UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
Amendment No. 1
(Mark One)
x
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2007
OR
¨
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from to
Commission file Number: 000-30090
_______________
VISIPHOR CORPORATION
(Exact name of small business issuer as specified in its charter)
_______________
Canada |
| Not Applicable |
Suite 1100 – 4710 Kingsway
Burnaby, British Columbia
(Address of principal executive offices)
(604) 684-2449
(Issuer's telephone number)
_______________
Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the issuer is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
The number of shares outstanding of each of the Issuer’s classes of equity as of May 18, 2007, was 44,781,445 common shares.
Transitional Small Business Disclosure Format: Yes o No x
EXPLANATORY NOTE
This Amendment No. 1 on Form 10-QSB (the “Amendment”) hereby amends the Form 10-QSB of Visiphor Corporation (the “Company”) for the quarter ended March 31, 2007, as originally filed with the Securities and Exchange Commission on May 11, 2007 (the “Original Filing”). The Amendment is being filed solely (i) to correct the inadvertent omission of the Non-GAAP Operating Cash Flow reconciliation in Part I, Item 2 of the Original Filing and (ii) to remove the sentence “The Company has been further addressing these issues in 2007 by <>.” under the subheading “Controls relating to Technology” in Part I, Item 3 of the Original Filing, which sentence was inadvertently included. In accordance with Rule 12b-15 under the Securities Exchange Act of 1934, as amended, this Amendment sets forth the complete text of Items 2 and 3 as amended.
In addition to amending Part I, Part II, Item 6 of the Original Filing has been amended to add currently dated certifications from the Company’s Chief Executive Officer and Chief Financial Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002. No other changes have been made to the Original Filing. This Amendment does not reflect events occurring after the Original Filing or modify or update those disclosures affected by subsequent events.
PART I
Item 2. Management’s Discussion and Analysis or Plan of Operation
About Visiphor
Visiphor is a software product and consulting services company that is in the business of helping enterprises by “connecting what matters”. The Company specializes in the development and deployment of solutions to the problem of integrating disparate business processes and databases. In so doing, the Company has developed a number of sophisticated products and specialized consulting skills. These have allowed Visiphor to gain industry recognition as a leader in providing advanced solutions to the “system disparity” problem that permeates the law enforcement, security, health care and financial services industries.
Visiphor provides solutions for:
·
Enterprise Information Integration (EII);
·
Data Migration via Extract, Transform and Load (ETL); and
·
Enterprise Application Integration (EAI).
Visiphor’s products consist of servers and applications that produce one-time software licensing revenues and recurring support revenues. Its consulting services are highly specialized and focus on facilitating solutions to business integration related problems.
The Company develops and markets software products that simplify, accelerate, and economize the process of connecting existing, disparate databases. The Company’s technologies enable information owners to share data securely with internal line of business applications and external stakeholders and business partners using any combination of text or imagery. This includes searching disconnected data repositories for information about an individual using only a facial image. This allows organizations to quickly create regional information sharing networks using any combination of text or imagery.
In addition to a suite of data sharing and integration products Visiphor also has a premier consulting team, Visiphor Consulting Services, that can provide services to organizations ranging from business process management support, development of an integration strategic plan, through to the design, development and implementation of a complete data sharing and integration solution for any combination of internal applications integration, business partner integration, process automation or workflow.
Overview
The Company’s Business
The Company derives a substantial portion of its revenues, and it expects to derive a substantial portion of its revenues in the near future, from sales of its software and services to a limited number of customers. Additional revenues are achieved through the implementation and customization of software as well as from the support, training, and ongoing maintenance that results from each software sale and from consulting services revenues. The Company’s success will
depend significantly upon the timing and size of future purchase orders from its largest customers as well as from the ability to maintain relationships with its existing customer base.
Typically, the Company enters into a fixed price contract with a customer for the licensing of selected software products and time and materials contracts for the provision of specific services. The Company generally recognizes total revenue for software and services associated with a contract using percentage of completion method based on the total costs incurred over the total estimated costs to complete the contract or residual multiple element based accounting. Standalone services contracts revenues are recognized as the services are delivered.
