0001165527-12-001050.txt : 20121004
0001165527-12-001050.hdr.sgml : 20121004
20121004145518
ACCESSION NUMBER: 0001165527-12-001050
CONFORMED SUBMISSION TYPE: 8-K
PUBLIC DOCUMENT COUNT: 3
CONFORMED PERIOD OF REPORT: 20120831
ITEM INFORMATION: Entry into a Material Definitive Agreement
ITEM INFORMATION: Completion of Acquisition or Disposition of Assets
ITEM INFORMATION: Unregistered Sales of Equity Securities
ITEM INFORMATION: Change in Shell Company Status
ITEM INFORMATION: Financial Statements and Exhibits
FILED AS OF DATE: 20121004
DATE AS OF CHANGE: 20121004
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: X-CHANGE CORP
CENTRAL INDEX KEY: 0000054424
STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813]
IRS NUMBER: 900156146
STATE OF INCORPORATION: NV
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 8-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 002-41703
FILM NUMBER: 121129375
BUSINESS ADDRESS:
STREET 1: 12655 N. CENTRAL EXPRESSWAY
STREET 2: SUITE 1000
CITY: DALLAS
STATE: TX
ZIP: 75243
BUSINESS PHONE: 972-386-7350
MAIL ADDRESS:
STREET 1: 12655 N. CENTRAL EXPRESSWAY
STREET 2: SUITE 1000
CITY: DALLAS
STATE: TX
ZIP: 75243
FORMER COMPANY:
FORMER CONFORMED NAME: DIVERSIFIED TECHNOLOGIES GROUP INC
DATE OF NAME CHANGE: 20010330
FORMER COMPANY:
FORMER CONFORMED NAME: CASSCO CAPITAL CORP
DATE OF NAME CHANGE: 19940804
FORMER COMPANY:
FORMER CONFORMED NAME: INTERNATIONAL K C JAKES BBQ & GRILL INC
DATE OF NAME CHANGE: 19940627
8-K
1
g6306.txt
CURRENT REPORT DATED 8-31-2012
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): August 31, 2012
THE X-CHANGE CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Nevada 002-41703 90-0156146
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
12655 North Central Expressway, Suite 1000, Dallas TX 75243
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code: (972) 386-7350
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2 below):
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
Act (17 CFR 240.13e-4(c))
FORWARD LOOKING STATEMENTS
The following discussion, in addition to the other information contained in this
Current Report, should be considered carefully in evaluating our prospects. This
report (including without limitation the following factors that may affect
operating results) contains forward-looking statements regarding us and our
business, financial condition, results of operations and prospects. Words such
as "expects," "anticipates," "intends," "plans," "believes," "seeks,"
"estimates" and similar expressions or variations of such words are intended to
identify forward-looking statements, but are not the exclusive means of
identifying forward-looking statements in this report. Additionally, statements
concerning future matters such as revenue projections, projected profitability,
growth strategies, possible changes in legislation and other statements
regarding matters that are not historical are forward-looking statements.
Forward-looking statements in this report reflect the good faith judgment of our
management and the statements are based on facts and factors as we currently
know them. Forward-looking statements are subject to risks and uncertainties and
actual results and outcomes may differ materially from the results and outcomes
discussed in the forward-looking statements. Factors that could cause or
contribute to such differences in results and outcomes include, but are not
limited to, those discussed below and in "Management's Discussion and Analysis
of Financial Condition and Results of Operations" as well as those discussed
elsewhere in this report. Readers are urged not to place undue reliance on these
forward-looking statements which speak only as of the date of this report. We
undertake no obligation to revise or update any forward-looking statements in
order to reflect any event or circumstance that may arise after the date of this
report.
As used in this current report and unless otherwise indicated, the terms "we",
"us", "our", the "Company" and "X-Change" refer to The X-Change Corporation.
ITEM 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT
On August31, 2012, the Company entered into a Purchase Agreement with 4C Tech
Holdings Inc., an Alberta, Canada corporation ("4C"), 1237878 Alberta Ltd., an
Alberta, Canada corporation ("1237878") and 1238105 Alberta Ltd., an Alberta,
Canada corporation ("1238105") (4C, 1237878 and 1238105 are collectively
referred to as "Sellers") in which the Company purchased from Sellers all the
issued and outstanding shares of Guardian Telecom Inc., an Alberta, Canada
corporation ("Guardian"). As consideration for the acquisition of Guardian, the
Company has agreed to pay to the Sellers US$3,500,000 and issue one million
(1,000,000) shares of the Company's common stock in restricted form. At closing
on September 10, 2012, the Company issued the shares of common stock and
executed the promissory notes and pledge agreements to secure payment of the
cash consideration of the purchase price. None of the parties to the Purchase
Agreement are affiliates of the Company.
2
ITEM 2.01 COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS
See disclosure in Item 1.01.
ITEM 3.02. UNREGISTERED SALES OF EQUITY SECURITIES
On September 10, 2012, we issued 1,000,000 shares of our Common Stock to the
Sellers as more particularly described in Item 1.01 above. The issuance of
shares was exempt under Section 4(2) of the Securities Act as a transaction not
involving any public offering or solicitation and also exempt under Section 4(6)
as an offering solely to accredited persons.
ITEM 5.06 CHANGE IN SHELL COMPANY STATUS
Management has determined that, as of the date of this Current Report, given the
current level of our operations, the Company is no longer a shell corporation as
that term is defined in Rule 405 of the Securities Act and Rule 12b-2 of the
Exchange Act. Therefore, the Company is filing this report to disclose such
information as would be required if the registrant were filing a general form
for registration of securities on Form 10.
FORM 10 DISCLOSURE
ITEM 1. BUSINESS
CORPORATE HISTORY
GENERAL
The X-Change Corporation (Company) was incorporated under the laws of the State
of Delaware on February 5, 1969 and changed its corporate domicile to the State
of Nevada on October 4, 2000. We were originally organized to seek merger and/or
acquisition candidates and engaged in various transactions since our inception.
As of December 31, 2008, we had disposed of all assets and operations.
Our principal office is located at 12655 North Central Expressway, Suite 1000,
Dallas, Texas 75243 and our telephone number is (972) 386-7350. Currently, the
Company has no known exposures to any current or proposed climate change
legislation which could negatively impact the Company's operations or require
capital expenditures to become compliant.
RECENT ACQUISITION OF ASSETS
On August 31, 2012, the Company entered into a Purchase Agreement with 4C Tech
Holdings Inc., an Alberta, Canada corporation ("4C"), 1237878 Alberta Ltd., an
Alberta, Canada corporation ("1237878") and 1238105 Alberta Ltd., an Alberta,
Canada corporation ("1238105") (4C, 1237878 and 1238105 are collectively
referred to as "Sellers") in which the Company purchased from Sellers all the
3
issued and outstanding shares of Guardian Telecom Inc., an Alberta, Canada
corporation ("Guardian"). As consideration for the acquisition of Guardian, the
Company has agreed to pay to the Sellers US$3,500,000 and issue one million
(1,000,000) shares of the Company's common stock in restricted form. At closing
of the transaction on September 10, 2012, the Company issued the shares of
common stock and executed promissory notes and pledge agreements to secure
payment of the cash consideration of the purchase price. None of the parties to
the Purchase Agreement are affiliates of the Company. The four promissory notes
to the Sellers are as follows: $250,000 promissory note due within thirty (30)
days of Closing, $750,000 promissory note due within ninety (90) days of
Closing, $2,000,000 promissory note due within one (1) year of Closing and a
$500,000 promissory note due within sixteen (16) months of Closing.
Guardian is in the business of designing, manufacturing and distributing
telephone equipment, systems and accessories. It is also performs contract
manufacturing services, including surface mount and through-hole population of
printed circuit boards, mechanical assembly, parts procurement, testing and
final assembly for unrelated third-parties. Guardian was originally incorporated
as 564058 Alberta Ltd. on April 26, 1993 and changed its name to Guardian
Telecom, Inc. on August 4, 1993.
As part of the consideration paid to Guardian, the Company has assumed certain
debts and other obligations of Guardian. The Company has assumed the liability
for a $600,000 promissory note by and between the 4C and Guardian with interest
at 6% per year.
Based on the closing price of the Company's common stock as of September 10,
2012, this acquisition is valued at $3,680,000 (one million shares times $.18
per share plus promissory notes totaling $3,500,000). The assets the Company
acquired from Guardian include inventory of approximately $1,000,000, cash of
approximately $50,000, accounts receivable of approximately $1,300,000 and
prepaid expenses of approximately $60,000. The liabilities of Guardian include a
line of credit of approximately $500,000, accounts payable of approximately
$470,000, notes payable to current and former shareholders of approximately
$216,000, current maturities of capital leases payable of approximately $50,000
and other accrued liabilities of approximately $57,000.
EMPLOYEES
The Company currently has no employees but has management contracts with its CEO
who will be providing his services on an as-needed basis. Management of the
Company expects to use consultants, attorneys and accountants as necessary. As
the Company needs employees, it will employ them. Since the Company has acquired
Guardian, which shall be a wholly-owned subsidiary of the Company, the Company
intends to primarily focus its activities in the telecommunications industry.
Guardian employs approximately 48 full-time and one (1) part-time employees.
4
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the SEC. You may read and copy our reports or other filings
made with the SEC at the SEC's Public Reference Room, located at 100 F Street,
N.E., Washington, DC 20549. You can obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. You can also access
these reports and other filings electronically on the SEC's web site,
www.sec.gov.
ITEM 1A. RISK FACTORS
RISK FACTORS
RISKS RELATING TO OUR COMPANY AND BUSINESS
The following is a discussion of significant risk factors relevant to the
Company's business that could adversely affect its financial position or results
of operations.
Weakness in the economy could negatively impact the Company's sales growth.
Economic and industry trends affect The Company's business environments.
Economic downturns can cause customers, both domestic and international, to idle
or close facilities, delay purchases and otherwise reduce their ability to
purchase the Company's products and services as well as their ability to make
full and timely payments. Thus, a significant or prolonged slowdown in economic
activity in the United States, Canada or any other major world economy could
negatively impact the Company's sales growth and results of operations.
Volatility in commodity prices may adversely affect operating margins. Some of
the Company's products contain significant amounts of commodity-priced
materials, such as steel, copper, petroleum derivatives or rare earth minerals,
and are subject to price changes based upon fluctuations in the commodities
market. Increases in the price of fuel could also drive up transportation costs.
The Company's ability to pass on increases in costs depends on market
conditions. The inability to pass along cost increases could result in lower
operating margins. In addition, higher prices could impact demand for these
products, resulting in lower sales volumes.
Unexpected product shortages could negatively impact customer relationships,
resulting in an adverse impact on results of operations. The Company's
competitive strengths include product selection and availability. Products are
purchased from key suppliers located in various countries around the world, no
one of which accounted for more than 5% of total purchases. Historically, no
significant difficulty has been encountered with respect to sources of supply;
however, disruptions could occur due to factors beyond the Company's control,
such as economic downturns, political unrest, trade issues, to name a few, any
of which could adversely affect a supplier's ability to manufacture or deliver
products. If the Company were to experience difficulty in obtaining products,
there could be a short-term adverse effect on results of operations and a
longer-term adverse effect on customer relationships and the Company's
5
reputation. In addition, the Company has strategic relationships with key
vendors. In the event the Company was unable to maintain those relations, there
might be a loss of competitive pricing advantages which could, in turn,
adversely affect results of operations.
The addition of new product lines could impact future sales growth. The Company
is continuing in a multiyear product line expansion program. The continued
success of this program is expected to be a driver of growth in 2013 and beyond.
Its success will depend on the Company's ability to accurately forecast market
demand, obtain products from suppliers and effectively integrate these products
into the supply chain. As such, there is a risk that the product line expansion
program will not deliver the expected results, which could negatively impact
anticipated future sales growth.
Disruptions in the Company's supply chain could result in an adverse impact on
results of operations. A disruption within the Company's logistics or supply
chain network, including damage, destruction, and other events which would cause
its distribution center to become non-operational, could adversely affect the
Company's ability to deliver inventory in a timely manner, impair the Company's
ability to meet customer demand for products and result in lost sales or damage
to the Company's reputation. Such a disruption could adversely impact the
results of operations.
Interruptions in the proper functioning of information systems could disrupt
operations and cause unanticipated increases in costs and/or decreases in
revenues. The proper functioning of the Company's information systems, including
its websites, is critical to the successful operation of its business. The
Company continues to invest in software, hardware and network infrastructures in
order to effectively manage its information systems and websites. Although the
Company's information systems are protected with robust backup and security
systems, including physical and software safeguards and remote processing
capabilities, information systems are still vulnerable to natural disasters,
power losses, computer viruses, telecommunication failures and other problems.
If critical information systems fail or otherwise become unavailable, among
other things, the Company's ability to process orders, maintain proper levels of
inventories, collect accounts receivable and disburse funds could be adversely
affected. Any such interruption of the Company's information systems could also
subject the Company to additional costs.
