-----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, G/gvPDzWMaeiir/YZRU7Klq85U6YGtWHoSnlC3i5yig5BAPllbs8GGbXEzxhXFZl Ir7BLvvv63dxNwQv7gZrVQ== 0000909012-07-001413.txt : 20071114 0000909012-07-001413.hdr.sgml : 20071114 20071114145818 ACCESSION NUMBER: 0000909012-07-001413 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20070930 FILED AS OF DATE: 20071114 DATE AS OF CHANGE: 20071114 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: 071243821 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 t303814.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 SEPTEMBER 30, 2007 |_| 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 October 31, 2007 was 14,933,754. - ------------------------------------------- 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 Quarterly 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) SEPTEMBER 30, DECEMBER 31, 2007 2006 -------- -------- ASSETS (Unaudited) (Audited) Current assets: Cash and cash equivalents $ 2,137 $ 1,333 Trade receivables 1,931 1,813 Inventories 1,356 1,642 Prepaid expenses and other current assets 86 73 -------- -------- Total current assets 5,510 4,861 Fixed assets, net 143 108 Long-term investment 160 160 -------- -------- Total assets $ 5,813 $ 5,129 ======== ======== LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY Current liabilities: Bank line of credit $ -- $ 1,013 Current portion of long-term debt and related warrant liability 1,350 -- Trade payables to related parties 602 952 Trade payables and other current liabilities 621 704 Accrued dividends on Series A 5% cumulative convertible preferred stock 161 152 -------- -------- Total current liabilities 2,734 2,821 Long-term bank line of credit 2,000 -- Long-term loan, net of current portion 3 -- Other liabilities: Liability under derivative contracts 692 229 -------- -------- Total liabilities 5,429 3,050 Commitments and contingencies (Note 9) Convertible preferred stock, $.001 par value, 2,000 authorized: Series A 5% cumulative convertible preferred stock, 11.5 and 16 shares 983 957 issued and outstanding at September 30, 2007 and December 31, 2006, respectively; liquidation value of $1,150 and $1,565 at September 30, 2007 and December 31, 2006, respectively Series B convertible preferred stock, 11.2 and 11.5 shares issued and 415 152 outstanding at September 30, 2007 and December 31, 2006, respectively; liquidation value of $1,120 and $1,150 at September 30, 2007 and December 31, 2006, respectively Stockholders' (deficit) equity: Common stock $.001par value, 50,000 authorized, 14,934 shares issued 14 24 and 14,434 outstanding at September 30, 2007 and 24,642 shares issued and 24,142 outstanding at December 31, 2006 (500 shares held in escrow) Additional paid-in capital 29,622 29,651 Accumulated deficit (30,650) (28,705) -------- -------- Total stockholders' (deficit) equity (1,014) 970 -------- -------- Total liabilities and stockholders' (deficit) equity $ 5,813 $ 5,129 ======== ======== 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 NINE MONTHS ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, -------------------- ------------------- 2007 2006 2007 2006 -------- -------- -------- -------- Net sales $ 3,296 $ 4,098 $ 11,119 $ 9,075 Cost of sales 1,975 2,700 6,609 5,976 -------- -------- -------- -------- Gross profit 1,321 1,398 4,510 3,099 Operating expenses: Selling and marketing 310 307 1,072 900 General and administrative 610 676 2,138 1,963 Research and development 526 584 2,052 1,449 -------- -------- -------- -------- Total operating expenses 1,446 1,567 5,262 4,312 -------- -------- -------- -------- Operating loss (125) (169) (752) (1,213) -------- -------- -------- -------- Other income (expense) Fair value of common stock warrants issued in connection with equity financing -- (173) -- (173) Preferred stock issuance costs -- (80) -- (80) Change in fair value of derivative instruments (464) 955 (501) 645 Other 13 (15) 33 (45) -------- -------- -------- -------- Total other income (expense) (451) 687 (468) 347 -------- -------- -------- -------- Net income (loss) before income taxes (576) 518 (1,220) (866) Provision for income taxes 2 -- 4 -- -------- -------- -------- -------- Net income (loss) (578) 518 (1,224) (866) Dividend on Series A and accretion of Series A and Series B preferred stock redemption value (237) (209) (721) (504) -------- -------- -------- -------- Net income (loss) available to common stockholders $ (815) $ 309 $ (1,945) $ (1,370) ======== ======== ======== ======== Net income (loss) per common share - basic and diluted $ (0.04) $ 0.01 $ (0.09) $ (0.06) ======== ======== ======== ======== Weighted average common shares outstanding: Basic 21,717 24,093 22,445 24,092 ======== ======== ======== ======== Diluted 21,717 24,316 22,445 24,092 ======== ======== ======== ======== 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) NINE MONTHS ENDED SEPTEMBER 30, ---------------------- 2007 2006 ------- ------- OPERATING ACTIVITIES Net loss available to common stockholders $(1,945) $(1,370) Adjustments to reconcile net loss to net cash used by Operating activities: Depreciation expense 32 33 Stock-based compensation cost - options 1,272 977 Fair value of common stock warrants issued for services rendered 14 -- Interest expense attributable to amortization of debt issuance costs 2 -- Change in fair value of derivative instruments 501 (645) Fair value of common stock warrants in connection with equity financing -- 173 Accretion of Series A and Series B preferred stock redemption value 657 445 Changes in operating assets and liabilities: Trade receivables (118) (801) Inventories 286 (247) Prepaid expenses and other current assets (13) (82) Accrued dividends on Series A 5% cumulative convertible stock 64 59 Trade payables to related parties (350) 327 Trade payables and other current liabilities (18) 183 ------- ------- CASH PROVIDED (USED) BY OPERATING ACTIVITIES 384 (948) ------- ------- INVESTING ACTIVITIES Capital expenditures (67) (209) ------- ------- CASH USED BY INVESTING ACTIVITIES (67) (209) ------- ------- FINANCING ACTIVITIES Proceeds from issuance of preferred stock -- 1,150 Payoff of existing bank line of credit (1,013) -- Advances on replacement bank line of credit 1,500 -- ------- ------- CASH PROVIDED BY FINANCING ACTIVITIES 487 1,150 ------- ------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 804 (7) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,333 1,426 ------- ------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,137 $ 1,419 ======= ======= NON-CASH INVESTING AND FINANCING ACTIVITIES: Restricted common stock acquired from related party $ 2 $ -- ======= ======= Conversion of convertible preferred stock to common stock $ 525 $ 30 ======= ======= Issuance of preferred stock warrants in connection with debt financing $ 399 $ -- ======= ======= Purchase of restricted common stock for retirement $ 2,000 $ -- ======= ======= 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 ORGANIZATION Sysview Technology, Inc. ("Sysview" or "Company") develops, designs and delivers various imaging technology solutions to all types and sizes of enterprises including governmental agencies, large corporations, small corporations, small office-home offices ("SOHO"), professional practices as well as consumers (referred to herein collectively as "Enterprises"). Sysview is a market-leader in providing USB-powered scanning solutions to a wide variety of industries and market applications. The Company's patented and proprietary page-imaging devices facilitate the way information is stored, shared and managed in both business and personal use. In addition, Sysview is involved in the research and development of certain technologies related to the field of high definition ("HD") display. Syscan, Inc., the Company's wholly-owned subsidiary, was incorporated in California in 1995 to develop and manufacture a new generation of contact image sensors ("CIS") that are complementary metal-oxide-silicon ("CMOS") imaging sensor devices. During the late 1990s, the Company established many technical milestones and was granted numerous patents for its linear imaging technology. The Company's patented CIS and mobile imaging scanner technology provides high quality images at extremely low power consumption levels allowing delivery of compact scanners in a form ideally suited for laptop or desktop computer users who need a small light weight device to scan or fax documents. The Company's business model was developed around intellectual property ("IP") driven products sold primarily to original equipment manufacturers ("OEM"), private label brands and value added resellers ("VAR") and can be found in a variety of applications, including but not limited, to the following: o Document and information management; o Identification card scanners; o Passport security scanners; o Bank note and check verification; o Business card readers; o Barcode scanning; and o Optical mark readers used in lottery terminals. 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 the Company's financial position, results of operations, and cash flows in conformity with accounting principles generally accepted in the United States ("GAAP"). 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 September 30, 2007 are not necessarily indicative of the operating results that may be expected for the entire year ending December 31, 2007. The interim financial statements should be read in conjunction with the financial statements in the Company's Annual Report on Form 10-KSB for the year ended December 31, 2006, filed with the Securities and Exchange Commission ("SEC") on April 3, 2007. The consolidated financial statements include the accounts of Sysview and its subsidiaries. All significant intercompany transactions and balances have been eliminated. 6 SYSVIEW TECHNOLOGY, INC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED) Certain accounts have been reclassified to conform to the current period presentation. Such reclassifications did not affect total net sales, operating income (loss) or net income (loss) available to common stockholders. NOTE 2 - RECENT ACCOUNTING PRONOUNCEMENTS In February 2006, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS") 155, ACCOUNTING FOR CERTAIN HYBRID FINANCIAL INSTRUMENTS - AN AMENDMENT OF FASB STATEMENTS 133 AND 140, ("SFAS 155"). SFAS 155 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. Sysview adopted SFAS 155 on January 1, 2007 and will apply the standard to any new hybrid financial instruments issued subsequent to January 1, 2007. However, as allowed by paragraph 4(c) of SFAS 155, Sysview did not elect to apply SFAS 155 to previously existing hybrid financial instruments including the Company's Series A 5% Cumulative Convertible Preferred Stock ("Series A Stock") and Series B Convertible Preferred Stock ("Series B Stock"). As such, the adoption of SFAS 155 had no impact to the Company's consolidated financial position, results of operations or cash flows. In June 2006, the FASB issued Interpretation 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 will more likely than not be sustained on audit, based on the technical merits of the position. Sysview adopted FIN 48 on January 1, 2007. The adoption had no impact to the Company's consolidated financial position, results of operations or cash flows. In September 2006, the FASB issued SFAS 157, FAIR VALUE MEASUREMENTS ("SFAS 157"), which provides guidance about how to measure assets and liabilities that use fair value. SFAS 157 will apply whenever another US Generally Accepted Accounting Principle ("GAAP") standard requires (or permits) assets or liabilities to be measured at fair value but does not expand the use of fair value to any new circumstances. This standard also will require additional disclosures in both annual and quarterly reports. SFAS 157 will be effective for financial statements issued for fiscal years beginning after November 15, 2007, and will be adopted by the Company January 1, 2008. The Company is currently evaluating the potential impact this standard may have on its consolidated financial position, cash flows and results of operations, but does not believe the impact of the adoption will be material. In February 2007, the FASB issued SFAS 159, THE FAIR VALUE OPTION FOR FINANCIAL ASSETS AND FINANCIAL LIABILITIES-INCLUDING AN AMENDMENT OF FASB STATEMENT NO. 115 ("SFAS 159"). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value, with unrealized gains and losses related to these financial instruments reported in earnings at each subsequent reporting date. SFAS 159 will be effective for financial statements issued for fiscal years beginning after November 15, 2007, and will be adopted by the Company January 1, 2008. The Company does not expect the adoption of SFAS 159 to result in a significant impact on its consolidated financial position, cash flows and results of operations. In June 2007, the FASB ratified the Emerging Issues Task Force ("EITF") Issue No. 07-3, "ACCOUNTING FOR NONREFUNDABLE ADVANCE PAYMENTS FOR GOODS OR SERVICES TO BE USED IN FUTURE RESEARCH AND DEVELOPMENT Activities" ("EITF 07-3"). EITF 07-3 requires non-refundable advance payments for goods and services to be used in future research and development activities to be recorded as an asset and the payments to be expensed when the research and development activities are performed. EITF 07-3 is effective, on a prospective basis, for fiscal years beginning after December 15, 2007 and will be adopted in the first quarter of fiscal 2008. The Company is currently evaluating the potential impact this standard may have on its consolidated financial position, cash flows and results of operations, but does not believe the impact of the adoption will be material. 7 SYSVIEW TECHNOLOGY, INC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED) Other recent accounting pronouncements issued by the FASB (including its 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 RELATED-PARTY PURCHASES The Company purchases the majority of its finished scanner imaging products from Syscan Lab Limited ("SLL"), a wholly-owned subsidiary of Syscan Technology Holdings Limited ("STH"), the parent company of Sysview's majority stockholder. The Company's Chairman and CEO, Darwin Hu, was formerly the CEO of STH. He resigned from STH effective December 2004. Purchases from SLL totaled $1,780,000 and $6,101,000 for the three and nine months ended September 30, 2007, respectively, and $2,669,000 and $5,923,000 for the three and nine months ended September 30, 2006, respectively. All purchases from SLL were carried out in the normal course of business. As a result of these purchases, the Company was liable to SLL for $602,000 and $952,000 at September 30, 2007 and December 31, 2006, respectively. COMMON STOCK ACQUIRED FROM RELATED PARTY On March 21, 2007, the Company entered into an agreement with STH whereby the Company agreed to forego any further collection efforts, including legal action, related to loans that were previously made by the Company to STH, which were never repaid by STH. In exchange, STH agreed to the cancellation of 2,600,000 shares of the Company's restricted common stock beneficially owned by STH. In addition, both parties mutually agreed to release and discharge any and all claims that each may have against the other party. The stock certificates were subsequently cancelled by the Company's transfer agent. The Company recorded the stock acquisition as a decrease to common stock with the corresponding offset to additional paid-in capital during the first quarter of fiscal 2007. 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 September 30, 2007, the Company had consolidated balances of approximately $1,835,000, which were not guaranteed by the 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. Customers that exceeded 10% of total revenues and accounts receivable were as follows: THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, --------------------------- ------------------------- 2007 2006 2007 2006 ------------ ------------ ----------- ---------- Customer A 26% 51% 28% 43% Customer B 23 10 13 10 Customer C 19 * 15 11 Customer D 11 * * * Customer E * 17 14 16 * Customer accounted for less than 10% for the period indicated. 8 SYSVIEW TECHNOLOGY, INC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED) Trade receivables from these customers totaled $1,728,000 at September 30, 2007. As of September 30, 2007, all the Company's trade receivables were unsecured. NOTE 5 - CONCENTRATION OF SUPPLIER RISK The Company purchases substantially all finished scanner imaging products from one vendor that is also a wholly-owned subsidiary of the parent company of its 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 Company's 2006 Annual Report on Form 10-KSB. Effective January 1, 2006 Sysview adopted the fair value recognition provisions of SFAS 123R, SHARE-BASED PAYMENTS ("SFAS 123R"), using the modified prospective application method. Under this transition method, compensation cost recognized for the three and nine months ended September 30, 2007 and 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 the Accounting Principles Board ("APB") 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES ("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 123R). The following table sets forth the total stock-based compensation expense included in the Condensed Consolidated Statements of Operations (IN THOUSANDS):
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, -------------------------- -------------------------- 2007 2006 2007 2006 ----------- ----------- ------------ ---------- Selling and marketing $ 15 $ 13 $ 107 $ 38 General and administrative 71 227 709 788 Research and development 106 96 456 151 ----------- ----------- ------------ ---------- Total $192 $336 $ 1,272 $977 =========== =========== ============ ==========
At September 30, 2007, the Company had approximately $991,000 of total unrecognized compensation cost related to stock options. This cost is expected to be recognized over a weighted-average period of approximately 18 months. 9 SYSVIEW TECHNOLOGY, INC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED) STOCK OPTIONS The following table summarizes stock option activity and related information for the nine months ended September 30, 2007: WEIGHTED-AVERAGE EXERCISE OPTIONS PRICE ------------- ------------- Outstanding at December 31, 2006 4,890,000 $0.18 Granted 3,036,000 0.70 Exercised (300,000) (0.01) Cancelled (163,450) (0.84) ------------- ------------- Outstanding at September 30, 2007 7,462,550 $0.39 ============= ============= The following table summarizes all options outstanding and exercisable by price range as of September 30, 2007:
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 3,696,550 4.57 $0.01 3,696,550 $0.01 $0.65 - $0.70 3,186,000 9.43 $0.70 1,042,833 $0.70 $1.01 580,000 8.64 $1.01 276,667 $1.01
