(Mark one)
xANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIESSECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2010
or
¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THESECURITIES 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) 2100 Forbes Street Unit 8-10 Whitby, Ontario, Canada (Address of Principal Executive Offices) | 86-0464104 (I.R.S. Employer Identification No.) L1N 9T3 (Zip Code) |
Registrant’s Telephone Number, Including Area Code: 905-666-8676
Securities registered pursuant to Section 12(b) of the Exchange Act:
None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, No Par Value
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
YesYes o¨Nox
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.
YesYes o¨Nox
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. Yesx 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).
YesYes ¨xNo¨
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 registrant’s knowledge, in the definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to the Form 10-K.x
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): Yes x No¨
Large Accelerated Filer¨ | Accelerated Filer¨ | |
Non-Accelerated Filer¨ | Smaller Reporting Companyx | |
| (Do not check if a smaller reporting company) | ||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
¨ Yes x No
The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter was approximately $629,798 (8,991,121$179,822 (8,991,121 Shares at $0.07)$0.02).
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
Yes¨No¨
At March 31, 2011,30, 2012, the number of shares outstanding of the registrant’s common stock, no par value (the only class of common stock), was 37,488,714.37,488,714.
| PART I | ||||
| Item 1. | Business | 1 | ||
| Item 1A. | Risk Factors | |||
| Item 1B. | Unresolved Staff Comments | |||
| Item 2. | Properties | |||
| Item 3. | Legal Proceedings | |||
| Item 4. | ||||
| PART II | 12 | |||
| Item 5. | Market for the Registrant's Common Equity Related Stockholder Matters and Issuer Purchases of Equity Securities | |||
| Item 6. | Selected Financial Data | |||
| Item 7. | Management's Discussion and Analysis of Financial Condition and Results of Operations | |||
| Item 7a. | Quantitative and Qualitative Disclosures about Market Risk | |||
| Item 8. | Financial Statements and Supplementary Data | |||
| Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | |||
| Item 9a. | Controls and Procedures | |||
| Item 9b. | Other Information | |||
| PART III | ||||
| Item 10. | Directors, Executive Officers and Corporate Governance | |||
| Item 11. | Executive Compensation | |||
| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | |||
| Item 13. | Certain Relationships and Related Transactions, and Director Independence | |||
| Item 14. | ||||
| Item 15. | Exhibits and Financial Statement Schedules |
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 marketmarkets 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 customer concentration, 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.
PART I
| Item 1. | Business |
Corporate Background and Overview
Creative Vistas, Inc. (the “Company” or “we”) 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 subsidiariessubsidiary 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 2010.2011. 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 product s and technologies to the market.
On December 31, 2005, we acquired Cancable Inc. (“Cancable”) through our wholly owned Delaware subsidiary, Cancable Holding Corp. (“Cancable Holding”). 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 ownedwholly-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 8K8-K filed on October 17, 20 07.2007. Cancable Holding, Cancable Inc., Cancable XL Inc., XL Digital Services Inc. and Cancable, Inc. are together the “Cancable Group”.As described below, we disposed of Cancable Group in September 2011. In October 2009,2011, we incorporated OSS-IM View2300657 Ontario Inc. which is responsible for providing BI software. The current version of BI software manages data from over a million multi-faceted transactions for large field-services 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.
On September 16, 2011, the Company entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) with Cancable Holding and with Cancable and Dependable Hometech, LLC (“Purchaser”), pursuant to which the Company sold its equity interest in Cancable Holding to Purchaser for a consideration of US$1.00 on such date. In connection with such sale, we assigned 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 US$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 US$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 US$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 US$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 US$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 US$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 US$4,800,000 as of September 16, 2011. The Holders are affiliates of Laurus Master Fund, Ltd. (“Laurus”).
Today, our operations are divided into two distinct operating segments: (a)we mainly focus on security and surveillance products and services, and (b) broadband deployment and provisioning services. Through AC Technical Systemsour technology integration team of engineers, we integrate various security related products to provide integrated security solutionsa single source solution to our commercialgrowing customer base. Through Cancable,Our design, engineering and XL Digital, we provide broadband deployment and provisioning services to residential and commercial markets.
Our 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 the early stages of building a strong consistent sales and marketing team to begin contributing revenues to us.
Industry 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:
| · | Increased global awareness due to the increased threats of terrorism; |
| · | Older security devices such as the VCR have become obsolete and new technologies have provided much more efficient systems at a better price; |
| · | Evolving digital technologies have started to replace antiquated analog technologies in the market space; |
| · | Expansion of budgets due to increased awareness of the need for security; |
| · | Increase in crime rates and shrinkage in the industry; |
| · | Integration of multiple devices has expanded the market for technically advanced integrators such as our firm; |
| · | Growing public concern about |
| · | Decreased cost of security technology. |
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 and 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 buil dbuild multiple relationships as opposed to 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:
| · | Retain a consultant to appropriately outline its needs and design a system that satisfies those needs; |
| · | Once the design is complete, a tender is released whereby a number of invited system integrators bid on the required system; |
| · | 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; |
| · | 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 |
| · | The customer, based on price and qualifications of the system integrator, will award the project to one or more system integrators. |
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 effi cientefficient 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 work to 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:
| · | Consulting, audit, review and planning; |
| · | Engineering and design; |
| · | Customization, software development and interfacing; |
| · | System integration, installation and project management; |
| · | System training, technical support and maintenance; and |
| · | Ongoing maintenance, preventative maintenance and service and upgrades. |
We believe that the following key attributes provide us with a sustainable competitive advantage including:
| · | Experience and expertise in the security industry; |
| · | In-house research and development departments; |
| · | Dedicated service team; |
| · | Access to and experience in a variety of product mix; |
| · | Customized software and hardware products; |
| · | Strong references; and |
| · | Strong partnerships with suppliers and integrators. |
Our strategy for growth and expansion is to:
| · | Expand our network of technology partners; |
| · | Develop and maintain long-term relationships with clients; |
| · | Open regional offices in key areas to expand revenue and service; |
| · | Capitalize on our position as a leading provider of technologically advanced security systems; and |
| · | Expand our marketing and sales program within our key vertical markets. |
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 involves 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 the system. During this stage, we provide the following:
| · | Detailed schedule of integration |
| · | List of components and labor assignments |
| · | Officially assign the project to one of our project managers |
| · | Production department starts procurement schedules |
| · | Construction draw date schedules |
| · | Progress billings and schedule site visits for quality control |
| · | Tests of final terminations and technology components in-house in order to avoid product failure on site |
| · | Hardware/software and network integration |
| · | Validation and testing |
| · | Final sign off and pass over to service department |
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 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 $670,000 in fiscal year 2011 and $860,000 in fiscal year 2010 and $590,000 in fiscal year 2009.2010. Expenses include engineering sa laries,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 on 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, 20102011 and December 31, 2009,2010, our revenue from such service and maintenance activities was $1,409,400$1,393,800 and $1,471,500$1,409,400 respectively, and is included in service revenue in the accompanying consolidated statements of operations and comprehensive (loss).
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 deriveddeveloped 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:
| · | Trade |
| · | Mailers |
| · | Direct sales calls |
| · | Web promotions |
| · | Seminars |
| · | Collaborations with manufacturers |
| · | Collaborations with consultants and architects |
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 four markets:
| · | Government |
| · | Healthcare |
| · | Education |
| · | Retail |
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,contracts that 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, 2010,2011, our backlog was approximately $2,000,000.
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 tha tthat 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, 2010, Cancable has a staff of over 4002011,we have47 full time employees and A.C. Technical Systems has a staff of 47 employees.
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 raisessalary increases based on skill sets.
| ITEM 1A. | 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 itsour customers, it will adversely impact our revenues.
Risks associated with possible delays ofin 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 accountsaccount 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 reason ablereasonable 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 buildbuilding 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:
| · | Changes in operating plans |
| · | Lower than anticipated sales |
| · | Increased costs of expansion |
| · | Increase in competition relating to decrease in price |
| · | Increased operating costs |
| · | Potential acquisitions |
Additional financing may not be available on commercially reasonable terms or may not be available at all.
Because our directors own approximately 76% of our outstanding common shares, they could make and control corporate decisions that may be disadvantageous to minority shareholders
Our directors own approximately 76.0%76% 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 significant 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.consequences. Our annual debt service requirements related to payments of principal on the net balance of our term notes ($16,551,128 at December 31, 2010) are $14,051,128 and $2,500,000note is $1,548,207 in 2011 and 2013 respectively.2012. In addition, interest on the notesnote is payable on a monthly basis. We also have a series of other notes payable totaling $1,500,000 as of December 31, 2010. The $1,500,000 promissory note included in other notes payable,2011, which were issued by Creative Vistas Acquisition to The Burns Trust and The Navaratnam Trust in connection with the acquisition of AC Technical, and which have no fixed term of repayment. The note payable was transferred to Malar Trust during Fiscal Year 2006 with the same payment term. The term notes are secured by substantially all of our assets.& #160; Interest on the term notes arenote is settled in cash. We do not currently have the ability to repay the notesnote in the event of a demand by the holder; accordingly, 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), and, in all likelihood, our unsecured creditors 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
Effective February 23, 2011, our common stock became ineligible for quotation on the OTC Bulletin Board due to quoting inactivity pursuant to Rule 15c2-11 under the Securities Exchange Act of 1934, as amended. The Company’s common stock has been moved to OTC Link, which is operated by OTC Markets Group Inc. (formerly known as Pink OTC Markets Inc. or “Pink Sheets”). OTC Link is an electronic quotation system that displays quotes from broker dealersbroker-dealers for many over-the-counter securities. Although, our common stock is quoted on OTC Link, 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 reg isteredregistered 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 bas isbasis 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 Corporationcould 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 2010,2011, this e xtraextra 21.5% totaled approximately $200,000.
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-K 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-K and should not be considered part of this Annual Report on Form 10-K.
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 1B. | UNRESOLVED STAFF COMMENTS |
Not applicable – None.
| ITEM 2. | PROPERTIES |
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 which services the Cancable Group. The premises, which were rented in 2003, consist of approximately 7,600 square feet. We believe that these offices arethe office is adequate for our present purposes and planned expansion. Furthermore, we believe these offices arethis office is in good condition and adequately covered by insurance.
| ITEM 3. | LEGAL PROCEEDINGS |
None.
| ITEM 4. | MINE SAFETY DISCLOSURES |
Not applicable
| 11 |
PART II
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 Pink Sheets website (www.pinksheets.com) under the symbol “CVAS” (prior to February 23, 2011, our common stock was quoted on the OTC Bulletin Board).The. 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.Stock regulations apply to our securities.” The following table shows the range of bid prices per share of common stock on the OTC Bulletin Board or OTC Link, as reported by Pink Sheets LLC,appropriate, 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, 2009 | $ | 0.08 | $ | 0.30 | ||||
| June 30, 2009 | $ | 0.08 | $ | 0.16 | ||||
| September 30, 2009 | $ | 0.08 | $ | 0.20 | ||||
| December 31, 2009 | $ | 0.06 | $ | 0.18 | ||||
| March 31, 2010 | $ | 0.07 | $ | 0.11 | ||||
| June 30, 2010 | $ | 0.07 | $ | 0.09 | ||||
| September 30, 2010 | $ | 0.07 | $ | 0.01 | ||||
| December 31, 2010 | $ | 0.00 | $ | 0.00 | ||||
| Quarter ended: | Low Bid Price | High Bid Price | ||||||
| March 31, 2010 | $ | 0.07 | $ | 0.11 | ||||
| June 30, 2010 | $ | 0.07 | $ | 0.09 | ||||
| September 30, 2010 | $ | 0.07 | $ | 0.01 | ||||
| December 31, 2010 | $ | 0.01 | $ | 0.05 | ||||
| March 31, 2011 | $ | 0.03 | $ | 0.04 | ||||
| June 30, 2011 | $ | 0.02 | $ | 0.04 | ||||
| September 30, 2011 | $ | 0.02 | $ | 0.08 | ||||
| December 31, 2011 | $ | 0.01 | $ | 0.10 | ||||
Our securities may not qualify for listing on NasdaqNASDAQ 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,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.
