The following table presents information regarding the selling
stockholders. The selling shareholders are categorized in groups based on their
relationship to ActiveCore. The groups consist of selling shareholders (i) who
have acquired shares by providing financing to ActiveCore including converting
debts to common shares, (ii) who have acquired shares as a result of
acquisition/divestiture activities where the recipient did not become an officer
of the Company (iii) who are officers and directors of ActiveCore or those who
were shareholders of acquired companies and have become officers of ActiveCore,
or officers and directors who have converted debts to common shares, or other
officers that acquired shares as a result of employment and (iv) who are other
employees or former employees, consultants and professionals who have received
shares as a result of their employment or service to the company. A description
of each selling shareholder's relationship to ActiveCore and how each selling
shareholder acquired the shares to be sold in this offering is detailed in the
information immediately following this table.
PERCENTAGE OF
OUTSTANDING
SHARES SHARES PERCENTAGE OF
BENEFICIALLY BENEFICIALLY SHARES BENEFICIALLY
OWNED BEFORE OWNED BEFORE SHARES TO BE SOLD OWNED AFTER
SELLING STOCKHOLDER OFFERING OFFERING (1) IN THE OFFERING OFFERING(1)
----------------------------------------------------------------------------------------------------------------------------
SHARES ACQUIRED IN FINANCING TRANSACTIONS WITH ACTIVECORE TECHNOLOGIES, INC.
----------------------------------------------------------------------------------------------------------------------------
Cornell Capital Partners, L.P. 433,889 * 433,889(2) 0.0%
----------------------------------------------------------------------------------------------------------------------------
Joseph Ulman 1,191,838(3) * 1,191,838(3) 0.0%
----------------------------------------------------------------------------------------------------------------------------
Corvette Masters Inc. 6,808,162(4) * 6,808,162(4) 0.0%
----------------------------------------------------------------------------------------------------------------------------
North Atlantic Holdings Ltd 2,000,000 * 2,000,000 0.0%
----------------------------------------------------------------------------------------------------------------------------
Berra Holdings Limited 3,559,520 * 3,559,520 0.0%
----------------------------------------------------------------------------------------------------------------------------
International Brotherhood of
Electrical Workers - Local 105 4,746,118 * 4,746,118 0.0%
----------------------------------------------------------------------------------------------------------------------------
SUBTOTAL 18,739,527 3.84% 18,739,527 0.0%
----------------------------------------------------------------------------------------------------------------------------
9
PERCENTAGE OF
OUTSTANDING
SHARES SHARES PERCENTAGE OF
BENEFICIALLY BENEFICIALLY SHARES BENEFICIALLY
OWNED BEFORE OWNED BEFORE SHARES TO BE SOLD OWNED AFTER
SELLING STOCKHOLDER OFFERING OFFERING (1) IN THE OFFERING OFFERING(1)
----------------------------------------------------------------------------------------------------------------------------
SHARES ACQUIRED AS A RESULT OF ACQUISITION/DIVESTITURE ACTIVITIES WHERE THE RECIPIENT DID NOT BECOME AN OFFICER OF
THE COMPANY
----------------------------------------------------------------------------------------------------------------------------
Neil Fishenden 3,500,000 * 3,500,000 0.0%
----------------------------------------------------------------------------------------------------------------------------
James Burnie Conning 200,000 * 200,000 0.0%
----------------------------------------------------------------------------------------------------------------------------
Potters Limited 17,661,865 3.6% 17,661,865 0.0%
----------------------------------------------------------------------------------------------------------------------------
Hemisphere Finance Limited 17,661,864 3.6% 17,661,864 0.0%
----------------------------------------------------------------------------------------------------------------------------
SUBTOTAL 39,023,729 7.99% 39,023,729
----------------------------------------------------------------------------------------------------------------------------
OFFICERS AND DIRECTORS - SHARES RECEIVED FOR DEBT CONVERSION OR AS A RESULT OF ACQUISITION/DIVESTITURE ACTIVITIES OR
FOR EMPLOYMENT
----------------------------------------------------------------------------------------------------------------------------
Brian MacDonald 32,196,969 6.6% 32,196,969(5) 0.0%
----------------------------------------------------------------------------------------------------------------------------
Peter Hamilton 27,196,969 5.6% 27,196,969(6) 0.0%
----------------------------------------------------------------------------------------------------------------------------
Kevin Birch 18,679,502 3.8% - 18,679,502(7) 0.0%
----------------------------------------------------------------------------------------------------------------------------
Geno Villella 4,278,261 * 4,278,261 0.0%
----------------------------------------------------------------------------------------------------------------------------
Steven Smith 2,000,000 * 2,000,000 0.0%
----------------------------------------------------------------------------------------------------------------------------
Stephen Lewis 2,000,000 * 2,000,000 0.0%
----------------------------------------------------------------------------------------------------------------------------
John Choy 2,000,000 * 2,000,000 0.0%
----------------------------------------------------------------------------------------------------------------------------
George Theodore and/or 1543772
Ontario Limited 16,000,000 3.3% 16,000,000 0.0%
----------------------------------------------------------------------------------------------------------------------------
Kent Emmerson 15,379,101 3.1% 15,379,101 0.0%
----------------------------------------------------------------------------------------------------------------------------
Robert Schieren 15,379,101 3.2% 15,379,101 0.0%
----------------------------------------------------------------------------------------------------------------------------
Anthony James McGurk 14,360,243 3.0% 14,360,243 0.0%
----------------------------------------------------------------------------------------------------------------------------
Chris Champion 2,000,000 * 2,000,000 0.0%
----------------------------------------------------------------------------------------------------------------------------
Rhonda Lindsay 750,000 * 750,000 0.0%
----------------------------------------------------------------------------------------------------------------------------
Terry Durette 1,000,000 * 1,000,000 0.0%
----------------------------------------------------------------------------------------------------------------------------
Leslie Sheppard 1,000,000 * 1,000,000 0.0%
----------------------------------------------------------------------------------------------------------------------------
SUBTOTAL 154,220,146 31.6% 154,220,146
----------------------------------------------------------------------------------------------------------------------------
EMPLOYEES, CONSULTANTS AND PROFESSIONALS
----------------------------------------------------------------------------------------------------------------------------
Roland Ujj 666,000 * 666,000 0.0%
----------------------------------------------------------------------------------------------------------------------------
Gerald Campbell 5,000,000 1.0% 5,000,000 0.0%
----------------------------------------------------------------------------------------------------------------------------
Rodger Cowan 4,000,000 * 4,000,000 0.0%
----------------------------------------------------------------------------------------------------------------------------
1582579 Ontario Limited 17,000,000 3.5% 17,000,000 0.0%
----------------------------------------------------------------------------------------------------------------------------
Ron Hikel 1,000,000 * 1,000,000 0.0%
----------------------------------------------------------------------------------------------------------------------------
Ismail Essack 300,000 * 300,000 0.0%
----------------------------------------------------------------------------------------------------------------------------
Yvan Coessens 150,000 * 150,000 0.0%
----------------------------------------------------------------------------------------------------------------------------
Anthony James McGurk in trust
for the employees of Twincentric
Limited 1,000,000 * 1,000,000 0.0%
----------------------------------------------------------------------------------------------------------------------------
Philip Wattleworth 1,000,000 * 1,000,000 0.0%
----------------------------------------------------------------------------------------------------------------------------
Adrian Thompson 500,000 * 500,000 0.0%
----------------------------------------------------------------------------------------------------------------------------
Patrick Boydell 500,000 * 500,000 0.0%
----------------------------------------------------------------------------------------------------------------------------
Jon Conner 500,000 * 500,000 0.0%
----------------------------------------------------------------------------------------------------------------------------
Joe Oliva 500,000 * 500,000 0.0%
----------------------------------------------------------------------------------------------------------------------------
10
PERCENTAGE OF
OUTSTANDING
SHARES SHARES PERCENTAGE OF
BENEFICIALLY BENEFICIALLY SHARES BENEFICIALLY
OWNED BEFORE OWNED BEFORE SHARES TO BE SOLD OWNED AFTER
SELLING STOCKHOLDER OFFERING OFFERING (1) IN THE OFFERING OFFERING(1)
----------------------------------------------------------------------------------------------------------------------------
Gerry Vandonkersgooed 500,000 * 500,000 0.0%
----------------------------------------------------------------------------------------------------------------------------
Kenneth Ho Ming Leung 500,000 * 500,000 0.0%
----------------------------------------------------------------------------------------------------------------------------
Tim Tang 750,000 * 750,000 0.0%
----------------------------------------------------------------------------------------------------------------------------
U Jin Hoo 500,000 * 500,000 0.0%
----------------------------------------------------------------------------------------------------------------------------
Adam Stotts 750,000 * 750,000 0.0%
----------------------------------------------------------------------------------------------------------------------------
Dan Tripp 100,000 * 100,000 0.0%
----------------------------------------------------------------------------------------------------------------------------
Russell Hamilton 100,000 * 100,000 0.0%
----------------------------------------------------------------------------------------------------------------------------
Nadeen Hawa 100,000 * 100,000 0.0%
----------------------------------------------------------------------------------------------------------------------------
Valerie Shen 500,000 * 500,000 0.0%
----------------------------------------------------------------------------------------------------------------------------
Steve Ariss 100,000 * 100,000 0.0%
----------------------------------------------------------------------------------------------------------------------------
Jason Azevedo 50,000 * 50,000 0.0%
----------------------------------------------------------------------------------------------------------------------------
Graham Lowman 500,000 * 500,000 0.0%
----------------------------------------------------------------------------------------------------------------------------
Fredrick Wahrman 500,000 * 500,000 0.0%
----------------------------------------------------------------------------------------------------------------------------
SUBTOTAL 37,066,000 7.59% 37,066,000 0.0%
-----
----------------------------------------------------------------------------------------------------------------------------
TOTAL 249,049,402 51.0% 249,049,402 0.0%
----------------------------------------------------------------------------------------------------------------------------
* Less than 1%.
(1) Applicable percentage of ownership is based on 488,263,053 shares of
common stock outstanding as of December 21, 2004 together with securities
exercisable or convertible into shares of common stock within 60 days.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of common stock
subject to securities exercisable or convertible into shares of common
stock that are currently exercisable or exercisable within 60 days are
deemed to be beneficially owned by the person holding such securities for
the purpose of computing the percentage of ownership of such person, but
are not treated as outstanding for the purpose of computing the percentage
ownership of any other person. Note that affiliates are subject to Rule
144 and Insider trading regulations - percentage computation is for form
purposes only.
(2) Consists of 168,889 shares of common stock, 265,000 shares of common stock
underlying a warrant with 15,000 shares having an exercise price of $0.50
per share and 250,000 shares having an exercise price of $0.099 per share.
(3) Consists of 595,919 shares of restricted common stock purchased at the
price of $ .015 and a warrant to purchase an additional 595,919 shares of
common stock at the price of 0.018 prior to November 30, 2005.
(4) Consists of 3,404,081 shares of restricted common stock purchased at the
price of $ .015 and a warrant to purchase an additional 3,404,081 shares
of common stock at the price of 0.018 prior to November 30, 2005.
(5) Consists of 32,196,969 received for debt conversion in 2003 and 2004
(6) Consists of 27,196,969 received for debt conversion in 2003 and 2004
(7) Consists of 12,037,173 previously registered plus 6,642,329 received for
debt conversions in 2003 and 2004
The following information contains a description of each selling
shareholder's relationship to ActiveCore Technologies and how each selling
shareholder acquired the shares to be sold in this offering is detailed below.
None of the selling stockholders have held a position or office, or had any
other material relationship, with ActiveCore, except as follows:
SHARES ACQUIRED IN FINANCING TRANSACTIONS WITH ACTIVECORE
o CORNELL CAPITAL PARTNERS, L.P. Cornell Capital Partners, L.P. is the
investor under the Equity Line of Credit and the former holder of
convertible debentures. All investment decisions of Cornell Capital
Partners are made by its general partner, Yorkville Advisors, LLC.
Mark Angelo, the managing member of Yorkville Advisors, makes the
investment decisions on behalf of Yorkville Advisors. Cornell
Capital Partners acquired all shares being registered in this
offering in financing transactions with ActiveCore Technology. That
transaction is explained below:
11
o EQUITY LINE OF CREDIT. In April 2002, we entered into an Equity Line
of Credit with Cornell Capital Partners, L.P. Pursuant to the Equity
Line of Credit, we could, at our discretion, periodically sell to
Cornell Capital Partners shares of common stock for a total purchase
price of up to $10.0 million. For each share of common stock
purchased under the Equity Line of Credit, Cornell Capital Partners
paid ActiveCore 92% of the lowest closing bid price of our common
stock on the Over-the-Counter Bulletin Board or other principal
market on which our common stock was traded for the 5 days
immediately following the notice date. Further, Cornell Capital
Partners retained a fee of 3% of each advance under the Equity Line
of Credit. In connection with the Equity Line of Credit, Cornell
Capital Partners received 3,032,000 shares of common stock, 168,889
shares as a penalty for the late approval of ActiveCore's February
14, 2003 SB-2 filing and warrants to purchase 265,000 shares of
common stock as a commitment fee. We are maintaining the
registration of the 168,889 shares of common stock originally
received by Cornell as a late filing penalty and the warrant
consisting of 265,000 shares of common stock with 15,000 shares
having an exercise price of $0.50 per share and 250,000 shares
having an exercise price of $0.099 per share. We are not seeking
additional registration of more shares under the Equity Line of
Credit with Cornell Capital Partners, L.P. as we believe that we
will be able to finance the Company from other sources of funds.
o JOSEPH ULMAN AND CORVETTE MASTERS INC. Joseph Ulman and Corvette
Masters Inc., a private company controlled by Joseph Ulman, are
unaffiliated shareholders. The shareholders purchased 4,000,000
restricted common shares at a price of $0.015 with a warrant
attached to purchase an additional number of common shares at a 20%
premium to market to expire within 18 months of purchase. Joseph
Ulman makes the investment decisions on behalf of himself and
Corvette Masters Inc. Under the terms of the share purchase
agreement the Company undertook to register both the shares and the
warrants at the next submission of a registration statement.
o NORTH ATLANTIC HOLDINGS LTD. North Atlantic Ltd. is a holding
company for Jarvis Ryan, a former trade debt holder of the Company,
who converted debt in the amount of $48,000 in February 2004 at
$.024 into 2,000,000 restricted common shares. Mr. Jarvis makes the
investment decisions for North Atlantic Ltd.
o BERRA HOLDINGS LIMITED. Berra Holdings provided term financing for
the company in the year 2000 and subsequently converted the debt and
accrued interest in the amount of $88,988 into 3,559,520 restricted
common shares in February 2004 at a price of $.024. Mr. Peter
Cochrane makes the investment decisions for the Company.
o INTERNATIONAL BROTHERHOOD OF ELECTRICAL WORKERS LOCAL 105. On
September 30, 2004 the IBEW converted a term loan previously made to
a Canadian subsidiary, ActiveCore Technologies Limited, in the
amount of $500,000 in to Series C preferred shares of Activecore
Technologies, Inc.. At the time of the conversion ActiveCore
Technologies Limited owed $70,191.77 in accrued interest on the
loan. This interest was converted to common shares at the closing
share price on September 30, 2004 at $.015 which represented
4,746,118 restricted common shares. Mr. John Grimshaw makes the
investment decisions for this union local.
SHARES ACQUIRED AS A RESULT OF ACQUISITION ACTIVITIES
o NEIL FISHENDEN. In December 2003 the Company purchased the name
E-communities UK Limited and certain distribution agreements for the
expenseworld product from Mr. Neil Fishenden in a transaction valued
at $101,500 in which 3,500,000 restricted common shares valued at
$0.029 were issued. Mr. Fishenden makes his own investment
decisions. The purchase price was fully expensed in the fourth
quarter of 2003.
o JAMES BURNIE CONNING. In June 2004 the Company purchased 50% of the
existing common shares of Twincentric Limited from Mr. Conning who
was retiring from management of Twincentric. Mr. Conning sold his
50% holding of Twincentric to the Company in exchange for 200,000
common shares valued at $4,875 or $0.024 per share.
o POTTERS LIMITED AND HEMISPHERE FINANCE LIMITED Effective March 31,
2003 we sold Ignition Entertainment Limited, previously a wholly
owned subsidiary of the Company to Potters Limited and Hemisphere
Finance Limited. Prior to the sale of Ignition, Potters Limited and
Hemisphere in effect acquired all of the shares of IVP that were
originally issued to the founding shareholders of Ignition in order
12
that Potters and Hemisphere could pay back to us 11,000,000 shares
of IVP as partial payment for the subsidiary. We are registering the
original shares less the 11,000,000 share re-payment and subsequent
rescission of these 11,000,000 shares in this registration
statement. Mr. Faisal Randeree makes the investment decisions for
Potters and Mr. S. Khan makes the investment decisions for
Hemisphere Finance.
CURRENT AND FORMER OFFICERS AND DIRECTORS
o BRIAN MACDONALD, PETER HAMILTON, KEVIN BIRCH AND GENO VILLELLA. Mr.
MacDonald and Mr. Hamilton are officers and directors of our
Company. Mr. Birch was an officer of our Company and Mr. Villella is
an employee of our Company. A portion of the shares being registered
in this offering on behalf of Messrs. MacDonald, Hamilton, Birch and
Villella were issued in connection with the stock purchase agreement
between ActiveCore and International Technology Marketing, Inc. As
explained elsewhere in this prospectus the reason for acquiring ITM
was to obtain the management services of Messrs. MacDonald,
Hamilton, Birch, and Villella. Of the 50,000,000 shares provided in
consideration for the acquisition of ITM, 20,000,000 were issued in
the quarter ended September 30, 2002; 10,000,000 were issued in the
quarter ended December 31, 2002 and the remaining 20,000,000 were
issued in the quarter ended June 30, 2003. International Technology
Marketing Inc. and ActiveCore Technologies completed a stock
purchase agreement on September 17, 2001, which was subsequently
ratified by a resolution passed at the annual shareholders' meeting
held on November 16, 2001. In negotiating the agreement between ITM
and ActiveCore it was originally agreed that the 50,000,000 shares
would be released upon achievement of milestones for revenue
achievement. 30,000,000 of the shares were released in accordance
with the original milestone agreement and recorded as "compensation
shares" and valued at market as at the last trading day of the
quarter in which they were released. In the quarter ended September
30, 2002, 20,000,000 shares became eligible for release and in the
quarter ended December 31, 2002, 10,000,000 shares became eligible
for release, the shares were valued at the closing price of the
shares as at September 30, 2002 and December 31, 2002, respectively,
and totaled $5,500,000. This value was recorded as an expense in the
financial statements for the year ended December 31, 2002 which
greatly increased our operating loss for the fiscal year on a
non-cash basis. Following the end of the fiscal year it became
apparent to the board of directors that the arrangement whereby
milestone attainment would result in additional shares being
released at progressively higher share prices actually worked
against the interests of shareholders as greater expenses would have
been incurred thereby resulting in reduced profits and thereby
reduced share prices. The board of directors decided to amend the
agreement dated August 17, 2001 to remove the requirement for
milestone attainment. In total, Messrs. MacDonald, Hamilton and
Birch each received 14,973,913 shares of common stock and Mr.
Villella received 4,278,261 shares of common stock in connection
with the ITM stock purchase agreement. All of these shares are being
registered in this offering having been previously registered under
other Form SB-2 filings.
In addition to the 50,000,000 shares referenced above as a result of
the ITM acquisition, ActiveCore is registering 2,000 shares of
common stock issued in connection with the acquisition of
Springboard Technology Solutions now renamed ActiveCore Technologies
Limited our Canadian subsidiary. These shares were issued to Messrs.
MacDonald, Hamilton, Birch, Villella and Ms. Bullock in connection
with that acquisition, which was consummated on July 1, 2002. The
cost of the acquisition was accounted for as $260 which was the
market value of the shares at issue date. Messrs. MacDonald,
Hamilton and Birch each received 560 shares of common stock. Mr.
Villella and Ms. Bullock each received 160 shares of common stock.
All of these shares are being registered in this offering.
In the quarter ended June 30, 2003 Messrs. MacDonald and Hamilton
converted debts owed to them by ActiveCore into shares and each was
provided with 17,084,976 shares representing conversion of debts at
the rate of $0.025 per share. In the quarter ended September 30,
2003, Mr. Birch also converted amounts owed to him by Active Core
and received 1,562,700 shares converted at the rate of $0.025 per
share.
In the quarter ended December 31, 2003 Messrs. MacDonald and
Hamilton converted debts owed to them by ActiveCore into shares and
each was provided with 17,084,976 shares representing conversion of
debts at the rate of $0.025 per share. In the quarter ended
September 30, 2003, Mr. Birch also converted amounts owed to him by
Active Core and received 1,562,700 shares converted at the rate of
$0.025 per share.
In the quarter ended March 31, 2004 Mr. Birch converted debts owed
to him by ActiveCore into shares and was issued 2,096,875 shares
representing conversion of debts in the amount of $50,325 at the
rate of $0.024.
13
On April 28, 2004 Messrs. MacDonald and Hamilton converted debts
owed to them by ActiveCore into shares. Mr. MacDonald was issued
25,833,333 and Mr. Hamilton was issued 20,833,333 restricted common
shares representing conversion of debts of $560,000 at the then
share price of $0.012 per share. Each of Messrs. MacDonald,
Hamilton, Birch and Villella make their own investment decisions.
o J. STEVEN SMITH. J. Steven Smith is an independent director of
ActiveCore and is the President and CEO of ROH Inc., an Alexandria,
Virginia based IT software and services company. As compensation for
serving as a director, 1,000,000 shares of common stock vested on
the first anniversary of his election to the board of directors and
an additional 1,000,000 shares vested on November 1, 2003. Mr. Smith
was elected on November 16, 2001. Mr. Smith does not receive any
other consideration for his time and attention to ActiveCore
Technologies. Mr. Smith makes his own investment decisions.
o STEPHEN LEWIS. Stephen Lewis is an independent director of
ActiveCore and is a self employed consultant and former business
owner. As compensation for serving as a director, 1,000,000 shares
of common stock vested on first becoming a director of ActiveCore
and a second 1,000,000 shares vested on November 1, 2003. Mr. Lewis
was named to the board on June 23, 2003. Mr. Lewis is the
independent financial expert on our board. Mr. Lewis makes his own
investment decisions.
o JOHN CHOY. Mr. John Choy a certified accountant provides financial
and accounting services to the Company. Mr. Choy has been employed
since July 14, 2004 and was issued 2,000,000 common shares. The
shares were valued at $0.012 per share for a total consideration of
$24,000. Mr. Choy makes his own investment decisions.
o GEORGE THEODORE AND 1543772 ONTARIO INC. Effective July 31, 2004
ActiveCore entered into a one way call agreement with respect to
8,000,000 shares of Infolink Technologies Limited which may be
exchanged in consideration of 16,000,000 common shares of
ActiveCore. On September 28, 2004 the Company issued the shares in
relation to the call agreement and is holding the 16,000,000 common
shares in safekeeping pending the transaction closing. The shares
were valued at $0.015 for a total value of the transaction of
$240,000. Mr. Theodore makes his own investment decisions and for
1543772 Ontario Inc.
o KENT EMMERSON AND ROBERT SCHIEREN. Mr. Emmerson and Mr Schieren were
each 50% shareholders of C Comm Network Corporation which was
acquired by Activecore on May 6 2004. The Company valued the shares
at $461,962 or $0.015 per share. Both of Messrs. Emmerson and
Schieren continue to be employed in executive positions in the
ActiveCast division. Each of Messrs. Emmerson and Schieren make
their own investment decisions.
o ANTHONY JAMES MCGURK. Mr. McGurk was a 50% shareholder of
Twincentric together with Mr. Conning. Twincentric Mr McGurk
continues as managing director of the UK subsidiary of Twincentric.
The Company valued the shares at provided to Mr. McGurk at $350,000
or $0.024 per share. Mr McGurk makes his own investment decisions.
o CHRIS CHAMPION. Mr. Chris Champion is employed in our UK subsidiary
office as managing director of ActiveCore Technologies UK Limited.
In January 2004 he was issued 1,000,000 restricted common shares
valued at $.027 which are subject to forfeiture over the first 12
months of his employment. As a reward for the excellent results
achieved since joining the company Mr. Champion was issued an
additional 1,000,000 restricted shares on September 28, 2004 valued
at $0.015 which are being recognized as an expense over the next
four quarters. Mr. Champion makes his own investment decisions.
o RHONDA LINDSAY. Ms. Rhonda Lindsay was appointed VP US operations
for MDI Solutions in September 2003 following purchase of certain
assets of SCI Healthcare and was allocated shares as an employment
incentive. The company issued 500,000 restricted common shares
valued at 0.031. In February 2004 the company issued a further
250,000 restricted common shares valued at $0.024. The expenses
related to these shares are being recognized over 4 quarters. Ms.
Lindsay makes her own investment decisions.
o TERRY DURETTE. Mr. Terry Durette was appointed as VP North American
Sales and Operations for MDI solutions in January 2004 and was
issued 1,000,000 restricted common shares which are subject to
forfeiture over the first 12 months of his employment. The shares
were valued at $.024 for a total consideration of $24,000 which is
being recognized over 4 quarters. Mr. Durette makes his own
investment decisions.
14
o LESLIE SHEPPARD. Ms. Leslie Sheppard was appointed VP Business
Development in January, 2004 and was provided with 1,000,000 common
shares which are subject to forfeiture over the first 12 months of
his employment. The shares were valued at $0.024 for a total
consideration of $24,000 which is being recognized over 4 quarters.
Ms. Sheppard makes her own investment decisions.
EMPLOYEES, CONSULTANTS AND PROFESSIONALS
o ROLAND UJJ. In July 2004 ActiveCore purchased a limited source code
licence to certain proprietary software for mass broadcasting of
faxes from the developer Roland Ujj. Mr. Ujj works on an occasional
basis for ActiveCore as a software developer. Mr. Ujj elected to
take the consideration of $10,000 in the form of restricted common
shares of the Company. On September 28, 2004 the company issued
666,000 restricted shares valued at $10,000 to Mr. Ujj. Mr. Ujj
makes his own investment decisions.
o GERALD CAMPBELL. In June, 2003 the company entered into a one year
consulting contract with Mr. Campbell with respect to cell phone
games and other web based entertainment software. Mr. Campbell was
issued 5,000,000 shares of restricted common shares valued at $0.025
or $125,000. Mr. Campbell makes his own investment decisions.
o RODGER COWAN. In July 2003, Mr. Rodger Cowan was employed as a
consultant for one year in the field of medical data integration. Mr
Cowan was issued 4,000,000 restricted common shares valued at $.024
per share valued at $96,000. Mr. Cowan makes his own investment
decisions.
o 1582579 ONTARIO LIMITED. In January 2004, the company entered into a
consulting agreement for a term of 12 months with 1582579 Ontario
Limited, an unrelated entity, and paid a deferred consulting fee
which is being expensed over four quarters. Consideration of
5,000,000 restricted common shares valued at $0.024 will be paid. In
September, 2004, 1582579 Ontario Limited was again engaged as a
consulting firm to provide sales, strategic and acquisition related
services for the company. 1582579 Ontario Limited was issued
12,000,000 restricted common shares valued at $.015 or $180,000.
Joseph Ulman makes the investment decisions for the company. 1582579
Ontario Limited has signed a letter acknowledging that the Company
will retain the shares in safekeeping pending completion of both
consulting contracts.
o RON HIKEL. In May, 2004 Mr. Ron Hikel was engaged as a consultant to
provide advice and assistance in the healthcare field to our MDI
Solutions division. Mr. Hikel was issued 1,000,000 restricted common
shares valued at $.015 for a value of $15,000. Mr. Hikel makes his
own investment decisions.
o ISMAIL ESSACK. In March 2003 Ismail Essack, a former employee of
ActiveCore Technologies was provided with 300,000 shares of
restricted stock for services related to the divestiture of Ignition
Entertainment in March 2003. Mr. Essack's shares were valued at .025
for $7,500. Mr. Essack makes his own investment decisions.
o YVAN COESSENS. In July 2004 Mr. Coessens received 150,000 shares
valued at .015 as compensation for investor relations activities in
Europe. Mr. Coessens is located in Belgium and assists with
translation of information between English and several European
languages. Mr. Coessens makes his own investment decisions.
o ANTHONY JAMES MCGURK IN TRUST FOR THE EMPLOYEES OF TWINCENTRIC
LIMITED. As part of the acquisition of Twincentric Limited the
company provided for existing employees of Twincentric to be given
shares in the acquiring entity. Activecore issued 1,000,000 shares
valued at $0.024 or $24,000 as retention bonuses. The shares will be
issued to specific employees in December 2004.
o PHILIP WATTLEWORTH. In January 2004 we issued 1,000,000 restricted
common shares to Philip Wattleworth an employee in our UK office.
The shares were valued at $0.027 for a value of $27,000. Mr.
Wattleworth makes his own investment decisions.
15
o ADRIAN THOMPSON. In February 2004 we issued 500,000 restricted
common shares to Adrian Thompson then an employee in our UK office.
The shares were valued at $0.024 for a value of $27,000. Mr.
Thompson makes his own investment decisions.
o PATRICK BOYDELL, JON CONNER, JOE OLIVA, GERRY VANDONKERSGOOED. In
May 2004, Patrick Boydell, Jon Conner, Joe Oliva, Gerry
Vandonkersgooed joined the Company as consultants to its Activecast
division. In May 2004 the Company issued shares valued at $.015.
These employees have signed a letter allowing the Company to retain
the shares in safekeeping pending completion of their 12 months of
service. Each of Messrs. Boydell, Conner, Oliva and Vandonkersgooed
make their own investment decisions.
o KENNETH HO MING LEUNG, TIM TANG, U JIN HOO, ADAM STOTTS, DAN TRIPP,
RUSSELL HAMILTON, NADEEN HAWA AND VALERIE SHEN. In 2003 and 2004
Kenneth Ho Ming Leung, Tim Tang, U Jin Hoo, Adam Stotts, Dan Tripp,
Russell Hamilton, Nadeen Hawa and Valerie Shen were employees in the
Company's Canadian operations in development, administration,
marketing and technical services. In August 2003 and May 2004 the
company issued shares valued at between $0.015 to $.025 to these
employees. The Company is recognizing the expense over the four
quarters following each employee's share issuance. All shares which
have been earned are being retained in safekeeping pending
completion of their 12 months of service. Each of these employees
makes their own investment decisions.
o STEVE ARISS, JASON AZEVEDO, GRAHAM LOWMAN, AND FREDRICK WAHRMAN.
Steve Ariss, Jason Azevedo, Graham Lowman, and Fredrick Wahrman are
all former employees or contractors for the Company who are now
employed by SilverBirch Studios, the Company's former cell phone
game development operation. Shares were provided in 2003 and have
been fully expensed in prior periods. The shares were valued between
$0.18 and $0.025 at the time of issuance.
16
USE OF PROCEEDS
This prospectus relates to shares of our common stock that may be offered
and sold from time to time by certain selling stockholders. There will be no
proceeds to us from the sale of shares of common stock in this offering. The
bulk of the shares being registered under this filing relates to shares received
by former shareholders of companies acquired by ActiveCore, by former
shareholders of companies acquired by ActiveCore who are now managers and
employees of ActiveCore, by shareholders who have converted debts into equity,
and by employees and consultants who have received shares as compensation for
services rendered.
In addition to the sellers described above, Cornell Capital Partners holds
warrants to purchase 265,000 shares of common stock, which shares continue to be
registered in this offering following an initial registration in February 2002
and a subsequent registration in December 2003. Of that total, warrants to
purchase 15,000 shares have an exercise price of $0.50 per share and warrants to
purchase 250,000 shares have an exercise price of $0.099 per share. If all
warrants were exercised, then ActiveCore would receive net proceeds of $32,250
from such exercise. Any proceeds received upon issuance of outstanding warrants
will be used for general working capital purposes.
In addition Joseph Ulman and Corvette Masters Inc. hold warrants to
purchase 595,919 and 3,404,081 shares respectively. All of the warrants have an
exercise price of $0.018 per share. If all the warrants were exercised, then
ActiveCore would receive net proceeds of $72,000 from such exercise. Any
proceeds received upon issuance of outstanding warrants will be used for general
working capital purposes.
17
DILUTION
There is no additional dilution of the Company as a result of this filing.
We expect to incur expenses of approximately $10,000 in connection with
this registration, consisting primarily of professional fees.
18
PLAN OF DISTRIBUTION
The selling stockholders have advised us that the sale or distribution of
our common stock owned by the selling stockholders may be effected directly to
purchasers by the selling stockholders or by pledgees, transferees or other
successors in interest, as principals or through one or more underwriters,
brokers, dealers or agents from time to time in one or more transactions (which
may involve crosses or block transactions) (i) on the over-the-counter market or
in any other market on which the price of our shares of common stock are quoted
or (ii) in transactions otherwise than on the over-the-counter market or in any
other market on which the price of our shares of common stock are quoted. Any of
such transactions may be effected at market prices prevailing at the time of
sale, at prices related to such prevailing market prices, at varying prices
determined at the time of sale or at negotiated or fixed prices, in each case as
determined by the selling stockholders or by agreement between the selling
stockholders and underwriters, brokers, dealers or agents, or purchasers. If the
selling stockholders effect such transactions by selling their shares of common
stock to or through underwriters, brokers, dealers or agents, such underwriters,
brokers, dealers or agents may receive compensation in the form of discounts,
concessions or commissions from the selling stockholders or commissions from
purchasers of common stock for whom they may act as agent (which discounts,
concessions or commissions as to particular underwriters, brokers, dealers or
agents may be in excess of those customary in the types of transactions
involved). The selling stockholders and any brokers, dealers or agents that
participate in the distribution of the common stock may be deemed to be
underwriters, and any profit on the sale of common stock by them and any
discounts, concessions or commissions received by any such underwriters,
brokers, dealers or agents may be deemed to be underwriting discounts and
commissions under the Securities Act.
Under the securities laws of certain states, the shares of common stock
may be sold in such states only through registered or licensed brokers or
dealers. The selling stockholders are advised to ensure that any underwriters,
brokers, dealers or agents effecting transactions on behalf of the selling
stockholders are registered to sell securities in all fifty states. In addition,
in certain states the shares of common stock may not be sold unless the shares
have been registered or qualified for sale in such state or an exemption from
registration or qualification is available and is complied with.
We will pay the entire expenses incident to the registration, offering and
sale of the shares of common stock to the public hereunder other than
commissions, fees and discounts of underwriters, brokers, dealers and agents.
The offering expenses consist of: a SEC registration fee of $725.76, printing
expenses of $1,000, accounting fees of $2,000, legal fees of $6,000 and
miscellaneous expenses of $274.24. We will not receive any proceeds from the
sale of any of the shares of common stock by the selling stockholders.
The selling stockholders should be aware that the anti-manipulation
provisions of Regulation M under the Exchange Act will apply to purchases and
sales of shares of common stock by the selling stockholders, and that there are
restrictions on market-making activities by persons engaged in the distribution
of the shares. Under Registration M, the selling stockholders or their agents
may not bid for, purchase, or attempt to induce any person to bid for or
purchase, shares of our common stock while such selling stockholders are
distributing shares covered by this prospectus. Accordingly, except as noted
below, the selling stockholders are not permitted to cover short sales by
purchasing shares while the distribution is taking place. The selling
stockholders are advised that if a particular offer of common stock is to be
made on terms constituting a material change from the information set forth
above with respect to the Plan of Distribution, then, to the extent required, a
post-effective amendment to the accompanying registration statement must be
filed with the Securities and Exchange Commission.
19
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following information should be read in conjunction with the
consolidated financial statements of ActiveCore Technologies, Inc. formerly IVP
Technology Corporation and the notes thereto appearing elsewhere in this filing.
Statements in this Management's Discussion and Analysis or Plan of Operation and
elsewhere in this prospectus that are not statements of historical or current
fact constitute "forward-looking statements." For an overview of the Company
please see the section entitled Description of the Business which follows this
section.
BUSINESS OVERVIEW
ActiveCore Technologies, Inc. formerly IVP Technology Corporation
("ActiveCore" or the "Company") is a Nevada registered Company with its head
office in Toronto, Ontario and operations in Tampa, Florida and Witney, near
Oxford, UK. The Company operates within the enterprise software and services
market in a sector that includes a group of vendors of software and services
that sell and install "Smart Enterprise Suites" and related products.
ActiveCore's products provide data integration, migration, portal, content
management and outbound messaging. This gives ActiveCore the capability to
provide effective, efficient and economical data integration and migration
services for clients seeking to capture data and deploy or broadcast information
to stakeholders and customers without wholesale changes to their existing
systems. ActiveCore's products allow our clients to extend the functions of
their current data systems, often called back office systems, by using our core
XML integration product, ActiveLink, to web portals or to reach out to customers
via mobile devices to bring data into, or to export data from, their
organizations. ActiveCore terms this approach "Enabling a Smart Enterprise". By
concentrating on data integration as the core product and service offering, the
company has then been able to develop "vertical" and "specific" product and
service offerings for various industries and for specific applications such as
ActiveCast for "outbound corporate broadcasting" or in the case of our MDLink
vertical application for healthcare integration services.
In general the Company develops, sells and implements its own and third
party software and provides outsourced integration and IT services for
organizations in financial services, government, and education, insurance and
healthcare. Software and services provided by the Company enable our customers
to quickly integrate and extend the functionality of their current systems and
data bases so that they can reach new markets in new ways or to improve internal
and external processes. We do this by assisting our customers to integrate to
existing applications and data and then using web portal or other communications
technology, such as wireless, land line, VPN, or network services, to allow our
customers to "take in" new data from the field or "broadcast out" data through
such technologies as text messaging, SMS, MMS, Fax, web broadcast, voice casting
or other communication means.
ActiveCore has also set up a "service bureau" operation under the product
identity "ActiveCast" whereby it offers broadcast services to customers on an
outsourced basis using its own internal installation of ActiveLink and
DynaPortal. In May 2004 we acquired C Comm Network Corporation which provides us
with the infrastructure to generate revenue from this area of our operations. We
are actively increasing the scope and revenue earning capacity of that operation
by investing in fixed assets and personnel to grow the revenue and client base.
We are also concurrently searching for potential acquisition candidates that can
expand our communications infrastructure and the range of products and services
that the Company can offer within the context of the Smart Enterprise Suite and
broadcast services. In this area of operations we compete with such companies as
Infolink Technologies Limited in Canada and J2 Global Communications, Inc.,
Xpedite Corporation, Plumtree Corporation and Vignette Corporation in North
America and Europe.
In June 2004 we also acquired 100% of the outstanding shares of
Twincentric Limited which is a products and services company aimed at the AS 400
and Bull Computer data integration and migration market. Twincentric has a broad
range of customers in North America and Europe. We are actively supporting the
marketing of Twincentric's products, primarily "Net.Visual" into the North
American market, while Twincentric will be assisting ActiveCore in its marketing
of ActiveLink into the European market. Following the acquisition of Twincentric
ActiveCore closed its London city office and moved to Witney, UK.
