OMT Inc. (TSX VENTURE:OMT) announced today the Company's consolidated results
for the period ended March 31, 2011.
First Quarter Highlights
-- On May 4, 2011, OMT executed a share subscription receipt agreement
providing new investment into the Company and supporting a restructuring
of its debt arrangements, subject to final shareholder and TSX-V
approvals. After undertaking an extensive review, the Board and
management have concluded that, of the many possible alternatives
considered, this would be the best possible alternative for the Company
to enable a much stronger future.
-- Sales in the first quarter of 2011 were 6% lower than the same quarter
of 2010 year, however, 9% higher than the fourth quarter last year.
-- EBITDA in the first quarter of 2011 was ($5000), but was significantly
impacted by the one time costs associated with advisor and related fees
involved in the Company's strategic initiative. Excluding these one time
expenses, EBITDA would have been approximately $48,000.
-- iMediaTouch radio automation sales were achieved in a number of smaller
and larger client groups in both Canada and the United States, including
both software upgrades on current OMT client installations as well as
new client initial installations.
-- OMT released Version 4.2 of our iMediaTouch automation software, which
supports Windows 7 and several feature enhancements. This new release is
in response to client feedback and continues OMT's commitment to ongoing
product development.
-- OMT attended the National Association of Broadcasters trade show again
this year in April, showcasing our new Version 4.2 software release and
several other new product features.
Introduction and 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. The Company is
incorporated in the province of Manitoba and its shares are listed on the
Toronto Venture Exchange under the ticker symbol OMT.
The address of the Company's registered office is 30th floor, 360 Main Street,
Winnipeg, MB, R3C 4G1.
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.
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
condensed consolidated interim financial statements for the three months ended
March 31, 2011 and the associated notes, which were prepared in accordance with
International Financial Reporting Standards (IFRS). These are the first
financial statements issued under IFRS by the Company. Previously issued
financial statements and management's discussion and analysis reports were
prepared in accordance with Canadian generally accepted accounting principles
(CGAAP). All amounts are in Canadian dollars unless otherwise indicated.
Comparative figures at the transition date (January 1, 2010) as well as at March
31, 2010 and December 31, 2010, were converted to IFRS and are presented as such
in the condensed consolidated interim financial statements. Descriptions of the
standards as applied by the Company, together with detailed reconciliation
tables between previously reported CGAAP financial statements and currently
included IFRS comparative figures, can be found in Notes 1(c) and 11 to the
condensed, consolidated interim financial statements.
The unaudited condensed consolidated interim financial statements provide a
comparison of the three months ended March 31, 2011 to the three months ended
March 31, 2010.
Eight Quarter Review (numbers shown in '000s) (unaudited)
----------------------------------------------------------------------------
2011 2010 2009
----------------------------------------------------------------------------
Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2
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Sales $548 $502 $297 $449 $584 $446 $709 $558
Gross profit $375 $383 $248 $333 $403 $324 $405 $408
Gross profit
% 68% 76% 83% 74% 69% 73% 57% 73%
Operating
expenses $380 $307 $330 $390 $311 $431 $344 $454
EBITDA ($5) $76 ($82) ($57) $92 ($107) $61 ($46)
Other
expenses $126 $140 $129 $125 $122 $175 $107 ($102)
Net loss ($131) ($64) ($211) ($182) ($30) ($282) ($46) $56
Net loss per
share (basic
& diluted) ($0.005)($0.002)($0.007)($0.006)($0.001)($0.010)($0.002) $0.002
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Results for the quarters ended in 2011, 2010 and 2009 reflect the total business
of OMT Inc. and its wholly- owned subsidiary, OMT Technologies Inc. Sales, cost
of sales and expenses for the now divested Intertain Media Inc. division 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 Q1 of this year are $36,000 (6%) lower than Q1 last year and $46,000
(9%) higher than Q4 last year. Hardware sales of $181,000 in Q1 of this year are
down $23,000 (11%) and up $49,000 (37%) over Q1 and Q4 of last year. Software
sales at $216,000 in Q1 this year is comparable to quarters Q1 ($217,000) and Q4
($210,000) of last year. Maintenance and support sales in Q1 this year at
$132,000 are down $4,000 (3%) from both Q1 and Q4 last year. Overall, revenues
in 2011-Q1 compare reasonably to the various quarters of 2010 with some
variations within the individual product and service components.
