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 SEPTEMBER 30, 2004
Commission File No. 000-30486
ACTIVECORE TECHNOLOGIES, INC.
(Exact Name of Registrant as specified in its charter)
NEVADA 65-6998896
- ------------------------------ -------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
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.
|X| 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 December 21, 2004,
there were 483,998,053 outstanding shares of the issuer's common stock, par
value $0.001.
ACTIVECORE TECHNOLOGIES, INC. FORMERLY IVP TECHNOLOGY CORPORATION
FORM 10-QSB
TABLE OF CONTENTS
PAGE
PART I........3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.......23
ITEM 3. CONTROLS AND PROCEDURES.....34
PART II......35
ITEM 1. LEGAL PROCEEDINGS..35
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.....36
ITEM 3. DEFAULTS UPON SENIOR SECURITIES......38
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS....38
ITEM 5. OTHER INFORMATION..38
ITEM 6. EXHIBIT AND REPORTS ON FORM 8-K......38
Signature Page
2
PART I
FINANCIAL INFORMATION
ACTIVECORE TECHNOLOGIES, INC. (FORMERLY IVP TECHNOLOGY CORPORATION)
AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2004
INDEX TO FINANCIAL STATEMENTS
Page 4 Condensed Consolidated Balance Sheets as of September 30, 2004
(Unaudited) And December 31, 2003
Page 5 Condensed Consolidated Statements Of Operations For The Three
And Nine Months Ended September 30, 2004 And 2003 (Unaudited)
Page 6 Condensed Consolidated Statement Of Stockholders' Equity
(Deficiency) For The Nine Months Ended September 30, 2004
(Unaudited)
Pages 7-8 Condensed Consolidated Statements Of Cash Flows For The Nine
Months Ended September 30, 2004 And 2003 (Unaudited)
Pages 9-19 Notes to Condensed Consolidated Financial Statements As Of
September 30, 2004 (Unaudited)
3
ACTIVECORE TECHNOLOGIES, INC. AND SUBSIDIARIES
FORMERLY IVP TECHNOLOGY CORPORATION)
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
SEPTEMBER. 30,
2004 DECEMBER 31,
(UNAUDITED) 2003
------------ ------------
CURRENT ASSETS
Cash $ 9,161 $ --
Accounts receivable, net 1,614,829 128,601
Other receivables 1,845 189,120
Prepaid expenses and other current assets 120,358 31,500
------------ ------------
TOTAL CURRENT ASSETS 1,746,193 349,221
------------ ------------
PROPERTY AND EQUIPMENT, NET 364,611 43,726
------------ ------------
OTHER ASSETS
Accounts Receivable - long term 531,000 --
License agreements - software, net 90,097 106,062
Note receivable 767,386 --
Customer list, net 183,333 252,080
Investments at cost 250,000 250,000
Deferred consulting expense 221,875 123,119
Goodwill 1,514,826 100,000
Net assets from discontinued operations -- 16,335
------------ ------------
Total Other Assets 3,558,517 847,596
------------ ------------
TOTAL ASSETS $ 5,669,321 $ 1,240,543
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES
Bank overdraft $ 211,793 $ --
Accounts payable 952,685 666,348
Accrued liabilities 315,965 249,685
Bank term loan, current portion 24,752 --
Taxes payable 777,496 301,378
Leases payable, current portion 14,935 7,652
Notes payable, current portion 139,951 557,299
Convertible preferred stock to be issued - Series C 93,750
Common stock to be issued 88,192 18,000
Due to related parties 7,915 117,874
Other current liabilities 19,880 7,729
------------ ------------
TOTAL CURRENT LIABILITIES 2,647,314 1,925,965
------------ ------------
LONG-TERM LIABILITIES
Bank term loan, long-term 146,457 1
Note payable, long-term portion -- 447,917
Lease payable, long-term 27,006 2,464
Convertible preferred stock to be issued - Series C 406,250 --
------------ ------------
TOTAL LONG-TERM LIABILITIES 579,713 450,381
------------ ------------
TOTAL LIABILITIES 3,227,027 2,376,346
- ----------------- ------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $0.001 par value, 50,000,000 shares authorized
Preferred stock issued and outstanding:
Series A: 8,333,333 and 0 shares as of September 30,2004 and
December 31,2003 respectively 8,333 --
Series B: 4,167,667 and 0 shares as of September 30,2004 and
December 31,2003 respectively 4,168 --
Common stock, $0.001 par value, 500,000,000 authorized and 478,370,960 and
286,207,000 shares issued and outstanding as of September. 30, 2004 and
December 31, 2003, respectively 478,370 286,207
Common stock to be issued (17,272,726 shares) -- 380,000
Common stock to be returned (2,527,254 shares) (68,783) --
Additional paid-in capital 39,296,052 36,382,766
Accumulated deficit (36,523,664) (37,094,546)
Treasury stock (11,000,000 shares) -- (770,000)
Accumulated other comprehensive loss (203,708) (158,586)
Deferred equity line commitment fees (40,236) (112,668)
Subscription Receivable - Preferred (250,000)
Subscription Receivable - Common (240,000)
Deferred compensation (18,238) (48,976)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIENCY) 2,442,294 (1,135,803)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) $ 5,669,321 $ 1,240,543
======================================================= ============ ============
See accompanying notes to these condensed consolidated financials statements
4
ACTIVECORE TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY IVP TECHNOLOGY CORPORATION)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
FOR THE FOR THE NINE FOR THE NINE
FOR THE THREE THREE MONTHS ENDED MONTHS ENDED
MONTHS ENDED SEPTEMBER MONTHS ENDED SEPTEMBER
SEPTEMBER 30, 30, SEPTEMBER 30, 30,
2004 2003 2004 2003
------------- ------------- ------------- -------------
REVENUE
Net sales $ 1,694,452 $ 124,767 $ 2,994,479 $ 355,776
------------- ------------- ------------- -------------
COST OF SALES
Product costs 273,460 20,962 584,591 121,893
Distribution and other costs including
amortization of license 37,148 92,983 124,624 279,172
------------- ------------- ------------- -------------
Total Cost of Sales 310,608 113,945 709,215 401,065
------------- ------------- ------------- -------------
GROSS PROFIT (LOSS) 1,383,844 (10,822) 2,285,264 (45,289)
------------- ------------- ------------- -------------
OPERATING EXPENSES
Salaries and wages 393,033 270,095 1,039,207 506,069
Stock based compensation 52,982 37,500 167,988 618,080
Consulting fees 35,215 119,044 197,179 212,974
Legal and Accounting 95,026 60,335 258,481 214,209
Management Fees 10,257 44,346 10,257 120,688
General and administrative 191,738 170,540 584,554 562,907
Financial advisory fees 2,662 9,098 10,292 39,914
Amortization and depreciation 28,263 9,656 34,947 28,378
------------- ------------- ------------- -------------
TOTAL OPERATING EXPENSES 809,176 720,614 2,302,905 2,303,219
------------- ------------- ------------- -------------
INCOME (LOSS) FROM OPERATIONS 574,668 (709,792) (17,641) (2,348,508)
------------- ------------- ------------- -------------
OTHER INCOME (EXPENSE)
Gain on early extinguishment of debt -- -- 2,000 --
Interest income 25,480 -- 55,456 6,497
Interest expense (36,911) (88,673) (91,887) (315,803)
Foreign exchange gain (loss) 37,626 43,821 19,695 57,895
------------- ------------- ------------- -------------
TOTAL OTHER INCOME (EXPENSE) 26,195 (44,852) (14,736) (251,411)
