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 March 31, 2005
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 Identification No.)
Incorporation or Organization)
156 Front Street West, Suite 210, Toronto, Ontario, Canada M5J 2L6
------------------------------------------------------------------
(Address of principal Executive Offices)
(416) 252-6200
--------------
(Registrant's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes |X| 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 June 28, 2005, there
were 65,272,611 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 1. CONSOLIDATED FINANCIAL STATEMENTS..................................3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.........23
ITEM 3. CONTROLS AND PROCEDURES...........................................32
PART II.......................................................................33
ITEM 1. LEGAL PROCEEDINGS.................................................33
PART 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.......34
ITEM 3. DEFAULTS UPON SENIOR SECURITIES...................................35
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...............35
ITEM 5. OTHER INFORMATION.................................................35
ITEM 6. EXHIBITS..........................................................36
Signatures
2
PART I
FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
ACTIVECORE TECHNOLOGIES, INC. (FORMERLY IVP TECHNOLOGY CORPORATION.)
As of March 31, 2005
INDEX TO FINANCIAL STATEMENTS
Page 4 Condensed Consolidated Balance Sheets as of March 31, 2005 (Unaudited) and December 31, 2004
Page 5 Condensed Consolidated Statements Of Operations For The Three Months Ended March 31, 2005 and 2004
(Unaudited)
Page 6 Condensed Consolidated Statement Of Stockholders' Equity (Deficiency) for the Three Months Ended
March 31, 2005 (Unaudited)
Pages 7-8 Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2005 and 2004
(Unaudited)
Pages 9-22 Notes to Condensed Consolidated Financial Statements as of March 31, 2005 (Unaudited)
3
ACTIVECORE TECHNOLOGIES, INC. AND SUBSIDIARIES
(formerly IVP Technology Corporation)
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
March 31, December 31,
2005 2004
--------------- ---------------
CURRENT ASSETS
Cash $ 7,693 $ 53,736
Accounts receivable, net 2,795,803 2,708,335
Other receivables 21,441 20,992
Prepaid expenses and other current assets 177,631 143,213
--------------- ---------------
Total Current Assets 3,002,568 2,926,276
--------------- ---------------
PROPERTY AND EQUIPMENT, NET 280,216 312,460
--------------- ---------------
OTHER ASSETS
Goodwill and other intangible assets, net 1,926,066 1,796,141
Investments at cost 262,648 262,648
Deferred consulting and financing expense 116,714 175,009
Deferred equity line commitment fees -- 16,092
--------------- ---------------
Total Other Assets 2,305,428 2,249,890
--------------- ---------------
TOTAL ASSETS $ 5,588,212 $ 5,488,626
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank Overdraft $ 126,215 $ 194,749
Accounts payable 966,565 955,407
Accrued liabilities 764,640 582,386
Taxes payable 1,003,193 957,011
Leases payable, current portion 19,603 22,093
Long-term debt, current portion 985,615 857,161
Due to related parties 166,711 132,364
Other current liabilities 281,552 27,247
--------------- ---------------
Total Current Liabilities 4,314,094 3,728,418
--------------- ---------------
LONG-TERM LIABILITIES
Long-term debt 559,539 491,622
Leases Payable, long-term 25,583 30,447
--------------- ---------------
Total Long-Term Liabilities 585,122 522,069
--------------- ---------------
TOTAL LIABILITIES 4,899,216 4,250,487
--------------- ---------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value, 50,000,000 shares authorized
Preferred Stock issued and outstanding
Series A, 8,333.333 shares as of March 31, 2005 and December 31, 2004 respectively 8,333 8,333
Series B, 4,167,667 shares as of March 31, 2005 and December 31, 2004 respectively 4,168 4.168
Common stock, $0.01 par value, 500,000,000 shares authorized, 47,241,718 and
46,711,708 outstanding as of March 31, 2005 and December 31, 2004, respectively 472,417 467,117
Common stock to be returned (68,783) (68,783)
Additional paid-in capital 39,265,606 39,137,498
Shares to be issued 176,000 0
Accumulated deficit (38,846,184) (37,892,002)
Accumulated other comprehensive loss (196,823) (256,204)
Subscription Receivable - Preferred -- (150,000)
Deferred compensation (125,738) (11,988)
--------------- ---------------
Total Stockholders' Equity 688,996 1,238,139
--------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 5,588,212 $ 5,488,626
=============== ===============
See accompanying notes to consolidated financial statements.
4
ACTIVECORE TECHNOLOGIES, INC. AND SUBSIDIARIES
(formerly IVP TECHNOLOGY CORPORATION)
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
For the three For the three
months ended months ended
March 31, 2005 March 31, 2004
--------------- ---------------
--------------- ---------------
REVENUES $ 523,008 $ 194,495
--------------- ---------------
--------------- ---------------
COST OF SALES
--------------- ---------------
Direct wages 141,262 1,051
--------------- ---------------
Amortization of licensing agreements and other costs 104,372 34,960
--------------- ---------------
Total Cost of Sales 245,634 36,011
--------------- ---------------
--------------- ---------------
GROSS PROFIT 277,374 158,484
--------------- ---------------
--------------- ---------------
OPERATING EXPENSES
--------------- ---------------
Salaries and wages 373,025 408,100
--------------- ---------------
Consulting fees 158,949 78,392
--------------- ---------------
Research and development 55,000 55,000
--------------- ---------------
Legal and accounting 78,575 26,097
--------------- ---------------
General and administrative 397,781 216,719
--------------- ---------------
Financial advisory fees 28,639 7,250
--------------- ---------------
Amortization and depreciation 31,232 (1,967)
--------------- ---------------
--------------- ---------------
Total Operating Expenses 1,123,201 789,591
--------------- ---------------
--------------- ---------------
LOSS FROM OPERATIONS (845,827) (631,107)
--------------- ---------------
--------------- ---------------
OTHER INCOME (EXPENSE)
--------------- ---------------
Gain on early extinguishment of debt -- 2,000
--------------- ---------------
Interest income 460 7,495
--------------- ---------------
Interest expense (75,075) (33,232)
--------------- ---------------
Foreign exchange loss (33,740) (2,264)
--------------- ---------------
Total Other Expense (108,355) (26,001)
--------------- ---------------
--------------- ---------------
LOSS FROM CONTINUING OPERATIONS (954,182) (657,108)
--------------- ---------------
--------------- ---------------
Discontinued Operations: (See note 2):
--------------- ---------------
Loss from discontinued operations - SilverBirch Studios -- (130,569)
--------------- ---------------
Loss from discontinued operations - net -- (130,569)
NET LOSS $ (954,182) $ (787,677)
=============== ===============
Preferred Stock Dividend 11,092 --
--------------- ---------------
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS $ (965,274) $ (787,677)
--------------- ---------------
LOSS PER COMMON SHARE FROM CONTINUING $ (0.02) $ (0.02)
OPERATIONS-BASIC AND DILUTED =============== ===============
LOSS PER COMMON SHARE FROM DISCONTINUED
OPERATIONS - BASIC AND DILUTED $ (0.00) $ (0.00)
=============== ===============
NET LOSS PER COMMON SHARE - BASIC AND DILUTED $ (0.02) $ (0.02)
=============== ===============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING -
BASIC AND DILUTED 46,999,267 31,713,278
--------------- ---------------
See accompanying notes to consolidated financial statements.
