UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002
-------------------------------------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT
IVP TECHNOLOGY CORPORATION
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
Nevada 65-6998896
- ---------------------------- -----------------------------
(State or other jurisdiction (IRS Employer
of incorporation Identification No.)
or organization)
2275 Lakeshore Blvd West, Suite 401, Toronto, Ontario M8V 3Y3 Canada
(Address of principal executive offices)
(416) 255-7578
(Issuer's telephone number)
(Former name, former address and former fiscal year,
if changed since last report)
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports
required to be filed by Section l2, 13 or 15(d) of the Exchange Act
after the distribution of securities under a plan confirmed by a court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
119,963,261 shares of common stock, $.001 par value, were outstanding
on October 31, 2002
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [x]
PART I - FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements
Consolidated Balance Sheets as of September 30, 2002
(Unaudited) and December 31, 2001 (Audited)
Consolidated Statement of Operations for the Three Months
and Nine Months Ended September 30, 2002 and September
30, 2001
Consolidated Statement of Cash Flows for the Nine Months
Ended September 30, 2002 and September 30, 2001
Notes to Consolidated Financial Statements
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II- OTHER INFORMATION
ITEM 1. Legal Matters
ITEM 2. Changes in Securities
ITEM 3. Defaults Upon Senior Securities
ITEM 4. Submission of Matters to a Vote of Security Holders
ITEM 6. Subsequent Events, Exhibits and Reports on Form 8-K
2
IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 2002
SEPTEMBER 30, DECEMBER 31, 2001
2002 (AUDITED)
(UNAUDITED) (AS RESTATED)
--------------------- ---------------------
ASSETS
CURRENT ASSETS
Cash $ - $ 232
Accounts Receivable (Less Allowance for Doubtful Accounts of $43,970) 608,133 -
Inventory 2,236 -
Prepaid expenses 59,158 -
--------------------- ---------------------
Total Current Assets 769,527 -
--------------------- ---------------------
FIXED ASSETS
Plant, Property and Equipment, at Cost 534,950 -
Accumulated Depreciation (98,657) -
--------------------- ---------------------
436,293 -
--------------------- ---------------------
OTHER ASSETS
Excess of Cost Over Net Assets Acquired 5,919,926 -
Miscellaneous Receivable - 872
License Agreement - Software, net of accumulated amortization of $267,605 446,007 3,600,431
Software Development, net of accumulated amortization of $5,041 40,326 -
Other Assets 94,943 -
--------------------- ---------------------
Total Other Assets 6,501,202 3,601,303
--------------------- ---------------------
TOTAL ASSETS $ 7,707,022 $ 3,601,535
===================== =====================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES
Bank Overdraft $ 11,035 $ -
Accounts payable and accrued liabilities 990,640 479,571
Accounts payable - license agreement - 3,620,268
Other Payables 283,256 -
Accrued Interest 11,484 34,841
Due to DcD Factors, Plc 359,103
Income Taxes Payable 156,911 -
Notes payable 104,020 200,000
--------------------- ---------------------
Total Current Liabilities 1,916,449 4,334,680
--------------------- ---------------------
LONG-TERM LIABILITIES
Convertible debenture 150,000 -
Notes payable 319,826 129,020
--------------------- ---------------------
Total Long-Term Liabilities
469,826 129,020
--------------------- ---------------------
STOCKHOLDERS' EQUITY (DEFICIENCY)
Preferred stock, $.001 par value, 50,000,000 shares authorized, none - -
issued and outstanding
Common stock, $.001 par value 150,000,000 shares authorized,
88,949,261 and 48,752,848 shares issued and outstanding, respectively 88,949 48,753
Common stock to be issued 6,851,009 50,000
Additional paid-in capital 19,090,256 13,314,354
Accumulated deficit (20,302,081) (13,935,272)
Other Comprehensive Income -Exchange Gain 15,114 -
Less deferred equity line commitment fees (262,500) -
Less deferred compensation and licensing fee (160,000) (340,000)
--------------------- ---------------------
Total Stockholders' Equity (Deficiency) $ 5,320,747 (862,165)
--------------------- ---------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) 7,707,022 $ 3,601,535
===================== =====================
See Accompanying Notes to the Consolidated Financial Statements
3
IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED NINE MONTHS ENDED
----------------------------------------- -----------------------------------------
SEPTEMBER 30, 2002 SEPTEMBER 30, 2001 SEPTEMBER 30, 2002 SEPTEMBER 30, 2001
----------------------------------------- -----------------------------------------
AS RESTATED AS RESTATED
----------------------------------------- -----------------------------------------
(UNAUDITED) (UNAUDITED)
REVENUE
Net Sales $ 1,408,402 $ 13,238 $ 1,905,728 $ 67,358
------------------------------------------------------------------------------------
Cost of Sales:
Product Costs 1,140,754 1,519,335
Development Costs
100,984 102,014
Distribution and other costs including
amortization 316,725 - 1,226,158 -
----------------------------------------- -----------------------------------------
Total Cost of Sales
1,558,463 - 2,847,507 -
----------------------------------------- -----------------------------------------
Gross Profit (Loss) $ (150,061) $ 13,238 $ (941,779) $ 67,358
----------------------------------------- -----------------------------------------
OPERATING EXPENSES
Amortization and depreciation 137,660 60,000 310,699 180,000
Consulting fees 265,440 208,529 658,995 430,357
Legal and accounting 84,955 34,892 300,638 100,076
Salaries and wages 4,314,840 - 4,429,125 -
Management Fees 45,904 1,000 124,564 5,500
Financial advisory fees - - 150,000 -
Bad Debts - 13,238 (3,000) 46,970
Other general & administration 15,669 5,227 380,459 95,906
----------------------------------------- -----------------------------------------
TOTAL OPERATING EXPENSES 4,864,468 322,886 6,351,480 858,809
----------------------------------------- -----------------------------------------
LOSS FROM OPERATIONS $ (5,014,529) $ (309,648) $ (7,293,259) $ (791,451)
----------------------------------------- -----------------------------------------
OTHER INCOME/(EXPENSE)
Gain on early extinguishment of debts 924,904 - 1,021,238 -
Interest income 5,084 - 6,022 -
Interest expense (25,943) (5,000) (100,812) (91,000)
----------------------------------------- -----------------------------------------
TOTAL OTHER INCOME (EXPENSE) 904,045 (5,000) 926,448 (91,000)
----------------------------------------- -----------------------------------------
NET LOSS $ (4,110,484) $ (314,648) $ (6,366,811) $ (882,451)
========================================= =========================================
LOSS PER SHARE (0.03) (0.01) (0.07) (0.02)
========================================= =========================================
WEIGHTED AVERAGE NUMBER OF
OUTSTANDING COMMON SHARES 118,299,435 46,403,484 95,218,392 40,216,459
========================================= =========================================
See Accompanying Notes to the Consolidated Financial Statements
4
IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Nine Months Ended
------------------------------------------
September 30, 2002 September 30, 2001
As Restated
(Unaudited) (Unaudited)
-------------------- --------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (6,366,811) $ (882,451)
Adjustments to reconcile net loss to net
cash used in operating activities:
Stock issued for services 567,780 669,793
Stock issued for compensation 3,800,000
Reserve for Bad Debts - 46,970
Interest expense on beneficial conversion 64,286 76,000
Gain on extinquishment of debts (1,021,238)
Amortization and Depreciation 1,488,411 180,000
Foreign Exchange Loss 30,139
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable (608,133) (40,518)
Prepaid Expenses (159,158)
Inventory (2,236)
Increase (decrease) in:
Accounts payable and accrued expenses 511,069 (136,883)
Accounts payable - license agreement (713,610) -
Income taxes payable 156,911
Interest payable and other (41,844) -
-------------------- --------------------
Net Cash Used In Operating Activities (2,294,434) (87,089)
-------------------- --------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (152,077)
Purchase of Software (45,367) -
Net assets acquired 1,291,059
Other (885) -
-------------------- --------------------
Net Cash Provided By Investing Activities 1,092,730 -
-------------------- --------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash Overdraft 11,035
Proceeds from loans and notes 1,215,437 85,970
Payment on Notes Payable (25,000)
-------------------- --------------------
Net Cash Provided By Financing Activities 1,201,472 85,970
-------------------- --------------------
NET DECREASE IN CASH (232)) (1,119)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 232 1,424
-------------------- --------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ - $ 305
==================== ====================
See Accompanying Notes to the Consolidated Financial Statements
5
IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2002
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
(A) ORGANIZATION
----------------
Mountain Chief, Inc. was incorporated in the State of Nevada on
February 11, 1994. This name was subsequently changed by Articles of
Amendment dated November 16, 1994 to IVP Technology Corporation (the
"Company"). The Company was granted an extra-provincial license by the
Province of Ontario on June 20, 1995 to carry on business in Ontario,
Canada. Prior to 1998, the Company was involved with various
unsuccessful activities relating to the sale of technology products
before becoming inactive by the end of 1997. The Company began
negotiations with a third party in 1998 to become an exclusive
distributor of software and therefore is considered to have re-entered
the development stage on January 1, 1998. Activities from inception of
development stage included raising of capital and negotiations and
acquisition of software distribution licenses are more fully described
herein. (See Note 5).
(B) ACQUISITION AND RECAPITALIZATION
------------------------------------
Effective March 2000, the Company acquired all the outstanding shares
of common stock of Erebus Corporation, an inactive reporting shell
company with no assets or liabilities, from the stockholders thereof in
an exchange for an aggregate of 350,000 shares of the Company's common
stock and paid $200,000 of consulting expenses in connection with the
acquisition. Pursuant to Rule 12-g-3(a) of the General Rules and
Regulations of the Securities and Exchange Commission, the Company
elected to become the successor issuer to Erebus Corporation for
reporting purposes under the Securities Exchange Act of 1934. For
financial reporting purposes, the acquisition was treated as a
recapitalization of the Company with the par value of the common stock
charged to additional-paid-in capital.
(C) BASIS OF PRESENTATION
-------------------------
The Company maintains its original records in United States dollars.
The consolidated financial statements are expressed in United States
dollars and have been prepared in accordance with generally accepted
accounting principles (GAAP) in the United States.
(D) PRINCIPLES OF CONSOLIDATION
-------------------------------
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries Ignition Entertainment
Limited and Springboard Technology Solutions, Inc. All significant
inter-company transactions and balances have been eliminated.
(E) FOREIGN CURRENCY TRANSACTIONS
-------------------------------
The Company predominately uses the U.S. dollar as its functional
currency. Foreign currency assets and liabilities are remeasured into
U.S. dollars at end-of-period exchange rates. Revenue and expenses are
remeasured at average exchange rates in effect during each period.
Gains or losses from foreign currency remeasurement are included in net
earnings. Certain foreign subsidiaries designate the local currency as
their functional currency and related cumulative translation
adjustments are included as a component of accumulated other
comprehensive income.
(F) USE OF ESTIMATES
-------------------------------
In preparing financial statements in conformity with accounting
principles generally accepted in the United States of America,
management is required to make estimates and assumptions that affect
the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial
statements and revenues and expenses during the reported period. Actual
results could differ from those estimates.
6
IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2002
(G) CASH AND CASH EQUIVALENTS
-----------------------------
For purposes of the cash flow statements, the Company considers all
highly liquid investments with original maturities of three months or
less at the time of purchase to be cash equivalents.
(H) FAIR VALUE OF FINANCIAL INSTRUMENTS
---------------------------------------
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments", requires disclosures of
information about the fair value of certain financial instruments for
which it is practicable to estimate the value. For purposes of this
disclosure, the fair value of a financial instrument is the amount at
which the instrument could be exchanged in a current transaction
between willing parties other than in a forced sale or liquidation.
The carrying amounts of the Company's accounts receivable, accounts
payable and accrued liabilities, and note and interest payable thereon
approximates fair value due to the relatively short period to maturity
for these instruments.
(I) ALLOWANCES FOR DOUBTFUL ACCOUNTS AND SALES RETURNS
------------------------------------------------------
The Company makes judgments as to our ability to collect outstanding
receivables and provide allowances for the portion of receivables when
collection becomes doubtful. Provisions are made based upon a specific
review of all significant outstanding invoices. For those invoices not
specifically reviewed, provisions are provided at differing rates,
based upon the age of the receivable. In determining these percentages,
we analyze our historical collection experience and current economic
trends. If the historical data we use to calculate the allowance
provided for doubtful accounts does not reflect the future ability to
collect outstanding receivables, additional provisions for doubtful
accounts may be needed and the future results of operations could be
materially affected.
The Company also records a provision for estimated sales returns and
allowances on product and service related sales in the same period as
the related revenues are recorded. These estimates are based on
historical sales returns, analysis of credit memo data and other known
factors. If the historical data we use to calculate these estimates do
not properly reflect future returns, then a change in the allowances
would be made in the period in which such a determination is made and
revenues in that period could be adversely affected.
(J) INVENTORY
-------------
Inventories, which consist primarily of system components, parts and
supplies and completed games and other video accessories, are stated at
the lower of weighted average cost or market. The weighted average cost
of inventories approximates the first-in, first-out ("FIFO") method.
Management performs periodic assessments to determine the existence of
obsolete, slow-moving and nonsalable inventories and records necessary
provisions to reduce such inventories to net realizable value.
(K) PLANT, PROPERTY AND EQUIPMENT
---------------------------------
Plant, property and equipment are stated at cost. Depreciation and
amortization are provided on the straight-line method over the shorter
of the estimated useful lives of the assets or the applicable lease
term for leasehold improvements ranging from 3 to 10 years .
Maintenance and repairs are charged to expense when incurred;
betterments are capitalized. Upon retirement or sale, the cost and
accumulated depreciation are removed from the accounts and any gain or
loss is recognized currently.
