Notes
to Consolidated Condensed Financial Statements
September
30, 2007
(Unaudited)
1.
Summary
of Accounting Policies
Basis
of presentation
The
accompanying unaudited condensed consolidated balance sheet as at September
30,
2007, and the consolidated condensed statements of operations and cash flows
for
the periods ended September 30, 2006 and 2007, include the accounts of Creative
Vistas, Inc. (“CVAS”), Creative Vistas Acquisition Corp. (“AC Acquisition”), AC
Technical Systems Ltd. (“AC Technical”), Cancable Holding (“Cancable Holding”),
Cancable Inc., Iview Holding Corp. (“Iview Holding”), and Iview Digital
Solutions Inc. (“Iview DSI”). Intercompany balances and transactions have been
eliminated in consolidation. In the opinion of management, these condensed
consolidated financial statements reflect all adjustments (consisting of normal
recurring adjustments) that are necessary for a fair presentation of the results
for and as of the periods shown. The accompanying condensed consolidated
financial statements have been prepared in conformity with accounting principles
generally accepted in the United States. However, certain information or
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed
or
omitted pursuant to the rules and regulations of the Securities and Exchange
Commission. The results of operations for such periods are not necessarily
indicative of the results expected for 2007 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, 2006, filed with the Securities and Exchange
Commission.
Liquidity
and going concern
Our
consolidated condensed financial statements were prepared using accounting
principles generally accepted in the United States of America applicable to
a
going concern, which contemplates the realization of assets and liquidation
of
liabilities in the normal course of business. We have incurred a loss of $72,864
for the nine months ended September 30, 2007 and have an accumulated deficit
of
$11,936,526
at
September 30, 2007.
We
have
outstanding term loans aggregating $16,075,157, together with common stock
options and warrants, held by Laurus. 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 in substantially all of our assets and,
accordingly, in the event of any default under our agreements with Laurus,
they
could conceivably attempt to foreclose on our assets, which could cause us
to
terminate our operations.
Over
the
next twelve months the Company believes that its existing capital will be
sufficient to sustain its operations. Management plans to seek additional
capital in the future to fund operations, growth and expansion through
additional equity, debt financing or credit facilities. The Company has had
early stage discussions with investors about potential investment in the Company
at a future date. No assurance can be made that such financing would be
available, and if available it may take either the form of debt or equity.
In
either case, the financing could have a negative impact on our financial
condition and our shareholders. The Company has introduced cost cutting
initiatives within the Administration, Project and Selling departments to
improve efficiency within the Company and also improve cash flow. The Company
has also increased its rates for service provided by AC Technical by 20 percent
to improve gross margins. This is in line with our competitors. The Company
also
expects to see the benefits of its research and development efforts within
the
next 12 months as it starts to introduce its own line of customized products
to
the industry. These products and technologies are expected to improve gross
margins. The Company believes that it will be eligible for research and
development tax credits at year end for its research and development efforts
during the year and these are additional sources of cash flow for the Company.
The Company is also negotiating longer credit terms with its suppliers from
45
days to 60 to 75 days. For all the reasons mentioned above, we believe that
we
have adequate short term borrowing capability and that we will be able to
sustain our operations and continue as a going concern for a reasonable period
of time although there can be no assurance of this.
The
financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classification of liabilities that may result from the possible inability
of
the Company to continue as a going concern.
Earnings
(loss) per share
The
Company applies Statement of Financial Accounting Standards No. 128, Earnings
Per Share (FAS 128). Basic loss per share (“LPS”) is computed using the weighted
average number of common shares outstanding during the period. Diluted LPS
is
computed using the weighted average number of common and dilutive potential
common shares outstanding during the period. Dilutive potential common shares
consist of common stock issuable upon exercise of stock options and warrants
using the treasury stock method. An adjustment to earnings per share calculation
includes reversing the changes in derivative instruments.
Reclassifications
Certain
amounts in the financial statements at September 30, 2006 have been reclassified
to conform to the current year presentation.
2.
Deferred
Financing Costs, Net
Deferred
financing costs, net are associated with the Company’s term notes from Laurus
Master Fund, Ltd., a Cayman Islands company. For the period ended September
30,
2007, the amortization of deferred financing cost was $137,362 (2006 -
$743,889).
|
Cost
|
|
$
|
953,296
|
|
|
Accumulated
amortization
|
|
|
(356,355
|
)
|
|
|
|
$
|
596,941
|
|
The
estimated amortization expense for each of the next five fiscal years is as
follows:
|
Year
|
|
|
Amount
|
|
|
2007
|
|
|
42,502
|
|
|
2008
|
|
|
172,742
|
|
|
2009
|
|
|
138,307
|
|
|
2010
|
|
|
132,601
|
|
|
2011
|
|
|
110,789
|
|
|
|
|
$
|
596,941
|
|
3.
Intangible
Assets
|
|
|
Cost
|
|
Accumulated
amortization
|
|
Net
book value
|
|
|
Customer
relationships
|
|
$
|
1,000,000
|
|
$
|
350,000
|
|
$
|
650,000
|
|
|
Trade
name
|
|
|
1,200,000
|
|
|
700,000
|
|
|
500,000
|
|
|
|
|
$
|
2,200,000
|
|
$
|
1,050,000
|
|
$
|
1,150,000
|
|
Amortization
expense for the nine months period ended September 30, 2007 amounted to $450,000
(2006-$Nil).
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
seven percent. Interest accrued on the term note but was not payable until
February 1, 2006. Interest is calculated on the basis of a 360 day year. The
minimum monthly payment on the term note is $81,726 commencing October 1, 2006.
The Company is not obligated, except upon an event of default, to pay more
than
25% of the Principal Amount prior to December 31, 2011.
In
February 2006, the Company and its subsidiaries, Iview Holding and Iview DSI
entered into a series of agreements with Laurus pursuant to a refinancing
transaction whereby the Company issued to Laurus a secured term note (the
“Company Note”) in the amount of $8,250,000, Iview DSI issued to Laurus a
secured term note (the “Iview Note”) in the amount of $2,000,000, the Company
issued to Laurus a related warrant to purchase up to 2,411,003 shares of common
stock of the Company (up to 7.5% of the outstanding shares of the Company)
at a
price of $0.01 per share (the “Warrant”) and Iview Holding issued to Laurus a
related option to purchase up to 20 shares of common stock of Holding (up to
20%
of the outstanding shares of Holding) at a price of $0.01 per share (the
“Option”). The loans are secured by all of the assets of the Company and its
subsidiaries.
The
Company Note bears interest at the prime rate plus 2% with a minimum rate of
seven percent. 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 April 1, 2007 to March
1, 2009. The Company has deferred the principal repayment from April
to October 2007 by issuing 756,000 warrants. $5,912,500 is payable on the
maturity date.
The
Iview
Note bears interest at the prime rate plus 2% with a minimum rate of seven
percent. Interest accrued on the term note but was not payable until April
1,
2006. Interest is calculated on the basis of a 360 day year. The minimum monthly
payment on the term note is $8,333 commencing March 1, 2007 to February 1,
2011.
$1,600,000 is payable on the maturity date. The Company is not obligated, except
upon an event of default, to pay more than 25% of the Principal Amount prior
to
December 31, 2011.
