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, 2010
OR
o
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
o
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
o
No
o
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
o
|
|
Accelerated
Filer
o
|
|
|
|
Non-Accelerated
Filer
o
|
|
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).
o
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
17, 2010, the number of shares outstanding of the registrant’s common stock, no
par value (the only class of voting stock), was 37,488,714.
FINANCIAL
INFORMATION
|
|
Item
1.
|
Condensed
Financial Statements
|
|
1
|
|
|
|
|
Item
2.
|
Management's
Discussion And Analysis of Financial Condition and Results of
Operations
|
|
14
|
|
|
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
|
19
|
|
|
|
|
Item
4.
|
Controls
and Procedures
|
|
19
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|
|
|
|
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
|
|
20
|
|
|
|
|
Item
3.
|
Defaults
upon Senior Securities
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|
20
|
|
|
|
|
Item
4.
|
Removed
and Reserved.
|
|
20
|
|
|
|
|
Item
5.
|
Other
Information
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|
20
|
|
|
|
|
Item
6.
|
Exhibits
|
|
20
|
PART
I. FINANCIAL
INFORMATION
Item
1.
|
Financial
Statements
|
Creative Vistas, Inc.
Condensed Consolidated Balance Sheets
|
|
March 31, 2010
|
|
|
December 31, 2009
|
|
|
|
(Unaudited)
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
Cash
and bank balances
|
|
$
|
2,112,810
|
|
|
$
|
2,441,204
|
|
Accounts
receivable, net of allowance for doubtful accounts of $187,774
and $213,862
|
|
|
4,383,013
|
|
|
|
4,292,071
|
|
Income
tax receivable
|
|
|
343,136
|
|
|
|
257,142
|
|
Inventory
and supplies
|
|
|
718,158
|
|
|
|
789,005
|
|
Prepaid
expenses
|
|
|
388,058
|
|
|
|
347,048
|
|
Total
current assets
|
|
|
7,945,175
|
|
|
|
8,126,470
|
|
Property
plant and equipment, net of depreciation
|
|
|
6,173,424
|
|
|
|
6,669,553
|
|
Deposits
|
|
|
276,252
|
|
|
|
282,359
|
|
Intangible
assets
|
|
|
228,876
|
|
|
|
284,286
|
|
Deferred
financing costs, net
|
|
|
352,057
|
|
|
|
384,521
|
|
Deferred
income taxes
|
|
|
37,203
|
|
|
|
36,879
|
|
|
|
$
|
15,012,987
|
|
|
$
|
15,784,068
|
|
Liabilities
and Shareholders' (Deficiency)
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
Bank
Indebtedness
|
|
$
|
2,424,928
|
|
|
$
|
1,960,057
|
|
Accounts
payable and accrued liabilities
|
|
|
4,287,894
|
|
|
|
4,555,320
|
|
Current
portion of obligations under capital leases
|
|
|
1,531,867
|
|
|
|
1,501,106
|
|
Deferred
income
|
|
|
86,486
|
|
|
|
84,502
|
|
Deferred
income taxes
|
|
|
25,858
|
|
|
|
25,858
|
|
Current
portion of term notes
|
|
|
8,977,373
|
|
|
|
1,750,000
|
|
Total
current liabilities
|
|
|
17,334,406
|
|
|
|
9,876,843
|
|
Term
notes
|
|
|
6,702,479
|
|
|
|
13,913,252
|
|
Notes
payable to related parties
|
|
|
1,500,000
|
|
|
|
1,500,000
|
|
Obligations
under capital lease
|
|
|
3,213,956
|
|
|
|
3,543,801
|
|
Due
to related parties
|
|
|
226,343
|
|
|
|
219,876
|
|
|
|
|
28,977,184
|
|
|
|
29,053,772
|
|
Shareholders'
(deficiency)
|
|
|
|
|
|
|
|
|
Share
capital
|
|
|
|
|
|
|
|
|
Authorized
|
|
|
|
|
|
|
|
|
50,000,000
no par value preferred shares undesignated, none issued or
outstanding
|
|
|
|
|
|
|
|
|
100,000,000
no par value common shares 37,488,714 at March 31, 2010 and 37,488,714 at
December 31, 2009 issued and outstanding
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
6,555,754
|
|
|
|
6,555,754
|
|
Additional
paid-in capital
|
|
|
14,231,560
|
|
|
|
14,158,942
|
|
Accumulated
(deficit)
|
|
|
(33,376,681
|
)
|
|
|
(32,957,115
|
)
|
Accumulated
other comprehensive losses
|
|
|
(1,374,830
|
)
|
|
|
(1,027,285
|
)
|
|
|
|
(13,964,197
|
)
|
|
|
(13,269,704
|
)
|
|
|
$
|
15,012,987
|
|
|
$
|
15,784,068
|
|
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,
|
|
|
|
2010
|
|
|
2009
|
|
Contract
and service revenue
|
|
|
|
|
|
|
Contract
|
|
$
|
1,114,727
|
|
|
$
|
1,224,040
|
|
Service
|
|
|
8,121,779
|
|
|
|
7,909,147
|
|
Others
|
|
|
1,108
|
|
|
|
8,986
|
|
|
|
|
9,237,614
|
|
|
|
9,142,173
|
|
Cost
of sales
|
|
|
|
|
|
|
|
|
Contract
|
|
|
554,271
|
|
|
|
628,514
|
|
Service
|
|
|
6,348,721
|
|
|
|
6,357,928
|
|
Project
Expenses
|
|
|
229,799
|
|
|
|
223,653
|
|
Selling
Expenses
|
|
|
268,125
|
|
|
|
199,007
|
|
General
and administrative expenses
|
|
|
1,223,638
|
|
|
|
1,235,470
|
|
Depreciation
expense
|
|
|
598,866
|
|
|
|
701,846
|
|
Amortization
of intangible assets
|
|
|
57,736
|
|
|
|
82,392
|
|
|
|
|
9,281,156
|
|
|
|
9,428,810
|
|
Loss
from operations
|
|
|
(43,542
|
)
|
|
|
(286,637
