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Share Name | Share Symbol | Market | Type |
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Analytixinsight, Inc. | TSXV:OMT | TSX Venture | Common Stock |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
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0.00 | 0.00% | 0 | - |
OMT Inc. (TSX VENTURE:OMT) announced today the Company's consolidated results for the period ended September 30, 2009. Third Quarter Highlights - iMediaTouch was deployed in a number of new key accounts including 23 Maritime Broadcasting stations and Corus Radio (Kitchener), with other key sales concluding with various other clients for implementation throughout 2009. - As part of the overall 2009 marketing program, OMT attended the National Association of Broadcasters (NAB) show in Philadelphia and CCBE show in Toronto. OMT continues to showcase our products with target clients through participation in these and other industry events. - OMT's YTD Canadian sales have increased as a percentage of our total revenues from 16% year-to-date in 2008 to 44% in 2009. This has resulted in both a further diversification of our client base and a partial mitigation of the unfavourable USA economic conditions that impact our sales. - During the third quarter, a major milestone was achieved with the completion and customer acceptance of the large custom contract in progress that began in 2005 and valued at over $500,000 in revenue recorded over the four years. Description of Business OMT Inc. (TSX VENTURE:OMT) is a digital media content and technology solution provider to radio broadcasters. Through its wholly-owned operating subsidiary, OMT Technologies Inc. the Company delivers radio automation systems to radio stations internationally. OMT's broadcasting, multi-media technology, and content are heard daily by over 50 million people worldwide through radio, satellite, television and Internet delivered broadcasts. To learn more about the Company, its products and services, visit its website at www.omt.net. Management's Discussion and Analysis Certain statements made in the following Management's Discussion and Analysis contain forward-looking statements including, but not limited to, statements concerning possible or assumed future results of operations of the Company. Forward-looking statements represent the Company's intentions, plans, expectations and beliefs, and are not guarantees of future performance. Such forward-looking statements represent our current views based on information as at the date of this report. They involve risks, uncertainties and assumptions and the Company's actual results could differ, which in some cases may be material, from those anticipated in these forward-looking statements. Unless otherwise required by applicable securities law, we disclaim any intention or obligation to publicly update or revise this information, whether as a result of new information, future events or otherwise. The Company cautions investors not to place undue reliance upon forward-looking statements. Sale of Intertain Media Inc.: The Corporation undertook a 10 month process to seek interested parties to acquire Intertain Media Inc., a wholly-owned subsidiary, employing the services of a professional advisor. The Board of Directors had determined that the potential sale of Intertain would be in the best interest of the company considering Intertain had experienced limited recent growth and would require continued investment to realize its possible future potential. At the conclusion of this sale review process after considering all offers received, the Board of Directors approved the sale of Intertain to the President and Chief Executive Officer and a member of the Board of Directors of OMT Inc. On the closing date of May 31, 2009, OMT Inc. sold all of its shares in its wholly-owned subsidiary, Intertain Media Inc. for a total consideration estimated to be $172,500. Included in the consideration was a cash payment of $50,000 on closing, and an estimated $32,500 payable upon the completion of a specific customer contract and $90,000 of royalty payments payable estimated at $30,000 on each the next three closing date anniversaries. The consideration, including royalty payments, are subject to certain refinements under the terms of the Purchase Agreement. The initial gain on sale included in discontinued operations in the Statement of Operations is estimated at $51,553 as follows: Cash proceeds on sale of discontinued operations $ 50,000 Estimated proceeds on completion of specific customer contract 32,500 Less: Net asset value (11,542) Less: Estimated closing costs (19,405) ------------ Estimated initial gain on sale of discontinued operations $ 51,553 ------------ Results of Operations This review contains Management's discussion of the Company's operational results and financial condition, and should be read in conjunction with the consolidated financial statements for the nine months ended September 30, 2009 and the associated notes, which were prepared in accordance with Canadian generally accepted accounting principles (GAAP). All amounts are in Canadian dollars unless otherwise indicated. The unaudited consolidated financial statements provide a comparison of the three and nine month periods ended September 30, 2009 to the three and nine month