##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 (Mark One)x
    
    Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934For the Quarterly Period Ended March 31, 2008o
    
    Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 Commission File Number: 000-51456
 
 180 CONNECT INC.
 
 Delaware
(State or Other Jurisdiction of 
Incorporation or Organization)
    
    20-2650200
(IRS Employer
Identification Number)
 6501 E. Belleview Avenue
Englewood, Colorado 80111
(address of principal executive offices)
 Registrants Telephone Number: (303) 395-6000
 
 x o
   Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company x(Do not check if a smaller reporting company)
 o x




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##### 



180 Connect Inc.
Form 10-Q
Quarter Ended March 31, 2008
Table of Contents
  
 PagePart I.
    
    Financial InformationItem 1
    
    Financial Statements
    
    
    3Consolidated Balance Sheets as of March 31, 2008 (Unaudited) and December 31, 2007
    
    
    3Unaudited Consolidated Statements of Operations for the three months ended March 31, 2008 and 2007
    
    
    4Unaudited Consolidated Statements of Shareholders Equity as of March 31, 2008Unaudited Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2008 and 2007
    
    
    5Unaudited Consolidated Statements of Cash Flows for the three months ended March 31, 2008 and 2007
    
    
    6Unaudited Notes to Consolidated Financial Statements
    
    
    7Item 2
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    20Item 4(T)
    
    Controls and Procedures
    
    
    28Part II
    
    Other InformationItem 1
    
    Legal Proceedings
    
    
    28Item 6
    
    Exhibits
    
    
    29Signatures
    
    
    32EX-10.53 Letter AgreementEX-31.1 Section 302 CEO CertificationEX-31.2 Section 302 CFO CertificationEX-32.1 Section 906 CEO & CFO Certification
   
 2




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##### Table of Contents



PART I.  FINANCIAL STATEMENTS
 
 ITEM 1. FINANCIAL STATEMENTS
 
 Consolidated Financial Statements
 180 Connect Inc.Consolidated Balance Sheets
 March 31, 2008
    
    
    December 31, 2007(unaudited)AssetsCurrent AssetsCash and cash equivalents
    
    $
    1,697,153
    
    
    $
    366,449Accounts receivable (less allowance for doubtful
accounts of $4,723,724 and $3,750,200, respectively)
    
    
    36,614,481
    
    
    
    48,378,339Inventory
    
    
    14,632,276
    
    
    
    20,180,167Restricted cash
    
    
    8,494,616
    
    
    
    10,169,108Prepaid expenses and other assets
    
    
    5,973,681
    
    
    
    9,378,519TOTAL CURRENT ASSETS
    
    
    67,412,207
    
    
    
    88,472,582Property, plant and equipment
    
    
    31,588,576
    
    
    
    34,906,750Goodwill
    
    
    11,034,723
    
    
    
    11,034,723Customer contracts, net
    
    
    20,465,338
    
    
    
    21,391,257Other assets
    
    
    2,511,074
    
    
    
    2,478,839TOTAL ASSETS
    
    $
    133,011,918
    
    
    $
    158,284,151Liabilities and Shareholders EquityCurrent liabilitiesAccounts payable and accrued liabilities
    
    $
    59,856,001
    
    
    $
    79,115,651Current portion of long-term debt
    
    
    30,162,746
    
    
    
    27,769,301Fair value of derivative financial instruments
    
    
    157,999
    
    
    
    122,168Current portion of capital lease obligations
    
    
    11,093,413
    
    
    
    11,628,142TOTAL CURRENT LIABILITIES
    
    
    101,270,159
    
    
    
    118,635,262Income tax liability
    
    
    224,063
    
    
    
    191,580Capital lease obligations
    
    
    14,795,706
    
    
    
    17,246,267TOTAL LIABILITIES
    
    
    116,289,928
    
    
    
    136,073,109Commitments and contingencies (Notes 5 and 12)Shareholders EquityCommon stock $.0001 par value; authorized 100,000,000,
Issued and outstanding shares 25,520,152 at March
31, 2008 and December 31, 2007
    
    
    2,552
    
    
    
    2,552Paid-in capital
    
    
    130,525,123
    
    
    
    130,096,083Treasury stock, 500,000 shares at
March 31, 2008 and December 31, 2007 respectively
    
    
    (224,019
    )
    
    
    (224,019
    )Accumulated deficit
    
    
    (113,892,539
    )
    
    
    (107,898,597
    )Accumulated other comprehensive income
    
    
    310,873
    
    
    
    235,023TOTAL SHAREHOLDERS EQUITY
    
    
    16,721,990
    
    
    
    22,211,042TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    133,011,918
    
    
    $
    158,284,151
  3




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##### Table of Contents



180 Connect Inc.
Consolidated Statements of Operations
(Unaudited)
 Three Months Ended
    
    
    Three Months EndedMarch 31, 2008
    
    
    March 31, 2007Revenue
    
    $
    94,208,200
    
    
    $
    91,556,785ExpensesDirect expenses
    
    
    87,903,038
    
    
    
    82,928,200General and administrative (1)
    
    
    6,024,905
    
    
    
    5,037,953Foreign exchange loss
    
    
    
    
    
    
    11,138Restructuring costs
    
    
    
    
    
    
    275,000Depreciation
    
    
    3,427,698
    
    
    
    2,715,565Amortization of customer contracts
    
    
    920,033
    
    
    
    920,376Other expense:Interest and loan fees
    
    
    1,582,132
    
    
    
    2,976,134Loss on sale of assets
    
    
    85,093
    
    
    
    71,778Loss on change in fair value of derivative
liabilities
    
    
    35,831
    
    
    
    2,786,391Loss from continuing operations
before income tax expense
    
    
    (5,770,530
    )
    
    
    (6,165,750
    )Income tax expense
    
    
    214,077
    
    
    
    74,000Loss from continuing operations
    
    
    (5,984,607
    )
    
    
    (6,239,750
    )Income (loss) from discontinued operations,
net of income taxes of $0 for March 31,
2008 and March 31, 2007
    
    
    (9,335
    )
    
    
    250,683Net loss for the period
    
    $
    (5,993,942
    )
    
