-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HInoDVMPu9sqGlWDSyGLDm6P2tuv62aP9v6z7ejfyrWCihSfFKdlurig71WQnVmJ gq6HH0GwVl4z4FYhqoOTVA== 0000898432-02-000570.txt : 20020819 0000898432-02-000570.hdr.sgml : 20020819 20020819170746 ACCESSION NUMBER: 0000898432-02-000570 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020819 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IVP TECHNOLOGY CORP CENTRAL INDEX KEY: 0001011601 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-30397 FILM NUMBER: 02742941 BUSINESS ADDRESS: STREET 1: 54 VILLAGE CENTRE STREET 2: MISSISSAUGA PLACE CITY: TORONTO ONTARIO M5E STATE: A6 ZIP: 0000 BUSINESS PHONE: 9053069343 MAIL ADDRESS: STREET 1: 54 VILLAGE CENTRE MISSISSAUGA PLACE STREET 2: ONTARIO CANADA 10QSB 1 form10qsb.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB (Mark One) [x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT IVP TECHNOLOGY CORPORATION (Exact name of small business issuer as specified in its charter) Nevada 65-6998896 - -------------------------------------------------------------------------------- (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 2275 Lakeshore Blvd West, Suite 401, Toronto, Ontario M8V 3Y3 Canada (Address of principal executive offices) (416) 255-7578 (Issuer's telephone number) (Former name, former address and former fiscal year, if changed since last report) APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Check whether the registrant filed all documents and reports required to be filed by Section l2, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes [ ] No [ ] APPLICABLE ONLY TO CORPORATE ISSUERS State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 119,963,261 shares of common stock, $.001 par value, were outstanding on August 15, 2002 Transitional Small Business Disclosure Format (Check one): Yes [ ] No [x] PART I - FINANCIAL INFORMATION ITEM 1. Consolidated Financial Statements Consolidated Balance Sheets as of June 30, 2002 (Unaudited) and December 31, 2001 (Audited) Consolidated Statement of Operations for the Six Months Ended June 30, 2002 and June 30, 2001 Consolidated Statement of Cash Flows for the Six Months Ended June 30, 2002 and June 30, 2001 Notes to Consolidated Financial Statements ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations PART II- OTHER INFORMATION ITEM 1. Legal Matters ITEM 2. Changes in Securities ITEM 3. Quantitative and Qualitative Disclosures about Market Risk ITEM 4. Submission of Matters to a Vote of Security Holders ITEM 6. Subsequent Events, Exhibits and Reports on Form 8-K 2
IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2002 June 30, December 31, 2002 2001 (Unaudited) (Audited) ------------ --------------- ASSETS CURRENT ASSETS Cash $ 867,484 $ 232 Accounts Receivable (Less Allowance for Doubtful Accounts of $43,970) 615,755 - Inventory 53,160 - Prepaid expenses 310,447 - ------------ --------------- Total Current Assets 1,846,846 - ------------ --------------- FIXED ASSETS Plant, Property and Equipment, at Cost 382,873 - Accumulated Depreciation (24,925) - ------------ --------------- Total Fixed Assets 357,948 - ------------ --------------- OTHER ASSETS Excess of Cost Over Net Assets Acquired 5,552,449 - Miscellaneous Receivable - 872 License Agreement, net of accumulated amortization of $924,904 2,695,364 3,600,431 Software Development, net of accumulated amortization of $1,261 44,106 - Other Assets 27,090 - ------------ --------------- Total Other Assets 8,319,009 3,601,303 ------------ --------------- TOTAL ASSETS $ 10,523,803 $ 3,601,535 ============ =============== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) CURRENT LIABILITIES Accounts payable and accrued liabilities $ 1,345,668$ 479,571 Accounts payable - license agreement 2,906,658 3,620,268 Accrued Interest 7,885 34,841 Income Taxes Payable 139,450 - Notes payable 129,020 200,000 ------------ --------------- Total Current Liabilities 4,528,681 4,334,680 ------------ --------------- LONG-TERM LIABILITIES Convertible debenture 150,000 - Notes payable 312,650 129,020 ------------ --------------- Total Long-Term Liabilities 462,650 129,020 ------------ --------------- STOCKHOLDERS' EQUITY (DEFICIENCY) Preferred stock, $.001 par value, 50,000,000 shares authorized, none - - issued and outstanding Common stock, $.001 par value 150,000,000 shares authorized, 64,697,261 and 48,752,848 shares issued and outstanding, respectively 64,697 48,753 Common stock to be issued 7,653,509 50,000 Additional paid-in capital 14,428,249 13,238,354 Accumulated deficit (accumulated in development stage $12,883,106) (16,115,596) (13,859,272) Exchange Gain (Loss) 27,863 - Deferred equity line commitment fee, net (306,250) - Deferred compensation, net (220,000) (340,000) ------------ --------------- Total Stockholders' Equity (Deficiency) 5,532,472 (862,165) ------------ --------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) $10,523,803 $ 3,601,535 ============ ===============
See Accompanying Notes To Financial Statements 3
IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS THREE MONTHS ENDED SIX MONTHS ENDED --------------------------- --------------------------- JUNE 30, JUNE 30, JUNE 30, JUNE 30, 2002 2001 2002 2001 --------------------------- --------------------------- (UNAUDITED) (UNAUDITED) REVENUE Revenue $ 497,326 $ 27,060 $ 497,326 $ 54,120 Cost of revenue (382,716) - (382,716) - --------------------------- --------------------------- Gross profit 114,610 27,060 114,610 54,120 --------------------------- --------------------------- OPERATING EXPENSES Amortization and depreciation 566,833 - 1,079,367 - Consulting fees 374,555 (144,635) 393,555 221,828 Legal and accounting 169,586 61,184 215,683 65,184 Salaries and wages 114,285 - 114,285 - Infrastructure expense 117,612 - 230,406 - Financial advisory fees 150,000 - 150,000 - Development Fees - 45,450 - 58,050 Other general & administration 154,095 46,563 210,043 70,861 --------------------------- --------------------------- TOTAL OPERATING EXPENSES 1,646,966 8,562 2,393,339 415,923 --------------------------- --------------------------- INCOME (LOSS) FROM OPERATIONS (1,532,356) $ 18,498 (2,278,729) (361,803) --------------------------- --------------------------- OTHER INCOME (EXPENSE) Gain on early extinguishment 96,334 - 96,334 - of debt Interest income 938 - 938 - Interest expense (62,942) - (74,869) - --------------------------- --------------------------- NET INCOME (LOSS) $ (1,498,026) $ 18,498 $(2,256,326) $ (361,803) =========================== =========================== NET INCOME (LOSS) PER SHARE $ (.01) $ - $ (.03) $ (.01) =========================== =========================== WEIGHTED AVERAGE NUMBER OF OUTSTANDING COMMON SHARES 113,191,285 40,706,452 83,421,414 $ 39,913,058 =========================== ===========================
See Accompany Notes To Financial Statements 4
IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED ------------------------------ JUNE 30, 2002 JUNE 30, 2001 -------------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (2,256,326) $ (361,803) Adjustments to reconcile net loss to net cash used in operating activities: Stock issued for services 617,779 (41,207) Reserve for Bad Debts - 33,732 Interest expense on beneficial conversion 64,286 - Gain on extinquishment of debt (96,334) - Amortization and Depreciation 1,079,367 - Changes in operating assets and liabilities: (Increase) decrease in: Accounts receivable 159,702 (27,280) Prepaid Expenses (162,883) - Inventory 3,529 - Increase (decrease) in: Accounts payable and accrued expenses 50,024 395,749 Accounts payable - license agreement (713,610) - Income taxes payable 56,449 - Interest payable and other (18,539) - -------------- -------------- Net Cash Used In Operating Activities (1,216,556) (809) -------------- -------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of fixed assets (17,333) - Purchase of Software (45,367) - Net assets acquired 1,291,059 - Other (885) - -------------- -------------- Net Cash Provided By Investing Activities 1,227,474 - -------------- -------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from loans and notes 856,334 - -------------- -------------- Net Cash Provided By Financing Activities 856,334 - -------------- -------------- NET INCREASE (DECREASE) IN CASH 867,252 (809) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 232 1,424 ------------- --------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 867,484 $ 615 ============== ==============
See Accompanying Notes To Financial Statements 5 IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2002 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION (A) ORGANIZATION ---------------- Mountain Chief, Inc. was incorporated in the State of Nevada on February 11, 1994. This name was subsequently changed by Articles of Amendment dated November 16, 1994 to IVP Technology Corporation (the "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. Prior to 1998, the Company was involved with various unsuccessful activities relating to the sale of technology products before becoming inactive by the end of 1997. The Company began negotiations with a third party in 1998 to become an exclusive distributor of software and therefore is considered to have re-entered the development stage on January 1, 1998. Activities from inception of development stage included raising of capital and negotiations and acquisition of software distribution licenses are more fully described herein. (See Note 5). (B) ACQUISITION AND RECAPITALIZATION ------------------------------------ Effective March 2000, the Company acquired all the outstanding shares of common stock of Erebus Corporation, an inactive reporting shell company with no assets or liabilities, from the stockholders thereof in an exchange for an aggregate of 350,000 shares of the Company's common stock and paid $200,000 of consulting expenses in connection with the acquisition. Pursuant to Rule 12-g-3(a) of the General Rules and Regulations of the Securities and Exchange Commission, the Company elected to become the successor issuer to Erebus Corporation for reporting purposes under the Securities Exchange Act of 1934. For financial reporting purposes, the acquisition was treated as a recapitalization of the Company with the par value of the common stock charged to additional-paid-in capital. (C) BASIS OF PRESENTATION ------------------------- The Company maintains its original records in United States dollars. The consolidated financial statements are expressed in United States dollars and have been prepared in accordance with generally accepted accounting principles (GAAP) in the United States. (D) PRINCIPLES OF CONSOLIDATION ------------------------------- The consolidated financial statements include the accounts of the Company and its subsidiary, Ignition Entertainment Limited. All significant inter-company transactions and balances have been eliminated. (E) FOREIGN CURRENCY TRANSACTIONS --------------------------------- Transactions conducted in Canadian dollars and British pounds have been translated into United States dollars using the average exchange rate for the month in which the transactions occurred. Gains or losses are recognized in the statement of operations. (F) USE OF ESTIMATES -------------------- In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported period. Actual results could differ from those estimates. (G) CASH AND CASH EQUIVALENTS ---------------------------- For purposes of the cash flow statements, the Company considers all highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents. 6 IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2002 (H) FAIR VALUE OF FINANCIAL INSTRUMENTS --------------------------------------- Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments", requires disclosures of information about the fair value of certain financial instruments for which it is practicable to estimate the value. For purposes of this disclosure, 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 accounts receivable, accounts payable and accrued liabilities, and note and interest payable thereon approximates fair value due to the relatively short period to maturity for these instruments. (I) INCOME TAXES ---------------- The Company accounts for income taxes under the Financial Accounting Standards Board Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes" ("Statement 109"). Under Statement 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under Statement 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. (J) CONCENTRATION OF CREDIT RISK -------------------------------- The Company maintains its cash in bank deposit accounts, which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents. (K) LOSS PER SHARE ------------------ Basic and diluted net loss per common share for all periods presented is computed based upon the weighted average common shares outstanding as defined by Financial Accounting Standards No. 128, "Earnings Per Share". There were no common stock equivalents at June 30, 2002. (L) 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. (M) REVENUE RECOGNITION ----------------------- The Company records revenue associated with the sale of software licenses on a pro-rata basis over the license term. The Company records revenue associated with sales of entertainment-related consumer software on a delivered basis subject to an allowance for returns. (N) NEW ACCOUNTING PRONOUNCEMENTS --------------------------------- The Financial Accounting Standards Board has recently issued several new Statements of Financial Accounting Standards. Statement No. 141, "Business Combinations" supersedes APB Opinion 16 and various related pronouncements. Pursuant to the new guidance in Statement No. 141, all business combinations must be accounted for under the purchase method of accounting; the pooling-of-interests method is no longer permitted. SFAS 141 also establishes new rules concerning the recognition of goodwill and other intangible assets arising in a purchase business combination and requires disclosure of more information concerning a business combination 7 IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2002 in the period in which it is completed. This statement is generally effective for business combinations initiated on or after July 1, 2001. Statement No. 142, "Goodwill and Other Intangible Assets" supercedes APB Opinion 17 and related interpretations. Statement No. 142 establishes new rules on accounting for the acquisition of intangible assets not acquired in a business combination and the manner in which goodwill and all other intangibles should be accounted for subsequent to their initial recognition in a business combination accounted for under SFAS No. 141. Under SFAS No. 142, intangible assets should be recorded at fair value. Intangible assets with finite useful lives should be amortized over such period and those with indefinite lives should not be amortized. All intangible assets being amortized, as well as those that are not, are both subject to review for potential impairment under SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of". SFAS No. 142 also requires that goodwill arising in a business combination should not be amortized but is subject to impairment testing at the reporting unit level to which the goodwill was assigned at the date of the business combination. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001 and must be applied as of the beginning of such year to all goodwill and other intangible assets that have already been recorded in the balance sheet as of the first day in which SFAS No. 142 is initially applied, regardless of when such assets were acquired. Goodwill acquired in a business combination whose acquisition date is on or after July 1, 2001, should not be amortized, but should be reviewed for impairment pursuant to SFAS No. 121, even though SFAS No. 142 has not yet been adopted. However, previously acquired goodwill should continue to be amortized until SFAS No. 142 is first adopted. Statement No. 143 "Accounting for Asset Retirement Obligations" establishes standards for the initial measurement and subsequent accounting for obligations associated with the sale, abandonment, or other type of disposal of long-lived tangible assets arising from the acquisition, construction, or development and/or normal operation of such assets. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002, with earlier application encouraged. The adoption of these pronouncements will not have a material effect on the Company's financial position or results of operations. NOTE 2 NOTES PAYABLE (A) NOTES PAYABLE - SHORT-TERM ------------------------------- The Company has a convertible note payable with Rainbow Investments International Limited ("RII") for $200,000 which was outstanding at March 31, 2002 and December 31, 2001. The note bears interest at 10% per annum and was due May 2001. As of March 31, 2002, accrued interest on the note amounted to $37,561. The debt and accrued interest is convertible to common stock at a conversion price equal to 80% of the average closing bid price per share during the ten trading days immediately prior to any such conversion. On July 16, 2001, the Company received notice from RII of their intent to convert the note and accrued interest to common stock. On June 28, 2002, the Company converted the note plus accrued interest into 2,410,916 shares of restricted common stock in full satisfaction of the outstanding obligation and accrued interest. DCD HOLDINGS, LTD. NOTE PAYABLE ------------------------------- On February 16, 2002, the Company entered into a short-term loan agreement for (pound)600,000 (US $856,334) with DCD Holdings, Ltd., an unrelated party, that calls for repayment on April 30, 2002. The loan carries an interest rate of 4% above HSBC Bank base rate. Interest is payable monthly. On May 1, 2002, the Company agreed to repay this loan via the issuance of 4,000,000 shares of its restricted common stock valued at $.19 per share. The Company recorded a gain on the extinguishment of this loan in the amount of $96,334. 8 IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2002 (B) NOTES PAYABLE - LONG-TERM ------------------------------ On July 30, 2001, the Company entered into a two-year note with Berra Holdings, Ltd. to borrow up to $187,500 at 6% interest. As of June 30, 2002 and December 31, 2001, the Company has borrowed $129,020. The note is collateralized by 2,500,000 shares of common stock held in the name of Clarino Investment International, Ltd. Accrued interest of $6,179 is due Berra Holdings, Ltd. as of June 30, 2002. 5% CONVERTIBLE DEBENTURE ------------------------ In April 2002, IVP Technology raised $150,000 of gross proceeds from the issuance of convertible debentures. These debentures accrue interest at a rate of 5% per year and mature two years from the issuance date. The debentures are 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, IVP Technology has 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. IVP Technology has the right to redeem the debentures upon 30 days notice for 120% of the amount redeemed. Upon such redemption, IVP Technology will issue the investor a warrant to purchase 10,000 shares of common stock at an exercise price of $0.50 per share for every $100,000 of debentures that are redeemed. The convertible debentures contain a beneficial conversion feature computed at its intrinsic value that is the difference between the conversion price and the fair value on the debenture issuance date of the common stock into which the debt is convertible, multiplied by the number of shares into which the debt is convertible at the commitment date. Since the beneficial conversion feature is 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. NOTE 3 STOCKHOLDERS' EQUITY (DEFICIENCY) During 1998 the Company issued 8,363,000 common shares for cash of $39,610 and a related subscription receivable of $359,000 which was satisfied in 1999 with cash of $327,700 and an offset of $31,300 to due to stockholder. During 1998 the Company issued 2,000,000 common shares for past services. For financial reporting purposes, the stock was valued at its quoted trading price on the grant date resulting in an aggregate consulting expense of $3,000,000 recorded in 1998. During 1999 the Company issued 3,650,000 common shares for cash of $56,660 and a related subscription receivable of $136,350 which was collected in March 2000. During 1999 the Company issued 200,000 common shares for services. For financial reporting purposes the stock was valued at its quoted trading price on the grant dates resulting in expense of $10,000. During 1999 the Company issued 5,787,000 common shares valued at $1,215,270 in exchange for $483,100 of debt, customer deposits and accounts payable to unrelated parties. For financial reporting purposes the stock was valued at its quoted trading price on the settlement date. The Company recognized a $732,170 loss on extinguishment. During 1999 the Company issued 1,500,000 common shares for the extension of a licensing agreement. For financial statement purposes the stock was valued at its quoted trading price. 