|
)
|
Interest
and other expenses
|
|
|
|
|
|
|
|
|
Net
financing expenses
|
|
|
594,368
|
|
|
|
605,665
|
|
Amortization
of deferred charges
|
|
|
42,932
|
|
|
|
40,998
|
|
Foreign
currency translation (gain) loss
|
|
|
(261,275
|
)
|
|
|
243,690
|
|
|
|
|
376,025
|
|
|
|
890,353
|
|
(Loss)
before income taxes
|
|
|
(419,567
|
)
|
|
|
(1,176,990
|
)
|
Income
taxes
|
|
|
-
|
|
|
|
-
|
|
Net
(loss)
|
|
|
(419,567
|
)
|
|
|
(1,176,990
|
)
|
Other
comprehensive income (loss):
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustment
|
|
|
(347,545
|
)
|
|
|
299,529
|
|
Comprehensive
(loss)
|
|
$
|
(767,112
|
)
|
|
$
|
(877,461
|
)
|
Basic
and diluted weighted-average shares
|
|
|
37,488,714
|
|
|
|
37,391,761
|
|
Basic
and diluted earnings (loss) per share
|
|
$
|
(0.01
|
)
|
|
$
|
(0.03
|
)
|
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,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
Operating
activities
|
|
|
|
|
|
|
Net
cash (used in) operating activities
|
|
$
|
(217,930
|
)
|
|
$
|
(621,993
|
)
|
Investing
activities
|
|
|
|
|
|
|
|
|
Proceeds
from sales of property and equipment
|
|
|
2,876
|
|
|
|
162,872
|
|
Purchase
of property and equipment
|
|
|
(10,483
|
)
|
|
|
(12,927
|
)
|
Net
cash provided by (used in) investing activities
|
|
|
(7,607
|
)
|
|
|
149,945
|
|
Financing
activities
|
|
|
|
|
|
|
|
|
Proceeds
from (repayment of) bank indebtedness
|
|
|
399,391
|
|
|
|
(179,785
|
)
|
Repayment
of capital leases
|
|
|
(381,318
|
)
|
|
|
(347,146
|
)
|
Repayment
of term notes
|
|
|
(25,000
|
)
|
|
|
(162,500
|
)
|
Net
cash (used in) financing activities
|
|
|
(6,927
|
)
|
|
|
(689,431
|
)
|
Effect
of foreign exchange rate changes in cash
|
|
|
(95,930
|
)
|
|
|
85,799
|
|
Net
change in cash and cash equivalents
|
|
|
(328,394
|
)
|
|
|
(1,075,680
|
)
|
Cash and cash
equivalents,
beginning of period
|
|
|
2,441,204
|
|
|
|
4,770,337
|
|
Cash and cash
equivalents,
end of period
|
|
$
|
2,112,810
|
|
|
$
|
3,694,657
|
|
The
accompanying notes are an integral part of these financial
statements
Creative
Vistas, Inc.
Notes
to Consolidated Condensed Financial Statements
March
31, 2010 (Unaudited)
1.
|
Summary
of Accounting Policies
|
Basis
of presentation
The
accompanying unaudited condensed consolidated balance sheet as at March 31,
2010, and the consolidated condensed statements of operations and cash flows for
the periods ended March 31, 2009 and 2010, 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”), Iview Digital Video Solutions Inc. (“Iview DSI”) and OSSIM View
Inc. 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 United States generally accepted accounting principles. 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 2010 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, 2009, filed with the Securities and
Exchange Commission.
Reclassifications
Certain
amounts from the March 31, 2009 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 contemplate the realization of assets and liquidation of
liabilities in the normal course of business. We have incurred a loss of
$419,567 for the three months ended March 31, 2010 and have respective working
capital deficit and accumulated deficits of $9,389,231 and $33,376,681 at March
31, 2010.
We have
outstanding term loans aggregating $15,679,852, 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, 2010, there
were 14,040,983 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.
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. Finally, 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.. 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 however no assurance can be made that
such financing would be available, and if available that it would be on terms
acceptable to us. In either case, the financing could have a negative impact on
our financial condition and our shareholders. Despite this, we believe that we
have adequate cash and borrowing capability under our credit
facilities 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 or
market. 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.
Earnings
(loss) per share
Basic
earnings (loss) per share (“EPS”) is computed using the weighted average number
of common shares outstanding during the period. Diluted EPS 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 and conversion of debt using the treasury stock method. Adjustments
to earnings per share calculation include reversing interest related to the
convertible debts and changes in derivative instruments. During periods when
losses are incurred dilutive common shares are not considered in the EPS
computations as their effect would be anti-dilutive.