    $
    (5,989,067
    )Net loss per share from continuing
operations:Basic and diluted
    
    $
    (0.23
    )
    
    $
    (0.42
    )Net loss per share:Basic and diluted
    
    $
    (0.23
    )
    
    $
    (0.41
    )Weighted average number of shares
outstanding  basic and diluted
    
    
    25,520,152
    
    
    
    14,689,112
 
 (1)
    
    General and administrative includes stock-based compensation of $518,244, and $0
for the three months ended March 31, 2008, and March 31, 2007, respectively.  4




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##### Table of Contents



180 Connect Inc.
Consolidated Statements of Shareholders Equity
(Unaudited)
 Common
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accumulated OtherStock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Compre-Out-
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    hensivestanding
    
    
    Common
    
    
    
    
    
    
    Treasury
    
    
    Accumulated
    
    
    IncomeShares
    
    
    Stock
    
    
    Paid in Capital
    
    
    Stock
    
    
    Deficit
    
    
    (loss)
    
    
    TotalBalances at December 31, 2007
    
    
    25,520,152
    
    
    $
    2,552
    
    
    $
    130,096,083
    
    
    $
    (224,019
    )
    
    $
    (107,898,597
    )
    
    $
    235,023
    
    
    $
    22,211,042Issuance costs attributed to reverse
merger
    
    
    
    
    
    
    
    
    
    
    (89,204
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (89,204
    )Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    518,244
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    518,244Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    75,850
    
    
    
    75,850Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,993,942
    )
    
    
    
    
    
    
    (5,993,942
    )Balances at March 31, 2008
    
    
    25,520,152
    
    
    $
    2,552
    
    
    $
    130,525,123
    
    
    $
    (224,019
    )
    
    $
    (113,892,539
    )
    
    $
    310,873
    
    
    $
    16,721,990
 
 180 Connect Inc.
Consolidated Statements of Comprehensive Loss
(Unaudited)
 Three Months Ended
    
    
    Three Months EndedMarch 31, 2008
    
    
    March 31, 2007Net loss
    
    $
    (5,993,942
    )
    
    $
    (5,989,067
    )Other comprehensive income:Foreign currency translation
    
    
    75,850
    
    
    
    Comprehensive loss
    
    $
    (5,918,092
    )
    
    $
    (5,989,067
    )
  5




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##### Table of Contents



180 Connect Inc.
Consolidated Statements of Cash Flows
(Unaudited)
 Three Months Ended
    
    
    Three Months EndedMarch 31, 2008
    
    
    March 31, 2007Cash provided by (used in) the following activities:OperatingLoss from continuing operations
    
    $
    (5,984,607
    )
    
    $
    (6,239,750
    )Add (deduct) items not affecting cash:Depreciation, amortization and impairment
    
    
    4,347,731
    
    
    
    3,635,941Non-cash interest expense
    
    
    576,810
    
    
    
    1,088,373Stock-based compensation
    
    
    518,244
    
    
    
    Loss on change in fair value of derivative
liabilities
    
    
    35,831
    
    
    
    2,786,391Loss on sale of assets
    
    
    85,093
    
    
    
    71,778Other
    
    
    75,130
    
    
    
    4,171Changes in non-cash working capital balances related
to operations:Accounts receivable
    
    
    11,763,858
    
    
    
    13,732,512Inventory
    
    
    5,547,891
    
    
    
    (600,343
    )Other current assets
    
    
    660,389
    
    
    
    (878,414
    )Insurance premium deposits
    
    
    2,744,449
    
    
    
    2,197,137Other assets
    
    
    (304,799
    )
    
    
    (1,102,064
    )Restricted cash
    
    
    1,674,492
    
    
    
    1,481,437Accounts payable and accrued liabilities
    
    
    (19,227,168
    )
    
    
    (17,678,958
    )Operating cash flows from discontinued operations
    
    
    (2,827
    )
    
    
    291,115Total cash provided by (used in) operating activities
    
    
    2,510,517
    
    
    
    (1,210,674
    )InvestingPurchase of property, plant and equipment
    
    
    (264,172
    )
    
    
    (699,342
    )Total cash used in investing activities
    
    
    (264,172
    )
    
    
    (699,342
    )FinancingRepayment of capital lease obligations
    
    
    (2,916,356
    )
    
    
    (3,491,760
    )Repayment of debt
    
    
    (2,000,001
    )
    
    
    (1,333,334
    )Proceeds from share issuance
    
    
    
    
    
    
    29,408Issuance costs on reverse merger
    
    
    (89,204
    )
    
    
    Borrowings under the Revolving credit facility
    
    
    4,089,201
    
    
    
    5,098,563Total cash provided by (used in) financing activities
    
    
    (916,360
    )
    
    
    302,877Effect of exchange rates on cash and cash equivalents
    
    
    719
    
    
    
    (4,171
    )Net increase (decrease) in cash and cash equivalents
during the period
    
    
    1,330,704
    
    
    
    (1,611,310
    )Cash and cash equivalents, beginning of period
    
    
    366,449
    
    
    
    2,904,098Cash and cash equivalents, end of period
    
    $
    1,697,153
    
    
    $
    1,292,788Supplemental cash flow information:Interest paid
    
    $
    803,752
    
    
    $
    2,105,346Income taxes paid
    
    $
    124,405
    
    
    $
    12,595
 Supplemental disclosure of non-cash investing and financing transactions:
   6




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180 Connect Inc.
Notes to Consolidated Financial Statements
(Unaudited)
 1. BASIS OF PRESENTATION
       Nature of the Business
    7




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##### Table of Contents



Seasonality
  2. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
  
    
    Permits fair value remeasurement for any hybrid financial instrument that contains an
embedded derivative that otherwise would require bifurcation.
    
    Clarifies which interest-only strips and principal-only strips are not subject to the
requirements of Statement 133.
    
    Establishes a requirement to evaluate interests in securitized financial assets to
identify interests that are freestanding derivatives or that are hybrid financial
instruments that contain an embedded derivative requiring bifurcation.
    
    Clarifies that concentrations of credit risk in the form of subordination are not
embedded derivatives.
    
