-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KQSYAIx02k4LYM8FctrQNpcvRuJutlqrdwX19J3huKNc7IcWR4mHsxO9xZt+PxjZ w/+kotUWSAMl8AIaOTbw0Q== 0000898432-03-000221.txt : 20030213 0000898432-03-000221.hdr.sgml : 20030213 20030213134441 ACCESSION NUMBER: 0000898432-03-000221 CONFORMED SUBMISSION TYPE: 10QSB/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20030213 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IVP TECHNOLOGY CORP CENTRAL INDEX KEY: 0001011601 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-30397 FILM NUMBER: 03558305 BUSINESS ADDRESS: STREET 1: 54 VILLAGE CENTRE STREET 2: MISSISSAUGA PLACE CITY: TORONTO ONTARIO M5E STATE: A6 ZIP: 0000 BUSINESS PHONE: 9053069343 MAIL ADDRESS: STREET 1: 54 VILLAGE CENTRE MISSISSAUGA PLACE STREET 2: ONTARIO CANADA 10QSB/A 1 ivptech_form10qsb-a.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 AMENDMENT NO. 1 TO FORM 10-QSB/A (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 Three Months and Six Months Ended June 30, 2002 and June 30, 2001 (Unaudited) Consolidated Statement of Cash Flows for the Six Months Ended June 30, 2002 and June 30, 2001 (Unaudited) Consolidated Statement of Changes in Stockholders' Equity (Deficiency) for the Period January 1, 2001 through June 30, 2002 (Unaudited) 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
June 30, 2002 December 31, 2001 (Unaudited) Audited) As Restated (As Restated -------------- --------------------- ASSETS CURRENT ASSETS 1,176,695 Cash $ $ 232 Accounts Receivable (Less Allowance for Doubtful Accounts of $43,970) 615,755 - Inventory 53,160 - Prepaid expenses 310,447 - -------------- ------------------ Total Current Assets 2,156,057 232 -------------- ------------------ 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 10,658,095 - 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 13,424,655 3,601,303 -------------- ------------------ TOTAL ASSETS $ 15,938,660 $ 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 Due to DcD Factors, PLC 309,211 - Common Stock to be Issued 4,394,746 - Convertible Preferred Stock to be Issued, Short-Term 4,779,662 - -------------- ------------------ Total Current Liabilities 14,012,300 4,334,680 -------------- ------------------ LONG-TERM LIABILITIES Convertible debenture 150,000 - Notes payable 312,650 129,020 Convertible Preferred Stock to be Issued, Long-Term 3,584,747 - -------------- ------------------ Total Long-Term Liabilities 4,047,397 129,020 -------------- ------------------ 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 - 50,000 Additional paid-in capital 14,428,249 13,314,354 Accumulated deficit (accumulated in development stage $12,883,106) (16,115,596) (13,935,272) Exchange Gain (Loss) 27,863 - Deferred equity line commitment fee, net (306,250) - Deferred compensation, net (220,000) (340,000) -------------- ------------------ Total Stockholders' Equity (Deficiency) $ (2,121,037) (862,165) -------------- ------------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) 15,938,660 $ 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, 2002 June 30, 2001 June 30, 2002 June 30, 2001 As Restated As Restated -------------------------------- ------------------------------- (Unaudited) (Unaudited) REVENUE Revenue $ 497,326 $ 27,060 $ 497,326 $ 54,120 Cost of sales: Product costs 378,581 378,581 Development costs 1,030 1,030 Distribution and other costs 3,105 3,105 -------------------------------- ------------------------------- Total cost of sales $ 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 of debt 96,334 - 96,334 - Interest income 938 - 938 - Interest expense (62,942) - (74,869) (76,000) -------------------------------- ------------------------------- TOTAL OTHER INCOME (EXPENSE) 34,330 - 22,403 (76,000) -------------------------------- ------------------------------- NET INCOME (LOSS) $ (1,498,026) $ 18,498 $ (2,256,326) $ (437,803) ================================ =============================== 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 As Restated ----------------- ----------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (2,256,326) $ (437,803) 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 76,000 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 1,165,545 - ----------------- ----------------- Net Cash Provided By Financing Activities 1,165,545 - ----------------- ----------------- NET INCREASE (DECREASE) IN CASH 1,176,463 (809) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 232 1,424 ----------------- ----------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,176,695 $ 615 ================= =================
See Accompanying Notes To Financial Statements 5
IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY) FOR THE PERIOD JANUARY 1, 2001 THROUGH JUNE 30, 2002 Additional Common Stock To Deferred Foreign Common Stock Paid-In Accumulated Be Issued Compensation Gain Shares Amount Capital Deficit Shares Amount and Services (Loss) Total ----------- ---------- ----------- ------------ ---------- -------- ------------- ---------------------- Balance, December 31, 2000 39,110,848 $ 39,111 $12,151,156 $(12,648,124) $ 1,000,000 $ 720,000 $(896,286) $ (634,143) Stock issued for services 9,512,000 9,512 883,488 - - - - 893,000 Stock issued 1,000,000 1,000 719,000 - (1,000,000) (720,000) - - Stock rescission (870,000) (870) (515,290) - - - - (516,160) Deferred cost recognized - - - - - - 556,286 556,286 Stock to be issued for services - - - - 1,000,000 50,000 - 50,000 Net loss, 2001 - - - (1,211,148) - - - (1,211,148) ----------- ---------- ----------- ------------- ----------- --------- ------------- ---------------------- Balance, December 31, 2001 48,752,848 $ 48,753 $ 13,238,354 $(13,859,272) $ 1,000,000 $ 50,000 (340,000) $ - (862,165) Stock issued for services 10,401,497 10,401 557,379 (1,000,000) (50,000) 517,780 Stock issued for Commitment Fees 3,132,000 3,132 346,868 (350,000) - Stock issued for debt 2,410,916 2,411 221,362 223,773 Exchange Gain (Loss) 27,863 27,863 Deferred Cost recognized 163,750 163,750 Beneficial conversion feature of convertible debt 64,286 64,286 Net loss for the period (2,256,326) (2,256,326) ----------- ---------- ----------- ----------------------- --------- -------------- ---------------------- Balance, June 30, 2002 64,697,261 $ 64,697 $ 14,428,249 $(16,115,596) $ - $ - $ (526,250) $27,863 (2,121,037) ============================================================================================================
6 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). On January 1, 2002, the Company began operations and emerged from the development stage. (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. The $200,000 was recorded as an expense in the 2000 financial statements. 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 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 wholly owned subsidiary Ignition Entertainment Limited. All significant inter-company transactions and balances have been eliminated. (E) FOREIGN CURRENCY TRANSACTIONS - --------------------------------- Assets and liabilities of foreign subsidiaries, whose functional currency is the local currency, are translated at year-end exchange rates. Nonmonetary assets and liabilities are remeasured into U.S. dollars at historical rates. Income and expense items are translated at the average rates of exchange prevailing during the year. The adjustment resulting from translating the financial statements of such foreign subsidiaries is reflected as a separate component of stockholder's equity. Foreign currency transaction gains or losses are reported in results 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. 7 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) ALLOWANCES FOR DOUBTFUL ACCOUNTS AND SALES RETURNS - ------------------------------------------------------ The Company makes judgments as to our ability to collect outstanding receivables and provide allowances for the portion of receivables when collection becomes doubtful. Provisions are made based upon a specific review of all significant outstanding invoices. For those invoices not specifically reviewed, provisions are provided at differing rates, based upon the age of the receivable. In determining these percentages, we analyze our historical collection experience and current economic trends. If the historical data we use to calculate the allowance provided for doubtful accounts does not reflect the future ability to collect outstanding receivables, additional provisions for doubtful accounts may be needed and the future results of operations could be materially affected. The Company also records a provision for estimated sales returns and allowances on product and service related sales in the same period as the related revenues are recorded. These estimates are based on historical sales returns, analysis of credit memo data and other known factors. If the historical data we use to calculate these estimates do not properly reflect future returns, then a change in the allowances would be made in the period in which such a determination is made and revenues in that period could be adversely affected. (J) INVENTORY - ------------- Inventories, which consist primarily of system components, parts and supplies and completed games and other video accessories, are stated at the lower of weighted average cost or market. The weighted average cost of inventories approximates the first-in, first-out ("FIFO") method. Management performs periodic assessments to determine the existence of obsolete, slow-moving and nonsalable inventories and records necessary provisions to reduce such inventories to net realizable value. (K) PLANT, PROPERTY AND EQUIPMENT - --------------------------------- Plant, property and equipment are stated at cost. Depreciation and amortization are provided on the straight-line method over the shorter of the estimated useful lives of the assets or the applicable lease term for leasehold improvements ranging from 3 to 10 years . Maintenance and repairs are charged to expense when incurred; betterments are capitalized. Upon retirement or sale, the cost and accumulated depreciation are removed from the accounts and any gain or loss is recognized currently. (L) LONG-LIVED ASSETS - --------------------- Long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If such review indicates that the asset is impaired, when the carrying amount of an asset exceeds the sum of its expected future cash flows, on an undiscounted basis, the asset's carrying amount is written down to fair value. