Attached files
file | filename |
---|---|
EX-31.2 - Buildablock Corp. | v190952_ex31-2.htm |
EX-32.2 - Buildablock Corp. | v190952_ex32-2.htm |
EX-32.1 - Buildablock Corp. | v190952_ex32-1.htm |
EX-31.1 - Buildablock Corp. | v190952_ex31-1.htm |
UNITED STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM
10-Q
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE
ACT OF 1934
|
For the
quarterly period ended May 31, 2010
OR
¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE
ACT OF 1934
|
Commission
file number 333-131599
HIPSO
MULTIMEDIA, INC.
(Exact Name Of Registrant As Specified
In Its Charter)
Florida
|
22-3914075
|
(State
of Incorporation)
|
(I.R.S.
Employer Identification No.)
|
550 Chemin du Golf, Suite 202, Ile de Soeurs, Quebec, Canada
|
H3E 1A8
|
(Address
of Principal Executive Offices)
|
(ZIP
Code)
|
Registrant's
Telephone Number, Including Area Code: (514) 380-5353
Securities
Registered Pursuant to Section 12(g) of The Act: Common Stock,
$0.00001
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 x No ¨
On May
31, 2010, the Registrant had 58,643,504 shares of common stock, par value
$0.00001 outstanding.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes ¨ No x
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer.
Item
|
Description
|
Page
|
||
PART
I - FINANCIAL INFORMATION
|
||||
ITEM
1.
|
FINANCIAL
STATEMENTS.
|
3
|
||
ITEM
2.
|
MANAGEMENT'S DISCUSSION AND
ANALYSIS AND RESULTS OF OPERATIONS AND FINANCIAL
CONDITIONS.
|
24
|
||
ITEM
3.
|
QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
|
26
|
||
ITEM
4.
|
CONTROLS AND
PROCEDURES.
|
26
|
||
PART
II - OTHER INFORMATION
|
||||
ITEM
1.
|
LEGAL
PROCEEDINGS.
|
26
|
||
ITEM
1A.
|
RISK
FACTORS
|
27
|
||
ITEM
2.
|
UNREGISTERED SALES OF EQUITY
SECURITIES AND USE OF PROCEEDS
|
27
|
||
ITEM
3.
|
DEFAULT UPON SENIOR
SECURITIES.
|
27
|
||
ITEM
4.
|
SUBMISSION OF MATERS TO A VOTE OF
SECURITY HOLDERS.
|
27
|
||
ITEM
5.
|
OTHER
INFORMATION.
|
27
|
||
ITEM
6.
|
EXHIBITS.
|
27
|
2
INDEX
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Condensed
Consolidated Balance Sheets as of May 31, 2010 (Unaudited)
and
|
|
November
30, 2009
|
4
|
Condensed
Consolidated Statements of Operations and Comprehensive Income
(Loss)
|
|
for
the Six and Three Months Ended May 31, 2010 and 2009
(Unaudited)
|
5
|
Condensed
Consolidated Statements of Cash Flows for the Six Months
Ended
|
|
May
31, 2010 and 2009 (Unaudited)
|
6
|
Notes
to Condensed Consolidated Financial Statements
|
7
|
3
CONSOLIDATED
BALANCE SHEETS
MAY
31, 2010 (UNAUDITED) AND NOVEMBER 30, 2009
IN
US$
|
||||||||
May
31,
|
November
30,
|
|||||||
2010
|
2009
|
|||||||
(Unaudited)
|
||||||||
ASSETS
|
||||||||
CURRENT
ASSETS
|
||||||||
Cash
|
$ | 15,638 | $ | - | ||||
Accounts
receivable
|
30,739 | 33,391 | ||||||
Prepaid
expenses and other current assets
|
3,815 | 3,781 | ||||||
Total
Current Assets
|
50,192 | 37,172 | ||||||
FIXED
ASSETS
|
||||||||
Office
and computer equipment, net
|
9,311 | 12,309 | ||||||
OTHER
ASSETS
|
||||||||
Deferred
costs, net
|
162,253 | 202,985 | ||||||
Total
Assets
|
$ | 221,756 | $ | 252,466 | ||||
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
||||||||
CURRENT
LIABILITIES
|
||||||||
Current
portion of loan payable to bank
|
$ | 106,052 | $ | 262,722 | ||||
Loan
payable to shareholders
|
1,503,155 | 1,139,375 | ||||||
Cash
overdraft
|
- | 361 | ||||||
Liability
for stock to be issued
|
87,500 | 40,000 | ||||||
Accounts
payable
|
279,010 | 223,234 | ||||||
Accrued
expenses
|
134,170 | 117,587 | ||||||
Total
Current Liabilities
|
2,109,887 | 1,783,279 | ||||||
TOTAL
LIABILITIES
|
2,109,887 | 1,783,279 | ||||||
STOCKHOLDERS'
DEFICIT
|
||||||||
Common
stock, par value $0.00001, 100,000,000 shares authorized, 58,643,508 and
57,203,508 issued and outstanding at May 31, 2010 and November 30, 2009,
respectively
|
586 | 572 | ||||||
Additional
paid-in capital
|
803,308 | 668,292 | ||||||
Accumulated
deficit
|
(2,621,307 | ) | (2,138,376 | ) | ||||
Accumulated
other comprehensive income (loss)
|
(70,718 | ) | (61,301 | ) | ||||
Total
Stockholders' Deficit
|
(1,888,131 | ) | (1,530,813 | ) | ||||
Total
Liabilities and Stockholders' Deficit
|
$ | 221,756 | $ | 252,466 |
See
accompanying notes to condensed consolidated financial
statements.
4
HIPSO
MULTIMEDIA, INC. AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
FOR
THE SIX AND THREE MONTHS ENDED MAY 31, 2010 AND 2009 (UNAUDITED)
IN
US$
|
||||||||||||||||
For
the six months ended
|
For
the three months ended
|
|||||||||||||||
May
31,
|
May
31,
|
May
31,
|
May
31,
|
|||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
REVENUE
|
$ | 101,017 | $ | 83,010 | $ | 53,638 | $ | 20,826 | ||||||||
COSTS
AND EXPENSES
|
||||||||||||||||
Cost
of sales
|
153,563 | 102,241 | 78,640 | 62,663 | ||||||||||||
Depreciation
and amortization
|
46,088 | 42,217 | 23,421 | 22,530 | ||||||||||||
Administrative
expenses
|
336,293 | 302,893 | 197,368 | 100,381 | ||||||||||||
Total
Costs and Expenses
|
535,944 | 447,351 | 299,429 | 185,574 | ||||||||||||
OPERATING
LOSS
|
(434,927 | ) | (364,341 | ) | (245,791 | ) | (164,748 | ) | ||||||||
NON-OPERATING
INCOME (EXPENSE)
|
||||||||||||||||
Interest
income
|
- | 2,394 | - | 354 | ||||||||||||
Interest
expense
|
(48,004 | ) | (18,953 | ) | (26,408 | ) | (10,578 | ) | ||||||||
Total
Non-Operating Expense
|
(48,004 | ) | (16,559 | ) | (26,408 | ) | (10,224 | ) | ||||||||
NET
LOSS
|
$ | (482,931 | ) | $ | (380,900 | ) | $ | (272,199 | ) | $ | (174,972 | ) | ||||
Net
loss per common share (Basic and Diluted)
|
$ | (0.01 | ) | $ | (0.01 | ) | $ | (0.00 | ) | $ | (0.00 | ) | ||||
Weighted
average shares outstanding
|
57,849,167 | 55,274,279 | 58,396,551 | 55,373,508 | ||||||||||||
OTHER
COMPREHENSIVE INCOME (LOSS)
|
||||||||||||||||
Comprehensive
income (loss) - beginning of period
|
$ | (482,931 | ) | $ | (380,900 | ) | $ | (272,199 | ) | $ | (174,972 | ) | ||||
Cumulative
translation adjustments
|
(9,417 | ) | (129,895 | ) | (869 | ) | (118,101 | ) | ||||||||
Comprehensive
income (loss) - end of period
|
$ | (492,348 | ) | $ | (510,795 | ) | $ | (273,068 | ) | $ | (293,073 | ) |
See
accompanying notes to condensed consolidated financial
statements.
