UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED COMMISSION FILE NUMBER
------------------------------ ----------------------
MARCH 31, 2001 33-19196-A
IVG CORP.
----------------------------
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
DELAWARE 59-2919648
-------- ----------
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
13135 DAIRY ASHFORD, SUITE 525
SUGARLAND, TEXAS 77478
---------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
ISSUER'S TELEPHONE NUMBER: (281) 295-8400
--------------
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 60,556,259 as of April 30, 2001.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
IVG CORP.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
MARCH 31, 2001
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,553,573
Restricted cash 1,500,000
Accounts receivable - net 60,160
Inventory 80,722
Investment in iTVr 126,313
Notes receivable 273,943
-------------
Total current assets 4,594,711
PROPERTY AND EQUIPMENT, NET 181,909
OTHER ASSETS, NET 296,901
-------------
$ 5,073,521
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,303,729
Notes payable 3,910,096
-------------
Total current liabilities 5,213,825
PREFERRED STOCK 2,181,819
MINORITY INTEREST (84,209)
STOCKHOLDERS' EQUITY AND ACCUMULATED DEFICIT
Common stock: par value $.0001, 300,000,000 shares
authorized, 47,606,747 issued and outstanding 4,761
Additional paid in capital 25,445,462
Accumulated deficit (27,688,137)
-------------
Total stockholders' deficit (2,237,914)
-------------
$ 5,073,521
=============
See accompanying notes.
2
IVG CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED
MARCH 31
2001 2000
(UNAUDITED) (UNAUDITED)
-------------------------------------
REVENUES:
Sales $ 181,499 $ 84,146
Other revenues 94,124 0
----------------- -----------------
Total revenues 275,623 84,146
COSTS AND EXPENSES:
Cost of goods sold 120,913 32,493
General and administrative 2,589,280 207,725
Research and development 60,000 0
Equity interest in iTVr 373,687 0
Depreciation expense 13,829 0
Interest expense 57,182 0
Other expenses 0 1,426
----------------- -----------------
Total costs and expenses 3,214,891 241,644
----------------- -----------------
MINORITY INTEREST (56,303) 0
----------------- -----------------
NET INCOME (LOSS) $ (2,882,965) $ (157,498)
================= =================
Basic and fully diluted net loss per share $ (.06) $ (.01)
Weighted average number of common shares
outstanding for basic and diluted net loss per share 45,839,972 30,713,602
See accompanying notes.
3
IVG CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED) FOR THE
PERIOD FROM DECEMBER 31, 1999 TO MARCH 31, 2001
Common Stock
--------------------------- Additional
Number of Paid in Accumulated
Shares Amount Capital Deficit Total
-----------------------------------------------------------------------------
Balance December 31, 1999 30,537,402 $ 3,054 $ 1,969,035 $ (2,094,565) $ (122,476)
Shares issued for services 2,414,200 241 2,388,467 0 2,388,708
Shares issued for cash 213,450 21 434,079 0 434,100
Acquisition of subsidiary 10,908,145 1,091 19,004,040 0 19,005,131
Warrants issued for services 0 0 71,860 0 71,860
Net loss 0 0 0 (22,710,607) (22,710,607)
-----------------------------------------------------------------------------
Balance December 31, 2000 44,073,197 4,407 23,867,481 (24,805,172) (933,284)
Shares issued for services 1,019,050 102 1,555,733 1,555,835
Shares issued in acquisitions 2,484,500 249 (249) 0
Shares issued for cash 30,000 3 22,497 22,500
Net loss (2,882,965) (2,882,965)
-----------------------------------------------------------------------------
Balance March 31, 2001 47,606,747 $ 4,761 $ 25,445,462 $ (27,688,137) $ (2,237,914)
=============================================================================
See accompanying notes.
4
IVG CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED
MARCH 31
2001 2000
(UNAUDITED) (UNAUDITED)
-------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $ (2,882,965) $ (157,498)
Adjustments to reconcile net (loss) to net cash
provided by (used in) operating activities:
Minority interest (56,303) 0
Depreciation 7,068 6,735
Amortization 6,761 9,083
Stock based compensation 1,555,835 70,000
Equity interest in loss of iTVr 373,687 0
Changes on operating assets and liabilities:
Accounts receivable (33,126) 7,400
Inventory (2,783) (14,263)
Other assets 190,477 1,742
Accounts payable and accrued expenses 25,691 52,698
----------------- -----------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (815,658) (24,103)
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in iTVr (500,000) 0
Purchases of equipment (144,436) (7,869)
Notes receivable (125,743) 0
----------------- -----------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (770,179) (7,869)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock 22,500 41,600
Proceeds from notes payable 1,409,212 0
Payments on notes payable (179,012) (26,429)
----------------- -----------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 1,252,700 15,171
----------------- -----------------
Increase (decrease) in cash and cash equivalents (333,137) (16,801)
Cash and cash equivalents at beginning of period 2,886,710 6,006
----------------- -----------------
Cash (cash overdraft) and cash equivalents at end of period $ 2,553,573 $ (10,795)
================= =================
See accompanying notes.
