As filed with the Securities and Exchange Commission on October 10, 2001
REGISTRATION NO. 333-60056
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
IVG CORP.
---------
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
Delaware 6770 59-2919648
-------- ---- ----------
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION
NUMBER)
IVG Corp.
13135 Dairy Ashford, Suite 525
Sugar Land, Texas 77478
(281) 295-8400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
____________________________-
Elorian Landers
IVG Corp.
13135 Dairy Ashford, Suite 525
Sugar Land, Texas 77478
(281) 295-8400
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER OF AGENT
FOR SERVICE OF PROCESS)
---------------------------------
Copy to:
Lawrence B. Mandala
Baker & McKenzie
2300 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201
(214) 978-3000
---------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to
time after the date this registration statement becomes effective.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
=================================================== ============= ========================= ======================== ===============
AMOUNT TO PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
BE OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED REGISTERED SHARE(1) PRICE(1) FEE(1)
--------------------------------------------------- ------------- ------------------------- ------------------------ ---------------
Common Stock, par value $0.0001 per share,
issuable upon conversion of Convertible Notes 38,630,378(2) $0.055 $ 2,124,671 $ 531
--------------------------------------------------- ------------- ------------------------- ------------------------ ---------------
Common Stock, par value $0.0001 per share,
issuable upon exercise of Warrants(3) 275,000(3) $1.647 $ 452,925 $ 113
--------------------------------------------------- ------------- ------------------------- ------------------------ ---------------
Common Stock, par value $0.0001 per share,
issuable upon exercise of Warrant(4) 50,000(4) $1.647 $ 82,350 $ 21
--------------------------------------------------- ------------- ------------------------- ------------------------ ---------------
Common Stock, par value $0.0001 per share 278,042(5) $0.055 $ 15,292 $ 4
--------------------------------------------------- ------------- ------------------------- ------------------------ ---------------
Total $ 2,675,238 $ 669(6)
=================================================== ============= ========================= ======================== ===============
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(c) of the Securities Act of 1933, as amended, based
on the average of the closing bid and asked price for our common stock as
reported on the OTC Bulletin Board on October 5, 2001.
(2) Represents 200% of the shares of our common stock issuable upon conversion
of convertible notes issued by us. The notes may be converted into shares of
our common stock at a conversion price equal to the lower of (a) $1.5825 and
(b) 85% of the average of the three lowest closing bid prices for our 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. For purposes of
estimating the number of shares of our common stock issuable upon conversion
of the notes, we calculated the number of shares to be issued based upon a
conversion price of $0.05695, the conversion price that would have been in
effect if the notes were converted on October 8, 2001. The notes are payable
on January 1, 2003.
(3) Represents shares of our common stock issuable upon exercise of warrants
issued to holders of the convertible notes. The warrants have an exercise
price of $1.647 and may be exercised until February 2, 2006.
(4) Represents shares of our common stock issuable upon exercise of a warrant
issued to Union Atlantic Capital, L.C. as partial consideration for serving
as our financial advisor and private placement agent in connection with the
issuance of the convertible notes. The warrant has an exercise price of
$1.647 and may be exercised until April 30, 2005.
(5) Represents shares of our common stock issuable to the purchasers of the
convertible notes if the closing bid price of our common stock is not equal
to or greater than $2.374 for 10 consecutive trading days during the 180 day
period commencing on the effective date of this registration statement.
(6) Previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
SUBJECT TO COMPLETION, DATED OCTOBER 10, 2001
PROSPECTUS
IVG CORP.
UP TO 39,233,420 SHARES OF COMMON STOCK
This offering relates to the resale of an aggregate of 39,233,420 shares of our
common stock by persons who are referred to in this prospectus as selling
securityholders. The shares offered by this prospectus include shares issuable
by us in the future if:
o convertible notes held by some of the selling securityholders
are converted into shares of our common stock;
o warrants held by the selling securityholders are exercised; or
o we are required to issue additional shares of our common stock
to some of the selling securityholders under our agreement
with them.
We will not receive any proceeds from the resale of these shares by the selling
securityholders. However, we could receive proceeds of up to $82,350 upon
exercise by Union Atlantic Capital, L.C, one of the selling securityholders, of
warrants held by it.
The selling securityholders may sell the shares of common stock from time to
time in public or private transactions occurring on or off the OTC Bulletin
Board, in negotiated transactions or otherwise.
Our common stock is quoted on the OTC Bulletin Board under the trading symbol
"IVGG." On October 5, 2001, the average of the closing bid and asked price of
our common stock was $0.055.
INVESTING IN OUR SECURITIES INVOLVES RISKS. YOU SHOULD PURCHASE OUR SECURITIES
ONLY IF YOU CAN AFFORD A COMPLETE LOSS OF YOUR INVESTMENT. SEE "RISK FACTORS"
BEGINNING ON PAGE 3.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS ____________, 2001.
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and we are not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
TABLE OF CONTENTS
SUMMARY.................................................1 Market Price Information...............................15
The Company.............................................1 Dividends..............................................15
Risk Factors............................................1 MANAGEMENT.............................................16
The Offering............................................1 Directors and Executive Officers.......................16
Shares of Common Stock Outstanding:.....................2 EXECUTIVE COMPENSATION.................................16
How to Contact Us.......................................2 Summary Compensation Table.............................16
Summary Financial Data..................................2 Employment Agreements..................................17
RISK FACTORS............................................3 2000 Omnibus Securities Plan...........................17
Risks Associated With Our Business......................3 Option Grants..........................................17
Risks Associated With Investing in Our Securities.......4 Option Exercises and Option Values.....................18
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS..............6 Compensation of Directors..............................18
USE OF PROCEEDS.........................................6 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT...........................................18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS...................6 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.........19
Results of Operations...................................7 INDEMNIFICATION........................................20
Comparison of the Six Months Ended June 30, 2001 FINANCING AGREEMENTS...................................21
and June 30, 2000......................................7
Overview...............................................21
Comparison of the Years Ended December 31, 2000
and December 31, 1999..................................8 Convertible Notes......................................21
Comparison of the Years Ended December 31, 1999 Registration Rights....................................23
and December 31, 1998.................................8
Security Agreement.....................................24
Liquidity and Capital Resources.........................8
Warrants for Investors.................................24
Going Concern Consideration.............................9
Warrant for Union Atlantic.............................24
BUSINESS...............................................10
DESCRIPTION OF SECURITIES TO BE REGISTERED.............25
Overview...............................................10
Common Stock...........................................25
Portfolio Companies....................................10
SELLING SECURITYHOLDERS................................25
Business Strategy......................................12
PLAN OF DISTRIBUTION...................................26
Evaluation of Potential Acquisitions...................13
LEGAL MATTERS..........................................27
Competition............................................13
EXPERTS ...............................................27
Intellectual Property..................................14
WHERE YOU CAN FIND MORE INFORMATION....................27
Properties.............................................15
INDEX TO FINANCIAL STATEMENTS.........................F-1
Legal Proceedings......................................15
Employees..............................................15
SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS. WE
URGE YOU TO READ THIS ENTIRE PROSPECTUS CAREFULLY, INCLUDING THE "RISK FACTORS"
SECTION AND THE CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES INCLUDED
ELSEWHERE IN THIS PROSPECTUS. AS USED IN THIS PROSPECTUS, THE WORDS "WE," "US,"
"OUR" AND "THE COMPANY" REFER TO IVG CORP.; OUR SUBSIDIARIES., SWAN MAGNETICS,
INC. AND CYBERCOUPONS.COM, INC.; AND OUR DIVISION, GEEWHIZUSA.COM.
THE COMPANY
We are a holding company that intends to acquire promising revenue-generating
companies and assist them by providing financial guidance, business model
creation and implementation, access to equity resources and technology. To date,
our portfolio companies consist of the following:
o Our division, GeeWhizUSA.com, a manufacturer and distributor
of proprietary novelty, gift and branded products that light
up.
o Swan Magnetics, Inc., developer of a proprietary ultra-high
capacity floppy disk drive technology and the owner of 46% of
the common stock of iTVr, Inc., which is developing next
generation digital video recording technology; and
o CyberCoupons.com, Inc., a development stage company that
intends to be a source for consumers to obtain coupons for
grocery, household and beauty products via the Internet.
We are also actively pursuing opportunities to expand our business into the
human resources outsourcing industry through the acquisition of professional
employer organizations. A professional employer organization typically provides
employee payroll, human resource and benefit services on an outsourced basis. At
this time, we are exploring opportunities within this arena, but do not have any
definitive agreements to merge with or acquire a professional employer
organization at this time.
RISK FACTORS
An investment in our common stock is speculative and involves a high degree of
risk. You should consider the risk factors described on pages 3 to 5 of this
prospectus, together with the other information in this prospectus, in
evaluating an investment in our common stock.
THE OFFERING
On February 2, 2001, Alpha Capital Aktiengesellschaft, AMRO International, S.A.,
Markham Holdings Ltd. and Stonestreet Limited Partnership (the "investors")
purchased from us an aggregate $1,100,000 of our 6% convertible notes due 2003.
Under our agreement with the investors, we will be obligated to issue additional
shares of our common stock to them if the closing bid price of our common stock
is not equal to or greater than $2.374 for 10 consecutive trading days during
the 180-day period beginning on the effective date of this registration
statement.
In consideration for their investment, we also issued the investors warrants to
purchase an aggregate of 275,000 shares of our common stock at an exercise price
of $1.647. In partial consideration for serving as our financial advisor and
private placement agent in connection with the issuance of the notes, we issued
Union Atlantic Capital, L.C. a warrant to purchase 50,000 shares of our common
stock at an exercise price of $1.647.
Through this prospectus, the selling securityholders may offer to the public the
common stock acquired upon the conversion of the notes, the exercise of the
warrants and the additional shares we may be required to issue to the investors.
The offering price of such sales will be determined at the time of sale by a
selling securityholder. See "Financing Agreements" and "Plan of Distribution."
Our agreement with the investors requires us to register:
o 200% of the shares of common stock that would be issuable on
conversion of the notes if the notes were converted on October
8, 2001 (38,630,378 shares)
o 200% of the additional shares that would be issuable to the
investors 180 days after this registration statement is made
effective, if (1) our closing bid price does not equal or
exceed $2.374 for 10 consecutive trading days during such
period and (2) our average closing bid price over the five
days at the end of such period exceeds $1.5825 (278,042
shares), and
o 100% of the shares issuable on exercise of the warrants held
by the investors (275,000 shares).
We will not receive any of the proceeds from the resale of the common stock by
the selling securityholders. We may receive total proceeds of up to $82,350 in
connection with the exercise of certain warrants by the selling securityholders.
SHARES OF COMMON STOCK OUTSTANDING:
o Prior to this Offering: 51,661,759 shares
o After this Offering: 90,895,179 shares (assuming the
conversion of the notes and exercise of the warrants into
all shares included in the registration statement of which
this prospectus is a part).
HOW TO CONTACT US
Our principal offices are located at 13135 Dairy Ashford, Suite 525, Sugar Land,
Texas 77478. Our telephone number is (281) 295-8400.
SUMMARY FINANCIAL DATA
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
---------------- -----------------------
JUNE 30, 2001 2000 1999
------------- ---- ----
Total Revenues $ 427,595 $ 396,300 $ 402,422
Total Expenses $ 13,040,669 $ 23,570,385 $ 575,268
Net (Loss) $ (12,834,677) $ (21,146,313) $ (291,831)
Basic and fully diluted net loss per share $ (.25) $ (0.59) $ (0.05)
Shares used in computing basic and fully diluted net loss
per share 50,858,168 37,305,300 6,288,554
2
RISK FACTORS
AN INVESTMENT IN OUR SECURITIES INVOLVES A HIGH DEGREE OF RISK AND SHOULD BE
UNDERTAKEN ONLY BY PROSPECTIVE INVESTORS WHOSE FINANCIAL RESOURCES ARE
SUFFICIENT TO ENABLE THEM TO BEAR THE LOSS OF THEIR ENTIRE INVESTMENT.
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING INFORMATION ABOUT
THESE RISKS, TOGETHER WITH THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS,
BEFORE DECIDING WHETHER TO PURCHASE ANY OF OUR SECURITIES. IF ANY OF THE EVENTS
DESCRIBED IN THE FOLLOWING RISKS ACTUALLY OCCURS, THE VALUE OF OUR SECURITIES
COULD DECLINE, AND AN INVESTOR MAY LOSE ALL OR PART OF THE MONEY PAID TO
PURCHASE THE SECURITIES. ADDITIONAL RISKS AND UNCERTAINTIES NOT PRESENTLY KNOWN
TO US OR THAT WE CURRENTLY DEEM IMMATERIAL MAY ALSO HARM OUR BUSINESS PROSPECTS,
FINANCIAL CONDITION AND OPERATING RESULTS, AS SET FORTH ELSEWHERE IN THIS
PROSPECTUS.
RISKS ASSOCIATED WITH OUR BUSINESS
IF WE ARE UNABLE TO IDENTIFY AND PURCHASE INTERESTS IN COMPANIES THAT FIT WITHIN
OUR BUSINESS PLAN, OUR BUSINESS STRATEGY WILL NOT BE SUCCESSFUL. Our success
depends upon the ability of our managers to identify and close the acquisition
of equity interests in companies that compliment our overall strategy and
business plan. No assurances can be given that we will be able to identify
complimentary companies that are interested in completing transactions with us.
Even if such prospects are successfully identified, any number of factors could
preclude us from successfully completing the transactions, including the failure
to agree on terms, incompatibility of management teams, competitive bids from
other companies, lack of capital to complete the transactions or unwillingness
on the part of the prospects. If we cannot acquire substantial equity interests
in attractive companies that fit within our business strategy, we may not be
successful.
WE FACE SUBSTANTIAL COMPETITION AND, IN MANY CASES, BETTER-FINANCED COMPETITORS,
WHICH MAY RESULT IN OUR INABILITY TO CLOSE ACQUISITIONS. The business of
developing, acquiring and capitalizing companies is highly competitive. Our
competitors include existing holding companies that have a longer operating
history, existing portfolios of professional employer organizations,
substantially greater financial resources and an established market for their
publicly traded securities. We also face competition from venture capital
companies, investment banks, Internet holding companies and large capitalization
industrial companies with active investment and venture capital divisions. There
is no assurance that we will be successful in finding suitable portfolio
companies or that such companies will want to be acquired by us. If we cannot
acquire suitable portfolio companies, we will not be able to implement our
business plan.
BECAUSE WE HAVE A HISTORY OF LOSSES AND EXPECT TO INCUR FURTHER LOSSES, WE MAY
BE UNABLE TO CONTINUE AS A GOING CONCERN. Historically, we have incurred losses
from operations, and accumulated a deficit of $36,075,555 through June 30, 2001.
Our stockholders' deficit at June 30, 2001 was ($173,056). We incurred losses
of $291,831 and $21,146,313 for the years ended December 31, 1999 and 2000,
respectively. Our independent accountants have included an explanatory paragraph
in their report on our financial statements stating that our financial
statements have been prepared assuming that we will continue as a going concern,
but a substantial doubt exists as to our ability to do so because of these
recurring losses from operations and our net capital deficiency.
WE MAY INCUR SIGNIFICANT COSTS TO AVOID INVESTMENT COMPANY STATUS AND WILL BE
REQUIRED TO CHANGE THE WAY WE OPERATE IF WE ARE DEEMED TO BE AN INVESTMENT
COMPANY AT SOME POINT IN THE FUTURE. We may incur significant costs to avoid
investment company status and may suffer other adverse consequences if we are
deemed to be an investment company under the Investment Company Act of 1940 (the
"1940 Act"). Some of our equity investments in other businesses may constitute
investment securities under the 1940 Act. A company may be deemed to be an
investment company if it owns investment securities with a value exceeding 40%
of its total assets, subject to certain exclusions. Investment companies are
subject to registration under, and compliance with, the 1940 Act unless a
particular exclusion or SEC safe harbor applies. If we were to be deemed an
investment company, we would become subject to the requirements of the 1940 Act.
As a consequence, we would be prohibited from engaging in business or issuing
our securities as we have in the past. We might also be subject to civil and
criminal penalties for noncompliance. In addition, certain of our contracts
might be voidable, and a court-appointed receiver could take control of us and
liquidate our business.
3
Although management anticipates that our investment securities will comprise
less than 40% of our total assets, fluctuations in the value of these securities
or of our other assets may cause this limit to be exceeded. Unless an exclusion
or safe harbor was available to us, we would have to attempt to reduce our
investment securities as a percentage of our total assets. This reduction can be
attempted in a number of ways, including the disposition of investment
securities and the acquisition of non-investment security assets. If we were
required to sell investment securities, we may have to sell some sooner than we
otherwise would. These sales may be at depressed prices and we may never realize
the anticipated benefits from, or may incur losses on, these investments. We may
not be able to sell some investments due to contractual or legal restrictions or
the inability to locate a suitable buyer. Moreover, we may incur tax liabilities
when we sell assets. We may also be unable to purchase additional investment
securities that may be important to our operating strategy. If we are required
or decide to acquire non-investment security assets, we may not be able to
identify and acquire suitable assets and businesses.
OUR WORKING CAPITAL REQUIREMENTS MAY CAUSE US TO SEEK ADDITIONAL FINANCING IN
THE NEAR-TERM, AND, IF SUCH FINANCING IS UNAVAILABLE, WE MAY NOT BE ABLE TO
IMPLEMENT OUR BUSINESS PLAN. Our working capital requirements and the cash flow
provided by future operating activities, if any, will vary greatly from quarter
to quarter, depending on the volume of business during the period and payment
terms with our customers. There can be no assurance that adequate levels of
additional financing, whether through additional equity financing, debt
financing or other sources, will be available, or will be available when needed
or on terms favorable to us. Additional financings could result in significant
dilution to our existing stockholders or the issuance of securities with rights
superior to our current outstanding securities. If adequate capital is not
available or is not available on acceptable terms, we may be unable to fully
implement our business plan, develop or enhance our services, take advantage of
future opportunities or respond to competitive pressures on a timely basis, if
at all. If we are unable to obtain additional financing as needed, we may be
required to reduce the scope of our operations or our anticipated expansion.
