SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
10-Q
(Mark one)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURIT
IES
EXCHANGE ACT OF 1934.
For the quarterly period ended September
30, 2012
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____
to _____
Commission file number 0-16819
CREATIVE
VISTAS, INC.
(Exact name of registrant as specified
in its charter)
Arizona
(State or other jurisdiction of
incorporation or organization)
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6770
(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
(Address, including zip code, and telephone number,
including area code, of registrant’s principal executive offices)
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes
x
No
¨
Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files). Yes
x
No
¨
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions
of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act. (Check one):
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Large Accelerated Filer
¨
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Accelerated Filer
¨
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Non-Accelerated Filer
¨
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Smaller Reporting Company
x
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act).
¨
Yes
x
No
Indicate the number of shares outstanding
of each of the issuer's classes of common stock, as of the latest practicable date.
At November 14, 2012, the number of shares
outstanding of the registrant’s common stock, no par value (the only class of voting stock), was 37,488,714.
PART I.
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Financial Information
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Item 1.
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Condensed Consolidated Financial Statements
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1
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Item 2.
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Management's Discussion And Analysis of Financial Condition and Results of Operations
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9
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Item 3.
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Quantitative and Qualitative Disclosures about Market Risk
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13
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Item 4.
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Controls and Procedures
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13
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PART II.
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OTHER INFORMATION
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Item 1.
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Legal Proceedings
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14
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Item 1A.
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Risk Factors
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14
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Item 2.
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Unregistered Sales of Equity Securities and Use of Proceeds
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14
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Item 3.
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Defaults upon Senior Securities
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14
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Item 4.
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Mine Safety Disclosures
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14
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Item 5.
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Other Information
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14
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Item 6.
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Exhibits
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14
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PART
I. Financial Information
Item 1. Financial Statements
Creative Vistas, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
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September 30, 2012
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December 31, 2011
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Assets
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Current Assets
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Cash and bank balances
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$
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1,080,205
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$
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906,982
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Accounts receivable, net of allowance for doubtful accounts $96,146 (2011
-$117,392)
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867,240
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895,193
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Income tax recoverable
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183,673
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235,294
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Inventory, net
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373,359
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374,997
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Prepaid expenses
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29,594
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8,205
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Total current assets
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2,534,071
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2,420,671
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Property and equipment, net of depreciation
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721,365
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718,155
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Deposits
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20,409
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19,608
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Deferred income taxes
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37,666
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37,203
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$
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3,313,511
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$
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3,195,637
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Liabilities and Stockholders’ (Deficiency)
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Current Liabilities
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Bank indebtedness
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$
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321,183
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$
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-
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Accounts payable and accrued liabilities
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1,564,095
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1,257,343
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Deferred income
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78,357
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60,810
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Deferred income taxes
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25,858
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25,858
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Term note payable
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1,548,207
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1,548,207
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Total current liabilities
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3,537,700
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2,892,218
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Notes payable to related parties
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1,500,000
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1,500,000
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Due to related parties
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235,581
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226,343
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5,273,281
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4,618,561
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Stockholders' (deficiency)
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Share capital
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Preferred stock no par value, 50,000,000 shares authorized, none issued or outstanding
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Common stock, no par value; 100,000,000 shares authorized 37,488,714 shares issued and outstanding at September 30, 2012 and December 31, 2011
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6,555,754
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6,555,754
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Additional paid-in capital
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14,338,226
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14,338,226
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Accumulated (deficit)
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(22,487,148
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)
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(22,021,782
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)
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Accumulated other comprehensive (loss)
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(366,602
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)
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(295,122
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)
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(1,959,770
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)
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(1,422,924
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)
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$
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3,313,511
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$
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3,195,637
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The accompanying
notes are an integral part of these financial statements.
Creative Vistas, Inc.
Condensed Consolidated Statement of Operations and Comprehensive
Income (Loss)
(Unaudited)
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Three months ended
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Nine months ended
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September 30
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September 30
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2012
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2011
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2012
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2011
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Contract and service revenue
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Contract
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$
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959,175
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$
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1,136,747
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$
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3,032,587
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$
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4,859,775
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Service
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317,100
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334,549
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1,087,417
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1,058,045
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1,276,275
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1,471,296
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4,120,004
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5,917,820
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Cost of sales (excluding depreciation and amortization)
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Contract
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553,930
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592,115
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1,579,667
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2,568,801
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Service
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107,994
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141,898
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431,828
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507,695
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Project expenses
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252,527
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292,140
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718,517
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879,222
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Selling expenses
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231,646
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226,124
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632,118
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722,413
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General and administrative expenses
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359,240
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737,690
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1,135,145
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1,610,685
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Depreciation expense
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9,637
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12,917
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29,117
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53,971
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1,514,974
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2,002,884
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4,526,392
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6,342,787
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Loss from operations
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(238,699
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)
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(531,588
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)
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(406,388
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)
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(424,967
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)
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Interest and other expenses (income)
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Net financing expenses
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37,555
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120,852
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121,212
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473,632
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Amortization of deferred charges
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-
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-
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-
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2,179
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Foreign currency translation (gain) loss
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(61,928
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)
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121,920
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(62,235
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)
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83,571
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(24,373
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)
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242,772
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58,977
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559,382
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Loss from continued operations
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(214,326
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)
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(774,360
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)
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(465,365
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)
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(984,349
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)
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Income from discontinued operations, net of income taxes
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-
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247,845
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-
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451,498
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Gain on disposal of discontinued operations, net of income taxes
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-
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12,173,023
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-
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12,173,023
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Income from discontinued operations
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-
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12,420,868
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-
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12,624,521
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Net income (loss)
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(214,326
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)
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11,646,508
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(465,365
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)
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11,640,172
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Other comprehensive income (loss):
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Foreign currency translation adjustment
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(74,199
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)
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1,720,999
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(71,479
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)
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1,345,163
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Comprehensive income (loss)
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$
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(288,525
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)
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$
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13,367,507
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$
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(536,844
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)
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$
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12,985,335
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Basic weighted-average shares
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37,488,714
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37,488,714
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37,488,714
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37,488,714
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Diluted weighted-average shares
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37,488,714
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37,488,714
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37,488,714
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37,488,714
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Basic earnings (loss) per share
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Continuing operations
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$
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(0.01
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)
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$
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(0.02
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)
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$
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(0.01
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)
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$
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(0.03
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)
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Discontinued operations
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$ N/A
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$
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0.33
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$N/A
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$
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0.34
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Diluted earnings (loss) per share
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Continuing operations
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$
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(0.01
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)
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$
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(0.02
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)
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$
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(0.01
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)
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$
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(0.03
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)
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Discontinued operations
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$ N/A
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$
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0.33
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$N/A
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$
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0.34
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The accompanying notes are an integral part
of these financial statements.