5
IVG CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
MARCH 31, 2001
NOTE 1 - ORGANIZATION AND PRESENTATION
On March 9, 2001, IVG Corp. (the "Company") changed its name from Internet
Venture Group, Inc. (formerly Strategic Ventures, Inc.) and its state of
incorporation from Florida to Delaware. The name change and reincorporation were
accomplished by merging Internet Venture Group, Inc. a Florida corporation, into
IVG Corp., a Delaware corporation formed for the purpose of these transactions.
Each issued and outstanding share of common stock of Internet Venture Group,
Inc. was automatically converted in the merger into one share of common stock of
IVG Corp. The Company was incorporated in the state of Florida on March 19, 1987
under the name Sci Tech Ventures, Inc. and changed its name to Strategic
Ventures, Inc. in May 1991. On October 18, 1999, Strategic Ventures, Inc.
changed its name to Internet Venture Group, Inc.
Effective December 31, 1999, Internet Venture Group, Inc. acquired all of the
issued and outstanding shares of GeeWhiz.com, Inc. (a Texas corporation) for
26,537,402 shares of its stock by the purchase method. For accounting purposes,
the acquisition was treated as a reverse acquisition, with GeeWhiz.com, Inc. as
the acquirer and Internet Venture Group, Inc. as the acquiree. The merger
qualified as a reverse acquisition because the officers and directors of
GeeWhiz.com, Inc. assumed management control of the resulting entity and the
value and ownership interest received by current GeeWhiz.com, Inc. stockholders
exceeded that received by Internet Venture Group, Inc.
On September 28, 2000, Internet Venture Group, Inc. acquired ownership of
approximately 88.5% of the issued and outstanding common shares of Swan
Magnetics, Inc. (a California corporation), for shares of its stock. The
transaction was accounted for under the purchase method of accounting. See Note
11.
The Company is a Houston-based human resource and technology company that
focuses on the acquisition, development and operation of promising
revenue-generating companies. The Company's business strategy is to acquire,
develop and operate unique companies that are leaders in their commercial niche
by virtue of a compelling business model, technology and/or proprietary service.
The Company provides a value-added corporate structure intended to enable its
portfolio companies to quickly leverage their expertise and deploy their
business strategy by utilizing the management, financial and corporate resources
of the Company.
The primary business of GeeWhiz.com, Inc., which now operates as a division of
the Company, is the development, acquisition, marketing and distribution of
proprietary products as specialty products and items for the worldwide gift,
novelty and souvenir industries. Swan Magnetics, Inc., which operates as a
majority-owned subsidiary of the Company, is involved in the development of a
proprietary ultra-high capacity (UHC), flexible disk drive technology and
currently has no revenue generating operations.
The Company's fiscal year end is December 31.
6
IVG CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED - CONTINUED
MARCH 31, 2001
NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements have been prepared
in accordance with U.S. generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item 310 of
Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by U.S. generally accepted accounting principles for
complete financial statements. In the opinion of management, all adjustments
considered necessary for a fair presentation have been included. Operating
results for the three months ended March 31, 2001 are not necessarily indicative
of the results that may be expected for the year ended December 31, 2001.
These financial statements are presented on the accrual basis of accounting in
accordance with U. S. generally accepted accounting principles. Significant
accounting principles followed by the Company and the methods of applying those
principles, which materially affect the determination of financial position,
results of operations and cash flows, are summarized below:
Principles of consolidation
---------------------------
The accompanying unaudited consolidated financial statements include the
accounts of the Company, including its divisions, and its majority-owned
subsidiary. All significant intercompany accounts and transactions have been
eliminated in consolidation.
Cash and cash equivalents
-------------------------
The Company considers all highly-liquid debt instruments with original
maturities of three months or less when purchased to be cash equivalents. At
March 31, 2001, $1,500,000 of cash was restricted for payment of a note to a
vendor.
Inventory
---------
Inventory is stated at the lower of cost, determined using the first-in,
first-out method (FIFO), or market. Finished products comprise all of the
Company's inventory.
Property and equipment
----------------------
Property and equipment is stated at cost. The cost of ordinary maintenance and
repairs is charged to operations while renewals and betterments are capitalized.
Depreciation is computed on the straight-line method over the estimated useful
lives of five (5) years.
