2
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB/A
Third Amendment
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[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE
ACT OF 1934
For the transition period from __________ to
__________
COMMISSION FILE NUMBER: 000-32635
GROUP MANAGEMENT CORP.
(Name of Small Business Issuer in its Charter)
DELAWARE 59-2919648
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
101 Marietta St. Suite 1070 Atlanta, GA 30303
ADDRESS OF PRINCIPAL EXECUTIVE OFFICES
(404) 522-1202
(Issuer's telephone number,
including area code)
Securities registered under Section 12(b) of the Exchange
Act: NONE
Securities registered under Section 12(g) of the Exchange
Act: COMMON
Check whether the issuer: (1) filed all reports
required to be filed by Sections 13 or 15(d) of the
Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such
reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Check if there is no disclosure of delinquent
filers in response to Item 405 of Regulation S-B
contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal
year: $0.0 for the year ended December 31, 2002.
As of May 9, 2003, the aggregate market value of the
common stock of the issuer held by non-affiliates, based
on the average bid and asked price of the common stock as
quoted on the OTC Bulletin Board, was $362,730. As of May
9, 2003, 60,455,000 shares of common stock of the
issuer were outstanding.
Transitional Small Business Disclosure Format: Yes [ ]
No [X]
This second amendment is being made to amend and correct the
certification language of the SARBANES-OXLEY ACT OF 2002, and to
correct other clerical errors.
Group Management Corp.
Form 10-KSB
Table of Contents
Part I
ITEM 1. DESCIPTION OF BUSINESS
OVERVIEW
PORTFOLIO COMPANIES
PENDING ACQUISITIONS
BUSINESS STRATEGY
EVALUATION OF POTENTIAL ACQUISITIONS
COMPETITION
INTELLECTUAL PROPERTY
EMPLOYEES
FORWARD-LOOKING STATEMENTS
ITEM 2 DESCRIPTION OF PROPERTY
ITEM 3. LEGAL PROCEEDINGS
SWAN MAGNETICS, INC.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS
PART II
ITEM 5 MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
MARKET PRICE INFORMATION
DIVIDENDS
RECENT SALES OF UNREGISTERED SECURITIES
ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATIONS
OVERVIEW
RESULTS OF OPERATIONS
COMPARISON OF THE YEARS ENDED DECEMBER 31, 2001
AND
DECEMBER 31, 2000
LIQUIDITY AND CAPITAL RESOURCES
GOING CONCERN CONSIDERATION
RISK FACTORS
RISKS ASSOCIATED WITH OUR BUSINESS
ITEM 7. FINANCIAL STATEMENTS
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
PART III
ITEM 9 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a)
DIRECTORS AND EXECUTIVE OFFICERS
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING
COMPLIANCE
ITEM 10. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
EMPLOYMENT AGREEMENTS
2000 OMNIBUS SECURITIES PLAN
OPTION GRANTS
OPTION EXERCISES AND OPTION VALUES
COMPENSATION OF DIRECTORS
ITEM 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
ITEM 12 CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
INDEX TO FINANCIAL STATEMENTS
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
OVERVIEW
We were incorporated in Florida in 1987 under the name Sci Tech
Ventures, Inc. We changed our name to Strategic Ventures,
Inc. in May 1991 and to Internet Venture Group, Inc. in
October 1999. In March 2001, we were merged into IVG Corp., a
Delaware corporation. As a result of the merger, we were
reincorporated in Delaware and our name was changed to IVG
Corp. In December 2001 we changed our name to Group
Management Corp.
We are currently undergoing a restructuring of the operations of
the company.
We have substantially reduced the operation of the company in the
restructuring.
We currently have one employee, Lamar Sinkfield, our CEO who is
currently unpaid. We believe that after the company is
restructured, it will be in position to assess acquisition and
merger opportunities. However, there can be no assure that the
restructuring will be successful.
Swan Magnetics, Inc., developer of a proprietary ultra-high
capacity floppy disk drive technology and the owner of 46% of
the common stock of iTVr, Inc., which is developing next
generation digital video recording technology. As of March 2002,
we have sold our interest in Swan to concentrate on our business
services model. Currently we are registered as a business
development company under Form N54-A. As a business development
our business objective is to promote and develop businesses that
can benefit from have a public profile.
As used in this report, the words "we," "us," "our" and "the
company" refer to Group Management Corp.; our subsidiary Cyber
Coupons.com, Inc.; and our division, GeeWhizUSA.com.
PORTFOLIO COMPANIES
We currently do not have any portfolio companies. The Geewhiz,
Inc. subsidiary was spun-off to shareholder on November 20, 2003.
Geewhiz, Inc. is its own separately incorporated company, with
its own management.
On January 23, 2002, the Company announced the signing of an
Alliance agreement with UTEK Corporation. The goal of the
Alliance is to have UTEK identify suitable technology
acquisition opportunities for GeeWhiz. UTEK is an
innovative technology transfer company dedicated to building
bridges between university-developed technologies and
commercial organizations. UTEK identifies, licenses and
finances the further development of new technologies and the
transfers them to growing companies. The company and UTEK
Corp entered into a technology assessment agreement where UTEK
was to locate and assess technology opportunities in governmental
and university laboratories for the compensation of 114,276
restricted common shares of GPMT.
On January 24, 2002, the Company announced that GeeWhiz has
appointed Kenneth Simpson as its new Vice President of Sales.
Mr. Simpson will oversee the entire marketing and sales
strategy at GeeWhiz. Mr. Simpson currently is no associated
with the company.
SWAN MAGNETICS
On September 28, 2000, we acquired approximately 88.5% of Swan
Magnetics, Inc., a Santa Clara, California-based developer of
proprietary ultra-high capacity floppy disk drive technology.
As part of a two-step purchase transaction, we first exchanged
1,000,000 shares of our common stock for approximately 88.5% of
the common stock of Swan Magnetics. We then offered to exchange
the common stock received by those stockholders for warrants to
purchase our common stock at an exercise price equal to $1.75.
This permitted us to reduce the number of shares we were issuing
in the Swan acquisition. Stockholders exchanged an aggregate of
454,590 shares of common stock for warrants to purchase our
common stock. A vote of our shareholders was not required to
effect this acquisition. Neither party obtained a fairness
opinion in connection with this transaction. Eden Kim was the
principal shareholder and President of Swan Magnetics at the time
of the transaction. During this time, Mr. Kim was also our
Chairman and Secretary. Elorian Landers, our Chief Executive
Officer and director, and Thomas L. McCrimmon, our
director, were principal shareholders at the time of this
acquisition. We believe the Swan Magnetics shareholders
engaged in these transactions principally because of the
economic terms, the additional liquidity offered by becoming
shareholders of a publicly-traded company, and the
opportunity to participate in a broader business. We approved
these transactions primarily because Swan Magnetics possessed
$5.4 million in cash that could assist us in financing our
business strategy, and because we intended to market Swan
Magnetics' proprietary technology. We initially intended to
pursue strategic alliances with manufacturers of similar products
and services in order to bring the Swan Magnetics' technology to
market. Subsequent to the closing of our acquisition, however,
we determined to pursue other revenue-producing activities.
Swan Magnetics Acquisition:
The transaction of the acquisition of Swan Magnetics was not an
arms length transaction. Eden Kim was the Chairman of the Board
and a director of GPMT and the president and a director of Swan
Magnetics when the acquisition occurred. We incorporate by
reference Form 8-k filed by the company November 11, 2001, note #
1. We further incorporate by reference Form 8-k filed by the
company on May 2, 2002, Item # 5.
See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
In November 2000, Swan entered into a Research and Development
Agreement with iTVr, Inc. to further develop technology intended
to record, play back and time-shift certain broadband electronic
transmission events such as live television, video email, and
music videos. The initial development fee of $250,000 was paid
and expensed in 2000. The agreement required iTVr to provide
certain deliverables prior to December 31, 2000 and, upon
completion of an evaluation of those deliverables, to determine
whether to provide additional funding. As a result of this
evaluation, an additional development fee of $500,000 was made to
iTVr in January 2001. The agreement also requires Swan to use its
best efforts to pursue additional financing for iTVr of up to $2
million. The initial funding of $250,000 was convertible into 2
million shares of common stock of iTVR within 60 days of the
completion of the initial development phase. In addition, The
initial development fee of $500,000 was convertible into $1
million shares of common stock of iTVR and a cashless warrant to
acquire an additional 1 million shares of common stock at no
additional cost if an additional investment of at least $2
million is arranged for by Swan. Swan exercised its conversion
rights related to the $750,000 funding and received 3 million
shares of common stock of iTVr in February 2001. This represents
a 46% ownership in iTVr. The additional $2 million financing, if
acquired, will also be convertible into 2.5 million shares of
commons tock of iTVr by the lender.
Sale of Swan Magnetics. The short history of this Company's
merger with Swan and the problems that ensued is as follows. At
all relevant times prior to June 30, 2001, Eden Kim was the
Chairman of the Board and President of Swan. He was also Chairman
of the Board of the Company. After the Company purchased 88.5% of
the stock of Swan, and while Kim remained the Chairman of the
Board of both Swan and the Company, all the needed financial and
other information of Swan was provided to the Company. This
information was used for the continued management of Swan and for
the requisite SEC filings. A dispute with Kim arose in June 2001
and Kim resigned as the Chairman of the Company. Kim remained the
President and Chairman of Swan. Thereafter, although Kim
continued to agree to provide the Company audited financial
statements and other information of Swan he in fact never did.
There were numerous requests, both telephonically and written, to
Kim requesting and demanding audited financials and other
pertinent information regarding Swan. However, despite continued
promises to do so, the information was never provided. On
February 26, 2002, the Company terminated Kim as the President
and Chairman of the Board of Swan. On March 6, 2002 we sold
our 88.5% interest in Swan Magnetics, Inc. to Lumar Worldwide
Industries, Inc. for a promissory note for $2,500,000.