Simultaneously
with the closing of this refinancing transaction, the Company 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.
Interest
on the term notes for the nine months period ended September 30, 2007 was
$1,260,102 (2006: $1,240,510).
|
|
|
Amount
|
|
|
Cancable
term note bears interest at prime plus 1.75% with the minimum interest
rate 7% and due on December 31, 2011
|
|
$
|
5,883,684
|
|
|
Company
term note bears interest at prime plus 2% with the minimum interest
rate
7% and due on December 31, 2011
|
|
|
8,250,000
|
|
|
Iview
term note bears interest at prime plus 2% with the minimum interest
rate
7% and due on December 31, 2011
|
|
|
1,941,473
|
|
|
|
|
|
16,075,157
|
|
|
Less:
current portion
|
|
|
2,347,980
|
|
|
|
|
$
|
13,727,177
|
|
The
principal payments for the next five fiscal years are as follows:
|
|
|
Amount
|
|
|
2007
|
|
$
|
545,178
|
|
|
2008
|
|
|
2,240,356
|
|
|
2009
|
|
|
6,425,000
|
|
|
2010
|
|
|
100,000
|
|
|
2011
|
|
|
6,764,623
|
|
|
|
|
$
|
16,075,157
|
|
5.
Net
Financing Expenses
|
|
|
Nine
months ended September 30,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Capital
leases
|
$
|
275,107
|
|
$
|
178,265
|
|
Interest
of credit facility
|
|
1,260,102
|
|
|
1,240,510
|
|
Amortization
of interest on debt instruments
|
|
-
|
|
|
168,171
|
|
Interest
on deferred principal repayment of term note - 108,000
warrants
|
|
570,530
|
|
|
-
|
|
Interest
and penalties on prepayment of convertible notes - cash
|
|
-
|
|
|
539,319
|
|
Interest
and penalties on prepayment of convertible notes - 2,411,003
warrants
|
|
-
|
|
|
1,913,571
|
|
Others
|
|
38,019
|
|
|
43,518
|
|
|
$
|
2,143,758
|
|
$
|
4,083,354
|
6.
Note
Payable to Related Parties
In
September 2004, the Company issued two promissory notes with an aggregate
principal amount of $3,300,000. On September 30, 2004, the Company repaid
an aggregate of $1,800,000 of the principal balance. The outstanding principal
bears interest at 3% per annum with no fixed terms of repayment. The notes
each
with an amount of $750,000 are due to The Burns Trust (the Company’s president
is one of the beneficiaries of the trust) and the Navaratnam Trust (the
Company’s CEO is one of the beneficiaries of the trust), respectively. During
the period ended June 30, 2006, the above two notes payable have been
transferred to Malar Trust Inc. (the Company’s CEO is the shareholder of Malar
Trust Inc.).
Interest
expense recognized for the nine months period ended September 30, 2007 was
$38,019 (2006 - $33,750).
7.
Shareholders’
(Deficit)
The
Company has total authorized share capital of 50,000,000 preferred shares,
no
par value and 100,000,000 common shares, no par value.
During
the period ended March 31, 2007, the Company entered into one consulting
agreements by issuing 16,666 shares stock in consideration for investor
relations services rendered with the fair value of $6,999. Additionally, the
Company issued 258,500 shares with the fair value of $253,330 for the executive
officers of Cancable Inc., a subsidiary of the Company.
During
the period ended June 30, 2007, the Company entered into a consulting agreement
by issuing 90,000 shares stock in consideration for investor relations services
rendered with the fair value of $171,300. Additionally, the Company issued
29,280 shares to Laurus for the exercise of the warrants issued on February
13,
2006.
During
the period ended September 30, 2007, the Company entered into a consulting
agreement by issuing 93,850 shares stock in consideration for investor relations
and consulting services rendered with the fair value of $239,148. Additionally,
the Company issued 625,469 shares to Laurus for the exercise of the options
and
warrants and 4,000 shares to the employees for the exercise of the employee
stock options.
Options
On
June
30, 2006, the Company granted 2,317,000 options to purchase a maximum of
2,317,000 shares of common stock to employees. The options allow the holders
to
buy the Company’s common stock at a price of $0.63 per share and expire on June
30, 2011.
The
Company’s Stock Option Plan is intended to provide incentives for key employees,
directors, consultants and other individuals providing services to the Company
by encouraging their ownership of the common stock of the Company and to aid
the
Company in retaining such key employees, directors, consultants and other
individuals upon whose efforts the Company’s success and future growth depends
and in attracting other such employees, directors, consultants and
individuals.
The
Plan
is administered by the Board of Directors, or its Compensation Committee. Under
the Plan, options on a total of 4,000,000 shares of common stock may be issued.
Shares of common stock covered by options which have terminated or expired
prior
to exercise are available for further options under the Plan. The maximum
aggregate number of shares of Stock that may be issued under the Plan as
“incentive stock options” is 3,500,000 shares. No options may be granted under
the Plan after June 30, 2011; provided, however, that the Board of Directors
may
at any time prior to that date amends the Plan.
Options
under the Plan may be granted to key employees of the Company, including
officers or directors of the Company, and to consultants and other individuals
providing services to the Company. Options may be granted to eligible
individuals whether or not they hold or have held options previously granted
under the Plan or otherwise granted or assumed by the Company. In selecting
individuals for options, the Committee may take into consideration any factors
it may deem relevant, including its estimate of the individual’s present and
potential contributions to the success of the Company.
The
Committee may, in its discretion, prescribe the terms and conditions of the
options to be granted under the Plan, which terms and conditions need not be
the
same in each case, subject to the following:
a.
Option
Price. The price at which each share of common stock covered by an option
granted under the Plan may be purchased may not be less than the market value
per share of the common stock on the date of grant of the option. The date
of
the grant of an option shall be the date specified by the Committee in its
grant
of the option, which date will normally be the date the Committee determines
to
make such grant.
b.
Option
Period. The period for exercise of an option shall in no event be more than
five
years from the date of grant. Options may, in the discretion of the Committee,
be made exercisable in installments during the option period.
c.
Exercise
of Options. For the purpose of assisting an Optionee to exercise an option,
the
Company may make loans to the Optionee or guarantee loans made by third parties
to the Optionee, on such terms and conditions as the Board of Directors may
authorize. In no event shall any option be exercisable more than five years
from
the date of grant thereof.
d.
Lock-Up
Period. Without the consent of the Company, an Optionee may not sell more than
fifty percent of the shares issued under the Plan for a period of two years
from
the date that the Optionee exercises the option. The Committee may impose such
other terms and conditions, not inconsistent with the terms of the Plan, on
the
grant or exercise of options, as it deems advisable.
The
fair
value of each option award is estimated on the date of grant using the
Black-Scholes option valuation model, using the assumptions noted in the
following table. Expected volatility is based on the historical volatility
of
the Company’s stock, and other factors. The Company uses historical data to
estimate employee termination within the valuation model. Because the Company
has not previously granted options to employees, for purposes of the valuation
model, the Company has assumed that the life of the options will be equal to
one-half of the combined vesting period and contractual life (i.e., that
employees will exercise the options at the midpoint between the vesting and
expiry date of the options). The risk-free rates used to value the options
are
based on the U.S. Treasury yield curve in effect at the time of
grant.
