-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, M/FQSnkOvfEIEfMgMaieq0Sw35i3XUec9uKOT2Ra7zK1DUyZV8X+6d9r+yMSG99Q 0OpHHXDZBA0QFDTHMeCcGQ== 0000909012-06-000930.txt : 20060821 0000909012-06-000930.hdr.sgml : 20060821 20060821161232 ACCESSION NUMBER: 0000909012-06-000930 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20060630 FILED AS OF DATE: 20060821 DATE AS OF CHANGE: 20060821 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SYSVIEW TECHNOLOGY, INC. CENTRAL INDEX KEY: 0001096857 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 900251401 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-27773 FILM NUMBER: 061046355 BUSINESS ADDRESS: STREET 1: 1772 TECHNOLOGY DRIVE CITY: SAN JOSE STATE: CA ZIP: 95110 BUSINESS PHONE: 408-436-9888 MAIL ADDRESS: STREET 1: 1772 TECHNOLOGY DRIVE CITY: SAN JOSE STATE: CA ZIP: 95110 FORMER COMPANY: FORMER CONFORMED NAME: SYSCAN IMAGING INC DATE OF NAME CHANGE: 20040406 FORMER COMPANY: FORMER CONFORMED NAME: BANKENGINE TECHNOLOGIES INC DATE OF NAME CHANGE: 20010321 FORMER COMPANY: FORMER CONFORMED NAME: ZEE INC DATE OF NAME CHANGE: 19991014 10QSB 1 t302768.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2006 |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER: 000-25839 SYSVIEW TECHNOLOGY, INC. (Exact name of registrant as specified in its charter) DELAWARE 59-3134518 (State or other jurisdiction of (I.R.S.Employer incorporation or organization) Identification Number) 1772 TECHNOLOGY DRIVE SAN JOSE, CALIFORNIA 95110 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, ZIP CODE) 408-436-9888 EXT. 207 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes |_| No |X| The number of shares of Common Stock outstanding as of August 15, 2006 was 24,092,092. - ------------------------------------------- Transitional Small Business Disclosure Format (check one): Yes |_| No |X| SPECIAL NOTE ON FORWARD LOOKING STATEMENTS This Quarterly Report on Form 10-QSB, including "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 2 of Part I of this report include forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as "may," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential," "proposed," "intended," or "continue" or the negative of these terms or other comparable terminology. You should read statements that contain these words carefully, because they discuss our expectations about our future operating results or our future financial condition or state other "forward-looking" information. There may be events in the future that we are not able to accurately predict or control. Before you invest in our securities, you should be aware that the occurrence of any of the events described in this Annual Report could substantially harm our business, results of operations and financial condition, and that upon the occurrence of any of these events, the trading price of our securities could decline and you could lose all or part of your investment. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, growth rates, levels of activity, performance or achievements. We are under no duty to update any of the forward-looking statements after the date of this Quarterly Report to conform these statements to actual results. -2- PART I. FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS
SYSVIEW TECHNOLOGY, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS) JUNE 30, DECEMBER 31, 2006 2005 -------- -------- ASSETS (Unaudited) (Audited) Current assets: Cash and cash equivalents $ 1,068 $ 1,426 Trade receivables 885 1,285 Inventories 878 751 Prepaid expenses and other current assets 349 319 Due from related parties 2,369 2,403 -------- -------- Total current assets 5,549 6,184 Fixed assets, net 360 167 Goodwill 555 555 Long-term investment 998 998 -------- -------- Total assets $ 7,462 $ 7,904 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Bank line and letter of credit $ 1,013 $ 1,013 Trade payables and other accrued expenses 435 445 Accrued dividends on 5% convertible preferred stock 108 71 -------- -------- Total current liabilities 1,556 1,529 Other liabilities Liability under derivative contracts 813 503 -------- -------- Total liabilities 2,369 2,032 Commitments and contingencies (note 9) 5% Convertible preferred stock $.001 par value, 2,000 authorized, 726 468 16 shares issued and outstanding at June 30, 2006 and December 31, 2005, liquidation value of $16,150 Stockholders' equity: Common stock $.001 par value, 50,000 authorized, 24,592 shares issued and 24,092 shares outstanding at June 30, 2006 and December 31, 24 24 2005 (500 shares held in escrow) Additional paid-in capital 28,779 28,137 Accumulated deficit (24,436) (22,757) -------- -------- Total stockholders' equity 4,367 5,404 -------- -------- Total liabilities and stockholders' equity $ 7,462 $ 7,904 ======== ======== The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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SYSVIEW TECHNOLOGY, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, -------------------- --------------------- 2006 2005 2006 2005 -------- -------- -------- -------- Net sales $ 2,539 $ 1,487 $ 4,977 $ 3,195 Cost of sales 1,660 883 3,276 1,987 -------- -------- -------- -------- Gross profit 879 604 1,701 1,208 Operating expenses: Selling and marketing 300 258 593 410 General and administrative 679 1,335 1,287 1,631 Research and development 469 222 865 399 -------- -------- -------- -------- Total operating expenses 1,448 1,815 2,745 2,440 -------- -------- -------- -------- Operating loss (569) (1,211) (1,044) (1,231) -------- -------- -------- -------- Other income (expense): Fair value of warrants issued -- -- -- (290) Preferred stock issuance costs -- -- -- (237) Change in fair value of derivative instruments (518) 575 (310) 1,661 Other (25) 12 (30) 10 -------- -------- -------- -------- Total other income (expense) (543) 587 (340) 1,144 -------- -------- -------- -------- Net loss before income taxes (1,112) (624) (1,384) (87) Provision for income taxes -- -- -- 1 -------- -------- -------- -------- Net loss (1,112) (624) (1,384) (88) Dividend on 5% convertible preferred stock and accretion of preferred stock redemption value (147) (183) (295) (210) -------- -------- -------- -------- Net loss available to common stockholders $ (1,259) $ (807) $ (1,679) $ (298) ======== ======== ======== ======== Net loss per common share - basic and diluted: $ (0.05) $ (0.03) $ (0.07) $ (0.01) ======== ======== ======== ======== Weighted average common shares outstanding - basic and diluted 24,092 23,111 24,092 23,111 ======== ======== ======== ======== The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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SYSVIEW TECHNOLOGY, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS) SIX MONTHS ENDED JUNE 30, ------------------ 2006 2005 ------- ------- OPERATING ACTIVITIES Net loss available to common stockholders $(1,679) $ (298) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation expense 22 10 Stock-based compensation cost - options 642 1,104 Preferred stock issuance expenses paid by issuance of warrants -- 290 Change in fair value of derivative instruments 310 (1,661) Accretion of 5% convertible preferred stock redemption value 258 182 Changes in operating assets and liabilities: Trade receivables 400 396 Inventories (127) 14 Prepaid expenses and other current assets (30) (29) Accrued dividends on 5% convertible preferred stock 37 28 Trade payables and other current liabilities (10) (45) ------- ------- Cash used by operating activities (177) (9) ------- ------- INVESTING ACTIVITIES: Capital expenditures (215) (145) ------- ------- Cash used by investing activities (215) (145) ------- ------- FINANCING ACTIVITIES: Proceeds from issuance of preferred stock -- 1,865 Advances/repayments - related parties 34 (231) ------- ------- Cash provided by financing activities 34 1,634 ------- ------- Net increase (decrease) in cash and cash equivalents (358) 1,480 Cash and cash equivalents at beginning of period 1,426 687 ------- ------- Cash and cash equivalents at end of period $ 1,068 $ 2,167 ======= ======= The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
-5- SYSVIEW TECHNOLOGY, INC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED) NOTE 1 - BACKGROUND AND BASIS OF PRESENTATION BACKGROUND Sysview Technology, Inc., (referred to herein as "Sysview" or the "Company") develops, designs and delivers various imaging technology solutions to the corporate/enterprise, small office-home office ("SOHO"), professional practice and consumer markets. Sysview is headquartered in San Jose, California, and is principally engaged in the design, development OEM marketing of mobile/compact scanners and marketing of Contact Image Sensor ("CIS") modules for use in scanners and fax machines. Sysview's manufacturing is completed at a China-based facility, which provides a low-cost manufacturing base for these industrial and consumer products. See Note 3. Sysview's products are ideally suited for the mobile computer user who needs to scan and/or fax documents while away from the office. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements of Sysview have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and the instructions to Form 10-QSB and Article 10 of Regulation S-X. Accordingly, they do not include all information and disclosures necessary for a presentation of our financial position, results of operations, and cash flows in conformity with accounting principles generally accepted in the United States. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for all periods presented have been made. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. Actual results may differ from these estimates. The results of operations for the period ended June 30, 2006 are not necessarily indicative of the operating results that may be expected for the entire year ending December 31, 2006. The interim financial statements should be read in conjunction with the financial statements in the Company's Amended Annual Report on Form 10-KSB/A for the year ended December 31, 2005, filed with the Securities and Exchange Commission on August 15, 2006. The consolidated financial statements include the accounts of Sysview and its subsidiaries. All significant intercompany transactions and balances have been eliminated. Certain accounts have been reclassified to conform to the current period presentation. NOTE 2 - RECENT ACCOUNTING PRONOUNCEMENTS In December 2004, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") 123-R, SHARE-BASED PAYMENT ("SFAS 123(R)"). SFAS 123(R) replaces SFAS 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, and supersedes the Accounting Principles Board ("APB") APB Opinion 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES ("APB 25"). SFAS 123(R) requires, among other things, that all share-based payments to employees, including grants of stock options, be measured based on their grant-date fair value and recognized as expense. Effective January 1, 2006, Sysview adopted the fair value recognition provisions of SFAS 123(R) using the modified prospective application method. Under this transition method, compensation expense recognized for the three and six months ended June 30, 2006, includes the applicable amounts of: (a) compensation expense of all stock-based payments granted prior to, but not yet vested as of January 1, 2006 (based on the grant-date fair value estimated in accordance with the original provisions of SFAS 123 and APB 