U.S.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
ANNUAL
REPORT UNDER SECTION 13 or 15 (d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
For
the
fiscal year ended December 31, 2007
Commission
file number 00-30585
CREATIVE
VISTAS, INC.
(Exact
name of registrant as specified in its charter)
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Arizona
(State
or other jurisdiction of
incorporation
or organization
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3669
(Primary
Standard Industrial
Classification
Code Number)
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86-0464104
(I.R.S.
Employer
Identification
No.)
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2100
Forbes Street
Unit
8-10
Whitby,
Ontario, Canada L1N 9T3
(905)
666-8676
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(Address
of principal executive offices)
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Registrant’s
telephone number, including area code:
(905)
666-8676
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Securities
registered pursuant to Section 12 (b) of the Exchange Act:
None
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Securities
registered pursuant to Section 12 (g) of the Exchange Act:
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Title
of Class
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Number
of Shares Outstanding as of
March
31, 2008
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Common
Stock, $.01 par value
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34,496,623
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Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined
in
Rule 405 of the Securities Act.
Yes
o
No
x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Act.
Yes
o
No
x
Indicate
by check mark whether the registrant: (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days. Yes
x
No
o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this
Form 10-K.
x
Indicate
by check mark whether the registrant is large accelerated filer, an accelerated
filer or a smaller reporting company (as defined in Exchange Act Rule 12B-2)
Large
accelerated filer
o
Accelerated
filer
o
Non-accelerated filer
o
(Do
not check if a smaller reporting
company) Smaller reporting company
x
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
o
No
x
Issuer’s
revenues for its most recent fiscal year: $39,991,068
The
aggregate market value of the voting and non-voting common equity held by
non-affiliates of the Registrant, based on the closing price for such common
equity on
March
31,
2008
is
approximately $65,198,617.The number of shares outstanding of the Issuer’s
common stock, as of
March
31,
2008
:
34,496,623 shares.
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Item
1.
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Business
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1
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Item
2.
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Description
of Properties
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18
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Item
3.
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Legal
Proceedings
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18
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Item
4.
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Submission
of Matters to Vote of Security Holders
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18
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Item
5.
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Market
for the Registrant’s Commission Equity Related Stockholder Matters and
Issuer Purchases of Equity Securities
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18
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Item
6.
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Selected
Financial Data
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19
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Item
7.
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Management’s
Discussion and Analysis or Plan of Operation
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19
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Item
8.
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Financial
Statements
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F-1
- F-30
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Item
9.
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Changes
in and disagreements with accountants on accounting and financial
disclosure
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28
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Item
9a.
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Controls
and Procedures
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28
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Item
9b.
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Other
Information
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29
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Item
10.
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Directors,
Executive Officers, Promoters and Control Persons of the
Registrant
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29
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Item
11.
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Executive
Compensation
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30
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Item
12.
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
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31
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Item
13.
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Certain
Relationships and Related Transactions
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34
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Item
14.
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Principle
Accountant Fees and Services
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35
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Item
15.
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Exhibits
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35
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Forward-Looking
Statements
Certain
statements within this Form 10-K constitute “forward-looking statements” within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements
of
Creative Vistas, Inc. to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. These forward-looking statements are based on our current
expectations and are subject to a number of risks, uncertainties and assumptions
relating to our operations, financial condition and results of operations,
including, among others, rapid technological and other changes in the market
we
serve, our numerous competitors and the few barriers to entry for potential
competitors, the seasonality and quarterly variations we experience in our
revenue, our uncertain revenue growth, our ability to attract and retain
qualified personnel, our ability to expand our infrastructure and manage our
growth, and our ability to identify, finance and integrate acquisitions, among
others. If any of these risks or uncertainties materializes, or if any of the
underlying assumptions prove incorrect, actual results may differ significantly
from results expressed or implied in any forward-looking statements made by
us.
These and other risks are detailed in this Annual Report on Form 10-K and in
other documents filed by us with the Securities and Exchange Commission.
Creative Vistas, Inc. undertakes no obligation to update publicly any
forward-looking statements for any reason, even if new information becomes
available or other events occur in the future.
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Item
1.
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Description
of Business
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Corporate
Background and Overview
Creative
Vistas, Inc. was incorporated in the state of Arizona on July 18, 1983. We
are a
leading provider of security-related technologies and systems. We also provide
the deployment of broadband services to the commercial and residential market.
We primarily operate through our subsidiaries AC Technical Systems Ltd. (“AC
Technical Systems”) and Iview Digital Video Solutions Inc. (“Iview DVSI”), to
provide integrated electronic security-related technologies and systems. AC
Technical Systems is responsible for all of our revenues in the security sector
for 2007. It provides its systems to various high profile clients including:
government, school boards, retail outlets, banks, and hospitals. Iview DVSI
is
responsible for providing video surveillance products and technologies to the
market.
On
December 31, 2005, we acquired Cancable Inc. (“Cancable”) through our wholly
owned Delaware subsidiary, Cancable Holding Corp. Cancable is in the business
of
providing the deployment and servicing of broadband technologies in both
residential and commercial markets. Cancable has offices in Ontario, Canada.
All
related documents were disclosed in Form 8-K/A filed on January 6, 2006.
In
October 2007, we entered into an agreement, through our wholly owned newly
formed Ontario subsidiary, Cancable XL Inc. (“Cancable XL”), to acquire all of
the issued and outstanding shares of capital stock and any other equity
interests of XL Digital Services Inc. (“XL Digital”), an Ontario corporation.
All related documents were disclosed in Form 8K filed on October 17, 2007.
During the year, we have incorporated 2141306 Ontario Inc. (“OSS-IM”) as a
subsidiary of Cancable.
OSS-IM
specializes in research and development of proprietary BI software. The current
version of BI software is a leading-edge program that can manage data from
over
a million multi-faceted transactions fulfilled annually by Cancable for its
large cable-system customers. Wireless and web enabled, the software provides
automated intelligent decision-making for managing customer transactions,
vehicles, technicians, supply chains, HR-related functions and other
activities.
Today,
our operations are divided into two distinct operating segments: (a) security
and surveillance products and services, and (b) broadband deployment and
provisioning services. Through AC Technical Systems we provide integrated
security solutions to our commercial customer base. Through Cancable, XL Digital
and OSS-IM, we provide broadband deployment and provisioning services to
residential, as well as web based support and small businesses
markets.
The
current corporate structure is as follows:
Security
and Surveillance Products and Services
AC
Technical Systems is focused on the electronic security segment of the security
industry. Through our technology integration team of engineers, we integrate
various security related products to provide single source solutions to our
growing customer base. Our design, engineering and integration facilities are
located in Ontario, Canada. We operate through our Iview DVSI subsidiary to
build out Digital Video Management Systems (DVMS) to provide PC based video
management systems to the surveillance market. Iview is a product company and
sells to distributors and integrators in North America. Iview is in early stages
of building a strong consistent sales and marketing team to start contributing
revenues to us.
Ind
u
stry
Overview
We
believe that the security industry is growing at a steady pace. There has been
renewed focus on our industry since the events of September 11, 2001. The growth
is spurred by the continuous evolution of new technologies and processes. We
believe that the industry is growing for the following reasons:
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Increased
global awareness due to the increased threats of terrorism;
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Older
security devices such as the VCR have become obsolete and new technologies
have provided much more efficient systems at a better price;
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Evolving
digital technologies have started to replace antiquated analog
technologies in the market space;
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Expansion
of budgets due to increased awareness of the need for
security;
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Increase
in crime rates and shrinkage in
industry;
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Integration
of multiple devices has expanded the market for technically advanced
integrators such as our firm; and
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Growing
public concern about crime.
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Decreased
cost of security technology.
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The
security industry is highly fragmented with a large number of manufacturers,
dealers, distributors, integrators and service groups. All of these parties
provide part of the entire solution to the customer. Customers prefer a one-stop
shop that provides them with the entire solution and also designs and customizes
a solution that fits their needs. This solution may include custom design of
hardware, software, along with highly sophisticated integration work. In most
cases the cost to the customer is higher when using a large number of parties
as
opposed to one efficient integrator. We believe that when many parties are
involved in providing a solution to the customer, many needs of the customer
may
not be addressed. The amount of time a customer has to devote to build multiple
relationships as opposed one relationship is substantial. There are also
tendencies for different parties to “pass the blame” to the other party when it
comes to technical and service issues with the project. As a result, the
customer prefers dealing with one source that can handle all issues and be
accountable for an entire project. There are a limited number of companies
besides us that are capable of providing this entire integrated solution.
Providing such a solution requires years of experience, infrastructure for
performing all six core functions that we provide, access to technologies and
a
significant commitment to maintaining a satisfied customer.
A
company
that is implementing a new security system or enhancing an old system usually
has to go through the following steps:
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Retain
a consultant to appropriately outline its needs and design a system
that
satisfies those needs;
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Once
the design is complete, a tender is released whereby a number of
invited
system integrators bid on the required system;
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System
integrators work with various suppliers of hardware and software
to meet
the system requirements. They also engage these suppliers to complete
subcomponents of the system;
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When
security systems have to be installed in multiple locations, the
company
may have to tender the system requirements to different system integrators
from various regions; and
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The
customer, based on price and qualifications of the system integrator,
will
award the project to one or more system
integrators.
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The
process described above can cause a number of issues for clients including
client frustrations with project delays, cost inefficiencies, incompatible
systems and lack of vendor accountability. It also makes it very difficult
for
the customer to make changes to the system. In addition, a customer looking
to
implement security systems in multiple locations may have to hire multiple
integrators and suppliers to integrate systems. This usually results in systems
that are not consistent with each other. These systems may also not communicate
efficiently with a central system. In addition, as security systems become
more
technologically advanced, an experienced engineering team is required to
understand the needs of the customer and satisfy those needs by incorporating
the most efficient technologies available into the security system. This may
also include some development of hardware and software to customize and
integrate the system. Most system integrators are not capable of development,
as
they do not have a research and development department. Also, the manufacturers
of different subsystems are usually not willing to provide custom solutions
on a
project basis. Customers are realizing the sophistication required in order
to
provide a good security system and recognizing that their in-house personnel
lack the skills and time necessary to coordinate their security
projects.
Our
Strategy
We
have
identified four key markets to target with our solution described below. These
are 1) government, 2) education, 3) healthcare, and 4) retail. We offer a
one-stop-shop that provides a fully integrated technology based security system
to meet the needs of the customer. We understand the needs of the customer
and
provide a custom solution to meet their needs. We expedite project completion,
reduce costs to the customer, reduce manpower requirements of the customer
and
improve systems consistency in multiple locations.
We
provide the following services:
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Consulting,
audit, review and planning;
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Engineering
and design;
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Customization,
software development and interfacing;
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System
integration, installation and project
management;
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System
training, technical support and maintenance;
and
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Ongoing
maintenance, preventative maintenance and service and
upgrades.
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We
believe that the following key attributes provide us with a sustainable
competitive advantage including:
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Experience
and expertise in the security industry;
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In-house
research and development departments;
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Dedicated
service team;
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Access
to and experience in a variety of product mix;
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Customized
software and hardware products;
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Strong
partnerships with suppliers and
integrators.
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Our
strategy for growth and expansion is to:
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Expand
our network of technology partners;
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Develop
and maintain long-term relationships with clients;
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Open
regional offices in key areas to expand revenue and
service;
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Capitalize
on our position as a leading provider of technologically advanced
security
systems; and
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Expand
our marketing and sales program within our key vertical
markets.
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At
the
beginning of each new client relationship, we designate an account manager
as
the client service contact. This individual is the point person for
communications between the client and us. The account manager usually has a
number of years of experience in the industry and a good understanding of
technologies and solutions that we provide. This person is also a trained
salesperson who is able to build a long-term relationship with the customer.
The
account manager works with our project department, engineering department,
marketing department, finance department and research and development department
to provide an effective solution for the customer. Once the customer has engaged
us to provide a solution, the engagement usually goes through one or more of
the
stages outlined below:
Consulting,
audit, review and planning
We
identify the client’s objectives and security system requirements. We then audit
and review the client’s existing system. This audit of the existing system
evaluates inventory counts and the existing infrastructure. Then we provide
an
audit report to outline current deficiencies and vulnerabilities. At this
point
we design a system alternative to meet the needs of the customer. The
alternative system is prioritized based on the needs of the customer. We
also
include an efficient cost model to ensure that the customer understands the
cost
of the system. We provide a Return On Investment (ROI) model where applicable.
We also provide a preliminary project implementation plan that contains a
graphical model of the client’s premises with exact outlines of equipment
locations. Our comprehensive planning process helps the customer to properly
budget for its needs on a long-term basis.
Engineering
and design
The
engineering and design process involve preparation of detailed project
specifications and working drawings by a team of our design engineers. These
drawings lay out the entire property and provide a detailed map of all security
equipment and the methodologies used to integrate the system. The specification
and drawings also outline any needs for custom software or hardware design
services, systems designers and computer-aided design system operators. These
specifications and drawings detail areas of high sensitivity, the layout of
the
main control room, and the placement of cameras, card readers, monitors,
switches and other equipment.
Once
our
system design has been completed, we provide a complete list of components
and
recommendations. We highly recommend off-the-shelf non-proprietary components
in
order to ensure that the customer is not tied into one supplier. When
off-the-shelf components are not available or are not compatible with each
other, we design software or hardware to provide compatibility.
Customization,
software development, interface
In
many
cases, the customer’s needs may not be completely satisfied by the equipment
available in the market place. The customer may request features or equipment
that are not readily available. For example, a financial institution may request
us to take information from their transaction records and an Automatic Teller
Machine (ATM), and then integrate that information with a Digital Video Recorder
(DVR). This would allow them to review video of an individual who has processed
a transaction on an ATM. Normally a financial institution requiring this
information would have to go through tapes of data in order to find it. Such
a
bank would have to search all the transactions that occurred during a period
of
time and then, based on that information, go over tapes of video. Sometimes
the
video may not be available if the tapes are only held for a short period of
time. Our firm’s integrated system makes this search process instantaneous. Our
system allows a bank to search by a number of criteria including time, date,
transaction, number and withdrawal amount. A bank can also have video associated
with such a search instantly.
Many
times we provide an interface to bring multiple technologies together. In one
project we integrated eleven different products into one system, thus allowing
for a completely integrated system. This integrated system also has a very
user-friendly interface that avoids having to deal with multiple monitors and
Graphical User Interfaces (GUI).
System
integration, installation, project management:
Once
we
determine that a project has passed through the consulting/audit,
design/engineering and customization/software interfacing stage (if required)
we
can start the implementation of system. During this stage, we provide the
following:
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Detailed
schedule of integration
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List
of components and labor assignments
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Officially
assign the project to one of our project managers
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Production
department starts procurement schedules
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Construction
draw date schedules
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Progress
billings and schedule site visits for quality control
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Tests
of final terminations and technology components in-house in order
to avoid
product failure on site
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Hardware/software
and network integration
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Final
sign off and pass over to service
department
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During
this stage the project manager manages the project and the projects are updated
weekly to ensure that all components are working efficiently. During certain
projects the project manager may opt to use subcontractors to provide services
that are not highly advanced technically. These services may include standard
wiring and cabling. The customer is updated on the status of the project weekly.
These updates may include Gantt charts. During this stage, many customers see
the need for additional enhanced equipment, which increases the value of the
contract to us.
System
training, technical support, maintenance
When
a
project has been completed through system integration, the customer is provided
with a complete training program. We train the customer on how to use the system
and also provide them with manuals from manufacturers as well as training guides
put together by us. Once the training is complete the system will go on line
and
there is a transfer process to the service department from the projects
department. Ongoing technical support and maintenance are provided by our
dedicated service team.
Ongoing
maintenance, preventative maintenance and service, upgrades:
This
is
the final stage of our process and it is an ongoing stage. We provide various
types of maintenance contracts, which vary depending on the level of response
required by the customer. We also provide a service plan suitable to the
customer. If the customer does not require a service contract, we provide them
with service on an incident by incident basis.
The
entire six steps process continues for each customer. Once a project is
complete, there are upgrades that are required. Depending on the value of the
upgrades, they may initiate a new project. During every stage an account manager
is updated on the process. Account managers have regular meetings with the
customers after projects are complete in order to help set budgets for the
following years and also educate customers on new products and technologies
that
may be available in the market.
Research
and Development
We
have
our own in-house research and development programs which are supported by the
National Research Council of Canada. We may receive grants and tax credits
for
customers on projects and product development if they qualify for the program.
Our product development department develops new products and also enhances
existing products. We have the capability to build various forms of hardware
and
software modules. Once a product is designed, the underlying technologies are
used on an ongoing basis to enhance future projects and develop new products.
This is one of the differentiating factors between our competitors and us.
Our
research and development expenses were approximately $289,800 in fiscal year
2007 and $400,600 in fiscal year 2006. Expenses include engineering salaries,
costs of development tools and equipment. None of the expenses were borne
directly by customers.
Warranties
and Maintenance
We
offer
maintenance and service on all our products, including parts and labor, which
range from one year to six years depending upon the type of product concerned
and the type of contract signed by the customers. In addition, we provide a
one-year warranty on equipment and a 90 day warranty all installation projects
completed by us. We receive the same warranty on equipment from our other
external suppliers.
On
non-warranty items, we perform repair services for our products sold at our
main
office in Ontario, Canada or at customer locations. For the years ended December
31, 2007 and December 31, 2006, our revenue from service and maintenance were
$1,544,435 and $1,284,000 respectively.
Marketing
Our
marketing activities are conducted on both national and regional levels. We
obtain engagements through direct negotiation with clients, competitive bid
processes, referrals and direct sales calls. Our marketing plan is derived
with
input from all our account managers and senior management. Our plan is to grow
vertically within targeted markets where we have a superior level of expertise.
Our marketing is very target specific. We market within our four key markets.
We
also find niche markets where our technologies can provide effective solutions
to the customer. Some of our marketing activities include:
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Collaborations
with manufacturers
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Collaborations
with consultants and architects
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We
also
collaborate with providers of complementary technologies and products who are
not competitive with us. For example, there is a convergence of IT services
and
the security industry. We are evaluating the possibility of partnering with
an
IT services provider in order to provide our existing and potential customers
with an expanded scope of services. We are also doing the same within the
building automation industry as we see a convergence of building automation
technologies and services with the security industry.
We
are
evaluating several opportunities to expand our operations via joint ventures
and
partnerships with regional and international companies that can provide us
with
additional expertise and an expanded presence. In addition we are evaluating
the
possibility of acquiring similar businesses and expanding our
operations.
Customers
We
provide our products and services to customers in five markets
:
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Commercial
Property Management
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We
also
provide our products and services to various other sectors including corporate
facilities, mining, entertainment and the automobile industry through direct
sales to end-users and through subcontracting agreements.
Backlog
Our
backlog consists of written purchase orders and contract, we have received
for
product deliveries and engineering services that we expect to deliver or
complete within 12 months. All of these orders and contracts are subject to
cancellation at any time. As of December 31, 2007, our backlog was
approximately $2,500,000 on contract revenue.
Competition
The
security industry is highly fragmented and competitive. We compete with a number
of different companies regionally and nationally. We have various different
types of competitors including consultants, integrators, and engineering and
design firms. Our main competitors include Siemens, ADT, Simplex, Intercon
and
Diebold. Our competitors also include equipment manufacturers and vendors that
provide security services. Some of our competitors have greater name recognition
and financial resources than we do. However, we believe that we have a
well-respected name and are known for our quality work and technical expertise.
We may face future competition from potential new entrants into the security
industry and increased competition from existing competitors that may attempt
to
develop the ability to offer the full range of services offered by us. We cannot
assure that we will be able to compete successfully in the future against
existing or potential competitors.
Employees
As
of
December 31, 2007,
Cancable
has a staff of over
400
employees and A.C. Technical Systems has a staff of 49 full time employees
including our officers, of whom 32 were engaged in systems installation and
repair services, 11 in administration and financial control and 6 in marketing
and sales.
None
of
our employees are covered by a collective bargaining agreement or represented
by
a labor union. We consider our relationship with our employees to be
satisfactory.
The
design and implementation of our equipment and the installation of our systems
require substantial technical capabilities in many different disciplines from
computer science to electronics with advanced hardware and software development.
As a company, we encourage and provide training for new and existing technical
personnel. In addition we conduct training courses and also send our technical
persons to various technical courses offered by manufacturers of various
products. We have various incentive programs for our employees to improve their
skills within all departments. These include reimbursements for training fees
and raises based on skill sets.
Broadband
deployment and provisioning services
We
operate through our subsidiaries Cancable Inc. and XL Digital Services Inc.
(together the “Cancable Group”), located in Ontario, Canada to provide and
deploy broadband services. Cancable Inc. and XL Digital Services Inc. were
subsequent acquisitions.
Cancable
Inc.
is
a
growing Canadian based leader in providing and servicing broadband technologies
to 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.
Cancable
has a long history as a field services organization. It has been successful
in
developing long-term relationships with its clients and is highly regarded
in
the
industry for quality. This is evidenced by its status as the largest service
provider to Rogers Cable Inc., Canada’s largest cable company and the exclusive
supplier to Cogeco Cable Inc. in the Windsor, Ontario area. Cancable’s central
appeal to its customers is its ability to deliver its quality services and
at a
cost which they cannot match internally.
XL
Digital Services Inc. (“XL Digital”), incorporated in 2007, is a Canadian-based
company provisioning the deployment and servicing of broadband technologies
in
the residential market for Canada’s largest cable television provider, Rogers
Cable.
XL
Digital, with over 70 employees, provides its deployment and provisioning
services for Rogers within two territories where the Company currently did
not
have a presence. The acquisition enables the Company to further expand its
services into these two growing territories. XL Digital also brings the Company
a number of years of significant management experience within the cable and
telecommunications sector.
Senior
Management
Cancable
Group has a proven team with over 70 years of cable TV contracting/technical
deployment and support experience.
Ross
Jepson, President and CEO,
has
successfully completed a number of senior executive assignments in the cable
and
telecommunications sector since 1985. He was appointed President and CEO in
January 2003 after serving one year as the EVP, Operations. In addition to
having led the purchase and sale of numerous companies during his executive
career, he is also deeply experienced in sales, marketing, operations and new
business development.
Mark
Thompson, MBA (Finance & Human Resources)
VP,
Fin & Admin,
joined
Cancable in November 2004, bringing over 10 years of Finance and Consulting
experience in entrepreneurial, high growth and turnaround situations. He has
held senior roles in the high-tech, distribution and financial services
industries. Mr. Thompson is responsible for all finance, accounting, is-it,
and
human resources functions for Cancable.
Robert
R. Newell, Senior Vice President,, US Operations,
joined
Cancable in October 2007. He was chief operating officer and chief business
development officer of 180 Connect Inc., a national cable and satellite
fulfillment service, based in Denver, CO., that he co-founded in 2000 and helped
build into a company with $300 million in annual revenues. Customers of 180
Connect included Comcast, Cox, Time Warner, Cablevision, Hughes Network Services
and DirecTV. He has particular expertise in start-up, turnaround and integration
of acquired companies and his addition to the Cancable team significantly
improves our capability to execute on our U.S. expansion strategy.
Paul
Saabas, MBA, President, Dependable Home Support Services
,
has
sales and operational management experience with a wide range of companies,
including cable services (Rogers Cable) and security products and services
(Honeywell Ltd.). Most recently, he was a principal of PMJ Consulting, a company
that provided business planning and other strategic services to start-up
companies. Among his clients was Bell New Ventures, the group created in 2006
by
Bell Canada, Canada's largest communications provider, to initiate new products
and services based on Bell Canada's wireless, Internet, voice and web-based
capabilities.
Paul
Markovsky, MBA, General Manager, Canadian Field Operations,
joined
Cancable in October 2006 as District Manager, GTA East and was promoted to
his
current position in March 2008. His previous position was Manager of Operations
at QX Locates, a division of Aecon Group Inc., where he was chosen to head
the
growth of an expanding business whose customers included Bell Canada, Enbridge
Gas and Union Gas. Mr. Markovsky is responsible for the management of all
Canadian operations and field service management in the utilities and cable
sectors.
Cheryl
Lewis, Director, DependableIT
,
began
her career at Cancable in 1998 managing the dispatch group and building the
original team of technicians. Ms. Lewis later assumed responsibility for the
DependableIT division, a call center managing all incoming tech support calls
and sales leads, as well as on-site technicians resolving computer support
issues.
Steve
Skrlac, CFA, MBA, BA, Vice President Sales and Business
Development
.
Mr.
Skrlac joined the Cancable group in February 2008 and brings with him both
a
marketing and finance background in the telecommunications, home service,
and business fields. He has worked for Mountain Cablevision for the past 4
years in a senior leadership position and was with Bell Canada for the 4 years
prior to this. Mr. Skrlac is responsible for the sales planning and field
execution.