At
September 30, 2007 options to purchase 2,313,000 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 September 30, 2007, there was $444,435
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. 579,250 options were vested as
of
September 30, 2007. The cost recognized for the period end September 30, 2007
was $158,825 which was recorded as general and administration
expenses.
In
valuing the options issued on June 30, 2006 the following assumptions were
used
|
Expected
volatility
|
45%
|
|
Expected
dividends
|
0%
|
|
Expected
term (in years)
|
3.0
- 4.5
|
|
Risk-free
rate
|
5.10%
- 5.13%
|
A
summary
of option activity under the Plan during the period ended September 30, 2007
is
presented below:
|
Options
|
|
Shares
|
|
Weighted-Average
Exercise
Price
|
|
Weighted-Average
Remaining
Contractual
Term
|
|
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at January 1, 2007
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
Granted
|
|
|
2,317,000
|
|
$
|
0.63
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
4,000
|
|
$
|
0.63
|
|
|
|
|
|
7,080
|
|
|
Forfeited
or expired
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
Outstanding
at September 30, 2007
|
|
|
2,313,000
|
|
$
|
0.63
|
|
|
4.75
|
|
$
|
4,255,920
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at September 30, 2007
|
|
|
579,250
|
|
$
|
0.63
|
|
|
-
|
|
$
|
1,065,820
|
|
Warrants
We
use
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 quarter ended March 31, 2007, in connection with financing
arrangements, the Company issued warrants to purchase 108,000 shares of common
stock. The fair value of the warrants of $39,519 was measured using the
Black-Scholes option pricing model using the following assumptions: risk free
interest rate of 4.25%, expected dividend yield of 0%, volatility of 45%, share
price of $0.90 and expected life of 4 years. During the quarter ended September
30, 2007, in connection with financing arrangements, the Company issued warrants
to purchase 324,000 shares of common stock. The fair value of the warrants
of
$206,940 was measured using the Black-Scholes option pricing model using the
following assumptions: risk free interest rate of 4.54 to 4.93%, expected
dividend yield of 0%, volatility of 45%, share price of $1.15 to $2.28 and
expected life of 4 years. For the quarter ended September 30, 2007, in
connection with financing arrangements, the Company issued warrants to purchase
324,000 shares of common stock. The fair value of the warrants of $324,071
was
measured using the Black-Scholes option pricing model using the following
assumptions: risk free interest rate of 4.54 to 4.93%, expected dividend yield
of 0%, volatility of 45%, share price of $1.15 to $2.28 and expected life of
4
years.
As
of
September 30, 2007, we had the following options and warrants
outstanding:
|
Issue
Date
|
Expiry
Date
|
Number
of
options
or
warrants
|
Exercise
Price
Per
Share
|
Value
-
issue
date
|
|
Issued
for
|
|
|
|
|
|
|
|
|
|
01-05-2004
|
01-05-2009
|
540,000
|
$0.33
|
$447,463
|
|
Consulting
and investment banking fees
|
|
|
|
|
|
|
|
|
|
09-30-2004
|
09-30-2009
|
199,500
|
$1.00
|
$111,853
|
|
Consulting
and investment banking fees
|
|
|
|
|
|
|
|
|
|
09-30-2004
|
09-30-2011
|
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
|
04-30-2012
|
100,000
|
$1.01
|
$44,309
|
|
Financing
|
|
|
|
|
|
|
|
|
|
05-31-2005
|
05-31-2012
|
100,000
|
$1.01
|
$56,614
|
|
Financing
|
|
|
|
|
|
|
|
|
|
06-22-2005
|
06-22-2012
|
313,000
|
$1.00
|
$137,703
|
|
Financing
|
|
|
|
|
|
|
|
|
|
06-30-2005
|
06-30-2012
|
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
|
03-01-2011
|
108,000
|
$0.90
|
$39,519
|
|
Financing
|
|
|
|
|
|
|
|
|
|
04-01-2007
|
04-01-2011
|
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
|
|
|
|
|
|
|
|
|
|
|
|
6,985,596
|
|
|
|
|
During
the nine months ended September 30, 2007 the Company derived 59.8% of its
revenue from a single customer in the amount of $17,078,000. The accounts
receivable of this customer was $2,310,000 as at September 30,
2007.
10.
Segment
Information
We
determine and disclose our segments in accordance with SFAS No. 131 “Disclosures
about Segments of an Enterprise and Related Information”, which uses a
“management” approach for determining segments. The management approach
designates the internal organization that is used by management for making
operating decisions and assessing performance as the source of the reportable
segments. Our management reporting structure provides for the following
segments:
Cancable
Cancable
Inc. (“Cancable”) is a Canadian based entity involved the provisioning,
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
DVSI
Iview
Digital Solutions Inc. (“Iview DVSI”), a corporation incorporated under the laws
of the Province of Ontario. It is a newly formed subsidiary incorporated in
late
2005 to focus on providing video surveillance products and technologies to
the
market.
The
following table presents financial information with respect to the segments
that
management uses to make decisions.
|
|
|
Nine
Months Ended
September
30, 2007
|
|
Nine
Months Ended
September
30, 2006
|
|
|
Sales:
|
|
|
|
|
|
|
Cancable
|
|
$
|
22,784,559
|
|
$
|
17,442,767
|
|
|
AC
Technical
|
|
|
5,632,174
|
|
|
5,159,381
|
|
|
Iview
|
|
|
102,826
|
|
|
132,850
|
|
|
CVAS
|
|
|
4,103
|
|
|
-
|
|
|
Consolidated
Total
|
|
$
|
28,523,662
|
|
$
|
22,734,998
|
|
|
Depreciation
and amortization:
|
|
|
|
|
|
|
|
|
Cancable
|
|
$
|
1,179,606
|
|
$
|
763,256
|
|
|
AC
Technical
|
|
|
30,705
|
|
|
32,350
|
|
|
Consolidated
Total
|
|
$
|
1,210,311
|
|
$
|
795,606
|
|
|
Interest
expenses:
|
|
|
|
|
|
|
|
|
Cancable
|
|
$
|
746,128
|
|
$
|
681,503
|
|
|
AC
Technical
|
|
|
1,650
|
|
|
8,221
|
|
|
Iview
|
|
|
149,290
|
|
|
129,455
|
|
|
AC
Acquisition
|
|
|
36,369
|
|
|
33,750
|
|
|
CVAS
|
|
|
1,210,321
|
|
|
3,230,425
|
|
|
Consolidated
Total
|
|
$
|
2,143,758
|
|
$
|
4,083,354
|
|
|
Net
Income (Loss):
|
|
|
|
|
|
|
|
|
Cancable
|
|
$
|
2,235,371
|
|
$
|
1,071,027
|
|
|
AC
Technical
|
|
|
6,638
|
|
|
86,397
|
|
|
Iview
|
|
|
(72,322
|
)
|
|
(119,818
|
)
|
|
Corporate
(1)
|
|
|
(2,242,511
|
)
|
|
(5,421,210
|
)
|
|
Consolidated
Total
|
|
$
|
(72,864
|
)
|
$
|
(4,383,604
|
)
|
|
Total
Assets
|
|
|
|
|
|
|
|
|
Cancable
|
|
$
|
11,534,613
|
|
$
|
6,415,399
|
|
|
AC
Technical
|
|
|
4,413,974
|
|
|
3,442,364
|
|
|
Iview
|
|
|
1,479,376
|
|
|
2,006,404
|
|
|
AC
Acquisition
|
|
|
-
|
|
|
-
|
|
|
Corporate
(1)
|
|
|
3,924,026
|
|
|
5,803,028
|
|
|
Consolidated
Total
|
|
$
|
21,351,989
|
|
$
|
17,667,195
|
|
|
Capital
assets
:
|
|
|
|
|
|
|
|
|
Cancable
|
|
$
|
5,156,776
|
|
$
|
3,258,289
|
|
|
AC
Technical
|
|
|
868,151
|
|
|
804,099
|
|
|
Consolidated
Total
|
|
$
|
6,024,927
|
|
$
|
4,062,388
|
|
|
Capital
Expenditures:
|
|
|
|
|
|
|
|
|
Cancable
|
|
$
|
2,774,887
|
|
$
|
380,686
|
|
|
AC
Technical
|
|
|
3,917
|
|
|
-
|
|
|
Iview
|
|
|
-
|
|
|
-
|
|
|
AC
Acquisition
|
|
|
-
|
|
|
-
|
|
|
Consolidated
Total
|
|
$
|
2,778,804
|
|
$
|
380,686
|
|
|
(1)
|
Corporate
expenses primarily include certain stock-based compensation for consulting
and advisory services and derivative financial instrument expense,
which
we do not internally allocate to our segments because they are related
to
our common stock and are non-cash in
nature.
