10-K 1 anv_10k2012mar23final.htm FORM 10-K UNITED STATES

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC20549


FORM 10-K


(Mark One)

[T ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

         EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2012

or

[    ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

        EXCHANGE ACT OF 1934

Commission File No.: 000-53802


ANV Security Group, Inc.
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(Exact Name of Registrant as Specified in Its Charter)


Nevada

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(State or Other Jurisdiction of Incorporation

            or Organization)

13-3089537
(I.R.S. Employer Identification No.)


8th Floor, Block B, R&D Building, Tsinghua Hi-Tech Park,

North Area of Shenzhen Hi-Tech & Industrial Park,

Nanshan District, Shenzhen, China 518057

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(Address of Principal Executive Offices)


011-86-755-86656436

(Registrant’s telephone number, including area code)

                                 

 

 

 (Former name, former address and former fiscal year, if changed since last report)


Securities registered pursuant to Section 12(b) of the Act:  None


Securities registered pursuant to Section 12(g) of the Act:  Common Stock, par value $0.001


Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   Yes ¨   No x


Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.   Yes ¨   No x


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 ¨



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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (s 229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

Yes ¨   No x


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company filer.  See the 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  ¨  Smaller reporting company  x


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

  Yes ¨  No x


The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of December 31, 2012: $5,695,066.


The number of shares of the registrants common stock outstanding as of December 31, 2012:  56,950,660.



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INDEX TO FORM 10-K ANNUAL REPORT



Page

PART I

Item 1.

Business

5

Item 1A.

Risk Factors

11

Item 1B.

Unresolved Staff Comments

23

Item 2.

Properties

23

Item 3.

Legal Proceedings

24

Item 4.

Submission of Matters to a Vote of Security Holders

24

PART II

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters

And Issuer Purchases of Equity Securities

24

Item 6.

Selected Financial Data

25

Item 7.

Management’s Discussion and Analysis of Financial Condition and

Results of Operations

25

Item 7A.

Quantitative and Qualitative Disclosures about Market Risk

28

Item 8.

Financial Statements and Supplementary Data

28

Item 9.

Changes in and Disagreements with Accountants on Accounting and

Financial Disclosure

28

Item 9A(T)

Controls and Procedures

28

Item 9B

Other Information

29

PART III

Item 10.

Directors, Executive Officers and Corporate Governance

30

Item 11.

Executive Compensation

31

Item 12.

Security Ownership of Certain Beneficial Owners and Management

and Related Stockholder Matters

33

Item 13.

Certain Relationships and Related Transactions, and Director Independence

34

Item 14.

Principal Accountant Fees and Services

35

PART IV

Item 15.

Exhibits and Financial Statement Schedules

36

Signatures

37

Financial Statements

F-1






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FORWARD-LOOKING STATEMENTS

CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS


There are statements in this report that are not historical facts. These forward-looking statements can be identified by use of terminologies such as believe, hope, may, anticipate, should, intend, plan, will, expect, estimate, project, positioned, strategy and similar expressions. You should be aware that these forward-looking statements are subject to risks and uncertainties that are beyond our control. For a discussion of these risks, you should read this entire Report carefully, especially the risks discussed under Risk Factors. Although management believes that the assumptions underlying the forward looking statements included in this Report are reasonable, they do not guarantee our future performance, and actual results could differ from those contemplated by these forward looking statements. The assumptions used for purposes of the forward-looking statements specified in the following information represent estimates of future events and are subject to uncertainty as to possible changes in economic, legislative, industry, and other circumstances. As a result, the identification and interpretation of data and other information and their use in developing and selecting assumptions from and among reasonable alternatives require the exercise of judgment. To the extent that the assumed events do not occur, the outcome may vary substantially from anticipated or projected results, and, accordingly, no opinion is expressed on the achievability of those forward-looking statements. In the light of these risks and uncertainties, there can be no assurance that the results and events contemplated by the forward-looking statements contained in this Report will in fact transpire. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. We do not undertake any obligation to update or revise any forward-looking statements.


PART I


References to “us”, “we” and “our” in this report refer to ANV Security Group, Inc together with our subsidiaries.


ITEM 1. BUSINESS


OVERVIEW

ANV Security Group, Inc. and its subsidiaries (the “Company” or “ANVS”) is specialized in providing alarm service through an internet based video service platform. This platform performs instant notification to the owner via SMS, e-mail, telephone or cellular phone when an alarm is triggered worldwide in any time zone and captures the event images in user accessible video surveillance servers.


Business Update


Disposition of ANV Trading (HK) Limited (formerly Flybit International Ltd.)

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. The Company intended to utilize the assets of these companies to expand its manufacturing base and increase its retail operations in China.



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From June 2010 to December 2011, the sales of the mobile video security system didn’t reach the targeted levels and the Company has incurred approximately RMB10 million (USD$1.59 million) losses on this product line. Due to the down turn of the market for mobile video security systems, increased competition and lower margins, trends which management anticipates will continue, the Company initiated a strategic is to move back to providing automatic video alarm platform security service by internet. The board of directors decided to stop this product line and sold the inventory and intangible assets to an unrelated party for total cash consideration of RMB 10 Million (USD $1.59 million).  The Company has received first payment of RMB 3.34 million (US$530K) in December 2011, the remaining RMB 6.66 million (US$1.06 million) will be received by two equal payments at Dec 31, 2012 and Dec 31, 2013.  At the same time, the Company decided to dissolve the ANV Trading (HK) Limited.  


Disposition of ANV Security Technology (China) Co., Ltd. (“ANV Tech”)

On December 24, 2009, ANV Security Group, Inc. (the “Company”) entered into an agreement (the “Initial Angesi Agreement”) to acquire all of the issued and outstanding stock of Shenzhen Angesi Technology, Co. (“Angesi”) which later changed its name to ANV Security Technology (China) Co. Ltd.  and certain affiliated entities for 32 million shares from its owners.  Due to the requirements for certain government approvals and the extent of the parties mutual due diligence the closing could not be held until September 30, 2010.  At the closing, under a revised agreement (the “Revised Angesi Agreement”), the Company acquired Angesi’s manufacturing facility and operation, but not its affiliated marketing companies, for 15 million shares of common stock.  The revised agreement provided, among other things, that the former shareholders of Angesi may be required to return a portion of those shares in the event certain earnings and performance targets are not met.  


As of May 31, 2012, ANV Security Group, Inc. (the “Company”) entered into an Equity and Intellectual Property Rights Transfer Agreement (the “EIPRTA”) to dispose of all of the shares and related intellectual property of its subsidiary ANV Security Technology (China) Co., Ltd. (“ANV Tech”), by transferring the same to a company owned by its former owner and former director, Tingyi Li, for five million RMB (approximately $800,000) payable in three installments; (i) 20% on Closing, and 40% on each of December 31, 2012 and 2013 and (B) the return to the Company of 7,350,000 shares from Tingyi Li and 2,200,000 shares from former owner Zhengwu Pu of the Company’s common stock. The price payable to the Company is subject to adjustment for certain events set forth in the Transfer Agreement and the transaction is subject to various government approvals in China.


The Company elected to dispose of ANV Tech which owns several manufacturing facilities acquired in 2010, because of declining margins in the technology manufacturing business in China and the large amount of capital that had to be dedicated to manufacturing operations.  Management believes that the disposal of ANV Tech will free resources to allow the Company to develop its core business of residential, commercial and government security and monitoring systems, primarily in China.  Management also believes that the Company will be able to secure the products it needs for its core business from other manufacturers at reasonable prices.


Disposition of ANV Tech’s four subsidiaries

In the second quarter ended June 30, 2011, the Company acquired four companies from different unaffiliated persons in arm’s length transactions.  The principals of the acquired companies received 2 million shares of our common stock. The acquired companies are (i) Jinan Hualutong Technology Co., Ltd., an electronic security product marketer located in Jinan, Shandong, China; (ii) Shijiazhuang Huilin Technology Co., Ltd., an electronic security product marketer located in Shijiazhuang, Hebei, China; (iii)TaianComins Electronic Technology Co., Ltd., an electronic security product marketer and installer located in Taian, Shandong, China; and (iv) Shenyang HuashengShiji Trading Co., Ltd., an electronic security product marketer located in Shenyang, Liaoning, China.



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As of May 31, 2012, the Company elected to sell 100% equity interest in ANV Tech’s four subsidiaries back to same former owners of these subsidiaries (unaffiliated persons in arm’s length transactions) by return to the Company of 8,000,000 common shares from former owners of four subsidiaries.   


The Company elected to dispose of ANV Tech’s four subsidiaries which acquired in 2010, because of declining margins in the technology manufacturing business in China and the large amount of capital that had to be dedicated to manufacturing operations.  Management believes that the disposal of ANV tech’s four subsidiaries will free resources to allow the Company to develop its core business of residential, commercial and government security and monitoring systems, primarily in China.  Management also believes that the Company will be able to secure the products it needs for its core business from other manufacturers at reasonable prices.



Organizational Charts: Before and After Dispositions


ANV Security Group, Inc.

Organizational Charts

Before dispositions

[anv_10k2012mar23final001.jpg]



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ANV Security Group, Inc.

Organizational Charts

After dispositions

[anv_10k2012mar23final002.jpg]


New Business Structure after Dispositions

After these dispositions, the Company will focused on customer support and backend service for its multi-platform security monitoring and alerts in real-time through the internet, or 3G and 4G networks. Customers are able to use computers, smart phones or any other internet enabled devices to visually monitor their locations where ANV devices have been installed.


Due to the legal restrictions of the internet business in PRC, the Company set up a VIE structure to carry out the business in China.  Under this structure the Company does not actually own the shares of Shenzhen Global Intelligent Eye Technology Co., Ltd., but is entitled to name its board of directors and to all operating profits.  In addition, the Company has the option, at any time, to acquire all of the shares of Shenzhen Global Intelligent Eye Technology Co., Ltd. at no cost. Accordingly, while technically not owned by the Company, the Company to comply with Chinese law, has all of the benefits of ownership of Shenzhen Global Intelligent Eye Technology Co., Ltd. and may obtain actual ownership at such time as management may desire for the capital cost of the current owners. After the disposal of all the assets and liabilities in ANV ASIA, ANV ASIA has no assets other than cash, but it does have a business operation, namely the management of Shen Zhen Global Intelligent Eye (“ANV GIE”), which is incorporated in December 2011, under the laws of the People’s Republic of China. ANV GIE has two equity owners: 75% of the equity interest is owned by Mr. Wang Weixing, CEO and director of the Company, 25% of the equity interest owned by Mr. Feng Chun, General Manager of the ANV GIE.  ANV ASIA carries out that management pursuant to the terms of VIE agreement that it made with ANV GIE and with the equity owners in ANV GIE. Collectively, the agreements provide ANV ASIA exclusive control over the business of ANV GIE. The relationship is one that is generally identified as “entrusted management.” As a result of that relationship, the financial statements of ANV GIE are consolidated with the Company’s financial statements in this report.



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At times throughout this Report we will use the term the “Company” to refer to the three entities mentioned above as a single entity, which is a consolidated entity for financial reporting purposes.  References to the “business of the Company” and the like, however, all refer to the business carried out by ANV GIE, which is the only one of the three consolidated entities that carries on business operations.

  

ANV GIE was founded in 2011 under the laws of the People’s Republic of China with registered capital of 1 million RMB (US$158,707). ANV’s executive offices and operations are located in Shenzhen, Guangdong Province, in Southern China.


VIE Agreements


On November 30, 2011, ANV ASIA and ANV GIE entered into the VIE Agreements, pursuant to which ANV GIE became ANV ASIA’s VIE. The use of VIE agreements is a common structure used to acquire PRC companies, particularly in certain industries in which foreign investment is restricted or forbidden by the PRC government. The VIE Agreements include:


·

an Entrusted Management Agreement through which ANV ASIA has the right to advise, consult, manage and operate ANV GIE and collect and own all of the net profits of ANV GIE. ANV ASIA has the right to recommend director candidates and appoint the senior executives of ANV GIE, approve any transactions that may materially affect the assets, liabilities, rights or operations of ANV GIE, and guarantee the contractual performance by ANV GIE of any agreements with third parties, in exchange for a pledge by ANV GIE of its accounts receivable and assets;


·

a Shareholders Proxy Votes Agreement under which the owners of ANV GIE have vested their collective voting control over ANV GIE to ANV ASIA and will only transfer their respective equity interests in ANV GIE to ANV ASIA or its designee(s);


·

an Option Agreement under which the owners of ANV GIE have granted to ANV ASIA the irrevocable right and option to acquire all of their equity interests in ANV GIE; and


·

an Equity Pledge Agreement under which the owners of ANV GIE have pledged all of their rights, title and interests in ANV GIE to ANV ASIA to guarantee ANV GIE’s performance of its obligations under the Entrusted Management Agreement.


Through the VIE Agreements, we exercise effective control over the operations of ANV GIE and receive the economic benefits of ANV GIE. As a result, under U.S. GAAP, we are considered the primary beneficiary of ANV GIE and thus consolidate its results in our consolidated financial statements.


Impact of the dispositions on the Company and the current status of operations, what is required to develop current operations and known trends and uncertainties.


Since the Company acquired ANV trading, ANV Tech and ANV Tech’s four subsidiaries in 2010, the Company incurred $1.17 million losses for the nine months ended December 31, 2010, $4.73 million losses for the year ended December 31, 2011 and $6.32 million losses for the 6 months ended June 30, 2012. Management believes that the disposal of ANV trading, ANV tech and its four subsidiaries will free resources to allow the Company to develop its core business of residential, commercial and government security and monitoring systems, primarily in China.  Management also believes that the Company will be able to secure the products it needs for its core business from other manufacturers at reasonable prices.


