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 1934.
For the
quarterly period ended March 31, 2009
OR
¨
TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE
ACT OF 1934
For the
transition period from _____ to _____
Commission
file number 0-16819
CREATIVE
VISTAS, INC.
(Exact
name of registrant as specified in its charter)
Arizona
(State
or other jurisdiction of
incorporation
or organization
|
6770
(Primary
Standard Industrial
Classification
Code Number)
|
86-0464104
(I.R.S.
Employer
Identification
No.)
|
2100
Forbes Street
Unit
8-10
Whitby,
Ontario, Canada L1N 9T3
(905)
666-8676
(Address,
including zip code, and telephone number,
including
area code, of registrant’s principal executive offices)
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
¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes
¨
No
¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):
Large
Accelerated Filer
¨
|
Accelerated
Filer
¨
|
|
|
Non-Accelerated
Filer
¨
|
Smaller
Reporting Company
x
|
(Do
not check if a smaller reporting
company)
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
¨
Yes
x
No
Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date.
At May
15, 2009, the number of shares outstanding of the registrant’s common stock, no
par value (the only class of voting stock), was 37,391,761.
PART
I.
|
FINANCIAL
INFORMATION
|
Item 1.
|
Financial
Statements
|
1
|
Item 2.
|
Management's
Discussion And Analysis of Financial Condition and Results of
Operations
|
13
|
Item 3.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
18
|
Item 4.
|
Controls
and Procedures
|
18
|
PART II.
|
OTHER INFORMATION
|
Item 1.
|
Legal
Proceedings
|
19
|
Item 1A.
|
Risk
Factors
|
19
|
Item 2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
19
|
Item 3.
|
Defaults
upon Senior Securities
|
19
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders.
|
19
|
Item 5.
|
Other
Information
|
19
|
Item 6.
|
Exhibits
and Reports on Form 8-K
|
19
|
PART
I. FINANCIAL
INFORMATION
Item
1.
Financial
Statements
Creative Vistas, Inc.
Condensed Consolidated Balance Sheets
|
|
March 31, 2009
|
|
|
December 31, 2008
|
|
|
|
(Unaudited)
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
Cash
and bank balances
|
|
$
|
3,694,657
|
|
|
$
|
4,770,337
|
|
Accounts
receivable, net of allowance for doubtful accounts of $255,689
and $323,183
|
|
|
4,436,023
|
|
|
|
4,571,327
|
|
Income
tax recoverable
|
|
|
184,648
|
|
|
|
188,525
|
|
Inventory
and supplies
|
|
|
701,588
|
|
|
|
829,318
|
|
Prepaid
expenses
|
|
|
383,992
|
|
|
|
289,638
|
|
Due
from related parties
|
|
|
2,028
|
|
|
|
2,094
|
|
Total
current assets
|
|
|
9,402,936
|
|
|
|
10,651,239
|
|
Property
plant and equipment, net of depreciation
|
|
|
8,296,072
|
|
|
|
9,214,623
|
|
Deposits
|
|
|
339,500
|
|
|
|
460,376
|
|
Intangible
assets
|
|
|
753,968
|
|
|
|
850,136
|
|
Deferred
financing costs, net
|
|
|
427,734
|
|
|
|
483,331
|
|
Deferred
income taxes
|
|
|
35,042
|
|
|
|
35,343
|
|
|
|
$
|
19,255,252
|
|
|
$
|
21,695,048
|
|
Liabilities
and Shareholders' (Deficit)
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
Bank
Indebtedness
|
|
$
|
1,354,762
|
|
|
$
|
1,581,912
|
|
Accounts
payable and accrued liabilities
|
|
|
5,226,099
|
|
|
|
5,800,061
|
|
Current
portion of obligation under capital leases
|
|
|
2,061,616
|
|
|
|
2,125,312
|
|
Deferred
income
|
|
|
98,096
|
|
|
|
118,595
|
|
Deferred
income taxes
|
|
|
25,858
|
|
|
|
25,858
|
|
Current
portion of term notes
|
|
|
1,750,000
|
|
|
|
1,750,000
|
|
Current
portion of other payable
|
|
|
238,095
|
|
|
|
245,902
|
|
Due
to related parties
|
|
|
6,093
|
|
|
|
6,292
|
|
Total
current liabilities
|
|
|
10,760,619
|
|
|
|
11,653,932
|
|
Term
notes
|
|
|
13,878,920
|
|
|
|
14,062,290
|
|
Notes
payable to related parties
|
|
|
1,500,000
|
|
|
|
1,500,000
|
|
Obligation
under capital lease
|
|
|
4,064,250
|
|
|
|
4,554,240
|
|
Due
to related parties
|
|
|
183,230
|
|
|
|
189,237
|
|
|
|
|
30,387,019
|
|
|
|
31,959,699
|
|
Shareholders'
(deficit)
|
|
|
|
|
|
|
|
|
Share
capital
|
|
|
|
|
|
|
|
|
Authorized
|
|
|
|
|
|
|
|
|
50,000,000
no par value preferred shares undesignated, none issued or
outstanding
|
|
|
|
|
|
|
|
|
100,000,000
no par value common shares 37,391,761 at March 31, 2009 and 37,224,926
December 31, 2008 issued and outstanding
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
6,533,191
|
|
|
|
6,488,137
|
|
Additional
paid-in capital
|
|
|
13,970,918
|
|
|
|
14,005,627
|
|
Accumulated
(deficit)
|
|
|
(32,534,913
|
)
|
|
|
(31,357,923
|
)
|
Accumulated
other comprehensive income
|
|
|
899,037
|
|
|
|
599,508
|
|
|
|
|
(11,131,767
|
)
|
|
|
(10,264,651
|
)
|
|
|
$
|
19,255,252
|
|
|
$
|
21,695,048
|
|
The
accompanying notes are an integral part of these financial
statements
Creative
Vistas, Inc.
Condensed
Consolidated Statements of Operations
(Unaudited)
|
|
Three months ended
|
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
Contract
and service revenue
|
|
|
|
|
|
|
Contract
|
|
$
|
1,224,040
|
|
|
$
|
1,479,319
|
|
Service
|
|
|
7,909,147
|
|
|
|
9,291,977
|
|
Others
|
|
|
8,986
|
|
|
|
10,059
|
|
|
|
|
9,142,173
|
|
|
|
10,781,355
|
|
Cost
of sales
|
|
|
|
|
|
|
|
|
Contract
|
|
|
628,514
|
|
|
|
900,707
|
|
Service
|
|
|
6,357,928
|
|
|
|
7,407,221
|
|
Project
Expenses
|
|
|
223,653
|
|
|
|
326,055
|
|
Selling
Expenses
|
|
|
199,007
|
|
|
|
218,597
|
|
General
and administrative expenses
|
|
|
1,235,470
|
|
|
|
2,891,202
|
|
Depreciation
expense
|
|
|
701,846
|
|
|
|
500,885
|
|
Amortization
of intangible assets
|
|
|
82,392
|
|
|
|
190,167
|
|
|
|
|
9,428,810
|
|
|
|
12,434,834
|
|
Loss
from operations
|
|
|
(286,637
|
)
|
|
|
(1,653,479
|
)
|
Interest
and other expenses
|
|
|
|
|
|
|
|
|
Net
financing expenses
|
|
|
605,665
|
|
|
|
4,432,917
|
|
Amortization
of deferred charges
|
|
|
40,998
|
|
|
|
44,215
|
|
Foreign
currency translation loss
|
|
|
243,690
|
|
|
|
255,234
|
|
|
|
|
890,353
|
|
|
|
4,732,366
|
|
(Loss)
before income taxes
|
|
|
(1,176,990
|
)
|
|
|
(6,385,845
|
)
|
Income
taxes
|
|
|
-
|
|
|
|
-
|
|
Net
(loss)
|
|
|
(1,176,990
|
)
|
|
|
(6,385,845
|
)
|
Other
comprehensive income (loss):
|
|
|
|
|
|
|
|
|
Unrealized
loss – available for sale securities
|
|
|
-
|
|
|
|
(2,858,282
|
)
|
Foreign
currency translation adjustment
|
|
|
299,529
|
|
|
|
180,671
|
|
Comprehensive
(loss)
|
|
$
|
(877,461
|
)
|
|
$
|
(9,063,456
|
)
|
Basic
and diluted weighted-average shares
|
|
|
37,391,761
|
|
|
|
36,248,724
|
|
Basic
and diluted earnings (loss) per share
|
|
$
|
(0.03
|
)
|
|
$
|
(0.18
|
)
|
The
accompanying notes are an integral part of these financial
statements
Creative
Vistas, Inc.