------------- ------------- ------------- -------------
INCOME (LOSS) FROM CONTINUING OPERATIONS 600,863 (754,644) (32,377) (2,599,919)
------------- ------------- ------------- -------------
DISCONTINUED OPERATIONS (SEE NOTE 2):
Income (Loss) from discontinued operations (954) -- (129,540) (733,123)
Gain on sale of discontinued operations 1,467 -- 732,800 2,396,009
------------- ------------- ------------- -------------
INCOME (LOSS) FROM DISCONTINUED OPERATIONS, 512 -- 603,259 1,662,886
NET
------------- ------------- ------------- -------------
NET INCOME (LOSS) $ 601,375 $ (754,644) $ 570,882 $ (937,033)
-------------
============= ============= ============= =============
INCOME (LOSS) PER COMMON SHARE FROM CONTINUING
OPERATIONS - BASIC AND DILUTED $ 0 $ (0) $ 0 $ (0.02)
------------- ------------- ------------- -------------
INCOME (LOSS) PER COMMON SHARE FROM
DISCONTINUED OPERATIONS - BASIC AND DILUTED $ 0 $ 0 $ (0) $ 0.01
------------- ------------- ------------- -------------
NET INCOME (LOSS) PER COMMON SHARE - BASIC AND
DILUTED $ 0 $ (0) $ 0 $ (0.01)
------------- ------------- ------------- -------------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING - BASIC AND DILUTED 454,909,963 262,456,836 387,810,403 159,960,377
============= ============= ============= =============
See accompanying notes to these condensed consolidated financials statements
5
ACTIVECORE TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY IVP TECHNOLOGY CORPORATION)
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004
(UNAUDITED)
Preferred Stock
Shares Amount Shares Amount Common
Series A Series A Series B Series B Shares
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2003 286,207,703
Stock issued for services 18,150,000
Stock Issued for compensation 11,300,000
Stock issued for stockholder debt 66,036,267
Stock Issued for debt repayment 38,692,545
Stock issued for payment of accrued liability 2,666,000
Stock Issued for acquisitions 46318445
Stock issued for investment 16000000
Cancellation of treasury stock (11,000,000)
Purchase price adjustment on acquisition by stock
Series A Preferred Issued for cash 8,333,333 8,333
Series B Preferred Issued for Subscription Receivable 4,167,667 4,168
Stock issued for cash 4,000,000
Unpaid Subscription
Deferred cost recognized
Net Profit for period
Cumulative translation adjustment
Comprehensive Income
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 2004 8,333,333 $ 8,333 4,167,667 4168 478,370,960
=================================================================================================================================
Common Common Stock to be Additional
Stock Issued/ (Returned) Paid-in Accumulated
Amount Shares Amount Capital Deficit
- --------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2003 $ 286,207 17,272,726 $ 380,000 $ 36,382,766 $(37,094,546)
Stock issued for services 18,150 296,100
Stock Issued for compensation 11,300 199,700
Stock issued for stockholder debt 66,036 (17,272,726) (380,000) 924,288
Stock Issued for debt repayment 38,693 634,475
Stock issued for payment of accrued liability 2,666 55,334
Stock Issued for acquisitions 46318 794891
Stock issued for investment 16000 224000
Cancellation of treasury stock (11,000) (759,000)
Purchase price adjustment on acquisition by stock (1,941,747) (60,000)
Series A Preferred Issued for cash 241667
Series B Preferred Issued for Subscription Receivable 245832
Stock issued for cash 4,000 56000
Unpaid Subscription (585,507) (8,783)
Deferred cost recognized
Net Profit for period 570882
Cumulative translation adjustment
Comprehensive Income
- --------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 2004 $ 478,370 (2,527,254) -68783 $ 39,296,052 36523664
================================================================================================================================
Other Sub Sub Equity
Compre- scrtiption scrtiption Line
hensive Receivable Receivable Commit-
Treasury Income Common Preferred ment
Stock (Loss) Stock Stock Fees
- -----------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2003 $ (770,000) $(158,586) $(112,668)
Stock issued for services
Stock Issued for compensation
Stock issued for stockholder debt
Stock Issued for debt repayment
Stock issued for payment of accrued liability
Stock Issued for acquisitions
Stock issued for investment -240000
Cancellation of treasury stock 770,000
Purchase price adjustment on acquisition by stock
Series A Preferred Issued for cash
Series B Preferred Issued for Subscription Receivable -250000
Stock issued for cash -8783
Unpaid Subscription 8783
Deferred cost recognized 72,432
Net Profit for period
Cumulative translation adjustment (45,122)
Comprehensive Income
- -----------------------------------------------------------------------------------------------------------------------
Balance, September 30, 2004 0 -203708 -240000 -250000 -40236
=======================================================================================================================
Deferred
Compen
-sation Total
- -------------------------------------------------------------------------------
Balance, December 31, 2003 $ (48,976) $ (1,135,803)
Stock issued for services 314,250
Stock Issued for compensation 211,000
Stock issued for stockholder debt 610,325
Stock Issued for debt repayment 673,168
Stock issued for payment of accrued liability 58,000
Stock Issued for acquisitions 841209
Stock issued for investment 0
Cancellation of treasury stock 0
Purchase price adjustment on acquisition by stock (60,000)
Series A Preferred Issued for cash 250000
Series B Preferred Issued for Subscription Receivable 0
Stock issued for cash 51217
Unpaid Subscription 0
Deferred cost recognized 30,738 103,170
Net Profit for period 570,882
Cumulative translation adjustment (45,122)
Comprehensive Income 525,760
- -------------------------------------------------------------------------------
Balance, September 30, 2004 -18238 2442294
===============================================================================
See accompanying notes to these Condensed Consolidated Financials Statements
6
ACTIVECORE TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY IVP TECHNOLOGY CORPORATION)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For The Nine
For The Nine Months Ended
Months Ended September 30,
September 30, 2004 2003
------------------ -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 570,882 $ (937,033)
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Gain on sale of discontinued operations (732,800) (2,396,009)
Depreciation 34,947 39,721
Amortization of customer list 68,747 --
Amortization of licensing agreements and software kits 15,965 267,603
Amortization of deferred consulting and commitment fees 72,432 256,874
Amortization of consulting agreements 195,494 --
Impairment of deferred tax asset -- 71,816
Stock issued for commitment fees and penalties -- 22,800
Stock issued for compensation -- 553,501
Stock issued for financing costs -- 129,500
Stock issued bonuses 226,738 --
Stock issued for services 12,000 62,500
Changes in operating assets and liabilities, net of effects of discontinued
operations:
(Increase) in accounts receivable (1,947,413) (112,679)
Decrease in inventory -- 304,783
Decrease in prepaid expenses and other current assets 121,417 150,669
Increase (decrease) in accounts payable 115,738 (53,318)
Increase in interest receivable (17,986) --
Increase (decrease) in accrued liabilities 80,948 (172,929)
Increase (decrease) in taxes payable 336,444 (203,370)
Increase in due to related parties 433,171 --
Increase (decrease) in other current liabilities 12,151 (69,603)
(Decrease) in accrued interest -- (43,136)
Net effect of discontinued operations -- 213,924
----------- -----------
Net Cash Used In Operating Activities (401,125) (1,722,712)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid from sale of discontinued operations -- (160)
Purchases of fixed assets (273,138) (9,126)
Purchase of software rights -- (94,803)
----------- -----------
Net Cash Used In Investing Activities (273,138) (104,089)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of notes payable (82,590) (1,036,134)
Proceeds from notes payable 530,000 1,674,146
Proceeds from related parties -- 299,878
Proceeds from factors -- 116,503
Proceeds from issuance of common stock 51,217 898,088
Proceeds from issuance of series A preferred stock 250,000
Payment on leases (20,081) (25,474)
----------- -----------
Net Cash Provided By Financing Activities 728,546 1,927,007
----------- -----------
EFFECT OF FOREIGN EXHANGE RATES (45,122) (98,302)
NET INCREASE (DECREASE) IN CASH 9,161 (1,904)
CASH-BEGINNING OF PERIOD -- 63,162
----------- -----------
CASH- END OF PERIOD $ 9,161 $ 65,066
=========== ===========
See accompanying notes to condensed consolidated financial statements.
7
ACTIVECORE TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY IVP TECHNOLOGY CORPORATION)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
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 $ 28,475 $ 33,095
----------- -----------
Common stock issued to satisfy common stock to be issued $ 380,000 $ --
----------- -----------
Common stock issued for acquisitions and investment $ 1,081,209 $ --
----------- -----------
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
----------- -----------
Common stock issued for share exchange agreement $ 240,000 $ --
----------- -----------
Share subscription receivable for sale of Series B preferred stock $ 250,000 $ --
----------- -----------
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
ACTIVECORE TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY IVP TECHNOLOGY CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2004
(UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
(A) ORGANIZATION
The Condensed Consolidated Financial Statements of ActiveCore Technologies, Inc.
and subsidiaries formerly IVP Technology Corporation (the "Company") include the
accounts of the parent, ActiveCore Technologies, Inc., (formerly 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 September 30, 2004, 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 wholly owned 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
ACTIVECORE TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY IVP TECHNOLOGY CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2004
(CONTINUED)
(UNAUDITED)
t 0 0 (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 nine and three months ended
September 30, 2003. Common stock equivalents were not included in the
calculation of diluted income per share for the nine months and the three months
ended September 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 September 30, 2004 and for
the nine months ended September 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 nine
months ended September 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.
10
ACTIVECORE TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY IVP TECHNOLOGY CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2004
(CONTINUED)
(UNAUDITED)
(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 negative cash flow from operations of $401,125
for the nine months ended September 30, 2004, and has a working capital
deficiency of $901,121 at September 30, 2004. The condensed consolidated
financial statements do not include any adjustments that might result form the
outcome of this uncertainty.
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.
(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.
11
ACTIVECORE TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY IVP TECHNOLOGY CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2004
(CONTINUED)
(UNAUDITED)
Upon execution of the sale agreement, 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 September 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 Mobile Games
Division described below.
Following is a summary of net liabilities and results of operations of Ignition
Entertainment Ltd. for the period from January 1, 2003 through September 30,
2003.
For the Period
From
January 1, 2003
Through
September 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.
12
ACTIVECORE TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY IVP TECHNOLOGY CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2004
(CONTINUED)
(UNAUDITED)
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. Interest payment on the note was in default at September 30, 2004, and a
penalty fee equal to 20% of the interest payment has been added to the interest
payment. 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) Under 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 has not
received any royalties for the nine months ended September 30, 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 $732,800, which has been included in the
condensed consolidated statement of operations for the nine months ended
September 30, 2004 as a gain on sale of discontinued operations.
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
Operations $ 16,335
========
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 September 30, 2004, the Company did not have any net assets from
discontinued operations and had a loss from discontinued operations of $129,540
for nine months then ended.
13
ACTIVECORE TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY IVP TECHNOLOGY CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2004
(CONTINUED)
(UNAUDITED)
NOTE 3 - ACCOUNTS RECEIVABLE
Several large receivables aggregating $1,117,580 of which $531,000 are due in
more than one year were contractually in arrears. However, the Company believes
that the amounts are collectible and therefore the revenue recognition criteria
are met.
NOTE 4 - 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 5 - 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 September 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".
14
ACTIVECORE TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY IVP TECHNOLOGY CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 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:
Nine Months Ended
September 30, 2004
-------------------
Net sales $3,140,858
Net income $ 604,047
Basic and diluted income per share $ 0.00
NOTE 6 - 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.
