Evolving.
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I keep thinking about the low float....I thought I had enough shares, but I might be talking myself into some more.
BuckeyeMike - here's a possible candidate for a share selling deal!
It wasn't the merger that was out of her hands, it was a specific task (or tasks, don't remember the exact wording) that could only be done by ANHL, that was out of her hands.
OK, I'll comment. Were those mergers as complicated? Did they have as many levels of companies and sub-companies that I saw on a flow chart posted here? Did they spend any time caring about shareholder value, and spending more time because of that?
PLEASE include a clause that PROHIBITS him from EVER posting here AGAIN!!!!!!!
INSN R/S is 1-50.
Looks like we got a used symbol LOL
INSQ used to be Inseq corp.
http://findarticles.com/p/articles/mi_hb5243/is_/ai_n19997495
For the 6M trade, mine shows .0001, not .0000, that explains my confusion.
How much less? I can only see 4 decimals.
INSN - I can understand the R/S, but why would the company (InsynQ) also reduce the O/S from 2B to 40M? Could this be a good omen?
https://esos.state.nv.us/SOSServices/AnonymousAccess/CorpSearch/CorpDetails.aspx?lx8nvq=DbAGjVFuVqk4W2veosL2AA%253d%253d
INSN - I can understand the R/S, but why would the company (InsynQ) also reduce the O/S from 2B to 40M? Could this be a good omen?
https://esos.state.nv.us/SOSServices/AnonymousAccess/CorpSearch/CorpDetails.aspx?lx8nvq=DbAGjVFuVqk4W2veosL2AA%253d%253d
That's some pretty sophisticated software!
Can you tell me how you know tomorrow's L2?
Gail, I know it is watch only, but FYI...INSN R/S details below.
Posted by: learner1156 Date: Monday, November 17, 2008 1:26:59 PM
In reply to: learner1156 who wrote msg# 2957 Post # of 2960
R/S - well, here it is LOL
I get an "A" for my prediction!!
Posted by: cintrix Date: Monday, November 17, 2008 1:05:51 PM
In reply to: None Post # of 6928
11/18/2008 INSN 1-50 R/S - Insynq, Inc. Common Stock
New symbol: INSQ.
R/S - well, here it is LOL
I get an "A" for my prediction!!
Posted by: cintrix Date: Monday, November 17, 2008 1:05:51 PM
In reply to: None Post # of 6928
11/18/2008 INSN 1-50 R/S - Insynq, Inc. Common Stock
New symbol: INSQ.
I shouldn't assume anything - news below
Cardio Infrared Technologies New Air Date For Segment on Life & Leisure
LAS VEGAS, Nov 17, 2008 (GlobeNewswire via COMTEX) -- Cardio Infrared Technologies, Inc. (Pink Sheets:CIRT) www.cardio-cor.com, a leading Health and Wellness technology and marketing company, announces the Cardio-Cor unit will be featured and re-aired on Bravo Network on November 19, 2008.
Wayne Bailey, President and CEO of Cardio Infrared Technologies, Inc. stated, "Cardio Infrared Technologies will be featured on Life & Leisure Television, airing on Bravo, November 19, 2008. This segment will be a re-airing of the segment. Additional airings of the segment will be provided on other stations and times to be announced over the next three months. For the station number and time click the link below. We hope this time everyone will get a chance to see the segment."
In the press release from Life and Leisure Television released on November 12, 2008 they stated in their release:
"Aren't we all looking for the proverbial fountain of youth? We eat right, exercise and try the various creams and beauty products to combat the aging process and just don't seem to receive the rewards promised. Cardio Infrared Technologies shares with us their belief that detoxification is rapidly becoming the most important avenue in anti-aging today."
"The Cardio-Cor creates optimal health and quality of life through the innovative use of light exercise combined with the long-term benefits of infrared. The response from clients coast-to-coast has been overwhelming, and the results rewarding. Give the rest of your life a jumpstart with the Cardio-Cor," commented Carol Anglin, National Sales Director for Cardio Infrared Technologies, Inc.
JL Haber, Vice President of Programming at Media Entertainment Productions, added, "Cardio Infrared Technology is an exciting company with a unique mission. We are excited to have them as a guest on our program."
Click Link Below For Airing Schedule
http://www.lifeandleisuretv.com/3022.pdf
Had news today, you probably saw that. Nothing new on NV SOS.
Sporadically - working and on work conference call.
You will do anything to get the pps down. Your latest attempt is rather pathetic. Are you trying to get controlling interest in this company, but don't have enough funds at this pps?
I understood it not to be a cash dividend, but shares in other companies - ENHD to start.
Stervc has already covered the details of a R/M and the effect on our shares, in an excellent example he posted some time ago. Mods, I suggest you consider putting that post into a sticky.
If the drill has arrived and just is not shown in the pictures, my apologies. Also thanks for the pictures, I appreciate those.
Does this mean the drill has not arrived yet? That would be very disappointing, as I thought I read a post or 2 that hinted (or hoped) that drilling might be announced next week. Company still remains, IMO, extremely strong, but I think this might mean that the pps might go for another dip or 2.
VRGD, not VGRD
No. I called the company again on Friday, but could not reach anyone.
Shares are available - see below.
Sell 100000 Shares CDIV at .0050 Limit Good Until Canceled
Filled 50,000 at $.0050 - 11/14/08 1:24 PM
Sell 97300 Shares CDIV at .0050 Limit Good Until Canceled
Filled 95,000 at $.0050 - 11/11/08 2:25 PM
Thank you. With all the reading I had done, I had missed (or forgotten) the buyout aspect.
Can you expand a bit on "planned exit strategy"? Thanks!
10-Q filed
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2008
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______________ to _______________
Commission File Number:
CHINA IVY SCHOOL, INC.
(Exact name of small business as specified in its charter)
Nevada 98-0338263
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
1 Suhua Road, Shiji Jinrong Building, Suite 801,
Suzhou Industrial Park, Jiangsu Province, China, 215020
(Address of principal executive offices)
(852) 2511-1665
(Issuer's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 |_|
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer |_| Accelerated filer |_| Non-accelerated filer (Do not check if a smaller reporting company) |_| Smaller reporting company |X|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes |_| No |X|
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. The Issuer had 61,650,001 shares of common stock outstanding as of November 12, 2008.
--------------------------------------------------------------------------------
CHINA IVY SCHOOL, INC.
TABLE OF CONTENTS
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Consolidated Balance Sheet as of September 30, 2008
(unaudited) ..................................................... 2
Consolidated Statement of Operations for the three month
and nine month periods ended September 30, 2008 (unaudited)
and September 30, 2007 (unaudited)............................... 3
Consolidated Statement of Stockholders' Equity for the
Nine Months ended September 30, 2008............................. 4
Consolidated Statement of Cash Flow for the nine month
periods ended September 30, 2008 (unaudited) and
September 30, 2007 (unaudited)................................... 5
Notes to Condensed Consolidated Financial Statements............. 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................ 19
Item 3 Quantitative and Qualitative Disclosures About Market Risk....... 22
Item 4T. Controls and Procedures.......................................... 22
PART II. OTHER INFORMATION
Item 1A Risk Factors..................................................... 23
Item 4 Submission of Matters to a Vote of Security Holders.............. 23
Item 6. Exhibits ........................................................ 23
SIGNATURES................................................................... 24
Forward Looking Statements
The Company desires to take advantage of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. This report contains a number of forward-looking statements that reflect management's current views and expectations with respect to our business, strategies, future results and events and financial performance. All statements made in this Report other than statements of historical fact, including statements that address operating performance, events or developments that management expects or anticipates will or may occur in the future, including statements related to distributor channels, volume growth, revenues, profitability, adequacy of funds from operations, statements expressing general optimism about future operating results and non-historical information, are forward looking statements. In particular, the words "believe," "expect," "intend," " anticipate," "estimate," "may," "will," variations of such words, and similar expressions identify forward-looking statements, but are not the exclusive means of identifying such statements and their absence does not mean that the statement is not forward-looking. These forward-looking statements are subject to certain risks and uncertainties, including those discussed below.
Readers should not place undue reliance on these forward-looking statements, which are based on management's current expectations and projections about future events, are not guarantees of future performance, are subject to risks, uncertainties and assumptions (including those described below) and apply only as of the date of this report. Our actual results, performance or achievements could differ materially from the results expressed in, or implied by, these forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
1
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PART I--FINANCIAL INFORMATION
CHINA IVY SCHOOL, INC. AND SUBSIDIARIES
(FORMERLY CLAREMONT TECHNOLOGIES CORP.)
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, December 31,
2008 2007
------------- ------------
(Unaudited)
Current Assets
Cash and cash equivalents $ 46,833 $ 227,887
Restricted cash -- 685,500
Prepaid expenses 55,195 12,941
Other receivables 14,728 2,174
------------ ------------
Total Current Assets 116,756 928,502
Receivable from related party 7,945,735 --
Property, Plant and Equipment, net 8,741,249 19,232,484
Land Use Right, net -- 5,516,431
------------ ------------
Total Assets $ 16,803,740 $ 25,677,417
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses $ 1,985,073 $ 2,980,408
Payable to related parties 838,016 1,630,650
Deferred revenue 2,191,294 481,229
Net liabilities of the entity held for disposition -- 182,235
Bank Loans - current 8,836,800 6,169,500
------------ ------------
Total Current Liabilities 13,851,183 11,444,022
Bank Loans - Non Current 1,914,640 8,226,000
------------ ------------
Total Liabilities 15,765,823 19,670,022
------------ ------------
Stockholders' Equity
Common stock, $.001 par value, 100,000,000
shares authorized; 61,650,001 shares issued and outstanding 61,650 61,650
Additional paid in capital 4,244,340 4,054,879
Statutory reserve 480,813 480,813
Accumulated other comprehensive income 750,963 500,352
Retained earnings (deficit) (4,499,849) 909,701
------------ ------------
Total Stockholders' Equity 1,037,917 6,007,395
------------ ------------
Total Liabilities and Stockholders' Equity $ 16,803,740 $ 25,677,417
============ ============
The accompanying notes are an integral part of these financial statements
2
--------------------------------------------------------------------------------
CHINA IVY SCHOOL, INC. AND SUBSIDIARIES
(FORMERLY CLAREMONT TECHNOLOGIES CORP.)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2008 2007 2008 2007
------------ ------------ ------------ ------------
Net revenue $ 1,684,385 $ 2,449,771 $ 4,435,089 $ 5,500,203
Operating expenses
Depreciation and amortization 230,142 225,019 915,952 607,858
General and administrative expenses 1,767,278 587,220 4,458,895 1,571,439
------------ ------------ ------------ ------------
Total operating expenses 1,997,420 812,239 5,374,847 2,179,297
------------ ------------ ------------ ------------
Income (loss) from operations (313,035) 1,637,532 (939,758) 3,320,906
------------ ------------ ------------ ------------
Other (income) expense
Interest income (901) (22,831) (12,998) (38,845)
Interest expense 217,620 269,290 801,921 759,661
Loss on sale of real property -- -- 5,169,294 --
Accretion of discount on receivable from related
party relating to sale of real property (583,961) -- (1,495,651) --
------------ ------------ ------------ ------------
Total Other (Income) Expense (367,242) 246,459 4,462,566 720,816
------------ ------------ ------------ ------------
Income (loss) from continuing operations 54,207 1,391,073 (5,402,324) 2,600,090
Income (loss) from discontinued operations 198 (7,952) (7,226) (14,377)
------------ ------------ ------------ ------------
Net income (loss) 54,405 1,383,121 (5,409,550) 2,585,713
Other comprehensive item
Foreign currency translation gain (loss) (11,039) 110,861 250,611 251,255
------------ ------------ ------------ ------------
Comprehensive income (loss) $ 43,366 $ 1,493,982 $ (5,158,939) $ 2,836,968
============ ============ ============ ============
Basic and diluted net income (loss) per share from
continuing operations $ 0.00 $ 0.02 $ (0.09) $ 0.04
Basic and diluted net income (loss) per share from
discontinued operations 0.00 (0.00) (0.00) (0.00)
------------ ------------ ------------ ------------
Basic and diluted net income (loss) per share $ 0.00 $ 0.02 $ (0.09) $ 0.04
============ ============ ============ ============
Weighted average number of basic and diluted shares outstanding 61,650,001 61,650,001 61,650,001 61,567,033
============ ============ ============ ============
The accompanying notes are an integral part of these financial statements
3
--------------------------------------------------------------------------------
CHINA IVY SCHOOL, INC. AND SUBSIDIARIES
(FORMERLY CLAREMONT TECHNOLOGIES CORPORATE)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008
Total
Capital Stock Additional Comprehensive Statutory Retained Stockholders'
Number of Shares Amount Paid in Capital Income Reserve Earnings Equity
---------------- ----------- --------------- ------------- ----------- ----------- -----------
Balance December 31, 2007 61,650,001 $ 61,650 4,054,879 $ 500,352 $ 480,813 $ 909,701 $ 6,007,395
Spinoff of Safe Cell Tab
Inc. on July 31, 2008 -- -- 189,461 -- -- -- 189,461
Foreign currency
translation gain -- -- -- 250,611 -- -- 250,611
Net income for the period
ended September 30, 2008 -- -- -- -- -- (5,409,550) (5,409,550)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance September 30, 2008 61,650,001 $ 61,650 4,244,340 $ 750,963 $ 480,813 $(4,499,849) $ 1,037,917
=========== =========== =========== =========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements
4
--------------------------------------------------------------------------------
CHINA IVY SCHOOL, INC. AND SUBSIDIARIES
(FORMERLY CLAREMONT TECHNOLOGIES CORP.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
2008 2007
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (5,409,550) $ 2,585,713
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 915,952 607,858
Loss on sale of real property 5,169,294 --
Imputed rent and related expense 1,000,435 --
Accretion of discount on receivable from related party (1,495,651) --
Loss from discontinued operations 7,226 14,377
Changes in operating assets and liabilities
Other receivables (12,554) 384,437
Prepaid expenses (42,254) 16,120
Accounts payable and accrued expenses (995,335) (693,595)
Deferred revenue 1,710,065 1,536,985
------------ ------------
Net cash provided by (used in) operating activities from continuing operations 847,628 4,451,895
Net cash provided by (used in) operating activities of the discontinued entity (8,260) --
------------ ------------
Net cash provided by (used in) operating activities 839,368 4,451,895
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment (7,773) (37,250)
------------ ------------
Net cash used in investing activities from continuing operations (7,773) (37,250)
Net cash provided by investing activities of the discontinued entity -- 494
------------ ------------
Net cash used in investing activities (7,773) (36,756)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of bank loans (3,644,060) (1,306,400)
Decrease in restricted cash secured for bank loans 685,500 1,306,400
Advances from (to) related party - net 1,845,094 (4,599,431)
------------ ------------
Net cash provided by (used in) financing activities from continuing operations (1,113,466) (4,599,431)
Net cash provided by financing activities of the discontinued entity 7,716 --
------------ ------------
Net cash provided by (used in) financing activities (1,105,750) (4,599,431)
------------ ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 93,101 7,354
------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (181,054) (176,938)
CASH AND CASH EQUIVALENTS, BEGINNING BALANCE 227,887 387,835
------------ ------------
CASH AND CASH EQUIVALENTS, ENDING BALANCE $ 46,833 $ 210,897
============ ============
SUPPLEMENTAL DISCLOSURES:
Income tax payments $ -- $ --
============ ============
Interest payments $ 801,921 $ 749,758
============ ============
NON CASH TRANSACTIONS:
Sale of real property in exchange for receivable from related party $ 11,228,703 $ --
============ ============
Issuance of shares for consulting fees accrued in prior year $ -- $ 150
============ ============
Spinoff of Safe Cell Tab, Inc. $ 189,461 $ --
============ ============
The accompanying notes are an integral part of these financial statements
5
--------------------------------------------------------------------------------
Note A - ORGANIZATION
China Ivy School, Inc. (formerly Claremont Technologies Corp.) (the "Company") was incorporated on September 14, 1999 under the laws of the State of Nevada. The Company acquired a wholly owned subsidiary Safe Cell Tab Inc. ("Safe Cell") on August 22, 2003. Safe Cell was incorporated on May 9, 1996 under the laws of the Province of British Columbia, Canada and engaged in distributing Wi-Fi License and Mobius disposable cell phones.
On October 12, 2006 China Ivy and the shareholders of Brighter International, entered into a Share Exchange Agreement in which China Ivy acquired 100% of Brighter International's outstanding common stock. Under the Share Exchange Agreement the shareholders of Brighter International received 55,250,000 newly issued common shares of the company. This acquisition was accounted for at historical cost in a manner similar to that in pooling of interests method since after the acquisition, the former shareholders of Brighter International held a majority of the outstanding shares of the Company. The financial statements of the legal acquirer were not significant.
Brighter International Limited ("Brighter International") is an education investment enterprise and was incorporated in accordance with the General Corporation Act of the State of Nevada on June 1, 2006. On June 15, 2006, Brighter International entered into an agreement with Blue Tassel School, and pursuant to the agreement, all the shareholders of Blue Tassel School transferred all their ownership interests in Blue Tassel School to Brighter International. Prior to the acquisition, Brighter International and Blue Tassel School had common shareholders owning the same percentage of ownership in both companies. Therefore, the entities were under common control before the acquisition. This acquisition was accounted for at historical cost in a manner similar to that in pooling of interests method. After the acquisition, Brighter International owned 100% of the outstanding shares of Blue Tassel School.
Blue Tassel School was established on July 10, 2001 under the laws of the Peoples' Republic of China. Blue Tassel School is an education center located in Suzhou city, accredited by the Jiangsu Province Educational committee as a boarding school comprising grades from kindergarten through senior school, including an international school. The five schools that comprise Blue Tassel School are kindergarten, primary school, junior high school, senior high school, and international school.