Gross profit in 2011-Q1 decreased by $28,000 (6.9%) from 2010-Q1 and $8,000
(2.1%) from 2010-Q4. The decrease as compared to 2010-Q1 was due to a drop in
sales as described above. Gross profit percentages were similar reflecting a
similar mix of software and hardware sales during these comparable Q1 periods.
The decrease of $8,000 when 2011-Q1 is compared to 2010-Q4 was due to an overall
decrease in the gross margin percentage of 8%, reflecting the change in the
sales mix of higher margin software sales and lower margin hardware sales. These
variances are not considered significant by management since the margins
fluctuate when the mix of sales between hardware, software and services changes
in any specific period. There have been no significant changes in pricing, and
so the difference is the result of the change in the sales mix.
Operating expenses in 2011-Q1 were $69,000 (22.2%) higher than 2010-Q1 and
$73,000 (23.8%) higher than 2010-Q4. These increases, when compared to cost
levels last year, are largely the result of increased professional advisory fees
associated with the ongoing strategic initiative activities of the Company that
has resulted in the noted share subscription agreement arrangement. Other
operating costs have been relatively stable.
EBITDA is defined as Earnings before Interest, Tax, Depreciation and
Amortization and is a measure that has no standardized meaning under Canadian
GAAP or IFRS and is considered a non-GAAP/IFRS 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. EBITDA at ($5,000) for Q1 is $97,000 less than
Q1 last year and $81,000 less than Q4 last year and is directly attributable to
the higher operating expenses in Q1 this year, largely impacted by the strategic
initiative undertakings. Excluding these one-time strategic initiative expenses,
the EBITDA would have been approximately $48,000.
Other expenses that reduce EBITDA to arrive at net loss
include: 2011-Q1 2010-Q1
---------------------
Interest, finance and related expense $ 124 $ 120
Amortization 2 $ 2
---------------------
Total $ 126 $ 122
---------------------
The net loss of $131,000 for 2011-Q1 is a decrease of $101,000 over the 2010-Q1
loss of $30,000 and a decrease of $67,000 over the 2010-Q4 net loss of $64,000.
The loss per share, in all quarters, is based on 28,922,090 shares issued and
outstanding.
Cash Flow
Details of the changes to the cash position in the first quarter this year as
compared to last year are shown in the chart below.
Description 2011 2010
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Net income (loss) $ (131,000) $ (30,000)
Increase (decrease) in bank
operating loan 90,000 (85,000)
Interest accretion 103,000 99,000
Amortization 2,000 2,000
Accounts receivable (increase)
decrease (30,000) 32,000
Inventory (increase) 4,000 (6,000)
Prepaid Expenses (3,000) (55,000)
Accounts payable increase
(decrease) (63,000) (50,000)
Unearned revenue increase
(decrease) (52,000) 31,000
--------------------------------------
$ (80,000) $ 62,000
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Liquidity
Going concern:
The consolidated financial statements have been prepared on a going concern
basis in accordance with International Financial Reporting Standards (IFRS)
which contemplates 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 going concern
assumption because of the material uncertainties caused by continued losses,
current market conditions, and the maturity of the Company's long-term debt in
July, 2011, although the Company is in the process of executing a planned
restructuring as outlined below and in note 10 to the financial statements. This
maturity date on the long-term debt is less than one year, and accordingly is
being classified as a current liability resulting in a working capital
deficiency of $5,317,706. The ability of the Company to carry on as a going
concern is dependent upon the Company executing on the restructuring undertaking
outlined in note 10 to the financial statements, to address its liquidity issues
or the ability of the Company to obtain an extension or replacement financing
when the existing debt-financing becomes due on July 15, 2011 (note 3 to the
financial statements). The Company also must ensure that the current line of
credit ($400,000) (note 2 to the financial statements) is not exceeded and
remains in place until either new arrangements are established or the
restructuring undertaking is completed.