25), and (b) compensation expense for all stock-based payments granted subsequent to January 1, 2006 (based on the grant-date fair value estimated in accordance with the new provisions of SFAS 123(R)). Results for periods prior to January 1, 2006, have not been restated. See Note 6. -6- SYSVIEW TECHNOLOGY, INC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED) On June 7, 2005, the FASB issued Statement 154, ACCOUNTING CHANGES AND ERROR CORRECTIONS, A REPLACEMENT OF APB OPINION 20 AND FASB STATEMENT 3, ("SFAS 154"). SFAS 154 changes the requirements for the accounting for and reporting of a change in accounting principle. Previously, most voluntary changes in accounting principles were required recognition via a cumulative effect adjustment within net income of the period of the change. SFAS 154 requires retrospective application to prior periods' financial statements, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS 154 is effective for accounting changes made in fiscal years beginning after December 15, 2005. Sysview adopted SFAS 154 on January 1, 2006. The adoption had no impact to the Company's consolidated financial position, results of operations or cash flows. In February 2006, the FASB issued SFAS 155, ACCOUNTING FOR CERTAIN HYBRID FINANCIAL INSTRUMENTS - AN AMENDMENT OF FASB STATEMENTS 133 AND 140, ("SFAS 155"). SFAS will be effective for the Company beginning January 1, 2007. The statement permits interests in hybrid financial instruments that contain an embedded derivative that would otherwise require bifurcation, to be accounted for as a single financial instrument at fair value, with changes in fair value recognized in earnings. This election is permitted on an instrument-by-instrument basis for all hybrid financial instruments held, obtained, or issued as of the adoption date. The Company is currently assessing the impact of the statement. In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes -- an Interpretation of FASB Statement No. 109" ("FIN 48"), which clarifies the accounting for uncertainty in tax positions. This Interpretation requires that the Company recognize in its financial statements the impact of a tax position if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The provisions of FIN 48 are effective for the Company on January 1, 2007, with the cumulative effect of the change in accounting principle, if any, recorded as an adjustment to opening retained earnings. The Company does not expect there to be any significant impact of adopting FIN 48 on its consolidated financial position, cash flows and results of operations. Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force ("EITF")), the American Institute of Certified Public Accountants ("AICPA"), and the SEC did not or are not believed by management to have a material impact on the Company's present or future financial statements. NOTE 3 - RELATED PARTY TRANSACTIONS The Company purchases the majority of its finished scanner imaging products from a wholly-owned subsidiary of its majority stockholder, Syscan Technology Holdings Limited ("STH"). See Note 5. The Company's Chairman and CEO, Darwin Hu, was formerly the CEO of STH, and beneficially owns approximately 5.33% of the issued and outstanding capital stock of STH. Related party purchases from entities that are wholly-owned subsidiaries of STH were $1,845,000 and $3,254,000 for the three and six months ended June 30, 2006, respectively and $713,000 and $1,979,000 for the three and six months ended June 30, 2005. The purchases were carried out in the normal course of business. The following table is a summary of unsecured, interest-free and payable upon demand, amounts due from affiliated entities (IN THOUSANDS): June 30, December 31, 2006 2005 ------------ -------------- STH wholly-owed subsidiaries $1,923 $1,957 STH 346 346 Syscan Imaging Limited 100 100 ------------ -------------- $2,369 $2,403 ============ ============== -7- SYSVIEW TECHNOLOGY, INC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED) NOTE 4 - CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS Financial instruments that subject the Company to credit risk are cash balances maintained in excess of federal depository insurance limits and trade receivables. CASH AND CASH EQUIVALENTS The Company maintains cash balances at several banks. Accounts at each institution are insured by the Federal Deposit Insurance Corporation ("FDIC") up to $100,000. As of June 30, 2006, the Company had consolidated balances of approximately $733,000, which were not guaranteed by FDIC. The Company has not experienced any losses in such accounts and believes the exposure is minimal. MAJOR CUSTOMERS AND TRADE RECEIVABLES A relatively small number of customers account for a significant percentage of the Company's sales. The percentage of sales derived from significant customers is as follows: THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, --------------------------- ------------------------ 2006 2005 2006 2005 ----------- ------------ ----------- --------- Customer A 66% 42% 52% 34% Customer B 4 15 19 15 Customer C 12 7 11 15 Trade receivables from these customers totaled $798,000 at June 30, 2006. As of June 30, 2006 all the Company's trade receivables were unsecured. NOTE 5 - CONCENTRATION OF SUPPLIER RISK The Company purchases substantially all its finished scanner imaging products from one vendor that is also a subsidiary of the Company's majority stockholder. See Note 3. If this vendor became unable to provide materials in a timely manner and the Company was unable to find alternative vendors, the Company's business, operating results and financial condition would be materially adversely affected. NOTE 6 - EMPLOYEE EQUITY INCENTIVE PLANS STOCK-BASED COMPENSATION Sysview has several stock-based employee compensation plans, which are more fully described in the 2005 Annual Report on Form 10-KSB/A-1. Prior to January 1, 2006, Sysview accounted for awards granted under those plans following the recognition and measurement principles of APB 25 and related interpretations. Accordingly, compensation expense, equal to the difference between the total exercise price and the total fair market value, for awards granted at an exercise price less than fair market value of the underlying common stock on the grant date, was amortized over the vesting period and included in the Condensed Consolidated Statement of Operations. Effective January 1, 2006, Syscan adopted the fair value recognition provisions of SFAS 123(R). See Note 2. -8- SYSVIEW TECHNOLOGY, INC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED) The following table sets forth the total stock-based compensation expense included in the Condensed Consolidated Statements of Operations (IN THOUSANDS): THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, --------------------- ------------------ 2006 2005 2006 2005 --------- --------- ------- -------- Selling and marketing $ 12 $ 60 $ 25 $ 60 General and administrative 290 984 561 984 Research and development 43 60 55 60 At June 30, 2006, the Company had approximately $1,532,000 of total unrecognized compensation cost related to unvested stock options. This cost is expected to be recognized over a weighted-average period of approximately 18 months. STOCK OPTIONS The following table summarizes stock option activity and related information for the six months ended June 30, 2006: WEIGHTED- AVERAGE EXERCISE OPTIONS PRICE ----------- --------- Outstanding at December 31, 2005 3,760,000 $0.01 Granted 1,190,000 0.69 Exercised -- -- Cancelled -- -- ---------- ---------- Outstanding at June 30, 2006 4,950,000 $0.18 ========== ========== The following table summarizes all options outstanding and exercisable by price range as of June 30, 2006:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ---------------------------------------------------- -------------------------------- WEIGHTED-AVERAGE REMAINING WEIGHTED-AVERAGE WEIGHTED-AVERAGE RANGE OF CONTRACTUAL EXERCISE EXERCISE EXERCISE PRICES NUMBER LIFE (YEARS) PRICE NUMBER PRICE OUTSTANDING EXERCISABLE - ----------------- --------------- ---------------- ------------- --------------- ------------- $0.01 4,000,000 5.82 $0.01 2,666,666 $0.01 $0.65 - $1.17 940,000 9.49 $0.92 50,000 $0.90 $2.50 10,000 0.5 $2.50 10,000 $2.50
NOTE 7 - BASIC AND DILUTED NET EARNINGS (LOSS) PER SHARE Basic net earnings (loss) per share is computed by dividing net earnings (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted net earnings (loss) per share is computed by dividing net loss by the weighted average number of shares of common stock and common stock equivalents outstanding during the period. Common stock equivalents were not considered in calculating diluted net loss per common share for the three and six months ended June 30, 2006 and 2005 as their effect would be anti-dilutive. As a result, for all periods presented, the Company's basic and diluted net loss per share is the same. -9- SYSVIEW TECHNOLOGY, INC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED) NOTE 8 - EQUITY COMMON STOCK ACTIVITY There was no common stock activity during the three months ended June 30, 2006. PREFERRED STOCK ACTIVITY There was no preferred stock activity during the three months ended June 30, 2006. PREFERRED STOCK DIVIDENDS The Company's 5% Convertible Preferred Stock accrues cumulative dividends at a rate of five percent per annum, payable semiannually on July 1 and January 1. Dividends are payable in cash, by accretion of the stated value or in shares of common stock. Subject to certain terms and conditions, the decision whether to accrete dividends to the stated value of the Preferred Stock or to pay for dividends in cash or in shares of common stock, is at the Company's discretion. To date, the Company has not paid any dividends. During the three and six months ended June 30, 2006, preferred stock dividends were approximately $17,000 and $37,000, respectively, and recorded as a non-operating expense on the Company's statement of operations. PREFERRED STOCK ACCOUNTING TREATMENT Pursuant to SFAS 133, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES" ("SFAS 133") and EITF Abstract No. 00-19, "ACCOUNTING FOR DERIVATIVE FINANCIAL INSTRUMENTS" ("EITF 00-19"), the Company's 5% Convertible Preferred Stock and related warrants, are deemed derivative instruments as a result of the embedded conversion feature. Accordingly, the fair value of these derivative instruments has been recorded in the Company's consolidated balance sheet as a liability with the corresponding amount as a discount to the 5% Convertible Preferred Stock. The discount is being accreted from the issuance date, March 15, 2005, through the redemption date, March 15, 2008, adjusted for conversions. Accretion of the preferred stock redemption value for the three and six months ended June 30, 2006 was approximately $130,000 and $258,000 and is disclosed as a non-operating expense on the Company's consolidated statement of operations. The increase in the fair value of the liability for derivative contracts totaled approximately $518,000 and $310,000 for the three and six months ended June 30, 2006 with the offsetting adjustment disclosed with other income (expense) in the consolidated statements of operations. The Company computes fair value of these derivatives using the Black-Scholes valuation model. The Black-Scholes model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. The Company's derivative instruments have characteristics significantly different from traded options, and the input assumptions used in the model can materially affect the fair value estimate. -10- SYSVIEW TECHNOLOGY, INC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED) The assumptions used in this model to estimate fair value of each derivative instrument and the resulting value of the derivative liability as of June 30, 2006 are as follows:
EMBEDDED CONVERSION FEATURE ASSOCIATED WITH THE 5% CONVERTIBLE WARRANTS WARRANTS PREFERRED STOCK -------- -------- --------------- Exercise/conversion Price $ 1.00 $ 2.00 $ 1.00 Fair value of the Company's common stock $ 1.07 $ 1.07 $ 1.07 Expected life in years 3.0 3.0 3.0 Expected volatility 64% 64% 64% Expected dividend yield 0% 0% 0% Risk free interest rate 5% 5% 5% Calculated fair value per share $ 0.83 $ 0.58 $ 0.83
NOTE 9 - COMMITMENTS AND CONTINGENCIES OPERATING LEASES The Company is committed under various non-cancelable operating leases which extend through November 2011. Future minimum rental commitments are as follows: FUTURE MINIMUM LEASE YEAR ENDING PAYMENTS JUNE 30, ---------------- --------------- 2007 $ 147 2008 63 2009 1 2010 1 2011 1 --------------- Total $213 =============== BANK LINE OF CREDIT The Company has a line of credit to borrow up to $2,500,000, bearing interest at the rate of prime (8.25% at June 30, 2006) plus 0.5% and secured by all of the assets of the Company. Interest payments are due monthly and all unpaid interest and principal is due in full on October 30, 2006. Upon certain events of defaults, the default variable interest rate increases to prime plus 5.5%. The Company had $1,487,000 available for use at June 30, 2006. EMPLOYMENT AGREEMENTS The Company maintains employment agreements with its executive officers which extend through 2008. The agreements provide for a base salary, annual bonus to be determined by the Board of Directors, termination payments, stock options, non-competition provisions, and other terms and conditions of employment. In addition, the Company maintains employment agreements with other key employees with similar terms and conditions. As of June 30, 2006 termination payments totaling $489,000 remain in effect. -11- SYSVIEW TECHNOLOGY, INC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED) LITIGATION, CLAIMS AND ASSESSMENTS On May 20, 2003, Syscan, Inc., the Company's wholly-owned subsidiary, filed a lawsuit named SYSCAN, INC. V. PORTABLE PERIPHERAL CO., LTD. ("PPL"), IMAGING RECOGNITION INTEGRATED SYSTEMS, INC., CARDREADER INC. AND TARGUS INC. (Case No. C03-02367 VRW) in United States District Court, Northern District of California. Syscan, Inc. alleges claims against the above-mentioned parties for patent infringement of patent nos. 6,054,707, 6,275,309 and 6,459,506, and unfair competition. Syscan, Inc. expects to continue the case unless a reasonable settlement amount from the defendants or a licensing agreement to the satisfaction of Syscan, Inc. is entered. Syscan, Inc. is seeking: (1) a temporary restraining order, preliminary injunction and permanent injunction against defendants, restraining defendants from patent infringement and unfair competition; (2) treble damages due to defendants' willful infringement; (3) punitive damages; (4) accounting of unjust enrichment by defendants, resulting from defendants' unfair competition; and (5) attorney's fees and costs. The defendants are jointly represented by PPL's counsel. PPL has initiated counterclaims against Syscan, Inc. for patent invalidity. Syscan, Inc. has not yet been able to quantify its damage claim against PPL. Syscan, Inc. intends to vigorously pursue this claim and denies PPL's counterclaim of patent invalidity. There was a hearing in the Northern District of California on October 14, 2005, in which arguments were presented to the court on the patent validity. The court rendered a claim construction order on March 27, 2006 and a supplemental claim construction order on July 5, 2006. Syscan has filed and served its final infringement contentions on August 4, 2006 and a case management conference is scheduled on August 29, 2006 for determining the discovery and trial calendar. Syscan, Inc. expects to continue this case unless a reasonable settlement amount from defendants or a licensing agreement to the satisfaction of Syscan, Inc. is entered. The Company experiences routine litigation in the normal course of its business and does not believe that any pending litigation will have a material adverse effect on the Company's financial condition, results of operations or cash flows. CONVERTIBLE PREFERRED STOCK REGISTRATION RIGHTS AGREEMENT In connection with the issuance of 5% Convertible Preferred Stock, the Company executed a Registration Rights Agreement (the "Agreement") with the purchasers thereof under which the Company agreed to register the common shares underlying the 5% Convertible Preferred Stock and related warrants. The Agreement provides for liquidated damages in the event the registration statement is not maintained continuously effective for a period of two years following the March 15, 2005 closing date. The liquidated damages total an amount equal to one percent (pro-rated for partial months) of the purchase price of the 5% Convertible Preferred Stock for each thirty day period effectiveness of a registration statement is not maintained and two percent for each thirty day period the registration statement ceases to remain effective. This registration, which was originally declared effective by the SEC on July 7, 2005, became ineffective April 30, 2006. As such, the Company accrued $32,000, included in general and administrative expense, for damages during the three months ended June 30, 2006. NOTE 10 - SEGMENT AND GEOGRAPHIC INFORMATION SEGMENT INFORMATION Sysview operates in one segment, the design, development and delivery of various imaging technology solutions, most notably scanners, as defined by SFAS 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION ("SFAS 131"). -12- SYSVIEW TECHNOLOGY, INC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED) GEOGRAPHIC INFORMATION During the three and six months ended June 30, 2006 and 2005, Sysview recorded net sales throughout the U.S., Asia and Europe as determined by the final destination of the product. The following table summarizes total net sales attributable to significant countries (IN THOUSANDS):
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, --------------------------------- --------------------------------- 2006 2005 2006 2005 --------------------------------- --------------------------------- U.S. $ 2,366 $ 1,086 $ 4,587 $ 2,761 Asia 88 273 206 280 Europe and other 85 128 184 154 --------------------------------- --------------------------------- $ 2,539 $ 1,487 $ 4,977 $ 3,195 ================================= =================================
Substantially all Sysview's identifiable assets are located in the U.S. NOTE 11 - SUBSEQUENT EVENT On August 8, 2006, the Company sold $1,150,000 of its Series B Convertible Preferred Stock. Net proceeds of this offering after payment of related commissions, fees and other expenses were approximately $1,060,000. The Company intends to use the proceeds for sales, marketing, research and development and for working capital and general corporate purposes. -13- ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with Sysview Technology, Inc.'s ("Sysview" or "Company") unaudited condensed consolidated financial statements and notes included herein. The results described below are not necessarily indicative of the results to be expected in any future period. Certain statements in this discussion and analysis, including statements regarding our strategy, financial performance and revenue sources, are forward-looking statements based on current expectations and entail various risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. Readers are referred to Sysview's Annual Report on Form 10-KSB for the year ended December 31, 2005 as filed with the Securities and Exchange Commission on April 17, 2006. Management's discussion and analysis of financial condition and results of operations ("MD&A") is provided as a supplement to the accompanying unaudited condensed consolidated financial statements and notes to help provide an understanding of our financial condition, changes in financial condition and results of operations. The MD&A section is organized as follows: o OVERVIEW. This section provides a general description of the Company's business, as well as recent developments that we believe are important in understanding the results of operations and to anticipate future trends in those operations. o CRITICAL ACCOUNTING POLICIES. This section provides an analysis of the significant estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. o RESULTS OF OPERATIONS. This section provides an analysis of our results of operations for the three and six months ended June 30, 2006 compared to the three months ended June 30, 2005. A brief description of certain aspects, transactions and events is provided, including related party transactions that impact the comparability of the results being analyzed. o LIQUIDITY AND CAPITAL RESOURCES. This section provides an analysis of our financial condition and cash flows as of and for the six months ended June 30, 2006. OVERVIEW Our MD&A contains statements that are forward-looking. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ materially because of factors discussed in this report, as well as factors not within our control. We undertake no duty to update any forward-looking statement to conform the statement to actual results or changes in our expectations. We are in the business of developing, designing and delivering imaging technology solutions. We currently have 14 patents issued in the United States and five patents issued in Taiwan. Additionally, we have five patents currently pending with the United States Patent and Trademark Office, three relate to image display technology and two relate to image scanning. We focus our research and development toward new deliverable and marketable technologies. We sell our products to clients throughout the world, including the United States, Canada, Europe, South America, Australia and Asia. We intend to leverage our experience, expertise and current technology in the image capture market by expanding our business to the image display market, which is deemed to be a much larger market. Our strategy is to expand our image capture product line and technology while leveraging our assets in other areas of the imaging industry. We are actively shipping six categories of image capture products and intend to expand our product offerings to include seven new products during fiscal 2006. During the first three months of fiscal 2006, we introduced two new products under our Original Equipment Manufacturers' ("OEM") brand names. During the second quarter of fiscal 2006 we introduced one additional product through one of our OEMs. Our expanded product line is in response to the increased market demand for faster and easier-to-use products as well as increased security to meet the growing need for information protection, including identity and financial transaction protection. In addition to expanding our image capture product line, we actively pursue the acquisition of technology and or companies in the image capture and display industry to complement our business model, improve our competitive positioning and further