On July 31, 2008, the Company spun off its wholly owned subsidiary Safe Cell (now named Cellteck Inc.) to its stockholders. The distribution was completed August 21, 2008. Accordingly, the operations of Safe Cell have been presented as "discontinued operations", in the accompanying consolidated financial statements.
6
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Note B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Unaudited Interim Financial Information
The accompanying unaudited consolidated financial statements have been prepared by China Ivy, Inc., pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC") Form 10-Q and Item 8-03 of Regulation S-X, and generally accepted accounting principles for interim financial reporting. The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments) which are, in the opinion of management, necessary to fairly present the operating results for the respective periods. Certain information and footnote disclosures normally present in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes included in the Company's Annual Report on Form 10-K. The results of the nine months ended September 30, 2008 are not necessarily indicative of the results to be expected for the full year ending December 31, 2008.
Basis of Presentation
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. The Company's reporting currency is the United States dollar.
Foreign currency transactions and comprehensive income (loss)
As of September 30, 2008, the accounts of Blue Tassel School were maintained, and its financial statements were expressed, in Chinese Yuan (RMB). Such financial statements were translated into U.S. Dollars (USD) in accordance with Statement of Financial Accounting Standards ("SFAS") No. 52, "Foreign Currency Translation," with the RMB as the functional currency. According to the Statement, all assets and liabilities are translated at the current exchange rate, stockholders' equity items are translated at the historical rates and income statement items are translated at the average exchange rate for the period. The resulting translation adjustments are reported under other comprehensive income in accordance with SFAS No. 130, "Reporting Comprehensive Income" as a component of shareholders' equity.
Exchange and transaction gains and losses that arise from exchange rate fluctuations on balances and transactions denominated in a currency other than the functional currency are included in the results of operations.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles in the United States ("GAAP") requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates, and such differences may be material to the financial statements. Certain prior year amounts have been reclassified to conform to the current year presentation.
7
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Principles of Consolidation
The consolidated financial statements include the accounts of China Ivy and its wholly owned subsidiaries Brighter International and Blue Tassel, collectively referred to within as the Company. All material inter-company accounts, transactions and profits have been eliminated in consolidation.
Revenue Recognition
The revenues of the Company are tuition fees, accommodation fees and donation fees. Tuition fees and accommodation fees are collected in advance on or before new semester. Tuition fees are recognized as revenue proportionately as the instructions are delivered, and are reported net of scholarships and tuition refunds. Accommodation fee is recognized as revenue in proportion to semester progressed through the end of the reporting period. Tuition and accommodation fees paid in advance are recorded as deferred revenue. Donations are collected and recognized as revenue upon receipt of the donation.
Income Taxes
The Company utilizes SFAS No. 109, "Accounting for Income Taxes," which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
Blue Tassel is governed by the Income Tax Laws of the PRC. Pursuant to the PRC relevant laws and regulations and tax law, the Company is exempt from income tax.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and cash in time deposits, certificates of deposit and all highly liquid debt instruments with original maturities of three months or less.
Property, Plant & Equipment
Property and equipment are stated at cost. Expenditures for maintenance and repairs are charged to earnings as incurred; additions, renewals and betterments are capitalized. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the
8
--------------------------------------------------------------------------------
respective accounts, and any gain or loss is included in operations. Depreciation of property and equipment is provided using the straight-line method for substantially all assets with estimated lives of:
Buildings 20 years
Infrastructure and leasehold improvements 10 years
Equipment 10 years
Automobiles 10 years
Furniture and Fixtures 5 years
Computer Hardware and Software 5 years
Fair Value of Financial Instruments
SFAS No. 107, Disclosures about fair value of financial instruments, requires that the Company disclose estimated fair values of financial instruments. The carrying amounts reported in the statements of financial position for assets and liabilities qualifying as financial instruments are a reasonable estimate of fair value.
Long-Lived Assets
The Company has adopted SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations for a Disposal of a Segment of a Business." The Company periodically evaluates the carrying value of long-lived assets to be held and used in accordance with SFAS
144. SFAS 144 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair market values are reduced for the cost of disposal. Based on its review, the Company believes that, as of September 30, 2008 there were no significant impairments of its long-lived assets.
Basic and Diluted Earnings Per Share
Earnings per share are calculated in accordance with the SFAS No. 128, "Earnings per share". SFAS No. 128 superseded Accounting Principles Board Opinion No.15 (APB 15). Basic net income (loss) per share is based upon the weighted average number of common shares outstanding. Diluted net income (loss) per share is
9
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based on the assumption that all dilutive convertible shares and stock options were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period. Basic and diluted earnings or (loss) per share were ($0.09) and $0.04 for the nine month periods ended September 30, 2008 and 2007, respectively.
Recent Accounting Pronouncements
Certain accounting pronouncements have been issued by the FASB and other standard setting organizations which are not yet effective and have not yet been adopted by the company. The impact on the Company's consolidated financial position and results of operations from adoption of these standards is not expected to be material.
Note C - OTHER RECEIVABLES
As of September 30, 2008 and December 31, 2007, the Company had $14,728 and $2,174, respectively in other receivables which represents advances made to employees and from vendors. These receivables are interest free, unsecured, and due on demand.
Note D - RECEIVABLE FROM RELATED PARTY AND SALE AND LEASEBACK OF REAL PROPERTY
On March 12, 2008 Blue Tassel School sold the Land Use Right of 91,993.32 square meters and twenty Buildings of 50,113.81 square meters to its former shareholder Minglong Industry Co. Ltd. ("Minglong") with the sales price of $5,563,692 and $10,405,554 respectively, totaling $15,969,247 (RMB 111,829,458). Blue Tassel School leased back the land use right and the buildings from Minglong from the date of sale. Minglong is controlled by the chief executive officer and major shareholder of the Company.
The lease payments equal the total sales price of $15,969,247 (RMB 111,829,458). The leases approximate $3.4 (RMB 24) per square meter annually, totaling approximately $315,280 (RMB 2,207,840) per year for using the land and $35.6 (RMB 180) per square meter annually, totaling approximately $1,288,125 (RMB 9,020,486) per year for leasing the buildings. The total annual lease will be approximately $1,603,405 (RMB 11,228,326) until a total of approximately $15,969,247 (RMB 111,829,458) has been offset against the amount receivable from related party over the 10 year term of the lease.
The purpose of the sale and leaseback of the land use right and buildings was to comply with the new regulation from the government of Suzhou City, Jiangsu Province, China. According to the new regulation :"Public institutions like Schools, kindergartens, hospitals etc., educational facilities and health facilities of social organizations and other lands for the use of other social welfare, cannot be used as collateral for bank loans." As in 2007 the land use right and buildings were pledged for bank loans, the management of the Company decided to sell the Land Use Right and buildings to Minglong and then lease back for the school use.
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For the nine months ended September 30, 2008, the receivable from related party changed as follows:
Balance due from Minglong at March 12, 2008 in connection with the sale and leaseback of real property, noninterest
bearing (discounted) $ 11,228,703
Amounts collected (5,133,814)
Accretion of discount on receivable 1,495,651
Foreign exchange translation adjustment 355,195
------------
Balance at September 30, 2008 $ 7,945,735
============
The loss on the March 12, 2008 sale of real property was $5,169,294, as follows:
Fair value of consideration received - $15,969,247
noninterest bearing receivable from Minglong due in
annual installments of $1,603,405 until repaid
(discounted at 7% interest rate) $ 11,228,703
Effect of change in exchange rate 45,893
Net carrying value of land use right and buildings
(less $113,057 foreign exchange translation adjustment) (16,443,890)
------------
Loss on sale of real property $ (5,169,294)
============
Note E - PROPERTY, PLANT AND EQUIPMENT
As of September 30, 2008 and December 31, 2007, Property, Plant & Equipment consist of the following:
September 30, December 31,
2008 2007
------------ ------------
Buildings $ -- $ 10,468,473
Infrastructure and leaseholder improvements 11,119,113 10,342,056
Educational equipment 546,127 468,509
Automobiles 28,987 26,983
------------ ------------
Total property and equipment 11,694,227 21,306,021
Accumulated depreciation (2,952,978) (2,073,537)
------------ ------------
Net value of property and quipment $ 8,741,249 $ 19,232,484
============ ============
The Company had depreciation expense of $915,952 and $607,858 for the nine month periods ended September 30, 2008 and 2007, respectively.
On May 24, 2007 the Company obtained the Property Titles on twenty buildings and accompanying infrastructures located in Suzhou City Wuzhou Economy Development District from its former shareholder Minglong, totaling 50,113.81 square meters, in which 29,186.95 square meters (sixteen buildings) are pledged to Suzhou City
11
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Village Credit Union Wuzhong Branch for a credit line of $4,592,850 from October 25, 2007 to October 25, 2008 and 20,926.86 square meters (four buildings) are pledged to Huaxia Bank Suzhou Branch for a loan of $5,854,800 due September 18, 2009. The attached infrastructures transferred to Blue Tassel School were booked at net historical value and were $4,104,627 and $4,078,209 as of March 31, 2008 and December 31, 2007, respectively. The net historical value of the buildings transferred amounted to approximately $10,441,053 as of December 31, 2007.
In October 2007, the management of Blue Tassel School made revision on the estimate of useful lives of buildings from 40 years to 20 years. In accordance with SFAS No. 154, Accounting Changes and Error Corrections, this change of useful lives is deemed as a change in accounting estimate and has been accounted for in the period of change and future periods as the change affects both, without a restatement or retrospective adjustment of the amounts reported in financial statements of prior periods or by reporting pro forma amounts for prior periods. The change in estimate resulted in a decrease of $126,917 of income from continuing operations and net income and $0.00 on the related per share amounts for the year ended December 31, 2007.
On March 12, 2008 Blue Tassel School sold the Land Use Right of 91,993.32 square meters and twenty Buildings of 50,113.81 square meters to its former shareholder Minglong with the sales price of $5,563,692 and $10,405,554 respectively, totaling $15,969,246 (RMB111,829,458). Blue Tassel School leased back the buildings from Minglong from the date of sale.
Note F - LAND USE RIGHT
On May 24, 2007, the Company obtained the National Land Use Right and house property title for the land, buildings and accompanying infrastructures where Blue Tassel School is operating from the former shareholder Minglong. The piece of land totals 91,993.32 square meters, and is pledged to Huaxia Bank Suzhou Branch for a loan of $2,713,200 from May 25, 2007 to September 18, 2009. The land use right will expire on January 17, 2051. The land use right was recorded at $5,516,431 net of accumulated amortization expense of $69,929 as of December 31, 2007.
On March 12, 2008 Blue Tassel School sold the Land Use Right of 91,993.32 square meters and twenty Buildings of 50,113.81 square meters to its former shareholder Minglong with the sales price of $5,563,692 and $10,405,554 respectively, totaling $15,933,526 (RMB111,829,458). Blue Tassel School leased back the land use right and buildings from Minglong from the date of sale.
Note G - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The Company's accounts payable and accrued expenses as of September 30, 2008 and December 31, 2007 are summarized as follows:
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September 30, December 31,
2008 2007
------------- ------------
Accounts payable $ 546,715 $ 870,928
Accrued consulting fees 1,301,142 1,604,070
Accrued wages 108,216 --
Other accured expenses 29,000 505,410
------------- ------------
Total accounts payable and accrued expenses $ 1,985,073 $ 2,980,408
============ ============
Note H - DEFERRED REVENUE
Tuition and accommodation revenue received from students are recognized proportionately as the courses and accommodation services in the semesters are delivered. Tuition and accommodation fees paid at the beginning of semesters are recorded as deferred revenue. Tuition fee is recognized as revenue proportionately as the instructions are delivered, and are reported net of scholarships and tuition refunds. Accommodation fees are recognized as revenue in proportion to semester progressed through the end of the reporting period. The Company has recorded deferred revenue of $2,191,294 and $481,229 as of September 30, 2008 and December 31, 2007, respectively.
Note I - BANK LOANS
The Company has loans payable amounting to $10,751,440 and $14,395,500 as of September 30, 2008 and December 31, 2007 respectively, including $8,836,800 bank loans from Huaxia Bank Suzhou Branch and $1,914,640 from Suzhou City Village Credit Union Wuzhou Branch as of September 30, 2008 and $11,653,500 bank loans from Huaxia Bank Suzhou Branch and $2,742,000 from Suzhou City Village Credit Union Wuzhou Branch on December 31, 2007.
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Note I - BANK LOANS (Continued)
The loans payable at September 30, 2008 and December 31, 2007 are comprised of the following:
September 30, December 31,
2008 2007
------------- -------------
Loan payable to Huaxia Bank Suzhou Branch in China, interest
at 5.589% per annum, due by February 22, 2008 $ -- $ 685,500
Loan payable to Huaxia Bank Suzhou Branch in China, interest
at 5.913% per annum, due by July 20, 2008 -- 2,742,000
Loan payable to Huaxia Bank Suzhou Branch in China, interest
at 6.723% per annum, due by September 18, 2009 -- 2,604,900
Loan payable to Huaxia Bank Suzhou Branch in China, interest
at 6.723% per annum, due by September 18, 2009 6,038,480 5,621,100
Loan payable to Huaxia Bank Suzhou Branch in China, interest
at 8.217% per annum, due by September 12, 2009 2,798,320 --
Loan payable to Suzhou City Village Credit Union Wuzhou Branch
in China, interest at 9.478% per annum, due by October 25, 2008 -- 68,550
Loan payable to Suzhou City Village Credit Union Wuzhou Branch
in China, interest at 9.478% per annum, due by October 25, 2008 -- 1,096,800
Loan payable to Suzhou City Village Credit Union Wuzhou Branch
in China, interest at 9.478% per annum, due by October 25, 2008 -- 1,233,900
Loan payable to Suzhou City Village Credit Union Wuzhou Branch
in China, interest at 9.478% per annum, due by October 25, 2008 -- 342,750
Loan payable to Suzhou City Village Credit Union Wuzhou Branch
in China, interest at 9.711% per annum, due by June 17, 2011 294,560 --
Loan payable to Suzhou City Village Credit Union Wuzhou Branch
in China, interest at 9.711% per annum, due by June 17, 2011 1,620,080 --
------------- -------------
Total bank loans 10,751,440 14,395,500
Current portion 8,836,800 6,169,500
------------- -------------
Long term portion $ 1,914,640 $ 8,226,000
============= =============
The loans of $2,798,320 and $2,604,900 as of September 30, 2008 and as of December 31, 2007, respectively, were secured by the land use right of Blue Tassel School. The loan of $6,038,480 and $5,621,100 as of September 30, 2008 and December 31, 2007, respectively, were secured by four buildings totaling 20,926.86 square meters of the School. The loan of $0 and $2,742,000 as of September 30, 2008 and as of December 31, 2007, respectively, were guaranteed by the private properties of Blue Tassel School's former shareholder.
Note J - RELATED PARTY TRANSACTIONS
For the nine months ended September 30, 2008 and for the year ended December 31, 2007, bonuses to officers of the Blue Tassel School were $0 and $411,300, respectively.
Blue Tassel School had a payable to the former shareholder Minglong of $838,016 and $1,630,650 as of September 30, 2008 and December 31, 2007, respectively. The loan is unsecured, interest free and due on demand.
14
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Note K -- COMMITMENTS
Operating Lease Obligations
Blue Tassel School leases a land use right and 20 buildings located in Suzhou City Wuzhong Economy Development District from Minglong, the former shareholder of Blue Tassel School. The term of the lease agreement is 10 years starting March 12, 2008. The lease is considered an operating lease. Rent expense and related maintenance expenses for the period March 12, 2008 to September 30, 2008 was $1,000,435.
Aggregate minimum future lease payments under operating leases as of September 30, 2008 for each of the next five years ending September 30, are as follows:
Year ending Minimum lease
September 30, payments
------------- -------------
2009 $ 1,653,708
2010 1,653,708
2011 1,653,708
2012 1,653,708
2013 1,653,708
Thereafter 3,307,416
-----------
Total $11,575,956
===========
Consulting Agreements
In 2007 and 2008, the Company engaged over 50 individuals (the "Consultants") to provide various education consulting services for the Company. The agreements for 2008 provide for the payment of minimum consulting fees to the Consultants totaling $1,723,176 ((Y)11,700,000) for the service period January 1, 2008 to December 31, 2008. For the nine months ended September 30, 2008, the Company has recorded $1,292,382 in consulting fees.
The $1,670,760 (RMB11,700,000) accrued at December 31, 2007 for services provided in 2007 were paid in June 2008 by Minglong on behalf of the Company. The payment made by Minglong was reflected as a Company collection of the receivable from related party (see Note D).
On June 13, 2008, the Company executed a 18 month consulting agreement with Beijing JP Investment Advisors Limited. (the "Advisors"). For consideration of 30,000 RMB ($4,418) per month, the Advisors will provide service related to business development, marketing research, and prospective acquisitions. The Company has paid the July 2008 consulting fee and has accrued the August 2008 and September 2008 consulting fee.
For the nine months ended September 30, 2008 and 2007, consulting fees expense was $1,305,560 and $0, respectively.
Note L - STATUTORY RESERVE AND STATUTORY COMMON WELFARE FUND
As stipulated by the Company Law of the People's Republic of China (PRC), net income after taxation can only be distributed as dividends after appropriation has been made for the following:
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i. Making up cumulative prior years' losses, if any;
ii. Allocations to the "Statutory surplus reserve" of at least 10% of income after tax, as determined under PRC accounting rules and regulations, until the fund amounts to 50% of the Company's registered capital;
iii. Allocations of 5-10% of income after tax, as determined under PRC accounting rules and regulations, to the Company's "Statutory common welfare fund", which is established for the purpose of providing employee facilities and other collective benefits to the Company's employees; and
iv. Allocations to the discretionary surplus reserve, if approved in the stockholders' general meeting.