15
ACTIVECORE TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY IVP TECHNOLOGY CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 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:
Nine Months Ended
September 30, 2004
------------------
Net sales $ 3,153,150
Net loss $ 399,798
Basic and diluted loss per share $ (0.00)
16
ACTIVECORE TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY IVP TECHNOLOGY CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2004
(CONTINUED)
(UNAUDITED)
NOTE 7 - 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 18, 2003 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. As a
result of targets not met, 1,941,747 shares which has an issue value of $60,000
is to be returned. Goodwill resulted in the acquisition has been reduced by
$60,000 in the quarter ended September 30, 2004. 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 nine months ended September 30, 2004
was $91,667.
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:
Nine Months Ended
September 30, 2003
------------------
Net sales $ 802,479
Net loss $(946,869)
Basic and diluted loss per share $ (0.01)
NOTE 8- SHARE SUBSCRIPTION RECEIVABLE
On September 29, 2004 the Company entered into a share call or option agreement
("Lock up" Agreement) with 1543772 Ontario Inc. which would allow the Company at
its option to acquire 8,000,000 common shares of Infolink Technologies Limited,
a company which is listed on the Toronto Venture Exchange under the symbol
IFL-X, in exchange for 16,000,000 restricted shares of the Company. The
16,000,000 common shares have been issued but are being held in by the Company
in safekeeping and will be exchanged only if the Company makes a bid for or
makes another arrangement with the majority of the shareholders of Infolink to
acquire Infolink. There are a number of court proceedings between minority
shareholders of Infolink and its current board of directors and management which
makes any assessment of the likelihood of reaching agreement with a majority of
the shareholders difficult. There are 34,770,000 common shares of Infolink
outstanding. The Ontario Securities Commission has "halt traded" Infolink's
shares which last traded at $0.03 Canadian dollars. 1543772 Ontario Inc. is
controlled by a consultant to the Company. It is the opinion of the Company that
the existence of this option agreement does not constitute a de facto condition
whereby a bid for the majority of the shares must be made under the rules of the
Ontario Securities Commission. The 16,000,000 shares issued are valued at
$240,000 and the share subscription receivable is classified as a contra-equity
account in the shareholder's equity section of the condensed consolidated
balance sheet at September 30, 2004.
NOTE 9- DUE FROM RELATED PARTIES
The balance due from related parties of $7,915 has been included in prepaid
expense and other current assets in the accompanying condensed consolidated
balance sheet at September 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 fourth quarter of 2004.
17
ACTIVECORE TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY IVP TECHNOLOGY CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2004
(CONTINUED)
(UNAUDITED)
NOTE 10 - 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 $410,000, which is comprised of $327,000 for current
payroll taxes and penalties, 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
September 30, 2004 and December 31, 2003. An aggressive collection effort by the
CCRA could have a significant negative effect on the Company's operations in one
of its Canadian subsidiaries. The board of directors of the subsidiary is in
negotiation with the CCRA to develop a repayment program which will reduce the
liability over time and which may shift the liability to the directors and away
from the company.
(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 the Company believes 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 was 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, however, the action is
moving forward with a pre-trial hearing set for early January 2005 the outcome
of which is not known at this time. 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 September 30, 2004 and
September 31, 2003.
(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. Arbitration
proceedings are expected to begin in April 2005. 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.
18
ACTIVECORE TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY IVP TECHNOLOGY CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2004
(CONTINUED)
(UNAUDITED)
(D) During July of 2004, the Company was named as a co-defendant in a motion
brought by a Canadian based company and several of its officers that competes
with ActiveCore alleging that ActiveCore had misappropriated certain customer
lists and other property of this company and amongst other things, unfairly
competes against this company. An action has been commenced by the plaintiff to
pursue the motion and the Company believes that the motion and action were
brought to deflect attention from the original action against several officers
of the plaintiff by several of the plaintiff company's minority shareholders.
The Company believes that there is no basis for the motion and that eventually
the plaintiff's board, officers and shareholders will resolve their internal
issues and the action will be dropped. The Company intends to vigorously defend
against the action.
(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 11- NOTES AND BANK LOANS PAYABLE
On June 14, 2004, the Company obtained a loan of $60,000 from Cornell Capital
Partners, L.P. As of September 30, 2004, this loan has been fully repaid.
On September 30, 2004, the Company reached an agreement with the IBEW to convert
a $500,000 term loan made to one of its Canadian subsidiaries into convertible
redeemable preferred shares (series C) and agreed to issue 4,746,118 restricted
common shares to pay accrued interest for the period from August 1, 2003 to
September 30, 2004. See note 12 and 14 for additional details.
On August 17, 2004 one of the Company's Canadian subsidiaries obtained a term
loan with a Canadian Chartered Bank in the amount of (CAD) $220,000. Under the
terms of the agreement, the loan is repayable over a seven year term with
principal and interest payments due monthly. Interest on the borrowings is the
bank's prime rate plus 3%. As of September 30, 2004 the bank's prime rate was
3.75%, and the Company owed the bank $171,209 USD.
NOTE 12 - STOCKHOLDER'S EQUITY
PREFERRED SHARES:
The Company has issued or committed to issue 3 Series of Preferred shares:
Series A and B Par Value $.001 $250,000 and $250,000 respectively: The Series A
and B convertible preferred stock have been classified as equity in the
September 30, 2004 financials. These shares have a right of redemption whereby
if the stock is not converted within 5 years, the Company, at its option, shall
have the right to redeem all outstanding but unconverted shares of series A
(same for B) Preferred Stock held by such person by paying to the holder thereof
$0.03 (for B, $0.06) per share plus all accrued but unpaid dividends thereon, if
any. These shares are not manditorily redeemable. On September 14, 2004, the
Company issued 8,333,333 series A and 4,167,667 Series B preferred shares which
had a purchase price of $.03 and $.06 respectively. Each preferred share is
convertible into a one common share at any time prior to five years from the
date of issuance. The Company may force conversion of the preferred shares if
the trading price of the Series A and B shares exceed $.20 for 30 days. The
preferred shares will be paid a dividend at the rate of 10% per annum.
19
ACTIVECORE TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY IVP TECHNOLOGY CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2004
(CONTINUED)
(UNAUDITED)
Series C $500,000: The series C convertible preferred shares that convert the
IBEW debt are classified as a liability in the September 30, 2004 balance sheet.
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 150,
Accounting for Certain Financial Instruments with the characteristics of both
Liabilities and Equity, the series C preferred shares are considered a
"mandatorily redeemable financial instrument". SFAS No. 150 requires that a
financial instrument issued in the form of shares is mandatorily redeemable if
it embodies an unconditional obligation requiring the issuer to redeem the
instrument by transferring its assets at a specified or determinable date (or
dates) or upon an event certain to occur.
