UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2004
Commission File No. 000-30486
IVP TECHNOLOGY CORPORATION D.B.A. ACTIVECORE TECHNOLOGIES, INC.
(Exact Name of Registrant as specified in its charter)
NEVADA 65-6998896
- ------------------------------------ --------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
156 FRONT STREET WEST, SUITE 210, TORONTO, ONTARIO, CANADA M5J 2L6
(Address of principal Executive Offices)
(416) 252-6200
(Registrant's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes [ ] No [ ]
State the number of shares outstanding of each of the issuer's classes
of common equities as of the latest practicable date: AS OF SEPTEMBER 20, 2004,
THERE WERE 445,435,935 OUTSTANDING SHARES OF THE ISSUER'S COMMON STOCK, PAR
VALUE $0.001.
IVP TECHNOLOGY CORPORATION
D.B.A. ACTIVECORE TECHNOLOGIES, INC.
FORM 10-QSB
TABLE OF CONTENTS
PAGE
PART I..................................................................................................3
ITEM 1. FINANCIAL STATEMENTS........................................................................3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION..................................20
ITEM 3. CONTROLS AND PROCEDURES....................................................................33
PART II................................................................................................35
ITEM 1. LEGAL PROCEEDINGS..........................................................................35
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS..................................................36
ITEM 3. DEFAULTS UPON SENIOR SECURITIES............................................................37
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........................................37
ITEM 5. OTHER INFORMATION..........................................................................37
ITEM 6. EXHIBIT AND REPORTS ON FORM 8-K............................................................38
Signature Page
2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
IVP TECHNOLOGY CORPORATION
D.B.A. ACTIVECORE TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2004
INDEX TO FINANCIAL STATEMENTS
PAGE 4 CONDENSED CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2004 (UNAUDITED) AND DECEMBER
31, 2003
PAGE 5 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED
JUNE 30, 2004 AND 2003 (UNAUDITED)
PAGE 6 CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY) FOR THE SIX
MONTHS ENDED JUNE 30, 2004 (UNAUDITED)
PAGES 7-8 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30,
2004 AND 2003 (UNAUDITED)
PAGES 9 - 19 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2004 (UNAUDITED)
3
IVP TECHNOLOGY CORPORATION
D.B.A. ACTIVECORE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
JUNE 30, 2004 DECEMBER 31, 2003
(UNAUDITED) (AUDITED)
--------------- ---------------------
CURRENT ASSETS
Cash $ 38,205 $ -
Accounts receivable, net 955,256 128,601
Other receivables 1,743 189,120
Prepaid expenses and other current assets 150,545 31,500
--------------- ---------------------
TOTAL CURRENT ASSETS 1,145,749 349,221
--------------- ---------------------
PROPERTY AND EQUIPMENT, NET 132,098 43,726
--------------- ---------------------
OTHER ASSETS
License agreements - software, net 106,220 106,062
Note receivable 749,400 -
Customer list, net 206,250 252,080
Investments at cost 250,000 250,000
Deferred consulting expense 74,832 123,119
Goodwill 1,576,884 100,000
Net assets from discontinued operations - 16,335
--------------- ---------------------
Total Other Assets 2,963,586 847,596
--------------- ---------------------
TOTAL ASSETS $ 4,241,433 $ 1,240,543
=============== =====================
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Bank overdraft $ 355,807 $ -
Accounts payable 766,094 666,348
Accrued liabilities 369,364 249,685
Taxes payable 566,855 301,378
Leases payable, current portion 10,984 7,652
Notes payable, current portion 275,762 557,299
Common stock to be issued 18,000 18,000
Due to related parties - 117,874
Other current liabilities 26,375 7,729
--------------- ---------------------
TOTAL CURRENT LIABILITIES 2,389,241 1,925,965
--------------- ---------------------
LONG-TERM LIABILITIES
Note payable, long-term portion 395,218 447,917
Lease payable, long-term 8,137 2,464
--------------- ---------------------
TOTAL LONG-TERM LIABILITIES 403,355 450,381
--------------- ---------------------
TOTAL LIABILITIES 2,792,596 2,376,346
--------------- ---------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $0.001 par value, 50,000,000 shares authorized, none
issued and outstanding - -
Common stock, $0.001 par value, 500,000,000 authorized and 443,534,552 and
286,207,000 shares issued and outstanding as of June 30, 2004 and
December 31, 2003, respectively 443,534 286,207
Common stock to be issued (17,272,726 shares) - 380,000
Additional paid-in capital 38,321,140 36,382,766
Accumulated deficit (37,125,039) (37,094,546)
Less: treasury stock (11,000,000 shares) - (770,000)
Accumulated other comprehensive loss (102,442) (158,586)
Less: deferred equity line commitment fees (64,380) (112,668)
Less: deferred compensation (23,976) (48,976)
--------------- ---------------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIENCY) 1,448,837 (1,135,803)
--------------- ---------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) $ 4,241,433 $ 1,240,543
=============== =====================
See accompanying notes to these Condensed Consolidated Financials Statements
4
IVP TECHNOLOGY CORPORATION
D.B.A. ACTIVECORE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
FOR THE THREE FOR THE THREE FOR THE SIX FOR THE SIX
MONTHS ENDED MONTHS ENDED MONTHS ENDED MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2004 2003 2004 2003
------------- --------------- ------------------ --------------
REVENUE
Net Sales $ 1,105,532 $ 82,300 $ 1,300,027 $ 231,009
------------- --------------- ------------------ --------------
COST OF SALES
Product costs 310,080 - 311,131 100,931
Distribution and other costs including
amortization of license 52,516 93,207 87,476 186,189
------------- --------------- ------------------ --------------
Total Cost of Sales 362,596 93,207 398,607 287,120
------------- --------------- ------------------ --------------
GROSS PROFIT (LOSS) 742,936 (10,907) 901,420 (56,111)
------------- --------------- ------------------ --------------
OPERATING EXPENSES
Salaries and wages 183,074 157,573 646,174 235,974
Stock based compensation 56,618 656,922 115,006 656,922
Consulting fees 83,572 45,256 161,964 93,930
Legal and accounting 137,358 57,996 163,455 153,834
General and administrative 218,885 198,470 377,216 392,515
Financial advisory fees 380 - 7,630 30,708
Amortization and depreciation 8,651 10,353 6,684 18,722
------------- --------------- ------------------ --------------
TOTAL OPERATING EXPENSES 688,538 1,126,570 1,478,129 1,582,605
------------- --------------- ------------------ --------------
INCOME (LOSS) FROM OPERATIONS 54,398 (1,137,477) (576,709) (1,638,716)
------------- --------------- ------------------ --------------
OTHER INCOME (EXPENSE)
Gain on early extinguishment of debt - - 2,000 -
Interest income 22,481 1,354 29,976 6,497
Interest expense (37,344) (148,778) (70,576) (227,130)
Foreign exchange gain (loss) (15,667) 1,006 (17,931) 14,074
------------- --------------- ------------------ --------------
TOTAL OTHER INCOME (EXPENSE) (30,530) (146,418) (56,531) (206,559)
------------- --------------- ------------------ --------------
INCOME (LOSS) FROM CONTINUING OPERATIONS 23,868 (1,283,895) (633,240) (1,845,275)
------------- --------------- ------------------ --------------
DISCONTINUED OPERATIONS (SEE NOTE 2):
Income (Loss) from Discontinued Operations 1,983 - (128,586) (733,123)
Gain on Sale of Discontinued Operations - 2,396,009 731,333 2,396,009
------------- --------------- ------------------ --------------
INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET 1,983 2,396,009 602,747 1,662,886
------------- --------------- ------------------ --------------
NET INCOME (LOSS) $ 25,851 $ 1,112,114 $ (30,493) $ (182,389)
============= =============== ================== ==============
INCOME (LOSS) PER COMMON SHARE FROM CONTINUING
OPERATIONS - BASIC AND DILUTED 0.00 (0.01) (0.00) (0.02)
------------- --------------- ------------------ --------------
INCOME (LOSS) PER COMMON SHARE FROM DISCONTINUED
OPERATIONS - BASIC AND DILUTED 0.00 0.02 0.00 0.02
------------- --------------- ------------------ --------------
NET INCOME (LOSS) PER COMMON SHARE - BASIC AND
DILUTED 0.00 0.01 (0.00) (0.00)
------------- --------------- ------------------ --------------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
- BASIC AND DILUTED 383,426,147 115,200,027 353,891,944 107,531,237
============= =============== ================== ==============
See accompanying notes to these Condensed Consolidated Financials Statements
5
IVP TECHNOLOGY CORPORATION
D.B.A. ACTIVECORE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE SIX MONTHS ENDED JUNE 30, 2004
(UNAUDITED)
PREFERRED COMMON COMMON STOCK
PREFERRED STOCK COMMON STOCK TO BE ISSUED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------ ------ ------
Balance, December 31, 2003 286,207,703 $286,207 17,272,726 $380,000
Stock issued for services 6,000,000 6,000
Stock Issued for compensation 10,300,000 10,300
Stock issued for stockholder debt 66,036,267 66,037 (17,272,726) (380,000)
Stock Issued for debt repayment 37,672,137 37,673
Stock issued for payment of accrued liability 2,000,000 2,000
Stock Issued for acquisition 46,318,445 46,318
Cancellation of treasury stock (11,000,000) (11,000)
Deferred cost recognized
Net loss for period
Cumulative translation adjustment
Comprehensive Income
--------- -------- ----------- -------- ------------- --------
BALANCE, JUNE 30, 2004 -- $ -- 443,534,552 $443,534 -- $ --
========= ======== =========== ======== ============= ========
OTHER
COMPRE-
ADDITIONAL HENSIVE EQUITY LINE
PAID-IN ACCUMULATED TREASURY INCOME COMMIT-
CAPITAL DEFICIT STOCK (LOSS) MENT FEES
------- ------- ----- ------ ---------
Balance, December 31, 2003 $ 36,382,766 $(37,094,546) $(770,000) $(158,586) $(112,668)
Stock issued for services 126,000
Stock Issued for compensation 185,700
Stock issued for stockholder debt 924,288
Stock Issued for debt repayment 620,495
Stock issued for payment of accrued liability 46,000
Stock Issued for acquisition 794,891
Cancellation of treasury stock (759,000) 770,000
Deferred cost recognized 48,288
Net loss for period (30,493)
Cumulative translation adjustment 56,144
Comprehensive Income
------------ ------------- ----------- ---------- ---------
BALANCE, JUNE 30, 2004 $ 38,321,140 $(37,125,039) $ -- $(102,442) $(64,380)
============ ============= =========== ========== =========
DEFERRED
COMPEN-
SATION TOTAL
------ -----
Balance, December 31, 2003 $(48,976) $(1,135,803)
Stock issued for services 132,000
Stock Issued for compensation 196,000
Stock issued for stockholder debt 610,325
Stock Issued for debt repayment 658,168
Stock issued for payment of accrued liability 48,000
Stock Issued for acquisition 841,209
Cancellation of treasury stock --
Deferred cost recognized 25,000 73,288
Net loss for period (30,493)
Cumulative translation adjustment 56,144
-----------
Comprehensive Income 25,651
--------- ----------
BALANCE, JUNE 30, 2004 $(23,976) $1,448,837
========= ==========
See accompanying notes to these Condensed Consolidated Financials Statements
6
IVP TECHNOLOGY CORPORATION
D.B.A. ACTIVECORE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For The Six For The Six
Months Ended June Months Ended
30, 2004 June 30, 2003
------------------- ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (30,493) $ (182,389)
Adjustments to reconcile net loss to net cash used in operating
activities:
Gain on sale of discontinued operations (731,333) (2,396,009)
Depreciation 6,684 18,722
Amortization of customer list 45,830 -
Amortization of licensing agreements and software kits (158) 178,402
Amortization of deferred consulting and commitment fees 48,288 113,323
Amortization of consulting agreements 29,000 -
Impairment of deferred tax asset - 71,816
Stock issued for commitment fees and penalties - 22,800
Stock issued for compensation - 618,880
Stock issued for financing costs - 129,500
Stock issued bonuses 176,000 -
Stock issued for services 120,000 12,500
Changes in operating assets and liabilities, net of effects of discontinued
operations: - -
(Increase) in accounts receivable (756,840) (26,908)
Decrease (increase) in prepaid expenses and other current assets 96,332 (112,233)
Increase in accounts payable (73,161) 54,721
Increase (decrease) in accrued liabilities 52,418 (78,310)
Increase in taxes payable 125,803 73,221
Increase in due to related parties 423,198 -
Increase (decrease) in other current liabilities 18,647 (131,232)
Decrease in deferred consulting fees 48,287 -
(Decrease) in accrued interest - (3,065)
Net effect of discontinued operations - 193,504
------------------- ------------------
Net Cash Used In Operating Activities (255,176) (1,442,757)
------------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets (48,518) (35,853)
------------------- ------------------
Net Cash Used In Investing Activities (48,518) (35,853)
------------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of notes payable (17,500) (690,000)
Proceeds from notes payable 310,000 1,125,000
Proceeds from related parties - 532,070
Proceeds from issuance of common stock - 525,000
Payment on leases (6,745) 43,534
------------------- ------------------
Net Cash Provided By Financing Activities 285,755 1,535,604
------------------- ------------------
See accompanying notes to these Condensed Consolidated Financials Statements
7
IVP TECHNOLOGY CORPORATION
D.B.A. ACTIVECORE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
For The Six For The Six
Months Ended June Months Ended
30, 2004 June 30, 2003
------------------- ------------------
EFFECT OF FOREIGN EXCHANGE RATES 56,144 (119,402)
------------------- ------------------
NET INCREASE (DECREASE) IN CASH 38,205 (62,408)
CASH - BEGINNING OF PERIOD - 63,162
------------------- ------------------
CASH - END OF PERIOD
$ 38,205 $ 754
=================== ==================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest - 36,945
=================== ==================
Cash paid for taxes $ - $ -
=================== ==================
SUPPLEMENTAL DISCLOSURE OF NON-CASH-INVESTING AND FINANCING ACTIVITIES
Equipment purchased under capital leases $ - $ 33,095
------------------- ------------------
Common stock issued to satisfy common stock to be issued $ 380,000 $ -
------------------- ------------------
Common stock issued for acquisitions 841,209 -
------------------- ------------------
Common and preferred stock issued for the acquisition of Ignition
Entertainment Ltd. $ - $ 11,949,156
------------------- ------------------
Common stock issued for deferred consulting expenses $ - $ 250,000
------------------- ------------------
Common stock issued for payment of accrued liabilities $ 48,000 $ 31,250
------------------- ------------------
Common stock issued for payment of debt and accrued interest thereon $ 658,168 $ -
------------------- ------------------
Common stock issued for payment of amounts due to related parties 610,325 824,869
------------------- ------------------
Common stock issued for payment of common stock to be issued for services $ - $ 15,000
------------------- ------------------
Treasury stock rescinded $ 770,000 $ -
------------------- ------------------
Note receivable for sale of SilverBirch Studios Division $ 749,000 $ -
------------------- ------------------
See accompanying notes to these Condensed Consolidated Financials Statements
8
IVP TECHNOLOGY CORPORATION
D.B.A. ACTIVECORE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2004
(UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
(A) ORGANIZATION
The Condensed Consolidated Financial Statements of IVP Technology Corporation
(d.b.a. ActiveCore Technologies, Inc.) and subsidiaries (the "Company") include
the accounts of the parent, IVP Technology Corporation, incorporated in the
State of Nevada on February 11, 1994, and its subsidiaries: ActiveCore
Technologies Ltd. (formerly Springboard Technology Solutions Inc.) and C Comm
Network Corporation, both Canadian companies, ActiveCore Technologies UK Limited
and Twincentric Limited, both UK companies, Erebus Corporation and ActiveCore
Exml Canada Ltd., both inactive companies. The Company was granted an
extra-provincial license by the Province of Ontario on June 20, 1995 to conduct
business in Ontario, Canada.