5
HIPSO
MULTIMEDIA, INC. AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR
THE SIX MONTHS ENDED MAY 31, 2010 AND 2009 (UNAUDITED)
IN
US$
|
||||||||
For
the six months ended
|
||||||||
May
31,
|
May
31,
|
|||||||
2010
|
2009
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net
loss
|
$ | (482,931 | ) | $ | (380,900 | ) | ||
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||
Depreciation
and amortization
|
46,088 | 42,217 | ||||||
Stock
based compensation and consulting services for stock
|
65,600 | 93,996 | ||||||
Contributed
expenses by management
|
20,430 | 20,430 | ||||||
Changes
in operating assets and liabilities:
|
||||||||
Accounts
receivable
|
3,489 | 41,571 | ||||||
Prepaid
expenses and other current assets
|
(5,202 | ) | (6,579 | ) | ||||
Accounts
payable and accrued expenses
|
104,268 | 61,440 | ||||||
Net
cash used in operating activities
|
(248,258 | ) | (127,825 | ) | ||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
(Decrease)
in cash overdraft
|
(361 | ) | - | |||||
Cash
received for common stock
|
49,000 | - | ||||||
Loan
payable to bank
|
(159,084 | ) | (41,783 | ) | ||||
Loan
payable to shareholders
|
371,194 | 226,880 | ||||||
Net
cash provided by financing activities
|
260,749 | 185,097 | ||||||
EFFECT
OF EXCHANGE RATE ON CASH
|
3,147 | (37,647 | ) | |||||
INCREASE
IN CASH
|
15,638 | 19,625 | ||||||
CASH,
BEGINNING OF YEAR
|
- | 19 | ||||||
CASH,
END OF PERIOD
|
$ | 15,638 | $ | 19,644 | ||||
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION:
|
||||||||
Cash
paid for interest
|
6,218 | 4,577 |
See
accompanying notes to condensed consolidated financial
statements.
6
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED MAY 31, 2010 AND 2009 (UNAUDITED)
NOTE
1-
|
ORGANIZATION AND BASIS
OF PRESENTATION
|
The
unaudited condensed consolidated financial statements included herein have been
prepared, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission (“SEC”). The condensed consolidated financial
statements and notes are presented as permitted on Form 10-Q and do not contain
information included in the Company’s annual consolidated statements and
notes. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with accounting principles
generally accepted in the United States of America have been condensed or
omitted pursuant to such rules and regulations, although the Company believes
that the disclosures are adequate to make the information presented not
misleading. It is suggested that these condensed consolidated
financial statements be read in conjunction with the November 30, 2009 audited
financial statements and the accompanying notes thereto. While
management believes the procedures followed in preparing these condensed
consolidated financial statements are reasonable, the accuracy of the amounts
are in some respects dependent upon the facts that will exist, and procedures
that will be accomplished by the Company later in the year.
These
condensed consolidated unaudited financial statements reflect all adjustments,
including normal recurring adjustments which, in the opinion of management, are
necessary to present fairly the consolidated operations and cash flows for the
periods presented.
HIPSO
Multimedia, Inc. (the “Company”) formerly Physicians Remote Solutions, Inc., a
Florida Corporation incorporated in April 2005, operates a “triple play” network
providing digital TV, voice over internet protocol (VoIP) and a high speed
internet access all via fiber optic cable. The Company targets the
multi-dwelling unit market in Montreal and eventually throughout the Canadian
market. The Company offers its retail customer base a bundled package including
IP telephony, internet bandwidth in 5 and 10 megabytes per second (Mbps)
increments and 83 television channels. The Company also targets hotels,
hospitals and retirement homes by offering bulk long-term agreements to their
connected customers.
On June
2, 2008, the Company entered into a share exchange agreement with Valtech
Communications, Inc. (“Valtech”) and issued 40,000,000 shares of its common
stock to acquire Valtech. In connection with the share exchange agreement,
Valtech became a wholly owned subsidiary of the Company and the Valtech officers
and directors became the officers and directors of the Company. Prior to the
merger, the Company had not generated any revenues. As a result of the
transaction (the “reverse merger”) and for accounting purposes, the reverse
merger has been treated as an acquisition of the Company by Valtech and a
recapitalization of the Company. The historical financial statements are those
of Valtech. Since the reverse merger is a recapitalization and not a business
combination, pro-forma information is not presented.
Effective
July 1, 2009, the Company adopted the Financial Accounting Standards Board
(“FASB”) Accounting Standards Codification (“ASC”) 105-10, Generally Accepted
Accounting Principles – Overall (“ASC 105-10”). ASC 105-10 establishes the FASB
Accounting Standards Codification (the “Codification”) as the source of
authoritative accounting principles recognized by the FASB to be applied by
nongovernmental entities in the preparation of financial statements in
conformity with U.S. GAAP. Rules and interpretive releases of the SEC under
authority of federal securities laws are also sources of authoritative U.S. GAAP
for SEC registrants. All guidance contained in the Codification carries an equal
level of authority. The Codification superseded all existing non-SEC accounting
and reporting standards. All other non-grandfathered, non-SEC accounting
literature not included in the Codification is non-authoritative. The FASB will
not issue new standards in the form of Statements, FASB Positions or Emerging
Issue Task Force Abstracts. Instead, it will issue Accounting Standards Updates
(“ASUs”). The FASB will not consider ASUs as authoritative in their own right.
ASUs will serve only to update the Codification, provide background information
about the guidance and provide the bases for conclusions on the change(s) in the
Codification. References made to FASB guidance throughout this document have
been updated for the Codification.
7
HIPSO
MULTIMEDIA, INC. AND SUBSIDIARY
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED MAY 31, 2010 AND 2009 (UNAUDITED)
NOTE
1-ORGANIZATION AND
BASIS OF PRESENTATION (CONTINUED)
Going
Concern
As shown
in the accompanying consolidated financial statements the Company has incurred
net losses of $482,931 and $380,900 for the six months ended May 31, 2010 and
2009, and has a working capital deficiency of $2,059,695 as of May 31,
2010.
Management’s
plans include the raising of capital through the equity markets to fund future
operations and generating adequate revenues through its business. Even if the
Company does not raise sufficient capital to support its operating expenses and
generate adequate revenues, there can be no assurance that the revenue will be
sufficient to enable it to develop business to a level where it will generate
profits and cash flows from operations. These matters raise substantial doubt
about the Company’s ability to continue as a going concern. However, the
accompanying condensed consolidated financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. These financial
statements do not include any adjustments relating to the recovery of the
recorded assets or the classification of the liabilities that might be necessary
should the Company be unable to continue as a going concern.
NOTE 2-
|
SUMMARY
OF SIGNIFICANT ACCOUNTING
POLICIES
|
Principles of
Consolidation
The
consolidated financial statements include the accounts of the Company and its
subsidiary. All significant intercompany accounts and transactions have been
eliminated in consolidation.
Use of
Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. On an on-going basis, the Company
evaluates its estimates, including, but not limited to, those related to
investment tax credits, bad debts, income taxes and contingencies. The Company
bases its estimates on historical experience and on various other assumptions
that are believed to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying value of assets and
liabilities that are not readily apparent from other sources. Actual results
could differ from those estimates.
Cash and Cash
Equivalents
The
Company considers all highly liquid debt instruments and other short-term
investments with an initial maturity of three months or less to be cash
equivalents.
Comprehensive
Income
The
Company adopted ASC 220-10, “Reporting Comprehensive Income,” (formerly SFAS No.
130). ASC 220-10 requires the reporting of comprehensive income in addition to
net income from operations.
Comprehensive
income is a more inclusive financial reporting methodology that includes
disclosure of information that historically has not been recognized in the
calculation of net income.
8
HIPSO
MULTIMEDIA, INC. AND SUBSIDIARY
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED MAY 31, 2010 AND 2009 (UNAUDITED)
NOTE 2- SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fair Value of Financial
Instruments
|
The
carrying amounts reported in the consolidated balance sheets for cash and
cash equivalents, accounts receivable and accounts payable approximate
fair value because of the immediate or short-term maturity of these
financial instruments. For the loans payable, the carrying
amount reported is based upon the incremental borrowing rates otherwise
available to the Company for similar
borrowings.
|
Currency
Translation
For
subsidiaries outside the United States that prepare financial statements in
currencies other than the U.S. dollar, the Company translates income and expense
amounts at average exchange rates for the year, translates assets and
liabilities at year-end exchange rates and equity at historical rates. The
Company’s functional currency is the Canadian dollar, while the Company reports
its currency in the US dollar. The Company records these translation adjustments
as accumulated other comprehensive income (loss). Gains and losses from foreign
currency transactions are included in other income (expense) in the results of
operations.
Revenue
Recognition
The
Company receives revenue from subscribers to its triple play network in which it
provides digital TV, voice over internet protocol (VoIP), and high speed
internet access, all via fiber optic cable. The Company bills its subscribers on
a monthly basis and recognizes the monthly revenue based upon the specific plan
selected by the subscriber. The Company additionally provides contracted
services to wire commercial buildings with fiber optic cable in order to provide
for similar services.
Accounts
Receivable
The
Company conducts business and extends credit based on an evaluation of the
customers’ financial condition, generally without requiring
collateral.