The impact of the dispositions on the company is positive because the Company no needs to put large capital in manufacturing operations. Furthermore, if the Company had not disposed of ANV Tech and its four subsidiaries, the Company would have been required to discontinue manufacturing operations due to its lack of operating capital. Accordingly, the Company ceased its manufacturing operations and changed to a service providing company.



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The Company has incurred total $14 million losses since inception. Further, as of December 31, 2012 the cash resources of the Company were insufficient to meet its current business plan. These and other factors raise substantial doubt about the Company’s ability to continue as a going concern.


The Company expects to develop its video alarm service business and thereby increase its revenue. However, the Company would require sufficient capital to be invested into the Company to do research and marketing activities. As of December 31, 2012, the Company does not have  sufficient revenue to cover the monthly expenses of the Company. Until the Company is able to generate sufficient revenue to cover the monthly expenses of the Company, the Company would be required to raise capital through the sale of its stock or through debt financing. Management may raise additional capital through future public or private offerings of the Company’s stock or through loans from private investors, although there can be no assurance that it will be able to obtain such financing. The Company’s failure to do so could have a material and adverse effect upon it and its shareholders.


To this date the Company has relied on the sale of stock, mainly to its officers and directors, to finance its operations and growth. The Company expects to continue to fund the Company through debt and securities sales and issuances until the Company generates enough revenues through the operations. These transactions will initially be through related parties, such as the Company’s officers and directors.


New business development


The consideration received from the disposition will be used to develop and improve the service platform. There will be uncertainties resulting from the dispositions, but the Company does not need to put significant capital resources into its manufacturing operation, as a result, we anticipate that these dispositions will have positive impact on the Company’s results of operations and liquidity and capital resources.


In September 2012, the Company entered into a new strategic long term contract with Qingdao Fu Yuan Yun Tong Investment Management Co., Ltd, one of China's leading investment management companies. As per the partnership, ANV GIE will install remotely controlled and centralized video systems in their hundreds of franchise stores across the country.


Qingdao Fu Yuan Yun Tong Investment Management Co., Ltd., established in August 2005, is a private enterprise engaged in financial intermediation services for financial technology patents. After years of operation & development, Fu Yuan Yun Tong Investment Management Company has opened branches in 22 provinces, cities and autonomous regions in China and more than 400 franchises. Fu Yuan is planning to become a listed company within five years.


As of December 2012, the Company does not have relationships with the entities we have disposed of. We don’t have agreements for the purchase of products from these entities. We may purchase the product from those entities in the future if these entities can offer more cost-effective products compare to other suppliers.


ANV GIE's key customers will fall within five primary markets including large scale enterprises, small and medium businesses, residential, automotive and personal security & monitoring. ANV GIE allows franchises or business owners to monitor employee and shop activity at a single or multiple locations including fire alarms, gas leaks, break-ins or natural events. Through innovative technology the benefit of the multi-platform monitoring service offered by ANV GIE equates to cost savings and peace of mind for customers. No other service offers the robust versatility and innovative technology developed by ANVS.



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Item 1A. Risk Factors


You should carefully consider the risks described below before investing in our publicly traded securities. The risks described below are not the only ones we face. Our business is also subject to the risks that affect many other companies, such as competition, technological obsolescence, labor relations, general economic conditions, geopolitical events, climate change and international operations. Additional risks not currently known to us or that we currently believe are immaterial also may impair our business operations and our liquidity.


RISKS RELATED TO THE VIE AGREEMENTS


The PRC government may determine that the VIE Agreements are not in compliance with applicable PRC laws, rules and regulations.


ANV GIE manages and operates our video alarm business through ANV GIE pursuant to the rights it holds under the VIE Agreements. Almost all economic benefits and risks arising from ANV GIE’s operations are transferred to ANV ASIA under these agreements.


There are risks involved with the operation of our business in reliance on the VIE Agreements, including the risk that the VIE Agreements may be determined by PRC regulators or courts to be unenforceable. Our PRC counsel has provided a legal opinion that the VIE Agreements are binding and enforceable under PRC law, but has further advised that if the VIE Agreements were for any reason determined to be in breach of any existing or future PRC laws or regulations, the relevant regulatory authorities would have broad discretion in dealing with such breach, including:


-Imposing economic penalties;

·

-Discontinuing or restricting the operations of ANV GIE;

·

-Imposing conditions or requirements in respect of the VIE Agreements with which ANV GIE or ANV ASIA may not be able to comply;

·

-Requiring our company to restructure the relevant ownership structure or operations;

·

-Taking other regulatory or enforcement actions that could adversely affect our companys business; and

·

-Revoking the business licenses and/or the licenses or certificates of ANV GIE, and/or voiding the VIE Agreements.


Any of these actions could adversely affect our ability to manage, operate and gain the financial benefits of ANV GIE, which would have a material adverse impact on our business, financial condition and results of operations.



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Our ability to manage and operate ANV GIE under the VIE Agreements may not be as effective as direct ownership.


We conduct our Video Alarm business in the PRC and generate virtually all of our revenues through the VIE Agreements. Our plans for future growth are based substantially on growing the operations of ANV GIE. However, the VIE Agreements may not be as effective in providing us with control over ANV GIE as direct ownership. Under the current VIE arrangements, as a legal matter, if ANV GIE fails to perform its obligations under these contractual arrangements, we may have to (i) incur substantial costs and resources to enforce such arrangements, and (ii) reply on legal remedies under PRC law, which we cannot be sure would be effective. Therefore, if we are unable to effectively control ANV GIE, it may have an adverse effect on our ability to achieve our business objectives and grow our revenues.


As the VIE Agreements are governed by PRC law, we would be required to rely on PRC law to enforce our rights and remedies under them, and PRC law may not provide us with the same rights and remedies as are available in contractual disputes governed by the law of other jurisdictions.


The VIE Agreements are governed by the PRC law and provide for the resolution of disputes through arbitral proceedings pursuant to PRC law. If ANV GIE or its shareholders fail to perform the obligations under the VIE Agreements, we would be required to resort to legal remedies available under PRC law, including seeking specific performance or injunctive relief, or claiming damages. We cannot be sure that such remedies would provide us with effective means of causing ANV GIE to meet its obligations, or recovering any losses or damages as a result of non-performance. Further, the legal environment in China is not as developed as in other jurisdictions. Uncertainties in the application of various laws, rules, regulations or policies in the PRC legal system could limit our liability to enforce the VIE Agreements and protect our interests.


The payment arrangement under the VIE Agreements may be challenged by the PRC tax authorities.


We generate our revenues through the payments we receive pursuant to the VIE Agreements. We could face adverse tax consequences if the PRC tax authorities determine that the VIE Agreements were not entered into based on arm’s length negotiations. For example, PRC tax authorities may adjust our income and expenses for PRC tax purposes, which could result in our being subject to higher tax liability or cause other adverse financial consequences.


The controlling shareholder of ANV GIE may have potential conflicts of interest with our company that may adversely affect our business.


Mr. Weixing Wang, our Chief Executive Officer, is also the largest shareholder of ANV GIE. Conflicts could arise from time to time between our interests and the interests of Mr. Wang. Conflicts could also arise between us and ANV GIE that would require our shareholders and ANV GIE’s shareholders to vote on corporate actions necessary to resolve the conflict. There can be no assurance in any such circumstances that Mr. Wang will vote his shares in our best interest or otherwise act in the best interests of our company. If Mr. Wang fails to act in our best interests, our operating performance and future growth could be adversely affected.



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We rely on the approval certificates and business license held by ANV GIE and any deterioration of the relationship between ANV GIE and ANV ASIA could materially and adversely affect our business operations.


We operate our video alarm business in China on the basis of the approval certificates, business license and other requisite licenses held by ANV GIE. There is no assurance that ANV GIE will be able to renew its licenses or certificates when their terms expire with substantially similar terms as the ones they currently hold.


Further, our relationship with ANV GIE is governed by the VIE Agreements, which are intended to provide us with effective control over the business operations of ANV GIE. However, the VIE Agreements may not be effective in providing control over the application for and maintenance of the licenses required for our business operations. ANV GIE could violate the VIE Agreements, become insolvent, suffer from difficulties in its business or otherwise become unable to perform its obligations under the VIE Agreements and, as a result, our operations, reputations and business could be materially harmed.


If ANV ASIA exercises the purchase option it holds over ANV GIE’s share capital pursuant to the VIE Agreements, the payment of the purchase price could materially and adversely affect our financial position.


Under the VIE Agreements, ANV GIE’s shareholders have granted ANV ASIA an option for the maximum period of time allowed by law to purchase all of the equity interest in ANV GIE at a price equal to the capital paid in by the transferors, adjusted pro rata for purchase of less than all of the equity interest, unless applicable PRC laws and regulations require an appraisal of the equity interest or stipulate other restrictions regarding the purchase price of the equity interest. Since ANV GIE is already our contractually controlled affiliate, our exercise of the option would not bring immediate benefits to our Company, and we would only do so if ANV GIE or its shareholders fail to perform the obligations under the VIE Agreements and we are unable to obtain specific performance, injunctive relief, or other damages in PRC courts, or otherwise protect our interests. The parties have agreed that if the applicable PRC laws and regulations require an appraisal of the equity interest or stipulate other restrictions regarding the purchase price of the equity interest at the time that the option is exercised, then the purchase price will be set at the lowest price permissible under the applicable laws and regulations. However, due to uncertainties in the application of various laws, rules, regulations or policies in PRC legal system, we cannot be sure that if we choose to exercise such option, any appraisal of equity interest or other stipulated restrictions required by PRC law will not materially increase the payment price for the option and adversely affect our results of operations.


Lack of Need Shareholder approval for the disposal of ANV Tech or other Subsidiaries


The Company is required to obtain shareholder approval for the sale of substantially all of the Company’s assets under Nevada corporate law. As disclosed in the Form 8-K filed July 25, 2012, the board of directors intended to obtain shareholder ratification of the disposal of ANV Tech and its four subsidiaries.  64.98% of the shares are owned by Company insiders and obtaining shareholder’s ratification would have been certain. However, because we owned these assets through several layers of subsidiaries and because a shareholder vote was held at the subsidiary level, counsel as advised us that obtaining shareholder approval at the Company level is not required.  We have determined not to incur the expense of a shareholder approval.  Due to our organizational structure, management may make decisions regarding acquiring and disposing of assets without shareholder votes that may be required under Nevada Law were the assets directly owned by the Company.



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We may be exposed to liabilities under the Nevada Corporate Law and any determination that we violated these laws could have a material adverse effect on our business.


We have determined that we did not need to obtain shareholder approval prior to consummating the disposal transactions under Nevada Corporate Law although we have determined that the holders of approximately 64.98% of our shares supports of the disposal transactions when this transaction approved by the board of directors.


Due to the slowing down of the Chinese economy and decline of market demand, the Company has no cash to finance those manufacturing business. If we didn’t dispose those manufacturing business on a timely manner, we would have been required to shut down ANV Tech and its four subsidiaries. If we had shut down the manufacturing business instead of pursuing disposal, the Company would have incurred significant liabilities related to severance payment and disposal losses on tangible assets. Due to the time restriction, management and board of directors decided to sell ANV Tech and its four subsidiaries back to its former owners in China as soon as possible as that course was in the best interest of Shareholders and in compliance with Nevada Law.       


We can not assure our shareholders that a lawsuit might not be brought which would subject us to significant expense or that a court might not find that we have violated Nevada Law and cause us to be subject to criminal or civil sanctions, and we may be subject to other liabilities, which could negatively affect our business, operating results and financial condition.


Risks Relating To Our Business

Our limited ability to protect our intellectual properties, and the possibility that our technologies could inadvertently infringe technologies owned by others, may adversely affect our ability to compete.


We rely on a combination of trademarks, patent applications, copyrights, trade secret laws, confidentiality procedures and licensing arrangements to protect our intellectual property rights. A successful challenge to the ownership of our technologies could materially damage our business prospects. Our competitors may assert that our technologies or products infringe on their patents or proprietary rights. We may be required to obtain from others licenses that may not be available on commercially reasonable terms, if at all. Problems with intellectual property rights could increase the cost of our products or delay or preclude our new product development and commercialization. If infringement claims against us are deemed valid, we may not be able to obtain appropriate licenses on acceptable terms or at all. Litigation could be costly and time-consuming but may be necessary to protect our technology license positions or to defend against infringement claims. We had applied for a United States patent for our web based security systems.  We do not have any United States patents and we are not currently pursuing our existing application as technological advances have made the items sought to be protected therein less valuable.  We may modify our existing patent applications or seek new patents in the coming year. No assurance can be given that we will be granted a patent, that, if granted, any patent will provide us with meaningful protection from infringement by others or that any patent that we may be granted will not be held by a court to infringe on the rights of others.  The loss of our intellectual property could materially adversely affect our business.


Our products and services often are subject to testing, inspection and approval and failure to obtain any such approval or delays in obtaining such approvals can affect our ability to receive payments due to us.


We frequently install surveillance and safety systems, supply products and services pursuant to agreements with general contractors or government agencies. The successful completion of our obligations under these contracts is often subject to satisfactory testing, inspection and approval of such products and services. No assurance can be given that the necessary approval of our products and services will be granted on a timely basis or at all, and that we will receive any payments due to us. In some cases, we may be dependent on others to complete these projects which may also delay payments to us. Any failure to obtain these approvals and payments may have a material adverse effect on our business, our cash flow and future financial performance.



14




We face risks related to general domestic and global economic conditions and to the current credit crisis.


Our current operating cash flows, which combined with access to the credit markets, provides us with significant discretionary funding capacity. However, the current uncertainty arising out of domestic and global economic conditions, including the recent disruption in credit markets, poses a risk to the economies in which we operate; this has impacted demand for our products and services, and may impact our ability to manage normal relationships with our customers, suppliers and creditors. If the current situation deteriorates significantly, our business could be materially negatively impacted, including such areas as reduced demand for our products and services from a slow-down in the general economy, or supplier or customer disruptions resulting from tighter credit markets.