Our
Strategy
Cancable
b
elieves
that there is a large and growing market for its services and the demand for
its
services is growing as:
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The
increase in popularity of the Internet and in the complexity of Internet
sites has increased demand for high-speed Internet access from both
residential and commercial consumers;
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Technological
advances, including the shift from an analog to a digital network
environment and the ability to leverage existing network infrastructure
to
deploy high-speed services such as IP networking technologies, have
accelerated the availability of advanced services such as digital
video
and high-speed Internet access;
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Cable
and telecommunications service providers have made significant investments
to build and upgrade their wired and wireless networks, creating
a
substantial opportunity to deliver advanced services to commercial
and
residential consumers;
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End-users
increasingly demand access to integrated video, voice and data services,
advanced set top boxes, high-speed digital modems, telephone lines,
voice
mail, computer networks, video conferencing and other technologies.
Cancable’s clients must rapidly deploy these technologies in order to
maximize their revenue per end-user, realize a return on their investments
and maintain or gain competitive advantages; and
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The
availability of multiple choices for end-users to receive advanced
services has led broadband service providers to focus increasingly
on
end-user satisfaction to control turnover and to rely on technology
enabling companies for some of their non-core activities, such as
installation, integration, fulfillment, maintenance, warranty and
support
services.
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Key
Client Relationships
Cancable
has two main customer relationships, Rogers Cable Inc. and Cogeco Cable. Rogers
Cable Inc. is the most significant.
Rogers
Cable Inc.
Rogers
Cable Inc.
is
Cancable Group’s largest customer employing greater 250 of our field technicians
(Mississauga Primary contractor with 85, Scarborough Primary with 60, Toronto
Secondary with 40) as of
December
31, 2007
.
In
addition to its in-house capability, Rogers currently utilizes eight contractors
to manage its cable TV activity. This number is down from 22 contractors three
years ago. Over the past two years, as a result of the vendor consolidation
and
its top rated performance, Cancable Group has emerged as Rogers’ primary
contractor in the Greater Toronto Area greater than 40% share of completed
work
orders
In
addition to installation and service work, Cancable has finalized a new three
year agreement that extends the types of services it will be performing. As
evidence of Rogers growing dependency on Cancable, Rogers has requested that
Cancable
supplement its Tier 2 and Tier 3 customer service programs, something that
is
presently handled only by Rogers personnel. In this service, a call is
transferred from Rogers’ customer service department to DependableIT, Cancable’s
branded technical support centre, after Rogers determines that it is not
directly a Rogers cable related problem. DependableIT’s remote diagnostic tools
provide it with a complete situational review of the customer’s site. In these
instances, the charge is billed to the customer’s credit card before assistance
is provided. With the Tier 3 service, a field service visit is required and
a
Cancable technician is dispatched to the customer’s location with rates charged
on an hourly basis for residential and commercial customers. Again, this service
is presently provided by Rogers personnel only.
Cogeco
Cable Inc.
Cancable’s
current field supporting work with Cogeco is limited to the Windsor, Ontario
area. In November 2003, Cancable assumed exclusive responsibility for all
Cogeco-related installation activity. Cancable is currently in discussions
on a
new two year contract. Under this contract, Cancable’s 20 technicians will be
co-located in Cogeco’s facility and the current residential install business
will be expanded to include commercial work including all Cogeco commercial
Internet sales and technical calls. DependableIT will charge a per call fee
for
support, and most significantly, earn commission on services sold. In addition
the service offering is expanding into Tier 2 service - residential, similar
to
that currently being provided to Rogers.
Cancable’s
competition within its geographical segment is contained to a minimal number
of
firms. They include Wirecomm, Trinity Cable and J&P Cable among others. We
believe that our contracted revenue is significantly higher than any of the
other competitors in our geography and thus gain an advantage due to our size
and internally efficient systems.
The
Contract Field Technical Support Industry
Overview
In
2004,
the cable television industry in Canada served 9.3 million homes of which 2.3
million were subscribers to digital cable. While direct to home satellite
service providers have penetrated the video market, cable operators continue
to
maintain an overall 77% market share.
A
significant development for both cable and telecom companies has been the
acceptance of the internet as a mass medium for commerce and communications
involving both residential and commercial consumers. A recent reported stated
that, as of 2004, 44% of Canadian homes were connected to high-speed Internet
services. Approximately 2.3 million homes connect via cable while 1.9 million
connect via telco providers.
At
present, Cancable’s management believes that there are approximately 25
providers of contract field technical support serving the Ontario cable
television market. Management also believes that this number will be markedly
reduced in the near future as evidenced by the vendor consolidation initiative
recently completed by Rogers. Management believes that its cable television
clients who operate in multiple geographic markets will prefer to align
themselves with larger technology enablers, like Cancable, who are able to
deploy consistent service on a wider scale and have the expertise and resources
to deploy and maintain increasingly complex technologies.
Accordingly,
management believes that its target market presents substantial growth
opportunities due to:
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the
increasingly competitive landscape in the areas of video, internet
and
telecom delivery, which are requiring cable operators to increase
their
commitment to quality customer service and strict quality
standards;
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a
drive for cost reductions on the part of the cable operators, caused
by
price competition due to “bundling” strategies by them and their
competitors;
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the
increasing demand by residential and commercial consumers for advanced
broadband services such as high-speed internet access, digital video
and
telephone;
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the
need to satisfy the demand for emerging broadband communications
technologies such as web-based video
conferencing;
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virtual
private networks, which are networks run over the internet that provide
privacy to the network users;
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Voice-Over-IP
(VOIP), which will allow simultaneous two-way voice communication
with
high-speed data transmission over broadband;
and
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the
availability of multiple choices for consumers to receive these advanced
services, which has led to intensifying competition for subscribers
and an
increased focus among BSPs on consumer satisfaction, and the need
for BSPs
to rapidly deploy technology and equipment capable of delivering
advanced
services to residential and commercial consumers to realize a return
on
the significant investments they have made to build and upgrade their
networks.
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Over
the
next three years Cancable’s management expects to see its industry change
significantly for the following reasons:
Increasing
Technological Complexity
Each
of
Cancable’s target market segments is experiencing rapid changes in technology.
The convergence of previously separate technologies has produced newer, more
complex technologies, such as bundled video, voice and data services. Delivering
these services requires more highly trained technicians, cross-trained in
several technologies, to provide installation, integration, fulfillment, and
long-term maintenance and support services than in the past. For
example:
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Cable
Internet access.
High-speed
internet access requires that cable system operators provide initial
installation and testing as well as on-going maintenance and support
of
new technologies, such as cable modems and network cards.
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VOIP
.
C
able
operators are already in the process of utilizing their networks
for the
provision of local telephone. This area represents a potentially
significant source of incremental activity for
Cancable.
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Convergence
of video and telecom services
.
Increasingly,
traditional telecom carriers are entering the field of entertainment
and
data delivery, either through strategic investments in alternate
technologies (see Direct Broadcast Satellite below) or through the
adaptation of the existing telecom
infrastructure.
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Direct
to home Satellite.
P
rogramming
services require installation of a satellite receiving antenna or
dish and
a digital receiver at the consumer premises. In order to facilitate
high-speed internet access, additional coordination is required between
the satellite technologies and the standard telephone line modem
connections that handle outbound communications from the consumer.
Although certain DTH equipment may be installed by the consumer,
there is
a growing trend toward professional installation of satellite
equipment.
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Premise
networking.
Premise
networking requires installation, certification and maintenance of
high-speed data networks, including LANs/WANs, client/server networks,
and
video, audio and security networks meeting stringent industry
requirements. Substantial resources must be committed to train and
retain
field technicians in the new technologies. Cancable believes that
these
increasing knowledge and training requirements present a significant
competitive advantage for larger, well-capitalized enabling companies,
and
provide additional motivation for BSPs to rely on independent technology
enablers thereby avoiding costly investments in internal service
and
fulfillment infrastructures.
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Increased
Reliance by BSPs on
outsourcing
Technological
advances and deregulation in the cable, telecommunications, satellite wireless
and premise networking industries have provided residential and commercial
consumers with multiple choices for receiving advanced services. The escalating
competition for end-users has increased competitive pressures on BSPs, which
is
requiring them to focus more on consumer satisfaction. The providers' need
to
rapidly upgrade and expand existing systems, as a result of increased
competition and growing demand for advanced services, should lead to a continued
increase in the level of reliance on independent technology enablers for
non-core activities, such as installation, integration, fulfillment, and
long-term maintenance, warranty and support services. Management anticipates
that BSPs will increase their reliance on independent technology enablers like
Cancable to the extent that the enablers provide services that are of a higher
quality and more cost efficient than existing, in-house infrastructure, in
the
same way that providers historically have relied on outside sources for other
ancillary functions, such as design and manufacture of consumer premise
equipment. Many emerging BSPs, such as DSL and DTH providers, often enter new
markets where they have little or no local presence and limited resources to
meet the growing demand for their advanced video, voice and data services.
These
providers typically have no in-house service infrastructure. Cancable believes
these BSPs will continue to rely on independent technology enablers to meet
their installation and maintenance needs. Cancable believes there will be an
increased need for higher value-added services as the broadband industry
continues to evolve and recurring upgrades and value-added improvements become
more significant. Historically, large corporations with internal information
technology departments have been primary users for such applications. However,
the rapidly growing demand for such applications from small to medium-sized
businesses and residential end-users, which do not have internal deployment
and
maintenance capabilities, presents additional growth opportunities for
independent technology enablers like Cancable.
Emergence
of Preferred Providers of Technology Enabling Services
Cancable
believes that because of the increasing geographic scope of and complexity
of
technology deployed by BSPs, there is a growing trend towards long-term,
strategic alliances with technology enabling companies, in contrast to the
historic, contractual project-by-project arrangements. Cancable believes that
its industry is highly fragmented and characterized by smaller, privately held
companies that offer a limited range of industry-specific services to a small
number of clients in concentrated geographic areas. In Cancable’s experience,
BSPs in its target markets who rely on technology enabling companies prefer
to
align themselves with larger, better capitalized companies that:
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have
the expertise and resources to deploy and maintain increasingly complex
technologies over large networks;
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consistently
deliver high quality service;
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provide
regional coverage and have the capacity to work on multiple projects
simultaneously; and
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have
the ability and willingness to invest in infrastructure to enhance
the
deployment and maintenance of the advanced technologies demanded
by
residential and commercial customers.
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Industry
Trends Specific to the Contract Field Technical Support
Industry
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Competition
at the client level.
Some
of Cancable’s customers are in a monopolistic industrial environment.
Today, these customers are faced with increasing competition which
is
forcing them to adapt the new reality. Part of this adaptation includes
taking an in-depth review of their internal cost structure to determine
which services must be performed by employees and which should be
contracted out, at lower cost.
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Consolidation
at the client level.
The
cable television industry in particular has been undergoing a trend
towards consolidation for many years. This trend has resulted in
changes
in the manner in which services are contracted for and has changed
the
relationship between client and service provider. Relationships today
are
driven less by personal contacts and more by professional qualifications.
Also important to industry relationships today are the service provider’s
ability to provide a service level that is uniform across its work
force
and to integrate its management and reporting systems with those
of the
client.
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Trend
towards contracting out.
T
he
above two drivers are causing cable television and telecommunications
service providers to move increasingly towards contracting out services
that are perceived to be non-core but are manageable through sophisticated
systems and a high level of integration between their own internal
systems
and those of the support provider. While not a current client of
Cancable,
Bell Canada is leading the trend in this area with almost all of
its field
service activities contracted out. Cancable believes that its two
largest
clients, Rogers Cable and Cogeco Cable, contract out approximately
two-thirds of their field installation and service call work. Cancable
expects that this percentage will continue to increase and that the
outsourcing trend will spread to these clients’ other field activities
that are currently not outsourced.
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Consolidation
among service providers.
As
an adjunct to consolidation at the client level, larger clients want
to
increase efficiency by reducing the number of vendors in each area.
This
trend tends to favor those service providers that are able to scale
up to
the demands of increased volumes and are able to meet the system
integration requirements of the
client.
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RISK
FACTORS
Described
below are the material risks that we face. Our business, operating results
or
financial condition could be materially adversely affected by, and the trading
price of our common stock could decline due to, any of these risks.
Competitive
pressure from larger firms
The
security industry is highly competitive. We compete with a number of large
international firms, which have more extensive resources than we do. In
addition, these competitors may have greater brand recognition, proprietary
technologies and superior purchasing power as well as other competitive
advantages.
Risks
associated with budget constraints and cut back of customer
spending:
We
are
dependent on large institutional and commercial customers and their budgets.
If
there are cut backs in budgets by its customers it will adversely impact our
revenues.
Risks
associated with possible delays of construction schedules
We
have
contracted to provide security systems to a number of new buildings. Delays
in
construction of these buildings could potentially delay revenues being
realized.
Supplier
product failures
We
do not
currently manufacture our own products and must purchase products from others.
It could adversely impact our relationships with our customers if there are
delays in receiving products from suppliers or if there are defects in these
products.
Contracts
with government agencies may not be renewed or funded
Contracts
with government agencies accounts for some of our revenues. Many of these
contracts are subject to annual review and renewal by the agencies and may
be
terminated at any time or on short notice. Each government contract is only
valid if the agency appropriates enough funds for such contracts. Accordingly,
we might fail to derive any revenue from sales to government agencies under
a
contract in any given future period. In addition, if government agencies fail
to
renew or terminate any of these contracts, it would adversely affect our
business and results of operations.
We
have a
small number of customers from which we receive a large portion of our sales.
Our experience has been that some of these substantial customers will be a
source of significant sales in the succeeding year and some will not.
Consequently, we are often required to replace one customer with one or more
other customers in order to generate the same amount of sales. There can be
no
assurance that we will continue to be able to do so.
Key
personnel losses
Competition
for highly qualified technical personnel is intense and we may not be successful
in attracting and retaining the necessary personnel, which would limit the
rate
at which we can develop products and generate sales. In particular, the
departure of any of our senior management members or other key personnel could
harm our business.
Intellectual
property protection risks
Our
intellectual property might not be protected. No new intellectual property
has
been acquired within the last three years. Despite our precautions, it may
be
possible for unauthorized third parties to copy our products or obtain and
use
information that we regard as proprietary to create products that compete
against ours. If we fail to protect and preserve our intellectual property,
we
may lose an important competitive advantage. In addition, we may from time
to
time be served with claims from third parties asserting that our products or
technologies infringe their intellectual property rights. If, as a result of
any
claims, we were precluded from using technologies or intellectual property
rights, licenses to the disputed third-party technology or intellectual property
rights might not be available on reasonable commercial terms, or at all. We
may
initiate claims or litigation against third parties for infringement of our
proprietary rights or to establish the validity of our proprietary rights.
Litigation, either as plaintiff or defendant, could result in significant
expenses or divert the efforts of our technical and management personnel from
productive tasks, whether or not the litigation is resolved in our favor. A
successful claim against us, coupled with our failure to develop or license
a
substitute technology, could cause our business, financial condition and results
of operations to be adversely affected.
We
may not be able to increase our bonding
Many
of
our government contracts require that we obtain bonding. We may not be able
to
increase our bonding and, therefore, we may not be able to pursue larger
projects as a primary contractor.
Fluctuation
in quarterly results
Our
quarterly results have varied over the past few years and will likely continue
to do so. The results will vary based on the timing of the projects,
construction schedules and customer budgets. Such fluctuations may contribute
to
volatility in the market price for our stock.
Lengthy
sales cycle
The
sale
of our products and services frequently involves a significant commitment of
resources to evaluate and propose a project. The approval process for our
proposals usually involves multiple departments within our clients and may
take
several months. Accordingly, depending on the length of recording and processing
time, a sale can take a prolonged period of time.
We
may not be able to successfully make acquisitions or form partnerships as a
means of fostering our growth
Our
growth strategy involves successfully acquiring companies that will add value
to
our firm and also build partnerships with companies who can complement our
core
competencies. We may not be successful in identifying or consummating
transactions with such companies.
Continued
need for additional financing
To
implement our growth plan, we may need additional financing. We will need
additional financing upon, but not limited to, any of the following
events:
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Changes
in operating plans
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Lower
than anticipated sales
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Increased
costs of expansion
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Increase
in competition relating to decrease in price
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Increased
operating costs
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Additional
financing may not be available on commercially reasonable terms or may not
be
available at all.
Cancable
Group, one of our major subsidiaries, relies on certain large clients for a
significant portion of our revenues
Cancable
Group currently derives a significant portion of its revenues from a limited
number of clients. For the fiscal year ended December 31, 2007, Rogers Cable
TV
Limited accounted for approximately 60% of Cancable’s revenues. The services
required by any one client can be limited by a number of factors, including
industry consolidation, technological developments, economic slowdown and
internal budget constraints. Cancable Group’s clients are not obligated to
purchase additional services and most of Cancable’s contracts are cancelable on
short notice. As a result of these factors, the volume of work performed for
specific clients is likely to vary from period to period and a major client
in
one period may not use Cancable’s services to the same degree in a subsequent
period. A temporary or permanent loss of any of Cancable’s key clients could
seriously harm its business. If any cancelled contracts were not replaced with
contracts from other clients, Cancable’s revenues might decrease and its
profitability could be adversely affected.
Cancable
will be adversely affected by a decline in the growth of the cable and telecom
industries
The
broadband communications industry has experienced a high rate of growth. If
the
rate of growth slows, and broadband service providers reduce their capital
investments in upgrades or expansion of their systems, Cancable’s clients may
not require the same volume of services from Cancable and it may not be able
to
execute its growth strategy. In that case, Cancable’s profitability and its
prospects could be adversely affected.
Our
clients may not rely on the Contract Field Technical Support services we
provide
Cancable’s
success is dependent on the continued reliance by BSPs on independent companies
like Cancable for performance of their installation, integration, fulfillment,
and long- term maintenance and support services. If these providers elect to
perform these services themselves, Cancable’s revenues may decline and its
business could be harmed.
Consolidation
of broadband service providers could result in fewer and smaller customers
for
us
The
cable, telecommunications, satellite and wireless industries could experience
significant consolidation activity. In addition, the consolidation of Cancable’s
clients could have the effect of reducing the number of its current or potential
clients, which could result in Cancable’s dependence on a smaller number of
clients.
Cancable
may face reduced customer demand due to new technologies
Cancable’s
industry is subject to rapid changes in technology. Existing technologies for
transmission of video, voice and data are subject to potential displacement
by
various new technologies. New technologies may be developed that allow broadband
service providers to deliver their services to consumers without a significant
upgrade of their existing systems. Furthermore, new technologies may be
developed that enable consumers to perform more easily their own installation
and maintenance of the equipment required for the delivery of these services
at
their premises. Cancable will need to be able to enhance its current service
offerings to keep pace with technological developments and to address
increasingly sophisticated client needs. Cancable may not be successful in
developing and marketing service offerings that respond to technological
advances in a timely manner, and its services may not adequately or
competitively address the needs of the changing marketplace. If Cancable is
not
successful in responding in a timely manner to technological changes, market
conditions and industry developments, it may lose current clients or be unable
to obtain new clients and its business, prospects, operating results and
financial condition could suffer.
Cancable
may not be able to compete on price with our competitors
Cancable’s
industry is fragmented and highly competitive. Accordingly, it cannot be assured
of being able to maintain or enhance its competitive position. Historically,
there have been relatively few barriers to entry into the markets in which
Cancable operates. As a result, any organization that has adequate financial
resources and access to technical expertise may become one of our competitors.
Competition in the industry depends on a number of factors, including price.
Cancable’s competitors may have lower cost structures and may, therefore, be
able to provide their services at lower rates than it can. Cancable also faces
competition from the in-house service organizations of its existing or
prospective clients, which often employ personnel who perform some of the same
types of services as it does. If Cancable is unable to maintain or enhance
its
competitive position, its business, prospects, operating results and financial
condition may suffer materially.
Cancable
may face an inability to attract and retain qualified employees
Cancable’s
ability to provide high-quality services on a timely basis requires that it
employ an adequate number of field technicians. Accordingly, its ability to
meet
the demand for its services will be limited by Cancable’s ability to attract,
train and retain skilled personnel. Cancable’s industry is characterized by
highly competitive labor markets and, like many of its competitors, historically
Cancable has experienced high rates of employee turnover. Furthermore, its
labor
expenses may increase as a result of a shortage in the supply of skilled
personnel and its efforts to improve its employee retention, which could
adversely impact its profitability. Cancable cannot be certain that it will
be
able to improve its employee retention rates or maintain an adequate skilled
labor force necessary to operate efficiently and to support its growth strategy.
Failure to do so could impair its ability to operate efficiently and maintain
its reputation for high quality service. This could also impair Cancable’s
ability to retain current clients and attract new clients that could cause
its
financial performance to decline.
Mismatch
of Staffing Levels and Contract Requirements
Since
Cancable’s business is driven by large, and sometimes multi-year contracts,
Cancable forecasts its personnel needs for future projected business. If
Cancable increases its staffing levels in anticipation of a project that is
subsequently delayed, reduced or terminated, it may underutilize these
additional personnel, which would increase its expenses and could harm its
business.
Cancable
relies on key senior employees and management
Cancable’s
success is substantially dependent upon the retention of, and the continued
performance by, its senior management and other key employees, including key
employees of companies that it may acquire in the future. If any member of
Cancable’s senior management team becomes unable or unwilling to participate in
its business and operations and it is not able to replace them in a timely
manner, its business could suffer. Cancable does not maintain "key man" life
insurance policies on any member of its senior management or any of its key
employees.
Cancable
is a growing business and may require additional financing which may not be
available to us
Cancable
may require additional financing, including access to a bank operating line
and
lease financing for vehicles, to fully implement its business strategy in a
timely manner. Cancable’s future requirements will depend on many factors,
including continued progress in its client development and expansion programs.
There can be no assurance that additional funding will be available or, if
available, that it will be available on acceptable terms. If such funding is
not
available, Cancable may be forced to reduce or eliminate expenditures for
further development of its proposed new initiatives and contemplated
acquisitions. There can be no assurance that Cancable will be able raise
additional capital if its capital resources are exhausted. Cancable’s ability to
arrange such financing in the future will depend in part upon prevailing capital
market conditions as well as its business performance. Failure to obtain such
financing could delay implementation of Cancable’s strategy and could have a
material adverse effect on its ability to successfully develop its business.
Such financing, if available, could result in dilution to existing
shareholders.
We
have issued a substantial number of warrants and options and other convertible
securities, which may cause the trading price of our securities to decline
and
may limit our ability to raise capital from other sources:
As
of
December 31, 2007, there were 7,309,596 shares of common stock issuable upon
the
exercise of warrants and 3,351,155 shares issuable upon the exercise of options.
3,222,000 shares were related to the Employee Stock Options (see Note 13 in
the
Financial Statements). Also, included in the balance, 6,570,096 shares of common
stock issuable upon the exercise of warrants and 129,155 shares issuable upon
the exercise of options were issued to Laurus Master Fund, Ltd (“Laurus”).
Additionally, there were 49 shares of common stock of Cancable issuable upon
the
exercise of options and 20 shares of common stock of Iview issuable upon the
exercise of options to Laurus. While these securities are outstanding, the
holders will have the opportunity to profit from a rise in the price of our
securities with a resulting dilution (upon exercise or conversion) in the value
of the interests of our other security holders. Our ability to obtain additional
financing during the period these convertible securities are outstanding may
be
adversely affected and their existence may have a negative effect on the price
of our securities. We may be obligated to issue additional shares in payment
of
accrued interest on our term notes as a result of adjustments to the conversion
or exercise prices of our convertible securities. Additional shares of our
common stock may be issued if additional amounts are funded under our existing
financing arrangements with Laurus or if we obtain additional financings in
the
future. The happening of certain events such as stock splits, reverse stock
splits, stock dividends or certain additional share issuances at prices below
the then effective exercise or conversion price would trigger an adjustment
in
the exercise or conversion price (as applicable). The adjustment would be based
upon a weighted average formula in the case of below exercise or conversion
price issuances. The adjustment will depend on the number of shares issued
and
the difference between the issuance price and the then effective exercise or
conversion price. Since no such transactions are currently contemplated, it
is
not presently possible to quantify possible future adjustments. The holders
of
these securities are likely to exercise them at a time when we would, in all
likelihood, be able to obtain any needed capital by a new offering of securities
on terms more favorable to us than those of the outstanding warrants and
options.
Because
our directors own approximately 83% of our outstanding common shares, they
could
make and control corporate decisions that may be disadvantageous to minority
shareholders
Our
directors own approximately 83% of the outstanding common shares. Accordingly,
they will have a significant influence in determining the outcome of all
corporate transactions or other matters, including mergers, consolidations
and
the sale of all or substantially all of our assets, and also the power to
prevent or cause a change in control. The interests of our directors may differ
from the interests of the other shareholders and thus result in corporate
decisions that are disadvantageous to other shareholders.