The outlined restructuring undertaking (note 10 to the financial statements)
includes the raising of funds through a subscription agreement for subscription
receipts, addressing the existing company line of credit (note 2 to the
financial statements ) and debt re-financing including the associated accrued
interest due on July 15, 2011 (notes 3 and 10 to the financial statements). At
this time a subscription agreement has been executed and the total proceeds of
$750,000 placed in escrow, pending the remaining conditions of the subscription
agreement being satisfied including new debt arrangements, the required
shareholder support and final TSX-V approvals. The Company's AGM and Special
Shareholders Meeting is scheduled for June 22, 2011. There is no assurance as to
the outcome or success of the restructuring undertaking until such time that all
of the required conditions are fully accomplished. This uncertainty, as well as
the cash flow constraints of the Company, result in significant uncertainty as
to whether the Company will be able to meet its financial obligations as they
become due.
If the outlined restructuring undertaking were not successfully concluded, there
would be significant uncertainty whether the going concern basis is appropriate
for these consolidated financial statements and adjustments would be necessary
in the carrying value of assets and liabilities, the reported revenues and
expenses, and the consolidated balance sheet classifications employed. These
adjustments may be material.
Other liquidity discussion:
Working capital at March 31, 2011 was negative $5,317,707 compared to negative
$350,538 on March 31, last year attributed to the long-term debt now being
classified as a current liability. The Company made no capital investments in
2011 or 2010 and has not made any significant commitments for capital
expenditures as at March 31, 2011.
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 $280,000 (December 31, 2010 -
$190,000) has been drawn at March 31, 2011. The current line of credit expires
on June 30, 2011. The Company has outlined a restructuring undertaking (note 10
to the financial statements), which if successful, is expected to allow the
Company to repay this line of credit in full.. The Company also must ensure that
the current line of credit ($400,000) is not exceeded and remains in place until
either new arrangements are established or the restructuring undertaking is
complete.
The long-term debt will mature on July 15, 2011. The amount repayable at that
time is $4,974,000. The reader should also refer to the Risks and Uncertainties
(Capital requirements) comments which follow further on in this document.
The outlined restructuring undertaking (note 10 to the financial statements)
includes the raising of $750,000 through a share subscription agreement,
addressing the existing line of credit due June 30, 2011 and establishing new
debt arrangements prior to the current maturity date of July 15, 2011. At this
time a subscription agreement has been executed and the total proceeds of
$750,000 placed in escrow, pending the remaining conditions of the subscription
agreement being satisfied including new debt arrangements, the required
shareholder support and final TSX-V approvals. The Company's AGM and Special
Shareholders Meeting is scheduled for June 22, 2011. There can be no assurance
as to the outcome or success of the restructuring undertaking until such time
that all of the required conditions are fully accomplished. This uncertainty, as
well as the cash flow constraint, of the Company, results in significant
uncertainty as to whether the Company will be able to meet its financial
obligations as they become due.
Related Party Transactions
(a) Rental premises:
The Company has contracted to rent premises from a company of which one of the
Company's directors is also an officer and director. The original lease has now
been extended until May 31, 2013. Either party is able to terminate this
sub-lease agreement with written notice for any reason and without penalty,
subject to a 120 day notice period. Monthly rent is $3,283 plus $2,750 estimated
operating costs. At March 31, amounts paid and owing to the lessor for these
premises in 2011 are $21,000 and Nil (2010 $16,000 and $6,000) respectively.
(b) Bank line guarantee:
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 guarantee will end on June 30, 2011. Proceeds from
the outlined restructuring that included raising of funds through a share
subscription agreement are expected to be used to repay the existing line of
credit now due June 30, 2011.
(c) Sale of Intertain Media Inc.