Blue Tassel School established a reserve for the annual contribution of 5% of its PRC net income to the welfare fund in 2006. The amount allocated to the welfare fund for the nine months ended September 30, 2008 was $0 due to loss status.
In accordance with the Chinese Company Law, Blue Tassel School allocates 10% of its PRC net income to the statutory reserve. For the nine month period ended September 30, 2008, the Company allocated $0 due to loss status.
Note M - STOCKHOLDERS' EQUITY
On January 22, 2007, for services rendered, the Company awarded eight individual consultants a total of 5,000,000 shares of common stock valued at $0.65 per share or $3,250,000, based upon the market price at the date of issuance, for consultant services that were provided under the China Ivy School, Inc. 2007 Equity Incentive Plan. The consultants were engaged to provide various services to the Company during the period from October 13, 2006 to December 31, 2006 for market research, strategic planning and to identify investment bankers.
On May 30, 2007, the Company issued 150,000 shares of common stock to the officer of Safe Cell to settle a loan owned to the officer before the reverse merger. The stock issuance was valued at the par value and treated as consideration for the acquisition accounted for as the reverse acquisition.
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Note M - STOCKHOLDERS' EQUITY (Continued)
Prior to the acquisition by Brighter International, the former shareholders of Blue Tassel School contributed the right to use land, buildings and other facilities to Blue Tassel School as capital contribution and long-term payable. However, the titles of the land use right, buildings and attached infrastructures were not transferred to Blue Tassel School until May 24, 2007. The transfer of titles of these tangible and intangible assets to Blue Tassel School increased the capital of Blue Tassel School by $608,724 to full amount $678,932 and increased the long-term payable to Blue Tassel School former shareholders to $1,219,350.
Note N - OTHER COMPREHENSIVE INCOME
Balances of related after-tax components comprising accumulated other comprehensive income (loss), included in stockholders' equity, at September 30, 2008 and December 31, 2007 are as follows:
Foreign currency
Translation Adjustment
----------------------
Balance at December 31, 2007 $ 500,352
Change during 2008 250,611
----------------------
Balance at September 30, 2008 $ 750,963
======================
Note O - DISCONTINUED OPERATIONS
On July 31, 2008, the Company spun off its wholly owned subsidiary Safe Cell (now named Cellteck Inc.) to its stockholders. Accordingly, the operating results of Safe Cell before the spinoff on July 31, 2008 is reported as discontinued operations in the accompanying consolidated financial statements. The $189,461 negative stockholders' equity of Safe Cell at July 31, 2008 has been added to additional paid-in capital.
At July 31, 2008, the assets and liabilities of Safe Cell consisted of:
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Assets:
Cash $ 272
Inventory 10,300
---------
Total Assets $ 10,572
=========
Liabilities:
Accounts payable $ 350
Due to related parties 199,683
---------
Total liabilities 200,033
Stockholders' deficiency (189,461)
---------
Total Liabilities and Stockholders' Equity $ 10,572
=========
Note O - DISCONTINUED OPERATIONS (Continued)
Loss from discontinued operations consisted of:
Nine Months Ended
September 30,
2008 2007
----------- -----------
Sales $ 6,771 $ 5,111
Cost of sales -- --
----------- -----------
Gross profit 6,771 5,111
Selling, general and administrative expenses (13,997) (19,488)
----------- -----------
Net Loss $ (7,226) $ (14,377)
=========== ===========
Note P - SUBSEQUENT EVENT
In September 2008, the Board of Directors and stockholders holding a majority of the issued and outstanding shares of the Company's common stock authorized the Directors of the Company to undertake all actions necessary, including an amendment to itsCertificate of Incorporation, to effect a 1 for 20 reverse stock split (thereby reducing the issued and outstanding shares from 61,650,001 shares to 3,082,500 shares). The effective date of the amendent is expected to be on or about November 30, 2008
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND
2007
The following table presents the statement of operations for the three and nine months ended September 30, 2008 as compared to the comparable period of 2007. The following discussion is based on these results.
Three Months Ended Nine Months Ended
September 30, September 30,
2008 2007 2008 2007
----------- ----------- ----------- -----------
Net revenue $ 1,684,385 $ 2,449,771 $ 4,435,089 $ 5,500,203
Operating expenses
Depreciation and amortization 230,142 225,019 915,952 607,858
General and administrative expenses 1,767,278 587,220 4,458,895 1,571,439
----------- ----------- ----------- -----------
Total operating expenses 1,997,420 812,239 5,374,847 2,179,297
----------- ----------- ----------- -----------
Income from operations (313,035) 1,637,532 (939,758) 3,320,906
----------- ----------- ----------- -----------
Other (income) expense
Interest income (901) (22,831) (12,998) (38,845)
Interest expense 217,620 269,290 801,921 759,661
Loss on sale of real property -- -- 5,169,294 --
Accretion of discount on receivable from
related party relating to sale of real property (583,961) -- (1,495,651) --
----------- ----------- ----------- -----------
Total Other Expense (367,242) 246,459 4,462,566 720,816
----------- ----------- ----------- -----------
Income (loss) from continuing operations $ 54,207 $ 1,391,073 $(5,402,324) $ 2,600,090
=========== =========== =========== ===========
Results of Operations for the Three Months Ended September 30, 2008
Net revenue
Net revenue for the three months ended September 30, 2008 totaled $1,684,385, a decrease of $765,386, or approximately 31% compared to $2,449,771 for the three months ended September 30, 2007. The decrease was due to a change in collection method of nonrefundable student enrollment fees. Beginning in 2008, we replaced the one-time nonrefundable student enrollment fee previously collected at the time of enrollment with a yearly enrollment fee collected every year during the course of enrollment. The decrease was also the result of change of collection method of donated tuition. Instead of collecting the full amount of donated funds at enrollment for each student, we changed to collecting such funds per semester per student starting from 2008.
Operating Expenses
General and administrative expenses for the three months ended September 30, 2008 totaled $1,767,278, increased $1,180,058, compared to $587,220 for the three months ended September 30, 2007, an increase of 201%. The increase in operating expenses was mainly due to (i) an increase in rent expense of approximately $457,477 as a result of the sale and lease back of our buildings and land use rights in March 2008; (ii) an increase of $440,929 in consulting fees during the three months ended September 30, 2008, compared to $0 in consulting fees during the same period of 2007, all consulting expense in 2007 was accrued at December 31, 2007; and (iii) an increase in depreciation expense of approximately $81,000 due to change of estimated useful life of buildings from 40 years to 20 years and 10 years at the end of 2007.
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Income (Loss) from Operations
Loss from operations for the three months ended September 30, 2008 was $313,035, a decrease of $1,950,567, as compared to income from operations of $1,637,532 for the three months ended September 30, 2007. The decrease in income was the results of decreasing in our net revenue and increasing in our operating expenses as described above.
Other (income) Expense
Other income and expense for the three months ended September 30, 2008 totaled a net income of $367,242, compared to net expense of $246,459 for the three months ended September 30, 2007. This increase is attributable to the amortization of loss relating to sale of real property recorded in the first quarter of 2008. It resulted also from the reduced interest expenses due to the repayment of the short term loan during 2008.
Net Income (loss)
Our net income was $54,405 for the three months ended September 30, 2008 compared to net income of $1,383,121 for the same period in 2007. The decrease in net income was primarily due to reasons described above.
Results of Operations for the Nine Months Ended September 30, 2008
Net Revenue
Net revenue for the nine months ended September 30, 2008 totaled $4,435,089, a decrease of $1,065,114, or approximately 19% compared to $5,500,203 for the nine months ended September 30, 2007. The decrease was due to the change in our collection method of nonrefundable student enrollment fees. Beginning in 2008, we replaced the one- time nonrefundable student enrollment fee previously collected at the time of enrollment with a yearly enrollment fee collected every year during enrollment. The decrease was also the result of a change of collection method of donated tuition. Instead of collecting the full amount of donated funds at enrollment for each student, we began collecting such fund per semester per student beginning in 2008.
Operating Expenses
General and administrative expenses for the nine months ended September 30, 2008 totaled $4,458,895, increased $2,887,456, compared to $1,571,439 for the nine months ended September 30, 2007, an increase of 184%. The increase in general and administrative expenses was mainly due to (i) an increase in rent expense of approximately $937,477 as a result of the sale and lease back of our buildings and land use rights in March 2008; (ii) an increase of $1,270,929 in consulting fees during the nine months ended September 30, compared to $0 of consulting fee during the same period of 2007, all consulting expense in 2007 was accrued at December 31, 2007; and (iii) an increase in depreciation expense of approximately $383,971 due to change of estimated useful life of buildings from 40 years to 20 years and 10 years at the end of 2007.
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Income (Loss) from Operations
Net loss from operations for the nine months ended September 30, 2008 was $939,758, a decrease of $4,260,664, as compared to income from operations of $3,320,906 for the nine months ended September 30, 2007. The decrease in income was the result of decreases in our net revenue and increases in our operating expenses as described above.
Other (income) Expense
Other income and expense for the nine months ended September 30, 2008 totaled a net expense of $4,462,566, an increase of $3,741,750, compared to net expense of $720,816 for the nine months ended September 30, 2007. The increased net expense mainly resulted from losses from the sale and leaseback of real property to a related party. (See note D of Financial Statements). For nine months ended September 30, 2008, net loss from the sale leaseback transaction was $3,673,643,
(the initial loss of $5,169,294 less amortization of $1,495,651.)
Net Income (loss)
Our net loss was $5,402,324 for the nine months ended September 30, 2008 compared to net income of $2,600,090 for the same period in 2007. The decrease in net income and increase of operating expense and other expense were primarily due to reasons described above.
LIQUIDITY AND CAPITAL RESOURCES
Cash has historically been generated from operations. Operations and liquidity needs are funded primarily through cash flows from operations and short-term borrowings. Cash and cash equivalents were $46,833 at September 30, 2008 and current assets totaled $116,756 at September 30, 2008. The Company's total current liabilities were $13,851,183 at September 30, 2008. Working capital deficit was $13,734,427 at September 30, 2008. Net cash provided by operations for the nine months ended September 30, 2008 was $839,368 as compared to cash provided by operations of $4,451,895 during the same period in 2007. The decrease in net cash provided by operating activities was a result of a decrease in our net revenue while our operating costs increased.
Net cash used in investing activities totaled $7,773 for the nine months ended September 30, 2008, compared to cash used in investing activities of $(36,756) for the same period in 2007. The net cash change was a decrease of $181,054 and $176,938 for the nine months ended September 30, 2008 and 2007, respectively.
Working Capital Requirements
Historically operations, short term financing and the sale of our company stock have been sufficient to meet our cash needs. We believe that we will be able to generate revenues from tuition sufficient to maintain our operations. However, our actual working capital needs for the long and short term will depend upon numerous factors, including operating results, competition, and the availability of credit facilities, none of which can be predicted with certainty. Future expansion will be limited by the availability of financing products and our ability to raise capital.
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OFF-BALANCE SHEET ARRANGEMENTS
We have never entered into any off-balance sheet financing arrangements and have never established any special purpose entities. We have not guaranteed any debt or commitments of other entities or entered into any options on non-financial assets.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not Applicable.
Item 4T. Controls and Procedures.
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in its Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure based closely on the definition of "disclosure controls and procedures" in Rule 13a-15(e). In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As of the end of the period covered by this report, our management, including our principal executive officer and our principal financial officer, have conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15 under the Securities Exchange Act of 1934). Based upon that evaluation, our principal executive officer and our chief financial officer have concluded that our disclosure controls and procedures are effective in timely alerting them of material information relating to us that is required to be disclosed by us in the reports we file or submit under the Exchange Act. There have been no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Management's Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting refers to the process designed by, or under the supervision of Mr. Yongqi Zhu, our Chief Executive Officer, and Mr. Jian Xue, our Chief Financial Officer, and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP, and includes those policies and procedures that:
(1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that our receipts and expenditures are being made only in accordance with the authorization of our management and directors; and
(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
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Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of our internal control over financial reporting as of September 30, 2008. Based on that evaluation, Mr. Li and Mr. Guo concluded that as of September 30, 2008, and as of the date that the evaluation of the effectiveness of our disclosure controls and procedures was completed, our disclosure controls and procedures were effective to satisfy the objectives for which they were intended.
This quarterly report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management's report in this quarterly report.
Changes in Internal Controls over Financial Reporting.
During the quarterly period ending September 30, 2008, there were no changes in our internal control over financial reporting identified in connection with the evaluation performed during the fiscal year covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II--OTHER INFORMATION
Item 1A. Risk Factors.
Our business is subject to numerous risks and uncertainties statements including but not limited to those discussed in "Risk Factors" in our Report on Form 10-K filed with the SEC on April 9, 2008. Such discussion is incorporated herein by reference. Item 4. Submission of Matters to a Vote of Security Holders.
Item 4. Submission of Matters to a Vote of Security Holders.
On September 30, 2008, the Board of Directors and stockholders holding a majority of the issued and outstanding shares of the Company's common stock authorized the Company's directors to undertake all actions neccessary, including the amendment of the Company's Certificate of Incorporation, to effect a 1 for 20 reverse stock split (thereby reducing the issued and outstanding shares from 61,650,001 shares to 3,082,500 shares). The reverse stock split is currently in progress and will be made effective upon acceptance by the State of Nevada of an amendment to the Company's Certificate of Incorporation reflecting the split.
Item 6. Exhibits
The following exhibits are filed as part of this report:
Exhibit No. Description of Exhibit
31.1 -- Certification of Chief Executive Officer pursuant to
Rule 13a-14(a) under the Securities Exchange Act of 1934.
31.2 -- Certification of Chief Financial Officer pursuant to
Rule 13a-14(a) under the Securities Exchange Act of 1934.
32.1 -- Certification of Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.
1350).
32.2 -- Certification of Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.
1350).
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: November 14, 2008
CHINA IVY SCHOOL, INC.
By: /s/ Yongqi Zhu
------------------------------------
Yongqi Zhu
Chairman and Chief Executive Officer
(Principal Executive Officer)
By: /s/ Jian Xue
------------------------------------
Jian Xue
Chief Financial Officer
(Principal Financial and Accounting
Officer)
24
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EXHIBIT INDEX
Exhibit No. Description of Exhibit
31.1 -- Certification of Chief Executive Officer pursuant to
Rule 13a-14(a) under the Securities Exchange Act of 1934.
31.2 -- Certification of Chief Financial Officer pursuant to
Rule 13a-14(a) under the Securities Exchange Act of 1934.
32.1 -- Certification of Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.
1350).
32.2 -- Certification of Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.
1350).
--------------------------------------------------------------------------------
Exhibit 31.1
CERTIFICATIONS
I, Yongqi Zhu , certify that:
1. I have reviewed this quarterly report on Form 10-Q of China Ivy School, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting.
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
November 14, 2008
/s/ Yongqi Zhu
-----------------------------------
Yongqi Zhu, Chief Executive Officer
--------------------------------------------------------------------------------
Exhibit 31.2
CERTIFICATIONS
I, Jian Xue, certify that:
1. I have reviewed this quarterly report on Form 10-Q of China Ivy School, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting.
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
November 14, 2008
/s/ Jian Xue
---------------------------------
Jian Xue, Chief Financial Officer
(Principal Financial and Accounting Officer)
--------------------------------------------------------------------------------
Exhibit 32.1
CERTIFICATIONS PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
In connection with the Quarterly Report of China Ivy School, Inc., a Nevada corporation (the "Company"), on Form 10-Q for the quarter ended September 30, 2008, as filed with the Securities and Exchange Commission (the "Report"), Yongqi Zhu, Chief Executive Officer of the Company, does hereby certify, pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. ss. 1350), that to his knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
November 14, 2008
/s/ Yongqi Zhu
-----------------------------------
Yongqi Zhu, Chief Executive Officer
[A signed original of this written statement required by Section 906 has been provided to China Ivy School, Inc. and will be retained by China Ivy School, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.]
--------------------------------------------------------------------------------
Exhibit 32.2
CERTIFICATIONS PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
In connection with the Quarterly Report of China Ivy School, Inc., a Nevada corporation (the "Company"), on Form 10-Q for the quarter ended September 30, 2008, as filed with the Securities and Exchange Commission (the "Report"), Jian Xue, Chief Financial Officer of the Company, does hereby certify, pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. ss. 1350), that to his knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
November 14, 2008
/s/ Jian Xue
---------------------------------
Jian Xue, Chief Financial Officer
[A signed original of this written statement required by Section 906 has been provided to China Ivy School, Inc. and will be retained by China Ivy School, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.]
NT 10-Q filed
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 12b-25
NOTIFICATION OF LATE FILING
[ ] Form 10-K and Form 10-KSB [ ] Form 20-F [ ] Form 11-K
[X] Form 10-Q and Form 10-QSB [ ] Form N-SAR
For Period Ended: September 30, 2008
[ ] Transition Report on Form 10-K
[ ] Transition Report on Form 20-F
[ ] Transition Report on Form 11-K
[ ] Transition Report on Form 10-Q
[ ] Transition Report on Form N-SAR
For the Transition Period Ended: N/A
Nothing in this form shall be construed to imply that the Commission has verified any information contained herein.