Exchange
rate fluctuations may have adverse effects on our revenues
A
portion
of our revenues and expenses are denominated in Canadian dollars. As a result,
we will be exposed to currency exchange rate risk. Our reported earnings could
fluctuate materially as a result of foreign exchange rate fluctuations.
Our
substantial debt could adversely affect our financial position
Our
substantial indebtedness could have important consequences to you. Our annual
debt service requirements related to payments of principal on our $15,805,777
principal amount of term notes are approximately $2,240,356, $6,700,000,
$100,000 and $6,765,421 from 2008 to 2011. In addition, interest on the notes
is
payable on a monthly basis. We also have a series of other notes payable
totaling $1,803,030 as of December 31, 2007. The $1,500,000 promissory note
included in other notes payable, which were issued by Creative Vistas
Acquisition to The Burns Trust and The Navaratnam Trust in connection with
the
acquisition of AC Technical, have no fixed term of repayment. The note payable
was transferred to Malar Trust during Fiscal Year 2006 with the same payment
term. The remaining balance of other notes payable in the amount of $303,030
was
issued by Cancable Inc. for the acquisition of XL Digital Services Inc. The
balance is due in January 2008. The term notes are secured by all of our assets.
Interest on term notes are settled in cash. However, in the event we are unable
to generate sufficient cash flow from our operations, we may face difficulties
in servicing our substantial debt load. In such event, we could be forced to
seek protection from our creditors, which could cause the liquidation of the
Company in order to repay the secured debt. In any liquidation of us, the
holders of our debt (including The Malar Trust) would be required to be paid
in
full before any payments could be made to the holders of our common stock.
In
addition, our outstanding indebtedness could limit our ability to obtain any
additional financing.
There
is no active trading market in our securities
Although,
our common stock is quoted on the NASD OTC Bulletin Board, there is no active
trading in the stock. A trading market may not develop and stockholders may
not
be able to liquidate their investment without considerable delay. If a market
should develop, the price of our stock may be highly volatile.
Penny
Stock regulations apply to our securities:
Our
securities are subject to the “penny” stock regulation of Rule 15g-9 of the
Securities Exchange Act of 1934. Rule 15g-9 of the Exchange Act is commonly
referred to as the “penny stock” rule and imposes special sales practice
requirements upon broker-dealers who sell such securities to persons other
than
established customers or accredited investors. A penny stock is any equity
security with a market price less than $5.00 per share, subject to certain
exceptions. Rule 3a51-1 of the Exchange Act provides that any equity security
is
considered a penny stock unless that security is: registered and traded on
a
national securities exchange and meets specified criteria set forth by the
SEC;
authorized for quotation in the National Association of Securities Dealers’
Automated Quotation System; issued by a registered investment company; issued
with a price of five dollars or more; or issued by an issuer with net tangible
assets in excess of $2,000,000. This rule may affect the ability of
broker-dealers to sell our securities.
For
transactions covered by Rule 15g-9, a broker-dealer must furnish to all
investors in penny stocks a risk disclosure document, make a special suitability
determination of the purchaser, and receive the purchaser’s written agreement to
the transaction prior to the sale. In order to approve a person’s account for
transactions in penny stocks, the broker-dealer must (i) obtain information
concerning the person’s financial situation, investment experience, and
investment objectives; (ii) reasonably determine, based on that information
that
transactions in penny stocks are suitable for the person and that the person
has
sufficient knowledge and experience in financial matters to reasonably be
expected to evaluate the transactions in penny stocks; and (iii) deliver to
the
person a written statement setting forth the basis on which the broker-dealer
made the determination of suitability stating that it is unlawful to effect
a
transaction in a designated security subject to the provisions of Rule
15g-9(a)(2) unless the broker-dealer has received a written agreement from
the
person prior to the transaction. Such written statement from the broker-dealer
must also set forth, in highlighted format immediately preceding the customer
signature line, that the broker-dealer is required to provide the person with
the written statement and the person should sign and return the written
statement to the broker-dealer only if it accurately reflects the person’s
financial situation, investment experience and investment
objectives.
Losing
our status as a Canadian Controlled Private Corporation
could
adversely affect our financial position
:
A
Canadian Controlled Private Corporation (“CCPC”) is a corporation that is not
controlled by a non-Canadian entity. If, in the future, more than 50% of the
voting shares of AC Technical are owned by a non-Canadian entity, such as by
Laurus exercising its rights under the Share Pledge Agreement, we would lose
our
status as a CCPC. Unless a company is a CCPC, it is not eligible for certain
Canadian research and development tax credits. As a non-CCPC, the maximum
Canadian research and development tax credits are 20% (for both Federal and
Provincial Canadian taxes) of total eligible research and development
expenditures. AC Technical is presently entitled to claim the maximum credits
available to CCPCs of 41.5% (for both Federal and Provincial Canadian taxes)
of
the total eligible expenditures. During Fiscal Year 2007, this extra 21.5%
totaled approximately $100,000.
Available
Information
We
file
annual, quarterly and current reports, proxy statements and other information
with the U.S. Securities and Exchange Commission ("SEC"). Copies of this Annual
Report on Form 10-KSB and each of our other periodic and current reports, and
amendments to all such reports, that we file or furnish pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934 are available free of
charge on our website (http://www.creativevistasinc.com/) as soon as reasonably
practicable after the material is electronically filed with, or furnished to,
the SEC. The information contained on our website is not incorporated by
reference into this Annual Report on Form 10-KSB and should not be considered
part of this Annual Report on Form 10-KSB.
In
addition, you may read and copy any document we file with the SEC at the SEC's
Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Please
call
the SEC at 1-800-SEC-0330 for further information on the operation of the Public
Reference Room. Our SEC filings are also available to the public at the SEC's
web site at http://www.sec.gov , which contains reports, proxy and information
statements, and other information regarding issuers that file electronically
with the SEC.
|
Item
2.
|
Description
of Property
|
Our
office is located at 2100 Forbes Street, Units 8-10, Whitby, Ontario, Canada
L1N
9T3. The premises, which were purchased in 2002, consist of approximately 5,900
square feet on the ground floor and 2,200 square feet on the second floor.
Additionally, we have another major office location at
2321
Fairview St. Burlington, Ontario L7R 2E3. The premise, which was rented in
2003,
consist of approximately 7,600 square feet. The lease will be expired in 2009
with lease payment approximately $77,900 per year.
We
believe that these offices are adequate for our present purposes and planned
expansion. Furthermore, we believe these offices are in good condition and
adequately covered by insurance.
|
Item
3.
|
Legal
Proceedings
|
None.
|
Item
4.
|
Submission
of Matters to a Vote of Security
Holders
|
No
matters were submitted to security holders during the fourth quarter of the
fiscal year covered by this report.
|
Item
5.
|
Market
for the Registrant's Common Equity, Related Stockholder Matters and
Issuer
Purchases of Equity
Securities
|
Our
common stock is quoted at the present time on the OTC Bulletin Board under
the
symbol “CVAS.” At December 31, 2007, the bid price was $2.56 per share and
the ask price was $2.80 per share. The security is subject to Section 15(g)
and
Rule 15g-9 of the Securities Exchange Act of 1934, commonly referred to as
the
penny stock rule. See “Risk Factors—Penny Stock.” The following table shows the
range of bid prices per share of common stock on the OTC Bulletin Board, as
reported by Pink Sheets LLC, for the periods indicated. These quotations
represent prices between dealers, do not include retail mark-ups, mark-downs
or
commissions, and do not necessarily represent actual transactions.
|
Quarter
ended
:
|
|
Low
Bid Price
|
|
High
Bid Price
|
|
|
March
31, 2006
|
|
$
|
0.35
|
|
$
|
0.86
|
|
|
June
30, 2006
|
|
$
|
0.31
|
|
$
|
0.86
|
|
|
September
30, 2006
|
|
$
|
0.15
|
|
$
|
0.70
|
|
|
December
31, 2006
|
|
$
|
0.15
|
|
$
|
0.50
|
|
|
March
31, 2007
|
|
$
|
0.29
|
|
$
|
1.25
|
|
|
June
30, 2007
|
|
$
|
0.70
|
|
$
|
2.60
|
|
|
September
30, 2007
|
|
$
|
1.95
|
|
$
|
3.07
|
|
|
December
31, 2007
|
|
$
|
2.05
|
|
$
|
2.88
|
|
Our
securities may not qualify for listing on Nasdaq or any other national exchange.
Even if our securities do qualify for listing, we may not be able to maintain
the criteria necessary to ensure continued listing. Our failure to qualify
our
securities or to meet the relevant maintenance criteria after such qualification
may result in the discontinuance of the inclusion of our securities on a
national exchange. In such event, trading, if any, in our securities may then
continue in the non-Nasdaq, over-the-counter market so long as we continue
to
file periodic reports with the SEC and there remain sufficient qualified market
makers in our securities. As a result, a stockholder may find it more difficult
to dispose of, or to obtain accurate quotations as to the market value of,
our
securities.
We
have
not declared or paid any cash dividends.
As
of
December 31, 2007 there were 271 beneficial holders of our Common Stock. We
have 34,494,623 outstanding shares of Common Stock.
Our
agreements with Laurus prohibit us from declaring or paying any dividends on
our
Common Stock.
|
Item
6.
|
Selected
Financial Data
|
Not
applicable.
|
Item
7.
|
Management’s
Discussion and Analysis
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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.
Overview
and Recent Developments
In
October 2007, the Company entered into an agreement, through our wholly owned
newly formed Ontario subsidiary, Cancable XL Inc. (“Cancable XL”), to acquire
all of the issued and outstanding shares of capital stock and any other equity
interests of XL Digital Services Inc. (“XL Digital”), an Ontario corporation.
The
total
consideration to be paid by Cancable XL Inc. 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.
On
January 22, 2008, the Company entered into a Stock Purchase Agreement (the
“Stock Purchase Agreement”) with Erato Corporation (“Erato”) pursuant to which
the Company purchased and acquired from Erato 2,674,407 shares of common stock,
par value $0.0001 per share (the “Shares”), of 180 Connect Inc., a Delaware
corporation, for an aggregate purchase price of $6,017,416 paid by the Company
by delivery to Erato of (i) 2,195,720 duly and validly issued shares of common
stock of the Company and (ii) a common stock purchase warrant, exercisable
into
up to 812,988 shares of common stock of the Company at an exercise price of
$0.01 per share.
On
January 22, 2008 the Company entered into a letter agreement with Erato for
Erato to provide up to Twelve Million Dollars ($12,000,000) in financing to
the
Company on such terms and conditions as the Company and Erato shall mutually
agree (the “Bridge Financing”). All proceeds from the Bridge Financing may only
be used by the Company for the purpose of financing a third party. The Company
does not currently have an agreement to provide financing to such third party.
Erato is currently an investor in such third party and, through its parent,
Laurus Master Fund Ltd., a current investor in the Company. In consideration
of
the letter agreement, the Company issued to Erato a warrant to purchase up
to
1,738,365 shares of common stock of the Company at an exercise price of $0.01
per share.
On
January 30, 2008, the Company entered into a Warrant Purchase Agreement with
Laurus Master Fund, Ltd., Erato Corporation, Valens U.S. Fund, LLC and Valens
Offshore SPV I, Ltd. (collectively, the “Sellers”) pursuant to which the Company
purchased and acquired from the Sellers, warrants to purchase 450,000 shares
of
common stock at an exercise price of $0.01 per share of 180 Connect Inc., a
Delaware corporation (the “180 Connect Warrants”).
Also
on
January 30, 2008, the Company entered into a non-binding letter of intent with
Valens U.S. Fund, LLC (the “Letter Agreement”) in which Valens U.S. Fund, LLC
confirmed its current intention to provide up to $4,000,000 in financing to
a
subsidiary of the Company. The Letter Agreement is only an expression of the
present intentions of the parties and no binding legal obligation will exist
until the parties sign a definitive agreement.
The
aggregate purchase price paid by the Company in exchange for the 180 Connect
Warrants and the Letter Agreement was $1,597,500 paid by the Company by delivery
to the Sellers of common stock purchase warrants, exercisable in the aggregate
into up to 798,750 shares of common stock of the Company at an exercise price
of
$0.01 per share. The purchase price was allocated by the Company as follows:
(a)
$1,012,500 or $2.25 per share was paid by the Company for the 180 Connect
Warrants by delivery to the Sellers of warrants to purchase 506,250 shares
of
common stock of the Company at an exercise price of $0.01 per share and (b)
the
Company paid to the Sellers for the Letter Agreement warrants to purchase
292,500 shares of common stock of the Company.
Results
of Operations
Comparison
of Year Ended December 31, 2007
to
Year Ended December 31, 2006
Sales
:
Sales
for Fiscal Year 2007 increased to $39,991,100 from $30,456,900 for Fiscal Year
2006. This 31.3% increase reflects continued growth in revenue resulting from
Cancable segment. The revenue from Cancable segment was $32,316,400 for Fiscal
Year 2007.
(a)
Cancable Segment
-
This
segment included Cancable Inc., XL Digital and OSS-IM View (collectively,
“Cancable Group”). The principal activity is the provisioning the deployment and
servicing of broadband technologies in both residential and commercial markets.
The Cancable Group 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. In October
2007, we acquired XL Digital which is incorporated under the laws of Ontario
and
with the same principal business activity of Cancable Inc. XL Digital, with
over
70 employees, provides its deployment and provisioning services for Rogers
Cable
Inc. within two territories where the Company currently does not have a
presence.
Total
revenue of this segment for Fiscal Year 2007 was $32,316,400 from $23,779,400
for the Fiscal Year 2006. We continued to allocate resources to support the
growth of our business. Rogers Cable Inc. is Cancable Group’s largest customer
and the revenue from this customer for the Fiscal Year 2007 was approximately
$24,397,000 or 75.5% of its total revenue compared to $18,695,200 or 78.6%
for
Fiscal Year 2006.
(b)
AC Technical segment
-
Total
revenue of AC Technical segment was $7,531,300 compared to $6,492,200 for Fiscal
Year 2006. Contract revenue increased to $5,986,900 for Fiscal Year 2007
compared to $5,229,000 for Fiscal Year 2006. This increase was mainly due to
an
increase in the number of subcontracts for the provision of services to
government and commercial contracts. Contract revenue from three of our major
customers was $1,295,400 in 2007. Two major contracts for Fiscal Year 2007
were
to supply and install two court houses in Canada. Total contract price of these
two projects were approximately $1,200,000. The service revenue has increased
to
$1,544,400 for the year ended December 31, 2007 from $1,282,000 for the year
ended December 31, 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.
(c)
Iview DSI segment
-
Iview
is a technology company that specializes in both security and digital video
processing technologies. Expertise in both these areas enables us to address
a
broad spectrum of our customers' needs with intelligent and most importantly,
reliable digital video security solutions. Total revenue for Fiscal Year 2007
was $140,000 compared to $157,600 for Fiscal Year 2006. Iview launched its
digital video security product in Fiscal Year 2006.
Cost
of Goods Sold
:
Cost of
goods sold as a percentage of revenue for Fiscal Year 2007 was $28,329,200
or
70.8% of revenues compared to $20,511,000 or 67.3% of revenues for Fiscal Year
2006.
(a)
Cancable segment
-
Cost of
sales in this segment were $24,126,000 for Fiscal Year 2007 compared to
$16,981,000 for Fiscal Year 2006. The increase was mainly due to the growth
in
our cable business. Costs were comprised principally of labor expenses of
$18,368,900, vehicle expenses of $2,246,500 and material costs of $2,522,500.
(b)
AC Technical segment
-
Cost of
sales in this segment were $4,136,700. The material cost was $2,657,700 or
35.3%
of the AC Technical revenue for Fiscal Year 2007 compared to $2,053,800 or
31.5%
of revenues in Fiscal Year 2006. The increase in percentage of the material
cost
was mainly due to some contracts with higher percentage of materials.
On
the
other hand, labor and subcontractor costs decreased to $1,414,900 or 18.8%
of AC
Technical revenues for Fiscal Year 2007 and $1,322,600 or 20.3% of AC Technical
revenues for Fiscal Year 2006. The increase in labor and subcontractor cost
was
mainly due to the increase in revenue. The percentage of the labor and
subcontractor cost remains stable for two fiscal years.
(c)
Iview DSI
- Cost
of sales in this segment was $66,500. The balance mainly represents material
and
shipping cost.
Project,
Selling, General and Administrative Expenses
:
Projects, selling, general and administrative expenses for Fiscal Year 2007
was
$10,169,800 or 25.4% of revenues for Fiscal Year 2007 compared to $9,143,500
or
30.0% of revenues for Fiscal Year 2006. The balance is mainly comprised of
the
following:
Project
cost was $1,311,600 or 3.2% of revenue for Fiscal Year 2007, compared to
$1,272,900 or 4.2% for 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 $758,000 for Fiscal Year 2007 compared to $808,200
for Fiscal Year 2006 with no material difference. The decrease in balance was
mainly due to the decrease in the staff headcount. The automobile and travel
expenses were approximately $309,700 for Fiscal Year 2007 compared to $351,400
for Fiscal Year 2006. The decrease in balance was mainly due to less travel
by
the staff, a decrease in the number of vehicles, and a decrease in leasing
cost.
Selling
expenses were $797,800 or 2.0% of revenues for Fiscal Year 2007 compared to
$679,600 or 2.2% of revenues for Fiscal Year 2006. Selling expenses were mainly
related to AC Technical segment. As of December 31, 2007 we had 5 salespersons
in the AC Technical segment, which is one more than we had on December 31,
2006.
The balance for Fiscal Year 2007 is mainly comprised of salaries and commissions
to salespersons of $504,000 compared to $540,600 for Fiscal Year 2006. The
advertising, promotion and trade show expenses were $84,100 for Fiscal Year
2007
compared to $71,100 for Fiscal Year 2006 with no material
fluctuation.
General
and administrative expenses were $8,060,400 or 20.2% of revenues for Fiscal
Year
2007 compared to $7,191,000 or 23.6% for Fiscal Year 2006. The balance for
Fiscal Year 2007 is comprised of $850,000 of investor relations expenses
compared to $486,300 fees for Fiscal Year 2006. Included in the balance for
Fiscal Year 2007, there was $626,000 relating to non-cash expenses compared
to
$356,300 for the Fiscal Year 2006. Total salaries and benefits to administrative
staff were $2,553,700 for Fiscal Year 2007 compared to $2,683,400 for last
year.
Total depreciation of property plant and equipment was $1,685,200 for Fiscal
Year 2007 compared to $986,500 for Fiscal Year 2006. The increase was primarily
attributable to the addition of capital assets in Cancable segment for the
growth of the business. Additionally, the balance also included amortization
of
intangible assets in the amount of $637,500 for Fiscal Year 2007 compared to
$600,000 for Fiscal Year 2006.
Interest
and Other Expenses (Income)
:
Interest and net other expenses for Fiscal Year 2007 was $2,073,700 compared
to
interest and other expenses of $6,344,200 for Fiscal Year 2006. The balance
for
Fiscal Year 2007 included amortization of deferred charges of $182,400 compared
to $782,900 for Fiscal Year 2006. Last year’s balance was higher as we have
written off the deferred financing costs amounting to $600,500 carried forward
from Fiscal Year 2005. 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 in February 2006. Additionally, net financing
expenses decreased to $2,955,100 or 7.3% of revenues compared to 4,617,800
or
15.2% of revenues for Fiscal Year 2006. The balance for Fiscal Year 2007
included $895,000 related to the warrants issued to Laurus as interest on
deferred principal repayment of our term loan. Last year’s balance was higher as
it included the 2,411,003 warrants issued to Laurus with market value of
$1,913,600 at the date of issuance, and cash payments of $539,300 as the
penalties of the prepayment of the entire loans to Laurus in the refinancing
transaction. Interest payable to term notes was $1,645,100 for Fiscal Year
2007
compared to $1,683,900 for the Fiscal Year 2006. The decline in balance was
due
to the decrease in the outstanding balance of term notes to $15,805,800 as
at
December 31, 2007 from $16,869,900 as at December 31, 2006.
Income
taxes
:
There
is no income tax provision for Fiscal Year 2007, which was mainly due to losses
carried forward to offset all income generated. All prior taxes have already
been accounted for in the income tax recoverable and therefore, there is no
additional provision for income taxes recoverable and deferred tax
assets.
Net
Income/Loss
:
As a
result of the above, net loss for Fiscal Year 2007 was $581,600 compared to
a
net loss of $5,541,900 for Fiscal Year 2006. Our operating income was $1,492,100
for Fiscal Year 2007 compared to operating income $802,300 for Fiscal Year
2006.
The increase was primarily attributed to the significant growth of Cancable
and
a decrease in financing costs.
Liquidity
and Capital Resources
Since
our
inception, we have financed our operations through bank debt, loans and equity
from our principals, loans from third parties and funds generated by our
business. At December 31, 2007, we had $1,960,300 in cash. We believe that
cash
from operations and our credit facilities with Laurus will continue to be
adequate to satisfy our ongoing working capital needs. During Fiscal Year 2008,
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 in operating activities amounted to $564,200 for Fiscal Year
2007.
The changes in operating assets and liabilities resulted in net cash provided
of
$2,138,500, which included a $1,668,900 increase in accounts receivable, a
$184,200 increase in inventory, a $59,600 decrease in prepaid expenses, a
$322,400 decrease in accounts payable, a $33,400 decrease in income taxes
recoverable and a $11,000 increase in deferred revenue.
Comparative
balance sheet as at December 31, 2007 to December 31, 2006
Accounts
Receivable
Our
accounts receivable increased to $6,187,600 as of December 31, 2007 from
$3,864,100 as of December 31, 2006. A
ccounts
receivable of Cancable as at December 31, 2007 was $3,989,100 compared to
$1,799,500 as at December 31, 2007. The increase was attributable to the
increase in revenue for approximately 36%. Accounts receivable of the AC
Technical segment was $2,083,200 as at December 31, 2007 compared to $2,040,800
as of December 31, 2006. There was no material fluctuation of the
balances.
Inventory
Inventory
on
hand on
December 31, 2007 increased to $1,043,800 compared to $764,100 as of
December 31, 2006. Inventory of the AC Technical segment was $639,000
compared to $430,300 as of December 31, 2005. The increased level of inventory
of the AC Technical segment was associated with more purchases were
required for the sales expected in the first quarter of 2008. Inventory at
Cancable segment was increased to $363,600 as at December 31, 2007 from $250,400
as at December 31, 2006. The increase was mainly due to the increase in
revenue.
Accounts
Payable and Accrued Liabilities
Accounts
payable and accrued liabilities increased to $6,074,200 compared to the balance
as of December 31, 2006 of $4,655,000. The balance for the AC Technical segment
was $2,245,000 as of December 31, 2007 compared to $1,826,000 as of December
31,
2006. Accounts payable for Cancable Group was $3,348,000 as at December 31,
2007
compared to $2,480,000 as at December 31, 2006. The increase in balance was
mainly due to the increase in purchases of material in the last three months
and
the timing of payments to our suppliers.
Deferred
Revenue
Deferred
revenue increased to $91,900 at December 31, 2007 compared to the balance of
$68,300 as at December 31, 2006. This 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. (See summary of accounting policy in our condensed
consolidated financial statements).
Incomes
Taxes Recoverable
The
income taxes recoverable were mainly due to the expected refund from losses
carried back to prior years.
Net
Cash Used in Investing Activities
.
Net
cash used in investing activities was $719,200 for the twelve months ending
December 31, 2007 compared to net cash received in investing activities of
$1,209,500 for the twelve months ended December 31, 2006. The balance for the
twelve months ending 2007 was mainly related to the acquisition of capital
assets. Last year’s balance was mainly related to cash received during the
acquisition of Cancable in the amount of $1,226,800 and proceeds of sales of
property and equipment in the amount of $454,400.
Net
Cash Used in Financing Activities
.
Net
cash used in financing activities was $1,394,800 for the twelve months
ending December 31, 2007 compared to net cash provided of $887,500 for the
12
months ending December 31, 2006. Last year’s balance mainly represents the
additional borrowings from Laurus from the refinancing transaction in 2006.
The
whole entire revolving loans and convertible debts entered in 2004 were repaid
during the same period.
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 with Laurus.
In 2006, through our wholly owned subsidiary, we
acquired
all of the issued and outstanding shares of capital stock and any other equity
interests of Cancable. Simultaneously, Cancable entered into a series of
agreements with Laurus whereby Cancable issued to Laurus a secured term note
(the “Cancable Note”) in the amount of $6,865,000. Also, we completed the
refinancing transaction in February 2006;
we
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,
we paid off the entire outstanding principal amount and all obligations due
to
Laurus under the Secured Convertible Term Note dated September 30, 2004, the
Secured Convertible Minimum Borrowing Note dated September 30, 2004 and the
Secured Revolving Note dated September 30, 2004 (collectively, the “2004 Notes”)
and such 2004 Notes were subsequently cancelled.