Condensed
Consolidated Statements of Cash Flows
(Unaudited)
|
|
Three months ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Operating
activities
|
|
|
|
|
|
|
Net
cash (used in) operating activities
|
|
$
|
(621,993
|
)
|
|
$
|
(399,791
|
)
|
Investing
activities
|
|
|
|
|
|
|
|
|
Payment
for acquisition
|
|
|
-
|
|
|
|
(300,000
|
)
|
Proceeds
from sales of property and equipment
|
|
|
162,872
|
|
|
|
24,830
|
|
Purchase
of property and equipment
|
|
|
(12,927
|
)
|
|
|
(586,028
|
)
|
Net
cash provided by (used in) investing activities
|
|
|
149,945
|
|
|
|
(861,198
|
)
|
Financing
activities
|
|
|
|
|
|
|
|
|
Proceeds
from (repayment of) bank indebtedness
|
|
|
(179,785
|
)
|
|
|
1,043,223
|
|
Due
to related parties
|
|
|
-
|
|
|
|
(385
|
)
|
Repayment
of capital leases
|
|
|
(347,146
|
)
|
|
|
(362,429
|
)
|
Proceeds
from the exercise of options
|
|
|
-
|
|
|
|
1,260
|
|
Restricted
cash
|
|
|
-
|
|
|
|
52,894
|
|
Repayment
of term notes
|
|
|
(162,500
|
)
|
|
|
(270,178
|
)
|
Net
cash provided by (used in) financing activities
|
|
|
(689,431
|
)
|
|
|
464,385
|
|
Effect
of foreign exchange rate changes in cash
|
|
|
85,799
|
|
|
|
52,070
|
|
Net
change in cash and cash equivalents
|
|
|
(1,075,680
|
)
|
|
|
(744,534
|
)
|
Cash and cash
equivalents,
beginning of period
|
|
|
4,770,337
|
|
|
|
1,960,340
|
|
Cash and cash
equivalents,
end of period
|
|
$
|
3,694,657
|
|
|
$
|
1,215,806
|
|
The
accompanying notes are an integral part of these financial
statements
Creative
Vistas, Inc.
Notes
to Consolidated Condensed Financial Statements
March
31, 2009 (Unaudited)
1.
|
Summary
of Accounting Policies
|
Basis
of presentation
The
accompanying unaudited condensed consolidated balance sheet as at March 31,
2009, and the consolidated condensed statements of operations and cash flows for
the periods ended March 31, 2008 and 2009, include the accounts of Creative
Vistas, Inc. (“CVAS”), Creative Vistas Acquisition Corp. (“AC Acquisition”), AC
Technical Systems Ltd. (“AC Technical”), Cancable Holding Corp. (“Cancable
Holding”), Cancable Inc., Cancable, Inc., Cancable XL Inc., XL Digital Services
Inc. (“XL Digital”), 2141306 Ontario Inc., Iview Holding Corp. (“Iview
Holding”), and Iview Digital Video Solutions Inc. (“Iview DSI”). All
material inter-company accounts, transactions and profits have been
eliminated. In the opinion of management, these condensed
consolidated financial statements reflect all adjustments (consisting of normal
recurring adjustments) that are necessary for a fair presentation of the results
for and as of the periods shown. The accompanying condensed
consolidated financial statements have been prepared in conformity with
accounting principles generally accepted in the United
States. However, certain information or footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. The results of operations
for such periods are not necessarily indicative of the results expected for 2009
or for any future period. These financial statements should be read in
conjunction with the financial statements and related notes included in our
Annual Report on Form 10-K for the fiscal year ended December 31, 2008, filed
with the Securities and Exchange Commission.
Reclassifications
Certain
amounts from the March 31, 2008, financial statements have been reclassified to
conform to the current year’s presentation.
Liquidity
and going concern
Our
consolidated condensed financial statements were prepared using accounting
principles generally accepted in the United States of America applicable to a
going concern, which contemplates the realization of assets and liquidation of
liabilities in the normal course of business. We have incurred a loss of
$1,176,990 for the period ended March 31, 2009 and have an accumulated deficit
of $32,534,913 at March 31, 2009.
We have
outstanding term loans aggregating $15,628,920, together with common stock
options and warrants, held by Laurus Master Fund, Ltd. (“Laurus”) and its
related entities. We do not currently have the ability to repay the notes in the
event of a demand by the holder. Furthermore, we granted a security interest to
Laurus and its related entities in substantially all of our assets and,
accordingly, in the event of any default under our agreements with Laurus and
its related entities, they could conceivably attempt to foreclose on our assets,
which could cause us to terminate our operations. As of March 31, 2009, there
were 12,744,983 shares of common stock of CVAS issuable upon the exercise of
warrants and 129,155 shares issuable upon the exercise of options which were
issued to Laurus, and its related entities, Erato Corporation, Valens Offshore
Fund, Valens U.S. Fund, LLC and PSource Structured Debt Limited. Additionally,
there were 49 shares of common stock of Cancable Holding issuable upon the
exercise of options and 20 shares of common stock of Iview Holding issuable upon
the exercise of options to Laurus and its related entities.
Over the
next twelve months the Company believes that its existing capital will be
sufficient to sustain its operations. Management plans to seek additional
capital in the future to fund operations, growth and expansion through
additional equity, debt financing or credit facilities. The Company has had
early stage discussions with investors about potential investment in the Company
at a future date. No assurance can be made that such financing would be
available, and if available it may take either the form of debt or equity. In
either case, the financing could have a negative impact on our financial
condition and our shareholders. The Company has introduced cost cutting
initiatives within the Administration, Project and Selling departments to
improve efficiency within the Company and also improve cash flow. The
Company has also increased its rates for services provided by AC Technical to
improve gross margins. This is in line with our competitors. The Company also
expects to see the benefits of its research and development efforts within the
next 12 months as it starts to introduce its own line of customized products to
the industry. These products and technologies are expected to improve gross
margins. The Company believes that it will be eligible for research and
development tax credits at year end for its research and development efforts
during the year and these are additional sources of cash flow for the Company.
The Company is also negotiating longer credit terms with its suppliers from 45
days to 60 to 75 days. For all the reasons mentioned above, we believe that we
have adequate short term borrowing capability and that we will be able to
sustain our operations and continue as a going concern for a reasonable period
of time although there can be no assurance of this
The
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.
Inventory
Inventory
consists of materials and supplies and is stated at the lower of cost and market
value. Cost is generally determined on the first in, first out
basis. The inventory is net of estimated obsolescence, and excess
inventory based upon assumptions about future demand and market conditions.
Inventory consists principally of parts, materials and supplies.
Earnings
(loss) per share
The
Company applies Statement of Financial Accounting Standards No. 128, Earnings
Per Share (FAS 128). Basic loss per share (“LPS”) is computed using the weighted
average number of common shares outstanding during the period. Diluted LPS is
computed using the weighted average number of common and dilutive potential
common shares outstanding during the period. Dilutive potential
common shares consist of common stock issuable upon exercise of stock options
and warrants using the treasury stock method. An adjustment to earnings per
share calculation includes reversing the changes in derivative
instruments. Dilutive common share equivalents are not considered in
periods when their effect is antidilutive.
2.
|
Deferred
Financing Costs, Net
|
Deferred
financing costs, net are associated with the Company’s term notes. For the
period ended March 31, 2009, the amortization of deferred financing cost was
approximately $40,998 (2008 - $44,215).
Cost
|
|
$
|
960,929
|
|
Accumulated
amortization
|
|
|
(533,195
|
)
|
|
|
$
|
427,734
|
|
The
estimated amortization expense for each of the next five fiscal years and
thereafter is as follows:
Year
|
|
Amount
|
|
2009
|
|
$
|
107,300
|
|
2010
|
|
|
141,778
|
|
2011
|
|
|
122,254
|
|
2012
|
|
|
37,654
|
|
2013
|
|
|
18,748
|
|
|
|
$
|
427,734
|
|
|
|
Cost
|
|
|
Accumulated
amortization
|
|
|
Net book
value
|
|
Customer
relationships
|
|
$
|
1,531,746
|
|
|
$
|
809,524
|
|
|
$
|
722,222
|
|
Trade
name
|
|
|
1,263,492
|
|
|
|
1,231,746
|
|
|
|
31,746
|
|
|
|
$
|
2,795,238
|
|
|
$
|
2,041,270
|
|
|
$
|
753,968
|
|
Amortization
expense for the three month period ended March 31, 2009 amounted to $82,392
(2008-$190,167).