    Amends SFAS No. 140 Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities to eliminate the prohibition on a qualifying
special-purpose entity from holding a derivative financial instrument that pertains to a
beneficial interest other than another derivative financial instrument.
  Fair Value Measurements Effective Date of FASB Statement No. 157
 Basis of Fair Value Measurement (Valuation Hierarchy)
  Level 1 
    
    Unadjusted quoted prices for identical and unrestricted assets or liabilities in active markets
 Level 2 
    
    Quoted prices for similar assets and liabilities in active markets, and inputs that are
observable for the asset or liability, either directly or indirectly, for substantially the
full term of the financial instrument
 Level 3 
    
    Unobservable inputs that are significant to the fair value measurement
 8




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##### Table of Contents



Fair value measurementsat March 31, 2008using:Description
    
    Total
    
    
    Level 2Fair value of derivative financial
instruments
    
    $
    157,999
    
    
    $
    157,999
   ,
  3. RESTRICTED CASH
  9




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##### Table of Contents



4. GOODWILL AND CUSTOMER CONTRACTS
  March 31, 2008
    
    
    December 31, 2007Goodwill
    
    $
    11,034,723
    
    
    $
    11,034,723
 March 31, 2008
    
    
    December 31, 2007Customer Contracts:
    
    $
    36,498,372
    
    
    $
    36,498,372Accumulated amortization
    
    
    (16,033,034
    )
    
    
    (15,107,115
    )Net
    
    $
    20,465,338
    
    
    $
    21,391,257
   2008 (remainder)
    
    $
    2,755,5842009
    
    
    3,681,5032010
    
    
    3,681,5032011
    
    
    3,681,5032012
    
    
    3,681,503Thereafter
    
    
    2,983,742Total
    
    $
    20,465,338
 10




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5. LONG-TERM DEBT AND COMMON STOCK PURCHASE WARRANTS
  March 31, 2008
    
    
    December 31, 2007Revolving credit facility
of up to $37,000,000
bearing interest at prime
plus 3% to 5%, subject to
a minimum interest rate
of 10% to 11% with
interest payable monthly.
The revolving credit
facility is subject to
180 Connect (NV)s (as
defined below) eligible
trade receivables and
inventory as per the debt
agreement and
collateralized by 180
Connect (NV)s real and
personal property. At
March 31, 2008, the
interest rate of the
revolving credit facility
was 10% with an effective
interest rate of 13%. At
December 31, 2007, the
interest rate of the
revolving credit facility
was 10.75% with an
effective interest rate
of 14.3%. Repayment is
due on or before July 31,
2009. The credit
facility may be borrowed,
repaid, and reborrowed in
accordance with the terms
of the Security and
Purchase Agreement. As
of March 31, 2008 and
December 31, 2007, the
revolving credit facility
has $1,034,596 and
$1,228,583 of unamortized
discount attributed to
warrants issued to the
Companys lender
    
    $
    24,716,452
    
    
    $
    20,433,263Term note, bearing
interest at prime plus
5%, subject to a minimum
interest rate of 12% and
interest is payable
monthly. At March 31,
2008, the interest rate
was 12% with an effective
interest rate of 19.8%.
At December 31, 2007, the
interest rate was 12.75%
with an effective
interest rate of 20.4%.
Repayments of the term
note commenced on
February 1, 2007 for
$666,667 per month, with
the final payment due on
December 1, 2008. As of
March 31, 2008 and
December 31, 2007, the
term note has $220,368
and $330,625 of
unamortized discount
attributed to warrants
issued to the Companys
lender
    
    
    5,446,294
    
    
    
    7,336,038Total debt
    
    
    30,162,746
    
    
    
    27,769,301Less: current portion
    
    
    (30,162,746
    )
    
    
    (27,769,301
    )Total long-term debt
    
    $
    
    
    
    $
    
    11




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Issue EITF No.00-19
    12




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6. WARRANTS AND DERIVATIVE FINANCIAL INSTRUMENTS
         13




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EmbeddedWarrants
    
    
    Derivatives
    
    
    TotalFair value at December 31, 2007
    
    $
    122,168
    
    
    $
    
    
    
    $
    122,168Changes in fair value
    
    
    35,831
    
    
    
    
    
    
    
    35,831Fair value, March 31, 2008
    
    $
    157,999
    
    
    $
    
    
    
    $
    157,999
 EmbeddedWarrants
    
    
    Derivatives
    
    
    TotalFair value at December 31, 2006
    
    $
    1,035,207
    
    
    $
    3,030,522
    
    
    $
    4,065,729Changes in fair value
    
    
    737,931
    
    
    
    2,048,460
    
    
    
    2,786,391Fair value, March 31, 2007
    
    $
    1,773,138
    
    
    $
    5,078,982
    
    
    $
    6,852,120
 7. STOCK-BASED COMPENSATION
     14




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3 Year
    
    
    
    
    
    
    Share3 Year
    
    
    4 Year
    
    
    Restricted Stock
    
    
    4 Year Restricted
    
    
    AppreciationStock Options
    
    
    Stock Options
    
    
    Units
    
    
    Stock Units
    
    
    RightsNumber granted
    
    
    499,750
    
    
    
    664,500
    
    
    
    445,250
    
    
    
    370,500
    
    
    
    167,999Stock price on day of grant
    
    $
    3.25
    
    
    $
    3.25
    
    
    $
    3.25
    
    
    $
    3.25
    
    
    $
    4.01Exercise price
    
    $
    3.25
    
    
    $
    3.25
    
    
    
    
    
    
    
    
    
    
    $
    2.50Expected life in years
    
    
    4.5
    
    
    
    4.75
    
    
    
    3
    
    
    
    3.25
    
    
    
    3.75Vesting period in years
    
    
    3
    
    
    
    4
    
    
    
    3
    
    
    
    4
    
    
    