If the notification relates to a portion of the filing checked above, identify the Item(s) to which the notification relates: N/A
Part I - Registrant Information
Dialpoint Communications Corporation
Full Name of Registrant
Not Applicable
Former Name if Applicable
2354-B Ebenezer Road
Address of Principal Executive Office (Street and Number)
Rock Hill, South Carolina 29732
City, State and Zip Code
Part II - Rules 12b-25(b) and (c)
If the subject report could not be filed without unreasonable effort or expense and the registrant seeks relief pursuant to Rule 12b-25(b), the following should be completed.(Check box if appropriate).
o
(a) The reasons described in reasonable detail in Part III of this form could not be eliminated without unreasonable effort or expense;
--------------------------------------------------------------------------------
x
(b) The subject annual report, semi-annual report, transition report on Form 10-K, Form 20-F, Form 11-K or Form N-SAR, or portion thereof will be filed on or before the 15th calendar day following the prescribed due date; or the subject quarterly report or transition report on Form 10-Q, or portion thereof will be filed on or before the fifth calendar day following the prescribed due date; and
o
(c) The accountant's statement or other exhibit required by Rule 12b-25(c) has been attached if applicable.
Part III - Narrative
State below in reasonable detail the reasons why Form 10-K and Form 10-KSB, 20-F, 11-K, 10-Q and N-SAR, or the transition report or portion thereof could not be filed within the prescribed period .
The registrant was unable without unreasonable effort and expense to prepare its accounting records and schedules in sufficient time to allow its accountants to complete its review of the registrant for its fiscal year ended September 30, 2008, before the required filing date for its Form 10-Q.
Part IV - Other Information
(1) Name and telephone number of person to contact in regard to this notification:
Ann DiSilvestre
(877) 463-7864
(2) Have all other periodic reports required under section 13 or 15(d) of the Securities Exchange Act of 1934 or section 30 of the Investment Company Act of 1940 during the preceding 12 months or for such shorter period that the registrant was required to file such report(s) been filed? If the answer is no, identify report(s).
[X] Yes [ ] No
(3) Is it anticipated that any significant change in results of operations from the corresponding period for the last fiscal year will be reflected by the earnings statements to be included in the subject report or portion thereof?
[ ] Yes [X] No
If so, attach an explanation of the anticipated change, both narratively and quantitatively, and, if appropriate, state the reasons why a reasonable estimate of the results cannot be made.
EXPLANATION: N/A
Dialpoint Communications Corporation
Date: November 14, 2008
By: / s/ Ann DiSilvestre
Ann DiSilvestre, C.E.O.
Thanks - the only thing better than the sticky idea itself is when someone uses it for a productive purpose - which you have certainly done.
I just hit the ask for 600K.
hahaha.....but you will have to "shell" out a lot of money to do that.
10-Q filed today
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2008
o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ________________ to _______________
000-32797
(Commission file number)
IVI COMMUNICATIONS, INC.
(Exact name of small business issuer as specified in its charter)
Nevada 33-0965560
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
1818 N. Farwell Ave
Milwaukee, WI 53202
(Address of principal executive offices)
(414) 727-2699
(Issuer's telephone number)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Indicate by a check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: As of October 21, 2008
1,000,000 shares of common stock, par value $.001
4,000,000 shares of preferred class A stock, par value $.001
1,000,000 shares of preferred class B stock, par value $.001
Indicate by a check mark whether the registrant is (check one):
an accelerated filer o a non accelerated filer o or a smaller reporting company x
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IVI COMMUNICATIONS, INC.
FORM 10-Q
QUARTERLY PERIOD ENDED SEPTEMBER 30, 2008
TABLE OF CONTENTS
Page
PART I FINANCIAL STATEMENTS 3
Item 1. Financial Statements 3
Condensed Consolidated Balance Sheets as of September 30, 2008 (Unaudited)and March 31, 2008 (Audited) 4
Condensed Consolidated Statements of Income for the Three Months and Six Months Ended September 30, 2008 and 2007 (Unaudited) 5
Condensed Consolidated Statements of Cash Flows for the Six Months Ended September 30, 2008 and 2007 (Unaudited) 6
Notes to Condensed Consolidated Financial Statements for the Six Months Ended September 30, 2008 and 2007 (Unaudited) 7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 24
Item 3. Quantitative and Qualitative Disclosures About Market Risk 32
Item 4. Controls and Procedures 32
PART II OTHER INFORMATION 34
Item 1. Legal Proceedings 34
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 34
Item 3. Defaults Upon Senior Securities 35
Item 4. Submission of Matters to a Vote of Security Holders 35
Item 5. Other Information 35
Item 6. Exhibits 36
SIGNATURES 38
CERTIFICATIONS
Certification of CEO Pursuant to 13a-14(a) under the Exchange Act
Certification of CFO Pursuant to 13a-14(a) under the Exchange Act
Certification of the CEO Pursuant to 18 U.S.C. Section 1350
Certification of the CFO Pursuant to 18 U.S.C. Section 1350
2
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PART I – FINANCIAL INFORMATION
ITEM 1 – FINANCIAL STATEMENTS
3
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IVI COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30,
2008 March 31,
2008
ASSETS (Unaudited) (Audited)
CURRENT ASSETS
Cash and cash equivalents $ 3,472 $ 3,019
Accounts receivable 12,958 32,877
Other current assets 6,785 6,207
Total current asset 23,215 42,103
Fixed assets, net of $38,966 and $46,830 accumulated depreciation 2,023 45,452
OTHER ASSETS
Goodwill, net of impairment 74,934 74,934
TOTAL ASSETS $ 100,172 $ 162,489
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Notes payable $ 23,259 $ 23,259
Loan payable – related party 50,874 -
Current portion of obligations under capital lease - 16,628
Accounts payable and accrued liabilities 1,890,906 2,487,679
Deferred revenue 19,866 1,679
Liability for stock payable 398,949 398,949
Derivative liability 596,666 379,807
Convertible debentures, net of discount 590,057 514,628
Total current liabilities 3,570,577 3,822,629
LONG-TERM LIABILITIES
Obligations under capital lease, net of current portion - 18,079
TOTAL LIABILITIES 3,570,577 3,840,708
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT
Preferred stock, $.001 par value; 5,000,000 shares authorized;
4,000,000 issued and outstanding series A 4,000 4,000
1,000,000 issued and outstanding series B 1,000 1,000
Common stock, $.001 par value; 400,000,000 shares authorized;
1,000,000 and 634,713 issued and outstanding 1,000 635
Additional paid-in capital 23,727,287 23,562,132
Additional paid-in capital – warrants 192,755 192,755
Accumulated deficit (27,396,447 ) (27,438,741 )
Total stockholders' deficit (3,470,405 ) (3,678,219 )
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 100,172 $ 162,489
See Accompanying Notes to Condensed Consolidated Financial Statements
4
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IVI COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended
September 30, Six Months Ended
September 30,
2008 2007 2008 2007
OPERATING REVENUE $ 2,026 $ 80,044 $ 46,769 $ 171,517
COST OF OPERATIONS 17,345 42,299 35,108 105,867
GROSS PROFIT (15,319 ) 37,745 11,661 65,650
OPERATING EXPENSES
Selling - - 200 696
General and administrative 60,257 287,283 92,149 756,877
Loss on settlement of contract - - - -
Depreciation / Amortization 58,269 41,959 95,071 121,331
Total operating expenses 118,526 329,242 187,420 878,904
OPERATING LOSS (133,845 ) (291,497 ) (175,759 ) (813,254 )
OTHER INCOME (EXPENSES)
Other income - 166,532 - 12,497
Forgiveness of debt - - 602,019 163,676
Gain (Loss) on Revaluation of Derivatives (246,026 ) (145,914 ) (216,859 ) (232,292 )
Loss on fixed assets (20,523 ) - (20,523 ) -
Other expense - - - (78 )
Interest expense (29,036 ) (113,430 ) (49,018 ) (55,183 )
Beneficial Interest - - (97,566 ) (287,875 )
Total other income (expense) (295,585 ) (92,812 ) 218,053 (399,265 )
NET INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES (429,430 ) (384,309 ) 42,294 (1,212,519 )
Provision for income taxes - - - -
NET INCOME (LOSS) APPLICABLE TO COMMON SHAREHOLDERS $ (429,430 ) $ (384,309 ) $ 42,294 $ (1,212,519 )
BASIC INCOME ( LOSS) PER SHARE $ (0.43 ) $ (1.14 ) $ 0.04 $ (0.01 )
DILUTED INCOME (LOSS) PER SHARE $ (0.43 ) $ (1.14 ) $ 0.01 $ (0.01 )
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
BASIC 1,000,000 335,970 964,361 316,080
DILUTED 1,000,000 335,970 11,434,777 316,080
See Accompanying Notes to Condensed Consolidated Financial Statements
5
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IVI COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
FOR THE SIX MONTHS ENDED SEPTEMBER 30,
2008 2007
CASH FLOW FROM OPERATING ACTIVITIES
Net Income (Loss) $ 42,294 $ (1,212,519 )
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation 6,690 14,548
Amortization of debt discount 88,381 106,785
Loss on sale of fixed assets 20,523 -
Amortization of prepaid consulting fees - 333,331
(Gain) on debt forgiveness income (602,019 ) (163,676 )
Loss on revaluation of derivatives 216,859 232,292
Stock issued for services and compensation - 9,100
Net beneficial interest on debt conversions 97,566 287,875
Allowance for doubtful accounts - 110,042
Changes in assets and liabilities
Decrease in accounts receivable, net 19,919 13,235
(Increase) in other current assets (579 ) (66 )
Increase in accounts payable and accrued liabilities 92,632 152,402
Increase in deferred revenue 18,187 1,333
Total adjustments (41,841 ) 833,432
Net cash provided by operating activities 453 5,222
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of fixed assets - (2,970 )
Net cash (used in) investing activities - (2,970 )
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on capital lease obligations - (7,486 )
Net cash (used in) financing activities - (7,486 )
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 453 (2,578 )
CASH AND CASH EQUIVALENTS -
BEGINNING OF PERIOD 3,019 4,827
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 3,472 $ 3,375
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest paid $ - $ 1,024
Income taxes $ - $ 150
SUPPLEMENTAL DISCLOSURE OF NON-CASH INFORMATION:
Common stock issued for prepaid consulting fees, classified as equity $ - $ 333,331
Common stock issued for debt settlements and payables $ 48,550 $ 58,512
Common stock issued for services and compensation $ - $ 6,100
Debt incurred for stock to be issued $ - $ 260,000
Accounts payable converted to loan payable $ 50,873 $ -
Additional paid in capital reclassified to warrant liability $ - $ 211,272
Additional paid in capital – debt forgiveness from officer $ 19,405 $ -
Fixed assets acquired for debt $ - $ 51,264
See Accompanying Notes to Condensed Consolidated Financial Statements
6
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IVI COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
The Company was formed in California in September 1995 to acquire traditional local and regional Internet access Service Providers (ISP’s) in the Western States to achieve economies of operation and accelerated growth through centralized management. Our business plan is to acquire Positive Cash Flow ISP's and other telecommunications businesses for Recurring Revenue.
On June 17, 2008, Titan Global Holdings (the “Purchaser”) entered into separate stock purchase agreements with Mr. Charles J. Roodenburg Chief Executive Officer, President and Chairman of the Board of Directors of IVI Communications, Inc. (the “Company”)(the “Roodenburg Agreement”), Mr. Nyhl Henson (the “Henson Agreement”) and Ms. Robin Tjon (the “Tjon Agreement”). As a result of these transactions and the voting preferences underlying the acquired Preferred Shares, the Purchaser owns 4,000,000 issued and outstanding voting shares underlying the Series A Shares and 51% of the vote required to approve any action of the Company under the Series B Shares, and may be deemed in control of the Company. (See Note 13).
On June 17, 2008, the Company appointed Kurt Jensen to serve as the President and Secretary of the Company and David Marks and Bryan Chance to serve as directors of the Company. (See Note 14)
Basis of Presentation
The condensed consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. The condensed consolidated financial statements and notes are presented as permitted on Form 10-Q and do not contain information included in the Company’s annual consolidated statements and notes. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these condensed consolidated financial statements be read in conjunction with the March 31, 2008 audited financial statements and accompanying notes thereto. While management believes the procedures followed in preparing these condensed consolidated financial statements are reasonable, the accuracy of the amounts are in some respects dependent upon the facts that will exist, and procedures that will be accomplished by the Company later in the year.
These condensed consolidated financial statements reflect all adjustments, including normal recurring adjustments which, in the opinion of management, are necessary to present fairly the consolidated operations and cash flows for the periods presented.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation.
7
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IVI COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Reclassifications
Certain reclassifications have been made to the September 30, 2007 statement of income and statement of cash flows to conform to the September 30, 2008 presentation. There has been no effect on operations and cash flows for the six months ended September 30, 2007.
Income Taxes
The Company has adopted the provisions of Statement of Financial Accounting Standards No. 109 (the Statement), Accounting for Income Taxes. The Statement requires an asset and liability approach for financial accounting and reporting for income taxes, and the recognition of deferred tax assets and liabilities for the temporary differences between the financial reporting bases and tax bases of the Company’s assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized or settled.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments and other short-term investments with an initial maturity of three months or less to be cash or cash equivalents. There were no cash equivalents as of September 30, 2008 and March 31, 2008.
The Company maintains cash and cash equivalent balances at several financial institutions that are insured by the Federal Deposit Insurance Corporation up to $250,000. At September 30, 2008 and March 31, 2008, the Company had no funds in excess of the insured limit.
Revenue Recognition
Internet service subscription revenues are recognized over the period that services are provided. The Company generally bills for Internet access service on the terms that range from one month to one year in advance. Monthly access fees are not prorated, and refunds are not given for partial months. Therefore, revenues for the first month of service paid in advance are recognized at the inception of the service month. Revenues for terms of service greater than one month that are paid in advance are deferred and amortized over the period in which the services are provided.
Consulting revenues are recognized upon the service being provided. All equipment sales are final upon delivery of the merchandise.
8
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IVI COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fair Value of Financial Instruments
The carrying amounts reported in the condensed consolidated balance sheets for cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and notes payable approximate fair value because of the immediate or short-term maturity of these financial instruments.
Equipment
Equipment is stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally three to five years.
When the assets are retired or otherwise disposed of, the costs and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is recognized in income for the period. The cost of maintenance and repairs is charged to expense as incurred; significant renewals and betterments are capitalized. Deduction is made for retirements resulting from renewals or betterments.
Accounts Receivable
The Company conducts business and extends credit based on an evaluation of the customers’ financial condition, generally without requiring collateral. Exposure to losses on receivables is expected to vary by customer due to the financial condition of each customer. The Company monitors exposure to credit losses and maintains allowances for anticipated losses considered necessary under the circumstances. The Company had no allowance for doubtful accounts at September 30, 2008 and March 31, 2008.
Goodwill and Other Intangible Assets
In June 2001, the FASB issued Statement No. 142 “Goodwill and Other Intangible Assets”. This statement addresses financial accounting and reporting for acquired goodwill and other intangible assets and supersedes APB Opinion No. 17, Intangible Assets. It addresses how intangible assets that are acquired individually or with a group of other assets (but not those acquired in a business combination) should be accounted for in financial statements upon their acquisition. This Statement also addresses how goodwill and other intangible assets should be accounted for after they have been initially recognized in the financial statements. The Company recorded $674,934 in goodwill in its acquisition of Futura, Inc. on February 6, 2006. There was a 51% reduction in revenue from June 30, 2007 to June 30, 2008, and the Company did not impair the goodwill at March 31, 2007 due to the fact that it was launching its fixed wireless system and anticipated increased revenue from that brand. Due to a lack of funding, Futura could install only the first section of the system and there was no increase in revenue from the broadband services while at the same time the dialup services were decreasing. The Company anticipates another 35% reduction in revenue for the coming fiscal year based on current revenue figures and little possibility of funding to grow the broadband service. There has been a 104% increase in the liabilities due to the capital lease for the equipment for the fixed wireless system and an increase in payables due to a reduction in dialup customers with no corresponding reduction in cost of services. Based on these numbers, management had, as of March 31, 2008, determined that the goodwill in its acquisition of Futura was impaired by $600,000. The Company elects to perform impairment review during the fourth quarter of each year.
9
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IVI COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES( CONTINUED)
Derivative Instruments
The Company has an outstanding convertible debt instrument that contains an embedded derivative. The Company accounts for this derivative in accordance with FAS No. 133, “ Accounting for Derivative Instruments and Hedging Activities ”, and EITF Issue No. 00-19, “ Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock .” In accordance with the provisions of FAS No. 133 and EITF Issue No. 00-19, the embedded derivative is required to be bifurcated from the debt instrument and recorded as a liability at fair value on the consolidated balance sheet. The Company also has notes payable with conversion features that qualify as derivative instruments. Changes in the fair value of the derivatives are recorded at each reporting period and recorded in net gain (loss) on derivative, a separate component of the other income (expense). As of September 30, 2008 and March 31, 2008, the fair value of the derivatives was $596,666 and $379,807, respectively.
Earnings (Loss) Per Share of Common Stock
Historical net income (loss) per common share is computed using the weighted average number of common shares outstanding. Diluted earnings per share (EPS) include additional dilution from common stock equivalents, such as stock issuable pursuant to the exercise of stock options and warrants. Common stock equivalents were not included in the computation of diluted earnings per share when the Company reported a loss because to do so would be anti-dilutive for periods presented.
The following is a reconciliation of the computation for basic and diluted EPS as of September 30;
2008 2007
Net income (loss) $ 42,294 $ (1,212,519 )
Weighted average common shares Outstanding (Basic) 964,361 316,080
Weighted average common stock Equivalents: Warrants 6,883,824 -0-
: Derivatives 3,586,592 -0-
Weighted average common shares Outstanding (Diluted) 11,434,777 316,080
Warrants outstanding to purchase stock were not included in the computation of diluted EPS for September 30, 2007 because inclusion would have been anti-dilutive.