(L) LONG-LIVED ASSETS
----------------------
Long-lived assets to be held and used are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. If such review indicates
that the asset is impaired, when the carrying amount of an asset
exceeds the sum of its expected future cash flows, on an undiscounted
basis, the asset's carrying amount is written down to fair value.
Long-lived assets to be disposed of are reported at the lower of
7
IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2002
carrying amount or fair value less cost to sell. The Company has not
recognized any impairment loss during the nine months ended September
30, 2002.
(M) EXCESS OF COST OVER NET ASSETS ACQUIRED
-------------------------------------------
In accordance with SFAS No. 141, the Company allocates the purchase
price of its acquisitions to the tangible assets, liabilities and
intangible assets acquired based on their estimated fair values. The
excess purchase price over those fair values is recorded as "Excess of
Cost Over Net Assets Aquired." The fair value assigned to intangible
assets acquired is based on valuations prepared by independent third
party appraisal firms using estimates and assumptions provided by
management. In accordance with SFAS No. 142, goodwill and purchased
intangibles with indefinite lives acquired after June 30, 2001 are not
amortized but will be reviewed periodically for impairment. Purchased
intangibles with finite lives will be amortized on a straight-line
basis over their respective useful lives.
(N) INCOME TAXES
----------------
The Company accounts for income taxes under the Financial Accounting
Standards Board Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes" ("Statement 109"). Under Statement 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 Statement 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.
(O) CONCENTRATION OF CREDIT RISK
--------------------------------
The Company maintains its cash in bank deposit accounts, which, at
times, may exceed federally insured limits. The Company has not
experienced any losses in such accounts and believes it is not exposed
to any significant credit risk on cash and cash equivalents.
(P) LOSS PER SHARE
------------------
Basic and diluted net loss per common share for all periods presented
is computed based upon the weighted average common shares outstanding
as defined by Financial Accounting Standards No. 128, "Earnings Per
Share". There were no common stock equivalents at September 30, 2002.
(Q) BUSINESS SEGMENTS
---------------------
The Company applies Statement of Financial Accounting Standards No. 131
"Disclosures about Segments of an Enterprise and Related Information".
The Company operates in one segment and therefore segment information
is not presented.
(R) REVENUE RECOGNITION
-----------------------
Risk and Uncertainties
A significant portion of all of the Company's net sales are derived
from software publishing and distribution activities, which are subject
to increasing competition, rapid technological change and evolving
consumer preferences, often resulting in the frequent introduction of
new products and short product lifecycles. Accordingly, the Company's
profitability and growth prospects depend upon its ability to
continually acquire, develop and market new, commercially successful
software products and obtain adequate financing. If the Company is
unable to continue to acquire, develop and market commercially
successful software products, its operating results and financial
condition could be materially adversely affected in the near future.
8
IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2002
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
dates of the financial statements and the reported amounts of revenues
and expenses during the reported periods. The most significant
estimates and assumptions relate to the recoverability of prepaid
royalties, capitalized software development costs and other
intangibles, realization of deferred income taxes, valuation of
inventories and the adequacy of allowances for returns, price
protection and doubtful accounts. Actual amounts could differ
significantly from these estimates.
REVENUE RECOGNITION
Publishing revenue is derived from the sale of internally developed
interactive software titles or from the sale of titles licensed from
third-party developers. Publishing revenue amounted to $110,000 and $0
for the three months ended September 30, 2002 and 2001, respectively,
and $200,000 and $0 for the nine months ended September 30, 2002 and
2001, respectively.
Distribution revenue is derived from the sale of third-party
interactive software titles, accessories and hardware. Distribution
revenue amounted to $1,241,332 and $13,238 for the three months ended
September 30, 2002 and 2001, respectively and $1,648,658 and $67,358
for the nine months ended September 30, 2002 and 2001, respectively.
Revenue from services and commercial software sold under license were
$57,070 and $0 for the three months ended September 30, 2002 and 2001
respectively, and $57,070 and $ 0 for the nine months ended September
30, 2002 and 2001, respectively.
The Company recognizes revenue in accordance with Statement of Position
("SOP") 97-2 "Software Revenue Recognition", as amended by SOP 98-9
"Modification of SOP 97-2 Software Revenue Recognition with respect to
Certain Transactions." SOP 97-2 provides guidance on applying generally
accepted accounting principles in recognizing revenue on software
transactions. SOP 98-9 deals with the determination of vendor specific
objective evidence of fair value in multiple element arrangements, such
as maintenance agreements sold in conjunction with software packages.
The Company's consumer software transactions generally include only one
element, the interactive software game or commercial software under
license. The Company recognizes revenue when the price is fixed and
determinable, there is persuasive evidence of an arrangement, the
fulfillment of its obligations under any such arrangement and
determination that collection is probable. Accordingly, revenue is
recognized when title and all risks of loss are transferred to the
customer, which is generally upon receipt by customer. The Company's
payment arrangements with its customers provide primarily 60 day terms
and to a limited extent with certain customers 30 or 90 day terms.
The Company's distribution arrangements with customers generally do not
give customers the right to return products; however, the Company at
its discretion may accept product returns for stock balancing or
defective products. In addition, the Company sometimes negotiates
accommodations to customers, including price discounts, credits and
product returns, when demand for specific products falls below
expectations. The Company's publishing arrangements generally require
the Company to accept product returns and provide price protection. The
Company establishes a reserve for future returns and other allowances
based primarily on its return policies, price protection policies and
historical return rates. The Company may not have a reliable basis to
estimate returns and price protection for certain customers or it may
be unable to determine that collection of the receivable is probable.
In such circumstances, the Company defers the revenues at the time of
the sale and recognizes them when collection of the related receivable
becomes probable or cash is received.
(S) NEW ACCOUNTING PRONOUNCEMENTS
---------------------------------
Statement No. 143 "Accounting for Asset Retirement Obligations"
establishes standards for the initial measurement and subsequent
accounting for obligations associated with the sale, abandonment, or
other type of disposal of long-lived tangible assets arising from the
acquisition, construction, or development and/or normal operation of
such assets. SFAS No. 143 is effective for fiscal years beginning after
9
IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2002
June 15, 2002, with earlier application encouraged.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets", which is applicable to
financial statements issued for fiscal years beginning after December
15, 2001. The FASB's new rules on asset impairment supercede SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of", and portions of Accounting
Principles Board (APB) Opinion No 30, " Reporting the Results of
Operations". SFAF No. 144 provides a single accounting model for
long-lived assets to be disposed of and significantly changes the
criteria that would have to be met to classify an asset as held-for
sale. Classification as held-for sale is an important distinction since
such assets are not depreciated and are stated at the lower of fair
value or carrying amount. SFAS No. 144 also requires expected future
operating losses from discontinued operations to be displayed in the
period in which the losses are incurred, rather than as of the
measurement date as presently required.
In April 2002, the FASB issued SFAS No 145, "Rescission of FASB
Statements No. 4, 44 and 62, Amendment of FASB No 13, and Technical
Corrections", which is generally applicable to financial statements for
fiscal years beginning after May 15, 2002; however, early adoption is
encouraged. SFAS 145 eliminates the requirement under FASB No. 4,
"Reporting Gains and Losses from Extinquishment of Debt" to report
gains and losses from extinguishments of debt as extraordinary items in
the income statement.
The adoption of these pronouncements will not have a material effect on
the Company's financial position or results of operations.
NOTE 2 NOTES PAYABLE
(A) NOTES PAYABLE - SHORT-TERM
-------------------------------
The Company had a convertible note payable with Rainbow Investments
International Limited ("RII") for $200,000, which was outstanding at
March 31, 2002 and December 31, 2001. The note bore interest at 10% per
annum and was due May 2001. As of March 31, 2002, accrued interest on
the note amounted to $37,561. The debt and accrued interest was
convertible to common stock at a conversion price equal to 80% of the
average closing bid price per share during the ten trading days
immediately prior to any such conversion. On July 16, 2001, the Company
received notice from RII of their intent to convert the note and
accrued interest to common stock. On June 28, 2002, the Company
converted the note plus accrued interest into 2,410,916 shares of
restricted common stock in full satisfaction of the outstanding
obligation and accrued interest.
DCD FACTORING AGREEMENT
-----------------------
On April 9, 2002, Ignition Entertainment Limited entered into a
one-year factoring agreement with DcD Factors, Plc wherein Ignition
Entertainment Limited has agreed to borrow and DcD Factors, Plc has
agreed to loan, on a fully secured basis, up to (pound)500,000 to
Ignition Entertainment Limited based on 75% of its eligible accounts
receivables . Interest charged on amounts borrowed is equal to 3% above
the UK Base Bank rate. Under the terms of the factoring loan agreement,
DcD Factors, Plc is obligated to remit, from time to time, excess
collections to Ignition Entertainment Limited to the extent that
collections on secured receivables exceed the sum of (i) advances made
by DcD Factors, Plc, (ii) interest and service charges on funds
advanced, (iii) monthly services fees and (iv) customer discounts.
Ignition Entertainment Limited has granted DcD Factors, Plc a first
lien and security interest in all of Ignition Entertainment Limited's
assets, including its accounts receivable, inventories and intangible
assets. In accordance with the provisions of SFAS 140, the Company has
treated this Factoring Facility as a secured borrowing by Ignition
Entertainment Limited and not as a sale of accounts receivable. As of
September 30, 2002, Ignition Entertainment Limited has borrowed
$359,103 from DcD Factors, Plc which is reported as a currently
liability in the September 30, 2002 balance sheet as " Due To DcD
Factors"
10
IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2002
(B) NOTES PAYABLE - LONG-TERM
------------------------------
On July 30, 2001, the Company entered into a two-year note with Berra
Holdings, Ltd. to borrow up to $187,500 at 6% interest. As of September
30, 2002 and December 31, 2001, the balance due on this note was
$104,020 and $129,020, respectively. The note is collateralized by
2,500,000 shares of common stock held in the name of Clarino Investment
International, Ltd., an unrelated party. Accrued interest of $7,888 is
due Berra Holdings, Ltd. as of September 30, 2002.
5% CONVERTIBLE DEBENTURE
------------------------
In April 2002, IVP Technology raised $150,000 of gross proceeds from
the issuance of convertible debentures to Cornell Capital Partners, LP.
These debentures accrue interest at a rate of 5% per year and mature
two years from the issuance date. The debentures are 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 closing date (ii) 80% of the average closing bid price of the
common stock for the 4 lowest trading days of the 5 trading days
immediately preceding the conversion date. At maturity, IVP Technology
has the option to either pay the holder the outstanding principal
balance and accrued interest or to convert the debentures 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 closing date or
(ii) 80% of the average closing bid price of the common stock for the 4
lowest trading days of the 5 trading days immediately preceding the
conversion date. IVP Technology has the right to redeem the debentures
upon 30 days notice for 120% of the amount redeemed. Upon such
redemption, IVP Technology will issue the investor a warrant to
purchase 10,000 shares of common stock at an exercise price of $0.50
per share for every $100,000 of debentures that are redeemed.
The convertible debentures contain a beneficial conversion feature
computed at its intrinsic value that is the difference between the
conversion price and the fair value on the debenture issuance date of
the common stock into which the debt is convertible, multiplied by the
number of shares into which the debt is convertible at the commitment
date. Since the beneficial conversion feature is to be settled by
issuing equity, the amount attributed to the beneficial conversion
feature, or $64,286, was recorded as an interest expense and a
component of equity on the issuance date.
Accrued interest at September 30, 2002 was $3,596.
Future maturities of long-term debt as of September 30, 2002 are as
follows:
Year Amount
---- ------
2003 $ 104,020
2004 150,000
2005 319,826
------------
Total $ 573,846
11
IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2002
LINE OF CREDIT FACILITY
-----------------------
On April 10, 2002 Ignition Entertainment Limited entered into a
(pound)1,000,000 revolving credit facility with Revelate Limited for
the purpose of allowing Ignition Entertainment Limited to purchase
goods and services from third party vendors. Under the terms of the
revolving credit facility, Revelate will advance up to 60% of the
purchase price of goods and services purchased by Ignition
Entertainment Limited for its business. Ignition Entertainment Limited
is obligated to pay Revelate Limited interest on each advance at a rate
equal to 3% over the UK Bank Base rate, a 2% commission of total
disbursements made on behalf of Ignition Entertainment Limited and a
facility fee of (pound)500. Ignition Entertainment Limited's obligation
to repay an advance is guaranteed by DcD Factors, Plc As of September
30, 2002, the Company has not borrowed any funds under the Revolving
Credit Facility.
NOTE 3 STOCKHOLDERS' EQUITY (DEFICIENCY)
During the three months ended March 31, 2002, the Company issued
50,000,000 shares of its restricted common stock to Messrs. MacDonald,
Hamilton, Birch, Villella and Bullock in accordance with the 9/17/01
Stock Purchase Agreement with International Technology Marketing. All
shares are held in safekeeping pending completion of the escrow
agreement.
On or about March 25, 2002, the Company issued 500,000 shares of common
stock to John Maxwell in lieu of compensation for services performed in
2001 as President of IVP Technology. These shares were valued at $0.05
per share, or an aggregate of $25,000, on the date of issuance.
On or about March 25, 2002, the Company issued 500,000 shares of common
stock to John Trainor in lieu of compensation for services performed in
2001 as Secretary of IVP Technology. These shares were valued at $0.05
per share, or an aggregate of $25,000, on the date of issuance.
On or about March 25, 2002, the Company issued 2,375,600 shares of
common stock valued at $.05 per share to Thomas Chown for the
conversion of $118,780 of debts owed by the corporation for services
performed in 2001.
On or about March 25, 2002, the Company issued 1,000,000 shares of
common stock to Buford Industries as conversion of a fee of $50,000
earned for introducing IVP to International Technology Marketing. These
shares were valued at $0.05 per share, or an aggregate of $50,000, on
the date of issuance.
