UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended February 29, 2004
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 000-27773
SYSCAN IMAGING, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 59-3134518
-------- ----------
(State of incorporation) (I.R.S. Employer Identification No.)
1754 TECHNOLOGY DRIVE
SAN JOSE, CA 95110
(Address of principal executive offices, including zip code)
(408) 436-9888
(Registrant's telephone number, including area code)
BANKENGINE TECHNOLOGIES, INC.
425 Broadhollow Road
Melville, New York 11747
(Former name and address)
Check whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months, and (2) has been subject to such filing requirements for
the past 90 days. Yes |X| No |_|
The number of shares outstanding of the registrant's Common Stock,
$.001 Par Value, on April 14, 2004, was 23,110,510 shares.
BANKENGINE TECHNOLOGIES, INC.
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Page
Number
Item 1. Financial Statements..................................................1
Item 2. Management's Discussion and Analysis of Financial
Condition and Plan of Operation......................................13
Item 3. Controls and Procedures..............................................16
PART II OTHER INFORMATION
Item 1. Legal Proceedings.....................................................17
Item 2. Changes in Securities and Use of Proceeds.............................17
Item 3. Defaults Upon Senior Securities.......................................17
Item 4. Submission of Matters to a Vote of Security Holders...................17
Item 5. Other Information.....................................................17
Item 6. Exhibits and Reports on Form 8-K......................................17
Signatures....................................................................18
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-QSB contains forward-looking
statements as defined by the Private Securities Litigation Reform Act of 1995.
Forward-looking statements include statements concerning plans, objectives,
goals, strategies, future events or performance and underlying assumptions and
other statements, which are other statements of historical facts. These
statements are subject to uncertainties and risks including, but not limited to,
product and service demand and acceptance, changes in technology, economic
conditions, the impact of competition and pricing, government regulation, and
other risks defined in this document and in statements filed from time to time
with the Securities and Exchange Commission. All such forward-looking statements
are expressly qualified by these cautionary statements and any other cautionary
statements that may accompany the forward-looking statements. In addition,
Syscan Imaging, Inc. disclaims any obligations to update any forward-looking
statements to reflect events of circumstances after the date hereof.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SYSCAN IMAGING, INC.
(PREVIOUSLY BANKENGINE TECHNOLOGIES INC.)
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
February 29, August 31,
2004 2003
Unaudited
Current Assets:
Cash and cash equivalents $ 28,288 $ 850
Loan receivable 11,976
--------- ---------
40,264 850
--------- ---------
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Accounts payable and accrued expenses 33,002 55,000
Loans payable 23,476 --
--------- ---------
56,478 55,000
--------- ---------
Commitments and Contingencies
Stockholders' Deficiency
Common stock $0.001 par value - authorized
50,000,000 shares; 20,275,753 and 19,115,893
shares issued and outstanding at February 28, 2004
and August 31, 2003, respectively 20,276 19,116
Additional paid-in-capital 631,888 484,556
Accumulated deficit (668,378) (489,544)
Accumulated other comprehensive loss -- (65,778)
Treasury stock, 100,000 shares at cost -- (2,500)
--------- ---------
Total Stockholders' Deficiency (16,214) (54,150)
--------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIENCY $ 40,264 $ 850
========= =========
See Notes to Consolidated Financial Statements
-1-
SYSCAN IMAGING, INC.
(PREVIOUSLY BANKENGINE TECHNOLOGIES INC)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended Six months ended
February 29, February 29,
2004 2003 2004 2003
--------- --------- --------- ---------
Income from continuing operations $ -- $ -- $ -- $ --
--------- --------- --------- ---------
Discontinued operations
Loss from telecommunications and
software development segments 105,708 187,386 113,056 195,507
--------- --------- --------- ---------
Loss from discontinued operations 105,708 187,386 113,056 195,507
=========== =========== =========== ===========
Net loss $ 105,708 $ 187,386 $ 113,056 $ 195,507
=========== =========== =========== ===========
Net loss per common share-
basic and diluted $ 0.01 $ 0.01 $ 0.01 $ 0.01
=========== =========== =========== ===========
Weighted average number of
common shares outstanding-
basic and diluted 19,719,890 19,112,560 19,392,786 19,063,959
=========== =========== =========== ===========
See Notes to Consolidated Financial Statements
-2-
SYSCAN IMAGING, INC.