9 IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2002 During 2000, the Company issued 4,500,000 common shares for cash of $675,000 and 3,500,000 common shares for costs in connection with the offering, which were valued at $350,000. The value of the 3,500,000 shares of common stock is a direct offering cost and accordingly has been charged to equity in 2000. During 2000, 2,670,000 common shares were issued for services in the amount of $1,614,661. These shares were valued at the quoted trading price on the grant date. Deferred compensation in the amount of $316,286 was recorded during the year for unearned consulting services. In March 2000, the Company acquired all the outstanding shares of common stock of Erebus Corporation from the stockholders thereof in exchange for an aggregate of 350,000 shares of the Company's common stock at par value. During 2000, the Company issued 600,000 common shares valued at its quoted trading price. The stock was issued for payment of debt. In May 2000, the Company amended and extended its software distribution agreement. The agreement was extended to May 31, 2003 and the territory expanded to Switzerland. In consideration of the above the Company issued 1,000,000 common shares in August 2001 and increased the royalty fee from 5% to 7.5%. The shares were valued at $0.72 based upon the closing pricing at May 31, 2000. The $720,000 was originally recorded as common stock to be issued in the equity section of the balance sheet at December 31, 2000 and the cost of the agreement is being amortized over the remaining term of the agreement. As of December 31, 2000, the Company recognized $140,000 as licensing fee expense and recorded $580,000 for unearned licensing fee. The balance is deferred licensing fee and will be amortized on a pro-rata basis over the remaining life of the agreement. During 2001, the Company issued 9,512,000 common shares for services valued at the quoted trading price at the time of issuance. The total value of such issuances amounted to $893,000. The Company also incurred and recorded $50,000 of expenses for services rendered in 2001 for which it will issue 1,000,000 shares in 2002. During 2001, the Company rescinded 870,000 shares previously issued to consultants for non-performance of services. Such shares were valued at the original issued value which reflected market prices at the time of issuance. During the three months ended March 31, 2002, the Company issued 50,000,000 shares of its restricted common stock to Messrs. MacDonald, Hamilton, Birch, Villella and Bullock in accordance with the 9/17/01 Stock Purchase Agreement with International Technology Marketing. All shares are held in safekeeping pending completion of the escrow agreement. On or about March 25, 2002, the Company issued 500,000 shares of common stock to John Maxwell in lieu of compensation for services performed in 2001 as President of IVP Technology. 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, the Company issued 500,000 shares of common stock to John Trainor in lieu of compensation for services performed in 2001 as Secretary of IVP Technology. These shares were valued at $0.05 per share, or an aggregate of $25,000, on the date of issuance. 10 IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2002 On or about March 25, 2002, the Company issued 2,375,600 shares of common stock valued at $.05 per share to Thomas Chown for the conversion of $118,780 of debts owed by the corporation for services performed in 2001. On or about March 25, 2002, the Company issued 1,000,000 shares of common stock to Buford Industries as conversion of a fee of $50,000 earned for introducing IVP to International Technology 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, the Company issued 50,000 shares of common stock to Ruffa and Ruffa, P.A. 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, the Company 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, the Company 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. Subsequently these shares have been rescinded as a result of Mr. Sidrow's resignation from the board of directors. On or about March 25, 2002, the Company 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. Subsequently these shares have been rescinded as a result of Mr. King's resignation from the board of directors. On April 26, 2002, the Company issued 62,027 shares of common stock to Danson Partners, LLC having a value of $5,000 for consulting services rendered. On May 28, 2002, the Company acquired Ignition Entertainment Limited. IVP Technology will issue 15,000,000 shares of common stock and 3,500,000 shares of preferred stock as payment to Ignition over a period of two years from the date of the acquisition. Additionally, the management team of Ignition may earn up to 1,500,000 shares of preferred stock if certain revenue and net income goals are met at specific time periods. These shares will be held in escrow and disbursed by the escrow agent according to the escrow agreement. In May 2002, the Company entered into an agreement with Vanessa Land for marketing and advisory services connected with product marketing in the European Economic Community and North America. In relation with this agreement, IVP Technology issued 5,000,000 shares of common stock to Ms. Land. 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 of issuance. 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 DcD Holdings Ltd.. IVP Technology issued these shares on or about August 6, 2002. On June 28, 2002, IVP Technology issued 2,410,916 shares of common stock to Rainbow Investments 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 Danson Partners, LLC having a value of $5,000 for consulting services rendered. NOTE 4 INCOME TAXES Income tax expense (benefit) for the three-month periods ended June 30, 2002 and 2001 is summarized as follows: 2002 2001 ---------- --------- Current: Federal - - State - - Deferred-Federal and State - - ---------- --------- Income tax expense (benefit) - - ========== ========= 11 IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2002 The Company's tax expense differs from the "expected" tax expense for the three-month periods ended June 30, 2002 and 2001 as follows: 2002 2001 ---------- --------- U.S. Federal income tax provision (benefit) (237,422) $(129,302) Effect of net operating loss carryforward 237,422 129,302 ---------- --------- - - ========== ========= At June 30, 2002 the Company had net operating loss carryforwards in excess of $15,000,000 for U.S. federal income tax purposes available to offset future taxable income expiring on various dates beginning in 2016 through 2021. NOTE 5 AGREEMENTS (A) SOFTWARE DISTRIBUTION AGREEMENTS ------------------------------------- On March 30, 1999, the Company entered into a software distributing agreement granting the Company an exclusive right to distribute a software product known as "Power Audit" throughout the United States of America. (See below for subsequent amendments and extensions.) The significant terms and conditions governing the agreement are as follows: >> Payment by the Company of $50,000 in development funds. >> Issuance of 500,000 in common shares of the Company to the owners and developers of the software upon its delivery, which was in October 1999. >> Royalty payments of 20% on the first $500,000 of sales, 12.5% on sales between $500,000 and $1,000,000 and 5% on sales over $1,000,000. The agreement has a term of fourteen (14) months and could be terminated on six-month notice by either party. It can be extended on a year-to-year basis, provided the gross annual sales exceed $1,000,000 and all other terms are observed by the parties. In September 1999, for a consideration of the Company's issuance of an additional 1,000,000 common shares, the agreement was amended to include the European Economic Community in its distribution territory and payment of $4,200 per month for software support and services. The 1,500,000 common shares were issued in 1999 and were valued on the dates of the agreement and amendment based on the quoted trading prices. The resulting $220,000 value was presented as license fees, net of $106,000 accumulated amortization, as of December 31, 1999. During the year ended December 31, 2000, the remaining license fees of $114,000 were charged to operations as amortization expense. In May 2000, the parties agreed to amend and extend the software agreement for three years to May 31, 2003. The amended agreement expanded the territory to include the Country of Switzerland, required the Company to issue 1,000,000 common shares (See Note 3) and complete a financing of a minimum of $2,000,000 with a portion of the proceeds to be used to contract services of or to develop its own technical support and internal marketing group. In connection with the issuance of the common shares, the Company may be obligated to absorb costs relating to the registration of those shares. In addition, the Company is required to complete a minimum of twelve sales or licensing agreements of the software product prior to the expiration of the twelve-month period ending June 1, 2002. In the event that the minimum sales requirement is not met, the Company is required to compensate the Software Owner for unpaid royalties at the rate of $3,750 per sale shortfall up to the maximum of twelve, or $45,000, and issue 100,000 common shares. Lastly, the royalty fee for sales over $1,000,000 has been changed from 5% to 7.5%. 12 IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2002 On June 13, 2002, the Company notified the Licensor that it was canceling its license agreement effective immediately. As of the date of cancellation, the Company was obligated to issue 100,000 shares of common stock to the software owner. (B) CONSULTING AGREEMENTS -------------------------- On November 1, 1999 (the "Agreement Date") the Company entered into a consulting agreement whereby the consultant agreed to assist the Company in raising stipulated minimum equity capital and perform other consulting services. Payment of 3,500,000 common shares was placed in escrow with the issuance thereof contingent on raising the equity capital. In accordance with generally accepted accounting principles, the escrowed shares were not considered outstanding until released and therefore no value had been assigned to them. In 2000 these shares were released and were valued at the quoted trading price on the Agreement Date and charged to equity as an offering cost (See Note 3). On March 17, 2000, the Company entered into a consulting agreement with the former stockholder of the acquired inactive reporting shell company (See Note 1(B)). The consulting agreement states 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 3,012,475 common shares to the consultant as an additional fee. As of June 30, 2002, the Company has not received a request for the additional shares. (C) LICENSING AGREEMENT ------------------------ On December 28, 2001, the Company entered into a two-year licensing agreement to distribute software used by the insurance industry, which agreement includes a non-exclusive right to sell such software to clients in North America, Mexico, Canada, and their overseas territories. The cost of such agreement was (pound)2,500,000 (US $3,620,268) and is being amortized over the two-year period of the agreement. Amortization expense for the three-month and six month periods ended June 30, 2002 was $452,534 and $905,068, respectively. Pursuant to the terms of this agreement, the Company is obligated to purchase from the Innovation Group, PLC $3,620,268 worth of Classifier Software by December 31, 2002. The Company paid the Innovation Group, PLC approximately $714,000 in connection with the License. The Company is obligated to pay the balance by December 31, 2002. (D) MARKETING AGREEMENT ------------------------ On January 18, 2002, the Company entered into a marketing agreement with Ms. Vanessa Land to provide marketing services for the Company in Europe for one year. The Company issued 5,000,000 shares to the consultant on March 25, 2002 and were registered in a Form S-8 filed on May 3, 2002. (E) STOCK PURCHASE AGREEMENT ----------------------------- On September 17, 2001, the Company entered into a stock purchase agreement to acquire 100% of the outstanding stock of International Technology Marketing, Inc. ("ITM"). The agreement calls for the Company to issue 50,000,000 shares, which will be held in escrow subject to the Company reaching certain sales milestones. The agreement also calls for the Company to reimburse the shareholders of ITM in their efforts to meet the sales milestones. The sales milestones reached after the closing are as follows: >> Upon achieving revenues of $500,000 the escrow agent will release 10,000,000 shares. >> Upon achieving an additional $500,000 of revenues the escrow agent will release another 10,000,000 shares. 13 IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2002 >> Upon achieving $2,000,000 in cumulative revenues the escrow agent will release another 10,000,000 shares. >> Upon achieving $6,000,000 in cumulative revenues the escrow agent will release another 10,000,000 shares. >> Upon reaching $16,200,000 in cumulative revenues the final 10,000,000 shares will be released. Pending execution of the escrow agreement, IVP Technology is holding these shares for the benefit of the former shareholders of International Technology Marketing. (F) CORNELL CAPITAL PARTNERS, L.P. EQUITY LINE OF CREDIT AGREEMENT ------------------------------------------------------------------- In April 2002, IVP Technology entered into an Equity Line of Credit Agreement with Cornell Capital Partners, L.P. Under this agreement, IVP Technology may issue and sell to Cornell Capital Partners common stock for a total purchase price of up to $10.0 million. Subject to certain conditions, IVP Technology will be entitled to commence drawing down on the Equity Line of Credit when the common stock to be issued under the Equity Line of Credit is registered with the Securities and Exchange Commission and the registration statement is declared effective and will continue for two years thereafter. The purchase price for the shares will be equal to 92% of the market price, which is defined as the lowest closing bid price of the common stock during the five trading days following the notice date. The amount of each advance is subject to an aggregate maximum advance amount of $425,000 in any thirty-day period. IVP Technology paid Cornell a one-time fee equal to $340,000, payable in 3,032,000 shares of common stock. Cornell Capital Partners is entitled to retain 3.0% of each advance. In addition, IVP Technology entered into a placement agent agreement with Westrock Advisors, Inc., a registered broker-dealer. Pursuant to the placement agent agreement, IVP Technology 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. IVP Technology 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. (G) MONTPELIER LIMITED ----------------------- On June 1, 2002, Ignition Entertainment Limited entered into a consulting agreement with Montpelier Limited ("Montpelier") whereby Montpelier will provide business development and financial advice to Ignition. Under the terms of the agreement, Ignition is obligated to pay Montpelier annually (pound)179,850 ($262,970) in equal monthly instalments. Additionally, Montpelier was entitled to receive a signing bonus of (pound)29,975 ($43,828) upon execution of the agreement. NOTE 6 ACQUISITION OF IGNITION ENTERTAINMENT LIMITED On May 28, 2002, the Company acquired 100% of the stock of Ignition Entertainment Limited, a UK corporation, that specializes in the design, development, licensing, publishing and distribution of personal computer, mobile devices and game console software and accessories. This acquisition was made pursuant to the Company agreeing 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 $0.13687 per share for a total purchase price of $6,843,509. These shares will be held in escrow until disbursed in accordance with the terms of the escrow agreement. IVP has also agreed to offer incentive payments to certain parties in connection with the Ignition acquisition. DCD Holdings will receive 5,000,000 shares of IVP'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 will also have the opportunity to earn an additional 1,500,000 shares of convertible preferred shares over three years, which are also convertible into 15,000,000 shares of IVP Technology common stock, for key employees and shareholders depending upon the attainment of certain levels of gross revenues and net income. This acquisition has been accounted for by the purchase method of accounting and, accordingly, the operating results have been included in the Company's consolidated results of operations from the date of acquisition. The excess of the consideration given over the fair value of net assets acquired has been recorded as goodwill of $5,552,449. The Company will account for the purchased goodwill in accordance with the provisions of SFAS 142. 14 IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2002 The following unaudited pro forma consolidated results of operations are presented as if the acquisition of Ignition had been made at the beginning of the periods presented: SIX MONTHS ENDED FISCAL YEAR ENDED JUNE 30, 2002 DECEMBER 31, 2001 ------------------ ------------------- Net sales $ 1,454,865 $ 67,358 Net earnings (loss) (4,189,115) (1,211,148) Basic and diluted earnings (loss) per common shares $ (.05) $ (.03) The unaudited pro forma information is not necessarily indicative of the results of operations that would have occurred had the purchase been made at the beginning of the periods presented or the future results of the combined operations. NOTE 7 GOING CONCERN As reflected in the accompanying financial statements, the Company's recurring losses during the development stage of $12,883,106, and its working capital deficiency of $2,681,835 raise substantial doubt about its ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company's ability to raise additional capital and implement its business plan. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. The Company has entered into new license and marketing agreements (SEE NOTES 5(C), (D)), has raised equity capital (SEE NOTE 5(F)), and has expanded its business operations (SEE NOTE 6). Management believes that actions taken to obtain additional funding and to expand its products and operations, provide the opportunity for the Company to continue as a going concern. NOTE 8 SUBSEQUENT EVENTS ACQUISITION OF SPRINGBOARD TECHNOLOGY SOLUTIONS, INC. ----------------------------------------------------- On July 1, 2002, IVP Technology 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 the former shareholders of International Technology Marketing Inc., including Brian MacDonald, Peter Hamilton, Kevin Birch and Geno Villella, all of whom are officers of IVP Technology, and has provided the physical infrastructure for IVP Technology Corporation since December, 2001. Springboard Technology is a data solutions company that provides network solutions, web and software development and data interface services, which has been in operation for three years. At the time of acquisition, Springboard Technology had 10 full time employees and consultants excluding the management of IVP Technology. 