5
ACTIVECORE TECHNOLOGIES, INC. AND SUBSIDIARIES
(formerly IVP Technology Corporation)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE THREE MONTHS ENDED MARCH 31, 2005
(UNAUDITED)
Common Stock to be
Preferred Stock Issued / (Returned)
---------------------------------------- -------------------
Common
Shares Amount Shares Amount Common Stock
Series A Series A Series B Series B Shares Amount Shares Amount
-------------------------------------------------------------------------------------
Balance, December 31, 2004 8,333,333 $ 8,333 4,167,667 $4,168 46,711,708 $ 467,117 (252,725) $(68,783)
Stock issued for services 80,000 800
Stock Issued for compensation 400,000 4,000
Stock issued for beneficial owner
roundup on reverse split 50,010 500
Stock to be issued on acquisition
Deferred cost recognized
Preferred stock subscription received
Net loss for period
Preferred Stock Dividend
Cumulative translation adjustment
Balance, March 31, 2005 8,333,333 $ 8,333 4,167,667 $4,168 47,241,718 $ 472,417 (252,725) $(68,783)
Other Subscription
Additional Comprehensive Receivable Shares
Paid-In Accumulated Income Preferred to be Deferred
Capital Deficit (Loss) Stock Issued Compensation Total
------------------------------------------------------------------------------------------
Balance, December 31, 2004 $39,137,498 $(37,892,002) $ (256,204) $(150,000) $ -- $ (11,988) 1,238,139
Stock issued for services 23,200 24,000
Stock Issued for compensation 116,000 (120,000) 0
Stock issued for beneficial owner
roundup on reverse split 500
Stock to be issued on acquisition 176,000 176,000
Deferred cost recognized 6,250 6,250
Preferred stock subscription received 150,000 150,000
Net loss for period (954,182) (954,182)
Preferred Stock Dividend (11,092) (11,092)
Cumulative translation adjustment 59,381 59,381
Balance, March 31, 2005 $39,265,606 $(38,846,184) $ (196,823) $ -- $ 176,000 $(125,738) 688,996
See accompanying notes to consolidated financial statements.
6
ACTIVECORE TECHNOLOGIES, INC. AND SUBSIDIARIES
(formerly IVP TECHNOLOGY CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
2005 2004
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss for the period $(954,182) $(787,677)
Adjustments to reconcile net loss from continuing operations to net cash
used in operating activities:
Depreciation 31,232 (1,967)
Amortization of licensing agreement 28,623 6,220
Amortization of customer list 22,917 22,913
Amortization of deferred consulting fees 61,813 --
Amortization of customer contract 48,710 --
Stock issued for compensation -- 142,000
Stock issued for services -- 120,000
Amortization of deferred commitment fees 16,092 36,644
Changes in operating assets and liabilities:
Decrease (increase) in receivables (96,003) 47,760
Decrease (increase) in prepaid expenses and other current assets (39,654) 199,015
(Increase) decrease in other assets -- (35,300)
Increase (decrease) in accounts payable 12,690 (107,927)
Increase (decrease) in accrued liabilities 222,058 (11,206)
Increase (decrease) in taxes payable 52,522 90,351
Increase (decrease) in other current liabilities 289,216 37,598
Change in deferred compensation 24,000 --
Change in deferred consulting fees 3,107 --
--------- ---------
Net Cash Used In Operating Activities (276,859) (241,576)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (3,472) (11,855)
Acquisition of Disclosure Plus (60,600) --
--------- ---------
Net Cash Used In Investing Activities (64,072) (11,855)
--------- ---------
7
2005 2004
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advance of notes payable 27,261 --
Proceeds received from related parties 99,600 84,604
Repayments made to related parties (65,253) --
Proceeds from notes payable -- 250,000
Proceeds from bank overdraft 100,576 --
Preferred stock dividend (11,092) --
Proceeds from preferred shares subscription 150,000 --
Payment on leases (7,354) (4,515)
--------- ---------
Net Cash Provided By Financing Activities 293,738 330,089
--------- ---------
FOREIGN EXCHANGE GAIN ON CASH HELD IN FOREIGN CURRENCY 1,150 8,222
--------- ---------
NET INCREASE (DECREASE) IN CASH FOR THE PERIOD (46,043) 84,880
CASH - BEGINNING OF PERIOD 53,736 --
--------- ---------
CASH - END OF PERIOD $ 7,693 $ 84,880
========= =========
Non-Cash Transactions:
Isuance of shares related to acquisition of Disclosureplus $ 176,000 $ --
Issuance of shares for consulting services to be rendered $ 120,000 $ --
8
ACTIVECORE TECHNOLOGIES, INC. AND SUBSIDIARIES
(formerly IVP TECHNOLOGY CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 2005
(UNAUDITED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
Basis of Presentation and Going Concern
The accompanying unaudited interim consolidated financial statements have
been prepared pursuant to the rules and regulations for reporting on Form
10-QSB. Accordingly, certain information and disclosures required by
generally accepted accounting principles for complete financial
statements are not included herein. The interim statements should be read
in conjunction with the financial statements and notes thereto included
in the Company's latest Annual Report on Form 10-KSB. The results for the
three months may not be indicative of the results for the entire year.
Interim statements are subject to possible adjustments in connection with
the annual audit of the Company's accounts for the fiscal year 2005, in
the Company's opinion all adjustments necessary for a fair presentation
of these interim statements have been included and are of a normal and
recurring nature.
The consolidated financial statements are expressed in United States
dollars and have been prepared in accordance with accounting principles
generally accepted in the United States of America.
Our independent auditors have issued a going concern opinion on our
consolidated financial statements as at December 31, 2004 that raise
substantial doubt about our ability to continue as a going concern.
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the
satisfaction of liabilities and commitments in the normal course of
business. The Company has experienced negative cash flows from operations
and has an accumulated deficit at March 31, 2005 of $38,846,184. The
Company has funded its activities to date almost exclusively from debt
and equity financings. 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.
The Company's ability to continue as a going concern is dependent on its
ability to raise additional debt and equity financing and to implement
its business plan to market and sell its various enterprise software and
services.
The consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
9
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION - (Continued)
Recent Accounting Pronouncements
In December 2004 the FASB issued SFAS No. 123 (revised 2004), Shares -
Based Payment, ("SFAS No. 123 R"), which amends, "Accounting for Stock -
Based Compensation, and supersedes APB Opinion No. 25, Accounting for
Stock Issued to Employees. SFAS No. 123 (R) required compensation expense
to be recognized for all share - based payments made to employees based
on the fair value of the award at the date of grant, eliminating the
intrinsic value alternative allowed by SFAS No. 123. Generally, the
approach to determining fair value under the original pronouncement has
not changed. However, there are revisions to the accounting guidelines
established, such as accounting for forfeitures that will change our
accounting for stock-based awards in the future.
SFAS No. 123 (R) must be adopted in the annual period beginning after
June 15, 2005. The statement allows companies to adopt its provision
using either of the following transition alternatives:
(i) The modified prospective method, which results in the recognition of
compensation expense using SFAS 123(R) for all share-based awards granted
after the effective date and the recognition of compensation expense
using SFAS 123 for all previously granted share - based awards that
remain unvested at the effective date; or
(ii) The modified retrospective method, which results in applying the
modified prospective method and restating prior periods by recognizing
the financial statement impact of share-based payments in a matter
consistent with the pro forma disclosure requirements of SFAS No. 123.
The modified retrospective method may be applied to all prior periods
presented or previously reported interim periods of the year of adoption.
The Company has not yet determined either the method of adoption or the
impact that the new standard is expected to have on our financial
statements.
In December 2004, the FASB issued SFAS NO. 153, "Exchanges of Nonmonetary
Assets - an amendment of APB Opinion No. 29." The statement addresses the
measurement of exchanges of nonmonetary assets and eliminates the
exception from fair value measurement for nonmonetary exchanges for
similar productive assets and replaces it with an exception for exchanges
that do not have commercial substance. SFAS No. 153 is effective for
nonmonetary asset exchanges occurring in fiscal periods beginning after
June 15, 2005. The Company is Currently evaluating the impact of adopting
this statement.
10
NOTE 2 DISCONTINUED OPERATIONS
SilverBirch Studio
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.
SilverBirch Studios Inc. is majority owned by a former employee and
officer of the Company.
The purchase price consisted of the following:
(a) A promissory note in the amount of $830,300 (CAD $1,000,000)
payable in 10 monthly installments commencing March 31, 2005.
