EXHIBIT 99.1 GUARDIAN TELECOM, INC. CONTENTS Page ---- REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTING FIRM F-2 FINANCIAL STATEMENTS Balance Sheets as of July 31, 2011 and 2010 F-3 Statements of Operations and Comprehensive Loss for the years ended July 31, 2011 and 2010 F-4 Statement of Changes in Stockholders' Equity for the years ended July 31, 2011 and 2010 F-5 Statements of Cash Flows for the years ended July 31, 2011 and 2010 F-6 Notes to Financial Statements F-7 [LETTERHEAD OF S. W. HATFIELD, CPA] REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTING FIRM Board of Directors and Stockholders Guardian Telecom, Inc. We have audited the accompanying balance sheets of Guardian Telecom, Inc. (an Alberta, Canada corporation) as of July 31, 2011 and 2010 and the related statements of operations and comprehensive loss, changes in stockholders' equity (deficit) and statements of cash flows for each of the years ended July 31, 2011 and 2010, respectively. These financial statements are the sole responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also 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 audits provide 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 Guardian Telecom, Inc. (an Alberta, Canada corporation) as of July 31, 2011 and 2010 and the results of its operations and cash flows for each of the years ended July 31, 2011 and 2010, respectively, in conformity with generally accepted accounting principles generally accepted in the United States of America. /s/ S. W. Hatfield CPA ---------------------------------- S. W. HATFIELD, CPA Dallas, Texas July 27, 2012 F-2 GUARDIAN TELECOM, INC. BALANCE SHEETS July 31, 2011 and 2010 (CN$) (CN$) July 31, July 31, 2011 2010 ------------ ------------ ASSETS CURRENT ASSETS Cash on hand and in bank $ 198,283 $ 86,919 Accounts receivable Trade, net of allowance for doubtful accounts of $30,000 and $15,425, respectively 783,620 813,030 Employees and other 11,486 13,765 Income tax refunds and rebates 14,604 47,306 Inventory 912,914 737,109 Prepaid expenses 88,205 93,782 ------------ ------------ TOTAL CURRENT ASSETS 2,009,112 1,791,911 ------------ ------------ PROPERTY AND EQUIPMENT - AT COST Manufacturing equipment 2,882,109 2,882,747 Office equipment, furniture and fixtures 551,237 530,629 Leasehold improvements 110,063 110,063 ------------ ------------ 3,543,409 3,523,439 Accumulated depreciation (2,947,677) (2,619,189) ------------ ------------ NET PROPERTY AND EQUIPMENT 595,732 904,250 ------------ ------------ TOTAL ASSETS $ 2,604,844 $ 2,696,161 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Line of credit payable to a bank $ 365,000 $ 807,048 Current maturities of capital leases payable 68,688 211,689 Accounts payable - trade 483,907 286,522 Other accrued liabilities 94,599 111,197 Notes payable to shareholders 925,000 325,000 Accrued interest payable -- 16,250 ------------ ------------ TOTAL CURRENT LIABILITIES 1,937,194 1,757,706 LONG-TERM LIABILITIES Capital leases payable, net of current maturities 61,264 129,952 ------------ ------------ TOTAL LIABILITIES 1,998,458 1,887,658 ------------ ------------ COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY Common stock - $0.01 stated value Class A - Unlimited shares authorized 10,000 shares issued and outstanding 100 100 Class B - Unlimited shares authorized None issued and outstanding -- -- Class C - Unlimited shares authorized None issued and outstanding -- -- Class D - Unlimited shares authorized None issued and outstanding -- -- Additional paid-in capital 15,119 -- Retained earnings 591,167 808,403 ------------ ------------ TOTAL STOCKHOLDERS' EQUITY 606,386 808,503 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,604,844 $ 2,696,161 ============ ============ The accompanying notes are an integral part of these financial statements. F-3 GUARDIAN TELECOM, INC. STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS Years ended July 31, 2011 and 2010 (CN$) (CN$) Year ended Year ended July 31, July 31, 2011 2010 ------------ ------------ REVENUES Telecommunication equipment $ 4,850,459 $ 4,449,717 Contract manufacturing 1,049,664 1,090,251 ------------ ------------ TOTAL REVENUES 5,900,123 5,539,968 ------------ ------------ COST OF SALES Materials 2,829,064 2,669,728 Direct Labor and related costs 577,154 476,819 Other direct costs and expenses 510,204 483,862 Depreciation 308,893 313,153 ------------ ------------ TOTAL COST OF SALES 4,225,315 3,943,562 ------------ ------------ GROSS PROFIT 1,674,808 