UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
þ
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
|
|
SECURITIES
EXCHANGE ACT OF 1934
|
For
the quarterly period ended September 30, 2010
OR
¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
|
|
SECURITIES
EXCHANGE ACT OF 1934
|
For
the transition period from
to
Commission File Number:
000-53802
ANV
Security Group, Inc.
(Exact
name of registrant as specified in its charter)
Nevada
|
|
13-3089537
|
(State
or other jurisdiction of
incorporation
or organization)
|
|
(I.R.S.
Employer
Identification
No.)
|
|
|
2nd
Floor, Tower B, Jiada R&D Building, No 5
Songpingshan
Road, Shenzen, China
|
|
518057
|
(Address
of principal executive offices)
|
|
(Zip
Code)
|
0086-755-86656426
(Registrant’s
telephone number, including area code)
N/A
(Former
name, former address and former fiscal year, if changed since last
report)
Indicate
by check mark 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 (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes þ
No ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
¨
|
|
|
|
Accelerated filer
¨
|
|
|
Non-accelerated
filer ¨ (Do
not check if a smaller reporting company)
|
|
Smaller reporting company
þ
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes ¨
No þ
As of
August 16, 2010, 47,930,071 shares of common stock, par value $.001 per share,
were outstanding, of which 34,040,071 shares were held by
non-affiliates.
ANV
SECURITY GROUP, INC.
FORM
10-Q
CONTENTS
PART
I
|
FINANCIAL
INFORMATION
|
|
|
|
|
Item
1.
|
Financial
Statements
|
|
|
|
|
|
Balance
Sheets as of September 30, 2010 (unaudited) and March 31, 2010
(audited)
|
2
|
|
|
|
|
Statements
of Operations (unaudited) for the three and nine months ended
September 30, 2010 and 2009
|
3
|
|
|
|
|
Statements
of Cash Flows (unaudited) for the three and nine months ended September
30, 2010 and 2009
|
4
|
|
|
|
|
Notes
to Condensed Financial Statements (unaudited)
|
5
|
|
|
|
Item
2.
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
10
|
|
|
|
Item
4.
|
Controls
and Procedures
|
12
|
|
|
|
PART
II
|
OTHER
INFORMATION
|
|
|
|
|
Item
1.
|
Legal
Proceedings
|
13
|
|
|
|
Item
2.
|
Changes
in Securities and Use of Proceeds
|
13
|
|
|
|
Item
3.
|
Defaults
Upon Senior Securities
|
13
|
|
|
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
13
|
|
|
|
Item
5.
|
Other
Information
|
13
|
|
|
|
Item
6.
|
Exhibits
and Reports on Form 8-K
|
13
|
|
|
|
SIGNATURES
|
14
|
|
|
CERTIFICATIONS
|
15
|
PART I
Financial Information
Item 1
Financial Statements
ANV
Security Group, Inc.
Consolidated
Balance Sheets
(Expressed
in US dollars)
|
|
|
|
As of
|
|
|
|
|
|
September 30,
|
|
|
March 31,
|
|
|
|
Notes
|
|
2010
|
|
|
2010
|
|
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
Note
1-g
|
|
$ |
5,682,077 |
|
|
$ |
31,756 |
|
Accounts
Receivable
|
|
Note
2
|
|
|
2,376,498 |
|
|
|
- |
|
Stock
Subscription Receivable
|
|
|
|
|
6,250,000 |
|
|
|
|
|
GST
Receivable
|
|
Note
1-j
|
|
|
5,827 |
|
|
|
2,547 |
|
Inventory
|
|
Note
3
|
|
|
3,938,035 |
|
|
|
81,490 |
|
Advances
to suppliers
|
|
Note
1-k
|
|
|
609,386 |
|
|
|
|
|
Other
Assets
|
|
Note
4
|
|
|
8,763 |
|
|
|
5,227 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
Current Assets
|
|
|
|
|
18,870,586 |
|
|
|
121,020 |
|
|
|
|
|
|
|
|
|
|
|
|
Property
and Equipment , net
|
|
Note
5
|
|
|
577,230 |
|
|
|
21,015 |
|
|
|
|
|
|
|
|
|
|
|
|
Intangible
Assets
|
|
Note
6
|
|
|
1,352,887 |
|
|
|
1,379,858 |
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
Note
6
|
|
|
6,274,630 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
Tax Assets
|
|
Note
6
|
|
|
656,146 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
|
|
$ |
27,731,479 |
|
|
$ |
1,521,893 |
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
Note
7
|
|
$ |
4,466,192 |
|
|
$ |
7,303 |
|
Income
Tax Payable
|
|
Note
8
|
|
|
12,787 |
|
|
|
|
|
Due
to related parties
|
|
Note
9
|
|
|
13,663,151 |
|
|
|
38,188 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities
|
|
|
|
|
18,142,130 |
|
|
|
45,491 |
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and Contingencies
|
|
Note
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock, Unlimited shares authorized, without par value 51,130,071 and
33,190,071 shares issued and outstanding, respectively
|
|
Note
10
|
|
|
10,904,907 |
|
|
|
1,999,139 |
|
|
|
|
|
|
|
|
|
|
|
|
Additional
Paid-in Capital for Stock Options
|
|
|
|
|
24,836 |
|
|
|
24,836 |
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
Accumulated
|
|
|
|
|
(1,542,022 |
) |
|
|
(739,448 |
) |
|
|
|
|
|
|
|
|
|
|
|
Accumulated
Other Comprehensive Income (Loss)
|
|
|
|
|
201,628 |
|
|
|
191,875 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
Stockholders’ Equity
|
|
|
|
|
9,589,349 |
|
|
|
1,476,402 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders’ Equity
|
|
|
|
$ |
27,731,479 |
|
|
$ |
1,521,893 |
|
(The
accompanying notes are in an integral part of these financial
statements)
ANV
Security Group, Inc.
