UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED COMMISSION FILE NUMBER
----------------- -----------------
SEPTEMBER 30, 2001 33-19196-A
IVG CORP.
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(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
DELAWARE 59-2919648
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
13135 DAIRY ASHFORD, SUITE 525
SUGARLAND, TEXAS 77478
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
ISSUER'S TELEPHONE NUMBER: (281) 295-8400
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N/A
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(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF
CHANGED SINCE LAST REPORT)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
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State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 61,620,639 shares of Common Stock as
of November 12, 2001.
Transitional Small Business Disclosure Format (Check one): Yes No X
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
IVG CORP.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
SEPTEMBER 30, 2001
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 615,867
Restricted cash 1,500,000
Accounts receivable - net 16,997
Inventory 121,009
Notes receivable 293,057
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Total current assets 2,546,930
PROPERTY AND EQUIPMENT, NET 268,435
OTHER ASSETS, NET 242,902
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$ 3,058,267
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,519,066
Notes payable 4,928,096
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Total current liabilities 6,447,162
MINORITY INTEREST (2,411,315)
STOCKHOLDERS' EQUITY AND ACCUMULATED DEFICIT
Common stock: par value $.0001, 300,000,000 shares
authorized, 61,009,559 issued and outstanding 6,101
Additional paid in capital 35,909,399
Accumulated deficit (36,893,080)
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Total stockholders' deficit (977,580)
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$ 3,058,267
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See accompanying notes.
IVG CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE NINE MONTHS ENDED
SEPTEMBER 30
2001 2000
(UNAUDITED) (UNAUDITED)
--------------------------------
REVENUES:
Sales $ 524,280 $ 260,416
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Total revenues 524,280 260,416
COSTS AND EXPENSES:
Cost of goods sold 435,294 156,820
General and administrative 12,856,532 1,064,346
Purchased in-process technology 0 15,601,792
Research and development 60,000 0
Loss on investment in iTVr 500,000 0
Depreciation expense 40,228 18,837
Interest expense 580,142 7,156
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Total costs and expenses 14,472,196 16,848,951
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OTHER INCOME:
Interest income 94,124 0
MINORITY INTEREST (201,590) 0
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NET INCOME (LOSS) $(13,652,202) $(16,588,535)
============= =============
Basic and fully diluted net loss per share $ (.26) $ (.40)
Weighted average number of common shares
outstanding for basic and diluted net loss per share 52,541,378 41,802,819
See accompanying notes.
IVG CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED
SEPTEMBER 30
2001 2000
(UNAUDITED) (UNAUDITED)
--------------------------------
REVENUES:
Sales $ 96,685 $ 84,364
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Total revenues 96,685 84,364
COSTS AND EXPENSES:
Cost of goods sold 105,287 8,945
General and administrative 814,062 683,828
Purchased in-process technology 0 15,601,792
Loss on investment in iTVr 0 0
Depreciation expense 13,200 0
Interest expense 30,720 2,746
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Total costs and expenses 963,269 16,297,311
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OTHER INCOME:
Interest income 0 0
MINORITY INTEREST (49,059) 0
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NET INCOME (LOSS) $ (817,525) $(16,212,947)
============= =============
Basic and fully diluted net loss per share $ (.01) $ (.39)
Weighted average number of common shares
outstanding for basic and diluted net loss per share 60,952,059 41,802,819
See accompanying notes.
IVG CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
FOR THE PERIOD FROM DECEMBER 31, 1999 TO SEPTEMBER 30, 2001
Common Stock
----------------------------- Additional
Number of Paid in Accumulated
Shares Amount Capital Deficit Total
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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 0 3,006,233
Shares issued for cash 213,450 21 434,079 0 434,100
Shares issued in acquisitions 20,000,000 2,000 21,185,859 0 21,187,859
Shares exchanged for warrants (9,091,855) (909) 0 0 (909)
Warrants issued for services 0 0 71,860 0 71,860
Net loss 0 0 0 (21,146,313) (21,146,313)
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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 0 3,339,041
Shares issued in acquisitions 14,320,862 1,432 5,380,036 0 5,381,468
Shares issued for cash 170,000 17 55,484 0 55,501
Beneficial interest on convertible debt 0 0 468,258 0 468,258
Net loss 0 0 0 (13,652,202) (13,652,202)
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Balance September 30, 2001 61,009,559 $ 6,101 $ 35,909,399 $ (36,893,080) $ (977,580)
==================================================================================
See accompanying notes.
