ITEM 1. DESCRIPTION OF BUSINESS Back to Table of Contents
Hipso Multimedia, Inc. (the "Company") was incorporated under the laws of the State of Florida on April 5, 2005, under the name Physicians Remote Solutions, Inc. On June 2, 2008, the Company entered into an agreement to acquire all of the issued and outstanding common shares of Valtech Communications Inc. (“Valtech”), a Canadian corporation and a wholly-owned subsidiary of Hipso Multimedia, Inc., a Florida corporation, in consideration of the issuance of 40,000,000 shares of common stock of the Company. The effective date of the reverse merger was June 2, 2008. On July 8, 2008, the Company changed its name to Hipso Multimedia, Inc. Prior to the merger, the Company had not generated any revenues. As a result of the transaction (the “reverse merger”) and for accounting purposes, the reverse merger has been treated as an acquisition of the Company by Valtech and a recapitalization of the Company. The historical financial statements are those of Valtech. Since the reverse merger is a recapitalization and not a business combination, pro-forma information is not presented.
The Company's common stock is subject to quotation on the FINRA OTCBB under the symbol “HPSO.”
Valtech is offering and delivering high speed internet, telephone and high definition TV in one package to over 1,500 subscribers on a recurring revenue model. The Company leases fiber optic bandwith from an unaffiliated suppliers at competetive rates. These suppliers directly connect our technical center to the various buildings we serve. These fiber optic pairs are delivered to the meet-me point where we cross connect to the Valtech internal building network. We initially targeted the multi-dwelling unit (MDU) market in the greater Montreal, Canada area. The Company offers its retail customers a bundled package including IP telephony, internet bandwidth in 5 and 10 megabytes per second (Mbps) increments to a maximum of 50 Mbps, and 83 television channels. In addition to marketing our services to the MDU market, we also offer our services to real estate businesses, hotels, hospital and retirements homes The Company's services are marketed through its website, valtech.ca, as well as through advertisements in print media and direct mailings.
Our main hardware suppliers are: (i) Zyxel supplies IPswitch Dslam and VDSL modems; (ii) Mediatrix supplies VOIP gateways; (iii) SMC supplies IPSwitch; and (iv) Grandstream supplies VOIP gateways. All these equipments are bought and paid for. They are integral parts of the Valtech network. All the buildings have been cabled by Valtech therefore we are owner of the total network within the buildings we serve.
Valtech wires its customers facilities, including apartments, office complexes and hotels, among others, which in some instances, are at its expense and in others is paid for by the property owners or operators. Costs of installation for an end-user average US$200 Note: below it states “free installation) , which cost is amortized over a period of six to twelve months through service charges. As a result, the addition of new customers may cause initial cash flow deficits which are recouped over the period of amortization.
If the partnership commences operations, of which there can be no assurance, Valtech believes that it is could be well-positioned for the highly attractive IPTV market opportunity. At present, Valtech offers two triple play packages. Each includes high speed internet, digital TV, and VoIP. The packages are differentiated as follows:
Emeraude Package
- Price: Cdn$69.99 / month (US$56.63);
- Very high speed internet: 1 meg/sec in and out;
- Digital TV: 43 channels plus 30 Galaxie channels;
- VoIP with Caller Id, Voicemail, Email Voicemail, Call Waiting, Transfer on no answer; and
- Transfer on Call Busy, Permanent Transfer, Caller Id on Call Waiting.
Saphir Package
- Price: Cdn$119.99 / month (US$97.10);
- Very high speed internet: 3 meg/sec in and out;
- Digital TV: 80 channels plus 30 Galaxie channels;
- VoIP with Caller Id, Voicemail, Email Voicemail, Call Waiting, Transfer on no answer, Transfer on Call Busy, Permanent Transfer, Caller Id on Call Waiting; and
- Unlimited calls to the US and Canada.
Competition
Valtech faces competition in the triple play telecommunications arena primarily from Bell Canada and Videotron, both of which have significantly longer operating histories and far greater financial and other resources than does the Company. In the opinion of management, Valtech offers clearer television service and Internet services with broader bandwidth (a maximum of 50 mgbd vs. 10 mgbd) and at a substantially lower monthly price than does its competitors. Valtech has gained and continues to gain customers from both of its major competitors. Valtech believes that its main advantage over its competition is that it provides the “last mile” (the connection to the building in which its customers live, stay or work) and that its Telecommunication Services are provided via fiber optic rather than coaxial cable as used by the incumbent competition. While its competitors could replace there coaxial cable with fiber optic, the expense is disproportionate to the financial rewards and such replacement is sporadic at best.
Employees
We currently have approximately 4 full employees, including our president, and two part-time per diem installers for our Telecommunication Services and equipment.
Patents, Trademarks, Service Marks And Licenses and Other Intellectual Property
At the present time, Valtech owns no patents or intellectual property. Thus, its competitors can use the same communications technology as Valtech and offer identical service. However, because of installation of the coaxial network of the incumbent carriers, they cannot without unreasonable expense over the same maximum bandwidth which Valtech offers through the use of fiber optics.
Major Customers
As of November 30, 2011, the Company had one customer who generated 75% of our revenues.
Government Regulation
The Company’s business is not subject to any governmental regulation.
Recent Developments
On November 30, 2011, the Company, entered into an Asset Purchase Agreement (the “Agreement”) with 3324109 Canada Inc., a Canadian corporation owned by Gary Oberman (“GaryCo”) and 8040397 Canada Inc., a Canadian corporation, owned by Bartek Bulzak (“BulzakCo”), collectively, the “Sellers”, “Buildablock” or “BAB”, pursuant to which the Company will acquire and the Sellers will sell assets comprised of an Internet and mobile service platform whose purpose is to empower or capitalize on the growth of the neighborhood, local economy. As a social network platform, Buildablock addresses a powerful need in social networking. The assets have a fair value of $10,000. The Sellers have conducted no other business other than the development of this platform. The intellectual property was funded 100% by the respective Sellers personally. The Company will issue to the Sellers 50% of the outstanding stock following a proposed 1 for 8 reverse stock split. The amount of the shares post-split will amount to 8,559,721 common shares. Control will remain with the current board of directors, and the Company will add the Sellers to the board of directors.
ITEM 1A.
ITEM 1A. RISK FACTORS RELATED TO OUR BUSINESS
Back to Table of Contents Investing in our common stock will provide an investor with an equity ownership interest. Shareholders will be subject to risks inherent in our business. The performance of our shares will reflect the performance of our business relative to, among other things, general economic and industry conditions, market conditions and competition. The value of the investment may increase or decrease and could result in a loss. An investor should carefully consider the following factors as well as other information contained in this annual report on Form 10-K for the year ended November 30, 2011.
This annual report on Form 10-K also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of many factors, including the risk factors described below and the other factors described elsewhere in this Form 10-K.
Risk factors related to our business
Valtech’s limited operating history makes it difficult for an investor to evaluate the Company’s past performance and future prospects.
The Company’s operating subsidiary, Valtech, was formed and commenced offering its Telecommunication Services in 2006. As a result, the Company has limited historical financial and operating data upon which an investor can evaluate the Company’s present business and future prospects. This limited operating history makes it very difficult for investors to evaluate or predict our ability to, among other things, achieve new and retain existing customers, generate and sustain a revenue base sufficient to meet operating expenses, and achieve profitability, if ever.
Our auditor has raised doubts about the Company's ability to continue as a going concern.
The Company has lost money in every quarter since the inception of its business. As of November 30, 2011, our accumulated loss was $4,150,676. The four principal shareholders of the Company had advanced $1,874,681 to the Company for working capital purposes. These loans bear interest at an annual rate of 10% for individual amounts exceeding $150,000 (CDN$) or (US$141,870. The loans have no specific terms of repayment and are unsecured. Interest expense for the years ended November 30, 2011 and 2010 were $131,402 and $120,775, respectively. Accrued interest on these loans as of November 30, 2011 and 2010 were $285,354 and $157,075, respectively.
The Company is attempting to raise equity funding but, thus far, has been unsuccessful. Given its present plans to expand its business, in the absence of such loans or successful fundraising, the Registrant through Valtech, which is its operating subsidiary, will fail. If, however, Valtech ceased trying to expand and simply administered the accounts it has developed, in management's opinion, it is anticipated that we could become cash flow positive within twelve months.
The Company may not be successful in implementing its business plan.
While the Company’s business model and strategy of offering “triple play” Telecommunications Services is similar to those being utilized by many existing providers of telecommunication services, the Company may not be successful, for many reasons, including but not limited to insufficient resources to compete in its present market or in expanded markets in Canada or elsewhere. If the assumptions underlying the business model are not valid or if the Company is unable to implement the business plan, achieve predicted levels of market penetration or obtain the desired level of pricing of services for sustained periods, the Company may not be successful. The Company focuses on selling directly to consumers and through hotels and apartment buildings. It may never be able to achieve significant market acceptance, favorable operating results or profitability.
The Company is dependent upon one major customer.
Valtech is dependent upon one major customer representing 75% of the Company's revenues in fiscal year 2011. One customers accounted for 100% of the Company’s accounts receivable at November 30, 2011.
The Company expects that its losses will continue for the foreseeable future.
The Company has incurred losses and experienced negative cash flow from operations since it commenced its Telecommunications Services business. It expects to continue to incur significant losses and negative cash flow from operations for the foreseeable future. If revenue does not grow as it expects or if its ability to raise capital is insufficient or operating expenditures exceed its expectations, then the Company’s business, prospects, financial condition and results of operations will face materially adverse effects.
Competitive forces may result in the decrease of the price for the Company’s Telecommunication Services.
Prices for communications services have historically decreased over time. The Company expects that prices for its Telecommunications Services may decrease after the market for such services becomes saturated. While the Company believes that the market for Telecommunication Services shall continue to grow, the Company cannot predict with any certainty the number of years before which saturation occurs. At such time that market saturation occurs, the Company may have to reduce prices in order to remain competitive. The inability to sell its Telecommunication Services at desired pricing levels would significantly impair its ability to achieve profitability.
Valtech owns no patents or other proprietary technology.
Valtech has not applied for any patents nor does it own proprietary technology. As a result, competitive companies can offer the same services as Valtech utilizing the same technologies
The market in which Valtech operates is highly competitive.
The market for telecommunications and Internet services in the Company’s market is extremely competitive. Valtech faces competition on price and quality of service from traditional communications companies with longer operating histories, more established customer relationships, greater financial, technical and marketing resources, larger customer bases and greater brand or name recognition. Furthermore, companies that may seek to enter our markets may expose us to severe price competition and technological developments. Any of these factors may limit the Company’s ability to compete effectively. At present, Valtech does not have a significant presence in the Montreal triple play market but the Company believes that its market share will grow because of its growing name recognition through advertising (both print and Internet) and customer referrals and a combination of quality of its service and lower prices than the incumbent competition. The completion is primarily from Bell Canada and Videotron.