Breaches of information systems security could damage the Company's reputation,
disrupt operations, increase costs and/or decrease revenues. Through the
Company's sales and eCommerce channels, the Company collects and stores
confidential information that customers provide to, among other things, purchase
products or services, enroll in promotional programs and register on the
website. The Company also acquires and retains information about suppliers and
employees in the normal course of business. Despite instituted safeguards for
the protection of such information, computer hackers may attempt to penetrate
the Company's or its vendors' information systems and, if successful,
misappropriate confidential customer, supplier, employee or other business
6
information. In addition, a Company employee, contractor or other third party
with whom the Company does business may attempt to circumvent security measures
in order to obtain such information or inadvertently cause a breach involving
such information. Loss of customer, supplier, employee or other business
information could disrupt operations, damage the Company's reputation, and
expose the Company to claims from customers, suppliers, financial institutions,
regulators, payment card associations, employees and other persons, any of which
could have an adverse effect on the Company, its financial condition and results
of operations. In addition, compliance with tougher privacy and information
security laws and standards may result in significant additional expense due to
increased investment in technology and the development of new operational
processes.
Fluctuations in foreign currency have an effect on reported results of
operations. Foreign currency exchange rates and fluctuations have an impact on
sales, costs and cash flows from international operations, and could affect
reported financial performance.
Acquisitions involve a number of inherent risks, any of which could result in
the benefits anticipated not being realized and could have an adverse effect on
results of operations. Acquisitions, both foreign and domestic, involve various
inherent risks, such as uncertainties in assessing the value, strengths,
weaknesses, liabilities and potential profitability of acquired companies. There
is a risk of potential losses of key employees of an acquired business and of an
inability to achieve identified operating and financial synergies anticipated to
result from an acquisition. Additionally, problems could arise from the
integration of the acquired business including unanticipated changes in the
business or industry, or general economic conditions that affect the assumptions
underlying the acquisition. Any one or more of these factors could cause the
Company not to realize the benefits anticipated to result from the acquisitions
or have a negative impact on the fair value of the reporting units. Accordingly,
goodwill and intangible assets recorded as a result of acquisitions could become
impaired.
In order to compete, the Company must attract, retain and motivate key
employees, and the failure to do so could have an adverse effect on results of
operations. In order to compete and have continued growth, the Company must
attract, retain and motivate executives and other key employees, including those
in managerial, technical, sales, marketing and support positions. The Company
competes to hire employees and then must train them and develop their skills and
competencies. The Company's operating results could be adversely affected by
increased costs due to increased competition for employees, higher employee
turnover or increased employee benefit costs.
The Company's continued success is substantially dependent on positive
perceptions of the Company's reputation. One of the reasons why customers choose
to do business with the Company and why employees choose the Company as a place
of employment is the reputation that the Company has built over many years. To
be successful in the future, the Company must continue to preserve, grow and
leverage the value of the Company's brand. Reputational value is based in large
7
part on perceptions of subjective qualities. Even an isolated incident, or the
aggregate effect of individually insignificant incidents, can erode trust and
confidence, particularly if they result in adverse publicity, governmental
investigations or litigation, and as a result, could tarnish the Company's brand
and lead to adverse effects on the Company's business.
The Company's business is subject to various government regulations. The
Company's business is subject to a wide array of laws and regulations in every
jurisdiction where it operates and compliance with these laws and regulations
increases the cost of doing business. As a government contractor selling to
federal, state and local government entities, the Company is subject to a
variety of laws and regulations, including without limitation import and export
requirements, the Foreign Corrupt Practices Act, tax laws (including U.S. taxes
on foreign subsidiaries), foreign exchange controls and cash repatriation
restrictions, data privacy requirements, labor laws and anti-competition
regulations, and is also subject to audits and inquiries in the ordinary course
of business. Changes to the legal and regulatory environments could increase the
cost of doing business, and such costs may increase in the future as a result of
changes in these laws and regulations or in their interpretation. Furthermore,
the Company has implemented policies and procedures designed to facilitate
compliance with these laws and regulations, but there can be no assurance that
employees, contractors or agents will not violate such laws and regulations or
the Company's policies. Any such violations could individually or in the
aggregate materially adversely affect the Company's financial condition or
operating results.
The elimination of monetary liability against the Company's directors, officers
and employees under Nevada law and the existence of indemnification rights to
the Company's directors, officers and employees may result in substantial
expenditures by the Company and may discourage lawsuits against the Company's
directors, officers and employees.
The Company's Certificate of Incorporation contains a specific provision that
eliminates the liability of directors for monetary damages to the Company and
the Company's stockholders; further, the Company is prepared to give such
indemnification to its directors and officers to the extent provided by Nevada
law. The foregoing indemnification obligations could result in the Company
incurring substantial expenditures to cover the cost of settlement or damage
awards against directors and officers, which the Company may be unable to
recoup. These provisions and resultant costs may also discourage the Company
from bringing a lawsuit against directors and officers for breaches of their
fiduciary duties and may similarly discourage the filing of derivative
litigation by the Company's stockholders against the Company's directors and
officers even though such actions, if successful, might otherwise benefit the
Company and its stockholders.
We may be exposed to risks relating to management's conclusion that our
disclosure controls and procedures and internal controls over financial
reporting are ineffective.
8
We do not have an independent audit committee and our Board of Directors may be
unable to fulfill the functions of such a committee which may compromise the
management of our business.
Currently, we do not have an independent audit committee. Our Board of Directors
functions as our audit committee and is comprised of three directors, one of
whom is not considered to be "independent" in accordance with the requirements
of Rule 10A-3 under the Securities Exchange Act of 1934. An independent audit
committee plays a crucial role in the corporate governance process, assessment
of the Company's processes relating to its risks and control environment,
oversight of financial reporting, and evaluation of internal and independent
audit processes. The lack of an independent audit committee may prevent the
Board of Directors from being independent in its judgments and decisions and its
ability to pursue the committee's responsibilities, which could compromise the
management of our business.
RISKS RELATING TO THE COMMON STOCK
The Company's stock price may be volatile.
The market price of the Company's common stock is likely to be highly volatile
and could fluctuate widely in price in response to various factors, many of
which are beyond the Company's control, including the following:
* additions or departures of key personnel;
* the Company's ability to execute its business plan;
* operating results that fall below expectations;
* loss of any strategic relationship;
* industry developments;
* economic and other external factors; and
* period-to-period fluctuations in the Company's financial results.
In addition, the securities markets have from time to time experienced
significant price and volume fluctuations that are unrelated to the operating
performance of particular companies. These market fluctuations may also
materially and adversely affect the market price of the Company's common stock.
We may in the future issue additional shares of our common stock which would
reduce investors' ownership interests in the Company and which may dilute our
share value.
Our Articles of Incorporation authorizes the issuance of 750,000,000 shares of
common stock, par value $0.001 per share and 75,000,000 shares of preferred
stock, $.001 par value. The future issuance of all or part of our remaining
9
authorized common stock may result in substantial dilution in the percentage of
our common stock held by our then existing stockholders. We may value any common
stock issued in the future on an arbitrary basis. The issuance of common stock
for future services or acquisitions or other corporate actions may have the
effect of diluting the value of the shares held by our investors, and might have
an adverse effect on any trading market for our common stock.
In the future, the Company might authorize a class of preferred stock with
rights and preferences superior to those of the common stockholders and which
might contain provisions giving them priority over the rights of the common
stockholders. Any such class of preferred stock may result in substantial
dilution to our common stockholders and have an adverse effect on any trading
market for our common stock.
FINRA sales practice requirements may limit a stockholder's ability to buy and
sell our stock.
The Financial Industry Regulatory Authority ("FINRA") has adopted rules that
relate to the application of the SEC's penny stock rules in trading our
securities and require that a broker/dealer have reasonable grounds for
believing that the investment is suitable for that customer, prior to
recommending the investment. Prior to recommending speculative, low priced
securities to their non-institutional customers, broker/dealers must make
reasonable efforts to obtain information about the customer's financial status,
tax status, investment objectives and other information.
Under interpretations of these rules, FINRA believes that there is a high
probability that speculative, low priced securities will not be suitable for at
least some customers. FINRA's requirements make it more difficult for
broker/dealers to recommend that their customers buy our common stock, which may
have the effect of reducing the level of trading activity and liquidity of our
common stock. Further, many brokers charge higher transactional fees for penny
stock transactions. As a result, fewer broker/dealers may be willing to make a
market in our common stock, reducing a shareholder's ability to resell shares of
our common stock.
The Company's common stock is currently deemed to be "penny stock", which makes
it more difficult for investors to sell their shares.
The Company's common stock is and will be subject to the "penny stock" rules
adopted under Section 15(g) of the Exchange Act. The penny stock rules apply to
companies whose common stock is not listed on the NASDAQ Stock Market or other
national securities exchange and trades at less than $5.00 per share or that
have tangible net worth of less than $5,000,000 ($2,000,000 if the company has
been operating for three or more years). These rules require, among other
things, that brokers who trade penny stock to persons other than "established
customers" complete certain documentation, make suitability inquiries of
investors and provide investors with certain information concerning trading in
the security, including a risk disclosure document and quote information under
certain circumstances. Many brokers have decided not to trade penny stocks
10
because of the requirements of the penny stock rules and, as a result, the
number of broker-dealers willing to act as market makers in such securities is
limited. If the Company remains subject to the penny stock rules for any
significant period, it could have an adverse effect on the market, if any, for
the Company's securities. If the Company's securities are subject to the penny
stock rules, investors will find it more difficult to dispose of the Company's
securities.
ITEM 2. FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED DECEMBER 31, 2011
The Company had no revenue, except for nominal interest income, for either of
the years ended December 31, 2011 or 2010, respectively. The Company was
dependent on loans and lines of credit to fund its operations in 2011.
General and administrative expenses for each of the years ended December 31,
2011 and 2010 were approximately $111,242 and $127,000, respectively.
The Company recognized aggregate interest accruals, amortization of debt
financing fees and accretion of debt discounts of approximately $1,869,436 and
$5,176,000 during each of the years ended December 31, 2011 and 2010,
respectively. The Company's convertible debenture with La Jolla Cove Investors,
Inc. matured in August 2010. All of the Company's debt is in default due to the
December 2008 foreclosure action and, accordingly, has been classified as
"current" on the Company's balance sheet regardless of the stated maturity
date(s).
On May 4, 2009, the Company entered into a Settlement Agreement and Release with
AirGATE Technologies Inc. (AirGATE), HM Energy Technologies Inc. (HM), WM Chris
Mathers (Mathers), Kathleen Hanafan (Hanafan), Duke Loi (Loi), Samson Investment
Company (Samson), Ironman PI Fund (QP), L.P. (Ironman), John Thomas Bridge and
Opportunity Fund, LP (John Thomas and, collectively with Samson and Ironman,
SIJ) and Melissa CR 364, LTD (Melissa). In summary, as a result of the various
transactions effected under the Agreement, SIJ surrendered all of their shares
in the Company, cancelled financial obligations of the Company that exceeded
$3.6 million, with interest and terminated their rights under warrant and
guaranty agreements. The Company provided all parties with a full release of
claims, known and unknown, in exchange for these various surrenders,
cancellations and terminations. The Company recognized a gain on extinguishment
of debt of approximately $465,000 as a result of these actions.
Loss per share for the respective years ended December 31, 2011 and 2010 were
$(0.11) and $(0.83) based on the weighted-average shares issued and outstanding
at the end of each respective period.
11
BALANCE SHEET
As of December 31, 2011, the Company had no assets and total liabilities of
$1,235,159 comprised of a convertible debenture of $285,225, note payable to
shareholder of $829,598, accounts payable of $13,704 and accrued interest
payable of $106,632. As at December 31, 2010, the Company had assets of $571,260
comprised of a license of $530,000, a note receivable of $40,714 and interest
receivable of $546 and had total liabilities of $1,178,357 comprised of a
convertible debenture of $286,225, note payable to shareholder of $837,490,
accounts payable of $4,570, and accrued interest payable of $50,072. The assets
on the balance sheet dated December 31, 2010 are no longer owned by the Company
due to rescission of the transactions by which the Company received the assets
or through abandonment of the assets by the Company.
OPERATING REVENUES
During the year ended December 31, 2011, the Company did not recognize any
operating revenue.
In March 2010, the Company issued an aggregate 3,902,439 shares of restricted,
unregistered common stock in connection with the redemption of $32,000 in
convertible debenture debt. As the conversion price was below the "fair value"
of the securities issued, the Company experienced a non-cash charge to
operations of approximately $57,760 which will be classified as "interest
expense" in the financial statements for the quarter ended March 31, 2010.
In September 2010 and December 2010, the Company issued an aggregate 9,797,416
restricted, unregistered post-reverse split shares to Melissa CR 364 LTD. to
retire a combination of approximately $50,000 on the aforementioned line of
credit and approximately $146,000 in accumulated accrued interest on both the
AirGATE and line of credit notes. As the valuation of the conversion as stated
in the separate note agreements was below the "fair value" of the securities
issued, the Company experienced a non-cash charge to operations of approximately
$4,950,000 which was classified as "interest expense" in the accompanying
financial statements.