OUR STRATEGY OF EXPANDING OUR BUSINESS THROUGH ACQUISITIONS OF OTHER BUSINESSES
AND TECHNOLOGIES PRESENTS SPECIAL RISKS. We intend to continue to expand through
the acquisition of businesses, technologies, products and services from other
companies. Acquisitions involve a number of special problems, which we may not
be capable of handling. Those problems include, but are not limited to, the
following:
o difficulty integrating acquired technologies, operations and
personnel with our existing business;
o diversion of management's attention in connection with both
negotiating the acquisitions and integrating the businesses
and assets;
o potential issuance of securities in connection with the
acquisition, which securities dilute the current holders of
our outstanding securities;
o strain on managerial and operational resources as management
tries to oversee larger operations;
o exposure of unforeseen liabilities of acquired companies; and
o the requirement to record additional future operating costs
for the amortization of goodwill and other intangible assets,
which amounts could be significant.
RISKS ASSOCIATED WITH INVESTING IN OUR SECURITIES
OUR STOCKHOLDERS WILL EXPERIENCE DILUTION IF HOLDERS OF CONVERTIBLE SECURITIES
WE ISSUED CONVERT SUCH SECURITIES INTO SHARES OF OUR COMMON STOCK. On February
2, 2001, certain investors purchased an aggregate of $1.1 million of our 6%
Convertible Notes due 2003. The notes are convertible into shares of our common
stock 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 our 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 of the note. As of October 8, 2001, and at an
assumed conversion price of $0.05695 per share, the notes would have been
convertible into 19,315,189 shares of our common stock. The number of shares
issuable on conversion of the notes could prove to be significantly higher in
the event of a decrease in the closing bid price of our common stock. We would
be required to issue additional shares of common stock to the investors if our
closing bid price does not equal or exceed $2.374 for 10 consecutive trading
days during the 180 days after the effective date of this registration
statement. The number of shares we would have to issue would be at least 139,021
4
but could be significantly higher if our five-day average closing bid price at
the end of such period is significantly less than $1.5825 per share. Our
stockholders could experience significant dilution if we are required to issue a
large number of additional shares to the investors under these arrangements.
See "Financing Agreements."
OUR COMMITMENT TO ISSUE ADDITIONAL SHARES OF COMMON STOCK IN THE FUTURE MAY
CAUSE OUR STOCK PRICE TO FALL. We have reserved a significant number of shares
of our common stock for future issuance as described in the preceding risk
factor. The issuance of the shares of common stock which have been reserved for
future issuance may cause then prevailing market price of our common stock to
fall.
IF OUR INVESTORS ELECT TO WAIVE THE CURRENT CAP ON THEIR ABILITY TO CONVERT,
THEIR CONVERSION OF CERTAIN CONVERTIBLE NOTES COULD RESULT IN A CHANGE OF
CONTROL. On February 2, 2001, four investors purchased an aggregate of $1.1
million of our convertible notes. Pursuant to our agreement with these
investors, each investor agreed that its respective portion of the notes would
not be converted into more than 9.9% of our outstanding common stock at the time
of such conversion. However, our agreement with the investors also provides that
each investor may waive this 9.9% conversion limitation at any time on 75 days
notice to us. In the event the investors waive this limitation, the conversion
of the convertible notes into shares of our common stock could result in a
change of control. In the event a change of control occurs, the investors would
have the power to make decisions concerning our business and operations,
including the ability to replace our management.
WE ARE CURRENTLY IN DEFAULT ON NOTES TO SES-CORP., INC. WE NEED TO RAISE
ADDITIONAL CAPITAL IN ORDER TO SATISFY THIS PREEXISTING OBLIGATION. At October
10, 2001, we were in default on the payment of a note to SES-Corp., Inc. in the
amount of $1 million, which bears interest at eight percent per year. In order
to satisfy our obligations under this note, we will need to raise additional
capital. While we hope to raise additional capital in the near future, we cannot
guarantee that we will be able to do so on acceptable terms, if at all.
OUR DIRECTORS AND EXECUTIVE OFFICERS BENEFICIALLY OWN A SIGNIFICANT AMOUNT OF
OUR CURRENTLY OUTSTANDING COMMON STOCK, WHICH MEANS THEY CAN EXERCISE
SIGNIFICANT INFLUENCE OVER STOCKHOLDER ACTIONS. Our directors and executive
officers currently beneficially own an aggregate of 13,287,721 shares of our
common stock, including options to purchase shares exercisable within 60 days of
October 10, 2001. This represents approximately 24.5% of our currently
outstanding common stock, taking into account the exercise of the above
mentioned stock options. We may grant additional stock options or stock to our
directors and executive officers in the future which could increase this
concentration of ownership further. As a result, the directors and executive
officers, acting together in concert, could exercise a significant influence
over all matters requiring stockholder approval, including the ability to elect
members of our board of directors, including themselves, and to approve or
prevent us from taking significant corporate actions requiring director and/or
stockholder approval. If these directors and executive officers collectively
withheld their consent and approval, they could (1) have a significant impact on
actions that might effect a change in control of the company, such as a merger
or consolidation involving the company; or (2) discourage a potential acquiror
from making a tender offer or otherwise attempting to obtain control of the
company.
ADDITIONAL SALES PRACTICES IMPOSED UPON BROKER-DEALERS THAT SELL LOW-PRICED
SECURITIES COULD LESSEN THE MARKET FOR OUR SECURITIES. The SEC has adopted
regulations concerning low-priced securities or "penny stocks." The regulations
define a penny stock to be any equity security that has a market price (as
defined) of less than $5.00 per share, subject to certain exceptions. For
transactions covered by these regulations, a broker-dealer intending to sell to
persons other than established customers or accredited investors must make a
special suitability determination for the purchaser and must have received the
purchaser's written consent to the transaction prior to the sale. These
additional burdens may discourage broker-dealers from effecting transactions in
our securities and could limit market liquidity in our common stock and a
stockholder's ability to sell in the secondary market. In addition, it is
unlikely that any bank or financial institution will accept penny stock as
collateral.
5
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements made by (or on behalf of) us. You can sometimes
identify these statements by the use of forward-looking words such as "may,"
"will," "expect," "anticipate," "estimate," "continue" or other similar words,
although such words are not used in every sentence in which we present
anticipated future outcomes or occurrences. Except for historical information
contained in this prospectus, the statements included in the "Risk Factors"
section, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the "Business" section, and elsewhere in this
prospectus, contain forward-looking statements that are dependent upon a number
of risks and uncertainties that could cause actual results to differ materially
from those in the forward-looking statements. The factors listed in the "Risk
Factors" section, as well as cautionary language in this prospectus, provide
examples of risks, uncertainties and events that may cause our actual results to
differ materially from the expectations we describe in our forward-looking
statements. We do not intend to provide updated information about the matters
referred to in these forward-looking statements, other than in the context of
Management's Discussion and Analysis of Financial Condition and Results of
Operations contained in this prospectus and other disclosures in the filings we
make with the SEC.
USE OF PROCEEDS
We will not receive any of the proceeds from the resale of our common stock by
the selling securityholders. However, we would receive the sale price of any
common stock that we issue to the selling securityholders upon exercise of the
warrants held by them. 50,000 of these warrant shares can only be purchased for
cash and 275,000 of these warrant shares can be purchased for cash or on a
cashless basis, at the holder's election. In the event an investor elects to
exercise its warrants on a cashless basis, the investor will use the difference
between the exercise price of the warrant and the fair market value of the
shares at the time of exercise to acquire the shares underlying the warrant. For
example, if our common stock had a fair market value of $3.294 at the time an
investor elected to exercise a warrant to purchase 100,000 shares, the investor
could, on a cashless basis, exercise the entire warrant and receive 50,000
shares. The warrant holders are not obligated to exercise these warrants, and
there can be no assurance that they will do so. If warrants are exercised on a
cashless basis, we will receive no proceeds from those exercises. The total
proceeds from the exercise of these warrants, if exercised in full, would be
$82,350 if all cashless warrants were exercised on a cashless basis. We
anticipate that any proceeds we may receive will be used as working capital and
for general corporate purposes.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
We were incorporated in Florida in 1987 under the name Sci Tech Ventures, Inc.,
and changed our name to Strategic Ventures, Inc. in May 1991 and Internet
Venture Group, Inc. in October 1999. Effective December 31, 1999, control of
Internet Venture Group, Inc. was acquired by shareholders of GeeWhiz.com, Inc.,
a Texas corporation. Because this acquisition was treated as a reverse
acquisition (a recapitalization of GeeWhiz.com) for accounting purposes, our
financial statements for periods prior to December 31, 1999 are those of
GeeWhiz.com. The former business of GeeWhiz.com has been continued by our
GeeWhizUSA.com division, which manufactures and distributes proprietary novelty,
gift and branded products, including fiber optic illuminated drinking
containers.
We have expanded our business into other areas during 2000 and 2001 through a
series of acquisitions. In September 2000, we acquired 88.5% of the common stock
of Swan Magnetics, Inc., developer of a proprietary ultra-high capacity floppy
disk drive technology. During 2001, Swan Magenetics acquired 46% of the common
stock of iTVr, Inc., which is developing next generation digital video recording
technology. In January 2001, we acquired 35% of the common stock of
CyberCoupons, Inc., a development stage company that intends to be a source for
consumers to obtain coupons for grocery, health and beauty products over the
Internet.
6
In April 2001, we acquired SES-Corp., Inc., a professional employer organiation
pursuant to an Amended and Restated Asset Purchase Agreement and Agreement and
Plan of Merger (the "Merger Agreement"). In the merger SES became a wholly-owned
subsidiary of ours. The shares of SES common stock outstanding immediately prior
to the effective time of the merger were converted into the right to receive
11,819,262 shares of our common stock. Ten million shares of our common stock
were to be placed in an escrow account (the "Escrow Shares") to secure certain
indemnification obligations set forth in the Merger Agreement.
Subsequent to our acquisition of SES, we became aware that SES was the subject
of an investigation by the Internal Revenue Service relating to its actions
prior to our acquisition of the company. SES also had some of its bank accounts
frozen by a bank that claimed the accounts were overdrawn by over $30 million,
and subsequently filed for bankruptcy protection. In light of these
developments, we entered into an agreement with the two former shareholders of
SES in August 2001 in which we disposed of SES by exchanging all of the issued
and outstanding shares of SES for the Escrow Shares. Pursuant to the terms of
the Agreement, these shareholders each retained 909,631 shares of our common
stock issued to them under the Merger Agreement.
The cost of our acquisition and subsequent disposition of SES was approximately
$522,000. Additionally, we recorded stock based compensation expense of
approximately $2,300,000, related to the approximately 1,800,000 shares of stock
currently held by the former shareholders of SES. While no claims against us are
pending or threatened related to our former ownership of SES, in the future we
could incur additional expenses related to such claims.
Our financial condition and results of operations for 1999 are based solely upon
the business activities of GeeWhiz.com. Our financial condition and results of
operations for 2000 and 2001 are based upon the business activities of our
GeeWhiz division and our Swan Magnetics, Inc. subsidiary. During these periods,
we also incurred expenses relating to our corporate overhead, our investment in
CyberCoupons, and Swan Magnetics' investment in iTVr. All of our revenues to
date have been derived from product sales by our GeeWhiz division.
At June 30, 2001, we 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. Our stockholders' deficit at June 30, 2001 was
approximately $173,000.
RESULTS OF OPERATIONS
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2001 AND JUNE 30, 2000
Revenues increased to approximately $428,000 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 principally of general and administrative expenses of
$12 million, increased to approximately $13,172,000 from approximately $404,000.
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 our operations. We also
recorded interest expense of $549,000 and a $500,000 loss on our investment in
iTVr during the first six months of 2001.
Our net loss for the six months ended June 30, 2001 was approximately
$12,835,000, 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.
7
COMPARISON OF THE YEARS ENDED DECEMBER 31, 2000 AND DECEMBER 31, 1999
Revenues decreased to approximately $396,000 for 2000, compared to approximately
$402,000 for 1999. Cost of goods sold during 2000 increased to approximately
$299,000, from $181,000 during 1999. This increase was primarily the result of
higher prices for materials and higher direct costs associated with
manufacturing by our GeeWhiz division.
Other expenses, consisting principally of general and administrative expenses of
$5,444,000 and an $18,040,000 expense for the value of the shares issued in our
acquisition of Swan Magnetics, Inc., increased to approximately $23,570,000 in
2000, from approximately $575,000 in 1999. The increase was principally due to
the above $18.04 million non-cash expense and increased general and
administrative expenses associated with acquisition activity. During 2000,
non-cash stock compensation expense was $2,485,568. This expense represents
approximately 2,414,000 shares issued to non-employees for consulting, printing
and professional services rendered to us. Expense was determined using the fair
value of stock issued at the time services were rendered or the fair value of
the services if no market existed at the time services were rendered.
GeeWhiz accounted for $801,000 in expenses for 2000, while Swan Magnetics
accounted for $143,000. The balance of $4,500,000 in other expenses was
accounted for by IVG Corp. The $4,500,000 in expenses were cash and non-cash
compensation and corporate expenses, including marketing of $174,000, rent of
$85,000 and salaries of $273,000.
In September 2000, we acquired 88.5% of the outstanding common stock of Swan
Magnetics, Inc., which had approximately $5.4 million of cash and certain
in-process technology. Upon consummation of the Swan Magnetics acquisition, we
expensed approximately $18,040,000 representing purchased in-process technology.
The in-process technology consisted of a proprietary floppy disk drive
technology that had reached prototype form. Our initial intent was to take this
technology to market via strategic alliances with other companies providing
parallel products and services to customers. It was determined post-acquisition
that we would be better served to pursue other revenue-producing activities. As
a result, the technology has not yet been taken to market and there are no plans
to do so in the near term. No additional expense or revenue is expected in
connection with this technology in the near term. Should we decide to market
this technology in the future, we believe the cost of doing so would be minimal.
Our net loss for 2000 was approximately $21,146,000, compared to a net loss of
approximately $292,000 during 1999. The loss in 2000 is primarily due to the
write-off of in-process technology acquired in our acquisition of Swan and
increased general and administrative expenses due to acquisition activity.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1999 AND DECEMBER 31, 1998
Revenues increased to approximately $402,000 for 1999, compared to approximately
$328,000 for 1998. The increase was attributable principally to increased
product sales.
Costs of goods sold during 1999 increased to $181,000, from $133,000 during
1998. This increase was primarily the result of the larger number of drinking
glasses produced and distributed in 1999.
Other expenses, consisting of selling, general and administrative expenses, and
sales and marketing expenses, decreased to $575,000 in 1999, from $585,000 in
1998. The decrease was principally due to decreased sales and marketing expenses
in 1999.
Our net loss for 1999 was approximately $292,000, compared to a net loss of
$389,000 during 1998.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was approximately $3,006,000 for the six
months ended June 30, 2001 and $195,000 for the comparable period of 2000. We
had approximately $1,269,000 in cash at June 30, 2001, excluding $1,500,000 of
cash restricted for payment of a promissory note to a vendor.
8
Operations for the six months ended June 30, 2001 were financed principally
through loans from institutional investors, SES-Corp., Inc., which was our
subsidiary until August 8, 2001, and our Swan Magnetics, Inc. subsidiary. The
loan proceeds totaled approximately $2.4 million.
Net cash used in operating activities was approximately $1,092,000 in 2001 and
$255,000 in 2000. Our acquisition of Swan Magnetics in September 2000 generated
cash of approximately $5,400,000, of which $1,500,000 was restricted for payment
of a promissory note to a vendor. We had approximately $2,887,000 in cash at
December 31, 2000, excluding restricted cash. Prior to obtaining funding from
Swan Magnetics and subsequently acquiring Swan Magnetics in September 2000, we
financed our losses from operations in 2000 and 1999 principally through the
issuance of our common stock in private transactions and borrowings from our
management and stockholders.
In addition, in both 2001 and 2000, we obtained services or paid expenses
through the issuance of common stock.
Our loan from SES-Corp., Inc. in the principal amount of $1 million was due in
September 2001. Our $1.1 million convertible notes are due on January 1, 2003,
and our note from Swan Magnetics in the principal amount of approximately $2.8
million is due on August 1, 2003. We need to raise additional capital in order
to satisfy these obligations. See "Certain Relationships and Related
Transactions" and "Financing Agreements" for descriptions of the convertible
notes and Swan Magnetics note.
Management has taken steps to revise our operating and financial requirements to
accommodate our available cash flow, including substantial reductions in
management salaries. As a result of these efforts, management believes funds on
hand and cash flow from operations will enable us to meet our liquidity needs
for at least the next two months. We need to raise additional cash, however, in
order to satisfy our proposed business plan and expand our operations.
Management is presently investigating potential financing transactions and
acquisitions that management believes can provide additional cash for our
operations and be profitable in both the short and long-term. Management also
intends to attempt to raise funds through private sales of our common stock.
Although management believes that these efforts will enable us to meet our
liquidity needs in the future, there can be no assurance that these efforts will
be successful.
GOING CONCERN CONSIDERATION
We have continued losses from operations, negative cash flow and liquidity
problems. These conditions raise substantial doubt about our 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 we be unable to continue as a going concern.
We have been able to continue based upon loans from institutional investors and
our subsidiaries, and the financial support of certain of our stockholders.
Management believes that actions presently being taken to revise our operating
and financial requirements provide the opportunity for us to continue as a going
concern. Management is presently investigating potential financing transactions
and acquisitions that management believes can provide additional cash for the
our operations and be profitable in both the short and long-term. Management
also intends to attempt to raise funds through private sales of our common
stock. Although management believes that these efforts will enable us to meet
our liquidity needs in the future, there can be no assurance that these efforts
will be successful.
9
BUSINESS
OVERVIEW
We are a holding company that intends to acquire promising revenue-generating
companies and assist them by providing financial guidance, business model
creation and implementation, access to equity resources and technology. To date,
our portfolio companies consist of the following:
o Our division, GeeWhizUSA.com, a manufacturer and distributor
of proprietary novelty, gift and branded products that light
up;
o Swan Magnetics, Inc., developer of a proprietary ultra-high
capacity floppy disk drive technology and the owner of 46% of
the common stock of iTVr, Inc., which is developing next
generation digital video recording technology; and
o CyberCoupons.com, Inc., a development stage company that
intends to be a source for consumers to obtain coupons for
grocery, household and beauty products via the Internet.
We are also actively pursuing opportunities to expand our business into the
human resources outsourcing industry through the acquisition of professional
employer organizations. A professional employer organization typically provides
employee payroll, human resource and benefit services on an outsourced basis.
While we are exploring opportunities within this arena, we do not have any
definitive agreements to merge with or acquire a professional employer
organization at this time.
