74
________________________________________________________________________
________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
SECOND AMENDMENT
FORM 10-KSB/A
------------------
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE
ACT OF 1934
For the transition period from __________ to __________
COMMISSION FILE NUMBER: 000-32635
GROUP MANAGEMENT CORP.
(Name of Small Business Issuer in its Charter)
DELAWARE 59-2919648
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
101 Marietta St.
SUITE 1070
Atlanta, GA 30303
(Address of principal (Zip Code)
Executive offices)
(404) 522-1202
(Issuer's telephone number, including area code)
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
None
Check whether the issuer: (1) filed all reports required
to be filed by
Sections 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 [ ]
Check if there is no disclosure of delinquent filers in
response to Item
405 of Regulation S-B contained in this form, and no
disclosure will be
contained, to the best of registrant's knowledge, in
definitive proxy or
information statements incorporated by reference in Part III of
this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year:
$574,826 for the
year ended December 31, 2001
As of December 23, 2002, the aggregate market value of the
common stock of the issuer held by non-affiliates, based on the
average bid and asked price of the common stock as quoted on the
OTC Bulletin Board, was $77,000. As of December 23 2002,
13,380,000 shares of common stock of the issuer were
outstanding.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
GROUP MANAGEMENT CORP.
FORM 10-KSB
TABLE OF CONTENTS
PART I 2
ITEM 1. DESCRIPTION OF BUSINESS. 2
OVERVIEW 2
PORTFOLIO COMPANIES 2
PENDING ACQUISITIONS 4
BUSINESS STRATEGY 5
EVALUATION OF POTENTIAL ACQUISITIONS 5
COMPETITION 6
INTELLECTUAL PROPERTY 7
EMPLOYEES 7
FORWARD-LOOKING STATEMENTS 7
ITEM 2 DESCRIPTION OF PROPERTY 8
ITEM 3. LEGAL PROCEEDINGS
SWAN MAGNETICS, INC. 9
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF 10
SECURITY HOLDERS
PART II 11
ITEM 5 MARKET FOR COMMON EQUITY AND RELATED 11
STOCKHOLDER MATTERS
MARKET PRICE INFORMATION 11
DIVIDENDS 11
RECENT SALES OF UNREGISTERED SECURITIES 11
ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN 13
OF OPERATIONS
OVERVIEW 13
RESULTS OF OPERATIONS 14
COMPARISON OF THE YEARS ENDED DECEMBER 31, 2001
AND
DECEMBER 31, 2000 14
LIQUIDITY AND CAPITAL RESOURCES 14
GOING CONCERN CONSIDERATION 16
RISK FACTORS 17
RISKS ASSOCIATED WITH OUR BUSINESS 17
ITEM 7. FINANCIAL STATEMENTS 18
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 18
PART III
19
ITEM 9 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS; COMPLIANCE WITH SECTION
16(a)
OF THE EXCHANGE ACT. 19
DIRECTORS AND EXECUTIVE OFFICERS 19
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING 19
COMPLIANCE
ITEM 10. EXECUTIVE COMPENSATION 20
SUMMARY COMPENSATION TABLE 20
EMPLOYMENT AGREEMENTS 20
2000 OMNIBUS SECURITIES PLAN 21
OPTION GRANTS 21
OPTION EXERCISES AND OPTION VALUES 22
COMPENSATION OF DIRECTORS 22
ITEM 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT 23
ITEM 12 CERTAIN RELATIONSHIPS AND RELATED 24
TRANSACTIONS
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K. 25
INDEX TO FINANCIAL STATEMENTS 1
SWAN 14
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
OVERVIEW
We were incorporated in Florida in 1987 under the name Sci Tech
Ventures, Inc.
We changed our name to Strategic Ventures, Inc. in May 1991 and to
Internet
Venture Group, Inc. in October 1999. In March 2001, we were merged
into IVG
Corp., a Delaware corporation. As a result of the merger, we
were
reincorporated in Delaware and our name was changed to IVG Corp. In
December
2001 we changed our name to Group Management Corp.
We are currently undergoing a restructuring of the operations of the
company.
We have substantially reduced the operation of the company in the
restructuring.
We currently have one employee, Elorian Landers, our CEO who is
currently unpaid. We believe that after the company is
restructured, it will be in a position to assess acquisition and
merger opportunities. However, there can be no assurances that
the restructuring will be successful.
GeeWhizUSA.com, is a manufacturer and distributor of proprietary
novelty, gift
and branded products that light up.
CyberCoupons.com, Inc., a development stage company that intended to
create an
internet based solution to increase the speed at which coupon
transaction are
processed between the coupon vendor and the retail store. Management
no longer
intends to pursue this business venture.
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. As
of March
2002, we have sold our interest in Swan to concentrate on our business
services
model.
As used in this report, the words "we," "us," "our" and "the company"
refer to
Group Management Corp.; our subsidiary CyberCoupons.com, Inc.; and our
division,
GeeWhizUSA.com.
PORTFOLIO COMPANIES
GEEWHIZ
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(R)
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 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.
We acquired 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 1,195,269 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 ceased to exist as a
separate
entity and 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.
On January 23, 2002, the Company announced the signing of an Alliance
agreement
with UTEK Corporation. The goal of the Alliance is to have UTEK
identify
suitable technology acquisition opportunities for GeeWhiz. UTEK
is an
innovative technology transfer company dedicated to building bridges
between
university-developed technologies and commercial organizations.
UTEK
identifies, licenses and finances the further development of new
technologies
and the transfers them to growing companies. The company and
UTEK Corp entered into a technology assessment agreement where UTEK
was to locate and assess technology opportunities in governmental
and university laboratories for the compensation of 114,276
restricted common shares of GPMT.
On January 24, 2002, the Company announced that GeeWhiz has appointed
Kenneth
Simpson as its new Vice President of Sales. Mr. Simpson will oversee
the entire
marketing and sales strategy at GeeWhiz.
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 1,000,000 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
454,590 shares of common stock for warrants to purchase our common
stock. 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 participate 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' technology to market. Subsequent to the
closing of
our acquisition, however, we determined to pursue other revenue-
producing
activities.
Swan Magnetics Acquisition:
The transaction of the acquisition of Swan Magnetics was not an arms
length transaction. Eden Kim was the Chairman of the Board and a
director of GPMT
and the president and a director of Swan Magnetics when the acquisition
occurred. We incorporate by reference Form 8-k filed by the company
November 11, 2001, note # 1. We further incorporate by reference
Form 8-k filed by the company on May 2, 2002, Item # 5.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
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.
Sale of Swan Magnetics. The short history of this Company's merger
with Swan and the problems that ensued is as follows. At all
relevant times prior to June 30, 2001, Eden Kim was the Chairman
of the Board and President of Swan. He was also Chairman of the
Board of the Company. After the Company purchased 88.5% of the
stock of Swan, and while Kim remained the Chairman of the Board of
both Swan and the Company, all the needed financial and other
information of Swan was provided to the Company. This information
was used for the continued management of Swan and for the
requisite SEC filings. A dispute with Kim arose in June 2001 and
Kim resigned as the Chairman of the Company. Kim remained the
President and Chairman of Swan. Thereafter, although Kim continued
to agree to provide the Company audited financial statements and
other information of Swan he in fact never did. There were
numerous requests, both telephonically and written, to Kim
requesting and demanding audited financials and other pertinent
information regarding Swan. However, despite continued promises to
do so, the information was never provided. On February 26, 2002,
the Company terminated Kim as the President and Chairman of the
Board of Swan. On March 6, 2002 we sold our 88.5% interest in
Swan Magnetics, Inc. to Lumar Worldwide Industries, Inc. for a
promissory note for $2,500,000.
CYBERCOUPONS
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.
On January 9, 2001, we executed a Reorganization Agreement and Plan of
Exchange
pursuant to which we exchanged 118,631 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 participate in a
broader
business. We approved these transactions primarily because of
CyberCoupons'
business strategy to distribute coupons over the Internet.
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 was far less than
the trading price of our common stock at January 9, 2001. The
company acquired thirty-five percent, 35% of Cybercoupons on
January 9, 2001 for 118,631 shares of restricted stock of the
company. On the date of the acquisition of the interest in
Cybercoupons, the company's common stock was quoted at
approximately $1.50.
The company has discontinued the business of Cybercoupons and
has written off its investment in Cybercoupons. The directors
listed of Elorian Landers, Thomas McCrimmons and Eden Kim were
directors of GPMT and were not directors of Cybercoupons at the
time of the acquisition. The acquisition price was determined
based on the future projected market share Cybercoupons was
expected to capture with its technology.
Management does not intend to pursue this business
venture.
Best Staff Services, Inc. Acquisition:
The company and Best Staff services, Inc entered into a
letter of intent for the company to acquire a 45%
interest in Best Staff. The letter of intent was
terminated due to the Shelley Group's withdrawal of
their representation and their inability to raise
capital for the acquisition. The material terms of
the letter of intent were:
1)Structure, The Acquisition shall be structured as
either a Merger between Acquiror and the Company, an
Asset Purchase Of certain assets of the Company, or a
Stock Purchase of all of the issued and outstanding
capital stock of the Company.
2)Purchase Price. The aggregate purchase price in the
Acquisition (the "Purchase Price") will be payable at
Closing (as defined below) by Acquiror in the amounts
set forth below:
a)Purchase Price is based on six times annual after
tax earnings of $500,000 estimated to be
$3,000,000. GPMT agrees to a minimum purchase price
of $2,000,000.
b)Cash $450,000. The cash portion to be distributed
over a period not to exceed 120 days following
closing. The schedule for the cash payment will be
53% of the cash raised by GPMT as it is received
from funding sources,
c)A total of 1,425,000 GPMT restricted shares will be
issued upon closing representing a value of
$2,550,000.
d) An option to purchase 250,000 shares of GPMT common stock (the
"Option"), at an exercise price equal to the closing price of the GPMT
common stock, as quoted on the over-the-counter bulletin board on the
Closing Date, where 50% shall be vested immediately and the balance to
vest over the next 12 months. These options are to be for distribution
to the owners and key management at the discretion of the Owners.
The company entered into an informal relationship with Applied
Behavioral Sciences, LLC for the purpose of providing
behavioral testing to determine the productivity of job
applicants. Their testing would have added services to the
human resource group. Once the acquisitions with Best Staff was
terminated, the relationship with Applied Behavior was also
terminated.
BUSINESS STRATEGY
THE CREATIVE PRODUCTS MARKET. We intend to explore opportunities to
increase the
value of Gee Whiz, including the possible additional acquisition and
strategic
alliance with related businesses. 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
Currently the company is undergoing an organizational
restructuring. We have substantially reduced our operations to
reduce our operating costs. We currently have one unpaid
employee, Elorian Landers, our CEO. We have relocated our
corporate offices to Atlanta, GA to save additional costs. Upon
the completion of the organizational restructuring, we will be in
position to assess merger and acquisition candidates. However,
there can be no assurances the restructuring will be successful.