In December 2010, the Company issued 1,000,000 shares of restricted,
unregistered post-reverse split shares, valued at approximately $530,000 which
was equal to the closing quotation of the Company's securities on the
transaction date, to 21-Century Silicon, Inc. (a Texas corporation) to license
the use of 21-Century Silicon's technology and to secure an exclusive right to
negotiate to acquire certain intellectual property from 21-Century Silicon. This
transaction was not closed.
OPERATING EXPENSES
During the year ended December 31, 2011, the Company had operating expenses and
a net loss of $1,869,436.
12
LIQUIDITY AND CAPITAL RESOURCES
As at December 31, 2011, the Company had a cash balance of zero and a working
capital deficit of $(1,235,159).
Our capital needs over the next year, and each subsequent year, will be
approximately $2,000,000. Our anticipated expenses per year include repayment of
the promissory notes issued as part of the Guardian acquisition.
We expect to incur these expenses over the next year as follows:
TIME PERIOD
EXPECTED EXPENSES
October 1, 2012 - December 31, 2012
$560,000 for general and administrative expenses plus $750,000 to pay the first
two promissory notes.
January 1, 2013 - March 31, 2013
$560,000 for general and administrative expenses.
April 1, 2013 - June 30, 2013
$750,000 for general and administrative expenses.
July 1, 2013 - September 30, 2013
$560,000 for general and administrative expenses and $2,000,000 to pay the third
promissory note.
CASHFLOW FROM OPERATING ACTIVITIES
During the year ended December 31, 2011, the Company used $77,108 of cash for
operating activities related to the Company's general operations.
CASHFLOW FROM INVESTING ACTIVITY
During the year ended December 31, 2011, the Company did not have any investing
activities.
CASHFLOW FROM FINANCING ACTIVITIES
During the year ended December 31, 2011, the Company received $77,108 from
financing activities.
13
CRITICAL ACCOUNTING POLICIES
Our financial statements and accompanying notes have been prepared in accordance
with United States generally accepted accounting principles applied on a
consistent basis. The preparation of financial statements in conformity with
U.S. generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods.
We regularly evaluate the accounting policies and estimates that we use to
prepare our financial statements. A complete summary of these policies is
included in the notes to our financial statements which are incorporated herein
by this reference to the Company's most recent Annual Report for the year ended
December 31, 2011, as filed with the Securities and Exchange Commission on May
4, 2012. In general, management's estimates are based on historical experience,
on information from third party professionals, and on various other assumptions
that are believed to be reasonable under the facts and circumstances. Actual
results could differ from those estimates made by management.
GOING CONCERN
We have not attained profitable operations and are dependent upon obtaining
financing to pursue any extensive activities. For these reasons, our auditors
stated in their report on our audited financial statements that they have
substantial doubt that we will be able to continue as a going concern without
further financing.
Our continued operations are dependent on our ability to complete equity or debt
financing activities or to generate profitable operations.
FUTURE FINANCINGS
We will continue to rely on equity sales of our common shares in order to
continue to fund our business operations. Issuances of additional shares will
result in dilution to existing stockholders. There is no assurance that we will
achieve any additional sales of the equity securities or arrange for debt or
other financing to fund planned acquisitions and exploration activities.
OFF-BALANCE SHEET ARRANGEMENTS
We have no significant off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on our financial condition,
changes in financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources that are material to
stockholders.
14
CONTRACTUAL OBLIGATIONS
We are a smaller reporting company as defined by Rule 12b-2 of the Securities
Exchange Act of 1934 and are not required to provide the information under this
item.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In January 2010, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Update ("ASU") No. 2010-06, "Improving Disclosures about
Fair Value Measurements." ASU No. 2010-06 amends FASB Accounting Standards
Codification ("ASC") 820 and clarifies and provides additional disclosure
requirements related to recurring and non-recurring fair value measurements and
employers' disclosures about postretirement benefit plan assets. This ASU is
effective for interim and annual reporting periods beginning after December 15,
2009. The adoption of ASU 2010-06 did not have a material impact on the
Company's financial statements.
In January 2010, the FASB issued an amendment to ASC 505, Equity, where entities
that declare dividends to shareholders that may be paid in cash or shares at the
election of the shareholders are considered to be a share issuance that is
reflected prospectively in EPS, and is not accounted for as a stock dividend.
This standard is effective for interim and annual periods ending on or after
December 15, 2009 and is to be applied on a retrospective basis. The adoption of
this standard is not expected to have a significant impact on the Company's
consolidated financial statements.
In January 2010, the FASB issued an amendment to ASC 820, Fair Value
Measurements and Disclosure, to require reporting entities to separately
disclose the amounts and business rationale for significant transfers in and out
of Level 1 and Level 2 fair value measurements and separately present
information regarding purchase, sale, issuance, and settlement of Level 3 fair
value measures on a gross basis. This standard, for which the Company is
currently assessing the impact, is effective for interim and annual reporting
periods beginning after December 15, 2009 with the exception of disclosures
regarding the purchase, sale, issuance, and settlement of Level 3 fair value
measures which are effective for fiscal years beginning after December 15, 2010.
The adoption of this standard is not expected to have a significant impact on
the Company's consolidated financial statements.
In October 2009, FASB issued an amendment to the accounting standards related to
the accounting for revenue in arrangements with multiple deliverables including
how the arrangement consideration is allocated among delivered and undelivered
items of the arrangement. Among the amendments, this standard eliminated the use
of the residual method for allocating arrangement considerations and requires an
entity to allocate the overall consideration to each deliverable based on an
estimated selling price of each individual deliverable in the arrangement in the
absence of having vendor-specific objective evidence or other third party
evidence of fair value of the undelivered items. This standard also provides
15
further guidance on how to determine a separate unit of accounting in a
multiple-deliverable revenue arrangement and expands the disclosure requirements
about the judgments made in applying the estimated selling price method and how
those judgments affect the timing or amount of revenue recognition. This
standard, for which the Company is currently assessing the impact, became
effective on January 1, 2011.
The Company has implemented all new accounting pronouncements that are in
effect. These pronouncements did not have any material impact on the financial
statements unless otherwise disclosed, and the Company does not believe that
there are any other new accounting pronouncements that have been issued that
might have a material impact on its financial position or results of operations.
SELECTED FINANCIAL DATA
We are a smaller reporting company as defined by Rule 12b-2 of the Securities
Exchange Act of 1934 and are not required to provide the information under this
item.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We are a smaller reporting company as defined by Rule 12b-2 of the Securities
Exchange Act of 1934 and are not required to provide the information under this
item.
ITEM 3 - PROPERTIES
ITEM 4 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
BENEFICIAL OWNERS
The following table sets forth certain information concerning the number of
shares of our common stock owned beneficially as of August 31, 2012 by: (i) each
of our directors; (ii) each of our named executive officers; and (iii) each
person or group known by us to beneficially own more than 5% of our outstanding
shares of common stock. Unless otherwise indicated, the shareholders listed
below possess sole voting and investment power with respect to the shares they
own.
16
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Amount and
Nature of
Title of Name and Address Beneficial Percentage
Class of Beneficial Owner Ownership of Class(1)
----- ------------------- --------- -----------
Common Melissa 364 Ltd. 7,747,864 31.31%
12655 North Central Expressway Ste 1000
Dallas TX 75243
Common R. Wayne Duke* 0 0.00%
12655 North Central Expressway Ste 1000
Dallas TX 75243
Common John L. Maguire* 0 0.00%
12655 North Central Expressway Ste 1000
Dallas TX 75243
Common All directors and executive officers 0 0.00%
as a group (3 persons)
TOTAL: 7,747,864 31.31%
----------
* Denotes officer and/or director
(1) The number and percentage of shares beneficially owned is determined under
rules of the SEC and the information is not necessarily indicative of
beneficial ownership for any other purpose. Under such rules, beneficial
ownership includes any shares as to which the individual has sole or shared
voting power or investment power and also any shares which the individual
has the right to acquire within 60 days through the exercise of any stock
option or other right. The persons named in the table have sole voting and
investment power with respect to all shares of common stock shown as
beneficially owned by them, subject to community property laws where
applicable and the information contained in the footnotes to this table.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
IDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names and ages of our current directors and
executive officers:
17
Name Age Position With the Company Director Since
---- --- ------------------------- --------------
R. Wayne Duke 63 Director, CEO, CFO May, 2011
John McGuire 70 Director May, 2011
The board of directors has no nominating, audit or compensation committee at
this time.
TERM OF OFFICE
Each director serves until our next annual meeting of the stockholders or unless
they resign earlier. The Board of Directors elects officers and their terms of
office are at the discretion of the Board of Directors. Each of our directors
serves until his or her successor is elected and qualified. Each of our officers
is elected by the board of directors to a term of one (1) year and serves until
his or her successor is duly elected and qualified, or until he or she is
removed from office.
BACKGROUND AND BUSINESS EXPERIENCE
The business experience during the past five years of the person presently
listed above as an Officer or Director of the Company is as follows:
R. WAYNE DUKE, DIRECTOR
R. Wayne Duke is chairman and chief executive officer for Industrial
Clearinghouse, a large clearinghouse for industrial MRO products serving the
petroleum industry, a position he has held for more than ten years. Mr. Duke
holds a BBA in Finance and a Master's Degree in Business from The University of
North Texas.
JOHN MAGUIRE, DIRECTOR
John L. McGuire was formerly chief financial officer at Tyson Foods, Inc.
(NYSE:TSN), a position he served in from 1969 to 1983. Mr. McGuire is a CPA and
a member of the American Institute of Certified Public Accounts. He has also
served on numerous boards of directors, for both private and public companies.
Mr. McGuire graduated from the University of Arkansas Walton School of Business.
IDENTIFICATION OF SIGNIFICANT EMPLOYEES
As of the date of this Report, other than our current directors and officers, we
have no other full-time or part-time employees.
18
FAMILY RELATIONSHIP
We currently do not have any officers or directors of our company who are
related to each other.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
During the past ten years no director, executive officer, promoter or control
person of the Company has been involved in the following:
(1) A petition under the Federal bankruptcy laws or any state insolvency law
which was filed by or against, or a receiver, fiscal agent or similar officer
was appointed by a court for the business or property of such person, or any
partnership in which he was a general partner at or within two years before the
time of such filing, or any corporation or business association of which he was
an executive officer at or within two years before the time of such filing;
(2) Such person was convicted in a criminal proceeding or is a named subject of
a pending criminal proceeding (excluding traffic violations and other minor
offenses);
(3) Such person was the subject of any order, judgment, or decree, not
subsequently reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining him from, or otherwise
limiting, the following activities:
i. Acting as a futures commission merchant, introducing broker, commodity
trading advisor, commodity pool operator, floor broker, leverage transaction
merchant, any other person regulated by the Commodity Futures Trading
Commission, or an associated person of any of the foregoing, or as an investment
adviser, underwriter, broker or dealer in securities, or as an affiliated
person, director or employee of any investment company, bank, savings and loan
association or insurance company, or engaging in or continuing any conduct or
practice in connection with such activity;
ii. Engaging in any type of business practice; or
iii. Engaging in any activity in connection with the purchase or sale of
any security or commodity or in connection with any violation of Federal or
State securities laws or Federal commodities laws;
(4) Such person was the subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated, of any Federal or State authority
barring, suspending or otherwise limiting for more than 60 days the right of
such person to engage in any activity described in paragraph (f)(3)(i) of this
section, or to be associated with persons engaged in any such activity;
(5) Such person was found by a court of competent jurisdiction in a civil action
or by the Commission to have violated any Federal or State securities law, and
the judgment in such civil action or finding by the Commission has not been
subsequently reversed, suspended, or vacated;
19
(6) Such person was found by a court of competent jurisdiction in a civil action
or by the Commodity Futures Trading Commission to have violated any Federal
commodities law, and the judgment in such civil action or finding by the
Commodity Futures Trading Commission has not been subsequently reversed,
suspended or vacated;
(7) Such person was the subject of, or a party to, any Federal or State judicial
or administrative order, judgment, decree, of finding, not subsequently
reversed, suspended or vacated, relating to an alleged violation of:
i. Any Federal or State securities or commodities law or regulation; or
ii. Any law or regulation respecting financial institutions or insurance
companies including, but not limited to, a temporary or permanent injunction,
order of disgorgement or restitution, civil money penalty or temporary or
permanent cease-and-desist order, or removal or prohibition order; or
iii. Any law or regulation prohibiting mail or wire fraud or fraud in
connection with any business entity; or
(8) Such person was the subject of, or a party to, any sanction or order, not
subsequently reversed, suspended or vacated, of any self-regulatory organization
(as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any
registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act
(7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or
organization that has disciplinary authority over its members or persons
associated with a member.