PORTFOLIO COMPANIES
GEEWHIZ. We acquired our division, GeeWhizUSA.com, in a two step transaction. In
the first step, which became effective as of December 31, 1999, 37 shareholders
of GeeWhiz acquired control of approximately 87% of our common stock pursuant to
a share exchange agreement in which we exchanged 23,905,374 shares of our common
stock for the 5,312,053 shares of GeeWhiz common stock held by the participating
shareholders. In July 2000, the second step of this acquisition was completed
with the merger of GeeWhiz into IVG, following which GeeWhiz became our
promotional products division. Neither party obtained a fairness opinion in
connection with these transactions. Shareholder approval was not required with
respect to the share exchange. A majority of the shareholders of both parties
approved the merger. The terms of the transactions were the result of arm's
length negotiations between the parties. Elorian Landers, who is now our Chief
Executive Officer and a director, was GeeWhiz's Chief Executive Officer and
principal stockholder at the time of these transactions. Thomas L. McCrimmon,
who is now one of our directors, was our President and principal stockholder at
the time of these transactions. GeeWhiz engaged in these transactions for the
principal purpose of becoming a publicly-traded company and acquiring the access
to capital and liquidity associated with being publicly traded. IVG, which was a
public shell company prior to these transactions, elected to be acquired by
GeeWhiz in order to become an operating e-commerce business.
GeeWhiz, which is based in Houston, Texas, manufactures and distributes
proprietary novelty, gift and branded products that light up. To date, GeeWhiz
has principally been engaged in the sale of its proprietary Starglas(TM) line of
fiber optic illuminated drinking containers. GeeWhiz is rapidly expanding its
product line to include a wide variety of promotional, gift and souvenir items
which will be sold over its website and through traditional distribution
channels. GeeWhiz introduced LightArt(TM) in September 2000, which is a line of
illuminated gifts and merchandise primarily aimed at the promotional product
channel and secondarily at the retail gift channel. LightArt(TM) includes
illuminated keychains, awards and wearable products. GeeWhiz intends to expand
its product line from its proprietary Starglas(TM) and LightArt(TM) lines of
fiber optic illuminated products to include other promotional, gift and souvenir
items for sale through both the GeeWhiz website and traditional reseller and
specialty distribution channels. Although GeeWhiz is currently a division of the
company, we plan to form a new, wholly-owned subsidiary to operate the GeeWhiz
business in 2001.
10
GeeWhiz operates a business e-commerce website designed to access and service
the promotional products, gifts and souvenir markets. Through this website,
GeeWhiz plans to bring together the customers, distributors, merchandisers,
concessionaires and resellers of this highly fragmented industry to meet and
transact business on-line via an electronic promotional products, gifts and
souvenir bazaar.
SWAN MAGNETICS. On September 28, 2000, we acquired approximately 88.5% of Swan
Magnetics, Inc., a Santa Clara, California-based developer of proprietary
ultra-high capacity floppy disk drive technology. As part of a two-step purchase
transaction, we first exchanged 20,000,000 shares of our common stock for
approximately 88.5% of the common stock of Swan Magnetics. We then offered to
exchange the common stock received by those stockholders for warrants to
purchase our common stock at an exercise price equal to $1.75. This permitted us
to reduce the number of shares we were issuing in the Swan acquisition.
Stockholders exchanged an aggregate of 9,091,793 shares of common stock for
warrants to purchase our common stock. The terms of the transaction, which were
approved by a majority of the outstanding shares of Swan Magnetics, were the
result of arm's length negotiations between the parties. A vote of our
shareholders was not required to effect this acquisition. Neither party obtained
a fairness opinion in connection with this transaction. Eden Kim was the
principal shareholder and President of Swan Magnetics at the time of the
transaction. During this time, Mr. Kim was also our Chairman and Secretary.
Elorian Landers, our Chief Executive Officer and director, and Thomas L.
McCrimmon, our director, were principal shareholders at the time of this
acquisition. We believe the Swan Magnetics shareholders engaged in these
transactions principally because of the economic terms, the additional liquidity
offered by becoming shareholders of a publicly-traded company, and the
opportunity to particpate in a broader business. We approved these transactions
primarily because Swan Magnetics possessed $5.4 million in cash that could
assist us in financing our business strategy, and because we intended to market
Swan Magnetics' proprietary technology. We initially intended to pursue
strategic alliances with manufacturers of similar products and services in order
to bring the Swan Magnetics' technlogy to market. Subsequent to the closing of
our acquisition, however, we determined to pursue other revenue-producing
activities. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
In February 2001, Swan Magnetics entered into a research and development
agreement with iTVr, Inc., a company based in Santa Clara, California. iTVr is
developing next generation digital video recording technology intended to
record, play back and time shift certain broadband electronic transmission
events. iTVr has developed a high performance, low cost, multi-function personal
video recorder for a variety of applications, including time shift television
recording, digital imaging and manipulation, distance education, HDTV, karaoke,
videoconferencing, music videos, video e-mails and home gateway applications.
Pursuant to the agreement, Swan Magnetics has invested $750,000 in iTVr to date
and acquired 46% of iTVr's common stock. iTVr anticipates that its product will
be on the market in the fourth quarter of 2001.
CYBERCOUPONS. On January 9, 2001, we executed a Reorganization Agreement and
Plan of Exchange pursuant to which we exchanged 2,372,625 shares of our common
stock for approximately 35% of the common stock of CyberCoupons, Inc., a
Houston, Texas-based company. CyberCoupons is a development stage company that
intends to be a source for consumers to obtain coupons for grocery, household
and beauty products via the Internet. The terms of the transaction were the
result of arm's length negotiations between the parties and were not required to
be approved by our shareholders. Neither party obtained a fairness opinion in
connection with this transaction. Rodney Hamp was the principal shareholder and
President of CyberCoupons at the time of the transaction, and continues to serve
in that capacity. Elorian Landers, our Chief Executive Officer and director,
Thomas L. McCrimmon, our director, and Eden Kim, our former Chairman and
Secretary, were principal shareholders at the time of this acquisition. We
believe the CyberCoupons shareholders engaged in the transaction principally
because of the economic terms, the additional liquidity offered by becoming
shareholders of a publicly-traded company, and the opportunity to particpate in
a broader business. We approved these transactions primarily because of
CyberCoupons' business strategy to distribute coupons over the Internet.
11
CyberCoupons was formed to employ the infrastructure of the Internet to allow
manufacturers to offer coupons, consumers to retrieve the offers and merchants
to redeem the coupons virtually in real time. Much of the advertiser expense on
coupons consists 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 savings to the billions of dollars spent by manufacturers and
merchants to print, distribute and redeem paper coupons for grocery, household,
beauty and other products. CyberCoupons intends to allow shoppers to select
specific grocery coupons from the manufacturer's website or a merchant's website
for use at retail outlets nationwide. CyberCoupons has tested its virtual coupon
delivery and redemption process with a regional grocery store for point-of-sale
redemption of electronically downloaded coupons. CyberCoupons intends to enter
into alliances with national manufacturers and merchants and test its process on
a large scale. CyberCoupons does not have any preliminary plans, proposals,
arrangements or understandings to enter into alliances with any national
manufacturers or merchants at this time.
Our investment in CyberCoupons was diluted immediately, in the sense that the
CyberCoupons shares acquired in exchange for our common stock have a book value
that is far less than the trading price of our common stock at January 9, 2001.
No assurance can be given that our investment in CyberCoupons will appreciate in
value, or that it will appreciate to a value comparable to the value of the
shares of our common stock that were delivered to the CyberCoupons stockholders.
BUSINESS STRATEGY
We plan to acquire companies that our management believes can become profitable
market leaders in their respective industry segment by virtue of a compelling
business model, technology and/or proprietary service. We intend to focus on
acquiring portfolio companies that are currently profitable or those with
business models that identify what management believes to be a potentially
profitable strategy. We plan to help these portfolio companies by providing
corporate and strategic development resources and financial support and by
leveraging the collective knowledge, experience, industry relationships and
other resources of our management, board of advisors, strategic corporate
partners and portfolio companies. We intend to build value in our portfolio
companies by leveraging their corporate assets through cross-marketing and
affinity marketing programs with our other portfolio companies.
We intend to devote significant resources to the development of our subsidiaries
and the acquisition of additional businesses. Additionally, we intend to
continue to evaluate new opportunities to further our investment in our other
portfolio companies and seek out opportunities to increase stockholder value.
For instance, we may consider selling selected investments or having separate
subsidiaries sell a minority interest to outsiders, either privately or by means
of a spin-off initial public offering of one or more of our portfolio companies.
We have decided to focus our acquisition activity on two industries - the human
resources outsourcing industry and the creative products industry. Based on our
experience, we believe that these industries are highly fragmented and represent
profitable business models that can be enhanced through consolidation.
THE HUMAN RESOURCES OUTSOURCING MARKET. We intend to focus on accumulating a
significant revenue base in the professional employer orgainzation, or staff
leasing, industry. Professional employer organizations typically provide
employee payroll, human resource and benefit services on an outsourced basis.
Unlike temporary employment agencies, professional employer organizations carry
client companies' full-time employees on the professional employer organization
payroll and bill the client a surcharge each payroll period. Because
professional employer organizations provide employee-related services to a large
number of employees, they can achieve economies of scale as a professional
employer and perform employment-related functions at a level typically available
only to large corporations with substantial resources.
12
We believe we can apply our resources to increase the profit margins of
professional employer organizations by helping them transition from a
paper-centric human intensive operation to a paper-less, web-centric electronic
operation. We also hope to leverage the employee base of professional employer
organizations by creating cross marketing and affinity marketing programs
between the professional employer organizations and our other portfolio
companies and strategic partners. Furthermore, we intend to expand upon the
services presently provided by professional employer organizations by
introducing new services for the small and medium-sized businesses they serve.
For example, we intend to explore the provision of accounts payable, accounts
receivable and other back office services to clients of our professional
employer organizations.
THE CREATIVE PRODUCTS MARKET. We intend to acquire additional companies in the
creative products market. This market consists of a consumer element and a
business element. The consumer segment of the industry is comprised of companies
that produce consumer art and gift products, such as posters and prints,
calendars, greeting cards, stationary and gift items. The business segment of
the industry includes companies that market business promotional products, such
as our GeeWhizUSA.com division, which manufactures a variety of illuminated logo
merchandise.
EVALUATION OF POTENTIAL ACQUISITIONS
DEVELOPING A SUCCESSFUL BUSINESS MODEL. Any new company must develop a business
model that eventually makes money and provides a return on investment. Some
companies have focused on gaining market share or revenues without regard to
profitability. Until recently, some of these companies were able to sustain this
approach due, in large part, to the tremendous run-up in their stock prices as
investors flocked to scoop up the newest Internet public offering. This high
valuation provided these companies with an Internet currency that allowed them
to grow through the acquisition of other Internet companies or to raise working
capital by issuing new securities to the Internet-starved financial community.
However, our management does not believe that this approach equates to a
sustainable, successful business model. The recent decline in stock prices for
the technology sector also lends support to the view that focusing on market
share or revenues without regard to profit may not be successful over the long
term. Our mission is to find businesses that can obtain a leadership position
within their market segment and to help them capitalize on their position by
implementing a successful earnings business model.
FINDING THE BEST PEOPLE. The single most important resource for any new company
is the people that manage, operate and execute the business and strategy of the
company. Therefore, we will look for companies that are led by entrepreneurs
with the vision to guide a new business to its market space to satisfy its
market demand. To facilitate our success, we intend to augment management with
professionals who have expertise in the applicable market, the ability to manage
rapid growth and the flexibility to adapt to the changing marketplace. Such
people are highly sought after and are few in number. To be successful, each
venture must be able to attract and retain such people.
When evaluating a potential portfolio company, we consider whether we believe
the particular company can meet the foregoing challenges. Management also
evaluates a variety of other factors, including the following:
o MARKET SEGMENT. Is the company positioned in a market segment
that can experience extraordinary growth or leverage?
o MARKET POSITION. Is the company well positioned within the
segment compared to competitors? Is the company first in its
space? Does the company have some other market advantage?
o INDUSTRY LEADERSHIP. Does the company have the products,
services and skills necessary to become an industry leader in
the market segment?
o PROPRIETARY TECHNOLOGY. Does the company possess some
proprietary technology or other technical competitive edge?
o MANAGEMENT TEAM. Does the management team exhibit the traits
or potential necessary to recognize and quickly exploit a
market opportunity and focus the company to seize market
share?
o BUSINESS MODEL. Does the company have, or is it open to
adopting, a business model and strategy that will allow the
company to mature and eventually generate earnings per share
that result in a return on investment?
o NETWORK SYNERGY. Does the company contribute to, or will it
benefit from, relationships with our other portfolio
companies?
COMPETITION
COMPETITION IN THE PROFESSIONAL EMPLOYER ORGANIZATION INDUSTRY. Competition
within the professional employer organization industry generally focuses on the
quality and breadth of services, choice and quality of benefits packages,
reputation and price. We believe leading professional employer organizations
will be distinguished by reputation, national presence, regulatory expertise,
financial resources, risk management and information technology capabilities.
13
The professional employer organization industry is highly fragmented, and many
professional employer organizations have limited operations that serve fewer
than 1,000 worksite employees. We believe that companies we may acquire in the
industry will face competition from the traditional in-house provision of
employee-related services, regional and national professional employer
organizations and fee-for-service providers such as payroll processing firms and
human resource consultants. National competitors in the professional employer
organization industry include Administaff, Inc. and Staff Leasing, Inc. and the
professional employer organization divisions of large business services
companies such as Automatic Data Processing, Inc. and Paychex, Inc. As
professional employer organizations expand nationally, competition will likely
intensify in the industry.
COMPETITION IN THE PROMOTIONAL PRODUCTS INDUSTRY. Competition within the
promotional products industry is highly fragmented and competitive, and some of
our competitors have substantially greater financial and other resources than we
do. Our promotional products compete with the services of in-house advertising,
promotional products and purchasing departments and with designers and vendors
of single or multiple product lines. Our promotional products also compete for
advertising dollars with other media such as television, radio, newspapers,
magazines and billboards. Entry into the promotional products industry is not
difficult and new competitors are continually commencing operations.
The primary methods of competition are creativity in product design, quality and
style of products, prompt delivery, customer service, price and financial
strength. While some of our competitors may enjoy an advantage in one or more of
these areas, we are unique in the production of our illuminated drinking
containers and do not compete with others in the industry for customers who wish
to market their company, product or brand on drinking glasses that light up. In
the promotional products industry in general, major competitors include Cyrk,
Inc. and Ha-Lo, Industries, Inc.
INTELLECTUAL PROPERTY
Our success and ability to compete may be dependent on our ability to develop
and maintain the proprietary aspects of technology and operate without
infringing on the proprietary rights of others. We rely on a combination of
patent, trademark, trade secret and copyright law and contractual restrictions
to protect the proprietary aspects of our technology. We hold a license under US
Patent Numbers 5,211,699 and 5,575,553 on proprietary fiber optic illuminated
drinking containers, as well as registered trademarks on Starglas(R) (Reg. No.
2,216,216) and Fyrglas(R) (Reg. No. 1,995,482). In addition, Fyrglas(R) is also
a registered trademark in Canada. We also have a patent pending with the United
States Patent and Trademark Office (Application No. 09/842,701). We have no
reason to believe that this patent application will not be granted. These legal
protections afford only limited protection for our technology.
Despite efforts to protect our proprietary rights, unauthorized parties may
attempt to copy aspects of our products or obtain and use information regarded
as proprietary. Litigation may be necessary in the future to enforce our
intellectual property rights, protect our trade secrets, determine the validity
and scope of the proprietary rights of others or defend against claims of
infringement or invalidity. Any such litigation could result in substantial
costs and diversion of resources and could have a material adverse effect on our
business, results of operations and financial condition. There can be no
assurance that our means of protecting our proprietary rights will be adequate
or that competitors will not independently develop similar technology. Any
failure by us to meaningfully protect our property could have a material adverse
effect on our business, results of operations and financial condition.
To date, we have not been notified that our products or services infringe the
proprietary rights of third parties, but there can be no assurance that third
parties will not claim infringement with respect to our current or future
products and services. Any such claims, with or without merit, could be
time-consuming to defend, result in costly litigation, divert management's
attention and resources, cause product shipment delays or require us to enter
into royalty or licensing agreements. Such royalty or licensing agreements may
not be available on terms acceptable to us or at all. A successful claim of
product infringement against us and our failure or inability to license the
infringed technology or develop or license technology with comparable
functionality could have a material adverse effect on our business, results of
operations and financial condition.
14
PROPERTIES
Our principal executive offices are located in approximately 4,994 square feet
in Sugar Land, Texas. Our monthly rental payments for this space are $9,988. The
lease for this space expires on November 30, 2005. We also lease approximately
10,000 square feet of warehouse space in Houston, Texas. Our monthly rental
payments for this space are $6,515.20 through November 30, 2001, and $6,718.80
from December 1, 2001 through November 30, 2002. This lease expires on November
30, 2002.
LEGAL PROCEEDINGS
From time to time, we are subject to litigation in the ordinary course of
business. As of the date of this prospectus, we are not currently subject to any
material legal proceedings.
EMPLOYEES
As of October 1, 2001, we had 9 employees, of which 8 were employed by IVG Corp.
(5 of which are devoted to our GeeWhiz division), and 1 was employed by Swan
Magnetics. CyberCoupons does not currently have any employees. We believe our
relationship with our employees is good.
MARKET PRICE INFORMATION
Trading of our common stock commenced on the OTC Bulletin Board on July 13,
2000. Our common stock is traded on the OTC Bulletin Board under the symbol
"IVGG." The reported high and low bid prices for our common stock, as reported
by the OTC Bulletin Board, are shown below for the third quarter of 2000 through
the third quarter of 2001. These over-the-counter market quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission, and may
not represent actual transactions.
BID
------------------------------------------------
LOW HIGH
--------------------- ----------------------
2000
Third Quarter $ 1.50 $ 7.00
Fourth Quarter $ 1.00 $ 2.31
BID
------------------------------------------------
LOW HIGH
--------------------- ----------------------
2001
First Quarter $ 1.06 $ 2.00
Second Quarter $ 1.02 $ 1.69
Third Quarter $ 0.08 $ 1.03
As of October 3, 2001, there were approximately 660 holders of record of our
common stock.
DIVIDENDS
We have not paid any cash dividends to date and have no intention to pay any
cash dividends on our common stock in the foreseeable future. The declaration
and payment of dividends on our common stock is subject to the discretion of our
board of directors and to certain limitations imposed under the General
Corporation Law of the State of Delaware. The timing, amount and form of
dividends, if any, will depend on our results of operations, financial
condition, cash requirements and other factors deemed relevant by our board of
directors.