Creative Vistas, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
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Nine months ended September 30,
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2012
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2011
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Operating activities
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Net cash used in operating activities
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$
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(127,696
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)
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$
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(295,258
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)
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Investing activities
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Purchase of property and equipment
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(3,622
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)
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(4,692
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)
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Financing activities
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Proceeds (repayments) from bank indebtedness
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313,302
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(260,664
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)
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Repayment of term notes
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-
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(66,667
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)
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Net cash provided by financing activities
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313,302
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(327,331
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)
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Effect of foreign exchange rate changes in cash
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(8,761
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)
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38,840
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Net change in cash and cash equivalents
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173,223
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(588,441
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)
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Cash and cash equivalents,
beginning of period
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906,982
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1,779,345
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Cash and cash equivalents,
end of period
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$
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1,080,205
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$
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1,190,904
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The accompanying notes are an integral part
of these financial statements.
Creative Vistas, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2012 (Unaudited)
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1.
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Summary of Accounting Policies
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Basis of presentation
The accompanying condensed consolidated
balance sheets as of September 30, 2012 and December 31, 2011, and the condensed consolidated statements of operations and cash
flows for the periods ended September 30, 2011 and 2012, include the accounts of Creative Vistas, Inc. (“CVAS”), Creative
Vistas Acquisition Corp. (“AC Acquisition”), AC Technical Systems Ltd. (“AC Technical”), Iview Holding
Corp. (“Iview Holding”), Iview Digital Video Solutions Inc. (“Iview DSI”), 2221559 Ontario Inc. and 2300657
Ontario Inc. (collectively, the “Company”, or “we”, “us”, “our”). In addition,
the results of operations of Cancable Holding Corp. and its subsidiaries (“Cancable Holding”) were presented as discontinued
operations in our September 30, 2011 condensed consolidated statement of operations and comprehensive (loss). All material inter-company
accounts, transactions and profits have been eliminated. In the opinion of management, these condensed consolidated financial statements
reflect all adjustments (consisting of normal recurring adjustments) that are necessary for a fair presentation of the results
for and as of the periods shown. The accompanying condensed consolidated financial statements have been prepared in conformity
with United States generally accepted accounting principles. However, certain information or footnote disclosures normally included
in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant
to the rules and regulations of the Securities and Exchange Commission. The results of operations for such periods are not necessarily
indicative of the results expected for 2012 or for any future period. These financial statements should be read in conjunction
with the financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31,
2011, filed with the Securities and Exchange Commission.
Reclassifications
Certain amounts in the September 30, 2011
financial statements have been reclassified to conform to the current year’s presentation.
Discontinued Operations
As a result of the sale of Cancable Holding
on September 30, 2011, our condensed consolidated statement of operations for the nine months ended September 30, 2011 presents
income from Cancable Holdings as discontinued operations. The Company has not had continuing operational involvement in Cancable
Holding since the sale. During the nine months ended September 30, 2011 the Company received approximately $578,500 from Cancable
for fees that are not considered to be from operations and are included in discontinued operations.
The following table details Cancable Holding’s
revenues and income from operations which have been reported as discontinued operations:
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January 1 to
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September 16
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2011
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Service revenue
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$
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21,702,141
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Cost of sales
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17,611,414
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General and administrative expenses
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1,540,620
|
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Depreciation expense
|
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1,178,659
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Amortization of intangible assets
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23,355
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|
|
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20,354,048
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Income from operations
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|
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1,348,093
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|
|
|
|
|
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Net financing expenses
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|
|
911,388
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Amortization of deferred charges
|
|
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134,137
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Foreign currency transaction (gains)
|
|
|
(148,930
|
)
|
|
|
|
896,595
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Income from discontinued operations, net of income tax
|
|
|
451,498
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|
Gain on disposal of discontinued operations, net of income taxes
|
|
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12,173,023
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Income from discontinued operations, net of income tax
|
|
|
12,624,521
|
|
Liquidity and going concern
Our condensed consolidated financial statements
were prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which
contemplate the realization of assets and liquidation of liabilities in the normal course of business. We have an accumulated deficit
of $22,487,147, a stockholders’ deficit of $1,959,770 and a working capital deficit of $1,003,629 at September 30, 2012,
including current maturities of term loans due to Laurus of $1,548,207 (the “Iview Note”) which the Company does not
currently have the ability to pay.