(PREVIUOSLY BANKENGINE TECHNOLOGIES, INC.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(Unaudited)
Compre-
hensive Additional
Income Common Stock Treasury Stock Paid-In
(loss) Shares Amount Capital
------ ------ ------ --------------- -------
Balance,
September 1, 2002 19,015,893 $ 19,016 (100,000) $ (2,500) $ 454,790
Shares issued for
reduction in
accounts payable 100,000 100 22,400
Reduction in shareholder
loan as a contribution
of capital 7,366
Net income $ 201,458
Foreign currency
translation (50,732)
------------
Comprehensive income $ 150,726
============
---------- ------------ -------- ------------ ------------
Balance,
August 31, 2003 19,115,893 19,116 (100,000) (2,500) 484,556
Treasury stock cancelled (100,000) (100) 100,000 2,500 (2,400)
Shares issued for
reduction in accounts
payable 60,000 60 1,200
Shares issued as
consideration to
directors for services 200,000 200 5,800
Shares issued as
consideration for
services rendered 500,000 500 49,500
Stock options granted 43,732
Shares issued for cash 500,000 500 49,500
Foreign currency
translation
Net income for the
period $ (113,056)
Foreign currency
translation --
------------
Comprehensive loss $ (113,056)
============
Balance,
February 29, 2004 20,275,753 $ 20,276 -- $ -- $ 631,888
---------- ------------ -------- ------------ ------------
Cumulative
Other
Compre-
Retained hensive
Earnings Income (loss) Total
-------- ------------- -----
Balance,
September 1, 2002 $ (691,002) $ (15,046) $ (234,742)
Shares issued for
reduction in
accounts payable 22,500
Reduction in shareholder
loan as a contribution
of capital 7,366
Net income 201,458 201,458
Foreign currency
translation (50,732) (50,732)
Comprehensive income
------------ ------------ ------------
Balance,
August 31, 2003 (489,544) (65,778) (54,150)
Treasury stock cancelled --
Shares issued for
reduction in accounts
payable 1,260
Shares issued as
consideration to
directors for services 6,000
Shares issued as
consideration for
services rendered 50,000
Stock options granted 43,732
Shares issued for cash 50,000
Foreign currency
translation (65,778) 65,778 --
Net income for the
period (113,056) (113,056)
Foreign currency
translation --
Comprehensive loss
------------ ------------ ------------
Balance,
February 29, 2004 $ (668,378) $ -- $ (16,214)
============ ============ ============
See Notes to Consolidated Financial Statements
-3-
SYSCAN IMAGING, INC.
(PREVIOUSLY BANKENGINE TECHNOLOGIES, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended February 29,
2004 2003
Cash flows from operating activities:
Net cash provided by operating activities of continuing operations $ -- $ --
Net loss (113,056) (195,507)
Adjustments to reconcile net loss to
cash provided by operating activities:
Depreciation and amortization -- 15,612
Impairment of long term assets 46,116
Loss on disposal of fixed assets 13,520
Reserve for bad debts -- 112,425
Shares and stock options issued for services rendered 93,732
Shares issued to directors as compensation 6,000 --
Changes in operating assets and liabilities
(Increase) decrease in accounts receivable -- (114,123)
Decrease in funds held in escrow -- 31,990
(Increase) decrease in prepaid expenses
and other assets -- 11,673
Decrease in accounts payable (20,738) 54,740
--------- ---------
Net cash used in operating activities of discontinued operations (34,062) (23,554)
--------- ---------
Net Cash Used in Operating Activities (34,062) (23,554)
--------- ---------
Cash flows from investing activities:
Loans advanced (11,976) --
Proceeds on disposition of property, plant and equipment -- 40,000
Acquisition of property, plant and equipment -- (59,349)
--------- ---------
Net Cash Used in Investing Activities (11,976) (19,349)
--------- ---------
Cash flows from financing activities:
Proceeds from sale of capital stock 50,000 --
Loans advanced 23,476 --
Loan advances from stockholders -- (1,530)
Repayment of loan payable -- (6,124)
--------- ---------
Net Cash Provided by (Used in) Financing Activities 73,476 (7,654)
--------- ---------
Effect of change in foreign currency rate -- 1,301
--------- ---------
Net increase (decrease) in cash 27,438 (49,256)
Cash - beginning of year 850 59,065
--------- ---------
Cash - end of year $ 28,288 $ 9,809
========= =========
Supplementary information:
Financing activities
Common stock issued to liquidate accounts payable $ 1,260
=========
See Note to Consolidated Financial Statements
-4-
SYSCAN IMAGING, INC.
(Previously BankEngine Technologies, Inc.)