Best Staff Services, Inc. Acquisition:
The company and Best Staff services, Inc entered into a letter of
intent for the company to acquire a 45% interest in Best Staff.
The letter of intent was terminated due to the Shelley Group's
withdrawal of their representation and their inability to raise
capital for the acquisition.
The material terms of the letter of intent were:
1)Structure, The Acquisition shall be structured as either a
Merger between Acquiror and the Company, an Asset Purchase Of
certain assets of the Company, or a Stock Purchase of all of
the issued and outstanding capital stock of the Company.
2)Purchase Price. The aggregate purchase price in the
Acquisition (the "Purchase Price") will be payable at Closing
(as defined below) by Acquiror in the amounts set forth below:
a)Purchase Price is based on six times annual after tax
earnings of $500,000 estimated to be $3,000,000. GPMT agrees
to a minimum purchase price of $2,000,000.
b)Cash $450,000. The cash portion to be distributed over a
period not to exceed 120 days following closing. The
schedule for the cash payment will be 53% of the cash raised
by GPMT as it is received from funding sources,
c)A total of 1,425,000 GPMT restricted shares will be issued
upon closing
representing a value of $2,550,000.
d)An option to purchase 250,000 shares of GPMT common stock
(the "Option"), at an exercise price equal to the closing
price of the GPMT common stock, as quoted on the over-the-
counter bulletin board on the Closing Date, where 50% shall
be vested immediately and the balance to vest over the next
12 months. These options are to be for distribution to the
owners and key management at the discretion of the Owners.
The company entered into an informal relationship with
Applied Behavioral Sciences, LLC
for the purpose of providing behavioral testing to determine
the productivity of job applicants. Their testing would have
added services to the human resource group. Once the
acquisitions with Best Staff was terminated, the
relationship with Applied Behavior was also terminated.
BUSINESS STRATEGY
The company's business strategy is currently to organize or
acquire an interest in promising companies and take these
companies public either through a reverse merger or an initial
public offering of the stock of the private company. Once the
private company is publicly traded, a portion of the stock
retained by the company will be spun-off to the shareholders of
the company.
EVALUATION OF POTENTIAL ACQUISITIONS
Currently the company is undergoing an organizational
restructuring. We have substantially reduced our operations to
reduce our operating costs. We currently have one unpaid
employee, Lamar Sinkfield, our CEO. We have relocated our
corporate offices to Atlanta, GA to save additional costs. Upon
the completion of the organizational restructuring, we will be in
position to assess merger and acquisition candidates. However,
there can be no assurances the restructuring will be successful.
DEVELOPING A SUCCESSFUL BUSINESS MODEL.
Any new company must develop a business model that eventually
makes money and provides a return on investment. Some companies
have focused on gaining market share or revenues without
regard to profitability. Until recently, some of these companies
were able to sustain this approach due, in large part, to the
tremendous run-up in their stock prices as investors flocked to
scoop up the newest Internet public offering. This high
valuation provided these companies with an Internet currency
that allowed them to grow through the acquisition of other
Internet companies or to raise working capital by issuing new
securities to the Internet-starved financial community.
COMPETITION
COMPETITION IN THE MERERS AND ACQUISITION INDUSTRY.
Competition within the mergers and acquisition industry is
highly fragmented and competitive, and some of our competitors
have substantially greater financial and other resources than we
do. Our ability to complete a deal is based on our ability to
persuade acquisition target to enter into a business transaction
with the company. However, there can be no assurance that a
target company will enter into a business transaction agreement
with the company.
INTELLECTUAL PROPERTY
The company currently has no intellectual property
EMPLOYEES
As of May 6, 2003, the company had 1 unpaid employee, Lamar
Sinkfield, our CEO. We believe our relationship with our
employees is good. None of our employees are a party to a
collective bargaining agreement.
FORWARD-LOOKING STATEMENTS
Except for historical information contained in this report,
the statements included in the Business section, Management's
Discussion and Analysis or Plan of Operations, including the
risk factors, and elsewhere in this report contain forward-
looking statements that are dependent upon a number of risks
and uncertainties that could cause actual results to differ
materially from those in the forward-looking statements. The
factors listed under "Risk Factors" in Item 6, as well as
cautionary language in this report, provide examples of risks,
uncertainties and events that may cause our actual results to
differ materially from the expectations we describe in our
forward-looking statements. We do not intend to provide
updated information about the matters referred to in these
forward-looking statements, other than in the context of
Management's Discussion and Analysis or Plan of Operations
contained in this report and other disclosures in the filings
we make with the Securities and Exchange Commission (the
"SEC").
ITEM 2. DESCRIPTION OF PROPERTY
Our principal executive offices are located as of December 17,
2002, at 101 Marietta St., Suite 1070, Atlanta, GA 30303. We
relocated to the Atlanta, GA area to reduce our office expense
costs. Currently we are sharing space with Rosenfeld, Goldman &
Ware, Inc, our legal counsel at no cost on a month to month
basis.
ITEM 3. LEGAL PROCEEDINGS
CONVERTIBLE NOTE HOLDERS. On February 2, 2001 we issued
$1.1 million of
convertible notes to four investors in a private placement.
The convertible notes mature on January 1, 2003 and bear
interest at the rate of 6% per year. The events of default
under the notes are described in this report under the section
captioned "Convertible Notes".
As part of the financing transactions involving the convertible
notes, we agreed to file a registration statement for the
resale by the note holders of the common stock underlying the
convertible notes and to have the registration statement
declared effective by June 17, 2001. The registration statement
was not declared effective by June 17, 2001 and has not been
declared effective as of the time of the filing of this
report.
On September 10, 2001 we entered into a Security Agreement with
the noteholders and certain of our shareholders, including
Elorian Landers, our Chief Executive Officer and a director, and
Thomas L. McCrimmon, a director. Under the Security Agreement,
Mr. Landers and his wife pledged 150,000 shares of our common
stock, Mr. McCrimmon pledged 10,900 shares of our common stock
and other shareholders pledged 89,250 shares of our common
stock, all as security for our obligations under the financing
agreements with the noteholders. As part of this agreement, the
note holders waived the default and penalties under the
convertible notes for failure to make the registration
statement effective by June 17, 2001, provided that we file an
amendment to the registration statement by October 20, 2001 and
cause the registration statement to be declared effective by
December 10, 2001. The note holders also lent us an additional
$55,000 and we signed a promissory note agreeing to repay this
amount by the earlier of December, 2001 or the occurrence of
an event of default under the Security Agreement.
On February 7, 2002, the convertible note holders declared a
default on the notes for failure to have the registration
statement declared effective and made demand for payment of the
convertible notes and promissory notes. In addition, the
collateral agent under the Security Agreement released 239,400
shares of our stock to the convertible note holders. The note
holders further requested that we deliver an opinion to our
transfer agent so that they would be able to sell in the public
markets under Rule 144 the shares released by the collateral
agent and have the shares reissued in the note holders' names.
One of the note holders has also submitted a notice to convert
a portion of its notes into our common stock. Because of
certain disputes with the note holders, we have not complied with
these requests.
On or about March 21, 2002, Alpha Capital
Aktiengesellschaft, Amro International, S. A., Markham
Holdings, LTD, and Stonestreet Limited Partnership, the
holders of the convertible notes, filed a complaint in United
States District Court for the Southern District of New York
naming us, Elorian Landers and his wife as defendants. In their
complaint, the note holders allege, the following:
fraud in connection with the sale of the convertible notes
resulting from alleged misrepresentations as to our cash
position;
breach of contract on the notes for failure to have
an effective registration statement covering the resale of the
common stock underlying the notes;
failure to honor conversion requests;
failure to repay the convertible notes and promissory
notes and ;
anticipatory breach of contract on the notes.
In their complaint, the noteholders assert monetary damages and
seek relief (i) in the amount of $1,155,000 plus interest,
liquidated damages and attorneys fees and other costs of
enforcement for the breach of contract on the notes, (ii)
unspecified monetary damages for failure to cause the
registration statement to be effective and failure to take the
steps necessary for the noteholders to sell the shares under
the Security Agreement pursuant to Rule 144, and (iii)
unspecified damages for failure to honor conversion notices.
In addition, the noteholders are seeking an order directing
us to (i) cause the registration statement to be effective,
(ii) to enforce conversion of the notes into common stock, and
(iii) to have us and the Landers take necessary actions to
permit plaintiffs to sell the common stock received from the
collateral agent under Rule 144.
SWAN MAGNETICS, INC.
In March 2002, the Company was served with a lawsuit brought by
Swan Magnetics, Inc. in the Superior Court of the State of
California, County of Santa Clara.
The only defendant in the action is the Company.
The Complaint alleges, that the Company breached its
obligations under a promissory note in the principal amount of
$2,843,017, that the Company has breached its obligations under
a series of settlement documents entered into between Swan and
the Company, and that the Company has interfered with
contractual relationships between Swan and certain third
parties. The total relief sought by Swan is $3,040,000, plus
interests, costs, and punitive damages.
In separate correspondence, Mr. Eden Kim has alleged that
the Company never owned a majority interest in Swan
Magnetics, Inc. The statement by Mr. Kim is solely his
statement alone and is not a statement by the company.
The Company is vigorously defending this lawsuit although the
Company believes that the action lacks merit. The case is at a
stage where no discovery has been taken and no prediction can
be made as to the outcome of this case.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
The were no issues submitted to vote of the shareholders during
2002.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
MARKET PRICE INFORMATION
Trading of our common stock commenced on the OTC Bulletin
Board on July 13, 2000. Our common stock is traded on the
OTC Bulletin Board under the symbol "GPMT." The reported high
and low bid prices for our common stock, as reported by the OTC
Bulletin Board, are shown below for the third quarter of 2000
through the fourth quarter of 2002. These over-the-counter
market quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission, and may not represent actual
transactions.