periods ended September 30, 2008. The eight quarter review figures have been adjusted to reflect the discontinued operations of Intertain Media Inc. Eight Quarter Review (numbers shown in '000s) (unaudited) ---------------------------------------------------------------------------- 2009 2008 2007 ------------------------ ----------------------------------- -------- Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 -------- ------- ------- -------- -------- -------- -------- -------- Total Sales $709 $ 558 $485 $661 $571 $803 $745 $700 Gross profit $405 $ 408 $357 $447 $393 $502 $449 $455 Gross profit % 57% 73% 74% 68% 69% 63% 60% 65% Operating expenses $344 $ 454 $318 $355 $372 $512 $411 $378 EBITDA $ 61 ($46) $ 39 $ 92 $ 21 ($10) $ 38 $ 77 Other expenses $107 ($102) $150 $151 $152 $145 $140 $169 Net income (loss) ($46) $56 ($111) ($59) ($131) ($155) ($102) ($92) Net income (loss) per share (0.002) $0.002 ($0.004) ($0.002) ($0.005) ($0.005) ($0.004) ($0.003) ---------------------------------------------------------------------------- Results for the quarters ended in 2009, 2008 and 2007 reflect the total business of OMT Inc. and its wholly-owned subsidiary, OMT Technologies Inc. Sales, cost of sales and expenses for now divested Intertain Media Inc. have been removed to allow proper comparison between the periods and are not shown on this chart. OMT Technologies includes the iMediaTouch radio automation and related products. Sales in the third quarter of this year are $138,000 (24%) higher than the same quarter last year. Three large contracts were delivered in this quarter, but were not yet fully implemented at the client's location by quarter-end. Hardware sales increased by $132,000 (90%) and software sales were up $27,000 (17%) over last year but implementation activity related to these large contracts was not completed by quarter-end and as a result, implementation revenue was down $57,000 (50%). The large custom contract which had been in progress for several years was completed in the third quarter and the remaining revenue was fully recognized. The weak US economy continues to negatively impact the financial performance of the radio industry, causing an increased focus on capital expenditure reduction by our clients. Some clients have decided to postpone annual technical maintenance contract renewals. As a consequence, recurring revenue has been negatively affected and is $9,000 (6%) lower than this quarter last year. Sales have been directly affected by the economic slowdown which started in Q3 of 2008. A look at the quarterly results reflects this external impact. The current economic conditions are improving, however, radio advertising is still not yet at previous levels. Management expects sales will return to pre-recession levels when radio advertising fully recovers, which is forecasted by the industry to occur sometime in 2010. Gross margin at 57% in the third quarter of this year was lower than normal for several reasons. The increase in hardware sales discussed above without a corresponding increase in software and service revenue changes the sales mix and results in lower margins. This is a temporary situation and will correct itself in the fourth quarter. The custom contract which has finally been completed and billed did not achieve expected gross margins due to unforeseen costs. In addition, the Canadian dollar has appreciated substantially in the last quarter, which also impacts our USA sales when expressed in Canadian dollars. Operating expenses in Q3-2009 were $28,000 (7.5%) lower than Q3-2008 and $110,000 (24.2%) lower than Q2-2009. Q3-2009 is the first full quarter that the Company operated out of its new premises. Other expense reduction initiatives, including the sale of Intertain Media, have contributed to the decreased expenses as reflected on the chart above. EBITDA is defined as Earnings before Interest, Tax, Depreciation and Amortization and is a measure that has no standardized meaning under Canadian GAAP and is considered a non-GAAP earnings measure. Therefore this measure may not be comparable to similar measures reported by other companies. EBITDA can be used to compare the Company's operating performance on a consistent basis. It is presented in this MD&A to provide the reader with additional information regarding the Company's liquidity and ability to generate funds to finance its operations. The majority of the quarters show a positive EBITDA. The noticeable exceptions are the second quarters, this year and last year. The main reason for the negative Q2 results are the increased expenses incurred due to participation at a key industry trade-show. In Q3-2009 EBITDA is a positive $61,000, with an improving external economy that should assist OMT in it's financial objectives over time. Other expenses that are not included in EBITDA to arrive at net income include: Q3-2009 Q3-2008 --------- --------- Interest, finance and related expense $106 $151 Amortization 1 1 --------- --------- Total $107 $152 --------- --------- The net loss of $46,000 for Q3-2009 is an improvement of $85,000 (64%) over the Q3-2008 net loss of $131,000. The loss per share, in all quarters, is based on 28,922,090 shares issued and outstanding. Per share amounts have not been calculated using diluted share numbers because of the unlikelihood of anyone exercising