Because we do not anticipate that Laurus
(one of our principal stockholders) will demand repayment of the Iview Note (see Note 5), we believe we have adequate resources
to sustain our operations for the next year as absent such amount we have working capital of approximately $550,000 (before exclusion
of deferred income and certain liabilities that we do not anticipate paying within the next year – e.g. accrued interest
payable to related entities). In addition, we have significantly reduced our general and administrative expenses and net losses
since the corresponding three and nine month periods of the preceding year and we have additional borrowing capability of approximately
$175,000 under the line of credit discussed at Note 2. However, in order for us to sustain and/or grow our operations, we will
ultimately have to return to profitability and/or raise additional debt or equity capital. Our plans include tight control of
overhead and increased focus on expansion of our customer base. However no assurance can be given that we will not require additional
debt or equity capital in the future and/or that any such financing would be available or available on terms acceptable to us.
In either case (debt or equity), the financing could have a negative impact on our financial condition and our shareholders.
The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification
of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue
as a going concern.
Inventory
Inventory consists principally of parts,
materials and supplies and is stated at the lower of cost or market. Cost is generally determined on the first in, first out basis.
The inventory is net of estimated obsolescence ($150,000 at September 30, 2012 and December 31, 2011), based upon assumptions about
future demand and market conditions.
Earnings (Loss) Per Share
Basic earnings (loss) per share (“EPS”)
is computed in accordance with ASC 260,
“Earnings Per Share”,
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, determined using the treasury stock method, consist of
common stock issuable upon exercise of stock options and warrants. During periods when losses are incurred, potentially dilutive
common shares are not considered in the computation as their effect would be anti-dilutive. The Company does not currently have
any common stock equivalents outstanding.
|
2.
|
Bank Indebtedness and Letter of Credit
|
The Company has a $500,000 credit facility
with a Canadian chartered bank that bears interest at the bank’s domestic prime rate plus 1.5% for Canadian dollar amounts.
Interest is payable monthly. The facility is secured by a first security interest in accounts receivable, inventory, certain other
assets and keyman life insurance. At September 30, 2012, the interest rate was 4.0%, the borrowing outstanding under the facility
was $321,183 and the average borrowing outstanding during the nine months then ended was $160,592. The agreements contain financial
covenants pertaining to maintenance of tangible net worth and debt service coverage ratio. In the event of default, the bank could
at its discretion cancel the facilities and demand immediate repayment of all outstanding amounts. Assuming no such defaults occur,
at September 30, 2012, we had additional available borrowings of approximately $175,000 under the line.
At September 30, 2012, the Company was
contingently liable under an irrevocable letter of credit issued by this bank in the amount of $750,000 which expired in October
2012 and was not renewed. The letter of credit was issued to an insurance company as security for the bonding facility in the amount
of $750,000 to AC Technical.
In February 2006, Iview DSI issued to Laurus
a secured term note (the “Iview Note”) in the amount of $2,000,000. Per the original terms of this note, the minimum
monthly payments on the term note were $8,333 through the original maturity date (February 1, 2011), with the balance of $1,600,000
payable on such date. However, the Iview Note has not been repaid. As a result of the sale of Cancable Holding, the Iview Note
is no longer guaranteed and secured by the Company.
Interest on the term notes for the nine
months ended September 30, 2012 was $78,982 (2011: $74,527)
|
|
September 30, 2012
|
|
Iview Note, with interest at prime plus 2% (minimum of 7%; 7% at September 30, 2012)
|
|
$
|
1,548,207
|
|
|
6.
|
Net Financing Expenses
|
|
|
Nine months ended September 30,
|
|
|
|
2012
|
|
|
2011
|
|
Interest on Iview Note
|
|
|
78,982
|
|
|
|
74,527
|
|
Interest on term note assigned to Cancable Holding
|
|
|
-
|
|
|
|
344,611
|
|
Interest on deferred principal repayment of term note
|
|
|
-
|
|
|
|
13,507
|
|
Related parties
|
|
|
42,230
|
|
|
|
40,987
|
|
|
|
$
|
121,212
|
|
|
$
|
473,632
|
|
|
7.
|
Notes Payable to Related Parties
|
Notes payable to related parties consists
of two notes payable for $750,000, each bearing interest at 3% per annum and having no fixed terms of repayment. However, pursuant
to the Laurus Financing, these notes have been subordinated to the Company’s obligations to Laurus and they are classified
as non-current. The notes are due to Malar Trust Inc. (the Company’s chairman is the shareholder of Malar Trust Inc.).
Interest
expense recognized for the nine month period ended September 30, 2012 was $42,230 (2011 - 40,987).
|
8.
|
Stockholders’ Deficiency
|
Options
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 fair value of each option award is
estimated on the date of grant using the Black-Scholes option valuation model, using the following assumptions. Expected volatility
is based on the historical volatility of the Company’s stock, and other factors. The Company uses historical data to estimate
employee termination within the valuation model. The Company has assumed that the life of the options will be equal to one-half
of the combined vesting period and contractual life. 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. The expected dividend yield is 0%.