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
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.
In
December 2007, the FASB issued SFAS No. 160 Noncontrolling Interests in
Consolidated Financial Statements—an amendment of ARB No. 51. SFAS 160
establishes accounting and reporting standards for the noncontrolling interest
in a subsidiary and for the deconsolidation of a subsidiary. The guidance will
become effective as of the beginning of the Company’s fiscal year beginning
after December 15, 2008. The Company has not yet determined the impact, if
any,
of SFAS 160 on its consolidated financial statements.
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 instrument.
Accounts
receivable allowances are determined using a combination of historical
experience, current information and management judgment. Actual collections
may
differ from our estimates. A 10% increase in the accounts receivable allowance
would increase bad debt expense by $40,000.
Goodwill
represents the excess of cost over the net tangible and identifiable assets
acquired in business combinations and are stated at cost. Goodwill and
intangibles with indefinite lives are not amortized but tested for impairment
no
less frequently than annually. Impairment is measured by comparing the carrying
value to fair value using quoted market prices, a discounted cash flow model,
or
a combination of both.
We
derive
revenues from contract revenue and services revenue, which include assistance
in
implementation, integration, customization, maintenance, training and
consulting. We recognize revenue for contract and services in accordance with
Statement of Position (SOP) 81-1, “Accounting for Certain Construction Type and
Certain Production Type Contracts,” and SEC Staff Accounting Bulletin (SAB) 104,
“Revenue Recognition,” and EITF 00-21 Accounting for Revenue Arrangements with
Multiple Deliverables. Contract revenue consists of fees generated from
installation of security systems. Services revenue consists of fees generated
by
providing monitoring services, preventive maintenance and technical support,
product maintenance and upgrades. Monitoring services and preventive maintenance
and technical support are generally provided under contracts for terms varying
from one to six years. A customer typically prepays monitoring services,
preventive maintenance and technical support fees for an initial period. The
related revenue is deferred and generally recognized over the term of such
initial period. Rates for product maintenance and upgrades are generally
provided under time and material contracts. Revenue for these services is
recognized in the period in which the services are provided.
We
record
inventory at the lower of cost and net realizable value. Cost is determined
on a
first-in, first-out basis. We write down our inventory for obsolescence, and
excess inventories based on assumptions about future demand and market
conditions. The business environment in which we operate is subject to customer
demand. If actual market conditions are less favorable than those estimated,
additional material inventory write-down may be required. A 10% increase in
inventory reserve would increase expenses by $0.1 million.
Income
taxes are calculated based on the expected treatment of transactions recorded
in
the consolidated financial statements. In determining current and deferred
components of income taxes, we interpret tax legislation and make assumptions
about the timing of the reversal of deferred tax assets and liabilities. If
our
interpretations differ from those of tax authorities or if the timing of
reversals is not as anticipated, the provision for income taxes could increase
or decrease in future periods.
We
review
the terms of convertible debt and equity instruments we issue to determine
whether there are embedded derivative instruments, including the embedded
conversion option, that are required to be bifurcated and accounted for
separately as a derivative financial instrument. Generally, where the ability
to
physical or net-share settle the conversion option is deemed to be not within
our control, the embedded conversion option is required to be bifurcated and
accounted for as a derivative financial instrument liability.
In
connection with the sale of convertible debt and equity instruments, we may
also
issue freestanding options or warrants. Additionally, we may issue options
or
warrants to non-employees in connection with consulting or other services they
provide. Although the terms of the options and warrants may not provide for
net-cash settlement, in certain circumstances, physical or net-share settlement
is deemed to not be within the control of the company and, accordingly, we
are
required to account for these freestanding options and warrants as derivative
financial instrument liabilities, rather than as equity.
Derivative
financial instruments are initially measured at their fair value. For derivative
financial instruments that are accounted for as liabilities, the derivative
instrument is initially recorded at its fair value and is then re-valued at
each
reporting date, with changes in the fair value reported as charges or credits
to
income. For option-based derivative financial instruments, we use the
Black-Scholes option pricing model to value the derivative instruments. Any
discount from the face value of the convertible debt instrument is amortized
over the life of the instrument through periodic charges to income, using the
effective interest method. The classification of derivative instruments,
including whether such instruments should be recorded as liabilities or as
equity, is re-assessed at the end of each reporting period. Derivative
instrument liabilities are classified in the balance sheet as current or
non-current based on whether or not net-cash settlement of the derivative
instrument is expected within 12 months of the balance sheet date.
Commitments
We
have
entered into contracts for certain consulting ser
v
ices
providing for monthly payments and are required to repay the principal of our
convertible notes and promissory notes due to Laurus and other parties. In
addition, we have also entered into an operating lease for our vehicles,
computer and office equipment. The total minimum annual payments for the next
five years are as follows:
Payments
due by
Period
|
|
|
Total
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
2012
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term
notes
|
|
$
|
15,805,777
|
|
$
|
2,240,356
|
|
$
|
6,700,000
|
|
$
|
100,000
|
|
$
|
6,765,421
|
|
$
|
-
|
|
$
|
-
|
|
|
Other
Notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payable
|
|
|
303,030
|
|
|
303,030
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Note
payable to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
related
parties
|
|
|
1,500,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,500,000
|
|
|
Capital
leases*
|
|
|
5,103,748
|
|
|
1,564,065
|
|
|
1,837,890
|
|
|
1,250,708
|
|
|
451,085
|
|
|
-
|
|
|
-
|
|
|
Operating
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
leases
|
|
|
1,065,100
|
|
|
409,500
|
|
|
316,600
|
|
|
206,900
|
|
|
89,400
|
|
|
42,700
|
|
|
-
|
|
|
Commitments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
related
to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consulting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
agreements
|
|
|
1,541,500
|
|
|
737,600
|
|
|
803,900
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
$
|
25,319,155
|
|
$
|
5,254,551
|
|
$
|
9,658,390
|
|
$
|
1,557,608
|
|
$
|
7,305,906
|
|
$
|
42,700
|
|
$
|
1,500,000
|
|
*
The
balance represents monthly principal and interest payment
Except
for capital leases, the above figures do not include interest
cost.
|
Item
8.
|
Financial
Statements
|
INDEX
TO FINANCIAL STATEMENTS
Creative
Vistas, Inc.
Consolidated
Financial Statements
For
the years ended December 31, 2007 and 2006
|
Report
of Independent Registered Public Accounting Firm
|
|
|
F-1
|
|
|
|
|
|
|
|
|
Balance
Sheets
|
|
|
F-2
|
|
|
|
|
|
|
|
|
Statement
of Stockholders’ (Deficiency) and Other Comprehensive
(loss)
|
|
|
F-3
|
|
|
|
|
|
|
|
|
Statements
of Operations
|
|
|
F-4
|
|
|
|
|
|
|
|
|
Statements
of Cash Flows
|
|
|
F-5
|
|
|
|
|
|
|
|
|
Notes
to Financial Statements
|
|
|
F-6
|
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Stockholders
and Board of Directors
Creative
Vistas, Inc
.
We
have
audited the accompanying consolidated balance sheets of Creative Vistas, Inc.
as
of December 31, 2007 and 2006, and the related consolidated statements of
operations, and comprehensive (loss), stockholders’ (deficiency) and cash flows
for the years ended December 31, 2006 and 2007. These financial statements
are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures
that
are appropriate in the circumstances, but not for the purpose of expressing
an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles
used and significant estimates by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Creative Vistas, Inc. as of
December 31, 2007 and 2006, and results of its operations and its cash flows
for
the years ended December 31, 2007 and 2006, in conformity with accounting
principles generally accepted in the United States of America.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 1 to the financial
statements, the Company has suffered recurring losses from operations and has
working capital and stockholder deficiencies. These factors raise substantial
doubt about the Company’s ability to continue as a going concern. Management’s
plans in regard to this matter are also discussed in Note 1. The financial
statements do not include any adjustments that might result from the outcome
of
this uncertainty.
Stark
Winter Schenkein & Co., LLP
Denver,
Colorado
March
31,
2008
|
Creative
Vistas, Inc.
|
|
|
Consolidated
Balance Sheets
|
|
|
December
31
|
|
|
|
|
2007
|
|
2006
|
|
|
Assets
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
Cash
and bank balances
|
|
$
|
1,960,340
|
|
$
|
3,561,181
|
|
|
Accounts
receivable, net of allowance
|
|
|
|
|
|
|
|
|
for
doubtful accounts $405,432 (2006-$218,450)
|
|
|
6,187,551
|
|
|
3,860,036
|
|
|
Income
tax recoverable
|
|
|
448,126
|
|
|
351,344
|
|
|
Inventory
|
|
|
1,043,815
|
|
|
764,077
|
|
|
Prepaid
expenses
|
|
|
270,930
|
|
|
237,288
|
|
|
Due
from related parties
|
|
|
2,581
|
|
|
2,203
|
|
|
Total
current assets
|
|
|
9,913,343
|
|
|
8,776,129
|
|
|
Property
and equipment, net of depreciation
|
|
|
6,352,014
|
|
|
3,824,555
|
|
|
Deposits
|
|
|
125,498
|
|
|
156,080
|
|
|
Goodwill
|
|
|
3,101,598
|
|
|
2,893,845
|
|
|
Restricted
cash
|
|
|
53,430
|
|
|
339,028
|
|
|
Deferred
financing costs, net
|
|
|
551,747
|
|
|
647,542
|
|
|
Intangible
assets
|
|
|
1,717,003
|
|
|
1,600,000
|
|
|
Deferred
income taxes
|
|
|
37,547
|
|
|
32,746
|
|
|
|
|
$
|
21,852,180
|
|
$
|
18,269,925
|
|
|
Liabilities
and Stockholders’ (Deficiency)
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
3,328,740
|
|
$
|
2,578,985
|
|
|
Accrued
salaries and benefits
|
|
|
1,555,981
|
|
|
1,157,552
|
|
|
Accrued
commodity taxes
|
|
|
191,204
|
|
|
421,753
|
|
|
Accrued
liabilities
|
|
|
998,287
|
|
|
496,698
|
|
|
Current
portion of obligation under capital leases
|
|
|
1,195,366
|
|
|
710,375
|
|
|
Deferred
income
|
|
|
91,900
|
|
|
68,245
|
|
|
Deferred
income taxes
|
|
|
25,858
|
|
|
22,770
|
|
|
Current
portion of term notes
|
|
|
2,240,356
|
|
|
2,439,046
|
|
|
Current
portion of other notes payable
|
|
|
303,030
|
|
|
28,736
|
|
|
Due
to related parties
|
|
|
8,143
|
|
|
2,501
|
|
|
Total
current liabilities
|
|
|
9,938,865
|
|
|
7,926,661
|
|
|
Term
notes
|
|
|
13,565,421
|
|
|
14,430,776
|
|
|
Notes
payable to related parties
|
|
|
1,500,000
|
|
|
1,500,000
|
|
|
Other
payable
|
|
|
303,030
|
|
|
-
|
|
|
Obligation
under capital lease
|
|
|
3,184,103
|
|
|
1,789,365
|
|
|
Due
to related parties
|
|
|
233,203
|
|
|
199,025
|
|
|
|
|
|
28,724,622
|
|
|
25,845,827
|
|
|
Stockholders'
(deficiency)
|
|
|
|
|
|
|
|
|
Share
capital
|
|
|
|
|
|
|
|
|
Authorized
|
|
|
|
|
|
|
|
|
50,000,000
no par value preferred shares undesignated, none issued or outstanding
|
|
|
|
|
|
|
|
|
100,000,000
no par value common shares 34,494,623 and 33,253,358 shares issued
and
outstanding
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
1,439,307
|
|
|
517,990
|
|
|
Additional
paid-in capital
|
|
|
4,958,871
|
|
|
3,887,706
|
|
|
Accumulated
(deficit)
|
|
|
(12,445,468
|
)
|
|
(11,863,862
|
)
|
|
Accumulated
other comprehensive losses
|
|
|
(825,152
|
)
|
|
(117,736
|
)
|
|
|
|
|
(6,872,442
|
)
|
|
(7,575,902
|
)
|
|
|
|
$
|
21,852,180
|
|
$
|
18,269,925
|
|
|
The
accompanying notes are an integral part of these financial
statements.
|
|
Creative
Vistas, Inc.
Consolidated
Statement of Stockholders’ (Deficiency)
For
the years ended December 31, 2006 and 2007
|
|
|
|
|
|
|
Amount
|
|
|
Additional
paid-in
capital
|
|
|
Deferred
Compensation
|
|
|
Accumulated
(deficit)
|
|
|
Accumulated
other comprehensive
(losses)
|
|
|
Total
Stockholders’
(deficiency)
|
|
|
Balance,
December 31, 2005
|
|
|
32,101,716
|
|
|
-
|
|
|
(297,695
|
)
|
|
(164,000
|
)
|
|
(2,777,802
|
)
|
|
(65,015
|
)
|
|
(3,304,512
|
)
|
|
Stock-based
compensation
|
|
|
1,151,642
|
|
|
517,990
|
|
|
-
|
|
|
164,000
|
|
|
-
|
|
|
-
|
|
|
681,990
|
|
|
Cumulative
effect as of October 1, 2006 of change in accounting principle for
registration payment arrangements
|
|
|
-
|
|
|
-
|
|
|
4,121,871
|
|
|
-
|
|
|
(3,544,168
|
)
|
|
-
|
|
|
577,703
|
|
|
Value
of Stock Options issued to employees
|
|
|
-
|
|
|
-
|
|
|
63,530
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
63,530
|
|
|
Net
(loss)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(5,541,892
|
)
|
|
-
|
|
|
(5,541,892
|
)
|
|
Translation
adjustment
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(52,721
|
)
|
|
(52,721
|
)
|
|
Balance,
December 31, 2006
|
|
|
33,253,358
|
|
|
517,990
|
|
|
3,887,706
|
|
|
-
|
|
|
(11,863,862
|
)
|
|
(117,736
|
)
|
|
(7,575,902
|
)
|
|
Stock-based
compensation
|
|
|
550,516
|
|
|
892,624
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
892,624
|
|
|
Stock
issued to employees and Laurus for the exercise of the options or
warrants
|
|
|
690,749
|
|
|
28,693
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
28,693
|
|
|
Value
of Stock Options issued to employees
|
|
|
-
|
|
|
-
|
|
|
176,123
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
176,123
|
|
|
Warrants
issued to Laurus
|
|
|
-
|
|
|
-
|
|
|
895,042
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
895,042
|
|
|
Net
(losses)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(581,606
|
)
|
|
-
|
|
|
(581,606
|
)
|
|
Translation
adjustment
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(707,416
|
)
|
|
(707,416
|
)
|
|
Balance,
December 31, 2007
|
|
|
34,494,623
|
|
$
|
1,439,307
|
|
$
|
4,958,871
|
|
$
|
-
|
|
$
|
(12,445,468
|
)
|
$
|
(825,152
|
)
|
$
|
(6,872,442
|
)
|
The
accompanying notes are an integral part of these financial
statements.
|
Creative
Vistas, Inc.
|
|
Consolidated
Statement of Operations and Comprehensive
(Loss)
|
For
the years ended December 31
|
|
|
2007
|
|
2006
|
|
|
Contract
and service revenue
|
|
|
|
|
|
|
Contract
|
|
$
|
6,083,768
|
|
$
|
5,352,841
|
|
|
Service
|
|
|
33,860,869
|
|
|
25,061,831
|
|
|
Others
|
|
|
46,431
|
|
|
42,225
|
|
|
|
|
|
39,991,068
|
|
|
30,456,897
|
|
|
Cost
of sales
|
|
|
|
|
|
|
|
|
Contract
|
|
|
4,203,159
|
|
|
3,055,938
|
|
|
Service
|
|
|
24,126,027
|
|
|
17,455,096
|
|
|
|
|
|
28,329,186
|
|
|
20,511,034
|
|
|
Gross
margin
|
|
|
11,661,882
|
|
|
9,945,863
|
|
|
Operating
expense
|
|
|
|
|
|
|
|
|
Project
|
|
|
1,311,646
|
|
|
1,272,891
|
|
|
Selling
|
|
|
797,759
|
|
|
679,620
|
|
|
General
and administrative
|
|
|
8,060,428
|
|
|
7,191,011
|
|
|
|
|
|
10,169,833
|
|
|
9,143,522
|
|
|
Income
from operations
|
|
|
1,492,049
|
|
|
802,341
|
|
|
Interest
expenses and other expenses (income)
|
|
|
|
|
|
|
|
|
Net
financing expenses
|
|
|
2,955,063
|
|
|
4,617,825
|
|
|
Amortization
of deferred charges
|
|
|
182,430
|
|
|
782,881
|
|
|
Foreign
currency translation gain
|
|
|
(1,063,838
|
)
|
|
-
|
|
|
Derivative
instruments
|
|
|
-
|
|
|
943,527
|
|
|
|
|
|
2,073,655
|
|
|
6,344,233
|
|
|
Loss
before income taxes
|
|
|
(581,606
|
)
|
|
(5,541,892
|
)
|
|
Income
taxes
|
|
|
-
|
|
|
-
|
|
|
Net
(loss)
|
|
|
(581,606
|
)
|
|
(5,541,892
|
)
|
|
Other
comprehensive (loss):
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustment
|
|
|
(707,416
|
)
|
|
(52,721
|
)
|
|
Comprehensive
(loss)
|
|
$
|
(1,289,022
|
)
|
$
|
(5,594,613
|
)
|
|
Basic
and diluted weighted-average shares
|
|
|
33,847,266
|
|
|
32,394,008
|
|
|
Basic
(loss) per share
|
|
$
|
(0.02
|
)
|
$
|
(0.17
|
)
|
|
Diluted
(loss) per share
|
|
$
|
(0.02
|
)
|
$
|
(0.17
|
)
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these financial
statements.
|
Creative
Vistas, Inc.
|
|
|
Consolidated
Statements of Cash Flows
|
|
For
the years ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Operating
activities
|
|
|
|
|
|
|
|
|
Net
(loss)
|
|
$
|
(581,606
|
)
|
$
|
(5,541,892
|
)
|
|
Adjustments
to reconcile net (loss) to net cash provided by operating
activities
|
|
|
|
|
|
|
|
|
Depreciation
of capital assets
|
|
|
1,783,129
|
|
|
982,677
|
|
|
Amortization
of intangible assets
|
|
|
637,539
|
|
|
604,057
|
|
|
Amortization
of deferred financing cost
|
|
|
182,428
|
|
|
186,261
|
|
|
Derivative
instruments
|
|
|
-
|
|
|
3,020,136
|
|
|
Written
off deferred charges
|
|
|
-
|
|
|
600,481
|
|
|
Gain
on disposal of capital assets
|
|
|
(51,014
|
)
|
|
(228,113
|
)
|
|
Bad
debt expenses
|
|
|
186,982
|
|
|
14,987
|
|
|
Foreign
exchange
|
|
|
(1,262,978
|
)
|
|
-
|
|
|
Stock-based
compensation and interest expenses
|
|
|
1,632,093
|
|
|
681,990
|
|
|
Amortization
of employee stock option
|
|
|
176,123
|
|
|
63,530
|
|
|
Changes
in non-cash working capital balance
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(1,668,916
|
)
|
|
134,618
|
|
|
Inventory
|
|
|
(184,155
|
)
|
|
36,862
|
|
|
Prepaid
expenses
|
|
|
59,667
|
|
|
(138,823
|
)
|
|
Accounts
payable and other accrued liabilities
|
|
|
(322,429
|
)
|
|
402,610
|
|
|
Deferred
revenue
|
|
|
11,043
|
|
|
53,760
|
|
|
Income
taxes payable
|
|
|
(33,725
|
)
|
|
154,621
|
|
|
Net
cash provided by operating activities
|
|
|
564,181
|
|
|
1,027,762
|
|
|
Investing
activities
|
|
|
|
|
|
|
|
|
Cash
received with acquisition of Cancable
|
|
|
-
|
|
|
1,226,756
|
|
|
Proceeds
of sales of property and equipment
|
|
|
128,729
|
|
|
456,442
|
|
|
Purchase
of property and equipment
|
|
|
(847,911
|
)
|
|
(598,707
|
)
|
|
Note
receivable payment
|
|
|
-
|
|
|
125,000
|
|
|
Net
cash provided by (used in) investing activities
|
|
|
(719,182
|
)
|
|
1,209,491
|
|
|
Financing
activities
|
|
|
|
|
|
|
|
|
Proceeds
from bank indebtedness
|
|
|
-
|
|
|
35,934
|
|
|
Repayment
of notes payable
|
|
|
-
|
|
|
(147,492
|
)
|
|
Due
to related parties
|
|
|
4,823
|
|
|
1,641
|
|
|
Proceeds
from term note
|
|
|
-
|
|
|
2,120,102
|
|
|
Proceeds
from the exercise of options
|
|
|
28,693
|
|
|
-
|
|
|
Repayment
of capital lease
|
|
|
(682,378
|
)
|
|
(975,527
|
)
|
|
Restricted
cash
|
|
|
318,111
|
|
|
169,670
|
|
|
Repayment
of convertible notes
|
|
|
-
|
|
|
(316,803
|
)
|
|
Repayment
of term loans
|
|
|
(1,064,045
|
)
|
|
-
|
|
|
Net
cash provided by (used in) financing activities
|
|
|
(1,394,796
|
)
|
|
887,525
|
|
|
Effect
of foreign exchange rate changes on cash
|
|
|
(50,044
|
)
|
|
(97,291
|
)
|
|
Net
change in cash and cash equivalents
|
|
|
(1,559,841
|
)
|
|
3,027,487
|
|
|
Cash
and cash equivalents,
beginning of year
|
|
|
3,560,181
|
|
|
532,694
|
|
|
Cash
and cash equivalents,
end of year
|
|
$
|
1,960,340
|
|
$
|
3,560,181
|
|
|
Supplemental
Cash Flow Information
|
|
|
|
|
|
|
|
|
Cash
paid for the interest
|
|
$
|
2,060,020
|
|
$
|
2,536,082
|
|
|
Cash
paid for income taxes
|
|
$
|
-
|
|
$
|
-
|
|
|
Loan
interest or penalties paid with warrant
|
|
$
|
895,043
|
|
$
|
1,913,571
|
|
|
Repayment
of convertible notes and revolving credit facilities through the
proceeds
of refinancing
|
|
$
|
-
|
|
$
|
7,099,786
|
|
|
Capital
assets purchase through capital leases
|
|
$
|
2,225,471
|
|
$
|
1,617,175
|
|
(a)
In
January 2006, the Company entered into a series of agreements with Laurus
whereby Cancable Inc. issued to Laurus a secured term note in the amount of
$6,865,000. The proceeds of the term note were used to pay off certain debts
of
Cancable Inc. to its previous stockholders, Covington and BMO, in the amount
of
$6,013,500 and professional fees in the amount of $650,600. Cancable Inc. has
received cash $201,000 from this transaction. Part of the professional fees
in
the amount of $455,400 were recorded as deferred financing costs.
(b)
In
February 2006, the Company entered into a series of agreements with Laurus
for
the refinancing transaction whereby the Company issued Laurus a secured term
note in the amount of $8,250,000. The proceeds of the term note were used to
pay
off outstanding revolving credit facilities and convertible term notes in the
amount of $7,099,800, prepayment penalties in the amount of $539,300 and
professional fees in the amount of $117,600. The professional fees were recorded
as deferred charges. The Company has received cash $493,200 from this
transaction.
(c)
During
the refinancing transaction mentioned above, the Company also issued a secured
term note in the amount of $2,000,000. $500,000 was restricted cash which the
Company has used it for the repayment of principal and interest of this term
note. After the payment of professional fees in the amount of $148,000, the
Company has received cash $1,425,902 from this transaction. The professional
fees were recorded as deferred charges.
The
accompanying notes are an integral part of these financial
statements.
|
Creative
Vistas, Inc.
|
|
|
Notes
to Consolidated Financial Statements
|
|
|
For
the years ended December 31, 2007 and 2006
|
|
|
1.
|
Summary
of Accounting Policies
|
Basis
of presentation
The
accompanying financial statements as at and for the years ended December 31,
2007 and 2006 have been prepared by management in accordance with United States
generally accepted accounting principles (“GAAP”) applicable to the respective
periods.
The
consolidated balance sheets as at December 31, 2007 and statement of operations
and cash flows for the year end December 31, 2007 include the accounts of
Creative Vistas, Inc. (“CVAS”), Creative Vistas Acquisition Corp. (“AC
Acquisition”), AC Technical Systems Ltd. (“AC Technical”), Cancable Holding
Corp. (“Cancable Holding”), Cancable Inc., Cancable, Inc., Cancable XL Inc., XL
Digital Services Inc. (“XL Digital”), 2141306 Ontario Inc., Iview Holding Corp.