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.
COMPETITION
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 patented
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.
We design, manufacture, and distribute a limited line of acrylic
drinking glasses and plaques with colored light transmitted
through the acrylic that illuminates an image in the product and
creates a "halo" effect when the light exists. Our products are
marketed as gifts and promotional or give-away items for
companies, trade associations, clubs, sports teams, etc. Our
drinking glasses are marketed as Starglas(TM). We currently offer
three sizes, an 18-ounce mug, a 16-ounce tumbler, and a 9-ounce
tumbler. The glasses are each attached to a removable base, which
contains the electronic parts for the light, and we currently
offer five different colors, black, red, silver, blue, and green.
The color of the light transmitted through the glass corresponds
with the color of the base. Customers may choose from a small
selection of existing graphics, or may submit artwork and we will
put any logo or graphic on the glasses for their promotional use.
Our illuminated plaques are marketed as LightArt. We currently
offer four different shapes and the same five color choices for
the base. Customers may choose from a small selection of existing
graphics, or may submit artwork and we will put any logo or
graphic on the glasses for their promotional or personal use.
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.
GeeWhiz our subsidiary, holds a license from a shareholder, Tommy
Tipton, for U.S. Patent Numbers 5,211,699 and 5,575,553 on
proprietary fiber optic illuminated drinking containers, as well
as registered trademarks on Starglas (Reg. No. 2,216,216) from
Elorian Landers and Fyrglas (Reg. No. 1,995,482). The license
gives Group Management the right to use the patents without cost.
In addition, Fyrglas is also a registered trademark in Canada. Mr.
Landers also has, and GeeWhiz has the rights to a patent pending
with the United States Patent and Trademark Office (Application
No. 09/842,701) for LightArt. All intellectual property related to
Starglas and LightArt for which Group Management Corp. has an
interest is provided to us through a verbal agreement for its use.
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.
EMPLOYEES
As of December 22, 2002, the company had 1 unpaid employee,
Elorian Landers, our CEO. We believe our relationship with our
employees is good. None of our employees are a party to a
collective bargaining agreement.
FORWARD-LOOKING STATEMENTS
Except for historical information contained in this report,
the statements included in the Business section, Management's
Discussion and Analysis or Plan of Operations, including the risk
factors, and elsewhere in this report 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 under "Risk Factors" in Item 6, as well as
cautionary language in this report, 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 or Plan of Operations contained in
this report and other disclosures in the filings we make with the
Securities and Exchange Commission (the "SEC").
ITEM 2. DESCRIPTION OF PROPERTY
Our principal executive offices are located as of December 17,
2002, at 101 Marietta St., Suite 1070, Atlanta, GA 30303. We
relocated to the Atlanta, GA area to reduce our office expense
costs. Currently we are sharing space with RGW Capital Group,
Inc, an investment banking firm at no cost on a month to month
basis.
ITEM 3. LEGAL PROCEEDINGS
CONVERTIBLE NOTE HOLDERS. On February 2, 2001 we issued $1.1
million of
convertible notes to four investors in a private placement. The
convertible
notes mature on January 1, 2003 and bear interest at the rate of 6%
per year.
The events of default under the notes are described in this report
under the
section captioned "Convertible Notes".
As part of the financing transactions involving the convertible notes,
we agreed
to file a registration statement for the resale by the note
holders of the
common stock underlying the convertible notes and to have the
registration
statement declared effective by June 17, 2001. The registration
statement was
not declared effective by June 17, 2001 and has not been declared
effective as
of the time of the filing of this report.
On September 10, 2001 we entered into a Security Agreement with the
noteholders
and certain of our shareholders, including Elorian Landers, our Chief
Executive
Officer and a director, and Thomas L. McCrimmon, a director. Under the
Security
Agreement, Mr. Landers and his wife pledged 150,000 shares of our
common stock,
Mr. McCrimmon pledged 10,900 shares of our common stock and other
shareholders
pledged 89,250 shares of our common stock, all as security for our
obligations
under the financing agreements with the noteholders. As part of this
agreement,
the note holders waived the default and penalties under the
convertible notes
for failure to make the registration statement effective by June
17, 2001,
provided that we file an amendment to the registration statement by
October 20,
2001 and cause the registration statement to be declared effective by
December
10, 2001. The note holders also lent us an additional $55,000 and we
signed a
promissory note agreeing to repay this amount by the earlier of
December, 2001
or the occurrence of an event of default under the Security
Agreement.
On February 7, 2002, the convertible note holders declared a
default on the
notes for failure to have the registration statement declared effective
and made
demand for payment of the convertible notes and promissory notes. In
addition,
the collateral agent under the Security Agreement released 239,400
shares of our
stock to the convertible note holders. The note holders further
requested that
we deliver an opinion to our transfer agent so that they would be able
to sell
in the public markets under Rule 144 the shares released by the
collateral agent
and have the shares reissued in the note holders' names. One of the note
holders
has also submitted a notice to convert a portion of its notes into
our common
stock. Because of certain disputes with the note holders, we have not
complied
with these requests.
On or about March 21, 2002, Alpha Capital Aktiengesellschaft,
Amro
International, S. A., Markham Holdings, LTD, and Stonestreet
Limited
Partnership, the holders of the convertible notes, filed a complaint
in United
States District Court for the Southern District of New York naming us,
Elorian
Landers and his wife as defendants. In their complaint, the note holders
allege,
the following:
o fraud in connection with the sale of the convertible notes
resulting from
alleged misrepresentations as to our cash position;
o breach of contract on the notes for failure to have an
effective
registration statement covering the resale of the common stock
underlying
the notes;
o failure to honor conversion requests;
o failure to repay the convertible notes and promissory
notes and ;
o anticipatory breach of contract on the notes.
In their complaint, the noteholders assert monetary damages and seek
relief (i)
in the amount of $1,155,000 plus interest, liquidated damages and
attorneys fees
and other costs of enforcement for the breach of contract on the
notes, (ii)
unspecified monetary damages for failure to cause the registration
statement to
be effective and failure to take the steps necessary for the noteholders
to sell
the shares under the Security Agreement pursuant to Rule 144,
and (iii)
unspecified damages for failure to honor conversion notices. In
addition, the
noteholders are seeking an order directing us to (i) cause the
registration
statement to be effective, (ii) to enforce conversion of the notes
into common
stock, and (iii) to have us and the Landers take necessary actions
to permit
plaintiffs to sell the common stock received from the collateral
agent under
Rule 144.
SWAN MAGNETICS, INC.
In March 2002, the Company was served with a lawsuit brought by
Swan Magnetics,
Inc. in the Superior Court of the State of California, County
of Santa Clara.
The only defendant in the action is the Company.
The Complaint alleges,that the Company breached its
obligations under a promissory note in the principal amount of
$2,843,017, that the Company has breached its obligations under a
series of settlement documents entered into between Swan and the
Company, and that the Company has interfered with contractual
relationships between Swan and certain third parties. The
total relief sought by Swan is $3,040,000, plus interests,
costs, and punitive damages.
In separate correspondence, Mr. Eden Kim has alleged that the
Company never
owned a majority interest in Swan Magnetics, Inc. The
statement by Mr. Kim is solely his statement alone and is not a
statement by the company.
The Company is vigorously defending this lawsuit although the
Company believes
that the action lacks merit. The case is at a stage where no
discovery has been
taken and no prediction can be made as to the outcome
of this case.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Board of Directors of the Company called a Special Meeting of
Shareholders
on December 3, 2001. There were three matters submitted to a vote. A
majority of
the shareholders voted as follows:
1. A proposal to approve an amendment to Article IV of the
Company's
Certificate of Incorporating and effect a one-for-twenty reverse stock
split and
a decrease in the Company's authorized common stock from
300,000,000 to
150,000,000 shares
For 35,438,213 Against 98,628 Abstain 0
2. A proposal to approve a further amendment to Article IV of the
Company's
Certificate of Incorporation to authorize 10,000,000 shares of
preferred stock
and to permit such shares of preferred stock to be designated and
issued from
time to time, and the rights of such preferred stock to be fixed from
time to
time, by the Board of Directors without shareholder approval.
For 35,113,367 Against 423,474 Abstain 0
3. A proposal to approve an amendment to Article I of the
Company's
Certificate of Incorporation to effect a change in the Company's name
from IVG
Corp. to Group Management Corp.
For 35,536,841 Against 0 Abstain 0
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
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
"GPMT." 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 fourth 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 PRICE
----------------
LOW HIGH
----------------
2000
---------------------------
Third Quarter (pre split) . $ 1.50 $7.00
Fourth Quarter (pre split). $ 1.00 $2.31
2001
---------------------------
First Quarter (pre split) . $ 1.06 $2.00
Second Quarter (pre split). $ 1.02 $1.69
Third Quarter (pre split) . $ 0.08 $1.03
Fourth Quarter (post split) $ 0.75 $3.20
2002
---------------------------
First Quarter . . . . . . . $ 0.46 $3.10
As of March 31, 2002, there were approximately 720 holders of
record of our
common stock.
Market Manipulation
The company alleges that on January 9, 10, 11, 2002 the
plaintiff's in the litigation with the convertible debentures and
associates manipulated the common share price of the company's
stock in order for the plaintiff's to convert their debentures
into more common shares of the company's stock. One of the
company's market makers, Frankel & company entered a bid for $0.29
per shares and held the bid at that level for a period of three
days. This closing bid price of $0.29 per share allowed the
plaintiff's to convert their debentures into more shares than they
were entitled.
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.
Penny Stock Disclosures:
PENNY STOCK. Until the Company's shares qualify for inclusion
in the Nasdaq system, the trading of the Company's securities, if
any, will be in the over-the-counter markets which are commonly
referred to as the "pink sheets" or on the OTC Bulletin Board. As
a result, an investor may find it more difficult to dispose of, or
to obtain accurate quotations as to the price of the securities
offered.
Effective August 11, 1993, the Securities and Exchange
Commission adopted Rule 15g-9, which established the definition of
a "penny stock," for purposes relevant to the Company, as any
equity security that has a market price of less than $5.00 per
share or with an exercise price of less than $5.00 per share,
subject to certain exceptions. For any transaction involving a
penny stock, unless exempt, the rules require: (i) that a broker
or dealer approve a person's account for transactions in penny
stocks; and (ii) the broker or dealer receive from the investor a
written agreement to the transaction, setting forth the identity
and quantity of the penny stock to be purchased. In order to
approve a person's account for transactions in penny stocks, the
broker or dealer must (i) obtain financial information and
investment experience and objectives of the person; and (ii) make
a reasonable determination that the transactions in penny stocks
are suitable for that person and that person has sufficient
knowledge and experience in financial matters to be capable of
evaluating the risks of transactions in penny stocks. The broker
or dealer must also deliver, prior to any transaction in a penny
stock, a disclosure schedule prepared by the Commission relating
to the penny stock market, which, in highlight form, (i) sets
forth the basis on which the broker or dealer made the suitability
determination; and (ii) that the broker or dealer received a
signed, written agreement from the investor prior to the
transaction. Disclosure also has to be made about the risks of
investing in penny stock in both public offering and in secondary
trading, and about commissions payable to both the broker-dealer
and the registered representative, current quotations for the
securities and the rights and remedies available to an investor in
cases of fraud in penny stock transactions. Finally, monthly
statements have to be sent disclosing recent price information for
the penny stock held in the account and information on the limited
market in penny stocks.