The Company’s revenue is dependent, in large part, on contracts from a limited number of customers. As a result, any substantial delay in the Company’s completion of a contract, the inability of the Company to obtain new contracts or the cancellation of an existing contract by a customer could have a material adverse effect on the Company’s results of operations. The loss of certain contracts could have a material adverse effect on the Company’s business, financial condition, operating results and cash flows. As a result of these and other factors, the Company’s results of operations have fluctuated in the past and may continue to fluctuate from period to period.
Recent world events and concerns regarding security in the last few years have increased awareness of and interest in products that have law enforcement or other security applications, including the products and services offered by Visiphor. There can be no assurance, however, that such trends will continue or will result in increased sales of the Company’s products and services.
Critical Accounting Polices
Critical accounting policies are those that management believes are both most important to the portrayal of the Company’s financial conditions and results, and that require difficult, subjective, or complex judgements, often as a result of the need to make estimates about the effects of matters that involve uncertainty.
Visiphor believes the “critical” accounting policies it uses in preparation of its financial statements are as follows:
Revenue recognition
(i)
Software sales revenue:
The Company recognizes revenue consistent with the Securities and Exchange Commission Staff Accounting Bulletin No. 104 and Statement of Position 97-2, “Software Revenue Recognition”. In accordance with this statement, revenue is recognized, except as noted below, when all of the following criteria are met: persuasive evidence of a contractual arrangement exists, title has passed, delivery and customer acceptance has occurred, the sales price is fixed or determinable and collection is reasonably assured. Cash received in advance of meeting the revenue recognition criteria is recorded as deferred revenue.
When a software product requires significant production, modification or customization, the Company generally accounts for the arrangement using the percentage-of-completion method of contract accounting. Progress to completion is measured by the proportion that activities completed are to the activities required under each arrangement. When the current estimate on a contract indicates a loss, a provision for the entire loss on the contract is made. In circumstances where amounts recognized as revenue under such arrangements temporarily exceed the amount invoiced, the difference is recorded as accrued revenue receivable.
When software is sold under contractual arrangements that include post contract customer support (“PCS”), the elements are accounted for separately if vendor specific objective evidence (“VSOE”) of fair value exists for all undelivered elements. VSOE is identified by reference to renewal arrangements for similar levels of support covering comparable periods. If such evidence does not exist, revenue on the completed arrangement is deferred until the earlier of (a) VSOE being established or (b) all of the undelivered elements being delivered or performed, with the following exceptions: if the only undelivered element is PCS, the entire fee is recognized ratably over the PCS period, and if the only undelivered element is service, the entire fee is recognized as the services are performed.
The Company provides for estimated returns and warranty costs, which to date have been nominal, on recognition of revenue.
(ii)
Support and services revenue:
Up front payments for contract support and services revenue is deferred and is amortized to revenue over the period that the support and services are provided.
Intangible Assets:
Intangible assets acquired either individually or with a group of other assets are initially recognized and measured at cost. The cost of a group of intangible assets acquired in a transaction, including those acquired in a business combination that meet the specified criteria for recognition apart from goodwill, is allocated to the individual assets acquired based on their relative fair values. The cost of internally developed intangible assets is capitalized only when technological feasibility has been established, the asset is clearly defined and costs can be reliably measured, management has both the intent and ability to produce or use the intangible asset, adequate technical and financial resources exist to complete the development, and management can demonstrate the existence of an external market or internal need for the completed product or asset. Costs incurred to enhance the service potential of an intangible asset are capitalized as betterment when the above criteria are met. No amounts have been capitalized to date in connection with internally developed intangible assets.
Intangible assets with finite useful lives are amortized over their useful lives. The assets are amortized on a straight-line basis over the following terms, which are reviewed annually:
Asset |
Term |
|
Patents |
3 years |
|
License |
3 years |
|
Customer relationships |
3 years |
|
Contract backlog |
4 months |
|
|
|
Intangible assets with indefinite useful lives are not amortized and are tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. The impairment test compares the carrying amount of the intangible asset with its fair value, and an impairment loss is recognized in income for the excess, if any.