Notes to Consolidated Financial Statements
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Until April 2, 2004, the Company operated as Bankengine Technologies,
Inc. On April 2, 2004, the Company acquired all of the issued and outstanding
shares of Syscan, Inc. in exchange for 18,773,514 common shares in a reverse
acquisition and the Company changed its name to Syscan Imaging, Inc.("the
Company")
These financial statements reflect the operations of Bankengine
Technologies Inc and its subsidiaries as the acquisition by Syscan Inc did not
occur until after the end of the current quarter. Prior to December 9, 2003,
Bankengine Technologies, Inc. had two subsidiaries operating in the
telecommunication and software development sectors. On December 9, 2003, the
subsidiaries, which were at that time inactive, were purchased by a previous
shareholder for an amount of $1. As of February 29, 2004, the balance sheet
reflects the assets and liabilities of Bankengine Technologies, Inc. without any
subsidiaries.
BASIS OF PRESENTATION
The consolidated balance sheet as of February 29, 2004, and the
consolidated statements of operations, stockholders' deficiency and cash flows
for the periods presented herein have been prepared by the Company and are
unaudited. In the opinion of management, all adjustments (consisting solely of
normal recurring adjustments) necessary to present fairly the financial
position, results of operations, stockholders' deficiency and cash flows for all
periods presented have been made. The information for the consolidated balance
sheet as of August 31, 2003 was derived from audited financial statements of
Bankengine Technologies Inc..
In the future, the acquisition by the shareholder of Syscan, Inc. of a
majority of the shares of the Company will be accounted for as a reverse
acquisition and no goodwill will be reflected on this acquisition. Although the
Company is the legal acquirer, Syscan, Inc. will be treated as having acquired
the Company for accounting purposes and all of the operations reported will be
for Syscan, Inc.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity
with generally accepted accounting principles in the United States of America
requires management to make estimates and assumptions that affect certain
reported amounts of assets and liabilities and disclosures of contingent assets
and liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. These estimates are reviewed
periodically and as adjustments become necessary, they are reported in earnings
in the period in which they become known.
-5-
REVENUE RECOGNITION
The Company recognizes revenue in accordance with the guidance
contained in SEC Staff Accounting Bulletin No. 101, "Revenue Recognition in
Financial Statements" ("SAB #101").
The Company's revenues from its telecommunications business is
recognized when the earnings process is complete. This occurs when the services
have been utilized, collection is probable and pricing is fixed or determinable.
The Company provides computer consulting services in a number of areas
including database management, on-line transaction processing and e-mail
capabilities. Revenue is recognized as pre-determined milestones are
accomplished and consulting services delivered.
FOREIGN CURRENCY TRANSLATION
The Company's functional currency has been primarily the Canadian
dollar. All assets and liabilities recorded in foreign currencies are translated
at the current exchange rate. Translation adjustments resulting from this
process are charged or credited to other comprehensive income. Revenues and
expenses are translated at average rates of exchange previously during the year.
Gains and losses on foreign currency transactions are included in financial
expenses. Commencing December 1, 2003, the Company's functional currency is US
dollars.
DEPRECIATION
Property, plant and equipment are recorded at historical cost less
accumulated depreciation. Depreciation is provided using the following annual
rates:
Telecommunication switch - 25% per year on a straight line basis
Furniture and Fixture - 20% declining balance method
Computer Equipment - 30% - declining balance method
INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
Valuation allowances are recorded to reduce deferred tax assets when it is more
likely than not that a tax benefit will not be realized.
-6-
SEGMENT REPORTING
The Company applies Financial Accounting Standards Boards ("FASB")
statement No. 131, "Disclosure about Segments of an Enterprise and Related
Information". The Company has considered its operations and has determined that
it operates in two operating segments, software development and telecom, for
purposes of presenting financial information and evaluating performance. As
such, the accompanying financial statements present information in a format that
is consistent with the financial information used by management for internal
use.
INCOME (LOSS) PER COMMON SHARE
Basic income (loss) per common share are computed by dividing net
income (loss) by the weighted average number of common shares outstanding during
the period. Diluted earnings per common share are computed by dividing net
earnings by the weighted average number of common shares and potential common
shares outstanding during the year. Potential common shares used in computing
diluted earnings per share relate to stock options and warrants which, if
exercised, would have a dilutive effect on earnings per share. Options
previously outstanding have been cancelled and therefore the possible potential
common shares to be issued are -0- and 600,000 for the six and three months
ended February 29, 2004 and 2003, respectively. During the six and three moths
ended February 29, 2003 potential common shares outstanding were omitted from
the calculation of loss per share as the effect would be antidilutive.