The National Association of Securities Dealers, Inc. (the
"NASD"), which administers NASDAQ, has recently made changes in
the criteria for continued NASDAQ eligibility. In order to
continue to be included on NASDAQ, a company must maintain
$2,000,000 in net tangible assets or $35,000,000 in market
capitalization or $500,000 net income in latest fiscal year or 2
of last 3 fiscal years, a $1,000,000 market value of its publicly-
traded securities and 500,000 shares in public float. In addition,
continued inclusion requires two market-makers and a minimum bid
price of $1.00 per share.
Management intends to strongly consider undertaking a
transaction with any merger or acquisition candidate, which will
allow the Company's securities to be traded without the aforesaid
limitations. However, there can be no assurances that, upon a
successful merger or acquisition, the Company will qualify its
securities for listing on NASDAQ or some other national exchange,
or be able to maintain the maintenance criteria necessary to
insure continued listing. The failure of the Company to qualify
its securities or to meet the relevant maintenance criteria after
such qualification in the future may result in the discontinuance
of the inclusion of the Company's securities on a national
exchange. In such events, trading, if any, in the Company's
securities may then continue in the over-the-counter market. As a
result, a shareholder may find it more difficult to dispose of, or
to obtain accurate quotations as to the market value of, the
Company's securities
RECENT SALES OF UNREGISTERED SECURITIES
In each of the private sales of stock below, the company had each
purchaser complete a subscription agreement where the purchaser
attested that they were an accredited investor.
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. and 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 1,000,000 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 454,590 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. The number of
investor who were accredited were 100. Of those who participated
in the shares exchange, each investor signed a subscription
agreement where they attested they were an accredited investor.
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 October 25, 2001, we sold to six investor 25,750 shares of our
common stock,
at a price of $1.08 per share, for gross proceeds of $28,000. The
investors
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 November 9, 2001, we issued 117,500 shares of our common
stock as
compensation for consultants, at a price of $.50 per share, for gross
proceeds
of $58,750. 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 December 6, 2001 we sold to six investors 24,150 shares of our
common stock,
at a price of $0.95 per share, for gross proceeds of $22,900. 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.
Convertible Debenture Sale
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.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN 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 and to IVG Corp. in March 2002.
Effective
December 31, 1999, control of Internet Venture Group, Inc. was
acquired by
shareholders of GeeWhiz.com, Inc., a Texas corporation. We changed our
name to
Group Management Corp in December 2001.
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 (which we sold in March 2002). During 2001, Swan
Magnetics
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. We sold our interests in Swan
Magnetics in
March 2002.
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
590,964 shares of our common stock. 500,000 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. There was no prior affiliation between the officers and
directors of SES Corp and GPMT, prior to the acquisition.
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 45,482 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 90,000 shares
of stock
currently held by the former shareholders of SES.
In re: Polar Maintenance Company, Inc,. Debtor; Simplified
Employment Services., v. v. Group Management Corp.; Adversary
Proceeding No. 024734, In the United States Bankruptcy Court for
the Eastern District of Michigan, Southern Division. Cause No. 01-
53170
The Plaintiff brought this adversary proceeding against the
company seeking damages pursuant to a promissory note. The
Company alleged the proceeds were tendered to the company as
consideration for the merger of SES with the Company.
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 December 31, 2001, we had current assets of approximately $239,642
and total
assets of approximately $944,370.
RESULTS OF OPERATIONS
COMPARISON OF THE YEARS ENDED DECEMBER 31, 2001 AND DECEMBER
31, 2000
Revenues increased to $574,826 for the year ended December 31, 2001,
compared to
$396,300 for the comparable period in 2000. The increase was
attributable
principally to increased product sales. Cost of goods sold
increased to
$356,071 from $298,742 for the same periods. This increase was
primarily due to
increased product sales resulting from our participation in a major
trade show
during this period.
General and administrative expenses increased to $14,642,133 from
$5,443,807.
This increase was due primarily to expenses for shares issued in
acquisitions,
increased stock-based compensation and increased costs due to
acquisitions and
expansion of our operations. We also recorded interest expense of
$28,872 and a
depreciation of $147,679 during 2001.
Our net loss for the year ended December 31, 2001 was $14,599,929,
compared to a
net loss of $21,146,513 for the year ended December 31, 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 and increased costs due to expansion of Company operations.
The larger
loss in 2000 was primarily related to the $18,039,591 expenses
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. We also believed the
acquisition
would provide us with needed cash and consolidate our common
shareholders into
one company. Initially, an Asian company expressed interest in
acquiring Swan's
technology. However, it was later determined that the technology
has been
replaced by inexpensive portable computer hard drives that have the
capacity to
store more information than Swan Magnetic's proprietary high-
capacity floppy
disk drive. Because we were unable to complete the sale of the
technology prior
to the development of more sophisticated technology by
competitors, it was
determined post-acquisition that we would be better served
pursuing other
revenue producing activities.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $2,847,396 for the year ended
December
31, 2001 and $1,092,008 for the comparable period of 2000. We had
approximately
$98,000 in cash at December 31, 2001.
Operations for the year ended December 31, 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 $3.1 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. In addition, we obtained services or paid expenses
through the
issuance of common stock.
Our acquisition of Swan Magnetics in September 2000 generated
cash of
approximately $5,4000,000, of which $1,500,000 was restricted for
payment of a
promissory note to a vendor. Prior to obtaining funding from Swan
Magnetics and
subsequently acquiring Swan Magnetics in September 2000, we financed
our losses
from operations in 2001 and 2000 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.
On February 2, 2001 we issued $1.1 million of convertible notes
to four
investors in a private placement. The convertible notes mature on
January 1,
2003 and bear interest at the rate of 6% per year. If we do not pay
amounts on
the notes when due, the outstanding amounts will bear interest at the
rate of
20% per year. At the noteholders option, all principal and interest
due on the
notes becomes immediately due and payable upon an event of default as
set forth
in the notes. The events of default under the notes are described in
this report
under the section captioned "Convertible Notes". Among the events of
default
specified in the notes are the failure to pay any amounts when due
under a note
and the continuation of such nonpayment for 10 days. We did not
make the
interest payments due on the notes on December 1, 2001.
As part of the financing transactions involving the convertible notes,
we agreed
to file a registration statement for the resale by the note
holders of the
common stock underlying the convertible notes and to have the
registration
statement declared effective by June 17, 2001. Further, we agreed
that if the
registration statement was not declared effective by June 17, 2001, we
would pay
the note holders liquidated damages in the amount of 1% per
month of the
principal of the notes for the first 30 days and 2% per month
thereafter. The
registration statement was not declared effective by June 17, 2001 and
has not
been declared effective as of the time of the filing of this
report.
On September 10, 2001 we entered into a Security Agreement with the note
holders
and certain of our shareholders, including Elorian Landers, our Chief
Executive
Officer and a director, and Thomas L. McCrimmon, a director. Under the
Security
Agreement, Mr. Landers and his wife pledged 3 million shares of
our common
stock, Mr. McCrimmon pledged 218,000 shares of our common stock
and other
shareholders pledged 1,785,000 shares of our common stock, all as
security for
our obligations under the financing agreements with the note holders. As
part of
this agreement, the note holders waived the default and penalties
under the
convertible note 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 20, 2001 and cause the registration
statement
to be declared effective by December 10, 2001. In addition, the
convertible note
holders lent us an additional $55,000 for which we executed a
promissory note
agreeing to repay the $55,000 on the earlier of December 20, 2001 or on
event of
default under the Security Agreement. The promissory note has not
yet been
repaid.
On February 7, 2002, the convertible note holders declared a
default on the
notes for failure to have the registration statement declared effective
and made
demand for payment of the convertible notes and promissory notes. In
addition,
the collateral agent under the Security Agreement released 4,788,000
shares of
our stock to the convertible note holders. The note holders further
requested
that we deliver an opinion to our transfer agent so that they would be
able to
sell in the public markets under SEC Rule 144 the shares
released by the
collateral agent and have the shares reissued in the note holders'
names. One of
the note holders has also submitted a notice to convert a portion of
its notes
into our common stock. Because of certain disputes with the note
holders, we
have not complied with these requests.
On or about March 21, 2002, the note holders filed a complaint in
federal court
naming Elorian Landers, his wife and us as defendants. In their
complaint, the
note holders allege, the following: breach of contract on the
notes for failure to have an effective registration statement
covering the resale of the common stock underlying the notes,
failure to honor conversion requests and failure to repay the
convertible notes and promissory notes. In their complaint, the
note holders assert monetary damages and seek relief in the amount
of $1,155,000 plus interest, liquidated damages and attorneys
fees and other costs of enforcement for the breach of contract on
the notes, unspecified monetary damages for failure to cause the
registration statement to be effective and failure to take the
steps necessary for the note holders to sell the shares under the
Security Agreement pursuant to Rule 144, and unspecified damages
for failure to honor conversion notices. In addition, the note
holders are seeking an order directing us to cause the
registration statement to be declared effective. The note
holders have also alleged fraud in connection with the sale of
the convertible notes.
We are presently seeking to obtain alternative financing to
repay the
convertible notes and to work out an arrangement with the note
holders for
resolution of these matters. If we are not able to obtain alternative
financing
and the note holders are successful in their action to collect on the
notes, we
would be unable to make payment in full on the notes and would
consider all
strategic alternatives available to us, possibly including a
bankruptcy,
insolvency, reorganization or liquidation proceeding or other
proceeding under
bankruptcy law or laws providing for relief of debtors. It is also
possible that
one of these types of proceedings could be instituted against us. In
any event,
the convertible notes must be repaid or refinanced by the original
maturity date
of January 1, 2003.
Management has taken steps to revise our operating and financial
requirements to
accommodate our available cash flow, including the temporary
suspension of
management and certain employee salaries. As a result of these
efforts,
management believes funds on hand, cash flow from operations and
additional
issuance of common equity will enable us to meet our liquidity
needs for at
least the foreseeable future. We need to raise additional cash,
however, in
order to satisfy our proposed business plan, to meet obligations, 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 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. In addition any adverse outcome under either of the legal
actions
pending against the Company could result in a material adverse
effect on the
Company financial position and its ability to fund obligations and
operations
and to raise additional capital.
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
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.
RISK FACTORS
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.
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.
