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
------------------------------ ----------------------
JUNE 30, 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: 51,311,759 shares of Common Stock as
of August 21, 2001.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
IVG CORP.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
JUNE 30, 2001
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,269,409
Restricted cash 1,500,000
Accounts receivable - net 137,624
Inventory 61,842
Notes receivable 301,057
-------------
Total current assets 3,269,932
PROPERTY AND EQUIPMENT, NET 259,364
OTHER ASSETS, NET 290,901
-------------
$ 3,820,197
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,447,913
Notes payable 4,907,596
------------
Total current liabilities 6,355,509
PREFERRED STOCK 2,181,819
MINORITY INTEREST (180,437)
STOCKHOLDERS' EQUITY AND ACCUMULATED DEFICIT
Common stock: par value $.0001, 300,000,000 shares
authorized, 60,894,559 issued and outstanding 6,089
Additional paid in capital 32,628,808
Accumulated deficit (37,171,591)
-------------
Total stockholders' deficit (4,536,694)
-------------
$ 3,820,197
=============
See accompanying notes.
2
IVG CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED
JUNE 30
2001 2000
(UNAUDITED) (UNAUDITED)
-----------------------------
REVENUES:
Sales $ 427,595 $ 175,996
Other revenues 94,124 0
------------- -------------
Total revenues 521,719 175,996
COSTS AND EXPENSES:
Cost of goods sold 336,706 147,967
General and administrative 12,050,297 399,207
Research and development 60,000 0
Loss on investment in iTVr 485,474 0
Depreciation expense 27,028 0
Interest expense 81,164 0
Other expenses 0 4,410
------------- -------------
Total costs and expenses 13,040,669 551,584
------------- -------------
MINORITY INTEREST (152,531) 0
------------- -------------
NET INCOME (LOSS) $(12,366,419) $ (375,588)
============= =============
Basic and fully diluted net loss per share $ (.24) $ (.01)
Weighted average number of common shares
outstanding for basic and diluted net
loss per share 50,858,168 30,809,152
See accompanying notes.
3
IVG CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED
JUNE 30
2001 2000
(UNAUDITED) (UNAUDITED)
-----------------------------
REVENUES:
Sales $ 246,096 $ 91,850
Other revenues 0 0
------------- -------------
Total revenues 246,096 91,850
COSTS AND EXPENSES:
Cost of goods sold 215,793 115,474
General and administrative 9,461,017 191,482
Loss on investment in iTVr 111,787 0
Depreciation expense 13,199 0
Interest expense 23,982 0
Other expenses 0 2,984
------------- -------------
Total costs and expenses 9,483,454 309,940
------------- -------------
MINORITY INTEREST (96,228) 0
------------- -------------
NET INCOME (LOSS) $ (9,483,454) $ (218,090)
============= =============
Basic and fully diluted net loss per share $ (.17) $ (.01)
Weighted average number of common shares
outstanding for basic and diluted net
loss per share 54,250,653 30,809,152
See accompanying notes.
4
IVG CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
FOR THE PERIOD FROM DECEMBER 31, 1999 TO JUNE 30, 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 2,445,500 245 3,338,796 3,339,041
Shares issued in acquisitions 14,320,862 1,432 5,380,036 5,381,468
Shares issued for cash 55,000 5 42,495 42,500
Net loss (12,366,419) (12,366,419)
----------------------------------------------------------------------------
Balance June 30, 2001 60,894,559 $ 6,089 $ 32,628,808 $(37,171,591) $ (4,536,694)
============================================================================
See accompanying notes.
5
IVG CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED
JUNE 30
2001 2000
(UNAUDITED) (UNAUDITED)
---------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $(9,483,454) $ (218,090)
Adjustments to reconcile net (loss) to net cash
provided by (used in) operating activities:
Minority interest (96,228) 0
Depreciation 7,199 6,735
Amortization 6,000 9,070
Stock based compensation 7,164,765 56,258
Loss on investment in iTVr 126,313 0
Changes on operating assets and liabilities:
Accounts receivable (77,464) (4,189)
Inventory 18,880 2,653
Accounts payable and accrued expenses 144,184 (23,310)
------------ ------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (2,189,805) (170,873)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment (84,745) (3,900)
Notes receivable (27,114) 0
------------ ------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (111,859) (3,900)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock 20,000 392,500
Notes payable 997,500 1,269
------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 1,017,500 393,769
------------ ------------
(Decrease) increase in cash and cash equivalents (1,284,164) 218,996
Cash and cash equivalents at beginning of period 2,553,573 (10,795)
------------ ------------
Cash and cash equivalents at end of period $ 1,269,409 $ 208,201
============ ============
See accompanying notes.