(“Iview Holding”), and Iview Digital Solutions Inc. (“Iview DSI”). The
consolidated balance sheets as at December 31, 2006 and statement of operations
and cash flows for the year end December 31, 2006 include the accounts of CVAS,
AC Acquisition, AC Technical, Cancable Holding, Cancable, Inc., Iview Holding
and Iview DSI. All material inter-company accounts, transactions and profits
have been eliminated.
Reclassifications
Certain
amounts from the December 31, 2006 financial statements have been reclassified
to conform to the current year’s presentation.
Liquidity
and going concern
Our
consolidated condensed financial statements were prepared using accounting
principles generally accepted in the United States of America applicable to
a
going concern, which contemplates the realization of assets and liquidation
of
liabilities in the normal course of business. We have incurred a loss of
$581,606 for the year ended December 31, 2007 and have an accumulated deficit
of
$12,445,468
at
December 31, 2007.
We
have
outstanding term loans aggregating $15,805,777, 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. As of December 31, 2007, there were 6,570,096 shares
of common stock issuable upon the exercise of warrants and 129,155 shares
issuable upon the exercise of options which were issued to Laurus. Additionally,
there were 49 shares of common stock of Cancable Holding issuable upon the
exercise of options and 20 shares of common stock of Iview Holding issuable
upon
the exercise of options to Laurus.
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.
Cash
and Cash Equivalents
The
Company considers all cash and highly liquid investments purchased with an
initial maturity of three months or less to be cash and cash
equivalents.
The
Company maintains its cash in bank deposit accounts that, at times, may exceed
federally insured limits. The Company has not experienced any losses in such
accounts and believes it is not exposed to any significant credit risks on
cash
and cash equivalents.
The
Company’s cash and cash equivalents were $1,960,340 and $3,560,181 as at
December 31, 2007 and 2006.
The
Company has deposits at two financial institutions in the amount of $1,034,700
amd $1,022,800 as at December 31, 2007 and 2006.
Accounts
Receivable
The
Company extends credit to its customers based upon a written credit policy.
Accounts receivable are recorded at the invoiced amount and do not bear
interest. The allowance for doubtful accounts is the Company’s best estimate for
the amount of probable credit losses in the Company’s existing accounts
receivable. The Company establishes an allowance for doubtful accounts based
upon factors surrounding the credit risk of specific customers, historical
trends, and other information. Receivable balances are reviewed on an aged
basis
and account balances are charged off against the allowance after all means
of
collection have been exhausted and the potential for recovery is considered
remote.
Investment
Tax Credits
Investment
tax credits are accrued when qualifying expenditures are made and there is
reasonable assurance that the credits will be realized. Investment tax credits
earned with respect to current expenditures for qualified research and
development activities are included in the statement of operations as a
reduction of expenses. Tax credits earned with respect to capital expenditures
are applied to reduce the cost of the related capital assets.
Research
and Development Expenditures
Research
and development costs (other than capital expenditures) are expensed as
incurred. Expenditures are reduced by any related investment tax
credits.
Advertising
cost
Advertising
cost are expensed as incurred. Total advertising cost was approximately $46,000
and $42,000 for the year ended December 31, 2007 and 2006.
Inventory
Inventory
consists of materials and supplies and is stated at the lower of cost and market
value. Cost is generally determined on the first in, first out basis. The
inventory is net of estimated obsolescence, and excess inventory based upon
assumptions about future demand and market conditions. Inventory consists
principally of parts, materials and supplies.
Property
and Equipment
Property
and equipment is stated at original cost. Expenditures for improvements that
significantly add to productive capacity or extend the useful life of an asset
are capitalized. Expenditures for maintenance and repairs are expensed when
incurred. Depreciation per annum is computed over the estimated useful life
as
follows:
|
Industrial
condominium
|
4%
declining balance basis
|
|
|
|
|
Leasehold
improvements
|
lesser
of 5 years or the term of the lease straight-line basis
|
|
|
|
|
Office
equipment
|
20%
declining balance basis or 3 years straight-line method
|
|
|
|
|
Office
equipment under capital leases
|
3
years straight-line method
|
|
|
|
|
Furniture
and fixtures
|
20%
declining balance basis or 3 years straight-line method
|
|
|
|
|
Furniture
and fixtures under capital leases
|
5
years straight-line method
|
|
|
|
|
Computer
hardware and software
|
30%
declining balance basis or 3 years straight-line method
|
|
|
|
|
Computer
hardware and software under
|
|
|
|
|
|
capital
leases
|
3
years straight-line method
|
|
|
|
|
Vehicles
|
4
years straight-line basis
|
|
|
|
|
Vehicles
under capital leases
|
4
years straight-line basis
|
|
|
|
|
Tools
and equipment
|
3
years straight-line basis
|
Customer
Relationships and Trade Name
Customer
relationships and trade name represents the acquisition cost of acquired
customer relationships and trade name of Cancable and XL Digital are recorded
at
cost less accumulated amortization. Amortization for customer relationships
and
trade name is provided on a straight-line basis over the period of expected
benefit of 5 and 3 years. The Company reviews the revenues from the customer
list at each balance sheet date to determine whether circumstances indicate
that
the carrying amount of the asset should be assessed. Management determined
there
was no impairment at December 31, 2006 and 2007. Amortization charged to
operations aggregated $637,539 in 2007 and $600,000 in 2006.
Long-Lived
Assets
The
Company reviews its long-lived assets for impairment at each balance sheet
date
and whenever events or changes in circumstances indicate that the carrying
amount of an asset should be assessed. To determine if an impairment exists,
the
Company estimates the future undiscounted cash flows expected to result from
the
use of the asset being reviewed for impairment. If the sum of these expected
future cash flows is less than the carrying amount of the asset, the Company
recognizes an impairment loss in accordance with SFAS No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets. The amount of the impairment
recognized is determined by estimating the fair value of the assets and
recording a loss for the excess of the carrying value over the fair value.
Management determined there was no impairment at December 31, 2006 and
2007.
Goodwill
Goodwill
is evaluated for potential impairment on an annual basis or whenever events
or
circumstances indicate that impairment may have occurred. Statement of
Accounting Standards No. 142, “Goodwill and Other Intangible Assets”, (“SFAS No.
142”) requires that goodwill be tested for impairment using a two-step process.
The first step of the goodwill impairment test, used to identify potential
impairment, compares the estimated fair value of the reporting unit containing
goodwill with the related carrying amount. If the estimated fair value of the
reporting unit exceeds its carrying amount, the reporting unit’s goodwill is not
considered to be impaired and the second step of the impairment test is
unnecessary. If the reporting unit’s carrying amount exceeds its estimated fair
value, the second step test must be performed to measure the amount of the
goodwill impairment loss, if any. The second step test compares the implied
fair
value of the reporting unit’s goodwill, determined in the same manner as the
amount of goodwill recognized in a business combination, with the carrying
amount of such goodwill. If the carrying amount of the reporting unit’s goodwill
exceeds the implied fair value of the goodwill so calculated, an impairment
loss
is recognized in an amount equal to the excess. Management determined there
was
no impairment at December 31, 2006 and 2007.
Deferred
Financing Costs
Deferred
financing costs represent costs directly related to obtaining of financing.
Deferred financing costs are amortized over the term of the related indebtedness
using the effective interest method.
Issuance
of Equity Instruments for Services
In
December 2004, the FASB issued SFAS 123 (revised 2004) “Share-Based Payment”.
This Statement requires that the cost resulting from all share-based
transactions be recorded in the financial statements. The Statement establishes
fair value as the measurement objective in accounting for share-based payment
arrangements and requires all entities to apply a fair-value-based measurement
in accounting for share-based payment transactions with employees. The Statement
also establishes fair value as the measurement objective for transactions in
which an entity acquires goods or services from non-employees in share-based
payment transactions. The Statement replaces SFAS 123 “Accounting for
Stock-Based Compensation” and supersedes APB Opinion No. 25 “Accounting for
Stock Issued to Employees”. The provisions of this Statement were effective for
the Company beginning with its fiscal year ending December 31, 2006. Stock-based
awards to non-employees are accounted for in accordance with the provisions
of
the FASB issued SFAS 123 (revised 2004) “Share-Based Payment” and Emerging
Issues Task Force (“EITF”) Issue No. 96-18, Accounting for Equity Instruments
That Are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods and Services.
Revenue
Recognition
Contract
Revenue
Software
Related Services - Software related services include services to customize
or
enhance the software so that the software performs in accordance with specific
customer requirements. As these services are essential to provide the required
functionality, revenue from these arrangements is recognized in accordance
Statement of Position (SOP) 81-1, “Accounting for Certain Construction Type and
Certain Production Type Contracts, using either the percentage-of-completion
method or the completed contract method. The percentage-of-completion method
is
used when the required services are quantifiable, based on the estimated number
of labor hours necessary to complete the project, and under that method revenues
are recognized using labor hours incurred as the measure of progress towards
completion but is limited to revenue that has been earned by the attainment
of
any milestones included in the contract. The completed contract method is used
when the required services are not quantifiable, and under that method revenues
are recognized only when we have satisfied all of our product and/or service
delivery obligations to the customer.
Security
Systems - Security systems revenue consists of fees generated from consulting,
audit, review, planning, engineering and design, supply of hardware systems
installation and project management. Revenue from contracts where performance
extends beyond one or more accounting periods is recognized in accordance with
SOP 81-1, SEC Staff Accounting Bulletin 104, “Update of Codification of Staff
Accounting Bulletins” and EITF 00-21, “Revenue Arrangements with Multiple
Deliverables”. The recognition of revenue reflects the degree of completeness
based upon project drawings, project schedules, progress of actual installation
and are further validated by visual observations by product managers, quality
inspectors and construction advisors, if applicable. When the current estimated
costs to complete indicate a loss, such losses are immediately recognized for
accounting purposes. Some projects have the equipment and installation as
separate elements specified in the contracts. The revenue is recognized when
each element has been satisfied in accordance with SOP81-1 and SEC Staff
Accounting Bulletin 104, which are the delivery of the equipment and completion
of installation process. The fair value of each element was based on the price
charged when it is sold on a standalone basis.
For
contracts of shorter duration, revenue is generally recognized when services
are
performed. Contractual terms may include the following payment arrangements:
fixed fee, full-time equivalent, milestone, and time and material. In order
to
recognize revenue, the following criteria must be met:
|
·
|
Signed
agreement — The agreement must be signed by the
customer.
|
|
·
|
Fixed
Fee — The signed agreement must specify the fees to be received for the
services.
|
|
·
|
Delivery
has occurred — Delivery is substantiated by time cards and where
applicable, supplemented by an acceptance from the customer that
milestones as agreed in the statement have been
met.
|
|
·
|
Collectibility
is probable — The Company conducts a credit review for significant
transactions at the time of the engagement to determine the
credit-worthiness of the customer. Collections are monitored over
the term
of each project, and if a customer becomes delinquent, the revenue
may be
deferred.
|
Service
Revenue
Service
revenue consists of fees generated by providing monitoring services, preventive
maintenance and technical support, product maintenance and upgrades and regional
broadband and cable service. Monitoring services and preventive maintenance
and
technical support are generally provided under contracts for terms varying
from
one to six years. A customer typically prepays monitoring services and
preventive maintenance and technical support fees for an initial period, and
the
related revenue is deferred and generally recognized over the term of such
initial period. Rates for product maintenance and upgrades are generally
provided under time and material contracts. Revenue for these services is
recognized in the period in which the services are provided
Warranty
The
Company carries a reserve based upon historical warranty claims experience.
Additionally, warranty accruals are established on the basis of anticipated
future expenditures as specific warranty obligations are identified and they
are
charged against the accrual. Expenditures exceeding such accruals are expensed
direct to cost of sales.
Earning
(loss) per share
The
Company applies SFAS No. 128, “Earnings Per Share”. Basic earning (loss) per
share (“EPS”) is computed using the weighted average number of common shares
outstanding during the period. Diluted EPS is computed using the weighted
average number of common and dilutive potential common shares outstanding during
the period. Dilutive potential common shares consist of common stock issuable
upon exercise of stock options and warrants and conversion of debt using the
treasury stock method. Adjustments to earnings per share calculation include
reversing interest related to the convertible debts and changes in derivative
instruments.
Financial
Instruments
The
carrying value of the Company’s financial instruments, including cash and cash
equivalents, accounts receivable, accounts payable and accrued liabilities
approximate fair value because of the short maturities of those instruments.
Based on borrowing rates currently available to the Company for loans with
similar terms, the carrying value of term notes convertible notes and notes
payable are also approximate fair value except notes payable due to The Burns
Trust and the Navaratnam Trust and related party balances for which the fair
value is not determinable.
We
review
the terms of convertible debt and equity instruments we issue to determine
whether there are embedded derivative instruments, including the embedded
conversion option, that are required to be bifurcated and accounted for
separately as a derivative financial instrument. Generally, where the ability
to
physical or net-share settle the conversion option is deemed to be not within
the control of the company, the embedded conversion option is required to be
bifurcated and accounted for as a derivative financial instrument
liability.
In
connection with the sale of convertible debt and equity instruments, we may
also
issue freestanding options or warrants. Additionally, we may issue options
or
warrants to non-employees in connection with consulting or other services they
provide. Although the terms of the options and warrants may not provide for
net-cash settlement, in certain circumstances, physical or net-share settlement
is deemed to not be within the control of the company and, accordingly, we
are
required to account for these freestanding options and warrants as derivative
financial instrument liabilities, rather than as equity.
Derivative
financial instruments are initially measured at their fair value. For derivative
financial instruments that are accounted for as liabilities, the derivative
instrument is initially recorded at its fair value and is then re-valued at
each
reporting date, with changes in the fair value reported as charges or credits
to
income. For option-based derivative financial instruments, we use the
Black-Scholes option pricing model to value the derivative
instruments.
Any
discount from the face value of the convertible debt instrument resulting from
the allocation of part of the proceeds to embedded derivative instruments and/or
freestanding options or warrants is amortized over the life of the instrument
through periodic charges to income, using the effective interest method.
Credit
Risk
The
Company’s financial assets that are exposed to credit risk consist primarily of
cash and equivalents and accounts receivable. Concentrations of credit risk
with
respect to accounts receivable are limited due to the generally short payment
terms.
Foreign
Currency Translation
The
Company maintains its accounts in United States dollars and in Canadian dollars
for Canadian-based subsidiaries. The financial statements have been translated
into United States dollars in accordance with SFAS. No. 52, Foreign Currency
Translation.
All
balance sheet accounts have been translated using the exchange rates in effect
at the balance sheet date. Statement of operations amounts has been translated
using the average exchange rate for the year. The gains and losses resulting
from the changes in exchange rates from year to year have been reported
separately as a component of comprehensive income. The gain and losses resulting
from any inter-company balances with different functional currencies would
be
recognized in statement of operations.
Income
Taxes
The
Company accounts for income taxes using the asset and liability approach in
accordance with SFAS No. 109, Accounting for Income Taxes. The asset and
liability approach requires the recognition of deferred tax liabilities and
assets for the expected future tax consequences of temporary differences between
the carrying amounts and the tax basis of assets and liabilities. A valuation
allowance is provided when it is more likely than not that some portion or
all
of the deferred tax assets will not be realized.
The
provision for income taxes consists of an amount for the taxes currently payable
and a provision for the tax consequences deferred to future
periods.
Comprehensive
Income
Comprehensive
income equals net income plus other comprehensive income. Other comprehensive
income refers to foreign currency translation adjustments.
Accounting
Estimates
The
Company prepares its financial statements in accordance with accounting
principles generally accepted in the United States of America, which require
management to make estimates and assumptions that affect the reported amounts
of
assets, liabilities, revenues and expenses and disclosure of contingent assets
and liabilities. The estimates and assumptions used in the accompanying
financial statements are based upon management’s evaluation of the relevant
facts and circumstances as of the date of the financial statements. Actual
results may differ from the estimates and assumptions used in preparing the
accompanying financial statements.
Recent
Accounting Pronouncements
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
.
SFAS
158
- ‘
Employers’
Accounting for Defined Benefit Pension and Other Postretirement Plans, an
amendment of FASB Statement Nos. 87, 88, 106, and 132(R)
’
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.
SFAS
159
- ‘The Fair Value Option for Financial Assets and Financial
Liabilities—Including an amendment of FASB Statement No. 115’
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.
In
December 2007, the FASB issued SFAS No. 160 Noncontrolling Interests in
Consolidated Financial Statements—an amendment of ARB No. 51. SFAS 160
establishes accounting and reporting standards for the noncontrolling interest
in a subsidiary and for the deconsolidation of a subsidiary. The guidance will
become effective as of the beginning of the Company’s fiscal year beginning
after December 15, 2008. The Company has not yet determined the impact, if
any,
of SFAS 160 on its consolidated financial statements.
In
January 2006, the Company entered into an agreement, through its wholly owned
newly formed Delaware subsidiary, Cancable Holding Corp. (“Cancable Holding”),
to acquire all of the issued and outstanding shares of capital stock and any
other equity interests of Cancable Inc., an Ontario corporation (“Cancable”). To
finance the acquisition, subsidiaries of the Company entered into a loan
agreement with Laurus Master Fund, Ltd., a Cayman Islands Company, to which
the
Company became a guarantor.
The
Company, Cancable, Cancable Holding, Covington Capital Corporation (“Covington”)
and BMO Capital Corporation (“BMO”) entered into a Stock Purchase Agreement for
the purchase by Cancable Holding of all the issued and outstanding shares of
capital stock and any other equity interests of Cancable.
Cancable
and Cancable Holding 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 Holding) at a price of $0.01 per share (the “Option”). The
Cancable Note is secured by all of the assets of the Company and its
subsidiaries. The principal amount of the Cancable Note bears interest at prime
rate plus one and three quarters percent with a minimum rate of seven percent.
Cancable and Cancable Holding have granted Laurus a right of first refusal
with
respect to any debt or equity financings for a period of 180 days after
closing.
The
Transaction described in above relating to the acquisition of Cancable was
accounted for as a business combination in accordance with SFAS No. 141. A
summary of the Transaction is presented below:
Fair
value of net tangible assets acquired
|
Common
stock issued
|
|
$
|
-
|
|
|
Options
to purchase common stock
|
|
|
-
|
|
|
Transaction
costs
|
|
|
260,023
|
|
|
Equity
purchase price
|
|
|
260,023
|
|
|
Assumed
debt and capital lease obligations
|
|
|
7,785,450
|
|
|
Equity
purchase price
|
|
|
8,045,473
|
|
|
Fair
value of net tangible assets
|
|
|
|
|
|
Cash
and bank balances
|
|
$
|
1,226,756
|
|
|
Accounts
receivable
|
|
|
1,420,863
|
|
|
Inventory
and supplies
|
|
|
217,760
|
|
|
Prepaid
expenses
|
|
|
225,485
|
|
|
Other
current assets
|
|
|
6,766
|
|
|
Property
and equipment
|
|
|
2,017,273
|
|
|
Aggregate
tangible assets
|
|
|
5,114,903
|
|
|
Accounts
payable and accrued liabilities
|
|
|
(1,962,109
|
)
|
|
Other
liabilities
|
|
|
(201,166
|
)
|
|
|
|
|
2,951,628
|
|
|
Intangible
assets
|
|
|
2,200,000
|
|
|
Goodwill
|
|
$
|
2,893,845
|
|
In
October 2007, the Company entered into an agreement, through our wholly owned
newly formed Ontario subsidiary, Cancable XL Inc. (“Cancable XL”), to acquire
all of the issued and outstanding shares of capital stock and any other equity
interests of XL Digital Services Inc. (“XL Digital”), an Ontario corporation.
The
total
consideration to be paid by Cancable XL 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
of
the Company and cash, with the total balance due on January 5, 2009. A portion
of the purchase price will be paid in January, 2008 in the amount of $303,030
which was classified as other note payable.
The
balance was paid subsequent to the year ended December 31,
2007.
In
2009,
the remaining purchasing price will be payable in cash not less than $200,000
and/or issuance of additional penny warrants with a nominal purchase price
to
acquire stock in the capital of the Company..
The
Transaction described above relating to the acquisition of XL Digital was
accounted for as a business combination in accordance with SFAS No. 141. A
summary of the Transaction is presented below:
Fair
value of net tangible assets acquired
|
Common
stock issued
|
|
$
|
-
|
|
|
Cash
|
|
|
606,060
|
|
|
Transaction
costs
|
|
|
17,171
|
|
|
Equity
purchase price
|
|
|
623,231
|
|
|
Assumed
debt and capital lease obligations
|
|
|
486,041
|
|
|
Equity
purchase price
|
|
|
1,109,272
|
|
|
Fair
value of net tangible assets
|
|
|
|
|
|
Accounts
receivable
|
|
$
|
947,666
|
|
|
Inventory
and supplies
|
|
|
105,089
|
|
|
Prepaid
expenses
|
|
|
60,438
|
|
|
Property
and equipment
|
|
|
636,855
|
|
|
Aggregate
tangible assets
|
|
|
1,750,048
|
|
|
Accounts
payable and accrued liabilities
|
|
|
(1,576,247
|
)
|
|
Other
liabilities
|
|
|
(29,858
|
)
|
|
|
|
|
143,943
|
|
|
Intangible
assets
|
|
|
757,576
|
|
|
Goodwill
|
|
$
|
$
207,753
|
|
The
unaudited results of operations of XL Digital have been included in the results
of operations of the Company for the period from October 1, 2007 to December
31,
2007, had the acquisition of XL Digital taken place on January 1, 2007, the
consolidated unaudited results of operations would have been as
follows:
|
Revenue
|
|
$
|
42,457,900
|
|
|
Net
loss
|
|
$
|
(898,127
|
)
|
|
Net
loss per share
|
|
$
|
(0.03
|
)
|
XL
Digital was incorporated in 2007 and no proforma information for 2006 will
be
provided.
The
balance consists of the following:
|
|
|
2007
|
|
2006
|
|
|
Prepaid
insurance
|
|
$
|
55,469
|
|
$
|
149,949
|
|
|
Prepaid
rent
|
|
|
45,468
|
|
|
38,160
|
|
|
Prepaid
leases
|
|
|
21,976
|
|
|
20,554
|
|
|
Others
|
|
|
148,017
|
|
|
28,625
|
|
|
|
|
$
|
270,930
|
|
$
|
237,288
|
|
|
4.
|
Related
Party Transactions
|
Balances
due from related parties are as follows:
|
|
|
|
2007
|
|
|
2006
|
|
|
Balance
due from a company controlled by the president, non-interest bearing
and
due on demand
|
|
$
|
2,581
|
|
$
|
2,203
|
|
|
Balances
due to related parties are as follows:
|
|
|
|
|
|
|
|
|
Advances
from the Chief Executive Officer (CEO) of the Company, non-interest
bearing with no fixed terms of repayment. The loan is subordinated
to the
Laurus loan
|
|
$
|
68,773
|
|
$
|
58,693
|
|
|
Subordinated
loan - advances from the CEO and is secured by a promissory note,
a third
ranking general security agreement, assignment of insurance policy,
a
second mortgage on the industrial condominium up to $269,955, personal
guarantee of the president and his spouse up to $539,910 and a collateral
second mortgage on the president's principal residence up to $77,130,
bearing interest at 6% per annum, repayable in blended monthly payments
of
$10,155. The loan matured on February 14, 2005. However, the loan
is
subordinated to Laurus with no fixed terms of repayment and no interest
will be charged from September 30, 2004. Total interest was
$Nil.
|
|
|
65,521
|
|
|
55,919
|
|
|
Loan
payable to a company controlled by the president's spouse, non-interest
bearing and due on demand
|
|
|
8,143
|
|
|
2,501
|
|
|
Loan
payable to the president of the Company, non-interest bearing with
no
fixed terms of repayment. The loan is subordinated to
Laurus
|
|
|
98,909
|
|
|
84,413
|
|
|
|
|
|
241,346
|
|
|
201,526
|
|
|
Less
current portion
|
|
|
8,143
|
|
|
2,501
|
|
|
|
|
$
|
233,203
|
|
$
|
199,025
|
|
|
Note
payable to related parties are as follows:
|
|
|
|
|
|
|
|
|
Note
payable to the Malar Trust (the CEO is one of the beneficiaries of
the
trust), bearing interest at 3% per annum with no fixed terms of repayment.
The loan is subordinated to the Laurus loan. Total interest for the
year
was $48,674 (2006: $48,091)
|
|
$
|
1,500,000
|
|
$
|
1,500,000
|
|
During
the year, $166,495 (2006 - $202,500) in consulting fees were paid to Companies
controlled by the CEO. In addition, $149,921 (2006 - $188,700) in consulting
fees was paid to the Company controlled by the president’s spouse.