ITEM 7. FINANCIAL STATEMENTS
Our audited Consolidated Financial Statements as of and for the
years ended
December 31, 2000 and 2001 are included on pages F-1 through F-20
of this
report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
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. In addition Mr. Landers was also
an investor and director of New Visual Entertainment, Inc.
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. He became one of our directors on October 3, 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.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's
directors and executive officers and persons who own more than ten
percent of a
registered class of the Company's equity securities to file with the SEC
initial
reports of ownership and reports of changes in ownership of Common
Stock and
other equity securities of the Company. Officers, directors and
greater than
ten percent shareholders are required by SEC regulations to furnish the
Company
with copies of all Section 16(a) forms they file.
To the Company's knowledge, none of the required parties are delinquent
in their
16(a) filings.
ITEM 10. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the summary of compensation
paid to our named executive officers and directors in fiscal
years 2000 through 2001. 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, 2001 and whose annual salary and bonus
exceeded $100,000. The company has not paid any executive
compensation to any officer or director since January 26, 2001.
NAME AND PRINCIPAL Bonus
POSITION YEAR SALARY OPTIONS (#)
Elorian Landers,
Chief Executive
Officer
and Director
25,000
2001 $220,000 175,000
-
2000 $210,000 -
Eden Kim,
Chairman of the
Board
and Secretary (1)
-
2001 $105,000 18,750
-
2000 $200,000 -
Tom McCrimmon, 25,000
Director 2001 - 231,250
-
2000 -
Clay Border,
Secretary
and Director $ 25,000
2001 87,500 206,250
-
2000 - -
EMPLOYMENT AGREEMENTS
On October 8, 2001, we entered into employment agreements with Elorian
Landers,
our Chief Executive Officer, and Clay Border, our 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 150,000 shares of
our common
stock at an exercise price of $.56 per share. The stock options
expire on
October 8, 2006. 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
equal to
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 date of grant and the remaining 75,000 shares
will vest
over one year at a rate of 18,750 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.
In addition, pursuant to their respective agreements, we may
terminate Mr.
Landers and Mr. Border at any time for "cause," as defined in the
agreement. In
the event Mr. Landers or Mr. Border is terminated "without cause" or
leaves his
employment with us for "good reason," each as defined in the
agreement, then
upon termination he will receive a severance payment equal to his salary
for the
remainder of his term of employment. If Mr. Landers or Mr. Border is
terminated
without cause or with good reason within one year of a "change of
control," as
defined in the agreement, then upon such termination he will receive a
severance
package equal to two times the sum of his salary at the time of his
termination
plus any annual bonus he would have received for such period.
Terms of Mr. Lander Employment Agreement
Section 1. Position; Duties. Executive will serve as an officer
of Employer in the position of Chief Executive Officer. Executive
will report to the Board of Directors of the Employer and its
designees. Executive will perform the duties that the Board of
Directors of the Employer may from time to time reasonably
direct, and such duties as may be specified for his office in the
Bylaws of the Employer. Executive will devote substantially all
of his business time, ability and attention to the business of
Employer during the Original Term and any Renewal Term of this
Agreement.
Section 2. Term. This Agreement shall commence on Effective
Date and end three (3) years after the Effective Date (the
"Original Term"), unless terminated earlier pursuant to Section 4
of this Agreement. After the Original Term, this Agreement shall
be automatically renewed for successive terms of one (1) year
each (each a "Renewal Term") unless terminated earlier pursuant
to Section 4 of this Agreement or unless either party gives the
other party sixty (60) days' written notice, prior to the
expiration of the Original Term or any Renewal Term, as the case
may be, of that party's intent to terminate this Agreement at the
end of the Original Term or any Renewal Term.
Section 3. Compensation. Subject to Section 4, as
compensation for Executive's services, and as compensation for
Executive's covenants set forth in this Agreement, including
without limitation Section 5, the Employer agrees as follows:
(a) Base Salary. During the Original Term and any
Renewal Term, the Employer will pay Executive a base salary
("Base Salary") at the rate of $20,833.33 per month,
prorated for any partial pay period. The Base Salary will
be paid in accordance with the Employer's regular payroll
practices and subject to increase by the Board of
Directors.
(b) Annual Bonus. Executive shall be entitled to
receive an annual bonus based upon his performance as
determined in the sole discretion of the Board of Directors
of the Employer.
(c) Restricted Stock Award. Executive shall receive a
restricted stock award of 4 million shares of common stock
of Employer, pursuant to the terms of that certain
Restricted Stock Award Agreement attached hereto as Exhibit
A.
(d) Miscellaneous. Executive shall be entitled to the
following additional benefits:
(1) A car allowance not to exceed $800 per month;
(ii)A club membership allowance not to exceed
$2,000 per year;
(iii) Reimbursement of all properly documented
business expenses, including, without limitation,
wireless phone service, in accordance with the
Employer's policy, as may be modified from time to
time, for reimbursement of business expenses;
(iv) An annual paid vacation of twenty (20)
business days in accordance with the Employer's
vacation policy for Executives of the Employer
generally;
(v) Such other benefits, including health
benefits and participation in Executive benefit plans,
made available to Executives of the Employer generally
and provided as soon as practicable without violation
of the Employer's policy terms; and
(vi) Such stock options as may be granted from
time to time by the Board or any committee thereof.
______________________________
1 Mr. Kim resigned from these positions in July 2001
2 Mr. Border joined the Company June 1, 2001
Terms of Mr. McCrimmon Consulting Agreememt:
CONSULTING AGREEMENT
This Consulting Agreement (this "Agreement") is entered
into as of October 8, 2001 (the "Effective date"), by and between
IVG CORP. a Delaware corporation (the "Company'), and Thomas L.
McCrimmon, an individual (`Consultant"). Each of the Company and
Consultant is refereed to herein as a "Party" and are
collectively referred to herein as the "Parties,"
The Parties desire to enter into this Agreement in order
that Consultant may provide the consulting services, as
hereinafter set forth.
The Parties, intending to be legally bound, agree as
follows:
1. Engagement of Consultant.
1.1 Scope of Services. The Company engages the
Consultant to render consulting services, and the
Consultant agrees to render consulting services, to the
Company, as requested from time to time, on the terms
and conditions set forth herein. The scope and nature of
the consulting services will be services in connection
with the identification, analysis and evaluation of
possible merger and acquisition opportunities for the
Company, and such other services as may be requested by
the Board of Directors and the Chief Executive Officer
of the Company from time to time.
1.2 Terms of Agreement. The Company will retain the
Consultant under the terms of this Agreement for the
period beginning on the Effective Date and ending on the
first anniversary of the Effective Date (the "Consulting
Period").
1. Consulting Fee. In payment in frill for the
consulting services rendered by Consultant under this
Agreement, the Company shall grant to Consultant an option
to purchase 3,000,000 shares of the Company's common stock,
which shall be issued to Consultant pursuant to that
certain Stock Option Agreement, attached hereto as Exhibit
A (the "Consulting Fee")
3. Expenses. In addition to the Consulting Fee,
Consultant shall be reimbursed by the Company for all
reasonable out-of-pocket disbursements incurred by
Consultant in connection with the performance of his
services under this Agreement, including but not limited to
travel expenses and legal and accounting fees. Expenses in
excess of $3,000 must be approved in advance by the Chief
Executive Officer of the Company.
4. Independent Contractor. The parties acknowledge
that Consultant is a skilled professional consultant who
will be rendering professional services pursuant to this
Agreement, Consultant will use his professional judgment
and expertise to accomplish the details of his work.
Consultant is, and shall for all purposes be considered, an
independent contractor, and nothing in this Agreement shall
be deemed to create or imply an agency, partnership, joint
venture or employment relationship between Consultant and
the Company (or any affiliate of the Company). Consultant
acknowledges and agrees that he shall have no right or
authority to commit or obligate the Company in any way to
any third party or parties unless specifically authorized
to do so by an authorized officer of the Company. It is
understood that Consultant shall pay all taxes, licenses,
and fees levied or assessed on Consultant in connection
with or incident to the performance of this Agreement by
any governmental agency, including, without limitation,
unemployment compensation insurance, old age benefits,
social security, or any other taxes upon wages of
Consultant. Consultant agrees to furnish the Company with
the information required to enable it to make necessary
reports and pay taxes.
5. Termination. This Agreement is terminable by
either the Company or Consultant upon 30 days prior written
notice to the other. Upon termination of this Agreement for
any reason, none of the Parties nor any other person shall
have any liability or further obligation arising out of
this Agreement, except for any liability resulting from the
breach of this Agreement prior to termination; provided
that notwithstanding the termination of this Agreement
pursuant to the terms hereof or otherwise, the Company's
obligations to reimburse the Consultant for all reasonable
out-of- pocket disbursements under Section 3 shall survive
the termination of this Agreement.
6. Confidentiality; Proprietary Information.
6.1 Confidentiality. Both during the Consulting Period
and thereafter, Consultant agrees that (i) all
information and data that Consultant receives from the
Company and all information and data that Consultant
generates or develops in the performance of this
Agreement shall be regarded as proprietary information
and property of the Company that shall be held in strict
confidence by Consultant and that all of such
information and data shall be promptly returned to the
Company upon termination or expiration of this
Agreement, and (ii) Consultant will not, except as
specifically requested by the Company, use for any
purpose or disclose to any person any confidential
information Concerning the business of the Company. The
term "confidential information" includes, without
limitation, information not previously disclosed to, or
known by, the public with respect to products,
processes, facilities and methods, research and
development, trade secrets, know-how and other
intellectual property, marketing and business plans,
prospects and opportunities, customer lists and
financial information regarding the business of the
Company.
6.2 Proprietary information. Consultant agrees that all
data, reports, processes, procedures, programs, discoveries,
formulae, improvements, technologies, designs, inventions
(collectively, "Inventions"), including new contributions,
developments, ideas, and discoveries, whether or not patentable
or copyrightable, conceived, developed, invented, or made solely
by the Consultant, or jointly with other employees, agents or
consultants of the Company, as part of the consulting services
shall be conclusively deemed "work for hire" and are property of,
and belong to, the Company. Consultant assigns all right, title
and interest in such inventions to the Company.
7. Miscellaneous.
7.1 Notices. Unless otherwise provided in this Agreement, all notices,
approvals, or other communications purporting to affect the rights of
the Parties hereunder will be in writing and will be delivered
personally or by certified mail, return receipt requested, or express
courier (a) if to the Company, at 13135 Dairy Ashford, Suite 525, Sugar
Land, Texas 77048 and (b) if to Consultant, at the address set forth on
the signature page to this Agreement, or at such other address as either
Party notifies to the other Party in writing.
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
500,000, 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, 65,985 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.
2002 OMNIBUS SECURITIES PLAN
Our board of directors adopted our 2002 Omnibus Securities Plan in
March 2002.
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 during
the first plan year is 500,000, subject to certain adjustments,
and will
increase to ten percent (10%) of the outstanding common stock in
subsequent
years. 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. As of
March 31,
2002, no shares of stock or options have been granted under
the plan.