In order to grow at the pace expected by management, we will require additional capital to support our long-term business plan. If we are unable to obtain additional capital in future years, we may be unable to proceed with our long-term business plan and we may be forced to curtail or cease our operations.

We will require additional working capital to support our long-term business plan, which includes identifying suitable targets for horizontal or vertical mergers or acquisitions, so as to enhance the overall productivity and benefit from economies of scale. Our working capital requirements and the cash flow provided by future operating activities, if any, will vary greatly from quarter to quarter, depending on the volume of business during the period and payment terms with our customers. We may not be able to obtain adequate levels of additional financing, whether through equity financing, debt financing or other sources. Additional financings could result in significant dilution to our earnings per share or the issuance of securities with rights superior to our current outstanding securities. In addition, we may grant registration rights to investors purchasing our equity or debt securities in the future. If we are unable to raise additional financing, we may be unable to implement our long-term business plan, develop or enhance our products and services, take advantage of future opportunities or respond to competitive pressures on a timely basis, if at all. In addition, a lack of additional financing could force us to substantially curtail or cease operations.

We sometimes extend credit to our customers. Failure to collect the trade receivables or untimely collection could affect our liquidity.

We extend credit to some of our customers while generally requiring no collateral. Generally, our customers pay in installments, with a portion of the payment upfront, a portion of the payment upon receipt of our products by our customers and before the installation, and a portion of the payment after the installation of our products and upon satisfaction of our customer. Sometimes, a small portion of the payment will not be paid until after a certain period following the installation. We perform ongoing credit evaluations of our customers’ financial condition and generally have no difficulties in collecting our payments. However, if we encounter future problems collecting amounts due from our clients or if we experience delays in the collection of amounts due from our clients, our liquidity could be negatively affected.



15




If we are unable to attract and retain senior management and qualified technical and sales personnel, our operations, financial condition and prospects will be materially adversely affected.

Our future success depends in part on the contributions of our management team and key technical and sales personnel and our ability to attract and retain qualified new personnel. In particular, our success depends on the continuing employment of our CEO, Dr. Weixing Wang. There is significant competition in our industry for qualified managerial, technical and sales personnel and we cannot provide assurance that we will be able to retain our key senior managerial, technical and sales personnel or that we will be able to attract, integrate and retain other such personnel that we may require in the future.  Many engineers and technicians obtain post-graduate or professional degrees, and the increased educational time required at the post-graduate level further restricts the pool of engineers and technicians available for employment.   We compete for all such personnel with other high tech companies in various fields.  There can be no assurance that we will be successful in hiring or retaining such qualified personnel. If we are not able to hire and retain qualified people to fill these positions, our competitive position would be adversely affected, which would have a material adverse effect on our business, financial condition and results of operations.

If we are unable to attract and retain key personnel in the future, our business, operations, financial condition, results of operations and prospects could be materially adversely affected.

We could face liability for our failure to respond adequately to alarm activations.

The nature of the services we provide potentially exposes us to greater risks of liability for employee acts or omissions or system failures that may be inherent in other businesses. In the event of litigation with respect to such matters, our financial condition and results of operations could be materially and adversely affected. In addition, the costs of such litigation could have an adverse effect on us.

Future government regulations or other standards could have an adverse effect on our operations.

Our operations are subject to a variety of laws, regulations and licensing requirements of national and local authorities in China, Hong Kong SAR and North American. In certain jurisdictions, we are required to obtain licenses or permits and to meet certain standards in the conduct of our business. The loss of such licenses, or the imposition of conditions to the granting or retention of such licenses, could have an adverse effect on us. In the event that these laws, regulations and/or licensing requirements change, we may be required to modify our operations or to utilize resources to maintain compliance with such rules and regulations. In addition, new regulations may be enacted that could have an adverse effect on us.

Product Failure, Marketplace Reputation and Liability


Through our wholesalers, dealers, installers, franchisees and direct operations we intend to install hundreds and eventually thousands of security systems.  Should any of our systems fail to perform as promised due to a product defect or a faulty installation, our reputation could be marred by adverse publicity.  We could be liable for damages suffered by our customers. Consequently our operating results and stock price could suffer.


Competition

We face a variety of competitive challenges from other security and surveillance companies in every market where we operate or plan to operate.  Many of our competitors will be large multinational or market dominant companies that have greater financial and marketing resources than we do and may be able to adapt to changes in consumer preferences or requirements more quickly, devote greater resources to the marketing and sale of their products or adopt more aggressive pricing policies than we can.



16




RISKS RELATED TO OUR INDUSTRY

Our success relies on our management’s ability to understand the highly evolving network surveillance and safety industry.

The network surveillance and safety industry is nascent and rapidly evolving. Therefore, it is critical that our management is able to understand industry trends and make good strategic business decisions. If our management is unable to identify industry trends and act in response to such trends in a way that is beneficial to us, our business will suffer.

If we are unable to respond to the rapid changes in our industry and changes in our customer’s requirements and preferences, our business, financial condition and results of operations could be adversely affected.

If we are unable, for technological, legal, financial or other reasons, to adapt in a timely manner to changing market conditions or customer requirements, we could lose customers and market share. The network surveillance and safety industry is characterized by rapid technological changes. Sudden changes in customer requirements and preferences, the frequent introduction of new products and services embodying new technologies and the emergence of new industry standards and practices could render our existing products, services and systems obsolete. The emerging nature of products and services in the network surveillance and safety industry and their rapid evolution will require that we continually improve the performance, features and reliability of our products and services. Our success will depend, in part, on our ability to:

·

enhance our existing products and services;

·

anticipate changing customer requirements by designing, developing, and launching new products and services that address the increasingly sophisticated and varied needs of our current and prospective customers; and

·

respond to technological advances and emerging industry standards and practices on a cost-effective and timely basis.

The development of additional products and services involves significant technological and business risks and requires substantial expenditures and lead time. If we fail to introduce products with new technologies in a timely manner, or adapt our products to these new technologies, our business, financial condition and results of operations could be adversely affected. We cannot assure that even if we are able to introduce new products or adapt our products to new technologies that our products will gain acceptance among our customers. In addition, from time to time, we or our competitors may announce new products, product enhancements or technological innovations that have the potential to replace or shorten the life cycles of our existing products and that may cause customers to refrain from purchasing our existing products, resulting in inventory obsolescence.



17




We may not be able to maintain or improve our competitive position of strong competition in the network surveillance and safety industry, and we expect this competition to continue to intensify.

The North American and Chinese network surveillance and safety industry is highly competitive, we also face competition from international competitors. Some of our international competitors are larger than us and possess greater name recognition, assets, personnel, sales and financial resources. These entities may be able to respond more quickly to changing market conditions by developing new products and services that meet customer requirements or are otherwise superior to our products and services and may be able to more effectively market their products than we can because they have significantly greater financial, technical and marketing resources than we do. They may also be able to devote greater resources than we can to the development, promotion and sale of their products. Increased competition could require us to reduce our prices, result in fewer customer orders and loss of market share. We cannot assure that we will be able to distinguish ourselves in a competitive market. To the extent that we are unable to successfully compete against existing and future competitors, our business, operating results and financial condition could be materially adversely affected.

Our product offerings involve a lengthy sales cycle and we may not anticipate sales levels appropriately, which could impair our profitability.

Some of our products and services are designed for medium to large commercial, industrial and governmental facilities desiring to protect valuable assets and/or prevent intrusion into high security facilities.  Given the nature of our products and the customers that purchase them, sales cycles can be lengthy as customers conduct intensive investigations and deliberate between competing technologies and providers. For these and other reasons, the sales cycle associated with some of our products and services is typically lengthy and subject to a number of significant risks over which we have little or no control. If sales in any period fall significantly below anticipated levels, our financial condition and results of operations could suffer.

RISKS RELATED TO DOING BUSINESS IN CHINA

Adverse changes in political and economic policies of the PRC government could impede the overall economic growth of China, which could reduce the demand for our products and damage our business.

Our growth strategy includes acquiring or investing in suitable candidates on acceptable terms in China.  We have also from time to time entered into letters of intent to acquire several other companies in China. We also produce our products through an OEM in China. Accordingly, our business, financial condition, results of operations and prospects are affected significantly by economic, political and legal developments in China. The PRC economy differs from the economies of most developed countries in many respects, including:

·

higher level of government involvement;

·

early stage of development of the market-oriented sector of the economy;

·

rapid growth rate;

·

higher level of control over foreign exchange; and

·

allocation of resources.



18




As the Chinese economy has been transitioning from a planned economy to a more market-oriented economy, the Chinese government has implemented various measures to encourage economic growth and guide the allocation of resources. While these measures may benefit the overall Chinese economy, they may also have a negative effect on us.

Although the Chinese government has in recent years implemented measures emphasizing the utilization of market forces for economic reform, the Chinese government continues to exercise significant control over economic growth in Chinese through the allocation of resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and imposing policies that impact particular industries or companies in different ways.

Any adverse change in the economic conditions or government policies in China could have a material adverse effect on the overall economic growth and the level of surveillance and safety investments and expenditures in China, which in turn could lead to a reduction in demand for our products and consequently have a material adverse effect on our business and prospects.

Uncertainties with respect to the Chinese legal system could limit the legal protections available to you and us.

Our operating subsidiaries are generally subject to laws and regulations applicable to foreign investments in China and, in particular, laws applicable to foreign-invested enterprises. The Chinese legal system is based on written statutes, and prior court decisions may be cited for reference, but have limited precedential value. Since 1979, a series of new Chinese laws and regulations have significantly enhanced the protections afforded to various forms of foreign investments in China. However, since the Chinese legal system continues to rapidly evolve, the interpretations of many laws, regulations and rules are not always uniform and enforcement of these laws, regulations and rules involve uncertainties, which may limit legal protections available to you and us. In addition, any litigation in China may be protracted and result in substantial costs and diversion of resources and management attention.  

Chinese government exerts substantial influence over the manner in which we conduct our business activities.

Chinese government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through regulation and state ownership. Our ability to operate in China may be harmed by changes in its laws and regulations, including those relating to taxation, import and export tariffs, environmental regulations, land use rights, property and other matters. We believe that our operations in China are in material compliance with all applicable legal and regulatory requirements. However, the central or local governments of the jurisdictions in which we operate may impose new, stricter regulations or interpretations of existing regulations that would require additional expenditures and efforts on our part to ensure our compliance with such regulations or interpretations.

Accordingly, government actions in the future, including any decision not to continue to support recent economic reforms and to return to a more centrally planned economy or regional or local variations in the implementation of economic policies, could have a significant effect on economic conditions in China or particular regions thereof and could require us to divest ourselves of any interest we then hold in Chinese properties or joint ventures.



19




Restrictions on currency exchange may limit our ability to receive and use our sales revenue effectively.

Majority of our sales revenue and/or expenses are or will occur in China and be denominated in RMB. Under PRC law, the RMB is currently convertible under the “current account,” which includes dividends and trade and service-related foreign exchange transactions, but not under the “capital account,” which includes foreign direct investment and loans. In the future, our Chinese operating subsidiaries may purchase foreign currencies for settlement of current account transactions, including payments of dividends to us, without the approval of the State Administration of Foreign Exchange (the “SAFE”), by complying with certain procedural requirements. However, the relevant Chinese governmental authorities may limit or eliminate our ability to purchase foreign currencies in the future. Since a significant amount of our future revenue will be denominated in RMB, any existing and future restrictions on currency exchange may limit our ability to utilize revenue generated in RMB to fund our business activities outside China that are denominated in foreign currencies.

Foreign exchange transactions by Chinese operating subsidiaries under the capital account continue to be subject to significant foreign exchange controls and require the approval of or need to register with PRC government authorities, including SAFE. In particular, if our Chinese operating subsidiaries borrow foreign currency through loans from us or other foreign lenders, these loans must be registered with SAFE, and if we finance the subsidiaries by means of additional capital contributions, these capital contributions must be approved by certain government authorities, including the Ministry of Commerce, or their respective local counterparts. These limitations could affect our Chinese operating subsidiaries’ ability to obtain foreign exchange through debt or equity financing.

We may be unable to complete a business combination transaction efficiently or on favorable terms due to complicated merger and acquisition regulations which became effective on September 8, 2006.

On August 8, 2006, six PRC regulatory agencies, including the CSRC, promulgated the Regulation on Mergers and Acquisitions of Domestic Companies by Foreign Investors, which became effective on September 8, 2006. This new regulation, among other things, governs the approval process by which a Chinese company may participate in an acquisition of assets or equity interests. Depending on the structure of the transaction, the new regulation will require the Chinese parties to make a series of applications and supplemental applications to the government agencies. In some instances, the application process may require the presentation of economic data concerning a transaction, including appraisals of the target business and evaluations of the acquirer, which are designed to allow the government to assess the transaction. Government approvals will have expiration dates by which a transaction must be completed and reported to the government agencies. Compliance with the new regulations is likely to be more time consuming and expensive than in the past and the government can now exert more control over the combination of two businesses. Accordingly, due to the new regulation, our ability to engage in business combination transactions has become significantly more complicated, time consuming and expensive, and we may not be able to negotiate a transaction that is acceptable to our stockholders or sufficiently protect their interests in a transaction.