The note bears interest at 12% per annum, to be paid on a
monthly basis commencing on March 31, 2004. In February, 2005
the Company reached an agreement with SilverBirch Studios Inc.
to amend the terms of the note to extend the repayment over 2
years commencing July 2005 and to take shares in lieu of
interest cash payments for interest owing from September 2004
to June 30, 2005. The Company waived the penalty fee equal to
20% of the interest payment. The note is collateralized by a
general security agreement in first position over all assets
of SilverBirch
(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 $1,079,300 (CAD $1,300,000).
The Company has not received any royalties for the period
ended December 31, 2004.
(d) A non-exclusive grant of the right to use any games that were
in the process of being created by the games division up until
the effective date of the sales agreement for use in the
Company's direct marketing and advertising operations on the
basis of a royalty equal to normal commercial terms less 10%.
Due to the fact that the recoverability of the note is dependent upon the
future successful operations of the division sold, management determined
that the recognition of the sales proceeds was not appropriate.
Accordingly, the value of the note which amounted to $830,300 (CAD
$1,000,000) has not been included in the consolidated results for the
fiscal quarter ended March 31, 2004 and will be accounted for as cash
receipts are received in fiscal 2005 and 2006.
11
NOTE 2 DISCONTINUED OPERATIONS - (Continued)
SilverBirch Studios - (Continued)
Following is a summary of the results of operations of the Games Division
for the period from January 1, 2004 through February 29, 2004.
2004
-----------------
Salaries and wages $ 130,569
-----------------
Net loss from discontinued operations $ 130,569
=================
12
NOTE 3 ACQUISITIONS
Disclosureplus, Inc.
On February 25, 2005, the Company acquired all the outstanding common
stock of DisclosurePlus Inc. (DP) a privately held Canadian Corporation
which provides publicly traded corporations with the foundation and tools
to enhance the scope of corporate disclosure in-line with a standardized
regulatory compliant web-based solution. Consideration for this
acquisition represented 800,000 shares of the Company's restricted common
stock valued at $176,000 in addition to $60,600 cash. The value allocated
to the common share consideration and was based on the weighted average
share price of the Company's common shares for the two trading days
before, the day of, and the two days after the day the Company entered
into the terms of the acquisition agreement. The total purchase price of
$241,600 also includes $5,000 of other acquisition costs. The Company
accounted for this acquisition using the purchase method of accounting in
accordance with the provisions of SFAS No. 141, and accordingly, DP's
operating results have been included in the Company's consolidated
statement of operations from the acquisition date through to March 31,
2005. The Company acquired net tangible assets of $0, though the
transaction provided the Company with intellectual property, customers,
and a set of employees who had operated this business prior to the
acquisition. The excess of the consideration given over the fair value of
the net assets acquired ($241,600) has been recorded as goodwill and is
not deductible for tax purposes. Given that this transaction was
completed late in the quarter ended March 31, 2005, the Company has not
yet completed its analysis of the intangible assets acquired. It is the
Company's expectation that during the quarter ending June 30, 2005 it
will adjust the following purchase price allocation to reflect the
acquisition of certain intangible assets. The Company will account for
the purchased goodwill in accordance with the provisions of SFAS 142.
The Company's preliminary purchase price allocation recorded for the
acquisition of DP is as follows:
Purchase price $236,600
Acquisition - fees and expenses 5,000
--------
Goodwill $241,600
========
The above purchase price allocation is subject to adjustment these
adjustments may be material.
Pro forma financial information giving effect to the acquisition of DP
has not been provided on the basis that its results of operations for the
three months ended March 31, 2005 and 2004 would not be material to the
Company.
NOTE 4 ACCOUNTS RECEIVABLE
The components of accounts receivable, net, as of March 31, 2005 and
December 31, 2004 consist of:
2005 2004
----------- -----------
Trade receivables $ 2,931,116 $ 2,808,335
Imputed interest discount (91,343) (100,000)
Allowance for doubtful accounts (43,970) --
----------- -----------
Accounts receivable, net $ 2,795,803 $ 2,708,335
=========== ===========
13
NOTE 4 ACCOUNTS RECEIVABLE - (Continued)
Trade receivables consist primarily of vendor receivables for enterprise
software and information technology services sold. An imputed interest
discount is included in the value of accounts receivable.
NOTE 5 OTHER RECEIVABLES
Other receivables, of $21,441 as at March 31, 2005 represents an advance
made to a principal of Disclosureplus.
NOTE 6 PROPERTY AND EQUIPMENT
As of March 31, 2005 and December 31, 2004, property and equipment
consisted of:
2005 2004
--------- ---------
Computer equipment $ 500,004 $ 476,990
Office equipment and furniture 60,354 87,371
Computer software 33,045 33,378
Leasehold improvements 42,159 41,185
--------- ---------
635,562 638,924
--------- ---------
Less accumulated depreciation and amortization (355,346) (326,464)
--------- ---------
Property and Equipment, net $ 280,216 $ 312,460
========= =========
Depreciation expense for the three months ended March 31, 2005 and 2004
amounted to $31,232 and ($1,967) respectively.
Assets held under capital lease in the amount of $64,584 (2004 - $64,584)
with accumulated depreciation in the amount of $28,184 (2004 - $22,802)
are included in computer equipment.
14
NOTE 7 GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangibles assets consisted of the following as of
March 31, 2005 and December 31, 2004:
2005 2004
----------- -----------
Other intangible assets subject to amortization:
Customer contracts $ 1,010,572 $ 1,024,666
Customer lists 275,000 275,000
Capitalized software 115,703 115,701
Licenses 51,240 51,242
----------- -----------
1,452,515 1,466,609
----------- -----------
Less: Accumulated amortization
Customer contracts (146,129) (97,419)
Customer lists (137,500) (114,583)
Capitalized software (57,852) (48,210)
Licenses (51,240) (32,259)
----------- -----------
Other intangible assets subject to amortization, net 1,059,794 1,174,138
Goodwill 866,272 622,003
----------- -----------
Goodwill and other intangible assets, net $ 1,926,066 $ 1,796,141
=========== ===========
The changes in goodwill for the three months ended March 31, 2005 and
year ended December 31, 2004 are as follows:
2005 2004
----------- -----------
Balance, beginning of period $ 622,003 $ 100,000
Acquisitions 241,600 510,095
Effect of foreign exchange rate fluctuation 2,669 71,908
Purchase price allocation adjustments from prior acquisitions
-- (60,000)
----------- -----------
Balance, end of period $ 866,272 $ 622,003
=========== ===========
15
NOTE 7 GOODWILL AND OTHER INTANGIBLE ASSETS
Amortization expense for other intangible assets for the three months
ended March 31, 2005 was $100,250 (2004 - $29,133). Estimated future
amortization of other intangible assets based on balances existing at
March 31, 2005 is as follows:
Amount
----------
2005 remainder of the year $ 239,807
2006 302,609
2007 204,933
2008 204,933
2009 107,512
----------
Total $1,059,794
==========
NOTE 8 INVESTMENT
On June 26, 2003, the Company purchased 300,000 common shares, equal to
approximately 5% of the then issued share capital of ePocket, Inc. for
1,000,000 shares of the Company's common stock. The shares were valued at
$0.25 per share or an aggregate of $250,000, representing the market
value at the date of issuance. The investment in ePocket, Inc. is valued
at cost in the accompanying consolidated balance sheet.