BID PRICE
Low High
2000
Third Quarter (pre split) . $ 1.50 $7.00
Fourth Quarter (pre split). $ 1.00 $2.31
2001
---------------------------
First Quarter (pre split) . $ 1.06 2.00
Second Quarter (pre split). $ 1.02 1.49
Third Quarter (pre split) . $ 0.08 1.22
Fourth Quarter (post split) $ 0.75 3.20
2002
---------------------------
First Quarter . . . . . . . $ 0.46 3.10
Second Quarter 0.10 2.80
Third Quarter 0.07 0.20
Fourth Quarter $0.0002 0.105
As of December 31, 2002, there were approximately 720 holders
of record of our common stock.
Market Manipulation
The company alleges that on January 9, 10, 11, 2002 the
plaintiff's in the litigation with the convertible debentures and
associates manipulated the common share price of the company's
stock in order for the plaintiff's to convert their debentures
into more common shares of the company's stock. One of the
company's market makers, Frankel & company entered a bid for
$0.29 per shares and held the bid at that level for a period of
three days. This closing bid price of $0.29 per share allowed
the plaintiff's to convert their debentures into more shares than
they were entitled.
DIVIDENDS
We have not paid any cash dividends to date and have no
intention to pay any cash dividends on our common stock in the
foreseeable future. The declaration and payment of dividends on
our common stock is subject to the discretion of our board of
directors and to certain limitations imposed under the
General Corporation Law of the State of Delaware. The
timing, amount and form of dividends, if any, will depend on
our results of operations, financial condition, cash
requirements and other factors deemed relevant by our board of
directors.
Penny Stock Disclosures:
PENNY STOCK. Until the Company's shares qualify for inclusion in
the Nasdaq system, the trading of the Company's securities, if
any, will be in the over -the-counter markets which are commonly
referred to as the "pink sheets" or on the OTC Bulletin Board. As
a result, an investor may find it more difficult to dispose of,
or to obtain accurate quotations as to the price of the
securities offered.
Effective August 11, 1993, the Securities and Exchange Commission
adopted Rule 15g-9, which established the definition of a "penny
stock," for purposes relevant to the Company, as any equity
security that has a market price of less than $5.00 per share or
with an exercise price of less than $5.00 per share, subject to
certain exceptions. For any transaction involving a penny stock,
unless exempt, the rules require: (i) that a broker or dealer
approve a person's account for
transactions in penny stocks; and (ii) the broker or dealer
receive from the investor a written agreement to the
transaction, setting forth the identity and quantity of the penny
stock to be purchased. In order to approve a person's account
for transactions in penny stocks, the broker or dealer must (i)
obtain financial information and investment experience and
objectives of the person; and (ii) make a reasonable
determination that the transactions in penny stocks are suitable
for that person and that person has sufficient knowledge and
experience in financial matters to be capable of evaluating the
risks of transactions in penny stocks. The broker or dealer must
also deliver, prior to any transaction in a penny stock, a
disclosure schedule prepared by the Commission relating to the
penny stock market, which, in highlight form, (i) sets forth the
basis on which the broker or dealer made the suitability
determination; and (ii) that the broker or dealer received a
signed, written agreement from the investor prior to the
transaction. Disclosure also has to be made about the risks of
investing in penny stock in both public offering and in secondary
trading, and about commissions payable to both the broker-dealer
and the registered representative, current quotations for the
securities and the rights and remedies available to an investor
in cases of fraud in penny stock transactions. Finally, monthly
statements have to be sent disclosing recent price information
for the penny stock held in the account and information on the
limited market in penny stocks. The National Association of
Securities Dealers, Inc. (the "NASD"), which administers NASDAQ,
has recently made changes in the criteria for continued NASDAQ
eligibility. In order to continue to be included on NASDAQ, a
company must maintain $2,000,000 in net tangible assets or
$35,000,000 in market capitalization or $500,000 net income in
latest fiscal year or 2 of last 3 fiscal years, a $1,000,000
market value of its publicly-traded securities and 500,000 shares
in public float. In addition, continued inclusion requires two
market-makers and a minimum bid price of $1.00 per share.
Management intends to strongly consider undertaking a transaction
with any merger or acquisition candidate, which will allow the
Company's securities to be traded without the aforesaid
limitations. However, there can be no assurances that, upon a
successful merger or acquisition, the Company will qualify its
securities for listing on NASDAQ or some other national exchange,
or be able to maintain the maintenance criteria necessary to
insure continued listing. The failure of the Company to qualify
its securities or to meet the relevant maintenance criteria
after such qualification in the future may result in the
discontinuance of the inclusion of the Company's securities on a
national exchange. In such events, trading, if any, in the
Company's securities may then continue in the over-the-counter
market. As a result, a shareholder may find it more difficult to
dispose of, or to obtain accurate quotations as to the market
value of, the Company's securities.
RECENT SALES OF UNREGISTERED SECURITIES
The company did not make any unregistered sales of its stock
during 2002.
Convertible Debenture Sale
On February 2, 2001, Alpha Capital Aktiengesellschaft, AMRO
International, S.A., Markham Holdings Ltd. and Stonestreet
Limited Partnership (the "investors") purchased from us an
aggregate $1,100,000 of our 6% convertible notes due 2003. Under
our agreement with the investors, we will be obligated to issue
additional shares of our common stock to them if the closing bid
price of our common stock is not equal to or greater than $2.374
for 10 consecutive trading days during the 180-day period
beginning on the effective date of this registration statement.
In consideration for their investment, we also issued the
investors warrants to purchase an aggregate of 275,000 shares of
our common stock at an exercise price of $1.647. In partial
consideration for serving as our financial advisor and private
placement agent in connection with the issuance of the notes, we
issued Union Atlantic Capital, L.C. a warrant to purchase 50,000
shares of our common stock at an exercise price of $1.647.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN
OF OPERATIONS
OVERVIEW
We were incorporated in Florida in 1987 under the name Sci Tech
Ventures, Inc., and changed our name to Strategic Ventures,
Inc. in May 1991 and Internet Venture Group, Inc. in October
1999 and to IVG Corp. in March 2002. Effective December 31,
1999, control of Internet Venture Group, Inc. was acquired by
shareholders of GeeWhiz.com, Inc., a Texas corporation. We
changed our name to Group Management Corp in December 2001.
We have expanded our business into other areas during 2000 and
2001 through a series of acquisitions. In September 2000, we
acquired 88.5% of the common stock of Swan Magnetics, Inc.,
developer of a proprietary ultra-high capacity floppy disk drive
technology (which we sold in March 2002). During 2001, Swan
Magnetics acquired 46% of the common stock of iTVr, Inc.,
which is developing next generation digital video recording
technology. In January 2001, we acquired 35% of the common
stock of CyberCoupons, Inc., a development stage company that
intends to be a source for consumers to obtain coupons for
grocery, health and beauty products over the Internet. We sold
our interests in Swan Magnetics in March 2002.
In April 2001, we acquired SES-Corp., Inc., a professional
employer organization pursuant to an Amended and Restated Asset
Purchase Agreement and Agreement and Plan of Merger (the "Merger
Agreement"). In the merger SES became a wholly owned subsidiary
of ours. The shares of SES common stock outstanding immediately
prior to the effective time of the merger were converted into
the right to receive 590,964 shares of our common stock.
500,000 shares of our common stock were to be placed in an
escrow account (the "Escrow Shares") to secure certain
indemnification obligations set forth in the Merger
Agreement. There was no prior affiliation between the officers
and directors of SES Corp and GPMT, prior to the acquisition.
Subsequent to our acquisition of SES, we became aware that SES
was the subject of an investigation by the Internal Revenue
Service relating to its actions prior to our acquisition of the
company. SES also had some of its bank accounts frozen by a
bank that claimed the accounts were overdrawn by over $30
million, and subsequently filed for bankruptcy protection.
In light of these developments, we entered into an agreement
with the two former shareholders of SES in August 2001 in which
we disposed of SES by exchanging all of the issued and
outstanding shares of SES for the Escrow Shares. Pursuant to
the terms of the Agreement, these shareholders each retained
45,482 shares of our common stock issued to them under the
Merger Agreement.
The cost of our acquisition and subsequent disposition of SES
was approximately $522,000. Additionally, we recorded stock
based compensation expense of approximately $2,300,000,
related to the approximately 90,000 shares of stock currently
held by the former shareholders of SES.
In re: Polar Maintenance Company, Inc,. Debtor; Simplified
Employment Services.
, v. v. Group Management Corp.; Adversary Proceeding No. 024734,
In the United States Bankruptcy Court for the Eastern District of
Michigan, Southern Division.
Cause No. 01-53170
The Plaintiff brought this adversary proceeding against the
company seeking damages pursuant to a promissory note. The
Company alleged the proceeds were tendered to the company as
consideration for the merger of SES with the Company.
At December 31, 2002, we had current assets of approximately
$0.0 and total assets of approximately $0.0.
RESULTS OF OPERATIONS
COMPARISON OF THE YEARS ENDED DECEMBER 31, 2002 AND
DECEMBER 31, 2001
Revenues decreased to $0.0 for the year ended December 31, 2002,
compared to $396,300 for the comparable period in 2001.
The decrease was attributable principally to the spin off of
operation to the Geewhiz, Inc subsidiary. Cost of goods sold
decreased to $0.0 from $356,071 for the same periods. The
decrease was attributable principally to the spin off of
operation to the Geewhiz, Inc subsidiary.