1,596,406 ------------ ------------ OPERATING EXPENSES Research and development expenses 486,241 414,679 Marketing and promotion expenses 528,051 591,190 General and administrative expenses 791,835 906,783 ------------ ------------ TOTAL OPERATING EXPENSES 1,806,127 1,912,652 ------------ ------------ LOSS FROM OPERATIONS (131,319) (316,246) OTHER INCOME (EXPENSE) Interest expense (57,050) (82,597) Loss on foreign exchange (41,613) (44,543) Other income (expense) (1,858) 220 ------------ ------------ LOSS BEFORE INCOME TAXES (231,840) (443,166) PROVISION FOR INCOME TAXES 14,604 -- ------------ ------------ NET LOSS (217,236) (443,166) OTHER COMPREHENSIVE INCOME -- -- ------------ ------------ COMPREHENSIVE LOSS $ (217,236) $ (443,166) ============ ============ Loss per weighted-average share of common stock outstanding, computed on net loss - basic and fully diluted $ (21.72) $ (44.32) ============ ============ Weighted-average number of common shares outstanding 10,000 10,000 ============ ============ The accompanying notes are an integral part of these financial statements. F-4 GUARDIAN TELECOM, INC. STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY Years ended July 31, 2011 and 2010 (CN$) (CN$) Common Stock Additional (CN$) ------------------ Paid-in Retained (CN$) Shares Amount Capital Earnings Total ------ ------ ------- -------- ----- BALANCES AT AUGUST 1, 2009 10,000 $ 100 $ -- $ 1,251,569 $ 1,251,669 Net loss for the year -- -- -- (443,166) (443,166) ------- ------ -------- ----------- ----------- BALANCES AT JULY 31, 2010 10,000 100 -- 808,403 808,503 Contributed capital from non-interest bearing notes payable to stockholders -- -- 15,119 -- 15,119 Net loss for the year -- -- -- (217,236) (217,236) ------- ------ -------- ----------- ----------- BALANCES AT JULY 31, 2011 10,000 $ 100 $ 15,119 $ 591,167 $ 606,386 ======= ====== ======== =========== =========== The accompanying notes are an integral part of these financial statements. F-5 GUARDIAN TELECOM, INC. STATEMENTS OF CASH FLOWS July 31, 2011 and 2010 (CN$) (CN$) July 31, July 31, 2011 2010 ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss for the year $ (217,236) $ (443,166) Adjustments to reconcile net loss to net cash provided by operating activities Depreciation and amortization 328,488 341,633 Bad debt expense 13,033 17,935 Interest expense contributed as capital by stockholders 15,119 -- (Increase) Decrease in Accounts receivable 18,656 182,748 Income tax rebates receivable 32,702 93,050 Inventory (175,805) 183,008 Prepaid expenses 5,577 (9,512) Increase (Decrease) in Accounts payable 197,385 (72,424) Other accrued liabilities (16,598) 4,893 Accrued interest payable (16,250) -- ---------- ---------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 185,071 298,165 ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment (19,970) (12,089) ---------- ---------- NET CASH USED IN INVESTING ACTIVITIES (19,970) (12,089) ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from loans from stockholders 600,000 -- Net increase (reduction) in line of credit payable to a bank (442,048) 7,882 Cash paid on capital leases payable (211,689) (274,419) ---------- ---------- NET CASH PROVIDED BY FINANCING ACTIVITIES (53,737) (266,537) ---------- ---------- INCREASE (DECREASE) IN CASH 111,364 19,539 Cash at beginning of year 86,919 67,380 ---------- ---------- CASH AT END OF YEAR $ 198,283 $ 86,919 ========== ========== SUPPLEMENTAL DISCLOSURE OF INTEREST AND INCOME TAXES PAID Interest paid for the period $ 58,181 $ 82,597 ========== ========== Income taxes paid (refunded) for the period $ (47,306) $ (93,050) ========== ========== SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES $ -- $ -- ========== ========== The accompanying notes are an integral part of these financial statements. F-6 GUARDIAN TELECOM, INC. NOTES TO FINANCIAL STATEMENTS July 31, 2011 and 2010 NOTE A - ORGANIZATION AND DESCRIPTION OF BUSINESS Guardian Telecom, Inc. (Company) was incorporated on April 26, 1993 in accordance with the Alberta (Canada) Business Corporations Act as 564058 Alberta, Inc. The Company changed its corporate name to Guardian Telecom, Inc. on August 4, 1993. The Company is in the business of designing, manufacturing and distributing telephone equipment, systems and accessories. The Company also performs contract manufacturing services, including surface mount and through-hole population of printed circuit boards, mechanical assembly, parts procurement, testing and final assembly for unrelated third-parties. NOTE B - PREPARATION OF FINANCIAL STATEMENTS The accompanying financial statements are stated in Canadian Dollars (CN$), the Company's principal functional currency, and have been prepared using the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America. The Company has adopted a year-end of July 31. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Management acknowledges that it is solely responsible for adopting sound accounting practices, establishing and maintaining a system of internal accounting control and preventing and detecting fraud. The Company's system of internal accounting control is designed to assure, among other items, that 1) recorded transactions are valid; 2) valid transactions are recorded; and 3) transactions are recorded in the proper period in a timely manner to produce financial statements which present fairly the financial condition, results of operations and cash flows of the Company for the respective periods being presented. For segment reporting purposes, the Company operated in only one industry segment (manufacturing) during the periods represented in the accompanying financial statements and makes all operating decisions and allocates resources based on the best benefit to the Company as a whole. NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 1. Cash and cash equivalents For Statement of Cash Flows purposes, the Company considers all cash on hand and in banks, certificates of deposit and other highly-liquid investments with maturities of three months or less, when purchased, to be cash and cash equivalents. Cash overdraft positions may occur from time to time due to the timing of making bank deposits and releasing checks, in accordance with the Company's cash management policies. 2. Accounts receivable and Revenue Recognition In the normal course of business, the Company extends unsecured credit to virtually all of its customers which are located throughout the World. Because of the credit risk involved, management has provided an allowance for doubtful accounts which reflects its opinion of amounts which will eventually become uncollectible. In the event of complete non-performance, the maximum exposure to the Company is the recorded amount of trade accounts receivable shown on the balance sheet at the date of non-performance. F-7 GUARDIAN TELECOM, INC. NOTES TO FINANCIAL STATEMENTS - CONTINUED July 31, 2011 and 2010 NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 2. Accounts receivable and Revenue Recognition - continued The Company ships all product on an FOB-Plant, "as-is" basis. Accordingly, revenue is recognized by the Company at the point at which an order is shipped at a fixed price, collection is reasonably assured and the Company has no remaining performance obligations related to the sale. The Company sells all products with "no right of return" by the purchaser for any factor other than defects in the product's production. On an infrequent basis, the Company may elect to accept product returns from customers on a case-by-case basis to offset unpaid accounts receivable. These situations are generally a "last case" scenario and are initiated by senior management through negotiations with the respective customer. 3. Inventory Inventory consists of raw materials, work-in-process and finished goods related to the business of designing, manufacturing and distributing telephone equipment, systems and accessories, as well as performing contract manufacturing services, including surface mount and through-hole population of printed circuit boards, mechanical assembly, parts procurement, testing and final assembly for unrelated third-parties. Inventory is valued at the lower of cost or market using the standard cost method, which, in the Company's case, approximates the first-in, first-out method. 4. Property, plant and equipment Property and equipment are recorded at historical cost. These costs are depreciated over the estimated useful lives of the individual assets using the straight-line method, generally two to ten years. Gains and losses from disposition of property and equipment are recognized as incurred and are included in operations. In accordance with the Property, Plant and Equipment topic of the topic of the FASB Accounting Standards Codification, the Company follows the policy of evaluating all property and equipment as of the end of each reporting quarter. For each of the years ended July 31, 2011 and 2010, no charges to operations were made for impairments in the future benefit or recoverability of property and equipment. 