15 IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2002 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS BUSINESS OVERVIEW IVP Technology Corporation is a Toronto headquartered software developer, licensor, publisher, marketer, and distributor, and was, until December 31, 2001, engaged solely in distributing a software product marketed under the name PowerAudit. On June 13, 2002, IVP Technology terminated the software distribution agreement for the PowerAudit product. Since January 1, 2002, IVP Technology has been in the process of expanding its operating businesses towards consumer and enterprise software. In May 2002, IVP Technology acquired Ignition Entertainment Limited, a UK company, engaged in the development, licensing, publishing, marketing and distribution of consumer software and video games. In July 2002, IVP Technology acquired Springboard Technology Solutions Inc., which develops software and web applications and provides network and data interface solutions services. IVP Technology's enterprise software division operates in conjunction with its wholly owned subsidiary, Springboard Technology Solutions Inc., to develop, market, license and install data solutions that solve problems and create value for mid-size companies, large corporations and government agencies. These data solutions incorporate data capture, transmission, analysis reporting and presentation. IVP Technology's data solutions use Vaayu(TM), "Classifier(TM)" and "VIPER(TM)" to take data from the field through cross platform mobile enterprise applications to the executive suite. IVP Technology's consumer software division operates through its wholly-owned subsidiary, Ignition Entertainment Limited. Ignition develops, publishes, licenses and distributes consumer software products and related accessories for mobile devices, PC's, Sony Playstation, Nintendo GameboyAdvance, Nintendo Game Cube and Microsoft X-Box platforms on a worldwide basis. LICENSED AND WHOLLY-OWNED ENTERPRISE SOFTWARE PRODUCTS ENTERPRISE SOFTWARE LINES. The enterprise software business line currently markets data solutions which focus on mobile enterprise applications, made up of separate software products that can operate on a stand-alone basis or integrate with other enterprise level software. IVP Technology believes that these products will provide enterprises with increased economy, efficiency and effectiveness when enterprises are faced with the necessity of obtaining data from the field and moving it into processes that take place in the front and back office environment through to business decision making levels. A description of IVP Technology's current mobile enterprise software products is described below. CLASSIFIER. On December 28, 2001, IVP Technology entered into a two-year, non-exclusive licensing agreement to distribute the Classifier software program, developed by The Innovation Group, PLC, throughout the financial services industry and other market sectors. The Innovation Group is one of the leading developers of software and systems for financial services. IVP Technology received a non-exclusive right to sell such software in the United States, Mexican and Canadian territory. Pursuant to the terms of this agreement, IVP Technology is obligated to purchase from The Innovation Group $3,620,268 worth of Classifier software by December 31, 2002. IVP Technology has paid The Innovation Group (pound)500,000 or approximately $714,000 in connection with the license. Unless the distribution agreement is amended, IVP Technology is obligated to pay an additional (pound)500,000 or approximately $724,000 by September 30, 2002 and (pound)1.5 million or approximately $2,172,268 by December 31, 2002. On February 16, 2002, IVP Technology borrowed $864,180 from DcD Limited that was used, in part, to pay the March 31, 2002 installment to the Innovation Group. DESCRIPTION OF CLASSIFIER. The Classifier product is a sophisticated business intelligence solution that provides data analysis benchmarking which can monitor on-going improvements on business activities, such as specific products, lines of business or other information of a business operation. The Classifier was designed to create and broadcast business intelligence knowledge views direct to decision makers over corporate Intranets and the Internet. The Classifier turns a database into a web site, enabling more people to access data with a web-browser. The Classifier incorporates a high-performance and powerful data analysis server, a web-report publishing facility, versatile data transformation features and the ability to connect and extract data from multiple back office data sources. 16 MARKET FOR CLASSIFIER. The market for Classifier is almost exclusively centered on larger enterprises where polling databases for changes in volumes, makeup and conditions in various components of sales, cost of sales and components could have a material impact on the way the business is managed. The product can be adapted to various industry sectors. VIPER. On February 20, 2002, IVP Technology entered into an agreement with SmartFocus Limited, to resell its Viper(R) suite of products which consists of Viper Analyze and Visualize, Viper Data Mining, Viper CRM, Viper Campaign Planner and Smart Campaigner. Pursuant to the license, IVP Technology will be entitled to a 15% commission on sales of Viper through customer opportunities created by IVP Technology. SmartFocus will make sales representatives available to assist in sales presentations. DESCRIPTION OF VIPER. IVP Technology believes that Viper is a powerful, fast and easy-to-use analysis and visualization application designed for company marketing departments and those decision makers concerned with gross data from voluminous rows of customer information. Viper harnesses customer and transactional data from any touch-point or channel across any organization to create, build and maintain customer insight and customer intelligence. Viper is designed to empower enterprises to better understand, predict, manage and influence customer behavior. VAAYU. On June 27, 2002, IVP Technology announced the release of Vaayu, which is a product that was created by Springboard Technology Solutions Inc., which on July 1, 2002 became a wholly-owned subsidiary of IVP Technology. Vaayu(TM) is a platform-independent software product that enables remote data collection through any Java-enabled device, including Palm OS devices, RIM devices, handheld computers and mobile phones, to transmit data to and from mobile staff in the field. Vaayu(TM) allows forms to be manually or dynamically created through the Vaayu(TM) Administration Studio and transmitted or "published" to a remote field force through XML-based protocols. Data can then be collected in the field through handheld devices and transmitted back to the enterprise, at which point the data can populate existing systems in real time. Future releases of Vaayu(TM) that are currently in development will enable the remote collection of bar codes, photographs, scanned documents, voice and any other information capable of being digitized. Vaayu(TM) has been built exclusively using leading, standards-based technologies, including XML (Extensible Markup Language) and J2ME(TM) (Java(TM) 2 Platform, Micro Edition). XML is a technology that provides a flexible way to create common information formats and share both the format and the data on the World Wide Web, intranets, and elsewhere. J2ME(TM) is a technology that allows use of the Java programming language for applications developed for mobile wireless information devices such as cellular phones and personal digital assistants (PDA's). This provides unprecedented flexibility in mobile data collection in terms of how an organization will deploy the solution and which devices the field force will use for data collection. Until May 2003, IVP Technology had the exclusive rights to market and distribute the PowerAudit software in the United States, the European Economic Community and Switzerland. On June 13, 2002, IVP Technology elected to terminate the license. CONSUMER SOFTWARE AND VIDEO GAME PRODUCTS LINES. On May 28, 2002, IVP Technology acquired Ignition Entertainment Limited, a company organized under the laws of England and Wales, specializing in the design, development, licensing, publishing and distribution of personal computer, mobile devices and game console software and accessories. Pursuant to this agreement, IVP Technology agreed to issue 15,000,000 shares of IVP's common stock and 3,500,000 shares of convertible preferred shares of IVP Technology over approximately the next two years. Upon conversion of the preferred stock, these payments will equal 50 million shares of IVP common stock. These shares will be held in escrow until disbursed in accordance with the escrow agreement. The parties are in the process of negotiating the terms of the escrow. 17 IVP has also agreed to offer incentive payments to certain parties in connection with the Ignition acquisition. DCD Holdings will receive 5,000,000 shares of IVP'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 will also have the opportunity to earn an additional 1,500,000 shares of convertible preferred shares over three years, which are convertible into 15,000,000 shares of IVP Technology common stock, for key employees and shareholders depending upon the attainment of the following levels of gross revenues and net income:
PAYMENT SCHEDULE FOR ACQUISITION OF IGNITION ENTERTAINMENT LIMITED AND INCENTIVE PAYMENTS Between After the After the After the Within 91 and 180 preceding time period and six preceding time 90 days of days after period to months to and On Time Period: Closing May 28, 2002 May 28, 2003 May 28, 2003 May 28, 2004 May 29, 2004 - ------------------------ ------------ ------------ ------------- --------------- --------------- -------------- Goals: -- -- -- $13,000,00 $26,000,000 $45,000,000 Gross Revenues (in U.S. Dollars) Net Income (in U.S. -- -- -- $1,000,000 $5,000,000 $15,000,000 Dollars) Payments: -- 5,000,000 to -- if reach both if reach both if reach both Incentive Payments of DCD Holdings above goals above goals above goals IVP common and preferred 500,000 shares 500,000 shares 500,000 shares shares of convertible of convertible of convertible preferred stock preferred stock preferred stock Release of 50 Million -- 15,000,000 1,000,000 1,000,000 1,000,000 500,000 shares Shares of IVP common shares of shares of shares of shares of of preferred stock (upon conversion common stock preferred stock preferred stock preferred stock stock of all preferred stock (convertible to (convertible to (convertible to (convertible to issued) 10,000,000 10,000,000 10,000,000 5,000,000 shares of shares of shares of shares of common stock) common stock) common stock) common stock)
ACQUISITION OF SPRINGBOARD TECHNOLOGY SOLUTIONS INC. On July 1, 2002, IVP Technology 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 the former shareholders of International Technology Marketing Inc., including Brian MacDonald, Peter Hamilton, Kevin Birch and Geno Villella, all of whom are officers of IVP Technology, and has provided the physical infrastructure for IVP Technology Corporation since December, 2001. Springboard Technology is a data solutions company that provides network solutions, web and software development and data interface services, which has been in operation for three years. At the time of acquisition, Springboard Technology had 10 full-time employees and consultants excluding the management of IVP Technology. ACQUISITION OF INTERNATIONAL TECHNOLOGY MARKETING, INC. On September 17, 2001, IVP Technology entered into a stock purchase agreement with International Technology Marketing, Inc. Pursuant to this agreement, IVP Technology agreed to issue 50 million shares of restricted common stock to the shareholders of International Technology Marketing, who include Messrs. MacDonald, Hamilton, Birch and Villella, the members of our current management team, and to Ms. Bullock, a former member of our management team, in exchange for all of International Technology Marketing's common stock. On March 25, 2002, we issued the 50 million shares of common stock to the former shareholders of International Technology Marketing. Pending execution of an escrow agreement, IVP Technology is holding these shares for the benefit of the former shareholders of International Technology Marketing. These shares will 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. 18 The performance goals are as follows: >> 10,000,000 shares will be disbursed upon aggregate sales of $500,000 >> 10,000,000 shares will be disbursed upon aggregate sales of $1,000,000 >> 10,000,000 shares will be disbursed upon aggregate sales of $2,000,000 >> 10,000,000 shares will be disbursed upon aggregate sales of $6,000,000 >> 10,000,000 shares will be disbursed upon aggregate sales of $16,200,000. On November 16, 2001, IVP Technology held its annual stockholders' meeting. At the meeting, a majority of IVP Technology's outstanding capital stock voted in favor of the acquisition of International Technology Marketing, as well as the increase in the authorized common stock to 150 million shares. Also at the meeting, the shareholders elected two members of the new management team together with three independent board members Messers. Smith, Sidrow and King, to the Board of Directors. Messrs. Sidrow and King subsequently resigned as board members. The following is management's discussion and analysis of certain significant factors which have affected our financial position and operating results. Certain statements under this section may constitute "forward-looking-statements" (See Part II-Other Information). The following discussion should be read in conjunction with the unaudited financial statements and notes thereto. RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 2002 COMPARED WITH THE THREE MONTHS ENDED JUNE 30, 2001 REVENUES. During the three months ended June 30, 2002, we generated $497,326 in revenue from the sale and/or distribution of video entertainment related products, of which $407,326 was generated from our wholly-owned subsidiary, Ignition Entertainment Limited. Ignition Entertainment was formed in December 2001 and commenced operations in April 5, 2002, when it made several acquisitions of operating companies. Accordingly, Ignition Entertainment had no revenues in the comparable period in the prior year. All revenue in the prior period was generated from sales of PowerAudit, which we had a license to distribute until June 13, 2002. On that date, we elected to terminate the license for PowerAudit. OPERATING EXPENSES. Total operating expenses for the three months ended June 30, 2002 and for the three months ended June 30, 2001 were $1,646,966 and $8,562, respectively, or an increase of $1,638,404. The increase in operating expenses resulted primarily from an increase in amortization and depreciation expense of $566,833, relating to amortization of licensing fees paid on Classifier Software, depreciation on Ignition's fixed assets and an increase in consulting and professional fees of $627,592 from the prior quarter. Our infrastructure expenses increased due to the additional costs associated with the Company's new management team and the formation of an active business. OTHER INCOME (EXPENSE). For the three months ended June 30, 2002, we recognized a $96,334 gain on the extinguishment of the DCD Holdings Limited short-term loan by satisfying the loan with 4,000,000 shares of common stock having a value of $760,000. Interest expense was $62,942 for the three months ended June 30, 2002, consisting principally from the benficial conversion feature of our convertible debt. NET INCOME (LOSS). As a result of the items specified above, IVP Technology had a net loss of ($1,498,026), or $0.01 per share, for the three months ended June 30, 2002. SIX MONTHS ENDED JUNE 30, 2002 COMPARED WITH THE SIX MONTHS ENDED JUNE 30, 2001 REVENUES. During the six months ended June 30, 2002, we generated $497,326 in revenue from the sale and/or distribution of video entertainment related products, of which $407,326 was generated from our wholly-owned subsidiary, Ignition Entertainment Limited. Ignition Entertainment was formed in December 2001 and commenced operations in April 5, 2002, when it made several acquisitions of operating companies. Accordingly, Ignition Entertainment had no revenues in the comparable period in the prior year. All revenue in the prior period was generated from sales of PowerAudit, which we had a license to distribute until June 13, 2002. On that date, we elected to terminate the license for PowerAudit. OPERATING EXPENSES. Total operating expenses for the six months ended June 30, 2002 and for the six months ended June 30, 2001 were $2,393,339 and $415,923, respectively, and represents a 475% increase from the prior period. The increase in operating expenses resulted primarily from an increase in depreciation and amortization expense of $1,079,367 relating primarily to amortization of licensing fees paid on the Classifier Software and an increase in professional and consulting expenses from $287,012 to $609,238, or $322,226. Our infrastructure expenses increased $230,406 due to the additional costs associated with the Company's new management team and the formation of an active business. OTHER INCOME (EXPENSE). For the six months ended June 30, 2002, we recognized a $96,334 gain on the extinguishment of the DCD Holdings Limited short-term loan 19 by satisfying the loan with 4,000,000 shares of common stock having a value of $760,000. Interest expense was $74,869 for the six months ended June 30, 2002, consisting principally from the benficial conversion feature of our convertible security. NET INCOME (LOSS). For the six months ended June 30, 2002, we incurred an overall loss of $(2,256,326) or $(.03) per share. LIQUIDITY AND CAPITAL RESOURCES In the past we have financed our operations through a combination of convertible securities and the private placement of our stock. Our primary need for cash is to fund our ongoing operations until such time that the sale of our products generates enough revenue to fund operations. In addition, our need for cash includes satisfying $4,528,681 in current liabilities, including software license fees of $2,906,658 due by December 31, 2002, a convertible note of $129,020 plus accrued interest, accounts payable and accrued expenses of $1,345,668 and income tax payable by Ignition in the amount of $139,450. Our independent accountants have issued a going concern opinion on our financial statements that raise substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent on our ability to raise additional capital and implement our business plan to market and sell Classifier, Viper, Vaayu and consumer entertainment software products through our wholly-owned subsidiary, Ignition Entertainment Limited. At June 30, 2002, IVP Technology's cash and cash equivalents balance was $867,484, an increase of $867,252 from the balance of $232 at December 31, 2001. During the six months ended June 30, 2002, cash (used) in operations and investing activities amounted to $(1,216,556) and $1,227,474, respectively. Cash used in operating activities consisted primarily of a net loss of $(2,256,326) and a decrease in amounts payable under the licensing agreement of $(713,610). These amounts were partially offset by stock issued for services of $617,779, interest expense on beneficial conversion of $64,286, amortization and depreciation of $1,079,367. Cash flows from investing activities were primarily from the acquisition of Ignition's net assets in the amount of $1,291,059. Cash provided by financing activities in the amount of $856,334 was from the DCD short-term loan. DCD Finance has provided Ignition Entertainment a Line of Credit Facility ("LOC") and a Factoring Facility. Under the LOC, Ignition Entertainment may contract for the importation of software products to the extent of 60% of the projected resale price of items purchased as a result of the LOC. The LOC may be accessed by demonstrating firm orders for goods to be delivered and sold. Under the Factoring Facility, Ignition will be able to obtain immediate credit on sales invoices to the extent of 80% of the invoice value. On January 31, 2002, we entered into an interim financing agreement for (pound)600,000, (U.S.