NOTE 7 - BASIC AND DILUTED NET INCOME (LOSS) PER COMMON SHARE Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted net income (loss) per share is computed by dividing net income (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 nine months ended September 30, 2007 or for the nine months ended September 30, 2006 as their effect would be anti-dilutive. Common stock equivalents were taken into consideration in calculating diluted net income per common share for the three months ended September 30, 2006, but the impact did not change net income per share. As a result, for all periods presented, the Company's basic and diluted net income (loss) per share is the same. The computation of the Company's basic and diluted earnings per share for the three months ended September 30, 2006 is as follows (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS): Net income available to common stockholders $ 309 Weighted average common shares outstanding 24,093 Dilutive effect of employee equity incentive plans 223 ---------- Weighted average common shares outstanding, assuming dilution 24,316 ========== Basic earnings per common share $0.01 ========== Diluted earnings per common share $0.01 ========== 10 SYSVIEW TECHNOLOGY, INC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED) The diluted earnings per share calculation for the three months ended September 30, 2006 excludes the potential dilutive effect of 2,454,000 of the Company's options and warrants as the exercise prices of these stock options and warrants were greater than or equal to the average market value of the common shares and 2,508,000 of the Company's convertible preferred stock as their impact was anti-dilutive. NOTE 8 - EQUITY COMMON STOCK ACTIVITY As previously discussed in Note 3, the Company acquired 2,600,000 shares of the Company's restricted common stock during the first quarter of fiscal 2007. The Company's transfer agent subsequently cancelled the shares. During the second quarter of 2007, the Company issued 300,000 shares of common stock upon the exercise of employee stock options by the Company's principal officers in a cashless exercise. During the second quarter of 2007, the Company issued 30,927 shares of common stock resulting from the conversion of $26,500 (265 shares) of Series A 5% cumulative convertible preferred stock ("Series A Stock") and the related accrued dividend shares of 4,427 as discussed below. During the third quarter of 2007, the Company issued 560,734 shares of common stock resulting from the conversion of (i) $388,500 (3,885 shares) of Series A Stock and the related accrued dividend shares of 55,527 and penalty shares of 86,707 and (ii) $30,000 (300 shares) of Series B Stock as discussed below. During the third quarter of 2007, the Company repurchased 8,000,000 of its restricted common stock from its majority shareholder for $2,000,000 less related transaction fees. Of the $2,000,000 consideration, $500,000 was paid through the Company's newly established credit line with a commercial bank, and the remainder was financed through a $1,500,000 loan from Montage Capital, LLC a private investment group. See Note 9. Additionally, the Company agreed that if its HD display business is sold to a certain party, specifically identified in the repurchase agreement, and receives stock of the buyer as consideration, then it will transfer a portion of that stock to the majority stockholder. The Company repurchased the 8,000,000 shares for the purpose of retiring the shares. As such, the Company accounted for the repurchase under the Accounting Research Bulletin ("ARB") 43, RESTATEMENT AND REVISION OF ACCOUNTING RESEARCH BULLETINS ("ARB 43") by recording a reduction to common stock and additional paid-in capital. As of the date of this report, the physical stock certificate was being held by the Company's transfer agent and was in the process of being retired. PREFERRED STOCK ACTIVITY SERIES A 5% CUMULATIVE CONVERTIBLE PREFERRED STOCK During the second quarter of 2007, 265 shares of Series A Stock ($26,500) and the related accrued dividend shares of 4,427 were converted into shares of common stock. During the third quarter of 2007, 3,885 shares of Series A Stock ($388,500) and the related accrued dividend shares of 55,527 were converted into shares of common stock. 11 SYSVIEW TECHNOLOGY, INC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED) SERIES B CONVERTIBLE PREFERRED STOCK During the third quarter of 2007, 300 shares of Series A Stock ($30,000) were converted into shares of common stock. SERIES A STOCK DIVIDENDS The Company's Series A Stock accrues cumulative dividends at a rate of 5% per year, 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 Series A 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 cash dividends. During the three and nine months ended September 30, 2007, Series A Stock dividends were approximately $20,000 and $64,000, respectively. During the three and nine months ended September 30, 2006, Series A Stock dividends were approximately $22,000 and $59,000, respectively. Series A Stock dividends are included as a non-operating expense on the Company's consolidated 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 Series A Stock and related warrants and the Series B 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 Series A Stock and Series B Stock, respectively. The discounts are being accreted, on a straight-line basis, from the respective issuance date through the respective redemption date adjusted for conversions and are disclosed as a non-operating expense on the Company's consolidated statement of operations. Accretion of the preferred stock redemption value, for both Series A and Series B, for the three and nine months ended September 30, 2007 was approximately $217,000 and $657,000, respectively. Accretion of the Series A preferred stock redemption value for the three and nine months ended September 30, 2006 was approximately $187,000 and $445,000, respectively. The increase (decrease) in the fair value of the liability for derivative contracts, both Series A and Series B, totaled approximately $464,000 and $501,000 for the three and nine months ended September 30, 2007, respectively. The decrease in the fair value of the liability for the Series A and Series B derivative contract totaled approximately ($955,000) and ($645,000) for the three and nine months ended September 30, 2006, respectively. The offsetting adjustment to the change in the fair value of the liability for derivative contracts is 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. The assumptions used in the Black-Scholes valuation model to estimate fair value of each derivative instrument and the resulting weighted average estimated value of the Series A and Series B Stock derivative liabilities as of September 30, 2007 and 2006 are as follows: SEPTEMBER 30, --------------------------- 2007 2006 ----------- ------------ Weighted average estimated values per share $0.16 $0.15 Expected life in years 3.0 3.0 Expected volatility 32% 42% Expected dividend yield 0% 0% Risk free interest rate 5.3% 5.3% 12 SYSVIEW TECHNOLOGY, INC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED) 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 as of September 30, 2007 are as follows (IN THOUSANDS): FUTURE MINIMUM YEAR ENDING LEASE SEPTEMBER 30, PAYMENTS ----------------- ----------- 2008 $ 288 2009 51 2010 1 ----------- Total $ 340 =========== BANK LINE OF CREDIT During September 2007, Sysview replaced its existing $2,500,000 line of credit at a commercial bank with a similar line of credit ("LOC") at a different commercial bank. The new LOC initial maximum available credit is $2,000,000 and will automatically increase to $3,000,000 on the later of (i) December 12, 2007 if the Company remains in compliance with all debt covenants, or (ii) Sysview pays down its subordinate debt (as discussed in the following paragraph) below $1,000,000. Borrowings under the LOC are limited to 80% of eligible accounts receivable and 40% of eligible inventory, as defined in the LOC agreement. The LOC bears an annual interest rate of prime (7.75% at September 30, 2007) plus 1.25% for advances drawn against accounts receivables and prime plus 2.25% for advances drawn against inventory. Interest payments are due monthly and all unpaid interest and principal is due in full on September 13, 2009. Upon certain events of default, the default variable interest rate increases to prime plus 5%. The Company did not have any borrowing capacity on the LOC at September 30, 2007. As of September 30, 2007, Sysview was in compliance with all LOC debt covenants. LONG-TERM LOAN On September 27, 2007 the Company entered into a $1,500,000 term loan agreement ("Loan Agreement") with Montage Capital, LLC ("Lender") in an arm's length transaction. The Company received $1,500,000, less closing costs, and was restricted under the Loan Agreement, to use the funds for repurchasing shares of the Company's common stock as previously discussed at Note 8. Sysview granted the Lender a continuing security interest, and pledged to the Lender, all of its assets to secure payment and performance of its obligations under the Loan Agreement. The Loan Agreement and the security interest are subordinate to Sysview's LOC. The Loan Agreement bears an annual interest rate of 15% with interest-only payments due monthly starting from initial funding through October 31, 2007. Thereafter, principal of $100,000 per month plus accrued interest is due at the end of each month through the loan's maturity date of November 30, 2008. The remaining principal balance and accrued interest is due on the maturity date. If the Company sells any assets outside the ordinary course of business and receives cash proceeds from such sale, the Lender must be paid 20% of such proceeds as pre-payment of the outstanding principal. 13 SYSVIEW TECHNOLOGY, INC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED) The Lender has the right to declare all of the amounts due under the Loan Agreement immediately due and payable for any of the following reasons: o Sysview fails to make any payment of principal or interest on its due date, or pay any other amount due to the Lender within ten days after such amount is due and payable; o Sysview fails or neglects to perform, keep, or observe any term, provision, condition, covenant, or agreement contained in the Loan Agreement, subject in some cases to a ten-day grace period; o Sysview or any person acting on behalf of Sysview makes any warranty, representation, or other statement that is incorrect in any material respect when made; o A default or event of default occurs under any agreement to which Sysview is a party or by which it is bound, including Sysview's LOC (as discussed above) (i) resulting in a right by the other party or parties, whether or not exercised, to accelerate the maturity of any indebtedness in excess of $50,000 or (ii) the occurrence of a material adverse effect. A material adverse effect is defined as a change in Sysview's business, prospects, operations, results of operations, assets, liabilities, or financial or other condition, (ii) the material impairment of the prospect of repayment of any portion of the amounts due the Lender by Sysview, or (iii) a material adverse change in the value of the collateral securing the amounts due under the Loan Agreement; o Any portion of Sysview's assets is attached, seized, or levied upon, or a judgment for more than $50,000 is awarded against Sysview and is not stayed within ten days; o If Sysview dissolves or begins a bankruptcy or other insolvency proceeding; or o A bankruptcy or other insolvency proceeding is begun against Sysview and is not dismissed or stayed within sixty days. In connection with the Loan Agreement, the Company issued warrants ("Loan Warrants") to purchase up to 650,000 shares of Sysview's common stock at an initial exercise price of $0.60 per share. The Loan Warrants vested immediately and expire September 2012. Subsequent to the initial funding of the Loan Agreement, the warrant holders may require the Company to purchase the warrant for a maximum of $250,000. And if any amount remains outstanding under the Loan Agreement after March 31, 2008, the warrant repurchase price increases to a maximum of $350,000. Under the Black-Scholes pricing model, the fair value of the Loan Warrant on the issuance date was $399,000. Because the warrants were immediately redeemable for $250,000 cash at the warrant holder's request, the Company accounted for the $250,000 warrant redemption value as a current liability and the $149,000 excess fair value over the warrant redemption value as additional paid-in capital. The Company will accrete the entire $399,000 debt discount to interest expense over the life of the Loan Agreement. The Company recorded interest expense for the year ended September 30, 2007 of $2,000 in connection with the Loan Warrants. Future annual repayment obligations as of September 30, 2007 were as follows (IN THOUSANDS): Principal payments due less than 12 months $ 1,100 Principal payments due more than 12 months 400 Loan Warrants redemption value 250 ----------- Total obligations 1,750 Less unamortized debt discount (397) Less current portion (1,350) ----------- Long-term loan, net of current portion $ 3 =========== 14 SYSVIEW TECHNOLOGY, INC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED) The Company calculated the initial fair value of all its warrants under the Black-Scholes pricing model with the following assumptions: contractual term of five years, 5.3% risk-free interest rate, expected volatility of 90% and expected dividend yield of 0%. The Loan Warrant includes registration rights that require the Company to file a registration statement with the Securities and Exchange Commission (the "SEC") registering the shares of common stock underlying the Loan Warrant within 120 days after the issue date and to have such registration statement declared effective within 165 days after the issue date. For any 30 day period during which the registration obligations are unfulfilled, the Lender may acquire an additional 27,500 shares under the Loan Warrant. The Company accounts for the Loan Warrant registrations rights under EITF-00-19-2, ACCOUNTING FOR REGISTRATION PAYMENT ARRANGEMENTS ("EITF-00-19-2"). EITF-00-19-2 requires the contingent liability under the registration payment arrangement to be included in the allocation of proceeds from the related debt financing transaction if payment is probable and can be reasonably estimated at inception. In management's opinion, payment of the Loan Warrant registrations rights contingent liability is not probable, and therefore, not reflected in the Company's financials statements as of September 30, 2007. The Company will continue to evaluate the registration rights contingent liability and the probability of the occurrence of payment under the registration rights at each reporting period to determine if the liability should be reflected in the Company's financial statements. Upon the occurrence of an event of default under the Loan Agreement, the Lender may acquire 13,750 shares under the Loan Warrant on the date of such occurrence and an additional 13,750 shares on the first day of each 30 day period after such event of default until all amounts under the Loan Agreement have been paid in full. The Loan Warrant provides for weighted average anti-dilution price adjustments if the Company issues common stock (or securities convertible into common stock) for consideration less than the then-effective exercise price; provided that if the Company sells or issues its equity securities within one year after the issue date in an offering in which the Company receives gross proceeds of at least $1,000,000 ("Equity Event"), then, at the option of the Lender, the shares into which the Loan Warrant is convertible will be of the type and series of stock issued in the Equity Event, the exercise price shall be equal to the price per share paid in the Equity Event, and the Lender shall have the rights given to the purchasers in the Equity Event. 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 September 30, 2007 termination payments totaling $484,000 are in effect. CONSULTING AGREEMENT The Company entered into an Investor Relations Consulting Agreement dated December 5, 2006, for a term of one year beginning January 1, 2007, payable monthly as follows: (i) $5,000 for January, February and March; (ii) $7,500 for April, May and June; (iii) $8,500 for July, August and September; and (iv) $9,000 for October, November, and December. Additionally, the Company agreed to pay the consultant 90,000 warrants with an exercise price of $0.65 per share, expiring in three years, with immediate vesting on January 1, 2007, and exercisable at the rate of 7,500 options the first day of each month during calendar 2007. In April 2007, the Company entered a separate warrant agreement that amended terms of the warrants awarded in the December 5, 2006 agreement. Under the April 2007 agreement, the warrants shall vest 7,500 per month on the first day of each month commencing on January 1, 2007 and are immediately exercisable upon vesting. In the event the consulting agreement is terminated prior to December 1, 2007, all unvested warrants shall be immediately cancelled. The warrants will not be registered under federal or state securities laws. The fair value of these warrants, as determined by the Black-Scholes valuation model, totaled approximately $18,000 and is amortized ratably over the vesting period. As such, $5,000 and $13,000 was charged to general and administrative expense and credited to additional paid-in capital during the three and nine months ended September 30, 2007, respectively. 15 SYSVIEW TECHNOLOGY, INC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED) SERIES B PREFERRED STOCK REGISTRATION RIGHTS AGREEMENT Pursuant to the terms of a registration rights agreement ("Agreement") between the investors and the Company, the Company was obligated to file a registration statement on Form SB-2 (which was filed on October 11, 2006) registering the resale of shares of the Company's common stock issuable upon conversion of the Series B Stock and exercise of the related warrants. The Company was required to file the registration statement within 60 days following August 8, 2006 and to have the registration statement declared effective by December 6, 2006, which is 120 days following August 8, 2006. If the registration statement was not timely filed, or declared effective within the timeframe described, or if the registration was suspended other than as permitted in the Registration Rights Agreement, the Company was obligated to pay each investor a fee equal to one percent of such investor's purchase price of the Series B Stock for each 30 day period thereafter (pro rated for partial periods), that such registration conditions are not satisfied, up to a maximum of 12 months. Because the SEC did not declare the SB-2 effective until January 18, 2007, the Company accrued approximately $7,000, included in general and administrative expense, for damages during the first quarter of fiscal 2007. LITIGATION, CLAIMS AND ASSESSMENTS 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. NOTE 10 - SEGMENT AND GEOGRAPHIC INFORMATION SEGMENT INFORMATION Sysview currently 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"). GEOGRAPHIC INFORMATION During the three and nine months ended September 30, 2007 and 2006, 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 NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------------------------------------------------------------ 2007 2006 2007 2006 ------------------------------------------------------------------------------ U.S. $ 3,103 $ 3,910 $ 10,642 $ 8,497 Asia 7 111 7 317 Europe and other 186 77 470 261 ------------------------------------------------------------------------------ $ 3,296 $ 4,098 $ 11,119 $ 9,075 ==============================================================================