AUDIT COMMITTEE AND AUDIT COMMITTEE FINANCIAL EXPERT
The Company does not have an audit committee or an audit committee financial
expert (as defined in Item 407 of Regulation S-K) serving on its Board of
Directors. All current members of the Board of Directors lack sufficient
financial expertise for overseeing financial reporting responsibilities. The
Company has not yet employed an audit committee financial expert on its Board
due to the inability to attract such a person.
The Company intends to establish an audit committee of the board of directors,
which will consist of independent directors. The audit committee's duties will
be to recommend to the Company's board of directors the engagement of an
independent registered public accounting firm to audit the Company's financial
statements and to review the Company's accounting and auditing principles. The
audit committee will review the scope, timing and fees for the annual audit and
the results of audit examinations performed by the internal auditors and
independent registered public accounting firm, including their recommendations
to improve the system of accounting and internal controls. The audit committee
will at all times be composed exclusively of directors who are, in the opinion
of the Company's board of directors, free from any relationship which would
20
interfere with the exercise of independent judgment as a committee member and
who possess an understanding of financial statements and generally accepted
accounting principles.
ITEM 6. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid to our executive officers
during the twelve month periods ended December 31, 2011 and 2010:
SUMMARY COMPENSATION TABLE
Change in
Pension
Value and
Non-Equity Nonqualified
Name and Incentive Deferred
Principal Stock Option Plan Compensation All Other
Position Year Salary($) Bonus($) Awards($) Awards($) Compensation($) Earnings($) Compensation($) Total($)
-------- ---- --------- -------- --------- --------- --------------- ----------- --------------- --------
Arturo Molina 2011 $ -0- $ -0- $ -0- $ -0- $ -0- $ -0- $ -0- $ -0-
Former CEO
Haviland 2010 $ -0- $ -0- $ -0- $ -0- $ -0- $ -0- $ -0- $ -0-
Wright 2009 $ -0- $ -0- $ -0- $ -0- $ -0- $ -0- $ -0- $ -0-
Former
President,
CEO
R. Wayne Duke 2011 $ -0- $ -0- $ -0- $ -0- $ -0- $ -0- $ -0- $ -0-
President, CEO 2010 $ -0- $ -0- $ -0- $ -0- $ -0- $ -0- $ -0- $ -0-
As of December 31, 2011, the Company has no other Executive Compensation issues
which would require the inclusion of other mandated table disclosures.
21
NARRATIVE DISCLOSURE TO SUMMARY COMPENSATION TABLE
There are no compensatory plans or arrangements, including payments to be
received from the Company with respect to any executive officer, that would
result in payments to such person because of his or her resignation, retirement
or other termination of employment with the Company, or its subsidiaries, any
change in control, or a change in the person's responsibilities following a
change in control of the Company.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
There were no outstanding equity awards to our executive officers as of December
31, 2011.
OPTION AWARDS
No officer or director of the Company received any equity awards, or holds
exercisable or unexercisable options, as of the year ended December 31, 2011.
PENSION, RETIREMENT OR SIMILAR BENEFIT PLANS
As of December 31, 2011, we had no pension plans or compensatory plans or other
arrangements which provide compensation in the event of termination of
employment or change in control of us. There are no arrangements or plans in
which we provide pension, retirement or similar benefits for directors or
executive officers. We have no material bonus or profit sharing plans pursuant
to which cash or non-cash compensation is or may be paid to our directors or
executive officers, except that stock options may be granted at the discretion
of the Board of Directors or a committee thereof.
COMPENSATION OF DIRECTORS
Our directors receive no extra compensation for their service on our board of
directors.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
DIRECTOR INDEPENDENCE
For purposes of determining director independence, we have applied the
definitions set out in NASDAQ Rule 5605(a)(2). The OTCBB on which shares of
Common Stock are quoted does not have any director independence requirements.
The NASDAQ definition of "Independent Officer" means a person other than an
Executive Officer or employee of the Company or any other individual having a
relationship which, in the opinion of the Company's Board of Directors, would
interfere with the exercise of independent judgment in carrying out the
responsibilities of a director.
22
According to the NASDAQ definition, R. Wayne Duke is not an independent director
because he is also an executive officer of the Company.
RELATED PARTY TRANSACTIONS
None of the directors or executive officers of the Company, nor any person who
owned of record or was known to own beneficially more than 5% of the Company's
outstanding shares of its Common Stock, nor any associate or affiliate of such
persons or companies, has any material interest, direct or indirect, in any
transaction that has occurred during the past fiscal year, or in any proposed
transaction, which has materially affected or will affect the Company.
With regard to any future related party transaction, we plan to fully disclose
any and all related party transactions in the following manor:
Disclosing such transactions in reports where required;
Disclosing in any and all filings with the SEC, where required;
Obtaining disinterested directors consent; and
Obtaining shareholder consent where required.
Review, Approval or Ratification of Transactions with Related Persons
We are a smaller reporting company as defined by Rule 12b-2 of the Securities
Exchange Act of 1934 and are not required to provide the information under this
item.
ITEM 8. LEGAL PROCEEDINGS
We know of no material, existing or pending legal proceedings against our
company, nor are we involved as a plaintiff in any material proceeding or
pending litigation. There are no proceedings in which our director, officer or
any affiliates, or any registered or beneficial shareholder, is an adverse party
or has a material interest adverse to our interest.
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
COMMON STOCK
Our common stock is currently quoted on the NASDAQ OTC Bulletin Board, under the
trading symbol "XCHC." Because we are quoted on the OTC Bulletin Board, our
securities may be less liquid, receive less coverage by security analysts and
news media, and generate lower prices than might otherwise be obtained if they
were listed on a national securities exchange.
The following table sets forth the range of the high and low bid prices per
share of our common stock as reported on www.bigcharts.com during the last two
calendar years for the period indicated. These prices represent quotations
23
between dealers without adjustment for retail mark-up, markdown or commission
and may not represent actual transactions.
High Low
---- ---
Year ended December 31, 2010
Quarter ended March 31 $0.184 $0.78
Quarter ended June 30 $0.32 $1.58
Quarter ended September 30 $0.05 $1.00
Quarter ended December 31 $0.441 $1.00
Year ended December 31, 2011
Quarter ended March 31 $0.74 $0.27
Quarter ended June 30 $0.40 $0.15
Quarter ended September 30 $0.20 $0.05
Quarter ended December 31 $0.30 $0.04
RECORD HOLDERS
As of January 12, 2012, there were approximately 142 registered holders of
record of the common stock.
REPURCHASES OF EQUITY SECURITIES
We did not purchase any of our equity securities during 2011 and 2010.
EQUITY COMPENSATION
During 2011 and 2010, respectively, we did not issue any shares of our common
stock to consultants. We may from time to time issue additional shares to our
consultants, employees or directors at the discretion of our board of directors.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
None, other than those previously reported in our Form 10-K for the year ended
December 31, 2011.
24
ITEM 11. DESCRIPTION OF THE REGISTRANT'S SECURITIES
COMMON STOCK
Our authorized capital stock consists of 750,000,000 shares of $0.001 par value
common stock and 75,000,000 shares of $0.001 par value preferred stock. Each
share of common stock entitles a stockholder to one vote on all matters upon
which stockholders are permitted to vote. No stockholder has any preemptive
right or other similar right to purchase or subscribe for any additional
securities issued by us, and no stockholder has any right to convert the common
stock into other securities. No shares of common stock are subject to redemption
or any sinking fund provisions. All the outstanding shares of our common stock
are fully paid and non-assessable. Subject to the rights of the holders of the
preferred stock, if any, our stockholders of common stock are entitled to
dividends when, as and if declared by our board from funds legally available
therefore and, upon liquidation, to a pro-rata share in any distribution to
stockholders. We do not anticipate declaring or paying any cash dividends on our
common stock in the foreseeable future.
Pursuant to our Articles of Incorporation, our board has the authority, without
further stockholder approval, to provide for the issuance of up to 75,000,000
shares of our preferred stock in one or more series and to determine the
dividend rights, conversion rights, voting rights, rights in terms of
redemption, liquidation preferences, the number of shares constituting any such
series and the designation of such series. Our board has the power to afford
preferences, powers and rights (including voting rights) to the holders of any
preferred stock preferences, such rights and preferences being senior to the
rights of holders of common stock. No shares of our preferred stock are
currently outstanding. Although we have no present intention to issue any shares
of preferred stock, the issuance of shares of preferred stock, or the issuance
of rights to purchase such shares, may have the effect of delaying, deferring or
preventing a change in control of our company.
DIVIDENDS
We have never paid any cash dividends on our common stock. We intend to retain
and use any future earnings for the development and expansion of business and do
not anticipate paying any cash dividends in the foreseeable future.
We refer you to our Certificate of Incorporation, Bylaws and the applicable
provisions of the Nevada private Corporations Law for a more complete
description of the rights and liabilities of holders of our securities.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
We have the authority under the Nevada General Corporation Law to indemnify our
directors and officers to the extent provided for in such statute. Set forth
below is a discussion of Nevada law regarding indemnification which we believe
25
discloses the material aspects of such law on this subject. The Nevada law
provides, in part, that a corporation may indemnify a director or officer or
other person who was, is or is threatened to be made a named defendant or
respondent in a proceeding because such person is or was a director, officer,
employee or agent of the corporation, if it is determined that such person:
* conducted himself in good faith;
* reasonably believed, in the case of conduct in his official capacity
as a director or officer of the corporation, that his conduct was in
the corporation's best interest and, in all other cases, that his
conduct was at least not opposed to the corporation's best interests;
and
* in the case of any criminal proceeding, had no reasonable cause to
believe that his conduct was unlawful.
A corporation may indemnify a person under the Nevada law against judgments,
penalties, including excise and similar taxes, fines, settlement, unreasonable
expenses actually incurred by the person in connection with the proceeding. If
the person is found liable to the corporation or is found liable on the basis
that personal benefit was improperly received by the person, the indemnification
is limited to reasonable expenses actually incurred by the person in connection
with the proceeding, and shall not be made in respect of any proceeding in which
the person shall have been found liable for willful or intentional misconduct in
the performance of his duty to the corporation. The corporation may also pay or
reimburse expenses incurred by a person in connection with his appearance as
witness or other participation in a proceeding at a time when he is not a named
defendant or respondent in the proceeding.
Our Articles of Incorporation provides that none of our directors shall be
personally liable to us or our stockholders for monetary damages for an act or
omission in such directors' capacity as a director; provided, however, that the
liability of such director is not limited to the extent that such director is
found liable for (a) a breach of the directors' duty of loyalty to us or our
stockholders, (b) an act or omission not in good faith that constitutes a breach
of duty of the director to us or an act or omission that involves intentional
misconduct or a knowing violation of the law, (c) a transaction from which the
director received an improper benefit, whether or not the benefit resulted from
an action taken within the scope of the director's office, or (d) an act or
omission for which the liability of the director is expressly provided under
Nevada law. Limitations on liability provided for in our Articles of
Incorporation do not restrict the availability of non-monetary remedies and do
not affect a director's responsibility under any other law, such as the federal
securities laws or state or federal environmental laws.
We believe that these provisions will assist us in attracting and retaining
qualified individuals to serve as executive officers and directors. The
inclusion of these provisions in our Articles of Incorporation may have the
effect of reducing a likelihood of derivative litigation against our directors
and may discourage or deter stockholders or management from bringing a lawsuit
26
against directors for breach of their duty of case, even though such an action,
if successful, might otherwise have benefitted us or our stockholders.
Our Bylaws provide that we will indemnify our directors to the fullest extent
provided by Nevada General Corporation Law and we may, if and to the extent
authorized by our board of directors, so indemnify our officers and other
persons whom we have the power to indemnify against liability, reasonable
expense or other matters.
Regarding indemnification for liabilities arising under the Securities Act of
1933 which may be permitted for directors or officers pursuant to the foregoing
provisions, we are informed that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy, as expressed in the
Act and is therefore unenforceable.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's financial statements and notes thereto are hereby incorporated by
this reference to the Company's most recent Annual Report for the year ended
December 31, 2011, as filed with the Securities and Exchange Commission on May
7, 2012.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
END OF FORM 10 DISCLOSURE
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business Acquired.
The following information for Guardian Telecom, Inc. is filed as Exhibit 99.1
hereto and incorporated by reference herein:
Report of Independent Auditor
Balance Sheet as of July 31, 2011
Statement of Operations for the fiscal year ended July 31, 2011
Statements of Shareholders' Equity for the fiscal year ended July 31, 2011
Statement of Cash Flows for the fiscal year ended July 31, 2011
Notes to Financial Statements
27
(b) Exhibits.
Exhibit
Number Description Filed
------ ----------- -----
3.5 Certificate of Amendment to Filed with the SEC on April 1, 2011
the Articles of Incorporation as part of our Current Report on
Form 8-K.
10.19* Purchase Agreement
99.1* Audited Financial Statements for
Guardian Telecom, Inc. for the
Fiscal Year Ended July 31, 2011
----------
* filed herewith
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: October 2, 2012
THE X-CHANGE CORPORATION
/s/ R. Wayne Duke
--------------------------------
Name: R. Wayne Duke
Title: President, CEO
28
EX-10
2
ex10-19.txt
PURCHASE AGREEMENT
Exhibit 10.19
PURCHASE AGREEMENT
This Purchase Agreement ("Agreement") is made as of August __, 2012 by and
between The X-Change Corporation, a Nevada corporation ("Buyer"), and 4C Tech
Holdings, Inc., an Alberta corporation ("Seller").