their right to buy shares at the option price of $0.12. Cash Flow Cash flow from operations, net of financing, in the third quarter was a negative $191,000. The negative cash flow in the third quarter this year is due to several large sales near the end of the third quarter. Accounts receivable temporarily increased substantially without a corresponding increase in accounts payable. These accounts have now been collected within normal timeframes and management expects positive cash flow for the fourth quarter with a corresponding reduction in the bank line of credit. For the year to date, cash flow, net of financing, was a negative $144,000. Last year the cash flow from operations, net of financing, in the third quarter was a positive $1,000 and a negative $100,000 year to date. Related Party Transactions In October 2005, a major shareholder provided a guarantee for $400,000 to the Bank of Nova Scotia in support of the Company's line of credit. This guarantee is ongoing and requires payments of a monthly administration fee of $1,000 as well as a monthly standby fee of $1,000. If the Company actually draws down on the guarantee, then the interest rate would be 20% of the amount received. The Company consummated this related party transaction to support the operating Line of Credit with the Bank. The Company has now completed a contract with a company of which one of OMT's directors is also an officer and a director. At September 30, 2009, the project is complete and fully invoiced. The outstanding account receivable is $263,000. Liquidity Working capital, as defined by the Company's principal lenders, was positive $48,000 as compared to a negative $29,000 at December 31, 2008, an increase of $77,000. Working capital includes all of the current liabilities except deferred revenue. Deferred revenue (customer deposits on projects and service contracts) at September 30, 2009 and December 31, 2008 was $315,000 and $267,000 respectively. The bank line of credit, which bears interest at a floating rate of prime plus 1%, is limited to a maximum of $400,000 of which $305,000 (December 31, 2008 - $220,000) has been drawn at September 30, 2009. This amount is expected to significantly decrease in the fourth quarter as the unusually high accounts receivable at the end of the 3rd quarter are collected within our normal process. The long-term debt was originally recorded on the consolidated balance sheet at its combined discounted values of $2,960,430 and was to be accreted equally over the four year term of the loan for effective interest, and at maturity was to be equal to the face value of the debentures and loans. The long-term debt of $3,995,000 was scheduled to mature on December 20, 2008. In separate agreements signed April 11, 2008 with the loan and the debenture holders, the date of maturity was extended to July 15, 2009. A subsequent amending agreement signed on April 28, 2009 with the principal debt holders further extended the date of maturity of all of the debt to July 15, 2011. No principal payments are required until that date. Since the long-term loans of $3,000,000 are held by principal shareholders, under Generally Accepted Accounting Principles (GAAP) the further extension to these loans do not require a change to the present value of the debt. The change to the maturity date of the long-term debentures, held by arms-length parties, however, under GAAP requires revaluation as if the old debt was extinguished and new debt re-issued under new terms and reflecting a current market interest rate. The current effective interest rate, estimated by management, was 20% at the time of the extension, up slightly from the previous years' effective interest rate of 19.9%. Under GAAP, the extension of the long-term debentures results in a one-time gain of $205,197. This amount reduces the fair value of the debentures and is shown as a gain on extension of the long-term debentures in the consolidated financial statements. The one-time gain represents a recovery of past effective interest expensed on the extended debentures, due to extending the required principal repayment date, and will be accreted over the remaining term of the debentures as interest expense. In a separate agreement signed April 11, 2008, the principal debt holders, who together hold $3,000,000 of the Company's long-term debt, provided the Company with a signed waiver to defer the monthly interest payments, representing approximately $20,000 per month until such time that the Company's cash reserves grow to $500,000. A subsequent amending agreement signed on April 28, 2009 with the principal debt holders changed the date for interest deferrals to July 15, 2011, or until such time when cash reserves grow to $500,000. Interest continues to be paid monthly on the remaining debt of $995,000 represented by CIBC Mellon Trust Company. The ability of the Company to carry on as a going concern is dependant upon achieving profitable operations which cannot be predicted at this time, the ability of the Company to operate within its line of credit and to obtain additional financing when its existing financing becomes due. The consolidated financial statements do not reflect adjustments that would be necessary if the going concern assumptions were not appropriate. If the going concern basis was not appropriate for these consolidated