The Company has been dependent upon loans from its principal shareholders to fund its negative cash flow from operations.
As of November 30, 2011, the four principal shareholders of the Company had advanced $1,874,681 to the Company for working capital purposes. These loans bear interest at an annual rate of 10% for individual amounts exceeding $150,000 (CDN$) ($141,870 (US$)). The loans have no specific terms of repayment and are unsecured.
The Company requires additional funding in the future in order to grow its business.
The Company is attempting to raise debt or equity funding from unaffiliated entities but, to date, it has not been successful. Given its present plans to expand its business, in the absence of continued loans from its principal shareholders or successful fundraising, the Company may not be able to successfully compete and fully develop its business plan. Notwithstanding the foregoing, the Company believes that if Valtech reduced efforts for expansion and simply administered its existing customer accounts, it would become cash flow positive within twelve months.
The actual amount and timing of future capital requirements will depend upon a number of factors, including, but not limited to:
- the number of new markets it enters and the timing of entry;
- the rate and price at which customers purchase services;
- the level of marketing required to attract and retain customers; and
- opportunities to invest in or acquire complementary businesses.
Failure to manage growth could have a detrimental effect on the Company’s business.
The Company anticipates that the number and rate of installations for new customers will continue to increase provided that the Company is able to raise sufficient capital. However, rapid growth would place a significant strain on the Company’s management, financial controls, operations, personnel and other resources. If the Company fails to manage its anticipated rapid growth, its business could be materially adversely affected. If the Company is unable to provide its existing customers with adequate service and if it does not institute adequate financial and reporting systems, managerial controls and procedures, its financial condition will be adversely affected. It is currently implementing operational support systems to bill customers, process customer orders and coordinate with vendors and contractors. To manage growth effectively, it must successfully implement these systems on a timely basis and continually expand and upgrade these systems as our operations expand.
The Company’s success depends in large part on its retention of executive officers.
The Company is managed by a small number of executive officers. Competition for qualified executives in the telecommunications industry is intense, and there are a limited number of persons with comparable experience. The Company depends upon its executive officers, and, in particular, Rene Arbic, President and Chief Executive Officer, to execute its business strategy and manage employees. While Company does not have employment agreements with nor does it have "key person" life insurance policies on any of its executive officers, Rene Arbic has an employment agreement with Valtech, the Company’s operating subsidiary. The loss of these key individuals would have a material adverse effect on the Company’s business.
If the Company fails to recruit and hire qualified personnel in a timely manner or to retain its employees, it will not be able to execute its business strategy.
The Company’s strategy is to continue expanding its presence in Montreal and in Quebec Province. It also plans to expand its service areas to other provinces in Canada. In order to execute this strategy, it must identify, hire, train and retain highly qualified technical, sales, marketing and customer service personnel. If it cannot hire and retain a sufficient number of qualified employees, it will not be able to expand as planned. The Company may be unable to identify, hire or retain employees with experience in the telecommunications industry. Any failure to attract suitable employees would adversely affect its business.
The Company may make acquisitions of complementary businesses in the future which may disrupt its business and be dilutive to existing shareholders.
The Company intends to consider acquisitions of businesses in the future. Acquisitions of businesses and technologies involve numerous risks, including the diversion of the attention of management, difficulties in assimilating the acquired operations, loss of key employees from the acquired company and difficulties in transitioning key customer relationships. In addition, acquisitions may result in dilutive issuances of equity securities, the incurrence of additional debt, large one-time expenses and the creation of goodwill or other intangible assets that result in significant amortization expense. Any of these factors could materially harm the Company’s business or operating results. On November 30, 2011, the Company entered into an asset purchase agreement with Buildablock Corp. See disclosure under subheading "Recent Developments"
The Company’s quarterly operating results are likely to fluctuate significantly, causing its stock price to be volatile.
The Company cannot accurately forecast quarterly revenue and operating results, which may fluctuate significantly from quarter to quarter. If quarterly revenue or operating results fall below the expectations of investors or securities analysts, the price of its common stock could fall substantially. Its quarterly revenue and operating results may fluctuate as a result of a variety of factors, many of which are outside our control, including:
- the amount and timing of expenditures relating to the rollout of services;
- the rate at which it is able to attract and retain customers;
- the availability of future financing to continue expansion;
- technical difficulties;
- the introduction of new services or technologies by our competitors and
- pressures on the pricing of services.
The Company’s principal shareholders and management own a significant percentage of its capital stock and are able to exercise significant influence over the Company.
The Company’s executive officers and directors and principal shareholders together beneficially own a majority of the total common stock of the Company. Accordingly, these stockholders, as a group, will be able to determine the composition of the board of directors and will retain the power to approve all matters requiring shareholder approval and will continue to have significant influence over the Company’s affairs. This concentration of ownership could have the effect of delaying or preventing a change in control of the Company or otherwise discouraging a potential acquirer from attempting to obtain control of our company, which in turn could have a material and adverse effect on the market price of our common stock or prevent our stockholders from realizing a premium over the market prices for their shares of common stock.
Risk factors related to the market for our common stock
There is no assurance that an active trading market will be sustained for our common stock.
Our common stock became eligible for quotation on the FINRA OTCBB under the symbol “HPSO” on August 8, 2008. Further, there can be no assurance regarding the market price of our shares. In addition, the liquidity of any trading market in our common stock, and the market price quoted for the shares of common stock, may be adversely affected by changes in the overall market for securities generally and by changes in our financial performance or prospects for companies in our industry generally. As a result, you cannot be sure that an active trading market will develop or be sustained for our shares.
State blue sky registration; potential limitations on resale of our securities.
It is the intention of the management to seek coverage and publication of information regarding the Company in an accepted publication which permits a manual exemption. This manual exemption permits a security to be distributed in a particular state without being registered if the Company issuing the security has a listing for that security in a securities manual recognized by the state. However, it is not enough for the security to be listed in a recognized manual. The listing entry must contain (1) the names of issuers, officers, and directors, (2) an issuer's balance sheet, and (3) a profit and loss statement for either the fiscal year preceding the balance sheet or for the most recent fiscal year of operations. Furthermore, the manual exemption is a nonissuer exemption restricted to secondary trading transactions, making it unavailable for issuers selling newly issued securities.
Most of the accepted manuals are those published in Standard and Poor's, Moody's Investor Service, Fitch's Investment Service, and Best's Insurance Reports, and many states expressly recognize these manuals. A smaller number of states declare that they "recognize securities manuals" but do not specify the recognized manuals. The following states do not have any provisions and therefore do not expressly recognize the manual exemption: Alabama, Georgia, Illinois, Kentucky, Louisiana, Montana, South Dakota, Tennessee, Vermont and Wisconsin.
Dividends unlikely.
We do not expect to pay dividends for the foreseeable future. The payment of dividends, if any, will be contingent upon our future revenues and earnings, capital requirements and general financial condition. The payment of any dividends will be within the discretion of our board of directors. It is our intention to retain all earnings for use in the business operations and accordingly, we do not anticipate that the Company will declare any dividends in the foreseeable future.
Possible Issuance of Additional Securities.
Our Articles of Incorporation authorize the issuance of 100,000,000 shares of common stock, par value $0.00001. As of November 30, 2011, we had 68,477,765 shares of common stock issued and outstanding. We may issue additional shares of common stock in connection with any financing activities, as compensation for services or in connection with any future acquisitions. To the extent that additional shares of common stock are issued, our shareholders would experience dilution of their respective ownership interests in the Company. The issuance of additional shares of common stock may adversely affect the market price of our common stock and could impair our ability to raise additional capital through the sale of our equity securities.
Compliance with Penny Stock Rules.
Our securities are considered a "penny stock" as defined in the Exchange Act and the rules thereunder, since the price of our shares of common stock is less than $5. Unless our common stock will otherwise be excluded from the definition of "penny stock," the penny stock rules apply with respect to our common stock. The penny stock rules require a broker-dealer prior to a transaction in penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document prepared by the SEC that provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its sales person in the transaction, and monthly account statements showing the market value of each penny stock held in the customer's account. In addition, the penny stock rules require that the broker-dealer, not otherwise exempt from such rules, must make a special written determination that the penny stock is suitable for the purchaser and receive the purchaser's written agreement to the transaction. These disclosure rules have the effect of reducing the level of trading activity in the secondary market for a stock that becomes subject to the penny stock rules. So long as the common stock is subject to the penny stock rules, it may become more difficult to sell such securities. Such requirements, if applicable, could additionally limit the level of trading activity for our common stock and could make it more difficult for investors to sell our common stock.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Back to Table of Contents None.
ITEM 2.
ITEM 2. DESCRIPTION OF PROPERTIES
Back to Table of Contents The Company's corporate offices are located at 550 Chemin du Golf, Suite 202, Ile des Soeurs, Quebec H3E 1A8. The office building is owned by Canvar Group, which is owned by Peter Varadi, a principal shareholder. The office space is made available to us on a month-to-month basis on a rent-free basis. The Company believes that the office facilities of approximately 2,500 square feet are sufficient for the foreseeable future and that this arrangement will remain in effect.
ITEM 3.
ITEM 3. LEGAL PROCEEDING Back to Table of Contents On April 7, 2008, the Company entered into a consulting agreement with Thomas Klein and Arshad Shaw (the “Consultants”), pursuant to which each Consultant was issued 300,000 restricted shares of the Company’s common stock, granted options to purchase 500,000 shares and options to purchase additional shares during the period commencing May 1, 2008 through October 1, 2008. As a result of the failure of Consultants to provide the services required under the consulting agreement, the Company terminated the consulting agreement on August 28, 2008.
The Company commenced a lawsuit against the Consultants and the former transfer agent for its common stock and filed an amended complaint on February 3, 2009, alleging, among other things, non-performance by the Consultants of their obligations under the consulting agreement and their failure to pay for the initial 500,000 options that each exercised.
On August 30, 2009, the Court entered a default judgment against the defendants which provide for an injunction against the transfer agent ordering it not to lift restrictions on the certificates evidencing the 300,000 restricted shares of common stock issued to and the 500,000 shares underlying the options granted to each Consultant. On January 26, 2011, the successor transfer agent cancelled the restricted shares in the Consultants’ names. On March 1, 2011, attorneys for the Consultants filed a motion seeking legal fess from the Company not to exceed $1,762.50.