7
IVG CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED - CONTINUED
MARCH 31, 2001
Patents, trademarks and licenses
--------------------------------
The Company capitalizes certain legal costs and acquisition costs related to
patents, trademarks and licenses. Accumulated costs are amortized over the
lesser of the legal lives or the estimated economic lives of the proprietary
rights, generally seven to ten years, using the straight-line method and
commencing at the time the patents are issued, trademarks are registered or the
license is acquired.
Revenue recognition
-------------------
Product sales are sales of on-line products and specialty items. Revenue is
recognized at the time products are shipped. Other revenue and commission income
is recognized when the earnings process has been completed.
Income taxes
------------
The Company accounts for income taxes under Statement of Financial Accounting
Standards No. 109 (SFAS 109), "ACCOUNTING FOR INCOME TAXES", which utilizes the
asset and liability approach to accounting for income taxes. Under this method,
deferred tax assets and liabilities are measured based on differences between
financial reporting and tax bases of assets and liabilities using enacted tax
rates and laws that are expected to be in effect when the differences are
expected to reverse.
Net earnings (loss) per share
-----------------------------
Basic and fully diluted net earnings (loss) per share information is presented
under the requirements of Statement of Financial Accounting Standards No. 128
(SFAS 128), "EARNINGS PER SHARE". Basic net earnings (loss) per share is
computed by dividing net earnings (loss) by the weighted average number of
shares of common stock outstanding for the period, less shares subject to
repurchase. Fully diluted net earnings (loss) per share reflects the potential
dilution of securities by adding other common stock equivalents, including stock
options, shares subject to repurchase, warrants and convertible preferred stock,
in the weighted average number of shares of common stock for a period, if
dilutive. All potentially dilutive securities have been excluded from the
computation, as their effect is anti-dilutive.
Fair value of financial instruments
-----------------------------------
The carrying amount of cash, accounts receivable, accounts payable and accrued
expenses are considered to be representative of their fair values because of the
short-term nature of these financial instruments. The carrying amounts of the
notes payable are reasonable estimates of fair value as the loans bear interest
based on market rates currently available for debt with similar terms.
8
IVG CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED - CONTINUED
MARCH 31, 2001
Use of estimates
----------------
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from these estimates.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of March 31, 2001:
Manufacturing equipment $ 109,670
Furniture and equipment 51,097
Leasehold improvements 123,656
Less: Accumulated depreciation (102,514)
----------
$ 181,909
==========
NOTE 4 - OTHER ASSETS
Other assets consists of the following as of March 31, 2001:
Historical Accumulated Book
cost amortization value
----------------------------------------------
Licenses, patents, trademarks $364,846 $109,945 $254,901
Other assets 42,000 42,000
----------------------------------------------
$406,846 $109,945 $296,901
==============================================
NOTE 5 - NOTES PAYABLE
Notes payable consists of the following as of March 31, 2001:
Borrowings against a $50,000 line of credit agreement with a financial
institution collateralized by a general security agreement covering
substantially all assets of the Company, bearing interest at prime rate
plus 2%, due on demand or April 2001 if no demand is made $49,985
Note payable to an individual stockholder, interest at 8%,
due on demand 100,111
Notes payable to two stockholders, interest at 10.5%, due on demand 15,000
6% convertible notes to institutional investors (see Note 13) 1,100,000
Note payable to financial institution, interest at 9.15%, due on demand
Or November 2001 if no demand is made 75,000
9
IVG CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED - CONTINUED
MARCH 31, 2001
Notes payable, interest at 6%, due on demand 70,000
Note payable to a company, interest at 10%, due on demand 1,000,000
Note payable to a company, interest at 8%, due on demand,
secured by cash in bank 1,500,000
----------
$3,910,096
==========
NOTE 6 - INCOME TAXES
The income tax provision relates to state minimum income taxes incurred by Swan
Magnetics, Inc.
There has been no provision for U. S. federal or foreign income taxes because
the Company has incurred losses in all periods for these jurisdictions.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
deferred tax assets are as follows as of March 31, 2001:
Deferred tax assets
Net operating loss carryforwards $ 27,688,137
Valuation allowance for deferred tax assets $(27,688,137)
-------------
Net deferred tax assets $ 0
=============
Realization of deferred tax assets is dependent upon future earnings, if any,
the timing and amount of which are uncertain. Accordingly, the net deferred tax
assets have been fully offset by a valuation allowance. The Company had tax net
operating loss carryforwards of approximately $27,688,137 as of March 31, 2001,
which, unless utilized, expire beginning in 2003. Utilization of the tax net
operating loss carryforwards may be subject to substantial annual limitation due
to the ownership change limitations provided by the Internal Revenue Code and
similar state provisions. The annual limitation could result in the expiration
of the net operating loss before utilization.
