File
Number 000- 53802
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10 A- 2
GENERAL
FORM FOR REGISTRATION OF SECURITIES
Pursuant
to Section 12(b) or (g) of The Securities Exchange Act of 1934
ANV
SECURITY GROUP, INC.
(Exact
Name of registrant as specified in its charter)
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Nevada
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13-3089537
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(State
or other jurisdiction
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(I.R.S.
Employer
|
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of incorporation
or organization)
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Identification
No.)
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2105
- 11871 Horseshoe Way, Richmond, BC V7A 5H5, Canada
(Address
of principal executive
offices) (Zip
Code)
Registrant's
telephone number, including area code: 604-277-6606
Securities
to be registered pursuant to Section 12(b) of the
Act: NA
Name of
each exchange on which traded: NA
Securities
to be registered pursuant to Section 12(g) of the Act:
Common
Stock, par value $0.001
(Title of
Class)
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
Large
accelerated filer o Accelerated
filer o
Non-accelerated
filer o (Do not
check if a smaller reporting
company)
Smaller reporting company x
INFORMATION
REQUIRED IN REGISTRATION STATEMENT
THIS
REGISTRATION STATEMENT ON FORM 10, INCLUDING WITHOUT LIMITATION ITEM 1,
BUSINESS, AND ITEM 2, FINANCIAL INFORMATION, CONTAINS STATEMENTS WHICH ARE NOT
HISTORICAL FACTS AND ARE FORWARD-LOOKING STATEMENTS WHICH REFLECT MANAGEMENT'S
EXPECTATIONS, ESTIMATES AND ASSUMPTIONS. SUCH STATEMENTS ARE BASED ON
INFORMATION AVAILABLE AT THE TIME THIS FORM 10 WAS PREPARED AND INVOLVE RISKS
AND UNCERTAINTIES THAT COULD CAUSE FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS
OF THE COMPANY TO DIFFER SIGNIFICANTLY FROM PROJECTED
RESULTS. FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
INCLUDE, WITHOUT LIMITATION, TECHNOLOGICAL ADVANCES IN THE PROPERTY SECURITY
INDUSTRY, THE SOUNDNESS OF OUR MARKETING MODEL, THE OPERTING EFFICTIVENESS OF
OUR PRODUCTS AND SERVICES, OUR ABILITY TO RAISE ADDITIONAL CASH AND PRICE
PRESSURES FROM OUR COMPETITORS.
EXPLANATORY
NOTE We are filing this General Form for Registration of Securities on Form 10
to voluntarily register our common stock, par value $0.001 per share (the Common
Stock), pursuant to Section 12(g) of the Securities Exchange Act of 1934, as
amended (the Exchange Act). Once this registration statement is deemed
effective, we will be subject to the requirements of Regulation 13A under the
Exchange Act, which will require us to file annual reports on Form 10-K,
quarterly reports on Form 10-Q, and current reports on Form 8-K, and we will be
required to comply with all other obligations of the Exchange Act applicable to
issuers filing registration statements pursuant to Section 12(g) of the Exchange
Act. Unless otherwise noted, references in this registration statement to ANV
SECURITY Systems, Inc., the Company, we, our or us means ANV Security Systems,
Inc..
CAUTIONAIRY
NOTE REGARDING FORWARD LOOKING STATEMENTS There are statements in this
registration statement that are not historical facts. These forward-looking
statements can be identified by use of terminology such as believe, hope, may,
anticipate, should, intend, plan, will, expect, estimate, project, positioned,
strategy and similar expressions. You should be aware that these forward-looking
statements are subject to risks and uncertainties that are beyond our control.
For a discussion of these risks, you should read this entire Registration
Statement carefully, especially the risks discussed under Risk Factors. Although
management believes that the assumptions underlying the forward looking
statements included in this Registration Statement are reasonable, they do not
guarantee our future performance, and actual results could differ from those
contemplated by these forward looking statements. The assumptions used for
purposes of the forward-looking statements specified in the following
information represent estimates of future events and are subject to uncertainty
as to possible changes in economic, legislative, industry, and other
circumstances. As a result, the identification and interpretation of data and
other information and their use in developing and selecting assumptions from and
among reasonable alternatives require the exercise of judgment. To the extent
that the assumed events do not occur, the outcome may vary substantially from
anticipated or projected results, and, accordingly, no opinion is expressed on
the achievability of those forward-looking statements. In the light of these
risks and uncertainties, there can be no assurance that the results and events
contemplated by the forward-looking statements contained in this Registration
Statement will in fact transpire. You are cautioned not to place undue reliance
on these forward-looking statements, which speak only as of their dates. We do
not undertake any obligation to update or revise any forward-looking
statements.
PART
I
Item
1: Business
General
Development of Business
Organizational
History
We were
originally called “B.G. S. Energy, Inc.” and were incorporated under the laws of
the State of Nevada on May 29, 1981. We were organized to engage in, alone or in
conjunction with others, the exploration for, and where warranted, the
development of oil, gas and mineral properties, the sale of oil, gas and mineral
related leases. We became public in 1981 in a best efforts public offering and
thereafter operated various oil and gas properties. We owned various
oil and gas leases in Utah, Oklahoma, Kentucky, Texas and other states from time
to time in 80’s. In 1988 we changed our name to Dini Products Inc.
and continued our oil and gas operations. Our revenues decreased and
in 1992 we became dormant and did not have any operations for many years until
we acquired all of the shares of Canada ANV Systems, Inc., a British Columbia
corporation (“CANV”) in June 2009 and changed our name to ANV Security Group,
Inc. Our plan is to become a fully integrated developer, designer,
manufacturer, marketer, installer and servicer of web based security systems
for residential, commercial and government customers operating in
Canada, The Peoples Republic of China and the United States of
America. We are currently headquartered in Great Vancouver,
Canada.
The Video and Alarm Industry in
General
According
to a Frost & Sullivan report dated December, 2007, which is available from
the web site of www.MarketReseach.com on a fee basis,
North America is the world's largest security equipment market, the demand from
North America accounted for 26% of the total global demand. The
report predicts that the North American security equipment market will grow by
an annual rate of 20%. According to Frost & Sullivan's
report, the global IP ( “Internet Protocol”) video surveillance market will grow
by an annual rate of 40% over the next few years, The size of the
global IP security market is projected to reach $5.0 billion dollars in
2010. According to an IDC market analysis report dated May, 2009,
which is available for a fee from the website www.idc.com, between year 2007 and
2009, global digital network camera sales will exceed these of traditional
analog cameras and the report predicted that the sales of IP cameras in US and
Canada will be more than 20 million pieces in 2010.
Management
believes that in the next few years, the maturity of broadband networks, video
compression technology, and updating media processor performance, will provide a
good foundation for the realization and application of various low-cost,
high-performance IP video surveillance products. IP monitors are continually
replacing traditional monitors in new and existing security systems. We believe
that our products are well positioned to participate in these
trends.
Operations
and Development Plan
We
design, manufacture, assemble and market advanced and professional security
systems that include H.264 IP Camera and DVS series, NVS Center Management
System and high-end network DVR. We also offer our patent pending USCI8 Global
Network Video Alarm Services Platform, This web based service platform provides
ANV users with real time video monitoring, instant remote video storage, and
instant VoIP/SMS/E-mail notification. ANV’s products and services are typically
used for crime deterrence, real time direct viewing and secure off premises
crime evidence preservation on our remote server.
Our
primary business focus is to provide a global network video alarm service
utilizing the USCI8 Platform and H.264 IP Camera, DVS and DVR for our dealers,
distributors, system integrators and government entities.
Our
products are employed in video alarm system installations in private
residences; commercial and industrial properties; in Canada, the United States
and the Peoples Republic of China.
In
November 2007 we entered into an agreement with an established electronics
manufacturer in Guandong, Peoples Republic of China for the manufacture of H.264
IP Cameras, DVS, NVD and other security system products to our
specifications. We sell our products and video alarm services to wholesalers,
dealers and installers We have also prepared a franchise offering document that
complies with Canadian and Provincial Law and sold franchises for installation
of our systems in Canada. We have acquired three Canadian franchisees
that are installing our systems and in 2008 we realized revenues from these
efforts. In addition we are directly marketing our systems in areas
where we have not granted territories to franchisees. Included in these sales
has been a shopping mall in Westminster California. As of November
25, 2009 approximately 115 of our cameras were installed in
approximately 60 customer locations.
Our
Products & Services
Our
products are based on H.264 video compression technology. H.264 is
a high end standard for video compression that produces video output
similar to MPEG4 while requiring lower data throughput rates. H.264
uses the latest innovations in video compression technology to provide clear
video quality from the a relatively small amount of video data. H.264 delivers
the same quality as MPEG-2 at a third to half the data rate and up to four times
the frame size of MPEG-4 Part 2 at the same data rate. We believe that because
H.264 achieves the best compression efficiency it will
become the preferred standard for a broad range of applications, such
as IP Cameras and surveillance, HDTV, broadcast, DVD, video conferencing, remote
health care, remote online education worldwide, video-on-demand, streaming and
multimedia messaging. H.264 delivers excellent quality across a wide
operating range including 3G and HD. Applications of H.264 include high-quality
video mobile phones, iChat, Internet, broadcast or satellite delivery, because
H.264 provides exceptional performance at impressively low data
rates.
We have spent about three years and
invested approximately $ 3 million dollars in developing our H.264 IP
Cameras, DVS, NVD hardware and software of NVS ( “Network
Video System”) and integrating the Huawei
chipset into our systems. Now we have successfully developed five series, and
twenty varieties of H.264 IP products. We believe that every one of our products
would require significant lead time for a potential competitor to replicate .
Presently,
Texas Instrument and Huawei (a large privately owned China-based telecom
equipment manufacture ) are the two largest companies in the
world capable of providing the H.264 chipset. ANV
and its OEM factory are one of six
Huawei H.264 licensees, and
ANV also is a primary partner of Huawei in North
America.
Our
product line consists of five series and twenty varieties
of H.264 video surveillance equipment
including the following:
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1.
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H.264
IP Camera series:
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All of
our cameras are designed to work with our central management software through a
built in Web Server that allows remote control through a Web
browser
ANV100-50SN
IP Camera is an embedded device designed for network video surveillance
application. It is
basic, full-color, wired, indoor network camera.
ANV101-50SN-IR
is full-color, wireless, day and night dual-use, outdoor network camera with
infrared lights; It is waterproof and has anti fog components. The infrared
range can be up to 30 meters. Applications include banks,
supermarkets, office buildings and other places requiring night video
surveillance.
The
ANV102-50SN IP Camera is designed for network video surveillance
application.
It is
full-color, wired, infrared, day and night dual-use, indoor dome network
camera.
ANV103
–D1 intelligent high-speed wireless Dome offers a super-clear, high
integration solution for users by remote video surveillance based on local area
networks (LAN) or wide Internet Area Network (WAN).It is equipped with zoom
lens, and high-performance digital signal processing (DSP) cameras,
embedded platforms, and digital decoder integrated. It represents a new
generation of high-tech surveillance product development trend. It supports
arbitrary position and continuous scan, to achieve an omnidirectional
surveillance; We believe it is suitable for large
businesses, intelligent buildings, banking security, urban roads,
airport, and railway station .
The
ANV104-WS wireless IP Camera is designed for network video
surveillance application. It uses the single chip SOC with powerful Linux RTOS
(Real-time Operating System) to realize high performance and low cost digital
video processing. Optimized H.264 video compression algorithm assures clearer
and smoother video transmission.
ANV105-WS-RF-IR
is a specialized integrated IP camera designed for the small and middle-size
commercial or residential application. In addition, this IP camera can work with
a wireless alarm gateway; support and integrate with remote controls and
wireless detectors, such as infrared sensors, PIR, curtain sensors, smoke
detectors, gas detectors and other devices. And there is also an unique
emergency function for summoning help.
ANV106-WS-IR-RF is
a specialized integrated IP camera designed for the
small and middle-size commercial and residential systems. This IP
camera can work with our wireless alarm gateway; support remote
control and wireless detectors, such as infrared sensors, PIR, curtain sensors,
smoke detectors, gas detectors and other devices.
ANV107-WS-IR
is specialized integrated IP camera designed for the small commercial
and residential application. This IP Camera is full-color, wireless,
day and night dual-use, for use indoors where economical
integration network cameras with infrared lights is important and is roughly the
size of cell phone.
ANV200-50SN-WS is
an embedded Wireless & Storage IP camera device with WiFi and SD Card
designed for network video surveillance application. It uses the
single chips SOC with powerful Linux RTOS (Real-time Operating System) realize
high performance and low cost digital multimedia process. Furthermore,
central management software can be used for integrated surveillance and
management of multiple network cameras where large video surveillance systems
are required.
ANV201-MP-WS
Series 2.0 mega pixel IP Camera is designed for high definition network
surveillance based on Micron CMOS sensor with a high-performance multimedia
processor. It adopts the embedded Linux OS. It supports H.264 Main Profile,
Baseline Profile, MJPEG, JPEG and other video encoding standards. It
has the advanced mega pixel technology with SD card storage and still image
capability. It can communicate with IPTV terminal devices. It is a set of video
capture, image processing, video transmission, video storage, video management
functions in one type of high-definition, high-performance network camera. The
design concept is all in one (highly integrated), Ready to go (Plug and Play),
which greatly facilitates the user to install, use and maintain. It will be
marketed to customers in the high-end surveillance market , including
governments and banks where sophisticated and elaborate security system are
frequently installed.
Digital
Video Server (ANV H.264 DVS300 -1/2/4 CH -D1-WS) is an embedded surveillance
device specially designed for network applications. It can upgrade
the existing analog CCTV camera to digital IP camera.
This
Network Video Decoder is an embedded large-scale decode device specially
designed for network applications. DVR series: It can transfer the
digital video into analog video.
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4.
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Digital
Video Recording Devices
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DVR-4CH-D1-ABDS: H.264
high-end full D1 realtime 4ch DVR, up to 800 fps PAL/960
fps NTSC.
DVR-8CH-D1-ABDS: H.264
high-end full D1 realtime 8ch DVR, up to 800 fps PAL/960
fps NTSC.
DVR-16CH-D1-ABDS:
H.264 high-end full D1 realtime 16ch DVR, up to 800 fps
PAL/960 fps NTSC.
DVR-4CH-D1-LCD:
H.264 LCD D1 4ch DVR with high quality video and superior network
functions.
DVR-4CH-MOBILE:
new H.264 4ch mobile DVR with special and powerful anti-shock
designing.
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5.
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NVS Central Video
Management Software (“CMS”).
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The CMS
can manage up to 1728 IP cameras simultaneously, and can set and control every
IP camera separately, support 32 channels output of TV walls, centralized
storage, data transmission and electric map.
ANV
provides a comprehensive line of products due to the many varied climatic and
operational environments in which the products are expected to
perform. In addition to selling from a standard catalog line, the
Company at times modifies an existing product to meet a customer’s requirements.
Our products are concentrated principally among its iCam™ H.264 IP camera,
DVS and DVR product lines.
Our
competitive advantage is to offer our patent pending USCI8™ global
network video alarm services to the end user. This web based service platform
provides ANV users with great ease of functions, including real time video
monitoring , instant remotely video storage, life sharing, and instant e-mail,
SMS (text to cell phone) and voice notification to customers. The systems are
designed to provide instant- remote video storage in ANV server. We
offer residential, small business and large business plans at prices ranging
from $25CDN to $80CDN per month. Our platform capability can contain at least
40,000 registered end-users, and the bandwidth of our remote storage
center is able to accept over 10000 data streams entering storage at same time.
