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 $ -- $ --
========== ==========
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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