During 2003, the Company operated two divisions: enterprise and consumer. The
enterprise division develops, markets, licenses, installs and services data
solutions. The consumer market group developed and published interactive
software games designed for video consoles, mobile phones, other handheld
devices and websites. At the end of February of 2004, the Company sold certain
assets and personnel related to the mobile games business to a privately held
Canadian company founded by the Company's former Chief Technology Officer. In
the period ended June 30, 2003, there were no activities related to the mobile
phone game group in the consumer division (See Note 2). The consumer division
also distributed games developed by third parties. Until the end of March of
2003, the Company also produced video games for personal computers and various
console gaming platforms.
The Company incorporated a subsidiary unit in the United Kingdom on January 15,
2004, for the purpose of marketing various enterprise software products of the
Company, as well as certain third party developments for which the Company has
entered into licensing agreements. The subsidiary operates as ActiveCore
Technologies UK Limited and sells enterprise software throughout the European
market.
(B) PRINCIPLES OF CONSOLIDATION
The Condensed Consolidated Financial Statements include the accounts of the
Company and its wholly-owned subsidiaries. The Condensed Consolidated Financial
Statements also include the accounts of the Company's former subsidiary,
Ignition Entertainment Limited from January 1, 2003 through March 31, 2003 (See
Note 2). All significant inter-company transactions and balances have been
eliminated in consolidation.
(C) RECLASSIFICATIONS
Certain reclassifications have been made to previously reported amounts to
conform to the current year's presentation.
(D) FOREIGN CURRENCY TRANSACTIONS
Assets and liabilities of foreign subsidiaries, whose functional currency is the
local currency, are translated at year-end exchange rates. Capital accounts are
re-measured into U.S. dollars at the acquisition date rates. Income and expense
items are translated at the average rates of exchange prevailing during the
year. The adjustments resulting from translating the financial statements of
such foreign subsidiaries are recorded as a component of accumulated other
comprehensive income (loss) in stockholders' equity (deficiency). Foreign
currency transaction gains or losses are reported in results of operations.
9
IVP TECHNOLOGY CORPORATION
D.B.A. ACTIVECORE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2004 (CONTINUED)
(UNAUDITED)
(E) USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the dates of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual amounts could differ significantly from these estimates.
(F) FAIR VALUE OF FINANCIAL INSTRUMENTS
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 financial instruments, including cash,
receivables, bank debt, accounts payable, accrued liabilities, taxes payable and
other current liabilities approximate fair value because of their short
maturities. The carrying amount of the Company's debt approximates fair value
because the interest rates of the lines of credit are based on floating rates
identified by reference to market rates. The carrying amounts of the Company's
loans and notes payable and capital lease obligations approximate the fair value
of such instruments based upon management's best estimate of interest rates that
would be available to the Company for similar debt obligations.
(G) INCOME (LOSS) PER COMMON SHARE
Basic income or loss per common share is based on net income or loss divided by
the weighted average number of common shares outstanding. Common stock
equivalents were not included in the calculation of diluted loss per share as
their effect would be anti-dilutive for the six months ended June 30, 2004 and
2003 and for the three months ended June 30, 2003. Common stock equivalents were
not included in the calculation of diluted income per share for the three months
ended June 30, 2004 since the exercise price of all common stock equivalents
were greater than the average stock price for the period.
(H) INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Condensed Consolidated Financial Statements as of June 30, 2004 and for the
six months ended June 30, 2004 and 2003 are unaudited. In the opinion of
management, such Condensed Consolidated Financial Statements include all
adjustments (consisting only of normal recurring accruals) necessary for the
fair presentation of the consolidated financial position and the consolidated
results of operations. The consolidated results of operations for the six months
ended June 30, 2004 are not necessarily indicative of the results to be expected
for the full year. The condensed consolidated balance sheet information as of
December 31, 2003 was derived from the audited consolidated financial statements
included in the Company's Annual Report Form 10-KSB. The interim Condensed
Consolidated Financial Statements should be read in conjunction with that
report.
(I) GOING CONCERN
The accompanying Condensed Consolidated Financial Statements have been prepared
on the basis that the Company is a going concern, which contemplates the
realization of assets and the satisfaction of liabilities in the normal course
of business. The Company has a net loss of $30,493 and a negative cash flow from
operations of $255,176 for the six months ended June 30, 2004, and has a working
capital deficiency of $1,243,492 at June 30, 2004 which raises doubt about its
ability to continue as a going concern. The Condensed Consolidated Financial
Statements do not include any adjustments that might result from the outcome of
this uncertainty. Management's plan to continue operations is to raise
additional debt or equity capital until such time as the Company is able to
generate sufficient operating revenues through its new acquisitions.
In view of these matters, realization of certain of the assets in the
accompanying Condensed Consolidated Financial Statements is dependent upon
continued operations of the Company, which in turn is dependent upon the
Company's ability to meet its financial requirements, raise additional capital,
and the success of its future operations. Management believes that its ability
to raise additional capital provides the opportunity for the Company to continue
as a going concern.
10
IVP TECHNOLOGY CORPORATION
D.B.A. ACTIVECORE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2004 (CONTINUED)
(UNAUDITED)
(J) RECENT ACCOUNTING PRONOUNCEMENTS
In March of 2004, the U.S. Securities and Exchange Commission's Office of the
Chief Accountant and the Division of Corporate Finance released Staff Accounting
bulletin ("SAB") No. 105, "Loan Commitments Accounted for as Derivative
Instruments". This bulletin contains specific guidance on the inputs to a
valuation-recognition model to measure loan commitments accounted for at fair
value, and requires that fair-value measurement include only differences between
the guaranteed interest rate in the loan commitment and market interest rate,
excluding any expected future cash flows related to the customer relationship or
loan servicing. In addition, SAB105 requires the disclosure of the accounting
policy for loan commitments, including methods and assumptions used to estimate
the fair value of loan commitments, and any associated hedging strategies. SAB
105 is effective for derivative instruments entered into subsequent to March 31,
2004 and should also be applied to existing instruments as appropriate. The
Company has not yet completed its evaluation of SAB 105, but does not anticipate
a material impact on the financial statements.
NOTE 2 - DISCONTINUED OPERATIONS
On May 28, 2002, the Company acquired 100% of the stock of Ignition
Entertainment Ltd., a UK corporation, which specialized in the design,
development, licensing, publishing and distribution of personal computer, mobile
devices and game console software and accessories. The Company agreed 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 $0.23898 per share, for a total purchase price of $11,949,156. These
shares were held in escrow until disbursed in accordance with the terms of the
escrow agreement. The acquisition was accounted for by the purchase method of
accounting.
Effective April 1, 2003, the Company sold 100% of the issued shares and all
assets and liabilities of Ignition Entertainment, Ltd. for the return of
11,000,000 shares of the Company's common stock originally issued to and held by
the former shareholders and the assumption of certain liabilities pertaining to
Ignition.
Upon execution of the sale agreement in June of 2003, the Company issued
50,000,000 shares of its common stock to the former shareholders of Ignition
Entertainment Ltd. in accordance with the original May 28, 2002 purchase
agreement. Based upon the terms of the sale agreement, the Company converted all
of the 3,500,000 shares of preferred stock to be issued, into 35,000,000 shares
of common stock and accelerated the issuance of 15,000,000 shares of common
stock to be issued. The issuance of the 50,000,000 shares of common stock in
June 2003 relieved the Company's obligation as of April 1, 2003, to issue
$11,949,156 in preferred and common stock under the original May 28, 2002
purchase agreement. The 50,000,000 shares were delivered, in trust, to an
independent third party upon the execution of the sale agreement and were
subsequently distributed to the former owners in 2004. Following the issuance of
the 50,000,000 shares of the Company's common stock, the former shareholders
returned 11,000,000 shares of common stock to the Company as proceeds for the
sale of Ignition Entertainment Ltd. The 11,000,000 shares were valued at
$770,000 based upon the fair market value of the stock on April 1, 2003, the
effective date of the sale agreement. The 11,000,000 shares were cancelled in
February of 2004, and are presented in the accompanying condensed consolidated
balance sheet as treasury stock at December 31, 2003.
In connection with the sale agreement, the Company retained rights to certain
intellectual property and received a source code licensing agreement for certain
interactive software games developed by Ignition Entertainment Ltd. The Company
also received an agreement to distribute the interactive software games on a
worldwide basis for a period of three years, renewable annually thereafter if
such titles are converted to mobile games. The Company undertook to pay Ignition
Entertainment Ltd. a royalty fee of 30% of all gross revenues, less direct
costs, from the sale, distribution or marketing of those game titles if any are
distributed by its mobile games division. As of June 30, 2004 and December 31,
2003, the Company did not assign any value to the acquired intellectual property
and or to the distribution agreement. This agreement has been assigned to
SilverBirch Studios Inc. as part of the sale of assets of the Games Division.
11
IVP TECHNOLOGY CORPORATION
D.B.A. ACTIVECORE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2004 (CONTINUED)
(UNAUDITED)
Following is a summary of net liabilities and results of operations of Ignition
Entertainment Ltd. for the period from January 1, 2003 through June 30, 2003.
For the Period
From
January 1, 2003
Through
June 30, 2003
--------------------
Revenues, net $ 1,087,906
Cost of sales 960,501
--------------------
Gross profit 127,405
Operating expenses 815,985
--------------------
Loss from discontinued operations (688,580)
Other expense (44,543)
--------------------
Net loss from discontinued operations $ (733,123)
====================
Effective February 29, 2004, the Company entered into an agreement to sell
certain assets and liabilities of the Company's cellular phone game and ring
tone development group, SilverBirch Studios, and the web portals
Recessgames.com, Bladeofzorro.com and Silverbirchstudios.com (collectively, the
"Games Division") to SilverBirch Studios, Inc. The execution date of the
agreement was June 9, 2004.
The purchase price consisted of the following: (a) a promissory note in the
amount of $749,400 ($1,000,000 CDN) payable in 10 installments of $100,000 CDN
per month commencing March 31, 2005. The note bears interest at 12% per annum,
to be paid on a monthly basis commencing on March 31, 2004. The note is
collateralized by a general security agreement; (b) the Company will maintain a
5% equity interest in SilverBirch Studios Inc., with participation rights to
maintain that 5% ownership rate. The Company determined that the value of the 5%
interest is $0; (c) a royalty agreement with a 4-year term commencing on March
1, 2004. SilverBirch will pay the Company a royalty equal to 2% of the gross
revenues of SilverBirch, payable on a quarterly basis during the term. The total
royalty payments will be capped at a maximum of $1,300,000 CDN. The Company did
not receive any royalties for the three months ended March 31, 2004; (d) a
non-exclusive grant of the right to use any games that were in the process of
being created by the games division up until the effective date of the sales
agreement for use in the Company's direct marketing and advertising operations
on the basis of a royalty equal to normal commercial terms less 10%.
The transaction resulted in a gain of $731,333, which has been included in the
condensed consolidated statement of operations for the six months ended June 30,
2004 as a gain on sale of discontinued operations.
12
IVP TECHNOLOGY CORPORATION
D.B.A. ACTIVECORE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2004 (CONTINUED)
(UNAUDITED)
Following is a summary of net assets and results of operations of the Games
Division as of December 31, 2003 and for the period from January 1, 2004 through
February 29, 2004.
As of
December 31, 2003
--------------------
Property and Equipment, net $16,335
--------------------
Total Assets of Discontinued $16,335
Operations
====================
For the Period From
January 1, 2004
through February
29, 2004
---------------------
Salary and Wages $130,569
---------------------
Net Loss From Discontinued Operations $130,569
=====================
As of June 30, 2004, the Company did not have any net assets from discontinued
operations and had a loss from discontinued operations of $128,586 for six
months then ended
NOTE 3 - OTHER RECEIVABLES
Other receivables, of $189,120 at December 31, 2003, primarily represented
advances made to unrelated parties in order to satisfy debts of Ignition
Entertainment Ltd. These receivables were collected in full in the first quarter
of 2004. Also included in other receivables was $26,611 at December 31, 2003 for
an advance made to ePocket, Inc. This advance was repaid in full in February of
2004.
NOTE 4 - ACQUISITION OF C COMM NETWORK CORPORATION
On May 6, 2004, the Company acquired all the outstanding common stock of C Comm
Network Corporation ("C Comm"), a privately held Canadian Corporation, for
30,758,202 shares of the Company's restricted common stock valued at $461,962.
The total purchase price of $491,962 also includes $30,000 of other acquisition
costs. The number of shares was determined based on the weighted average share
price of the Company's common shares for the two trading days before and after
the day the Company entered into the terms of the acquisition agreement. The
Company accounted for this acquisition using the purchase method of accounting
in accordance with the provisions of Statements of Financial Accounting
Standards ("SFAS") No. 141, and accordingly, C Comm's operating results have
been included in the Company's consolidated statement of operations from
acquisition date through June 30, 2004. The Company acquired net tangible
liabilities of $9,823. The excess of the consideration given over the fair value
of net assets acquired has been recorded as goodwill of $501,785. The Company
will account for the purchased goodwill in accordance with the provisions of
SFAS 142. The amount of the consideration paid for the shares of C Comm was
determined based on a multiple of revenues earned by C Comm for the two fiscal
years ended September 30, 2002 and September 30, 2003, plus revenues earned for
the six months ended March 31, 2004. During the next year until June 30, 2005,
the C Comm shareholders will probably be entitled to an additional allotment of
the Company's shares. The amount of this additional allotment of shares will be
based a percentage of the amount of revenues generated by C Comm over and above
its current sales and the common shares to be allocated to fulfill this
achievement bonus will be valued as at the closing value of each quarter in
which the increased revenue percentage is earned. C Comm is a corporate message
broadcasting service which employs communication media such as facsimile, voice,
and e-mail to deliver messages to various organizations' customers. The Company
has commenced marketing C Comm's services under the product name "ActiveCast".