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less cost to sell. The Company has not recognized any impairment loss during the six months ended June 30, 2002. 8 IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2002 (M) EXCESS OF COST OVER NET ASSETS ACQUIRED - ------------------------------------------- In accordance with SFAS No. 141, the Company allocates the purchase price of its acquisitions to the tangible assets, liabilities and intangible assets acquired based on their estimated fair values. The excess purchase price over those fair values is recorded as "Excess of Cost Over Net Assets Acquired." The fair value assigned to intangible assets acquired is based on valuations prepared by independent third party appraisal firms using estimates and assumptions provided by management. In accordance with SFAS No. 142, goodwill and purchased intangibles with indefinite lives acquired after June 30, 2001 are not amortized but will be reviewed periodically for impairment. Purchased intangibles with finite lives will be amortized on a straight-line basis over their respective useful lives. (N) 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. (O) 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. (P) 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. (Q) BUSINESS SEGMENTS - --------------------- The Company applies Statement of Financial Accounting Standards No. 131 "Disclosures about Segments of an Enterprise and Related Information". The Company operates in one segment and therefore segment information is not presented. Management has determined that it is not practicable to provide geographic segment disclosures for revenues and long-lived assets because the Company sells its products to a large variety of locations in the Americas and Europe, and in many instances, these products are then resold through distributors. (R) REVENUE RECOGNITION - ----------------------- Risk and Uncertainties A significant portion of all of the Company's net sales are derived from software publishing and distribution activities, which are subject to increasing competition, rapid technological change and evolving consumer preferences, often resulting in the frequent introduction of new products and short product lifecycles. Accordingly, the Company's profitability and growth prospects depend upon its ability to continually acquire, develop and market new, commercially successful software products and obtain adequate financing. If the Company is unable to continue to acquire, develop and market commercially successful software products, its operating results and financial condition could be materially adversely affected in the near future. 9 IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2002 The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reported periods. The most significant estimates and assumptions relate to the recoverability of prepaid royalties, capitalized software development costs and other intangibles, realization of deferred income taxes, valuation of inventories and the adequacy of allowances for returns, price protection and doubtful accounts. Actual amounts could differ significantly from these estimates. REVENUE RECOGNITION - ------------------- Publishing revenue is derived from the sale of internally developed interactive software titles or from the sale of titles licensed from third-party developers. Publishing revenue amounted to $100,000 and $0 for the three months ended June 30, 2002 and 2001, respectively, and $100,000 and $0 for the six months ended June 30, 2002 and 2001, respectively. Distribution revenue is derived from the sale of third-party interactive software titles, accessories and hardware. Distribution revenue amounted to $397,326 and $0 for the three months ended June 30, 2002 and 2001, respectively and $397,326 and $0 for the six months ended June 30, 2002 and 2001, respectively. Revenue from services and commercial software sold under license were $0 and $27,060 for the three months ended June 30, 2002 and 2001 respectively, and $0 and $54,120 for the six months ended June 30, 2002 and 2001, respectively. The Company recognizes revenue in accordance with Statement of Position ("SOP") 97-2 "Software Revenue Recognition", as amended by SOP 98-9 "Modification of SOP 97-2 Software Revenue Recognition with respect to Certain Transactions." SOP 97-2 provides guidance on applying generally accepted accounting principles in recognizing revenue on software transactions. SOP 98-9 deals with the determination of vendor specific objective evidence of fair value in multiple element arrangements, such as maintenance agreements sold in conjunction with software packages. The Company's consumer software transactions generally include only one element, the interactive software game or commercial software under license. The Company recognizes revenue when the price is fixed and determinable, there is persuasive evidence of an arrangement, the fulfillment of its obligations under any such arrangement and determination that collection is probable. Accordingly, revenue is recognized when title and all risks of loss are transferred to the customer, which is generally upon receipt by customer. The Company's payment arrangements with its customers provide primarily 60 day terms and to a limited extent with certain customers 30 or 90 day terms. The Company does not have any multi-element arrangements that would require it to establish VSOE for each element, nor does the Company have any sales activity that requires the contract method of accounting. The Company's distribution arrangements with customers generally do not give customers the right to return products; however, the Company at its discretion may accept product returns for stock balancing or defective products. In addition, the Company sometimes negotiates accommodations to customers, including price discounts, credits and product returns, when demand for specific products falls below expectations. The Company's publishing arrangements generally do not require the Company to accept product returns and provide price protection. The Company establishes a reserve for future returns and other allowances based primarily on its return policies, price protection policies and historical return rates. The Company may not have a reliable basis to estimate returns and price protection for certain customers or it may be unable to determine that collection of the receivable is probable. In such circumstances, the Company defers the revenues at the time of the sale and recognizes them when collection of the related receivable becomes probable or cash is received. (S) NEW ACCOUNTING PRONOUNCEMENTS - --------------------------------- 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 10 IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2002 June 15, 2002, with earlier application encouraged. In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", which is applicable to financial statements issued for fiscal years beginning after December 15, 2001. The FASB's new rules on asset impairment supercede SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", and portions of Accounting Principles Board (APB) Opinion No 30, " Reporting the Results of Operations". SFAF No. 144 provides a single accounting model for long-lived assets to be disposed of and significantly changes the criteria that would have to be met to classify an asset as held-for sale. Classification as held-for sale is an important distinction since such assets are not depreciated and are stated at the lower of fair value or carrying amount. SFAS No. 144 also requires expected future operating losses from discontinued operations to be displayed in the period in which the losses are incurred, rather than as of the measurement date as presently required. In April 2002, the FASB issued SFAS No 145, "Rescission of FASB Statements No. 4, 44 and 62, Amendment of FASB No 13, and Technical Corrections", which is generally applicable to financial statements for fiscal years beginning after May 15, 2002; however, early adoption is encouraged. SFAS 145 eliminates the requirement under FASB No. 4, "Reporting Gains and Losses from Extinquishment of Debt" to report gains and losses from extinguishments of debt as extraordinary items in the income statement. The adoption of these pronouncements will not have a material effect on the Company's financial position or results of operations. (T) Restatement of Consolidated Financial Statements Resulting from a - -------------------------------------------------------------------------------- Reclassification ---------------- The accompanying consolidated balance sheet as of June 30, 2002 has been restated to reclassify stock to be issued from the equity section of the balance sheet to the liability section of the balance sheet, to revalue the acquisition of Ignition Entertainment Limited based on the provisions of SFAS 141 and to reclassify Amounts Due DcD Factors as a current liability which was previously netted against cash. The restatements resulted from the Company recording the effects of the acquisition of Ignition Entertainment Limited based upon a reasonable period (3 trading days) before and after the date of the acquisition, as common stock to be issued in the equity section of the balance sheet and for the DcD Factors liability. The effect of the restatements was to increase Excess of Cost Over Net Assets