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 PERCENT OF
OF
SECURIT TOTAL
IES OPTIONS
UNDERLY GRANTED TO
ING
OPTIONS EMPLOYEES EXERCISE
IN
GRANTED FISCAL YEAR PRICE EXPIRATION
DATE
NAME
----
Elorian 156,250 (1)
Landers 24% $ .56
Clay Border 206,250 (1)
35% .56
Tom McCrimmon 231,250 (1)
39% .56
21
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.
NUMBER OF VALUE OF
SECURITIESUN EXERCISED IN-
UNDERLYING THE-MONEY
UNEXERCISEDOPTIONS AT YEAR-
OPTION S END
($)(1)
AT YEAR-END (#)---------
-------
----------------
SHARES VALUE
ACQUIRED ON REALIZED UNEXERCISABLE/
UNEXERCISABLE/
NAME EXERCISE (#) ($) EXERCISABLE
EXERCISABLE
---- ------------ -------- ------------------
-------------------
Elorian Landers 85,250 $ 20,460 56,250/119,750
$ 47,250/83,125
Clay Border 85,250 $ 20,460 56,250/168,750 $
47,250/118,925
Tom McCrimmon 85,250 $ 20,460 56,250/197,750
$ 47,250/135,625
(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 15,000 shares of our
common stock
at an exercise price of $15.00 per share. On the date of grant,
12,500 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, 16,250
shares were
vested under these options and 20,000 were forfeited because two of the
outside
directors granted options ceased to serve as directors of the
Company.
On February 5, 2000, we granted Mr. McCrimmon an option to
purchase 75,000
shares of our common stock at an exercise price of $5.00 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. On
October
8, 2001, we entered into a consulting agreement with Mr. McCrimmon, in
which he
agreed to provide us with consulting services in connection
with the
identification, analysis and evaluation of possible merger and
acquisition
opportunities. In consideration of Mr. McCrimmon's services, we granted
him the
option to purchase up to 150,000 shares of our common stock at an
exercise price
of $.56 per share. 75,000 shares vested on the date of grant and the
remaining
75,000 vest over a one year period at a rate of 18,750 shares per
quarter. 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 option expires on October 8,
2006.
ITEM 11. 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 March 31, 2002, 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.
SHARES OF COMMON STOCK BENEFICIALLY
OWNED
--------------------------------------
----
NAME OF BENEFICIAL OWNER
-------------------------------------------------------
NUMBER (1)
PERCENT (2)
---------------
--------------------------- -----------
Elorian Landers (3) 796,924
20.2%
Eden Kim 460,282
14.9%
Clay Border 362,500
2.5%
Thomas L. McCrimmon (4 430,164
8.6%
Executive officers and directors as a group (3 persons)
1,589,588 31.3%
Alpha Capital Aktiengesellschaft
267,139 7.9%
AMRO International, S.A. 222,616
6.7%
Markham Holdings Ltd. 311,662
9.2%
Stonestreet Limited Partnership
178,092 5.5%
Addresses of:
Kim, Eden
10715 Orline Court
Cupertino, CA 95014
Tom McCrimmon
3816 West Linebaugh Ave.
Suite 480
Tampa, FL 33624
Clay Border
Unknown
Elorian Landers
30 Farrell Ridge
Sugar Land, Texas 77479
(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 March
31, 2002,
by the person indicated and shares underlying warrants and/or
options
owned by such person on March 31, 2002, that were exercisable
within
60 days of that date.
(2) Based on 4,699,679 BAL Brian A. Lebrecht Update to
as of 3/31/02. Shares of common stock issued and
outstanding as of the close of business on March 31, 2002.
(3) Includes 118,750 shares subject to options exercisable within 60
days of
March 31, 2002.
(4) Includes 193,750 shares subject to options exercisable within 60
days of
March 31, 2002. Mr. McCrimmon's address is 3816 West Linebaugh
Avenue,
Suite 200, Tampa, Florida 33624.
(5) Includes 168,750 shares subject to options exercisable within 60
days of
March 31, 2002.
(6) Includes 263,389 shares of common stock issuable on
conversion of
convertible notes at an assumed conversion price of $1.13 per
share, and
3,750 shares of common stock issuable on the exercise of
immediately
exercisable warrants. Alpha Capital Aktiengesellschaft's
address is
Pradafant 7, 9490 Furstentums, Vaduz, Lichtenstein.
(7) Includes 219,491 shares of common stock issuable on
conversion of
convertible notes at an assumed conversion price of $1.13 per
share, and
3,125 shares of common stock issuable on the exercise of
immediately
exercisable warrants. Amro International's address is care
of Ultra
Finanz, Grossmuensterplatz 6, Zurich, Switzerland CH8022.
(8) Includes 307,287 shares of common stock issuable on
conversion of
convertible notes at an assumed conversion price of $1.13 per
share, and
4,375 shares of common stock issuable on the exercise of
immediately
exercisable warrants. Markham Holdings Ltd.'s address is
care of
Mr. David Hassan, 50 Town Range, P.O. Box 472, Gibraltar.
(9) Includes 175,592 shares of common stock issuable on
conversion of
convertible notes at an assumed conversion price of $1.13 per
share, and
2,500 shares of common stock issuable on the exercise of
immediately
exercisable warrants. Stonestreet Limited Partnership's address
is care
of Carol Harrop/Michael Finkelstein, 260 Town Center Blvd.,
Suite 201,
Markham, ON, L3R 8H8.
ITEM 12. 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.
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. On
October 23, 2001, we received requests on behalf of eleven former Swan
Magnetics
shareholders to exchange their IVG shares and warrants for Swan
Magnetics shares
held by us. We requested further documentation from the requesting
parties
(including evidence of their authority to act for the shareholders
listed in the
request letters and surrender of their IVG stock certificates and
warrant
certificates). If all of the shareholders listed in the request letters
exchange
all of their IVG shares and warrants, our outstanding shares would be
reduced by
approximately 6.2 million shares, and our ownership of Swan
Magnetics common
stock would be reduced from approximately 88.5% to approximately
33.3%.
A dispute has arisen between the Company and Eden Kim arising out
of Kim's
refusal to produce adequate financial statements, books, and records of
Swan to
the Company and its auditors. The Company believes these actions are
a breach
of the Voting Agreement and the Settlement Agreement and General
Release
Agreement, and as a result removed all of the Directors and Officers of
Swan in
February 2002, replacing them with Elorian Landers, Clay Border, and
Thomas L.
McCrimmon. As of the date of this filing, Mr. Kim has refused to
acknowledge
his removal as a Swan Director and Officers, and has refused to
relinquish any
of Swan's books and records.
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 150,000
and 10,900
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 "Management's Discussion and Analysis -
Subsequent
Events -- Financing." 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.
On October 8, 2001, we entered into employment agreements with Elorian
Landers
and Clay Border, see "Employment Agreements" and a consulting agreement
with Tom
McCrimmon, one of our directors. See "Compensation of
Directors."
Eden Kim the previous president and director of Swan had 14
shareholders return their shares of IVG Corp. back to IVG Corp.
asking at the request of Mr. Kim to exchange them for Swan shares.
The reference to the 6.2 million shares is the pre-split number of
shares outstanding. Post split the 6.2 million number is actually
310,000 shares.
The company owes to its CEO, Elorian Landers initially $84,947,
this amount has grown with additional loans to $140,000. Mile
Tate and Earl Marshall are each owed $7,500 by the company on an
annual renewable note paying interest at 7%.
Tom Grunnert, our General Counsel and director was paid
approximately $90,000 per year. The sum was payable to Gibson &
Grunnert, P.C.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
--- --------
EXHIBIT NO. TITLE
----------- -----
2.1(1) Agreement and Plan of Reorganization between
GeeWhizUSA.com, Inc.
and the company.
2.2(2) Agreement and Plan of Exchange between Swan Magnetics, Inc.
and the
company.
2.4(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(5) Form of Warrant Certificate issued to former stockholders
of Swan
Magnetics, Inc.
2.6(5) 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(6) Amended and Restated Asset Purchase Agreement and
Agreement and 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(7) Agreement, dated as of August 8, 2001 among the company,
Dennis Lambka
and Ronald Bray
2.9(11) Asset and Stock Purchase Agreement, dated October 24,
2001, by and
among GMS Acquisition LLC, Group Management Services,
Inc.,
E. Michael Kahoe, James Kahoe and the company
3.1(5) Certificate of Incorporation
3.2(5) Bylaws
4.1(5) Specimen Certificate of Common Stock
4.2(8) 2000 Omnibus Securities Plan
10.1(5) Office Lease between G.P.I. Development, Ltd. and the
company
10.2(5) Lease Agreement, dated December 2, 1997, between Southwest
Beltway
Limited Partnership and Fyrglas, Inc.
10.3(5) Inventory Credit Line Agreement, effective as of January 22,
2001,
between Swan Magnetics, Inc. and the company
10.4(5) Security Agreement, dated July 18, 2000, between Swan
Magnetics,
Inc. and the company
10.5(5) Secured Convertible Promissory Note issued by the company
to Swan
Magnetics, Inc. on July 18, 2000
10.6(5) Secured Promissory Note issued by the company to Swan
Magnetics, Inc. on October 31, 2000
10.7(5) Secured Promissory Note issued by the company to Swan
Magnetics, Inc. on December 12, 2000
10.8(5) Subscription Agreement, dated February 2, 2001, among
AlphaCapital
Aktiengesellschaft, AMRO International, S.A., MarkhamHoldings
Ltd.,
Stonestreet Limited Partnership and the company
10.9(5) 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(5) Form of Common Stock Purchase Warrant issued by the company
toAlpha
Capital Aktiengesellschaft, AMRO International, S.A., Markham
Holdings
Ltd. and Stonestreet Limited Partnership on February 2,
2001
10.11(5) Research and Development Agreement, dated November 15,
2000,
between iTVr, Inc. and Swan Magnetics, Inc.
10.12(5) Promissory Note issued by the company to SES-Corp., Inc. on
March 30, 2001
10.13(10) Warrant, dated April 30, 2001, issued by the company to
Union
Atlantic Capital, L.C.
10.14(9) Secured Promissory Note issued by the company to Swan
Magnetics, Inc. on August 1, 2001
10.15(9) Voting Agreement, dated August 1, 2000, between the company
and Swan Magnetics, Inc.
10.16(9) Settlement Agreement and General Release, dated August 1,
2000,
between the company and Swan Magnetics, Inc.
10.17(9) 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(9) ommon Stock Issuance Agreement, dated September 10, 2001,
among
the company and the Shareholders (as defined therein)
10.19(11) mployment Agreement, effective as of October 8, 2001, by
and
between Elorian Landers and the company.
10.20(11) mployment Agreement, effective as of October 8, 2001, by
and
between Clay Border and the company
10.21(11) onsulting Agreement, effective as of October 8, 2001, by
and
between Thomas L. McCrimmon and the company
21.1(11) subsidiaries
23.1(11) consent of Wrinkle, Gardner and Company, P.C.