15
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The name, age and position of our executive officers and directors are as
follows:
NAME AGE POSITION
---- --- --------
Elorian Landers 53 Chief Executive Officer and Director
Thomas McCrimmon 58 Director
Clay Border 36 Chief Development Officer, Secretary and Director
Our directors serve until the next annual meeting of our shareholders and until
their respective successors are elected and qualified. Our officers serve at the
pleasure of our board of directors.
ELORIAN LANDERS has served as our Chief Executive Officer and as a director of
the company since December 1999. He has also served as a consultant to and
director of GeeWhiz since February 1996, and as the President of GeeWhiz since
October 1998. Mr. Landers holds a B.A. in Advertising from Art Center College in
Pasadena, California. He also attended Texas A&M University, where he studied
architecture.
THOMAS MCCRIMMON has served as a director of the company since 1987. Mr.
McCrimmon was involved in merger and acquisition work, SEC and management
consulting to private and public companies from 1976 through 1983 as the founder
and owner of Bay Business Consultants, a business brokerage and consulting firm.
Mr. McCrimmon has been the President and founder of Florida Hi-Tech Capital,
Inc., Tampa, Florida, a privately held financial management consulting firm
since 1984. From 1988 to 1990, Mr. McCrimmon was president of Paragon
Acquisitions Group, Inc., a public company which acquired Sun Up Foods, Inc.,
Benton, Kentucky, a processor of citrus juice concentrate for resale to dairies
nationwide. Mr. McCrimmon was President of Baystar Capital, Inc., a public shell
company which merged with American Clinical Laboratories, Tampa, Florida, from
1988 to 1991. Mr. McCrimmon also serves as the President and a director of
Global Assets & Services, Inc., a public shell company.
CLAY BORDER has served as our Chief Development Officer and Secretary since July
2001. From October 1999 until joining IVG, Mr. Border was Vice President of
Business Development for EC Outlook, a developer of business to business
software. From 1993 until early 2000, Mr. Border was employed by UBS Paine
Webber, where he served as a First Vice President. While at Paine Webber, Mr.
Border served as an investment advisor to corporations and high net worth
individuals. Mr. Border received his Bachelors of Business Administration from
the University of Texas at Austin in 1989.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the summary of compensation paid to our named
executive officers in fiscal years 1998 through 2000. The "named executive
officers" are our chief executive officer, regardless of compensation, and our
only other executive officer who was serving as an executive officer at December
31, 2000 and whose annual salary and bonus exceeded $100,000.
16
LONG-TERM
ANNUAL COMPENSATION
COMPENSATION AWARDS
------------------ ------------------
NAME AND PRINCIPAL POSITION YEAR SALARY ($) SECURITIES
UNDERLYING
OPTIONS (#)
---------------------------------------------------------- ---------- ------------------ ------------------
Elorian Landers, Chief Executive Officer and Director 2000 $220,000 750,000
1999 $210,000 -0-
1998 N/A N/A
Eden Kim, Chairman of the Board and Secretary(1) 2000 $200,000 375,000
1999 $200,000 -0-
1998 N/A N/A
----------------
(1) Mr. Kim resigned from these positions in July 2001.
EMPLOYMENT AGREEMENTS
We are currently negotiating employment agreements with Elorian Landers, our
Chief Executive Officer, Clay Border, our Chief Development Officer and Richard
Twardowski, our Director of Investor Relations, pursuant to which each of them
will receive a specified base salary subject to annual adjustment by our board
of directors. We also anticipate that each employment agreement will provide
that if we terminate employment without cause, the employee will be entitled to
severance pay, and that the employees will receive annual bonuses at the
discretion of our board of directors and be granted and/or eligible for future
grants of restricted stock awards or stock options. We believe that these
employment agreements will be finalized by the end of 2001.
2000 OMNIBUS SECURITIES PLAN
Our board of directors adopted our 2000 Omnibus Securities Plan in October 2000.
Under the plan, our employees, directors and consultants may be awarded options
to purchase our common stock. We may also make awards of restricted common stock
and grant stock appreciation rights under the plan. The maximum number of shares
of common stock reserved and available for issuance under the plan is
10,000,000, subject to certain adjustments. We believe that the award of
options, restricted stock and stock appreciation rights will provide incentive
to key personnel as well as offer an attractive benefit for the new managers
that we must recruit. To date, 2,062,200 shares of our common stock have been
issued under the plan. The plan will be presented to stockholders for approval
at our next annual meeting of stockholders. Awards that are made under the plan
prior to it being approved by our stockholders are subject to such stockholder
approval.
OPTION GRANTS
The following table sets forth certain information concerning individual grants
of stock options made during the last completed fiscal year to each of the named
executive officers.
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS GRANTED TO
UNDERLYING EMPLOYEES IN
NAME OPTIONS GRANTED FISCAL YEAR EXERCISE PRICE EXPIRATION DATE
----------------------- ---------------- -------------------- ------------------- -------------------
Elorian Landers 750,000 30% $0.25 (1)
Eden Kim 1,500,000 60% $0.25 (1)
----------------
(1) Twenty-five percent of the options vested February 5, 2000 and 25% vest at
the end of each six-month period thereafter, with each vested portion
expiring three years after the date of vesting.
17
OPTION EXERCISES AND OPTION VALUES
The following table sets forth certain information concerning the exercise of
options during the last completed fiscal year by each of the named executive
officers and the fiscal year-end value of such named executive officers'
unexercised options on an aggregated basis.
SHARES NUMBER OF SECURITIES VALUE OF UNEXERCISED
ACQUIRED ON UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
EXERCISE VALUE REALIZED OPTIONS AT FY-END AT FY-END
NAME (#) ($) (#) ($)(1)
------------------------- ----------------------
UNEXERCISABLE/ UNEXERCISABLE/
EXERCISABLE EXERCISEABLE
----------------------- --------------- ---------------- ------------------------- ----------------------
Elorian Landers N/A N/A 375,000/375,000 $410,175/$410,175
Eden Kim N/A N/A 750,000/750,000 $820,350/$820,350
----------------
(1) The value of unexercised options is determined by calculating the
difference between the fair market value of the securities underlying the
options at fiscal year end and the exercise price of the options.
COMPENSATION OF DIRECTORS
Other than being reimbursed for the expenses incurred in attending meetings of
the board of directors, members of our board of directors do not receive cash
compensation for their services as a director. On July 14, 2000, we granted each
of our outside directors an option to purchase 300,000 shares of our common
stock at an exercise price of $0.75 per share. On the date of grant, 25,000
shares vested; the remaining shares vest at the rate of 25,000 shares per
quarter over three years. Each vested portion of options expires three years
after the date of vesting. An outside director will forfeit any unvested options
upon his ceasing to serve as a director. As of October 10, 2001, 325,000 shares
were vested under these options and 400,000 were forfeited because two of the
outside directors granted options ceased to serve as directors of the Company.
Thomas McCrimmon, one of our outside directors, receives a car allowance of $750
per month. Mr. McCrimmon is also covered under our healthcare plan at a level
identical to our executive officers. On February 5, 2000, we granted Mr.
McCrimmon an option to purchase 1,500,000 shares of our common stock at an
exercise price of $0.25 per share. Twenty-five percent of the option vested on
the date of grant, and 25% vests each six months thereafter. The option expires
on August 5, 2004. We also paid Mr. McCrimmon $40,000 for consulting services he
provided to the company in 2000.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of our common stock as of October 3, 2001, for the following: (1) each
person who is known by us to own beneficially five percent or more of our
outstanding common stock, (2) each of our directors and officers who
beneficially own such shares and (3) our officers and directors as a group.
18
SHARES OF COMMON STOCK BENEFICIALLY
NAME OF BENEFICIAL OWNER OWNED
============================================================ -----------------------------------------
NUMBER(1) PERCENT(2)
------------------------------------------------------------ ------------------- ------------------
Elorian Landers(3) 9,556,221 18.2%
Eden Kim(4) 9,205,641 17.3%
Clay Border 17,000 *
Thomas L. McCrimmon(5) 3,714,500 6.9%
Executive officers and directors as a group(6) (3 persons) 13,287,721 24.5%
----------------
* Less than 1% of class.
(1) Pursuant to Rule 13d-3 under the Exchange Act of 1934, as
amended, a person has beneficial ownership of any securities
as to which such person, directly or indirectly, through any
contract, arrangement, undertaking, relationship or otherwise,
has or shares voting power and/or investment power as to which
such person has the right to acquire such voting and/or
investment power within 60 days. Percentage of beneficial
ownership as to any person as of a particular date is
calculated by dividing the number of shares beneficially owned
by such person by the sum of the number of shares outstanding
as of such date and the number of unissued shares as to which
such person has the right to acquire voting and/or investment
control within 60 days. The number of shares shown includes
outstanding shares owned as of October 4, 2001, by the person
indicated and shares underlying warrants and/or options owned
by such person on October 4, 2001, that were exercisable
within 60 days of that date.
(2) Based on 51,661,759 shares of common stock issued and
outstanding as of the close of business on October 3, 2001.
(3) Includes 750,000 shares subject to options exercisable within
60 days of October 3, 2001. Mr. Landers' Address is 13135
Dairy Ashford, Suite 525, Sugar Land, Texas 77478.
(4) Includes 1,500,000 shares subject to options exerciseable
within 60 days of October 3, 2001. Mr. Kim's address is 10715
Orline Court, Cupertino, California 94015.
(5) Includes 1,800,000 shares subject to options exercisable
within 60 days of October 3, 2001. Mr. McCrimmon's address is
3816 West Linebaugh Avenue, Suite 200, Tampa, Florida 33624.
(6) Includes 2,292,500 shares subject to options exercisable
within 60 days of October 3, 2001.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On September 28, 2000, we acquired approximately 88.5% of the outstanding common
stock of Swan Magnetics, Inc. Eden Kim, the beneficial owner of 17.3% of our
common stock and, until July 1, 2001, our Chairman of the Board and Secretary,
is the Chairman of the Board and Chief Executive Officer of Swan Magnetics.
Prior to the acquisition of our majority interest in Swan, we issued a secured
convertible promissory note in the original principal amount of $1,000,000 to
Swan Magnetics in connection with a loan by Swan Magnetics to us. Following the
acquisition of our majority interest in Swan Magnetics, we borrowed additional
funds from Swan Magnetics on several occasions, some of which were evidenced by
promissory notes. These borrowings are secured by all of the capital stock and
holdings of the company in any other entity, collateral and equipment, accounts
receivable and other intangibles and intellectual property of the company as
evidenced by a Security Agreement, dated July 18, 2000, between Swan Magnetics
and the company. In August 2001, all prior notes and advances from Swan
Magnetics, and an additional loan of $150,000, were memorialized in a new note
in the principal amount of $2,843,017.33. This note is due on August 1, 2003,
bears interest at 8% per year, and is subject to the July 18, 2000 Security
Agreement. Up to $1,000,000 of the principal on the note is convertible into our
common stock at a price of $2.00 per share.
In August 2001, we entered into a Voting Agreement with Swan Magnetics, pursuant
to which we agreed to amend the bylaws of Swan to provide:
o for a four person board of directors,
o that the affirmative vote of three directors is required to
approve any board action,
o that a 95% shareholder vote or a board action is required to
amend the bylaws, and
o that the CEO could take certain actions without board
approval.
We further agreed to vote all shares of stock of Swan Magnetics we own in favor
of two directors nominated by us, the CEO of Swan Magnetics, and one person
nominated by the CEO of Swan Magnetics. We agreed to cause our nominees to the
Swan board to approve an employment agreement with Eden Kim as CEO of Swan
Magnetics.
19
In August 2001, we also entered into a Settlement and General Release Agreement
with Swan Magnetics, pursuant to which we agreed to enter into the note and
Voting Agreement described above. We also agreed to a mutual release of claims
with Swan Magnetics. Until February 2002, we agreed to permit any former Swan
Magnetics shareholder who received IVG common stock or warrants in the
transactions through which IVG acquired its interest in Swan Magnetics to
exchange his IVG shares and warrants for Swan shares. We also agreed to use our
best efforts to register the common stock underlying the warrants issued to the
former Swan Magnetics shareholders in the above-referenced transactions.
We paid Thomas McCrimmon, one of our outside directors, $40,000 for consulting
services provided to the company in 2000.
During 2000, Elorian Landers, our Chief Executive Officer and a director,
advanced us an aggregate of $160,000, of which $93,000 has been repaid to date.
These advances bear interest at six percent per year.
In September 2001, Mr. Landers and Mr. McCrimmon pledged 3 million and 218,000
shares of our common stock, respectively, to a collateral agent for investors
that purchased an aggregate of $1.1 million of our convertible notes due 2003.
These stock pledges, and similar pledges of an aggregate of 1.785 million shares
by four other shareholders, secure our obligations under financing agreements
with the investors. See "Financing Agreements -Security Agreement." In
consideration of these stock pledges, which led the investors to waive an event
of default and penalties under the notes, we entered into a Common Stock
Issuance Agreement with each of these shareholders. Under this agreement, the
shareholders agreed to pledge their shares as collateral for the notes, and we
agreed to issue to each shareholder a number of shares of our common stock equal
to 46% of the shares pledged by such shareholder. We also agreed to issue shares
to each shareholder in the future equal to the number of his pledged shares that
are foreclosed upon by the investors, if any.
INDEMNIFICATION
Pursuant to Section 145 of the General Corporation Law of the State of Delaware
("Delaware Code"), the company generally has the power to indemnify its present
and former directors, officers, employees and agents against expenses,
judgments, fines and amounts paid in settlement incurred by them in connection
with any suit (other than a suit by or in the right of the company) to which
they are, or are threatened to be made, a party by reason of their serving in
such positions, or are or were serving at the company's request in such
positions for another corporation, partnership, joint venture, trust or other
enterprise, so long as they acted in good faith and in a manner they reasonably
believed to be in, or not opposed to, the best interests of the company, and
with respect to any criminal action, they had no reasonable cause to believe
their conduct was unlawful. Section 145 of the Delaware Code further provides
that in connection with the defense or settlement of any action by or in the
right of the company, a Delaware corporation may indemnify its present and
former directors, officers, employees and agents against expenses actually and
reasonably incurred by them if, in connection with the matters in issue, they
acted in good faith and in a manner they reasonably believed to be in or not
opposed to the best interests of the corporation, except that no indemnification
may be made with respect to any claim, issue or matter as to which such person
has been adjudged liable to the corporation unless the Court of Chancery or the
court in which such action or suit was brought approves such indemnification.
The statute also expressly provides that the power to indemnify authorized
thereby is not exclusive of any rights granted under any bylaw, agreement, vote
of stockholders or disinterested directors, or otherwise.
Our Bylaws provide that we must indemnify and hold harmless to the fullest
extent permitted by the Delaware Code each person who is or was a director,
officer, employee or agent of the company or is or was serving at our request as
a director, officer, employee, trustee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise (including service with
respect to employee benefit plans) against all expenses, liability and loss
(including attorneys' fees, judgments, fines, special excise taxes or penalties
and amounts paid or to be paid in settlement) reasonably incurred or suffered by
such person in connection with any threatened, pending or completed action, suit
or proceeding, whether civil, criminal or investigative, to which such person
was or is made a party or is threatened to be made a party or in which such
person is involved.
According to our Bylaws and Section 145 of the Delaware Code, the company has
the power to purchase and maintain insurance for its present and former
directors, officers, employees and agents.
20
The above discussion of our Bylaws and of Section 145 of the Delaware Code is
not intended to be exhaustive and is qualified in its entirety by such Bylaws
and the Delaware Code.
Insofar as indemnification for liabilities arising under the Securities Act of
1933, as amended (the "Securities Act"), may be permitted to directors, officers
and controlling persons of the company pursuant to the foregoing provisions, or
otherwise, the company has been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
FINANCING AGREEMENTS
OVERVIEW
On February 2, 2001, we entered into a subscription agreement with each of Alpha
Capital Aktiengesellschaft, AMRO International, S.A., Markham Holdings Ltd. and
Stonestreet Limited Partnership (the "investors") pursuant to which the
investors provided an aggregate of $1,100,000 in financing to us. A convertible
note convertible into shares of our common stock evidenced each investor's
investment. In consideration for this investment, we also issued the investors
warrants to purchase an aggregate of 275,000 shares of our common stock at an
exercise price of $1.647 per share. The notes and warrants were issued February
2, 2001.
Union Atlantic Capital, L.C. served as our financial advisor and private
placement agent for the financing. In consideration for these services, Union
Atlantic received a fee of $99,000 plus a warrant to purchase 50,000 shares of
our common stock at an exercise price of $1.647 per share.
CONVERTIBLE NOTES
GENERAL PAYMENT AND CONVERSION TERMS. Until a note is paid in full, the holder
of a note may convert the outstanding principal and interest due on the note
into shares of our common stock 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
our 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 of the note.
Until June 2, 2001, the notes could not be converted at a conversion price of
less than $.75. As of October 8, 2001, and at an assumed conversion price of
$0.05695 per share, the notes would have been convertible into 19,315,189 shares
of our common stock. This number of shares could be significantly higher in the
event of a decrease in the closing bid price of our common stock.
The notes are payable on January 1, 2003, and bear interest at the rate of six
percent per year. If we do not pay the notes when due, the outstanding amounts
will bear interest at the rate of 20% per year. At the holder's option, all
principal and interest due on the note will become immediately due and payable
upon an event of default under the note. An event of default under the notes
includes the following:
o our failure to pay any amounts when due under a note, and such
non-payment continues for ten days;
o our breach of a material covenant or other term or condition
of a note and the breach remains uncured for seven days
following written notice from the note holder;
o our breach of a material representation or warranty in the
note, subscription agreement or other related documents;
o our assignment for the benefit of creditors, or our
application for or consent to the appointment of a receiver or
trustee for a substantial part of our property or business or
the appointment of such a receiver or trustee;
o entry of a judgment against us or any of our property or
assets for more than $100,000 that is not fully covered by
insurance that remains unvacated, unbonded or unstayed for 45
days;
21
o institution of bankruptcy, insolvency, reorganization or
liquidation proceedings by or against us that are not
dismissed within 45 days;
o the delisting of our common stock for trading or our failure
to comply with listing conditions;
o a concession by us in excess of $100,000 following notice and
the time to cure;
o issuance of a stop trade order on our common stock by the SEC
that continues for more than two business days;
o our failure to deliver common stock to a note holder as
required by a note or the subscription agreement; or
o our failure to file and have certain registration statements
declared effective when required, or such registration
statements ceasing to be effective.