In
September 2004, the Company issued two promissory notes with an aggregate
principal amount of $3,300,000. On September 30, 2004, the Company repaid
an aggregate of $1,800,000 of the principal balance. The outstanding principal
bears interest at 3% per annum with no fixed terms of repayment and payable
on
demand. However, pursuant to the Laurus Financing, these notes have been
subordinated to the Company’s obligations to Laurus. The notes each with an
amount of $750,000 are due to The Burns Trust (the president is one of the
beneficiaries of the trust) and the Navaratnam Trust (the 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.).
|
5.
|
Property
and Equipment
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
2006
|
|
|
|
|
|
Cost
|
|
|
|
|
|
Cost
|
|
|
|
|
|
Land
|
|
$
|
100,258
|
|
|
-
|
|
$
|
85,565
|
|
|
-
|
|
|
Industrial
condominium
|
|
|
864,640
|
|
|
172,690
|
|
|
737,926
|
|
|
122,775
|
|
|
Leasehold
improvement
|
|
|
336,896
|
|
|
93,051
|
|
|
98,980
|
|
|
14,426
|
|
|
Office
equipment
|
|
|
416,724
|
|
|
197,445
|
|
|
264,307
|
|
|
88,157
|
|
|
Office
equipment under capital leases
|
|
|
49,804
|
|
|
34,586
|
|
|
42,505
|
|
|
15,349
|
|
|
Furniture
and fixtures
|
|
|
277,114
|
|
|
128,071
|
|
|
112,057
|
|
|
80,682
|
|
|
Furniture
and fixtures under capital leases
|
|
|
22,538
|
|
|
22,538
|
|
|
19,235
|
|
|
19,235
|
|
|
Computer
hardware and software
|
|
|
1,040,574
|
|
|
716,126
|
|
|
775,332
|
|
|
493,260
|
|
|
Computer
hardware and software under capital leases
|
|
|
102,610
|
|
|
102,610
|
|
|
106,049
|
|
|
84,242
|
|
|
Vehicles
|
|
|
667,091
|
|
|
460,511
|
|
|
134,554
|
|
|
111,914
|
|
|
Vehicles
under capital leases
|
|
|
5,821,390
|
|
|
1,773,654
|
|
|
2,643,889
|
|
|
432,914
|
|
|
Tools
& Equipment
|
|
|
1,054,817
|
|
|
701,160
|
|
|
711,729
|
|
|
444,629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10,754,456
|
|
|
4,402,442
|
|
$
|
5,732,138
|
|
|
1,907,583
|
|
|
Net
book value
|
|
|
|
|
$
|
6,352,014
|
|
|
|
|
$
|
3,824,555
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
|
|
|
Cost
|
|
Accumulated
amortization
|
|
Net
book value
|
|
Net
book
value
|
|
|
Customer
relationships
|
|
$
|
1,676,768
|
|
$
|
433,838
|
|
$
|
1,242,930
|
|
$
|
800,000
|
|
|
Trade
name
|
|
$
|
1,280,808
|
|
$
|
806,735
|
|
$
|
474,073
|
|
$
|
800,000
|
|
|
|
|
|
2,957,576
|
|
$
|
1,240,573
|
|
$
|
1,717,003
|
|
$
|
1,600,000
|
|
For
the
year ended December 31, 2007, the amortization of intangible assets was $637,539
(2006 - $600,000). The amortization for the next five years are as
follows:
|
Year
|
|
Amount
|
|
|
2008
|
|
$
|
762,290
|
|
|
2009
|
|
|
362,390
|
|
|
2010
|
|
|
355,556
|
|
|
2011
|
|
|
135,354
|
|
|
2012
|
|
|
101,413
|
|
|
|
|
$
|
1,717,003
|
|
|
7.
|
Deferred
Financing Costs, Net
|
Deferred
financing costs are associated with the Company’s term notes from Laurus Master
Fund, Ltd., a Cayman Islands company. The balance carried forwarded from
December 31, 2005 was written off in the amount of $600,479 as the entire
revolving notes and convertible notes issued on September 30, 2004 were repaid.
For the year ended December 31, 2007, the amortization of deferred financing
cost was approximately $182,430 (2006 - $186,261).
|
|
|
2007
|
|
2006
|
|
|
Cost
|
|
$
|
953,295
|
|
$
|
829,944
|
|
|
Accumulated
amortization
|
|
|
401,548
|
|
|
182,402
|
|
|
|
|
$
|
551,747
|
|
$
|
647,542
|
|
The
estimated amortization expense for each of the next five fiscal years and
thereafter is as follows:
|
Year
|
|
Amount
|
|
|
2008
|
|
$
|
172,470
|
|
|
2009
|
|
|
138,792
|
|
|
2010
|
|
|
132,639
|
|
|
2011
|
|
|
107,846
|
|
|
|
|
$
|
551,747
|
|
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 from 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 March 1, 2007 to
February 1, 2009. $4,950,000 is payable on the maturity date. The Company has
issued warrants to purchase up to 1,080,000 shares of common stock of the
Company at a price from $0.90 to $2.73 per share to defer the principal
repayment from March 1, 2007 to December 1, 2007.
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 note for the year ended December 31, 2007 was $1,645,138 (2006:
$1,683,900).
|
|
|
2007
|
|
2006
|
|
|
|
|
Amount
|
|
Amount
|
|
|
Cancable
term note bears interest at prime plus 1.75% with the minimum interest
rate 7% and due on December 31, 2010
|
|
$
|
5,639,110
|
|
$
|
6,619,822
|
|
|
Company
term note bears interest at prime plus 2% with the minimum interest
rate
7% and due on December 31, 2009
|
|
|
8,250,000
|
|
|
8,250,000
|
|
|
Iview
term note bears interest at prime plus 2% with the minimum interest
rate
7% and due on December 31, 2011
|
|
|
1,916,667
|
|
|
2,000,000
|
|
|
|
|
|
15,805,777
|
|
|
16,869,822
|
|
|
Less:
current portion
|
|
|
2,240,356
|
|
|
2,439,046
|
|
|
|
|
$
|
13,565,421
|
|
$
|
14,430,776
|
|
The
principal payments for the next five years are as follows:
|
|
|
Amount
|
|
|
2008
|
|
$
|
2,240,356
|
|
|
2009
|
|
|
6,700,000
|
|
|
2010
|
|
|
100,000
|
|
|
2011
|
|
|
6,765,421
|
|
|
|
|
$
|
15,805,777
|
|
|
9.
|
Net
Financing Expenses
|
|
|
|
2007
|
|
2006
|
|
|
Capital
leases
|
|
$
|
364,408
|
|
$
|
254,005
|
|
|
Interest
of credit facility
|
|
|
1,645,138
|
|
|
1,683,900
|
|
|
Interest
on deferred principal repayment of term note
|
|
|
895,043
|
|
|
-
|
|
|
Amortization
of interest on debt instruments
|
|
|
-
|
|
|
168,171
|
|
|
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
|
|
|
50,474
|
|
|
58,859
|
|
|
|
|
$
|
2,955,063
|
|
$
|
4,617,825
|
|
|
10.
|
Obligation
Under Capital Leases
|
|
|
|
2007
|
|
2006
|
|
|
Obligation
under capital lease - 10.9%, due January 2009,
|
|
|
|
|
|
|
repayable
$451 principal and interest monthly, secured by
|
|
|
|
|
|
|
certain
office equipment
|
|
$
|
4,223
|
|
$
|
7,023
|
|
|
|
|
|
|
|
|
|
|
|
Obligation
under capital lease - 8.2%, due May 2009,
|
|
|
|
|
|
|
|
|
repayable
$500 principal and interest monthly, secured by
|
|
|
|
|
|
|
|
|
11
vehicles
|
|
|
159,862
|
|
|
180,096
|
|
|
|
|
|
|
|
|
|
|
|
Obligation
under capital lease - 8.4%, due May 2009,
|
|
|
|
|
|
|
|
|
repayable
$497 principal and interest monthly, secured by
|
|
|
|
|
|
|
|
|
10
vehicles
|
|
|
144,531
|
|
|
162,630
|
|
|
|
|
|
|
|
|
|
|
|
Obligation
under capital lease - 8.2%, due May 2009,
|
|
|
|
|
|
|
|
|
repayable
$487 principal and interest monthly, secured by
|
|
|
|
|
|
|
|
|
14
vehicles
|
|
|
205,584
|
|
|
228,983
|
|
|
|
|
|
|
|
|
|
|
|
Obligation
under capital lease - 8.3%, due May 2009,
|
|
|
|
|
|
|
|
|
repayable
$487 principal and interest monthly, secured by
|
|
|
|
|
|
|
|
|
22
vehicles
|
|
|
331,543
|
|
|
366,412
|
|
|
|
|
|
|
|
|
|
|
|
Obligation
under capital lease - 8.2%, due May 2009,
|
|
|
|
|
|
|
|
|
repayable
$487 principal and interest monthly, secured by
|
|
|
|
|
|
|
|
|
5
vehicles
|
|
|
77,295
|
|
|
84,872
|
|
|
|
|
|
|
|
|
|
|
|
Obligation
under capital lease - 14.9%, due March 2010,
|
|
|
|
|
|
|
|
|
repayable
$365 principal and interest monthly, secured by
|
|
|
|
|
|
|
|
|
25
vehicles
|
|
|
215,771
|
|
|
-
|
|
|
Obligation
under capital lease - 19.3%, due March 2010,
|
|
|
|
|
|
|
|
|
repayable
$289 principal and interest monthly, secured by
|
|
|
|
|
|
|
|
|
5
vehicles
|
|
|
30,345
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Obligation
under capital lease - 10.9%, due June 2010,
|
|
|
|
|
|
|
|
|
repayable
$572 principal and interest monthly, secured by
|
|
|
|
|
|
|
|
|
7
vehicles
|
|
|
133,885
|
|
|
141,903
|
|
|
|
|
|
|
|
|
|
|
|
Obligation
under capital lease - 10.9%, due July 2010,
|
|
|
|
|
|
|
|
|
repayable
$572 principal and interest monthly, secured by
|
|
|
|
|
|
|
|
|
7
vehicles
|
|
|
390,644
|
|
|
411,549
|
|
|
Obligation
under capital lease - 12.4%, due August 2010,
|
|
|
|
|
|
|
|
|
repayable
$374 principal and interest monthly, secured by
|
|
|
|
|
|
|
|
|
5
vehicles
|
|
|
51,217
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Obligation
under capital lease - 13.4%, due August 2010,
|
|
|
|
|
|
|
|
|
repayable
$374 principal and interest monthly, secured by
|
|
|
|
|
|
|
|
|
4
vehicles
|
|
|
40,498
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Obligation
under capital lease - 13.31%, due August 2010,
|
|
|
|
|
|
|
|
|
repayable
$374 principal and interest monthly, secured by
|
|
|
|
|
|
|
|
|
6
vehicles
|
|
|
60,818
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Obligation
under capital lease - 10.9%, due August 2010,
|
|
|
|
|
|
|
|
|
repayable
$572 principal and interest monthly, secured by
|
|
|
|
|
|
|
|
|
6
vehicles
|
|
|
119,593
|
|
|
125,295
|
|
|
|
|
|
|
|
|
|
|
|
Obligation
under capital lease - 10.9%, due September 2010,
|
|
|
|
|
|
|
|
|
repayable
$578 principal and interest monthly, secured by
|
|
|
|
|
|
|
|
|
7
vehicles
|
|
|
143,413
|
|
|
149,471
|
|
|
|
|
|
|
|
|
|
|
|
Obligation
under capital lease - 8.9%, due November 2010,
|
|
|
|
|
|
|
|
|
repayable
$564 principal and interest monthly, secured by
|
|
|
|
|
|
|
|
|
5
vehicles
|
|
|
107,642
|
|
|
111,969
|
|
|
|
|
|
|
|
|
|
|
|
Obligation
under capital lease - 8.9%, due December 2010,
|
|
|
|
|
|
|
|
|
repayable
$576 principal and interest monthly, secured by
|
|
|
|
|
|
|
|
|
7
vehicles
|
|
|
156,263
|
|
|
161,960
|
|
|
|
|
|
|
|
|
|
|
|
Obligation
under capital lease - 19.3%, due February 2011,
|
|
|
|
|
|
|
|
|
repayable
$586 principal and interest monthly, secured by
|
|
|
|
|
|
|
|
|
6
vehicles
|
|
|
141,194
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Obligation
under capital lease - 10.7%, due March 2011,
|
|
|
|
|
|
|
|
|
repayable
$512 principal and interest monthly, secured by
|
|
|
|
|
|
|
|
|
20
vehicles
|
|
|
338,726
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Obligation
under capital lease - 10.9%, due March 2011,
|
|
|
|
|
|
|
|
|
repayable
$486 principal and interest monthly, secured by 20
vehicles
|
|
|
321,352
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Obligation
under capital lease - 9.3%, due January 2011,
|
|
|
|
|
|
|
|
|
repayable
$576 principal and interest monthly, secured by
|
|
|
|
|
|
|
|
|
4
vehicles
|
|
|
90,291
|
|
|
92,964
|
|
|
|
|
|
|
|
|
|
|
|
Obligation
under capital lease - 7.5%, due April 2011,
|
|
|
|
|
|
|
|
|
repayable
$544 principal and interest monthly, secured by
|
|
|
|
|
|
|
|
|
22
vehicles
|
|
|
524,040
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Obligation
under capital lease - 16.3%, due April 2011,
|
|
|
|
|
|
|
|
|
repayable
$610 principal and interest monthly, secured by
|
|
|
|
|
|
|
|
|
certain
office equipment
|
|
|
19,223
|
|
|
19,813
|
|
|
|
|
|
|
|
|
|
|
|
Obligation
under capital lease - 16.2%, due April 2011,
|
|
|
|
|
|
|
|
|
repayable
$471 principal and interest monthly, secured by
|
|
|
|
|
|
|
|
|
certain
office equipment
|
|
|
12,618
|
|
|
14,136
|
|
|
Obligation
under capital lease - 6.5%, due April 2011,
|
|
|
|
|
|
|
|
|
repayable
$551 principal and interest monthly, secured by
|
|
|
|
|
|
|
|
|
10
vehicles
|
|
|
232,897
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Obligation
under capital lease - 8.5%, due June 2011,
|
|
|
|
|
|
|
|
|
repayable
$482 principal and interest monthly, secured by
|
|
|
|
|
|
|
|
|
1
vehicle
|
|
|
19,979
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Obligation
under capital lease - 14%, due September 2011,
|
|
|
|
|
|
|
|
|
repayable
$393 principal and interest monthly, secured by
|
|
|
|
|
|
|
|
|
22
vehicles
|
|
|
306,022
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Obligation
under capital lease - 11.7%, due May 2007,
|
|
|
|
|
|
|
|
|
repayable
$581 principal and interest monthly, secured by
|
|
|
|
|
|
|
|
|
certain
computer equipments
|
|
|
-
|
|
|
4,419
|
|
|
Obligation
under capital lease - 10.9%, due July 2007,
|
|
|
|
|
|
|
repayable
$623 principal and interest monthly, secured by
|
|
|
|
|
|
|
certain
computer equipments
|
|
|
-
|
|
|
5,266
|
|
|
|
|
|
|
|
|
|
|
|
Obligation
under capital lease - 13.3%, due May 2007,
|
|
|
|
|
|
|
|
|
repayable
$347 principal and interest monthly, secured by
|
|
|
|
|
|
|
|
|
certain
computer equipments
|
|
|
-
|
|
|
2,835
|
|
|
|
|
|
|
|
|
|
|
|
Obligation
under capital lease - 11.0%, due June 2007,
|
|
|
|
|
|
|
|
|
repayable
$863 principal and interest monthly, secured by
|
|
|
|
|
|
|
|
|
certain
computer equipments
|
|
|
-
|
|
|
6,628
|
|
|
|
|
|
|
|
|
|
|
|
Obligation
under capital lease - 17.0%, due June 2007,
|
|
|
|
|
|
|
|
|
repayable
$1,305 principal and interest monthly, secured by
|
|
|
|
|
|
|
|
|
certain
computer equipments
|
|
|
-
|
|
|
9,206
|
|
|
|
|
|
|
|
|
|
|
|
Obligation
under capital lease - 300%, due August 2007,
|
|
|
|
|
|
|
|
|
repayable
$414 principal and interest monthly, secured by
|
|
|
|
|
|
|
|
|
82
vehicles
|
|
|
-
|
|
|
212,310
|
|
|
|
|
|
4,379,469
|
|
|
2,499,740
|
|
|
Less
amount due within one year included in current liabilities
|
|
|
1,195,366
|
|
|
710,375
|
|
|
|
|
$
|
3,184,103
|
|
$
|
1,789,365
|
|
The
future minimum lease payments are as follows:
|
2008
|
|
$
|
1,564,065
|
|
|
2009
|
|
|
1,837,890
|
|
|
2010
|
|
|
1,250,708
|
|
|
2011
|
|
|
451,085
|
|
|
|
|
|
5,103,748
|
|
|
Less
imputed interest
|
|
|
724,279
|
|
|
|
|
$
|
4,379,469
|
|
Interest
expense for the year related to capital assets was $364,408 (2006 - $254,005).
The
Company's provision for (recovery of) income taxes is comprised as
follows:
|
|
|
2007
|
|
2006
|
|
|
U.S.
|
|
$
|
-
|
|
$
|
-
|
|
|
Canadian
|
|
|
|
|
|
|
|
|
Current
|
|
|
-
|
|
|
-
|
|
|
Deferred
|
|
|
-
|
|
|
-
|
|
|
|
|
$
|
-
|
|
$
|
-
|
|
|
Reconciliation
to statutory rates is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Income
(loss) before income taxes
|
|
|
|
|
|
|
|
|
Income
(loss) from U.S. sales
|
|
$
|
(3,240,620
|
)
|
$
|
(6,266,742
|
)
|
|
Income
(loss) from Canadian sales
|
|
|
2,659,014
|
|
|
724,850
|
|
|
|
|
|
(581,606
|
)
|
|
(5,541,892
|
)
|
|
Statutory
tax rates for U.S.
|
|
|
41.00
|
%
|
|
41.00
|
%
|
|
Statutory
tax rates for Canadian Federal
|
|
|
36.12
|
%
|
|
36.12
|
%
|
|
The
Company has unutilized taxable losses in the United States available
for
carry forward to reduce income taxes of approximately $8,051,800
otherwise
payable in future years. In addition, the Company has unutilized
taxable
losses in the Canadian taxes available for carry forward to reduce
income
taxes of approximately $1,687,300 otherwise payable in future
years.
|
|
|
|
2007
|
|
2006
|
|
|
Expected
income tax expense (recovery)
|
|
$
|
(469,136
|
)
|
|
(59.5
|
)%
|
$
|
(2,239,995
|
)
|
|
(41.6
|
)%
|
|
Increase
(decrease)
in taxes resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation
allowances
|
|
|
1,357,946
|
|
|
172.3
|
%
|
|
1,719,492
|
|
|
32.0
|
%
|
|
Permanent
differences
|
|
|
274,089
|
|
|
34.7
|
%
|
|
847,058
|
|
|
15.7
|
%
|
|
Small
business and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
tax
rate reductions
|
|
|
(1,162,899
|
)
|
|
(147.5
|
%)
|
|
(249,775
|
)
|
|
(4.7
|
%)
|
|
Other
|
|
|
-
|
|
|
-
|
|
|
(76,780
|
)
|
|
(1.4
|
%)
|
|
Income
tax expenses (recovery)
|
|
$
|
-
|
|
|
-
|
|
$
|
-
|
|
|
-
|
|
The
tax
effects of temporary differences that give rise to significant portions
of the
deferred tax assets and deferred tax liabilities as of December 31, 2007
and
2006 are presented below:
|
|
|
2007
|
|
2006
|
|
|
Assets
|
|
|
|
|
|
|
Tax
benefits on losses carried forward under U.S. tax rate
|
|
|
5,015,000
|
|
|
3,660,545
|
|
|
Tax
benefits on losses carried forward under Canadian tax rate
|
|
|
226,800
|
|
|
1,600,876
|
|
|
Accounting
depreciation in excess of tax depreciation
|
|
|
37,547
|
|
|
32,746
|
|
|
Other
|
|
|
919
|
|
|
785
|
|
|
|
|
|
5,280,266
|
|
|
5,294,952
|
|
|
Less:
valuation allowance
|
|
|
(5,241,800
|
)
|
|
(5,261,421
|
)
|
|
|
|
|
38,466
|
|
|
33,531
|
|
|
Less:
current portion
|
|
|
(919
|
)
|
|
(785
|
)
|
|
|
|
$
|
37,547
|
|
$
|
32,746
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Income
tax depreciation in excess of accounting depreciation
|
|
$
|
-
|
|
$
|
-
|
|
|
Other
|
|
|
26,777
|
|
|
23,555
|
|
|
|
|
|
26,777
|
|
|
23,555
|
|
|
Less:
current portion
|
|
|
(26,777
|
)
|
|
(23,555
|
)
|
|
|
|
$
|
-
|
|
$
|
-
|
|
|
Net
deferred income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
|
Current
|
|
|
|
|
|
|
Assets
|
|
$
|
919
|
|
$
|
785
|
|
|
Liabilities
|
|
|
(26,777
|
)
|
|
(23,555
|
)
|
|
|
|
$
|
(25,858
|
)
|
$
|
(22,770
|
)
|
|
Long-term
|
|
|
|
|
|
|
|
|
Assets
|
|
$
|
37,547
|
|
$
|
32,746
|
|
|
Liabilities
|
|
|
-
|
|
|
-
|
|
|
|
|
$
|
37,547
|
|
$
|
32,746
|
|
|
|
|
$
|
11,689
|
|
$
|
9,976
|
|
As
part
of the installation, the Company has provided its customers with warranties.
The
warranties generally extend ninety days labor and one year on equipment from
the
date of project completion.
|
|
|
2007
|
|
2006
|
|
|
Balance,
beginning of year
|
|
$
|
34,482
|
|
$
|
34,482
|
|
|
Expenses
incurred
|
|
|
(20,000
|
)
|
|
(10,000
|
)
|
|
Provision
made
|
|
|
25,922
|
|
|
10,000
|
|
|
Balance,
end of year
|
|
$
|
40,404
|
|
$
|
34,482
|
|
|
13.
|
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, 2006, the Company entered into two consulting
agreements by issuing 125,000 shares stock in consideration for investor
relations services rendered with the fair value of $65,000. Total recognized
consulting expenses relating to the above shares are $65,000. Additionally,
the
Company entered into another consulting agreement by issuing 75,000 shares
in
consideration for advisory service rendered with the fair value of $41,250.
Total recognized advisory service expenses relating to the above shares are
$41,250.
During
the period ended June 30, 2006, the Company entered into three consulting
agreements by issuing 70,880 shares stock in consideration for investor
relations and consulting services rendered with the fair value of $52,050.
Total
recognized consulting expenses relating to the above shares are $52,050.
During
the period ended September 30, 2006, the Company entered into a consulting
agreement by issuing 41,665 shares stock in consideration for investor relations
and consulting services rendered with the fair value of $28,749. Total
recognized consulting expenses relating to the above shares was $28,749.
Additionally, the Company issued 7,000 common shares to the officer of A.C.
Technical with the fair value of $2,100. The expense was recorded under general
and administration expenses.
During
the period ended December 31, 2006, the Company entered into a consulting
agreement by issuing 49,998 shares stock in consideration for investor relations
and consulting services rendered with the fair value of $15,999. Total
recognized consulting expenses relating to the above shares was $15,999.
Additionally, the Company issued 243,307 common shares to the legal counsel
with
the fair value of $97,325. The expense was recorded under general and
administration expenses. The Company also issued 215,517 and 323,275 shares
to
1608913 Ontario Inc. and Nationwide for the payment of the consulting fees
with
a fair value of $215,517.
During
the period ended March 31, 2007, the Company entered into one consulting
agreements by issuing 16,666 shares 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 to the executive officers
of Cancable Inc., a subsidiary of the Company. Included in the balance, $138,929
was recorded in 2006 financial statements as General and Administrative
expenses.
During
the period ended June 30, 2007, the Company entered into a consulting agreement
and issued 90,000 shares 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 for cash aggregating $293.
During
the period ended September 30, 2007, the Company entered into a consulting
agreement by issuing 93,850 shares in consideration for investor relations
and
consulting services rendered with the fair value of $239,148. Included in the
balance, $9,648 was recorded in 2006 General and Administrative expenses.
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 for cash aggregating $8,240.
During
the period ended December 31, 2007, the Company entered into a consulting
agreement and issued 90,000 shares in consideration for investor relations
and
consulting services rendered with the fair value of $218,700. Additionally,
the
Company issued 1,500 shares to a previous employee with the fair value of $3,150
and 32,000 shares to the employees for the exercise of the employee stock
options for cash aggregating $20,160.