On or about March 25, 2002, the Company issued 50,000 shares of common
stock to Ruffa and Ruffa, P.A. for payment of interest on outstanding
legal bills for the year 2001 - 2002. These shares were valued at $0.10
per share, or an aggregate of $5,000, on the date of issuance.
On or about March 25, 2002, the Company issued 1,000,000 shares of
common stock to J. Stephen Smith to be held in escrow for services as a
board member for the period from 2001 to 2003 to be accrued at the rate
of 500,000 per year.
On or about March 25, 2002, the Company issued 1,000,000 shares of
common stock to Michael Sidrow to be held in escrow for services as a
board member for the period from 2001 to 2003 to be accrued at the rate
of 500,000 per year. Subsequently these shares have been rescinded as a
result of Mr. Sidrow's resignation from the board of directors.
On or about March 25, 2002, the Company issued 1,000,000 shares of
common stock to Robert King to be held in escrow for services as a
board member for the period from 2001 to 2003 to be accrued at the rate
of 500,000 per year. Subsequently these shares have been rescinded as a
result of Mr. King's resignation from the board of directors.
On April 26, 2002, the Company issued 62,027 shares of common stock to
Danson Partners, LLC having a value of $5,000 for consulting services
rendered.
12
IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2002
On April 26, 2002 and June 28, 2002, the Company issued 3,032,000
shares of restricted common stock to Cornell Capital Partners, LP,
having a value of $330,000 as a one-time commitment fee (See Note
4(F)).
On April 26, 2002 and June 28, 2002, the Company issued 1,040,000
shares of restricted common stock to Danson Partners, LLC, having a
value of $125,000 for financial consulting services rendered (See Note
4(F)).
On May 28, 2002, the Company acquired Ignition Entertainment Limited.
IVP Technology will issue 15,000,000 shares of common stock and
3,500,000 shares of preferred stock as payment to Ignition
Entertainment Limited over a period of two years from the date of the
acquisition. Additionally, the management team of Ignition
Entertainment Limited may earn up to 1,500,000 shares of preferred
stock if certain revenue and net income goals are met at specific time
periods. These shares will be held in escrow and disbursed by the
escrow agent according to the escrow agreement (See Note 5).
In May 2002, the Company entered into an agreement with Vanessa Land
for marketing and advisory services connected with product marketing in
the European Economic Community and North America. In relation with
this agreement, IVP Technology issued 5,000,000 shares of common stock
to Ms. Land. These shares were registered on a Form S-8 filed on May 3,
2002. These shares were valued at $.05 per share, or an aggregate of
$250,000, on the date of issuance. (See Note 4(D)).
On May 1, 2002, the Company agreed to issue 4,000,000 shares of its
restricted common stock having a value of $760,000 in full settlement
of its obligation to DcD Holdings Limited. IVP Technology issued these
shares on or about August 6, 2002.
On June 28, 2002, IVP Technology issued 2,410,916 shares of common
stock to Rainbow Investments pursuant to the terms of our March 17,
2000 debt conversion agreement (See Note 2(A)).
On June 28, 2002, the Company issued 23,370 shares of common stock to
Danson Partners, LLC having a value of $5,000 for consulting services
rendered.
On June 28, 2002, the Company issued 100,000 shares of restricted
common stock to Westrock Advisors having a value of $20,000 for
placement agent fees.
On August 6, 2002, the Company issued 560 shares of restricted common
stock to Brian MacDonald having a value of $73 for the acquisition of
Springboard Technology.
On August 6, 2002, the Company issued 560 shares of restricted common
stock to Peter Hamilton having a value of $ 73 for the acquisition of
Springboard Technology.
On August 6, 2002, the Company issued 560 shares of restricted common
stock to Kevin Birch having a value of $73 for the acquisition of
Springboard Technology.
On August 6, 2002, the Company issued 160 shares of restricted common
stock to Geno Villella having a value of $21 for the acquisition of
Springboard Technology.
On August 6, 2002, the Company issued 160 shares of restricted common
stock to Sherry Bullock having a value of $ 21 for the acquisition of
Springboard Technology.
On September 30, 2002, the former shareholders of ITM earned 20,000,000
contingent shares having a value of $3,800,000. These shares are to be
released out of escrow. (See Note 4(E)).
13
IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2002
NOTE 4 AGREEMENTS
(A) SOFTWARE DISTRIBUTION AGREEMENTS
On March 30, 1999, the Company entered into a software distributing
agreement granting the Company an exclusive right to distribute a
software product known as "Power Audit" throughout the United States of
America. (See below for subsequent amendments and extensions.) The
significant terms and conditions governing the agreement are as
follows:
> Payment by the Company of $50,000 in development funds.
> Issuance of 500,000 in common shares of the Company to the owners
and developers of the software upon its delivery, which was in
October 1999.
> Royalty payments of 20% on the first $500,000 of sales, 12.5% on
sales between $500,000 and $1,000,000 and 5% on sales over
$1,000,000.
The agreement has a term of fourteen (14) months and could be
terminated on six-month notice by either party. It can be extended on a
year-to-year basis, provided the gross annual sales exceed $1,000,000
and all other terms are observed by the parties.
In September 1999, for a consideration of the Company's issuance of an
additional 1,000,000 common shares, the agreement was amended to
include the European Economic Community in its distribution territory
and payment of $4,200 per month for software support and services. The
1,500,000 common shares were issued in 1999 and were valued on the
dates of the agreement and amendment based on the quoted trading
prices. The resulting $220,000 value was presented as license fees, net
of $106,000 accumulated amortization, as of December 31, 1999. During
the year ended December 31, 2000, the remaining license fees of
$114,000 were charged to operations as amortization expense.
In May 2000, the parties agreed to amend and extend the software
agreement for three years to May 31, 2003. The amended agreement
expanded the territory to include the Country of Switzerland, required
the Company to issue 1,000,000 common shares and complete a financing
of a minimum of $2,000,000 with a portion of the proceeds to be used to
contract services of or to develop its own technical support and
internal marketing group. In addition, the Company is required to
complete a minimum of twelve sales or licensing agreements of the
software product prior to the expiration of the twelve-month period
ending June 1, 2002. In the event that the minimum sales requirement is
not met, the Company is required to compensate the Software Owner for
unpaid royalties at the rate of $3,750 per sale shortfall up to the
maximum of twelve, or $45,000, and issue 100,000 common shares. Lastly,
the royalty fee for sales over $1,000,000 has been changed from 5% to
7.5%.
On June 13, 2002, the Company notified the Licensor that it was
canceling its license agreement effective immediately. As of the date
of cancellation, the Company was obligated to issue 100,000 shares of
common stock to the software owner. As of September 30, 2002, the
shares have not been issued.
(B) CONSULTING AGREEMENTS
--------------------------
On March 17, 2000, the Company entered into a consulting agreement with
the former stockholder of the acquired inactive reporting shell company
(SEE NOTE 1(B)). The consulting agreement states that one year after
the execution of the agreement ("reset date"), the 350,000 common
shares issued by the Company to the former stockholder shall be
increased or decreased based upon the average closing price of the
Company's stock 30 days prior to the reset date, so the value of the
350,000 shares will equal $500,000. The average closing price of the
stock was $0.1487 per share. The Company is obligated to issue an
additional 3,012,475 common shares to the consultant as an additional
fee. As of September 30, 2002, the Company has not received a request
for the additional shares.
14
IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2002
(C) LICENSING AGREEMENT
------------------------
On December 28, 2001, the Company entered into a two-year licensing
agreement to distribute software used by the insurance industry, which
agreement includes a non-exclusive right to sell such software to
clients in North America, Mexico, Canada, and their overseas
territories. The cost of such agreement was (pound)2,500,000 (US
$3,620,268) and is being amortized over the two-year period of the
agreement. Through September 30, 2002, the Company paid the Innovation
Group, Plc $713,612 in connection with the License. On September 30,
2002, the Company renegotiated the terms of the License Agreement
whereby the Licensor agreed to extinguish the remaining amount due
under the agreement, or $2,906,656 in exchange for the return of the
license and distribution rights to the Classifier(TM) software product
to the financial services sector. The Company was also granted a
non-exclusive distributorship for the i-Bos(TM) software product. For
financial statements purposes, the Company recorded a gain on the early
extinquishment of debt in the amount of $924,904. This gain is reported
as Other Income in the Consolidated Statement of Operations.
Amortization expense for the three-month and nine month periods ended
September 30, 2002 was $267,604 and $1,172,672, respectively and is
included in cost of sales. Deferred licensing fees, net of amortization
is included as an Other Asset on the balance sheet.
(D) MARKETING AGREEMENT
------------------------
On January 18, 2002, the Company entered into a one- year marketing
agreement with Ms. Vanessa Land to provide product marketing and
advisory services to the Company in the European Economic Community and
North America territories. . The Company issued 5,000,000 shares to the
consultant on March 25, 2002 which were registered in a Form S-8 filed
on May 3, 2002. The shares were valued at $.05 per share corresponding
to the date that the Company's Board of Directors approved the grant of
shares to Ms Land. The Company accounted for the cost of the marketing
agreement by recording an expense for the entire cost in the amount of
$250,000. Such expense is included in Consulting Fees in the
Consolidated Statement of Operations.
(E) STOCK PURCHASE AGREEMENT
-----------------------------
On September 17, 2001, the Company entered into a stock purchase
agreement to acquire 100% of the outstanding stock of International
Technology Marketing, Inc. ("ITM"). The agreement calls for the Company
to issue 50,000,000 shares, which will be held in escrow subject to the
Company reaching certain sales milestones. The agreement also calls for
the Company to reimburse the shareholders of ITM in their efforts to
meet the sales milestones.
The revenue milestones to be reached after the closing are as follows:
> Upon achieving revenues of $500,000 the escrow agent will release
10,000,000 shares.
> Upon achieving an additional $500,000 of revenues the escrow agent
will release another 10,000,000 shares.
> Upon achieving $2,000,000 in cumulative revenues the escrow agent
will release another 10,000,000 shares.
> Upon achieving $6,000,000 in cumulative revenues the escrow agent
will release another 10,000,000 shares.
> Upon reaching $16,200,000 in cumulative revenues the final
10,000,000 shares will be released.
Pending execution of the escrow agreement, IVP Technology is holding
these shares for the benefit of the former shareholders of
International Technology Marketing. The former shareholders of ITM
include the Company's current management group. The Company has not
recorded any amounts associated with the acquisition of ITM, which had
minimal assets and/or liabilities on the date of acquisition. The
contingent shares will be issued and released out of escrow to the
former principal owners of ITM upon the attainment of certain
performance goals as described above. In return, the former principal
owners will perform management and marketing services to the Company.
Upon attainment of each performance milestone, the Company will record
the issuance of stock as compensation expense in the period earned.
During the quarter ended September 30, 2002, the former ITM
shareholders became eligible to receive 20,000,000 shares out of
escrow. The Company recorded compensation expense of $3,800,000 for the
quarter and credited shareholders equity for the value of the
contingent stock earned. The Company valued the shares at $.19 per
share based on the closing price of the stock at September 30, 2002,
the date that the shares are deemed earned.
15
IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2002
(F) CORNELL CAPITAL PARTNERS, L.P. EQUITY LINE OF CREDIT AGREEMENT
-------------------------------------------------------------------
In April 2002, IVP Technology entered into an Equity Line of Credit
Agreement with Cornell Capital Partners, L.P. Under this agreement, IVP
Technology may issue and sell to Cornell Capital Partners common stock
for a total purchase price of up to $10 million. Subject to certain
conditions, IVP Technology will be entitled to commence drawing down on
the Equity Line of Credit when the common stock to be issued under the
Equity Line of Credit is registered with the Securities and Exchange
Commission and the registration statement is declared effective and
will continue for two years thereafter. The purchase price for the
shares will be equal to 92% of the market price, which is defined as
the lowest closing bid price of the common stock during the five
trading days following the notice date. The amount of each advance is
subject to an aggregate maximum advance amount of $425,000 in any
thirty-day period. IVP Technology paid Cornell a one-time fee equal to
$330,000, payable in 3,032,000 shares of common stock. Cornell Capital
Partners is entitled to retain 3.0% of each advance. In addition, IVP
Technology entered into a placement agent agreement with Westrock
Advisors, Inc., a registered broker-dealer. Pursuant to the placement
agent agreement, IVP Technology paid a one-time placement agent fee of
100,000 shares of common stock, which were valued at $0.20 per share,
or an aggregate of $20,000, on the date of issuance. IVP Technology
agreed to pay Danson Partners, LLC, a consultant, a one-time fee of
$200,000 for its work in connection with consulting the company on
various financial matters. Of the fee, $75,000 was paid in cash with
the balance paid in 1,040,000 shares of common stock.
(G) MONTPELIER LIMITED
-----------------------
On June 1, 2002, Ignition Entertainment Limited entered into a
consulting agreement with Montpelier Limited ("Montpelier") whereby
Montpelier will provide business development and financial advice to
Ignition Entertainment Limited. Under the terms of the agreement,
Ignition Entertainment Limited is obligated to pay Montpelier annually
(pound)179,850 ($262,970) in equal monthly installments. Additionally,
Montpelier was entitled to receive a signing bonus of (pound)29,975
($43,828) upon execution of the agreement. The cost of this agreement
will be borne by Ignition Entertainment Limited and Montpelier will be
paid out of Ignition Entertainment Limited's operating cash flow.
NOTE 5 ACQUISITION OF IGNITION ENTERTAINMENT LIMITED
On May 28, 2002, the Company acquired 100% of the stock of Ignition
Entertainment Limited, a UK corporation, that specializes in the
design, development, licensing, publishing and distribution of personal
computer, mobile devices and game console software and accessories.