PRELIMINARY STATEMENT
Seller desires to sell, and Buyer desires to purchase, all of the
outstanding shares (the "Shares") of Guardian Telecom, Inc. (Guardian) a
Canadian corporation organized under the laws of Alberta Canada (the "Company"),
on the terms and subject to the conditions set forth in this Agreement.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
ARTICLE 1
DEFINITIONS
For the purposes of this Agreement, the following terms and variations on
them have the meanings specified in this Article 1:
"Buyer" is defined in the first paragraph of this Agreement.
"Buyer Shares" means newly issued shares of Buyer common stock, par value
$.001 per share.
"Closing" means the consummation and completion of the purchase and sale of
the Shares.
"Closing Date" means the date on which the Closing actually takes place.
"Company" is defined in the Preliminary Statement.
"Company Contract" means any Contract (a) under which the Company has or
may acquire rights, (b) under which the Company is or may become subject to
Liability or (c) by which the Company or any of its assets is or may become
bound.
"Consent" means any approval, consent, ratification, waiver or other
authorization.
"Contemplated Transactions" means all of the transactions to be carried out
in accordance with this Agreement, including the purchase and sale of the
Shares, the performance by the parties of their other obligations under this
Agreement.
1
"Contract" means any contract, agreement, commitment, understanding, lease,
license, franchise, warranty, guaranty, mortgage, note, bond or other instrument
or consensual obligation (whether written or oral and whether express or
implied) that is legally binding.
"Contravene" -- an act or omission would "Contravene" something if, as the
context requires:
(a) the act or omission would conflict with it, violate it, result in a
breach or violation of or failure to comply with it, or constitute a default
under it;
(b) the act or omission would give any Governmental Body or other Person
the right to challenge, revoke, withdraw, suspend, cancel, terminate or modify
it, to exercise any remedy or obtain any relief under it, or to declare a
default or accelerate the maturity of any obligation under it; or
(c) the act or omission would result in the creation of an Encumbrance on
the stock or assets of the Company.
"Encumbrance" means any charge, claim, mortgage, servitude, easement, right
of way, community or other marital property interest, covenant, equitable
interest, license, lease or other possessory interest, lien, option, pledge,
security interest, preference, priority, right of first refusal or similar
restriction.
"Financial Statements" is defined in Section 3.4.
"GAAP" means generally accepted accounting principles for financial
reporting in the United States.
"Governing Document" means any charter, articles, bylaws, certificate,
statement, statutes or similar document adopted, filed or registered in
connection with the creation, formation or organization of an entity, and any
Contract among all equityholders, partners or members of an entity.
"Governmental Authorization" means any Consent, license, permit or
registration issued, granted, given or otherwise made available by or under the
authority of any Governmental Body or pursuant to any Law.
"Governmental Body" means any (a) nation, region, state, county, city,
town, village, district or other jurisdiction, (b) federal, state, local,
municipal, foreign or other government, (c) governmental or quasi-governmental
authority of any nature (including any governmental agency, branch, department
or other entity and any court or other tribunal), (d) multinational
organization, (e) body exercising, or entitled to exercise, any administrative,
executive, judicial, legislative, police, regulatory or taxing authority or
power of any nature, or (f) official of any of the foregoing.
2
"Knowledge" means, with respect to Seller, the actual knowledge after
reasonable investigation of Seller or of the Company's directors, officers or
senior managerial employees.
"Law" means any constitution, law, statute, treaty, rule, regulation,
ordinance, code, binding case law, principle of common law or notice of any
Governmental Body.
"Liabilities" includes liabilities or obligations of any nature, whether
known or unknown, whether absolute, accrued, contingent, choate, inchoate or
otherwise, whether due or to become due, and whether or not required to be
reflected on a financial statement prepared in accordance with GAAP.
"Order" means any order, injunction, judgment, decree, ruling, assessment
or arbitration award of any Governmental Body or arbitrator and any Contract
with any Governmental Body pertaining to compliance with Law.
"Ordinary Course of Business" refers to actions taken in the Company's
normal operation, consistent with its past practice and having no material
adverse effect on the financial or other condition, results of operations,
assets, Liabilities, equity, business or prospects of the Company.
"Person" refers to an individual or an entity, including a corporation,
share company, limited liability company, partnership, trust, association,
Governmental Body or any other body with legal personality separate from its
equityholders or members.
"Proceeding" means any action, arbitration, audit, examination,
investigation, hearing, litigation or suit (whether civil, criminal,
administrative, judicial or investigative, whether formal or informal, and
whether public or private) commenced, brought, conducted or heard by or before,
or otherwise involving, any Governmental Body or arbitrator.
"Purchase Price" is defined in Section 2.2.
"Securities Act" means the Securities Act of 1933.
"Securities Exchange Act" means the Securities Exchange Act of 1934.
"Seller Release" is defined in Section 2.4(a)(ii).
"Seller" is defined in the first paragraph of this Agreement.
"Seller's Disclosure Schedule" means the disclosure schedule delivered
pursuant to Article 3 by Seller to Buyer concurrently with the execution of the
Agreement.
"Shares" is defined in the Preliminary Statement.
3
ARTICLE 2
SALE AND TRANSFER OF SHARES; CLOSING
2.1 SHARES
Upon the terms and subject to the conditions set forth in this Agreement,
at the Closing, Seller will sell and transfer the Shares to Buyer, and Buyer
will purchase and acquire the Shares from Seller.
2.2 PURCHASE PRICE
The purchase price for the Shares (the "Purchase Price") will be paid by
delivery of the $250,000.00 Thirty (30) Day Promissory Note (attached as Exhibit
A), a $750,000.00 90 day Promissory Note (attached as Exhibit B) of the Purchase
Price to Seller at the Closing and the issuance of a One year Promissory note in
the amount of Two Million ($2,000,000.00) US Dollar and a $500,000.00 Sixteen
Month Promissory Note. All amounts are in US Dollars and the issuance of One
Million (1,000,000) shares of Buyer's common stock.
2.3 CLOSING
The Closing will take place at the offices of Seller, at 10:00 a.m. (local
time) on the date that is two business days following the satisfaction or waiver
of each of the conditions set forth in Articles 5 and 6, and the Buyers audit of
Guardian unless Buyer and Seller agree otherwise.
CLOSING DELIVERIES
At the Closing:
(a) Seller will deliver to Buyer:
(i) certificates representing the Shares, duly endorsed in blank (or
accompanied by duly executed stock powers in blank);
(ii) a release in the form of Exhibit 2.4(a)(ii) executed by Seller (the
"Seller Release");
(iii) a certificate executed by Seller as to the accuracy of Seller's
representations and warranties as of the date of this Agreement and as of the
Closing in accordance with Section 6.1 and as to their compliance with and
performance of its covenants and obligations to be performed or complied on or
before the Closing Date in accordance with Section 6.2.
4
(b) Buyer will deliver:
(i) One Million ($1,000,000.00) US Dollar Promissory note due 90 days after
the closing paid to 4C Technologies, Dubai UAE and one Promissory Note in the
amount of Two Million ($2,000,000.00) US Dollars bearing interest at 4% for a
Three year term and a certificate for One Million (1,000,000) shares of Buyer's
Common Stock.
(ii) a certificate executed by the President of Buyer as to the accuracy of
Buyer's representations and warranties as of the date of this Agreement and as
of the Closing in accordance with Section 7.1 and as to its compliance with and
performance of its covenants and obligations to be performed or complied with on
or before the Closing Date in accordance with Section 7.2.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer that:
3.1 ORGANIZATION AND GOOD STANDING
The Company is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization, with full corporate
power and authority to conduct its business as presently conducted, to own or
use the properties and assets that it purports to own or use, and to perform all
its obligations under all its Company Contracts.
3.2 ENFORCEABILITY; NO CONFLICT
(a) Seller and the Company have the absolute and unrestricted right, power,
authority and capacity to execute and deliver this Agreement and to perform
their obligations under this Agreement. Assuming due authorization, execution
and delivery of this Agreement by Buyer, this Agreement constitutes the legal,
valid and binding obligation of Seller and the Company, enforceable against
Seller and the Company in accordance with its terms.
(b) Seller and the Company are not and will not be required to give any
notice to any Person or obtain any Consent or Governmental Authorization in
connection with the execution and delivery of this Agreement or the consummation
or performance of any of the Contemplated Transactions.
(c) Neither the execution and delivery of this Agreement nor the
consummation or performance of any of the Contemplated Transactions will
directly or indirectly (with or without notice or lapse of time) (i) Contravene
any provision of the Governing Documents of the Company, (ii) Contravene any
Company Contract, Governmental Authorization, Law or Order to which Company or
Seller, or any of the assets owned or used by the Company, may be subject, or
(iii) result in the imposition or creation of any Encumbrance upon or with
respect to any of the assets owned or used by the Company.
5
3.3 CAPITALIZATION AND OWNERSHIP
The authorized equity securities of the Company consist of _______ shares
of common stock, par value $________ per share, of which _________ shares are
issued and outstanding. The Shares represent all of the issued and outstanding
shares in the Company. Seller is and will be on the Closing Date the record
holders and beneficial owners of the Shares, free and clear of all Encumbrances.
All of the outstanding equity securities of the Company have been duly
authorized and validly issued and are fully paid and nonassessable. There are no
Contracts relating to the issuance, sale or transfer of any equity securities or
other securities of the Company.
3.4 FINANCIAL STATEMENTS
Seller has furnished to Buyer financial statements as of July 31, 2009,
July 31, 2010 and July, 2011 (collectively, the "Financial Statements"), which
is in the form of a listing of assets and liabilities. The Financial Statements
were prepared in accordance with the books and records of the Company. The
Financial Statements and notes thereto are complete and fairly present the
assets, liabilities and financial condition of the Company as of the date
thereof. There will be no liabilities owed to Seller or Seller's family.
3.5 NO UNDISCLOSED LIABILITIES
The Company has no Liabilities except for Liabilities reflected or reserved
against in the Financial Statements, and current Liabilities incurred in the
Ordinary Course of Business since the respective dates thereof.
3.6 CONTRACTS; NO DEFAULTS
(a) Section 3.6 of Seller's Disclosure Schedule contains an accurate and
complete list of:
(i) each Company Contract that involves performance of services or delivery
of goods or materials by the Company of an amount or value in excess of $10,000;
(ii) each Company Contract that involves performance of services for or
delivery of goods or materials to the Company of an amount or value in excess of
$10,000; and
(iii) each Company Contract that was not entered into in the Ordinary
Course of Business and that involves the expenditure or receipt by the Company
of an amount or value in excess of $10,000.
3.7 LEGAL PROCEEDINGS; ORDERS
(a) There exists no pending Proceedings (i) by or against the Company or
that otherwise relate to or may affect the business of, or any of the assets
owned or used by, the Company or (ii) that challenge, or that may have the
6
effect of preventing, delaying, making illegal or otherwise interfering with,
any of the Contemplated Transactions. To Seller's Knowledge, no other such
Proceeding has been threatened, and no event has occurred or circumstance exists
that may give rise to or serve as a basis for the commencement of any such
Proceeding.
(b) There exists no pending Order to which the Company, or any of the
assets owned or used by the Company, is or has been subject.
3.8 SECURITIES LAW MATTERS
NONE
3.9 BROKERS OR FINDERS
Seller has not incurred any Liability for brokerage or finders' fees or
agents' commissions or other similar payment in connection with the Contemplated
Transactions.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller that:
4.1 ORGANIZATION
Buyer is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization.
4.2 ENFORCEABILITY; NO CONFLICT
(a) Buyer has the absolute and unrestricted right, power and authority to
execute and deliver this Agreement and to perform its obligations under this
Agreement, which actions have been duly authorized and approved by all necessary
corporate action of Buyer. Assuming the execution and delivery of this Agreement
by Seller, this Agreement constitutes the legal, valid and binding obligation of
Buyer, enforceable against Buyer in accordance with its terms.
(b) Buyer is not and will not be required to obtain any Consent or
Governmental Authorization in connection with the execution and delivery of this
Agreement or the consummation or performance of any of the Contemplated
Transactions.
(c) Neither the execution and delivery of this Agreement by Buyer nor the
consummation or performance of any of the Contemplated Transactions by Buyer
will give any Person the right to prevent, delay or otherwise interfere with any
of the Contemplated Transactions pursuant to (i) any provision of Buyer's
Governing Documents, (ii) any resolution adopted by the board of directors or
7
the stockholders of Buyer, (iii) any Law, Order or Governmental Authorization to
which Buyer may be subject or (iv) any Contract to which Buyer is a party or by
which Buyer may be bound.
4.3 BROKERS OR FINDERS
Buyer has not incurred any Liability for brokerage or finders' fees or
agents' commissions or other similar payment in connection with the Contemplated
Transactions.