The system is expandable to contain over millions end-users and ownership is
dividable.
Customers
Our
products are sold principally to wholesalers, independent dealers, installers,
retail stores, system integrators, distributors and franchisees. Sales are
made principally by field sales engineers and inside customer service
representatives. Our sales effort is supported by in-house customer service
coordinators and technical support groups which provide product information,
application engineering, design detail, field project management, and hardware
and software technical support.
We
presently have three Canadian franchisees and other potential franchisees who
may purchase franchises under one of two plans in China. Our
franchise agreements require the franchisee to purchase a franchise, to maintain
an inventory, to pay a royalty, an advertising cost contribution and a fee
related to our broadband (USCi8.com) monitoring service. Our ultimate
customer is a property owner who installs the product and pays for both the
equipment and a monthly fee. Our Canadian franchisees pay us $25,000
to $30,000 for their franchise and are required to maintain certain inventories.
Our franchisees receive approximately 30% price differential from our listed
prices and 40% of the monthly fee paid by the end user.
Internet
Contract
We have
entered into a bandwith service agreement with Peer 1 Network Enterprises, Inc.
(“Peer 1” of Vancouver, B.C.) The agreement with Peer 1 commenced
January 21, 2008 and was for a one year term with automatic one year renewals
absent notice of termination. The agreement is in its first renewal
term and required that we make certain up-front payments for equipment and pay a
monthly fee that is dependent on bandwith usage. During the year
ended March 31, 2009 the total amount we paid to Peer 1 was
$2,683.39. We incurred a due of $ 1092 to Peer 1 during the quarter
ended September 30, 2009. We believe that Peer 1 has sufficient
equipment and bandwith available to meet our needs for the foreseeable
future. However, if Peer 1 were no longer available to serve us or if
we deemed it advisable not to renew our contract with Peer 1, management
believes that many other bandwith service providers are available in the
Vancouver area to meet our requirements at similar prices.
Manufacturing
Contract
On
November 30, 2007 we entered intro a manufacturing agreement (the “OEM
Agreement”) with Shenzhen Huanghe Digital Technology Co., Ltd of Guandong, PRC
(“SHDT”). The OEM Agreement is for an one year term with automatic
one year renewals and requires that SHDT manufacture products for us to our
specification and warrant the same to conform to our specifications and be free
from defects. The OEM Agreement sets prices and delivery schedules
for our orders and requires that SHDT be able to fulfill our requirements. We
are obligated to defend SHDT should a claim be made that any of
our products infringe on the rights of others. Management
believes that SHDT can meet our requirements for the foreseeable future. If SHDT
were unable to produce products for us, we would experience delays in receiving
product and disruption to our operations, but we believe we would be able to
locate an alternative manufacturer in the PRC.
Patent
Application
In March
2009 we filed a US patent application, No12/405,147, which followed our
provisional patent application “Systems and Methods for Providing Web
Based Self Serviced Video Monitoring and Security Features for Systems
Comprising IP Video Terminals and Web Severs” in March 2008. This
patent relates to our web based system and management believes that it is
central to our business. However, we cannot give any assurance that a
patent will be granted, and that if granted it will give meaningful protection
from others or that our patent would not be found by a court to infringe upon
patents held by others.
Our
patent application includes technology for (i) A video
security system having a server and a video terminal device including; (ii) At
least one database for storing network and physical configuration information
relating to the terminal device operable to remotely communicate with the server
through a distributed network; (iii) One or multiple storage servers for storing
video data received from the terminal devices; and (iv) A method of managing a
video terminal device that includes assigning a unique device ID to
the video terminal device then sending an event and an associated video stream
from the video terminal device to the Server, and storing the event and the
associated video stream in a database and a storage server in association with
the unique device ID. Another method of storage set forth in our
patent application involves creating a user account on a Server,
selecting services for associating with the devices, allocating storage server
space for storing video data stream files, and making available to the user
stored video files.
Competition
The video
and alarm security services business is highly competitive and fragmented with a
number of major firms and thousands of smaller regional and local companies.
Competition is based primarily on price in relation to quality of service.
Rather than compete purely on price, we emphasize the quality and special
features of our web-based video alarm security
service. Our competitors also include manufacturers and potential
manufacturers of surveillance equipment. Several of our competitors,
such as ADT Worldwide, a subsidiary of Tyco Industries, Ltd. and Honeywell
International, Inc. are large established multinational corporations with far
greater resources than we do. In the PRC we will compete with large
dominant firms including China Security Surveillance and Technology,
Inc. All of these competitors have greater resources and name
recognition than we do. Other competitors include the following
companies or their affiliates: Samsung, Sony, Panasonic, Axis, Tyco,
D-link, Linksys, Vivotek, Basler, Tiandy, etc. Several electronics
manufacturers have the ability to make cameras and other surveillance system
components competitive to ours but have elected not to enter this market to
date.
Backlog
We do not
currently have any material backlog and fill customer requirements on a current
basis.
Sales,
Marketing and Advertising
We market our products to consumers
through our wholesaler, dealer, installer, franchisees as well as direct
marketing efforts by our sales staff. We promotes and markets
our products and services through industry trade shows worldwide, product
brochures and catalogues, direct marketing and electronic mailings to existing
and prospective customers, webinars, in-house training seminars for customers
and end users, road shows which preview new products and try usci8.com platform,
and advertising through trade and end user magazines and newspaper, and our web
site (www.anvsecuritygroup.com). ANV’s products are sold principally to
independent wholesalers, dealers, installers, system integrators, and
franchisees. Sales are made principally by field sales engineers and inside
customer service representatives. ANV’s sales effort is supported by in-house
customer service coordinators and technical support groups which provide product
information, application engineering, design detail, field project management,
and hardware and software technical support.
Environmental
Matters
Laws and
regulations relating to protection of the environment have not had a material
impact on our business.
Proprietary
Rights
In
addition to our patent application we have entered into employment agreements
with our key employees that require them to keep all of our proprietary
information confidential and require that any invention of theirs while our
employee, except for those not related to our business, becomes our
property. Our OEM Agreement provides us with similar
protections. We can not assure that such protections will prove
adequate should they be challenged in litigation.
Research
and Development
We are
dependent on continual research and development efforts to maintain our
competitive position with our products. As of March 31, 2009 we had
accumulated $142,274 of research and development expense but did not incur any
research and development expense in the six months ended September 30,
2009. However, we will again incur research and development expenses
forn the balance of our fiscal year. Our research and development effort relates
to product design and enhancement as well as computer source code and other
programming matters.
Our R
& D aspects are based on H.264 video techniques, combined with global
advanced internet tech, wired and wireless communication tech,
surveillance and alarm tech, and telecom payment. We give our future R & D
plan as follows:
Develop
peer to peer technologies to enable more convenience in service provision;
develop mobile applications to transmit surveillance video through mobile phones
and automobiles; develop simultaneous charging surveillance of IP
Camera and retail POS terminals; develop downloading and playing
images through Google and YouTube; realize the arbitrary storage of
surveillance video; develop intelligent facial recognition and
registration plate recognition; develop real time , remote health
care, remote online education worldwide, and other remote learning
and image-based applications
Employees
As of
November 25, 2009, we had 7 employees in our Vancouver headquarters. All of
which are full-time, including 2 in administrative and
management, 3 in engineering and technical, and 2
in sales and marketing.
Seasonality
We do not
anticipate that our business will be seasonal to any material extent although
installation of outdoor security and surveillance systems may be more difficult
during winter months in area with more severe climates.
Item
1A Risk Factors
Risks
Relating To Our Business
You
should carefully consider the risks described below before investing in our
publicly traded securities. The risks described below are not the only ones
facing us. Our business is also subject to the risks that affect many other
companies, such as competition, technological obsolescence, labor relations,
general economic conditions, geopolitical events, climate change and
international operations. Additional risks not currently known to us or that we
currently believe are immaterial also may impair our business operations and our
liquidity.
Our
current operating cash flows, which combined with access to the credit markets,
provides us with significant discretionary funding capacity. However, the
current uncertainty arising out of domestic and global economic conditions,
including the recent disruption in credit markets, poses a risk to the economies
in which we operate that has impacted demand for our products and services, and
may impact our ability to manage normal relationships with our customers,
suppliers and creditors. If the current situation deteriorates significantly,
our business could be materially negatively impacted, including such areas as
reduced demand for our products and services from a slow-down in the general
economy, or supplier or customer disruptions resulting from tighter credit
markets.
In
order to grow at the pace expected by management, we will require additional
capital to support our long-term business plan. If we are unable to obtain
additional capital in future years, we may be unable to proceed with our
long-term business plan and we may be forced to curtail or cease our
operations.
We will
require additional working capital to support our long-term business plan, which
includes identifying suitable targets for horizontal or vertical mergers or
acquisitions, so as to enhance the overall productivity and benefit from
economies of scale. 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. We may not be able to obtain adequate levels of additional
financing, whether through equity financing, debt financing or other sources.
Additional financings could result in significant dilution to our earnings per
share or the issuance of securities with rights superior to our current
outstanding securities. In addition, we may grant registration rights to
investors purchasing our equity or debt securities in the future. If we are
unable to raise additional financing, we may be unable to implement our
long-term business plan, develop or enhance our products and services, take
advantage of future opportunities or respond to competitive pressures on a
timely basis, if at all. In addition, a lack of additional financing could force
us to substantially curtail or cease operations.
We
sometimes extend credit to our customers. Failure to collect the trade
receivables or untimely collection could affect our liquidity.
We extend
credit to some of our customers while generally requiring no collateral.
Generally, our customers pay in installments, with a portion of the payment
upfront, a portion of the payment upon receipt of our products by our customers
and before the installation, and a portion of the payment after the installation
of our products and upon satisfaction of our customer. Sometimes, a small
portion of the payment will not be paid until after a certain period following
the installation. We perform ongoing credit evaluations of our customers’
financial condition and generally have no difficulties in collecting our
payments. However, if we encounter future problems collecting amounts due from
our clients or if we experience delays in the collection of amounts due from our
clients, our liquidity could be negatively affected.
Our
future success depends in part on the contributions of our management team and
key technical and sales personnel and our ability to attract and retain
qualified new personnel. In particular, our success depends on the continuing
employment of our CEO, Dr. Weixing Wang, our CFO, Ms. Yan Wang; our VP of Sales
and Marketing, Mr. Xiaolin Yang; and our technical Officer, Mr. Tac Jiang. There
is significant competition in our industry for qualified managerial, technical
and sales personnel and we cannot assure you that we will be able to retain our
key senior managerial, technical and sales personnel or that we will be able to
attract, integrate and retain other such personnel that we may require in the
future. Many engineers and technicians obtain post-graduate or
professional degrees, and the increased educational time required at the
post-graduate level further restricts the pool of engineers and technicians
available for employment. We compete for all such personnel
with other high tech companies in various fields. There can be no
assurance that we will be successful in hiring or retaining such qualified
personnel. If we are not able to hire and retain qualified people to fill these
positions, our competitive position would be adversely affected, which would
have a material adverse effect on our business, financial condition and results
of operations.
If we are
unable to attract and retain key personnel in the future, our business,
operations, financial condition, results of operations and prospects could be
materially adversely affected.
Our
growth strategy has required us to make acquisitions and to make additional
acquisitions in the future, which could subject us to significant risks, any of
which could harm our business.
Our
growth strategy includes identifying and acquiring or investing in suitable
candidates on acceptable terms. We have from time to time
entered into letters of intent to acquire several other companies. While all
but one of these letters of intent have by their terms expired, the remaining
letter of intent, dated November 12, 2009, is for us to acquire all of the
shares of a non-affiliated equipment manufacturer in the Peoples Republic of
China in exchange for 32,000,000 of our shares. The consummation of
this transaction is subject to many conditions including completion of due
diligence, entry into a definitive agreement approval of the transaction by our
board of directors and shareholders. None of these conditions have
occurred. The transaction, if consummated, would result in our
integrating manufacture of our products into our operations, but would also
result in a substantial increase of the number of our shares
outstanding. The board of directors will only recommend the
adoption of any definitive agreement to the shareholders if it deem such
agreement to be beneficial and in our best interest of and the best interest our
shareholders. Any shareholder vote in connection with
this acquisition will be undertaken in compliance with the applicable rules
under the Securities Exchange Act of 1934, as amended. Over time,
we may acquire or make investments in other providers of products that
complement our business and other companies in the security industry. The
successful integration of these companies and any other acquired businesses
require us to:
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integrate
and retain key management, sales, research and development, production and
other personnel;
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incorporate
the acquired products or capabilities into our offerings from an
engineering, sales and marketing
perspective;
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coordinate
research and development efforts;
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integrate
and support pre-existing supplier, distribution and customer
relationships; and
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consolidate
duplicate facilities and functions and combine back office accounting,
order processing and support
functions.
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Acquisitions
involve a number of risks and present financial, managerial and operational
challenges, including:
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diversion
of management’s attention from running our existing
business;
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increased
expenses, including travel, legal, administrative and compensation
expenses resulting from newly hired
employees;
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increased
costs to integrate personnel, customer base and business practices of the
acquired company with our own;
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adverse
effects on our reported operating results due to possible write-down of
goodwill associated with
acquisitions;
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potential
disputes with sellers of acquired businesses, technologies, services,
products and potential liabilities;
and
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dilution
to our earnings per share if we issue common stock in any
acquisition.
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Moreover,
performance problems with an acquired business, technology, product or service
could also have a material adverse impact on our reputation as a whole. Any
acquired business, technology, product or service could significantly
under-perform relative to our expectations, and we may not achieve the benefits
we expect from our acquisitions. Geographic distance between business
operations, the compatibility of the technologies and operations being
integrated and the disparate corporate cultures being combined also presents
significant challenges. Acquired businesses are likely to have different
standards, controls, contracts, procedures and policies, making it more
difficult to implement and harmonize company-wide financial, accounting,
billing, information and other systems. If we cannot overcome these challenges,
we may not realize actual benefits from past and future acquisitions, which will
impair our overall business results.
All of
our facilities, and many of the facilities of our customers and suppliers, are
located in China. Natural disasters, such as floods and earthquakes, occur
frequently in China, and they pose substantial threats to businesses with
operations there. As a developing country, China’s emergency-response ability is
limited, and its ability to provide emergency reconstruction and other aid to
businesses affected by natural disasters is limited. Should a natural disaster
severely damage one of our facilities, or damage a major facility of one or more
of our significant customers or suppliers, our business could be materially
disrupted.
In
the event that adequate insurance is not available or our insurance is not
deemed to cover a claim, we could face liability.
We carry
insurances that our management consider customary and adequate. The laws of the
jurisdictions in which we operate, may limit or prohibit insurance coverage for
punitive or certain other types of damages or liability arising from gross
negligence. If we incur increased losses related to employee acts or omissions,
or system failure, or if we are unable to obtain adequate insurance coverage at
reasonable rates, or if we are unable to receive reimbursements from insurance
carriers, our financial condition and results of operations could be materially
and adversely affected.
Our
quarterly operating results are likely to fluctuate, which may affect our stock
price.