Acquired by $5,105,646, current liabilities by $9,483,619 and long-term liabilities by $3,584,747 as a result of the revaluation of the purchase price of Ignition Entertainment Limited and the reclassifications of amounts from stockholders' equity to liabilities and the DcD Factors liability. The effect of the restatement was to also decrease stockholders' equity by $7,653,509. Also see Notes 4 and 6. Excess of Cost Over Net Assets Acquired, current and long-term liability, and common stock to be issued accounts in the June 30, 2002 consolidated balance sheet has been restated for the effects of the revaluation and reclassifications. There were no adjustments made to the accompanying consolidated statement of operations for the six months ended June 30, 2002 and 2001 as a result of the restatements. NOTE 2 ACCOUNTS RECEIVABLE The components of accounts receivable are as follows: 2002 2001 Unrestricted Trade Receivables $133,970 Restricted Trade Receivables 525,755 Allowance for Doubtful Accounts (43,970) AccountsReceivable, Net $615,755 None 11 IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2002 Restricted trade receivables are collateral for the DcD Factors secured borrowing facility that Ignition entered into in April 2002. Unrestricted trade receivables consists primary of vendor receivables for enterprise software and information technology services sold by the Company. NOTE 3 NOTES PAYABLE (A) NOTES PAYABLE - SHORT-TERM - ------------------------------ The Company had 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 bore 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 was 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. See Note 7. 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. As of June 30, 2002, the common stock has not been issued and is recorded as a current liability on the balance sheet under "Common Stock to be Issued". DcD FACTORING AGREEMENT - ----------------------- On April 9, 2002, Ignition Entertainment Limited entered into a one-year factoring agreement with DcD Factors, Plc wherein Ignition Entertainment Limited has agreed to borrow and DcD Factors, Plc has agreed to loan, on a fully secured basis, up to (pound)500,000 to Ignition Entertainment Limited based on 75% of its eligible accounts receivables. Interest charged on amounts borrowed is equal to 3% above the UK Base Bank rate. Under the terms of the factoring loan agreement, DcD Factors, Plc is obligated to remit, from time to time, excess collections to Ignition Entertainment Limited to the extent that collections on secured receivables exceed the sum of (i) advances made by DcD Factors, Plc, (ii) interest and service charges on funds advanced, (iii) monthly services fees and (iv) customer discounts. Ignition Entertainment Limited has granted DcD Factors, Plc a first lien and security interest in all of Ignition Entertainment Limited's assets, including its accounts receivable, inventories and intangible assets. In accordance with the provisions of SFAS 140, the Company has treated this Factoring Facility as a secured borrowing by Ignition Entertainment Limited and not as a sale of accounts receivable because the Company maintains effective control over the receivables transferred. As of June 30, 2002, Ignition Entertainment Limited has borrowed $309,211 from DcD Factors, Plc which is reported as a currently liability in the June 30, 2002 balance sheet as " Due To DcD Factors". (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 balance due on this note was $129,020. The note is collateralized by 2,500,000 shares of common stock held in the name of Clarino Investment International, Ltd., an unrelated party. Accrued interest of $6,179 is due Berra Holdings, Ltd. as of June 30, 2002. 12 IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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 to Cornell Capital Partners, LP. 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. Future maturities of long-term debt as of June 30, 2002 are as follows: YEAR AMOUNT ---- ------ 2003 $ 3,494,889 2004 0 2005 312,650 --------- Total $ 3,807,539 ========= 13 IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2002 LINE OF CREDIT FACILITY ----------------------- On April 10, 2002 Ignition Entertainment Limited entered into a (pound)1,000,000 revolving credit facility with Revelate Limited for the purpose of allowing Ignition Entertainment Limited to purchase goods and services from third party vendors. Under the terms of the revolving credit facility, Revelate will advance up to 60% of the purchase price of goods and services purchased by Ignition Entertainment Limited for its business. Ignition Entertainment Limited is obligated to pay Revelate Limited interest on each advance at a rate equal to 3% over the UK Bank Base rate, a 2% commission of total disbursements made on behalf of Ignition Entertainment Limited and a facility fee of (pound)500. Ignition Entertainment Limited's obligation to repay an advance is guaranteed by DcD Factors, Plc As of June 30, 2002, the Company has not borrowed any funds under the Revolving Credit Facility. NOTE 4 STOCKHOLDERS' EQUITY (DEFICIENCY) 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 grant. 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 grant. 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 grant. 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 grant. 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. 14 IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2002 On April 26, 2002 and June 28, 2002, the Company issued 3,032,000 shares of restricted common stock to Cornell Capital Partners, LP, having a value of $330,000 as a one-time commitment fee (See Note 5(F)). On April 26, 2002 and August 6, 2002, the Company issued 1,040,000 shares of restricted common stock to Danson Partners, LLC, having a value of $125,000 for financial consulting services rendered. The Company has accrued $50,000 of common stock to be issued for consulting services rendered which has been included in common stock to be issued on the accompanying consolidated balance sheet as of June 30, 2002. (See Note 5(F)). 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 Entertainment Limited over a period of two years from the date of the acquisition. Additionally, the management team of Ignition Entertainment Limited 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 (See Note 6). 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 that the Company entered into the agreement. (See Note 5(D)). 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 Limited. IVP Technology issued these shares on or about August 6, 2002. As of June 30, 2002, the Company recorded the liability to issue the shares as common stock. 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 (See Note 3(A)). 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. On June 28, 2002, the Company issued 100,000 shares of restricted common stock to Westrock Advisors having a value of $20,000 for placement agent fees. On August 6, 2002, the Company issued 560 shares of restricted common stock to Brian MacDonald having a value of $73 for the acquisition of Springboard Technology. On August 6, 2002, the Company issued 560 shares of restricted common stock to Peter Hamilton having a value of $ 73 for the acquisition of Springboard Technology. On August 6, 2002, the Company issued 560 shares of restricted common stock to Kevin Birch having a value of $73 for the acquisition of Springboard Technology. On August 6, 2002, the Company issued 160 shares of restricted common stock to Geno Villella having a value of $21 for the acquisition of Springboard Technology. On August 6, 2002, the Company issued 160 shares of restricted common stock to Sherry Bullock having a value of $ 21 for the acquisition of Springboard Technology. 15 IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2002 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 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 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%. 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. As of June 30, 2002, the shares have not been issued . The Company is currently in negotiation with the Licensor to determine whether the shares are legally issuable. (B) CONSULTING AGREEMENTS - ------------------------- 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. The Company is currently contesting the issuance of the additional shares. The Company has not accrued an estimated loss for this contingency because, in accordance with the provisions of SFAS 5, it is not probable at the time that the financial statements were issued that 16 IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2002 a liability had been incurred and that the amount of loss can be reasonably estimated. (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. 