General and administrative expenses decreased to $461,598 from
$15,260,883. This decrease was due primarily to expenses for
shares issued in stock-based compensation and decreased costs due
contraction of our operations. We also recorded interest expense
of $0 and a depreciation of $0 during 2002.
Our net loss for the year ended December 31, 2002 was $461,598,
compared to a net loss of $15,218,679 for the year ended
December 31, 2001. The loss in 2002 is related primarily to
expenses for shares issued in legal services and consulting
contraction of Company operations. The larger loss in 2000 was
primarily related to the $18,039,591 expenses associated with the
shares issued in our acquisition of Swan Magnetics, which was
recorded as an expense for purchased in-process technology
on our statement of operations.
Because we were unable to complete the sale of the technology
prior to the development of more sophisticated technology
by competitors, it was determined post-acquisition that we
would be better served pursuing other revenue producing
activities.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $0.0 for the year ended
December 31, 2002 and $388,128 for the comparable period of 2001.
We had approximately $0 in cash at December 31, 2002.
Operations for the year ended December 31, 2002 were
financed principally through contractor receiving a stock based
compensation for their services. In addition, we obtained
services or paid expenses through the issuance of common
stock.
February 2, 2001 we issued $1.1 million of convertible
notes to four investors in a private placement. The
convertible notes mature on January 1, 2003 and bear interest at
the rate of 6% per year. If we do not pay amounts on the notes
when due, the outstanding amounts will bear interest at the rate
of 20% per year. At the noteholders option, all principal and
interest due on the notes becomes immediately due and payable
upon an event of default as set forth in the notes. The events of
default under the notes are described in this report under the
section captioned "Convertible Notes". Among the events of
default specified in the notes are the failure to pay any
amounts when due under a note and the continuation of such
nonpayment for 10 days. We did not make the interest payments
due on the notes on December 1, 2001.
As part of the financing transactions involving the convertible
notes, we agreed to file a registration statement for the
resale by the note holders of the common stock underlying the
convertible notes and to have the registration statement
declared effective by June 17, 2001. Further, we agreed that if
the registration statement was not declared effective by June 17,
2001, we would pay the note holders liquidated damages in
the amount of 1% per month of the principal of the notes for
the first 30 days and 2% per month thereafter. The registration
statement was not declared effective by June 17, 2001 and has
not been declared effective as of the time of the filing
of this report.
On September 10, 2001 we entered into a Security Agreement with
the note holders and certain of our shareholders, including
Elorian Landers, our Chief Executive Officer and a director, and
Thomas L. McCrimmon, a director. Under the Security Agreement,
Mr. Landers and his wife pledged 3 million shares of our
common stock, Mr. McCrimmon pledged 218,000 shares of our
common stock and other shareholders pledged 1,785,000 shares of
our common stock, all as security for our obligations under the
financing agreements with the note holders. As part of this
agreement, the note holders waived the default and penalties
under the convertible note relating to the failure to make
the registration statement effective by June 17, 2001,
provided that we file an amendment to the registration
statement by October 20, 2001 and cause the registration
statement to be declared effective by December 10, 2001. In
addition, the convertible note holders lent us an additional
$55,000 for which we executed a promissory note agreeing to repay
the $55,000 on the earlier of December 20, 2001 or on event of
default under the Security Agreement. The promissory note
has not yet been repaid.
On February 7, 2002, the convertible note holders declared a
default on the notes for failure to have the registration
statement declared effective and made demand for payment of the
convertible notes and promissory notes. In addition, the
collateral agent under the Security Agreement released 4,788,000
shares of our stock to the convertible note holders. The note
holders further requested that we deliver an opinion to our
transfer agent so that they would be able to sell in the
public markets under SEC Rule 144 the shares released by the
collateral agent and have the shares reissued in the note
holders' names. One of the note holders has also submitted a
notice to convert a portion of its notes into our common
stock. Because of certain disputes with the note holders, we
have not complied with these requests.
On or about March 21, 2002, the note holders filed a complaint
in federal court naming Elorian Landers, his wife and us as
defendants. In their complaint, the note holders allege, the
following: breach of contract on the notes for failure to have
an effective registration statement covering the resale of the
common stock underlying the notes, failure to honor conversion
requests and failure to repay the convertible notes and
promissory notes. In their complaint, the note holders assert
monetary damages and seek relief in the amount of $1,155,000
plus interest, liquidated damages and attorneys fees and other
costs of enforcement for the breach of contract on the notes,
unspecified monetary damages for failure to cause the
registration statement to be effective and failure to take the
steps necessary for the note holders to sell the shares under
the Security Agreement pursuant to Rule 144, and unspecified
damages for failure to honor conversion notices. In addition,
the note holders are seeking an order directing us to cause
the registration statement to be declared effective. The note
holders have also alleged fraud in connection with the sale of
the convertible notes.
We are presently seeking to obtain alternative financing
to repay the convertible notes and to work out an
arrangement with the note holders for resolution of these
matters. If we are not able to obtain alternative financing and
the note holders are successful in their action to collect on the
notes, we would be unable to make payment in full on the
notes and would consider all strategic alternatives available
to us, possibly including a bankruptcy, insolvency,
reorganization or liquidation proceeding or other proceeding
under bankruptcy law or laws providing for relief of debtors. It
is also possible that one of these types of proceedings could be
instituted against us. In any event, the convertible notes must
be repaid or refinanced by the original maturity date of January
1, 2003.
Management has taken steps to revise our operating and financial
requirements to accommodate our available cash flow,
including the temporary suspension of management and certain
employee salaries. As a result of these efforts, management
believes funds on hand, cash flow from operations and
additional issuance of common equity will enable us to meet
our liquidity needs for at least the foreseeable future. We
need to raise additional cash, however, in order to satisfy our
proposed business plan, to meet obligations, and expand our
operations. Management is presently investigating potential
financing transactions and acquisitions that management
believes can provide additional cash for our operations and be
profitable long-term. Management also intends to attempt to
raise funds through private sales of our common stock.
Although management believes that these efforts will enable
us to meet our liquidity needs in the future, there can be
no assurance that these efforts will be successful. In addition
any adverse outcome under either of the legal actions pending
against the Company could result in a material adverse effect
on the Company financial position and its ability to fund
obligations and operations and to raise additional capital.
GOING CONCERN CONSIDERATION
We have continued losses from operations, negative cash
flow and liquidity problems. These conditions raise substantial
doubt about our ability to continue as a going concern. The
accompanying financial statements do not include any adjustments
relating to the recoverability of reported assets or
liabilities should we be unable to continue as a going
concern.
We have been able to continue based upon our services providers
agreeing to accept our common stock as compensation for their
services. However, there can be no assurances the service
providers will continue to accept our stock as their
compensation.
Management believes that actions presently being taken to
revise our operating and financial requirements provide the
opportunity for us to continue as a going concern. Management is
presently investigating potential financing transactions and
acquisitions that management believes can provide additional
cash for the operations and be profitable in both the short
and long-term. Management also intends to attempt to raise
funds through private sales of our common stock. Although
management believes that these efforts will enable us to
meet our liquidity needs in the future, there can be no assurance
that these efforts will be successful.
RISK FACTORS
RISKS ASSOCIATED WITH OUR BUSINESS
IF WE ARE UNABLE TO IDENTIFY AND PURCHASE INTERESTS IN COMPANIES
THAT FIT WITHIN OUR BUSINESS PLAN, OUR BUSINESS STRATEGY WILL
NOT BE SUCCESSFUL.
Our success depends upon the ability of our managers to
identify and close the acquisition of equity interests in
companies that compliment our overall strategy and business
plan. No assurances can be given that we will be able to
identify complimentary companies that are interested in
completing transactions with us. Even if such prospects are
successfully identified, any number of factors could preclude us
from successfully completing the transactions, including the
failure to agree on terms, incompatibility of management
teams, competitive bids from other companies, lack of capital
to complete the transactions or unwillingness on the part of the
prospects. If we cannot acquire substantial equity interests in
attractive companies that fit within our business strategy, we
may not be successful.
WE FACE SUBSTANTIAL COMPETITION AND, IN MANY CASES, BETTER-
FINANCED COMPETITORS, WHICH MAY RESULT IN OUR INABILITY TO
CLOSE ACQUISITIONS.
The business of developing, acquiring and capitalizing
companies is highly competitive. Our competitors include
existing holding companies that have a longer operating
history, existing portfolios of professional employer
organizations, substantially greater financial resources and
an established market for their publicly traded securities. We
also face competition from venture capital companies,
investment banks, Internet holding companies and large
capitalization industrial companies with active investment and
venture capital divisions. There is no assurance that we
will be successful in finding suitable portfolio companies or
that such companies will want to be acquired by us. If we cannot
acquire suitable portfolio companies, we will not be able
to implement our business plan.
BECAUSE WE HAVE A HISTORY OF LOSSES AND EXPECT TO INCUR FURTHER
LOSSES, WE MAY BE UNABLE TO CONTINUE AS A GOING CONCERN.
Historically, we have incurred losses from operations, and
accumulated a deficit of $38,921,165 through December, 2002. Our
stockholders' deficit at June 30, 2001 was ($173,056). We
incurred losses of $291,831 and $21,146,313 for the years
ended December 31, 1999 and 2000, respectively. Our independent
accountants have included an explanatory paragraph in their
report on our financial statements stating that our
financial statements have been prepared assuming that we will
continue as a going concern, but a substantial doubt exists
as to our ability to do so because of these recurring losses
from operations and our net capital deficiency.