As of March 14, 20112012 there were 264 holders of our Common Stock. We have 37,488,714 outstanding shares of Common Stock.
For information regarding securities authorized for issuance under equity compensation plans (pursuant to Item 201(d) of Regulation S-K), please see the information provided under Item 12 of this Form 10-K, Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes thereto. The following discussion contains certain forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed therein.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 circumsta nces.
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 2011. 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 with Cancable and Dependable Hometech, LLC (“Purchaser”), pursuant to which we sold our equity interest in Cancable Holding to Purchaser for a consideration of US$1.00 on such date. In connection with such sale, we assigned 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 US$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 US$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 US$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 US$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 US$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 US$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 US$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 Year Ended December 31, 2010 to2011
with Year Ended December 31, 2009
Discontinued Operations
During 2011, we discontinued certain operations. In accordance with FASB ASC 360, our consolidated financial information presents the net effect of discontinued operations separate from the results of our continuing operations. During the year ended December 31, 2011, we recognized a gain from discontinued operations of approximately $12,624,500.
Revenue
: SalesDirect Expensesexpenses (excluding depreciation)
Project cost
Selling expenseexpenses: Selling expense was $911,500expenses were $903,500 or 2.3%12.5% of revenues for the year ended December 31, 20102011 compared to $905,600with $911,500 or 2.3%12.7% of revenues for the same period in 2009. Selling expenses were mainly related to AC Technical segment.2010. Salaries and commissioncommissions to salespersons for Fiscal Year 2010 wasfiscal year 2011 were $395,200 compared with $396,300 compared to $432,900 for Fiscal Year 2009. The decrease was mainly due to the decrease in revenue on which commissions are based. The advertisingfiscal year 2010. Advertising and promotion and trade show expenses were $145,600 in fiscal year 2011 compared with $159,200 in Fiscal Year 2010 compared to $134,800 for Fiscal Year 2009.fiscal year 2010.
General and administrative expenses
: General and administrative expenses wereDepreciation
: Total depreciation of property plant and equipment wasAmortization of Intangible Assets
Interest and other Expenses
Income taxes
: No income taxes were paid and/or owed during the year ended December 31,Loss
from operations:Net loss from continuing operations: Net loss from continuing operations for the year ended December 31, 20102011 was $1,007,400 compared to operatingwith $1,680,700 the same period in 2010. Net loss of $500,400from continuing operations for the year ended December 31, 2009.2011 was lower, due primarily to the decrease in financing expenses and other reasons described above.
Net income/loss: Net income for the year ended December 31, 2011 was $11,617,100 compared with a net loss of $618,800 for the same period in 2010. The net income for the year ended December 31, 2011 includes income from discontinued operations of $451,500 and a gain on disposal of discontinued operations of $12,173,000. The Company’s operating loss was $478,900 for the year ended December 31, 2011 compared with an operating loss of $931,300 for the year ended December 31, 2010. The year-over-year increasedecrease in operating incomeloss primarily reflected a focused cost reduction program acrossreflects the Companydecrease in amortization of intangible assets and an increase in revenue.
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, 2010,2011, we had $2,030,707$906,982 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 asneedsas we do not expect Laurus to demand acceleration of the loansloan extended to the Company.. We do not currently have the ability to repay the notesnote in the event of a demand by the holder. Furthermore, we granted a security interest to Laurus and its related entities in substantially all of our assets and, accordingly, in the event of any default under our agreements with Laurus and its related entities, they could conceivably attempt to foreclose on our assets, which could cause us to terminate our operations. During Fiscal Year 2011,fiscal year 2012, 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.
In addition, we have introduced cost cutting initiatives within the Administration, Project and Selling departments to improve efficiency and also to improve cash flow. We have also increased our rates for services provided by AC Technical to improve gross margins. This is in line with our competitors. Finally, we expect to realize additional benefits from our research and development efforts within the next 12 months as we start to introduce our own line of customized products to the industry. These products and technologies are expected to improve gross margins. We plan to seek additional capital in the future to fund operations, growth and expansion including through additional equity or debt financing or credit facilities. We have had early stage discussions with investors about potential investment in our com panycompany at a future datedate; however, no assurance can be made that such financing would be available, and if available that it would be on terms acceptable to us.
Net Cash Used in Operating Activities
. Net cash used by operating activities amounted toBalance sheet as at December 31, 2010 to2011 compared with December 31, 2009
Accounts Receivable
Our accounts receivable decreased to $3,039,700$895,200 as of December 31, 20102011 from $4,292,100$1,129,900 as of December 31, 2009. Accounts receivable of Cancable as at December 31, 2010 was $1,909,800 compared to $2,959,800 as at December 31, 2009. The decrease was attributable to the timing of payment by our customers. Accounts receivable of the AC Technical segment was $1,207,800 as at December 31, 2010 compared to $1,269,200 as of December 31, 2009.2010. The decrease was mostly due to the timing of payment by our customers.
Inventory
Inventory on hand on December 31, 20102011 decreased to $692,900$375,000 compared to $789,000with $477,000 as of December 31, 2009. Inventory2010. The decrease was mainly due to the decrease in contract revenue during the fourth quarter of the AC Technical segment was $476,900 compared to $440,225 as of December 31, 2009. Inventory at the Cancable segment was decreased to $215,900 as at December 31, 2010 from $261,200 as at December 31, 2009. There was no material fluctuation of the balances.
Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities decreased to $3,990,900$1,257,300 as of December 31, 20102011 compared to $4,555,300with $1,748,600 as of December 31, 2009.2010. The balance for the AC Technical segment was $1,096,400 as of December 31, 2010 compared to $1,146,300 as of December 31, 2009. Accounts payable for Cancable Group was $2,242,300 as at December 31, 2010 compared to $3,029,000 as at December 31, 2009. The decrease in the balance was mainly due to the decrease in purchases of material in the last three months of the year and the timing of payments to our suppliers.
Deferred Revenue
Deferred revenue increaseddecreased to $60,800 at December 31, 2011 compared with $110,500 at December 31, 2010 compared to the balance of $84,500 as at December 31, 2009.2010. This increasedecrease 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.
Net Cash providedUsed by (used in) Investing Activities
Net cash used forin investing activities was $124,200$527,900 for the twelve monthsyear ended December 31, 2010,2011, compared to $83,200 receivedwith $1,018,300 used in investing activities for the twelve months ended December 31, 2009. The total purchase2010. Purchases of property and equipment of the Company was $131,000were $4,600 for the twelve months endingended December 31, 2010 2011 and $131,100$6,400 for the year ended December 31, 2009.
Net Cash Provided by (used(Used in) Financing Activities
Recent Accounting Pronouncements
–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 our critical accounting estimates which are discussed below.
Accounts receivable allowances are determined using a combination of historical experience, current information and management judgment. Actual collections may differ from our estimates.
We derive revenues from contract revenue and services revenue, which include assistance in implementation, integration, customization, maintenance, training and consulting. We recognize revenue for contractcontracts 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 Issue 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 inventoryrecord a reserve 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-downwrite-downs may be required. A 10% increase in inventory reserve would increase expenses by $0.1 million.
For issuance of equity instruments for services, we record all stock-based compensation as an expense in the financial statements, and that such cost be measured at the grant date fair value of the award. We record the grant date fair value of stock-based compensation awards as an expense over the vesting period of the related stock options. In order to determine the fair value of the stock options on the date of grant, we use the Black-Scholes-Merton option-pricing model. Inherent in this model are assumptions related to expected stock-price volatility, option life, risk-free interest rate and dividend yield. Although the risk-free interest rates and dividend yield are less subjective assumptions, typically based on factual data derived from public sources, the expected stock-price volatility, forfeiture rate and option life assumptio nsassumptions require a greater level of judgment which make them critical accounting estimates. We use an expected stock-price volatility assumption that is based on historical volatilities of our common stock and we estimate the forfeiture rate and option life based on historical data related to prior option grants.
Commitments
We have entered into contracts for certain consulting services providing for monthly payments and are required to repay the principal of our convertibleterm notes and promissory notes due to Laurus and other parties. In addition, we have also entered into operating leases for our vehicles, computer and office equipment.vehicles. The total minimum annual payments for the next five years and thereafter are as follows:
Payment due by Period | ||||||||||||||||||||||||||||
Total | 2011 | 2012 | 2013 | 2014 | 2015 | Thereafter | ||||||||||||||||||||||
| Term notes | $ | 16,551,128 | $ | 14,051,128 | $ | - | $ | 2,500,000 | $ | - | $ | - | $ | - | ||||||||||||||
| Note payable to related parties | 1,500,000 | - | - | - | - | - | 1,500,000 | |||||||||||||||||||||
| Capital leases* | 3,822,062 | 1,813,382 | 1,989,358 | 19,322 | - | - | - | |||||||||||||||||||||
| Operating leases | 1,247,259 | 590,237 | 459,635 | 197,387 | - | - | - | |||||||||||||||||||||
| Commitments related to consulting agreements | 1,210,000 | 605,000 | 605,000 | - | - | - | - | |||||||||||||||||||||
| $ | 24,330,449 | $ | 17,059,747 | $ | 3,053,993 | $ | 2,716,709 | $ | - | $ | - | $ | 1,500,000 | |||||||||||||||
| Payment due by period | ||||||||||||||||||||
| Term notes | Notes payable to related parties | Commitments related to consulting agreements | Operating leases for vehicles | Total | ||||||||||||||||
| 2012 | $ | 1,548,207 | $ | - | $ | 458,300 | $ | 15,000 | $ | 2,021,507 | ||||||||||
| 2013 | - | - | - | - | - | |||||||||||||||
| 2014 | - | - | - | - | - | |||||||||||||||
| 2015 | - | - | - | - | - | |||||||||||||||
| 2016 | - | - | - | - | - | |||||||||||||||
| Thereafter | - | 1,500,000 | - | - | 1,500,000 | |||||||||||||||
| Total | $ | 1,548,207 | $ | 1,500,000 | $ | 458,300 | $ | 15,000 | $ | 3,521,507 | ||||||||||
The figures in the above table except with respect to capital leases do not include interest costs.
| ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Not applicable.
| ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
INDEX TO FINANCIAL STATEMENTS
Creative Vistas, Inc.