Our
quarterly revenues, expenses, operating results and gross profit margins vary
from quarter to quarter. As a result, our operating results may fall below the
expectations of securities analysts and investors in some quarters, which could
result in a decrease in the market price of our common stock. The reasons our
quarterly results may fluctuate include:
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seasonality
inherent in the surveillance and safety
industry;
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variations
in profit margins attributable to product
mix;
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changes
in the general competitive and economic
conditions;
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delays
in, or uneven timing in the delivery of, customer
orders;
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the
introduction of new products by us or our competitors;
and
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Period to
period comparisons of our results should not be relied on as indications of
future performance.
We
could face liability for our failure to respond adequately to alarm
activations.
The
nature of the services we provide potentially exposes us to greater risks of
liability for employee acts or omissions or system failures that may be inherent
in other businesses. In the event of litigation with respect to such matters,
our financial condition and results of operations could be materially and
adversely affected. In addition, the costs of such litigation could have an
adverse effect on us.
Our
operations are subject to a variety of laws, regulations and licensing
requirements of national and local authorities in North American and China. In
certain jurisdictions, we are required to obtain licenses or permits and to meet
certain standards in the conduct of our business. The loss of such licenses, or
the imposition of conditions to the granting or retention of such licenses,
could have an adverse effect on us. In the event that these laws, regulations
and/or licensing requirements change, we may be required to modify our
operations or to utilize resources to maintain compliance with such rules and
regulations. In addition, new regulations may be enacted that could have an
adverse effect on us.
Our
limited ability to protect our intellectual property, and the possibility that
our technology could inadvertently infringe technology owned by others, may
adversely affect our ability to compete.
We rely
on a combination of trademarks, patent, copyrights, trade secret laws,
confidentiality procedures and licensing arrangements to protect our
intellectual property rights. A successful challenge to the ownership of our
technology could materially damage our business prospects. Our competitors may
assert that our technologies or products infringe on their patents or
proprietary rights. We may be required to obtain from others licenses that may
not be available on commercially reasonable terms, if at all. Problems with
intellectual property rights could increase the cost of our products or delay or
preclude our new product development and commercialization. If infringement
claims against us are deemed valid, we may not be able to obtain appropriate
licenses on acceptable terms or at all. Litigation could be costly and
time-consuming but may be necessary to protect our technology license positions
or to defend against infringement claims. We have applied for a United States
patent for our web based security systems. No assurance can be given
that we will be granted a patent, that, if granted, any patent will provide us
with meaningful protection from infringement by others or that any patent that
we may be granted will not be held by a court to infringe on the rights of
others. The loss of patent protection could materially adversely
affect our business.
We
Need Substantial Additional Capital
We have
experienced recurring net losses, including net losses of $
82,652 for the quarter ended June 30, 2009 and
$340,555 for the year ended March 31, 2009, and we had current assets
of $365,512 at June 30, 2009 (unaudited). Our plan is to increase
production of our products as well as the geographical scope of our
operations. Our present resources and operating revenue is
insufficient to fund these plans. Therefore, we require
substantial additional funds to finance our business activities on an ongoing
basis and to implement our expansion strategy portraying our company as one with
sufficient financial strength and stability to attract government and larger
business customers. Accordingly, we intend to seek additional financing
following the filing of this registration statement. We do not have any
commitments or arrangements to obtain any additional equity capital, and there
can be no assurance that the additional financing we require would be available
on reasonable terms, if at all. The unavailability of additional
financing could require us to delay, scale back or terminate our plans to expand
our business.
Product
Failure, Marketplace Reputation and Liability
Through
our wholesalers, dealers, installers, franchisees and direct operations we
intend to install hundreds and eventually thousands of security
systems. Should any of our systems fail to perform as promised due to
a product defect or a faulty installation, our reputation could be marred by
adverse publicity. We could be liable for damages suffered by our
customer. Consequently our operating results and stock price could
suffer.
We
intend to become subject to the periodic reporting requirements of the
Securities Exchange Act of 1934 that will require us to incur audit
fees and legal fees in connection with the preparation of such
reports. These additional costs could reduce or eliminate our ability
to earn a profit.
Commencing
sixty days after the filing of this
registration statement on Form 10 , we will be
required to file periodic reports with the Securities and
Exchange Commission pursuant to the
Securities Exchange Act of 1934 and the rules
and regulations promulgated thereunder. In
order to comply with these requirements, our independent registered public
accounting firm will have to review our financial statements on a quarterly
basis and audit our financial statements on an annual
basis. Moreover, our legal counsel will have to review and assist in
the preparation of such reports. The costs charged by these
professionals for such services cannot be accurately predicted at this time
because factors such as the number and type of transactions that we engage in
and the complexity of our reports cannot be determined at this time and will
have a major affect on the amount of time to be spent by our auditors and
attorneys. However, our incurring these costs will obviously be an
expense to our operations and thus have a negative effect on our ability to meet
our overhead requirements and earn a profit. We may be exposed to potential
risks resulting from new requirements under Section 404 of the
Sarbanes-Oxley Act of 2002. If we cannot provide reliable financial reports or
prevent fraud, our business and operating results could be harmed, investors
could lose confidence in our reported financial information, and the trading
price of our common stock, if a market ever develops, could drop
significantly.
Pursuant
to Section 404 of the Sarbanes-Oxley Act of 2002, as amended by SEC Release
33-8934 on June 26, 2008 we will be required, beginning with our fiscal year
ending June 30, 2010, to include in our annual report our assessment of the
effectiveness of our internal control over financial reporting as of the end of
the fiscal year ending June 30, 2010. Furthermore, in the following year, our
independent registered public accounting firm will be required to report
separately on whether it believes that we have maintained, in all material
respects, effective internal control over financial reporting. We have not yet
completed any assessment of the effectiveness of our internal control over
financial reporting. We expect to incur additional expenses and diversion of
management’s time as a result of performing the system and process evaluation,
testing and remediation required in order to comply with the management
certification and auditor attestation requirements.
Our
officers have no experience in managing a public company.
Our
present officers have no previous experience in managing a public company and we
do not have a sufficient number of employees to segregate responsibilities and
may be unable to afford increasing our staff or engaging outside consultants or
professionals to overcome our lack of employees. During the course of our
testing, we may identify other deficiencies that we may not be able to remediate
in time to meet the deadline imposed by the Sarbanes-Oxley Act for compliance
with the requirements of Section 404. In addition, if we fail to achieve and
maintain the adequacy of our internal controls, as such standards are modified,
supplemented or amended from time to time, we may not be able to ensure that we
can conclude on an ongoing basis that we have effective internal controls over
financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act.
Moreover, effective internal controls, particularly those related to revenue
recognition, are necessary for us to produce reliable financial reports and are
important to help prevent financial fraud. If we cannot provide reliable
financial reports or prevent fraud, our business and operating results could be
harmed, investors could lose confidence in our reported financial information,
and the trading price of our common stock, if a market ever develops, could drop
significantly.
Competition
We face a
variety of competitive challenges from other security and surveillance companies
in every market where we operate or plan to operate. Many of our
competitors will be large multinational or market dominant companies whom have
greater financial and marketing resources than we do and may be able to adapt to
changes in consumer preferences or requirements more quickly, devote greater
resources to the marketing and sale of their products or adopt more aggressive
pricing policies than we can.
Control
by Management
Our
company is effectively controlled by management, specifically Weixing Wang ,Yan
Wang and Ming Li who beneficially own 18,640,000 shares or 56.1% of
our 33,180,000 issued and outstanding shares of common stock as of
November 25, 2009. Accordingly, they will be able to elect our board
of directors and control our corporate affairs for the foreseeable
future.
Dependence
of Third Party Supplier
We have
entered into an OEM Agreement with SHDT and an internet services agreement with
Peer 1. A failure of either of these parties to perform in accordance
with the terms of their agreement with us could have a material adverse effect
on our results of operations and negatively impact our stock price.
RISKS
RELATED TO OUR INDUSTRY
Our
success relies on our management’s ability to understand the highly evolving
network surveillance and safety industry.
The
network surveillance and safety industry is nascent and rapidly evolving.
Therefore, it is critical that our management is able to understand industry
trends and make good strategic business decisions. If our management is unable
to identify industry trends and act in response to such trends in a way that is
beneficial to us, our business will suffer.
If
we are unable to respond to the rapid changes in our industry and changes in our
customer’s requirements and preferences, our business, financial condition and
results of operations could be adversely affected.
If we are
unable, for technological, legal, financial or other reasons, to adapt in a
timely manner to changing market conditions or customer requirements, we could
lose customers and market share. The network surveillance and safety industry is
characterized by rapid technological change. Sudden changes in customer
requirements and preferences, the frequent introduction of new products and
services embodying new technologies and the emergence of new industry standards
and practices could render our existing products, services and systems obsolete.
The emerging nature of products and services in the
network surveillance and safety industry and their rapid evolution
will require that we continually improve the performance, features and
reliability of our products and services. Our success will depend, in part, on
our ability to:
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enhance
our existing products and services;
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anticipate
changing customer requirements by designing, developing, and launching new
products and services that address the increasingly sophisticated and
varied needs of our current and prospective customers;
and
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respond
to technological advances and emerging industry standards and practices on
a cost-effective and timely basis.
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The
development of additional products and services involves significant
technological and business risks and requires substantial expenditures and lead
time. If we fail to introduce products with new technologies in a timely manner,
or adapt our products to these new technologies, our business, financial
condition and results of operations could be adversely affected. We cannot
assure you that even if we are able to introduce new products or adapt our
products to new technologies that our products will gain acceptance among our
customers. In addition, from time to time, we or our competitors may announce
new products, product enhancements or technological innovations that have the
potential to replace or shorten the life cycles of our existing products and
that may cause customers to refrain from purchasing our existing products,
resulting in inventory obsolescence.
We
may not be able to maintain or improve our competitive position of strong
competition in the network surveillance and safety industry, and we expect this
competition to continue to intensify.
The North
American and Chinese network surveillance and safety industry is
highly competitive, we also face competition from international competitors.
Some of our international competitors are larger than us and possess greater
name recognition, assets, personnel, sales and financial resources. These
entities may be able to respond more quickly to changing market conditions by
developing new products and services that meet customer requirements or are
otherwise superior to our products and services and may be able to more
effectively market their products than we can because they have significantly
greater financial, technical and marketing resources than we do. They may also
be able to devote greater resources than we can to the development, promotion
and sale of their products. Increased competition could require us to reduce our
prices, result in our receiving fewer customer orders, and result in our loss of
market share. We cannot assure you that we will be able to distinguish ourselves
in a competitive market. To the extent that we are unable to successfully
compete against existing and future competitors, our business, operating results
and financial condition could be materially adversely affected.
Our
business and reputation as a OEM manufacturer of high quality H.264 IP products
may be adversely affected by product defects or performance.
We
believe that we offer high quality products that are reliable and competitively
priced. If our products do not perform to specifications, we might be required
to redesign or recall those products or pay substantial damages. Such an event
could result in significant expenses, disrupt sales and affect our reputation
and that of our products. In addition, product defects could result in
substantial product liability. We do not have product liability insurance. If we
face significant liability claims, our business, financial condition, and
results of operations would be adversely affected.
Some of
our products and services are designed for medium to large commercial,
industrial and government facilities desiring to protect valuable assets and/or
prevent intrusion into high security facilities. Given the nature of our
products and the customers that purchase them, sales cycles can be lengthy as
customers conduct intensive investigations and deliberate between competing
technologies and providers. For these and other reasons, the sales cycle
associated with some of our products and services is typically lengthy and
subject to a number of significant risks over which we have little or no
control. If sales in any period fall significantly below anticipated levels, our
financial condition and results of operations could suffer.
RISKS
RELATED TO DOING BUSINESS IN CHINA
Adverse
changes in political and economic policies of the PRC government could impede
the overall economic growth of China, which could reduce the demand for our
products and damage our business.
Our
growth strategy includes acquiring or investing in suitable candidates on
acceptable terms in China. We have also from time to time
entered into letters of intent to acquire several other companies in
China . We also produce our products through an OEM in China.
Accordingly, our business, financial condition, results of operations and
prospects are affected significantly by economic, political and legal
developments in China. The PRC economy differs from the economies of most
developed countries in many respects, including:
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the
higher level of government
involvement;
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the
early stage of development of the market-oriented sector of the
economy;
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the
higher level of control over foreign exchange;
and
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the
allocation of resources.
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As the
China economy has been transitioning from a planned economy to a more
market-oriented economy, the China government has implemented various measures
to encourage economic growth and guide the allocation of resources. While these
measures may benefit the overall China economy, they may also have a negative
effect on us.
Although
the China government has in recent years implemented measures emphasizing the
utilization of market forces for economic reform, the China government continues
to exercise significant control over economic growth in China through the
allocation of resources, controlling payment of foreign currency-denominated
obligations, setting monetary policy and imposing policies that impact
particular industries or companies in different ways.
Any
adverse change in the economic conditions or government policies in China could
have a material adverse effect on the overall economic growth and the level of
surveillance and safety investments and expenditures in China, which in turn
could lead to a reduction in demand for our products and consequently have a
material adverse effect on our business and prospects.
Uncertainties
with respect to the China legal system could limit the legal protections
available to you and us.
Our
operating subsidiaries are generally subject to laws and regulations applicable
to foreign investments in China and, in particular, laws applicable to
foreign-invested enterprises. The China legal system is based on written
statutes, and prior court decisions may be cited for reference, but have limited
precedential value. Since 1979, a series of new China laws and regulations have
significantly enhanced the protections afforded to various forms of foreign
investments in China. However, since the China legal system continues to rapidly
evolve, the interpretations of many laws, regulations and rules are not always
uniform and enforcement of these laws, regulations and rules involve
uncertainties, which may limit legal protections available to you and us. In
addition, any litigation in China may be protracted and result in substantial
costs and diversion of resources and management attention.
China’s
government exerts substantial influence over the manner in which we conduct our
business activities.
China’s
government has exercised and continues to exercise substantial control over
virtually every sector of the Chinese economy through regulation and state
ownership. Our ability to operate in China may be harmed by changes in its laws
and regulations, including those relating to taxation, import and export
tariffs, environmental regulations, land use rights, property and other matters.
We believe that our operations in China are in material compliance with all
applicable legal and regulatory requirements. However, the central or local
governments of the jurisdictions in which we operate may impose new, stricter
regulations or interpretations of existing regulations that would require
additional expenditures and efforts on our part to ensure our compliance with
such regulations or interpretations.
Restrictions
on currency exchange may limit our ability to receive and use our sales revenue
effectively.
Some of
our sales revenue and/or expenses are or will occur in China and be denominated
in Renminbi. Under PRC law, the Renminbi is currently convertible under the
“current account,” which includes dividends and trade and service-related
foreign exchange transactions, but not under the “capital account,” which
includes foreign direct investment and loans. In the future, our China operating
subsidiaries may purchase foreign currencies for settlement of current account
transactions, including payments of dividends to us, without the approval of the
State Administration of Foreign Exchange (the “SAFE”), by complying with certain
procedural requirements. However, the relevant China governmental authorities
may limit or eliminate our ability to purchase foreign currencies in the future.
Since a significant amount of our future revenue will be denominated in
Renminbi, any existing and future restrictions on currency exchange may limit
our ability to utilize revenue generated in Renminbi to fund our business
activities outside China that are denominated in foreign
currencies.
