UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2005
|_| TRANSITION PERIOD REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to _____.
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|_|
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 under the Exchange Act).
Yes |_| No |X|
Transitional Small Business Disclosure Format (Check one):
Yes |_| No |X|
State the number of shares outstanding of each of the issuer's classes
of common equities as of the latest practicable date: as of November 3, 2005,
there were 76,937,692 outstanding shares of the issuer's common stock. ,
$0.001par value.
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.......................30
ITEM 3. CONTROLS AND PROCEDURES.........................................................44
PART II.....................................................................................46
ITEM 1. LEGAL PROCEEDINGS...............................................................46
PART 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS......................47
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.................................................47
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............................47
ITEM 5. OTHER INFORMATION...............................................................47
ITEM 6. EXHIBITS AND REPORT FOR FORM 8-K................................................48
SIGNATURES.................................................................................49
OFFICER'S CERTIFICATE PURSUANT TO SECTION 302 OF SARBANES-OXLEY ACT OF 2002*................50
OFFICER'S CERTIFICATE PURSUANT TO SECTION 302 OF SARBANES-OXLEY ACT OF 2002*................51
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002.......................................................52
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002.......................................................53
2
PART I
FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
ACTIVECORE TECHNOLOGIES, INC. (FORMERLY IVP TECHNOLOGY CORPORATION.)
As of September 30, 2005
INDEX TO FINANCIAL STATEMENTS
Page 4 Condensed Consolidated Balance Sheets as of September 30,
2005 (Unaudited) and December 31, 2004
Page 5 Condensed Consolidated Statements of Operations for the
Three and Nine Months Ended September 30, 2005 and 2004
(Unaudited)
Page 6 Condensed Consolidated Statement of Stockholders' Equity
for the Nine Months Ended September 30, 2005 (Unaudited)
Pages 7 - 8 Condensed Consolidated Statements of Cash Flows for the
Three and Nine Months Ended September 30, 2005 and 2004
(Unaudited)
Pages 9 - 29 Notes to Condensed Consolidated Financial Statements as of
September 30, 2005 (Unaudited)
3
ACTIVECORE TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30,
2005 December 31,
(Unaudited) 2004
------------ ------------
CURRENT ASSETS
Cash $ 32,105 $ 53,351
Accounts receivable, net (note 4) 3,495,200 2,390,549
Other receivables -- 20,992
Taxes recoverable 124,713 --
Deferred compensation (note 21) 516,250 --
Prepaid expenses and other current assets 242,745 137,035
------------ ------------
Total Current Assets 4,411,013 2,601,927
------------ ------------
CAPITAL ASSETS (NOTE 5) 374,123 312,460
------------ ------------
OTHER ASSETS
Goodwill and other intangible assets, net (note 6) 5,074,018 868,854
Investments at cost (note 7) -- 262,648
Deferred costs 16,108 175,009
Deferred compensation (note 21) 165,000
Deferred equity line commitment fees -- 16,092
Net assets from discontinued operations -- 593,409
------------ ------------
Total Other Assets 5,255,126 1,916,012
------------ ------------
TOTAL ASSETS $ 10,040,262 $ 4,830,399
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank Overdraft $ 155,384 $ 17,566
Line of credit (note 10) 1,184,666 --
Accounts payable 2,545,421 702,672
Accrued liabilities 1,094,684 354,077
Taxes payable (note 13) 812,936 957,011
Leases payable 17,752 22,093
Long-term debt, current portion (note 8) 398,409 857,161
Due to related parties (note 11) 24,448 132,364
Redeemable preferred shares (note 9) 125,000 --
Deferred tax liability 100,005 --
Other current liabilities 174,689 27,247
------------ ------------
Total Current Liabilities 6,633,394 3,070,191
------------ ------------
LONG-TERM LIABILITIES
Long-term debt (note 8) 254,661 491,622
Redeemable preferred shares (note 9) 281,250
Accrued liabilities 26,484 30,447
Deferred tax liability 250,012 --
------------ ------------
Total Long-Term Liabilities 812,407 522,069
------------ ------------
TOTAL LIABILITIES 7,445,801 3,592,260
------------ ------------
COMMITMENTS AND CONTINGENCIES (note 14)
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value, 50,000,000 shares authorized
Preferred Stock issued and outstanding (note 15)
Series A, 8,333.333 shares as of September 30, 2005 and December 31, 2004 8,333 8,333
respectively
Series B, 4,167,667 shares as of September 30, 2005 and December 31, 2004 4,168 4,168
respectively
Common stock, $0.01 par value, 500,000,000 shares authorized, 78,337,692
and 46,711,708 shares issued and outstanding at December 31,2004 and 2003,
respectively
outstanding as of September 30, 2005 and December 31, 2004, respectively 783,378 467,117
(note 15)
Common stock to be returned (68,783) (68,783)
Treasury Stock (112,000) --
Warrants 74,463 --
Additional paid-in capital 43,433,395 39,137,498
Accumulated deficit (40,619,541) (37,892,002)
Accumulated other comprehensive loss (773,952) (256,204)
Subscription Receivable - Preferred -- (150,000)
Deferred compensation (135,000) (11,988)
------------ ------------
Total Stockholders' Equity 2,594,461 1,238,139
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 10,040,262 $ 4,830,399
============ ============
See accompanying notes to consolidated financial statements.
4
ACTIVECORE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the
nine
For the three For the three months
months months ended For the nine
ended ended September months ended
September 30, September 30, 30, September 30,
2005 2004 2005 2004
------------ ------------ ------------ ------------
REVENUES $ 2,708,373 $ 1,432,810 $ 4,665,541 $ 2,730,059
COST OF SALES
Direct wages 1,593,180 273,460 2,850,559 584,591
Amortization of licensing agreements and other costs 121,215 19,412 224,618 105,139
------------ ------------ ------------ ------------
Total Cost of Sales 1,714,395 292,872 3,075,177 689,730
------------ ------------ ------------ ------------
GROSS PROFIT (LOSS) 993,978 1,139,938 1,590,364 2,040,329
------------ ------------ ------------ ------------
OPERATING EXPENSES
Salaries and wages 515,702 394,380 937,411 1,144,904
Consulting fees 131,096 35,215 511,126 197,179
Research and development 55,000 -- 165,000 --
Legal and accounting 281,182 95,026 628,745 258,481
General and administrative 289,288 148,524 996,239 539,439
Financial advisory fees 16,043 2,662 65,679 10,292
Depreciation & amortization of intangible assets 84,045 14,614 300,472 19,931
------------ ------------ ------------ ------------
Total Operating Expenses 1,372,356 690,421 3,604,672 2,170,226
------------ ------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS (378,378) 449,517 (2,014,308) (129,897)
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE)
Gain (loss) on extinguishment of debt (74,463) -- (74,463) 2,000
Interest income -- 25,480 -- 55,456
Interest expense (74,070) (33,204) (189,974) (88,180)
Foreign exchange gain (loss) 31,367 37,626 (5,928) 19,735
------------ ------------ ------------ ------------
Total Other Income (Expense) (117,166) 29,902 (270,365) (10,989)
------------ ------------ ------------ ------------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (495,544) 479,419 (2,284,673) (140,886)
------------ ------------ ------------ ------------
Income tax recovery (18,600) -- (18,600) --
------------ ------------ ------------ ------------
INCOME (LOSS) FROM CONTINUING OPERATIONS (476,944) 479,419 (2,266,073) (140,886)
------------ ------------ ------------ ------------
(15,165) 120,490 (461,466) (20,901)
Gain (loss) from discontinued operations - net (note 2)
NET INCOME (LOSS) $ (492,109) $ 599,909 $ (2,727,539) $ (161,787)
============ ============ ============ ============
Preferred Stock Dividend 12,500 -- 36,092
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS $ (504,609) $ 599,909 $ (2,763,631) $ (161,787)
LOSS PER COMMON SHARE FROM CONTINUING
OPERATIONS - BASIC AND DILUTED $ (0.01) $ 0.00 $ (0.05) $ 0.00
------------ ------------ ------------ ------------
LOSS PER COMMON SHARE FROM DISCONTINUED
OPERATIONS - BASIC AND DILUTED $ -- 0.00 $ -- $ 0.00
------------ ------------ ------------ ------------
NET LOSS PER COMMON SHARE - BASIC AND DILUTED $ (0.01) $ 0.00 $ (0.05) $ 0.00
------------ ------------ ------------ ------------
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING-
BASIC AND DILUTED 61,313,668 45,490,996 55,918,440 38,781,040
============ ============ ============ ============
See accompanying notes to consolidated financial statements.
5
ACTIVECORE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2005
(UNAUDITED)
SHARES SERIES AMOUNT SHARES SERIES AMOUNT
A SERIES A B SERIES B
----------------------------------------------------------
Balance, December 31, 2004 8,333,333 $ 8,333 4,167,667 $ 4,168
Stock issued for employment services
Stock issued for director fees
Stock issued for consulting services
Stock issued for financing services
Stock issued for settlement of debt
Warrants issued in conjunction with debt conversion
Stock issued for redemption of preference shares
Stock issued for beneficial owner roundup on reverse split
Stock consideration received through sale of Twincentric
Stock to be issued on acquisition
Stock issued on Cratos acquisition
Stock issued to vendor
Deferred cost recognized
Preferred stock subscription received
Net loss for period
Preferred Stock Dividend
Cumulative translation adjustment
Balance, September 30, 2005 8,333,333 $ 8,333 4,167,667 $ 4,168
COMMON STOCK
COMMON SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------
Balance, December 31, 2004 46,711,708 $ 467,117 (252,725) $ (68,783)
Stock issued for employment services 750,000 7,500
Stock issued for director fees 480,000 4,800
Stock issued for consulting services 975,000 9,750
Stock issued for financing services 5,000,000 50,000
Stock issued for settlement of debt 8,508,285 85,083
Warrants issued in conjunction with debt conversion
Stock issued for redemption of preference shares 1,720,026 17,200
Stock issued for beneficial owner roundup on reverse split 50,010 500
Stock consideration received through sale of Twincentric
Stock to be issued on acquisition 1,200,000 12,000
Stock issued on Cratos acquisition 9,021,030 90,210
Stock issued to vendor 3,921,633 39,217
Deferred cost recognized
Preferred stock subscription received
Net loss for period
Preferred Stock Dividend
Cumulative translation adjustment
Balance, September 30, 2005 78,337,692 $ 783,378 (252,725) $ (68,783)
WARRANTS TREASURY STOCK CAPITAL DEFICIT
---------------------------------------------------------------------
Balance, December 31, 2004 $ - $ 39,137,498 $(37,892,002)
Stock issued for employment services 105,000
Stock issued for director fees 139,200
Stock issued for consulting services 136,500
Stock issued for financing services 540,000
Stock issued for settlement of debt 801,568
Warrants issued in conjunction with debt conversion 74,463
Stock issued for redemption of preference shares 136,992
Stock issued for beneficial owner roundup on reverse split
Stock consideration received through sale of Twincentric (112,000)
Stock to be issued on acquisition 252,000
Stock issued on Cratos acquisition 1,857,577
Stock issued to vendor 363,152
Deferred cost recognized
Preferred stock subscription received
Net loss for period
Preferred Stock Dividend (36,092)
Cumulative translation adjustment
Balance, September 30, 2005 $ 74,463 $ (112,000) $ 43,433,395 $(40,619,541)
INCOME (LOSS) STOCK COMPENSATION
-----------------------------------------------
Balance, December 31, 2004 $ (256,204) $ (150,000) $ (11,988)
Stock issued for employment services
Stock issued for director fees
Stock issued for consulting services
Stock issued for financing services
Stock issued for settlement of debt
Warrants issued in conjunction with debt conversion
Stock issued for redemption of preference shares
Stock issued for beneficial owner roundup on reverse split
Stock consideration received through sale of Twincentric
Stock to be issued on acquisition
Stock issued on Cratos acquisition
Stock issued to vendor
Deferred cost recognized
Preferred stock subscription received 150,000
Net loss for period (2,727,539)
Preferred Stock Dividend
Cumulative translation adjustment (517,748)
Balance, September 30, 2005 $ (773,952) $ - $ (135,000)
TOTAL
------------
Balance, December 31, 2004 1,238,139
Stock issued for employment services (75,000)
Stock issued for director fees (120,000)
Stock issued for consulting services
Stock issued for financing services
Stock issued for settlement of debt
Warrants issued in conjunction with debt conversion 74,463
Stock issued for redemption of preference shares
Stock issued for beneficial owner roundup on reverse split
Stock consideration received through sale of Twincentric (112,000)
Stock to be issued on acquisition
Stock issued on Cratos acquisition
Stock issued to vendor
Deferred cost recognized 71,988
Preferred stock subscription received
Net loss for period
Preferred Stock Dividend
Cumulative translation adjustment
Balance, September 30, 2005 2,594,462
See accompanying notes to consolidated financial statements.