GOODWILL AND OTHER INTANGIBLES
In June 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 141, "Business Combinations" ("SFAS 141"), and No. 142, "Goodwill and
Other Intangible Assets" ("SFAS 142"). SFAS 141 changes the accounting for
business combinations, requiring that all business combinations be accounted for
using the purchase method and that intangible assets be recognized as assets
apart from goodwill if they arise from contractual or other legal rights, or if
they are separate or capable of being separated from the acquired entity and
sold, transferred, licensed, rented or exchanged. SFAS 141 was effective for all
business combinations initiated after June 30, 2001. SFAS 142 specifies the
financial accounting and reporting for acquired goodwill and other intangible
assets. Goodwill and intangible assets that have indefinite useful lives are not
amortized but rather they are tested at least annually for impairment unless
certain impairment indicators are identified. This standard was effective for
fiscal years beginning after December 15, 2001.
SFAS 142 requires that the useful lives of intangible assets acquired
on or before June 30, 2001 be reassessed and the remaining amortization periods
adjusted accordingly. Previously recognized intangible assets deemed to have
indefinite lives are tested for impairment. Goodwill recognized on or before
June 30, 2001, has been tested for impairment as of the beginning of the fiscal
year in which SFAS 142 was initially applied and, after considering the results
of an independent valuation and appraisal, management concluded that no
impairment was indicated.
Upon adoption of this standard, the Company allocated its goodwill and
other intangibles to its telecommunications unit.
-7-
Other intangibles primarily include customer lists in connection with
the Company's telecommunications activity. Amounts assigned to these intangibles
are based on independent appraisals. Other intangibles are being amortized over
24 months. The intangible asset was written down to $-0- during the second
quarter of fiscal 2003.
For the Six Months
Ended February 29,
2004 2003
--------- ---------
Reported net loss $ 113,056 $ 195,507
Addback: Goodwill amortization
net of income tax) -- --
--------- ---------
Adjusted net loss 113,056 195,507
========= =========
Basic and diluted loss per share:
Reported net loss $ 0.01 $ 0.01
Addback: Goodwill amortization - -
--------- ---------
Adjusted net loss $ 0.01 $ 0.01
========= =========
STOCK BASED COMPENSATION
The Company accounts for equity-based compensation issued to
employees in accordance with Accounting Principles Board ("ABP") Opinion No. 25
"Accounting for Stock Issued to Employees". ABP No. 25 requires the use of the
intrinsic value method, which measures compensation cost as the excess, if any,
of the quoted market price of the stock at the measurement date over the amount
an employee must pay to acquire the stock. The Company makes disclosures of pro
forma net earnings and earnings per share as if the fair-value-based method of
accounting had been applied as required by SFAS No. 123 "Accounting for
Stock-Based Compensation-Transition and Disclosure" and SFAS 148 Accounting for
Stock Based Compensation - Transition and disclosures. To date no options have
been granted.
The Company accounts for equity-based compensation to non-employees
based on the fair value of the consideration received or the fair value of the
equity instruments issued, whichever is more reliably measurable. During the six
months and three months ended February 29, 2004, the Company issued 700,000
shares of the Company's common stock to non-employees and directors. The Company
recorded $56,000 as compensation expense for the respective periods.
-8-
RECENT ACCOUNTING PRONOUNCEMENTS
In April 2002, the FASB issued SFAS No. 145 "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections". This statement eliminates the automatic classification of gain or
loss on extinguishment of debt as an extraordinary item of income and requires
that such gain or loss be evaluated for extraordinary classification under the
criteria of Accounting Principles Board No. 30 "Reporting Results of
Operations". This statement also requires sales-leaseback accounting for certain
lease modifications that have economic effects that are similar to
sales-leaseback transactions, and makes various other technical corrections to
existing pronouncements. This statement did not have a material effect on the
Company's results of operations or financial position.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement
No. 133 on Derivative Instruments and Hedging Activities." This statement amends
and clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities under FASB Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This Statement is effective for contracts
entered into or modified after June 30, 2003, and for hedging relationships
designated after June 30, 2003. Management believes that adopting this statement
did not have a material effect on the Company's results of operations or
financial position.
In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45),
Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, and interpretation of FASB
Statements No. 5, 57,and 107 and Rescission of FASB Interpretation No. 34. FIN
45 clarifies the requirements of FASB Statement No. 5, Accounting for
Contingencies, relating to the guarantor's accounting for, and disclosure of,
the issuance of certain types of guarantees. This interpretation clarifies that
a guarantor is required to recognize, at the inception of certain types of
guarantees, a liability for the fair value of the obligation undertaken in
issuing the guarantee. The initial recognition and initial measurement
provisions of this Interpretation are applicable on a prospective basis to
guarantees issued or modified after December 31, 2002, irrespective of the
guarantor's fiscal year-end. The disclosure requirements in this interpretation
are effective for financial statements of interim or annual periods ending after
December 15, 2002. The Company adopted FIN 45 on November 1, 2003. The adoption
of FIN 45 did not have a material impact on the Company's results of operations
or financial position.