    4Interest free rate
    
    
    4.25
    %
    
    
    4.25
    %
    
    
    4.25
    %
    
    
    4.25
    %
    
    
    4.44
    %Volatility
    
    
    61.0
    %
    
    
    61.0
    %
    
    
    61.0
    %
    
    
    61.0
    %
    
    
    60.5
    %Forfeiture rate
    
    
    18.0
    %
    
    
    18.0
    %
    
    
    18.0
    %
    
    
    18.0
    %
    
    
    18.0
    %Dividend
    
    Zero
    
    Zero
    
    Zero
    
    Zero
    
    Zero
    Three Months Ended
    
    
    Year EndedMarch 31, 2008
    
    
    December 31, 2007Number of
    
    
    Weighted Average
    
    
    Number of
    
    
    Weighted AverageOptions
    
    
    Exercise Price
    
    
    Options
    
    
    Exercise PriceOutstanding,
beginning of period
    
    
    2,376,650
    
    
    $
    2.10
    
    
    
    349,946
    
    
    $
    2.92Granted
    
    
    25,000
    
    
    $
    1.04
    
    
    
    2,147,999
    
    
    $
    1.96Exercised
    
    
    
    
    
    
    
    
    
    
    (46,467
    )
    
    $
    1.67Cancelled
    
    
    (129,278
    )
    
    $
    1.97
    
    
    
    (74,828
    )
    
    $
    1.67Outstanding, end of
period
    
    
    2,272,372
    
    
    $
    2.10
    
    
    
    2,376,650
    
    
    $
    2.10Options
exercisable, end of
period
    
    
    349,686
    
    
    $
    2.42
    
    
    
    268,651
    
    
    $
    3.29
 15




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Restricted Stock Units, Options, and ShareAppreciation Rights OutstandingWeighted AverageRemainingNumber
    
    
    Contractual Life
    
    
    Weighted AverageSecurity
    
    Of Shares
    
    
    (Years)
    
    
    Exercise PriceRestricted stock units under LTIP
    
    
    772,000
    
    
    
    3.42
    
    
    
    Stock options granted during
Cable Play
Acquisition
    
    
    246,373
    
    
    
    2.86
    
    
    $
    3.43Share appreciation rights
    
    
    155,999
    
    
    
    3.67
    
    
    $
    2.50Stock options granted under LTIP
    
    
    1,098,000
    
    
    
    6.42
    
    
    $
    3.22
 8. INCOME TAXES
 Three Months EndedMarch 31, 2008
    
    
    March 31, 2007Income tax expense
    
    $
    214,077
    
    
    $
    74,000Effective tax rate
    
    
    (3.7
    )%
    
    
    (1.2
    )%
    Gross balance at January 1, 2008
    
    $
    191,580Increase related to current tax provisions
    
    
    32,483Gross balance at March 31, 2008
    
    $
    224,063
   16




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##### Table of Contents



9. LOSS PER SHARE
  Three Months Ended
    
    
    Three Months EndedMarch 31, 2008
    
    
    March 31, 2007Numerator:Loss from continuing operations
    
    $
    (5,984,607
    )
    
    $
    (6,239,750
    )Gain (loss) from discontinued operations
    
    
    (9,335
    )
    
    
    250,683Net loss for the period
    
    $
    (5,993,942
    )
    
    $
    (5,989,067
    )Denominator:Denominator for basic loss per
share  weighted average number of
shares
    
    
    25,520,152
    
    
    
    14,689,112Denominator for diluted loss per
share  adjusted weighted average shares
and assumed conversion
    
    
    25,520,152
    
    
    
    14,689,112Income (loss) per share data:Basic and diluted from continuing
operation
    
    $
    (0.23
    )
    
    $
    (0.42
    )Basic and diluted from discontinued
operations
    
    $
    0.00
    
    
    $
    0.01Basic, net
    
    $
    (0.23
    )
    
    $
    (0.41
    )
   Number of SharesTotal outstanding shares as of March 31, 2008
    
    
    25,520,152Potentially Dilutive SecuritiesPIPE Warrants
    
    
    942,060Laurus Warrants
    
    
    400,000Creative Vista Inc. Warrants (Note 5)
    
    
    450,000Magnetar Warrants
    
    
    266,393Employee stock options
    
    
    1,344,373Employee restricted stock units
    
    
    772,000Share appreciation rights
    
    
    155,999Public Warrants and Unit Options
    
    
    19,350,000Maximum Potential Diluted Shares Outstanding
    
    
    49,200,977
 17




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##### Table of Contents



10. LOSS ON SALE OF ASSETS
  11. DISCONTINUED OPERATIONS
   Three Months Ended
    
    
    Three Months EndedMarch 31, 2008
    
    
    March 31, 2007Revenue from discontinued operations
    
    $
    4,452
    
    
    $
    1,792,449Income (loss) from discontinued
operations, net of income taxes of
zero
    
    $
    (9,335
    )
    
    $
    250,683Diluted income (loss) per share from
discontinued operations
    
    $
    (0.00
    )
    
    $
    0.01
 12. CONTINGENCIES
     18




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##### Table of Contents



13. SEGMENT INFORMATION
    Geographic information
 March 31, 2008
    
    
    December 31, 2007Property plant and equipment, goodwill and
customer contracts, netCanada
    
    $
    1,346,632
    
    
    $
    1,441,250United States
    
    
    61,742,005
    
    
    
    65,891,480Total
    
    $
    63,088,637
    
    
    $
    67,332,730
 Three Months Ended
    
    
    Three Months EndedMarch 31, 2008
    
    
    March 31, 2007RevenueCanada
    
    $
    3,387,336
    
    
    $
    2,653,750United States
    
    
    90,820,864
    
    
    
    88,903,035Total
    
    $
    94,208,200
    
    
    $
    91,556,785
 14. SUBSEQUENT EVENTS
  19




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##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
       Principles of Consolidation and Basis of Presentation
      20




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##### Table of Contents



Seasonality
  Selected Financial Highlights  First Quarter Ended March 31, 2008
  First Quarter Highlights
 
    
    Revenue grew to $94.2 million, an increase of $2.6 million, or 2.9%, compared to
revenue of $91.6 million in 2007.
    
    EBITDA from continuing operations (1)was $0.3 million, a decrease of $
3.0 million or 91.5% compared to $3.3 million in 2007.
    
    Total cash provided by operating activities was $2.5 million, an increase of
$3.7million from the cash used by operating activities of $1.2 million in 2007.
    
    Loss from continuing operations was $6.0 million, an improvement of $0.2 million
compared to a loss from continuing operations of $6.2 million in 2007.
    