NOTE 7 - CONVERTIBLE PREFERRED STOCK
After the acquisition of Swan Magnetics, Inc., there remained Swan convertible
preferred stock outstanding, which had not been converted to Swan common stock
or IVG common stock. There were 612,957 share of Series B outstanding with a
historical cost of $221,000; 2,010,000 shares of Series D outstanding with a
historical cost of $1,423,303; and 706,000 shares of Series G outstanding with a
historical cost of $3,512,000. Upon acquisition, the preferred stock has been
valued at $2,181,819, the liquidation preference value, due to the going concern
question of the Company.
10
IVG CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED - CONTINUED
MARCH 31, 2001
The rights, preferences and privileges of the Swan Series B, D and G preferred
stockholders are as follows:
Dividend rights
---------------
Dividends are non-cumulative and payable only upon declaration of the Board of
Directors at a rate of $0.132 per share for Series B preferred stock, $0.05 per
share for Series D preferred stock and $0.05 per share for Series G preferred
stock. No distributions will be made on any share of Series D stock. No
distributions will be paid on any Series G preferred stock until holders of
Series B and D have been paid.
Liquidation Preference
----------------------
Holders of Series B shares have a liquidation preference over Series D and G and
common shareholders of $1.10 per share plus any declared but unpaid dividends,
holders of Series D shares have a liquidation preference over Series G and
common shareholders of $2.50 per share plus any declared but unpaid dividends,
and holders of Series G shares have a liquidation preference over common
shareholders of Series G shares have a liquidation preference over common
shareholders of $5.00 per share plus any declared but unpaid dividends.
Conversion Rights
-----------------
Each share of preferred stock is convertible into one share of common stock at
the option of the holder, subject to protection against dilution. Preferred
stock automatically converts upon an effective initial public offering or upon
the vote or written consent of al least two-thirds of the number of outstanding
shares of the preferred stock into common stock (except Series B which does not
have this feature).
Voting Rights
-------------
There are outstanding common stock warrants attached to Series D and Series G
preferred stock at March 31, 2001. The Series D preferred stock warrants gives
the warrant holder the right to purchase one share of Swan common stock at $0.83
per share. The Series G preferred stock warrant give the warrant holder the
right to purchase shares of Swan common stock. None of the Series D or Series G
warrants have been exercised trough March 31, 2001. The Series D warrants expire
in 2001 and the Series G warrants expire in 2006.
NOTE 8- STOCK COMPENSATION PLANS
Stock Option Plan
-----------------
The Company has granted options to purchase shares of common stock to employees,
directors, consultants, and investors at prices as determined by the Board of
Directors, at date of grant. A summary of the Company's stock options granted is
presented below:
11
IVG CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED - CONTINUED
MARCH 31, 2001
Weighted
Average
Exercise
Number of Price per
Shares Share
------------- --------------
Balance, December 31, 1998 3,235,500 $ 0.13
Granted 4,370,625 $ 0.69
Exercised - $ -
Canceled (292,500) $ 0.14
------------- -------------
Balance, December 31, 1999 7,313,625 $ 0.47
Granted 4,375,000 $ 0.27
Exercised - $ -
Canceled - $ -
------------- -------------
Balance, December 31, 2000 11,688,625 $ 0.39
Granted - -
Exercised - -
Canceled - -
------------- -------------
Balance, March 31, 2001 11,688,625 $ 0.39
The fair value of each stock option was estimated on the date of grant using the
Black-Schoales option-pricing model with the following weighted-average
assumption on stock options issued on or before June 30, 2000: an expected life
of four (4) years, expected volatility of 87%, and a dividend yield of 0% and on
stock options issued after June 30, 2000: an expected life of 18 months,
expected volatility of 90%, and a dividend yield of 0%.
2000 Omnibus Securities Plan
----------------------------
The 2000 Omnibus Securities Plan ("2000 Plan") was adopted in October 2000 and
reserved 10,000,000 shares of IVG common stock for stock options, restricted
stock awards, unrestricted stock awards, performance stock awards, dividend
equivalent rights, and stock appreciation rights to directors, officers, and key
employees of the Company and certain consultants.
The following summary presents information with regard to the securities issued
under the 2000 Plan as of March 31, 2001:
Number of
Balance, March 31, 2001 Shares
---------------------------------- -----------
Unrestricted stock awards: 1,534,200
Restricted stock awards: 528,000
12
IVG CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED - CONTINUED
MARCH 31, 2001
Shares available under the 2000 Plan as of March 31, 2001 totaled 7,937,800. In
accordance with FASB No. 123, non-cash stock-based compensation expense of
$1,066,607 has been recognized in the accompanying statement of operations for
the three months ended March 31, 2001 related to these stock awards. An equal
amount has been recognized in shareholders' equity.