----------------
(1) Incorporated by reference from the company's Current Report
on Form
8-Kdated April 14, 2000, as filed with the SEC on April
17, 2000.
(2) Incorporated by reference from the company's Current Report on
Form 8-K
dated July 10, 2000, as filed with the SEC on July
11, 2000.
(3) Incorporated by reference from the company's Current Report
on Form
8-K/A dated July 17, 2000, as filed with the SEC on July
18, 2000.
(4) Incorporated by reference from the company's Current Report on
Form 8-K
dated September 28, 2000, as filed with the SEC on October
13, 2000.
(5) Incorporated by reference from the company's Annual Report
on Form
10-KSB, as filed with the SEC on April 18, 2001.
(6) Incorporated by reference from the company's Current Report on
Form 8-K
dated April 1, 2001, as filed with the SEC on April
16, 2001.
(7) Incorporated by reference from the company's Current Report on
Form 8-K
dated August 30, 2001.
(8) Incorporated by reference from the company's Registration
Statement on
Form S-8, SEC File No. 333-48792, as filed with the SEC
on
October 27, 2000.
(9) Incorporated by reference from the company's Registration
Statement on
Form SB-2/A dated October 10, 2001.
(10) Incorporated by reference from the company's Registration
Statement on
Form SB-2 dated May 2, 2001.
(11) Filed herewith.
(b) Reports on Form 8-K
--- -------------------
On November 1, 2001, the Company filed an Amended Current Report on
Form 8-K/A,
which amended an 8-K filed on October 13, 2000 and further amended
on May 9,
2001. The purpose of the amendment was to file historical financial
statements
of Swan and unaudited pro forma condensed financial data of the
Company, which
give effect to the Swan acquisition.
On August 30, 2001, the Company filed a Current Report on Form
8-K describing
the disposition of its interest in SES-Corp., Inc.
On December 18, 2002 the company filed a Form 8-k, disclosing the
resignation of its auditor and the change of address of it
business office.
FINANCIAL STATEMENTS
GROUP MANAGEMENT CORP.
INDEX TO FINANCIAL STATEMENTS
For the years ended December 31, 2001 and 2000
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
F-1
Wrinkle, Gardner & Company, P. C.
Certified Public Accountants
211 E. Parkwood, Suite 100
Friendswood, Texas 77546
(281) 992-2200
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of Group Management Corp.
We have audited the accompanying consolidated balance sheet of Group
Management
Corp (a Delaware corporation) as of December 31, 2001, and the
related
consolidated statements of operations, changes in stockholders' equity
and cash
flows for the two years 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
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 financial statements referred to above present
fairly, in
all material respects, the financial position of Group Management
Corp. as of
December 31, 2001, and the results of its operations and its cash flows
for the
two years 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. 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 10, 2002
GROUP MANAGEMENT CORP.
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 2001
ASSETS
CURRENT ASSETS:
Cash 97,911
Accounts receivable - net 6,545
Inventory 89,186
Due from shareholders 46,000
Total current assets 239,642
PROPERTY AND EQUIPMENT - NET 411,990
OTHER ASSETS - NET 292,738
--------
-----
Total assets$ 944,370
========
=====
LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued 865,619
expenses
Notes payable and capital lease
obligations
5,030,99
3
--------
-----
Total current liabilities
5,896,61
2
STOCKHOLDERS' EQUITY AND
ACCUMULATED DEFICIT:
Common Stock, par value $.002,
150,000,000 shares authorized,
3,553,258
Issued and outstanding 7,107
Additional paid-in capital 33,500,2
08
Accumulated deficit (38,459,
557)
--------
-----
Total stockholders' deficit (4,952,2
42)
--------
-----
944,370
$
========
=====
See accompanying summary of accounting policies and notes to financial
statements.
F-3
GROUP MANAGEMENT CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
2001 2000
------------- -------------
REVENUES:
Sales 574,826 396,300
COST OF GOODS SOLD 356,071 298,742
------------- -----------
--
GROSS PROFIT 218,755 97,558
OPERATING EXPENSES:
General and 15,260,883 5,443,807
administrative
Purchased in-process 8,039,591
technology
Depreciation expense 47,679 28,271
Interest expense 28,872 58,716
------------- -------------
15,437,434 23,570,385
------------- --------
-----
OTHER INCOME:
Interest income 108,789
Gain on sale of 8,000
equipment
------------- --------
-----
116,789
MINORITY INTEREST (2,209,725)
------------- --------
-----
NET LOSS $(15,218,67 $(21,146,313
9) )
============= ===========
=
Basic and fully diluted (.26) (.57)
net (loss) per share
Weighted average shares
outstanding,
pre-split on December 59,293,697 37,705,300
17, 2001
See accompanying
summary of accounting
policies and notes
to financial
statements.
F-4
GROUP MANAGEMENT CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
Common
Stock
-------------
Number Additional Accumulate
of Paid in d
Shares Amoun Capital Deficit Total
t
--- - ----
------- ----- ---------- ---------- -------
---- -- ------ -
Balance
December 31, 1999 $ $
30,537, $ 1,969,035 $ (122,476)
402 3,054 (2,094,565
)
Shares issued for
services 2,414,2 241 3,005,992 - 3,006,233
00
Shares issued for
cash 213,450 21 434,079 - 434,100
Shares issued in
acquisitions 20,000, 2,000 19,003,000 - 19,005,000
000
Shares exchanged
for warrants (9,091, (909) 2,182,859 - 2,181,950
855)
Warrants issued for
services - - 71,860 - 71,860
Net loss
- - - (21,146,31 (21,146,31
3) 3)
Balance
December 31, 2000
44,073, 4,407 26,666,825 (23,240,87 3,430,354
197 8)
Shares issued for
services 21,603, 43,20 5,941,716 - 5,984,922
100 6
Shares issued in
acquisitions
net of 10,000,000
cancelled
shares
4,320,8 8,642 5,372,826 - 5,381,468
62
Shares issued for
cash 214,900 430 43,468 - 43,898
Beneficial interest
on
convertible debt
- - 468,258 - 468,258
Effect of
unconsolidated
Subsidiary
- - (4,992,885 - (4,992,885
) ),
Effect of 1 to
20 (66,658 (49,5 (49,578)
reverse stock ,801) 78)
split
- -
Net loss
- - - (15,218,67 (15,218,67
9) 9)
- ------
------- ----- ---------- ---------- ------
----- --- --- --
Balance
December 31, 2001 $
3,553,2 $ 33,500,208 $ $(4,952,24
58 7,107 (38,459,55 2)
7)
======= ===== ========== ========== ==========
===== ===== ====== ===== ===
====
See Accompanying summary of accounting policies and notes to financial
statements.
F-5
GROUP MANAGEMENT CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
2001 2000
------------
--------- ----
------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net (loss) . . . . . . . . . . . . $
.. . . . . . . . . $ (21,146,313)
(15,218,6
79)
Adjustments to reconcile net (loss)
to net cash
(used in) operating activities: , ,
Minority interest. . . . . . . .
.. . . . . . . . . - (2,209,725)
Depreciation . . . . . . . . . .
.. . . . . . . . . 122,879 28,271
Amortization . . . . . . . . . .
.. . . . . . . . . 24,800 12,650
Purchased in process technology.
.. . . . . . . . . - 18,039,591
Stock based compensation . . . .
.. . . . . . . . . 11,316,81 3,078,093
2
Beneficial interest on
convertible debt. . . . . . 468,258 -
Changes in operating assets &
liabilities:
Accounts receivable. . . . . . .
.. . . . . . . . . 20,489 (12,889)
Inventory. . . . . . . . . . . .
.. . . . . . . . . (11,247) 1,649
Other assets . . . . . . . . . .
.. . . . . . . . . (55,876) (217,467)
Accounts payable and accrued
expenses. . . . . . . 485,168 1,334,132
-------------
--------- ---
------
Net cash (used in) operating
activities . . . . . . . (2,847,39 (1,092,008)
6)
CASH FLOWS FROM INVESTING , ,
ACTIVITIES:
Cash acquired through purchase of
subsidiary . . . . - 5,404,338
Purchase of equipment. . . . . . .
.. . . . . . . . . (490,328) (13,266)
Notes receivable . . . . . . . . .
.. . . . . . . . . 102,200 (148,200)
--------------- ---------
-------
Net cash provided by (used in )
investing activities. (388,128) 5,242,872
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from stock issuance . . .
.. . . . . . . . . 43,898 434,100
Proceeds from notes payable. . . .
.. . . . . . . . . 3,127,890 49,785
Payments on notes payable. . . . .
.. . . . . . . . . (126,793) (254,045)
Restricted cash. . . . . . . . . .
.. . . . . . . . . - (1,500,000)
------------
--------- ----
------
Net cash provided by (used in)
financing activities . 3,044,995 (1,270,160)
--------------- ---------
-------
Increase (decrease) in cash and
cash equivalents . . (190,529) 2,880,704
Cash and cash equivalents -
beginning of year . . . . 288,440 6,006
--------------- ---------
-------
Cash and cash equivalents - end of $
year . . . . . . . $ 2,886,710
97,911
=============== =========
=======
Supplemental cash flow information:
Cash paid for interest . . . . . . $
.. . . . . . . . . $ 3,562
-
=============== =========
=======
See accompanying summary of accounting policies and notes to
financial
statements.
F-6
GROUP MANAGEMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001
NOTE 1 - ORGANIZATION AND PRESENTATION
On March 9, 2001, IVG Corp 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 1,326,870
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. In
December
2001, the company changed its name to Group Management Corp (the
Company)
The Company is a Houston-based human resource and technology
company that
focuses on the acquisition, development and operation of
promising
revenue-generating companies. The Company's business strategy is to
acquire,
develop and operate unique companies that are leaders in their
commercial niche
by virtue of a compelling business model, technology and/or proprietary
service.
The Company provides a value-added corporate structure intended to
enable its
portfolio companies to quickly leverage their expertise and
deploy their
business strategy by utilizing the management, financial and corporate
resources
of the Company. 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.
Swan Magnetics, Inc., (Swan) 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. The transaction was accounted
for under
the purchase method. See Note 11. The Company sold its 88.5% interest
in swan
in March 2002.
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.
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, 2001 and 2000 reflect its operations on a consolidated
basis and
include the accounts of the Company, including its divisions,
and its
majority-owned subsidiary. All significant intercompany accounts
and
transactions have been eliminated. Swan Magnetics, Inc has not
been
consolidated for 2001 as the Company lacks control due to Swan's
former CEO
withholding financial records, making control impracticable. Litigation
has been
initiated to gain control of the books and records.
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.
This amount
is not consolidated in 2001.
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:
Automobiles 4 years
Manufacturing Equipment 2 - 5 years
Furniture and Equipment 5 years
Leasehold Improvements 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.