6
IVG CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED
JUNE 30
2001 2000
(UNAUDITED) (UNAUDITED)
---------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $(12,366,419) $ (375,588)
Adjustments to reconcile net (loss) to net cash
provided by (used in) operating activities:
Minority interest (152,531) 0
Depreciation 14,267 13,470
Amortization 12,761 18,153
Stock based compensation 8,720,510 126,258
Loss on investment in iTVr 500,000 0
Changes on operating assets and liabilities:
Accounts receivable (110,590) 3,211
Inventory 16,096 (11,610)
Other assets 190,477 1,742
Accounts payable and accrued expenses 169,875 29,388
------------ ------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (2,985,554) (194,976)
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in iTVr (500,000) 0
Purchases of equipment (229,090) (11,769)
Notes receivable (152,857) 0
------------ ------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (881,947) (11,769)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock 42,500 434,100
Proceeds from notes payable 2,409,212 0
Payments on notes payable (181,512) (25,160)
------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 2,250,200 408,940
------------ ------------
Increase (decrease) in cash and cash equivalents (1,617,301) 202,195
Cash and cash equivalents at beginning of period 2,886,710 6,006
------------ ------------
Cash and cash equivalents at end of period $ 1,269,409 $ 208,201
============ ============
See accompanying notes.
7
IVG CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
JUNE 30, 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 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 Sugar Land-based company that acquires and enhances
revenue-generating companies with 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.
8
IVG CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED - CONTINUED
JUNE 30, 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 six months ended June 30, 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. The accompanying unaudited consolidated financial
statements include expenses associated with the Company's acquisition and
disposition of SES-Corp., Inc. on April 1, 2001 and August 9, 2001,
respectively, but do not otherwise include the financial condition and results
of operations of SES-Corp., Inc. See Note 12.
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
June 30, 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.
9
IVG CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED - CONTINUED
JUNE 30, 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.
10
IVG CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED - CONTINUED
JUNE 30, 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 June 30, 2001:
Manufacturing equipment $ 109,670
Furniture and equipment 89,027
Leasehold improvements 170,381
Less: Accumulated depreciation (109,714)
----------
$ 259,364
==========
NOTE 4 - OTHER ASSETS
Other assets consists of the following as of June 30, 2001:
Historical Accumulated Book
cost amortization value
--------------------------------------------
Licenses, patents, trademarks $364,846 $115,945 $248,901
Other assets 42,000 42,000
--------------------------------------------
$406,846 $115,945 $290,901
============================================
NOTE 5 - NOTES PAYABLE
Notes payable consists of the following as of June 30, 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 $ 47,485
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
11
IVG CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED - CONTINUED
JUNE 30, 2001
================================================================================
Note payable to SES-Corp., Inc., due on September 30, 2001 1,000,000
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
-----------
$4,907,596
===========
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 June 30, 2001:
Deferred tax assets
Net operating loss carryforwards $ 37,171,591
Valuation allowance for deferred tax assets (37,171,591)
-------------
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 $37,171,591 as of June 30, 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.
12
IVG CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED - CONTINUED
JUNE 30, 2001
================================================================================
NOTE 7 - CONVERTIBLE PREFERRED STOCK
After the acquisition of Swan Magnetics, Inc., there remained Swan convertible
preferred stock outstanding. There were 612,957 share of Series B preferred
stock outstanding with a historical cost of $221,000; 2,010,000 shares of Series
D preferred stock outstanding with a historical cost of $1,423,303; and 706,000
shares of Series G preferred stock 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.
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 preferred stock
until holders of Series B preferred stock have been paid. 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 preferred stock have a liquidation preference over Series D
and G preferred stock and common shareholders of $1.10 per share plus any
declared but unpaid dividends, holders of Series D preferred stock have a
liquidation preference over Series G preferred stock and common shareholders of
$2.50 per share plus any declared but unpaid dividends, and holders of Series G
preferred stock 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 at 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).
Warrants
--------
There are outstanding common stock warrants attached to Series D and Series G
preferred stock at June 30, 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 June 30, 2001. The Series D warrants expire
in 2001 and the Series G warrants expire in 2006.
Voting Rights
-------------
Each holder of Series B, D, and G preferred stock is entitled vote on matters
presented to the common stockholders of Swan as if the holder had converted such
shares of preferred stock into common stock. In addition, the Series G preferred
stockholders also have the right to elect one director to the Swan Board of
Directors.