Foreign
exchange transactions by China operating subsidiaries under the capital account
continue to be subject to significant foreign exchange controls and require the
approval of or need to register with PRC government authorities, including SAFE.
In particular, if our China operating subsidiaries borrow foreign currency
through loans from us or other foreign lenders, these loans must be registered
with SAFE, and if we finance the subsidiaries by means of additional capital
contributions, these capital contributions must be approved by certain
government authorities, including the Ministry of Commerce, or their respective
local counterparts. These limitations could affect our China operating
subsidiaries’ ability to obtain foreign exchange through debt or equity
financing.
We
may be unable to complete a business combination transaction efficiently or on
favorable terms due to complicated merger and acquisition regulations which
became effective on September 8, 2006.
On August
8, 2006, six PRC regulatory agencies, including the CSRC, promulgated the
Regulation on Mergers and Acquisitions of Domestic Companies by Foreign
Investors, which became effective on September 8, 2006. This new regulation,
among other things, governs the approval process by which a China company may
participate in an acquisition of assets or equity interests. Depending on the
structure of the transaction, the new regulation will require the China parties
to make a series of applications and supplemental applications to the government
agencies. In some instances, the application process may require the
presentation of economic data concerning a transaction, including appraisals of
the target business and evaluations of the acquirer, which are designed to allow
the government to assess the transaction. Government approvals will have
expiration dates by which a transaction must be completed and reported to the
government agencies. Compliance with the new regulations is likely to be more
time consuming and expensive than in the past and the government can now exert
more control over the combination of two businesses. Accordingly, due to the new
regulation, our ability to engage in business combination transactions has
become significantly more complicated, time consuming and expensive, and we may
not be able to negotiate a transaction that is acceptable to our stockholders or
sufficiently protect their interests in a transaction.
The new regulation allows China government agencies to assess the
economic terms of a business combination transaction. Parties to a business
combination transaction may have to submit to the Ministry of Commerce and other
relevant government agencies an appraisal report, an evaluation report and the
acquisition agreement, all of which form part of the application for approval,
depending on the structure of the transaction. The regulations also prohibit a
transaction at an acquisition price obviously lower than the appraised value of
the China business or assets and in certain transaction structures, require that
consideration must be paid within defined periods, generally not in excess of a
year. The regulation also limits our ability to negotiate various terms of the
acquisition, including aspects of the initial consideration, contingent
consideration, holdback provisions, indemnification provisions and provisions
relating to the assumption and allocation of assets and liabilities. Transaction
structures involving trusts, nominees and similar entities are prohibited.
Therefore, such regulation may impede our ability to negotiate and complete a
business combination transaction on financial terms that satisfy our investors
and protect our stockholders’ economic interests.
In
addition to the above risks, in many instances, we will seek to structure
transactions in a manner that avoids the need to make applications or a series
of applications with Chinese regulatory authorities under these new M&A
regulations. If we fail to effectively structure an acquisition in a manner that
avoids the need for such applications or if the Chinese government interprets
the requirements of the new M&A regulations in a manner different from our
understanding of such regulations, then acquisitions that we have effected may
be unwound or subject to rescission. Also, if the Chinese government determines
that our structure of any of our acquisitions does not comply with these new
regulations, then we may also be subject to fines and penalties.
Fluctuations
in exchange rates could adversely affect our business and the value of our
securities.
The value
of our common stock will be indirectly affected by the foreign exchange rate
between U.S. dollars and the Renminbi and between those currencies and other
currencies in which our sales may be denominated. Because we OEM and import
products from China and some of our earnings are denominated in Renminbi and our
financial results are reported in U.S. dollars, fluctuations in the exchange
rate between the U.S. dollar and the Renminbi will affect our balance sheet and
our earnings per share in U.S. dollars. In addition, appreciation or
depreciation in the value of the Renminbi relative to the U.S. dollar would
affect our financial results reported in U.S. dollar terms without giving effect
to any underlying change in our business or results of operations. Fluctuations
in the exchange rate will also affect the relative value of any dividend we
issue that will be exchanged into U.S. dollars and earnings from, and the value
of, any U.S. dollar-denominated investments we make in the future.
Since
July 2005, the Renminbi has no longer been pegged to the U.S. dollar. Although
the People’s Bank of China regularly intervenes in the foreign exchange market
to prevent significant short-term fluctuations in the exchange rate, the
Renminbi may appreciate or depreciate significantly in value against the U.S.
dollar in the medium to long term. Moreover, it is possible that in the future
the China authorities may lift restrictions on fluctuations in the
Renminbi exchange rate and lessen intervention in the foreign exchange
market.
Very
limited hedging transactions are available in China to reduce our exposure to
exchange rate fluctuations. To date, we have not entered into any hedging
transactions in an effort to reduce our exposure to foreign currency exchange
risk. While we may enter into hedging transactions in the future, the
availability and effectiveness of these transactions may be limited, and we may
not be able to successfully hedge our exposure at all. In addition, our foreign
currency exchange losses may be magnified by China exchange control regulations
that restrict our ability to convert Renminbi into foreign
currencies.
Currently,
some of our raw materials, components and major equipment are imported. In the
event that the U.S. dollars appreciate against Renminbi, our costs will
increase. If we cannot pass the resulting cost increases on to our customers,
our profitability and operating results will suffer.
Risks
Relating to Our Common Stock
Limitations
upon Broker-Dealers Effecting Transactions in "Penny Stocks"
Trading
in our common stock is subject to material limitations as a consequence of
regulations which limits the activities of broker-dealers effecting transactions
in "penny stocks." Pursuant to Rule 3a51-1 under the Exchange Act,
our common stock is a "penny stock" because it (i) is not listed on any national
securities exchange or The NASDAQ Stock Market™, (ii) has a market price of less
than $5.00 per share, and (iii) its issuer (the Company) has net tangible assets
less than $2,000,000 (if the issuer has been in business for at least three (3)
years) or $5,000,000 (if the issuer has been in business for less than three (3)
years).
Rule
15g-9 promulgated under the Exchange Act imposes limitations upon trading
activities on "penny stocks", which makes selling our common stock more
difficult compared to selling securities which are not "penny
stocks." Rule 15a-9 restricts the solicitation of sales of "penny
stocks" by broker-dealers unless the broker first (i) obtains from the purchaser
information concerning his financial situation, investment experience and
investment objectives, (ii) reasonably determines that the purchaser has
sufficient knowledge and experience in financial matters that the person is
capable of evaluating the risks of investing in "penny stocks", and (iii)
delivers and receives back from the purchaser a manually signed written
statement acknowledging the purchaser's investment experience and financial
sophistication.
Rules
15g-2 through 15g-6 promulgated under the Exchange Act require broker-dealers
who engage in transactions in "penny stocks" first to provide their customers
with a series of disclosures and documents, including (i) a standardized risk
disclosure document identifying the risks inherent in investing in "penny
stocks", (ii) all compensation received by the broker-dealer in connection with
the transaction, (iii) current quotation prices and other relevant market data,
and (iv) monthly account statements reflecting the fair market value of the
securities.
There can
be no assurance that any broker-dealer which initiates quotations for the Common
Stock will continue to do so, and the loss of any such broker-dealer likely
would have a material adverse effect on the market price of our common
stock.
No
Active or Regular Market
Although
our common stock has been quoted on the Pink Sheets since October 31. 1985 there
have been no trades recorded in our common stock for several years. We are
taking steps, including the filing of this registration statement, to encourage
the development of an orderly and active trading market. After the
completion of this registration statement we intend to seek to have our stock
included on the Over – The - Counter - Bulletin Board maintained by FINRA
(“OTCBB”) or a higher exchange. However, even if our stock is included on the
OTCBB it is possible that no market-maker will want to provide such quotations.
Even if our common stock is quoted on the OTCBB, the OTCBB also provides a
limited trading market similar to the Pink Sheets. The OTCBB and the Pink Sheets
are not stock exchanges, and trading of securities on the OTCBB or the Pink
Sheets is often more sporadic than the trading of securities listed on a
quotation system such as the NASDAQ Stock Market or a stock exchange such as the
American Stock Exchange.
Companies
quoted for trading on the OTCBB must be reporting issuers under Section 12 of
the Exchange Act and must be current in their reports under Section 13 of the
Exchange Act, in order to maintain price quotation privileges on the OTCBB. If
our common stock is quoted on the OTCBB, and we fail to remain current on our
reporting requirements, we could be removed from the OTBB. As a result, the
market liquidity for our securities could be severely adversely affected by
limiting the ability of broker-dealers to sell our securities and the ability of
stockholders to sell their securities in the secondary market. In addition, we
may be unable to regain our quotation privileges on the OTCBB, which may have an
adverse material effect on our business.
Accordingly,
there can be no assurance as to the liquidity of any present or future markets
that may develop for our common stock, the ability of holders of our common
stock to sell our common stock, or the prices at which holders may be able to
sell our common stock.
Shares Eligible for
Future Sale
The sale
of a substantial number of shares of our common stock, or the perception that
such sales could occur, could adversely affect prevailing market prices for our
common stock. In addition, any such sale or perception could make it
more difficult for us to sell equity, or equity related, securities in the
future at a time and price that we deem appropriate. If and when this
registration statement becomes effective and we become subject to the reporting
requirements of the Exchange Act, we might elect to adopt a stock option plan
and file a registration statement under the Securities Act registering the
shares of common stock reserved for issuance thereunder. Following
the effectiveness of any such registration statement, the shares of common stock
issued under such plan, other than shares held by affiliates, if any, would be
immediately eligible for resale in the public market without
restriction.
The sale
of shares of our common stock which are not registered under the Securities Act,
known as “restricted” shares, typically are effected under Rule
144. At November 25, 2009 we had outstanding an aggregate of
32,938,000 shares of restricted common stock. In accordance with the
recent amendments to Rule 144, since we formerly were a “shell” company no
shares of our restricted common stock are eligible for sale under Rule 144 until
we become subject to the reporting requirements of the Exchange Act, i.e., until
this registration statement becomes effective, and then only if we thereafter
have complied with our reporting requirements under the Exchange Act for the
next 12 months. No prediction can be made as to the effect, if any,
that future sales of “restricted” shares of our common stock, or the
availability of such shares for future sale, will have on the market price of
our common stock or our ability to raise capital through an offering of our
equity securities.
The sale
of a substantial number of shares of our common stock, or the perception that
such sales could occur, could adversely affect prevailing market prices for our
common stock. In addition, any such sale or perception could make it
more difficult for us to sell equity, or equity related, securities in the
future at a time and price that we deem appropriate. If and when this
registration statement becomes effective and we become subject to the reporting
requirements of the Exchange Act, we might elect to adopt a stock option plan
and file a registration statement under the Securities Act registering the
shares of common stock reserved for issuance thereunder. Following
the effectiveness of any such registration statement, the shares of common stock
issued under such plan, other than shares held by affiliates, if any, would be
immediately eligible for resale in the public market without
restriction.
No
Dividends
We never
have paid any dividends on our common stock and we do not intend to pay any
dividends in the foreseeable future.
Item
2: Financial Information
The
following tables summarize certain information from our financial statements
appearing elsewhere in this registration statement. The reader is
directed to such financial statements and the accompanying notes for a full
explanation of the information set forth below:
Balance
Sheet Data:
|
|
|
As
of March 31,
|
|
|
As
of September 30,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Current Assets
|
|
$ |
89,763 |
|
|
$ |
277,427 |
|
|
$ |
429,353 |
|
|
Property
and Equipment
|
|
$ |
21,266 |
|
|
$ |
6,242 |
|
|
$ |
23,180 |
|
|
Intangible
Assets
|
|
$ |
1,034,627 |
|
|
$ |
1,239,864 |
|
|
$ |
1,299,547 |
|
|
Total
Assets
|
|
$ |
1,145,616 |
|
|
$ |
1,523,534 |
|
|
$ |
1,752,080 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities
|
|
$ |
4,345 |
|
|
$ |
10,949 |
|
|
$ |
9,355 |
|
|
Stockholders’
Equity
|
|
$ |
1,141,261 |
|
|
$ |
1,512,857 |
|
|
|
S1,742,725 |
|
|
Total
Liabilities and Stockholder’s Equity
|
|
$ |
1,145,616 |
|
|
$ |
1,523,534 |
|
|
$ |
1,752,080 |
|
Statement
of Operations Data
|
|
|
For
the year ended March 31,
|
|
|
For
the six months ended
September
30,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
20,820 |
|
|
$ |
- |
|
|
$ |
11,099 |
|
|
$ |
10,878 |
|
|
Cost
of Sales
|
|
$ |
14,790 |
|
|
$ |
- |
|
|
$ |
3,475 |
|
|
$ |
5,715 |
|
|
Gross
Profit
|
|
$ |
6,030 |
|
|
$ |
- |
|
|
$ |
7,624 |
|
|
$ |
5,163 |
|
|
Expenses
|
|
$ |
361,229 |
|
|
$ |
19,217 |
|
|
$ |
159,949 |
|
|
$ |
243,344 |
|
|
Other
Income (Expense)
|
|
$ |
4,745 |
|
|
$ |
(197 |
) |
|
$ |
(8,099 |
) |
|
$ |
149 |
|
|
Net
(Loss)
|
|
$ |
(350,455 |
) |
|
$ |
(19,415 |
) |
|
$ |
(160,424 |
) |
|
$ |
(238,032 |
) |
|
Foreign
Currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation
|
|
$ |
(270,752 |
) |
|
$ |
143,909 |
|
|
$ |
272,168 |
|
|
$ |
543,233 |
|
|
Comprehensive
Income (Loss)
|
|
$ |
(621,207 |
) |
|
$ |
124,494 |
|
|
$ |
112,374 |
|
|
$ |
305,201 |
|
|
Net
Income (Loss) per share
|
|
$ |
(0.01 |
) |
|
$ |
(0.01 |
) |
|
$ |
0.00 |
|
|
$ |
(0.09 |
) |
Fiscal
Year ended March 31, 2009 compared to Fiscal Year ended March 31,
2008
Revenues. We had
revenues of $20,820 in FY 2009 and no revenues in 2008 as FY 2008 was devoted to
product design and establishing a business model. FY 2009 reflects an
initial roll out of our business model in Canada for a portion of the year,
Canada being our first and the smallest of out three initial planned
markets. We anticipate opening several Company owned stores in the
United States during calendar 2010 at a cost of approximately $25,000 to $35,000
each and, based upon the results of these stores initiating a United States
franchise sale program late in calendar 2010. The costs of opening a
Company operated store include inventory, real estate costs, employee expense
and promotional expenses such as advertising. We plan a similar program in
China, but the costs to open a Company owned store are significantly lower due
to lower rent, employee and promotional costs and are anticipated to be
approximately $10,000 per retail store. The size and scope of each of
these programs will be governed by management’s assessment of the Company’s
capital resources and can not be specified at this time.
Cost of Revenue; Gross
Profit. Our cost of revenue in FY 2009 was $14,790, yielding a
gross profit of $6,030 or 29% of revenues. We had no revenues, cost
of revenues or gross profit in FY 2008. We anticipate that as
revenues increase we will increase our gross profit margins.
Operating
Expenses
Operating
expenses increased to $361,229 in FY 2009 compared to $19,217 in FY 2008 as we
began manufacturing and marketing efforts in FY 2009.