Consolidated Financial Statements
For the years ended December 31, 20102011 and 2009
| Report of Independent Registered Public Accounting Firm | F-1 | |
| Balance Sheets | F-2 | |
| Statements of Operations and Other Comprehensive Income (Loss) | F-3 | |
| Statement of Stockholders’ (Deficiency) | F-4 | |
| Statements of Cash Flows | F-5 | |
| Notes to Financial Statements | F-6 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To The Stockholders and Board of Directors
Creative Vistas, Inc
.We have audited the accompanying consolidated balance sheets of Creative Vistas, Inc. as of December 31, 20102011 and 2009,2010, and the related consolidated statements of operations and comprehensive income (loss), stockholders’ (deficiency) and cash flows for the years then ended. 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)States of America). 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 audits 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 su pportingsupporting 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, 2011 and 2010, and 2009, andthe results of its operations and its cash flows for the years then ended, 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 continuing 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.
/s/ Kingery & Crouse, PA
Certified Public Accountants
Tampa, Florida
March 30, 2011
| Creative Vistas, Inc. | ||||||||
| Consolidated Balance Sheets | ||||||||
| December 31 | 2010 | 2009 | ||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash and bank balances | $ | 2,030,707 | $ | 2,441,204 | ||||
| Accounts receivable, net of allowance for doubtful accounts $253,714 (2009-$213,862) | 3,039,739 | 4,292,071 | ||||||
| Income tax recoverable | 180,000 | 257,142 | ||||||
| Inventory, net | 692,881 | 789,005 | ||||||
| Prepaid expenses | 372,507 | 347,048 | ||||||
| Total current assets | 6,315,834 | 8,126,470 | ||||||
| Property and equipment, net of depreciation and amortization | 4,407,739 | 6,669,553 | ||||||
| Deposits | 228,434 | 282,359 | ||||||
| Deferred financing costs, net | 225,107 | 384,521 | ||||||
| Intangible assets, net | 56,316 | 284,286 | ||||||
| Deferred income taxes | 37,430 | 36,879 | ||||||
| $ | 11,270,860 | $ | 15,784,068 | |||||
| Liabilities and Stockholders’ (Deficiency) | ||||||||
| Current Liabilities | ||||||||
| Bank indebtedness | $ | 650,744 | $ | 1,960,057 | ||||
| Accounts payable | 1,470,157 | 1,916,270 | ||||||
| Accrued salaries and benefits | 1,170,546 | 1,223,357 | ||||||
| Accrued commodity taxes | 320,664 | 194,258 | ||||||
| Accrued liabilities | 1,029,508 | 1,221,435 | ||||||
| Current portion of obligation under capital leases | 1,487,460 | 1,501,106 | ||||||
| Deferred income | 110,485 | 84,502 | ||||||
| Deferred income taxes | 25,858 | 25,858 | ||||||
| Current portion of term notes | 14,051,128 | 1,750,000 | ||||||
| Total current liabilities | 20,316,550 | 9,876,843 | ||||||
| Term notes | 1,702,218 | 13,913,252 | ||||||
| Notes payable to related parties | 1,500,000 | 1,500,000 | ||||||
| Obligation under capital lease, net of current portion | 1,899,524 | 3,543,801 | ||||||
| Due to related parties | 230,870 | 219,876 | ||||||
| 25,649,162 | 29,053,772 | |||||||
| Stockholders’ (deficiency) | ||||||||
| Share capital | ||||||||
| Preferred stock no par value, 50,000,000 shares authorized, none issued or outstanding | ||||||||
| Common stock, no par value; 100,000,000 shares authorized | ||||||||
| Common stock | 6,555,754 | 6,555,754 | ||||||
| Additional paid-in capital | 14,314,354 | 14,158,942 | ||||||
| Accumulated (deficit) | (33,638,922 | ) | (32,957,115 | ) | ||||
| Accumulated other comprehensive (losses) | (1,609,488 | ) | (1,027,285 | ) | ||||
| (14,378,302 | ) | (13,269,704 | ) | |||||
| $ | 11,270,860 | $ | 15,784,068 | |||||
| Creative Vistas, Inc. | ||||||||
| Consolidated Balance Sheets | ||||||||
| December 31 | 2011 | 2010 | ||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash and bank balances | $ | 906,982 | $ | 1,779,345 | ||||
| Accounts receivable, net of allowance | ||||||||
| for doubtful accounts $117,392 (2010-$143,414) | 895,193 | 1,129,942 | ||||||
| Income tax recoverable | 235,294 | 180,000 | ||||||
| Inventory, net | 374,997 | 476,968 | ||||||
| Prepaid expenses | 8,205 | 14,765 | ||||||
| Current assets of discontinued operations | - | 2,734,814 | ||||||
| Total current assets | 2,420,671 | 6,315,834 | ||||||
| Property and equipment, net of depreciation | 718,155 | 790,874 | ||||||
| Deposits | 19,608 | 22,500 | ||||||
| Deferred financing costs, net | - | 2,157 | ||||||
| Deferred income taxes | 37,203 | 37,430 | ||||||
| Noncurrent assets of discontinued operations | - | 4,102,065 | ||||||
| $ | 3,195,637 | $ | 11,270,860 | |||||
| Liabilities and Stockholders’ (Deficiency) | ||||||||
| Current Liabilities | ||||||||
| Bank indebtedness | $ | - | $ | 255,312 | ||||
| Accounts payable | 1,056,892 | 1,478,673 | ||||||
| Accrued salaries and benefits | 86,756 | 56,984 | ||||||
| Accrued commodity taxes | 35,300 | 67,230 | ||||||
| Other accrued liabilities | 78,395 | 145,717 | ||||||
| Deferred income | 60,810 | 110,485 | ||||||
| Deferred income taxes | 25,858 | 25,858 | ||||||
| Term note payable | 1,548,207 | 8,902,374 | ||||||
| Current liabilities of discontinued operations | - | 9,273,917 | ||||||
| Total current liabilities | 2,892,218 | 20,316,550 | ||||||
| Notes payable to related parties | 1,500,000 | 1,500,000 | ||||||
| Due to related parties | 226,343 | 230,870 | ||||||
| Noncurrent liabilities of discontinued operations | - | 3,601,742 | ||||||
| 4,618,561 | 25,649,162 | |||||||
| Stockholders' (Deficiency) | ||||||||
| Share capital | ||||||||
| Preferred stock no par value, 50,000,000 shares authorized, none issued or outstanding | ||||||||
| Common stock, no par value; 100,000,000 shares authorized 37,488,714 shares issued and outstanding at December 31, 2011 and 2010 | 6,555,754 | 6,555,754 | ||||||
| Additional paid-in capital | 14,338,226 | 14,314,354 | ||||||
| Accumulated (deficit) | (22,021,782 | ) | (33,638,922 | ) | ||||
| Accumulated other comprehensive (loss) | (295,122 | ) | (1,609,488 | ) | ||||
| (1,422,924 | ) | (14,378,302 | ) | |||||
| $ | 3,195,637 | $ | 11,270,860 | |||||
The accompanying notes are an integral part of these financial statements.
| For the years ended December 31 | 2010 | 2009 | ||||||
| Contract and service revenue | ||||||||
| Contract | $ | 5,683,974 | $ | 5,812,671 | ||||
| Service | 34,179,089 | 33,943,128 | ||||||
| Others | 3,422 | 12,998 | ||||||
| 39,866,485 | 39,768,797 | |||||||
| Direct Expenses (excluding depreciation and amortization) | ||||||||
| Contract | 3,433,858 | 3,165,704 | ||||||
| Service | 25,997,384 | 26,748,201 | ||||||
| Project Expenses | 983,294 | 894,400 | ||||||
| Selling Expenses | 911,514 | 905,646 | ||||||
| General and administrative expenses | 4,746,140 | 5,571,034 | ||||||
| Depreciation expense | 2,225,631 | 2,643,119 | ||||||
| Amortization of intangible assets | 231,247 | 341,131 | ||||||
| 38,529,068 | 40,269,235 | |||||||
| Income (loss) from operations | 1,337,417 | (500,438 | ) | |||||
| Interest expenses and other expenses (income) | ||||||||
| Net financing expenses | 2,287,879 | 2,382,811 | ||||||
| Amortization of deferred charges | 173,438 | 162,997 | ||||||
| Foreign currency translation (gain) | (442,093 | ) | (1,447,054 | ) | ||||
| 2,019,224 | 1,098,754 | |||||||
| Loss before income taxes | (681,807 | ) | (1,599,192 | ) | ||||
| Income taxes | - | - | ||||||
| Net (loss) | (681,807 | ) | (1,599,192 | ) | ||||
| Other comprehensive gain (loss): | ||||||||
| Foreign currency translation adjustment | (582,203 | ) | (1,626,793 | ) | ||||
| Comprehensive loss | $ | (1,264,010 | ) | $ | (3,225,985 | ) | ||
| Basic weighted-average shares | 37,488,714 | 37,440,870 | ||||||
| Diluted weighted-average shares | 37,488,714 | 37,440,870 | ||||||
| Basic earnings (loss) per share | $ | (0.02 | ) | $ | (0.04 | ) | ||
| Diluted earnings (loss) per share | $ | (0.02 | ) | $ | (0.04 | ) | ||
Creative Vistas, Inc.
Consolidated Statements of Operations and Comprehensive Income (Loss)
| For the years ended December 31 | 2011 | 2010 | ||||||
| Contract and service revenue | ||||||||
| Contract | $ | 5,838,607 | $ | 5,683,974 | ||||
| Service | 1,396,015 | 1,467,179 | ||||||
| 7,234,622 | 7,151,153 | |||||||
| Direct expenses (excluding depreciation and amortization) | ||||||||
| Contract | 3,076,825 | 3,433,858 | ||||||
| Service | 666,855 | 495,796 | ||||||
| Project expenses | 1,078,865 | 983,294 | ||||||
| Selling expenses | 903,471 | 911,514 | ||||||
| General and administrative expenses | 1,923,981 | 1,975,549 | ||||||
| Depreciation expense | 63,554 | 82,464 | ||||||
| Amortization of intangible assets | - | 200,000 | ||||||
| 7,713,551 | 8,082,475 | |||||||
| Loss from operations | (478,929 | ) | (931,322 | ) | ||||
| Interest and other expenses (income) | ||||||||
| Net financing expenses | 473,883 | 784,162 | ||||||
| Amortization of deferred charges | 2,179 | 25,978 | ||||||
| Foreign currency transaction expenses (gains) | 52,390 | (60,773 | ) | |||||
| 528,452 | 749,367 | |||||||
| Loss from continuing operations before income taxes | (1,007,381 | ) | (1,680,689 | ) | ||||
| Income taxes | - | - | ||||||
| Loss from continuing operations | (1,007,381 | ) | (1,680,689 | ) | ||||
| Discontinued operations: | ||||||||
| Income from discontinued operations, net of income taxes | 451,498 | 998,882 | ||||||
| Gain on disposal of discontinued operations, net of income taxes | 12,173,023 | - | ||||||
| Income and gain from discontinued operations | 12,624,521 | 998,882 | ||||||
| Net income (loss) | 11,617,140 | (681,807 | ) | |||||
| Other comprehensive income (loss): | ||||||||
| Foreign currency translation adjustment | 1,314,366 | (582,203 | ) | |||||
| Comprehensive income (loss) | $ | 12,931,506 | $ | (1,264,010 | ) | |||
| Basic and diluted weighted-average shares | 37,488,714 | 37,488,714 | ||||||
| Basic and diluted income (loss) per share | ||||||||
| Continuing operations | $ | (0.03 | ) | $ | (0.04 | ) | ||
| Discontinued operations | $ | 0.34 | $ | 0.03 | ||||
The accompanying notes are an integral part of these financial statements.
| F-3 |
Creative Vistas, Inc.