The terms of the Series C preferred stock require the Company to redeem the
preferred shares over 16 quarters, commencing on December 31, 2004. The Company
shall have the option of paying the quarterly redemptions in the form of cash or
common shares. Also the preferred shares with have a 12% annual dividend rate
payable quarterly based on the number of preferred shares outstanding at the end
of the quarter. The dividends may be paid in cash or in the form of common
shares. The dividend calculation will begin on October 1, 2004.
As of September 30, 2004, the series C convertible preferred stock has not yet
been issued and $93,750 has been classified as a current liability and $406,250
is classified as a long term liability in the condensed consolidated balance
sheet as September 30, 2004.
COMMON SHARES
During the nine months ended September 30, 2004, the Company issued 35,133,845
shares of common stock to Cornell Capital Partners in exchange for $584,180
under the Equity Line of Credit Agreement. Of the amount, $226,911 was applied
against the original $1,000,000 promissory note payable and $310,001 was used to
repay three separate notes that were issued in January of 2004 to Cornell
Capital Partners. Also, $47,268 was applied against interest due on the original
$1,000,000 promissory note payable.
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 nine months ended September 30, 2004, the Company
issued 11,300,000 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 $211,700, representing the
closing market value of the Company's common stock on the dates of issue. During
the nine months ended September 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.
On February 20, 2004, pursuant to an agreement reached between a trade 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.
On February 20, 2004, the board of directors authorized the issuance of
5,000,000 restricted shares valued at $0.024 to a consultant which shares will
be earned over the following 12 months.
t 0 0 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 license for certain software for a value of $10,000. The software is to be
used by C Comm Network Corporation. These shares were issued on September 29,
2004.
20
ACTIVECORE TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY IVP TECHNOLOGY CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2004
(CONTINUED)
(UNAUDITED)
On September 29, 2004, the Company sold 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 cents to expire on November 30, 2005.
On September 30, 2004, the Board of Directors authorized the issuance of
4,746,118 restricted common shares to the International Brotherhood of
Electrical workers in payment of accrued interest of $70,192 to September 30,
2004 on the $500,000 term debt previously held against one of the Company's
Canadian subsidiaries. This amount is classified as common stock to be issued in
the equity section of the condensed consolidated financial statements at
September 30, 2004. Also, see Notes 5, 6, 7, and 13 for additional stock
transactions.
NOTE 13 - 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. During the three months ended September 30,
2004, the Company entered into a consulting agreement with the same unrelated
company to assist in locating and negotiating several prospective merger
candidates as well as to assist in sales activities to large customers. The
company issued 12,000,000 restricted shares valued at $0.015 for a total
consideration of $180,000 which will be earned over the next twelve months.
On August 1, 2004, the Company entered into a consulting agreement with Yvan
Coessens for the management of investors relations. On September 29, 2004 the
company issued 150,000 restricted shares valued at $0.015 for total
consideration of $2,250.
On September 8, 2004 the Company entered into a consulting agreement with
1582579 Ontario Limited to provide sales, strategic and acquisition services for
the Company. On September 29, 2004 1582579 Ontario Limited was issued 12,000,000
restricted common shares valued at $.015 or $180,000 which will be earned over
the next 12 months.
21
ACTIVECORE TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY IVP TECHNOLOGY CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2004
(CONTINUED)
(UNAUDITED)
NOTE 14 - SUBSEQUENT EVENTS
On November 8, 2004 the Company issued 4,746,118 restricted common shares to the
International Brotherhood of Electrical workers in payment of accrued interest
to September 30, 2004 on the $500,000 term debt previously held against one of
the Company's Canadian subsidiaries.
On November 29, 2004 the Company held its annual shareholders meeting at which a
resolution was passed to approve the change of the Company's name from IVP
Technology Corporation to ActiveCore Technologies, Inc. At the same meeting
shareholders voted to change the Company's charter to enable the Board of
Directors to effect a reverse split or split in the Company's common shares at a
time of its choosing provided that at no time shall the number of outstanding
common shares exceed 500,000,000 common shares.
22
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS. This Report 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" as well as in this Report 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 Report
generally. In light of these risks and uncertainties, there can be no assurance
that the forward-looking statements contained in this Report will in fact occur
as projected.
OVERVIEW
ActiveCore Technologies, Inc. (formerly IVP Technology Corporation)
("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.
23
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 September 30, 2004 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 increase.
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.
24
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.
25
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 income from operations of $600,863 for the
three months ended September 30, 2004. The company incurred negative cash flow
from operations of $401,125 for the nine months ended September 30, 2004, and
has a working capital deficiency of $901,121 at September 30, 2004 which is a
significant improvement from December 31, 2003. However, there is no guarantee
that the Company will continue as a going concern and will not still incur a
going concern note as at December 31, 2004. 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. Several of those
critical accounting policies are noted in the following paragraphs.
(A) 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.
(B) 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.
(C) 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.
(D) 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.
(E) 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.
26
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.
(F) PROFIT (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 nine amd three months ended
September 30,. Common stock equivalents were not included in the calculation of
diluted income per share for the nine and three months ended September 30, 2004
since the exercise price of all common stock equivalents were greater than the
average stock price for the period.
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE MONTH PERIOD ENDED SEPTEMBER 30, 2004
COMPARED TO THE SAME PERIOD ENDED SEPTEMBER 30, 2003
REVENUES
During the three months ended September 30, 2004, the Company generated
$1,694,452 in revenue from the sale of products and services versus $124,767 in
revenue from product and services in the same three month period ended September
30, 2003. From a revenue source perspective, in the third quarter of fiscal year
2004, sales of software products accounted for approximately 75% of sales and
approximately 25% of revenues were service related. In the three months ended
September 30, 2003, $124,767 of revenue was generated from services work and
product installation chiefly by the Company's MDI group. In both three month
periods ended September 30, 2004 and 2003 there were no discontinued operations,
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 September 30, 2003.
During the third 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 September 30, 2004 was
$310,608, 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 September 30, 2003, cost of sales was
$113,945 and consisted of the same cost elements. The principal cost of sales
items in the third quarter of 2003 consisted of amortization of the Classifier
software license and the SCI customer list of $92,983. As a result of the cost
of sales components elaborated above, the September 30, 2004 three month period
led to a positive gross margin of $1,383,844 versus a negative gross margin of
$10,822 in the three months ended September 30, 2003. This trend towards
positive gross margins is expected to continue as the Company expands its
software sales efforts in the U.S., Europe and other regions.