The Company is not a party to any other litigation and does not believe that any litigation is pending or threatened.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
Back to Table of Contents None.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTER Back to Table of Contents
(a) Market Price Information
The Registrant's common stock is subject to quotation on the FINRA OTCBB under the symbol HPSO. To the best knowledge of the Registrant, there has been no liquid trading market for the Registrant's common stock since its registration statement was declared effective. The following table shows the high and low bid prices for the Registrant's common stock during the last three fiscal years as reported by the National Quotation Bureau Incorporated. These prices reflect inter-dealer quotations without adjustments for retail markup, markdown or commission, and do not necessarily represent actual transactions.
Approximate Number of Holders of Common Stock: On November 30, 2011, there were approximately 25 shareholders of record of our common stock.
Securities Authorized for Issuance Under Equity Compensation Plans
The Registrant's board of director approved an equity compensation plan under which 3,000,000 shares of our common stock is authorized for issuance. No shares have been issued under such plan as of the filing of this mended annual report for the year ended November 30, 2011.
Dividend Policy
Holders of our common stock are entitled to dividends when, as, and if declared by the Board of Directors, out of funds legally available therefore. There are no restrictions in our articles of incorporation or by-laws that restrict us from declaring dividends.
Recent Sales of Unregistered Securities
Date of Issuance Name No. of Shares Consideration Exemption
02/13/2009 Dan Ryan 50,000 Exercise of options in exchange for $7,000 Section 4(2)
06/15/2009 Claude Gendron 300,000 For services valued at $48,000 Section 4(2)
09/05/2009 Marc Chabot 250,000 Private placement valued at $25,000 Section 4(2)
09/21/2009 MLCIA Publication 180,000 For services valued at $18,900 Section 4(2)
02/10/2010 Harold Gervais 125,000 For services valued at $7,500 Section 4(2)
02/10/2010 Daniel Ringuet 90,000 Exercise of options in exchange for $5,400 Section 4(2)
02/10/2010 Daniel Ringuet 10,000 For services valued at $600 Section 4(2)
02/10/2010 Solnex Inc. 25,000 For services valued at $1,500 Section 4(2)
02/23/2010 Joel Pensley 500,000 Exercise of options in exchange for $25,000 Section 4(2)
04/01/2010 Claude Gendron 500,000 Private placement valued at $24,000 Section 4(2)
04/08/2010 Daniel Ringuet 90,000 Exercise of options in exchange for $12,600 Section 4(2)
04/08/2010 Solnex Inc. 25,000 For services valued at $3,500 Section 4(2)
04/08/2010 Harold Gervais 75,000 For services valued at $10,500 Section 4(2)
05/21/2010 Guylain Pelletier 400,000 Conversion of $50,000 of debt into equity Section 4(2)
05/28/2010 Gaetan Giguere 80,000 Conversion of $10,000 of debt into equity Section 4(2)
06/01/2010 Michael Price 200,000 Conversion of $25,000 of debt into equity Section 4(2)
06/09/2010 David Cleale 160,000 Conversion of $20,000 of debt into equity Section 4(2)
06/18/2010 David Oliver-Trottier 64,000 Conversion of $8,000 of debt into equity Section 4(2)
06/25/2010 Rene Mathieu 270,256 Conversion of $33,800 of debt into equity Section 4(2)
06/25/2010 Leandre Vachon 160,000 Conversion of $20,000 of debt into equity Section 4(2)
06/25/2010 Julee Pare 80,000 Conversion of $10,000 of debt into equity Section 4(2)
07/02/2010 Charles Rancourt 200,000 Conversion of $25,000 of debt into equity Section 4(2)
07/02/2010 Jean Boissonneault 120,000 Conversion of $15,000 of debt into equity Section 4(2)
07/22/2010 Richard Chevenal 200,000 Conversion of $25,000 of debt into equity Section 4(2)
07/15/2010 Sylvie Vachon 80,000 Conversion of $10,000 of debt into equity Section 4(2)
07/16/2010 Hugues Pomerleau 200,000 Conversion of $25,000 of debt into equity Section 4(2)
07/16/2010 Dave Jacques 80,000 Conversion of $10,000 of debt into equity Section 4(2)
08/06/2010 Eric Lessard 120,000 Conversion of $15,000 of debt into equity Section 4(2)
09/01/2010 Peter John Burningham 100,000 Conversion of $12,500 of debt into equity Section 4(2)
09/01/2010 Gilles Lamarche 150,000 For services valued at $9,000 Section 4(2)
09/01/2010 Benoit Desmeules 100,000 For services valued at $6,000 Section 4(2)
09/01/2010 Jean-Rene Lemieux 50,000 For services valued at $3,000 Section 4(2)
11/15/2010 Constellation Asset Management 570,000 For services valued at $68,400 Section 4(2)
11/15/2010 Jens Dalsgaard 570,000 For services valued at $68,400 Section 4(2)
The Company believes that the above issuances of restricted shares were exempt from registration pursuant to Section 4(2) of the Act as privately negotiated, isolated, non-recurring transactions not involving any public solicitation. The recipients in each case represented their intention to acquire the securities for investment only and not with a view to the distribution thereof. Appropriate restrictive legends are affixed to the stock certificates issued in such transactions.
Equity Compensation Plans
Securities Authorized for Issuance Under Equity Compensation Plans.
Equity Compensation Plan Information
Plan category Number of securities to be issued upon exercise of outstanding options, warrants and rights
(a) Weighted-average exercise price of outstanding options, warrants and rights
(b) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a) (c)
Equity compensation plans approved by security holders -0- 3,000,000
Equity compensation plans not approved by security holders -0-
Total -0- 3,000,000
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA Back to Table of Contents
Operating Results Data:
Revenues $ 134,422 $ 188,908
Net loss
(860,465)
(1,151,835)
Net loss per basic common shareholder
(0.01)
(0.02)
Basic weighted average common shares
67,167,107
58,431,597
Financial Position Data:
Total assets
35,181
168,732
Total liabilities
2,611,047
2,223,045
Stockholders' deficit
(2,575,866)
(2,054,313)
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS AND FINANCIAL CONDITIONS Back to Table of Contents
Forward-Looking Statements
The following discussion contains forward-looking statements. Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. They use of words such as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," and other words and terms of similar meaning in connection with any discussion of future operating or financial performance. From time to time, we also may provide forward-looking statements in other materials we release to the public.
The following discussion should be read in conjunction with our financial statements and the related notes appearing elsewhere in this report. The following discussion contains forward-looking statements reflecting our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to those discussed below and elsewhere in this report, particularly in the section entitled "Risk Factors".
To the extent that statements in the report are not strictly historical, including statements as to revenue projections, business strategy, outlook, objectives, future milestones, plans, intentions, goals, future financial conditions, future collaboration agreements, the success of the Company's development, events conditioned on stockholder or other approval, or otherwise as to future events, such statements are forward-looking. The forward-looking statements contained in this annual report are subject to certain risks and uncertainties that could cause actual results to differ materially from the statements made. Other important factors that could cause actual results to differ materially include the following: business conditions and the amount of growth in the Company's industry and general economy; competitive factors; ability to attract and retain personnel; the price of the Company's stock; and the risk factors set forth from time to time in the Company's SEC reports, including but not limited to its annual report on Form 10-K; its quarterly reports on Forms 10-Q; and any reports on Form 8-K.
Overview
In June 2008, we acquired our wholly-owned subsidiary, Valtech Communications Inc. ("Valtech") in a reverse merger transaction, issuing 40 million restricted shares to the Valtech shareholders.
Valtech offers low-cost, highly reliable triple-play service of Digital Phone, Digital Voice, High-Speed Internet and Digital TV backed by fast, friendly and live customer service (“Telecommunication Services”). Our present plan is to expand our bundled services by providing an end-to-end IPTV solution consisting of IPTV middleware, video on demand, network based PVR, IPTV head ends, content protection, IPTV infrastructure, system integration and IPTV applications such as games. In order to expand our services to include end-to-end IPTV service, the Company is dependent upon its ability to raise sufficient capital to fund its agreement with Ericsson. To date, the Company has been unable to meet its obligations under the Ericsson agreement and at present no agreement with Ericsson has been negotiated and no negotiations with Ericsson are on-going.
We intend to use our limited resources to market our services to new residential and commercial building complexes and existing hotel chains. Further, we intend to market our bundled Telecommunication Services in industry publications and intend to develop our website and promote its presence in order to increase web traffic and possible sales to new clients (www.valtech.ca).
Our management believes that the trend in our business is toward greater convergence to high speed Internet and high definition television. We believe that our bundled Telecommunication Services are competitive in terms of reliability and pricing as compared to the services offered by incumbent operators. Since we have no patent protection, it is possible that a well-funded company could enter the field and diminish our prospective business growth. We face uncertainties regarding our future growth because we must compete on price and quality of service with traditional communications companies with far longer operating histories, more established customer relationships, greater financial, technical and marketing resources, larger customer bases and greater brand or name recognition. Furthermore, companies that may seek to enter our markets may expose us to severe price competition and future technological developments could make us less competitive.
Cash and Cash Equivalents. The Company considers all highly liquid fixed income investments with maturities of three months or less, to be cash equivalents. On November 30, 2011, the Company had $0 in cash and cash equivalents. At November 30, 2010, the company had $13,005 in cash.
Accounts Receivable. Management periodically reviews the current status of existing receivables and management's evaluation of periodic aging of accounts. The Company charges off accounts receivable to expense when deemed uncollectible. The Company had $29,863 bad debt expenses at the end of November 30, 2011 compared to $9,807 in 2010. The Company accounts receivable for the years ended November 30, 2011 and 2010 were $26,147 and $18,319, respectively.
Deferred Costs. The Company's deferred development costs were $450,876 at November 30, 2011 and $447,954 at November 30, 2010. The Company recorded $450,876 amortization expense due to ceasing its business operations as of November 30, 2011 and $325,850 for the year ended November 30, 2010. The Company's deferred development costs are amortized over five (5) years. The level of development costs is directly related to the level of business development which we cannot predict with certainty, although Valtech is actively marketing its telecommunications services.
Revenue Recognition. The Company's wholly owned subsidiary, Valtech Communications, Inc. owns and operates a triple play (telephone, internet and TV channels distribution) network in Canada via fiber to individual customers, hotels and retirement homes. The Company bills its subscribers on a monthly basis and recognizes the monthly revenue based upon the specific plan selected by the subscriber. The Company also provides contract services to wire commercial buildings with fiber optic cable in order to provide for similar services.
Property and Equipment. Property and equipment are stated at cost and are depreciated using the straight line method over their estimated useful lives 5 - 7 years for equipment. The Company does not own real estate. The Company had equipment valued at $0 due to ceasing its business operations as of November 30, 2011 and $6,329 for the year ended November 30, 2010.
Results of Operations.