6
ACTIVECORE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the nine For the nine
months ended months ended
September 30, September 30,
2005 2004
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) for the period $(2,727,539) $ (161,787)
Adjustments to reconcile net loss from continuing
operations to net cash used in operating activities:
Depreciation 108,113 34,947
Amortization of intangible assets 330,638 84,712
Amortization of other deferred charges 244,366 267,926
Stock issued for compensation 154,000 238,738
(Gain) loss on extinguishment of debt 74,463 (2,000)
Loss on disposal of discontinued operations 16,434 --
Changes in operating assets and liabilities excluding
business acquisition:
Decrease (increase) in receivables 219,989 (1,947,413)
Decrease (increase) in prepaid expenses and other current (154,748) 121,417
assets
(Increase) decrease in other receivables 22,237 --
(Increase) decrease in other assets --
Increase (decrease) in accounts payable (926,523) 115,738
Increase (decrease) in accrued liabilities 874,020 64,962
Increase (decrease) in taxes payable 111,933 336,444
Increase (decrease) in other current liabilities 105,873 12,020
Change in deferred consulting fees 3,105 --
----------- -----------
Net Cash Used In Operating Activities (1,543,639) (834,296)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of capital assets (66,154) (273,138)
Proceeds from sale of investment in ePocket, Inc. 250,000
Proceeds, net of bank indebtedness assumed from --
disposition of Twincentric Limited
Business acquisition costs (35,000)
Acquisition of Cratos Technology Solutions, Inc. (143,249) --
Acquisition of Disclosure Plus (125,000) --
----------- -----------
Net Cash (Used In) Provided by Investing Activities (119,403) (273,138)
----------- -----------
7
ACTIVECORE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the nine For the nine
months ended months ended
September 30, September 30,
2005 2004
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit 1,449,657 --
Increase in due to related parties 88,881 433,171
Advance of notes payable 530,000
Proceeds (repayments) received from (to) related parties --
Repayments made to related parties (65,253) --
Repayment of notes payable (35,407) (82,590)
Change in bank overdraft 129,744 --
Repayment of debt --
Preferred stock dividend (48,280) --
Proceeds from preferred shares subscription 150,000
Proceeds from issuance of common stock 51,217
Proceeds from issuance of series A preferred stock 250,000
Payment on leases (29,081) (20,081)
----------- -----------
Net Cash Provided By Financing Activities 1,640,261 1,161,717
----------- -----------
----------- -----------
FOREIGN EXCHANGE GAIN ON CASH HELD IN FOREIGN CURRENCY 1,150 (45,122)
----------- -----------
NET INCREASE (DECREASE) IN CASH FOR THE PERIOD (21,631) 9,161
CASH - BEGINNING OF PERIOD 53,736 --
----------- -----------
CASH - END OF PERIOD $ 32,105 $ 9,161
=========== ===========
Non-Cash Transactions:
Equipment purchase under capital leases $ 16,703 $ 28,475
Issuance of shares related to acquisition of Cratos Technology Solutions $ 1,947,787 $ --
Issuance of shares to vendors $ 811,579 $ --
Issuance of shares for compensation $ 232,500 $ --
Issuance of stock to satisfy Common Stock to be issued $ -- $ 380,000
Issuance of stock for acquisitions $ 264,000 $ 1,081,209
Issuance of stock for payment of accrued liabilities $ $ 48,000
Issuance of stock for payment of debt and accrued interest thereon $ 736,860 $ 658,168
Issuance of stock for payment of amounts due to related parties $ $ 610,325
Common stock issued for share exchange agreement $ $ 240,000
Issuance of shares to satisfy mandatorily redeemable preferred shares $ 154,192 $
Issuance of shares to secure financing arrangements $ 590,000 $
Share subscription receivable for sale of Series B preferred stock $ $ 250,000
Treasury stock rescinded $ $ 770,000
Note Receivable for sale of SilverBirch Studios Division $ $ 749,000
8
ACTIVECORE TECHNOLOGIES, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
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 and nine month periods 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.
The Company's independent auditors have issued a going concern opinion on
the Company's consolidated financial statements as at December 31, 2004
that raises substantial doubt about the Company's ability to continue as a
going concern.
The accompanying consolidated 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 September 30, 2005 of $40,619,541. 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
ACTIVECORE TECHNOLOGIES, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
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) requires 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 March 2005, the Securities and Exchange Commission ("SEC") released SEC
Staff Accounting Bulletin No. 107, Share-Based Payment ("SAB 107"). SAB
107 provides the SEC staff position regarding the application of SFAS
123R. SAB 107 contains interpretive guidance related to the interaction
between SFAS 123R and certain SEC rules and regulations, as well as
provides the staff's views regarding the valuation of share-based payment
arrangements for public companies. SAB 107 also highlights the importance
of disclosures made related to the accounting for share-based payment
transactions. The Company is currently evaluating SAB 107 and will be
incorporating it as part of its adoption of SFAS 123R.
10
ACTIVECORE TECHNOLOGIES, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error
Corrections ("SFAS 154") which supersedes APB Opinion No. 20, Accounting
Changes and SFAS No. 3, Reporting Accounting Changes in Interim Financial
Statements. SFAS 154 changes the requirements for the accounting for and
reporting of changes in accounting principle. The statement requires the
retroactive application to prior periods' financial statements of changes
in accounting principles, unless it is impracticable to determine either
the period specific effects or the cumulative effect of the change. SFAS
154 does not change the guidance for reporting the correction of an error
in previously issued financial statements or the change in an accounting
estimate. SFAS 154 is effective for accounting changes and corrections of
errors made in fiscal years beginning after December 15, 2005. The
Corporation does not expect the adoption of SFAS 154 to have a material
impact on its consolidated results of operations and financial condition.
New accounting policies
Rebate Accrual
The Company has a significant customer associated with its SIM division
for which it operates a rebate program. This program allows this customer
to earn rebates which can be redeemed towards consulting engagements in
the subsequent fiscal year. The customer earns these rebates based on
remitting payment for current projects within a specified time period. The
Company has recorded an accrual, based on its best estimate of this future
liability, which has been included on its Consolidated Balance Sheet as an
accrued liability. In determining the appropriate amount of this accrual
at reporting dates, the Company considers numerous factors, including this
customer's history at both earning these rebates and redeeming them within
the required period before they expire.
Investments
Equity investments in which the Company exercises significant influence
but does not control and is not the primary beneficiary are accounted for
using the equity method. Investments in which the Company is not able to
exercise significant influence over the investee are accounted for under
the cost method.
10
ACTIVECORE TECHNOLOGIES, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
NOTE 2 DISCONTINUED OPERATIONS
During fiscal 2004 and 2005, the Company disposed of two components of its
business which constituted discontinued operations - SilverBirch Studios
and Twincentric Limited. The gain (loss) on the Company's consolidated
statements of operations for the three and nine month periods ended
September 30, 2004 and 2005 is summarized as follows:
Three month Three month Nine month Nine month
period period period period
ended ended ended ended
September 30, September September September 30,
2005 30, 2004 30, 2005 2004
--------------- --------------- --------------- ---------------
SilverBirch Studios
Loss from discontinued
operations $ -- $ (954) $ -- $ (129,450)
Twincentric Limited
Loss on Disposal (16,434) -- (16,434) --
Gain (loss) from
discontinued operations 1,269 121,444 (445,032) 108,549
--------------- --------------- --------------- ---------------
(15,165) 121,444 (461,466) 108,549
--------------- --------------- --------------- ---------------
Gain (loss) from discontinued
operations - net $ (15,165) $ 120,490 $ (461,466) $ (20,901)
=============== =============== =============== ===============
SilverBirch Studios
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.
11
ACTIVECORE TECHNOLOGIES, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
The purchase price initially consisted of a promissory note for $830,300
(CAD $1,000,000), a 4-year royalty agreement based on 2% of SilverBirch's
gross revenues, a 5% equity interest in SilverBirch, and a non-exclusive
grant of the right to use certain of the SilverBirch technology on
preferential terms.
Due to the fact that the recoverability of the aforementioned note was
dependent upon the future successful operations of the division sold,
management had previously 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) was not included in the consolidated
results for the fiscal quarter ended March 31, 2004.
During the quarter ended June 30, 2005, SilverBirch Studios Inc. announced
its intention to enter into a reverse take-over transaction (the "RTO")
which would result in it becoming a publicly traded company on the TSX
Venture Exchange ("TSXV"). On June 30, 2005, the Company restructured the
above consideration with SilverBirch Studios Inc. such that the original
purchase consideration as described above will be waived in consideration
for the following:
(a) Silverbirch Studios Inc. will pay the Company CAD $125,000 (US
$102,000) upon completion of the RTO.
(b) The Company will be granted 1,750,000 common shares in the new
public company that SilverBirch Studios Inc. reverses into.
(c) The Company will receive 1,000,000 warrants priced at CAD
$0.36 with an expiry date of January 31, 2006 upon completion
of the RTO.
The Company will recognize the above consideration in its consolidated
statement of operations during the quarter ending December 31, 2005 as
this consideration was received subsequent to the end of the quarter ended
September 30, 2005 (See note 22).
Following is a summary of the results of operations of the Games Division
for the period from January 1, 2004 through September 30, 2004.