OPERATING EXPENSES
Total operating expenses for the three months ended September 30, 2004
were $809,176 versus $720,614 in the three months ended September 30, 2003.
After expenses, the Company recognized income from operations of $574,668 in the
three months ended September 30, 2004 versus a loss from operations of $709,792
in the same quarter ended September 30, 2003.
The largest components of third quarter 2004 fiscal year expenses and of
third quarter fiscal year 2003 operating expenses were related to salaries and
wages stock based compensation, consulting fees, legal and accounting and other
general and administration expenses. These expenses are discussed below.
27
In the three months ended September 30, 2004, the Company expended
$393,033 in salaries and wages versus $270,095 in the three months ended
September 30, 2003. In the 2004 third quarter 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. In the three months ended September 30, 2003, most of the wage costs
were incurred in the Company's Canadian office as none of the other acquisitions
had been completed and the Company acquired the Company's U.S. MDI Solutions
staff in the month of September 2003. 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 full costs of all group insurance and various government
withholding tax and benefit programs.
In the three months ended September 30, 2004, the Company incurred costs
of $52,982 related to the pro rata amortization of employee and consultant stock
issuances for bonuses, stock incentives and regular compensation. In the quarter
ended September 30, 2003, the Company incurred stock compensation expense of
$37,500.
Consulting fees for the three months ending September 30, 2004 were
$35,215 versus $119,044 in the third quarter ended September 30, 2003. Certain
consultants who were paid in 2003 were not engaged by the Company in the most
recent quarter.
Legal and accounting expenses for the three months ended September 30,
2004 were $95,026, which was higher than the $60,335 recorded in the three
months ended September 30, 2003. The expenses incurred in the third quarter
reflect in part the ongoing legal costs associated with actions by Orchestral
and Infolink and to a certain extent acquisition costs.
For the three months ended September 30, 2004, the Company incurred
general and administrative expenses of $191,738 as opposed to $170,540 in the
quarter ended September 30, 2003. During the third quarter of 2004, the Company
employed a consultant to assist with financials and other SEC related tasks. In
the third quarter ended September 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 the quarter ended September 30, 2004, the Company incurred depreciation
charges of $28,263 on equipment versus $9,656 in the quarter ended September 30,
2003. These charges were related to primarily computer equipment and other
depreciable assets in use in the Company's offices in Canada and the UK.
OTHER INCOME/EXPENSES
In the quarter ended September 30, 2004, the Company recorded interest
received of $25,480 in interest from the secured promissory note that resulted
from the divesture of SilverBirch Studios. In the corresponding quarter ended
September 30, 2003, the Company earned $nil from bank sources.
In the quarter ended September 30, 2004, the Company expended $36,911 in
financial interest which was significantly lower than the $88,673 expensed in
the third quarter ended September 30, 2003. In the second quarter ended
September 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 gains were $37,626 in the third quarter ended September
30, 2004 versus a gain of $43,821 in the third quarter ended September 30, 2003
as a result of the decline of the U.S. dollar in terms of the UK pound and the
Canadian dollar.
INCOME (LOSS) FROM OPERATIONS
As a result of the items specified above, the Company had income from
operations of $600,863 versus a loss of $754,644 in the third quarter ended
September 30, 2003. This is the second consecutive quarter of income from
operations for the Company. We anticipate that the Company will be able to
maintain positive results from operations going forward.
28
DISCONTINUED OPERATIONS
In the quarter ended September 30, 2004, the Company recorded a small gain
on discontinued operations of $512 related to adjustments to the sales price on
the divestiture of SilverBirch Studios. In the third quarter ended September 30,
2003, the Company recorded no gain or loss on discontinued operations.
NET INCOME
As a result of the adjustment to the divestiture price of SilverBirch
Studios of $512 and the profit on operations, the Company recorded net income of
$601,375 in the third quarter of 2004 versus a net loss of $754,644 for the
quarter ended September 30, 2003. For the quarter ended September 30, 2004, the
earnings per share was $0.0013 or rounded down to $0.00 versus earnings per
share of ($0.00) in the quarter ended September 30, 2003.
RESULTS OF OPERATIONS FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2004
COMPARED TO THE SAME PERIOD ENDED SEPTEMBER 30, 2003
REVENUES
During the nine months ended September 30, 2004, the Company generated
$2,994,479 in revenue from the sale of products and services versus $355,776 in
revenue from product and services in the same nine month period ended September
30, 2003. From a revenue source perspective, in the nine months of fiscal year
2004, sales of software products accounted for approximately 75% of sales and
approximately 25% of revenues were services related. In the nine months ended
September 30, 2003, all of the revenue was generated from services work and
product installation chiefly by the Company's MDI group. In the nine month
period ended September 30, 2004, the Company accounted for the discontinued
operations of Silverbirch Studios operations on February 29, 2004, whereas in
the nine months ended September 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 nine months ended September 30, 2003, and there was no revenue
from Silverbrich Studios in the period ended September 30, 2004. During the
third 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 nine month period ended September 30, 2004 was
$709,215, 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 September 30, 2003, cost of sales was
$401,065. The principal cost of sales items in the nine months 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
September 30, 2004 nine month period led to a positive gross margin of
$2,285,264 versus a negative gross margin of $45,289 in the nine months ended
September 30, 2003. This trend towards positive 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 nine months ended September 30, 2004 were
$2,302,905 versus $2,303,219 in the nine months ended September 30, 2003. After
expenses, the Company recognized a slight loss on operations of $17,641 in the
nine months ended September 30, 2004 versus a loss from operations of $2,348,508
in the nine months ended September 30, 2003.
The largest components of nine months fiscal 2004 expenses and for the
equivalent period in the 2003 fiscal year operating expenses were related to
salaries and wages, stock based compensation, consulting fees, legal and
accounting and other general and administration expenses. These expenses are
discussed below.
In the nine months ended September 30, 2004, the Company expended
$1,039,207 in salaries and wages versus $506,069 in the nine months ended
September 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. In the
nine months ended September 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 just 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 nine months ended September 30, 2004, the Company incurred costs of
$167,988 related to the pro rata amortization of employee and consultant stock
issuances for bonuses, stock incentives and regular compensation. In the nine
months ended September 30, 2003, the Company incurred stock compensation expense
of $618,080, 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
September 30, 2003 figures consisted of payments of $63,500 related to
director's fees for the 2003 year.
Consulting fees for the nine months ending September 30, 2004 were
$197,179 versus $212,974 in the nine months ended September 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 nine months ended September 30, 2004
were $258,481, which was marginally higher than the $214,209 recorded in the
nine months ended September 30, 2003. Costs related to several legal actions
have pushed legal expenses slightly higher and this trend is expected to
continue until such time as the company successfully prevails over various
parties.