16 SYSVIEW TECHNOLOGY, INC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED) Presented below is information regarding identifiable assets, classified by operations located in the U.S., Europe and Asia (IN THOUSANDS): SEPTEMBER 30, DECEMBER 2007 31, 2006 ------------------------------- U.S. $ 5,508 $ 4,986 Asia 119 84 Europe 186 59 ------------------------------- $ 5,813 $ 5,129 =============================== Assets located in Asia relate to tooling equipment required to manufacture Sysview's product. Assets located in Europe relate to the Company's field service, sales, distribution and inventory management in the Netherlands. NOTE 11 - SUBSEQUENT EVENT During October 2007, 50,000 shares of Series B Stock ($500,000) were converted into 500,000 shares of common stock. As of November 14, 2007, the remaining liquidation value of Series B Stock was $620,000. During November 2007, the Company suspended its HD display research and development efforts. The Company does not expect to expend any additional effort or funds to further develop and deploy its HD technology. The Company has been and will continue to evaluate different strategic opportunities related to its in-process HD technology and intellectual property, including but not limited to the sale of all HD-related assets. 17 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, 2006 as filed with the Securities and Exchange Commission on April 3, 2007. We undertake no duty to update any forward-looking statement to conform the statement to actual results or changes in our expectations. 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 nine months ended September 30, 2007 compared to the three and nine months ended September 30, 2006. 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 nine months ended September 30, 2007 as compared to the nine months ended September 30, 2006. OVERVIEW We are in the business of designing, developing and delivering imaging technology solutions. Our technology is protected under multiple patents. We focus our research and development toward new deliverable and marketable technologies. We sell our products to customers throughout the world, including the United States, Canada, Europe, South America, Australia and Asia. Our strategy includes a plan to expand our document/image-capture product line and technology while leveraging our assets in other areas of the imaging industry. We are actively shipping six groups of image-capture products. We have expanded our document/image-capture product offerings, and will continue to expand our product offerings in the future 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. During September 2007, we engaged an independent investment firm to explore and evaluate a range of strategic opportunities to enhance shareholder value, including, but not limited to, combinations, partnerships, sales or mergers of our operations or assets with another entity and/or a recapitalization. As of the date of this filing, we continue to evaluate different strategic opportunities. 18 During November 2007, we suspended our HD display research and development efforts. We do not expect to expend any additional effort or funds to further develop and deploy our HD technology. We have been and will continue to evaluate different strategic opportunities related to our in-process HD technology and intellectual property, including but not limited to the sale of all HD-related assets. 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 we believe are 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, optical image chips and other optoelectronic products. Revenue is recognized when the product is shipped or delivered and the risks, rewards and title of ownership have transferred to the customer. We recognize some shipping and handling fees as revenue, and the related expenses as a component of cost of sales. All internal handling charges are included with 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 September 30, 2007, we had no inventory reserve. Currently, we purchase the majority of our finished scanner imaging products from Syscan Lab Limited ("SLL"), a wholly-owned subsidiary of Syscan Technology Holdings Limited ("STH"), the parent company of our majority stockholder. SLL 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, SLL 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 SLL, Sysview does not record a product warranty reserve. RELATED-PARTY TRANSACTIONS We have significant related-party transactions and agreements, which we believe 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 The Company purchases the majority of its finished scanner imaging products from SLL as discussed above. Our Chairman and CEO, Darwin Hu, was formerly the CEO of STH. He resigned from STH effective December 2004. 19 Purchases from SLL totaled $1,780,000 and $6,101,000 for the three and nine months ended September 30, 2007, respectively, and $2,669,000 and $5,923,000 for the three and nine months ended September 30, 2006, respectively. All purchases from SLL were carried out in the normal course of business. As a result of these purchases, the Company was liable to SLL for $602,000 and $952,000 at September 30, 2007 and December 31, 2006, respectively. COMMON STOCK ACQUIRED FROM RELATED PARTY On March 21, 2007, we entered into an agreement with STH whereby we agreed to forego any further collection efforts, including legal action, related to loans that we previously made to STH, which were never repaid by STH. In exchange, STH agreed to the cancellation of 2,600,000 shares of our restricted common stock beneficially owned by STH. In addition, both parties mutually agreed to release and discharge any and all claims that each may have against the other party. The stock certificates were subsequently cancelled by the Company's transfer agent. INTANGIBLE AND LONG-LIVED ASSETS We evaluate our intangible assets and long-lived assets, 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 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 or nine months ended September 30, 2007. 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 September 30, 2007. 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, we have 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 Series A 5% Cumulative Convertible Preferred Stock ("Series A Stock") and our Series B Convertible Preferred Stock ("Series B Stock") pursuant to SFAS 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES ("SFAS 133") and the Emerging Issues Task Force ("EITF") Abstract 00-19, ACCOUNTING FOR 20 DERIVATIVE FINANCIAL INSTRUMENTS ("EITF 00-19"). Accordingly, the embedded conversion feature associated with our Series A Stock and related warrants and our Series B Stock and related warrants 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 Series A Stock and Series B Stock as our derivative instruments have characteristics significantly different from traded options. ACCOUNTING FOR CERTAIN REGISTRATION RIGHTS RELATED TO WARRANTS ISSUED IN CONNECTION WITH DEBT We account for certain warrant registrations rights under EITF-00-19-2, ACCOUNTING FOR REGISTRATION PAYMENT ARRANGEMENTS ("EITF-00-19-2"). EITF-00-19-2 requires the contingent liability under the registration payment arrangement to be included in the allocation of proceeds from the related debt financing transaction if payment is probable and can be reasonably estimated at inception. In management's opinion, payment of the Loan Warrant registrations rights contingent liability is not probable, and therefore, not reflected in our financials statements as of September 30, 2007. We will continue to evaluate the registration rights contingent liability and the probability of the occurrence of payment under the registration rights at each reporting period to determine if the liability should be reflected in our financial statements. STOCK-BASED COMPENSATION EXPENSE Effective January 1, 2006, we adopted SFAS 123R, SHARE-BASED PAYMENTS ("SFAS 123R"). SFAS 123R requires all share-based payments, including grants of employee stock options and warrants, to be recognized in our financial statements based on their respective grant date fair values. Under this standard, the fair value of each share-based payment award is estimated on the date of grant using an option pricing model that meets certain requirements. We currently use the Black-Scholes option pricing model to estimate the fair value of our share-based payment awards. The Black-Scholes model meets the requirements of SFAS 123R; however, the fair values generated by the model may not be indicative of the actual fair values of our awards as it does not consider certain factors important to our awards, such as continued employment, periodic vesting requirements and limited transferability. The determination of the fair value of share-based payment awards utilizing the Black-Scholes model is affected by our stock price and a number of assumptions, including expected volatility, expected life, risk-free interest rate and expected dividends. We use the historical volatility for our common stock as the expected volatility assumption required in the Black-Scholes model, which could be significantly different than actual volatility. The expected life of the awards is based on historical and other economic data trended into the future. The risk-free interest rate assumption is based on observed interest rates appropriate for the terms of our awards. The dividend yield assumption is based on our history and expectation of dividend payouts. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Stock-based compensation expense recognized in our financial statements beginning January 1, 2006 and thereafter is based on awards that are ultimately expected to vest. We evaluate the assumptions used to value our awards on a quarterly basis. If factors change and we employ different assumptions, stock-based compensation expense may differ significantly from what we have recorded in the past. If there are any modifications or cancellations of the underlying unvested securities, we may be required to accelerate, increase or cancel any remaining unearned stock-based compensation expense. Future stock-based compensation expense and unearned stock-based compensation will increase to the extent that we grant additional equity awards to employees. 21 RESULTS OF OPERATIONS The following table summarizes certain aspects of our results of operations for the three and nine months ended September 30, 2007 compared to the three and nine months ended September 30, 2006 (IN THOUSANDS):
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, ---------------------------------------- ------------------------------------------ 2007 2006 $ % 2007 2006 $ % ------- -------- --------- ------- -------- -------- -------- ------ Net sales $ 3,296 $ 4,098 $ (802) (20%) $ 11,119 $ 9,075 $ 2,044 23% Cost of sales 1,975 2,700 (725) (27) 6,609 5,976 633 11 As a percentage of sales 60% 66% 59% 66% Selling and marketing expense 310 307 3 1 1,072 900 172 19 General and administrative expense 610 676 (66) (10) 2,138 1,963 175 9 Research and development expense 526 584 (58) (10) 2,052 1,449 603 42 Total other income (expense) (451) 687 NM NM (468) 347 NM NM Dividend on 5% convertible preferred stock and accretion of preferred stock redemption value (237) (209) NM NM (721) (504) NM NM NM = Not Meaningful
NET SALES The significant increase in net sales during the nine months ended September 30, 2007 as compared to the nine months ended September 30, 2006 was attributable to the following: o The overall growth of the document/image-capture market resulting from an increased market demand for products that manage how information is retrieved, stored, shared and disseminated; o The increased end-user market penetration, including distribution channel expansion, by both us and our largest customers; o The expansion of our customer base; o The increased market acceptance of our more recently introduced products, which bear higher margins; o We have experienced a more consistent market delivery of our product, which is attributable to (i) the growth of our smaller customers and less dependence on our larger customers, (ii) our management of customer demand and product delivery and (iii) our movement toward a just-in-time inventory management product delivery system; o Our increased use of Value Added Reseller ("VAR") channel distributions; and o The growth in the small office home office ("SOHO") markets, and the result of our efforts to appeal to customers in the SOHO market. Our sales decreased during the three months ended September 30, 2007 as compared to the same period during 2006 as a result of the seasonality and abnormally high sales to one of our largest customers during the three months ended September 30, 2006. During the current fiscal year, we have successfully expanded our significant customer base, which decreases our risk of dependency on a small number of significant customers. During the three months ended September 30, 2007, only 68% of sales were generated from our top three customers as compared to 79% of sales generated from our top three customers during the same period in fiscal 2006. During the nine months ended September 30, 2007, only 57% of sales were generated from our top three customers as compared to 70% of sales generated from our top three customers during the same period in fiscal 2006. Although we will continue to focus on expanding our significant customers, we expect that 22 our largest customers will continue to account for a substantial portion of our net sales in the remainder of fiscal 2007 and for the foreseeable future. The identities of our largest customer and their respective contributions to our net sales have varied in the past and will likely continue to vary from period to period. Although we expect net sales to increase as we continue to expand our business and offer additional products in the document/image-capture market, there can be no assurance that our net sales will increase. COST OF SALES, INCLUDING GROSS PROFIT Cost of sales 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. Cost of sales as a percentage of net sales decreased during both the three and nine months ended September 30, 2007 as compared to the same periods in 2006 as a result of a higher proportion of overall net sales being generated from our most recently introduced and more feature-rich products, including our duplex scanners (scanners that have the ability to scan both sides of a document at once). Our duplex scanners, which bear a higher gross margin than our simplex scanners (scanners that scan only one side of a document) have recently experienced broader market acceptance. We expect our cost of sales as a percentage of net sales to fluctuate somewhat as our product mix fluctuates. Our average selling price and related material cost used to manufacture our product has been stable and we expect this trend to continue for the foreseeable future. SELLING AND MARKETING EXPENSE Selling and marketing expenses consist primarily of salaries and related costs of employees, including stock-based compensation costs, engaged in our sales, marketing and customer account management functions and to a lesser extent, market development and promotional funds for our retail distribution channels, tradeshows, website support, warehousing, logistics and certain sales representative fees. Selling and marketing expense fluctuates depending on the timing of advertising and promotions of our various new products, including our attendance at tradeshows, which are key to promoting our products. The increase in selling and marketing expense during the nine months ended September 30, 2007 as compared to the nine months ended September 30, 2006 was primarily attributable to the stock-based compensation cost (a non-cash charge) as a result of granting stock options to key employees during the first quarter of fiscal 2007 and accounting for such option grants under SFAS 123R. See "Note 6: Employee Equity Incentive Plans" in Part I, Item 1 of this Form 10-QSB. Stock-based compensation cost was $107,000 for the nine months ended September 30, 2007 as compared to $38,000 for the nine months ended September 30, 2006. To a lesser extent, the increase for the nine months ended September 30, 2007 as compared to the nine months ended September 30, 2006 was attributable to our increased staff and related marketing activities to support our expanding product offerings and the addition of direct sales personnel in Europe and Asia. Although we expect sales and marketing expenses to fluctuate as a result of the timing of advertising and promotions of our various new products and stock option grants, overall 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. General and administrative expenses increased during the nine months ended September 30, 2007 as compared to the nine months ended September 30, 2006 in fiscal 2006 as a result of the following: 23 o The hiring of an outside investor relations firm to manage and enhance our investor relations function; o Increased personnel costs to support our expanding business and related infrastructure; and o Increased expenses associated with maintaining our public company status, including the costs of complying with the Sarbanes-Oxley Act. During the three months ended September 30, 2007 as compared to the three months ended September 30, 2006, the above increased expenses were more than offset by the decrease in our stock-based compensation cost (a non-cash charge). We granted stock options to key employees and directors during the first quarter of fiscal 2007 and accounted for such option grants under SFAS 123R. See "Note 6: Employee Equity Incentive Plans" in Part I, Item 1 of this Form 10-QSB. Stock-based compensation cost was $71,000 during the three months ended September 30, 2007 as compared to $227,000 during the three months ended September 30, 2006. We believe this decrease is temporary and we anticipate that general and administrative expenses will continue to increase 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. 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. The majority of our research and development expense during all periods presented was directly attributable to our future products including our HD display products. The increase during the nine months ended September 30, 2007 as compared to the nine months ended September 30, 2006 is primarily attributable to (i) the increased amount of expensed equipment required to support our future HD display product development; and (ii) stock-based compensation cost (a non-cash charge) as a result of granting stock options to key employees during the first quarter of fiscal 2007 and accounting for such option grants under SFAS 123R. See "Note 6: Employee Equity Incentive Plans" in Part I, Item 1 of this Form 10-QSB. Stock-based compensation cost was $456,000 and $151,000 for the nine months ended September 30, 2007 and 2006, respectively. During the three months ended September 30, 2007, we evaluated and refocused our research and development activities. As a result, we right-sized and reduced our staff, which directly reduced our research and development expenses during the three months ended September 30, 2007 as compared to the three months ended September 30, 2006. Although we plan to continue to invest in product innovation and development with respect to our document/image-capture products, management continues to assess research and development efforts, which may result in an offset to future research and development expenses. TOTAL OTHER INCOME (EXPENSE) Other income (expense) for the three and nine months ended September 30, 2007 was primarily comprised of the $464,000 and $501,000 increase, respectively, in the fair value of the liability for derivative contracts (associated with our Series A Stock and related warrants and Series B Stock and related warrants). Other income (expense) for the three and nine months ended September 30, 2006 was primarily comprised of the $955,000 and $645,000 decrease, respectively, in the fair value of the liability for derivative contracts (associated with our Series A Stock and related warrants and Series B Stock and related warrants). Pursuant to SFAS 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES ("SFAS 133"), and EITF Abstract 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. 24 DIVIDEND ON SERIES A STOCK AND ACCRETION OF PREFERRED STOCK REDEMPTION VALUE During the three and nine months ended September 30, 2007, the total accretion on our preferred stock was $217,000 and $657,000, respectively. During the three and nine months ended September 30, 2006 the total accretion on our preferred stock was $187,000 and $445,000, respectively. The increases were attributable to our Series B Stock, which was sold during the third quarter of fiscal 2006. During the three and nine months ended September 30, 2007, Series A Stock dividends were approximately $20,000 and $64,000, respectively. During the three and nine months ended September 30, 2006, Series A Stock dividends were approximately $22,000 and $59,000, respectively. We do not pay dividends on our Series B Stock. LIQUIDITY AND CAPITAL RESOURCES At September 30, 2007, our principal sources of liquidity included cash and cash equivalents of $2,137,000. We had no unused borrowing capacity under our bank line of credit. Operating activities: During the nine months ended September 30, 2007, our operating activities provided $384,000 of cash. This was primarily a result of our $1,945,000 net loss, $2,478,000 of net non-cash expenses and accretion of Series A and Series B preferred stock redemption value, and $149,000 net cash used by changes in operating assets and liabilities. During the nine months ended September 30, 2006, our operating activities used $948,000 of cash. This was primarily a result of our $1,370,000 net loss, $983,000 of net non-cash expenses and $561,000 net cash used by changes in operating assets and liabilities. Non-cash items included in net loss available to common shareholders for both the nine months ended September 30, 2007 and 2006 include depreciation expense, stock-based compensation cost of options, fair value of warrants issued for services rendered, change in fair value of derivative instruments and the accretion of our Series A and Series B preferred stock redemption value. Changes in our operating assets and liabilities are a result of the significant increase in the sales of our product during the nine months ended September 30, 2007 compared to the nine months ended September 30, 2006 and the timing of purchasing our product to support the increase of sales. A significant use of cash during the nine months ended September 30, 2007 as compared to a significant source of cash during the nine months ended September 30, 2006 was attributable to the timing of paying our contract manufacturer according to normal and customary payment terms. 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: Our investing activities for both the nine months ended September 30, 2007 and 2006 were minimal and consisted of purchasing computer and general equipment during the normal course of business. Financing activities: During the nine months ended September 30, 2007, our financing activities consisted of (i) a $500,000 draw against our bank line of credit to meet short-term obligations, including payment on the purchase of our product, and (ii) the replacement of our existing line of credit at a commercial bank with a similar line of credit at a different commercial bank. During the nine months ended September 30, 2006, cash provided by financing activities was attributable to the $1,150,000 sale of our Series B Stock. Net proceeds of this offering after payment of related commissions, fees and other expenses were approximately $1,070,000. We used the proceeds for sales, marketing, research and development and for working capital and general corporate purposes. CASH AND WORKING CAPITAL REQUIREMENTS During September 2007, we repurchased 8,000,000, or approximately 36% of the then outstanding shares, of our restricted common stock from our majority shareholder for $2,000,000 less related transaction fees. Of the $2,000,000 consideration, $500,000 was paid through our newly established credit line with a commercial bank, and the remainder was financed through a $1,500,000 loan from Montage Capital, LLC a private investment group. Additionally, we agreed that if we sell our HD display business to a certain party, specifically identified in the repurchase agreement, and receive stock of the buyer as consideration, then we will transfer a portion of that stock to the majority stockholder. We repurchased the 8,000,000 shares for the purpose of retiring the shares. As of the date of this report, the physical stock certificate was being held by the Company's transfer agent and was in the process of being retired. The stock repurchase enhances our strategy of engaging an independent investment firm to explore and evaluate a range of strategic opportunities to enhance shareholder value, as previously discussed. 25 As previously discussed, we suspended our HD display research and development efforts during November 2007. We do not expect to expend any additional effort or funds to further develop and deploy our HD technology. We have been and will continue to evaluate different strategic opportunities related to our in-process HD technology and intellectual property, including but not limited to the sale of all HD-related assets. With the suspension of the HD display portion of our business, our future expenses will be more aligned with our current and projected revenue. If we successfully re-align our expenses, of which there can be no assurance, management believes that is current cash and other sources of liquidity are sufficient to fund normal operations through the next 12 months. CONTRACTUAL OBLIGATIONS The following table summarizes our contractual obligations at September 30, 2007, 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 ----- -------- ----- ----- Long-term bank line of credit (1) $2,000 $ -- $2,000 $-- Term loan principal payments (2) 1,500 1,100 400 -- Term loan warrant liabilities(3) 250 250 -- -- Operating lease obligations 340 288 52 -- Consulting agreement 27 27 -- -- ------ ------ ------ ----- Total contractual cash obligations $4,117 $1,665 $2,452 $-- ====== ====== ====== =====