Use of estimates
The preparation of financial statements in accordance with accounting principles generally accepted in Canada requires management to make estimates and assumptions that affect the amounts reported or disclosed in the financial statements. Actual amounts may differ from these estimates. Areas of significant estimate include, but are not limited to: valuation of accounts receivable; progress towards completion on certain fixed prime contracts estimated useful lives of equipment and intangible assets; valuation of acquired intangible assets; valuation of share-based awards, and the valuation allowance of future income tax assets.
Share-based compensation
The Company has a share-based compensation plan, which is described in note 6 of the Notes to the Consolidated Financial Statements. Subsequent to January 1, 2003, the Company accounts for all share-based payments to employees and non-employees using the fair value based method. Under the fair value based method, share-based payments are measured at the fair value of the consideration received, or the fair value of the equity instruments issued, whichever is more reliably measured.
The fair value of share-based payments to non-employees is periodically re-measured until counterparty performance is complete, and any change therein is recognized over the period and in the same manner as if the Company had paid cash instead of paying with or using equity instruments. The cost of share-based payments to non-employees that are fully vested and non-forfeitable at the grant date is measured and recognized at that date.
Under the fair value based method, compensation cost attributable to employee awards is measured at fair value at the grant date and recognized over the vesting period. Compensation cost attributable to awards to employees that call for settlement in cash or other assets is measured at intrinsic value and recognized over the vesting period. Changes in intrinsic value between the grant date and the measurement date result in a change in the measure of compensation cost. For awards that vest at the end of the vesting period, compensation cost is recognized on a straight-line basis; for awards that vest on a graded basis, compensation cost is recognized on a pro-rata basis over the vesting period.
Results of Operations for the three-month ended March 31, 2007 as compared to the three-month ended March 31, 2006:
Non-GAAP Operating Cash Flow
The Company presents income excluding non-cash items and one-time unusual expenses which is a supplemental financial measure that is not required by, or presented in accordance with, generally accepted accounting principles. The Company presents income excluding non-cash items and one-time unusual expenses because the Company considers it an important supplemental measure of its operations as it provides an indicator of the Company’s progress towards achieving a cash flow from revenues that is equal to or greater than the cash expense level, and it enhances period-to-period comparability of the cash flow of the Company’s operations. This non-GAAP financial measure may not be comparable to the calculation of similar measures reported by other companies. This measure has limitations as an analytical tool. It should not be considered in isolation, as an alternative to, or more meaningful than financial measures calculated and reported in accordance with GAAP. It should not be considered as an alternative to cash flow from operations determined in accordance with GAAP. Included below is a reconciliation of income excluding non-cash items and one-time unusual expenses, a non-GAAP financial measure, to cash flow from operations, the most directly comparable financial measure calculated and reported in accordance with GAAP.
|
| Three months ended March 31 | ||||
|
|
| 2007 |
| 2006 | |
|
|
|
|
|
| |
| Loss for the period | $ | (679,269) | $ | (1,527,100) | |
| Items not involving cash: |
|
|
|
| |
|
| Amortization |
| 121,515 |
| 622,495 |
|
| Stock-based compensation |
| 78,775 |
| 252,867 |
| Accretion of convertible debenture | 23,761 |
| - | ||
| Deferred financing costs expensed | 6,112 |
| - | ||
| Foreign exchange adjustment on loan payable | (4,320) |
| - | ||
| Changes in non-cash operating working capital: |
|
|
| ||
|
| Accounts receivable |
| 246,891 |
| (462,898) |
|
| Accrued revenue receivable |
| 67,803 |
| (134,122) |
|
| Prepaid expenses and deposit |
| 38,849 |
| 7,649 |
|
| Accounts payable and accrued liabilities |
| 75,054 |
| 279,488 |
|
| Deferred revenue |
| 202,776 |
| 129,265 |
| Cash used for operations |
| 177,947 |
| (832,356) | |
| Excluded from non-GAAP measure |
|
|
|
| |
| Changes in non-cash operating working capital: |
|
|
| ||
|
| Accounts receivable |
| (246,891) |
| 462,898 |
|
| Accrued revenue receivable |
| (67,803) |
| 134,122 |
|
| Prepaid expenses and deposit |
| (38,849) |
| (7,649) |
|
| Accounts payable and accrued liabilities |
| (75,054) |
| (279,488) |
|
| Deferred revenue |
| (202,776) |
| (129,265) |
|
| (631,373) |
| 180,618 | ||
| Included in non-GAAP measure |
|
|
|
| |
| Restructuring charge |
| - |
| (102,462) | |
|
|
|
|
|
| |
| Non-GAAP operating cash flow | $ | (453,426) | $ | (754,200) | |
|
|
|
|
|
| |
Based on the non-GAAP financial measure the Company’s revenues generated or will generate $453,426 less cash than its expenses required for the three-month period ended March 31, 2007, which is $300,774 or 39.9% more than for the three-month period ended March 31, 2006. The Company is working towards an immediate goal of achieving a positive cash flow from its operations based on the non-GAAP financial measure and expects to achieve this goal by the end of 2007.