In addition to the foregoing, we have also made an equity investment in
one other Company. The investment is a 5% equity stake in e-pocket Inc., which
is a private Company headquartered in Canada. e-Pocket has developed a digital
cash software solution for banks, merchants and consumers for web based
purchasers primarily for micro-payments, defined as payments under $10.00.
e-Pocket is a development stage Company that expects to have its first trial
operation commence by year-end 2004 between a number of merchants and several
banks. E-Pocket and ActiveCore have also signed a development agreement whereby
ActiveCore will develop the code for e-pocket's micro-payments software based on
mobile phones.
20
ActiveCore also holds a 5% residual equity interest in SilverBirch Studios
Limited. In February 2004, the Company sold to SilverBirch its cell phone game
and web based resale site "Recessgames.com" constructed by Activecore in 2003
and early 2004.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2004 COMPARED WITH THE NINE MONTHS ENDED
SEPTEMBER 30, 2003
REVENUES
During the nine months ended September 30, 2004, the Company generated
$2,994,479 in revenue from the sale of products and services versus $355,776 in
revenue from product and services in the same nine month period ended September
30, 2003. From a revenue source perspective, in the nine months of fiscal year
2004, sales of software products accounted for approximately 75% of sales and
approximately 25% of revenues were services related. In the nine months ended
September 30, 2003, all of the revenue was generated from services work and
product installation chiefly by the Company's MDI group. In the nine month
period ended September 30, 2004, the Company accounted for the discontinued
operations of SilverBirch Studios operations on February 29, 2004, whereas in
the nine months ended September 30, 2003, the Company accounted for the
divestiture of Ignition Entertainment Ltd. as discontinued operations with
effect from April 1, 2003. No revenue from Ignition UK was included in the
results for the nine months ended September 30, 2003, and there was no revenue
from SilverBirch Studios in the period ended September 30, 2004. During the
third quarter of 2003, revenue from the MDI group was down substantially from
what was expected as a result of the SARS outbreak in Toronto, which constrained
revenue earning opportunities within existing hospital contracts and in terms of
expansion of operations to other health care units in the U.S. and Canada
primarily due to restrictions on travel and a general apprehension over SARS
amongst various healthcare facilities.
COST OF SALES
Cost of sales for the nine month period ended September 30, 2004 was
$709,215, which consisted of wages paid to consulting services staff, third
party royalty charges, distribution costs and amortization of acquisition costs
of the MDI customer list and for the Company's acquisition of the source code to
XML Connector. In the period ended September 30, 2003, cost of sales was
$401,065. The principal cost of sales items in the nine months of 2003 consisted
of amortization of the Classifier software license of $89,202 and third party
product costs. As a result of the cost of sales components elaborated above, the
September 30, 2004 nine month period led to a positive gross margin of
$2,285,264 versus a negative gross margin of $45,289 in the nine months ended
September 30, 2003. This trend towards positive gross margins is expected to
continue as the Company expands its software and services sales efforts in the
U.S. and Europe.
OPERATING EXPENSES
Total operating expenses for the nine months ended September 30, 2004 were
$2,302,905 versus $2,303,219 in the nine months ended September 30, 2003. After
expenses, the Company recognized a slight loss on operations of $17,641 in the
nine months ended September 30, 2004 versus a loss from operations of $2,348,508
in the nine months ended September 30, 2003.
The largest components of nine months fiscal 2004 expenses and for the
equivalent period in the 2003 fiscal year operating expenses were related to
salaries and wages, stock based compensation, consulting fees, legal and
accounting and other general and administration expenses. These expenses are
discussed below.
In the nine months ended September 30, 2004, the Company expended
$1,039,207 in salaries and wages versus $506,069 in the nine months ended
September 30, 2003. In the 2004 period, staff counts were higher as a result of
the acquisition of C Comm Network Corporation, Twincentric Limited and the
hiring of new staff in the corporate broadcasting/ActiveCast division. In the
nine months ended September 30, 2003, all of the wage costs were incurred in the
Company's Canadian office as none of the other acquisitions had been completed
and the Company had just acquired the Company's U.S. MDI Solutions staff.
Salaries and wages in both periods represent the cost of developers,
administration and sales and marketing staff except for certain contractors who
are shown as consulting costs. Salaries and wages include costs of all group
insurance and various government programs.
21
In the nine months ended September 30, 2004, the Company incurred costs of
$167,988 related to the pro rata amortization of employee and consultant stock
issuances for bonuses, stock incentives and regular compensation. In the nine
months ended September 30, 2003, the Company incurred stock compensation expense
of $618,080, which included $540,000 expensed due to the acceleration of release
of 20,000,000 shares that were formerly part of the acquisition terms of ITM in
September 2001. Under the original ITM purchase agreement, stock was to be
released to the managers of ITM as sales revenue targets were met. At the time
the original agreement was made, it was anticipated by both the former directors
of the Company and the owners of ITM that the stock issued in exchange for ITM
acquisition would be valued as at the date of the agreement and accounted for as
a large goodwill value on the balance sheet. However, during the Company's
prolonged initial Form SB-2 approval process, it was determined that the common
stock needed to be accounted for as at the quarter end in the each of the
quarters where the original sales revenue targets were achieved. In practice,
this meant that regardless of how successful the Company was in achieving
increased sales, and regardless of how well the share price responded to the
increased revenue, the Company was likely to record large losses based on the
valuation of the share releases at the time the revenues were recognized. In
addition, the recording of higher share compensation values was acting as a
disincentive for management since management were likely to be taxed on the
increased value of the stock received as it was being recognized as income
rather than a one time capital gain over the original purchase price of the
equity purchase in ITM. The other stock based compensation included in the
September 30, 2003 figures consisted of payments of $63,500 related to
director's fees for the 2003 year.
Consulting fees for the nine months ending September 30, 2004 were
$197,179 versus $212,974 in the nine months ended September 30, 2003 and reflect
the cost of several contractors who are paid as consultants in the ActiveCast
and other divisions.
Legal and accounting expenses for the nine months ended September 30, 2004
were $258,481, which was marginally higher than the $214,209 recorded in the
nine months ended September 30, 2003. Costs related to several legal actions
have pushed legal expenses slightly higher and this trend is expected to
continue until such time as the company successfully prevails over various
parties.
Management fees in the nine months ended September 30, 2004 were $10,257
which was reduced from the $120,688 in the nine months ended September 30, 2003.
In the nine months ended September 2003 the fees included costs for several
officers whereas in the nine months ended September 30, 2004 the costs included
only one person who is providing assistance in accounting and internal systems
review related to SOX 404 compliance.
For the nine months ended September 30, 2004, the Company incurred general
and administrative expenses of $584,554 as compared to $562,907 in the nine
months ended September 30, 2003. During the nine months ended September 30,
2004, the Company relocated the Company's Canadian offices from 2275 Lakeshore
Boulevard and took on additional space at 156 Front Street West, Toronto. In
addition, the Company also moved the Company's UK offices from London to Witney
to merge the Company's UK office into Twincentric's space. In the nine months
ended September 30, 2003, the largest component of general and administrative
expenses was a write-down of commitment fees on the Equity Line of Credit with
Cornell Capital Partners and the cost associated with the retention of Hawk
Associates as the company's investor relations firm. Hawk had been retained at a
rate of $7,000 per month in addition to a one-time 2,000,000 unregistered stock
grant which was expensed during the second quarter of 2003.
In the nine months ended September 30, 2004, the Company incurred
depreciation charges of $34,947 on equipment versus $28,378 in the nine months
ended September 30, 2003. These charges were related to primarily computer
equipment in use in the Company's offices in Canada and the UK.
INCOME (LOSS) FROM OPERATIONS
As a result of the items specified above, the Company improved its
operational results for the nine months ended September 30, 2004 with a minor
loss on operations of $17,641 versus a loss from operations of $2,348,508 in the
nine months ended September 30, 2003.
OTHER INCOME/EXPENSES
In the nine months ended September 30, 2004, the Company earned $55,456 in
interest from the secured promissory note that resulted from the divesture of
SilverBirch Studios and gained $2,000 from the conversion of a trade debt to
equity. In the corresponding period ended September 30, 2003, the Company earned
$6,497 from bank sources and $nil from sources other than foreign exchange
adjustments.
22
In the nine months ended September 30, 2004, the Company expended $91,887
in financial interest which was significantly lower than the $315,803 expensed
in the first nine months of fiscal 2003. In the nine months ended September 30,
2003, the Company incurred imputed interest charges related to the Equity Line
of Credit with Cornell Capital Partners, and interest costs on the Berra term
loan whereas the interest in the first nine months of 2004 primarily consisted
of interest accrued on the IBEW loan which has been paid by way of a issuance of
common shares and the debt has been converted to redeemable preferred shares.
Foreign exchange gains were $19,695 in the first nine months ended
September 30, 2004 versus a gain of $57,895 in the first nine months of fiscal
2003 both as a result of the decline of the U.S. dollar in terms of the UK pound
and the Canadian dollar.
DISCONTINUED OPERATIONS
In the nine months ended September 30, 2004, the Company recorded a loss
from discontinued operations of $129,540 related to operations of SilverBirch
Studios which was offset by a gain of $732,800 from the sale. In the nine months
ended September 30, 2003, the Company recorded a net loss from discontinued
operations from the sale of Ignition Entertainment Limited of $733,123 which was
offset by a gain of $2,396,009 from the sale.
As a result of the sale of the discontinued operations in both nine month
periods, the Company recorded income from discontinued operations of $603,259
and $1,662,886 respectively in the 2004 and 2003 periods.
NET INCOME
The Company had net income of $570,882 for the full nine month period in
2004 versus a loss for the full nine month period in 2003 of $937,033. For the
nine month period ended September 30, 2004, the earnings per share based on the
weighted average shares outstanding for the period of 387,810,403 were
approximately $0.0015 rounded down to $0.00 and were ($0.01) for the period
ended September 30, 2003.
THREE MONTHS ENDED SEPTEMBER 30, 2004 COMPARED WITH THE THREE MONTHS ENDED
SEPTEMBER 30, 2003
REVENUES
During the three months ended September 30, 2004, the Company generated
$1,694,452 in revenue from the sale of products and services versus $124,767 in
revenue from product and services in the same three month period ended September
30, 2003. From a revenue source perspective, in the third quarter of fiscal year
2004, sales of software products accounted for approximately 75% of sales and
approximately 25% of revenues were service related. In the three months ended
September 30, 2003, $124,767 of revenue was generated from services work and
product installation chiefly by the Company's MDI group. In both three month
periods ended September 30, 2004 and 2003 there were no discontinued operations,
the Company accounted for the divestiture of Ignition Entertainment Ltd. as
discontinued operations with effect from April 1, 2003. No revenue from Ignition
UK was included in the results for the three months ended September 30, 2003.
During the third quarter of 2003, revenue from the MDI group was down
substantially from what was expected as a result of the SARS outbreak in Toronto
which constrained revenue earning opportunities within existing hospital
contracts and in terms of expansion of operations to other health care units in
the U.S. and Canada primarily due to restrictions on travel and a general
apprehension over SARS amongst various health care facilities.
COST OF SALES
Cost of sales for the three month period ended September 30, 2004 was
$310,608, which consisted of wages paid to consulting services staff, third
party royalty charges, distribution costs and amortization of acquisition costs
of the MDI customer list and for the Company's acquisition of the source code to
XML Connector. In the period ended September 30, 2003, cost of sales was
$113,945 and consisted of the same cost elements. The principal cost of sales
items in the third quarter of 2003 consisted of amortization of the Classifier
software license and the SCI customer list of $92,983. As a result of the cost
of sales components elaborated above, the September 30, 2004 three month period
led to a positive gross margin of $1,383,844 versus a negative gross margin of
$10,822 in the three months ended September 30, 2003. This trend towards
positive gross margins is expected to continue as the Company expands its
software sales efforts in the U.S., Europe and other regions.
23
OPERATING EXPENSES
Total operating expenses for the three months ended September 30, 2004
were $809,176 versus $720,614 in the three months ended September 30, 2003.
After expenses, the Company recognized income from operations of $574,668 in the
three months ended September 30, 2004 versus a loss from operations of $709,792
in the same quarter ended September 30, 2003.
The largest components of third quarter 2004 fiscal year expenses and of
third quarter fiscal year 2003 operating expenses were related to salaries and
wages stock based compensation, consulting fees, legal and accounting and other
general and administration expenses. These expenses are discussed below.
In the three months ended September 30, 2004, the Company expended
$393,033 in salaries and wages versus $270,095 in the three months ended
September 30, 2003. In the 2004 third quarter period, staff counts were higher
as a result of the acquisition of C Comm Network Corporation, Twincentric
Limited and the hiring of new staff in the corporate broadcasting/ActiveCast
division. In the three months ended September 30, 2003, most of the wage costs
were incurred in the Company's Canadian office as none of the other acquisitions
had been completed and the Company acquired the Company's U.S. MDI Solutions
staff in the month of September 2003. Salaries and wages in both periods
represent the cost of developers, administration and sales and marketing staff
except for certain contractors who are shown as consulting costs. Salaries and
wages include full costs of all group insurance and various government
withholding tax and benefit programs.
In the three months ended September 30, 2004, the Company incurred costs
of $52,982 related to the pro rata amortization of employee and consultant stock
issuances for bonuses, stock incentives and regular compensation. In the quarter
ended September 30, 2003, the Company incurred stock compensation expense of
$37,500.
Consulting fees for the three months ending September 30, 2004 were
$35,215 versus $119,044 in the third quarter ended September 30, 2003. Certain
consultants who were paid in 2003 were not engaged by the Company in the most
recent quarter.
Legal and accounting expenses for the three months ended September 30,
2004 were $95,026, which was higher than the $60,335 recorded in the three
months ended September 30, 2003. The expenses incurred in the third quarter
reflect in part the ongoing legal costs associated with actions by Orchestral
and Infolink and to a certain extent acquisition costs.
For the three months ended September 30, 2004, the Company incurred
general and administrative expenses of $191,738 as opposed to $170,540 in the
quarter ended September 30, 2003. During the third quarter of 2004, the Company
employed a consultant to assist with financials and other SEC related tasks. In
the third quarter ended September 30, 2003, the largest component of general and
administrative expenses was a write-down of commitment fees on the Equity Line
of Credit with Cornell Capital Partners, and the cost associated with the
retention of Hawk Associates as the Company's investor relations firm. Hawk had
been retained at a rate of $7,000 per month.
In the quarter ended September 30, 2004, the Company incurred depreciation
charges of $28,263 on equipment versus $9,656 in the quarter ended September 30,
2003. These charges were related to primarily computer equipment and other
depreciable assets in use in the Company's offices in Canada and the UK.
OTHER INCOME/EXPENSES
In the quarter ended September 30, 2004, the Company recorded interest
received of $25,480 in interest from the secured promissory note that resulted
from the divesture of SilverBirch Studios. In the corresponding quarter ended
September 30, 2003, the Company earned $nil from bank sources.
In the quarter ended September 30, 2004, the Company expended $36,911 in
financial interest which was significantly lower than the $88,673 expensed in
the third quarter ended September 30, 2003. In the second quarter ended
September 30, 2003 the Company incurred imputed interest charges related to the
Equity Line of Credit with Cornell Capital Partners and interest costs on the
Berra term loans.
Foreign exchange gains were $37,626 in the third quarter ended September
30, 2004 versus a gain of $43,821 in the third quarter ended September 30, 2003
as a result of the decline of the U.S. dollar in terms of the UK pound and the
Canadian dollar.
24
INCOME (LOSS) FROM OPERATIONS
As a result of the items specified above, the Company had income from
operations of $600,863 versus a loss of $754,644 in the third quarter ended
September 30, 2003. This is the second consecutive quarter of income from
operations for the Company. We anticipate that the Company will be able to
maintain positive results from operations going forward.
DISCONTINUED OPERATIONS
In the quarter ended September 30, 2004, the Company recorded a small gain
on discontinued operations of $512 related to adjustments to the sales price on
the divestiture of SilverBirch Studios. In the third quarter ended September 30,
2003, the Company recorded no gain or loss on discontinued operations.
NET INCOME
As a result of the adjustment to the divestiture price of SilverBirch
Studios of $512 and the profit on operations, the Company recorded net income of
$601,375 in the third quarter of 2004 versus a net loss of $754,644 for the
quarter ended September 30, 2003. For the quarter ended September 30, 2004, the
earnings per share was $0.0013 or rounded down to $0.00 versus earnings per
share of ($0.00) in the quarter ended September 30, 2003.
TWELVE MONTHS ENDED DECEMBER 31, 2003 COMPARED WITH THE TWELVE MONTHS
ENDED DECEMBER 31, 2002
The financial results examined below for both the fiscal year ended
December 31, 2002 and for December 31, 2003 exclude any results from Ignition
Entertainment Limited, our former UK based subsidiary, which was a video games
developer and distributor which is recorded as a discontinued operation in both
fiscal years. Costs related to our internal the mobile games and ring tone group
are included in the fiscal 2003 results.
REVENUES. During the twelve months ended December 31, 2003, we generated
$612,953 in revenue in comparison to revenue of $314,063 in the 2002 fiscal
year. From a revenue source perspective in 2003, $252,156 in revenue came from
MDI related business, recognizable in the year, while the remaining revenue came
from data solutions products and services. Revenue from mobile game downloads
was only $354 in the 2003 year. In the fiscal year ended December 31, 2002,
$117,114 resulted from sales of MDI and data solution products and services and
$196,949 was generated by our U.S. distribution arm ActiveCore d.b.a. Ignition
USA.
COST OF SALES. Cost of sales was $536,579 for the twelve months ended
December 31, 2003 versus $1,678,816 in 2002. The principal cost of sales items
in 2003 consisted of direct labor and related costs of $108,708 for MDI
personnel, $10,305 third party software publisher costs and $395,407 of
amortization of software license fees related to the Company's distribution
license for classifier and I-Bos. In the fiscal 2002 year, product costs were
$68,115, consisting of publisher fees and production and sales costs in the US
operation of $26,985, and purchases of third party hardware and software of
$41,130 in ActiveCore Technologies Limited, the Canadian subsidiary. In
addition, the Company recorded amortization of prepaid licenses of $1,358,899
related to ActiveCore's Classifier(TM) and I-Bos(TM) distribution and license
agreement, and product development costs of $251,796 incurred in the US
operation. The result of the cost of sales components elaborated above led to a
positive gross margin in fiscal 2003 of $76,374 versus a negative gross margin
of $1,364,753 in the previous fiscal year ended December 31, 2002. The trend of
positive gross margins is expected to continue in future years.
OPERATING EXPENSES. Total operating expenses from continuing operations
for the twelve months ended December 31, 2003 were $3,515,175 versus expenses
from continuing operations of $7,964,746 in the fiscal year ended December 31,
2002. As a whole we believe that operating expenses in 2004 will be about the
same or lower as fiscal 2003.
SALARIES AND WAGES. In the fiscal 2003 year salaries and wages were much
higher as compared to fiscal 2002. The largest component of operating expenses
was related to salaries and wages of $1,014,787 of which $894,146 related to the
Canadian subsidiary. These included the cost of development of mobile games,
ring tones, Zorro and the recess games web site and $105,641 which consisted of
$29,000 recorded to signing bonuses for the staff in the United Kingdom, $32,962
for US MDI salaries and $43,679 related to staff expenses in our former Chicago
office. In 2002 salaries and wages were $221,141 primarily consisting of costs
of the Chicago office and lower Canadian operation costs as a result of only 6
months of costs associated with ActiveCore Limited, formerly Springboard
Technology Solutions Inc. which was merged with ActiveCore in July 2002.
Salaries and wages include costs of all group insurance and various government
programs.
25
STOCK BASED COMPENSATION. In the fiscal year ended December 31, 2003, the
Company expensed $824,654 in stock based compensation primarily consisting of
$540,000 for the 20,000,000 shares accorded to management as a result of the
acceleration of the ITM merger agreement, details of which are disclosed in the
acquisitions and divestitures heading elsewhere in this prospectus. In the
fiscal year ended December 31, 2002 the Company accounted for $5,500,000 in
stock for the 30,000,000 shares released in 2002 from milestones achieved in the
original ITM purchase and sale agreement. Additional stock based compensation in
the fiscal 2003 statements include $39,524 in directors fees and $245,130
related to stock paid in lieu of salaries for certain management members.
CONSULTING FEES. In fiscal 2003 we paid $191,131 in consulting fees versus
$688,235 in the fiscal year 2002. In fiscal 2003 actual cash of $4,282 was paid
out to personnel who bill out as consultants and $186,849 was paid in the form
of stock. These fees were paid to consultants involved in sourcing additional
games for our mobile games group and assistance in sourcing additional
healthcare products and contracts. Additional details are located in the section
entitled consultants in this prospectus. In the fiscal 2002 year we paid out
consulting fees of $46,543 for ActiveCore Technologies Limited, the Canadian
subsidiary, for certain staff employed in operating capacities who bill as
consultants, and $641,692 at the ActiveCore level of which $250,000 ((pound)
172,000) related to the share conversion value of Devonshire's strategic
marketing contract, and $161,158 represented payments of cash and shares to
ActiveCore's officers and directors specifically $60,933 to Brian MacDonald, the
President and CEO, in the form of accrued salary; $15,226 to Peter Hamilton, the
SVP Corporate Development, in the form of accrued salary and $85,000 which was
represented by 500,000 shares valued at $.17 cents as stock based compensation
to J. Stephen Smith, our independent director. In the case of Messrs. MacDonald
and Hamilton the bulk of the salaries listed above has been accrued and not
paid.
LEGAL AND ACCOUNTING. In the fiscal year ended December 31, 2003 we
incurred expenses of $375,162 for accounting and legal fees compared to $420,781
in the fiscal year ended December 31, 2002. Of the 2003 expenses $25,392 was
paid for auditing and accounting at the Canadian subsidiary level while $349,769
was paid at the parent Company level consisting of $211,595 for accounting and
auditing and $137,874 for legal expenses. In the fiscal year ended December 31,
2002 we spent, at the parent Company level, $399,714 for legal and accounting,
while the Canadian subsidiary expensed $21,065. In both years the expenses
related to the high cost of remaining a public Company in today's regulatory
environment. SB-2 registration statement were filed in both years, however
expenses in 2003 were slightly lower as the costs associated with upgrading the
Company's financial controls and reporting was chiefly borne in 2002 following
the change of management at the beginning of 2002. We anticipate spending
approximately the same amount in 2004 as we did in 2003 as the requirements of
the Sarbanes-Oxley Act and other changes to the audit and accounting environment
have greatly increased the cost of remaining a public company.
MANAGEMENT FEE. In the fiscal year 2003 there were no expenses associated
with management fees versus $53,040 in fiscal year 2002. In 2002 ActiveCore paid
to Springboard technology $53,040 for the salaries for managers Kevin Birch,
Geno Villella and Sherry Bullock for the period of time, 6 months, while
Springboard was not a subsidiary of ActiveCore. Springboard became a subsidiary
in July 2002.
GENERAL AND ADMINISTRATIVE EXPENSES. General and Administrative expenses
increased year over year from $378,599 in the fiscal year ended December 31,
2002 to $872,327 in the fiscal year ended December 31, 2003.
In 2003 the largest components of G&A expenses related to a write off of
$197,800 for previously non-amortized finance commitment fees, $203,133 in
financing commissions, $176,661 in investor relations expenses and a write off
of future tax assets of $91,146 all at the parent Company level. The contract to
Hawk Associates for investor relations was cancelled early in 2004 and these
expenses are not expected to be recurring. At the Canadian subsidiary level
$145,536 was recorded to G&A of which the largest expenses were $57,051 to rent
and occupancy expenses and $24,275 to advertising and promotion expenses. In the
fiscal year end 2002 the Company incurred general and administrative expenses of
$340,387 at the parent Company level of which the largest components consisted
of the following: $133,795 in finance commitment fees, $63,235 in fees and
licenses, $28,481 in rental and infrastructure charges, $87,530 in travel and
lodging primarily as a result multiple locations in the UK and the USA, $5,286
for investor relations including press releases and $4,178 for website expenses.
In 2002 the Chicago office cost the Company $15,689 in general rent and
other expenses including travel in 2003 until sold to Ignition in March 2003,
the Chicago office cost $15,070. The Canadian operation for the six months
commencing July 1, 2002 until the end of December, 2002 cost the Company $38,212
in total including all rent, taxes, communication and business promotion.
26
FINANCIAL ADVISORY FEES. In the fiscal year ended December 31, 2003 the
Company expensed $67,864 in financial advisory fees of which $1,192 was paid to
the transfer agent and $66,672 was paid to a combination of Wayne Danson of
Danson and Associates, Sonny Goldstein and Snider Financial Group, the later two
for assistance in arranging the first tranche of a planned 2,000,000 term debt
financing. In 2002 the Company also expensed $166,275 in financial advisory fees
of which $165,000 pertained to fees earned by Danson Associates for assistance
in the registration process and $1,275 in fees to the Company's stock transfer
agent, Pacific Stock Transfer.
RESEARCH AND DEVELOPMENT EXPENSE. In the fiscal year ended December 31,
2003 the Company recorded only $4,717 in research and development expenses for
the services of an outside consultant as the Company does not capitalize its R&D
expenses but includes them in salaries and wages. In the fiscal year 2002 we
recorded $110,112 for the fiscal year at the parent Company level. The bulk of
the expenses related to work done to create Vaayu and several other enterprise
products.
DEPRECIATION. In the fiscal year ended December 31, 2003 the Company
recorded deprecation of $47,322 all of which related to depreciation on
equipment used within the operations in Canada and the US. In fiscal year 2002
deprecation was $16,875 also for equipment. Amortization on software licenses
associated with products for resale are included in cost of sales as a separate
item.
ACQUISITION COSTS. In the fiscal year ended December 31, 2003 the company
recorded costs of $117,211 associated with the acquisition of the use of the
name E-Communities UK Limited and a marketing agreement for eXml products
against costs of nil in fiscal year 2003.
IMPAIRMENT OF GOODWILL AND INTANGIBLE ASSETS. In the fiscal year ended
December 31, 2003 there was no allocation made for impairment of goodwill. In
the 2002 fiscal year we recorded an impairment of $409,688 related to the
goodwill associated with the acquisition of Springboard Technology Solutions
which arose from the difference between the net assets and net liabilities
assumed on the acquisition of Springboard.
LOSS FROM OPERATIONS. In the fiscal year 2003, we realized a loss on
operations of $3,438,801 while in the fiscal year 2002 we recorded a loss of
$9,329,499. The chief reason for the difference was the value of the shares
earned under the ITM acquisition agreement of 5,500,000 in fiscal year 2002
versus the $540,000 allocated to the value of shares in accelerating the shares
associated with the ITM acquisition in fiscal 2003.
OTHER INCOME/EXPENSES
GAIN ON EARLY EXTINGUISHMENT OF DEBTS. In 2003, we recorded a gain due to
a forgiveness of debt of $21,034 for accounting services related to the period
prior to 2002. In the fiscal year ended 2002 we showed a non-cash gain of
$1,021,238 from the re-negotiation of ActiveCore's distribution license for
Classifier and I-Bos with The Innovation Group Plc.
INTEREST INCOME. Income from cash on deposit was $6,497 in the fiscal year
ended December 31 2003 compared to $8,344 in the previous fiscal year.
INTEREST EXPENSE. Interest expense was considerably higher in fiscal year
2003 at $150,478 compared to fiscal year 2002 at $98,414 primarily as a result
of the note payable we had with Cornell Capital during the majority of 2003 and
as a result of the accrued interest on the term note that we executed with the
International Brotherhood of Electrical Workers in July 2003. That note was
interest only for the first year and then amortizes over a 4 year period. In
fiscal year 2002 the interest expense was $98,414.
FOREIGN EXCHANGE LOSS. The Company recorded a foreign exchange gain of
$85,643 in the fiscal year ended December 31, 2003 as compared to a loss of
$83,297 in the previous fiscal year. In fiscal year 2003 the Canadian dollar
gained significantly against the US dollar where as in fiscal year 2002 the loss
was due to the relative decline of the US dollar in relation to the UK pound.
TOTAL OTHER INCOME. As a result of the foregoing items the Company
recorded a loss on other income (expenses) of $37,304 in the fiscal year 2003
versus a gain in the fiscal year ended December 31, 2002 of $847,873.
LOSS FROM CONTINUING OPERATIONS. In the fiscal year ended December 31,
2003 we lost $3,476,105 on our operations excluding the discontinued operations
of Ignition Entertainment Limited. In the fiscal year ended December 31, 2002
the Company lost $8,481,628 on continuing operations.
27
DISCONTINUED OPERATIONS. As a result of the sale of our former subsidiary
Ignition Entertainment limited we realized a gain on discontinued operations of
$1,630,121 for the fiscal year ended December 31, 2003 compared to a loss in the
fiscal year ended December 31, 2002 of $12,831,644 on those same operations. In
fiscal year 2003 we realized a loss on the operations for the time period that
we owned the Ignition Entertainment subsidiary of $765,888 which was offset by a
gain of $2,396,009 from disposition. In the fiscal year ended 2002 the loss was
made up of $2,173,574 on operations plus a write-off of goodwill associated with
the intangible assets of the operation of $10,658,090.
NET LOSS. As a result of the items indicated above we were able to end the
year with a net loss of $1,845,984 as opposed to a net loss in the fiscal 2002
year of $21,313,292.
EARNINGS (LOSS) PER SHARE. In fiscal 2003 we had a loss of $0.02 per share
from continuing operations versus a loss of $(0.13) per share from continuing
operations in the 2002 fiscal year. We recorded a gain of $0.01 per share from
discontinued operations in the fiscal year ended December 31, 2003 versus a loss
from discontinued operations of $(0.19) per share. On the whole of fiscal 2003
we recorded a loss of slightly less than $(0.01) per share in the fiscal year
ended December 31, 2003 versus a loss of $(0.32) per share in the 2002 fiscal
year. We believe that the trend to improved results will continue during fiscal
2004 and that this coming fiscal year will be profitable for the Company.
LIQUIDITY AND CAPITAL RESOURCES
Prior to December 31, 2001, the Company financed its operations through a
combination of convertible securities and the private placement of shares. In
the fiscal year ended December 31, 2003, the Company entered into or continued
several financing arrangements. These included the Equity Line of Credit with
Cornell Capital Partners for $10,000,000 and a term debt of $500,000 at the
Canadian subsidiary level with a trade union which has subsequently been
converted into a convertible, redeemable preferred share issue. The Company's
primary need for cash is to fund ongoing operations and to defray the cost of
remaining a public company until such time that the Company's profitability and
cash flow is sufficient to fund ongoing growth in the Company's operations.
At September 30, 2004, the Company's need for cash included satisfying
$2,647,314 of current liabilities, which consisted of accounts payable of
$952,685 (of which $226,824 is recorded as owing to Orchestral Corporation and
is not likely to require payout), bank indebtedness in various operating loans
of $211,793, $315,965 of accrued liabilities, taxes payable of $777,496, current
lease obligations of $14,935, the current portion of notes payable, including
accrued interest of $139,951, indebtedness to related parties of $7,915 and
other current liabilities of $19,880. In addition we have liabilities for common
stock and preferred shares to be issued of $88,192 and $93,750 respectively. At
September 30, 2004, the Company had a working capital deficiency of $901,121.
GOING CONCERN
The accompanying Condensed Consolidated Financial Statements have been
prepared on the basis that the Company is a going concern, which contemplates
the realization of assets and the satisfaction of liabilities in the normal
course of business. The Company incurred negative cash flow from operations of
$401,125 for the nine months ended September 30, 2004, and has a working capital
deficiency of $901,121 at September 30, 2004 which is a significant improvement
from December 31, 2003. However, there is no guarantee that the Company will
continue as a going concern and will not still incur a going concern note as at
December 31, 2004. The Condensed Consolidated Financial Statements do not
include any adjustments that might result from the outcome of this uncertainty.
Management's plan to continue operations is to raise additional debt or equity
capital until such time as the Company is able to generate sufficient operating
revenues through its new acquisitions.
Our ability to continue as a going concern is dependent on the Company's
ability to raise additional bank, convertible preferred shares or convertible
debt, equity capital or access capital under the Equity Line of Credit with
Cornell Capital Partners, and implementation of the Company's business plan to
market and sell the Company's various enterprise software products and services.
At September 30, 2004, the Company had $9,161 cash on hand. In addition, at
quarter end, certain shareholders have also supported the Company by foregoing
salaries and expense reimbursement from time-to-time or converting shareholders
loans to equity. Throughout the fiscal year ended December 31, 2003, certain
management shareholders injected approximately $1,279,000 in to the Company to
assist with working capital. While there is no legal commitment for them to do
so, the Company believes that certain shareholders will continue to support the
Company in a similar manner.
During fiscal year 2003, the Company received cash from Cornell Capital
Partners in the form of promissory notes. In total, $970,000 of proceeds were
received from the issuance of promissory notes net of a 3% cash fee of $30,000,
which yields an effective interest rate of approximately 12% per annum. During
the nine months end September 30, 2004, the Company repaid all of these
promissory notes.
In April of 2002, the Company entered into an Equity Line of Credit
Agreement with Cornell Capital Partners. Under this agreement, the Company could
issue and sell to Cornell Capital Partners common stock for a total purchase
price of up to $10,000,000. On February 14, 2003, a Form SB-2 that was filed by
the Company was declared effective by the Securities Exchange Commission, and on
December 19, 2003, an additional Form SB-2 was declared effective. Under the
terms of the Equity Line of Credit Agreement, the Company could provide notice
to Cornell Capital Partners and Cornell Capital Partners would purchase from the
Company shares equal to 92% of the market price, which is defined as the lowest
closing bid price of the common stock during the five trading days following the
notice date. The amount of each advance was subject to an aggregate maximum
advance amount of $425,000 in any 30-day period. Cornell Capital Partners was
28
entitled to retain 3% of each advance. In April of 2002, the Company paid
Cornell Capital Partners a one-time fee equal to $330,000, paid in the form of
3,032,000 shares of common stock. In addition, the Company entered into a
placement agent agreement with Westrock Advisors, Inc., a registered
broker-dealer. Pursuant to the placement agent agreement, the Company paid a
one-time placement agent fee of 100,000 shares of the Company's common stock,
which were valued at $0.20 per share, or an aggregate of $20,000, on the date of
issuance. The Company agreed to pay Danson Partners, LLC, a consultant, a
one-time fee of $200,000 for its work in connection with consulting the Company
on various financial matters. Of the fee, $75,000 was paid in cash with the
balance paid in 1,040,000 shares of common stock.
During the nine months ended September 30, 2004, the Company issued
38,692,545 shares of common stock to Cornell Capital Partners having a fair
market value of $673,168 in connection with the Equity Line of Credit Agreement.
Of the amount, $226,911 was applied against the original $1,000,000 promissory
note payable and $389,989 was used to repay three separate notes that were
issued in January of 2004 under the Equity Line of Credit with Cornell Capital
Partners. Also, $47,268 was applied against interest due on the original
$1,000,000 promissory note payable.
The Company anticipates that its cash needs over the next 12 months will
consist of general working capital needs of $2,000,000, which would include the
satisfaction of current liabilities of $2,647,314. As of September 30, 2004, the
Company improved its net working capital deficiency from a deficiency of
$1,882,239 at December 31, 2003 to a deficiency of $901,121. The Company
anticipates that its cash needs over the next 12 months will come primarily from
a combination of term debt, sale of convertible preferred shares, equipment
loans and leases for expansion purposes, proceeds from the sale of assets,
profits, operating credit lines, and term loans, which may or may not be secured
by assets, or contain conversion features which may lead to additional shares
being issued. The company does not anticipate relying to any extent on the
Cornell line of Credit and is not registering any stock for sale under that
facility.
If the Company is unable to obtain additional funding from other sources
of debt and equity capital, then the failure to obtain this funding will have a
material adverse effect on the Company's business and this may force the Company
to reorganize, reduce its investment in, or otherwise divest of one or more of
the Company's operations, or to reduce the cost of all operations to a lower
level of expenditure which may have the effect of reducing the Company's
expected revenues and net income in 2004 and 2005.
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
The following chart sets forth IVP's contractual obligations and
commercial commitments as of September 30, 2004 and the time frames for which
such commitments and obligations come due.
PAYMENTS DUE BY PERIOD
--------------------------------------------------------------------------------
TOTAL
--------------------------------------------------------------------------------
LESS THAN AFTER
CONTRACTUAL OBLIGATIONS TOTAL 1 YEAR 1-3 YEARS 4-5 YEARS 5 YEARS
--------------------------------------------------------------------------------
Current Obligations $ 2,312,740 $ 2,312,740 $ -- $ -- $ --
Leases Payable 14,935 14,935 27,006 -- --
Notes Payable 139,951 139,951 -- -- --
Bank Term Loan Payable 171,209 24,752 62,857 62,857 20,743
Convertible preferred shares to be 500,000 100,000 200.000 300.000 --
issued
----------- ---------- -------- -------- --------
Common Stock to be issued 88,192 88,192 -- -- --
----------- ---------- -------- -------- --------
Total Contractual Cash Obligations $ 3,227,027 $2,680,570 $289,863 $362,857 $ 20,743
=========== ========== ======== ======== ========
CAPITAL RESOURCES
The Company has recently completed the issuance of two series of
convertible preferred shares, series A and B, each of which will provide the
company with $250,000 for a total of $500,000 by December 31, 2004. The first
series of preferred shares closed on September 15th and $250,000 was received by
the company. The second tranche is expected to close on December 31, 2004. In
addition, with effect from September 30, 2004, the International Brotherhood of
Electrical Workers Local 105 agreed to convert its term loan of $500,000 which
was made to ActiveCore Technologies Limited into 500,000 Series C preferred
shares. Under the terms of the letter agreement with the IBEW the Company will
have the option of paying dividends and completing quarterly redemptions of the
preferred shares in cash or common shares. The Company believes that with the
issuance of the three series of preferred shares the company's balance sheet has
been significantly improved and it is management's belief that other term and
operating bank facilities will be obtainable both at the parent company and
subsidiary levels. In addition the company has turned the corner to
profitability and while working capital needs are still high, management
believes that the company will gradually become capable of operating under its
own accord from a financial perspective as it collects its accounts receivable
and continues to make profits.
29
CONSOLIDATED STATEMENT OF CASH FLOWS
Cash on the condensed consolidated balance sheet increased from nil in the
period ended December 31, 2003 to $9,161 at September 30, 2004.
NET CASH USED IN OPERATING ACTIVITIES
For the nine months ended September 30, 2004, the Net Cash used in operating
activities was $401,125 versus $1,722,712 in the nine month period ended
September 30, 2003. In the nine months ended on September 30, 2004, cash used in
operating activities consisted primarily of depreciation and amortization of
$387,585, an increase in taxes payable of $336,444, an increase in accounts
receivable of $1,947,413, a decrease in other assets of $121,417, an increase in
accounts payable of $115,738, and an increase in accrued liabilities of $80,948.
Also, there was a net gain from discontinued operations of $732,800 and non-cash
activities of $238,738 for stock issued for compensation and other services. In
the nine months ended September 30, 2003, the cash used in operating activities
consisted primarily of a net loss of $937,033, plus the costs of stock issued of
$705,801, and non-cash activities of $564,198 for depreciation and amortization.