This acquisition is the Company's first step in expanding the Company's
business from only an enterprise software distributor to a developer,
publisher and licensor of consumer software entertainment and video
games. This acquisition was made pursuant to the Company agreeing to
issue 15,000,000 shares of unregistered common stock and 3,500,000 of
unregistered preferred stock convertible into 35,000,000 shares of
common stock, collectively valued at $0.13687 per share for a total
purchase price of $6,843,509. As agreed by the parties, the purchase
price was determined by using the weighted average share price of the
Company's common stock for the 60 day period prior to entering into
acquisition discussions. These shares will be held in escrow until
disbursed in accordance with the terms of the escrow agreement. IVP has
also agreed to offer incentive payments to certain parties in
connection with the Ignition Entertainment Limited acquisition (the
"Incentive Stock") DcD Holdings Limited will receive 5,000,000 shares
of IVP's common stock 90 to 180 days after May 28, 2002 for maintaining
adequate factoring and letter of credit lines for Ignition
Entertainment Limited. The Ignition Entertainment Limited management
team will also have the opportunity to earn an additional 1,500,000
shares of convertible preferred shares over three years, which are also
convertible into 15,000,000 shares of IVP Technology common stock, for
key employees and shareholders depending upon the attainment of certain
levels of gross revenues and net income. This acquisition has been
accounted for by the purchase method of accounting and, accordingly,
the operating results have been included in the Company's consolidated
results of operations from the date of acquisition. The Company
16
IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2002
acquired net tangible assets of $1,291,060. The excess of the
consideration given over the fair value of net assets acquired has been
recorded as goodwill of $5,552,449. The Company will account for the
purchased goodwill in accordance with the provisions of SFAS 142. The
non-incentive common stock that the Company is obligated to issue for
the purchase of Ignition Entertainment Limited's net assets is recorded
in the Equity section of the balance sheet as Common Stock to be
Issued. The liability associated with any Incentive Stock issuable in
conjunction with this acquisition based on the achievement of certain
revenue and net income results over a two-year period will be recorded
as additional goodwill as payout thresholds are achieved.
The following unaudited pro forma consolidated results of operations
are presented as if the acquisition of Ignition Entertainment Limited
had been made at the beginning of the periods presented:
NINE MONTHS ENDED FISCAL YEAR ENDED
SEPTEMBER 30, 2002 DECEMBER 31, 2001
------------------ -----------------
Net sales $ 2,917,036 $ 67,358
Net earnings (loss) (8,405,880) (1,211,148)
Basic and diluted earnings
(loss) per common shares $ (.09) $ (.03)
The unaudited pro forma information is not necessarily indicative of
the results of operations that would have occurred had the purchase
been made at the beginning of the periods presented or the future
results of the combined operations.
NOTE 6 ACQUISITION OF SPRINGBOARD TECHNOLOGY SOLUTIONS, INC.
On July 1, 2002, IVP Technology acquired all the outstanding shares of
Springboard Technology Solutions, Inc. ("Springboard") for
consideration of 2,000 common shares on the basis of a one for one
exchange. The value of the common stock issued was $260 or $.13 per
share based on the value of the Company's common stock on the date that
the Board approved the transaction. Springboard was owned by the former
shareholders of International Technology Marketing Inc., including
Brian MacDonald, Peter Hamilton, Kevin Birch, Geno Villella and Sherry
Bullock all of whom were officers of the Company at the time of
acquisition. Springboard is a data solutions company that provides
network solutions, web and software development and data interface
services, which has been in operation for three years. At the time of
acquisition, Springboard had 10 full time employees and consultants.
The acquisition will enable the Company to expand its enterprise
software business and complements its existing enterprise software
products. It also provides the Company with additional employees
dedicated to the marketing and selling of the enterprise line of
software products. This acquisition has been accounted for by the
purchase method of accounting and, accordingly, the operating results
have been included in the Company's consolidated results of operations
from the date of acquisition. As a result of the Springboard
acquisition, the Company recorded goodwill in the amount of
approximately $360,000. The Company will account for the purchased
goodwill in accordance with the provisions of SFAS 142. As of the
balance sheet date, management has determined that the goodwill
associated with this acquisition is not impaired.
The Company's acquisition of Springboard is not considered a
"significant" or material event because Springboard's net assets and
results of operations are less than 10% of the Company's consolidated
balance sheet and results of operations.
NOTE 7 PRIOR PERIOD ADJUSTMENT
The Company entered into a convertible promissory note (the "Note")
with Rainbow Investments International Limited ("RII") for a principal
sum of $200,000. The Company borrowed the money to meet certain
operating expenses. The Note bears interest at 10% per annum and was
due May 14, 2001. The debt and accrued interest is convertible to
common stock at a conversion price equal to 80% of the average closing
bid price per common share during the ten trading days immediately
prior to any such conversion. On July 16, 2001, the Company received
17
IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2002
notice from RII of their intent to convert the Note and accrued
interest to common stock. The note was converted and the shares were
issued on June 28 2002.
In connection with the Note, the Company issued warrants to purchase up
to 100,000 shares of common stock at an exercise price equal to 80% of
the average closing bid price per share of common stock during the ten
trading days immediately prior to any such per exercise share at any
time to and through May 15, 2001. Using the Black-Scholes model, the
warrants have an estimated value of $30,000, using the following
assumptions: no annual dividend, volatility of 53.1%, risk-free
interest rate of 6.33% and a term of one year.
The Company did not account for the value of the beneficial conversion
feature and warrants upon issuance of the Note in accordance with EITF
98-5 "Accounting for Convertible Securities with Beneficial Conversion
Features or Contingently Adjustable Conversion Ratios" and APB 14
"Accounting for Convertible Debt and Debt Issue with Stock Purchase
Warrants". The Company believed that the effect of EITF 98-5 and APB 14
does not affect the trend in earnings or the results of the Company's
operations and will restate the comparative prior periods presented in
the September 30, 2002 condensed consolidated statements of operations
to reflect additional interest expense for the full value of the
warrants and beneficial conversion feature. The value ascribed to the
beneficial conversion feature totaled approximately $46,000, which was
based upon 80% of the average closing bid price per common share during
the ten trading days prior to January 1, 2001. The total effect of the
restatement was to increase interest expense and additional paid-in
capital by approximately $76,000 for the year ended December 31, 2001,
increasing the net loss to $1,287,148. The interest expense and
additional paid-in capital accounts in the comparative prior periods
balance sheet, statement of operations, statement of changes in
stockholders' equity and statement of cash flows have been restated for
the effects of the adjustments resulting from the correction of an
error.
NOTE 8 GOING CONCERN
As reflected in the accompanying financial statements, the Company's
net loss of $6,366,811, net cash used in operations of $2,294,434 and
its working capital deficiency of $1,146,922 raise substantial doubt
about its ability to continue as a going concern. The ability of the
Company to continue as a going concern is dependent on the Company's
ability to raise additional capital and implement its business plan.
The financial statements do not include any adjustments that might be
necessary if the Company is unable to continue as a going concern.
The Company has entered into new license and marketing agreements, has
raised equity capital and has expanded its business operationS.
Management believes that actions taken to obtain additional funding and
to expand its products and operations, provide the opportunity for the
Company to continue as a going concern.
18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
BUSINESS OVERVIEW
IVP Technology Corporation ("IVP Technology" or the "Company") is a
Toronto, Canada headquartered software developer, licensor, publisher, marketer,
and distributor, and until December 31, 2001, was engaged solely in distributing
a software product marketed under the name PowerAudit. On June 13, 2002, IVP
Technology terminated the software distribution agreement for the PowerAudit
product. From December 28, 2001 until May 28, 2002, the Company acquired
additional rights to distribute other software products from several other third
party vendors including the Innovation Group, Plc, which developed
Classifier(TM) and Smart Focus Limited, which developed Viper(TM). In May 2002,
the Company acquired Ignition Entertainment Limited, a UK company engaged in the
development, licensing, publishing, marketing and distribution of consumer
software and video games. With the advent of this acquisition, the Company began
to operate the following two divisions: i) enterprise software; and ii) consumer
software. In July 2002, the Company acquired Springboard Technology Solutions
Inc., which develops software and web applications and provides network and data
interface solutions services.
The Company's enterprise software division operates in conjunction with its
wholly owned subsidiary, Springboard Technology Solutions, Inc., to develop,
market, license and install data solutions that solve problems and create value
for mid-size companies, large corporations and government agencies. These data
solutions incorporate data capture, transmission, analysis reporting and
presentation. The Company's data solutions use Vaayu(TM), Classifier(TM),
Viper(TM) and iBos(TM) to take data from the field through cross platform mobile
enterprise applications to the executive suite. Springboard also operates a
division under the trade name MDI Solutions that provides specialized services
to the medical and health care community.
The Company's consumer software division operates through its wholly owned
subsidiary, Ignition Entertainment Limited. Ignition Entertainment Limited
develops, publishes, licenses and distributes consumer software products and
related accessories for mobile devices, personal computers, Sony
Playstation(TM), Nintendo Gameboy Advance(TM), Nintendo Game Cube(TM) and
Microsoft X Box(TM) platforms on a worldwide basis. The Company also operates an
office in Chicago that carries on business under the trade name of Ignition USA.
ENTERPRISE SOFTWARE LINES
The enterprise software line currently markets data solutions. These solutions
are made up of separate software products that can operate on a stand-alone
basis or integrate with other enterprise level software. The Company believes
that these products provide enterprises with increased economy, efficiency and
effectiveness when enterprises are faced with the necessity of obtaining data
from the field, wherever that may be, and moving it into processes that take
place in the front and back office environment through to business decision
making levels. A description of the Company's current enterprise software
products is described below.
CLASSIFIER(TM). On December 28, 2001, we entered into a two-year, non-exclusive
licensing agreement to distribute the Classifier(TM) software program, developed
by the Innovation Group, Plc. Subsequently, on September 30, 2002 we
renegotiated the agreement with the Innovation Group, Plc to add another
product, i-Bos(TM) (see product description herein), and relinquished the
financial services industry vertical back to the Innovation Group, Plc. In the
course of our contract renegotiation we also obtained the right, on a
non-exclusive basis, to distribute both the Classifier(TM) and the i-Bos(TM)
product in the UK market. Meanwhile we retained the right to sell such software
in the United States, Mexican and Canadian markets. Our distribution agreement
allows us to earn up to a 100% margin on the wholesale price, provided certain
minimum selling prices are met.
The Classifier(TM) product is a sophisticated business intelligence solution
that provides data analysis benchmarking which can monitor on-going improvements
on business activities, such as specific products, lines of business and other
information of a business operation. The Classifier(TM) was designed to create
and broadcast business intelligence knowledge views direct to decision makers
over corporate Intranets and the Internet. The Classifier(TM) turns a database
into a website, enabling more people to access data with a web browser. The
Classifier(TM) incorporates a high-performance and powerful data analysis
server, a web report publishing facility, versatile data transformation features
and the ability to connect and extract data from multiple back office data
sources.
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VIPER(TM). On February 20, 2002, we entered into an agreement with Smart Focus
Limited, to resell its Viper(TM) suite of products which consists of Viper
Analyze(TM) and Viper Visualize(TM), Viper Data Mining(TM), Viper CRM(TM), Viper
Campaign Planner(TM) and Viper Smart Campaigner(TM). Pursuant to the license,
IVP Technology will be entitled to a 15% commission on sales of Viper(TM)
through customer opportunities created by IVP Technology. Smart Focus Limited
will make sales representatives available to assist in sales presentations.
The Company believes that Viper(TM) is a powerful, fast and easy-to-use analysis
and visualization application designed for corporate marketing departments and
those decision makers concerned with gross data from voluminous rows of customer
information. Viper(TM) harnesses customer and transactional data from any
touch-point or channel across any organization to create, build and maintain
customer insight and customer intelligence. Viper(TM) is designed to empower
enterprises to better understand, predict, manage and influence customer
behavior.
VAAYU(TM). On June 27, 2002, the Company announced the release of Vaayu(TM), a
software product set developed by Springboard Technology Solutions, Inc., a
related company at the time, now a wholly owned subsidiary. Vaayu(TM) is a
platform-independent software product that enables remote data collection
through any Java-enabled device, including Palm OS devices, RIM devices,
handheld computers and mobile phones, to transmit data to and from mobile staff
in the field.
I-BOS(TM). On September 30, 2002, the Company obtained the non-exclusive right
to market the Innovation Group, Plc's i-Bos(TM) product (Innovative Business
Operating System) in North America and the United Kingdom to all verticals
except financial services. i-Bos(TM) is an application development environment
for business analysts. It is process and rule centric and allows analysts to
build complete business applications for specific vertical markets without any
programming knowledge in a language that is understood by that business sector.
i-Bos(TM) is currently used primarily in financial services arenas, however it
can be used in any process driven organization such as government, health care
or any other organization where it is important that certain steps be taken
prior to other operations being performed.
CONSUMER SOFTWARE AND VIDEO GAME PRODUCTS LINES
On May 28, 2002, the Company acquired Ignition Entertainment Limited, a company
organized in late 2001 under the laws of England and Wales, specializing in the
design, development, licensing, publishing and distribution of personal
computers, mobile devices and game console software and accessories. All
entertainment products that have been or will be produced by Ignition
Entertainment Limited products are directly related to the personal computer,
mobile devices and video games industry and include games for the following
platforms: Microsoft X Box(TM), Sony PlayStation(TM), Sony PlayStation 2(TM),
Nintendo Gameboy Advance(TM), Nintendo Game Cube(TM), IBM(TM) personal computers
and compatibles, wireless technologies such as Compaq I-Pac(TM), Compaq
I-Mode(TM) , the GPRS telephony technology (General Packet Radio Service) and
the SEGA Dreamcast(TM). The Company has development license agreements with
Microsoft(TM), Nintendo(TM) and Sony(TM) to support its development activities
as these three major platform manufacturers do not accept products built for
distribution with their brand names unless built under their development kits.