20




The new regulation allows Chinese government agencies to assess the economic terms of a business combination transaction. Parties to a business combination transaction may have to submit to the Ministry of Commerce and other relevant government agencies an appraisal report, an evaluation report and the acquisition agreement, all of which form part of the application for approval, depending on the structure of the transaction. The regulations also prohibit a transaction at an acquisition price obviously lower than the appraised value of the Chinese business or assets and in certain transaction structures, require that consideration must be paid within defined periods, generally not in excess of a year. The regulation also limits our ability to negotiate various terms of the acquisition, including aspects of the initial consideration, contingent consideration, holdback provisions, indemnification provisions and provisions relating to the assumption and allocation of assets and liabilities. Transaction structures involving trusts, nominees and similar entities are prohibited. Therefore, such regulation may impede our ability to negotiate and complete a business combination transaction on financial terms that satisfy our investors and protect our stockholders’ economic interests.

In addition to the above risks, in many instances, we will seek to structure transactions in a manner that avoids the need to make applications or a series of applications with Chinese regulatory authorities under these new mergers and acquisition (“M&A”) regulations. If we fail to effectively structure an acquisition in a manner that avoids the need for such applications or if the Chinese government interprets the requirements of the new M&A regulations in a manner different from our understanding of such regulations, then acquisitions that we have effected may be unwound or subject to rescission. Also, if the Chinese government determines that our structure of any of our acquisitions does not comply with these new regulations, then we may also be subject to fines and penalties.

Fluctuations in exchange rates could adversely affect our business and the value of our securities.

The value of our common stock will be indirectly affected by the foreign exchange rate between U.S. dollars and the RMB and between those currencies and other currencies in which our sales may be denominated. Because substantial portion of our earnings and cash assets are dominated in RMB and our financial results are reported in U.S. dollars, fluctuations in the exchange rate between the U.S. dollar and the RMB will affect our balance sheet and our earnings per share in U.S. dollars. In addition, appreciation or depreciation in the value of the RMB relative to the U.S. dollar would affect our financial results reported in U.S. dollar terms without giving effect to any underlying change in our business or results of operations. Fluctuations in the exchange rate will also affect the relative value of any dividend we issue that will be exchanged into U.S. dollars and earnings from, and the value of, any U.S. dollar-denominated investments we make in the future.

Since July 2005, the RMB has no longer been pegged to the U.S. dollar. Although the People’s Bank of China regularly intervenes in the foreign exchange market to prevent significant short-term fluctuations in the exchange rate, the RMB may appreciate or depreciate significantly in value against the U.S. dollar in the medium to long term. Moreover, it is possible that in the future the Chinese authorities may lift restrictions on fluctuations in the RMB exchange rate and lessen intervention in the foreign exchange market.

Very limited hedging transactions are available in China to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we may enter into hedging transactions in the future, the availability and effectiveness of these transactions may be limited, and we may not be able to successfully hedge our exposure at all. In addition, our foreign currency exchange losses may be magnified by China exchange control regulations that restrict our ability to convert RMB into foreign currencies.



21




Risks Relating to Our Common Stock


Limitations upon Broker-Dealers Effecting Transactions in "Penny Stocks"


Trading in our common stock is subject to material limitations as a consequence of regulations which limits the activities of broker-dealers effecting transactions in "penny stocks."  Pursuant to Rule 3a51-1 under the Exchange Act, our common stock is a "penny stock" because it (i) is not listed on any national securities exchange or The NASDAQ Stock Market™, (ii) has a market price of less than $5.00 per share, and (iii) its issuer (the Company) has net tangible assets less than $2,000,000 (if the issuer has been in business for at least three (3) years) or $5,000,000 (if the issuer has been in business for less than three (3) years).


Rule 15g-9 promulgated under the Exchange Act imposes limitations upon trading activities on "penny stocks", which makes selling our common stock more difficult compared to selling securities which are not "penny stocks."  Rule 15a-9 restricts the solicitation of sales of "penny stocks" by broker-dealers unless the broker first (i) obtains from the purchaser information concerning his financial situation, investment experience and investment objectives, (ii) reasonably determines that the purchaser has sufficient knowledge and experience in financial matters that the person is capable of evaluating the risks of investing in "penny stocks", and (iii) delivers and receives back from the purchaser a manually signed written statement acknowledging the purchaser's investment experience and financial sophistication.


Rules 15g-2 through 15g-6 promulgated under the Exchange Act require broker-dealers who engage in transactions in "penny stocks" first to provide their customers with a series of disclosures and documents, including (i) a standardized risk disclosure document identifying the risks inherent in investing in "penny stocks", (ii) all compensation received by the broker-dealer in connection with the transaction, (iii) current quotation prices and other relevant market data, and (iv) monthly account statements reflecting the fair market value of the securities.


There can be no assurance that any broker-dealer which initiates quotations for the Common Stock will continue to do so, and the loss of any such broker-dealer likely would have a material adverse effect on the market price of our common stock.


No Active or Regular Market

Although our common stock has been quoted on the Pink Sheets since October 31, 1985 and since January 13, 2010, has been included in the OTCBB, there has been only limited and sporadic trading in our stock. Companies quoted for trading on the OTCBB must be reporting issuers under Section 12 of the Exchange Act and must be current in their reports under Section 13 of the Exchange Act, in order to maintain price quotation privileges on the OTCBB. If our common stock is quoted on the OTCBB, and we fail to remain current on our reporting requirements, we could be removed from the OTCBB. As a result, the market liquidity for our securities could be severely and adversely affected by limiting the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market. In addition, we may be unable to regain our quotation privileges on the OTCBB, which may have an adverse material effect on our business.


Accordingly, there can be no assurance as to the liquidity of any present or future markets that may develop for our common stock, the ability of holders of our common stock to sell our common stock, or the prices at which holders may be able to sell our common stock.



22




Shares Eligible for Future Sale

The sale of a substantial number of shares of our common stock, or the perception that such sales could occur, could adversely affect prevailing market prices for our common stock.  In addition, any such sale or perception could make it more difficult for us to sell equity, or equity-related securities in the future at a time and price that we deem appropriate.  If and when this registration statement becomes effective and we become subject to the reporting requirements of the Exchange Act, we might elect to adopt a stock option plan and file a registration statement under the Securities Act registering the shares of common stock reserved for issuance thereunder.  Following the effectiveness of any such registration statement, the shares of common stock issued under such plan, other than shares held by affiliates, if any, would be immediately eligible for resale in the public market without restriction.  


The sales of shares of our common stock which are not registered under the Securities Act, known as “restricted” shares, typically are effected under Rule 144.  All of our shares of common stock, except those issued in the last six months, might be sold under Rule 144. No prediction can be made as to the effect, if any, that future sales of “restricted” shares of our common stock, or the availability of such shares for future sale, will have on the market price of our common stock or our ability to raise capital through an offering of our equity securities.


No Dividends

We have never paid any dividends on our common stock and we do not intend to pay any dividends in the foreseeable future.  


ITEM 1B. UNRESOLVED STAFF COMMENTS


None


ITEM 2. PROPERTIES


Our principal executive offices comprised of 1,564.15 square meters (approximately 16,770 square feet) at a rental of RMB 97,759.39 (approximately US$15,553).  The lease, a copy of which is filed as an exhibit to this Report, further allocates certain obligations and rights between the parties and grants the Company a right of first refusal as to re-letting the premises after the lease term.  Management believes that the new offices are adequate for the Company’s needs during the next fiscal year and that the Company can locate additional suitable space in the vicinity if required.


Our leased premises are presently adequate for our needs.  However, if our business expands we may be required to seek larger premises. Management believes that other suitable premises are available at reasonable cost in proximity to our present offices.




23



ITEM 3. LEGAL PROCEEDINGS


We currently have no legal proceedings pending nor have any legal proceeding been threatened against us or any of our officers, directors or control persons of which we are aware.


ITEM 4. MINE SAFETY DISCLOSURE


Not Applicable


PART II

ITEM 5. MARKET for REGISTRANT’S COMMON EQUITY and ISSURER PURCHASES of EQUITY SECURITIES


Market Information


Since January 13, 2010, our common stock has trades on the Over the Counter Bulletin Board (“OTCBB”) under the symbol “ANVS”.  The following table sets forth the quarterly high and low sales prices of a share of our common stock as reported by the OTCBB for the periods indicated. The quotations listed below reflect inter-dealer prices, without retail mark-ups, mark-downs or commissions and may not necessarily represent actual transactions.


 

 

Closing Bid Prices

 

 

High

 

 

Low

 Year Ended December 31, 2012

 

 

 

 

 

 1st Quarter

$

                 0.22

 

$

0.20

 2nd Quarter

 

                 0.22

 

 

0.12

 3rd Quarter

 

                 0.21

 

 

0.05

 4th Quarter

 

                 0.15

 

 

0.01

 

 

 

 

 

 

 Year Ended December 31, 2011

 

 

 

 

 

 1st Quarter

$

                 0.45

 

$

0.20

 2nd Quarter

 

                 0.45

 

 

0.19

 3rd Quarter

 

                 0.20

 

 

0.20

 4th Quarter

 

                 0.22

 

 

0.20





Reports to Shareholders


We plan to furnish our shareholders with an annual report for each fiscal year ended December 31 contains financial statements audited by our independent certified public accountants.  Additionally, we may, in our sole discretion, issue unaudited quarterly or other interim reports to our shareholders when we deem appropriate.  We intend to maintain compliance with the periodic reporting requirements of the Securities Exchange Act of 1934.


Holders


As of December 31, 2012, we had 284 shareholders of record and 56,950,660 common shares issued and outstanding.  The number of holders does not include the shareholders for whom shares are held in a "nominee" or "street" name.



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Dividend Policy


We have not declared or paid any dividends on our common stock to date.  We anticipate that any future earnings will be retained as working capital and used for business purposes.  Accordingly, it is unlikely that we will declare or pay any such dividends in the foreseeable future.


Securities Authorized for Issuance under Equity Compensation Plans


On October 1, 2008, the board of directors adopted the Company's Stock Option Plan. The Company has reserved 1,000,000 shares of common stock for issuance upon exercise of options granted from time to time under the stock option plan. The stock option plan is intended to assist the Company in securing and retaining key employees, directors and consultants by allowing them to participate in the Company's ownership and growth through the grant of incentive and non-qualified options. Under the stock option plan, the Company may grant incentive stock options only to key employees and employee directors, or the Company may grant non-qualified options to employees, officers, directors and consultants. The stock option plan is currently administered by the Company's board of directors. Subject to the provisions of the stock option plan, the board will determine who shall receive options, the number of shares of common stock that may be purchased under the options. As at December 31, 2012, the Company has granted 140,000 shares options.


Recent Sales of Unregistered Securities


We did not sell any equity securities during the fiscal year ended December 31, 2012 that were not previously disclosed in a quarterly report on Form 10-Q or a current report on Form 8-K that was filed during the 2012 fiscal year.


ITEM 6. SELECTED FINANCIAL DATA


Because the Company is a smaller reporting company, it does not need to provide the information required by this Item 6.


ITEM 7. MANAGEMENT’S DISCUSSION and ANALYSIS of FINANCIAL CONDITIONS and REULTS OF OPERATION

Overview

We caution that reliance on any forward-looking statement involves risks and uncertainties, and that although we believe the assumptions on which our forward-looking statements are based upon are reasonable, any of those assumptions could prove to be inaccurate, and as a result, the forward-looking statements based on those assumptions could be incorrect.  In light of these and other uncertainties, it should not be concluded that we will necessarily achieve any plans and objectives or projected financial results referred to in any of the forward-looking statements.  We do not undertake to release the results of any revisions of these forward-looking statements to reflect future events or circumstances.  Some of the factors that may cause actual results, developments and business decisions to differ materially from those contemplated by such forward-looking statements include the following:



25




RESULTS OF OPERATIONS


Financial Performance Highlights of year ended December 31, 2012


For the year ended December 31, 2012, our financial results include some of our substantial operations in China that were disposed in the same period prior year. Therefore direct comparisons are not useful or relevant.


As of May 31, 2012, the Company entered into an Equity and Intellectual Property Rights Transfer Agreement (the “EIPRTA”) to dispose of all of the shares and related intellectual property of its subsidiary ANV Security Technology (China) Co., Ltd. (“ANV Tech”), by transferring the same to a company owned by its former owner and director, for five million RMB (approximately $800,000) payable in three installments; (i) 20% on Closing, and 40% on each of December 31, 2012 and 2013 and (B) the return to the Company of 9,529,411 shares from former owner of the Company’s common stock. At the same time, the Company sold 100% equity interest in ANV Tech’s four subsidiaries back to former owners of these subsidiaries by return to the Company of 8,000,000 common shares from former owners of four subsidiaries.


These disposals are part of the Company’s strategy to focus on its core competitive area- internet service provider.


Revenues in 2012 year were $185,175, which were driven by the business of surveillance products,  internet service and software development. The surveillance and security product and service market in China continues to expand. However, the business environment remains competitive and challenging. Management will continue focusing on market and product development, management controls and improving operating efficiencies.


The following are some financial highlights for the year ended December 31, 2012:


·

Revenues: Revenues recorded $185,175.


·

Gross margin: Gross margin was 93.82%


·

Operation loss: Operating loss was ($1,774,099)


·

Operating margin: Operating loss margin was (958.07%)


·

Net loss from continuing operations was ($1,694,069)


·

Net loss from discontinued operations was ($6,630,704)


·

Net loss attributable to the Company: Net loss attributable to the Company was ($8,324,773)  


·

Net margin: Net loss margin was (4,495.62%)


LIQUIDITY AND CAPITAL RESOURCES

 

We had cash and cash equivalents of $72,316 as of December 31, 2012, as compared to $1,388,743 as of December 31, 2011, a decrease of $1,266,427. The decrease in cash and cash equivalents during the year ended December 31, 2012 was primarily attributable to opening cash of $933,638 belonged to discontinued operations, purchases of equipment and furniture of $79,604, purchases of inventories of $22,726.



26




In view of our continuing businesses, net cash used in operating activities was $490,206 for the year ended December 31, 2012, as compared to $nil for the year ended December 31, 2011. The increase in cash used in operating activities was primarily attributable to our net loss, as well as changes in working capital for the year ended December 31, 2012.