5. Income Taxes The Company files income tax returns with the Government of Canada and the Provence of Alberta. The Company is not currently undergoing any examinations by regulatory taxing authorities for any period and does not anticipate any examinations of returns filed in prior periods. The Company uses the asset and liability method of accounting for income taxes. At July 31, 2011 and 2010, respectively, the deferred tax asset and deferred tax liability accounts, as recorded when material to the financial statements, are entirely the result of temporary differences. Temporary differences generally represent differences in the recognition of assets and liabilities for tax and financial reporting purposes, primarily accumulated depreciation and amortization, allowance for doubtful accounts and vacation accruals, as well as the potential impact of any net operating loss carryforwards (s) and their potential utilization. The Company has adopted the provisions required by the Income Taxes topic of the FASB Accounting Standards Codification. The Codification Topic requires the recognition of potential liabilities as a result of management's acceptance of potentially uncertain positions for income tax treatment on a "more-likely-than-not" probability of an assessment upon examination by a respective taxing authority. As a result of the implementation of Codification's Income Tax Topic, the Company did not incur any liability for unrecognized tax benefits. F-8 GUARDIAN TELECOM, INC. NOTES TO FINANCIAL STATEMENTS - CONTINUED July 31, 2011 and 2010 NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 6. Income (Loss) per share Basic earnings (loss) per share is computed by dividing the net income (loss) available to common stockholders by the weighted-average number of common shares outstanding during the respective period presented in our accompanying financial statements. Fully diluted earnings (loss) per share is computed similar to basic income (loss) per share except that the denominator is increased to include the number of common stock equivalents (primarily outstanding options and warrants). Common stock equivalents represent the dilutive effect of the assumed exercise of the outstanding stock options and warrants, using the treasury stock method, at either the beginning of the respective period presented or the date of issuance, whichever is later, and only if the common stock equivalents are considered dilutive based upon the Company's net income (loss) position at the calculation date. As of July 31, 2011 and 2010, the Company had no outstanding stock warrants, options or convertible securities which could be considered as dilutive for purposes of the loss per share calculation. 7. Advertising costs The Company does not conduct any direct response advertising activities. For non-direct response advertising, the Company charges the costs of these efforts to operations at the first time the related advertising is published. 8. Warranty costs The Company provides an accrual for warranty costs based on management's best estimate of future liabilities based on historical experience, sales volume and type of product sold. For the years ended July 31, 2011 and 2010, the Company's warranty expense was nominal and approximately $-0- and $-0- was accrued as of July 31, 2011 and 2010, respectively. 9. Pending and/or New Accounting Pronouncements The Company is of the opinion that any pending accounting pronouncements, either in the adoption phase or not yet required to be adopted, will not have a significant impact on the Company's financial position or results of operations. NOTE D - FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount of cash, accounts receivable, accounts payable and notes payable, as applicable, approximates fair value due to the short term nature of these items and/or the current interest rates payable in relation to current market conditions. Interest rate risk is the risk that the Company's earnings are subject to fluctuations in interest rates on either investments or on debt and is fully dependent upon the volatility of these rates. The Company does not use derivative instruments to moderate its exposure to interest rate risk, if any. Financial risk is the risk that the Company's earnings are subject to fluctuations in interest rates or foreign exchange rates and are fully dependent upon the volatility of these rates. The company does not use derivative instruments to moderate