During
the period ended March 31, 2008, the Company established credit facilities with
a Canadian chartered bank to provide for borrowings by its subsidiaries, AC
Technical and Cancable Inc. The credit facility for AC Technical and
Cancable was $500,000 and $3,500,000 respectively. Revolving credit loans bear
interest at the bank’s domestic prime rate plus 1.5% for Canadian dollar
amounts. Interest is payable monthly. The facilities are secured by
an assignment of book debts, inventory, certain other assets and life insurance.
As at March 31, 2009, the interest rate of the Canadian dollar amount was 3.75%.
At March 31, 2009, the borrowings outstanding under both facilities were
$1,354,762. The Company banking facility agreements contain financial
covenants pertaining to maintenance of the tangible net worth and debt service
coverage ratio. In the event of default, the bank could at its discretion cancel
the facilities and demand immediate repayment of all outstanding amounts. Both
credit facilities were due in March 2009 and the Company is currently
negotiating the renewal of these banking facilities.
In
January 2006, concurrently with the closing of the acquisition of Cancable Inc.,
the Company entered into a series of agreements with Laurus whereby Cancable
issued to Laurus a secured term note (the “Cancable Note”) in the amount of
$6,865,000 and Cancable Holding issued to Laurus a related option to purchase up
to 49 shares of common stock of Cancable Holding (up to 49% of the outstanding
shares of Cancable Holding) at a price of $0.01 per share (the “Option”). The
loan is secured by all of the assets of the Company and its
subsidiaries.
The
Cancable Note bears interest at the prime rate plus 1.75% with a minimum rate of
7%. Interest accrued on the term note but was not payable until February 1,
2006. Interest is calculated on the basis of a 360 day
year. The minimum monthly payment on the term note is $81,726
commencing from October 1, 2006. The Company is not obligated, except
upon an event of default, to pay more than 25% of the original principal amount
prior to December 31, 2011.
In
February 2006, the Company and its subsidiaries, Iview Holding and Iview DSI
entered into a series of agreements with Laurus pursuant to a refinancing
transaction whereby the Company issued to Laurus a secured term note (the
“Company Note”) in the amount of $8,250,000, Iview DSI issued to Laurus a
secured term note (the “Iview Note”) in the amount of $2,000,000, the Company
issued to Laurus a related warrant to purchase up to 2,411,003 shares of common
stock of the Company (up to 7.5% of the outstanding shares of the Company) at a
price of $0.01 per share (the “Warrant”) and Iview Holding issued to Laurus a
related option to purchase up to 20 shares of common stock of Holding (up to 20%
of the outstanding shares of Holding) at a price of $0.01 per share (the
“Option”). The loans are secured by all of the assets of the Company and its
subsidiaries. Simultaneously with the closing of this refinancing transaction,
the Company paid off the entire outstanding principal amount and all obligations
due to Laurus under a Secured Convertible Term Note, a Secured Convertible
Minimum Borrowing Note and a Secured Revolving Note, all dated September 30,
2004 (collectively, the “2004 Notes”) and such 2004 Notes were subsequently
cancelled.
The
options held by Laurus to acquire 49% of Cancable and 20% of Iview Holding are
accounted for as noncontrolling interests. Because the options have
not been exercised and Cancable and Iview Holding have incurred losses, no
noncontrolling interests have been recognized at March 31,
2009.
The
Company Note bears interest at the prime rate plus 2% with a minimum rate of 7%.
Interest accrued on the term note but was not payable until April 1,
2006. Interest is calculated on the basis of a 360 day
year. The minimum monthly payment on the term note is $137,500
commencing March 1, 2007 to February 1, 2010, with a balance of $4,950,000
payable on the maturity date. Through March 31, 2009, the Company has issued
warrants to purchase up to 1,944,000 shares of common stock of the Company at
prices from $0.19 to $2.84 per share to defer until maturity the principal
repayments that were due from March 1, 2007 to March 1, 2009.
The Iview
Note bears interest at the prime rate plus 2% with a minimum rate of 7%.
Interest accrued on the term note but was not payable until April 1,
2006. Interest is calculated on the basis of a 360 day
year. The minimum monthly payment on the term note is $8,333
commencing March 1, 2007 to February 1, 2011, with the balance
of $1,600,000 payable on the maturity date. The Company is not
obligated, except upon an event of default, to pay more than 25% of the original
principal amount prior to December 31, 2011.
In June
2008, the Company and its subsidiary,
Cancable Inc., entered
into a financing transaction whereby the Company issued to Valens Offshore SPV
II, Corp. (“Valens Offshore”) and Valens U.S. SPV I, LLC (“Valens U.S.”) secured
term notes in the amount of $1,700,000 and $800,000, respectively (collectively,
the “Company Second Notes”). Valens Offshore and Valens U.S. are entities
related to Laurus. The Company also issued to Valens Offshore and
Valens U.S. warrants to purchase up to 1,333,333 and 627,451 shares,
respectively, of common stock of the Company at a price of $0.01 per share. The
loans are secured by all of the assets of the Company and all its
subsidiaries.
Interest
on the term note for the period ended March 31, 2009 was $376,181 (2008:
$318,968).
Cancable
Note interest at prime plus 1.75% (minimum of 7%), due December
31, 2011
|
|
$
|
5,148,754
|
|
Company
Note interest at prime plus 2% (minimum of 7%), due February
13, 2010
|
|
|
7,287,500
|
|
Iview
Note interest at prime plus 2% (minimum of 7%), due on February 13,
2011
|
|
|
1,789,874
|
|
Company
Second Notes. interest at 12%, due on June 24, 2013
|
|
|
2,500,000
|
|
Less:
unamortized discount
|
|
|
(1,097,208
|
)
|
|
|
|
15,628,920
|
|
Less:
current portion
|
|
|
1,750,000
|
|
|
|
$
|
13,878,920
|
|
The
principal payments for the next five fiscal years are as follows:
|
|
Amount
|
|
2009
|
|
$
|
1,312,500
|
|
2010
|
|
|
6,150,000
|
|
2011
|
|
|
6,763,628
|
|
2012
|
|
|
-
|
|
2013
|
|
|
1,402,792
|
|
|
|
$
|
15,628,920
|
|
6.
|
Net
Financing Expenses
|
|
|
Three months ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
Capital
leases
|
|
$
|
176,705
|
|
|
$
|
103,790
|
|
Interest
of credit facility
|
|
|
376,181
|
|
|
|
318,968
|
|
Interest
on deferred principal repayment of term note
|
|
|
40,005
|
|
|
|
274,196
|
|
Warrants
issued for proposed new financing
|
|
|
-
|
|
|
|
3,723,565
|
|
Others
|
|
|
12,774
|
|
|
|
12,398
|
|
|
|
$
|
605,665
|
|
|
$
|
4,432,917
|
|
7.
|
Note
Payable to Related Parties
|
In
September 2004, the Company issued two promissory notes with an aggregate
principal amount of $3,300,000. On September 30, 2004, the Company repaid
an aggregate of $1,800,000 of the principal balance. The outstanding principal
bears interest at 3% per annum with no fixed terms of repayment and payable on
demand. However, pursuant to the Laurus Financing, these notes have been
subordinated to the Company’s obligations to Laurus. The notes each with an
amount of $750,000 are due to The Burns Trust (the president is one of the
beneficiaries of the trust) and the Navaratnam Trust (the chairman is one of the
beneficiaries of the trust), respectively. During the period ended June 30,
2006, the above two notes payable have been transferred to Malar Trust Inc. (the
Company’s chairman is the shareholder of Malar Trust Inc.).
Interest
expense recognized for the three month period ended March 31, 2009 was $12,774
(2008 - $12,398).
8.
|
Shareholders’
(Deficit)
|
The
Company has total authorized share capital of 50,000,000 preferred shares, no
par value and 100,000,000 common shares, no par value.
During
the period ended March 31, 2009, the Company issued 166,835 common shares for
legal fees with the fair market value of $45,056.
Options
The
Company’s Stock Option Plan is intended to provide incentives for key employees,
directors, consultants and other individuals providing services to the Company
by encouraging their ownership of the common stock of the Company and to aid the
Company in retaining such key employees, directors, consultants and other
individuals upon whose efforts the Company’s success and future growth depends
and in attracting other such employees, directors, consultants and
individuals.