Revenues
Visiphor’s total revenues for the three-month period ended March 31, 2007 were $1,277,277, which is 45% lower than the prior year level of $2,315,082. This decrease was primarily due to customer delays in projects which has delayed the recognition of revenue from those projects.
Revenues from the Company’s software products and related services were $376,587 for the current three-month period as compared to $482,439 for 2006, a decrease of 22%. The decreased software licensing and related services revenues were primarily due to lower sales volumes combined with delays in customer delivery acceptance schedules.
Professional services revenues for the three-month period ended March 31, 2007 were $754,869 as compared to $1,607,682 in 2006, a decrease of 53%. First quarter results in 2006 were higher due to the work completed on pre-acquisition contracts from 2005. The first quarter results from 2006 included revenue earned from contracts entered into prior to the acquisition of Sunaptic.
Support revenue for the three-month period ended March 31, 2007 increased by 33% to $143,951 compared to $108,482 for 2006.
Other revenues for the three-month period ended March 31, 2007 were $1,870, whereas other revenues of $116,479 were earned in the prior year. The comparative figure in 2006 included $63,541 recognized for the security assessments for the King County RAIN project and $47,400 for software purchased for resale to other customers.
As of April 23, 2007, Visiphor had work in process and contracted orders totalling approximately $2.01 million that are not recorded in the financial statements as at March 31, 2007 Consequently, Visiphor expects that revenues will increase during 2007 and will continue to increase as the Company’s current and newly developed products and solutions continue to gain increasing customer acceptance. The Company has been attracting new business opportunities in the U.S. market and anticipates significant growth in the U.S. There can be no assurance; however, that such future revenue or future growth will materialize or if such revenue or future growth does materialize that it will be significant.
Total Expenses
Total expenses were $1,956,546 for the three-month period ended March 31, 2007, which is 49% less than the 2006 total expenses of $3,842,182 for the same period. The decreased costs were primarily due to the reduction of the salary expenses during the last quarter of 2006 and the overall cost reduction effort of the company. Operating expenses net of amortization and interest for the same periods decreased 46% to $1,722,835 from $3,192,511.
The Company continued to improve its operational efficiencies during 2006 and into the first quarter in 2007. During 2006, the Company consolidated its Vancouver and Burnaby, B.C. offices into the Burnaby head office location; changed its executive compensation structure and implemented general cost saving measures.
Administration
Administrative costs for the three-month period ended March 31, 2007 were $311,253, which is a reduction of 53% compared with administrative costs of $662,903 in 2006 due to recent reductions in staffing levels. Administrative costs include staff salaries and related benefits and travel, consulting and professional fees, facility and support costs, shareholder, regulatory and investor relations costs.
Cost of Materials
Cost of materials for the three-month period ended March 31, 2007 were $22,569 and $87,905 in 2006. The 2006 comparative figure included $44,004 for sub-contracted services required for the security assessments for the King County RAIN project and $43,901 for software purchased for resale to a customer.
Interest and Amortization
The interest expense for the three-month period ended March 31, 2007 is $112,196 which is 313% higher than for 2006 of $27,176. The increase is primarily due to the interest expense on the convertible debenture which the Company did not have in the first quarter of 2006 and interest on the loans payable. The amortization expense for the three-month period ended March 31, 2007 was $121,515 compared to $622,495 in 2006. The decrease is due to the majority of the Company’s intangible assets having been fully amortized during 2006.