Games are developed pursuant to a written agreement with owners of the
platforms. These agreements permit IVP Technology to develop software for these
platforms with a non-exclusive, non-transferable license to use these platforms
to develop games for platform use.
The products currently being distributed are a combination of products purchased
by the Company through the Ignition Entertainment Limited acquisition and third
party products. Ignition Entertainment Limited currently has nine video games
that are in wholesale and retail distribution. Several more large scale games
are nearing the end of their development cycle and will be released over the
next few months. Currently, Ignition Entertainment Limited has the following
software titles in distribution in Europe and North America for the Nintendo
Gameboy Advance(TM) platform and will shortly be releasing many of these same
titles for the Sony Playstation(TM) platform:
WORLD TENNIS STARS DEMON DRIVER MONSTER BASS FISHING
STRIKE FORCE HYDRA ANIMAL SNAP INTERNATIONAL KARATE PLUS
PINBALL TYCOON STADIUM GAMES SUPER DROP ZONE
20
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED WITH THE THREE MONTHS
ENDED SEPTEMBER 30, 2001
REVENUES. During the three months ended September 30, 2002, we
generated $1,408,402 in revenue from the sale and/or distribution of video
entertainment and data solutions products and services, of which $1,351,332 and
$57,070 respectively, were generated by our wholly owned subsidiaries, Ignition
Entertainment Limited and Springboard Technology Solutions, Inc. Ignition
Entertainment Limited was formed in December 2001 and commenced operations in
April 2002, when it made several acquisitions of operating companies and other
assets. The Company acquired Springboard on July 1, 2002. Accordingly, Ignition
Entertainment Limited and Springboard had no revenues in the comparable period
in the prior year. All revenue for the comparative period ended September 30,
2001 in the amount of $13,238 were from sales of the PowerAudit software
program. We generated no revenue from other sources. All sales of PowerAudit
were realized prior to the June 13, 2002 termination date.
COST OF SALES. Cost of sales was $1,558,463 for the three months ended
September 30, 2002. Cost of sales related principally to the sale of video games
produced and distributed by Ignition Entertainment Limited. Included in cost of
sales is amortization of $271,385. The Company had no cost of sales during the
comparable period in the prior year.
OPERATING EXPENSES. Total operating expenses for the three months ended
September 30, 2002 and for the three months ended September 30, 2001 were
$4,864,468 and $322,886, respectively, or an increase of $4,541,582. The
increase in operating expenses resulted primarily from an increase in salaries
and wages of $4,314,840 principally attributable to $3,800,000 of compensation
expense to the former International Technology Marketing shareholders under the
terms of the milestone provisions of the September 2001 acquisition agreement
and $460,716 of wages to the Ignition Entertainment Limited employees.
Amortization and depreciation expense increased by $77,660, relating to
amortization of deferred financing fees and depreciation on Ignition
Entertainment Limited's fixed assets.
OTHER INCOME (EXPENSE). For the three months ended September 30, 2002,
we recognized a $924,904 gain on the early extinquishment of our obligation to
the Innovation Group under our software license agreement. No gain on the early
extinquishment of debt was recognized in the comparative three-month period.
Interest expense increased by $20,943, due principally to interest incurred on
the Company's secured debt with DcD Factors, Plc. No such interest was incurred
for the comparative period.
NET INCOME (LOSS). As a result of the items specified above, the
Company incurred a net loss of $(4,110,484), or $(0.03) per share, for the three
months ended September 30, 2002
NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED WITH THE NINE MONTHS
ENDED SEPTEMBER 30, 2001
REVENUES. During the nine months ended September 30, 2002, we generated
$1,648,658, and $257,070 of revenue from the sale and/or distribution of video
entertainment related products and enterprise software related products and
services, respectively. No revenue was generated from sales of PowerAudit for
the nine-months ended September 30, 2002. All revenue for the nine-month
comparative period ended September 30, 2001 in the amount of $67,358 were from
sales of the PowerAudit software program. On June 13, 2002 we elected to
terminate the license for PowerAudit. We generated no revenue from other
sources.
COST OF SALES. Cost of sales was $2,847,507 for the nine months ended
September 30, 2002, of which $1,618,446 of costs were associated with the sale
and distribution of video games by Ignition Entertainment Limited, $27,290 of
costs were associated with publishers fees for enterprise software sales by the
Company and $24,059 of costs were associated with the resale of
hardware/software by Springboard, respectively. Included in cost of sales is
$1,177,713 of amortization relating to software license agreements and software
development kits. The Company had no cost of sales for the comparable period in
the prior year.
OPERATING EXPENSES. Total operating expenses for the nine months ended
September 30, 2002 and for the nine months ended September 30, 2001 were
$6,351,480 and $858,809, respectively, and represents a $5,492,671 or 640%
increase from the prior period. The increase in operating expenses resulted
primarily from an increase in wages and salaries of $4,429,125, principally
attributable to $3,800,000 of compensation expense to the former ITM
shareholders under the terms of the milestone provisions of the September 2001
acquisition agreement and $617,458 of wages to the Ignition Entertainment
Limited and Springboard employees. Depreciation and amortization expense
increase by $130,699 from the comparative nine-months ended September 30, 2001
as well as an increase in professional and consulting expenses of $429,200. The
increase in consulting and professional fees for the nine months ended September
30, 2002 as compared to September 30, 2001 is principally
21
attributable to the expensing of $250,000 of product marketing consulting costs
and $206,180 of consulting fees incurred by Ignition Entertainment Limited. Our
general and administrative expenses and infrastructure expenses increased by
$284,553 from the comparative nine-month period ended September 30, 2001 due to
the additional costs associated with the Company's new management team, the
additional costs associated with the Company's expansion, including the opening
of a Chicago office and the acquisition of the Ignition Entertainment Limited
and Springboard's business operations. These costs include rent, and other
office operating costs such as utilities, equipment leasing costs and other
office expenses.
OTHER INCOME (EXPENSE). For the nine months ended September 30, 2002,
we recognized a $1,021,238 gain on the extinguishments of our obligations to the
Innovation Group and DcD Holdings Limited short-term loan. No gains were
recognized for the comparative nine-month period ended September 30, 2001.
Interest expense was $100,812 for the nine months ended September 30, 2002,
consisting principally of $64,286 of interest attributable to the beneficial
conversion feature of our 5% convertible debt and $23,235 of interest on secured
borrowings. Interest of $91,000 for the nine months ended September 30, 2001 is
principally attributable to $76,000 of the intrinsic interest on the beneficial
conversion feature of the Rainbow convertible debt, which was treated as a prior
period adjustment.
NET INCOME (LOSS). For the nine months ended September 30, 2002, we
incurred an overall loss of $(6,366,811) or $(.07) per share.
LIQUIDITY AND CAPITAL RESOURCES
In the past we have financed our operations through a combination of
convertible securities and the private placement of our stock. Our primary need
for cash is to fund our ongoing operations until such time that the sale of our
products generates enough revenue to fund operations. In addition, our need for
cash includes satisfying $1,916,449 in current liabilities, including a $11,035
bank overdraft, $359,103 due to DcD Factors, Plc, a note of $104,020 plus
accrued interest, accounts payable and accrued expenses of $1,273,896 and income
tax payable by Ignition Entertainment Limited and Springboard in the amount of
$156,911. Our independent accountants have issued a going concern opinion on our
financial statements that raise substantial doubt about our ability to continue
as a going concern. Our ability to continue as a going concern is dependent on
our ability to raise additional capital and implement our business plan to
market and sell Classifier(TM), Viper(TM), Vaayu(TM) and consumer entertainment
software products through our wholly owned subsidiaries. Ignition Entertainment
Limited has secured a (pound)1,000,000 revolving credit facility with the UK
based Revelate Limited for the purpose of allowing Ignition Entertainment
Limited to purchase goods and services from third party vendors. Under the terms
of the revolving credit facility, Ignition Entertainment Limited may contract
for the importation of software products and services to the extent of 60% of
the projected resale price of items purchased as a result of the credit
facility. The credit facility may be accessed by demonstrating firm orders for
goods to be delivered and sold. The Company has not borrowed any funds under the
revolving credit facility. Ignition Entertainment Limited also has arranged a
loan secured by its accounts receivable and other tangible and intangible assets
with DcD Factors, Plc. Under the terms of the secured loan, Ignition
Entertainment Limited will be able borrow up to 75% of its eligible accounts
receivable. As of September 30, 2002, the Ignition Entertainment Limited has
borrowed $359,103 from DcD Factors, Plc. At September 30, 2002, the Company was
overdrawn by $11,035.
In April 2002, IVP Technology entered into an Equity Line of Credit
Agreement with Cornell Capital Partners, L.P. Under this agreement, IVP
Technology may issue and sell to Cornell Capital Partners common stock for a
total purchase price of up to $10 million. Subject to certain conditions, IVP
Technology will be entitled to commence drawing down on the Equity Line of
Credit when the common stock to be issued under the Equity Line of Credit is
registered with the Securities and Exchange Commission and the registration
statement is declared effective and will continue for two years thereafter. The
purchase price for the shares will be equal to 92% of the market price, which is
defined as the lowest closing bid price of the common stock during the five
trading days following the notice date. The amount of each advance is subject to
an aggregate maximum advance amount of $425,000 in any thirty-day period. IVP
Technology paid Cornell a one-time fee equal to $330,000, payable in 3,032,000
shares of common stock. Cornell Capital Partners is entitled to retain 3.0% of
each advance. In addition, IVP Technology entered into a placement agent
agreement with Westrock Advisors, Inc., a registered broker-dealer. Pursuant to
the placement agent agreement, IVP Technology paid a one-time placement agent
fee of 100,000 shares of common stock, which were valued at $0.20 per share, or
an aggregate of $20,000, on the date of issuance. IVP Technology agreed to pay
Danson Partners, LLC, a consultant, a one-time fee of $200,000 for its work in
connection with consulting the company on various financial matters. Of the fee,
$75,000 was paid in cash with the balance paid in 1,040,000 shares of common
stock. The effectiveness of the sale of the shares under the Equity Line of
Credit is conditioned upon us registering the shares of common stock with the
Securities and Exchange Commission. Our Equity Line of Credit is not yet
effective and the Company has not drawn down any funds from this facility.
Except for the Equity Line of Credit, we have no commitments for capital.
22
We anticipate that our cash needs over the next 12 months consist of
general working capital needs of $13,000,000, plus the repayment of outstanding
indebtedness of $2,386,275. These obligations include outstanding convertible
debentures in the amount of $150,000 as well as accounts payable and accrued
expenses in the amount of $1,273,896 and loans payable of $782,949. As of
September 30, 2002, we had a working capital deficiency of $1,146,922. We
anticipate that our cash needs over the next 12 months will come primarily from
the sale of securities or loans, including the Equity Line of Credit.
Our financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business; and as a consequence, the financial statements
do not include any adjustments relating to the recoverability and classification
of recorded asset amounts or the amounts and classification of liabilities that
might be necessary should we be unable to continue as a going concern. We have
experienced net operating losses and negative cash flows since inception and, as
of September 30, 2002, we had an accumulated deficit of $20,302,081. Cash used
in operations for the years ended September 30, 2002 and 2001 was $2,294,434 and
$87,089, respectively. At September 30, 2002, we were overdrawn by $11,035. Such
conditions raise substantial doubt that we will be able to continue as a going
concern. Unless we are able to raise additional capital through the issuance of
stock or convertible debentures or commence drawing down on our Equity Line of
Credit once it is declared effective by the SEC, our operations will have to be
significantly curtailed.
If we are unable to obtain additional funding through our Equity Line
of Credit facility, then the failure to obtain this funding will have a material
adverse effect on our business.
CAPITAL RESOURCES
Pursuant to the Equity Line of Credit, we may periodically sell shares
of common stock to Cornell Capital Partners, L.P. 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 5 trading days. A closing will be held 7 trading
days after such written notice at which time we will deliver shares of common
stock and Cornell Capital Partners, L.P. will pay the advance amount, less the
3% retention. We may request advances under the Equity Line of Credit 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 $10.0 million or two years after the effective date of the
accompanying registration statement, whichever occurs first. The amount of each
advance is subject to an aggregate maximum advance amount of $2 million in any
thirty-day period. The amount available under the Equity Line of Credit is not
dependent on the price or volume of our common stock.
We are attempting to register 30,000,000 shares of common stock in
connection with the Equity Line of Credit and upon conversion of the debentures.
We cannot predict the actual number of shares of common stock that will be
issued pursuant to the Equity Line of Credit, 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,
if we issued all 30,000,000 shares of common stock at a recent price of $0.19
per share (which assumes that no shares would need to be issued upon conversion
of debentures), then we would receive $5,529,000 under the Equity Line of Credit
(after deducting a 3% retention payable to Cornell). This is $4,471,000 less
than is available under the Equity Line of Credit. Our stock price would have to
rise substantially for us to have access to the full amount available under the
Equity Line of Credit. These shares would represent 20% of our outstanding
common stock upon issuance. Accordingly, we would need to register additional
shares of common stock in order to fully utilize the $10 million available under
the Equity Line of Credit at the current price of $0.19 per share. In addition,
we would be required to obtain the approval of our shareholders to increase the
number of authorized shares of common stock. Pursuant to our Articles of
Incorporation, we are authorized to issue up to 150,000,000 shares of common
stock. At a recent price of $0.19 per share, we would be required to issue
52,631,579 shares of common stock in order to fully utilize the $10.0 million
available. We would be required to obtain a vote of at least a majority of the
outstanding shares in order to increase our authorized shares of common stock
for this purpose. Our inability to obtain such approval would prohibit us from
increasing our authorized shares of common stock and from issuing any additional
shares under the Equity Line of Credit or to otherwise raise capital from the
sale of capital stock.