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IVI COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED
Recent Accounting Pronouncements
On April 1, 2008, the Company adopted SFAS No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 revises the definition of fair value, provides guidance on the methods used to measure fair value and expands disclosure concerning fair value measurements. SFAS 157 establishes a fair value hierarchy that distinguishes between assumptions based on market data obtained from independent sources (“observable inputs”) and a reporting entity’s internally developed assumptions based on the best information available when there is little or no market activity for the asset or liability at the measurement date (“unobservable inputs”). The fair value hierarchy in SFAS 157 assigns highest priority to quoted prices in active markets (level 1) followed by observable inputs other than quoted prices (level 2) and unobservable inputs have the lowest priority (level 3). Implementation of the standard did not have a material effect on the Company’s results from operations or financial position. The Company did not elect to early adopt FAS 157 for nonrecurring measurements of nonfinancial assets or liabilities as allowed under FSP FAS 157-2.
On April 1, 2008, the Company adopted SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities-Including an amendment of SFAS No. 115 (“SFAS 159”). SFAS 159 permits entities to measure many financial instruments and certain other items at fair value. An entity shall report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. The fair value option may be applied instrument by instrument (with a few exceptions), is irrevocable and is applied only to entire instruments and not to portions of instruments. Implementation of the standard did not have a material effect on the Company’s results from operations or financial position. As of April 1, 2008, the Company did not elect to record any of its assets or liabilities at fair value, other than those covered under prior accounting guidance. Accordingly, the Company did not record an adjustment related to the adoption of SFAS 159 during the six months ended September 30, 2008.
In December 2007, the FASB issued SFAS No. 141(R), Business Combinations (“SFAS 141(R)”). This statement retains the underlying concepts of SFAS No. 141 in that all business combinations are still required to be accounted for at fair value under the acquisition method of accounting. SFAS 141(R) established principles and requirements for financial reporting concerning business combinations. SFAS 141(R) will require that: (1) for all business combinations, the acquirer records all assets and liabilities of the acquired business, including goodwill, generally at their fair values; (2) certain contingent assets and liabilities acquired be recognized at their fair values on the acquisition date; (3) contingent consideration be recognized at its fair value on the acquisition date and, for certain arrangements, changes in fair value will be recognized in earnings until settled; (4) acquisition-related transaction and restructuring costs be expensed rather than treated as part of the cost of the acquisition and included in the amount recorded for assets acquired; (5) in step acquisitions, previous equity interests in an acquiree held prior to obtaining control be re-measured to their acquisition-date fair values, with any gain or loss recognized in earnings; and (6) when making adjustments to finalize initial accounting, companies revise any previously issued post-acquisition financial information in future financial statements to reflect any adjustments as if they had been recorded on the acquisition date. SFAS 141(R) is effective on a prospective basis for all business combinations for which the acquisition date is on or after the beginning of the first annual period subsequent to December 15, 2008, with the exception
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IVI COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Recent Accounting Pronouncements (Continued)
of the accounting for valuation allowances on deferred taxes and acquired tax contingencies. SFAS 141(R) amends SFAS No. 109 such that adjustments made to valuation allowances on deferred taxes and acquired tax contingencies associated with acquisitions that closed prior to the effective date of this statement should also apply the provisions of SFAS 141(R). The Company does not expect implementation of the standard to have a material effect on its results from operations or financial position.
In December 2007, the FASB issued SFAS No. 160 , Noncontrolling Interests in Consolidated Financial Statements—an Amendment of ARB No. 51 (“SFAS 160”). This statement amends ARB No. 51 to establish new standards that will govern the accounting and reporting of noncontrolling interests in partially owned consolidated subsidiaries and the loss of control of subsidiaries. Also, SFAS 160 requires that: (1) noncontrolling interest, previously referred to as minority interest, be reported as part of equity in the consolidated financial statements; (2) losses be allocated to the noncontrolling interest even when such allocation might result in a deficit balance, reducing the losses attributed to the controlling interest; (3) changes in ownership interests be treated as equity transactions if control is maintained; and, (4) upon a loss of control, any gain or loss on the interest sold be recognized in earnings. SFAS 160 is effective for financial statements issued for fiscal years, beginning on or after December 15, 2008, except for the presentation and disclosure requirements, which will be applied retrospectively. The Company does not expect implementation of the standard to have a material effect on its results from operations or financial position.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities – an amendment of FASB Statement No. 133 (“SFAS 161”). SFAS 161 requires enhanced disclosures about an entity’s derivative and hedging activities, and is effective for financial statements issued for fiscal years beginning after November 15, 2008, with early application encouraged. Since SFAS 161 only requires additional disclosures concerning derivatives and hedging activities, adoption of the standard will not affect on the Company’s results from operations or financial position.
In May 2008, the Financial Accounting Standards Board (the “FASB”) issued FAS No. 162, “ The Hierarchy of Generally Accepted Accounting Principles ” (“FAS 162”). This statement identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in accordance with GAAP. With the issuance of this statement, the FASB concluded that the GAAP hierarchy should be directed toward the entity and not its auditor, and reside in the accounting literature established by the FASB as opposed to the American Institute of Certified Public Accountants (AICPA) Statement on Auditing Standards No. 69, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles.” This statement is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles.” The adoption of FAS 162 is not expected to have a material impact on the Company’s results from operations or financial position.
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IVI COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
NOTE 3 - EQUIPMENT
Equipment as of September 30, 2008 and March 31, 2008 was as follows:
Estimated Useful
Lives (Years)
September 30, March 31
2008 2008
Equipment 3-5 $ 41,019 $ 92,282
Less accumulated depreciation (38,996 ) (46,830 )
Equipment, net $ 2,023 $ 45,452
NOTE 4 - INSTALLMENT DEBT
Installment debt consists of approximately 11 notes for various pieces of equipment. The Company has not reflected the asset value on the books because the assets are considered to have no value remaining. These assets are however collateral for the debt. The Company has reflected these balances in the condensed consolidated balance sheets as accounts payable and accrued liabilities. All amounts are overdue.
NOTE 5 - OBLIGATION UNDER CAPITAL LEASE
The Capital leases were bought out in the three months ended September 30, 2008.
NOTE 6 - NOTES PAYABLE
The Company borrowed a total of $1,077,955 from 22 different individuals from 1999 through 2001, at interest rates ranging from 7-12%, with no collateral and payment terms of 2 or 3 years. As of September 30, 2008 and March 31, 2008, all amounts that remain unpaid are overdue.
As of September 30, 2008 and March 31, 2008, the notes payable balance is $23,259, respectively, and the accrued interest on those notes as of September 30, 2008 and March 31, 2008 are $6,681 and $5,479 respectively. These amounts are reflected as current portion of notes payable and current liabilities in the condensed consolidated balance sheets at September 30, 2008 and March 31, 2008, respectively.
NOTE 7 - LOAN PAYABLE-RELATED PARTY
The Company borrowed a total of $50,874 from the majority stockholder during the three months ended September 30, 2008. The loan is non-interest bearing and has no specific repayment terms.
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IVI COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
NOTE 8 - FAIR VALUE INSTRUMENTS
The Company adopted FAS 157 as of April 1, 2008, which defines fair value, establishes a frame work for measuring fair value and establishes a valuation hierarchy for disclosure of the inputs to the valuation used to measure fair value. The implementation of FAS 157 did not cause a change in the method of calculating fair value of assets and liabilities. The primary impact from the adoption was additional disclosures.
The Company adopted FAS 157, except as it applies to those nonfinancial assets and nonfinancial liabilities addressed in FASB Staff Position FAS 157-2 (“FSP FAS 157-2”). The FASB issued FSP FAS 157-2 which delays the effective date of FAS No. 157 to fiscal years beginning after November 15, 2008 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually).
FAS 157 establishes a hierarchy for disclosure into three broad levels. The valuation hierarchy categorizes assets and liabilities measured at fair value into one of three different levels depending on the observability of the inputs employed in the measurement. The three levels are defined as follows:
· Level 1 - inputs are quoted prices (unadjusted) in active markets for active markets for identical assets of liabilities.
· Level 2 - inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument.
· Level 3 - inputs are unobservable inputs based on the Company’s assumptions used to measure assets and liabilities at fair value.
A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. The following table presents information about the Company’s liability measured at fair value on a recurring basis as of September 30, 2008, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such a fair value (in thousands):
Level 1 Level 2 Level 3 Total
Derivative Liability $ - $ 596,666 $ - $ 596,666
Convertible Debentures $ - $ 590,057 $ - $ 590,057
Total Liabilities $ - $ 1,186,723 $ - $ 1,186,723
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IVI COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
NOTE 9 - CONVERTIBLE DEBENTURES
The Company sold a security for $25,000 to one entity in January 2005. This debenture, which was for services rendered, accrues interest at 10% per annum and was due January 31, 2006. The conversion price is $.10 per common share. No conversion or repayment of the debenture has occurred as of September 30, 2008.
The Company sold a security for $257,500 to one entity in March 2006. This debenture, which was for services rendered, accrues interest at 9% per annum and was due May 15, 2007. In the event the Company receives funding in the amount of at least Six Hundred Thousand Dollars ($600,000), Forty Five Thousand Dollars ($45,000) immediately becomes due and payable to the holder. The conversion price is the lower of $.05 or the lowest bid price in the preceding 5 trading days. On August 17, 2007, $48,000 of principal was converted for 30,000 shares of which 26,785 shares were restricted. The conversion price was $.004, the lowest bid price in the preceding 5 trading days, resulting in a beneficial interest charge of $24,000.
On March 27, 2006, the Company entered into a securities purchase agreement with YA Global providing for the sale by the Company to Cornell of our 12% secured convertible debentures in the aggregate principal amount of $600,000 of which $200,000 was advanced immediately. The second installment of $200,000 was advanced on April 18, 2006. The last installment of $200,000 was advanced August 14, 2006, two (2) business days after the registration statement was declared effective.
The Convertible Debentures mature on the third anniversary of the date of issuance and the Company is not required to make any payments until the maturity date. Holders of the Debentures may convert at any time amounts outstanding under the debentures into shares of our common stock at a conversion price per share equal to the lower of (i) $0.20 or (ii) ninety percent (90%) of the lowest closing Bid Price of the Common Stock during the thirty (30) trading days immediately preceding the conversion date as quoted by Bloomberg, LP. Cornell has agreed not to short any of the shares of Common Stock. The Company has the right to redeem a portion or all amounts outstanding under the debenture prior to the maturity date at a 20% redemption premium provided that the closing bid price of our common stock is less than $0.20.
On August 22, 2006, the debenture holder converted $5,000 of principal for 397 shares of common stock; the conversion price was $.0315, 90% of the lowest closing bid price of $.035 during the prior 30 days.
On September 21, 2006, the debenture holder converted $10,000 of principal for 842 shares of common stock; the conversion price was $.0297, 90% of the lowest closing bid price of $.033 during the prior 30 days.
On October 17, 2006, the debenture holder converted $10,000 of principal for 1,111 shares of common stock; the conversion price was $.0225, 90% of the lowest closing bid price of $.025 during the prior 30 days.
On November 9, 2006, the debenture holder converted $20,000 of principal for 3,472 shares of common stock; the conversion price was $.0144, 90% of the lowest closing bid price of $.016 during the prior 30 days.
On December 20, 2006, the debenture holder converted $20,000 of principal for 3,704 shares of common stock; the conversion price was $.0135, 90% of the lowest closing bid price of $.015 during the prior 30 days.
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IVI COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
NOTE 9 - CONVERTIBLE DEBENTURES (CONTINUED)
On January 23, 2007, the debenture holder converted $25,000 of principal for 5,787 shares of common stock; the conversion price was $.0108, 90% of the lowest closing bid price of $.012 during the prior 30 days.
On February 9, 2007, the debenture holder converted $20,000 of principal for 5,555 shares of common stock; the conversion price was $.009, 90% of the lowest closing bid price of $.01 during the prior 30 days.
On March 1, 2007, the debenture holder converted $20,000 of principal for 5,555 shares of common stock; the conversion price was $.009, 90% of the lowest closing bid price of $.01 during the prior 30 days.
On March 27, 2007, the debenture holder converted $20,000 of principal for 6,173 shares of common stock; the conversion price was $.0081, 90% of the lowest closing bid price of $.009 during the prior 30 days.
Beneficial interest of $25,072 was recognized on the conversions in the year ending March 31, 2007.
On February 22, 2007, Cornell exercised 8,750 warrants at a price of $.0085 for $29,750. Beneficial interest of $12,250 was recognized.
During the year ended March 31, 2008, the debenture holder converted $58,763 of principal for 104,671 shares of common stock at a weighted average price of $.0014. A beneficial interest charge of $27,462 was recorded on the conversions.
During the three months ended June 30, 2008, the debenture holder converted $12,952 of principal for 190,477 shares of common stock at a weighted average price of $.001. A beneficial interest charge of $6,238 was recorded on the conversions.
Convertible Debentures With Derivative Liability
The Derivative Liability is valued in accordance with SFAS 133, “Accounting for Derivative Instruments and Hedging Activities” and EITF 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock.”
The Company sold a security for $12,500 to one entity in September 2006. This debenture carries no interest and has a conversion rate of 50% discount to market of the ten-day average closing bid price. This has been recorded as a derivative liability. No conversion or repayment of the debenture has occurred as of September 30, 2008. The derivative liability as of September 30, 2008 is $492.
The Company sold a security for $12,500 to one entity in October 2006. This debenture carries no interest and has a conversion rate of 50% discount to market of the ten-day average closing bid price. This has been recorded as a derivative liability. No conversion or repayment of the debenture has occurred as of September 30, 2008. The derivative liability as of September 30, 2008 is $492.
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IVI COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
NOTE 9 - CONVERTIBLE DEBENTURES (CONTINUED)
Convertible Debenture With Derivative Liability (Continued)
A holder of the Convertible Debenture may not convert or receive shares as payment of interest to the extent such conversion or receipt of such interest payment would result in the holder, together with any affiliate of the holder, beneficially owning in excess of 4.99% of the then issued and outstanding shares of Common Stock, including shares issuable upon conversion of, and payment of interest.
On March 27, 2006, the Company entered into a securities purchase agreement with YA Global providing for the sale by the Company to Cornell of our 12% secured convertible debentures in the aggregate principal amount of $600,000 of which $200,000 was advanced immediately. The second installment of $200,000 was advanced on April 18, 2006. The last installment of $200,000 was advanced August 14, 2006, two (2) business days after the registration statement was declared effective. This agreement has a balance $378,285 as of the period ended September 30, 2008 The derivative liabilities of these instruments as of September 30, 2008 is $334,435.
In January 2007 the Company borrowed $3,243 from Charles Roodenburg, President, on a one-year note due January 19, 2008. This note carries no interest and is convertible at the previous 10-day closing price. This note was fully converted during the three months ended June 30, 2008
In January 2007 the Company borrowed $6,756 from Nyhl Henson, the former President, on a one-year note due January 19, 2008. This note carries no interest and is convertible at the previous 10-day closing price. This note was fully converted as of September 30, 2008.
In February 2007 the Company borrowed $45,000 from Nyhl Henson, former President, on two notes due on demand. The note carries no interest and is convertible at the previous 10-day closing price. $25,596 was converted and $19,405 was forgiven on this debenture and charged to additional paid in capital as of September 30, 2008 leaving a balance of $0.
Warrants
The Company also issued to Cornell five-year warrants to purchase 5,000 and 3,750 shares of Common Stock at prices of $0.30, and $0.40, respectively. If at the time of exercise of the Warrants, the shares of Common Stock underlying the Warrant are not subject to an effective registration statement under the Securities Act of 1933, as amended (the "Act") or if an event of default under the Convertible Debentures has occurred, which is not cured in any applicable cure period, the holder of the Warrant, in lieu of making payment of the Exercise Price in cash, may elect a cashless exercise in accordance with the formula set forth in the Warrant. If, subject to the exceptions set forth in the warrants, during the time that the Warrants are outstanding, the Company issues or sells, or is deemed to have issued or sold, any shares of Common Stock for a consideration per share less than a price equal to the then exercise price, then the exercise price will be reduced to an amount equal to such consideration per share. Upon each such adjustment, the number of shares of Common Stock issuable upon exercise of the Warrants will be adjusted to the number of shares determined by multiplying the exercise price in effect immediately prior to such adjustment by the number of shares issuable upon exercise of the warrants immediately prior to such adjustment and dividing the product by the exercise price resulting from such adjustment. Similar adjustments will be made upon any issuance or sale by us of options to purchase Common Stock or convertible securities.
17
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IVI COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
NOTE 9 - CONVERTIBLE DEBENTURES (CONTINUED)
Warrants (Continued)
As of March 31, 2006, the fixed freestanding warrants issued in connection with the $600,000 convertible debenture, has been valued at $192,755 based on a Black-Scholes pricing model using the following assumptions:
Fair market value of stock $0.20
Exercise price $0.30 and $0.40
Dividend yield 0.00%
Risk free interest rate 4.00%
Expected volatility 235.02%
Expected life 5.0 Years
On August 8, 2006 the Company issued stock at a price of $.04. This increased the number of warrants from 8,750 to 75,000 at $.04 exercise price.
On December 29, 2006 the Company issued stock at a price of $.0242. This increased the number of warrants from 75,000 to 123,966 at $.0242 exercise price.
On January 17, 2007, by Board Resolution, the Company reduced the exercise price to $.0085 which increased the number of warrants from 123,966 to 352,941.
On February 22, 2007, Cornell exercised 3,500,000 warrants at a price of $.0085 for $29,750. Beneficial interest of $12,250 was recognized. This reduced the number of warrants from 352,941 to 344,191 at $.0085.
On May 3, 2007 the Company issued stock at a price of $.0051. This increased the number of warrants from 344,191 to 573,652 at $.0051 exercise price.