(1) During September 2007, we replaced our existing $2,500,000 line of credit at a commercial bank with a similar line of credit ("LOC") at a different commercial bank. The new LOC initial maximum available credit is $2,000,000 and will automatically increase to $3,000,000 on the later of (i) December 12, 2007 if we remain in compliance with all debt covenants, or (ii) Sysview pays down our subordinate debt (as discussed in the following paragraph) below $1,000,000. Borrowings under the LOC are limited to 80% of eligible accounts receivable and 40% of eligible inventory, as defined in the LOC agreement. The LOC bears an annual interest rate of prime (7.75% at September 30, 2007) plus 1.25% for advances drawn against accounts receivables and prime plus 2.25% for advances drawn against inventory. Interest payments are due monthly and all unpaid interest and principal is due in full on September 13, 2009. Upon certain events of default, the default variable interest rate increases to prime plus 5%.The Company did not have any borrowing capacity on the LOC at September 30, 2007. (2) On September 27, 2007, we entered into a $1,500,000 term loan agreement ("Loan Agreement") with Montage Capital, LLC ("Lender") and used the funds to repurchase 8,000,000 shares of our restricted common stock as previously discussed. We granted the Lender a continuing security interest, and pledged to the Lender, all of our assets to secure payment and performance of its obligations under the Loan Agreement. The Loan Agreement and the security interest are subordinate to our LOC. The Loan Agreement bears an annual interest rate of 15% with interest-only payments due monthly starting from initial funding through October 31, 2007. Thereafter, principal of $100,000 per month plus accrued interest is due at the end of each month through the loan's maturity date of November 30, 2008. The remaining principal balance and accrued interest is due on the maturity date. (3) In connection with the Loan Agreement, the Company issued warrants ("Loan Warrants") to purchase up to 650,000 shares of our common stock at an initial exercise price of $0.60 per share. The Loan Warrants vested immediately and expire September 2012. Subsequent to the initial funding of the Loan Agreement, the warrant holders may require us to purchase the warrant for a maximum of $250,000. And if any amount remains outstanding under the Loan Agreement after March 31, 2008, the warrant repurchase price increases to a maximum of $350,000. 26 OFF-BALANCE SHEET ARRANGEMENTS At September 30, 2007, 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(c)(2) of SEC Regulation S-B. 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 September 30, 2007, to the best of our knowledge, no known trends or demands, commitments, events or uncertainties existed, which are likely to have a material effect on our liquidity, except as described in "Note 9: Commitments and Contingencies" in Part I, Item 1 of this Form 10-QSB. 27 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. 28 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS We are subject to various legal proceedings from time to time in the ordinary course of business, none of which is required to be disclosed under this Item 1. ITEM 6 - EXHIBITS EXHIBIT NUMBER DESCRIPTION OF EXHIBIT METHOD OF FILING - ---------- ------------------------------------------ ------------------- 10.1 Shares Buy-back Agreement between Filed herewith Registrant and Syscan Imaging Limited 10.2 Loan Agreement between Registrant, Syscan, Filed herewith Inc. and Montage Capital, LLC 10.3 Warrant issued by Registrant to Montage Filed herewith Capital, LLC 10.4 Warrant issued by Registrant to North Filed herewith Atlantic Resources Limited 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 - M. Carolyn Ellis 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 - M. Carolyn Ellis 29 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: November 14, 2007 /S/ DARWIN HU ------------- Darwin Hu, Chairman and Chief Executive Officer Date: November 14, 2007 /S/ M. CAROLYN ELLIS -------------------- M. Carolyn Ellis Chief Financial Officer 30 EX-10.1 2 exh10-1.txt SHARES BUY-BACK AGREEMENT THIS SHARES EXCHANGE AGREEMENT (this "Agreement") is made and entered into as of August ___, 2007, by and between Sysview Technology, Inc., a Delaware corporation (the "Company"), and Syscan Imaging Limited (the "Investor"), a British Virgin Islands corporation. RECITALS WHEREAS, the Investor holds among other things, 8,000,000 shares of Common Stock (the "Sale Shares") of the Company. Pursuant to the terms and subject to the conditions herein, the Investor wishes to sell to Company the Sale Shares, and the Company wishes to purchase the Sale Shares from the Investor; and WHEREAS, the Company desires to pay to the Investor and the Investor desires to purchase and receive from the Company: (i) a portion of any equity interests in Gloria Display Technology Co., Ltd., a Cayman Islands exempted company ("Gloria"), acquired by the Company and (ii) $2,000,000 in cash (the "Cash Consideration") as consideration for the Company's purchase of the Sale Shares on the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the premises and mutual covenants hereinafter set forth and other good and valuable consideration, the parties hereto, on the basis of, and in reliance upon, the representations, warranties, covenants, obligations and agreements set forth in this Agreement, and upon the terms and subject to the conditions contained herein, hereby agree as follows: ARTICLE I PURCHASE AND SALE OF THE SHARES 1.1 Purchase and Sale of the Sale Shares. (a) The Investor hereby agrees to exchange, sell, assign, transfer and deliver to the Company, and the Company hereby agrees to purchase and acquire from the Investor, on the Closing Date (as hereinafter defined), the Sale Shares, free from any charge, lien, encumbrance or adverse claim of any kind whatsoever. (b) The Company hereby agrees to pay and to issue to the Investor, and the Investor hereby agree to purchase and acquire from Company, on the Closing Date, the Cash Consideration. -1- 1.2 Delivery of Sale Shares and Cash Consideration. At the Closing, (i) the Investor shall deliver to Company the stock certificates representing all of the Sale Shares, duly endorsed in favor of Company or accompanied by stock powers duly executed in favor of and in a form reasonably acceptable to Company, free from any charge, lien, encumbrance or adverse claim of any kind whatsoever, and (ii) the Company shall (A) pay the Cash Consideration to the Investor by (a) check payable to the Investor, (b) wire transfer in accordance with the Investor's instructions, (c) cancellation of indebtedness, (d) issuance of promissory notes or (e) any combination of the foregoing in the Company's sole discretion. 1.3 The Closing. The consummation of the transactions contemplated hereunder (the "Closing") shall take place on August 31, 2007, at the offices of Richardson & Patel, LLP, 405 Lexington Avenue, 26th floor, New York, NY 10174, at 5 p.m. local time or at such other time and place as the parties may mutually agree (the "Closing Date"). 1.4 Gloria Equity. In the event that: (a) the Company sells or otherwise transfers ownership of its HD display business to Gloria and (b) in consideration of said sale or transfer receives common stock of Gloria, then Company shall transfer a portion of its common stock of Gloria to Investor. Said portion shall be equal to the lesser of: (x) 12% of the outstanding common stock of Gloria or (y) 50% of the common stock of Gloria received by Company in consideration of said sale or transfer. Nothing herein shall be deemed to obligate Company to consummate any transaction with Gloria or to require Company to accept common stock of Gloria in consideration of said sale or transfer. ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company hereby represents and warrants to the Investor as of the Closing that: 2.1 The Company is a corporation duly organized, validly existing and in good standing under the laws of Deleware. The Company has the requisite corporate power and authority to own and operate its properties and assets, to carry on its business as presently conducted. 2.2 This Agreement is a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms. This Agreement, when performed in accordance with its terms, will not cause the Company to be in breach of any agreement, law, rule, regulation or government policy to which it is subject. -2- ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE INVESTOR The Investor hereby represents and warrants to the Company as of the date hereof and as of the Closing as follows: 3.1 The Investor is a corporation duly organized, validly existing and in good standing under the laws of the British Virgin Islands. The Investor has the requisite corporate power and authority to own and operate its properties and assets, to carry on its business as presently conducted,., has the power and authority, has obtained all requisite corporate authorizations and has taken all actions necessary to execute and deliver this Agreement and to perform its obligations hereunder. This Agreement is a legal, valid and binding obligation of the Investor, enforceable against the Investor in accordance with its terms. This Agreement, when performed in accordance with its terms, will not cause the Investor to be in breach of any agreement, law, rule, regulation or government policy to which it is subject. No consents, approvals, authorizations, orders, filings, registrations or qualifications of or with any court, governmental authority or third parties ("Consents") is required to be obtained by the Investor in connection with the execution and delivery of this Agreement by the Investor or the performance of the Investor's obligations, other than such Consents which have been obtained and are in full force and effect. There is no action, suit, claim, investigation or proceeding pending or threatened against the Investor that questions the validity of this Agreement or the transactions contemplated hereby or any action taken or to be taken pursuant hereto. 3.2 The Investor represents and warrants that it is, at the date hereof and upon the delivery of the Sale Shares to the Company at the Closing, the original and registered owner of such shares, free and clear of any security interests, liens, pledges or other encumbrances, and has good and marketable title to such shares. 3.3 The Investor has reviewed all tax laws applicable to the Investor such consequences of the sale of the Sale Shares to the Company and the transactions contemplated by this Agreement with its or his own tax advisors. The Investor is relying solely on such advisors and not on any statements or representations of the Company or any of their agents. The Investor understands that it shall be responsible for its or his own tax liability that may arise as a result of the transactions contemplated by this Agreement. ARTICLE IV CLOSING CONDITIONS The Closing shall occur upon the satisfaction of all the following conditions, unless waived in writing by the applicable party or parties: -3- 4.1 Certificates for Shares. The Company shall have received stock certificates for the Sale Shares prior to or upon the Closing. 4.2 Representations and Warranties True. All representations and warranties of Company and the Investor in this Agreement shall be true and correct on and as of the Closing Date as if made on the date thereof, if applicable. 4.3 Consents. Investor shall have provide evidence that all Consents or notifications to any third parties (including governmental agencies), if any, required to sell and exchange the Sale Shares and to consummate the transactions contemplated hereby have been obtained by the Investor. 4.4 Legal Opinion. The Company shall have received a legal opinion from the counsel to the Investor, in such form and substance as are reasonably acceptable the Company. ARTICLE V MISCELLANEOUS. 5.1 Governing Law. This Agreement shall be governed in all respects by the internal laws of the State of Deleware as applied to agreements entered into. 5.2 Dispute Resolution. Any dispute, controversy or claim arising out of or relating to this Agreement, or breach thereof, shall be submitted to and finally resolved by arbitration. The arbitration shall be administered by the American Arbitration Association ("AAA") according to the Commercial Arbitration Rules (excluding the Optional Procedures for Large, Complex Commercial Disputes) and the Optional Rules for Emergency Measures of Protection of the AAA. The Federal Arbitration Act shall govern the interpretation and enforcement of this arbitration provision. Arbitration shall take place in the County of Santa Clara, California, and shall be the exclusive forum for resolving such dispute, controversy or claim. The arbitration shall be heard by one (1) arbitrator who must be disinterested, experienced in commercial transactions. The arbitrator shall be appointed jointly by the parties within thirty (30) days following the date on which the arbitration is instituted. If the parties are unable to agree upon an arbitrator within such thirty (30)-day period, the AAA shall select such arbitrator within thirty (30) days thereafter. The decision of the arbitrator shall be executory, final and binding upon the parties hereto and judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. -4- 5.3 Amendments and Waivers. No amendment shall be valid unless the same shall be in writing and signed, by each party to this Agreement. 5.4 Delays or Omissions. No delay or omission to exercise any right, power or remedy accruing to the Company or to the Investor, upon any breach or default of any party hereto under this Agreement, shall impair any such right, power or remedy of the Company, or of the Investor nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of any similar breach of default thereafter occurring; nor shall it be construed to be any waiver of any other breach or default theretofore or thereafter occurring. 5.5 Entire Agreement. This Agreement and the schedules and exhibits hereto which are hereby expressly incorporated herein by this reference constitute the entire understanding and agreement between the parties with regard to the subjects hereof and thereof; provided, however, that nothing in this Agreement shall be deemed to terminate or supersede the provisions of any confidentiality and nondisclosure agreements executed by the parties hereto prior to the Effective Date, which agreements shall continue in full force and effect until terminated in accordance with their respective terms. 5.6 Survival. The representations, warranties, covenants and agreements made herein shall survive any investigation made by any party hereto and the Closing of the transactions contemplated hereby. 5.7 Successors and Assigns. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto whose rights or obligations hereunder are affected by such amendments. This Agreement and the rights and obligations therein may not be assigned by a party without the written consent of the other party. 5.8 Notices. Except as may be otherwise provided herein, all notices, requests, waivers and other communications made pursuant to this Agreement shall be in writing and shall be conclusively deemed to have been duly given (a) when hand delivered to the other party; (b) when received when sent by electronic mail or facsimile at the email address, address and number set forth in Schedule II; or (c) three (3) business days after deposit with internationally recognized overnight delivery service, postage prepaid, addressed to the parties as set forth below with next-business-day delivery guaranteed, provided that the sending party receives a confirmation of delivery from the delivery service provider. -5- Each person making a communication hereunder by facsimile or email shall promptly confirm by telephone to the person to whom such communication was addressed. Each communication made by it by facsimile or email pursuant hereto but the absence of such confirmation shall not affect the validity of any such communication. A party may change or supplement the addresses given above, or designate additional addresses, for purposes of this Section 4.8 by giving the other party written notice of the new address in the manner set forth above. 5.9 Finder's Fees. Each party (a) represents and warrants to the other party hereto that it has retained no finder or broker in connection with the transactions contemplated by this Agreement, and (b) hereby agrees to indemnify and to hold harmless the other party hereto from and against any liability for any commission or compensation in the nature of a finder's fee of any broker or other person or firm (and the costs and expenses of defending against such liability or asserted liability) for which the indemnifying party or any of its employees or representatives are responsible. 5.10 Titles and Subtitles. The titles of the sections and subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement. 5.11 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. 5.12 Severability. If one or more provisions of this Agreement are held to be invalid or unenforceable under applicable law, then such provision(s) shall be excluded from this Agreement and the balance of this Agreement shall be interpreted as if such provision(s) were so excluded and shall be enforceable in accordance with its terms. 5.13 Confidentiality and Non-Disclosure. The parties hereto agree to be bound by the confidentiality and non-disclosure provisions of Section 9 of that certain Shareholders Agreement entered into by and between the Investor and Company and such other parties to that agreement. 