WE MAY INCUR SIGNIFICANT COSTS TO AVOID INVESTMENT COMPANY
STATUS AND WILL BE REQUIRED TO CHANGE THE WAY WE OPERATE IF
WE ARE DEEMED TO BE AN INVESTMENT COMPANY AT SOME POINT IN
THE FUTURE.
We may incur significant costs to avoid investment company
status and may suffer other adverse consequences if we are
deemed to be an investment company under the Investment Company
Act of 1940 (the "1940 Act"). Some of our equity investments in
other businesses may constitute investment securities under
the 1940 Act. A company may be deemed to be an investment
company if it owns investment securities with a value exceeding
40% of its total assets, subject to certain exclusions.
Investment companies are subject to registration under, and
compliance with, the 1940 Act unless a particular exclusion
or SEC safe harbor applies. If we were to be deemed an
investment company, we would become subject to the requirements
of the 1940 Act. As a consequence, we would be prohibited
from engaging in business or issuing our securities as we
have in the past. We might also be subject to civil and criminal
penalties for noncompliance. In addition, certain of our
contracts might be voidable, and a court-appointed receiver
could take control of us and liquidate our business.
Although management anticipates that our investment
securities will comprise less than 40% of our total assets,
fluctuations in the value of these securities or of our other
assets may cause this limit to be exceeded. Unless an exclusion
or safe harbor was available to us, we would have to
attempt to reduce our investment securities as a percentage of
our total assets. This reduction can be attempted in a number
of ways, including the disposition of investment securities
and the acquisition of non-investment security assets. If we
were required to sell investment securities, we may have to sell
some sooner than we otherwise would. These sales may be at
depressed prices and we may never realize the anticipated
benefits from, or may incur losses on, these investments. We may
not be able to sell some investments due to contractual or legal
restrictions or the inability to locate a suitable buyer.
Moreover, we may incur tax liabilities when we sell assets.
We may also be unable to purchase additional investment
securities that may be important to our operating strategy. If
we are required or decide to acquire non-investment security
assets, we may not be able to identify and acquire suitable
assets and businesses.
OUR WORKING CAPITAL REQUIREMENTS MAY CAUSE US TO SEEK
ADDITIONAL FINANCING IN THE NEAR-TERM, AND, IF SUCH
FINANCING IS UNAVAILABLE, WE MAY NOT BE ABLE TO IMPLEMENT OUR
BUSINESS PLAN.
Our working capital requirements and the cash flow provided by
future operating activities, if any, will vary greatly from
quarter to quarter, depending on the volume of business during
the period and payment terms with our customers. There can
be no assurance that adequate levels of additional financing,
whether through additional equity financing, debt financing
or other sources, will be available, or will be available when
needed or on terms favorable to us. Additional financings could
result in significant dilution to our existing stockholders or
the issuance of securities with rights superior to our current
outstanding securities. If adequate capital is not available
or is not available on acceptable terms, we may be unable to
fully implement our business plan, develop or enhance our
services, take advantage of future opportunities or respond to
competitive pressures on a timely basis, if at all. If we are
unable to obtain additional financing as needed, we may be
required to reduce the scope of our operations or our
anticipated expansion.
OUR STRATEGY OF EXPANDING OUR BUSINESS THROUGH ACQUISITIONS OF
OTHER BUSINESSES AND TECHNOLOGIES PRESENTS SPECIAL RISKS.
We intend to continue to expand through the acquisition of
businesses, technologies, products and services from other
companies. Acquisitions involve a number of special problems,
which we may not be capable of handling. Those problems
include, but are not limited to, the following:
difficulty integrating acquired technologies, operations
and personnel with our existing business;
diversion of management's attention in connection with
both negotiating the acquisitions and integrating the
businesses and assets;
potential issuance of securities in connection with the
acquisition, which securities dilute the current holders of
our outstanding securities;
strain on managerial and operational resources as
management tries to oversee larger operations;
exposure of unforeseen liabilities of acquired
companies; and
the requirement to record additional future operating
costs for the amortization of goodwill and other intangible
assets, which amounts could be significant.
ITEM 7. FINANCIAL STATEMENTS
Our audited Consolidated Financial Statements as of and for
the years ended December 31, 2002 and 2001 are included on
pages F-1 through F-20 of this report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE
EXCHANGE ACT.
DIRECTORS AND EXECUTIVE OFFICERS
The name, age and position of our executive officers and
directors are as follows:
Name Age Position
Lamar Sinkfield 44 Chief Executive Officer and Director
Our directors serve until the next annual meeting of our
shareholders and until their respective successors are elected
and qualified. Our officers serve at the pleasure of our board
of directors.
Lamar Sinkfield has served as our Chief Executive Officer and as
a director of the company since March 2003. He has also
served as a consultant to the Company since February 2003.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934
requires the Company's directors and executive officers and
persons who own more than ten percent of a registered class of
the Company's equity securities to file with the SEC initial
reports of ownership and reports of changes in ownership of
Common Stock and other equity securities of the Company.
Officers, directors and greater than ten percent shareholders
are required by SEC regulations to furnish the Company with
copies of all Section 16(a) forms they file.
To the Company's knowledge, none of the required parties are
delinquent in their 16(a) filings.
ITEM 10. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the summary of compensation
paid to our named executive officers and directors in fiscal
years 2001 through 2002. The "named executive officers" are our
chief executive officer, regardless of compensation, and our
only other executive officer who was serving as an executive
officer at December 31, 2002 and whose annual salary and
bonus exceeded $100,000. The company has not paid any
executive compensation to any officer or director since January
26, 2001.
ANNUAL COMPENSATION LONG TERM COMPENSATION AWARDS
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS SECURITIES
UNDERLYING ($) OPTIONS (#)
Lamar Sinkfield 2003 $0.0 $0.00 0.0
Elorian Landers 2002 $0.0 $0.00
2001 $220,000 $25,000 175,000
2000 $210,000 $0.0 0
EMPLOYMENT AGREEMENTS
Currently none of the employees of the company have entered into
an employment agreement.
2000 OMNIBUS SECURITIES PLAN
Our board of directors adopted our 2000 Omnibus Securities Plan
in October 2000. Under the plan, our employees, directors and
consultants may be awarded options to purchase our common
stock. We may also make awards of restricted common stock and
grant stock appreciation rights under the plan. The maximum
number of shares of common stock reserved and available for
issuance under the plan is 500,000, subject to certain
adjustments. We believe that the award of options, restricted
stock and stock appreciation rights will provide incentive to
key personnel as well as offer an attractive benefit for the
new managers that we must recruit. To date, 65,985 shares of our
common stock have been issued under the plan. The plan will be
presented to stockholders for approval at our next annual
meeting of stockholders. Awards that are made under the plan
prior to it being approved by our stockholders are subject to
such stockholder approval.
2002 OMNIBUS SECURITIES PLAN
Our board of directors adopted our 2002 Omnibus Securities Plan
in March 2002. Under the plan, our employees, directors and
consultants may be awarded options to purchase our common
stock. We may also make awards of restricted common stock and
grant stock appreciation rights under the plan. The maximum
number of shares of common stock reserved and available for
issuance under the plan during the first plan year is
500,000, subject to certain adjustments, and will increase to
ten percent (10%) of the outstanding common stock in
subsequent years. We believe that the award of options,
restricted stock and stock appreciation rights will provide
incentive to key personnel as well as offer an attractive
benefit for the new managers that we must recruit. As of March
31, 2002, no shares of stock or options have been
granted under the plan.
OPTION GRANTS
There were no option grants made to any of our employees during
the fiscal year.
COMPENSATION OF DIRECTORS
Other than being reimbursed for the expenses incurred in
attending meetings of the board of directors, members of our
board of directors do not receive cash compensation for their
services as a director.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth certain information regarding
the beneficial ownership of our common stock as of March 31,
2002, for the following: (1) each person who is known by us
to own beneficially five percent or more of our outstanding
common stock, (2) each of our directors and officers who
beneficially own such shares and (3) our officers and
directors as a group.
NAME OF BENEFICAL OWNER SHARES OF COMMON STOCK
BENEFICIALLY OWNED NUMBER PERCENT
INTENATIONAL FINANCIAL 3,000,00 5.0%
CORPORATION 0
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On September 28, 2000, we acquired approximately 88.5% of the
outstanding common stock of Swan Magnetics, Inc. Eden Kim,
the beneficial owner of 17.3% of our common stock and, until
July 1, 2001, our Chairman of the Board and Secretary, is the
Chairman of the Board and Chief Executive Officer of Swan
Magnetics. Prior to the acquisition of our majority interest
in Swan, we issued a secured convertible promissory note in
the original principal amount of $1,000,000 to Swan Magnetics in
connection with a loan by Swan Magnetics to us. Following the
acquisition of our majority interest in Swan Magnetics, we
borrowed additional funds from Swan Magnetics on several
occasions, some of which were evidenced by promissory notes.
These borrowings are secured by all of the capital stock and
holdings of the company in any other entity, collateral and
equipment, accounts receivable and other intangibles and
intellectual property of the company as evidenced by a Security
Agreement, dated July 18, 2000, between Swan Magnetics and the
company. In August 2001, all prior notes and advances from
Swan Magnetics, and an additional loan of $150,000, were
memorialized in a new note in the principal amount of
$2,843,017.33. This note is due on August 1, 2003, bears
interest at 8% per year, and is subject to the July 18, 2000
Security Agreement. Up to $1,000,000 of the principal on the note
is convertible into our common stock at a price of $2.00
per share.
In August 2001, we entered into a Voting Agreement with Swan
Magnetics, pursuant to which we agreed to amend the bylaws
of Swan to provide:
for a four person board of directors,
that the affirmative vote of three directors is required to
approve any board action,
that a 95% shareholder vote or a board action is required to
amend the bylaws, and
that the CEO could take certain actions without board
approval.