Consolidated
Statements of Operations
(Expressed
in US dollars)
(Unaudited)
|
|
|
|
Three Months
|
|
|
Three Months
|
|
|
Six Months
|
|
|
Six Months
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
Notes
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Revenue
|
|
Note
1-p
|
|
$ |
108,620 |
|
|
$ |
5,429 |
|
|
$ |
135,955 |
|
|
$ |
11,099 |
|
Cost
of Sales
|
|
|
|
|
97,325 |
|
|
|
1,353 |
|
|
|
109,881 |
|
|
|
3,475 |
|
Gross
profit
|
|
|
|
|
11,295 |
|
|
|
4,076 |
|
|
|
26,074 |
|
|
|
7,624 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising
and promotion
|
|
Not
1-v
|
|
|
13,399 |
|
|
|
8,770 |
|
|
|
13,399 |
|
|
|
12,928 |
|
Amortization
|
|
|
|
|
70,190 |
|
|
|
1,503 |
|
|
|
139,933 |
|
|
|
2,814 |
|
Automobile
|
|
|
|
|
- |
|
|
|
194 |
|
|
|
- |
|
|
|
194 |
|
Commission
|
|
|
|
|
- |
|
|
|
322 |
|
|
|
38,900 |
|
|
|
30,952 |
|
Dues
|
|
|
|
|
- |
|
|
|
111 |
|
|
|
- |
|
|
|
165 |
|
General
and administrative
|
|
|
|
|
59,468 |
|
|
|
6,522 |
|
|
|
80,213 |
|
|
|
13,038 |
|
Insurance
|
|
|
|
|
- |
|
|
|
|
|
|
|
1,532 |
|
|
|
|
|
Licence
|
|
|
|
|
291 |
|
|
|
- |
|
|
|
291 |
|
|
|
- |
|
Payroll
|
|
|
|
|
43,501 |
|
|
|
40,750 |
|
|
|
93,311 |
|
|
|
55,234 |
|
Professional
fees
|
|
|
|
|
434,890 |
|
|
|
2,732 |
|
|
|
438,731 |
|
|
|
21,767 |
|
Rent
|
|
|
|
|
9,337 |
|
|
|
6,191 |
|
|
|
16,541 |
|
|
|
11,768 |
|
Repair
and Maintenance
|
|
|
|
|
- |
|
|
|
- |
|
|
|
584 |
|
|
|
- |
|
Travel
|
|
|
|
|
1,760 |
|
|
|
8,492 |
|
|
|
12,968 |
|
|
|
11,089 |
|
Total
Expenses
|
|
|
|
|
632,836 |
|
|
|
75,587 |
|
|
|
836,403 |
|
|
|
159,949 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income (Expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Income
|
|
|
|
|
156 |
|
|
|
- |
|
|
|
156 |
|
|
|
- |
|
Rental
Income
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,827 |
|
Customer
Rebate
|
|
|
|
|
- |
|
|
|
935 |
|
|
|
8 |
|
|
|
3,973 |
|
Exchange
Gain (Loss)
|
|
|
|
|
13,891 |
|
|
|
(6,610 |
) |
|
|
6,620 |
|
|
|
(13,932 |
) |
Interest
Expense
|
|
|
|
|
(1,147 |
) |
|
|
(586 |
) |
|
|
(1,839 |
) |
|
|
(967 |
) |
Total
Other Income (Expense)
|
|
|
|
|
12,900 |
|
|
|
(6,261 |
) |
|
|
4,945 |
|
|
|
(8,099 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(Loss) Before Income Tax Expense
|
|
|
|
|
(608,641 |
) |
|
|
(77,772 |
) |
|
|
(805,384 |
) |
|
|
(160,424 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
Tax Expense, Net of Income Tax Benefit
|
|
Note
8
|
|
|
|
|
|
|
|
|
|
|
2,811 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
|
|
(608,641 |
) |
|
|
(77,772 |
) |
|
|
(802,573 |
) |
|
|
(160,424 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
Currency Translation Adjustment
|
|
Note
12
|
|
|
95,234 |
|
|
|
162,711 |
|
|
|
9,753 |
|
|
|
272,798 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
Income
|
|
|
|
$ |
(513,407 |
) |
|
$ |
84,939 |
|
|
$ |
(792,820 |
) |
|
$ |
112,374 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss Per Share – Basic and Diluted
|
|
Note
1-r
|
|
|
(0.01 |
) |
|
|
(0.01 |
) |
|
|
(0.02 |
) |
|
|
0.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average Shares Outstanding
|
|
|
|
|
50,251,995 |
|
|
|
28,957,266 |
|
|
|
41,843,258 |
|
|
|
31,121,916 |
|
(The
accompanying notes are in an integral part of these financial
statements)
ANV
Security Group, Inc.