The Plan
is administered by the Board of Directors, or its Compensation
Committee. Under the Plan, options on a total of 4,000,000 shares of
common stock may be issued. Shares of common stock covered by options
which have terminated or expired prior to exercise are available for further
options under the Plan. The maximum aggregate number of
shares of Stock that may be issued under the Plan as “incentive stock options”
is 3,500,000 shares. No options may be granted under the Plan after
June 30, 2011; provided, however, that the Board of Directors may at any time
prior to that date amends the Plan.
Options
under the Plan may be granted to key employees of the Company, including
officers or directors of the Company, and to consultants and other individuals
providing services to the Company. Options may be granted to eligible
individuals whether or not they hold or have held options previously granted
under the Plan or otherwise granted or assumed by the Company. In
selecting individuals for options, the Committee may take into consideration any
factors it may deem relevant, including its estimate of the individual’s present
and potential contributions to the success of the Company.
The
Committee may, in its discretion, prescribe the terms and conditions of the
options to be granted under the Plan, which terms and conditions need not be the
same in each case, subject to the following:
a.
|
Option
Price. The price at which each share of common stock covered by
an option granted under the Plan may be purchased may not be less than the
market value per share of the common stock on the date of grant of the
option. The date of the grant of an option shall be the date
specified by the Committee in its grant of the option, which date will
normally be the date the Committee determines to make such
grant.
|
b.
|
Option
Period. The period for exercise of an option shall in no event
be more than five years from the date of grant. Options may, in
the discretion of the Committee, be made exercisable in installments
during the option period.
|
c.
|
Exercise
of Options. For the purpose of assisting an Optionee to
exercise an option, the Company may make loans to the Optionee or
guarantee loans made by third parties to the Optionee, on such terms and
conditions as the Board of Directors may authorize. In no event shall any
option be exercisable more than five years from the date of grant
thereof.
|
d.
|
Lock-Up
Period. Without the consent of the Company, an Optionee may not
sell more than fifty percent of the shares issued under the Plan for a
period of two years from the date that the Optionee exercises the option.
The Committee may impose such other terms and conditions, not inconsistent
with the terms of the Plan, on the grant or exercise of options, as it
deems advisable.
|
The fair
value of each option award is estimated on the date of grant using the
Black-Scholes option valuation model, using the assumptions noted in the
following table. Expected volatility is based on the historical volatility of
the Company’s stock, and other factors. The Company uses historical data to
estimate employee termination within the valuation model. Because the Company
has not previously granted options to employees, for purposes of the valuation
model, the Company has assumed that the life of the options will be equal to
one-half of the combined vesting period and contractual life (i.e., that
employees will exercise the options at the midpoint between the vesting and
expiry date of the options). The risk-free rates used to value the options are
based on the U.S. Treasury yield curve in effect at the time of
grant.
During
2009, the Company granted to employees options to purchase 130,000 shares of
common stock, at prices ranging from $0.26 to $0.63 per share; the options
expire in 2013.
At March
31, 2009 options to purchase 2,023,000 shares of common stock were
outstanding. These options vest ratably in annual installment s, over
the four year period from the date of grant. As of March 31, 2009,
there was $182,966 of total unrecognized compensation cost related to non-vested
share-based compensation arrangements granted under the Plan. That cost is
expected to be recognized over the four year vesting period. At March 31, 2009,
934,750 options were vested. The cost recognized for the three month period
ended March 31, 2009 was ($29,660) (2008:$405,409) which was recorded as general
and administrative expenses.
In
valuing the options issued, the following assumptions were used;
|
|
2009
|
|
|
2008
|
|
Expected
volatility
|
|
|
140%
|
|
|
|
45%
|
|
Expected
dividends
|
|
|
0%
|
|
|
|
0%
|
|
Expected
term (in years)
|
|
|
4.0
|
|
|
|
4.0
|
|
Risk-free
rate
|
|
|
1.33% - 1.35%
|
|
|
|
2.99% - 3.41%
|
|
A summary
of option activity under the Plan during the period ended March 31, 2009 is
presented below:
Options
|
|
Shares
|
|
|
Weighted-Average
Exercise
Price
|
|
|
Weighted-Average
Remaining Contractual
Term
|
|
|
Intrinsic
Value
|
|
Outstanding
at December 31, 2008
|
|
|
2,939,000
|
|
|
$
|
1.27
|
|
|
|
4.75
|
|
|
$
|
1.57
|
|
Granted
|
|
|
130,000
|
|
|
$
|
0.29
|
|
|
|
4.77
|
|
|
$
|
0.00
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Forfeited
or expired
|
|
|
(1,046,000
|
)
|
|
$
|
2.35
|
|
|
|
3.43
|
|
|
$
|
0.00
|
|
Outstanding
at March 31, 2009
|
|
|
2,023,000
|
|
|
$
|
0.66
|
|
|
|
2.64
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at March 31, 2009
|
|
|
934,750
|
|
|
$
|
0.64
|
|
|
|
2.37
|
|
|
$
|
0.00
|
|
Warrants
The
Company uses the Black-Scholes option pricing model to value warrants issued to
non-employees, based on the market price of our common stock at the time the
warrants are issued. All outstanding warrants may be exercised by the holder at
any time. During the period ended March 31, 2009, in connection
with financing, the Company issued warrants to purchase 216,000 shares of common
stock. The fair value of the warrants of $40,005 was measured using
the Black-Scholes option pricing model using the following assumptions: risk
free interest rate of 1.51% to 1.57%, expected dividend yield of 0%, volatility
of 140%, exercise prices of $0.19 to $0.25 and the life of the warrants 4
years.
As of
March 31, 2009, we had the following common stocks warrants
outstanding:
Issue Date
|
|
Expiry Date
|
|
|
Number of
warrants
|
|
|
Exercise Price
Per share
|
|
|
Value-issue
date
|
|
Issued for
|
09–30-2004
|
|
|
09-30-2009
|
|
|
|
199,500
|
|
|
$
|
1.00
|
|
|
$
|
111,853
|
|
Consulting
and investment banking fees
|
09-30-2004
|
|
|
09-30-2016
|
|
|
|
2,250,000
|
|
|
$
|
1.15
|
|
|
$
|
1,370,000
|
|
Financing*
|
03-31-2005
|
|
|
03-31-2012
|
|
|
|
100,000
|
|
|
$
|
1.20
|
|
|
$
|
60,291
|
|
Financing
|
04-30-2005
|
|
|
04-30-2017
|
|
|
|
100,000
|
|
|
$
|
1.01
|
|
|
$
|
44,309
|
|
Financing*
|
05-31-2005
|
|
|
05-31-2012
|
|
|
|
100,000
|
|
|
$
|