Consolidated Statement of Stockholders’ (Deficiency)
| Shares | Amount | Additional paid-in capital | Accumulated (deficit) | Accumulated Other Comprehensive gain (losses) | Total Stockholders’ (deficiency) | |||||||||||||||||||
| Balance, December 31, 2008 | 37,224,926 | $ | 6,488,137 | $ | 14,005,627 | $ | (31,357,923 | ) | $ | 599,508 | $ | (10,264,651 | ) | |||||||||||
| Stock-based compensation | 263,788 | 67,617 | (45,054 | ) | - | - | 22,563 | |||||||||||||||||
| Option expenses | - | - | 10,524 | - | - | 10,524 | ||||||||||||||||||
| Warrants issued to financial institution for deferred principal payment | - | - | 187,845 | - | - | 187,845 | ||||||||||||||||||
| Net Loss | - | - | - | (1,599,192 | ) | - | (1,599,192 | ) | ||||||||||||||||
| Translation adjustment | - | - | - | - | (1,626,793 | ) | (1,626,793 | ) | ||||||||||||||||
| Balance, December 31, 2009 | 37,488,714 | 6,555,754 | 14,158,942 | (32,957,115 | ) | (1,027,285 | ) | (13,269,704 | ) | |||||||||||||||
| Option expenses | - | - | 55,770 | - | - | 55,770 | ||||||||||||||||||
| Warrants issued to financial institution for deferred principal payment and consulting fees | - | - | 99,642 | - | - | 99,642 | ||||||||||||||||||
| Net loss | - | - | - | (681,807 | ) | - | (681,807 | ) | ||||||||||||||||
| Translation adjustment | - | - | - | - | (582,203 | ) | (582,203 | ) | ||||||||||||||||
| Balance, December 31, 2010 | 37,488,714 | $ | 6,555,754 | $ | 14,314,354 | $ | (33,638,922 | ) | $ | (1,609,488 | ) | $ | (14,378,302 | ) | ||||||||||
| Shares | Amount | Additional paid-in capital | Accumulated (deficit) | Accumulated other comprehensive income (losses) | Total Stockholders’ (deficiency) | |||||||||||||||||||
| Balance, December 31, 2009 | 37,488,714 | $ | 6,555,754 | $ | 14,158,942 | $ | (32,957,115 | ) | $ | (1,027,285 | ) | $ | (13,269,704 | ) | ||||||||||
| Stock-based compensation | - | - | 55,770 | - | - | 55,770 | ||||||||||||||||||
| Employee stock option expense | - | - | 99,642 | - | - | 99,642 | ||||||||||||||||||
| Loss from continuing operations | - | - | - | (1,680,689 | ) | - | (1,680,689 | ) | ||||||||||||||||
| Income from discontinued operations | - | - | - | 998,882 | - | 998,882 | ||||||||||||||||||
| Translation adjustment | - | - | - | - | (582,203 | ) | (582,203 | ) | ||||||||||||||||
| Balance, December 31, 2010 | 37,488,714 | 6,555,754 | 14,314,354 | (33,638,922 | ) | (1,609,488 | ) | (14,378,302 | ) | |||||||||||||||
| Employee stock option expense | - | - | 10,365 | - | - | 10,365 | ||||||||||||||||||
| Warrants issued to financial institution for deferred principal payment and consulting fees | - | - | 13,507 | - | - | 13,507 | ||||||||||||||||||
| Loss from continuing operations | - | - | - | (1,007,381 | ) | - | (1,007,381 | ) | ||||||||||||||||
| Income from discontinued operations | - | - | - | 12,624,521 | - | 12,624,521 | ||||||||||||||||||
| Translation adjustment | - | - | - | - | 1,314,366 | 1,314,366 | ||||||||||||||||||
| Balance, December 31, 2011 | 37,488,714 | $ | 6,555,754 | $ | 14,338,226 | $ | (22,021,782 | ) | $ | (295,122 | ) | $ | (1,422,924 | ) | ||||||||||
The accompanying notes are an integral part of these financial statements.
| Creative Vistas, Inc. | ||||||||
| Consolidated Statements of Cash Flows | ||||||||
| For the year ended December 31, | 2010 | 2009 | ||||||
| Operating activities | ||||||||
| Net (loss) | $ | (681,807 | ) | $ | (1,599,192 | ) | ||
| Adjustments to reconcile net (loss) to net cash provided by (used in) operating activities | ||||||||
| Depreciation and amortization of property and equipment | 2,225,631 | 2,643,119 | ||||||
| Amortization of intangible assets | 231,247 | 341,131 | ||||||
| Amortization of deferred financing cost | 173,437 | 162,997 | ||||||
| Loss on disposal of property and equipment | 37,794 | 80,552 | ||||||
| Bad debt expenses | 78,584 | 105,650 | ||||||
| Foreign exchange | (219,127 | ) | (1,197,750 | ) | ||||
| Stock-based compensation and amortization of debts discount | 99,642 | 210,408 | ||||||
| Amortization of employee stock option | 55,770 | 10,524 | ||||||
| Changes in non-cash working capital balances | ||||||||
| Accounts receivable | 919,689 | 67,632 | ||||||
| Inventory | 131,627 | 150,662 | ||||||
| Prepaid expenses | 41,973 | 170,219 | ||||||
| Accounts payable and other accrued liabilities | (370,267 | ) | (1,164,001 | ) | ||||
| Deferred revenue | 21,124 | (50,320 | ) | |||||
| Income tax recoverable | 87,379 | (29,991 | ) | |||||
| Net cash provided by (used in) operating activities | 2,832,696 | (98,360 | ) | |||||
| Investing activities | ||||||||
| Proceeds from sales of property and equipment | 6,826 | 214,256 | ||||||
| Purchase of property and equipment | (130,996 | ) | (131,073 | ) | ||||
| Net cash provided by (used in) investing activities | (124,170 | ) | 83,183 | |||||
| Financing activities | ||||||||
| Proceeds from (repayment of) bank indebtedness | (1,366,326 | ) | 120,084 | |||||
| Due to related parties | - | (4,832 | ) | |||||
| Repayment of capital leases | (1,479,893 | ) | (1,683,721 | ) | ||||
| Repayment of term loans | (100,000 | ) | (237,500 | ) | ||||
| Net cash (used in) financing activities | (2,946,219 | ) | (1,805,969 | ) | ||||
| Effect of foreign exchange rate changes on cash | (172,804 | ) | (507,987 | ) | ||||
| Net change in cash and cash equivalents | (410,497 | ) | (2,329,133 | ) | ||||
Cash and cash equivalents, beginning of period | 2,441,204 | 4,770,337 | ||||||
Cash and cash equivalents, end of period | $ | 2,030,707 | $ | 2,441,204 | ||||
| Supplemental Cash Flow Information | ||||||||
| Cash paid for the interest | $ | 2,193,859 | $ | 2,194,966 | ||||
| Cash paid for income taxes | $ | - | $ | - | ||||
| Loan interest or penalties paid with warrant | $ | 94,591 | $ | 187,845 | ||||
| Capital assets purchase through capital leases | $ | - | $ | 1,866,573 | ||||
Creative Vistas, Inc.
Consolidated Statements of Cash Flows
| For the year ended December 31, | 2011 | 2010 | ||||||
| Operating activities | ||||||||
| Net income (loss) | $ | 11,617,140 | $ | (681,807 | ) | |||
| Less income and gain from discontinued operations | (12,624,521 | ) | (998,882 | ) | ||||
| Net income (loss) from continued operations | (1,007,381 | ) | (1,680,689 | ) | ||||
| Adjustments to reconcile net income (loss) to net cash (used in) operating activities | ||||||||
| Depreciation of capital assets | 63,554 | 82,464 | ||||||
| Amortization of intangible assets | - | 200,000 | ||||||
| Amortization of deferred financing cost | 2,179 | 25,978 | ||||||
| Bad debt expenses | 70,452 | 58,439 | ||||||
| Foreign exchange | 30,604 | (80,333 | ) | |||||
| Stock-based compensation and amortization of debts discount | 13,507 | 99,642 | ||||||
| Employee stock option expense | 10,365 | 55,770 | ||||||
| Changes in non-cash working capital balances: | ||||||||
| Accounts receivable | 206,741 | (204,188 | ) | |||||
| Inventory | 95,427 | 75,007 | ||||||
| Prepaid expenses | 8,986 | (23,850 | ) | |||||
| Accounts payable and other accrued liabilities | (478,473 | ) | 134,430 | |||||
| Deferred revenue | (48,948 | ) | 21,124 | |||||
| Income tax recoverable | (60,606 | ) | 87,379 | |||||
| Net cash (used in) operating activities | (1,093,593 | ) | (1,148,827 | ) | ||||
| Investing activities | ||||||||
| Proceeds from discontinued operations | 532,563 | 1,024,628 | ||||||
| Purchase of property and equipment | (4,607 | ) | (6,375 | ) | ||||
| Net cash provided by investing activities | 527,956 | 1,018,253 | ||||||
| Financing activities | ||||||||
| Proceeds from bank indebtedness | (257,891 | ) | (223,033 | ) | ||||
| Repayment of term loans | (66,667 | ) | (100,000 | ) | ||||
| Net cash (used in) financing activities | (324,558 | ) | (323,033 | ) | ||||
| Effect of foreign exchange rate changes on cash | 17,832 | (41,353 | ) | |||||
| Net change in cash and cash equivalents | (872,363 | ) | (494,960 | ) | ||||
| Cash and cash equivalents, beginning of period | 1,779,345 | 2,274,305 | ||||||
| Cash and cash equivalents, end of period | $ | 906,982 | $ | 1,779,345 | ||||
| Supplemental Cash Flow Information | ||||||||
| Cash paid for interest | $ | 405,520 | $ | 636,331 | ||||
| Cash paid for income taxes | $ | - | $ | - | ||||
| Loan interest or penalties paid with warrants | $ | 13,507 | $ | 94,591 | ||||
| Noncash financing activities | ||||||||
| Debt assumed by buyer of Cancable | $ | 8,705,325 | $ | - | ||||
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, |
| 1. | Summary of Accounting Policies |
Basis of presentation
The accompanying consolidated financial statements as at and for the years ended December 31, 20102011 and 2009,2010, have been prepared by management in accordance with accounting principles generally accepted in the United States generally accepted accounting principlesof America (“U.S. GAAP”) applicable to the respective periods.