2004
---------------
Salaries and wages $ 131,433
Other (1,983)
---------------
Net loss from discontinued operations $ 129,450
===============
Twincentric, Limited
On August 13, 2005, the Company entered into an agreement to sell its
wholly owned U.K. subsidiary, Twincentric Limited ("Twincentric") to Tony
McGurk. Mr. McGurk was the majority shareholder of Twincentric at the time
it was acquired during fiscal 2004 by the Company, and he had continued to
operate the Twincentric business since that time. Consideration received
by the Company was 1,400,000 of its common shares. These common shares
represented the same shares originally issued by the Company to Mr. McGurk
in the transaction which resulted in the Company originally acquiring
Twincentric. Twincentric had been part of the Company's SIM operating
segment. For the purpose of calculating the loss realized on this
transaction, the common shares received by the Company were valued at the
closing share price on the date this transaction was consummated. The
Company incurred a loss of $16,434 on this transaction, calculated as
follows:
Consideration received $ 112,000
Less:
Net book value of Twincentric at the date of disposition (94,434)
Direct transaction costs (34,000)
---------
Loss on disposition of subsidiary $ (16,434)
---------
12
ACTIVECORE TECHNOLOGIES, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
Additionally, the Company incurred the following losses from discontinued
operations for the three and nine month periods ended September 30, 2004
and 2005:
Three month Three month Nine month Nine month
period ended period ended period ended period ended
September September September 30, September 30,
30, 2005 30, 2004 2005 2004
------------- ------------- ------------- -------------
Revenue $ 50,767 $ 261,642 $ 527,398 $ 264,420
Salaries and Wages (47,385) (61,892) (552,531) (72,548)
General and administrative (1,811) (43,214) (410,097) (45,115)
Amortization -- (31,385) -- (34,501)
Interest expense (302) (3,707) (9,802) (3,707)
------------- ------------- ------------- -------------
Gain (Loss) from discontinued
operations $ 1,269 $ 121,444 $ (445,032) $ 108,549
============= ============= ============= =============
13
ACTIVECORE TECHNOLOGIES, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
NOTE 3 ACQUISITIONS AND DISPOSITIONS
Cratos Technology Solutions, Inc.
On May 19, 2005, the Company completed the acquisition of Cratos
Technology Solutions Inc., an Ontario corporation ("Cratos"). The Company
effected the acquisition of Cratos pursuant to the terms of a Share
Purchase Agreement dated effective February 22, 2005, as amended May 19,
2005. Under the terms of the Share Purchase Agreement, the Registrant
acquired from Andrew Wickett ("Wickett") and Debbie Gracie-Smith
("Gracie-Smith") all of the stock of Cratos in exchange for total
consideration of approximately $2.1 million, comprised of cash, a
promissory note due August 2005, and common stock of the Company. Cratos
is a solutions-oriented organization specializing in international banking
and financial transaction processing. The majority of Cratos' customers
specialize in card products such as Visa(R), MasterCard(R), Eurocard,
Smart cards, Debit cards, Credit cards, Store cards, Private label cards,
and Loyalty-based products. The Company accounted for this acquisition
using the purchase method of accounting in accordance with the provisions
of SFAS No. 141, and began consolidating the results of Cratos effective
May 1, 2005.
Under the terms of the Share Purchase Agreement, the Company issued
9,021,030 shares (the "Purchaser Shares") of its common stock (in equal
proportions to Wickett and Gracie-Smith) and paid cash in the amount of
$79,560 (in equal proportions to Wickett and Gracie-Smith), and issued
promissory notes in the amount of $79,560 (in equal proportions to Wickett
and Gracie-Smith). The Company valued the common stock issued in
accordance with this transaction based on a simple average of the closing
share price of the Company for 2 days prior and subsequent to this
transaction being announced. On this basis, the common stock issued in
connection with this transaction was valued at $1,947,787.
The purchase price is subject to an adjustment mechanism which will
require (i) the Company to issue up to an additional 800,000 shares to
Wickett and Gracie-Smith (in equal proportions) in the event Cratos
exceeds certain specified profitability targets for Cratos for the 8
successive quarters following the close of this transaction. The Company
will account for any additional consideration earned in the period in
which such additional consideration is determined. The Company is still
assessing the impact, if any, which such additional consideration, if
earned, will have on its future consolidated statements of operations.
The Company also issued 3,921,633 shares of its common stock to a supplier
in consideration for its agreement to (i) enter into renewed agreements
with 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. No gain or loss was recorded on this transaction.
The preliminary purchase price allocation set forth below represents
management's best estimate of the allocation of the purchase price and the
fair value of net assets acquired. The valuation of the acquired
intangible assets and the assessment of their expected useful lives are
based on a preliminary assessment undertaken by management. The final
valuation may differ from the preliminary purchase price allocation and
these differences may be material.
The following table summarizes the estimated fair values of the
assets acquired and liabilities assumed as of the date of the Cratos
acquisition:
14
ACTIVECORE TECHNOLOGIES, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
Current assets $ 1,251,514
Long term assets 111,032
Customer assets 1,023,380
Goodwill 3,336,286
---------------
Total assets acquired 5,722,212
Total liabilities assumed (3,615,305)
---------------
Net assets acquired 2,106,907
===============
The customer assets of $1,023,380 have been assigned a life of five years.
The useful lives assigned represent management's preliminary estimates and
changes may occur from these preliminary estimates and these changes may
be material. The Company also recorded a deferred tax liability of
$368,000 in respect of the temporary difference associated with this
intangible asset.
The portion of the purchase price allocated to goodwill was assigned to
the Company's Systems Integration and modernization reporting segment. No
amount of the goodwill is expected to be deductible for tax purposes.
As part of the purchase price allocation, the Company recognized
liabilities associated with completing this transaction of $72,000. The
Company expects that these costs will be discharged by the end of the
current fiscal year.
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 on-line with a standardized
regulatory compliant web-based solution. Consideration for this
acquisition represented 1,200,000 shares of the Company's restricted
common stock valued at $264,000 in addition to $125,000 payable in cash.
The 1,200,000 shares have been classified as shares to be issued on the
Company's consolidated balance sheet and were issued subsequent to the end
of the quarter. As of September 30, 2005, the entire amount of the cash
portion of the consideration had been paid. The Company also acquired
intellectual property relating to the DP business in a concurrent
transaction. The consideration above represents the total consideration
for this entire acquisition. The value was 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 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. The Company acquired net tangible liabilities of $29,000,
though the transaction provided the Company with intellectual property,
customers, and a set of employees who had operated this business prior to
the acquisition. Goodwill recorded in connection with this business
combination is not deductible for tax purposes.
The preliminary purchase price allocation set forth below represents
management's best estimate of the allocation of the purchase price and the
fair value of net assets acquired. The valuation of the acquired
intangible assets and the assessment of their expected useful lives are
based on a preliminary assessment undertaken by management. The final
valuation may differ from the preliminary purchase price allocation and
these differences may be material.
15
ACTIVECORE TECHNOLOGIES, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
The Company will account for the purchased goodwill in accordance with the
provisions of SFAS 142. The entire balance of goodwill recorded on this
transaction will be allocated to the Company's Corporate Disclosure and
Messaging segment.
The Company's preliminary purchase price allocation recorded for the
acquisition of DP is as follows:
Technology assets $ 250,000
Goodwill 168,000
Total assets acquired 418,000
Liabilities assumed (29,000)
Net assets acquired $ 389,000
The above purchase price allocation is subject to adjustment these
adjustments may be material.
Pro forma results
The following pro forma results of operations reflect the combined
results of Activecore and Cratos (acquired on May 1, 2005), for the three
and nine-month periods ended September 30, 2005 and 2004 as if the
business combination occurred at the beginning of Activecore's fiscal
year. 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 and nine months ended September 30, 2005 and 2004 would not be
material to the Company.
Three months ended Nine months ended
September 30 September 30
---------------------------- ----------------------------
2005 2004 2005 2004
------------ ------------ ------------ ------------
Revenue $ 2,708,373 $ 2,207,823 $ 6,941,526 $ 5,420,411
Net income (loss) $ (479,921) $ 171,279 $ (2,489,004) $ (733,764)
Net income (loss) per share, basic and
diluted $ (0.01) $ 0.00 $ (0.04) $ (0.22)
============ ============ ============ ============
Shares used in basic and diluted income
(loss) per share calculation 61,313,668 54,511,027 59,934,658 47,801,071
============ ============ ============ ============
These pro forma results are not necessarily indicative of what would have
occurred if the acquisitions had actually been completed as of the assumed dates
and for the periods presented. The pro forma results represent Activecore's
preliminary assessment of the intangible assets and are subject to change and,
therefore, the final values may differ substantially from these amounts. The
actual results for the quarter ended September 30, 2005 include the results for
Cratos beginning May 1, 2005.
16
ACTIVECORE TECHNOLOGIES, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
NOTE 4 ACCOUNTS RECEIVABLE
The components of accounts receivable, net, as of September 30, 2005 and
December 31, 2004 consist of:
2005 2004
----------- -----------
Trade receivables $ 3,679,071 $ 2,490,549
Imputed interest discount (82,685) (100,000)
Allowance for doubtful accounts (101,186) --
----------- -----------
Accounts receivable, net $ 3,495,200 $ 2,390,549
=========== ===========
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 CAPITAL ASSETS
As of September 30, 2005 and December 31, 2004, property and equipment
consisted of:
2005 2004
------------- -------------
Computer equipment $ 608,380 $ 476,990
Office equipment and furniture 114,448 87,371
Computer software 54,731 33,378
Leasehold improvements 43,157 41,185
Vehicles 12,839 --
------------- -------------
833,555 638,924
------------- -------------
Less: accumulated depreciation and amortization 459,432 326,464
------------- -------------
Property and Equipment, net $ 374,123 $ 312,460
============= =============
Assets held under capital lease in the amount of $84,236 (2004 - $64,584)
with accumulated depreciation in the amount of $38,888 (2004 - $22,802)
are included in computer equipment.
17
ACTIVECORE TECHNOLOGIES, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
NOTE 6 GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangibles assets consisted of the following as of
September 30, 2005 and December 31, 2004:
2005 2004
----------- -----------
Other intangible assets subject to amortization:
Customer contracts $ 1,023,380 $ --
Customer lists 275,000 275,000
Capitalized software 115,701 115,701
Technology assets 250,000 --
Licenses 51,242 51,242
----------- -----------
1,715,323 441,943
----------- -----------
Less: Accumulated amortization
Customer contracts (158,432) --
Customer lists (183,333) (114,583)
Capitalized software (77,136) (48,210)
Technology assets (27,504) --
Licenses (51,240) (32,299)
----------- -----------
(497,645) (195,092)
----------- -----------
Other intangible assets subject to amortization, net 1,217,678 246,851
Goodwill 3,856,340 622,003
----------- -----------
Goodwill and other intangible assets, net $ 5,074,018 $ 868,854
=========== ===========
The activity in goodwill for the nine months ended September 30, 2005 is
as follows:
Balance, December 31, 2004 $ 622,003
Plus: Goodwill recorded for Disclosureplus acquisition 168,000
Plus: Goodwill recorded for Cratos acquisition 3,336,286
Effect of foreign exchange rate fluctuation (269,949)
-----------
Balance, September 30, 2005 $ 3,856,340
-----------
Of the above goodwill balance as of September 30, 2005, $3,336,286 relates
to the Company's SIM division and the remaining $520,054 relates to the
Company's CDM division.