IVG CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED
SEPTEMBER 30
2001 2000
(UNAUDITED) (UNAUDITED)
-------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $ (13,652,202) $ (16,588,535)
Adjustments to reconcile net (loss) to net cash
provided by (used in) operating activities:
Minority interest (201,590) 297,521
Depreciation and amortization 40,228 35,369
Stock based compensation 8,720,509 258,118
Purchased in-process technology 0 15,601,792
Loss on investment in iTVr 500,000 0
Beneficial interest on convertible debt 468,258 0
Changes on operating assets and liabilities:
Accounts receivable 10,037 (12,915)
Inventory (43,070) (34,434)
Other assets 232,476 (38,067)
Accounts payable and accrued expenses 241,030 115,166
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NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (3,684,324) (365,985)
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash acquired through purchase of subsidiary 0 5,404,338
Investment in iTVr (500,000) 0
Purchases of equipment (245,362) (12,536)
Notes receivable (144,857) (115,000)
----------------- -----------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (890,219) 5,276,802
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock 55,500 434,100
Net change in notes payable 2,248,200 588,425
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 2,303,700 1,022,525
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Increase (decrease) in cash and cash equivalents (2,270,843) 5,933,342
Cash and cash equivalents at beginning of period 2,886,710 6,006
----------------- -----------------
Cash and cash equivalents at end of period $ 615,867 $ 5,939,348
================= =================
See accompanying notes.
IVG CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED
SEPTEMBER 30
2001 2000
(UNAUDITED) (UNAUDITED)
-------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $ (817,525) $ (16,212,947)
Adjustments to reconcile net (loss) to net cash
provided by (used in) operating activities:
Minority interest (49,059) 297,521
Depreciation and amortization 13,200 12,898
Stock based compensation 0 131,860
Purchased in-process technology 0 15,601,792
Changes on operating assets and liabilities:
Accounts receivable 120,627 (16,126)
Inventory (59,167) (22,824)
Other assets 41,999 203,517
Accounts payable and accrued expenses 71,153 130,985
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NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (678,772) 126,676
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash acquired through purchase of subsidiary 0 5,404,338
Purchases of equipment (16,271) (4,166)
Notes receivable 8,000 (115,000)
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NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (8,271) 5,285,172
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock 13,001 0
Net change in notes payable 20,500 319,299
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 33,501 319,299
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Increase (decrease) in cash and cash equivalents (653,542) 5,731,147
Cash and cash equivalents at beginning of period 1,269,409 208,201
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Cash and cash equivalents at end of period $ 615,867 $ 5,939,348
================= =================
See accompanying notes.
IVG CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
SEPTEMBER 30, 2001
NOTE 1 - BASIS OF PRESENTATION
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 nine months ended September 30, 2001 are not necessarily
indicative of the results that may be expected for the year ended December 31,
2001. These financial statements should be read in conjunction with the audited
consolidated financial statements and footnotes thereto included in the annual
report on Form 10K-SB for the year ended December 31, 2000.
NOTE 2 - EARNINGS PER SHARE DATA
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.
NOTE 3 - SEGMENT INFORMATION
In accordance with SFAS No. 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:
=====================================================================================
Nine Months Ended
September 30
2001 2000
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Revenues
Swan $ 0 $ 0
Reconciling items
Other corporate revenues 524,280 260,416
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Total consolidated revenues $ 524,280 $ 260,416
============ ============
Depreciation and amortization expense
Swan $ 0 $ 0
Reconciling items
Other corporate depreciation and amortization expense 40,228 35,369
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Total depreciation and amortization expense $ 40,228 $ 35,369
============ ============
Interest income and (expense)
Swan $ 94,124 $ 0
Swan (82,500) 0
Reconciling items
Other corporate interest income and (expense) (497,642) (7,156)
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Total interest income and (expense) $ (486,018) $ (7,156)
============ ============
Segment assets
Cash $ 500,400 $ 5,854,869
Restricted cash 1,500,000 0
Loan to IVG Corp. 2,625,000 1,000,000
Other assets 0 16,602
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Total segment assets 4,625,400 6,871,471
Reconciling items
Corporate assets 1,059,867 688,061
Intersegment loans (2,625,000) (1,000,000)
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Total consolidated assets $ 3,058,267 $ 6,559,532
============ ============
Three Months Ended
September 30
2001 2000
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Revenues
Swan $ 0 $ 0
Reconciling items
Other corporate revenues 96,685 84,364
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Total consolidated revenues $ 96,685 $ 84,364
============ ============
Depreciation and amortization expense
Swan $ 0 $ 0
Reconciling items
Other corporate depreciation and amortization expense 13,200 12,898
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Total depreciation and amortization expense $ 13,200 $ 12,898
============ ============
Interest income and (expense)
Swan $ 0 $ 0
Swan (27,500) 0
Reconciling items
Other corporate interest income and (expense) (3,220) (2,746)
------------ ------------
Total interest income and (expense) $ (30,720) $ (2,746)
============ ============
NOTE 4 - 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 11,819,262 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 common
stock currently held by the Shareholders.