Sales and Marketing
Sales and marketing expenses for the three-month period ended March 31, 2007 were $259,035 compared to $581,079 for 2006, which represents a 55% decrease. Overall, the expenses related to sales and marketing decreased as the Company continued to concentrate on building sales and relationships rather than on general marketing activities and due to some layoffs in early 2006. As part of the Company’s overall cost-cutting efforts, there were reductions to the marketing salary expenses and general marketing activities for the period.
Professional Services
Costs for the professional services group for the three-month period ended March 31, 2007 were $615,126 which is 52% less than costs for the professional services group in 2006 of $1,283,114. These costs include a share-based compensation charge of $9,760 in 2007 and $136,430 in 2006. Excluding this charge, the professional services costs were $605,366 in 2007 and $1,146,684 for 2006. Professional services is a new department that was initiated in the second quarter of 2005. The professional services group is responsible for the installation of Visiphor’s products and training of Visiphor’s customers and business partners in the use of the Company’s products. It also includes the business integration consulting services division added through the acquisition of Sunaptic. The costs include salaries, travel and general overhead expenses. Costs for future periods will be dependent on the sales levels achieved by the Company.
Technology Development
The technology development expenses for the three-month period ended March 31, 2007 were $508,740, which is 7% greater than the 2006 costs of $475,048. These costs include share-based compensation charges of $22,966 in 2007 and $34,732 in 2006. Excluding these charges, the technology development expenses were $485,774 in 2007 verses $440,316 in 2006, which is an increase of 10%. This increase was primarily due to hiring additional staff and the associated costs required to maintain the Company’s enhancement of existing products and to develop new products. Management expects that the increased revenues achieved as a result of the sale of products will more than offset the increased costs. Management believes that continuing to invest in technology advancements is crucial to the future success of Visiphor, and expects that costs will continue to increase in future periods.
Net Loss for the Period
The Company's current net loss on a monthly basis is approximately $226,400. The Company's current operating net loss (total loss excluding amortization and interest) on a monthly basis is approximately $148,500.
Overall, the Company incurred a net loss for the three-month period ended March 31, 2007 of $679,270 or $0.02 per share, which is 56% lower than the net loss incurred during the three-months ended March 31, 2006 of $1,527,100 or $0.04 per share.
In the Company's most recent Form 10-KSB, management stated that it believed that the Company would be able to achieve break-even operations on a cash operating basis by the end of the second quarter of 2007. While management continues to believe that it has sufficient sales and potential sales to achieve this goal, extended contract negotiations and installation delays due to customers not being ready to accept delivery of solutions may cause this to be delayed until the second half of 2007 as the recognition of the associated revenue may be delayed.
Summary of Quarterly Results
|
| Q1-2007 | Q4-2006 | Q3-2006 | Q2-2006 | Q1-2006 | Q4-2005 | Q3-2005 | Q2-2005 |
|
|
|
|
|
|
|
|
|
|
Total Revenue | $ | 1,277,277 | 1,458,707 | 1,120,766 | 1,488,828 | 2,315,083 | 1,076,312 | 1,008,581 | 920,620 |
Net Loss |
| (679,270) | (1,221,734) | (1,904,856) | (2,024,680) | (1,527,100) | (1,890,400) | (1,650,764) | (1,562,291) |
Net loss per share |
| (0.02) | (0.03) | (0.04) | (0.05) | (0.04) | (0.05) | (0.06) | (0.06) |
Net loss as a % of revenue |
| (53%) | (84%) | (170%) | (136%) | (66%) | (176%) | (164%) | (170%) |
The Company’s changes in its net losses per quarter fluctuate according to the volume of sales. To date there has been no consistency from one quarter to the next. Past quarterly performance is not considered to be indicative of future results. The Company is not aware of any significant seasonality affecting its sales.