Exposure
to losses on receivables is expected to vary by customer due to the financial
condition of each customer. The Company monitors exposure to credit losses and
maintains allowances for anticipated losses considered necessary under the
circumstances. The Company has an allowance for doubtful accounts of $20,341 at
May 31, 2010.
Accounts
receivable are generally due within 30 days and collateral is not required.
Unbilled accounts receivable represents amounts due from customers for which
billing statements have not been generated and sent to the
customers.
Income
Taxes
The
Company accounts for income taxes utilizing the liability method of
accounting. Under the liability method, deferred taxes are determined
based on differences between financial statement and tax bases of assets and
liabilities at enacted tax rates in effect in years in which differences are
expected to reverse. Valuation allowances are established, when
necessary, to reduce deferred tax assets to amounts that are expected to be
realized.
9
HIPSO
MULTIMEDIA, INC. AND SUBSIDIARY
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED MAY 31, 2010 AND 2009 (UNAUDITED)
NOTE
2- SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Advertising
Costs
|
The
Company expenses the costs associated with advertising as
incurred. Advertising expenses for the six months ended May 31,
2010 and 2009 are included in selling and promotion expenses in the
consolidated statements of
operations.
|
Fixed
Assets
|
Fixed
assets are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets; office
and computer equipment – 5 years.
|
|
When
assets are retired or otherwise disposed of, the costs and related
accumulated depreciation are removed from the accounts, and any resulting
gain or loss is recognized in income for the period. The cost
of maintenance and repairs is charged to income as incurred; significant
renewals and betterments are capitalized. Deduction is made for
retirements resulting from renewals or
betterments.
|
Impairment of Long-Lived
Assets
Long-lived
assets, primarily fixed assets, are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of the assets might
not be recoverable. The Company does perform a periodic assessment of assets for
impairment in the absence of such information or indicators. Conditions that
would necessitate an impairment assessment include a significant decline in the
observable market value of an asset, a significant change in the extent or
manner in which an asset is used, or a significant adverse change that would
indicate that the carrying amount of an asset or group of assets is not
recoverable. For long-lived assets to be held and used, the Company recognizes
an impairment loss only if its carrying amount is not recoverable through its
undiscounted cash flows and measures the impairment loss based on the difference
between the carrying amount and estimated fair value.
Loss Per Share of Common
Stock
Basic net
loss per common share is computed using the weighted average number of common
shares outstanding. Diluted earnings per share (EPS) includes
additional dilution from common stock equivalents, such as stock issuable
pursuant to the exercise of stock options and warrants. Common stock
equivalents were not included in the computation of diluted earnings per share
when the Company reported a loss because to do so would be antidilutive for
periods presented.
10
HIPSO
MULTIMEDIA, INC. AND SUBSIDIARY
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED MAY 31, 2010 AND 2009 (UNAUDITED)
NOTE 2-
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
(CONTINUED)
|
Loss Per Share of Common
Stock (Continued)
The
following is a reconciliation of the computation for basic and diluted
EPS:
May
31,
|
May
31,
|
|||||||
2010
|
2009
|
|||||||
Net
(loss)
|
$ | (482,931 | ) | $ | (380,900 | ) | ||
Weighted-average
common shares Outstanding (Basic)
|
57,849,167 | 55,274,279 | ||||||
Weighted-average
common stock Equivalents
|
||||||||
Stock
options
|
2,140,000 | 1,450,000 | ||||||
Warrants
|
- | - | ||||||
Weighted-average
common shares Outstanding (Diluted)
|
59,989,167 | 56,724,279 |
Stock-Based
Compensation
In 2006,
the Company adopted the provisions of ASC 718-10 “Share Based Payments” for
its year ended November 30, 2008. The adoption of this principle had no effect
on the Company’s operations.
The
Company has elected to use the modified–prospective approach method. Under that
transition method, the calculated expense in 2006 is equivalent to compensation
expense for all awards granted prior to, but not yet vested as of January 1,
2006, based on the grant-date fair values. Stock-based compensation expense for
all awards granted after January 1, 2006 is based on the grant-date fair values.
The Company recognizes these compensation costs, net of an estimated forfeiture
rate, on a pro rata basis over the requisite service period of each vesting
tranche of each award. The Company considers voluntary termination behavior as
well as trends of actual option forfeitures when estimating the forfeiture
rate.
11
HIPSO
MULTIMEDIA, INC. AND SUBSIDIARY
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED MAY 31, 2010 AND 2009 (UNAUDITED)
NOTE
2-
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
(CONTINUED)
|
Stock-Based Compensation
(Continued)
The
Company measures compensation expense for its non-employee stock-based
compensation under ASC 505-50, “Accounting for Equity Instruments
that are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services”. The fair value of the option
issued is used to measure the transaction, as this is more reliable than the
fair value of the services received. The fair value is measured at
the value of the Company’s common stock on the date that the commitment for
performance by the counterparty has been reached or the counterparty’s
performance is complete. The fair value of the equity instrument is charged
directly to expense and additional paid-in capital.
Segment
Information
The
Company follows the provisions of ASC 280-10, “Disclosures about Segments of an
Enterprise and Related Information”. This standard requires that
companies disclose operating segments based on the manner in which management
disaggregates the Company in making internal operating decisions. As of May 31,
2010 and for the six months ended May 31, 2010 and 2009, the Company operates in
only one segment and in only one geographical location.
Reclassifications
The
Company has reclassified certain amounts in their condensed consolidated
statement of operations for the six months ended May 31, 2009 to conform with
the May 31, 2010 presentation. These reclassifications had no effect on the net
loss for the six months ended May 31, 2009.
Uncertainty in Income
Taxes
The
Company follows ASC 740-10, “Accounting for Uncertainty in Income Taxes” (“ASC
740-10”). This interpretation requires recognition and measurement of uncertain
income tax positions using a “more-likely-than-not” approach. ASC 740-10 is
effective for fiscal years beginning after December 15, 2006. Management has
adopted ASC 740-10 for 2009, and they evaluate their tax positions on an annual
basis, and has determined that as of May 31, 2010, no additional accrual for
income taxes other than the federal and state provisions and related interest
and estimated penalty accruals is not considered necessary.
Fair Value
Measurements
In
September 2006, ASC issued 820, Fair Value Measurements. ASC
820 defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands disclosure about fair
value measurements. This statement is effective for financial statements issued
for fiscal years beginning after November 15, 2007. Early adoption is
encouraged. The adoption of ASC 820 is not expected to have a material impact on
the financial statements.
12
HIPSO
MULTIMEDIA, INC. AND SUBSIDIARY
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED MAY 31, 2010 AND 2009 (UNAUDITED)
NOTE
2-
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
(CONTINUED)
|
Fair Value Measurements
(Continued)
In
February 2007, ASC issued 825-10, The Fair Value Option for Financial
Assets and Financial Liabilities – Including an amendment of ASC 320-10,
(“ASC 825-10”) which permits entities to choose to measure many financial
instruments and certain other items at fair value at specified election dates. A
business entity is required to report unrealized gains and losses on items for
which the fair value option has been elected in earnings at each subsequent
reporting date. This statement is expected to expand the use of fair value
measurement. ASC 825-10 is effective for financial statements issued for fiscal
years beginning after November 15, 2007, and interim periods within those fiscal
years.
Recent Accounting
Pronouncements
In
December 2007, the ASC issued ASC 810-10-65, Noncontrolling Interests in
Consolidated Financial Statements. ASC 810-10-65 establishes accounting
and reporting standards for ownership interests in subsidiaries held by parties
other than the parent, changes in a parent’s ownership of a noncontrolling
interest, calculation and disclosure of the consolidated net income attributable
to the parent and the noncontrolling interest, changes in a parent’s ownership
interest while the parent retains its controlling financial interest and fair
value measurement of any retained noncontrolling equity investment. ASC
810-10-65 is effective for financial statements issued for fiscal years
beginning after December 15, 2008, and interim periods within those fiscal
years. Early adoption is prohibited. Management is determining the impact that
the adoption of ASC 810-10-65 will have on the Company’s financial position,
results of operations or cash flows.
In
December 2007, the Company adopted ASC 805, Business Combinations (“ASC
805”). ASC 805 retains the fundamental requirements that the acquisition method
of accounting be used for all business combinations and for an acquirer to be
identified for each business combination. ASC 805 defines the acquirer as the
entity that obtains control of one or more businesses in the business
combination and establishes the acquisition date as the date that the acquirer
achieves control. ASC 805 will require an entity to record separately
from the business combination the direct costs, where previously these costs
were included in the total allocated cost of the acquisition. ASC 805
will require an entity to recognize the assets acquired, liabilities assumed,
and any non-controlling interest in the acquired at the acquisition date, at
their fair values as of that date.