Other revenue and commission income is recognized when the
earnings process has
been completed. The disclosure concerning other revenue is
boilerplate verbiage inserted by the company to disclose its
process for disclosing any additional revenue in the event it is
present. Currently there in no source of other revenue.
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.
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 2001, the Financial Accounting Standards Board issued SFAS
No. 141,
"Business Combinations," and SFAS No. 142, "Goodwill and Other
Intangible
Assets." Under these new standards, all acquisitions subsequent to
June 30,
2001 must be accounted for under the purchase method of
accounting, and
purchased goodwill is no longer amortized over its useful life.
Rather,
goodwill will be subject to a periodic impairment test based on its
fair value.
SFAS 142 is effective for fiscal years beginning after December
15, 2001,
although earlier adoption is permitted. The company does not expect
that the
adoption of these standards will have a material impact on its
financial
statements.
In October 2001, the Financial Accounting Standards Board issued SFAS
No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets."
SFAS 144
supersedes SFAS 121. SFAS 144 primarily addresses significant issues
relating
to the implementation of SFAS 121 and develops a single model for
long-lived
assets to be disposed of, whether primarily held, used or newly
acquired. The
provisions of SFAS 144 will be effective for fiscal years
beginning after
December 15, 2001. We will apply this standard beginning in 2002. The
Company
does not expect that the adoption of this standard will have a
material impact
on its financial statements.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
December 31, 2001
----------------
---
Furniture and equipment. . . . . . $
.. . . . . . . . 308,407
Manufacturing equipment. . . . . .
.. . . . . . . . 109,670
Leasehold improvements . . . . . .
.. . . . . . . . 170,381
Automobiles. . . . . . . . . . . .
.. . . . 41,857
----------------
---
630,315
Less accumulated depreciation. . .
.. . . . . . . . (218,325)
---------------
----
Net Property, Plant and Equipment. $
.. . . . . . . . 411,990
=================
==
The capitalized costs of the intellectual property are accorded
to the patent and licensing agreement for the Starglass
technology. Of the amount disclosed, patent application costs
$25,000; technology and tooling costs $385,000; product design.
$100,000, payments to the inventor (Tommy Tipton), $90,000.
GeeWhiz holds a license from a shareholder, Tommy Tipton, for
U.S. Patent Numbers 5,211,699 and 5,575,553 on proprietary fiber
optic illuminated drinking containers, as well as registered
trademarks on Starglas (Reg. No. 2,216,216) from Elorian Landers
and Fyrglas (Reg. No. 1,995,482). The license gives Group
Management the right to use the patents without cost. In
addition, Fyrglas is also a registered trademark in Canada. Mr.
Landers also has, and GeeWhiz has the rights to a patent pending
with the United States Patent and Trademark Office (Application
No. 09/842,701) for LightArt. All intellectual property related
to Starglas and LightArt for which Group Management Corp. has an
interest is provided to us through a verbal agreement for its
use.
NOTE 4 - OTHER ASSETS
At December 31, 2001, other assets consisted of the
following:
Historical Cost Accumulated Amortization
Book Value
---------------- ------------------------
- -----------
Licensing, patents, trademarks. 364,846 127,984
236,862
Other assets (note receivable) 55,876
55,876
---------------- ------------------------
- -----------
$ 420,722 $ 127,984
$ 292,738
================
========================= ===========
NOTE 5 - NOTES PAYABLE
Notes payable consisted of the following:
December 31,
2001
--
-----------
Borrowings against a $50,000 line-of-credit agreement $
with a financial institution 49,158
Secured by a lien on the inventory purchased
with the line of credit
of the Company, bearing an interest rate of
6.75% due on demand or May 2002
if no demand is made
Note payable to an individual stockholder,
interest at 8%, due on demand 84,947
Notes payable on two stockholders, interest at
10.5%, payable on demand 15,000
6% convertible notes to institutional investors (see
Note 13) 1,100,000
Note payable to financing company, secured by
2001 GMC Yukon bearing 3.9% 39,395
interest, requiring monthly principle and
interest payments of $895, due
December 2005
Note payable to financial institution, secured by
company held certificate of 99,000
deposit, bearing interest at 7.5%, due on
demand or May 2002 if no demand is
made
Note payable to a company, interest at 8%, due on
demand 2,625,000
Capital lease obligated (see Note 9)
18,493
Note payable to a company, interest at 10%, payable
on demand 1,000,000
--
---------
$
5,030,993
===========
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:
F-4
December 31, 2001
-----------------
Deferred tax assets
Net operating loss carryforwards
$38,459,557
Valuation allowance for deferred tax assets
(38,459,557)
-----------------
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 $
38,459,557 and $23,240,878 as of December 31, 2001 and 2000,
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).
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 Shares Weighted Average
Exercise Price per Share
----------------- ---------------------
--------------------
Balance, December 31, 365,681
$9.40
Granted 218,750 5.40
Exercised - -
Canceled - -
----------------- --------------------
---------------------
Balance, December 31, 2000 584,431
7.80
Granted 1,162,500 .63
Exercised 281,750 .56
Cancelled - -
----------------- ---------------------
--------------------
Balance December 31, 2001 1,465,181 $
3.50
=================
=========================================
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 but before January 1, 2001: an
expected
life of 18 months, expected volatility of 90%, and a dividend yield of
0% and on
options issued between January 1, 2001 and June 30, 2001: an expected
life of 5
years, expected volatility of 100%., and a dividend yield of 0% and on
options
issued after June 30, 2001: an expected life of 0 years, expected
volatility of
100% and a dividend yield of 0%.
2000 Omnibus Securities Plan
-------------------------------
The 2000 Omnibus Securities Plan ("2000 Plan") was adopted in October
2000 and
reserved 500,000 shares of Group Management Corp. 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, 2001:
Balance, December 31, 2001 Number of Shares
-------------------------- ----------------
Unrestricted stock awards: 54,010
Restricted stock awards: 11,975
Shares available under the 2000 Plan as of December 31, 2001 totaled
434,015. In
accordance with APB 25, 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. No stock awards were made in
2001 under
this plan.
2002 Omnibus Securities Plan
-------------------------------
Our board of directors adopted our 2002 Ominbus Securities Plan in
March 2002.
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
common stock reserved and available for issuance under the plan during
the first
plan year is 500,000, subject to certain adjustments, and will
increase to ten
percent (10%) of the outstanding common stock in subsequent years. 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. As of March 31, 2002, no shares
of stock
or options have been granted under the plan.
Non-Employee Directors Stock Option Plan
--------------------------------------------
The Non-Employee Directors Stock Option Plan adopted in July 2000
permitted the
issuance of up to 45,000 shares of common stock to directors who
are not
employees of Group Management Corp. Under the plan, options to
purchase 5000
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
15,000 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 $15.00 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 3750 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 $5.00
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 under APB Opinion No. 25 and
related
interpretations. 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 $(29,287,366) and $(35,215,000) and $(.49) and
$(.94),
for 2001 and 2000, respectively.
F-7
NOTE 9 - COMMITMENTS AND CONTINGENCIES
Operating Leases
-----------------
The company is involved in several operating leases including leases
for office
and warehouse space, telecommunication services, and screen printers.
The lease
commitments are as follows:
o Office facilities are leased for a minimum monthly payment of
$9,988. The
lease expires November 2002.
o Another office and warehouse facilities are leased for a minimum
monthly
payment of $6,719. The lease expires November 2005.
o The company leases two screen printers. One lease requires a
minimum
monthly payment of $130 and expires August 2002 and the other
requires
minimum monthly payments of $600 and expires August 2004.
o The Company also has a lease commitment for telecommunication
services
that require a minimum monthly lease of $1,306 with the lease
expiring
in December 2003.
The rent expense for the years ended December 31, 2001 and 2000 were
$179,074
and $84,777, respectively.
The minimum future lease payments are summarized in the following table
for the
years ended December 31:
2002 $ 212,679
2003 142,732
2003 124,659
2004 109,868
2005 0
Thereafter 0
Capital Leases
---------------
The company entered into a capital lease agreement for telephone
equipment
during 2001. As required by the Financial Accounting Standards Board
and GAAP,
the Company recorded the telephone system obtained through this capital
lease as
a fixed asset in the accompanying financial statements. The
telephone system
was recorded at a cost of $57,801 along with the related
capital lease
obligation in the same amount. During 2001 the Company recognized
depreciation
expense in the amount of $28,901. The capital lease requires minimum
monthly
principal and interest payments of $1363 and expires in November 2002.
At the
end of the lease the Company has the option to purchase the equipment
at fair
market value. The minimum principal payments due during the year ended
December
31, 2002 are $18,493, and there are no commitments to make payments
after 2002
under this agreement.
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
$ 15,218,679,on gross sales of $574,826 for the year ended December
31, 2001.
These factors indicate there is substantial doubt about the Company's
ability to
continue as a going concern. The future success of the Company
is likely
dependent on its ability to obtain additional capital to develop its
proposed
products and ultimately, upon its ability to attain future
profitable
operations. There can be no assurance that the Company will be
successful in
obtaining such financing, or that it will attain positive cash
flow from
operations.
F-8
Management believes that actions presently being taken to revise the
Company's
operating and financial requirements provide the opportunity for the
Company to
continue as a going concern. The Company has been able to continue
based upon
the financial support of certain of its stockholders, and the
continued
existence of the Company is dependent upon this support and the
Company's
ability to acquire assets by the issuance of stock.
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 1,000,000
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 $35.00. The warrants expire August 1, 2004. Stockholders
exchanged an
aggregate of 454,590 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.
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.
F-9
NOTE 12 - 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 590,961shares of the
Company's common
stock. Five hundred thousand 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 45,000 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 90,000 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
118,631 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 does not intend to pursue this business
venture.
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 common
stock of
iTVr by the lender.
F-10
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 China in the fourth quarter
of 2001.
NOTE 13 - 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 250,150 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 $1.13 per share, the notes would
have been
convertible into 965,759 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 13,750 shares of common stock at an
exercise price
of $32.94. 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.
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.
F-11
NOTE 14 - SUBSEQUENT EVENTS - FINANCING AGREEMENT
On April 2, 2002 the Company announced that it has engaged Roger Shelley
and The
Shelley Group LLC to provide the capital foundation for its plan to
acquire a
range of human resource services firms and blend them into a
consolidated
business model.
The Company has engaged with The Shelley Group because it believes
Shelley can
successfully drive its capital formation needs, assist in the
alignment of its
plan with the needs of investors, and help increase investor awareness
of its HR
rollup. The funding objective to successfully execute its plan
consists of
raising $6.0 million, primarily through the issuance of common
stock.
The Shelley Group LLC provides strategic senior management
counseling and
financing to early and mezzanine stage companies. The company
also provides
value-added services in the areas of capital formation;
development of strategic
alliances; corporate and investor relations and venture
development. The
Shelley Group works closely with its client's senior management to
assist in the
development of their business plans, sales and marketing
projections, and growth
targets. The agreement with the Shelley group, LLC has since been
terminated. The company currently has no further plans to enter
the human resources industry.