Net cash used in investing activities was $81,981 for the year ended December 31, 2012, as compared to $nil for the year ended December 31, 2011. Main components of cash flows from investing activities for the year ended December 31, 2012 included cash of $79,604 used in purchases of equipment and furniture.

Net cash provided by financing activities was $177,714 for the year ended December 31, 2012 as compared to $ nil for the year ended December 31, 2011. Significant components of cash flows from financing activities for the year ended December 31, 2012 included $176,425 of proceeds from related parties.

We have funded our activities to date primarily through the sales of surveillance and safety products and systems, the sale of our subsidiaries and  the issuance of equity securities.

Critical Accounting Policies


The preparation of our consolidated financial statements and related disclosures is in conformity with accounting principles generally accepted in the United States which requires management to make estimates and judgments that affect our reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an on-going basis, we evaluate our estimates and assumptions based upon historical experience and various other factors and circumstances. Management believes that our estimates and assumptions are reasonable under the circumstances; however, actual results may vary from these estimates and assumptions under different future circumstances. We have identified the following critical accounting policies that affect the more significant judgments and estimates used in the preparation of our consolidated financial statements.


For further discussion of our significant accounting policies, refer to Note 2 “Summary of Significant Accounting Policies” of our consolidated financial statements.


Allowance for doubtful accounts


Accounts and notes receivable balance is recorded net of allowances for amounts not expected to be collected from customers. Because the Company’s accounts and notes receivable are typically unsecured, the Company periodically evaluates the collectability of accounts based on a combination of factors, including a particular customer’s ability to pay as well as the age of the receivables. To evaluate a specific customer’s ability to pay, the Company analyzes financial statements, payment history, third-party credit analysis reports and various information or disclosures by the customer or other publicly available information. In cases where the evidence suggests a customer may not be able to satisfy its obligation to the Company, a specific allowance that is determined to be appropriate for the perceived risk would be established. If the financial condition of customers deteriorates, resulting in an impairment of their ability to make payments, additional allowances may be required.


Off-Balance Sheet Arrangements


We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.



27




ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


Not applicable.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


Our financial statements for the year ended December 31, 2012 and 2011 and the reports thereon of Canuswa Accounting & Tax Services Inc., respectively are included in this annual report.


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE


None.


ITEM 9A.  CONTROLS and PROCEDURES


Disclosure Controls and Procedures


We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) that are designed to ensure that information that would be required to be disclosed in Exchange Act reports is recorded, processed, summarized and reported within the time period specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including to our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.


As required by Rule 13a-15 under the Exchange Act, our management, including our chief executive officer and our chief financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2012.  Based on that evaluation, our officers concluded that as of December 31, 2012, and as of the date that the evaluation of the effectiveness of our disclosure controls and procedures was completed, our disclosure controls and procedures were effective to satisfy the objectives for which they are intended.


Management’s Annual Report on Internal Control over Financial Reporting


Section 404 of the Sarbanes-Oxley Act of 2002 requires that management document and test the Company’s internal control over financial reporting and include in this Annual Report on Form 10-K a report on management’s assessment of the effectiveness of our internal control over financial reporting.


Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act.  Under the supervision and with the participation of our management, including Weixing Wang, our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based upon the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).  Based on that evaluation, our management concluded that our internal control over financial reporting is effective, as of December 31, 2012.


This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report.



28




Changes in Internal Controls over Financial Reporting


During the fiscal year ended December 31, 2012, there were no changes in our internal control over financial reporting identified in connection with the evaluation performed during the fiscal year covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


ITEM 9B. OTHER INFORMATION


We do not have any information that was required to be reported on Form 8-K during the quarter ended December 31, 2012.




29



PART III


ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE


Our directors and officers as of December 31, 2012 are:


Name                                                          Age        Position(s)


Weixing Wang                                            49         Chairman of the Board, Directors

and Chief Executive Officer


Kevin Su

       42        Chief Financial Officer


Daniel Sze-Yuen Lee                                  64         Member of board of Directors


Yiquan Song                                                46        Member of board of Directors


Weixing (Wilson) Wang has served as a director, CEO and Chairman of the Board since our acquisition of Canada ANV System Inc. (“CANVSI”) in May 2009.  He was a founder of CANVSI and its chairman of the Board since its founding in 2006.  Prior thereto and since 1992 he was the founder, president and CEO of Z&A Pharmaceutical Group in China.  Dr. Wang received a BS in Preventative Medicine from Shandong Medical University in China in 1986; a MD in Nutrition from Tianjin Medical University in China in 1989; and did post-doctoral work in Diabetes at Freiburg University in Germany until 1992.


Kevin Su, has over 19 years experience in accounting, auditing and finance, which includes 4 years auditing experience in a big four accounting firm in Canada. Mr. Su holds a Bachelor degree in accounting. He is a licensed CPA in Colorado and a CGA in Canada and British Colombia. Mr. Su has served as CFO and acting CFO for several TSX venture and OTCBB listing companies to oversee their accounting and financial reporting functions.


Daniel Sze-Yuen Lee has served as a non-executive director since our acquisition of CANVSI in May 2009.   He was appointed a non-executive director of CANVSI in January 2008.  Since 2003 he has been president of Canada – China Foundation for the promotion of trade and cultural development and since 1986 he has been president of C&L Associates International Management Consultants Group Inc. in Vancouver.  Mr. Lee studied accounting at Vancouver Community College.


Yiquan Song, has served on our Board of Directors since October 5, 2010. He has established several corporations spanning several industries such as a farm, a textile mill, a trading company, a beverage company, a real estate company, a number of hotels and an investment company. He has also served several positions such as factory director, general manager, chairman of the board, deputies to the local People’s Congress by means of practical work and fighting spirit in business. In 2009, he finally set up the Zhejiang Yiquan holding group Co. Ltd, which has been one of the well-known enterprises in Shaoxing, Zhejiang, China.


Family Relationships

There are no family relationships, or other arrangements or understandings between or among any of the directors, executive officers or other person pursuant to which such person was selected to serve as a director or officer.  



30




Involvement in certain legal proceedings


Our directors, executive officers and control persons have not been involved in any of the following events during the past five years:


·

any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;


·

any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);


·

being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or


·

being found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.


Term of Office


The term of office of the current directors shall continue until new directors are elected or appointed at an annual meeting of shareholders.


Committees of the Board and Financial Expert


We do not have a separately-designated audit or compensation committee of the Board or any other Board-designated committee. Audit and compensation committee functions are performed by our Board of Directors. We will form such committees in the future as the need for such committees may arise. In addition, at this time we have determined that we do not have an “audit committee financial expert” as defined by the SEC on our Board.


Code of Ethics


Due to its small size, the Company has not adopted a code of ethics.  The Company will adopt a code of ethics for our senior officers, including our principal executive officer, principal financial officer, principal accounting officer or controller and any person who may perform similar functions.  As required by SEC rules, we will report the nature of any change or waiver of our code of ethics.


ITEM 11. EXECUTIVE COMPENSATION


Compensation of Executive Officers


Executive Compensation


The following table sets forth all compensation earned during the year ended December 31, 2012 and 2011, by (i) our Chief Executive Officer (principal executive officer), (ii) our Chief Financial Officer (principal financial officer), (iii) the three most highly compensated executive officers other than our CEO and CFO who were serving as executive officers at the end of our last completed fiscal year, whose total compensation exceeded $100,000 during such fiscal year ends, and (iv) up to two additional individuals for whom disclosure would have been provided but for the fact that the individual was not serving as an executive officer at the end of our last completed fiscal year, whose total compensation exceeded $100,000 during such fiscal year ends. We refer to all of these officers collectively as our “named executive officers”.




31



Summary Compensation Table


Name & Principal Position

Year

Salary

Bonus

Stock Awards

Option Awards

Non-Equity Incentive Plan Comp.

Other Comp.

All Other Comp.

Weixing

12/31/12

$

69,996

$

-

$

-

$

-

$

-

$

-

$

-

Wang

12/31/11

$

69,996

$

-

$

-

$

-

$

-

$

-

$

-

CEO

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Paul Lau

12/31/12

$

-

$

-

$

-

$

-

$

-

$

-

$

-

CFO*

12/31/11

$

68,330

$

-

$

-

$

-

$

-

$

-

$

-

 

 

 

 

 

 

 

 

 

Kevin Su

12/31/12

$

50,000

$

-

$

-

$

-

$

-

$

-

$

-

CFO**

12/31/11

$

8,333

$

-

$

-

$

-

$

-

$

-

$

-

 

 

 

 

 

 

 

 

 

Jonathan

12/31/12

$

-

$

-

$

-

$

-

$

-

$

-

$

-

Zeng

12/31/11

$

69,996

$

-

$

-

$

-

$

-

$

-

$

-

COO***

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Xiaolin

12/31/12

$

-

$

-

$

-

$

-

$

-

$

-

$

-

Yang

12/31/11

$

48,996

$

-

$

-

$

-

$

-

$

-

$

-

Vice President****

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


*   Paul Lau resigned as CFO on November 1, 2011.

** Kevin Su became CFO on November 1, 2011.

*** Jonathan Zeng resigned as COO on December 31, 2011.

**** Xiaolin Yang resigned as Vice President on December 31, 2011.


Compensation of Directors


The Company has no standard arrangements in place or currently contemplated to compensate the Company’s directors for their service as directors or as members of any committee of directors.


Employment Agreements


We do not have employment agreements with any of our executive officers or directors.  We have verbal understandings with our executive officers regarding monthly retainers and reimbursement for actual out-of-pocket expenses.


Termination of Employment


There are no compensatory plans or arrangements, including payments to be received from the Company, with respect to any person named in the Summary Compensation Table set forth above that would in any way result in payments to any such person because of his or her resignation, retirement or other termination of such person’s employment with us.


Indemnification of Directors and Executive Officers and Limitation of Liability


Nevada law generally permits us to indemnify our directors, officers, employees and agents. Pursuant to the provisions of Nevada Revised Statutes 78.7502, we, as a corporation organized in Nevada, may indemnify our directors, officers, employees and agents in accordance with the following:



32



(a)   A corporation may indemnify any person who was or is a party or is threatened to be made a party to any action, except an action by or in the right of the corporation, by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation, against expenses, actually and reasonably incurred by him in connection with the action, suit or proceeding if he: (a) is not liable for breach of his fiduciary duties as a director or officer pursuant to Nevada Revised Statutes 78.138; or (b) acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful.


(b)    A corporation may indemnify any person who was or is a party or is threatened to be made a party to any action by or in the right of the corporation to procure a judgment in its favor, by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation against expenses actually and reasonably incurred by him in connection with the defense or settlement of the action or suit if he: (a) is not liable for breach of his fiduciary duties pursuant to Nevada Revised Statutes 78.138; or (b) acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation. Indemnification may not be made for any claim, issue or matter as to which such a person has been adjudged by a court of competent jurisdiction, after exhaustion of all appeals there from, to be liable to the corporation or for amounts paid in settlement to the corporation, unless and only to the extent that the court in which the action or suit was brought or other court of competent jurisdiction determines upon application that in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such expenses as the court deems proper.


(c)  To the extent that a director, officer, employee or agent of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding, or in defense of any claim, issue or matter therein, the corporation shall indemnify him against expenses, including attorneys’ fees, actually and reasonably incurred by him in connection with the defense.


Charter Provisions, Bylaws and Other Arrangements of the Registrant


Our Certificate of Incorporation, as amended, does not contain any specific language enhancing or limiting the Nevada statutory provisions referred to above.


Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy and is, therefore, unenforceable.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.


Security Ownership of Certain Beneficial Owners


The following table sets forth, as of December 31, 2012, the stock ownership of (i) each of our named executive officers and directors, (ii) all executive officers and directors as a group, and (iii) each person known by us to be a beneficial owner of 5% or more of our common stock.  No person listed below has any option, warrant or other right to acquire additional securities from us, except as may be otherwise noted.  We believe that all persons named in the table have sole voting and investment power with respect to all shares of common stock beneficially owned by them except as stated therein.



33




Name and address

 

Number of shares owned

 

 

Percent of Class (3)

 

 

 

 

 

 

Weixing Wang (1)

 

7,270,000

 

 

12.8%

Daniel Sze- Yuen Lee (1)

 

Nil

 

 

Nil  

Kevin Su (1)

 

Nil

 

 

Nil  

Yan Wang (2)

 

6,620,000

 

 

11.6%

Yiquan Song (1)

 

4,000,000

 

 

7.0%

Ming Li

 

4,750,000

(4)

 

8.3%


(1)   Each person named is an executive officer or a director. The address of each such beneficial owner is c/o ANV Security Group, Inc., 8th Floor, Block B, R&D Building, Tsinghua Hi-Tech Park, North Area of Shenzhen Hi-Tech & Industrial Park, Nanshan District, Shenzhen, China 518057.


(2)  The address of Yan Wang is c/o ANV Security Group, Inc., 8th Floor, Block B, R&D Building, Tsinghua Hi-Tech Park, North Area of Shenzhen Hi-Tech & Industrial Park, Nanshan District, Shenzhen, China 518057.


(3)  Applicable percentage ownership is based on 56,950,660 shares of our common stock outstanding as of December 31, 2012. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities.


(4)  The address of Ming Li is 7-10111 Gilbert Road, Richmond, BC, Canada. The number of shares includes 3,100,000 shares owned by Advanced Network Video Inc., a corporation owned by Mr. Li. Mr Li is Chief consultant of the Company.