Both periods reflected discontinued operations.
NET CASH FROM INVESTING ACTIVITIES
Net cash used in investing activities was $273,138 for the purchase of fixed
assets in the period ended September 30, 2004 versus $104,089 in the nine months
ended September 30, 2003.
NET CASH PROVIDED BY FINANCING ACTIVITIES
Net cash provided by financing activities was $728,546 in the nine months ended
September 30, 2004 versus $1,927,007 in the nine months ended September 30,
2003. In the nine months ended September 30, 2004, the Company repaid $82,590
and received $530,000 from a bank term loan and in new notes payable. In the
nine months ended September 30, 2003, the Company received from related parties
$299,878, received proceeds of $898,088 from the issuance of stock, and paid
against leases $25,474 versus $20,081 in the most recent nine month period.
CRITICAL ACCOUNTING POLICIES
ORGANIZATION
The consolidated financial statements the Company include the accounts of
the parent, ActiveCore Technologies, Inc. formerly IVP Technology Corporation,
incorporated in the State of Nevada on February 11, 1994, and its subsidiaries:
ActiveCore Technologies Ltd., (formerly Springboard Technology Solutions Inc.),
a Canadian company, Erebus Corporation, an inactive company, and ActiveCore Exml
Canada Ltd., an inactive company. The Company was granted an extra-provincial
license by the Province of Ontario on June 20, 1995 to carry on business in
Ontario, Canada.
During 2003, the Company operated two divisions: enterprise and consumer.
The enterprise division develops, markets, licenses, installs and services data
integration solutions. The consumer group developed and published interactive
software games designed for mobile phones, other handheld devices and web-sites.
The consumer unit also distributed games developed by third parties. In 2002,
the Company also produced video games for personal computers and various console
gaming platforms.
REVENUE RECOGNITION
RISK AND UNCERTAINTIES
A significant portion of all of the Company's net sales are derived from
software sales and distribution activities, which are subject to increasing
competition, rapid technological change and evolving consumer preferences, often
resulting in the frequent introduction of new products and short product
lifecycles. Accordingly, the Company's profitability and growth prospects depend
30
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.
REVENUE RECOGNITION
The Company recognizes revenue in accordance with Statement of Position
("SOP") 97-2 "Software Revenue Recognition", as amended by SOP 98-9
"Modification of SOP 97-2 Software Revenue Recognition with respect to Certain
Transactions." SOP 97-2 provides guidance on applying GAAP in recognizing
revenue on software transactions. SOP 98-9 deals with the determination of
vendor specific objective evidence of fair value in multiple element
arrangements, such as maintenance agreements sold in conjunction with software
packages. The Company's software transactions generally include only one
element, the commercial software under license. The Company recognizes revenue
when the price is fixed and determinable, and there is persuasive evidence of an
arrangement, the fulfillment of its obligations under any such arrangement and
determination that collection is probable. Accordingly, revenue is recognized
when the license or title and all risks of loss are transferred to the customer,
which is generally upon receipt by customer. The Company's payment arrangements
with its customers generally provide 30 to 90 day terms however in certain
instances up to 360 day terms may be provided if the client is in a new vertical
into which the Company wants to supply its software. The Company does not have
any multi-element arrangements that would require it to establish vendor
specific objective evidence ("VSOE") for each element, nor does the Company have
any sales activity that requires the contract method of accounting.
The Company's distribution arrangements with customers generally do not
give customers the right to return products; however, the Company at its
discretion may accept product returns of defective products.
31
RECENT ACCOUNTING PRONOUNCEMENTS.
In March of 2004, the U.S. Securities and Exchange Commission's Office of
the Chief Accountant and the Division of Corporate Finance released Staff
Accounting bulletin ("SAB") No. 105, "Loan Commitments Accounted for as
Derivative Instruments". This bulletin contains specific guidance on the inputs
to a valuation-recognition model to measure loan commitments accounted for at
fair value, and requires that fair-value measurement include only differences
between the guaranteed interest rate in the loan commitment and market interest
rate, excluding any expected future cash flows related to the customer
relationship or loan servicing. In addition, SAB105 requires the disclosure of
the accounting policy for loan commitments, including methods and assumptions
used to estimate the fair value of loan commitments, and any associated hedging
strategies. SAB 105 is effective for derivative instruments entered into
subsequent to March 31, 2004 and should also be applied to existing instruments
as appropriate. The Company has not yet completed its evaluation of SAB 105, but
does not anticipate a material impact on the financial statements.
The adoption of these recent pronouncements will not have a material
effect on the Company's consolidated financial position or results of
operations.
32
ANNUAL SHAREHOLDERS' MEETING
On November 29, 2004 the Company held its 2003 annual shareholders
meeting. At that meeting Brian MacDonald, Peter Hamilton and J. Stephen Smith
were elected to the board of directors. As well the shareholders also approved a
change to the corporate charter to allow the board of directors to determine the
timing and ratio of splits and reverse splits to the Company's outstanding
common shares provided that at no time shall more than 500,000,000 common shares
are authorized. In addition the Company received shareholder approval to
formally change its name to ActiveCore Technologies, Inc. In connection with all
three resolutions there were 63.35% of the votes in favor.
No date has been set for the 2004 annual general meeting.
33
DESCRIPTION OF BUSINESS
OVERVIEW
The Company is a Nevada registered Company with its head office in
Toronto, Ontario, Canada, and operations in Tampa, Florida and Witney, UK. The
Company operates within the enterprise software and services market which
includes vendors of software and services that sell and install "Smart
Enterprise Suites" and related products.
The Company's products provide data integration, migration, portal,
content management and outbound messaging. This gives ActiveCore the capability
to provide effective, efficient and economical data integration and migration
services for clients seeking to capture data and deploy or broadcast information
to stakeholders and customers without wholesale changes to their existing
systems. ActiveCore's products are designed to enable the Company's clients to
extend the functions of their current data systems, often called "back office"
systems, by using the Company's core XML integration product, ActiveLink, to web
portals or to reach out to customers via mobile devices to bring data into, or
to export data from, their organizations. ActiveCore terms this approach
"Enabling a Smart Enterprise". By concentrating on data integration as the core
product and service offering, the Company has then been able to develop
"vertical" and "specific" product and service offerings for various industries
and for specific applications such as ActiveCast for "outbound corporate
broadcasting", or in the case of the Company's MDLink, vertical application for
healthcare integration services.
In general, the Company develops, sells and implements its own and third
party software and provides outsourced integration and IT services for
organizations in financial services, government, and education, insurance and
healthcare. Software and services provided by the Company are designed to enable
the Company's customers to quickly integrate and extend the functionality of
their current systems and databases so that they can reach new markets in new
ways and/or improve internal and external processes. The Company does this by
assisting the Company's customers with integrating to existing applications and
data and then using web portal or other communications technology, such as
wireless, land line, VPN, or network services, to allow the Company's customers
to "take in" new data from the field or "broadcast out" data through such
technologies as text messaging, SMS, MMS, fax, web broadcast, voice casting or
other communication means.
The Company has maintains a "service bureau" operation under the product
identity "ActiveCast" whereby it offers corporate broadcast services via fax,
email, mms, and sms messaging to customers on an outsourced basis using its own
internal installation of ActiveLink and DynaPortal. In May of 2004, the Company
acquired C Comm Network Corporation, which provides us with the infrastructure
to generate revenue from this area of the Company's operations. The Company is
actively increasing the scope and revenue earning capacity of that operation by
investing in fixed assets and personnel to grow the revenue and client base. The
Company is also concurrently searching for potential acquisition candidates that
can expand the Company's communications infrastructure and the range of products
and services that the Company can offer within the context of the Smart
Enterprise Suite and broadcast services. In this area of operations, the Company
competes with such companies as Infolink Technologies Limited in Canada, J2
Global Communications, Inc., Xpedite Corporation, Plumtree Corporation, and
Vignette Corporation in North America and Europe.
At times in the past two years, the Company has also engaged in the
development and distribution of products in the consumer marketplace.
Specifically, in May 2002, the Company acquired the shares of Ignition
Entertainment Ltd., a UK based company engaged in the development, licensing,
publishing, marketing and distribution of console games. In early-to-mid-2003,
the Company also increased its investment in the development and distribution of
mobile games and ring tones together with a web distribution portal, however
over the last year, the Company has determined that each of these investments
were too costly to operate successfully and very susceptible to market risk.
Accordingly, effective March 31, 2003, the Company divested its console games
operations. The Company's remaining interests in the consumer market were
divested effective February 29, 2004, when the Company sold its mobile game and
ring tone development and distribution division known as SilverBirch Studios to
a new company established by the Company's former Chief Technology Officer,
Kevin Birch, for a combination of secured term debt, a royalty revenue stream,
and a 5% equity holding in the new company.
MARKET POSITIONING SUMMARY
THE COMPANY'S "SMART ENTERPRISE SUITE"
The Company provides organizations of all sizes with the capability to
integrate, enable, and extend their back office systems to connect to and
communicate with their customers and stakeholders.
34
The Company's products consist of web portal and mobile enabled software:
stand alone components and tools, data integration services, and a corporate
messaging service bureau. The products are sold a la carte rather than as a
whole solution thereby, lowering per product cost and eliminating the need for
capital asset decision making or budgeting.
ActiveLINK is the core of the Company's data integration solutions as
ActiveLINK integrates and transforms disparate databases and applications,
creating a hub through which legacy functionality can be enabled and extended.
ActiveCore involves the sale of software products to companies,
independent software resellers and system integrators. MDI Solutions consists of
health care data integration, time, billing and software sales, which results in
recurring income supported by contracts. ActiveCast consists of corporate
messaging linking data from internal systems to outbound messaging, which
results in rapid cash flow and recurring revenue from organizations sending data
to dedicated lists. Twincentric consists of date integration and migration to
Java for clients using AS 400 and Bull Computer platforms.
ACQUISITIONS AND REORGANIZATIONS
The Company maintains an active interest in acquisitions and the
reorganization of its component parts to better service clients. Many of the
Company's clients need a multiple of the Company's products and services and
thus the Company may undertake internal restructurings to facilitate better
customer service. Investment in its existing operations augmented by growth
through acquisitions is a key goal of management as is the effective use of
capital to drive acceptable returns on investment. The following paragraphs
briefly describe recent acquisitions and reorganizations that have occurred.
DIVESTITURE OF MOBILE AND WEB BASED GAMES DIVISION OF ACTIVECORE
Effective February 29, 2004, ActiveCore sold its remaining interests in
mobile and web based games with the divestiture of its mobile games group. Under
the terms of the divestiture, a new company known as "SilverBirch Studios
Limited" purchased the assets known as BladeofZorro.com, Recesgames.com and
Silverbirchstudios.com, all U.S. registered trade names. Included with the
assets sold were games that had been developed over the course of 2003 and
early-2004, ring tones and other intellectual property. SilverBirch Studios Inc.
has assumed distribution contracts for third party products included on the
Recessgames.com website.
ACQUISITION OF C COMM NETWORK CORPORATION
C Comm, formerly privately held, is a corporate message broadcasting
service which employs communication media such as facsimile, voice, and e-mail
to deliver messages to various organizations' customers. The Company has begun
marketing C Comm's services under the product name "ActiveCast". The Company has
also added new functionality to the Company's website such that large customers
of ActiveCast will each have their own portal within the Company's website to
automate dissemination of various membership or corporate broadcast messages. An
example of this type of dissemination is communication to branches of banks for
foreign exchange rate changes on a daily basis. The Company has established
certain supplier relationships with a major telecommunications company for the
use of specific high volume and high speed telecommunication lines for this
purpose.
On May 6, 2004, the Company entered into a Stock Purchase Agreement with C
Comm Network Corporation an Ontario corporation. Under the terms of the Stock
Purchase Agreement, the Company purchased all of the outstanding shares of
capital stock of C Comm from the shareholders for $461,962. The amount of
consideration paid for the shares of C Comm stock was satisfied by the issuance
of 30,758,202 restricted common shares of the Company. The amount of the
consideration to be paid for the shares of C Comm was determined based on a
multiple of revenues earned by C Comm for the two previous fiscal years ended
September 30, 2002 and September 30, 2003, plus revenues earned for the six
months ended March 31, 2004. During the next year until June 30, 2005, the C
Comm shareholders will probably be entitled to an additional allotment of shares
of the Company's common stock which amount will be determined by growth in
revenues and the price of the Company's common stock. The amount of this
additional allotment of shares will be based on the amount of revenues generated
by C Comm over and above its current sales levels.
ACQUISITION OF TWINCENTRIC LIMITED
On June 21, 2004, the Company entered into a purchase and sale agreement
with the shareholders of Twincentric whereby the Company paid 14,360,243 shares
of the Company's common stock representing $350,000 for 50% of Twincentric,
200,000 shares of the Company's common stock representing $4,875 for the
remaining 50% of Twincentric, and 1,000,000 shares of the Company's common stock
representing $24,373 in trust for the employees of Twincentric. Following the
acquisition, the Company also indemnified certain shareholders with respect to
personal guarantees supporting Twincentric's operating line of credit.
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Twincentric is a products and services company aimed at the AS 400 and
Bull Computer data integration and migration market. Twincentric has a broad
range of customers in North America and Europe. The market for Twincentric's
primary products consists of approximately 300,000 installations worldwide. The
Company is actively supporting the marketing of Twincentric's products,
primarily Net.Visual, into the North American market, while Twincentric will be
assisting the Company in its marketing of ActiveLink into the European market.
Following the acquisition of Twincentric, The Company closed its London office
and moved to Witney, UK.
SHARE CALL AGREEMENT WITH GEORGE THEODORE AND/OR 1543772 ONTARIO INC.
Effective July 31, 2004 the Company entered into a one way call agreement
with George Theodore and 1543772 Ontario Inc. with respect to the potential
purchase of 8,000,000 shares of Infolink Technologies Limited (TSE- Venture
exchange IFL-X) for consideration of 16,000,000 shares of ActiveCore. Infolink,
a Canadian company engaged in a business similar to that operated by the
ActiveCast division of ActiveCore has 34,770,000 shares outstanding and trades
occasionally at CAD $0.03. On September 28, 2004 the company caused the shares
to be issued in relation to the call agreement but has not yet taken possession
of the Infolink shares and is holding the ActiveCore shares in safekeeping
pending further developments with Infolink. The shares were valued at $0.015 for
a total value of the transaction of $240,000. Shares related to the potential
closing of this transaction are being registered with this filing so that if the
transaction is completed ActiveCore will have registered shares to provide Mr.
Theodore to close the transaction. There are a number of circumstances under
which the company would not complete the transaction.
RECENT DEVELOPMENTS
In the MDI Solutions group, further progress has been made with additional
medium term contracts signed which provide recurring revenues to the Company.
The Company's marketing expenses in this group have risen substantially over the
levels expended in 2003; however, the Company expects that its investment in
marketing will pay off during the current and future fiscal years. During the
last few months, the Company has obtained service contracts from and/or sold
products to over 20 healthcare facilities and is working in several facilities
to deliver state of the art systems which will link hospitals with outside
clinical personnel to help bring additional efficiencies to healthcare services.
The Company expects the number of staff in the MDI Solutions group to rise with
the commencement of new contracts that are in process.
In the Company's ActiveCore and ActiveCast business lines, the Company is
continuing to obtain additional clients. On the ActiveCast side of operations,
the Company is also adding clients as a result of the sales team that the
Company acquired as a result of the C Comm acquisition. This division has
generated revenue and substantial margins. We expect revenue to increase
throughout the remainder of 2004. The Company foresees growth in this section of
the Company's business. During the quarter ended June 30, 2004 and the period
thereafter, the Company continued to make relatively large investments in
equipment and new staff in this area of the business and the Company expects
that during the third and fourth quarters of 2004, revenues should continue to
climb.
SERVICES
ActiveCore under its own name as well as under its MDI Solutions banner
operates as a supplier of highly trained personnel for specific data management
and integration services on an outsourced basis. Under MDI, for example, the
Company has been successful in obtaining ongoing services work for a number of
Canadian hospital and health care providers. With the acquisition of certain
assets of the integration group of SCI Healthcare Group, ActiveCore has
commenced performing these services in the United States as well. Our network
services personnel are also engaged in outsourced delivery of network support.
In all cases we bill clients on an hourly, daily or monthly basis and in many
cases with monthly retainers. Generally, we enter into service agreements with
our clients, which agreements specify the rate and the nature of the contracted
services to be provided.
MARKET FOR PRODUCTS AND SERVICES
To date, ActiveCore has sold relatively few licenses for enterprise
software products however the value of the licenses that we have been able to
sell has increased the Company's revenue base considerably. ActiveCore believes
that the market for enterprise software has slowed over the past several years
however an active market exists for those companies that can enhance legacy
systems by bringing new functionality to systems that have already been paid
for. ActiveCore also believes that the market is usually characterized by long
selling cycles and competition from numerous vendors. Based on the experience of
36
its managers, ActiveCore believes that the trend in commercial software has
moved towards systems integration of various products into existing IT
environment and service providers such as IBM, CGI and various other integration
companies often have an edge over strictly stand alone software product
developers. Thus many times the key to success in selling software products into
a customer location is to operate as a systems integration company or a services
company to a particular industry segment. To that end, ActiveCore has identified
health care as a market segment that it intends to focus its initial sales
efforts. ActiveCore believes that hospitals and others in the health care area
have a need for enterprise software products. ActiveCore has 25 healthcare
facility clients in the US and Canada with several of the hospitals with
ActiveCore products installed and in operation. We view this process of
gradually gaining product acceptance as a normal state in the sales development
process.
OUTLOOK - ENTERPRISE PRODUCT LINE
The growth of the internet together with a proliferation of various other
IT configurations including radio frequency, wireless telephone, and satellite
using various communication protocols, has become an important way for
corporations to communicate with field employees and for professionals to access
personal and business information, download new applications, access new
services and interface with organizational data and topical information.
ActiveCore believes that inter-party interfaces over the internet, as well as
wireless access to internet content and enterprise data will make small personal
computers and converged cell phones/PDA's and other data enabled communication
devices increasingly valuable to users. Moreover with the continued expansion of
mobile capabilities, networks and hardware and the expansion of mobile usage
additional software products will be developed which will meet the needs of
workers who will be able to conduct regular business activities over mobile
devices.
ActiveCore competes within the global market for software applications.
These applications are developed for handheld/portable/cell phone devices,
client server/networked installations and ASP configurations. The market for
these applications is evolving rapidly and is highly competitive. Competitors
include (i) Microsoft, as the developer of the handheld personal computer
Windows CE operating system and the ".net" development platform, which also
develops software applications for devices that run on Windows CE and on Smart
Phones, (ii) the community of developers that has developed products for the
palm operating system; (iii) the community of developers that has emerged since
the introduction of these devices that creates applications for Linux, Sun, and
other operating system platforms; and (iv) the host of developers that are
developing entertainment and enterprise applications on other handheld devices
including telephones, personal entertainment devices and other communication
devices. Nearly all of ActiveCore's competitors or potential competitors have
significantly greater financial, technical and marketing resources than we do.
These competitors may be able to respond more rapidly than us to new or emerging
technologies or changes in customer requirements. They may also devote greater
resources to the development, promotion and sale of their products than does
ActiveCore.
ActiveCore believes that systems integrators are in the best position to
market software to their existing clients. Therefore we do not intend to compete
directly against any of the larger software creators and marketing companies in
the promotion of software that competes directly with any specific software
product. One of the key ways in which we market is directly to our growing list
of clients for which we provide outsourced data integration and network
services. Our ongoing investment in this area will in the long run outpace our
investment in the Consumer Division as ActiveCore does not have sufficient
financial resources to compete as strictly a consumer/entertainment software
creator. Rather it is our intention to grow the Enterprise division as
opportunities for profitable growth present themselves.
EMPLOYEES AND CONSULTANTS
ActiveCore has 25 employees based in Toronto with an additional 7
employees in the United States and 9 in the Untied Kingdom. ActiveCore has
entered into several consulting relationships, which are described below.
o In September 2004, the board of directors authorized the issuance of
12,000,000 restricted common shares of stock to 1582579 Ontario
Limited, an unrelated party, to perform consulting services related
to foreign sales and identifying and sourcing acquisition
candidates. The company which is managed by Joseph Ulman has been
issued 12,000,000 restricted common shares valued at $.015 or
$180,000 which will be expensed throughout the next four quarters.
o In July 2004, ActiveCore paid Mr. Yvan Coessens 150,000 shares of
ActiveCore to act as an investor relations person in Europe. Mr.
Coessens is located in Belgium and provides services to ActiveCore
continental European shareholders
37
o In July 2004, the board of directors authorized the purchase of a
limited source code license from Roland Ujj for certain software for
a value of $10,000 which is to be paid in the form of restricted
shares. The value of the shares issued was $10,000. Mr. Ujj works on
an occasional basis for ActiveCore as a software developer.
o In May, 2004 Mr. Ron Hikel, formerly acting Deputy Minister of
Health for the Province of Manitoba and former Chairman of the
Workers Compensation Board of Ontario was engaged as a consultant to
provide advice and assistance in the healthcare field to our MDI
Solutions division. Mr. Hikel was issued 1,000,000 restricted common
shares valued at $.015 for a value of $15,000.
o In January, 2004, the Company entered into a 12 month consulting
contract with 1582579 Ontario Limited, an unrelated party, to assist
in locating and negotiating several prospective merger candidates
primarily to enable the creation of an outbound messaging and
communications service to work with the Company's ActiveLink product
as a data service bureau and enterprise portal interface. The
Company issued 5,000,000 restricted shares to 1582579 Ontario
Limited. These shares were valued at $0.023 per share, or an
aggregate of $115,000 representing the market value on the date of
the grant.
o In September 2003, ActiveCore entered into a consulting agreement
with Sonny Goldstein to facilitate new term debt financing
arrangements. ActiveCore paid 1,000,000 shares with a value of
$29,000 for these services to continue to August 2004.
o In August 2003, ActiveCore paid Mr. Yvan Coessens 150,000 shares of
ActiveCore to act as an investor relations person in Europe. Mr.
Coessens is located in Belgium and provides services to ActiveCore
continental European shareholders. Mr. Coessens' shares in 2003 were
recorded as stock issued for services and were valued at $4,950.
o In July 2003, ActiveCore issued 2,000,000 shares to Snider Financial
Group Inc. for services rendered in respect of brand licensing on an
ongoing basis throughout 2003-04. Snider Financial's shares were
recorded as stock issued for services and were valued at $50,000.
o In July 2003 ActiveCore entered into a consulting contract with
Gerald Campbell and paid the consultant 4,000,000 common shares of
ActiveCore. Mr. Campbell consults for ActiveCore in the area of
medical data integration. Mr. Campbell's shares were recorded as
stock issued for current and deferred consulting services and were
valued at $100,000.
o In June 2003, ActiveCore entered into a contract with Hawk
Associates for investor relations services. Under the terms of the
contract ActiveCore issued to Hawk 2,000,000 common shares recorded
in the June 30, 2003 consolidated financial statements as current
and deferred consulting services. In addition to the stock grant,
Hawk Associates was paid a fee of $6,600 per month. This contract
was terminated in October 2003.
o In June 2003, ActiveCore entered into a consulting contract with
Rodger Cowan and paid the consultant 5,000,000 common shares of
ActiveCore. Mr. Cowan consults for ActiveCore in the area of
entertainment software distribution. Mr. Cowan's shares were
recorded as stock issued for compensation on the June 30, 2003
financial statements.
o In August 2001, International Technology Marketing entered into
employment/consulting agreements with Brian MacDonald and Peter J.
Hamilton. Mr. MacDonald is employed as Chairman and CEO formerly
President and Treasurer and Mr. Hamilton is employed as President
formerly Vice President, Sales or other duties as determined by the
CEO. Each of these agreements has a term of three years and
thereafter will continue for one year terms unless either party
terminates the agreement at least 90 days prior to the end of any
term. Each of Mr. MacDonald and Mr. Hamilton has a salary of CAD
$96,000 per year, plus 6% of sales revenue. As ITM is a dormant
corporation following its acquisition by ActiveCore it has no sales
revenue and therefore ActiveCore is not liable to pay any portion of
its sales revenues to Mr. MacDonald or Mr. Hamilton. ActiveCore
guarantees the payments under these employment contracts. Neither
Mr. MacDonald nor Mr. Hamilton receives any further compensation for
service as an officer or director of ActiveCore.
38
SIGNIFICANT CONTRACTS
DYNAPORTAL. On February 9, 2004, BiznizWeb, Inc. (d.b.a. DynaPortal
Software Company) and the Company entered into mutual non-exclusive dealer
agreements for sales of each other's products and a mutual understanding to
develop ActiveLink connectors to all of DynaPortal's modules. Under terms of the
agreement, both companies are working to create connectors between the Company's
ActiveLink product and DynaPortal functions. Once complete the joint development
will enable both companies the ability to offer powerful portal solutions which
will be able to compete with companies offering much more expensive products.
This agreement will remain in effect for two years. The Company paid
DynaPortal $3,740 for an initial license to use the ActiveLINK product in its
DynaPortal demonstration site.
CLASSIFIER AND I-BOS. On December 28, 2001, ActiveCore Technology entered
into a two-year, non-exclusive licensing agreement to distribute the Classifier
software program, developed by The Innovation Group, Plc. ActiveCore Technology
received a non-exclusive right to sell such software in the United States,
Mexican and Canadian territory. Subsequently, on September 30, 2002 we
renegotiated the agreement with The Innovation Group, Plc. to add another
product, "i-Bos", and relinquished the financial services industry vertical back
to The Innovation Group Plc. In the course of our contract renegotiation we also
obtained the right, on a non-exclusive basis, to distribute both the Classifier
and the i-Bos product into the UK market. Meanwhile we retained the right to
sell such software in the United States, Mexican and Canadian markets.
Pursuant to the terms of this agreement, ActiveCore Technologies was
obligated to pay The Innovation Group $3,620,268 by December 31, 2002.
ActiveCore Technologies has paid The Innovation Group (pound)500,000 or
approximately $714,000 in connection with the license. The remaining payments
have been waived as part of the September 30, 2002 amendment. On February 16,
2002, ActiveCore Technologies borrowed $864,180 from DcD Limited that was used,
in part, to pay the March 31, 2002 installment to the Innovation Group. The
agreement with The Innovation Group allows ActiveCore to retain 50% of the gross
revenue from any sale originated by ActiveCore. While not formally renewed the
Company and The Innovation Group continue to work together from time to time on
the insurance vertical and a verbal agreement exists to allow the company to
resell the product at a 50% margin.
CORPORATE HISTORY OF ACTIVECORE TECHNOLOGIES FORMERLY IVP TECHNOLOGY CORPORATION
ActiveCore is a Toronto headquartered commercial software services
provider, developer, marketer, and distributor that has operations in the United
Kingdom, Canada and the United States. ActiveCore also provides information
technology services to corporations and institutions.
LEGAL AND CORPORATE EVOLUTION
Prior to March 2000 and from inception in 1994, ActiveCore went through
various "reorganizations" including reverse share splits and several control
changes. In March 2000, ActiveCore engaged in a recapitalization transaction
whereby through the services of TPG Capital Corporation, ActiveCore paid 350,000
shares worth $500,000 and $200,000 in cash to TPG Capital Corporation to merge
with a non-active reporting entity, Erebus Corporation, whose sole shareholder
was TPG Capital Corporation to become a reporting issuer with the SEC and
thereby retain its status as a listed company on the OTCBB. A rule change at the
OTCBB was the motive for the transaction as failure to remain a listed company
on the OTC BB would have relegated the shares to the pink sheets. Management and
the board of directors at that time viewed such a development as a detriment to
stockholders and other investors. In addition to the payment of the cash and
shares there exists a reset provision in the contract between TPG Capital and
ActiveCore which obligated, on a contractual basis, ActiveCore to provide TPG
Capital with shares sufficient to "make up" the difference between the share
price value for 350,000 shares as at the date of the merger of Erebus and
ActiveCore, and at a point one year later. Based on the relative share prices in
the market in March 2000 and in March 2001 it would appear that ActiveCore owes
TPG Capital an additional 3,028,378 shares. ActiveCore does not intend to pay
these shares over to TPG Capital as James Cassidy reached a settlement agreement
with the SEC related to various practices associated with merging non-active
shell reporting entities with OTCBB companies that had not achieved reporting
status with the SEC prior to the rule change on the OTCBB.
In September 2001, ActiveCore, represented by its then corporate counsel,
the then board members and executives who are not in any way connected to our
current management team or the current board of directors, negotiated and
entered into, on a arms length basis, an agreement with the five founders of
International Technology Marketing Inc., a newly formed company, to gain the
management services of the ITM founders for the benefit of ActiveCore. The
founders of ITM were and are experienced finance, marketing and technology
persons. The legal mechanism chosen for obtaining the services of the new
39
management team was accomplished by the two companies (ActiveCore and ITM)
entering into a stock purchase agreement which was dated September 17, 2001.
This agreement provided for the "acquisition" of shares of ITM and the issuance
of up to 50,000,000 shares of ActiveCore to be released to the individual
founders of ITM, who would be performing the management duties at ActiveCore.
The trigger mechanism for releasing tranches of shares to the ITM founders was
achievement of certain revenue milestones for ActiveCore that the ITM founders
performing the management services would achieve through application of their
management expertise.
The sole purpose and motive of the ITM "acquisition" was to secure the
future management services of the shareholders of ITM. ITM had no operations and
no sales at the time of the "acquisition," however its founders had experience
in consumer and enterprise software development, distribution and marketing. The
founding shareholders of ITM were Brian MacDonald, Peter Hamilton, Kevin Birch,
Geno Villella and Sherry Bullock who, except for Sherry Bullock who has
resigned, remain managers of ActiveCore. At the time of the acquisition,
ActiveCore believed that retaining an experienced management team would
facilitate the implementation of its business plan. In particular, Messrs.
MacDonald and Hamilton had been employed by Softkey Software International
and/or Insight Business Consultants Inc., a software company that grew sales
from $10 million in 1989 to $3 billion in 1997. During that time, Messrs.
MacDonald and Hamilton gained experience with enterprise, entertainment and
business software, which ActiveCore believed could increase their market
opportunities in obtaining distribution arrangements, reseller networks and
other distribution channels. The resumes of the principals were disclosed to the
shareholders of ActiveCore prior to a shareholder vote approving the transaction
- the ITM shareholders and ActiveCore's current management did not have any
influence on the outcome of the shareholder vote and did not have a right to
vote on the transaction. A resolution of the acquisition of ITM was included in
a proxy statement sent to the registered shareholders of ActiveCore which was,
at the properly constituted annual general meeting of ActiveCore held on
November 16, 2001, approved by a majority of shareholders. .
Concurrent with the approval of the acquisition of ITM, the ActiveCore
shareholders voted to increase the number of authorized shares of ActiveCore
from 50,000,000 to 150,000,000 common and created a new class of 50,000,000
"blank check" preferred, which, in part, was intended to permit ActiveCore to
issue sufficient shares to pay for the management services obtained through the
stock purchase agreement between of ITM and ActiveCore, and, in part, to provide
sufficient shares to acquire additional assets, entities and financing. The
issuance of the 50,000,000 shares for ITM was accomplished in three stages and
has been fully accounted as share based compensation. In the third quarter ended
September 30, 2002, the founders of ITM were eligible to receive 20,000,000
shares and these shares were recorded as "compensation shares" and valued as at
the close of business on September 30, 2002. At the end of the fourth quarter of
2002, the founders of ITM were eligible to receive an additional 10,000,000
shares and the shares were likewise valued at the share price as that date.
Finally, in the end of the second quarter of 2003 the final 20,000,000 shares
were issued and accounted for as share based compensation.
In the case of the June 2003 issuance of 20,000,000 shares the board of
directors of ActiveCore decided to amend the agreement between ITM and
ActiveCore to enable the stock in ActiveCore to be granted to the ITM founders
without achievement of the milestones. The Board of Directors decided that the
accounting treatment of the share milestones was not beneficial to the
shareholders of ActiveCore as any milestone achievement would result in a large
charge to the company's income statement thereby perpetuating losses and an
attendant loss of share value.
TECHNOLOGY AND MARKET POSITIONING EVOLUTION
From ActiveCore's creation in 1994 until mid 1999, ActiveCore was dormant
from a revenue generating perspective as the thrust of the business was that it
was engaged in the search for active businesses or technology opportunities to
exploit.
In 1999, ActiveCore concluded an development and distribution agreement
with Orchestral Corporation, a small Ontario based software developer, to
distribute, on an exclusive basis for certain countries, a software product
under the name PowerAudit and to pay for additional development work on that
product. From March 1999 and until December 28, 2001, ActiveCore was solely
engaged in operating as the exclusive distributor of the PowerAudit product for
the United States and Europe. ActiveCore attempted to market the product as a
"wireless" solution for remote field employees. During the three year period
that PowerAudit was purportedly being distributed by ActiveCore only one sale
was made for less than $150,000. From December 31, 2001 onward no sales were
made of the PowerAudit program.
Upon assuming their offices in December 2001, the new management team
commenced a review of the business of ActiveCore and also began to search for
attractive revenue and profit producing entities and reseller licenses that
could be acquired. On December 28, 2001, ActiveCore concluded its first
distribution/reseller agreement with a supplier of software other than
Orchestral to augment the enterprise software business.
40
On June 13, 2002, ActiveCore gave notice to Orchestral that it was
terminating the 1999 software distribution agreement between Orchestral
Corporation and ActiveCore for the PowerAudit product. The business reasons for
terminating the PowerAudit distribution agreement was based on three factors.
First, ActiveCore did not own or possess access to the source code and the right
to modify the software source code to maintain its attractiveness in the face of
technology evolution without using the Orchestral company's assistance. To
purchase the source code would have been very costly to ActiveCore even though
Power Audit had not been a commercial success for ActiveCore in the time since
it acquired the distribution rights in 1999. Second, the PowerAudit distribution
agreement was set to expire in May 2003. In the case of the later factor, it was
determined by the board of directors that if ActiveCore expended marketing
efforts and funds creating a brand or sales channel for the Power Audit product,
it would have been in effect creating conditions for a more expensive renewal of
the distribution agreement. This was particularly the case as Orchestral
Corporation had tied in ActiveCore to a support agreement whereby it was to be
obligated to pay approximately $4,300 per month even without clients. Despite
being the exclusive distributor for two large markets, the USA and Europe,
ActiveCore was not successful in generating revenue. In fact only one sale of
PowerAudit was ever concluded by the company and that was with the assistance of
Orchestral Corporation. The customer subsequently had financial difficulties and
the receivable that had been recorded for the sale was subsequently written off
as a bad debt on the books of ActiveCore. As the cost of extending the
PowerAudit distribution agreement was not specified at the time the original
agreement was executed, any improvements in the sales channel or customer base
for PowerAudit would have eventually increased the cost to ActiveCore of
renewing the distribution license. ActiveCore has recorded the amount payable
under the contract with Orchestral however just recently it has engaged in a
process whereby it is disputing the amount payable as a result of the onerous
and seemingly unusual circumstances under which the contact was completed.
As a result of the termination of the PowerAudit license and the
acquisition and subsequent divestiture of Ignition Entertainment, business
evolved from being solely focused on the distribution of enterprise products,
such as PowerAudit, to include consumer software products, such as mobile phone
games and other entertainment products. In February 2004, ActiveCore further
focused its operations by divesting of its cell phone game development and
distribution division.
ACQUISITIONS AND DISPOSITIONS
ACQUISITION OF INTERNATIONAL TECHNOLOGY MARKETING, INC.
In September 2001, ActiveCore, represented by its corporate counsel at the time
and, the then board members and executives, who were not in any way connected to
our current management team or the current board of directors, negotiated and
entered into, on a arms length basis, an agreement with the founders of
International Technology Marketing Inc., a newly formed company, to gain the
management services of the ITM founders for the benefit of ActiveCore. The
founders of ITM were persons who are experienced in finance, marketing and
technology. The legal mechanism chosen for obtaining the services of the new
management team was accomplished by the two companies, ActiveCore and ITM,
entering into a stock purchase agreement which was dated August 17, 2001. This
agreement provided for the "acquisition" of shares of ITM and the issuance of up
to 50,000,000 shares of ActiveCore to be released to the individual founders of
ITM, who would be performing the management duties at ActiveCore. The trigger
mechanism for releasing tranches of shares to the ITM founders was originally
agreed to be achievement of certain revenue milestones for ActiveCore that the
ITM founders, by performing the management services, would achieve through
application of their management expertise.
The sole purpose and motive of the ITM "acquisition" was to secure the
services of the current managers of the Company who were the shareholders of
ITM. ITM had no operations and no sales at the time of the "acquisition,"
however its founders had experience in consumer and enterprise software
development, distribution and marketing. The founding shareholders of ITM were
Brian MacDonald, Peter Hamilton, Kevin Birch, Geno Villella and Sherry Bullock.
Messrs. MacDonald, Hamilton and Villella remain the managers of the Company.
Sherry Bullock has resigned, and Kevin Birch has subsequently also left the
organization and has become a principal in SilverBirch Studios. At the time of
the acquisition, ActiveCore believed that retaining an experienced management
team would facilitate the implementation of its business plan. In particular,
Messrs. MacDonald and Hamilton had experience in publicly traded software
companies such as Lava Systems Inc., and SoftKey Software International. As a
result of their prior experience Messrs. MacDonald and Hamilton had considerable
expertise with enterprise, entertainment and business software, which ActiveCore
believed could increase their market opportunities in obtaining distribution
arrangements, reseller networks and other distribution channels. The resumes of
the principals were disclosed to the shareholders of ActiveCore prior to a
shareholder vote approving the transaction - the ITM shareholders and
ActiveCore's current management did not have any influence on the outcome of the
shareholder vote and did not have a right to vote on the transaction. A
resolution of the acquisition of ITM was included in a proxy statement sent to
the registered shareholders of ActiveCore which was, at the properly constituted
annual general meeting of the Company held on November 16, 2001, approved by a
majority of shareholders.
41
Concurrent with the approval of the acquisition of ITM, the ActiveCore
shareholders voted to increase the number of authorized shares of ActiveCore
from 50,000,000 to 150,000,000 of common stock and created a new class of
50,000,000 "blank check" preferred stock, which, in part, was intended to permit
ActiveCore to issue sufficient shares to pay for the management services
obtained through the stock purchase agreement between of ITM and ActiveCore,
and, in part, to provide sufficient shares to acquire additional assets,
entities and financing. The issuance of the 50,000,000 shares for ITM has been
fully accounted in the fiscal years 2002 and 2003
ACQUISITION OF IGNITION ENTERTAINMENT LIMITED
On May 28, 2002, ActiveCore acquired all of the shares Ignition
Entertainment Limited, which had been formed in late 2001, only a few months
prior to ActiveCore's acquisition of the company. Ignition was made up of
several existing companies and individuals with considerable expertise and
products in the games industry. Ignition is an United Kingdom based video game
developer, licensor, publisher, marketer and distributor and its prospects for
rapid growth in sales revenues. The purchase was done for the equivalent of
50,000,000 common shares of ActiveCore and was accounted for in the second
quarter of fiscal year 2002. Pursuant to this agreement, ActiveCore agreed to
issue 15,000,000 shares of ActiveCore's common stock and 3,500,000 shares of
convertible preferred shares of ActiveCore over approximately the next two
years. Upon conversion of the preferred stock, these payments would equal 50
million shares of ActiveCore common stock. These shares were to be held in
escrow until disbursed in accordance with the escrow agreement. The shares were
valued at approximately $6.8 million based on the average trading price of the
common stock for the 60 days prior to the acquisition however the acquisition
cost was much higher following the application of certain accounting rules based
on the value of shares just prior to and just following the effective date of
acquisition. The acquisition of Ignition facilitated the entry of ActiveCore
into the Consumer games market. With the advent of the acquisition of Ignition
Entertainment ActiveCore began to fully operate two "divisions" namely
enterprise and consumer.