Liquidity and Capital Resources
The Company’s aggregated cash on hand at the beginning of the three-month period ended March 31, 2007 was $42,338. The impact on cash of the loss of $679,269, after adjustment for non-cash items and changes to other working capital accounts in the period, resulted in a positive cash flow from operations of $177,945. The Company repaid capital leases of $22,253, received a capital assets cash inflow of $457 due to a credit and repaid a $100,000 loan that was borrowed in 2006. Overall, the Company’s cash position increased by $56,151 to $98,489 at March 31, 2007.
Contractual Obligations
The Company is committed to the following payments for i) operating lease payments on the office lease, ii) capital lease payments for equipment under lease (excluding interest) and iii) long term debt payments over the next three years:
Year | Long Term Debt | Equipment |
| Office |
| Total | |||
2007 |
| $ | 58,667 | $ | 71,526 |
| 223,631 |
| 353,824 |
2008 |
|
| 128,000 |
| 73,553 |
| 267,655 |
| 469,208 |
2009 |
|
| 1,722,667 |
| 23,392 |
| 201,478 |
| 1,947,537 |
2010 |
|
| - |
| 1,283 |
| - |
| 1,283 |
|
| $ | 1,909,334 | $ | 169,754 | $ | 692,764 | $ | 2,771,852 |
The Company also subleases 4,128 square feet of office space in Vancouver, B.C. with monthly rent of $7,000 which expires on September 29, 2008. This space is no longer used by the Company and has been sublet as of March 1, 2007 to cover the Company’s costs. The lease to the tenant also expires September 29, 2008.
Off-Balance Sheet Arrangements
At March 31, 2007, the Company did not have any off-balance sheet arrangements.
Item 3. Controls and Procedures
Disclosure Controls and Internal Controls Over Financial Reporting
Disclosure Controls
Under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, the Company evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of the end of the period covered by this report (the “Evaluation Date”). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed in reports the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the periods specified in the Securities and Exchange Commission’s rules and forms, and accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
In its assessment of the effectiveness of disclosure controls and procedures as of March 31, 2007, management of the Company, including the Chief Executive Officer and Chief Financial Officer, assessed what potential impact different possible material weaknesses as described below could have on the effectiveness of the Company’s disclosure controls and procedures. Management, including the Chief Executive Officer and Chief Financial Officer, determined that due to the small size of the Company the Chief Executive Officer and Chief Financial Officer have knowledge of all aspects of the Company’s operations at a detailed level sufficient to ensure that the Company’s disclosure controls and procedures were effective in timely alerting them to the material information related to the Company required to be included in the Company’s filings. This level of knowledge is considered by the certifying officers to be a
compensating control and procedure that is adequate to eliminate the risk of a material error or omission in disclosure requirements.
Internal Control Over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Management is also responsible for certifying the design of internal controls over financial reporting.
During the audit of the December 31, 2006, financial statements, the Company’s independent auditors, Grant Thornton LLP, have advised management and the audit committee of the Company’s Board of matters that they considered to be material weaknesses in the Company’s internal control. The weaknesses were comprised of: insufficient systems and controls in place to evaluate the Company’s internal control; insufficient segregation of duties; and inadequate preventive controls with too much reliance on detective and manual controls. In order to remediate the matters that the Company’s independent auditors and management considered to be material weaknesses in the Company’s internal control, during August of 2005 the Company hired a new Controller who has significantly more experience and knowledge of internal control environments than the previous controller. During the third quarter of 2006, the Company engaged an outside consulting group that specializes in internal control over financial reporting and the Sarbanes-Oxley Act of 2002. The consultants provided additional guidance in improving the Company's system of internal control over financial reporting and provided guidance on effective design of internal controls. During the third and fourth quarter of 2006, the Company addressed some of the weaknesses relating to segregation of duties reported by the auditors from the 2005 audit. A significant number of the deficiencies relate to the Company's segregation of duties, so the Company has developed procedures to utilize additional staff and reassign duties of existing accounting department staff in order to address these deficiencies. The Company continues to take steps to correct these weaknesses.
The management of the Company has evaluated the design of internal controls over financial reporting as outlined in the “Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission, (“COSO”). This included an assessment of the Company’s internal control over financial reporting in particular the design of those internal controls. With the guidance of external and internal control consultants, the Company developed an assessment of current controls, reviewed existing deficiencies and developed a plan to address all known deficiencies, in particular issues relating to segregation of duties. As at December 31, 2006, the Company had created a design for internal controls over financial reporting. By December 31, 2007 the Company is required to certify the effectiveness of internal controls over financial reporting. This will be completed throughout the year by testing the operational effectiveness of internal controls over financial reporting.