expand our product offerings. -14- CRITICAL ACCOUNTING POLICIES Our MD&A is based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to revenue recognition, trade receivables and allowance for doubtful accounts, inventories, intangible and long-lived assets, and income taxes. We base our 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 values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used or changes in the accounting estimate that are reasonably likely to occur could materially change the financial statements. We believe the following critical accounting policies reflect our more significant estimates and assumptions used in the preparation of our consolidated financial statements: REVENUE RECOGNITION. Revenues consist of sales of merchandise, including optical image capturing devices, modules of optical image capturing devices, and chips and other optoelectronic products. Revenue is recognized when the product is shipped and the risks and rewards of ownership have transferred to the customer. We recognize shipping and handling fees as revenue, and the related expenses as a component of cost of sales. All internal handling charges are charged to selling and marketing expense. Historically, sales returns have not been significant. As such, we do not record a reduction to revenue for estimated product returns in the same period that the related revenue is recorded. INVENTORY AND WARRANTY RESERVES. We establish inventory reserves for estimated obsolescence or unmarketable inventory in an amount equal to the difference between the cost of inventory and its estimated realizable value based upon assumptions about future demand and market conditions. If actual demand and market conditions are less favorable than those projected by management, additional inventory reserves could be required. As of June 30, 2006 we had no inventory reserve. Currently, all our products are manufactured by a subsidiary of Syscan Technology Holdings ("STH"), the parent company of our majority stockholder. STH warrants the products it manufactures for us against defects in material and workmanship for a period of 18 months after the completion of manufacture. After such 18 month period, STH provides product repair services for us at its customary hourly repair rate plus the cost of any parts, components or items necessary to repair the products. As a result of the product warranty provided by STH, Sysview does not record a product warranty reserve. RELATED PARTY TRANSACTIONS. We have significant related-party transactions and agreements, including, but not limited to purchasing all our products from STH as discussed above. We believe such transactions have been accounted for at fair value. We utilized our best estimate of the value of these transactions and agreements. Had alternative assumptions been used, the values obtained may have been different. Related party purchases from entities that are wholly-owned subsidiaries of STH were $1,845,000 and $3,254,000 for the three and six months ended June 30, 2006, respectively and $713,000 and $1,979,000 for the three and six months ended June 30, 2005. The purchases were carried out in the normal course of business. -15- The following table is a summary of unsecured, interest-free and payable upon demand, amounts due from affiliated entities (IN THOUSANDS): June 30, December 31, 2006 2005 ------------ ---------------- STH wholly-owed subsidiaries $1,923 $1,957 STH 346 346 Syscan Imaging LTD 100 100 ------------ ---------------- $2,369 $2,403 ============ ================ INTANGIBLE AND LONG-LIVED ASSETS. We evaluate our intangible assets and long-lived assets, which represent goodwill, long-term investments, and fixed assets, for impairment annually or more frequently if we believe indicators of impairment exist. Significant management judgment is required during the evaluation, including in the forecasts of future operating results. The estimates we have used are consistent with the plans and estimates that we use to manage our business. It is possible, however, that the plans and estimates used may be incorrect. If our actual results, or the plans and estimates used in future impairment analyses, are lower than the original estimates used to assess the recoverability of these assets, we could incur additional impairment charges. We had no such asset impairments during the three and six months ended June 30, 2006. INCOME TAXES. We utilize the liability method of accounting for income taxes. Deferred income tax assets and liabilities are calculated as the difference between the financial statements and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. We record a valuation allowance to reduce our deferred tax assets to the amount that we believe is more likely than not to be realized. In assessing the need for a valuation allowance, we consider all positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and recent financial performance. The application of tax laws and regulations is subject to legal and factual interpretation, judgment and uncertainty. Tax laws themselves are subject to change as a result of changes in fiscal policy, changes in legislation, evolution of regulations and court rulings. Therefore, the actual income taxes may be materially different from our estimates. As a result of our analysis, we concluded that a full valuation allowance against our net deferred tax assets is appropriate at June 30, 2006. CONTINGENCIES. From time to time, we are involved in disputes, litigation and other legal proceedings. We record a charge equal to at least the minimum estimated liability for a loss contingency when both of the following conditions are met: (i) information available prior to issuance of the financial statements indicates that it is probable that an asset had been impaired or a liability had been incurred at the date of the financial statements and (ii) the range of loss can be reasonably estimated. However, the actual liability in any such litigation may be materially different from our estimates, which could result in the need to record additional costs. Currently, there are no outstanding legal proceedings or claims, which require a loss contingency. ACCOUNTING FOR CERTAIN FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY. We account for our 5% Convertible Preferred Stock pursuant to Statement of Financial Accounting Standards ("SFAS") "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES" ("SFAS 133") and the Emerging Issues Task Force ("EITF") Abstract No. 00-19, "ACCOUNTING FOR DERIVATIVE FINANCIAL INSTRUMENTS" ("EITF 00-19"). Accordingly, the embedded conversion feature associated with the 5% Convertible Preferred Stock and the warrants issued to the 5% Convertible Preferred Stock purchasers have been determined to be derivative instruments. The fair value of these derivative instruments, as determined by applying the Black-Scholes valuation model, is adjusted quarterly. The Black-Scholes valuation model requires the input of highly subjective assumptions, including the expected stock price volatility. Additionally, although the Black-Scholes model meets the requirements of SFAS 133, the fair values generated by the model may not be indicative of the actual fair values of our 5% Convertible Preferred Stock as our derivative instruments have characteristics significantly different from traded options. -16- RESULTS OF OPERATIONS The following table summarizes certain aspects of our results of operations for the three and six months ended June 30, 2006 compared to the three and six months ended June 30, 2005 (IN THOUSANDS):
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, ---------------------------------------- ----------------------------------------- 2006 2005 $ % 2006 2005 $ % ---- ---- --- --- ---- ---- --- ---- Net sales $ 2,539 $ 1,487 $ 1,052 71% $ 4,977 $ 3,195 $ 1,782 56% Cost of sales 1,660 883 777 88 3,276 1,987 1,289 65 As a percentage of sales 65% 59% 66% 62% Selling and marketing expense 300 258 42 16 593 410 183 45 General and administrative expense 679 1,335 (656) (49) 1,287 1,631 (344) (21) Research and development expense 469 222 247 111 865 399 467 117 Total other income (expense) (543) 587 NM NM (340) 1,144 NM NM Dividend on 5% convertible preferred stock and accretion of (147) (183) NM NM (295) (210) NM NM preferred stock redemption value NM = Not Meaningful
NET SALES The significant increase in net sales was attributable to our increased product offerings. We introduced our duplex scanners (DocketPORT) in the third quarter of fiscal 2005, which created a broader base of products. Approximately $335,000 and $801,000 of our increased revenue during the three and six months ended June 30, 2006, respectively as compared to the same periods in fiscal 2005 was attributable to sales of our duplex scanners. To a lesser extent, our net sales were positively impacted by our gradual trending towards our Value Added Reseller ("VAR") channel distribution and the growth in the small office home office ("SOHO") markets, which is a result of our efforts to appeal to customers in these sales channels. Sales to our three largest customers represented 82% for both the three and six months ended June 30, 2006 and 64% for both the three and six months ended June 30, 2005, respectively. We expect that our largest customers will continue to account for a substantial portion of our net sales in the remainder of fiscal 2006 and for the foreseeable future. The identities of our largest customer and their respective contributions to our net sales have varied and will likely continue to vary from period to period. We expect net sales to increase as we continue to offer additional products in the image display market and expand to the image display market. COST OF SALES, INCLUDING GROSS PROFIT Cost of goods sold ("COGS") includes all direct costs related to the transfer of scanners, imaging modules and services related to the delivery of those items manufactured in China, and to a lesser extent engineering services and software royalties. COGS increased in absolute dollars as a result of the increased net sales during both the three and six months ended June 30, 2006 as compared to the three and six months ended June 30, 2005. COGS as a percentage of net sales remained fairly constant as a result of the stability of our average selling price and related material cost used to manufacture our products. We expect this trend to continue for the foreseeable future. -17- Related party purchases from entities that are wholly-owned subsidiaries of STH were $1,845,000 and $3,254,000 for the three and six months ended June 30, 2006, respectively and $713,000 and $1,979,000 for the three and six months ended June 30, 2005. These purchases represent a significant portion of our cost of sales, from one vendor that is also a subsidiary of our majority stockholder. If this vendor became unable to provide materials in a timely manner and we were unable to find alternative vendors, our business, operating results and financial condition would be materially adversely affected. SELLING AND MARKETING EXPENSE Selling and marketing expenses consist primarily of salaries and related costs of employees, including stock-based compensation costs, engaged in the sales, marketing and customer account management functions and to a lesser extent market development and promotional funds for our retail distributions channels, tradeshows, website support, warehousing, logistics and certain sales