Comparison of the years ended November 30, 2011 and 2010
Revenues: Our wholly-owned subsidiary Valtech accounted for one hundred per cent (100%) of revenues for November 30, 2011 and 2010, respectively. Our revenues for the year ended November 30, 2011 were $134,422 compared to $188,908 for year ended November 30, 2010. The Company's revenues decreased by $54,486, which represents a 29% decrease from the prior year. The Company's decrease in revenues is mainly attributable to the general economic downturn in the construction business.
Cost of Sales: Cost of Sales for the year ended November 30, 2011 was $301,379 compared to $362,309 for year ended November 30, 2010. The Company's cost of sales increase was $60,930, which represents a 17% decrease from prior year. Thus, the decrease in the cost of sales was directly related to the decrease in wirings and installations as well as equipment.
Depreciation and Amortization: For the year ended November 30, 2011 we recorded $132,490 in depreciation and amortization expenses compared to $92,446 during the year ended November 30, 2010.
General and Administrative Expenses: General and Administrative Expenses for the year ended November 30, 2011 was $429,616 compared to $757,481 for year ended November 30, 2010. The Company's general and administrative expenses decrease was $327,865, which represents a 43% decrease from the prior year mainly due to decreased non-cash compensation expenses.
Interest Expense: The Company's interest expense for the year ended November 30, 2011 was $131,402 compared to $128,507 for year ended November 30, 2010. The increase of $2,895 represents a 2% increase and was the direct result of increases in related party loans and related interest payments.
Liquidity and Capital Resources
During the year ended November 30, 2011, our net cash decreased by $13,005. During the year ended November 30, 2011 and 2010, net cash used in operating activities was $388,545 and $591,945, respectively. This cash was used to fund our operations for the periods, adjusted for non-cash expenses and changes in operating assets and liabilities.
We had no investing activities in the years ended November 30, 2011 and 2010.
Net cash provided by financing activities was $355,851 during the year ended November 30, 2011 compared to $609,914 net cash provided by financing activities during the year ended November 30, 2010. The net cash provided by financing activities for the year ended November 30, 2011 resulted from proceeds of $70,000 related to the issuance of stock, proceeds of $285,749 in loans from affiliated shareholders. The net cash provided by financing activities for the year ended November 30, 2010 resulted from proceeds of $338,282 related to the issuance of stock, proceeds of $542,632 in loans from affiliated shareholders offset by $270,639 in repayments of a bank loan.
The Company has only limited capital. Additional financing is necessary for the Company to continue as a going concern. Our independent auditors have issued an uncertainty for the year ended November 30, 2010 based on going concern.
Our continued operations will depend on whether we are able to raise additional funds through third parties, such as equity and debt financing, as well as additional loans from our affiliated shareholders. However, there can be no assurance that such additional funds will be available on acceptable terms and there can be no assurance that any additional funding that we do obtain will be sufficient to meet our needs in the long term. We will continue to fund operations from cash on hand and through the similar sources of capital previously described. We can give no assurances that any additional capital that we are able to obtain will be sufficient to fully fund our growth plan.
Current and Future Financing Needs
We have incurred an accumulated deficit of $4,150,676 through November 30, 2011. We have incurred negative cash flow from operations since we started our Telecommunication Services business. We may need to obtain additional funds sooner or in greater amounts than we currently anticipate. Potential sources of financing include strategic relationships, public or private sales of our shares or debt and other sources. We may seek to access the public or private equity markets when conditions are favorable due to our long-term capital requirements. We do not have any committed sources of financing at this time, and it is uncertain whether additional funding will be available when we need it on terms that will be acceptable to us, or at all. If we raise funds by selling additional shares of common stock or other securities convertible into common stock, the ownership interest of our existing stockholders will be diluted. If we are not able to obtain financing when needed, we may be unable to carry out our business plan. As a result, we may have to significantly limit our operations and our business, financial condition and results of operations would be materially harmed.
Effect of Exchange Rate on Cash.
During 2011, the Company reported a gain of $19,689 due to changes in the exchange rate compared to a loss of $4,964 in 2010. A loss reflects an increase in the value of the Canadian dollar as compared to the United States dollar.
Cash end of Year. The Company's cash decreased by $13,005 to $0 at the end of November 30, 2011 compared to an increase of $13,005 at the end of November 30, 2010.
Off-Balance Sheet Arrangements
As of November 30, 2011 we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K promulgated under the Securities Act of 1934.
Contractual Obligations and Commitments
The Company leases its office space from a related party. See also footnote 7 in the consolidated financial statements.
Critical Accounting Policies
Our financial statements are prepared in accordance with accounting principles generally accepted in the United States, which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The critical accounting policies that affect our more significant estimates and assumptions used in the preparation of our financial statements are reviewed and any required adjustments are recorded on a monthly basis.
Recent Accounting Pronouncements
In May 2011, FASB issued Accounting Standards Update (ASU) No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. FASB ASU 2011-04 amends and clarifies the measurement and disclosure requirements of FASB ASC 820 resulting in common requirements for measuring fair value and for disclosing information about fair value measurements, clarification of how to apply existing fair value measurement and disclosure requirements, and changes to certain principles and requirements for measuring fair value and disclosing information about fair value measurements. The new requirements are effective for fiscal years beginning after December 15, 2011. The Company plans to adopt this amended guidance on October 1, 2012 and at this time does not anticipate that it will have a material impact on the Company’s results of operations, cash flows or financial position. In June 2011, FASB issued ASU No. 2011-05, Presentation of Comprehensive Income, which amends the disclosure and presentation requirements of Comprehensive Income. Specifically, FASB ASU No. 2011-05 requires that all nonowner changes in stockholders’ equity be presented either in 1) a single continuous statement of comprehensive income or 2) two separate but consecutive statements, in which the first statement presents total net income and its components, and the second statement presents total other comprehensive income and its components. These new presentation requirements, as currently set forth, are effective for the Company beginning October 1, 2012, with early adoption permitted. The Company plans to adopt this amended guidance on October 1, 2012 and at this time does not anticipate that it will have a material impact on the Company’s results of operations, cash flows or financial position.
In September 2011, FASB issued ASU 2011-08, Testing Goodwill for Impairment, which amended goodwill impairment guidance to provide an option for entities to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. After assessing the totality of events and circumstances, if an entity determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, performance of the two-step impairment test is no longer required. This guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted. Adoption of this guidance is not expected to have any impact on the Company’s results of operations, cash flows or financial position.
There were other updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.
ITEM 7A.
ITEM 7A.
QUANTITATIVEAND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Back to Table of Contents
We have not entered into, and do not expect to enter into, financial instruments for trading or hedging purposes.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Back to Table of Contents
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of November 30, 2011 and 2010
Consolidated Statements of Operations and Comprehensive Income (Loss) for the Years Ended November 30, 2011 and 2010
Consolidated Statement of Changes in Stockholders' Deficit for the Years Ended November 30, 2011 and
Consolidated Statements of Cash Flows for the Years Ended November 30, 2011 and 2010
Notes to the Consolidated Financial Statements
Report of independent registered public accounting firm Back to Table of Contents
Board of Directors
HIPSO Multimedia, Inc.
Montreal, Canada
We have audited the accompanying consolidated balance sheets of HIPSO Multimedia, Inc. and subsidiary (the “Company”) as of November 30, 2011 and 2010 and the related consolidated statements of operations and comprehensive income (loss), changes in stockholders’ equity (deficit), and cash flows for the years ended November 30, 2011 and 2010. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s 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 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 consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of HIPSO Multimedia, Inc. as of November 30, 2011 and 2010, and the results of its consolidated statements of operations and comprehensive income (loss), changes in stockholders’ equity (deficit), and cash flows for the years ended November 30, 2011 and 2010 in conformity with U.S. generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has sustained operating losses and capital deficits that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ KBL, LLP
New York, NY
February 24, 2012
HIPSO MULTIMEDIA, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS Back to Table of Contents
FOR THE YEARS ENDED NOVEMBER 30, 2011 AND 2010
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
HIPSO Multimedia, Inc. (the “Company”) formerly Physicians Remote Solutions, Inc., a Florida Corporation incorporated in April 2005, operates a “triple play” network providing digital TV, voice over internet protocol (VoIP) and a high speed internet access all via fiber optic cable. The Company targets the multi-dwelling unit market in Montreal and eventually throughout the Canadian market. The Company offers its retail customer base a bundled package including IP telephony, internet bandwidth in 5 and 10 megabytes per second (Mbps) increments and 80 television channels. The Company also targets hotels, hospitals and retirement homes by offering bulk long-term agreements to their connected customers.
The Company is now offering and delivering high speed internet, telephone and high definition TV in one package to over 1,500 subscribers on a recurring revenue model. The Company is now launching the second phase of its international business plan. They have completed the design and engineering of the next phase of the network deployment. The Company is expanding its business from being a retail “triple play” service provider to adding and becoming a wholesale supplier of IPTV (Internet Protocol Television) services to thousands of North American ISP’s (Internet Service Providers) and small rural telecommunication companies that currently cannot offer these needed services to their customer base. The Company is currently in negotiations with service providers for long-term delivery of IPTV services. In addition, the Company has secured a North American distributor license agreement from Oriana Technologies, the licensee of
“Select TV S.A.”, for the distribution of the most advanced IP Set top box available on the market.
On June 2, 2008, the Company entered into a share exchange agreement with Valtech Communications, Inc. (“Valtech”) and issued 40,000,000 shares of its common stock to acquire Valtech. In connection with the share exchange agreement, Valtech became a wholly owned subsidiary of the Company and the Valtech officers and directors became the officers and directors of the Company. Prior to the merger, the Company had not generated any revenues. As a result of the transaction (the “reverse merger”) and for accounting purposes, the reverse merger has been treated as an acquisition of the Company by Valtech and a recapitalization of the Company. The historical financial statements are those of Valtech. Since the reverse merger is a recapitalization and not a business combination, pro-forma information is not presented.
Effective July 1, 2009, the Company adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 105-10, Generally Accepted Accounting Principles - Overall (“ASC 105-10”). ASC 105-10 establishes the FASB Accounting Standards Codification (the “Codification”) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with U.S. GAAP. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants. All guidance contained in the Codification carries an equal level of authority. The Codification superseded all existing non-SEC accounting and reporting standards. All other non-grandfathered, non-SEC accounting literature not included in the Codification is non-authoritative. The FASB will not issue new standards in the form of Statements, FASB Positions or Emerging Issue Task Force Abstracts. Instead, it will issue Accounting Standards Updates (“ASUs”). The FASB will not consider ASUs as authoritative in their own right. ASUs will serve only to update the Codification, provide background information about the guidance and provide the bases for conclusions on the change(s) in the Codification. References made to FASB guidance throughout this document have been updated for the Codification.