The transaction terms associated with the sale of Intertain Media Inc. on May
31, 2009 included future payments on each of the following three anniversary
dates. These anniversary payments and contingent continuing cash flows from
Intertain are not dependent on actions or decisions to be taken by the Company's
management and therefore are not considered by management to indicate continuing
operations related to the Intertain division. Accordingly, the results of
operations and future cash flows related to Intertain are classified as
discontinued operations. Management evaluated this lack of certainty regarding
the contingent payments and decided to defer revenue recognition until the
payments are received. The first of three payments was received on May 31, 2010,
but there is uncertainty regarding future payments.
International Financial Reporting Standards (IFRS)
In February, 2009 the Canadian Accounting Standards Board (AcSB) announced that
as at January 1, 2011, publicly accountable enterprises were expected to adopt
IFRS. Accordingly, the Company adopted these new standards during its fiscal
year beginning on January 1, 2011. The AcSB also stated that during the
transition period, enterprises would be required to provide comparative IFRS
information for the previous fiscal year. Accordingly, OMT is now operating
under the IFRS framework.
The condensed consolidated interim financial statements of the Company have been
prepared in accordance with IAS 34, "Interim Financial reporting". The Company
adopted IFRS in accordance with IFRS 1, "First - Time Adoption of International
Financial Reporting standards".
The transition date was January 1, 2010, and in accordance with IFRS, the
Company has:
-- Provided comparative financial information
-- Applied the same accounting policies for all periods presented
-- Retrospectively applied IFRS as of March 31, 2011, as required; and
-- Applied certain optional exemptions and certain mandatory exemptions as
applicable for first- time IFRS adopters
The effects of the transition to IFRS on the condensed statements of financial
position, statements of operations, comprehensive loss and deficit and
statements of cash flows are presented in detail in note 11 to the financial
statements.
Although there are numerous differences between IFRS and CGAAP, none had
significant impact on the Company's financial statements. The most significant
related to property and equipment that had been fully depreciated under CGAAP.
Under IFRS, depreciable assets are reviewed annually and the depreciation is
adjusted prospectively based on asset value and remaining useful life.
Internal Controls
The management of the Company 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
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. The Company's management has evaluated the
effectiveness of the Company's disclosure controls and procedures for the period
covered by this MDA. The Company's management has determined that in certain
instances an effective control environment had not been maintained.
Specifically, key finance accountabilities are not effectively segregated due to
the resource constraints and the size and structure of the Company. Many
accounting and financial procedures are not segregated and are maintained by one
accountant, including, the maintenance of the chart of accounts is not always
performed independently of recording transactional data; cheque preparation and
mailing are not segregated; and recording sales and cash receipts and bank
deposits are not segregated. The lack of segregation of duties may result in
accounting errors, concealment of errors or misappropriation of Company assets,
however, the impact is mitigated by existing monthly and quarterly review
procedures designed to detect material misstatements. Management recognizes this
inherent weakness, which is common in companies of this size, and in addition to
existing monthly and quarterly review procedures, will periodically review
segregation of duties and compensating controls to ensure risks are minimized.
Risks and Uncertainties
The Board of Directors is responsible for oversight of our liquidity and funding
management framework, which is developed and implemented by senior management.
OMT monitors and manages our liquidity position on a consolidated basis. This
includes our ability to lend and borrow funds between the Company and its
subsidiary and converting funds between currencies. The Board of Directors is
informed on a regular basis about our current and prospective liquidity
condition.