representative fees. The increase during the three and six months ended June 30, 2006 as compared to the three and six months ended June 30, 2005 is primarily attributable to the increased staff and related marketing activities to support our expanding products offerings and the addition of direct sales personnel in Europe and Asia. We expect selling and marketing expenses to increase as we continue to expand our marketing efforts and the number of products we offer. GENERAL AND ADMINISTRATIVE EXPENSE General and administrative expense consists primarily of costs associated with our executive, financial, human resources and information services functions, including stock-based compensation costs, facilities-related expenses and outside professional services such as legal and accounting. The increase was a result of increased personnel costs to support our expanding business and related infrastructure and the increased expenses associated with maintaining our public company status. We expect general and administrative expenses to increase somewhat as our business continues to grow and the costs associated with being a public company continue to increase as a result of our required reporting requirements, including but not limited to expenses incurred to comply with the Sarbanes-Oxley Act of 2002. The decrease in both the three and six months ended June 30, 2006 as compared to the same period in 2005 is mainly attributable to stock-based compensation cost (a non-cash charge) as a result of granting stock options to certain executives and key employees at less than fair market value on the grant date during 2005 and adopting SFAS 123(R). See "Notes to Financial Statements Note 2." Stock-based compensation cost was $290,000 and $561,000 for the three and six months ended June 30, 2006, respectively, and $984,000 for both the three and six months ended June 30, 2005. RESEARCH AND DEVELOPMENT EXPENSE Research and development expense consists primarily of salaries and related costs, including stock-based compensation costs, of employees engaged in product research, design and development activities, compliance testing, documentation, prototypes and expenses associated with transitioning the product to production. Research and development expense increased during the three months ended June 30, 2006 as compared to June 30, 2005 as we continue to focus on key product development areas. We expect research and development expenses to increase as we continue to invest in the future and strengthen our intellectual property position within our highly competitive market. TOTAL OTHER INCOME (EXPENSE) Other income (expense) for the three and six months ended June 30, 2006 was mainly attributable to the $518,000 and $310,000, respectively, increase in the fair value of the liability for derivative contracts (associated with our 5% Convertible Series A Preferred Stock). During the three and six months ended June 30, 2005, the fair value of the liability for derivative contracts decreased $575,000 and $1,661,000, respectively. Pursuant to SFAS 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133") and EITF Abstract No. 00-19, "Accounting for Derivative Financial Instruments" ("EITF 00-19"), the increase in the fair value of the liability for derivative contracts is included as other expense in our consolidated statements of operations and the decrease in the fair value of the liability for derivative contracts is included as other income in our consolidated statements of operations. -18- The remaining other income (expense) during the six months ended June 30, 2005 was a result of issuing our 5% Convertible Preferred Stock as follows: o Cash paid for issuance costs of $237,000 in connection with our offering; and o A non-cash charge of $290,000 representing the fair value of 186,500 warrants issued to the placement agent for the sale of the preferred stock. DIVIDEND ON 5% CONVERTIBLE PREFERRED STOCK AND ACCRETION OF PREFERRED STOCK REDEMPTION VALUE During the three and six months ended June 30, 2006 accretion on our 5% Convertible Series A Preferred Stock was approximately $130,000 and $258,000, respectively. Preferred dividends were $17,000 and $37,000 during the three and six months ended June 30, 2006, respectively. During the three and six months ended June 30, 2005 accretion on our 5% Convertible Series A Preferred Stock was approximately $155,000 and $182,000, respectively. Preferred dividends were $28,000 for both the three and six months ended June 30, 2005. LIQUIDITY AND CAPITAL RESOURCES At June 30, 2006, our principal sources of liquidity included cash and cash equivalents of $1,068,000 and unused borrowing capacity of $1,487,000 under our bank line of credit. We had no significant cash outlays during the six months ended June 30, 2006. Operating activities: Cash used by operating activities during the six months ended June 30, 2006 was primarily to fund our net loss, as adjusted for non-cash items such as stock-based compensation associated with issuing options and changes in our derivative instruments and convertible preferred stock. Additional uses of cash included an increase in inventory as we anticipate a growth in future sales. Sources of operating cash include an increase in accounts receivable and a decrease in accounts payable as a result of managing our working capital and the normal fluctuation and timing of purchases and sales. As we have had to ramp up inventory purchases to meet the increased demand for our products, our cash was somewhat constrained during the six months ended June 30, 2006. During the six months ended June 30, 2005, cash used by operations resulted from funding our net loss, adjusted for non-cash items such as stock-based compensation associated with issuing options and changes in our derivative instruments and convertible preferred stock and changes to trade receivables and inventories. We expect future cash provided (used) by operating activities to fluctuate, primarily as a result of fluctuations in our operating results, timing of product shipments, trade receivables collections, inventory management and timing of vendor payments. Investing activities: For both the six months ended June 30, 2006 and 2005, cash used in investing activities was attributable to the purchase of capital equipment and licensed technology. Financing activities: For the six months ended June 30, 2006, cash provided by financing activities was a result of payments from related party receivables. For the six months ended June 30, 2005, cash provided by financing activities was a result of issuing our 5% Convertible Preferred Stock, somewhat offset by advances to related parties. All advances to and repayments from related parties during the six months ended June 30, 2006 and 2005 were made in the ordinary course of business. CASH AND WORKING CAPITAL REQUIREMENTS As previously discussed, we plan to continue increasing our presence in the image capture market and expand our operations into the image display area, which may require additional capital. Additionally, we may seek to expand our operations through acquisitions of companies in the image capture and display industry that we believe could complement our business model, improve our competitive positioning and expand our product offerings. -19- On August 8, 2006, the Company sold $1,150,000 of its Series B Convertible Preferred Stock. Net proceeds of this offering after payment of related commissions, fees and other expenses were approximately $1,060,000. The Company intends to use the proceeds for sales, marketing, research and development and for working capital and general corporate purposes. Considering current cash reserves and other sources of liquidity, including our bank line of credit, borrowing from related parties and the aforementioned funds raised through the sale of our Series B Convertible Preferred Stock, management believes that the Company will have sufficient sources of financing to continue its normal operations through at least the next twelve months. However, our business expansion plans may require additional capital through either the incurrence of debt or the issuance of equity securities, depending on the prevailing market and other conditions. There is no assurance that such additional funds will be available for us to finance our expansion plans. Furthermore, there is no assurance the net proceeds from any successful financing arrangement will be sufficient to cover cash requirements as we expand our business operations. CONTRACTUAL OBLIGATIONS The following table summarizes our contractual obligations at June 30, 2006, and the effect such obligations are expected to have on our liquidity and cash flows in future periods (IN THOUSANDS):
LESS THAN ONE - THREE THREE - FIVE TOTAL ONE YEAR YEARS YEARS ------- --------- ----------- ------------- Line of credit (1) $1,013 $1,013 $ -- $ -- Operating lease obligations 213 147 65 1 ------ ------ ------ ------ Total contractual cash obligations $1,226 $1,160 $ 65 $ 1 ====== ====== ====== ======
(1) We have a line of credit up to $2,500,000, bearing interest at the rate of prime (8.25% at June 30, 2006) plus 0.5% and secured by all our assets. Interest payments are due monthly and all unpaid interest and principal is due in full on October 30, 2006. OFF-BALANCE SHEET ARRANGEMENTS At June 30, 2006, we did not have any relationship with unconsolidated entities or financial partnerships, which other companies have established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes as defined in Item 303(a)(4)(ii) of SEC Regulation S-K. Therefore, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships. TRENDS As of June 30, 2006, to the best of our knowledge, no known trends or demands, commitments, events or uncertainties, except as described in "NOTES TO FINANCIAL STATEMENTS NOTE 9 - COMMITMENTS AND CONTINGENCIES" existed, which are likely to have a material effect on our liquidity. -20- ITEM 3 - CONTROLS AND PROCEDURES EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 as of the end of the period covered by this report (the "Evaluation Date"). Based upon the evaluation, our principal executive officer and principal financial officer concluded as of the Evaluation Date that our disclosure controls and procedures were effective. Disclosure controls are controls and procedures designed to reasonably ensure that information required to be disclosed in our reports filed under the Exchange Act, such as this report, is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. Disclosure controls include controls and procedures designed to reasonably ensure that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure. CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING There were no changes in our internal controls over financial reporting that occurred during the quarterly period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. -21- PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Please refer to the "NOTES TO FINANCIAL STATEMENTS NOTE 9 - COMMITMENTS AND CONTINGENCIES" for a discussion of the Company's legal proceedings. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. At Sysview Technology, Inc.'s annual stockholders' meeting on June 23, 2006, stockholders elected each of the director nominees, approved the 2002 Amended and Restated Stock Option Plan and the 2006 Stock Option Plan, approved the name change and ratified the selection of our independent registered public accounting firm.