Consolidated
Statements of Cash Flows
(Expressed
in US dollars)
(Unaudited)
|
|
For the
|
|
|
For the
|
|
|
|
Six Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
2010
|
|
|
September 30,
2009
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(802,573 |
) |
|
$ |
(160,423 |
) |
Adjustment
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
140,493 |
|
|
|
3,019 |
|
Foreign
Currency Exchange Loss
|
|
|
15,514 |
|
|
|
|
|
Stock-Based
Compensation
|
|
|
- |
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
Changes
in operating assets and liabilities:
|
|
|
- |
|
|
|
|
|
Prepaid
expenses and deposits
|
|
|
(6,443 |
) |
|
|
- |
|
GST
Receivable
|
|
|
(3,312 |
) |
|
|
1,055 |
|
Inventory
|
|
|
(111,704 |
) |
|
|
(2,596 |
) |
Accounts
Payable
|
|
|
(27,712 |
) |
|
|
4,174 |
|
Due
to related parties
|
|
|
3,915,892 |
|
|
|
(145,832 |
) |
|
|
|
|
|
|
|
|
|
Net
Cash (Used for) by Operating Activities
|
|
|
3,120,155 |
|
|
|
(300,603 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of equipment and furniture
|
|
|
(23,701 |
) |
|
|
(847 |
) |
Long
Term Investment
|
|
|
(720,524 |
) |
|
|
|
|
Capitalized
software development costs
|
|
|
- |
|
|
|
(39,325 |
) |
Incorporation
costs
|
|
|
- |
|
|
|
(29,237 |
) |
|
|
|
|
|
|
|
|
|
Net
Cash (Used for) Provided by Investing Activities
|
|
|
(744,225 |
) |
|
|
(69,409 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from related party
|
|
|
72,919 |
|
|
|
143,137 |
|
Issuance
of Common stock
|
|
|
3,155,768 |
|
|
|
357,649 |
|
|
|
|
|
|
|
|
|
|
Net
Cash Provided by Financing Activities
|
|
|
3,228,687 |
|
|
|
500,786 |
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash
|
|
|
28,906 |
|
|
|
49,811 |
|
|
|
|
|
|
|
|
|
|
Increase
(Decrease) In Cash
|
|
|
5,633,523 |
|
|
|
180,585 |
|
|
|
|
|
|
|
|
|
|
Cash
– Beginning of Period
|
|
|
48,554 |
|
|
|
28,470 |
|
|
|
|
|
|
|
|
|
|
Cash
– End of Period
|
|
$ |
5,682,077 |
|
|
$ |
209,055 |
|
|
|
|
|
|
|
|
|
|
Supplemental
Schedule of Cash Flows Disclosures
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$ |
(1,147 |
) |
|
$ |
- |
|
Income
taxes paid
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Schedule of Non-Cash Flows Activities |
|
|
|
|
|
|
|
|
Stock-based
Compensation, Stock Options Issued
|
|
$ |
- |
|
|
$ |
131,440 |
|
(The
accompanying notes are in an integral part of these financial
statements)
ANV
Security Group, Inc.
Notes
to Consolidated Financial Statements
September 30,
2010
Note
1. Organization and Summary of Significant Accounting Policies
Organization
ANV
Security Group Inc. (“ANVS”) was incorporated under
the laws of the State of Nevada on May 29, 1981. The company went dormant in
1992 and did not have any operations for many years until we acquired all of the
shares of Canada ANV Systems, Inc., a British Columbia corporation in June 2009
and changed our name to ANV Security Group, Inc. The company plan is
to become a fully integrated developer, designer, manufacturer, marketer,
installer and servicer of web based security systems for residential, commercial
and government customers operating in the Peoples Republic of China, Canada and
the United States of America, Also the Company offers a wide range of video
cameras powered by the next generation H.264 video technologies and our patent
pending USCI8.com services platforms. We are
currently headquartered in Shenzhen, China.
Summary
of Significant Accounting Policies
These
financial statements and related notes are presented in accordance with
accounting principles generally accepted in the United States, and are expressed
in US dollars. The Company’s fiscal year-end is March 31.
|
b)
|
Principles
of Consolidation
|
These
consolidated financial statements include the accounts of ANV Security Group
Inc. and its wholly-owned subsidiaries, ANV Video Alarm Service Inc which was
incorporated in British Columbia, Canada on May 30, 2008, ANV Security Group
(Asia) Co., Limited which was incorporated in December 2009, and ANV Security
Group Technology (Taian) Co., Ltd. which was incorporated in August
2010. ANV Security Group (Asia) Co., Limited has its wholly-owned
subsidiary, Flybit International Limited which was incorporated under the laws
of the Hong Kong Special Administrative Region on August 15, 2008, and ANV
Security Technology (China) Co., Ltd. which was incorporated on October 18, 2007
with former name of Shenzhen Angesi Technology Co., Ltd. All intercompany
accounts and transactions have been eliminated in consolidation.
The
preparation of financial statements in conformity with United States generally
accepted accounting principles 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. The Company regularly evaluates estimates and
assumptions related to useful life and recoverability of long-lived assets,
donated expenses, and deferred income tax valuation allowances. The Company
bases its estimates and assumptions on current facts, historical experience and
various other factors that it believes to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying
values of assets and liabilities and the accrual of costs and expenses that are
not readily apparent from other sources. The actual results experienced by the
Company may differ materially and adversely from the Company’s estimates. To the
extent there are material differences between the estimates and the actual
results, future results of operations will be affected.
Certain
account reclassifications have been made to the financial statements of the
prior year in order to conform to classifications used in the current year.
These changes had no impact on previously stated financial statements of
the Company.
|
e)
|
Comprehensive
Income (Loss)
|
SFAS No.