ActiveCore also agreed to offer incentive payments to certain parties in
connection with the Ignition acquisition. Revelate Limited received 5,000,000
shares of ActiveCore's common stock 90 to 180 days after May 28, 2002 for
maintaining adequate factoring and letter of credit lines for Ignition. The
Ignition management team and employees were also to have the opportunity to earn
an additional 1,500,000 shares of preferred stock over three years, which are
also convertible into 15,000,000 shares of common stock. These shares were
subject to revenue and profit milestones which were set in arms length
negotiation with the shareholders of Ignition prior to ActiveCore purchasing the
company.
PAYMENT SCHEDULE FOR ACQUISITION
OF IGNITION ENTERTAINMENT LIMITED AND INCENTIVE PAYMENTS
---------------------------------------------------------------------------------------------------------------------------------
AFTER THE
AFTER THE PRECEDING
BETWEEN PRECEDING TIME PERIOD AFTER THE
WITHIN 91 AND 180 TIME PERIOD AND SIX PRECEDING
90 DAYS OF DAYS AFTER TO MONTHS TO TIME AND ON
TIME PERIOD: CLOSING MAY 28, 2002 MAY 28, 2003 MAY 28, 2003 MAY 28, 2004 MAY 29, 2004
---------------------------------------------------------------------------------------------------------------------------------
GOALS: -- -- -- $13,000,000 $26,000,000 $45,000,000
Gross Revenues (in U.S. Dollars)
---------------------------------------------------------------------------------------------------------------------------------
Net Income (in U.S. Dollars) -- -- -- $1,000,000 $5,000,000 $15,000,000
---------------------------------------------------------------------------------------------------------------------------------
PAYMENTS: -- 5,000,000 -- if reach both if reach if reach both
Incentive Payments of ActiveCore to Revelate above goals both above above goals
common and preferred shares Limited 500,000 goals 500,000 shares
shares of 500,000 of convertible
convertible shares of preferred stock
preferred convertible
stock preferred
stock
---------------------------------------------------------------------------------------------------------------------------------
Release of 50 Million Shares of -- 15,000,000 1,000,000 1,000,000 1,000,000 500,000 shares
ActiveCore common stock (upon shares of shares of shares of shares of of preferred
conversion of all preferred stock common stock preferred preferred preferred stock
issued) stock stock stock (convertible to
(convertible (convertible (convertible 5,000,000 shares
to 10,000,000 to 10,000,000 to 10,000,000 of common stock)
shares of shares of shares of
common stock) common stock) common stock)
---------------------------------------------------------------------------------------------------------------------------------
42
The acquisition of Ignition Entertainment had a significant impact on
ActiveCore's revenues and costs. In addition, the acquisition of Ignition
increased ActiveCore's cost structure by approximately $4,000,000 per year,
consisting primarily of research and development, rent, salaries, marketing,
advertising, depreciation and amortization expenses.
ACQUISITION OF ACTIVECORE TECHNOLOGIES LIMITED FORMERLY KNOWN AS
SPRINGBOARD TECHNOLOGY SOLUTIONS INC.
On July 1, 2002, ActiveCore acquired all the outstanding shares of
Springboard Technology Solutions Inc. (since renamed ActiveCore Technologies
Ltd.) for consideration of 2,000 common shares on the basis of a one for one
exchange which was governed by a purchase and sale agreement. Springboard
Technology Solutions Inc. was owned by Brian MacDonald, Peter Hamilton, Kevin
Birch, Geno Villella, and Sherry Bullock all of whom were officers of ActiveCore
at the time. Since January 2001, Springboard had provided the physical
infrastructure for ActiveCore. Springboard Technology is a data solutions
company that provides network solutions, web and software development and data
interface and integration services. The company was in operation for three years
prior to the ActiveCore acquisition. At the time of acquisition, Springboard
Technology had 10 full-time employees and consultants excluding the management
of ActiveCore (formerly IVP).
ActiveCore Technologies' acquisition of Springboard was not considered a
"significant" acquisition because Springboard's net assets and results of
operations were less than 10% of ActiveCore's consolidated net assets.
ActiveCore accounted for the Springboard acquisition under the purchase method
of accounting in the third quarter of fiscal 2002.
The purchase price for Springboard was the issuance of 2,000 shares of
common stock on a one for one basis resulting in a cost of approximately $260
which was accounted for in the quarter ended September 30, 2002. Concurrent with
the acquisition of Springboard Technology ActiveCore also obtained ownership of
Springboard's Vaayu software product, which augments the other enterprise
software sold by ActiveCore's enterprise division.
DISPOSITION OF IGNITION ENTERTAINMENT LIMITED
During the period from May 28, 2002 to February 14, 2003 ActiveCore was
engaged in a process to obtain approval of an SB-2 Registration Statement. The
primary purpose of the SB-2 was to approve the $10,000,000 Equity Line of Credit
from Cornell Capital Partners, details of which are included elsewhere in this
prospectus. During this time period the managers of ActiveCore and Ignition were
engaged in a process of spending money and incurring debts to purchase
equipment, fund sales and develop new video game products in addition to paying
for the legal and accounting fees required for SB-2 approval. As the SB-2
process wore on ActiveCore's overall access to trade debt dried up such that the
Company's sales revenues began dropping rather than increasing and the output of
game titles was delayed due to forced reductions in manpower as a result of cash
shortfalls. Despite considerable funding provided by principals of ActiveCore
and other individuals the delay in the SB-2 approval created the perception by
outside parties that there was something inherently wrong with the public status
of the company and we were not able to overcome this perception.
By May 2003, although ActiveCore had drawn down its first tranche under
the Equity Line of Credit, it was apparent that irreparable harm had been done
to the entire games production and sales operation at Ignition Entertainment
such that debts had climbed beyond the capacity of ActiveCore to draw down on
the Cornell Equity Line of Credit without undue pressure on the Company's stock
price. That is, increased draw downs would have placed the stock price at less
that 1 cent thereby negating any ability to draw down on the equity line to fund
sales and production.
Given that the sales and production processes at Ignition were slowed to
such an extent the board of directors determined that there was no alternative
but to divest of the Ignition subsidiary to a buyer. Several groups were
approached and it was determined that a group, some of which were original
shareholders of Ignition at the time of ActiveCore's acquisition of Ignition in
May 2003, presented the best economic value for ActiveCore.
Effective April 1, 2003, ActiveCore sold 100% of the issued shares and all
assets and liabilities of Ignition Entertainment, Ltd. for the return of
11,000,000 shares of ActiveCore's common stock. The transaction resulted in a
gain of $2,396,009, which has been included in the consolidated statement of
operations for the year ended December 31, 2003 and the condensed consolidated
statements of operations for the three and six months ended June 30, 2003, as a
gain on sale of discontinued operations.
Upon execution of the sale agreement in June 2003, ActiveCore issued
50,000,000 shares of its common stock to the former shareholders of Ignition
Entertainment Ltd. in accordance with the original May 28, 2002 purchase
agreement. Based upon the terms of the sale agreement, ActiveCore converted all
of the 3,500,000 shares of preferred stock to be issued, into 35,000,000 shares
of common stock and accelerated the issuance of 15,000,000 shares of common
stock to be issued. The issuance of the 50,000,000 shares of common stock in
43
June 2003 relieved ActiveCore's obligation as of April 1, 2003, to issue
$11,949,156 in preferred and common stock under the original May 28, 2003
purchase agreement. The 50,000,000 shares were delivered, in trust, to an
independent third party upon the execution of the sale agreement and will be
distributed to the former owners. Following the issuance of the 50,000,000
shares of ActiveCore's common stock, the former shareholders returned 11,000,000
shares of common stock to ActiveCore as proceeds for the sale of Ignition
Entertainment Ltd. The 11,000,000 shares were valued at $770,000 based upon the
fair market value of the stock on April 1, 2003, the effective date of the sale
agreement. The 11,000,000 shares are presented in the December 31, 2003
consolidated balance sheet as treasury stock. The shares were subsequently
cancelled on February 24, 2004.
In connection with the sale agreement, ActiveCore retained rights to
certain intellectual property and received a source code licensing agreement for
certain interactive software games developed by Ignition Entertainment Ltd. In
addition to the source code licensing agreement, ActiveCore also received a
distribution agreement to distribute the interactive software games on a
worldwide basis for a period of three years, renewable annually thereafter. The
Company will pay Ignition Entertainment Ltd. a royalty fee of 30% of all gross
revenues, less direct costs, from the sale, distribution or marketing of those
game titles used by ActiveCore. As of June 30, 2004, and December 31, 2003,
ActiveCore did not assign any value to the acquired intellectual property and or
to the distribution agreement. This agreement has been assigned to SilverBirch
Studios Inc. as part of the sale of assets of the Games Division.
Following is a summary of net liabilities of Ignition Entertainment Ltd.
as of April 1, 2003 and December 31, 2002:
AS OF AS OF
APRIL 1, DECEMBER 31,
2003 2002
---------- ----------
Cash $ 160 $ 213,923
Accounts receivable, net 212,741 149,676
Inventory 78,955 383,738
Prepaid expenses 113,044 99,488
Property, plant and equipment, net 417,727 442,674
Other assets 24,963 --
---------- ----------
Total Assets $ 847,590 $1,289,500
---------- ----------
Accounts payable 1,044,294 1,182,423
Accrued liabilities 134,058 240,833
Due to factor 211,249 94,746
Taxes payable 436,513 338,520
Translation adjustment 93,790 64,887
Notes payable 129,366 80,220
Due to related parties 424,329 720,376
---------- ----------
Total Liabilities 2,473,599 2,722,005
---------- ----------
Net Liabilities of Discontinued
Operations $1,626,009 $1,432,505
========== ==========
ACQUISITION OF DATA INTEGRATION ASSETS OF SCI HEALTHCARE GROUP INC.
On September 19, 2003 ActiveCore completed the acquisition of some of the
data integration staff of SCI Healthcare Group Inc. of Ohio for consideration
consisting of a promissory note for $175,000 and the issuance of 6,472,492
shares of common stock (valued at $200,000). SCI Healthcare Group conveyed 6
employees, 18 existing hospital and healthcare facility data integration
contracts, its customer list of over 100 institutions, and certain software that
were useful in managing the operation. Ms. Rhonda Lindsay has been named by
ActiveCore to be the Vice President US operations. The group will operates under
the MDI Solutions Group trade name. The shares were valued based on the closing
price of the Company's common stock on September 18th, the contracted
determination date, which represented $200,000. Additional consideration of
$175,000 was given in the form of a promissory note. The shares are being held
in trust by the seller's counsel. The Company allocated the purchase price
between goodwill ($100,000) and customer list ($275,000). The customer list is
being amortized over a term of three years based on the tenure and cancelability
of existing contracts. The number of shares issued to SCI Healthcare was subject
to an increase or reduction based on the gross revenue of
44
the Integration Services Division for the one-year period following the
acquisition. If gross revenue is less than $900,000 during such one-year period,
then the shares will be reduced as follows:
REVENUE REDUCTION IN SHARES
-------------------- -------------------
$800,000 to $899,999 10%
$700,000 to $799,999 20%
$699,999 or less 30%
If gross revenue is greater than $900,000 during such one-year period,
then the shares will be increased as follows:
REVENUE INCREASE IN SHARES
----------------------- ------------------
$900,001 to $1,000,000 10%
$1,00,001 to $1,100,000 20%
$1,100,001 or greater 30%
Based on the results for the period ended September 19, 2004 ActiveCore
reclaimed 1,941,747 common shares with an issue value of $60,000.
DIVESTITURE OF MOBILE AND WEB BASED GAMES DIVISION OF ACTIVECORE
Effective February 29, 2004, ActiveCore sold its remaining interests in
mobile and web based games with the divestiture of its mobile games group. Under
the terms of the divestiture, a new company known as "SilverBirch Studios
Limited" purchased the assets known as BladeofZorro.com, Recesgames.com and
Silverbirchstudios.com, all U.S. registered trade names. Included with the
assets sold were games that had been developed over the course of 2003 and
early-2004, ring tones and other intellectual property. SilverBirch Studios Inc.
has assumed distribution contracts for third party products included on the
Recessgames.com website.
ACQUISITION OF C COMM NETWORK CORPORATION
C Comm, formerly privately held, is a corporate message broadcasting
service which employs communication media such as facsimile, voice, and e-mail
to deliver messages to various organizations' customers. The Company has begun
marketing C Comm's services under the product name "ActiveCast". The Company has
also added new functionality to the Company's website such that large customers
of ActiveCast will each have their own portal within the Company's website to
automate dissemination of various membership or corporate broadcast messages. An
example of this type of dissemination is communication to branches of banks for
foreign exchange rate changes on a daily basis. The Company has established
certain supplier relationships with a major telecommunications company for the
use of specific high volume and high speed telecommunication lines for this
purpose.
On May 6, 2004, the Company entered into a Stock Purchase Agreement with C
Comm Network Corporation an Ontario corporation. Under the terms of the Stock
Purchase Agreement, the Company purchased all of the outstanding shares of
capital stock of C Comm from the shareholders for $461,962. The amount of
consideration paid for the shares of C Comm stock was satisfied by the issuance
of 30,758,202 restricted common shares of the Company. The amount of the
consideration to be paid for the shares of C Comm was determined based on a
multiple of revenues earned by C Comm for the two previous fiscal years ended
September 30, 2002 and September 30, 2003, plus revenues earned for the six
months ended March 31, 2004. During the next year until June 30, 2005, the C
Comm shareholders will probably be entitled to an additional allotment of shares
of the Company's common stock which amount will be determined by growth in
revenues and the price of the Company's common stock. The amount of this
additional allotment of shares will be based on the amount of revenues generated
by C Comm over and above its current sales levels.
ACQUISITION OF TWINCENTRIC LIMITED
On June 21, 2004, the Company entered into a purchase and sale agreement
with the shareholders of Twincentric whereby the Company paid 14,360,243 shares
of the Company's common stock representing $350,000 for 50% of Twincentric,
200,000 shares of the Company's common stock representing $4,875 for the
remaining 50% of Twincentric, and 1,000,000 shares of the Company's common stock
representing $24,373 in trust for the employees of Twincentric for a total of
15,560,243 shares of the Company's restricted common stock valued at $379,247.
Following the acquisition, the Company also indemnified certain shareholders
with respect to personal guarantees supporting Twincentric's operating line of
credit. During
45
the next year until June 30, 2005, the shareholders of Twincentric will probably
be entitled to an additional allotment of the Company's shares. The amount of
this additional allotment of shares of the Company's stock will be based on a
percentage of the amount of revenues generated by Twincentric over and above its
current sales level and the common shares to be allocated to fulfill this
achievement bonus will be valued as at the closing value of each quarter in
which the increased revenue percentage is earned.
Twincentric is a products and services company aimed at the AS 400 and Bull
Computer data integration and migration market. Twincentric has a broad range of
customers in North America and Europe. The market for Twincentric's primary
products consists of approximately 300,000 installations worldwide. The Company
is actively supporting the marketing of Twincentric's products, primarily
Net.Visual, into the North American market, while Twincentric will be assisting
the Company in its marketing of ActiveLink into the European market. The Company
intends to maintain the Twincentric name for marketing purposes in Europe.
Following the acquisition of Twincentric, The Company closed its London office
and moved to Witney, UK.
MANAGEMENT
Our directors and principal officers are as follow:
--------------------------------------------------------------------------------
NAME AND ADDRESS AGE POSITION
--------------------------------------------------------------------------------
Brian MacDonald 56 Chairman of the Board - Acting CFO
156 Front Street West, Director
Suite 210
Toronto, Ontario
M5J 2L6
Peter Hamilton 57 President & CEO
2261 Rockingham Drive Director
Oakville, Ontario L6H 7J4
Canada
Stephen Lewis 50 Director
461 Bedford Park Avenue
Toronto, Ontario, M5M 1K2
Canada
J. Stephen Smith 65 Director
11614 Holly Briar Lane
Great Falls, VA 22066
United States
John Choy 50 Consultant Chief Accounting Officer
156 Front Street West,
Suite 210
Toronto, Ontario
M5J 2L6
Below are biographies of our executive officers as of October 12, 2004:
BRIAN MACDONALD, CHAIRMAN OF THE BOARD. Brian MacDonald, IVP's Chairman
was appointed to the board in November 2001 and elected Chairman of the Board in
December 2001. Prior to his position with IVP, Mr. MacDonald co-founded and was
President and CEO of Springboard Technology Solutions Inc., a Toronto-based
information technology and software development company. In 1995, he co-founded
(with Mr. Peter Hamilton) and served as the Executive VP Corporate Development
and CFO of Lava Systems Inc., a multinational software company that provided
document management, imaging and work flow software services, based in Toronto,
Chicago, London, and Australia. During this time, he assisted Lava Systems in
raising over CAD $36 million, and co-led the company to public status with a
listing on the Toronto Stock Exchange. Also, during his tenure with Lava Systems
Inc., Mr. MacDonald assisted in the acquisition of 4 companies in the United
Kingdom and Australia. Mr. MacDonald graduated from the University of Alberta in
1974 with an honors BA in Political Science, and received his Masters of Arts in
Public Policy and Political Science from the University of British Columbia in
1979. Mr. MacDonald completed the Canadian Securities Course in 1992. He also
holds a Fellow of the Institute of Canadian Bankers designation. Mr. MacDonald
has served in managerial capacities with The Toronto Dominion Bank, Banque
Nationale de Paris, Confederation Life Insurance Company and ABN Amro Bank.
46
PETER HAMILTON, PRESIDENT AND CEO. Peter Hamilton, IVP's President and CEO
was appointed a Director in November 2001. Mr. Hamilton oversees product
development, distribution activities and sales for ActiveCore. In 1999, he
co-founded with Mr. MacDonald, Springboard Technology Solutions Inc. and has
served as the VP Sales and Consulting. Prior to his position with Springboard,
in 1995, Mr. Hamilton co-founded (with Mr. MacDonald) and served as President
and CEO of Lava Systems Inc., a multinational software company that provided
document management, imaging and work flow software services, based in Toronto,
Chicago, London, and Australia. During this time, Mr. Hamilton was responsible
for overseeing Lava's expansion of its operations into Europe, Australia, U.S.
and Canada and developed business partners in South America, South Africa, the
Middle East and Scandinavia. He also assisted Lava in raising over CAD $36
million, and co-led the company to public status with a listing on the Toronto
Stock Exchange. Prior to this, Mr. Hamilton served as Senior VP of Operations
for SoftKey Software International, a publicly traded company on the New York
Stock Exchange. He was responsible for SoftKey's day-to-day operations,
including manufacturing, product distribution, information systems, finance,
customer support, technical support and product data management and marketing.
In addition, Mr. Hamilton integrated 18 new businesses into SoftKey's operations
during his tenure and was instrumental in the growth of the company from
$2,000,000 in sales in 1989 to $300,000,000 in 1995.
JOHN CHOY, CHIEF ACCOUNTING OFFICER. Mr. Choy joined ActiveCore in July
2004 as a consultant engaged to fulfill the accounting and finance duties
normally associated with a CFO. Mr. Choy was previously employed by Simex Inc.
as CFO from 2002 until 2004 where he was responsible for finance, taxation and
corporate development. From 1994 to 2001, Mr. Choy worked as CFO for Nor Baker
Inc. a flexible packaging material company. Prior to Nor Baker he worked in
various financial capacities for the Bank of Montreal, ATI Industries and HJ
Heinz. Mr. Choy is a Chartered Accountant (UK) and articled with Peat, Marwick,
Mitchell & Co. now (KPMG). Mr. Choy holds a Master of Business Management,
Durham University Business School, England (Major - Finance) and completed the
Canadian Securities Course in 1994.
J. STEPHEN SMITH, DIRECTOR. J. Stephen Smith has served as a Director of
ActiveCore since November 2001. Mr. Smith has over 30 years experience in
planning, directing and managing major projects in such diverse fields as radar
system development, electronic intelligence system design, installation and
operation, ship design and acquisition and Document Management System
development and applied solutions. He has served as Vice-President Operations
for CDI Marine, the nation's largest marine engineering firm and has held the
positions of Director of Engineering, Vice-President and President of ROH, a
diverse professional services company specializing in DMS solutions, web site
development and applications and a broad range of support for the US Navy ship
acquisition program. Mr. Smith graduated with a BBA from the University of Notre
Dame and received his Masters in Science and Electronics Engineering from the
U.S. Naval Postgraduate School.
STEPHEN LEWIS, DIRECTOR. Mr. Lewis has served as a Director of ActiveCore
since July 2003. Stephen Lewis has extensive financial, corporate governance and
legal experience in large corporate environments and in fast growing
entrepreneurial settings. Mr. Lewis is a seasoned executive and was CFO of the
Lehndorff Group of companies from 1976 to 1994. The Lehndorff Group was a North
American/European real estate investment and property management organization
with assets and offices located across Canada and into the United States. Over a
number of years Lewis rose within the organization to become executive vice
president and chief financial officer, responsible for all facets of the group's
finance, accounting, administration, M.I.S and human resources. He was also a
member of the board of directors of numerous Lehndorff management companies and
acted as chief liaison between management and the independent boards and
committees that made up the Lehndorff Group. Mr. Lewis sold his franchise
operations in 2002 and is currently acting in a consulting capacity on a number
of different business ventures. Mr. Lewis is also a member of the board of
directors of the Children's Aid Society of Toronto ("CAST"), one of the largest
child welfare organizations in the World. Lewis was recently awarded a Queen's
Jubilee Medal, an award granted to individuals whose achievements have benefited
their fellow citizens, community and country.
COMPENSATION OF NON-EMPLOYEE DIRECTORS. J. Steven Smith and Stephen Lewis
will be paid 1,000,000 shares of common stock for each year of service on the
board. There is no separate compensation for directors who are also a part of
management for their services as a director of ActiveCore. All directors will be
reimbursed for all of their out-of-pocket expenses incurred in connection with
the rendering of services as a director.
There are no family relationships among directors, executive officers or
persons nominated to become directors of executive officers.
47
COMMITTEES OF THE BOARD OF DIRECTORS
During a Board of Directors meeting held on March 19, 2002, an audit
committee was established. The audit committee will report to the Board of
Directors regarding the appointment of our independent public accountants, the
scope and results of our annual audits, compliance with our accounting and
financial policies and management's procedures and policies relative to the
adequacy of our internal accounting controls. The audit committee is comprised
of Messrs. MacDonald, Lewis and Smith.
During a Board of Directors meeting held on June 24, 2003, a compensation
committed was established to review compensation levels and agreements for
senior management of ActiveCore. The committee consists of Messrs. Lewis, Smith
and Hamilton.
EXECUTIVE COMPENSATION
The following summary compensation table shows certain compensation
information for services rendered in all capabilities for the calendar years
ended December 31, 2003, 2002, and 2001. Other than as set forth herein, no
executive officer's cash salary and bonus exceeded $100,000 in any of the
applicable years. The following information includes the dollar value of base
salaries, bonus awards, the value of restricted shares issued in lieu of cash
compensation and certain other compensation, if any, whether paid or deferred:
ANNUAL COMPENSATION LONG-TERM COMPENSATION
-------------------------------------------- ------------------------------------------------------
RESTRICTED
OTHER STOCK
NAME & ACCRUED AWARDS IN LTIP ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION US$ OPTIONS/SARS PAYOUTS COMPENSATION
---------------------------------------------------------------------------------------------------------------------------
Brian MacDonald (3) 2003 $96,000 -- -- -- -- -- --
Chairman of the 2002 $60,933 -- -- -- -- -- --
Board, Secretary 2001 $7,440 -- -- -- -- -- --
Peter Hamilton(3) 2003 $96,000 -- -- -- -- -- --
President and CEO 2002 $60,933 -- -- -- -- -- --
2001 -- -- -- -- -- -- --
John Maxwell 2003 -- -- -- -- -- -- --
President (1) 2002 -- -- -- 25,000 (2) -- -- --
2001 -- -- -- -- -- -- --
John Trainor, 2003 -- -- -- -- -- -- --
Secretary (1) 2002 -- -- -- 25,000 (2) -- -- --
2001 -- -- -- -- -- -- --
(1) Effective December 15, 2001, Messrs. Maxwell and Trainor resigned as
officers and directors of IVP Technology.
(2) In March 2002, Messrs. Maxwell and Trainor each received 500,000 shares of
restricted common stock valued at $.05 per share, in lieu of cash
compensation.
(3) Mr. MacDonald became Chairman and Chief Executive Officer on November 16,
2001. Mr. Hamilton was elected to the board of directors on November 16,
2001 but did not commence employment until 2002. In July 2004 Mr. Hamilton
was assigned the duties of President and CEO by Mr. MacDonald in light of
expanded duties associated with recent acquisitions. This excludes the
issuance of 14,000,000 shares each to Mr. MacDonald and Mr. Hamilton in
connection with the acquisition of International Technology Marketing in
March 2002.
IVP Technology has no deferred compensation, stock options, SAR or other
bonus arrangements for its employees and/or directors. During the calendar year
ended December 31, 2003, all decisions concerning executive compensation were
made by the Board of Directors.
EMPLOYMENT AGREEMENTS
In August 2001, International Technology Marketing entered into employment
agreements with Brian MacDonald and Peter J. Hamilton. Mr. MacDonald is employed
as President and Treasurer and Mr. Hamilton is employed as Vice President,
Sales. Each of these agreements has a term of three years and thereafter will
continue for one year terms unless either party terminates the agreement at
least 90 days prior to the end of any term. Each of Mr. MacDonald and Mr.
Hamilton has a salary of CAD $96,000 per year, plus 6% of sales revenue. As ITM
is a dormant corporation following its acquisition by ActiveCore it has no sales
revenue and therefore ActiveCore is not liable to pay any portion of its sales
revenues to Mr. MacDonald or Mr. Hamilton. ActiveCore guarantees the payments
under these employment contracts. Neither Mr. MacDonald nor Mr. Hamilton
receives any further compensation for service as an officer or director of
ActiveCore Technologies.
48
In September 2001, International Technology Marketing entered into
employment agreements with Geno Villella, Kevin Birch and Sherry Bullock. Mr.
Villella is employed as Vice President Implementation, Mr. Birch is employed as
Senior Vice President and Chief Technology Officer and Ms. Bullock was employed
as Vice President Marketing. Ms. Bullock left the company as of July 10, 2002.
Ms. Bullock received a payment of approximately $2,500 per month until June 30,
2003 as compensation under her termination agreement. Each of these agreements
has a term of three years and thereafter will continue for one year terms unless
either party terminates the agreement at least 90 days prior to the end of any
term. Mr. Villella is paid a base salary of $36,000 per year, Mr. Birch is paid
a base salary of $60,000 per year and Ms. Bullock was paid a base salary of
$30,000 per year. ActiveCore guarantees the payments under these employment
contracts. Neither Mr. Villella nor Mr. Birch received any further compensation
for services as an officer of ActiveCore. ActiveCore assumed these contracts
effective April 1, 2002.
ActiveCore has no deferred compensation, stock options, SAR or other bonus
arrangements for its employees and/or directors. All decisions concerning
executive compensation were made by the Board of Directors.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
JAMES CASSIDY AND TPG CORPORATION
In March of 2000, the Company entered into an agreement (the "TPG
Agreement") with TPG Capital corporation ("TPG"). Under the TPG Agreement, TPG
provided advice and other services to ActiveCore with respect to the acquisition
of Erebus Corporation (the "Erebus Acquisition"). The Company pursued the Erebus
Acquisition to, among other things, maintain its listing eligibility on the Over
the Counter Bulletin Board ("OTCBB"). TPG was the sole stockholder of Erebus
Corporation and the Company believes that James Cassidy was a controlling
stockholder of TPG.
Under the Erebus Acquisition, the Company purchased Erebus, a non-active
entity with securities registered under the Securities Exchange Act of 1934, as
amended, to, among other things, retain its listing status on the OTCBB. At that
time, the Company was at risk of losing its listing eligibility under a new
national Association of Securities Dealers ("NASD") listing requirement. Loss of
listing eligibility would have resulted in the Company trading in the Pink
Sheets. Management and the board of directors at that time determined that such
a development would be detrimental to its stockholders and other investors. The
Company consummated the Erebus Acquisition in March of 2000.
Under the TPG Agreement, the Company paid to TPG 200,000 shares of the
Company's common stock, then worth $500,000, and $200,000 in cash. In addition,
the TPG Agreement contains a reset provision which obligates the Company to
issues additional shares of its common stock so that the total number of shares
issued to TPG under the TPG Agreement had a value of $500,000 as of the first
anniversary of the effective date of the TPG Agreement. Based on the relative
share prices of the Company common stock as of March of 2000 and March of 2001,
if the Company were required to satisfy the reset provision, the Company would
be required to issue to TPG an additional 3,028,378 shares of its common stock
("Reset Shares").
The Company does not believe that TPG is entitled to the Reset Shares.
Based on public records, in June of 2001, TPG and Mr. Cassidy reached a
settlement agreement with the SEC with respect to securities fraud and
disclosure violations alleged by the SEC in connection with transactions
substantially similar to the Erebus Acquisition. Neither Mr. Cassidy nor TPG
admitted or denied the allegations. A description of the settlement is contained
in SEC Litigation Release No. 17023, dated June 4, 2001. Although the Company
has maintained its listing status on the OTCBB, the Company has experienced
significant regulatory problems in connection with the Erebus Acquisition that
are related to the allegations underlying the settlement between TPG and Mr.
Cassidy and the Securities and Exchange Commission. These problems have resulted
in significant delay and expense to the Company.
In March of 2004, Mr. Cassidy, as assignee of TPG's rights under the TPG
Agreement, filed a claim in the Superior Court of the District of Columbia
against the Company seeking, among other things, the Reset Shares. The Company
has engaged a law firm to vigorously defend it against the claim. During the
quarter ended September 30, 2004 the action was withdrawn and the Company and
Mr. Cassidy agreed to enter into arbitration on the matter and this is now in
process with the arbitration board currently being established. Arbitration is
expected to begin in April 2005. No contingent liability has been allocated for
any eventual loss on the action.
Pursuant to Rule 405 promulgated under the Securities Act of 1933, as
amended, the Company believes that Mr. Cassidy may be deemed to be a "promoter"
of the Company. The Company has no ongoing business relationship with Mr.
Cassidy and he is not employed by the Company in any manner.
49
ORCHESTRAL CORPORATION
Orchestral Corporation commenced a proceeding in Ontario court in January of
2003, which was subsequently placed into abeyance, then revived in August of
2003, against the Company and its Canadian subsidiary, ActiveCore Technologies
Limited (formerly Springboard Technology Solutions Inc.) to the effect that they
had infringed upon the copyright that Orchestral maintained in PowerAudit and
further that the Company had breached the distribution contract between
Orchestral and the Company with respect to termination and non-payment of
support costs with regard to the distribution of Power Audit. Orchestral has
claimed punitive and exemplary damages of Canadian $4,000,000 and Canadian
$1,000,000, respectively. The Company has retained the law firm of LeDrew
Laishley and Reed to defend itself on the basis that the Company believes that
there is no merit to the case and even if there was merit, the time frame in
which to bring an action in the contract has expired.
Compulsory mediation has occurred in the case and no settlement was
offered or agreement was arrived at during the mediation phase. The next step
would normally be "examination for discovery" then on to a trial. The Company
has not yet determined if it will counter-sue for return of all proceeds paid to
Orchestral during the period of time between 1999 and 2001. In the Company's
view, the case filed by Orchestral is frivolous, however the action is moving
forward with a pre-trial hearing set for early January 2005 the outcome of which
is not known at this time. No allocation for any continent liability has been
made on the Company's financial statements for the punitive and exemplary
damages however it has maintained in it current payables an amount of
approximately $226,000 as owing to Orchestral.
CESAR CORREIA AND INFOLINK TECHNOLOGIES LTD.
From December 2003 to April 2004, the Company was engaged in discussions
with certain major shareholders of Infolink Technologies Limited with regard to
the potential acquisition of Infolink Technologies Ltd. a public company listed
on the Toronto Stock Exchange venture board under the symbol "IFL". During the
course of discussions, an offer to purchase was rebuffed by Cesar Correia, the
former Chairman of the Board, President and CEO and 34% shareholder of Infolink.
At the time, Mr. Correia was told that the Company would purchase another
competitor to Infolink, C Comm Network Corporation. In May of 2004, the Company
purchased C Comm. In July of 2004, an unrelated minority shareholder of Infolink
commenced an action in Ontario alleging that Mr. Correia has mismanaged Infolink
and amongst other things that he had inappropriately obtained funds from the
company and converted them to his own purposes. The day prior to the court
hearing with regard to the minority shareholder action, Mr. Correia together
with Infolink Technology commenced a proceeding in the same Ontario court
alleging unfair competition as a result of an alleged improper acquisition of
confidential information from Infolink and numerous other causes of action.
Meanwhile, the court appointed a monitor and investigator to look into the
allegations against Mr. Correia. The court appointed monitor and investigator
issued an interim report in October 2004 which found that several of the
allegations against Mr. Correia were substantiated. Mr. Correia was removed from
the position of Chairman, President and CEO of Infolink and is now an employee
of Infolink with a reduced salary. The Company believes that Infolink as a
corporate entity will not proceed with any action against the Company as the
Company believes that the action was commenced as a defensive move by Mr.
Correia and now that he has been removed from management of Infolink there is
little basis for the action to continue.
The Company is not presently a party to any other material legal
proceedings, nor is it aware of any material threatened litigation.
ActiveCore Technologies Limited, the Canadian subsidiary, has a liability
to the Canada Customs and Revenue Agency ("CCRA") for un-remitted payroll taxes,
in the approximate amount of $410,000 which is comprised of $327,000 for current
payroll taxes and penalties, and $83,000 from a December 31, 2002 CCRA audit
assessment whereby several contract employees were deemed to be eligible for
statutory pension and unemployment premiums not previously recorded. The Company
has accrued these liabilities together with appropriate interest and penalties.
This liability is included in taxes payable in the current liabilities section
of the accompanying condensed consolidated balance sheets at September 30, 2004
and December 31, 2003. The company is in negotiations with the CCRA to develop
an appropriate repayment plan based on a 12 month amortization. The company
believes that by agreeing to the repayment plan there will be no aggressive
collection effort by the CCRA which may have had a significant negative effect
on some of the Company's Canadian operations.
50
The Company is not presently a party to any other material legal
proceedings, nor is it aware of any material threatened litigation.
51
DESCRIPTION OF PROPERTY
ActiveCore Technologies' principal executive office is located at 156
Front Street West, Suite 210, Toronto, Ontario M5J 2L6 Canada, which are also
the premises occupied by its wholly-owned Canadian subsidiaries, ActiveCore
Technologies Ltd.., C Comm Network Corporation and MDI Solutions. The 6500
square foot premises rent for a monthly cost of $12,000. The company also
operates co-location space for its telecommunications equipment at 151 Front
Street West at a cost of $600 per month and a small office in the west end of
Toronto at a cost of $2,500 per month.
ActiveCore's wholly-owned subsidiary, Twincentric Limited operates out of
purpose built premises in Witney UK at a cost of approximately $4000 per month.
ActiveCore also uses a Tampa address for its US MDI Solutions Group activities
which is the home of its Vice President, US Operations. The Company's registered
office is located in Nevada.
52
PRINCIPAL STOCKHOLDERS
The following table contains information about the beneficial ownership of
our common stock as of December 21 , 2004 for:
(i) each person who beneficially owns more than five percent of the
common stock;
(ii) each of our directors;
(iii) the named executive officers; and
(iv) all directors and executive officers as a group.
COMMON STOCK
BENEFICIALLY OWNED
-------------------------------
NAME/ADDRESS TITLE OF CLASS AMOUNT PERCENTAGE (3)
------------------------------------------------------------------------------------------
Brian MacDonald Common Stock 32,196,969 6.6%
Peter Hamilton Common Stock 27,196,969 5.6%
John Choy Common Stock 2,000,000 *
Stephen Lewis Common Stock 2,000,000 (1) *
Stephen Smith Common Stock 2,000,000 (2) *
---------- ----
All Officers and Directors as a Group Common Stock 65,393,938 12.2%
========== ====
* Less than one percent.
(1) Of that total 1,000,000 shares were issued on June 24, 2003 and 1,000,000
vested on November 1, 2003.
(2) Of that total, 500,000 shares were issued on December 31, 2002, 500,000 on
June 24, 2003 and 1,000,000 shares vested on November 1, 2003.
(3) Applicable percentage of ownership is based on 488,263,053 shares of
common stock outstanding as of December 21, 2004 for each stockholder.
Beneficial ownership is determined in accordance within the rules of the
Commission and generally includes voting of investment power with respect
to securities. Shares of common stock subject to securities exercisable or
convertible into shares of common stock that are currently exercisable or
exercisable within 60 days of December 21, 2004 are deemed to be
beneficially owned by the person holding such options for the purpose of
computing the percentage of ownership of such persons, but are not treated
as outstanding for the purpose of computing the percentage ownership of
any other person.
53
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On July 1, 2002, ActiveCore acquired all the outstanding shares of
Springboard Technology Solutions Inc. for consideration of 2,000 common shares
on the basis of a one for one exchange. Springboard Technology Solutions Inc.
was owned by Messrs. MacDonald, Hamilton, Birch, Villella and Ms. Bullock, all
of whom were officers or directors of ActiveCore Technology at the time of
acquisition and has provided the physical infrastructure for ActiveCore
Technology Inc., since January 1, 2002. Springboard has been in operation for
three years. At the time of acquisition Springboard Technology had 10 full time
employees and consultants. The acquisition was consummated for nominal
consideration $260 of stock and therefore ActiveCore Technology did not believe
the use of an independent negotiating committee was warranted.
On June 1, 2002, Ignition Entertainment Limited entered into a consulting
agreement with Montpelier Limited whereby Montpelier will provide business
development and financial advice to Ignition. Under the terms of the agreement,
Ignition is obligated to pay Montpelier (pound)179,850 ($262,970) yearly in
equal monthly installments of $21,914. Additionally, Montpelier was entitled to
receive a signing bonus of (pound)29,975 ($43,828) upon execution of the
agreement. Montpelier Limited is owned by Vijay Chadha, Ajay Chadha and Martin
Monnieckdam, all of whom are officers of Ignition Entertainment. This contract
has subsequently been assumed by Ignition Entertainment's new owners.
