------
FINANCIAL STATEMENTS FOR JUNE 30, 2004
Consolidated Balance Sheet as of June 30, 2004 (unaudited) ..................F-1
Consolidated Statements of Operations for the Three and Six Months
Ended June 30, 2004 and June 30, 2003 (unaudited) ..........................F-2
Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 2004 and June 30, 2003 (unaudited) ..........................F-3 - F-4
Notes to June 30, 2004 Consolidated Financial Statements (unaudited)..F-5 - F-16
FINANCIAL STATEMENTS FOR DECEMBER 31, 2003 AND 2002
Report of Independent Registered Public Accounting Firm ....................F-17
Consolidated Balance Sheet as of December 31, 2003 .........................F-18
Consolidated Statements of Operations for the Years Ended
December 31, 2003 and 2002 ................................................F-19
Consolidated Statements of Changes in Stockholders' Deficit for the
Years Ended December 31, 2003 and 2002 .............................F-20 - F-21
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2003 and 2002 .........................................F-22 - F-23
Notes to Consolidated Financial Statements ..........................F-24 - F-43
F-i
IBX GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 2004
(UNAUDITED)
ASSETS
Current assets:
Cash .................................................................................... $ 9,823
Restricted cash ......................................................................... 450,535
Accounts receivable, net of allowance for doubtful accounts of $258,612 ................. 143,165
Other current assets .................................................................... 60,561
-----------
Total current assets .................................................................. 664,084
-----------
Property and equipment, net ................................................................ 238,179
-----------
Other assets:
Deferred consulting expense ............................................................. 302,355
Other ................................................................................... 39,104
-----------
Total other assets .................................................................... 341,459
-----------
Total assets .......................................................................... $ 1,243,722
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Note payable, current maturities ........................................................ $ 784,622
Checks outstanding in excess of bank balances ........................................... 260,172
Accounts payable ........................................................................ 853,095
Accrued expenses ........................................................................ 265,849
Payroll taxes payable ................................................................... 1,880,993
Due to related parties .................................................................. 120,878
-----------
Total current liabilities ............................................................. 4,165,609
-----------
Long-term debt:
Convertible debentures payable. Net ..................................................... 506,750
-----------
Commitments and contingencies
Stockholders' deficit:
Preferred Stock ($0.005 par value; 5,000,000 authorized shares;
none issued and outstanding) .......................................................... -
Class A Non-voting Convertible Preferred Stock ($0.005 par value;
300,000 authorized shares; 33,000 shares issued and outstanding) ...................... 165
Series B Convertible Preferred Stock ($0.005 par value;
1,000,000 authorized shares; 8,700 shares issued and outstanding) ..................... 44
Common stock ($0.005 par value; 500,000,000 authorized shares;
120,437,877 shares issued and outstanding) ............................................ 602,190
Common stock issuable (382,053 shares) .................................................. 1,910
Additional paid-in capital .............................................................. 6,811,779
Accumulated deficit ..................................................................... (9,869,011)
Less: Stock subscription receivable ..................................................... (90,000)
Less: Deferred compensation and consulting .............................................. (885,714)
-----------
Total stockholders' deficit ........................................................... (3,428,637)
-----------
Total liabilities and stockholders' deficit ........................................... $ 1,243,722
===========
See accompanying notes to consolidated financial statements.
F-1
IBX GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended For the Six Months Ended
June 30, June 30,
---------------------------- ---------------------------
2004 2003 2004 2003
------------- ------------ ------------ ------------
REVENUES ......................................... $ 78,372 $ 979,672 $ 404,871 $ 2,205,483
------------- ------------ ------------ ------------
OPERATING EXPENSES:
Salaries and payroll taxes ................... 411,799 576,783 1,018,227 1,020,094
Depreciation and amortization ................ 33,775 43,774 71,943 77,321
Consulting fees .............................. 73,909 - 85,892 -
Professional fees ............................ 96,752 46,479 182,333 140,534
Rent ......................................... 80,439 81,141 183,917 187,950
Bad debt expense ............................. 3,735 - 223,735 -
Other selling, general and administrative .... 919,490 503,465 1,302,459 998,465
------------- ------------ ------------ ------------
Total Operating Expenses ................. 1,619,899 1,251,642 3,068,506 2,424,364
------------- ------------ ------------ ------------
LOSS FROM OPERATIONS ............................. (1,541,527) (271,970) (2,663,635) (218,881)
------------- ------------ ------------ ------------
OTHER INCOME (EXPENSES):
Interest expense ............................. (181,657) (27,137) (791,435) (45,842)
------------- ------------ ------------ ------------
Total Other Income (Expenses) ............ (181,657) (27,137) (791,435) (45,842)
------------- ------------ ------------ ------------
NET LOSS ......................................... $ (1,723,184) $ (299,107) $ (3,455,070) $ (264,723)
============= ============ ============ ============
LOSS PER SHARE:
Net Loss Per Common Share - Basic .......... $ (0.02) $ 0.00 $ (0.03) $ 0.00
============= ============ ============ ============
Net Loss Per Common Share - Diluted ........ $ (0.02) $ 0.00 $ (0.03) $ 0.00
============= ============ ============ ============
Weighted Common Shares Outstanding - Basic . 105,698,209 46,646,743 99,379,467 45,762,903
============= ============ ============ ============
Weighted Common Shares Outstanding - Diluted 105,698,209 46,646,743 99,379,467 45,762,903
============= ============ ============ ============
See accompanying note to consolidated financial statements.
F-2
IBX GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Six Months
Ended June 30,
----------------------------
2004 2003
----------- -----------
Cash flows from operating activities:
Net loss .................................................................. $(3,455,070) $ (264,723)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization ............................................ 71,943 77,321
Stock-based compensation ................................................. 595,693 193,383
Interest expense on notes payable ........................................ 43,262 -
Amortization of debt discount ............................................ 19,515 -
Beneficial interest on debentures payable ................................ 574,708 -
Allowance for doubtful accounts .......................................... 207,354 -
Bad debt recovery ........................................................ - (10,503)
(Increase) decrease in:
Accounts receivable ..................................................... 191,173 (481,209)
Deferred consulting expense ............................................. 70,207 -
Other current assets .................................................... 38,015 (4,696)
Other ................................................................... (11,953) (3,126)
Increase (decrease) in:
Accounts payable ........................................................ 421,824 184,669
Accrued expenses ........................................................ 17,494 15,055
Payroll taxes payable ................................................... 342,384 204,702
Customer deposits ....................................................... - (185,925)
Deferred revenue ........................................................ (14,467) (154,199)
----------- -----------
Net cash used in operating activities ....................................... (887,918) (429,251)
----------- -----------
Cash flows from investing activities:
Net Cash from acquisitions ................................................ - 3,108
Increase in restricted cash ............................................... (12,444) -
Purchase of property and equipment ........................................ (18,020) (115,306)
----------- -----------
Net cash used in investing activities ....................................... (30,464) (112,198)
----------- -----------
Cash flows from financing activities:
Proceeds from exercise of stock warrants .................................. 60,975 826,900
Proceeds from sale of common stock ........................................ 119,000 -
Proceeds from sale of preferred stock ..................................... 100,000 -
Checks outstanding in excess of bank balances ............................. 217,848 (18,596)
Payments on loans ......................................................... (75,688) (235,036)
Proceeds from loans ....................................................... 162,523 -
Proceeds from debentures payable .......................................... 200,000 -
Proceeds from (payments on) advances from related parties ................. 121,414 (454)
----------- -----------
Net cash provided by financing activities ................................... 906,072 572,814
----------- -----------
Net (decrease) increase in cash ............................................. (12,310) 31,365
Cash at beginning of year ................................................... 22,133 23,304
----------- -----------
Cash at end of period ....................................................... $ 9,823 $ 54,669
=========== ===========
continued
See accompanying notes to consolidated financial statements.
F-3
IBX GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(continued)
For the Six Months
Ended June 30,
----------------------------
2004 2003
----------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest .................................................................. $ - $ -
=========== ===========
Income Taxes .............................................................. $ - $ -
=========== ===========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Accrued expenses reclassified to debt ..................................... $ 232,602 $ -
=========== ===========
Preferred shares issued for debt .......................................... $ 25,000 $ -
=========== ===========
Common stock issued for debt .............................................. $ 20,000 $ -
=========== ===========
Loans payable paid directly by realted parties ............................ $ 75,410 $ -
=========== ===========
Debentures payable granted for deferred consulting ........................ $ 372,562 $ -
=========== ===========
See accompanying notes to consolidated financial statements.
F-4
IBX GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES
IBX Group, Inc. (the "Company") was organized under the laws of the state of
Florida in July 1997 as Vidkid Distribution, Inc. ("Vidkid"). On September 25,
2001 (the "acquisition date"), the Company acquired all of the outstanding
capital stock of PriMed Technologies, Inc., a Florida corporation ("PriMed").
PriMed was organized under the laws of the State of Florida on February 4, 1999
as a limited liability company and reorganized as a corporation on January 1,
2000. PriMed was acquired in a stock-for-stock transaction in which PriMed's
shareholders received approximately 81% of the outstanding common stock of
Vidkid on a fully diluted basis. Under the Agreement, Vidkid issued 11,550,000
shares of its common stock in exchange for each and every share of common stock
of PriMed and Vidkid's name was changed to IBX Group, Inc.
The Company is engaged in providing administrative services (accounting, billing
and collection, claims processing, information management), network support and
maintenance to clients predominantly in the healthcare sector. In addition, the
Company has developed proprietary software and applications with interactive
web-enabled multimedia capabilities with which the Company will develop new
markets and lines of business. In September 2002, the Company acquired Florida
Health Source, LLC and entered the business of providing physical therapy
services to referred patients.
All of the shares and assets of the Company's primary operating subsidiary have
been pledged to secure a loan obligation to a creditor. Two of the Company's
primary officers have also pledged the shares of the Company owned by them. The
parties entered into an amended settlement agreement effective November 7, 2002
whereby the creditor agreed to dismiss his action against the Company. Pursuant
to the terms of the Agreement, the Company is obligated to make certain monthly
payments. Mr. Dudziak, the creditor, pursuant to the settlement agreement, has a
lien and perfected security interest on all of the assets of IBX Technologies,
Inc., which is IBX's primary operating subsidiary and on shares of IBX common
stock owned by Evan Brovenick and David Blechman. As of June 30, 2004,
approximately $32,000 was outstanding on the loan. Failure to comply with the
terms and conditions of the loan documents could result in a default and the
transfer of these assets and shares to the lender.
The consolidated statements include the accounts of IBX Group, Inc. and its
wholly owned subsidiaries. All significant inter-company balances and
transactions have been eliminated.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC"). The accompanying consolidated
financial statements for the interim periods are unaudited and reflect all
adjustments (consisting only of normal recurring adjustments) which are, in the
opinion of management, necessary for a fair presentation of the consolidated
financial position and consolidated operating results for the periods presented.
These consolidated financial statements should be read in conjunction with the
consolidated financial statements of IBX Group, Inc. for the year ended December
31, 2003 and 2002 and notes thereto contained in the Report on Form 10-KSB for
the year ended December 31, 2003 as filed with the SEC . The results of
operations for the six months ended June 30, 2004 are not necessarily indicative
of the results for the full fiscal year ending December 31, 2004.
F-5
IBX GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 2004
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF NEW ACCOUNTING POLICIES
(CONTINUED)
The Company follows the guidance of the Securities and Exchange Commision's
Staff Accounting Bulletin 104 for revenue recognition. In general, the Company
records revenue when persuasive evidence of an arrangement exists, services have
been rendered or product delivery has occurred, the sales price to the customer
is fixed or determinable, and collectability is reasonably assured. The
following policies reflect specific criteria for the various revenues streams of
the Company:
Revenue derived from billing and collections and administrative services is
recognized at the completion of the service performed. For billing and
collection services, the Company receives a commission from the customer based
on a percentage of amounts actually collected. Revenues are recognized as a net
amount equal to the percentage commission once the customer's receivable had
been received.
Software application revenue (from licensing) is recognized in accordance with
the terms of the specific agreements.
Maintenance and support revenues are recognized over the term of the related
agreements.
The Company's FHS subsidiaries primarily act as a referral network for physical
therapy patients who are referred by insurance carriers. The Company qualifies
for the use of the Gross Method under EITF 99-19, "Recording Revenues Gross as a
Principal versus Net as an Agent". Revenues from providing medical staffing
application services will be recognized as services are provided.
Revenues from providing medical staffing application services will be recognized
as services are provided.
Customer prepayments from outsourced legal compliance services are deferred and
recognized as earned over the service period.
Basic earnings (loss) per share is computed by dividing net loss by weighted
average number of shares of common stock outstanding during each period. Diluted
loss per share is computed by dividing net loss by the weighted average number
of shares of common stock, common stock equivalents and potentially dilutive
securities outstanding during each period. Diluted loss per common share is not
presented because it is anti-dilutive. At June 30, 2004, there were options and
warrants to purchase 31,330,000 shares of common stock, which could potentially
dilute future earnings per share.
Certain intangible assets, if any, are considered to have an indefinite life
pursuant to SFAS 142 and accordingly are not amortized until their useful life
is determined to be no longer indefinite. The Company evaluates the remaining
useful life of intangible assets that are not being amortized each reporting
period to determine whether events and circumstances continue to support an
indefinite useful life. If an intangible asset that is not being amortized is
subsequently determined to have a finite useful life, the asset is tested for
impairment in accordance with SFAS144. That intangible asset shall then be
amortized prospectively over its estimated remaining useful life and accounted
for in the same manner as other intangible assets that are subject to
amortization. At December 31, 2003, substantially all of the intangible assets
were impaired and charged to operations. Amortizable intangibles are also
evaluated periodically for impairment. The amortization expense in the six month
periods ended June 30, 2004 was $985 compared to $0, respectively, for the same
periods in 2003.
F-6
IBX GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 2004
(UNAUDITED)
NOTE 2 - LOAN PAYABLE
The Company's borrowings consisted of the following at June 30, 2004:
Loan payable to an individual, payable in various installments. The
loan payable includes accrued interest and is collateralized by all
of the assets of one of the Company's subsidiaries and outstanding
common shares of the Company held by certain guarantors. See (a)
below. ............................................................ $ 32,196
Loan payable to an individual, payable on March 12, 2005. The loan
payable includes accrued interest at 8% per annum, is
collateralized by all of the assets of the Company, and in
convertible into common shares. See (b) below. .................... 154,000
Note payable to an individual, payable on demand. The note payable
is non-interest bearing, but interest is imputed at a rate of 10%
per annum and is unsecured. ....................................... 135,926
Line of credit agreement with a financial institution. The Company
can borrow up to $450,000. Interest is payable on the outstanding
principal balance at the financial institution's prime rate (4.25%
at June 30, 2004) computed on the basis of a 360-day year. The loan
is collateralized by restricted cash and is payable on demand. See
(c) below. ........................................................ 450,000
Loan payable to an individual, payable on demand. The loan payable
bears interest at 18% per annum and is unsecured. ................. 12,500
---------
784,622
Less: Current portion of loans payable ............................ (784,622)
---------
Total ............................................................. $ -
=========
(a) On October 8, 2002, the Company made a payment and renegotiated a note
payable with an individual. Accordingly, the principal amount of such
note was reduced to $692,497 as of October 28, 2002. The lender
retroactively restated the per annum interest rate prior to October 8,
2002 from 25% to 15%. Furthermore, so long as the Company does not
breach this agreement, effective October 8, 2002, the annual rate of
interest was further reduced to 12.5% per annum. However, if the
Company defaults on this agreement the loan will contingently revert to
its previous outstanding balance on the date of this agreement with
interest at 25% per annum. Certain shareholders of the Company's have
pledged their shares of the Company owned by them and also personally
guaranteed the note. As on the date of this report, the Company has not
met its obligations under this revised agreement. Failure to comply
with the terms and conditions of the loan documents could result in a
default and the transfer of these assets and shares to the lender,
however, as of June 30, 2004, this individual has not provided the
Company with a notice of default.