2.
|
Deferred
Financing Costs, Net
|
Deferred
financing costs, net are associated with the Company’s term notes. For the three
months ended March 31, 2010, the amortization of deferred financing cost was
approximately $42,932 (2009 - $40,998).
Cost
|
|
$
|
1,160,885
|
|
Accumulated
amortization
|
|
|
(808,828
|
)
|
|
|
$
|
352,057
|
|
The
estimated amortization expense for each of the next four fiscal years is as
follows:
Year
|
|
Amount
|
|
2010
|
|
$
|
142,802
|
|
2011
|
|
|
139,583
|
|
2012
|
|
|
46,514
|
|
2013
|
|
|
23,158
|
|
|
|
$
|
352,057
|
|
|
|
Cost
|
|
|
Accumulated
amortization
|
|
|
Net book value
|
|
Customer
relationships
|
|
$
|
1,382,353
|
|
|
$
|
1,153,477
|
|
|
$
|
228,876
|
|
Amortization
expense for the three month period ended March 31, 2010 amounted to $57,736
(2009-$82,392).
In 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 facilities for AC Technical and Cancable were
$500,000 and $3,500,000 respectively and bear interest at the bank’s domestic
prime rate plus 1.5% to 3.4% 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, 2010, the
interest rate of the Canadian dollar amount was 3.75% to 5.65%. At March 31,
2010, the borrowings outstanding under both facilities were $2,424,928 and the
average borrowing outstanding during the three months ended March 31, 2010 was
$2,192,500. The Company banking facility agreements contain financial
covenants pertaining to maintenance of 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.
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%, and requires minimum monthly payments of $81,726 until the indebtedness is
paid in full except that he 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 Iview Holding (up
to 20% of the outstanding shares of Iview 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 Holding and 20% of Iview
Holding are accounted for as noncontrolling interests. Because the
options have not been exercised and Cancable Holding and Iview Holding have
incurred losses, no noncontrolling interests have been recognized at March 31,
2010.
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, 2011, with a balance of $4,950,000
payable on the maturity date. Through March 31, 2010, the Company has issued
warrants to purchase up to 3,240,000 shares of common stock of the Company at
prices from $0.08 to $2.84 per share to defer until maturity the principal
repayments that were due from March 1, 2007 to March 1, 2010.
The Iview
Note bears interest at the prime rate plus 2% with a minimum rate of
7%. Interest is calculated on the basis of a 360 day
year. The minimum monthly payment on the term note is $8,333 through
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 February 13, 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 notes for the three months ended March 31, 2010 was $376,739 (2009:
$376,181).
|
|
March 31, 2010
|
|
|
March 31, 2009
|
|
Cancable
Note interest at prime plus 1.75% (minimum of 7%), due December
31, 2011
|
|
$
|
5,148,754
|
|
|
$
|
5,148,754
|
|
Company
Note interest at prime plus 2% (minimum of 7%), due February
13, 2011
|
|
|
7,287,500
|
|
|
|
7,287,500
|
|
Iview
Note interest at prime plus 2% (minimum of 7%), due on February 13,
2011
|
|
|
1,689,873
|
|
|
|
1,789,874
|
|
Company
Second Notes. interest at 12%, due on June 24, 2013
|
|
|
2,500,000
|
|
|
|
2,500,000
|
|
Less:
unamortized discount
|
|
|
(946,275
|
)
|
|
|
(1,097,208
|
)
|
|
|
|
15,679,852
|
|
|
|
15,628,920
|
|
Less:
current portion
|
|
|
8,977,373
|
|
|
|
1,750,000
|
|
|
|
$
|
6,702,479
|
|
|
$
|
13,878,920
|
|
The
principal payments for the next four fiscal years are as follows:
|
|
Amount
|
|
2010
|
|
$
|
1,312,500
|
|
2011
|
|
|
12,813,627
|
|
2012
|
|
|
-
|
|
2013
|
|
|
1,553,725
|
|
|
|
$
|
15,679,852
|
|
6.
|
Net
Financing Expenses
|
|
|
Three months ended March 31,
|
|
|
|
|
20010
|
|
|
2009
|
|
Capital
leases
|
|
$
|
160,767
|
|
|
$
|
176,705
|
|
Interest
on credit facility
|
|
|
376,739
|
|
|
|
376,181
|
|
Interest
on deferred principal repayment of term note
|
|
|
43,701
|
|
|
|
40,005
|
|
Related
parties
|
|
|
13,161
|
|
|
|
12,774
|
|
|
|
$
|
594,368
|
|
|
$
|
605,665
|
|
7.
|
Note
Payable to Related Parties
|
Notes
payable to related parties consists of two notes payable for $750,000 bearing
interest at 3% per annum and having no fixed terms of repayment.
However, pursuant to the Laurus Financing, these notes have been subordinated to
the Company’s obligations to Laurus and they are classified as non-current. The
notes are due 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, 2010 was $13,161
(2009 - $12,774).
8.
|
Shareholders’
(Deficit)
|
Options
In
conjunction with the issuance of the Cancable Note and Iview Notes in 2006, the
Company had granted Laurus options to purchase up to 49% of Cancable Holding
Corp. and 20% of Iview Holding Corp.. The financial statements of Cancable
Holding Corp. and Iview Holding Corp. have negative equity on a stand alone
basis. At such time when these entities have positive equity and
generate net income, the Company will account for the options granted to Laurus
as non-controlling interests.