18
ACTIVECORE TECHNOLOGIES, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
The activity in identifiable intangible assets for the nine months ended
September 30, 2005 is as follows:
Balance, December 31, 2004 $ 246,851
Plus: Customer assets recorded for Cratos acquisition 1,023,380
Plus: Technology assets recorded for DP acquisition 250,000
Less: Amortization for the 9 month period ended September 30, 2005 (330,638)
Effect of foreign exchange rate fluctuation 27,575
-----------
Balance, September 30, 2005 $ 1,217,678
-----------
Estimated future amortization of other intangible assets based on balances
existing at September 30, 2005 is as follows:
2005 remainder of the year $ 92,232
2006 336,363
2007 238,691
2008 238,691
2009 238,691
2010 and beyond 73,010
----------
Total $1,217,678
==========
19
ACTIVECORE TECHNOLOGIES, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
NOTE 7 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. During the quarter ended September 30, 2005,
ePocket Inc. was acquired by Global Sterling Payment Services ("GSPS"), a
company controlled by a director of the Company. As consideration for this
sale, the Company received its initial investment amount of $250,000
during the quarter, as well as a 0.4% equity interest in GSPS which
represented the same pro rate consideration as all other ePocket
shareholders.
Also during the quarter, the company received an additional 4.2% equity
interest in GSPS in exchange for services rendered by management of the
Company to GSPS. As ePocket is a private company with no readily
determinable market value, the Company has valued its combined 4.6%
interest in GSPS at nil in the accompanying consolidated balance sheet.
Additionally, the Company has determined that it can exercise significant
influence over ePocket. This determination was made based on review of
several factors, including the fact that 2 members of the Company's senior
management represent 50% of the ePocket board of directors. As such, the
Company is required to equity account for this investment which entails
recording, in its consolidated statement of operations, its pro rata share
of ePocket's net income for each reporting period. As ePocket recorded a
net loss in the quarter ended September 30, 2005, no amount has been
recorded for the current period. However, at such time that ePocket
generates cumulative net income from July 1, 2005, the Company will begin
to record its pro rata share of ePocket's net income.
NOTE 8 LONG-TERM DEBT
Long-term debt consists of the following as of September 30, 2005 and
December 31, 2004:
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
Note payable to SCI Healthcare Group, unsecured (2) 63,784 130,915
Short term loans (3) 239,241 543,901
Bank term loan, seven year term with monthly equal
principal payments, bearing interest at the Canadian
prime plus 3% (4) 158,840 173,967
Bank Term Loan, 3 year term with monthly equal principal
payments, bearing interest at 5.4% (5) 191,205 --
--------------- ---------------
653,070 1,348,783
Less current portion 398,409 857,161
--------------- ---------------
Long term portion $ 254,661 $ 491,622
--------------- ---------------
20
ACTIVECORE TECHNOLOGIES, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
(1) On July 31, 2003, the Company's wholly owned Canadian 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 mandatorily
redeemable convertible preferred shares (series C) in exchange for the
note payable and the release of its security over ActiveCore Technologies
Limited. The series C shares were not issued as at December 31, 2004, but
had been by September 30, 2005 (see note 9).
21
ACTIVECORE TECHNOLOGIES, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
(2) The promissory note relating to the acquisition of SCI Healthcare Group
bears interest at 10%. SCI Healthcare is acting as a billing and
collection agent for the Company with respect to a specific customer in
the healthcare industry. Amounts collected by SCI Healthcare are not
remitted back to the Company but rather serve to reduce this promissory
note.
(3) During 2004, various arm's length parties loaned the Company, on a short
term basis, funds to assist with working capital. Certain of these loans
were converted into equity during the quarter ended September 30, 2005.
(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%.
(5) During fiscal 2005 one of the Company's Canadian subsidiaries obtained a
term loan with a Canadian Chartered Bank in the amount of (CAD) $250,000.
Under the terms of the agreement, the loan is repayable over a three year
term with principal and interest payments due monthly. Interest on the
borrowings is at 5.4%.
(6) Future maturities of short and long-term notes payable as of September 30,
2005 are as follows:
2005 $ 332,697
2006 95,216
2007 99,025
2008 57,444
2009 25,758
Thereafter 42,930
---------
$ 653,070
=========
NOTE 9 REDEEMABLE PREFERRED SHARES
The Company has outstanding series C preferred shares which are
mandatorily redeemable over 16 quarters. The initial value of these shares
was $500,000, and the quarterly redemption values are $31,250. During the
quarter ended September 30, 2005, the Company issued shares to redeem the
first 3 quarterly redemption amounts which had been in arrears.
NOTE 10 LINE OF CREDIT
In conjunction with the close of the Cratos acquisition, the Company
secured a line of credit with a Canadian chartered bank. This line of
credit allows for maximum borrowings under it of $1.5 million CAD and
bears interest at the rate of prime plus 1%. Security for this facility is
comprised of a general security agreement over all of the assets of the
Company's subsidiary which entered into this facility, as well as personal
guarantees by two of the Company's senior executives. Borrowings under
this facility may not exceed 85% of specified receivables as defined in
the respective credit agreement. As of September 30, 2005, approximately
$95,000 was available under this line of credit.
22
ACTIVECORE TECHNOLOGIES, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
NOTE 11 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 to them were $24,448 and
$132,364 as of September 30, 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. This loan was paid in full during fiscal
2005.
NOTE 12 REVERSE STOCK SPLIT
In order to satisfy the terms of the Cratos share purchase agreement (see
note 3), 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-QSB has given effect to this transaction.
NOTE 13 TAXES PAYABLE
The Company has various tax liabilities outstanding which relate to
several different taxing jurisdictions. These amounts relate principally
to payroll and related taxes- Activecore Technologies Limited, a Canadian
subsidiary of Activecore Technologies, Inc. has a liability to the Canada
Customs and Revenue Agency ("CCRA") which includes un-remitted payroll
taxes, and a fiscal CCRA employee audit assessment whereby several
contract employees were deemed to be eligible for statutory pension and
unemployment premiums not previously recorded, as well as interest and
penalties. The Company has accrued these liabilities together with
appropriate interest and penalties, which approximate $100,000. This
liability is included in taxes payable in the current liabilities section
of the accompanying consolidated balance sheet as of September 30, 2005.
The Company is in the process of negotiating a payment plan with CCRA
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 14 COMMITMENTS AND CONTINGENCIES
(a) On June 13, 2002, the Company canceled its "Power Audit" software
distribution agreement with Orchestral (the "licensor"). In November
2002, the licensor commenced a proceeding in Ontario, Canada against
the Company which was discontinued while the parties discussed a
settlement. That proceeding alleged that the Company had infringed
upon the copyright that the licensor maintained, and further that
the Company had breached the distribution contract claiming damages
of CAD $4,000,000. The licensor also claimed punitive and exemplary
damages in the amount of CAD $1,000,000. When a settlement was not
concluded, Orchestral commenced a second, identical action in
August, 2003. The Company 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 under the
distribution agreement has expired. 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.
23
ACTIVECORE TECHNOLOGIES, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
Compulsory mediation has occurred in the second lawsuit. The next
step would normally be "examination for discovery" then on to a
trial. Instead of proceeding with the prosecution of its second
lawsuit, Orchestral commenced an Application before the Ontario
courts to enforce a settlement which it alleges was reached with the
Company during the negotiations between its first and second
lawsuits. The court ordered that a settlement was enforceable and
that $226,824 was owed by the Company to the licensor. 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
settlement claim which is under appeal, however, the Company
maintains that all of Orchestral's claims and legal proceedings are
frivolous.
(b) On March 17, 2000, the Company entered into a consulting agreement
with TPG Capital Corporation regarding an inactive reporting shell
company that the Company acquired. The consulting agreement provides
that one year after the execution of the agreement, ("reset date"),
350,000 common shares issued by the Company under the agreement
would be increased or decreased based upon the average closing bid
for the Company's stock 30 days prior to the reset date, so the
value of the 350,000 shares will equal $500,000. The average closing
price of the stock was $14.87 per share. The Company is obligated to
issue an additional 30,284 common shares to the consultant as an
additional fee.
On June 14, 2004, James Cassidy filed a demand for arbitration
against the Company seeking, among other things, the reset shares.
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. The arbitration is proceeding but no final decision has
been rendered.
(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 Infolink and converted them to his own purposes. The day prior
to the court hearing with regard to the minority shareholder action
against Infolink, Infolink Technology commenced a proceeding in the
same Ontario court against the Company alleging unfair competition
as a result of an alleged improper acquisition of confidential
information from Infolink and numerous other causes of action. The
Company has not yet had to file a defence to any of Infolink's
claims against the Company. 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. 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.
(d) On September 14, 2005, the Company entered into a guarantee pursuant
to which the Company agreed to guarantee payment of amounts
outstanding from time to time which were due from the Company's
Cratos subsidiary to a certain trade creditor. As additional
security for amounts outstanding and due to this trade creditor,
ActiveCore agreed, effective September 14, 2005, to pledge its 4.2%
equity interest in Global Sterling Payment Systems Ltd.
24
ACTIVECORE TECHNOLOGIES, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
NOTE 15 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
$120,000.
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.
During the nine months ended September 30, 2005, the Company issued
3,921,633 common shares to a vendor of one of the Company's wholly-owned
subsidiaries in order to settle a debt for services rendered prior to that
subsidiary being acquired by the Company. The fair value of these common
shares, based on the market value on the date they were issued was
$402,369.
During the nine months ended September 30, 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.
On September 23, 2005, the Company issued 3,334,980 to a member of senior
management. Of this amount, 1,084,980 common shares related to amounts
advanced by this individual to the Company, 2,000,000 common shares relate
to services provided by that individual to personally guarantee certain
indebtedness of the Company over the next two years and 250,000 common
shares related to employment services. The fair value of these common
shares, based on the market value on the date they were approved by the
Company's board of directors, was $108,098, $220,000, and $37,500
respectively.
On September 23, 2005, the Company issued 4,750,000 to an other member of
senior management. Of this amount, 2,500,000 common shares related to
amounts advanced by this individual to the Company, 2,000,000 common
shares relate to services provided by that individual to personally
guarantee certain indebtedness of the Company over the next two years and
250,000 common shares related to employment services. The fair value of
these common shares, based on the market value on the date they were
approved by the Company's board of directors, was $250,000, $220,000, and
$37,500 respectively.
On September 23, 2005, the Company issued 1,000,000 common shares to an
unrelated party in exchange for provided financial consulting services
over the next year to assist the Company in obtaining further financing.
The fair value of these common shares, based on the market value on the
date they were approved by the Company's board of directors, was $150,000.
25
ACTIVECORE TECHNOLOGIES, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
On September 23, 2005, the Company issued 850,500 common shares to two
unrelated parties as settlement for previously provided professional
services. The fair value of these common shares, based on the market value
on the date they were approved by the Company's board of directors, was
$85,050.
On September 23, 2005, the Company issued 975,000 common shares to two
unrelated parties in exchange for services to be provided. The fair value
of these common shares, based on the market value on the date they were
approved by the Company's board of directors, was $258,750.