its exposure to financial risk, if any. F-9 GUARDIAN TELECOM, INC. NOTES TO FINANCIAL STATEMENTS - CONTINUED July 31, 2011 and 2010 NOTE E - CONCENTRATIONS OF CREDIT RISK The Company maintains its cash accounts in a single financial institution subject to insurance coverage issued by the Canada Deposit Insurance Corporation (CDIC). Under CDIC rules, the Company is entitled to aggregate coverage of $100,000 per account type per separate legal entity per financial institution. During the periods ended July 31, 2011 and 2010, respectively, the Company periodically maintained deposits in this financial institution with credit risk exposures in excess of statutory CDIC coverage. The Company incurred no losses through July 31, 2011, and subsequent thereto, as a result of any of these unsecured situations. NOTE F - INVENTORY As of July 31, 2011 and 2010, inventory consisted of the following components: July 31, July 31, 2011 2010 ---------- ---------- Raw materials $ 716,773 $ 544,460 Work in process 12,350 24,011 Finished goods 183,791 168,638 ---------- ---------- Totals $ 912,914 $ 737,109 ========== ========== NOTE G - PROPERTY AND EQUIPMENT Property and equipment consist of the following components: July 31, July 31, Estimated 2011 2010 useful life ---------- ---------- ----------- Manufacturing equipment $2,882,109 $2,882,747 7 years Office equipment, furniture and fixtures 551,237 530,629 2-7 years Leasehold improvements 110,063 110,063 10 years ---------- ---------- 3,543,409 3,523,439 Accumulated depreciation (2,947,677) (2,619,189) ---------- ---------- Net property and equipment $ 595,732 $ 904,250 ========== ========== Total depreciation expense charged to operations for the years ended July 31, 2011 and 2010 was approximately $328,500 and $341,600, respectively. Included in the amounts reflected in the accompanying balance sheet are the following fixed assets on long-term capital leases: July 31, July 31, 2011 2010 ---------- ---------- Manufacturing equipment $1,387,606 $1,387,606 Less accumulated depreciation (1,050,099) (851,870) ---------- ---------- $ 337,507 $ 535,736 ========== ========== F-10 GUARDIAN TELECOM, INC. NOTES TO FINANCIAL STATEMENTS - CONTINUED July 31, 2011 and 2010 NOTE H - LINE OF CREDIT NOTE PAYABLE TO A BANK The Company has a $500,000 ($1,000,000 at July 31, 2010) revolving line of credit note payable with the Royal Bank of Canada (RBC). The loan bears interest at RBC's Prime interest rate + 2.9% (5.90% at July 31, 2011). Advances are made in increments of $5,000 and the maximum to be outstanding at any one time is 75% of "Good Accounts Receivable" (as defined in the Agreement) and 50% of the lesser of cost or net realizable value of "Unencumbered Inventory" (as defined in the Agreement) to a maximum of $250,000. All accrued interest is payable monthly, in arrears. The Company is required to maintain certain financial covenants, as defined in the Agreement, of a ratio of Total Liabilities to Tangible Net Worth of not less than 1.25:1 and a ratio of Current Assets to Current Liabilities of not less than 1.5:1. The Company believes that it is in compliance with the financial covenants as calculated pursuant to the Agreement. As of July 31, 2011 and 2010, the outstanding balance on the line of credit was approximately $365,000 and $807,048, respectively. NOTE I - CAPITAL LEASES PAYABLE July 31, July 31, 2011 2010 ---------- ---------- $203,740 capital lease payable to a finance corporation Interest at 5.39%. Payable in monthly installments of approximately $3,572, including accrued interest Final maturity paid in October 2010. Collateralized by equipment $ -- $ 9,792 $763,232 capital lease payable to a finance corporation Interest at 5.78%. Payable in monthly installments of approximately $13,527, including accrued interest Final maturity paid in November 2010. Collateralized by equipment -- 115,110 $197,704 capital lease payable to a finance corporation Interest at 6.20%. Payable in monthly installments of approximately $3,805, including accrued interest Final maturity due in January 2012. Collateralized by equipment 22,453 65,331 $222,930 capital lease payable to a finance corporation Interest at 5.21%. Payable in monthly installments of approximately $4,229, including accrued interest Final maturity due in October 2013. Collateralized by equipment 107,499 151,408 ---------- ---------- 129,952 341,641 Less current maturities (68,688) (211,689) ---------- ---------- Long-term portion $ 61,264 $ 129,952 ========== ========== Future