NOTE 9 LONG-TERM DEBT
Long-term debt as of March 31, 2005 and December 31, 2004 consists of the
following:
2005 2004
---------- ----------
Note payable to IBEW Local Union 105, five year term, no principal
payments until August 2004, bearing interest
at 12% (1) 500,000 500,000
Note payable to SCI Healthcare Group, unsecured (2) 114,207 130,915
Short term loans (3) 596,067 543,901
Bank term loan, seven year term with monthly equal principal payments,
bearing interest at the Canadian
prime plus 3% (4) 165,770 173,967
Bank term loan, 30 months term with monthly equal principal payments,
bearing interest at the HSBC
(Britain) Base Rate plus 4.5% 169,110 --
---------- ----------
1,545,154 1,348,783
Less current
portion 985,615 857,161
---------- ----------
Long term portion $ 559,539 $ 491,622
---------- ----------
16
(1) On July 31, 2003, the Company's wholly owned subsidiary ActiveCore
Technologies Limited, received a $500,000 term loan from the
International Brotherhood of Electrical Workers union in Hamilton,
Ontario, Canada. Under the terms of the agreement, the first year
accrued interest at the rate of 12% and the principal was
repayable over a five-year term with no principal nor interest
payments required during the first 12 months, principal payments
were to be amortized over the remaining 48 months of the loan. The
loan was convertible into common stock of the Company at the rate
of 4.5 shares for every 1 dollar of the loan balance, excluding
interest, remaining at the time of conversion. As additional
consideration for the loan, the Company issued warrants to the
lender for the purchase of 50,000 shares of common stock at a
purchase price of $0.312 per share which expired on July 31, 2004.
The fair value assigned to the warrants amounted to $0. The
Company estimated the fair value of the warrant at the grant date
by using the Black-Scholes option-pricing model with the following
weighted average assumptions used for this grant; no dividend
yield for all years; expected volatility of 9.3%; risk-free
interest rate of 1.12%, and an expected life of 1 year. The loan
is collateralized by substantially all of the assets of the
subsidiary Company. During the year ended December 31, 2004 the
Company and the union agreed to exchange the outstanding loan into
manditorily redeemable convertible preferred shares (series C) in
exchange for the note payable and the release of its security over
ActiveCore Technologies Limited, one of the Company's Canadian
subsidiaries. The series C shares were not issued as at March 31,
2005. Interest that accrues on the note until conversion to
preferred shares will be satisfied by cash or the issuance of
additional common shares. Once the note is converted to the series
C preferred shares a dividend equal to 12% on the outstanding
preferred share balance will be payable in cash or in the form of
additional common shares.
(2) The promissory note relating to the acquisition of SCI Healthcare
Group bears interest at 10% and is payable in ten monthly
installments commencing April 30, 2004.
(3) During 2004, various arm's length parties loaned the Company, on a
short term basis, funds to assist with working capital.
(4) 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 March 31, 2005 the bank's prime rate was
4.25%.
Future maturities of short and long-term notes payable as of March 31,
2005 are as follows:
2005 $ 901,333
2006 218,739
2007 218,739
2008 136,756
2009 26,095
2010 26,095
2011 17,397
----------
$1,545,154
17
NOTE 10 DUE TO RELATED PARTIES
The Company's officers and directors have loaned various amounts to the
Company and its subsidiaries to meet operating cash flow requirements.
The amounts due to related parties are non-interest bearing and have no
specific repayment terms. The balances due them were $166,711 and
$132,364 as of March 31, 2005 and December 31 2004, respectively, and are
classified as current liabilities in the accompanying consolidated
balance sheet.
During 2004 Ardrossan Investments Inc. a Canadian Controlled Private
Corporation owned and operated by the spouse of a former officer and
director of the Company loaned the Company, on a short term basis, funds
to assist with working capital, subsequent to the year end this loan was
paid in full.
NOTE 11 REVERSE STOCK SPLIT
In order to satisfy the terms of the Cratos share purchase agreement (see
note 18), the Company conducted a reverse split of its shares on a 10:1
basis effective March 1, 2005. All share information contained in this
Form 10-Q has given effect to this transaction.
NOTE 12 TAXES PAYABLE
Activecore Technologies Limited, a Canadian subsidiary of ActiveCore
Technologies, Inc. has a liability to the Canada Customs and Revenue
Agency ("CCRA") for $440,995 including un-remitted payroll taxes in the
approximate amount of $338,418, which is comprised of $255,418 for
current payroll taxes, and $83,000 from a December 31, 2002 CCRA employee
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
consolidated balance sheet as of March 31, 2005. Since January 2005, the
Company has been making monthly term payments of $44,137 per month.
Failure to continue to make payments on a timely basis could result in an
aggressive collection effort by the CCRA which could have a significant
negative effect on the Company's operations.
NOTE 13 COMMITMENTS AND CONTINGENCIES
(a) On January 13, 2002, the Company canceled its "Power Audit"
software distribution agreement with the licensor. In January
2003, the licensor commenced a proceeding in Ontario, Canada
against the Company which was placed into abeyance and then
revived in August 2003 alleging that the Company had infringed
upon the copyright that the licensor maintained, and further that
the Company had breached the distribution contract. The licensor
has claimed punitive and exemplary damages of Canadian $4,000,000
and $1,000,000, respectively. The Company has retained legal
counsel to defend itself on the basis that there is no merit to
the case and even if there was merit, the time frame in which to
bring an action in the contract has expired.
Compulsory mediation has occurred in the case and no settlement
was offered or agreement 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. Orchestral sent a
settlement letter to the Company dated January 10, 2005 and has
subsequently brought an Application before the Ontario courts to
enforce the terms of the settlement letter. The court ordered that
the settlement letter was enforceable and that $226,000 was owed
by the Company to Orchestral. An appeal by the Company of this
judgment is pending. An allocation of $226,000 has been made on
the Company's financial statements for the punitive and exemplary
damages, however, it maintains that the action is frivolous.
18
(b) 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
35,000 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 35,000 shares will equal $50,000. The
average closing price of the stock was $14.87 per share. The
Company is obligated to issue an additional 30,284 common shares
to the consultant as an additional fee.
In March 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 engaged legal counsel
to vigorously defend itself against the claim. 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 accrual for this
matter in the accompanying consolidated financial statements. This
case is proceeding to arbitration on August 26, 2005 which will
take place in Washington, D.C.
(c) 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.
NOTE 14 COMMON AND PREFERRED SHARES
Common Shares
On February 9, 2005, the Company issued 400,000 restricted shares of
Common stock to two directors as Director's fee. The fair value of these
shares, based on the market value on the date they were issued was $.30
each. 80,000 restricted shares of Common stock were also issued to two
outside parties to pay for services rendered to the Company. The Company
has recorded, in its Consolidated Statement of Operations, an expense of
$24,000 representing the fair market value of these shares on of the date
they were issued.
19
During the three months ended March 31, 2005, the Company issued 50,010
restricted shares of Common stock for beneficial owner round up as a
result of the reverse stock split on March 1, 2005.
Preferred Shares
The Company has issued or committed to issue three series of preferred
shares:
Series A and B
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 had a
purchase price of $0.03 and $0.06, respectively totaling $500,000 of
which $150,000 remains outstanding at December 31, 2004. With respect to
the Series A shares, the Company may force conversion if the trading
price of the Company's common shares exceeds $2.00 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 $4.00 for 30 days.
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 $0.30 (for B, $0.60) per share plus all accrued but unpaid
dividends thereon, if any. These shares are not manditorily redeemable.
The preferred shareholders will be paid a dividend at the rate of 10% per
annum.
Series C
In 2004, the Company and the International Brotherhood of Electrical
Worker's Union (See Note 9) agreed to convert the outstanding loan of
$500,000 into Series C convertible preferred shares. 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. As at March 31, 2005 the Series C
preferred shares have yet to be issued.
NOTE 15 WARRANTS
The Company's Board of Directors has granted warrants to non-employees of
the Company. The following is a summary of activity under these warrant
arrangements.
20
Non-Employee Weighted
Options and Average
Warrants Exercise Price
------------ --------------
Warrants outstanding at December 31, 2003 88,000 1.47
Expired 51,500 0.45
Granted 400,000 0.18
------- -----
Warrants outstanding at March 31, 2005 and December 31, 2004 436,500 $0.42
======= =====
As of March 31, 2005 and December 31, 2004, all warrants were fully
vested and exercisable.