NOTE 5 - SUBSEQUENT EVENTS
GROUP MANAGEMENT SERVICES, INC. On October 24, 2001, the Company entered into a
definite asset and stock purchase agreement to acquire 90% of Group Management
Services, Inc. ("GMS"), an Ohio-based professional employer organization. Upon
the closing of the asset and stock purchase agreement, GMS will become one of
the Company's portfolio companies. The acquisition will be completed in a number
of steps. First, GMS Acquisition LLC, a wholly owned subsidiary of the Company,
will purchase certain of GMS's assets (the "Asset Purchase"). Upon completion of
the Asset Purchase, GMS will distribute certain proceeds from the sales of such
assets to GMS's two shareholders (the "GMS Shareholders"). Next, the GMS
Shareholders will transfer 90% of the outstanding GMS common stock to the
Company (the "Stock Purchase"). Lastly, GMS Acquisition LLC will contribute 100%
of the assets received in the Asset Purchase back to GMS. In consideration for
the purchase of 90% of GMS, the Company will issue to the GMS Shareholders three
promissory notes in the amounts of (i) $250,000, (ii) $1,963,000, and (iii)
$2,039,023.63, for total consideration of $4,252,023.63, as well as 10,000,000
shares of the Company's common stock and an option to purchase up to an
additional 1,250,000 shares of the Company's common stock. The Company's
agreement with GMS also provides that if, on the first anniversary of the
closing of the acquisition, the value of the 10,000,000 shares is less than
$1,370,000, the Company will issue an additional number of shares to the GMS
Shareholders so that the value of the shares received is at least $1,370,000.
The closing of this acquisition, which the Company anticipates will occur in
November 2001, is conditioned upon, among other things, the receipt of consents
to the transaction by third parties, and GMS continuing to maintain a credit
facility of at least $750,000.
EMPLOYMENT AGREEMENTS. On October 8, 2001, the Company entered into employment
agreements with Elorian Landers, its Chief Executive Officer, and Clay Border,
its Chief Development Officer. Mr. Lander's employment agreement provides for an
annual base salary of $250,000 and Mr. Border's employment agreement provides
for an annual base salary of $150,000. Each of the agreements also grants each
of the employees a stock option giving them each the right to purchase up to 3
million shares of the Company's common stock at an exercise price of $.028 per
share. The option exercise price was 70% of the closing price of the common
stock on the grant date, and was determined by the Board to be fair market value
because the common stock underlying the option is subject to transfer
restrictions under applicable securities laws. The stock options expire on
October 8, 2006. One half of the stock options vested on the grant date and the
remaining 1,500,000 shares will vest quarterly over one year at a rate of
375,000 shares per quarter. The employment agreements also provide for
reimbursement of certain expenses of each of the employees, including a car
allowance of $800 per month, payment of cellular phone service and a health club
membership.
CONSULTING AGREEMENT. On October 8, 2001, the Company entered into a consulting
agreement with Thomas McCrimmon, in which he agreed to provide consulting
services in connection with the identification, analysis and evaluation of
possible merger and acquisition opportunities. In consideration of his services,
the Company granted him the option to purchase up to 3,000,000 shares of the
Company's common stock at an exercise price of $.028 per share over a five year
period. The option exercise price was 70% of the closing price of the common
stock on the grant date, and was determined by the Board to be fair market value
because the common stock underlying the option is subject to transfer
restrictions under applicable securities laws. One half of the stock options
vested on the grant date and the remaining 1,500,000 shares will vest quarterly
over one year at a rate of 375,000 shares per quarter.
LITIGATION. On October 4, 2001, Infinet Holdings, Inc. and Human Dynamics
Corporation ("HDC") filed an amended complaint in a matter pending in the United
States District Court for the District of Arizona. The amended complaint alleges
a variety of claims against Internet Venture Group, Inc. (the name by which the
Company was previously known.), Hartford Casualty Company, Twin City Fire
Insurance Company, and Financial Network Services, Inc. (collectively, the
"defendants"). The Company was not a defendant in the original complaint.