In January 2003, the Financial Accounting Standards Board issued
Interpretation No. 46, "Consolidation of Variable Interest Entities," which
addresses consolidation by business enterprises of variable interest entities.
In general, a variable interest entity is a corporation, partnership, trust, or
any other legal structure used for business purposes that either (a) does not
have equity investors with voting rights or (b) has equity investors that do not
provide sufficient financial resources for the entity to support its activities.
A variable interest entity often holds financial assets, including loans or
receivables, real estate or other property. A variable interest entity may be
essentially passive or it may engage in research and development or other
activities on behalf of another company. The objective of Interpretation No. 46
is not to restrict the use of variable interest entities but to improve
financial reporting by companies involved with variable interest entities. Until
now, a company generally has included another entity in its consolidated
financial statements only if it controlled the entity through voting interests.
Interpretation No. 46 changes that by requiring a variable interest entity to be
consolidated by a company if that company is subject to a majority of the risk
of loss from the variable interest entity's activities or entitled
-9-
to receive a majority of the entity's residual returns or both. The
consolidation requirements of Interpretation No. 46 apply immediately to
variable interest entities created after January 31, 2003. The consolidation
requirements apply to older entities in the first fiscal year or interim period
beginning after June 15, 2003. Certain of the disclosure requirements apply in
all financial statements issued after January 31, 2003, regardless of when the
variable interest entity was established. The adoption of FIN 46 did not have a
material impact on the Company's results of operations or financial position.
In May 2003, the FASB issued SFAS 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity". SFAS
150 establishes standards for how an issuer classifies and measures in its
statement of financial position certain financial instruments with
characteristics of both liabilities and equity. SFAS 150 requires that an issuer
classify a financial instrument that is within its scope as a liability (or an
asset in some circumstances) because that financial instrument embodies an
obligation of the issuer. SFAS 150 is effective for financial instruments
entered into or modified after May 31, 2003 and otherwise is effective at the
beginning the Company's interim period commencing July 1, 2003. SFAS 150 is to
be implemented by reporting the cumulative effect of a change in accounting
principle for financial instruments created before the issuance date of SFA 150
and still existing at the beginning of the interim period of adoption. The
adoption of SFAS 150 did not have a significant effect on the company's
financial statement presentation or disclosures.
In December 2003, the FASB issued SFAS No. 132 (Revised) ("SFAS No.
132-R"), "Employer's Disclosure about Pensions and Other Postretirement
Benefits." SFAS No. 132-R retains disclosure requirements of the original SFAS
No. 132 and requires additional disclosures relating to assets, obligations,
cash flows, and net periodic benefit cost for defined benefit pension plans and
defined benefit post retirement plans. SFAS No. 132-R is effective for fiscal
years ending after December 15, 2003, except that certain disclosures are
effective for fiscal years ending after June 15, 2004. Interim period
disclosures are effective for interim periods beginning after December 15, 2003.
The adoption of the disclosure provisions of revised SFAS No. 132-R did not have
a material impact on the Company's historical disclosure.
2. CAPITAL STOCK
a) AUTHORIZED
50,000,000 common stock with a $.001 par value
b) COMMON STOCK
During the second quarter, the Company issued 500,000 shares of common stock as
payment for legal services rendered. The company has recorded an amount of
$50,000, which represents the fair market value of the shares issued.
During January 2004, the Company issued 500,000 shares of common stock for a
cash consideration of $50,000.
As part of the reorganization of the Company, on April 2, 2004, the common
shares of the Company were subject to a revere split of 1 share for each 10
shares outstanding.
-10-
3. STOCK OPTIONS
(a) On April 5, 2002, the Company issued 600,000 options exercisable at $0.10
per share, the fair market value at the date of grant. The options have a 5 year
term and were issued in consideration of consulting services to be rendered by
the principal of Platinum Telecommunications Inc. and are exercisable
immediately. The estimated fair value of the options on the date of grant using
the Black-Scholes option pricing model is $5,000, based on a risk free interest
rate of 4.65%, an expected volatility of 200%, an expected life of 5 years and
no dividend yield and has been expensed in the quarter ended May 31, 2002. The
weighted - average fair value of the options issued during the year was $.008.
As of August 31, 2003, these options have been cancelled.