NOTE 16 INCOME TAXES
No provision for Federal, state and foreign income taxes has been
recorded as the Company has net operating loss carry forwards to offset
any net income for the three months ended March 31, 2005 and the year
ended December 31, 2004. As of March 31, 2005, the Company has
significant net operating loss carry forwards for income tax purposes
available to offset future taxable income. The Company is in arrears on
filing many of its statutory income tax filings and is therefore unable
to determine the amount of such carry forwards at this time. Under the
Tax Reform Act of 1986, the amounts of and benefits from net operating
losses and capital losses carried forward may be impaired or limited in
certain circumstances. Events, which may cause limitations in the amount
of net operating losses that the Company may utilize in any one year,
include, but are not limited to, a cumulative ownership change of more
than 50% over a three-year period. Deferred tax assets as of March 31,
2005 and December 31, 2004 consist primarily of the tax effect of net
operating loss carry forwards and amortization of intangibles. The
Company has provided a full valuation allowance on the deferred tax
assets as of March 31, 2005 and December 31, 2004 to reduce such deferred
tax assets to zero, as it is management's belief that realization of such
amounts is not considered more likely than not.
NOTE 17 TOTAL COMPREHENSIVE INCOME (LOSS)
The following table presents the Company's total comprehensive income
(loss) for the three month periods ended March 31, 2005 and 2004
respectively:
2005 2004
--------- ---------
Net loss for the period $(954,182) $(787,677)
Other comprehensive income (loss) for the period 59,381 (8,222)
--------- ---------
Comprehensive net loss for the period $(894,801) $(795,899)
========= =========
21
NOTE 18 SUBSEQUENT EVENTS
Acquisition of Cratos Technology Solutions Inc.
Subsequent to March 31, 2005, the Company signed a share purchase
agreement (the "Share Purchase Agreement") with Andrew Wickett
("Wickett") and Debbie Gracie-Smith ("Gracie-Smith"), the only
shareholders of Cratos Technology Solutions Inc. ("Cratos"), pursuant to
which the Company acquired all of the stock of Cratos in exchange for
approximately CAD$2.6 million in cash and Company Common stock.
Under the terms of the Share Purchase Agreement, the Company issued
approximately 8.9 million shares of Common stock of the Company (the
"Purchaser Shares") and will pay cash in the amount of CAD$200,000 to
Wickett and Gracie-Smith in equal proportions. The per share stock
consideration was USD$0.223 which is based on the 20 trading day average
closing price of the Company's common stock determined at the time of
execution of the Share Purchase Agreement.
The purchase price is subject to an adjustment mechanism which will
require (i) the Company to issue additional shares to Wickett and
Gracie-Smith (in equal proportions) in the event Cratos' exceeds certain
specified financial targets, and (ii) Wickett and Gracie-Smith to
contribute back to the Company's treasury Purchaser Shares (in equal
proportions) in the event Cratos' fails to achieve certain specified
financial targets. Any future share consideration paid or received by the
Company subject to the above arrangement will be recognized at fair value
effective the date such amounts become determinable.
In addition to the foregoing, the Company made a cash payment on behalf
of Cratos to its primary supplier which equaled all amounts due to such
supplier and which amounts represented receivables to Cratos. This
supplier will also receive a specified number of bonus shares of the
Company's common stock in consideration for its agreement to (i) enter
into renewed agreements which Cratos, and (ii) terminate any existing
security agreements between such party and Cratos as well as discharge
any registered security and agree to subordinate any future security to
that of any senior lender of the Company.
Pursuant to the terms of the Share Purchase Agreement, each of Wickett
and Gracie-Smith agreed to contractual lock-up and voting restrictions in
respect of the Purchaser Shares. Specifically, the Purchaser Shares will
be subject to a lock-up in accordance with the following release
conditions: (i) 20% of the Purchaser Shares shall be released on the
seventh business day following the closing date; (ii) 40% of the
Purchaser Shares will be released on the first anniversary of the closing
date; and (iii) 40% of the Purchaser Shares will be released on the
second anniversary of the Closing Date. Each of Wickett and Gracie-Smith
will also agree for a period of two years from the closing date to vote
the Purchaser Shares in support of any recommendation made by the
directors and/or management of the Company at any annual or special
meeting of the Company.
On April 30, 2005, Cratos secured a $1.75 million credit facility with a
major Canadian bank. Amounts drawn on this facility bear interest at the
prime rate plus 1.00% per annum. The facility is secured by a general
security agreement against Cratos and by personal guarantees of two
principals of the Company. The margin requirements of the facility
restrict borrowing to 85% of effectively assigned and domestic
unencumbered trade accounts receivables and insured non-domestic
unencumbered trade account receivables.
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. ("ActiveCore" or the "Company") is a
Nevada registered Company with its head office in Toronto, Canada, and
operations in the USA and the UK. The Company operates within the enterprise
software and services market in a sector which has been described by the Gartner
Group as that group of vendors of software and services that sell and install
"Smart Enterprise Suites" and related products. The Company has organized itself
into two distinct divisions to deliver its products and services. The Systems
Integration and Migration (SIM) division focuses on large projects in the
financial services, insurance, healthcare, education and manufacturing
industries. These projects are aimed at protecting the customer's investment in,
improving the functionality of, and extending the life span of their existing
information technology systems. The acquisition of Cratos subsequent to the end
of the quarter ended March 31, 2005 is expected to begin to give this division
critical mass. The Corporate Disclosure and Messaging (CDM) division is focused
on working with these same and additional customers to provide them with a range
of communication and information distribution based products that allow them to
leverage existing corporate information and share it with their customers,
employees and other stakeholders and facilitates their move towards a Smart
Enterprise.
The Company's products encompass application integration, application
modernization, application migration, content management, vertical application
portals, a corporate disclosure portal and an outbound corporate messaging
portal. This product set gives ActiveCore the capability to deliver effective,
efficient and economical integration, modernization, migration and corporate
messaging services or complete solutions to clients seeking to enable or extend
their existing systems to stakeholders and customers without wholesale changes
to their systems. ActiveCore's products are designed to enable the Company's
clients to extend the functions of their current systems, often called "legacy
systems", by using the Company's integration, modernization and migration
product sets that are sold and delivered by the SIM division. For organizations
wanting to take the next step in achieving what ActiveCore terms "A Smart
Enterprise" the Company offers its disclosure and messaging products that are
sold and delivered by the CDM division. By concentrating on the improvement of
the customers existing systems and providing an additional
communication/messaging product layer the Company is able to offer its customers
a cost effective way to rapidly improve the overall capability and extend the
life of their existing information technology assets.
23
The two divisions of the Company have very different revenue models and
it is important that this is clearly understood. In future quarters the company
plans to provide more granular reporting by division so that shareholders can
develop a better understanding of the Company's revenue sources and how the
revenue mix within the two divisions affects the gross profit margin at a
consolidated level.
The SIM division derives it revenue from the sale of value added labor
and software licenses. This division has repeat customers and maintenance
revenue but to grow it must find new customers on a regular basis to replace
revenue from completed projects. Projects in this division usually range from
one to two years in length and can exceed one million dollars in value. These
projects tend to have long sell cycles and are predominantly with large
customers. The gross profit percentage of this division varies based on the mix
of sales as product revenue tends to yield a higher margin than services
revenue. The Company considers this division to be a "solutions provider",
therefore, there will always be a mix of both product and service revenue but
normally the mix will be weighted towards services. In this division the Company
competes with a variety of System Integration "SI" vendors but has the advantage
of having ownership of most of the products it uses to develop client specific
and industry specific solutions.
The CDM division of the Company derives it revenue from the sale of
product based services and usually delivers these services via an Application
Service Provider (ASP) model. The size of the individual sales in this division
are much smaller than in the SIM division but the revenue generated by this
division is recurring in nature. Contracts in this division can vary from a one
time job to three years and the length is determined by the target customer.
Customers that purchase the DisclosurePlus product set usually sign three year
contracts that consist of an initial setup fee and monthly payments and once the
customer has committed to use this product set they become long term customers.