The amended complaint alleges that all defendants: (i) breached contractual
obligations to provide workers compensation insurance to HDC and its clients;
(ii) made intentional misrepresentations that induced HDC to forego other
insurance coverage in favor of insurance through Hartford, and (iii)
intentionally interfered with HDC's business relations by making disparaging
statements about HDC to HDC clients. The complaint alleges additional claims
against the other defendants. The transactions described in the amended
complaint appear to involve an alleged client services agreement between HDC and
subsidiaries of SES-Corp., Inc. ("SES"), which was formerly a subsidiary of the
Company. Neither SES nor its subsidiaries are named as parties in the amended
complaint. The plaintiffs seek injunctive relief against Hartford and Twin City,
compensatory damages in excess of $10 million, and punitive damages against all
defendants. The company does not believe there is a basis for the claims made in
this lawsuit, and intends to vigorously defend itself against these claims.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
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. In March 2001, we completed a reincorporation merger and became a
Delaware corporation named IVG Corp.
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.
In April 2001, we acquired SES-Corp., Inc., a professional employer organization
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.
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 September 30, 2001, we had current assets of approximately $2,547,000 and
total assets of approximately $3,058,000. Current liabilities at September 30,
2001 were approximately $6,447,000. Our stockholders' deficit at September 30,
2001 was approximately $978,000.
RESULTS OF OPERATIONS
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000
Revenues increased to approximately $524,000 for the first nine months of 2001,
compared to approximately $260,000 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 $435,000 from $157,000 for
the same periods. This increase was primarily the result of increased product
sales.
General and administrative expenses increased to approximately $12,857,000 from
approximately $1,064,000. 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 approximately $580,000 and a
$500,000 loss on our investment in iTVr during the first nine months of 2001.
Our net loss for the nine months ended September 30, 2001 was approximately
$13,652,000, compared to a net loss of approximately $16,589,000 for the nine
months ended September 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. The larger loss in 2000 was primarily related to the $15.6 million
expense associated with the shares issued in our acquisition of Swan Magnetics,
which was recorded as an expense for purchased in-process technology on our
statement of operations.
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.
COMPARISON OF THE QUARTERS ENDED SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000
Revenues increased to approximately $97,000 for the third quarter of 2001,
compared to approximately $84,000 for the third quarter of 2000. The increase
was attributable to increased product sales. Cost of goods sold increased to
approximately $105,000 from $8,900 for the same periods. This increase was
primarily the result of higher prices for materials and higher direct costs
associated with manufacturing by our GeeWhiz division.
General and administrative expenses increased to approximately $814,000 from
approximately $684,000. This increase was due primarily to increased costs
associated with acquisition activity. We also recorded a $15.6 million expense
in the third quarter of 2000 for purchased in-process technology relating to the
value of the shares issued in our acquisition of Swan Magnetics.
Our net loss for the quarter ended September 30, 2001 was approximately
$818,000, compared to a net loss of approximately $16,200,000 for the quarter
ended September 30, 2000. The loss in 2001 is related primarily to general and
administrative costs. The loss in 2000 was principally due to the
above-referenced $15.6 million charge relating to the Swan Magnetics, Inc.
acquisition.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was approximately $3,684,000 for the nine
months ended September 30, 2001 and $366,000 for the comparable period of 2000.
We had approximately $616,000 in cash at September 30, 2001, excluding
$1,500,000 of cash restricted for payment of a promissory note to a vendor.
Operations for the nine months ended September 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 $2.3 million. In addition,
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.
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.
PART II - OTHER INFORMATION
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
The Company is currently in default on a $1 million promissory note
issued by SES Corp., Inc. to the Company on March 30, 2001. The note, which
bears interest at 8% per year, was due and payable on September 30, 2001.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
2.1 Agreement, dated August 8, 2001, by and among IVG Corp., Dennis Lambka
and Ronald Bray (1)
10.1 Secured Promissory Note issued by the company to Swan Magnetics, Inc.
on August 1, 2001 (2)
10.2 Voting Agreement, dated August 1, 2001, between the company and Swan
Magnetics, Inc. (2)
10.3 Settlement Agreement and General Release, dated August 1, 2001, between
the company and Swan Magnetics, Inc. (2)
10.4 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 in
therein), the Shareholders (as defined therein) and the company (2)
10.5 Common Stock Issuance Agreement, dated September 10, 2001, among the
company and the Shareholders (as defined therein) (2)
-----------------------
(1) Incorporated by reference from the company's Report on Form 8-K dated
August 8, 2001.
(2) Incorporated by reference from the company's Form 10-KSB/A as filed
with the SEC on October 10, 2001.
(b) REPORTS ON FORM 8-K.
Form 8-K dated August 8, 2001, was filed pursuant to Item 2
(Acquisition or Disposition of Assets).
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
IVG CORP.
November 15, 2001 /s/ ELORIAN LANDERS
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Elorian Landers
Chief Executive Officer and Director
(Principal Executive Office and Principal
Financial and Accounting Officer)