130, “Reporting Comprehensive
Income,” establishes standards for the reporting and display of
comprehensive loss and its components in the financial statements. As at September 30, 2010, the Company’s
component of comprehensive income consisted of foreign currency translation
adjustments and profit margin.
|
f)
|
Cash
and Cash Equivalents
|
The
Company considers all highly liquid instruments with maturity of three months or
less at the time of issuance to be cash equivalents.
|
g)
|
Concentration
of Credit Risks
|
Financial
instruments which potentially subject the Company to concentrations of credit
risk consist principally of cash and trade accounts receivable. The Company
places its cash with high credit quality financial institutions in
Canada. The Company has not experienced any losses in such bank
accounts through September 30, 2010. At September 30, our bank deposits were as
follows:
|
|
September 30,
|
|
|
March 31,
|
|
COUNTRY
|
|
2010
|
|
|
2010
|
|
Canada
|
|
$ |
449,612 |
|
|
$ |
31,756 |
|
Asia
|
|
|
5,232,465 |
|
|
|
-0- |
|
Total
cash and cash equivalents
|
|
$ |
5,682,077 |
|
|
$ |
31,756 |
|
In an
effort to mitigate any potential risk, the Company periodically evaluates the
credit quality of the financial institutions at which it holds
deposits.
h)
Accounts Receivable
Accounts
receivable are presented net of an allowance for doubtful accounts. The Company
maintains allowances for doubtful accounts for estimated losses. The
Company reviews the accounts receivable on a periodic basis and makes general
and specific allowances when there is doubt as to the collectability
of individual balances. In evaluating the collectability of individual
receivable balances, the Company considers many factors, including the age
of the balance, customer's historical payment history, its current
credit-worthiness and current economic trends. Accounts are written off after
exhaustive efforts at collection.
i) Inventories
Inventories
are stated at the lower of average cost or market and consist of raw materials
and finished goods. The Company writes down inventory for estimated obsolescence
or unmarketable inventory based upon assumptions and estimates about future
demand and market conditions. If actual market conditions are less favorable
than those projected by the Company, additional inventory write-downs may be
required.
j) GST
Receivable
GST
receivable represents tax credit that the Canadian Company receives when the
Company pays GST tax during normal operations. As of September 30, 2010, the
Company had a GST tax receivable of $5,827.
k) Advances
to Suppliers
Advances
to suppliers included in other assets represent the cash paid in advance for
purchasing of inventory items from Suppliers and the amount as of September 30,
2010 was $609,386.
l) Property
and Equipment
Property
and equipment consists of furniture, office equipment, computer
equipment/software and leasehold improvement, is recorded at cost. The property
and equipment other than leasehold improvement is depreciated on a straight line
basis over an estimated useful life of three years. Leasehold improvement is
depreciated on a straight line basis over the lease period of ten
years.
m) Intangible
Assets
The
Company adopted the provisions of ASC Topic 350 (formerly SFAS No. 142, Goodwill
and Other Intangible Assets), according to which goodwill and indefinite lived
intangible assets are not amortized, but are reviewed annually for impairment,
or more frequently, if indications of possible impairment exist. The Company has
performed the requisite annual transitional impairment tests on intangible
assets and made the impairment adjustments as necessary.
Intangible
assets consist of two parts. The first is a surveillance recording system,
surveillance software, technical know-how and non-compete agreements, developed
by Jiwei Zhang, Xianbo Fu, Kewei Feng, Mingyue Fan (all individuals), acquired
originally by Landmark Enterprise Group Inc.(“Landmark”) , a related party, and
subsequently sold to the Company in exchange for common shares. The value of
intangible assets acquired from Landmark was established by an independent
valuation report. The second part is incorporation cost of Shell Company
purchasing. Intangible assets are depreciated on a straight line basis over an
estimated useful life of five years.
In
accordance with SFAS No. 144, “Accounting for the Impairment or
Disposal of Long-Lived Assets”, the Company tests long-lived assets or
asset groups for recoverability when events or changes in circumstances indicate
that their carrying amount may not be recoverable. An impairment loss is
recognized when the carrying amount is not recoverable and exceeds fair
value.
|
o)
|
Financial
Instruments and Fair Value Measures
|
In April
2009, the FASB issued FASB ASC 825-10-50 and FASB ASC 270 (“FSP 107-1 AND APB
28-1 Interim Disclosures About Fair Value Of Financial Instruments”), which
increases the frequency of fair value disclosures to a quarterly basis instead
of on an annual basis. The guidance relates to fair value disclosures
for any financial instruments that are not currently reflected on an entity's
balance sheet at fair value. FASB ASC 825-10-50 and FASB ASC 270 are
effective for interim and annual periods ending after June 15,
2009. The adoption of FASB ASC 825-10-50 and FASB ASC 270 did not
have a material impact on results of operations, cash flows, or financial
position.
p) Revenue
Recognition
The
Company follows the guidance of the Securities and Exchange Commission's Staff
Accounting Bulletin No. 104, "Revenue Recognition in Financial Statements". In
general, the Company records revenue when persuasive evidence of an arrangement
exists, services have been rendered or product delivery has occurred, the sales
price to the customer is fixed or determinable, and collectability is reasonably
assured. The following policies reflect specific criteria for the various
revenues streams of the Company:
|
q)
|
Foreign
Currency Translation
|
The
Company’s functional currency is the Canadian dollar. The financial statements
are translated to United States dollars in accordance with SFAS No. 52 “Foreign Currency Translation”
using period-end rates of exchange for assets and liabilities, and
average rates of exchange for the year for revenues and expenses. Translation
gains (losses) are recorded in accumulated other comprehensive income (loss) as
a component of stockholders’ equity (deficit). Gains and losses arising on
translation or settlement of foreign currency denominated transactions or
balances are included in the determination of income. Foreign currency
transactions are primarily undertaken in United States dollars. The Company has
not, to the date of these financial statements, entered into derivative
instruments to offset the impact of foreign currency fluctuations.