On August 30, 2007 the Company issued stock at a price of $.0031. This increased the number of warrants from 573,652 to 843,750 at $.0031 exercise price.
On December 3, 2007 the Company issued stock at a price of $.0019. This increased the number of warrants from 843,750 to 1,539,803 at $.0019
On February 27, 2008 the Company issued stock at a price of $.00076. This increased the number of warrants from 1,539,803 to 3,849,507 at $.00076
The allocation of the proceeds of the convertible debenture to the warrants and the recognition of the embedded derivative resulted in discounts to the convertible debenture at September 30, 2008 and March 31, 2008 of $102,776 and $136,109, respectively. The discount on debt of $378,285 is being amortized to interest through March 31, 2009 using the effective interest method.
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IVI COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
NOTE 9 - CONVERTIBLE DEBENTURES (CONTINUED)
Warrants (Continued)
In connection with the Purchase Agreement, the Company also entered into a registration rights agreement with Cornell providing for the registration of the shares of common stock issuable upon conversion of the debentures and exercise of the warrants. The Company is obligated to use its best efforts to cause the registration statement to be declared effective no later than July 25, 2006 and to insure that the registration statement remains in effect until all of the shares of common stock issuable upon conversion of the debentures and exercise of the warrants have been sold. In the event of a default of the Company’s obligations under the registration rights agreement, including its agreement to file the registration statement no later than May 11, 2006, or if the registration statement is not declared effective by July 25, 2006, the Company is required to pay to Cornell, as liquidated damages, for each month that the registration statement has not been filed or declared effective, as the case may be, either a cash amount or shares of its common stock equal to 2% of the liquidated value of the Debentures.
On August 14, 2006, the registration statement for 56,250 shares of common stock for YA Global was declared effective. The Company was liable for liquidated damages up to 2% per month for failure to have an effective registration statement by July 25, 2006. YA Global has verbally agreed to waive said damages.
The Company’s obligations under the purchase agreement are secured by substantially all of its assets and the assets of its subsidiaries. As further security for its obligations thereunder, Nyhl Henson, former Chief Executive Officer, and Charles Roodenburg, former Chief Operating Officer, have granted a security interest in an aggregate of 2,313 shares of their common stock and 3,300,000 shares of their Series A Preferred Stock. The Company also granted a security interest in 37,500 shares of its stock, issued from treasury.
On July 14, 2006, the Company entered into an agreement with YA Global to cancel the security interest in the 15,000,000 shares. These shares were subsequently returned and cancelled.
NOTE 10 - GOING CONCERN
As shown in the accompanying condensed consolidated financial statements, the Company had a consolidated net income of $42,294 for the six months ended September 30, 2008 and a net loss of $1,212,519 for the six months ended September 30, 2007. It currently does not have the revenues to sustain its operations. In addition, the Company sold off its operations in Colorado, Oregon and California, and defaulted on the acquisition of Internet Business Consulting/AppState.net, LLC. This raises substantial doubt about the Company’s ability to continue as a going concern.
Management is in the process of restructuring the Company and is continuing to search for more profitable internet and communications related service companies to acquire.
The Company’s future success is dependent upon its ability to achieve profitable operations and generate cash from operating activities, and upon additional financing. There is no guarantee that the Company will be able to raise enough capital or generate revenues to sustain its operations.
19
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IVI COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
NOTE 10 - GOING CONCERN (CONTINUED)
The condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
NOTE 11 - LITIGATION / ARBITRATION / OTHER INCOME
The Company is currently negotiating settlements with vendors and debt holders for amounts currently outstanding. As of September 30, 2008, the Company has recognized the full liability for all amounts that are due.
On December 1, 2004, a judgment was entered against the Company, in favor of Catherine and Joe Santistevan in the amount of $1,367,500. On September 30, 2006 a confidential Settlement Agreement and Release was entered by and among Joe and Catherine Santistevan (“Santistevans”) and IVI Communications, Inc., to set aside the default judgment entered against the Company in the amount of $1,367,500 plus accrued interest. Under the terms of the agreement IVI Communications will pay the Santistevans a total four hundred and fifty thousand dollars ($450,000), to settle a claim of $1,367,500. If IVI Communications, Inc. defaults on the agreement a judgment would be entered by stipulation in the amount of 1,367,500. The balance on this settlement at September 30, 2008 and March 31, 2008 was $448,675.
The Company has six default judgments against it for a total amount of $146,504. The amounts are recorded in other liabilities and contingencies.
On June 17, 2008 agreements were completed with the prior owners of the Company which resulted in debt forgiveness totaling $621,424, of which $602,019 was credited to debt forgiveness income. The remaining balance of $19,405 of debt forgiveness was credited to additional paid in capital as of September 30, 2008. (See note 13).
NOTE 12 - PROVISION FOR INCOME TAXES
No provision for Federal and state income taxes has been recorded during the periods presented due to the Company’s significant operating losses. Deferred income taxes will be determined using the liability method for the temporary differences between the financial reporting basis and income tax basis of the Company’s assets and liabilities. Deferred income taxes will be measured based on the tax rates expected to be in effect when the temporary differences are included in the Company’s consolidated tax return. Deferred tax assets and liabilities are recognized based on anticipated future tax consequences attributable to differences between financial statement carrying amounts of assets and liabilities and their respective tax bases.
At September 30, 2008 and 2007, deferred tax assets approximated the following:
2008 2007
Deferred tax assets $ 8,777,000 $ 8,894,000
Less: valuation allowance (8,777,000 ) (8,894,000 )
Net deferred tax assets $ -0- $ -0-
At September 30, 2008 and 2007, the Company had accumulated deficits approximating $27,396,447 and $27,438,741 respectively, available to offset future taxable income through 2026. The Company established valuation allowances equal to the full amount of the deferred tax assets due to the uncertainty of the utilization of the operating losses in future periods.
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IVI COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
NOTE 13 - CHANGES IN CONTROL OF REGISTRANT
On June 17, 2008, Titan Global Holdings (the “Purchaser”) entered into separate stock purchase agreements with Mr. Charles J. Roodenburg Chief Executive Officer, President and Chairman of the Board of Directors of IVI Communications, Inc. (the “Company”)(the “Roodenburg Agreement”), Mr. Nyhl Henson (the “Henson Agreement”) and Ms. Robin Tjon (the “Tjon Agreement”). The Roodenburg Agreement, Henson Agreement and Tjon Agreement shall be referred to collectively as the “Agreements.” Pursuant to the Agreements, the Purchaser acquired 4,000,000 shares of series A preferred stock of the Company, $.001 par value per share (the “Series A Shares”), and 1,000,000 shares of series B preferred stock of the Company, $.001 par value per share (the “Series B Shares” and together with the Series A Shares, the “Preferred Shares”) for a total purchase price of Thirty Dollars ($30.00). As a result of these transactions, Purchaser owns 100% of the Series A Shares issued and outstanding and 100% of the Series B Shares issued and outstanding. Furthermore as a result of these transactions and the voting preferences underlying the acquired Preferred Shares, as detailed below, the Purchaser owns 4,000,000 issued and outstanding voting shares underlying the Series A Shares and 51% of the vote required to approve any action of the Company under the Series B Shares, and may be deemed in control of the Company.
The Roodenburg Agreement
Under the Roodenburg Agreement, Purchaser acquired 900,000 Series A Shares and 1,000,000 Series B Shares for the purchase price of Ten Dollars ($10.00) paid to Mr. Roodenburg. Pursuant to the Roodenburg Agreement, Mr. Roodenburg, has appointed David Marks and Bryan Chance as members of the Company’s Board of Directors and appointed Kurt Jensen as President and Secretary of the Company. Mr. Roodenburg has also resigned as an officer and as a director of the Company. Additionally, Mr. Roodenburg has forgiven, released and forever discharged any debt, monies owed or other obligation owed to him by the Company or any of its subsidiaries or affiliates.
The Henson Agreement
Under the Henson Agreement, Purchaser acquired 2,400,000 Series A Shares for the purchase price of Ten Dollars ($10.00) paid to Mr. Henson. Mr. Henson has also forgiven, released and forever discharged any debt, monies owed or other obligation owed to him by the Company or any of its subsidiaries or affiliates.
The Tjon Agreement
Under the Tjon Agreement, Purchaser acquired 700,000 Series A Shares for the purchase price of Ten Dollars ($10.00) paid to Ms. Tjon. Ms. Tjon has also forgiven, released and forever discharged any debt, monies owed or other obligation owed to her by the Company or any of its subsidiaries or affiliates.
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IVI COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
NOTE 13 - CHANGES IN CONTROL OF REGISTRANT(CONTINUED)
Series A Preferred Stock
The Series A Shares have a stated value of $0.05 and a liquidation preference over the Company's common stock and any other class or series of capital stock whose terms expressly provide that the holders of Series A Shares should receive preferential payment. Holders of Series A Shares are entitled to vote on all matters submitted to shareholders of the Company and are entitled to ten votes for each Series A Share owned. Holders of Series A Shares vote together with the holders of common stock on all matters and do not vote as a separate class. Beginning one year from the date of issuance of the Series A Shares, each Series A Share is convertible, at the option of the holder, into ten shares of the Company's common stock. However, holders cannot convert Series A Shares if the Company reports annual revenue of less than ten million (10,000,000) dollars. Notwithstanding the limitation on any conversions of the Series A Shares when the Company's annual revenue is less than ten million (10,000,000) dollars, if prior to one year from the date of issuance, there is a sale or other disposition of all or substantially all of the Company's assets, a transaction or series of related transactions in which more than 50% of the voting power of the Company is disposed of, or upon a consolidation, merger or other business combination where the Company is not the survivor, then immediately prior to such event each holder of Series A Shares may convert any or all of such holder's Series A Shares into common stock as described above. The Certificate of Designation also provides that the holders of Series A Shares shall be entitled to any distribution by the Company of its assets, which would have been payable to the holders of the Series A Shares with respect to the shares of common stock issuable upon conversion had such holders been the holders of such shares of common stock on the record date for the determination of shareholders entitled to such distribution.
Series B Preferred Stock
The Series B Shares have a deemed purchase price of one cent ($0.01) per share and a liquidation preference over the Company's common stock and any other class or series of capital stock whose terms expressly provide that the holders of Series B Shares should receive preferential payment.
In the event of any liquidation, dissolution or winding up of the Company, either voluntary or involuntary, the Holders of Series B Shares shall be entitled to receive, immediately after any distributions to senior securities required by the Company's Certificate of Incorporation or any certificate of designation, and prior in preference to any distribution to junior securities but in parity with any distribution to parity securities, an amount per share equal to $.10 per share. If upon the occurrence of such event, and after payment in full of the preferential amounts with respect to the senior securities, the assets and funds available to be distributed among the holders of the Series B Shares and parity securities shall be insufficient to permit the payment to such holders of the full preferential amounts due to the holders of the Series B Shares and the parity securities, respectively, then the entire assets and funds of the Company legally available for distribution shall be distributed among the holders of the Series B Shares and the parity securities, pro rata, based on the respective liquidation amounts to which each such series of stock is entitled by the Company's Certificate of Incorporation and any certificate(s) of designation relating thereto.
The record holders of the Series B Shares shall have the right to vote on any matter with holders of common stock voting together as one (1) class. The record holders of the 1,000,000 Series B Shares shall have that number of votes (identical in every other respect to the voting rights of the holders of common stock entitled to vote at any regular or special meeting of the shareholders) equal to that number of common shares which is not less than 51% of the vote required to approve any action, which Nevada law provides may or must be approved by vote or consent of the holder of common shares or the holders of other securities entitled to vote, if any.
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IVI COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
NOTE 14 - CHANGE OF MANAGEMENT
Effective April 24, 2007 Nyhl Henson resigned his position as President and Chairman of the Board of Directors of IVI Communications, Inc, and Charles Roodenburg was named as President and Chairman of the Board of Directors of IVI Communications, Inc.
On June 17, 2008, Charles Roodenburg, in accordance with the Roodenburg Agreement, resigned as an officer and a director the Company, effective immediately. Mr. Roodenburg had served as the President and Chief Executive Officer of the Company as well as Chairman of the Board of Directors.
On June 17, 2008, the Company appointed Kurt Jensen to serve as the President and Secretary of the Company and David Marks and Bryan Chance to serve as directors of the Company .
NOTE 15 - REVERSE SPLIT OF COMMON STOCK
Effective September 2, 2008, the Company approved a reverse split of its common stock. Each of the three hundred ninety-nine million, nine hundred and ninety-nine thousand, nine hundred and ninety-one shares of the Corporations common stock issued and outstanding immediately prior to the Reverse Split shall be converted into approximately one million validly issued, fully paid and non assessable shares of common stock. The par value of the common stock shall not be adjusted as a result of the reverse split, and shall remain at $.001 per share. The amount of authorized shares shall not be impacted by the reverse stock split. All share amounts have been retroactively restated to conform with the reverse split.
NOTE 16 - SUBSEQUENT EVENTS
Effective October 25, 2008, Francis Allen and Louis Allen, President and Vice President of Futura, Inc., respectively, resigned their positions.
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ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS
FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (the “Quarterly Report”) contains ‘‘forward-looking statements’’ that represent our beliefs, projections and predictions about future events. All statements other than statements of historical fact are ‘‘forward-looking statements’’, including any projections of earnings, revenue or other financial items, any statements of the plans, strategies and objectives of management for future operations, any statements concerning proposed new projects or other developments, any statements regarding future economic conditions or performance, any statements of management’s beliefs, goals, strategies, intentions and objectives, and any statements of assumptions underlying any of the foregoing. Words such as ‘‘may’’, ‘‘will’’, ‘‘should’’, ‘‘could’’, ‘‘would’’, ‘‘predicts’’, ‘‘potential’’, ‘‘continue’’, ‘‘expects’’, ‘‘anticipates’’, ‘‘future’’, ‘‘intends’’, ‘‘plans’’, ‘‘believes’’, ‘‘estimates’’ and similar expressions, as well as statements in the future tense, identify forward-looking statements.
These statements are necessarily subjective and involve known and unknown risks, uncertainties and other important factors that could cause our actual results, performance or achievements, or industry results, to differ materially from any future results, performance or achievements described in or implied by such statements. Actual results may differ materially from expected results described in our forward-looking statements, including with respect to correct measurement and identification of factors affecting our business or the extent of their likely impact, the accuracy and completeness of the publicly available information with respect to the factors upon which our business strategy is based or the success of our business. Furthermore, industry forecasts are likely to be inaccurate, especially over long periods of time and in relatively new and rapidly developing industries such as oil and gas. Factors that may cause actual results, our performance or achievements, or industry results, to differ materially from those contemplated by such forward-looking statements include without limitation:
(a) volatility or decline of our stock price;
(b) potential fluctuation in quarterly results;
(c) our failure to earn revenues or profits;
(d) inadequate capital and barriers to raising the additional capital or to obtaining the financing needed to implement its business plans;
(e) inadequate capital to continue business;
(f) changes in demand for our products and services;
(g) rapid and significant changes in markets;
(h) litigation with or legal claims and allegations by outside parties;
(i) insufficient revenues to cover operating costs.
Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of whether, or the times by which, our performance or results may be achieved. Forward-looking statements are based on information available at the time those statements are made and management’s belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause such differences include, but are not limited to, those factors discussed under the headings ‘‘Risk factors’’, ‘‘Management’s discussion and analysis of financial condition and results of operations’’, ‘‘Business’’ and elsewhere in this report.
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OVERVIEW
We are an ISP Management Company. We intend to acquire, consolidate and operate locally branded ISPs offering state of the art dialup and nationally branded wireless Internet access to residential and business customers. Management believes that local ISPs are hampered in their ability to provide the highest quality services and achieve profitability because they lack buying power. Through consolidation, economies of scale are achieved and profit can be maximized. We intend to deploy, market, and maintain a nationally branded fixed wireless broadband solution with newly acquired ISPs in tier 3 markets.
We currently operate one subsidiary, Futura, Inc.
On February 6, 2006 we entered into a Purchase Agreement to acquire 100% of the outstanding stock of Futura, Inc. from Francis and Lois Allen, the shareholders of Futura, Inc. In consideration for the Futura stock, we paid to the Allens $150,000 in cash (to be paid over a 10-month period) and $550,000 in shares of the Company's restricted common stock (an aggregate of 7,033 shares calculated as of the close of the transaction). Futura is an Internet Service Provider that provides dialup and DSL broadband Internet access, and associated services such as Email spam and virus filtering, VoIP telephony, "Kid Safe" surfing (Parental Control), and web accelerator services, to communities surrounding Little Rock Arkansas including Cabot, Carlisle, Clarendon, DeValls Bluff, DeWitt, England, Hazen, Jacksonville, and Stuttgart.
The Company expects operating losses and negative operating cash flows to continue for at least the next twelve months, because of expected additional costs and expenses related to brand development; marketing and other promotional activities; strategic relationship development; and potential acquisitions of related complementary businesses.
Liquidity and Capital Resources
As of September 30, 2008 the Company has an accumulated operating deficit of $27,396,447 and stockholders' deficit of $3,470,405.
The Company’s principal source of operating capital has been provided by the sale of its stock and securities, corporate consulting services, and operations of its wholly owned subsidiaries.
Effective September 2, 2008, the Company approved a reverse split of its common stock. Each of the three hundred ninety-nine million, nine hundred and ninety-nine thousand, nine hundred and ninety-one shares of the Corporations common stock issued and outstanding immediately prior to the Reverse Split shall be converted into approximately one million validly issued, fully paid and non assessable shares of common stock. The par value of the common stock shall not be adjusted as a result of the reverse split, and shall remain at $.001 per share. The amount of authorized shares shall not be impacted by the reverse stock split.