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 amend 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 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.
|
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 also impose 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. 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.
At March
31, 2010, options to purchase 2,005,000 shares of common stock were
outstanding. These options vest ratably in annual installments, over
the four year period from the date of grant. As of March 31, 2010,
there was $73,631 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, 2010,
1,312,250 options were vested. The cost recognized for the three month period
ended March 31, 2010 was $28,917 (2009: $(29,660)) which was recorded as general
and administrative expenses.
In
valuing the options issued, the following assumptions were used
|
|
2010
|
|
Expected
volatility
|
|
|
140%
|
|
Expected
dividends
|
|
|
0%
|
|
Expected
term (in years)
|
|
|
4.0
|
|
Risk-free
rate
|
|
|
1.35%
- 1.82%
|
|
A summary
of option activity under the Plan during the three months ended March 31, 2010
is presented below:
|
|
Shares
|
|
|
Weighted-Average
Exercise
Price
|
|
|
Weighted-Average
Remaining
Contractual
Term
|
|
|
Intrinsic
Value
|
|
Options
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2008
|
|
|
2,939,000
|
|
|
$
|
1.22
|
|
|
|
4.75
|
|
|
|
-
|
|
Granted
|
|
|
500,000
|
|
|
$
|
0.70
|
|
|
|
4.23
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
or expired
|
|
|
(1,434,000
|
)
|
|
$
|
2.07
|
|
|
|
2.69
|
|
|
|
-
|
|
Outstanding
at December 31, 2009
|
|
|
2,005,000
|
|
|
$
|
0.65
|
|
|
|
2.03
|
|
|
|
-
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
or expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding
at March 31, 2010
|
|
|
2,005,000
|
|
|
$
|
0.65
|
|
|
|
2.03
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at March 31, 2010
|
|
|
1,312,250
|
|
|
$
|
0.64
|
|
|
|
1.64
|
|
|
|
-
|
|
As of
March 31, 2010, the aggregate intrinsic value of all stock options outstanding
and expected to vest was approximately $0.00 and the aggregate intrinsic value
of currently exercisable stock options was approximately $0.00. The
intrinsic value of each option is the difference between the fair market value
of the common stock and the exercise price of such option to the extent it is
“in-the-money”. Aggregate intrinsic value represents the value that
would have been received by the holders of in-the-money options had they
exercised their options on the last trading day of the year and sold the
underlying shares at the closing stock price on such day. The
intrinsic value calculation is based on the $0.09 closing stock price of
the common stock on March 31, 2010, the last trading day of the first
quarter of fiscal 2010. There were no in-the-money options
outstanding and exercisable as of March 31, 2010.
The total
intrinsic value of options exercised during the three months ended March
31, 2010 and 2009, was approximately $0 and $0,
respectively. Intrinsic value of exercised shares is the total value
of such shares on the date of exercise less the cash received from the option
holder to exercise the options. There is no cash proceeds received
from the exercise of stock options for the three months ended March 31, 2010 and
2009.
The total
fair value of options granted during the three months ended March 31, 2010 and
2009 was approximately $0 and $31,000,
respectively.
The
following table summarizes information about fixed price stock options at March
31, 2010:
|
Exercise
Price
|
|
Weighted
Average Number
Outstanding
|
|
|
Weighted
Average
Contractual Life
|
|
|
Weighted
Average
Exercise Price
|
|
|
Number
Exercisable
|
|
|
Exercise
Price
|
|
$
|
0.63
|
|
|
1,895,000
|
|
|
|
1.76
|
|
|
$
|
0.63
|
|
|
|
1,234,750
|
|
|
$
|
0.63
|
|
$
|
0.90
|
|
|
100,000
|
|
|
|
1.92
|
|
|
$
|
0.90
|
|
|
|
75,000
|
|
|
$
|
0.90
|
|
$
|
1.12
|
|
|
10,000
|
|
|
|
3.23
|
|
|
$
|
1.12
|
|
|
|
2,500
|
|
|
$
|
1.12
|
|
|
|
|
|
2,005,000
|
|
|
|
|
|
|
|
|
|
|
|
1,312,500
|
|
|
|
|
|
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 three months ended March 31, 2010, in
connection with financing, the Company issued warrants to purchase 324,000
shares of common stock. The fair value of the warrants of $43,701 was
measured using the Black-Scholes option pricing model using the following
assumptions: risk free interest rate of 1.81% to 2.20%, expected dividend yield
of 0%, volatility of 140%, exercise prices of $0.08 to $0.28 and the life of the
warrants 4 years.