13
IVG CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED - CONTINUED
JUNE 30, 2001
================================================================================
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:
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 75,000 $ 1.25
Exercised - $ -
Canceled - $ -
------------ ------------
Balance, June 30, 2001 11,763,625 $ 0.40
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 restrictive 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.
14
IVG CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED - CONTINUED
JUNE 30, 2001
================================================================================
The following summary presents information with regard to the securities issued
under the 2000 Plan as of June 30, 2001:
Number of
Balance, June 30, 2001 Shares
---------------------------------- ------------
Unrestricted stock awards: 1,783,200
Restricted stock awards: 1,705,450
Shares available under the 2000 Plan as of June 30, 2001 totaled 6,511,350. In
accordance with FASB No. 123, non-cash stock-based compensation expense of
$3,339,041 has been recognized in the accompanying statement of operations for
the six months ended June 30, 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 June 30, 2001, options for 900,000 shares
had been granted to three non-employee directors under this plan, of which
300,000 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.
15
IVG CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED - CONTINUED
JUNE 30, 2001
================================================================================
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
$12,366,419 on gross sales of $427,595 for the six months ended June 30, 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.
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. Management is presently investigating potential
financing transactions and acquisitions 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.
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.
16
IVG CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED - CONTINUED
JUNE 30, 2001
================================================================================
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-Corp., 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, 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, which amounted to approximately 11.8 million shares.
The Acquisition Agreement also provided that 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 were to be issued in 2002, based upon the
EBITDA of SES in 2001. 85 percent of the shares initially issued under the
transaction were to be placed in escrow to secure certain indemnification
obligations of the former SES shareholders.
Subsequent to June 30, 2001, the Company disposed of SES in a transaction that
transferred 100 percent of SES' common stock to the former shareholders of SES.
In exchange, the former SES shareholders have released to IVG an aggregate of 10
million shares of IVG common stock, which were to be issued into escrow under
the parties' March 31, 2001 merger agreement. The cost of acquisition and
subsequent disposition of SES was approximately $522,000. These expenses are
reflected in the results of operations for the six months ended June 30, 2001.
Additionally, stock based compensation expense of approximately $2,300,000 is
reflected in the results of operations for the three and six-months ended June
30, 2001, related to the approximately 1,800,000 shares of stock currently held
by the former shareholders of SES.
CyberCoupons
------------
On January 9, 2001, the Company executed a Reorganization Agreement and Plan of
Exchange pursuant to which the Company exchanged 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 June 30,
2001 related to this investment.
17
IVG CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED - CONTINUED
JUNE 30, 2001
================================================================================
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
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 investment in iTVr has been written down to $0
in the accompanying financial statements. Under the parties' agreement, Swan
will receive an 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 personal video
recorder 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.
18
IVG CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED - CONTINUED
JUNE 30, 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 was to file a registration statement for the
shares underlying the convertible notes and warrants, and to cause such
registration statement to be declared effective by the Securities and Exchange
Commission within 135 days of issuance of the convertible notes and warrants.
The registration statement has not yet been declared effective principally due
to the unavailablity of consolidated financial statements of SES-Corp., Inc.
This has caused an event of default under the notes. The lenders have not
enforced penalties related to the failure to file the registration statement as
of the date of these financial statements and the Company is presently in
discussions with the lender regarding a waiver of the default and penalties.
19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
FINANCIAL CONDITION
At June 30, 2001, the Company had current assets of approximately $3,270,000 and
total assets of approximately $3,820,000. Current liabilities at June 30, 2001
were approximately $6,356,000. The Company's stockholders' deficit at June 30,
2001 was approximately $4,633,000.
RESULTS OF OPERATIONS
Comparison of the six months ended June 30, 2001 to the six months ended June
-----------------------------------------------------------------------------
30, 2000
--------
Revenues increased to approximately $522,000 for the first half of 2001,
compared to approximately $176,000 for the comparable period in 2000. The
increase was attributable principally to increased product sales and interest
income. Cost of goods sold increased to approximately $337,000 from $148,000 for
the same periods. This increase was primarily the result of increased product
sales.
Other expenses, consisting of selling, general, and administrative expenses, and
sales and marketing expenses, increased to approximately $8,950,000 from
approximately $399,000. This increase was due primarily to expenses for shares
issued in acquisitions, increased stock-based compensation, expenses of Swan
Magnetics, Inc., and increased costs due to acquisitions and expansion of
Company operations.