Going Concern
As shown in the accompanying consolidated financial statements the Company has incurred net losses of $860,465 and $1,151,835 for the years ended November 30, 2011 and 2010, and has a working capital deficiency of $2,575,866 as of November 30, 2011.
Management’s plans include the raising of capital through the equity markets to fund future operations and generating adequate revenues through its business. Even if the Company does not raise sufficient capital to support its operating expenses and generate adequate revenues, there can be no assurance that the revenue will be sufficient to enable it to develop business to a level where it will generate profits and cash flows from operations. These matters raise substantial doubt about the Company’s ability to continue as a going concern. However, the accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. These financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its subsidiary. All significant intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, the Company evaluates its estimates, including, but not limited to, those related to investment tax credits, bad debts, income taxes and contingencies. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments and other short-term investments with an initial maturity of three months or less to be cash equivalents.
Comprehensive Income
The Company adopted ASC 220-10, “Reporting Comprehensive Income,” (formerly SFAS No. 130). ASC 220-10 requires the reporting of comprehensive income in addition to net income from operations.
Comprehensive income is a more inclusive financial reporting methodology that includes disclosure of information that historically has not been recognized in the calculation of net income.
Fair Value of Financial Instruments
The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, accounts receivable and accounts payable approximate fair value because of the immediate or short-term maturity of these financial instruments. For the loans payable, the carrying amount reported is based upon the incremental borrowing rates otherwise available to the Company for similar borrowings.
Currency Translation
For subsidiaries outside the United States that prepare financial statements in currencies other than the U.S. dollar, the Company translates income and expense amounts at average exchange rates for the year, translates assets and liabilities at year-end exchange rates and equity at historical rates. The Company’s functional currency is the Canadian dollar, while the Company reports its currency in the US dollar. The Company records these translation adjustments as accumulated other comprehensive income (loss). Gains and losses from foreign currency transactions are included in other income (expense) in the results of operations.
Revenue Recognition
The Company receives revenue from subscribers to its triple play network in which it provides digital TV, voice over internet protocol (VoIP), and high speed internet access, all via fiber optic cable. The Company bills its subscribers on a monthly basis and recognizes the monthly revenue based upon the specific plan selected by the subscriber. The Company additionally provides contracted services to wire commercial buildings with fiber optic cable in order to provide for similar services.
Accounts Receivable
The Company conducts business and extends credit based on an evaluation of the customers’ financial condition, generally without requiring collateral.
Exposure to losses on receivables is expected to vary by customer due to the financial condition of each customer. The Company monitors exposure to credit losses and maintains allowances for anticipated losses considered necessary under the circumstances. The Company has an allowance for doubtful accounts of $29,863 at November 30, 2011.
Accounts receivable are generally due within 30 days and collateral is not required. Unbilled accounts receivable represents amounts due from customers for which billing statements have not been generated and sent to the customers.
Income Taxes
The Company accounts for income taxes utilizing the liability method of accounting. Under the liability method, deferred taxes are determined based on differences between financial statement and tax bases of assets and liabilities at enacted tax rates in effect in years in which differences are expected to reverse. Valuation allowances are established, when necessary, to reduce deferred tax assets to amounts that are expected to be realized.
Advertising Costs
The Company expenses the costs associated with advertising as incurred. Advertising expenses for the years ended November 30, 2011 and 2010 are included in selling and promotion expenses in the consolidated statements of operations.
Fixed Assets
Fixed assets are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets; office and computer equipment - 5 years.
When assets are retired or otherwise disposed of, the costs and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is recognized in income for the period. The cost of maintenance and repairs is charged to income as incurred; significant renewals and betterments are capitalized. Deduction is made for retirements resulting from renewals or betterments.
Impairment of Long-Lived Assets
Long-lived assets, primarily fixed assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable. The Company does perform a periodic assessment of assets for impairment in the absence of such information or indicators. Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset is used, or a significant adverse change that would indicate that the carrying amount of an asset or group of assets is not recoverable. For long-lived assets to be held and used, the Company recognizes an impairment loss only if its carrying amount is not recoverable through its undiscounted cash flows and measures the impairment loss based on the difference between the carrying amount and estimated fair value.
Loss Per Share of Common Stock
Basic net loss per common share is computed using the weighted average number of common shares outstanding. Diluted earnings per share (EPS) includes additional dilution from common stock equivalents, such as stock issuable pursuant to the exercise of stock options and warrants. Common stock equivalents were not included in the computation of diluted earnings per share when the Company reported a loss because to do so would be antidilutive for periods presented.
The following is a reconciliation of the computation for basic and diluted EPS:
November 30, 2011
November 30, 2010
Net loss $ (860,465) $ (1,151,835)
Weighted-average common shares outstanding (basic)
67,167,107
58,431,597
Weighted-average common stock equivalents
Stock options
50,000
2,140,000
Warrants
2,714,256
2,514,256
Weighted-average common shares outstanding (diluted)
69,931,363
63,085,853
Stock-Based Compensation
In 2006, the Company adopted the provisions of ASC 718-10 “Share Based Payments” for its year ended November 30, 2008. The adoption of this principle had no effect on the Company’s operations.
The Company has elected to use the modified-prospective approach method. Under that transition method, the calculated expense in 2006 is equivalent to compensation expense for all awards granted prior to, but not yet vested as of January 1, 2006, based on the grant-date fair values. Stock-based compensation expense for all awards granted after January 1, 2006 is based on the grant-date fair values. The Company recognizes these compensation costs, net of an estimated forfeiture rate, on a pro rata basis over the requisite service period of each vesting tranche of each award. The Company considers voluntary termination behavior as well as trends of actual option forfeitures when estimating the forfeiture rate.
The Company measures compensation expense for its non-employee stock-based compensation under ASC 505-50, “Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services”. The fair value of the option issued is used to measure the transaction, as this is more reliable than the fair value of the services received. The fair value is measured at the value of the Company’s common stock on the date that the commitment for performance by the counterparty has been reached or the counterparty’s performance is complete. The fair value of the equity instrument is charged directly to expense and additional paid-in capital.
Segment Information
The Company follows the provisions of ASC 280-10, “Disclosures about Segments of an Enterprise and Related Information”. This standard requires that companies disclose operating segments based on the manner in which management disaggregates the Company in making internal operating decisions. As of November 30, 2011 and for the years ended November 30, 2011 and 2010, the Company operates in only one segment and in only one geographical location.
Reclassifications
The Company has reclassified certain amounts in their consolidated statement of operations for the years ended November 30, 2010 to conform with the November 30, 2011 presentation. These reclassifications had no effect on the net loss for the year ended November 30, 2010.
Uncertainty in Income Taxes
The Company follows ASC 740-10, “Accounting for Uncertainty in Income Taxes” (“ASC 740-10”). This interpretation requires recognition and measurement of uncertain income tax positions using a “more-likely-than-not” approach. ASC 740-10 is effective for fiscal years beginning after December 15, 2006. Management has adopted ASC 740-10 for 2009, and they evaluate their tax positions on an annual basis, and has determined that as of November 30, 2011, no additional accrual for income taxes other than the federal and state provisions and related interest and estimated penalty accruals is not considered necessary.
Fair Value Measurements
In September 2006, ASC issued 820, Fair Value Measurements. ASC 820 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosure about fair value measurements. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007. Early adoption is encouraged. The adoption of ASC 820 is not expected to have a material impact on the financial statements.
In February 2007, ASC issued 825-10, The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of ASC 320-10, (“ASC 825-10”) which permits entities to choose to measure many financial instruments and certain other items at fair value at specified election dates. A business entity is required to report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. This statement is expected to expand the use of fair value measurement. ASC 825-10 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years.
Recent Accounting Pronouncements
In May 2011, FASB issued Accounting Standards Update (ASU) No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. FASB ASU 2011-04 amends and clarifies the measurement and disclosure requirements of FASB ASC 820 resulting in common requirements for measuring fair value and for disclosing information about fair value measurements, clarification of how to apply existing fair value measurement and disclosure requirements, and changes to certain principles and requirements for measuring fair value and disclosing information about fair value measurements. The new requirements are effective for fiscal years beginning after December 15, 2011. The Company plans to adopt this amended guidance on October 1, 2012 and at this time does not anticipate that it will have a material impact on the Company’s results of operations, cash flows or financial position.
In June 2011, FASB issued ASU No. 2011-05, Presentation of Comprehensive Income, which amends the disclosure and presentation requirements of Comprehensive Income. Specifically, FASB ASU No. 2011-05 requires that all nonowner changes in stockholders’ equity be presented either in 1) a single continuous statement of comprehensive income or 2) two separate but consecutive statements, in which the first statement presents total net income and its components, and the second statement presents total other comprehensive income and its components. These new presentation requirements, as currently set forth, are effective for the Company beginning October 1, 2012, with early adoption permitted.
The Company plans to adopt this amended guidance on October 1, 2012 and at this time does not anticipate that it will have a material impact on the Company’s results of operations, cash flows or financial position.
In September 2011, FASB issued ASU 2011-08, Testing Goodwill for Impairment, which amended goodwill impairment guidance to provide an option for entities to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. After assessing the totality of events and circumstances, if an entity determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, performance of the two-step impairment test is no longer required. This guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted. Adoption of this guidance is not expected to have any impact on the Company’s results of operations, cash flows or financial position.
There were other updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.
NOTE 3 - FIXED ASSETS
Fixed assets as of November 30, 2011 and 2010 were as follows:
Estimated Useful
Lives (Years)
November 30, 2011
November 30, 2010
Computer and office equipment
$
31,966
$
31,758
Less: accumulated depreciation
31,966
25,429
Property and equipment, net
$
$
6,329
There was $6,576 and $6,289 charged to operations for depreciation expense for the years ended November 30, 2011 and 2010, respectively.
NOTE 4 - DEFERRED COSTS
Deferred costs as of November 30, 2011 and 2010 were as follows:
November 30, 2011
November 30, 2010
Deferred Costs
$
450,876
$
447,934
Less: accumulated depreciation
450,876
325,830
Property and equipment, net
$
$
122,104
There was $125,911 and $86,157 charged to operations for amortization expense for the years ended November 30, 2011 and 2010, respectively.
NOTE 5 - RELATED PARTY LOANS
As of November 30, 2011, the four principal shareholders of the Company had advanced $1,874,681 to the Company for working capital purposes. These loans bear interest at an annual rate of 10% for individual amounts exceeding $150,000 (CDN$) ($147,105 (US$)). The loans have no specific terms of repayment and are unsecured. Interest expense for the years ended November 30, 2011 and 2010 were $131,402 and $120,775, respectively. Accrued interest on these loans as of November 30, 2011 was $285,354.