F-7
IBX GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 2004
(UNAUDITED)
NOTE 2 - LOAN PAYABLE (CONTINUED)
(b) On March 14, 2004, the Company signed a promissory note with a
shareholder for $174,000, which converted to note payable amounts due
to this shareholder of approximately $69,000 and additional borrowing
of $105,000. The note provides for 8% interest, a maturity date of
March 12, 2005 and a security interest in all of the Company's assets.
The Company is required to provide the holder with 90 days' notice of
any prepayment, although there is no prepayment penalty. The note is
convertible to common stock. The conversion price is the lowest of
$.035, 70% of the closing bid price on the date of conversion or 70% of
the offering price any offering by the Company until March 2005. The
Company agreed to include the shares issuable upon the exercise of this
note in a registration statement. Additionally, the note contained a
requirement that the funds of the loan were to be used to pay down
certain loans and trade payables and that the Company was to supply
written verification to the satisfaction of the note holder by March
31, 2004. Since the Company failed to supply this verification, the
Company is obligated to issue twice as many shares as would have been
issuable when and if the holder converts. In connection with this
penalty provision, the Company recorded a penalty expense of $248,571,
which has been included in interest expense for the six months ended
June 30, 2004. Pursuant to EITF Issue No. 98-5 "Accounting for
Convertible Securities with Beneficial Conversion Features or
Contingently Adjustable Conversion Ratios" and EITF Issue No. 00-27
"Application of Issue No. 98-5 to Certain Convertible Instruments", the
convertible note contains an imbedded beneficial conversion feature
since the fair market value of the common stock exceeds the most
beneficial exercise price on the debenture Issuance Date. This
beneficial conversion value was computed by the Company as $174,000.
Since the conversion feature is exercisable immediately, the $174,000
was recognized as interest expense during the six months ended June 30,
2004. On May 13, 2004, $20,000 of principal balance was converted into
10,000,000 shares of common stock (See Note 6).
(c) The Company maintains restricted cash in a brokerage account that is
collateral for this line of credit and shown as restricted cash on the
accompanying consolidated balance sheet.
NOTE 3 - DEBENTURES PAYABLE
On February 19, 2004, the Company entered into a Securities Purchase Agreement
to issue and sell 7.5% convertible debentures, in the aggregate amount of
$200,000, convertible into shares of common stock of the Company. As of June 30,
2004, $200,000 in convertible debentures were issued Investors. The holders of
this debt have the right to convert all or any amount of this debenture into
fully paid and non-assessable shares of common stock at the conversion price
with the limitation that any debenture holder may not convert any amount of the
debentures if after conversion that debenture holder would beneficially hold
more than 4.99% of the total outstanding common stock of the Company. The
conversion price generally is the lesser of (i) 65% of the average of the three
lowest closing bid prices of the common stock during the five trading days
immediately prior to the conversion date or (ii) $.08. Interest is payable at
the conversion date, in cash or in shares of common stock, at the option of the
Company. The convertible debentures mature three years from the debenture
issuance date. For the six months ended June 30, 2004, the Company recorded an
imbedded beneficial conversion amount of $107,693 as interest expense since the
debentures were immediately convertible.
F-8
IBX GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 2004
(UNAUDITED)
NOTE 3 - DEBENTURES PAYABLE (CONTINUED)
In connection with these convertible debentures issued, warrants to purchase
500,000 common shares were issued to the holders at an exercise price per share
of $0.05. The warrants are exercisable immediately and expire on March 15, 2007.
These warrants were treated as a discount on the convertible debenture and in
2004 were valued at $18,068 under SFAS No.123 using the Black-Scholes
option-pricing model to be amortized over the debenture term. Amortization
expense for the six months ended June 30, 2004 was $7,132 and is included in
interest expense. In May 2004, the investor converted $50,000 of debentures
payable into 3,379,953 shares of common stock (see Note 6).
On March 29, 2004, the Company entered into Securities Purchase Agreements to
issue and sell 7.5% convertible debentures, in the aggregate amount of $400,000,
convertible into shares of common stock of the Company. As of June 30, 2004, the
$400,000 in convertible debentures was issued to consultants for services
rendered and to be rendered in the future. The holders of this debt have the
right to convert all or any amount of this debenture into fully paid and
non-assessable shares of common stock at the conversion price with the
limitation that any debenture holder may not convert any amount of the
debentures if after conversion that debenture holder would beneficially hold
more than 4.99% of the total outstanding common stock of the Company. The
conversion price generally is the lesser of (i) 90% of the average of the three
lowest closing bid prices of the common stock during the five trading days
immediately prior to the conversion date or (ii) $.08. Interest is payable at
the conversion date, in cash or in shares of common stock, at the option of the
Company. The Company recorded an imbedded beneficial conversion amount of
$44,444 as interest expense on March 29, 2004 since the debentures were
immediately convertible. The convertible debenture liability is as follows at
June 30, 2004:
Convertible debenture payable ........................ $ 550,000
Less: unamortized discount on debenture .............. (43,250)
---------
Convertible debenture, net ........................... $ 506,750
=========
NOTE 4 - RELATED PARTY TRANSACTIONS
Certain officers/shareholders of the Company from time to time advanced funds to
the Company for operations. These amounts are non-interest bearing,
non-collateralized, and are payable on demand. These advances are subordinated
to the loan payable (see Note 2). At June 30, 2004, amounts owed to officers
amounted to $120,878.
NOTE 5 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has recently issued several new
accounting pronouncements:
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity." This statement
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. This
statement is effective for financial instruments entered into or modified after
May 31, 2003, and otherwise is effective for the first interim period beginning
after June 15, 2003, with certain exceptions. The adoption of SFAS No. 150 did
not have a significant impact on our consolidated financial position or results
of operations.
F-9
IBX GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 2004
(UNAUDITED)
NOTE 6 - STOCKHOLDERS' DEFICIT
Preferred Stock
In August 2002, the Company designated 300,000 shares of its authorized
preferred stock as Class A Non-Voting Convertible Preferred Stock ("Class A
Preferred"). Each share of Class A Preferred is convertible into 100 shares of
common stock. A holder of Class A Preferred may not convert shares if such
conversion would result in such holder owning in excess of 4.9% of the Company's
common stock. At such time, 80,000 shares of Class A Preferred were issued in
exchange for 8,000,000 shares of common stock held by one entity. Through June
30, 2004, the Class A preferred shareholder converted 47,000 Class A preferred
shares into 4,700,000 shares of common stock.
On February 17, 2004, the Company's board of directors adopted an article of
amendment for 1,000,000 shares of the 5,000,000 shares of preferred stock
designating it as Series B 8% Convertible Preferred Stock or Series B preferred
stock. The holder of shares of the Series B preferred stock will be entitled to
all dividends declared by the board of directors at a rate of $80.00 per share
per annum. Dividends are not cumulative and will not accrue. The holder will be
entitled to convert each share of Series B preferred stock for 2,000 shares of
common stock, subject to adjustment upon the occurrence of certain limited
events as specified in the articles of amendment. Each share will be entitled to
a liquidation preference of $1,000.00 per share plus any declared but unpaid
dividend. The Series B preferred stock will have voting rights as if converted
into common stock and will vote as a class with the common stock on all matters.
Certain protective provisions apply that limits the Company's authority to a)
issue new classes of capital stock senior to the series B preferred, and b) sell
or merge the Company.
During February 2004, the Company had a private placement to five accredited
investors in which the Company issued an aggregate of 1,000 shares of Series B
Preferred Stock convertible into 2,000,000 shares of common stock, warrants
entitling the holders to purchase up to 1,000,000 shares of our common stock at
an exercise price of $0.10 per share expiring on December 31, 2005 for proceeds
of $100,000. Additionally, the Company issued 250 shares of Series B Preferred
Stock convertible into 500,000 shares of common stock, warrants entitling the
holders to purchase up to 250,000 shares of our common stock at an exercise
price of $0.10 per share expiring on December 31, 2005 in exchange for debt
amounting to $25,000.
During May 2004, the Company issued to its chief executive officer 7,500 shares
of Series B Preferred Stock convertible into 15,000,000 shares of common stock.
The preferred shares were valued at the quoted trading price of the underlying
15,000,000 shares of common stock of $375,000 or $.025 per common share and
charged to operations included in other selling, general and administrative.
Common Stock
In January 2004, the Company issued 2,380,000 shares of common stock for net
proceeds of $119,000 or $0.05 per share.
F-10
IBX GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 2004
(UNAUDITED)
NOTE 6 - STOCKHOLDERS' DEFICIT (CONTINUED)
In February 2004, in connection with a securities purchase agreement (see note
3), the Company issued 500,000 shares of common stock. The shares were value at
the quoted trading price on the date of the securities purchase agreement of
$35,500. The $35,500 was treated as a discount on the convertible debenture and
is being amortized into interest expense over the debenture term. In May 2004,
the Company issued an additional 500,000 shares of common stock. The shares were
value at the quoted trading price on the date of the securities purchase
agreement of $10,500. The $10,500 was treated as a discount on the convertible
debenture and is being amortized into interest expense over the debenture term.
For the six months ended June 30, 2004, amortization of the discount on the
convertible debentures amounted to $13,686.
During the six months ended June 30, 2004, the Class A preferred shareholder
converted 24,000 Class A preferred shares into 2,400,000 shares of common stock.
During the six months ended June 30, 2004, the Company cancelled 22,000 shares
of common stock previously issued.
In May and June 2004, in connection with the conversion of debentures and loans
payable, the Company issued 13,379,953 shares of common stock for debt of
$70,000. As of June 30, 2004, 379,953 of these common shares had not been issued
and are included in common stock issuable on the accompanying balance sheet.
In June 2004, in connection with the exercise of stock warrants, the Company
issued 10,950,000 shares of common stock to consultants for net proceeds of
$60,975.
On June 30, 2004, the shareholders approved an increase in the authorized common
shares to 500,000,000, which had been previously approved by the Board of
Directors.
Common stock warrants and options
In connection with the March 2004 issuance of 1,250 shares of Series B
convertible preferred stock, the Company granted 1,250,000 common stock warrants
to purchase 1,250,000 shares of the Company's common stock at $.10 per share.
The warrants expire in December 31, 2005.
On March 29, 2004, in connection with a consulting contract, the Company granted
an aggregate of 40,000,000 warrants to purchase shares of the Company's common
stock at an exercise price of $0.10 per share. The fair value of this warrant
grant was estimated at $0.023 per warrant on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions dividend yield of -0- percent; expected volatility of 85 percent;
risk-free interest rate of 4.50 percent and an expected holding periods of 3.00
years. In connection with these warrants, the Company recorded compensation
expense of $186,715 for the six months ended June 30, 2004 and deferred
compensation of $727,204, which will be amortized over the service period. The
warrants expire on March 29, 2007.
F-11
IBX GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 2004
(UNAUDITED)
NOTE 6 - STOCKHOLDERS' DEFICIT (CONTINUED)
Common stock warrants and options (continued)
On May 28, 2004, certain warrant holders sold, for nominal consideration,
warrants for 8,000,000 shares of common stock to a consultant for services
rendered and to be rendered in the future on behalf of the Company. For
accounting purposes, this transaction is treated as a contribution of the
warrants by the selling warrant holder to the Company and a new grant of
warrants to the consultant resulting in a consulting expense. The options had
exercise prices of $.005 per share and expire on November 28, 2004. The fair
value of each option grant was estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions dividend yield of -0- percent; expected volatility of 105%;
risk-free interest rate of 4.50 percent and an expected holding periods of six
months. In connection with the sale of these options, the Company recorded
non-cash compensation of $19,461 and deferred compensation of $97,306. In June
2004, the consultant exercised these warrants for 1,950,000 common shares for
net proceeds of $975.
On May 14, 2004, certain consultants to the Company assigned their warrants to a
third party, whereby the third party has the right to purchase warrants from the
consultants. The Company agreed to reduce the exercise price of the warrants
purchased by the third party in exchange for the exercise of such warrants. The
exercise price of these warrants has been set to a percentage of market, not to
exceed 70% of the bid price of the Company's common stock. As of June 30, 2004,
the third party exercised 9,000,000 warrants at an exercise price of $0.00667
for net proceeds of $60,000. There is no financial accounting effect of these
transactions other than offsetting the fee paid against paid in capital as an
offering cost.
In connection with convertible debentures issued, warrants to purchase 500,000
common shares were issued to the holders at an exercise price per share of
$0.05. The warrants are exercisable immediately and expire on March 15, 2007.
These warrants were treated as a discount on the convertible debenture and in
2004 were valued at $18,068 under SFAS No.123 using the Black-Scholes
option-pricing model to be amortized over the debenture term. Amortization
expense for the six months ended June 30, 2004 was $7,132 and is included in
interest expense (see Note 3).
A summary of outstanding options and warrants at June 30, 2004 are as follows:
Shares Underlying Range of Remaining Average
Options and warrants Exercise Prices Contractual Life Exercise Price
-------------------- ----------------- ---------------- --------------
Outstanding at December 31, 2003 530,000 $0.10 - $0.50 2.75 years $0.28
Granted ......................... 41,750,000 $0.0005 - $0.10 1.5 years 0.10
Exercised ....................... (10,950,000) $.0005 - $.00667 - 0.0056
Cancelled ....................... - - - -
----------- ----------------- ---------- -------
Outstanding at June 30, 2004 .... 31,330,000 $0.05 - $0.50 1.6 years $0.10
=========== ================= ========== =======
Weighted average fair value of warrants and options
granted for the six months ended June 30, 2004 ............ $.10
====
F-12
IBX GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 2004
(UNAUDITED)
NOTE 6 - STOCKHOLDERS' DEFICIT (CONTINUED)
Common stock warrants and options (continued)
The following table summarizes information about employee stock options and
consultant warrants outstanding at June 30, 2004:
Options and Warrants
Options and Warrants Outstanding Exercisable
-------------------------------------------------- -------------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding at Contractual Exercise Exercisable at Exercise
Price June 30, 2004 Life Price June 30, 2004 Price
-------- -------------- ----------- -------- -------------- --------
$ 0.50 250,000 2.50 Years $ 0.50 250,000 $ 0.50
0.05-0.10 25,030,000 2.55 Years 0.10 25,030,000 0.10
0.0005 6,050,000 0.41 years 0.0005 6,050,000 0.0005
---------- ------- ---------- ------
31,330,000 $ 0.083 31,330,000 $ 0.083
========== ======= ========== ======
NOTE 7 - ACQUISITION
Effective February 20, 2004 the Company closed on the acquisition of all the
membership units of South Florida Therapy I, LLC ("SFT") a company operating in
the physical and respiratory therapy business. As part of the agreement, the
Company will administer collections for all accounts receivable through February
20, 2004 on behalf of the sellers and receive a 10% fee of amounts collected. In
addition, the Company will administer and collect future receivables on behalf
of its wholly owned subsidiary for a 10% fee which would eliminate in
consolidation. The purchase price was $1.00 plus 5% of future gross revenues
collected of SFT through February 20, 2006. In addition, if the Company does not
fund and maintain the SFT business through February 20, 2006, a termination
payment of $50,000 will be due to the sellers. The Company accounted for this
acquisition using the purchase method of accounting, however, as there were no
tangible assets or liabilities, and a nominal $1.00 purchase price, there was no
accounting entry at the acquisition date.
In accordance with SFAS 141 "Business Combinations" the contingent consideration
of 5% of future revenues collected will be recorded as a component of the
purchase price as such amounts are determined in the future.