1.01
|
|
|
$
|
56,614
|
|
Financing
|
06-22-2005
|
|
|
06-22-2017
|
|
|
|
313,000
|
|
|
$
|
1.00
|
|
|
$
|
137,703
|
|
Financing*
|
06-30-2005
|
|
|
06-30-2017
|
|
|
|
100,000
|
|
|
$
|
0.90
|
|
|
$
|
50,431
|
|
Financing*
|
07-31-2005
|
|
|
07-31-2012
|
|
|
|
100,000
|
|
|
$
|
1.05
|
|
|
$
|
56,244
|
|
Financing
|
08-31-2005
|
|
|
08-31-2012
|
|
|
|
100,000
|
|
|
$
|
1.05
|
|
|
$
|
22,979
|
|
Financing
|
09-30-2005
|
|
|
09-30-2012
|
|
|
|
100,000
|
|
|
$
|
0.80
|
|
|
$
|
36,599
|
|
Financing
|
10-31-2005
|
|
|
10-31-2012
|
|
|
|
100,000
|
|
|
$
|
0.80
|
|
|
$
|
27,367
|
|
Financing
|
11-30-2005
|
|
|
11-30-2012
|
|
|
|
100,000
|
|
|
$
|
0.80
|
|
|
$
|
16,392
|
|
Financing
|
12-31-2005
|
|
|
12-31-2012
|
|
|
|
100,000
|
|
|
$
|
0.80
|
|
|
$
|
10,270
|
|
Financing
|
02-13-2006
|
|
|
02-13-2016
|
|
|
|
1,927,096
|
|
|
$
|
0.01
|
|
|
$
|
1,529,502
|
|
Financing
|
03-01-2007
|
|
|
03-01-2016
|
|
|
|
108,000
|
|
|
$
|
0.90
|
|
|
$
|
39,519
|
|
Financing*
|
04-01-2007
|
|
|
04-01-2016
|
|
|
|
108,000
|
|
|
$
|
1.15
|
|
|
$
|
50,529
|
|
Financing*
|
05-01-2007
|
|
|
05-01-2011
|
|
|
|
108,000
|
|
|
$
|
1.25
|
|
|
$
|
54,941
|
|
Financing
|
06-01-2007
|
|
|
06-01-2011
|
|
|
|
108,000
|
|
|
$
|
2.28
|
|
|
$
|
101,470
|
|
Financing
|
07-01-2007
|
|
|
07-01-2011
|
|
|
|
108,000
|
|
|
$
|
2.10
|
|
|
$
|
93,307
|
|
Financing
|
08-01-2007
|
|
|
08-01-2011
|
|
|
|
108,000
|
|
|
$
|
2.55
|
|
|
$
|
112,117
|
|
Financing
|
09-01-2007
|
|
|
09-01-2011
|
|
|
|
108,000
|
|
|
$
|
2.73
|
|
|
$
|
118,647
|
|
Financing
|
10-01-2007
|
|
|
10-01-2011
|
|
|
|
108,000
|
|
|
$
|
2.43
|
|
|
$
|
105,362
|
|
Financing
|
11-01-2007
|
|
|
11-01-2011
|
|
|
|
108,000
|
|
|
$
|
2.60
|
|
|
$
|
111,868
|
|
Financing
|
12-01-2007
|
|
|
12-01-2011
|
|
|
|
108,000
|
|
|
$
|
2.55
|
|
|
$
|
107,284
|
|
Financing
|
01-01-2008
|
|
|
01-01-2012
|
|
|
|
108,000
|
|
|
$
|
2.84
|
|
|
$
|
108,331
|
|
Financing
|
01-22-2008
|
|
|
01-22-2058
|
|
|
|
812,988
|
|
|
$
|
0.01
|
|
|
$
|
1,470,687
|
|
Acquisition
|
01-22-2008
|
|
|
01-22-2058
|
|
|
|
1,738,365
|
|
|
$
|
0.01
|
|
|
$
|
3,144,685
|
|
Financing
|
01-30-2008
|
|
|
01-30-2058
|
|
|
|
506,250
|
|
|
$
|
0.01
|
|
|
$
|
1,001,909
|
|
Financing
|
01-30-2008
|
|
|
01-30-2058
|
|
|
|
292,500
|
|
|
$
|
0.01
|
|
|
$
|
578,880
|
|
Financing
|
02-01-2008
|
|
|
02-01-2012
|
|
|
|
108,000
|
|
|
$
|
2.09
|
|
|
$
|
85,612
|
|
Financing
|
03-01-2008
|
|
|
03-01-2012
|
|
|
|
108,000
|
|
|
$
|
2.04
|
|
|
$
|
80,253
|
|
Financing
|
04-01-2008
|
|
|
04-01-2012
|
|
|
|
108,000
|
|
|
$
|
1.09
|
|
|
$
|
162,748
|
|
Financing
|
05-01-2008
|
|
|
05-01-2012
|
|
|
|
108,000
|
|
|
$
|
1.19
|
|
|
$
|
103,180
|
|
Financing
|
06-01-2008
|
|
|
06-01-2012
|
|
|
|
108,000
|
|
|
$
|
1.02
|
|
|
$
|
88,114
|
|
Financing
|
06-23-2008
|
|
|
06-23-2018
|
|
|
|
627,451
|
|
|
$
|
0.01
|
|
|
$
|
560,736
|
|
Financing
|
06-23-2008
|
|
|
06-23-2018
|
|
|
|
1,333,333
|
|
|
$
|
0.01
|
|
|
$
|
1,211,168
|
|
Financing
|
02-01-2009
|
|
|
02-01-2013
|
|
|
|
108,000
|
|
|
$
|
0.25
|
|
|
$
|
22,728
|
|
Financing
|
03-01-2009
|
|
|
03-01-2013
|
|
|
|
108,000
|
|
|
$
|
0.19
|
|
|
$
|
17,277
|
|
Financing
|
|
|
|
|
|
|
|
12,944,483
|
|
|
|
|
|
|
|
|
|
|
During
the three months ended March 31, 2009 the Company derived 55.1% (2008:60.4%) of
its revenue from two customers. The accounts receivable from this
customer comprises 37.1% (2008: 40.4%) of the total trade receivable
.
We
determine and disclose our segments in accordance with SFAS No. 131 “Disclosures
about Segments of an Enterprise and Related Information”, which uses a
“management” approach for determining segments. The management approach
designates the internal organization that is used by management for making
operating decisions and assessing performance as the source of the reportable
segments. Our management reporting structure provides for the following
segments:
Cancable
Cancable
Inc. and its wholly owned subsidiaries XL Digital Services, Inc. and 2141306
Ontario Inc are Canadian based entities. Cancable, Inc. is a US based entity
which is also the wholly owned subsidiary of Cancable Inc. (collectively,
“Cancable”). Cancable is in the business of providing deployment and servicing
of broadband technologies in both residential and commercial markets. The
Cancable service offering, network deployment, IT integration, and support
services, enable the cable television and telecommunications industries to
deliver a high quality broadband experience to their customers. Cancable’s
clients rely on Cancable’s knowledge and expertise to rapidly deploy the latest
technologies to support advanced cable services, cable broadband Internet access
and DSL. Services provisioned include new installations, reconnections,
disconnections, service upgrades and downgrades, inbound technical call center
sales and trouble resolution for cable Internet subscribers, and network
servicing for broadband video, data, and voice services for residential,
business, and commercial marketplaces.
AC
Technical
A.C.
Technical Systems Ltd. (“AC Technical”), a corporation incorporated under the
laws of the Province of Ontario, is engaged in the engineering, design,
installation, integration and servicing of various types of security
systems.
Iview
DSI
Iview
Digital Video Solutions Inc. (“Iview DSI”), a corporation incorporated under the
laws of the Province of Ontario, is a newly formed subsidiary incorporated in
late 2005 to focus on providing video surveillance products and technologies to
the market.
|
|
March 31, 2009
|
|
|
March 31, 2008
|
|
Sales:
|
|
|
|
|
|
|
Cancable
|
|
$
|
7,455,320
|
|
|
$
|
8,871,904
|
|
AC
Technical
|
|
|
1,567,840
|
|
|
|
1,846,753
|
|
Iview
|
|
|
21,073
|
|
|
|
62,698
|
|
Creative
Vistas, Inc.
|
|
|
97,940
|
|
|
|
-
|
|
Consolidated
Total
|
|
$
|
9,142,173
|
|
|
$
|
10,781,355
|
|
Depreciation
and amortization:
|
|
|
|
|
|
|
|
|
Cancable
|
|
$
|
685,332
|
|
|
$
|
490,533
|
|
AC
Technical
|
|
|
8,340
|
|
|
|
10,352
|
|
Iview
|
|
|
8,174
|
|
|
|
-
|
|
Consolidated
Total
|
|
$
|
701,846
|
|
|
$
|
500,885
|
|
INTEREST
EXPENSES:
|
|
|
|
|
|
|
|
|
Cancable
|
|
$
|
393,271
|
|
|
|
214,795
|
|
Iview
|
|
|
31,763
|
|
|
|
35,629
|
|
AC
Acquisition
|
|
|
12,774
|
|
|
|
12,398
|
|
Creative
Vistas, Inc.
|
|
|
167,857
|
|
|
|
4,170,095
|
|
CONSOLIDATED
TOTAL
|
|
$
|
605,665
|
|
|
$
|
4,432,917
|
|
Net
(Loss):
|
|
|
|
|
|
|
|
|
Cancable
|
|
$
|
(893,343
|
)
|
|
$
|
(1,824,129
|
)
|
AC
Technical
|
|
|
57,901
|
|
|
|
215,362
|
|
Iview
|
|
|
(94,044
|
)
|
|
|
(76,500
|
)
|
AC
Acquisition
|
|
|
(12,774
|
)
|
|
|
(12,398
|
)
|
Corporate
(1)
|
|
|
(234,730
|
)
|
|
|
(4,688,180
|
)
|
Consolidated
Total
|
|
$
|
(1,176,990
|
)
|
|
$
|
(6,385,845
|
)
|
TOTAL
ASSETS
|
|
|
|
|
|
|
|
|
Cancable
|
|
$
|
12,315,788
|
|
|
$
|
12,275,543
|
|
AC
Technical
|
|
|
2,770,370
|
|
|
|
3,623,690
|
|
Iview
|
|
|
1,124,554
|
|
|
|
1,379,437
|
|
Creative
Vistas, Inc.