In April 2002, IVP Technology raised $150,000 of gross proceeds from
the issuance of convertible debentures. These debentures accrue interest at a
rate of 5% per year and mature two years from the issuance date. The debentures
are 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 closing date (ii) 80% of the average closing bid price of the
common stock for the 4 lowest trading days of the 5 trading days immediately
preceding the conversion date. At maturity, IVP Technology has the option to
either pay the holder the outstanding principal balance and accrued interest or
to convert the debentures 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 closing date or (ii) 80% of the average closing bid price of the common
stock for the 4 lowest trading days of the 5 trading days immediately preceding
the conversion date. IVP Technology has the right to redeem the debentures upon
30 days notice for 120% of the amount redeemed. Upon such redemption, IVP
23
Technology will issue the investor a warrant to purchase 10,000 shares of common
stock at an exercise price of $0.50 per share for every $100,000 of debentures
that are redeemed.
On January 31, 2002, we entered into an interim financing agreement for
(pound)600,000, (U.S.$856,334) on an unsecured basis with the European based
venture capital and merchant banking firm DcD Holdings Limited. The loan bears
an interest rate equal to the HSBC Bank base rate, minus 5% if that figure is
positive, and interest is payable monthly. The loan was due on April 30, 2002.
On May 1, 2002, we converted the loan, plus accrued interest into 4,000,000
shares of our common stock.
At September 30, 2002, the Company's cash and cash equivalent balance
was $(11,035) a decrease of $11,267 from the cash balance of $232 at December
31, 2001.
NET CASH USED IN OPERATING ACTIVITIES
Net cash used in operating activities was $ 2,294,434 and $87,089 for
the nine months ended September 30, 2002 and 2001 respectively. The use of cash
by operating activities was principally the result of net losses during both
reporting periods together with an increase in accounts receivable and prepaid
expenses ($767,291) and a decrease in the amounts payable under the licensing
agreement with the Innovation Group, Plc ($713,610) in 2002. These amounts were
partially offset by non-cash charges including stock issued for services and
compensation in the aggregate amount of $4,367,780. For the nine months ended
September 30, 2001, cash used in operating activities was principally the result
of a decrease in accounts payable.
NET CASH PROVIDED BY INVESTING ACTIVITIES
Net cash provided by investing activities was $1,092,730 during the
nine months ended September 30, 2002 and was primarily from the acquisition of
Ignition Entertainment Limited's net assets of $1,291,059. The was offset, in
part, by the purchase of fixed assets. No net cash from investing activities was
generated for the nine months ended September 30, 2001.
NET CASH PROVIDED BY FINANCING ACTIVITIES
Net cash provided by financing activities for the nine months ended
September 30, 2002 was $1,201,472 and was principally from the proceeds received
from DcD Factors, Plc short-term loan in the amount of $856,334 that was paid on
May 1, 2002 via the issuance of 4,000,000 shares of common stock and secured
borrowings of $359,103 from DcD Factors, Plc. Net cash provided by financing
activities for the nine months ended September 30, 2001 was $85,970 and was from
proceeds on the Berra Holdings, Ltd. note.
CRITICAL ACCOUNTING POLICIES
(A) ORGANIZATION
Mountain Chief, Inc. was incorporated in the State of Nevada on
February 11, 1994. This name was subsequently changed by Articles of Amendment
dated November 16, 1994 to IVP Technology Corporation (the "Company"). The
Company was granted an extra-provincial license by the Province of Ontario on
June 20, 1995 to carry on business in Ontario, Canada. Prior to 1998, the
Company was involved with various unsuccessful activities relating to the sale
of technology products before becoming inactive by the end of 1997. The Company
began negotiations with a third party in 1998 to become an exclusive distributor
of software and therefore is considered to have re-entered the development stage
on January 1, 1998. Activities from inception of development stage included
raising of capital and negotiations and acquisition of software distribution
licenses are more fully described herein. (See Note 5).
(B) ACQUISITION AND RECAPITALIZATION
Effective March 2000, the Company acquired all the outstanding shares
of common stock of Erebus Corporation, an inactive reporting shell company with
no assets or liabilities, from the stockholders thereof in an exchange for an
aggregate of 350,000 shares of the Company's common stock and paid $200,000 of
consulting expenses in connection with the acquisition. Pursuant to Rule
12-g-3(a) of the General Rules and Regulations of the Securities and Exchange
Commission, the Company elected to become the successor issuer to Erebus
Corporation for reporting purposes under the Securities Exchange Act of 1934.
For financial reporting purposes, the acquisition was treated as a
recapitalization of the Company with the par value of the common stock charged
to additional-paid-in capital.
24
(C) BASIS OF PRESENTATION
The Company maintains its original records in United States dollars.
The consolidated financial statements are expressed in United States dollars and
have been prepared in accordance with generally accepted accounting principles
(GAAP) in the United States.
(D) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries, Ignition Entertainment Limited and
Springboard Technology Solutions, Inc. All significant inter-company
transactions and balances have been eliminated.
(E) FOREIGN CURRENCY TRANSLATION
The Company predominately uses the U.S. dollar as its functional
currency. Foreign currency assets and liabilities are remeasured into U.S.
dollars at end-of-period exchange rates. Revenue and expenses are remeasured at
average exchange rates in effect during each period. Gains or losses from
foreign currency remeasurement are included in net earnings. Certain foreign
subsidiaries designate the local currency as their functional currency and
related cumulative translation adjustments are included as a component of
accumulated other comprehensive income..
(F) USE OF ESTIMATES
In preparing financial statements in conformity with accounting
principles generally accepted in the United States of America, management is
required to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements and revenues and expenses during the
reported period. Actual results could differ from those estimates.
(G) LONG-LIVED ASSETS
Long-lived assets to be held and used are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. If such review indicates that the asset is
impaired, when the carrying amount of an asset exceeds the sum of its expected
future cash flows, on an undiscounted basis, the asset's carrying amount is
written down to fair value. Long-lived assets to be disposed of are reported at
the lower of carrying amount or fair value less cost to sell.
(H) EXCESS OF COST OVER NET ASSETS ACQUIRED
In accordance with SFAS No. 141, the Company allocates the purchase
price of its acquisitions to the tangible assets, liabilities and intangible
assets acquired based on their estimated fair values. The excess purchase price
over those fair values is recorded as "Excess of Cost Over Net Assets Aquired."
The fair value assigned to intangible assets acquired is based on valuations
prepared by independent third party appraisal firms using estimates and
assumptions provided by management. In accordance with SFAS No. 142, goodwill
and purchased intangibles with indefinite lives acquired after June 30, 2001 are
not amortized but will be reviewed periodically for impairment. Purchased
intangibles with finite lives will be amortized on a straight-line basis over
their respective useful lives.
(I) BUSINESS SEGMENTS
The Company applies Statement of Financial Accounting Standards No. 131
"Disclosures about Segments of an Enterprise and Related Information". The
Company operates in one segment and therefore segment information is not
presented.
(J) REVENUE RECOGNITION
RISK AND UNCERTAINTIES
A significant portion of all of the Company's net sales are derived
from software publishing and distribution activities, which are subject to
increasing competition, rapid technological change and evolving consumer
preferences, often resulting in the frequent introduction of new products and
short product lifecycles. Accordingly, the Company's profitability and growth
25
prospects depend upon its ability to continually acquire, develop and market
new, commercially successful software products and obtain adequate financing. If
the Company is unable to continue to acquire, develop and market commercially
successful software products, its operating results and financial condition
could be materially adversely affected in the near future.
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 dates of the financial
statements and the reported amounts of revenues and expenses during the reported
periods. The most significant estimates and assumptions relate to the
recoverability of prepaid royalties, capitalized software development costs and
other intangibles, realization of deferred income taxes, valuation of
inventories and the adequacy of allowances for returns, price protection and
doubtful accounts. Actual amounts could differ significantly from these
estimates.
REVENUE RECOGNITION
The Company recognizes revenue in accordance with Statement of Position
("SOP") 97-2 "Software Revenue Recognition", as amended by SOP 98-9
"Modification of SOP 97-2 Software Revenue Recognition with respect to Certain
Transactions." SOP 97-2 provides guidance on applying generally accepted
accounting principles in recognizing revenue on software transactions. SOP 98-9
deals with the determination of vendor specific objective evidence of fair value
in multiple element arrangements, such as maintenance agreements sold in
conjunction with software packages. The Company's transactions generally include
only one element, the interactive software game. The Company recognizes revenue
when the price is fixed and determinable, there is persuasive evidence of an
arrangement, the fulfillment of its obligations under any such arrangement and
determination that collection is probable. Accordingly, revenue is recognized
when title and all risks of loss are transferred to the customer, which is
generally upon receipt by customer. The Company's payment arrangements with its
customers provide primarily 60 day terms and to a limited extent with certain
customers 30 or 90 day terms.
The Company's distribution arrangements with customers generally do not
give customers the right to return products; however, the Company at its
discretion may accept product returns for stock balancing or defective products.
In addition, the Company sometimes negotiates accommodations to customers,
including price discounts, credits and product returns, when demand for specific
products falls below expectations. The Company's publishing arrangements
generally require the Company to accept product returns and provide price
protection. The Company establishes a reserve for future returns and other
allowances based primarily on its return policies, price protection policies and
historical return rates. The Company may not have a reliable basis to estimate
returns and price protection for certain customers or it may be unable to
determine that collection of the receivable is probable. In such circumstances,
the Company defers the revenues at the time of the sale and recognizes them when
collection of the related receivable becomes probable or cash is received.
EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has recently issued several new
Statements of Financial Accounting Standards. Statement No. 141, "Business
Combinations" supersedes APB Opinion 16 and various related pronouncements.
Pursuant to the new guidance in Statement No.141, all business combinations must
be accounted for under the purchase method of accounting; the
pooling-of-interests method is no longer permitted. SFAS 141 also establishes
new rules concerning the recognition of goodwill and other intangible assets
arising in a purchase business combination and requires disclosure of more
information concerning a business combination in the period in which it is
completed. This statement is generally effective for business combinations
initiated on or after July 1, 2001.
Statement No.142, "Goodwill and Other Intangible Assets" supercedes APB Opinion
17 and related interpretations. Statement No.142 establishes new rules on
accounting for the acquisition of intangible assets not acquired in a business
combination and the manner in which goodwill and all other intangibles should be
accounted for subsequent to their initial recognition in a business combination
accounted for under SFAS No. 141. Under SFAS No.142, intangible assets should be
recorded at fair value. Intangible assets with finite useful lives should be
amortized over such period and those with indefinite lives should not be
amortized. All intangible assets being amortized as well as those that are not,
are both subject to review for potential impairment under SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of'. SFAS No.142 also requires that goodwill arising in a business
combination should not be amortized but is subject to impairment testing at the
reporting unit level to which the goodwill was assigned to at the date of the
business combination.
SFAS No. 142 is effective for fiscal years beginning after December 15, 2001 and
must be applied as of the beginning of such year to all goodwill and other
intangible assets that have already been recorded in the balance sheet as of the
first day in which SFAS No.142 is initially applied, regardless of when such
26
assets were acquired. Goodwill acquired in a business combination whose
acquisition date is on or after July 1, 2001, should not be amortized, but
should be reviewed for impairment pursuant to SFAS No. 121, even though SFAS
No.142 has not yet been adopted. However, previously acquired goodwill should
continue to be amortized until SFAS No.142 is first adopted.
Statement No. 143 "Accounting for Asset Retirement Obligations" establishes
standards for the initial measurement and subsequent accounting for obligations
associated with the sale, abandonment, or other type of disposal of long-lived
tangible assets arising from the acquisition, construction, or development
and/or normal operation of such assets. SFAS No.143 is effective for fiscal
years beginning after June 15, 2002, with earlier application encouraged.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets", which is applicable to financial statements
issued for fiscal years beginning after December 15, 2001. The FASB's new rules
on asset impairment supercede SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of", and portions of
Accounting Principles Board (APB) Opinion No 30, " Reporting the Results of
Operations". SFAF No. 144 provides a single accounting model for long-lived
assets to be disposed of and significantly changes the criteria that would have
to be met to classify an asset as held-for sale. Classification as held-for sale
is an important distinction since such assets are not depreciated and are stated
at the lower of fair value or carrying amount. SFAS No. 144 also requires
expected future operating losses from discontinued operations to be displayed in
the period in which the losses are incurred, rather than as of the measurement
date as presently required.
In April 2002, the FASB issued SFAS No 145, "Rescission of FASB Statements No.
4, 44 and 62, Amendment of FASB No 13, and Technical Corrections", which is
generally applicable to financial statements for fiscal years beginning after
May 15, 2002; however, early adoption is encouraged. SFAS 145 eliminates the
requirement under FASB No. 4, "Reporting Gains and Losses from Extinquishment of
Debt" to report gains and losses from extinguishments of debt as extraordinary
items in the income statement.
The adoption of these pronouncements will not have a material effect on the
Company's financial position or results of operations.
ITEM 3. CONTROLS AND PROCEDURES
QUARTERLY EVALUATION OF DISCLOSURE CONTROLS AND INTERNAL CONTROLS.
Within the 90 days prior to the date of this Quarterly Report on Form 10-QSB,
the company evaluated the effectiveness of the design and operation of its
"disclosure controls and procedures" (Disclosure Controls), and its "internal
controls and procedures for financial reporting" (Internal Controls). This
evaluation (the Controls Evaluation) was done under the supervision and with the
participation of management, including our Chief Executive Officer (CEO) and
Chief Financial Officer (CFO). Rules adopted by the SEC require that in this
section of the Quarterly Report we present the conclusions of the CEO and the
CFO about the effectiveness of our Disclosure Controls and Internal Controls
based on and as of the date of the Controls Evaluation.