|
|
(2)
|
Total
cash paid for the purchase of capital assets was $660,725 (2006:
$695,012). The remaining balances were purchased through capital
assets.
|
Revenues
by geographic destination and product group were as follows:
|
|
|
Nine
Months Ended
September
30, 2007
|
|
Nine
Months Ended
September
30, 2006
|
|
|
Contract
|
|
$
|
4,576,497
|
|
$
|
4,259,369
|
|
|
Service
|
|
|
23,904,590
|
|
|
18,437,710
|
|
|
Others
|
|
|
42,575
|
|
|
37,919
|
|
|
Total
sales to external customers
|
|
$
|
28,523,662
|
|
$
|
22,734,998
|
|
|
|
|
|
|
|
|
|
|
All
revenue generated by the Company was in Canada.
11.
Subsequent
Events
On
October 11, 2007, pursuant to an Agreement of Purchase and Sale, a subsidiary
of
Creative Vistas, Inc. (the “Registrant”), Cancable XL Inc. (“Cancable”),
acquired all of the issued and outstanding common shares of XL Digital Services
Inc. (“XL Digital”) from Barry Simons. The total consideration to be paid by
Cancable for the shares of XL Digital will be an amount equal to the earnings
before interest, taxes, depreciation and amortization derived from the carrying
on of its business by XL Digital for the twelve month period after the
completion of the acquisition times 2.5. The consideration will be paid in
notes, warrants to acquire stock in the Registrant, and cash, with the total
balance due on January 5, 2009. A portion of the purchase price will be paid
in
January, 2008.
Item
2.
Management's
Discussion And Analysis or Plan of Operation
(Unaudited)
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 the operations
and
our ability to operate profitably a number of new projects. Except as required
by law, we do not intend to publicly release the results of any revisions to
those forward-looking statements that may be made to reflect any future events
or circumstances.
Results
of Operations
Comparison
of Three Months Period Ended September 30, 2007
to
Period Ended September 30, 2006
For
purposes of this “Management’s Discussion and Analysis or Plan of Operation”, we
compared the first three month period ended September 30, 2007, to the
comparable period in 2006.
Sales
:
Sales
for the three months period ended 2007 increased 22.3% to $11,153,000
substantially from $9,120,734 for the three months period ended 2006. The
increase in revenue was mainly due to the increase in service revenue of
Cancable Segment to $8,968,200 for the three months period ended 2007 from
$7,372,800 for the same period in 2006.
(a)
Cancable Segment - The Company acquired Cancable through its wholly owned
subsidiary on January 1, 2006. It is incorporated under the laws of Ontario
and
its principal business activity is the provisioning the 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. Total revenue
for the third quarter of fiscal 2007 was $8,968,200 compared to $7,372,800
in
the same period of fiscal 2006. Rogers Cable Inc. is Cancable’s largest customer
and the revenue from this customer for the second quarter of fiscal 2007 as
approximately $6,860,000 or 76.5% of its total revenue compared to $5,807,400
or
78.8% of its total revenue for the same period in fiscal 2006. (b) AC Technical
segment - Contract revenue increased to $1,681,100 for the second quarter or
15.1% for the three months ended September 30, 2007 compared to $1,262,400
in
the same period of fiscal 2006. The increase was mainly due to an increase
in
the number of subcontracts for the provision of services to government
contracts. Service revenue generated increased 19.0% to $458,900 for the third
quarter of fiscal 2007 from $385,500 for the same period of fiscal 2006. Service
revenue primarily represents the cumulative effect of the growth in contracts
and number of customers over the past few years. We have experienced a
significant increase in the number of inquiries for systems from the government
and retail sector. This increased interest in security products and services
may
result in our achieving increased revenues in future periods if we are
successful in attracting new customers or obtaining additional projects from
existing customers. There is no assurance that the Company will be able to
attract new customers.
Cost
of Goods Sold
:
Cost of
goods sold as a percentage of revenue for the three months ended September
30,
2007 was $7,895,900 or 70.8% of revenues compared to $6,028,200 or 66.1% of
revenues for the three months period ended September 30, 2006. (a) Cancable
segment - Cost of sales of this segment was $6,556,900 for the three months
period ended September 30, 2007, which is comprised principally of labor
expenses $5,061,100, vehicle expenses $548,600 and material cost $739,200.
(b)
AC Technical segment - Cost of sales of this segment was $1,309,100. The
material cost was $788,900 or 36.9% of the AC Technical revenue for the three
months ended September 30, 2007 compared to $485,400 or 28.4% of revenues in
the
same period of fiscal 2006.
The
increase in balance was mainly due to the increase in revenue. On the other
hand, the labor and subcontractor cost decreased to $504,500 or 23.6% of AC
Technical revenues for the three months ended September 30, 2007 and $312,000
or
18.3% of AC Technical revenues for fiscal 2006. The increase in labor and
subcontractor cost was mainly due to the increase in revenue.
Project,
Selling, General and Administrative Expenses
:
Projects, selling, general and administrative expenses for the three months
ended September 30, 2007 was $2,579,700 or 23.1% of revenues for the three
months period ended 2007 compared to $2,052,300 or 22.5% of revenues for the
same period of fiscal 2006. The balance is mainly comprised of the
following:
Project
cost was $328,400 or 2.9% of revenue for three months ended September 30, 2007,
compared to $314,400 or 3.4% for the same period of fiscal year 2006. Project
cost was mainly related to AC Technical segment. The balance mainly includes
the
salaries and benefits of indirect staff amounting to $202,500 in the third
quarter of fiscal 2007 compared to $188,100 for the same period of fiscal 2006
with no material fluctuation. The automobile and travel expenses of
approximately $74,600 for the three months period ended September 30, 2007
compared to $72,400 for the same period of fiscal 2006. The increase in balance
was mainly due to more travel by the staff.