Net
Loss; Comprehensive Loss
Because
FY 2009 was a year where we engaged in activities such as attempting to market
franchises and initiated manufacturing, we incurred expenses which positioned us
to potentially realize income in future years, but did not result in income
during the 2009 FY. Accordingly our net loss increased to $(350,455)
in 2009 FY from $(19,415) in 2008 FY. The comprehensive loss for 2009
FY was further adversely affected by a loss in currency translation of
$(270,752) compared to a gain of $143,909 in 2008 FY largely as a result of the
Canadian Dollar faring poorly against the US Dollar As a result
comprehensive loss was $(621,207) in FY 2009 compared to income of
$124,494 in 2008 FY.
First
two quarters Quarter FY 2010 v First two Quarters Quarter FY 2009
Revenues. We had
revenues of $11,099 in the first six months of FY 2010 and revenues of $10,878
for the first six months1 of FY 2009 as FY 2009 was devoted to product design
and establishing a business model. Q1 of FY 2010 reflects an initial
roll out of our business model in Canada, Canada being our first and the
smallest out three initial planned markets. As we are in the early
stages of developing this market we expect that revenues and results will
fluctuate from quarter to quarter. We anticipate opening several Company owned
stores in the United States during calendar 2010 at a cost of approximately
$25,000 to $35,000 each and, based upon the results of these stores initiating a
United States franchise sale program late in calendar 2010. The costs
of opening a Company operated store include inventory, real estate costs,
employee expense and promotional expenses such as advertising. We plan a similar
program in China, but the costs to open a Company owned store are significantly
lower due to lower rent, employee and promotional costs and are anticipated to
be approximately $10,000 per retail store. The size and scope of each
of these programs will be governed by management’s assessment of the Company’s
capital resources and can not be specified at this time.
Cost of Sales; Gross
Profit. Our cost of sales in the first six months of FY 2010
was $3,475, yielding a gross profit of $7,624 or 69% of sales. Our
cost of sales in the first six months of FY 2009 was $$5,715, yielding a gross
profit of $5,163 or 47% of sales. We anticipate that as revenues
increase we will increase our gross profit margins, but management does not
believe that we should draw significant conclusions from these limited
results..
Operating
Expenses
Operating
expenses decreased to 159,949 in the first six months of FY 2010 compared to
$243,344 in the first six months of of FY 2009 as decreases in
general and administrative expense, research and development and advertising
were partially offset by increased commissions, payroll and professional
fees.
Net
Loss; Comprehensive Loss
Our net
loss and comprehensive loss consists of two parts: net operating
gain (loss) and foreign currency translation adjustments. Because all our
transactions are recorded in Canadian dollars, we need to exchange them
into US dollar using the exchange rate for different period when we release the
financial statements to the public. If exchange rate fluctuates and
if we have the balance of asset, liability or equity, the foreign currency
translation adjustments will be large.
For the
six months ended September 30, 2009, the net loss was -$(160,424),
but foreign currency translation adjustment gain was $272,798, so the
comprehensive income is $112,374. (Because we have substantial intangible assets
the foreign transaction adjustment is large). For the six months ended September
30, 2008, the net loss is -$(238,032) but foreign currency
translation adjustment gain is $543,233 so the comprehensive income is $305,201.
(Because we have substantial intangible assets the foreign transaction
adjustment is large)
Liquidity
and Capital Resources
As of
September 30, 2009, we had $ 209,055
of cash on hand and current assets totaling $ 429,353 . We
are in need of working capital if we are to pursue our business
plan. Management believes that once we obtain an OTCBB listing, which
we will seek upon completion of this registration statement, we will be able to
seek additional funding through a private placement. We intend
to raise a minimum of $500,000 and a maximum of
$3,500,000 although no assurance can be given that we will be
successful in these efforts or that such funds can be raised on terms that will
not substantially dilute the interests of our present stockholders or that if
such funds are raised we will prove successful in our business.
If we are
able to raise funds we anticipate applying them as follows:
|
|
|
If
$500, 000 is raised
|
|
|
If
$ 3,500,000 is raised
|
|
|
|
|
|
|
|
|
|
|
Marketing
|
|
$ |
100,000 |
|
|
$ |
250,000 |
|
|
|
|
|
|
|
|
|
|
|
|
R
& D
|
|
$ |
130,000 |
|
|
$ |
250,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
$ |
150,000 |
|
|
$ |
250,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
|
|
$ |
120,000 |
|
|
$ |
250,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Equipment
|
|
$ |
0 |
|
|
$ |
2,000,000 |
|
If we are
unable to raise additional funding as set forth above we will seek to continue
our operations at their present levels and to grow in a slower, more measured,
fashion. We estimate approximately $30,000 per year in professional
fees and $10,000 in other casts related to operating as a public company which
will have to be funded either from working capital or operating cash
flow. The need for these funds may further adversely affect our
ability to operate at desired levels. We have entered into letters of
intent for the acquisition of other entities, but since these acquisitions, even
if they are completed, contemplate the payment of the purchase price solely in
our stock with no cash component, we do not believe that they will result in
immediate demands upon our capital resources. While
all but one of these letters of intent have by their terms expired, the
remaining letter of intent, dated November 12, 2009, is for us to acquire all of
the shares of a non-affiliated equipment manufacturer in the Peoples Republic of
China in exchange for 32,000,000 of our shares. The consummation of
this transaction is subject to many conditions including completion of due
diligence, entry into a definitive agreement approval of the transaction by our
board of directors and shareholders. None of these conditions have
occurred. The transaction, if consummated, would result in our
integrating manufacture of our products into our operations, but would also
result in a substantial increase of the number of our shares
outstanding. The board of directors will only recommend the
adoption of any definitive agreement to the shareholders if it deem such
agreement to be beneficial and in our best interest of and the best interest our
shareholders. Since we do not have audited financial information with
respect to this entity, we are unable to predict the impact of such acquisition
on our financial condition and liquidity. Our CEO has orally
committed to advance us such funds as are necessary to fund our operations over
the next 24 months should the need arise. While this commitment will
allow us to operate for the next 24 months, it is not a legally binding
agreement.
Off-Balance Sheet
Arrangements
We do not
have any off balance sheet arrangements that are reasonably likely to have a
current or future effect on our financial condition, revenues, and results of
operations, liquidity or capital expenditures.
CRITICAL
ACCOUNTING POLICIES AND USE OF ESTIMATES
The
methods, estimates and judgments we use in applying our accounting policies have
a significant impact on the results we report in our financial statements and
which we discussed above in this Item 2. Some of our accounting policies require
us to make difficult and subjective judgments, often as a result of the need to
make estimates of matters that are inherently uncertain. We believe our critical
accounting policies are those described below.
Summary
of Significant Accounting Policies
These
financial statements and related notes are presented in accordance with
accounting principles generally accepted in the United States, and are expressed
in US dollars. The Company’s fiscal year-end is March 31.
|
|
b)
|
Principles
of Consolidation
|
These
consolidated financial statements include the accounts of Canada ANV Systems
Inc. and its wholly-owned subsidiary, ANV Video Alarm Service Inc which was
incorporated in British Columbia, Canada on May 30, 2008. All intercompany
accounts and transactions have been eliminated in consolidation.
The
preparation of financial statements in conformity with United States generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. The Company regularly evaluates estimates and
assumptions related to useful life and recoverability of long-lived assets,
donated expenses, and deferred income tax valuation allowances. The Company
bases its estimates and assumptions on current facts, historical experience and
various other factors that it believes to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying
values of assets and liabilities and the accrual of costs and expenses that are
not readily apparent from other sources. The actual results experienced by the
Company may differ materially and adversely from the Company’s estimates. To the
extent there are material differences between the estimates and the actual
results, future results of operations will be affected.
Certain
account reclassifications have been made to the financial statements of the
prior year in order to conform to classifications used in the current year.
These changes had no impact on previously stated financial statements of the
Company.
|
|
e)
|
Comprehensive
Income (Loss)
|
SFAS No.
130, “Reporting Comprehensive
Income,” establishes standards for the reporting and display of
comprehensive loss and its components in the financial statements. As at March 31, 2009, the
Company’s only component of comprehensive income consisted of foreign currency
translation adjustments.
|
|
f)
|
Cash
and Cash Equivalents
|
The
Company considers all highly liquid instruments with maturity of three months or
less at the time of issuance to be cash equivalents.
|
|
g)
|
Concentration
of Credit Risks
|
Financial
instruments which potentially subject the Company to concentrations ofcredit
risk consist principally of cash and trade accounts receivable. The Company
places its cash with high credit quality financial institutions in
Canada. The Company has not experienced any losses in such bank
accounts through March 31, 2009. At March 31,our bank deposits were as
follows:
|
COUNTRY
|
|
2009
|
|
|
2008
|
|
|
Canada
|
|
$ |
28,470 |
|
|
$ |
186,631 |
|
|
Total
cash and cash equivalents
|
|
$ |
28,470 |
|
|
$ |
186,631 |
|
In an
effort to mitigate any potential risk, the Company periodically evaluates the
credit quality of the financial institutions at which it holds
deposits.
Accounts
receivable are presented net of an allowance for doubtful accounts. The Company
maintains allowances for doubtful accounts for estimated losses. The
Company reviews the accounts receivable on a periodic basis and
makes general and specific allowances when there is doubt as to the
collectability of individual balances. In evaluating the
collectability of individual receivable balances, the
Company considers many factors, including the age of the
balance, customer's historical payment history, its
current credit-worthiness and current economic trends. Accounts are
written off after exhaustive efforts at collection.
Inventories
are stated at the lower of average cost or market and consist of raw materials
and finished goods. The Company writes down inventory for estimated obsolescence
or unmarketable inventory based upon assumptions and estimates about future
demand and market conditions. If actual market conditions are less favorable
than those projected by the Company, additional inventory write-downs may be
required.
GST
receivable represent tax credit that the Canadian Company receives when the
Company pays GST tax during normal operations. As of March 31, 2009 and 2008,
the Company had a GST tax receivable of $ 1,408 and $ 758,
respectively.
Advances
to suppliers included in Other assets represent the cash paid in advance for
purchasing of inventory items from Suppliers and the amount as of March 31, 2009
was none and $ 53,993 for 2008.
Property
and equipment consists of furniture, office equipment, computer
equipment/software and leasehold improvement, is recorded at cost. The property
and equipment other than leasehold improvement is depreciated on a straight line
basis over an estimated useful life of three years. Leasehold improvement is
depreciated on a straight line basis over the lease period of ten
years
Intangible
assets represent a surveillance recording system, surveillance software,
technical know-how and non-compete agreements, developed by Jiwei Zhang, Xianbo
Fu, Kewei Feng, Mingyue Fan( all individuals), acquired originally by Landmark
Enterprise Group Inc.(“Landmark”) , a related party, and subsequently sold to
the Company in exchange for common shares. The value of intangible assets
acquired from Landmark was established by an independent valuation
report.
In
accordance with SFAS No. 144, “Accounting for the Impairment or
Disposal of Long-Lived Assets”, the Company tests long-lived assets or
asset groups for recoverability when events or changes in circumstances indicate
that their carrying amount may not be recoverable. An impairment loss is
recognized when the carrying amount is not recoverable and exceeds fair
value.
|
|
o)
|
Financial
Instruments and Fair Value Measures
|
SFAS No.
157 “Fair Value
Measurements” requires an entity to maximize the use of observable inputs
and minimize the use of unobservable inputs when measuring fair value. SFAS No.
157 establishes a fair value hierarchy based on the level of independent,
objective evidence surrounding the inputs used to measure fair value. A
financial instrument’s categorization within the fair value hierarchy is based
upon the lowest level of input that is significant to the fair value
measurement. SFAS No. 157 prioritizes the inputs into three levels that may be
used to measure fair value:
The
Company follows the guidance of the Securities and Exchange Commission's Staff
Accounting Bulletin No. 104, "Revenue Recognition in Financial Statements". In
general, the Company records revenue when persuasive evidence of an arrangement
exists, services have been rendered or product delivery has occurred, the sales
price to the customer is fixed or determinable, and collectability is reasonably
assured. The following policies reflect specific criteria for the various
revenues streams of the Company:
The
Company generates revenue from the sale of its products and records revenues
from the sale of products when the goods are shipped, title passes, and
collectability is reasonably assured.
Revenue
from periodic maintenance monitoring agreements is generally recognized on a
monthly basis provided no significant obligations remain and collectability of
the related receivable is probable.
Revenue
from the performance of installation services is recognized upon completion of
the service.
The
Company derives the bulk of its revenue from the supply and installation
of surveillance and safety equipment and the two deliverables do not meet the
separation criteria under EITF issue 00-21. The installation is not
considered to be essential to the functionality of the equipment having regard
to the following criteria as set out in SAB 104:
i)
The
surveillance and safety equipment is a standard product with minor modifications
according to customers’ specifications;
ii) Installation
does not significantly alter the surveillance and safety equipment’s
capabilities; and
iii) Other
companies which possess the relevant licenses are available to perform the
installation services.
The
Company reduced its
estimate of future warranty requirements to approximately 1 % of contract installation revenue. In the
year ended 2009 and 2008, estimated warranty expenses were $
-0- and $ -0- , respectively.
Revenue
from the outright sale of surveillance and safety equipment is recognized when
delivery occurs and risk of ownership passes to the customers.
|
|
q)
|
Research
& Development Costs
|
Research
and development costs are expensed as incurred. Research and development costs
included in general and administrative expenses for the years ended March 31,
2009 and 2008, amounted to $142,274 and $ -0-, respectively. The Research and
Development expenses consist of engineers’ salaries, research expenses paid to
the 3rd party subcontractors, monthly rent fee for research and development
centers and related utility outlay. Up to March 31, 2009, the company has
developed the following products and solutions: (1) USCI8™ Video Alarm Platform,
which offers an all-in-one security system for both commercial and residential
customers, and allows customers to take control of their own security
requirements; (2) iCam H.264 IP Camera, which currently has three series
covering market demand from home and small businesses, large businesses and
government and high-end surveillance users; (3) ANV Digital Video Server, or
H.264 DVS300, which is an embedded surveillance device specially designed for
network application; and (4) NVS Center 500 Management Software, which can
manage 1728 IP cameras simultaneously and set and control every IP camera
separately, supporting 32 channels output of TV walls, centralized storage, data
transmission and electric map.
Potential
benefits of income tax losses are not recognized in the accounts until
realization is more likely than not. The Company has adopted SFAS No. 109 “Accounting for Income Taxes”
as of its inception. Pursuant to SFAS No. 109 the Company is required to compute
tax asset benefits for net operating losses carried forward. Potential benefit
of net operating losses have not been recognized in these financial statements
because the Company cannot be assured it is more likely than not it will utilize
the net operating losses carried forward in future years.
|
|
s)
|
Foreign
Currency Translation
|
The
Company’s functional currency is the Canadian dollar. The financial statements
are translated to United States dollars in accordance with SFAS No. 52 “Foreign Currency Translation”
using period-end rates of exchange for assets and liabilities, and
average rates of exchange for the year for revenues and expenses. Translation
gains (losses) are recorded in accumulated other comprehensive income (loss) as
a component of stockholders’ equity (deficit). Gains and losses arising on
translation or settlement of foreign currency denominated transactions or
balances are included in the determination of income. Foreign currency
transactions are primarily undertaken in United States dollars. The Company has
not, to the date of these financial statements, entered into derivative
instruments to offset the impact of foreign currency fluctuations.
|
|
t)
|
Basic
and Diluted Net Income (Loss) Per
Share
|
The
Company computes net income (loss) per share in accordance with SFAS No. 128,
"Earnings per Share".