maturities of long-term capital leases payable are Year ending July 31, Amount -------- ------ 2012 $ 68,688 2013 48,704 2014 12,560 ---------- Total $ 129,952 ========== F-11 GUARDIAN TELECOM, INC. NOTES TO FINANCIAL STATEMENTS - CONTINUED July 31, 2011 and 2010 NOTE J - LOANS FROM SHAREHOLDERS Future maturities of long-term capital leases payable are July 31, July 31, 2011 2010 -------- -------- Notes payable to four former stockholders. Interest payable at 5.0%, payable annually. Principal and any unpaid, but accrued, interest due upon demand The notes are unsecured and were assumed by the Company's current majority shareholder in October 2010 $ -- $325,000 Note payable to current stockholder. Due upon demand Non-interest bearing unless Company fails immediately pay upon demand in which case the note bears interest, prospectively, at RBC's Prime Rate + 3.0%. The note is unsecured and subordinated to the Company's Line of Credit Note Payable to a Bank 325,000 -- Note payable to current stockholder. Due upon demand Interest payable at 6.0%, commencing August 1, 2011. Principal and any unpaid, but accrued, interest due upon demand and payable in such time and manner as mentioned in the demand notice. The note is unsecured and subordinated to the Company's Line of Credit Note Payable to a Bank 600,000 -- -------- -------- $950,000 $325,000 ======== ======== Certain notes payable to the Company's current controlling stockholder, as listed above, are non-interest bearing, as of July 31, 2011, and, as such, the Company has recognized an aggregate of approximately $15,119 as additional paid-in capital for economic event related to the non-interest bearing feature on the aforementioned notes payable to stockholders. NOTE K - COMMON STOCK TRANSACTIONS The Company's Articles of Incorporation provide for four (4) separate classes of shares, as follows: Class A Shares The Company is authorized to issue an unlimited number of Class A shares having attached thereto the following rights: (a) The holders of Class A shares are entitled to vote at all meetings of stockholders of the Corporation, except at meetings at which only holders of a specific class of shares are entitled to vote. (b) Subject to the rights attaching to any other classes of shares of the Corporation the holders of the Class A shares are entitled to such dividends as the directors of the Corporation in their sole discretion may determine from time to time and no class of shares shall rank equally with any other class of shares in respect of dividends; and in particular, notwithstanding the generality of the foregoing, the directors may (i) declare dividends on one class of shares without declaring dividends on the other classes of shares, (ii)declare dividends on two or more classes of shares at different times, (iii)declare dividends on two or more classes of shares at the same time in different amounts for each class, or (iv)declare dividends on two or more classes of shares at the same time but payable at different times. (c) Subject to the rights attaching to any other shares of the Corporation, upon the liquidation, dissolution, bankruptcy or winding-up of the Corporation or other distribution of its assets amount its stockholders for the purpose of winding-up its affairs, the holders of Class A shares are entitled to receive the remaining property of the Corporation pro rata with the Class B, Class C and Class D shares. F-12 GUARDIAN TELECOM, INC. NOTES TO FINANCIAL STATEMENTS - CONTINUED July 31, 2011 and 2010 NOTE K - COMMON STOCK TRANSACTIONS - CONTINUED Class B Shares The Company is authorized to issue an unlimited number of Class B shares having attached thereto the following rights: (a) The holders of Class B shares are entitled to vote at all meetings of stockholders of the Corporation, except at meetings at which only holders of a specific class of shares are entitled to vote. (b) Subject to the rights attaching to any other classes of shares of the Corporation the holders of the Class B shares are entitled to such dividends as the directors of the Corporation in their sole discretion may determine from time to time and no class of shares shall rank equally with any other class of shares in respect of dividends; and in particular, notwithstanding the generality of the foregoing, the directors may (i) declare dividends on one class of shares without declaring dividends on the other classes of shares, (ii) declare dividends on two or more classes of shares at different times, (iii)declare