|
|
|
3,044,540
|
|
|
|
7,233,587
|
|
Consolidated
Total
|
|
$
|
19,255,252
|
|
|
$
|
24,512,257
|
|
CAPITAL
ASSETS
|
|
|
|
|
|
|
|
|
Cancable
|
|
$
|
7,572,455
|
|
|
$
|
6,237,896
|
|
AC
Technical
|
|
|
648,181
|
|
|
|
814,913
|
|
Iview
|
|
|
75,436
|
|
|
|
-
|
|
Consolidated
Total
|
|
$
|
8,296,072
|
|
|
$
|
7,052,809
|
|
CAPITAL
EXPENDITURES
|
|
|
|
|
|
|
|
|
Cancable
|
|
$
|
7,382
|
|
|
$
|
1,506,176
|
|
AC
Technical
|
|
|
1,139
|
|
|
|
3,048
|
|
Iview
|
|
|
4,406
|
|
|
|
-
|
|
CONSOLIDATED
TOTAL
|
|
$
|
12,927
|
|
|
$
|
1,509,224
|
|
(1)
|
Corporate
expenses primarily include certain stock-based compensation for consulting
and advisory services, which we do not internally allocate to our segments
because they are related to our common stock and are non-cash in
nature.
|
Revenues
by geographic destination and product group were as follows:
|
|
Marc 31, 2009
|
|
|
March 31, 2008
|
|
Contract
|
|
$
|
1,224,040
|
|
|
$
|
1,479,319
|
|
Service
|
|
|
7,909,147
|
|
|
|
9,291,977
|
|
Others
|
|
|
8,986
|
|
|
|
10,059
|
|
Total
sales to external customers
|
|
$
|
9,142,173
|
|
|
$
|
10,781,355
|
|
Revenue
generated by the Company in Canada and the United States was $7,168,113
(2008:$10,501,775) and $1,974,060 (2008: $279,580), respectively.
Subsequent
to period end, the Company issued 216,000 warrants to Laurus to defer the
monthly principal requirement from April to May 2009.
Item
2.
|
Management's
Discussion And Analysis of Financial Condition and Results of
Operations
|
The
following discussion of the financial condition and results of operations should
be read in conjunction with the consolidated financial statements and related
notes thereto. The following discussion contains certain
forward-looking statements that involve risks and uncertainties. Our
actual results could differ materially from those discussed
therein. Factors that could cause or contribute to such differences
include, but are not limited to, risks and uncertainties related to the need for
additional funds, the rapid growth of our operations and our ability to operate
profitably a number of new projects. Except as required by law, we do
not intend to publicly release the results of any revisions to those
forward-looking statements that may be made to reflect any future events or
circumstances.
Results
of Operations
Comparison
of Three Months Period Ended March 31, 2009
to
Period Ended March 31, 2008
For
purposes of this “Management’s Discussion and Analysis or Plan of Operation”, we
compared the three month period ended March 31, 2009, to the comparable period
in 2008.
Sales
: Sales
for the three month period ended 2009 decreased 15.2% to $9,142,200 from
$10,781,400 for the three months period ended 2008. The decrease in
revenue was mainly due to the decrease in service revenue of Cancable Segment to
$7,455,300 for the three month period ended 2009 from $8,871,900 for the same
period in 2008.
(a) Cancable
Segment – This segment includes Cancable Inc., Cancable, Inc., XL Digital and
OSS-IM View (collectively, “Cancable Group”). The principal activity
is provisioning the deployment and servicing of broadband technologies in both
residential and commercial markets. The Cancable Group’s service
offering, network deployment, IT integration, and support services, enable the
cable television and telecommunications industries to deliver a high quality
broadband experience to their customers. The total revenue for the
first quarter of fiscal 2009 from the Cancable segment was $7,455,300 as
compared to $8,871,900 in 2008. The decrease in revenue was primarily due to the
decline of the revenue generated from Rogers Cable Inc. as a customer. The
decline was offset by the continued growth of revenue in the United
States. Total revenue generated in the United States for the first
quarter of fiscal 2009 was $1,974,100 compared to $280,000 for the same period
in fiscal 2008.
Rogers Cable Inc. is
Cancable Group’s largest customer and the revenue from this customer for the
three months ended March 31, 2009 was $3,854,200 or 51.7% of its total Cancable
revenue compared to $6,508,100 or 73.4% for the same period of fiscal 2008. (b)
AC Technical segment - Total revenue of AC Technical segment was $1,567,800 for
the first three months of fiscal 2009 compared to $1,846,800 for the same period
of fiscal 2008. The decrease in revenue was mainly due to a
fluctuation of the foreign exchange rate. All revenue generated from AC
Technical Segment was in Canadian dollars. Total revenue of AC
Technical Segment was $1,567,800 (CAD$1,944,000) for the first quarter of fiscal
2009 and $1,846,800 (CAD$ $1,846,800) for the same period of fiscal 2008.
Contract revenue was $1,205,600 for the first quarter of fiscal 2009 compared to
$1,426,700 for the same period of fiscal 2008. The service revenue
was $362,200 for the three months ended March 31, 2009, compared to $420,100 for
the same period of fiscal 2008. Service revenue primarily represents
the cumulative effect of the growth in contracts and number of customers over
the past few years. We have experienced a significant increase in the number of
inquiries for systems from the government and retail sector. This increased
interest in security products and services may result in our achieving increased
revenues in future periods if we are successful in attracting new customers or
obtaining additional projects from existing customers. There is no assurance
that the Company will be able to attract new customers.
Direct Expenses (excluding
depreciation)
: Direct expenses as a percentage of revenue for
the three months ended March 31, 2009 was $6,986,400 or 76.4% of revenues
compared to $8,307,900 or 77.1% of revenues for same period in 2008. The direct
expenses for the three month period ended March 31, 2008 were higher which was
driven predominantly by the initial training and set up cost of developing the
business in the United States. (a)Cancable segment – Direct expenses of this
segment were $6,226,500 for the three months ended March 31, 2009 which is
comprised principally of labor expenses $4,768,000, vehicle expenses $478,000
and material cost $424,300. (b) AC Technical segment – Direct
expenses of this segment were $747,900. The material cost was $444,100 or 28.3%
of the AC Technical revenue for the three months ended March 31, 2009 compared
to $591,900 or 32.1% of revenues in the same period of fiscal 2008. The decrease
in percentage of material costs was mainly due to some contracts having less
material needs. On the other hand, the labor and subcontractor cost increased to
$289,500 or 18.5% of AC Technical revenues for the three months ended March 31,
2009 compared to $264,100 or 14.3% of AC Technical revenues for the same period
of fiscal 2008. The increase in labor and subcontractor cost was
mainly due to some contracts required more labor hours.
Project cost
: Project
cost was decreased to $223,700 or 2.5% of revenue for the three months ended
March 31, 2009, compared to $326,100 or 3.0% for the same period in 2008.
Project cost was mainly related to the AC Technical segment. The
balance mainly includes the salaries and benefits of indirect staff amounting to
$147,300 in the first quarter of fiscal 2009 compared to $208,700 for the same
period of fiscal 2008. The decrease was mostly due to the
decrease in the number of indirect staff. Automobile and travel expenses
decreased to $57,200 for the three months ended March 31, 2009 compared to
$65,900 for the same period of fiscal 2008. There was no material fluctuation of
percentage in automobile and travel expenses.
Selling expense
:
Selling expense was $199,000 or 2.2% of revenues for the first quarter of fiscal
2009 compared to $218,600 or 2.0% of revenues for the same period in 2008.
Selling expenses were mainly related to AC Technical segment. The
balance for the three months ended March 31, 2009 is mainly comprised of
salaries and commission to salespersons of $96,700 compared to $151,600 for the
same period of fiscal 2008. The decrease was mainly due to the decrease in
salesperson headcount. The advertising and promotion and trade show
expenses were $29,400 in the first quarter of fiscal 2009 compared to $28,000
for the same period of fiscal 2008 with no material fluctuation.
General and administrative
expenses
: General and administrative expenses were $1,235,500 or 13.5% of
revenues for the first quarter of fiscal 2009 compared to $2,891,200 or 26.8%
for the same period in 2008. The balance for the three months ended March 31,
2009 is mainly comprised of $99,600 of professional fees related to preparation
of the quarterly reports and other corporate matters compared to $203,300 in
2008. In addition, investor relations expenses amounted to $45,000 for first
quarter of fiscal 2009 compared to $142,500 for the same period of fiscal
2008. Total salaries and benefits to administrative staff were
$589,100 for the first quarter of fiscal 2009 compared to $1,086,300 for the
same period of 2008. The higher amount in 2008 was mainly due to additional
staff hired for the expansion of the new development in the United
States. Due to the restructuring of the Company, the total number of
administrative staff decreased compared to the same period of fiscal
2008.