At September 30, 2012, options to purchase
260,000 shares of common stock were outstanding. These options vest ratably in annual installments, over the four year period from
the date of grant. As of September 30, 2012, there was $15,216 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 a remaining weighted average period
of 1.86 years. The cost recognized for the nine months ended September 30, 2012 was $1,500 (2011: $6,169) which was recorded as
general and administrative expenses.
A summary of option activity under the Plan during the nine
months ended September 30, 2012 is presented below:
|
|
Options
|
|
|
Weighted-Average
Exercise
Price
|
|
|
Weighted-Average
Remaining
Contractual
Term
|
|
|
Intrinsic
Value
|
|
Outstanding at December 31, 2011
|
|
|
360,000
|
|
|
$
|
0.72
|
|
|
|
1.93
|
|
|
|
-
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited or expired
|
|
|
(100,000
|
)
|
|
$
|
0.90
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding at September 30, 2012
|
|
|
260,000
|
|
|
$
|
0.65
|
|
|
|
1.86
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 30, 2012
|
|
|
197,500
|
|
|
$
|
0.66
|
|
|
|
1.84
|
|
|
|
-
|
|
As of September 30, 2012, the aggregate
intrinsic value of all stock options outstanding and expected to vest was $0 and the aggregate intrinsic value of currently exercisable
stock options was $0. The intrinsic value of each option is the difference between the fair market value of the common
stock and the exercise price of such option to the extent it is “in-the-money”. Aggregate intrinsic value
represents the value that would have been received by the holders of in-the-money options had they exercised their options on the
last trading day of the year and sold the underlying shares at the closing stock price on such day. The intrinsic value
calculation is based on the $0.01 closing stock price of the common stock on September 30, 2012. There were no in-the-money options
outstanding and exercisable as of September 30, 2012.
Because there were no options exercised
during the nine months ended September 30, 2012, there was no intrinsic value of options exercised.
The total fair value of options granted
during the nine months ended September 30, 2012 was $0, as no options were granted in 2012.
The following table summarizes information
about fixed price stock options outstanding at September 30, 2012:
Exercise
Price
|
|
|
Number
Outstanding
|
|
|
Weighted
Average
Contractual Life
|
|
|
Weighted
Average
Exercise Price
|
|
|
Number
Exercisable
|
|
|
Exercise
Price
|
|
$
|
0.63
|
|
|
|
250,000
|
|
|
|
1.90
|
|
|
$
|
0.63
|
|
|
|
187,500
|
|
|
$
|
0.63
|
|
$
|
1.12
|
|
|
|
10,000
|
|
|
|
0.73
|
|
|
$
|
1.12
|
|
|
|
10,000
|
|
|
$
|
1.12
|
|
|
|
|
|
|
260,000
|
|
|
|
|
|
|
|
|
|
|
|
197,500
|
|
|
|
|
|
The number and weighted average grant-date
fair value of options non-vested at the beginning of the year, non-vested at the end of September 30, 2012 and granted, vested
or canceled during the nine month period ended September 30, 2012 was as follows:
|
|
Number
of
Options
|
|
|
Weighted-Average
Grant Date Fair Values
|
|
Non-vested at January 1, 2012
|
|
|
127,500
|
|
|
$
|
0.17
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Vested
|
|
|
(65,000
|
)
|
|
$
|
0.22
|
|
Canceled
|
|
|
-
|
|
|
|
-
|
|
Non-vested at September 30, 2012
|
|
|
62,500
|
|
|
$
|
0.14
|
|
Warrants
The Company uses a binomial option pricing model to value warrants
issued to non-employees, based on the market price of its common stock at the time the warrants are issued. All outstanding warrants
may be exercised by the holder at any time. Total outstanding warrants as of September 30, 2012 were 200,000 at an exercise price
of $0.03 per share, issued to a non-employee for consulting service with an expiry date of December 31, 2014.
We determine and disclose our segments
in accordance with ASC 280
”Segment 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:
AC Technical
A.C. Technical Systems Ltd. (“AC
Technical”), a corporation incorporated under the laws of the Province of Ontario, is engaged in the engineering, design,
installation, integration and servicing of various types of security systems.
Iview DSI
Iview Digital Video Solutions Inc. (“Iview
DSI”), a corporation incorporated under the laws of Canada, and its wholly owned subsidiary, 2221559 Ontario Inc., a corporation
incorporated under the laws of the Province of Ontario, provide video surveillance products and technologies to the market.