The consolidated balance sheets as at December 31, 20102011 and 2009,2010, and statements of operations and cash flows for the years ended December 31, 20102011 and 20092010 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 XL Inc., XL Digital Services Inc. (“XL Digital”), 2141306 Ontario Inc., Iview Holding Corp. (“Iview Holding”), Iview Digital Solutions Inc. (“Iview DSI”), 2221559 Ontario Inc. and OSSIM View Inc.. (Collectively,2300657 Ontario Inc. and Cancable Holding Corp. and its subsidiaries through September 16, 2011 (collectively, the “Company”, or “we”, “us”, “our”). All material inter-company accounts, transactions and profits have been eliminated.
Reclassifications
Certain amounts from the December 31, 2010 financial statements have been reclassified to conform to the current year’s presentation.
Discontinued Operations
On September 16, 2011, the Company entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) with Cancable Holding Corp., a wholly-owned subsidiary of the Company (“Cancable Holding”) and with Cancable and Dependable Hometech, LLC (“Purchaser”), pursuant to which the Company sold its equity interest in Cancable Holding to Purchaser for a consideration of US$1.00 on such date. In connection with such sale, the Company assigned certain of its 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 US$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 US$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 US$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 US$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 US$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 interests and other obligations of the Company and certain of its subsidiaries related to approximately US$5,100,000 of indebtedness owed to the Holders by Cancable Holding and its subsidiaries. In addition, in connection with the sale of Cancable Holding to Purchaser, the Company assigned its rights in certain receivables owed to the Company by certain wholly-owned subsidiaries of Cancable Holding, totaling approximately US$4,800,000 as of September 16, 2011. The Holders are affiliates of Laurus Master Fund, Ltd. (“Laurus”)
As a result of our sale of Cancable Holding and its subsidiaries on September 16, 2011, information related to their operations has been reflected in the accompanying consolidated financial statements as discontinued operations, as follows:
Balance Sheets – Cancable Holding’s consolidated assets and liabilities have been aggregated and re-classified as assets and liabilities of discontinued operations in our December 31, 2010 balance sheet.
Statements of Operations and Comprehensive Income (Loss) – Cancable Holding’s consolidated income from operations for all periods presented has been re-classified to discontinued operations (see further discussion below). Discontinued operations also includes our net gain related to the sale of Cancable Holding; and
Statements of Cash Flows – Cancable Holding’s cash flows for all periods presented have been re-classified and removed from our cash flows from continuing operations.
The Company does not expect to have continuing operational involvement in Cancable Holding after the sale, however, during 2011 and 2010 the Company received approximately $530,000 and $1,000,000 from Cancable for fees that are not considered to be from operations.
The following table details Cancable Holding’s revenues and income from operations which have been reported as discontinued operations:
| January 1 to | January 1 to | |||||||
| September 16 | December 31 | |||||||
| 2011 | 2010 | |||||||
| Service revenue | $ | 21,702,141 | $ | 32,715,332 | ||||
| Cost of sales | 17,611,414 | 25,501,588 | ||||||
| General and administrative expenses | 1,540,620 | 2,770,591 | ||||||
| Depreciation expense | 1,178,659 | 2,143,167 | ||||||
| Amortization of intangible assets | 23,355 | 31,247 | ||||||
| 20,354,048 | 30,446,593 | |||||||
| Income from operations | 1,348,093 | 2,268,739 | ||||||
| Net financing expenses | 911,388 | 1,503,717 | ||||||
| Amortization of deferred charges | 134,137 | 147,460 | ||||||
| Foreign currency transaction (gains) | (148,930 | ) | (381,320 | ) | ||||
| 896,595 | 1,269,857 | |||||||
| Income from discontinued operations, net of income tax | 451,498 | 998,882 | ||||||
| Gain on disposal of discontinued operations, net of income taxes | 12,173,023 | - | ||||||
| Net income from discontinued operations | $ | 12,624,521 | $ | 998,882 | ||||
The assets and liabilities of Cancable Holding are classified as assets and liabilities of discontinued operations as of December 31, 2010 as follows:
| December 31, 2010 | ||||
| Cash and bank balances | $ | 251,362 | ||
| Accounts receivable, net of allowance for doubtful accounts | 1,909,797 | |||
| Inventory and supplies | 215,913 | |||
| Prepaid expenses | 357,742 | |||
| Current assets of discontinued operations | $ | 2,734,814 | ||
| Property, plant and equipment, net of depreciation and amortization | $ | 3,616,865 | ||
| Deposits | 205,934 | |||
| Deferred financing costs, net | 222,950 | |||
| Intangible assets, net | 56,316 | |||
| Noncurrent assets of discontinued operations | $ | 4,102,065 | ||
| Bank indebtedness | $ | 395,432 | ||
| Accounts payable and accrued liabilities | 2,242,271 | |||
| Current portion of obligations under capital leases | 1,487,460 | |||
| Current portion of term notes | 5,148,754 | |||
| Current liabilities of discontinued operations | $ | 9,273,917 | ||
| Term notes | $ | 1,702,218 | ||
| Obligations under capital leases, net of current portion | 1,899,524 | |||
| Noncurrent liabilities of discontinued operations | $ | 3,601,742 | ||
At the date of the sale of Cancable Holding on September 16, 2011, total assets and liabilities were as follows:
| September 16, 2011 | ||||
| Total Assets | $ | 5,775,593 | ||
| Total Liabilities | 19,231,292 | |||
| (13,455,699 | ) | |||
| Reversal of foreign currency translation adjustments in other comprehensive income | 1,282,676 | |||
| Gain on Disposal | $ | 12,173,023 | ||
Liquidity and going concern
Our consolidated financial statements were prepared using accounting principles generally accepted in the United States of AmericaU.S. GAAP applicable to a going concern, which contemplatescontemplate the realization of assets and liquidation of liabilities in the normal course of business. We have incurred a loss of $681,807 for the year ended December 31, 2010, and have an accumulated deficit of $33,638,922,$22,021,782, a stockholders’ deficit of $14,378,302$1,422,924 and a working capital deficit of $14,000,716$471,547 at December 31, 2010.
Assuming that Laurus does not demand byrepayment of the holder. Furthermore, we granted a security interest to Laurus and its related entities in substantially all of our assets and, accordingly, in the event of any default under our agreements with Laurus and its related entities, they could conceivably attempt to foreclose on our assets, which could cause us to terminate our operations.
| F-8 |
Cash and Cash Equivalents
The Company considers all cash and highly liquid investments purchased with an initialoriginal 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.
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. Accounts receivable are unsecured, as the Company does not require collateral. 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 recorded 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. Certain tax credits earned are cash refundable.
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. Our research and development expenses were approximately $670,000 in fiscal year 2011 and $860,000 in fiscal year 2010 and $590,000 in fiscal year 2009 and are included in general and administrative expenses in the accompanying consolidated statements of operations and comprehensive (loss).
Advertising cost
Advertising costcosts are expensed as incurred. Total advertising cost wascosts were approximately $40,000$30,000 and $46,000$40,000 for the year ended December 31, 2011 and 2010, and 2009, respectively.
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 ($100,000150,000 at December 31, 20102011 and 2009)$100,000 at December 31, 2010), 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 and amortization per annum is computed over the estimated useful life as follows:
| Industrial condominium | 4% declining balance basis | |
| Leasehold improvements | ||
| Office equipment | 20% declining balance basis | |
| Furniture and fixtures | 20% declining balance basis or 3 years straight-line method | |
| Computer hardware and software | 30% declining balance basis | |
| Vehicles | 4 years straight-line basis | |
| Tools and equipment | 3 years straight-line basis |
Long-Lived Assets
A long-lived asset should be tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. We follow the two-step process for determining if an impairment charge should be taken: (1) the expected undiscounted cash flows from a particular asset or asset group are compared with the carrying value; if the expected undiscounted cash flows are greater than the carrying value, no impairment is recognized, but if the expected undiscounted cash flows are less than the carrying value, then (2) an impairment charge is taken for the difference between the carrying value and the assets fair value. Where practicable, we will obtain an independent valuation of intangible assets and place reliance on such valuation. Then onOn an ongoing basis, we use the weighted-average probability met hod,method to estimate the fair value. This method requires significant management judgment to forecast the future operating results used in the analysis. The assumptions used in developing expected cash flow estimates are similar to those used in developing other information used by us for budgeting and other forecasting purposes. In instances where a range of potential future cash flows is possible, we use a probability-weighted approach to weigh the likelihood of those possible outcomes. For purposes of discounting cash flows, we use a discount rate equal to the yield on a zero-coupon US Treasury instrument with a life equal to the expected life of the intangible asset or asset group being tested. At December 31, 2010,2011, we believe all of our long-lived assets are recoverable.
Deferred Financing Costs
Deferred financing costs represent costs directly related to obtaining financing. Deferred financing costs are amortized over the term of the related indebtedness using the effective interest method.
Issuance of Equity Instruments for Services
Stock-based compensation is recognized as an expense in the financial statements and such costcosts are measured at the grant date fair value of the award.
We record the grant date fair value of stock-based compensation awards as an expense over the vesting period of the related stock options. In order to determine the fair value of the stock options on the date of grant, we use the Black-Scholes-Merton option-pricing model. Inherent in this model are assumptions related to expected stock-price volatility, option life, risk-free interest raterates and dividend yield. Although the risk-free interest rates and dividend yield are less subjective assumptions, typically based on factual data derived from public sources, the expected stock-price volatility, forfeiture rate and option life assumptions require a greater level of judgment which make them critical accounting estimates.
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 with ASC 605 “Revenue“Revenue Recognition” 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 cont ract.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 ASC 605 “Revenue Recognition“Revenue Recognition” and SEC Staff Accounting Bulletin 104, “Update of Codification of Staff Accounting Bulletins”. The recognition of revenue reflects the degree of completeness based upon project drawings, project schedules, the progress of actual installation and areis 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 ASC 605 and SEC Staff Accounting Bulletin 104, which are primarily the delivery of the equipment and completion of the installation process. The fair value of each element is 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. Generally, collaterial is not required. 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.maintenance. Monitoring services, 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 other 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 directly to cost of sales.
Earning (loss) per share
Basic earning (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 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.warrants. During periods when losses are incurred, potentially dilutive common shares are not considered in the computation as their effect would be anti-dilutive.
Financial Instruments
The carrying value of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their 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 their fair value except notes payable due to The Malar Trust and related party balances for which it was not practicable to determine fair value.
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 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, in the event that we have any, 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 cash equivalents and accounts receivable. Concentrations of credit risk with respect to accounts receivable are limited due to the generally short payment terms. See above and Note 14.