The conversion price and number and type of shares issuable upon conversion of
the notes are subject to adjustment upon, among other things, a merger; sale of
assets; reclassification; stock splits, combinations and dividends; and certain
share issuances.
MANDATORY REDEMPTION. We must pay the holder of a note, upon its request, an
amount equal to 125% of the principal amount of the note designated by the
holder, together with accrued but unpaid interest, in the event (1) the closing
price of our common stock is less than $0.7345 for 22 consecutive trading days,
or (2) we are prohibited from or fail to deliver shares of our common stock when
due (except pursuant to the maximum conversion limitation discussed below).
Following payment of this amount, the corresponding principal and interest on
the note will be canceled and we will have no obligation to deliver shares of
common stock with respect to such amount.
OPTIONAL REDEMPTION. We may redeem the outstanding notes by paying the holders
an amount equal to 125% of the outstanding principal on the notes, plus accrued
interest. We may elect this option provided:
o we are not in default on the notes at the time we opt to
redeem;
o the SEC has declared effective the registration statement
registering the shares that would be issued upon conversion of
the note;
o the closing price of our common stock for the ten days prior
to, but not including, the redemption date, is less than
$1.5825, the maximum base price under the notes; and
o the investors have not provided us with a notice of their
intent to convert the notes.
In the event we elect to redeem the notes, we must provide all of the investors
with a notice of our intent to redeem. Upon such notice, the investors will have
five days in which to elect to convert the notes at a price of $1.5825. If the
investors do not elect to convert within this five-day period, we must pay the
investors the total redemption amount within seven days of providing our notice
of redemption to them. Our failure to provide the full redemption amount by the
seventh day will result in an event of default under the note and our inability
to exercise our right to redeem the notes in the future.
MANDATORY CONVERSION. We may cause the investors to convert up to the entire
principal amount of the notes in the event that:
o we are not in default on the notes;
o the closing price of our common stock is at least $3.165 for
ten consecutive trading days, and on each such trading day at
least 200,000 shares of our common stock have been traded (the
"mandatory conversion trading period"); and
22
o the SEC has declared effective the registration statement
registering the shares that would be issued upon conversion of
the notes.
In the event we meet these mandatory conversion provisions, we may issue a
conversion notice to all of the investors, which causes each investor to convert
in the same proportion as its respective holdings. This mandatory conversion
notice must be given no later than one trading day after the mandatory
conversion trading period, at which time the conversion price and delivery date
of the conversion shares will be calculated.
MAXIMUM CONVERSION LIMITATION. On any conversion date, an investor may not
convert a note into that number of shares of our common stock that would result
in the investor beneficially owning more than 9.99% of the outstanding shares of
our common stock on the conversion date. Provided, however, an investor is not
limited to aggregate conversions of only 9.99% and may void this conversion
limitation on 75 days' notice to the company.
BUY-IN. If we fail to timely deliver shares of common stock upon the conversion
of a note and thereafter an investor buys shares of our common stock on the open
market to satisfy a sale made in anticipation of receiving shares of common
stock upon the conversion, we must pay the investor the amount by which the
total purchase price of the shares purchased on the open market exceeds the
principal and/or interest amount of the note timely converted together with
interest at the rate of 15% per year until paid.
ADDITIONAL SHARES. In the event the closing bid price of our common stock is
less than $2.374 for ten consecutive trading days during the 180 day period
beginning on the effective date of the registration statement of which this
prospectus forms a part, we must issue additional shares of our common stock to
the investors. The aggregate number of additional shares must equal the number
obtained by dividing $220,000 by the lesser of (a) $1.5825 and (b) the average
closing bid price of our common stock for the five trading days immediately
preceding the end of such 180 day period.
REGISTRATION RIGHTS
REGISTRATION STATEMENTS. In connection with the financing, we agreed to file the
registration statement of which this prospectus forms a part. Our initial
agreement with the investors required that the SEC declare the registration
statement effective no later than June 17, 2001. We failed to meet this
requirement and on September 10, 2001, entered into a second agreement with the
investors in which we agreed, among other things, to file an amendment to the
registration statement no later than October 10, 2001, which must be declared
effective by the SEC no later than December 10, 2001. See "-- Security
Agreement." As required by the subscription agreement, the registration
statement covers 200% of the shares issuable upon conversion of the notes at a
conversion price of $0.05695, 100% of the shares issuable upon exercise of the
warrants held by the investors and 200% of the additional shares issuable as
discussed above using an assumed price per share of $1.5825. These shares are
the "registrable securities."
We also granted the investors additional registration rights. If the holders of
more than 50% of the aggregate number of shares of common stock issuable upon
conversion of the notes so request, we must file a registration statement
covering the registrable securities covered by the notice. Provided, however, we
will not have an obligation to file such a registration statement if the
registrable securities are covered by an effective registration statement, and
provided further that we are only required to file such a registration statement
one time during the period between June 18, 2001 and February 2, 2005.
Additionally, if we elect to register any of our securities for sale to the
public, subject to certain exceptions, an investor may elect to have the
registrable securities held by it included in the registration statement.
All registration statements that we file pursuant to the financing agreements,
including the one of which this prospectus forms a part, must be kept effective
until August 2, 2006.
DAMAGES FOR NON-REGISTRATION. If any of the registration statements are not
filed or declared effective within the required time periods or cease to be
effective for a period of time exceeding 30 days in the aggregate per year but
not more than 20 consecutive calendar days, we must pay damages equal to one
percent of the principal of the notes per month for the first 30 days and two
23
percent of the principal of the notes per month for each subsequent 30-day
period. We must also pay these damages if 120% of all shares of common stock
underlying the registrable securities are not included in an effective
registration statement as of and after December 10, 2001, as determined using
the conversion price in effect on the effective date of the registration
statement of which this prospectus forms a part.
EXPENSES. We agreed to pay all expenses we incur in connection with complying
with our registration obligations. The investors must pay all underwriting
discounts and selling commissions.
INDEMNIFICATION. We agreed to indemnify each investor, each officer, director
and underwriter of the investor and each person who controls such investor or
underwriter under the Securities Act against any losses, claims, damages or
liabilities, joint or several, to which such persons become subject and that
arise out of or are based on any untrue statement or alleged untrue statement of
any material fact contained in a registration statement under which registrable
securities are registered pursuant to the financing agreements or any
preliminary prospectus or final prospectus contained in the registration
statement, or that arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading. Provided, however, we
are not liable to the investor to the extent the damages arise out of or are
based upon an untrue statement or omission in any preliminary prospectus if (1)
the investor failed to deliver a copy of the final prospectus with or prior to
the delivery of written confirmation of the sale by the investor to the person
asserting the claim, (2) the final prospectus would have corrected the untrue
statement or alleged untrue statement or omission or alleged omission or (3) to
the extent any loss, claim, damage or liability arises out of or is based on an
untrue statement or alleged untrue statement or omission or alleged omission
that was made based on information provided in writing by the investor or
controlling person for inclusion in the registration statement or prospectus.
SECURITY AGREEMENT
In the subscription agreement, we agreed to cause this registration statement to
be declared effective by the SEC by June 17, 2001. We were unable to comply with
this provision, resulting in an event of default under the notes. On September
10, 2001, we entered into a Security Agreement with the investors, Barbara L.
Mittman as collateral agent for the investors, and certain of our shareholders
(including Elorian Landers, our Chief Executive Officer and a director, and
Thomas L. McCrimmon, one of our directors). See "Certain Relationships and
Related Transactions."
Pursuant to the Security Agreement, Mr. Landers and his wife pledged 3 million
shares, and Mr. McCrimmon pledged 218,000 shares, of our common stock to the
collateral agent as security for our obligations under the financing agreements
with the investors. Four of our other shareholders pledged an aggregate of
1,785,000 shares to the collateral agent. The investors waived the default and
penalties under the convertible notes relating to the failure to make the
registration statement effective by June 17, 2001, provided that we file an
amendment to the registration statement by October 10, 2001 and cause the
registration statement to be declared effective by December 10, 2001.
WARRANTS FOR INVESTORS
The warrants issued to each investor may be exercised in whole or in part until
February 2, 2006, at a price per share equal to $1.647. The shares of common
stock issuable upon exercise of the warrants are subject to adjustment upon,
among other things, our reorganization, consolidation or merger; our
dissolution; and certain share issuances. The shares of common stock issuable
upon exercise of the warrants are also subject to the registration rights and
maximum exercise limitations discussed above.
WARRANT FOR UNION ATLANTIC
The warrant issued to Union Atlantic may be exercised in whole or in part until
April 30, 2005, at a price per share equal to $1.647. The exercise price and/or
number of shares of common stock issuable upon exercise of the warrant are
subject to adjustment upon, among other things, a subdivision or combination of
our common stock and the consolidation, merger or sale of the company.
The above discussion of the subscription agreement, notes, warrants and security
agreement is not intended to be exhaustive and is qualified in its entirety by
such subscription agreement, notes, warrants, and security agreement.
24
DESCRIPTION OF SECURITIES TO BE REGISTERED
COMMON STOCK
Our authorized capital stock consists of 300,000,000 shares of common stock, par
value $0.0001 per share. As of October 3, 2001, there were 51,661,759 shares of
common stock issued and outstanding. The holders of common stock are entitled to
one vote for each share held of record on all matters on which the holders of
common stock are entitled to vote. Cumulative voting is not allowed in any
election of directors. The holders of common stock are entitled to receive,
ratably, dividends when, as and if declared by the board of directors out of
funds legally available therefor. However, the current policy of the board of
directors is to retain earnings, if any, for the operation and expansion of our
business. See "Business -- Dividends."
Upon our liquidation, dissolution or winding up, the holders of common stock are
entitled to share ratably in all assets that are legally available for
distribution, after payment of or provision for all debts and liabilities and
after provision is made for each class of stock, if any, having preference over
the common stock.
The holders of common stock do not have preemptive, subscription, redemption or
conversion rights under our Certificate of Incorporation. There are no
redemption or sinking fund provisions applicable to the common stock. The
outstanding shares of common stock are fully paid and nonassessable.
SELLING SECURITYHOLDERS
The following table sets forth the names of the selling securityholders who may
sell their common stock pursuant to this prospectus. Except as described below,
no selling securityholder has, or within the past three years has had, any
position, office or other material relationship with us or any of our
predecessors or affiliates.
The following table sets forth certain information as of October 3, 2001, to the
best of our knowledge, regarding the ownership of our common stock by the
selling securityholders and as adjusted to give effect to the sale of all of the
common stock offered by the selling securityholder pursuant to this prospectus.
SHARES OF COMMON
SHARES OF COMMON STOCK STOCK BENEFICIALLY
SELLING BENEFICIALLY OWNED BEFORE NUMBER OF SHARES OF COMMON OWNED AFTER THE
SECURITYHOLDER OFFERING STOCK BEING OFFERED OFFERING(8)
-------------------------------------- -------------- ------------ ------------------------------ ----------- -----------
NUMBER PERCENT NUMBER PERCENT
-------------------------------------- -------------- ------------ ------------------------------ ----------- -----------
Alpha Capital Aktiengesellschaft(1) 5,342,777 (2) 9.4% 5,342,777 0 0
AMRO International, S.A. (1) 4,452,315(3) 7.9% 4,452,315 0 0
Markham Holdings Ltd. (1) 6,233,241(4) 10.8% 6,233,241 0 0
Stonestreet Limited Partnership(1) 3,561,850(5) 6.4% 3,561,850 0 0
Union Atlantic Capital, L.C. (6) 50,000(7) * 50,000 0 0
TOTAL
----------------
* Less than 1% of class.
(1) A purchaser of our 6% Convertible Notes due 2003 and a holder of warrants
to purchase shares of our common stock. Party to the Subscription
Agreement, dated February 2, 2001, among Alpha Capital Aktiengesellschaft,
AMRO International, S.A., Markham Holdings, Ltd., Stonestreet Limited
Partnership (collectively, the "Investors") and us. In addition, party to
the Security Agreement, dated September 10, 2001, by and between Elorian
and Becky Landers JTWROS, Hamp Family Limited Partnership, W. Jackson Belt,
Peter Wokoun, Stephen Landers, Thomas McCrimmon, Barbara Mittman, as
Collateral Agent for the benefit of the Investors, and us.
25
(2) Includes 5,267,777 shares of common stock issuable on conversion of
convertible notes at an assumed conversion price of $0.05695 per share, and
75,000 shares of common stock issuable on the exercise of immediately
exercisable warrants.
(3) Includes 4,389,815 shares of common stock issuable on conversion of
convertible notes at an assumed conversion price of $0.05695 per share, and
62,500 shares of common stock issuable on the exercise of immediately
exercisable warrants.
(4) Includes 6,145,741 shares of common stock issuable on conversion of
convertible notes at an assumed conversion price of $0.05695 per share, and
87,500 shares of common stock issuable on the exercise of immediately
exercisable warrants.
(5) Includes 3,511,850 shares of common stock issuable on conversion of
convertible notes at an assumed conversion price of $0.05695 per share, and
50,000 shares of common stock issuable on the exercise of immediately
exercisable warrants.
(6) Served as our financial advisor and private placement agent in connection
with the transactions described in this prospectus under the caption.
(7) Represents 50,000 shares of our common stock issuable upon exercise of an
immediately exercisable warrant.
(8) Assumes no other disposition or acquisition of our common stock and that
all shares of common stock included in this registration statement are
sold.
We will pay all expenses to register the common stock. The selling
securityholders will pay any underwriting and brokerage discounts, fees and
selling commissions, specified attorneys' fees and other expenses to the extent
applicable to them.
PLAN OF DISTRIBUTION
The selling securityholders, or by their pledges, transferees or other
successors in interest, may sell the shares of common stock from time to time in
public or private transactions occurring on or off the OTC Bulletin Board, at
prevailing market prices or at negotiated prices. Sales may be made directly to
purchasers or through brokers or to dealers, who are expected to receive
customary commissions or discounts. To this end, the selling securityholders may
offer their shares for sale in one or more of the following transactions listed
and described below:
o in the over-the-counter market;
o through the facilities of any national securities exchange or
United States automated inter-dealer quotation system of a
registered national securities association on which any of the
shares of common stock are then listed, admitted to unlisted
trading privileges or included for quotation in privately
negotiated transactions;
o in transactions other than on such exchanges or in the
over-the-counter market;
o in connection with short sales of our common stock;
o by pledge to secure debts and other obligations;
o in connection with the writing of non-traded and
exchange-traded call options, in hedge transactions and in
settlement of other transactions in standardized or
over-the-counter options; or
o in a combination of any of the above transactions.
If the selling securityholders sell their shares directly, or indirectly through
underwriters, broker-dealers or agents acting on their behalf, in connection
with such sales, the broker-dealers or agents may receive compensation in the
form of commissions, concessions, allowances or discounts from the selling
securityholders and/or the purchasers of the shares for whom they may act as
agent or to whom they sell the shares as principal or both. Such commissions,
26
concessions, allowances or discounts might be in excess of customary amounts. To
comply with the securities laws of certain jurisdictions, the securities offered
in this prospectus will be offered or sold in those jurisdictions only through
registered or licensed broker-dealers. In addition, in certain jurisdictions the
securities offered in this prospectus may not be offered or sold unless they
have been registered or qualified for sale in those jurisdictions, or unless an
exemption from registration or qualification is available and is complied with.
We are not aware of any definitive selling arrangement at the date of this
prospectus between any selling securityholder and any broker-dealer or agent. We
will not receive any of the proceeds from the resale of the shares by the
selling securityholders, but may receive certain funds as described under "Use
of Proceeds."
In connection with the distribution of their shares, certain of the selling
securityholders may enter into hedging transactions with broker-dealers. In
connection with such transactions, broker-dealers may engage in short sales of
the shares in the course of hedging the positions they assume with the selling
securityholders.
The selling securityholders may also sell the shares short and redeliver the
shares to close out the short positions.
The selling securityholders may also enter into option or other transactions
with broker-dealers that require the delivery of the shares to the
broker-dealer.
The selling securityholders may also loan or pledge their shares to a
broker-dealer. The broker-dealer may then sell the loaned shares or, upon a
default, may sell the pledged shares.
The selling securityholders and any dealer acting in connection with the
offering or any broker executing a sell order on behalf of a selling
securityholder may be deemed to be an "underwriter" within the meaning of the
Securities Act. In that case, any profit on the sale of shares by a selling
securityholder and any commissions or discounts received by any such broker or
dealer may be deemed to be underwriting compensation under the Securities Act.
Any such broker or dealer may be required to deliver a copy of this prospectus
to any person who purchases any of the shares from or through such broker or
dealer. These shares may later be distributed, sold, pledged, hypothecated or
otherwise transferred. In addition to any other applicable laws or regulations,
selling securityholders must comply with regulations relating to distributions
by selling securityholders, including Regulation M under the Securities Exchange
Act of 1934, as amended.
LEGAL MATTERS
Baker & McKenzie, Dallas, Texas will pass on the legality of the common stock
offered under this prospectus for us.
EXPERTS
Our audited consolidated financial statements as of and for the year ended
December 31, 2000 have been included herein and in the registration statement in
reliance upon the report of Wrinkle, Gardner & Company, P.C., independent
certified public accountants, included herein, and upon the authority of said
firm as experts in accounting and auditing.
Our audited consolidated financial statements for the year ended December 31,
1999 have been included herein and in the registration statement in reliance
upon the report of Michael Johnson & Co., LLC, independent certified public
accountants and upon the authority of said firm as experts in accounting and
auditing.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any reports, statements or other
information we file with the SEC at the SEC's Public Reference Room at the
following locations:
450 Fifth Street, N.W.
Washington, D.C. 20549
and
Citicorp Center
500 W. Madison Street, Suite 1400
Chicago, Illinois 60661
Please call the SEC at 1-800-SEC-0330 for further information on the Public
Reference Rooms. Our electronic SEC filings are also available on the web site
maintained by the SEC, which is found at http://www.sec.gov. Our SEC filings are
also available from commercial document retrieval services.
27
IVG CORP.