F-13
IBX GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 2004
(UNAUDITED)
NOTE 8 - SEGMENT INFORMATION
For the six months ended June 30, 2004, the Company operated in two reportable
business segments - (1) healthcare transaction management and technology
services and (2) physical therapy and rehabilitation services. The healthcare
transaction management and technology services segment provides the healthcare
industry with a combination of administrative services and technology
development, including but not limited to physicians practice management,
billing and collections, network services, transcription services, staffing
solutions, and software application development. The physical therapy and
rehabilitation services segment operates multi-disciplinary clinics offering
physical therapy, occupational medicine, pain management, chiropractic care and
wellness services. The Company's reportable segments are strategic business
units that offer different products, which compliment each other. They are
managed separately based on the fundamental differences in their operations.
Information with respect to these reportable business segments for the six
months ended June 30, 2004 and 2003 is as follows.
FOR THE SIX FOR THE SIX
MONTHS ENDED MONTHS ENDED
JUNE 30, 2004 JUNE 30, 2003
NET REVENUES:
Healthcare Transaction
Management and Technology $ 318,311 $ 1,815,310
Physical Therapy and Rehabilitation 86,560 390,173
----------- -----------
Consolidated Net Revenue 404,871 2,205,483
----------- -----------
OPERATING EXPENSES:
Healthcare Transaction
Management and Technology 2,595,891 1,813,009
Physical Therapy and Rehabilitation 400,672 534,034
----------- -----------
DEPRECIATION AND AMORTIZATION:
Healthcare Transaction
Management and Technology 64,816 73,433
Physical Therapy and Rehabilitation 7,127 3,888
----------- -----------
INTEREST EXPENSE:
Healthcare Transaction
Management and Technology 791,435 45,842
Physical Therapy and Rehabilitation - -
----------- -----------
NET LOSS:
Healthcare Transaction
Management and Technology $(3,133,831) $ (116,974)
Physical Therapy and Rehabilitation
(321,239) (147,749)
----------- -----------
NET LOSS $(3,455,070) $ (264,723)
=========== ===========
TOTAL ASSETS AT JUNE 30, 2004 AND 2003:
Healthcare Transaction
Management and Technology $ 1,147,024 $ 1,309,027
Physical Therapy and Rehabilitation 96,698 397,226
----------- -----------
Consolidated Asset Total $ 1,243,722 $ 1,706,253
=========== ===========
F-14
IBX GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 2004
(UNAUDITED)
NOTE 9 - GOING CONCERN
As reflected in the accompanying consolidated financial statements, the Company
has a working capital deficiency of $3,501,525 at June 30, 2004, and has an
accumulated deficit and stockholders' deficit of $9,869,011 and $3,428,637,
respectively, and has cash used in operations of $887,918 for the six months
ended June 30, 2004. The ability of the Company to continue as a going concern
is dependent on achieving profitable operations, its ability to generate
positive cash flows from operations, and the obtaining additional equity and/or
debt financing to pay off outstanding debt obligations and unpaid payroll taxes.
There can be no assurance that the Company's efforts will be successful. The
consolidated financial statements do not include any adjustments that might be
necessary if the Company is unable to continue as a going concern. No estimate
has been made should management's plan be unsuccessful (see Note 10).
NOTE 10 - SUBSEQUENT EVENTS
Subsequent to June 30, 2004, in connection with the conversion of debentures and
loans payable, the Company issued 18,577,482 shares of common stock for debt of
$109,000. As of the date of this report, 677,482 of these common shares remain
issuable.
Subsequent to June 2004, in connection with the exercise of stock warrants, the
Company issued 21,545,798 shares of common stock to consultants for a
subscription receivable of $3,025 and net proceeds of $137,500.
In July 2004, Series B preferred shareholder converted 1,000 Series B preferred
shares into 2,000,000 shares of common stock.
On July 6, 2004, the Company issued 3,609,500 shares of common stock to its
chief executive officer as compensation. Such shares were valued at their market
value on the date of issuance at $0.0235 per share. The Company recorded
compensation expense of $84,823 related to these services.
On August 18, 2004, the Company entered into a Securities Purchase Agreement,
whereby the Company shall issue and sell up to $400,000 of 5% secured
convertible debentures with a 3-year term, which shall be convertible into
shares of the Company's common stock. The debentures are secured by
substantially all assets of the Copany. The debenture holder is entitled, at its
option, to convert the debentures into shares of the Company's common stock at a
per share price equal to the lesser of (a) an amount equal to 120% of the
closing bid price of the common stock as quoted by Bloomberg L.P., or (b) an
amount equal to 80% of the lowest closing bid price of the Company's common
stock for the five trading days immediately preceding the conversion date. The
Company, at its option, has the right to redeem the outstanding convertible
debentures at a redemption price of 120% of the amount redeemed plus accrued
interest. In the event the Company exercises a redemption, the debenture holder
will receive a warrant to purchase 50,000 shares of the Company's common stock
for every $100,000 redeemed, pro rata. The warrants have an exercise price of
120% of the closing bid price of the Company's commons tock and expire two years
from the closing date. In August 2004, the Company issued $200,000 of debentures
under this agreement for net proceeds of approximately $165,000.
F-15
IBX GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 2004
(UNAUDITED)
NOTE 10 - SUBSEQUENT EVENTS (CONTINUED)
So long as these convertible debentures are outstanding, the Company shall not,
without prior written consent of the debenture holders, issue or sell shares of
common stock or preferred stock (i) without consideration or for a consideration
per share less than the Bid Price of the common stock determined immediately
prior to its issuance, (ii) any warrant, option, right, contract, call, or other
security instrument granting the holder thereof, the right to acquire common
stock without consideration or for a consideration per share less than the Bid
Price of the common stock determined immediately prior to its issuance, (iii)
enter into any security instrument granting the holder a security interest in
any and all assets of the Company, or (iv) file any registration statement on
Form S-8.
On August 18, 2004, the Company entered into a standby Equity Distribution
Agreement (the "Standby Equity Agreement"), whereby the Company shall issue and
sell to investors up to $15,000,000 of the Company's common stock at a purchase
price equal to 98% of the volume weighted average price of the Company's common
stock as quoted by Bloomberg, L.P. five consecutive trading days after the
Advance notice date. The advances under the Standby Equity Agreement may
commence after the effective date of a registration statement and are limited to
$600,000 per advance. A 5% fee will be paid back to the investors for each
advance and a $190,000 commitment fee was paid in stock to the investors.
The Company paid a $10,000 placement agent fee with 1,470,588 common shares.
The Company is required to prepare and file, prior to September 18, 2004, with
the SEC a registration statement on Form SB-2 under the 1933 Act for the
registration of common shares to be issued upon conversion of the convertible
debentures issued pursuant to the Securities Purchase Agreement and the
Investors' shares. The Company must use its best efforts (i) to have the
registration statement declared effective by the SEC no later than 90 days from
August 18, 2004. In the event the registration statement is not filed by
September 18, 2004 or is not declared effective by the SEC on or before the
Scheduled effective date, as defined, the Company will pay as liquidating
damages to the holder, at the holder's option, either a cash amount or shares of
the Company's common stock, equal to two percent (2%) of the liquidating value
of the convertible debentures outstanding as liquidating damages each 30 day
period.
F-16
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders:
IBX Group, Inc.
We have audited the accompanying consolidated balance sheet of IBX Group, Inc.
and Subsidiaries as of December 31, 2003, and the related consolidated
statements of operations, changes in stockholders' deficit and cash flows for
the years ended December 31, 2003 and 2002. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of IBX
Group, Inc. and Subsidiaries, as of December 31, 2003, and the consolidated
results of their operations and their cash flows for the years ended December
31, 2003 and 2002, 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 10 to
the consolidated financial statements, the Company has a working capital
deficiency of $1,900,961 at December 31, 2003, and has an accumulated deficit of
$6,413,941. These matters raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regards to these matters are
also described in Note 10. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
SALBERG & COMPANY, P.A.
Boca Raton, Florida
March 15, 2004
F-17
IBX GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31, 2003
ASSETS
Current assets:
Cash ............................................................ $ 22,133
Restricted cash ................................................. 438,091
Accounts receivable, net of allowance for
doubtful accounts of $51,258 ................................... 541,692
Due from related parties ........................................ 94,382
Other current assets ............................................ 88,637
-----------
Total current assets .......................................... 1,184,935
-----------
Property and equipment, net ....................................... 291,117
-----------
Other assets:
Intangible assets, net .......................................... 985
Other ........................................................... 27,151
-----------
Total other assets ............................................ 28,136
-----------
Total assets .................................................. $ 1,504,188
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Note payable, current maturities ................................ $ 544,771
Checks outstanding in excess of bank balances ................... 42,324
Accounts payable ................................................ 446,332
Accrued expenses ................................................ 480,957
Payroll taxes payable ........................................... 1,538,609
Deferred revenue ................................................ 14,467
Due to related party ............................................ 18,436
-----------
Total current liabilities ..................................... 3,085,896
-----------
Commitments and contingencies
Stockholders' deficit:
Preferred Stock ($0.005 par value; 4,700,000 authorized shares;
none issued and outstanding) ................................... -
Class A Non-voting Convertible Preferred Stock ($0.005 par value;
300,000 authorized shares; 57,000 shares issued and outstanding) 285
Common stock ($0.005 par value; 100,000,000 authorized shares;
90,729,877 shares issued and outstanding) ...................... 453,650
Common stock issuable (2,100 shares) ............................ 10
Additional paid-in capital ...................................... 4,542,706
Accumulated deficit ............................................. (6,413,941)
Less: Stock subscription receivable ............................. (90,000)
Less: Deferred compensation and consulting ...................... (74,418)
-----------
Total stockholders' deficit ................................... (1,581,708)
-----------
Total liabilities and stockholders' deficit ................... $ 1,504,188
===========
See accompanying notes to consolidated financial statements.
F-18
IBX GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Year Ended
December 31,
---------------------------
2003 2002
------------ ------------
REVENUES ......................................... $ 3,327,852 $ 3,220,104
------------ ------------
OPERATING EXPENSES:
Salaries and payroll taxes ................... 2,301,790 1,300,563
Depreciation and amortization ................ 172,374 115,826
Consulting fees .............................. 1,022,268 -
Professional fees ............................ 274,185 191,106
Rent ......................................... 446,829 230,275
Other selling, general and administrative .... 1,696,843 1,077,836
Loss from impairment of intangible assets .... 592,604 -
------------ ------------
Total Operating Expenses ................. 6,506,893 2,915,606
------------ ------------
INCOME (LOSS) FROM OPERATIONS .................... (3,179,041) 304,498
------------ ------------
OTHER INCOME (EXPENSES):
Settlement expense ........................... (64,770) -
Gain on forgiveness of debt .................. - 289,662
Interest expense ............................. (354,752) (430,867)
------------ ------------
Total Other Income (Expenses) ............ (419,522) (141,205)
------------ ------------
NET INCOME (LOSS) ................................ $ (3,598,563) $ 163,293
============ ============
EARNING (LOSS) PER SHARE:
Net Income (Loss) Per Common Share - Basic ... $ (0.06) $ 0.00
============ ============
Net Income (Loss) Per Common Share - Diluted . $ (0.06) $ 0.00
============ ============
Weighted Common Shares Outstanding - Basic ... 60,604,049 37,003,110
============ ============
Weighted Common Shares Outstanding - Diluted . 60,604,049 55,176,341
============ ============
See accompanying note to consolidated financial statements.
F-19
IBX GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
For the Years Ended December 31, 2003 and 2002
CLASS A NON-VOTING
CONVERTIBLE
PREFERRED STOCK COMMON STOCK COMMON STOCK ISSUABLE
----------------- ----------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------- ------- ----------- --------- ---------- --------
Balance at December 31, 2001 ..................... - $ - 41,837,500 $ 209,189 2,000,000 $ 10,000
Exercise of stock options ........................ - - 250,000 1,250 - -
Exercise of warrants for cash .................... - - 789,997 3,950 - -
Exercise of warrants for exchange of debt ........ - - 1,792,366 8,962 - -
Common stock issued in exchange for debt ......... - - 1,081,880 5,409 - -
Grant of warrants ................................ - - - - - -
Common stock issued for services rendered ........ - - 1,000,000 5,000 - -
Issuance of previously issuable common stock ..... - - 2,000,000 10,000 (2,000,000) (10,000)
Issuance of preferred shares for common .......... 80,000 400 (8,000,000) (40,000) - -
Common stock issuable for acquisition of assets .. - - - - 600,000 3,000
Amortization of deferred compensation ............ - - - - - -
Net income for the year .......................... - - - - - -
------- ------- ----------- --------- ---------- --------
Balance at December 31, 2002 ..................... 80,000 400 40,751,743 203,760 600,000 3,000
Exercise of stock warrants ....................... - - 41,137,634 205,688 - -
Grant of warrants ................................ - - - - - -
Common stock issued for services rendered ........ - - 1,500,234 7,501 - -
Issuance of previously issuable common stock ..... - - 600,000 3,000 (600,000) (3,000)
Common stock issued and issuable for
acquisition of assets .................. - - 3,847,900 19,239 2,100 10
Conversion of preferred to common ................ (23,000) (115) 2,300,000 11,500 - -
Sale of unregistered common stock ................ - - 592,366 2,962 - -
Settlement of subscriptions receivable ........... - - - - - -
Amortization of deferred compensation ............ - - - - - -
Net loss for the year ............................ - - - - - -
------- ------- ----------- --------- ---------- --------
Balance at December 31, 2003 ..................... 57,000 $ 285 90,729,877 $ 453,650 2,100 $ 10
======= ======= =========== ========= ========== ========
(continued)
See accompanying note to consolidated financial statements.
F-20
IBX GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
For the Years Ended December 31, 2003 and 2002
(continued)
DEFERRED
ADDITIONAL STOCK COMPENSATION
PAID-IN ACCUMULATED SUBSCRIPTION AND
CAPITAL DEFICIT RECEIVABLE CONSULTING TOTAL
----------- ----------- -------- --------- -----------
Balance at December 31, 2001 ..................... $ 250,489 $(2,978,671) $ - $(139,849) $(2,648,842)
Exercise of stock options ........................ 1,250 - (2,500) - -
Exercise of warrants for cash .................... 75,050 - - - 79,000
Exercise of warrants for exchange of debt ........ 170,274 - - - 179,236
Common stock issued in exchange for debt ......... 102,779 - (17,570) - 90,618
Grant of warrants ................................ 4,000 - - (2,667) 1,333
Common stock issued for services rendered ........ 41,000 - - (9,200) 36,800
Issuance of previously issuable common stock ..... - - - - -
Issuance of preferred shares for common .......... 39,600 - - - -
Common stock issuable for acquisition of assets .. 24,600 - - - 27,600
Amortization of deferred compensation ............ - - - 40,143 40,143
Net income for the year .......................... - 163,293 - - 163,293
----------- ----------- -------- --------- -----------
Balance at December 31, 2002 ..................... 709,042 (2,815,378) (20,070) (111,573) (2,030,819)
Exercise of stock warrants ....................... 3,017,440 - (90,000) - 3,133,128
Grant of warrants ................................ 166,000 - - - 166,000
Common stock issued for services rendered ........ 97,542 - - - 105,043
Issuance of previously issuable common stock ..... - - - - -
Common stock issued and issuable for
acquisition of assets .................. 537,411 - - - 556,660
Conversion of preferred to common ................ (11,385) - - - -
Sale of unregistered common stock ................ 26,656 - - - 29,618
Settlement of subscriptions receivable ........... - - 20,070 - 20,070
Amortization of deferred compensation ............ - - - 37,155 37,155
Net loss for the year ............................ - (3,598,563) - - (3,598,563)
----------- ----------- -------- --------- -----------
Balance at December 31, 2003 ..................... $ 4,542,706 $(6,413,941) $(90,000) $ (74,418) $(1,581,708)
=========== =========== ======== ========= ===========
See accompanying note to consolidated financial statements.