13
IVP TECHNOLOGY CORPORATION
D.B.A. ACTIVECORE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2004 (CONTINUED)
(UNAUDITED)
The purchase price allocation recorded for the acquisition of C Comm is as
follows:
Accounts receivable $ 17,000
Capital assets 6,000
-------------
Total assets 23,000
-------------
Bank debt 13,000
Accrued liabilities 8,000
Taxes payable 12,000
-------------
Total liabilities assumed 33,000
-------------
Excess of liabilities assumed over assets acquired
10,000
Purchase price 462,000
Acquisition - fees and expenses 30,000
-------------
Goodwill $ 502,000
=============
The following unaudited pro forma consolidated results of operations are
presented as if the acquisition of C Comm had been made at the beginning of the
2004 period presented:
Six Months Ended
June 30, 2004
-------------------
Net sales $ 1,446,406
Net income $ 2,672
Basic and diluted income per share $ 0.00
NOTE 5 - ACQUISITION OF TWINCENTIC LIMITED
On June 21, 2004, the Company acquired all the outstanding common stock of
Twincentric Limited, a UK Corporation ("Twincentric"), for 15,560,243 shares of
the Company's restricted common stock valued at $379,247. The acquisition price
also included $50,000 of acquisition expense. The Company accounted for this
acquisition using the purchase method of accounting in accordance with the
provisions of SFAS 141. The excess of the consideration given over the fair
value of net assets acquired has been recorded as goodwill of $974,195. The
Company will account for the purchased goodwill in accordance with the
provisions of SFAS 142. The amount of the consideration paid for the shares of
Twincentric was determined based on arm's-length negotiation with the
shareholders of Twincentric and based on the weighted average share price of the
Company's common shares for the two trading days before and after the day the
Company entered into the agreement. During the next year until June 30, 2005,
the shareholders of Twincentric will probably be entitled to an additional
allotment of the Company's shares. The amount of this additional allotment of
shares of the Company's stock will be based on a percentage of the amount of
revenues generated by Twincentric over and above its current sales level and the
common shares to be allocated to fulfill this achievement bonus will be valued
as at the closing value of each quarter in which the increased revenue
percentage is earned. Twincentric is a data integration and migration software
and services company primarily in the AS 400 and Bull Computer markets. The
Company intends to maintain the Twincentric name for marketing purposes in
Europe.
14
IVP TECHNOLOGY CORPORATION
D.B.A. ACTIVECORE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2004 (CONTINUED)
(UNAUDITED)
The purchase price allocation recorded for the acquisition of Twincentric
Limited is as follows:
Accounts receivable $ 22,000
Other receivables and prepayments 31,000
Capital assets 26,000
------------
Total assets 79,000
------------
Bank debt 208,000
Accounts payable 58,000
Taxes payable 128,000
Other payables 230,000
------------
Total liabilities assumed 624,000
------------
Excess of liabilities assumed over assets acquired
545,000
Purchase price 379,000
Acquisition - related fees and expenses 50,000
------------
Goodwill $ 974,000
=============
The following unaudited pro forma consolidated results of operations are
presented as if the acquisition of Twincentric had been made at the beginning of
the 2004 period presented:
Six Months Ended
June 30, 2004
-------------
Net sales $ 1,458,698
Net loss $ (201,577)
Basic and diluted loss per share $ (0.00)
NOTE 6- OTHER ACQUISITIONS
On September 20, 2003, the Company issued 6,472,492 shares of common stock in
connection with the acquisition of the data integration division of SCI
Healthcare Group. The shares were valued based on the closing price of the
Company's common stock on September 18th, the contracted determination date,
which represented $200,000. Additional consideration of $175,000 was given in
the form of a promissory note. There is a further provision to allow for the
increase or reduction of a percentage of the issued shares if certain gross
revenue targets are not met after one year from the acquisition date. The shares
are being held in trust by the seller's counsel. The Company allocated the
purchase price between goodwill ($100,000) and customer list ($275,000). The
customer list is being amortized over a term of three years based on the tenure
and cancelability of existing contracts. Amortization for the six months ended
June 30, 2004 was $45,830.
15
IVP TECHNOLOGY CORPORATION
D.B.A. ACTIVECORE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2004 (CONTINUED)
(UNAUDITED)
The following unaudited pro forma consolidated results of operations are
presented as if the acquisition of the data integration division of SCI
Healthcare Group had been made at the beginning of 2003:
Six Months Ended
June 30, 2003
-------------
Net sales $ 573,074
Net loss $ (201,579)
$
Basic and diluted loss per share (0.00)
NOTE 7- DUE FROM RELATED PARTIES
The balance due from related parties of $59,286 has been included in prepaid
expense and other current assets in the accompanying condensed consolidated
balance sheet at June 30, 2004. This amount represents a prepayment by the
Company for officers' salaries and expenses. This balance is short-term in
nature and will be expensed in the third and fourth quarter of 2004.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
(A) ActiveCore Technologies Limited, the Canadian subsidiary, has a liability to
the Canada Customs and Revenue Agency ("CCRA") for un-remitted payroll taxes, in
the approximate amount of $305,000, which is comprised of $222,000 for current
payroll taxes, and $83,000 from a December 31, 2002 CCRA audit assessment
whereby several contract employees were deemed to be eligible for statutory
pension and unemployment premiums not previously recorded. The Company has
accrued these liabilities together with appropriate interest and penalties. This
liability is included in taxes payable in the current liabilities section of the
accompanying condensed consolidated balance sheets at June 30, 2004 and December
31, 2003. An aggressive collection effort by the CCRA could have a significant
negative effect on the Company's operations.
(B) On January 13, 2002, the Company canceled its "Power Audit" software
distribution agreement with the licensor. In January of 2003, the licensor
commenced a proceeding in Ontario, Canada against the Company which was placed
into abeyance and then revived in August of 2003 alleging that the Company had
infringed upon the copyright that the licensor maintained, and further that the
Company had breached the distribution contract. The licensor has claimed
punitive and exemplary damages of Canadian $4,000,000 and $1,000,000,
respectively. The Company has retained legal counsel to defend itself on the
basis that there is no merit to the case and even if there was merit, the time
frame in which to bring an action in the contract has expired.
Compulsory mediation has occurred in the case and no settlement was offered or
agreement arrived at during the mediation phase. The next step would normally be
"examination for discovery" then on to a trial. The Company has not yet
determined if it will counter sue for the return of all proceeds paid to the
licensor during the period of time between 1999 and 2001. It is the Company's
view that the case filed by the licensor is frivolous and in any event is now in
a state of legal limbo and if restarted no negative outcome would be
experienced. No allocation for any contingent liability has been made in the
Company's Condensed Consolidated Financial Statements for the punitive and
exemplary damages; however, it has maintained in it current accounts payables
approximately $226,000 as owing to the licensor. In January of 2003, the Company
also committed to issue to the licensor, 100,000 shares of freely tradable
common stock. The shares were valued by the Company at $0.18 per share based on
the closing market price of the common stock at the commitment date. The total
value of $18,000 is included in current liabilities in the accompanying
condensed consolidated balance sheets at June 30, 2004 and June 30, 2003.
16
IVP TECHNOLOGY CORPORATION
D.B.A. ACTIVECORE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2004 (CONTINUED)
(UNAUDITED)
(C) On March 17, 2000, the Company entered into a consulting agreement with the
former stockholder of an inactive reporting shell company that the Company
acquired. The consulting agreement provides 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
3,028,378 common shares to the consultant as an additional fee. In March of
2004, the consultant filed a claim in the Superior Court of the District of
Columbia against the Company seeking, among other things, the reset shares. The
Company has engaged legal counsel to vigorously defend itself against the claim.
On May 3, 2004, the Company responded to the Complaint by filling a motion to
compel arbitration. The Superior Court granted the Company's motion by order
dated May 27, 2004. The consultant filed a Demand for Arbitration with the
American Arbitration Association on or about June 9, 2004. To date the Company
through its solicitors and the consultant are negotiating the terms of the
arbitration. The Company believes the consultant is not entitled to the reset
shares due to the SEC and regulatory problems relating to the acquisition of the
shell company and as such has not provided any accruals for this matter in the
accompanying consolidated financial statements.
(D) During July of 2004, the Company was named as a co-defendant in a motion
brought by a Canadian based company that competes with ActiveCore alleging that
ActiveCore had misappropriated property of this company and amongst other things
unfairly competes against this company. To date no action has been commenced by
the plaintiff to pursue the motion and the Company believes that the motion will
be dropped following resolution of an action of minority shareholders against
the Company which is expected within the next several months.
(E) During all of 2003, the Company's principal executive office was located at
2275 Lakeshore Blvd. West, Suite 401, Toronto, Ontario, Canada at a cost of
approximately $3,500 per month. Commencing in July of 2003, the Company
subleased additional premises in Suite 402 in the same building doubling its
rental space to approximately 5,500 square feet at a cost of an additional
$3,500 per month. Commencing May 1, 2004, the Company moved its premises to 156
Front Street West, Suite 210, Toronto, Ontario, M5J 2L6 where it leases
approximately 6,550 sq ft of office space for five years at a rental cost,
including operating expenses and taxes, of approximately $126,000 per annum.
NOTE 9 - NOTES PAYABLE
On June 14, 2004, the Company obtained a loan of $60,000 under the terms of the
Equity Line of Credit with Cornell Capital Partners, L.P. The balance due on
this loan at June 30, 2004 was $15,000 and the amount is included in notes
payable, current portion. Subsequent to June 30, 2004, the loan has been repaid
in full. During the six months ended June 30, 2004, the Company obtained an
additional $250,000 under the Equity Line of Credit with Cornell Capital
Partners. As of June 30, 2004, these loans have been fully repaid. The Company
also repaid the $226,911 which was payable under the Equity Line of Credit with
Cornell Capital Partners at December 31, 2003.
NOTE 10 - STOCKHOLDER'S EQUITY
During the six months ended June 30, 2004, the Company issued 37,672,137 shares
of common stock to Cornell Capital Partners having a fair market value of
$658,168 in connection with the Equity Line of Credit Agreement. Of the amount,
$226,911 was applied against the original $1,000,000 promissory note payable and
$389,989 was used to repay three separate notes that were issued in January of
2004 under the Equity Line of Credit with Cornell Capital Partners. Also,
$47,268 was applied against interest due on the original $1,000,000 promissory
note payable.
17
IVP TECHNOLOGY CORPORATION
D.B.A. ACTIVECORE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2004 (CONTINUED)
(UNAUDITED)
Pursuant to an agreement reached between a long-term debt holder and the
Company, the board of directors approved the issuance of 3,559,520 restricted
shares of common stock aggregating $88,988 for the settlement of the principal
and accrued interest through February 23, 2004. The shares were valued at $0.025
per share based on the closing market price of the common stock on the
settlement date. During the six months ended June 30, 2004, the Company issued
10,300,000 restricted shares to various employees as performance related bonuses
or signing inducements. The values assigned to the common stock ranged from
$0.012 to $0.028 per share or an aggregate of $185,700, representing the closing
market value of the Company's common stock on the dates of issue. During the six
months ended June 30, 2004, the Company issued 66,036,267 restricted shares of
common stock to two directors and an officer of the Company in lieu of cash to
satisfy shareholder loans, expenses paid on behalf of the Company and accrued
salaries included in the amounts due to related parties in the accompanying
condensed consolidated balance sheets. The values assigned to the common stock
ranged from $0.012 to $0.024 per share, or an aggregate of $990,325 representing
the market value on the dates of grant. At December 31, 2003, $380,000 of this
amount was included in the equity section of the condensed consolidated balance
sheet as common stock to be issued.
Pursuant to an agreement reached between a creditor and the Company, the board
of directors approved the issuance of 2,000,000 restricted shares of common
stock aggregating $48,000 for settlement of a $50,000 liability. These shares
were issued on February 20, 2004 and were valued at $0.024 per share based on
the closing market price of the common stock on the issuance date.
Also, see Note 11(B) for additional stock transactions.
NOTE 11 - AGREEMENTS
(A) DYNAPORTAL
On February 9, 2004, BiznizWeb, Inc. (d.b.a. DynaPortal Software Company) and
the Company entered into a mutual non-exclusive dealer agreement for sales of
each other's products and a mutual understanding to develop ActiveLink
connectors to all of DynaPortal's modules. Under terms of the agreement, both
companies are working to create connectors between the Company's ActiveLink
product and DynaPortal functions. Once complete, the Company believes that the
joint development will provide both companies with the ability to offer powerful
portal solutions which should be able to compete with companies offering much
more expensive products.
This agreement will remain in effect for two years. The Company paid Dynaportal
$3,740 for an initial license to use the Activelink product in its DynaPortal
demonstration site.
(B) CONSULTING AGREEMENTS
On January 26, 2004, the Company entered into a consulting agreement with an
unrelated company to assist in locating and negotiating several prospective
merger candidates primarily to enable the creation of an outbound messaging and
communications service to work with the Company's ActiveLink product as a data
service bureau and enterprise portal interface. On February 20, 2004, the
Company issued 5,000,000 restricted shares to the consultant. These shares were
valued at $0.024 per share, or an aggregate of $120,000 representing the closing
bid price at the date of issue.
NOTE 12 - SUBSEQUENT EVENTS
On July 12, 2004, the board of directors authorized the sale of 4,000,000
restricted shares of common stock to unrelated parties in exchange for $60,000.
The restricted share agreement grants the purchaser one warrant for each share
at a purchase price of $0.018 to expire on November 30, 2005. The shares have
not yet been issued.
18
IVP TECHNOLOGY CORPORATION
D.B.A. ACTIVECORE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2004 (CONTINUED)
(UNAUDITED)
Also on July 12, 2004, the board of directors authorized the issuance of 666,000
restricted shares of common stock for the purchase of a limited source code
licence for certain software for a value of $10,000. The shares have not yet
been issued.
Also on July 12, 2004, the board of directors authorized the issuance of
16,000,000 restricted shares for a substantial minority interest in Infolink
Technologies Limited. On July 31, 2004, the Company signed an irrevocable share
call agreement with a current employee to acquire 8,000,000 shares of Infolink
in exchange for 16,000,000 restricted shares of IVP which is callable at the
option of the Company. The shares have not yet been issued.