ASC 805
will require an entity to recognize as an asset or liability at fair value for
certain contingencies, either contractual or non-contractual, if certain
criteria are met. Finally, ASC 805 will require an entity to
recognize contingent consideration at the date of acquisition, based on the fair
value at that date. This will be effective for business combinations
completed on or after the first annual reporting period beginning on or after
December 15, 2008. Early adoption is not permitted and the ASC is to
be applied prospectively only. Upon adoption of this ASC, there would
be no impact to the Company’s results of operations and financial condition for
acquisitions previously completed. The adoption of ASC 805 is not
expected to have a material effect on the Company’s financial position, results
of operations or cash flows.
In March
2008, ASC issued ASC 815, Disclosures about Derivative
Instruments and Hedging Activities”, (“ASC 815”). ASC 815 requires
enhanced disclosures about an entity’s derivative and hedging activities. These
enhanced disclosures will discuss: how and why an entity uses derivative
instruments; how derivative instruments and related hedged items are accounted
for and its related interpretations; and how derivative instruments and related
hedged items affect an entity’s financial position, financial performance, and
cash flows. ASC 815 is effective for financial statements issued for fiscal
years and interim periods beginning after November 15, 2008. The Company does
not believe that ASC 815 will have an impact on their results of operations or
financial position.
13
HIPSO
MULTIMEDIA, INC. AND SUBSIDIARY
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED MAY 31, 2010 AND 2009 (UNAUDITED)
NOTE
2-
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
(CONTINUED)
|
Recent Accounting
Pronouncements (Continued)
In April
2008, ASC 350-30 was issued, “Determination of the Useful Life of Intangible
Assets”. The Company was required to adopt ASC 350-30 on December 1, 2008. The
guidance in ASC 350-30 for determining the useful life of a recognized
intangible asset shall be applied prospectively to intangible assets acquired
after adoption, and the disclosure requirements shall be applied prospectively
to all intangible assets recognized as of, and subsequent to, adoption. The
Company does not believe ASC 350-30 will materially impact their financial
position, results of operations or cash flows.
In May
2008, ASC 470-20 was issued, “Accounting for Convertible Debt Instruments That
May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)”
(“ASC 470-20”). ASC 470-20 requires the issuer of certain convertible debt
instruments that may be settled in cash (or other assets) on conversion to
separately account for the liability (debt) and equity (conversion option)
components of the instrument in a manner that reflects the issuer’s
non-convertible debt borrowing rate. ASC 470-20 is effective for fiscal years
beginning after December 15, 2008 on a retroactive basis. The Company does not
believe that the adoption of ASC 470-20 will have a material effect on its
financial position, results of operations or cash flows.
In June
2008, ASC 815-40 was issued, “Determining Whether an Instrument (or Embedded
Feature) Is Indexed to an Entity’s Own Stock” (“ASC 815-40”), which supersedes
the definition in ASC 605-50 for periods beginning after December 15, 2008. The
objective of ASC 815-40 is to provide guidance for determining whether an
equity-linked financial instrument (or embedded feature) is indexed to an
entity’s own stock and it applies to any freestanding financial instrument or
embedded feature that has all the characteristics of a derivative in accordance
with ASC 815-20.
ASC
815-40 also applies to any freestanding financial instrument that is potentially
settled in an entity’s own stock. The Company believes that ASC 815-40, will not
have a material impact on their financial position, results of operations and
cash flows.
In June
2008, ASC 470-20-65 was issued, Accounting for Convertible Securities with
Beneficial Conversion Features or Contingently Adjustable Conversion Ratios
(“ASC 470-20-65”). ASC 470-20-65 is effective for years ending after December
15, 2008. The overall objective of ASC 470-20-65 is to provide for consistency
in application of all the standards issued for convertible securities. The
Company has computed and recorded a beneficial conversion feature in connection
with certain of their prior financing arrangements and does not believe that ASC
470-20-65 will have a material effect on that accounting.
14
HIPSO
MULTIMEDIA, INC. AND SUBSIDIARY
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED MAY 31, 2010 AND 2009 (UNAUDITED)
NOTE
2-
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
(CONTINUED)
|
Recent Accounting
Pronouncements (Continued)
Effective
April 1, 2009, the Company adopted ASC 855, Subsequent Events (“ASC
855”). ASC 855 establishes general standards of accounting for and disclosure of
events that occur after the balance sheet date but before financial statements
are issued or are available to be issued. It requires disclosure of the date
through which an entity has evaluated subsequent events and the basis for that
date – that is, whether that date represents the date the financial statements
were issued or were available to be issued. This disclosure should alert all
users of financial statements that an entity has not evaluated subsequent events
after that date in the set of financial statements being presented. Adoption of
ASC 855 did not have a material impact on the Company’s results of operations or
financial condition. The Company has evaluated subsequent events through July
16, 2010, the date the financial statements were issued.
Effective
July 1, 2009, the Company adopted FASB ASU No. 2009-05, Fair Value Measurement and
Disclosures (Topic 820) (“ASU 2009-05”). ASU 2009-05 provided amendments
to ASC 820-10, Fair Value
Measurements and Disclosures – Overall, for the fair value measurement of
liabilities. ASU 2009-05 provides clarification that in circumstances in which a
quoted market price in an active market for the identical liability is not
available, a reporting entity is required to measure fair value using certain
techniques. ASU 2009-05 also clarifies that when estimating the fair value of a
liability, a reporting entity is not required to include a separate input or
adjustment to other inputs relating to the existence of a restriction that
prevents the transfer of a liability. ASU 2009-05 also clarifies that both a
quoted price in an active market for the identical liability at the measurement
date and the quoted price for the identical liability when traded as an asset in
an active market when no adjustments to the quoted price of the asset are
required for Level 1 fair value measurements. Adoption of ASU 2009-05 did not
have a material impact on the Company’s results of operations or financial
condition.
In
January 2010, the Company adopted FASB ASU No. 2010-06, Fair Value Measurement and
Disclosures (Topic 820)- Improving Disclosures about Fair Value Measurements
(“ASU 2010-06”). These standards require new disclosures on the amount
and reason for transfers in and out of Level 1 and 2 fair value measurements.
The standards also require new disclosures of activities, including purchases,
sales, issuances, and settlements within the Level 3 fair value measurements.
The standard also clarifies existing disclosure requirements on levels of
disaggregation and disclosures about inputs and valuation techniques. These new
disclosures are effective beginning with the first interim filing in 2010. The
disclosures about the rollforward of information in Level 3 are required for the
Company with its first interim filing in 2011. The Company does not believe this
standard will impact their financial statements.
Other
ASU’s that have been issued or proposed by the FASB ASC that do not require
adoption until a future date and are not expected to have a material impact on
the financial statements upon adoption.
15
HIPSO
MULTIMEDIA, INC. AND SUBSIDIARY
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED MAY 31, 2010 AND 2009 (UNAUDITED)
NOTE
3-
|
FIXED
ASSETS
|
Fixed
assets as of May 31, 2010 (Unaudited) and November 30, 2009 were as
follows:
Estimated
Useful
|
(Unaudited)
|
||||||||||
Lives (Years)
|
May 31,
|
November 30,
|
|||||||||
2010
|
2009
|
||||||||||
Computer
and office equipment
|
5
|
$ | 31,111 | $ | 30,829 | ||||||
Less:
accumulated depreciation
|
21,800 | 18,520 | |||||||||
Property
and equipment, net
|
$ | 9,311 | $ | 12,309 |
There was
$3,137 and $2,832 charged to operations for depreciation expense for the six
months ended May 31, 2010 and 2009, respectively.
NOTE
4-
|
DEFERRED
COSTS
|
Deferred
costs as of May 31, 2010 (Unaudited) and November 30, 2009 were as
follows:
(Unaudited)
|
||||||||
May
31,
|
November
30,
|
|||||||
2010
|
2009
|
|||||||
Deferred
Costs
|
$ | 438,818 | $ | 434,831 | ||||
Less:
accumulated amortization
|
276,565 | 231,846 | ||||||
Property
and equipment, net
|
$ | 162,253 | $ | 202,985 |
There was
$42,951 and $39,385 charged to operations for amortization expense for the six
months ended May 31, 2010 and 2009, respectively.
16
HIPSO
MULTIMEDIA, INC. AND SUBSIDIARY
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED MAY 31, 2010 AND 2009 (UNAUDITED)
NOTE
5-
|
RELATED PARTY
LOANS
|
As of May
31, 2010, the four principal shareholders of the Company had advanced $1,503,155
to the Company for working capital purposes. These loans bear interest at an
annual rate of 10% for individual amounts exceeding $150,000 (CDN$) ($143,171
(US$)). The loans have no specific terms of repayment and are unsecured.