Customers that purchase the Messaging product set tend to sign shorter contracts
or choose to use the service as required. This division has shorter sell cycles
and employs both telephone and direct sales representatives. The gross profit
percentage from this division will vary based on the mix of Messaging sales
versus DisclosurePlus sales. DisclosurePlus sales will yield a higher margin
once the division has reached a critical mass of repeat customers.
The Company has set up a "service bureau" operation under the product
identity "ActiveCast" to implement the Messaging ASP service whereby it offers
broadcast services to customers on an outsourced basis using its own internal
installation of ActiveLINK and DynaPortal. The Company is actively increasing
the scope and revenue earning capacity of this operation by investing in fixed
assets and personnel to grow the revenue and client base. The Company completed
the DisclosurePlus acquisition in the first quarter to add additional revenue
opportunities to this division and to increase the amount of recurring revenue
for the overall Company. The Company continues to search for potential
acquisition candidates that can expand the range of products and services that
the Company can offer within the context of the CDM division. In this area of
operations, the Company competes with such companies as Infolink Technologies
Limited in Canada, J2 Global Communications, Inc., and Xpedite Corporation.
The Company has developed a clear vision of how it intends to expand
the business in the future. Expansion will accomplished by growing the SIM and
the CDM divisions organically as well as developing markets via strategic
acquisitions in either division. The Company will also expand its marketing
program to increase the "upselling" and "cross selling" opportunities which
naturally exist between the two divisions.
The Company continues to hold a minority interest in two other
companies and it expects these two holdings to yield benefits to ActiveCore
during the balance of 2005. SilverBirch Studios, (previously divested by the
Company - a 5% interest has been retained) is continuing to improve both its
product catalogue and its financial position. The Company believes that
SilverBirch will succeed and that the Company's investment is sound. The ePocket
organization is currently completing a major round of funding that will allow it
to enter the "electronic payment" market with a revolutionary product. The
Company maintains strong business relationships with both companies.
The Company also envisions significant benefits from the Cratos
acquisition as the relationship and synergies between ePocket and ActiveCore
become more developed.
24
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 "legacy systems" to connect to and
communicate with their customers, employees and stakeholders. Therefore, the
Company's products and services facilitate the creation of the "Smart
Enterprise".
The Company's products encompass application integration, application
modernization, application migration, content management, vertical application
portals, a corporate disclosure portal and an outbound corporate messaging
portal. In addition the Company delivers its DisclosurePlus and ActiveCast
product sets via an "Application Service Provider" (ASP) model using a Company
hosted corporate messaging service bureau. The Company's products can be sold
individually or as a combination to form customized solutions based on the
customers' most immediate need. This approach allows the customer to deal with
information technology problems in a tactical manner and can often alleviate
customer capital expenditure restrictions.
ActiveLINK is the Company's core application integration product and is
used to create solutions that integrate disparate databases and applications,
creating a hub through which legacy system functionality can be enabled and
extended. The other products owned by the Company are Net. Visual, ActiveCast,
DisclosurePlus and MD LINK. In addition the Company sells and services third
party products that complete its "Smart Enterprise Suite". These include
DynaPortal, Caravel, and Micro Focus.
ActiveCore normally sells its products and services to companies that
want to improve their existing "legacy systems", however, the Company has also
identified three other target markets: software resellers, independent software
vendors and system integrators.
MDI Solutions sells a vertically optimized version of ActiveLINK known
as MD LINK to health care facilities to support their systems integration needs.
The MDI group also sells consulting support services for other integration
products resulting in recurring income from support contracts. The MDI
acquisition provided the Company with the knowledge to vertically enhance
ActiveLINK and create MD LINK.
ActiveCast, the Company's corporate messaging software product is sold
to companies that want to extract data from internal "legacy systems" and use it
for outbound messaging. These opportunities have short sales cycles resulting in
rapid cash flow and recurring revenue from organizations sending information to
dedicated lists. This product is also directly marketed to all companies that
need to communicate "stand alone" information to their customers, employees and
stakeholders. The C Comm acquisition provided the base product from which
ActiveCast evolved.
Twincentric is primarily involved in system modernization and the
migration of RPG and Cobol based "legacy systems" to Java for clients using IBM
AS 400 and Bull Computer platforms. The modernization work is achieved using the
Company owned product known as Net. Visual and the migration work is achieved
using a third party product known as Caravel.
DisclosurePlus provides corporations with a standard methodology for
reporting and distributing information related to public disclosure required by
public companies. This division is adding additional products to their offering
to expand the functionality available within the DisclosurePlus product.
Cratos is a technology solution provider that focuses on payment
solutions for the financial services industry and on the migration of mainframe
systems to a Microsoft environment. Its expertise in various payment
technologies is well known globally as evidenced by its blue chip customers.
Cratos uses the Micro Focus product set to perform system migrations for large
customers and they have a well trained consulting group that manages and
delivers complex payment integration projects. There is an opportunity to
introduce several of the Company owned products into Cratos projects.
25
Recent Developments
In the MDI Solutions group, further progress has been made in the
development of the MD LINK product and the company has recently released version
4.0 of this product and plans to release version 4.1 at the end of June 2005.
During the last few months, the Company has obtained several orders for the new
version of MD LINK which should be shipped in June 2005 or in July 2005. The
Company expects the number of product sales to rise during the balance of 2005
and this is a direct result of the new product features and the marketing
efforts of this group in 2004 and early 2005.
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 additional sales personnel to accelerate
the rollout of the Company's innovative messaging portal product. This division
has generated new revenue in the first quarter and continues to improve the
margins on this business. We expect revenues to continue to increase throughout
the remainder of 2005. During the quarter ended March 31, 2005, 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 balance of
2005 revenues should continue to increase.
The Company's Twincentric division has begun to execute on a large
services contract that was won in the first quarter of 2005 and to date this
contract is on schedule. This contract is valued at approximately $4,000,000 USD
over the next 5 years and the UK operation may grow in head count in 2005 to
support this and other planned contracts that this division continues to pursue.
This division will also review new products that are now available to it through
synergies resulting from the Cratos acquisition and will study applicability of
these products in the UK market. During the second quarter the Company also
plans to determine whether ActiveCast and or DisclosurePlus can be deployed to
the UK market via the TwinCentric group.
The Company continues to acquire new organizations and completed the
acquisition of DisclosurePlus in the first quarter of 2005 and completed the
acquisition of Cratos subsequent to the end of the quarter. These acquisitions
will add significant revenue to the Company during the balance of 2005. The
DisclosurePlus group is actively selling the DisclosurePlus product and once we
add the "press release" product to their offering sales will accelerate at an
even quicker pace.
The Company expects the SilverBirch Studios relationship to evolve
through the second and third quarters and the Company is confident that the
outstanding receivable from SilverBirch will be addressed successfully in 2005.
SilverBirch Studios have received several new development contracts from major
entertainment companies and should continue to improve their revenue picture
over the next two quarters.
Acquisitions and Reorganizations
The Company maintains an active interest in acquisitions and the
reorganization of its component parts to better service clients. The Company has
undertaken an internal restructuring to facilitate better customer service,
increased sales and reduced costs. 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.
Acquisition of DiscosurePlus
Prior to being acquired by the Company, DiscosurePlus operated as a
private company developing its intellectual property and test marketed its
product to several clients before agreeing to be acquired by ActiveCore.
On February 25, 2005, the Company entered into a purchase and sale
agreement with the shareholders of DisclosurePlus whereby the Company paid
800,000 shares of the Company's common stock representing $176,000 plus $60,600
cash for a total value of $236,600 for 100% of the DisclosurePlus common shares.
In connection with this acquisition the Company also entered into management
contracts with Gord Sutton and Dean Peloso.
26
DisclosurePlus offers a unique set of products to the public company
market. These products are offered as an ASP model and are targeted at public
companies that want to provide better disclosure of corporate information to
their shareholders, customers and other stakeholders. This division will also
add press release dissemination to the product set later this year which is
expected to have a positive impact on revenue opportunities.