(b) On May 17, 2002, the shareholders of the Company approved the adoption of
the Company's 2002 Stock Option Plan. The plan provides for the issuance of
2,000,000 options with the following terms and conditions.
The plans are administrated by the Board of Directors, which
determine among other things, those individuals who shall receive options, the
time period during which the options may be partially or fully exercised, the
number of common stock to be issued upon the exercise of the options and the
option exercise price.
The maximum term of the plan is ten years and options may be granted
to officers, directors, consultants, employees, and similar parties who provide
their skills and expertise to the Company.
Options granted under the plans have a maximum term of ten years and
shall be at an exercise price that may not be less than 85% of the fair market
value of the common stock on the date of the grant. Options are non-transferable
and if a participant ceases affiliation with the company for a reason other than
death or permanent and total disability, the participant will have 90 days to
exercise the option subject to certain extensions. In the event of death or
permanent and total disability, the option holder or their representative may
exercise the option within 1 year.
Any unexercised options that expire or that terminate upon an
employee's ceasing to be employed by the company become available again for
issuance under the plans, subject to applicable securities regulation. The plans
may be terminated or amended at any time by the Board of Directors.
(c) As part of an employment agreement signed in December 2003, the employee
received 500,000 options to acquire shares of the company at $.09 for a term of
2 years. Following the restructuring of the Company on April 2, 2004, the
options were re-issued as 50,000 options to acquire shares at $.90 per share.
The estimated fair value of the options on the date of grant using the
Black-Scholes option pricing model is $29,526, based on a risk free interest
rate of 1.91%, an expected volatility of 100%, an expected life of 2 years and
no dividend yield and has been expensed in the quarter ended February 29, 2004.
(d) The company issued 250,000 options to its legal counsel in consideration of
services rendered. The options are exercisable at $.50 per share for a term
expiring December 2008. These options have been re-issued following the reverse
split in April 2004. The estimated fair value of the options on the date of
grant using the Black-Scholes option pricing model is $14,206, based on a risk
free interest rate of 3%, an expected volatility of 100%, an expected life of 5
years and no dividend yield and has been expensed in the quarter ended February
29, 2004.
-11-
4. LOAN RECEIVABLE AND LOANS PAYABLE
Effective December 9, 2003, an arms' length individual acquired the
majority of the outstanding common shares of the Company. The new shareholder
advanced sums on behalf of the Company in the amount of $11,500 to pay
liabilities and $11,976 to acquire equipment. The equipment will be utilized by
Syscan Inc. and therefore the amount of $11,976 has been reflected as a loan
receivable.
The loans payable totaling $23,476 was converted to common shares
subsequent to February 29, 2004.
5. CONTINGENCIES AND COMMITMENTS
The Company has signed a lease commitment for office space in Toronto,
Canada which expires on April 30, 2004 for its corporate head office. The
Company is responsible for monthly rent of approximately $1,100. The company
vacated the premises during 2003 and the landlord has agreed that no rent is
payable.
5. SUBSEQUENT EVENTS
As indicated in Note 1, the Company acquired all of the issued and
attending shares of Syscan, Inc., a company that manufactures a new generation
of CIS (CMOS - Complimentary Metal Oxide Image Servers) imaging sensor devices,
on April 2, 2004 in exchange for 20,859,459 common shares of the Company.
The Company signed an employment agreement in December 2003, for a term
of 2 years for a total amount of $200,000 and 500,000 options detailed in Note
3. Upon the acquisition on April 2, 2004, the employment agreement was settled
in full for 200,000 post reverse split common shares. In addition, the loan
payable was settled by the issuance of 23,476 common shares.
6. DISCONTINUED OPERATIONS
The Company has been attempting to restructure its telecommunication
and software development activities. The Company has decided that the best
course of action is to cease its telecommunications and software development
operations. and has been actively seeking a merger to diversify its operations.
In a contract signed December 9, 2003, the former principal shareholder of the
Company agreed to sell 9,615,000 common shares to an arms' length party and also
agreed to acquire the shares of Platinium Telecommunications and Cyberstation,
subsidiaries for the amount of $2. The agreement provides that liabilities are
limited to $55,000 and any excess will be funded by the vending shareholder. The
impact of the sale of the shares of Platinium and Cyberstation and the
settlement of debts in excess of $55,000 resulted in a gain on divestitures
which was reflected in the Company's financial statements for the year ended
August 31, 2003.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
On April 2, 2004, the Company acquired 100% of the issued and outstanding
capital stock of Syscan, Inc. Effective with the acquisition of Syscan, Inc.,
the Company changed its name to Syscan Imaging, Inc. and effected a 1-for-10
reverse split of its common stock. All of the Company's business operation are
those of its wholly-owned subsidiary Syscan, Inc.