We further agreed to vote all shares of stock of Swan Magnetics
we own in favor of two directors nominated by us, the CEO of
Swan Magnetics, and one person nominated by the CEO of Swan
Magnetics. We agreed to cause our nominees to the Swan board to
approve an employment agreement with Eden Kim as CEO of Swan
Magnetics.
In August 2001, we also entered into a Settlement and General
Release Agreement with Swan Magnetics, pursuant to which we
agreed to enter into the note and Voting Agreement described
above. We also agreed to a mutual release of claims with Swan
Magnetics. Until February 2002, we agreed to permit any former
Swan Magnetics shareholder who received IVG common stock
or warrants in the transactions through which IVG acquired
its interest in Swan Magnetics to exchange his IVG shares and
warrants for Swan shares. We also agreed to use our best efforts
to register the common stock underlying the warrants issued to
the former Swan Magnetics shareholders in the above-
referenced transactions. On October 23, 2001, we received
requests on behalf of eleven former Swan Magnetics shareholders
to exchange their IVG shares and warrants for Swan Magnetics
shares held by us. We requested further documentation from
the requesting parties (including evidence of their authority to
act for the shareholders listed in the request letters and
surrender of their IVG stock certificates and warrant
certificates). If all of the shareholders listed in the request
letters exchange all of their IVG shares and warrants, our
outstanding shares would be reduced by approximately 6.2
million shares, and our ownership of Swan Magnetics common
stock would be reduced from approximately 88.5% to
approximately 33.3%.
A dispute has arisen between the Company and Eden Kim
arising out of Kim's refusal to produce adequate financial
statements, books, and records of Swan to the Company and its
auditors. The Company believes these actions are a breach of
the Voting Agreement and the Settlement Agreement and
General Release Agreement, and as a result removed all of the
Directors and Officers of Swan in February 2002, replacing them
with Elorian Landers, Clay Border, and Thomas L. McCrimmon. As
of the date of this filing, Mr. Kim has refused to acknowledge
his removal as a Swan Director and Officers, and has refused to
relinquish any of Swan's books and records.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
--- --------
EXHIBIT NO. TITLE
----------- -----
(b) Reports on Form 8-K
--- -------------------
The company hereby incorporates by reference the
current reports filed on:
Form Filed On
8-k January 13, 2003
8-k January 14, 2003
8-k January 17, 2003
8-k February 3, 2003
8-k March 18, 2003
8-k March 31,2003
Auditor's Report PAGE 27
Financial Statements PAGES 28-30
Consolidated Balance Sheets
Consolidated Statements of
Operations
Summary of Significant
Accounting Policies
Notes to the Financial PAGES 31-43
Statements
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Group Management Corp.
We have audited the accompanying consolidated balance sheet of
Group Management Corp. (a Delaware corporation) as of December
31, 2002, and the related consolidated statements of operations,
changes in stockholders' equity and cash flows for the two years
then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards
generally accepted in the United States of America. Those
standards required that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free from material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Group Management Corp. as of December 31, 2002, and the
results of its operations and its cash flows for the two years
then ended in conformity with accounting principles generally
accepted in the United States of America.
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. As described in Note 9 to the financial statements,
conditions exist which raise substantial doubt about the
Company's ability to continue as a going concern unless it is
able to generate sufficient cash flows to meet its obligations
and sustain its operations. Those conditions raise substantial
doubt about its ability to continue as a going concern. The
financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ Norman H. Ross, P.C.
________________________
NORMAN H. ROSS, PC
Certified Public Accountant
May 9, 2003
SEE EXHIBIT 99.3 FOR THE FINANCIAL STATEMENTS
See accompanying summary of accounting policies and notes to
financial statements
NOTE 1 - ORGANIZATION AND PRESENTATION
On March 9, 2001, IVG Corp changed its name from Internet Venture
Group, Inc. to IVG Corp. and its state of incorporation from
Florida to Delaware. The name change and reincorporation were
accomplished by merging Internet Venture Group, Inc., a Florida
corporation, into IVG Corp., a Delaware corporation formed for
the purpose of these transactions. Each issued and outstanding
share of common stock of Internet Venture Group, Inc. was
automatically converted in the merger into one share of common
stock of IVG Corp. The Company was incorporated in the state of
Florida on March 19, 1987 under the name Sci Tech Ventures, Inc.
and changed its name to Strategic Ventures, Inc. in May 1991.
On October 18, 1999, Strategic Ventures, Inc. changed its
name to Internet Venture Group, Inc. Effective December 31,
1999, the Company acquired all issued and outstanding shares of
GeeWhiz.com, Inc. (a Texas corporation) for 1,326,870 shares of
the Company's stock by the purchase method. For accounting
purposes, the acquisition was treated as a reverse acquisition
(a recapitalization of GeeWhiz.com), with GeeWhiz.com, Inc. as
the acquirer and Strategic Ventures, Inc. as the acquiree. The
acquisition qualified as a reverse acquisition because the
officers and directors of GeeWhiz.com assumed management control
of the resulting entity and the value and ownership interest
received by current GeeWhiz.com, Inc. stockholders exceeded
that received by Strategic Ventures, Inc. In December 2001,
the company changed its name to Group Management Corp (the
Company).
The Company is a Atlanta, Georgia based business development
company engaged primarily in the growth of privately held
businesses and taking those businesses public through the reverse
merger process and spinning off portions of the equities of
those businesses to its shareholders.
The Company's business strategy is to acquire, develop and
operate unique companies that are leaders in their commercial
niche by virtue of a compelling business model, technology and/or
proprietary service.
The Company provides a value-added corporate structure intended
to enable its portfolio companies to quickly leverage their
expertise and deploy their business strategy by utilizing the
management, financial and corporate resources of the Company.
On September 28, 2000, the Company acquired ownership of
approximately 88.5% of the issued and outstanding common
stock of Swan Magnetics, Inc. (a California corporation), for
shares of the Company's stock. Swan Magnetics, Inc., (Swan)
which operates as a majority-owned subsidiary of the Company,
is involved in the development of a proprietary ultra-high
capacity, floppy disk drive technology. The transaction was
accounted for under the purchase method. See Note 11. The
Company sold its 88.5% interest in swan in March 2002.
Sale Of Division
On November 20, 2002 the company sold its Geewhiz division for
1,500,000 shares of a subsequently incorporated Geewhiz, Inc.
Geewhiz, Inc. acquired the operations of the company, and all
liabilities except the convertible debenture liability of
$1,100,000.
Note 1 - continued
During October of 2002, the company changed its focus to increase
shareholder value from the human resources line of business to
mergers and acquisitions of privately held businesses or the
internal creation of businesses in the entertainment, technology,
and financial services industry.
The Company's fiscal year-end is December 31.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These financial statements are presented on the accrual method of
accounting in accordance with generally accepted accounting
principles. Significant principles followed by the Company and
the methods of applying those principles, which materially affect
the determination of financial position and cash flows, are
summarized below:
Principles of Consolidation
The Company's consolidated financial statements as of and for
the year ended December 31, 2002 and 2001 reflect its
operations on a consolidated basis and include the accounts of
the Company, including its divisions, and its majority-
owned subsidiary. All significant inter-company accounts
and transactions have been eliminated.
Cash and Cash Equivalents
The Company considers all highly-liquid debt instruments
purchased with an original maturity of three months or less to
be cash equivalents. This amount is not consolidated in 2002.
Inventories
Inventories are stated at cost, determined using the first-in,
first-out (FIFO) method, which is not in excess of market.
Finished products comprise all of the Company's inventories. The
company currently has no inventories.
Property and Equipment
Property and equipment is stated at cost. The cost of ordinary
maintenance and repairs is charged to operations while renewals
and replacements are capitalized. Depreciation is computed
on the straight-line method over the following estimated
useful lives:
Automobiles 4 years
Manufacturing Equipment 2 - 5 years
Furniture and Equipment 5 years
Leasehold Improvements 5 years
Patents, Trademarks, and Licenses
The Company capitalizes certain legal costs and acquisition costs
related to patents, trademarks, and licenses. Accumulated costs
are amortized over the lesser of the legal lives or the estimated
Note 2 - continued
economic lives of the proprietary rights, generally seven to
ten years, using the straight-line method and commencing at
the time the patents are issued, trademarks are registered or the
license is acquired. Currently the company has no intellectual
property.
Revenue Recognition
Product sales are sales of on-line products and specialty items.
Revenue is recognized at the time products are shipped, as this
is the point at which customers are liable to the Company
for products ordered. The customer may return items if they are
found to be defective. Returns are usually minimal. Other
revenue and commission income is recognized when the earnings
process has been completed. The disclosure concerning other
revenue is boilerplate verbiage inserted by the company to
disclose its process for disclosing any additional revenue in the
event it is present. Currently there is no source of other
revenue.
Income Taxes
The Company accounts for income taxes under SFAS No. 109, which
requires the asset and liability approach to accounting for
income taxes. Under this method, deferred tax assets and
liabilities are measured based on differences between financial
reporting and tax bases of assets and liabilities using enacted
tax rates and laws that are expected to be in effect when
the differences are expected to reverse.
Net Earnings (Loss) Per Share
Basic and diluted net loss per share information is presented
under the requirements of SFAS No. 128, Earnings Per Share.
Basic net loss per share is computed by dividing net loss by the
weighted average number of shares of common stock outstanding for
the period, less shares subject to repurchase. Diluted net loss
per share reflects the potential dilution of securities by
adding other common stock equivalents, including stock options,
shares subject to repurchase,
warrants and convertible preferred stock, in the weighted-
average number of common shares outstanding for a period, if
dilutive. All potentially dilutive securities have been
excluded from the computation, as their effect is anti-
dilutive.