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. On September 30, 2002, the Company renegotiated the terms of the License Agreement whereby the Licensor agreed to extinguish the remaining amount due under the agreement, or $2,906,656 in exchange for a change in the rights to market and distribute the Classifier software product. (D) MARKETING AGREEMENT - ----------------------- On January 18, 2002, the Company entered into a one- year marketing agreement with Ms. Vanessa Land to provide product marketing and advisory services to the Company in the European Economic Community and North America territories. . The Company issued 5,000,000 shares to the consultant on March 25, 2002 which were registered in a Form S-8 filed on May 3, 2002. The shares were valued at $.05 per share corresponding to the date that the Company entered into the agreement with Ms Land. The Company accounted for the cost of the marketing agreement by recording an expense for the entire cost in the amount of $250,000 in accordance with the provisions of SFAS 123 "Accounting for Stock-Based Compensation". Such expense is included in Consulting Fees in the Consolidated Statement of Operations. (E) STOCK PURCHASE/MANAGEMENT AGREEMENT - --------------------------------------- On September 17, 2001, the Company entered into a stock purchase/management agreement to acquire 100% of the outstanding stock of International Technology Marketing, Inc. ("ITM"). In connection with the agreement, the Company is to issue 50,000,000 shares to the former shareholders, which will be held in escrow subject to the Company reaching certain sales milestones. The agreement calls for the Company to compensate the former shareholders of ITM in their efforts to meet the sales milestones. The revenue milestones to be 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. >> 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. The former shareholders of ITM include the Company's current management group. The Company has not recorded any amounts associated with the acquisition of ITM, which had minimal assets and/or liabilities on the date of acquisition. For accounting purposes, the Company has not treated the acquisition as an acquisition under the principles of APB 16, but has instead treated the acquisition as an assumption of contingent management contracts for services to be rendered by the former ITM shareholders to the Company. 17 IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2002 The contingent shares will be issued and released out of escrow to the former principal owners of ITM upon the attainment of certain performance goals as described above. In return, the former principal owners will perform management and marketing services to the Company. Upon attainment of each performance milestone, the Company will record the issuance of stock as compensation expense in the period earned based on current market prices as of the date of grant. (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 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 $330,000, 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 $0.20 per share, or an aggregate of $20,000, 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 Entertainment Limited. Under the terms of the agreement, Ignition Entertainment Limited is obligated to pay Montpelier annually (pound)179,850 ($262,970) in equal monthly installments. Additionally, Montpelier was entitled to receive a signing bonus of (pound)29,975 ($43,828) upon execution of the agreement. The cost of this agreement will be borne by Ignition Entertainment Limited and Montpelier will be paid out of Ignition Entertainment Limited's operating cash flow. 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. The Company accounted for this acquisition using the purchase method of accounting in accordance with the provisions of SFAS 141.This acquisition is the Company's first step in expanding the Company's business from only an enterprise software distributor to a developer, publisher and licensor of consumer software entertainment and video games. 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 collectively valued at $.23898 per share for a total purchase price of $11,949,155. Based on the provisions of SFAS 141, the purchase price was determined by using the weighted average share price of the Company's common stock for the 3 trading days before and after the day the Company entered into the terms of the acquisition agreement. 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 Entertainment Limited acquisition (the "Incentive Stock") DcD Holdings Limited 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 Entertainment Limited. The Ignition Entertainment Limited 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 18 IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2002 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 Company acquired net tangible assets of $1,291,059. The excess of the consideration given over the fair value of net assets acquired has been recorded as goodwill of $10,658,096. The Company will account for the purchased goodwill in accordance with the provisions of SFAS 142. The non-incentive common and preferred stock that the Company is obligated to issue for the purchase of Ignition Entertainment Limited's net assets is recorded in the liability section of the balance sheet. The liability associated with any Incentive Stock issuable in conjunction with this acquisition based on the achievement of certain revenue and net income results over a two-year period will be recorded as additional goodwill as payout thresholds are achieved. The purchase price allocation recorded for the acquisition of the assets and liabilities of Ignition Entertainment Limited, approximate the following: Cash $ 1,132,039 Accounts receivables, net 775,457 Inventory 56,689 Fixed assets, net 350,461 Prepaid expenses and other assets 173,769 ----------------- Total assets 2,488,415 ----------------- Liabilities assumed: Accounts payable & accrued expenses 384,152 Income taxes payable 83,002 Other liabilities 730,202 ----------------- Total liabilities assumed 1,197,356 ----------------- Excess of assets acquired over liabilities assumed 1,291,059 Purchase price 11,949,155 ----------------- Goodwill $ 10,658,096 -------- ================= The 3,500,000 Convertible Preferred Shares, which are convertible into 35,000,000 shares of common stock is issuable to the Ignition shareholders as follows; 1,000,000 convertible preferred shares to be issued on or before May 28, 2003, with additional issuances on or before November 28, 2003 (1,000,000 shares), May 28, 2004 (1,000,000 shares) and May 29, 2004 (500,000 shares). Because the convertibility of the preferred stock into 35 million common shares is contingent on the Company's shareholders ratifying the approval of an increase in the amount of common stock that the Company is authorized to issue, the Company has recorded the future issuance of the convertible preferred stock as a current and long-term liability on its balance sheet and not as a component of stockholders equity. The beneficial conversion feature of the Convertible Preferred Stock will also result in the Company incurring interest expense at the time that the shares are converted into common stock. The 15,000,000 shares of common stock that the Company has agreed to issue as part of the consideration for the acquisition have not yet been issued. The escrow agreement states that these shares are issuable 91 to 180 days after the acquisition. As a result of this, the Company has recorded the future issuance of this common stock as a current liability on its balance sheet. 19 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 Entertainment Limited 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 following unaudited pro forma consolidated balance sheet is presented as if the acquisition of Ignition Entertainment Limited had been made at the beginning of the calendar year ended December 31, 2001: Consolidated Balance Sheet Data Assets: Cash $1,132,271 Accounts Receivable, Net 775,457 Inventory 56,689 ---------- Current Assets 1,964,417 ---------- Fixed Assets, Net 350,461 Prepaid Expenses and Other Assets 174,642 Deferred Licensing Fee, Net 3,600,431 Excess of Cost Over Net Assets Acquired 10,658,095 ---------- Total Assets $16,748,046 =========== Liabilities: Accounts Payable and Accrued Expenses 863,723 License Agreement 3,620,268 Note and Interest Payable 234,841 Common Stock to be Issued 3,584,747 Convertible Preferred Stock to be Issued, Short-Term 4,779,662 ---------- Current Liabilities 13,083,241 ---------- Other Liabilities 942,224 Convertible Preferred Stock to be Issued, Long-Term 3,584,747 ---------- Total Liabilities 17,610,212 Stockholders' Deficiency (862,165) ---------- Total Liabilities and Stockholders' Deficiency $16,748,046 =========== 20 IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2002 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 PRIOR PERIOD ADJUSTMENTS The Company entered into a convertible promissory note (the "Note") with Rainbow Investments International Limited ("RII") for a principal sum of $200,000. The Company borrowed the money to meet certain operating expenses. The Note bears interest at 10% per annum and was due May 14, 2001. The debt and accrued interest is convertible to common stock at a conversion price equal to 80% of the average closing bid price per common 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. The note was converted and the shares were issued on June 28 2002. In connection with the Note, the Company issued warrants to purchase up to 100,000 shares of common stock at an exercise price equal to 80% of the average closing bid price per share of common stock during the ten trading days immediately prior to any such per exercise share at any time to and through May 15, 2001. Using the Black-Scholes model, the warrants have an estimated value of $30,000, using the following assumptions: no annual dividend, volatility of 53.1%, risk-free interest rate of 6.33% and a term of one year. The Company did not account for the value of the beneficial conversion feature and warrants upon issuance of the Note in accordance with EITF 98-5 "Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios" and APB 14 "Accounting for Convertible Debt and Debt Issue with Stock Purchase Warrants". The Company believed that the effect of EITF 98-5 and APB 14 does not affect the trend in earnings or the results of the Company's operations and will restate the comparative prior periods presented in the June 30, 2002 condensed consolidated statements of operations to reflect additional interest expense for the full value of the warrants and beneficial conversion feature. The value ascribed to the beneficial conversion feature totaled approximately $46,000, which was based upon 80% of the average closing bid price per common share during the ten trading days prior to January 1, 2001. The total effect of the restatement was to increase interest expense and additional paid-in capital by approximately $76,000 for the year ended December 31, 2001, increasing the net loss to $1,287,148. The interest expense and additional paid-in capital accounts in the comparative prior periods balance sheet, statement of operations, statement of changes in stockholders' equity and statement of cash flows have been restated for the effects of the adjustments resulting from the correction of an error. NOTE 8 GOING CONCERN As reflected in the accompanying financial statements, the Company's net loss of $2,256,326, net cash used in operations of $1,216,556 and its working capital deficiency of $11,856,243 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, has raised equity capital and has expanded its business operationS. 