Foreign Currency Translation
The U.S. dollar is the functional currency of our operations, except for our operations located in Canada, which use the Canadian Dollar as their functional currency. Foreign currency transaction gains and losses are reflected in income. Gains and losses resulting from any inter company balances with different functional currencies are recognized in the statement of operations.
Comprehensive Income
We report comprehensive income in accordance with the ASC 220,Comprehensive Income subtopic of the Financial Accounting Standards Board Standards Codification.Income. This statement requires the disclosure of accumulated other comprehensive income or loss (excluding net income or loss) as a separate component of shareholders’ equity. Translation gains and losses arising from translating the financial statements of the Canadian subsidiaries into U.S. dollars for reporting purposes are included in “Accumulated other comprehensive income (loss).”
Income Taxes
We account for income taxes under the provisions of ASC 740,Accounting for Income Taxes, which requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the difference is expected to reverse. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. We have recorded a 100% val uationvaluation allowance as of December 31, 20102011 and 20092010 for substantially all of our deferred income tax assets.
Beginning January 1, 2007, we adoptedWe follow the provisions of ASC 740-10-05Accounting for Uncertainty in Income Taxes subtopic of the Financial Accounting Standards Board Standards Codification.Taxes. Under this standard, we are required to evaluate each of our tax positions to determine whether they are more likely than not to be sustained if the taxing authority examines the respective position. A tax position includes an entity’s decision not to file a tax return. The Company has not taken any uncertain tax positions on any of its open income tax returns filed through the year ended December 31, 20102011, that would have materially affected its financial statements. The Company follows the methods of accounting for taxes based on established income tax principles approved by the taxing aut horitiesauthorities in Canada and the United States and believes that such methods are properly calculated and reflected within its income tax returns. In addition, the Company has filed income tax returns in all applicable jurisdictions in which it had a material nexus warranting an income tax filing. The validity of the Company's conclusions are re-assessed at least annually to determine if facts or circumstances have arisen that might cause the Company to change its judgment regarding the likelihood of a tax position's sustainability under audit. The Company has determined that there were no uncertain tax positions for the years ended December 31, 20102011 and 2009; therefore, the adoption of this standard did not materially impact the Company’s results of operations, financial condition, or liquidity.2010. Since inception, we have been subject to tax by both federal, provincial and state taxing authorities. Until the respective statutes of limitations expire (which maybe as much as 20 years while we h avehave unused NOL’s), we are subject to income tax audits in thejurisdictions in which we operate.
Use of Estimates
The Company prepares its financial statements in accordance with accounting principles generally accepted in the United States of America,U.S. GAAP, 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 reported amounts of revenues and expenses may be affected by the estimates we are required to make. Estimates and assumptions used in the accompanying consolidated financial statements are based upon management’s evaluation of the relevant facts and circumstances as of the date of the financial statements. Estimates that are critical to the accompanying consolidated financial statements relate principally to the adequacy of inventory reserves, the allowance for uncollectible accounts, the reco verabilityrecoverability of long-lived assets, and our ability to continue as a going concern. In addition, stock-based compensation expense represents a significant estimate as the determination of such expense is partially dependent on certain assumptions the Company has made regarding the future value of its common stock. Actual results may differ from the estimates and assumptions used in preparing the accompanying consolidated financial statements.
Recent Accounting Pronouncements
From time to time, new accounting pronouncements not yet adopted will have any future effect on our condensed consolidated financial statements.
| 2. | Related Party Transactions |
| Balances due to related parties are as follows: | ||||||||
| 2011 | 2010 | |||||||
| Advances from the Chairman of the Company, non-interest bearing with no fixed terms of repayment. The loan is subordinated to the Laurus loan | $ | 63,594 | $ | 64,865 | ||||
| Advances from the Chairman 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 has been charged since September 30, 2004. | 66,749 | 68,085 | ||||||
| Advances from the President of the Company, non-interest bearing with no fixed terms of repayment. The loan is subordinated to the Laurus loan | 96,000 | 97,920 | ||||||
| $ | 226,343 | $ | 230,870 | |||||
| Note payable to the Malar Trust (our Chairman 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 $54,856 (2010: $53,240) | $ | 1,500,000 | $ | 1,500,000 | ||||
The balance consists ofabove related party loans and note payable are not expected to be repaid within the following:
| 2010 | 2009 | |||||||
| Prepaid insurance | $ | 260,365 | $ | 228,293 | ||||
| Prepaid rent | - | 13,548 | ||||||
| Prepaid leases | 19,724 | 20,848 | ||||||
| Others | 92,418 | 84,359 | ||||||
| $ | 372,507 | $ | 347,048 | |||||
| 2010 | 2009 | |||||||
| Advances from the Chairman of the Company, non-interest bearing with no fixed terms of repayment. The loan is subordinated to the Laurus loans | $ | 64,865 | $ | 61,777 | ||||
| Subordinated loan - advances from the Chairman 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 has been charged from September 30, 2004. . | 68,085 | 64,841 | ||||||
| Loan payable to the president of the Company, non-interest bearing with no fixed terms of repayment. The loan is subordinated to Laurus loans | 97,920 | 93,258 | ||||||
| 230,870 | 219,876 | |||||||
| Less current portion | - | - | ||||||
| $ | 230,870 | $ | 219,876 | |||||
| Note payable to related parties is as follows: | ||||||||
| Note payable to the Malar Trust (the Chairman 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 $53,240 (2009: $51,673) | $ | 1,500,000 | $ | 1,500,000 | ||||
During 2010, $320,388 (20092011, $333,333 (2010 - $289,875)$320,388) in consulting fees were paid to a company controlled by the Chairman of the Board.Chairman. In addition, $266,990 (2009$277,778 (2010 - $241,563)$266,990) in consulting fees was paid to a Company controlled by the president’sPresident’s spouse.
| 2010 | 2009 | |||||||||||||||
| Accumulated | Accumulated | |||||||||||||||
| Cost | Depreciation | Cost | Depreciation | |||||||||||||
| Land | $ | 99,255 | - | $ | 94,529 | - | ||||||||||
| Industrial condominium | 855,994 | 248,521 | 815,232 | 213,046 | ||||||||||||
| Leasehold improvement | 461,782 | 373,721 | 470,594 | 327,462 | ||||||||||||
| Office equipment | 485,585 | 447,414 | 464,410 | 384,769 | ||||||||||||
| Office equipment under capital leases | 55,306 | 53,306 | 52,958 | 48,958 | ||||||||||||
| Furniture and fixtures | 463,527 | 405,510 | 428,808 | 298,626 | ||||||||||||
| Furniture and fixtures under capital leases | - | - | 21,251 | 21,251 | ||||||||||||
| Computer hardware and software | 1,439,189 | 1,285,167 | 1,524,896 | 1,126,391 | ||||||||||||
| Computer hardware and software under capital leases | - | - | 89,564 | 89,564 | ||||||||||||
| Vehicles | 578,033 | 550,949 | 216,841 | 168,374 | ||||||||||||
| Vehicles under capital leases | 6,265,327 | 3,065,551 | 6,989,051 | 2,106,599 | ||||||||||||
| Tools & equipment | 1,468,265 | 1,334,385 | 1,412,879 | 1,126,420 | ||||||||||||
| $ | 12,172,263 | 7,764,524 | $ | 12,581,013 | 5,911,460 | |||||||||||
| Net book value | $ | 4,407,739 | $ | 6,669,553 | ||||||||||||
| 2010 | 2009 | |||||||||||||||
| Cost | Accumulated amortization | Net book value | Net book value | |||||||||||||
| Customer relationships | $ | 1,390,000 | $ | 1,333,684 | $ | 56,316 | $ | 284,286 | ||||||||
| Year | Amount | |||
| 2011 | $ | 32,182 | ||
| 2012 | 24,134 | |||
| $ | 56,316 | |||
| 2010 | 2009 | |||||||
| Cost | $ | 1,181,881 | $ | 1,130,892 | ||||
| Accumulated amortization | 956,774 | 746,371 | ||||||
| $ | 225,107 | $ | 384,521 | |||||
| Year | Amount | |||
| 2011 | $ | 154,041 | ||
| 2012 | 47,444 | |||
| 2013 | 23,622 | |||
| $ | 225,107 | |||
| 3. | Property and Equipment |
| 2011 | 2010 | |||||||||||||||
| Accumulated | Accumulated | |||||||||||||||
| Cost | Depreciation | Cost | Depreciation | |||||||||||||
| Land | $ | 97,309 | - | $ | 99,255 | - | ||||||||||
| Industrial condominium | 839,210 | 267,026 | 855,994 | 248,521 | ||||||||||||
| Leasehold improvements | - | - | 23,275 | 20,377 | ||||||||||||
| Office equipment | 89,961 | 73,704 | 91,760 | 71,470 | ||||||||||||
| Furniture and fixtures | 75,353 | 59,273 | 175,872 | 136,749 | ||||||||||||
| Computer hardware and software | 127,684 | 111,359 | 125,677 | 103,842 | ||||||||||||
| $ | 1,229,517 | 511,362 | $ | 1,371,833 | 580,959 | |||||||||||
| Net book value | $ | 718,155 | $ | 790,874 | ||||||||||||
| 4. | Bank Indebtedness and Letter of Credit |
In 2008, the Company established credit facilities with a Canadian chartered bank to provide for borrowings by its subsidiaries, AC Technical and Cancable Inc. As a result of the sale of Cancable Holding as discussed in Note 1, the credit facility for Cancable was removed. The credit facilitiesfacility for AC Technical and Cancable wereis $500,000 and $3,500,000 respectively and bearbears interest at the bank’s domestic prime rate plus 1.5% to 3.4% for Canadian dollar amounts. Interest is payable monthly. The facilities arefacility is secured by a first security interest in bookbank debts, inventory, certain other assets and keyman life insurance. As at December 31, 2010,2011, the interest rate of the Canadian dollar amount was 4.0% to 5.9%. At December 31, 2010, the2011, there were no borrowings outstanding under both facilities were $650,744the facility and the average borrowing outstanding during the twelve monthsyear ended December 31, 20102011 was $1,305,400.$127,600. The Company banking faci lity 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.
At December 31, 2010,2011, the Company was contingently liable under an irrevocable letter of credit issued by our bank in NovemberOctober 2010 in the amount of $150,000,$750,000 which will expire in November 2011.October 2012. The letter of credit was issued to a customeran insurance company as a security for the performancebonding facility in the amount of a preventive maintenance contract award$750,000 to AC Technical.
| 5. | Term Notes |
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, Inc. 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 iswas secured by substantially all of the assets of the Company, and its subsidiaries, subject to the bank’s security interest (Seeinterest. As described in Note 7).