Changes in Control


We know of no contractual arrangements which may at a subsequent date result in a change of control in the Company.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE


Upon its formation in 2006, CANVSI acquired certain intangible assets consisting of technical know- how and software and non-compete agreements from Canada Landmark Enterprise Group, Inc., a corporation owned by Weixing Wang and Yan Wang for 13,890 shares of CANVSI common stock. In July 2009, these shares were exchanged for the same number of shares of the Company upon the closing of a reorganization agreement described below.


In May 2009, the Company and CANVSI and all of the shareholders of CANVSI entered into an agreement (the “Securities Purchase Agreement”) that provided that  all of the holders of CANVSI would exchange their shares for shares of the Company on a one for one basis so that CANVSI would become a wholly owned subsidiary of the Company.  Weixing Wang and Yan Wang became shareholders, officers and directors of the Company by reason of the Securities Purchase Agreement closing in July 2009.  



34




Director Independence

We believe that the following director of our company is considered “independent” under Rule 400(a)(15) of the National Association of Securities Dealers listing standards:  Daniel Sze-Yuen Lee.


ITEM 14.PRINCIPAL ACCOUNTANT FEES and SERVICES.


Audit Fees


The aggregate fees billed by the Company’s auditors for professional services rendered in connection with the audit of the Company’s annual financial statements and reviews of the financial statements included in the Company’s Form 10-Q or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for fiscal year ended December 31, 2012 and 2011 were $40,000 and $98,000 respectively.


Audit Related Fees


None


Tax Fees


None


All Other Fees


None


Pre-Approval Policies and Procedures


The board of directors has not adopted any pre-approval policies and approves all engagements with the Company’s auditors prior to performance of services by them.



35



PART IV


ITEM 15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES


Exhibit No.                

Description


3.1

Articles of Incorporation, dated May 19, 1981 *

3.2

Articles of Amendment, dated July 12, 1988 *

3.3

Articles of Amendment, dated November 09, 1989 *

3.4

Certificate of Revival for a Nevada Corporation, dated September 10, 2007 *

3.5

Articles of Amendment, dated January 28, 2009 *

3.6

Articles of Amendment, dated June 23, 2009 *

3.7

Articles of Amendment, dated June 23, 2009 *

3.8

By –Laws *

4.1

Form of Stock Certificate *

10.1

Office Lease Current Offices

10.2

Lab Lease *

10.3

Services Agreement with Peer One *

10.4

OEM Manufacturing Agreement *

10.5

Form of Franchise Agreement *

10.6

Form of Customer Agreement *

10.7

Stock Purchase Agreement, dated may 22, 2009, by and among Canada ANV Systems Inc. its shareholders and the Company *

10.8

New Vancouver Office Lease

10.9

Flybit Agreement – English Translation **

10.10

Angesi Agreement – English Translation **

10.11

Revised Angesi Agreement – English Translation ***

22.1

Subsidiaries

23.1                                    Consent of Stan Lee, CPA

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


*  Incorporated by reference to the like numbered exhibit to the Company’s Registration Statement on Form 10

**  Incorporated by reference to exhibit 10.1 to the Company’s current report on Form 8-K filed December 24, 2010

**  Incorporated by reference to exhibit 10.2 to the Company’s current report on Form 8-K filed December 24, 2010

***  Incorporated by reference to exhibit 10.2 to amendment number 2 to the Company’s current report on Form 8-K filed December 24, 2010




36



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:

/S/ Kevin Su

  

  

 Kevin Su

  

  

Chief Financial Officer

  

  

(Principal Financial and Accounting Officer)

  

  

  

March 28, 2013

  

 



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 dates indicated.

Signature

Title

Date

 

 

 

/s/ Weixing Wang

Weixing Wang

Chairman of the Board, Director and Chief Executive Officer

March 28, 2013

 

 

 

/s/ Yiquan Song

Yiquan Song

Member of the Board of Directors

March 28, 2013

 

 

 

/s/ Daniel Sze-Yuen Lee

Daniel Sze-Yuen Lee

Member of the Board of Directors

March 28, 2013

 

 

 




37



ANV Security Group, Inc.



Consolidated Financial Statements


For the year ended December 31, 2012 and 2011





Report of Independent Registered Public Accounting Firm

F-1


Consolidated Balance Sheets

F-2


Consolidated statements of Operations and Comprehensive Income (Loss)

F-3


Consolidated Statements of Cash Flows

F-4


Consolidated Statements of Stockholders’ Equity

F-5


Notes to Consolidated Financial Statements

F-6





















Canuswa Accounting & Tax Services Inc.

1050 Larrabee Ave., Suite 104-314, Bellingham, WA 98225

1172 Murphy Ave., Suite 204, San Jose, CA 95131

          U.S.A.

Tel: (415)329-5779     E-mail: zjcpa@canuswa.com



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




To the Board of Directors and Stockholders
ANV Security Group, Inc.


We have audited the accompanying balance sheet of ANV Security Group, Inc. as of December 31, 2012 and 2011 and the related statements of operation, changes in shareholders’ deficit and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of  ANV Security Group, Inc. as of December 31, 2012  and  2011  and the results of its operation and its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.



/s/ Canuswa Accounting & Tax Services Inc.


Bellingham, Washington 98225

March 28, 2013




F-1









ANV Security Group, Inc.

Consolidated Balance Sheets

(Expressed in US dollars)

 

 

As of December 31

 

 

                                                     2012

 

   2011

ASSETS

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

Cash and Cash Equivalents

 

$

72,316

 

$

1,388,743

Accounts Receivable, net

 

 

1,474,166

 

 

4,860,072

GST Receivable

 

 

                     -

 

 

11,671

Inventories, net

 

 

22,814

 

 

5,252,778

Prepayments and Deposits

 

 

23,736

 

 

1,399,787

Due from Shareholders

 

 

                     -

 

 

177,683

Total Current Assets

 

 

1,593,032

 

 

13,090,734

 

 

 

 

 

 

 

Property, Plant and Equipment , net

 

 

65,090

 

 

636,787

Intangible Assets

 

 

1,177,099

 

 

1,692,613

Goodwill

 

 

                     -

 

 

4,197,256

Deferred Tax Assets

 

 

                     -

 

 

1,397,267

Total Assets

 

$

2,835,221

 

$

21,014,657

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

Accounts Payable and Accrued Expenses

 

$

174,363

 

$

6,986,999

Due to Related Parties

 

 

                     -

 

 

100,801

Total Current Liabilities

 

 

174,363

 

 

7,087,800

Total Liabilities

 

 

174,363

 

 

7,087,800

 

 

 

 

 

 

 

Commitments and Contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ Equity

 

 

 

 

 

 

Common Stock ( $0.001 par value, 100,000,000 shares authorized, 56,950,660 and 70,061,339 shares issued and outstanding, respectively)

 

 

56,951

 

 

74,130

Additional Paid-in Capital

 

 

16,337,998

 

 

19,917,289

Treasury stock

 

 

                     -

 

 

                   -

Deficit Accumulated

 

 

(15,000,937)

 

 

(6,676,164)

Accumulated Other Comprehensive Income

 

 

1,266,846

 

 

611,602

Total Stockholders’ Equity

 

 

2,660,858

 

 

13,926,857

 

 

 

 

 

 

 

Total Liabilities and Stockholders’ Equity

 

$

2,835,221

 

$

21,014,657

 

 

 

 

 

 

 

(The accompanying notes are an integral part of consolidated financial statements.)

F-2






ANV Security Group, Inc.

Consolidated Statements of Operations and Comprehensive Income

(Expressed in US dollars)

 

 

 

For the year ended

 

 

For the year ended

  

 

December 31, 2012

 

December 31, 2011

Continuing Operations

 

 

 

 

Revenues

 

$

                     185,175

 

$

                                -

Cost of Sales

 

$

                       11,452

 

$

                                -

Gross profit

 

 

                     173,723

 

 

                                -

Operating Expenses

 

 

 

 

 

 

   Selling and Marketing

 

 

                       28,308

 

 

                                -

   General and Administrative

 

$

                  1,919,514

 

$

                                -

   Research and Development

 

 

                               -

 

 

                                -

Total Operating Expenses

 

$

                  1,947,822

 

 

                                -

Operating Loss

 

$

                 (1,774,099)

 

 

                                -

Other Income (Expenses)

 

 

 

 

 

 

   Interest Income

 

$

                           350

 

$

                                -

   Interest Expense

 

 

                               -

 

 

                                -

   Loss on disposal of subsidiaries

 

 

                               -

 

 

                                -

   Others, net

 

 

                       79,680

 

 

                                -

Total Other Income (Expense)

 

$

                       80,030

 

 

                                -

Loss Before Income Tax Expense

 

$

                 (1,694,069)

 

 

                                -

Income Tax Expense, Net of Income Tax Benefit

 

 

                               -

 

 

                                -

Net Loss from continuing operations

 

$

                 (1,694,069)

 

$

                                -

Discontinued Operations

 

 

 

 

 

 

Net Income(Loss) from discontinued operations

 

$

                 (6,630,704)

 

$

                  (4,725,778)

Total Income(Loss) for the year

 

$

                 (8,324,773)

 

$

                  (4,725,778)

Other Comprehensive Income (Loss)

 

 

 

 

 

 

   Foreign Currency Translation Adjustment

 

$

                     655,244

 

$

                      331,709

Comprehensive Loss

 

$

                 (7,669,529)

 

$

                  (4,394,069)

Net Loss Per Share – Basic and Diluted

 

$

                        (0.12)

 

$

                         (0.07)

Weighted Average Number of Shares Outstanding – Basic and Diluted

 

 

                 70,061,339

 

 

                 66,130,071

(The accompanying notes are an integral part of consolidated financial statements.)

F-3







ANV Security Group, Inc.

Consolidated Statements of Cash Flows

(Expressed in US dollars)

  

For the year ended

 

For the year ended

  

December 31, 2012

 

December 31, 2011

Cash flows from continuing operating activities

 

 

 

Net loss

$

                            (1,694,069)

 

 $

                                         -

   Depreciation and amortization

 

                                431,213

 

 

                                         -

   Provision for doubtful accounts

 

                                       410

 

 

                                         -

   Loss on disposal of subsidiaries

 

                             3,048,623

 

 

                                         -

Changes in operating assets and liabilities:

 

 

 

 

 

   Prepayment and deposit

 

                                229,952

 

 

                                         -

   Accounts receivable

 

                                 (10,145)

 

 

                                         -

   Inventories

 

                                 (22,726)

 

 

                                         -

   Accounts payable and accrued expenses

 

                                  24,862

 

 

                                         -

  Due to intercompanies

 

                            (2,498,326)

 

 

                                         -

Net Cash (Used in) Provided by Operating Activities

 

                               (490,206)

 

 

                                         -

Cash Flows From Investing Activities

 

 

 

 

 

   Purchase of equipment and furniture

 

                                 (79,604)

 

 

                                         -

   Capitalized intangible costs

 

                                   (2,377)

 

 

                                         -

Net Cash (Used in) Provided by Investing Activities

 

                                 (81,981)

 

 

                                         -

Cash Flows From Financing Activities

 

 

 

 

 

   Proceeds from (repayment to) related parties

 

                                176,425

 

 

                                         -

   Proceeds from common stock subscription receivable and issuance

 

                                    1,289

 

 

                                         -

Net Cash (Used in) Provided by Financing Activities

 

                                177,714

 

 

                                         -

Effect of Exchange Rate Changes on Cash and Cash Equivalents

 

                                       554

 

 

                                         -

Net (Decrease) Increase In Cash and Cash Equivalents

 

                               (393,919)

 

 

                                         -

Net cash flows (used in) provided by discontinued operations

 

                               (922,508)

 

 

                         (3,009,539)

Cash and Cash Equivalents at Beginning of Period

 

                             1,388,743

 

 

                          4,398,282

Cash and Cash Equivalents at End of Period

$

                                  72,316

 

 $

                          1,388,743

Supplemental Schedule of Cash Flows Disclosures

 

 

 

 

 

   Interest paid

$

                                            -

 

 $

                                    338

   Income taxes paid

$

                                            -

 

 $

                             116,318

Supplemental Schedule of Non-Cash Flows Activities

 

 

 

 

 

Asset purchase through contract payable

$

                                            -

 

 $

                          1,194,521

Disposal of subsidiaries through treasury stock

$

                                            -

 

 $

                                         -

Disposal of subsidiaries through receivable

$

                                637,112

 

 $

                                         -

(The accompanying notes are an integral part of consolidated financial statements.)

F-4








ANV Security Group, Inc.

Consolidated Statement of Stockholders' Equity

From March 31, 2010 to December 31, 2012

(Expressed in US dollars)

 

 

Additional

Accumulated

Accumulated

Stock

 

 

Common Stock

Paid-in

Deficit

Comprehensive

Subscription

Total

 

 Shares

Amount

Capital

 

Income

Receivable

 

Balance – March 31, 2010

            33,190,071

        33,190

              1,990,785

                 (739,448)

                      191,875

                           -

              1,476,402

Issuance of Common shares for cash

            14,190,000

        14,190

              6,978,254

                               -

                                  -

                           -

              6,992,444

Issuance of Common shares for subsidiary stock acquisition

            18,000,000

        18,000

              8,982,000

                               -

                                  -

                           -

              9,000,000

Issuance of Common shares for financial consulting service

                 750,000

             750

                 374,250

 

                                  -

                           -

                 375,000

Net loss for the year

                            -

                  -

                            -

              (1,188,203)

                                  -

                           -

            (1,188,203)

Foreign currency translation adjustment

                            -

                  -

                            -

                               -

                        88,018

                           -

                   88,018

Stock Subscription Receivable

                            -

                  -

                            -

                               -

                                  -

              (250,000)

               (250,000)

Balance – December 31, 2010

            66,130,071

        66,130

            18,325,289

              (1,927,651)

                      279,893

              (250,000)

          16,493,661

Net loss for the year

                            -

                  -

                            -

              (4,748,513)

                                  -

                           -

            (4,748,513)

Foreign currency translation adjustment

                            -

                  -

                            -

                               -

                      331,709

                           -

                 331,709

Stock Subscription Receivable

                            -

                  -

                            -

                               -

                                  -

                250,000

                 250,000

Issuance of shares for acquisitions

              8,000,000

          8,000

              1,592,000

                               -

                                  -

                           -

              1,600,000

Balance – December 31, 2011

            74,130,071

        74,130

            19,917,289

              (6,676,164)

                      611,602

                           -

            13,926,857

Net loss for the year

                            -

                  -

                            -

              (8,324,773)

                                  -

                           -

            (8,324,773)

Foreign currency translation adjustment

                            -

                  -

                            -

                               -

                      655,244

                           -

                 655,244

Issuance of shares for cash

                 350,000

             350

                   99,650

                               -

                                  -

                           -

                 100,000

Share from disposal of Shenzhen Factory @US$0.22 per share

            (9,529,411)

         (9,529)

            (2,086,941)

                               -

                                  -

                           -

            (2,096,470)

Share from disposal of 4 subsidiaries @US$0.20 per share

            (8,000,000)

         (8,000)

            (1,592,000)

                               -

                                  -

                           -

            (1,600,000)

Balance – December 31, 2012

            56,950,660

        56,951

            16,337,998

            (15,000,937)

                   1,266,846

                           -

              2,660,858

(The accompanying notes are an integral part of consolidated financial statements.)