    Net loss was $6.0 million unchanged compared to 2007.
    
    Net loss per share for the three months ended March 31, 2008 and March 31, 2007,
respectively, is as follows:
 
    
    Loss from continuing operations was $0.23 per share basic and diluted compared to
a loss from continuing operations of $0.42 per share basic and diluted in 2007.
    
    Net loss was $ 0.23 per share basic and diluted compared to net loss of $0.41
per share basic and diluted in 2007.
 (1)
    
    EBITDA from continuing operations excludes depreciation, amortization of customer
contracts, interest and loan fees, loss on change in fair value of derivative
liabilities, loss on sale of assets and income tax expense. EBITDA from continuing
operations is a non-U.S. GAAP measure and does not have a standardized meaning prescribed by
U.S. GAAP. Therefore, EBITDA from continuing operations is not likely to be comparable to
similar measures presented by other issuers. See Non-U.S. GAAP Measures. Management
believes that this term provides a better assessment of cash flow from our operations by
eliminating the charges for depreciation and amortization, which are non-cash expense
items, and loss on sale of assets, and loss on fair market value of derivative
liabilities, which is not considered to be in the normal course of operating activity.
The comparative U.S. GAAP measure is loss from continuing operations. A reconciliation of
EBITDA from continuing operations to loss from continuing operations is contained in
this MD&A under EBITDA from continuing operations.
 Comparison of Quarters Ended March 31, 2008 and March 31, 2007
 Selected Financial Information
  Financial Review
    21




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##### Table of Contents



Results of Operations
 Comparison of Quarters Ended March 31, 2008 and 2007
 For the Three
    
    
    For the ThreeMonths Ended
    
    
    Months EndedMarch 31, 2008
    
    
    March 31, 2007
    
    
    % ChangeRevenue
    
    $
    94,208,200
    
    
    $
    91,556,785
    
    
    
    2.9
    %Direct expenses
    
    
    87,903,038
    
    
    
    82,928,200
    
    
    
    6.0
    %Direct contribution margin (1)
    
    
    6,305,162
    
    
    
    8,628,585
    
    
    
    (26.9
    )%General and administrative(2)
    
    
    6,024,905
    
    
    
    5,037,953
    
    
    
    19.6
    %Foreign exchange loss
    
    
    
    
    
    
    11,138
    
    
    
    (100.0
    )%Restructuring costs
    
    
    
    
    
    
    275,000
    
    
    
    (100.0
    )%Depreciation
    
    
    3,427,698
    
    
    
    2,715,565
    
    
    
    26.2
    %Amortization of customer contracts
    
    
    920,033
    
    
    
    920,376
    
    
    
    Other expense:Interest and loan fees
    
    
    1,582,132
    
    
    
    2,976,134
    
    
    
    (46.8
    )%Loss on sale of assets
    
    
    85,093
    
    
    
    71,778
    
    
    
    18.6
    %Loss on change in fair value of derivative liabilities
    
    
    35,831
    
    
    
    2,786,391
    
    
    
    (98.7
    )%Loss from continuing operations before income tax
expense
    
    
    (5,770,530
    )
    
    
    (6,165,750
    )
    
    
    (6.4
    )%Income tax expense
    
    
    214,077
    
    
    
    74,000
    
    
    
    189.3
    %Loss from continuing operations
    
    
    (5,984,607
    )
    
    
    (6,239,750
    )
    
    
    (4.1
    )%Income (loss) from discontinued operations
    
    
    (9,335
    )
    
    
    250,683
    
    
    
    (103.7
    )%Net loss for the period
    
    $
    (5,993,942
    )
    
    $
    (5,989,067
    )
    
    
    0.1
    %Net loss per share from continuing operationsBasic
    
    $
    (0.23
    )
    
    $
    (0.42
    )Diluted
    
    $
    (0.23
    )
    
    $
    (0.42
    )Net loss per shareBasic
    
    $
    (0.23
    )
    
    $
    (0.41
    )Diluted
    
    $
    (0.23
    )
    
    $
    (0.41
    )
 
 (1)
    
    DCM consists of revenue less direct expenses and excludes general and administrative
expense, foreign exchange loss, restructuring costs, depreciation, amortization of
customer contracts, interest and loan fees, loss on sale of assets, loss on change in fair
value of derivative liabilities, and income tax expense. DCM is a non-U.S. GAAP measure. The
comparative U.S. GAAP measure is loss from continuing operations. For a reconciliation of DCM
to loss from continuing operations, see Direct Contribution Margin.(2)
    
    General and administrative includes stock-based compensation of $518,244 and $0, for
the three months ended March 31, 2008 and March 31, 2007, respectively. Revenue
    22




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##### Table of Contents



Direct Contribution Margin
   Reconciliation of DCM to Loss from Continuing Operations
 Three Months Ended
    
    
    Three Months EndedMarch 31, 2008
    
    
    March 31, 2007Direct contribution margin (1)
    
    $
    6,305,162
    
    
    $
    8,628,585General and administrative (2)
    
    
    6,024,905
    
    
    
    5,037,953Foreign exchange loss
    
    
    
    
    
    
    11,138Restructuring costs
    
    
    
    
    
    
    275,000Depreciation
    
    
    3,427,698
    
    
    
    2,715,585Amortization of customer contracts
    
    
    920,033
    
    
    
    920,376Other expense:Interest and loan fees
    
    
    1,582,132
    
    
    
    2,976,134Loss on sale of assets
    
    
    85,093
    
    
    
    71,778Loss on change in market value of derivative liabilities
    
    
    35,831
    
    
    
    2,786,391Loss from continuing operations before income tax
expense
    
    
    (5,770,530
    )
    
    
    (6,165,750
    )Income tax expense
    
    
    214,077
    
    
    
    74,000Loss from continuing operations
    
    $
    (5,984,607
    )
    
    $
    (6,239,750
    )
 
 (1)
    
    DCM consists of revenue less direct expenses and excludes general and administrative
expense, foreign exchange loss, restructuring costs, loss on sale of assets, depreciation,
amortization of customer contracts, interest and loan fees, loss on change in fair value
of derivative liabilities, and income tax expense. DCM is a non-U.S. GAAP measure. See
Non-U.S. GAAP Measures. The comparative U.S. GAAP measure is loss from continuing operations.(2)
    