Selling
expenses was $193,200 or 1.7% of revenues for the three months period ended
2007
compared to $187,000 or 2.1% of revenues for the first quarter of fiscal 2006.
Selling expenses were mainly related to AC Technical segment. As at September
30, 2007, we have 5 salespersons in AC Technical segment, which were 4 as at
September 30, 2006. The balance for the three months period ended September
30,
2007 is mainly comprised of salaries and commission to salespersons of $141,600
compared to $151,400 for the same period of fiscal 2006. There was no material
fluctuation. The advertising and promotion and trade show expenses were $23,700
in the third quarter of fiscal 2007 compared to $24,200 for the same period
of
fiscal 2006 with no material fluctuation.
General
and administrative expenses were $2,058,100 or 18.4% of revenues for the three
months period ended 2007 compared to $1,550,900 or 17.0% for fiscal 2006. The
balance for the three months period ended September 30, 2007 is mainly comprised
of $39,200 of professional fees related to fees for the quarterly reports and
other corporate matters. In addition, investor relations expenses amounted
to
$289,500 for the three months period ended September 30, 2007 compared to
$91,600 for the same period last year. Total salaries and benefits to
administrative staff were $622,200 for the third quarter of 2007 compared to
$647,800 for the same period last year. Total depreciation of property plant
and
equipment was $459,400 for the third quarter of fiscal 2007 compared to $206,800
for the same period of last year. The increase in balance was mainly due to
the
increase in property, plant and equipment.
Interest
and other Expenses
:
Interest and net other expenses for the three months ended September 30, 2007,
was $410,400 or 3.7% of revenues compared to net income of $1,184,010 or 12.9%
of the revenues for the same period of fiscal 2006. The balance for the current
period is primarily comprised of the amortization of deferred charges amounting
to $45,500 compared to $49,960 for the same period of fiscal 2006. Additionally,
net financing expenses decreased to $844,500 or 7.6% of revenues compared to
$529,900 or 5.8% of revenues for the same period of fiscal 2006. The increase
in
balance was mainly due to the 324,000 warrants issued to Laurus with the fair
value of $324,100 relating to the deferral of principal repayment of the Company
Term Note (also see Note 4 in the financial statement). The changes of
derivative instruments income were $1,848,100 for the period ended September
30,
2006. There was no such income for the period ended September 30, 2007 as the
Company has adopted the FASB issued FASB Staff Position EITF 00-19-2 “Accounting
for Registration Payment Arrangements” (FSP EITF 00-19-2). See Note 4 in the
financial statements.
Income
taxes
:
No
income tax provision for the period ended September 30, 2007, which was mainly
due to the Company has losses carried forward to offset all income generated
from the Company. All prior taxes already been accounted for in the income
tax
recoverable and therefore, there is no additional provision for income taxes
recoverable and deferred tax asset.
Net
Income/Loss
:
Net
income for the three months ended September 30, 2007 was $267,500 compared
to
net income of $2,224,300 for the three month period ended September 30, 2006.
The Company’s operating income was $677,900 for the third quarter of fiscal 2007
compared to $1,040,300 for the same period of fiscal 2006. The growth was mainly
due to the increase in revenue of Cancable segment.
Results
of Operations
Comparison
of Nine Months Period Ended September 30, 2007
to
Period Ended September 30, 2006
For
purposes of this “Management’s Discussion and Analysis or Plan of Operation”, we
compared the first nine months period ended September 30, 2007, to the
comparable period in 2006.
Sales
:
Sales
for the nine months period ended 2007 increased 25.5% to $28,523,700 from
$22,735,000 for the nine months period ended 2006. The increase in revenue
was
mainly due to the increase in service revenue of Cancable Segment to $22,768,900
for the nine months period ended 2007 from $17,422,800 for the same period
in
2006.
(a)
Cancable Segment - The Company acquired Cancable through its wholly owned
subsidiary on January 1, 2006. It is incorporated under the laws of Ontario
and
its principal business activity is the provisioning the 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. Total revenue
for the nine months period ended September 30, 2007 was $22,768,900 compared
to
$17,422,800 in the same period of fiscal 2006. Rogers Cable Inc. is Cancable’s
largest customer and the revenue from this customer for the nine months ended
September 30, 2007 was approximately $17,078,800 or 75.0% of its total revenue
compared to $13,813,000 or 79.2% of its total revenue for the same period in
fiscal 2006. (b) AC Technical segment - Contract revenue was $4,505,000 for
the
nine months ended September 30, 2007 or 80.1% of its total revenue compared
to
$4,137,200 in the same period of fiscal 2006. The increase in revenue was mainly
due to the increase in number of subcontracts for the provision of services
to
contracts. Service revenue generated increased 19.9% to $1,120,000 for the
nine
months ended September 30, 2007 from $973,200 for the same period of fiscal
2006. Service revenue primarily represents the cumulative effect of the growth
in contracts and number of customers over the past few years. We have
experienced a significant increase in the number of inquiries for systems from
the government and retail sector. This increased interest in security products
and services may result in our achieving increased revenues in future periods
if
we are successful in attracting new customers or obtaining additional projects
from existing customers. There is no assurance that the Company will be able
to
attract new customers.
Cost
of Goods Sold
:
Cost of
goods sold as a percentage of revenue for the nine months ended September 30,
2007 was $20,053,100 or 70.3% of revenues compared to $15,007,400 or 66.0%
of
revenues for the nine months period ended September 30, 2006. (a) Cancable
segment - Cost of sales of this segment was $16,766,600 for the nine months
ended September 30, 2007 which is mainly comprised of labor expenses
$12,843,100, vehicle expenses $1,520,300 and material cost $1,859,900 (b) AC
Technical segment - Cost of sales of this segment was $3,223,300. The material
cost was $2,015,900 or 35.8% of the AC Technical revenue for the nine months
ended September 30, 2007 compared to $1,585,800 or 30.7% of revenues in the
same
period of fiscal 2006. The increase in percentage of the material cost was
mainly due to some contracts with higher percentage of materials.
On
the
other hand, the labor and subcontractor cost decreased to $1,161,900 or 20.7%
of
AC Technical revenues for the nine months ended September 30, 2007, and $967,500
or 18.6% of AC Technical revenues for fiscal 2006. The increase in balance
was
mainly due to the increase in revenue.
Project,
Selling, General and Administrative Expenses
:
Projects, selling, general and administrative expenses for the nine months
ended
September 30, 2007 was $7,320,100 or 25.7% of revenues for the nine months
period ended 2006 compared to $6,462,300 or 28.4% of revenues for the same
period of fiscal 2006. The balance is mainly comprised of the
following:
Project
cost was $933,700 or 3.3% of revenue for nine months ended September 30, 2007,
compared to $1,006,500 or 4.4% for the same period of fiscal year 2006. Project
cost was mainly related to AC Technical segment. The balance mainly includes
the
salaries and benefits of indirect staff amounting to $542,000 for the nine
months ended September 30, 2007, compared to $561,100 for the same period of
fiscal 2006. The decrease in expenses was mainly due to the change in
headcounts. The automobile and travel expenses were approximately $220,900
for
the nine months period ended September 30, 2007 compared to $278,600 for the
same period of fiscal 2006. The decrease in balance was mainly due to the
decrease in number of vehicles and less travel for the nine months ended
September 30, 2007.