F-5





ANV SECURITY GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the year ended December 31, 2012 and 2011

(Expressed in USD)

1.

Organization and Principal Activities


ANV Security Group, Inc. (the “Company”) is a Nevada company and was incorporated on December 18, 2006 in Vancouver, BC, Canada.  The Company’s  headquarter is in Shenzhen, China.


On June 28, 2009, the Company entered into an agreement and plan of reorganization (the “agreement”) by and among Dini Products, Inc. (“DINP”), a Nevada corporation, where each common share of DINP was exchanged on a share-for-share basis for the Company’s shares such that after the exchange, DINP has 33,190,071 common shares issued and outstanding, inclusive of 29,860,000 shares issued to the Company’s stockholders.  Upon the execution of the agreement, the Company changed its name to ANV Security Group, Inc.


The Company specializes in network video surveillance and video alarm service, and conducts new products research & development, software solution and technologies on its current platforms.  The Company plans 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 People’s Republic of China.


On February 10, 2011, the Company changed its fiscal year-end from March 31 to December 31 in order to be aligned with the fiscal years of its principal operating subsidiaries in China.


On May 31, 2012, ANV Security Group, Inc. (the “Company”) entered into an Equity and Intellectual Property Rights Transfer Agreement (the “EIPRTA”) to dispose of all of the shares and related intellectual property of its subsidiary ANV Security Technology (China) Co., Ltd. (“ANV Tech”), by transferring the same to a company owned by its former owner and director. At the same time, the Company sold 100% equity interest in ANV Tech’s four subsidiaries back to former owners of these subsidiaries.


After these dispositions, the Company will focus on customer support and backend service for its multi-platform security monitoring and alerts in real-time through the internet, or 3G and 4G networks. Customers are able to use computer, smart phone or any other internet enabled device to visually monitor their locations where ANV devices have been installed.


Due to the legal restrictions of the internet business in PRC, the Company set up a VIE structure to carry out the business in China. After disposed all the assets and liabilities in ANV ASIA, ANV ASIA has no assets other than cash, but it does have a business operation, namely the management of Shen Zhen Global Intelligent Eye (“ANV GIE”), which is incorporated in December 2011, under the laws of the People’s Republic of China. ANV GIE has two equity owners: 75% of the equity interest owned by Mr. Wang Weixing, CEO and director of the Company, 25% of the equity interest owned by Mr. Feng Chun, General Manager of the ANV GIE.  ANV ASIA carries out that management pursuant to the terms of VIE agreement that it made with ANV GIE and with the equity owners in ANV GIE. Collectively, the agreements provide ANV ASIA exclusive control over the business of ANV GIE. The relationship is one that is generally identified as “entrusted management.” As a result of that relationship, the financial statements of ANV GIE are consolidated with the Company’s financial statements in this report.


At times throughout this Report we will use the term the “Company” to refer to the three entities mentioned above as a single entity, which is a consolidated entity for financial reporting purposes.  References to the


F-6







“business of the Company” and the like, however, all refer to the business carried out by ANV GIE, which is the only one of the three consolidated entities that carries on business operations.   

ANV GIE was founded in December 2011 under the laws of the People’s Republic of China with registered capital of 1 million RMB (US$158,707). ANV’s executive offices and operations are located in Shenzhen, Guangdong Province, in Southern China.  


2.

Summary of Significant Accounting Policies

a)

Basis of Presentation and Going Concern

These consolidated financial statements are those of the Company and its subsidiaries. All significant intercompany transactions have been eliminated. These financial statements and related notes are presented in accordance with the accounting principles generally accepted in the United States and are expressed in US dollars.


The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States, which contemplate continuation of the Company as a going concern. The Company has incurred $15 million losses since inception. Further, as of December 31, 2012 the cash resources of the Company were insufficient to meet its current business plan. These and other factors raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.


The Company expects to develop its business and thereby increase its revenue. However, the Company would require sufficient capital to be invested into the Company to acquire the properties to begin generating sufficient revenue to cover the monthly expenses of the Company. Until the Company is able to generate revenue, the Company would be required to raise capital through the sale of its stock or through debt financing. Management may raise additional capital through future public or private offerings of the Company’s stock or through loans from private investors, although there can be no assurance that it will be able to obtain such financing. The Company’s failure to do so could have a material and adverse effect upon it and its shareholders.

 

To this date the Company has relied on the sale of stock, mainly to its officers and directors, to finance its operations and growth. The Company expects to continue to fund the Company through debt and securities sales and issuances until the Company generates enough revenues through the operations. These transactions will initially be through related parties, such as the Company’s officers and directors.


b)

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and all of its subsidiaries (all subsidiaries are 100% owned by the Company): ANV Security Group (Asia) Co., Ltd. (ANV ASIA), and Shenzhen Intelligent Eye Technology Co., Ltd..  The Company consolidates its subsidiaries in which it has over 50% controlling interests.  All significant intercompany accounts, transactions and cash flows have been eliminated on consolidation.

c)

Use of Estimates

In preparing the Company’s consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. Significant estimates made by management F-7





include: provision for product returns, allowance for doubtful accounts, inventory provision, useful lives of amortizable intangible assets, and provisions for income taxes and realizability of deferred tax assets. On an ongoing basis, management reviews its estimates to ensure that these estimates appropriately reflect changes in the Company’s business and new information as it becomes available. If historical experience and other factors used by management to make these estimates do not reasonably reflect future activity, the Company’s consolidated financial statements could be materially impacted.

d)

Reclassification

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 have no impact on previously stated financial statements of the Company.


e)

Comprehensive Income (Loss)

In accordance with ASC 220-10-55, comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. The Company’s components of comprehensive income for the year ended December 31, 2012 and 2011 were net loss and the foreign currency translation.


f)

Cash and Cash Equivalents

Cash equivalents consist of highly liquid investments that are readily convertible to cash with maturities of three months or less when purchased.


g)

Accounts Receivable

The Company extends unsecured credit to its customers in the ordinary course of business but mitigates the associated risks by performing credit checks and actively pursuing past due accounts. An allowance for doubtful accounts is established and recorded based on management’s assessment of the credit history with the customer and current relationships with them.


h)

Inventories

Inventories are stated at the lower of cost or replacement cost with respect to raw materials and the lower of cost and net realizable value with respect to finished goods and work in progress. Cost of work in progress and finished goods is generally determined on weighted average cost basis and includes direct material, direct labour and overhead. Net realizable value represents the anticipated selling price less estimated costs of completion and distribution.


i)

GST Receivable

GST receivable represents tax credit that the Canadian subsidiary receives when the subsidiary pays GST tax for its normal operations. As of December 31, 2012, the Company had a GST tax receivable of nil.  


j)

Prepayment and Deposits

Prepayment and deposits represent cash paid in advance for purchasing of inventory items from suppliers and the amounts as of December 31, 2012 and 2011 were $23,736 and $1,399,787 respectively.






F-8






k)

Property, Plant and Equipment

Property, plant and equipment are recorded at cost. Significant additions and improvements are capitalized, while repairs and maintenance are charged to expenses as incurred. Equipment purchased for specific research and development projects with no alternative uses are expensed. Assets under construction are not depreciated until construction is completed and the assets are ready for their intended use. Gains and losses from the disposal of property, plant and equipment are included in operating income (loss).


Depreciation of property, plant and equipment generally is computed using the straight-line method based on the estimated useful lives of the assets as follows:


Production equipment

5-10 years

Electronic equipment

                             3-5 years

Vehicle

             

                             5-10 years

Leasehold improvements

               3-5 years

 

l)

Impairment of Long-Lived Assets  

Long-lived assets including intangible assets subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable from the future undiscounted net cash flows expected to be generated by the asset. If the asset is not fully recoverable, an impairment loss would be recognized for the difference between the carrying value of the asset and its estimated fair value based on discounted net future cash flows. There were no impairment adjustments to the carrying value of the long-lived assets for the years ended December 31, 2012 and 2011.


m)

Software Development Costs

The Company accounts for software development costs in accordance with ASC 985-20, “Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed”. Costs related to establishing the technological feasibility of a software product are expensed as incurred as a part of research and development in general and administrative expenses. Costs that are incurred to produce the finished product after technological feasibility is established are capitalized and amortized over the estimated economic life of 5 years. The Company performs periodic reviews to ensure that unamortized program costs remain recoverable from future revenue.


n)

Financial Instruments and Concentration of Credit Risks  

Fair Value of Financial Instruments


Assets and liabilities subject to fair value measurements are required to be disclosed within a specified fair value hierarchy. The fair value hierarchy ranks the quality and reliability of inputs, or assumptions, used in the determination of fair value and requires assets and liabilities carried at fair value to be classified and disclosed in one of the following categories based on the lowest level input used that is significant to a particular fair value measurement:


 • Level 1 — Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.  

 • Level 2 — Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets and liabilities in markets that are not active.  

 • Level 3 — Unobservable inputs for the asset or liability.  



F-9







As of December 31, 2012 and 2011, the Company did not have any Level 2 and 3 financial assets. As of December 31, 2012 and 2011, the Company did not have financial liabilities measured at fair value on a recurring basis.


The fair values of financial instruments are estimated at a specific point in time, based on relevant information about financial markets and specific financial instruments. As these estimates are subjective in nature, involving uncertainties and matters of significant judgment, they cannot be determined with precision. Changes in assumptions can significantly affect estimated fair values.


The carrying values of cash and cash equivalents, restricted cash, short-term investments, accounts receivable, short-term loans, accounts payable and accrued liabilities, and due from related parties approximate their fair value because of their short term nature. The fair values of loans payable and long-term payable for acquisition of assets are based on the estimated discounted value of future contractual cash flows. The discount rate is estimated using the rates currently offered for debt with similar remaining maturities.


Exchange Rate Risks

The Company operates in China, which may give rise to significant foreign currency risks from fluctuations and the degree of volatility of foreign exchange rates between US dollars and the Chinese RMB.


Concentration of Credit Risks


Financial instruments that potentially subject the Company to concentration of credit risks consist primarily of cash and cash equivalents, accounts receivable, and short-term investments, the balances of which are stated on the consolidated balance sheets which represents the Company’s maximum exposure. The Company places its cash and cash equivalents in high credit quality financial institutions. Concentration of credit risks with respect to accounts receivables is linked to the concentration of revenue. To manage credit risk, the Company performs ongoing credit evaluations of customers’ financial condition. The Company does not require collateral or other security to support financial instruments subject to credit risks.


o)

Revenue Recognition


The Company recognizes revenue in accordance with ASC 605, which requires that revenue be recognized when it is earned and either realized or realizable. In general, the Company generates revenue from the sales of surveillance and safety products and systems and revenue is recognized when the following criteria are met:


(i)

Persuasive evidence of an arrangement exists – The Company requires evidence of an agreement with a customer specifying the terms and conditions of the products to be delivered typically in the form of a signed contract or purchase order;

(ii)

Delivery has occurred – For product sales, delivery generally takes place when title to the product is transferred, which generally take place when products are shipped to or accepted by the customer, depending on the terms of the contract;

(iii)

The fee is fixed or determinable – Fees are fixed or determinable based on the contract or purchase order terms; and

(iv)

Collection is probable – The Company performs a credit review of all customers with significant transactions to determine whether a customer is creditworthy and collection is probable.


F-10







p)

Income Taxes

The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns using the liability method. Under this method, deferred tax liabilities and assets are determined based on the temporary differences between the financial statements and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. A valuation allowance is provided for the portion of deferred tax assets that is more likely than not to remain unrealized. Deferred tax assets and liabilities are measured using enacted tax rates and laws.


The Company adopted the guidance issued by the Financial Accounting Standards Board (“FASB”) “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109 (“FIN 48”), codified in the FASB Accounting Standards Codification (“ASC”) 740, Income Taxes. ASC 740 prescribes a more-likely–than-not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740 also provides guidance on the recognition and de-recognition of income tax assets and liabilities; classification of current and deferred income tax assets and liabilities accounting for interest and penalties associated with tax positions; accounting for income taxes in interim periods and income tax disclosures.


The tax benefit from an uncertain tax position is recognized only if it is more likely than not that the tax position will be sustained upon examination by the appropriate taxing authority, based on the technical merits of the position. The tax benefits recognized from such a position are measured based on the amount that is greater than 50% likely of being realized upon settlement. Liabilities associated with uncertain tax positions are classified as long-term unless expected to be paid within one year. Interest and penalties related to uncertain tax positions, if any, are recorded in the provision for income taxes and classified with the related liability on the consolidated balance sheet.