CEO AND CFO CERTIFICATIONS. Appearing immediately following the
Signatures section of this Quarterly Report there are two separate forms of
"Certifications" of the CEO and the CFO. The first form of Certification is
required in accord with Section 302 of the Sarbanes-Oxley Act of 2002 (the
Section 302 Certification). This section of the Quarterly Report which you are
currently reading is the information concerning the Controls Evaluation referred
to in the Section 302 Certifications and this information should be read in
conjunction with the Section 302 Certifications for a more complete
understanding of the topics presented.
DISCLOSURE CONTROLS AND INTERNAL CONTROLS. Disclosure Controls are
procedures that are designed with the objective of ensuring that information
required to be disclosed in our reports filed under the Securities Exchange Act
of 1934 (Exchange Act), such as this Quarterly Report, is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commission's (SEC) rules and forms. Disclosure Controls are also
designed with the objective of ensuring that such information is accumulated and
communicated to our management, including the CEO and CFO, as appropriate to
allow timely decisions regarding required disclosure. Internal Controls are
procedures which are designed with the objective of providing reasonable
assurance that (1) our transactions are properly authorized; (2) our assets are
safeguarded against unauthorized or improper use; and (3) our transactions are
properly recorded and reported, all to permit the preparation of our financial
statements in conformity with generally accepted accounting principles.
LIMITATIONS ON THE EFFECTIVENESS OF CONTROLS. The company's management,
including the CEO and CFO, does not expect that our Disclosure Controls or our
Internal Controls will prevent all error and all fraud. A control system, no
matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met. Further,
27
the design of a control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered relative to their
costs. Because of the inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that all control issues and instances
of fraud, if any, within the company have been detected. These inherent
limitations include the realities that judgments in decision-making can be
faulty, and that breakdowns can occur because of simple error or mistake.
Additionally, controls can be circumvented by the individual acts of some
persons, by collusion of two or more people, or by management override of the
control. The design of any system of controls also is based in part upon certain
assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential
future conditions; over time, control may become inadequate because of changes
in conditions, or the degree of compliance with the policies or procedures may
deteriorate. Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and not be detected.
SCOPE OF THE CONTROLS EVALUATION. The CEO/CFO evaluation of our
Disclosure Controls and our Internal Controls included a review of the controls'
objectives and design, the controls' implementation by the company and the
effect of the controls on the information generated for use in this Quarterly
Report. In the course of the Controls Evaluation, we sought to identify data
errors, controls problems or acts of fraud and to confirm that appropriate
corrective action, including process improvements, were being undertaken. This
type of evaluation will be done on a quarterly basis so that the conclusions
concerning controls effectiveness can be reported in our Quarterly Reports on
Form 10-QSB and Annual Report on Form 10-KSB. The overall goals of these various
evaluation activities are to monitor our Disclosure Controls and our Internal
Controls and to make modifications as necessary; our intent in this regard is
that the Disclosure Controls and the Internal Controls will be maintained as
dynamic systems that change (including with improvements and corrections) as
conditions warrant.
Among other matters, we sought in our evaluation to determine whether
there were any "significant deficiencies" or "material weaknesses" in the
company's Internal Controls, or whether the company had identified any acts of
fraud involving personnel who have a significant role in the company's Internal
Controls. This information was important both for the Controls Evaluation
generally and because items 5 and 6 in the Section 302 Certifications of the CEO
and CFO require that the CEO and CFO disclose that information to our Board and
to our independent auditors and to report on related matters in this section of
the Quarterly Report. In the professional auditing literature, "significant
deficiencies" are referred to as "reportable conditions"; these are control
issues that could have a significant adverse effect on the ability to record,
process, summarize and report financial data in the financial statements. A
"material weakness" is defined in the auditing literature as a particularly
serious reportable condition where the internal control does not reduce to a
relatively low level the risk that misstatements caused by error or fraud may
occur in amounts that would be material in relation to the financial statements
and not be detected within a timely period by employees in the normal course of
performing their assigned functions. We also sought to deal with other controls
matters in the Controls Evaluation, and in each case if a problem was
identified, we considered what revision, improvement and/or correction to make
in accord with our on-going procedures.
In accord with SEC requirements, the CEO and CFO note that, since the
date of the Controls Evaluation to the date of this Quarterly Report, there have
been no significant changes in Internal Controls or in other factors that could
significantly affect Internal Controls, including any corrective actions with
regard to significant deficiencies and material weaknesses.
CONCLUSIONS. Based upon the Controls Evaluation, our CEO and CFO have
concluded that, subject to the limitations noted above, our Disclosure Controls
are effective to ensure that material information relating to the Company is
made known to management, including the CEO and CFO, particularly during the
period when our periodic reports are being prepared, and that our Internal
Controls are effective to provide reasonable assurance that our financial
statements are fairly presented in conformity with generally accepted accounting
principles.
28
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable
ITEM 2. CHANGES IN SECURITIES
RECENT SALES OF UNREGISTERED SECURITIES
On September 30, 2002, the former shareholders of ITM earned 20,000,000
contingent shares having a value of $3,800,000. These shares are to be released
out of escrow.
On July 1, 2002, IVP Technology acquired all the outstanding shares of
Springboard Technology Solutions, Inc. for consideration of 2,000 common shares
on the basis of a one for one exchange. The shares were valued at $260
corresponding to the date that the Company's Board of Directors approved the
transaction.
On June 28, 2002, IVP Technology issued 2,410,916 shares of common stock to
Rainbow Investments pursuant to the terms of our March 17, 2000 debt conversion
agreement.
On June 28, 2002, IVP Technology issued 23,370 shares of common stock to Danson
Partners, LLC having a value of $5,000 for consulting services rendered.
On May 28, 2002, IVP Technology acquired Ignition Entertainment Limited. IVP
Technology will issue 15,000,000 shares of common stock and 3,500,000 shares of
preferred stock as payment to Ignition Entertainment Limited over a period of
two years from the date of the acquisition. Additionally, the management team of
Ignition Entertainment Limited may earn up to 1,500,000 shares of preferred
stock if certain revenue and net income goals are met at specific time periods.
These shares will be held in escrow and disbursed by the escrow agent according
to the escrow agreement. The parties are still negotiating the terms of the
escrow agreement.
In May 2002, IVP Technology entered into an agreement with Vanessa Land for
marketing and advisory services connected with product marketing in the European
Economic Community and North America. In relation with this agreement, IVP
Technology issued 5,000,000 shares of common stock to Ms. Land. These shares
were registered on a Form S-8 filed on May 3, 2002. These shares were valued at
$.05 per share, or an aggregate of $250,000, on the date of issuance.
On May 1, 2002, IVP Technology agreed to issue 4,000,000 shares of its
restricted common stock having a value of $760,000 in full settlement of its
obligation to DcD Holdings Limited. IVP Technology issued these shares on or
about August 6, 2002.
In April 2002, IVP Technology entered into an Equity Line of Credit Agreement
with Cornell Capital Partners, L.P. Under this agreement, IVP Technology may
issue and sell to Cornell Capital Partners common stock for a total purchase
price of up to $10.0 million. Subject to certain conditions, IVP Technology will
be entitled to commence drawing down on the Equity Line of Credit when the
common stock to be issued under the Equity Line of Credit is registered with the
Securities and Exchange Commission and the registration statement is declared
effective and will continue for two years thereafter. The purchase price for the
shares will be equal to 92% of the market price, which is defined as the lowest
closing bid price of the common stock during the five trading days following the
notice date. The amount of each advance is subject to an aggregate maximum
advance amount of $425,000 in any thirty-day period. IVP Technology paid Cornell
a one-time fee equal to $340,000, payable in 3,032,000 shares of common stock.
Cornell Capital Partners is entitled to retain 3.0% of each advance. In
addition, IVP Technology entered into a placement agent agreement with Westrock
Advisors, Inc., a registered broker-dealer. Pursuant to the placement agent
agreement, IVP Technology paid a one-time placement agent fee of 100,000 shares
of common stock, which were valued at $0.10 per share, or an aggregate of
$10,000, on the date of issuance. IVP Technology agreed to pay Danson Partners,
LLC, a consultant, a one-time fee of $200,000 for its work in connection with
consulting the company on various financial matters. Of the fee, $75,000 was
paid in cash with the balance paid in 1,040,000 shares of common stock.
29
In April 2002, IVP Technology raised $150,000 of gross proceeds from the
issuance of convertible debentures. These debentures accrue interest at a rate
of 5% per year and mature two years from the issuance date. The debentures are
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 closing date (ii) 80% of the average closing bid price of the common
stock for the 4 lowest trading days of the 5 trading days immediately preceding
the conversion date. At maturity, IVP Technology has the option to either pay
the holder the outstanding principal balance and accrued interest or to convert
the debentures 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 closing
date or (ii) 80% of the average closing bid price of the common stock for the 4
lowest trading days of the 5 trading days immediately preceding the conversion
date. IVP Technology has the right to redeem the debentures upon 30 days notice
for 120% of the amount redeemed. Upon such redemption, IVP Technology will issue
the investor a warrant to purchase 10,000 shares of common stock at an exercise
price of $0.50 per share for every $100,000 of debentures that are redeemed.
The convertible debentures contain a beneficial conversion feature computed at
its intrinsic value that is the difference between the conversion price and the
fair value on the debenture issuance date of the common stock into which the
debt is convertible, multiplied by the number of shares into which the debt is
convertible at the commitment date. Since the beneficial conversion feature is
to be settled by issuing equity, the amount attributed to the beneficial
conversion feature, or $64,286, was recorded as an interest expense and a
component of equity on the issuance date.
On April 26, 2002, IVP Technology issued 62,027 shares of common stock to Danson
Partners, LLC having a value of $5,000 for consulting services rendered.
On or about March 25, 2002, IVP Technology issued 100,000 shares of common stock
to Barry Gross that was earned pursuant to a consulting contract signed in 2000.
These shares were valued at $0.09 per share, or an aggregate of $9,000, on the
date of issuance.
On or about March 25, 2002, IVP Technology issued 14,000,000 shares of common
stock to Brian MacDonald to be held in escrow pending achievement of the
performance clauses related to the September 17, 2001 agreement with
International Technology Marketing.
On or about March 25, 2002, IVP Technology issued 14,000,000 shares of common
stock to Peter Hamilton to be held in escrow pending achievement of the
performance clauses related to the September 17, 2001 agreement with
International Technology Marketing.
On or about March 25, 2002, IVP Technology issued 14,000,000 shares of common
stock to Kevin Birch to be held in escrow pending achievement of the performance
clauses related to the September 17, 2001 agreement with International
Technology Marketing.
On or about March 25, 2002, IVP Technology issued 4,000,000 shares of common
stock to Geno Villella to be held in escrow pending achievement of the
performance clauses related to the September 17, 2001 agreement with
International Technology Marketing.
On or about March 25, 2002, IVP Technology issued 4,000,000 shares of common
stock to Sherry Bullock to be held in escrow pending achievement of the
performance clauses related to the September 17, 2001 agreement with
International Technology Marketing. Subsequently, Ms. Bullock left employment
with IVP Technology and has accepted a partial payment of 800,000 shares and the
remainder of her performance based shares will be reallocated to the remaining
members of International Technology Marketing.
On or about March 25, 2002, IVP Technology issued 500,000 shares of common stock
to John Maxwell in lieu of compensation for services performed in 2001 as
President of IVP Technology. These shares were valued at $0.05 per share, or an
aggregate of $25,000, on the date of issuance.
On or about March 25, 2002, IVP Technology issued 500,000 shares of common stock
to John Trainor in lieu of compensation for services performed in 2001 as
Secretary of IVP Technology. These shares were valued at $0.05 per share, or an
aggregate of $25,000, on the date of issuance.
On or about March 25, 2002, IVP Technology issued 2,375,600 shares of common
stock valued at $.05 per share to Thomas Chown for the conversion of $118,780 of
debts owed by the corporation for services performed in 2001.
30
On or about March 25, 2002, IVP Technology issued 1,000,000 shares of common
stock to Buford Industries as conversion of a fee of $50,000 earned for
introducing IVP Technology to International Technology Marketing. These shares
were valued at $0.05 per share, or an aggregate of $50,000, on the date of
issuance.
On or about March 25, 2002, IVP Technology issued 50,000 shares of common stock
to Ruffa and Ruffa, P.A. for payment of interest on outstanding legal bills for
the year 2001 - 2002. These shares were valued at $0.10 per share, or an
aggregate of $5,000, on the date of issuance.
On or about March 25, 2002, IVP Technology issued 1,000,000 shares of common
stock to J. Stephen Smith to be held in escrow for services as a board member
for the period from 2001 to 2003 to be accrued at the rate of 500,000 per year.
On or about March 25, 2002, IVP Technology issued 1,000,000 shares of common
stock to Michael Sidrow to be held in escrow for services as a board member for
the period from 2001 to 2003 to be accrued at the rate of 500,000 per year. In
June 2002, these shares were rescinded as a result of Mr. Sidrow's resignation
from the board of directors.
On or about March 25, 2002, IVP Technology issued 1,000,000 shares of common
stock to Robert King to be held in escrow for services as a board member for the
period from 2001 to 2003 to be accrued at the rate of 500,000 per year. In June
2002, these shares were rescinded as a result of Mr. King's resignation from the
board of directors.
With respect to the sale of unregistered securities referenced above, all
transactions were exempt from registration pursuant to Section 4(2) of the
Securities Act of 1933 (the "1933 ACT"), and Regulation D promulgated under the
1933 Act. In each instance, the purchaser had access to sufficient information
regarding IVP Technology so as to make an informed investment decision. More
specifically, IVP Technology had a reasonable basis to believe that each
purchaser was an "accredited investor" as defined in Regulation D of the 1933
Act and otherwise had the requisite sophistication to make an investment in IVP
Technology's securities.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
OTHER INFORMATION
Not applicable.