dividends on two or more classes of shares at the same time in different amounts for each class, or (iv)declare dividends on two or more classes of shares at the same time but payable at different times. (c) Subject to the rights attaching to any other shares of the Corporation, upon the liquidation, dissolution, bankruptcy or winding-up of the Corporation or other distribution of its assets amount its stockholders for the purpose of winding-up its affairs, the holders of Class B shares are entitled to receive the remaining property of the Corporation pro rata with the Class A, Class C and Class D shares. Class C Shares The Company is authorized to issue an unlimited number of Class C shares having attached thereto the following rights: (a) The holders of Class C shares are entitled to vote at all meetings of stockholders of the Corporation, except at meetings at which only holders of a specific class of shares are entitled to vote. (b) Subject to the rights attaching to any other classes of shares of the Corporation the holders of the Class C shares are entitled to such dividends as the directors of the Corporation in their sole discretion may determine from time to time and no class of shares shall rank equally with any other class of shares in respect of dividends; and in particular, notwithstanding the generality of the foregoing, the directors may (i) declare dividends on one class of shares without declaring dividends on the other classes of shares, (ii)declare dividends on two or more classes of shares at different times, (iii)declare dividends on two or more classes of shares at the same time in different amounts for each class, or (iv)declare dividends on two or more classes of shares at the same time but payable at different times. (c) Subject to the rights attaching to any other shares of the Corporation, upon the liquidation, dissolution, bankruptcy or winding-up of the Corporation or other distribution of its assets amount its stockholders for the purpose of winding-up its affairs, the holders of Class C shares are entitled to receive the remaining property of the Corporation pro rata with the Class A, Class B and Class D shares. Class D Shares The Company is authorized to issue an unlimited number of Class D shares having attached thereto the following rights: (a) The holders of Class D shares are entitled to vote at all meetings of stockholders of the Corporation, except at meetings at which only holders of a specific class of shares are entitled to vote. (b) Subject to the rights attaching to any other classes of shares of the Corporation the holders of the Class D shares are entitled to such dividends as the directors of the Corporation in their sole discretion may determine from time to time and no class of shares shall rank equally with any other class of shares in respect of dividends; and in particular, notwithstanding the generality of the foregoing, the directors may (i) declare dividends on one class of shares without declaring dividends on the other classes of shares, (ii) declare dividends on two or more classes of shares at different times, (iii)declare dividends on two or more classes of shares at the same time in different amounts for each class, or (iv)declare dividends on two or more classes of shares at the same time but payable at different times. F-13 GUARDIAN TELECOM, INC. NOTES TO FINANCIAL STATEMENTS - CONTINUED July 31, 2011 and 2010 NOTE K - COMMON STOCK TRANSACTIONS - CONTINUED (c) Subject to the rights attaching to any other shares of the Corporation, upon the liquidation, dissolution, bankruptcy or winding-up of the Corporation or other distribution of its assets amount its stockholders for the purpose of winding-up its affairs, the holders of Class D shares are entitled to receive the remaining property of the Corporation pro rata with the Class A, Class B and Class C shares. NOTE L - INCOME TAXES The components of income tax (benefit) expense for the years ended July 31, 2011 and 2010, respectively, are as follows: Year ended Year ended July 31, July 31, 2011 2010 ---------- ---------- Canadian: Current $ (14,604) $ -- Deferred -- -- ---------- ---------- -- -- ---------- ---------- Provence: Current -- -- Deferred -- -- ---------- ---------- -- -- ---------- ---------- Total $ -- $ -- ========== ========== As of July 31, 2011, the Company has a aggregate combined net operating loss carryforward of approximately $876,000 to offset future taxable income. Subject to current regulations, components of this carryforward