During the three months ended March 31, 2002, ActiveCore issued 1,000,000
shares each to Messrs. Smith, Sidrow and King for services as directors for the
two-year period 2001-2003. The 3,000,000 shares are held in escrow. Subsequent
to the quarter ended March 31, 2002, Messrs. Sidrow and King resigned from the
Board of Directors for personal reasons and as a result their entitlement to
shares terminated. The shares related to Mr. Sidrow and Mr. King have been
rescinded.
ActiveCore Technologies Inc.'s principal executive office was located at
2275 Lakeshore Blvd. West Suite 401, Toronto Ontario M8V 3Y3 Canada, which are
also the premises occupied by ActiveCore Technologies Ltd. a wholly-owned
subsidiary, formerly Springboard Technology Solutions, Inc., ActiveCore had an
oral agreement which commenced January 1, 2002, with Springboard Technology
Solutions, Inc., a corporation owned by Messrs. MacDonald, Hamilton, Birch,
Villella and Ms. Bullock, whereby ActiveCore was obligated to pay Springboard
approximately $30,000 per month for rent, utilities, network infrastructure,
equipment leases and all office administrative services. Messrs. MacDonald and
Hamilton are officers and directors of ActiveCore. Messrs. Birch and Villella
are officers of ActiveCore. Ms. Bullock was an officer of ActiveCore until her
resignation in July, 2002. On July 1, 2002 ActiveCore acquired Springboard
Technology Solutions and the monthly administrative charge was rescinded.
On September 17, 2001, ActiveCore Technologies entered into a stock
purchase agreement with International Technology Marketing, Inc. whereby
ActiveCore Technologies is obligated to issue 50 million shares of common stock
to the shareholders of International Technology Marketing, who include Messrs.
MacDonald, Hamilton, Birch, Villella and Ms. Bullock, the current and former
members of our management team, in exchange for all of International Technology
Marketing's common stock. In that transaction, ActiveCore Technologies,
represented by its corporate counsel, Thomas Chown, the board members and
executives in place at that time, none of which are part of current management
or its board of directors, negotiated and entered into, on a arms length basis,
an agreement with the five founders of International Technology Marketing Inc.,
a newly formed company, to gain the dedicated management services of the
International Technology Marketing's founders for the benefit of ActiveCore
Technologies. The founders of ITM were experienced finance, marketing, sales and
information technologies. The method chosen for obtaining, in bulk, the services
of the new management team was accomplished by the two companies entering into a
stock purchase agreement whereby ActiveCore acquired the shares of ITM; however
the shareholders of ITM were not to receive their shares until ActiveCore met
certain revenue milestones. A resolution with regard to the acquisition of ITM
and the obtaining of the services of the management team was included in a proxy
statement sent to the registered shareholders of ActiveCore which was, at the
properly constituted annual general meeting held on November 16, 2001, which was
approved by a majority of shareholders.
Concurrent with the approval of the acquisition of ITM, ActiveCore's
shareholders voted to increase the number of authorized shares of ActiveCore
which, in part, permitted the company to issue sufficient shares to pay out
shares for the management services obtained through the stock purchase agreement
between of ITM and ActiveCore, and, in part, to provide sufficient shares to
acquire additional assets, entities and financing. The acquisition of ITM was
satisfied by the issuance of 50,000,000 shares of ActiveCore to the five
founding shareholders of ITM. The share issuances, given in exchange for ITM,
are subject to performance milestones. In the third quarter ended September 30,
2002 the founders of ITM became eligible to receive 20,000,000 shares for
meeting the first two milestones and these shares were recorded as stock-based
compensation and valued on a market price basis on the close of business on
September 30, 2002, at a cost of $3,800,000. On December 31, 2002, an additional
54
10,000,000 shares qualified for release. These shares were valued for accounting
purposes at $0.17 per share or an aggregate of $1,700,000. These disbursements
of shares were non-cash items. The Company accelerated the issuance of the final
20,000,000 shares, which were released from escrow and recorded as stock-based
compensation on June 30, 2003, and were valued at $.027 per share for an
aggregate of $540,000.
On March 25, 2002, we issued the 50 million shares of common stock to be
held by ActiveCore Technologies until the escrow agreement is executed to hold
the shares. These shares were to be held pending satisfaction of certain
performance related goals. As these goals are achieved, the shares will be
disbursed from the escrow to the former shareholders of International Technology
Marketing. The former shareholders are entitled to vote the shares held in
escrow pending satisfaction of the performance goals. In the quarter ended
September 30, 2002 the former shareholders of ITM became eligible to receive the
first two tranches related to the revenue milestones. The issuance of the shares
was accounted for by the recording an expense under salaries for $3,800,000 or
20,000,000 times the $0.19 cent share price as at September 30, 2002. On
December 31, 2002, an additional 10,000,000 shares qualified for release. These
shares were valued for accounting purposes at $0.17 per share. These
disbursements were non-cash items.
The performance goals are as follows:
o 10,000,000 shares will be disbursed upon aggregate sales of
$500,000.
o 10,000,000 shares will be disbursed upon aggregate sales of
$1,000,000.
o 10,000,000 shares will be disbursed upon aggregate sales of
$2,000,000.
o 10,000,000 shares will be disbursed upon aggregate sales of
$6,000,000.
o 10,000,000 shares will be disbursed upon aggregate sales of
$16,200,000.
In March 2000, ActiveCore, through an agreement with TPG Capital
Corporation, which was operated by James Cassidy, a lawyer in Washington D.C.,
acquired Erebus Corporation for $200,000 in cash and 350,000 shares of
ActiveCore valued at $500,000, the market value of ActiveCore's stock at the
time of acquisition. This consideration was paid as a fee to TPG Capital, the
sole shareholder of Erebus Corporation. The Erebus transaction was undertaken
between Erebus, a non-active reporting entity, and ActiveCore Technology, in
order for ActiveCore could become a reporting issuer with the SEC and thereby
maintain its status as a listed company on the OTCBB. From an accounting
standpoint the Erebus transaction was treated as a recapitalization (stock for
stock transaction and no goodwill was recorded).
TPG Capital was the sole shareholder of Erebus Inc., an inactive reporting
shell company. The consulting agreement states that one year after the execution
of the agreement ("reset date") the 350,000 common shares issued by ActiveCore
Technologies to the former stockholder shall be increased or decreased based
upon the average closing price of ActiveCore Technologies' stock 30 days prior
to the reset date, so the value of the 350,000 shares was equal $500,000. The
average closing price of the stock was $0.1487 per share. Based on the
consulting agreement ActiveCore Technologies is obligated to issue an additional
3,028,378 common shares to the consultant as an additional fee. ActiveCore
Technologies does not believe that it will be legally obligated to issue the
shares based on the reset date as the SEC had previously reached a settlement
agreement with Mr. Cassidy and TPG Capital with regard certain practices related
to vending reporting shells to nonreporting entities in order for the later to
retain listing status on the OTC BB. See SEC Litigation release no. 17023/June
4, 2001.
Since becoming a reporting entity ActiveCore Technologies has filed and
maintained its reporting obligations to the SEC.
55
MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S
COMMON EQUITY AND OTHER STOCKHOLDER MATTERS
ActiveCore (IVP) Technologies' common stock is traded on the
Over-the-Counter Bulletin Board under the symbol "TALL". The following table
sets forth, for the periods indicated, the high and low bid prices of a share of
common stock for the last four years, as well as the first three quarters of
2004.
2000 HIGH BID LOW BID
-------------------------------------------------------------------------------
Quarter Ended March 31, 2000 $3.69 $0.13
Quarter Ended June 30, 2000 1.41 0.56
Quarter Ended September 30, 2000 0.91 0.57
Quarter Ended December 31, 2000 0.67 0.14
-------------------------------------------------------------------------------
2001
-------------------------------------------------------------------------------
Quarter Ended March 31, 2001 $0.22 $0.12
Quarter Ended June 30, 2001 0.14 0.05
Quarter Ended September 30, 2001 0.17 0.04
Quarter Ended December 31, 2001 0.09 0.03
-------------------------------------------------------------------------------
2002
-------------------------------------------------------------------------------
Quarter Ended March 31, 2002 $0.11 $0.03
Quarter Ended June 30, 2002 0.32 0.08
Quarter Ended September 30, 2002 0.27 0.13
Quarter Ended December 31, 2002 0.20 0.14
-------------------------------------------------------------------------------
2003
-------------------------------------------------------------------------------
Quarter Ended March 31, 2003 $0.19 $0.05
Quarter Ended June 30, 2003 0.07 0.02
Quarter Ended September 30, 2003 0.04 0.02
Quarter Ended December 31, 2003 0.03 0.02
-------------------------------------------------------------------------------
2004
-------------------------------------------------------------------------------
Quarter Ended March 31, 2004 $0.028 $0.0125
Quarter Ended June 30, 2004 $0.04 $0.012
Quarter Ended September 30, 2004 $0.018 $0.0129
HOLDERS OF COMMON EQUITY
As of December 21, 2004 there were 367 registered holders of record for
our common stock. We believe that there are a large number of unregistered
holders maintaining accounts at various brokerage houses.
DIVIDENDS
ActiveCore has never paid any dividends on its capital stock. The Company
currently expects that it will retain future earnings for use in the operation
and expansion of its business and does not anticipate paying any cash dividends
in the foreseeable future. Any decision on the future payment of dividends will
depend on our earnings and financial position at that time and such other
factors as the Board of Directors deems relevant.
RECENT SALES OF UNREGISTERED SECURITIES
On September 29, 2004, the board of directors authorized the issuance of
4,746,118 restricted common shares valued at $.015 to pay the International
Brotherhood of Electrical Workers Local 105 for $70,191.77 for accrued interest
on a $500,000 term loan which had been provided to the Company's subsidiary
ActiveCore Technologies Limited. The Company also issued preferred shares in the
amount of $500,000 which will be redeemable over the next four years.
On September 8, 2004, the board of directors authorized the issuance of
8,333,333 Series A and 4,167,667 Series B preferred shares which have a purchase
price of $0.03 and $0.06, respectively. Each preferred share is convertible into
a common share at any time prior to five years from the date of issuance. With
respect to the Series A shares, the Company may force conversion if the trading
price of the Company's common shares exceeds $0.20 for 30 days. With regard to
the Series B shares, the Company may force conversion if the trading price of
the Company's common shares exceeds $0.40 for 30 days. The preferred shares will
be paid a dividend at the rate of 10% per annum.
56
On September 8, 2004, the board of directors authorized the issuance of
1,000,000 restricted common shares of stock to an employee which are subject to
forfeiture over the next four quarters.
On September 8, 2004, the board of directors authorized the issuance of
12,000,000 restricted common shares of stock to an unrelated party to perform
consulting services including identifying and sourcing acquisition candidates.
These shares are subject to forfeiture over the next year.
On July 12, 2004, the board of directors authorized the issuance of
666,000 restricted common shares to purchase a limited source code license for
certain software for a value of $10,000.
On July 12, 2004, the board of directors authorized the issuance of
150,000 restricted common shares in consideration of a consulting contract for
investment relations to an unrelated party.
On July 12, 2004, the board of directors authorized the issuance of
16,000,000 restricted shares in relation to an one way call agreement ("option")
to acquire 8,000,000 shares of Infolink Technologies Ltd. On July 31, 2004, the
Company signed an irrevocable one way call agreement which has not yet been
exercised with a consultant to acquire 8,000,000 shares of Infolink. The
16,000,000 restricted common shares have been issued at a price of $0.015 for a
value of $240,000 but held in safekeeping pending the potential completion of
call agreement. The value of the Infolink shares has been recorded as a share
subscription receivable on the balance sheet as of September 30, 2004.
On July 12, 2004, the board of directors authorized the sale of 4,000,000
restricted common shares of stock from treasury to unrelated parties in exchange
for $60,000. The restricted share agreement grants the purchaser one warrant for
each share at a purchase price of $0.018 to expire on November 30, 2005.
On May 6, 2004, the Company acquired all the outstanding common stock of C
Comm Network Corporation for consideration of 30,758,202 shares of the Company's
restricted common stock valued at $461,962.
On April 28, 2004, the Company's board of directors authorized the
issuance of 46,666,666 shares of restricted common stock to two directors of the
Company in satisfaction of debts owed to them amounting to $560,000. The shares
were valued based on the closing bid price of the common stock on April 28,
2004.
On April 28, 2004, the Company's board of directors authorized the
issuance of 5,500,000 shares of restricted common stock, valued at $66,000 to
certain new employees and consultants of the Company based on the closing bid
price of the common stock on April 28, 2004.
On February 23, 2004, the board of directors authorized the issuance of
3,559,520 restricted shares in repayment of a term debt aggregating $88,988 for
the settlement of the principal and accrued interest through February 23, 2004.
On January 26, 2004, the Company entered into a 12 month consulting
contract with 1582579 Ontario Limited, an unrelated party, to assist in locating
and negotiating several prospective merger candidates primarily to enable the
creation of an outbound messaging and communications service to work with the
Company's ActiveLink product as a data service bureau and enterprise portal
interface. The Company issued 5,000,000 restricted shares to 1582579 Ontario
Limited. These shares were valued at $0.023 per share, or an aggregate of
$115,000 representing the market value on the date of the grant.
On October 14, 2003 ActiveCore issued 3,000,000 shares to Danson Partners
LLC in respect of sums owing to Wayne Danson for consulting fees during the
period March 1, 2002 to February 28 2003. The shares have valued as at the date
of issue.
On September 30, 2003 ActiveCore issued 10,200,000 shares with respect to
an investment transaction for financing that has not yet closed. If the
financing does not close the shares will be rescinded.
On September 30, 2003 ActiveCore entered into a contract with an
independent advisor to consult with the company with regard to finance
activities and general corporate development. The Company issued 1,000,000
shares. The shares were valued at $.029 per share, representing the closing bid
price on the date of the board resolution.
57
On September 30, 2003 ActiveCore issued shares with respect to the
creation of a subsidiary in the United Kingdom. A total of 9,000,000 shares were
issued and valued at $.029 per share, representing the closing bid price on the
date of the board resolution.
On September 30, 2003, ActiveCore issued 6,472,942 shares in connection
with the acquisition of the data integration assets of SCI Healthcare Group. The
shares were valued at $.0309, representing the closing price on September 18th,
being the contracted determination date.
On September 30, 2003, ActiveCore issued 300,000 shares to complete the
purchase of the XML Connector source code from Karora Technologies Inc. The
shares were valued at $.028 per share, representing the closing bid price on the
date of the board resolution.
On September 30, 2003, ActiveCore issued 150,000 shares as bonuses to
employees for successful completion of certain technology. The shares were at
$.028 per share, representing the closing bide price on the date of the board
resolution.
On August 5, 2003, ActiveCore announced that it had acquired the rights to
build a cell phone game based on the "Zorro" character and trademark from Zorro
Productions Inc. of California. A license agreement was entered into whereby
ActiveCore shall pay no royalties on the first $50,000 of net sales and
subsequently ActiveCore and the licensor shall share equally a royalty of 50% on
net sales. There shall be no minimum royalty. The Company also entered into an
agreement with an unrelated company to source additional "name brand" properties
for cell phone game production and issued this unrelated company 2,000,000
shares of common stock as a consulting fee. These shares were issued on August
1, 2003 and were valued at $0.025 per share, representing the closing bid price
on the date of the board resolution.
On July 31, 2003, ActiveCore announced that its wholly owned subsidiary
ActiveCore Technologies Limited had received the first installment of $500,000
of a planned $2,000,000 term loan offering. Under the terms of the agreement,
the first installment will accrue a 12% interest rate per annum and is repayable
over a five-year term with no payments required in the first 12 months - the
payments will be amortized over the remaining 48 months of the term loan. The
loan is convertible into common stock of ActiveCore at the rate of 4.5 shares
for every 1 dollar of the loan balance due, excluding interest, remaining at the
time of conversion. As additional consideration for the loan advance by the
lender, ActiveCore issued 500,000 warrants on July 30, 2003 to the lender for
the purchase of 500,000 shares of common stock at a purchase price of $0.0312
per share. The fair value assigned to the warrant amounted to $0 and was
determined using the Black-Scholes option pricing model using the following
assumptions: 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 warrants
expire July 31, 2004.
On July 14, 2003, ActiveCore entered into a consulting agreement with an
unrelated individual to provide services through June 2004. On August 1, 2003,
ActiveCore issued 4,000,000 shares of common stock to this consultant as
compensation for services to be rendered. These shares were valued at $.025 per
share, representing the closing bid price on the date of the board resolution.
On July 10, 2003, ActiveCore entered into a Letter of Intent to acquire
the source code for a software product known as XML/Connector for the health
care vertical from an unrelated company which is a Colorado and Toronto based
software development company. As part of the terms and conditions, ActiveCore
will pay (CAD) $120,000 in cash in the form of a note payable. On August 1,
2003, ActiveCore issued 500,000 shares of common stock to the acquiree. These
shares were valued at $.025 per share representing the closing bid price on the
date of the board resolution.
In July 2003, ActiveCore entered into a consulting agreement with an
unrelated individual to provide services through June 2004. On August 1, 2003,
ActiveCore issued 150,000 shares of common stock to this consultant. These
shares were valued at $.033 per share, representing the closing market value on
the date of grant.
In July 2003, ActiveCore entered into employment agreements with two
contractors related to cell phone game development and health care services. On
August 1, 2003, each contractor was issued 500,000 shares of common stock as
compensation in addition to ongoing salary costs. These shares were valued at
$.025 per share, representing the closing bid price on the date of the board
resolution.
In July 2003, ActiveCore issued 1,562,700 restricted shares of common
stock to an officer of ActiveCore in lieu of cash in order to satisfy
shareholder loans, expenses paid on behalf of ActiveCore and accrued expenses.
These shares were valued at $.025 per share, representing the closing bid price
on the date of the board resolution.
58
During the six month period ended June 30, 2003, ActiveCore issued
8,932,783 shares of common stock to the Investment Bankers for cash of $400,000
in connection with the Equity Line of Credit.
On June 24, 2003, ActiveCore issued 17,804,976 shares of common stock to
the Chairman and CEO of ActiveCore in lieu of cash in order to satisfy
shareholder loans, expenses paid on behalf of ActiveCore and accrued salaries
included in the amounts due to related parties. These shares were valued at
$.025 per share, or an aggregate of $445,124 representing the market value on
the date of grant.
On June 24, 2003, ActiveCore issued 17,804,976 shares of common stock to a
the President and director of ActiveCore in lieu of cash in order to satisfy
shareholder loans, expenses paid on behalf of ActiveCore and accrued salaries
included in the amounts due to related parties on the accompanying condensed
consolidated balance sheets. These shares were valued at $.025 per share, or an
aggregate of $445,124 representing the market value on the date of grant.
On June 24, 2003, ActiveCore issued 1,250,000 shares of common stock to
four employees of ActiveCore for payment of accrued compensation and bonuses.
These shares were valued at $.025 per share, or an aggregate of $31,250
representing the market value on the date of grant.
On June 24, 2003, ActiveCore issued 3,000,000 shares of common stock to
certain directors of ActiveCore for director services for the period from June
2003 to June 2004. These shares were valued at $.025 per share, or an aggregate
of $75,000 representing the market value on the date of grant. As of June 30,
2003, ActiveCore has deferred $75,000 included in total stockholders' deficiency
as deferred compensation and licensing fee.
On June 24, 2003, ActiveCore issued 300,000 shares of common stock to an
unrelated consultant having a value of $7,500 for consulting services. These
shares were valued based upon the market value on the date of grant.
On June 24, 2003, ActiveCore issued 2,000,000 shares of common stock to an
unrelated party in connection with an agreement to provide investor relations
services. These shares were valued at $.025 per share, or an aggregate of
$50,000 representing the market value on the date of grant. As of June 30, 2003,
ActiveCore has deferred approximately $33,000 included in deferred consulting
expense.
On June 24, 2003, ActiveCore issued 5,000,000 shares of common stock to an
unrelated consultant as consideration for an agreement to provide consulting
services from June 2003 to June 2004. These shares were valued at $.025 per
share, or an aggregate of $125,000 on the date of grant.
On June 24, 2003, ActiveCore issued 50,000,000 shares of common stock to
the former shareholders of Ignition Entertainment, Ltd. in accordance with the
original May 28, 2002 purchase agreement. The acquisition was made pursuant to
ActiveCore agreeing to issue 15,000,000 shares of common stock and 3,500,000
shares of preferred stock convertible into 35,000,000 shares of common stock;
collectively valued at $0.23898 per share for a total purchase price of
$11,949,155. The issuance of these 50,000,000 shares of common stock relieved
$11,949,155 in preferred and common stock to be issued as of April 1, 2003. (See
discussion under divestiture of Ignition Entertainment Limited).
On June 24, 2003, ActiveCore issued 5,180,000 shares of common stock to
two unrelated parties to obtain financing for ActiveCore. Financing costs
included in interest expense for the six months ended June 30, 2003 totaled
$129,500 representing the market value on the date of grant.
On June 24, 2003, ActiveCore issued 500,000 shares of common stock that
were released from escrow to an individual for services rendered from November
2002 to November 2003. The Board of Directors resolved that these shares are
considered earned as of June 24, 2003. These shares were valued at $.025 per
share, or an aggregate of $13,500 representing the market value on the date of
grant.
On February 18, 2003, ActiveCore issued 168,889 shares of common stock to
Cornell Capital Partners for payment of penalties for not completing the SB-2
filing by the due date of July 2, 2002 per the terms of the Equity Line of
Credit Agreement. These shares were valued at $0.13 per share or an aggregate of
$21,956, representing the closing market value on the date of grant.
59
On February 18, 2003, ActiveCore issued 114,408 share of common stock to a
consultant for payment of $15,000 of consulting services accrued at December 31,
2002 as common stock to be issued. These shares were valued at $0.13 per share
representing the closing market value on the date of grant.
On December 31, 2002, the former shareholders of ITM earned 10,000,000
contingent shares having a value of $1,700,000. These shares were released out
of escrow.
On December 31, 2002, J. Stephen Smith, our independent director, earned
500,000 shares having a value of 85,000. These shares were released out of
escrow.
On September 30, 2002, the former shareholders of ITM earned 20,000,000
contingent shares having a value of $3,800,000. These shares were released out
of escrow.
On July 1, 2002, ActiveCore Technologies acquired all the outstanding
shares of Springboard Technologies Solutions, Inc. for consideration of 2,000
common shares on the basis of a one for one exchange. The shares were valued at
$260 corresponding to the date that ActiveCore's Board of Directors approved the
transaction.
On June 28, 2002, ActiveCore Technologies issued 2,410,916 shares of
common stock to an unrelated investor pursuant to the terms of our March 17,
2000 debt conversion agreement.
On June 28, 2002, ActiveCore issued 23,370 shares of common stock to
Danson Partners, LLC having a value of $5,000 for consulting services rendered.
On May 28, 2002 ActiveCore acquired Ignition Entertainment Limited, a
company incorporated in the United Kingdom. ActiveCore was to issue 15,000,000
shares of common stock and 3,500,000 shares of preferred stock as payment to the
principals of Ignition over a period of two years from the date of acquisition.
Additionally, the management team of Ignition Entertainment Limited could earn
up to 1,500,000 shares of preferred stock if certain revenue and net income
goals were met at specific time periods. The shares were held in escrow to be
disbursed according to the terms of the agreement.
As a consequence of Ignition not achieving its performance goals in the
ensuing 10 months of operation, ActiveCore negotiated the sale of the company,
and, effective April 1, 2003, ActiveCore sold 100% of the issued shares and all
assets and liabilities of Ignition Entertainment, Ltd. for the return of
11,000,000 shares of ActiveCore's common stock. The transaction resulted in a
gain of $2,396,009, which has been included in the condensed consolidated
statements of operations for the three and six months ended June 30, 2003, as a
gain on sale of discontinued operations.
Upon execution of the sale agreement in June 2003, ActiveCore issued
50,000,000 shares of its common stock to the former shareholders of Ignition
Entertainment Ltd. in accordance with the original May 28, 2002 purchase
agreement. Based upon the terms of the sale agreement, ActiveCore converted all
of the 3,500,000 shares of preferred stock to be issued, into 35,000,000 shares
of common stock and accelerated the issuance of 15,000,000 shares of common
stock to be issued. The issuance of the 50,000,000 shares of common stock in
June 2003 relieved ActiveCore's obligation as of April 1, 2003, to issue
$11,949,156 in preferred and common stock under the original May 28, 2003
purchase agreement. The 50,000,000 shares were delivered, in trust, to an
independent third party upon the execution of the sale agreement and will be
distributed to the former owners. Immediately following the issuance of the
50,000,000 shares of ActiveCore's common stock, the former shareholders will
return 11,000,000 shares of common stock to ActiveCore as proceeds for the sale
of Ignition Entertainment Ltd. The 11,000,000 shares were valued at $770,000
based upon the fair market value of the stock on April 1, 2003, the effective
date of the sale agreement.
On May 1, 2002, ActiveCore agreed to issue 4,000,000 shares of its
restricted common stock having a value of $760,000 in full settlement of its
obligation to a factoring company. ActiveCore Technologies issued these shares
on or about August 6, 2002.
In April 2002, ActiveCore entered into an Equity Line of Credit Agreement
with Cornell Capital Partners. ActiveCore Technologies paid Cornell a one-time
fee equal to $340,000, payable in 3,032,000 shares of common stock. In addition,
ActiveCore entered into a placement agent agreement with Westrock Advisors,
Inc., a registered broker-dealer. Pursuant to the placement agent agreement,
ActiveCore Technologies paid a one-time placement agent fee of 100,000 shares of
common stock, which were valued at $0.10 per share, or an aggregate of $10,000,
on the date of issuance. ActiveCore agreed to pay Danson Partners, LLC, a
consultant, a one-time fee of $200,000 for its work in connection with
consulting ActiveCore on various financial matters. Of the fee, $75,000 was paid
in cash with the balance paid in 1,040,000 shares of common stock.
In April 2002, ActiveCore raised $150,000 of gross proceeds from the
issuance of convertible debentures. These debentures were redeemed in February
2003.
60
On April 26, 2002, ActiveCore issued 62,027 shares of common stock to
Danson Partners, LLC having a value of $5,000 for consulting services rendered.
On or about March 25, 2002, ActiveCore issued 100,000 shares of common
stock to Barry Gross that was earned pursuant to a consulting contract signed in
2000. These shares were valued at $0.09 per share, or an aggregate of $9,000, on
the date of issuance.
On or about March 25, 2002, ActiveCore issued 14,000,000 shares of common
stock to Brian MacDonald to be held in escrow pending achievement of the
performance clauses related to the September 17, 2001 agreement with
International Technologies Marketing. Subsequently, all of these shares have
been released from escrow.
On or about March 25, 2002, ActiveCore issued 14,000,000 shares of common
stock to Peter Hamilton to be held in escrow pending achievement of the
performance clauses related to the September 17, 2001 agreement with
International Technologies Marketing. Subsequently, all of these shares have
been released from escrow.
On or about March 25, 2002, ActiveCore issued 14,000,000 shares of common
stock to Kevin Birch to be held in escrow pending achievement of the performance
clauses related to the September 17, 2001 agreement with International
Technologies Marketing. Subsequently, all of these shares have been released
from escrow.
On or about March 25, 2002, ActiveCore issued 4,000,000 shares of common
stock to Geno Villella to be held in escrow pending achievement of the
performance clauses related to the September 17, 2001 agreement with
International Technologies Marketing. Subsequently, all of these shares have
been released from escrow.
On or about March 25, 2002, ActiveCore issued 4,000,000 shares of common
stock to Sherry Bullock to be held in escrow pending achievement of the
performance clauses related to the September 17, 2001 agreement with
International Technologies Marketing. Subsequently, Ms. Bullock left employment
with ActiveCore Technologies and has accepted a partial payment of 800,000
shares and the remainder of her performance based shares will be reallocated to
the remaining members of International Technologies Marketing. Subsequently, all
of these shares have been released from escrow.
On or about March 25, 2002, ActiveCore issued 500,000 shares of common
stock to John Maxwell in lieu of compensation for services performed in 2001 as
President of ActiveCore. These shares were valued at $0.05 per share, or an
aggregate of $25,000, on the date of issuance.
On or about March 25, 2002, ActiveCore issued 500,000 shares of common
stock to John Trainor in lieu of compensation for services performed in 2001 as
Secretary of ActiveCore. These shares were valued at $0.05 per share, or an
aggregate of $25,000, on the date of issuance.
On or about March 25, 2002, ActiveCore issued 2,375,600 shares of common
stock valued at $.05 per share to a consultant for the conversion of $118,780 of
debts owed by the Company for services performed in 2001.
On or about March 25, 2002, ActiveCore issued 1,000,000 shares of common
stock to an unrelated investor as conversion of a fee of $50,000 earned for
introducing ActiveCore Technologies to International Technologies Marketing.
These shares were valued at $0.05 per share, or an aggregate of $50,000, on the
date of issuance.
On or about March 25, 2002, ActiveCore issued 50,000 shares of common
stock to one of its external legal counsel for payment of interest on
outstanding legal bills for the year 2001 - 2002. These shares were valued at
$0.10 per share, or an aggregate of $5,000, on the date of issuance.
On or about March 25, 2002, ActiveCore issued 1,000,000 shares of common
stock to J. Stephen Smith to be held in escrow for services as a board member
for the period from 2001 to 2003 to be accrued at the rate of 500,000 per year.
On or about March 25, 2002, ActiveCore issued 1,000,000 shares of common
stock to Michael Sidrow to be held in escrow for services as a board member for
the period from 2001 to 2003 to be accrued at the rate of 500,000 per year. In
June 2002, these shares were rescinded as a result of Mr. Sidrow's resignation
from the board of directors.
On or about March 25, 2002, ActiveCore issued 1,000,000 shares of common
stock to Robert King to be held in escrow for services as a board member for the
period from 2001 to 2003 to be accrued at the rate of 500,000 per year. In June
2002, these shares were rescinded as a result of Mr. King's resignation from the
board of directors.
61
On February 16, 2002, ActiveCore completed an interim financing agreement
for a bridge loan of (pound)600,000 (U.S. $864,180) on an unsecured basis with
the European based venture capital and merchant banking firm DcD Limited. The
loan was due April 30, 2002 and accrues interest at a rate of 4% per year above
the HSBC Bank base rate. Interest is payable monthly. On May 1, 2002, ActiveCore
Technologies received written notice from the lender, DcD Limited, that it
agreed to convert the loan into 4,000,000 shares of common stock at a conversion
rate of approximately $0.19 per share.
On or about August 17, 2001, ActiveCore issued 1,000,000 shares of common
stock to Orchestral Corporation for extension of the licensing contract and to
obtain market distribution to Switzerland. These shares were valued at $0.12 per
share, or an aggregate of $120,000, on the date of issuance.
On or about July 30, 2001, ActiveCore rescinded the issuance of 870,000
shares of common stock previously issued to consultants for services not
performed.
On or about April 26, 2001, ActiveCore issued 1,200,000 shares of common
stock to a consultant for marketing and promotion consulting services. These
shares were valued at $0.14 per share, or an aggregate of $168,000, on the date
of issuance.
On or about April 26, 2001, ActiveCore issued 1,000,000 shares of common
stock to an individual for financial advisory services. These shares were valued
at $0.14 per share, or an aggregate of $140,000, on the date of issuance.
In March 2000, ActiveCore, through an agreement with TPG Capital
Corporation, which was operated by James Cassidy, a lawyer in Washington D.C.,
acquired Erebus Corporation for $200,000 in cash and 350,000 shares of
ActiveCore valued at $500,000, the market value of ActiveCore's stock at the
time of acquisition. This consideration was paid as a fee to TPG Capital, the
sole shareholder of Erebus Corporation. The Erebus transaction was undertaken
between Erebus, a non-active reporting entity, and ActiveCore Technologies, in
order for ActiveCore could become a reporting issuer with the SEC and thereby
maintain its status as a listed company on the OTCBB. From an accounting
standpoint the Erebus transaction was treated as a recapitalization (stock for
stock transaction and no goodwill was recorded).
TPG Capital was the sole shareholder of Erebus Inc., an inactive reporting
shell company. The consulting agreement states that one year after the execution
of the agreement ("reset date") the 350,000 common shares issued by ActiveCore's
to the former stockholder shall be increased or decreased based upon the average
closing price of ActiveCore's stock 30 days prior to the reset date, so the
value of the 350,000 shares was equal $500,000. The average closing price of the
stock is $0.1487 per share. Based on the consulting agreement ActiveCore was
obligated to issue an additional 3,028,378 common shares to the consultant as an
additional fee. ActiveCore does not believe that it will be legally obligated to
issue the shares based on the reset date as the SEC had previously reached a
settlement agreement with Mr. Cassidy and TPG Capital with regard certain
practices related to vending reporting shells to non-reporting entities in order
for the later to retain listing status on the OTC BB. See SEC Litigation release
no. 17023/June 4, 2001.
With respect to the sale of unregistered securities referenced above, all
transactions were exempt from registration pursuant to Section 4(2) of the
Securities Act of 1933 (the "1933 Act"), and Regulation D promulgated under the
1933 Act. In each instance, the purchaser had access to sufficient information
regarding ActiveCore Technologies so as to make an informed investment decision.
More specifically, ActiveCore had a reasonable basis to believe that each
purchaser was an "accredited investor" as defined in Regulation D of the 1933
Act and otherwise had the requisite sophistication to make an investment in
ActiveCore's securities.
62
DESCRIPTION OF SECURITIES
GENERAL
ActiveCore Technologies' authorized capital consists of 500,000,000 shares
of common stock, par value $0.001 per share and 50,000,000 shares of preferred
stock, par value $0.001 per share. At December 21, 2004 there were 483,998,053
outstanding shares of common stock and 8,333,333 outstanding shares of preferred
stock. Set forth below is a summary description of certain provisions relating
to ActiveCore's capital stock contained in its Articles of Incorporation and
By-Laws and under the Nevada Revised Statutes. The summary is qualified in its
entirety by reference to ActiveCore's Articles of Incorporation and By-Laws and
the Nevada law.
COMMON STOCK
Each outstanding share of common stock has one vote on all matters
requiring a vote of the stockholders. There is no right to cumulative voting;
thus, the holder of fifty percent or more of the shares outstanding can, if they
choose to do so, elect all of the directors. In the event of a voluntary of
involuntary liquidation, all stockholders are entitled to a pro rata
distribution after payment of liabilities and after provision has been made for
each class of stock, if any, having preference over the common stock. The
holders of the common stock have no preemptive rights with respect to future
offerings of shares of common stock. On November 29, 2004 the shareholders
approved a change in the corporate charter which provides the board of directors
the ability to call for a reverse split or split of the outstanding common
shares of the company provided that no more than 500,000,000 common shares are
outstanding. Holders of common stock are entitled to dividends if, as and when
declared by the Board out of the funds legally available therefore. It is
ActiveCore's present intention to retain earnings, if any, for use in its
business. The payments of dividends on the common stock are, therefore, unlikely
in the foreseeable future.
PREFERRED STOCK
We issued 8,333,333 shares of series A preferred stock in connection with
a preferred share financing completed on September 15, 2004 and authorized the
creation of 4,167,667 Series B preferred shares to close December 1, 2004 with
the same terms. The terms of these preferred shares are as follows: "Series A
Convertible Preferred Stock", par value $0.001 per share (the "Series A
Preferred Stock"). The number of authorized shares constituting the Series A
Preferred Stock is 8,333,333. The Series A Preferred Stock will have a
liquidation preference in relation to the common shares outstanding. With
respect to the payment of dividends and other non-liquidation distributions on
the capital stock of the Company, the Series A Preferred Stock shall rank: (i)
senior to the common stock of the Company, par value of $0.001 per share (the
"Common Stock"), (ii) senior to each other class or series of stock of the
Company that by its terms ranks junior to the Series A Preferred Stock, or makes
no reference to rank, as to payment of dividends or non-liquidation
distributions, whether such series and classes are now existing or are created
in the future, (iii) on a parity with each other class or series of stock of the
Company that by its terms ranks on parity with the Series A Preferred Stock as
to payment of dividends or non-liquidation distributions, whether such series
and classes are now existing or are created in the future, and (iv) junior to
each other class or series of stock of the Company that by its terms ranks
senior to the Series A Preferred Stock, whether such series and classes are now
existing or are created in the future. Notwithstanding the foregoing, the Series
A Preferred Stock shall rank pari passu with the Series B Preferred Stock that
the Company intends to authorize and issue concurrently with the authorization
and issuance of Series A Preferred Stock. The Board of Directors is authorized,
within the limitations and restrictions prescribed by law or stated in the
Articles of Incorporation, and by filing a certificate pursuant to applicable
law of the State of Nevada, to provide for the issuance of preferred stock in
series and (i) to establish from time to time the number of shares to be
included in each series; (ii) to fix the voting powers, designations, powers,
preferences and relative, participating, optional or other rights of the shares
of each such series and the qualifications, limitations or restrictions thereof,
including but not limited to the fixing and alteration of the dividend rights,
dividend rate, conversion rights, conversion rates, voting rights, rights and
terms of redemption (including sinking fund provisions), the redemption price or
prices, and the liquidation preferences of any wholly unissued series of shares
of preferred stock; and (iii) to increase or decrease the number of shares of
any series subsequent to the issue of shares of that series, but not below the
number of shares of any series shall be so decreased, the shares constituting
such decrease shall resume the status, which they had prior to the adoption of
the resolution originally fixing the number of shares of such series.
WARRANTS
ActiveCore has outstanding warrants to purchase 4,265,000 shares of common
stock, of which 15,000 shares have an exercise price of $0.50 per share and,
250,000 shares have an exercise price of $0.099 per share. These warrants expire
on the fifth anniversary of issuance, April 2007, and were issued in connection
with the Equity Line of Credit. In addition there are warrants to purchase an
additional 595,919 shares of common stock at the price of 0.018 prior to
November 30, 2005 and a warrant to purchase an additional 3,404,081 shares of
common stock at the price of 0.018 prior to November 30, 2005. These warrants
were issued in connection with a private sale of securities in July 2004.
63
EQUITY LINE OF CREDIT
In April 2002, and subsequently amended as to amount in May 2002, our
Company entered into an Equity Line of Credit Agreement with Cornell Capital
Partners, L.P. Pursuant to the Equity Line of Credit, our Company may, at its
discretion, periodically sell to Cornell Capital Partners shares of common stock
for a total purchase price of up to $10.0 million. For each share of common
stock purchased under the Equity Line of Credit, Cornell Capital Partners will
pay 92% of the lowest closing bid price of the common stock on the
Over-the-Counter Bulletin Board or other principal market on which the common
stock is traded for the 5 days immediately following the notice date. Cornell
Capital Partners is a private limited partnership whose business operations are
conducted through its general partner, Yorkville Advisors, LLC. Further, Cornell
Capital Partners will be paid a fee of 3% of each advance under the Equity Line
of Credit as a fee. In addition, we engaged Westrock Advisors, Inc., a
registered broker-dealer, to advise our Company in connection with the Equity
Line of Credit. For its services, Westrock Advisors, Inc. received 100,000
shares of our common stock. The registration statement was declared effective on
February 14, 2003. We do not believe that the Line of Credit will be renewed
upon its expiry.