$856,334) on an unsecured basis with the European based venture capital and merchant banking firm DcD Limited. The loan bears an interest rate equal to the HSBC Bank base rate, minus 5% if that figure is positive, and interest is payable monthly. The loan was due on April 30, 2002. On May 1, 2002, we converted the loan, plus accrued interest into 4,000,000 shares of our common stock. In April 2002, IVP Technology raised $150,000 of gross proceeds from the issuance of convertible debentures. These debentures accrue interest at a rate of 5% per year and mature two years from the issuance date. The debentures are 20 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, IVP Technology has 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. IVP Technology has the right to redeem the debentures upon 30 days notice for 120% of the amount redeemed. Upon such redemption, IVP Technology will issue the investor a warrant to purchase 10,000 shares of common stock at an exercise price of $0.50 per share for every $100,000 of debentures that are redeemed. In April 2002, IVP Technology entered into an Equity Line of Credit Agreement with Cornell Capital Partners, L.P. Under this agreement, IVP Technology may issue and sell to Cornell Capital Partners common stock for a total purchase price of up to $10.0 million. Subject to certain conditions, IVP Technology will be entitled to commence drawing down on the Equity Line of Credit when the common stock to be issued under the Equity Line of Credit is registered with the Securities and Exchange Commission and the registration statement is declared effective and will continue for two years thereafter. The purchase price for the shares will be equal to 92% of the market price, which is defined as the lowest closing bid price of the common stock during the five trading days following the notice date. The amount of each advance is subject to an aggregate maximum advance amount of $425,000 in any thirty-day period. IVP Technology paid Cornell a one-time fee equal to $340,000, payable in 3,032,000 shares of common stock. Cornell Capital Partners is entitled to retain 3.0% of each advance. In addition, IVP Technology entered into a placement agent agreement with Westrock Advisors, Inc., a registered broker-dealer. Pursuant to the placement agent agreement, IVP Technology 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. IVP Technology 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. CRITICAL ACCOUNTING POLICIES (A) ORGANIZATION Mountain Chief, Inc. was incorporated in the State of Nevada on February 11, 1994. This name was subsequently changed by Articles of Amendment dated November 16, 1994 to IVP Technology Corporation (the "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. Prior to 1998, the Company was involved with various unsuccessful activities relating to the sale of technology products before becoming inactive by the end of 1997. The Company began negotiations with a third party in 1998 to become an exclusive distributor of software and therefore is considered to have re-entered the development stage on January 1, 1998. Activities from inception of development stage included raising of capital and negotiations and acquisition of software distribution licenses are more fully described herein. (See Note 5). (B) ACQUISITION AND RECAPITALIZATION Effective March 2000, the Company acquired all the outstanding shares of common stock of Erebus Corporation, an inactive reporting shell company with no assets or liabilities, from the stockholders thereof in an exchange for an aggregate of 350,000 shares of the Company's common stock and paid $200,000 of consulting expenses in connection with the acquisition. Pursuant to Rule 12-g-3(a) of the General Rules and Regulations of the Securities and Exchange Commission, the Company elected to become the successor issuer to Erebus Corporation for reporting purposes under the Securities Exchange Act of 1934. For financial reporting purposes, the acquisition was treated as a recapitalization of the Company with the par value of the common stock charged to additional-paid-in capital. (C) BASIS OF PRESENTATION The Company maintains its original records in United States dollars. The consolidated financial statements are expressed in United States dollars and have been prepared in accordance with generally accepted accounting principles (GAAP) in the United States. (D) PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its subsidiary, Ignition Entertainment Limited. All significant inter-company transactions and balances have been eliminated. (E) FOREIGN CURRENCY TRANSACTIONS Transactions conducted in Canadian dollars and British pounds have been translated into United States dollars using the average exchange rate for the month in which the transactions occurred. Gains or losses are recognized in the statement of operations. (F) USE OF ESTIMATES In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to 21 make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported period. Actual results could differ from those estimates. (G) CASH AND CASH EQUIVALENTS For purposes of the cash flow statements, the Company considers all highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents. (H) FAIR VALUE OF FINANCIAL INSTRUMENTS Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments", requires disclosures of information about the fair value of certain financial instruments for which it is practicable to estimate the value. For purposes of this disclosure, 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 accounts receivable, accounts payable and accrued liabilities, and note and interest payable thereon approximates fair value due to the relatively short period to maturity for these instruments. (I) INCOME TAXES The Company accounts for income taxes under the Financial Accounting Standards Board Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes" ("Statement 109"). Under Statement 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under Statement 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. (J) CONCENTRATION OF CREDIT RISK The Company maintains its cash in bank deposit accounts, which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents. (K) LOSS PER SHARE Basic and diluted net loss per common share for all periods presented is computed based upon the weighted average common shares outstanding as defined by Financial Accounting Standards No. 128, "Earnings Per Share". There were no common stock equivalents at June 30, 2002. (L) 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. (M) REVENUE RECOGNITION The Company records revenue associated with the sale of software licenses on a pro-rata basis over the license term. The Company records revenue associated with sales of entertainment-related consumer software on a delivered basis subject to an allowance for returns. EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS The Financial Accounting Standards Board has recently issued several new Statements of Financial Accounting Standards. Statement No. 141, "Business Combinations" supersedes APB Opinion 16 and various related pronouncements. Pursuant to the new guidance in Statement No.141, all business combinations must be accounted for under the purchase method of accounting; the pooling-of-interests method is no longer permitted. SFAS 141 also establishes new rules concerning the recognition of goodwill and other intangible assets arising in a purchase business combination and requires disclosure of more information concerning a business combination in the period in which it is 22 completed. This statement is generally effective for business combinations initiated on or after July 1, 2001. Statement No.142, "Goodwill and Other Intangible Assets" supercedes APB Opinion 17 and related interpretations. Statement No.142 establishes new rules on accounting for the acquisition of intangible assets not acquired in a business combination and the manner in which goodwill and all other intangibles should be accounted for subsequent to their initial recognition in a business combination accounted for under SFAS No. 141. Under SFAS No.142, intangible assets should be recorded at fair value. Intangible assets with finite useful lives should be amortized over such period and those with indefinite lives should not be amortized. All intangible assets being amortized as well as those that are not, are both subject to review for potential impairment under SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of'. SFAS No.142 also requires that goodwill arising in a business combination should not be amortized but is subject to impairment testing at the reporting unit level to which the goodwill was assigned to at the date of the business combination. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001 and must be applied as of the beginning of such year to all goodwill and other intangible assets that have already been recorded in the balance sheet as of the first day in which SFAS No.142 is initially applied, regardless of when such assets were acquired. Goodwill acquired in a business combination whose acquisition date is on or after July 1, 2001, should not be amortized, but should be reviewed for impairment pursuant to SFAS No. 121, even though SFAS No.142 has not yet been adopted. However, previously acquired goodwill should continue to be amortized until SFAS No.142 is first adopted. Statement No. 143 "Accounting for Asset Retirement Obligations" establishes standards for the initial measurement and subsequent accounting for obligations associated with the sale, abandonment, or other type of disposal of long-lived tangible assets arising from the acquisition, construction, or development and/or normal operation of such assets. SFAS No.143 is effective for fiscal years beginning after June 15, 2002, with earlier application encouraged. The adoption of these pronouncements will not have a material effect on IVP Technology's financial position or results of operations. ACQUISITIONS ACQUISITION OF IGNITION ENTERTAINMENT LIMITED On May 28, 2002, IVP Technology entered into a purchase agreement with Ignition Entertainment Limited, a company organized under the laws of England and Wales. Pursuant to this agreement, IVP Technology agreed to issue 15,000,000 shares of IVP Technology's common stock and 3,500,000 shares of convertible preferred shares (convertible into 35,000,000 shares of common stock) over approximately the next two years. Upon conversion, these payments will equal 50 million shares of IVP Technology common stock. These shares will be held in escrow until disbursed in accordance with the escrow agreement. Additionally, IVP Technology will also offer incentive payments to certain parties in connection with the Ignition acquisition. DCD Holdings will receive 5,000,000 shares of IVP Technology's common stock 90 to 180 days after May 28, 2002 for maintaining adequate factoring lines for Ignition. Additionally, the Ignition management team will have the opportunity to earn an additional 1,500,000 shares of convertible preferred shares for key employees and shareholders depending upon the attainment of the following levels of gross revenues and net income: 23
PAYMENT SCHEDULE FOR ACQUISITION OF IGNITION ENTERTAINMENT LIMITED AND INCENTIVE PAYMENTS BETWEEN AFTER THE AFTER THE AFTER THE WITHIN 91 AND 180 PRECEDING TIME PERIOD AND SIX PRECEDING TIME 90 DAYS OF DAYS AFTER PERIOD TO MONTHS TO AND ON TIME PERIOD: CLOSING MAY 28, 2002 MAY 28, 2003 MAY 28, 2003 May 28, 2004 May 29, 2004 - ------------------------ ------------ ------------ ------------ ------------ ------------ ------------ Goals: -- -- -- $13,000,00 $26,000,000 $45,000,000 Gross Revenues (in U.S. Dollars) Net Income (in U.S. -- -- -- $1,000,000 $5,000,000 $15,000,000 Dollars) Payments: -- 5,000,000 to -- if reach both if reach both if reach both Incentive Payments of DCD Holdings above goals above goals above goals IVP common and preferred 500,000 shares 500,000 shares 500,000 shares shares of convertible of convertible of convertible preferred stock preferred stock preferred stock Release of 50 Million -- 15,000,000 1,000,000 1,000,000 1,000,000 500,000 shares Shares of IVP common shares of shares of shares of shares of of preferred stock (upon conversion common stock preferred stock preferred stock preferred stock stock of all preferred stock (convertible to (convertible to (convertible to (convertible to issued) 10,000,000 10,000,000 10,000,000 5,000,000 shares of shares of shares of shares of common stock) common stock) common stock) common stock)
ACQUISITION OF SPRINGBOARD TECHNOLOGY SOLUTIONS INC. On July 1, 2002, IVP Technology 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 the former shareholders of International Technology Marketing Inc. (including Brian MacDonald, Peter Hamilton, Kevin Birch and Geno Villella, all of whom are officers of IVP Technology) and has provided the physical infrastructure for IVP Technology Corporation since December, 2001 Springboard Technology is a data solutions company that provides network solutions, web and software development and data interface services, which has been in operation for three years. At the time of acquisition, Springboard Technology had 10 full time employees and consultants excluding the management of IVP Technology. 24 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Not applicable ITEM 2. CHANGES IN SECURITIES RECENT SALES OF UNREGISTERED SECURITIES On July 1, 2002, IVP Technology 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. On June 28, 2002, IVP Technology issued 2,410,916 shares of common stock to Rainbow Investments pursuant to the terms of our March 17, 2000 debt conversion agreement. On June 28, 2002, IVP Technology 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, IVP Technology acquired Ignition Entertainment Limited. IVP Technology will issue 15,000,000 shares of common stock and 3,500,000 shares of preferred stock as payment to Ignition over a period of two years from the date of the acquisition. Additionally, the management team of Ignition may earn up to 1,500,000 shares of preferred stock if certain revenue and net income goals are met at specific time periods. These shares will be held in escrow and disbursed by the escrow agent according to the escrow agreement. The parties are still negotiating the terms of the escrow agreement. In May 2002, IVP Technology entered into an agreement with Vanessa Land for marketing and advisory services connected with product marketing in the European Economic Community and North America. In relation with this agreement, IVP Technology issued 5,000,000 shares of common stock to Ms. Land. 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 of issuance. On May 1, 2002, IVP Technology 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 DcD Holdings Ltd.. IVP Technology issued these shares on or about August 6, 2002. In April 2002, IVP Technology entered into an Equity Line of Credit Agreement with Cornell Capital Partners, L.P. Under this agreement, IVP Technology may issue and sell to Cornell Capital Partners common stock for a total purchase price of up to $10.0 million. Subject to certain conditions, IVP Technology will be entitled to commence drawing down on the Equity Line of Credit when the common stock to be issued under the Equity Line of Credit is registered with the Securities and Exchange Commission and the registration statement is declared effective and will continue for two years thereafter. The purchase price for the shares will be equal to 92% of the market price, which is defined as the lowest closing bid price of the common stock during the five trading days following the notice date. The amount of each advance is subject to an aggregate maximum advance amount of $425,000 in any thirty-day period. IVP Technology paid Cornell a one-time fee equal to $340,000, payable in 3,032,000 shares of common stock. Cornell Capital Partners is entitled to retain 3.0% of each advance. In addition, IVP Technology entered into a placement agent agreement with Westrock Advisors, Inc., a registered broker-dealer. Pursuant to the placement agent agreement, IVP Technology 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. IVP Technology 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. In April 2002, IVP Technology raised $150,000 of gross proceeds from the issuance of convertible debentures. These debentures accrue interest at a rate of 5% per year and mature two years from the issuance date. The debentures are 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, IVP Technology has 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 25 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. IVP Technology has the right to redeem the debentures upon 30 days notice for 120% of the amount redeemed. Upon such redemption, IVP Technology will issue the investor a warrant to purchase 10,000 shares of common stock at an exercise price of $0.50 per share for every $100,000 of debentures that are redeemed. The convertible debentures contain a beneficial conversion feature computed at its intrinsic value that is the difference between the conversion price and the fair value on the debenture issuance date of the common stock into which the debt is convertible, multiplied by the number of shares into which the debt is convertible at the commitment date. Since the beneficial conversion feature is 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. On April 26, 2002, IVP Technology 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, IVP Technology 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, IVP Technology 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 Technology Marketing. On or about March 25, 2002, IVP Technology 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 Technology Marketing. On or about March 25, 2002, IVP Technology 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 Technology Marketing. On or about March 25, 2002, IVP Technology 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 Technology Marketing. On or about March 25, 2002, IVP Technology 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 Technology Marketing. Subsequently, Ms. Bullock left employment with IVP Technology 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 Technology Marketing. On or about March 25, 2002, IVP Technology issued 500,000 shares of common stock to John Maxwell in lieu of compensation for services performed in 2001 as President of IVP Technology. 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, IVP Technology issued 500,000 shares of common stock to John Trainor in lieu of compensation for services performed in 2001 as Secretary of IVP Technology. 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, IVP Technology issued 2,375,600 shares of common stock valued at $.05 per share to Thomas Chown for the conversion of $118,780 of debts owed by the corporation for services performed in 2001. On or about March 25, 2002, IVP Technology issued 1,000,000 shares of common stock to Buford Industries as conversion of a fee of $50,000 earned for introducing IVP to International Technology Marketing. These shares were valued at $0.05 per share, or an aggregate of $50,000, on the date of issuance. 26 On or about March 25, 2002, IVP Technology issued 50,000 shares of common stock to Ruffa and Ruffa, P.A. 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, IVP Technology 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, IVP Technology 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, IVP Technology 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. On or about August 17, 2001, IVP Technology 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, IVP Technology rescinded the issuance of 870,000 shares of common stock previously issued to Koplan Consulting Corp. and Mr. Peter Kertes for services not performed. On or about April 26, 2001, IVP Technology issued 1,200,000 shares of common stock to Gross Capital Associates 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, IVP Technology issued 1,000,000 shares of common stock to John Coady for financial advisory services. These shares were valued at $0.14 per share, or an aggregate of $140,000, on the date of issuance. 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 IVP Technology so as to make an informed investment decision. More specifically, IVP Technology 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 IVP Technology's securities. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. OTHER INFORMATION Not applicable. ITEM 6. SUBSEQUENT EVENTS, EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits.