As of
March 31, 2010, we had the following common stock warrants
outstanding:
Issue Date
|
|
Expiry Date
|
|
|
Number of
warrants
|
|
|
Exercise Price
Per share
|
|
|
Value-issue
date
|
|
Issued for
|
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
|
04-01-2009
|
|
|
04-01-2013
|
|
|
|
108,000
|
|
|
$
|
0.18
|
|
|
$
|
15,868
|
|
Financing
|
05-01-2009
|
|
|
05-01-2013
|
|
|
|
108,000
|
|
|
$
|
0.16
|
|
|
$
|
14,557
|
|
Financing
|
06-01-2009
|
|
|
06-01-2013
|
|
|
|
108,000
|
|
|
$
|
0.27
|
|
|
$
|
24,105
|
|
Financing
|
07-01-2009
|
|
|
07-01-2013
|
|
|
|
108,000
|
|
|
$
|
0.27
|
|
|
$
|
24,105
|
|
Financing
|
08-01-2009
|
|
|
08-01-2013
|
|
|
|
108,000
|
|
|
$
|
0.25
|
|
|
$
|
22,786
|
|
Financing
|
09-01-2009
|
|
|
09-01-2013
|
|
|
|
108,000
|
|
|
$
|
0.16
|
|
|
$
|
14,567
|
|
Financing
|
10-01-2009
|
|
|
10-01-2013
|
|
|
|
108,000
|
|
|
$
|
0.12
|
|
|
$
|
10,921
|
|
Financing
|
11-01-2009
|
|
|
11-01-2013
|
|
|
|
108,000
|
|
|
$
|
0.15
|
|
|
$
|
13,656
|
|
Financing
|
12-01-2009
|
|
|
12-01-2013
|
|
|
|
108,000
|
|
|
$
|
0.08
|
|
|
$
|
7,275
|
|
Financing
|
01-01-2010
|
|
|
01-01-2014
|
|
|
|
108,000
|
|
|
$
|
0.08
|
|
|
$
|
7,292
|
|
Financing
|
02-01-2010
|
|
|
02-01-2014
|
|
|
|
108,000
|
|
|
$
|
0.12
|
|
|
$
|
10,925
|
|
Financing
|
03-01-2010
|
|
|
03-01-2014
|
|
|
|
108,000
|
|
|
$
|
0.08
|
|
|
$
|
25,484
|
|
Financing
|
|
|
|
|
|
|
|
14,040,983
|
|
|
|
|
|
|
|
|
|
|
During
the three months ended March 31, 2010, the Company derived 62.9% (2009:65.2%) of
its revenue from two customers. The accounts receivable from these
customers comprise 44.9% (2009: 37.1%) of the total trade receivable
.
We
determine and disclose our segments using 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”) and its wholly owned subsidiary OSSIM
View Inc. are corporations incorporated under the laws of the Province of
Ontario. Iview DSI is a subsidiary incorporated in late 2005 to focus on
providing video surveillance products and technologies to the
market.
|
|
March 31, 2010
|
|
|
March 31, 2009
|
|
Sales:
|
|
|
|
|
|
|
Cancable
|
|
$
|
7,677,067
|
|
|
$
|
7,455,320
|
|
AC
Technical
|
|
|
1,547,273
|
|
|
|
1,567,840
|
|
Iview
|
|
|
12,568
|
|
|
|
21,073
|
|
Creative
Vistas, Inc.
|
|
|
706
|
|
|
|
97,940
|
|
Consolidated
Total
|
|
$
|
9,237,614
|
|
|
$
|
9,142,173
|
|
Depreciation
and amortization:
|
|
|
|
|
|
|
|
|
Cancable
|
|
$
|
578,411
|
|
|
$
|
685,332
|
|
AC
Technical
|
|
|
10,402
|
|
|
|
8,340
|
|
Iview
|
|
|
10,053
|
|
|
|
8,174
|
|
Consolidated
Total
|
|
$
|
598,866
|
|
|
$
|
701,846
|
|
INTEREST
EXPENSES:
|
|
|
|
|
|
|
|
|
Cancable
|
|
$
|
390,289
|
|
|
$
|
393,271
|
|
Iview
|
|
|
19,687
|
|
|
|
31,763
|
|
AC
Acquisition
|
|
|
13,161
|
|
|
|
12,774
|
|
Creative
Vistas, Inc.
|
|
|
171,231
|
|
|
|
167,857
|
|
CONSOLIDATED
TOTAL
|
|
$
|
594,368
|
|
|
$
|
605,665
|
|
Net
(Loss):
|
|
|
|
|
|
|
|
|
Cancable
|
|
$
|
(304,522
|
)
|
|
$
|
(893,343
|
)
|
AC
Technical
|
|
|
31,602
|
|
|
|
57,901
|
|
Iview
|
|
|
9,102
|
|
|
|
(94,044
|
)
|
AC
Acquisition
|
|
|
(13,161
|
)
|
|
|
(12,774
|
)
|
Corporate
(1)
|
|
|
(142,588
|
)
|
|
|
(234,730
|
)
|
Consolidated
Total
|
|
$
|
(419,567
|
)
|
|
$
|
(1,176,990
|
)
|
TOTAL
ASSETS
|
|
|
|
|
|
|
|
|
Cancable
|
|
$
|
9,629,561
|
|
|
$
|
12,315,788
|
|
AC
Technical
|
|
|
2,982,176
|
|
|
|
2,770,370
|
|
Iview
|
|
|
825,514
|
|
|
|
1,124,554
|
|
Creative
Vistas, Inc.