Acquisition of Cratos Technology Solutions
Prior to being acquired by the Company, Cratos operated as a private
company providing technical consulting services and mainframe migration to
companies in the financial services sector in many countries.
Subsequent to the quarter ended March 31, 2005, the Company entered
into a purchase and sale agreement with the shareholders of Cratos Solutions
whereby the Company paid 9,421,030 shares of the Company's common stock in
addition to cash consideration of $162,420 representing total consideration of
$2,072,627 in exchange for 100% of the shares of Cratos. In conjunction with
this acquisition the Company paid CAD $458,000 of debt owed to SQL Tech. by
Cratos along with 3,403,227 Common Shares of ActiveCore. The Company also
arranged a bank credit facility that was personally secured by the senior
mangers of ActiveCore.
Cratos is a service based company that specializes in providing project
management and delivery to large companies in the financial service, education
and insurance market place. This division was purchased based on a multiple of
the average of the past three years EBITDA and is currently trending ahead of
original projections.
Going Concern
The accompanying 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 incurred a loss from operations of $845,827 for the
three months ended March 31, 2005. The company incurred negative cash flow from
operations of $276,859 for the three months ended March 31, 2005, and has a
working capital deficiency of $1,311,526 at March 31, 2005. There is no
guarantee that the Company will continue as a going concern and will likely
still incur a going concern note as at December 31, 2005. The 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 subsidiaries. All significant inter-company transactions and
balances have been eliminated in consolidation.
27
(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.
The carrying amounts of the Company's financial instruments, including
cash, accounts receivable, accounts payable, accrued liabilities, 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 three months ended March 31, 2005.
Common stock equivalents were not included in the calculation of diluted income
per share for the three months ended March 31, 2005 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 March 31, 2005
Compared to the Same Period Ended March 31, 2004
Revenues
During the three months ended March 31, 2005 the Company generated
$523,008 in revenue from the sale of products and services versus $194,495 in
revenue from product and services in the same three month period ended March 31,
2004. From a revenue source perspective, the vast majority of this revenue was
service related,while product related revenue represented only a small
percentage of the total. In the three months ended March 31, 2004, $194,495 of
revenue was generated from services work and product installation chiefly by the
Company's MDI group.
28
During the first quarter of 2005 the revenue increase over the prior
year was a direct result of several decisions taken by the Company. The decision
to enter the corporate messaging market created a new revenue stream that did
not exist in March 2004. The decision to acquire TwinCentric in the second
quarter of 2004 created a new revenue stream that was not present in the first
quarter of 2004. The decision to acquire DisclosurePlus in the first quarter of
2005 added new revenue that did not exist in the first quarter of 2004. As
evidenced by the above, the Company has undergone a major transformation over
the past 12 months due to the acquisitions that it has made. These integration
of these acquisitions are progressing well and they represent the main reason
for the additional revenue in the first quarter.
There were no large Source Code deals in the first quarter of 2005 and
DisclosurePlus and ActiveCast generated less revenue than planned due to our
delayed acquisition of IFL. The IFL transaction is still active and we
anticipate that revenue from this transaction will occur later in the year.
With the Company's second quarter acquisition of Cratos, the Company
has begun segregating all activities into two divisions known as the SIM
division and the CDM division, in future quarters the Company plans to provide
more visibility of the revenue mix by each of these divisions. This quarter a
majority of the revenue came from professional services.
Cost of Sales
Cost of sales for the three month period ended March 31, 2005 were
$245,634, which consisted of direct wages paid to consulting services staff of
$141,262, and amortization of software licensing agreements of $104,372. In the
period ended March 31, 2004, cost of sales was $36,011 and consisted of the same
cost elements. The principal cost of sales items in the first quarter of 2004
consisted of amortization of software license agreements. As a result of the
cost of sales components discussed above, the March 31, 2005 three month period
led to a positive gross margin of $277,374 versus a positive gross margin of
$158,484 in the three months ended March 31, 2004. This increase in positive
gross margins is expected to continue as the Company expands its software sales
efforts in the U.S., Europe and other regions. Gross Profit will continue to
increase in future quarters as the full impact of recent acquisitions takes
effect.
Operating Expenses
Total operating expenses for the three months ended March 31, 2005 were
$1,123,201 versus $789,591 in the three months ended March 31, 2004. After
expenses, the Company recognized a loss from operations of $845,827 in the three
months ended March 31, 2005 versus a loss from operations of $631,107 in the
same quarter ended March 31, 2004.
The largest components of first quarter 2005 fiscal year expenses and
of first quarter fiscal year 2004 operating expenses were related to salaries
and wages, consulting fees, legal and accounting and other general and
administration expenses. These expenses are discussed below.
In the three months ended March 31, 2005, the Company expended $373,025
in salaries and wages versus $408,100 in the three months ended March 31, 2004.
Salaries and wages in 2005 represent the cost of administration and sales and
marketing staff except for certain contractors who are shown as consulting
costs.
Consulting fees for the three months ending March 31, 2005 were
$158,949 versus $78,392 in the first quarter ended March 31, 2004. The Company
moved some direct wage personnel to contract in the first quarter of 2005 which
accounts for the increase.
29
Research and Development costs for the first three months ending March
31, 2005 were $55,000 which represents the labor costs associated with three
full time developers working on Company owned products.
Legal and accounting expenses for the three months ended March 31, 2005
were $78,575, which was higher than the $26,097 recorded in the three months
ended March 31, 2004. The expenses incurred in the first quarter reflect in part
the ongoing legal costs associated with actions by Orchestral and Infolink.
For the three months ended March 31, 2005, the Company incurred general
and administrative expenses of $397,781 as opposed to $216,719 in the quarter
ended March 31, 2004. The large increase from 2004 to 2005 is related to the
fact that we have made several acquisitions since the 2004 first quarter and the
Company has a much larger infrastructure as a result of these acquisitions. In
the quarter ended March 31, 2005, the Company spent $28,639 for financial
advisory fees compared to $7,250 for the same services in the same period of the
prior year. The primary reason for the increase in 2005 was due to a $25,000
loan fee paid to Zorba Financial Services. In the quarter ended March 31, 2005,
the Company incurred depreciation charges of $31,232 on equipment versus
($1,967) in the quarter ended March 31, 2004. These charges were related
primarily to the addition of 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 March 31, 2005, the Company recorded interest
received of $460. In the corresponding quarter ended March 31, 2004, the Company
earned $7,495 from one month of interest on the SilverBirch promissory note.
In the quarter ended March 31, 2005, the Company expended $75,075 in
financial interest which was significantly higher than the $33,232 expensed in
the first quarter ended March 31, 2004 due to the term loan incurred by C COMM
in the first quarter.
Foreign exchange losses were $33,740 in the first quarter ended March
31, 2005 compared to $2,264 in the first quarter ended March 31, 2004 as a
result of the fluctuation of the U.S. dollar relative to the UK pound and the
Canadian dollar.
Income (Loss) From Operations
The Company had a loss of $845,827 for the three months ended March 31,
2005 compared to a loss of $631,107 for the three months ended March 31, 2004.
This increase is predominantly due to increased infrastructure costs associated
with the acquisition of DisclosurePlus and Cratos. We anticipate that the
Company will improve these operating results in the coming quarter through the
consolidation and integration of these new acquisitions and through the growth
of the businesses.
Discontinued Operations
In the quarter ended March 31, 2005, the Company did not record any
discontinued operations results related to SilverBirch Studios.
Net Loss
The Company recorded a net loss for the three months ended March 31,
2005 of $954,182 versus a net loss of $787,677 for the same period in the
previous year. Earnings per share for the first quarter was (0.02) versus (0.02)
in the same period of 2004.