EXHIBIT NO. DESCRIPTION LOCATION - ----------- ---------------------------------------------------------------- -------------------------------------------------- 2.1 Agreement and Plan of Reorganization dated March 21, 2000 Incorporated by reference to Exhibit 4.1 to IVP between IVP Technology Corporation and Erebus Corporation Technology's Form 8-K12G3 filed on April 19, 2000 3.1 Certificate of Amendment of Articles of Incorporation Incorporated by reference to Exhibit 3.1 to IVP Technology's Form 10-KSB filed on April 15, 2002 4.4 Description of Securities Incorporated by reference to Exhibit 4.4 to IVP Technology's Form S-8 filed on July 23, 2001 10.4 Second Amending Agreement to Software Distribution Agreement Incorporated by reference to Exhibit 10.4 to IVP dated as of May 31, 2000 between the Registrant and Orchestral Technology's Form 10-QSB filed on September 24, 2000 Corporation 10.5 Service Bureau Arrangement Agreement dated September 28, 2000 Incorporated by reference to Exhibit 10.5 to IVP between the Registrant and E-RESPONSES.COM Technology's Form 10-QSB filed on November 14, 2000 10.6 Stock Purchase Agreement dated September 17, 2001 among the Incorporated by reference to Exhibit 10.6 to IVP Registrant, International Technology Marketing, Inc., Brian Technology's Form 10-KSB filed on April 15, 2002 MacDonald, Peter Hamilton, Kevin Birch, Sherry Bullock, and Geno Villella 10.7 Agreement dated May 15, 2000 between the Registrant and Rainbow Incorporated by reference to Exhibit 10.7 to IVP Investments International Limited Technology's Form 10-KSB filed on April 15, 2002 10.8 Employment Agreement dated August 30, 2001 between International Incorporated by reference to Exhibit 10.8 to IVP Technology Marketing, Inc. and Brian J. MacDonald Technology's Form 10-KSB filed on April 15, 2002 10.9 Agreement dated February 12, 2002 between the Registrant and Incorporated by reference to Exhibit 10.9 to IVP SmartFOCUS Limited Technology's Form 10-KSB filed on April 15, 2002 10.10 Warrant Agreement dated May 15, 2000 between the Registrant and Incorporated by reference to Exhibit 10.10 to IVP Rainbow Investments International Limited Technology's Form 10-KSB filed on April 15, 2002 10.11 Convertible Promissory Note dated May 2000 between the Incorporated by reference to Exhibit 10.11 to IVP Registrant and Rainbow Investments International Technology's Form 10-KSB filed on April 15, Limited 2002 10.12 Software Distribution Agreement dated December 28, 2001 between Incorporated by reference to Exhibit 10.12 to IVP the Registrant and TIG Acquisition Corporation Technology's Form 10-KSB filed on April 15, 2002 10.13 Loan Agreement dated January 16, 2002 between the Registrant and Incorporated by reference to Exhibit 10.13 to IVP DCD Holdings Limited Technology's Form 10-KSB filed on April 15, 2002 10.14 Agreement for the Provision of Marketing Services dated May 3, Incorporated by reference to Exhibit 10.1 to IVP 2002 between the Registrant and Vanessa Land Technology's Form S-8 filed with the SEC on May 3, 2002 10.15 Reserved EXHIBIT NO. DESCRIPTION LOCATION - ----------- ---------------------------------------------------------------- -------------------------------------------------- 10.16 Employment Agreement dated August 30, 2001 between International Incorporated by reference to Exhibit 10.16 to IVP Technology Marketing, Inc. and Geno Villella Technology's Form 10-KSB filed on April 15, 2002 10.17 Employment Agreement dated August 30, 2001 between International Incorporated by reference to Exhibit 10.17 to IVP Technology Marketing, Inc. and Kevin Birch Technology's Form 10-KSB filed on April 15, 2002 10.18 Employment Agreement dated August 30, 2001 between International Incorporated by reference to Exhibit 10.18 to IVP Technology Marketing, Inc. and Peter J. Hamilton Technology's Form 10-KSB filed on April 15, 2002 10.19 Employment Agreement dated August 30, 2001 between International Incorporated by reference to Exhibit 10.19 to IVP Technology Marketing, Inc. and Sherry Bullock Technology's Form 10-KSB filed on April 15, 2002 10.20 Loan and Security Agreement dated July 30, 2001 among the Incorporated by reference to Exhibit 10.20 to IVP Registrant, Clarino Investments International Ltd., and Berra Technology's Form 10-KSB filed on April 15, 2002 Holdings Ltd. 10.21 Consulting and Advisory Extension Agreement dated February 14, Incorporated by reference to the Exhibit to IVP 2001 between the Registrant and Barry Gross D/B/A Gross Capital Technology's Form 10-QSB filed on May 21, 2001 Associates 10.22 Letter Agreement dated June 28, 2001, between the Registrant and Incorporated by reference to Exhibit 4.1 to IVP Andris Gravitis Technology's Form S-8 filed on July 23, 2001 10.23 Letter Agreement dated June 28, 2001, between the Registrant and Incorporated by reference to Exhibit 4.2 to IVP Thomas Chown. Technology's Form S-8 filed on July 23, 2001 10.24 Letter Agreement dated May 30, 2001, between the Registrant and Incorporated by reference to Exhibit 4.3 to IVP Ruffa & Ruffa, P.C. for Modification of Retainer Agreement Technology's Form S-8 filed on July 23, 2001 10.25 Consulting Agreement dated September 1, 2000 between the Incorporated by reference to Exhibit 13.1 to IVP Registrant and Barry Gross d/b/a Gross Capital Associates Technology's Form 10-KSB filed on July 5, 2001 10.26 Consulting and Advisory Agreement dated September 25, 2000 Incorporated by reference to Exhibit 13.2 to IVP between the Registrant and Koplan Consulting Corporation Technology's Form 10-KSB filed on July 5, 2001 10.27 Warrant Agreement dated April 3, 2002 between the Registrant and Incorporated by reference to Exhibit 10.27 to IVP Cornell Capital Partners LP Technology's Form 10-KSB filed on April 15, 2002 10.28 Equity Line of Credit Agreement dated April 3, 2002 between the Incorporated by reference to Exhibit 10.28 to IVP Registrant and Cornell Capital Partners LP Technology's Form 10-KSB filed on April 15, 2002 10.29 Registration Rights Agreement dated April 3, 2002 between the Incorporated by reference to Exhibit 10.29 to IVP Registrant and Cornell Capital Partners, LP Technology's Form 10-KSB filed on April 15, 2002 EXHIBIT NO. DESCRIPTION LOCATION - ----------- ---------------------------------------------------------------- -------------------------------------------------- 10.30 Escrow Agreement dated April 3, 2002 among the Registrant, Incorporated by reference to Exhibit 10.30 to IVP Cornell Capital Partners, LP, Butler Gonzalez, and First Union Technology's Form 10-KSB filed on April 15, 2002 National Bank 10.31 Securities Purchase Agreement dated April 3, 2002 among the Incorporated by reference to Exhibit 10.31 to IVP Registrant and the Buyers Technology's Form 10-KSB filed on April 15, 2002 10.32 Escrow Agreement dated April 3, 2002 among the Registrant, the Incorporated by reference to Exhibit 10.32 to IVP Buyers, and First Union National Bank Technology's Form 10-KSB filed on April 15, 2002 10.33 Debenture Agreement Dated April 3, 2002 between the Registrant Incorporated by reference to Exhibit 10.33 to IVP and Cornell Capital Partners LP Technology's Form 10-KSB filed on April 15, 2002 10.34 Investor Registration Rights Agreement dated April 3, 2002 Incorporated by reference to Exhibit 10.34 to IVP between the Registrant and the Investors Technology's Form 10-KSB filed on April 15, 2002 10.35 Placement Agent Agreement dated April 3, 2002 among the Incorporated by reference to Exhibit 10.35 to IVP Registrant, Westrock Advisors, Inc. and Cornell Capital Partners Technology's Form 10-KSB filed on April 15, 2002 LP 10.36 Letter Agreement dated February 20, 2002 between the Registrant Incorporated by reference to Exhibit 10.36 to IVP and Buford Industries Inc. Technology's Form 10-KSB filed on April 15, 2002 10.37 Letter Confirmation Agreement dated July 21, 2001 between the Incorporated by reference to Exhibit 10.37 to IVP Registrant and Buford Industries Inc. Technology's Form 10-KSB filed on April 15, 2002 10.38 Consulting Agreement dated March 1, 2002 between the Registrant Incorporated by reference to Exhibit 10.38 to IVP and Danson Partners LLC Technology's Form 10-KSB filed on April 15, 2002 10.39 Term Sheet between the Registrant and Cornell Capital Partners, Incorporated by reference to Exhibit 10.39 to IVP LP Increasing the Commitment under the Equity Line of Credit to Technology's Form SB-2 filed on May 15, 2002 $10 million 10.40 Consulting Agreement dated February 12, 2002 between the Incorporated by reference to Exhibit 10.40 to IVP Registrant and Danson Partners LLC Technology's Form SB-2 filed on May 15, 2002 10.41 Escrow Agreement dated as of May 15, 2002 among the Registrant, Incorporated by reference to Exhibit 10.41 to IVP Brian MacDonald, Peter Hamilton, Kevin Birch, Sherry Bullock, Technology's Form SB-2 filed on May 15, 2002 and Gino Villella 10.42 Termination letter dated June 13, 2002 between the Registrant Provided herewith and Orchestral Corporation 10.43 Acquisition Agreement dated as of May 28, 2002 regarding the Provided herewith purchase of Ignition Entertainment 10.44 Consulting Agreement dated as of June 1, 2002 Ignition Provided herewith Entertainment Limited and Montpelier Limited
(b) Reports on Form 8-K. On August 8, 2002, IVP Technology filed a Form 8-K disclosing that it was not required to file financial information regarding its acquisition of Ignition Entertainment. 27 On May 29, 2002, IVP Technology filed a report on Form 8-K disclosing that on May 22, 2002 IVP Technology Corporation entered into a Purchase and Sale agreement to acquire all of the common shares of Ignition Entertainment Limited, an entity formed in the United Kingdom, that develops, produces and distributes consumer software and games for multiple computer, game, communication and hand held device platforms. In the same May 29, 2002 report on Form 8-K, IVP Technology disclosed that on May 13, 2002, Dr. Michael Sidrow and Mr. Robert King resigned from IVP Technology's Board of Directors due to personal reasons associated with their other obligations. The board of directors of IVP Technology has invited Shabir Randeree, Managing Director of DCD Limited, and Hassan Sadiq, Chief Operating Officer of The Innovation Group to become members of the board in replacement for Messrs. Sidrow and King to serve until the next Annual General Meeting of shareholders expected in the Fall of 2002. Both Mr. Sadiq and Mr. Randeree reside in the United Kingdom. IVP Technology filed a report on Form 8-K on May 6, 2002 disclosing that on May 1, 2002, IVP Technology received written notice that the lender, DCD Limited, agreed to convert the loan for $864,180 due on April 30, 2002 to 4,000,000 shares of common stock. This equates to a conversion price of approximately $0.19 per share. IVP Technology filed a report on Form 8-K on February 20, 2002 disclosing that on January 18, 2002, IVP Technology entered into an agreement for the provision of marketing advisory services by Vanessa Land, president of Devonshire Marketing Limited of London, UK. Additionally, IVP Technology also disclosed that it also signed a reseller distribution agreement with SmartFocus Company Limited of Bristol UK. IVP Technology filed a report on Form 8-K on January 31, 2002 disclosing that on December 28, 2001, IVP Technology executed a distribution agreement with The Innovation Group through TIG Acquisition Corporation whereby IVP Technology Corporation was grated a license on a non-exclusive basis to market TIG plc's Classifier (R) Information System software product and solution to companies in North America. 28 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of IVP Technology Corporation (the "Company") on Form 10-QSB for the period ended June 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, in the capacities and on the dates indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company. SIGNATURES Pursuant to the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. REGISTRANT: IVP TECHNOLOGY CORPORATION /s/ Brian MacDonald August 19, 2002 - -------------------------------------------- By: Brian MacDonald President, Chief Executive Officer and Acting Chief Financial Officer 29 EX-10 3 mi132026.txt EXHIBIT 10.42 EXHIBIT 10.42 IVP TECHNOLOGY June 13, 2002 Orchestral Corporation 2100 Bloor Street West, PO or Suite 6-114, Toronto Ontario M6S 5A5 Att: Jeremy Rasmussen, President Fax number 416-352-5455 Dear Jeremy: Further to our meeting in my office with Kevin Birch on June 11, 2002 and your email to me on June 12, 2002 please consider this letter as written notification that IVP Technology Corporation is terminating the software distribution agreement with Orchestral Corporation dated March 30, 1999 and subsequently amended on September 1, 1999 and May 31, 2000. As required by the agreement we shall be pleased to execute an affidavit or other form of letter as may be required by your solicitors with regard to the disposal of any confidential information obtained from Orchestral related to Power Audit that we have in our possession. Sincerely yours, /s/ Brian J. MacDonald Brian J. MacDonald President and CEO EX-10 4 ex10-43.txt EXHIBIT 10.43 EXHIBIT 10.43 DATED 28TH MAY 2002 - ----------------------------------------------------- (1) The Vendors (2) The Guarantors (3) IVP Technology Corporation - ----------------------------------------------------- A G R E E M E N T - ----------------------------------------------------- For the sale and purchase of the entire issued share capital of Ignition Entertainment Limited EVERSHEDS 1 Royal Standard Place Nottingham NG1 6FZ Tel: 0115 950 7000 Fax: 0115 950 7111 CONTENTS Clause Page 1 INTERPRETATION.....................................................2 2 SALE AND PURCHASE..................................................7 3 CONSIDERATION......................................................7 4 EARN-OUT SECURITIES................................................8 5 WARRANTIES........................................................10 6 TAX COVENANT......................................................12 7 LIMITATION OF LIABILITY...........................................14 8 RESTRICTIVE COVENANTS.............................................17 9 COMPLETION........................................................19 10 GUARANTEE.........................................................23 11 ANNOUNCEMENTS.....................................................24 12 COSTS.............................................................24 13 INTEREST..........................................................24 14 NOTICES...........................................................25 15 ORDERLY MARKET....................................................25 16 GENERAL...........................................................25 SCHEDULES 1 Part I - The Vendors..............................................27 1 Part II - Guarantors..............................................27 2 Details of the Company............................................29 2 Details of other Group Members....................................30 3 The Property......................................................32 4 Warranties........................................................33 5 Accounting information............................................36 1 THIS AGREEMENT is made on 28th May 2002 BETWEEN (1) The persons whose names and addresses are set out in Part I of SCHEDULE 1 ("the Vendors"); (2) The persons whose names and addresses are set out in Part II of SCHEDULE 1 ("the Guarantors") and (3) IVP TECHNOLOGY CORPORATION (a corporation registered under the laws of the State of Nevada, USA) whose principal office is at Suite 401-2275 Lakeshore Boulevard West, Toronto, Ontario M8V 3Y3 ("the Purchaser") OPERATIVE PROVISIONS 1. INTERPRETATION In this Agreement: 1.1 the following expressions have the following meanings unless inconsistent with the context: "THE A MACLEAN AGREEMENT" an asset sale agreement dated on or about the date of this Agreement made between (1) Archer Donald Maclean and (2) the Company relating to the Assets (as defined therein); "THE ACCOUNTING INFORMATION" the accounts (if any) and other financial information listed in SCHEDULE 5 "THE ACQUISITIONS" the business and/or share acquisitions effected by the Acquisition Agreements or any of them "THE ACQUISITION AGREEMENTS" together, the 3R Agreement, the A Maclean Agreement, the Alternative Sources Agreement, the I-Wish Agreement and the Awesome Assignment "THE ACT" the Companies Act 1985 2 "THE ALTERNATIVE SOURCES an asset sale agreement dated on or AGREEMENT about the date of this Agreement made between (1) Alternative Sources Limited and (2) the Company relating to the business of a wholesaler of computer video games carried on by Alternative Sources Limited as described therein; "AUDITORS" the auditors for the time being of the Company "THE AWESOME ASSIGNMENT" an assignment of worldwide intellectual property dated on or about the date of this Agreement and made between Awesome Developments Limited and 3R Learning Limited "BUSINESS(ES)" the business(es) specified in SCHEDULE 5 "BUSINESS DAY" any day (other than Saturday or Sunday) on which Clearing Banks are open for a full range of banking transactions "THE COMPANY" Ignition Entertainment Limited, registered number 4293817 whose registered office is at Hanover House, Clarendon Road, Leeds LS2 9NZ "COMPLETION" Completion of the sale and purchase in accordance with CLAUSE 9 "CONSIDERATION" the consideration for the sale of the Shares as stated in CLAUSE 3.1 "CONSIDERATION SECURITIES" 15,000,000 shares in the Common Stock of the Purchaser and 3,500,000 Convertible Preferred Shares of the Purchaser "CONTRACT" any agreement or commitment whether legally binding or not 3 "CONVERTIBLE PREFERRED the 3,500,000 Convertible Preferred SHARES Shares of the Purchaser comprised in the Consideration Securities and the 1,500,000 Convertible Preferred Shares comprised in the Earn-out Securities, each such Convertible Preferred Share being convertible into 10 shares of Common Stock of the Purchaser and having the rights and being subject to the conditions specified by the board of directors of the Purchaser "THE DISCLOSURE LETTER" the letter from the Vendors to the Purchaser qualifying the Warranties in a form reasonably satisfactory to the Purchaser to be delivered by the Vendors to the Purchaser pursuant to CLAUSE 9.7 "EARN-OUT SECURITIES" The 1,500,000 Convertible Preferred Shares of the Purchaser to be issued subject to attainment of certain revenue and profit targets as set out in CLAUSE 4 and to be released pursuant to the Escrow Agreement "ESCROW AGREEMENT" The escrow agreement in a form reasonably satisfactory to the Purchaser to be delivered by the Vendors to the Purchaser pursuant to CLAUSE 9.7 and to be entered into between the Vendors and the Purchaser and relating to the issue of the Consideration Securities and the Earn-out Securities "EVENT" any event, fact or circumstance whatsoever, including (but not limited to) the earning, receipt or accrual of any income, profits or gains, the sale and purchase of the Shares pursuant to this Agreement and Completion "FINANCE ARRANGEMENT" the agreement in a form reasonably satisfactory to the Purchaser to be entered into between the Company and DCD 4 Factors, in relation to the commitment of certain facilities and the issue of the Potters Securities "THE GROUP" together the Company and each other company details of which are set out in SCHEDULE 2 "GROUP MEMBER" any company which is a member of the Group and, in the case of any business acquired by any Group Member, shall include where the context so admits any predecessor in that business "INDEPENDENT ACCOUNTANT" a single independent chartered accountant or an independent firm of chartered accountants to be agreed upon between the Vendors and the Purchaser or (in default of such agreement) to be selected (at the instance of either of them) by the President for the time being of the Institute of