Selling
expenses were $580,800 or 2.0% of revenues for the nine months period ended
2007
compared to $487,300 or 2.1% of revenues for the same period of fiscal 2006.
Selling expenses was mainly related to AC Technical segment. The balance for
the
nine months ended September 30, 2007 is mainly comprised of salaries and
commission to salespersons of $361,100 compared to $257,800 for the same period
of fiscal 2006. The increase was mainly due to the increase in commission and
changes in headcounts. The advertising, promotion and trade show expenses were
$74,600 for the nine months ended September 30, 2007, and $74,200 for the same
period of fiscal 2006. There was no material fluctuation for two fiscal
years.
General
and administrative costs were $5,905,700 or 20.3% of revenues for the nine
months period ended 2006 compared to $4,968,500 or 21.9% for same period of
fiscal 2006. The balance for the nine months period ended September 30,
2007, mainly is comprised of $232,200 of professional fees related to fees
for
the quarterly reports and other corporate matters. The investor relations
expenses was increased to $577,500 for the nine months period ended September
30, 2007, compared to $340,400 for the same period last year. Total salaries
and
benefits to administrative staff to $1,765,200 for the nine months period ended
of fiscal 2007 compared to $2,046,900 for the same period last year. The
decrease was mainly due to the decrease in headcounts. Total depreciation of
property plant and equipment was $1,210,300 for the nine months ended September
30, 2007, compared to $795,600 for the same period of last year. The balance
for
current period mainly represents the depreciation of vehicles and equipment
of
Cancable segment.
Interest
and other Expenses (Income)
:
Interest and net other expenses for the nine months ended September 30, 2007,
of
$1,222,383 or 4.3% of revenues compared to net expenses of $5,648,900 or 24.8%
of the revenues for the same period of fiscal 2006. The balance for the current
period is primarily comprised of the amortization of deferred charges amounting
to $137,400 compared to $743,900 for the same period of fiscal 2006. The
decrease was mainly due to the deferred financing costs of $600,500 carried
forward from the fiscal 2005 which was written off during the first quarter
of
fiscal 2006. The Company has 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,
through a refinancing transaction. Additionally, net financing expenses
decreased to $2,143,800 or 7.5% of revenues compared to $4,083,400 or 17.9%
of
revenues for the same period of fiscal 2006. Last year balance mainly included
interest and penalties relating to the new refinancing transactions in 2006
with
the amount of $2,452,900 which included 2,411,003 warrants issued to Laurus
with
the fair value of $1,913,600. The changes of derivative instruments expenses
were $939,700 for the period ended September 30, 2006. There was no such expense
for the period ended September 30, 2007 as the Company has adopted the FASB
issued FASB Staff Position EITF 00-19-2 “Accounting for Registration Payment
Arrangements” (FSP EITF 00-19-2).
Income
taxes
:
No
income tax provision for the period ended September 30, 2007 which was mainly
due to the Company has losses carried forward to offset all income generated
from the Company. All prior taxes already been accounted for in the income
tax
recoverable and therefore, there is no additional provision for income taxes
recoverable and deferred tax asset.
Net
Income/Loss
:
Net
loss for the nine months ended September 30, 2007 was $72,900 compared to
net loss of $4,383,600 for the nine months period ended September 30, 2006.
The
net loss for the nine months ended September 30, 2006 was attributed to the
unrealized losses on remeasurement of derivative instruments amounting to
$939,700. Additionally, the Company has issued 2,411,003 warrants to Laurus
for
the refinancing transaction with the fair value of $1,913,600 and written off
the amortization of deferred charges carried forward from fiscal 2005 in the
amount of $600,500.
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 September 30, 2007, we had $2,397,200 in cash. Additionally we
had
$126,100 which was deposited in a restricted bank account. Pursuant to the
Securities Purchase Agreement between Laurus and the Company and a restricted
account agreement entered into by the Company, Laurus and a US bank, $500,000
was deposited into a restricted account for the benefit of Laurus as additional
security for the obligations of the Company under the purchase agreement and
the
related agreements. The restricted account is to be maintained at the US bank
and Laurus shall apply any part of this deposit to any payment obligation for
Iview Note. We believe that cash from operations and our credit facilities
with
Laurus Master Funds, Ltd. will continue to be adequate to satisfy the ongoing
working capital needs of the Company. During the fiscal year 2007, our primary
objectives in managing liquidity and cash flows will be to ensure financial
flexibility to support growth and entry into new markets and improve inventory
management and to accelerate the collection of accounts receivable.
Net
Cash Used in Operating Activities
.
Net
cash provided by operating activities amounted to $974,500 for the nine months
ended September 30, 2007. The changes in operating assets and liabilities
resulted in a use of cash of $819,800, which included a $1,703,900 increase
in
accounts receivable, a $88,600 increase in inventory, a $139,400 decrease in
prepaid expenses, a $882,000 decrease in accounts payable, a $48,700 decrease
in
deferred revenue.
Compared
the balance sheet as at September 30, 2007 to December 31, 2006
Accounts
Receivable
Our
accounts receivable increased by approximately $2,554,500 compared to the
balance as at December 31, 2006. Accounts receivable of Cancable segment
was $3,866,200 as at September 30, 2007 compared to $1,799,500 as at December
31, 2006. The increase in balance was mainly due to the increase in revenue.
Accounts
receivable of AC Technical segment was $2,439,000 as at September 30, 2007
compared to $2,040,800 as at December 31, 2006. The increase in accounts
receivable of AC Technical was mainly due the increase in revenue. Approximately
65% of the accounts receivable outstanding at September 30, 2007 was less than
90 days old.
Inventory
Inventory
on
hand at
September 30, 2007, increased 29.3% compared to the balance as at
December 31, 2006. The inventory of Cancable segment as at September 30,
2007 was $342,900 compared to $250,400 as at December 31, 2006. The inventory
of
AC Technical segment as at September 30, 2007 was $553,400 compared to $430,300
as at December 31, 2006. The increase in inventory was mainly due to the
expected increase in revenue in the third quarter of 2007.
Accounts
Payable and Accrued Liabilities
Accounts
payable approximately increased to $6,367,200 as at September 30, 2007 from
$4,655,000 as at December 31, 2006. The accounts payable and accrued liabilities
as at September 30, 2007 of Cancable segment was $3,208,200 compared to
$2,590,600 as at December 31, 2006 with no material fluctuation. The accounts
payable and accrued liabilities as at September 30, 2007 of AC Technical segment
was $2,637,000 compared to $1,826,100 as at December 31, 2006. The increase
was
mainly due to the timing of payments to our suppliers.
Deferred
Revenue
Deferred
revenue decreased to $31,579 as at September 30, 2007 compared to the balance
as
at December 31, 2006. The increase was mainly due to the timing of payments
by
our customers. Deferred revenue primarily relates to payments associated with
the contracts where revenue is recognized on a percentage of completion basis.