On September 23, 2005, the Company issued 3,787,619 common shares to
various unrelated parties who agreed to convert various loans and advances
made to the Company. The fair value of these common shares, based on the
market value on the date they were approved by the Company's board of
directors, was $378,762.
On September 23, 2005, the Company issued 250,000 common shares to one
member of its senior management team in consideration for employment
services rendered. The fair value of these common shares, based on the
market value on the date they were approved by the Company's board of
directors, was $37,500.
On September 23, 2005, the Company issued 1,720,026 common shares to the
holder of its Series C Preferred Shares. Of this amount, 257,370 common
shares related to interest and penalties relating to late payment and
1,462,656 relate to the mandatory redemption of those Series C shares for
common shares.
On September 23, 2005, the Company issued 285,186 common shares to the
holder of its Series A and B Preferred Shares in respect of dividends due
to that holder under the terms of those preference shares.
All amounts issued during the nine month period ended September 30, 2005
were valued based on the closing market price of the Company's common
stock on the date which the Company committed itself to the respective
transaction.
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. 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 8) agreed to settle 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 will have a 12% annual
dividend rate payable quarterly based on the number of preferred shares
outstanding at the end of the quarter.
26
ACTIVECORE TECHNOLOGIES, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
NOTE 16 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
provision.
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 December 31, 2004 436,500 0.42
Issued 3,545,883 0.14
------------ ------------
Warrants outstanding at September 30, 2005 3,982,383 $ 0.17
============ ============
During the nine month period ended September 30, 2005, the Company issued
3,545,883 warrants to parties to whom the Company was previously indebted
to and who, during this period, agreed to settle their debt to common
shares of the Company. These warrants were issued at a 40% premium to the
market price of the Company's common stock as of the date of the
settlement. These warrants expire in September, 2006. The Company used
Black-Scholes to value these warrants using the following assumptions:
dividend yield - nil; risk-free interest rate 3%; volatility - 80%;
expected life - 1 year. The fair value of these warrants was charged to
the Company's Consolidated Statement of Operations as a loss on
extinguishment of debt during the three month period ended September 30,
20005.
As of September 30, 2005 and December 31, 2004, all warrants were fully
vested and exercisable.
NOTE 17 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 and nine month periods ended September 30, 2005. As
of September 30, 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 September 30, 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 September 30, 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.
27
ACTIVECORE TECHNOLOGIES, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
The Company has recorded on its Consolidated Balance Sheet a deferred tax
liability relating to the temporary difference associated with
specifically identifiable intangible assets recorded in conjunction with
one of its business combinations. This temporary difference is being
amortized into the Company's tax provision over the same period as the
related intangible asset. For the nine month period ended September 30,
2005, the Company's entire tax provision related to the amortization of
this temporary difference.
NOTE 18 TOTAL COMPREHENSIVE INCOME (LOSS)
The following table presents the Company's total comprehensive income
(loss) for the three and nine month periods ended September 30, 2005 and
2004 respectively:
Three months Three months Nine months Nine months
ended ended ended ended
September 30, September 30, September 30, September 30,
2005 2004 2005 2004
------------- ------------- ------------- -------------
Net income (loss) for the
period $ (479,921) $ 599,909 $ (2,715,351) $ (161,787)
Other comprehensive income
(loss) for the period $ (254,905) $ (101,266) $ (517,748) $ (45,122)
------------- ------------- ------------- -------------
Comprehensive net income
(loss) for the period $ (734,826) $ 498,643 $ (2,197,603) $ (206,909)
============= ============= ============= =============
NOTE 19 SEGMENT INFORMATION
The Company has two reportable segments: Systems Integration and
Modernization ("SIM") and Corporate Disclosure and Messaging ("CDM"). For
detailed descriptions of the Company's two operating segments refer to
Management's Discussion and Analysis beginning on page 32. The Company
evaluates operating segment performance based on revenues and direct
operating expenses of the segment. The accounting policies of the
operating segments are the same as those set forth in the Company's Annual
Report on Form 10-KSB for the year ended December 31, 2004.
Contribution margin from operating segments does not include
amortization of intangible assets, depreciation, interest, other income
(expense) and provision for income taxes. Goodwill and other intangible
assets have been included in segment assets.
Prior to the quarter ended June 30, 2005, the Company operated in
only one operating segment - the delivery of software products and
services. Consequently, segment operating results have only been provided
for the three months ended September 30, 2005, and segment assets have
been provided only as of September 30, 2005. Prior year and prior year
comparatives have not been provided on the basis that the acquisition of
Cratos during the quarter ended June 30, 2005 caused these segments to be
created, and hence these segments did not exist in the prior year.
28
A reconciliation of the totals reported for the operating segments
to the applicable line items in the unaudited condensed consolidated
financial statements for the three months ended September 30, 2005 is as
follows:
Three Months Ended September 30, 2005
SIM CDM Total
--------------- --------------- ---------------
Revenue 2,378,513 329,860 2,708,373
Operating Costs 2,043,109 364,954 2,408,063
--------------- --------------- ---------------
Contribution Margin 335,404 (35,094) 300,310
Less: Corporate expenses (469,630)
Less: Interest expense (61,882)
Less: Depreciation and amortization (147,176)
Less: Other expense and taxes (101,543)
---------------
Net loss for the period (479,921)
===============
Segment assets as of September 30, 2005 8,649,333 1,390,929 10,040,262
=============== =============== ===============
NOTE 20 SIGNIFICANT CUSTOMER AND VENDOR
A single customer accounted for 50% and 42% of the Company's revenue
during the three and nine month periods ended September 30, 2005
respectively. This customer did not account for any revenue during the
three or nine month period ended September 30, 2004. This same customer
accounted for 41% of the Company's accounts receivable balance at
September 30, 2005 and nil as of December 31, 2004.
In addition, the Company uses consultants to deliver many of the service
contracts for its customers. These consultants are procured primarily
through one significant consulting agency. Amounts recorded in the
Company's Statements of Operations as direct wages almost exclusively
represent consulting services incurred through this significant vendor.
NOTE 21 DEFERRED COMPENSATION
During the nine month period ended September 30, 2005, the Company issued
shares to certain individuals for services to be performed in future
periods (see note 15). These amounts have been recorded on the Company's
Consolidated Balance Sheet as deferred compensation, and will be
recognized on a straight-line basis over the term of the respective
service agreement in the Company's Consolidated Statement of Operations.
NOTE 22 SUBSEQUENT EVENTS
SilverBirch Studio RTO Completed
In October, 2005 SilverBirch Studios completed its RTO transaction, and
issued the Company the consideration agreed to in June 2005 (see note 2).
This consideration comprised $125,000 CAD of cash, 1,750,000 shares in
SilverBirch Studios, and 1,000,000 warrants to purchase common shares of
Silverbirch Studios. This consideration will be recognized in the
Company's Statement of Operations in the quarter ending December 31, 2005.
29
ACTIVECORE TECHNOLOGIES, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
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 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 or Plan of Operations" as well as in this Report generally. You should
not place undue reliance on our forward-looking statements. Further, any
forward-looking statement speaks only as of the date on which it is made and,
except as otherwise required by law, we undertake no obligation to update any
forward-looking statement to reflect events or circumstances after the date on
which it is made or to reflect the occurrence of anticipated or unanticipated
events or circumstances. New factors emerge from time to time that may cause our
business not to develop as we expect, and it is not possible to predict all of
them.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 "Certain Business 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 United States and the United Kingdom. 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
Technologies Solutions Inc. ("Cratos") during the quarter ended June 30, 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.
30
ACTIVECORE TECHNOLOGIES, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
The two divisions of the Company have very different revenue models and it
is important that this is clearly understood. See Note 19 to the consolidated
financial statements for segmented information which 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 its 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 its 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 contribution
margin 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. It should be noted
that as of September 30, 2005 the CDM business had only been existence for a few
quarters and following a fairly substantial investment in this division it was
just approaching break-even from an operating income perspective (see segmented
information). The expenses in this division currently exceed its revenue, but
over the next quarter the Company anticipates that this trend will reverse and
this division will be producing operating income by the end of the current
fiscal year.
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.
31
ACTIVECORE TECHNOLOGIES, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
The Company has developed a clear vision of how it intends to expand the
business in the future. Expansion will be 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 ePocket, an
organization 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
envisions significant benefits from the Cratos acquisition as the relationship
and synergies between ePocket and ActiveCore become more developed in the
upcoming quarters.
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 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.
32
ACTIVECORE TECHNOLOGIES, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
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.
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.
Recent Developments
In the MDI Solutions group, further progress has been made in the
development of the MD LINK product and the company recently released version 4.1
at the end of June 2005. During the last few months, the Company has secured and
shipped several orders for the new version of MD LINK. The Company expects the
number of MD Link 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 from this division to continue to increase
throughout the remainder of 2005. For the nine month period ended September 30,
2005, the Company made relatively large investments in equipment and new staff
in this area of the business.
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 during the second quarter ended June 30. These
acquisitions continue to add significant revenue to the Company during the
balance of 2005. The DisclosurePlus group is actively selling the DisclosurePlus
product and if the Company is able to add the "press release" product to their
offering, we expect that this development will also enhance sales.
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 DisclosurePlus
Prior to being acquired by the Company, DisclosurePlus 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
1,200,000 shares of the Company's common stock representing $264,000 plus
$125,000 in cash for a total value of $389,000 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.
33
ACTIVECORE TECHNOLOGIES, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
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.
During the quarter ended June 30, 2005, the Company entered into a
purchase and sale agreement with the shareholders of Cratos Solutions whereby
the Company paid 9,021,030 shares of the Company's common stock in addition to
cash and debt consideration of $159,120 representing total consideration of $2.1
million in exchange for 100% of the shares of Cratos. In conjunction with this
acquisition the Company paid CAD $470,000 of debt owed to SQL Tech. by Cratos
along with 3,921,633 Common Shares of ActiveCore. The Company also arranged a
bank credit facility to help finance Cratos' debt 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.
Twincentric, Limited
On August 13, 2005, the Company entered into an agreement to sell its
wholly owned U.K. subsidiary, Twincentric Limited ("Twincentric") to Tony
McGurk. Mr. McGurk was the majority shareholder of Twincentric at the time it
was acquired during fiscal 2004 by the Company, and he had continued to operate
the Twincentric business since that time. Consideration received by the Company
was 1,400,000 of its common shares. These common shares represented the same
shares originally issued by the Company to Mr. McGurk in the transaction which
resulted in the Company originally acquiring Twincentric.
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 $378,378 for the
three months ended September 30, 2005 and a loss from operations of $2,014,308
for the nine months ended September 30, 2005. The Company incurred negative cash
flow from operations of $175,770 and $1,543,639 for the three and nine months
ended September 30, 2005 respectively, and has a working capital deficiency of
$2,222,381 at September 30, 2005. There is substantial doubt 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
Significant Accounting Policies and Critical Accounting Estimates
34
ACTIVECORE TECHNOLOGIES, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
The Company's Consolidated Financial Statements are prepared in accordance
with U.S. GAAP. The preparation of the Consolidated Financial Statements in
accordance with U.S. GAAP necessarily requires the Company to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and liabilities. On an
on-going basis, the Company evaluates its estimates, including those related to
revenues, bad debts, investments, intangible assets, income taxes, contingencies
and litigation. The Company bases its estimates on historical experience and on
various other assumptions that are believed at the time to be reasonable under
the circumstances. Under different assumptions or conditions, the actual results
will differ, potentially materially, from those previously estimated. Many of
the conditions impacting these assumptions and estimates are outside of the
Company's control.