NOTE 6 - COMMITMENTS
Office Space
The Company occupies approximately 2,500 square feet of office space owned by a company that is owned by a shareholder of the Company. The occupancy is on a month-to-month basis, without a lease and without payment of rent. The Company has occupied the space since February 1, 2008. Accordingly, a rent expense was recorded at the fair value of the applicable rent and with an offset to additional paid-in capital.
Consulting Agreements
The Company has entered into consulting agreements for a period of no more than 6 months with various consultants. These agreements require the Company to pay for the consulting services and issue shares of common stock and stock options over the period of the agreements.
Service Agreement
In July 2009, the Company’s subsidiary, Valtech Communications, Inc. entered into a written agreement with Groupe Canvar Inc. (a related party through common ownership). The agreement provides for Groupe Canvar, Inc. to provide brochures, price lists, contact information and other literature relating to Valtech Communications, Inc. services to the tenants leasing the apartments or office space in the buildings owned by Groupe Canvar, Inc. In addition, the agreement provides for Valtech Communications, Inc. to install wiring in new and refurbished buildings owned by Groupe Canvar, Inc. to their server for these services. All pricing is at the same terms as those for Valtech Communications, Inc. other customers. The agreement was to expire July 2010, and was extended for another two years through July 2012.
Financing Agreement
On June 15, 2010, the Company entered into an Engagement Agreement with DME Securities LLC (“DME”) to raise $10,000,000 in debt or equity financing on a best efforts basis. The Engagement Agreement terminates on May 31, 2011 and the Company is responsible to pay a 10% success fee upon the successful completion of the Placement of funds. DME is also to receive Placement Agent Warrants upon the Placement. DME has not able to raise any funds for the Company as and the agreement was not renewed.
On August 18, 2010, the Company executed an equity financing commitment of up to $5,000,000 from Dutchess Capital through its Dutchess Opportunity Fund, L.P. The commitment has a 3 year term, and the Company may sell its shares of common stock to Dutchess Capital up to the total committed amount. The Company will determine, at its sole discretion, the amount and timing of any sales of these shares. The purchase price of the shares shall be set at 95% of the lowest daily VWAP of the common stock of the Company during the 5 consecutive trading days immediately after the put date as defined in the term sheet. The Company has not sold any shares under this term sheet as of November 30, 2011.
On October 12, 2010, the Company entered into an agreement with Notre-Dame Capital Inc. to raise $15,000,000 through an equity and debt financing on a best effort basis. The debentures will be offered in tranches of $50,000 and will bear interest at a rate of 8% per annum, payable quarterly in arrears, and maturing five years from the date of issuance. The principal amount of each debenture will be convertible into common shares of the Company’s stock at the option of the holder. The conversion price will be $0.25 per share for the first two years from the date of issuance, and thereafter at a price per share of $0.30 until maturity.
In connection with the financing, Notre-Dame Capital Inc. will receive a cash fee equal to 8% of the gross proceeds raised under the offering plus 4% warrants of the raised funds. Each warrant entitling Notre-Dame Capital Inc. to purchase one share of common stock. The warrants will be exercisable at the financing price for a period of three years after the closing of the financing. In addition to the proposed financing, Notre-Dame Capital Inc. and its affiliates have purchased 3,000,000 common shares of the Company from the directors of the Company. As of November 30, 2011, there has been no money raised under this proposed financing.
Investor Relation/Public Relation Agreements
The Company on November 15, 2010 has entered into a Professional IR Industrial Relations Service Agreement with Constellation Asset Management, LLC and a Professional Consulting Services Agreement with Jens Dalsgaard, the principal of Constellation Asset Management, LLC for a period of 90 days, renewable for successive 90 day periods. Under the agreements, the services to be provided to the Company include; the identification of and presenting of potential business entities to enter into advantageous partnerships with the Company, including but not exclusive to, strategic marketing and sales alliances, joint ventures and/or mergers.; advising the Company on product or corporate image advertising; advising the Company on matters pertaining to business development, strategy or compensation; assistance with business plans and shareholder advice and assistance in drafting press releases and various communications to the shareholders.
The Company issued to both Constellation and to Mr. Dalsgaard 570,000 shares of common stock under both agreements as compensation for the services being provided.
The Company entered into an agreement with Complete Advisory Partners on April 12, 2011 to provide public relation services. The agreement is for a term of one year but the Company can terminate the services every 90 day. In accordance with the term of the agreement, the Company issued 400,000 shares of common stock as an initial payment.
Distribution Agreement
On April 11, 2011, the Company signed a long-term distribution agreement with Level Vision Electronics Ltd (“Level”). The five (5) year renewable distribution agreement with Level includes the distribution in North America of its 3-D Television screens technology, including High Definition, LCD screens and computer monitors for commercial applications. The Company will deploy and bring to market a unique new multimedia solution to enhance the advertising market.
Litigation
On April 7, 2008, the Company entered into a consulting agreement with Thomas Klein and Arshad Shaw (the “Consultants”), pursuant to which each Consultant was issued 300,000 restricted shares of the Company’s common stock, granted options to purchase 500,000 shares and options to purchase additional shares during the period commencing May 1, 2008 through October 1, 2008. As a result of the failure of Consultants to provide the services required under the consulting agreement, the Company terminated the consulting agreement on August 28, 2008.
The Company commenced a lawsuit against the Consultants and the former transfer agent for its common stock and filed an amended complaint on February 3, 2009, alleging, among other things, non-performance by the Consultants of their obligations under the consulting agreement and their failure to pay for the initial 500,000 options that each exercised.
On August 30, 2009, the Court entered a default judgment against the defendants which provide for an injunction against the transfer agent ordering it not to lift restrictions on the certificates evidencing the 300,000 restricted shares of common stock issued to and the 500,000 shares underlying the options granted to each Consultant. On January 26, 2011, the successor transfer agent cancelled the 600,000 restricted shares in the Consultants’ names. On March 1, 2011, attorneys for the Consultants filed a motion seeking legal fees from the Company not to exceed $1,762.50.
NOTE 7 - ACQUISITION - BUILDABLOCK
On November 30, 2011, the Company, entered into an Asset Purchase Agreement (the “Agreement”) with 3324109 Canada Inc., a Canadian corporation hereby represented by Gary Oberman (“GaryCo”) and 8040397 Canada Inc., a Canadian corporation, hereby represented by Bartek Bulzak (“BulzakCo”), collectively, the “Sellers”, “Buildablock” or “BAB”, pursuant to which the Company will acquire and the Sellers will sell assets comprised of an Internet and mobile service platform whose purpose is to empower or capitalize on the growth of the neighborhood, local economy. As a social network platform, Buildablock addresses a powerful need in social networking. The assets have a fair value of $10,000. The Sellers have conducted no other business other than the development of this platform. The intellectual property was funded 100% by the respective Sellers personally. The Company will issue to the Sellers 50% of the outstanding stock following a proposed 1 for 8 reverse stock split. The amount of the shares post-split will amount to 8,559,721 common shares. Control will remain with the current board of directors, and the Company will add the Sellers to the board of directors.
NOTE 8 - STOCKHOLDERS’ DEFICIT
Common Stock
As of November 30, 2011, the Company has 100,000,000 shares of common stock authorized with a par value of $.00001.
The Company has 68,477,764 shares issued and outstanding as of November 30, 2011.
During the quarter ended November 30, 2011, the Company issued:
During the quarter ended November 30, 2011, the Company occupied office space owned by a principal shareholder, and recorded $10,215 of rent expense as contributed capital for the space.
During the quarter ended August 31, 2011, the Company issued:
The Company issued 400,000 shares of stock for cash and liability for stock to be issued ($20,000 of which $15,000 was received in the six months ended May 31, 2011) and 100,000 shares of stock for services rendered ($5,000).
During the quarter ended August 31, 2011, the Company occupied office space owned by a principal shareholder, and recorded $10,215 of rent expense as contributed capital for the space.
During the quarter ended May 31, 2011, the Company issued:
The Company issued 2,930,001 shares of stock for cash and liability for stock to be issued ($75,000 of which $50,000 was received in the six months ended May 31, 2011) and services rendered ($124,700) at a value of $199,700.
During the quarter ended May 31, 2011, the Company occupied office space owned by a principal shareholder, and recorded $10,215 of rent expense as contributed capital for the space.
During the quarter ended February 28, 2011, the Company issued:
The Company issued 3,050,000 shares of common stock to three of its shareholders to convert $122,000 of loans to them.
The Company also issued cancelled 600,000 shares of stock to consultants at $0.06 to for services rendered to the Company back in 2008 (see Note 7).
The Company also incurred a $50,000 liability for stock to be issued for subscriptions of cash received in the three months ended February 28, 2011 for certificates not issued.
During the quarter ended February 28, 2011, the Company occupied office space owned by a principal shareholder, and recorded $10,215 of rent expense as contributed capital for the space.
During the quarter ended November 30, 2010, the Company issued:
The Company issued shares under a private placement memorandum dated April 5, 2010 to various individuals totaling 2,514,256 shares (of which 2,314,256 shares were accrued for during the year) of common stock at a price of $0.125 per share ($314,282). The individuals also were issued 2,514,256 warrants that expire in 3 years at an exercise price of $0.20 per share.
The Company also issued 1,440,000 shares of stock to consultants at $0.06 to $0.12 per share at a value of $154,800 for services rendered to the Company.
The Company converted $40,000 of a stock liability to officers to additional paid-in capital during the quarter ended November 30, 2010.
During the quarter ended November 30, 2010, the Company occupied office space owned by a principal shareholder, and recorded $10,215 of rent expense as contributed capital for the space.
During the quarter ended August 31, 2010, the Company issued:
The Company accrued the issuance of shares under a private placement memorandum dated April 5, 2010 to various individuals totaling 1,934,256 shares of common stock at a price of $0.125 per share ($241,782) for funds received during the quarter. These were reflected in the liability for stock to be issued.
During the quarter ended August 31, 2010, the Company occupied office space owned by a principal shareholder, and recorded $10,215 of rent expense as contributed capital for the space.
During the quarter ended May 31, 2010, the Company issued:
The Company accrued the issuance of shares under a private placement memorandum dated April 5, 2010 to various individuals totaling 380,000 shares of common stock at a price of $0.125 per share ($47,500) for funds received during the quarter. These were reflected in the liability for stock to be issued.
In addition, the Company issued common stock for the quarter ended May 31, 2010 at $0.14 per share for a total value of $14,000 to consultants for services rendered per their agreements; and 90,000 in the exercise of stock options for $12,600.
The Company reduced an invoice for the payment of $12,600 associated with 90,000 of these options. The Company also received $24,000 for the issuance of 500,000 shares of common stock.