ARTICLE 5
COVENANTS OF THE PARTIES BEFORE CLOSING
5.1 ACCESS AND INVESTIGATION
Between the date of this Agreement and the Closing Date and upon reasonable
advance notice from Buyer, Seller will, and will cause the Company to, (a)
afford Buyer full and free access to Company's personnel, properties, Contracts,
books and records, and other documents and data, (b) furnish such Persons with
copies of all such Contracts, books and records, and other documents and data as
Buyer may reasonably request, and (c) furnish such Persons with such additional
financial, operating and other data and information as Buyer may reasonably
request.
5.2 OPERATION OF THE BUSINESS OF THE COMPANY
Between the date of this Agreement and the Closing Date, Seller will, and
will cause the Company to, (a) conduct its business only in the Ordinary Course
of Business, (b) use their Best Efforts to preserve intact the current business
organization of the Company, keep available the services of the current
officers, employees and agents of the Company, and maintain relations and
goodwill with suppliers, customers, landlords, creditors, employees, agents and
others having business relationships with the Company, (c) confer with Buyer
concerning operational matters of a material nature and (d) otherwise report
periodically to Buyer concerning the status of the business, operations and
finances of the Company.
5.3 REQUIRED APPROVALS
As promptly as practicable after the date of this Agreement, Buyer and
Seller will, and Seller will cause the Company to, make all filings that they
are required by Law to make to consummate the Contemplated Transactions. Between
the date of this Agreement and the Closing Date, Buyer and Seller will, and
Seller will cause the Company to, (a) cooperate with the other Party with
respect to all filings that such Party elects to make or that such Party is
required by Law to make in connection with the Contemplated Transactions, and
(b) cooperate with Buyer in obtaining any Governmental Authorizations.
8
5.4 [SHAREHOLDER APPROVAL
BUYER DOES NOT REQUIRE SHAREHOLDER APPROVAL
ARTICLE 6
CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE
Buyer's obligation to purchase the Shares and to take the other actions
required to be taken by Buyer at the Closing is subject to the satisfaction, on
or before the Closing Date, of each of the following conditions (any of which
may be waived by Buyer, in whole or in part):
6.1 ACCURACY OF REPRESENTATIONS
All of Seller's representations and warranties in this Agreement
(considered both collectively and individually) must have been accurate in all
material respects as of the date of this Agreement, and must be accurate in all
material respects as of the Closing Date as if then made.
6.2 SELLERS' AND COMPANY'S PERFORMANCE
All of the covenants and obligations that Seller and Company is required to
perform or to comply with under this Agreement on or before the Closing Date
(considered both collectively and individually) must have been duly performed
and complied with in all material respects.
6.3 STOCKHOLDER APPROVAL
The Buyer's stockholders if required by the Bylaws of Buyer shall have
approved the Contemplated Transactions.
ARTICLE 7
CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE
Seller's obligation to sell the Shares and to take the other actions
required to be taken by Seller at the Closing is subject to the satisfaction, on
or before the Closing Date, of each of the following conditions (any of which
may be waived by Seller, in whole or in part):
7.1 ACCURACY OF REPRESENTATIONS
All of Buyer's representations and warranties in this Agreement (considered
both collectively and individually) must have been accurate in all material
9
respects as of the date of this Agreement and must be accurate in all material
respects as of the Closing Date as if then made.
7.2 BUYER'S PERFORMANCE
All of the covenants and obligations that Buyer is required to perform or
to comply with under this Agreement on or before the Closing Date (considered
both collectively and individually) must have been performed and complied with
in all material respects.
ARTICLE 8
TERMINATION
8.1 TERMINATION EVENTS
Subject to Section 8.2, this Agreement may, by notice given before or at
the Closing, be terminated:
(a) by mutual consent of Buyer and Seller;
(b) by Buyer if the satisfaction of any condition in Article 6 is or
becomes impossible (other than through the failure of Buyer to comply with its
obligations under this Agreement) and Buyer has not waived such condition;
(c) by Seller if the satisfaction of any condition in Article 7 is or
becomes impossible (other than through the failure of Seller to comply with its
obligations under this Agreement) and Seller has not waived such condition; and
(d) by either Buyer or Seller if the Closing has not occurred (other than
through the failure of any party seeking to terminate this Agreement to comply
fully with its obligations under this Agreement) on or before August 31, 2012,
or such later date as Buyer and Seller may agree upon.
8.2 EFFECT OF TERMINATION
Each party's right of termination under Section 8.1 is in addition to any
other rights it may have under this Agreement or otherwise, and the exercise of
such right of termination will not be an election of remedies. If this Agreement
is terminated pursuant to Section 8.1, all obligations of the parties under this
Agreement will terminate; provided, however, that if this Agreement is
terminated by a party because of the breach of the Agreement by another party or
because one or more of the conditions to the terminating party's obligations
under this Agreement is not satisfied as a result of any other party's failure
to comply with its obligations under this Agreement, the terminating party's
right to pursue all legal remedies will survive such termination unimpaired.
10
ARTICLE 9
INDEMNIFICATION; REMEDIES
9.1 SURVIVAL
All representations, warranties, covenants and obligations in this
Agreement, and any other certificate or document delivered pursuant to this
Agreement will survive the Closing and the consummation of the Contemplated
Transactions.
ARTICLE 10
GENERAL PROVISIONS
10.1 EXPENSES
Except as otherwise expressly provided in this Agreement, each party to
this Agreement will bear its respective expenses incurred in connection with the
preparation, execution and performance of this Agreement and the Contemplated
Transactions, including all fees and expenses of its Representatives.
10.2 FURTHER ACTIONS
Upon the request of any party to this Agreement, the other parties will (a)
furnish to the requesting party any additional information, (b) execute and
deliver, at their own expense, any other documents and (c) take any other
actions as the requesting party may reasonably require to more effectively carry
out the intent of this Agreement and the Contemplated Transactions.
10.3 ENTIRE AGREEMENT AND MODIFICATION
This Agreement supersedes all prior agreements among the parties with
respect to its subject matter a complete and exclusive statement of the terms of
the agreement between the parties with respect to its subject matter. This
Agreement may not be amended, supplemented or otherwise modified except in a
written document executed by the party against whose interest the modification
will operate.
10.4 SEVERABILITY
If a court of competent jurisdiction holds any provision of this Agreement
invalid or unenforceable, the other provisions of this Agreement will remain in
full force and effect. Any provision of this Agreement held invalid or
unenforceable only in part or degree will remain in full force and effect to the
extent not held invalid or unenforceable.
11
10.5 GOVERNING LAW
This Agreement will be governed by and construed under the laws of
California without regard to conflicts of laws principles that would require the
application of any other law.
10.6 COUNTERPARTS
This Agreement may be executed in two or more counterparts.
The parties have executed and delivered this Agreement as of the date
indicated in the first sentence of this Agreement.
The X-Change Corporation 4C Tech Holdings, Inc.
By /s/ R. Wayne Duke By /s/ Kamran Bashir
--------------------------------- ---------------------------------
R. Wayne Duke Kamran Bashir
President Chairman of the Board
Guardian Telecom, Inc.
By /s/ Kamran Bashir
---------------------------------
Kamran Bashir
Chairman of the Board
12
EX-99
3
ex99-1.txt
AUDITED FINANCIAL STATEMENTS FOR GUARDIAN TELECOM INC.
EXHIBIT 99.1
GUARDIAN TELECOM, INC.
CONTENTS
Page
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTING FIRM F-2
FINANCIAL STATEMENTS
Balance Sheets as of July 31, 2011 and 2010 F-3
Statements of Operations and Comprehensive Loss for the years
ended July 31, 2011 and 2010 F-4
Statement of Changes in Stockholders' Equity for the years
ended July 31, 2011 and 2010 F-5
Statements of Cash Flows for the years ended July 31, 2011 and 2010 F-6
Notes to Financial Statements F-7
[LETTERHEAD OF S. W. HATFIELD, CPA]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Guardian Telecom, Inc.
We have audited the accompanying balance sheets of Guardian Telecom, Inc. (an
Alberta, Canada corporation) as of July 31, 2011 and 2010 and the related
statements of operations and comprehensive loss, changes in stockholders' equity
(deficit) and statements of cash flows for each of the years ended July 31, 2011
and 2010, respectively. These financial statements are the sole responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Guardian Telecom, Inc. (an
Alberta, Canada corporation) as of July 31, 2011 and 2010 and the results of its
operations and cash flows for each of the years ended July 31, 2011 and 2010,
respectively, in conformity with generally accepted accounting principles
generally accepted in the United States of America.
/s/ S. W. Hatfield CPA
----------------------------------
S. W. HATFIELD, CPA
Dallas, Texas
July 27, 2012
F-2
GUARDIAN TELECOM, INC.
BALANCE SHEETS
July 31, 2011 and 2010
(CN$) (CN$)
July 31, July 31,
2011 2010
------------ ------------
ASSETS
CURRENT ASSETS
Cash on hand and in bank $ 198,283 $ 86,919
Accounts receivable
Trade, net of allowance for doubtful
accounts of $30,000 and $15,425, respectively 783,620 813,030
Employees and other 11,486 13,765
Income tax refunds and rebates 14,604 47,306
Inventory 912,914 737,109
Prepaid expenses 88,205 93,782
------------ ------------
TOTAL CURRENT ASSETS 2,009,112 1,791,911
------------ ------------
PROPERTY AND EQUIPMENT - AT COST
Manufacturing equipment 2,882,109 2,882,747
Office equipment, furniture and fixtures 551,237 530,629
Leasehold improvements 110,063 110,063
------------ ------------
3,543,409 3,523,439
Accumulated depreciation (2,947,677) (2,619,189)
------------ ------------
NET PROPERTY AND EQUIPMENT 595,732 904,250
------------ ------------
TOTAL ASSETS $ 2,604,844 $ 2,696,161
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Line of credit payable to a bank $ 365,000 $ 807,048
Current maturities of capital leases payable 68,688 211,689
Accounts payable - trade 483,907 286,522
Other accrued liabilities 94,599 111,197
Notes payable to shareholders 925,000 325,000
Accrued interest payable -- 16,250
------------ ------------
TOTAL CURRENT LIABILITIES 1,937,194 1,757,706
LONG-TERM LIABILITIES
Capital leases payable, net of current maturities 61,264 129,952
------------ ------------
TOTAL LIABILITIES 1,998,458 1,887,658
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY Common stock - $0.01 stated value
Class A - Unlimited shares authorized
10,000 shares issued and outstanding 100 100
Class B - Unlimited shares authorized
None issued and outstanding -- --
Class C - Unlimited shares authorized
None issued and outstanding -- --
Class D - Unlimited shares authorized
None issued and outstanding -- --
Additional paid-in capital 15,119 --
Retained earnings 591,167 808,403
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 606,386 808,503
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,604,844 $ 2,696,161
============ ============
The accompanying notes are an integral part of these financial statements.
F-3
GUARDIAN TELECOM, INC.
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
Years ended July 31, 2011 and 2010
(CN$) (CN$)
Year ended Year ended
July 31, July 31,
2011 2010
------------ ------------
REVENUES
Telecommunication equipment $ 4,850,459 $ 4,449,717
Contract manufacturing 1,049,664 1,090,251
------------ ------------
TOTAL REVENUES 5,900,123 5,539,968
------------ ------------
COST OF SALES
Materials 2,829,064 2,669,728
Direct Labor and related costs 577,154 476,819
Other direct costs and expenses 510,204 483,862
Depreciation 308,893 313,153
------------ ------------
TOTAL COST OF SALES 4,225,315 3,943,562
------------ ------------
GROSS PROFIT 1,674,808 1,596,406
------------ ------------
OPERATING EXPENSES
Research and development expenses 486,241 414,679
Marketing and promotion expenses 528,051 591,190
General and administrative expenses 791,835 906,783
------------ ------------
TOTAL OPERATING EXPENSES 1,806,127 1,912,652
------------ ------------
LOSS FROM OPERATIONS (131,319) (316,246)
OTHER INCOME (EXPENSE)
Interest expense (57,050) (82,597)
Loss on foreign exchange (41,613) (44,543)
Other income (expense) (1,858) 220
------------ ------------
LOSS BEFORE INCOME TAXES (231,840) (443,166)
PROVISION FOR INCOME TAXES 14,604 --
------------ ------------
NET LOSS (217,236) (443,166)
OTHER COMPREHENSIVE INCOME -- --
------------ ------------
COMPREHENSIVE LOSS $ (217,236) $ (443,166)
============ ============
Loss per weighted-average share
of common stock outstanding, computed
on net loss - basic and fully diluted $ (21.72) $ (44.32)
============ ============
Weighted-average number of
common shares outstanding 10,000 10,000
============ ============
The accompanying notes are an integral part of these financial statements.