Also on July 12, 2004, the board of directors authorized the issuance of 150,000
restricted common shares to an unrelated party in consideration of a one-year
consulting contract for investor relations services. The shares have not yet
been issued.
On September 8, 2004, the board of directors authorized the issuance of
8,333,333 Series A and 4,167,667 Series B preferred shares which have a purchase
price of $0.03 and $0.06, respectively. Each preferred share is convertible into
a common share at any time prior to five years from the date of issuance. With
respect to the Series A shares, the Company may force conversion if the trading
price of the Company's common shares exceeds $0.20 for 30 days. With regard to
the Series B shares, the Company may force conversion if the trading price of
the Company's common shares exceeds $0.40 for 30 days. The preferred shares will
be paid a dividend at the rate of 10% per annum.
Also on September 8, 2004, the board of directors authorized the issuance of
1,000,000 restricted common shares of stock to an employee. These shares will be
earned over the next year. The shares have not yet been issued.
Also on September 8, 2004, the board of directors authorized the issuance of
12,000,000 restricted common shares of stock to unrelated party to perform
consulting activities, including identifying and sourcing acquisition
candidates. These shares will be earned over the next year. The shares have not
yet been issued.
19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS. This Filing contains
forward-looking statements. Such forward-looking statements include statements
regarding, among other things, (a) the Company's projected sales and
profitability, (b) the Company's growth strategies, (c) anticipated trends in
the Company's industry, (d) the Company's future financing plans, (e) the
Company's anticipated needs for working capital, (f) the Company's lack of
operational experience, and (g) the benefits related to ownership of the
Company's common stock. Forward-looking statements, which involve assumptions
and describe the Company's future plans, strategies, and expectations, are
generally identifiable by use of the words "may," "will," "should," "expect,"
"anticipate," "estimate," "believe," "intend," or "project" or the negative of
these words or other variations on these words or comparable terminology. This
information may involve known and unknown risks, uncertainties, and other
factors that may cause the Company's actual results, performance, or
achievements to be materially different from the future results, performance, or
achievements expressed or implied by any forward-looking statements. These
statements may be found under "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business," as well as in this Filing
generally. Actual events or results may differ materially from those discussed
in forward-looking statements as a result of various factors, including, without
limitation, the risks outlined under "Risk Factors" and matters described in
this Filing generally. In light of these risks and uncertainties, there can be
no assurance that the forward-looking statements contained in this Filing will
in fact occur as projected.
OVERVIEW
IVP Technology Corporation d.b.a. ActiveCore Technologies, Inc.
("ActiveCore" or the "Company") is a Nevada registered Company with its head
office in Toronto, Ontario, Canada, and operations in Tampa, Florida and Witney,
UK. The Company operates within the enterprise software and services market in a
sector which has been described by information technology ("IT") industry
analyst Gartner Group as that group of vendors of software and services that
sell and install "Smart Enterprise Suites" and related products.
The Company's products provide data integration, migration, portal,
content management and outbound messaging. This gives ActiveCore the capability
to provide effective, efficient and economical data integration and migration
services for clients seeking to capture data and deploy or broadcast information
to stakeholders and customers without wholesale changes to their existing
systems. ActiveCore's products are designed to enable the Company's clients to
extend the functions of their current data systems, often called "back office"
systems, by using the Company's core XML integration product, ActiveLink, to web
portals or to reach out to customers via mobile devices to bring data into, or
to export data from, their organizations. ActiveCore terms this approach
"Enabling a Smart Enterprise". By concentrating on data integration as the core
product and service offering, the Company has then been able to develop
"vertical" and "specific" product and service offerings for various industries
and for specific applications such as ActiveCast for "outbound corporate
broadcasting", or in the case of the Company's MDLink, vertical application for
healthcare integration services.
In general, the Company develops, sells and implements its own and
third party software and provides outsourced integration and IT services for
organizations in financial services, government, and education, insurance and
healthcare. Software and services provided by the Company are designed to enable
the Company's customers to quickly integrate and extend the functionality of
their current systems and databases so that they can reach new markets in new
ways and/or improve internal and external processes. The Company does this by
assisting the Company's customers with integrating to existing applications and
data and then using web portal or other communications technology, such as
wireless, land line, VPN, or network services, to allow the Company's customers
to "take in" new data from the field or "broadcast out" data through such
technologies as text messaging, SMS, MMS, fax, web broadcast, voice casting or
other communication means.
The Company has set up a "service bureau" operation under the product
identity "ActiveCast" whereby it offers broadcast services to customers on an
outsourced basis using its own internal installation of ActiveLink and
DynaPortal. In May of 2004, the Company acquired C Comm Network Corporation,
which provides us with the infrastructure to generate revenue from this area of
the Company's operations. The Company is actively increasing the scope and
revenue earning capacity of that operation by investing in fixed assets and
personnel to grow the revenue and client base. The Company is also concurrently
searching for potential acquisition candidates that can expand the Company's
communications infrastructure and the range of products and services that the
Company can offer within the context of the Smart Enterprise Suite and broadcast
services. In this area of operations, the Company competes with such companies
as Infolink Technologies Limited in Canada, J2 Global Communications, Inc.,
Xpedite Corporation, Plumtree Corporation, and Vignette Corporation in North
America and Europe.
20
At times in the past two years, the Company has also engaged in the
development and distribution of products in the consumer marketplace.
Specifically, in May 2002, the Company acquired the shares of Ignition
Entertainment Ltd., a UK based company engaged in the development, licensing,
publishing, marketing and distribution of console games. In early-to-mid-2003,
the Company also increased its investment in the development and distribution of
mobile games and ring tones together with a web distribution portal, however
over the last year, the Company has determined that each of these investments
were too costly to operate successfully and very susceptible to market risk.
Accordingly, effective March 31, 2003, the Company divested its console games
operations. The Company's remaining interests in the consumer market were
divested effective February 29, 2004, when the Company sold its mobile game and
ring tone development and distribution division known as SilverBirch Studios to
a new company established by the Company's former Chief Technology Officer,
Kevin Birch, for a combination of secured term debt, a royalty revenue stream,
and a 5% equity holding in the new company.
MARKET POSITIONING SUMMARY
THE COMPANY'S "SMART ENTERPRISE SUITE"
The Company provides organizations of all sizes with the capability to
integrate, enable, and extend their back office systems to connect to and
communicate with their customers and stakeholders.
The Company's products consist of web portal and mobile enabled
software: stand alone components and tools, data integration services, and a
corporate messaging service bureau. The products are sold a la carte rather than
as a whole solution thereby, lowering per product cost and eliminating the need
for capital asset decision making or budgeting.
ActiveLINK is the core of the Company's data integration solutions as
ActiveLINK integrates and transforms disparate databases and applications,
creating a hub through which legacy functionality can be enabled and extended.
ActiveCore involves the sale of software products to companies,
independent software resellers and system integrators.
MDI Solutions consists of health care data integration, time, billing
and software sales, which results in recurring income supported by contracts.
ActiveCast consists of corporate messaging linking data from internal
systems to outbound messaging, which results in rapid cash flow and recurring
revenue from organizations sending data to dedicated lists.
Twincentric consists of date integration and migration to Java for
clients using AS 400 and Bull Computer platforms.
RECENT DEVELOPMENTS
In the MDI Solutions group, further progress has been made with
additional medium term contracts signed which provide recurring revenues to the
Company. The Company's marketing expenses in this group have risen substantially
over the levels expended in 2003; however, the Company expects that its
investment in marketing will pay off during the current and future fiscal years.
During the last few months, the Company has obtained service contracts from
and/or sold products to over 20 healthcare facilities and is working in several
facilities to deliver state of the art systems which will link hospitals with
outside clinical personnel to help bring additional efficiencies to healthcare
services. The Company expects the number of staff in the MDI Solutions group to
rise with the commencement of new contracts that are in process.
In the Company's ActiveCore and ActiveCast business lines, the Company
is continuing to obtain additional clients. On the ActiveCast side of
operations, the Company is also adding clients as a result of the sales team
that the Company acquired as a result of the C Comm acquisition. This division
has generated revenue and substantial margins. We expect revenue to increase
throughout the remainder of 2004. The Company foresees growth in this section of
the Company's business. During the quarter ended June 30, 2004 and the period
thereafter, the Company continued to make relatively large investments in
equipment and new staff in this area of the business and the Company expects
that during the third and fourth quarters of 2004, revenues should continue to
climb.
In 2003, and to a certain extent continuing into the 2004 fiscal year,
the Company's operations in the healthcare field have been adversely affected by
the SARS situation in Toronto which caused many hospitals to restrict outside
work and brought a halt to many IT projects. The Company chose to retain all the
Company's staff throughout the period during which SARS affected the Company's
revenue earning capacity. Many of the Company's healthcare clients have not yet
managed to repair the damage to their operational and capital budgets caused by
the extraordinary costs associated with the SARS epidemic. The Company
anticipates that these healthcare institutions will begin to work their way out
of their budget difficulties over the next few months and be able to once again
spend money on improving their IT infrastructures.
21
ACQUISITIONS AND REORGANIZATIONS
The Company maintains an active interest in acquisitions and the
reorganization of its component parts to better service clients. Many of the
Company's clients need a multiple of the Company's products and services and
thus the Company may undertake internal restructurings to facilitate better
customer service. Investment in its existing operations augmented by growth
through acquisitions is a key goal of management as is the effective use of
capital to drive acceptable returns on investment. The following paragraphs
briefly describe recent acquisitions and reorganizations that have occurred.
DIVESTITURE OF MOBILE AND WEB BASED GAMES DIVISION OF ACTIVECORE
Effective February 29, 2004, ActiveCore sold its remaining interests in
mobile and web based games with the divestiture of its mobile games group. Under
the terms of the divestiture, a new company known as "SilverBirch Studios
Limited" purchased the assets known as BladeofZorro.com, Recesgames.com and
Silverbirchstudios.com, all U.S. registered trade names. Included with the
assets sold were games that had been developed over the course of 2003 and
early-2004, ring tones and other intellectual property. SilverBirch Studios Inc.
has assumed distribution contracts for third party products included on the
Recessgames.com website.
ACQUISITION OF C COMM NETWORK CORPORATION
C Comm, formerly privately held, is a corporate message broadcasting
service which employs communication media such as facsimile, voice, and e-mail
to deliver messages to various organizations' customers. The Company has begun
marketing C Comm's services under the product name "ActiveCast". The Company has
also added new functionality to the Company's website such that large customers
of ActiveCast will each have their own portal within the Company's website to
automate dissemination of various membership or corporate broadcast messages. An
example of this type of dissemination is communication to branches of banks for
foreign exchange rate changes on a daily basis. The Company has established
certain supplier relationships with a major telecommunications company for the
use of specific high volume and high speed telecommunication lines for this
purpose.
On May 6, 2004, the Company entered into a Stock Purchase Agreement
with C Comm Network Corporation an Ontario corporation. Under the terms of the
Stock Purchase Agreement, the Company purchased all of the outstanding shares of
capital stock of C Comm from the shareholders for $461,962. The amount of
consideration paid for the shares of C Comm stock was satisfied by the issuance
of 30,758,202 restricted common shares of the Company. The amount of the
consideration to be paid for the shares of C Comm was determined based on a
multiple of revenues earned by C Comm for the two previous fiscal years ended
September 30, 2002 and September 30, 2003, plus revenues earned for the six
months ended March 31, 2004. During the next year until June 30, 2005, the C
Comm shareholders will probably be entitled to an additional allotment of shares
of the Company's common stock which amount will be determined by growth in
revenues and the price of the Company's common stock. The amount of this
additional allotment of shares will be based on the amount of revenues generated
by C Comm over and above its current sales levels.
ACQUISITION OF TWINCENTRIC LIMITED
On June 21, 2004, the Company entered into a purchase and sale
agreement with the shareholders of Twincentric whereby the Company paid
14,360,243 shares of the Company's common stock representing $350,000 for 50% of
Twincentric, 200,000 shares of the Company's common stock representing $4,875
for the remaining 50% of Twincentric, and 1,000,000 shares of the Company's
common stock representing $24,373 in trust for the employees of Twincentric.
Following the acquisition, the Company also indemnified certain shareholders
with respect to personal guarantees supporting Twincentric's operating line of
credit.
Twincentric is a products and services company aimed at the AS 400 and
Bull Computer data integration and migration market. Twincentric has a broad
range of customers in North America and Europe. The market for Twincentric's
primary products consists of approximately 300,000 installations worldwide. The
Company is actively supporting the marketing of Twincentric's products,
primarily Net.Visual, into the North American market, while Twincentric will be
assisting the Company in its marketing of ActiveLink into the European market.
Following the acquisition of Twincentric, The Company closed its London office
and moved to Witney, UK.
22
GOING CONCERN
The accompanying Condensed Consolidated Financial Statements have been
prepared on the basis that the Company is a going concern, which contemplates
the realization of assets and the satisfaction of liabilities in the normal
course of business. The Company has a net loss on operations of $576,709 and a
negative cash flow from operations of $255,176 for the six months ended June 30,
2004, and has a working capital deficiency of $1,085,992 at June 30, 2004 which
raises doubt about the Company's ability to continue as a going concern. The
Condensed Consolidated Financial Statements do not include any adjustments that
might result from the outcome of this uncertainty. Management's plan to continue
operations is to raise additional debt or equity capital until such time as the
Company is able to generate sufficient operating revenues through its new
acquisitions.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with accounting
principles generally accepted in the U.S. requires management to make a wide
variety of estimates and assumptions that affect (i) the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities as of
the date of the financial statements, and (ii) the reported amounts of revenues
and expenses during the reporting periods covered by the financial statements.
The Company's management routinely makes judgments and estimates about the
effect of matters that are inherently uncertain. As the number of variables and
assumptions affecting the future resolution of the uncertainties increases,
these judgments become even more subjective and complex. The Company has
identified certain accounting policies that are most important to the portrayal
of its current financial condition and results of operations. The Company's
significant accounting policies are disclosed in Note 1 of the Notes to the
December 31, 2003 Financial Statements included in the December 31, 2003 Form
10-KSB. Several of those critical accounting policies are noted in the following
paragraphs.
(A) ACQUISITION AND RECAPITALIZATION
Effective March of 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. The
$200,000 was recorded as an expense in the 2000 financial statements. 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, as amended. 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.
(B) PRINCIPLES OF CONSOLIDATION
The Condensed Consolidated Financial Statements include the accounts of
the Company and its wholly-owned subsidiaries Ignition, Springboard and Erebus
Corporation. All significant inter-company transactions and balances have been
eliminated in consolidation.
(C) BASIS OF PRESENTATION
The Condensed Consolidated Financial Statements are expressed in United
States dollars and have been prepared in accordance with generally accepted
accounting principles ("GAAP") in the U.S.