|
|
|
1,575,736
|
|
|
|
3,044,540
|
|
Consolidated
Total
|
|
$
|
15,012,987
|
|
|
$
|
19,255,252
|
|
CAPITAL
ASSETS
|
|
|
|
|
|
|
|
|
Cancable
|
|
$
|
5,341,725
|
|
|
$
|
7,572,455
|
|
AC
Technical
|
|
|
779,072
|
|
|
|
648,181
|
|
Iview
|
|
|
52,627
|
|
|
|
75,436
|
|
Consolidated
Total
|
|
$
|
6,173,424
|
|
|
$
|
8,296,072
|
|
CAPITAL
EXPENDITURES
|
|
|
|
|
|
|
|
|
Cancable
|
|
$
|
10,483
|
|
|
$
|
7,382
|
|
AC
Technical
|
|
|
-
|
|
|
|
1,139
|
|
Iview
|
|
|
-
|
|
|
|
4,406
|
|
CONSOLIDATED
TOTAL
|
|
$
|
10,483
|
|
|
$
|
12,927
|
|
(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, 2010
|
|
|
March 31, 2009
|
|
Contract
|
|
$
|
1,114,727
|
|
|
$
|
1,224,040
|
|
Service
|
|
|
8,121,779
|
|
|
|
7,909,147
|
|
Others
|
|
|
1,108
|
|
|
|
8,986
|
|
Total
sales to external customers
|
|
$
|
9,237,614
|
|
|
$
|
9,142,173
|
|
For the
three months ended March 31, 2010, revenue generated by the Company in Canada
and the United States was $7,646,399 (2009:$7,168,113) and $1,591,215 (2009:
$1,974,060), respectively.
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 Month Period Ended March 31, 2010
to
Three Month Period Ended March 31, 2009
For
purposes of this “Management’s Discussion and Analysis or Plan of Operation”, we
compared the three month period ended March 31, 2010 to the comparable period in
2009.
Sales
: Sales
for the three month period ended March 31, 2010 increased 1.0% to $9,237,600
from $9,142,200 for the three month period ended March 31, 2009. The
increase in revenue was mainly due to the increase in service revenue of
Cancable Segment to $7,677,100 for the three month period ended March 31, 2010
from $7,455,300 for the same period in 2009.
(a) Cancable
Segment – This segment includes Cancable Inc., Cancable, Inc., XL Digital and
2141306 Ontario Inc. (collectively, the “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 from the Cancable segment was $7,677,100 for the three months
ended March 31, 2010, compared to $7,455,300 for same period in 2009. The
increase in revenue was primarily due to the increase in revenue generated from
our customer Rogers Cable Inc. Rogers Cable Inc. is Cancable Group’s largest
customer and the revenue from this customer for the three months ended March 31,
2010 was $4,717,900 or 61.4% of total Cancable revenue compared to $3,854,200 or
51.7% for same period in 2009. The increase in revenue was attributable to
growth in our business and the exchange rate fluctuations. The
increase in revenue from Rogers Cable Inc. was offset with the decrease in
revenue generated in the United States. Total revenue generated in the United
States for the three months ended March 31, 2010 was $1,591,200 compared to
$1,974,100 for same period in 2009.
(b) AC
Technical segment - Total revenue of AC Technical segment was $1,547,300 for the
three months ended March 31, 2010 compared to $1,567,800 for the corresponding
period in 2009. The decrease in revenue was mainly due to fluctuation of the
foreign exchange rate and all revenue generated from AC Technical Segment was in
Canadian dollars. Contract revenue was $1,114,700 for the three
months ended March 31, 2010 compared to $1,224,000 for same period in
2009. The service revenue was $432,600 for the three months ended
March 31, 2010, compared to $323,300 for same period in 2009.
Cost of sales
: Cost of sales as a percentage of revenue for the three
months ended March 31, 2010 was $6,903,000 or 74.7% of revenues compared to
$6,986,400 or 76.4% of revenues for same period in 2009. (a)Cancable segment –
Direct expenses of this segment were $6,218,100 for the three months ended March
31, 2010 which is comprised principally of labor expenses of $4,779,100, vehicle
expenses of $529,800 and material cost of $384,700. (b) AC Technical
segment – Direct expenses of this segment were $684,800. The material cost was
$429,100 or 27.7% of the AC Technical revenue for the three months ended March
31, 2010 compared to $444,100 or 28.3% of revenues in the same period of fiscal
2009. The decrease in percentage of material costs was primarily a result of
some contracts having less material needs. On the other hand, the labor and
subcontractor cost decreased to $245,700 or 15.9% of AC Technical revenues for
the three months ended March 31, 2010 compared to $289,500 or 18.5% of AC
Technical revenues for the same period of fiscal 2009. The decrease
in labor and subcontractor cost was mainly due to some contracts requiring more
labor hours.
Project expenses
:
Project expenses decreased to $229,800 or 2.5% of revenue for the
three months ended March 31, 2010, compared to $223,700 or 2.4% for the same
period in 2009. These expenses were mainly related to the AC Technical
segment. The balance mainly includes the salaries and benefits of
indirect staff amounting to $147,800 in the first quarter of fiscal 2010
compared to $147,300 for the same period of fiscal 2009 with no material
fluctuation. Automobile and travel expenses decreased to $63,100 for the three
months ended March 31, 2010 compared to $57,200 for the same period of fiscal
2009. There was no material fluctuation in the percentage of revenue for
automobile and travel expenses.
Selling expenses
:
Selling expenses were $268,100 or 2.9% of revenues for the first quarter of
fiscal 2010 compared to $199,000 or 2.2% of revenues for the same period in
2009. Selling expenses were mainly related to AC Technical
segment. The balance for the three months ended March 31, 2010 is
mainly comprised of salaries and commission to salespersons of $124,100 compared
to $89,400 for the same period of fiscal 2009. The advertising and
promotion and trade show expenses were $66,900 in the first quarter of fiscal
2010 compared to $29,400 for the same period of fiscal 2009.