5.14 Termination. This Agreement may be terminated and the transactions contemplated by this Agreement may be abandoned at any time prior to the Closing, notwithstanding any requisite approval and adoption of this Agreement and the transactions contemplated by this Agreement, as follows: (i) by written consent of the parties hereto; (ii) by the Company, by delivery of a written notice to the Investor if any of the conditions to the Company's obligations to consummate the transactions contemplated hereunder as set forth in Section 4 hereof shall not have occurred on or before the date that is forty-five (45) days from the date of this Agreement. [SIGNATURE PAGE TO FOLLOW] -6- [SIGNATURE PAGE TO SHARE EXCHANGE AGREEMENT] IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the Effective Date. "COMPANY" SYSVIEW TECHNOLOGY, INC By: /s/ Darwin Hu -------------- Name: Darwin Hu Title: President & CEO "INVESTOR" SYSCAN IMAGING LIMITED By: /s/ Cheung Wai ----------------- Name: Cheung Wai Title: Chairman -7- EXHIBIT A LIST OF CONSENTS EX-10.2 3 exh10-2.txt LOAN AGREEMENT Dated as of September 27, 2007 by and between MONTAGE CAPITAL, LLC as Montage and initial Lender and SYSVIEW TECHNOLOGY, INC. and SYSCAN, INC. Collectively, as Borrower TOTAL CREDIT AMOUNT: Up to $1,500,000 Maturity Date: November 30, 2008 Formula: None Facility Origination Fee: $55,000 Interest: 15.00% Fixed Warrants: See Warrants The information set forth above is subject to the terms and conditions set forth in the balance of this Agreement. The parties agree as follows: 1. 1. ADVANCES AND PAYMENTS. (a) ADVANCE. Borrower may request one advance (the "Advance") on the date of this Agreement (the "Closing Date") in the principal amount of $1,500,000. Borrower shall use the proceeds of the Advance to purchase shares under the Shares Exchange Agreement dated as of August 16, 2007, by and between Borrower and Syscan Imaging Limited (the "Share Exchange Agreement"), and for no other purpose. Each Lender shall be responsible only for the percentage of each Advance set forth below its signature ("Pro Rata Share"). The obligation of Montage and/or such other person or entity that may be added to this Agreement as an additional lender by an amendment hereto executed by Montage, Borrower and such other person or entity (each a "Lender" and collectively, the "Lenders") to make any Advance under this Agreement is subject to (i) each Lender's reasonable determination, in its sole discretion, that there has not occurred a circumstance or circumstances that have a Material Adverse Effect, as defined in Section 5(g), (ii) satisfactory review of the loan documents (collectively, the "SVB Agreement") between Borrower and Silicon Valley Bank ("SVB"); (iii) evidence that the purchase under the Share Exchange Agreement is being consummated; and (iv) the execution, delivery and filing of such instruments and agreements, as Lenders reasonably deem appropriate, including this Agreement, the Warrants, a deposit account control agreement with SVB, and an intellectual property security agreement. (b) PAYMENTS. Borrower shall pay interest on the outstanding principal balance of the Advance and other monetary Obligations at a fixed rate per annum equal to 15.00%. Interest shall be calculated on the basis of a 360-day year for the actual number of days elapsed, and shall be payable in arrears on the first day of each month from the Closing Date through October 31, 2007. Beginning November 1, 2007, and continuing on the first day of each month thereafter, Borrower shall pay Lenders $100,000 per month plus accrued interest. The entire unpaid principal balance and all accrued but unpaid interest shall be due and payable on November 30, 2008 (the "Maturity Date"). Any partial month shall be prorated on the basis of a 30-day month based on the actual number of days outstanding. Borrowers may prepay all or any part of the Advance, but may not reborrow any amount repaid. All prepayments shall be applied first to outstanding fees, then to interest, and then to principal, applied to installments in reverse order of maturity. If a Borrower sells any assets outside of the ordinary course of business and receives cash proceeds from such sale, Borrowers shall pay Lenders 20% of the net cash proceeds as a mandatory prepayment. Borrower shall make all payments due under this Agreement to Montage regardless of which Lender is owed the payment. Any such payment made by Borrowers shall satisfy the Obligations in respect of which such payment was made as if made to the Lender to whom such Obligation was due. Montage shall have the responsibility to pay any other Lender its Pro Rata Share of all such payments (c) FEES. On the Closing Date, Borrower shall pay Lenders an origination fee of $55,000, plus an amount equal to all expenses that Lenders incur in connection with this Agreement, including reasonable attorneys fees. (d) WARRANTS. Borrower is concurrently issuing to each Lender a Warrant to Purchase Stock (each "Warrant"). (e) LATE PAYMENT. Prior to the Maturity Date, if any payment of interest or any other amount owing to Montage is not made within ten (10) days after the due date, Borrower shall pay Montage a late payment fee equal to $1,000. If any amount is outstanding under this Agreement on the day after the Maturity Date, Borrower shall pay Lenders a fee of $5,000. If any such amount remains outstanding on the day that is thirty (30) days after the Maturity Date, Borrower shall pay Lenders an additional fee equal to $5,000 on such date, and an additional fee equal to $5,000 on each 30th day thereafter for so long as any amount remains outstanding. After the occurrence and during the continuance of an Event of Default, the Obligations shall bear interest at a rate equal to 18% per annum. In addition, each Lender shall have a right to purchase additional shares under the Warrant, as specified in the Warrant. The terms of this paragraph shall not be construed as Lenders' consent to Borrower's failure to pay any amounts in strict accordance with this Agreement, and Lenders' charging any such fees and/or acceptance of any such payments shall not restrict any exercise of any remedies arising out of any such failure. 2. SECURITY INTEREST. As security for all present and future indebtedness, guarantees, liabilities, and other obligations of Borrower to Lenders under this Agreement, including all fees specified in Section 1 (collectively, the "Obligations"), Borrower grants each Lender a security 2 interest in all of Borrower's personal property, whether now owned or hereafter acquired, including without limitation all of the following: all accounts, cash, patents, copyrights, trademarks, goodwill, general intangibles, chattel paper, documents, letters of credit, instruments, deposit accounts, investment property, inventory, fixtures and equipment, as such terms are defined in Division 9 of the Uniform Commercial Code in effect on the date hereof, the property described on EXHIBIT A attached hereto, and all products, proceeds and insurance proceeds of the foregoing (collectively, the "Collateral"). Borrower authorizes each Lender to execute such documents and take such actions as such Lender reasonably deems appropriate from time to time to perfect or continue the security interest granted hereunder. 3. REPRESENTATIONS AND WARRANTIES; AFFIRMATIVE COVENANTS. Borrower represents to Lenders as follows (which shall be deemed continuing throughout the term of this Agreement), and shall do as follows: (a) AUTHORIZATION. Borrower is and will continue to be, duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, and Borrower is and will continue to be qualified and licensed to do business in all jurisdictions in which it is required to do so; the execution, delivery and performance by Borrower of this Agreement, and all other documents contemplated hereby have been duly and validly authorized by all necessary corporate action, and do not violate Borrower's Articles of Incorporation or by-laws, or any law or any material agreement or instrument which is binding upon Borrower or its property. Borrower has no wholly owned or partially owned subsidiaries and is not a partner or joint venturer in any partnership or joint venture. (b) STATE OF INCORPORATION; PLACES OF BUSINESS; LOCATIONS OF COLLATERAL. Borrower is a corporation incorporated and in good standing under the laws of the state of its incorporation, as corporation number ___________. The address set forth in this Agreement under Borrower's signature is Borrower's chief executive office. Other than the chief executive office, the Collateral is located at the address(es) set forth on EXHIBIT B. (c) TITLE TO COLLATERAL; PERMITTED LIENS. Borrower is now, and will at all times in the future be, the sole owner of all the Collateral. The Collateral now is and will remain free and clear of any and all liens, security interests, encumbrances and adverse claims, except for (i) purchase money security interests in specific items of Equipment; (ii) leases of specific items of Equipment; (iii) liens for taxes, fees, assessments or other governmental charges or levies, either not delinquent or being contested in good faith by appropriate proceedings, provided the same have no priority over any of Lenders' security interests; (iv) liens of materialmen, mechanics, warehousemen, carriers, or other similar liens arising in the ordinary course of business and securing obligations that are not delinquent; (v) the lien granted under the SVB Agreement; and (vi) those liens set forth EXHIBIT B. (d) FINANCIAL CONDITION, STATEMENTS AND REPORTS. The financial statements provided to Lenders by Borrower have been prepared in accordance with generally accepted accounting principles, consistently applied ("GAAP"). All financial statements now or in the future delivered to Lenders will fairly reflect the financial condition of Borrower, at the times and for the periods therein stated. Between the last date covered by any such statement provided to Lenders and the date hereof, there has been no circumstance that could constitute or give rise to a Material Adverse Effect. (e) TAX RETURNS AND PAYMENTS. Borrower has timely filed, and will timely file, all material tax returns and reports required by applicable law, and Borrower has timely paid, and will timely pay, all applicable taxes, assessments, deposits and contributions now or in the future owed by Borrower. (f) COMPLIANCE WITH LAW. Borrower has complied, and will comply, in all material respects, with all provisions of all applicable laws and regulations. (g) INFORMATION. All information provided to Lenders by or on behalf of Borrower on or prior to the date of this Agreement is true and correct in all material respects, and no representation or other statement made by Borrower to Lenders contains any untrue statement of a material fact or omits to state a material fact necessary to make any statements made to Lenders not misleading at the time made. 3 (h) LITIGATION. Except as disclosed on EXHIBIT B, there is no claim or litigation pending or (to best of Borrower's knowledge) threatened against Borrower. Borrower will promptly inform Lenders in writing of any claim or litigation in the future which, either separately or in the aggregate. (i) SUBSIDIARIES. Except as disclosed on EXHIBIT B, Borrower has no wholly-owned or partially owned subsidiaries and EXHIBIT B sets forth all loans by Borrower to, and all investments by Borrower in, any person, entity, corporation partnership or joint venture. (j) DEPOSIT AND INVESTMENT ACCOUNTS. Borrower maintains only the operating, savings, deposit, securities and investment accounts listed on EXHIBIT B. (k) REPORTS. Borrower will provide to Lenders in form and substance acceptable to Lenders (i) within thirty (30) days after the last day of each month, monthly Borrower-prepared financial statements, prepared in accordance with GAAP, consistently applied; (ii) within fifteen (15) days after filing, copies of all reports and statements filed by Borrower with the SEC; (iii) within ninety (90) days of the last day of each year, annual financial statements prepared in accordance with GAAP, consistently applied, together with copies of Borrower's tax returns for such year; (iv) when delivered to SVB, a copy of the borrowing base certificate, any backup schedules or information, and all other reports, filings and certificates delivered or required to be delivered under the SVB Agreement; and (v) upon request, such other information relating to Borrower's operations and condition, including information on the status of any acquisitions or equity investments, as Lenders may reasonably request from time to time. Each Lender shall have the right to review and copy Borrower's books and records and audit and inspect the Collateral, from time to time, upon reasonable notice to Borrower. Each Lender or its officers, employees, or agents shall have a right to visit Borrower's premises and interview Borrower's officers at Borrower's expense. (l) SVB AGREEMENT. Borrower shall cause the SVB Agreement to remain in effect for so long as Borrower owes any amounts under this Agreement, in the form presented to Lenders on the date hereof. At any time Borrower owes Lenders more than $1,000,000, the outstanding principal balance under the SVB Agreement may not exceed the lesser of (i) $2,000,000 or (ii) the Borrowing Base, as defined in the SVB Agreement as of the date hereof. At any time Borrower owes Lenders less than $1,000,000, the outstanding principal balance of the SVB Loan may not exceed the lesser of (i) $3,000,000, or the Borrowing Base, as defined in the SVB Agreement as of the date hereof. (m) INSURANCE. Borrower will maintain insurance on the Collateral and Borrower's business, in amounts and of a type that are customary to businesses similar to Borrower's, and Lenders will be named in a lenders' loss payable endorsement in favor of Lenders, in form reasonably acceptable to Lenders 4. NEGATIVE COVENANTS. Without the prior written consent of Lenders, Borrower shall not do any of the following: (i) permit or suffer a merger, change of control, or acquisition of all or substantially all of Borrower's assets other than in a transaction, the terms of which provide for immediate payment of all amounts outstanding under this Agreement; (ii) acquire any assets outside the ordinary course of business; (iii) sell, lease, license, encumber or transfer any Collateral except for sales in the ordinary course of business or in connection with the sale of the HD display division or its assets (in each case Lenders retains a security interest in the proceeds of such disposition); (iv) pay or declare any cash dividends on Borrower's stock; (v) redeem, purchase or otherwise acquire, any of Borrower's stock, except for (A) stock from terminated employees or contractors, to the extent required or permitted under any employment or contractor agreements, (B) redemption or other acquisition of any of Borroer's preferred stock soley for Borrower's common stock, (C) pursuant to the Share Exchange Agreement; (vi) make any investments in, or loans or advances to, any person, including without limitation any investments in, or downstreaming of funds to, any subsidiary or affiliate of Borrower; (vii) incur any indebtedness, other than (a) trade debt and capital lease obligations incurred in the ordinary course of business and (b) indebtedness under the SVB Agreement; (viii) make any payment on any of Borrower's indebtedness that is subordinate to the Obligations, other than in accordance with the subordination agreement, if any, in favor of Lenders relating thereto; (ix) make any deposits or investments into any investment or depository accounts unless they are subject to an account control agreement acceptable to Lenders, or (x) agree to do any of the foregoing. 4 5. EVENTS OF DEFAULT. Any one or more of the following shall constitute an Event of Default under this Agreement: (a) Borrower shall fail to pay any principal of or interest on any Loans or any other monetary Obligations within ten days after the date due; or (b) Borrower shall fail to comply with any other provision of this Agreement, which failure is not cured within ten days after the sooner of (i) the date that Borrower has knowledge of that failure or (ii) Borrower's receipt of notice from Montage; or (c) Any warranty, representation, statement, report or certificate made or delivered to a Lender by Borrower or on Borrower's behalf shall be untrue or misleading in a material respect as of the date given or made, or shall become untrue or misleading in a material respect after the date hereof; or (e) A default or event of default shall occur under any agreement to which Borrower is a party or by which it is bound, including the SVB Agreement (i) resulting in a right by the other party or parties, whether or not exercised, to accelerate the maturity of any indebtedness in excess of $50,000 or (ii) that could have a Material Adverse Effect, as defined below; or (e) Any portion of Borrower's assets is attached, seized or levied upon, or a judgment for more than $50,000 is awarded against Borrower and is not stayed within ten days; or (f) Dissolution, termination of existence of Borrower; the occurrence of a Dissolution Event; or appointment of a receiver, trustee or custodian, for all or any material part of the property of, assignment for the benefit of creditors by, or the commencement of any proceeding by or against Borrower under any reorganization, bankruptcy, insolvency, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction, now or in the future in effect (except that, in the case of a proceeding commenced against Borrower, Borrower shall have 60 days after the date such proceeding was commenced to have it dismissed, provided Montage shall have no obligation to make any Loans during such period); or (g) The occurrence of a "Material Adverse Effect", which shall mean (i) a material adverse change in the business, prospects, operations, results of operations, assets, liabilities or financial or other condition of Borrower, (ii) the material impairment of Borrower's ability to perform its Obligations or of Montage's ability to enforce the Obligations or realize upon the Collateral, or (iii) a material adverse change in the value of the Collateral, and a Lender's written notice to Borrowers of such occurrence. 