F-4
GUARDIAN TELECOM, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
Years ended July 31, 2011 and 2010
(CN$) (CN$)
Common Stock Additional (CN$)
------------------ Paid-in Retained (CN$)
Shares Amount Capital Earnings Total
------ ------ ------- -------- -----
BALANCES AT AUGUST 1, 2009 10,000 $ 100 $ -- $ 1,251,569 $ 1,251,669
Net loss for the year -- -- -- (443,166) (443,166)
------- ------ -------- ----------- -----------
BALANCES AT JULY 31, 2010 10,000 100 -- 808,403 808,503
Contributed capital from
non-interest bearing notes
payable to stockholders -- -- 15,119 -- 15,119
Net loss for the year -- -- -- (217,236) (217,236)
------- ------ -------- ----------- -----------
BALANCES AT JULY 31, 2011 10,000 $ 100 $ 15,119 $ 591,167 $ 606,386
======= ====== ======== =========== ===========
The accompanying notes are an integral part of these financial statements.
F-5
GUARDIAN TELECOM, INC.
STATEMENTS OF CASH FLOWS
July 31, 2011 and 2010
(CN$) (CN$)
July 31, July 31,
2011 2010
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the year $ (217,236) $ (443,166)
Adjustments to reconcile net loss to net
cash provided by operating activities
Depreciation and amortization 328,488 341,633
Bad debt expense 13,033 17,935
Interest expense contributed
as capital by stockholders 15,119 --
(Increase) Decrease in
Accounts receivable 18,656 182,748
Income tax rebates receivable 32,702 93,050
Inventory (175,805) 183,008
Prepaid expenses 5,577 (9,512)
Increase (Decrease) in
Accounts payable 197,385 (72,424)
Other accrued liabilities (16,598) 4,893
Accrued interest payable (16,250) --
---------- ----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 185,071 298,165
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (19,970) (12,089)
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (19,970) (12,089)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from loans from stockholders 600,000 --
Net increase (reduction) in line of credit payable to a bank (442,048) 7,882
Cash paid on capital leases payable (211,689) (274,419)
---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES (53,737) (266,537)
---------- ----------
INCREASE (DECREASE) IN CASH 111,364 19,539
Cash at beginning of year 86,919 67,380
---------- ----------
CASH AT END OF YEAR $ 198,283 $ 86,919
========== ==========
SUPPLEMENTAL DISCLOSURE OF INTEREST AND INCOME TAXES PAID
Interest paid for the period $ 58,181 $ 82,597
========== ==========
Income taxes paid (refunded) for the period $ (47,306) $ (93,050)
========== ==========
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES $ -- $ --
========== ==========
The accompanying notes are an integral part of these financial statements.
F-6
GUARDIAN TELECOM, INC.
NOTES TO FINANCIAL STATEMENTS
July 31, 2011 and 2010
NOTE A - ORGANIZATION AND DESCRIPTION OF BUSINESS
Guardian Telecom, Inc. (Company) was incorporated on April 26, 1993 in
accordance with the Alberta (Canada) Business Corporations Act as 564058
Alberta, Inc. The Company changed its corporate name to Guardian Telecom, Inc.
on August 4, 1993.
The Company is in the business of designing, manufacturing and distributing
telephone equipment, systems and accessories. The Company also performs contract
manufacturing services, including surface mount and through-hole population of
printed circuit boards, mechanical assembly, parts procurement, testing and
final assembly for unrelated third-parties.
NOTE B - PREPARATION OF FINANCIAL STATEMENTS
The accompanying financial statements are stated in Canadian Dollars (CN$), the
Company's principal functional currency, and have been prepared using the
accrual basis of accounting in accordance with accounting principles generally
accepted in the United States of America. The Company has adopted a year-end of
July 31.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Management acknowledges that it is solely responsible for adopting sound
accounting practices, establishing and maintaining a system of internal
accounting control and preventing and detecting fraud. The Company's system of
internal accounting control is designed to assure, among other items, that 1)
recorded transactions are valid; 2) valid transactions are recorded; and 3)
transactions are recorded in the proper period in a timely manner to produce
financial statements which present fairly the financial condition, results of
operations and cash flows of the Company for the respective periods being
presented.
For segment reporting purposes, the Company operated in only one industry
segment (manufacturing) during the periods represented in the accompanying
financial statements and makes all operating decisions and allocates resources
based on the best benefit to the Company as a whole.
NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Cash and cash equivalents
For Statement of Cash Flows purposes, the Company considers all cash on hand and
in banks, certificates of deposit and other highly-liquid investments with
maturities of three months or less, when purchased, to be cash and cash
equivalents.
Cash overdraft positions may occur from time to time due to the timing of making
bank deposits and releasing checks, in accordance with the Company's cash
management policies.
2. Accounts receivable and Revenue Recognition
In the normal course of business, the Company extends unsecured credit to
virtually all of its customers which are located throughout the World. Because
of the credit risk involved, management has provided an allowance for doubtful
accounts which reflects its opinion of amounts which will eventually become
uncollectible. In the event of complete non-performance, the maximum exposure to
the Company is the recorded amount of trade accounts receivable shown on the
balance sheet at the date of non-performance.
F-7
GUARDIAN TELECOM, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
July 31, 2011 and 2010
NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
2. Accounts receivable and Revenue Recognition - continued
The Company ships all product on an FOB-Plant, "as-is" basis. Accordingly,
revenue is recognized by the Company at the point at which an order is shipped
at a fixed price, collection is reasonably assured and the Company has no
remaining performance obligations related to the sale. The Company sells all
products with "no right of return" by the purchaser for any factor other than
defects in the product's production.
On an infrequent basis, the Company may elect to accept product returns from
customers on a case-by-case basis to offset unpaid accounts receivable. These
situations are generally a "last case" scenario and are initiated by senior
management through negotiations with the respective customer.
3. Inventory
Inventory consists of raw materials, work-in-process and finished goods related
to the business of designing, manufacturing and distributing telephone
equipment, systems and accessories, as well as performing contract manufacturing
services, including surface mount and through-hole population of printed circuit
boards, mechanical assembly, parts procurement, testing and final assembly for
unrelated third-parties.
Inventory is valued at the lower of cost or market using the standard cost
method, which, in the Company's case, approximates the first-in, first-out
method.
4. Property, plant and equipment
Property and equipment are recorded at historical cost. These costs are
depreciated over the estimated useful lives of the individual assets using the
straight-line method, generally two to ten years.
Gains and losses from disposition of property and equipment are recognized as
incurred and are included in operations.
In accordance with the Property, Plant and Equipment topic of the topic of the
FASB Accounting Standards Codification, the Company follows the policy of
evaluating all property and equipment as of the end of each reporting quarter.
For each of the years ended July 31, 2011 and 2010, no charges to operations
were made for impairments in the future benefit or recoverability of property
and equipment.
5. Income Taxes
The Company files income tax returns with the Government of Canada and the
Provence of Alberta. The Company is not currently undergoing any examinations by
regulatory taxing authorities for any period and does not anticipate any
examinations of returns filed in prior periods.
The Company uses the asset and liability method of accounting for income taxes.
At July 31, 2011 and 2010, respectively, the deferred tax asset and deferred tax
liability accounts, as recorded when material to the financial statements, are
entirely the result of temporary differences. Temporary differences generally
represent differences in the recognition of assets and liabilities for tax and
financial reporting purposes, primarily accumulated depreciation and
amortization, allowance for doubtful accounts and vacation accruals, as well as
the potential impact of any net operating loss carryforwards (s) and their
potential utilization.
The Company has adopted the provisions required by the Income Taxes topic of the
FASB Accounting Standards Codification. The Codification Topic requires the
recognition of potential liabilities as a result of management's acceptance of
potentially uncertain positions for income tax treatment on a
"more-likely-than-not" probability of an assessment upon examination by a
respective taxing authority. As a result of the implementation of Codification's
Income Tax Topic, the Company did not incur any liability for unrecognized tax
benefits.
F-8
GUARDIAN TELECOM, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
July 31, 2011 and 2010
NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
6. Income (Loss) per share
Basic earnings (loss) per share is computed by dividing the net income (loss)
available to common stockholders by the weighted-average number of common shares
outstanding during the respective period presented in our accompanying financial
statements.
Fully diluted earnings (loss) per share is computed similar to basic income
(loss) per share except that the denominator is increased to include the number
of common stock equivalents (primarily outstanding options and warrants).
Common stock equivalents represent the dilutive effect of the assumed exercise
of the outstanding stock options and warrants, using the treasury stock method,
at either the beginning of the respective period presented or the date of
issuance, whichever is later, and only if the common stock equivalents are
considered dilutive based upon the Company's net income (loss) position at the
calculation date.
As of July 31, 2011 and 2010, the Company had no outstanding stock warrants,
options or convertible securities which could be considered as dilutive for
purposes of the loss per share calculation.
7. Advertising costs
The Company does not conduct any direct response advertising activities. For
non-direct response advertising, the Company charges the costs of these efforts
to operations at the first time the related advertising is published.
8. Warranty costs
The Company provides an accrual for warranty costs based on management's best
estimate of future liabilities based on historical experience, sales volume and
type of product sold. For the years ended July 31, 2011 and 2010, the Company's
warranty expense was nominal and approximately $-0- and $-0- was accrued as of
July 31, 2011 and 2010, respectively.
9. Pending and/or New Accounting Pronouncements
The Company is of the opinion that any pending accounting pronouncements, either
in the adoption phase or not yet required to be adopted, will not have a
significant impact on the Company's financial position or results of operations.
NOTE D - FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash, accounts receivable, accounts payable and notes
payable, as applicable, approximates fair value due to the short term nature of
these items and/or the current interest rates payable in relation to current
market conditions.
Interest rate risk is the risk that the Company's earnings are subject to
fluctuations in interest rates on either investments or on debt and is fully
dependent upon the volatility of these rates. The Company does not use
derivative instruments to moderate its exposure to interest rate risk, if any.
Financial risk is the risk that the Company's earnings are subject to
fluctuations in interest rates or foreign exchange rates and are fully dependent
upon the volatility of these rates. The company does not use derivative
instruments to moderate its exposure to financial risk, if any.
F-9
GUARDIAN TELECOM, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
July 31, 2011 and 2010
NOTE E - CONCENTRATIONS OF CREDIT RISK
The Company maintains its cash accounts in a single financial institution
subject to insurance coverage issued by the Canada Deposit Insurance Corporation
(CDIC). Under CDIC rules, the Company is entitled to aggregate coverage of
$100,000 per account type per separate legal entity per financial institution.
During the periods ended July 31, 2011 and 2010, respectively, the Company
periodically maintained deposits in this financial institution with credit risk
exposures in excess of statutory CDIC coverage. The Company incurred no losses
through July 31, 2011, and subsequent thereto, as a result of any of these
unsecured situations.
NOTE F - INVENTORY
As of July 31, 2011 and 2010, inventory consisted of the following components:
July 31, July 31,
2011 2010
---------- ----------
Raw materials $ 716,773 $ 544,460
Work in process 12,350 24,011
Finished goods 183,791 168,638
---------- ----------
Totals $ 912,914 $ 737,109
========== ==========
NOTE G - PROPERTY AND EQUIPMENT
Property and equipment consist of the following components:
July 31, July 31, Estimated
2011 2010 useful life
---------- ---------- -----------
Manufacturing equipment $2,882,109 $2,882,747 7 years
Office equipment, furniture
and fixtures 551,237 530,629 2-7 years
Leasehold improvements 110,063 110,063 10 years
---------- ----------
3,543,409 3,523,439
Accumulated depreciation (2,947,677) (2,619,189)
---------- ----------
Net property and equipment $ 595,732 $ 904,250
========== ==========
Total depreciation expense charged to operations for the years ended July 31,
2011 and 2010 was approximately $328,500 and $341,600, respectively.
Included in the amounts reflected in the accompanying balance sheet are the
following fixed assets on long-term capital leases:
July 31, July 31,
2011 2010
---------- ----------
Manufacturing equipment $1,387,606 $1,387,606
Less accumulated depreciation (1,050,099) (851,870)
---------- ----------
$ 337,507 $ 535,736
========== ==========
F-10
GUARDIAN TELECOM, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
July 31, 2011 and 2010
NOTE H - LINE OF CREDIT NOTE PAYABLE TO A BANK
The Company has a $500,000 ($1,000,000 at July 31, 2010) revolving line of
credit note payable with the Royal Bank of Canada (RBC). The loan bears interest
at RBC's Prime interest rate + 2.9% (5.90% at July 31, 2011). Advances are made
in increments of $5,000 and the maximum to be outstanding at any one time is 75%
of "Good Accounts Receivable" (as defined in the Agreement) and 50% of the
lesser of cost or net realizable value of "Unencumbered Inventory" (as defined
in the Agreement) to a maximum of $250,000. All accrued interest is payable
monthly, in arrears. The Company is required to maintain certain financial
covenants, as defined in the Agreement, of a ratio of Total Liabilities to
Tangible Net Worth of not less than 1.25:1 and a ratio of Current Assets to
Current Liabilities of not less than 1.5:1. The Company believes that it is in
compliance with the financial covenants as calculated pursuant to the Agreement.
