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