    General and administrative includes stock-based compensation of $518,244 and $0,
for the three months ended March 31, 2008 and March 31, 2007, respectively. General and Administrative Expenses, Restructuring Costs and Non-Cash Stock-Based Compensation
   EBITDA from Continuing Operations
  23




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##### Table of Contents



Reconciliation of EBITDA to Loss from Continuing Operations
 Three Months Ended
    
    
    Three Months EndedMarch 31, 2008
    
    
    March 31, 2007EBITDA from continuing operations (1)
    
    $
    280,257
    
    
    $
    3,304,494Depreciation
    
    
    3,427,698
    
    
    
    2,715,565Amortization of customer contracts
    
    
    920,033
    
    
    
    920,376Other expense:Interest and loan fees
    
    
    1,582,132
    
    
    
    2,976,134Loss on sale of assets
    
    
    85,093
    
    
    
    71,778Loss on change in fair value of derivative liabilities
    
    
    35,831
    
    
    
    2,786,391Loss from continuing operations before income tax
expense
    
    
    (5,770,530
    )
    
    
    (6,165,750
    )Income tax expense
    
    
    214,077
    
    
    
    74,000Loss from continuing operations
    
    $
    (5,984,607
    )
    
    $
    (6,239,750
    )
 
 (1)
    
    See Non-U.S. GAAP Measures Depreciation and Amortization of Customer Contracts
  Other Income and Expense and Interest and Loan Fees
    Income Tax Expense
  Loss from Continuing Operations
  Income (loss) from Discontinued Operations
  24




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##### Table of Contents



Net Loss
  Liquidity and Capital Resources
    Agreements with Laurus
    25




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##### Table of Contents



Private Placement
   Vehicle Leasing Arrangements
  Cash Flow from Operating Activities
   Cash Flow from Investing Activities
   Cash Flow from Financing Activities
  26




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##### Table of Contents



Off-Balance Sheet Obligations
  Forward-Looking Statements
  Non-GAAP Measures
  27




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##### Table of Contents



ITEM 4(T). CONTROLS AND PROCEDURES
  Change in Internal Control over Financial Reporting
   
 PART II.  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  28




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##### Table of Contents



Item 6. Exhibits
  ExhibitNumber
    
    Description2.1
    
    Arrangement Agreement, dated March 13, 2007, by and among 180 Connect Exchangeco Inc. (formerly 6732097
Canada Inc.), Ad.Venture Partners, Inc. and 180 Connect Inc. (a Canadian corporation)(1)2.2
    
    Plan of Arrangement, dated March 13, 2007, by and among 180 Connect Exchangeco Inc. (formerly 6732097 Canada
Inc.), Ad.Venture Partners, Inc. and 180 Connect Inc. (a Canadian corporation)(1)2.3
    
    Amendment No. 1, dated as of July 2, 2007, to the Arrangement Agreement, dated March 13, 2007, by and among
180 Connect Exchangeco Inc. (formerly 6732097 Canada Inc.), Ad.Venture Partners, Inc. and 180 Connect Inc. (a
Canadian corporation)(3)2.4
    
    Amendment No. 2, dated as of August 6, 2007, to the Arrangement Agreement, dated March 13, 2007, by and among
180 Connect Exchangeco Inc. (formerly 6732097 Canada Inc.), Ad.Venture Partners, Inc. and 180 Connect Inc. (a
Canadian corporation)(3)2.5
    
    Voting and Exchange Trust Agreement, dated as of March 13, 2007, by and among 180 Connect Exchangeco Inc.
(formerly 6732097 Canada Inc.), Ad.Venture Partners, Inc. and Valiant Trust Company(1)2.6
    
    Support Agreement, dated as of March 13, 2007, by and among Ad.Venture Partners, Inc., 1305699 Alberta ULC
and 6732097 Canada Inc.(1)3.1
    
    Amended and Restated Certificate of Incorporation of 180 Connect Inc.(2)3.2
    
    By-laws of 180 Connect Inc.(2)4.1
    
    Specimen Unit Certificate(2)4.2
    
    Specimen Common Stock Certificate(2)4.3
    
    Specimen Warrant Certificate(2)4.4
    
    Warrant Agreement by and among Continental Stock Transfer & Trust Company and Ad.Venture Partners, Inc.(2)4.5
    
    Form of Unit Purchase Option granted to Wedbush Morgan Securities Inc.(2)9.1
    
    Form of Voting Agreement entered into as of March 13, 2007 by and between Ad.Venture Partners, Inc. and each
of Messrs. Giacalone, Hallmen, McCarthy, Osing, Roszak and Simunovic(1)9.2
    
    Form of Parent Voting Agreement entered into as of March 13, 2007 by and between 180 Connect Inc. (a Canadian
corporation) and each of Messrs. Balter, Slasky, Askowitz and Kalish(1)10.1
    
    Letter Agreement, dated as of April 12, 2005, by and between Howard S. Balter and Ad.Venture Partners, Inc.(2)10.2
    
    Letter Agreement, dated as of April 12, 2005, by and between Ilan M. Slasky and Ad.Venture Partners, Inc.(2)10.3
    
    Letter agreement between Wedbush Morgan Securities Inc. and Howard S. Balter(2)10.4
    
    Letter Agreement between Wedbush Morgan Securities Inc. and Ilan M. Slasky(2)10.5
    
    Warrant Purchase Agreement among Wedbush Morgan Securities, Inc. and each of Howard S. Balter and Ilan M.
Slasky(2)10.6
    
    Form of Affiliate Agreement entered into as of March 13, 2007 by each of Messrs. Giacalone, Hallmen,
McCarthy, Osing, Roszak and Simunovic in favor and for the benefit of Ad.Venture Partners, Inc.(1)10.7
    
    Securities Purchase Agreement, dated March 21, 2006, by and among 180 Connect Inc. (a Canadian corporation)
and Midsummer Investment Ltd., Radcliffe SPC, Ltd., and CAMOFI Master LDC(3)10.8
    