will expire in accordance with Canadian Tax Law in various future periods. The Company's income tax expense (benefit) for the years ended July 31, 2011 and 2010, respectively, differed from the Canadian statutory rate of 38 percent and the Alberta Provincial statutory rate of 10 percent, as follows: Year ended Year ended July 31 July 31, 2011 2010 ---------- ---------- Statutory rate applied to loss before income taxes $ (111,300) $ (212,700) Increase (decrease) in income taxes resulting from: Provincial income taxes 23,200 44,300 Other differences related to statutory differences in expense recognition and the effect of the net operating loss 88,100 168,400 ---------- ---------- Income tax expense $ -- $ -- ========== ========== (Remainder of this page left blank intentionally) F-14 GUARDIAN TELECOM, INC. NOTES TO FINANCIAL STATEMENTS - CONTINUED July 31, 2011 and 2010 NOTE L - INCOME TAXES - CONTINUED Temporary differences, consisting primarily of the net operating loss carryforward and statutory differences in the depreciable lives for property and equipment, between the financial statement carrying amounts and tax bases of assets and liabilities give rise to deferred tax assets and liabilities as of July 31, 2011 and 2010, respectively: Year ended Year ended July 31, July 31, 2011 2010 ---------- ---------- Deferred tax assets - long-term Net operating loss carryforwards $ 333,000 $ 338,000 Depreciation timing differences 293,400 243,700 ---------- ---------- 626,400 581,700 Deferred tax liabilities - long-term -- -- ---------- ---------- 626,400 581,700 Less valuation allowance (626,400) (581,700) ---------- ---------- Net Deferred Tax Asset $ -- $ -- ========== ========== During the years ended July 31, 2011 and 2010, respectively, the valuation allowance increased by approximately $44,700 and $90,800. NOTE M - RENTAL COMMITMENTS The Company leases its corporate office and manufacturing facility from a corporation controlled by a former stockholder under a long-term operating lease agreement. The lease requires a monthly payment of approximately $25,947. The Company is responsible for the direct payment of all utilities and maintenance expenses and the reimbursement of all ad valorem taxes. The lease expires on November 30, 2014 and contains a 5-year renewal extension period with the rental rate to be reset to fair market value at renewal if the Company gives notice of renewal to the lessor no earlier than 9 months, and not later than 6 months, prior to the expiration date. Total rent expense, paid or accrued, under lease agreements for each of the years ended July 31, 2011 and 2010, respectively, was as follows: Year ended Year ended July 31, July 31, 2011 2010 ---------- ---------- Total $ 248,292 $ 248,292 ========== ========== Future operating lease commitments, including the exercise of the 5-year renewal extension, are as follows: Year ending July 31, Amount ---------- ---------- 2012 $ 311,360 2013 311,360 2014 311,360 2015 344,363 2016 360,864 2017-thereafter 1,202,880 ---------- Total $2,842,187 ========== F-15 GUARDIAN TELECOM, INC. NOTES TO FINANCIAL STATEMENTS - CONTINUED July 31, 2011 and 2010 NOTE N - RELATED PARTY TRANSACTIONS In October 2010, in a securities transaction between former and current stockholders, control of the Company was acquired by 4C Tech Holdings, Inc., an Alberta Canada corporation. As of and during the year ended July 31, 2011, the Company had the following transactions with 4C Tech Holdings, Inc. and/or Affiliates of 4C Tech Holdings, Inc.: As of July 31, 2011: Accounts receivable from 4C Tech Holdings, Inc. or Affiliates $ 11,424 ======== Accounts payable to 4C Tech Holdings, Inc. or Affiliates $ 16,710 ======== Loans payable to 4C Tech Holdings, Inc. $925,000 ======== Year ended July 31, 2011: Product sales $188,721 ======== NOTE O - REVENUE CONCENTRATIONS (UNAUDITED) The Company sells to both commercial and governmental customers, in both domestic and foreign markets. The following table shows the Company's geographic revenue distribution by region as presented in the accompanying Statement of Operations: Year ended July 31, 2011 Amount % of total ------ ---------- North America $3,629,698 61.52% Middle East/Africa 1,295,468 21.96 Central America 387,137 6.56 Asia/Australia 304,448 5.16 South America 176,922 3.00 Europe 106,450 1.80 ---------- ------ $5,900,123 100.00% ========== ====== The Company had no single customer responsible for 10% or more of gross revenues during the year ended July 31, 2011. F-16