Interest expense for the six months ended May 31, 2010 and 2009 were $41,787 and
$9,611, respectively. Accrued interest on these loans as of May 31, 2010 was
$76,265.
NOTE
6-
|
LOAN PAYABLE -
BANK
|
The
Company had an overdraft facility with a Canadian bank for $500,000 (CDN$)) and
converted this facility to an Operating Loan in April 2009. The loan is payable
in monthly installments of $27,778 (CD$) through September 2010. In addition,
interest will be charged at 4% over the bank’s prime lending rate and the
Company will be charged monthly fees of approximately $150 per month. At May 31,
2010, the Company has $106,052 outstanding and is current on all of the interest
due. The loan is personally guaranteed by three principal
shareholders.
Interest
expense on the loan payable / line of credit for the six months ended May 31,
2010 and 2009 were $6,218 and $9,342, respectively. There was no accrued
interest outstanding as of May 31, 2010.
NOTE
7-
|
COMMITMENTS
|
Employment
Agreement
The
Company’s subsidiary, Valtech has an employment agreement with its Chief
Executive Officer. The agreement commenced October 1, 2006 and terminated
September 30, 2007. The agreement is renewable upon mutual agreement of the
Company and its Chief Executive Officer. The original agreement provided for a
salary of $80,000 plus benefits. The agreement has been renewed through
September 30, 2010.
Operating
Lease
The
Company leased a vehicle for the Chief Executive Officer. The lease was a
36-month lease that expired October 31, 2009. The monthly payment was $617 per
month. There is no current lease for an automobile for the Chief Executive
Officer.
Office
Space
The
Company occupies approximately 2,500 square feet of office space owned by a
company that is owned by a shareholder of the Company. The occupancy is on a
month-to-month basis, without a lease and without payment of rent. The Company
has occupied the space since February 1, 2008. Accordingly, a rent expense was
recorded at the fair value of the applicable rent and with an offset to
additional paid-in capital.
Consulting
Agreements
The
Company has entered into consulting agreements for a period of no more than 6
months with various consultants. These agreements require the Company to pay for
the consulting services and issue shares of common stock and stock options over
the period of the agreements.
Service
Agreement
In July
2009, the Company’s subsidiary, Valtech Communications, Inc. entered into a
written agreement with Groupe Canvar Inc. (a related party through common
ownership). The agreement provides for Groupe Canvar, Inc. to provide brochures,
price lists, contact information and other literature relating to Valtech
Communications, Inc. services to the tenants leasing the apartments or office
space in the buildings owned by Groupe Canvar, Inc. In addition, the agreement
provides for Valtech Communications, Inc. to install wiring in new and
refurbished buildings
owned by Canvar Group, Inc. to their server for these services. All pricing is
at the same terms as those for other Valtech Communications, Inc. customers. The
agreement will expire July 2010.
17
HIPSO
MULTIMEDIA, INC. AND SUBSIDIARY
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED MAY 31, 2010 AND 2009 (UNAUDITED)
NOTE
7- COMMITMENTS
(CONTINUED)
Litigation
The
Company has initiated litigation against two former consultants in the Circuit
Court of the 17th
Judicial Circuit, Broward County, Florida. In 2008, the Company entered into a
consulting contract with two individuals to prepare a formal valuation of the
Company’s business including marketing, sales, information management, and a
customer service plan. The consulting agreement provides for the issuance of
600,000 restricted common shares and the issuance of 2,400,000 stock options of
which 1,000,000 options were exercised.
Management
is of the opinion that these individuals did not perform their services
according to the contract and is attempting to block the removal of the
restriction on the 600,000 common shares issued, and cancel the unexercised
stock options. The outcome of the litigation is undeterminable at the present
time. The 600,000 common shares are reflected as outstanding in the accompanying
consolidated financial statements and stock based compensation of $36,000 was
recorded. Additionally, the fair value of the options have been recorded
aggregating $22,820 and a provision for $60,000 has been recorded for the amount
due for the option exercise price since the consultants have not paid the option
price to date.
NOTE
8-
|
STOCKHOLDERS’
DEFICIT
|
Common
Stock
As of May
31, 2010, the Company has 100,000,000 shares of common stock authorized with a
par value of $.00001.
The
Company has 58,643,508 shares issued and outstanding as of May 31,
2010.
During
the quarter ended May 31, 2010, the Company issued:
The
Company will issue shares under a private placement memorandum dated April 5,
2010 to various individuals totaling 380,000 shares of common stock at a price
of $0.125 per share ($47,500) for funds rece4ived during the quarter. These are
reflected in the liability for stock to be issued. The individuals also will be
issued 380,000 warrants that expire in 3 years at an exercise price of $0.20 per
share. In addition, the Company issued common stock for the quarter ended May
31, 2010 at $0.14 per share for a total value of $14,000 to consultants for
services rendered per their agreements; and 90,000 in the exercise of stock
options for $12,600. The Company reduced an invoice for the payment of $12,600
associated with 90,000 of these options. The Company also received $24,000 for
the issuance of 500,000 shares of common stock.
During
the quarter ended May 31, 2010, the Company occupied office space owned by a
principal shareholder, and recorded $10,215 of rent expense as contributed
capital for the space.
During
the quarter ended February 28, 2010, the Company issued:
160,000
shares of common stock issued for the quarter ended February 28, 2010 at $0.06
per share for a total value of $9,600 to consultants for services rendered per
their agreements; and 590,000 in the exercise of stock options for $30,400. Of
the $30,400, the Company reduced an invoice for the payment of $5,400 associated
with 90,000 of these options, and the remaining $25,000 is reflected as a
subscription receivable for the exercise of 500,000 options. The Company also
recorded $6,000 in stock based compensation for the value of an additional
100,000 options that vested in February 2010.
During
the quarter ended February 28, 2010, the Company occupied office space owned by
a principal shareholder, and recorded $10,215 of rent expense as contributed
capital for the space.
18
HIPSO
MULTIMEDIA, INC. AND SUBSIDIARY
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED MAY 31, 2010 AND 2009 (UNAUDITED)
NOTE
8-
|
STOCKHOLDERS’ DEFICIT
(CONTINUED)
|
Common Stock
(Continued)
During
the quarter ended November 30, 2009, the Company issued:
480,000
shares of common stock to various consultants for services rendered. These
shares were valued at their market prices of $0.105 and $0.16 per share, or
$66,900, at the date of issue. In addition, 250,000 shares were issued for
$25,000 cash received in August 2009.
During
the quarter ended November 30, 2009, the Company occupied office space owned by
a principal shareholder, and recorded $10,215 of rent expense as contributed
capital for the space.
During
the quarter ended August 31, 2009, the Company issued:
1,100,000
shares of common stock to various consultants including attorneys for services
rendered. These shares were valued at their market prices of $0.15 and $0.16 per
share, or $167,000, at the date of issue.
During
the quarter ended August 31, 2009, the Company occupied office space owned by a
principal shareholder, and recorded $10,215 of rent expense as contributed
capital for the space.
$3,257 in
stock based compensation was recognized for services performed for which shares
were issued in the prior year.
During
the quarter ended May 31, 2009, the Company occupied office space owned by a
principal shareholder, and recorded $10,215 of rent expense as contributed
capital for the space.
$1,890 in
stock based compensation was recognized for services performed for which shares
were issued in the prior year.
During
the quarter ended February 28, 2009, the Company issued:
100,000
shares of common stock to the President and CEO for services. These shares were
valued at their market price of $0.21 per share, or $21,000, at the date of
issue.
85,000
shares of common stock for legal services. These shares were valued at their
market price of $0.17 per share, or $14,450, at the date of issue.
300,000
shares of common stock to exercise stock options. The Company did not receive
the required option payment of $15,000 from the consultant and thus included
these amounts as administrative expenses.
During
the quarter ended February 28, 2009, the Company occupied office space owned by
a principal shareholder, and recorded $10,215 of rent expense as contributed
capital for the space.
$12,156
in stock based compensation was recognized for services performed for which
shares were issued in the prior year.
Of the
2,400,000 stock options, 1,000,000 options vested immediately and were
exercised, 400,000 options vested on May 1, 2008, and the balance vest 200,000
per month commencing June 1, 2008. Subsequent to entering into this agreement,
the Company initiated litigation against these individuals as a result of their
failure to perform in accordance with the agreement and is attempting to block
the removal of the restriction on the 600,000 shares issued, and cancel the
unexercised options. The outcome of the litigation is undeterminable at this
time. The Company has reflected a $36,000 charge for the value of the restricted
shares, and $22,820 for the fair value of the stock options. In addition, the
$60,000 has been recorded for the amount due for the option exercise price the
consultants have not paid.