SFAS No. 128 requires presentation of both basic and diluted earnings per share
(EPS) on the face of the income statement. Basic EPS is computed by dividing net
income (loss) available to common shareholders (numerator) by the weighted
average number of shares outstanding (denominator) during the period. Diluted
EPS gives effect to all dilutive potential common shares outstanding during the
period using the treasury stock method and convertible preferred stock using the
if-converted method. In computing diluted EPS, the average stock price for the
period is used in determining the number of shares assumed to be purchased from
the exercise of stock options or warrants. Diluted EPS excludes all dilutive
potential shares if their effect is anti dilutive. As at March 31, 2009, there are no
dilutive potential common shares.
Basic
net earnings (loss) per share equals net earnings (loss) divided by the weighted
average shares outstanding during the year. The computation of diluted net
earnings per share does not include dilutive common stock equivalents in the
weighted average shares outstanding as they would be anti-dilutive. The
Company's common stock equivalents at March 31, 2009 and 2008 include the
following:
|
|
|
2009
|
|
|
2008
|
|
|
Options
|
|
|
140,000 |
|
|
|
-0- |
|
|
Warrants
|
|
|
-0- |
|
|
|
-0- |
|
|
|
|
|
140,000 |
|
|
|
-0- |
|
|
|
u)
|
Stock-based
Compensation
|
The
Company records stock-based compensation in accordance with SFAS No. 123R “Share
Based Payments”, using the fair value method. The Company provides its officers,
consultants, and directors stock options to purchase common stock of the Company
on a discretionary basis. Generally, options are granted at exercise prices not
less than the fair market value at the date of grant. As of March 31, 2009, the
Company has granted 140,000 shares stock options to its director, consultant and
top manager and the fair market value is $24,836.
v) Advertising
Advertising
is expensed as incurred and was were $ 58,650 and $ 1,469 for the years ended
March 31, 2009 an 2008, respectively.
w) Recent
Accounting Pronouncements
In
December 2007, the FASB issued SFAS 141 (revised 2007), "Business Combinations".
SFAS 141R is a revision to SFAS 141 and includes substantial changes to the
acquisition method used to account for business combinations (formerly the
"purchase accounting" method), including broadening the definition of a
business, as well as revisions to accounting methods for contingent
consideration and other contingencies related to the acquired business,
accounting for transaction costs, and accounting for adjustments to provisional
amounts recorded in connection with acquisitions.
In
December 2007, the FASB issued SFAS 160, "Non-controlling Interests in
Consolidated Financial Statements - an amendment of Accounting Research Bulletin
No. 51, Consolidated Financial Statements" ("ARB 51"). This Statement amends ARB
51 to establish new standards that will govern the (1) accounting for and
reporting of non-controlling interests in partially owned consolidated
subsidiaries and (2) the loss of control of subsidiaries. SFAS 160 is effective
for periods beginning after December 15, 2008. The Company is currently
evaluating the requirements of SFAS 160.
In March
2008, the FASB issued SFAS 161, "Disclosures about Derivative Instruments and
Hedging Activities". The new standard is intended to improve financial reporting
about derivative instruments and hedging activities by requiring enhanced
disclosures to enable investors to better understand their effects
on an entity's financial position, financial performance, and cash flows. It is
effective for financial statements issued for fiscal years and interim periods
beginning after November 15, 2008, with early application
encouraged.
In April
2008, the FASB issued FASB Staff Position (“FSP”) No. FAS 142-3, “Determination of Useful Life of
Intangible Assets” ("FSP 142-3"). FSP 142-3
amends the factors that should be considered in developing the renewal or
extension assumptions used to determine the useful life of a recognized
intangible asset under SFAS 142, “Goodwill and Other Intangible
Assets” (“SFAS
142”). The intent of this FSP is to improve the consistency between the
useful life of an intangible asset determined under SFAS 142 and the period of
expected cash flows used to measure the fair value of the asset under SFAS 141R.
FSP 142-3 is effective for fiscal years beginning after December
15, 2008, and interim periods within those fiscal years.
In May
2008, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 162, “The Hierarchy of Generally Accepted
Accounting Principles” (SFAS No. 162). SFAS No. 162 identifies the
sources of accounting principles and the framework for selecting the principles
used in the preparation of financial statements.
In May
2008, the Financial Accounting Standards Board ("FASB") issued SFAS No. 163,
"Accounting for Financial Guarantee Insurance Contracts-and interpretation of
FASB Statement No. 60". SFAS No. 163 clarifies how Statement 60
applies to financial guarantee insurance contracts, including the recognition
and measurement of premium revenue and claims liabilities. This
statement also requires expanded disclosures about financial guarantee insurance
contracts. SFAS No. 163 is effective for fiscal years beginning on or after
December 15, 2008, and interim periods within those years. SFAS No. 163 has no
effect on the Company's consolidated financial position, or their consolidated
statements of operations, or consolidated cash flows at this time.
In June 2008, the FASB
issued EITF No. 07-5, “Determining Whether an Instrument
(or Embedded Feature) Is Indexed to an Entity’s Own Stock ” effective for
financial statements issued for fiscal years and interim periods beginning after
December
15, 2008. EITF No.07-5 provides guidance for determining whether an
equity-linked financial instrument (or embedded feature) is indexed to an
entity’s own stock.
Impact
of New Accounting Standards
The
Company does not expect the adoption of recently issued accounting
pronouncements to have a significant impact on the Company's results of
operations, financial position, or cash flow.
Item
3. Properties.
Our
principal executive offices consist of 1500 square feet and are
leased for a term commencing January 15, 2009 and ending January 15, 2010 for
$CAN 1,050 per month, we may request a renewal of our lease prior to expiration,
but the terms will be renegotiated. We believe that if we are unable
to enter into a lease renewal with our current landlord, we will be able to
locate other similar space in the area of our present lease.
Our
laboratory and research facility is also located in Vancouver, B.C. Canada
consists of 1150 square feet and is leased by ANV Video Alarm Service
Inc., pursuant to a lease that expires on June 30, 2010. The rent is
for varying amounts during the term of the lease and will be $CAN
1,100 through the end of the lease. We believe that if we are not able to
extend the lease we will find other suitable premises in the area of the present
premises at similar costs.
Our leased premises are presently
adequate for our needs. However, if our business expands we may be
required to seek larger premises. Management believes that other suitable
premises are available at reasonable cost in proximity to our present
offices.
Item
4. Security Ownership of Certain Beneficial Owners and
Management.
Security
Ownership of Certain Beneficial Owners
The
following table sets forth certain information as of November 25, 2009, with
respect to our officers and directors and any person (including any “group” as
that term is used in Section 13(d)(3) of the Exchange Act who is known to us to
be the beneficial owner of more than five percent of our common stock, being our
only class of voting securities, under the current rules of the Securities and
Exchange Commission regarding beneficial ownership:
|
Name
and address
|
|
Number
of shares owned
|
|
|
Per
cent of Class (2)
|
|
| |
|
|
|
|
|
|
|
|
|
Weixing
Wang (1)
|
|
|
6,945,000 |
(3) |
|
|
20.95 |
% |
|
|
|
|
|
|
|
|
|
|
|
Yan
Wang (1)
|
|
|
6,945,000 |
(3) |
|
|
20.95 |
% |
|
|
|
|
|
|
|
|
|
|
|
Xiaolin
Yang (1)
|
|
|
0 |
|
|
|
0 |
% |
|
|
|
|
|
|
|
|
|
|
|
Daniel
Sze-Yuen Lee (1)
|
|
|
0 |
|
|
|
0 |
% |
|
|
|
|
|
|
|
|
|
|
|
Ming
Li
|
|
|
4,750,000 |
(4) |
|
|
14.3 |
% |
|
7-10111
Gilbert Road
|
|
|
|
|
|
|
|
|
|
Richmond, BC, Canada
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Haining
Zhang
|
|
|
2,015,185 |
|
|
|
6.1 |
% |
|
RR3
Box 3087
|
|
|
|
|
|
|
|
|
|
East
Stroudsburg, PA 18301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All
officers and directors as a group
|
|
|
|
|
|
|
|
|
|
(4)
Persons
|
|
|
13,890,000 |
(3) |
|
|
41.9 |
% |
(1) Each
person named is an executive officer or a director. The address of each such
beneficial owner is c/o ANV Security Group, Inc., 2105-11871 Horseshoe Way,
Richmond, BC, Canada V7A 5H5.
(2) Applicable
percentage ownership is based on 33,190,071 shares of our common stock
outstanding as of November 25, 2009. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission and
generally includes voting or investment power with respect to
securities.
|
(3)
|
These
shares are owned by Canada Landmark Enterprise Group Inc., a corporation
owned 50% by Weixing Wang and 50% by Yan
Wang.
|
|
(4)
|
Includes
3,100,000 shares owned by Advanced Network Video Inc., a corporation owned
by Mr. Li.
|
Changes
in control
There are
no arrangements, including any pledge by any person of our securities, known to
us the operation of which may at a subsequent date result in a change in control
of our company.
Item
5. Directors and Executive Officers.
Our
directors and executive officers, and their respective ages, positions and
offices, are as follows:
|
Name
|
|
Age
|
|
Position(s)
|
|
|
|
|
|
|
|
Weixing Wang
|
|
45
|
|
Chairman
of the Board, Director and CEO
|
|
|
|
|
|
|
|
Yan
Wang
|
|
42
|
|
Executive
Director, VP and CFO
|
|
|
|
|
|
|
|
Daniel
Sze-Yuen Lee
|
|
60
|
|
Non-Executive Director
|
|
|
|
|
|
|
|
Xiaolin
Yang
|
|
47
|
|
Vice
President
|
Weixing (Wilson) Wang has
served as a director, CEO and Chairman of the Board since our acquisition of
Canada ANV System Inc. (“CANVSI”) in May 2009. He was a founder of
CNVSI and its chairman of the Board since its founding in 2006. Prior
thereto and since 1992 he was the founder, president and CEO of Z&A
Pharmaceutical Group in China. Dr. Wang received a BS in Preventative
Medicine from Shandong Medical University in China in 1986; a MD fin Nurition
from Tianjin Medical University in China in 1989; and did post doctoral work in
Diabites at Freiburg University in Germany until 1992.
Yan ( Serena) Wang has served
as an executive director, Vice President and CFO since our acquisition of CANVSI
in May 2009. She was a founder of CNVSI and a director, CFO and Vice
President since its founding in 2006. From 1999 to
2006, she was a Vice Chairman and CEO of Shanghai Touma Renching
Apparel Co., Ltd. in China. Mrs. Yan Wang holds a BS in costume
design from Qindao University in China awarded in 1989 and an MBA in Business
Management awarded by the Shanghai Faculty of Social Sciences in
2001.
Daniel Sze-Yuen Lee has served
as a non-executive director since our acquisition of CANVSI in May
2009. He was appointed a non-executive director of CANVSI in
January 2008. Since 2003 he has been president of Canada – China
Foundation for the promotion of trade and cultural development and since 1986 he
has been president of C&L Associates International Management Consultants
Group Inc. in Vancouver. Mr. Lee studied accounting at Vancouver
Community College.
Xiaolin ( Tiger) Yang has
served as Vice President – Sales & Marketing since June
2009. From 2001 to 2007 he was CEO of Qaingdao Comins Electronics
Co., Ltd and commencing January 2008 until he joined us he was a sales rep for
ADT Security Services. Mr. Yang holds a BA in Management Engineering
awarded by Xi’an Communication University in 1986.
Family
Relationships
There are
no family relationships, or other arrangements or understandings between or
among any of the directors, executive officers or other person pursuant to which
such person was selected to serve as a director or officer.
Involvement
in certain legal proceedings
Our
directors, executive officers and control persons have not been involved in any
of the following events during the past five years:
any
bankruptcy petition filed by or against any business of which such person was a
general partner or executive officer either at the time of the bankruptcy or
within two years prior to that time;
any
conviction in a criminal proceeding or being subject to a pending criminal
proceeding (excluding traffic violations and other minor offenses);
being
subject to any order, judgment, or decree, not subsequently reversed, suspended
or vacated, of any court of competent jurisdiction, permanently or temporarily
enjoining, barring, suspending or otherwise limiting his involvement in any type
of business, securities or banking activities; or
being
found by a court of competent jurisdiction (in a civil action), the Securities
and Exchange Commission or the Commodity Futures Trading Commission to have
violated a federal or state securities or commodities law, and the judgment has
not been reversed, suspended, or vacated.
Item
6 Executive Compensation
Executive
Compensation
The
following table sets forth all compensation earned during the fiscal years ended
March 31, 2009, by (i) our Chief Executive Officer (principal executive
officer), (ii) our Chief Financial Officer (principal financial officer), (iii)
the three most highly compensated executive officers other than our CEO and CFO
who were serving as executive officers at the end of our last completed fiscal
year, whose total compensation exceeded $100,000 during such fiscal year ends,
and (iv) up to two additional individuals for whom disclosure would have been
provided but for the fact that the individual was not serving as an executive
officer at the end of our last completed fiscal year, whose total compensation
exceeded $100,000 during such fiscal year ends. We refer to all of these
officers collectively as our “named executive officers”.
Summary
Compensation Table
|
Name
&
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
Option
|
|
|
Non-Equity
|
|
|
Other
|
|
|
All
Oher
|
|
|
Position
|
|
Year
|
|
Salary
|
|
|
Bonus
|
|
|
Awards
|
|
|
Awards
|
|
|
Incentive Plan Comp.
|
|
|
Comp.
|
|
|
Comp.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weixing
|
|
2009
|
|
$ |
24,000 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
Wang
|
|
2008
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
CEO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yan
Wang
|
|
2009
|
|
$ |
16,000 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
CFO
|
|
2008
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
Item
7: Certain Relationships and Related Transactions, and Director
Independence.
Upon its
formation in 2006, CANCSI acquired certain intangible assets consisting of
technical know how and software and non-compete agreements from Canada Landmark
Enterprise Group, Inc., a corporation owned by Weixing Wang and Yan Wang for
13,890 shares of CANVSI common stock. In July 2009, these shares were
exchanged for the same number of shares of the Company upon the closing of a
reorganization agreement described below. See Notes to Financial Statements,
Note 1(m).
In July
2009, Haining Zhang, a more than 5% holder of the Company received 1,844,326
shares of the company’s stock and China Venture Partners, Inc., a corporation he
controls received 335,000 shares of common stock for as a consulting fee for
work previously performed for the Company.
In May
2009, the Company and CANVSI and all of the shareholders of CANVSI entered into
an agreement (the “Securities Purchase Agreement”) that provided
that all of the holders of CANVSI would exchange their shares for
shares of the Company on a one for one basis so that CNVSI would become a wholly
owned subsidiary of the Company. Weixing Wang and Yan Wang became
shareholders, officers and directors of the Company by reason of the Securities
Purchase Agreement closing in July 2009.