Syscan Inc. was founded in Silicon Valley in 1995 to develop and manufacture a
new generation of CIS (CMOS-Complimentary Metal Oxide Silicon) imaging sensor
devices. During the late 1990's, the company established many technical
milestones and was granted numerous patents based on their linear imaging
technology (Contact Image Sensors). Syscan's patented CIS and mobile imaging
scanner technology provides very high quality images but at extremely low power
consumption, allowing it to manufacture very compact scanners in a form ideally
suited for the mobile computer user who needs to scan documents while away from
their office.
This "enabling" technology is found in a variety of applications such as
documents management, ID card and passport security scanners, bank note/check
verification, business card readers, scanning 2D bar codes and optical mark
readers used in lottery terminals. Syscan has grown to be one of the largest OEM
-- private label manufacturers of mobile scanning systems for a large number of
major brands such as PENTAX, COREX, VISIONEER, DATACOLOR, DIGIMARC, SCANSOFT,
NORTEK and OMRON. Syscan's vertically integrated design and manufacturing model
allows rapid time-to-market for these leading companies. Syscan's manufacturing
is completed at an affiliated China-based facility which provides a low-cost
manufacturing base for these industrial and consumer products.
In 2002, Syscan began to design a line of innovative new products targeted
toward the flat-panel display market. These products dramatically improved the
video image quality on LCD displays implementing advanced digital image
processing and display control techniques. Much of the technology within these
display imaging products have commonality with the linear imaging devices,
providing strong technical overlap of personnel and resources. This new display
control technology creates a tremendous value point in the flat-panel television
entertainment and video-centric markets, which Syscan intends to target.
The Company was previously an international solutions provider and developer of
Internet-based software and various electronic commerce solutions, as well as
telephony solutions.
In December 2003, the Company sold all of its interest in Platinum
Telecommunications, which was its only source of revenue, as well as all of its
shares of CyberStation. In connection with the sale of such shares, the
purchaser assumed approximately $384,000 in liabilities and received a minimal
amount of assets from the Company. Included in the liabilities assumed by the
purchaser was a loan of $120,000 made by such purchaser to the Company. This
will result in a gain on the divestitures. The impact of the divestiture has
been reflected in the financial statements for the year ending August 31, 2003.
The sale of the Platinum shares and the Cyberstation shares was made to Joseph
J. Alves, our Chief Executive Officer. Mr. Alves agreed to sell all of his
shares of common stock of the Company on December 9, 2003 to an unaffiliated
third party, Michael J. Xirinachs.
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Effective December 9, 2003, Michael J. Xirinachs acquired an aggregate of
10,115,000 shares of the Company's common stock, representing approximately
51.8% of the Company's issued and outstanding common stock, from Joseph J. Alves
(9,615,000 shares), the Company's Chief Executive Officer and from Atlantica
Marine (500,000 shares). Mr. Xirinachs paid an aggregate of $100,000 from his
personal funds to acquire such shares.
CRITICAL ACCOUNTING POLICIES
The Company's significant accounting policies are outlined within Note 1 to the
consolidated financial statements. Some of those accounting policies require the
Company to make estimates and assumptions that affect the amounts it reports.
The following items require the most significant judgment and often involve
complex estimation:
Revenue recognition: The Company generally recognizes a sale when the service
has been provided and risk of loss has passed to the customer, collection of the
resulting receivable is reasonably assured, persuasive evidence of an
arrangement exists, and the fee is fixed or determinable. The assessment of
whether the fee is fixed or determinable considers whether a significant portion
of the fee is due after its normal payment terms. If the Company determines that
the fee is not fixed or determinable, the Company recognizes revenue at the time
the fee becomes due, provided that all other revenue recognition criteria have
been met.
The Company assesses collectibility based on a number of factors, including
general economic and market conditions, past transaction history with the
customer, and the credit-worthiness of the customer. If the Company determines
that collection of the fee is not probable, then we will defer the fee and
recognize revenue upon receipt of payment.
Allowance for doubtful accounts: The Company continuously monitors payments from
its customers and maintains allowances for doubtful accounts, if required, for
estimated losses resulting from the inability of its customers to make required
payments. When the Company evaluates the adequacy of its allowances for doubtful
accounts, it takes into account various factors including its accounts
receivable aging, customer credit-worthiness, historical bad debts, and
geographic and political risk. If the financial condition of the Company's
customers were to deteriorate, resulting in an impairment of their ability to
make payments, additional allowances may be required. As of February 29, 2004,
the Company's net accounts receivable balance was nil.