19
HIPSO
MULTIMEDIA, INC. AND SUBSIDIARY
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED MAY 31, 2010 AND 2009 (UNAUDITED)
NOTE
8-
|
STOCKHOLDERS’ DEFICIT
(CONTINUED)
|
Common Stock
(Continued)
On March
31, 2008, the Company issued 120,000 restricted shares of its common stock in
connection with internal accounting services commencing March 18, 2008 for one
year. Stock based compensation in the amount of $5,188 was recorded as
compensation expense for the year ended November 30, 2008, with the remaining
$2,012 to be expensed in the year ending November 30, 2009. The shares were
valued at $0.06 per share, the current market value on the date of
issuance.
On August
25, 2008, the Company issued 50,000 restricted shares of its common stock in
connection with an agreement for investor relations services commencing August
25, 2008 for one year. Stock based compensation in the amount of $1,993 was
recorded as compensation expense for the year ended November 30, 2008, with the
remaining $5,507 to be expensed in the year ending November 30, 2009. The shares
were valued at $0.15 per share, the current market value on the date of
issuance.
On August
25, 2008, the Company issued 250,000 free-trading shares of its common stock in
connection with the exercise of stock options.
On
November 4, 2008, the Company issued 250,000 free-trading shares of its common
stock in connection with the exercise of stock options.
Stock
Options
The
Company accounts for stock-based compensation using the fair value method. The
fair value method requires the cost of employee services received for awards of
equity instruments, such as stock options and restricted stock, to be recorded
at the fair value on the date of the grant. The value of restricted stock
awards, based upon market prices, is amortized over the requisite service
period. The estimated fair value of stock options and warrants on the grant date
is amortized on a straight line basis over the requisite service period. During
the six months ended May 31, 2010 and 2009, stock based compensation was $24,000
and $0, respectively.
In
February 2010, the Company entered into a few option agreements for the issuance
of options relating to various consulting agreements. The Company is obligated
to issue to consultants in one agreement 270,000 options that vest evenly over a
3-month period of time at a $0.06 exercise price. The Company who is receiving
the options has agreed to reduce their invoices by the cash required to exercise
the options. These options expire in February 2011.
In
another agreement entered into in February 2010, the Company is obligated to
issue 600,000 options evenly over a 6-month period of time at a $0.06 exercise
price. The Company expensed the fair value of these options ($24,000) as of May
31, 2010 to this consultant. These options also expire February
2011.
In
February 2010, the Company issued 500,000 options to an individual at $0.05. The
options were exercised. The Company received $25,000 for this
exercise.
On March
13, 2008, in connection with consulting contracts, 2,400,000 stock options were
issued and they have a five-year life, exercisable at $0.06, as follows:
1,000,000 options vested immediately, 400,000 options vested on May 1, 2008, and
the balance vest 200,000 per month commencing June 1, 2008 through October 1,
2008.
These
options were valued using the Black-Scholes Pricing Model with the following
assumptions: volatility - 25%; risk free interest rate – 2.53%; expected life –
5 years; and dividend yield – 0%.
Due to
the lack of sufficient historical trading information with respect to its own
shares, the Company estimates expected volatility based on a company believed to
have market and economic characteristics similar to its own.
Of the
2,400,000 options issued to the two consultants, 1,000,000 of the options that
vested immediately, were exercised upon issuance, however, the Company has not
received the required option payment of $60,000 from the two consultants. As
noted, the Company is in litigation to recover this amount. As a result, and due
to the uncertainty
of the recovery of the $60,000, the Company has expensed the entire amount. The
remaining 1,400,000 vested but unexercised options were valued at $22,820
($0.0163 per option) based upon the assumptions herein.
20
HIPSO
MULTIMEDIA, INC. AND SUBSIDIARY
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED MAY 31, 2010 AND 2009 (UNAUDITED)
NOTE
8-
|
STOCKHOLDERS’ DEFICIT
(CONTINUED)
|
Stock Options
(Continued)
On August
25, 2008 and October 30, 2008, the Company issued a total of 600,000 stock
options to two consultants. Of these options, 500,000 vested upon issuance and
the remaining options vest March 4, 2009. These options have a three-year life
and are exercisable at $0.05. These options were issued in the money as the
market value of the underlying shares was $0.18 and $0.14,
respectively.
The fair
value of these options were determined to be the intrinsic value at the date of
issuance, or $32,500 ($0.13 per share) and $22,500 ($0.09 per share) on August
25, 2008 and October 30, 2008, respectively. Additionally, the Company did not
receive the total required option payments of $25,000 (500,000 options at
$0.05).
The
Company has expensed the entire amount due to the uncertainty of the
collectability of this amount. Of the 600,000 options, 50,000 options remain
unexercised as of May 31, 2010.
On
December 16, 2008, the Company issued 250,000 options at $0.05 ($25,000), which
were expensed, and these options were exercised immediately.
The
following is a summary of the outstanding stock options for the six months ended
May 31, 2010 and 2009:
Options
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Exercise
Life
|
Aggregate
Intrinsic Value
|
|||||||||||||
Outstanding,
November 30, 2009
|
1,450,000 | $ | 0.06 | 4.10 | $ | 86,500 | ||||||||||
Granted
|
1,370,000 | 0.056 | 1.00 | 77,200 | ||||||||||||
Exercised
|
(680,000 | ) | 0.06 | 1.00 | (36,000 | ) | ||||||||||
Cancelled
|
- | - | - | |||||||||||||
Outstanding,
May 31, 2010
|
2,140,000 | $ | 0.06 | 3.015 | $ | 127,700 | ||||||||||
Exercisable,
May 31, 2010
|
1,940,000 | $ | 0.06 | 3.015 | $ | 115,700 |
Options
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Exercise
Life
|
Aggregate
Intrinsic Value
|
|||||||||||||
Outstanding,
November 30, 2008
|
1,500,000 | $ | 0.06 | 4.87 | $ | 121,000 | ||||||||||
Granted
|
250,000 | 0.05 | 3.00 | |||||||||||||
Exercised
|
(300,000 | ) | (0.05 | ) | 0.00 |
21
HIPSO
MULTIMEDIA, INC. AND SUBSIDIARY
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED MAY 31, 2010 AND 2009 (UNAUDITED)
NOTE
8-
|
STOCKHOLDERS’ DEFICIT
(CONTINUED)
|
Stock Options
(Continued)
Cancelled
|
- | - | - | |||||||||||||
Outstanding,
May 31, 2009
|
1,450,000 | $ | 0.06 | 4.10 | $ | 58,500 | ||||||||||
Exercisable,
May 31, 2009
|
1,400,000 | $ | 0.06 | 4.10 | $ | 56,000 |
Warrants
The
Company entered into private placement agreements with various individuals in
May 2010 for the issuance of 380,000 shares of common stock along with 380,000
warrants. The Company received the proceeds of $47,500 for these units. The
warrants expire 3 years from issuance, at an exercise price of $0.20 per share.
The warrants were valued using the black-scholes method and were recorded as
additional paid in capital – warrants of $21,993. The criteria established for
the valuation of these warrants were as follows: risk free interest rate –
1.25%; dividend yield – 0%; volatility – 185%. The warrants will be issued in
the third quarter along with the private placements closed subsequent to May 31,
2010.
NOTE
9-
|
PROVISION FOR INCOME
TAXES
|
Deferred
income taxes are determined using the liability method for the temporary
differences between the financial reporting basis and income tax basis of the
Company’s assets and liabilities. Deferred income taxes are measured
based on the tax rates expected to be in effect when the temporary differences
are included in the Company’s tax return. Deferred tax assets and
liabilities are recognized based on anticipated future tax consequences
attributable to differences between financial statement carrying amounts of
assets and liabilities and their respective tax bases.
At May 31, 2010, deferred tax assets
consist of the following:
Net
operating losses
|
$ | 891,244 | ||
Valuation
allowance
|
(891,244 | ) | ||
$ | - |
At May
31, 2010, the Company had a net operating loss carryforward in the approximate
amount of $2,621,307, available to offset future taxable income through
2030. The Company established valuation allowances equal to the full
amount of the deferred tax assets due to the uncertainty of the utilization of
the operating losses in future periods.