Non Employee Directors Stock Option Plan
----------------------------------------
The Non-Employee Directors Stock Option Plan adopted in July 2000 permitted the
issuance of up to 900,000 shares of common stock to directors who are not
employees of IVG. Under the plan, options to purchase 100,000 shares of common
stock at the fair market value on the date of grant are granted to each
non-employee director annually. As of March 31, 2001, options for 900,000 shares
had been granted to three non-employee directors under this plan, of which
225,000 shares are available for exercise.
Accounting Issues Relating to all Stock Compensation Plans
----------------------------------------------------------
The Company accounts for employee-based compensation under these plans under APB
Opinion No. 25 and related interpretations under which no compensation cost has
been recognized. Had compensation cost for these plans been determined using the
fair value method of SFAS No. 123, pro forma net earnings and diluted earnings
per share would not have been materially different than using APB Opinion No.
25.
NOTE 9- COMMITMENTS AND CONTINGENCIES
The Company is in the third year of a five-year operating lease,which commenced
December 1997 for office and warehouse space located in Houston, Texas. Future
minimum lease commitments for building lease approximate the following for each
of the years ending December 31: 2001- $ 8,386; 2002- $73,907; and none
thereafter. In 2001, the Company entered into a new lease for office space,
which requires annual rent of $119,856 through 2005.
NOTE 10- GOING CONCERN
The accompanying financial statements have been prepared in conformity with U.S.
generally accepted accounting principles, which contemplates continuation of the
Company as a going concern. The Company has incurred substantial operating
losses. As shown in the financial statements, the Company incurred net losses of
$2,882,965 on gross sales of $181,499 for the quarter ended March 31, 2001.
These factors indicate there is substantial doubt about the Company's ability to
continue as a going concern. The future success of the Company is likely
dependent on its ability to obtain additional capital to develop its proposed
products and ultimately, upon its ability to attain future profitable
operations. There can be no assurance that the Company will be successful in
obtaining such financing, or that it will attain positive cash flow from
operations.
13
IVG CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED - CONTINUED
MARCH 31, 2001
Management believes that actions presently being taken to revise the Company's
operating and financial requirements provide the opportunity for the Company to
continue as a going concern. The Company has been able to continue based upon
the financial support of certain of its stockholders, and the continued
existence of the Company is dependent upon this support and the Company's
ability to acquire assets by the issuance of stock. Management has recently been
able to secure a $1,100,000 loan from a group of institutional investors (see
convertible notes footnote) and $2,200,000 from Swan Magnetics, Inc. and has
subsequently acquired businesses that management believes can provide additional
cash for the Company's operations and be profitable in both the short and
long-term. Management also intends to attempt to raise additional funds through
private sales of the Company's common stock.
Although management believes that these efforts will enable the Company to
continue as a going concern, there can be no assurance that these efforts will
be successful.
NOTE 11- ACQUISITION OF SUBSIDIARY
On September 28, 2000, the Company acquired ownership of approximately 88.5% of
the common stock of Swan Magnetics, Inc. Swan is a hardware development company
specializing in ultra high capacity floppydisk drives and media. As part of a
two step purchase transaction, the Company exchanged 20,000,000 shares of
restricted common stock for approximately 88.5% of the outstanding common shares
of Swan. The Company then offered, to those stockholders, an exchange of
restricted common stock for warrants to purchase common stock at an exercise
price equal to the market value on September 28, 2000, or $1.75. Stockholders
exchanged an aggregate of 9,091,793 shares of restricted common stock of the
Company for common stock warrants. The fair value of the common stock warrants
was estimated on September 28, 2000 using the Black-Schoales option-pricing
model with the following weighted-average assumption on stock warrants issued:
an expected life of 18 months, expected volatility of 90%, and a dividend yield
of 0%. This transaction adjusted the purchase price to approximately
$19,005,131. The acquisition was accounted for using the purchase method. The
assets and liabilities of Swan were recorded at fair market value, which
approximates net book value on the date of acquisition. Upon consummation of the
Swan acquisition, the Company expensed $18,040,000 representing purchased
in-process technology that had not reached technological feasibility and had no
alternative future use.
NOTE 12- ACQUISITIONS
SES-Corp., Inc./Cheyenne Management Company, Inc.
-------------------------------------------------
On December 29, 2000 the Company entered into an Asset Purchase Agreement and
Agreement and Plan of Merger by and among SES Acquisition 2001, Inc., Cheyenne
Management Company, Inc. ("SES"), and certain other persons (the "Acquisition
Agreement"). The Acquisition Agreement was amended on March 30, 2001. The
Acquisition Agreement provided for both the Company's purchase of certain of the
assets of Cheyenne Management Company,
14
IVG CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED - CONTINUED
MARCH 31, 2001
Inc. and the merger of SES Acquisition 2001, Inc., a wholly owned subsidiary of
the Company, with and into SES, with SES to be surviving corporation. The
acquisition became effective April 1, 2001.