NUMBER OF SHARES ----------------------------------------------------------- VOTED BROKER VOTED FOR AGAINST ABSTAIN NON-VOTES ------------- ---------- -------------- ----------- 1. To elect a board of directors to hold office until the next annual stockholders' meeting or until their respective successors have been elected or appointed. Darwin Hu 18,928,997 - 5,663,095 - David P. Clark 18,928,997 - 5,663,095 - Lawrence Liang 18,928,997 - 5,663,095 - 2. To approve the 2002 Amended and Restated Stock Option Plan 18,874,387 53,670 1,000 - 3. To approve the 2006 Stock Option Plan 18,874,387 53,670 1,000 - 4. To approve the corporate name change from Syscan Imaging, Inc. to 18,928,837 160 60 - Sysview Technology, Inc. 5. To ratify the selection of the Company's independent registered 18,928,837 220 - - public accounting Firm for the year ended December 31, 2006.
ITEM 5. OTHER INFORMATION The Company has become aware that Syscan Technology Holdings ("STH"), the parent company of Syscan Imaging Limited ("SIL"), is believed to have entered into an agreement with Wang Holdings LTD. (HK), whereby Wang Holdings LTD., (HK) may have agreed to purchase some or all of the capital stock of SIL from STH. SIL beneficially owns 18,773,514 shares (the "Shares") of the Company's outstanding common stock, or approximately 54.4% (fully diluted). Since no substantive details regarding the possible transaction have been made available to the Company, and SIL continues to beneficially own 100% of the Shares, the Company does not believe that there has been a change in control of the Company. We do believe that it is appropriate to fully disclose whatever information that is directly available to the Company and as soon as more information becomes available to us we will update through our public filings any such information. Additionally, we have requested from STH additional documentation or evidence of this transaction. Until we receive any such information or a Schedule 13D filing is made, we will continue to assume that STH is still the beneficial owner of SIL and the Shares. The Company is not aware of any other arrangements or understandings among members of STH or Wang Holdings LTD. (HK), or their respective affiliates, with respect to any other matters. -22- ITEM 6 - EXHIBITS
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT METHOD OF FILING - --------------- --------------------------------------------- --------------------------------------------- 2.1 Share Exchange Agreement Incorporated by reference to Exhibit 99.1 to Form 8-K dated April 19, 2004 3.1 Certificate of Incorporation, dated Incorporated by reference to Exhibit 3.1 on February 15, 2002 Form 10-KSB dated March 31, 2005 3.2 Certificate of Amendment to the Company's Incorporated by reference to Exhibit 3.2 on Certificate of Incorporation dated March Form 10-KSB dated March 31, 2005 19, 2004 3.3 Certificate of Designation of Preferences, Incorporated by reference to Exhibit 10.4 Rights and Limitations of Series A on Form 8-K dated March 21, 2005 Preferred Stock as filed with the Secretary of State of the State of Delaware on March 15, 2005 3.4 Amended and Restated Bylaws Incorporated by reference to Exhibit 3.4 on Form 10-KSB dated March 31, 2005 3.5 Certificate of Amendment to the Company's Filed herewith Certificate of Incorporation dated June 23, 2006 3.6 Certificate of Designation of Preferences, Incorporated by reference to Exhibit 10.4 Rights and Limitations of Series B on Form 8-K dated August 14, 2006 Preferred Stock as filed with the Secretary of State of the State of Delaware on June 10, 2006 10.1 Form of Convertible Preferred Stock and Incorporated by reference to Exhibit 10.1 Common Stock Warrant Purchase Agreement on Form 8-K dated March 21, 2005 entered into by and between the Company and the purchasers 10.2 Form of Common Stock Purchase Warrant Incorporated by reference to Exhibit 10.2 on Form 8-K dated March 21, 2005 10.3 Form of Registration Rights Agreement Incorporated by reference to Exhibit 10.3 on Form 8-K dated March 21, 2005 10.4 2002 Amended and Restated Stock Option Plan Incorporated by reference to Exhibit 10.4 on Form 10-KSB dated March 31, 2005 10.5 Employment Agreement entered between the Incorporated by reference to Exhibit 10.5 Company and Darwin Hu on April 26, 2005 on Form 8-K dated May 2, 2005 10.6 Employment Agreement entered between the Incorporated by reference to Exhibit 10.6 Company and William Hawkins on April 26, on Form 8-K dated May 2, 2005 2005 10.7 Employment Agreement entered between the Incorporated by reference to Exhibit 10.7 Company and David P. Clark on April 26, on Form 8-K dated May 2, 2005 2005 10.8 2006 Stock Option Plan Filed herewith 10.9 Form of Convertible Preferred Stock and Incorporated by reference to Exhibit 10.1 Common Stock Warrant Purchase Agreement on Form 8-K dated August 14, 2006 entered into by and between the Company and the purchasers 10.10 Form of Common Stock Purchase Warrant Incorporated by reference to Exhibit 10.2 on Form 8-K dated August 14, 2006 10.11 Form of Registration Rights Agreement Incorporated by reference to Exhibit 10.3 on Form 8-K dated August 14, 2006 14 Code of Ethics adopted by the Company's Incorporated by reference to exhibit 14 on board of directors on March 28, 2005 Form 10-KSB dated March 31, 2005 31.1 Certification Pursuant to Section 302 of Filed herewith the Sarbanes-Oxley Act - Darwin Hu 31.2 Certification Pursuant to Section 302 of Filed herewith the Sarbanes-Oxley Act - William Hawkins 32.1 Certifications Pursuant to Section 906 of Filed herewith the Sarbanes-Oxley Act - Darwin Hu 32.2 Certifications Pursuant to Section 906 of Filed herewith the Sarbanes-Oxley Act - William Hawkins
-23- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, Sysview Technology, Inc has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SYSVIEW TECHNOLOGY, INC. Date: August 21, 2006 /S/ DARWIN HU ------------- Darwin Hu, Chairman and Chief Executive Officer Date: August 21, 2006 /S/ WILLIAM HAWKINS ------------------- William Hawkins, Acting Chief Financial Officer Chief Operating Officer and Secretary -24- EX-3.5(I) 2 exh3-5.txt EXHIBIT 3.5 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF SYSCAN IMAGING, INC. It is hereby certified that: 1. The name of the corporation (hereinafter called the "Corporation") is Syscan Imaging, Inc. 2. The Amended Certificate of Incorporation of the Corporation, is hereby further amended by replacing Article FIRST thereof in its entirety as follows: The name of the corporation (hereinafter called the "Corporation") is Sysview Technology, Inc. 3. The foregoing amendment was adopted in accordance with Section 242 of the General Corporation Law of the State of Delaware. 4. This Certificate of Amendment shall become effective at 8:00 a.m., Eastern Standard time, on June 27, 2006. Signed this 23rd day of June 2006 By: /S/ DARWIN HU --------------- Name: Darwin Hu Title: Chairman and CEO EX-10.8 3 exh10-8.txt 2006 STOCK OPTION PLAN EXHIBIT 10.8 2006 STOCK OPTION PLAN OF SYSVIEW TECHNOLOGY, INC. 1. PURPOSES OF THE PLAN The purposes of the 2006 Stock Option Plan (the "Plan") of Sysview Technology, Inc., a Delaware corporation (the "Company"), are to: (a) Encourage selected employees, directors and consultants to improve operations and increase profits of the Company; (b) Encourage selected employees, directors and consultants to accept or continue employment or association with the Company or its Affiliates; and (c) Increase the interest of selected employees, directors and consultants in the Company's welfare through participation in the growth in value of the common stock of the Company (the "Shares"). Options granted under this Plan ("Options") may be "incentive stock options" ("ISOs") intended to satisfy the requirements of Section 422 of the Internal Revenue Code of 1986, as amended, and the regulations thereunder (the "Code"), or "non-qualified stock options" ("NQSOs"). 2. ELIGIBLE PERSONS Every person who at the date of grant of an Option is an employee of the Company or of any Affiliate (as defined below) of the Company is eligible to receive NQSOs or ISOs under this Plan. Every person who at the date of grant is a consultant to, or non-employee director of, the Company or any Affiliate (as defined below) of the Company is eligible to receive NQSOs under this Plan. The term "Affiliate" as used in the Plan means a parent or subsidiary corporation as defined in the applicable provisions (currently Sections 424(e) and (f), respectively) of the Code. The term "employee" (within the meaning of Section 3401(c) of the Code) includes an officer or director who is an employee of the Company. The term "consultant" includes persons employed by, or otherwise affiliated with, a consultant. 3. STOCK SUBJECT TO THIS PLAN; MAXIMUM NUMBER OF GRANTS Subject to the provisions of Section 6.1.1 of the Plan, the total number of Shares which may be issued under Options granted pursuant to this Plan shall not exceed one million five hundred thousand (1,500,000) Shares. The Shares covered by the portion of any grant under the Plan which expires unexercised shall become available again for grants under the Plan. -1- 4. ADMINISTRATION (a) The Plan shall be administered by either the Board of Directors of the Company (the "Board") or by a committee (the "Committee") to which administration of the Plan, or of part of the Plan, may be delegated by the Board (in either case, the "Administrator"). The Board shall appoint and remove members of such Committee, if any, in its discretion in accordance with applicable laws. If necessary in order to comply with Rule 16b-3 under the Exchange Act and Section 162(m) of the Code, the Committee shall, in the Board's discretion, be comprised solely of "non-employee directors" within the meaning of said Rule 16b-3 and "outside directors" within the meaning of Section 162(m) of the Code. The foregoing notwithstanding, the Administrator may delegate nondiscretionary administrative duties to such employees of the Company as it deems proper and the Board, in its absolute discretion, may at any time and from time to time exercise any and all rights and duties of the Administrator under the Plan. (b) Subject to the other provisions of this Plan, the Administrator shall have the authority, in its discretion: (i) to grant Options; (ii) to determine the fair market value of the Shares subject to Options; (iii) to determine the exercise price of Options granted; (iv) to determine the persons to whom, and the time or times at which, Options shall be granted, and the number of shares subject to each Option; (v) to interpret this Plan; (vi) to prescribe, amend, and rescind rules and regulations relating to this Plan; (vii) to determine the terms and provisions of each Option granted (which need not be identical), including but not limited to, the time or times at which Options shall be exercisable; (viii) with the consent of the optionee, to modify or amend any Option; (ix) to defer (with the consent of the optionee) the exercise date of any Option; (x) to authorize any person to execute on behalf of the Company any instrument evidencing the grant of an Option; and (xi) to make all other determinations deemed necessary or advisable for the administration of this Plan. The Administrator may delegate nondiscretionary administrative duties to such employees of the Company as it deems proper. (c) All questions of interpretation, implementation, and application of this Plan shall be determined by the Administrator. Such determinations shall be final and binding on all persons. 