All of our sales for the periods presented
were generated in Canada.
|
|
Nine Months Ended
|
|
|
|
September 30, 2012
|
|
|
September 30, 2011
|
|
Sales:
|
|
|
|
|
|
|
|
|
AC Technical
|
|
|
4,120,004
|
|
|
|
5,868,160
|
|
Iview
|
|
|
-
|
|
|
|
47,910
|
|
Creative Vistas, Inc.
|
|
|
-
|
|
|
|
1,750
|
|
Consolidated Total
|
|
$
|
4,120,004
|
|
|
$
|
5,917,820
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
AC Technical
|
|
|
29,117
|
|
|
|
31,579
|
|
Iview
|
|
|
-
|
|
|
|
22,392
|
|
Consolidated Total
|
|
$
|
29,117
|
|
|
$
|
53,971
|
|
INTEREST EXPENSE:
|
|
|
|
|
|
|
|
|
Iview
|
|
|
78,982
|
|
|
|
74,804
|
|
AC Technical
|
|
|
42,230
|
|
|
|
40,987
|
|
Creative Vistas, Inc.
|
|
|
-
|
|
|
|
357,841
|
|
Consolidated Total
|
|
$
|
121,212
|
|
|
|
473,632
|
|
Loss from Continuing Operations:
|
|
|
|
|
|
|
|
|
AC Technical
|
|
|
(400,826
|
)
|
|
|
(9,680
|
)
|
Iview
|
|
|
(62,653
|
)
|
|
|
(287,228
|
)
|
Corporate (1)
|
|
|
(1,886
|
)
|
|
|
(687,441
|
)
|
Consolidated Total
|
|
$
|
(465,365
|
)
|
|
$
|
(984,349
|
)
|
|
|
September 30, 2012
|
|
|
December 31, 2011
|
|
TOTAL ASSETS
|
|
|
|
|
|
|
|
|
AC Technical
|
|
|
2,524,135
|
|
|
|
2,353,051
|
|
Iview
|
|
|
1,769
|
|
|
|
56,388
|
|
Creative Vistas, Inc.
|
|
|
787,607
|
|
|
|
786,198
|
|
Consolidated Total
|
|
$
|
3,315,511
|
|
|
$
|
3,195,637
|
|
CAPITAL ASSETS
|
|
|
|
|
|
|
|
|
AC Technical
|
|
|
721,365
|
|
|
|
718,155
|
|
Consolidated Total
|
|
$
|
721,365
|
|
|
$
|
718,155
|
|
Capital Expenditures
|
|
|
|
|
|
|
|
|
AC Technical
|
|
|
3,622
|
|
|
|
4,472
|
|
Consolidated Total
|
|
$
|
3,622
|
|
|
$
|
4,472
|
|
|
(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.
|
|
Item 2.
|
Management's Discussion And Analysis of Financial Condition
and Results of Operations
|
The following discussion of the financial
condition and results of operations should be read in conjunction with the condensed 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 herein. 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
Creative Vistas, Inc. (“Creative
Vistas”, the “Company”, “we”, “us”, or “our”) is a leading provider of security-related
technologies and systems. We primarily operate through our subsidiary AC Technical Systems Ltd. (“AC Technical Systems”)
to provide integrated electronic security-related technologies and systems. AC Technical Systems is responsible for all of our
revenues in the security sector for 2012. It provides its systems to various high profile clients including: government, school
boards, retail outlets, banks, and hospitals.
On September 16, 2011, the Company entered
into a Stock Purchase Agreement (the “Stock Purchase Agreement”) with Cancable Holding Corp. (“Cancable Holding”)
and Cancable and Dependable Hometech, LLC (“Purchaser”), pursuant to which we sold our equity interest in Cancable
Holding to Purchaser for a consideration of $1.00 on such date and Purchaser’s assumption of certain of our liabilities and
obligations to Cancable Holding, including (i) a secured term note of the Company dated February 13, 2006, for an original principal
amount of $8.25 million, which is currently held by Valens U.S. SPV I, LLC (“VUS”), Valens Offshore SPV I, Ltd. and
PSource Structured Debt Limited (“PSource”), (ii) a secured term note of the Company dated June 24, 2008,
for an original principal amount of $800,000, which is currently held by VUS, and (iii) a secured term note of the Company dated
June 24, 2008, for an original principal amount of $1,700,000. which is currently held by Valens Offshore SPV II, Corp. (such holders
of the term notes listed in clauses (i) to (iii), collectively, the “Holders”, and such term notes, collectively, the
“Notes”). The aggregate outstanding amount owed under the Notes (including accrued and unpaid interest)
was approximately $9,800,000 as of September 16, 2011. The Holders also (a) terminated and cancelled all guarantees,
security interest and other obligations of the Company and certain of its subsidiaries related to approximately $1,500,000 of indebtedness
owed to the Holders by certain other subsidiaries of the Company, (b) cancelled their warrants and options to purchase approximately
15,600,000 shares of common stock of the Company, as well as the stock of certain of the Company’s subsidiaries, and (c)
terminated and cancelled all guarantees, security interest and other obligations of the Company and certain of its subsidiaries
related to approximately $5,100,000 of indebtedness owed to the Holders by Cancable Inc. and its subsidiaries. In addition,
in connection with the sale of Cancable Holding to Purchaser, we assigned our rights in certain receivables owed to us by certain
wholly-owned subsidiaries of Cancable Holding, totaling approximately $4,800,000 as of September 16, 2011. The Holders are affiliates
of Laurus Master Fund, Ltd. (“Laurus”).
Today, we mainly focus on security and
surveillance products and services. Through our technology integration team of engineers we integrate various security related
products to provide a single source solution to our growing customer base. Our design, engineering and integration facilities are
located in Ontario, Canada.
Results of Operations
Comparison of Three Months Ended
September 30, 2012
with Three Months Ended September 30, 2011
Revenue:
Sales
for the three months ended September 30, 2012 decreased 13.3% to $1,276,300 from $1,471,300 for the three months ended September
30, 2011. Contract revenue was $959,200 for the three months ended September 30, 2012 compared to $1,136,700 for the
three months ended September 30, 2011. The year-over-year decrease in revenue was mainly due to the decrease in the number of subcontracts
for the provision of services to fewer government and commercial contracts. Service revenue was $317,100 for the three months ended
September 30, 2012, compared with $334,500 in the corresponding period of 2011.