Under terms of the Acquisition Agreement, the former shareholders of SES were
issued restricted shares equal to 25 percent of the IVG Corp. common stock
outstanding at that date, approximately 11.8 million shares. An additional
number of shares of IVG common stock equal to up to 8 percent of the issued and
outstanding common stock of IVG prior to the merger may be issued in 2002, based
upon the EBITDA of SES in 2001. Eighty-five percent of the shares initially
issued under the transaction were placed in escrow to secure certain
indemnification obligations of the former SES shareholders. The transaction will
be accounted for as a reverse purchase due to the size of SES versus the
Company. In addition, two SES executives will be appointed to the IVG Corp.
Board of Directors in 2001.
The Company also acquired certain of the assets of Cheyenne Management Company,
Inc in exchange for a number of shares of the Company's common stock to be
determined by dividing the fair market value of the acquired assets as stated on
Cheyenne's audited balance sheet as of December 31, 2000 by $1.50.
SES is involved in various litigation, which could adversely affect net earnings
for 2001. As of April 12, 2001, a judgement of approximately $4,200,000 had been
entered against SES. Additionally, the Internal Revenue Service is currently
conducting an investigation into unpaid payroll taxes for the years 1996 through
2000. While the ultimate outcome of this investigation cannot be determined at
this time, the final outcome could have a material adverse affect on the Company
which could preclude it from continuing as a going concern.
CyberCoupons
------------
On January 9, 2001, the Company executed a Reorganization Agreement and Plan of
Exchange pursuant to which the Company exchanged up to 2,372,625 shares of its
common stock for approximately 35% of the issued and outstanding common stock of
Cybercoupons.com, Inc., a Houston, Texas-based company. The Company's investment
in Cybercoupons was diluted immediately, in the sense that the Cybercoupons
shares acquired in exchange for IVG common stock have a book value that is far
less than the trading price of IVG common stock at January 9, 2001. No
assurances can be given that the Company's investment in Cybercoupons will
appreciate in value, or that it will appreciate to a value comparable to the
value of IVG shares that were delivered to the Cybercoupons stockholders. No
asset is recorded on the accompanying unaudited balance sheet as of March 31,
2001 related to this investment.
Cybercoupons was formed to be an Internet source for consumers to obtain
on-line-printable manufacturer coupons for grocery, household and beauty
products. Advertiser expenditures on coupons amounted to over $6.2 billion in
1997. Much of this consisted of the printing, distribution and logistics
associated with coupon-based marketing activities. Cybercoupons believes that
the disintermediation of coupon distribution and redemption can result in a
15
IVG CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED - CONTINUED
MARCH 31, 2001
significant saving to the billions of dollars spent by manufacturers to print,
distribute and redeem paper coupons. Cybercoupons allows shoppers to select
specific grocery coupons from its web site at a steep discount for use at local
grocery outlets. For example, $50 of coupons can be purchased for as little as
$9.95, with the user enjoying the benefit of being able to choose specific
product coupons.
Cybercoupons believes that it is positioned to capitalize on the
disintermediation of coupon distribution and redemption by offering on-line
download of specific coupons and point-of-sale redemption of coupon face value.
Cybercoupons has established a web site for the purchase of specific grocery
coupons (www.grocerycoupons.com) and is currently involved in key test markets
with regional grocery stores for point-of-sale redemption of electronically
downloaded coupons.
iTVr
----
Under the terms of a Research and Development Agreement, Swan Magnetics (an
88.5% owned subsidiary) received 3,000,000 shares of common stock of iTVr in
exchange for a $750,000 investment, giving Swan ownership of 46% of the
outstanding common stock. Swan's initial $250,000 investment was expensed as
research and development expense in 2000. The remaining $500,000 investment was
made in January 2001. The investment has been accounted for under the equity
method. As such, an investment has been recorded on the accompanying balance
sheet and a loss equal to the Company's ownership percentage has been recorded
in the statement of operations for the quarter ended March 31, 2001. Under the
parties' agreement, Swan will receive additional 1,000,000 shares of common
stock upon completion of iTVr's next round of financing.
iTVr has developed a high performance, multi function, low cost PVR for a
variety of applications including time shift television recording digital
imaging and manipulation, distance education, HDTV, karaoke, video conferencing,
music videos, video emails and home gateway applications.
iTVr's business model is to provide cost-effective multi function solutions at
affordable prices without requiring ongoing service charges. iTVr expects to
begin shipments of its first product in China in the first quarter of 2001 with
initial introduction to the European and US markets in mid 2001.
United Staffing of America, LTD.