financial statements, then adjustments would be necessary in the carrying value of assets and liabilities, the reported revenues and expenses, and the balance sheet classifications used. Changes in Accounting Policies Recent accounting pronouncements adopted on January 1, 2009 Section 3064 - Goodwill and Intangible Assets This section, which replaces sections 3062 and 3450, establishes guidance for the recognition, measurement, presentation and disclosure of goodwill and intangible assets. Adoption has had no significant impact on the earnings or financial position of the Company. International Financial Reporting Standards (IFRS) In February, 2008 the Canadian Accounting Standards Board (AcSB) announced that as at January 1, 2011, publicly accountable enterprises are expected to adopt IFRS. Accordingly, the Company expects to adopt these new standards during its fiscal year beginning on January 1, 2011. The AcSB also stated that during the transition period, enterprises will be required to provide comparative IRFS information for the previous fiscal year. The IFRS issued by the International Accounting Standards Board (IASB) require additional financial statement disclosures and, while the conceptual framework is similar to Canadian GAAP, enterprises will have to take account of differences in accounting principles. We are currently assessing the impact of these new standards on the consolidated financial statements, but are unable to determine the final impact on future financial statements at this time. However, an initial assessment has not identified any substantial changes to the financial statements. Internal Controls The management of OMT is responsible for establishing and maintaining disclosure controls and procedures for the Company and has designed such disclosure controls and procedures, or caused them to be designed under OMT's management supervision, to provide reasonable assurance that material information relating to the Company, including its consolidated subsidiary, is made known to OMT's management by others within the Company, including its consolidated subsidiary. OMT management has evaluated the effectiveness of the Company's disclosure controls and procedures for the period covered by this MDA and based on that evaluation has concluded that the disclosure controls and procedures are effective. New legislation, however, does not require certification over internal controls; rather the President and Chief Financial Officer will be signing the bare certificate. There may be additional risks to quality, reliability and transparency of interim and annual filings and other reports provided under this new securities legislation. Risks and Uncertainties The risks and uncertainties discussed below must be taken into account, as they may affect the Company's ability to achieve our strategic goals. Investors are therefore advised to consider the following items in assessing the Company's future prospects as an investment. Capital requirements OMT Inc. has renegotiated the terms of repayment on the subordinated debt which will now mature on July 15, 2011. It is uncertain if future cash flow from operations will be sufficient to repay the subordinated debt at maturity. Also, the Company's ability to continue to operate as a going concern will be dependent on continued cash management within the Company's current line of credit facility, and later, obtaining new financing and/or renegotiating the repayment terms of the subordinated debt prior to the newly extended July 15, 2011 maturity date. Readers should refer to notes 1(a) and 4 in the consolidated financial statements. Current External Economic and Financial Crisis The global economic and financial crisis is having a negative impact on the revenues of the Company in 2009, which may continue throughout the year. Generally, prices are under pressure and client capital investment decisions and new maintenance contracts may be postponed. In this environment, it is proving to be difficult to achieve revenue projections for 2009. As the revenues of our customers are negatively impacted, we see additional focus on their part to reduce or postpone costs. The Company procurement approach does not expose it to any risk from any specific vendor. Custom Contract Payments received on a project contracted with a company of which one of the Company's directors is also an officer and director are guaranteed up to a maximum amount of US $263,000. Progress payments received to date on the project total US $263,021 (Cdn.$282,000). The contracting company has the right to demand repayment of these funds based on a "Performance Security Guarantee". The Company has purchased "Performance Security Insurance" (PSI) for up to 95% of the money advanced to date, from the Export Development Corporation to protect itself against this possibility. The PSI is valid until March 31, 2010. At September 30, 2009 there is a contingent liability for the 5% PSI deductible or US $13,151. It is unlikely that repayment will be required and therefore this amount has not been recorded in the consolidated financial statements. Competition and technological obsolescence Our products' markets experience ongoing technological changes and apart from the fact that OMT Inc. must compete with existing technology and service providers, new companies and