Cost of Sales (excluding
depreciation and amortization)
: Cost of Sales for the three months ended September 30, 2012 was $661,900 or 51.9% of revenues
compared to $734,000 or 49.9% of revenues for same period in 2011. The material cost was $410,200, or 32.1% of the revenue, for
the three months ended September 30, 2012 compared to $436,200 or 29.7% of revenues, in the same period of fiscal 2011. The decrease
in material costs was primarily the result of the decrease in revenue. Labor and subcontractor costs also decreased to $272,100,
or 21.3% of revenues, for the three months ended September 30, 2012 compared to $285,000, or 19.3% of revenues, for the same period
of fiscal 2011 because of the decrease in revenue. The increase in percentage of the labor and subcontractor cost to revenues was
due to the result of certain contracts having more labor requirements.
Project expenses
: Project expenses
decreased to $252,500, or 19.8% of revenues, for the three months ended September 30, 2012, compared to $292,100, or 19.8% of revenues,
for the same period in 2011. These costs include mainly the salaries and benefits of indirect staff amounting to $147,400 in the
third quarter of fiscal 2012 compared to $185,500 for the same period of fiscal 2011. The decrease in balance was mainly due to
a reduction in headcount. Automobile and travel expenses decreased to $68,400 for the three months ended September 30, 2012 compared
to $78,700 for the same period of fiscal 2011. The decrease in this cost was mainly due to the decrease in repair and maintenance
expenses.
Selling expenses
: Selling expenses
were $231,600, or 18.2% of revenues, for the third quarter of fiscal 2012 compared to $226,100, or 15.4% of revenues, for the same
period in 2011. The balance for the three months ended September 30, 2012 is mainly comprised of salaries and commissions to salespersons
of $152,800 compared to $170,470 for the same period of fiscal 2011. The decrease was mainly due to the decrease in commission
expenses as a result of decreased revenue. Advertising and promotion and trade show expenses were $50,900 in the third quarter
of fiscal 2012 compared to $35,000 for the same period of fiscal 2011.
General and administrative expenses
:
General and administrative expenses were $359,300, or 28.1% of revenues, for the third quarter of fiscal 2012 compared to $737,700,
or 50.1% of revenues, for the same period in 2011. For the three months ended September 30, 2012 these costs were mainly comprised
of consulting fees and salaries and benefits to administrative staff of $162,300 (as compared to $191,200 for the corresponding
period of 2011). The decreases were due to the reduction of headcounts and a much lesser extent 27,700 of professional fees related
to preparation of the quarterly reports and other corporate matters (compared to $187,300 for the same period in 2011). These fees
declined significantly primarily because the 2011 amounts included significant fees related to the sale of Cancable.
Interest and other
expenses (income)
: Interest and other income for the three months ended September 30, 2012 were $24,400 or 1.9% of revenues
compared to net expenses of $242,800 or 16.5% of revenues for the same period in 2011. The net financing expenses decreased to
$37,600 or 2.9% of revenues compared to $120,900 or 8.2% of revenues for the same period in 2011. The interest due with respect
to the Company’s credit facilities was $29,600 for the three months ended September 30, 2012 compared to $107,100 for the
same period in 2011. The decrease in expense was mainly due to the decrease of term loans in the amount of $7,287,500 after the
sale of Cancable in September 2011. Additionally, the foreign currency transaction gain was $61,900 for the three months ended
September 30, 2012, compared with a foreign currency transaction loss of $121,900 for the same period of 2011. The change was related
to the foreign currency translation of term notes which resulted because the Canadian dollar was trading higher than the U.S. dollar
as at September 30, 2012 as compared to the same period of 2011.
Income taxes
: No provisions for
income taxes were recorded during the three months ended September 30, 2012 and 2011, because the Company generated a loss for
both financials and tax reporting during the former period and because income in 2011 was completely offset by the utilization
of net operating loss carry forwards (which assets had been fully reserved).
Net Income (Loss)
: Net loss for
the third quarter of fiscal 2012 was $214,300 compared to net income of $11,646,500 for the same period in 2011. The net
income for the three months ended September 30, 2011 includes income from discontinued operations of $12,420,900 and there
was no such balance for the three months ended September 30, 2012.
Results of Operations
Comparison of Nine Month Period Ended September 30, 2012
to Period Ended September 30, 2011
For purposes of this “Management’s
Discussion and Analysis of Results of Operations”, we compared the nine months ended September 30, 2012 to the corresponding
period in 2011.
Sales
: Sales for the nine month
period ended September 30, 2012 decreased 30.4% to $4,120,000 from $5,917,800 for the nine month period ended September 30, 2011.
The decrease in revenue was mainly due to the decrease in contract revenue for the nine month period ended 2012 to $3,032,600 compared
to $4,860,000 for same period in 2011. The decrease in contract revenue was primarily due to less contracts being received in the
first nine months compared to the same period in 2011. The service revenue was $1,087,400 for the nine months ended September 30,
2012, compared to $1,058,000 for same period in 2011.