During the quarter ended May 31, 2010, the Company occupied office space owned by a principal shareholder, and recorded $10,215 of rent expense as contributed capital for the space.
During the quarter ended February 28, 2010, the Company issued:
160,000 shares of common stock issued for the quarter ended February 28, 2010 at $0.06 per share for a total value of $9,600 to consultants for services rendered per their agreements; and 590,000 in the exercise of stock options for $30,400. Of the $30,400, the Company reduced an invoice for the payment of $5,400 associated with 90,000 of these options, and the remaining $25,000 is reflected as a subscription receivable for the exercise of 500,000 options. The Company also recorded $6,000 in stock based compensation for the value of an additional 100,000 options that vested in February 2010.
During the quarter ended February 28, 2010, the Company occupied office space owned by a principal shareholder, and recorded $10,215 of rent expense as contributed capital for the space.
Stock Options
The Company accounts for stock-based compensation using the fair value method. The fair value method requires the cost of employee services received for awards of equity instruments, such as stock options and restricted stock, to be recorded at the fair value on the date of the grant. The value of restricted stock awards, based upon market prices, is amortized over the requisite service period.
The estimated fair value of stock options and warrants on the grant date is amortized on a straight line basis over the requisite service period. During the years ended November 30, 2011 and 2010, stock based compensation was $0 and $36,000, respectively.
In February 2010, the Company entered into a few option agreements for the issuance of options relating to various consulting agreements. The Company is obligated to issue to consultants in one agreement 270,000 options that vest evenly over a 3-month period of time at a $0.06 exercise price. The Company who is receiving the options has agreed to reduce their invoices by the cash required to exercise the options. These options expired in February 2011.
In another agreement entered into in February 2010, the Company is obligated to issue 600,000 options evenly over a 6-month period of time at a $0.06 exercise price. The Company expensed the fair value of these options ($36,000) as of August 31, 2010 to this consultant. These options also expired February 2011.
In February 2010, the Company issued 500,000 options to an individual at $0.05. The options were exercised. The Company received $25,000 for this exercise.
On March 13, 2008, in connection with the April 8, 2008 consulting agreement, acts, 2,400,000 five-year stock options were granted issued exercisable at a price of $0.06 per share, as follows: 1,000,000 options on the date of the consulting agreement, 400,000 options vested on May 1, 2008, and the balance vested at the rate of 200,000 per month commencing June 1, 2008 through October 1, 2008.
These options were valued using the Black-Scholes Pricing Model with the following assumptions: volatility - 25%; risk free interest rate - 2.53%; expected life - 5 years; and dividend yield - 0%.
Due to the lack of sufficient historical trading information with respect to its own shares, the Company estimates expected volatility based on a company believed to have market and economic characteristics similar to its own.
Of the 2,400,000 options issued to the two consultants, 1,000,000 of the options that vested immediately, were exercised upon issuance. However, the Company has not received the required option payment of $60,000 from the two consultants. As noted, the Company received a default judgment in an effort to recover this amount. As a result, and due to the uncertainty of the recovery of the $60,000, the Company has expensed the entire amount. The remaining 1,400,000 vested but unexercised options were cancelled effective November 30, 2010.
On August 25, 2008 and October 30, 2008, the Company issued a total of 600,000 stock options to two consultants. Of these options, 500,000 vested upon issuance and the remaining options vest March 4, 2009. These options have a three-year life and are exercisable at $0.05. These options were issued in the money as the market value of the underlying shares was $0.18 and $0.14, respectively.
The fair value of these options were determined to be the intrinsic value at the date of issuance, or $32,500 ($0.13 per share) and $22,500 ($0.09 per share) on August 25, 2008 and October 30, 2008, respectively. Additionally, the Company did not receive the total required option payments of $25,000 (500,000 options at $0.05).
The Company has expensed the entire amount due to the uncertainty of the collectability of this amount. Of the 600,000 options, 50,000 options remain unexercised as of November 30, 2011.
On December 16, 2008, the Company issued 250,000 options at $0.05 ($25,000), which were expensed, and these options were exercised immediately.
The following is a summary of the outstanding stock options for the years ended November 30, 2011 and 2010:
Options
Weighted Average Exercise Price
Weighted Average Exercise Life
Aggregate Intrinsic Value
Outstanding, November 30, 740,000
$
0.06
3.015
$
43,700
Granted -
0.056
0.00
-
Exercised -
0.06
0.00
(-)
Cancelled (690,000)
(0.06)
1.00
(41,400)
Outstanding, November 30, 50,000
$
0.06
2.015
$ 2,300
Exercisable, November 30, 50,000
$
0.06
2.015
$ 2,300
Options
Weighted Average Exercise Price
Weighted Average Exercise Life
Aggregate Intrinsic Value
Outstanding, November 30, 1,450,000
$
0.06
4.87
$
86,500
Granted 1,370,000
0.056
1.00
77,200
Exercised (680,000)
0.06
1.00
(36,000)
Cancelled -
-
-
-
Outstanding, November 30, 2,140,000
$
0.06
3.015
$ 127,000
Exercisable, November 30, 2,140,000
$
0.06
3.015
$ 127,000
Warrants
The Company entered into private placement agreements with various individuals through November 30, 2010 for the issuance of 2,714,256 shares of common stock along with 2,714,256 warrants. The Company received the proceeds of $314,282 for these units. The warrants expire 3 years from issuance, at an exercise price of $0.20 per share. The warrants were valued using the black-scholes method and were recorded as additional paid in capital - warrants of $145,512. The criteria established for the valuation of these warrants were as follows: risk free interest rate - 1.25%; dividend yield - 0%; volatility - 185%. The warrants were issued in November, 2010.
Common Stock Purchase Warrants
Number of Warrants Outstanding and Exercisable
Date Warrants are Exercisable
Exercise Price
Date Warrants Expire
Investors from April 5, 2010 offering 2,714,256
May to September 2010
$ 0.20
May to Septembe 2013
2,714,256
NOTE 9 - PROVISION FOR INCOME TAXES
Deferred income taxes are determined using the liability method for the temporary differences between the financial reporting basis and income tax basis of the Company’s assets and liabilities. Deferred income taxes are measured based on the tax rates expected to be in effect when the temporary differences are included in the Company’s tax return. Deferred tax assets and liabilities are recognized based on anticipated future tax consequences attributable to differences between financial statement carrying amounts of assets and liabilities and their respective tax bases.
At November 30, 2011, deferred tax assets consist of the following:
Net operating losses $ 1,411,230
Valuation allowance
(1,411,230)
$ -
At November 30, 2011, the Company had a net operating loss carryforward in the approximate amount of $4,150,676, available to offset future taxable income through 2031. The Company established valuation allowances equal to the full amount of the deferred tax assets due to the uncertainty of the utilization of the operating losses in future periods.
A reconciliation of the Company’s effective tax rate as a percentage of income before taxes and federal statutory rate for the periods ended November 30, 2011 and 2010 is summarized as follows:
Federal statutory rate (34.0)%
(34.0)%
State income taxes, net of federal benefits 3.3
3.3
Valuation allowance 30.7
30.7
0%
0%
NOTE 10 - FAIR VALUE MEASUREMENTS
On January 1, 2008, the Company adopted ASC 820. ASC 820 defines fair value, provides a consistent framework for measuring fair value under generally accepted accounting principles and expands fair value financial statement disclosure requirements. ASC 820’s valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect our market assumptions. ASC 820 classifies these inputs into the following hierarchy:
Level 1 inputs: Quoted prices for identical instruments in active markets.
Level 2 inputs: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3 inputs: Instruments with primarily unobservable value drivers.
NOTE 11 - CONCENTRATION OF CREDIT RISK
On November 30, 2011, 100% of the Company’s accounts receivable (after consideration of the accounts receivable reserve) was with one customer. In addition, this customer represented approximately 75% of the revenue for the year ended November 30, 2011 and the only customer currently being serviced by the Company. This customer is considered a major customer of the Company.
On November 30, 2010, $10,815, or 39% of the Company’s accounts receivable was with two customers. In addition, there was one customer who represented approximately 56% of the revenue for the year ended November 30, 2010. This customer is considered a major customer of the Company.
NOTE 12 - TERMINATION OF PURCHASE AGREEMNET
On January 24, 2011, the Company entered into a purchase agreement to acquire a private telecommunications company named Groupe Pagex Inc., which owns and operates an existing telecommunications network in Quebec City, and surrounding Lac St-Jean and Beauce areas.
Groupe Pagex specializes in the implementation and management of IP and Wi-Fi networks in the commercial and residential market. They have generated 1.7 million in prior year sales. The Company and Groupe Pagex Inc. terminated this agreement in the fourth quarter of fiscal 2011.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Back to Table of Contents
Not applicable.
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES Back to Table of Contents
Evaluation of Disclosure Controls and Procedures
Evaluation of disclosure controls and procedures. As of November 30, 2011, the Company's chief executive officer/chief financial officer conducted an evaluation regarding the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act. Based upon the evaluation of these controls and procedures, our chief executive officer/chief financial officer concluded that our disclosure controls and procedures were effective as of the end of the fiscal year 2011.
Management’s Annual Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting and for the assessment of the effectiveness of those internal controls. As defined by the SEC, internal control over financial reporting is a process designed by our principal executive officer/principal financial officer, who is also the sole member of our Board of Directors, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements in accordance with U.S. generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management has assessed the effectiveness of our internal control over financial reporting as of November 30, 2011. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on our assessment and those criteria, we have concluded that our internal control over financial reporting was effective as of November 30, 2011.
This annual report does not include an attestation report of the company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only Management’s report in this annual report.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting or in other factors identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during the fourth quarter ended November 30, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B.
ITEM 9B. OTHER INFORMATION Back to Table of Contents
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT AND CORPORATE GOVERNANCE Back to Table of Contents
Officers are not elected for a fixed term of office but hold office until their successors have been elected.
Rene Arbic has served as President of the Registrant since June 2, 2008. From 2002 to the present he serves as a member of the board of directors of ISEE3D, a 3D camera development company. He was a founder in 2006 and serves as President of Valtech Communications Inc., Montreal, Quebec, Canada, a telecommunications company offering “triple play” - a telephony, Internet and IPTV distributor. In 2004, he founded and served as director general, from 2004 to 2006, of C.E.R., Longueuil, a renewable energy consultant, with operations in Senegal, Algeria, Comoros, and Madagascar. From 2002 to 2004, Mr. Arbic was a free lance International telecommunications consultant for companies in Russia, Slovakia, Senegal, Algeria, and Colombia,). From 2001 to 2002, he was President of GSI Technologies, an entertainment company.