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 9 SUBSEQUENT EVENTS 21 IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2002 ACQUISITIONS OF SPRINGBOARD TECHNOLOGY SOLUTIONS, INC. ------------------------------------------------------ On July 1, 2002, IVP Technology acquired all the outstanding shares of Springboard Technology Solutions, Inc. ("Springboard") for consideration of 2,000 common shares on the basis of a one for one exchange. The value of the common stock issued was $260 or $.13 per share based on the value of the Company's common stock on the date that the Board approved the transaction. Springboard was owned by the former shareholders of International Technology Marketing Inc., including Brian MacDonald, Peter Hamilton, Kevin Birch, Geno Villella and Sherry Bullock all of whom were officers of the Company at the time of acquisition. Springboard 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 had 10 full time employees and consultants. The acquisition will enable the Company to expand its enterprise software business and complements its existing enterprise software products. It also provides the Company with additional employees dedicated to the marketing and selling of the enterprise line of software products. This acquisition will be accounted for by the purchase method of accounting in accordance with the provisions of SFAS 141. As a result of the Springboard acquisition, the Company will record goodwill in the amount of approximately $367,477. The Company will account for the purchased goodwill in accordance with the provisions of SFAS 142. The Company's acquisition of Springboard is not considered a "significant" or material event because Springboard's net assets and results of operations are less than 10% of the Company's consolidated balance sheet and results of operations. REVALUATION OF GOODWILL ----------------------- The Company has evaluated goodwill for impairment as of December 31, 2002. As a result of this review, the Company has determined that goodwill in the amount of $10,658,096 recorded in connection with the acquisition of Ignition Entertainment Limited is fully impaired. This charge will be included in operating expenses on the accompanying financial statements for the year ended December 31, 2002. The Company's assessment of its goodwill is based on undiscounted future cash flows and the uncertainty of obtaining financing to fund the conversion of acquired intellectual property into saleable products. 22 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. 23 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. 24 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
AFTER THE AFTER THE PRECEDING BETWEEN PRECEDING TIME PERIOD AFTER THE WITHIN 91 AND 180 TIME PERIOD AND SIX PRECEDING 90 DAYS OF DAYS AFTER TO MONTHS TO TIME AND ON TIME PERIOD: CLOSING MAY 28, 2002 MAY 28, 2003 MAY 28, 2003 MAY 28, 2004 MAY 29, 2004 - ----------------------------------- ---------- ------------ ------------ ------------ ------------ ------------ GOALS: -- -- -- $13,000,000 $26,000,000 $45,000,000 Gross Revenues (in U.S. Dollars) Net Income (in U.S. Dollars) -- -- -- $1,000,000 $5,000,000 $15,000,000 PAYMENTS: -- 5,000,000 -- if reach both if reach if reach Incentive Payments of IVP common to DCD above goals both above both above and preferred shares Holdings 500,000 goals goals shares of 500,000 500,000 convertible shares of shares of preferred convertible convertible stock preferred preferred stock stock Release of 50 Million Shares of IVP -- 15,000,000 1,000,000 1,000,000 1,000,000 500,000 common stock (upon conversion of shares of shares of shares of shares of shares of all preferred stock issued) common stock preferred preferred preferred preferred stock stock stock stock (convertible (convertible (convertible (convertible to 10,000,000 to 10,000,000 to 10,000,000 to 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. STOCK PURCHASE/MANAGEMENT AGREEMENT On September 17, 2001, the Company entered into a stock purchase/management agreement to acquire 100% of the outstanding stock of International Technology Marketing, Inc. ("ITM"). In connection with the agreement, the Company is to issue 50,000,000 shares to the former shareholders, which will be held in escrow subject to the Company reaching certain sales milestones. The agreement calls for the Company to compensate the former shareholders of ITM in their efforts to meet the sales milestones. The revenue milestones to be 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. >> Upon achieving $2,000,000 in cumulative revenues the escrow agent will release another 10,000,000 shares. 25 >> 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. The former shareholders of ITM include the Company's current management group. The Company has not recorded any amounts associated with the acquisition of ITM, which had minimal assets and/or liabilities on the date of acquisition. For accounting purposes, the Company has not treated the acquisition as an acquisition under the principles of APB 16, but has instead treated the acquisition as an assumption of contingent management contracts for services to be rendered by the former ITM shareholders to the Company. The contingent shares will be issued and released out of escrow to the former principal owners of ITM upon the attainment of certain performance goals as described above. In return, the former principal owners will perform management and marketing services to the Company. Upon attainment of each performance milestone, the Company will record the issuance of stock as compensation expense in the period earned based on current market prices as of the date of grant. 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 The following discussion should be read in conjunction with our financial statements and the related notes and the other financial information appearing elsewhere in this report. GOING CONCERN As reflected in IVP Technology's unaudited financial statements for the six months ended June 30, 2002, IVP Technology's accumulated deficit of $16,115,596, and its working capital deficiency of $11,856,243 raise substantial doubt about its ability to continue as a going concern. The ability of IVP Technology to continue as a going concern is dependent on IVP Technology's ability to raise additional short term and long debt and equity funds and implement its business plan. The financial statements do not include any adjustments that might be necessary if IVP Technology is unable to continue as a going concern. IVP Technology has entered into various software distribution and licensing agreements, has acquired an operating business and intends on raising additional term debt and equity capital in order to expand its business operations. Management believes that actions presently being taken to obtain additional funding and to operate and expand its existing business operations provide the opportunity for IVP Technology to continue as a going concern. IVP is constantly on the look out for product and company acquisitions that will add accretive revenue and earnings to the company. The company may acquire these products and company acquisitions in a combination of debt and share issuances. 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, all of which were generated by our wholly-owned subsidiary, Ignition Entertainment Limited but which have been sold by our US operation and by our UK operation. Ignition Entertainment was formed in December 2001 and commenced operations in April 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. All revenue for the comparative period ended June 30, 2001 in the amount of $27,060 was from sales of the PowerAudit software program. We generated no revenue from other sources. All sales of PowerAudit were realized prior to the June 13, 2002 termination date. COST OF REVENUE. Cost of revenue was $382,716 for the three months ended June 30, 2002. Cost of revenue related to the sale of video games by Ignition Entertainment. IVP Technology had no cost of revenue in the comparable period in the prior year. 26 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. The increase in consulting and professional fees for the three-months ended June 30, 2002 as compared to June 30, 2001 is attributable to the expensing of $250,000 of product marketing consulting costs, $43,575 of consulting fees incurred by Ignition under the Montpelier agreement, an increase in legal and accounting costs of $94,586 and $75,000 of legal fees incurred for the Cornell Capital Partners financing transaction that the Company currently expensed. Financial advisory fees increased by $150,000 from the comparative three-month period ended June 30, 2001 due to the Cornell Capital Partners financing transaction. Our infrastructure expenses increased due to the additional costs associated with the Company's new management team and the formation of an active business These costs included rent, and other office operating costs such as utilities, equipment leasing costs and other office expenses. Other general and administrative costs increased by $107,532 from the comparative three-month period ended June 30, 2001 and relate principally to the Ignition operations. 