On March 27, 2006, the Company entered into a securities purchase agreement with YA Global providing for the sale by the Company to Cornell of our 12% secured convertible debentures in the aggregate principal amount of $600,000 of which $200,000 was advanced immediately. The second installment of $200,000 was advanced on April 18, 2006 upon the filing of the SB2 Registration Statement. The last installment of $200,000 was advanced August 21, 2006, two (2) business days after the registration statement was declared effective.
The Convertible Debentures mature on the third anniversary of the date of issuance and the Company is not required to make any payments until the maturity date. Holders of the Debentures may convert at any time amounts outstanding under the debentures into shares of our common stock at a conversion price per share equal to the lower of (i) $0.20 or (ii) ninety percent (90%) of the lowest closing Bid Price of the Common Stock during the thirty (30) trading days immediately preceding the conversion date as quoted by Bloomberg, LP. Cornell has agreed not to short any of the shares of Common Stock. The Company has the right to redeem a portion or all amounts outstanding under the debenture prior to the maturity date at a 20% redemption premium provided that the closing bid price of our common stock is less than $0.20.
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A holder of the Convertible Debenture may not convert or receive shares as payment of interest to the extent such conversion or receipt of such interest payment would result in the holder, together with any affiliate of the holder, beneficially owning in excess of 4.99% of the then issued and outstanding shares of Common Stock, including shares issuable upon conversion of, and payment of interest.
Since August 22, 2006 through March 31, 2008, 396,774 shares, valued at $408,345, were issued to convert debentures, contingent liability, accrued payroll and services.
On April 4, 2008, the debenture holder converted $1,547 of principal for 22,750 shares of common stock; the conversion price was $.000170, 90% of the lowest closing bid price during the prior 30 days.
On April 4, 2008, the debenture holder converted $1,615 of principal for 23,750 shares of common stock; the conversion price was $.000170, 90% of the lowest closing bid price during the prior 30 days.
On April 4, 2008, the debenture holder converted $1,615 of principal for 23,750 shares of common stock; the conversion price was $.000170, 90% of the lowest closing bid price during the prior 30 days.
On April 10, 2008, 35,178 shares valued at $7,458 were issued to convert a note.
On April 14, 2008, 36,933 shares valued at $8,421 were issued to convert a note.
On April 16, 2008, the debenture holder converted $1,700 of principal for 25,000 shares of common stock; the conversion price was $.000170, 90% of the lowest closing bid price during the prior 30 days.
On April 18, 2008, the debenture holder converted $1,853 of principal for 27,250 shares of common stock; the conversion price was $.000170, 90% of the lowest closing bid price during the prior 30 days.
On April 25, 2008, the debenture holder converted $1,955 of principal for 28,750 shares of common stock; the conversion price was $.000170, 90% of the lowest closing bid price during the prior 30 days.
On April 25, 2008, 85,807 shares valued at $16,475 were issued to convert a note.
On April 25, 2008, 16,892 shares valued at $3,243 were issued to convert a note.
On April 30, 2008, the debenture holder converted $2,040 of principal for 30,000 shares of common stock; the conversion price was $.000170, 90% of the lowest closing bid price during the prior 30 days.
On May 2, 2008, the debenture holder converted $627 of principal for 9,227 shares of common stock; the conversion price was $.000170, 90% of the lowest closing bid price during the prior 30 days.
On June 17, 2008, due to an agreement a debenture holder forgave the remaining balance of $19,405 on the debenture.
A beneficial interest charge of $97,566 was recognized on the conversions in the three months ending June 30, 2008.
The Company also issued to Cornell five-year warrants to purchase 5,000 and 3,750 shares of Common Stock at prices of $0.30, and $0.40, respectively. If at the time of exercise of the Warrants, the shares of Common Stock underlying the Warrant are not subject to an effective registration statement under the Securities Act of 1933, as amended (the "Act") or if an event of default under the Convertible Debentures has occurred, which is not cured in any applicable cure period, the holder of the Warrant, in lieu of making payment of the Exercise Price in cash, may elect a cashless exercise in accordance with the formula set forth in the Warrant. If, subject to the exceptions set forth in the warrants, during the time that the Warrants are outstanding, the Company issues or sells, or is deemed to have issued or sold, any shares of Common Stock for a consideration per share less than a price equal to the then exercise price, then the exercise price will be reduced to an amount equal to such consideration per share. Upon each such adjustment, the number of shares of Common Stock issuable upon exercise of the Warrants will be adjusted to the number of shares determined by multiplying the exercise price in effect immediately prior to such adjustment by the number of shares issuable upon exercise of the warrants immediately prior to such adjustment and dividing the product by the exercise price resulting from such adjustment. Similar adjustments will be made upon any issuance or sale by us of options to purchase Common Stock or convertible securities.
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On August 8, 2006 the company issued stock at a market price of $.04. This increased the number of warrants from 8,750 to 75,000 at $.04 exercise price.
On December 19, 2006 the company issued stock at a market price of $.0242. This increased the number of warrants from 75,000 to 123,966 at $.0242 exercise price.
On January 17, 2007, by Board Resolution, the exercise price on the warrants was reduced to $.0085, resulting in an increase in the number of warrant shares to 352,941.
On February 22, 2007, Cornell exercised 952,941 warrants at a price of $.0085 for $29,750. This reduced the number of warrants from 352,941 to 344,191. Beneficial interest of $12,250 was recognized.
On May 3, 2007 the company issued stock at a market price of $.0051. This increased the number of warrants from 344,191 to 573,652 at $.0051 exercise price.
On August 30, 2007 the company issued stock at a market price of $.0031. This increased the number of warrants from 573,652 to 843,750 at $.0031 exercise price.
On December 3, 2007 the company issued stock at a market price of $.0019. This increased the number of warrants from 843,750 to 1,539,803 at $.0019 exercise price.
On February 27, 2008 the company issued stock at a market price of $.00076. This increased the number of warrants from 1,539,803 to 3,849,507 at $.00076 exercise price.
In connection with the Purchase Agreement, the Company also entered into a registration rights agreement with Cornell providing for the registration of the shares of common stock issuable upon conversion of the debentures and exercise of the warrants. The Company is obligated to use its best efforts to cause the registration statement to be declared effective no later than July 25, 2006 and to insure that the registration statement remains in effect until all of the shares of common stock issuable upon conversion of the debentures and exercise of the warrants have been sold. In the event of a default of the Company’s obligations under the registration rights agreement, including its agreement to file the registration statement no later than May 11, 2006, or if the registration statement is not declared effective by July 25, 2006, the Company is required to pay to Cornell, as liquidated damages, for each month that the registration statement has not been filed or declared effective, as the case may be, either a cash amount or shares of its common stock equal to 2% of the liquidated value of the Debentures.
The registration statement was declared effective on August 14, 2006.
The Company’s obligations under the purchase agreement are secured by substantially all of its assets and the assets of its subsidiaries. As further security for its obligations thereunder, Nyhl Henson, Former Chief Executive Officer, and Charles Roodenburg, Chief Executive Officer, have granted a security interest in an aggregate of 2,313 shares of their common stock and 3,300,000 shares of their Series A Preferred Stock. The Company also granted a security interest in 15,000,000 shares of its stock, issued from treasury.
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On July 14, 2006, the Company entered into an agreement with YA Global to cancel the security interest in the 37,500 shares. These shares were subsequently returned and cancelled.
In May 2006 the company borrowed $5,000 on a one year note due May 22, 2007. This note carries no interest. At June 30, 2008 this note remains unpaid.
The Company sold a security for $12,500 to one entity in September 2006. This debenture carries no interest and has a conversion rate of 50% discount to market of the ten day average closing bid price. No conversion or repayment of the debenture has occurred as of June 30, 2008.
The Company sold a security for $12,500 to one entity in October 2006. This debenture carries no interest and has a conversion rate of 50% discount to market of the ten day average closing bid price. No conversion or repayment of the debenture has occurred as of June 30, 2008.
In December 2006 the company borrowed $4,000 on a one year note due December 22, 2007. This note carries no interest. At June 30, 2008 this note remains unpaid.
In January 2007 the company borrowed $6,756 from Nyhl Henson, former President, on a one year note due January 19, 2008. This note carries no interest and is convertible at the previous 10-day average closing price. This note was converted on April 10, 2008 and no further money is due on this note.
In January 2007 the company borrowed $3,243 from Charles Roodenburg, President, on a one year note due January 19, 2008. This note carries no interest and is convertible at the previous 10-day average closing price. This note was converted on April 25, 2008 and no further money is due on this note.
In February 2007 the company borrowed $20,000 from Nyhl Henson, President, on a note due on demand. The note carries no interest and is convertible at the previous 10-day average closing price. This note was converted on April 10, April 14, and April 25, 2008. There is no further money due on this note.
In February 2007 the company borrowed $25,000 from Nyhl Henson, President, on a note due on demand. The note carries no interest and is convertible at the previous 10-day average closing price. On April 25, 2008, $5,596 of this note was converted. The remaining balance on this note is $19,405 was forgiven on June 17, 2008.
The Company anticipates expenditures for acquisitions in excess of $1,000,000 to expand its operation during the next twelve months. The Company believes that the current cash flows generated from its revenues will not be sufficient to fund the anticipated expansion of operations. The Company will require additional funding to finance its operations through private sales and public debt or equity offerings. However, there is no assurance that the Company can obtain such financing. Recurring revenues are anticipated from ISP management services but no management service contracts have been executed at this time. There can be no assurance that the Company will secure these contracts.
Results of Operations
Three Months Ended September 30, 2008 Compared to Three Months Ended September 30, 2007
The numbers below compare the condensed consolidated results of income September 30, 2008 and September 30, 2007, and also compare the results of existing operations, which are corporate and the Futura subsidiary, for the same periods.
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Revenue for the three months ending September, 2008 was $2,026 compared to $80,044 for the three months ending September 30, 2007. This decrease of $78,018 is mainly due to a reduction in service fees provided by Futura.
Cost of operations for the three months ending September 30, 2008 was $17,345 compared to $42,299 for the three months ending September 30, 2007. Cost of operations decreased $24,954. The reduction in cost of operations is a result of the reduction of dial-up subscribers at the Futura subsidiary.
General and administrative expenses for the three months ending September 30, 2008 were $60,257 compared to $287,283 for the three months ending September 30, 2007. General and administrative decreased by $227,026. The largest components of general and administrative for the three months ending June 30, 2008, were corporate and operations compensation of $16,594, a $71,098 reduction from September 30, 2007. Occupancy expenses were $7,089 for the three months ending September 30, 2008, a reduction of $5,488 from September 30, 2007. Controllable expenses were $35,260 for the three months ending September 30, 2008, a reduction of $151,034 from September 30, 2007.
Depreciation and amortization expense for the three months ending September 30, 2008 was $58,269 compared to $41,959 for the three months ending September 30, 2007. This increase of $16,310 is primarily due to the increase in the amortization of the debt discount associated with the debentures in the amount of $21,589 and a decrease in deprecation of $5,279.
Interest expense for the three months ending September 30, 2008 was $29,036 compared to $113,430 for the three months ending September 30, 2007.
Other income for the three months ending September 30, 2008 was $0 compared to $166,532 for the three months ending September 30, 2007.
The Company had a loss on the revaluation of derivatives of $246,026 for the three months ending September 30, 2008 compared to the loss of $145,914 for the three months ended September 30, 2007.
The Company had a net loss for the three months ending September 30, 2008 of $429,430 compared to a net loss of $384,309 for the three months ending September 30, 2007. The Company expects additional losses through the next fiscal year.
Six Months Ended September 30, 2008 Compared to Six Months Ended September 30, 2007
Revenue for the six months ending September 30, 2008 was $46,769 compared to $171,517 for the six months ending September 30, 2007. This decrease of $124,748 is due to a reduction in service fees provided by Futura of $122,481.
Cost of operations for the six months ending September 30, 2008 was $35,108 compared to $105,867 for the six months ending September 30, 2007. Cost of operations decreased $70,759. The reduction in cost of operations is a result of the reduction of dial-up subscribers at the Futura subsidiary.
General and administrative expenses for the six months ending September 30, 2008 were $92,149 compared to $756,877 for the six months ending September 30, 2007. General and administrative decreased by $664,728. The largest components of general and administrative for the six months ending September 30, 2008, were corporate and operations compensation of $33,576, a $170,036 reduction from September 30, 2007. Occupancy expenses were $13,894 for the six months ending September 30, 2008, a reduction of $13,332 from September 30, 2007. Controllable expenses were $44,085 for the six months ending September 30, 2008, a reduction of $481,802 from September 30, 2007.
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Selling expenses for six months ending September 30, 2008 were $200 compared to $696 for the six months ended September 30, 2007, a reduction of $496. This is a result of the reduction of direct advertising costs.
Depreciation and amortization expense for the six months ending September 30, 2008 was $95,071 compared to $121,331 for the six months ending September 30, 2007. This decrease of $26,260 is primarily due to the decrease in the amortization of the debt discount associated with the debentures.
Interest expense for the six months ending September 30, 2008 was $49,018 compared to $53,434 for the six months ending September 30, 2007. The decrease of $4,416 was primarily the result in the reduction in debenture and notes payable principal balances.
Beneficial interest expense on debt conversions for the six months ending September 30, 2008 was $97,566 compared to $289,624 for the six months ending September 30, 2008. The decrease of $192,058 was primarily due to the reduction in the debentures.
Other income for the six months ending September 30, 2008 was $0 compared to $176,163 for the six months ending September 30, 2007.
Forgiveness of debt totaled was $602,019 for the six months ending September 30, 2008 compared to $0 for the six months ending September 30, 2007. In the six months ending September 30, 2008, the Company had settled agreements with the former owners.
The Company had a loss on the revaluation of derivatives of $216,859 for the six months ending September 30, 2008 compared to the loss of $232,292 for the six months ended September 30, 2007.
The Company had a net income for the six months ending September 30, 2008 of $42,294 compared to a net loss of $1,212,519 for the six months ending September30, 2007. This gain was due to the debt forgiveness income of $602,019 due to settlement agreements with the former owners of the Company. The Company expects additional losses through the next fiscal year.
Critical Accounting Policies
Revenue Recognition
The Company recognizes revenues in accordance to Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements."
Derivative Instruments
The Company has an outstanding convertible debt instrument that contains free-standing and embedded derivative features. The Company accounts for these derivatives in accordance with SFAS No. 133, “ Accounting for Derivative Instruments and Hedging Activities ”, and EITF Issue No. 00-19, “ Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock ”. In accordance with the provisions of SFAS No. 133 and EITF Issue No. 00-19, the embedded derivatives are required to be bifurcated from the debt instrument and recorded as a liability of fair value on the consolidated balance sheet. Changes in the fair value of the derivatives are recorded at each reporting period and recorded in net gain(loss) on derivative, a separate component of the other income (expense).
Inflation
In our opinion, inflation has not had a material effect on our operations.
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Risk Factors and Cautionary Statements
We Have a History of Losses and We Expect Continuing Losses and May Never Achieve Profitability
For the six months ending September 30, 2008 and 2007, we generated revenues of $46,769 and $171,517 respectively. The Company has a condensed consolidated net income of $42,294 for the six months ended September 30, 2008 as compared to a net loss of $1,212,519 for the six months ended September 30, 2007. We cannot assure you that we can achieve or sustain profitability on a quarterly or annual basis in the future. Our operations are subject to the risks and competition inherent in the establishment of a business enterprise.
There can be no assurance that future operations will be profitable. Revenues and profits, if any, will depend upon various factors, including whether our services will achieve market acceptance. We may not achieve our business objectives and the failure to achieve such goals would have an adverse impact on us. These matters raise substantial doubt about our ability to continue as a going concern.
Our Auditors Have Included a Going Concern in Their Opinion which Could Cause Investors to Lost their Investment In the Company
Our auditors have included in their opinion to our financial statements for the years ending March 31, 2008 and 2007, a paragraph that addressed concerns about our ability to continue as a going concern. These concerns arise from the fact that we have sustained operating losses for the years ending March 31, 2008 and 2007 and have sustained large capital deficits and have been unable to come to mutually acceptable terms to cure the default by the Company on the terms of the Purchase Agreement (“Agreement”) dated January 1, 2005 by and between IVI Communications, Inc. (“Buyer”), Internet Business Consulting, Inc. (“IBC”) and AppState.Net, LLC (“AppState”), jointly referred to as (“Sellers”). Sellers have exercised the remedies for default as provided in the Agreement and confirmed that the Remedies, which were that foreclosure and repossession occurred December 31, 2006, are in effect. Purchase Agreement, Exhibit 2.4, is incorporated by reference to the exhibits filed in the Company’s Form 8-K filed February 4, 2005.
Pursuant to those remedies, ownership of Sellers reverted to James Hollis, effective December 31, 2006.
Per the terms of the Agreement, Sellers were to return 6,436 shares of IVI common stock. The stock was returned and cancelled on July 6, 2007.
In addition there has been no formal settlement agreement signed by all parties.
Our future success is dependent upon our ability to achieve profitable operations and generate cash from operating activities, and upon additional established an ongoing source of revenues sufficient to cover our operating costs and that we must raise additional capital in order to continue to operate our business. If we are unable to continue as a going concern, you could lose your entire investment in us.
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ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None
ITEM 4 - CONTROLS AND PROCEDURES
As required by Rule 13a-15 under the Securities Exchange Act of 1934, as of the end of the period covered by this report, we have carried out an evaluation of the effectiveness of the design and operation of our company’s disclosure controls and procedures. Under the direction of our Chief Executive Officer and Chief Financial Officer, we evaluated our disclosure controls and procedures and internal control over financial reporting and concluded that (i) our disclosure controls and procedures were not effective as of September 30, 2008 and (ii) no change in internal controls over financial reporting occurred during the quarter ended September 30, 2008, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Disclosure controls and procedures and other procedures are designed to ensure that information required to be disclosed in our reports or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time period specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934 is accumulated and communicated to management including our president and financial officer as appropriate, to allow timely decisions regarding required disclosure.