F-21
IBX GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years
Ended December 31,
-----------------------------
2003 2002
----------- ---------
Cash flows from operating activities:
Net (loss) income ........................................................ $(3,598,563) $ 163,293
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:
Depreciation and amortization ........................................... 172,374 115,826
Non-cash compensation and consulting expense ............................ 308,198 80,028
Loss from sale/abandonment of property and equipment .................... 24,583 -
Impairment of intangible assets ......................................... 592,604 -
Settlement expense ...................................................... 64,770 -
Gain on forgiveness of debt ............................................. - (289,662)
(Increase) decrease in:
Accounts receivable .................................................... (383,622) (14,957)
Due from related parties ............................................... (94,382) -
Other current assets ................................................... (66,322) (5,198)
Other .................................................................. (27,151) -
Increase (decrease) in:
Accounts payable ....................................................... (35,411) 99,927
Accrued expenses ....................................................... 374,073 (201,240)
Payroll taxes payable .................................................. 560,257 503,626
Customer deposits ...................................................... (185,925) (177,923)
Deferred revenue ....................................................... (173,033) 187,500
Interest payable ....................................................... - 34,576
----------- ---------
Net cash (used in) provided by operating activities ........................ (2,467,550) 495,796
----------- ---------
Cash flows from investing activities:
Cash receieved from (paid for) acquisition ............................... 3,108 (35,000)
Increase in restricted cash .............................................. (438,091) -
Proceeds from sale of property and equipment ............................. 15,100 -
Purchase of property and equipment ....................................... (163,083) (89,054)
----------- ---------
Net cash used in investing activities ...................................... (582,966) (124,054)
----------- ---------
Cash flows from financing activities:
Proceeds from exercise of stock warrants ................................. 3,088,428 79,000
Proceeds from sale of common stock ....................................... 29,618 -
Checks outstanding in excess of bank balances ............................ 17,260 (109,171)
Payments on loans ........................................................ (516,421) (293,782)
Proceeds from loans ...................................................... 412,478 163,000
Proceeds from (payments on) advances from related party .................. 17,982 (189,676)
----------- ---------
Net cash provided by (used in) financing activities ........................ 3,049,345 (350,629)
----------- ---------
Net (decrease) increase in cash ............................................ (1,171) 21,113
Cash at beginning of year .................................................. 23,304 2,191
----------- ---------
Cash at end of year ........................................................ $ 22,133 $ 23,304
=========== =========
(continued)
See accompanying notes to consolidated financial statements.
F-22
IBX GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
For the Years
Ended December 31,
-----------------------------
2003 2002
----------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest ................................................................. $ 56,870 $ -
=========== =========
Income Taxes ............................................................. $ - $ -
=========== =========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Common stock issued for debt and subscription receivable ................. $ - $ 108,188
=========== =========
Exercise of common stock warrants for debt ............................... $ - $ 179,236
=========== =========
Common stock issuable for assets ......................................... $ - $ 27,600
=========== =========
Acquisition details:
Fair value of assets acquired ............................................ $ 257,832 $ 18,816
=========== =========
Liabilities assumed ...................................................... $ 10,699 $ 55,023
=========== =========
Goodwill ................................................................. $ 309,527 $ 71,207
=========== =========
See accompanying notes to consolidated financial statements.
F-23
IBX GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
IBX Group, Inc. (the "Company") was organized under the laws of the state of
Florida in July 1997 as Vidkid Distribution, Inc. ("Vidkid"). On September 25,
2001 (the "acquisition date"), the Company acquired all of the outstanding
capital stock of PriMed Technologies, Inc., a Florida corporation ("PriMed").
PriMed was organized under the laws of the State of Florida on February 4, 1999
as a limited liability company and reorganized as a corporation on January 1,
2000. PriMed was acquired in a stock-for-stock transaction in which PriMed's
shareholders received approximately 81% of the outstanding common stock of
Vidkid on a fully diluted basis. Under the Agreement, Vidkid issued 11,550,000
shares of its common stock in exchange for each and every share of common stock
of PriMed and Vidkid's name was changed to IBX Group, Inc.
For financial accounting purposes, the exchange of stock was treated as a
recapitalization of PriMed with the former shareholders of Vidkid retaining
2,637,500 or approximately 19% of the outstanding stock. The stockholders'
equity section reflects the change in the capital structure of PriMed due to the
recapitalization and the consolidated financial statements reflect the
operations of PriMed for the periods presented and the operations of IBX Group,
Inc. from the acquisition date.
The Company is engaged in providing administrative services (accounting, billing
and collection, claims processing, information management), network support and
maintenance to clients predominantly in the healthcare sector. In addition, the
Company has developed proprietary software and applications with interactive
web-enabled multimedia capabilities with which the Company will develop new
markets and lines of business.
In September 2002, the Company acquired Florida Health Source, LLC and entered
the business of providing physical therapy services to referred patients. In
April 2003, the Company acquired NurseStat, LLC and entered the business of
providing medical staffing applications. In May 2003, the Company acquired the
business of Independent Transcription Services and entered the business of
providing dictating transcription and document management services for the
healthcare industry. In May 2003, the Company acquired certain assets and the
business of Medicompliant Solutions and Legal Services, Inc. and entered the
business of providing outsourced legal compliance services for the healthcare
industry. In May 2003, the Company formed a new majority-owned subsidiary, Robo
Massage, LLC and licensed the rights to certain massage technology which it will
use in its physical therapy centers and which it will sell (See Note 2).
All of the shares and assets of the Company's primary operating subsidiary have
been pledged to secure a loan obligation to a creditor. Two of the Company's
primary officers have also pledged the shares of the Company owned by them. .
The parties entered into an amended settlement agreement effective November 7,
2002 whereby the creditor agreed to dismiss his action against the Company.
Pursuant to the terms of the Agreement, the Company is obligated to make certain
monthly payments, all of which have been made to date. The creditor, pursuant to
the settlement agreement, has a lien and perfected security interest on all of
the assets of IBX Technologies, Inc., which is IBX's primary operating
subsidiary and on 11,550,000 shares of IBX common stock owned by two of the
Company's officers. As of December 31, 2003, approximately $132,293 was
outstanding on the loan. Failure to comply with the terms and conditions of the
loan documents could result in a default and the transfer of these assets and
shares to the lender.
F-24
IBX GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PRINCIPLES OF CONSOLIDATION
The consolidated statements include the accounts of IBX Group, Inc. and its
wholly-owned subsidiaries and partially-owned subsidiary. All significant
inter-company balances and transactions have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates. Significant estimates in 2003 and 2002
include the allowance for doubtful accounts, the impairment loss on goodwill and
other intangible assets, and the valuation of certain equity instruments issued
or granted for services.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all cash and
other demand deposits to be cash and cash equivalents. As of December 31, 2003
and 2002, the Company had no cash equivalents.
ACCOUNTS RECEIVABLE AND ALLOWANCE
The Company estimates an allowance for doubtful accounts relating to its medical
billing business on a specific identification basis. Allowance for doubtful
accounts related to the physical therapy and other businesses are estimated
based on the Company's estimate of collectibility based on factors such as age
of receivables and historical collection experiences. At December 31, 2003,
$458,682 of net accounts receivables were collateral under a loan agreement (see
Note 4).
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheet for cash, accounts
receivable, accounts payable and accrued expenses, payroll taxes payable, and
loans payable approximate their fair market value based on the short-term
maturity of these instruments.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are being depreciated using the
straight-line method over the estimated useful lives of three to seven years.
Leasehold improvements are stated at cost and are being amortized over the
lesser of the term of the lease or the estimated useful life of the asset. When
assets are retired or otherwise disposed of, the costs and accumulated
depreciation are removed from the respective accounts and any related gain or
loss is recognized. Maintenance and repair costs are charged to expense as
incurred, and renewals and improvements that extend the useful lives of assets
are capitalized.
F-25
IBX GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
The Company follows the guidance of the Securities and Exchange Commision's
Staff Accounting Bulletin 101 for revenue recognition. In general, the Company
records revenue when persuasive evidence of an arrangement exists, services have
been rendered or product delivery has occurred, the sales price to the customer
is fixed or determinable, and collectability is reasonably assured. The
following policies reflect specific criteria for the various revenues streams of
the Company:
Revenue derived from billing and collections and administrative services is
recognized at the completion of the service performed. For billing and
collection services, the Company receives a commission from the customer based
on a percentage of amounts actually collected. Revenues are recognized as a net
amount equal to the percentage commission once the customer's receivable had
been received. Software application revenue (from licensing) is recognized in
accordance with the terms of the specific agreements.
Maintenance and support revenues are recognized over the term of the related
agreements.
The Company's FHS subsidiary primarily acts as a referral network for physical
therapy patients who are referred by insurance carriers. Revenue from providing
physical therapy services was recognized upon completion of the patient services
and was recorded net of amounts due to service providers for the fiscal year
ended December 31, 2002. In 2003, the Company re-evaluated this revenue
recognition policy of the FHS subsidiary and determined that it qualifies for
the use of the Gross Method under EITF 99-19, "Recording Revenues Gross as a
Principal versus Net as an Agent". The cumulative effect of the change in
accounting principal was not material.
Revenues from providing medical staffing application services will be recognized
as services are provided.
Customer prepayments from outsourced legal compliance services are deferred and
recognized as earned over the service period.
INTANGIBLES AND OTHER LONG-LIVED ASSETS
The Company reviews the carrying value of intangibles and other long-lived
assets for impairment at least annually or whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of long-lived assets is measured by comparison of
its carrying amount to the undiscounted cash flows that the asset or asset group
is expected to generate. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the property, if any, exceeds its fair market value. Goodwill
represents the excess of the cost of the Company's acquired subsidiaries or
assets over the fair value of their net assets at the date of acquisition. Under
Statement of Financial Accounting Standards ("SFAS") No. 142, effective the
first quarter of the year ended December 31, 2002, goodwill is no longer subject
to amortization over its estimated useful life; rather, goodwill is subject to
at least an annual assessment for impairment applying a fair-value based test.
F-26
IBX GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLES AND OTHER LONG-LIVED ASSETS (CONTINUED)
In the fourth quarter of 2003, based on an impairment test, the Company decided
to write-off all goodwill and other intangible asset balances of $592,604
relating to the acquisition of the Company's subsidiaries NursesStat LLC,
Florida Health Source LLC, RoboMassage, and Independent Transcription Services
and the acquisition of certain assets under purchase agreements. The decision to
recognize an impairment loss was made in light of the subsidiaries inability to
generate a profit after the acquisition, mounting intercompany balances, the
length of time estimated for us to recover the initial investment, and the
uncertainty of market conditions and business performance (see Note 2).
INCOME (LOSS) PER COMMON SHARE
Basic income (loss) per share is computed by dividing net income (loss) by the
weighted average number of shares of common stock outstanding during the period.
Diluted income per share is computed by dividing net income by the weighted
average number of shares of common stock, common stock equivalents and
potentially dilutive securities outstanding during each period. The following
table presents a reconciliation of basic and diluted earnings per share:
2003 2002
---- ----
Net (loss) income ................................ $ (3,598,563) $ 163,293
------------ ------------
(Loss) income available to common shares ......... $ (3,598,563) $ 163,293
Weighted average shares outstanding - basic ...... 60,604,049 37,003,110
EPS - BASIC ...................................... $ (0.06) $ (0.00)
============ ============
(Loss) income available to common shares ......... $ (3,598,563) $ 163,293
============ ============
Weighted average shares outstanding - basic ...... 60,604,049 37,003,110
Effect of dilutive securities:
Convertible preferred stock ...................... - 2,016,438
Contingently returnable common stock-
Contingency satisfied at December 31, 2003 ...... - 6,600,000
Exercised options and warrants ................... - 693,712
Unexercised options and warrants ................. - 8,863,081
------------ ------------
Weighted average shares outstanding - diluted .... 60,604,049 55,176,341
============ ============
EPS - DILUTED .................................... $ (0.06) $ (0.00)
============ ============
In 2003, 530,000 common stock options were not included in the computation of
diluted earnings per share as their effect would have been anti-dilutive.
F-27
IBX GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK-BASED COMPENSATION
The Company accounts for stock options issued to employees in accordance with
the provisions of Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations. As
such, compensation cost is measured on the date of grant as the excess of the
current market price of the underlying stock over the exercise price. Such
compensation amounts are amortized over the respective vesting periods of the
option grant. The Company adopted the disclosure provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation" and SFAS 148, "Accounting for
Stock-Based Compensation -Transition and Disclosure", which permits entities to
provide pro forma net income (loss) and pro forma earnings (loss) per share
disclosures for employee stock option grants as if the fair-valued based method
defined in SFAS No. 123 had been applied. The Company accounts for stock options
and stock issued to non-employees for goods or services in accordance with the
fair value method of SFAS 123.
ADVERTISING
Advertising costs are expensed when incurred. For the years ended December 31,
2003 and 2002, advertising expense amounted to $250,662 and $239,698,
respectively.
INCOME TAXES
Income taxes are accounted for under the asset and liability method of Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes ("SFAS
109"). Under SFAS 109 deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. Under SFAS
109, the effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 2002, the FASB issued Statement of Financial Accounting Standards
No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure.
Statement 148 provides alternative methods of transition to Statement 123's fair
value method of accounting for stock-based employee compensation. It also amends
the disclosure provisions of Statement 123 and APB Opinion No. 28, Interim
Financial Reporting, to require disclosure in the summary of significant
accounting policies of the effects of an entity's accounting with respect to
stock-based employee compensation on reported net income and earnings per share
in annual and interim financial statements. Statement 148's amendment of the
transition and annual disclosure requirements of Statement's 123 are effective
for fiscal years ending after December 15, 2002. Statement 148's amendment of
the disclosure requirements of Opinion 28 is effective for interim periods
beginning after December 15, 2002. The adoption of the disclosure provisions of
Statement 148 as of December 31, 2002 did not have a material impact on the
Company's financial condition or results of operations.
F-28
IBX GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities." FIN 46 requires that if an entity
has a controlling financial interest in a variable interest entity, the assets,
liabilities and results of activities of the variable interest entity should be
included in the consolidated financial statements of the entity. FIN 46 requires
that its provisions are effective immediately for all arrangements entered into
after January 31, 2003. The Company does not have any variable interest entities
created after January 31, 2003. For those arrangements entered into prior to
January 31, 2003, the FIN 46 provisions are required to be adopted at the
beginning of the first interim or annual period beginning after June 15, 2003.
The Company has not identified any variable interest entities to date and will
continue to evaluate whether it has variable interest entities that will have a
significant impact on its consolidated balance sheet and results of operations.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity." This statement
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. This
statement is effective for financial instruments entered into or modified after
May 31, 2003, and otherwise is effective for the first interim period beginning
after June 15, 2003, with certain exceptions. The adoption of SFAS No. 150 did
not have a significant impact on our consolidated financial position or results
of operations.
NOTE 2 - ACQUISITION
On October 4, 2002 (the "Acquisition Date") the Company acquired 100% of the
membership interest in Florida Health Source, LLC ("FHS"), a Florida limited
liability company formed on September 9, 2002. At the acquisition date, FHS was
a preferred provider network for more than 100,000 employees throughout the
state of Florida and is now a physical and occupational therapy vendor for a
major U.S. retailer. Additionally, currently FHS operates two multi-disciplinary
facilities providing physical therapy, occupational medicine, pain management
and wellness services. In connection with the acquisition, the Company entered
into employment agreements with three key employees. Each employment agreement
has a term of three years effective October 1, 2002 and grants a 13.33%
membership interest in FHS (an aggregate 39.99% interest for all three
employees) upon attaining certain stipulated financial performance goals in FHS.