General and administrative
expenses
: General and administrative expenses were $1,223,600 or 13.2% of
revenues for the first quarter of fiscal 2010 compared to $1,235,500 or 13.5%
for the same period in 2009. The balance for the three months ended March 31,
2010 was mainly comprised of $121,000 of professional fees related to
preparation of the quarterly reports and other corporate matters compared to
$99,600 for the same period in 2009. In addition, investor relations expenses
amounted to $30,000 for first quarter of fiscal 2010 compared to $45,000 for the
same period of fiscal 2009. Total salaries and benefits to
administrative staff were $705,500 for the first quarter of fiscal 2010 compared
to $712,400 for the corresponding period of 2009 with no material
fluctuation.
Depreciation
: Total
depreciation of property plant and equipment was $598,900 for the first quarter
of fiscal 2010 compared to $701,800 for the same period in 2009. The
decrease in balance was primarily due to the disposal of capital assets during
the first quarter of fiscal 2009.
Amortization of intangible
assets
: Amortization of customer relationships and trade name was $82,400
for the three months ended March 31, 2009 compared to $57,700 for the same
period of fiscal 2010. The decrease was mainly due to the trade name
related to the acquisition in 2006 and 2007 being fully amortized.
Interest and other
expenses
: Interest and net other expenses for the three months
ended March 31, 2010 were $376,000 or 4.1% of revenues compared to net expenses
of $890,400 or 9.7% of revenues for the same period in 2009. The balance for the
three months ended March 31, 2010 was primarily comprised of the amortization of
deferred charges amounting to $42,900 compared to $41,000 for the same period of
fiscal 2009. Additionally, net financing expenses decreased to
$594,400 or 6.4% of revenues compared to $605,700 or 6.6% of revenues for the
same period of 2009. The interest due with respect to the Company’s
credit facilities was $376,700 for the three months ended March 31, 2010
compared to $376,200 for the same period in 2009. Additionally, the
foreign currency translation gain for this quarter was $261,300 compared to a
foreign currency translation loss of $243,700 for the same period of 2009. The
balance was related to the foreign currency translation of term notes. The
foreign currency translation gain for this quarter was due to the Canadian
dollars traded higher than the same period of 2009.
Income
taxes
: No income tax was paid for the three months ended March
31, 2010 and 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 receivable and therefore, there is no additional
provision and/or benefit for income taxes receivable and deferred tax
assets.
Net
Income/Loss
: Net loss for the first quarter of fiscal 2010 was
$419,600 compared to a net loss of $1,177,000 for the same period in 2009. The
Company’s operating loss was $43,500 for the three months ended March 31, 2010
compared to an operating loss of $286,600 for the same period of
2009. The loss for the first quarter of fiscal 2010 was primarily
attributed to the Company’s allocation of resources to grow the business 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, 2010, we had $2,112,810 in cash. We believe that cash
from operations and our credit facilities with our banks will continue to be
adequate to satisfy our working capital needs for the next
year. During fiscal year 2010, our primary objectives in managing
liquidity and cash flows will be to ensure financial flexibility to support
growth and entry into new markets by improving inventory management and
accelerating the collection of accounts receivable.
Net Cash Used in Operating
Activities
. Net cash used in operating activities amounted to
$217,930 for the three months ended March 31, 2010. The changes in operating
assets and liabilities resulted in a use of cash of $420,000, which included a
$72,700 increase in accounts receivable, a $92,200 decrease in inventory, a
$24,200 increase in prepaid expenses, a $338,800 decrease in accounts payable, a
$76,900 increase in income tax receivable and a $500 decrease in deferred
revenue.
Comparison of the
balance sheet as at March 31, 2010 to December 31, 2009
Accounts
Receivable
Our
accounts receivable increased by approximately $90,900 compared to the balance
as at December 31, 2009. Accounts receivable of Cancable segment were
$2,939,900 as at March 31, 2010 compared to $2,959,800 as at December 31,
2009. Accounts receivable of AC Technical segment was $1,289,300 as
at March 31, 2010 compared to $1,088,800 as at December 31, 2009. The
fluctuation in balance was mainly due to the timing of payments from our
customers.
Inventory
Inventory
on hand at March 31, 2010 was $718,200 compared to $789,000 as at December 31,
2009. The inventory of the Cancable segment as at March 31, 2010 was $210,800
compared to $261,200 as at December 31, 2009. The inventory of
AC Technical segment as at March 31, 2010 was $417,200 compared to $440,225 as
at December 31, 2008.
Accounts Payable and Accrued
Liabilities
Accounts
payable decreased to approximately $4,287,900 as at March 31, 2010 from
$4,555,300 as at December 31, 2009. The decrease was mainly due to the timing of
payments to our suppliers.
Deferred
Revenue
Deferred
revenue increased to $86,500 as at March 31, 2010 compared to $84,500 as at
December 31, 2009. Deferred revenue primarily relates to payments associated
with contracts in which revenue is recognized on a percentage of completion
basis.
Net Cash Provided By (Used
in) Investing Activities
. Net cash used by investing
activities was $7,600 for the three months ended March 31, 2010, compared to net
cash provided of $149,900 for the three months ended March 31, 2009. The change
was mainly due to a decline in proceeds received from the sale of property and
equipment of approximately $163,000 in 2009 compared to approximately $3,000 in
2010. .