INDEX TO FINANCIAL STATEMENTS
For the years ended December 31, 2000 and 1999
----------------------------------------------
Independent Auditors' Report.................................................F-2
Consolidated Balance Sheet...................................................F-3
Consolidated Statements of Operations........................................F-4
Consolidated Statements of Changes in Stockholders' Equity...................F-5
Consolidated Statements of Cash Flows........................................F-6
Notes to Consolidated Financial Statements...................................F-7
For the six months ended June 30, 2001 and 2000
-----------------------------------------------
Consolidated Balance Sheet (unaudited)......................................F-18
Consolidated Statements of Operations (unaudited)...........................F-19
Consolidated Statements of Changes in Stockholders' Equity (unaudited)......F-21
Consolidated Statements of Cash Flows (unaudited)...........................F-22
Notes to Consolidated Financial Statements (unaudited)......................F-23
F-1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of IVG Corp.
We have audited the accompanying consolidated balance sheet of IVG Corp. (a
Delaware corporation) as of December 31, 2000, and the related consolidated
statements of operations, cash flows, and changes in stockholders' equity for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit. The financial statements of IVG Corp.
as of December 31, 1999, were audited by other auditors whose report dated
January 11, 2001, on those statements included an explanatory paragraph that
described the substantial doubt about the entity's ability to continue as a
going concern unless substantial capital can be raised to meet obligations.
We conducted our audit in accordance with U. S. generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 2000 financial statements referred to above present fairly,
in all material respects, the financial position of IVG Corp. as of December 31,
2000, and the results of its operations and its cash flows for the year then
ended in conformity with U. S. generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As described in Note 10 to
the financial statements, conditions exist which raise substantial doubt about
the Company's ability to continue as a going concern unless it is able to
generate sufficient cash flows to meet its obligations and sustain its
operations. Those conditions raise substantial doubt about its ability to
continue as a going concern. Management's plans regarding those matters are also
described in Note 10. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/ Wrinkle, Gardner & Company, P.C.
Friendswood, Texas
April 12, 2001
F-2
IVG CORP.
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 2000
ASSETS
CURRENT ASSETS:
Cash $ 2,886,710
Restricted Cash 1,500,000
Accounts receivable - net 27,034
Inventory 77,939
Notes receivable 148,200
-------------
Total current assets 4,639,883
-------------
PROPERTY AND EQUIPMENT - NET 44,541
OTHER ASSETS - NET 494,139
-------------
Total assets $ 5,178,563
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 1,278,038
Notes payable 2,679,896
-------------
Total current liabilities 3,957,934
MINORITY INTEREST (2,209,725)
STOCKHOLDERS' EQUITY AND ACCUMULATED DEFICIT:
Common Stock, par value $.0001, 300,000,000 shares
authorized, 44,073,197 issued and outstanding 4,407
Additional paid-in capital 26,666,825
Accumulated deficit (23,240,878)
-------------
Total stockholders' equity 3,430,354
-------------
$ 5,178,563
=============
The accompanying notes are an integral part of these financial statements.
F-3
IVG CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
2000 1999
------------- -------------
REVENUES:
Sales $ 396,300 $ 402,422
COST OF GOODS SOLD: 298,742 181,303
------------- -------------
GROSS PROFIT 97,558 221,119
------------- -------------
OPERATING EXPENSES:
General and administrative 5,443,807 575,268
Purchased in-process technology 18,039,591 -
Depreciation expense 28,271 -
Interest expense 58,716 -
------------- -------------
Total operating expenses 23,570,385 575,268
------------- -------------
OTHER INCOME:
Interest income 108,789 62,318
Gain on sale of equipment 8,000 -
MINORITY INTEREST (2,209,725) -
------------- -------------
NET (LOSS) $(21,146,313) $ (291,831)
============= =============
Basic and fully diluted net loss per share $ (.57) $ (.05)
Weighted average number of common shares
outstanding for basic and diluted net
loss per common share 37,305,300 6,288,554
The accompanying notes are an integral part of these financial statements.
F-4
IVG CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
COMMON STOCK
-----------------------------
NUMBER OF AMOUNT ADDITIONAL ACCUMULATED TOTAL
SHARES PAID-IN DEFICIT
CAPITAL
------------- ------------- ------------- ------------- -------------
Balance, 4,000,000 $ 400 $ 1,712,124 $ (1,802,734) $ (90,210)
December 31, 1998
Acquisition of subsidiary 26,537,402 2,654 256,911 - 259,565
Net loss - - - (291,831) (291,831)
------------- ------------- ------------- ------------- -------------
Balance, 30,537,402 3,054 1,969,035 (2,094,565) (122,476)
December 31, 1999
Shares issued for services 2,414,200 241 3,005,992 - 3,006,233
Shares issued in acquisitions 20,000,000 2,000 21,185,859 - 21,187,859
Shares exchanged for warrants (9,091,855) (909) - - (909)
Shares issued for cash 213,450 21 434,079 - 434,100
Warrants issued for services - - 71,860 - 71,860
Net loss - - - (21,146,313) (21,146,313)
------------- ------------- ------------- ------------- -------------
Balance, 44,073,197 $ 4,407 $ 26,666,825 $(23,240,878) $ (3,430,354)
December 31, 2000
The accompanying notes are an integral part of these financial statements.
F-5
IVG CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
2000 1999
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $(21,146,313) $ (291,831)
Adjustments to reconcile net (loss) to net cash
(used in) operating activities:
Minority interest (2,209,725) -
Depreciation 28,271 21,473
Amortization 12,650 37,450
Purchased in process technology 18,039,591 -
Stock based compensation 3,078,093 -
Changes in operating assets & liabilities:
Accounts receivable (12,889) 12,232
Inventory 1,649 8,916
Other assets (217,467) -
Accounts payable and accrued expenses 1,334,132 (42,809)
------------- -------------
Net cash (used in) operating activities (1,092,008) (254,569)
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash acquired through purchase of subsidiary 5,404,338 259,565
Purchase of equipment (13,266) (2,726)
Notes receivable (148,200) -
------------- -------------
Net cash provided by (used in) investing activities 5,242,872 256,839
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stock issuance 434,100 -
Proceeds from notes payable 49,785 121,261
Payments on notes payable (254,045) (117,525)
Restricted cash (1,500,000) -
------------- -------------
Net cash provided by (used in) financing activities (1,270,160) 3,736
------------- -------------
Increase (decrease) in cash and cash equivalents 2,880,704 6,006
Cash and cash equivalents - beginning of year 6,006 -
------------- -------------
Cash and cash equivalents - end of year $ 2,886,710 $ 6,006
============= =============
Supplemental cash flow information:
Cash paid for interest $ 60,000 $ 3,562
============= =============
The accompanying notes are an integral part of these financial statements.
F-6
IVG CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
NOTE 1 - ORGANIZATION AND PRESENTATION
On March 9, 2001, IVG Corp. (the Company) changed its name from
Internet Venture Group, Inc. to IVG Corp. 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, the Company acquired all issued and
outstanding shares of GeeWhiz.com, Inc. (a Texas Corporation) for
26,537,402 shares of the Company's stock by the purchase method. For
accounting purposes, the acquisition was treated as a reverse
acquisition (a recapitalization of GeeWhiz.com), with GeeWhiz.com, Inc.
as the acquirer and Strategic Ventures, Inc. as the acquiree. The
acquisition qualified as a reverse acquisition because the officers and
directors of GeeWhiz.com assumed management control of the resulting
entity and the value and ownership interest received by current
GeeWhiz.com, Inc. stockholders exceeded that received by Strategic
Ventures, Inc. The financial statements for periods prior to December
31, 1999 are those of GeeWhiz.com retroactively restated for the
equivalent number of shares received in the acquisition with the
accumulated deficit of GeeWhiz.com being carried forward after the
acquisition.
On September 28, 2000, the Company acquired ownership of approximately
88.5% of the issued and outstanding common stock of Swan Magnetics,
Inc. (a California corporation), for shares of the Company's stock. The
transaction was accounted for under the purchase method. See Note 11.
The Company is a Sugar Land, Texas-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, 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, floppy disk drive technology and currently has no revenue
generating operations.
The Company's fiscal year-end is December 31.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These financial statements are presented on the accrual method of
accounting in accordance with generally accepted accounting principles.
Significant principles followed by the Company and the methods of
applying those principles, which materially affect the determination of
financial position and cash flows, are summarized below:
Principles of Consolidation
---------------------------
The Company's consolidated financial statements as of and for the year
ended December 31, 2000 and 1999 reflect its operations on a
consolidated basis. All significant intercompany accounts and
transactions have been eliminated.
F-7
Cash and Cash Equivalents
-------------------------
The Company considers all highly-liquid debt instruments purchased with
an original maturity of three months or less to be cash equivalents. At
December 31, 2000, $1,500,000 of cash was restricted for payment of a
note to a vendor.
Inventories
-----------
Inventories are stated at cost, determined using the first-in,
first-out (FIFO) method, which is not in excess of market. Finished
products comprise all of the Company's inventories.
Property and Equipment
----------------------
Property and equipment is stated at cost. The cost of ordinary
maintenance and repairs is charged to operations while renewals and
replacements are capitalized. Depreciation is computed on the
straight-line method over the following estimated useful lives:
Manufacturing Equipment 5 years
Furniture and Equipment 5 years
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, as this is the
point at which customers are liable to the Company for products
ordered. The customer may return items if they are found to be
defective. Returns are usually minimal.
In December 1999, the SEC staff issued Staff Accounting Bulletin No.
101("SAB 101"), Revenue Recognition in Financial Statements. SAB 101
explains how the SEC staff applies by analogy the existing rules on
revenue recognition to other transactions not covered by such rules. In
March 2000, the SEC issued SAB 101A that delayed the original effective
date of SAB 101 until the second quarter of 2000 for calendar year
companies. In June 2000, the SEC issued SAB 101B that further delayed
the effective date of SAB 101 until no later than the fourth fiscal
quarter of fiscal years beginning after December 15, 1999. The Company
adopted SAB 101 in the fourth quarter of 2000. The adoption did not
have a material impact on its financial statements.
Income Taxes
------------
The Company accounts for income taxes under SFAS No. 109, which
requires 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 diluted net loss per share information is presented under the
requirements of SFAS No. 128, Earnings Per Share. Basic net loss per
share is computed by dividing net loss by the weighted average number
of shares of common stock outstanding for the period, less shares
subject to repurchase. Diluted net 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 common shares outstanding for a period, if dilutive. All
potentially dilutive securities have been excluded from the
computation, as their effect is anti-dilutive.
F-8
Fair Value of Financial Instruments
-----------------------------------
The carrying amount of cash, accounts receivable, accounts payable and
accrued expenses are considered to be representative of their
respective fair values because of the short-term nature of these
financial instruments. The carrying amount 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.
Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and 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.
Recent Accounting Pronouncements
--------------------------------
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
Accounting for Derivative Investments and Hedging Activities. SFAS 133
establishes a new model for accounting for derivatives and hedging
activities and supercedes several existing standards. SFAS 133, as
amended by SFAS 137 and SFAS 138, is effective for all fiscal quarters
of fiscal years beginning after June 15, 2000. The Company does not
expect that the adoption of SFAS 133 will have a material impact on its
financial statements.
Segment Information
-------------------
In accordance with SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information", Swan is deemed to be a segment of
the Company. Accordingly, the following segment disclosures are made:
YEAR ENDED DECEMBER 31,
2000 1999
------------ ------------
Revenues
Swan $ - $ -
Reconciling items
Other corporate revenues 396,300 402,422
------------ ------------
Total consolidated revenues $ 396,300 $ 402,422
============ ============
Depreciation and amortization expense
Swan $ - $ -
Reconciling items
Other corporate depreciation and amortization expense $ 28,271 $ -
------------ ------------
Total depreciation and amortization expense $ 28,271 $ -
============ ============
Interest income and (expense)
Swan $ 108,789 $ 62,318
Swan (55,000) -
Reconciling items
Other corporate interest income and (expense) (3,716) -
------------ ------------
Total interest income and (expense) $ 50,073 $ 62,318
============ ============
F-9
YEAR ENDED DECEMBER 31,
2000 1999
------------ ------------
Segment assets
Cash $ 2,598,270 $ 1,800
Restricted cash 1,500,000 -
Loan to IVG Corp. 1,850,000 -
Other assets 227,956 -
------------ ------------
Total segment assets 6,226,226 1,800
Reconciling items
Corporate assets 802,337 448,607
Intersegment loans (1,850,000) -
------------ ------------
Total consolidated assets $ 5,178,563 $ 450,407
============ ============
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
December 31, 2000
-----------------
Manufacturing equipment $ 108,556
Furniture and equipment 31,431
--------------
139,987
Less accumulated depreciation (95,446)
--------------
$ 44,541
==============
NOTE 4 - OTHER ASSETS
At December 31, 2000, other assets consisted of the following:
Historical Accumulated Book
Cost Amortization Value
------------ ------------ ------------
Licensing, patents, trademarks $ 364,846 $ 103,184 $ 261,662
Other assets
(deposits, cash surrender
value of officers' life insurance) 232,477 - 232,477
------------ ------------ ------------
$ 597,323 $ 103,184 $ 494,139
============ ============ ============
NOTE 5 - NOTES PAYABLE
Notes payable consisted of the following:
December 31,
2000
------------
Borrowings against a $50,000 line-of-credit agreement with a financial institution $ 49,785
collateralized by a general security agreement covering substantially all assets of
the Company; the note bears interest at two points above the bank's prime rate (8.25%
at December 31, 1999 and 11.0% at December 31, 2000); the note is payable on demand;
however if no demand is made it matures April 2001
Note payable to an individual stockholder, interest at 8.0%, payable in full on demand 100,111
Notes payable to individual stockholders, interest at 10.5%, payable on demand 30,000
Note payable to a company, interest at 10%, payable on demand 1,000,000
Note payable to a company, interest at 8%, due on demand, secured by cash in bank 1,500,000
------------
$ 2,679,896
============
F-10
NOTE 6 - INCOME TAXES
There has been no provision for U.S. federal, state, or foreign income
taxes for any period because the Company has incurred losses in all
periods and for all jurisdictions.
Deferred income taxes reflect the net tax affects 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:
December 31,
2000
-------------
Deferred tax assets
Net operating loss carryforwards $ 23,240,878
Valuation allowance for deferred tax assets (23,240,878)
-------------
Net deferred tax assets $ -
=============
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 net operating loss carryforwards for federal
income tax purposes of approximately $23,240,878 and $2,094,565 as of
December 31, 2000 and 1999, respectively. These carryforwards, if not
utilized to offset taxable income begin to expire in 2003. Utilization
of the net operating loss 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. After the acquisition of
Swan, there were 612,957 shares 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
shares outstanding with a historical cost of $3,512,000. Upon
acquisition, the preferred stock has been valued at $2,191,819, the
liquidation preference value, due to the going concern question of IVG.
The rights, preferences and privileges of the Swan Series B, D and G
preferred stock holders 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 distribution 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 $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).
F-11
Warrants
--------
There are outstanding common stock warrants attached to Series D and
Series G preferred stock. The Series D preferred stock warrants give
the warrant holder the right to purchase one share of Swan common stock
at $0.83 per share. The Series G preferred stock warrants give the
warrant holder the right to purchase shares of Swan common stock. 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 to 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.
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
Company's stock options granted is presented below:
Number of Weighted-Average
Shares Exercise Price per
Share
------------- ------------------
Balance, December 31, 1998 3,235,500 $ .13
Granted 4,370,625 $ .69
Exercised - $ -
Canceled (292,500) $ .14
------------- ------------------
Balance, December 31, 1999 7,313,625 $ .47
Granted 4,375,000 $ .27
Exercised - $ -
Canceled - $ -
------------- ------------------
Balance, December 31, 2000 11,688,625 $ .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, including incentive and non-qualified stock options,
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.
The following summary presents information with regard to the
securities issued under the 2000 Plan as of December 31, 2000:
F-12
Balance, December 31, 2000 Number of Shares
-------------------------------- -----------------
Unrestricted stock awards: 1,080,200
Restricted stock awards: 239,500
Shares available under the 2000 Plan as of December 31, 2000 totaled
8,680,300. In accordance with FASB No. 123, non-cash stock-based
compensation expense of $1,592,450 has been recognized in the
accompanying statements of operations for the year ended December 31,
2000 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
December 31, 2000, options for 300,000 shares had been granted to three
non-employee directors under this plan, of which 150,000 shares are
available for exercise. The exercise price of these options is $.75 per
share. The exercise price was deemed fair value by the Company's Board
of Directors due to the uncertain public market for the shares, the
vesting schedule of the shares and the restricted nature of the shares
issuable upon exercise of the option.
On February 5, 2000, an option to purchase 75,000 shares of common
stock was granted to a member of the Board of Advisors as consideration
for additional services he rendered to the Company. The option has an
exercise price of $.25 per share. On the date of grant, 100% of the
shares were vested. The option expires August 5, 2004. Compensation
expense was not recorded because the stock was not trading on the date
of grant. The exercise price was deemed fair value by the Company's
Board of Directors in light of the lack of public market for the
shares, the vesting schedule of the shares and the restricted nature of
the shares issuable upon exercise of the option.
Accounting Issues Relating to All Stock Compensation Plans
----------------------------------------------------------
The company accounts for these plans, except for the 2000 Omnibus
Securities Plan, 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 have been $(35,215,000) and $(.94), respectively.
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 - $78,386; 2002 - $73,907; and none thereafter. Rent expense was
$84,777 and $73,296 for the years ended December 31, 2000 and 1999,
respectively. 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 $3,106,722, excluding
purchased in-process technology of $18,039,591, on gross sales of
$396,300 for the year ended December 31, 2000. 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.
F-13
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 floppy disk
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. These
shares were valued at $19,005,000 based upon the market value of
shares issued, discounted for restrictions. 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. The warrants expire
August 1, 2004. 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 $21,188,000. 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. The Company's statement of income includes the income and expenses
of Swan for the three months ended December 31, 2000, in accordance
with the purchase method of accounting.
Prior to the acquisition of its majority interest in Swan, the company
issued a secured convertible promissory note in the original principal
amount of $1,000,000 to Swan in connection with a loan by Swan to the
company. Following the acquisition of its majority interest in Swan,
the company borrowed additional funds from Swan on several occasions,
some of which were evidenced by promissory notes. These borrowings are
secured by all of the capital stock and holdings of the company in any
other entity, collateral and equipment, accounts receivable and other
intangibles and intellectual property of the company as evidenced by a
Security Agreement, dated July 18, 2000, between Swan and the company.
In August 2001, all prior notes and advances from Swan, and an
additional loan of $150,000, were memorialized in a new note in the
principal amount of $2,843,017.33. This note is due on August 1, 2003,
and bears interest at 8% per year, and is subject to the July 18, 2000
Security Agreement. Up to $1,000,000 of the principal on the note is
convertible into the company's common stock at a price of $2.00 per
share.