Fair Value of Financial Instruments
The carrying amount of cash, accounts receivable, accounts
payable and accrued expenses are considered to be
representative of their respective fair values because of the
short-term nature of these financial instruments. The carrying
amount of the notes payable are reasonable estimates of fair
value as the loans bear interest based on market rates
currently available for debt with similar terms.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the
Note 2 - continued
date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results
could differ from these estimates.
Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board
issued SFAS No. 141, "Business Combinations," and SFAS No.
142, "Goodwill and Other Intangible Assets." Under these new
standards, all acquisitions subsequent to June 30, 2001 must
be accounted for under the purchase method of accounting,
and purchased goodwill is no longer amortized over its
useful life. Rather, goodwill will be subject to a periodic
impairment test based on its fair value.
SFAS 142 is effective for fiscal years beginning after
December 15, 2001, although earlier adoption is permitted.
The company does not expect that the adoption of these
standards will have a material impact on its financial
statements.
In October 2001, the Financial Accounting Standards Board
issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS 144 supersedes SFAS 121.
FAS 144 primarily addresses significant issues relating to the
implementation of SFAS 121 and develops a single model for long-
lived assets to be disposed of, whether primarily held, used or
newly acquired. The provisions of SFAS 144 will be
effective for fiscal years beginning after December 15, 2001.
We will apply this standard beginning in 2002. The Company does
not expect that the adoption of this standard will have a
material impact
on its financial statements.
NOTE 3 - PROPERTY AND EQUIPMENT
The company currently has no property and equipment, however, the
company upon funding will acquire the necessary property and
equipment necessary to implement its business plan.
NOTE 4 - OTHER ASSETS
At December 31, 2002, the company had no other classified
"other assets".
NOTE 5 - NOTES PAYABLE
Notes payable consisted of the following:
6% convertible notes to institutional investors (see Note 12)
$1,100,000
NOTE 6 - INCOME TAXES
There has been no provision for U.S. federal, state, or foreign
income taxes for any period because the Company has incurred
losses in all periods and for all jurisdictions.
Deferred income taxes reflect the net tax affects of
temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts
used for income tax purposes. Significant components of deferred
tax assets are as follows:
Deferred tax assets
Net operating loss carry forward
$38,921,155
Valuation allowance for deferred tax assets
(38,921,155)
Net deferred tax assets
-
Realization of deferred tax assets is dependent upon future
earnings, if any, the timing and amount of which are uncertain.
Accordingly, the net deferred tax assets have been fully
offset by a valuation allowance. The Company had net operating
loss carry forward for federal income tax purpose of
approximately $38,921,155 and $38,459,557 as of December 31, 2002
and 2001, respectively. These amounts carried forward, if not
utilized to offset taxable income begin to expire in 2003.
Utilization of the net operating loss may be subject to
substantial annual
limitation due to the ownership change limitations provided
by the Internal Revenue Code and similar state provisions. The
annual limitation could result in the expiration of the net
operating loss before utilization.
NOTE 7 - CONVERTIBLE PREFERRED STOCK
Currently there is no preferred stock outstanding of the series
B, D, G. However, if issued the preferred stock would have the
rights listed below.
Dividend Rights
Dividends are non-cumulative and payable only upon
declaration of the Board of Directors at a rate of $0.132
per share for Series B preferred stock, $0.05 per share for
Series D preferred stock and $0.05 per share for Series G
preferred stock. No distributions will be made on any share
of Series D preferred stock until holders of Series B
preferred stock have been paid. No distribution will be paid
on any Series G preferred stock until holders of Series B
and D have been paid.
Note 7 - Continued
Liquidation Preference
Holders of Series B shares have a liquidation preference
over Series D and G and common shareholders of $1.10 per
share plus any declared but unpaid dividends, holders of
Series D shares have a liquidation preference over Series G
and common shareholders of $2.50 per share plus any declared
but unpaid dividends, and holders of Series G shares have a
liquidation preference over common shareholders of $5.00
per share plus any declared but unpaid dividends.
Conversion Rights
Each share of preferred stock is convertible into one share
of common stock at the option of the holder, subject to
protection against dilution. Preferred stock automatically
converts upon an effective initial public offering or upon
the vote or written consent of at least two-thirds of the
number of outstanding shares of the preferred stock into
common stock (except Series B which does not have this
feature).
Warrants
There is not Series D and G preferred stock outstanding.
There are outstanding common stock warrants attached to
Series D and Series G preferred stock. The Series D
preferred stock warrants give the warrant holder the right
to purchase one share of Swan common stock at $0.83 per
share. The Series G preferred stock warrants give the
warrant holder the right to purchase shares of Swan common
stock. The Series D warrants expire in 2001 and the Series G
warrants expire in 2006.
Voting Rights
Each holder of Series B, D, and G preferred stock is
entitled to vote on matters presented to the common
stockholders of Swan as if the holder had converted such
shares of preferred stock into common stock. In addition,
the Series G preferred stockholders also have the right to
elect one director to the Swan Board of Directors.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Operating Leases
The company is involved in several operating leases including
leases for office and warehouse space, telecommunication
services, and screen printers. The lease commitments are as
follows:
Office facilities are leased for a minimum monthly payment of
$9,988. The lease expires November 2002. On the expiration of
the lease agreement the company moved its principal place of
business to 101 Marietta St., Suite 1070, Atlanta, GA 30303. The
company is currently sharing office space within the offices of
its legal counsel and currently does not have a written lease
agreement nor is paying any rental charges.
Note 8 - continued
Upon relocating its corporate office to Atlanta, GA the company
terminated its leasehold obligations.
Capital Leases
The company entered into a capital lease agreement for telephone
equipment during 2001. As required by the Financial Accounting
Standards Board and GAAP, the Company recorded the telephone
system obtained through this capital lease as a fixed asset in
the accompanying financial statements. The telephone system was
recorded at a cost of $57,801 along with the related capital
lease obligation in the same amount. During 2001 the Company
recognized depreciation expense in the amount of $28,901. The
capital lease requires minimum monthly principal and interest
payments of $1363 and expires in November 2002. At the end of
the lease the Company has the option to purchase the equipment at
fair market value. The minimum principal payments due during the
year ended December 31, 2002 are $18,493, and there are no
commitments to make payments after 2002 under this agreement.
Upon relocating its corporate office to Atlanta, GA the company
terminated its leasehold obligations, and capital lease
obligations.
NOTE 9 - GOING CONCERN
The accompanying financial statements have been prepared in
conformity with U.S. generally accepted accounting principles,
which contemplates continuation of the Company as a going
concern. The Company has incurred substantial operating losses.
As shown in the financial statements, the Company incurred net
losses of $461,598 on gross sales of $0.00 for the year ended
December 31, 2002. These factors indicate there is substantial
doubt about the Company's ability to continue as a going concern.
The future success of the Company is likely
dependent on its ability to obtain additional capital to
develop its proposed products and ultimately, upon its
ability to attain future profitable operations. There can be
no assurance that the Company will be successful in obtaining
such financing, or that it will attain positive cash flow
from operations.
Management believes that actions presently being taken to revise
the Company's operating and financial requirements provide the
opportunity for the Company to continue as a going concern.
The Company has been able to continue based upon the financial
support of certain of its stockholders, and the continued
existence of the Company is dependent upon this support
and the Company's ability to acquire assets by the issuance
of stock.
NOTE 10 - ACQUISITION OF SUBSIDIARY
The company made no acquisition of subsidiaries during fiscal
year 2002.
NOTE 11 - ACQUISITIONS
The company made no acquisitions during the fiscal year of 2002.
NOTE 12 - CONVERTIBLE NOTES
On February 2, 2001, Alpha Capital Aktiengesellschaft, AMRO
International, S.A., Markham Holdings Ltd. and Stonestreet
Limited Partnership (the "investors") purchased from the company
an aggregate $1,100,000 of its 6% convertible notes due 2003. The
notes are secured by 250,150 shares of the company's common stock
that has been pledged by six of its shareholders, including two
of its directors.
Until a note is paid in full, the holder of a note may convert
the outstanding principal and interest due on the note into
shares of the company's common stock at a conversion price
equal to the lower of (1) $1.5825 and (2) 85% of the average
of the three lowest closing bid prices for our common stock
on the principal market on which it is trading for the 22 trading
days prior to but not including the date of conversion of the
note. As of October 8, 2001, and at an assumed conversion price
of $1.13 per share, the notes would have been convertible
into 965,759 shares of the company's common stock. This number
of shares could be significantly higher in the event of a
decrease in the closing bid price of the company's common
stock. The notes are payable on January 1, 2003.
The company is also obligated to issue additional shares of
common stock to the investors if the closing bid price of its
common stock is not equal to or greater than $2.374 for 10
consecutive trading days during the 180-day period beginning on
the effective date of the registration statement filed to
register the shares underlying the convertible notes.
In consideration for their investment, the company issued the
investors warrants to purchase an aggregate of 13,750 shares of
common stock at an exercise price of $32.94. These warrants
expire on February 2, 2006. In partial consideration for serving
as the company's financial advisor and private placement agent in
connection with the issuance of the notes, the company issued
Union Atlantic Capital, L.C. a warrant to purchase 50,000 shares
of common stock at an exercise price of $1.647. This warrant
expires April 30, 2005. The exercise price of $1.647 represents
120% of the average closing price of the company's common stock
for the five trading days prior to February 2, 2001, the date of
issuance of the notes.