Net Cash Provided By
Financing Activities
. Net cash used in financing activities
was $7,000 for the three months ended March 31, 2010 compared to $689,400 for
the three months ended March 31, 2009. The change mainly arose because we
borrowed approximately $399,000 in the current quarter under our line of credit
and had net outflows of approximately $180,000 for payments of such indebtedness
in 2009.
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
– The following Accounting Standards Codification Updates
have been issued, or became effective, since the beginning of the current period
covered by these financial statements:
Pronouncement
|
|
Issued
|
|
Title
|
|
|
|
|
|
ASU
No. 2010-01
|
|
January
2010
|
|
Equity
(Topic 505): Accounting for Distributions to Shareholders with
Components of Stock and Cash – a consensus of the FASB Emerging Issues
Task Force
|
|
|
|
|
|
ASU
No. 2010-02
|
|
January
2010
|
|
Consolidation
(Topic 810): Accounting and Reporting for Decreases in Ownership of
a Subsidiary – a Scope Clarification
|
|
|
|
|
|
ASU
No. 2012-03
|
|
January
2010
|
|
Extractive
Activities – Oil and Gas (Topic 932): Oil and Gas Reserve Estimation and
Disclosures
|
|
|
|
|
|
ASU
No. 2010-04
|
|
January
2010
|
|
Accounting
for Various Topics: Technical Corrections to SEC
Paragraphs
|
|
|
|
|
|
ASU
No. 2010-05
|
|
January
2010
|
|
Compensation
- Stock Compensation (Topic718): Escrowed Share Arrangements and the
Presumption of Compensation
|
|
|
|
|
|
ASU
No. 2010-06
|
|
January
2010
|
|
Fair
Value Measurements and Disclosures (Topic 820): Improving Disclosures
about Fair Value
Measurements
|
ASU
No. 2010-07
|
|
January
2010
|
|
Not-for-Profit
Entities (Topic 958): Not-for-Profit Entities – Mergers and
Acquisitions
|
|
|
|
|
|
ASU
No. 2010-08
|
|
February
2010
|
|
Technical
Corrections to Various Topics
|
|
|
|
|
|
ASU
No. 2010-09
|
|
February
2010
|
|
Subsequent
Events (Topic 855): Amendments to Certain Recognition and Disclosure
Requirements
|
ASU
No. 2010-10
|
|
February
2010
|
|
Consolidation
(Topic 810): Amendments for Certain Investment Funds
|
|
|
|
|
|
ASU
No. 2010-11
|
|
March
2010
|
|
Derivatives
and Hedging (Topic 815): Scope Exception Related to Embedded Credit
Derivatives
|
|
|
|
|
|
ASU
No. 2010-12
|
|
April
2010
|
|
Income
Taxes (Topic 740): Accounting for Certain Tax Effects of the 2010 Health
Care Reform Acts (SEC Update)
|
ASU
No. 2010-13
|
|
April
2010
|
|
Compensation—Stock
Compensation (Topic 718): Effect of Denominating the Exercise Price of a
Share-Based Payment Award in the Currency of the Market in Which the
Underlying Equity Security Trades—a consensus of the FASB Emerging Issues
Task Force
|
ASU
No. 2010-14
|
|
April
2010
|
|
Accounting
for Extractive Activities—Oil & Gas—Amendments to Paragraph
932-10-S99-1 (SEC Update)
|
|
|
|
|
|
ASU
No. 2010-15
|
|
April
2010
|
|
Financial
Services—Insurance (Topic 944): How Investments Held through Separate
Accounts Affect an Insurer’s Consolidation Analysis of Those Investments—a
consensus of the FASB Emerging Issues Task Force
|
ASU
No. 2010-16
|
|
April
2010
|
|
Entertainment—Casinos
(Topic 924): Accruals for Casino Jackpot Liabilities—a consensus of the
FASB Emerging Issues Task Force
|
|
|
|
|
|
ASU
No. 2010-17
|
|
April
2010
|
|
Revenue
Recognition—Milestone Method (Topic 605): Milestone Method of
Revenue
Recognition—a consensus of the FASB Emerging Issues Task
Force
|
|
|
|
|
|
ASU
No. 2010-18
|
|
April
2010
|
|
Receivables
(Topic 310): Effect of a Loan Modification When the Loan is Part of a Pool
That is Accounted for as a Single Asset—a consensus of the FASB Emerging
Issues Task
Force
|
To the
extent appropriate, the guidance in the above Accounting Standards Codification
Updates is already reflected in our condensed consolidated financial statements
and management does not anticipate that these accounting pronouncements will
have any future effect on our condensed consolidated financial
statements.
There
were no other accounting standards and interpretations recently issued which are
expected to a have a material impact on the Company's financial position,
results of operations or cash flows.
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 the following critical accounting estimates: accounts receivable
allowances, revenue, inventory, and financial instruments.
See our Form 10-K for the year ended December 31, 2009, 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, 2009 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.
|
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, 2010, 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 quarterly report.
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 of 2010 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
|
None.
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
|
None.
Item
3.
|
Defaults
upon Senior Securities
|
None.
Item
4.
|
[Removed
and Reserved]
|
Not
applicable.
Item
5.
|
Other
Information
|
During
the period covered by this quarterly report, there has been no material change
in the nomination process for directors.
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
|
By:
|
/s/ Heung Hung Lee
|
|
Heung
Hung Lee, CFO
|
Dated: May
17, 2010