These loans did not affect the terms of the Swan acquisition.
In 1996, Swan entered into a joint development agreement with a
Japanese company and in 1997 entered into a letter of intent for a
joint venture with a U.S. company. In the subsequent months, the
Japanese company began to assert that it had rights to the technology
that was being developed and filed a lawsuit against Swan in December
1998 in an attempt to gain exclusive rights to the technology. As a
result of this activity, it became impossible for Swan to complete and
commercialize the technology, and in late 1998, Swan ceased normal
operations. In May 1999, the Board of Directors formally suspended its
remaining activities except for two contractors who remained to
preserve Swan's technology and maintain corporate records.
F-14
As a result of this litigation, effective April 12, 2000, Swan entered
into a Settlement Agreement and Release with the Japanese company that
resulted in a payment by the Japanese company of $25 million,
termination of the joint development agreement, release of all
obligations between Swan and the Japanese company and surrender of the
Series F preferred stock that had been acquired by the Japanese
company. In addition, Swan granted to the Japanese company a worldwide,
non-transferable, fully paid-up, royalty-free (except as provided for
under the agreement), nonexclusive license under Swan's rights in and
to all technology owned by Swan as of April 12, 2000 to develop, make,
have made, use, import, market, sell, offer to sell and distribute
high-capacity flexible-media magnetic storage drives, media and
components using the technology. The Japanese company also granted to
Swan a similar license for any technology that it owned related to
specific products. Royalty payments are required by the Japanese
company for any products shipped by them prior to April 14, 2001. No
amounts have been received to date.
The pro forma unaudited results of operations for the years ended
December 31, 2000 and 1999, assuming the purchase of Swan had been
consummated as of January 1, 1999, follows:
2000 1999
-------------- --------------
Revenues 396,300 402,422
Lawsuit settlements 17,409,277 0
Net income (loss) 15,983,376 (19,698,236)
Net income (loss) per common share:
Basic 0.39 (0.49)
Diluted 0.36 (0.49)
NOTE 12 - SUBSEQUENT EVENTS - ACQUISITIONS
SES-CORP, INC./CHEYENNE MANAGEMENT COMPANY, INC. On April 1, 2001, the
Company acquired SES-Corp., Inc., a Delaware corporation, pursuant to
an Amended and Restated Asset Purchase Agreement and Agreement and Plan
of Merger (the "Merger Agreement"), dated as of March 30, 2001, by and
among the Company, SES, Cheyenne Management Company, Inc., a Michigan
corporation, SES Acquisition 2001, Inc., a Delaware corporation and
wholly-owned subsidiary of the Company ("Sub"), and Dennis Lambka and
Ronald Bray, shareholders of SES (the "Shareholders"). Under the terms
of the Merger Agreement, Sub merged with and into SES and SES became a
wholly-owned subsidiary of the Company (the "Merger"). The shares of
SES common stock outstanding immediately prior to the effective time of
the merger were converted into the right to receive 11,819,22 shares of
the Company's common stock. Ten million shares of the Company's common
stock were to be placed in an escrow account (the "Escrow Shares") to
secure certain indemnification obligations set forth in the Merger
Agreement.
On August 8, 2001, the Company entered into a share exchange agreement
with the Shareholders (the "Share Exchange Agreement"), in which the
Company disposed of SES by exchanging all of the issued and outstanding
shares of SES for the Escrow Shares. As a result, the Company received
100% of the Escrow Shares and the Shareholders received 100% of SES.
The Shareholders also released the Company from any obligations to
issue additional shares of the Company to the Shareholders under the
Merger Agreement. Pursuant to the terms of the Share Exchange
Agreement, the Shareholders each retained 909,631 shares of the
Company's Common Stock issued to them under the Merger Agreement.
The cost of the acquisition and subsequent disposition of SES was
approximately $522,000. Additionally, the Company recorded stock based
compensation expense of approximately $2,300,000, related to the
approximately 1,800,000 shares of stock currently held by the former
shareholders of SES. While no claims against the Company are pending or
threatened related to its former ownership of SES, in the future the
Company could incur additional expenses related to such claims.
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.
F-15
CyberCoupons was formed to be an Internet source for consumers to
obtain on-line-printable manufacturer coupons for grocery, household
and beauty products. The company is presently dormant.
ITVR. In November 2000, Swan entered into a Research and Development
Agreement with iTVr, Inc. to further develop technology intended to
record, play back and time-shift certain broadband electronic
transmission events such as live television, video email, and music
videos. The initial development fee of $250,000 was paid and expensed
in 2000. The agreement required iTVr to provide certain deliverables
prior to December 31, 2000 and, upon completion of an evaluation of
those deliverables, to determine whether to provide additional funding.
As a result of this evaluation, an additional development fee of
$500,000 was made to iTVr in January 2001. The agreement also requires
Swan to use its best efforts to pursue additional financing for iTVr of
up to $2 million. The initial funding of $250,000 was convertible into
2 million shares of common stock of iTVR within 60 days of the
completion of the initial development phase. In addition, The initial
development fee of $500,000 was convertible into $1 million shares of
common stock of iTVR and a cashless warrant to acquire an additional 1
million shares of common stock at no additional cost if an additional
investment of at least $2 million is arranged for by Swan. Swan
exercised its conversion rights related to the $750,000 funding and
received 3 million shares of common stock of iTVr in February 2001.
This represents a 46% ownership in iTVr. The additional $2 million
financing, if acquired, will also be convertible into 2.5 million
shares of commons tock of iTVr by the lender.
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. iTVr expects to begin shipments of its first product in the
fourth quarter of 2001.
NOTE 13 - SUBSEQUENT EVENTS - CONVERTIBLE NOTES
On February 2, 2001, Alpha Capital Aktiengesellschaft, AMRO
International, S.A., Markham Holdings Ltd. and Stonestreet Limited
Partnership (the "investors") purchased from the company an aggregate
$1,100,000 of its 6% convertible notes due 2003. The notes are secured
by 5,003,000 shares of the company's common stock that has been pledged
by six of its shareholders, including two of its directors.
Until a note is paid in full, the holder of a note may convert the
outstanding principal and interest due on the note into shares of the
company's common stock 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 our 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 of the note. As of October 8, 2001, and at an assumed
conversion price of $0.05695 per share, the notes would have been
convertible into 19,315,189 shares of the company's common stock. This
number of shares could be significantly higher in the event of a
decrease in the closing bid price of the company's common stock. The
notes are payable on January 1, 2003.
The company is also obligated to issue additional shares of common
stock to the investors if the closing bid price of its common stock is
not equal to or greater than $2.374 for 10 consecutive trading days
during the 180-day period beginning on the effective date of the
registration statement filed to register the shares underlying the
convertible notes.
In consideration for their investment, the company issued the investors
warrants to purchase an aggregate of 275,000 shares of common stock at
an exercise price of $1.647. These warrants expire on February 2, 2006.
In partial consideration for serving as the company's financial advisor
and private placement agent in connection with the issuance of the
notes, the company issued Union Atlantic Capital, L.C. a warrant to
purchase 50,000 shares of common stock at an exercise price of $1.647.
This warrant expires April 30, 2005. The exercise price of $1.647
represents 120% of the average closing price of the company's common
stock for the five trading days prior to February 2, 2001, the date of
issuance of the notes.
F-16
In connection with the financing, the company agreed to file a
registration statement for the shares underlying the notes and
warrants. The company was originally required to make the registration
statement effective by June 17, 2001. The investors waived this default
and penalties under the convertible notes relating to the failure to
make the registration statement effective by June 17, 2001, provided
that the company file an amendment to the registration statement by
October 10, 2001 and cause the registration statement to be declared
effective by December 10, 2001. If the registration statement is not
declared effective within the required time periods or ceases to be
effective for a period of time exceeding 30 days in the aggregate per
year but not more than 20 consecutive calendar days, the company must
pay damages equal to one percent of the principal of the notes per
month for the first 30 days and two percent of the principal of the
notes per month for each subsequent 30-day period. The company also
must pay these damages if 120% of all shares of common stock underlying
the convertible notes and warrants are not included in an effective
registration statement as of and after December 10, 2001, as
determined using the conversion price in effect on the effective date
of the registration statement.
NOTE 14 - RELATED PARTY TRANSACTIONS
The Company paid $110,918 in legal fees to a law firm owned by an
outside director. The Company also issued the firm 300,000 shares of
common stock in lieu of a cash retainer and director fees. These shares
were valued at $75,000, which the board determined was the fair market
value of the shares.
The Company paid $55,000 to two related parties, one an outside
director and one a current employee. These payments were for consulting
services.
The Company granted a member of the board of advisors an option to
purchase 75,000 shares of common stock as consideration for services
rendered to the Company. The option has an exercise price of $0.25 and
expires on August 5, 2004. On the grant date, February 5, 2000, 25% of
the shares vested. The remaining shares vest at the rate of 25% each
six months thereafter. The Company's Board of Directors deemed the
exercise price fair value in light of the lack of public market for the
shares, the vesting schedule of shares and the restricted nature of the
shares upon exercise of the option.
F-17
IVG CORP.
CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 2001
(UNAUDITED)
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
MINORITY INTEREST (2,362,256)
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 35,896,410
Accumulated deficit (36,075,555)
-------------
Total stockholders' deficit (173,056)
-------------
$ 3,820,197
=============
See accompanying notes.
F-18
IVG CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE SIX MONTHS ENDED
JUNE 30,
2001 2000
(UNAUDITED) (UNAUDITED)
------------- -------------
REVENUES:
Sales $ 427,595 $ 175,996
------------- -------------
Total revenues 427,595 175,996
COSTS AND EXPENSES:
Cost of goods sold 336,706 147,967
General and administrative 12,035,771 399,207
Research and development 60,000 -
Loss on investment in iTVr 500,000 -
Depreciation expense 27,028 -
Interest expense 549,422 -
Other expenses - 4,410
------------- -------------
Total costs and expenses 13,508,927 551,584
OTHER INCOME:
Interest income 94,124 -
------------- -------------
MINORITY INTEREST (152,531)
------------- -------------
NET INCOME (LOSS) $(12,834,677) $ (375,588)
============= =============
Basic and fully diluted net loss per share $ (.25) $ (.01)
Weighted average number of common shares 50,858,168 30,809,152
outstanding for basic and diluted net loss per share
See accompanying notes.
F-19
IVG CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS ENDED
JUNE 30,
2001 2000
(UNAUDITED) (UNAUDITED)
------------- -------------
REVENUES:
Sales $ 246,096 $ 91,850
------------- -------------
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 -
Depreciation expense 13,199 -
Interest expense 23,982 -
Other expenses - 2,984
------------- -------------
Total costs and expenses 9,483,454 309,940
------------- -------------
MINORITY INTEREST (96,228)
------------- -------------
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.
F-20
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 3,005,992 - 3,006,233
Shares issued for cash 213,450 21 434,079 - 434,100
Acquisition of subsidiary 20,000,000 2,000 21,185,859 - 21,187,859
Shares exchanged for warrants (9,091,855) (909) - - (909)
Warrants issued for services - - 71,860 - 71,860
Net loss - - - (21,146,313) (21,146,313)
------------- ------------- ------------- ------------- -------------
Balance December 31, 2000 44,073,197 4,407 26,666,825 (23,240,878) 3,430,354
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
Beneficial interest on
convertible debt - - 468,258 - 468,258
Net loss - - - (12,834,677) (12,834,677)
------------- ------------- ------------- ------------- -------------
Balance June 30, 2001 60,894,559 $ 6,089 $ 35,896,410 $(36,075,555) $ (173,056)
============= ============= ============= ============= =============
See accompanying notes.
F-21
IVG CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE THREE MONTHS ENDED
JUNE 30,
2001 2000
(UNAUDITED) (UNAUDITED)
------------ ------------
CASH FLOWS FROM OPERATING ACTIVIITIES
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) -
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 -
Changes on operating assets and liabilities: - (4,189)
Accounts receivable (77,464) 2,653
Inventory 18,880 (23,310)
Accounts payable and accrued expenses 144,184 (170,873)
------------ ------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (2,189,805) (194,976)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of equipment (84,745) (3,900)
Notes receivable (27,114) -
------------ ------------
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.
F-22
IVG CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS ENDED
JUNE 30,
2001 2000
(UNAUDITED) (UNAUDITED)
------------- -------------
CASH FLOWS FROM OPERATING ACTIVIITIES
Net (loss) $(12,834,677) $ (375,588)
Adjustments to reconcile net (loss) to net cash
provided by (used in) operating activities:
Minority interest (152,531) -
Depreciation 14,267 13,470
Amortization 12,761 18,153
Stock based compensation 8,720,509 126,258
Loss on investment in iTVr 500,000 -
Beneficial interest on convertible debt 468,258 -
Changes on operating assets and liabilities:
Accounts receivable (110,590) 3,211
Inventory 16,097 (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 (3,005,554) (194,976)
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in iTVr (500,000) -
Purchases of equipment (229,090) (11,769)
Notes receivable (152,857) -
------------- -------------
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 -
Payment on notes payable (181,512) (25,160)
------------- -------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 2,270,200 408,940
------------- -------------
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.
F-23
IVG CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
JUNE 30, 2001
NOTE 1 - 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 11.
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.
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.
F-24
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.
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 2 - 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
=============
F-25
NOTE 3 - 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 4 - 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 12) 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
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
==========
F-26
NOTE 5 - 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 $ 36,075,555
Valuation allowance for deferred tax assets (36,075,555)
-------------
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 $36,075,555 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.
NOTE 6 - 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.
F-27
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 gives the warrant holder the right to purchase shares of Swan
common stock. 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.
NOTE 7- 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
NUMER OF EXERCISE PRICE
SHARES PER 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
F-28
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.
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 these plans, except for the 2000 Omnibus
Securities Plan, under APB Opinion No. 25 and related interpretations
under which no compensation cost has been recognized.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
The Company is in the fourth 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.
F-29
NOTE 9 - 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 $12,834,677 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 10 - 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 floppy disk
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. These
shares were valued at $19,005,000 based upon the market value of
shares issued, discounted for restrictions. 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. The warrants expire
August 1, 2004. 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 $21,188,000. 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. The Company's statement of income includes the income and expenses
of Swan for the three months ended December 31, 2000, in accordance
with the purchase method of accounting.
Prior to the acquisition of its majority interest in Swan, the company
issued a secured convertible promissory note in the original principal
amount of $1,000,000 to Swan in connection with a loan by Swan to the
company. Following the acquisition of its majority interest in Swan,
the company borrowed additional funds from Swan on several occasions,
some of which were evidenced by promissory notes. These borrowings are
secured by all of the capital stock and holdings of the company in any
other entity, collateral and equipment, accounts receivable and other
intangibles and intellectual property of the company as evidenced by a
Security Agreement, dated July 18, 2000, between Swan and the company.
In August 2001, all prior notes and advances from Swan, and an
additional loan of $150,000, were memorialized in a new note in the
principal amount of $2,843,017.33. This note is due on August 1, 2003,
and bears interest at 8% per year, and is subject to the July 18, 2000
Security Agreement. Up to $1,000,000 of the principal on the note is
convertible into the company's common stock at a price of $2.00 per
share.
These loans did not affect the terms of the Swan acquisition.
F-30
In 1996, Swan entered into a joint development agreement with a
Japanese company and in 1997 entered into a letter of intent for a
joint venture with a U.S. company. In the subsequent months, the
Japanese company began to assert that it had rights to the technology
that was being developed and filed a lawsuit against Swan in December
1998 in an attempt to gain exclusive rights to the technology. As a
result of this activity, it became impossible for Swan to complete and
commercialize the technology, and in late 1998, Swan ceased normal
operations. In May 1999, the Board of Directors formally suspended its
remaining activities except for two contractors who remained to
preserve Swan's technology and maintain corporate records.
As a result of this litigation, effective April 12, 2000, Swan entered
into a Settlement Agreement and Release with the Japanese company that
resulted in a payment by the Japanese company of $25 million,
termination of the joint development agreement, release of all
obligations between Swan and the Japanese company and surrender of the
Series F preferred stock that had been acquired by the Japanese
company. In addition, Swan granted to the Japanese company a worldwide,
non-transferable, fully paid-up, royalty-free (except as provided for
under the agreement), nonexclusive license under Swan's rights in and
to all technology owned by Swan as of April 12, 2000 to develop, make,
have made, use, import, market, sell, offer to sell and distribute
high-capacity flexible-media magnetic storage drives, media and
components using the technology. The Japanese company also granted to
Swan a similar license for any technology that it owned related to
specific products. Royalty payments are required by the Japanese
company for any products shipped by them prior to April 14, 2001. No
amounts have been received to date.
NOTE 11 - ACQUISITIONS
SES-CORP, INC./CHEYENNE MANAGEMENT COMPANY, INC. On April 1, 2001, the
Company acquired SES-Corp., Inc., a Delaware corporation, pursuant to
an Amended and Restated Asset Purchase Agreement and Agreement and Plan
of Merger (the "Merger Agreement"), dated as of March 30, 2001, by and
among the Company, SES, Cheyenne Management Company, Inc., a Michigan
corporation, SES Acquisition 2001, Inc., a Delaware corporation and
wholly-owned subsidiary of the Company ("Sub"), and Dennis Lambka and
Ronald Bray, shareholders of SES (the "Shareholders"). Under the terms
of the Merger Agreement, Sub merged with and into SES and SES became a
wholly-owned subsidiary of the Company (the "Merger"). The shares of
SES common stock outstanding immediately prior to the effective time of
the merger were converted into the right to receive 11,819,22 shares of
the Company's common stock. Ten million shares of the Company's common
stock were to be placed in an escrow account (the "Escrow Shares") to
secure certain indemnification obligations set forth in the Merger
Agreement.
On August 8, 2001, the Company entered into a share exchange agreement
with the Shareholders (the "Share Exchange Agreement"), in which the
Company disposed of SES by exchanging all of the issued and outstanding
shares of SES for the Escrow Shares. As a result, the Company received
100% of the Escrow Shares and the Shareholders received 100% of SES.
The Shareholders also released the Company from any obligations to
issue additional shares of the Company to the Shareholders under the
Merger Agreement. Pursuant to the terms of the Share Exchange
Agreement, the Shareholders each retained 909,631 shares of the
Company's Common Stock issued to them under the Merger Agreement.
The cost of the acquisition and subsequent disposition of SES was
approximately $522,000. Additionally, the Company recorded stock based
compensation expense of approximately $2,300,000, related to the
approximately 1,800,000 shares of stock currently held by the former
shareholders of SES. While no claims against the Company are pending or
threatened related to its former ownership of SES, in the future the
Company could incur additional expenses related to such claims.