Cost of sales (excluding depreciation
and amortization)
: Cost of sales for the nine months ended September 30, 2012 was $2,011,500 or 48.8% of revenues compared
to $3,076,500 or 52.0% of revenues for same period in 2011. The material cost was $1,150,100 or 27.9% of revenue for the nine months
ended September 30, 2012 compared to $2,064,000 or 34.8% of revenues in the same period of fiscal 2011. The decrease in percentage
of material costs was primarily a result of some contracts requiring less material. Labor and subcontractor costs also decreased
to $856,500 or 20.8% of revenues for the nine months ended September 30, 2012 compared to $1,004,000 or 17.0% of revenues for the
same period of fiscal 2011. The decrease in labor and subcontractor cost was mainly due to the decrease in revenue.
Project expenses
: Project expenses
decreased to $718,500 or 17.4% of revenue for the nine months ended September 30, 2012, compared to $879,200 or 14.9% of revenue
for the same period in 2011. The balance mainly includes the salaries and benefits of indirect staff amounting to $417,900 in the
nine months ended September 30, 2012 compared to $532,400 for the same period of fiscal 2011. The decrease in salaries and benefits
was primarily due to a decrease in headcount. Automobile and travel expenses decreased to $207,600 for the nine months ended September
30, 2012 compared to $228,700 for the same period of fiscal 2011. The decrease in automobile and travel expenses was due to the
decrease in repair and maintenance cost and travel by the staff.
Selling expenses
: Selling expenses
were $632,100 or 15.3% of revenues for the nine months ended September 30, 2012 compared to $722,400 or 12.2% of revenues for the
same period in 2011. The balance for the nine months ended September 30, 2012 is mainly comprised of salaries and commissions to
salespersons of $456,300 compared to $564,500 for the same period of fiscal 2011. The decrease was primarily due to the decrease
in commission expenses as a result of decreased revenues. Advertising, promotion and trade show expenses were $110,500 for the
nine months ended September 30, 2012 compared to $93,700 for the same period of fiscal 2011
General and administrative expenses
:
General and administrative expenses were $1,135,100 or 27.5% of revenues for the nine months ended September 30, 2012 compared
to $1,610,700 or 27.2% for the same period in 2011. The balance for the nine months ended September 30, 2012 was comprised of the
following:
|
·
|
$176,900 of professional fees related to preparation of quarterly reports and other corporate matters
compared to $447,000 for the same period in 2011. The decrease in professional fees was primarily due to the decrease in legal
cost for corporate matters. The sale of Cancable resulted in higher legal and professional fees in 2011
|
|
·
|
Total salaries and benefits to administrative staff of $500,400 for the nine months ended September
30, 2012 compared to $526,100 for the corresponding period of 2011.
|
|
·
|
Total expenses for research and development of $130,700 for the nine months ended September 30,
2012 compared to $167,400 for the corresponding period of 2011. The decrease was mainly due to the Company receiving a higher government
credit for the nine months ended September 30, 2011 than the government credit received in 2012.
|
Depreciation
: Total depreciation
of property plant and equipment was $29,100 for the nine months ended September 30, 2012 compared to $54,000 for the same period
in 2011.
Interest and other expenses (income)
:
Interest and other expenses for the nine months ended September 30, 2012 were $59,000 or 1.4% of revenues compared to $559,400
or 9.5% of revenues for the same period in 2011. The balance for the nine months ended September 30, 2012 was primarily comprised
of net financing expenses which decreased to $121,200 or 2.9% of revenues compared to $473,600 or 8.0% of revenues for the same
period of 2011. The interest due with respect to the Company’s credit facilities was $79,000 for the nine months ended September
30, 2012 compared to $419,100 for the same period in 2011. The decrease in expense was mainly due to the decrease of term loans
in the amount of $7,287,500 after the sale of Cancable in September 2011. Additionally, the foreign currency transaction gain was
$62,200 for the nine months ended September 30, 2012, compared with foreign currency transaction loss of $83,600 for same period
of 2011. The change was related to the foreign currency translation of term notes which resulted because the Canadian dollar was
trading higher than the U.S. dollar as at September 30, 2012 as compared to the same period of 2011.
Income taxes
: No income taxes were
recorded during the nine months ended September 30, 2012 and 2011 because we recognized losses for both financial and tax reporting
during the former period and because we offset all of our net income during the latter period through the utilization of net operating
loss carryforwards. Because of this and because we had and have fully reserved substantially all our deferred income tax assets,
there was no provision and/or benefit for income taxes.
Net Income (Loss)
: Net loss for
the nine months ended September 30, 2012 was $465,400 compared to net income of $11,640,200 for the same period in 2011. The
net income for the nine months ended September 30, 2011 includes income from discontinued operations of $12,624,500 and there
was no such balance for the nine months ended September 30, 2012.
Liquidity and Capital Resources
Since our inception, we have financed our
operations through bank debt, loans and equity from our principals, loans from third parties and funds generated by our business.
At September 30, 2012, we had $1,080,205 in cash. We believe that cash from operations and our credit facilities with Laurus and
others will continue to be adequate to satisfy our ongoing working capital needs as we do not expect such lenders to demand acceleration
of the outstanding loans extended to the Company. We do not currently have the ability to repay the notes in the event of a demand
by the holders. During 2012, our primary objectives in managing liquidity and cash flows are to ensure financial flexibility
to support growth and entry into new markets and improve inventory management and to accelerate the collection of accounts receivable.