The Company accounted for this acquisition using the purchase method of
accounting in accordance with SFAS No. 141. On the date of acquisition, the
purchase price exceeded the fair value of net assets acquired by $71,207. The
excess had been applied to goodwill. The results of operations of FHS are
included in the consolidated results of operations of the Company from the
Acquisition Date. Pursuant to Statement of Financial Accounting Standards No.
142, "Goodwill and Other Intangible Assets" Goodwill has an indefinite life and
accordingly will not be amortized. The FHS assets and liabilities acquired were
as follows:
Accounts receivable $ 18,816
Due to providers (15,052)
Accrued compensation (39,971)
Goodwill 71,207
--------
Cash purchase price $ 35,000
========
F-29
IBX GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003
NOTE 2 - ACQUISITION (CONTINUED)
On December 6, 2002 (the "Acquisition Date") the Company entered into an asset
purchase agreement with an individual related to a director of the Company,
whereby, the Company acquired more than 170 domain names and informational
websites on healthcare topics ranging from arthritis to diabetes. In connection
with the asset purchase agreement, the Company issued 600,000 shares of common
stock. The fair value of the intangible assets acquired was based on the $.046
quoted trading price of the common stock on the acquisition date and amounted to
$27,600 (see Note 5).
Effective April 1, 2003, the Company acquired all of the membership interests in
NursesStat, LLC, a Florida limited liability company. The closing date occurred
in late June 2003. NursesStat is a medical staffing application service
provider. The Company accounted for this acquisition using the purchase method
of accounting in accordance with SFAS No. 141. In connection with the
acquisition, the Company issued 3,000,000 and 200,000 shares of common stock to
the sellers and a third party, respectively. The value of the 3,000,000 common
shares issued of $.137 per share or $410,400 was determined based on the average
market price of the Company's common shares over the 5-day period before and
after the terms of the acquisition were agreed to and announced (March 17,
2003). Additionally, the Company issued 200,000 common shares to consultant in
connection with the acquisition of NursesStat. These shares were valued at $.18
per share, based on the grant date, for a value of $36,000.
The purchase price exceeded the fair value of net assets acquired by $404,527.
The Company applied $95,000 of the excess to customer lists based on the present
value of future cash flows of a sales contract, which was being amortized over a
36 month period. The remaining excess of $309,527 has been applied to goodwill.
The results of operations of NursesStat are included in the consolidated results
of operations of the Company from the acquisition date of April 1, 2003. On
April 1, 2003, the Company's NurseStat subsidiary entered into two employment
agreements with its Managing Directors. The term of the agreements are for three
years with an annual base salary of $80,000 each, with an option to renew for
two additional three years periods. Additionally, each of these individual will
be entitled to a bonus of 12.5% of net profits of NursesStat, as defined.
On May 5, 2003, the Company, through its wholly-owned subsidiary IBX
Transcription Services, Inc. ("IBXT"), acquired certain assets and the business
of ITS Acquisition, Inc. d/b/a Independent Transcription Services ("ITS"), a
Florida corporation. ITS provides dictation, transcription and document
management services for the healthcare industry. As a result of the acquisition,
the Company is a provider of transcription services for the healthcare industry
and will sell its transcription technology to ITS customers. The Company
accounted for this acquisition using the purchase method of accounting in
accordance with SFAS No. 141. In connection with the acquisition of certain
assets, prior to the acquisition date, the Company issued 150,000 shares of
common stock to the seller. The value of the 150,000 common shares issued of
$.1564 per share or $23,460 was determined based on the fair market price of the
Company's common shares over the 5-day period before and after the terms of the
acquisition were agreed to and announced (May 5, 2003). The purchase price
exceeded the fair value of net assets acquired by $17,128. The excess had been
applied to customer lists and was being amortized over a 36 month period. The
results of operations of ITS are included in the consolidated results of
operations of the Company from the acquisition date of May 5, 2003 to December
31, 2003. Effective November 4, 2002, the Company's IBXT subsidiary entered into
an employment agreement. The term of the agreement is for one year with a base
salary of $36,400. Additionally, this individual will be entitled to a bonus of
10% of net taxable income on any new business of IBXT and a bonus of 30% of net
taxable income of IBXT any new business of the IBXT that relates specifically to
certain clients as defined in the agreement.
F-30
IBX GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003
NOTE 2 - ACQUISITION (CONTINUED)
On May 6, 2003, the Company, through its wholly-owned subsidiary, Medicompliant
Solutions II, Inc. ("Medicompliant"), acquired certain assets and the business
of Medicompliant Solutions and Legal Services, Inc. ("MSL"), a Florida
corporation. MSL provides outsourced legal compliance services for the
healthcare industry. As a result of the acquisition, the Company is expected to
be the leading provider of outsourced legal compliance services. The Company
accounted for this acquisition using the purchase method of accounting in
accordance with SFAS No. 141. The Company acquired MSL for cancellation of
approximately $20,000 owed to the Company under an informal agreement for back
rent. The Company had not recorded such rental income in prior periods since
collection was unlikely. Additionally, on May 6, 2003, Medicompliant granted an
option to a third party to purchase from Medicompliant, upon terms and
conditions as defined in the options agreement, such number of Medicompliant's
common shares as shall, after issuance, be equivalent to twenty (20%) percent of
all outstanding shares of Medicompliant, for a consideration of $.01 per share.
The results of operations of Medicompliant are included in the consolidated
results of operations of the Company from the acquisition date of May 6, 2003 to
December 31, 2003.
On May 20, 2003, the Company formed a new Florida limited liability company,
Robo Massage, LLC ("Robo"), in which the Company has an 80% interest.
Simultaneously, the Company issued 500,000 shares of common stock in connection
with a licensing agreement, whereby, Robo licensed the rights to "RoboMassage",
a programmable, interactive massage table for use in healthcare and leisure
settings. The licensor has the option to terminate the Licensing agreement at
the end of each year commencing January 2005 for year 2004 if for any such year,
the sum of royalties paid pursuant to the licensing agreement plus the
Licensor's distributions from its membership interest in Robo are less than
$25,000. Robo agreed to pay to Licensor a royalty calculated as 6% of realized
revenue, defined as cash revenue received by Robo from the sale of licensed
products. The Company valued the 500,000 common shares issued at $.1736 per
share based on the trading price on the May 20, 2003 license date or $86,800.
For acquisitions in 2003, the assets acquired and liabilities assumed were as
follows:
IBX Transcription Medicompliant
Services, Inc. NursesStat LLC Robo Massage Soultions II, Inc. Total
----------------- -------------- ------------ ------------------ ---------
Cash $ 2,548 $ 560 $ - $ - $ 3,108
Accounts receivable 13,216 - - - 13,216
Other current assets - 1,360 - - 1,360
Property and equipment - 26,376 - - 26,376
Patents - 13,577 - - 13,577
Customer lists and license 17,128 95,000 86,800 1,267 200,195
Accounts payable (9,432) - - (1,267) (10,699)
Goodwill - 309,527 - - 309,527
-------- --------- -------- --------- ---------
Total purchase price $ 23,460 $ 446,400 $ 86,800 $ - $ 556,660
======== ========= ======== ========= =========
F-31
IBX GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003
NOTE 2 - ACQUISITION (CONTINUED)
The following unaudited pro forma consolidated results of operations have been
prepared as if the acquisitions had occurred as of the beginning of the
following periods:
Year Ended Year Ended
December 31, 2003 December 31, 2002
----------------- -----------------
Net Revenues ............................ $ 3,337,578 $ 3,357,128
Net (Loss) Income ....................... $ (3,615,438) $ (451,000)
Net (Loss) Income per Share - Basic ..... $ (0.06) $ (0.02)
Net (Loss) Income per Share - Diluted ... $ (0.06) $ (0.01)
Pro forma data does not purport to be indicative of the results that would have
been obtained had these events actually occurred at the beginning of the periods
presented and is not intended to be a projection of future results.
ACQUIRED INTANGIBLE ASSETS AND IMPAIRMENT
In the fourth quarter of 2003, based on an impairment test, the Company decided
to write-off all goodwill and other intangible asset balances of $592,604
relating to the acquisition of certain of the Company's assets and subsidiaries
NursesStat LLC, Florida Health Source LLC, RoboMassage, and Independent
Transcription Services and the acquisition of certain assets under purchase
agreements. The decision to recognize an impairment loss was made in light of
the subsidiaries inability to generate a profit after the acquisition, mounting
intercompany balances, the length of time estimated for us to recover the
initial investment, and the uncertainty of market conditions and business
performance. The Company expects to deduct goodwill for tax purposes over a
period of 15 years.
NOTE 3 - PROPERTY AND EQUIPMENT
At December 31, 2003, property and equipment consisted of the following:
Computer equipment and software ...........................$ 508,874
Furniture and office equipment ............................ 113,132
Leasehold improvements .................................... 199,041
---------
821,047
Less accumulated depreciation ............................. (529,930)
---------
Total
$ 291,117
=========
Depreciation expense for the years ended December 31, 2003 and 2002 was $143,857
and $115,826, respectively. At December 31, 2003, $197,621 of net property and
equipment was encumbered under a loan agreement (see Note 4).
F-32
IBX GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003
NOTE 4 - NOTES PAYABLE
The Company's borrowings consisted of the following at December 31, 2003:
Loan payable to an individual, payable in various
installments through February 2004. The loan payable
includes accrued interest and is collateralized by all of
the assets of one of the Company's subsidiaries and
11,550,000 outstanding common shares of the Company held by
certain guarantors. See (a) below. ................................ $ 132,293
Line of credit agreement with a financial institution. The
Company can borrow up to $425,000. Interest is payable on
the outstanding principal balance by adding the prevailing
base loan rate charged by the financial institution and the
sliding scale percentage rate, determined by the level of
the daily net loan balance ranging from 2.5% to .75% over
the base loan rate ( 5.375% at December 31, 2003). The loan
is collateralized by restricted cash and is payable on
demand. See (b) below. ............................................ 412,478
----------
544,771
Less: Current portion of loans payable ............................ (544,771)
----------
Total ............................................................. $ -
==========
(a) On October 8, 2002, the Company made a payment and renegotiated a note
payable with an individual. Accordingly, the principal amount of such note
was reduced to $692,497 as of October 28, 2002. The lender retroactively
restated the per annum interest rate prior to October 8, 2002 from 25% to
15%. Furthermore, so long as the Company does not breach this agreement,
effective October 8, 2002, the annual rate of interest was further reduced
to 12.5% per annum. However, if the Company defaults on this agreement the
loan will contingently revert to its previous outstanding balance on the
date of this agreement with interest at 25% per annum. Certain shareholders
of the Company's have pledged their shares of the Company owned by them and
also personally guaranteed the note. As on the date of this report, the
Company has met its obligations under this revised agreement. Failure to
comply with the terms and conditions of the loan documents could result in
a default and the transfer of these assets and shares to the lender.
(b) The Company maintains restricted cash in a brokerage account that is
collateral for this line of credit and shown as restricted cash on the
accompanying balance sheet.
NOTE 5 - RELATED PARTY TRANSACTIONS
Certain officers/shareholders of the Company from time to time advanced funds to
the Company for operations and draws funds back as repayments or advances. These
amounts are non-interest bearing, non-collateralized, and are payable on demand.
As of December 31, 2003, amounts due one officer/shareholder of the Company
amounted to $18,436. These advances are subordinated to the loan payable (see
Note 4). At December 31, 2003, one officer/director of the Company owed the
Company $94,382, which was substantially paid back subsequent to year end.
F-33
IBX GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003
NOTE 5 - RELATED PARTY TRANSACTIONS (CONTINUED)
In 2001 the Company assumed the debt of an officer relating to a predecessor
company lawsuit of which $27,000 was paid in 2002.
In December 2002, the Company acquired certain domain names and related content
from a party related to a director of the Company for 600,000 shares of the
Company's common stock. The shares were valued at the quoted trading price on
the acquisition date resulting in an intangible asset of $27,600 (see Note 2).
NOTE 6 - STOCKHOLDERS' DEFICIT
PREFERRED STOCK
In August 2002, the Company designated 300,000 shares of its authorized
preferred stock as Class A Non-Voting Convertible Preferred Stock ("Class A
Preferred"). Each share of Class A Preferred is convertible into 100 shares of
common stock. A holder of Class A Preferred may not convert shares if such
conversion would result in such holder owning in excess of 4.9% of the Company's
common stock. The Class A Preferred holder is entitled to dividends when
declared on common stock equal to the equivalent common shares into which the
Class A Preferred is convertible. At such time, 80,000 shares of Class A
Preferred were issued in exchange for 8,000,000 shares of common stock held by
one entity. During the year ended December 31, 2003, the Class A preferred
shareholder converted 23,000 Class A preferred shares into 2,300,000 shares of
common stock.
COMMON STOCK
In June 2002, majority shareholders of the Company exercised warrants to
purchase 942,366 shares of common stock at $.10 per share in exchange for loans
payable amounting to $94,237 (including interest of $2,237).
In June 2002, a former director and shareholder of the Company exercised
warrants to purchase 850,000 shares of common stock at $.10 per share in
exchange for loans payable amounting to $85,000. Additionally, in June 2002, the
Company issued 1,081,880 shares of common stock at $.10 per share in exchange
for loans payable amounting to $90,618 and a subscription receivable of $17,570.
In December 2003, the Company settled this subscription receivable with a former
director and another $34,000 subscription with a party related to the director,
whereby the former director assigned 880,000 warrants held by the former
director back to the Company. For accounting purposes, this transaction was
treated as a sale of warrants at a fair market value of $.015 per warrant by the
selling warrant holder to the Company and resulted in a settlement expense of
$64,770.
In June 2002, 2,000,000 common shares previously issuable were issued.
In June 2002, stock options were exercised to purchase 250,000 shares of common
stock at $.01 per share for a subscription receivable of $2,500.
In August 2002, a principal shareholder of the Company converted 8,000,000
shares of common stock into 80,000 shares of Class A Non-Voting Convertible
Preferred Stock.
F-34
IBX GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003
NOTE 6 - STOCKHOLDERS' DEFICIT (CONTINUED)
COMMON STOCK (CONTINUED)
In August and September 2002, directors' and shareholders of the Company
exercised warrants to purchase 340,000 shares of common stock at $.10 per share
for net proceeds of $34,000.
In December 2002, majority shareholders of the Company exercised warrants to
purchase 370,000 shares of common stock at $.10 per share for net proceeds of
$37,000.
Pursuant to a stock bonus plan authorized by the board of directors on October
30, 2002 for up to 1,000,000 shares of common stock, in December 2002, the
Company issued 1,000,000 shares of common stock to consultants, employees and
directors for services rendered and to be rendered in the future. The Company
valued these common shares at the fair market value on the dates of issuance of
$.046 per share and recorded non-cash compensation of $36,800 and $9,200 in
deferred compensation relating to the issuance of 200,000 of these shares issued
to a director of the Company's for services to be rendered in 2003.
During the year ended December 31, 2003, warrant holders of the Company
exercised warrants to purchase 41,137,634 shares of common stock at $.10 per
share for net proceeds of $3,085,928 (net of $438,488 offering costs paid and
$205,165 of offering costs payable and included in accrued expenses) and a
subscription receivable of $90,000.
In April 2003, 600,000 shares of common stock previously issuable were issued.