The Company believes the following critical accounting policies affect its
more significant judgments and estimates used in the preparation of its
Consolidated Financial Statements.
Revenue: A significant portion of all of the Company's net sales are
derived from commercial software development and sales activities, which are
subject to increasing competition, rapid technological change and evolving
customer preferences, often resulting in the frequent introduction of new
products and short product lifecycles. Accordingly, the Company's profitability
and growth prospects depend upon its ability to continually acquire, develop and
market new, commercially successful software products and obtain adequate
financing. If the Company is unable to continue to acquire, develop and market
commercially successful software products, its operating results and financial
condition could be materially adversely affected in the near future.
The Company recognizes revenue for software sales in accordance with
Statement of Position ("SOP") 97-2 "Software Revenue Recognition", as amended by
SOP 98-9 "Modification of SOP 97-2 Software Revenue Recognition with respect to
Certain Transactions." SOP 97-2 provides guidance on applying generally accepted
accounting principles in recognizing revenue on software transactions. SOP 98-9
deals with the determination of vendor specific objective evidence ("VSOE") of
fair value in multiple element arrangements, such as maintenance agreements
soldin conjunction with software packages. For the fiscal year 2004 and 2003 the
Company does not have any multi-element arrangements that would require it to
establish VSOE for each element, nor does the Company have any sales activity
that requires the contract method of accounting. The Company's software
transactions generally include only one element, the interactive software game
or commercial software under license. The Company recognizes revenue when the
price is fixed and determinable, there is persuasive evidence of an arrangement,
the fulfillment of its obligations under any such arrangement, and determination
that collection is probable. Accordingly, revenue is recognized when the license
or title and all risks of loss are transferred to the customer, which is
generally upon receipt by customer.
The Company's payment arrangements with its customers provide primarily
multi month terms unless the purchase price is relatively low. As a result of
the multi-month terms, an imputed interest cost accounting for the net present
value of the terms was deducted in determining the amount of revenue and
receivable recognized.
The Company recognizes revenue in the period in which the service is
performed and collection is reasonably assured.
Allowance for Doubtful Accounts. The Company maintains allowances for
doubtful accounts for estimated losses resulting from the inability of its
customers to make required payments. The Company performs ongoing credit
evaluations of its customer's financial condition and if the financial condition
of the Company's customers were to deteriorate, resulting in an impairment of
their ability to make payments, additional allowances would likely be required.
Actual collections could differ materially from our estimates.
Income Taxes. The Company has currently recorded a full valuation
allowance against all of its deferred income tax assets as management believes
it is more likely than not that all of the deferred income tax assets will not
be realized. In making this determination, management has considered factors
such as the reversal of deferred income tax liabilities, projected taxable
income, the character of the income tax asset and tax planning strategies. A
change to these factors could impact the estimated valuation allowance and
income tax expense.
35
ACTIVECORE TECHNOLOGIES, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
Litigation. The Company is a party, from time to time, in legal
proceedings. In these cases, management assesses the likelihood that a loss will
result, as well as the amount of such loss and the financial statements provide
for the Company's best estimate of such losses. To the extent that any of these
legal proceedings are resolved and result in the Company being required to pay
an amount in excess of what has been provided for in the financial statements,
the Company would be required to record, against earnings, the excess at that
time. If the resolution resulted in a gain to the Company, or a loss less than
that provided for, such gain is recognized when received or receivable.
Valuation of Intangible Assets. The Company has a history of acquiring
other businesses, and expects that this trend will likely continue in the
future. As part of the completion of any business combination, the Company is
required to value any intangible assets acquired at the date of acquisition.
This valuation is inherently subjective, and necessarily involves judgments and
estimates regarding future cash flows and other operational variables of the
entity acquired. However, there can be no assurance that the judgments and
estimates made at the date of acquisition will reflect future performance of the
acquired entity. If management makes judgments or estimates that differ from
actual circumstances, the Company may be required to write-off certain of its
intangible assets. Similarly, in accordance with SFAS No. 142 Goodwill and Other
Intangible Assets, the Company is required to annually test the value of its
goodwill as well as its acquired intangible assets. This testing requires
management to make estimates of the market value of its various operating
segments. Changes in estimates could result in different conclusions for the
value of goodwill. The Company performs its annual impairment testing on its
goodwill at December 31st of each fiscal year, provided that circumstances don't
arise during the year that would necessitate an earlier evaluation.
36
ACTIVECORE TECHNOLOGIES, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
Results of Operations
Results of Operations for the Three and Nine Month Periods Ended September
30, 2005 Compared to the Same Periods Ended September 30, 2004
Overview
During the quarter ended September 30, 2005, the Company recorded revenues of
$2.8 million, and a loss from operations of $0.4 million. These amounts compare
to revenue of $1.9 million during the previous quarter ended June 30, 2005, when
a loss from operations of $1.2 million was incurred. The increase in revenue
from the prior quarter was the result of several factors. Firstly, as the
Company began consolidating the results of Cratos effective May 1, 2005, during
the quarter ended September 30, 2005 the Company consolidated an entire quarter
of operations as compared with only 2 months in the quarter ended June 30, 2005.
Additionally however, organic growth was generated by the Company's CDM
division, as both the ActiveCast and DisclosurePlus businesses demonstrated
significant percentage increases in revenue as compared with the prior quarter.
The Company incurred numerous one-time expenses totaling $300,000 associated
with restructuring its organization and management in the quarter ended June 30,
2005, which were not present in the quarter ended September 30, 2005. These
amounts had related to consulting expense, legal and accounting, and general and
administrative expenses. The Company feels that its operating expenses incurred
during the quarter ended September 30, 2005 are fairly representative of the
cost structure it will carry in the foreseeable future. As a result, should the
Company be able to continue to grow its revenue in future quarters, the Company
can expect to see improved profitability.
Revenues
- ------------------------------------- ----------------------------------
Three months ended September 30 Nine months ended September 30
- ------------------------------------- ----------------------------------
2005 2004 % Change 2005 2004 % Change
- ------------- ---------- ------------ ---------- ----------- -----------
2,708,373 1,432,810 89% 4,665,541 2,730,059 71%
- ------------- ---------- ------------ ---------- ----------- -----------
During the three months ended September 30, 2005 the Company generated
$2.7 million in revenue from the sale of products and services versus $1.4
million in revenue in the same three month period ended September 30, 2004. For
the nine month period ended September 30, 2005, total revenue was $4.7 million,
which represented a 71% from the $2.7 million recorded during the nine month
period ended September 30, 2004. From a revenue source perspective, the vast
majority of the revenue recorded in both 2005 and 2004 was service related,
while product related revenue represented only a small percentage of the total.
In the three months ended September 30, 2005, the majority of the Company's
revenue was generated from services work and product installation performed by
the Company's SIM division (see note 19 to the notes to the Unaudited Financial
Statements for segmented information). Specifically, the Cratos acquisition was
completed during the quarter ended June 30, 2005, and the Company has
consolidated their operations in its consolidated financial statements beginning
May 1, 2005. Over the 5 month period during which Cratos' results of operations
have been consolidated with the Company, Cratos has generated approximately $3.3
million of revenue, and approximately $0.3 million of contribution margin. Also
of note is the fact that during the 3 month period ended September 30, 2005
Cratos signed a master services agreement with ePocket to become its exclusive
implementation partner for software installations. As of September 30, 2005,
only nominal amounts of revenue have been earned under this agreement, though
the Company is optimistic that beginning in the first quarter of 2006, more
significant amounts of revenue will be earned under this agreement. As a result,
the Company expects revenues in its SIM division to continue to increase as the
ePocket business becomes commercialized. In the shorter term, the quarter ending
December 31, 2005 may results in a slight decrease in revenues for the SIM
division as compared with the quarter ended September 30, 2005 as a result of
the fact that the SIM division generates revenues largely off of billable
consultants, and the month of December tends to have far fewer billable days at
client locations than the months of July through November.
37
ACTIVECORE TECHNOLOGIES, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
The Company has also seen revenue growth over the past quarter from its
CDM division - a division that did not formally exist until mid-2004 when the
Company completed a small acquisition of C-Comm Networks. Since that time, the
Company has added to that business through significant investments of both
capital and personnel, and that business has now been rebranded as the
ActiveCast. It appears these investments are beginning to pay off. Although this
division's total revenues remain small relative to the overall corporate totals,
they are growing very quickly in percentage terms. Specifically, revenues in the
CDM business grew 34% from the quarter ended June 30, 2005 to the quarter ended
September 30, 2005. As the CDM division has a relatively fixed expense base,
once that division crosses break-even the profitability margins have the
potential to be very strong. Incremental revenues recorded once the division
achieves break-even are expected to be in the 40-50% range. It is the Company's
expectation that this growth will continue to the point that the division will
acheive break-even in the fourth quarter from a contribution margin perspective
given that during the quarter ended September 30, 2005 it incurred only a small
loss of $35,000.
The acquisition of DisclosurePlus in the first quarter of 2005 also added
a revenue source that did not exist during fiscal 2004. Revenue for this
division remains quite small, but customer opportunities remain very encouraging
and the Company feels that this division is still two to three quarters away
from generating more substantial amounts of revenue. At the current time, this
division continues to round out its product offering. During the quarter ended
September 30, 2005 DisclosurePlus announced the introduction of two new products
- - Whistleblower and SedarPush.
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.
The integration of these acquisitions is progressing well and represents the
main reason for the additional revenue generated during both the three and nine
month periods ended September 30, 2005.
Cost of Sales
- ------------------------------------- ---------------------------------
Three months ended September 30 Nine months ended September 30
- ------------------------------------- ---------------------------------
2005 2004 % Change 2005 2004 % Change
- ------------- ---------- ------------ ---------- --------- ------------
1,714,395 292,872 521% 3,075,177 689,730 346%
- ------------- ---------- ------------ ---------- --------- ------------
38
ACTIVECORE TECHNOLOGIES, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
Cost of sales for the three month period ended September 30, 2005 were
$1.7 million, which consisted primarily of direct wages paid to consulting
services staff of $1.6 million, and amortization of software licensing
agreements and other direct costs of $0.1 million. These amounts are
significantly higher than fiscal 2004 when the Company's cost of sales for the
three month period ended September 30, 2004 totaled $0.3 million which was
principally comprised of direct wages for consulting staff. For the nine month
period ended September 30, 2005, cost of sales totaled $3.1 million, which
represented an increase of 346% from the nine month period ended September 30,
2004. The vast majority of the increase in cost of sales in 2005 as compared to
2004 relates the recent addition of Cratos. Cratos is a services business, and
the majority of their operating expenses relate to compensation costs paid to
its consultants. This differs substantially from fiscal 2004 when the Company
generated most of its revenue through software licensing agreements. As the cost
of sale on software licenses is much lower than that for services revenue, the
Company's gross margin has decreased significantly from fiscal 2004 to fiscal
2005. Specifically, the September 30, 2005 three month period led to a gross
margin of $1.0 million, or 37%, versus a gross margin of $1.1 million, or 80% in
the three months ended September 30, 2004. For the nine month period ended
September 30, 2005 the Company's gross margin percentage was 34% as compared
with 75% during the nine month period ended September 30, 2004. The gross margin
percentages reflect the addition of the Cratos acquisition which has brought
with it significant revenue growth but given the nature of that business does so
at a lower gross margin. The Company expects that its gross profit percentage
will begin to increase in future periods as the Company's CDM revenue continues
to increase, and as that division becomes a more substantial component of the
Company's overall revenue mix.