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. During the year 2007, the Company granted 1,226,000 options to
purchase common stock to employees. These options allow the holders to buy
the
Company’s common stock at a price between $0.90 to $2.59 which will be expire in
2012 .
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
December 31, 2007 options to purchase 3,222,000 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 December 31, 2007, there was
$1,350,473 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. 473,500 options
were vested as of December 31, 2007. The cost recognized for the year end
December 31, 2007 was $176,123 (2006:$63,560) which was recorded as general
and
administration expenses.
In
valuing the options issued, the following assumptions were used
|
|
|
2007
|
|
2006
|
|
|
Expected
volatility
|
|
|
45
|
%
|
|
45
|
%
|
|
Expected
dividends
|
|
|
0
|
%
|
|
0
|
%
|
|
Expected
term (in years)
|
|
|
3.0
- 4.5
|
|
|
3.0
- 4.5
|
|
|
Risk-free
rate
|
|
|
4.25%
- 5.13
|
%
|
|
5.10%
- 5.13
|
%
|
A
summary
of option activity under the Plan during the period ended December 31, 2007
is
presented below:
|
Options
|
|
Shares
|
|
Weighted-Average
Exercise
Price
|
|
Weighted-Average
Remaining
Contractual
Term
|
|
Intrinsic
Value
|
|
|
Outstanding
at January 1, 2006
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Granted
|
|
|
2,317,000
|
|
$
|
0.63
|
|
|
-
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2006
|
|
|
2,317,000
|
|
$
|
0.63
|
|
|
5.0
|
|
|
-
|
|
|
Granted
|
|
|
1,226,000
|
|
$
|
2.32
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
36,000
|
|
$
|
0.63
|
|
|
-
|
|
|
-
|
|
|
Forfeited
or expired
|
|
|
285,000
|
|
$
|
0.63
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2007
|
|
|
3,222,000
|
|
$
|
1.22
|
|
|
4.0
|
|
$
|
0.67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at December 31, 2007
|
|
|
473,500
|
|
|
0.63
|
|
|
-
|
|
|
-
|
|
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 year ended December 31, 2007, in connection with financing
arrangements, the Company issued warrants to purchase 1,080,000 shares of common
stock. The fair value of the warrants of $895,044 was measured using the
Black-Scholes option pricing model using the following assumptions: risk free
interest rate of 3.25% to 4.93%, expected dividend yield of 0%, volatility
of
45%, share price of $0.90 to $2.73 and expected life of 4 years.
As
of
December 31, 2007, we had the following options and warrants
outstanding:
|
Issue
Date
|
|
Expiry
Date
|
|
Number
of 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
|
|
10-01-2007
|
|
10-01-2011
|
|
108,000
|
|
$2.43
|
|
$105,362
|
|
Financing
|
|
11-01-2007
|
|
11-01-2011
|
|
108,000
|
|
$2.60
|
|
$111,868
|
|
Financing
|
|
12-01-2007
|
|
12-01-2011
|
|
108,000
|
|
$2.55
|
|
$107,284
|
|
Financing
|
|
|
|
|
|
7,309,596
|
|
|
|
|
|
|
During
the year ended December 31, 2007 and 2006, the Company derived 61.0% and 61.4%of
its revenue from a single customer. The accounts receivable from this customers
c
omprises
33% (2006: 19%) of the total trade receivable balance as at December 31, 2007
and 2006.
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”) and its wholly owned subsidiary XL Digital Servcies, Inc. is a
Canadian based entity in the business of providing deployment and servicing
of
broadband technologies in both residential and commercial markets. The Cancable
service offering, network deployment, IT integration, and support services,
enable the cable television and telecommunications industries to deliver a
high
quality broadband experience to their customers. Cancable’s clients rely on
Cancable’s knowledge and expertise to rapidly deploy the latest technologies to
support advanced cable services, cable broadband Internet access and DSL.
Services provisioned include new installations, reconnections, disconnections,
service upgrades and downgrades, inbound technical call center sales and trouble
resolution for cable Internet subscribers, and network servicing for broadband
video, data, and voice services for residential, business, and commercial
marketplaces.
AC
Technical
A.C.
Technical Systems Ltd. (“AC Technical”), a corporation incorporated under the
laws of the Province of Ontario, is engaged in the engineering, design,
installation, integration and servicing of various types of security systems.
Iview
DVSI
Iview
Digital Solutions Inc. (“Iview DVSI”), a corporation incorporated under the laws
of the Province of Ontario, is a newly formed subsidiary incorporated in late
2005 to focus on providing video surveillance products and technologies to
the
market.
The
following table presents financial information with respect to the segments
that
management uses to make decisions. We acquired Cancable as of January 1, 2006
and its results are included from that date.
|
|
|
December
31, 2007
|
|
December
31, 2006
|
|
|
SALES:
|
|
|
|
|
|
|
Cancable
|
|
$
|
31,234,729
|
|
$
|
23,779,440
|
|
|
AC
Technical
|
|
|
7,531,322
|
|
|
6,492,163
|
|
|
XL
Digital
|
|
|
1,081,705
|
|
|
-
|
|
|
Iview
|
|
|
139,208
|
|
|
157,594
|
|
|
Creative
Vistas, Inc.
|
|
|
4,104
|
|
|
27,700
|
|
|
Consolidated
Total
|
|
$
|
39,991,068
|
|
$
|
30,456,897
|
|
|
DEPRECIATION
AND AMORTIZATION:
|
|
|
|
|
|
|
|
|
Cancable
|
|
$
|
1,697,136
|
|
$
|
939,054
|
|
|
AC
Technical
|
|
|
43,472
|
|
|
43,613
|
|
|
XL
Digital
|
|
|
42,521
|
|
|
-
|
|
|
Consolidated
Total
|
|
$
|
1,783,129
|
|
$
|
982,667
|
|
|
INTEREST
EXPENSES:
|
|
|
|
|
|
|
|
|
Cancable
|
|
$
|
959,272
|
|
|
930,872
|
|
|
AC
Technical
|
|
|
1,800
|
|
|
10,768
|
|
|
XL
Digital
|
|
|
14,351
|
|
|
-
|
|
|
Iview
|
|
|
196,298
|
|
|
179,568
|
|
|
AC
Acquisition
|
|
|
48,674
|
|
|
48,091
|
|
|
Creative
Vistas, Inc.
|
|
|
1,734,668
|
|
|
3,448,526
|
|
|
Consolidated
Total
|
|
$
|
2,955,063
|
|
|
4,617,825
|
|
|
NET
INCOME (LOSS):
|
|
|
|
|
|
|
|
|
Cancable
|
|
$
|
2,841,697
|
|
$
|
896,633
|
|
|
AC
Technical
|
|
|
333,607
|
|
|
(150,509
|
)
|
|
Iview
|
|
|
(117,629
|
)
|
|
(200,100
|
)
|
|
XL
Digital
|
|
|
(299,157
|
)
|
|
-
|
|
|
AC
Acquisition
|
|
|
(48,674
|
)
|
|
(48,091
|
)
|
|
2141306
Ontario Inc.
|
|
|
(41,492
|
)
|
|
-
|
|
|
Corporate
(1)
|
|
|
(3,249,958
|
)
|
|
(6,039,825
|
)
|
|
Consolidated
Total
|
|
$
|
(581,606
|
)
|
$
|
(5,541,892
|
)
|
|
TOTAL
ASSETS
|
|
|
|
|
|
|
|
|
Cancable
|
|
$
|
11,911,673
|
|
$
|
7,880,618
|
|
|
AC
Technical
|
|
|
4,103,026
|
|
|
3,719,040
|
|
|
Iview
|
|
|
1,404,822
|
|
|
1,697,555
|
|
|
AC
Acquisition
|
|
|
-
|
|
|
-
|
|
|
XL
Digital
|
|
|
465,335
|
|
|
-
|
|
|
2141306
Ontario Inc.
|
|
|
29,851
|
|
|
-
|
|
|
Creative
Vistas, Inc.
|
|
|
3,937,473
|
|
|
4,972,712
|
|
|
Consolidated
Total
|
|
$
|
21,852,180
|
|
$
|
18,269,925
|
|
|
CAPITAL
ASSETS
|
|
|
|
|
|
|
|
|
Cancable
|
|
$
|
4,798,916
|
|
$
|
3,058,227
|
|
|
AC
Technical
|
|
|
855,214
|
|
|
766,328
|
|
|
XL
Digital
|
|
|
689,301
|
|
|
-
|
|
|
2141306
Ontario Inc.
|
|
|
8,583
|
|
|
-
|
|
|
CONSOLIDATED
TOTAL
|
|
$
|
6,352,014
|
|
$
|
3,824,555
|
|
|
Capital
Expenditures
|
|
|
|
|
|
|
|
|
Cancable
|
|
$
|
3,069,145
|
|
$
|
2,215,878
|
|
|
AC
Technical
|
|
|
4,237
|
|
|
-
|
|
|
Iview
|
|
|
-
|
|
|
-
|
|
|
AC
Acquisition
|
|
|
-
|
|
|
-
|
|
|
Consolidated
Total
|
|
$
|
3,073,382
|
|
$
|
2,215,878
|
|
|
(1)
|
Corporate
expenses primarily include certain stock-based compensation for consulting
and advisory services, which we do not internally allocate to our
segments
because they are related to our common stock and are non-cash in
nature.
|
Revenues
by geographic destination and product group were as follows:
|
|
|
December
31, 2007
|
|
December
31, 2006
|
|
|
Contract
|
|
$
|
6,083,768
|
|
$
|
5,352,841
|
|
|
Service
|
|
|
33,860,869
|
|
|
25,061,831
|
|
|
Others
|
|
|
46,431
|
|
|
42,225
|
|
|
Total
sales to external customers
|
|
$
|
39,991,068
|
|
$
|
30,456,897
|
|
All
revenue generated by the Company was in Canada.
The
Company has entered into contracts for certain consulting services providing
for
monthly payments with the Companies controlled by the CEO and the president’s
spouse. In addition, the Company has also entered into an operating lease for
its premises, vehicles, computers and office equipment. The total minimum annual
payments for the next five years are as follows:
|
|
|
Total
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
2012
|
|
|
Operating
leases
|
|
$
|
1,065,100
|
|
$
|
409,500
|
|
$
|
316,600
|
|
$
|
206,900
|
|
$
|
89,400
|
|
$
|
42,700
|
|
|
Commitments
related to consulting agreements
|
|
|
1,541,500
|
|
|
737,600
|
|
|
803,900
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,606,600
|
|
$
|
1,147,100
|
|
$
|
1,120,500
|
|
$
|
206,900
|
|
$
|
89,400
|
|
$
|
42,700
|
|
Rental
for 2007 and 2006 was approximately $203,000 and $252,000.
Subsequent
to year end, the Company issued 324,000 warrants to Laurus to defer the monthly
principal repayment from January to March 2008.
On
January 22, 2008, the Company entered into a Stock Purchase Agreement (the
“Stock Purchase Agreement”) with Erato Corporation (“Erato”) pursuant to which
the Company purchased and acquired from Erato 2,674,407 shares of common stock,
par value $0.0001 per share (the “Shares”), of 180 Connect Inc., a Delaware
corporation, for an aggregate purchase price of $6,017,416 paid by the Company
by delivery to Erato of (i) no less than 2,195,720 duly and validly issued
shares of common stock of the Registrant and (ii) a common stock purchase
warrant, exercisable into up to 812,988 shares of common stock of the Registrant
at an exercise price of $0.01 per share.
On
January 22, 2008 the Company entered into a letter agreement with Erato for
Erato to provide up to Twelve Million Dollars ($12,000,000) in financing to
the
Company on such terms and conditions as the Registrant and Erato shall mutually
agree (the “Bridge Financing”). All proceeds from the Bridge Financing may only
be used by the Company for the purpose of financing a third party. The Company
does not currently have an agreement to provide financing to such third party.
Erato is currently an investor in such third party and, through its parent,
Laurus Master Fund Ltd., a current investor in the Company. In consideration
of
the letter agreement, the Company issued to Erato a warrant to purchase up
to
1,738,365 shares of common stock of the Company at an exercise price of $0.01
per share.
On
January 30, 2008, the Company entered into a Warrant Purchase Agreement with
Laurus Master Fund, Ltd., Erato Corporation, Valens U.S. Fund, LLC and Valens
Offshore SPV I, Ltd. (collectively, the “Sellers”) pursuant to which the
Registrant purchased and acquired from the Sellers, warrants to purchase
450,000
shares of common stock at an exercise price of $0.01 per share of 180 Connect
Inc., a Delaware corporation (the “180 Connect
Warrants”).
Also
on
January 30, 2008, the Company entered into a non-binding letter of intent with
Valens U.S. Fund, LLC (the “Letter Agreement”) in which Valens U.S. Fund, LLC
confirmed its current intention to provide up to $4,000,000 in financing to
a
subsidiary of the Registrant. The Letter Agreement is only an expression of
the
present intentions of the parties and no binding legal obligation will exist
until the parties sign a definitive agreement.
The
aggregate purchase price paid by the Company in exchange for the 180 Connect
Warrants and the Letter Agreement was $1,597,500 paid by the Company by delivery
to the Sellers of common stock purchase warrants, exercisable in the aggregate
into up to 798,750 shares of common stock of the Registrant at an exercise
price
of $0.01 per share. The purchase price was allocated by the Company as follows:
(a) $1,012,500 or $2.25 per share was paid by the Company for the 180 Connect
Warrants by delivery to the Sellers of warrants to purchase 506,250 shares
of
common stock of the Company at an exercise price of $0.01 per share and (b)
the
Company paid to the Sellers for the Letter Agreement warrants to purchase
292,500 shares of common stock of the Company.
Item
9.
Changes
In and Disagreements With Accountants on Accounting and Financial
Disclosure
Our
prior
auditors, BDO Dunwoody, LLP, resigned on February 28, 2006. On or about the
same
time, we engaged Stark Winter Schenkein & Co., LLP, as our principal
independent accountant. The decision to change accountants was made with the
approval of our board of directors.
During
the most recent two fiscal years and prior to the resignation of our prior
auditors on February 28, 2006, the Company had not consulted with Stark Winter
Schenkein & Co., LLP on any issue including the application of accounting
principles to a specified transaction, either completed or proposed, or the
type
of audit opinion that might be rendered on our financial statements, and neither
a written report was provided to us nor oral advice was provided that was an
important factor considered by us in reaching a decision as to our accounting,
auditing or financial reporting issues.
No
report
of BDO Dunwoody, LLP on our financial statements for either of the past two
fiscal years contained an adverse opinion, a disclaimer of opinion or a
qualification or was modified as to uncertainty, audit, scope or accounting
principles.
We
believe and we have been advised by BDO Dunwoody, LLP that it concurs in such
belief that, during our two most recent fiscal years and any subsequent interim
period through the date of their resignation on February 28, 2006, we did not
have any disagreement on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure, which
disagreement, if not resolved to the satisfaction of BDO Dunwoody, LLP, would
have caused it to make reference in connection with its report on our financial
statements to the subject matter of this disagreement.
No
report
of BDO Dunwoody, LLP on our financial statements for the years ended December
31, 2004 contained an adverse opinion, a disclaimer of opinion or a
qualification or was modified as to uncertainty, audit, scope or accounting
principles. During the years ended December 31, 2004 and any subsequent interim
period the former accountant’s resignation, February 28, 2006, there were no
“reportable events” within the meaning of Item 304(a)(1) of Regulation S-B
promulgated under the Securities Act.
|
Item
9A.
|
Controls
and Procedures
|
Evaluation
of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure
that
information required to be disclosed in our filings under the Securities
Exchange Act of 1934, as amended, is recorded, processed, summarized and
reported within the periods specified in the rules and forms of the SEC. This
information is accumulated to allow timely decisions regarding required
disclosure. As of December 31, 2007, the end of the period covered by this
annual report on Form 10K-SB, our management, including our Chief Executive
Officer and Chief Financial Officer, assessed the effectiveness of our
disclosure controls and procedures, as such terms are defined under
rules 13a-15(e) and 15d-15(e) promulgated under Securities Exchange Act of
1934, as amended. Based on this assessment, our management concluded that our
disclosure controls and procedures were effective as of the end period covered
by this annual report.
Management’s
Annual Report on Internal Control over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting (as defined in Rule 13a-15(f) under the
Securities Exchange Act of 1934, as amended). Our management assessed the
effectiveness over internal control over financial reporting as of December
31,
2007. In making this assessment, our management used the criteria set forth
by
the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in
Internal
Control - Integrated Framework
issued
in
1992, to evaluate the effectiveness of our internal control over financial
reporting. Based upon that framework management has determined that our internal
control over financial reporting is effective
Changes
in Internal Control Over Financial Reporting
There
has not been any change in our internal control over financial reporting (as
such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange
Act) during our fourth fiscal quarter that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
|
Item
9B.
|
Other
Information
|
None
|
Item
10.
|
Directors,
Executive Officers, Promoters and Control Persons; Compliance
With Section
16(a) of the Exchange
Act
|
Directors
and Executive Officers
|
Name
|
|
Age
|
|
Position
|
|
Sayan
Navaratnam
|
|
33
|
|
Chairman,
Chief Executive Officer and Director
|
|
Dominic
Burns
|
|
48
|
|
President
and Director
|
|
Heung
Hung Lee
|
|
39
|
|
Chief
Financial Officer and Secretary
|
Sayan
Navaratnam-Director, Chairman and Chief Executive Officer
:
Mr.
Navaratnam serves as our chairman and Chief Executive Officer. He is responsible
for creating a platform for growth and the management of the overall vision
and
growth of the Company and its subsidiaries. He is also responsible for managing
the relationship between us and our key funding partner. Mr. Navaratnam's
mandate is to develop and enhance our portfolio of subsidiaries and
technologies. Mr. Navaratnam graduated from University of Toronto with a Double
Specialist degree in Economics and Political Science. He has eight years of
experience in technology development and integration specific to the security
industry. He also has three years of experience in telecommunications with
Bell
Canada. He was the CEO of Satellite Communications Inc., and its research arm
Satellite Advanced Technologies, from 1997-2000. Mr. Navaratnam was responsible
for coordinating and financing research and development projects and played
a
key role in strategic partnerships, mergers, and licensing technologies. Mr.
Navaratnam was the Chief Operating Officer in ASPRO Technologies Ltd. from
2000-2003. He also proposed and implemented a strategic marketing campaign
to
license and distribute a new line of "wavelet" products from ASPRO. Mr.
Navaratnam joined AC Technical as Chief Executive Officer in 2003. Mr.
Navaratnam was a member of Innovator's Alliance of Ontario, Alliance of
Exporters and manufacturers of Ontario. Mr. Navaratnam and AC Technical were
recognized with an award for one of the Top 100 fastest growing companies in
Canada, from 1999 through 2003, by
Profit
100
.
Dominic
Burns-Director and President
:
Mr.
Burns
is our President and Director. He founded AC Technical in 1991. He completed
his
Electrical Apprenticeship program at one of the premier firms in Northern
Ireland. He graduated from Belfast College of Technology with honors in City
and
Guilds Electrical Theory and Regulations. Mr. Burns also holds a diploma in
radio and navigation systems. He has an extensive understanding of quality
controls in the avionics industry and has been a pioneer in transferring some
of
the high standards and controls set in the avionics industry to the security
integration market. He has been the President of AC Technical since its
inception. He has been primarily responsible for expanding the firm's presence
in Canada. Mr. Burns has also designed a number of internal technical and
marketing programs to expand AC Technical's sales and technical capabilities.
Mr. Burns has over 20 years of experience in the security integration industry.
Mr. Burns has been a director of our company since September 30,
2004.
Heung
Hung Lee-Chief Financial Officer and Secretary
:
Ms.
Lee
joined AC Technical in July 2004 and she has more than 10 years experience
in
international public accounting primarily with large international accounting
firms. She has advanced knowledge in financial statements disclosure and audit
issues and has extensive international business experience in countries such
as
the United States, Hong Kong SAR and the Peoples' Republic of China. She was
a
manager at BDO Dunwoody LLP from 1999 to 2004. Ms. Lee holds a Bachelor of
Business degree from Monash University in Australia. She is a Chartered
Accountant in Canada and qualified CPA in Australia. Ms. Lee has been the Chief
Financial Officer of our company since September 30, 2004. Ms. Lee is
responsible for review of financials of subsidiaries and creating and
implementing strong financial systems within the group of companies. Ms. Lee
is
also an important member in our growth strategy as she is highly involved in
creating a platform for growth within Creative Vistas, Inc.
Code
of Ethics
The
Company has adopted a code of ethics for officers and employees, which applies
to, among others, the Company’s principal executive officer, principal financial
officer, and controller, and which is known as the
code
of
ethics
.
The
Company has also adopted certain ethical principles and policies for its
directors, which are set forth in the
code
of
ethics
.
The
Company will provide copies of the code of ethics without charge upon request
made to Creative Vistas,
2100
Forbes Street, Unit 8-10 Whitby, Ontario, Canada L1N 9T3 or by calling (905)
666-8676
.
|
Item
11.
|
Executive
Compensation
|
The
following summary compensation table set forth all compensation paid by us
during the three years ended December 31, 2007 for services rendered in all
capacities by the Chief Executive Officer of the Company and the only other
executive officer who received total salary and bonus exceeding $100,000 in
any
of such years.
|
|
|
|
|
Annual
Compensation
|
|
|
Name
and Principal
Company/Subsidiary
Position
|
|
Year
|
|
Salary
($)
|
|
Other
Annual Compensation ($)
|
|
Bonus
($)
|
|
|
Sayan
Navaratnam - Chairman
and
Chief Executive Officer
|
|
|
2007
|
|
|
166,495
|
1
|
|
-
|
|
|
-
|
|
|
|
|
|
2006
|
|
|
202,500
1
|
1
|
|
-
|
|
|
-
|
|
|
|
|
|
2005
|
|
|
250,000
|
1
|
|
-
|
|
|
-
|
|
|
Dominic
Burns - President
|
|
|
2007
|
|
|
149,921
|
2
|
|
-
|
|
|
-
|
|
|
|
|
|
2006
|
|
|
188,700
|
2
|
|
-
|
|
|
-
|
|
|
|
|
|
2005
|
|
|
126,000
|
2
|
|
-
|
|
|
-
|
|
|
1
Balance
was payable to Nationwide Solutions Inc. for consulting
fees.
|
|
|
|
2
Blance
was payable to 1608913 Ontario Inc. for consulting
fees.
|
Employment
Agreements
On
June
1, 2004, AC Technical entered into a consulting agreement with 1608913 Ontario
Inc. and Dominic Burns. Pursuant to this agreement, 1608913 Ontario is to
provide the exclusive services of Mr. Burns to us for the following
compensation:
|
·
|
From
October 1, 2004 until December 31, 2004 compensation at the rate
of
$210,900 (CAD$250,000);
|
|
·
|
From
January 1, 2005 until December 31, 2005 the sum of $232,000
(CAD$275,000);
|
|
·
|
From
January 1, 2006 until December 31, 2006 the sum of $253,100
(CAD$300,000);
|
|
·
|
From
January 1, 2007 until December 31, 2007 the sum of $274,200
(CAD$325,000);
|
|
·
|
From
January 1, 2008 until December 31, 2008 the sum of $295,300 (CAD$350,000);
and
|
|
·
|
From
January 1, 2009 until December 31, 2009 the sum of $316,400
(CAD$375,000).
|
In
addition, 1608913 Ontario is entitled to a bonus payable upon our attaining
the
annual gross revenue targets specified in the agreement for the calendar years
2004 through 2009. The bonus is 0.5% of the annual gross revenue targets for
2004 and 1% of the annual gross revenue target for 2005 through 2009. An
additional bonus of 2% will be paid for each additional increment of $421,800
(CAD$500,000) annual gross revenue beyond the revenue target in any given year.
Mr. Burns’ spouse is the only beneficial owner of 1608913 Ontario.
On
June
1, 2004, AC Technical entered into a consulting agreement with Nationwide
Solutions Inc. and Sayan Navaratnam. Pursuant to this agreement, Nationwide
is
to provide the exclusive services of Mr. Navaratnam to us for the following
compensation:
|
·
|
From
October 1, 2004 until December 31, 2004 compensation at the rate
of
$253,100 (CAD$300,000) per annum;
|
|
·
|
From
January 1, 2005 until December 31, 2005 the sum of $278,400
(CAD$330,000);
|
|
·
|
From
January 1, 2006 until December 31, 2006 the sum of $306,300
(CAD$363,000);
|
|
·
|
From
January 1, 2007 until December 31, 2007 the sum of $336,900
(CAD$399,300);
|
|
·
|
From
January 1, 2008 until December 31, 2008 the sum of $370,600 (CAD$439,230);
and
|
|
·
|
From
January 1, 2009 until December 31, 2009 the sum of $409,300
(CAD$485,153).
|
In
addition, Nationwide is entitled to a bonus payable upon our attaining the
annual gross revenue targets specified in the agreement for the calendar years
2004 through 2009. The bonus is 0.5% of the annual gross revenue targets for
2004 and 1% of the annual gross revenue target for 2005 through 2009. An
additional bonus of 2% will be paid for each additional increment of $421,800
(CAD$500,000) annual gross revenue beyond the revenue target in any given year.