In April 2003, in connection with the acquisition of NursesStat LLC, the Company
was required to issue 3,000,000 shares of common stock. As of December 31, 2003,
2,997,900 of these shares have been issued with the remaining 2,100 unissued
shares included in common stock issuable at December 31, 2003. Additionally, as
part of this acquisition, the Company issued 200,000 shares of common stock to a
consultant for services rendered. (See note 2)
In May 2003, in connection with the acquisition of Independent Transcription
Services, Inc., the Company issued 150,000 shares of common stock. (See note 2)
In May 2003, in connection with the acquisition of a licensing agreement, the
Company issued 500,000 shares of common stock. (See note 2)
In July 2003, 2,300,000 shares of common stock were issued in exchange for
23,000 shares of Class A preferred stock. At the exchange date, the fair market
value of the issued preferred stock equaled the fair market value of the
exchanged common shares resulting in no charges to operations.
In December 2003, the Company issued 1,500,000 shares of common stock to
employees (825,000 shares) and consultants (675,000 shares) for services
rendered. The Company valued these common shares at the fair market value on the
date of issuance of $.07 per share or $105,000, which has been recorded as
consulting expense and compensation expense amounting to $47,250 and $57,750,
respectively, in the accompanying statement of operations.
In December 2003, the Company sold 592,366 unregistered shares of common stock
to investor for net proceeds of $29,618.
F-35
IBX GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003
NOTE 6 - STOCKHOLDERS' DEFICIT (CONTINUED)
STOCK OPTIONS AND WARRANTS
On December 6, 2002, a shareholder sold, for nominal consideration, class A
stock warrants for 2,000,000 shares of common stock to a consultant for services
rendered and to be rendered in the future on behalf of the Company. For
accounting purposes, this transaction is treated as a contribution of the
warrants by the selling warrant holder to the Company and a new grant of
warrants to the consultant resulting in a consulting expense. The options had
exercise prices of $.10 per share and expire on June 24, 2003. The fair value of
each option grant was estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions dividend
yield of -0- percent; expected volatility of 105%; risk-free interest rate of
4.50 percent and an expected holding periods of six months. In connection with
the sale of these options, the Company recorded non-cash compensation of $1,333
and deferred compensation of $2,667. In December 2002, the consultant exercised
class A warrants for 80,000 common shares for net proceeds of $8,000.
On January 24, 2003, a shareholder sold, for nominal consideration, class A
stock warrants for 2,000,000 shares of common stock to a consultant for services
rendered and to be rendered in the future on behalf of the Company. For
accounting purposes, this transaction is treated as a contribution of the
warrants by the selling warrant holder to the Company and a new grant of
warrants to the consultant resulting in a consulting expense. The options had
exercise prices of $.10 per share and expire on June 24, 2003. The fair value of
each option grant was estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions dividend
yield of -0- percent; expected volatility of 146%; risk-free interest rate of
4.50 percent and an expected holding periods of five months. In connection with
the sale of these options, the Company recorded non-cash compensation of
$166,000.
In April 2003, a consultant to the Company entered into separate agreements with
the Tucker Family Spendthrift Trust and the Calvo Family Spendthrift Trust
pursuant to which he has the right to purchase all of the class A warrants from
the Tucker Family Spendthrift Trust and all of the class E warrants from the
Calvo Family Spendthrift Trust. The Trusts have agreed with the consultant to
not exercise the warrants so long as the consultant purchases 1,000,000 warrants
per month from each Trust. The Company agreed to reduce the exercise price of
the warrants purchased by the consultant in exchange for the exercise of such
warrants. As consideration for arranging the transaction between the parties,
the Company agreed to pay another third party a finder's fee of $.005 per
warrant for each warrant that is purchased by the consultant and subsequently
exercised. There is no financial accounting effect of these transactions other
than offsetting the fee paid against paid in capital as an offering cost.
During the three months ended June 30, 2003, the Company extended the expiration
date of it $.10 warrants to December 31, 2003 and the $.20 warrants to June 24,
2004. There was no accounting effect to this transaction as these were purchased
warrants rather than compensatory warrants.
In September 2003, the Company modified the terms of the outstanding warrants to
purchase 20,000,000 shares of the Company's common stock. The warrants had an
exercise price of $.20 per warrant and an expiration date of June 24, 2004. The
exercise price has been lowered to $.10 per share until December 31, 2003. The
Company could extend the period in which the price reduction is in effect. There
was no accounting effect of the modification for these purchased warrants.
F-36
IBX GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003
NOTE 6 - STOCKHOLDERS' DEFICIT (CONTINUED)
STOCK OPTION AND WARRANTS (CONTINUED)
A summary of outstanding options and warrants at December 31, 2003 are as
follows:
Shares Underlying Range of Exercise Remaining Average
Options and warrants Prices Contractual Life Exercise Price
-------------------- ----------------- ---------------- --------------
Outstanding at December 31, 2001 44,500,000 $0.01 - $0.50 1-5 years $0.15
Granted 2,000,000 $0.10 0.5 years $0.10
Exercised (2,832,366) $0.10 - $0.10
Cancelled (2,000,000) $0.10 - $0.10
-------------------- ----------------- ---------------- --------------
Outstanding at December 31, 2002 41,667,634 $0.10 - $0.50 0-4 years $0.16
Granted - - - -
Exercised (41,137,634) $0.10 - $0.10
Cancelled - - - -
-------------------- ----------------- ---------------- --------------
Outstanding at December 31, 2003 530,000 $0.10-$0.50 3.0 years $0.28
==================== ================= ================ ==============
Weighted average fair value of warrants and options granted in 2003 $.00
====
The following table summarizes information about employee stock options and
consultant warrants outstanding at December 31, 2003:
Options and Warrants Outstanding Options and Warrants Exercisable
----------------------------------------------------------------- --------------------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding at Contractual Exercise Exercisable at Exercise
Price December 31, 2003 Life Price December 31, 2003 Price
-------- ----------------- ----------- -------- ----------------- --------
$ 0.50 250,000 3.00 Years $ 0.50 250,000 $ 0.50
0.10 280,000 3.00 Years 0.10 280,000 0.10
----------------- -------- ----------------- --------
530,000 $ 0.28 530,000 $ 0.28
================= ======== ================= ========
F-37
IBX GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003
NOTE 7 - INCOME TAXES
At December 31, 2003, the Company had net operating loss carry forwards of
approximately $4,670,000 for income tax purposes, available to offset future
taxable income expiring on various dates through 2023. Usage of the net
operating losses may be limited due to the Company's change in ownership, which
occurred in December 2001. The Company's tax expense differs from the "expected"
tax expense for the years ended December 31, 2003 and 2002 (computed by applying
the Federal Corporate tax rate of 34 percent to loss before taxes), as follows:
2003 2002
---- ----
Computed "expected" tax expense (benefit) ........ $(1,248,967) $ 55,520
State income taxes ............................... (151,395) 21,729
Other permanent differences ...................... 6,800 8,713
Non-deductible impairment losses ................. 201,485 -
Non-deductible stock based compensation .......... 104,787 27,210
Change in blended rate estimate .................. (11,348) 42,118
Change in valuation allowance .................... 1,098,638 (155,290)
----------- ---------
$ - $ -
=========== =========
The tax effects of temporary differences that give rise to significant portions
of deferred tax assets and liabilities at December 31, 2003 are as follows:
2003
-----------
Deferred tax assets:
Net operating loss carry forward ......................... $ 1,845,673
Allowance for doubtful accounts .......................... 20,247
-----------
Total gross deferred tax assets .......................... 1,865,920
Less valuation allowance ................................. (1,865,920)
-----------
Net deferred tax assets .................................. $ -
===========
The valuation allowance at December 31, 2003 was $1,865,920. The increase during
2003 was $1,098,637.
In assessing the realizability of the deferred tax assets, management considers
whether it is more likely than not that some portions or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income or changes in ownership
or business during the periods in which the temporary differences become
deductible. Due to the Company's continuing losses and recent change in
ownership, it is more likely than not that the deferred tax assets will not be
realized.
F-38
IBX GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003
NOTE 8 - COMMITMENTS AND CONTINGENCIES
OPERATING LEASE
The Company leases its office facility under various non-cancelable operating
leases payable in monthly installments. The Company's FHS subsidiary leases its
office facility under a five-year non-cancelable operating lease payable in
monthly installments commencing in October 2002. Rent expense for the years
ended December 31, 2003 and 2002 was $446,829 and $230,761, respectively.
Future minimum lease payments as of December 31, 2003 are as follows:
2004 .............................. $ 357,000
2005 .............................. 293,000
2006 .............................. 143,000
2007 .............................. 134,000
Thereafter ........................ 99,000
----------
Total future minimum lease payments $1,026,000
==========
LITIGATION
The Company was party to a legal proceeding with its major creditor. An initial
settlement was reached in December 2000. The Company renegotiated the terms of
the settlement agreement and on August 13, 2001, the Company entered into a
second settlement agreement relating to this legal action. The Company defaulted
on this second settlement agreement and in October 2002 entered into a new
settlement agreement with the major creditor and the litigation was dismissed.
Through the date of the report, the Company has been making the scheduled
payments under this agreement. As of December 31, 2003, principal and accrued
interest amounting to $132,293 is included in the accompanying consolidated
financial statements as a loan payable (see Note 4).
Three former employees of the Company's subsidiary, FHS, have claimed they are
owed $54,608 in reimbursable expenses. The Company disputes such claims but has
conservatively accrued the amount in accounts payable.
The Company is involved in various claims and legal proceedings brought against
the Company arising in the normal course of business. The Company has accrued
estimated amounts related to these matters and do not believe that the ultimate
outcome will have a materially adverse effect on the Company's financial
position, results of operations, or liquidity.
F-39
IBX GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003
NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
INSTALLMENT AGREEMENT WITH INTERNAL REVENUE SERVICE
The Company entered into an installment agreement with the U.S. Internal Revenue
Service (IRS) in October 2002 relating to unpaid payroll taxes. In connection
with this installment agreement, the Company paid $48,000 in November 2002 and
will make monthly payments of $12,000 until the balance is paid in full. In
event of default, the IRS has the right to file a notice of Federal tax lien. At
December 31, 2003, accrued payroll taxes and estimated accrued interest and
penalties aggregated $1,538,609.
EMPLOYMENT AGREEMENT
On December 19, 2001, the Company entered into an employment agreement with its
President for a period ending on December 31, 2006. As compensation for his
services, the President will receive in year one an annual base compensation of
$125,000. Subject to the continuing approval of the Company, the annual base
salary in each succeeding year will be equal to at least 110% of the annual base
salary from the prior year. Compensation will be paid no less frequently than
monthly or in such increments as are regularly paid by the Company to other
employees.
In addition to the annual salary, the President was issued 6,600,000 shares of
the Company's common stock, subject to certain restrictions and contingencies
(see Note 6). At December 31, 2002, the contingency was satisfied and the
restriction has lapsed. Subject to the prior approval of the Company, the
President will also be entitled to such other bonuses based upon the Company's
performance as determined in the sole and absolute discretion of the Company;
will be offered health insurance coverage at no cost to the President; be
entitled to participate in such employee benefit programs as are offered by the
Company to other employees; be entitled to an annual paid vacation of three
weeks per year plus five personal days per year, and any vacation time not used
may be accrued to the following year if the President remains employed with the
Company.
The President will also be reimbursed for out-of-pocket expenses incurred by him
in the performance of his job responsibilities. However, any reimbursable
expenses in excess of $1,000 must first be approved by the Company. The initial
term of the agreement commenced as of the date of the agreement, and will
continue until December 31, 2006. The Company will have the right to terminate
the agreement for good cause or by reason of the President's disability on 30
days prior written notice to the President. If such termination is for good
cause or by reason of the President's disability, a notice of termination
specifying the nature of the good cause or disability, as the case may be, will
be given the President. If the President is terminated for any other reason than
good cause, the Company will be obligated to pay the President a severance
payment of the greater of $100,000 or the remaining sums due under the
agreement.
On October 3, 2002, the Company's FHS subsidiary entered into an employment
agreement with its Director of Marketing and Business Development. The term of
the agreement is for three years with a base salary of $102,000 and will
increase to $135,000 for the remaining two years of the agreement if the Company
achieves certain benchmarks. Additionally, this individual will be entitled to a
bonus of $13,000 by September 2003 if the Company achieves certain pro forma
income objectives. Additionally, the employee shall be entitled to a 13.33%
ownership interest in FHS if the employee meets certain financial results as
outlined in the agreement. This employment agreement was terminated in 2003 (See
Note 8 - Litigation).
F-40
IBX GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003
NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
On October 3, 2002, the Company's FHS subsidiary entered into an employment
agreement with its Director of Industrial Programs/Business Development. The
term of the agreement is for three years with a base salary of $102,000 and will
increase to $135,000 for the remaining two years of the agreement if the Company
achieves certain benchmarks. The Company has also agreed to pay unpaid and
accrued back wages and expenses of approximately $17,000. Additionally, this
individual will be entitled to a bonus of $13,000 by September 2003 if the
Company achieves certain pro forma income objectives. Additionally, the employee
shall be entitled to a 13.33% ownership interest in FHS if the employee meets
certain financial results as outlined in the agreement. This employment
agreement was terminated in 2003 (See Note 8 - Litigation).
On October 3, 2002, the Company's FHS subsidiary entered into an employment
agreement with its Director of Network Operations and Business Development. The
term of the agreement is for three years with a base salary of $102,000 and will
increase to $135,000 for the remaining two years of the agreement if the Company
achieves certain benchmarks. Additionally, this individual will be entitled to a
bonus of $13,000 by September 2003 if the Company achieves certain pro forma
income objectives. Additionally, the employee shall be entitled to a 13.33%
ownership interest in FHS if the employee meets certain financial results as
outlined in the agreement. This employment agreement was terminated in 2003 (See
Note 8 - Litigation).
NOTE 9 - CONCENTRATIONS
CUSTOMER SALES AND ACCOUNTS RECEIVABLE
The Company sells its services predominantly within Palm Beach, Dade and Broward
Counties, Florida. The Company performs ongoing credit evaluations of its
customers' financial conditions and, generally, requires no collateral from its
customers. The Company's three largest customers accounted for approximately 19%
and 81% of sales and approximately 52% and 22% of accounts receivable for the
periods ended December 31, 2003 and 2002, respectively.
NOTE 10 - MANAGEMENT'S CONSIDERATION OF GOING CONCERN MATTERS
As reflected in the accompanying consolidated financial statements, the Company
has a working capital deficiency of $1,900,961 at December 31, 2003, and has an
accumulated deficit of $6,413,941. The ability of the Company to continue as a
going concern is dependent on the continuation of profitable operations, its
ability to maintain positive cash flows from operations, and the obtaining
additional equity and/or debt financing to pay off outstanding debt obligations
and unpaid payroll taxes.
There can be no assurance that the Company's efforts will be successful. The
consolidated financial statements do not include any adjustments that might be
necessary if the Company is unable to continue as a going concern. No estimate
has been made should management's plan be unsuccessful.
F-41
IBX GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003
NOTE 11 - SEGMENT INFORMATION
In fiscal 2003 and 2002, the Company operates in two reportable business
segments - (1) healthcare transaction management and technology services and (2)
physical therapy and rehabilitation services. The healthcare transaction
management and technology services segment provides the healthcare industry with
a combination of administrative services and technology development, including
but not limited to physicians practice management, billing and collections,
network services and software application development. The physical therapy and
rehabilitation services segment operates multi-disciplinary clinics offering
physical therapy, occupational medicine, pain management, chiropractic care and
wellness services. The Company's reportable segments are strategic business
units that offer different products, which compliment each other. They are
managed separately based on the fundamental differences in their operations.
Information with respect to these reportable business segments for the years
ended December 31, 2003 and 2002 is as follows.