Operating Expenses
Total operating expenses for the three months ended September 30, 2005
were $1.4 million versus $0.7 million in the three months ended September 30,
2004. Operating expenses also increased considerably for the nine month periods,
up from $2.2 million in 2004 to $3.6 million in 2005. After these expenses, the
Company recognized a loss from operations of $0.4 million in the three months
ended September 30, 2005 versus income from operations of $0.4 million in the
same quarter ended September 30, 2004. For the nine month period ended September
30, 2005, the Company incurred a loss from operations of $2.0 million as
compared with a loss of $0.1 million in fiscal 2004.
The recent significant investments which the Company has made in both
acquired and organically developed businesses are reflected in the above noted
operating expense totals. Although these investments have resulted in larger
operating losses than have been incurred in the prior year, management has
determined that these investments were required in order to lay the foundation
for the Company's two operating divisions - SIM and CDM - to develop
successfully.
The largest components of operating expenses for the first three quarters
of 2005 fiscal year were salaries and wages, consulting fees, legal and
accounting and other general and administration expenses. These expenses are
discussed below.
Salaries and Wages
- ------------------------------------- ---------------------------------
Three months ended September 30 Nine months ended September 30
- ------------------------------------- ---------------------------------
2005 2004 % Change 2005 2004 % Change
- ------------ ---------- ------------- --------- ---------- ------------
515,702 394,380 31% 937,411 1,144,904 18%
- ------------ ---------- ------------- --------- ---------- ------------
39
ACTIVECORE TECHNOLOGIES, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 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. For the three month period ended September 30, 2005, salaries and wages
were $0.5 million as compared with $0.4 million during the three month period
ended September 30, 2004. For the nine month period ended September 30, 2005,
this increase was 18% given that salaries and wages for the nine month period
ended September 30, 2005 was $0.9 million as compared to $1.1 million during the
nine months ended September 30, 2004. Most of the increase in the three month
period ended September 30, 2005 as compared to the same period in fiscal 2004
reflects the additions made to the CDM business in terms of personnel. As
mentioned previously, the Company acquired C-Comm Networks in mid-2004 to become
the foundation for its messaging business, although the Company has continued to
invest in this part of the business since that time. This factor also accounts
for the growth in salaries and wages for the nine month period ended September
2005 as compared with 2004. From a sequential perspective, salaries and wages
were effectively constant between the three month period ended June 30, 2005 and
the three month period ended September 30, 2005 and the Company does not
anticipate adding significant costs in this area in the immediate future.
Consulting fees
- ------------------------------------- ---------------------------------
Three months ended September 30 Nine months ended September 30
- ------------------------------------- ---------------------------------
2005 2004 % Change 2005 2004 % Change
- ------------- -------- -------------- --------- ---------- ------------
131,096 35,215 272% 511,126 197,179 159%
- ------------- -------- -------------- --------- ---------- ------------
For the three month period ended September 30, 2005, consulting fees
increased 272% to $0.1 million from $0.0 million during the three month period
ended September 30, 2004. For the nine month period ended September 30, 2005,
this increase was 159% given that consulting fees for the nine month period
ended September 30, 2005 were $0.5 million as compared to $0.2 million during
the nine months ended September 30, 2004. Most of the increase in consulting
fees paid during the three month period ended September 30, 2005, as compared
with the same period in 2004 relates to the amortization of deferred consulting
costs which relate to assistance in securing certain financing transactions. The
related costs are being amortized over the period which the financing will be in
place. The increase in consulting expense for the nine month period ended
September 30, 2005 as compared with the nine month period ended September 30,
2004 relate largely to one-time termination costs incurred to exit a consulting
contract which the Company determined was no longer producing acceptable returns
to the organization. During the quarter ended June 30, 2005, the Company
incurred consulting fees of $0.2 million, and therefore from a sequential
perspective the Company has managed to lower its expenses in this area.
Legal and Accounting
- ------------------------------------- ---------------------------------
Three months ended September 30 Nine months ended September 30
- ------------------------------------- ---------------------------------
2005 2004 % Change 2005 2004 % Change
- ------------- -------- -------------- --------- ---------- ------------
281,182 95,026 96% 628,745 258,481 142%
- ------------- -------- -------------- --------- ---------- ------------
40
ACTIVECORE TECHNOLOGIES, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
For the three month period ended September 30, 2005, legal and accounting
expenses increased 96% to $0.3 million from $0.1 million during the three month
period ended September 30, 2004. For the nine month period ended September 30,
2005, this increase was 142% given that legal and accounting expenses for the
nine month period ended September 30, 2005 were $0.6 million as compared to $0.3
million during the nine months ended September 30, 2004. Legal and accounting
expense includes legal costs associated with using third party lawyers to act on
behalf of the Company in current legal matters (see Note 14 of the Notes to the
Unaudited Financial Statements). Additionally, the Company has incurred
significant legal costs over the past year in an attempt to gain control over
Infolink. During the three month period ended September 30, 2005 the Company
incurred approximately $0.2 million relating to the Infolink transaction. Going
forward, the Company does not expect legal cost to continue at this rate and
should be able to experience a decline in this area. Accounting costs include
audit fees and related costs as well as costs incurred to complete periodic
regulatory filings and these expenses comprise the balance of this expense.
Legal and accounting costs were $0.3 million during the three month period ended
June 30, 2005 and therefore have remained stable over the past quarter.
General and Administrative
- ------------------------------------- ---------------------------------
Three months ended September 30 Nine months ended September 30
- ------------------------------------- ---------------------------------
2005 2004 % Change 2005 2004 % Change
- ------------ ---------- ------------- --------- ---------- ------------
289,288 148,524 95% 996,239 539,439 85%
- ------------ ---------- ------------- --------- ---------- ------------
For the three month period ended September 30, 2005, general and
administrative expenses increased 95% to $0.3 million from $0.1 million during
the three month period ended September 30, 2004. For the nine month period ended
September 30, 2005, this increase was 85% given that general and administrative
expenses for the nine months ended September 30, 2005 were $1.0 million as
compared to $0.5 million during the nine months ended September 30, 2004. The
large increase in general and administrative expenses from 2004 to 2005 is
related partially to the Company's 2005 acquisitions which resulted in a larger
infrastructure. General and administrative expenses include amounts spent to
operate the Company's various facilities, including rent, office expenses,
insurance, and communications, as well as travel expenses. During the nine
months ended September 30, 2005, the Company has incurred certain expenses which
it does not expect to incur in future periods. Specifically, the Company
incurred bad debts of approximately $360,000 to date in fiscal 2005, almost all
of which relates to one large customer who went bankrupt. The Company does not
have a history of experiencing bad debts and as a result, the Company does not
view this occurrence as being indicative of expected future expenses.
Additionally, during nine-months ended September 30, 2005, the Company incurred
one-time expenses relating to restructuring certain elements of is management
team totaling approximately $150,000. General and administrative expenses were
$0.7 million during the three month period ended June 30, 2005 and therefore
have decreased substantially for the quarter ended September 30, 2005.
41
ACTIVECORE TECHNOLOGIES, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
Other Income/Expenses
- ---------------------------- ------------------------------------ ----------------------------------
Three months ended September 30 Nine months ended September 30
- ---------------------------- ------------------------------------ ----------------------------------
2005 2004 % Change 2005 2004 % Change
- ---------------------------- ----------- ----------- ------------ ----------- ---------- -----------
Gain (loss) on (74,463) - 100% (74,463) 2,000 38,231%
extinguishment of debt
- ---------------------------- ----------- ----------- ------------ ----------- ---------- -----------
Interest Income - 25,480 100% - 55,456 100%
- ---------------------------- ----------- ----------- ------------ ----------- ---------- -----------
Interest Expense (74,070) (33,204) 123% (189,974) (88,180) 115%
- ---------------------------- ----------- ----------- ------------ ----------- ---------- -----------
Foreign Exchange Gain 31,367 37,626 17% (5,928) 19,735 130%
(loss)
- ---------------------------- ----------- ----------- ------------ ----------- ---------- -----------
During the three month period ended September 30, 2005 the Company
incurred a loss on extinguishment of debt of $74,463. This amount represented
the fair value of warrants issued during that period to parties to whom the
Company was previously indebted to and who agreed to convert their debt to
common shares of the Company. As part of this transaction, the Company issued
these parties warrants to purchase common shares of the Company which expire in
September 2006.
In the quarter ended September 30, 2005, the Company expended $74,070 in
financial interest which was significantly higher than the $33,204 expensed in
the quarter ended September 30, 2004. Interest expense for the nine month period
ended September 30, 2005 totaled $189,974 as compared with $88,180 for the nine
month period ended September 30, 2004. The increase in interest expense in 2005
as compared with 2004 is a result of interest incurred on a loan from a Canadian
chartered bank along with interest incurred in relation to certain short-term
loans the Company entered into towards the end of 2004 and into 2005.
Foreign exchange gains were $31,367 for the three month period ended
September 30, 2005 and represented a loss of $5,928 for the nine month period
ended September 30, 2005. This compared with gains of $37,626 and $19,735 for
the three and nine month periods ended September 30, 2004 respectively. These
balances are a result of the fluctuation of the U.S. dollar relative to the U.K.
pound and the Canadian dollar. Going forward, given the disposition of
Twincentric, the Company will not continue to be significantly exposed to
fluctuations of the U.K. pound.
Discontinued Operations
In the quarter ended September 30, 2005, the Company recorded a loss from
discontinued operations of $15,165 which included a loss on disposal of
Twincentric of $16,434 as well as a gain from operations of Twincentric of
$1,269. During the nine month period ended September 30, 2005 the Company
recorded the same loss on disposal of $16,434 but the loss from operations was
$445,032 which provided for a total loss from discontinued operations of
$461,466.
42
ACTIVECORE TECHNOLOGIES, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
For the three month period ended September 30, 2004, the Company incurred
a loss from operations of SilverBirch of $954 along with a gain from operations
of Twincentric such that the total gain from discontinued operations was
$120,490. For the nine month period ended September 30, 2004, the Company
incurred a loss from operations of SilverBirch of $129,450 which was partially
offset by a gain from operations from Twincentric such that the net loss from
discontinued operations was $20,901.