advancing technologies remain a competitive fact. In order to remain fully competitive in our target markets, OMT must continue to innovate and respond with advanced generations of software, products and services. The inability to react in a timely fashion to technological and competitive changes could have an impact on the value of the Company's intangible assets and our ability to attract and retain our customers. Moreover, the highly competitive market in which we operate could cause the Company to reduce its prices and offer other favorable terms in order to compete successfully with its rivals. These practices could, over time, limit the prices that OMT can charge for its products. If OMT was unable to offset such potential price reductions by a corresponding increase in sales or to lower expenses, such a decline in revenues from software sales and related products could negatively impact our profit margins and operating results. Additional Information Additional information related to the Company, including all public filings, is available on SEDAR (www.sedar.com). Unaudited Consolidated Financial Statements of OMT INC. Three and Nine Month periods ended September 30, 2009 and 2008 (Unaudited) These interim consolidated financial statements have not been audited or reviewed by the Company's independent external auditors, Ernst & Young LLP. OMT INC. Consolidated Balance Sheets September 30, 2009 and December 31, 2008 (Unaudited) ---------------------------------------------------------------------------- September December ---------------------------------------------------------------------------- Assets Current assets: Cash $ 27,844 $ 31,568 Accounts receivable 548,504 164,987 Contract in progress - 141,581 Inventory 57,582 82,754 Prepaid expenses 25,355 50,102 --------------------------------------------------------------------------- Total current assets 659,285 470,992 Assets of discontinued operations - 109,960 Property, equipment, software and other assets 161 1,586 ---------------------------------------------------------------------------- $ 659,446 $ 582,538 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Liabilities and Shareholders' Deficiency Current liabilities: Bank demand loan $ 305,000 $ 220,000 Accounts payable and accrued liabilities 306,670 280,370 Deferred revenue 315,181 266,812 --------------------------------------------------------------------------- Total current liabilities 926,851 767,182 Liabilities of discontinued operations - 80,254 Long-term debt (note 4) 4,159,376 4,071,940 ---------------------------------------------------------------------------- Total liabilities 5,086,227 4,919,376 ---------------------------------------------------------------------------- Commitments and contingencies (notes 5, and 7) Shareholders' deficiency: Capital stock 1,278,458 1,278,458 Other paid-in capital 693,579 693,579 Contributed surplus 216,427 216,427 Deficit (6,615,245) (6,525,302) --------------------------------------------------------------------------- Total shareholders' deficiency (4,426,781) (4,336,838) ---------------------------------------------------------------------------- Total liabilities and shareholders' deficiency $ 659,446 $ 582,538 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- See accompanying notes to consolidated financial statements. On behalf of the Board: "Harold Heide" Director "Murray Bamforth" Director OMT INC. Consolidated Statements of Operations, Comprehensive Income (Loss) and Deficit Three and Nine Month periods Ended September 30, 2009 and 2008 (Unaudited) ------------------------- ------------------------- 2009 2008 ------------------------- ------------------------- ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Q3 YTD Q3 YTD ---------------------------------------------------------------------------- Sales $ 708,601 $ 1,751,469 $ 571,969 $ 2,120,139 Cost of sales 303,336 580,972 177,520 775,082 ---------------------------------------------------------------------------- Gross profit 405,265 1,170,497 394,449 1,345,057 Selling and administrative 314,819 1,048,765 330,460 1,164,162 Research and development 19,156 78,146 28,922 99,345 ---------------------------------------------------------------------------- 333,975 1,126,911 359,382 1,263,507 ---------------------------------------------------------------------------- Income for the period before the undernoted 71,290 43,586 35,067 81,550 ---------------------------------------------------------------------------- Other expenses (gains): Amortization 327 1,424 865 2,594 Interest on long-term debt (note 4) 104,614 352,159 148,742 431,341 Gain on extension of debentures (note 4) - (205,197) - - Interest on short-term debt 2,128 6,593 1,992 2,595 Foreign exchange loss (gain) 9,996 (10,499) 13,934 32,364 --------------------------------------------------------------------------- 117,065 144,480 165,533 468,894 ---------------------------------------------------------------------------- (Loss) for the period before discontinued operations (45,775) (100,894) (130,466) (387,344) Discontinued operations net of tax of nil (note 5) (12,405) 10,951 ( 28,432) (146,589) ---------------------------------------------------------------------------- Net (loss) and comprehensive (loss) for the period (58,180) (89,943) (158,898) (533,933) Deficit, beginning of period (6,557,065) (6,525,302) (6,267,975) (5,892,941) ---------------------------------------------------------------------------- Deficit, end of period $(6,615,245) $(6,615,245) $(6,426,873) $(6,426,874) ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- (Loss) per share before discontinued operations $ (0.002) $ (0.003) $ (0.005) $ (0.013) ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Income (loss) per share from discontinued operations $ (0.000) $ 0.001 $ (0.001) $ (0.005) ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Total (loss) per share $ (0.002) $ (0.003) $ (0.006) $ (0.018) ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- See accompanying notes to consolidated financial statements. OMT INC. Consolidated Statements of Cash Flows Three and Nine Month Periods ended September 30, 2009 and 2008 (Unaudited) --------------------- ---------------------- 2009 2008 --------------------- ---------------------- ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Q3 YTD Q3 YTD ---------------------------------------------------------------------------- Cash provided by (used in): Operations: Comprehensive (loss) for the period $ (58,180) $(89,943) $(158,899) $ (533,933) Items not involving cash: Amortization 327 1,424 865 2,594 Amortization of discontinued operations - - 3,318 9,734 Non-cash interest accretion (note 4) 80,551 292,633 128,679 371,795 Gain on extension of long-term debt - (205,197) - - Loss (gain) on sale of discontinued operations (note 5) 12,405 (51,553) - - Change in non-cash operating working capital (225,728) (91,251) 27,164 49,364 ---------------------------------------------------------------------------- (190,625) (143,887) 1,127 (100,446) Financing: Increase (decrease) in bank demand loan 165,000 85,000 60,000 145,000 Cash received on sale of discontinued operations (note 5) - 50,000 - - ---------------------------------------------------------------------------- 165,000 135,000 60,000 145,000 Investments: Disposal of (addition to) property and equipment from discontinued operations - 4,916 - (4,223) ---------------------------------------------------------------------------- Increase (decrease) in cash (25,625) (3,971) 61,127 40,331 Cash position, beginning of period 53,469 31,815 21,251 42,047 ---------------------------------------------------------------------------- Cash position, end of period $ 27,844 $ 27,844 $ 82,378 $ 82,378 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Supplementary information: Interest paid $ 22,263 $ 43,927 $ 22,055 $ 62,141 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- See accompanying notes to consolidated financial statements. OMT INC. Notes to Consolidated Financial Statements (Unaudited) Three and Nine Month Periods ended September 30, 2009 and 2008 General: OMT Inc. "the Company", through its subsidiaries, OMT Technologies Inc. "OMT" and Intertain Media Inc., (Intertain) provides media delivery systems and technology and solutions to the retail and broadcast industries. 1. Significant accounting policies (a) Basis of presentation and financial restructuring: These consolidated financial statements have been prepared on a going concern basis in accordance with Canadian generally accepted accounting principles "GAAP". The going concern basis of presentation assumes that the Company will continue in operation for the foreseeable future and be able to realize its assets and discharge its liabilities and commitments in the normal course of business. There is significant doubt about the appropriateness of the use of the going concern assumption because the Company has experienced significant losses in the last six years. The ability of the Company to carry on as a going concern is dependant upon achieving profitable operations which cannot be predicted at this time and the ability of the Company to operate within its line of credit and to obtain additional financing when its existing financing becomes due. The consolidated financial statements do not reflect adjustments that would be necessary if the going concern assumptions were not appropriate. If the going concern basis was not appropriate for these consolidated financial statements, then adjustments would be necessary in the carrying value of assets and liabilities, the reported revenues and expenses, and the balance sheet classifications used. (b) Basis of consolidation: The Company's accounting policies are in accordance with accounting principles generally accepted in Canada and are consistent with those outlined in the annual audited financial statements except where stated below. These interim consolidated financial statements do not include all disclosures normally provided in annual financial statements and should be read in conjunction with the Company's audited consolidated financial statements for the year ended December 31, 2008. In management's opinion, the interim consolidated financial statements include all the adjustments necessary to present fairly such information. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, OMT Technologies Inc. and Intertain Media Inc. All significant inter-company balances and transactions have been eliminated on consolidation. On May 31, 2009 the Company sold all of its shares in its wholly-owned subsidiary, Intertain Media Inc. All revenue and expense directly related to the Intertain operations have been removed from the detailed line items on the statements of operations, cash flows and comparative charts and are shown as discontinued operations (note 5). (c) On January 1, 2009 the company adopted the following Canadian Institute of Chartered Accountants (CICA) handbook sections. Section 3064 - Goodwill and Intangible assets This section, which replaces sections 3062 and 3450, establishes guidance for the recognition, measurement, presentation and disclosure of goodwill and intangible assets. Adoption has had no significant impact on the earnings or financial position of the Company. (d) Future accounting policy changes: International Financial Reporting Standards (IFRS): The accounting framework under which financial statements are prepared in Canada for all publicly accountable enterprises is scheduled to change to IFRS by January 1, 2011. GAAP in Canada will cease to apply and will be replaced by IFRS. Commencing in fiscal year 2010, the Company will need to prepare accounts in accordance with both GAAP and IFRS in order to have comparative financial statements on full implementation of IFRS in 2011. 2. Segment Information: With the sale of Intertain, the Company no longer operates in the retail segment. Operations within the retail segment have been removed from operating results and are shown as discontinued operations. The business is now focused on one major product suite serving the radio broadcast industry segment. Geographic information about the Company's revenue is based on the product shipment destination or the location of the contracting organization. Three and Nine month periods ended September 30, 2009 and 2008 2009 Revenue 2008 Revenue ------------------ -------------------- $ (000's) $ $ (000's) $ Q3 YTD Q3 YTD ----------------------------------------------------------- Canada 293 796 75 329 United States 416 955 497 1,791 ----- ------------ ------- ------------ Totals 709 1,751 572 2,120 ----- ------------ ------- ------------ Sales to two significant customers in Q3 represents 52% (2008 - one customer representing 10%) of the total revenue. Sales to two significant customers, year to date, represents 20% (2008 - two customers represent 21%) of the total revenue. 3. Related party transactions and measurement uncertainty: (a) Bank line guarantee: In October 2005 a major shareholder of the Company, with representation on its Board of Directors, provided a guarantee for $400,000 to the Bank of Nova Scotia to support the Company's line of credit at the bank. This guarantee is ongoing and requires payments of a monthly administration fee of $1,000, as well as a monthly standby fee of $1,000. In the event that the Company actually draws down on the guarantee, then the interest rate would be 20% of the amount received. The guarantee is secured by a charge on any current and after-acquired assets and ranks ahead of the long-term debt. (b) Sale of Intertain Media Inc.: On May 31, 2009 the Company sold all of the issued and outstanding shares of Intertain Media Inc., a wholly-owned subsidiary, to the President & Chief Executive Officer and a member of the Board of Directors. More details of this related party transaction are presented in Note 5. (c) Custom Contract: The Company has now completed a contract with a company of which one of OMT's directors is also an officer and a director. At September 30, 2009, the project is complete and fully invoiced. The outstanding account receivable is $263,000 (2008 - $24,000). 4. Long-term debt: ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- 2009 2008 ---------------------------------------------------------------------------- Long-term loans (face value at maturity of $3,000,000, plus deferred interest at 8% ($850,000) for a combined total of $3,850,000 due July 15, 2011), with an effective interest rate of 7.8%. $ 3,346,791 $ 3,102,452 Long-term debentures (face value at maturity of $995,000),interest only at 8%, payable monthly, due July 15, 2011, with an effective interest rate of 20%. (2008-19.9%) 812,585 969,488 ---------------------------------------------------------------------------- 4,159,376 4,071,940 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Long-term loans and long-term debentures are convertible into common shares at a price equal to $0.12 per share. The long-term debt was originally recorded on the consolidated balance sheet at its combined discounted values of $2,960,430 and was to be accreted equally over the four year term of the loan for effective interest, and at maturity was to be equal to the face value of the debentures and loans. The long-term debt of $3,995,000 was scheduled to mature on December 20, 2008. In separate agreements signed April 11, 2008 with the loan and the debenture holders, the date of maturity was extended to July 15, 2009. A subsequent amending agreement signed on April 28, 2009 with the principal debt holders further extended the date of maturity of all of the debt to July 15, 2011. No principal payments are required until that date. Since the long-term loans of $3,000,000 are held by principal shareholders, under Generally Accepted Accounting Principles (GAAP) the further extension to these loans do not require a change to the present value of the debt. The change to the maturity date of the long-term debentures, held by arms-length