|
r)
|
Basic
and Diluted Net Income (Loss) Per
Share
|
Earnings
per share is computed in accordance with the provisions of Financial Accounting
Standards (FASB) Accounting Standards Codification (ASC) Topic 260 (SFAS
No. 128, “Earnings Per Share”). Basic net income (loss)
per share is computed using the weighted-average number of common shares
outstanding during the period. Diluted earnings per share is computed
using the weighted-average number of common shares outstanding during the
period, as adjusted for the dilutive effect of the Company's outstanding
convertible preferred shares using the “if converted” method and dilutive
potential common shares. Potentially dilutive securities include
warrants, convertible preferred stock, restricted shares, and contingently
issuable shares.
Basic net
earnings (loss) per share equals net earnings (loss) divided by the weighted
average shares outstanding during the year. The computation of diluted net
earnings per share does not include dilutive common stock equivalents in the
weighted average shares outstanding as they would be anti-dilutive. The
Company's common stock equivalents at September 30, 2010 include the
following:
|
|
September 30,
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2010
|
|
Options
|
|
|
140,000 |
|
|
|
140,000 |
|
Warrants
|
|
|
-0- |
|
|
|
-0- |
|
|
|
|
140,000 |
|
|
|
140,000 |
|
|
s)
|
Stock-based
Compensation
|
We
account for non-employee stock-based compensation in accordance with ASC 718 and
ASC Topic 505 (“ASC 505”). ASC 718 and ASC 505 require that we recognize
compensation expense based on the estimated fair value of stock-based
compensation granted to non-employees over the vesting period, which is
generally the period during which services are rendered by the
non-employees.
As of
September 30, 2010, the Company has granted 140,000 shares stock options to its
director, consultant and top manager and the fair market value is
$24,836.
|
t)
|
Recent
Accounting Pronouncements
|
Impact
of New Accounting Standards
The
Company does not expect the adoption of recently issued accounting
pronouncements to have a significant impact on the Company's results of
operations, financial position, or cash flow.
Note
2. Accounts Receivable
Accounts
receivable $2,376,498 as of September 30, 2010 consists of $22,544 of trade
receivable of ANV Video Alarm Service Inc. $75,897 of ANV Security Group
Technology (Taian) Co., Ltd, and $2,278,057 of ANV Security Group (Asia) Co.,
Limited.
Note
3. Inventory
At
September 30 and March 31, 2010, inventories consisted of:
Subsidiaries
|
|
September 30,
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2010
|
|
ANV
Video Alarm Service Inc.
|
|
$ |
107,290 |
|
|
$ |
81,490 |
|
ANV
Security Group Technology (Taian) Co., Ltd
|
|
|
144,878 |
|
|
|
|
|
ANV
Security Group (Asia) Co., Limited
|
|
|
3,685,867 |
|
|
|
|
|
|
|
|
3,938,035
|
|
|
|
81,490 |
|
Less:
Reserve for slow moving inventory
|
|
|
-0- |
|
|
|
-0- |
|
|
|
$ |
3,938,035 |
|
|
$ |
81,490 |
|
Note
4. Other Assets
Other
assets $8,763 consist of rental deposit of $8,763 as at September 30 of ANV
Video Alarm Service Inc.
Note
5. Property and Equipment
Fixed
assets are summarized by classifications as follows:
|
|
Cost
|
|
|
Accumulated
Amortization
|
|
|
September
30,
2010
Net Carrying
Value
|
|
|
March 31,
2010
Net Carrying
Value
|
|
Furniture
and equipment
|
|
$ |
1,212,881 |
|
|
$ |
660,953 |
|
|
$ |
551,929 |
|
|
$ |
1,599 |
|
Computer
equipment
|
|
|
13,863 |
|
|
|
6,215 |
|
|
|
7,648 |
|
|
|
3,347 |
|
Customer
software
|
|
|
616 |
|
|
|
565 |
|
|
|
51 |
|
|
|
132 |
|
Leasehold
Improvement
|
|
|
21,426 |
|
|
|
3,824 |
|
|
|
17,602 |
|
|
|
15,937 |
|
|
|
$ |
1,248,786 |
|
|
$ |
671,556 |
|
|
$ |
577,230 |
|
|
$ |
21,015 |
|
The
furniture, equipment and software are depreciated on a straight line basis over
an estimated useful life of three years. Leasehold improvement is depreciated on
a straight line basis over the lease period of ten years.