22
HIPSO
MULTIMEDIA, INC. AND SUBSIDIARY
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED MAY 31, 2010 AND 2009 (UNAUDITED)
NOTE
9-
|
PROVISION FOR INCOME
TAXES
|
A
reconciliation of the Company’s effective tax rate as a percentage of income
before taxes and federal statutory rate for the periods ended May 31, 2010 and
2009 is summarized as follows:
2010
|
2009
|
|||||||
Federal
statutory rate
|
(34.0 | )% | (34.0 | )% | ||||
State
income taxes, net of federal benefits
|
3.3 | 3.3 | ||||||
Valuation
allowance
|
30.7 | 30.7 | ||||||
0 | % | 0 | % |
NOTE
10-
|
FAIR VALUE
MEASUREMENTS
|
On
January 1, 2008, the Company adopted ASC 820. ASC 820 defines fair value,
provides a consistent framework for measuring fair value under generally
accepted accounting principles and expands fair value financial statement
disclosure requirements. ASC 820’s valuation techniques are based on observable
and unobservable inputs. Observable inputs reflect readily obtainable data from
independent sources, while unobservable inputs reflect our market assumptions.
ASC 820 classifies these inputs into the following hierarchy:
Level 1
inputs: Quoted prices for identical instruments in active markets.
Level 2
inputs: Quoted prices for similar instruments in active markets; quoted prices
for identical or similar instruments in markets that are not active; and
model-derived valuations whose inputs are observable or whose significant value
drivers are observable.
Level 3
inputs: Instruments with primarily unobservable value drivers.
NOTE
11-
|
CONCENTRATION OF
CREDIT RISK
|
On May
31, 2010, $17,718, or 35% of the Company’s accounts receivable were with two
customers. This amount was with customers related to a significant shareholder
of the Company. One of these two customers represented approximately 50% of the
revenue for the six months ended May 31, 2010. This customer is considered a
major customer of the Company.
On May
31, 2009, $19,491, or 43% of the Company’s accounts receivable were with three
customers. Of this amount, $5,451, or 12%, was with a customer related to a
significant shareholder of the Company. In addition, 12% of the revenue for the
six months ended May 31, 2009 was generated by one customer. This customer is
considered a major customer of the Company. A major customer is a customer that
represents more than 10% of the total.
NOTE
12-
|
SUBSEQUENT
EVENTS
|
The
Company subsequent to May 31, 2010, closed on additional private placements for
the issuance of 894,256 units consisting of 894,256 shares of common stock and
894,256 warrants. The Company raised $111,782 (at $0.125 per unit) in these
agreements.
On June
15, 2010, the Company entered into an Engagement Agreement with DME Securities
LLC (“DME”) to raise $10,000,000 in debt or equity financing on a best efforts
basis. The Engagement Agreement terminates on May 31, 2011 and the Company is
responsible to pay a 10% success fee upon the successful completion of the
Placement of funds. DME is also to receive Placement Agent Warrants upon the
Placement.
23
Forward-Looking
Statements
The
following discussion contains forward-looking statements. Forward-looking
statements give our current expectations or forecasts of future events. You can
identify these statements by the fact that they do not relate strictly to
historical or current facts. They use of words such as "anticipate," "estimate,"
"expect," "project," "intend," "plan," "believe," and other words and terms of
similar meaning in connection with any discussion of future operating or
financial performance. From time to time, we also may provide forward-looking
statements in other materials we release to the public.
The
following discussion should be read in conjunction with our financial statements
and the related notes appearing elsewhere in this report. The following
discussion contains forward-looking statements reflecting our plans, estimates
and beliefs. Our actual results could differ materially from those
discussed in the forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to those discussed
below and elsewhere in this report. For risk factors related to our business and
our common stock please read section entitled "Risk Factors" of our Form 10-K
for the year ended November 30, 2009 as filed with the SEC.
To
the extent that statements in the report are not strictly historical, including
statements as to revenue projections, business strategy, outlook, objectives,
future milestones, plans, intentions, goals, future financial conditions, future
collaboration agreements, the success of the Company's development, events
conditioned on stockholder or other approval, or otherwise as to future events,
such statements are forward-looking. The forward-looking statements contained in
this annual report are subject to certain risks and uncertainties that could
cause actual results to differ materially from the statements made. Other
important factors that could cause actual results to differ materially include
the following: business conditions and the amount of growth in the Company's
industry and general economy; competitive factors; ability to attract and retain
personnel; the price of the Company's stock; and the risk factors set forth from
time to time in the Company's SEC reports, including but not limited to its
annual report on Form 10-K; its quarterly reports on Forms 10-Q; and any reports
on Form 8-K.
Overview
In June
2008, we acquired our wholly-owned subsidiary, Valtech Communications Inc.
("Valtech") in a reverse merger transaction, issuing 40 million restricted
shares to the Valtech shareholders.
Valtech
offers low-cost, highly reliable triple-play service of Digital Phone, Digital
Voice, High-Speed Internet and Digital TV backed by fast, friendly and live
customer service (“Telecommunication Services”). Our present plan is to expand
our bundled services by providing an end-to-end IPTV solution consisting of IPTV
middleware, video on demand, network based PVR, IPTV head ends, content
protection, IPTV infrastructure, system integration and IPTV applications such
as games. In order to expand our services to include end-to-end IPTV service,
the Company is dependent upon its ability to raise sufficient capital to fund
its agreement with Ericsson. To date, the Company has been unable to meet
its obligations under the Ericsson agreement and at present no agreement with
Ericsson has been negotiated and no negotiations with Ericsson are
on-going.
We intend
to use our limited resources to market our services to new residential and
commercial building complexes and existing hotel chains. Further, we intend to
market our bundled Telecommunication Services in industry publications and
intend to develop our website and promote its presence in order to increase web
traffic and possible sales to new clients (www.valtech.ca).
As of May
31, 2010, the Company had 485 customers. During the six-month period ended May
31, 2010, approximately 50% of our revenues were generated by one customer and
this customer is considered a major customer of the Company.
Provided
the Company can secure additional funding, our plan to increase our marketing
activities throughout Canada, pay industry compatible salaries to our executives
and staff, hire additional salespersons, who among other activities, would
engage in direct solicitations. At present, we have not received commitments for
capital from third parties and there can be no assurance that we will be able to
acquire additional capital on terms acceptable to the Company, if at
all.
We
believe that the our negative cash flow from operations will decrease steadily
as our subscriber base increases. While we have a commitment from a principal
shareholder to provide funding until we achieve positive cash flow from
operations, if our affiliated control shareholders cease provided short-term
interim funding through loans to expand our business, the Company may experience
reduced growth in its revenues.
Regardless
of the amount of funds available to us for marketing, we intend to continue to
pursue strategic alliances with complementary businesses in an effort to enter
and expand our Telecommunication Services. The complementary businesses we
intend to solicit are those that have developed and maintain marketing channels
to our potential customers.
At
present, we use proceeds from shareholder loans to purchase telecommunication
hardware, cables and equipment. It is our intention to secure alternative debt
and/or equity funding sources in order to reduce depends from our current
funding sources.
24
Our
management believes that the trend in our business is toward greater convergence
to high speed Internet and high definition television. We believe that our
bundled Telecommunication Services are competitive in terms of reliability and
pricing as compared to the services offered by incumbent operators. Since we
have no patent protection, it is possible that a well-funded company could enter
the field and diminish our prospective business growth. We face uncertainties
regarding our future growth because we must compete on price and quality of
service with traditional communications companies with far longer operating
histories, more established customer relationships, greater financial, technical
and marketing resources, larger customer bases and greater brand or name
recognition. Furthermore, companies that may seek to enter our markets may
expose us to severe price competition and future technological developments
could make us less competitive.
Cash and Cash Equivalents.
The Company considers all highly liquid fixed income investments with maturities
of six months or less, to be cash equivalents. On May 31, 2010, the Company had
$15,638 in cash.
Accounts Receivable.
Management periodically reviews the current status of existing receivables and
management's evaluation of periodic aging of accounts. The Company charges off
accounts receivable to expense when deemed uncollectible. The Company had no bad
debt expenses at the end of May 31, 2010. The Company accounts receivable on May
31, 2010 was $30,739 compared to $33,391 on November 30, 2009.
Deferred Costs. The Company's
deferred development costs were $438,818 at May 31, 2010 and $434,831 at
November 30, 2009. The Company recorded $276,565 amortization expense as of May
31, 2010 and $231,846 as of November 30, 2009. The Company's deferred
development costs are amortized over five (5) years. The level of development
costs is directly related to the level of business development which we cannot
predict with certainty, although Valtech is actively marketing its
telecommunications services.
Revenue Recognition. The
Company's wholly owned subsidiary, Valtech Communications, Inc. owns and
operates a triple play (telephone, internet and TV channels distribution)
network in Canada via fiber to individual customers, hotels and retirement
homes. The Company bills its subscribers on a monthly basis and recognizes the
monthly revenue based upon the specific plan selected by the subscriber. The
Company also provides contract services to wire commercial buildings with fiber
optic cable in order to provide for similar services.
Property and Equipment.