parties, however, under GAAP requires revaluation as if the old debt was extinguished and new debt re-issued under new terms and reflecting a current market interest rate. The current effective interest rate, estimated by management, was 20% at the time of the extension, up slightly from the previous years' effective interest rate of 19.9%. Under GAAP, the extension of the long-term debentures results in a one-time gain of $205,197. This amount reduces the fair value of the debentures and is shown as a gain on extension of the long-term debentures in the consolidated financial statements. The one-time gain represents a recovery of past effective interest expensed on the extended debentures, due to extending the required principal repayment date, and will be accreted over the remaining term of the debentures as interest expense. In a separate agreement signed April 11, 2008, the principal debt holders, who together hold $3,000,000 of the Company's long-term debt, provided the Company with a signed waiver to defer the monthly interest payments, representing approximately $20,000 per month until such time that the Company's cash reserves grow to $500,000. A subsequent amending agreement signed on April 28, 2009 with the principal debt holders changed the date for interest deferrals to July 15, 2011, or until such time when cash reserves grow to $500,000. Interest continues to be paid monthly on the remaining long-term debentures of $995,000 represented by CIBC Mellon Trust Company. The long-term debt is collaterized by a general security agreement covering all assets and by an assignment of all the book debts of the Company, subordinate to the bank line-of-credit (note 3a). Detail of interest paid and interest accreted is as follows: 2009 2008 ------ ------ Q3 YTD Q2 YTD ---------- ----------- ----------- -------------- Interest paid $ 20,063 $ 59,526 $ 20,063 $ 59,546 Interest accreted 80,551 292,633 128,679 371,795 ---------- ----------- ----------- -------------- Interest on long-term debt 104,614 352,159 148,742 431,341 ---------- ----------- ----------- -------------- 5. Discontinued operations - Sale of Intertain Media Inc: Following a formal process to sell Intertain Media Inc., a wholly-owned subsidiary, on May 31, 2009 OMT Inc. sold all of its issued and outstanding shares of its wholly-owned subsidiary, Intertain Media Inc. to the President and Chief Executive Officer and a member of the Board of Directors of the Company. The shares were sold for an aggregate consideration estimated to be $172,500. Included in the consideration are royalty payments totaling $90,000 with estimated annual payments of $30,000 payable on each the next three closing date anniversaries. The consideration, including royalty payments, is subject to potential refinements under the terms of the Purchase Agreement. The total carrying value of equipment and software included in the sale amounted to $4,916. Sales, and net losses and the initial gain on sale reflected in discontinued operations follow: 2009 2008 ------ ------ Q3 YTD Q3 YTD ---------- ---------- ----------- ---------- Sales $ - $ 172,594 $ 99,471 $ 243,882 ---------- ----------- ---------- Operating loss - (40,602) (28,433) (146,589) ---------- ----------- ---------- Initial gain on sale (12,405) 51,553 ---------- ---------- Discontinued operations (12,405) 10,951 ---------- ---------- Taxes payable in 2009 Nil (2008-Nil). 6. Credit and foreign exchange risk: The Company's contracts for projects denominated in foreign currencies as well as accounts receivable in foreign currencies potentially subjects the Company to credit and foreign exchange risk, as collateral is generally not required and exchange rates to US funds can change significantly. The project nature of the business also leads to a concentration of credit risk. As at September 30, 2009 four customers accounted for 67% (December 31, 2008 five customers - 62%) of the total accounts receivable. However, the risk of loss is partially mitigated due to the Company's policy of collecting a deposit before any project is commenced. The Company also bills in advance for service and support contracts. At September 30, 2009 the overdue accounts receivable from customers amounted to $318,000 (December 31, 2008 - $105,000) and the allowance for doubtful accounts was set at $7,000 (December 31, 2008 - $10,000). The allowance for doubtful accounts is based on specific customer history and write-offs are solely based on specific customer defaults. 7. Contingency: Payments received on a project contracted with a company of which one of OMT's directors is also an officer and director as defined in note 3(c) are guaranteed up to a maximum amount of US $358,106. Progress payments received to date on the project total US $263,021 (Cdn $320,000). The contracting company has the right to demand repayment of these funds based on a "Performance Security Guarantee" (PSG). OMT has purchased "Performance Security Insurance" (PSI) for up to 95% of the money advanced to date, from the Export Development Corporation (EDC) to protect itself against this possibility. The Guarantee is valid until March 31, 2010. At September 30, 2009 there is a contingent liability for the 5% deductible or US $13,151 which has not been recorded in the financial statements.
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