OPTIONS
Our Company has no outstanding options.
TRANSFER AGENT
The Transfer Agent for the common stock is Pacific Stock Transfer Company
located at P.O. Box 93385, Las Vegas, Nevada 89193-3385.
LIMITATION OF LIABILITY: INDEMNIFICATION
Our Articles of Incorporation include an indemnification provision under
which we have agreed to indemnify directors and officers of ActiveCore to
fullest extent possible from and against any and all claims of any type arising
from or related to future acts or omissions as a director or officer of
ActiveCore. In addition, the liability of our officers and directors for
breaches of their fiduciary duty as a director or officer other than: (a) acts
or omissions which involve intentional misconduct, fraud, or a knowing violation
of the law; or (b) the payment of dividends in violation of Nevada Revised
Statutes Section 78.300.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
ActiveCore Technologies pursuant to the foregoing, or otherwise, ActiveCore
Technologies has been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE ARTICLES OF INCORPORATION
AUTHORIZED AND UNISSUED STOCK. The authorized but unissued shares of our
common are available for future issuance without our stockholders' approval.
These additional shares may be utilized for a variety of corporate purposes
including but not limited to future public or direct offerings to raise
additional capital, corporate acquisitions and employee incentive plans. The
issuance of such shares may also be used to deter a potential takeover of
ActiveCore Technologies that may otherwise be beneficial to stockholders by
diluting the shares held by a potential suitor or issuing shares to a
stockholder that will vote in accordance with ActiveCore Technologies' Board of
Directors' desires. A takeover may be beneficial to stockholders because, among
other reasons, a potential suitor may offer stockholders a premium for their
shares of stock compared to the then-existing market price.
The existence of authorized but unissued and unreserved shares of
preferred stock may enable the Board of Directors to issue shares to persons
friendly to current management which would render more difficult or discourage
an attempt to obtain control of our company by means of a proxy contest, tender
offer, merger or otherwise, and thereby protect the continuity of our Company's
management.
64
EXPERTS
The consolidated financial statements as of and for the years ended
December 31, 2003 and 2002 included in the Prospectus have been audited by
Weinberg & Company, P.A., independent certified public accountants, to the
extent and for the periods set forth in their report (which contains an
explanatory paragraph regarding ActiveCore's ability to continue as a going
concern) appearing elsewhere herein and are included in reliance upon such
report given upon the authority of said firm as experts in auditing and
accounting.
LEGAL MATTERS
Burton, Bartlett & Glogovac, Reno, Nevada, will pass upon the validity of
the shares of common stock offered hereby for us.
HOW TO GET MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form SB-2 under the Securities Act with respect to the securities
offered by this prospectus. This prospectus, which forms a part of the
registration statement, does not contain all the information set forth in the
registration statement, as permitted by the rules and regulations of the
Commission. For further information with respect to us and the securities
offered by this prospectus, reference is made to the registration statement.
Statements contained in this prospectus as to the contents of any contract or
other document that we have filed as an exhibit to the registration statement
are qualified in their entirety by reference to the to the exhibits for a
complete statement of their terms and conditions. The registration statement and
other information may be read and copied at the Commission's Public Reference
Room at 450 Fifth Street N.W., Washington, D.C. 20549. The public may obtain
information on the operation of the Public Reference Room by calling the
Commission at 1-800-SEC-0330. The Commission maintains a web site at
http://www.sec.gov that contains reports, proxy and information statements, and
other information regarding issuers that file electronically with the
Commission.
65
FINANCIAL INFORMATION
ACTIVECORE TECHNOLOGIES, INC. FORMERLY IVP TECHNOLOGY CORPORATION
D.B.A. ACTIVECORE TECHNOLOGIES, INC.
AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Page F-2 Condensed consolidated balance sheets as of September
30, 2004 (unaudited) and December 31, 2003
Page F-3 Condensed Consolidated Statements Of Operations for the
three and nine months ended September 30, 2004 and 2003
(unaudited)
Page F-4 Condensed Consolidated Statement Of Stockholders' Equity
(deficiency) for the nine months ended September 30,
2004 (unaudited)
Pages F 5-6 Condensed Consolidated Statements Of Cash Flows for the
nine months ended September 30, 2004 and 2003
(unaudited)
Pages F 7-20 Notes to Condensed Consolidated Financial Statements as
of September 30, 2004 (unaudited)
Page F-21 Independent Auditors' Report
Page F-22 Consolidated Balance Sheets as of December 31, 2003 and
2002
Page F-23 Consolidated Statements Of Operations for the years
ended December 31, 2003 and 2002
Page F 24 Consolidated Statements Of Changes In Stockholders'
Deficiency for the years ended December 31, 2003 and
2002
Pages F 25-26 Consolidated Statements Of Cash Flows for the years
ended December 31, 2003 and 2002
Pages F 27-47 Notes to Consolidated Financial Statements as of
December 31, 2003 and 2002
F-1
ACTIVECORE TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY IVP TECHNOLOGY CORPORATION)
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
SEPTEMBER. 30, 2004
(UNAUDITED) DECEMBER 31, 2003
------------- -------------
CURRENT ASSETS
Cash $ 9,161 $ --
Accounts receivable, net 1,614,829 128,601
Other receivables 1,845 189,120
Prepaid expenses and other current assets 120,358 31,500
------------- -------------
TOTAL CURRENT ASSETS 1,746,193 349,221
------------- -------------
PROPERTY AND EQUIPMENT, NET 364,611 43,726
------------- -------------
OTHER ASSETS
Accounts Receivable - long term 531,000 --
License agreements - software, net 90,097 106,062
Note receivable 767,386 --
Customer list, net 183,333 252,080
Investments at cost 250,000 250,000
Deferred consulting expense 221,875 123,119
Goodwill 1,514,826 100,000
Net assets from discontinued operations -- 16,335
------------- -------------
Total Other Assets 3,558,517 847,596
------------- -------------
TOTAL ASSETS $ 5,669,321 $ 1,240,543
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES
Bank overdraft $ 211,793 $ --
Accounts payable 952,685 666,348
Accrued liabilities 315,965 249,685
Bank term loan, current portion 24,752 --
Taxes payable 777,496 301,378
Leases payable, current portion 14,935 7,652
Notes payable, current portion 139,951 557,299
Convertible preferred stock to be issued - Series C 93,750
Common stock to be issued 88,192 18,000
Due to related parties 7,915 117,874
Other current liabilities 19,880 7,729
------------- -------------
TOTAL CURRENT LIABILITIES 2,647,314 1,925,965
------------- -------------
LONG-TERM LIABILITIES --
Bank term loan, long-term 146,457
Note payable, long-term portion -- 447,917
Lease payable, long-term 27,006 2,464
Convertible preferred stock to be issued - Series C 406,250 --
------------- -------------
TOTAL LONG-TERM LIABILITIES 579,713 450,381
------------- -------------
TOTAL LIABILITIES 3,227,027 2,376,346
------------- -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $0.001 par value, 50,000,000 shares authorized
Preferred stock issued and outstanding:
Series A: 8,333,333 and 0 shares as of September 30,2004 and
December 31,2003 respectively 8,333 --
Series B: 4,167,667 and 0 shares as of September 30,2004 and
December 31,2003 respectively 4,168 --
Common stock, $0.001 par value, 500,000,000 authorized and 478,370,960 and
286,207,000
shares issued and outstanding as of September. 30, 2004 and December 31,
2003, respectively 478,370 286,207
Common stock to be issued (17,272,726 shares) -- 380,000
Common stock to be returned (2,527,254 shares) (68,783) --
Additional paid-in capital 39,296,052 36,382,766
Accumulated deficit (36,523,664) (37,094,546)
Treasury stock (11,000,000 shares) -- (770,000)
Accumulated other comprehensive loss (203,708) (158,586)
Deferred equity line commitment fees (40,236) (112,668)
Subscription Receivable - Preferred (250,000)
Subscription Receivable - Common (240,000)
Deferred compensation (18,238) (48,976)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIENCY) 2,442,294 (1,135,803)
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) $ 5,669,321 $ 1,240,543
============= =============
See accompanying notes to these condensed consolidated financials statements
F-2
ACTIVECORE TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY IVP TECHNOLOGY CORPORATION)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
FOR THE THREE FOR THE THREE FOR THE NINE FOR THE NINE
MONTHS ENDED MONTHS ENDED MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2004 2003 2004 2003
------------- ------------- ------------- -------------
REVENUE
Net sales $ 1,694,452 $ 124,767 $ 2,994,479 $ 355,776
------------- ------------- ------------- -------------
COST OF SALES
Product costs 273,460 20,962 584,591 121,893
Distribution and other costs including
amortization of license 37,148 92,983 124,624 279,172
------------- ------------- ------------- -------------
Total Cost of Sales 310,608 113,945 709,215 401,065
------------- ------------- ------------- -------------
GROSS PROFIT (LOSS) 1,383,844 (10,822) 2,285,264 (45,289)
------------- ------------- ------------- -------------
OPERATING EXPENSES
Salaries and wages 393,033 270,095 1,039,207 506,069
Stock based compensation 52,982 37,500 167,988 618,080
Consulting fees 35,215 119,044 197,179 212,974
Legal and Accounting 95,026 60,335 258,481 214,209
Management Fees 10,257 44,346 10,257 120,688
General and administrative 191,738 170,540 584,554 562,907
Financial advisory fees 2,662 9,098 10,292 39,914
Amortization and depreciation 28,263 9,656 34,947 28,378
------------- ------------- ------------- -------------
TOTAL OPERATING EXPENSES 809,176 720,614 2,302,905 2,303,219
------------- ------------- ------------- -------------
INCOME (LOSS) FROM OPERATIONS 574,668 (709,792) (17,641) (2,348,508)
------------- ------------- ------------- -------------
OTHER INCOME (EXPENSE)
Gain on early extinguishment of debt -- -- 2,000 --
Interest income 25,480 -- 55,456 6,497
Interest expense (36,911) (88,673) (91,887) (315,803)
Foreign exchange gain (loss) 37,626 43,821 19,695 57,895
------------- ------------- ------------- -------------
TOTAL OTHER INCOME (EXPENSE) 26,195 (44,852) (14,736) (251,411)
------------- ------------- ------------- -------------
INCOME (LOSS) FROM CONTINUING OPERATIONS 600,863 (754,644) (32,377) (2,599,919)
------------- ------------- ------------- -------------
DISCONTINUED OPERATIONS (SEE NOTE 2):
Income (Loss) from discontinued operations (954) -- (129,540) (733,123)
Gain on sale of discontinued operations 1,467 -- 732,800 2,396,009
------------- ------------- ------------- -------------
INCOME (LOSS) FROM DISCONTINUED OPERATIONS, 512 -- 603,259 1,662,886
NET
------------- ------------- ------------- -------------
NET INCOME (LOSS) $ 601,375 $ (754,644) $ 570,882 $ (937,033)
============= ============= ============= =============
INCOME (LOSS) PER COMMON SHARE FROM CONTINUING
OPERATIONS - BASIC AND DILUTED $ 0 $ (0) $ 0 $ (0.02)
------------- ------------- ------------- -------------
INCOME (LOSS) PER COMMON SHARE FROM
DISCONTINUED OPERATIONS - BASIC AND DILUTED $ 0 $ 0 $ (0) $ 0.01
------------- ------------- ------------- -------------
NET INCOME (LOSS) PER COMMON SHARE - BASIC AND
DILUTED $ 0 $ (0) $ 0 $ (0.01)
------------- ------------- ------------- -------------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING - BASIC AND DILUTED 454,909,963 262,456,836 387,810,403 159,960,377
============= ============= ============= =============
See accompanying notes to these condensed consolidated financials statements
F-3
ACTIVECORE TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY IVP TECHNOLOGY CORPORATION)
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004
(UNAUDITED)
PREFERRED STOCK COMMON
SHARES AMOUNT SHARES AMOUNT COMMON STOCK
SERIES A SERIES A SERIES B SERIES B SHARES AMOUNT
-----------------------------------------------------------------------------------
Balance, December 31, 2003 286,207,703 $286,207
Stock issued for services 18,150,000 18,150
Stock Issued for compensation 11,300,000 11,300
Stock issued for stockholder debt 66,036,267 66,036
--
Stock Issued for debt repayment 38,692,545 38,693
Stock issued for payment of
accrued liability 2,666,000 2,666
Stock Issued for acquisitions 46,318,445 46,318
Stock issued for investment 16,000,000 16,000
Cancellation of treasury stock (11,000,000) (11,000)
Purchase price adjustment on
acquisition by stock
Series A Preferred Issued for cash 8,333,333 8,333
Series B Preferred Issued for
Subscription Receivable 4,167,667 4,168
Stock issued for cash 4,000,000 4,000
Unpaid Subscription
Deferred cost recognized
Net Profit for period
Cumulative translation adjustment
Comprehensive Income
-----------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 2004 8,333,333 $8,333 4,167,667 $4,168 478,370,960 $478,370
===================================================================================
COMMON
STOCK TO BE ADDITIONAL
ISSUED/(RETURNED) PAID-IN ACCUMULATED TREASURY
SHARES AMOUNT CAPITAL DEFICIT STOCK
------------------------------------------------------------------------------------
Balance, December 31, 2003 17,272,726 $380,000 $36,382,766 $(37,094,546) $(770,000)
Stock issued for services 296,100
Stock Issued for compensation 199,700
Stock issued for stockholder debt (17,272,726) (380,000) 924,288
Stock Issued for debt repayment 634,475
Stock issued for payment of
accrued liability 55,334
Stock Issued for acquisitions 794,891
Stock issued for investment 224,000
Cancellation of treasury stock (759,000) 770,000
Purchase price adjustment on
acquisition by stock (1,941,747) (60,000)
Series A Preferred Issued for cash 241,667
Series B Preferred Issued for
Subscription Receivable 245,832
Stock issued for cash 56,000
Unpaid Subscription (585,507) (8,783)
Deferred cost recognized
Net Profit for period 570,882
Cumulative translation adjustment
Comprehensive Income
------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 2004 (2,527,254) $ (68,783) $39,296,052 $ 36,523,664 $ --
====================================================================================
OTHER SUB SUB EQUITY
COMPRE- SCRTIPTION SCRTIPTION LINE
HENSIVE RECEIVABLE RECEIVABLE COMMIT- DEFERRED
INCOME COMMON PREFERRED MENT COMPEN
(LOSS) STOCK STOCK FEES -SATION TOTAL
-------------------------------------------------------------------------------------
Balance, December 31, 2003 $(158,586) $(112,668) $(48,976) $(1,135,803)
Stock issued for services 314,250
Stock Issued for compensation 211,000
Stock issued for stockholder debt 610,325
Stock Issued for debt repayment 673,168
Stock issued for payment of
accrued liability 58,000
Stock Issued for acquisitions 841,209
Stock issued for investment (240,000) --
Cancellation of treasury stock --
Purchase price adjustment on
acquisition by stock (60,000)
Series A Preferred Issued for cash 250,000
Series B Preferred Issued for
Subscription Receivable (250,000) --
Stock issued for cash (8,783) 51,217
Unpaid Subscription 8,783 --
Deferred cost recognized 72,432 30,738 103,170
Net Profit for period 570,882
Cumulative translation adjustment (45,122) (45,122)
---------------
Comprehensive Income 525,760
-------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 2004 $ (203,708) (240,000) (250,000) $ (40,236) $ (18,238) $ 2,442,294
=====================================================================================
See accompanying notes to these Condensed Consolidated Financials Statements
F-4
ACTIVECORE TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY IVP TECHNOLOGY CORPORATION)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For The Nine
For The Nine Months Ended
Months Ended September 30,
September 30, 2004 2003
-------------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 570,882 $ (937,033)
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Gain on sale of discontinued operations (732,800) 2,396,009)
Depreciation 34,947 39,721
Amortization of customer list 68,747 --
Amortization of licensing agreements and software kits 15,965 267,603
Amortization of deferred consulting and commitment fees 72,432 256,874
Amortization of consulting agreements 195,494 --
Impairment of deferred tax asset -- 71,816
Stock issued for commitment fees and penalties -- 22,800
Stock issued for compensation -- 553,501
Stock issued for financing costs -- 129,500
Stock issued bonuses 226,738 --
Stock issued for services 12,000 62,500
Changes in operating assets and liabilities, net of effects of discontinued
operations:
(Increase) in accounts receivable (1,947,413) (112,679)
Decrease in inventory -- 304,783
Decrease in prepaid expenses and other current assets 121,417 150,669
Increase (decrease) in accounts payable 115,738 (53,318)
Increase in interest receivable (17,986) --
Increase (decrease) in accrued liabilities 80,948 (172,929)
Increase (decrease) in taxes payable 336,444 (203,370)
Increase in due to related parties 433,171 --
Increase (decrease) in other current liabilities 12,151 (69,603)
(Decrease) in accrued interest -- (43,136)
Net effect of discontinued operations -- 213,924
----------- -----------
Net Cash Used In Operating Activities (401,125) (1,722,712)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid from sale of discontinued operations -- (160)
Purchases of fixed assets (273,138) (9,126)
Purchase of software rights -- (94,803)
----------- -----------
Net Cash Used In Investing Activities (273,138) (104,089)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of notes payable (82,590) (1,036,134)
Proceeds from notes payable 530,000 1,674,146
Proceeds from related parties -- 299,878
Proceeds from factors -- 116,503
Proceeds from issuance of common stock 51,217 898,088
Proceeds from issuance of series A preferred stock 250,000
Payment on leases (20,081) (25,474)
----------- -----------
Net Cash Provided By Financing Activities 728,546 1,927,007
----------- -----------
EFFECT OF FOREIGN EXHANGE RATES (45,122) (98,302)
NET INCREASE (DECREASE) IN CASH 9,161 (1,904)
CASH-BEGINNING OF PERIOD -- 63,162
----------- -----------
CASH- END OF PERIOD $ 9,161 $ 65,066
=========== ===========
See accompanying notes to condensed consolidated financial statements.
F-5
ACTIVECORE TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY IVP TECHNOLOGY CORPORATION)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest -- 36,945
=========== ===========
Cash paid for taxes $ -- $ --
=========== ===========
SUPPLEMENTAL DISCLOSURE OF NON-CASH-INVESTING AND FINANCING ACTIVITIES
Equipment purchased under capital leases $ 28,475 $ 33,095
----------- -----------
Common stock issued to satisfy common stock to be issued $ 380,000 $ --
----------- -----------
Common stock issued for acquisitions and investment $ 1,081,209 $ --
----------- -----------
Common and preferred stock issued for the acquisition of Ignition
Entertainment Ltd. $ -- $11,949,156
----------- -----------
Common stock issued for deferred consulting expenses $ -- $ 250,000
----------- -----------
Common stock issued for payment of accrued liabilities $ 48,000 $ 31,250
----------- -----------
Common stock issued for payment of debt and accrued interest thereon $ 658,168 $ --
----------- -----------
Common stock issued for payment of amounts due to related parties $ 610,325 824,869
----------- -----------
Common stock issued for payment of common stock to be issued for services $ -- $ 15,000
----------- -----------
Common stock issued for share exchange agreement $ 240,000 $
----------- -----------
Share subscription receivable for sale of Series B preferred stock $ 250,000 $
----------- -----------
Treasury stock rescinded $ 770,000 $ --
----------- -----------
Note receivable for sale of SilverBirch Studios Division $ 749,000 $ --
----------- -----------
See accompanying notes to these condensed consolidated financials statements
F-6
ACTIVECORE TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY IVP TECHNOLOGY CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2004
(UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
(A) ORGANIZATION
The Condensed Consolidated Financial Statements of ActiveCore Technologies, Inc.
and subsidiaries formerly IVP Technology Corporation (the "Company") include the
accounts of the parent, ActiveCore Technologies, Inc., (formerly IVP Technology
Corporation) incorporated in the State of Nevada on February 11, 1994, and its
subsidiaries: ActiveCore Technologies Ltd. (formerly Springboard Technology
Solutions Inc.) and C Comm Network Corporation, both Canadian companies,
ActiveCore Technologies UK Limited and Twincentric Limited, both UK companies,
Erebus Corporation and ActiveCore Exml Canada Ltd., both inactive companies. The
Company was granted an extra-provincial license by the Province of Ontario on
June 20, 1995 to conduct business in Ontario, Canada.
During 2003, the Company operated two divisions: enterprise and consumer. The
enterprise division develops, markets, licenses, installs and services data
solutions. The consumer market group developed and published interactive
software games designed for video consoles, mobile phones, other handheld
devices and websites. At the end of February of 2004, the Company sold certain
assets and personnel related to the mobile games business to a privately held
Canadian company founded by the Company's former Chief Technology Officer. In
the period ended September 30, 2004, there were no activities related to the
mobile phone game group in the consumer division (See Note 2). The consumer
division also distributed games developed by third parties. Until the end of
March of 2003, the Company also produced video games for personal computers and
various console gaming platforms.
The Company incorporated a subsidiary unit in the United Kingdom on January 15,
2004, for the purpose of marketing various enterprise software products of the
Company, as well as certain third party developments for which the Company has
entered into licensing agreements. The subsidiary operates as ActiveCore
Technologies UK Limited and sells enterprise software throughout the European
market.
(B) PRINCIPLES OF CONSOLIDATION
The condensed consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. The condensed consolidated financial
statements also include the accounts of the Company's former subsidiary,
Ignition Entertainment Limited from January 1, 2003 through March 31, 2003 (See
Note 2). All significant inter-company transactions and balances have been
eliminated in consolidation.
(C) RECLASSIFICATIONS
Certain reclassifications have been made to previously reported amounts to
conform to the current year's presentation.
(D) FOREIGN CURRENCY TRANSACTIONS
Assets and liabilities of foreign subsidiaries, whose functional currency is the
local currency, are translated at year-end exchange rates. Capital accounts are
re-measured into U.S. dollars at the acquisition date rates. Income and expense
items are translated at the average rates of exchange prevailing during the
year. The adjustments resulting from translating the financial statements of
such foreign subsidiaries are recorded as a component of accumulated other
comprehensive income (loss) in stockholders' equity (deficiency). Foreign
currency transaction gains or losses are reported in results of operations.
F-7
ACTIVECORE TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY IVP TECHNOLOGY CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2004
(CONTINUED)
(UNAUDITED)
(E) USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the dates of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual amounts could differ significantly from these estimates.
(F) FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument is the amount at which the instrument
could be exchanged in a current transaction between willing parties other than
in a forced sale or liquidation.
The carrying amounts of the Company's financial instruments, including cash,
receivables, bank debt, accounts payable, accrued liabilities, taxes payable and
other current liabilities approximate fair value because of their short
maturities. The carrying amount of the Company's debt approximates fair value
because the interest rates of the lines of credit are based on floating rates
identified by reference to market rates. The carrying amounts of the Company's
loans and notes payable and capital lease obligations approximate the fair value
of such instruments based upon management's best estimate of interest rates that
would be available to the Company for similar debt obligations.
(G) INCOME (LOSS) PER COMMON SHARE
Basic income or loss per common share is based on net income or loss divided by
the weighted average number of common shares outstanding. Common stock
equivalents were not included in the calculation of diluted loss per share as
their effect would be anti-dilutive for the nine and three months ended
September 30, 2003. Common stock equivalents were not included in the
calculation of diluted income per share for the nine months and the three months
ended September 30, 2004 since the exercise price of all common stock
equivalents were greater than the average stock price for the period.
The Condensed Consolidated Financial Statements as of September 30, 2004 and for
the nine months ended September 30, 2004 and 2003 are unaudited. In the opinion
of management, such Condensed Consolidated Financial Statements include all
adjustments (consisting only of normal recurring accruals) necessary for the
fair presentation of the consolidated financial position and the consolidated
results of operations. The consolidated results of operations for the nine
months ended September 30, 2004 are not necessarily indicative of the results to
be expected for the full year. The condensed consolidated balance sheet
information as of December 31, 2003 was derived from the audited consolidated
financial statements included in the Company's Annual Report Form 10-KSB. The
interim Condensed Consolidated Financial Statements should be read in
conjunction with that report.
F-8
ACTIVECORE TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY IVP TECHNOLOGY CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2004
(CONTINUED)
(UNAUDITED)
(I) GOING CONCERN
The accompanying condensed consolidated financial statements have been prepared
on the basis that the Company is a going concern, which contemplates the
realization of assets and the satisfaction of liabilities in the normal course
of business. The Company has a negative cash flow from operations of $401,125
for the nine months ended September 30, 2004, and has a working capital
deficiency of $901,121 at September 30, 2004. The condensed consolidated
financial statements do not include any adjustments that might result form the
outcome of this uncertainty.
In view of these matters, realization of certain of the assets in the
accompanying Condensed Consolidated Financial Statements is dependent upon
continued operations of the Company, which in turn is dependent upon the
Company's ability to meet its financial requirements, raise additional capital,
and the success of its future operations. Management believes that its ability
to raise additional capital provides the opportunity for the Company to continue
as a going concern.
(J) RECENT ACCOUNTING PRONOUNCEMENTS
In March of 2004, the U.S. Securities and Exchange Commission's Office of the
Chief Accountant and the Division of Corporate Finance released Staff Accounting
bulletin ("SAB") No. 105, "Loan Commitments Accounted for as Derivative
Instruments". This bulletin contains specific guidance on the inputs to a
valuation-recognition model to measure loan commitments accounted for at fair
value, and requires that fair-value measurement include only differences between
the guaranteed interest rate in the loan commitment and market interest rate,
excluding any expected future cash flows related to the customer relationship or
loan servicing. In addition, SAB105 requires the disclosure of the accounting
policy for loan commitments, including methods and assumptions used to estimate
the fair value of loan commitments, and any associated hedging strategies. SAB
105 is effective for derivative instruments entered into subsequent to March 31,
2004 and should also be applied to existing instruments as appropriate. The
Company has not yet completed its evaluation of SAB 105, but does not anticipate
a material impact on the financial statements.
NOTE 2 - DISCONTINUED OPERATIONS
On May 28, 2002, the Company acquired 100% of the stock of Ignition
Entertainment Ltd., a UK corporation, which specialized in the design,
development, licensing, publishing and distribution of personal computer, mobile
devices and game console software and accessories. The Company agreed to issue
15,000,000 shares of unregistered common stock and 3,500,000 of unregistered
preferred stock convertible into 35,000,000 shares of common stock, collectively
valued at $0.23898 per share, for a total purchase price of $11,949,156. These
shares were held in escrow until disbursed in accordance with the terms of the
escrow agreement. The acquisition was accounted for by the purchase method of
accounting.
Effective April 1, 2003, the Company sold 100% of the issued shares and all
assets and liabilities of Ignition Entertainment, Ltd. for the return of
11,000,000 shares of the Company's common stock originally issued to and held by
the former shareholders and the assumption of certain liabilities pertaining to
Ignition.
F-9
ACTIVECORE TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY IVP TECHNOLOGY CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2004
(CONTINUED)
(UNAUDITED)
Upon execution of the sale agreement in June of 2003, the Company issued
50,000,000 shares of its common stock to the former shareholders of Ignition
Entertainment Ltd. in accordance with the original May 28, 2002 purchase
agreement. Based upon the terms of the sale agreement, the Company converted all
of the 3,500,000 shares of preferred stock to be issued, into 35,000,000 shares
of common stock and accelerated the issuance of 15,000,000 shares of common
stock to be issued. The issuance of the 50,000,000 shares of common stock in
June 2003 relieved the Company's obligation as of April 1, 2003, to issue
$11,949,156 in preferred and common stock under the original May 28, 2002
purchase agreement. The 50,000,000 shares were delivered, in trust, to an
independent third party upon the execution of the sale agreement and were
subsequently distributed to the former owners in 2004. Following the issuance of
the 50,000,000 shares of the Company's common stock, the former shareholders
returned 11,000,000 shares of common stock to the Company as proceeds for the
sale of Ignition Entertainment Ltd. The 11,000,000 shares were valued at
$770,000 based upon the fair market value of the stock on April 1, 2003, the
effective date of the sale agreement. The 11,000,000 shares were cancelled in
February of 2004, and are presented in the accompanying condensed consolidated
balance sheet as treasury stock at December 31, 2003.
In connection with the sale agreement, the Company retained rights to certain
intellectual property and received a source code licensing agreement for certain
interactive software games developed by Ignition Entertainment Ltd. The Company
also received an agreement to distribute the interactive software games on a
worldwide basis for a period of three years, renewable annually thereafter if
such titles are converted to mobile games. The Company undertook to pay Ignition
Entertainment Ltd. a royalty fee of 30% of all gross revenues, less direct
costs, from the sale, distribution or marketing of those game titles if any are
distributed by its mobile games division. As of September 30, 2004 and December
31, 2003, the Company did not assign any value to the acquired intellectual
property and or to the distribution agreement. This agreement has been assigned
to SilverBirch Studios Inc. as part of the sale of assets of the Mobile Games
Division.
Following is a summary of net liabilities and results of operations of Ignition
Entertainment Ltd. for the period from January 1, 2003 through September 30,
2003.
For the Period
From
January 1, 2003
Through
September 30, 2003
------------------
Revenues, net $ 1,087,906
Cost of sales 960,501
-----------
Gross profit 127,405
Operating expenses 815,985
-----------
Loss from discontinued operations (688,580)
Other expense (44,543)
-----------
Net loss from discontinued operations $ (733,123)
===========
Effective February 29, 2004, the Company entered into an agreement to sell
certain assets and liabilities of the Company's cellular phone game and ring
tone development group, SilverBirch Studios, and the web portals
Recessgames.com, Bladeofzorro.com and Silverbirchstudios.com (collectively, the
"Games Division") to SilverBirch Studios, Inc. The execution date of the
agreement was June 9, 2004.
F-10
ACTIVECORE TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY IVP TECHNOLOGY CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2004
(CONTINUED)
(UNAUDITED)
The purchase price consisted of the following:
(a) A promissory note in the amount of $749,400 ($1,000,000 CDN) payable in 10
installments of $100,000 CDN per month commencing March 31, 2005. The note bears
interest at 12% per annum, to be paid on a monthly basis commencing on March 31,
2004. Interest payment on the note was in default at September 30, 2004, and a
penalty fee equal to 20% of the interest payment has been added to the interest
payment. The note is collateralized by a general security agreement;
(b) The Company will maintain a 5% equity interest in SilverBirch Studios Inc.,
with participation rights to maintain that 5% ownership rate. The Company
determined that the value of the 5% interest is $0;
(c) Under a royalty agreement with a 4-year term commencing on March 1, 2004.
SilverBirch will pay the Company a royalty equal to 2% of the gross revenues of
SilverBirch, payable on a quarterly basis during the term. The total royalty
payments will be capped at a maximum of $1,300,000 CDN. The Company has not
received any royalties for the nine months ended September 30, 2004;
(d) a non-exclusive grant of the right to use any games that were in the process
of being created by the games division up until the effective date of the sales
agreement for use in the Company's direct marketing and advertising operations
on the basis of a royalty equal to normal commercial terms less 10%.
The transaction resulted in a gain of $732,800, which has been included in the
condensed consolidated statement of operations for the nine months ended
September 30, 2004 as a gain on sale of discontinued operations.
Following is a summary of net assets and results of operations of the Games
Division as of December 31, 2003 and for the period from January 1, 2004 through
February 29, 2004.
As of
December 31, 2003
-----------------
Property and Equipment, net $16,335
-------
Total Assets of Discontinued $16,335
Operations
=======
For the Period From
January 1, 2004
through February 29, 2004
-------------------------
Salary and Wages $130,569
--------
Net Loss From Discontinued Operations $130,569
========
As of September 30, 2004, the Company did not have any net assets from
discontinued operations and had a loss from discontinued operations of $129,540
for nine months then ended.
F-11
ACTIVECORE TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY IVP TECHNOLOGY CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2004
(CONTINUED)
(UNAUDITED)
NOTE 3 - ACCOUNTS RECEVABLE
Several large receivables aggregating $1,117,580 of which $531,000 are due in
more than one year were contractually in arrears. However the Company believes
that the amounts are collectible and therefore the revenue recognition criteria
are met.
NOTE 4 - OTHER RECEIVABLES
Other receivables, of $189,120 at December 31, 2003, primarily represented
advances made to unrelated parties in order to satisfy debts of Ignition
Entertainment Ltd. These receivables were collected in full in the first quarter
of 2004. Also included in other receivables was $26,611 at December 31, 2003 for
an advance made to ePocket, Inc. This advance was repaid in full in February of
2004.
NOTE 5 - ACQUISITION OF C COMM NETWORK CORPORATION
On May 6, 2004, the Company acquired all the outstanding common stock of C Comm
Network Corporation ("C Comm"), a privately held Canadian Corporation, for
30,758,202 shares of the Company's restricted common stock valued at $461,962.
The total purchase price of $491,962 also includes $30,000 of other acquisition
costs. The number of shares was determined based on the weighted average share
price of the Company's common shares for the two trading days before and after
the day the Company entered into the terms of the acquisition agreement. The
Company accounted for this acquisition using the purchase method of accounting
in accordance with the provisions of Statements of Financial Accounting
Standards ("SFAS") No. 141, and accordingly, C Comm's operating results have
been included in the Company's consolidated statement of operations from
acquisition date through September 30, 2004. The Company acquired net tangible
liabilities of $9,823. The excess of the consideration given over the fair value
of net assets acquired has been recorded as goodwill of $501,785. The Company
will account for the purchased goodwill in accordance with the provisions of
SFAS 142. The amount of the consideration paid for the shares of C Comm was
determined based on a multiple of revenues earned by C Comm for the two fiscal
years ended September 30, 2002 and September 30, 2003, plus revenues earned for
the six months ended March 31, 2004. During the next year until June 30, 2005,
the C Comm shareholders will probably be entitled to an additional allotment of
the Company's shares. The amount of this additional allotment of shares will be
based a percentage of the amount of revenues generated by C Comm over and above
its current sales and the common shares to be allocated to fulfill this
achievement bonus will be valued as at the closing value of each quarter in
which the increased revenue percentage is earned. C Comm is a corporate message
broadcasting service which employs communication media such as facsimile, voice,
and e-mail to deliver messages to various organizations' customers. The Company
has commenced marketing C Comm's services under the product name "ActiveCast".
F-12
ACTIVECORE TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY IVP TECHNOLOGY CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2004
(CONTINUED)
(UNAUDITED)
The purchase price allocation recorded for the acquisition of C Comm is as
follows:
Accounts receivable $ 17,000
Capital assets 6,000
--------
Total assets 23,000
--------
Bank debt 13,000
Accrued liabilities 8,000
Taxes payable 12,000
--------
Total liabilities assumed 33,000
--------
Excess of liabilities assumed over assets acquired 10,000
Purchase price 462,000
Acquisition - fees and expenses 30,000
--------
Goodwill 502,000
========
The following unaudited pro forma consolidated results of operations are
presented as if the acquisition of C Comm had been made at the beginning of the
2004 period presented:
Nine Months Ended
September 30, 2004
------------------
Net sales $ 3,140,858
Net income $ 604,047
Basic and diluted income per share $ 0.00
NOTE 6 - ACQUISITION OF TWINCENTIC LIMITED
On June 21, 2004, the Company acquired all the outstanding common stock of
Twincentric Limited, a UK Corporation ("Twincentric"), for 15,560,243 shares of
the Company's restricted common stock valued at $379,247. The acquisition price
also included $50,000 of acquisition expense. The Company accounted for this
acquisition using the purchase method of accounting in accordance with the
provisions of SFAS 141. The excess of the consideration given over the fair
value of net assets acquired has been recorded as goodwill of $974,195. The
Company will account for the purchased goodwill in accordance with the
provisions of SFAS 142. The amount of the consideration paid for the shares of
Twincentric was determined based on arm's-length negotiation with the
shareholders of Twincentric and based on the weighted average share price of the
Company's common shares for the two trading days before and after the day the
Company entered into the agreement. During the next year until June 30, 2005,
the shareholders of Twincentric will probably be entitled to an additional
allotment of the Company's shares. The amount of this additional allotment of
shares of the Company's stock will be based on a percentage of the amount of
revenues generated by Twincentric over and above its current sales level and the
common shares to be allocated to fulfill this achievement bonus will be valued
as at the closing value of each quarter in which the increased revenue
percentage is earned. Twincentric is a data integration and migration software
and services company primarily in the AS 400 and Bull Computer markets. The
Company intends to maintain the Twincentric name for marketing purposes in
Europe.
F-13
ACTIVECORE TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY IVP TECHNOLOGY CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2004
(CONTINUED)
(UNAUDITED)
The purchase price allocation recorded for the acquisition of Twincentric
Limited is as follows:
Accounts receivable $ 22,000
Other receivables and prepayments 31,000
Capital assets 26,000
--------
Total assets 79,000
--------
Bank debt 208,000
Accounts payable 58,000
Taxes payable 128,000
Other payables 230,000
--------
Total liabilities assumed 624,000
--------
Excess of liabilities assumed over assets acquired 545,000
Purchase price 379,000
Acquisition - related fees and expenses 50,000
--------
Goodwill $974,000
========
The following unaudited pro forma consolidated results of operations are
presented as if the acquisition of Twincentric had been made at the beginning of
the 2004 period presented:
Nine Months Ended
September 30, 2004
------------------
Net sales $ 3,153,150
Net loss $ 399,798
Basic and diluted loss per share $ (0.00)
F-14
ACTIVECORE TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY IVP TECHNOLOGY CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2004
(CONTINUED)
(UNAUDITED)
NOTE 7 - OTHER ACQUISITIONS
On September 20, 2003, the Company issued 6,472,492 shares of common stock in
connection with the acquisition of the data integration division of SCI
Healthcare Group. The shares were valued based on the closing price of the
Company's common stock on September 18, 2003 the contracted determination date,
which represented $200,000. Additional consideration of $175,000 was given in
the form of a promissory note. There is a further provision to allow for the
increase or reduction of a percentage of the issued shares if certain gross
revenue targets are not met after one year from the acquisition date. As a
result of targets not met, 1,941,747 shares which has an issue value of $60,000
is to be returned. Goodwill resulted in the acquisition has been reduced by
$60,000 in the quarter ended September 30, 2004. The shares are being held in
trust by the seller's counsel. The Company allocated the purchase price between
goodwill ($100,000) and customer list ($275,000). The customer list is being
amortized over a term of three years based on the tenure and cancelability of
existing contracts. Amortization for the nine months ended September 30, 2004
was $91,667.