    Registration Rights Agreement, dated March 21, 2006, by and among 180 Connect Inc. (a Canadian corporation)
and Midsummer Investment Ltd., Radcliffe SPC, Ltd., and CAMOFI Master LDC(3)10.9
    
    Replacement Common Stock Purchase Warrant, dated August 24, 2007, issued to Midsummer Investment Ltd. to
purchase 528,948 shares of common stock of the Company(4)10.10
    
    Replacement Common Stock Purchase Warrant, dated August 24, 2007, issued to Radcliffe SPC, Ltd. to purchase
206,556 shares of common stock of the Company(4)10.11
    
    Replacement Common Stock Purchase Warrant, dated August 24, 2007, issued to CAMOFI Master LDC to purchase
206,556 shares of common stock of the Company(4)10.12
    
    Replacement 9.33% Convertible Debenture, dated August 24, 2007, issued to Midsummer Investment Ltd. by the
Company in the amount of $3,975,248.48(4)10.13
    
    Replacement 9.33% Convertible Debenture, dated August 24, 2007, issued to Radcliffe SPC, Ltd. by the Company
in the amount of $2,343,033.56(4)10.14
    
    Replacement 9.33% Convertible Debenture, dated August 24, 2007, issued to CAMOFI Master LDC by the Company in
the amount of $2,343,033.56(4)10.15
    
    Amended and Restated Registration Rights Agreement, dated as of August 24, 2007, by and among 180 Connect,
Inc. and each of the Insiders listed therein(4)
 29




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##### Table of Contents



ExhibitNumber
    
    Description10.16
    
    Security and Purchase Agreement, dated July 31, 2006, by and among Laurus Master Fund, Ltd., 180 Connect Inc.
(a Nevada corporation), Mountain Center, Inc., JJ&V Communications, Inc., Tumbleweed HS Inc., Piedmont
Telecommunications Inc., 180 Digital Interiors, Inc., HD Complete, Inc., Ironwood Communications Inc. and
Queens Cable Contractors, Inc.(3)10.17
    
    Secured Non-Convertible Revolving Note, dated July 31, 2006, in the principal amount of $37,000,000, by and
among 180 Connect Inc. (a Nevada corporation), Mountain Center, Inc., JJ&V Communications, Inc., Tumbleweed
HS Inc., Piedmont Telecommunications Inc., 180 Digital Interiors, Inc., HD Complete, Inc., Ironwood
Communications Inc. and Queens Cable Contractors, Inc.(3)10.18
    
    Secured Non-Convertible Revolving Term Note, dated July 31, 2006, in the principal amount of $20,000,000, by
and among 180 Connect Inc. (a Nevada corporation), Mountain Center, Inc., JJ&V Communications, Inc.,
Tumbleweed HS Inc., Piedmont Telecommunications Inc., 180 Digital Interiors, Inc., HD Complete, Inc.,
Ironwood Communications Inc. and Queens Cable Contractors, Inc.(3)10.19
    
    Overadvance Letter, dated July 31, 2006, by Laurus Master Fund, Ltd., agreed and accepted by 180 Connect Inc.
(a Nevada corporation), Mountain Center, Inc., JJ&V Communications, Inc., Tumbleweed HS Inc., Piedmont
Telecommunications Inc., 180 Digital Interiors, Inc., HD Complete, Inc., Ironwood Communications Inc. and
Queens Cable Contractors, Inc.(3)10.20
    
    Canadian Guaranty of 180 Connect Inc. (a Canadian corporation) dated July 31, 2006(3)10.21
    
    Guaranty of Wirecomm America, Inc. dated July 31, 2006(3)10.22
    
    Stock Pledge Agreement, dated July 31, 2006, by and among Laurus Master Fund, Ltd., 180 Connect Inc. (a
Nevada corporation) and Wirecomm America, Inc.(3)10.23
    
    Share Pledge Agreement, dated July 31, 2006, by and among Laurus Master Fund, Ltd., 180 Connect Inc. (a
Canadian corporation) and Wirecomm Systems Inc.(3)10.24
    
    Master Security Agreement, dated July 31, 2006, by and between Wirecomm Systems Inc. and Laurus Master Fund,
Ltd.(3)10.25
    
    Canadian Master Security Agreement, dated July 31, 2006, by and among Wirecomm Systems Inc., 180 Connect Inc.
(a Canadian corporation) and Laurus Master Fund, Ltd.(3)10.26
    
    Amended and Restated Secured Non-Convertible Revolving Note, dated July 2, 2007, to the Secured
Non-Convertible Revolving Note, dated July 31, 2006, by and among Laurus Master Fund, Ltd., 180 Connect Inc.
(a Nevada corporation), Mountain Center, Inc., JJ&V Communications, Inc., Tumbleweed HS Inc., Piedmont
Telecommunications Inc., 180 Digital Interiors, Inc., HD Complete, Inc., Ironwood Communications Inc. and
Queens Cable Contractors, Inc.(3)10.27
    
    Common Stock Purchase Warrant, dated July 31, 2006, issued to Laurus Master Fund, Ltd. to purchase 2,000,000
shares of 180 Connect Inc.s (a Canadian corporation) common stock(3)10.28
    
    Amended and Restated Common Stock Purchase Warrant, dated July 2, 2007, issued to Creative Vistas Inc. to
purchase up to 450,000 shares of the Companys common stock(7)10.29
    
    Amended and Restated Common Stock Purchase Warrant, dated July 2, 2007, issued to Laurus Master Fund, Ltd. to
purchase up to 150,000 shares of the Companys common stock(7)10.30
    
    Amended and Restated Warrant Certificate, dated August 24, 2007, issued to Laurus Master Fund, Ltd. to
purchase up to 250,000 shares of the Companys common stock(7)10.31
    
    Letter Agreement, dated July 2, 2007, by and among 180 Connect Inc. (a Canadian corporation), Howard S.
Balter and Ilan M. Slasky(3)10.32
    
    Reaffirmation and Ratification Agreement, dated July 2, 2007, by and among 180 Connect Inc. (a Nevada
corporation), Mountain Center, Inc., JJ&V Communications, Inc., Tumbleweed HS Inc., Piedmont
Telecommunications Inc., 180 Digital Interiors, Inc., HD Complete, Inc., Ironwood Communications Inc. and
Queens Cable Contractors, Inc., 180 Connect Inc. (a Canadian corporation), Wirecomm Systems Inc. and Wirecomm
America Inc.(3)10.33
    