Incomes
Taxes Recoverable
The
income taxes recoverable was mainly related to the Company received refund
from
the Government relating to the losses carried back to prior years and investment
tax credits.
Net
Cash Used in Investing Activities
.
Net
cash used in investing activities was $543,400 for the nine months ended
September 30, 2007, compared to $109,100 used for the nine months ended
September 30, 2006. The balance for the both periods was mainly due to the
purchase of property and equipment of the Company and offset by the sale
proceeds from the sales of property and equipment.
Net
Cash Provided From Financing Activities
.
Net
cash used in financing activities was $1,485,900 for the nine months ended
September 30, 2007 compared to net cash provided $1,462,700 for the nine months
period ended September 30, 2006. Last year balance was mainly represents the
additional borrowings from Laurus Master Fund, Ltd. from the refinancing
transaction in 2006. The current year balance was mainly represents the
repayment of capital leases and term notes in the amount of $1,703,600.
Our
capital requirements have grown since our inception with the growth of our
operations and staffing. We expect our capital requirements to continue to
increase in the future as we seek to expand our operations. On September 30,
2004, we obtained additional funding through a series of agreements entered
with
Laurus. In 2006, the Company through its wholly owned subsidiary
acquired
all of the issued and outstanding shares of capital stock and any other equity
interests of Cancable Inc. 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. Also, the Company has
completed the refinancing transaction in February 2006;
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. Simultaneously with the closing of this refinancing
transaction, the Company 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.
Over
the
next twelve months we believe that our existing capital will be sufficient
to
sustain our operations. Management plans to seek additional capital in the
future to fund operations, growth and expansion through additional equity,
debt
financing or credit facilities. We have had early stage discussions with
investors about potential investment in our firm at a future date. No assurance
can be made that such financing would be available, and if available it may
take
either the form of debt or equity. In either case, the financing could have
a
negative impact on our financial condition and our shareholders.
Recent
Accounting Pronouncements
In
February 2006, the Financial Accounting Standards Board issued SFAS 155 -
“Accounting for Certain Hybrid Financial Instruments—an amendment of FASB
Statements No. 133 and 140.”
This
Statement amends FASB Statements No. 133, Accounting for Derivative Instruments
and Hedging Activities, and No. 140, Accounting for Transfers and Servicing
of
Financial Assets and Extinguishments of Liabilities. This Statement resolves
issues addressed in Statement 133 Implementation Issue No. D1, “Application of
Statement 133 to Beneficial Interests in Securitized Financial
Assets.”
This
Statement:
|
a.
|
Permits
fair value remeasurement for any hybrid financial instrument that
contains
an embedded derivative that otherwise would require
bifurcation.
|
|
b.
|
Clarifies
which interest-only strips and principal-only strips are not subject
to
the requirements of Statement 133.
|
|
c.
|
Establishes
a requirement to evaluate interests in securitized financial assets
to
identify interests that are freestanding derivatives or that are
hybrid
financial instruments that contain an embedded derivative requiring
bifurcation.
|
|
d.
|
Clarifies
that concentrations of credit risk in the form of subordination are
not
embedded derivatives.
|
|
e.
|
Amends
Statement 140 to eliminate the prohibition on a qualifying special-purpose
entity from holding a derivative financial instrument that pertains
to a
beneficial interest other than another derivative financial
instrument.
|
This
Statement is effective for all financial instruments acquired or issued after
the beginning of our first fiscal year that begins after September 15,
2006.
The
fair
value election provided for in paragraph 4(c) of this Statement may also be
applied upon adoption of this Statement for hybrid financial instruments that
had been bifurcated under paragraph 12 of Statement 133 prior to the adoption
of
this Statement. Earlier adoption is permitted as of the beginning of our fiscal
year, provided we have not yet issued financial statements, including financial
statements for any interim period, for that fiscal year. Provisions of this
Statement may be applied to instruments that we hold at the date of adoption
on
an instrument-by-instrument basis.
The
Company is currently reviewing the effects of adoption of this statement but
it
is not expected to have a material impact on our financial
statements.
In
September 2006, the Financial Accounting Standards Board issued SFAS 156 -
“Accounting for Servicing of Financial Assets—an amendment of FASB Statement No.
140.”
This
Statement amends FASB Statement No. 140, Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities, with respect to the
accounting for separately recognized servicing assets and servicing liabilities.
This Statement:
1.
Requires
an entity to recognize a servicing asset or servicing liability each time it
undertakes an obligation to service a financial asset by entering into a
servicing contract in certain situations.
2.
Requires
all separately recognized servicing assets and servicing liabilities to be
initially measured at fair value, if practicable.
3.
Permits
an entity to choose either the amortization method or the fair value measurement
method for each class of separately recognized servicing assets and servicing
liabilities.
4.
At
its
initial adoption, permits a one-time reclassification of available-for-sale
securities to trading securities by entities with recognized servicing rights,
without calling into question the treatment of other available-for-sale
securities under Statement 115, provided that the available-for-sale securities
are identified in some manner as offsetting the entity’s exposure to changes in
fair value of servicing assets or servicing liabilities that a service elects
to
subsequently measure at fair value.
5.
Requires
separate presentation of servicing assets and servicing liabilities subsequently
measured at fair value in the statement of financial position and additional
disclosures for all separately recognized servicing assets and servicing
liabilities.
Adoption
of this Statement is required as of the beginning of the first fiscal year
that
begins after September 15, 2006. The adoption of this statement is not expected
to have a material impact on our financial statements.
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” This
standard establishes a standard definition for fair value, establishes a
framework under generally accepted accounting principles for measuring fair
value and expands disclosure requirements for fair value measurements. This
standard is effective for financial statements issued for fiscal years beginning
after November 15, 2007.
Adoption
of this statement is not expected to have any material effect on our financial
position or results of operations
.
In
September 2006, the FASB issued Financial Accounting Standard No. 158,
“Employers’ Accounting for Defined Benefit Pension and Other Postretirement
Plans, an amendment of FASB Statement Nos. 87, 88, 106, and 132(R
)
,”
or
FAS
158. This Statement requires an employer that is a business entity and sponsors
one or more single-employer defined benefit plans to (a) recognize the funded
status of a benefit plan—measured as the difference between plan assets at fair
value (with limited exceptions) and the benefit obligation—in its statement of
financial position; (b) recognize, as a component of other comprehensive income,
net of tax, the gains or losses and prior service costs or credits that arise
during the period but are not recognized as components of net periodic benefit
cost pursuant to FAS 87,
Employers’
Accounting for Pensions
,
or FAS
106,
Employers’
Accounting for Postretirement Benefits Other Than Pensions
;
(c)
measure defined benefit plan assets and obligations as of the date of the
employer’s fiscal year-end statement of financial position (with limited
exceptions); and (d) disclose in the notes to financial statements additional
information about certain effects on net periodic benefit cost for the next
fiscal year that arise from delayed recognition of the gains or losses, prior
service costs or credits, and transition assets or obligations. An employer
with
publicly traded equity securities is required to initially recognize the funded
status of a defined benefit postretirement plan and to provide the required
disclosures as of the end of the fiscal year ending after December 15, 2006.
This statement is not expected to have a significant effect on our financial
statements.