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 and Iview DSI issued to Laurus a secured term note (the “Iview Note”) in the amount of $2,000,000. Concurrently, the Company issued to Laurus a related warrant to purchase up to 2,411,003 shares of common stock of the Company (up to 7.5% of the outstanding shares of the Company) at a price of $0.01 per share (the “Warrant”) and Iview Holding issued to Laurus a related option to purchase up to 20 shares of common stock of Iview Holding (up to 20% of the outstanding shares of Iview Holding) at a price of $0.01 per share (the “Opt ion”“Option”). The loans are secured by substantially allAs a result of the assetssale of Cancable Holding on September 16, 2011, the Company Note was assigned to Cancable Holding and is no longer an obligation of the Company, (exclusive of those under capital lease, which are subject to the obligor's security interest in such assets) and its subsidiaries. Simultaneously with the closing of this refinancing transaction, the Company paid off the entire outstanding principal amount and all obligations duerelated warrant issued to Laurus under a Secured Convertible Term Note, a Secured Convertible Minimum Borrowing Notewas cancelled and a Secured Revolving Note, all dated September 30, 2004 (collectively, the “2004 Notes”) and such 2004 Notes were cancelled.
The Company Note bears interest at the prime rate plus 2% with a minimum rate of 7%. Interest iswas calculated on the basis of a 360 day360-day year. ThePer the original terms of this note, the minimum monthly paymentpayments on the term note iswere $137,500 commencing March 1, 2007 to February 1, 2011, with a balance of $4,950,000 payable on the maturity date. Through December 31, 2010,However, as allowed by the debt agreement, since March 2007, the Company has issueddeferred such monthly payments until maturity by issuing warrants to purchase up to 4,212,0004,860,000 shares of common stock of the Company at per-share prices from $0.03 to $2.84 per share$2.84. As a result of the sale of Cancable Holding, the Company Note was assigned to defer until maturity the principal repayments thatCancable Holding and all warrants issued were due from March 1, 2007 to December 1, 2010.
The Iview Note, which was retained by the Company, bears interest at the prime rate plus 2% (7% at December 31, 2011) with a minimum rate of 7%. Interest is calculated on the basis of a 360 day360-day year. ThePer the original terms of this note, the minimum monthly paymentpayments on the term note iswere $8,333 through Februarythe original maturity date (February 1, 2011,2011), with the balance of $1,600,000 payable on such date. However, the maturity date. The Company isIview Note has not obligated, except upon an event of default, to pay more than 25%been repaid. As a result of the original principal amount prior to June 30, 2011 (extended from February 13, 2011 assale of March 28, 2011).
In June 2008, the Company and its subsidiary,Cancable Inc., entered into a financing transaction whereby the Company issued to Valens Offshore SPV II, Corp. (“Valens Offshore”) and Valens U.S. SPV I, LLC (“Valens U.S.VUS.”) secured term notes in the amount of $1,700,000 and $800,000, respectively (collectively, the “Company Second Notes”). Valens Offshore and Valens U.S.VUS are entities related to Laurus. The Company also issued to Valens Offshore and Valens U.S.VUS warrants to purchase up to 1,333,333 and 627,451 shares, respectively, of common stock of the Company at a price of $0.01 per share. The loans arewere secured by substantially all of the assets of the Company, and all its subsidiaries, subject to the bank’s security interest (See Note 7).
Interest on the term notes for the year ended December 31, 20102011 was $1,574,736 (2009: $1,488,439)$405,520 (2010: $636,330).
| 2010 | 2009 | |||||||
| Cancable Note interest at prime plus 1.75% (minimum of 7%), due December 31, 2011 | $ | 5,148,754 | $ | 5,148,754 | ||||
| Company Note interest at prime plus 2% (minimum of 7%), due June 30, 2011 | 7,287,500 | 7,287,500 | ||||||
| Iview Note interest at prime plus 2% (minimum of 7%), due on June 30, 2011 | 1,614,874 | 1,714,874 | ||||||
| Company Second Notes. interest at 12%, due on June 24, 2013 | 2,500,000 | 2,500,000 | ||||||
| Less: unamortized discount | (797,782 | ) | (987,876 | ) | ||||
| 15,753,346 | 15,663,252 | |||||||
| Less: current portion | 14,051,128 | 1,750,000 | ||||||
| $ | 1,702,218 | $ | 13,913,252 | |||||
| Amount | ||||
| 2011 | $ | 14,051,128 | ||
| 2012 | - | |||
| 2013 | 2,500,000 | |||
| $ | 16,551,128 | |||
| 2010 | 2009 | |||||||
| Capital leases | $ | 565,912 | $ | 654,854 | ||||
| Interest on credit facility | 1,574,136 | 1,488,439 | ||||||
| Interest on deferred principal repayment on term notes –warrants | 94,591 | 187,845 | ||||||
| Other | 53,240 | 51,673 | ||||||
| $ | 2,287,879 | $ | 2,382,811 | |||||
| 2010 | 2009 | |||||||
| Obligation under capital lease – 6.5%, due April 2011, repayable $545 per vehicle principal and interest monthly, secured by 8 vehicles | $ | 50,244 | $ | 116,398 | ||||
| Obligation under capital lease – 8.5%, due May 2011, repayable $478 per vehicle principal and interest monthly, secured by 1 vehicle | 5,868 | 10,371 | ||||||
| Obligation under capital lease – 14%, due September 2011, repayable $389 per vehicle principal and interest monthly, secured by 21 vehicles | 69,724 | 145,378 | ||||||
| Obligation under capital lease – 7.7%, due July 2012, repayable $543 per vehicle principal and interest monthly, secured by 2 vehicles | 29,092 | 38,427 | ||||||
| Obligation under capital lease – 7.9%, due March 2012, repayable $537 to $543 per vehicle principal and interest monthly, secured by 18 vehicles | 236,467 | 350,647 | ||||||
| Obligation under capital lease – 9.1%, due July 2012, repayable $425 per vehicle principal and interest monthly, secured by 12 vehicles | 127,580 | 168,172 | ||||||
| Obligation under capital lease – 7.8%, due July 2012, repayable $543 per vehicle principal and interest monthly, secured by 6 vehicles | 87,276 | 115,281 | ||||||
| Obligation under capital lease – 9.4%, due October 2012, repayable $471 per vehicle principal and interest monthly, secured by 2 vehicles | 25,624 | 34,205 | ||||||
| Obligation under capital lease – 15.6%, due January 2012, repayable $477 to $482 per vehicle principal and interest monthly, secured by 6 vehicles | 52,448 | 77,207 | ||||||
| Obligation under capital lease – 15.7%, due March 2012, repayable $462 to $479 per vehicle principal and interest monthly, secured by 20 vehicles | 177,377 | 256,580 | ||||||
| Obligation under capital lease – 15.6%, due February to March 2012, repayable $463 to $482 per vehicle principal and interest monthly, secured by 14 vehicles | 127,365 | 196,677 | ||||||
| Obligation under capital lease – 15.0%, due March 2012, repayable $493 per vehicle principal and interest monthly, secured by 6 vehicles | 58,244 | 83,507 | ||||||
| Obligation under capital lease – 15.6%, due April 2012, repayable $504 per vehicle principal and interest monthly, secured by 22 vehicles | 224,542 | 331,743 | ||||||
| Obligation under capital lease – 7.6% to 8.4%, due May 2012, repayable $372 to $433 per vehicle principal and interest monthly, secured by 2 vehicles | 20,030 | 27,808 | ||||||
| Obligation under capital lease – 15.6% to 15.9%, due May 2012, repayable $511 to $521 per vehicle principal and interest monthly, secured by 7 vehicles | 74,949 | 119,210 | ||||||
| Obligation under capital lease – 7.8%, due July 2012, repayable $543 per vehicle principal and interest monthly, secured by 7 vehicles | 104,987 | 134,495 | ||||||
| Obligation under capital lease – 7.9% to 10.3%, due July 2012, repayable $407 to $422 per vehicle principal and interest monthly, secured by 6 vehicles | 58,744 | 96,246 | ||||||
| Obligation under capital lease – 9.5% to 10.2%, due August 2012, repayable $455 to $468 per vehicle principal and interest monthly, secured by 4 vehicles | 48,959 | 65,680 | ||||||
| Obligation under capital lease – 8.9% to 10.2%, due September 2012, repayable $437 to $468 per vehicle principal and interest monthly, secured by 30 vehicles | 360,385 | 500,744 | ||||||
| Obligation under capital lease – 9.1%, due July 2012, repayable $425 per vehicle principal and interest monthly, secured by 14 vehicles | 148,843 | 233,205 | ||||||
| Obligation under capital lease – 32.3%, due January 2012, repayable $243 principal and interest monthly, secured by certain office equipment | 2,333 | 4,282 | ||||||
| Obligation under capital lease – 12.7%, due August 2013, repayable $2,415 principal and interest monthly, secured by certain office equipment | 65,863 | 81,556 | ||||||
| Obligation under capital lease – 13.4%, due July 2012, repayable $377 per vehicle principal and interest monthly, secured by 79 vehicles | 820,618 | 1,033,455 | ||||||
| Obligation under capital lease – 18.8%, due July 2012, repayable $323 per vehicle principal and interest monthly, secured by 32 vehicles | 202,209 | 312,064 | ||||||
| Obligation under capital lease – 21.7%, due July 2012, repayable $311 per vehicle principal and interest monthly, secured by 40 vehicles | 207,213 | 413,806 | ||||||
| Obligation under capital lease – 10.9%, due June 2010, repayable $540 per vehicle principal and interest monthly, secured by 1 vehicle | - | 8,782 | ||||||
| Obligation under capital lease – 12.4%, due August 2010, repayable $371 per vehicle principal and interest monthly, secured by 4 vehicles | - | 10,817 | ||||||
| Obligation under capital lease – 13.4%, due August 2010, repayable $371 per vehicle principal and interest monthly, secured by 4 vehicles | - | 10,785 | ||||||
| Obligation under capital lease – 13.31%, due August 2010, repayable $371 per vehicle principal and interest monthly, secured by 6 vehicles | - | 16,178 | ||||||
| Obligation under capital lease – 10.9%, due August 2010, repayable $572 per vehicle principal and interest monthly, secured by 1 vehicle | - | 9,292 | ||||||
| Obligation under capital lease – 10.7%, due March 2011, repayable $507 per vehicle principal and interest monthly, secured by 1 vehicle | - | 6,769 | ||||||
| Obligation under capital lease – 16.3%, due April 2011, repayable $604 principal and interest monthly, secured by certain office equipment | - | 8,642 | ||||||
| Obligation under capital lease – 16.2%, due April 2011, repayable $466 principal and interest monthly, secured by certain office equipment | - | 4,689 | ||||||
| Obligation under capital lease – 14.9%, due March 2010, repayable $361 per vehicle principal and interest monthly, secured by 17 vehicles | - | 21,809 | ||||||
| 3,386,984 | 5,044,907 | |||||||
| Less amount due within one year included in current liabilities | 1,487,460 | 1,501,106 | ||||||
| $ | 1,899,524 | $ | 3,543,801 | |||||
| 2011 | $ | 1,813,382 | ||
| 2012 | 1,989,358 | |||
| 2013 | 19,322 | |||
| 3,822,062 | ||||
| Less imputed interest | 435,078 | |||
| $ | 3,386,984 | |||
| December 31, 2011 | ||||
| Iview Note, with interest at prime plus 2% (minimum of 7%; 7% at December 31, 2011) | 1,548,207 | |||
As a result of the sale of Cancable Holding , the carrying value of the term loans assigned to Cancable Holding, and which are no longer obligations of the Company, were as follows:
| September 16, 2011 | ||||
| Cancable Note, with interest at prime plus 1.75% (minimum of 7%) | $ | 5,148,754 | ||
| Company Note, with interest at prime plus 2% (minimum of 7%) | 7,287,500 | |||
| Company Second Notes, with interest at 12% | 2,500,000 | |||
| Less: unamortized discount | (1,082,175 | ) | ||
| $ | 13,854,079 | |||
| 6. | Net Financing Expenses |
| 2011 | 2010 | |||||||
| Interest on credit facility | $ | 405,520 | $ | 636,331 | ||||
| Cost of deferred principal repayment on term notes –warrants | 13,507 | 94,591 | ||||||
| Other | 54,856 | 53,240 | ||||||
| $ | 473,883 | $ | 784,162 | |||||
| 7. | Taxes |
The Company's provision for (recovery of) income taxes is comprised as follows:
| 2010 | 2009 | |||||||
| U.S. | $ | - | $ | - | ||||
| Canadian | ||||||||
| Current | - | - | ||||||
| Deferred | - | - | ||||||
| $ | - | $ | - | |||||
| 2010 | 2009 | |||||||
| Income (loss) before income taxes | ||||||||
| Income (loss) from U.S. sales | $ | (841,569 | ) | $ | (1,927,193 | ) | ||
| Income (loss) from Canadian sales | 159,762 | 328,001 | ||||||
| (681,807 | ) | (1,599,192 | ) | |||||
| Statutory tax rates for U.S. | 41.0 | % | 41.00 | % | ||||
| Statutory tax rates for Canadian Federal | 30.0 | % | 33.0 | % | ||||
| 2011 | 2010 | |||||||
| U.S. | $ | - | $ | - | ||||
| Canadian | ||||||||
| Current | - | - | ||||||
| Deferred | - | - | ||||||
| $ | - | $ | - | |||||
| Reconciliation to statutory rates is as follows: | ||||||||
| 2011 | 2010 | |||||||
| Income (loss) before income taxes | ||||||||
| Income (loss) from U.S. sales | $ | 11,857,360 | $ | (841,569 | ) | |||
| Income (loss) from Canadian sales | (240,220 | ) | 159,762 | |||||
| 11,617,140 | (681,807 | ) | ||||||
| Statutory tax rates for U.S. | 41.0 | % | 41.00 | % | ||||
| Statutory tax rates for Canadian Federal | 30.0 | % | 30.0 | % | ||||
The Company has unutilized taxable losses in the United States of approximately $3,740,000 available for carry forward to reduce nettaxable income of approximately $27,000,000, which expire in variousfuture years between 2021 and 2030.through 2021. In addition, the Company has unutilized taxable losses in the Canadian taxesCanada of approximately $1,886,000 available for carry forward to reduce nettaxable income of approximately $4,100,000 otherwise payable in future years which begin to expire in 2014 through 2030.