    Amendment Agreement, dated July 2, 2007, by and among Laurus Master Fund, Ltd., 180 Connect Inc. (a Nevada
corporation), Mountain Center, Inc., JJ&V Communications, Inc., Tumbleweed HS Inc., Piedmont
Telecommunications Inc., 180 Digital Interiors, Inc., HD Complete, Inc., Ironwood Communications Inc. and
Queens Cable Contractors, Inc.(3)10.34
    
    Common Stock Purchase Warrant, dated July 2, 2007, by and between Laurus Master Fund, Ltd. and the Company(3)10.35
    
    Tri-Party Letter Agreement, dated July 10, 2007, by and among Laurus Master Fund, Ltd., 180 Connect Inc. (a
Canadian corporation), Howard S. Balter and Ilan M. Slasky(3)10.36
    
    Home Services Provider Agreement, dated May 1, 2007, between DirecTV, Inc., a California corporation and 180
Connect Inc.(7)(^)10.37
    
    Home Services Provider Agreement, dated May 1, 2007, between DirecTV, Inc., a California corporation and
Mountain Center, Inc.(7)(^)10.38
    
    Form of Stock Appreciation Rights Agreement(3)10.39
    
    Executive Employment Agreement, dated August 1, 2007, by and between Mark Burel and 180 Connect Inc. (a
Nevada corporation)(3)
 30




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##### Table of Contents



ExhibitNumber
    
    Description10.40
    
    Executive Employment Agreement, dated December 1, 2006, by and between Steven Westberg and 180 Connect Inc.
(a Nevada corporation)(3)10.41
    
    Executive Employment Agreement, dated July 1, 2006, by and between Peter Giacalone and 180 Connect Inc. (a
Nevada corporation)(3)10.42
    
    Amended Director Employment Agreement, dated September 30, 2006, by and between M. Brian McCarthy and 180
Connect Inc. (a Nevada corporation)(3)10.43
    
    Letter Agreement, dated August 3, 2007, by and between M. Brian McCarthy and 180 Connect Inc. (a Nevada
corporation)(3)10.44
    
    Executive Employment Agreement, dated October 17, 2007, by and between Kyle Hall and 180 Connect Inc. (a
Nevada corporation)(7)10.45
    
    Form of Stock Option Agreement(5)10.46
    
    Form of Restricted Stock Units Agreement(5)10.47
    
    2007 Long-Term Incentive Plan(5)10.48
    
    Warrant to Purchase Common Stock, dated November 9, 2007, issued to Magnetar Capital Master Fund, Ltd. to
purchase up to 356,952 shares of the Companys common stock(7)10.49
    
    Amended and Restated 180 Connect Inc. Equity Plan for Non-Employee Directors(7)10.50
    
    Unit Purchase Option Clarification Agreement, dated as of September 30, 2007, by and between 180 Connect Inc.
and Wedbush Morgan Securities Inc.(7)10.51
    
    Warrant Clarification Agreement, dated as of September 30, 2007, by and between 180 Connect Inc. and
Continental Stock Transfer & Trust Company(7)10.52
    
    Form of Note issued by Ad.Venture Partners, Inc. to each of Howard S. Balter and Ilan M. Slasky(6)10.53
    
    Letter Agreement, dated March 10, 2008, among 180 Connect Inc., Mountain Center, Inc., Ironwood
Communications Inc. and DIRECTV, Inc. (*)10.54
    
    Agreement and Plan of Merger, dated as of April 18, 2008, among DirecTV Enterprises, LLC, DTV HSP Merger Sub,
Inc., and 180 Connect Inc.(8)10.55
    
    Cooperation Agreement, dated as of April 18, 2008, among DTV HSP Merger Sub, Inc., 180 Connect Inc. and
UniTek USA, LLC(8)10.56
    
    Form of Voting Agreement(8)31.1
    
    Section 302 Certification from Peter Giacalone(*)31.2
    
    Section 302 Certification from Steven Westberg(*)32.1
    
    Section 906 Certification from Peter Giacalone and Steven Westberg(*)
 
 (1)
    
    Incorporated by reference to the Companys Current Report on Form 8-K (SEC File No. 000-51456) filed with the Commission on
March 15, 2007.(2)
    
    Incorporated by reference to the Companys Registration Statement on Form S-1 (SEC File No. 333-124141) filed with the
Commission on April 18, 2005, as amended on May 27, 2005, July 1, 2005, August 8, 2005, August 17, 2005, and August 24,
2005.(3)
    
    Incorporated by reference to the Companys Registration Statement on Form S-4 (Sec File No. 333-142319) filed with the
Commission on April 24, 2007, as amended on June 11, 2007, July 11, 2007, July 12, 2007, August 3, 2007 and August 9, 2007.(4)
    
    Incorporated by reference to the Companys Current Report on Form 8-K (SEC File No. 001-33670) filed with the Commission on
August 30, 2007.(5)
    
    Incorporated by reference to the Companys Current Report on Form 8-K (SEC File No. 001-33670) filed with the Commission on
September 10, 2007.(6)
    
    Incorporated by reference to the Companys Current Report on Form 8-K (SEC File No. 000-51456) filed with the Commission on
January 30, 2007.(7)
    
    Incorporated by reference to the Companys Current Report on Form 10-K (SEC File No. 001-33670) filed with the Commission on
March 31, 2008.(8)
    
    Incorporated by reference to the Companys Current Report on Form 8-K (SEC File No. 001-33670) filed with the Commission on
April 21, 2008.(*)
    
    Filed herewith(^)
    
    Certain provisions of this exhibit have been omitted and filed separately with the Commission pursuant to an application for
confidential treatment under Rule 24b-2 promulgated under the Securities Exchange Act of 1934, as amended. 31




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Signatures
   180 CONNECT INC.By:
    /s/ Steven WestbergSteven WestbergChief Financial Officer and Principal Accounting Officer and Duly Authorized Officer 32