6. REMEDIES. (a) REMEDIES. Upon the occurrence and during the continuance of any Event of Default, either Lender, at its option, may do any one or more of the following: (a) Accelerate and declare the Obligations to be immediately due, payable, and performable; (b) Take possession of any or all of the Collateral wherever it may be found, and for that purpose Borrower hereby authorizes each Lender to enter Borrower's premises without interference to search for, take possession of, keep, store, or remove any of the Collateral, and remain on the premises or cause a custodian to remain on the premises in exclusive control thereof, without charge by Borrower for so long as such Lender reasonably deems it necessary in order to complete the enforcement of its rights under this Agreement or any other agreement; provided, however, that should Lender seek to take possession of any of the Collateral by Court process, Borrower hereby waives: (i) any bond and any surety or security relating thereto; (ii) any demand for possession prior to the commencement of any suit or action to recover possession thereof; and (iii) any requirement that Lender retain possession of, and not dispose of, any such Collateral until after trial or final judgment; (c) Require Borrower to assemble any or all of the Collateral and make it available to Montage at places designated by Montage; (d) Complete the processing of any Collateral prior to a disposition thereof and, for such purpose and for the purpose of removal, Lender shall have the right to use Borrower's premises, equipment and all other property without charge by Borrower; (e) Collect and dispose of and realize upon any investment property, including withdrawal of any and all funds from any deposit or securities accounts; (f) Dispose of any of the Collateral, at one or more public or private sales, in lots or in bulk, for cash, exchange or other property, or on credit, and to adjourn any such sale from time to time without notice other than oral announcement at the time 5 scheduled for sale; and (g) Demand payment of, and collect any accounts, general intangibles or other Collateral and, in connection therewith, Borrower irrevocably authorizes each Lender to endorse or sign Borrower's name on all collections, receipts, instruments and other documents, and, in Lender's good faith business judgment, to grant extensions of time to pay, compromise claims and settle accounts, general intangibles and the like for less than face value; Borrower grants each Lender a license, exercisable from and after an Event of Default has occurred, to use and copy any trademarks, service marks and other intellectual property in which Borrower has an interest to effect any of the foregoing remedies. All reasonable attorneys' fees, expenses, costs, liabilities and obligations incurred by a Lender with respect to the foregoing shall be added to and become part of the Obligations, and shall be due on demand. (b) APPLICATION OF PROCEEDS. All proceeds realized as the result of any sale or other disposition of the Collateral shall be applied by Lenders first to the reasonable costs, expenses, liabilities, obligations and attorneys' fees incurred by a Lender in the exercise of any rights under this Agreement, second to any fees and Obligations other than interest and principal, pro rata to each Lender, third to the interest due upon any of the Obligations, pro rata to each Lender, and fourth to the principal of the Obligations, pro rata to each Lender, in such order as Lenders shall determine in its sole discretion. Any surplus shall be paid to Borrower or other persons legally entitled thereto; Borrower shall remain liable to Lenders for any deficiency. (c) REMEDIES CUMULATIVE. In addition to the rights and remedies set forth in this Agreement, each Lender shall have all the other rights and remedies accorded a secured party under the California Uniform Commercial Code and under all other applicable laws, and under any other instrument or agreement now or in the future entered into between a Lender and Borrower, and all of such rights and remedies are cumulative and none is exclusive. Exercise or partial exercise of one or more of its rights or remedies shall not be deemed an election, nor bar a Lender from subsequent exercise or partial exercise of any other rights or remedies. The failure or delay of a Lender to exercise any rights or remedies shall not operate as a waiver thereof, but all rights and remedies shall continue in full force and effect until all of the Obligations have been fully paid and performed. (d) POWER OF ATTORNEY. After the occurrence and during the continuance of an Event of Default, Borrower irrevocably appoints each Lender (and any of such Lender's designated employees or agents) as Borrower's true and lawful attorney in fact to: endorse Borrower's name on any checks or other forms of payment; make, settle and adjust all claims under and decisions with respect to Borrower's policies of insurance; settle and adjust disputes and claims respecting accounts, general intangibles and other Collateral; execute and deliver all notices, instruments and agreements in connection with the perfection of the security interest granted in this Agreement; sell, lease or otherwise dispose of all or any part of the Collateral; and take any other action or sign any other documents required to be taken or signed by Borrower, or reasonably necessary to enforce the rights or remedies or otherwise carry out the purposes of this Agreement. The appointment of each Lender as Borrower's attorney in fact, and each of such Lender's rights and powers, being coupled with an interest, are irrevocable until all Obligations owing to Lenders have been paid and performed in full. 7. COBORROWERS. Each of Sysview Technology, Inc. and Syscan, Inc. is a co-borrower, and is jointly and severally liable for the repayment of all amounts outstanding under this Agreement. Lenders may proceed against either Borrower without proceeding against the other. Each Borrower shall be liable for all Obligations as fully as if all of the Advance was made to such Borrower. Lenders may rely on any certificate or representation made by any Borrower as made on behalf of, and binding on, all Borrowers. Each Borrower appoints the other Borrower its agent with all power and authority to give and receive notices and other documents on behalf of both Borrowers, to act as disbursing agent for receipt of any Advance, to apply to Lenders on behalf of each Borrower for any waivers or consents, and to amend this Agreement from time to time. Each Borrower authorizes Lender to deal with the other Borrower on behalf of both Borrowers, including in connection with any amendments to this Agreement and any release, compromise or settlement of any rights or obligations hereunder. Each Borrower waives all rights that it may have to seek contribution or any other form of reimbursement from the other Borrower (including by subrogation) until the Obligations have been satisfied in full. Each Borrower waives all benefits that it may have under any laws giving rights to sureties, including to the extent applicable California Civil Code Sections 2809, 2810, 2819, 2839, 2845, 2848, 2849, 2850, 2899 and 3433. The liability of a Borrower shall not be diminished by any agreement that all or any part of the Obligations would be satisfied by another Borrower or other entity, or any release from, or unenforceability against, any Obligation. 6 8. WAIVERS. The failure of a Lender at any time or times to require Borrower to strictly comply with any of the provisions of this Agreement or any other present or future agreement between Borrower and a Lender shall not waive or diminish any right of a Lender later to demand and receive strict compliance therewith. Any waiver of any default shall not waive or affect any other default, whether prior or subsequent, and whether or not similar. None of the provisions of this Agreement or any other agreement shall be deemed to have been waived except by a specific written waiver signed by an authorized officer of a Lender. Borrower waives demand, protest, notice of protest and notice of default or dishonor, notice of payment and nonpayment, release, compromise, settlement, extension or renewal of any commercial paper, instrument, account, general intangible, document or guaranty at any time held by a Lender on which Borrower is or may in any way be liable, and notice of any action taken by a Lender, unless expressly required by this Agreement. 9. INDEMNITY. Borrower shall indemnify each Lender for any costs or liabilities, including reasonable attorneys' fees, incurred by such Lender in connection with this Agreement or any transactions contemplated by this Agreement, excet for costs or liabilities directly caused by Lender's gross negligence or willful misconduct. 10. CONFIDENTIALITY. In handling any confidential non-public information provided to a Lender by Borrower, such Lender shall exercise the same degree of care that it exercises with respect to its own proprietary information of the same types to maintain the confidentiality of the same, except that disclosure of such information may be made (i) to subsidiaries or affiliates of such Lender in connection with their present or prospective business relations with Borrower, (ii) to prospective transferees or purchasers of any interest in the Obligations, provided that they have entered into a comparable confidentiality agreement with respect thereto, (iii) as required by law, regulations, rule or order, subpoena, judicial order or similar order, (iv) as may be required in connection with the examination, audit or similar investigation of Lender, and (v) as Lender may deem appropriate in connection with the exercise of any remedies hereunder. Confidential information shall not include information that either: (a) is in the public domain, or becomes part of the public domain, after disclosure to a Lender through no fault of such Lender; or (b) is disclosed to a Lender by a third party, provided such Lender does not have actual knowledge that such third party is prohibited from disclosing such information. 11. GOVERNING LAW; JURISDICTION; VENUE. This Agreement and all acts and transactions hereunder and all rights and obligations of Lenders and Borrower shall be governed by the internal laws (and not the conflict of laws rules) of the State of California. Subject to Section 12, all actions and proceedings relating directly or indirectly to this Agreement shall be litigated in courts located in Santa Clara County, California, each party consents to the jurisdiction and venue of any such court and consents to service of process in any such action or proceeding by personal delivery or any other method permitted by law, and waives any and all rights Borrower may have to object to the jurisdiction of any such court, or to transfer or change the venue of any such action or proceeding. 12. MUTUAL WAIVER OF JURY TRIAL; JUDICIAL REFERENCE. BORROWER AND LENDERS EACH WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN MONTAGE AND BORROWER, OR ANY CONDUCT, ACTS OR OMISSIONS OF MONTAGE OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH MONTAGE OR BORROWER, IN ALL OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE. IF THIS JURY WAIVER IS FOR ANY REASON UNENFORCEABLE, THE PARTIES AGREE TO RESOLVE ALL CLAIMS, CAUSES AND DISPUTES THROUGH JUDICIAL REFERENCE PURSUANT TO CODE OF CIVIL PROCEDURE SECTION 638 ET SEQ BEFORE A MUTUALLY ACCEPTABLE REFEREE SITTING WITHOUT A JURY OR, IF NO AGREEMENT ON THE REFEREE IS REACHED, BEFORE A REFEREE SELECTED BY THE PRESIDING JUDGE OF THE CALIFORNIA SUPERIOR COURT FOR SANTA CLARA COUNTY. THIS PROVISION SHALL NOT RESTRICT A PARTY FROM EXERCISING NONJUDICIAL REMEDIES UNDER THE CODE. 7 13. GENERAL. This Agreement and such other written agreements, documents and instruments as may be executed in connection herewith are the final, entire and complete agreement between Borrower and Montage and supersede all prior and contemporaneous negotiations and oral representations and agreements, all of which are merged and integrated in this Agreement. There are no oral understandings, representations or agreements between the parties which are not set forth in this Agreement or in other written agreements signed by the parties in connection herewith. The terms and provisions of this Agreement may not be waived or amended, except in a writing executed by Borrower and a duly authorized officer of each Lender. A Lender may assign all or any part of its interest in this Agreement and the Obligations to any person or entity, or grant a participation in, or security interest in, any interest in this Agreement, with notice to, but without consent of, Borrower. Borrower may not assign any rights under or interest in this Agreement without Lenders' prior written consent. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one agreement. Upon termination of this Agreement and repayment of all amounts outstanding, Lenders will terminate their security interests at Borrower's expense, including any reasonable attorneys fees and filing fees. 14. PUBLICITY. Borrower authorizes each Lender to use Borrower's tradenames and logos in such Lender's marketing materials in respect of the transactions evidenced by this Agreement. MONTAGE CAPITAL, LLC SYSVIEW TECHNOLOGY, INC. By: By: -------------------------------------- Title: Title: ----------------------------------- SYSCAN, INC. By: Title: Address for notices: Address for notices: Montage Capital, LLC Sysview Technology, Inc. 5201 Great America Parkway, Suite 320 1772 Technology Drive Santa Clara, CA 95054 San Jose, CA 95110 Attn: Damon Doe Attn: Chief Executive Officer Fax: (408) 562-5745 Fax: Pro Rata Share: 100% 8 666815 v3/HN EXHIBIT A COLLATERAL DESCRIPTION ATTACHMENT TO LOAN AND SECURITY AGREEMENT All personal property of each Borrower (herein referred to as "Borrower" or "Debtor") whether presently existing or hereafter created or acquired, and wherever located, including, but not limited to: (a) all accounts (including health-care-insurance receivables), chattel paper (including tangible and electronic chattel paper), deposit accounts, documents (including negotiable documents), equipment (including all accessions and additions thereto), general intangibles (including copyrights, patents, trademarks, goodwill and all intellectual property, payment intangibles and software), goods (including fixtures), instruments (including promissory notes), inventory (including all goods held for sale or lease or to be furnished under a contract of service, and including returns and repossessions), investment property (including securities and securities entitlements), letter of credit rights, money, and all of Debtor's books and records with respect to any of the foregoing, and the computers and equipment containing said books and records; and (b) any and all cash proceeds and/or noncash proceeds of any of the foregoing, including, without limitation, insurance proceeds, and all supporting obligations and the security therefor or for any right to payment. All terms above have the meanings given to them in the California Uniform Commercial Code, as amended or supplemented from time to time. 9 EXHIBIT B Places of Business and Locations of Collateral (Section 3(b)): Permitted Liens (Section 3(c)) Litigation (Section 3(h)): Subsidiaries and partnerships and joint ventures (Section 3(i)): Accounts (Section 3(j)) 10 CORPORATE RESOLUTIONS TO BORROW - -------------------------------------------------------------------------------- Borrower: SYSVIEW TECHNOLOGY, INC. - -------------------------------------------------------------------------------- I, the undersigned Secretary or Assistant Secretary of SYSVIEW TECHNOLOGY, INC. (the "Corporation"), HEREBY CERTIFY that the Corporation is organized and existing under and by virtue of the laws of the state of its incorporation. I FURTHER CERTIFY that attached hereto as Attachments 1 and 2 are true and complete copies of the Certificate/Articles of Incorporation and Bylaws of the Corporation, each of which is in full force and effect on the date hereof. I FURTHER CERTIFY that by unanimous written consent of the Directors of the Corporation, (or by other duly authorized corporate action in lieu of a meeting), the following resolutions were adopted. "BE IT RESOLVED, that any one (1) of the following named officers, employees, or agents of this Corporation, whose actual signatures are shown below: NAMES POSITION ACTUAL SIGNATURES acting for and on behalf of this Corporation and as its act and deed be, and they hereby are, authorized and empowered: BORROW MONEY. To borrow from time to time from Montage Capital, LLC and such other person or entity as may become a lender under the Agreement (collectively, the "Lenders"), on such terms as may be agreed upon between the officers, employees, or agents and Lenders, such sum or sums of money as in their judgment should be borrowed, without limitation, including such sums as are specified in that certain Loan Agreement (the "Agreement"). EXECUTE AGREEMENT. To execute and deliver the Agreement to Lenders, and also one or more renewals, extensions, modifications, refinancings, consolidations, or substitutions thereof. GRANT SECURITY. To grant a security interest to Lenders in the Collateral described in the Agreement, which security interest shall secure all of the Corporation's obligations, as described in the Agreement. ISSUE WARRANTS. To issue warrants to purchase stock of the Corporation to Lenders of the type, and in the number specified in the Warrant to Purchase Stock. FURTHER ACTS. To do and perform such other acts and things, to pay any and all fees and costs, and to execute and deliver such other documents and agreements as they may in their discretion deem reasonably necessary or proper in order to carry into effect the provisions of these Resolutions. 1 BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to these resolutions and performed prior to the passage of these resolutions are hereby ratified and approved, that these Resolutions shall remain in full force and effect and Lenders may rely on these Resolutions until written notice of their revocation shall have been delivered to and received by Lenders. Any such notice shall not affect any of the Corporation's agreements or commitments in effect at the time notice is given. I FURTHER CERTIFY that the officers, employees, and agents named above are duly elected, appointed, or employed by or for the Corporation, as the case may be, and occupy the positions set forth opposite their respective names; that the foregoing Resolutions now stand of record on the books of the Corporation; and that the Resolutions are in full force and effect and have not been modified or revoked in any manner whatsoever. IN WITNESS WHEREOF, I have hereunto set my hand as of September 26, 2007 and attest that the signatures set opposite the names listed above are their genuine signatures. CERTIFIED AND ATTESTED BY: X ----------------------- 2 CORPORATE RESOLUTIONS TO BORROW - -------------------------------------------------------------------------------- Borrower: SYSCAN, INC. - -------------------------------------------------------------------------------- I, the undersigned Secretary or Assistant Secretary of SYSCAN, INC. (the "Corporation"), HEREBY CERTIFY that the Corporation is organized and existing under and by virtue of the laws of the state of its incorporation. I FURTHER CERTIFY that attached hereto as Attachments 1 and 2 are true and complete copies of the Certificate/Articles of Incorporation and Bylaws of the Corporation, each of which is in full force and effect on the date hereof. I FURTHER CERTIFY that by unanimous written consent of the Directors of the Corporation, (or by other duly authorized corporate action in lieu of a meeting), the following resolutions were adopted. "BE IT RESOLVED, that any one (1) of the following named officers, employees, or agents of this Corporation, whose actual signatures are shown below: NAMES POSITION ACTUAL SIGNATURES acting for and on behalf of this Corporation and as its act and deed be, and they hereby are, authorized and empowered: BORROW MONEY. To borrow from time to time from Montage Capital, LLC and such other person or entity as may become a lender hereunder (collectively, the "Lenders"), on such terms as may be agreed upon between the officers, employees, or agents and Lenders, such sum or sums of money as in their judgment should be borrowed, without limitation, including such sums as are specified in that certain Loan Agreement (the "Agreement"). EXECUTE AGREEMENT. To execute and deliver the Agreement to Lenders, and also one or more renewals, extensions, modifications, refinancings, consolidations, or substitutions thereof. GRANT SECURITY. To grant a security interest to Lenders in the Collateral described in the Agreement, which security interest shall secure all of the Corporation's obligations, as described in the Agreement. ISSUE WARRANTS. To issue warrants to purchase stock of the Corporation to Lenders of the type, and in the number specified in the Warrant to Purchase Stock. FURTHER ACTS. To do and perform such other acts and things, to pay any and all fees and costs, and to execute and deliver such other documents and agreements as they may in their discretion deem reasonably necessary or proper in order to carry into effect the provisions of these Resolutions. BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to these resolutions and performed prior to the passage of these resolutions are hereby ratified and approved, that these Resolutions shall remain in full force and effect and Lenders may rely on these Resolutions until written notice of their revocation shall have been delivered to and received by Lenders. Any such notice shall not affect any of the Corporation's agreements or commitments in effect at the time notice is given. 1 I FURTHER CERTIFY that the officers, employees, and agents named above are duly elected, appointed, or employed by or for the Corporation, as the case may be, and occupy the positions set forth opposite their respective names; that the foregoing Resolutions now stand of record on the books of the Corporation; and that the Resolutions are in full force and effect and have not been modified or revoked in any manner whatsoever. IN WITNESS WHEREOF, I have hereunto set my hand as of September 26, 2007 and attest that the signatures set opposite the names listed above are their genuine signatures. CERTIFIED AND ATTESTED BY: X ----------------------- 2 EX-10.3 4 exh10-3.txt THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF OR IN ACCORDANCE WITH APPLICABLE LAW. WARRANT TO PURCHASE STOCK Corporation: SYSVIEW TECHNOLOGY, INC. Number of Shares: 325,000, subject to adjustment Class of Stock: Common Initial Exercise Price: $0.60 per Share Issue Date: September 27, 2007 Expiration Date: September 26, 2012 THIS WARRANT CERTIFIES THAT, in consideration of the payment of $1.00 and for other good and valuable consideration, MONTAGE CAPITAL, LLC or registered assignee ("Holder") is entitled to purchase the number of fully paid and nonassessable shares (the "Shares") of Common Stock of SYSVIEW TECHNOLOGY, INC. (the "Company"), in the number, at the price, and for the term specified above. The exercise price per share (the "Warrant Price") is equal to $0.60 per Share. If Company sells or issues its equity securities within one year after the Issue Date in an offering in which the Company receives gross proceeds of at least $1,000,000 (an "Equity Event") then, at the option of Holder, the Shares shall be of the type and series of stock issued in the Equity Event, the Warrant Price shall be equal to the price per share paid in the Equity Event, and Holder shall have the rights given to the purchasers in the Equity Event. Upon the occurrence of an Event of Default under the Loan and Security Agreement of even date (the "Loan Agreement"), Holder may acquire Shares under this Warrant equal to 13,750 Shares on the date of such occurrence and an additional 13,750 on the first day of each thirty (30) day period after such Event of Default until all amounts under the Loan Agreement have been paid in full. ARTICLE 1. EXERCISE 1.1 Method of Exercise. Holder may exercise this Warrant by delivering this Warrant and a duly executed Notice of Exercise in substantially the form attached as Appendix 1 to the principal office of the Company. Unless Holder is exercising the conversion right set forth in Section 1.2, Holder shall also deliver to the Company a check for the aggregate Warrant Price for the Shares being purchased. 