Director
Independence
We
believe that the following director of our company is considered “independent”
under Rule 400(a)(15) of the National Association of Securities Dealers listing
standards: Daniel Sze-Yuen Lee.
Item
8 Legal Proceedings.
We are
not currently a defendant in any legal proceeding or governmental proceeding nor
are we currently aware of any pending legal proceeding or governmental
proceeding proposed to be initiated against us. There are no proceedings in
which any of our current directors, executive officers or affiliates, or any
registered or beneficial shareholder, is an adverse party or has a material
interest adverse to us.
Item
9 Market Price of and Dividends on the Registrant’s Common Equity and
Related Stockholder Matters
Our
common stock has been quoted on the Pink Sheets under the symbol “ANVS.PK” as a
gray market stock where brokers cannot make two sided bids. The bid
price for our stock appears to be $0.0001 and our stock appears to have traded
once in 2008, but has not otherwise traded for the last two
years. Until June 2009 we traded under the symbol
DINP.PK.
Shareholders
As of
November 20, 2009, we had 33,193,943 shares of common stock issued and
outstanding and approximately 224 stockholders of record of our common
stock. The foregoing is adjusted for a 66.8 for one reverse stock
split effected in June 2009.
Dividends
We have
never declared or paid any cash dividends on our common stock. The
payment by us of dividends, if any, in the future rests within the discretion of
our board of directors and will depend, among other things, upon our earnings,
capital requirements, debt covenants and financial condition, as well as other
relevant factors. We do not intend to pay any cash dividends in the foreseeable
future, but intend to retain all earnings, if any, for use in our business.
There are no restrictions in our articles of incorporation or bylaws that
prevent us from declaring dividends. The Nevada Revised Statutes, however, do
prohibit us from declaring dividends where, after giving effect to the
distribution of the dividend, we would not be able to pay our debts as they
become due in the usual course of business, or our total assets would be less
than the sum of our total liabilities plus the amount that would be needed to
satisfy the rights of shareholders who have preferential rights superior to
those receiving the distribution. Management is not aware of any such
rights.
Securities
approved for issuance under equity compensation plans
As of the
end of our fiscal year ended March 31, 2009, we had no outstanding equity award
and no equity compensation plan in effect under which any shares of our common
stock were authorized for issuance. We do not have any compensation
plan or individual compensation arrangement under which our common stock or
other equity securities are authorized for issuance to employees or
non-employees in exchange for consideration in the form of goods or service as
described in FAS 123. Three employees of CANSI were entitled to an
aggregate of 140,000 shares pursuant to stock option agreements with a per share
exercise price of $0.20
Item
10: Recent Sales of Unregistered Securities
The
following is a summary of all transactions within the past three years involving
our sales of our securities that were not registered under the Securities
Act. Shares issued for cash consideration paid to us are valued at
the purchase price per share; all other shares are valued as
stated. All shares issued were issued as “restricted” shares of our
common stock except as otherwise expressly stated.
The
Company did not issue any shares of Common Stock during its fiscal years ended
March 31, 2007, 2008 or 2009.
During
the current fiscal year, the Company
|
(i)
|
Issued
an aggregate of 3,078,126 shares of its common stock to six consultants at
a price of approximately $0.0022 per share, a price in excess of the then
stock quotation on the pink sheets in consideration for services rendered
over the past two years. These transactions were exempt by
reason of section 4(2) of the Securities Act of 1933, as amended as
transactions by an issuer not involving a public offering. The
Company’s transfer agent has been instructed to place a legend on the
certificates for the shares reflecting lack of registration under the
Securities Act of 1933, as amended, and to maintain stop transfer
instructions with respect to these
certificates.
|
|
(ii)
|
Issued
an aggregate of 29,860,000 shares of its common stock to the 24 former
shareholders of CANVSI in exchange for their shares of
CANCSI. This transaction was exempt by reason of section 4(2)
of the Securities Act of 1933, as amended, as a transaction by an issuer
not involving a public offering. The Company’s transfer agent
has been instructed to place a legend on the certificates for the shares
reflecting lack of registration under the Securities Act of 1933, as
amended, and to maintain stop transfer instructions with respect to these
certificates.
|
|
(iii)
|
During
the 1st quarter of 2010, but prior to the merger, CANVSI raised
$ 432,500 of capital from eight accredited investors. The
price was set at $0.25 per share. Each investor submitted a copy
of their ID and signed a subscription agreement. The placement was
fully in compliance with the laws of British Columbia,
Canada.
|
In each
of the above instances, the recipients of the shares evidenced their investment
intent in writing.
Except as
stated above, we have had no recent sales of unregistered securities within the
past three fiscal years. There were no underwritten offerings employed in
connection with any of the transactions described above.
Item
11. Description of Registrant’s Securities to be
Registered
We are
authorized to issue 100,000,000 shares of common stock, par value $0.001 per
share.
The
holders of the shares of our common stock have equal ratable rights to dividends
from funds legally available therefore, when, as and if declared by our board of
directors and are entitled to share ratably in all of our assets available for
distribution to holders of common stock upon the liquidation, dissolution or
winding up of the affairs of our company. Holders of shares of common stock do
not have preemptive, subscription or conversion rights.
Holders
of shares of common stock are entitled to one vote per share on all matters
which stockholders are entitled to vote upon at all meetings of stockholders.
The holders of shares of common stock do not have cumulative voting rights,
which mean that the holders of more than 50% of our outstanding voting
securities can elect all of the directors of our company.
Our
transfer agent is Jersey Transfer & Trust Co. with an office located at 201
Bloomfield Ave., Verona,
NJ 07044 and whose phone number is (973) 239-2712.
Item
12. Indemnification of Directors and Officers
Indemnification
under Nevada Law
Nevada
law generally permits us to indemnify our directors, officers, employees and
agents. Pursuant to the provisions of Nevada Revised Statutes 78.7502, we, as a
corporation organized in Nevada, may indemnify our directors, officers,
employees and agents in accordance with the following:
(a) A
corporation may indemnify any person who was or is a party or is threatened to
be made a party to any action, except an action by or in the right of the
corporation, by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation, against expenses, actually and reasonably incurred by him in
connection with the action, suit or proceeding if he: (a) is not liable for
breach of his fiduciary duties as a director or officer pursuant to Nevada
Revised Statutes 78.138; or (b) acted in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
(b) A
corporation may indemnify any person who was or is a party or is threatened to
be made a party to any action by or in the right of the corporation to procure a
judgment in its favor, by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation against expenses actually and reasonably incurred by
him in connection with the defense or settlement of the action or suit if he:
(a) is not liable for breach of his fiduciary duties pursuant to Nevada Revised
Statutes 78.138; or (b) acted in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the corporation.
Indemnification may not be made for any claim, issue or matter as to which such
a person has been adjudged by a court of competent jurisdiction, after
exhaustion of all appeals there from, to be liable to the corporation or for
amounts paid in settlement to the corporation, unless and only to the extent
that the court in which the action or suit was brought or other court of
competent jurisdiction determines upon application that in view of all the
circumstances of the case, the person is fairly and reasonably entitled to
indemnity for such expenses as the court deems proper.
(c) To
the extent that a director, officer, employee or agent of a corporation has been
successful on the merits or otherwise in defense of any action, suit or
proceeding, or in defense of any claim, issue or matter therein, the corporation
shall indemnify him against expenses, including attorneys’ fees, actually and
reasonably incurred by him in connection with the defense.
Charter
Provisions, Bylaws and Other Arrangements of the Registrant
Our
Certificate of Incorporation, as amended, does not contain any specific language
enhancing or limiting the Nevada statutory provisions referred to
above.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to our directors, officers and controlling persons pursuant to the
foregoing provisions, or otherwise, we have been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy and is, therefore, unenforceable.
Item
13. Financial Statements and Supplementary Data
See Index
to consolidated financial statements on the following page
Canada ANV Systems
Inc.
Consolidated Financial
Statements
March 31, 2009 and
2008
|
Report
of Independent Registered Public Accounting Firm
|
F-1
|
|
|
|
|
Balance
Sheets
|
F-2
|
|
|
|
|
Statements
of Operations
|
F-3
|
|
|
|
|
Statement
of Stockholders’ Equity
|
F-4
|
|
|
|
|
Statement
of Cash Flows
|
F-5
|
|
|
|
|
Notes
to Financial Statements
|
F-6
|
Stan
J.H. Lee, CPA
2160
North Central Rd Suite 203 t Fort
Lee t NJ 07024
P.O. Box
436402 t San Ysidro t CA
92143-9402
619-623-7799 t Fax
619-564-3408 t stan2u@gmail.com
Report of Independent
Registered Public Accounting Firm
To the
Board of Directors and Stockholders of
Canada
ANV Systems Inc. and Subsidiary
We have
audited the accompanying consolidated balance sheet of Canada ANV Systems Inc.
and Subsidiary (the “Company”) as of March 31, 2009 and 2008 and the related
consolidated statements of operation, changes in shareholders’ equity (deficit)
and cash flows for the fiscal 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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Canada ANV Systems Inc. and
Subsidiary as of March 31, 2009 and 2008, and the results of its operation and
its cash flows for the fiscal years then ended in conformity with U.S. generally
accepted accounting principles.
|
/s/
Stan J.H. Lee, CPA
|
| |
|
Stan
J.H. Lee, CPA
|
|
Fort
Lee, NJ 07024
|
|
May
29, 2009
|
|
November
11, 2009 for Statements of Operations and Footnote #
14
|
Registered
with the Public Company Accounting Oversight Board
Member of
New Jersey Society of Certified Public Accountants
|
Canada
ANV Systems Inc.
|
|
Consolidated
Balance Sheets
|
|
(Expressed
in US dollars)
|
|
|
|
|
|
As of March 31
|
|
|
|
|
Note
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
$ |
28,470 |
|
|
$ |
186,631 |
|
|
Accounts
Receivable
|
|
Note
2
|
|
|
508 |
|
|
|
- |
|
|
Inventory
|
|
Note
3
|
|
|
55,167 |
|
|
|
- |
|
|
GST
Receivable
|
|
Note
1-j
|
|
|
1,408 |
|
|
|
758 |
|
|
Other
Assets
|
|
Note
4
|
|
|
4,211 |
|
|
|
90,039 |
|
|
Total
Current Assets
|
|
|
|
|
89,763 |
|
|
|
277,427 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and Equipment
|
|
Note
5
|
|
|
21,226 |
|
|
|
6,242 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible
Assets
|
|
Note
6
|
|
|
1,034,627 |
|
|
|
1,239,864 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
|
|
$ |
1,145,616 |
|
|
$ |
1,523,534 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
Note
7
|
|
$ |
4,354 |
|
|
$ |
716 |
|
|
Due
to related parties (Note 8)
|
|
Note
9
|
|
|
- |
|
|
|
10,231 |
|
|
Total
Liabilities
|
|
|
|
|
4,354 |
|
|
|
10,947 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Commitments
and Contingencies
|
|
Note
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders'
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock, Unlimited Shares Authorized, Without Par Value 27,074,500 shares
and 25,000,000 issued and outstanding, respectively
|
|
Note
10
|
|
|
1,613,137 |
|
|
|
1,388,093 |
|
|
Additional
Paid-in Capital
|
|
|
|
|
24,836 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
Accumulated
|
|
|
|
|
(369,870 |
) |
|
|
(19,415 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
Other Comprenhensive Income (Loss)
|
|
|
|
|
(126,842 |
) |
|
|
143,909 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Stockholders' Equity
|
|
|
|
|
1,141,261 |
|
|
|
1,512,587 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders' Equity
|
|
|
|
$ |
1,145,616 |
|
|
$ |
1,523,534 |
|
(The
accompanying notes are in an integral part of these financial
statements)
|
Canada
ANV Systems Inc.
|
|
Consolidated
Statements of Operations
|
|
(Expressed
in US dollars)
|
|
|
|
|
|
For the Fiscal Years Ended
|
|
|
|
|
|
|
March 31
|
|
|
|
|
Note
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
Note
1-p
|
|
|
20,820 |
|
|
|
- |
|
|
Cost
of Sales
|
|
|
|
|
14,790 |
|
|
|
- |
|
|
Gross
Profit
|
|
|
|
|
6,030 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Advertising
and promotion
|
|
Note
1-v
|
|
|
58,650 |
|
|
|
1,459 |
|
|
Amortization
|
|
|
|
|
3,731 |
|
|
|
703 |
|
|
Automobile
|
|
|
|
|
388 |
|
|
|
- |
|
|
Commission
|
|
|
|
|
10,851 |
|
|
|
- |
|
|
Dues
|
|
|
|
|
4,739 |
|
|
|
- |
|
|
General
and administrative
|
|
|
|
|
21,955 |
|
|
|
13,957 |
|
|
Licence
|
|
|
|
|
702 |
|
|
|
- |
|
|
Payroll
|
|
|
|
|
30,503 |
|
|
|
- |
|
|
Stock-Based
Compensation
|
|
Note
1-u
|
|
|
24,836 |
|
|
|
- |
|
|
Professional
fees
|
|
|
|
|
19,308 |
|
|
|
678 |
|
|
Rent
|
|
|
|
|
20,045 |
|
|
|
2,420 |
|
|
Research
and Development
|
|
Note
1-q
|
|
|
142,274 |
|
|
|
- |
|
|
Repair
and Maintenance
|
|
|
|
|
9,680 |
|
|
|
- |
|
|
Travel
|
|
|
|
|
13,566 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Expenses
|
|
|
|
|
361,229 |
|
|
|
19,217 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
|
|
956 |
|
|
|
11 |
|
|
Rental
income
|
|
|
|
|
2,927 |
|
|
|
- |
|
|
Interest
expense
|
|
|
|
|
(1,711 |
) |
|
|
(208 |
) |
|
Customer
rebate
|
|
|
|
|
2,572 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Other Income ( Expenses)
|
|
|
|
|
4,745 |
|
|
|
(197 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income ( Loss) before Income Tax Expenses
|
|
|
(350,455 |
) |
|
|
(19,415 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
Tax Expense, Net of Income Tax Benefit
|
|
Note
8
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
|
|
(350,455 |
) |
|
|
(19,415 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Comprehensive Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustment
|
|
Note
12
|
|
|
(270,752 |
) |
|
|
143,909 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
Loss
|
|
|
|
|
(621,206 |
) |
|
|
124,495 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss Per Share - Basic and Diluted
|
|
Note
1-t
|
|
|
(0.01 |
) |
|
|
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average Shares Outstanding
|
|
|
|
|
25,813,000 |
|
|
|
3,282,000 |
|
(The
accompanying notes are in an integral part of these financial
statements)
|
CANADA
ANV SYSTEMS INC.