5. GRANTING OF OPTIONS; OPTION AGREEMENT (a) No Options shall be granted under this Plan after 10 years from the date of adoption of this Plan by the Board. (b) Each Option shall be evidenced by a written stock option agreement, in form satisfactory to the Administrator, executed by the Company and the person to whom such Option is granted. (c) The stock option agreement shall specify whether each Option it evidences is an NQSO or an ISO. (d) Subject to Section 6.3.3 with respect to ISOs, the Administrator may approve the grant of Options under this Plan to persons who are expected to become employees, directors or consultants of the Company, but are not employees, directors or consultants at the date of approval, and the date of approval shall be deemed to be the date of grant unless otherwise specified by the Administrator. -2- 6. TERMS AND CONDITIONS OF OPTIONS Each Option granted under this Plan shall be subject to the terms and conditions set forth in Section 6.1. NQSOs shall also be subject to the terms and conditions set forth in Section 6.2, but not those set forth in Section 6.3. ISOs shall also be subject to the terms and conditions set forth in Section 6.3, but not those set forth in Section 6.2. 6.1 Terms and Conditions to Which All Options Are Subject. All Options granted under this Plan shall be subject to the following terms and conditions: 6.1.1 Changes in Capital Structure. Subject to Section 6.1.2, if the stock of the Company is changed by reason of a stock split, reverse stock split, stock dividend, or recapitalization, combination or reclassification, appropriate adjustments shall be made by the Board in (a) the number and class of shares of stock subject to this Plan and each Option outstanding under this Plan, and (b) the exercise price of each outstanding Option; provided, however, that the Company shall not be required to issue fractional shares as a result of any such adjustments. Each such adjustment shall be subject to approval by the Board in its sole discretion. 6.1.2 Corporate Transactions. In the event of the proposed dissolution or liquidation of the Company, the Administrator shall notify each optionee at least 30 days prior to such proposed action. To the extent not previously exercised, all Options will terminate immediately prior to the consummation of such proposed action; provided, however, that the Administrator, in the exercise of its sole discretion, may permit exercise of any Options prior to their termination, even if such Options were not otherwise exercisable. In the event of a merger or consolidation of the Company with or into another corporation or entity in which the Company does not survive, or in the event of a sale of all or substantially all of the assets of the Company in which the shareholders of the Company receive securities of the acquiring entity or an affiliate thereof, all Options shall be assumed or equivalent options shall be substituted by the successor corporation (or other entity) or a parent or subsidiary of such successor corporation (or other entity); provided, however, that if such successor does not agree to assume the Options or to substitute equivalent options therefor, the Administrator, in the exercise of its sole discretion, may permit the exercise of any of the Options prior to consummation of such event, even if such Options were not otherwise exercisable. 6.1.3 Time of Option Exercise. Subject to Section 5 and Section 6.3.4, Options granted under this Plan shall be exercisable (a) immediately as of the effective date of the stock option agreement granting the Option, or (b) in accordance with a schedule as may be set by the Administrator (each such date on such schedule, the "Vesting Base Date") and specified in the written stock option agreement relating to such Option. In any case, no Option shall be exercisable until a written stock option agreement in form satisfactory to the Company is executed by the Company and the optionee. 6.1.4 Option Grant Date. The date of grant of an Option under this Plan shall be the date as of which the Administrator approves the grant. 6.1.5 Nontransferability of Option Rights. Except with the express written approval of the Administrator which approval the Administrator is authorized to give only with respect to NQSOs, no Option granted under this Plan shall be assignable or otherwise transferable by the optionee except by will, by the laws of descent and distribution or pursuant to a qualified domestic relations order. During the life of the optionee, an Option shall be exercisable only by the optionee. -3- 6.1.6 Payment. Except as provided below, payment in full, in cash, shall be made for all stock purchased at the time written notice of exercise of an Option is given to the Company, and proceeds of any payment shall constitute general funds of the Company. The Administrator, in the exercise of its absolute discretion, may authorize any one or more of the following additional methods of payment: (a) Subject to the discretion of the Administrator and the terms of the stock option agreement granting the Option, delivery by the optionee of Shares already owned by the optionee for all or part of the Option price, provided the fair market value (determined as set forth in Section 6.1.10) of such Shares being delivered is equal on the date of exercise to the Option price, or such portion thereof as the optionee is authorized to pay by delivery of such stock; and (b) Subject to the discretion of the Administrator, through the surrender of Shares then issuable upon exercise of the Option, provided the fair market value (determined as set forth in Section 6.1.10) of such Shares is equal on the date of exercise to the Option price, or such portion thereof as the optionee is authorized to pay by surrender of such stock. 6.1.7 Termination of Employment. If for any reason other than death or permanent and total disability, an optionee ceases to be employed by the Company or any of its Affiliates (such event being called a "Termination"), Options held at the date of Termination (to the extent then exercisable) may be exercised in whole or in part at any time within three months of the date of such Termination, or such other period of not less than 30 days after the date of such Termination as is specified in the Option Agreement or by amendment thereof (but in no event after the Expiration Date); provided, however, that if such exercise of the Option would result in liability for the optionee under Section 16(b) of the Exchange Act, then such three-month period automatically shall be extended until the tenth day following the last date upon which optionee has any liability under Section 16(b) (but in no event after the Expiration Date). If an optionee dies or becomes permanently and totally disabled (within the meaning of Section 22(e)(3) of the Code) while employed by the Company or an Affiliate or within the period that the Option remains exercisable after Termination, Options then held (to the extent then exercisable) may be exercised, in whole or in part, by the optionee, by the optionee's personal representative or by the person to whom the Option is transferred by devise or the laws of descent and distribution, at any time within twelve months after the death or twelve months after the permanent and total disability of the optionee or any longer period specified in the Option Agreement or by amendment thereof (but in no event after the Expiration Date). For purposes of this Section 6.1.7, "employment" includes service as a director or as a consultant. For purposes of this Section 6.1.7, an optionee's employment shall not be deemed to terminate by reason of sick leave, military leave or other leave of absence approved by the Administrator, if the period of any such leave does not exceed 90 days or, if longer, if the optionee's right to reemployment by the Company or any Affiliate is guaranteed either contractually or by statute. 6.1.8 Withholding and Employment Taxes. At the time of exercise of an Option and as a condition thereto, or at such other time as the amount of such obligations becomes determinable (the "Tax Date"), the optionee shall remit to the Company in cash all applicable federal and state withholding and employment taxes. Such obligation to remit may be satisfied, if authorized by the Administrator in its sole discretion, after considering any tax, accounting and financial consequences, by the optionee's (i) delivery of a promissory note in the required amount on such terms as the Administrator deems appropriate, (ii) tendering to the Company previously owned Shares or other securities of the Company with a fair market value equal to the required amount, or (iii) agreeing to have Shares (with a fair market value equal to the required amount) which are acquired upon exercise of the Option withheld by the Company. -4- 6.1.9 Other Provisions. Each Option granted under this Plan may contain such other terms, provisions, and conditions not inconsistent with this Plan as may be determined by the Administrator, and each ISO granted under this Plan shall include such provisions and conditions as are necessary to qualify the Option as an "incentive stock option" within the meaning of Section 422 of the Code. 6.1.10 Determination of Value. For purposes of the Plan, the fair market value of Shares or other securities of the Company shall be determined as follows: (a) Fair market value shall be the closing price of such stock on the date before the date the value is to be determined on the principal recognized securities exchange or recognized securities market on which such stock is reported, but if selling prices are not reported, its fair market value shall be the mean between the high bid and low asked prices for such stock on the date before the date the value is to be determined (or if there are no quoted prices for such date, then for the last preceding business day on which there were quoted prices). (b) In the absence of an established market for the stock, the fair market value thereof shall be determined in good faith by the Administrator, with reference to the Company's net worth, prospective earning power, dividend-paying capacity, and other relevant factors, including the goodwill of the Company, the economic outlook in the Company's industry, the Company's position in the industry, the Company's management, and the values of stock of other corporations in the same or similar line of business. 