Management fees in the nine months ended September 30, 2004 were $10,257
which was reduced from the $120,688 in the nine months ended September 30, 2003.
In the nine months ended September 2003 the fees included costs for several
officers whereas in the nine months ended September 30, 2004 the costs included
only one person who is providing assistance in accounting and internal systems
review related to SOX 404 compliance.
For the nine months ended September 30, 2004, the Company incurred general
and administrative expenses of $584,554 as compared to $562,907 in the nine
months ended September 30, 2003. During the nine months ended September 30,
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 nine months
ended September 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 nine months ended September 30, 2004, the Company incurred
depreciation charges of $34,947 on equipment versus $28,378 in the nine months
ended September 30, 2003. These charges were related to primarily computer
equipment in use in the Company's offices in Canada and the UK.
INCOME (LOSS) FROM OPERATIONS
As a result of the items specified above, the Company improved its
operational results for the nine months ended September 30, 2004 with a minor
loss on operations of $17,641 versus a loss from operations of $2,348,508 in the
nine months ended September 30, 2003.
OTHER INCOME/EXPENSES
In the nine months ended September 30, 2004, the Company earned $55,456 in
interest from the secured promissory note that resulted from the divesture of
SilverBirch Studios and gained $2,000 from the conversion of a trade debt to
equity. In the corresponding period ended September 30, 2003, the Company earned
$6,497 from bank sources and $nil from sources other than foreign exchange
adjustments.
30
In the nine months ended September 30, 2004, the Company expended $91,887
in financial interest which was significantly lower than the $315,803 expensed
in the first nine months of fiscal 2003. In the nine months ended September 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 nine months of 2004 primarily consisted
of interest accrued on the IBEW loan which has been paid by way of a issuance of
common shares and the debt has been converted to redeemable preferred shares.
Foreign exchange gains were $19,695 in the first nine months ended
September 30, 2004 versus a gain of $57,895 in the first nine months of fiscal
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 nine months ended September 30, 2004, the Company recorded a loss
from discontinued operations of $129,540 related to operations of SilverBirch
Studios which was offset by a gain of $732,800 from the sale. In the nine months
ended September 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 nine month
periods, the Company recorded income from discontinued operations of $603,259
and $1,662,886 respectively in the 2004 and 2003 periods.
NET INCOME
The Company had a net income of $570,882 for the full nine month period in
2004 versus a loss for the full nine month period in 2003 of $937,033. For the
nine month period ended September 30, 2004, the earnings per share based on the
weighted average shares outstanding for the period of 387,810,403 were
approximately $0.0015 rounded down to $0.00 and were (0.01) for the period ended
September 30, 2003.
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 which has subsequently been
converted into a convertible, redeemable preferred share issue. 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 September 30, 2004, the Company's need for cash included satisfying
$2,647,314 of current liabilities, which consisted of accounts payable of
$952,685 (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 $211,793, $315,965 of accrued liabilities, taxes payable of $777,496, current
lease obligations of $14,935, the current portion of notes payable, including
accrued interest of $139,951, indebtedness to related parties of $7,915 and
other current liabilities of $19,880. In addition we have liabilities for common
stock and preferred shares to be issued of $88,192 and $93,750 respectively. At
September 30, 2004, the Company had a working capital deficiency of $901,121.
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 September 30, 2004, the Company had $9,161cash 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. During
the nine months end September 30, 2004, the Company repaid all of these
promissory notes.
31
t 6 0 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.
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 $2,647,314. As of September 30, 2004, the
Company improved its net working capital deficiency from $1,085,992 at June 30,
2004 to a deficiency of $901,121. This improving trend is expected to continue.
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.
32
During the nine months ended September 30, 2004, the Company made a total
advances under the Equity Line of Credit equaling $673,168 issuing a total of
38,692,545 shares of common stock. The proceeds were used to pay principal
interest due under promissory notes issued to Cornell Capital Partners.
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.
CONSOLIDATED STATEMENT OF CASH FLOWS
Cash on the condensed consolidated balance sheet increased from nil in the
period ended December 31, 2003 to $9,161 at September 30, 2004.
NET CASH USED IN OPERATING ACTIVITIES
For the nine months ended September 30, 2004, the Net Cash used in
operating activities was $401,125 versus $1,722,712 in the nine month period
ended September 30, 2003. In the nine months ended on September 30, 2004, cash
used in operating activities consisted primarily of depreciation and
amortization of $387,585, an increase in taxes payable of $336,444, an increase
in accounts receivable of $1,947,413, a decrease in other assets of $121,417, an
increase in accounts payable of $115,738, and an increase in accrued liabilities
of $80,948. Also, there was a net gain from discontinued operations of $732,800
and non-cash activities of $238,738 for stock issued for compensation and other
services. In the nine months ended September 30, 2003, the cash used in
operating activities consisted primarily of a net loss of $937,033, plus the
costs of stock issued of $705,801, and non-cash activities of $564,198 for
depreciation and amortization. Both periods reflected discontinued operations.
NET CASH FROM INVESTING ACTIVITIES
Net cash used in investing activities was $273,138 for the purchase of
fixed assets in the period ended September 30, 2004 versus $104,089 in the nine
months ended September 30, 2003.
NET CASH PROVIDED BY FINANCING ACTIVITIES
Net cash provided by financing activities was $728,546 in the nine months
ended September 30, 2004 versus $1,927,007 in the nine months ended September
30, 2003. In the nine months ended September 30, 2004, the Company repaid
$82,590 and received $530,000 from a bank term loan and in new notes payable. In
the nine months ended September 30, 2003, the Company received from related
parties $299,878, received proceeds of $898,088 from the issuance of stock, and
paid against leases $25,474 versus $20,081 in the most recent nine month period.
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.
33
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.
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.
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.
(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 September 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. During the
quarter ended September 30, 2004 the action was withdrawn and the Company and
Mr. Cassidy agreed to enter into arbitration on the matter and this is now in
process with the arbitration board currently being established. Arbitration is
expected to begin in April 2005. 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 the Company believes 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 was 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, however the action is moving
forward with a pre-trial hearing set for early January 2005 the outcome of which
is not known at this time. 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.