The following unaudited pro forma consolidated results of operations are
presented as if the acquisition of the data integration division of SCI
Healthcare Group had been made at the beginning of 2003:
Nine Months Ended
September 30, 2003
------------------
Net sales $ 802,479
Net loss $ (946,869)
Basic and diluted loss per share $ (0.01)
NOTE 8 - SHARE SUBSCRIPTION RECEIVABLE
On September 29, 2004 the Company entered into a share call or option agreement
("Lock up" Agreement) with 1543772 Ontario Inc. which would allow the Company at
its option to acquire 8,000,000 common shares of Infolink Technologies Limited,
a company which is listed on the Toronto Venture Exchange under the symbol
IFL-X, in exchange for 16,000,000 restricted shares of the Company. The
16,000,000 common shares have been issued but are being held in by the Company
in safekeeping and will be exchanged only if the Company makes a bid for or
makes another arrangement with the majority of the shareholders of Infolink to
acquire Infolink. There are a number of court proceedings between minority
shareholders of Infolink and its current board of directors and management which
makes any assessment of the likelihood of reaching agreement with a majority of
the shareholders difficult. There are 34,770,000 common shares of Infolink
outstanding. The Ontario Securities Commission has "halt traded" Infolink's
shares which last traded at $0.03 Canadian dollars. 1543772 Ontario Inc. is
controlled by a consultant to the Company. It is the opinion of the Company that
the existence of this option agreement does not constitute a de facto condition
whereby a bid for the majority of the shares must be made under the rules of the
Ontario Securities Commission. The 16,000,000 shares issued are valued at
$240,000 and the share subscription receivable is classified as a contra-equity
account in the shareholder's equity section of the condensed consolidated
balance sheet at September 30, 2004.
NOTE 9 - DUE FROM RELATED PARTIES
The balance due from related parties of $7,915 has been included in prepaid
expense and other current assets in the accompanying condensed consolidated
balance sheet at September 30, 2004. This amount represents a prepayment by the
Company for officers' salaries and expenses. This balance is short-term in
nature and will be expensed in the fourth quarter of 2004.
F-15
ACTIVECORE TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY IVP TECHNOLOGY CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2004
(CONTINUED)
(UNAUDITED)
NOTE 10 - COMMITMENTS AND CONTINGENCIES
(A) ActiveCore Technologies Limited, the Canadian subsidiary, has a liability to
the Canada Customs and Revenue Agency ("CCRA") for un-remitted payroll taxes, in
the approximate amount of $410,000, which is comprised of $327,000 for current
payroll taxes and penalties, and $83,000 from a December 31, 2002 CCRA audit
assessment whereby several contract employees were deemed to be eligible for
statutory pension and unemployment premiums not previously recorded. The
Company has accrued these liabilities together with appropriate interest and
penalties. This liability is included in taxes payable in the current
liabilities section of the accompanying condensed consolidated balance sheets at
September 30, 2004 and December 31, 2003. An aggressive collection effort by the
CCRA could have a significant negative effect on the Company's operations in one
of its Canadian subsidiaries. The board of directors of the subsidiary is in
negotiation with the CCRA to develop a repayment program which will reduce the
liability over time and which may shift the liability to the directors and away
from the company.
(B) On January 13, 2002, the Company canceled its "Power Audit" software
distribution agreement with the licensor. In January of 2003, the licensor
commenced a proceeding in Ontario, Canada against the Company which was placed
into abeyance and then revived in August of 2003 alleging that the Company had
infringed upon the copyright that the licensor maintained, and further that the
Company had breached the distribution contract. The licensor has claimed
punitive and exemplary damages of Canadian $4,000,000 and $1,000,000,
respectively. The Company has retained legal counsel to defend itself on the
basis that the Company believes there is no merit to the case and even if there
was merit, the time frame in which to bring an action in the contract has
expired.
Compulsory mediation has occurred in the case and no settlement was offered or
agreement was arrived at during the mediation phase. The next step would
normally be "examination for discovery" then on to a trial. The Company has not
yet determined if it will counter sue for the return of all proceeds paid to the
licensor during the period of time between 1999 and 2001. It is the Company's
view that the case filed by the licensor is frivolous, however, the action is
moving forward with a pre-trial hearing set for early January 2005 the outcome
of which is not known at this time. No allocation for any contingent liability
has been made in the Company's Condensed Consolidated Financial Statements for
the punitive and exemplary damages; however, it has maintained in it current
accounts payables approximately $226,000 as owing to the licensor. In January of
2003, the Company also committed to issue to the licensor, 100,000 shares of
freely tradable common stock. The shares were valued by the Company at $0.18 per
share based on the closing market price of the common stock at the commitment
date. The total value of $18,000 is included in current liabilities in the
accompanying condensed consolidated balance sheets at September 30, 2004 and
September 31, 2003.
(C) On March 17, 2000, the Company entered into a consulting agreement with the
former stockholder of an inactive reporting shell company that the Company
acquired. The consulting agreement provides that one year after the execution of
the agreement, ("Reset Date"), the 350,000 common shares issued by the Company
to the former stockholder shall be increased or decreased based upon the average
closing price of the Company's stock 30 days prior to the Reset Date, so the
value of the 350,000 shares will equal $500,000. The average closing price of
the stock was $0.1487 per share. The Company is obligated to issue an additional
3,028,378 common shares to the consultant as an additional fee. In March of
2004, the consultant filed a claim in the Superior Court of the District of
Columbia against the Company seeking, among other things, the reset shares. The
Company has engaged legal counsel to vigorously defend itself against the claim.
On May 3, 2004, the Company responded to the Complaint by filling a motion to
compel arbitration. The Superior Court granted the Company's motion by order
dated May 27, 2004. The consultant filed a Demand for Arbitration with the
American Arbitration Association on or about June 9, 2004. Arbitration
proceedings are expected to begin in April 2005. The Company believes the
consultant is not entitled to the reset shares due to the SEC and regulatory
problems relating to the acquisition of the shell company and as such has not
provided any accruals for this matter in the accompanying consolidated financial
statements.
F-16
ACTIVECORE TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY IVP TECHNOLOGY CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2004
(CONTINUED)
(UNAUDITED)
(D) During July of 2004, the Company was named as a co-defendant in a motion
brought by a Canadian based company and several of its officers that competes
with ActiveCore alleging that ActiveCore had misappropriated certain customer
lists and other property of this company and amongst other things, unfairly
competes against this company. An action has been commenced by the plaintiff to
pursue the motion and the Company believes that the motion and action were
brought to deflect attention from the original action against several officers
of the plaintiff by several of the plaintiff company's minority shareholders.
The Company believes that there is no basis for the motion and that eventually
the plaintiff's board, officers and shareholders will resolve their internal
issues and the action will be dropped. The Company intends to vigorously defend
against the action.
(E) During all of 2003, the Company's principal executive office was located at
2275 Lakeshore Blvd. West, Suite 401, Toronto, Ontario, Canada at a cost of
approximately $3,500 per month. Commencing in July of 2003, the Company
subleased additional premises in Suite 402 in the same building doubling its
rental space to approximately 5,500 square feet at a cost of an additional
$3,500 per month. Commencing May 1, 2004, the Company moved its premises to 156
Front Street West, Suite 210, Toronto, Ontario, M5J 2L6 where it leases
approximately 6,550 sq ft of office space for five years at a rental cost,
including operating expenses and taxes, of approximately $126,000 per annum.
NOTE 11 - NOTES AND BANK LOANS PAYABLE
On June 14, 2004, the Company obtained a loan of $60,000 from Cornell Capital
Partners, L.P. As of September 30, 2004, this loan has been fully repaid.
On September 30, 2004, the Company reached an agreement with the IBEW to convert
a $500,000 term loan made to one of its Canadian subsidiaries into convertible
redeemable preferred shares (series C) and agreed to issue 4,746,118 restricted
common shares to pay accrued interest for the period from August 1, 2003 to
September 30, 2004. See note 12 and 14 for additional details.
On August 17, 2004 one of the Company's Canadian subsidiaries obtained a term
loan with a Canadian Chartered Bank in the amount of (CAD) $220,000. Under the
terms of the agreement, the loan is repayable over a seven year term with
principal and interest payments due monthly. Interest on the borrowings is the
bank's prime rate plus 3%. As of September 30, 2004 the bank's prime rate was
3.75%, and the Company owed the bank $171,209 USD.
NOTE 12 - STOCKHOLDER'S EQUITY
PREFERRED SHARES:
The Company has issued or committed to issue 3 Series of Preferred shares:
Series A and B Par Value $.001 $250,000 and $250,000 respectively: The Series A
and B convertible preferred stock have been classified as equity in the
September 30, 2004 financials. These shares have a right of redemption whereby
if the stock is not converted within 5 years, the Company, at its option, shall
have the right to redeem all outstanding but unconverted shares of series A
(same for B) Preferred Stock held by such person by paying to the holder thereof
$0.03 (for B, $0.06) per share plus all accrued but unpaid dividends thereon, if
any. These shares are not manditorily redeemable. On September 14, 2004, the
Company issued 8,333,333 series A and 4,167,667 Series B preferred shares which
had a purchase price of $.03 and $.06 respectively. Each preferred share is
convertible into a one common share at any time prior to five years from the
date of issuance. The Company may force conversion of the preferred shares if
the trading price of the Series A and B shares exceed $.20 for 30 days. The
preferred shares will be paid a dividend at the rate of 10% per annum.
F-17
ACTIVECORE TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY IVP TECHNOLOGY CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2004
(CONTINUED)
(UNAUDITED)
Series C $500,000: The series C convertible preferred shares that convert the
IBEW debt are classified as a liability in the September 30, 2004 balance sheet.
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 150,
Accounting for Certain Financial Instruments with the characteristics of both
Liabilities and Equity, the series C preferred shares are considered a
"mandatorily redeemable financial instrument". SFAS No. 150 requires that a
financial instrument issued in the form of shares is mandatorily redeemable if
it embodies an unconditional obligation requiring the issuer to redeem the
instrument by transferring its assets at a specified or determinable date (or
dates) or upon an event certain to occur.
The terms of the Series C preferred stock require the Company to redeem the
preferred shares over 16 quarters, commencing on December 31, 2004. The Company
shall have the option of paying the quarterly redemptions in the form of cash or
common shares. Also the preferred shares with have a 12% annual dividend rate
payable quarterly based on the number of preferred shares outstanding at the end
of the quarter. The dividends may be paid in cash or in the form of common
shares. The dividend calculation will begin on October 1, 2004.
As of September 30, 2004, the series C convertible preferred stock has not yet
been issued and $93,750 has been classified as a current liability and $406,250
is classified as a long term liability in the condensed consolidated balance
sheet as September 30, 2004.
COMMON SHARES
During the nine months ended September 30, 2004, the Company issued 35,133,845
shares of common stock to Cornell Capital Partners in exchange for $584,180
under the Equity Line of Credit Agreement. Of the amount, $226,911 was applied
against the original $1,000,000 promissory note payable and $310,001 was used to
repay three separate notes that were issued in January of 2004 to Cornell
Capital Partners. Also, $47,268 was applied against interest due on the original
$1,000,000 promissory note payable.
Pursuant to an agreement reached between a long-term debt holder and the
Company, the board of directors approved the issuance of 3,559,520 restricted
shares of common stock aggregating $88,988 for the settlement of the principal
and accrued interest through February 23, 2004. The shares were valued at $0.025
per share based on the closing market price of the common stock on the
settlement date. During the nine months ended September 30, 2004, the Company
issued 11,300,000 restricted shares to various employees as performance related
bonuses or signing inducements. The values assigned to the common stock ranged
from $0.012 to $0.028 per share or an aggregate of $211,700, representing the
closing market value of the Company's common stock on the dates of issue. During
the nine months ended September 30, 2004, the Company issued 66,036,267
restricted shares of common stock to two directors and an officer of the Company
in lieu of cash to satisfy shareholder loans, expenses paid on behalf of the
Company and accrued salaries included in the amounts due to related parties in
the accompanying condensed consolidated balance sheets. The values assigned to
the common stock ranged from $0.012 to $0.024 per share, or an aggregate of
$990,325 representing the market value on the dates of grant. At December 31,
2003, $380,000 of this amount was included in the equity section of the
condensed consolidated balance sheet as common stock to be issued.
On February 20, 2004, pursuant to an agreement reached between a trade creditor
and the Company, the board of directors approved the issuance of 2,000,000
restricted shares of common stock aggregating $48,000 for settlement of a
$50,000 liability. These shares were issued on February 20, 2004 and were valued
at $0.024 per share based on the closing market price of the common stock on the
issuance date.
On February 20, 2004, the board of directors authorized the issuance of
5,000,000 restricted shares valued at $0.024 to a consultant which shares will
be earned over the following 12 months.
On July 12, 2004, the board of directors authorized the issuance of 666,000
restricted shares of common stock for the purchase of a limited source code
license for certain software for a value of $10,000. The software is to be used
by C Comm Network Corporation. These shares were issued on September 29, 2004.
F-18
ACTIVECORE TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY IVP TECHNOLOGY CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2004
(CONTINUED)
(UNAUDITED)
On September 29, 2004, the Company sold 4,000,000 restricted shares of common
stock to unrelated parties in exchange for $60,000. The restricted share
agreement grants the purchaser one warrant for each share at a purchase price of
0.018 cents to expire on November 30, 2005.
On September 30, 2004, the Board of Directors authorized the issuance of
4,746,118 restricted common shares to the International Brotherhood of
Electrical workers in payment of accrued interest of $70,192 to September 30,
2004 on the $500,000 term debt previously held against one of the Company's
Canadian subsidiaries. This amount is classified as common stock to be issued in
the equity section of the condensed consolidated financial statements at
September 30, 2004. Also, see Notes 5, 6, 7, and 13 for additional stock
transactions.
NOTE 13 - AGREEMENTS
(A) DYNAPORTAL
On February 9, 2004, BiznizWeb, Inc. (d.b.a. DynaPortal Software Company) and
the Company entered into a mutual non-exclusive dealer agreement for sales of
each other's products and a mutual understanding to develop ActiveLink
connectors to all of DynaPortal's modules. Under terms of the agreement, both
companies are working to create connectors between the Company's ActiveLink
product and DynaPortal functions. Once complete, the Company believes that the
joint development will provide both companies with the ability to offer powerful
portal solutions which should be able to compete with companies offering much
more expensive products.
This agreement will remain in effect for two years. The Company paid Dynaportal
$3,740 for an initial license to use the Activelink product in its DynaPortal
demonstration site.
(B) CONSULTING AGREEMENTS
On January 26, 2004, the Company entered into a consulting agreement with an
unrelated company to assist in locating and negotiating several prospective
merger candidates primarily to enable the creation of an outbound messaging and
communications service to work with the Company's ActiveLink product as a data
service bureau and enterprise portal interface. On February 20, 2004, the
Company issued 5,000,000 restricted shares to the consultant. These shares were
valued at $0.024 per share, or an aggregate of $120,000 representing the closing
bid price at the date of issue. During the three months ended September 30,
2004, the Company entered into a consulting agreement with the same unrelated
company to assist in locating and negotiating several prospective merger
candidates as well as to assist in sales activities to large customers. The
company issued 12,000,000 restricted shares valued at $0.015 for a total
consideration of $180,000 which will be earned over the next twelve months.
On August 1, 2004, the Company entered into a consulting agreement with Yvan
Coessens for the management of investors relations. On September 29, 2004 the
company issued 150,000 restricted shares valued at $0.015 for total
consideration of $2,250.
On September 8, 2004 the Company entered into a consulting agreement with
1582579 Ontario Limited to provide sales, strategic and acquisition services for
the Company. On September 29, 2004 1582579 Ontario Limited was issued 12,000,000
restricted common shares valued at $.015 or $180,000 which will be earned over
the next 12 months.
F-19
ACTIVECORE TECHNOLOGIES, INC. AND SUBSIDIARIES
FORMERLY IVP TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2004
(CONTINUED)
(UNAUDITED)
NOTE 14 - SUBSEQUENT EVENTS
On November 8, 2004 the Company issued 4,746,118 restricted common shares to the
International Brotherhood of Electrical workers in payment of accrued interest
to September 30, 2004 on the $500,000 term debt previously held against one of
the Company's Canadian subsidiaries.
On November 29, 2004 the Company held its annual shareholders meeting at which a
resolution was passed to approve the change of the Company's name from IVP
Technology Corporation to ActiveCore Technologies, Inc. At the same meeting
shareholders voted to change the Company's charter to enable the Board of
Directors to effect a reverse split or split in the Company's common shares at a
time of its choosing provided that at no time shall the number of outstanding
common shares exceed 500,000,000 common shares.
F-20
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and shareholders of:
IVP Technology Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheets of IVP Technology
Corporation and Subsidiaries (the "Company") as of December 31, 2003 and 2002,
and the related consolidated statements of operations, changes in stockholders'
deficiency, and cash flows for the years then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of IVP
Technology Corporation and Subsidiaries as of December 31, 2003 and 2002, and
the consolidated results of their operations, and their cash flows for the years
then ended, in conformity with accounting principles generally accepted in the
United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As described in Note 18 to
the consolidated financial statements, the Company has a net loss of $1,845,984
and a negative cash flow from operations of $2,296,836 for the year ended
December 31, 2003, and has a working capital deficiency of $1,583,976 and a
stockholders' deficiency of $1,135,803 at December 31, 2003. These matters raise
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 18. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
WEINBERG & COMPANY, P.A.
Boca Raton, Florida
April 19, 2004
F-21
IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2003 AND 2002
ASSETS
2003 2002
------------ ------------
CURRENT ASSETS
Cash $ -- $ 63,162
Accounts receivable, net of allowance for doubtful accounts of $43,970 at
December 31, 2003 and 2002 128,601 17,165
Other receivables 189,120 --
Prepaid expenses and other current assets 31,500 34,610
------------ ------------
Total Current Assets 349,221 114,937
------------ ------------
FURNITURE AND EQUIPMENT, NET 75,888 93,558
------------ ------------
OTHER ASSETS
License agreement, net of accumulated amortization of $9,642 and $356,806 at
December 31, 2003 and 2002, respectively 106,062 356,806
Customer list, net of amortization of $22,917 252,080 --
Investment at cost 250,000 --
Deferred consulting expense 123,119 --
Goodwill 100,000 --
Other assets -- 71,816
------------ ------------
Total Other Assets 831,261 428,622
------------ ------------
TOTAL ASSETS $ 1,256,370 $ 637,117
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts payable $ 666,348 657,403
Accrued liabilities 249,685 184,653
Taxes payable 301,378 82,150
Leases payable, current portion 14,884 --
Notes payable, current portion 557,299 104,020
Common stock to be issued 18,000 3,617,746
Due to related parties 117,874 369,226
Other current liabilities 7,729 134,088
Convertible preferred stock to be issued, short-term -- 4,779,662
Net liabilities of discontinued operations -- 1,432,505
------------ ------------
Total Current Liabilities 1,933,197 11,361,453
------------ ------------
LONG-TERM LIABILITIES
Notes payable, long-term portion 447,917 --
Convertible debenture and notes payable -- 150,000
Leases payable, long-term 11,059 25,570
Convertible preferred stock to be issued, long-term -- 3,584,747
------------ ------------
Total Long-Term Liabilities 458,976 3,760,317
------------ ------------
TOTAL LIABILITIES 2,392,173 15,121,770
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIENCY
Preferred stock, $.001 par value, 50,000,000 shares authorized,
none issued and outstanding -- --
Common stock, $0.001 par value, 500,000,000 shares
authorized, 286,207,703 issued in 2003, 275,207,703 outstanding
in 2003, and 99,449,261 shares issued
and outstanding at December 31, 2002, 286,207 99,449
Common stock to be issued 380,000 --
Additional paid-in capital 36,382,766 20,870,864
Accumulated deficit (37,094,546) (35,248,562)
Less: treasury stock (11,000,000 shares) (770,000) --
Accumulated other comprehensive income (loss) (158,586) 15,908
Less: deferred equity line commitment fees (112,668) (222,312)
Less: deferred compensation (48,976) --
------------ ------------
Total Stockholders' Deficiency (1,135,803) (14,484,653)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 1,256,370 $ 637,117
============ ============
F-22
IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
2003 2002
------------- -------------
REVENUES, NET $ 612,953 $ 314,063
------------- -------------
COST OF SALES
Product costs 141,172 68,115
Amortization of licensing agreements
and other distribution costs 395,407 1,610,701
------------- -------------
Total Cost of Sales 536,579 1,678,816
------------- -------------
GROSS PROFIT (LOSS) 76,374 (1,364,753)
------------- -------------
OPERATING EXPENSES
Salaries and wages 1,014,787 221,141
Stock-based compensation 824,654 5,500,000
Consulting fees 191,131 688,235
Legal and accounting 375,162 420,781
Management fees -- 53,040
General and administrative 872,327 378,599
Financial advisory fees 67,864 166,275
Research and development 4,717 110,112
Depreciation 47,322 16,875
Acquisition costs 117,211 --
Impairment of goodwill and intangible assets -- 409,688
------------- -------------
Total Operating Expenses 3,515,175 7, 964,746
------------- -------------
LOSS FROM OPERATIONS (3,438,801) (9,329,499)
------------- -------------
OTHER INCOME (EXPENSE)
Gain on early extinguishment of debt 21,034 1,021,238
Interest income 6,497 8,344
Interest expense (150,478) (98,414)
Foreign exchange gain (loss) 85,643 (83,295)
------------- -------------
Total Other Income (Expense) (37,304) 847,873
------------- -------------
LOSS FROM CONTINUING OPERATIONS (3,476,105) (8,481,626)
DISCONTINUED OPERATIONS:
Impairment of goodwill and intangible assets
from discontinued operations -- (10,658,090)
Loss from discontinued operations (765,888) (2,173,574)
Gain on sale of discontinued operations 2,396,009 --
------------- -------------
Gain (Loss) from Discontinued Operations, Net 1,630,121 (12,831,664)
------------- -------------
NET LOSS $ (1,845,984) $ (21,313,290)
============= =============
LOSS PER COMMON SHARE FROM CONTINUING
OPERATIONS - BASIC AND DILUTED $ (0.02) $ (0.13)
============= =============
GAIN (LOSS) PER COMMON SHARE FROM DISCONTINUED
OPERATIONS - BASIC $ 0.01 $ (0.19)
============= =============
NET LOSS PER COMMON SHARE - BASIC AND DILUTED $ (0.01) $ (0.32)
============= =============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC AND DILUTED 190,536,415 66,013,725
============= =============
F-23
IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
Preferred Stock Common Stock Common stock to be Issued
Shares Amount Shares Amount Shares Amount
--------------------------------------------------------------------------------------------------
Balance, December 31, 48,752,848 $ 48,753 1,000,00 $ 50,000
2001
Stock issued for
services 11,151,497 11,151 (50,000) 691,629
and settlements
Stock issued for
commitment fees 3,132,000 3,132
Stock Issued for
management 30,000,000 30,000
compensation
Stock Issued for debt 6,410,916 6,411
Stock issued for
Springboard 2,000 2
acquisition
Warrants issued for
commitment fees
Deferred cost recognized
Beneficial conversion
feature of
convertible debt
Net loss for period
Cumulative translation
adjustment
Comprehens ive Loss
----------------------------------------------------------------------------------------------------
Balance, December 31, -- -- 99,449,261 99,449 -- --
2002
Stock issued for 26,813,298 26,813
services
Stock Issued for
management
compensation 20,000,000 20,000
Stock issued and to be
issued for
shareholder debt 37,172,652 37,173 17,272,726 380,000
Stock Issued to repay
line of credit debt 29,000,000 29,000
Stock Issued for
investment 10,000,000 10,000
Stock issued for asset
acquisitions 7,272,492 7,272
Stock issued for
acquisition costs 3,500,000 3,500
Stock issued for
settlement 3,000,000 3,000
Stock issued to
former shareholders
of Ignition
Entertainment Ltd. 3,500,000 3,500 15,000,000 15,000
Conversion of preferred
stock
to common stock (3,500,000) (3,500) 35,000,000 35,000
Stock received from the
sale of
Ignition Entertainment Ltd.
Deferred cost recognized
Net loss for period
Cumulative translation
adjustment
Comprehensive Loss
----------------------------------------------------------------------------------------------------
Balance,
December 31, 2003 -- $ -- 286,207,703 $ 286,207 17,272,726 380,000
====================================================================================================
Deferred
Additional Other Equity Line
Paid-in Accumulated Treasury Comprehensive Commitment
Capital deficit Stock Income (Loss) Fees
----------------------------------------------------------------------------------------
Balance, December 31, $ 13,314,354 $ (13,935,272) $ (340,000)
2001
Stock issued for
services (1,000,000)
and settlements
Stock issued for
commitment fees 346,868 (350,000)
Stock Issued for
management 5,470,000
compensation
Stock Issued for debt 977,361
Stock issued for
Springboard 258
acquisition
Warrants issued for 6,107 (6,107)
commitment fees
Deferred cost recognized 473,795
Beneficial conversion
feature of 64,287
convertible debt
Net loss for period (21,313,290)
Cumulative translation
adjustment 15,908
Comprehens ive Loss
----------------------------------------------------------------------------------------
Balance, December 31, 20,870,864 (35,248,562) -- 15,908 (222,312)
2002
Stock issued for 689,887
services
Stock Issued for
management
compensation 520,000
Stock issued and to be
issued for
shareholder debt 892,143
Stock Issued to repay
line of credit debt 869,088
Stock Issued for
investment 240,000
Stock issued for asset
acquisitions 213,628
Stock issued for
acquisition costs 98,000
Stock issued for
settlement 90,000
Stock issued to
former shareholders
of Ignition
Entertainment Ltd. 11,930,656
Conversion of preferred
stock
to common stock (31,500)
Stock received from the
sale of
Ignition Entertainment Ltd. (770,000)
Deferred cost recognized 109,644
Net loss for period (1,845,984)
Cumulative translation
adjustment (174,494)
Comprehensive Loss
----------------------------------------------------------------------------------------
Balance,
December 31, 2003 $36,382,766 $(37,094,546) $ (770,000) $ (158,586) $ (112,668)
========================================================================================
Deferred
Compensation Total
---------------------------------------
Balance, December 31, $ (862,165)
2001
Stock issued for
services 652,780
and settlements
Stock issued for
commitment fees --
Stock Issued for
management 5,500,000
compensation
Stock Issued for debt 983,772
Stock issued for
Springboard 260
acquisition
Warrants issued for --
commitment fees
Deferred cost recognized 473,795
Beneficial conversion
feature of 64,287
convertible debt
Net loss for period (21,313,290)
Cumulative translation
adjustment 15,908
---------------
Comprehens ive Loss (21,297,382)
----------------------------------------
Balance, December 31, -- (14,484,653)
2002
Stock issued for (48,976) 667,724
services
Stock Issued for
management
compensation 540,000
Stock issued and to be
issued for
shareholder debt 1,309,316
Stock Issued to repay
line of credit debt 898,088
Stock Issued for
investment 250,000
Stock issued for asset
acquisitions 220,900
Stock issued for
acquisition costs 101,500
Stock issued for
settlement 93,000
Stock issued to
former shareholders
of Ignition
Entertainment Ltd. 11,949,156
Conversion of preferred
stock
to common stock --
Stock received from the
sale of
Ignition Entertainment Ltd. (770,000)
Deferred cost recognized 109,644
Net loss for period (1,845,984)
Cumulative translation
adjustment (174,494)
---------------
Comprehensive Loss (2,020,478)
----------------------------------------
Balance,
December 31, 2003 $ (48,976) $ (1,135,803)
========================================
See accompanying notes to consolidated financial statements.
F-24
IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
2003 2002
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,845,984) $(21,313,290)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 47,322 16,875
Gain on sale of discontinued operations (2,396,009) --
Amortization of licensing agreements and software kits 366,448 1,610,695
Amortization of consulting agreements and commitment fees 321,499 131,250
Amortization of customer list 22,917 --
Interest expense on beneficial conversion -- 64,286
Gain on extinguishment of debts -- (1,021,238)
Stock to be issued for settlement of licensing agreement -- 18,000
Bad debts (recovery) expense -- (3,000)
Impairment of goodwill and intangible assets -- 11,086,863
Impairment of deferred tax asset 71,816 --
Warrants issued for commitment fees -- 2,545
Stock issued for commitment fees and penalties 22,800 --
Stock issued for financing costs 129,500 --
Stock issued for compensation 582,501 5,500,000
Stock issued for services 62,500 667,780
Stock issued for legal settlement 20,149 --
Stock issued for acquisition costs 101,500 --
Changes in operating assets and liabilities,
net of effects of acquisitions and
discontinued operations:
Decrease (increase) in receivables (300,556) 803,145
Decrease in inventory -- 56,689
Decrease in prepaid expenses and other current assets 3,110 145,040
Decrease in other assets -- 3,620
Increase (decrease) in accounts payable 142,247 (136,770)
Increase (decrease) in accrued liabilities (17,837) 6,094
Increase (decrease) in taxes payable 219,228 (29,185)
Increase (decrease) in other current liabilities (126,360) 97,365
Decrease in accrued interest 82,869 3,906
Net liabilities of discontinued operations 193,504 1,432,505
------------ ------------
Net Cash (Used In) Operating Activities (2,296,836) (856,825)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash received from acquisition -- 1,168,628
Cash paid for licensing agreement 24,999 (713,612)
Disposal of furniture and equipment -- 330,347
Purchases of furniture and equipment (5,774) --
Purchase of software rights (94,803) --
Purchases of software development kits -- (45,367)
------------ ------------
Net Cash (Used In) Provided By Investing Activities (75,578) 739,996
------------ ------------
F-25
IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of notes payable (49,859) (40,000)
Repayment of convertible debentures (150,000) --
Repayment of loan factors -- (297,174)
Repayment of related parties -- (482,013)
Proceeds from notes payable 1,649,146 861,015
Proceeds from convertible debentures -- 150,000
Proceeds from related parties 1,057,964 --
Payment on leases (23,505) (27,979)
------------ ------------
Net Cash Provided By Financing Activities 2,483,746 163,849
------------ ------------
EFFECT OF FOREIGN EXCHANGE RATES (174,494) 15,909
------------ ------------
NET (DECREASE) INCREASE IN CASH (63,162) 62,929
CASH - BEGINNING OF YEAR 63,162 232
------------ ------------
CASH - END OF YEAR $ -- $ 63,161
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 54,354 $ --
============ ============
Cash paid for taxes $ -- $ --
============ ============
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Equipment purchased under capital leases $ 23,878 $ 9,480
============ ============
Acquisition of Ignition Entertainment Ltd. for common and preferred stock to $ -- $ 11,949,155
be issued
============ ============
Common stock preferred stock issued to satisfy common and preferred stock to
be issued for the acquisition of Ignition $ 11,949,156 $ --
============ ============
Common stock issued for payment of accounts payable $ 72,851 --
============ ============
Common stock to be issued for payment of amounts due to related parties $ 380,000 --
============ ============
Acquisition of Springboard Technology Solutions, Inc. for common stock to be
issued and debt assumed $ -- $ 409,688
============ ============
Revaluation of the TIG licensing agreement $ -- $ 2,695,364
============ ============
Stock issued for payment of debt and accrued interest thereon $ -- $ 223,772
============ ============
Stock issued for payment of debt held with factors $ -- $ 760,000
============ ============
Common stock issued to acquire other income producing assets $ 220,900 $ --
============ ============
Common stock issued for deferred consulting expenses $ 383,950 $ --
============ ============
Common stock issued for payment of accrued bonuses $ 60,450 $ --
============ ============
Common stock issued for payment of debt and accrued interest thereon $ 898,089 $ --
============ ============
Common stock issued for payment of amounts due to related parties $ 929,316 $ --
============ ============
Common stock issued for payment of common stock to be issued for services $ 15,000 $ --
============ ============
Common stock issued for investment $ 250,000 $ --
============ ============
F-26
IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS
AS OF DECEMBER 31, 2003 AND 2002
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
(A) ORGANIZATION
The consolidated financial statements of IVP Technology Corporation, d.b.a.
ActiveCore Technologies, Inc. and subsidiaries (the "Company") include the
accounts of the parent, IVP Technology Corporation, incorporated in the State of
Nevada on February 11, 1994, and its subsidiaries: ActiveCore Technologies Ltd.,
(formerly Springboard Technology Solutions Inc.), a Canadian company, Erebus
Corporation, an inactive company, and ActiveCore Exml Canada Ltd., an inactive
company. The Company was granted an extra-provincial license by the Province of
Ontario on June 20, 1995 to carry on business in Ontario, Canada.
During 2003, the Company operated two divisions: enterprise and consumer. The
enterprise division develops, markets, licenses, installs and services data
solutions. The consumer market group develops and publishes interactive software
games designed for mobile phones, other handheld devices and web-sites. The
consumer unit also distributes games developed by third parties. In 2002, the
Company also produced video games for personal computers and various console
gaming platforms (See Note 2 - Discontinued Operations).
(B) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. The consolidated financial statements also
include the accounts of the Company's former subsidiary, Ignition Entertainment
Limited from the time of acquisition (May 28, 2002) through the time of disposal
(April 1, 2003) (See Note 2). All significant inter-company transactions and
balances have been eliminated in consolidation.
(C) BASIS OF PRESENTATION
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.
(D) RECLASSIFICATIONS
Certain reclassifications have been made to previously reported amounts to
conform to the current year's presentation.
(E) FOREIGN CURRENCY TRANSACTIONS
Assets and liabilities of foreign subsidiaries, whose functional currency is the
local currency, are translated at year-end exchange rates. Capital accounts are
re-measured into U.S. dollars at the acquisition date rates. Income and expense
items are translated at the average rates of exchange prevailing during the
year. The adjustments resulting from translating the financial statements of
such foreign subsidiaries are recorded as a component of accumulated other
comprehensive income (loss) in stockholders' deficiency. Foreign currency
transaction gains or losses are reported in results of operations.
(F) COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) represents the change in net assets of a business
enterprise during a period from transactions and other events and circumstances
from non-owner sources. Comprehensive income (loss) of the Company includes net
income adjusted for the change in foreign currency translation adjustments.
F-27
IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS
AS OF DECEMBER 31, 2003 AND 2002
(G) USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the dates of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual amounts could differ significantly from these estimates.
(H) FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument is the amount at which the instrument
could be exchanged in a current transaction between willing parties other than
in a forced sale or liquidation.
The carrying amounts of the Company's financial instruments, including cash,
accounts receivable, accounts payable, accrued liabilities, taxes payable and
other current laibilties approximate fair value because of their short
maturities. The carrying amount of the Company's lines of credit approximates
fair value because the interest rates of the lines of credit are based on
floating rates identified by reference to market rates. The carrying amounts of
the Company's loans and notes payable and capital lease obligations approximate
the fair value of such instruments based upon management's best estimate of
interest rates that would be available to the Company for similar debt
obligations.
(I) FURNITURE AND EQUIPMENT
Office equipment, furniture and fixtures are depreciated using the straight-line
method over their estimated lives ranging from five to seven years. Computer
equipment and software are depreciated using the straight-line method over three
years. The cost of additions and betterments are capitalized, and repairs and
maintenance costs are charged to operations in the periods incurred. When
depreciable assets are retired or sold, the cost and related allowances for
depreciation are removed from the accounts and the gain or loss is recognized.
(J) LONG-LIVED ASSETS
In August 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. This pronouncement supercedes SFAS
No. 121, Accounting for the Impairment of Long-Lived Assets and long-Lived
Assets to be Disposed of and was required to be adopted on January 1, 2002. SFAS
No. 144 retained the fundamental provisions of SFAS No. 121 as it related to
assets to be held and used and assets to be sold. SFAS No. 144 requires
impairment losses to be recorded on assets to be held and used by the Company
when indicators of impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than the carrying amount of
the assets. When an impairment loss is required for assets to be held and used
by the Company, the related assets are adjusted to their estimated fair value.
Fair value represents the amount at which an asset could be bought or sold in a
current transaction between willing parties, that is other than a forced or
liquidation sale.
The estimation process involved in determining if assets have been impaired and
in the determination of fair value is inherently uncertain because it requires
estimates of current market yields as well as future events and conditions. Such
future events and conditions include economic and market conditions, as well as
availability of suitable financing to find acquisitions and development
activities. The realization of the Company's revenue producing assets is
dependent upon future uncertain events and conditions, and accordingly, the
actual timing and amounts realized by the Company may be materially different
from their estimated value.
F-28
IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS
AS OF DECEMBER 31, 2003 AND 2002
(K) GOODWILL AND OTHER INTANGIBLES
In accordance with SFAS No. 141, the Company allocates the purchase price of its
acquisitions to the tangible assets, liabilities and intangible assets acquired
based on their estimated fair values. The excess purchase price over those fair
values is recorded as goodwill. The fair value assigned to intangible assets
acquired is based on valuations prepared by independent third party appraisal
firms using estimates and assumptions provided by management. In accordance with
SFAS No. 142, goodwill and purchased intangibles with indefinite lives acquired
after June 30, 2001 are not amortized but are reviewed periodically for
impairment. The Company recognized an impairment of goodwill and intangible
assets of $11,086,863 for the year ended December 31, 2002. Of the total,
$19,085 is included in loss from discontinued operations in the accompanying
consolidated statement of operations for 2002.
Other intangibles are recorded at cost and are amortized on a straight-line
basis over their respective useful lives.
(L) RESEARCH AND DEVELOPMENT COSTS
Expenditures relating to the development of new products and processes,
including significant improvements to existing products, are expensed as
incurred. Included in salaries and wages are $191,947 and $ - 0 - of research
and development costs paid to employees for software development for the years
ended December 31, 2003 and 2003, respectively.
(M) INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
(N) STOCK-BASED COMPENSATION
The Company accounts for employee stock option plans in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees". Under APB 25, no compensation expense is recorded when the terms of
the award are fixed and the exercise price of the employee stock option equals
or exceeds the fair value of the underlying stock on the date of grant. The
Company adopted the disclosure-only provisions of No. 123, "Accounting for
Stock-Based Compensation".
(O) LOSS PER COMMON SHARE
Basic loss per common share is based on net loss divided by the weighted average
number of common shares outstanding. Common stock equivalents were not included
in the calculation of diluted loss per share as their effect would be
anti-dilutive.
F-29
IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS
AS OF DECEMBER 31, 2003 AND 2002
(P) BUSINESS SEGMENTS
The Company applies Statement of Financial Accounting Standards No. 131
"Disclosures about Segments of an Enterprise and Related Information". The
Company operates in one segment and therefore segment information is not
presented.
Management has determined that it is not practicable to provide geographic
segment disclosures for revenues and long-lived assets because the Company sells
its products to a large variety of locations in the Americas and Europe, and in
many instances, these products are then resold through distributors.
(Q) REVENUE RECOGNITION
RISK AND UNCERTAINTIES
A significant portion of all of the Company's net sales are derived from
software publishing and distribution activities, which are subject to increasing
competition, rapid technological change and evolving consumer preferences, often
resulting in the frequent introduction of new products and short product
lifecycles. Accordingly, the Company's profitability and growth prospects depend
upon its ability to continually acquire, develop and market new, commercially
successful software products and obtain adequate financing. If the Company is
unable to continue to acquire, develop and market commercially successful
software products, its operating results and financial condition could be
materially adversely affected in the near future.
REVENUE RECOGNITION
Distribution revenue is derived from the sale of third-party interactive
software titles, accessories and hardware. Distribution revenue amounted to
$103,051and $196,949 for the years ended December 31, 2003 and 2002.