Chartered Accountants in England and Wales "INTELLECTUAL PROPERTY patents, trade marks, service marks, RIGHTS" registered designs, design rights, copyright, software know-how and all other intellectual property and any applications for the same "THE I-WISH AGREEMENT" an asset sale agreement dated on or about the date of this Agreement made between (1) I-Wish (Games) Limited and (2) the Company relating to the business of a computer video games developer and publisher carried on by I-Wish (Games) Limited as described therein "LETTER OF INTENT" The letter of intent agreed between the Purchaser and the Vendors "PERIOD ONE" the period of 12 months commencing on the date of Completion 5 "PERIOD TWO" the period of 24 months commencing on the date of Completion "PERIOD THREE" the period of 36 months commencing on the date of Completion "POTTERS SECURITIES" the 5,000,000 shares in the Common Stock of the Purchaser to be issued to Potters Limited pursuant to the Finance Arrangement "PROFITS" the profits of the Group for a Period determined in accordance with CLAUSE 4 "THE PROPERTY" the property specified in SCHEDULE 3 (and, if more than one, each such property) and each and every part of such property "THE PURCHASER'S SOLICITORS" Eversheds of 1 Royal Standard Place, Nottingham NG1 6FZ "THE 3R AGREEMENT" a share purchase agreement dated on or about the date of this Agreement made between (1) Archer Donald Maclean and (2) the Company relating to 3R Learning Limited; "RELIEF" any relief, deduction or credit available from, against or in relation to Taxation or in the computation for any Taxation purpose of income, profits or gains "SEC" the US Securities and Exchange Commission "THE SHARES" all the issued shares in the capital of the Company "TAXATION" (a) any tax, duty, impost or levy of the United Kingdom or elsewhere whether national or local; and 6 (b) any fine, penalty, surcharge, interest or other imposition relating to any tax, duty, impost or levy or to any account, record, form, return or computation required to be kept, preserved, maintained or submitted for the purposes of any tax, duty, impost or levy "TURNOVER" the gross turnover of the Group for a Period determined in accordance with CLAUSE 4 "THE VENDORS' SOLICITORS" Blacks of Hanover House, 22 Clarendon Road, Leeds LS2 9NZ "THE WARRANTIES" The warranties set out or referred to in CLAUSE 5 and SCHEDULE 4; 1.2 references to any statutory provisions will be construed as including references to any earlier or subsequent statutory provisions in force at any time prior to Completion which they have, or by which they have been, directly or indirectly amended or replaced; 1.3 references to clauses and Schedules are to clauses of and Schedules to this Agreement, and references to paragraphs are to paragraphs in the Schedule in which such references appear; 1.4 the Schedules form part of this Agreement and will have the same effect as if in the body of this Agreement; 1.5 the headings to clauses and paragraphs (save for headings in SCHEDULES 1, 2 and 3) will not affect its construction; and 1.6 references to documents being in "agreed terms" or in the "agreed form" mean in the form initialled by or on behalf of the parties hereto on today's date. 2. SALE AND PURCHASE 2.1 Each of the Vendors will sell with full title guarantee, and the Purchaser will buy, the number of the Shares specified opposite that Vendor's name in SCHEDULE 1. 7 2.2 Each of the Shares will be sold and bought free from any third party right, and with all rights attached or accruing to it including all rights to any dividends or other distributions paid after the execution of this Agreement. 2.3 Each of the Vendors waives any rights of pre-emption over any of the Shares. 2.4 The Purchaser will not be obliged to purchase any of the Shares unless the purchase of all the Shares is completed simultaneously. 3. CONSIDERATION 3.1 The consideration for the sale of the Shares will be the allotment to the Vendors of the Consideration Securities pursuant to the Escrow Agreement (and accordingly each of the Vendors will be entitled, subject to the terms and conditions of the Escrow Agreement, to such number of the total number of Consideration Shares as the Vendors shall agree from time to time and notify to the Purchaser in writing). 3.2 The provisions of the Escrow Agreement shall apply in relation to the issue and release of the Consideration Securities and the Earn-out Securities. 4. EARN-OUT SECURITIES 4.1 If Turnover for Period One exceeds US$13,000,000 and Profits for Period One exceed US$1,000,000 ("THE FIRST TARGET") the Purchaser shall allot 500,000 of the Earn-out Securities ("THE FIRST TRANCHE") in accordance with the Escrow Agreement. 4.2 If Turnover for Period Two exceeds US$26,000,000 and Profits for Period Two exceed US$5,000,000 ("THE SECOND TARGET") the Purchaser shall allot 500,000 of the Earn-out Securities ("THE SECOND TRANCHE") in accordance with the Escrow Agreement and the Purchaser shall also allot the First Tranche if this has not already been allotted by reason of the fact that the First Target was not met in Period One. 4.3 If Turnover for Period Three exceeds US$45,000,000 and Profits for Period Three exceed US$15,000,000 ("THE THIRD TARGET") the Purchaser shall allot 500,000 of the Earn-out Securities ("THE THIRD TRANCHE") in accordance with the Escrow Agreement and the Purchaser shall also allot the First Tranche and/or the Second Tranche if these shall not already have been allotted by reason of the fact that the First Target and/or the Second Target respectively were not met in Period One and/or Period Two respectively. 8 4.4 For the avoidance of doubt, if none of the First Target, the Second Target or the Third Target shall have been met in respect of Period One, Period Two and Period Three respectively, none of the Earn-out Securities shall be allotted or issued. 4.5 Turnover for a Period shall mean gross revenue as shown by the consolidated profit and loss account of the Company for the relevant Period (agreed or reported in accordance with CLAUSE 4.9 such profit and loss account ("THE PROFIT AND LOSS ACCOUNT") to be prepared in accordance with CLAUSE 4.7. 4.6 The Profits for a Period shall mean the consolidated net profits after interest but before tax as shown by the Profit and Loss Account for the relevant Period. 4.7 The Profit and Loss Account shall be prepared in accordance with the accounting policies and principles applied by the Purchaser in its accounts and subject thereto in accordance with accounting principles generally accepted in the United States, provided that they shall be adjusted so far as necessary to take account of the following matters: 4.7.1 any taxation on profits shall not be deducted; 4.7.2 profits and losses shall be calculated after exceptional items and before extraordinary items (as defined in Financial Reporting Standard number 3 adopted by the Accounting Standards Board); 4.7.3 in respect of any transaction between the Purchaser and any Group Member which is not at arm's length, there shall be substituted terms which are at arm's length and "transaction" shall include without limitation: (a) the lending or borrowing of money, and/or being party to any bank netting arrangement for the purposes of calculating interest; (b) the payment of remuneration or fees to any person who does not work full-time on the affairs of any Group Member; (c) the granting of assistance and facilities, including the secondment of employees and the sharing or leasing of premises; 4.7.4 any expenses for which any Group Member is liable but which are gratuitously met by any of the Vendors (or any person who is connected with such Vendor as defined in section 839 ICTA) shall be deducted; 9 4.7.5 any management charges made by the Purchaser shall not be deducted; 4.7.6 any other adjustment as may be agreed in writing between the Vendors and the Purchaser shall be made. 4.8 The conversion rate to be used for the purposes of determining whether or not any of the Targets specified in this CLAUSE 4 has been met shall be the rate at which conversion takes place for consolidation into the Purchaser's accounts on an ongoing basis. 4.9 The Purchaser shall procure that: 4.9.1 as soon as reasonably practicable but, in any event, by the end of the month following the last month of each Period the Auditors will prepare and deliver to the Vendors and the Purchaser a calculation of the Turnover and Profits for the relevant Period showing the application of the foregoing provisions of this CLAUSE 4. The Vendors and the Purchaser will then endeavour in good faith to agree in writing the amount of Turnover and Profits. The Vendors will have the right to consult the Vendors' nominated accountant in relation to the calculation of the Turnover and Profits for the relevant Period and the reasonable costs of the Vendors' nominated accountant in checking each such calculation will be borne by the Purchaser. In the absence of agreement between the Vendors and the Purchaser as aforesaid within 7 Business Days after the Auditors' delivery of each such calculation, either the Purchaser or the Vendors may by notice in writing to the other(s) require the Turnover and/or Profits for the relevant Period to be reviewed and reported upon by the Independent Accountant (whose costs shall be paid as he or they shall direct and who shall act as expert (and not as arbitrator) in connection with the giving of such report, which shall be binding except in the case of manifest error); 4.9.2 the Vendors and the Vendors' professional advisers shall have the right to such access to and copies (at their own expense) of the books and accounts of each Group Member and such other relevant information as will be requested by the Vendors to enable them to assess the calculations referred to in CLAUSE 4.9.1. 4.10 The Earn-out Securities in respect of any Period will be allotted in accordance with the Escrow Agreement. 10 5. WARRANTIES Subject to CLAUSE 7: 5.1 Each of Barnoose Ltd, Komori Ltd and Starpath Ltd severally warrants in the terms of the Warranties as defined in the I-Wish Agreement as if those Warranties were set out in full in this Agreement provided that the Purchaser will not be entitled to claim that any fact or combination of facts constitutes a breach of any of the Warranties as defined in the I-Wish Agreement to the extent fairly disclosed in the Disclosure Letter, and each of Barnoose Ltd, Komori Ltd and Starpath Ltd agrees that the Purchaser is entering into this Agreement in reliance on each of the said Warranties (none of which will be construed restrictively, by reference to any other Warranty or term of the I-Wish Agreement). 5.2 Each of Barnoose Ltd, Komori Ltd and Starpath Ltd severally warrants in the terms of the Warranties as defined in the Alternative Sources Agreement as if those Warranties were set out in full in this Agreement provided that the Purchaser will not be entitled to claim that any fact or combination of facts constitutes a breach of any of the Warranties as defined in the Alternative Sources Agreement to the extent fairly disclosed in the Disclosure Letter, and each of Barnoose Ltd, Komori Ltd and Starpath Ltd agrees that the Purchaser is entering into this Agreement in reliance on each of the said Warranties (none of which will be construed restrictively, by reference to any other Warranty or term of the Alternative Sources Agreement). 5.3 Garnoose Ltd severally warrants in the terms of the Warranties as defined in the 3R Agreement as if those Warranties were set out in full in this Agreement provided that the Purchaser will not be entitled to claim that any fact or combination of facts constitutes a breach of any of the Warranties as defined in the 3R Agreement to the extent fairly disclosed in the Disclosure Letter or the disclosures set out in schedule 5 to the 3R Agreement and the Agreed Bundle as defined therein, and Garnoose Ltd agrees that the Purchaser is entering into this Agreement in reliance on each of the said Warranties (none of which will be construed restrictively, by reference to any other Warranty or term of the 3R Agreement). 5.4 Garnoose Ltd severally warrants in the terms of the Warranties as defined in the A Maclean Agreement as if those Warranties were set out in full in this Agreement provided that the Purchaser will not be entitled to claim that any fact or combination of facts constitutes a breach of any of the Warranties as defined in the A Maclean Agreement to 11 the extent fairly disclosed in the Disclosure Letter or in the Disclosures set out in schedule 2 to the A Maclean Agreement and the Agreed Bundle as defined therein, and Garnoose Ltd agrees that the Purchaser is entering into this Agreement in reliance on each of the said Warranties (none of which will be construed restrictively, by reference to any other Warranty or term of the A Maclean Agreement). 5.5 Garnoose Ltd severally warrants in the terms of the warranties set out in clause 4 of the Awesome Assignment as if those warranties were set out in full in this Agreement provided that the Purchaser will not be entitled to claim that any fact or combination of facts constitutes a breach of any of the said warranties in the Awesome Assignment to the extent fairly disclosed in the Disclosure Letter, and Garnoose Ltd agrees that the Purchaser is entering into this Agreement in reliance on each of the said warranties (none of which will be construed restrictively, by reference to any other warranty or term of the Awesome Assignment). 5.6 Subject to CLAUSE 7, the Vendors, jointly and severally: 5.6.1 warrant to the Purchaser in the terms of the Warranties set out in SCHEDULE 4, provided that the Purchaser will not be entitled to claim that any fact or combination of facts constitutes a breach of any of those Warranties to the extent fairly disclosed in the Disclosure Letter, and agree that the Purchaser is entering into this Agreement in reliance on each of the Warranties (none of which will be construed restrictively, by reference to any other Warranty or term of this Agreement); 5.6.2 will indemnify the Purchaser against any reasonable costs or expenses (including legal costs) which it may incur, either before or after the commencement of any action, directly or indirectly as a result of any breach of any of the Warranties; 5.6.3 undertake that, if any claim is made against any of them in connection with the sale of the Shares to the Purchaser, they will not make any claim against any Group Member, or against any director or employee of any such Group Member, on which or on whom any of them may have relied before agreeing to any provision of this Agreement or the Disclosure Letter, but so that this undertaking will not preclude any Vendor from claiming against any other Vendor under any right of contribution to which such Vendor may be entitled. 12 5.7 In this Agreement, unless otherwise specified, where any Warranty refers to the knowledge or awareness of the Vendors (or similar expression), each Vendor will be deemed to have such knowledge or awareness as such Vendor would have obtained had such Vendor made all due and careful enquiries into the subject matter of that Warranty and, where any of the Warranties set out in SCHEDULE 4 so refers, the knowledge and awareness of any one of the Vendors will be imputed to the remaining Vendors. 6. TAX COVENANT 6.1 In this CLAUSE 6: 6.1.1 references to Events include Events which are deemed to have occurred for any Taxation purpose; 6.1.2 references to an Event which occurred on or before Completion include the combined result of two or more Events, the first of which occurred on or before Completion; 6.1.3 references to the loss of a Relief include the disallowance of a Relief and the failure to obtain a Relief; and 6.1.4 references to a payment of Taxation which a Group Member is liable to make include any stamp duty which is charged on any document, or in the case of a document which is outside the United Kingdom any stamp duty which would be charged on the document if it were brought into the United Kingdom, which is necessary to establish the title of the Group Member to any asset or in the enforcement or production of which the Group Member is interested, and any interest, fine or penalty relating to such stamp duty. 6.2 Subject to CLAUSE 7, Garnoose Ltd covenants with the Purchaser to pay to the Purchaser an amount equal to the amount of: 6.2.1 any payment of, or in respect of, Taxation which 3R Learning Limited has made or is liable to make as a result of, or in connection with, any Event which occurred on or before Completion; and 6.2.2 any payment of Taxation which 3R Learning Limited would have been liable to make as a result of, or in connection with, any Event 13 which occurred on or before Completion but for the use of any Relief or the set-off of any right to repayment of Taxation; and 6.2.3 any payment of Taxation which 3R Learning Limited would not have been liable to make but for the loss of any Relief (including a Relief surrendered to 3R Learning Limited by another company) as a result of, or in connection with, any Event which occurred on or before Completion, on the basis of the rates of Taxation current at the date of the loss, assuming for this purpose that 3R Learning Limited had sufficient profits or was otherwise in a position actually to use the Relief; and 6.2.4 any repayment of Taxation to which 3R Learning Limited would have had the right but for the loss of such right as a result of, or in connection with, any Event which occurred on or before Completion; and 6.2.5 any costs, fees or expenses (including reasonable and proper legal costs) incurred by 3R Learning Limited or the Purchaser in connection with: (a) any matter in respect of which Garnoose Ltd is or may be liable under any of CLAUSES 6.2.1 TO 6.2.4 (inclusive); or (b) taking or defending any action (including but not limited to legal proceedings) under this CLAUSE 6. 6.3 Except as required by law all payments by Garnoose Ltd under this CLAUSE 6 will be made free and clear of all deductions and withholdings. 6.4 If any deduction or withholding is required to be made from any payment by Garnoose Ltd under this CLAUSE 6 or if (ignoring any available Relief or right to repayment of Taxation) the Purchaser is subject to Taxation in respect of any payment by Garnoose Ltd under this CLAUSE 6, Garnoose Ltd covenants with the Purchaser to pay to the Purchaser such additional amount as is necessary to ensure that the net amount received and retained by the Purchaser (after taking account of such deduction or withholding or Taxation) is equal to the amount which it would have received and retained had the payment in question not been subject to the deduction or withholding or Taxation. 14 7. LIMITATION OF LIABILITY 7.1 In this CLAUSE 7, save where expressly provided, "warranty claim" means any claim which would (but for this CLAUSE 7) be capable of being made against the Vendors (or any of them) for breach of the Warranties and "tax claim" means any claim which would (but for this CLAUSE 7) be capable of being made against the Vendors (or any of them) for breach of the covenant in CLAUSE 6. 