Note
6. Intangible Assets
Intangible
assets are summarized by classifications as follows:
|
|
Cost
|
|
|
Accumulated
Amortization
|
|
|
September
30,
2010
Net Carrying
Value
|
|
|
March 31,
2010
Net Carrying
Value
|
|
Research
& Development-capitalized
|
|
$ |
1,320,901 |
|
|
$ |
133,495 |
|
|
$ |
1,187,407 |
|
|
$ |
1,325,376 |
|
Incorporation
Cost
|
|
|
53,785 |
|
|
|
5,378 |
|
|
|
48,406 |
|
|
|
54,482 |
|
Goodwill
|
|
|
6,274,629 |
|
|
|
0 |
|
|
|
6,274,629 |
|
|
|
-0- |
|
Long-term
deferred expense
|
|
|
214,484 |
|
|
|
97,410 |
|
|
|
117,074 |
|
|
|
-0- |
|
Deferred
Tax Assets
|
|
|
656,146 |
|
|
|
0 |
|
|
|
656,146 |
|
|
|
-0- |
|
|
|
$ |
8,519,945 |
|
|
$ |
236,283 |
|
|
$ |
8,283,662 |
|
|
$ |
1,379,858 |
|
Intangible
assets are depreciated on a straight line basis over an estimated useful life of
five years.
Note
7. Accounts Payable
As at
September 30, 2010 accounts payable amounted $4,466,192 consisted of trade
payable of $3,817,267, and customer deposit of $648,925. As at March 31, 2010,
accounts payable amounted $7,303 consists of amounts owing to Visa $5,487 and
government agency payable $1,816, respectively.
Note
8. Income Tax Payable
Income
tax payable amounted $12,787 is the accrued income tax expenses to China Revenue
Agency for the year of 2010 by the subsidiary.
Note
9. Related Party Transactions
Amounts
owing to the related parties of the shareholders amounted $13,663,151 as at
September 30 and $38,188 as at March 31, 2010, respectively.
Note
10. Capital Stock
The
company is authorized to issue unlimited shares of common stocks – Class A and
Class B, no par value share. As of September 30 and March 31, 2010, the amount
of voting common shares issued and outstanding are 51,130,071 and 33,190,071,
respectively.
|
On
June 28, 2009, Company entered in to an agreement and plan of
reorganization (“agreement”) by and among Dini Products, Inc. (“DINP”) , a
Nevada corporation whereas, each of the common share in the Company was
exchanged on a share for share basis so that after such exchange DINP has
33,190,071 shares of common stock issued and outstanding inclusive of
29,860,000 shares issued to the Company’s
stockholders.
|
|
Upon
execution of agreement, the Company has amended its name to ANV Security
Group, Inc.
|
Note
11. Foreign Currency Translation
|
Accounting
for Canada ANV System Inc. and its subsidiary is conducted in Canadian
currency. It converts figures on a period basis in accordance with FASB #
52. The functional currency is in Canadian
currency. The Companies balance sheet as of September 30, 2010
was translated at six months ended rate of 0.9718 (Canadian currency to US
currency), 0.1492 (China currency to US currency), and 0.1289 (Hong Kong
currency to US currency) for the there subsidiaries,
respectively. Statements of operations were reported on the
weighted average for the three months ended September 30, 2010 as required
by FASB # 52 at the rate of 0.9620 (Canadian currency to US currency),
0.1478 (China currency to US currency), and 0.1287 (Hong Kong currency to
US currency) for the three subsidiaries, respectively. Statement of cash
flows were reported on the weighted average for the six months ended
September 30, 2010 as required by FASB # 52 at the rate of 0.9672
(Canadian currency to US currency), 0.1289 (China currency to US
currency), and 0.1284 (Hong Kong currency to US currency) for
the three subsidiaries,
respectively.
|
Note
12. Commitments and Contingencies
12.1
Lease Commitments
Company
leases its North American office space and laboratory facility in Richmond,
British Columbia which starts on April 1, 2010 and expires on March 31, 2013.
Its total monthly minimum rental fee is $ 3,285.
The
company leases its headquarter office in Shenzhen, China which starts on April
1, 2010 and expires on march 31, 2019. Its total monthly rental fee is RMB
25,400.
12.2 Litigation
As per
the Company, as of September 30, 2010, there are no actions, suits, proceedings
or claims pending against or materially affecting the Company, which if
adversely determined, would have a material adverse effect on the financial
condition of ANV.
Note
13 Acquisitions
On June 1
2010 ANV Security Group (Asia) Co., Limited, acquired 100% shares of Flybit
International Ltd.
In
January 2010, Company has established ANV Security Group (Asia) Co. Ltd. a Hong
Kong Company (“ ANV Asia”) as a wholly- owned subsidiary of the registrant for
the purpose of acquiring operating companies in China. ANV Asia has no operation
to this date.
On
January 19, 2010, Mr. Wilson Wang acting as legal representative of ANV Security
Group ( Asia) Co. Ltd. entered into an agreement (the “Flybit Agreement”) to
acquire all of the issued and outstanding stock of Flybit International, Ltd., a
Hong Kong corporation, from its sole owner Zhaohui Zeng for three million
shares of the Company’s common stock and $720,000 in cash. The closing under the
Flybit Agreement was held on February 1, 2010 with effective date of June 1,
2010. Flybit is in developing and marketing mobile video security system used on
vehicles and it is a certified OEM manufacturer for Panasonic in mobile video
systems. Now this acquisition had done. The Company intends to utilize the
assets of these companies to expand its manufacturing base and increase its
retail operations in China.
On
December 24, 2009, the Company entered into an agreement (the “Angesi
Agreement”) with the shareholders of Shenzhen Angesi Technology Co., Ltd
(“Angesi”) to acquire 100 % equity ownership of Angesi Angesi
and its affiliates are in the business of developing, manufacturing and
marketing video cameras throughout China. The closing of
the acquisition of Angesi has occurred on September 30, 2010
..