Depreciation
: Total
depreciation of property plant and equipment was $701,800 for the first quarter
of fiscal 2009 compared to $500,900 for the same period in 2008. The
increase in balance was primarily due to the capital expenditures incurred
during the last fiscal year in the amount of $7,497,557.
Amortization of Intangible
Assets
: Amortization of customer relationships and trade name was $82,400
for the three months ended March 31, 2009 compared to $190,200 for the same
period of fiscal 2008. The decrease was mainly due to the
trade name related to the acquisition in 2006 being fully
amortized.
Interest and other
Expenses
: Interest and net other expenses for the three months
ended March 31, 2009 were $890,400 or 9.7% of revenues compared to net expenses
of $4,732,400 or 43.9% of revenues for the same period in 2008. The balance for
the current period is primarily comprised of the amortization of deferred
charges amounting to $41,000 compared to $44,200 for the same period of fiscal
2008. Additionally, net financing expenses decreased to $605,700 or
6.6% of revenues compared to $4,432,900 or 41.1% of revenues for the same period
of 2008. The interest due with respect to the Company’s credit
facility was $376,200 for the three months ended March 31, 2009 compared to
$319,000 for the same period in 2008. The increase in the balance
reflects the increase in outstanding balances of the term notes compared to the
same period of the prior year. In addition, the Company issued
warrants related to proposed financings valued at $3,723,600 which were charged
to financing costs for the three months ended March 31, 2008. There was no such
balance for the current period ended March 31, 2009. Additionally, the foreign
currency translation loss for this quarter was $243,700 compared to foreign
currency translation loss of $255,200 for the same period of 2008. The balance
was related to the foreign currency translation of term notes.
Income
taxes
: No income tax was paid for the period ended March 31,
2009, which was mainly due to the Company’s losses carried forward to offset all
income generated by the Company. All prior taxes have already been accounted for
in the income tax recoverable and therefore, there is no additional provision
for income taxes recoverable and deferred tax assets.
Net
Income/Loss
: Net loss for the first quarter of fiscal 2009 was
$1,177,000 compared to net loss of $6,385,800 for the same period in 2008. The
Company’s operating loss was $286,600 for the three months ended March 31, 2009
compared to operating loss of $1,653,500 for the same period of
2008. The loss was primarily attributed to the Company’s allocation
of resources to grow the business in the United States and increased
costs.
Liquidity
and Capital Resources
Since our
inception, we have financed our operations through bank debt, loans and equity
from our principals, loans from third parties and funds generated by our
business. At March 31, 2009, we had $3,694,657 in cash. We believe that cash
from operations and our credit facilities with our banks will continue to be
adequate to satisfy the ongoing working capital needs of the Company. During
fiscal year 2009, our primary objectives in managing liquidity and cash flows
will be to ensure financial flexibility to support growth and entry into new
markets and improve inventory management and to accelerate the collection of
accounts receivable.
Net Cash Used in Operating
Activities
. Net cash used in operating activities amounted to
$621,993 for the three months ended March 31, 2009. The changes in operating
assets and liabilities resulted in a use of cash of $312,300, which included a
$167,900 increase in accounts receivable, a $103,000 decrease in inventory, a
$3,400 decrease in prepaid expenses, a $231,700 decrease in accounts payable, a
$2,100 increase in income tax recoverable and a $17,000 decrease in deferred
revenue.
Comparison of the
balance sheet as at March 31, 2009 to December 31, 2008
Accounts
Receivable
Our
accounts receivable decreased by approximately $135,300 compared to the balance
as at December 31, 2008. Accounts receivable of Cancable segment were
$2,797,800 as at March 31, 2009 compared to $2,912,200 as at December 31,
2008. Accounts receivable of AC Technical segment was $1,560,300 as
at March 31, 2009 compared to $1,547,500 as at December 31, 2008. The
fluctuation in balance was mainly due to the timing of payments from our
customers.
Inventory
Inventory
on hand at March 31, 2009 was $701,600 compared to $829,300 as at December 31,
2008. The inventory of the Cancable segment as at March 31, 2009 was $229,900
compared to $319,600 as at December 31, 2008. The inventory of
AC Technical segment as at March 31, 2009 was $396,600 compared to $421,700 as
at December 31, 2008.
Accounts Payable and Accrued
Liabilities
Accounts
payable decreased to approximately $5,226,099 as at March 31, 2009 from
$5,800,100 as at December 31, 2008. The decrease was mainly due to the timing of
payments to our suppliers.
Deferred
Revenue
Deferred
revenue increased to $98,100 as at March 31, 2009 compared to $118,600 as at
December 31, 2008. This decrease was mainly due to the timing of payments by our
customers. Deferred revenue primarily relates to payments associated
with contracts in which revenue is recognized on a percentage of completion
basis.
Net Cash Used in Investing
Activities
. Net cash provided by investing activities was
$149,900 for the three months ended March 31, 2009, compared to $861,200 used
for the three months ended March 31, 2008. The balance for both periods was
mainly due to the purchase of property and equipment of the Company and offset
by the sale proceeds from the sale of property and equipment. For the three
month period ended March 31, 2008, the Company has paid $300,000 for the
acquisition of XL Digital. The total consideration to be paid by
Cancable XL for the shares of XL Digital was an amount equal to the earnings
before interest, taxes, depreciation and amortization derived from the carrying
on of its business by XL Digital for the twelve month period after the
completion of the acquisition times 2.5. The consideration was to be paid in
notes, warrants to acquire stock of the Company and cash (including the $300,
000 described above), with the total balance due on January 5,
2009. Based on the Company’s subsequent purchase price calculation,
the Company disagrees with the Seller regarding the calculation of the purchase
price, including the $300,000 cash already paid. and the Company is in the
process of negotiating with the seller.
Net Cash Provided From
Financing Activities
. Net cash used in financing activities
was $689,400 for the three months ended March 31, 2009 compared to net cash
provided of $464,400 for the three months ended March 31, 2008. The current
year’s balance mainly represents the repayment of capital leases, bank
indebtedness and term notes in the amount of $689,400. Last year’s
balance represents net proceeds received from new banking facilities set up with
a Canadian financial institution in the amount of $1,043,000. The
balance was offset with the repayment of term notes and capital leases in the
amount of $632,600.
Our
capital requirements have grown since our inception with the growth of our
operations and staffing. We expect our capital requirements to continue to
increase in the future as we seek to expand our operations. On September 30,
2004, we obtained funding through a series of agreements with
Laurus. In 2006, through our wholly owned subsidiary, we acquired all
of the issued and outstanding shares of capital stock and any other equity
interests of Cancable. Simultaneously, Cancable entered into a series
of agreements with Laurus whereby Cancable issued to Laurus a secured term note
(the “Cancable Note”) in the amount of $6,865,000. We completed a
refinancing transaction with Laurus in February 2006; we issued to Laurus a
secured term note (the “Company Note”) in the amount of $8,250,000 and Iview DSI
issued to Laurus a secured term note (the “Iview Note”) in the amount of
$2,000,000. Simultaneously with the closing of this refinancing transaction, we
paid off the entire outstanding principal amount and all obligations due to
Laurus under the Secured Convertible Term Note dated September 30, 2004, the
Secured Convertible Minimum Borrowing Note dated September 30, 2004 and the
Secured Revolving Note dated September 30, 2004 (collectively, the “2004 Notes”)
and such 2004 Notes were subsequently cancelled.
In September 2008, the
Company and its subsidiary,
Cancable Inc., entered
into a financing transaction whereby the Company issued to Valens Offshore SPV
II, Corp. (“Valens Offshore”) and Valens U.S. SPV I, LLC (“Valens U.S.”) secured
term notes in the amount of $1,700,000 and $800,000, respectively
(collectively, the “Company Second Notes”). Valens Offshore and Valens U.S. are
entities related to Laurus. The Company also issued to Valens Offshore and
Valens U.S. warrants to purchase up to 1,333,333 and 627,451 shares of common
stock, respectively, of the Company with an exercise price of $0.01 per share.
The loans are secured by all of the assets of the Company and all its
subsidiaries.