THREE MONTHS ENDED FEBRUARY 29, 2004 COMPARED TO THREE MONTHS ENDED
FEBRUARY 28, 2003
Continuing Operations
As a result of the Company's divestiture of Platinum and CyberStation, the
Company did not report any revenues from continued operations for the quarters
ended February 29, 2004 and 2003.
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Discontinued Operations
As a result of the Company's divestiture of Platinum and CyberStation, the
Company reported a net loss of $105,708 for the quarter ended February 29, 2004,
as compared to a net loss of $187,386 for the quarter ended February 28, 2003.
SIX MONTHS ENDED FEBRUARY 29, 2004 COMPARED TO SIX MONTHS ENDED
FEBRUARY 28, 2003
Continuing Operations
As a result of the Company's divestiture of Platinum and CyberStation, the
Company did not report any revenues from continued operations for the six months
ended February 29, 2004 and 2003.
Discontinued Operations
As a result of the Company's divestiture of Platinum and CyberStation, the
Company reported a net loss of $113,056 for the six months ended February 29,
2004, as compared to a net loss of $195,507 for the six months ended February
28, 2003.
Liquidity and Capital Resources
Operating Activities
At February 29, 2004, the Company had a working capital deficit of $16,214 and
an accumulated deficit of $668,378. For the quarter ended February 29, 2004, net
cash used in operating activities amounted to $34,062 an increase from the net
cash used in operating activities for the comparable period in 2003 of $23,554.
The increase in cash requirements for operating activities is primarily the
result of the settlement and payment of accounts payable.
Financing Activities
At February 29, 2004, the Company does not have any material commitments for
capital expenditures other than for those expenditures incurred in the ordinary
course of business. In December 2003, the Company's former principal shareholder
sold his entire stake in the Company consisting of 9,615,000 shares of common
stock to an unaffiliated third-party. Additional capital could be required in
excess of the Company's liquidity, requiring it to raise additional capital
through an equity offering or secured or unsecured debt financing. The
availability of additional capital resources will depend on prevailing market
conditions, interest rates, and the existing financial position and results of
operations of the Company.
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ITEM 3. CONTROLS AND PROCEDURES
Based on an evaluation as of the date of the end of the period covered by this
Form 10-QSB, our previous Chief Executive Officer/Acting Chief Financial
Officer, conducted an evaluation of the effectiveness of the design and
operation of our disclosure controls and procedures, as required by Exchange Act
Rule 13a-15. Based on that evaluation, our former Chief Executive Officer/Acting
Chief Financial Officer has represented to the Company's management that he
concluded that our disclosure controls and procedures were effective to ensure
that information required to be disclosed by us in the reports that we file or
submit under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified by the SEC's rules and forms.
Changes in Internal Controls
Based upon representation made to the Company's management by its former Chief
Executive Officer/Acting Chief Financial Officer, there were no significant
changes in our internal controls over financial reporting that occurred during
the quarter ended February 29, 2004 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
Limitations on the Effectiveness of Controls
We believe that a control system, no matter how well designed and operated,
cannot provide absolute assurance that the objectives of the control system are
met, and no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within a company have been
detected.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In January 2004, we sold an aggregate of 500,000
pre-split shares of our common stock for aggregate proceeds
of $50,000. We used the proceeds from such sale for working capital and general
corporate purposes, mainly for the settlement of outstanding liabilities and to
fund our expenses in connection with the acquisition of Syscan, Inc.
ITEM 3. DEFAULTS IN SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
In February 2004, our majority stockholder voted to
approve the change of our corporate name and a reverse split of between 1-for-3
to 1-for-20 of our common stock.
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS, LISTS AND REPORTS ON FORM 8- K
(a) Exhibits
Exhibit 31 Rule 13a-14(a)/15d-14(a) Certification.
Exhibit 32 Certification by the Acting Principal Executive Officer and Acting
Principal Financial Officer.
(b) Reports on Form 8-K.
There were no reports filed on Form 8-K during the period covered by this
report.
* The Exhibit attached to this Form 10-QSB shall not be deemed "filed" for
purposes of Section 18 of the Securities Exchange Act of 1934 (the "Exchange
Act") or otherwise subject to liability under that section, nor shall it be
deemed incorporated by reference in any filing under the Securities Act of 1933,
as amended, or the Exchange Act, except as expressly set forth by specific
reference in such filing.
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Syscan Imaging, Inc.
Dated: April 19, 2004 By: /S/ MICHAEL J. XIRINACHS
------------------------
Name: Michael Xirinachs
Title: Acting Principal Executive
Officer and Acting
Principal Financial
Officer
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