|
|
Consolidated
Statement of Stockholders' Equity
|
|
From
December 18, 2006 (Date of Inception) to March 31, 2009
|
|
(Expressed
in US dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
Development
|
|
|
Comprehensive
|
|
|
Total
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
Income(Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
– November 18, 2006 (Date of Inception)
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
Issuance
of Common shares for cash at CDN$137.27 per share
|
|
|
10,000 |
|
|
|
1,186,013 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,186,013 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
– March 31, 2007
|
|
|
10,000 |
|
|
|
1,186,013 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,186,013 |
|
|
Common
stock split
|
|
|
19,990,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Issuance
of Common shares for cash at CDN$0.04 per share
|
|
|
5,000,000 |
|
|
|
202,080 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
202,080 |
|
|
Foreign
currency translation
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
143,909 |
|
|
|
143,909 |
|
|
Net
loss for the year
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(19,415 |
) |
|
|
- |
|
|
|
(19,415 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
– March 31, 2008
|
|
|
25,000,000 |
|
|
|
1,388,093 |
|
|
|
- |
|
|
|
(19,415 |
) |
|
|
143,909 |
|
|
|
1,512,587 |
|
|
Issuance
of Common shares for cash at CDN$0.24 per share
|
|
|
174,500 |
|
|
|
42,164 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
42,164 |
|
|
Issuance
of Common shares for no consideration
|
|
|
800,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Issuance
of Common shares for cash at CDN$0.19 per share
|
|
|
500,000 |
|
|
|
96,320 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
96,320 |
|
|
Issuance
of Common shares for cash at CDN$0.14 per share
|
|
|
550,000 |
|
|
|
78,630 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
78,630 |
|
|
Issuance
of Common shares for cash at CDN$0.16 per share
|
|
|
50,000 |
|
|
|
7,930 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
7,930 |
|
|
Additional
Paid-In Capital, Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
24,836 |
|
|
|
|
|
|
|
|
|
|
|
24,836 |
|
|
Foreign
currency translation
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(270,752 |
) |
|
|
(270,752 |
) |
|
Net
loss for the year
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(350,455 |
) |
|
|
- |
|
|
|
(350,455 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
– March 31, 2009
|
|
|
27,074,500 |
|
|
$ |
1,613,137 |
|
|
$ |
24,836 |
|
|
$ |
(369,870 |
) |
|
$ |
(126,842 |
) |
|
$ |
1,141,261 |
|
(The
accompanying notes are in an integral part of these financial
statements)
|
CANADA
ANV SYSTEMS INC.
|
|
Consolidated
Statement of Cash Flows
|
|
(Expressed
in US dollars)
|
|
|
|
For the Fiscal Year Ended March 31
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
|
Net
Loss
|
|
$ |
(350,455 |
) |
|
$ |
(19,415 |
) |
|
|
|
|
|
|
|
|
|
|
|
Adjustments
to reconcile net loss
|
|
|
|
|
|
|
|
|
|
to
net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
3,731 |
|
|
|
703 |
|
|
Stock-Based
Compensation
|
|
|
24,837
|
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
|
Changes
in Operating Assets and Liabilities
|
|
|
|
|
|
|
|
|
|
Prepaid
expenses and deposits
|
|
|
69,081 |
|
|
|
(90,039 |
) |
|
GST
Receivable
|
|
|
(792 |
) |
|
|
(758 |
) |
|
Inventory
|
|
|
(55,167 |
) |
|
|
- |
|
|
Accounts
Payable
|
|
|
3,771 |
|
|
|
716 |
|
|
Due
to related parties
|
|
|
(508 |
) |
|
|
10,231 |
|
| |
|
|
|
|
|
|
|
|
|
Net
cash (used for) operating activities
|
|
|
(305,502 |
) |
|
|
(98,563 |
) |
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Purchase of equipment and
furniture
|
|
|
(19,480 |
) |
|
|
(6,949 |
) |
|
Capitalized software development
costs
|
|
|
(25,376 |
) |
|
|
- |
|
| |
|
|
|
|
|
|
|
|
|
Net
cash (used for) investing activities
|
|
|
(44,856 |
) |
|
|
(6,949 |
) |
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Proceeds
from related party
|
|
|
(8,328 |
) |
|
|
- |
|
|
Proceeds
from issuance of common stock
|
|
|
- |
|
|
|
288,480 |
|
|
Common
stock subscribed
|
|
|
225,044 |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
216,716 |
|
|
|
288,480 |
|
| |
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash
|
|
|
(24,519 |
) |
|
|
3,663 |
|
| |
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash
|
|
|
(158,161 |
) |
|
|
186,631 |
|
| |
|
|
|
|
|
|
|
|
|
Cash,
beginning of period
|
|
|
186,631 |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
|
Cash,
end of period
|
|
$ |
28,470 |
|
|
$ |
186,631 |
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Schedule of Cash Flow Disclosures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Paid During the Year for Interest
|
|
$ |
1,711 |
|
|
$ |
208 |
|
|
Cash
Paid During the Year for Income Tax
|
|
$ |
- |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Schedule of Non-Cash Flows Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
Compensation, Stock Options Issued
|
|
$ |
24,836 |
|
|
$ |
- |
|
(The
accompanying notes are in an integral part of these financial
statements)
Canada
ANV Systems Inc.
Notes
to Consolidated Financial Statements
March 31, 2009 and
2008
Not1.
Organization and Summary of Significant Accounting Policies
Organization
Canada
ANV Systems Inc. (the “Company”) was incorporated in British Columbia, Canada on
December 18, 2006. The Company is an innovator in video systems and specialize
in both silicon and software solutions for the video products design and
manufacturing. The Company offers enabling technologies that can provide the
digital consumer and enterprise applications with excellent video quality and
extended hours of portable operations across networks, be it home, enterprise or
telecom networks. Also the Company offers a wide range of video cameras powered
by the next generation H.264 video technologies and our patent pending USCI8.com
services platforms.
Summary
of Significant Accounting Policies
These
financial statements and related notes are presented in accordance with
accounting principles generally accepted in the United States, and are expressed
in US dollars. The Company’s fiscal year-end is March 31.
|
|
b)
|
Principles
of Consolidation
|
These
consolidated financial statements include the accounts of Canada ANV Systems
Inc. and its wholly-owned subsidiary, ANV Video Alarm Service Inc which was
incorporated in British Columbia, Canada on May 30, 2008. All intercompany
accounts and transactions have been eliminated in consolidation.
The
preparation of financial statements in conformity with United States generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. The Company regularly evaluates estimates and
assumptions related to useful life and recoverability of long-lived assets,
donated expenses, and deferred income tax valuation allowances. The Company
bases its estimates and assumptions on current facts, historical experience and
various other factors that it believes to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying
values of assets and liabilities and the accrual of costs and expenses that are
not readily apparent from other sources. The actual results experienced by the
Company may differ materially and adversely from the Company’s estimates. To the
extent there are material differences between the estimates and the actual
results, future results of operations will be affected.
Certain
account reclassifications have been made to the financial statements of the
prior year in order to conform to classifications used in the current year.
These changes had no impact on previously stated financial statements of the
Company.
|
|
e)
|
Comprehensive
Income (Loss)
|
SFAS No.
130, “Reporting Comprehensive
Income,” establishes standards for the reporting and display of
comprehensive loss and its components in the financial statements. As at March 31, 2009, the Company’s
only component of comprehensive income consisted of foreign currency translation
adjustments.
|
|
f)
|
Cash
and Cash Equivalents
|
The
Company considers all highly liquid instruments with maturity of three months or
less at the time of issuance to be cash equivalents.
|
|
g)
|
Concentration
of Credit Risks
|
Financial
instruments which potentially subject the Company to concentrations ofcredit
risk consist principally of cash and trade accounts receivable. The Company
places its cash with high credit quality financial institutions in Canada. The
Company has not experienced any losses in such bank accounts through March 31,
2009. At March 31,our bank deposits were as follows:
|
COUNTRY
|
|
2009
|
|
|
2008
|
|
|
Canada
|
|
$ |
28,470 |
|
|
$ |
186,631 |
|
|
Total
cash and cash equivalents
|
|
$ |
28,470 |
|
|
$ |
186,631 |
|
In an
effort to mitigate any potential risk, the Company periodically evaluates the
credit quality of the financial institutions at which it holds
deposits.
Accounts
receivable are presented net of an allowance for doubtful accounts. The Company
maintains allowances for doubtful accounts for estimated losses. The Company
reviews the accounts receivable on a periodic basis and makes general and
specific allowances when there is doubt as to the collectability of individual
balances. In evaluating the collectability of individual receivable balances,
the Company considers many factors, including the age of the balance, customer's
historical payment history, its current credit-worthiness and current economic
trends. Accounts are written off after exhaustive efforts at
collection.
Inventories
are stated at the lower of average cost or market and consist of raw materials
and finished goods. The Company writes down inventory for estimated obsolescence
or unmarketable inventory based upon assumptions and estimates about future
demand and market conditions. If actual market conditions are less favorable
than those projected by the Company, additional inventory write-downs may be
required.
GST
receivable represent tax credit that the Canadian Company receives when the
Company pays GST tax during normal operations. As of March 31, 2009 and 2008,
the Company had a GST tax receivable of $ 1,408 and $ 758,
respectively.
Advances
to suppliers included in Other assets represent the cash paid in advance for
purchasing of inventory items from Suppliers and the amount as of March 31, 2009
was none and $ 53,993 for 2008.
|
|
l)
|
Property
and Equipment
|
Property
and equipment consists of furniture, office equipment, computer
equipment/software and leasehold improvement, is recorded at cost. The property
and equipment other than leasehold improvement is depreciated on a straight line
basis over an estimated useful life of three years. Leasehold improvement is
depreciated on a straight line basis over the lease period of ten
years
Intangible
assets represent a surveillance recording system, surveillance software,
technical know-how and non-compete agreements, developed by Jiwei Zhang, Xianbo
Fu, Kewei Feng, Mingyue Fan( all individuals), acquired originally by Landmark
Enterprise Group Inc.(“Landmark”) , a related party, and subsequently sold to
the Company in exchange for common shares. The value of intangible assets
acquired from Landmark was established by an independent valuation
report.
In
accordance with SFAS No. 144, “Accounting for the Impairment or
Disposal of Long-Lived Assets”, the Company tests long-lived assets or
asset groups for recoverability when events or changes in circumstances indicate
that their carrying amount may not be recoverable. An impairment loss is
recognized when the carrying amount is not recoverable and exceeds fair
value.
|
|
o)
|
Financial
Instruments and Fair Value Measures
|
SFAS No.
157 “Fair Value
Measurements” requires an entity to maximize the use of observable inputs
and minimize the use of unobservable inputs when measuring fair value. SFAS No.
157 establishes a fair value hierarchy based on the level of independent,
objective evidence surrounding the inputs used to measure fair value. A
financial instrument’s categorization within the fair value hierarchy is based
upon the lowest level of input that is significant to the fair value
measurement. SFAS No. 157 prioritizes the inputs into three levels that may be
used to measure fair value:
The
Company follows the guidance of the Securities and Exchange Commission's Staff
Accounting Bulletin No. 104, "Revenue Recognition in Financial Statements". In
general, the Company records revenue when persuasive evidence of an arrangement
exists, services have been rendered or product delivery has occurred, the sales
price to the customer is fixed or determinable, and collectability is reasonably
assured. The following policies reflect specific criteria for the various
revenues streams of the Company:
The
Company generates revenue from the sale of its products and records revenues
from the sale of products when the goods are shipped, title passes, and
collectability is reasonably assured.
Revenue
from periodic maintenance monitoring agreements is generally recognized on a
monthly basis provided no significant obligations remain and collectability of
the related receivable is probable.
Revenue
from the performance of installation services is recognized upon completion of
the service.
The
Company derives the bulk of its revenue from the supply and installation of
surveillance and safety equipment and the two deliverables do not meet the
separation criteria under EITF issue 00-21. The installation is not considered
to be essential to the functionality of the equipment having regard to the
following criteria as set out in SAB 104:
i)The
surveillance and safety equipment is a standard product with minor modifications
according to
customers’ specifications;
ii)
Installation does not significantly alter the surveillance and safety
equipment’s capabilities; and
iii)
Other companies which possess the relevant licenses are available to perform the
installation services.
The
Company reduced its estimate of future warranty requirements to approximately 1
% of contract installation revenue. In the year ended 2009 and 2008, estimated
warranty were $ -0- and $ -0- , respectively.
Revenue
from the outright sale of surveillance and safety equipment is recognized when
delivery occurs and risk of ownership passes to the customers.
|
|
q)
|
Research
& Development Costs
|
Research
and development costs are expensed as incurred. Research and development costs
included in general and administrative expenses for the years ended March 31,
2009 and 2008, amounted to $142,274 and $ -0-, respectively. The Research and
Development expenses consist of engineers’ salaries, research expenses paid to
the 3rd party subcontractors, monthly rent fee for research and development
centers and related utility outlay. Up to March 31, 2009, the company has
developed the following products and solutions: (1) USCI8™ Video Alarm Platform,
which offers an all-in-one security system for both commercial and residential
customers, and allows customers to take control of their own security
requirements; (2) iCam H.264 IP Camera, which currently has three series
covering market demand from home and small businesses, large businesses and
government and high-end surveillance users; (3) ANV Digital Video Server, or
H.264 DVS300, which is an embedded surveillance device specially designed for
network application; and (4) NVS Center 500 Management Software, which can
manage 1728 IP cameras simultaneously and set and control every IP camera
separately, supporting 32 channels output of TV walls, centralized storage, data
transmission and electric map.
Potential
benefits of income tax losses are not recognized in the accounts until
realization is more likely than not. The Company has adopted SFAS No. 109 “Accounting for Income Taxes”
as of its inception. Pursuant to SFAS No. 109 the Company is required to compute
tax asset benefits for net operating losses carried forward. Potential benefit
of net operating losses have not been recognized in these financial statements
because the Company cannot be assured it is more likely than not it will utilize
the net operating losses carried forward in future years.
|
|
s)
|
Foreign
Currency Translation
|
The
Company’s functional currency is the Canadian dollar. The financial statements
are translated to United States dollars in accordance with SFAS No. 52 “Foreign Currency Translation”
using period-end rates of exchange for assets and liabilities, and
average rates of exchange for the year for revenues and expenses. Translation
gains (losses) are recorded in accumulated other comprehensive income (loss) as
a component of stockholders’ equity (deficit). Gains and losses arising on
translation or settlement of foreign currency denominated transactions or
balances are included in the determination of income. Foreign currency
transactions are primarily undertaken in United States dollars. The Company has
not, to the date of these financial statements, entered into derivative
instruments to offset the impact of foreign currency fluctuations.
|
|
t)
|
Basic
and Diluted Net Income (Loss) Per
Share
|
The
Company computes net income (loss) per share in accordance with SFAS No. 128,
"Earnings per Share".
SFAS No. 128 requires presentation of both basic and diluted earnings per share
(EPS) on the face of the income statement. Basic EPS is computed by dividing net
income (loss) available to common shareholders (numerator) by the weighted
average number of shares outstanding (denominator) during the period. Diluted
EPS gives effect to all dilutive potential common shares outstanding during the
period using the treasury stock method and convertible preferred stock using the
if-converted method. In computing diluted EPS, the average stock price for the
period is used in determining the number of shares assumed to be purchased from
the exercise of stock options or warrants. Diluted EPS excludes all dilutive
potential shares if their effect is anti dilutive. As at March 31, 2009, there are no
dilutive potential common shares.
Basic
net earnings (loss) per share equals net earnings (loss) divided by the weighted
average shares outstanding during the year. The computation of diluted net
earnings per share does not include dilutive common stock equivalents in the
weighted average shares outstanding as they would be anti-dilutive. The
Company's common stock equivalents at March 31, 2009 and 2008 include the
following:
|
|
|
2009
|
|
|
2008
|
|
|
Options
|
|
|
140,000 |
|
|
|
-0- |
|
|
Warrants
|
|