Because we do not anticipate that Laurus
(one of our principal stockholders) will demand repayment of the Iview Note (see Note 5), we believe we have adequate resources
to sustain our operations for the next year as absent such liability we have working capital of approximately $550,000 (before
exclusion of deferred income and certain liabilities that we do not anticipate paying within the next year – e.g. accrued
interest payable to related entities). In addition, we have significantly reduced our general and administrative expenses and net
losses since the corresponding three and nine month periods of the preceding year and we have additional borrowing capability of
approximately $175,000 under the line of credit discussed at Note 2.
Net Cash Used in Operating Activities
.
Net cash used in operating activities amounted to $127,700 for the nine months ended September 30, 2012 compared to $295,300 for
the corresponding period of 2011. The change was primarily a result of an increase in accounts receivable during the nine months
ended September 30, 2012.
Net Cash Provided By Financing Activities
.
Net cash provided by financing activities was approximately $313,300 for the nine months ended September 30, 2012 compared to net
cash provided by financing activities of $327,300 for the nine months ended September 30, 2011. The change was primarily because
we had net inflows of approximately $313,300 for the nine months ended September 30, 2012 under our lines of credit compared with
net outflows of approximately $260,700 for the nine months ended September 30, 2011. Moreover, the repayment of term loans was
$66,700 during the period ended September 30, 2011 and there was no such repayment of term loans for the period ended September
30, 2012.
Recent Accounting Pronouncements
From time to time, new accounting pronouncements
are issued by the FASB that are adopted by the Company as of the specified effective date. Unless otherwise discussed, management
believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on the Company’s
consolidated financial statements upon adoption.
Off Balance Sheet Arrangements
None
DISCUSSION OF CRITICAL ACCOUNTING
ESTIMATES
Critical accounting estimates are those
that management deems to be most important to the portrayal of our financial condition and results of operations, and that require
management’s most difficult, subjective or complex judgments, due to the need to make estimates about the effects of matters
that are inherently uncertain. We have identified the following critical accounting estimates: accounts receivable allowances,
contract revenues, inventory reserves, stock-based compensation. See our Form 10-K for the year ended December 31, 2011, for a
discussion of our critical accounting estimates.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING
STATEMENTS
This quarterly report contains forward-looking
statements about our company that are not historical facts but, rather, are statements about future expectations. When used in
this document, the words “anticipates,” “believes,” “expects,” “intends,” “should”
and similar expressions as they relate to us, or to our management, are intended to identify forward-looking statements. However,
forward-looking statements in this document are based on management’s current views and assumptions and may be influenced
by factors that could cause actual results, performance or events to be materially different from those projected. These forward-looking
statements are subject to numerous risks and uncertainties. Important factors, some of which are beyond our control, could cause
actual results, performance or events to differ materially from those in the forward-looking statements. These factors include
impact of general economic conditions in North America, changes in laws and regulations, fluctuation in interest rates and access
to capital markets.
Our actual results or performance could
differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, we cannot predict
whether any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do, what impact
they will have on our results of operations and financial condition.
For further information about these and
other risks, uncertainties and factors, please review the disclosure included in our December 31, 2011 Annual Report on Form 10-K
under the caption “Risk Factors.”
You should not place undue reliance on
any forward-looking statements. Except as otherwise required by federal securities laws, we undertake no obligation to publicly
update or revise any forward-looking statements or risk factors, whether as a result of new information, future events, changed
circumstances or any other reason after the date of this quarterly report.
|
Item 3.
|
Quantitative and Qualitative Disclosures about Market
Risk
|
This item is not applicable to the Company
because we are a smaller reporting company.
|
Item 4.
|
Controls and Procedures
|
Evaluation of Disclosure Controls and
Procedures.
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed
in our filings under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the
periods specified in the rules and forms of the SEC. This information is accumulated to allow timely decisions regarding required
disclosure. As of September 30, 2012, the end of the period covered by this quarterly report on Form 10-Q, our management, including
our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our disclosure controls and procedures,
as such terms are defined under rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended.
Based on this assessment, our management concluded that our disclosure controls and procedures were effective as of the end period
covered by this quarterly report.
Changes in Internal Control Over Financial
Reporting.
There has not been any change in our internal control over financial reporting (as such term is defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act) during our third fiscal quarter of 2012 that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.
PART
II. OTHER INFORMATION
|
Item 1.
|
Legal Proceedings
|
None.
This item is not applicable to the Company
because we are a smaller reporting company.
|
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds
|
None.
|
Item 3.
|
Defaults upon Senior Securities
|
None.
|
Item 4.
|
Mine Safety Disclosures
|
Not applicable.
|
Item 5.
|
Other Information
|
During the period covered by this quarterly
report, there has been no material change in the nomination process for directors.
31.1
|
|
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
31.2
|
|
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
32.1
|
|
Chief Executive Officer certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
32.2
|
|
Chief Financial Officer certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
SIGNATURES
In accordance with the requirements of
the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CREATIVE VISTAS, INC.
|
|
|
|
By:
|
/s/ Dominic Burns
|
|
|
Dominic Burns, CEO
|
|
|
|
|
By:
|
/s/ Heung Hung Lee
|
|
|
Heung Hung Lee, CFO and Principal Accounting Officer
|
|
Dated: November 14, 2012
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