(D) FOREIGN CURRENCY TRANSACTIONS
Assets and liabilities of foreign subsidiaries, whose functional
currency is the local currency, are translated at year-end exchange rates.
Capital accounts are re-measured into U.S. dollars at the acquisition date
rates. Income and expense items are translated at the average rates of exchange
prevailing during the year. The adjustments resulting from translating the
financial statements of such foreign subsidiaries are recorded as a component of
accumulated other comprehensive income (loss) in stockholders' deficiency.
Foreign currency transaction gains or losses are reported in results of
operations.
23
(E) COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) represents the change in net assets of a
business enterprise during a period from transactions and other events and
circumstances from non-owner sources. Comprehensive income (loss) of the Company
includes net income adjusted for the change in foreign currency translation
adjustments.
(F) USE OF ESTIMATES
The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the dates of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. Actual amounts could differ
significantly from these estimates.
(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
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 financial instruments, including
cash, accounts receivable, accounts payable, accrued liabilities, due to factor,
taxes payable and other current liabilities approximate fair value because of
their short maturities. The carrying amount of licensing agreements and
investments approximate fair value based upon the recoverability of these
assets. The carrying amount of the Company's lines of credit approximates fair
value because the interest rates of the lines of credit are based on floating
rates identified by reference to market rates. The carrying amounts of the
Company's loans and notes payable and capital lease obligations approximate the
fair value of such instruments based upon management's best estimate of interest
rates that would be available to the Company for similar debt obligations.
(I) ADVERTISING
The Company expenses advertising costs as incurred.
(J) ALLOWANCES FOR DOUBTFUL ACCOUNTS AND SALES RETURNS
The Company makes judgments as to the 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, the Company analyzes historical
collection experience and current economic trends. If the historical data used
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 used 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.
(K) PROPERTY AND EQUIPMENT
Office equipment, furniture and fixtures and automobiles are
depreciated using the straight-line method over their estimated lives ranging
from five-to-seven years. Computer equipment and software are depreciated using
the straight-line method over three years. Leasehold improvements are amortized
over the lesser of the term of the related lease or estimated useful lives. The
cost of additions and betterments are capitalized, and repairs and maintenance
costs are charged to operations in the periods incurred. When depreciable assets
are retired or sold, the cost and related allowances for depreciation are
removed from the accounts and the gain or loss is recognized. The carrying
amounts of these assets are recorded at historical cost.
24
(L) LONG-LIVED ASSETS
In August of 2001, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets". This pronouncement
supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
long-Lived Assets to be Disposed of "and was required to be adopted on January
1, 2002. SFAS No. 144 retained the fundamental provisions of SFAS No. 121 as it
related to assets to be held and used and assets to be sold. SFAS No. 144
requires impairment losses to be recorded on assets to be held and used by the
Company when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the carrying
amount of the assets. When an impairment loss is required for assets to be held
and used by the Company, the related assets are adjusted to their estimated fair
value. Fair value represents the amount at which an asset could be bought or
sold in a current transaction between willing parties, that is other than a
forced or liquidation sale.
The estimation process involved in determining if assets have been
impaired and in the determination of fair value is inherently uncertain because
it requires estimates of current market yields as well as future events and
conditions. Such future events and conditions include economic and market
conditions, as well as availability of suitable financing to find acquisitions
and development activities. The realization of the Company's revenue producing
assets is dependent upon future uncertain events and conditions, and
accordingly, the actual timing and amounts realized by the Company may be
materially different from their estimated value.
(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 Acquired."
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 are reviewed periodically for impairment. The Company
recognized an impairment of goodwill and intangible assets of $11,067,783 for
the year ended December 31, 2002. Purchased intangibles with finite lives are
amortized on a straight-line basis over their respective useful lives.
(N) CAPITALIZED SOFTWARE DEVELOPMENT COSTS
The Company capitalizes internal software development costs, as well as
other content costs, subsequent to establishing technological feasibility of a
title. Capitalized software development costs represent the costs associated
with the internal development of the Company's publishing products. Amortization
of such costs as a component of cost of sales is recorded on a title-by-title
basis based on the greater of the proportion of current year sales to total of
current and estimated future sales for the title or the straight-line method
over the remaining estimated useful life of the title. The Company continually
evaluates the recoverability of capitalized software costs and will charge to
cost of sales any amounts that are deemed unrecoverable or for projects that it
will abandon. Development costs incurred prior to establishing technological
feasibility are expensed in the period incurred and is included as a component
of cost of sales in the accompayning consolidated statement of operations.
(O) INCOME TAXES
The Company accounts for income taxes under the FASB's SFAS No. 109
"Accounting for Income Taxes". Under SFAS No. 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.
25
(P) 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.
(Q) STOCK-BASED COMPENSATION
The Company accounts for employee stock option plans in accordance with
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees". Under APB No. 25, generally no compensation expense is recorded
when the terms of the award are fixed and the exercise price of the employee
stock option equals or exceeds the fair value of the underlying stock on the
date of grant. The Company adopted the disclosure-only provisions of SFAS No.
123, "Accounting for Stock-Based Compensation".
(R) PROFIT (LOSS) PER COMMON SHARE
Basic loss per common share is based on net loss divided by the weighted
average number of common shares outstanding. Common stock equivalents were not
included in the calculation of diluted loss per share as their effect would be
anti-dilutive.
(S) BUSINESS SEGMENTS
The Company applies SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information". The Company operates in one segment and
therefore segment information is not presented.
Management has determined that it is not practicable to provide geographic
segment disclosures for revenues and long-lived assets because the Company sells
its products to a large variety of locations in the Americas and Europe, and in
many instances, these products are then resold through distributors.
(T) 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 GAAP 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 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, and 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 the license or 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 does not have any multi-element arrangements that would
require it to establish vendor specific objective evidence ("VSOE") for each
element, nor does the Company have any sales activity that requires the contract
method of accounting.
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 of defective products.
(U) CONSIDERATION GIVEN TO CUSTOMERS OR RESELLERS
In November of 2001, the FASB Emerging Issues Task Force ("EITF") reached
a consensus on EITF Issue 01-09, "Accounting for Consideration Given by a Vendor
to a Customer or Reseller of the Vendor's Products", which is a codification of
EITF 00-14, 00-22 and 00-25. This EITF presumes that consideration from a vendor
to a customer or reseller of the vendor's products to be a reduction of the
selling prices of the vendor's products and, therefore, should be characterized
as a reduction of revenue when recognized in the vendor's income statement and
could lead to negative revenue under certain circumstances. Revenue reduction is
required unless consideration relates to a separate identifiable benefit and the
benefit's fair value can be established. The Company has adopted EITF 01-09
effective January 1, 2002. The adoption of the new standard did not have a
material impact on the consolidated condensed financial statements. There was no
effect on prior period financial statements as a result of adopting this
statement.
26
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE MONTH PERIOD ENDED JUNE 30, 2004
COMPARED TO THE SAME PERIOD ENDED JUNE 30, 2003
REVENUES
During the three months ended June 30, 2004, the Company generated
$1,105,532 in revenue from the sale of products and services versus $82,300 in
revenue from product and services in the same three month period ended June 30,
2003, an increase of 1,343% period over period. From a revenue source
perspective, in the second quarter of fiscal year 2004, sales of software
products accounted for approximately 75% of sales and while approximately 25% of
revenues were service related. In the three months ended June 30, 2003, $82,300
of revenue was generated from services work and product installation chiefly by
the Company's MDI group. In the three month period ended June 30, 2004, there
were no discontinued operations whereas in the three months ended June 30, 2003,
the Company accounted for the divestiture of Ignition Entertainment Ltd. as
discontinued operations with effect from April 1, 2003. No revenue from Ignition
UK was included in the results for the three months ended June 30, 2003. During
the second quarter of 2003, revenue from the MDI group was down substantially
from what was expected as a result of the SARS outbreak in Toronto which
constrained revenue earning opportunities within existing hospital contracts and
in terms of expansion of operations to other health care units in the U.S. and
Canada primarily due to restrictions on travel and a general apprehension over
SARS amongst various health care facilities.
COST OF SALES
Cost of sales for the three month period ended June 30, 2004 was $362,596,
which consisted of wages paid to consulting services staff, third party royalty
charges, distribution costs and amortization of acquisition costs of the MDI
customer list and for the Company's acquisition of the source code to XML
Connector. In the period ended June 30, 2003, cost of sales was $93,207. The
principal cost of sales items in the second quarter of 2003 consisted of
amortization of the Classifier software license of $89,202. As a result of the
cost of sales components elaborated above, the June 30, 2004 three month period
led to a positive gross margin of $742,936 versus a negative gross margin of
$10,907 in the three months ended June 30, 2003. This trend towards high gross
margins is expected to continue as the Company expands its software sales
efforts in the U.S. and Europe.
OPERATING EXPENSES
Total operating expenses for the three months ended June 30, 2004 were
$688,538 versus $1,126,570 in the three months ended June 30, 2003. After
expenses, the Company recognized a gain on operations of $54,398 in the three
months ended June 30, 2004 versus a loss from operations of $1,137,477 in the
quarter ended June 30, 2003.
The largest components of second quarter 2004 fiscal year expenses and of
second quarter fiscal year 2003 operating expenses were related to stock based
compensation, consulting fees, salaries and wages, legal and accounting and
other general and administration expenses. These expenses are discussed below.
In the three months ended June 30, 2004, the Company expended $183,074 in
salaries and wages versus $157,573 in the three months ended June 30, 2003. In
the 2004 period, staff counts were higher as a result of the acquisition of C
Comm Network Corporation, Twincentric Limited and the hiring of new staff in the
corporate broadcasting/ActiveCast division as well as a first full quarter's
expenses for the UK operation. In the three month's ended June 30, 2003, all of
the wage costs were incurred in the Company's Canadian office as none of the
other acquisitions had been completed and the Company had not yet acquired the
Company's U.S. MDI Solutions staff. Salaries and wages in both periods represent
the cost of developers, administration and sales and marketing staff except for
certain contractors who are shown as consulting costs. Salaries and wages
include costs of all group insurance and various government programs.
In the three months ended June 30, 2004, the Company incurred costs of
$56,618 related to the prorata amortization of employee and consultant stock
issuances for bonuses, stock incentives and regular compensation. In the quarter
ended June 30, 2003, the Company incurred stock compensation expense of
$656,922, which included $540,000 expensed due to the acceleration of release of
20,000,000 shares that were formerly part of the acquisition terms of ITM in
September of 2001. Under the original ITM purchase agreement, stock was to be
released to the managers of ITM as sales revenue targets were met. At the time
the original agreement was made, it was anticipated by both the former directors
of the Company and the owners of ITM that the stock issued in exchange for ITM
acquisition would be valued as at the date of the agreement and accounted for as
a large goodwill value on the balance sheet. However, during the Company's
prolonged initial Form SB-2 approval process, it was determined that the common
stock needed to be accounted for as at the quarter-end in the each of the
quarters where the original sales revenue targets were achieved. In practice
this meant that regardless of how successful the Company was in achieving
increased sales, and regardless of how well the share price responded to the
increased revenue, the Company was likely to record large losses based on the
valuation of the share releases at the time the revenues were recognized. In
addition, the recording of higher share compensation values was acting as a
disincentive for management since management were likely to be taxed on the
increased value of the stock received as it was being recognized as income
rather than a one time capital gain over the original purchase price of the
equity purchase in ITM. The other stock based compensation included in the June
30, 2003 figures consisted of payments of $63,500 related to director's fees for
the 2003 year, and $125,000 related to an upfront payment to a consultant for
2003.
27
Consulting fees for the three months ending June 30, 2004 were $83,572
versus $45,256 in the second quarter ended June 30, 2003, which reflects the
cost of several contractors who are paid as consultants in the ActiveCast
division.
Legal and accounting expenses for the three months ended June 30, 2004
were $137,358, which was higher than the $57,996 recorded in the three months
ended June 30, 2003. The higher expense in the second quarter reflects the full
cost of the annual audit and submission of both the Form 10-KSB for the fiscal
year ended December 31, 2003 and the Form 10-QSB for the first quarter of 2004.
Legal and audit expense for the six months ended June 30, 2004 was slightly
higher at $163,455 versus $153,834 in the six month period ended June 30, 2003.
For the three months ended June 30, 2004, the Company incurred General and
Administrative expenses of $218,885 as opposed to $198,470 in the quarter ended
June 30, 2003. During the second quarter of 2004, the Company relocated the
Company's Canadian offices from 2275 Lakeshore Boulevard and took on additional
space at 156 Front Street West, Toronto. In addition, the Company also moved the
Company's UK offices from London to Witney to merge the Company's UK office into
Twincentric's space. In the second quarter ended June 30, 2003, the largest
component of General and Administrative Expenses was a write-down of commitment
fees on the Equity Line of Credit with Cornell Capital Partners, and the cost
associated with the retention of Hawk Associates as the Company's investor
relations firm. Hawk had been retained at a rate of $7,000 per month in addition
to a one-time 2,000,000 unregistered stock grant which was expensed during the
second quarter of 2003.
In the quarter ended June 30, 2004, the Company incurred depreciation
charges of $8,651 on equipment versus $10,353 in the quarter ended June 30,
2003. These charges were related to primarily computer equipment in use in the
Company's offices in Canada and the UK.
OTHER INCOME/EXPENSES
In the quarter ended June 30, 2004, the Company earned $22,481 in interest
from the secured promissory note that resulted from the divesture of SilverBirch
Studios. In the corresponding quarter ended June 30, 2003, the Company earned
$1,354 from bank sources.
In the quarter ended June 30, 2004, the Company expended $37,344 in
financial interest which was significantly lower than the $148,778 expensed in
the second quarter ended June 30, 2003. In the second quarter ended June 30,
2003 the Company incurred imputed interest charges related to the Equity Line of
Credit with Cornell Capital Partners and interest costs on the Berra term loans.
Foreign exchange losses were $15,667 in the second quarter ended June 30,
2004 versus a gain of $1,006 in the second quarter ended June 30, 2003 as a
result of the decline of the U.S. dollar in terms of the UK pound and the
Canadian dollar.
GAIN (LOSS) FROM OPERATIONS
As a result of the items specified above, the Company made its first gain
from operations of $54,398 versus a loss of $1,137,477 in the second quarter
ended June 30, 2003.
28
DISCONTINUED OPERATIONS
In the quarter ended June 30, 2004, the Company recorded a small gain on
discontinued operations of $1,983 related to adjustments to the sales price on
the divestiture of SilverBirch Studios. In the second quarter ended June 30,
2003, the Company recorded a net gain on discontinued operation from the sale of
Ignition Entertainment Ltd. of $2,396,009.