ITEM 6. SUBSEQUENT EVENTS, EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
EXHIBIT
NO. DESCRIPTION LOCATION
- ------- ----------- ------------------------
31
2.1 Agreement and Plan of Reorganization Incorporated by reference to
dated March 21, 2000 between IVP Exhibit 4.1 to IVP Technology's
Technology Corporation and Erebus Form 8-K12G3 filed on April 19,
Corporation 2000
3.1 Certificate of Amendment of Articles Incorporated by reference to
of Incorporation Exhibit 3.1 to IVP Technology's
Form 10-KSB filed on April 15,
2002
3.2 Bylaws Incorporated by reference to
Exhibit 3.2 to IVP Technology's
Amendment No. 2 to the Form
SB-2 filed on November 14, 2002
4.4 Description of Securities Incorporated by reference to
Exhibit 4.4 to IVP Technology's
Form S-8 filed on July 23, 2001
10.4 Second Amending Agreement to Software Incorporated by reference to
Distribution Agreement dated as of Exhibit 10.4 to IVP
May 31, 2000 between the Registrant Technology's Form 10-QSB filed
and Orchestral Corporation on September 24, 2000
10.5 Service Bureau Arrangement Agreement Incorporated by reference to
dated September 28, 2000 between the Exhibit 10.5 to IVP
Registrant and E-RESPONSES.COM Technology's Form 10-QSB filed
on November 14, 2000
10.6 Stock Purchase Agreement dated Incorporated by reference to
September 17, 2001 among the Exhibit 10.6 to IVP
Registrant, International Technology Technology's Form 10-KSB filed
Marketing, Inc., Brian MacDonald, on April 15, 2002
Peter Hamilton, Kevin Birch, Sherry
Bullock, and Geno Villella
10.7 Agreement dated May 15, 2000 between Incorporated by reference to
the Registrant and Rainbow Exhibit 10.7 to IVP
Investments International Limited Technology's Form 10-KSB filed
on April 15, 2002
10.8 Employment Agreement dated August 30, Incorporated by reference to
2001 between International Technology Exhibit 10.8 to IVP
Marketing, Inc. and Brian J. MacDonald Technology's Form 10-KSB filed
on April 15, 2002
10.9 Agreement dated February 12, 2002 Incorporated by reference to
between the Registrant and SmartFOCUS Exhibit 10.9 to IVP
Limited Technology's Form 10-KSB filed
on April 15, 2002
10.10 Warrant Agreement dated May 15, 2000 Incorporated by reference to
between the Registrant and Rainbow Exhibit 10.10 to IVP
Investments International Limited Technology's Form 10-KSB filed
on April 15, 2002
10.11 Convertible Promissory Note dated May Incorporated by reference to
2000 between the Registrant and Exhibit 10.11 to IVP
Rainbow Investments International Technology's Form 10-KSB filed
Limited on April 15, 2002
10.12 Software Distribution Agreement dated Incorporated by reference to
December 28, 2001 between the Exhibit 10.12 to IVP
Registrant and TIG Acquisition Technology's Form 10-KSB filed
Corporation on April 15, 2002
32
EXHIBIT
NO. DESCRIPTION LOCATION
- ------- ----------- ------------------------
10.13 Loan Agreement dated January 16, 2002 Incorporated by reference to
between the Registrant and DCD Exhibit 10.13 to IVP
Holdings Limited Technology's Form 10-KSB filed
on April 15, 2002
10.14 Agreement for the Provision of Incorporated by reference to
Marketing Services dated May 3, 2002 Exhibit 10.1 to IVP
between the Registrant and Vanessa Technology's Form S-8 filed
Land with the SEC on May 3, 2002
10.15 Reserved
10.16 Employment Agreement dated August 30, Incorporated by reference to
2001 between International Technology Exhibit 10.16 to IVP
Marketing, Inc. and Geno Villella Technology's Form 10-KSB filed
on April 15, 2002
10.17 Employment Agreement dated August 30, Incorporated by reference to
2001 between International Technology Exhibit 10.17 to IVP
Marketing, Inc. and Kevin Birch Technology's Form 10-KSB filed
on April 15, 2002
10.18 Employment Agreement dated August 30, Incorporated by reference to
2001 between International Technology Exhibit 10.18 to IVP
Marketing, Inc. and Peter J. Hamilton Technology's Form 10-KSB filed
on April 15, 2002
10.19 Employment Agreement dated August 30, Incorporated by reference to
2001 between International Technology Exhibit 10.19 to IVP
Marketing, Inc. and Sherry Bullock Technology's Form 10-KSB filed
on April 15, 2002
10.20 Loan and Security Agreement dated Incorporated by reference to
July 30, 2001 among the Registrant, Exhibit 10.20 to IVP
Clarino Investments International Technology's Form 10-KSB filed
Ltd., and Berra Holdings Ltd. on April 15, 2002
10.21 Consulting and Advisory Extension Incorporated by reference to
Agreement dated February 14, 2001 the Exhibit to IVP Technology's
between the Registrant and Barry Form 10-QSB filed on May 21,
Gross D/B/A Gross Capital Associates 2001
10.22 Letter Agreement dated June 28, 2001, Incorporated by reference to
between the Registrant and Andris Exhibit 4.1 to IVP Technology's
Gravitis Form S-8 filed on July 23, 2001
10.23 Letter Agreement dated June 28, 2001, Incorporated by reference to
between the Registrant and Thomas Exhibit 4.2 to IVP Technology's
Chown. Form S-8 filed on July 23, 2001
10.24 Letter Agreement dated May 30, 2001, Incorporated by reference to
between the Registrant and Ruffa & Exhibit 4.3 to IVP Technology's
Ruffa, P.C. for Modification of Form S-8 filed on July 23, 2001
Retainer Agreement
10.25 Consulting Agreement dated September Incorporated by reference to
1, 2000 between the Registrant and Exhibit 13.1 to IVP
Barry Gross d/b/a Gross Capital Technology's Form 10-KSB filed
Associates on July 5, 2001
10.26 Consulting and Advisory Agreement Incorporated by reference to
dated September 25, 2000 between the Exhibit 13.2 to IVP
Registrant and Koplan Consulting Technology's Form 10-KSB filed
Corporation on July 5, 2001
10.27 Warrant Agreement dated April 3, 2002 Incorporated by reference to
between the Registrant and Cornell Exhibit 10.27 to IVP
Capital Partners LP Technology's Form 10-KSB filed
on April 15, 2002
10.28 Equity Line of Credit Agreement dated Incorporated by reference to
April 3, 2002 between the Registrant Exhibit 10.28 to IVP
and Cornell Capital Partners LP Technology's Form 10-KSB filed
on April 15, 2002
33
EXHIBIT
NO. DESCRIPTION LOCATION
- ------- ----------- ------------------------
10.29 Registration Rights Agreement dated Incorporated by reference to
April 3, 2002 between the Registrant Exhibit 10.29 to IVP
and Cornell Capital Partners, LP Technology's Form 10-KSB filed
on April 15, 2002
10.30 Escrow Agreement dated April 3, 2002 Incorporated by reference to
among the Registrant, Cornell Capital Exhibit 10.30 to IVP
Partners, LP, Butler Gonzalez, and Technology's Form 10-KSB filed
First Union National Bank on April 15, 2002
10.31 Securities Purchase Agreement dated Incorporated by reference to
April 3, 2002 among the Registrant Exhibit 10.31 to IVP
and the Buyers Technology's Form 10-KSB filed
on April 15, 2002
10.32 Escrow Agreement dated April 3, 2002 Incorporated by reference to
among the Registrant, the Buyers, and Exhibit 10.32 to IVP
First Union National Bank Technology's Form 10-KSB filed
on April 15, 2002
10.33 Debenture Agreement Dated April 3, Incorporated by reference to
2002 between the Registrant and Exhibit 10.33 to IVP
Cornell Capital Partners LP Technology's Form 10-KSB filed
on April 15, 2002
10.34 Investor Registration Rights Incorporated by reference to
Agreement dated April 3, 2002 between Exhibit 10.34 to IVP
the Registrant and the Investors Technology's Form 10-KSB filed
on April 15, 2002
10.35 Placement Agent Agreement dated April Incorporated by reference to
3, 2002 among the Registrant, Exhibit 10.35 to IVP
Westrock Advisors, Inc. and Cornell Technology's Form 10-KSB filed
Capital Partners LP on April 15, 2002
10.36 Letter Agreement dated February 20, Incorporated by reference to
2002 between the Registrant and Exhibit 10.36 to IVP
Buford Industries Inc. Technology's Form 10-KSB filed
on April 15, 2002
10.37 Letter Confirmation Agreement dated Incorporated by reference to
July 21, 2001 between the Registrant Exhibit 10.37 to IVP
and Buford Industries Inc. Technology's Form 10-KSB filed
on April 15, 2002
10.38 Consulting Agreement dated March 1, Incorporated by reference to
2002 between the Registrant and Exhibit 10.38 to IVP
Danson Partners LLC Technology's Form 10-KSB filed
on April 15, 2002
10.39 Term Sheet between the Registrant and Incorporated by reference to
Cornell Capital Partners, LP Exhibit 10.39 to IVP
Increasing the Commitment under the Technology's Form SB-2 filed on
Equity Line of Credit to $10 million May 15, 2002
10.40 Consulting Agreement dated February Incorporated by reference to
12, 2002 between the Registrant and Exhibit 10.40 to IVP
Danson Partners LLC Technology's Form SB-2 filed on
May 15, 2002
10.41 Escrow Agreement dated as of May 15, Incorporated by reference to
2002 among the Registrant, Brian Exhibit 10.41 to IVP
MacDonald, Peter Hamilton, Kevin Technology's Form SB-2 filed on
Birch, Sherry Bullock, and Gino May 15, 2002
Villella
10.42 Termination letter dated June 13, Incorporated by reference to
2002 between the Registrant and Exhibit 10.42 to IVP
Orchestral Corporation Technology's Form 10-QSB filed
on August 19, 2002
34
EXHIBIT
NO. DESCRIPTION LOCATION
- ------- ----------- ------------------------
10.43 Acquisition Agreement dated as of May Incorporated by reference to
28, 2002 regarding the purchase of Exhibit 10.43 to IVP
Ignition Entertainment Technology's Form 10-QSB filed
on August 19, 2002
10.44 Consulting Agreement dated as of June Incorporated by reference to
1, 2002 Ignition Entertainment Exhibit 10.44 to IVP
Limited and Montpelier Limited Technology's Form 10-QSB filed
on August 19, 2002
10.45 Amendment to Equity Line of Credit Incorporated by reference to
Agreement dated May 2002 between IVP Exhibit 10.45 to IVP
Technology and Cornell Capital Technology's Amendment No. 2 to
Partners. the Form SB-2 filed on November
14, 2002
10.46 Letter of Credit Facility dated as of Incorporated by reference to
April 10, 2002 between Revelate Exhibit 10.46 to IVP
Limited and Ignition Entertainment Technology's Amendment No. 2 to
Limited the Form SB-2 filed on November
14, 2002
10.47 Debenture dated as of June 14, 2002 Incorporated by reference to
between Revelate Limited and Ignition Exhibit 10.47 to IVP
Entertainment Limited Technology's Amendment No. 2 to
the Form SB-2 filed on November
14, 2002
10.48 Standard Conditions for Purchase of Incorporated by reference to
Debts dated May 23, 2002 between DCD Exhibit 10.48 to IVP
Factors PLC and Ignition Technology's Amendment No. 2 to
Entertainment Limited the Form SB-2 filed on November
14, 2002
10.49 All Assets Debenture dated as of May Incorporated by reference to
23, 2002 between DCD Factors PLC and Exhibit 10.49 to IVP
Ignition Entertainment Limited Technology's Amendment No. 2 to
the Form SB-2 filed on November
14, 2002
10.50 Memorandum of Agreement dated as of Incorporated by reference to
July 1, 2002 between Springboard Exhibit 10.50 to IVP
Technology Solutions Inc. and IVP Technology's Amendment No. 2 to
Technology the Form SB-2 filed on November
14, 2002
10.51 Heads of Agreement dated as of Incorporated by reference to
December 28, 2001 and amended on Exhibit 10.51 to IVP
September 30, 2002 between TiG Technology's Amendment No. 2 to
Acquisition Corporation and IVP the Form SB-2 filed on November
Technology 14, 2002
(b) Reports on Form 8-K.
On October 15, 2002, IVP Technology filed a Form 8-K disclosing that it had
renegotiated the distribution agreement for the Classifer software product
developed by the Innovation Group.
On August 9, 2002, IVP Technology filed a Form 8-K disclosing that it was not
required to file financial information regarding its acquisition of Ignition
Entertainment Limited.
35
SIGNATURES
Pursuant to the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
REGISTRANT:
IVP TECHNOLOGY CORPORATION
/s/ BRIAN MACDONALD November 19, 2002
- --------------------------------------------
By: Brian MacDonald
President, Chief Executive Officer
and Acting Chief Financial Officer
36
FORM OF OFFICER'S CERTIFICATE
PURSUANT TO SECTION 302
-----------------------
CERTIFICATION
I, Brian MacDonald, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of IVP Technology
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 19, 2002 By: /s/ BRIAN MACDONALD
-------------------------
Brian MacDonald
President, Chief Executive Officer and
Acting Chief Financial Officer
37
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of IVP Technology Corporation
(the "Company") on Form 10-QSB for the period ended September 30, 2002 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
the undersigned, in the capacities and on the dates indicated below, hereby
certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, that to his knowledge:
1. The Report fully complies with the requirements of Section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all
material respects, the financial condition and results of
operation of the Company.
Date: November 19, 2002 By: /s/ BRIAN MACDONALD
-------------------------
Brian MacDonald
President, Chief Executive Officer and
Acting Chief Financial Officer
38