7.2 Except to the extent that any warranty claim or tax claim arises by reason of any fraud or dishonest or wilful misstatement or omission by or on behalf of (in the case of any of the warranties referred to in CLAUSES 5.1 TO 5.5 (INCLUSIVE)) the relevant Vendor warrantor or (in the case of any of the warranties set out in SCHEDULE 4) any one of the Vendors, the liability of the Vendors in respect of any warranty claim or tax claim will be limited as follows: 7.2.1 subject to CLAUSES 7.2.2 AND 7.2.3, the aggregate liability of the Vendors in respect of all warranty claims and tax claims will be limited to the aggregate value of the Consideration Securities receivable by the Vendors, the aggregate value of the Vendor's Consideration Securities for these purposes being their value as at the date of exchange of this Agreement or the date of claim, whichever is the lesser; 7.2.2 subject to CLAUSES 7.2.3, the aggregate liability of the Vendors in respect of all warranty and tax claims relating to tax warranties and covenants in relation to corporation tax on trading income will be limited to (pound)10,000; 7.2.3 the aggregate liability of each of the individual Vendors in respect of all warranty claims and tax claims will not exceed the value of the Consideration Securities receivable by such Vendor valued at the date of exchange of this Agreement or the date of claim, whichever is the lesser; 7.2.4 the Vendors will be under no liability to make any payment unless their aggregate liability in respect of all warranty claims and tax claims is in excess of (pound)10,000, in which event the Vendors will (subject to the other provisions of this CLAUSE 7.2) be liable for the whole amount of such liability and not merely for the excess; 15 7.2.5 no warranty claim shall be brought against the Vendors unless and then to the extent that written particulars thereof (specifically identifying in reasonable detail the specific matters in respect of which the claim is made) shall have been notified in writing to the Vendors within 18 months of the date of Completion. Any such claim shall (if it has not previously been satisfied settled or withdrawn) be deemed to have been withdrawn 6 months after notification under this clause unless proceedings in respect of the claim shall have been commenced by being both issued and served on the Vendors by such date; 7.2.6 in the event that the Purchaser is entitled to recover any sum (whether by payment, discount, credit or otherwise) from any third party in respect of any matter for which a warranty claim could be made against the Vendors, upon the Vendors indemnifying and securing the Purchaser to the Purchaser's satisfaction against all costs or other liabilities, the Purchaser shall, or procure that the Company shall, take all reasonable steps to recover such sum before making the claim except where it is necessary to make a warranty claim to protect the Purchaser's position having regard to the provisions of the preceding sub-clause hereof and any sum recovered will reduce the amount of the warranty claim; and, in the event of the recovery from the third party being delayed until after the warranty claim has been satisfied by the Vendors, the Purchaser shall account to the Vendors in respect of any amount so recovered (after deduction of all reasonable costs and expenses of the recovery) up to the amount of the warranty claim; 7.2.7 in the event that a warranty claim against the Vendors arises as a result of or in connection with a liability to or a dispute with any third party, the Purchaser shall forthwith give written notice of it to the Vendors and, upon the Vendors indemnifying and securing the Purchaser to the Purchaser's satisfaction against all costs or other liabilities, it shall procure that there be taken such action as the Vendors may reasonably request to avoid, dispute, resist, appeal, compromise or defend such liability or dispute and adjudication in respect of it and (again, subject to being similarly indemnified and secured against all costs or other liabilities) the Purchaser shall instruct such solicitors or other professional advisors as the Vendors may nominate to act on behalf of the Purchaser or the Company but in accordance with the Vendors' instructions to the intent that the conduct of the dispute shall be delegated entirely to the Vendors. The Purchaser shall procure that the 16 Vendors and their professional advisers are given reasonable access to the records and personnel of the Company and shall supply all information reasonably requested by or on behalf of the Vendors; 7.2.8 no liability shall attach to the Vendors in respect of any warranty claim to the extent that it relates to any loss for which the Purchaser or the Company is indemnified by insurance; 7.2.9 no liability shall attach to the Vendors in respect of any warranty claim or tax claim ("a Claim"): (a) if such Claim would not have arisen but for a change in the rate of Taxation or a change in legislation made after the date hereof or a change by the relevant taxing authority in the method of applying or calculating the rate of Taxation after the date hereof or a change in any statutory concession or practice previously made by the Inland Revenue (whether or not such change purports to be effective retrospectively in whole or in part) or if such claim would not have arisen but for any judgment of any court delivered after the date hereof; (b) to the extent that such Claim would not have arisen but for a change in the treatment of any assets or liabilities or of the Taxation attributable to timing differences in future accounts of the Company or but for any other change in the accounting basis upon which the Company prepares its future accounts; (c) to the extent that the amount thereof corresponds to an increase in the value of the assets of the Company or the Purchaser resulting from a reduction in its liability to Taxation except in so far as such increase is attributable to any decrease in rates of Taxation, or variation by the relevant taxing authority in the method of applying or calculating the rate of Taxation, made after Completion; (d) to the extent that such Claim would not have arisen but for an omission or a voluntary act of the Purchaser or the Company or transaction occurring after Completion outside the ordinary course and which the Purchaser or the Company (as the case may be) knew or ought reasonably to have known would give rise to a Claim; (e) to the extent to which the Taxation assessed on the Company would not have been so assessed had the Company not rendered itself by 17 virtue of some act or event occurring on or after Completion unable to setoff against the profits or gains so taxable any tax losses incurred by the Company prior to Completion; (f) to the extent that it is made on the basis that it appears that the Company is wholly or in part deprived or is sought to be deprived of any relief or allowance or credit or exemption or right to repayment of tax or suffers any depletion reduction or loss of any relief allowance credit exemption or right to repayment of tax provided however that if any such deprivation depletion reduction or loss results in the Company thereby suffering a liability to make a payment in respect of tax then the amount of such liability shall itself give rise to a tax claim. 7.3 The Vendors will not be liable in respect of any tax or warranty claim if and to the extent that the loss occasioning it has been recovered pursuant to any other tax or warranty claim. 8. RESTRICTIVE COVENANTS 8.1 In consideration for the Purchaser agreeing to buy the Shares each of the Vendors and the Guarantors (together "Covenantors") covenants that such Covenantor will not, without the prior written consent of the Purchaser, whether directly or indirectly and whether alone or in conjunction with, or on behalf of, any other person and whether as principal, shareholder, director, employee, agent, consultant, partner or otherwise: 8.1.1 for a period of 12 months immediately following Completion canvass, solicit or approach, or cause to be canvassed, solicited or approached, for orders any person who at any time during the 12 months immediately preceding the date of Completion is or was negotiating with any Group Member for the supply by any Group Member of goods or services or is or was a client or customer of any Group Member, where the orders relate to goods and/or services which are competitive with or of the type supplied by any such Group Member at any time during the 12 months immediately preceding the date of Completion; 8.1.2 for a period of 12 months immediately following Completion, deal or contract with any person who at any time during the 12 months immediately preceding the date of Completion is or was negotiating with any Group Member for the supply by any Group Member of goods or services or is or was a client or customer of any Group Member, where the dealing or contracting relates to 18 goods and/or services which are competitive with or of the type supplied by any such Group Member at any time during the 12 months immediately preceding the date of Completion; 8.1.3 for a period of 12 months immediately following Completion, interfere, or seek to interfere, with the continuance of supplies to any Group Member from any supplier who has been supplying goods and/or services to any Group Member at any time during the 12 months immediately preceding the date of Completion if such interference causes or would cause that supplier to cease supplying, or materially reduce its supply of, those goods and/or services to any such Group Member; 8.1.4 for a period of 12 months immediately following Completion, solicit or entice, or endeavour to solicit or entice, away from any Group Member, or employ, any person employed in a managerial, supervisory, technical, programming or sales capacity by, or who is or was a consultant to, any Group Member at Completion or at any time during the period of 12 months immediately preceding the date of Completion; 8.1.5 within the UK, Europe and North America for a period of 12 months immediately following Completion be engaged, concerned or interested in any business which supplies goods and/or services which are competitive with or of the type supplied by any Group Member; 8.1.6 at anytime immediately following Completion use in connection with any business which is competitive with the business of any Group Member any name (in whatever form) which includes the name of any Group Member or any trading style or get up which is confusingly similar to that used by any Group Member as at the date of Completion; or 8.1.7 at any time after Completion make use of, disclose or cause unauthorised disclosure to any person (except those authorised by the Purchaser in writing to know), any secret or confidential information relating to any Group Member which includes confidential or secret information relating to its trade secrets, know-how, ideas, business methods, finances, prices, business plans, marketing plans, development plans, manpower plans, sales targets, sales statistics, customer lists, customer relationships, computer systems or computer software. 19 8.2 The parties agree that each of the undertakings set out in this CLAUSE 8 is separate and severable and, if any of such undertakings or part of an undertaking is held to be against the public interest or unlawful, the remaining undertakings or part of the undertaking will continue in full force. 8.3 The undertakings set out in this CLAUSE 8 shall not apply to the extent that any of the Covenantors are working as an employee or consultant to any Group Company. 9. COMPLETION The sale and purchase of the Shares will be completed at the offices of the Purchasers' Solicitors immediately, when: 9.1 the Vendors will deliver to the Purchaser (or as it may otherwise agree): 9.1.1 duly executed transfers of the Shares in favour of the Purchaser (or as it will direct) together with all relevant share certificates; 9.1.2 transfers of all shares in any Group Member not held in the name of the Company or another Group Member duly executed in favour of the Purchaser (or as it will direct) together with all relevant share certificates; 9.1.3 the certificate of incorporation, any certificate(s) of incorporation on change of name, the common seal and the statutory books and registers (all entered up to date) of each Group Member; 9.1.4 all deeds and documents relating to the title of any Group Member to the Property; 9.1.5 all cheque books in current use of each Group Member; 9.1.6 bank statements in respect of each account of each Group Member as at the close of business on the last Business Day prior to Completion, together in each case with a reconciliation statement to show the position at Completion (listing unpresented cheques drawn or received by the relevant Group Member and standing orders payable since the date of such bank statements); 9.1.7 all licences, certificates or other documents previously specified by the Purchaser; 20 9.1.8 duly executed powers of attorney in the agreed terms; 9.1.9 duly executed deeds of waiver in the agreed terms executed by all the Vendors. 9.2 each Vendor will repay, and will procure that any spouse or child of such Vendor or any company of which such Vendor (and/or any such spouse or child) has control (as defined in section 840 Income and Corporation Taxes Act 1988) will repay, all amounts owed by him, her or it to any Group Member, whether due for payment or not; 9.3 the Vendors will procure that duly convened meetings are held at which: 9.3.1 the transfers referred to in CLAUSE 9.1 (subject to stamping) are approved for registration in the books of the relevant Group Member; 9.3.2 any persons nominated by the Purchaser (including for the avoidance of doubt Brian MacDonald) are appointed as additional directors and as secretary of specified Group Members; and 9.3.3 all existing instructions to the bankers of each Group Member are revoked and new instructions given to such bankers as the Purchaser may nominate, in such form as the Purchaser directs; 9.4 Archer Donald Maclean, Martin Derek Monnickendam, Vijay Kumar Chadha and Ajay Kumar Chadha will enter into service agreements with the Company in the agreed terms; 9.5 The Purchaser and the Vendors will enter into the Escrow Agreement; and 9.6 The Purchaser shall procure that Hassan Sadiq and Shabir Randeree are appointed to the board of the Purchaser. 9.7 Without prejudice to the provisions of the Escrow Agreement, the Purchaser shall not be obliged to allot or issue or release the Consideration Securities or the Earn-out Securities unless and until the following conditions have satisfied (or waived by the Purchaser) on or before the date falling 45 calendar days after the date of this Agreement: 9.7.1 the delivery to the Purchaser of the following documents in a form reasonably satisfactory to the Purchaser, (where applicable) duly executed by or on behalf of the Vendors and/or the Guarantors as the relevant documents may require:- (a) all of the original counterparts of this Agreement; 21 (b) the Disclosure Letter (including any annexures thereto) (for the avoidance of doubt, but without prejudice to the foregoing, the Disclosure Letter must not disclose any material matter or matters not previously brought to the Purchaser's attention at the date of this Agreement); (c) the Accounting Information; (d) the Escrow Agreement (provided that the Purchaser shall have provided to the Vendors' Solicitors a first draft of the same within 14 calendar days after the date of Completion); (e) a legal opinion in respect of each of the Vendors to the effect that the Vendor in respect of which the opinion is given has full power to enter into and perform this Agreement and this Agreement constitutes obligations binding on such Vendor in accordance with its terms; (f) certified copies of the executed Acquisition Agreements; (g) certified copies of all of the disclosure letters and agreed bundles referred to in the Acquisition Agreements; (h) certified copies of any and all releases and/or consents necessary to transfer the assets and/or shares transferred thereby; (i) certified copies of all of the ancillary and other documents referred to in the Acquisition Agreements; (j) certified copies of the service agreements referred to in CLAUSE 9.4; (k) certified copies of the all matters or documents required to be delivered pursuant to CLAUSE 9.1 which the Purchaser reasonably believes have not been dealt with; (l) certified copies of the declarations of existing business interests given to the Company by each of M D Monnickendam, V K Chadha and A K Chadha; (m) certified copies of the deed of indemnity entered into between the Company and Awesome Developments Limited; 22 (n) a certified copy of the Consultancy Agreement entered into between the Company and Montpelier (Search and Selection) Limited; (o) certified copies of the letters of indemnity relating to the I-Wish Agreement from M Monnickendam, A K Chadha and V K Chadha to the Company; (p) a certified copy of the supplemental agreement entered into between the I-Wish (Games) Limited and the Company relating to the I-Wish Agreement; (q) a certified copy of the termination agreement entered into between 3R Learning Limited, Awesome Developments Limited, A D Maclean, M D Monnickendam, V K Chadha and A K Chadha; (r) a certified copy of the letter of resignation from Katharine Alexandra Medinger to 3R Learning Limited; and (s) a certified copy of the letter of appointment of Brian J. MacDonald as non-executive director of the Company; (t) members' resolutions in the agreed terms. 9.8 Without prejudice to the provisions of the Escrow Agreement, the Purchaser shall not be obliged to allot or issue or release the Potters Securities unless and until the Purchaser is reasonably satisfied with the Finance Arrangement. 9.9 Without prejudice to the generality of CLAUSE 9.7, the Escrow Agreement shall cover, inter alia but without limitation, the following matters:- 9.9.1 the terms and conditions on which the Consideration Securities and the Earn-out Securities and the Potters Securities will be issued and released in accordance with the phasing proposals set out in the Letter of Intent; 9.9.2 the right for the Purchaser to set-off from the Consideration Securities and/or the Earn-out Securities any claims it may have under this Agreement; and 9.9.3 the right for the Purchaser to set-off from the Consideration Securities and/or the Earn-out Securities any taxation for which either the Purchaser or any Group Member is liable arising out of the allocation of those Securities, including without limitation any PAYE and National Insurance contributions payable in respect of Securities allotted to employees. 23 9.10 The Escrow Agreement shall be negotiated and agreed by the Purchaser and Hassan Sadiq who shall each use their reasonable endeavours to agree the form of the Escrow Agreement within the time limits referred to in CLAUSE 9.7. 9.11 In the event of the Purchaser failing to provide a draft of the Escrow Agreement within the timescale set out in CLAUSE 9.7.1 (D) above, or in the event of the Escrow Agreement not being executed by the Purchaser within the period set out in CLAUSE 9.7 above, then the Purchaser shall immediately upon the expiry of those timescales be obliged to allot the Consideration Securities and the Earn-out Securities in favour of the Vendors without restriction. Time shall be of the essence in connection with these requirements. 10. GUARANTEE 10.1 In consideration of the Purchaser entering into this Agreement each Guarantor irrevocably and unconditionally guarantees to the Purchaser the full and due performance by his Guaranteed Vendor of all its obligations under or arising out of this Agreement including, without limitation, any liability or obligation to pay damages or other compensation for any breach of any of the Warranties or to pay sums due under CLAUSE 6. 10.2 Each Guarantor: 10.2.1 agrees to indemnify and keep indemnified the Purchaser against all losses, claims, liabilities, costs and expenses (including legal costs) which may be incurred by the Purchaser by reason of any default on the part of his Guaranteed Vendor to pay, observe or perform any of the obligations referred to in CLAUSE 10.1 when due; and 10.2.2 undertakes that, in the event of any claim being made against that Guarantor, that Guarantor will not make any claim against any Group Member or any directors or employee of any Group Member on which or on whom his Guaranteed Vendor or that Guarantor may have relied before agreeing to any term of this Agreement or authorising any statement in the Disclosure Letter subject to the Purchaser having first taken all reasonable steps to recover the said monies from the relevant Guaranteed Vendor. 