As a result of the adjustment to the divestiture price of SilverBirch
Studios of $1,983, and the profit on operations, the Company recorded net income
of $25,851 in the second quarter of 2004 versus a net income of $1,112,114 for
the quarter ended June 30, 2003. For the quarter ended June 30, 2004, the
earnings per share was $0.00 versus earnings per share of $0.01 in the quarter
ended June 30, 2003 after the impact of discontinued operations.
RESULTS OF OPERATIONS FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2004
COMPARED TO THE SAME PERIOD ENDED JUNE 30, 2003
REVENUES
During the six months ended June 30, 2004, the Company generated
$1,300,027 in revenue from the sale of products and services versus $231,009 in
revenue from product and services in the same six month period ended June 30,
2003. From a revenue source perspective, in the first-half of fiscal year 2004,
sales of software products accounted for approximately 60% of sales and while
approximately 40% of revenues were services related. In the six months ended
June 30, 2003, all of the revenue was generated from services work and product
installation chiefly by the Company's MDI group. In the six month period ended
June 30, 2004, the Company accounted for the discontinued operations of
Silverbirch Studios operations on February 29, 2004, whereas in the six months
ended June 30, 2003, the Company accounted for the divestiture of Ignition
Entertainment Ltd. as discontinued operations with effect from April 1, 2003. No
revenue from Ignition UK was included in the results for the three months ended
June 30, 2003, and there was no revenue from Silverbrich Studios in the period
ended June 30, 2004. During the second quarter of 2003, revenue from the MDI
group was down substantially from what was expected as a result of the SARS
outbreak in Toronto, which constrained revenue earning opportunities within
existing hospital contracts and in terms of expansion of operations to other
health care units in the U.S. and Canada primarily due to restrictions on travel
and a general apprehension over SARS amongst various healthcare facilities.
COST OF SALES
Cost of sales for the six month period ended June 30, 2004 was $398,607,
which consisted of wages paid to consulting services staff, third party royalty
charges, distribution costs and amortization of acquisition costs of the MDI
customer list and for the Company's acquisition of the source code to XML
Connector. In the period ended June 30, 2003, cost of sales was $287,120. The
principal cost of sales items in the first-half of 2003 consisted of
amortization of the Classifier software license of $89,202 and third party
product costs. As a result of the cost of sales components elaborated above, the
June 30, 2004 six month period led to a positive gross margin of $901,420 versus
a negative gross margin of $56,111 in the six months ended June 30, 2003. This
trend towards high gross margins is expected to continue as the Company expands
its software and services sales efforts in the U.S. and Europe.
OPERATING EXPENSES
Total operating expenses for the six months ended June 30, 2004 were
$1,478,129 versus $1,582,605 in the six months ended June 30, 2003. After
expenses, the Company recognized a loss on operations of $576,709 in the six
months ended June 30, 2004 versus a loss from operations of $1,638,716 in the
quarter ended June 30, 2003.
The largest components of first-half 2004 fiscal year expenses and of
first-half 2003 fiscal year operating expenses were related to stock based
compensation, consulting fees, salaries and wages, legal and accounting and
other general and administration expenses. These expenses are discussed below.
In the six months ended June 30, 2004, the Company expended $646,174 in
salaries and wages versus $235,974 in the six months ended June 30, 2003. In the
2004 period, staff counts were higher as a result of the acquisition of C Comm
Network Corporation, Twincentric Limited and the hiring of new staff in the
corporate broadcasting/ActiveCast division as well as a almost a full six months
operations for the UK office. In the six months ended June 30, 2003, all of the
wage costs were incurred in the Company's Canadian office as none of the other
acquisitions had been completed and the Company had not yet acquired the
Company's U.S. MDI Solutions staff. Salaries and wages in both periods represent
the cost of developers, administration and sales and marketing staff except for
certain contractors who are shown as consulting costs. Salaries and wages
include costs of all group insurance and various government programs.
29
In the six months ended June 30, 2004, the Company incurred costs of
$115,006 related to the pro rata amortization of employee and consultant stock
issuances for bonuses, stock incentives and regular compensation. In the six
months ended June 30, 2003, the Company incurred stock compensation expense of
$656,922, which included $540,000 expensed due to the acceleration of release of
20,000,000 shares that were formerly part of the acquisition terms of ITM in
September 2001. Under the original ITM purchase agreement, stock was to be
released to the managers of ITM as sales revenue targets were met. At the time
the original agreement was made, it was anticipated by both the former directors
of the Company and the owners of ITM that the stock issued in exchange for ITM
acquisition would be valued as at the date of the agreement and accounted for as
a large goodwill value on the balance sheet. However, during the Company's
prolonged initial Form SB-2 approval process, it was determined that the common
stock needed to be accounted for as at the quarter end in the each of the
quarters where the original sales revenue targets were achieved. In practice,
this meant that regardless of how successful the Company was in achieving
increased sales, and regardless of how well the share price responded to the
increased revenue, the Company was likely to record large losses based on the
valuation of the share releases at the time the revenues were recognized. In
addition, the recording of higher share compensation values was acting as a
disincentive for management since management were likely to be taxed on the
increased value of the stock received as it was being recognized as income
rather than a one time capital gain over the original purchase price of the
equity purchase in ITM. The other stock based compensation included in the June
30, 2003 figures consisted of payments of $63,500 related to director's fees for
the 2003 year and $125,000 related to an upfront payment to a consultant for
2003.
Consulting fees for the six months ending June 30, 2004 were $161,964
versus $93,930 in the second-half ended June 30, 2003 and reflect the cost of
several contractors who are paid as consultants in the ActiveCast and other
divisions.
Legal and accounting expenses for the six months ended June 30, 2004 were
$163,455, which was higher than the $153,834 recorded in the six months ended
June 30, 2003. The higher expense in the second-half of 2004 reflects the full
cost of the annual audit and submission of both the Form 10-KSB for the fiscal
year ended December 31, 2003 and the Form 10-QSB for the first quarter of 2004.
For the six months ended June 30, 2004, the Company incurred General and
Administrative expenses of $377,216 as opposed to $392,515 in the six months
ended June 30, 2003. During the second quarter of 2004, the Company relocated
the Company's Canadian offices from 2275 Lakeshore Boulevard and took on
additional space at 156 Front Street West, Toronto. In addition, the Company
also moved the Company's UK offices from London to Witney to merge the Company's
UK office into Twincentric's space. In the second-half ended June 30, 2003, the
largest component of General and Administrative expenses was a write-down of
commitment fees on the Equity Line of Credit with Cornell Capital Partners and
the cost associated with the retention of Hawk Associates as the company's
investor relations firm. Hawk had been retained at a rate of $7,000 per month in
addition to a one-time 2,000,000 unregistered stock grant which was expensed
during the second quarter of 2003.
In the six months ended June 30, 2004, the Company incurred depreciation
charges of $6,684 on equipment versus $18,722 in the six months ended June 30,
2003. These charges were related to primarily computer equipment in use in the
Company's offices in Canada and the UK.
LOSS FROM OPERATIONS
As a result of the items specified above, the Company improved its
operational results for the six months ended June 30, 2004 with a loss from
operations of $576,709 versus a loss of $1,638,716 in the six months ended June
30, 2003.
OTHER INCOME/EXPENSES
In the six months ended June 30, 2004, the Company earned $29,976 in
interest from the secured promissory note that resulted from the divesture of
SilverBirch Studios. In the corresponding quarter ended June 30, 2003, the
Company earned $6,497 from bank sources.
In the six months ended June 30, 2004, the Company expended $70,576 in
financial interest which was significantly lower than the $227,130 expensed in
the first-half ended June 30, 2003. In the six months ended June 30, 2003, the
Company incurred imputed interest charges related to the Equity Line of Credit
with Cornell Capital Partners, and interest costs on the Berra term loan whereas
the interest in the first-half of 2004 primarily consisted of interest accrued
on the IBEW loan.
30
Foreign exchange losses were $17,931 in the first six months ended June
30, 2004 versus a gain of $14,074 in the first six months ended June 30, 2003 as
a result of the decline of the U.S. dollar in terms of the UK pound and the
Canadian dollar.
DISCONTINUED OPERATIONS
In the six months ended June 30, 2004, the Company recorded a loss from
discontinued operations of $128,586 related to the sale of SilverBirch Studios
which was offset by a gain of $731,333 from the sale. In the six months ended
June 30, 2003, the Company recorded a net loss from discontinued operations from
the sale of Ignition Entertainment Limited of $733,123 which was offset by a
gain of $2,396,009 from the sale.
As a result of the sale of the discontinued operations in both six month
periods, the Company recorded a small loss of $30,493 for the six months ended
June 30, 2003 versus a loss of $182,389 in the six months ended June 30, 2003.
In both six month periods, the earnings per share were nil.
LIQUIDITY AND CAPITAL RESOURCES
Prior to December 31, 2001, the Company financed its operations through a
combination of convertible securities and the private placement of shares. In
the fiscal year ended December 31, 2003, the Company entered into or continued
several financing arrangements. These included the Equity Line of Credit with
Cornell Capital Partners for $10,000,000 and a term debt of $500,000 at the
Canadian subsidiary level with a trade union. The Company's primary need for
cash is to fund ongoing operations and to defray the cost of remaining a public
company until such time that the Company's profitability and cash flow is
sufficient to fund ongoing growth in the Company's operations.
At June 30, 2004, the Company's need for cash included satisfying
$2,389,241 of current liabilities, which consisted of accounts payable of
$766,094 (of which $226,824 is recorded as owing to Orchestral Corporation and
is not likely to require payout, bank indebtedness in various operating loans of
$358,807, $369,364 of accrued liabilities, taxes payable of $566,855, current
lease obligations of $10,984, the current portion of notes payable, including
accrued interest of $275,762 and other current liabilities of $26,375.
Our independent auditors have issued a going concern opinion on the
Company's Condensed Consolidated Financial Statements that raise substantial
doubt about the Company's ability to continue as a going concern. Our ability to
continue as a going concern is dependent on the Company's ability to raise
additional bank, convertible preferred shares or convertible debt, equity
capital or access capital under the Equity Line of Credit with Cornell Capital
Partners, and implementation of the Company's business plan to market and sell
the Company's various enterprise software products and services. At June 30,
2004, the Company had $38,205 cash on hand. In addition, at quarter end, certain
shareholders have also supported the Company by foregoing salaries and expense
reimbursement from time-to-time or converting shareholders loans to equity.
Throughout the fiscal year ended December 31, 2003, certain management
shareholders injected approximately $1,279,000 in to the Company to assist with
working capital. While there is no legal commitment for them to do so, the
Company believes that certain shareholders will continue to support the Company
in a similar manner.
During fiscal year 2003, the Company received cash from Cornell Capital
Partners in the form of promissory notes. In total, $970,000 of proceeds were
received from the issuance of promissory notes net of a 3% cash fee of $30,000,
which yields an effective interest rate of approximately 12% per annum.
In April of 2002, the Company entered into an Equity Line of Credit
Agreement with Cornell Capital Partners. Under this agreement, the Company may
issue and sell to Cornell Capital Partners common stock for a total purchase
price of up to $10,000,000. On February 14, 2003, a Form SB-2 that was filed by
the Company was declared effective by the Securities Exchange Commission, and on
December 19, 2003, an additional Form SB-2 was declared effective. Under the
terms of the Equity Line of Credit Agreement, the Company may provide notice to
Cornell Capital Partners and Cornell Capital Partners will purchase from the
Company shares 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 30-day period. Cornell Capital Partners is
entitled to retain 3% of each advance. In April of 2002, the Company paid
Cornell Capital Partners a one-time fee equal to $330,000, paid in the form of
3,032,000 shares of common stock. In addition, the Company entered into a
placement agent agreement with Westrock Advisors, Inc., a registered
broker-dealer. Pursuant to the placement agent agreement, the Company paid a
one-time placement agent fee of 100,000 shares of the Company's common stock,
which were valued at $0.20 per share, or an aggregate of $20,000, on the date of
issuance. The Company 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.
31
The Company anticipates that its cash needs over the next 12 months will
consist of general working capital needs of $2,000,000, which would include the
satisfaction of current liabilities of $2,231,741. As of June 30, 2004, the
Company improved its net working capital deficiency from $1,534,786 at March 31,
2004 to a deficiency of $1,085,992. The Company anticipates that its cash needs
over the next 12 months will come primarily from a combination of term debt,
sale of convertible preferred shares, equipment loans and leases for expansion
purposes, proceeds from the sale of assets, profits, operating credit lines, and
term loans, which may or may not be secured by assets, or contain conversion
features which may lead to additional shares being issued, and/or the sale of
equity under the Equity Line of Credit Agreement with Cornell Capital Partners.
Draw downs under the Equity Line of Credit with Cornell Capital Partners may
cause the share price to decline in value unless buyers are present to take up
the supply of new shares entering the market.
If the Company is unable to obtain additional funding through the Equity
Line of Credit Agreement with Cornell Capital Partners or from other sources of
debt and equity capital, then the failure to obtain this funding will have a
material adverse effect on the Company's business and this may force the Company
to reorganize, reduce its investment in, or otherwise divest of one or more of
the Company's operations, or to reduce the cost of all operations to a lower
level of expenditure which may have the effect of reducing the Company's
expected revenues and net income in 2004 and 2005.
EQUITY LINE OF CREDIT AGREEMENT
Pursuant to the Equity Line of Credit Agreement with Cornell Capital
Partners, the Company may periodically sell shares of common stock to Cornell
Capital Partners to raise capital to fund the Company's working capital needs.
The periodic sale of shares is known as an advance. The Company may request an
advance every 10 trading days. A closing will be held seven trading days after
such written notice at which time the Company will deliver shares of common
stock and Cornell Capital Partners will pay the advance amount. There are no
closing conditions for any of the draws other than the written notice and
associated correspondence.
The Company became able to request advances under the Equity Line of
Credit Agreement once the underlying shares were registered with the Securities
and Exchange Commission. The Company may continue to request advances until
Cornell Capital Partners has advanced $10 million or 24 months after the
effective date of the registration statement, whichever occurs first.
The amount of each advance is limited to a maximum draw down of $425,000
in any 30-day period. The amount available under the Equity Line of Credit
Agreement is not dependent on the price or volume of the Company's common stock.
In addition, the Company may not request advances if the shares to be issued in
connection with such advances would result in Cornell Capital Partners owning
more than 9.9% of the Company's outstanding common stock. The Company does not
have any agreements with Cornell Capital Partners regarding the distribution of
such stock, although Cornell Capital Partners has indicated that intends to
promptly sell any stock received under the Equity Line of Credit Agreement.