In 1998, he founded and, until 2001 served as President & CEO of Bridgepoint International, a telecommunications collocation facilities builder and operator. In 1997, he founded and managed until1998, Rave Communications International, a New York and Montreal telecommunications consultancy. He was associated with Stentor International, Morristown, New Jersey (on loan from Bell Canada) from 1992 to-1997 as Director of Canadian Marketing (1992-1994) and Director of United States Marketing (1994-1997). From 1990 to 1991, Mr. Arbic was Director National Accounts for AT&T Montreal; and from 1991 to 1992 director of governmental accounts for Cellular Canada Montreal. From 1975 to 1990, Mr. Arbic served in various capacities for Bell Canada including technician, (1975 to 1982); and Director of Sales and Marketing (1984 to 1990). Mr. Arbic is a 1974 graduate of the Edward Montpetit College of Business Administrations.
Alex Kestenbaum has since June 2, 2008, served as Treasurer of the Registrant. Since 2004 he has served as Vice President Finance of Canvar Group, Inc., a Montreal, Quebec - based general contractor and administrator specializing in the construction and renovation in industrial, commercial and residential development including large-scale projects for developers, institutions and various governments. From 1997 to 2004, he was Chief Financial Officer, Chief Information Officer and Controller of Econo-Malls Management Corp., Montreal, Quebec, a manager of properties it wholly owns on behalf of limited partnerships, joint ventures, and third parties. From 1990 to 1997, Mr. Kestenbaum was Controller and Financial Manager of Canvar Groupe Inc. and from 1988 to 1990 was Controller And Property Administrator of Adlexco Management Ltd., a Montreal-based property manager. From 1984 to 1988 he was Auditor and an Accountant for Appel & Partners, a chartered accounting firm located in Montreal. Mr. Kestenbaum received his D. E. C. in Pure and Applied Sciences from Vanier C.E.G. E. P. in 1981 and his Bachelor of Commerce in Accounting from Concordia University in 1984.
We have not adopted a code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION Back to Table of Contents
The following table contains the executive compensation to the chief executive officer of the Company for the periods set forth below.
Rene Arbic became Chief Executive Officer of the Registrant on June 2, 2008. He entered into a one year employment agreement to serve as President of the Registrant’s subsidiary, Valtech, on October 1, 2006 which agreement has been extended and is still in full force. He receives no compensation for serving as President of the Registrant.
Alex Kestenbaum became Chief Financial Officer, Treasurer and Secretary on June 2, 2008 of the Registrant and Chief Financial Officer of Valtech, its subsidiary. He has not entered into a contract with the Registrant and receives no compensation for acting as an officer or director of the Registrant nor for his services to Valtech.
Outstanding Equity Awards at Fiscal Year-End Table.
As of November 30, 2011, there were no outstanding equity awards for the directors and executive officers of the Company.
Other Compensation.
The Company has no plans that provide for the payment of retirement benefits, or benefits that will be paid primarily following retirement. In addition, there are no contracts, agreements, plans or arrangements that provide for payments to our executive officer in connection with the resignation, retirement or other termination of our executive officer, or a change in control of the Registrant.
Compensation of Directors.
The Company's board members receive no remuneration.
Director Independence.
The Registrant does not have a nominating committee, compensation committee or executive committee of the board of directors, stock plan committee or any other committees. The Registrant currently has no independent directors.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS Back to Table of Contents
The table below discloses any person (including any "group") who is known to the Registrant to be the beneficial owner of more than five (5%) percent of the Registrant's common stock. As of November 30, 2011, the Registrant had 68,477,765 shares of common stock issued.
Title of Class
Name and Address of Beneficial Owner
Amount and Nature of Beneficial Owner (1)
Percent of Class (1)
Common Stock Rene Arbic, CEO and Director
550 Chemin du Golf, Suite 202
Ile des Soeurs, Quebec, H3E 1A8, Canada 14,043,634 shares 20.51%
Common Stock Alex Kestenbaum, CFO and Director
100-2700 Rufus-Rockhead
Montreal, Quebec, H3J 2Z7, Canada 1,600,000 shares 2.34%
Common Stock Peter Varadi
100-2700 Rufus-Rockhead
Montreal, Quebec, H3J 2Z7, Canada 16,348,360 shares 23.87%
Common Stock Morden Lazarus
759 Square Victoria, Suite 200
Montreal, Quebec, H2Y 2J7, Canada 16,348,360 shares 23.87%
Common Stock
All officers and directors as a group (2 people) 15,643,634 shares 22.85%
(a) The Shares are held by 9193-0578 Quebec, Inc, beneficially owned by Alex Kestenbaum
(b) 12,800,000 Shares are held by 9177-2541 Quebec, Inc. beneficially owned by Peter Varadi
(c) 12,800,000 Shares are held by Interactive Classified Corporation beneficially owned by Morden Lazarus
None of the above shareholders has the right to acquire additional Shares. Unless otherwise noted below, we believe that all persons named in the table have sole voting and investment power with respect to all shares of common stock beneficially owned by them.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE Back to Table of Contents
As of November 30, 2011, the four principal shareholders of the Company had advanced $1,874,681 to the Company for working capital purposes. These loans bear interest at an annual rate of 10% for individual amounts exceeding $150,000 (CDN$) ($141,870 (US$)). The loans have no specific terms of repayment and are unsecured. Interest expense for the years ended November 30, 2011 and 2010 were $131,402 and $120,775, respectively. Accrued interest on these loans as of November 30, 2011 and 2010 was $285,354 and $157,075, respectively.
As of November 30, 2010, the four principal shareholders of the Company had advanced $1,697,980 to the Company for working capital purposes. These loans bear interest at an annual rate of 10% for individual amounts exceeding $150,000 (CDN$) ($141,870 (US$)). The loans have no specific terms of repayment and are unsecured. Interest expense for the years ended November 30, 2010 and 2009 were $120,775 and $30,879, respectively. Accrued interest on these loans as of November 30, 2010 and 2009 was $157,075 and $34,597, respectively.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES Back to Table of Contents
Independent Public Accountants
The Registrant's Board of Directors has appointed KBL, LLP, which firm has issued its report on our consolidated financial statements for the years ended November 30, 2011 and 2010.
Principal Accounting Fees
The following table presents the fees for professional audit services rendered by KBL, LLP for the audit of the Registrant's annual financial statements for the years ended November 30, 2011 and 2010, and fees billed for other services rendered by KBL, LLP during those periods.
Section 16(a) Compliance
Section 16(a) of the Securities and Exchange Act of 1934 requires the Registrant's directors and executive officers, and persons who own beneficially more than ten percent (10%) of the Registrant's Common Stock, to file reports of ownership and changes of ownership with the Securities and Exchange Commission. Copies of all filed reports are required to be furnished to the Registrant pursuant to Section 16(a). Based solely on the reports received by the Registrant and on written representations from reporting persons, the Registrant was informed that the following officers, directors and 10% sharehoders have not filed reports required under Section 16(a): Rene Arbic, Alex Kenstenbaum, Peter Varadi and Morden Lazarus. ITEM 15.
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES Back to Table of Contents (a) The following documents are filed as exhibits to this report on Form 10-K or incorporated by reference herein. Any document incorporated by reference is identified by a parenthetical reference to the SEC filing that included such document.
Exhibit
Description
3.01
Articles of Incorporation. (1)
3.02
Bylaws. (1)
4.01
Form of Specimen Stock Certificate for the Registrant’s Common Stock. (1)
10.01
Asset and Rights Purchase Agreement as of September 10, 2005 by and between Dr. Christina Del Pin and Voxtech Products, Inc. (1)
10.02
Amendment of January 25, 2006 to Asset and Rights Purchase Agreement as of September 10, 2005 by and between Dr. Christina Del Pin and Voxtech Products, Inc. (1)
10.03
Services Agreement of June 12, 2005 between VoxTech Products, Inc. and GetAGeek, Inc. (1)
10.04
Development Agreement of September 26, 2005 between VoxTech Products, Inc. and GetAGeek, Inc. (1)
10.06
Employment Agreement as of August 1, 2006 by and between the Registrant and Christopher LaRose. (2) (4)
10.07
Non-Exclusive Sales Agreement of August 14, 2006 between Voxtech Products, Inc. and Northcoast Biomedical, Inc. (2)
10.08
Independent Sales Representative Agreement of September 5, 2006 by and between Voxtech Products, Inc., the Registrant and Daniel P. Elsbree. (2)
10.09
2008 Employees, Directors, Officers and Consultants Stock Option and Stock Award Plan (5)
10.10
Acquisition of Valtech Communications, Inc. (6)
10.11
Certificate of amendment changing name to Hipso Multimedia, Inc. (7)
10.12
Retainer Agreement between the Registrant and Joel Pensley, Attorney at Law dated March 13, 2008 (8)
10.13
Retainer Agreement between the Registrant and Antonio Moura dated March 13, 2008 (8)
10.14
Consulting Agreement between the Registrant and Thomas Klein dated as of January 15, 2008 (8)
10.15
Consulting Agreement between the Registrant and Arshad Shah dated as of January 15, 2008 (8)
10.16
Consulting Agreement between the Registrant and Gaetan Fontaine dated August 25, 2008 (8)
10.17
Consulting Agreement between the Registrant and Downshire Capital dated December 16, 2008 (8)
10.18
Executive Employment Agreement Between Valtec Communications and Rene Arbic (8)
31.1
Rule 13a-14(a) Amended Certification of Rene Arbic (9)
31.2
Rule 13a-14(a) Amended Certification of Alex Kestenbaum. (9)
32.1
Section 1350 Amended Certification of Rene Arbic (9)
32.2
Section 1350 Amended Certification of Alex Kestenbaum (9)
(1) Filed as an exhibit to the registration statement on Form SB-2 and hereby incorporated by reference.
(2) Filed as an exhibit to Amendment No. 2 to the Registration statement on Form SB-2 and hereby incorporated by reference.
(3) Filed as an exhibit to the Annual Report on Form 10-KSB for the fiscal year ended November 30, 2006 and hereby incorporated by reference.
(4) Management contract or compensatory plan or arrangement.
(5) Filed as an exhibit to Form S-8 filed April 2, 2008 and hereby incorporated by reference.
(6) Filed as an exhibit to Form 8K dated June 3, 2008 hereby incorporated by reference.
(7) Referenced on Form 8K dated August 12, 2008 hereby incorporated by reference.
(8) Filed as an exhibit to the Company's annual report on Form 10-K for the year ended November 30, 2008.
(9) Filed herewith.
SIGNATURES Back to Table of Contents
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
/s/ Rene Arbic
Chief Executive Officer and Director
Dated: February 24, 2012
Ile des Soeurs, Quebec, Canada
/s/ Alex Kestenbaum
Chief Financial Officer and Director
Dated: February 24, 2012
Ile des Soeurs, Quebec, Canada