1.2 Conversion Right. In lieu of exercising this Warrant as specified in Section 1.1, Holder may from time to time convert this Warrant, in whole or in part, into a number of Shares determined by dividing (a) the aggregate fair market value of the Shares or other securities otherwise issuable upon exercise of this Warrant minus the aggregate Warrant Price of such Shares by (b) the fair market value of one Share. The fair market value of the Shares shall be determined pursuant to Section 1.3. such conversion may be made by delivering this Warrant and a duly executed notice of Exercise in substantially the form attached as Appendix 1 to the principal office of the Company 1.3 Fair Market Value. If the Shares are traded regularly in a public market, the fair market value of the Shares shall be the closing price of the Shares (or the closing price of the Company's stock into which the Shares are convertible) reported for the business day immediately before Holder delivers its Notice of Exercise to the Company. If the Shares are not regularly traded in a public market, the Board of Directors of the Company shall determine fair market value in its reasonable good faith judgment. The foregoing notwithstanding, if Holder advises the Board of Directors in writing that Holder disagrees with such determination, then the Company and Holder shall promptly agree upon a reputable investment banking firm to undertake such valuation. If the valuation of such investment banking firm is greater than that determined by the Board of Directors, then all fees and expenses of such investment banking firm shall be paid by the Company. In all other circumstances, such fees and expenses shall be paid by Holder. 1.4 Delivery of Certificate and New Warrant. Promptly after Holder exercises or converts this Warrant, the Company shall deliver to Holder certificates for the Shares acquired and, if this Warrant has not been fully exercised or converted and has not expired, a new Warrant representing the Shares not so acquired. 1 1.5 Replacement of Warrants. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of mutilation, or surrender and cancellation of this Warrant, the Company at its expense shall execute and deliver, in lieu of this Warrant, a new warrant of like tenor. ARTICLE 2. ADJUSTMENTS TO THE SHARES. 2.1 Stock Dividends, Splits, Etc. If the Company declares or pays a dividend on its common stock payable in common stock, or other securities, subdivides the outstanding common stock into a greater amount of common stock, then upon exercise of this Warrant, for each Share acquired, Holder shall receive, without cost to Holder, the total number and kind of securities to which Holder would have been entitled had Holder owned the Shares of record as of the date the dividend or subdivision occurred. 2.2 Reclassification, Exchange or Substitution. Upon any reclassification, exchange, substitution, or other event that results in a change of the number and/or class of the securities issuable upon exercise or conversion of this Warrant, Holder shall be entitled to receive, upon exercise or conversion of this Warrant, the number and kind of securities and property that Holder would have received for the Shares if this Warrant had been exercised immediately before such reclassification, exchange, substitution, or other event. Such an event shall include any automatic conversion of the outstanding or issuable securities of the Company of the same class or series as the Shares to common stock pursuant to the terms of the Company's Certificate of Incorporation upon the closing of a registered public offering of the Company's common stock. Upon the closing of any sale, license, or other disposition of all or substantially all of the assets (including intellectual property) of the Company, or any reorganization, consolidation, or merger of the Company where the holders of the Company's securities before the transaction beneficially own less than 50% of the outstanding voting securities of the surviving entity after the transaction, the successor entity shall assume the obligations of this Warrant, and this Warrant thereafter shall be exercisable for the same securities, cash, and property as would be payable for the Shares issuable upon exercise of the unexercised portion of this Warrant as if such Shares were outstanding on the record date for the Acquisition and subsequent closing. The Warrant Price shall be adjusted accordingly. The Company or its successor shall promptly issue to Holder a new Warrant for such new securities or other property. The new Warrant shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article 2 including, without limitation, adjustments to the Warrant Price and to the number of securities or property issuable upon exercise of the new Warrant. The provisions of this Section 2.2 shall similarly apply to successive reclassifications, exchanges, substitutions, or other events. 2.3 Adjustments for Combinations, Etc. If the outstanding Shares are combined or consolidated, by reclassification or otherwise, into a lesser number of shares, the Warrant Price shall be proportionately increased. 2.4 Weighted Average Adjustment. If the Company issues additional common shares (including shares of common stock ultimately issuable upon conversion of a security convertible into common stock) after the date of the Warrant and the consideration per additional common share is less than the Warrant Price in effect immediately before such issue, then the applicable Warrant Price shall be reduced, concurrently with such Issue, to a price determined by multiplying the Warrant Price by a fraction: (a) the numerator of which is the amount of common stock outstanding immediately before such Issue plus the amount of common stock that the aggregate consideration received by the Company for the additional common shares would purchase at the Warrant Price in effect immediately before such Issue, and (b) the denominator of which is the amount of common stock outstanding immediately before such issue plus the number of such additional common shares. Upon each adjustment of the Warrant Price, the number of Shares issuable upon exercise of the Warrant shall be increased to equal the quotient obtained by dividing (a) the product resulting from multiplying (i) the number of Shares issuable upon exercise of the Warrant and (ii) the Warrant Price, in each case as in effect immediately before such adjustment, by (b) the adjusted Warrant Price. 2 2.5 No Impairment. The Company shall not, by amendment of its Certificate of Incorporation or through a reorganization, transfer of assets, consolidation, merger, dissolution, issue, or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed under this Warrant by the Company, but shall at all times in good faith assist in carrying out all the provisions of this Article 2 and in taking all such action as may be necessary or appropriate to protect Holder's rights under this Article against impairment. If the Company takes any action affecting the Shares or its common stock other than as described above that adversely affects Holder's rights under this Warrant, the Warrant Price shall be adjusted downward and the number of Shares issuable upon exercise of this Warrant shall be adjusted upward in such a manner that the aggregate Warrant Price of this Warrant is unchanged. 2.6 Certificate as to Adjustments. Upon each adjustment of the Warrant Price, the Company at its expense shall promptly compute such adjustment, and furnish Holder with a certificate of its Chief Financial Officer setting forth such adjustment and the facts upon which such adjustment is based. The Company shall, upon written request, furnish Holder a certificate setting forth the Warrant Price in effect upon the date thereof and the series of adjustments leading to such Warrant Price. ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY. 3.1 Representations and Warranties. The Company hereby represents and warrants to the Holder as follows: (a) The initial Warrant Price referenced on the first page of this Warrant is not greater than the fair market value of the Shares as of the date of this Warrant. (b) All Shares that may be issued upon the exercise of the purchase right represented by this Warrant, shall, upon issuance, be duly authorized, validly issued, fully paid and nonassessable, and free of any liens and encumbrances except for restrictions on transfer provided for herein or under applicable federal and state securities laws. (c) The capitalization table attached hereto correctly sets forth the authorized, issued and outstanding shares of capital stock of the Company and all options to acquire any such shares. 3.2 Notice of Certain Events. If the Company proposes at any time (a) to declare any dividend or distribution upon its common stock, whether in cash, property, stock, or other securities and whether or not a regular cash dividend; (b) to offer for subscription pro rata to the holders of any class or series of its stock any additional shares of stock of any class or series or other rights; (c) to effect any reclassification or recapitalization of common stock; (d) to merge or consolidate with or into any other corporation, or sell, lease, license, or convey all or substantially all of its assets, or to liquidate, dissolve or wind up; or (e) offer holders of registration rights the opportunity to participate in an underwritten public offering of the company's securities for cash, then, in connection with each such event, the Company shall give Holder (1) at least 20 days prior written notice of the date on which a record will be taken for such dividend, distribution, or subscription rights (and specifying the date on which the holders of common stock will be entitled thereto) or for determining rights to vote, if any, in respect of the matters referred to in (a) and (b) above; (2) in the case of the matters referred to in (c) and (d) above at least 20 days prior written notice of the date when the same will take place (and specifying the date on which the holders of common stock will be entitled to exchange their common stock for securities or other property deliverable upon the occurrence of such event); and (3) in the case of the matter referred to in (e) above, the same notice as is given to the holders of such registration rights. 3.3 Registration Rights. Within 120 days of the Issue Date (the "Filing Date"), Company shall file a registration statement covering the resale of the Shares on a registration statement (the "Registration Statement") with the Securities Exchange Commission (the "SEC") and effect the registration, qualifications or compliances (including without limitation the execution of any required undertaking to file post-effective amendments, appropriate qualifications or exemptions under applicable blue sky or other state securities laws and appropriate compliance with applicable laws) as promptly as possible after the filing thereof, but in any case within 45 days after the Filing. The Registration Statement will be on Form SB-2, provided that if Form SB-2 is not available for use by Company on the Filing Date, then the Registration Statement 3 will be on such form as is then available. All expenses incurred in connection with any registration, qualification, exemption or compliance pursuant to this Section shall be borne by Company. From the Filing Date through the earlier of (i) the date that Holder sells or disposes of the Shares or (ii) receives payment for the Equity Buyout under Section 4 (the "Registration Period"), Company shall cause the registration and any qualification, exemption or compliance under state and federal laws continuously effect with respect to Holder, and keep such Registration Statement free of any material misstatements or omissions. During the Registration Period, Company shall advise Holder (a) within 2 Business Days when the Registration Statement or any amendment thereto has been filed and when the Registration Statement or amendment has become effective, (b) within 2 Business Days of the issuance by the SEC of any stop order suspending the effectiveness of the Registration Statement, and (c) within 2 Business Days of the occurrence of any event that requires the making of any changes in the Registration Statement. Company shall at all times use its best efforts to cause its common stock to be listed on each securities exchange or market on which the stock is listed as of the Issue Date. The Shares, or the common stock into which the Shares are convertible, shall be "Registrable Securities", and Holder shall have the rights of a "Holder" under such investor rights agreement or registration rights agreement as the Company may enter into from time to time. If the Registration Statement (i) has not been filed with the SEC by the Filing Date, (ii) has not been declared effective by the SEC within 45 days thereafter, or (iii) after the Registration Statement is declared effective by the SEC, is suspended by Company or ceases to remain continuously effective as to all Shares for which it is required to be effective (a "Registration Default"), for any 30-day period (a "Penalty Period") during which the Registration Default remains uncured, Holder may acquire an additional number of Shares equal to 27,500 shares for each Penalty Period. 3.4 Information Rights. So long as the Holder holds this Warrant and/or any of the Shares, the Company shall deliver to the Holder (a) within ninety (90) days after the end of each fiscal year of the Company, the annual audited financial statements of the Company certified by independent public accountants of recognized standing and (b) within forty-five (45) days after the end of each of the first three quarters of each fiscal year, the Company's quarterly, unaudited financial statements; provided that so long as the Company is subject to the reporting requrements of Section 13(a) or 15(d0 of the Securities Exchange Act of 1934, as amended, such financial statements shall not be delivered to Holder before such financial statements are filed with the SEC. ARTICLE 4. EQUITY BUYOUT. At the option of Holder at any time after Holder makes the Advance under the Loan Agreement, Holder may require that Company purchase this Warrant for a price equal to $125,000. If any amount is outstanding under the Loan Agreement after February 28, 2008, such price shall be $175,000. ARTICLE 5. MISCELLANEOUS. 5.1 Term. This Warrant is exercisable, in whole or in part, at any time and from time to time on or before the Expiration Date set forth above. 5.2 Legends. This Warrant and the Shares (and the securities issuable, directly or indirectly, upon conversion of the Shares, if any) shall be imprinted with a legend in substantially the following form: THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR IN ACCORDANCE WITH APPLICABLE LAW. 5.3 Compliance with Securities Laws on Transfer. This Warrant and the Shares issuable upon exercise this Warrant (and the securities issuable, directly or indirectly, upon conversion of the Shares, if any) may not be transferred or assigned in whole or in part without compliance with applicable federal and state securities laws by the transferor and the transferee. 5.4 Transfer Procedure. Subject to the provisions of Section 5.3, Holder may transfer all or part of this Warrant or the Shares issuable upon exercise of this Warrant (or the securities issuable, directly or indirectly, upon conversion of the Shares, if any) by giving the Company notice of the portion of the Warrant being transferred setting forth the name, address and taxpayer identification number of the transferee and surrendering this Warrant to the Company for reissuance to the transferee(s) (and Holder, if applicable), provided that no such notice shall be required for a transfer to an affiliate of Holder. 4 5.5 Notices. All notices and other communications from the Company to the Holder, or vice versa, shall be deemed delivered and effective when given personally or mailed by first-class registered or certified mail, postage prepaid, at such address as may have been furnished to the Company or the Holder, as the case may be, in writing by the Company or such Holder from time to time. 5.6 Waiver. This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. 5.7 Attorneys' Fees. In the event of any dispute between the parties concerning the terms and provisions of this Warrant, the party prevailing in such dispute shall be entitled to collect from the other party all costs incurred in such dispute, including reasonable attorneys' fees. 5.8 Governing Law. This Warrant shall be governed by and construed in accordance with the laws of the State of California, without giving effect to its principles regarding conflicts of law. SYSVIEW TECHNOLOGY, INC. By: Name: Title: 5 APPENDIX 1 NOTICE OF EXERCISE 1. The undersigned hereby elects to purchase ______________ shares of the Common Stock of SYSVIEW TECHNOLOGY, INC. pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price of such shares in full. 1. The undersigned hereby elects to convert the attached Warrant into Shares in the manner specified in the Warrant. This conversion is exercised with respect to ______________ of the Shares covered by the Warrant. [Strike paragraph that does not apply.] 2. Please issue a certificate or certificates representing said shares in the name of the undersigned or in such other name as is specified below: Montage Capital, LLC ==================== Or Registered Assignee 3. The undersigned represents it is acquiring the shares solely for its own account and not as a nominee for any other party and not with a view toward the resale or distribution thereof except in compliance with applicable securities laws. MONTAGE CAPITAL, LLC or Registered Assignee (Signature) (Date) 6 EX-10.4 5 exh10-4.txt THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF OR IN ACCORDANCE WITH APPLICABLE LAW. WARRANT TO PURCHASE STOCK Corporation: SYSVIEW TECHNOLOGY, INC. Number of Shares: 325,000, subject to adjustment Class of Stock: Common Initial Exercise Price: $0.60 per Share Issue Date: September 27, 2007 Expiration Date: September 26, 2012 THIS WARRANT CERTIFIES THAT, in consideration of the payment of $1.00 and for other good and valuable consideration, NORTH ATLANTIC RESOURCES LIMITED or registered assignee ("Holder") is entitled to purchase the number of fully paid and nonassessable shares (the "Shares") of Common Stock of SYSVIEW TECHNOLOGY, INC. (the "Company"), in the number, at the price, and for the term specified above. The exercise price per share (the "Warrant Price") is equal to $0.60 per Share. If Company sells or issues its equity securities within one year after the Issue Date in an offering in which the Company receives gross proceeds of at least $1,000,000 (an "Equity Event") then, at the option of Holder, the Shares shall be of the type and series of stock issued in the Equity Event, the Warrant Price shall be equal to the price per share paid in the Equity Event, and Holder shall have the rights given to the purchasers in the Equity Event. Upon the occurrence of an Event of Default under the Loan and Security Agreement of even date (the "Loan Agreement"), Holder may acquire Shares under this Warrant equal to 13,750 Shares on the date of such occurrence and an additional 13,750 on the first day of each thirty (30) day period after such Event of Default until all amounts under the Loan Agreement have been paid in full. ARTICLE 1. EXERCISE 1.1 Method of Exercise. Holder may exercise this Warrant by delivering this Warrant and a duly executed Notice of Exercise in substantially the form attached as Appendix 1 to the principal office of the Company. Unless Holder is exercising the conversion right set forth in Section 1.2, Holder shall also deliver to the Company a check for the aggregate Warrant Price for the Shares being purchased. 