Property and equipment are stated at cost and are depreciated using the straight
line method over their estimated useful lives 5 - 7 years for equipment. The
Company does not own real estate. As of May 31, 2010, the Company had $9,311 of
equipment and $12,309 as of November 30, 2009. This decrease represents the
depreciation of existing equipment.
Results
of Operations For the Six Months Ended May 31, 2010 and May 31,
2009
Revenues: Revenue for the
six-month period ended May 31, 2010 was $101,017 compared to $83,010 for six
months ended May 31, 2009. The Company's revenues increased by $18,007 which
represents a 21.7% increase from the same period in the prior year. The
Company's increase in revenue is principally due to the installation of its
triple-play services to additional customers. The Company started new
installations of its Telecommunication Services during the period ended May 31,
2010.
Cost of Sales: Cost of Sales
for the six months ended May 31, 2010 was $153,563 compared to $102,241 for the
six months ended May 31, 2009. The Company's cost of sales increase was $51,322
which represents a 50.2% increase from the same period in the prior year and was
due to higher costs associated with increased revenues and marketing and sales
expense.
Depreciation and
Amortization: For the six-month period ended May 31, 2010 we recorded
$46,088 in depreciation and amortization expenses compared to $42,217 during the
six months ended May 31, 2009.
General and Administrative
Expenses: General and Administrative Expenses for the six-month period
ended May 31, 2010 was $336,293 compared to $302,893 for the six months ended
May 31, 2009. The Company's general and administrative expenses increase was
$33,400, which represents a 11% increase from the same period in the prior year
and was mainly due to lower costs related to non-cash compensation
expenses.
Interest Income: Interest
Income for the six months ended May 31, 2010 was zero compared to $2,394
interest income during the six months ended May 31, 2009. The interest income
was due to loans received from shareholders during the six-month period ended
May 31, 2009.
Interest Expense: The
Company's interest expense for the six month period was $48,004 compared to
$18,953 interest expense during the same period in the prior year. This increase
was the direct result of an increase in loans payable to shareholders from
$1,139,375 at May 31, 2009 to $1,503,155 at May 31, 2010.
Liquidity
and Capital Resources
As of May
31, 2010, we had total cash resources of $15,638 compared to -0- at May 31,
2009. During the six months ended May 31, 2010 and May 31, 2009, net cash used
in operating activities was $248,258 and $127,825, respectively. This cash was
used to fund our operations for the respective periods, adjusted for non-cash
expenses and changes in operating assets and liabilities.
During
the six-month periods ended May 31, 2010 and 2009, we had no investing
activities.
25
Net cash
provided by financing activities was $260,749 for the six months ended May 31,
2010 compared to $185,097 in net cash provided by financing activities for the
six months ended May 31, 2009. During the six months ended May 31, 2010, the
Company used $159,084 to repay bank loans and received loans from shareholders
in the amount of $371,194. The net cash proceeds from financing activities for
the period ended May 31, 2009 resulted from $41,783 in bank loan payments and
proceeds of $226,880 from affiliated shareholders.
Our
continued operations will depend on whether we are able to raise additional
funds through third parties, such as equity and debt financing, as well as
additional loans from our affiliated shareholders. However, there can be no
assurance that such additional funds will be available on acceptable terms and
there can be no assurance that any additional funding that we do obtain will be
sufficient to meet our needs in the long term. We will continue to fund
operations from cash on hand and through the similar sources of capital
previously described. We can give no assurances that any additional capital that
we are able to obtain will be sufficient to fully fund our growth
plan.
Current
and Future Financing Needs
We have
incurred an accumulated deficit of $2,621,307 through May 31, 2010. We have
incurred negative cash flow from operations since we started our
Telecommunication Services business. We have spent, and expect to continue to
spend, substantial amounts in connection with implementing our business
strategy, including equipment related to our Telecommunications Services. Based
on our current plans, we believe that our cash will not be sufficient to enable
us to meet our planned operating needs, including our plan for expansion, at
least for the next 18 months. Our cash requirements for fiscal year 2010 are
estimated to be $600,000 based on our present revenues. We have short-term
funding commitments of $500,000 from one of our controlling shareholders until
such time the Company generates positive cash flow from operations or is able to
secure alternative long-term funding through the issuance of debt and/or equity.
We expect to be able to meet our current debt obligations provided that our
current customer base does not decrease. At present, the Company is unable to
meet its obligations under the Ericsson agreement unless it raises additional
funding, and no negotiations are on-going with Ericsson at present .
However,
the actual amount of funds we will need to operate is subject to many factors,
some of which are beyond our control. These factors include the
following:
-
the progress of our revenue growth under the current uncertain business
environment;
-
the number and additional subscriber to out bundled Telecommunications
Services;
-
our ability to retain our current subscriber base and
licensing arrangements;
-
our ability to achieve secure equipment financing;
-
the costs involved in marketing our Telecommunication Services; and
-
the costs involved being a public company.
We have
based our estimate on assumptions that may prove to be wrong. We may need to
obtain additional funds sooner or in greater amounts than we currently
anticipate. Potential sources of financing include strategic relationships,
public or private sales of our shares or debt and other sources. We may seek to
access the public or private equity markets when conditions are favorable due to
our long-term capital requirements. We do not have any committed sources of
financing at this time, and it is uncertain whether additional funding will be
available when we need it on terms that will be acceptable to us, or at all. If
we raise funds by selling additional shares of common stock or other securities
convertible into common stock, the ownership interest of our existing
stockholders will be diluted. If we are not able to obtain financing when
needed, we may be unable to carry out our business plan. As a result, we may
have to significantly limit our operations and our business, financial condition
and results of operations would be materially harmed.
We have
not entered into, and do not expect to enter into, financial instruments for
trading or hedging purposes.
Evaluation of disclosure controls
and procedures. As of May 31, 2010, the Company's chief executive officer
and chief financial officer conducted an evaluation regarding the effectiveness
of the Company's disclosure controls and procedures (as defined in Rules
13a-15(e) or 15d-15(e) under the Exchange Act. Based upon the evaluation
of these controls and procedures, our chief executive officer and chief
financial officer concluded that our disclosure controls and procedures were
effective as of the end of the period covered by this report.
Changes in internal controls.
During the quarterly period covered by this report, no changes occurred in our
internal control over financial reporting that materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
PART
II - OTHER INFORMATION
26
Management
is of the opinion that these individuals did not perform their services
according to the contract and is attempting to block the removal of the
restriction on the 600,000 common shares issued, and cancel the unexercised
stock options. The outcome of the litigation is undeterminable at the present
time. The 600,000 common shares are reflected as outstanding in the accompanying
consolidated financial statements and stock based compensation of $36,000 was
recorded. Additionally, the fair value of the options have been recorded
aggregating $22,820 and a provision for $60,000 has been recorded for the amount
due for the option exercise price since the consultants have not paid the option
price to date.
In
addition to the other information set forth in this report, you should carefully
consider the factors discussed in Part I, “Item 1. Description of Business,
subheading Risk Factors” in our Annual Report on Form 10-K for the year
ended November 30, 2009, which could materially affect our business, financial
condition or future results. The risks described in our Annual Report on
Form 10-K are not the only risks facing our company. Additional risks and
uncertainties not currently known to us or that we currently deem to be
immaterial also may materially adversely affect our business, financial
condition and/or operating results.
The
Company will issue shares under a private placement memorandum dated April 5,
2010 to various individuals totaling 380,000 shares of common stock at a price
of $0.125 per share ($47,500) for funds received during the quarter. These are
reflected in the liability for stock to be issued. The individuals also will be
issued 380,000 warrants that expire in 3 years at an exercise price of $0.20 per
share. In addition, the Company issued common stock for the quarter ended May
31, 2010 at $0.14 per share for a total value of $14,000 to consultants for
services rendered per their agreements; and 90,000 in the exercise of stock
options for $12,600. The Company reduced an invoice for the payment of $12,600
associated with 90,000 of these options. The Company also received $24,000 for
the issuance of 500,000 shares of common stock. The use of proceeds from these
transactions was for working capital.
None.
None.
None.
(a) The
following documents are filed as exhibits to this report on Form 10-Q or
incorporated by reference herein.
Exhibit
No.
|
Description
|
31.1
|
Certification
of CEO pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
31.2
|
Certification
of CFO pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
32.1
|
Certification
of CEO pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
|
32.2
|
Certification
of CFO pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of
2002.
|
27
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the date indicated.
/s/ Rene Arbic
|
Chief
Executive Officer
|
Dated:
July 20, 2010
|
Ile
des Soeurs, Quebec, Canada
|
/s/ Alex Kestenbaum
|
Chief
Financial Officer
|
Dated:
July 20, 2010
|
Ile
des Soeurs, Quebec, Canada
|
28