24 10.3 It is hereby agreed that any amendment to or variation of this Agreement or any granting of time or other indulgence to or compromise with or agreement not to sue any Vendor, any Guarantor or any other person or any other act, omission or circumstances which but for this CLAUSE 10.3 might operate to prejudice, affect or otherwise diminish the liability of any Guarantor will not release, prejudice, diminish or affect in any way the liabilities of any Guarantor or the remedies conferred on the Purchaser under this CLAUSE 10. 10.4 This CLAUSE 10 is for each Guarantor a continuing guarantee and will remain in force until all the liabilities and obligations referred to in CLAUSE 10.1 have been irrevocably paid and satisfied in full. 10.5 Without prejudice to the Purchaser's rights against the Vendors as principal debtor, each Guarantor agrees that any liabilities or obligations referred to in CLAUSE 10.1 which may not be recoverable on the footing of a guarantee or which are or become illegal, void, voidable, unenforceable, discharged by any insolvency or irrecoverable will nevertheless be recoverable from and enforceable against that Guarantor as sole or principal debtor and will be paid or performed by that Guarantor on demand. 10.6 In this clause reference to "his Guaranteed Vendor" means in respect of each Guarantor the Vendor listed against his or her name in PART II of SCHEDULE 1. 11. ANNOUNCEMENTS No announcement concerning the transactions contemplated by this Agreement will (save as required by law) be made by the Vendors except with the prior written approval of the Purchaser or by the Purchaser except with the prior written approval of any of the Vendors. For the avoidance of doubt, the Vendors hereby consent to the Purchaser making such announcement in respect of this Agreement as shall be required by SEC. 12. COSTS Each party to this Agreement will bear their own costs and expenses relating to this Agreement, except where otherwise expressly stated. 13. INTEREST If any Vendor becomes liable to pay any sum pursuant to this Agreement, whether by way of damages or otherwise, such Vendor will be liable to pay interest on such sum from the due date for payment at the annual 25 rate of 4 per cent above the base lending rate from time to time of Royal Bank of Scotland plc, accruing on a daily basis until payment is made, whether before or after any judgment. 14. NOTICES 14.1 Any demand, notice or other communication in connection with this Agreement will be in writing and will, if otherwise given or made in accordance with this CLAUSE 14, be deemed to have been duly given or made as follows: 14.1.1 if sent by prepaid first class post, on the second Business Day after the date of posting; or 14.1.2 if delivered by hand, upon delivery at the address provided for in this CLAUSE 14; or 14.1.3 if sent by facsimile, on the day of transmission provided that a confirmatory copy is, on the same Business Day that the facsimile is transmitted, sent by pre- paid first class post in the manner provided for in this CLAUSE 14, provided that, if it is delivered by hand or sent by facsimile on a day which is not a Business Day or after 4.00pm on a Business Day, it will instead be deemed given or made on the next Business Day. 14.2 Any such demand, notice or other communication will, in the case of service by post or delivery by hand, be addressed to the recipient at the recipient's address stated in this Agreement or such other address as may from time to time be notified in writing by the recipient to the sender as being the recipient's address for service and will, in the case of service by facsimile, be sent using a facsimile number then used by the recipient, provided that if given or made to any one of the Vendors (or his or her personal representatives) or to the Vendors' Solicitors, it will be treated as validly given or made to all of the Vendors. 15. ORDERLY MARKET The Vendors hereby undertake not to dispose of any of the Consideration Securities or the Earn-out Securities (without the prior written consent of the Purchaser) unless such disposal is executed through the Purchaser's brokers designated in writing by the Purchaser from time to time and in keeping with the rules of the SEC. 26 16. GENERAL 16.1 This Agreement will be binding on and enure for the benefit of each party's successors, assigns and personal representatives. 16.2 Except insofar as they have been fully performed at Completion, the provisions of this Agreement will continue in full force and effect notwithstanding Completion. 16.3 The parties will do anything which may be required on or after Completion to vest in the Purchaser legal and beneficial ownership of the Shares and otherwise to give effect to the terms of this Agreement. 16.4 Failure or delay by any party in exercising any right or remedy under this Agreement will not operate as a waiver of it. 16.5 Any waiver of any breach of this Agreement will not be deemed a waiver of any subsequent breach and will in no way affect the other terms of this Agreement. 16.6 The formation, existence, construction, performance, validity and all aspects whatsoever of this Agreement or of any term of this Agreement will be governed by English law. The English Courts will have jurisdiction to settle any disputes which may arise out of or in connection with this Agreement. The jurisdiction agreement contained in this CLAUSE 16.6 is made for the benefit of the Purchaser only, which accordingly retains the right to bring proceedings in any other court of competent jurisdiction. The parties agree to submit to the said jurisdiction. 16.7 The parties to this Agreement do not intend that any of its terms will be enforceable by virtue of the Contracts (Rights of Third Parties) Act 1999 by any person not a party to it. 27 SCHEDULE 1 PART I - THE VENDORS NUMBER AND CLASS OF SHARES TO BE SOLD NAME AND ADDRESS ORDINARY 2P SHARES (POUND)1 PREFERENCE SHARES Barnoose Ltd 126,316 136,184 Komori Ltd 378,947 322,158 Starpath Ltd 126,316 86,395 Garnoose Ltd 126,316 Nil Potters Limited 221,053 1,634,210 PART II - GUARANTORS NAME AND ADDRESS GUARANTEED VENDOR Martin Derek Monnickendam Barnoose Ltd Beech House 14 Weetwood Crescent Westwood Leeds LS16 5NS Vijay Kumar Chadha Komori Ltd 2 Overton Drive Wanstead London E11 2NJ Ajay Kumar Chadha Starpath Ltd 24 Bassett Wood Drive Bassett Southampton SO16 3PS Archer Donald Maclean Garnoose Ltd Stone End Chapel Close Litchborough Northamptonshire NN12 8HZ 28 SCHEDULE 2 DETAILS OF THE COMPANY Name of Company : Ignition Entertainment Limited Registered number : 4293817 Registered office : Hanover House, 22 Clarendon Road, Leeds LS2 9NZ Date of incorporation : 26 September 2001 Place of incorporation : England and Wales Status of Company : Private limited company Authorised share capital (pound)4,000,000 divided into 75,000,000 : shares of 2 pence each and 2,500,000 redeemable preference shares of (pound)1.00 each Issued share capital : (pound)19576.96 divided into 978,948 ordinary shares of 2 pence each and (pound)2,178,947 divided into 2,178,947 preference shares of (pound)1.00 each Directors' full names : Martin Derek Monnickerdam, Vijay Kumar Chadha, Ajay Kumar Chadha, Peter John Hamilton, Hassan Sadiq, Shabir Ahmed Randeree and Tariq Parvez Hussain Secretary's full name : Tariq Parvez Hussain Accounting reference date : 30 September Description of business : Development, publishing and distribution of computer games 29 DETAILS OF OTHER GROUP MEMBERS Name of Group Member : 3R Learning Limited Registered number : 4117514 Registered office : C/o Phipp & Co, 6 Nottingham Road, Long Eaton, Nottingham NG10 1HP Date of incorporation : 30 November 2000 Place of incorporation : England and Wales Status : private limited company Authorised share capital : (pound)100 divided into 100 ordinary shares of(pound)1 each Issued share capital : (pound)1 divided into 1 ordinary share of(pound)1 Beneficially owned by the : the whole of the issued share capital Company Registered shareholders : Name and address Number and class of shares held Ignition Entertainment 1 ordinary share Limited whose registered of (pound)1 office is at Hanover House, Clarendon Road, Leeds LS2 9NZ Directors' full names : Archer Donald Maclean Secretary's full name : Katharine Alexandra Medinger Accounting reference date : 30 November 30 Auditors : None Bankers : None Description of business : Ownership and exploitation of certain intellectual property in computer games, interactive entertainment and educational products 31 SCHEDULE 3 THE PROPERTY Short particulars of the Property (stating whether freehold or leasehold; in the case of leasehold, giving brief details of the lease and including short particulars of any tenancy or licence affecting the title) TITLE HOLDER USE Licence to occupy 168-172 Brooker offices Road, Waltham Abbey, Essex Proposed premises: The White House, Banbury (use: offices) 32 SCHEDULE 4 WARRANTIES 1. SCHEDULES 1 & 2; CAPITAL 1.1 The information contained in SCHEDULES 1 and 2 is true and complete in all respects. 1.2 The Shares and the shares shown in SCHEDULE 2 of the Group Members (other than the Company) are in issue fully paid and are beneficially owned and registered as set out in SCHEDULES 1 AND 2 free from any third party right. 1.3 No Contract has been entered into which requires or may require any Group Member to allot or issue any share or loan capital. 1.4 No Group Member has any interest in the share capital of any body corporate. 2. INFORMATION SUPPLIED TO THE PURCHASER 2.1 All information contained in any document or written communication supplied to the Purchaser or any of its advisers by or on behalf of the Vendors or a Group Member in the course of the negotiations leading to the execution of this Agreement is so far as the Vendors are aware true in all respects and is not misleading because of any omission or ambiguity save as amended in subsequent correspondence between those parties. 2.2 The Vendors are not aware of any fact or matter concerning any Group Member and/or its business and affairs which could reasonably have been expected to influence the decision of the Purchaser to enter into this Agreement. 3. FINANCE ARRANGEMENT The Company has entered into the Finance Arrangement. 4. THE ACQUISITIONS 4.1 Each of the Acquisition Agreements has been completed in accordance with its terms as supplied to the Purchaser or its advisers by the Vendors' Solicitors. 4.2 Each of the Vendors or the Sellers (as the case may be), as defined in the Acquisition Agreements, had full power to enter into and perform the Acquisition Agreement to which he or it is a party and the sell the business(es) and/or assets and/or shares agreed to be sold thereby, and 33 the Acquisition Agreements were duly authorised by all necessary acts of the Vendors or the Sellers (as the case may be) and constitute valid and binding obligations on the Vendors and the Sellers party to them in accordance with their terms. 4.3 Each of the Acquisitions was made for a fair value and was and is lawful. 4.4 The Company has no assets or liabilities other than those acquired or assumed pursuant to (a) the Acquisition Agreements, (b) the Finance Arrangement or (c) acquired or assumed in the ordinary course of trade since the date of the Acquisition Agreements. 4.5 Each Group Member has carried on its business and traded in the ordinary course since the date of completion of each of the Acquisition Agreements and did not trade prior to completion of the same. 5. INSOLVENCY In respect of each of the Group Members, the Vendors and the Guarantors, and also in respect of each of the Vendors and the Sellers (as defined in the Acquisition Agreements):- 5.1 no petition has been presented and no order has been made for its bankruptcy (in the case of an individual) or for its winding-up and no trustee in bankruptcy or administrative receiver, receiver and/or manager (as appropriate) has been appointed of the whole or any part of any of its property; 5.2 (in the case of a corporate entity) no administration order has been made appointing an administrator in respect of it and no petition has been presented for an administration order in respect of it; 5.3 (in the case of an individual) no interim order has been made and no voluntary arrangement has been approved under Part VIII Insolvency Act 1986 in respect of it; 5.4 (in the case of a corporate entity) no voluntary arrangement has been approved under Part I Insolvency Act 1986 and no compromise or arrangement has been sanctioned under section 425 of the Act in respect of it; 5.5 no distress, execution or other process which remains undischarged has been levied on any of its assets and it has not stopped the payment of its debts or (in the case of a corporate entity) received a written 34 demand pursuant to section 123(1)(a) Insolvency Act 1986 and it is not unable to pay its debts within the meaning of section 123 Insolvency Act 1986 nor could it be deemed to be unable to pay its debts within the meaning of section 123 Insolvency Act 1986; 5.6 (in the case of an individual) no receiver or interim receiver has been appointed over any part of its property; 5.7 (in the case of a corporate entity) no disqualification order has at any time been made pursuant to the provisions of the Company Directors Disqualification Act 1986 against any officer or employee of that entity or any person who is now such an officer or employee; 5.8 there are no facts known to any of the Vendors or the Guarantors which could give rise to any of the events or circumstances referred to in this PARAGRAPH 5. 35 SCHEDULE 5 ACCOUNTING INFORMATION - ------------------------------------------------------------------------------- GROUP MEMBER BUSINESS ACCOUNTING INFORMATION ACCOUNTING REFERENCE DATE - ------------------------------------------------------------------------------- The Company I Wish (Games) The profit and loss 19.07.2001 account for I-Wish (Games) Limited for the period from 21 June 2001 to 31 March 2002 and the balance sheet for that company as at 31 March 2002 copies of which are annexed to the Disclosure Letter Alternative Sources The profit and loss 21.06.2001 account for Alternative Sources Limited for the period from 19 July 2001 to 31 March 2002 and the balance sheet for that company as at 31 March 2002 copies of which are annexed to the Disclosure Letter. Archer Maclean None N/A 3R Learning None 30.11.2000 Limited 36 SIGNED by Martin Derek Monnickendam ) in the presence of: ) Witness signature: Name: Address: Occupation: SIGNED by Vijay Kumar Chadha ) in the presence of: ) Witness signature: Name: Address: Occupation: SIGNED by Ajay Kumar Chadha ) in the presence of: ) Witness signature: Name: Address: Occupation: SIGNED by Archer Donald Maclean ) in the presence of: ) Witness signature: Name: Address: Occupation: SIGNED by Vijay Kumar Chadha ) duly authorised to sign for ) and on behalf of ) BARNOOSE LTD ) in the presence of: ) Witness signature: Name: Address: Occupation: SIGNED by Vijay Kumar Chadha ) duly authorised to sign for ) and on behalf of ) KOMORI LTD ) in the presence of: ) Witness signature: Name: Address: Occupation: 37 SIGNED by Vijay Kumar Chadha ) duly authorised to sign for ) and on behalf of ) STARPATH LTD ) in the presence of: ) Witness signature: Name: Address: Occupation: SIGNED by Vijay Kumar Chadha ) duly authorised to sign for ) and on behalf of ) GARNOOSE LTD ) in the presence of: ) Witness signature: Name: Address: Occupation: SIGNED by Vijay Kumar Chadha ) duly authorised to sign for ) and on behalf of ) POTTERS LIMITED ) in the presence of: ) Witness signature: Name: Address: Occupation: SIGNED by Vijay Kumar Chadha ) duly authorised to sign for ) and on behalf of ) IVP TECHNOLOGY CORPORATION ) in the presence of: ) Witness signature: Name: Address: Occupation: 38 EX-10 5 mi132024.txt EXHIBIT 10.44 EXHIBIT 10.44 DATED 2002 (1) IGNITION ENTERTAINMENT LIMITED (2) MONTPELIER (SEARCH & SELECTION) LIMITED -------------------------------------------------------- CONSULTANCY AGREEMENT -------------------------------------------------------- BLACKS Solicitors Hanover House 22 Clarendon Road Leeds LS2 9NZ Re: DCA/HUS 128/2 Tel: 0113 2070000 Fax: 0113 242 1703 e-mail: dca @lawblacks.com THIS AGREEMENT is made the day of 2002 BETWEEN: (1) "the Company" : IGNITION ENTERTAINMENT LIMITED whose registered office is situated at Hanover House, 22 Clarendon Road, Leeds, LS2 9NZ. (2) "the Consultant" : MONTPELIER (SEARCH & SELECTION) LIMITED (Company No. 3976684) whose registered office is situated at 27 Montpelier Street, London, SW7 1HF WHEREAS: A. The Consultant has certain skills and abilities which may be useful to the Company from time to time B. The Consultant is willing to provide consultancy services to the Company as set out below via its nominated agents from time to time. IT IS AGREED as follows: 1. Consultancy Services -------------------- The Company engages the Consultant to provide consultancy services to the company relating to BUSINESS DEVELOPMENT AND FINANCIAL ADVICE and the Consultant agrees to provide such services upon the terms and conditions set out below 2. Duration -------- This Agreement shall commence on 1ST JUNE 2002 and shall continue until terminate by either party giving to the other not less than 3 months notice. 2 3. Consultant's Services --------------------- 3.1. The Consultant is retained on a non-exclusive basis to provide the independent advisory and consulting services hereinbefore referred to the Company via no less than 3 Representatives at any one time each week at such times and at such locations as the Company and the Consultant shall agree from time to time 3.2. The Consultant shall procure that the Representatives provide its services with all reasonable care and skill and to the best of its ability 4. Fees ---- 4.1. The Company shall pay to the Consultant an annual Consultancy Fee of (pound)179,850 payable in 12 monthly installments in arrears TOGETHER WITH A SIGNING ON FEE OF (pound)29,975. 4.2. All fees payable hereunder are exclusive of Valued Added Tax 5. Confidential Information ------------------------ 5.1. The Consultant agrees to treat as secret and confidential and not at any time for any reason to disclose or permit to be disclosed to any person or otherwise make use of or permit to be made use of any unpublished information relating to the Company's technology, know-how, products, business plans, finances or any information relating to a subsidiary, suppliers, customers or client of the Company where the information was received during the period of this Agreement 5.2. Upon termination of this Agreement for whatever reason the Consultant shall deliver up to the Company all working papers, 3 computer discs and tapes or other materials and copies provided to or prepared by him pursuant either to this Agreement or to any previous obligation 6. Status and Tax Liabilities -------------------------- The parties declare that it is their intention that the Consultant shall have the status of a self-employed adviser and shall not be entitled to any pension, bonus or other fringe benefit from the Company and it is agreed that the Consultant shall be responsible for all income tax liabilities and National Insurance or similar contributions in respect of its fees and the Consultant agrees to indemnify the Company against all demands for any income tax, penalties and interest made against it in respect of the Consultant's services hereunder and against its costs in dealing with such demands 7. Entire Agreement ---------------- This Agreement sets out the entire agreement of the parties and supersedes all prior agreements and understandings relating to its subject matter SIGNED on behalf ) of the Company ) SIGNED by the ) /S/ -------------------------------------- Consultant ) [/S/ D. J. GITTINS] -------------------------------------- /S/ DIRECTOR -------------------------------------- /S/ MONTPELIER SEARCH & SELECTION LTD. -------------------------------------- 4 -----END PRIVACY-ENHANCED MESSAGE-----