In
February 2007, the FASB issued
Financial
Accounting Standard No. 159
The
Fair Value Option for Financial Assets and Financial Liabilities—Including an
amendment of FASB Statement No. 115
or FAS
159. This Statement permits entities to choose to measure many financial
instruments and certain other items at fair value. Most of the provisions of
this Statement apply only to entities that elect the fair value option.
The
following are eligible items for the measurement option established by this
Statement:
|
1.
|
Recognized
financial assets and financial liabilities
except:
|
|
a.
|
An
investment in a subsidiary that the entity is required to
consolidate
|
|
b.
|
An
interest in a variable interest entity that the entity is required
to
consolidate
|
|
c.
|
Employers’
and plans’ obligations (or assets representing net overfunded positions)
for pension benefits, other postretirement benefits (including health
care
and life insurance benefits), post employment benefits, employee
stock
option and stock purchase plans, and other forms of deferred compensation
arrangements.
|
|
d.
|
Financial
assets and financial liabilities recognized under leases as defined
in
FASB Statement No. 13,
Accounting
for Leases.
|
|
e.
|
Deposit
liabilities, withdrawable on demand, of banks, savings and loan
associations, credit unions, and other similar depository
institutions
|
|
f.
|
Financial
instruments that are, in whole or in part, classified by the issuer
as a
component of shareholder’s equity (including “temporary equity”). An
example is a convertible debt security with a noncontingent beneficial
conversion feature.
|
|
2.
|
Firm
commitments that would otherwise not be recognized at inception and
that
involve only financial instruments
|
|
3.
|
Nonfinancial
insurance contracts and warranties that the insurer can settle by
paying a
third party to provide those goods or
services
|
|
4.
|
Host
financial instruments resulting from separation of an embedded
nonfinancial derivative instrument from a nonfinancial hybrid
instrument.
|
The
fair
value option:
|
1.
|
May
be applied instrument by instrument, with a few exceptions, such
as
investments otherwise accounted for by the equity
method
|
|
2.
|
Is
irrevocable (unless a new election date
occurs)
|
|
3.
|
Is
applied only to entire instruments and not to portions of
instruments.
|
The
Statement is effective as of the beginning of an entity’s first fiscal year that
begins after November 15, 2007. Early adoption is permitted as of the beginning
of a fiscal year that begins on or before November 15, 2007, provided the entity
also elects to apply the provisions of FASB Statement No. 157,
Fair
Value Measurements
.
We have
not yet determined what effect, if any, adoption of this Statement will have
on
our financial position or results of operations
.
SAB
108 -
‘Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements’
In
September 2006, the SEC issued Staff Accounting Bulletin No. 108 (SAB 108),
Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements. SAB 108 provides guidance
on
the consideration of the effects of prior year unadjusted errors in quantifying
current year misstatements for the purpose of a materiality assessment.
Adoption
of this statement is not expected to have any material effect on our financial
position or results of operations
.
FIN
48 -
‘Accounting for Uncertainty in Income Taxes’
In
June
2006, the FASB issued Interpretation No. 48 (“FIN 48”), “Accounting for
Uncertainty in Income Taxes”, an interpretation of SFAS No. 109. FIN 48
prescribes a comprehensive model for how companies should recognize, measure,
present and disclose uncertain tax positions taken or expected to be taken
on a
tax return. Under FIN 48, we shall initially recognize tax positions in the
financial statements when it is more likely than not the position will be
sustained upon examination by the tax authorities. We shall initially and
subsequently measure such tax positions as the largest amount of tax benefit
that is greater than 50% likely of being realized upon ultimate settlement
with
the tax authority assuming full knowledge of the position and all relevant
facts. FIN 48 also revises disclosure requirements to include an annual tabular
roll-forward of unrecognized tax benefits. We will adopt this interpretation
as
required in 2007 and will apply its provisions to all tax positions upon initial
adoption with any cumulative effect adjustment recognized as an adjustment
to
retained earnings.
Adoption
of this statement is not expected to have any material effect on our financial
position or results of operations.
EITF
00-19-2, "Accounting for Registration Payment Arrangements".
In
December 2006, the FASB issued Staff Position FSP EITF 00-19-2, "Accounting
for
Registration Payment Arrangements". This statement is effective for existing
registration payment arrangements as of January 1, 2007, with earlier
application permitted in previously-unissued financial statements. As discussed
in Note 8 and as permitted by the FSP, we adopted the provisions of this FSP
in
our fourth quarter of 2006, resulting in re-classification of certain of our
outstanding warrants from derivative instrument liabilities to
equity.
Off
Balance Sheet Arrangements
None
DISCUSSION
OF CRITICAL ACCOUNTING ESTIMATES
Critical
accounting estimates are those that management deems to be most important to
the
portrayal of our financial condition and results of operations, and that require
management’s most difficult, subjective or complex judgments, due to the need to
make estimates about the effects of matters that are inherently uncertain.
We
have identified six critical accounting estimates: accounts receivable
allowances, goodwill, revenue, inventory, accounting for income taxes and
financial instruments. See our Form 10-KSB for the year ended December 31,
2006,
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, 2006, Annual Report
on
Form 10-KSB under the caption “Risk Factors.”
You
should not place undue reliance on any forward-looking statements. Except as
otherwise required by federal securities laws, we undertake no obligation to
publicly update or revise any forward-looking statements or risk factors,
whether as a result of new information, future events, changed circumstances
or
any other reason after the date of this quarterly report.
Item
3.
Controls
and Procedures
We
maintain a system of disclosure controls and procedures, as such term is defined
in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, that are designed
to
provide reasonable assurance that information required to be disclosed by us
in
the reports that we file under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SEC’s rules and
forms, and that such information is accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer,
as appropriate, to allow timely decisions regarding required
disclosures.
We
have
carried out an evaluation under the supervision and with the participation
of
the Company’s management, including the Company’s Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the des
ign
and
operation of our disclosure controls and procedures. Based upon their evaluation
and subject to the foregoing
,
the
Chief Executive Officer and Chief Financial Officer concluded that such controls
and procedures were effective as of the end of the period covered by this
report, in all material respects, to ensure that required information will
be
disclosed on a timely basis in our reports filed under the Exchange
Act.
In
designing and evaluating the disclosure controls and procedures, our management
recognized that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control
objectives, and our management necessarily was required to apply their judgment
in evaluating the cost-benefit relationship of
possible
controls and procedures.
There
were no changes in our internal control over financial reporting that occurred
during the quarter ended September 30, 2006, that have materially affected,
or
are reasonably likely to materially affect our internal control over financial
reporting.
PART
II.
OTHER
INFORMATION
|
Item
1.
|
Legal
Proceedings
|
Not
applicable.
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of
Proceeds
|
Not
applicable.
|
Item
3.
|
Defaults
upon Senior Securities
|
Not
applicable.
|
Item
4.
|
Submission
of Matters to a Vote of Security
Holders
|
Not
applicable.
|
Item
5.
|
Other
Information
|
Not
applicable.
(a)
Exhibits
|
31.1
|
|
Certification
of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
|
31.2
|
|
Certification
of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
|
32.1
|
|
Chief
Executive Officer certification pursuant to 18 U.S.C. Section 1350,
as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
|
32.2
|
|
Chief
Financial Officer certification pursuant to 18 U.S.C. Section 1350,
as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|