NOTE 15 - SUBSEQUENT EVENTS - SALE OF A SUBSIDARY
On March 6, 2002, the Company sold its entire ownership in Swan
Magnetics to
Lumar Worldwide Industries, Inc, for $2.5 million to be paid by a
promissory
note payable in seven years. The transaction is in line with a
strategic
decision to focus on its consolidation of the business services
industry, and
its equity in Swan no longer fits with its business plan.
A key asset of Swan Magnetics is its interest in iTVr technology, which
is used
in the manufacture of set-top boxes. Swan had previously acquired a
46% equity
interest in iTVr Inc. Swan is also the developer of its UHC
("ultra
high-capacity") removable disk drive that combines high performance
and high
capacity in a standard floppy-disk form-factor.
Lumar Worldwide Industries, Inc. and its strategic partners develop
software
applications for digital technologies, which fit with Swan's iTVr
technology.
The company's 88.5% ownership interest in the Swan subsidiary was
sold to Lumar Worldwide Industries, Inc., pursuant to a promissory
note for $2.5 million payable on March 6, 2009. The promissory
note payment terms are:
DUE DATE AMOUNT DUE
APRIL 30, 2003 $0.0
APRIL 30, 2004 $0.0
APRIL 30, 2005 $122,500
APRIL 30, 2006 $122,500
APRIL 30, 2007 $122,500
APRIL 30, 2008 $122,500
APRIL 30, 2009 $122,500
The company may not accelerate the maturity of the notes in the
case of a default or breach of any of the terms of the agreement.
The Royalty Agreement:
Addendum to Agreement to Purchase Swan Magnetic from GPMT by
Lurnar
World Wide Industries, Inc. dated March 6, 2002
The Parties in the above referenced agreement agree and
enter into a royalty agreement for any and all products
sold by Swan Magnetics or its wholly owned or partially
owned subsidiaries, business partner, or alliances in
which Swan Magnetic or its subsidiaries receive a
participation, for a period of a ten years.
1. Royalty The Royalty payable to GPMT will be equal
to 4% of the gross Sales on any products sold by or through
Swan, directly, via licenses, alliance, or other agreement
that yields a revenue for Swan or its Subsidiaries ties.
2. Term The term of this agreement shall be for
Seven (7) years.
3. Products Products shall refer to item that is
manufactured, licensed, or resold by Swan or its
subsidiaries.
4. Notice Lumar Worldwide Industries, Inc. will
provide written notice within 30 days of the end of each
quarter to GPMT at GPMT's offices located at 13135 Dairy
Ashford, Suite 525 Sugar Land, TX 77 478, on a quarterly
basis the amount of the gross sales of Swan & its
subsidiaries and the amount Of Royalties that are due GPMT.
5. Payment Payment will be due 60 hays after the end
of each Quarter in cash. Cash shall refer to any cash or
cash equivalent in monies of the United States of America.
The internal laws of the State of Texas all govern the
interpretation and enforcement of this Agreement.
NOTE 16 - RELATED PARTY TRANSACTIONS - 2000
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 3750
shares of common stock as consideration for services rendered to the
Company.
The option has an exercise price of $5.00 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-12
NOTE 17 - LEGAL PROCEEDINGS
CONVERTIBLE NOTE HOLDERS. On February 2, 2001, the Company issued $1.1
million
of convertible notes to four investors in a private placement. The
convertible
notes mature on January 1, 2003 and bear interest at the rate of 6%
per year.
The events of default under the notes are described in this report
under the
section captioned "Convertible Notes".
As part of the financing transactions involving the convertible
notes, the
Company agreed to file a registration statement for the resale by
the note
holders of the common stock underlying the convertible notes and to
have the
registration statement declared effective by June 17, 2001. The
registration
statement was not declared effective by June 17, 2001 and has not been
declared
effective as of the time of the filing of this report.
On September 10, 2001, the Company entered into a Security Agreement
with the
noteholders and certain of its shareholders, including Elorian
Landers, the
Chief Executive Officer and a director, and Thomas L. McCrimmon, a
director.
Under the Security Agreement, Mr. Landers and his wife pledged 150,000
shares of
common stock, Mr. McCrimmon pledged 10,900 shares of common stock
and other
shareholders pledged 89,250 shares of common stock, all as
security for
obligations under the financing agreements with the noteholders. As part
of this
agreement, the note holders waived the default and penalties
under the
convertible notes for failure to make the registration statement
effective by
June 17, 2001, provided that the Company file an amendment to the
registration
statement by October 20, 2001 and cause the registration
statement to be
declared effective by December 10, 2001. The note holders also lent the
Company
an additional $55,000 and the Company signed a promissory note
agreeing to
repay this amount by the earlier of December, 2001 or the occurrence of
an event
of default under the Security Agreement.
On February 7, 2002, the convertible note holders declared a
default on the
notes for failure to have the registration statement declared effective
and made
demand for payment of the convertible notes and promissory notes. In
addition,
the collateral agent under the Security Agreement released 239,400
shares of
stock to the convertible note holders. The note holders further
requested that
the Company deliver an opinion to the transfer agent so that they would
be able
to sell in the public markets under SEC Rule 144 the shares
released by the
collateral agent and have the shares reissued in the note holders'
names. One of
the note holders has also submitted a notice to convert a portion of
its notes
into common stock. Because of certain disputes with the note
holders, the
Company has not complied with these requests.
On or about March 21, 2002, Alpha Capital Aktiengesellschaft,
Amro
International, S. A., Markham Holdings, LTD, and Stonestreet
Limited
Partnership, the holders of the convertible notes, filed a complaint
in United
States District Court for the Southern District of New York naming the
Company ,
Elorian Landers and his wife as defendants. In their complaint, the note
holders
allege, among other things, the following:
o fraud in connection with the sale of the convertible notes
resulting from
alleged misrepresentations as to the Company's cash
position;
o breach of contract on the notes for failure to have an
effective
registration statement covering the resale of the common stock
underlying
the notes;
o failure to honor conversion requests;
o failure to repay the convertible notes and promissory
notes and ;
o anticipatory breach of contract on the notes.
In their complaint, the noteholders assert monetary damages and seek
relief (i)
in the amount of $1,155,000 plus interest, liquidated damages and
attorneys fees
and other costs of enforcement for the breach of contract on the
notes, (ii)
unspecified monetary damages for failure to cause the registration
statement to
be effective and failure to take the steps necessary for the noteholders
to sell
the shares under the Security Agreement pursuant to Rule 144,
and (iii)
unspecified damages for failure to honor conversion notices. In
addition, the
noteholders are seeking an order directing the Company to (i)
cause the
registration statement to be effective, (ii) to enforce conversion of
the notes
into common stock, and (iii) to have the Company and the
Landers' take
necessary actions to permit plaintiffs to sell the common stock
received from
the collateral agent under Rule 144.
F-13
SWAN
In March 2002, the Company was served with a lawsuit brought by Swan
Magnetics,
Inc. in the Superior Court of the state of California, County of
Santa Clara.
The only defendant in the action is the Company.
The Complaint alleges, among other things, that the Company
breached its
obligations under a promissory note in the principal amount of
$2,843,017, that
the Company has breached its obligations under a series of settlement
documents
entered into between Swan and the Company, and that the Company has
interfered
with contractual relationships between Swan and certain third
parties. The
total relief sought by Swan is $3,040,000, plus interests, costs and
punitive
damages.
In separate correspondence, Mr. Eden Kim has alleged that the
Company never
owned a majority interest in Swan Magnetics, Inc.
The Company is vigorously defending this lawsuit although the Company
believes
that the action lacks merit. The case is at a stage where no discovery
has been
taken and no prediction can be made as to the outcome of
this case.
NOTE 18 - 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 150,000
shares of the
Company's common stock at an exercise price of $.56 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 75,000 shares
will vest
quarterly over one year at a rate of 18,750 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 150,000 shares of the Company's common
stock at an
exercise price of $.56 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 75,000 shares will vest quarterly over one year at a rate
of 18,750
shares per quarter.
F-14
NOTE 19 - SUBSEQUENT EVENT - PENDING ACQUISITION - BESTSTAFF
SERVICES, INC.
On February 28, 2002, the Company announced that it had
signed a Letter of Intent to acquire 45% of the outstanding
common stock of BestStaff Services, Inc. in exchange for cash
and common stock of the Company. Terms of the agreement have
not been finalized as of the date of this report. The
acquisition of BestStaff Services was never completed and the
letter of intent has been terminated.
NOTE 20 - COMMON STOCK
On December 3, 2001, the Board of Directors called a Special
Meeting of
Shareholders to vote on three matters as follows:
A. A proposal to amend Article IV of the Company's
Certificate of
Incorporation and effect a 1 for 20 reverse stock split
and to
decrease the number of shares of authorized common stock of the
Company
from 300,000,000 to 150,000,000. The measure passed and
became
effective December 17, 2001. All references to common stock
and stock
options or awards in the accompanying statements and related
notes are
post-split, unless specifically noted as pre-split.
B. A proposal to amend Article IV of the Company's
Certificate of
Incorporation to authorize 10,000,000 shares of preferred
stock and to
permit such shares to be designated and issued from time to
time, and
the rights of such preferred stock to be fixed from time to
time, by the
Board of Directors without shareholder approval. The measure
passed.
No preferred stock is outstanding as of December 31,
2001.
C. A proposal to amend Article I of the Company's
Certificate of
Incorporation to effect a change in the Company's name from IVG
Corp. to
Group Management Corp. The measure passed.
GPMT issues a press release on April 2, 2002 announcing the
retainer of the Shelly Group, LLC. The agreement was a
verbal agreement where the Shelly Group, LLC agreed to
provide consulting services related to the acquisition of
companies in the human resource industry. The Shelly Group,
LLC was also to use its best efforts to raise up to $6.0
million dollars for acquisition and working capital. The
Shelly Group provided services related to the acquisition of
Best Staff and Staff Leasing. The Shelly Group withdrew from
the verbal agreement in April 2002. GPMT plan was to use its
publicly traded shares as a currency to acquire companies on
a stock for stock exchange, where it would provide the
acquired companies with management, capital and access to
various strategic business services. The company is no longer
looking to enter the human resource industry.
The company has a $50,000 revolving inventory line of credit
that is current and is renewed every six months. The line of
credit is secured by the inventory that is purchased by the
funds resulting from the line of credit.
F-15
In accordance with the Exchange Act, this report has been signed
below by the
following persons on behalf of the registrant and in the capacities
and on the
dates indicated.
GROUP MANAGEMENT CORP.
Date: December 23, 2002 By: /s/ Elorian
Landers
--------------------------
-------
Elorian Landers, Chief
Executive
Officer and Director
/s/ Elorian Landers
-----------------------------------------------------------
Elorian Landers, Chief Executive Officer and Director
(Principal Executive Officer and Principal Financial
Officer and Principal Accounting Officer)