From December 2003 to April 2004, the Company was engaged in discussions
with certain major shareholders of Infolink Technologies Limited 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
former Chairman of the Board, President and CEO 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, an unrelated minority shareholder 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 shareholder action, Mr. Correia together
with Infolink Technology commenced a proceeding in the same Ontario court
alleging unfair competition as a result of an alleged improper acquisition of
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 court appointed monitor and investigator
issued an interim report in October 2004 which found that several of the
allegations against Mr. Correia were substantiated. Mr. Correia was removed from
the position of Chairman, President and CEO of Infolink and is now an employee
of Infolink with a reduced salary. The Company believes that Infolink as a
corporate entity will not proceed with any action against the Company as the
Company believes that the action was commenced as a defensive move by Mr.
Correia and now that he has been removed from management of Infolink there is
little basis for the action to continue.
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
On September 15, 2004, the Company entered into a Subscription Agreement with D
& M Investments whereby D & M subscribed to purchase from the Company (i)
8,333,333 shares of Series A Convertible Preferred Stock for $0.03 per share,
and (ii) 4,166,667 shares of Series B Convertible Preferred Stock for $0.06 per
share. The Company received proceeds of $250,000 from the subscription for the
Series A shares on September 17, 2004, and will receive an additional $250,000
from the subscription for the Series B shares which was scheduled to occur on
December 1, 2004, and is expected to occur in the near future. The resale of
these Series A and Series B shares will be restricted subject to such shares
being registered with the Securities and Exchange Commission.
Prior to the execution of the Subscription Agreement, the Company's Board of
Directors authorized the creation and issuance of the Series A and Series B
stock. Both the Series A and Series B shares have terms of five years from their
date of issuance. Shares of the Series A stock are convertible into shares of
common stock on a 1-for-1 basis and carry a 10% annual cumulative dividend. If
shares of the Company's common stock trade in excess of $0.20 for 30 days prior
to the date a conversion request is issued by the Company, then the Company may
force conversion of Series A shares into shares of its common stock. Shares of
the Series B stock are convertible into shares of the Company's common stocks on
a 1-for-1 basis and carry a 10% annual cumulative dividend. If shares of the
Company's common stock trade in excess of $0.40 for 30 days prior to the date a
conversion request is issued by the Company, then the Company may force
conversion of Series B shares into shares of its common stock
36
On September 30, 2004 the Company entered into a debt conversion agreement with
the IBEW to convert a secured term debt in the amount of $500,000 into 500,000
manditorily redeemable convertible preferred shares. The preferred shares have
not yet been issued.
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 on 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 666,000 restricted shares.
Also on July 12, 2004, the board of directors authorized the issuance of
16,000,000 restricted shares in relation to an one way call agreement ("option")
to acquire 8,000,000 shares of Infolink Technologies Ltd. On July 31, 2004, the
Company signed an irrevocable one way call agreement which has not yet been
exercised with a consultant to acquire 8,000,000 shares of Infolink. The
16,000,000 restricted common shares have been issued at a price of $0.015 for a
value of $240,000 but held in safekeeping pending the potential completion of
call agreement. The value of the Infolink shares has been recorded as a share
subscription receivable on the balance sheet as of September 30, 2004.
Also on 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 14, 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.
On September 30, 2004 the Board of Directors authorized the issuance of
4,746,118 restricted common shares to the International Brotherhood of
Electrical workers in payment of accrued interest to September 30, 2004 on the
$500,000 term debt previously held against one of the company's Canadian
subsidiaries. The debt was subsequently converted into 500,000 series C
preferred shares.
37
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
On November 29, 2004 the company held its annual shareholders meeting in
Miami. At that meeting shareholders voted to formally approve the name change of
the Company to "ActiveCore Technologies, Inc." The company is currently working
with its transfer agent and the NASD to effect the name change. Such change may
necessitate a change to the Company's CUSIP number and the stock trading symbol.
In addition shareholders also approved the current slate of directors to hold
office until the next shareholders meeting and voted to change the Company's
corporate charter to enable the Board of Directors to effect reverse splits and
splits to the Company's common shares provided that at no time shall the number
of authorized common shares exceed 500,000,000. Such change may necessitate a
change to the Company's CUSIP number and the stock trading symbol. No date has
been set for the next shareholders meeting.
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 this report.
ITEM 5. OTHER INFORMATION
None.
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
3.4 Certificate of Amendment to Articles of Provided herewith
Incorporation
3.5 Certificate of Designation for Series A Incorporated by reference to Exhibit 10.2 to IVP
Convertible Preferred Stock Technology's Form 8-K filed with the SEC on
September 20, 2004
38
EXHIBIT NO. DESCRIPTION LOCATION
- ----------- --------------------------------------------------- -----------------------------------------------
3.6 Certificate of Designation for Series B Incorporated by reference to Exhibit 10.3 to IVP
Convertible Preferred Stock Technology's Form 8-K filed with the SEC on
September 20, 2004
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
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
39
EXHIBIT NO. DESCRIPTION LOCATION
- ----------- --------------------------------------------------- -----------------------------------------------
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
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
40
EXHIBIT NO. DESCRIPTION LOCATION
- ----------- --------------------------------------------------- -----------------------------------------------
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
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
41
EXHIBIT NO. DESCRIPTION LOCATION
- ----------- --------------------------------------------------- -----------------------------------------------
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)
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)
42
EXHIBIT NO. DESCRIPTION LOCATION
- ----------- --------------------------------------------------- -----------------------------------------------
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
10.56 Results of Annual General Meeting of Shareholders Incorporated by reference to IVP Technology's
held on November 29, 2004 From 8-K filed with the SEC on December 2, 2004
14.1 Code of Ethics Incorporated by reference as an Exhibit to IVP
Technology's Form 10-KSB filed with the SEC May
7, 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
(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 19, 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.
43
On September 20, 2004, the Company filed a Form 8-K disclosing that it has
entered into a Irrevocable one way 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 been issued and are being held in
safekeeping pending a potential closing of the transaction.
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 each on September 17, 2004 and December 1, 2004.
On September 30, 2004, the Company filed a Form 8-K enclosing the
financial statements related to the acquisition of Twincentric Limited on May
21, 2004. The Company issued 14,560,243 restricted common shares in
consideration.
On December 2, 2004 the Company filed a Form 8-K disclosing the results of
its annual shareholders meeting.
44
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.
ACTIVECORE TECHNOLOGIES, INC.
December 22, 2004 By: /S/ Brian MacDonald
-------------------------------------------
Brian J. MacDonald
Chairman and Acting Chief Financial Officer
December 22, 2004 By: /s/Peter J. Hamilton
-------------------------------------------
President and Chief Executive Officer
45