Revenues from services and commercial software sold under licenses were $509,902
and $117,114 for the years ended December 31, 2003 and 2002 respectively.
The Company recognizes revenue in accordance with Statement of Position ("SOP")
97-2 "Software Revenue Recognition", as amended by SOP 98-9 "Modification of SOP
97-2 Software Revenue Recognition with respect to Certain Transactions." SOP
97-2 provides guidance on applying generally accepted accounting principles in
recognizing revenue on software transactions. SOP 98-9 deals with the
determination of vendor specific objective evidence ("VSOE") of fair value in
multiple element arrangements, such as maintenance agreements sold in
conjunction with software packages. The Company's software transactions
generally include only one element, the interactive software game or commercial
software under license. The Company recognizes revenue when the price is fixed
and determinable; there is persuasive evidence of an arrangement, the
fulfillment of its obligations under any such arrangement and determination that
collection is probable. Accordingly, revenue is recognized when the license or
title and all risks of loss are transferred to the customer, which is generally
upon receipt by customer. The Company's payment arrangements with its customers
provide primarily 60 day terms and, to a limited extent with certain customers,
30 or 90 day terms. The Company does not have any multi-element arrangements
that would require it to establish VSOE for each element, nor does the Company
have any sales activity that requires the contract method of accounting.
The Company's distribution arrangements with customers generally do not give
customers the right to return products. However, the Company at its discretion
may accept product returns for stock balancing or defective products. In
addition, the Company sometimes negotiates accommodations to customers,
including price discounts, credits and product returns, when demand for specific
products falls below expectations. The Company's publishing arrangements
generally do not require the Company to accept product returns and provide price
protection. The Company establishes a reserve for future returns and other
allowances based primarily on its return policies, price protection policies and
historical return rates. The Company may not have a reliable basis to estimate
returns and price protection for certain customers or it may be unable to
determine that collection of the receivable is probable. In such circumstances,
the Company defers the revenues at the time of the sale and recognizes them when
collection of the related receivable becomes probable or cash is received.
F-30
IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS
AS OF DECEMBER 31, 2003 AND 2002
(R) CONSIDERATION GIVEN TO CUSTOMERS OR RESELLERS
In November 2001, the Financial Accounting Standards Board ("FASB") Emerging
Issues Task Force (EITF) reached a consensus on EITF Issue 01-09, Accounting for
Consideration Given by a Vendor to a Customer or Reseller of the Vendor's
Products, which is a codification of EITF 00-14, 00-22 and 00-25. This EITF
presumes that consideration from a vendor to a customer or reseller of the
vendor's products to be a reduction of the selling prices of the vendor's
products and, therefore, should be characterized as a reduction of revenue when
recognized in the vendor's income statement and could lead to negative revenue
under certain circumstances. Revenue reduction is required unless consideration
relates to a separate identifiable benefit and the benefit's fair value can be
established. The Company has adopted EITF 01-09 effective January 1, 2002. The
adoption of the new standard did not have a material impact on the consolidated
financial statements. There was no effect on prior period financial statements
as a result of adopting this statement.
(S) RECENT ACCOUNTING PRONOUNCEMENTS
In November 2002, the Emerging Issues Task Force ("EITF") reached a consensus on
Issue 00-21, addressing how to account for arrangements that involve the
delivery or performance of multiple products, services, and /or rights to use
assets. Revenue arrangements with multiple deliverables are divided into
separate units of accounting if the deliverables in the arrangement meet the
following criteria: (1) the delivered item has value to the customer on a
stand-alone basis; (2) there is objective and reliable evidence of the fair
value of undelivered items; and (3) delivery of any undelivered items is
probable. Arrangement consideration should be allocated among the separate units
of accounting based on their relative fair values, with the amount allocated to
the delivered item being limited to the amount that is not contingent on the
delivery of additional items or meeting other specified performance conditions.
The final consensus is applicable to agreements entered into in fiscal periods
beginning after June 15, 2003.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities". SFAS No. 149 amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities". The
changes in SFAS No. 149 improve financial reporting by requiring that contracts
with comparable characteristics be accounted for similarly. This statement is
effective for contracts entered into or modified after June 30, 2003 and all of
its provisions should be applied prospectively.
In May 2003, the FASB issued SFAS No. 150, "Accounting For Certain Financial
Instruments with Characteristics of both Liabilities and Equity". SFAS No. 150
changes the accounting for certain financial instruments with characteristics of
both liabilities and equity that, under previous pronouncements, issuers could
account for as equity. The new accounting guidance contained in SFAS No. 150
requires that those instruments be classified as liabilities in the balance
sheet.
SFAS No. 150 affects the issuer's accounting for three types of freestanding
financial instruments. One type is mandatorily redeemable shares, which the
issuing company is obligated to buy back in exchange for cash or other assets. A
second type includes put options and forward purchase contracts, which involve
instruments that do or may require the issuer to buy back some of its shares in
exchange for cash or other assets. The third type of instruments that are
liabilities under this SFAS is obligations that can be settled with shares, the
monetary value of which is fixed, tied solely or predominantly to a variable
such as a market index, or varies inversely with the value of the issuers'
shares. SFAS No. 150 does not apply to features embedded in a financial
instrument that is not a derivative in its entirety.
Most of the provisions of Statement 150 are consistent with the existing
definition of liabilities in FASB Concepts Statement No. 6, "Elements of
Financial Statements". The remaining provisions of this SFAS are consistent with
the FASB's proposal to revise that definition to encompass certain obligations
that a reporting entity can or must settle by issuing its own shares. This SFAS
is effective for financial instruments entered into or modified after May 31,
2003 and otherwise shall be effective at the beginning of the first interim
period beginning after June 15, 2003, except for mandatorily redeemable
financial instruments of a non-public entity, as to which the effective date is
for fiscal periods beginning after December 15, 2004.
F-31
IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS
AS OF DECEMBER 31, 2003 AND 2002
In January 2003, and as revised in December 2003, the FASB issued Interpretation
No. 46, "Consolidation of Variable Interest Entities" "Interpretation No. 46"),
an interpretation of Accounting Research Bulletin ("ARB") No. 51", "Consolidated
Financial Statements". Interpretation No. 46 addresses consolidation by business
enterprises of variable interest entities, which have one or both of the
following characteristics: (i) the equity investment at risk is not sufficient
to permit the entity to finance its activities without additional subordinated
support from other parties, which is provided through another interest that will
absorb some or all of the expected losses of the entity; (ii) the equity
investors lack one or more of the following essential characteristics of a
controlling financial interest: the direct or indirect ability to make decisions
about the entity's activities through voting rights or similar rights; or the
obligation to absorb the expected losses of the entity if they occur, which
makes it possible for the entity to finance its activities; the right to receive
the expected residual returns of the entity if they occur, which is the
compensation for the risk of absorbing the expected losses. Interpretation No.
46, as revised, also requires expanded disclosures by the primary beneficiary
(as defined) of a variable interest entity and by an enterprise that holds a
significant variable interest in a variable interest entity but is not the
primary beneficiary.
Interpretation No. 46, as revised, applies to small business issuers no later
than the end of the first reporting period that ends after December 15, 2004.
This effective date includes those entities to which Interpretation No. 46 had
previously been applied. However, prior to the required application of
Interpretation No. 46, a public entity that is a small business issuer shall
apply Interpretation No. 46 to those entities that are considered to be
special-purpose entities no later than as of the end of the first reporting
period that ends after December 15, 2003.
Interpretation No. 46 may be applied prospectively with a cumulative-effect
adjustment as of the date on which it is first applied or by restating
previously issued financial statements for one or more years with a
cumulative-effect adjustment as of the beginning of the first year restated.
In June 2003, the FASB issued an Exposure Draft for proposed SFAS entitled
"Qualifying Special Purpose Entities ("QSPE") and Isolation of transferred
Assets", an amendment of SFAS No. 140 ("The Exposure Draft"). The Exposure Draft
is a proposal that is subject to change and as such, is not yet authoritative.
If the proposal is enacted in its current form, it will amend and clarify SFAS
140. The Exposure Draft would prohibit an entity from being a QSPE if it enters
into an agreement that obliged a transferor of financial assets, its affiliates,
or its agents to deliver additional cash or other assets to fulfill the
special-purposes entity's obligation to beneficial interest holders.
The adoption of these recent pronouncements will not have a material effect on
the Company's consolidated financial position or results of operations.
NOTE 2. IGNITION ENTERTAINMENT LIMITED/DISCONTINUED OPERATIONS
On May 28, 2002, the Company acquired 100% of the stock of Ignition, a UK
corporation, which specialized in the design, development, licensing, publishing
and distribution of personal computer, mobile devices and game console software
and accessories. The Company agreed to issue 15,000,000 shares of unregistered
common stock and 3,500,000 of unregistered preferred stock convertible into
35,000,000 shares of common stock, collectively valued at $0.23898 per share,
for a total purchase price of $11,949,156. These shares were held in escrow
until disbursed in accordance with the terms of the escrow agreement. The
acquisition was accounted for by the purchase method of accounting. The Company
acquired net tangible assets of $1,291,061. The excess of the consideration
given over the fair value of net assets acquired was recorded as goodwill of
$10,658,095. The unregistered common and convertible preferred stock are
presented as liabilities in the accompanying consolidated balance sheet at
December 31, 2002.
In the fourth quarter of 2002, the Company recorded an impairment loss relating
to the entire amount of the goodwill based upon the Company's estimate of the
undiscounted future net cash flows. The impairment loss is included in loss from
discontinued operations in the accompanying consolidated statement of operations
for the year ended December 31, 2002.
Effective April 1, 2003, the Company sold 100% of the issued shares and all
assets and liabilities of Ignition Entertainment, Ltd. for the return of
11,000,000 shares of the Company's common stock originally issued to and held by
the former shareholders. The transaction resulted in a gain of $2,396,009, which
has been included in the accompanying consolidated statement of operations for
the year ended December 31, 2003 as a gain on sale of discontinued operations.
F-32
IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS
AS OF DECEMBER 31, 2003 AND 2002
Upon execution of the sale agreement in June 2003, the Company issued 50,000,000
shares of its common stock to the former shareholders of Ignition Entertainment
Ltd. in accordance with the original May 28, 2002 purchase agreement. Based upon
the terms of the sale agreement, the Company converted all of the 3,500,000
shares of preferred stock to be issued, into 35,000,000 shares of common stock
and accelerated the issuance of 15,000,000 shares of common stock to be issued.
The issuance of the 50,000,000 shares of common stock in June 2003 relieved the
Company's obligation as of April 1, 2003, to issue $11,949,156 in preferred and
common stock under the original May 28, 2002 purchase agreement. The 50,000,000
shares were delivered, in trust, to an independent third party upon the
execution of the sale agreement and were subsequently distributed to the former
owners in 2004. Following the issuance of the 50,000,000 shares of the Company's
common stock, the former shareholders returned 11,000,000 shares of common stock
to the Company as proceeds for the sale of Ignition Entertainment Ltd. The
11,000,000 shares were valued at $770,000 based upon the fair market value of
the stock on April 1, 2003, the effective date of the sale agreement. The
11,000,000 shares are presented in the accompanying consolidated balance sheet
as treasury stock. The shares were subsequently canceled on February 24, 2004.
In connection with the sale agreement, the Company retained rights to certain
intellectual property and received a source code licensing agreement for certain
interactive software games developed by Ignition Entertainment Ltd. The Company
also received an agreement to distribute the interactive software games on a
worldwide basis for a period of three years, renewable annually thereafter. The
Company will pay Ignition Entertainment Ltd. a royalty fee of 30% of all gross
revenues, less direct costs, from the sale, distribution or marketing of those
game titles. As of December 31, 2003, the Company did not assign any value to
the acquired intellectual property and or to the distribution agreement due to
the uncertainty of obtaining financing to fund the conversion of acquired
intellectual property into saleable products.
Following is a summary of net liabilities and results of operations of Ignition
Entertainment Ltd. as of April 1, 2003 and December 31, 2002 and for the period
from January 1, 2003 through April 1, 2003 and for the year ended December 31,
2002.
As of As of
April 1, 2003 December 31, 2002
------------- -----------------
Cash $ 160 $ 213,924
Accounts receivable, net 212,741 149,676
Inventory 78,955 383,738
Prepaid expenses 113,044 99,488
Property, plant and equipment, net 417,727 442,674
Other assets 24,963 --
---------- ----------
Total Assets 847,590 1,289,500
---------- ----------
Accounts payable 1,044,294 1,182,423
Accrued liabilities 134,058 240,833
Due to factor 211,249 94,746
Taxes payable 436,513 338,520
Translation adjustment 93,790 64,887
Notes payable 129,366 80,220
Due to related parties 424,329 720,376
---------- ----------
Total Liabilities 2,473,599 2,722,005
---------- ----------
Net Liabilities of Discontinued Operations $1,626,009 $1,432,505
========== ==========
F-33
IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS
AS OF DECEMBER 31, 2003 AND 2002
For the Period
From For the Period
January 1, 2003 From May 28, 2002
Through April 1, Through December
2003 31, 2002
----------- -----------
Revenues, net $ 1,087,906 $ 2,896,532
Cost of sales 960,501 2,984,309
----------- -----------
Gross profit 127,405 (87,777)
Operating expenses 815,985 2,073,303
----------- -----------
Loss from discontinued operations (688,580) (2,161,080)
Other expense (77,308) (12,494)
----------- -----------
Net loss from discontinued operations $ (765,888) $(2,173,574)
=========== ===========
NOTE 3. ACQUISITION OF ACTIVECORE TECHNOLOGIES LTD.
On July 1, 2002, the Company acquired all the outstanding shares of ActiveCore
Technologies Limited (formerly Springboard Technology Solutions Inc.) for
consideration of 2,000 common shares on the basis of a one for one exchange. The
value of the common stock issued was $260 or $.13 per share based on the value
of the Company's common stock on the date that the Board approved the
transaction. ActiveCore Technologies Limited was owned by some of the Company's
officers and directors at the time of acquisition. ActiveCore Technologies
Limited is a data solutions company that provides network solutions, web and
software development and data interface services. This acquisition was accounted
for by the purchase method of accounting in accordance with the provisions of
SFAS 141 and, accordingly, the operating results have been included in the
Company's consolidated results of operations from the date of acquisition. As a
result of the ActiveCore Technologies Limited acquisition, the Company recorded
goodwill in the amount of $409,688.
In the fourth quarter of 2002, the Company recorded an impairment loss of the
entire amount of the goodwill based on the undiscounted future net cash flows.
NOTE 4. ACCOUNTS RECEIVABLE
The components of accounts receivable, net, as of December 31, 2003 and 2002
consist of:
Trade receivables consists primary of vendor receivables for enterprise software
and information technology services sold.
NOTE 5. OTHER RECEIVABLES
Other receivables, of $162,509, primarily represent advances made to unrelated
parties in order to satisfy debts of Ignition Entertainment Ltd. These
receivables were collected in full in the first quarter of 2004. Also included
in other receivables is $26,611 for an advance made to ePocket, Inc (See Note
7). This advance was repaid in full in February 2004.
F-34
IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS
AS OF DECEMBER 31, 2003 AND 2002
NOTE 6. FURNITURE AND EQUIPMENT
As of December 31, 2003 and 2002, furniture and equipment consist of:
2003 2002
--------- ---------
Computer equipment $ 151,183 $ 91,505
Office equipment and furniture 25,453 22,828
Computer software 37,546 13,546
Software development kits -- 45,367
--------- ---------
214,182 173,246
Less accumulated depreciation and amortization (138,294) (79,688)
--------- ---------
Furniture and Equipment, net $ 75,888 $ 93,558
========= =========
Depreciation expense for the years ended December 31, 2003 and 2002 amounted to
$47,322 and $16,875, respectively.
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
10,000,000 shares of the Company's common stock or the equivalent of $300,000
Canadian dollars ("CAD"). The shares are expected to be sold in the open market.
If the sale of these shares does not generate the amount of funds required
($300,000 CAD), the Company will be required to fund the difference. If the
sales of the shares exceed the minimum required amount, the Company may increase
its interest in or have any remaining unsold shares returned for cancellation or
recession. The shares were valued at $0.025 per share or an aggregate of
$250,000, representing the market value at the date of grant. The investment in
ePocket, Inc. is valued at cost in the accompanying consolidated balance sheet.
Approximately 1,000,000 shares have been sold in the open market as of December
31, 2003 for proceeds of approximately $30,000.
NOTE 8. OTHER ACQUISITIONS
On September 20, 2003 the Company issued 6,472,492 shares of common stock in
connection with the acquisition of the data integration division of SCI
Healthcare Group. The shares were valued based on the closing price of the
Company's common stock on September 18th, the contracted determination date,
which represented $200,000. An additional consideration, of $175,000, was given
in the form of a promissory note. There is a further provision to allow for the
increase or reduction of a percentage of the issued shares if certain gross
revenue targets are not met after one year from the acquisition date. The shares
are being held in trust by the seller's counsel. The Company allocated the
purchase price between goodwill ($100,000) and customer list ($275,000). The
customer list is being amortized over a term of three years based on the tenure
and cancelability of existing contracts. Amortization for the year ended
December 31, 2003 was $22,917. Also see Note 9 for the terms of the promissory
note.
The following unaudited pro forma consolidated results of operations are
presented as if the acquisition of the data integration division of SCI
Healthcare Group had been made at the beginning of 2003 and 2002:
Year Ended December 31, Year Ended December 31,
2003 2002
--------------------------- --------------------------
Net sales $ 1,057,656 $ 1,059,316
Net loss $ 1,890,527 $ 21,305,367
Basic and diluted loss per share $ (0.01) $ (0.33)
F-35
IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS
AS OF DECEMBER 31, 2003 AND 2002
On July 22, 2003, the Company acquired the source code license for a software
product known as XML/Connector for the healthcare industry, from an unrelated
company. As part of the acquisition, the Company paid (CAD) $120,000 in the form
of a note payable, and on August 1, 2003, issued 500,000 shares of common stock
to the seller. These shares were valued at $.025 per share, or an aggregate of
$12,500, representing the market value on the date of grant. At December 31,
2003, the balance on the promissory note was $29,288. On August 19, 2003, the
Company acquired the intellectual property rights of the XML/Connector. As a
result, the seller ceased to develop the product and transferred all existing
customer contracts to the Company. As part of the acquisition, the Company paid
(CAD) $10,000 in cash at closing and on September 30, 2003 issued 300,000 shares
of common stock to the seller. These shares were valued at $.028 per share or an
aggregate of $8,400, representing the market value on the date of grant. The
combined values of the XML/Connector purchase total $115,703 and are included in
license agreements on the accompanying consolidated balance sheet at December
31, 2003. Amortization expense for the year ended December 31, 2003 was $9,642.
NOTE 9. NOTES PAYABLE
Notes payable consists of the following:
December 31, 2003 December 31, 2002
----------------- -----------------
$1,000,000 note payable to Cornell Capital Partners, LP, (1) $ 226,911 $ --
Note payable to IBEW Local Union 105, five-year term, no principal
payments until August 2004, bearing interest at 12% (2) 500,000 --
Note payable to SCI Healthcare Group, unsecured (3) 175,000 --
Note payable to Berra Holdings, payable on demand, bearing interest
at 6%, unsecured (4) 74,020 89,020
Note payable to Karora Technologies, Inc., unsecured (5) 29,285 --
Note payable to Cornell Capital Partners, LP bearing
interest at 8%(6) -- 15,000
---------- ----------
1,005,216 104,020
Less: current portion 557,299 104,020
---------- ----------
Notes Payable - Long Term Portion $ 447,917 $ --
========== ==========
(1) In February 2003 under an equity line of credit (See Note 16(D)), the
Company received $970,000 proceeds from the issuance of a $1 million
promissory note, net of a 3% fee of $30,000, which yields an effective
interest rate of approximately 12%. The promissory note was non-interest
bearing and was to be paid in full within 95 days. The note was not fully
paid when due, and the outstanding principal balance owed was payable with
interest at the rate of 24% or the highest rate permitted by law, if
lower. The Company accrued $48,434 at December 31, 2003, which is included
in accrued expenses in the accompanying consolidated balance sheets. This
note was paid in full in the first quarter of 2004.
(2) On July 31, 2003, the Company's wholly owned subsidiary ActiveCore
Technologies Limited, received a $500,000 term loan from an electrical
workers union in Toronto, Canada. Under the terms of the agreement, the
first installment accrues 12% interest and is repayable over a five-year
term with no payments required in the first 12 months, and payments will
be amortized over the remaining 48 months of the loan. The loan is
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 500,000 shares of common
stock at a purchase price of $0.0312 per share. 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 warrants
expire July 31, 2004. The loan is collateralized by substantially all of
the assets of the Company.
(3) The promissory note relating to the acquisition of SCI Healthcare Group
(also see Note 8) bears interest at 10% and is payable in ten monthly
installments commencing April 30, 2004.
(4) On July 30, 2001, the Company entered into a two-year note with another
unrelated lender to borrow up to 187,500 at 6% interest. The note is
collateralized by 2,500,000 shares of common stock, held in the name of an
unrelated party. Accrued interest of $14,311 is due to this lender as of
December 31, 2003. In the first quarter of Fiscal 2004, the Company at the
request of the lender converted this debt into shares of the Company's
common stock.
F-36
IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS
AS OF DECEMBER 31, 2003 AND 2002
(5) As part of the terms and conditions of the acquisition of XML/Connector
(See Note 8), part of the consideration paid was in the form of a
promissory note for (CAD) $120,000. The terms of the note stated that this
note would be paid in full by the Company no later than September 30,
2003. The note contained a default provision that allowed for interest on
the unpaid balance to accrue at 10% until paid in full. In 2004, the note
was repaid in full.
(6) On December 1, 2002, the Company entered into a 6-month note with Cornell
Capital Partners, LP to borrow $15,000 at 8% interest. As of December 31,
2002, the unpaid principal balance and accrued interest due on this note
was $15,000 and $100, respectively. During February 2003, the Company
repaid this note and accrued interest thereon in connection with the
equity line of credit agreement.
Future maturities of short and long-term notes payable as of December 31, 2003
are as follows:
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. During 2003, officers and directors converted certain amounts due to them
into shares of common stock of the Company based on the closing market price of
the Company's common stock on the conversion dates. During 2003, $1,309,316 of
due to related parties was converted into 54,445,378 shares of the Company's
common stock. The balances due them were $117,874 and $369,226 as of December
31, 2003 and 2002, respectively, and are classified as current liabilities in
the accompanying consolidated balance sheet.
NOTE 11. CONVERTIBLE DEBENTURES
In April 2002, the Company raised $150,000 of gross proceeds from the issuance
of convertible debentures to the Cornell Capital Partners, LP. These debentures
accrued interest at 5% and mature two years from the issuance date. The
debentures were convertible at the holder's option any time up to maturity at a
conversion price equal to the lower of (i) 120% of the closing bid price of the
common stock as of the closing date (ii) 80% of the average closing bid price of
the common stock for the 4 lowest trading days of the 5 trading days immediately
preceding the conversion date. At maturity, the Company had the option to either
pay the holder the outstanding principal balance and accrued interest or to
convert the debentures into shares of common stock at a conversion price equal
to the lower of (i) 120% of the closing bid price of the common stock as of the
closing date or (ii) 80% of the average closing bid price of the common stock
for the 4 lowest trading days of the 5 trading days immediately preceding the
conversion date. The Company had the right to redeem the debentures upon 30 days
notice for 120% of the amount redeemed. Upon such redemption, the Company was to
issue the investor a warrant to purchase 10,000 shares of common stock at an
exercise price of $0.50 per share for every $100,000 of debentures that were
redeemed. In February 2003, the Company repaid the convertible debenture with
proceeds from the issuance of the $1 million promissory note (See Note 9). At
that time, a warrant was issued to purchase 15,000 shares of common stock at
$0.50 per share exercise price. The fair value assigned to the warrant amounted
to $0 which was determined by using the Black-Scholes option pricing model. This
warrant expired on April 3, 2004.
The convertible debentures contained a beneficial conversion feature computed at
its intrinsic value that was the difference between the conversion price and the
fair value on the debenture issuance date of the common stock into which the
debt was convertible, multiplied by the number of shares into which the debt was
convertible at the commitment date. Since the beneficial conversion feature was
to be settled by issuing equity, the amount attributed to the beneficial
conversion feature, or $64,286, was recorded as an interest expense and a
component of equity on the issuance date.
F-37
IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS
AS OF DECEMBER 31, 2003 AND 2002
NOTE 12 COMMITMENTS AND CONTINGENCIES
A. Activecore Technologies Limited, the Canadian subsidiary has a liability to
the Canada Customs and Revenue Agency ("CCRA") for unremitted payroll taxes, in
the approximate amount of $241,000, which is comprised of $158,000 for current
payroll taxes, and $83,000 from a December 31, 2002 CCRA audit assessment
whereby several contract employees were deemed to be eligible for statutory
pension and unemployment premiums not previously recorded. The Company has
accrued these liabilities together with appropriate interest and penalties. This
liability is included in taxes payable in the current liabilities section of the
accompanying consolidated balance sheet as of December 31, 2003. An aggressive
collection effort by the CCRA could have a significant negative effect on the
Company's operations.
B. On January 13, 2002, the Company canceled its "Power Audit" software
distribution agreement with the licensor. In January 2003, the licensor
commenced a proceeding in Ontario, Canada against the Company which was placed
into abeyance and then revived in August 2003 alleging that the Company had
infringed upon the copyright that the licensor maintained, and further that the
Company had breached the distribution contract. The licensor has claimed
punitive and exemplary damages of Canadian $4,000,000 and $1,000,000,
respectively. The Company has retained legal counsel to defend itself on the
basis that there is no merit to the case and even if there was merit, the time
frame in which to bring an action in the contract has expired.
Compulsory mediation has occurred in the case and no settlement was offered or
agreement arrived at during the mediation phase. The next step would normally be
"examination for discovery" then on to a trial. The Company has not yet
determined if it will counter sue for the return of all proceeds paid to the
licensor during the period of time between 1999 and 2001. It is the Company's
view that the case filed by the licensor is frivolous and in any event is now in
a state of legal limbo and if restarted no negative outcome would be
experienced. No allocation for any continent liability has been made in the
Company's consolidated financial statements for the punitive and exemplary
damages however, it has maintained in it current accounts payables approximately
$226,000 as owing to the licensor. In January 2003, the Company also committed
to issue to the licensor, 100,000 shares of freely tradable common stock. The
shares were valued by the Company at $.18 per share based on the closing market
price of the common stock at the commitment date. The total value of $18,000 is
included in current liabilities in the accompanying consolidated balance sheet
at December 31, 2003.
C. On March 17, 2000, the Company entered into a consulting agreement with the
former stockholder of an inactive reporting shell company that the Company
acquired. The consulting agreement provides that one year after the execution of
the agreement, ("reset date"), the 350,000 common shares issued by the Company
to the former stockholder shall be increased or decreased based upon the average
closing price of the Company's stock 30 days prior to the reset date, so the
value of the 350,000 shares will equal $500,000. The average closing price of
the stock was $0.1487 per share. The Company is obligated to issue an additional
3,028,378 common shares to the consultant as an additional fee.
In March 2004, the consultant filed a claim in the Superior Court of the
District of Columbia against the Company seeking, among other things, the reset
shares. The Company has engaged legal counsel to vigorously defend itself
against the claim. The Company believes the consultant is not entitled to the
reset shares due to the SEC and regulatory problems relating to the acquisition
of the shell company and as such has not provided any accruals for this matter
in the accompanying consolidated financial statements.
NOTE 13 STOCKHOLDERS' DEFICIENCY
The Company issued 26,813,298 restricted shares of common stock during 2003 for
consulting (See Note 16(E)), investor relations, financing and employment
services valued at $716,700. The value of the shares was determined based on the
closing market price of the Company's common stock on the dates the Company was
contractually committed to issue the shares. The values assigned to the common
stock ranged from $0.025 to $0.13 per share. The expense is being recognized
over the terms of the agreements resulting in $667,724 of expense for the year
ending December 31, 2003 and $48,976 of deferred cost at December 31, 2003.
F-38
IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS
AS OF DECEMBER 31, 2003 AND 2002
The Company issued 37,172,652 restricted shares of common stock to the Chairman,
CEO and a director of the Company in lieu of cash to satisfy shareholder loans,
expenses paid on behalf of the Company and accrued salaries. These shares were
valued at $0.025 per share, or an aggregate of $929,316, representing the
closing market price on the dates of the board resolutions granting these
shares.
On December 26, 2003, the board approved the issuance of 17,272,726 shares to
two directors and an officer of the Company in lieu of cash in order to satisfy
shareholder loans, expenses paid on behalf of the Company and accrued salaries.
At December 31, 2003 the Company has included the value of the shares amounting
to $380,000 in common stock to be issued in the equity section of the
consolidated balance sheet. These shares were issued on January 2, 2004.
On June 26, 2003, the Company issued 50,000,000 restricted shares of common
stock to the former shareholders of Ignition Entertainment, Ltd. in accordance
with the original May 28, 2002 purchase agreement. The acquisition was made
pursuant to the Company agreeing to issue 15,000,000 shares of common stock and
3,500,000 shares of preferred stock convertible into 35,000,000 shares of common
stock; collectively valued at $0.23898 per share for a total purchase price of
$11,949,156. The issuance of these 50,000,000 shares of common stock relieved
$11,949,155 in preferred and common stock to be issued as of April 1, 2003. (See
Note 2, Discontinued Operations for details on the acceleration of the issuance
of these shares and the sale agreement of Ignition Entertainment Ltd.)
In 2003, the Company issued 29,000,000 shares of common stock to Cornell Capital
Partners, LP having a fair value of $898,089 in connection with the equity line
of credit (See Notes 9 and 16(D)). Of the amount, $773,089 was applied against
the original $1 million promissory note payable and $125,000 was used to repay a
separate note that was issued in April of 2003 under the equity line of credit.
On June 26, 2003, the Company purchased 5% of the then issued share capital of
ePocket, Inc. for 10,000,000 shares of common stock valued at $250,000. (See
Note 7).
On September 30, 2003, the Company issued 3,500,000 shares to Neil Fishenden in
exchange for acquiring the name E-Communities UK Limited and the assignment of
the distribution agreement between EXML Limited and E-Communities UK Limited.
The shares were valued at $0.029 per share, or an aggregate of $101,500,
representing the closing bid price on the date of the board resolution. The
Company has expensed the $101,500 as acquisition costs in accompanying December
31, 2003 consolidated financial statements due to the uncertainty of the future
net cash flows to be generated from this acquisition.
On October 15, 2003 the company issued 3,000,000 shares to Danson Partners LLC,
in full settlement of cash and share obligations. The shares were valued at
$0.031 per share, or an aggregate of $93,000, representing the market value on
the date of the grant. This share issuance satisfies the $72,851 liability
included in accounts payable on the consolidated balance sheet at December 31,
2002 plus 1,000,000 shares due Danson Partners, LLC for previous services
rendered.
On September 30, 2003, the Company issued 6,472,492 restricted shares in
connection with the acquisition of certain assets of the data integration unit
of SCI Healthcare Group. The shares were valued as at the closing price on
September 18, 2003 being the contracted determination date, which represented
$200,000.
On August 1, 2003, the Company issued 500,000 restricted shares of common stock
in connection with the acquisition of the XML/Connector source code license. The
shares were valued at $.025 per share representing the market value on the date
of grant (See Note 8).
On September 30, 2003, the Company issued 300,000 restricted shares of common
stock in connection with the acquisition of the intellectual property rights of
the XML/Connector. The shares were valued at $.028 per share representing the
market value on the date of grant (See Note 8).
F-39
IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS
AS OF DECEMBER 31, 2003 AND 2002
In 2002, the Company issued 50,000,000 restricted shares of common stock to
various officers and directors of the Company in accordance with the stock
purchase agreement with International Technology Marketing ("ITM"). All shares
were held in safekeeping pending the completion of an escrow agreement. As of
December 31, 2002, 30,000,000 shares were earned and were released from escrow.
The Company has accelerated the issuance of the final 20,000,000 shares from
escrow. These 20,000,000 shares were released from escrow as stock-based
compensation on June 30, 2003 and were valued at $.027, or an aggregate of
$540,000 on the date of sale.
On March 25, 2002, the Company issued 500,000 shares of common stock to an
individual in lieu of compensation for services performed in 2001 as President
of the Company. These shares were valued at $0.05 per share, or an aggregate of
$25,000, on the date of grant.
On March 25, 2002, the Company issued 500,000 shares of common stock to an
individual in lieu of compensation for services performed in 2001 as Secretary
of the Company. These shares were valued at $0.05 per share, or an aggregate of
$25,000, on the date of grant.
On March 25, 2002, the Company issued 2,375,600 shares of common stock valued at
$.05 per share to an independent consultant for the conversion of $118,780 of
debts owed by the corporation for services performed in 2001.
On March 25, 2002, the Company issued 1,000,000 shares of common stock to an
unrelated investor as conversion of a fee of $50,000 earned for introducing the
Company to ITM. These shares were valued at $0.05 per share, or an aggregate of
$50,000, on the date of grant.
On March 25, 2002, the Company issued 50,000 shares of common stock to one of
its external legal counsel for payment of interest on outstanding legal bills
for the year 2001 and 2002. These shares were valued at $0.10 per share, or an
aggregate of $5,000, on the date of grant.
On March 25, 2002, the Company issued 1,000,000 shares of common stock to an
individual to be held in escrow for services as a board member for the period
from 2001 to 2003 to be accrued at the rate of 500,000 per year. As of December
31, 2002, 500,000 shares were deemed earned at the December 31, 2002 closing
price of $.17 per share to account for the director's fee of $85,000.
On March 25, 2002, the Company issued 1,000,000 shares of common stock to an
individual to be held in escrow for services as a board member for the period
from 2001 to 2003 to be accrued at the rate of 500,000 per year. Subsequently
these shares have been rescinded as a result of his resignation from the board
of directors.
On March 25, 2002, the Company issued 1,000,000 shares of common stock to an
individual to be held in escrow for services as a board member for the period
from 2001 to 2003 to be accrued at the rate of 500,000 per year. Subsequently
these shares have been rescinded as a result of his resignation from the board
of directors.
On April 26, 2002, the Company issued 62,027 shares of common stock to an
unrelated consultant having a value of $5,000 for consulting services rendered.
On April 26, 2002 and June 28, 2002, the Company issued 3,032,000 shares of
restricted common stock to Cornell Capital Partners, LP, having a value of
$330,000 as a one-time commitment fee.
On April 26, 2002 and June 28, 2002, the Company issued 1,040,000 shares of
restricted common stock to an unrelated consultant, having a value of $125,000
for financial consulting services rendered.
F-40
IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS
AS OF DECEMBER 31, 2003 AND 2002
In May 2002, the Company issued 5,000,000 shares of common stock in relation to
an agreement entered into with an unrelated consultant for marketing and
advisory services connected with product marketing in the European Economic
Community and North America. These shares were registered on a Form S-8 filed on
May 3, 2002. These shares were valued at $.05 per share, or an aggregate of
$250,000, on the date that the Company entered into the agreement.
On May 1, 2002, the Company agreed to issue 4,000,000 shares of its restricted
common stock having a value of $760,000 in full settlement of its obligation to
a factor. The Company issued these shares on or about August 6, 2002. On June
28, 2002, the Company issued 2,410,916 shares of common stock to an unrelated
investor pursuant to the terms of our March 17, 2000 debt conversion agreement.
On June 28, 2002, the Company issued 23,370 shares of common stock to an
independent consultant having a value of $5,000 for consulting services
rendered. The Company has also accrued $15,000 (83,038 shares) of common stock
to be issued for consulting services rendered which has been included the
shareholders equity and operating expenses portions of the accompanying
consolidated balance sheet as of December 31, 2002.
On June 28, 2002, the Company issued 100,000 shares of restricted common stock
to an unrelated broker-dealer having a value of $20,000 for placement agent
fees.
On August 6, 2002, the Company issued 2,000 shares of restricted common stock to
certain officers and directors having a total value of $260, for the acquisition
of Springboard.
NOTE 14. PREFERRED STOCK
The Company has authorized 50,000,000 shares of its Series A Preferred Stock,
with a par value of $0.001. As of December 31, 2003 and 2002, there were no
shares of the Series A Preferred Stock issued and outstanding. Each share of
Series A Preferred Stock is convertible into ten shares of Common Stock at the
option of the holder. The Series A Preferred Stock votes on equal per share
basis with the Common Stock, and is eligible to receive equivalent dividends to
the shares of Common Stock. In the event of a liquidation of the Company, the
Series A Preferred Stock has a liquidation preference over the holders of the
Company's common stock.
NOTE 15. STOCK BASED COMPENSATION
(A) STOCK OPTIONS AND WARRANTS
As permitted by FASB Statement No. 123, Accounting for Stock-Based Compensation,
the Company has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25) and related interpretations in
accounting for its employee option plans. Under APB 25, compensation expenses
are recognized at the time of option grant if the exercise price of the
Company's employee stock option is below the fair market value of the underlying
common stock on the date of the grant.
F-41
IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS
AS OF DECEMBER 31, 2003 AND 2002
The Company's Board of Directors has granted non-qualified stock options and
warrants to investors of the Company. The following is a summary of activity
under these stock option plans for the years ended December 31, 2003 and 2002.
Non-Employee Weighted
Employee Options and Average
Options Warrants Exercise Price
-------------- -------------- --------------
Options outstanding at December 31, 2002 -- 365,000 $ .29
Granted -- 515,000 $ .05
Exercised -- -- $ --
Cancelled -- -- $ --
-------------- -------------- --------------
Options outstanding at December 31, 2003 -- 880,000 $ .14
============== ============== ==============
The weighted average fair value of the grants was $0 and $.02 for the years
ended December 31, 2003 and 2002, respectively. The weighted average remaining
life of the warrants granted through December 31, 2003 was 1/2 year. As of
December 31, 2003, all warrants were fully vested and exercisable.
(B) PRO FORMA STOCK-BASED COMPENSATION DISCLOSURES
The Company applies APB Opinion 25 and related interpretations in accounting for
its stock options granted to employees. The Company has not granted any options
to employees during the years ended December 31, 2003 and 2002, thus no pro
forma amounts are presented.
NOTE 16. AGREEMENTS
(A) LICENSING AGREEMENT
On December 28, 2001, the Company entered into a two-year licensing agreement to
distribute software used primarily by the insurance industry, which agreement
included a non-exclusive right to sell such software to clients in the United
States, Mexico, Canada, and their overseas territories. The cost of such
agreement was $3,620,268 and was amortized over the two-year period of the
agreement. Through September 30, 2002, the Company paid $713,612 in connection
with the license. On September 30, 2002, the Company renegotiated the terms of
the license agreement whereby the licensor agreed to extinguish the remaining
amount due under the agreement, or $2,906,656 in exchange for the return of the
license and distribution rights to the Classifier(TM) software product to the
financial services sector while retaining the rights to distribute the product
to other sectors. The Company was also granted a non-exclusive distributorship
for the I-Bos(TM) software product. As a result, the Company recorded a gain on
the early extinguishment of debt in the amount of $924,904. This gain is
reported as other
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