Liquidity and Capital Resources
At September 30, 2005, the Company's need for cash included satisfying
$6,633,394 of current liabilities. The Company's ability to continue as a going
concern is dependent on its ability to raise additional funding through
expansion of its current bank facility, an equity injection, a convertible loan
and increased sales revenue. The Company anticipates that its cash needs over
the next 12 months will consist of $2,500,000 for general working capital. At
September 30, 2005, the Company had $32,105 of cash on hand. In addition,
certain shareholders have also supported the Company by deferring the timing of
certain payments from time-to-time or converting shareholders loans into 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 failure of the Company to obtain additional debt and equity funding
will have a material adverse effect on the Company's business and 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 thereby 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 $32,105 at September 30, 2005.
Net Cash Used in Operating Activities
Net cash used in operating activities were $1,543,639 and $834,296 in the
nine months ended September 30, 2005 and 2004 respectively. In the nine months
ended September 30, 2005, the Company had non cash charges in its statement of
operations totaling $928,014. This accounts for most of the difference between
the Company's loss for the nine month period ended September 30, 2005 of
$2,727,539 and its use of cash from operations during the same period of
$1,543,639. Over this period the Company also experienced a variety of changes
in its various working capital accounts which largely had an offsetting effect,
but which in total represented a net source of cash of $360,524.
43
ACTIVECORE TECHNOLOGIES, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
Net Cash Provided in Investing Activities
Net cash used in investing activities was $119,403 for the nine month
period ended September 30, 2005. This period's use of cash is largely a result
of the DisclosurePlus acquisition and Cratos acquisitions, which together
represented a combined use of cash of $268,249. During this period, the Company
also purchased capital assets totaling $66,154, incurred $35,000 of business
combination costs, and received the proceeds of its ePocket investment
referenced above totaling $250,000. For the nine months ended September 30,
2004, the Company used $273,138 from investing activities which all related to
the purchase of capital assets.
Net Cash Provided by Financing Activities
Net cash provided by financing activities was $1,640,261 in the nine
months ended September 30, 2005, largely a result of the line of credit the
Company secured in order to finance some of the debts of Cratos as well as the
issuance for preferred shares. In the nine month period ended September 30,
2004, net cash provided by financing activities totaled $1,161,717, primarily a
result of advances received from related parties as well as the advance of a
note payable and proceeds received from the issuance of preferred stock.
Certain Business Risk Factors
A significant portion of the Company's net sales are derived from data
integration services and from the sale of enterprise software, which are subject
to increasing competition, rapid technological change and evolving customer
preferences, often resulting in the frequent introduction of new products and
short product lifecycles. Accordingly, the Company's profitability and growth
prospects depend upon its ability to continually acquire, develop and market
new, commercially successful software products and obtain adequate financing. If
the Company is unable to continue to acquire, develop and market commercially
successful software products, its operating results and financial condition
could be materially adversely affected in the near future.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the reported
periods. The most significant estimates and assumptions relate to the
recoverability of intangible assets, 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 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.
44
ACTIVECORE TECHNOLOGIES, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
Conclusions: The Company's Chief Executive Officer has concluded that,
subject to the limitation noted above, the Company's disclosure controls and
procedures are effective at this reasonable assurance level as of the period
covered to timely alert management to material information relating to the
Company.
(B) Changes in Internal Controls Over Financial Reporting
In connection with the evaluation of the Company's internal controls there
have been no changes to the Company's internal controls over financial reporting
that have materially affected, or one reasonably likely to materially effect,
the Company's internal controls over financial reporting.
45
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
James Cassidy and TPG Corporation
On March 17, 2000, the Company entered into a consulting agreement with TPG
Capital Corporation regarding an inactive reporting shell company that the
Company acquired. The consulting agreement provides that one year after the
execution of the agreement, ("reset date"), 350,000 common shares issued by the
Company under the agreement would be increased or decreased based upon the
average closing bid for the Company's stock 30 days prior to the reset date, so
the value of the 350,000 shares will equal $500,000. The average closing price
of the stock was $14.87 per share. The Company is obligated to issue an
additional 30,284 common shares to the consultant as an additional fee.
On June 14, 2004, James Cassidy filed a demand for arbitration against the
Company seeking, among other things, the reset shares. 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. The arbitration is proceeding but no final decision has been
rendered.
Orchestral Corporation
On June 13, 2002, the Company canceled its "Power Audit" software distribution
agreement with Orchestral (the "licensor"). In November 2002, the licensor
commenced a proceeding in Ontario, Canada against the Company which was
discontinued while the parties discussed a settlement. That proceeding alleged
that the Company had infringed upon the copyright that the licensor maintained,
and further that the Company had breached the distribution contract claiming
damages of CAD $4,000,000. The licensor also claimed punitive and exemplary
damages in the amount of CAD $1,000,000. When a settlement was not concluded,
Orchestral commenced a second, identical action in August, 2003. The Company
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
under the distribution agreement has expired. 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.
Compulsory mediation has occurred in the second lawsuit. The next step would
normally be "examination for discovery" then on to a trial. Instead of
proceeding with the prosecution of its second lawsuit, Orchestral commenced an
Application before the Ontario courts to enforce a settlement which it alleges
was reached with the Company during the negotiations between its first and
second lawsuits. The court ordered that a settlement was enforceable and that
$226,824 was owed by the Company to the licensor. 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 settlement claim which is under appeal,
however, the Company maintains that all of Orchestral's claims and legal
proceedings are frivolous.
46
Cesar Correia and InfoLink Technologies Ltd.
From December 2003 to April 2004, the Company was engaged in discussions with
certain major shareholders of Infolink Technologies Limited with regard to the
potential acquisition of Infolink Technologies Ltd., a public company listed on
the Toronto Stock Exchange venture board under the symbol "IFL". During the
course of discussions, an offer to purchase was rebuffed by Cesar Correia, the
former Chairman of the Board, President and CEO, and 34% shareholder of
Infolink. At the time, Mr. Correia was told that the Company would purchase
another competitor to Infolink, C Comm Network Corporation. In May of 2004, the
Company purchased C Comm. In July of 2004, an unrelated minority shareholder of
Infolink commenced an action in Ontario alleging that Mr. Correia has mismanaged
Infolink and amongst other things that he had inappropriately obtained funds
from Infolink and converted them to his own purposes. The day prior to the court
hearing with regard to the minority shareholder action against Infolink,
Infolink Technology commenced a proceeding in the same Ontario court against the
Company alleging unfair competition as a result of an alleged improper
acquisition of confidential information from Infolink and numerous other causes
of action. The Company has not yet had to file a defence to any of Infolink's
claims against the Company. 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. 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.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On September 23, 2005, the Company issued 3,334,980 common shares to a
member of senior management. Of this amount, 1,084,980 common shares related to
amounts advanced by this individual to the Company, 2,000,000 common shares
relate to services provided by that individual to personally guarantee certain
indebtedness of the Company over the next two years and 250,000 common shares
related to employment services. The fair value of these common shares, based on
the market value on the date they were approved by the Company's board of
directors, was $108,098, $220,000, and $37,500 respectively. These shares were
sold pursuant to an exemption from registration under Section 4(2) of the
Securities Act.
On September 23, 2005, the Company issued 4,750,000 common shares to
another member of senior management. Of this amount, 2,500,000 common shares
related to amounts advanced by this individual to the Company, 2,000,000 common
shares relate to services provided by that individual to personally guarantee
certain indebtedness of the Company over the next two years and 250,000 common
shares related to employment services. The fair value of these common shares,
based on the market value on the date they were approved by the Company's board
of directors, was $250,000, $220,000, and $37,500 respectively. These shares
were sold pursuant to an exemption from registration under Section 4(2) of the
Securities Act and Rule 506 of Regulation D in an offering made exclusively to
accredited investors, as that term is defined in Rule 501.
On September 23, 2005, the Company issued 1,000,000 common shares to an
unrelated party in exchange for provided financial consulting services over the
next year to assist the Company in obtaining further financing. The fair value
of these common shares, based on the market value on the date they were approved
by the Company's board of directors, was $150,000. These shares were sold
pursuant to an exemption from registration under Section 4(2) of the Securities
Act.
On September 23, 2005, the Company issued 850,500 common shares to two
unrelated parties as settlement for previously provided professional services.
The fair value of these common shares, based on the market value on the date
they were approved by the Company's board of directors, was $85,050. These
shares were sold pursuant to an exemption from registration under Section 4(2)
of the Securities Act.
On September 23, 2005, the Company issued 975,000 common shares to two
unrelated parties in exchange for services to be provided. The fair value of
these common shares, based on the market value on the date they were approved by
the Company's board of directors, was $258,750. These shares were sold pursuant
to an exemption from registration under Section 4(2) of the Securities Act.
On September 23, 2005, the Company issued 3,787,619 common shares to three
unrelated parties who agreed to convert various loans and advances made to the
Company. The fair value of these common shares, based on the market value on the
date they were approved by the Company's board of directors, was $378,762. These
shares were sold pursuant to an exemption from registration under Section 4(2)
of the Securities Act.
On September 23, 2005, the Company issued 250,000 common shares to one
member of its senior management team in consideration for employment services
rendered. The fair value of these common shares, based on the market value on
the date they were approved by the Company's board of directors, was $37,500.
These shares were sold pursuant to an exemption from registration under Section
4(2) of the Securities Act.
On September 23, 2005, the Company issued 1,720,026 common shares to the
holder of its Series C Preferred Shares. Of this amount, 257,370 common shares
related to interest and penalties relating to late payment and 1,462,656 relate
to the mandatory redemption of those Series C shares for common shares. These
shares were sold pursuant to an exemption from registration under Section 4(2)
of the Securities Act.
On September 23, 2005, the Company issued 285,186 common shares to the
holder of its Series A and B Preferred Shares in respect of dividends due to
that holder under the terms of those preference shares. The fair value of these
common shares, based on the market value on the date they were approved by the
Company's board of directors, was $35,648. These shares were sold pursuant to an
exemption from registration under Section 4(2) of the Securities Act.
Purchases of Equity Securities
During the quarter ended September 30, 2005, the Company repurchased 1,400,000
of its common shares in the connection with its sale of Twincentric Limited:
(d) Maximum
(c) Total number of number of Shares
Shares Purchased that May Yet Be
as Part of Publicly Purchased Under
(a) Total number (b) Average Price Announced Plans the Plans or
of Shares Paid per Share or Programs Programs
Month #1 (July 1, 2005 1,400,000 $0.08 0 0
through July 31, 2005 (1)
Month#2 (August 1, 2005 0 0 0 0
through August 31, 2005
Month #3 (September 1, 0 0 0 0
2005 through September
30, 2005
(1) Indicates the per share value of 1,400,000 shares received in connection
with the Sale of Twincentric, Limited. Consideration paid by the Company for the
shares consisted of all of the stock of Twincentric.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
47
ITEM 6. EXHIBITS AND REPORT FOR FORM 8-K
(a) Exhibits:
Exhibit No. Description Location
- ----------- ----------- --------
Certification by Principal Executive Officer Provided herewith
pursuant to 15 U.S.C. Section 7241, as
31.1 adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Certification by Principal 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 Principal Executive Officer Provided herewith
32.1 pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
Certification by Principal 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
48
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.
November 14, 2005 ACTIVECORE TECHNOLOGIES, INC.
By: /s/Peter J. Hamilton
-------------------------------------
President and Chief Executive Officer
49