The Company has reviewed the tax positions taken, or to be taken, in its tax return for all tax years currently open to examination by a taxing authority in accordance with the recognition and measurement standards of ASC 740. The Company is not under examination by any authority for income tax purposes and has not applied any income tax filing extension.


The Company’s taxing jurisdiction is U.S. ANV Security Group (Asia) Co., Ltd.’s tax jurisdiction is Hong Kong. Shenzhen Intelligent Eye Technology Co., Ltd.’s taxing jurisdiction is China.


q)

Segments

Operating segments are defined as components of an enterprise for which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. The Company's chief operating decision maker is its Chief Executive Officer. The Company operates exclusively in the network video surveillance sector. The Company’s business is considered as operating in one segment based upon the Company’s organizational structure, the way in which the operation is managed and evaluated, the availability of separate financial results and materiality considerations.


r)

Foreign Exchange Translation

The Company’s financial information is presented in US dollars. The functional currencies of the Company and its subsidiaries include the United States dollar (“US$”), Hong Kong dollar, Canadian dollar and Renminbi (“RMB”).

F-11







The financial statements of the Company have been translated into U.S. dollars in accordance with ASC 830-30 “Translation of Financial Statements”. The financial information is first prepared in functional currencies and then is translated into U.S. dollars at period-end exchange rates as to assets and liabilities and average exchange rates as to revenue and expenses. Capital accounts are translated at their historical exchange rates when the capital transactions occurred. The effects of foreign currency translation are included as a component of accumulated other comprehensive income in shareholders’ equity.


The RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into US dollars at the rates used in translation.


s)

Basic and Diluted Net Income (Loss) Per Share


The Company computes earnings per share (“EPS’) in accordance with ASC 260 “Earnings per Share” (“ASC 260”), and SEC Staff Accounting Bulletin No. 98 (“SAB 98”).  ASC 260 requires companies with complex capital structures to present basic and diluted EPS.  Basic EPS is measured as net income divided by the weighted average common shares outstanding for the period.  Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of potential common shares (e.g., convertible securities, options and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later.  Potential common shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS.

 

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 as at December 31, 2012 and 2011 include its outstanding stock options granted.


t)

Stock-based Compensation  


Compensation expense for costs related to all share-based payments, including grants of stock options, is recognized through a fair-value based method. The Company uses the Black-Scholes option-pricing model to determine the fair value for the awards. The value of the portion of the award that is ultimately expected to vest is recognized on a straight-line basis as expense over the requisite service period in the statement of income.


u)

Recent Accounting Pronouncements


 New Accounting Standards

The company does not expect the adoption of recently issued accounting pronouncements to have a significant impact on its results of operations, financial position or cash flows.                                                                                  


F-12







3.

Inventory


Inventories consisted of the following:


 

December 31, 2012

 

December 31, 2011

 

 

 

 

Raw materials

$                    -

 

$              1,405,438

Work-in-progress

-

 

2,112,771

Finished goods

22,814

 

2,401,635

Less: provision

-

 

(667,066)

 

$         22,814

 

$              5,252,778


As at December 31, 2012 and 2011, the Company recorded an inventory valuation provision for lower of net realizable value or cost of $ nil and $667,066 in the Consolidated Statements of Operations and Comprehensive Income, respectively.


4.

Property,  Plant and Equipment


Property, plant and equipment consisted of the following:


 

December 31, 2012

 

December 31, 2011

 

 

 

 

Production equipment

$             -

 

$242,468

Electronic equipment

9,280

 

212,349

Vehicle

70,635

 

240,336

Leasehold improvements

-

 

191,388

 

79,915

 

886,541

Less: Accumulated depreciation

(11,632)

 

(249,754)

 

$                 65,090

 

$                 636,787


Depreciation expenses for the year ended December 31, 2012 and 2011 were $6,324 and $280,292  respectively.









F-13







5.

Goodwill and other Intangible Assets


a)

Goodwill


The following table summarizes the activities in the Company’s goodwill account during the year ended December 31, 2012 and 2011:


 

December 31, 2012

 

December 31, 2011

 

 

 

 

Beginning balance

$             4,197,256

 

$             6,274,629

Goodwill acquired during the year:

 

 

 

     Flybit

-

 

-

     Angesi(Shenzhen factory)

-

 

-

     Jinan Hualutong

-

 

46,099

     Shijiazhuang Huilin

-

 

46,099

     Taian Comins

-

 

44,601

     Shenyang Huasheng

-

 

44,602

 

-

 

6,456,030

Goodwill disposed during the year:

 

 

 

     Flybit

-

 

(2,258,774)

     Angesi(Shenzhen factory)

(4,015,855)

 

-

     Jinan Hualutong

(46,099)

 

-

     Shijiazhuang Huilin

(46,099)

 

-

     Taian Comins

(44,601)

 

-

     Shenyang Huasheng

(44,602)

 

-

 

(4,197,256)

 

(2,258,774)

 

 

 

 

Ending balance

$                 -

 

$             4,197,256


b)

Intangible assets


Intangible assets are summarized by classifications as follows:


 

December 31, 2012

 

December 31, 2011

 

 

 

 

Software

$              2,028,976

 

$              2,133,376

Incorporation cost

55,330

 

55,187

 

2,084,306

 

2,188,563

Less: Accumulated amortization

(907,207)

 

(495,950)

 

$              1,177,099

 

$              1,692,613


Amortization expenses for the year ended December 31, 2012 and 2011 were $416,447 and $285,908 respectively.


6.

Accounts Payable and Accrued Expenses

As at December 31, 2012 accounts payable and accrued expenses amounted $174,363 representing trade payables to suppliers and accrued expenses incurred in operations. As at December 31, 2011, accounts payable and accrued expenses amounted $6,986,999.

F-14







7.

Related Party Transactions


All inter-company accounts, transactions and cash flows have been eliminated on consolidation. As at December 31, 2012 and 2011, amounts due from/to related parties as below:


The Company has amounts due from individual shareholders in amount of  nil and $177,683 respectively.


The Company owes individual shareholders in amount of  nil and $100,801 respectively.


8.

Capital Stock


As of December 31, 2012, and 2011, the amount of voting common shares issued and outstanding are 56,950,660 and 70,061,339, respectively.


9.

Stock Options


On October 1, 2008, the board of directors adopted the Company's Stock Option Plan. The Company has reserved 1,000,000 shares of common stock for issuance upon exercise of options granted from time to time under the stock option plan. The stock option plan is intended to assist the Company in securing and retaining key employees, directors and consultants by allowing them to participate in the Company's ownership and growth through the grant of incentive and non-qualified options. Under the stock option plan, the Company may grant incentive stock options only to key employees and employee directors, or the Company may grant non-qualified options to employees, officers, directors and consultants. The stock option plan is currently administered by the Company's board of directors. Subject to the provisions of the stock option plan, the board will determine who shall receive options, the number of shares of common stock that may be purchased under the options. As at December 31, 2012, the Company has granted 140,000 shares options.



Shares

 

Weighted Average Exercise Price

Options outstanding at December 31, 2011

140,000

 

$                  0.21

Granted

-

 

-

Options outstanding at December 31, 2012

140,000

 

0.21


Options Outstanding

Range of Exercise Price

 

Number  Outstanding

 

Weighted Average Remaining Contractual Life

 

Weighted Average Exercise Price

$ 0.25

 

40,000

 

0.92 years

 

$ 0.25

$ 0.20

 

100,000

 

1.08  years

 

$ 0.20


Options Exercisable

Number  Outstanding

 

Weighted Average Remaining Contractual Life

 

Weighted Average Exercise Price

140,000

 

1.04 years

 

$ 0.21





F-15







10.

Income Taxes


Shenzhen Intelligent Eye Technology Co., Ltd. is subject to income taxes in China on their taxable income as reported in their statutory accounts at a tax rate in accordance with the relevant income tax laws.


ANV Security Group, Inc. is a U.S. company and subject to taxes in US.


On March 16, 2007, The National People’s Congress of China passed “The Law of the People's Republic of China on Enterprise Income Tax” (the “Enterprise Income Tax Law”). The Enterprise Income Tax Law became effective on January 1, 2008. Under the new law, both domestic companies and foreign invested enterprises are subject to a unified income tax rate of 25% starting from 2008.


The Company has disposed its business on production, so the remaining business is operated by a simple company structure-Only ANV Group, ANV Asia and Shenzhen GIE are included in the continuing operation in consolidated financial statements. At the present, there is no temporary difference that gives rise to the deferred tax assets or liabilities, and the income tax expense or benefit as well. Moreover, there is no comparable data in continuing operation in the same period last year. The deferred tax assets or liabilities are as follows:

 

 

 

 

 

December 31, 2012

 

December 31, 2011

 

 

 

 

Deferred tax assets / (liabilities):

 

 

 

   Provision for bad debts

$                            -

 

$                0

   Inventories

0

 

0

   Property, plant and equipment

0

 

0

   Losses carry forward

321,608

 

0

Total deferred tax assets

321,608

 

0

Less: Valuation allowance

(321,608)

 

0

Net deferred tax assets

$                           0

 

$                0


The valuation allowance is reviewed periodically. When circumstance changes and this causes a change in management’s judgment about the realizability of deferred tax assets, the impact of the change on the valuation allowance is generally reflected in current income.


All income and taxes are attributable to foreign operations. A reconciliation of the federal statutory income tax, at the statutory rate of 35% to the Company’s effective income tax rate, for the year ended December 31, 2012 and 2011 are as follows:

 

December 31, 2012

 

December 31, 2011

 

 

 

 

Loss from operations before taxes

$       (1,694,069)

 

$             0

Statutory tax rate

35%

 

35%

Income tax expense at statutory tax rate

(592,924)

 

0

Foreign tax rate differential

271,316

 

0

Expenses not deductible (recoverable) for income tax purpose

0

 

0

Change in valuation allowance and others

321,608

 

0

Income tax expense (benefit)

$               0

 

$                 0



F-16







11.

Concentrations & Risks

100% of the Company’s revenues for the year ended December 31, 2012 and 2011, respectively, were derived from customers located in China mainland.


The majority of the Company’s assets, liabilities, revenues and expenses are denominated in Renminbi, which was tied to the US Dollar and is now tied to a basket of currencies of China’s largest trading partners, is not a freely convertible currency. The appreciation of the Renminbi against the US Dollar would result in an increase in the assets, liabilities, revenues and expenses of the Company and a foreign currency gain included in comprehensive income. Conversely, the devaluation of the Renminbi against the US Dollar would result in a decrease in the assets, liabilities, revenues and expenses of the Company and a foreign currency loss included in comprehensive income. As at December 31, 2012, approximately US$59,317 of the cash and cash equivalents (December 31, 2011: US$802,207) were held in Renminbi.


12.

Discontinued Operations

As of May 31, 2012, the Company entered into an Equity and Intellectual Property Rights Transfer Agreement (the “EIPRTA”) to dispose of all of the shares and related intellectual property of its subsidiary ANV Security Technology (China) Co., Ltd. (“ANV Tech”), by transferring the same to a company owned by its former owner and director, for five million RMB (approximately $800,000) payable in three installments; (i) 20% on Closing, and 40% on each of December 31, 2012 and 2013 and (B) the return to the Company of 9,529,411 shares from former owner of the Company’s common stock. At the same time, the Company sold 100% equity interest in ANV Tech’s four subsidiaries back to former owners of these subsidiaries by return to the Company of 8,000,000 common shares from former owners of four subsidiaries.  

The operating results of discontinued operations are as follows:

 

For the year ended

December 31, 2012

 

For the year ended

December 31, 2011

Revenues

6,409,306

 

26,839,133

Cost of sales

5,293,803

 

21,768,338

Gross Profit

1,115,503

 

5,070,795

 

 

 

 

Operating Expenses

 

 

 

    Selling and Marketing

767,117

 

2,129,227

    General and Administrative

882,340

 

5,498,185

    Research and Development

382,893

 

1,289,525

Total Operating Expenses

2,032,350

 

8,916,937

Operating Loss

 (916,847)

 

 (3,846,142)

 

 

 

 

Other Income (Expenses)

 

 

 

    Interest Income

59,755

 

2,608

    Interest Expense

 (30,249)

 

 (5,273)

    Loss on disposal of subsidiaries

 (8,804,141)

 

 (1,316,326)

    Others, net

2,836,521

 

 (187,852)

Total Other Income (Expense)

 (5,938,114)

 

 (1,506,843)

 

 

 

 

Loss Before Income Tax Expense

 (6,854,961)

 

 (5,352,985)

Income Tax Expense, Net of Income Tax Benefit

224,257

 

627,207

Net Income (Loss) from discontinued Operations

 (6,630,704)

 

 (4,725,778)


F-17







13.

Commitments and Contingencies


a)

Lease Commitments


The Company leases its headquarter office in Shenzhen, China.  The lease commenced on January 14, 2011 and expires on January 13, 2014.  Its total monthly rental fee is RMB 97,759 (US$15,531).


The Company leases its another office in Shenzhen, China.  The lease expires on March 30, 2013.  Its total monthly rental fee is RMB 7,590 (US$1200).


 

 

 

 

 

RMB

 

USD

Within 1 year

1,195,878

 

190,260

Within 1-2 years  

-

 

-

Thereafter

-

 

-


b)

Litigation


As at December 31, 2012, there were no actions, suits, proceedings or claims pending against the Company, which if adversely determined, would have a material adverse effect on the financial condition of the company.


14.

Subsequent Events


The Company has performed an evaluation of subsequent events in accordance with ASC Topic 855 and the Company is not aware of any subsequent events which would require recognition or disclosure in the financial statements.






















F-18