ITEM
2. MANGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Forward
Looking Statements
This
Quarterly Report on Form 10-Q contains "forward-looking" statements as such term
is defined in the Private Securities Litigation Reform Act of 1995 and
information relating to the Company that is based on the beliefs of the
Company's management as well as assumptions made by and information currently
available to the Company's management. When used in this report, the words
"anticipate," "believe," "estimate," "expect" and "intend" and words or phrases
of similar import, as they relate to the Company or Company management, are
intended to identify forward-looking statements. Such statements reflect the
current risks, uncertainties and assumptions related to certain factors
including, without limitations, competitive factors, general economic
conditions, customer relations, relationships with vendors, the interest rate
environment, governmental regulation and supervision, seasonality, distribution
networks, product introductions and acceptance, technological change, changes in
industry practices, onetime events and other factors described herein and in
other filings made by the company with the Securities and Exchange Commission.
Based upon changing conditions, should any one or more of these risks or
uncertainties materialize, or should any underlying assumptions prove incorrect,
actual results may vary materially from those described herein as anticipated,
believed, estimated, expected or intended. The Company does not intend to update
these forward-looking statements.
RESULTS
OF OPERATIONS
RESULTS
OF OPERATIONS
Second
Quarter FY 2011 v Second Quarter FY 2010
Revenues. We had
revenue of $108,620 in the second
quarter of FY 2011 and revenues of
$5,429 for the second quarter of FY 2010 as the earlier portion of
FY 2010 was devoted to
product design and establishing a business model in Canada. The
results in the 2011 FY, particularly
in the second quarter, as described below, reflect management’s decision to
concentrate on the Company’s efforts to enter the larger Chinese market rather
than pursue further development of the Canadian market. Management believes that
the Chinese market, which is much larger than the Canadian market will enable
the Company to enjoy greater revenues in the future. As reported on a Current
Report on Form 8-K, filed February 5, 2010, we have made several acquisitions to
facilitate our entry into the Chinese market. Although we reported those
acquisitions in February, principally due to the need for the completion of
government approval processes in China, the acquisitions could not be completed
until June and September 2010. We are in the early stages of
developing the Chinese market we expect that revenues and results will fluctuate
from quarter to quarter. We anticipate opening retail stores in China
during calendar 2010 although this portion of our strategy may be delayed. The
costs of opening a Company operated store include inventory, real estate costs,
employee expense and promotional expenses such as advertising. The costs to open
a Company owned in China are anticipated to
be approximately $10,000 per retail store. The size and scope of each
of these programs will be governed by management’s assessment of the Company’s
capital resources and cannot be specified at this time. Due to our
change in strategy and emphasis in 2011, comparisons between FY 2010 periods and
the corresponding period in FY 2011 are not necessarily meaningful.
Cost of Sales; Gross
Profit. Our cost of sales in the second quarter of FY 2011 was $97,235,
yielding a gross profit of $11,295 or 10.5% of
sales. Our cost of sales in the second quarter of FY 2010 was $1,353,
yielding a gross profit of $4,076 or 75.1% of
sales. Both of these results and ratios are from an early stage
operation and management does not believe that significant conclusions should be
drawn from these limited results.
Operating
Expenses
Operating
expenses increased to
$632,836 in the second
quarter of FY 2011 compared to
$75,587 in comparable period in FY 2010 as increases were incurred in
every category due to the large scale operations in China which are included for
the second quarter of FY 2011. Again, as the operations are in an early
stage, especially in
China, management would caution against drawing any significant
conclusions from these limited results.
Net
Loss; Comprehensive Loss
Our net
loss and comprehensive loss consists of two parts: net operating
gain (loss) and foreign currency translation adjustments. Because all our
transactions are recorded in Canadian dollars or Chinese RMB, we
need to exchange them into US dollar using the exchange rate for different
period when we release the financial statements to the public. If the exchange
rate fluctuates and if we have a large balance of assets, liabilities
or equity, the foreign currency translation adjustment will be
large.
For the
three months
ended September 30,
2010, the net loss was $(608,841), and foreign
currency translation adjustment gain was $95,234, so the comprehensive loss was $(513,407). (Because
we have substantial intangible assets the foreign transaction adjustment was large). For the
three months
ended September 30,
2009, the net loss was $(77,772) but foreign
currency translation adjustment gain was $162,711 so the
comprehensive income was $84,939
(Because we have substantial intangible assets the foreign transaction
adjustment was
large)
First
Two Quarters FY 2011 v First Two Quarters FY 2010
Revenue. We had
revenue of $135,955 in the first
two quarters of FY 2011 and revenues of
$11,099 for the first two quarters of FY 2010 as the earlier portion of
FY 2010 was devoted to
product design and establishing a business model in Canada. The
results in the 2011 FY, particularly
in the second quarter, as described above, reflect management’s decision to
concentrate on the Company’s efforts to enter the larger Chinese market rather
than pursue further development of the Canadian market. Management believes that
the Chinese market, which is much larger than the Canadian market will enable
the Company to enjoy greater revenues in the future. As reported on a Current
Report on Form 8-K, filed February 5, 2010, we have made several acquisitions to
facilitate our entry into the Chinese market. Although we reported those
acquisitions in February, principally due to the need for the completion of
government approval processes in China, the acquisitions could not be completed
until June 2010. We are in the early stages of developing the
Chinese market we expect that revenues and results will fluctuate from quarter
to quarter. We anticipate opening retail stores in China during
calendar 2010 although this portion of our strategy may be delayed. The costs of
opening a Company operated store include inventory, real estate costs, employee
expense and promotional expenses such as advertising. The costs to open a
Company owned in China are anticipated to
be approximately $10,000 per retail store. The size and scope of each
of these programs will be governed by management’s assessment of the Company’s
capital resources and cannot be specified at this time. Due to our
change in strategy and emphasis in 2011, comparisons between FY 2010 periods and
the corresponding period in FY 2011 are not necessarily meaningful.