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 of principally from the beneficial 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, as compared to net income of $18,498 for the three months ended June 30, 2001. 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, all of which was generated from our wholly-owned subsidiary, Ignition Entertainment Limited. Ignition Entertainment was formed in December 2001 and commenced operations in April 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. .. All revenue for the six-month comparative period ended June 30, 2001 in the amount of $54,120 was from sales of the PowerAudit software program. We generated no revenue from other sources. COST OF REVENUE. Cost of revenue was $382,716 for the six months ended June 30, 2002. Cost of revenue related to the sale of video games by Ignition Entertainment. IVP Technology had no cost of revenue in the comparable period in the prior year. 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. The increase in consulting and professional fees for the six months ended June 30, 2002 as compared to June 30, 2001 is principally attributable to the expensing of $250,000 of product marketing consulting costs under the Vanessa Land agreement and $43,575 of consulting fees incurred by Ignition under the Montpelier agreement. Our infrastructure expenses increased by $230,406 from the comparative six-month period ended June 30, 2001 due to the additional costs associated with the Company's new management team and the formation of an active business. These costs included rent, and other office operating costs such as utilities, equipment leasing costs and other office expenses. Other general and administrative costs increased by $139,182 from the comparative six-month period ended June 30, 2001 and relate principally to the Ignition operations. 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 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 of the beneficial conversion feature of our convertible debt. Interest of $76,000 for the six months ended June 30, 2001 is attributable to intrinsic interest on the beneficial conversion feature of the Rainbow convertible debt which was treated as a prior period adjustment. 27 NET INCOME (LOSS). For the six months ended June 30, 2002, we incurred an overall loss of $(2,256,326) or $(.03) per share, as compared to net loss of ($437,803) or ($.01) per share for the comparative period ended June 30, 2001. CHANGE IN NET ASSETS. As of and through June 30, 2002, IVP Technology experienced material changes to its net assets from the calendar year ended December 31, 2001. During the six months ended June 30, 2002, IVP Technology acquired the stock of Ignition Entertainment. As a result of the Ignition acquisition, IVP Technology acquired total assets of approximately $2.5 million, consisting principally of cash ($1.1 million), accounts receivable ($800,000) and fixed assets, net ($350,000) and assumed approximately $1.2 million of liabilities. Liabilities assumed consisted principally of accounts payable and accrued expenses ($400,000) and other liabilities ($700,000). IVP Technology also recorded goodwill in the amount of approximately $10.7 million associated with the Ignition acquisition. The net effect of this transaction on the balance sheet was to increase its net assets by approximately $10.0 million. SUBSEQUENT EVENT. The Company has evaluated goodwill for impairment as of December 31, 2002. As a result of this review, the Company has determined that goodwill in the amount of $10,658,095 recorded in connection with the acquisition of Ignition Entertainment Limited is fully impaired. This non-cash charge of $10,658,095 or $(.09) per share will be included in operating expenses on the accompanying financial statements for the year ended December 31, 2002. The Company's assessment of its goodwill is based on undiscounted future cash flows and the uncertainty of obtaining financing to fund the conversion of acquired intellectual property into saleable products. 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 sales of our products generates enough revenue to fund operations. We will also have a need for cash to fund the acquisition of third party products, primarily games in process or near completion for distribution and potentially cash and additional shares to acquire other companies in the United States and Europe. In addition, our need for cash includes satisfying $4,837,892 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. Recently we announced a renegotiation of the software license agreement for Classifier which removed the obligation to pay the $2,906,658 by December 31, 2002 in its entirety. 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 iBos and the various consumer entertainment software products that we currently have in distribution through our various subsidiaries and directly by IVP Technology. At June 30, 2002, IVP Technology's cash and cash equivalents balance was $1,176,695, an increase of $1,176,463 from the balance of $232 at December 31, 2001. During the six months ended June 30, 2002, cash (used) in operations and provided by 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 $1,165,645 was from the DCD short-term loan of $856,334 and from $309,211 of funds borrowed from DcD Factors Plc secured by Ignition's accounts receivables and a secured lien against all of Ignition's assets. On April 10, 2002, Ignition Entertainment entered into a 1,000,000 British Pound revolving credit facility with Revelate Limited for the purpose of allowing Ignition to purchase goods and services from third party vendors. Under the terms of the revolving credit facility, Revelate will advance up to 60% of the purchase price of goods and services purchased by Ignition for its business. Ignition is obligated to pay Revelate interest on each advance at a rate equal to 3% over the UK Bank Base Rate, a 2% commission of total disbursements made on behalf of Ignition and a facility fee of 500 British Pounds. The facility is secured by a first lien on all of Ignition's assets. On April 9, 2002, Ignition Entertainment entered into a one-year factoring agreement with DcD Factors Plc wherein Ignition has agreed to sell and DcD has agreed to purchase up to (pound)500,000 of Ignition's United Kingdom and non-United Kingdom based customer accounts receivable at a rate equal to 75% of the face amount of the receivable. Interest charged on amounts advanced against future collections by DcD is equal to 3% above the UK Base Bank rate. Under the terms of the factoring agreement, DcD is obligated to remit, from time to time, excess collections to Ignition to the extent that collections on purchased receivables exceed the sum of (i) advances made by DcD, (ii) interest and service charges on funds advanced, (iii) monthly services fees and (iv) customer 28 discounts. Ignition has granted DcD a first lien and security interest in all of Ignition's assets. 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 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 $330,000, 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 $0.20 per share, or an aggregate of $20,000, 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. SUBMISSION OF MATTERS TO A VOTE OF STOCK HOLDERS On November 16, 2001, IVP Technology held its annual stockholders' meeting in Las Vegas, Nevada. At the meeting, the stockholder approved the following changes to our Articles of Incorporation: o To increase IVP Technology's authorized shares of common stock from 50,000,000 shares to 150,000,000; and o To provide for a class of 50,000,000 shares of preferred stock that will have such terms as the Board of Directors shall determine from time to time. In addition, the stockholders approved the acquisition of International Technology Marketing and the provision of 50,000,000 shares to complete that acquisition, and elected five directors, Messrs. MacDonald, Hamilton, Sidrow, King and Smith. King and Sidrow subsequently resigned for personal reasons primarily related to a lack of Directors and Officers insurance. 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 29 arising in a purchase business combination and requires disclosure of more information concerning a business combination 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 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. 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). On January 1, 2002, the Company began operations and emerged from the development stage. (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. The $200,000 was recorded as an expense in the 2000 financial statements. 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 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. 