-------------------------------
On April 5, 2001, SES-Corp., Inc. signed a Letter of Intent to acquire United
Staffing of America, LTD. (USA), a privately owned Professional Employer
Organization located in Tampa, Florida. USA operates in 10 states, providing
human resource administration to over 125 businesses. The proposed transaction
is structured as a stock transaction, the terms of which are subject to certain
conditions including shareholder approval and the execution of definitive
agreements. Management anticipates that the acquisition will be completed in May
2001.
16
IVG CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED - CONTINUED
MARCH 31, 2001
Staff Leasing Corporation
-------------------------
On April 12, 2001, SES-Corp., Inc. signed a Letter of Intent to acquire Staff
Leasing Corporation ("Staff Leasing"), a privately owned Professional Employer
Organization located in Palos Heights, Illinois. Staff Leasing operates in 24
states, offering human resource administration to over 1,200 worksite employees.
The proposed transaction is structured as a stock for cash transaction, the
terms of which are subject to certain conditions including shareholder approval
and the execution of definitive agreements. Management anticipates that the
acquisition will be completed in June 2001.
NOTE 13- CONVERTIBLE NOTES
In February 2001, the Company issued $ 1,100,000 in 6% convertible notes with
warrants to purchase 275,000 shares of IVG common stock attached. The conversion
price of these notes is the lower of 120% of the closing bid price of IVG common
stock for the five days prior to issue of the notes or 85% of the average of the
three lowest closing bid prices for the 22 days prior to converting the notes.
The purchase price of the common stock associated with the attached warrants is
120% of the closing bid price of IVG common stock for the five days prior to
issue of the notes. The Company is to file a registration statement with the
convertible notes and warrants and to cause to be declared effective within 135
days of issuance of the convertible notes and warrants. If the registration
statement is no effective within 135 days of issuance, certain penalties will
become effective.
17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
FINANCIAL CONDITION
At March 31, 2001, the Company had current assets of approximately $4,595,000
and total assets of approximately $5,074,000. Current liabilities at March 31,
2001 were approximately $5,214,000 and total liabilities were approximately
$7,396,000. The Company's stockholders' deficit at March 31, 2001 was
approximately $2,238,000.
RESULTS OF OPERATIONS
Comparison of the quarter ended March 31, 2001 to March 31, 2000
----------------------------------------------------------------
Revenues increased to approximately $276,000 for the first quarter of 2001,
compared to approximately $84,000 for the first quarter of 2000. The increase
was attributable principally to increased product sales and interest income.
Cost of goods sold increased to approximately $121,000 from $32,000 for the same
period last year. This increase was primarily the result of higher prices for
materials and higher direct costs associated with manufacturing.
Other expenses, consisting of selling, general, and administrative expenses, and
sales and marketing expenses, increased to approximately $3,215,000 from
approximately $242,000. This increase was due primarily to increased stock-based
compensation and costs associated with acquisition activity.
The Company's net loss for the quarter ended March 31, 2001 was approximately
$2,883,000, compared to a net loss of approximately $157,000 for the quarter
ended March 31, 2000. The loss in 2001 is related primarily to increased
stock-based compensation and consulting, legal and accounting fees incurred in
connection with acquisition activity.
LIQUIDITY AND CAPITAL RESOURCES
Operations for the quarter ended March 31, 2001 were financed through cash
acquired in the September 2000 Swan Magnetics, Inc. (Swan) acquisition, through
$350,000 in loans from Swan, and through $1,100,000 in loans obtained in
February 2001 from institutional investors. Previously, operations have been
financed through private sales of common stock and loans from management and
stockholders. In addition, in 2001 and 2000, the Company obtained services or
paid expenses through the issuance of common stock.
Net cash used by operating activities was approximately $816,000 in the quarter
ended March 31, 2001 and $24,000 in the quarter ended March 31, 2000. The
Company had $4,054,000 in cash at March 31, 2001, of which $1,500,000 was
restricted for payment of a promissory note to a vendor.
In February 2001, the Company raised $1,100,000 by issuing 6% convertible notes
with warrants to purchase 275,000 shares of IVG common stock attached and has
completed the acquisition of SES-Corp., Inc. and certain assets of Cheyenne
Management Company, Inc., that management believes can provide additional cash
for the Company's operations and be profitable in both the short and long-term.
Management also intends to attempt to raise funds through private sales of the
company's common stock. Although management believes that these efforts will
enable the Company to meet its liquidity needs in the future, there can be no
assurance that these efforts will be successful.
18
GOING CONCERN CONSIDERATION
The Company has continued losses from operations. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
The accompanying financial statements do not include any adjustments relating to
the recoverability of reported assets or liabilities should the Company be
unable to continue as a going concern.