The Company cannot predict the actual number of shares of common stock
that will be issued pursuant to the Equity Line of Credit Agreement, in part,
because the purchase price of the shares will fluctuate based on prevailing
market conditions and the Company have not determined the total amount of
advances the Company intend to draw. There is an inverse relationship between
the Company's stock price and the number of shares to be issued under the Equity
Line of Credit Agreement. That is, as the Company's stock price declines, the
Company would be required to issue a greater number of shares under the Equity
Line of Credit Agreement for a given advance.
In April of 2002, the Company raised $150,000 of gross proceeds from the
issuance of convertible debentures. These debentures accrued interest at a rate
of 5% per year and matured two years from the issuance date. The debentures were
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 Company's common
stock as of the closing date (ii) 80% of the average closing bid price of the
Company's common stock for the four lowest trading days of the five trading days
immediately preceding the conversion date. At maturity, the Company had 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 (x) 120% of the closing bid price of the
common stock as of the closing date or (y) 80% of the average closing bid price
of the common stock for the four lowest trading days of the five trading days
immediately preceding the conversion date. The Company had the right to redeem
the debentures upon 30 day's notice for 120% of the amount redeemed. Upon such
redemption, the Company was required to 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. As further disclosed in the Company's
accompanying Condensed Consolidated Financial Statements, the Company redeemed
this convertible debenture and accrued interest in February of 2003.
32
CONSOLIDATED STATEMENT OF CASH FLOWS
Cash on the condensed consolidated balance sheet increased from nil in the
period ended December 31, 2003 to $38,205 at June 31, 2004.
NET CASH USED IN OPERATING ACTIVITIES
For the six months ended June 30, 2004, the Net Cash used in operating
activities was $255,176 versus $1,442,757 in the six month period ended June 30,
2003. In the six months ended on June 30, 2004, cash used in operating
activities consisted primarily of a net loss of $30,493, depreciation and
amortization of $129,644, an increase in taxes payable of $125,803, an increase
in accounts receivable of $756,840, a decrease in other assets of $96,332, an
increase in accounts payable of $73,161, and an increase in accrued liabilities
of $52,418. Also, there was a net gain from discontinued operations of $731,333
and non-cash activities of $296,000 for stock issued for compensation and other
services. In the six months ended June 30, 2003, the cash used in operating
activities consisted primarily of a net loss of $182,389, plus the costs of
stock issued of $771,180, and non-cash activities of $291,725 for depreciation
and amortization. Both periods reflected discontinued operations.
NET CASH FROM INVESTING ACTIVITIES
Net cash used in investing activities was $48,518 for the purchase of
fixed assets in the period ended June 30, 2004 versus $35,853 in the six months
ended June 30, 2003.
NET CASH PROVIDED BY FINANCING ACTIVITIES
Net cash provided by financing activities was $285,755 in the six months
ended June 30, 2004 versus $1,535,604 in the six months ended June 30, 2003. In
the six months ended June 30, 2004, the Company repaid $17,500 and received
$310,000 in new notes payable. In the six months ended June 30, 2003, the
Company drew down $1,125,000 under the Equity Line of Credit Agreement with
Cornell Capital Partner, received from related parties $532,070, received
proceeds of $525,000 from the issuance of stock, and increased leases by
$43,534.
CERTAIN BUSINESS RISK FACTORS
A significant portion of the Company's net sales are derived data
integration services and from sale of enterprise software, which are subject to
increasing competition, rapid technological change and evolving customer
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.
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.
ITEM 3. CONTROLS AND PROCEDURES
(A) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
As of the end of the period covered by this report, the Company carried
out an evaluation, under the supervision and with the participation of the
Company's Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures. The Company's disclosure controls and procedures are designed to
provide a reasonable level of assurance of achieving the Company's disclosure
control objectives. The Company's Chief Executive Officer and Chief Financial
Officer have concluded that the Company's disclosure controls and procedures
are, in fact, effective at this reasonable assurance level as of the period
covered.
33
(B) CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING
In connection with the evaluation of the Company's internal controls
during the Company's quarter ended June 30, 2004, the Company's Chief Executive
Officer and Chief Financial Officer have determined that there are no changes to
the Company's internal controls over financial reporting that has materially
affected, or is reasonably likely to materially effect, the Company's internal
controls over financial reporting.
34
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
JAMES CASSIDY AND TPG CORPORATION
In March of 2000, the Company entered into an agreement (the "TPG
Agreement") with TPG Capital Corporation ("TPG"). Under the TPG Agreement, TPG
provided advice and other services to ActiveCore with respect to the acquisition
of Erebus Corporation (the "Erebus Acquisition"). The Company pursued the Erebus
Acquisition to, among other things, maintain its listing eligibility on the Over
the Counter Bulletin Board ("OTCBB"). TPG was the sole stockholder of Erebus
Corporation and the Company believes that James Cassidy was a controlling
stockholder of TPG.
Under the Erebus Acquisition, the Company purchased Erebus, a non-active
entity with securities registered under the Securities Exchange Act of 1934, as
amended, to, among other things, retain its listing status on the OTCBB. At that
time, the Company was at risk of losing its listing eligibility under a new
national Association of Securities Dealers ("NASD") listing requirement. Loss of
listing eligibility would have resulted in the Company trading in the Pink
Sheets. Management and the board of directors at that time determined that such
a development would be detrimental to its stockholders and other investors. The
Company consummated the Erebus Acquisition in March of 2000.
Under the TPG Agreement, the Company paid to TPG 200,000 shares of the
Company's common stock, then worth $500,000, and $200,000 in cash. In addition,
the TPG Agreement contains a reset provision which obligates the Company to
issues additional shares of its common stock so that the total number of shares
issued to TPG under the TPG Agreement had a value of $500,000 as of the first
anniversary of the effective date of the TPG Agreement. Based on the relative
share prices of the Company common stock as of March of 2000 and March of 2001,
if the Company were required to satisfy the reset provision, the Company would
be required to issue to TPG an additional 3,028,378 shares of its common stock
("Reset Shares").
The Company does not believe that TPG is entitled to the Reset Shares.
Based on public records, in June of 2001, TPG and Mr. Cassidy reached a
settlement agreement with the SEC with respect to securities fraud and
disclosure violations alleged by the SEC in connection with transactions
substantially similar to the Erebus Acquisition. Neither Mr. Cassidy nor TPG
admitted or denied the allegations. A description of the settlement is contained
in SEC Litigation Release No. 17023, dated June 4, 2001. Although the Company
has maintained its listing status on the OTCBB, the Company has experienced
significant regulatory problems in connection with the Erebus Acquisition that
are related to the allegations underlying the settlement between TPG and Mr.
Cassidy and the Securities and Exchange Commission. These problems have resulted
in significant delay and expense to the Company.
In March of 2004, Mr. Cassidy, as assignee of TPG's rights under the TPG
Agreement, filed a claim in the Superior Court of the District of Columbia
against the Company seeking, among other things, the Reset Shares. The Company
has engaged a law firm to vigorously defend it against the claim. No contingent
liability has been allocated for any eventual loss on the action.
Pursuant to Rule 405 promulgated under the Securities Act of 1933, as
amended, the Company believes that Mr. Cassidy may be deemed to be a "promoter"
of the Company. The Company has no ongoing business relationship with Mr.
Cassidy and he is not employed by the Company in any manner.
ORCHESTRAL CORPORATION
Orchestral Corporation commenced a proceeding in Ontario court in January
of 2003, which was subsequently placed into abeyance, then revived in August of
2003, against the Company and its Canadian subsidiary, ActiveCore Limited
(formerly Springboard Technologies Inc.) to the effect that they had infringed
upon the copyright that Orchestral maintained in PowerAudit and further that the
Company had breached the distribution contract between Orchestral and the
Company with respect to termination and non-payment of support costs with regard
to the distribution of Power Audit. Orchestral has claimed punitive and
exemplary damages of Canadian $4,000,000 and Canadian $1,000,000, respectively.
The Company has retained the law firm of LeDrew Laishley and Reed to defend
itself on the basis that there is no merit to the case and even if there was
merit, the time frame in which to bring an action in the contract has expired.
35
Compulsory mediation has occurred in the case and no settlement was
offered or agreement arrived at during the mediation phase. The next step would
normally be "examination for discovery" then on to a trial. The Company has not
yet determined if it will counter-sue for return of all proceeds paid to
Orchestral during the period of time between 1999 and 2001. In the Company's
view, the case filed by Orchestral is frivolous and in any event is now in a
state of legal limbo and if restarted no negative outcome would be experienced.
No allocation for any continent liability has been made on the Company's
financial statements for the punitive and exemplary damages however it has
maintained in it current payables an amount of approximately $226,000 as owing
to Orchestral.
CESAR CORREIA AND INFOLINK TECHNOLOGIES LTD.
Since December of 2003, the Company has been engaged in discussions with
regard to the potential acquisition of Infolink Technologies Ltd. a public
company listed on the Toronto Stock Exchange venture board under the symbol
"IFL". During the course of discussions, an offer to purchase was rebuffed by
Cesar Correia, the incumbent Chairman of the board of directors and 34%
shareholder of Infolink. At the time, Mr. Correia was told that the Company
would purchase another competitor to Infolink, C Comm Network Corporation. In
May of 2004, the Company purchased C Comm. In July of 2004, several minority
shareholders of Infolink commenced an action in Ontario alleging that Mr.
Correia has mismanaged Infolink and amongst other things that he had
inappropriately obtained funds from the company and converted them to his own
purposes. The day prior to the court hearing with regard to the minority action,
Mr. Correia and Infolink Technology commenced a proceeding in the same Ontario
court alleging unfair competition as a result of obtaining confidential
information from Infolink and numerous other causes of action. Meanwhile, the
court appointed a monitor and investigator to look into the allegations against
Mr. Correia. The Company believes that Infolink will not proceed with any action
against the Company once the report by the monitor and investigator has been
released to the court.
The Company is not presently a party to any other material legal
proceedings, nor is it aware of any material threatened litigation.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
RECENT SALES OF UNREGISTERED SECURITIES
On January 26, 2004, the Company entered into a 12 month consulting
contract with 1582579 Ontario Limited, an unrelated party, to assist in locating
and negotiating several prospective merger candidates primarily to enable the
creation of an outbound messaging and communications service to work with the
Company's ActiveLink product as a data service bureau and enterprise portal
interface. The Company issued 5,000,000 restricted shares to 1582579 Ontario
Limited. These shares were valued at $0.023 per share, or an aggregate of
$115,000 representing the market value on the date of the grant.
On April 28, 2004, the Company's board of directors authorized the
issuance of 46,666,666 shares of restricted common stock to two directors of the
Company in satisfaction of debts owed to them amounting to $560,000. The shares
were valued based on the closing bid price of the common stock on April 28,
2004.
Also on April 28, 2004, the Company's board of directors authorized the
issuance of 5,500,000 shares of restricted common stock, valued at $66,000 to
certain new employees and consultants of the Company based on the closing bid
price of the common stock on April 28, 2004.
On May 6, 2004, the Company acquired all the outstanding common stock of C
Comm Network Corporation for consideration of 30,758,202 shares of the Company's
restricted common stock valued at $461,962.
On July 12, 2004, the board of directors authorized the sale of 4,000,000
restricted common shares of stock from treasury to unrelated parties in exchange
for $60,000. The restricted share agreement grants the purchaser one warrant for
each share at a purchase price of $0.018 to expire on November 30, 2005.
Also July 12, 2004, the board of directors authorized the purchase of a
limited source code license for certain software for a value of $10,000 which is
to be paid in the form of restricted shares.
36
Also July 12, 2004, the board of directors authorized the issuance of
16,000,000 restricted shares for a substantial minority interest in Infolink
Technologies Limited. On July 31, 2004, the Company signed an irrevocable call
agreement with non-related parties to acquire 8,000,000 shares of Infolink in
exchange for 16,000,000 restricted shares of the Company, which is callable at
the option of the Company. The shares have not yet been issued.
Also July 12, 2004, the board of directors authorized the issuance of
150,000 restricted common shares in consideration of a consulting contract for
investment relations to an unrelated party.
On September 8, 2004, the board of directors authorized the issuance of
8,333,333 Series A and 4,167,667 Series B preferred shares which have a purchase
price of $0.03 and $0.06, respectively. Each preferred share is convertible into
a common share at any time prior to five years from the date of issuance. With
respect to the Series A shares, the Company may force conversion if the trading
price of the Company's common shares exceeds $0.20 for 30 days. With regard to
the Series B shares, the Company may force conversion if the trading price of
the Company's common shares exceeds $0.40 for 30 days. The preferred shares will
be paid a dividend at the rate of 10% per annum.
Also on September 8, 2004, the board of directors authorized the issuance
of 1,000,000 restricted common shares of stock to an employee which shares will
be earned over the next four quarters.
Also on September 8, 2004, the board of directors authorized the issuance
of 12,000,000 restricted common shares of stock to an unrelated party to perform
consulting services including identifying and sourcing acquisition candidates.
These shares will be earned over the next year.
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, as amended, and Regulation D promulgated thereunder. In
each instance, the purchaser had access to sufficient information regarding the
Company so as to make an informed investment decision. More specifically, the
Company had a reasonable basis to believe that each purchaser was an "accredited
investor" as defined in Regulation D and otherwise had the requisite
sophistication to make an investment in the Company's securities.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The date of the next shareholders meeting has, not yet been set, however,
at that meeting shareholders will be asked to formally approve the name change
of the Company to "ActiveCore Technologies, Inc." Such change may necessitate a
change to the Company's CUSIP number and the stock trading symbol.
On April 28, 2004, the board of directors adopted a written Code of Ethics
designed to deter wrongdoing and promote honest and ethical conduct, full, fair
and accurate disclosure, compliance with laws, prompt internal reporting and
accountability to adherence to the Code of Ethics. This Code of Ethics has been
filed with the Securities and Exchange Commission as an exhibit to the Company's
Form 10-KSB filed for the period ended December 31, 2003.
ITEM 5. OTHER INFORMATION
None.