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
The Company has a line of credit which currently expires on June 30, 2011, and
also other debt obligations that mature on July 15, 2011. Please refer to notes
1(a), 2 and 3 to the Financial Statements. A subscription agreement was approved
on May 4, 2011 with a total value of $750,000, for Subscription Receipts at a
price of $0.05 per Subscription Receipt. Each Subscription Receipt will, for no
additional consideration, automatically be exercised into one unit of the OMT (a
"Unit"), as constituted following the completion by OMT of a consolidation of
its common shares on a nine (9) for one (1) basis. Each Unit will consist of one
post-consolidated common share of OMT and one common share purchase warrant with
each warrant entitling the holder thereof to purchase one additional
post-consolidated common share of OMT at $0.10 per warrant share for a period of
12 months from the date the warrants are issued. The total proceeds of $750,000
have been deposited with an escrow agent pending certain escrow release
conditions being satisfied by the company. The Company will provide notice to
the escrow agent that the release conditions have been satisfied and, upon
receipt of the notice, the escrow agent will release immediately the escrow
funds and the subscription receipts will automatically be exercised and
converted into the associated shares and warrants. The share subscription
pricing has been conditionally approved by the TSX Venture Exchange, with final
TSX Venture Exchange approval subject to the approval of the shareholders at a
special meeting of shareholders to be held June 22, 2011.
The key conditions of the subscription agreement for subscription receipts to be
satisfied by the Company include:
i. the completion of the Share Consolidation;
ii. the Company reaching new arrangements with the debt and debentures
holders in a manner that is satisfactory to OMT and to the holders of
more than 50% of the Subscription Receipts;
iii. the Company shall not have issued any additional common shares or other
securities; and
iv. receipt of final TSXV approval of the private placement of Subscription
Receipts; and,
v. the approval of holders of not less than 50% of the issued and
outstanding Shares with respect to the change of control resulting from
the issuance of the shares (and warrants) in exchange for the
Subscription Receipts.
The Board and Management of the Company believe that the conditions required by
the subscription agreement for subscription receipts will be met, resulting in
the release of the funds in escrow, there cannot be certainty until the
shareholder approvals are obtained at the upcoming meeting, to be held in June,
new debt arrangements are concluded and final TSX-V approval is confirmed.
Readers should refer to note 10 to the consolidated financial statements.
Credit risk
The project nature of the business also leads to a concentration of credit risk.
As at March 31, 2011 four customers accounted for 60% (March 31, 2010 four
customers - 68%) 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 March 31, 2011 the overdue accounts receivable from
customers totaled $33,000 (March 31, 2010 - $29,000). Detail concerning the
overdue accounts receivable at March 31, 2011 are:
Overdue 31- 60 days $ 21,000
Overdue 61- 90 days $ 7,000
Overdue 91 and over days $ 5,000
The allowance for doubtful accounts on trade receivables was set at $600 (March
31 2010 - $7,600). The allowance for losses on uncollectible accounts is based
on specific customer history and write-offs are solely based on specific
customer defaults. In 2011, there were no write offs related to any specific
customers (2010 - Nil). Amounts previously allowed for and collected have been
taken into income (2011 - $700, 2010 - $8,400). Accounts receivable as well as
accounts payable are kept relatively current, and there is minimal risk of
delayed collections affecting the Company's ability to pay its creditors.
Foreign exchange risk
A significant portion of the Company's revenues are denominated in U.S. dollars,
and as a result fluctuations in the rate of exchange between U.S. and Canadian
dollars can have a significant effect on its cash flows and reported results.
The Company's sales denominated in U.S. dollars for the three months ended March
31, 2011 were $417,000 (71%) expressed in Canadian currency. Sales prices do not
vary based on exchange rates. A 10% increase in the value of the Canadian dollar
has the effect of a 10% decrease in revenues from U.S. sales. The same increase
in the value of the Canadian dollar has a mitigating effect of a 10% decrease in
the cost of hardware sales because computers and related equipment for
installation in the U.S. are generally purchased there. Most expenses incurred
by our technical staff for on-site services are billed to the customer and incur
no foreign exchange risk.
Current external economic and financial crisis
The global economic and financial crisis has had a negative impact on the
revenues of the Company in 2010, which may continue throughout the current year.
Generally, prices are under pressure and client capital investment decisions and
new maintenance contracts may be postponed. In this environment, it may be
difficult to achieve revenue projections for balance of 2011. 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.
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).
To view the OMT 2011 First Quarter Financial Statements, please visit the link
below: http://media3.marketwire.com/docs/omt-fs2011.pdf
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