The Company has been able to continue based upon the financial support of
certain of its stockholders, and the continued existence of the Company is
dependent upon this support and the Company's ability to acquire assets by the
issuance of stock. Management has recently been able to raise $1,100,000 from
the issuance of 6% convertible notes with warrants attached from an investment
group and has completed the acquisition of businesses that management believes
can provide additional cash for the Company's operations and be profitable in
both the short and long-term. Management also intends to attempt to raise
additional funds through private sales of the Company's common stock. Although
management believes that these efforts will enable the Company to continue as a
going concern, there can be no assurance that these efforts will be successful.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
(c) RECENT SALES OF UNREGISTERED SECURITIES.
On February 2, 2001, the Company issued to four institutional investors (the
"Investors") $1.1 million in 6% Convertible Notes (the "Notes"). The Notes are
due in 2003 at a conversion price equal to the lower of (1) $1.5825 and (2) 85%
of the average of the three lowest closing bid prices for its common stock on
the principal market on which it is trading for the 22 trading days prior to but
not including the date of conversion. Until June 2, 2001, the Notes may not be
converted at a conversion price of less than $.75. The Notes are payable on
January 1, 2003. The securities, which were taken for investment and were
subject to appropriate transfer restrictions, were issued without registration
under the Securities Act of 1933 (the "Securities Act") in reliance upon the
exemption provided in Section 4(2) of the Securities Act and Rule 506 of
Regulation D.
In consideration for the Investor's purchase of the Notes, the Company also
issued warrants to purchase an aggregate of 275,000 shares of its common stock
at an exercise price of $1.647. The warrants may be exercised until February 2,
2006. The securities, which were taken for investment and were subject to
appropriate transfer restrictions, were issued without registration under the
Securities Act in reliance upon the exemption provided in Section 4(2) of the
Securities Act and Rule 506 of Regulation D.
On April 6, 2001, the Company sold 30,000 shares of its common stock, at a price
of $.75 per share, for gross proceeds of $22,500. This sale was made to one
investor, who qualified as an "accredited investor" within the meaning of Rule
501(a) of Regulation D under the Securities Act. The securities, which were
taken for investment and were subject to appropriate transfer restrictions, were
issued without registration under the Securities Act in reliance upon the
exemption provided in Section 4(2) of the Securities Act and Rule 506 of
Regulation D.
19
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On February 20, 2001, certain shareholders of the Company agreed by
written consent in lieu of a special meeting to approve the merger of Internet
Venture Group, Inc. with IVG Corp. The number of shares represented by this
written consent was 25,683,481 which constituted a majority of the Company's
issued and outstanding common stock.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
2.1 Amended and Restated Asset Purchase Agreement and Plan of Merger,
dated March 31, 2001, among SES Acquisition 2001, Inc., Cheyenne Management
Company, Inc. SES-Corp., certain other persons and the Company. (1)
10.1 Subscription Agreement, dated February 2, 2001, among Alpha
Capital Aktiengesellschaft, AMRO International, S.A., Markam Holdings Ltd. and
Stonestreet Limited Partnership and the Company (2)
10.2 Form of Convertible Note issued by the Company to Alpha Capital
Aktiengesellschaft, AMRO International, S.A., Markham Holdings Ltd. and
Stonestreet Limited Partnership on February 2, 2001 (2)
10.3 Form of Common Stock Purchase Warrant issued by the Company to
Alpha Capital Aktiengesellschaft, AMRO International, S.A., Markham Holdings
Ltd. and Stonestreet Limited Partnership on February 2, 2001 (2)
10.4 Promissory Note issued by the Company to SES-Corp. on March 30,
2001 (2)
(b) REPORTS ON FORM 8-K.
Form 8-K dated January 8, 2001 reporting the selection of Wrinkle,
Gardner & Company as independent accountants for the fiscal year ending December
31, 2000.
Form 8-K dated April 17, 2001, reporting the acquisition by merger of
SES-Corp., Inc.
Form 8-K/A dated May 9, 2001, amending Form 8-K of October 13, 2000 to
include historical financial statements of Swan Magnetics, Inc. and unaudited
pro forma condensed financial data of the Company, giving effect to the
acquisition of Swan Magnetics, Inc.
(1) Incorporated by reference from the Company's Current Report on Form
8-K, filed with the SEC on April 17, 2000.
(2) Incorporated by reference from the Company's Annual Report on Form
10-KSB for the year December 31, 2000, as filed with the SEC on April
17, 2001.
20
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
IVG CORP.
May 21, 2001 /s/ ELORIAN LANDERS
------------ -------------------
Elorian Landers
Chief Executive Officer and Director
(Principal Executive Officer)
May 21, 2001 /s/ PATRICK WALDEN
------------ ------------------
Patrick Walden
(Principal Financial Officer and
Principal Accounting Officer)
21