In connection with the financing, the company agreed to file a
registration statement for the shares underlying the notes and
warrants. The company was originally required to make the
registration statement effective by June 17, 2001. The investors
waived this default and penalties under the convertible notes
relating to the failure to make the registration statement
effective by
June 17, 2001, provided that the company file an amendment to
the registration statement by October 10, 2001 and cause
the registration statement to be declared effective by
Note 12 - continued
December 10, 2001. If the registration statement is not declared
effective within the required time periods or ceases to be
effective for a period of time exceeding 30 days in the
aggregate per year but not more than 20 consecutive calendar
days, the company must pay damages equal to one percent of the
principal of the notes per month for the first 30 days and two
percent of the principal of the notes per month for each
subsequent 30-day period. The company also must pay these
damages if 120% of all shares of common stock underlying the
convertible notes and warrants are not included in an effective
registration statement as of and after December 10, 2001,
as determined using the conversion price in effect on the
effective date of the registration statement.
NOTE 13 - SALE OF A SUBSIDARY
On March 6, 2002, the Company sold its entire ownership in
Swan Magnetics to Lumar Worldwide Industries, Inc, for $2.5
million to be paid by a promissory note payable in seven
years. The transaction is in line with a strategic decision
to focus on its consolidation of the business services
industry, and its equity in Swan no longer fits with its
business plan.
A key asset of Swan Magnetics is its interest in iTVr
technology, which is used in the manufacture of set-top boxes.
Swan had previously acquired a 46% equity interest in iTVr
Inc. Swan is also the developer of its UHC ("ultra high-
capacity") removable disk drive that combines high
performance and high capacity in a standard floppy-disk form-
factor.
Lumar Worldwide Industries, Inc. and its strategic partners
develop software applications for digital technologies, which
fit with Swan's iTVr technology.
The company's 88.5% ownership interest in the Swan subsidiary was
sold to Lumar Worldwide Industries, Inc., pursuant to a
promissory note for $2.5 million payable on March 6, 2009. The
promissory note payment terms are:
DUE DATE AMOUNT DUE
APRIL 30, 2003 $0.0
APRIL 30, 2004 $0.0
APRIL 30, 2005 $122,500
APRIL 30, 2006 $122,500
APRIL 30, 2007 $122,500
APRIL 30, 2008 $122,500
APRIL 30, 2009 $122,500
The company may not accelerate the maturity of the notes in the
case of a default or breach of any of the terms of the agreement.
NOTE 14 - RELATED PARTY TRANSACTIONS - 2002
The company did not enter into any related parties transaction
during the fiscal year of 2002.
NOTE 15 - LEGAL PROCEEDINGS
On March 18, 2003 the company filed a Chapter 11 petition in the
U.S. Bankruptcy Court in the Northern District of Georgia, case
number 03-93031-mhm.
CONVERTIBLE NOTE HOLDERS
On February 2, 2001, the Company issued $1.1 million of
convertible notes to four investors in a private placement. The
convertible notes mature on January 1, 2003 and bear interest at
the rate of 6% per year. The events of default under the notes
are described in this report under the section captioned
"Convertible Notes".
As part of the financing transactions involving the convertible
notes, the Company agreed to file a registration statement for
the resale by the note holders of the common stock underlying the
convertible notes and to have the registration statement declared
effective by June 17, 2001. The registration statement was not
declared effective by June 17, 2001 and has not been declared
effective as of the time of the filing of this report.
On September 10, 2001, the Company entered into a Security
Agreement with the note holders and certain of its shareholders,
including Elorian Landers, the Chief Executive Officer and a
director, and Thomas L. McCrimmon, a director. Under the
Security Agreement, Mr. Landers and his wife pledged 150,000
shares of common stock, Mr. McCrimmon pledged 10,900 shares of
common stock and other shareholders pledged 89,250 shares of
common stock, all as security for obligations under the
financing agreements with the note holders. As part of this
agreement, the note holders waived the default and
penalties under the convertible notes for failure to make the
registration statement effective by June 17, 2001, provided that
the Company file an amendment to the registration statement by
October 20, 2001 and cause the registration statement to be
declared effective by December 10, 2001. The note holders also
lent the Company an additional $55,000 and the Company
signed a promissory note agreeing to repay this amount by the
earlier of December, 2001 or the occurrence of an event of
default under the Security Agreement.
On February 7, 2002, the convertible note holders declared a
default on the notes for failure to have the registration
statement declared effective and made demand for payment of the
convertible notes and promissory notes. In addition, the
collateral agent under the Security Agreement released 239,400
shares of stock to the convertible note holders. The note
holders further requested that the Company deliver an opinion to
the transfer agent so that they would be able to sell in the
public markets under SEC Rule 144 the shares released by the
collateral.
Note 15 - continued
agent and have the shares reissued in the note holders' names.
One of the note holders has also submitted a notice to convert a
portion of its notes into common stock. Because of certain
disputes with the note holders, the Company has not complied
with these requests.
On or about March 21, 2002, Alpha Capital Aktiengesellschaft,
Amro International, S. A., Markham Holdings, LTD, and
Stonestreet Limited Partnership, the holders of the
convertible notes, filed a complaint in United States District
Court for the Southern District of
New York naming the Company, Elorian Landers and his wife as
defendants. In their complaint, the note holders allege, among
other things, the following:
fraud in connection with the sale of the convertible notes
resulting from alleged misrepresentations as to the
Company's cash position;
breach of contract on the notes for failure to have
an effective registration statement covering the resale of the
common stock underlying the notes;
failure to honor conversion requests;
failure to repay the convertible notes and promissory
notes and ;
anticipatory breach of contract on the notes.
In their complaint, the note holders assert monetary damages and
seek relief (i) in the amount of $1,155,000 plus interest,
liquidated damages and attorneys fees and other costs of
enforcement for the breach of contract on the notes, (ii)
unspecified monetary damages for failure to cause the
registration statement to be effective and failure to take the
steps necessary for the note holders to sell the shares under
the Security Agreement pursuant to Rule 144, and (iii)
unspecified damages for failure to honor conversion notices. In
addition, the note holders are seeking an order directing the
Company to (i) cause the registration statement to be effective,
(ii) to enforce conversion of the notes into common stock, and
(iii) to have the Company and the Landers' take necessary
actions to permit plaintiffs to sell the common stock received
from the collateral agent under Rule 144. The company and
the convertible debenture holders have reached an accord on their
differences.
SWAN
In March 2002, the Company was served with a lawsuit brought by
Swan Magnetics, Inc. in the Superior Court of the state of
California, County of Santa Clara. The only defendant in the
action is the Company.
Note 15 - continued
The Complaint alleges, among other things, that the Company
breached its obligations under a promissory note in the principal
amount of $2,843,017, that the Company has breached its
obligations under a series of settlement documents entered into
between Swan and the Company, and that the Company has interfered
with contractual relationships between Swan and certain
third parties. The total relief sought by Swan is $3,040,000,
plus interests, costs and punitive damages.
In separate correspondence, Mr. Eden Kim has alleged that the
Company never owned a majority interest in Swan Magnetics, Inc.
The Company is vigorously defending this lawsuit although the
Company believes that the action lacks merit. The case is at a
stage where no discovery has been taken and no prediction can be
made as to the outcome of this case.
NOTE 16 - EMPLOYMENT AGREEMENTS
The company currently does not have any employment agreement with
any of its officers or directors.
NOTE 17 - COMMON STOCK
GPMT issues a press release on April 2, 2002 announcing the
retainer of the Shelly Group, LLC. The agreement was a verbal
agreement where the Shelly Group, LLC agreed to provide
consulting services related to the acquisition of companies in
the human resource industry. The Shelly Group, LLC was also to
use its best efforts to raise up to $6.0 million dollars for
acquisition and working capital. GPMT plan was to use its
publicly traded shares as a currency to acquire companies on a
stock for stock exchange, where it would provide the acquired
companies with management, capital and access to various
strategic business services. The company is no longer looking to
enter the human resource industry.
SIGNATURES
----------
Pursuant to the requirements of Section 13 and 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.
Group Management corp..
Date: May 16, 2003
By: /s/ Lamar Sinkfield
---------------------------
Chief Executive Officer
CERTIFICATION ACCOMPANYING PERIODIC REPORT PURSUANT TO SECTION
302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Lamar Sinkfield, certify that:
1. I have reviewed this annual report on Form 10-KSB/A
of
Group Management Corp.;
2. Based on my knowledge, this amended annual 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
annual report;
3. Based on my knowledge, the financial statements, and
other financial information included in this annual report,
fairly present in all material respects the financial condition,
results of operations and cash flows of Group Management Corp. as
of, and for, the periods presented in this annual report.
4. I am responsible for establishing and maintaining
disclosure
controls and procedures (as defined in Exchange Act Rules 13a-14
and 15d-14)for Group Management Corp. and have:
a) designed such disclosure controls and
procedures to ensure
that material information relating to Group
Management Corp., including its consolidated
subsidiaries, is made known to us by others within
those entities, particularly during the period in
which this annual report is being prepared;
b) evaluated the effectiveness of Group Management
Corp's disclosure controls and procedures as of a date
within 90 days prior to the filing date of this annual
report (the "Evaluation Date");
and
c) presented in this amended annual report our
conclusions about the effectiveness of the disclosure
controls and procedures
based on our evaluation as of the Evaluation Date;
5. I have disclosed, based on my most recent evaluation,
to
Group Management Corp.'s auditors and the audit committee of
Group Management Corp.'s board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or
operation of
internal controls which could adversely affect
Group Management Corp, ability to record, process,
summarize and report financial data and have
identified for the registrant's auditors any
material weaknesses in internal controls; and
b) any fraud, whether or not material, that
involves management or other employees who have a significant
role in
Group Management Corp.'s internal controls; and
6. I have indicated in this amended annual report
whether there were significant changes in internal controls or in
other factors that could
significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: May 16, 2003
/s/ Lamar Sinkfield
---------------------------
Lamar Sinkfield
Chief Executive Officer