As of July 31, 2011 and 2010, the outstanding balance on the line of credit was
approximately $365,000 and $807,048, respectively.
NOTE I - CAPITAL LEASES PAYABLE
July 31, July 31,
2011 2010
---------- ----------
$203,740 capital lease payable to a finance corporation
Interest at 5.39%. Payable in monthly installments
of approximately $3,572, including accrued interest
Final maturity paid in October 2010. Collateralized by
equipment $ -- $ 9,792
$763,232 capital lease payable to a finance corporation
Interest at 5.78%. Payable in monthly installments
of approximately $13,527, including accrued interest
Final maturity paid in November 2010. Collateralized by
equipment -- 115,110
$197,704 capital lease payable to a finance corporation
Interest at 6.20%. Payable in monthly installments
of approximately $3,805, including accrued interest
Final maturity due in January 2012. Collateralized by
equipment 22,453 65,331
$222,930 capital lease payable to a finance corporation
Interest at 5.21%. Payable in monthly installments
of approximately $4,229, including accrued interest
Final maturity due in October 2013. Collateralized by
equipment 107,499 151,408
---------- ----------
129,952 341,641
Less current maturities (68,688) (211,689)
---------- ----------
Long-term portion $ 61,264 $ 129,952
========== ==========
Future maturities of long-term capital leases payable are
Year ending
July 31, Amount
-------- ------
2012 $ 68,688
2013 48,704
2014 12,560
----------
Total $ 129,952
==========
F-11
GUARDIAN TELECOM, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
July 31, 2011 and 2010
NOTE J - LOANS FROM SHAREHOLDERS
Future maturities of long-term capital leases payable are
July 31, July 31,
2011 2010
-------- --------
Notes payable to four former stockholders. Interest
payable at 5.0%, payable annually. Principal and
any unpaid, but accrued, interest due upon demand
The notes are unsecured and were assumed by the
Company's current majority shareholder in October 2010 $ -- $325,000
Note payable to current stockholder. Due upon demand
Non-interest bearing unless Company fails immediately pay
upon demand in which case the note bears interest,
prospectively, at RBC's Prime Rate + 3.0%. The note is
unsecured and subordinated to the Company's Line of
Credit Note Payable to a Bank 325,000 --
Note payable to current stockholder. Due upon demand
Interest payable at 6.0%, commencing August 1, 2011. Principal
and any unpaid, but accrued, interest due upon demand and
payable in such time and manner as mentioned in the demand
notice. The note is unsecured and subordinated to the
Company's Line of Credit Note Payable to a Bank 600,000 --
-------- --------
$950,000 $325,000
======== ========
Certain notes payable to the Company's current controlling stockholder, as
listed above, are non-interest bearing, as of July 31, 2011, and, as such, the
Company has recognized an aggregate of approximately $15,119 as additional
paid-in capital for economic event related to the non-interest bearing feature
on the aforementioned notes payable to stockholders.
NOTE K - COMMON STOCK TRANSACTIONS
The Company's Articles of Incorporation provide for four (4) separate classes of
shares, as follows:
Class A Shares
The Company is authorized to issue an unlimited number of Class A shares having
attached thereto the following rights:
(a) The holders of Class A shares are entitled to vote at all meetings of
stockholders of the Corporation, except at meetings at which only holders
of a specific class of shares are entitled to vote.
(b) Subject to the rights attaching to any other classes of shares of the
Corporation the holders of the Class A shares are entitled to such
dividends as the directors of the Corporation in their sole discretion may
determine from time to time and no class of shares shall rank equally with
any other class of shares in respect of dividends; and in particular,
notwithstanding the generality of the foregoing, the directors may
(i) declare dividends on one class of shares without declaring dividends
on the other classes of shares,
(ii)declare dividends on two or more classes of shares at different times,
(iii)declare dividends on two or more classes of shares at the same time
in different amounts for each class, or
(iv)declare dividends on two or more classes of shares at the same time but
payable at different times.
(c) Subject to the rights attaching to any other shares of the Corporation,
upon the liquidation, dissolution, bankruptcy or winding-up of the
Corporation or other distribution of its assets amount its stockholders for
the purpose of winding-up its affairs, the holders of Class A shares are
entitled to receive the remaining property of the Corporation pro rata with
the Class B, Class C and Class D shares.
F-12
GUARDIAN TELECOM, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
July 31, 2011 and 2010
NOTE K - COMMON STOCK TRANSACTIONS - CONTINUED
Class B Shares
The Company is authorized to issue an unlimited number of Class B shares having
attached thereto the following rights:
(a) The holders of Class B shares are entitled to vote at all meetings of
stockholders of the Corporation, except at meetings at which only holders
of a specific class of shares are entitled to vote.
(b) Subject to the rights attaching to any other classes of shares of the
Corporation the holders of the Class B shares are entitled to such
dividends as the directors of the Corporation in their sole discretion may
determine from time to time and no class of shares shall rank equally with
any other class of shares in respect of dividends; and in particular,
notwithstanding the generality of the foregoing, the directors may
(i) declare dividends on one class of shares without declaring dividends
on the other classes of shares,
(ii) declare dividends on two or more classes of shares at different times,
(iii)declare dividends on two or more classes of shares at the same time
in different amounts for each class, or
(iv)declare dividends on two or more classes of shares at the same time but
payable at different times.
(c) Subject to the rights attaching to any other shares of the Corporation,
upon the liquidation, dissolution, bankruptcy or winding-up of the
Corporation or other distribution of its assets amount its stockholders for
the purpose of winding-up its affairs, the holders of Class B shares are
entitled to receive the remaining property of the Corporation pro rata with
the Class A, Class C and Class D shares.
Class C Shares
The Company is authorized to issue an unlimited number of Class C shares having
attached thereto the following rights:
(a) The holders of Class C shares are entitled to vote at all meetings of
stockholders of the Corporation, except at meetings at which only holders
of a specific class of shares are entitled to vote.
(b) Subject to the rights attaching to any other classes of shares of the
Corporation the holders of the Class C shares are entitled to such
dividends as the directors of the Corporation in their sole discretion may
determine from time to time and no class of shares shall rank equally with
any other class of shares in respect of dividends; and in particular,
notwithstanding the generality of the foregoing, the directors may
(i) declare dividends on one class of shares without declaring dividends
on the other classes of shares,
(ii)declare dividends on two or more classes of shares at different times,
(iii)declare dividends on two or more classes of shares at the same time
in different amounts for each class, or
(iv)declare dividends on two or more classes of shares at the same time but
payable at different times.
(c) Subject to the rights attaching to any other shares of the Corporation,
upon the liquidation, dissolution, bankruptcy or winding-up of the
Corporation or other distribution of its assets amount its stockholders for
the purpose of winding-up its affairs, the holders of Class C shares are
entitled to receive the remaining property of the Corporation pro rata with
the Class A, Class B and Class D shares.
Class D Shares
The Company is authorized to issue an unlimited number of Class D shares having
attached thereto the following rights:
(a) The holders of Class D shares are entitled to vote at all meetings of
stockholders of the Corporation, except at meetings at which only holders
of a specific class of shares are entitled to vote.
(b) Subject to the rights attaching to any other classes of shares of the
Corporation the holders of the Class D shares are entitled to such
dividends as the directors of the Corporation in their sole discretion may
determine from time to time and no class of shares shall rank equally with
any other class of shares in respect of dividends; and in particular,
notwithstanding the generality of the foregoing, the directors may
(i) declare dividends on one class of shares without declaring dividends
on the other classes of shares,
(ii) declare dividends on two or more classes of shares at different times,
(iii)declare dividends on two or more classes of shares at the same time
in different amounts for each class, or
(iv)declare dividends on two or more classes of shares at the same time but
payable at different times.
F-13
GUARDIAN TELECOM, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
July 31, 2011 and 2010
NOTE K - COMMON STOCK TRANSACTIONS - CONTINUED
(c) Subject to the rights attaching to any other shares of the Corporation,
upon the liquidation, dissolution, bankruptcy or winding-up of the
Corporation or other distribution of its assets amount its stockholders for
the purpose of winding-up its affairs, the holders of Class D shares are
entitled to receive the remaining property of the Corporation pro rata with
the Class A, Class B and Class C shares.
NOTE L - INCOME TAXES
The components of income tax (benefit) expense for the years ended July 31, 2011
and 2010, respectively, are as follows:
Year ended Year ended
July 31, July 31,
2011 2010
---------- ----------
Canadian:
Current $ (14,604) $ --
Deferred -- --
---------- ----------
-- --
---------- ----------
Provence:
Current -- --
Deferred -- --
---------- ----------
-- --
---------- ----------
Total $ -- $ --
========== ==========
As of July 31, 2011, the Company has a aggregate combined net operating loss
carryforward of approximately $876,000 to offset future taxable income. Subject
to current regulations, components of this carryforward will expire in
accordance with Canadian Tax Law in various future periods.
The Company's income tax expense (benefit) for the years ended July 31, 2011 and
2010, respectively, differed from the Canadian statutory rate of 38 percent and
the Alberta Provincial statutory rate of 10 percent, as follows:
Year ended Year ended
July 31 July 31,
2011 2010
---------- ----------
Statutory rate applied to loss before income taxes $ (111,300) $ (212,700)
Increase (decrease) in income taxes resulting from:
Provincial income taxes 23,200 44,300
Other differences related to statutory
differences in expense recognition and
the effect of the net operating loss 88,100 168,400
---------- ----------
Income tax expense $ -- $ --
========== ==========
(Remainder of this page left blank intentionally)
F-14
GUARDIAN TELECOM, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
July 31, 2011 and 2010
NOTE L - INCOME TAXES - CONTINUED
Temporary differences, consisting primarily of the net operating loss
carryforward and statutory differences in the depreciable lives for property and
equipment, between the financial statement carrying amounts and tax bases of
assets and liabilities give rise to deferred tax assets and liabilities as of
July 31, 2011 and 2010, respectively:
Year ended Year ended
July 31, July 31,
2011 2010
---------- ----------
Deferred tax assets - long-term
Net operating loss carryforwards $ 333,000 $ 338,000
Depreciation timing differences 293,400 243,700
---------- ----------
626,400 581,700
Deferred tax liabilities - long-term -- --
---------- ----------
626,400 581,700
Less valuation allowance (626,400) (581,700)
---------- ----------
Net Deferred Tax Asset $ -- $ --
========== ==========
During the years ended July 31, 2011 and 2010, respectively, the valuation
allowance increased by approximately $44,700 and $90,800.
NOTE M - RENTAL COMMITMENTS
The Company leases its corporate office and manufacturing facility from a
corporation controlled by a former stockholder under a long-term operating lease
agreement. The lease requires a monthly payment of approximately $25,947. The
Company is responsible for the direct payment of all utilities and maintenance
expenses and the reimbursement of all ad valorem taxes. The lease expires on
November 30, 2014 and contains a 5-year renewal extension period with the rental
rate to be reset to fair market value at renewal if the Company gives notice of
renewal to the lessor no earlier than 9 months, and not later than 6 months,
prior to the expiration date.
Total rent expense, paid or accrued, under lease agreements for each of the
years ended July 31, 2011 and 2010, respectively, was as follows:
Year ended Year ended
July 31, July 31,
2011 2010
---------- ----------
Total $ 248,292 $ 248,292
========== ==========
Future operating lease commitments, including the exercise of the 5-year renewal
extension, are as follows:
Year ending
July 31, Amount
---------- ----------
2012 $ 311,360
2013 311,360
2014 311,360
2015 344,363
2016 360,864
2017-thereafter 1,202,880
----------
Total $2,842,187
==========
F-15
GUARDIAN TELECOM, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
July 31, 2011 and 2010
NOTE N - RELATED PARTY TRANSACTIONS
In October 2010, in a securities transaction between former and current
stockholders, control of the Company was acquired by 4C Tech Holdings, Inc., an
Alberta Canada corporation. As of and during the year ended July 31, 2011, the
Company had the following transactions with 4C Tech Holdings, Inc. and/or
Affiliates of 4C Tech Holdings, Inc.:
As of July 31, 2011:
Accounts receivable from 4C Tech Holdings, Inc. or Affiliates $ 11,424
========
Accounts payable to 4C Tech Holdings, Inc. or Affiliates $ 16,710
========
Loans payable to 4C Tech Holdings, Inc. $925,000
========
Year ended July 31, 2011:
Product sales $188,721
========
NOTE O - REVENUE CONCENTRATIONS (UNAUDITED)
The Company sells to both commercial and governmental customers, in both
domestic and foreign markets. The following table shows the Company's geographic
revenue distribution by region as presented in the accompanying Statement of
Operations:
Year ended
July 31, 2011
Amount % of total
------ ----------
North America $3,629,698 61.52%
Middle East/Africa 1,295,468 21.96
Central America 387,137 6.56
Asia/Australia 304,448 5.16
South America 176,922 3.00
Europe 106,450 1.80
---------- ------
$5,900,123 100.00%
========== ======
The Company had no single customer responsible for 10% or more of gross revenues
during the year ended July 31, 2011.
F-16