30 D) PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary Ignition Entertainment Limited. All significant inter-company transactions and balances have been eliminated. (E) FOREIGN CURRENCY TRANSACTIONS Assets and liabilities of foreign subsidiaries, whose functional currency is the local currency, are translated at year-end exchange rates. Nonmonetary assets and liabilities are remeasured into U.S. dollars at historical rates. Income and expense items are translated at the average rates of exchange prevailing during the year. The adjustment resulting from translating the financial statements of such foreign subsidiaries is reflected as a separate component of stockholder's equity. Foreign currency transaction gains or losses are reported in results 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. (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) ALLOWANCES FOR DOUBTFUL ACCOUNTS AND SALES RETURNS The Company makes judgments as to our ability to collect outstanding receivables and provide allowances for the portion of receivables when collection becomes doubtful. Provisions are made based upon a specific review of all significant outstanding invoices. For those invoices not specifically reviewed, provisions are provided at differing rates, based upon the age of the receivable. In determining these percentages, we analyze our historical collection experience and current economic trends. If the historical data we use to calculate the allowance provided for doubtful accounts does not reflect the future ability to collect outstanding receivables, additional provisions for doubtful accounts may be needed and the future results of operations could be materially affected. The Company also records a provision for estimated sales returns and allowances on product and service related sales in the same period as the related revenues are recorded. These estimates are based on historical sales returns, analysis of credit memo data and other known factors. If the historical data we use to calculate these estimates do not properly reflect future returns, then a change in the allowances would be made in the period in which such a determination is made and revenues in that period could be adversely affected. (J) INVENTORY Inventories, which consist primarily of system components, parts and supplies and completed games and other video accessories, are stated at the lower of weighted average cost or market. The weighted average cost of inventories approximates the first-in, first-out ("FIFO") method. Management performs periodic assessments to determine the existence of 31 obsolete, slow-moving and nonsalable inventories and records necessary provisions to reduce such inventories to net realizable value. (K) PLANT, PROPERTY AND EQUIPMENT Plant, property and equipment are stated at cost. Depreciation and amortization are provided on the straight-line method over the shorter of the estimated useful lives of the assets or the applicable lease term for leasehold improvements ranging from 3 to 10 years . Maintenance and repairs are charged to expense when incurred; betterments are capitalized. Upon retirement or sale, the cost and accumulated depreciation are removed from the accounts and any gain or loss is recognized currently. (L) LONG-LIVED ASSETS Long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If such review indicates that the asset is impaired, when the carrying amount of an asset exceeds the sum of its expected future cash flows, on an undiscounted basis, the asset's carrying amount is written down to fair value. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less cost to sell. The Company has not recognized any impairment loss during the six months ended June 30, 2002. (M) EXCESS OF COST OVER NET ASSETS ACQUIRED In accordance with SFAS No. 141, the Company allocates the purchase price of its acquisitions to the tangible assets, liabilities and intangible assets acquired based on their estimated fair values. The excess purchase price over those fair values is recorded as "Excess of Cost Over Net Assets Acquired." The fair value assigned to intangible assets acquired is based on valuations prepared by independent third party appraisal firms using estimates and assumptions provided by management. In accordance with SFAS No. 142, goodwill and purchased intangibles with indefinite lives acquired after June 30, 2001 are not amortized but will be reviewed periodically for impairment. Purchased intangibles with finite lives will be amortized on a straight-line basis over their respective useful lives. (N) 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. (O) 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. (P) 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. (Q) 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. 32 Management has determined that it is not practicable to provide geographic segment disclosures for revenues and long-lived assets because the Company sells its products to a large variety of locations in the Americas and Europe, and in many instances, these products are then resold through distributors. (R) REVENUE RECOGNITION Risk and Uncertainties A significant portion of all of the Company's net sales are derived from software publishing and distribution activities, which are subject to increasing competition, rapid technological change and evolving consumer preferences, often resulting in the frequent introduction of new products and short product lifecycles. Accordingly, the Company's profitability and growth prospects depend upon its ability to continually acquire, develop and market new, commercially successful software products and obtain adequate financing. If the Company is unable to continue to acquire, develop and market commercially successful software products, its operating results and financial condition could be materially adversely affected in the near future. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reported periods. The most significant estimates and assumptions relate to the recoverability of prepaid royalties, capitalized software development costs and other intangibles, realization of deferred income taxes, valuation of inventories and the adequacy of allowances for returns, price protection and doubtful accounts. Actual amounts could differ significantly from these estimates. REVENUE RECOGNITION The Company recognizes revenue in accordance with Statement of Position ("SOP") 97-2 "Software Revenue Recognition", as amended by SOP 98-9 "Modification of SOP 97-2 Software Revenue Recognition with respect to Certain Transactions." SOP 97-2 provides guidance on applying generally accepted accounting principles in recognizing revenue on software transactions. SOP 98-9 deals with the determination of vendor specific objective evidence of fair value in multiple element arrangements, such as maintenance agreements sold in conjunction with software packages. The Company's consumer software transactions generally include only one element, the interactive software game or commercial software under license. The Company recognizes revenue when the price is fixed and determinable, there is persuasive evidence of an arrangement, the fulfillment of its obligations under any such arrangement and determination that collection is probable. Accordingly, revenue is recognized when title and all risks of loss are transferred to the customer, which is generally upon receipt by customer. The Company's payment arrangements with its customers provide primarily 60 day terms and to a limited extent with certain customers 30 or 90 day terms. The Company does not have any multi-element arrangements that would require it to establish VSOE for each element, nor does the Company have any sales activity that requires the contract method of accounting. The Company's distribution arrangements with customers generally do not give customers the right to return products; however, the Company at its discretion may accept product returns for stock balancing or defective products. In addition, the Company sometimes negotiates accommodations to customers, including price discounts, credits and product returns, when demand for specific products falls below expectations. The Company's publishing arrangements generally do not require the Company to accept product returns and provide price protection. The Company establishes a reserve for future returns and other allowances based primarily on its return policies, price protection policies and historical return rates. The Company may not have a reliable basis to estimate returns and price protection for certain customers or it may be unable to determine that collection of the receivable is probable. In such circumstances, the Company defers the revenues at the time of the sale and recognizes them when collection of the related receivable becomes probable or cash is received. 33 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: 34 PAYMENT SCHEDULE FOR ACQUISITION OF IGNITION ENTERTAINMENT LIMITED AND INCENTIVE PAYMENTS
AFTER THE AFTER THE PRECEDING BETWEEN PRECEDING TIME PERIOD AFTER THE WITHIN 91 AND 180 TIME PERIOD AND SIX PRECEDING 90 DAYS DAYS AFTER TO MONTHS TO TIME AND ON TIME PERIOD: OF CLOSING MAY 28, 2002 MAY 28, 2003 MAY 28, 2003 MAY 28, 2004 MAY 29, 2004 - ------------------------------------ ---------- ------------ ------------ ------------- ------------ ------------ GOALS: -- -- -- $13,000,000 $26,000,000 $45,000,000 Gross Revenues (in U.S. Dollars) Net Income (in U.S. Dollars) -- -- -- $1,000,000 $5,000,000 $15,000,000 PAYMENTS: -- 5,000,000 -- if reach both if reach if reach Incentive Payments of IVP common to DCD above goals both above both above and preferred shares Holdings 500,000 goals goals shares of 500,000 500,000 convertible shares of shares of preferred convertible convertible stock preferred preferred stock stock Release of 50 Million Shares of IVP -- 15,000,000 1,000,000 1,000,000 1,000,000 500,000 common stock (upon conversion of shares of shares of shares of shares of shares of all preferred stock issued) common stock preferred preferred preferred preferred stock stock stock stock (convertible (convertible (convertible (convertible to 10,000,000 to 10,000,000 to 10,000,000 to 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. 35 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 $330,000, 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 $0.20 per share, or an aggregate of $20,000, 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 36 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. 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. 37 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, Incorporated by reference to Exhibit 4.1 to 2000 between IVP Technology Corporation and Erebus IVP Technology's Form 8-K12G3 filed on Corporation April 19, 2000
38