ITEM 4T - Management’s Report of Internal Control over Financial Reporting
Evaluation of Disclosure Controls and Procedures
The Company maintains controls and procedures designed to ensure that information required to be disclosed in this report is recorded, processed, accumulated and communicated to our management, including our chief executive officer and our chief financial officer, to allow timely decisions regarding the required disclosure.
The management of the Company has evaluated the effectiveness of the issuer’s disclosure controls and procedures as of the end of the period of the report (evaluation date) and have concluded that the disclosure controls internal controls and procedures are not adequate and effective based upon their evaluation as of the evaluation date.
There were no changes in the business issuer’s internal controls over financial reporting identified in connection with the company evaluation required by paragraph (3) of Rule 13a-15 or Rule 15d-15 under the Exchange Act that occurred during the small business issuer’s fiscal year that has materially affected or is reasonably likely to materially affect the small business issuer’s internal control over financial reporting.
Our Board of Directors were advised by Bagell, Josephs, Levine and Company, LLC, our independent registered public accounting firm, that during their assessment of our internal controls as part of their audit for the year ended March 31, 2008, they have identified a material weakness as defined in Public Accounting Oversight Board Standard No. 2 in our internal control over financial reporting. Our auditors had identified the following material weaknesses in our internal controls as of March 31, 2008:
A material weakness in the Company’s internal controls exists in that there is limited segregation of duties amongst the Company’s employees with respect to the Company’s preparation and review of the Company’s financial statements. This material weakness is a result of the Company’s limited number of employees. This material weakness may affect management’s ability to effectively review and analyze elements of the financial statement closing process and prepare financial statements in accordance with U.S. GAAP.
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Subsequent to the notification from our independent registered public accounting firm, our chief executive officer evaluated our internal controls and concurred that our disclosure controls and procedures have not been effective to ensure that information required to be included in our periodic SEC filings is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms. However, at this time, our resources and size prevent us from being able to employ sufficient resources to enable us to have adequate segregation of duties within our internal control system. The Company intends to remedy the material weakness by hiring additional employees and reallocating duties, including responsibilities for financial reporting, among the Company’s employees as soon as the Company has the financial resources to do so. Management is required to apply judgment in evaluating the cost-benefit relationship of possible changes in our disclosure controls and procedures.
Changes in internal controls
There were no changes in the small business issuer’s internal controls over financial reporting identified in connection with the company evaluation required by paragraph (3) of Rule 13a-15 or Rule 15d-15 under the Exchange Act that occurred during the small business issuer’s fiscal year that has materially affected or is reasonably likely to materially affect the small business issuer’s internal control over financial reporting
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings
The Company is currently negotiating settlements with vendors and debt holders for amounts currently outstanding. As of September 30, 2008 and March 31, 2008, the Company has recognized the full liability for all amounts that are due.
On December 1, 2004, a judgment was entered against Internet Ventures, Inc., the predecessor Company, in favor of Catherine and Joe Santistevan in the amount of $1,367,500. On September 30, 2006 a confidential Settlement Agreement and Release was entered by and among Joe and Catherine Santistevan and IVI Communications, Inc., successor in interest defendant Internet Ventures, Inc., to set aside the default judgment entered against Internet Ventures, Inc in the amount of $1,367,500. Under the terms of the agreement IVI Communications will pay the Santistevans a total four hundred and fifty thousand dollars ($450,000), to settle a claim of $1,367,500. If IVI Communications, Inc. defaults on the agreement a judgment would be entered by stipulation in the amount of $1,367,500. As of September 30, 2008 and March 31, 2008 the balance on this settlement is $448,675.
On October 7, 2005, a Complaint for Damages was filed in Superior Court of the State of California, County of San Joaquin, Case No. CV027700, by Annette S. Paoletti as Successor Trustee of the Clare P. Evelyn B. McEnerney Family Trust. No dollar amount was stated, but a note payable and accrued interest in the amount of $263,403 was recorded in notes payable and interest on notes payable. On March 31, 2007 a confidential Settlement Agreement was reached between Paoletti and The Company. Under the terms of the agreement IVI Communications, Inc. will pay the Paolettis a total of $110,000. If IVI Communications, Inc. defaults on the agreement a judgment would be entered by stipulation in the amount of $143,000 minus any amounts actually paid. As of September 30, 2008 and March 31, 2008, the balance on this settlement is $110,000.
The Company has six default judgments against it for a total amount of $146,504. The amounts are recorded in other liabilities and contingencies.
During the fiscal year ending March 31, 2008, on advice of legal counsel, the Company realized income in the amount of $215,730 for the forgiveness of debt for notes, debentures and vendor payables.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On April 4, 2008, the debenture holder converted $1,547 of principal for 22,750 shares of common stock; the conversion price was $.000170, 90% of the lowest closing bid price during the prior 30 days.
On April 4, 2008, the debenture holder converted $1,615 of principal for 23,750 shares of common stock; the conversion price was $.000170, 90% of the lowest closing bid price during the prior 30 days.
On April 4, 2008, the debenture holder converted $1,615 of principal for 23,750 shares of common stock; the conversion price was $.000170, 90% of the lowest closing bid price during the prior 30 days.
On April 10, 2008, 35,178 shares valued at $7,458 were issued to convert a note.
On April 14, 2008, 36,933 shares valued at $8,421 were issued to convert a note.
On April 16, 2008, the debenture holder converted $1,700 of principal for 25,000 shares of common stock; the conversion price was $.000170, 90% of the lowest closing bid price during the prior 30 days.
On April 18, 2008, the debenture holder converted $1,853 of principal for 27,250 shares of common stock; the conversion price was $.000170, 90% of the lowest closing bid price during the prior 30 days.
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On April 25, 2008, the debenture holder converted $1,955 of principal for 27,750 shares of common stock; the conversion price was $.000170, 90% of the lowest closing bid price during the prior 30 days.
On April 25, 2008, 85,807 shares valued at $16,475 were issued to convert a note.
On April 25, 2008, 16,892 shares valued at $3,243 were issued to convert a note.
On April 30, 2008, the debenture holder converted $2,040 of principal for 30,000 shares of common stock; the conversion price was $.000170, 90% of the lowest closing bid price during the prior 30 days.
On May 2, 2008, the debenture holder converted $627 of principal for 9,227 shares of common stock; the conversion price was $.000170, 90% of the lowest closing bid price during the prior 30 days.
On June 17, 2008, a debenture holder forgave the remaining $19,405 owed to them.
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders - None
No matters were submitted to a vote of our security holders during the six months ended September 30, 2008.
Item 5. Other Information
Changes in Control of Registrant
On June 17, 2008, Titan Global Holdings entered into separate stock purchase agreements with Mr. Charles J. Roodenburg Chief Executive Officer, President and Chairman of the Board of Directors of IVI Communications, Inc., Mr. Nyhl Henson and Mr. Robin Tjon. Pursuant to these stock purchase agreements, Titan Global Holdings acquired 4,000,000 shares of series A preferred stock of the Company, $.001 par value per share and 1,000,000 shares of series B preferred stock of the Company, $.001 par value per share, for a total purchase price of Thirty Dollars ($30.00). As a result of these transactions, Titan Global Holdings owns 100% of the Series A Shares issued and outstanding and 100% of the Series B Shares issued and outstanding. Furthermore as a result of these transactions and the voting preferences underlying the acquired Preferred Shares, as detailed below, the Purchaser owns 4,000,000 issued and outstanding voting shares underlying the Series A Shares and 51% of the vote required to approve any action of the Company under the Series B Shares, and may be deemed in control of the Company.
For a more detailed description of the Change of Control of Registrant please see the Company’s filing on Form 8-K filed with the SEC on June 23, 2008.
Change of Management
On June 17, 2008, Charles Roodenburg, resigned as an officer and a director the Company, effective immediately. Mr. Roodenburg had served as the President and Chief Executive Officer of the Company as well as Chairman of the Board of Directors.
On June 17, 2008, the Company appointed Kurt Jensen to serve as the President and Secretary of the Company and David Marks and Bryan Chance to serve as directors of the Company.
For a more detailed description of the Change of Management please see the Company’s filing on Form 8-K filed with the SEC on June 23, 2008.
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Entry into a Material Definitive Agreement
On June 25, 2008, the Company entered into a Loan and Security Agreement by and between the Company and Titan Global Holdings, Inc., a Utah corporation, pursuant to which Titan Global Holdings will provide funds of up to One Hundred Thousand dollars ($100,000) from time to time upon the written request of the Company to Titan Global Holdings. The lending of any such funds shall be in the sole discretion of Titan Global Holdings and shall be dependent among other thing on receipt of the following, all of which shall be to the satisfaction of Titan Global Holdings: detailed use of proceeds, budget, timelines for application of proceeds and milestone requirements.
For a more detailed description of the Change of Management please see the Company’s filing on Form 8-K filed with the SEC on June 30, 2008.
Item 6. Exhibits
EXHIBIT NUMBER TITLE OF EXHIBIT
2.10 Agreement and Plan of Reorganization(2)
2.20 Certificate of Amendment to Articles of Incorporation(2)
2.30 Certificate of Amendment to Articles of Incorporation increasing authorized shares of common stock (6)
2.40 Business Purchase Agreement Between IVI Communications, Inc., Internet Business Consulting, Inc.and AppState.Net, Llc.(9)
2.50 Purchase Agreement between IVI Communications, Inc. and Francis and Lois Allen (11)
2.60 Purchase Default Seller Exercising Remedies dated February 1, 2007 (18)
3.10 Articles of Incorporation(2)
3.20 Bylaws (2)
3.30 Certificate of Designation, Powers, Preferences and Rights of Series A Preferred Stock, filed with the State of Nevada on March 20, 2006 (12)
3.40 Certificate of Designation, Powers, Preferences and Rights of Series B Preferred Stock, filed with the State of Nevada on March 12, 2007 (17)
4.10 2005 Employee Stock Compensation Plan (3)
4.20 Amended 2005 Employee Stock Compensation Plan (7)
4.30 Convertible Debenture dated March 27, 2006 (13)
4.40 Warrant CCP-001 dated March 27, 2006 (13)
4.50 Warrant CCP-002 dated March 27, 2006 (13)
9.00 Voting Trust Agreement(2)
10.10 Employment Agreement for Nyhl Henson dated May 1, 2001(2)
10.2 A & B Sale Agreements for California ISPs(2)
10.30 Sale Agreement for Oregon ISPs (2)
10.40 Purchase Agreement for Quik Communications (2)
10.50 Sale Agreement for Colorado ISPs(2)
10.6 A B & C Settlement Agreements with Quik Communications (1)
10.70 Stock Exchange Agreement IVIC and Broadspot World Wide Wireless (5)
10.80 Consulting Contract with Keith Jablon dated July 1, 2004 (6)
10.90 Consulting Contract with Big Apple Consulting USA, Inc. dated July 6, 2004 (6)
10.10 Advisory Agreement with Hunter Wise, LLC dated August 17, 2004
10.11 Agreement with The Research Works dated August 31, 2004
10.12 Stock Purchase Agreement between IVIC and Seaside Investments PLC dated August 16, 2004 (8)
10.13 Consulting Contract between IVIC and James Farinella dated August 15, 2005 (10)
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10.14 Consulting Contract between IVIC and 729759 Alberta Ltd. dated September 19, 2005 (10)
10.15 Channel Partner Agreement between IVIC and TeleMedium Corporation dated October 11, 2005 (10)
10.18 Securities Purchase Agreement, dated March 27, 2006.(13)
10.19 Investor Registration Rights Agreement dated March 27, 2006 (13)
10.20 Pledge and Escrow Agreement (Issuer) dated March 27, 2006(13)
10.21 Pledge and Escrow Agreement (Insider) dated March 27, 2006 (13)
10.22 Pledge and Escrow Agreement (Insider) dated March 27, 2006(13)
10.23 Security Agreement dated March 27, 2006 (13)
10.24 Subsidiary Security Agreement dated March 27, 2006 (13)
10.25 Subsidiary Security Agreement dated March 27, 2006 (13)
10.26 Subsidiary Security Agreement dated March 27, 2006 (13)
10.27 Irrevocable Transfer Agent Instructions (13)
10.28 Pledge and Escrow Agreement Termination dated July 13, 2006 (15)
10.29 Consulting Contract between IVIC and Big Apple Consulting USA, Inc. (16)
10.30 Form of Stock Purchase Agreement entered into by and between Titan Global Holdings, Inc. and Charles Roodenburg (19)
10.31 Form of Stock Purchase Agreement entered into by and between Titan Global Holdings, Inc. and Nyhl Henson (19)
10.32 Form of Stock Purchase Agreement entered into by and between Titan Global Holdings, Inc. and Robin Tjon (19)
10.33 Form of Loan and Security Agreement entered into by and between IVI Communications, Inc. and Titan Global Holdings, Inc. (20)
14.00 Code of Ethics (2)
16.10 Malone & Bailey, PLLC letter on change in accountants(4)
21.00 Subsidiaries of IVI Communications, Inc. (14)
23.10 Consent of Sichenzia Ross Friedman Ference LLP (14)
23.20 Consent of Bagel, Josephs & Company, LLC (14)
(1) Incorporated by reference to the exhibits filed in the Company’s Form 10QSB/A filed on March 8, 2004, File No 00032797
(2) Incorporated by reference to the exhibits filed in the Company’s Form 10KSB/A filed on March 8, 2004, File No 000-32797
(3) Incorporated by reference to the exhibits filed in the Company’s Form S-8 on June 29, 2004, File No 333-116954
(4) Incorporated by reference to the exhibits filed in the Company’s Form 8-K filed on July 7, 2004, File No 000-32797
(5) Incorporated by reference to the exhibits filed in the Company’s Form 10KSB filed on July 14, 2004, File No 000-32797
(6) Incorporated by reference to the exhibits filed in the Company’s Form 10QSB filed on August 16, 2004, File No 000-32797
(7) Incorporated by reference to the exhibits filed in the Company’s Form S-8 on November 11, 2004, File No 333-120231
(8) Incorporated by reference to the exhibits filed in the Company’s Form 10QSB filed on November 15, 2004, File No 000-32797
(9) Incorporated by reference to the exhibits filed in the Company’s Form 8-K filed on February 4, 2005,File No 000-32797
(10) Incorporated by reference to the exhibits filed in the Company’s Form 10QSB filed on November 21, 2005, File No 000-32797
(11) Incorporated by reference to the exhibits filed in the Company’s Form 8-K filed on February 21, 2006, File No 000-32797
(12) Incorporated by reference to the exhibits filed in the Company’s Form 8-K filed on March 24, 2006, File No 000-32797
(13) Incorporated by reference to the exhibits filed in the Company’s Form 8-K filed on March 31, 2006, File No 000-32797
(14) Incorporated by reference to the exhibits filed in the Company’s Form SB-2 filed on April 19, 2006, file No. 333-133409
(15) Incorporated by reference to the exhibits filed in the Company’s Form SB-2 filed on July 25, 2006, 2006, file No. 333-133409
(16) Incorporated by reference to the exhibits filed in the Company’s Form 8-K filed on September 15, 2006, File No 000-32797
(17) Incorporated by reference to the exhibits filed in the Company’s Form 8-K filed on March 14, 2007, File No 000-32797
(18) Incorporated by reference to the exhibits filed in the Company’s Form 8-K filed on May 31, 2007, File No 000-32797
(19) Incorporated by reference to the exhibits filed in the Company’s Form 8-K filed on June 23, 2008, File No 000-32797
(20) Incorporated by reference to the exhibits filed in the Company’s Form 8-K filed on June 30, 2008, File No 000-32797
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SIGNATURES
Pursuant to the requirements of section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: November 14, 2008 By: /s/ Kurt Jensen
Kurt Jensen
Chief Executive Officer and Interim Principal Accounting
Officer and Interim Principal Financial Officer
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EXHIBIT 31.1
CERTIFICATION
I, Kurt Jensen, certify that:
1. I have reviewed this quarterly report on Form 10-Q of IVI Communications, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions);
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
November 14, 2008 /s/ Kurt Jensen
Kurt Jensen
Chief Executive Officer and Chief Financial Officer
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of IVI Communications, Inc. (the "Company") on Form 10-Q for the quarter ended September 30, 2008 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Kurt Jensen, Chief Executive Officer and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities and Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
November 14, 2008 /s/ Kurt Jensen
Kurt Jensen
Chief Executive Officer& Chief Financial Officer
Thanks to mgland, who posted it on your other board.
GLCP R/S
Posted by: mgland Date: Friday, November 14, 2008 2:12:37 PM
In reply to: None Post # of 6924
GLCP. 1-10,000
Frankie is consistant.
http://www.otcbb.com/asp/dividend.asp?sym_id=GLCP&dDate=11/17/2008&sDateType=ex_date
Thank you for your reply. I did not ask about the portion of the statement that the word "probably" was related to; I asked about the portion that did not contain the word "probably"
If you meant for the word "probably" to refer to both portions of the statement, then I understand - you had me worried that we definitely were in trouble this year.
SIVC wont run until 2009, delay PR's will probably continue
Welcome to IHUB! I am flattered that 50% of your 4 posts are dedicated to SIVC. Please post the link or other DD to support your statement that SIVC wont run until 2009. Are you an insider?
MOVT - Gail, the volume for 10/28 was 37M. How could that be if the O/S is only 40M? Should I be thinking dilution? The vol for 10/29 was 21M.