Cost of Sales; Gross
Profit. Our cost of sales in the first two quarters of FY
2011 was
$109,881, yielding a gross profit of $26,074 or 19.2% of
sales. Our cost of sales in the first two quarters of FY 2010 was $3,475,
yielding a gross profit of $7,624 or 68.7% of
sales. Both of these results and ratios are from an early stage
operation and management does not believe that significant conclusions should be
drawn from these limited results.
Operating
Expenses
Operating
expenses increased to
$836,403 in the first
two quarters of FY 2011 compared to
$159,949 in comparable period in FY 2010 as increases were incurred in
every category due to the large scale operations in China which are included for
the second quarter of FY 2011. Again, as the operations are in an early
stage, especially in
China, management would caution against drawing any significant
conclusions from these limited results.
Net
Loss; Comprehensive Loss
Our net
loss and comprehensive loss consists of two parts: net operating
gain (loss) and foreign currency translation adjustments. Because all our
transactions are recorded in Canadian dollars or Chinese RMB, we
need to exchange them into US dollar using the exchange rate for different
period when we release the financial statements to the public. If the exchange
rate fluctuates and if we have a large balance of assets, liabilities
or equity, our foreign currency translation adjustment will be
large.
For the
six months ended
September 30,
2010, the net loss was $(802,573), and foreign
currency translation adjustment gain was $9,753, so the comprehensive loss was $(792,820). (Foreign
currency did not fluctuate greatly during the period.) For the six months
ended September 30,
2009, the net loss was $(160,424) but foreign
currency translation adjustment gain was $272,798 so the
comprehensive income was $112,374
(Because we have substantial intangible assets the foreign transaction
adjustment was
large)
LIQUIDITY
AND CAPITAL RESOURCES
Net cash
flows provided by
operating activities for the three-month period
ended September 30, 2010 totaled
$3,120,155.
Net Cash flows
used for
investing activities in the three months
ended
September 30,
2010 totaled $(744,255).
Net cash
provided by financing activities, the sale of our stock, was $3,228,687 for the three months ended
September 30,
2010.
The
Company has significant cash resources but intends to continue to raise
additional capital through the issuance of debt or equity in order to expand
operations. The Company has entered into a letter agreement with an investment
banking group to raise funds to allow the Company to expand its operations in
China. The availability of cash through such resources is not assured
and if the Company is not able to raise enough cash, the Company might be forced
to delay or limit the expansion of its Chinese operations.
ITEM 4. CONTROLS AND
PRODCECURES
(a)
Evaluation of Disclosure Controls and Procedures
We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our Securities Exchange Act reports is
recorded, processed, summarized and reported within the time periods specified
in the SEC’s rules and forms, and that such information is accumulated and
communicated to our management, including our Principal Executive Officer and
Principal Financial Officer, as appropriate, to allow timely decisions regarding
required disclosure. In designing and evaluating the disclosure controls and
procedures, management recognized that any controls and procedures, no matter
how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives, as ours are designed to do, and
management necessarily was required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures.
As of
September 30, 2010, we carried out an evaluation, under the supervision and with
the participation of our management, including our Principal Financial Officer
of the effectiveness of the design and operation of our disclosure controls and
procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934. Based upon that evaluation, our Principal
Financial Officer concluded that our disclosure controls and procedures are
effective in enabling us to record, process, summarize and report information
required to be included in our periodic SEC filings within the required time
period.
(b)
Changes in Internal Controls
There
were no changes in our internal controls and procedures in internal control over
financial reporting that occurred during the period covered by this report that
have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting. We continue to rely on the members of
the Board of Directors to provide assurance that our entity-level controls
remain effective and we believe our process-level controls remain
effective.
PART
II
OTHER
INFORMATION
Item
1. Legal Proceedings
We are
not party to any material legal proceeding.
Item
2. Changes in Securities
None.
Item
3. Defaults Upon Senior Securities
None.
Item
4. Submission of Matters to a Vote of Security Holders
None.
Item
5. Other Information
None.
Item
6. Exhibits and Reports on Form 8-K
a)
EXHIBITS
31.1
Certification of the Chief Executive Officer pursuant to Rule 13a-14(a), as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2
Certification of the Chief Financial Officer pursuant to Rule 13a-14(a), as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1
Certifications of the Chief Executive Officer pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
32.2
Certifications of the Chief Financial Officer pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
b)
REPORTS ON FORM 8-K
Report on
Form 8-K filed July 29, 2010 including items 3.02 and 9.01.
Report on
Form 8-K (A-1) filed September 15, 2010 including items 1.01 and
9.
SIGNATURES
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.
|
ANV
SECURITY GROUP, INC.
|
|
|
By:
|
/S/
Weixing Wang
|
|
Weixing Wang
|
|
Chief
Executive Officer (Principal Executive Officer)
|
|
|
By:
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/S/ Yan Wang
|
|
Yan
Wang
|
|
VP
and Chief Financial
|
|
Officer
(Principal Financial and Accounting
Officer)
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November
17, 2010