For the For the
Year Ended Year Ended
December 31, December 31,
2003 2002
------------ ------------
NET REVENUES:
Healthcare Transaction
Management and Technology ..... $ 2,684,452 $3,145,504
Physical Therapy and Rehabilitation ..... 643,400 74,600
----------- ----------
Consolidated Net Revenue ..... 3,327,852 3,220,104
OPERATING EXPENSES:
Healthcare Transaction
Management and Technology ..... 5,384,478 2,640,939
Physical Therapy and Rehabilitation ..... 1,014,811 158,841
DEPRECIATION:
Healthcare Transaction
Management and Technology ..... 162,307 115,138
Physical Therapy and Rehabilitation ..... 10,067 688
INTEREST EXPENSE:
Healthcare Transaction
Management and Technology ..... 350,247 430,867
Physical Therapy and Rehabilitation ..... 4,505 -
INCOME (LOSS):
Healthcare Transaction
Management and Technology ..... $(3,212,580) $ 248,222
Physical Therapy and Rehabilitation ..... (385,983) (84,929)
----------- ----------
NET INCOME( LOSS) ..... $(3,598,563) $ 163,293
=========== ==========
TOTAL ASSETS AT DECEMBER 31, 2003 AND 2002:
Healthcare Transaction
Management and Technology ..... $ 1,373,809 $ 397,297
Physical Therapy and Rehabilitation ..... 130,379 178,821
----------- ----------
Consolidated Asset Total ..... $ 1,504,188 $ 573,118
=========== ==========
F-42
IBX GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003
NOTE 12 - SUBSEQUENT EVENTS
Subsequent to December 31, 2003, the Company issued 2,880,000 shares of common
stock for net proceeds of $144,000.
On January 29, 2004, the Company signed a promissory note with a shareholder for
$200,000. This note provides for 7.5% interest, a maturity date of January 31,
2005 and is unsecured. The note is convertible to common stock. The conversion
price is at 25% of the offering price any offering by the Company.
On February 17, 2004, the Company's board of directors adopted an article of
amendment for 1,000,000 shares of the 5,000,000 shares of preferred stock
designating it as Series B 8% Convertible Preferred Stock or Series B preferred
stock. The holder of shares of the Series B preferred stock will be entitled to
all dividends declared by the board of directors at a rate of $80.00 per share
per annum. Dividends are not cumulative and will not accrue. The holder will be
entitled to convert each share of Series B preferred stock for 2,000 shares of
common stock, subject to adjustment upon the occurrence of certain limited
events as specified in the articles of amendment. Each share will be entitled to
a liquidation preference of $1,000.00 per share plus any declared but unpaid
dividend. The Series B preferred stock will have voting rights as if converted
into common stock and will vote as a class with the common stock on all matters.
Certain protective provisions apply that limits the Company's authority to a)
issue new classes of capital stock senior to the series B preferred, and b) sell
or merge the Company.
During February and March 2004, the Company completed a private placement to two
accredited investors in which we issued an aggregate of 1,500 shares of Series B
Preferred Stock convertible into 3,000,000 shares of common stock, warrants
entitling the holders to purchase up to 1,500,000 shares of our common stock at
an exercise price of $0.10 per share expiring on December 31, 2005. The Company
agreed to file a registration statement with the SEC to permit the public resale
of the shares of our common stock issuable upon the exercise of the warrants as
soon as possible after the closing date of the transaction.
In March 2004, a shareholder of the Company agreed to convert accrued expenses
of approximately $135,000 into a half unit of the private placement, with the
remainder paid $10,000 per month until paid in full. The half unit represents
500 shares of Series B Preferred Stock and 500,000 warrants to purchase common
stock at an exercise price of $.10 per share.
On March 14, 2004, the Company signed a promissory note with a shareholder for
$174,000 which converted to a note payable amounts due to this shareholder of
approximately $69,000 and additional borrowing of $105,000. The note provides
for 8% interest, a maturity date of March 12, 2005 and a security interest in
all of the Company's assets. The Company is required to provide the holder with
90 days' notice of any prepayment, although there is no prepayment penalty. The
note is convertible to common stock. The conversion price is the lowest of
$.035, 70% of the closing bid price on the date of conversion or 70% of the
offering price any offering by the Company until March 2005. The Company agreed
to include the shares issuable upon the exercise of this note in this
registration statement.
F-43
WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO PROVIDE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS ABOUT IBX GROUP, INC. EXCEPT THE
INFORMATION OR REPRESENTATIONS CONTAINED IN THIS PROSPECTUS. YOU SHOULD NOT RELY
ON ANY ADDITIONAL INFORMATION OR REPRESENTATIONS IF MADE.
_______________________
This prospectus does not constitute an
offer to sell, or a solicitation of an
offer to buy any securities:
o except the common stock offered
by this prospectus;
o in any jurisdiction in which ______________________
the offer or solicitation is
not authorized;
PROSPECTUS
o in any jurisdiction where the
dealer or other salesperson is ______________________
not qualified to make the offer
or solicitation;
o to any person to whom it is 272,193,282
unlawful to make the offer or SHARES OF COMMON STOCK
solicitation; or
o to any person who is not a
United States resident or who
is outside the jurisdiction of IBX GROUP, INC.
the United States.
The delivery of this prospectus or any
accompanying sale does not imply that:
OCTOBER 12, 2004
o there have been no changes in
the affairs of IBX Group, Inc.
after the date of this
prospectus; or
o the information contained in
this prospectus is correct
after the date of this
prospectus.
_______________________
Until _____________, 2004, all dealers effecting transactions in the registered
securities, whether or not participating in this distribution, may be required
to deliver a prospectus. This is in addition to the obligation of dealers to
deliver a prospectus when acting as underwriters.
II-1
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant has authority under Section 607.0850 of the Florida Business
Corporation Act, to indemnify its directors and officers to the extent provided
for in such statute. The Registrant's Amended and Restated Articles of
Incorporation and bylaws provide that the Registrant may insure, shall
indemnify, and shall advance expenses on behalf of our officers and directors to
the fullest extent not prohibited by law. We are also a party to indemnification
agreements with each of our directors and officers. The Registrant has also
agreed to indemnify the selling stockholders named in the Registration Statement
against certain liabilities, including liabilities under the Securities Act of
1933, as amended.
The bylaws of the Registrant provide that, to the fullest extent permitted by
applicable law, the Registrant shall indemnify any person who is a party or
otherwise involved in any proceeding by reason of the fact that such person is
or was a director or officer of the Registrant or was serving at the request of
the Registrant.
The Registrant has not purchased insurance against costs which may be incurred
by it pursuant to the foregoing provisions of its Articles of Incorporation and
bylaws, nor does it insure its officers and directors against liabilities
incurred by them in the discharge of their functions as such officers and
directors.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
ITEM AMOUNT
----------------------------------------------------------- ----------
Securities and Exchange Commission registration fee $120.75
Printing and engraving fees* $2,500.00
Accounting fees and expenses * $20,000.00
Legal fees and expenses * $50,000.00
Miscellaneous (including Blue Sky fees, transfer agent fees
and registrar fees)* $12,379.25
----------
Total Estimated Expenses $85,000.00
==========
* Estimate.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
During the last three years, IBX sold the securities listed below
without registration under the Securities Act of 1933, as amended, in reliance
on the exemption from registration requirements cited. All transactions were
exempt from registration under the Securities Act of 1933, as amended, pursuant
to Section 4(2) thereof and all persons were given sufficient information about
IBX to make an informed investment decision.
2001
In September of 2001, IBX issued to Steven Adelstein, a former director
of IBX, 250,000 options with an exercise price of $0.50 per share in 2001 for
his service as President of VidKid.
Also in September of 2001, IBX issued 11,550,000 shares of common stock
to two individuals pursuant to the acquisition of Primed.
In November of 2001, IBX issued to each of two consultants 125,000
shares, at $0.025 per share, and 125,000 stock options, with an exercise price
of $0.01 per share as compensation for services rendered to IBX.
In December of 2001, IBX issued to three accredited investors upon
conversion of outstanding convertible bonds originally issued by Primed
10,062,500 shares, at $0.018 per share.
Also in December of 2001, IBX issued to Market Watch Corporation as
partial payment under a corporate information services agreement 750,000 shares
of common stock, at $0.018 per share.
II-2
Also in December of 2001, IBX issued an aggregate of 1,000,000 shares
of common stock, at $0.018 per share, to 31 persons, all of whom were employees
or consultants of IBX, for services rendered.
On December 19, 2001, IBX concluded a private placement of $200,000
worth of units comprised of an aggregate of 10,937,500 shares of common stock,
at $0.018 per share, Class A warrants entitling the holders to purchase up to
20,000,000 shares of common stock at an exercise price of $0.10 per share; and
Class B warrants entitling the holders to purchase up to 20,000,000 shares of
common stock at an exercise price of $0.20 per share.
In 2001, IBX issued to Evan Brovenick, an officer and director of IBX,
2,000,000 Class C warrants with an exercise price of $0.10 per share, and
2,000,000 Class D warrants with an exercise price of $0.20 per share. Mr.
Brovenick subsequently assigned 1,140,000 of the Class C warrants to Steven
Adelstein, and 500,000 to Mr. Adelstein's adult son. Mr. Adelstein assigned
1,140,000 of these warrants to his adult children.
2002
In May of 2002, IBX issued an aggregate of 1,081,880 shares, at $0.10
per share, to one entity in exchange for cancellation of a $90,618 portion of a
$104,588 promissory note and a subscription receivable of $17,570. This entity
subsequently transferred the shares to its four shareholders.
In May and June of 2002, an aggregate of 850,000 Class A warrants, with
an exercise price of $0.10 per share, were exercised by three persons using the
repayment of a loan. In 2002, as described under "Certain Relationships and
Related Transactions", the Calvo Family Spend Thrift Trust, a principal
shareholder, converted 8,000,000 shares of common stock into 80,000 shares of
Class A Non-Voting Convertible Preferred Stock.
In December of 2002, IBX issued 1,000,000 shares of common stock to
consultants, employees and an outside director, at $0.046 per share, for
services rendered and to be rendered in the future.
2003
In December of 2003, IBX issued to employees and consultants for
services rendered 1,500,000 shares of common stock, at $0.07 per share.
Also in December of 2003, IBX sold 592,366 unregistered shares of
common stock, at $0.05 per share, to an investor for net proceeds of $29,618.
In 2003, IBX issued or is obligated to issue an aggregate of 3,850,000
shares, at prices ranging from $0.13 to $0.18 per share, in three acquisitions
to a total of 41 persons.
In December of 2003 and January of 2004, IBX issued an aggregate of
2,972,366 shares, at $0.05 per share, without any restrictive legend. At the
time of issuance, IBX believed that it was issuing the shares upon exercise of
outstanding warrants and that the shares issuable upon the exercise of these
warrants were registered pursuant to a registration statement then in effect.
However, due to an accounting error by IBX, all of the warrants included in the
registration statement had been exercised. Accordingly, the 2,972,366 shares
were issued without a valid registration statement in effect, which is a
violation of Section 5 of the Securities Act of 1933, as amended. Since an
effective registration statement was not in effect for these shares, these
issuances may have violated Section 5 of the Securities Act of 1933, as amended.
IBX is currently exploring appropriate corrective actions.
2004
In January of 2004, IBX issued to Northbar 2,380,000 shares of its
common stock for net proceeds of $199,000 or $0.05 per share.
In February of 2004, in connection with a securities purchase
agreement, IBX issued 500,000 shares of common stock. The shares were valued at
the quoted trading price on the date of the securities purchase agreement of
$35,500. The $35,500 was treated as a discount on the convertible debenture and
is being amortized into interest expense over the debenture term.
II-3
On February 19, 2004, IBX entered into a securities purchase agreement
to issue and sell 7.5% convertible debentures, in the aggregate amount of
$200,000, convertible into shares of common stock of IBX. As of June 30, 2004,
$200,000 in convertible debentures were issued to investors. The holders of this
debt have the right to convert all or any amount of this debenture into fully
paid and non-assessable shares of common stock at the conversion price with the
limitation that any debenture holder may not convert any amount of the
debentures if after conversion that debenture holder would beneficially hold
more than 4.99% of the total outstanding common stock of IBX. The conversion
price generally is the lesser of (i) 65% of the average of the three lowest
closing bid prices of the common stock during the five trading days immediately
prior to the conversion date or (ii) $0.08. Interest is payable at the
conversion date, in cash or in shares of common stock, at the option of IBX. The
convertible debentures mature three years from the debenture issuance date. For
the six months ended June 30, 2004, IBX recorded an imbedded beneficial
conversion amount of $107,693 as interest expense since the debentures were
immediately convertible. In connection with these convertible debentures issued,
warrants to purchase 500,000 common shares were issued to the holders at an
exercise price per share of $0.05. The warrants are exercisable immediately and
expire on March 15, 2007. These warrants were treated as a discount on the
convertible debenture and in 2004 were valued at $18,068 under SFAS No. 123
using the Black-Scholes option pricing model to be amortized over the debenture
term. Amortization expense for the six months ended June 30, 2004 was $7,132 and
is included in interest expense. In May of 2004, the investor converted $50,000
of debentures payable into 3,379,953 shares of common stock.
In March of 2004, IBX issued a convertible note for $174,000, of which
$105,000 was for cash and $69,000 for the cancellation of outstanding
liabilities to an existing shareholder. The note provides for 8% interest, a
maturity date of March 12, 2005 and a security interest in all of IBX's assets.
IBX is required to provide the holder with 90 days' notice of any prepayment,
although there is no prepayment penalty. The note is convertible to common
stock. The conversion price is the lowest of $0.035, 70% of the closing bid
price on the date of conversion, or 70% of the offering price any offering by
IBX until March of 2005.
Also in March of 2004, IBX issued 1,250 shares of Series B Preferred
Stock, at $100.00 per share, and 1,250,000 warrants, at an exercise price of
$0.10 per share, of which 1,000 shares of Series B Preferred Stock and 1,000,000
warrants were for $100,000 in cash and 250 shares of Series B Preferred Stock
and 250,000 warrants were issued in payment of outstanding liabilities. Each
share of Series B Preferred Stock is convertible into 2,000 shares of common
stock.
On March 29, 2004, IBX entered into securities purchase agreements to
issue and sell 7.5% convertible debentures, in the aggregate amount of $400,000,
convertible into shares of common stock of IBX. As of June 30, 2004, the
$400,000 in convertible debentures were issued to consultants for services
rendered and to be rendered in the future. The holders of this debt have the
right to convert all or any amount of this debenture into fully paid and
non-assessable shares of common stock at the conversion price with the
limitation that any debenture holder may not convert any amount of the
debentures if after conversion that debenture holder would beneficially hold
more than 4.99% of the total outstanding common stock of IBX. The conversion
price generally is the lesser of (i) 90% of the average of the three lowest
closing bid prices of the common stock during the five trading days immediately
prior to the conversion date or (ii) $0.08. Interest is payable at the
conversion date, in cash or in shares of common stock, at the option of IBX. IBX
recorded an imbedded beneficial conversion amount of $44,444 as interest expense
on March 29, 2004 since the debentures were immediately convertible.
Also on March 29, 2004, in connection with a consulting contract, IBX
granted an aggregate of 40,000,000 warrants to purchase shares of IBX's common
stock at an exercise price of $0.10 per share. The fair value of this warrant
grant was estimated at $0.023 per warrant on the date of grant using the Black
Scholes option pricing model with the following weighted-average assumptions:
dividend yield of 0%, expected volatility of 85%, risk-free interest rate of
4.50%, and an expected holding period of three years. In connection with these
warrants, IBX recorded compensation expense of $186,715 for the six months ended
June 30, 2004 and deferred compensation of $727,204, which will be amortized
over the service period. The warrants expire on March 29, 2007.