EXHIBIT NO. DESCRIPTION LOCATION - ------------- ------------------------------------------------------ ---------------------------------------------- 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 Incorporated by reference to Exhibit 10.4 to Agreement dated as of May 31, 2000 between the IVP Technology's Form 10-QSB filed on Registrant and Orchestral Corporation September 24, 2000 10.5 Service Bureau Arrangement Agreement dated September Incorporated by reference to Exhibit 10.5 to 28, 2000 between the Registrant and E-RESPONSES.COM IVP Technology's Form 10-QSB filed on November 14, 2000 10.6 Stock Purchase Agreement dated September 17, 2001 Incorporated by reference to Exhibit 10.6 to among the Registrant, International Technology IVP Technology's Form 10-KSB filed on Marketing, Inc., Brian MacDonald, Peter Hamilton, April 15, 2002 Kevin Birch, Sherry Bullock, and Geno Villella 10.7 Agreement dated May 15, 2000 between the Registrant Incorporated by reference to Exhibit 10.7 to and Rainbow Investments International Limited IVP Technology's Form 10-KSB filed on April 15, 2002 10.8 Employment Agreement dated August 30, 2001 between Incorporated by reference to Exhibit 10.8 to International Technology Marketing, Inc. and Brian J. IVP Technology's Form 10-KSB filed on MacDonald April 15, 2002 10.9 Agreement dated February 12, 2002 between the Incorporated by reference to Exhibit 10.9 to Registrant and SmartFOCUS Limited IVP Technology's Form 10-KSB filed on April 15, 2002 10.10 Warrant Agreement dated May 15, 2000 between the Incorporated by reference to Exhibit 10.10 to Registrant and Rainbow Investments International IVP Technology's Form 10-KSB filed on Limited April 15, 2002 10.11 Convertible Promissory Note dated May 2000 between the Incorporated by reference to Exhibit 10.11 to Registrant and Rainbow Investments International IVP Technology's Form 10-KSB filed on Limited April 15, 2002 10.12 Software Distribution Agreement dated December 28, Incorporated by reference to Exhibit 10.12 to 2001 between the Registrant and TIG Acquisition IVP Technology's Form 10-KSB filed on Corporation April 15, 2002 10.13 Loan Agreement dated January 16, 2002 between the Incorporated by reference to Exhibit 10.13 to Registrant and DCD Holdings Limited IVP Technology's Form 10-KSB filed on April 15, 2002 10.14 Agreement for the Provision of Marketing Services Incorporated by reference to Exhibit 10.1 to dated May 3, 2002 between the Registrant and Vanessa IVP Technology's Form S-8 filed with the SEC Land on May 3, 2002 10.15 Reserved
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EXHIBIT NO. DESCRIPTION LOCATION - ------------- ------------------------------------------------------ ---------------------------------------------- 10.16 Employment Agreement dated August 30, 2001 between Incorporated by reference to Exhibit 10.16 to International Technology Marketing, Inc. and Geno IVP Technology's Form 10-KSB filed on Villella April 15, 2002 10.17 Employment Agreement dated August 30, 2001 between Incorporated by reference to Exhibit 10.17 to International Technology Marketing, Inc. and Kevin IVP Technology's Form 10-KSB filed on Birch April 15, 2002 10.18 Employment Agreement dated August 30, 2001 between Incorporated by reference to Exhibit 10.18 to International Technology Marketing, Inc. and Peter J. IVP Technology's Form 10-KSB filed on Hamilton April 15, 2002 10.19 Employment Agreement dated August 30, 2001 between Incorporated by reference to Exhibit 10.19 to International Technology Marketing, Inc. and Sherry IVP Technology's Form 10-KSB filed on Bullock April 15, 2002 10.20 Loan and Security Agreement dated July 30, 2001 among Incorporated by reference to Exhibit 10.20 to the Registrant, Clarino Investments International IVP Technology's Form 10-KSB filed on Ltd., and Berra Holdings Ltd. April 15, 2002 10.21 Consulting and Advisory Extension Agreement dated Incorporated by reference to the Exhibit to February 14, 2001 between the Registrant and Barry IVP Technology's Form 10-QSB filed on May 21, Gross D/B/A Gross Capital Associates 2001 10.22 Letter Agreement dated June 28, 2001, between the Incorporated by reference to Exhibit 4.1 to Registrant and Andris Gravitis IVP Technology's Form S-8 filed on July 23, 2001 10.23 Letter Agreement dated June 28, 2001, between the Incorporated by reference to Exhibit 4.2 to Registrant and Thomas Chown. IVP Technology's Form S-8 filed on July 23, 2001 10.24 Letter Agreement dated May 30, 2001, between the Incorporated by reference to Exhibit 4.3 to Registrant and Ruffa & Ruffa, P.C. for Modification of IVP Technology's Form S-8 filed on July 23, Retainer Agreement 2001 10.25 Consulting Agreement dated September 1, 2000 between Incorporated by reference to Exhibit 13.1 to the Registrant and Barry Gross d/b/a Gross Capital IVP Technology's Form 10-KSB filed on July 5, Associates 2001 10.26 Consulting and Advisory Agreement dated September 25, Incorporated by reference to Exhibit 13.2 to 2000 between the Registrant and Koplan Consulting IVP Technology's Form 10-KSB filed on July 5, Corporation 2001 10.27 Warrant Agreement dated April 3, 2002 between the Incorporated by reference to Exhibit 10.27 to Registrant and Cornell Capital Partners LP IVP Technology's Form 10-KSB filed on April 15, 2002 10.28 Equity Line of Credit Agreement dated April 3, 2002 Incorporated by reference to Exhibit 10.28 to between the Registrant and Cornell Capital Partners LP IVP Technology's Form 10-KSB filed on April 15, 2002 10.29 Registration Rights Agreement dated April 3, 2002 Incorporated by reference to Exhibit 10.29 to between the Registrant and Cornell Capital Partners, LP IVP Technology's Form 10-KSB filed on April 15, 2002
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EXHIBIT NO. DESCRIPTION LOCATION - ------------- ------------------------------------------------------ ---------------------------------------------- 10.30 Escrow Agreement dated April 3, 2002 among the Incorporated by reference to Exhibit 10.30 to Registrant, Cornell Capital Partners, LP, Butler IVP Technology's Form 10-KSB filed on Gonzalez, and First Union National Bank April 15, 2002 10.31 Securities Purchase Agreement dated April 3, 2002 Incorporated by reference to Exhibit 10.31 to among the Registrant and the Buyers IVP Technology's Form 10-KSB filed on April 15, 2002 10.32 Escrow Agreement dated April 3, 2002 among the Incorporated by reference to Exhibit 10.32 to Registrant, the Buyers, and First Union National Bank IVP Technology's Form 10-KSB filed on April 15, 2002 10.33 Debenture Agreement Dated April 3, 2002 between the Incorporated by reference to Exhibit 10.33 to Registrant and Cornell Capital Partners LP IVP Technology's Form 10-KSB filed on April 15, 2002 10.34 Investor Registration Rights Agreement dated April 3, Incorporated by reference to Exhibit 10.34 to 2002 between the Registrant and the Investors IVP Technology's Form 10-KSB filed on April 15, 2002 10.35 Placement Agent Agreement dated April 3, 2002 among Incorporated by reference to Exhibit 10.35 to the Registrant, Westrock Advisors, Inc. and Cornell IVP Technology's Form 10-KSB filed on Capital Partners LP April 15, 2002 10.36 Letter Agreement dated February 20, 2002 between the Incorporated by reference to Exhibit 10.36 to Registrant and Buford Industries Inc. IVP Technology's Form 10-KSB filed on April 15, 2002 10.37 Letter Confirmation Agreement dated July 21, 2001 Incorporated by reference to Exhibit 10.37 to between the Registrant and Buford Industries Inc. IVP Technology's Form 10-KSB filed on April 15, 2002 10.38 Consulting Agreement dated March 1, 2002 between the Incorporated by reference to Exhibit 10.38 to Registrant and Danson Partners LLC IVP Technology's Form 10-KSB filed on April 15, 2002 10.39 Term Sheet between the Registrant and Cornell Capital Incorporated by reference to Exhibit 10.39 to Partners, LP Increasing the Commitment under the IVP Technology's Form SB-2 filed on May 15, Equity Line of Credit to $10 million 2002 10.40 Consulting Agreement dated February 12, 2002 between Incorporated by reference to Exhibit 10.40 to the Registrant and Danson Partners LLC IVP Technology's Form SB-2 filed on May 15, 2002 10.41 Escrow Agreement dated as of May 15, 2002 among the Incorporated by reference to Exhibit 10.41 to Registrant, Brian MacDonald, Peter Hamilton, Kevin IVP Technology's Form SB-2 filed on May 15, Birch, Sherry Bullock, and Gino Villella 2002 10.42 Termination letter dated June 13, 2002 between the Incorporated by reference to Exhibit 10.42 to Registrant and Orchestral Corporation IVP Technology's Form 10-QSB filed on August 19, 2002 10.43 Acquisition Agreement dated as of May 28, 2002 Incorporated by reference to Exhibit 10.43 to regarding the purchase of Ignition Entertainment IVP Technology's Form 10-QSB filed on August 19, 2002
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EXHIBIT NO. DESCRIPTION LOCATION - ------------- ------------------------------------------------------ ---------------------------------------------- 10.44 Consulting Agreement dated as of June 1, 2002 Ignition Incorporated by reference to Exhibit 10.44 to Entertainment Limited and Montpelier Limited IVP Technology's Form 10-QSB filed on August 19, 2002
(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. 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. 42 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 February 12, 2003 - ------------------------------------------ By: Brian MacDonald President, Chief Executive Officer and Acting Chief Financial Officer 43 OFFICER'S CERTIFICATE PURSUANT TO SECTION 302 ----------------------- CERTIFICATION I, Brian MacDonald, certify that: 1. I have reviewed this amended quarterly report on Form 10-QSB of IVP Technology Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; and 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report. Date: February 12, 2003 By: /s/ Brian MacDonald -------------------- Brian MacDonald President, Chief Executive Officer and Acting Chief Financial Officer 44 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 Amendment No. 1 to 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. Date: February 12, 2003 By: /s/ Brian MacDonald -------------------- Brian MacDonald President, Chief Executive Officer and Acting Chief Financial Officer 45 -----END PRIVACY-ENHANCED MESSAGE-----