Based on Grant Thornton LLP’s assessment , management believes the Company has an effective design for internal controls over financial reporting however, also believes that certain material weaknesses exist that the Company is working to correct during 2007. The following is a summary of known material weaknesses:
Segregation of Duties
The management of the Company was advised by the auditors during the 2005 and 2006 year end audit, they believed there were deficiencies in internal controls due to the lack of segregation and incompatibility of duties which could result in inaccurate financial reporting. Management addressed some of these issues during the first quarter of 2007 by using other resources to try to segregate some duties and by strengthening existing controls and procedures. The Company has a small finance group which has made total segregation of all duties challenging. There are compensating controls which the Company relies on to reduce the likelihood that material weaknesses will occur. The Company relies on managers to review certain transactions; the Chief Financial Officer reviews all material transactions. Also, due to the relatively small size of the business, all transactions that may be material are known to the senior management as they are aware of all activities that are occurring in the business. However, these compensating controls do not fully mitigate this material weakness. The Company plans to continue addressing these issues in 2007.
Controls relating to Technology
Due to the relatively small size of the Company’s finance team the Company uses accounting software that is off the shelf and common for a business of its size. The auditors noted that certain security and access features of the program were not being used. The Company realizes the importance of segregation of duties and limiting access of parts of the
accounting software for different employees, however due to the limited size of the finance team; the Company cannot do so without negatively affecting the efficiency of the department. Compensating controls such as frequent reviews minimize the risk of material misstatements from occurring. However, these compensating controls do not fully mitigate this material weakness.
Other than the foregoing, during the quarter ended March 31, 2007, there were no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Notwithstanding the foregoing, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that the Company’s disclosure controls and procedures will detect or uncover every situation involving the failure of persons within the Company and its subsidiaries to disclose material information otherwise required to be set forth in the Company’s periodic reports; however, the Company’s disclosure controls and procedures are designed to provide reasonable assurance that they will achieve their objective of ensuring that information required to be disclosed in the reports the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
PART II
Item 6. Exhibits
The following exhibits are filed (or incorporated by reference herein) as part of this Form 10-QSB:
|
|
|
| 3.1(1) | Articles of Continuance |
| 3.2(2) | Bylaw No.1 |
| 31.1(3) | Section 302 Certification |
| 31.2(3) | Section 302 Certification |
| 31.3 | Section 302 Certification |
| 31.4 | Section 302 Certification |
| 32.1(3) | Section 906 Certification |
| 32.2(3) | Section 906 Certification |
| 99.1(3) | Risk Factors |
| 99.2(3) | Form 51-9Form 51-901F as required by the British Columbia Securities Commission |
_______________________
(1)
Previously filed as part of Visiphor’s Quarterly Report on Form 10-QSB for the period ended March 31, 2003.
(2)
Previously filed as part of Visiphor’s Quarterly Report on Form 10-QSB for the period ended September 30, 2003.
(3)
Previously filed as part of Visiphor’s Quarterly Report on Form 10-QSB for the period ended March 31, 2007.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
VISIPHOR CORPORATION
/s/ Roy Trivett
Roy Trivett
Date: May 18, 2007
Chief Executive Officer
Exhibit 31.3
CERTIFICATION
I, Sunil Amin, certify that:
1.
I have reviewed this quarterly report on Form 10-QSB of Visiphor Corporation;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
The small business issuer's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(c)
Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and
4.
The small business issuer's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting.
Date: May 18, 2007
| /s/ Sunil Amin (principal financial and accounting officer) |
Exhibit 31.4
CERTIFICATION
I, Roy Trivett, certify that:
1.
I have reviewed this quarterly report on Form 10-QSB of Visiphor Corporation;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
The small business issuer's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(c)
Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and
4.
The small business issuer's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting.
Date: May 18, 2007
| /s/ Roy Trivett (principal executive officer) |