Over the
next twelve months we believe that our existing capital will be sufficient to
sustain our operations. Management plans to seek additional capital in the
future to fund operations, growth and expansion through additional equity, debt
financing or credit facilities. We have had early stage discussions with
investors about potential investment in our firm at a future date. No assurance
can be made that such financing would be available, and if available it may take
either the form of debt or equity. In either case, the financing could have a
negative impact on our financial condition and our shareholders.
Recent
Accounting Pronouncements
In May
2008, the FASB issued FAS 163 (“FAS 163”), “Accounting for Financial Guarantee
Insurance Contracts—an interpretation of FASB Statement No. 60
”.
This Statement
interprets Statement 60 and amends existing accounting pronouncements to clarify
their application to the financial guarantee insurance contracts included within
the scope of this Statement. FAS 163 is not expected to have a
material impact on the Company’s consolidated financial statements.
In May
2008, the FASB issued FAS 162 (“FAS 162”), “The Hierarchy of Generally Accepted
Accounting Principles.” This statement identifies the sources of accounting
principles and the framework for selecting the principles to be used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with GAAP. Although this statement formalizes the
sources and hierarchy of GAAP within the authoritative accounting literature, it
does not change the accounting principles that are already in place. This
statement will be effective 60 days following the SEC’s approval of the Public
Company Accounting Oversight Board amendments to AU Section 411, “The
Meaning of Present Fairly in Conformity With Generally Accepted Accounting
Principles.” FAS 162 is not expected to have a material impact on the Company’s
consolidated financial statements.
In June
2003, the U.S. Securities and Exchange Commission adopted final rules under
Section 404 of the Sarbanes-Oxley Act of 2002, as amended by SEC Release No.
33-8934 on June 26, 2008. Commencing with our annual report for the year ended
December 31, 2009, we will be required to include a report of management on our
internal control over financial reporting. The internal control report must
include a statement.
|
·
|
of
management’s responsibility for establishing and maintaining adequate
internal control over our financial
reporting;
|
|
·
|
of
management’s assessment of the effectiveness of our internal control over
financial reporting as of year end;
and
|
|
·
|
of
the framework used by management to evaluate the effectiveness of our
internal control over financial
|
Furthermore,
in the following fiscal year, management is required to file the registered
accounting firm’s attestation report separately on our internal control over
financial reporting on whether it believes that we have maintained, in all
material respects, effective internal control over financial
reporting.
On
December 30, 2008, the Financial Accounting Standards Board (“FASB”) issued
FASB Staff Position (“FSP”) No. FAS 132(R)-1, “
Employers’ Disclosures
About Postretirement Benefit Plan Assets
”, which amends Statement of
Financial Accounting Standards (“SFAS”) No. 132(R), “
Employers’ Disclosures About
Pensions and Other Postretirement Benefits
,” to require more
detailed disclosures about plan assets, including investment strategies, major
categories of plan assets, concentrations of risk within plan assets, and
valuation techniques used to measure the fair value of plan assets consistent
with fair value hierarchy model described in SFAS No. 157, “
Fair Value
Measurements
”. We do not anticipate that the adoption of this
statement will have any effect on our financial condition and results of
operations since we do not have any postretirement plans.
In
April 2009, the Financial Accounting Standards Board (FASB) issued FASB
Staff Position (FSP) Financial Accounting Standard (FAS) 157-4 “Determining Fair
Value When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly”.
Based on the guidance, if an entity determines that the level of activity for an
asset or liability has significantly decreased and that a transaction is not
orderly, further analysis of transactions or quoted prices is needed, and a
significant adjustment to the transaction or quoted prices may be necessary to
estimate fair value in accordance with Statement of Financial Accounting
Standards (SFAS) No. 157 “Fair Value Measurements”. This FSP is to be
applied prospectively and is effective for interim and annual periods ending
after June 15, 2009 with early adoption permitted for periods ending after
March 15, 2009. There is no expected impact on the Financial
Statements.
In
April 2009, the FASB issued FSP FAS 107-1 and Accounting Principles Board
(APB) 28-1 “Interim Disclosures about Fair Value of Financial Instruments”. The
FSP amends SFAS No. 107 “Disclosures about Fair Value of Financial
Instruments” to require an entity to provide disclosures about fair value of
financial instruments in interim financial information. This FSP is to be
applied prospectively and is effective for interim and annual periods ending
after June 15, 2009 with early adoption permitted for periods ending after
March 15, 2009. The company will include the required disclosures in its
quarter ending June 30, 2009.
Off
Balance Sheet Arrangements
None
DISCUSSION
OF CRITICAL ACCOUNTING ESTIMATES
Critical
accounting estimates are those that management deems to be most important to the
portrayal of our financial condition and results of operations, and that require
management’s most difficult, subjective or complex judgments, due to the need to
make estimates about the effects of matters that are inherently uncertain. We
have identified six critical accounting estimates: accounts receivable
allowances, goodwill, revenue, inventory, accounting for income taxes and
financial instruments. See our Form 10-K for the year ended December 31, 2008,
for a discussion of our critical accounting estimates.
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
quarterly report contains forward-looking statements about our company that are
not historical facts but, rather, are statements about future expectations. When
used in this document, the words “anticipates,” “believes,” “expects,”
“intends,” “should” and similar expressions as they relate to us, or to our
management, are intended to identify forward-looking statements. However,
forward-looking statements in this document are based on management’s current
views and assumptions and may be influenced by factors that could cause actual
results, performance or events to be materially different from those
projected. These forward-looking statements are subject to numerous
risks and uncertainties. Important factors, some of which are beyond
our control, could cause actual results, performance or events to differ
materially from those in the forward-looking statements. These factors include
impact of general economic conditions in North America, changes in laws and
regulations, fluctuation in interest rates and access to capital
markets.
Our
actual results or performance could differ materially from those expressed in,
or implied by, these forward-looking statements and, accordingly, we cannot
predict whether any of the events anticipated by the forward-looking statements
will transpire or occur, or if any of them do, what impact they will have on our
results of operations and financial condition.
For
further information about these and other risks, uncertainties and factors,
please review the disclosure included in our December 31, 2008, Annual Report on
Form 10-K under the caption “Risk Factors.”
You
should not place undue reliance on any forward-looking statements. Except as
otherwise required by federal securities laws, we undertake no obligation to
publicly update or revise any forward-looking statements or risk factors,
whether as a result of new information, future events, changed circumstances or
any other reason after the date of this quarterly report.
Item
3.
|
Quantitative
and Qualitative Disclosures about Market
Risk
|
This item
is not applicable to the Company because we are a smaller reporting
company.
Item
4.
|
Controls
and Procedures
|
Evaluation of Disclosure Controls and
Procedures
We maintain disclosure controls and procedures
that are designed to ensure that information required to be disclosed in our
filings under the Securities Exchange Act of 1934, as amended, is recorded,
processed, summarized and reported within the periods specified in the rules and
forms of the SEC. This information is accumulated to allow timely
decisions regarding required disclosure. As of March 31, 2009, the
end of the period covered by this quarterly report on Form 10Q, our management,
including our Chief Executive Officer and Chief Financial Officer, assessed the
effectiveness of our disclosure controls and procedures, as such terms are
defined under rules 13a-15(e) and 15d-15(e) promulgated under the
Securities Exchange Act of 1934, as amended. Based on this assessment, our
management concluded that our disclosure controls and procedures were effective
as of the end period covered by this annual report.
Management’s
assessment of internal control over financial reporting as of December 31, 2008
was included in Form 10-K filed on March 31, 2009.
Changes in Internal Control Over
Financial Reporting
There has not been any change in our
internal control over financial reporting (as such term is defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our first
fiscal quarter ended March 31, 2009 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
PART
II.
OTHER
INFORMATION
Item
1.
|
Legal
Proceedings
|
Not
applicable.
This item
is not applicable to the Company because we are a smaller reporting
company.
Item
2.
|
Unregistered
Sales of Equity Securities and Use of
Proceeds
|
Not
applicable.
Item
3.
|
Defaults
upon Senior Securities
|
Not
applicable.
Item
4.
|
Submission
of Matters to a Vote of Security
Holders
|
Not
applicable.
Item
5.
|
Other
Information
|
Not
applicable.
(a) Exhibits
31.1
|
|
Certification
of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
31.2
|
|
Certification
of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
32.1
|
|
Chief
Executive Officer certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
32.2
|
|
Chief
Financial Officer certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
SIGNATURES
In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CREATIVE
VISTAS, INC.
|
|
By:
|
/s/ Dominic Burns
|
|
Dominic
Burns, CEO
|
Dated: May
15, 2009
|
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