The Company's net loss for the six months ended June 30, 2001 was approximately
$9,266,000, compared to a net loss of approximately $376,000 for the six months
ended June 30, 2000. The loss in 2001 is related primarily to expenses for
shares issued in acquisitions increased consulting, legal and accounting fees
incurred in connection with acquisition activity, expenses of Swan Magnetics,
Inc., and increased costs due to expansion of Company operations.
Comparison of the quarter ended June 30, 2001 to the quarter ended June 30, 2000
--------------------------------------------------------------------------------
Revenues increased to approximately $246,000 for the second quarter of 2001,
compared to approximately $92,000 for the second quarter of 2000. The increase
was attributable to increased product sales. Cost of goods sold increased to
approximately $216,000 from $115,000 for the same periods. This increase was
primarily the result of increased product sales.
Other expenses, consisting of selling, general, and administrative expenses, and
sales and marketing expenses, increased to approximately $6,300,000 from
approximately $191,000. This increase was due primarily to expenses for shares
issued in acquisitions, increased stock-based compensation, expenses of Swan
Magnetics, Inc., and increased costs due to acquisitions and expansion of
Company operations.
The Company's net loss for the quarter ended June 30, 2001 was approximately
$3,108,000, compared to a net loss of approximately $218,000 for the quarter
ended June 30, 2000. The loss in 2001 is related primarily to expenses for
shares issued in acquisitions increased consulting, legal and accounting fees
incurred in connection with acquisition activity, expenses of Swan Magnetics,
Inc., and increased costs due to expansion of Company operations.
20
LIQUIDITY AND CAPITAL RESOURCES
Operations for the quarter ended June 30, 2001 were financed principally through
loans from the Company's SES-Corp., Inc. and Swan Magnetics, Inc. subsidiaries.
Previously, operations have been financed through private sales of common stock
and loans from institutional investors, Swan Magnetics, Inc., 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 $2,170,000 in the
quarter ended June 30, 2001 and $171,000 in the quarter ended June 30, 2000. The
Company had $2,769,000 in cash at June 30, 2001, of which $1,500,000 was
restricted for payment of a promissory note to a vendor.
Management is presently investigating potential financing transactions and
acquisitions that management believes can provide additional cash for the
Company's operations and will 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.
GOING CONCERN CONSIDERATION
The Company has experienced continuing 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 loans from insititutional
investors and the Company's subsidiaries, and the financial support of certain
of its stockholders. 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 is presently investigating potential financing transactions
and acquisitions 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.
21
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
(c) RECENT SALES OF UNREGISTERED SECURITIES.
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.
On April 23, 2001, the Company sold 20,000 shares of its common stock, at a
price of $.70 per share, for gross proceeds of $14,000. 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.
On June 12, 2001, the Company issued 2,000 shares of its common stock to a
non-profit organization as a donation. The accompanying financial statements
record expense of $2,500 relating to such issuance. 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.
During the three months ended June 30, 2001, the Company issued a total of
1,018,100 shares of its common stock to 11 individuals or entities in exchange
for services provided to the Company. The accompanying financial statements
record aggregate expense of $1,272,625 relating to such issuances. 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.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
On February 2, 2001, the Company executed a subscription agreement (the
"Subscription Agreement") with Alpha Capital Aktiengesellschaft, AMRO
International, S.A., Markham Holdings Ltd., and Stonestreet Limited Partnership
(the "Investors"), in which the Investors agreed to loan to the Company a total
of $1.1 million in exchange for convertible notes (the "Notes") and warrants to
purchase shares of the Company's common stock (the "Warrants" and together with
the shares underlying the Notes and the Warrants, the "Shares").
The Subscription Agreement required the Company to register the Shares within 90
days of February 2, 2001, and that the registration statement registering the
Shares would be effective within 135 days of such date. On May 2, 2001, the
Company filed a registration statement on Form SB-2; however, this registration
statement has not been declared effective, and therefore, the Company is in
default under the terms of both the Subscription Agreement and the Notes. Due to
this event of default, the Investors may at any time demand repayment in full of
the Notes. Moreover, the Investors may demand liquidated damages be paid in
addition to the amounts owed under the Notes in an amount equal to one percent
per month for the first 30 days the Company was in default and two percent per
month for each 30 days, or portion thereof, thereafter. The Company is currently
in negotiations with the Investors to waive this default. As of the date of this
Report, the Investors have not made a demand for repayment of the Notes or
liquidated damages under the Subscription Agreement.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(b) REPORTS ON FORM 8-K.
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.
22
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.
August 21, 2001 /s/ ELORIAN LANDERS
-------------------------------------------
Elorian Landers
Chief Executive Officer and Director
(Principal Executive Officer and
Principal Financial and Accounting Officer)
23