Mr. Navaratnam is the only beneficial owner of Nationwide.
1608913
Ontario Inc. and Nationwide Solutions Inc. were structured for the personal
tax
benefit of Mr. Burns and Mr. Navaratnam, respectively. Under Canadian tax law,
there are potential income tax benefits to Mr. Burns and Mr. Navaratnam from
structuring their relationship to us as Consulting Agreements between us and
each of 1608913 Ontario Inc. and Nationwide Solutions Inc. instead of them
being
employed directly by us. This structure does not have any effect on Creative
Vistas.
The
consulting services provided to us by Mr. Navaratnam and Mr. Burns related
to
the management of the Company including sales and marketing, project management,
technology development, finance, operations, mergers and acquisitions,
engineering design and other management services required by us.
We
have a
standard employment contract with our employee that is reviewed on an annual
basis. Of the persons who currently are parties to this employment agreement,
only Ms. Lee currently falls under the category of executive staff. There are
no
employment contracts with the CEO and the President. In each standard employment
contract, we have included the terms of employment, remuneration, fringe
benefits, vacation, confidentiality, non-solicitation and termination of
employment.
We
have a
stock option plan which was adopted during the second quarter of
2006.
|
Item
12.
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder
Matters
|
The
following table sets forth information with respect to the beneficial ownership
of our common stock as of December 31, 2007 of each executive officer, each
director, and each shareholder in addition to any shareholders known to be
the
beneficial owner of 5% or more of our Common Stock and all officers and
directors as a group. As of December 31, 2007, Laurus Master Fund, Ltd.
beneficially owned 1,399,449 shares of our Common Stock. The securities
owned by Laurus Master Fund, Ltd. contain a provision that Laurus may not,
subject to certain exceptions, at any time beneficially own more than 4.99%
of
our outstanding common stock. We and Laurus have agreed that, other than on
75
days’ notice or upon the occurrence of an event of default, this provision may
not be waived. Absent this limitation, Laurus would beneficially additionally
own 6,699,251 shares of our common stock, which is comprised of 129,155 shares
under the option and 6,570,096 shares under the warrant.
|
Name
and Address of Beneficial Owner
|
|
Shares
of Common Stock Beneficially Owned
|
|
Percentage
of Common Stock Beneficially Owned
|
|
|
Sayan
Navaratnam
Toronto,
Ontario
|
|
|
21,410,986
|
|
|
62.1
|
%
|
|
Dominic
Burns
Hampton,
Ontario
|
|
|
7,036,607
|
|
|
20.4
|
%
|
|
Heung
Hung Lee
Markham,
Ontario
|
|
|
50,000
|
|
|
0.1
|
%
|
|
All
officers and directors as a group (3 persons)
|
|
|
28,497,593
|
|
|
82.5
|
%
|
The
address of the above listed persons is c/o Creative Vistas, 2100 Forbes Street,
Unit 8-10 Whitby, Ontario, Canada L1N 9T3.
Securities
Authorized For Issuance Under Equity Compensation Plans
The
following table sets forth certain information relating to our option plans
as
of December 31, 2007:
|
Plan
Category
|
|
Nam
of Plan
|
|
Number
of Common Shares to be Issued upon Exercise of Outstanding
Options
|
|
Weighted-Average
Exercise Price of Oustanding Options
|
|
Number
of Securities Remaining Available for Future Issuance under Stock
Option
Plan
|
|
|
Option
Plans approved by our Shareholders
|
|
|
Stock
Option Plan
|
|
|
4,000,000
|
|
$
|
0.63
to 2.73
|
|
|
778,000
|
|
|
Total
|
|
|
|
|
|
4,000,000
|
|
$
|
0.63
to 2.73
|
|
|
778,000
|
|
Share
Option and Other Compensation Plans
Stock
Option Plan
Our
Stock
Option plan (“the Plan”) was adopted by our Board and approved by our
shareholders in June 30, 2006. Our Stock option Plan provides for the grant
of
options to
key
employees of the Company, including officers or directors of the Company, and
to
consultants and other individuals providing services to the Company
.
Share
Reserve.
A
total of 4,000,000 shares of
common
stock, no par value, of the Company (the “Stock”)
are
authorized for issuance under the Stock Option plan as of December 31, 2007.
Shares
of
Stock used for purposes of the Plan may be either authorized and unissued
shares, or previously issued shares held in the treasury of the Company, or
both. Shares of Stock covered by options which have terminated or expired prior
to exercise shall be available for further options hereunder. The maximum
aggregate number of shares of Stock that may be issued under the Plan under
“incentive stock options” is 3,500,000 shares.
Administration
of Awards.
The
Plan
shall be administered by the Board of Directors, or Compensation Committee
of
the Board of Directors or a subcommittee of the Compensation Committee appointed
by the Compensation Committee, or by any other committee designated by the
Board
of Directors to administer the Plan (the committee or subcommittee administering
the Plan is hereinafter referred to as the “Committee”). For purposes of
administration, the Committee, subject to the terms of the Plan, shall have
plenary authority to establish such rules and regulations, to make such
determinations and interpretations, and to take such other administrative
actions as it deems necessary or advisable. All determinations and
interpretations made by the Committee shall be final, conclusive and binding
on
all persons, including all Optionees, any other holders of options and their
legal representatives and beneficiaries.
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.
Service as an employee, director, officer or consultant of or to the Company
shall be considered employment for purposes of the Plan (and the period of
such
service shall be considered the period of employment for purposes of Section
5(d) of this Plan); provided, however, that incentive stock options may be
granted under the Plan only to an individual who is an “employee” (as such term
is used in Section 422 of the Code) of the Company.
Stock
options.
The
Committee shall, in its discretion, prescribe the terms and conditions of the
options to be granted hereunder, 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 Stock covered by an option granted under the Plan
may be purchased shall not be less than the Market Value (as defined in Section
(c) hereof) per share of 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.
(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. Any shares not purchased
on any applicable installment date may be purchased thereafter at any time
before the expiration of the option period.
(c)Exercise
of Options
.
In
order to exercise an option, the Optionee shall deliver to the Company written
notice specifying the number of shares of Stock to be purchased, together with
cash or a certified or bank cashier’s check payable to the order of the Company
in the full amount of the purchase price therefore; provided that, 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. For
purposes of the Plan, the Market Value per share of Stock shall be the last
sale
price regular way on the date of reference, or, in case no sale takes place
on
such date, the average of the closing high bid and low asked prices regular
way,
in either case on the principal national securities exchange on which the Stock
is listed or admitted to trading, or if the Stock is not listed or admitted
to
trading on any national securities exchange, the last sale price reported on
the
National Market System of the National Association of Securities Dealers
Automated Quotation System (“NASDAQ”) on such date, or the last sale price
reported on the NASDAQ SmallCap Market on such date, or the average of the
closing high bid and low asked prices in the over-the-counter market on such
date, whichever is applicable, or if there are no such prices reported on NASDAQ
or in the over-the-counter market on such date, as furnished to the Committee
by
any New York Stock Exchange member selected from time to time by the Committee
for such purpose. If there is no bid or asked price reported on any such date,
the Market Value shall be determined by the Committee in accordance with the
regulations promulgated under Section 2031 of the Code, or by any other
appropriate method selected by the Committee. If the Optionee so requests,
shares of Stock purchased upon exercise of an option may be issued in the name
of the Optionee or another person. An Optionee shall have none of the rights
of
a stockholder until the shares of Stock are issued to him.
(d)
Effect of Termination of Employment
.
An
option may not be exercised after the Optionee has ceased to be in
the
employ of the Company, except in the following circumstances:
(i)
If
the Optionee’s employment is terminated by action of the Company, or by reason
of disability or retirement under any retirement plan maintained by the Company,
the option may be exercised by the Optionee within three months after such
termination, but only as to any shares exercisable on the date the Optionee’s
employment so terminates;
(ii)
In
the event of the death of the Optionee during the three month period after
termination of employment covered by (i) above, the person or persons to whom
his rights are transferred by will or the laws of descent and distribution
shall
have a period of one year from the date of his death to exercise any options
which were exercisable by the Optionee at the time of his death;
and
(iii)
In
the event of the death of the Optionee while employed, the option shall
thereupon become exercisable in full, and the person or persons to whom the
Optionee’s rights are transferred by will or the laws of descent and
distribution shall have a period of one year from the date of the Optionee’s
death to exercise such option. In no event shall any option be exercisable
more
than five years from the date of grant thereof. Nothing in the Plan or in any
option granted pursuant to the Plan (in the absence of an express provision
to
the contrary) shall confer on any individual any right to continue in the employ
of the Company or continue as a consultant or interfere in any way with the
right of the Company to terminate his employment or consulting arrangement
at
any time.
(e)
Limitation on Transferability of Options
.
Except
as provided in this Section (e), during the lifetime of an Optionee, options
held by such Optionee shall be exercisable only by him and no option shall
be
transferable other than by will or the laws of descent and distribution. The
Committee may, in its discretion, provide that options held by an Optionee,
other than incentive stock options, may be transferred to or for the benefit
of
a member of his immediate family. For purposes hereof, the term “immediate
family” shall mean an Optionee’s spouse and children (both natural and
adoptive), and the direct lineal descendants of his children.
(f)
Adjustments for Change in Stock Subject to Plan
.
In the
event of a reorganization, recapitalization, stock split, stock dividend,
combination of shares, merger, consolidation, rights offering, or any other
change in the corporate structure or shares of the Company, the Committee shall
make such adjustments, if any, as it deems appropriate in the number and kind
of
shares subject to the Plan, in the number and kind of shares covered by
outstanding options, or in the option price per share, or both, and, in the
case
of a merger, consolidation or other transaction pursuant to which the Company
is
not the surviving corporation or pursuant to which the holders of outstanding
Stock shall receive in exchange therefore shares of capital stock of the
surviving corporation or another corporation, the Committee may require an
Optionee to exchange options granted under the Plan for options issued by the
surviving corporation or such other corporation.
(g
)Treatment of Options Upon Occurrence of Certain Events
.
The
Committee may, in its discretion, provide in the case of any option granted
under the Plan that, in connection with any merger or consolidation which
results in the holders of the outstanding voting securities of the Company
(determined immediately prior to such merger or consolidation) owning, directly
or indirectly, less than a majority of the outstanding voting securities of
the
surviving corporation (determined immediately following such merger or
consolidation), or any sale or transfer by the Company of all or substantially
all its assets or any tender offer or exchange offer for or the acquisition,
directly or indirectly, by any person or group of all or a majority of the
then
outstanding voting securities of the Company, such option shall terminate within
a specified number of days after notice to the Optionee thereunder, and each
such Optionee shall receive, with respect to each share of Stock subject to
such
option, an amount equal to the excess, if any, of the Market Value of such
shares immediately prior to such merger, consolidation, sale, transfer or
exchange over the exercise price per share of such option; and that such amount
shall be payable in cash, in one or more kinds of property (including the
property, if any, payable in the transaction) or a combination thereof, as
the
Committee shall determine in its sole discretion.
(h)
Registration, Listing and Qualification of Shares of Stock
.
Each
option shall be subject to the requirement that if at any time the Board of
Directors shall determine that the registration, listing or qualification of
the
shares of Stock covered thereby upon any securities exchange or under any
federal or state law, or the consent or approval of any governmental regulatory
body is necessary or desirable as a condition of, or in connection with, the
granting of such option or the purchase of shares of Stock thereunder, no such
option may be exercised unless and until such registration, listing,
qualification, consent or approval shall have been effected or obtained free
of
any conditions not acceptable to the Board of Directors. The Company may require
that any person exercising an option shall make such representations and
agreements and furnish such information as it deems appropriate to assure
compliance with the foregoing or any other applicable legal
requirement.
(i)
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 hereof, on the grant or exercise
of
options, as it deems advisable.
Additional
Provisions Applicable to Stock Option Plan
.
The
Committee may, in its discretion, grant options under the Plan to eligible
employees which constitute “incentive stock options” within the meaning of
Section 422 of the Code; provided, however, that (a) the aggregate Market Value
of the Stock with respect to which incentive stock options are exercisable
for
the first time by the Optionee during any calendar year shall not exceed the
limitation set forth in Section 422(d) of the Code; and (b) notwithstanding
anything to the contrary in Section 5, if the Optionee owns on the date of
grant
securities possessing more than 10% of the total combined voting power of all
classes of securities of the Company or of any parent or subsidiary of the
Company, the price per share shall not be less than 110% of the Market Value
per
share on the date of grant and the period of exercise shall not be longer than
five years from the date of grant.
Amendment
and Termination
.
No
option shall be granted hereunder after June 30, 2011; provided, however, that
the Board of Directors may at any time prior to that date terminate the Plan.
The Board of Directors may at any time amend the Plan or any outstanding
options. No termination or amendment of the Plan may, without the consent of
an
Optionee, adversely affect the rights of such Optionee under any option held
by
such Optionee.
|
Item
13.
|
Certain
Relationships and Related
Transactions
|
On
September 29, 2004, pursuant to a Stock Purchase Agreement with The Burns Trust
(our president is one of the beneficiaries of the trust) and The Navaratnam
Trust (our CEO is one of the beneficiaries of the trust), as sellers, A.C.
Technical Systems Ltd. and A.C. Technical Acquisition Corp., as purchasers,
AC
Acquisition acquired all of the issued and outstanding shares of AC Technical
from The Burns Trust and The Navaratnam Trust for consideration consisting
of
promissory notes in the aggregate amount of $3,300,000. AC Technical became
an
indirect subsidiary of the Company and a wholly owned direct subsidiary of
AC
Acquisition. $1,800,000 has been paid to The Burns Trust and The Navaratnam
Trust through part of the funding from Laurus. As at December 31, 2004, the
aggregate outstanding payables to The Burns Trust and the Navaratnam Trust
were
$1,500,000 in the form of 3% promissory notes with no fixed repayment date
and
these notes are payable upon demand. However, pursuant to the Laurus financing,
these notes have been subordinated to the Company’s obligations to Laurus. The
notes each with an amount of $750,000 are due to The Burns Trust (our president
is one of the beneficiaries of the trust) and the Navaratnam Trust (our CEO
is
one of the beneficiaries of the trust), respectively. Interest expense for
both
of these notes payable recognized for the year was $45,000 (2004:$11,250).
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.). See Note 4 of the Financial Statements for the year ended December
31, 2007.
|
Item
14.
|
Principal
Accountant Fees and
Services
|
The
following table sets forth the aggregate fees for professional services rendered
to us for the years ended December 31, 2007 and 2006 by our principal accounting
firms, Stark Winter Schenkein & Co., LLP and BDO Dunwoody LLP:
|
|
|
2007
|
|
2006
|
|
|
Audit
Fees (a)
|
|
$
|
120,000
|
|
$
|
100,000
|
|
|
Audit
Related Fees (b)
|
|
|
-
|
|
|
20,000
|
|
|
Tax
Fees (c)
|
|
|
23,000
|
|
|
5,000
|
|
|
All
Other Fees (d)
|
|
|
-
|
|
|
-
|
|
|
Total
|
|
$
|
143,000
|
|
$
|
125,000
|
|
|
(a)
|
Audit
Fees.
Fees
for audit services billed in 2007 and 2006 consisted of the audit
of our
annual consolidated financial statements, reviews of our quarterly
consolidated financial statements, statutory audits, consents and
services
that are normally provided in connection with statutory and regulatory
filing or engagement. All fees were payable to Stark Winter Schenkein
& Co., LLP for both fiscal years.
|
|
(b)
|
Audit-Related
Fees.
Fees
for audit-related services billed in 2006 in preparation of Form
8-K and
Form S-8 which were paid to Stark Winter Schenkein & Co., LLP $5,000
and BDO Dunwoody, LLP was approximately $15,000. There are no other
material audit-related fees in
2007.
|
|
(c)
|
Tax
Fees.
Fees
for tax services billed in 2007 and 2006 consisting of assistance
with our
federal, state, local and foreign jurisdiction income tax returns.
We have
additionally sought consultation and advice related to various taxes
compliance planning projects. Approximately $23,000 in tax fees were
payable to MDS LLP
.
The
tax fees for 2006 was payable to Paul Chan &
Associate.
|
|
(d)
|
All
Other Fees.
No
material other fees were billed in 2006 and
2005.
|
We
do not
have an audit committee; however, our board of directors is required to provide
advance approval of any non-audit services, other than those of a de minimus
nature, to be performed by our auditors, provided that such services are not
otherwise prohibited by law. We do not have a formal pre-approval
policy.
All
the
fees for 2007 and 2006 were pre-approved by the board of directors prior
to the
auditors’ engagement for these services.
|
3.1*
|
Articles
of Incorporation, as amended to date, incorporated by reference to
the
Registrant’s
Form
8-K/A filed
February
2, 2005
|
|
3.2*
|
By-laws
of the Registrant incorporated by reference to the Registrant’s Form 10-SB
filed May 10, 2000
|
|
|
|
|
4.1*
|
Securities
Purchase Agreement, dated February 13, 2006, by and among Laurus
Master
Fund, Ltd., Creative Vistas, Inc., Iview Holding Corp. and Iview
Digital
Video Solutions Inc. incorporated by reference to the Registrant’s Form
8-K filed February 17, 2006.
|
|
|
|
|
4.2*
|
Secured
Term Note, dated February 13, 2006, issued by Creative Vistas, Inc.
to
Laurus Master Fund, Ltd. incorporated by reference to the Registrant’s
Form 8-K filed February 17, 2006.
|
|
|
|
|
4.3*
|
Secured
Term Note, dated February 13, 2006, issued by Iview Digital Video
Solutions Inc. to Laurus Master Fund, Ltd. incorporated by reference
to
the Registrant’s Form 8-K filed February 17, 2006.
|
|
|
|
|
4.4*
|
Option,
dated February 13, 2006, issued by Iview Holding Corp. to Laurus
Master
Fund, Ltd. incorporated by reference to the Registrant’s Form 8-K filed
February 17, 2006.
|
|
|
|
|
4.5*
|
Warrant,
dated February 13, 2006, issued by Creative Vistas, Inc. to Laurus
Master
Fund, Ltd. incorporated by reference to the Registrant’s Form 8-K filed
February 17, 2006.
|
|
|
|
|
4.6*
|
Amended
and Restated Guaranty, dated February 13, 2006 by and among Creative
Vistas, Inc., Cancable Inc., Cancable Holding Corp., Cancable, Inc.,
A.C.
Technical Systems Ltd., Creative Vistas Acquisition Corp., Iview
Holding
Corp. and Iview Digital Video Solutions Inc. incorporated by reference
to
the Registrant’s Form 8-K filed February 17, 2006.
|
|
|
|
|
4.7*
|
Amended
and Restated Guaranty, dated February 13, 2006 between Brent W. Swanick
and Laurus Master Fund, Ltd. incorporated by reference to the Registrant’s
Form 8-K filed February 17, 2006.
|
|
|
|
|
4.8*
|
Side
Agreement, dated February 13, 2006 between Iview Digital Video Solutions,
Inc., Iview Holding Corp., Creative Vistas Acquisition Corp. and
Laurus
Master Fund, Ltd incorporated by reference to the Registrant’s Form 8-K
filed February 17, 2006.
|
|
|
|
|
4.9*
|
Joinder
and Confirmation of Security Agreement, dated February 13, 2006 among
Iview Holding Corp., Cancable Inc., Cancable Holding Corp., Cancable,
Inc., A.C. Technical Systems Ltd., Creative Vistas Acquisition Corp.,
Iview Digital Video Solutions Inc., and Creative Vistas, Inc. delivered
to
Laurus Master Fund, Ltd. incorporated by reference to the Registrant’s
Form 8-K filed February 17, 2006.
|
|
|
|
|
4.10*
|
First
Amendment to Securities Purchase Agreement, dated February 13, 2006,
by
and among Cancable Inc., Cancable Holding Corp.
and
Laurus Master Fund, Ltd. for the purpose of amending the terms of
that
certain Securities Purchase Agreement by and among Cancable Inc.,
Cancable
Holding Corp. and Laurus, dated as of December 31, 2005 incorporated
by
reference to the Registrant’s Form 8-K filed February 17,
2006.
|
|
|
|
|
4.11*
|
Registration
Rights Agreement, dated as of February 13, 2006, by and between Creative
Vistas, Inc. and Laurus Master Fund, Ltd. incorporated by reference
to the
Registrant’s Form 8-K filed February 17, 2006.
|
|
|
|
|
10.1*
|
Stock
Option Plan, incorporated by reference to the Registrant’s Form S-8 filed
October 6 2006
|
|
|
|
|
10.2*
|
Rogers
Cable Commmunications Inc. and Canacble Inc. for the provision of
installation activities and service activities.
|
|
|
|
|
10.3*
|
Common Stock Purchase Warrant,
dated January 22, 2008, issued by Creative Vistas, Inc. to Erato
Corporation for the Right to Purchase 812,988 Shares of Common Stock
of
Creative Vistas, Inc. incorporated by reference to the Registrant’s Form
8-K filed February 28, 2008.
|
|
|
|
|
10.4*
|
Stock
Purchase Agreement, dated January 22, 2008, between Creative Vistas,
Inc.
and Erato Corporation. incorporated by reference to the Registrant’s Form
8-K filed February 28, 2008.
|
|
|
|
|
10.5*
|
Common
Stock Purchase Warrant, dated January 22, 2008, issued by Creative
Vistas,
Inc. to Erato Corporation for the Right to Purchase 1,738,365 Shares
of
Common Stock of Creative Vistas, Inc. incorporated by reference to
the
Registrant’s Form 8-K filed February 28, 2008.
|
|
|
|
|
10.6+
|
Letter
Agreement dated January 22. 2008 between Creative Vistas, Inc. and
Erato
Corporation.
|
|
|
|
|
10.7*
|
Warrant
Purchase Agreement, dated January 30, 2008 between Creative Vistas,
Inc.,
Laurus Master Fund, Ltd., Erato Corporation, Valens U.S. Fund, LLC
and
Valens Offshore SPV I, Ltd. incorporated by reference to the Schedule
13 D
filed by the Registrant with respect to 180 Connect Inc. dated February
1,
2008.
|
|
|
|
|
10.8*
|
Amended
and Restated Common Stock Purchase Warrant dated July 2, 2007 issued
to
Laurus Master Fund, Ltd. by 180 Connect Inc. incorporated by reference
to
the Schedule 13 D filed by the Registrant with respect to 180 Connect
Inc.
dated February 1, 2008.
|
|
10.9*
|
Common
Stock Purchase Warrant, dated January 30, 2008, issued by Creative
Vistas,
Inc. to Erato Corporation for the Right to Purchase 2,350 Shares
of Common
Stock of Creative Vistas, Inc. incorporated by reference to the Schedule
13 D filed by the Registrant with respect to 180 Connect Inc. dated
February 1, 2008.
|
|
|
|
|
10.10*
|
Common
Stock Purchase Warrant, dated January 30, 2008, issued by Creative
Vistas,
Inc. to Valens U.S. SPV I, LLC for the Right to Purchase 214,033
Shares of
Common Stock of Creative Vistas, Inc. incorporated by reference to
the
Schedule 13 D filed by the Registrant with respect to 180 Connect
Inc.
dated February 1, 2008.
|
|
|
|
|
10.11*
|
Common
Stock Purchase Warrant, dated January 30, 2008, issued by Creative
Vistas,
Inc. to Valens Offshore SPV I, Ltd. for the Right to Purchase 582,367
Shares of Common Stock of Creative Vistas, Inc. incorporated by reference
to the Schedule 13 D filed by the Registrant with respect to 180
Connect
Inc. dated February 1, 2008.
|
|
|
|
|
10.12+
|
Non-binding
Letter of Intent between Creative Vistas, Inc. and Valens U.S. Fund,
LLC
|
|
|
|
|
21.1+
|
List
of all subsidiaries
|
|
|
|
|
31.1+
|
Certification
of Principal Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
|
|
|
31.2+
|
Certification
of Principal 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
|
*
Previously filed and incorporated by reference
+
Filed
herewith
SIGNATURES
In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
|
|
|
|
|
CREATIVE
VISTAS, INC.
|
|
|
|
|
|
By:
|
/s/ Sayan
Navaratnam
|
|
|
Sayan
Navaratnam
|
|
|
Chief
Executive Officer
|
Creative Vistas (CE) (USOTC:CVAS)
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