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.
CyberCoupons was formed to be an Internet source for consumers to
obtain on-line-printable manufacturer coupons for grocery, household
and beauty products. The company is presently dormant.
F-31
ITVR. In November 2000, Swan entered into a Research and Development
Agreement with iTVr, Inc. to further develop technology intended to
record, play back and time-shift certain broadband electronic
transmission events such as live television, video email, and music
videos. The initial development fee of $250,000 was paid and expensed
in 2000. The agreement required iTVr to provide certain deliverables
prior to December 31, 2000 and, upon completion of an evaluation of
those deliverables, to determine whether to provide additional funding.
As a result of this evaluation, an additional development fee of
$500,000 was made to iTVr in January 2001. The agreement also requires
Swan to use its best efforts to pursue additional financing for iTVr of
up to $2 million. The initial funding of $250,000 was convertible into
2 million shares of common stock of iTVR within 60 days of the
completion of the initial development phase. In addition, The initial
development fee of $500,000 was convertible into $1 million shares of
common stock of iTVR and a cashless warrant to acquire an additional 1
million shares of common stock at no additional cost if an additional
investment of at least $2 million is arranged for by Swan. Swan
exercised its conversion rights related to the $750,000 funding and
received 3 million shares of common stock of iTVr in February 2001.
This represents a 46% ownership in iTVr. The additional $2 million
financing, if acquired, will also be convertible into 2.5 million
shares of commons tock of iTVr by the lender.
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. iTVr expects to begin shipments of its first product in the
fourth quarter of 2001.
NOTE 12 - CONVERTIBLE NOTES
On February 2, 2001, Alpha Capital Aktiengesellschaft, AMRO
International, S.A., Markham Holdings Ltd. and Stonestreet Limited
Partnership (the "investors") purchased from the company an aggregate
$1,100,000 of its 6% convertible notes due 2003. The notes are secured
by 5,003,000 shares of the company's common stock that has been pledged
by six of its shareholders, including two of its directors.
Until a note is paid in full, the holder of a note may convert the
outstanding principal and interest due on the note into shares of the
company's common stock 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 our 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 of the note. As of October 8, 2001, and at an assumed
conversion price of $0.05695 per share, the notes would have been
convertible into 19,315,189 shares of the company's common stock. This
number of shares could be significantly higher in the event of a
decrease in the closing bid price of the company's common stock. The
notes are payable on January 1, 2003.
The company is also obligated to issue additional shares of common
stock to the investors if the closing bid price of its common stock is
not equal to or greater than $2.374 for 10 consecutive trading days
during the 180-day period beginning on the effective date of the
registration statement filed to register the shares underlying the
convertible notes.
In consideration for their investment, the company issued the investors
warrants to purchase an aggregate of 275,000 shares of common stock at
an exercise price of $1.647. These warrants expire on February 2, 2006.
In partial consideration for serving as the company's financial advisor
and private placement agent in connection with the issuance of the
notes, the company issued Union Atlantic Capital, L.C. a warrant to
purchase 50,000 shares of common stock at an exercise price of $1.647.
This warrant expires April 30, 2005. The exercise price of $1.647
represents 120% of the average closing price of the company's common
stock for the five trading days prior to February 2, 2001, the date of
issuance of the notes.
F-32
In connection with the financing, the company agreed to file a
registration statement for the shares underlying the notes and
warrants. The company was originally required to make the registration
statement effective by June 17, 2001. The investors waived this default
and penalties under the convertible notes relating to the failure to
make the registration statement effective by June 17, 2001, provided
that the company file an amendment to the registration statement by
October 10, 2001and cause the registration statement to be declared
effective by December 10, 2001. If the registration statement is not
declared effective within the required time periods or ceases to be
effective for a period of time exceeding 30 days in the aggregate per
year but not more than 20 consecutive calendar days, the company must
pay damages equal to one percent of the principal of the notes per
month for the first 30 days and two percent of the principal of the
notes per month for each subsequent 30-day period. The company also
must pay these damages if 120% of all shares of common stock underlying
the convertible notes and warrants are not included in an effective
registration statement as of and after December 10, 2001, as
determined using the conversion price in effect on the effective date
of the registration statement.
F-33
================================================================================
IVG Corp.
Up to 39,233,420 Shares of Common Stock
-----------------------------------
P R O S P E C T U S
____________, 2001
-----------------------------------
================================================================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Pursuant to Section 145 of the General Corporation Law of the State of Delaware
(the "Delaware Code"), the company generally has the power to indemnify its
present and former directors, officers, employees and agents against expenses,
judgments, fines and amounts paid in settlement incurred by them in connection
with any suit (other than a suit by or in the right of the company) to which
they are, or are threatened to be made, a party by reason of their serving in
such positions, or are or were serving at the company's request in such
positions for another corporation, partnership, joint venture, trust or other
enterprise, so long as they acted in good faith and in a manner they reasonably
believed to be in, or not opposed to, the best interests of the company, and
with respect to any criminal action, they had no reasonable cause to believe
their conduct was unlawful. Section 145 of the Delaware Code further provides
that in connection with the defense or settlement of any action by or in the
right of the company, a Delaware corporation may indemnify its present and
former directors, officers, employees and agents against expenses actually and
reasonably incurred by them if, in connection with the matters in issue, they
acted in good faith and in a manner they reasonably believed to be in or not
opposed to the best interests of the corporation, except that no indemnification
may be made with respect to any claim, issue or matter as to which such person
has been adjudged liable to the corporation unless the Court of Chancery or the
court in which such action or suit was brought approves such indemnification.
The statute also expressly provides that the power to indemnify authorized
thereby is not exclusive of any rights granted under any bylaw, agreement, vote
of stockholders or disinterested directors, or otherwise.
Our Bylaws provide that we must indemnify and hold harmless to the fullest
extent permitted by the Delaware Code each person who is or was a director,
officer, employee or agent of the company or is or was serving at our request as
a director, officer, employee, trustee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise (including service with
respect to employee benefit plans) against all expenses, liability and loss
(including attorneys' fees, judgments, fines, special excise taxes or penalties
and amounts paid or to be paid in settlement) reasonably incurred or suffered by
such person in connection with any threatened, pending or completed action, suit
or proceeding, whether civil, criminal or investigative, to which such person
was or is made a party or is threatened to be made a party or in which such
person is involved.
According to our Bylaws and Section 145 of the Delaware Code, the company has
the power to purchase and maintain insurance for its present and former
directors, officers, employees and agents.
The above discussion of our Bylaws and of Section 145 of the Delaware Code is
not intended to be exhaustive and is qualified in its entirety by such Bylaws
and the Delaware Code.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses of the offering, all of which are to be borne by the
company, are as follows:
SEC Filing Fee $ 845
Printing and Engraving Expenses* 1,500
Accounting Fees and Expenses* 25,000
Legal Fees and Expenses* 60,000
Registrar and Transfer Agent Fee* 1,500
Miscellaneous* 4,155
---------
Total* $ 92,500
------------------------------
* Estimated.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
On December 31, 1999, we exchanged 23,905,374 shares of our common stock for
5,312,053 shares (approximately 87%) of GeeWhiz.com, Inc., pursuant to a share
exchange agreement with 37 of GeeWhiz.com's shareholders. No more than 35 of the
GeeWhiz shareholders were not "accredited investors" 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 March 30, 2000, we sold to one investor 6,250 shares of our common stock, at
a price of $2.00 per share, for gross proceeds of $12,500. The investor
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 2, 2000, we sold to one investor a total of 2,500 shares of our common
stock, at a price of $1.90 per share, for gross proceeds of $4,750. The investor
qualified as a "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 5, 2000, we sold to two investors a total of 12,500 shares of our
common stock, at a price of $2.00 per share, for gross proceeds of $25,000. The
investors qualified as "accredited investors" 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 5, 2000, we sold to one investor 50,000 shares of our common stock, at a
price of $2.00 per share, for gross proceeds of $100,000. The investor 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, 2000, we sold to three investors a total of 125,000 shares of our
common stock, at a price of $2.00 per share, for gross proceeds of $250,000. The
investors qualified as "accredited investors" 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 July 7, 2000, we merged with GeeWhiz.com, Inc., in which we issued 2,939,526
shares of our common stock to minority shareholders of GeeWhiz. 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.
On September 28, 2000, we exchanged 20 million shares of our common stock for
approximately 88.5% of Swan Magnetics, Inc., pursuant to a share exchange
agreement with 84 shareholders of Swan. No more than 35 of the Swan shareholders
were not "accredited investors" within the meaning of Rule 501(a) of Regulation
D under the Securities Act. This share exchange was followed by an offer made to
the accredited investors who participated in the original exchange to exchange
the shares received in the share exchange for warrants to purchase our common
stock at an exercise price of $1.75 per share. The shareholders exchanged an
aggregate 9,091,793 shares of common stock for warrants to purchase our common
stock. 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 October 2, 2000, we issued to two persons 20,000 shares of our common stock
as repayment for loans provided to the company by such persons. We valued the
shares at $1.00 per share. The two persons qualified as "accredited investors"
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 December 15, 2000, we issued to three persons 139,500 shares of our common
stock as repayment for loans provided to the company by such persons. We valued
the shares at $1.00 per share. The three persons qualified as "accredited
investors" 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 January 9, 2001, we exchanged 2,372,625 shares of our common stock for
approximately 35% of CyberCoupons, Inc., pursuant to a share exchange agreement
with 31 shareholders of CyberCoupons. 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 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.
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 27. EXHIBITS
EXHIBIT NO. TITLE
----------- -----
2.1 Agreement and Plan of Reorganization between GeeWhizUSA.com, Inc.
and the company
2.2 Agreement and Plan of Exchange between Swan Magnetics, Inc. and
the company
2.3 Agreement and Plan of Exchange, dated June 28, 2000, between Swan
Magnetics, Inc. and the company
2.4 Amended and Restated Agreement and Plan of Exchange, dated June
28, 2000, among Swan Magnetics, Inc., certain stockholders of Swan
Magnetics, Inc. and the company
2.5 Form of Warrant Certificate issued to former stockholders of Swan
Magnetics, Inc.
2.6 Reorganization Agreement and Plan of Exchange, dated July 15,
2000, among CyberCoupons.com, Inc., certain stockholders of
CyberCoupons.com, Inc. and the company
2.7 Amended and Restated Asset Purchase Agreement and Agreement and
Plan of Merger, dated March 31, 2001, among SES Acquisition 2001,
Inc., Cheyenne Management Company, Inc., SES-Corp., Inc., certain
other persons and the company
2.8(1) Agreement, dated as of August 8, 2001 among the company, Dennis
Lambka and Ronald Bray
3.1 Certificate of Incorporation
3.2 Bylaws
4.1 Specimen Certificate of Common Stock
4.2 2000 Omnibus Securities Plan
5.1(2) Form of Opinion of Baker & McKenzie
10.1 Office Lease between G.P.I. Development, Ltd. and the company
10.2 Lease Agreement, dated December 2, 1997, between Southwest Beltway
Limited Partnership and Fyrglas, Inc.
10.3(3) Inventory Credit Line Agreement, effective as of January 22, 2001,
between Swan Magnetics, Inc. and the company
10.4 Security Agreement, dated July 18, 2000, between Swan Magnetics,
Inc. and the company
10.5 Secured Convertible Promissory Note issued by the company to Swan
Magnetics, Inc. on July 18, 2000
10.6 Secured Promissory Note issued by the company to Swan Magnetics,
Inc. on October 31, 2000
10.7 Secured Promissory Note issued by the company to Swan Magnetics,
Inc. on December 12, 2000
10.8 Subscription Agreement, dated February 2, 2001, among Alpha
Capital Aktiengesellschaft, AMRO International, S.A., Markham
Holdings Ltd., Stonestreet Limited Partnership and the company
10.9 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
10.10 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
10.11 Research and Development Agreement, dated November 15, 2000,
between iTVr, Inc. and Swan Magnetics, Inc.
10.12 Promissory Note issued by the company to SES-Corp., Inc. on March
30, 2001
10.13 Warrant, dated April 30, 2001, issued by the company to Union
Atlantic Capital, L.C.
10.14(2) Secured Promissory Note issued by the company to Swan Magnetics,
Inc. on August 1, 2001
10.15(2) Voting Agreement, dated August 1, 2000, between the company and
Swan Magnetics, Inc.
10.16(2) Settlement Agreement and General Release, dated August 1, 2000,
between the company and Swan Magnetics, Inc.
10.17(2) Security Agreement, dated September 10, 2001, among Alpha Capital
Aktiengesellschaft, AMRO International, S.A., Markham Holdings,
Ltd., Stonestreet Limited Partnership, the Collateral Agent (as
defined therein), the Shareholders (as defined therein) and the
company
10.18(2) Common Stock Issuance Agreement, dated September 10, 2001, among
the company and the Shareholders (as defined therein)
21.1 Subsidiaries
23.1(2) Consent of Wrinkle, Gardner & Company, P.C.
23.2 Consent of Baker & McKenzie (included in Exhibit 5.1)
23.3(2) Consent of Michael Johnson & Co., LLC
24.1 Power of Attorney (included on signature page)
----------------
(1) Incorporated by reference from the company's current report on Form 8-K,
as filed with the SEC on August 30, 2001.
(2) Filed herewith. All other exhibits previously filed or incorporated by
reference as noted.
(3) Incorporated by reference from the company's Form 10-KSB, as filed with
the SEC on April 18, 2001
ITEM 28. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the company
pursuant to the foregoing provisions, or otherwise, the company has been advised
that in the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the company of expenses incurred or paid by a director,
officer or controlling person of the company in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the company will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes:
1. To file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in
the information in the registration statement; and
(iii) include any additional or changed material information on the
plan of distribution.
2. That, for determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time to
be the initial bona fide offering.
3. To file a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Sugar Land, State of Texas, on the 10th of October,
2001.
IVG CORP.
By: /s/ Elorian Landers
--------------------------------------------
Elorian Landers, Chief Executive Officer and
Director
/s/ Elorian Landers October 10, 2001
-----------------------------------------------------
Elorian Landers, Chief Executive Officer and Director
(Principal Executive Officer and Principal Financial
and Accounting Officer)
/s/ Clay Border October 10, 2001
-----------------------------------------------------
Clay Border, Chief Developmental Officer, Secretary and
Director
/s/ Thomas McCrimmon October 10, 2001
-----------------------------------------------------
Thomas McCrimmon, Director
IVG CORP.
INDEX TO EXHIBITS
EXHIBIT NO. TITLE
----------- -----
2.1 Agreement and Plan of Reorganization between GeeWhizUSA.com, Inc.
and the company
2.2 Agreement and Plan of Exchange between Swan Magnetics, Inc. and
the company
2.3 Agreement and Plan of Exchange, dated June 28, 2000, between Swan
Magnetics, Inc. and the company
2.4 Amended and Restated Agreement and Plan of Exchange, dated June
28, 2000, among Swan Magnetics, Inc., certain stockholders of Swan
Magnetics, Inc. and the company
2.5 Form of Warrant Certificate issued to former stockholders of Swan
Magnetics, Inc.
2.6 Reorganization Agreement and Plan of Exchange, dated July 15,
2000, among CyberCoupons.com, Inc., certain stockholders of
CyberCoupons.com, Inc. and the company
2.7 Amended and Restated Asset Purchase Agreement and Agreement and
Plan of Merger, dated March 31, 2001, among SES Acquisition 2001,
Inc., Cheyenne Management Company, Inc., SES-Corp., Inc., certain
other persons and the company
2.8(1) Agreement, dated as of August 8, 2001 among the company, Dennis
Lambka and Ronald Bray
3.1 Certificate of Incorporation
3.2 Bylaws
4.1 Specimen Certificate of Common Stock
4.2 2000 Omnibus Securities Plan
5.1(2) Form of Opinion of Baker & McKenzie
10.1 Office Lease between G.P.I. Development, Ltd. and the company
10.2 Lease Agreement, dated December 2, 1997, between Southwest Beltway
Limited Partnership and Fyrglas, Inc.
10.3(3) Inventory Credit Line Agreement, effective as of January 22, 2001,
between Swan Magnetics, Inc. and the company
10.4 Security Agreement, dated July 18, 2000, between Swan Magnetics,
Inc. and the company
10.5 Secured Convertible Promissory Note issued by the company to Swan
Magnetics, Inc. on July 18, 2000
10.6 Secured Promissory Note issued by the company to Swan Magnetics,
Inc. on October 31, 2000
10.7 Secured Promissory Note issued by the company to Swan Magnetics,
Inc. on December 12, 2000
10.8 Subscription Agreement, dated February 2, 2001, among Alpha
Capital Aktiengesellschaft, AMRO International, S.A., Markham
Holdings Ltd., Stonestreet Limited Partnership and the company
10.9 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
10.10 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
10.11 Research and Development Agreement, dated November 15, 2000,
between iTVr, Inc. and Swan Magnetics, Inc.
10.12 Promissory Note issued by the company to SES-Corp., Inc. on March
30, 2001
10.13 Warrant, dated April 30, 2001, issued by the company to Union
Atlantic Capital, L.C.
10.14(2) Secured Promissory Note issued by the company to Swan Magnetics,
Inc. on August 1, 2001
10.15(2) Voting Agreement, dated August 1, 2000, between the company and
Swan Magnetics, Inc.
10.16(2) Settlement Agreement and General Release, dated August 1, 2000,
between the company and Swan Magnetics, Inc.
10.17(2) Security Agreement, dated September 10, 2001, among Alpha Capital
Aktiengesellschaft, AMRO International, S.A., Markham Holdings,
Ltd., Stonestreet Limited Partnership, the Collateral Agent (as
defined therein), the Shareholders (as defined therein) and the
company
10.18(2) Common Stock Issuance Agreement, dated September 10, 2001, among
the company and the Shareholders (as defined therein)
21.1 Subsidiaries
23.1(2) Consent of Wrinkle, Gardner & Company, P.C.
23.2 Consent of Baker & McKenzie (included in Exhibit 5.1)
23.3(2) Consent of Michael Johnson & Co., LLC
24.1 Power of Attorney (included on signature page)
----------------
(1) Incorporated by reference from the company's current report on Form 8-K,
as filed with the SEC on August 30, 2001.
(2) Filed herewith. All other exhibits previously filed or incorporated by
reference as noted.
(3) Incorporated by reference from the company's Form 10-KSB, as filed with
the SEC on April 18, 200