37
ITEM 6. EXHIBIT AND REPORTS ON FORM 8-K
(A) EXHIBITS:
EXHIBIT NO. DESCRIPTION LOCATION
- ----------- ----------- --------
2.1 Agreement and Plan of Reorganization dated March Incorporated by reference to Exhibit 4.1 to IVP
21, 2000 between IVP Technology Corporation and Technology's Form 8-K12G3 filed on April 19, 2000
Erebus Corporation
3.1 Certificate of Amendment of Articles of Incorporated by reference to Exhibit 3.1 to IVP
Incorporation 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 Distribution Incorporated by reference to Exhibit 10.4 to IVP
Agreement dated as of May 31, 2000 between the Technology's Form 10-QSB filed on September 24,
Registrant and Orchestral Corporation 2000
10.5 Service Bureau Arrangement Agreement dated Incorporated by reference to Exhibit 10.5 to IVP
September 28, 2000 between the Registrant and Technology's Form 10-QSB filed on November 14,
E-RESPONSES.COM 2000
10.6 Stock Purchase Agreement dated September 17, 2001 Incorporated by reference to Exhibit 10.6 to IVP
among the Registrant, International Technology Technology's Form 10-KSB filed on April 15, 2002
Marketing, Inc., Brian MacDonald, Peter Hamilton,
Kevin Birch, Sherry Bullock, and Geno Villella
10.7 Agreement dated May 15, 2000 between the Incorporated by reference to Exhibit 10.7 to IVP
Registrant and Rainbow Investments International Technology's Form 10-KSB filed on April 15, 2002
Limited
10.8 Employment Agreement dated August 30, 2001 between Incorporated by reference to Exhibit 10.8 to IVP
International Technology Marketing, Inc. and Brian Technology's Form 10-KSB filed on April 15, 2002
J. MacDonald
10.9 Agreement dated February 12, 2002 between the Incorporated by reference to Exhibit 10.9 to IVP
Registrant and SmartFOCUS Limited Technology's Form 10-KSB filed on April 15, 2002
10.10 Warrant Agreement dated May 15, 2000 between the Incorporated by reference to Exhibit 10.10 to IVP
Registrant and Rainbow Investments International Technology's Form 10-KSB filed on April 15, 2002
Limited
10.11 Convertible Promissory Note dated May 2000 between Incorporated by reference to Exhibit 10.11 to IVP
the Registrant and Rainbow Investments Technology's Form 10-KSB filed on April 15, 2002
International Limited
38
EXHIBIT NO. DESCRIPTION LOCATION
- ----------- ----------- --------
10.12 Software Distribution Agreement dated December 28, Incorporated by reference to Exhibit 10.12 to IVP
2001 between the Registrant and TIG Acquisition Technology's Form 10-KSB filed on April 15, 2002
Corporation
10.13 Loan Agreement dated January 16, 2002 between the Incorporated by reference to Exhibit 10.13 to IVP
Registrant and DCD Holdings Limited Technology's Form 10-KSB filed on April 15, 2002
10.14 Agreement for the Provision of Marketing Services Incorporated by reference to Exhibit 10.1 to IVP
dated May 3, 2002 between the Registrant and Technology's Form S-8 filed with the SEC on May
Vanessa Land 3, 2002
10.15 Reserved
10.16 Employment Agreement dated August 30, 2001 between Incorporated by reference to Exhibit 10.16 to IVP
International Technology Marketing, Inc. and Geno Technology's Form 10-KSB filed on April 15, 2002
Villella
10.17 Employment Agreement dated August 30, 2001 between Incorporated by reference to Exhibit 10.18 to IVP
International Technology Marketing, Inc. and Peter Technology's Form 10-KSB filed on April 15, 2002
J. Hamilton
10.18 Loan and Security Agreement dated July 30, 2001 Incorporated by reference to Exhibit 10.20 to IVP
among the Registrant, Clarino Investments Technology's Form 10-KSB filed on April 15, 2002
International Ltd., and Berra Holdings Ltd.
10.19 Warrant Agreement dated April 3, 2002 between the Incorporated by reference to Exhibit 10.27 to IVP
Registrant and Cornell Capital Partners L.P. Technology's Form 10-KSB filed on April 15, 2002
10.20 Equity Line of Credit Agreement dated April 3, Incorporated by reference to Exhibit 10.28 to IVP
2002 between the Registrant and Cornell Capital Technology's Form 10-KSB filed on April 15, 2002
Partners L.P.
10.21 Registration Rights Agreement dated April 3, 2002 Incorporated by reference to Exhibit 10.29 to IVP
between the Registrant and Cornell Capital Technology's Form 10-KSB filed on April 15, 2002
Partners, L.P.
10.22 Escrow Agreement dated April 3, 2002 among the Incorporated by reference to Exhibit 10.30 to IVP
Registrant, Cornell Capital Partners, L.P., Butler Technology's Form 10-KSB filed on April 15, 2002
Gonzalez, and First Union National Bank
10.23 Securities Purchase Agreement dated April 3, 2002 Incorporated by reference to Exhibit 10.31 to IVP
among the Registrant and the Buyers Technology's Form 10-KSB filed on April 15, 2002
10.24 Escrow Agreement dated April 3, 2002 among the Incorporated by reference to Exhibit 10.32 to IVP
Registrant, the Buyers, and First Union National Technology's Form 10-KSB filed on April 15, 2002
Bank
10.25 Debenture Agreement Dated April 3, 2002 between Incorporated by reference to Exhibit 10.33 to IVP
the Registrant and Cornell Capital Partners L.P. Technology's Form 10-KSB filed on April 15, 2002
39
EXHIBIT NO. DESCRIPTION LOCATION
- ----------- ----------- --------
10.26 Investor Registration Rights Agreement dated April Incorporated by reference to Exhibit 10.34 to IVP
3, 2002 between the Registrant and the Investors Technology's Form 10-KSB filed on April 15, 2002
10.27 Placement Agent Agreement dated April 3, 2002 Incorporated by reference to Exhibit 10.35 to IVP
among the Registrant, Westrock Advisors, Inc. and Technology's Form 10-KSB filed on April 15, 2002
Cornell Capital Partners L.P.
10.28 Letter Agreement dated February 20, 2002 between Incorporated by reference to Exhibit 10.36 to IVP
the Registrant and Buford Industries Inc. Technology's Form 10-KSB filed on April 15, 2002
10.29 Letter Confirmation Agreement dated July 21, 2001 Incorporated by reference to Exhibit 10.37 to IVP
between the Registrant and Buford Industries Inc. Technology's Form 10-KSB filed on April 15, 2002
10.30 Consulting Agreement dated March 1, 2002 between Incorporated by reference to Exhibit 10.38 to IVP
the Registrant and Danson Partners LLC Technology's Form 10-KSB filed on April 15, 2002
10.31 Consulting Agreement dated February 12, 2002 Incorporated by reference to Exhibit 10.40 to IVP
between the Registrant and Danson Partners LLC Technology's Form SB-2 filed on May 15, 2002
10.32 Escrow Agreement dated as of May 15, 2002 among Incorporated by reference to Exhibit 10.41 to IVP
the Registrant, Brian MacDonald, Peter Hamilton, Technology's Form SB-2 filed on May 15, 2002
Kevin Birch, Sherry Bullock, and Gino Villella
10.33 Termination letter dated June 13, 2002 between the Incorporated by reference to Exhibit 10.42 to IVP
Registrant and Orchestral Corporation Technology's Form 10-QSB filed on August 19, 2002
10.34 Acquisition Agreement dated as of May 28, 2002 Incorporated by reference to Exhibit 10.43 to IVP
regarding the purchase of Ignition Entertainment Technology's Form 10-QSB filed on August 19, 2002
10.35 Consulting Agreement dated as of June 1, 2002 Incorporated by reference to Exhibit 10.44 to IVP
Ignition Entertainment Limited and Montpelier Technology's Form 10-QSB filed on August 19, 2002
Limited
10.36 Equity Line of Credit Agreement dated May 2002 Incorporated by reference to Exhibit 10.45 to IVP
between IVP Technology and Cornell Capital Technology's Amendment No. 2 to the Form SB-2
Partners, L.P. filed on November 14, 2002
10.37 Letter of Credit Facility dated as of April 10, Incorporated by reference to Exhibit 10.46 to IVP
2002 between Revelate Limited and Ignition Technology's Amendment No. 2 to the Form SB-2
Entertainment Limited filed on November 14, 2002
10.38 Debenture dated as of June 14, 2002 between Incorporated by reference to Exhibit 10.47 to IVP
Revelate Limited and Ignition Entertainment Limited Technology's Amendment No. 2 to the Form SB-2
filed on November 14, 2002
10.39 Standard Conditions for Purchase of Debts dated Incorporated by reference to Exhibit 10.48 to IVP
May 23, 2002 between DCD Factors PLC and Ignition Technology's Amendment No. 2 to the Form SB-2
Entertainment Limited filed on November 14, 2002
40
EXHIBIT NO. DESCRIPTION LOCATION
- ----------- ----------- --------
10.40 All Assets Debenture dated as of May 23, 2002 Incorporated by reference to Exhibit 10.49 to IVP
between DCD Factors PLC and Ignition Entertainment Technology's Amendment No. 2 to the Form SB-2
Limited filed on November 14, 2002
10.41 Memorandum of Agreement dated as of July 1, 2002 Incorporated by reference to Exhibit 10.50 to IVP
between Springboard Technology Solutions Inc. and Technology's Amendment No. 2 to the Form SB-2
IVP Technology filed on November 14, 2002
10.42 Heads of Agreement dated as of December 28, 2001 Incorporated by reference to Exhibit 10.51 to IVP
and amended on September 30, 2002 between TiG Technology's Amendment No. 2 to the Form SB-2
Acquisition Corporation and IVP Technology filed on November 14, 2002
10.43 MDI Solutions Services Agreement (Interface Incorporated by reference to Exhibit 10.1 to IVP
Development Retainer Services) between Medical Technology's Form 8-K filed with the SEC on April
Data Integration Solutions group and Mount Sinai 1, 2003
Hospital entered into March 11, 2003 (Contract No.
MDI02008)
10.44 MDI Solutions Services Agreement (Interface Incorporated by reference to Exhibit 10.2 to
Development Retainer Services) between Medical Technology's Form 8-K filed with the SEC on April
Data Integration Solutions group and Mount Sinai 1, 2003
Hospital entered into March 11, 2003 (Contract No.
MDI02009)
10.45 MDI Solutions Services Agreement (Interface Incorporated by reference to Exhibit 10.3 to IVP
Development Retainer Services) between Medical Technology's Form 8-K filed with the SEC on April
Data Integration Solutions group and Rouge Valley 1, 2003
Health System entered into September 12, 2002
(Contract No. MDI02003)
10.46 MDI Solutions Services Agreement (Interface Incorporated by reference to Exhibit 10.4 to IVP
Development Retainer Services) between Medical Technology's Form 8-K filed with the SEC on April
Data Integration Solutions group and Rouge Valley 1, 2003
Health System entered into September 12, 2002
(Contract No. MDI02004)
10.47 MDI Solutions Services Agreement (Interface Incorporated by reference to Exhibit 10.5 to IVP
Development Retainer Services) between Medical Technology's Form 8-K filed with the SEC on April
Data Integration Solutions group and York Central 1, 2003
Hospital entered into September 13, 2002 (Contract
No. MDI02006)
10.48 MDI Solutions Services Agreement (Interface Incorporated by reference to Exhibit 10.6 to IVP
Development Retainer Services) between Medical Technology's Form 8-K filed with the SEC on April
Data Integration Solutions group and York Central 1, 2003
Hospital entered into September 13, 2002 (Contract
No. MDI02007)
10.49 MDI Solutions Services Agreement (Interface Incorporated by reference to Exhibit 10.7 to IVP
Development Retainer Services) between Medical Technology's Form 8-K filed with the SEC on April
Data Integration Solutions group and St. Joseph's 1, 2003
Medical Centre entered into March 18, 2003
(Contract No. MDI03001)
41
EXHIBIT NO. DESCRIPTION LOCATION
- ----------- ----------- --------
10.50 MDI Solutions Services Agreement (Interface Incorporated by reference to Exhibit 10.8 to IVP
Development Retainer Services) between Medical Technology's Form 8-K filed with the SEC on April
Data Integration Solutions group and St. Joseph's 1, 2003
Medical Centre entered into March 18, 2003
(Contract No. MDI03002-Expires March 31, 2004)
10.51 MDI Solutions Services Agreement (Interface Incorporated by reference to Exhibit 10.9 to IVP
Development Retainer Services) between Medical Technology's Form 8-K filed with the SEC on April
Data Integration Solutions group and St. Joseph's 1, 2003
Medical Centre entered into March 18, 2003
(Contract No. MDI03002-Expires June 11, 2004)
10.52 Share Purchase Agreement between Twincentric Incorporated with this filing
Limited and ActiveCore entered into on June 21,
2004 for the purchase of 100% of the issued shares
of Twincentric Limited by ActiveCore.
10.53 Call Agreement between George Theodore and 1543472 Incorporated by reference to Exhibit 10.1 to IVP
Ontario Inc. and IVP entered into on July 31, 2004 Technology's Form 8-K filed with the SEC on
for the potential purchase of 8,000,000 shares of September 20, 2004
Infolink Technologies Ltd. in exchange for
16,000,000 shares of IVP.
10.54 Subscription Agreement between D & M Investments Incorporated by reference to Exhibit 10.1 to IVP
and ActiveCore with regard to the purchase of Technology's Form 8-K filed with the SEC on
Series A and Series B Convertible Preferred shares September 20, 2004
of IVP
10.55 Preferred share designation for Series A and Incorporated by reference to Exhibit 10.2 to IVP
Series B preferred shares of IVP Technology's Form 8-K filed with the SEC on
September 20, 2004
Certification by Chief Executive Officer pursuant Provided herewith
31.1 to 15 U.S.C. Section 7241, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
Certification by Chief Financial Officer pursuant Provided herewith
31.2 to 15 U.S.C. Section 7241, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
Certification by Chief Executive Officer pursuant Provided herewith
32.1 to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Certification by Chief Financial Officer pursuant Provided herewith
32.2 to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
42
(B) REPORTS ON FORM 8-K:
On April 30, 2004, the Company filed a Form 8-K disclosing that it had
moved its principal office to 156 Front Street West, Suite 210, Toronto,
Ontario, M5J 2L6.
On May 6, 2004, the Company filed a Form 8-K disclosing that it had
purchased the outstanding shares of C Comm Network Corporation for IVP shares
valued at $461,962. The Company has issued 30,758,202 restricted common shares
in consideration.
On September 20, 2004, the Company filed a Form 8-K disclosing that it has
entered into a Share Call Agreement to purchase 8,000,000 common shares of
Infolink Technologies in exchange for 16,000,000 restricted common shares. The
common shares have not yet been issued.
Also on September 20, 2004, the Company filed a Form 8-K disclosing that
it has entered into a subscription agreement for two series of convertible
preferred shares. The Company will receive proceeds of $500,000 in two tranches
of $250,000 on September 17, 2004 and December 1, 2004.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
IVP TECHNOLOGY CORPORATION
D.B.A ACTIVECORE TECHNOLOGIES, INC.
September 20, 2004 By: /s/ Brian J. MacDonald
---------------------------------------------
Brian J. MacDonald
Chairman and Acting Chief Financial Officer
September 20, 2004 By: /S/ Peter J. Hamilton
---------------------------------------------
Peter J. Hamilton
President and Chief Executive Officer
43