1.2 Conversion Right. In lieu of exercising this Warrant as specified in Section 1.1, Holder may from time to time convert this Warrant, in whole or in part, into a number of Shares determined by dividing (a) the aggregate fair market value of the Shares or other securities otherwise issuable upon exercise of this Warrant minus the aggregate Warrant Price of such Shares by (b) the fair market value of one Share. The fair market value of the Shares shall be determined pursuant to Section 1.3. such conversion may be made by delivering this Warrant and a duly executed notice of Exercise in substantially the form attached as Appendix 1 to the principal office of the Company 1.3 Fair Market Value. If the Shares are traded regularly in a public market, the fair market value of the Shares shall be the closing price of the Shares (or the closing price of the Company's stock into which the Shares are convertible) reported for the business day immediately before Holder delivers its Notice of Exercise to the Company. If the Shares are not regularly traded in a public market, the Board of Directors of the Company shall determine fair market value in its reasonable good faith judgment. The foregoing notwithstanding, if Holder advises the Board of Directors in writing that Holder disagrees with such determination, then the Company and Holder shall promptly agree upon a reputable investment banking firm to undertake such valuation. If the valuation of such investment banking firm is greater than that determined by the Board of Directors, then all fees and expenses of such investment banking firm shall be paid by the Company. In all other circumstances, such fees and expenses shall be paid by Holder. 1.4 Delivery of Certificate and New Warrant. Promptly after Holder exercises or converts this Warrant, the Company shall deliver to Holder certificates for the Shares acquired and, if this Warrant has not been fully exercised or converted and has not expired, a new Warrant representing the Shares not so acquired. 1 1.5 Replacement of Warrants. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of mutilation, or surrender and cancellation of this Warrant, the Company at its expense shall execute and deliver, in lieu of this Warrant, a new warrant of like tenor. ARTICLE 2. ADJUSTMENTS TO THE SHARES. 2.1 Stock Dividends, Splits, Etc. If the Company declares or pays a dividend on its common stock payable in common stock, or other securities, subdivides the outstanding common stock into a greater amount of common stock, then upon exercise of this Warrant, for each Share acquired, Holder shall receive, without cost to Holder, the total number and kind of securities to which Holder would have been entitled had Holder owned the Shares of record as of the date the dividend or subdivision occurred. 2.2 Reclassification, Exchange or Substitution. Upon any reclassification, exchange, substitution, or other event that results in a change of the number and/or class of the securities issuable upon exercise or conversion of this Warrant, Holder shall be entitled to receive, upon exercise or conversion of this Warrant, the number and kind of securities and property that Holder would have received for the Shares if this Warrant had been exercised immediately before such reclassification, exchange, substitution, or other event. Such an event shall include any automatic conversion of the outstanding or issuable securities of the Company of the same class or series as the Shares to common stock pursuant to the terms of the Company's Certificate of Incorporation upon the closing of a registered public offering of the Company's common stock. Upon the closing of any sale, license, or other disposition of all or substantially all of the assets (including intellectual property) of the Company, or any reorganization, consolidation, or merger of the Company where the holders of the Company's securities before the transaction beneficially own less than 50% of the outstanding voting securities of the surviving entity after the transaction, the successor entity shall assume the obligations of this Warrant, and this Warrant thereafter shall be exercisable for the same securities, cash, and property as would be payable for the Shares issuable upon exercise of the unexercised portion of this Warrant as if such Shares were outstanding on the record date for the Acquisition and subsequent closing. The Warrant Price shall be adjusted accordingly. The Company or its successor shall promptly issue to Holder a new Warrant for such new securities or other property. The new Warrant shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article 2 including, without limitation, adjustments to the Warrant Price and to the number of securities or property issuable upon exercise of the new Warrant. The provisions of this Section 2.2 shall similarly apply to successive reclassifications, exchanges, substitutions, or other events. 2.3 Adjustments for Combinations, Etc. If the outstanding Shares are combined or consolidated, by reclassification or otherwise, into a lesser number of shares, the Warrant Price shall be proportionately increased. 2.4 Weighted Average Adjustment. If the Company issues additional common shares (including shares of common stock ultimately issuable upon conversion of a security convertible into common stock) after the date of the Warrant and the consideration per additional common share is less than the Warrant Price in effect immediately before such issue, then the applicable Warrant Price shall be reduced, concurrently with such Issue, to a price determined by multiplying the Warrant Price by a fraction: (a) the numerator of which is the amount of common stock outstanding immediately before such Issue plus the amount of common stock that the aggregate consideration received by the Company for the additional common shares would purchase at the Warrant Price in effect immediately before such Issue, and (b) the denominator of which is the amount of common stock outstanding immediately before such issue plus the number of such additional common shares. Upon each adjustment of the Warrant Price, the number of Shares issuable upon exercise of the Warrant shall be increased to equal the quotient obtained by dividing (a) the product resulting from multiplying (i) the number of Shares issuable upon exercise of the Warrant and (ii) the Warrant Price, in each case as in effect immediately before such adjustment, by (b) the adjusted Warrant Price. 2 2.5 No Impairment. The Company shall not, by amendment of its Certificate of Incorporation or through a reorganization, transfer of assets, consolidation, merger, dissolution, issue, or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed under this Warrant by the Company, but shall at all times in good faith assist in carrying out all the provisions of this Article 2 and in taking all such action as may be necessary or appropriate to protect Holder's rights under this Article against impairment. If the Company takes any action affecting the Shares or its common stock other than as described above that adversely affects Holder's rights under this Warrant, the Warrant Price shall be adjusted downward and the number of Shares issuable upon exercise of this Warrant shall be adjusted upward in such a manner that the aggregate Warrant Price of this Warrant is unchanged. 2.6 Certificate as to Adjustments. Upon each adjustment of the Warrant Price, the Company at its expense shall promptly compute such adjustment, and furnish Holder with a certificate of its Chief Financial Officer setting forth such adjustment and the facts upon which such adjustment is based. The Company shall, upon written request, furnish Holder a certificate setting forth the Warrant Price in effect upon the date thereof and the series of adjustments leading to such Warrant Price. ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY. 3.1 Representations and Warranties. The Company hereby represents and warrants to the Holder as follows: (a) The initial Warrant Price referenced on the first page of this Warrant is not greater than the fair market value of the Shares as of the date of this Warrant. (b) All Shares that may be issued upon the exercise of the purchase right represented by this Warrant, shall, upon issuance, be duly authorized, validly issued, fully paid and nonassessable, and free of any liens and encumbrances except for restrictions on transfer provided for herein or under applicable federal and state securities laws. (c) The capitalization table attached hereto correctly sets forth the authorized, issued and outstanding shares of capital stock of the Company and all options to acquire any such shares. 3.2 Notice of Certain Events. If the Company proposes at any time (a) to declare any dividend or distribution upon its common stock, whether in cash, property, stock, or other securities and whether or not a regular cash dividend; (b) to offer for subscription pro rata to the holders of any class or series of its stock any additional shares of stock of any class or series or other rights; (c) to effect any reclassification or recapitalization of common stock; (d) to merge or consolidate with or into any other corporation, or sell, lease, license, or convey all or substantially all of its assets, or to liquidate, dissolve or wind up; or (e) offer holders of registration rights the opportunity to participate in an underwritten public offering of the company's securities for cash, then, in connection with each such event, the Company shall give Holder (1) at least 20 days prior written notice of the date on which a record will be taken for such dividend, distribution, or subscription rights (and specifying the date on which the holders of common stock will be entitled thereto) or for determining rights to vote, if any, in respect of the matters referred to in (a) and (b) above; (2) in the case of the matters referred to in (c) and (d) above at least 20 days prior written notice of the date when the same will take place (and specifying the date on which the holders of common stock will be entitled to exchange their common stock for securities or other property deliverable upon the occurrence of such event); and (3) in the case of the matter referred to in (e) above, the same notice as is given to the holders of such registration rights. 3.3 Registration Rights. Within 120 days of the Issue Date (the "Filing Date"), Company shall file a registration statement covering the resale of the Shares on a registration statement (the "Registration Statement") with the Securities Exchange Commission (the "SEC") and effect the registration, qualifications or compliances (including without limitation the execution of any required undertaking to file post-effective amendments, appropriate qualifications or exemptions under applicable blue sky or other state securities laws and appropriate compliance with applicable laws) as promptly as possible after the filing thereof, but in any case within 45 days after the Filing. The Registration Statement will be on Form SB-2, provided that if Form SB-2 is not available for use by Company on the Filing Date, then the Registration Statement will be on such form as is then available. All expenses incurred in connection 3 with any registration, qualification, exemption or compliance pursuant to this Section shall be borne by Company. From the Filing Date through the earlier of (i) the date that Holder sells or disposes of the Shares or (ii) receives payment for the Equity Buyout under Section 4 (the "Registration Period"), Company shall cause the registration and any qualification, exemption or compliance under state and federal laws continuously effect with respect to Holder, and keep such Registration Statement free of any material misstatements or omissions. During the Registration Period, Company shall advise Holder (a) within 2 Business Days when the Registration Statement or any amendment thereto has been filed and when the Registration Statement or amendment has become effective, (b) within 2 Business Days of the issuance by the SEC of any stop order suspending the effectiveness of the Registration Statement, and (c) within 2 Business Days of the occurrence of any event that requires the making of any changes in the Registration Statement. Company shall at all times use its best efforts to cause its common stock to be listed on each securities exchange or market on which the stock is listed as of the Issue Date. The Shares, or the common stock into which the Shares are convertible, shall be "Registrable Securities", and Holder shall have the rights of a "Holder" under such investor rights agreement or registration rights agreement as the Company may enter into from time to time. If the Registration Statement (i) has not been filed with the SEC by the Filing Date, (ii) has not been declared effective by the SEC within 45 days thereafter, or (iii) after the Registration Statement is declared effective by the SEC, is suspended by Company or ceases to remain continuously effective as to all Shares for which it is required to be effective (a "Registration Default"), for any 30-day period (a "Penalty Period") during which the Registration Default remains uncured, Holder may acquire an additional number of Shares equal to 27,500 shares for each Penalty Period. 3.4 Information Rights. So long as the Holder holds this Warrant and/or any of the Shares, the Company shall deliver to the Holder (a) within ninety (90) days after the end of each fiscal year of the Company, the annual audited financial statements of the Company certified by independent public accountants of recognized standing and (b) within forty-five (45) days after the end of each of the first three quarters of each fiscal year, the Company's quarterly, unaudited financial statements; provided that so long as the Company is subject to the reporting requrements of Section 13(a) or 15(d0 of the Securities Exchange Act of 1934, as amended, such financial statements shall not be delivered to Holder before such financial statements are filed with the SEC. ARTICLE 4. EQUITY BUYOUT. At the option of Holder at any time after Holder makes the Advance under the Loan Agreement, Holder may require that Company purchase this Warrant for a price equal to $125,000. If any amount is outstanding under the Loan Agreement after February 28, 2008, such price shall be $175,000. ARTICLE 5. MISCELLANEOUS. 5.1 Term. This Warrant is exercisable, in whole or in part, at any time and from time to time on or before the Expiration Date set forth above. 5.2 Legends. This Warrant and the Shares (and the securities issuable, directly or indirectly, upon conversion of the Shares, if any) shall be imprinted with a legend in substantially the following form: THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR IN ACCORDANCE WITH APPLICABLE LAW. 5.3 Compliance with Securities Laws on Transfer. This Warrant and the Shares issuable upon exercise this Warrant (and the securities issuable, directly or indirectly, upon conversion of the Shares, if any) may not be transferred or assigned in whole or in part without compliance with applicable federal and state securities laws by the transferor and the transferee. 5.4 Transfer Procedure. Subject to the provisions of Section 5.3, Holder may transfer all or part of this Warrant or the Shares issuable upon exercise of this Warrant (or the securities issuable, directly or indirectly, upon conversion of the Shares, if any) by giving the Company notice of the portion of the Warrant being transferred setting forth the name, address and taxpayer identification number of the transferee and surrendering this Warrant to the Company for reissuance to the transferee(s) (and Holder, if applicable), provided that no such notice shall be required for a transfer to an affiliate of Holder. 4 5.5 Notices. All notices and other communications from the Company to the Holder, or vice versa, shall be deemed delivered and effective when given personally or mailed by first-class registered or certified mail, postage prepaid, at such address as may have been furnished to the Company or the Holder, as the case may be, in writing by the Company or such Holder from time to time. 5.6 Waiver. This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. 5.7 Attorneys' Fees. In the event of any dispute between the parties concerning the terms and provisions of this Warrant, the party prevailing in such dispute shall be entitled to collect from the other party all costs incurred in such dispute, including reasonable attorneys' fees. 5.8 Governing Law. This Warrant shall be governed by and construed in accordance with the laws of the State of California, without giving effect to its principles regarding conflicts of law. SYSVIEW TECHNOLOGY, INC. By: Name: Title: 5 APPENDIX 1 NOTICE OF EXERCISE 1. The undersigned hereby elects to purchase ______________ shares of the Common Stock of SYSVIEW TECHNOLOGY, INC. pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price of such shares in full. 1. The undersigned hereby elects to convert the attached Warrant into Shares in the manner specified in the Warrant. This conversion is exercised with respect to ______________ of the Shares covered by the Warrant. [Strike paragraph that does not apply.] 2. Please issue a certificate or certificates representing said shares in the name of the undersigned or in such other name as is specified below: North Atlantic Resources Limited ==================== Or Registered Assignee 3. The undersigned represents it is acquiring the shares solely for its own account and not as a nominee for any other party and not with a view toward the resale or distribution thereof except in compliance with applicable securities laws. NORTH ATLANTIC RESOURCES LIMITED or Registered Assignee (Signature) (Date) 6 EX-31.1 6 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. ("Company") for the quarter ended September 30, 2007; 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 Company as of, and for, the periods presented in this report; 4. The Company'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 Company 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 Company, 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 Company'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 Company's internal control over financial reporting that occurred during the Company's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. 5. The Company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company's auditors and the audit committee of the Company'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 Company'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 Company's internal control over financial reporting. Date: November 14, 2007 /S/ DARWIN HU ------------- Darwin Hu, Chairman and Chief Executive Officer EX-31.2 7 exh31-2.txt EXHIBIT 31.2 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, M. Carolyn Ellis, hereby certify that: 1. I have reviewed the Quarterly Report on Form 10-QSB of Sysview Technology, Inc. for the quarter ended September 30, 2007; 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 Company as of, and for, the periods presented in this report; 4. The Company'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 Company 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 Company, 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 Company'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 Company's internal control over financial reporting that occurred during the Company's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. 5. The Company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company's auditors and the audit committee of the Company'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 Company'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 Company's internal control over financial reporting. Date: November 14, 2007 /S/ M. CAROLYN ELLIS -------------------- M. Carolyn Ellis Chief Financial Officer EX-32.1 8 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 ("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 September 30, 2007 (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: November 14, 2007 /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 9 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 ("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 September 30, 2007 (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: November 14, 2007 /S/ M. CAROLYN ELLIS -------------------- M. Carolyn Ellis Chief Financial 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. -----END PRIVACY-ENHANCED MESSAGE-----