Liquidity and Capital Resources
At March 31, 2005, the Company's need for cash included satisfying
$4,314,094 of current liabilities, which consisted of accounts payable of
$966,565, bank indebtedness in various operating loans of $126,215, $764,640 of
accrued liabilities, taxes payable of $1,003,193, current lease obligations of
$19,603, the current portion of notes payable, including accrued interest of
$985,615, indebtedness to related parties of $166,711 and other current
liabilities of $281,552. At March 31, 2005, the Company had a working capital
deficiency of $1,311,526.
30
Our ability to continue as a going concern is dependent on the
Company's ability to raise additional funding from expansion of our bank
facility, an equity injection, a convertible loan and increased sales revenue.
At March 31, 2005, the Company had $7,693 cash on hand. In addition, certain
shareholders have also supported the Company by foregoing salaries and expense
reimbursement from time-to-time or converting shareholders loans to equity.
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.
The Company anticipates that its cash needs over the next 12 months
will consist of general working capital needs of $3,000,000 Canadian, which
would include the satisfaction of current liabilities of $4,314,094. As of March
31, 2005, the Company's net working capital deficiency increased from $802,142
at December 31, 2004 to a deficiency of $1,311,526. The Company anticipates that
its cash needs over the next 12 months will be met by primarily from a
combination of term debt, equipment loans and leases for expansion purposes,
proceeds from the sale of assets, profits, operating credit lines, and term
loans.
If the Company is unable to obtain additional funding 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 2005 and 2006.
Consolidated Statement of Cash Flows
Cash on the unaudited consolidated balance sheet decreased from $53,736
in the period ended December 31, 2004 to $7,693 at March 31, 2005.
Net Cash Used in Operating Activities
For the three months ended March 31, 2005, the Net Cash used in
operating activities was $276,859 versus $241,576 in the three month period
ended March 31, 2004. In the three months ended on March 31, 2005, cash used in
operating activities was primarily a result of the Company's net loss for the
period. This net loss was partially mitigated by changes in working capital
items including an increase in accounts receivable of $99,476, a decrease in
accrued liabilities of $222,058 and an increase in other current liabilities of
$289,216.
Net Cash Provided in Investing Activities
Net cash used in investing activities was $64,072, primarily as a
result of the acquisition of DisclosurePlus.
Net Cash Provided by Financing Activities
Net cash provided by financing activities was $293,738 in the three
months ended March 31, 2005 versus $330,089 for the same period in 2004. In the
three months ended March 31, 2005, the Company received from preferred share
subscription $150,000, and additional proceeds of $100,576 from the bank
overdraft.
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
31
prospects depend upon its ability to continually acquire, develop and market
new, commercially successful software products and obtain adequate financing. If
the Company is unable to continue to acquire, develop and market commercially
successful software products, its operating results and financial condition
could be materially adversely affected in the near future.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the reported
periods. The most significant estimates and assumptions relate to the
recoverability of capitalized software development costs and other intangibles,
realization of deferred income taxes, and doubtful accounts. Actual amounts
could differ significantly from these estimates.
ITEM 3. CONTROLS AND PROCEDURES
(A) Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Quarterly Report on Form
10-QSB, the Company carried out an evaluation, under the supervision and with
the participation of the Company's Chief Executive Officer and Acting Chief
Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures (as defined in Rules 13a - 15(e)
promulgated under the Securities Exchange Act of 1934, as amended. 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 Acting Chief Financial Officer have
concluded that the Company's disclosure controls and procedures are 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 March 31, 2005, the Company's Chief Executive
Officer and Acting 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.
32
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 was 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 March 31, 2005 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.
33
This case is proceeding to arbitration on August 26, 2005 which will
take place in Washington, D.C.
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 counsel and is defending the
action on the basis that the Company believes that there is no merit to the case
and in the event that 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 return of all proceeds paid to
Orchestral during the period of time between 1999 and 2001. Orchestral sent a
settlement letter to the Company dated January 10, 2005 and has subsequently
brought an Application before the Ontario courts to enforce the terms of the
settlement letter. The court ordered that the settlement letter was enforceable
and that $226,000 was owed by the Company to Orchestral. An appeal by the
Company of this judgment is pending. An allocation of $226,000 has been made on
the Company's financial statements for the punitive and exemplary damages,
however, it maintains that the action is frivolous.
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 TSX Venture Exchange 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 2004, the Company
purchased C Comm. In July 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.
PART 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On February 9, 2005, the board of directors authorized the issuance of
40,000 restricted common shares of stock from treasury to unrelated parties
(Shai Stern) and an additional 40,000 restricted common shares of stock from
treasury to (Seth Farbman) of Vintage Filings, LLC in order to receive long term
discounted pricing for issuance of ActiveCore press releases.
34
On February 9, 2005, the board of directors authorized the issuance
400,000 restricted common shares of stock from treasury as board compensation to
two independent members of the board. Stephen Lewis received 200,000 common
shares and Steven Smith received 200,000 common shares.
Effective March 1, 2005, the Company completed a reverse split of the
common shares on a 1 for 10 ratio and this resulted in the issuance from
treasury of the following share amounts in respect of "round-up" for beneficial
owners of the common shares: (i) to Cede & Co of 49,997 common shares; (ii) to
ADP Clearing of 9 common shares; and (iii) to RBC Dominion Securities of 6
common shares.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
35
ITEM 6. EXHIBITS
(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
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
36
Exhibit No. Description Location
- ----------- ----------- --------
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
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
37
Exhibit No. Description Location
- ----------- ----------- --------
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 Incorporated by reference to Exhibit 10.34 to IVP
April 3, 2002 between the Registrant and the Technology's Form 10-KSB filed on April 15, 2002
Investors
10.27 Placement Agent Agreement dated April 3, 2002 Incorporated by reference to Exhibit 10.35 to IVP
among the Registrant, Westrock Advisors, Inc. and Technology's Form 10-KSB filed on April 15, 2002
Cornell Capital Partners L.P.
10.28 Letter Agreement dated February 20, 2002 between Incorporated by reference to Exhibit 10.36 to IVP
the Registrant and Buford Industries Inc. Technology's Form 10-KSB filed on April 15, 2002
10.29 Letter Confirmation Agreement dated July 21, 2001 Incorporated by reference to Exhibit 10.37 to IVP
between the Registrant and Buford Industries Inc. Technology's Form 10-KSB filed on April 15, 2002
10.30 Consulting Agreement dated March 1, 2002 between Incorporated by reference to Exhibit 10.38 to IVP
the Registrant and Danson Partners LLC 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
38
Exhibit No. Description Location
- ----------- ----------- --------
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
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)
39
Exhibit No. Description Location
- ----------- ----------- --------
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)
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
10.57 Press release and copy of letter of resignation of Incorporated by reference to ActiveCore's form 8K
Brian MacDonald filed with the SEC on January 17, 2005
10.58 Press release, notice of previous auditors and Incorporated by reference to ActiveCore's form 8K
statement by Company with respect to engagement of and subsequent amendments on February 17, 2005
new auditors field with the SEC on February 17,2005
40
Exhibit No. Description Location
- ----------- ----------- --------
10.59 Press release with regard to pending acquisition Incorporated by reference to ActiveCore's 8K
of Cratos Technology Solutions Inc., announcement filed with the SEC on February 17, 2005
of a reverse split in shares and potential change
in stock symbol
10.60 Purchase and sale agreement with respect to the Incorporated by reference to ActiveCore's 8K
shares of DisclosurePlus Inc. acquired by the filed with the SEC on March 8, 2005
Company on March 8, 2005
10.61 Purchase and sale agreement with respect to the Incorporated by reference to ActiveCore's 8K
shares of Cratos Technology Solutions Inc. filed with the SEC on March 23, 2005.
acquired by the company on March 23, 2005
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 Acting Chief Financial Officer Provided herewith
31.2 pursuant 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 Acting Chief Financial Officer Provided herewith
32.2 pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
41
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.
June <>, 2005 By: /s/ Peter J. Hamilton
---------------------------
Acting Chief Financial Officer
June <>, 2005 By: /s/Peter J. Hamilton
---------------------------
President and Chief Executive Officer
42