6.1.11 Option Term. Subject to Section 6.3.4, no Option shall be exercisable more than 10 years after the date of grant, or such lesser period of time as is set forth in the stock option agreement (the end of the maximum exercise period stated in the stock option agreement is referred to in this Plan as the "Expiration Date"). 6.2 Terms and Conditions to Which Only NQSOs Are Subject. Options granted under this Plan which are designated as NQSOs shall be subject to the following terms and conditions: 6.2.1 Exercise Price. (a) Except as set forth in Section 6.2.1(b), the exercise price of an NQSO shall be not less than 85% of the fair market value (determined in accordance with Section 6.1.10) of the stock subject to the Option on the date of grant. (b) To the extent required by applicable laws, rules and regulations, the exercise price of a NQSO granted to any person who owns, directly or by attribution under the Code (currently Section 424(d)), stock possessing more than ten percent of the total combined voting power of all classes of stock of the Company or of any Affiliate (a "Ten Percent Shareholder") shall in no event be less than 110% of the fair market value (determined in accordance with Section 6.1.10) of the stock covered by the Option at the time the Option is granted. 6.3 Terms and Conditions to Which Only ISOs Are Subject. Options granted under this Plan which are designated as ISOs shall be subject to the following terms and conditions: -5- 6.3.1 Exercise Price. (a) Except as set forth in Section 6.3.1(b), the exercise price of an ISO shall be determined in accordance with the applicable provisions of the Code and shall in no event be less than the fair market value (determined in accordance with Section 6.1.10) of the stock covered by the Option at the time the Option is granted. (b) The exercise price of an ISO granted to any Ten Percent Shareholder shall in no event be less than 110% of the fair market value (determined in accordance with Section 6.1.10) of the stock covered by the Option at the time the Option is granted. 6.3.2 Disqualifying Dispositions. If stock acquired by exercise of an ISO granted pursuant to this Plan is disposed of in a "disqualifying disposition" within the meaning of Section 422 of the Code (a disposition within two years from the date of grant of the Option or within one year after the transfer such stock on exercise of the Option), the holder of the stock immediately before the disposition shall promptly notify the Company in writing of the date and terms of the disposition and shall provide such other information regarding the Option as the Company may reasonably require. 6.3.3 Grant Date. If an ISO is granted in anticipation of employment as provided in Section 5(d), the Option shall be deemed granted, without further approval, on the date the grantee assumes the employment relationship forming the basis for such grant, and, in addition, satisfies all requirements of this Plan for Options granted on that date. 6.3.4 Term. Notwithstanding Section 6.1.11, no ISO granted to any Ten Percent Shareholder shall be exercisable more than five years after the date of grant. 7. MANNER OF EXERCISE (a) An optionee wishing to exercise an Option shall give written notice to the Company at its principal executive office, to the attention of the officer of the Company designated by the Administrator, accompanied by payment of the exercise price and withholding taxes as provided in Sections 6.1.6 and 6.1.8. The date the Company receives written notice of an exercise hereunder accompanied by payment of the exercise price will be considered as the date such Option was exercised. (b) Promptly after receipt of written notice of exercise of an Option and the payments called for by Section 7(a), the Company shall, without stock issue or transfer taxes to the optionee or other person entitled to exercise the Option, deliver to the optionee or such other person a certificate or certificates for the requisite number of shares of stock. An optionee or permitted transferee of the Option shall not have any privileges as a shareholder with respect to any shares of stock covered by the Option until the date of issuance (as evidenced by the appropriate entry on the books of the Company or a duly authorized transfer agent) of such shares. -6- 8. EMPLOYMENT OR CONSULTING RELATIONSHIP Nothing in this Plan or any Option granted hereunder shall interfere with or limit in any way the right of the Company or of any of its Affiliates to terminate any optionee's employment or consulting at any time, nor confer upon any optionee any right to continue in the employ of, or consult with, the Company or any of its Affiliates. 9. CONDITIONS UPON ISSUANCE OF SHARES Shares shall not be issued pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended (the "Securities Act"). 10. NON-EXCLUSIVITY OF THE PLAN The adoption of the Plan shall not be construed as creating any limitations on the power of the Company to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting of stock options other than under the Plan. 11. AMENDMENTS TO PLAN The Board may at any time amend, alter, suspend or discontinue this Plan. Without the consent of an optionee, no amendment, alteration, suspension or discontinuance may adversely affect outstanding Options except to conform this Plan and ISOs granted under this Plan to the requirements of federal or other tax laws relating to incentive stock options. No amendment, alteration, suspension or discontinuance shall require shareholder approval unless (a) shareholder approval is required to preserve incentive stock option treatment for federal income tax purposes or (b) the Board otherwise concludes that shareholder approval is advisable. 12. EFFECTIVE DATE OF PLAN; TERMINATION This Plan shall become effective upon adoption by the Board; provided, however, that no Option shall be exercisable unless and until written consent of the shareholders of the Company, or approval of shareholders of the Company voting at a validly called shareholders' meeting, is obtained within twelve months after adoption by the Board. If such shareholder approval is not obtained within such time, Options granted hereunder shall be of the same force and effect as if such approval was obtained except that all ISOs granted hereunder shall be treated as NQSOs. Options may be granted and exercised under this Plan only after there has been compliance with all applicable federal and state securities laws. This Plan shall terminate within ten years from the date of its adoption by the Board. -7- EX-31.1 4 exh31-1.txt EXHIBIT 31.1 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Darwin Hu, hereby certify that: 1. I have reviewed the Quarterly Report on Form 10-QSB of Sysview Technology, Inc. for the quarter ended June 30, 2006; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting. 5. The small business issuer's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: August 21, 2006 /S/ DARWIN HU ------------- Darwin Hu, Chairman and Chief Executive Officer EX-31.2 5 exh31-2.txt EXHIBIT 31.2 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, William Hawkins, hereby certify that: 1. I have reviewed the Quarterly Report on Form 10-QSB of Sysview Technology, Inc. for the quarter ended June 30, 2006; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting. 5. The small business issuer's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: August 21, 2006 /S/ WILLIAM HAWKINS ------------------- William Hawkins, Acting Chief Financial Officer Chief Operating Officer and Secretary EX-32.1 6 exh32-1.txt EXHIBIT 32.1 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. 1350) Pursuant to Section 906 of the Sarbanes-Oxley Act of (18 U.S.C. 1350), the undersigned officer of Sysview Technology, Inc., a Delaware corporation (the "Company"), does hereby certify, to the best of such officer's knowledge and belief, that: (1) The Quarterly Report on Form 10-QSB for the quarter ended June 30, 2006 (the "Form 10-QSB") of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Form 10-QSB fairly presents, in all materials respects, the financial condition and results of operations of the Company. Date: August 21, 2006 /S/ DARWIN HU ------------- Darwin Hu, Chairman and Chief Executive Officer This certification shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act, or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act or the Securities Exchange Act. EX-32.2 7 exh32-2.txt EXHIBIT 32.2 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. 1350) Pursuant to Section 906 of the Sarbanes-Oxley Act of (18 U.S.C. 1350), the undersigned officer of Sysview Technology, Inc., a Delaware corporation (the "Company"), does hereby certify, to the best of such officer's knowledge and belief, that: (1) The Quarterly Report on Form 10-QSB for the quarter ended June 30, 2006 (the "Form 10-QSB") of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Form 10-QSB fairly presents, in all materials respects, the financial condition and results of operations of the Company. Date: August 21, 2006 /S/ WILLIAM HAWKINS William Hawkins, Acting Chief Financial Officer, Chief Operating Officer and Secretary This certification shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act, or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act or the Securities Exchange Act. -----END PRIVACY-ENHANCED MESSAGE-----