In May of 2004, IBX issued to Northbar an additional 500,000 shares of
common stock. The shares were valued at the quoted trading price on the date of
the securities purchase agreement of $10,500. The $10,500 was treated as a
discount on the convertible debenture and is being amortized into interest
expense over the debenture term. For the six months ended June 30, 2004,
amortization of the discount on the convertible debentures amounted to $13,686.
On May 14, 2004, certain consultants to IBX assigned their warrants to
a third party, whereby the third party has the right to purchase warrants from
the consultants. IBX agreed to reduce the exercise price of the warrants
purchased by the third party in exchange for the exercise of such warrants. The
II-4
exercise price of these warrants has been set to a percentage of market, not to
exceed 70% of the bid price of IBX's common stock. As of June 30, 2004, the
third party exercised 9,000,000 warrants at an exercise price of $0.00667 for
net proceeds of $60,000. There is no financial accounting effect of these
transactions other than offsetting the fee paid against paid in capital as an
offering cost.
On May 28, 2004, certain warrant holders sold, for nominal
consideration, warrants for 8,000,000 shares of common stock to a consultant for
services rendered and to be rendered in the future on behalf of IBX. For
accounting purposes, this transaction was treated as a contribution of the
warrants by the selling warrant holder to IBX and a new grant of warrants to the
consultant resulting in a consulting expense. The options had exercise prices of
$0.005 per share and expire on November 28, 2004. The fair value of each option
grant was estimated on the date of grant using the Black Scholes option pricing
model with the following weighted-average assumptions: dividend yield of 0%,
expected volatility of 105%, risk-free interest rate of 4.50%, and an expected
holding periods of six months. In connection with the sale of these options, IBX
recorded non-cash compensation of $19,461 and deferred compensation of $97,306.
In June 2004, the consultant exercised these warrants for 1,950,000 common
shares for net proceeds of $975.
In May and June of 2004, in connection with the conversion of
debentures and loans payable, IBX issued 13,379,953 shares of common stock for
debt of $70,000. As of June 30, 2004, 379,953 of these common shares had not
been issued and are included in common stock issuable on the accompanying
balance sheet.
In June of 2004, in connection with the exercise of stock warrants, IBX
issued to consultants 10,950,000 shares of common stock for net proceeds of
$60,975.
During the six months ended June 30, 2004, the Class A preferred
shareholder converted 24,000 Class A preferred shares into 2,400,000 shares of
common stock.
Also during the six months ended June 30, 2004, IBX cancelled 22,000
shares of common stock previously issued. On July 6, 2004, IBX issued to Evan
Brovenick 3,609,500 shares of common stock as compensation. Such shares were
valued at their market value on the date of issuance at $0.0235 per share. IBX
recorded compensation expense of $84,823 related to these services.
In July of 2004, the Series B preferred shareholder converted 1,000
Series B preferred shares into 2,000,000 shares of common stock.
In July and August of 2004, in connection with the conversion of
debentures and loans payable, IBX issued 18,577,482 shares of common stock for
debt of $109,000. As of August 16, 2004, 677,482 of these common shares remain
issuable.
Also in July and August of 2004, in connection with the exercise of
stock warrants, IBX issued to consultants 21,545,798 shares of common stock to
consultants for a subscription receivable of $3,025 and net proceeds of
$137,500.
On August 18, 2004, IBX entered into a Securities Purchase Agreement
with Cornell Capital Partners, whereby IBX shall issue and sell up to $400,000
of secured convertible debentures, which shall be convertible into shares of
IBX's common stock. The debenture holder is entitled, at its option, to convert
the debentures into shares of IBX's common stock at a per share price equal to
the lesser of (a) an amount equal to 120% of the closing bid price of the common
stock as quoted by Bloomberg L.P., or (b) an amount equal to 80% of the lowest
closing bid price of IBX's common stock for the five trading days immediately
preceding the conversion date. IBX, at its option, has the right to redeem the
outstanding convertible debentures at a redemption price of 120% of the amount
redeemed plus accrued interest. In the event IBX exercises a redemption, the
debenture holder will receive a warrant to purchase 50,000 shares of IBX's
common stock for every $100,000 redeemed, pro rata. The warrants have an
exercise price of 120% of the closing bid price of IBX's commons tock and expire
two years from the closing date. In August of 2004, IBX issued $200,000 of
debentures under this agreement for net proceeds of approximately $165,000. So
long as these convertible debentures are outstanding, IBX shall not, without
prior written consent of the debenture holders: (i) issue or sell shares of
common stock or preferred stock without consideration or for a consideration per
share less than the Bid Price of the common stock determined immediately prior
to its issuance, or (ii) issue or sell any warrant, option, right, contract,
call, or other security instrument granting the holder thereof, the right to
acquire common stock without consideration or for a consideration per share less
than the Bid Price of the common stock determined immediately prior to its
issuance, or (iii) enter into any security instrument granting the holder a
security interest in any and all assets of IBX, or (iv) file any registration
statement on Form S-8.
II-5
Also on August 18, 2004, IBX entered into a standby Equity Distribution
Agreement with Cornell Capital Partners, whereby IBX shall issue and sell to
investors up to $15,000,000 of IBX's common stock at a purchase price equal to
98% of the volume weighted average price of IBX's common stock, as quoted by
Bloomberg, L.P., five consecutive trading days after the Advance notice date.
The advances under the Standby Equity Distribution Agreement may commence after
the effective date of a registration statement. IBX was required to prepare and
file, prior to September 18, 2004, with the Securities and Exchange Commission a
registration statement on Form SB-2 under the Securities Act of 1933 for the
registration of common shares to be issued upon conversion of the convertible
debentures issued pursuant to the Securities Purchase Agreement and the
investors' shares. IBX must use its best efforts (i) to have the registration
statement declared effective by the Securities and Exchange Commission no later
than 90 days from August 18, 2004. As a result of the registration statement not
being filed by September 18, 2004 or is not declared effective by the Securities
and Exchange Commission on or before the scheduled effective date, IBX will pay
as liquidating damages to the holder equal to 2% the liquidating value of the
convertible debentures outstanding as liquidating damages each 30-day period.
Also on August 18, 2004, IBX issued a secured Convertible Debenture to
Cornell Capital Partners in the principal amount of $200,000. The Convertible
Debenture accrues interest at the rate of 5% per year. At IBX's option, the
entire principal amount and all accrued interest can be either: (i) paid to the
holder of the Convertible Debenture on the third-year anniversary of the
Convertible Debenture or (ii) converted into shares of IBX common stock. The
Convertible Debenture is convertible into shares of our common stock as a price
per share that is equal to the lesser of: (i) an amount equal to 120% of the
closing bid price of our common stock as of the date of the Convertible
Debenture or (ii) an amount equal to 80% of the average of the lowest daily
volume weighted average price of our common stock for the five trading days
immediately preceding the conversion date. The Convertible Debenture accrues
interest at a rate of 5% per year and is convertible at the holder's option. The
Convertible Debenture has a term of three years and is secured by all of our
assets. At IBX's option, the Convertible Debenture may be paid in cash or
converted into shares of our common stock unless converted earlier by the
holder. Except after an event of default, as set forth in the secured
Convertible Debenture, the holder is not entitled to convert such debenture for
a number of shares of our common stock in excess of that number of shares which,
upon giving effect to such conversion, would cause the aggregate number of
shares of common stock beneficially held by such holder and its affiliated to
exceed 4.99% of our outstanding shares of common stock. After we file a
registration statement with the Securities and Exchange Commission registering
the shares of common stock underlying the Convertible Debenture, we will issue a
second secured Convertible Debenture to Cornell Capital Partners in the
principal amount of $200,000 upon the same terms and conditions as the first
secured Convertible Debenture above.
Also on August 18, 2004, we issued a convertible Compensation Debenture
to Cornell Capital Partners in the principal amount of $190,000. The
Compensation Debenture accrues interest at the rate of 5% per year. At IBX's
option, the entire principal amount and all accrued interest can be either: (i)
paid to the holder of the convertible debenture on the third-year anniversary of
the Convertible Debenture or (ii) converted into shares of IBX common stock. The
Compensation Debenture is convertible into shares of our common stock as a price
per share that is equal to 100% of the lowest volume weighted average price of
IBX's common stock, as quoted by Bloomberg, LP, for the three days immediately
preceding the conversion date. Based on a recent stock price of $0.0035 per
share, the Compensation Debenture would be convertible into 27,941,176 shares of
IBX common stock. The Compensation Debenture has a term of three years. At IBX's
option, the Compensation Debenture may be paid in cash or converted into shares
of our common stock unless converted earlier by the holder. Except after an
event of default, as set forth in the Compensation Debenture, the holder is not
entitled to convert such debenture for a number of shares of our common stock in
excess of that number of shares which, upon giving effect to such conversion,
would cause the aggregate number of shares of common stock beneficially held by
such holder and its affiliated to exceed 4.99% of our outstanding shares of
common stock.
Except as otherwise indicated above, IBX believes that all of the above
transactions were transactions not involving any public offering within the
meaning of Section 4(2) of the Securities Act of 1933, as amended, since (a)
each of the transactions involved the offering of such securities to a
substantially limited number of persons; (b) each person took the securities as
an investment for his/her/its own account and not with a view to distribution;
(c) each person had access to information equivalent to that which would be
included in a registration statement on the applicable form under the Act; (d)
each person had knowledge and experience in business and financial matters to
understand the merits and risk of the investment; therefore no registration
statement needed to be in effect prior to such issuances.
II-6
EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-B
The exhibits listed below and designated as "provided herewith" (rather than
incorporated by reference) follow the signature page to this prospectus in
sequential order.
DESIGNATION OF
EXHIBIT AS SET
FORTH IN ITEM
601 OF
REGULATION S-B DESCRIPTION LOCATION
-------------- --------------------------------------------- -----------------------------------------------
2.1 Stock Exchange Agreement, dated August 31, Incorporated by reference to the registration
2001, by and between VidKid Distribution, statement on Form SB-2 (file no. 333-36666)
Inc. and PriMed Technologies, Inc.
3.1 Articles of Incorporation Incorporated by reference to the registration
statement on Form SB-2 (file no. 333-36666);
Incorporated by reference to the Current Report
on Form 8-K dated September 25, 2001
3.2 Bylaws Incorporated by reference to the registration
statement on Form SB-2 (file no. 333-36666)
3.3 Certificate of Amendment of Articles of Incorporated by reference to the registration
Incorporation statement on Form SB-2 (file no. 333-90660)
3.4 Certificate of Amendment of Articles of Incorporated by reference to the Annual Report
Incorporation on Form 10-KSB for the year ended December 31,
2003
5.1 Opinion re: Legality To be filed by amendment
(Kirkpatrick & Lockhart LLP)
10.1 Settlement Agreement dated as of December 19, Incorporated by reference to the Current Report
2001 on Form 8-K dated December 19, 2001 (file
no. 333-36666)
10.2 Employment Agreement with Evan Brovenick Incorporated by reference to the Current Report
on Form 8-K dated December 19, 2001 (file no.
333-36666)
10.3 Employment Agreement with David Blechman Incorporated by reference to the Annual Report
on Form 10-KSB for the year ended December 31,
2001 (file no. 333-36666)
10.4 Conversion Agreement with Calvo Family Spend Incorporated by reference to the registration
Thrift Trust statement on Form SB-2 (file no. 333-90660)
Securities Purchase Agreement, dated August Provided herewith
10.5 18, 2004 by and between IBX Group, Inc. and
Cornell Capital Partners, L.P.
10.6 Investor Registration Rights Agreement, dated Provided herewith
August 18, 2004, by and between IBX Group,
Inc. and Cornell Capital Partners, L.P.
II-7
DESIGNATION OF
EXHIBIT AS SET
FORTH IN ITEM
601 OF
REGULATION S-B DESCRIPTION LOCATION
-------------- --------------------------------------------- -----------------------------------------------
10.7 Security Agreement, dated August 18, 2004, by Provided herewith
and between IBX Group, Inc. and Cornell
Capital Partners, L.P.
10.8 Irrevocable Transfer Agent Instructions, Provided herewith
dated August 18, 2004, by and among IBX
Group, Inc., Cornell Capital Partners, L.P.,
and StockTrans
10.9 Escrow Agreement, dated August 18, 2004, by Provided herewith
and among IBX Group, Inc., Cornell Capital
Partners, L.P., and Butler Gonzalez, LLP
10.10 Secured Convertible Debenture Provided herewith
10.11 Form of Warrant Provided herewith
10.12 Standby Equity Distribution Agreement, dated Provided herewith
August 18, 2004, by and between IBX Group,
Inc. and Cornell Capital Partners, L.P.
10.13 Registration Rights Agreement, dated Provided herewith
August 18, 2004, by and between IBX Group,
Inc. and Cornell Capital Partners, L.P.
10.14 Placement Agent Agreement, dated August 18, Provided herewith
2004, by and among IBX Group, Inc., Cornell
Capital Partners, L.P., and Newbridge
Securities Corporation
10.15 Escrow Agreement, dated August 18, 2004, by Provided herewith
and among IBX Group, Inc., Cornell Capital
Partners, L.P., and Butler Gonzalez, LLP
10.16 Compensation Debenture Provided herewith
10.17 Warrant A Agreement Incorporated by reference to the Company's Form
8-K dated December 19, 2001 (file no. 333-36666)
10.18 Warrant B Agreement Incorporated by reference to the Company's Form
8-K dated December 19, 2001 (file no. 333-36666)
II-8
DESIGNATION OF
EXHIBIT AS SET
FORTH IN ITEM
601 OF
REGULATION S-B DESCRIPTION LOCATION
-------------- --------------------------------------------- -----------------------------------------------
10.19 Warrant C Agreement Incorporated by reference to the Company's Form
8-K dated December 19, 2001 (file no. 333-36666)
10.20 Warrant D Agreement Incorporated by reference to the Company's Form
8-K dated December 19, 2001 (file no. 333-36666)
14.01 Code of Ethics Provided herewith
23.1 Consent of Experts and Counsel Provided herewith
(Salberg & Company, P.A.)
II-9
ITEM 28. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To 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 Sections 10(a)(3) of
the Securities Act of 1933, as amended;
(ii) Reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the Registration
Statement. Notwithstanding the foregoing, 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 prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 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) That, for the purpose of determining any liability under the
Securities Act of 1933, as amended, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the bona fide offering thereof; and
(3) To remove from registration by means of a post-effective amendment
any of the securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer 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 of 1933, as amended, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the small business issuer of expenses
incurred or paid by a director, officer or controlling person of the small
business issuer 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 small business issuer 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 of 1933, as amended, and will be governed by the final adjudication of such
issue.
II-10
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form SB-2 and authorized this
registration statement to be signed on its behalf by the undersigned, on October
13, 2004.
IBX GROUP, INC.
By: /s/ Evan R. Brovenick
---------------------
Name: Evan R. Brovenick
Title: President and Chief Executive Officer
By: /s/ Alvin Brovenick
-------------------
Name: Alvin Brovenick
Title: Principal Financial and Accounting Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Evan R. Brovenick his true and lawful
attorney-in-fact and agent, with full power of substitution and revocation, for
him and in his name, place and stead, in any and all capacities (until revoked
in writing), to sign any and all amendments (including post-effective
amendments) to this Registration Statement and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done as fully for all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Evan R. Brovenick
---------------------
Evan R. Brovenick President, Chief Executive October 13, 2004
Officer, and Director
/s/ David Blechman
------------------
David Blechman Vice President, October 13, 2004
Secretary, and Director
/s/ Alvin Brovenick
-------------------
Alvin Brovenick Principal Financial and October 13, 2004
Accounting Officer, and Director
--------------------
Mitchell Hershey Director
II-11