| 2010 | 2009 | |||||||||||||||
| Expected income tax expense (recovery) | $ | (296,903 | ) | (43.6 | )% | $ | (740,742 | ) | (46.3 | )% | ||||||
| Increase (decrease) in taxes resulting from: | ||||||||||||||||
| Valuation allowances | 147,249 | 21.6 | % | 834,966 | 52.2 | % | ||||||||||
| Permanent differences | 106,388 | 15.6 | % | 87,470 | 5.5 | % | ||||||||||
| Small business and other tax rate reductions | 43,266 | 6.4 | % | (181,694 | ) | (11.4 | )% | |||||||||
| Income tax expenses (recovery) | $ | - | - | $ | - | - | ||||||||||
| 2011 | 2010 | |||||||||||||||
| Expected income tax expense (recovery) | $ | 4,789,930 | (41.2 | )% | $ | (296,903 | ) | (43.6 | )% | |||||||
| Increase (decrease) in taxes resulting from: | ||||||||||||||||
| Valuation allowances | 121,972 | 1.1 | % | 147,249 | 21.6 | % | ||||||||||
| Permanent differences | (3,921,583 | ) | (33.8 | )% | 106,388 | 15.6 | % | |||||||||
| Small business and other tax rate reductions | (990,319 | ) | (8.5 | )% | 43,266 | 6.4 | % | |||||||||
| 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, 20102011 and 20092010 are presented below:
| 2011 | 2010 | |||||||
| Assets | ||||||||
| Tax benefits on losses carried forward under U.S. tax rate | $ | 1,532,000 | $ | 6,852,000 | ||||
| Tax benefits on losses carried forward under Canadian tax rate | 565,800 | 316,000 | ||||||
| Accounting depreciation in excess of tax depreciation | 37,203 | 37,430 | ||||||
| 2,135,003 | 7,205,430 | |||||||
| Less: valuation allowance | (2,097,800 | ) | (7,168,000 | ) | ||||
| 37,203 | 37,430 | |||||||
| Less: current portion | - | - | ||||||
| $ | 37,203 | $ | 37,430 | |||||
| Liabilities | ||||||||
| Other | 25,858 | 25,858 | ||||||
| 25,858 | 25,858 | |||||||
| Less: current portion | (25,858 | ) | (25,858 | ) | ||||
| $ | - | $ | - | |||||
| Net deferred income taxes | ||||||||
| 2011 | 2010 | |||||||
| Current | ||||||||
| Assets | $ | - | $ | - | ||||
| Liabilities | (25,858 | ) | (25,858 | ) | ||||
| $ | (25,858 | ) | $ | (25,858 | ) | |||
| Long-term | ||||||||
| Assets | $ | 37,203 | $ | 37,430 | ||||
| Liabilities | - | - | ||||||
| $ | 37,203 | $ | 37,430 | |||||
| $ | 11,345 | $ | 11,572 | |||||
| F-17 |
| 2010 | 2009 | |||||||
| Assets | ||||||||
| Tax benefits on losses carried forward under U.S. tax rate | 10,020,000 | 10,927,734 | ||||||
| Tax benefits on losses carried forward under Canadian tax rate | 1,345,000 | 1,266,264 | ||||||
| Accounting depreciation in excess of tax depreciation | 37,430 | 35,343 | ||||||
| Other | - | - | ||||||
| 11,402,430 | 12,229,341 | |||||||
| Less: valuation allowance | (11,365,000 | ) | (12,193,998 | ) | ||||
| 37,430 | 35,343 | |||||||
| Less: current portion | - | - | ||||||
| $ | 37,430 | $ | 35,343 | |||||
| Liabilities | ||||||||
| Income tax depreciation in excess of accounting depreciation | $ | - | $ | - | ||||
| Other | 25,858 | 25,858 | ||||||
| 25,858 | 25,858 | |||||||
| Less: current portion | (25,858 | ) | (25,858 | ) | ||||
| $ | - | $ | - | |||||
| Net deferred income taxes | ||||||||
| 2010 | 2009 | |||||||
| Current | ||||||||
| Assets | $ | - | $ | - | ||||
| Liabilities | (25,858 | ) | (25,858 | ) | ||||
| $ | (25,858 | ) | $ | (25,858 | ) | |||
| Long-term | ||||||||
| Assets | $ | 37,430 | $ | 35,343 | ||||
| Liabilities | - | - | ||||||
| $ | 37,430 | $ | 35,343 | |||||
| $ | 11,572 | $ | 9,485 | |||||
| 8. | Warranty |
As part of an installation, the Company has provides its customers with warranties. The warranties generally extend ninety days labor and one year on equipment from the date of project completion. The provision for warranty liabilities, which is included in accrued expenses, is as follows:
| 2010 | 2009 | |||||||
| Balance, beginning of year | $ | 38,095 | $ | 32,787 | ||||
| Expenses incurred | (29,000 | ) | (32,000 | ) | ||||
| Provision made | 30,905 | 37,308 | ||||||
| Balance, end of year | $ | 40,000 | $ | 38,095 | ||||
| 2011 | 2010 | |||||||
| Balance, beginning of year | $ | 40,000 | $ | 38,095 | ||||
| Expenses incurred | (46,000 | ) | (29,000 | ) | ||||
| Provision made | 46,000 | 30,905 | ||||||
| Balance, end of year | $ | 40,000 | $ | 40,000 | ||||
| 9. | 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 Plan is administered by the Board of Directors or its Compensation Committee. UnderThe Plan provides for the Plan,issuance of 4,000,000 options on a total of 4,000,000to purchase shares of common stock may be issued.stock. 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 Stockcommon 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 amend the Plan at any time prior to that date amend the Plan.
The Committee may, in its discretion, prescribe the terms and conditions of the options to be granted under the Plan, which terms and conditions need not be the same in each case, subject to the following:
| a. | Option Price. The price at which each share of common stock covered by an option granted under the Plan may not be less than the market value per share of the common stock on the date of grant of the option. The date of the grant of an option shall be the date specified by the Committee in its grant of the option, which date will normally be the date the Committee determines to make such grant. |
| b. | Option Period. The period for exercise of an option shall in no event be more than five years from the date of grant. Options may, in the discretion of the Committee, be made exercisable in installments during the option period. |
| c. | Exercise of Options. For the purpose of assisting an Optionee to exercise an option, the Company may make loans to the Optionee or guarantee loans made by third parties to the Optionee, on such terms and conditions as the Board of Directors may authorize. |
| d. | Lock-Up Period. Without the consent of the Company, an Optionee may not sell more than fifty percent of the shares issued under the Plan for a period of two years from the date that the Optionee exercises the option. The Committee may also impose other terms and conditions, not inconsistent with the terms of the Plan, on the grant or exercise of options, as it deems advisable. |
The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model, using the assumptions noted in the following table. Expected volatility is based on the historical volatility of the Company’s stock, and other factors. The Company uses historical data to estimate employee termination within the valuation model. The Company has assumed that the life of the options will be equal to one-half of the combined vesting period and contractual life (i.e., that employees will exercise the options at the midpoint between the vesting and expiry date of the options). The risk-free rates used to value the options are based on the U.S. Treasury yield curve in effect at the time of grant.
At December 31, 2010,2011, options to purchase 1,600,000360,000 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, 2010,2011, there was $23,483$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 1.041.93 years. At December 31, 2010, 1,382,500 options were vested. The cost recognized for the twelve months periodyear ended December 31, 20102011 was $55,770 (2009: $10,524)$10,400 (2010: $55,800) which was recorded as general and administrative expenses.
A summary of option activity under the Plan during the periodyears ended December 31, 20102011 and 20092010 is presented below:
| Shares | Weighted-Average Exercise Price | Weighted-Average Remaining Contractual Term | Intrinsic Value | |||||||||||||
| Outstanding at December 31, 2008 | 2,939,000 | $ | 1.22 | 4.75 | - | |||||||||||
| Granted | 500,000 | $ | 0.70 | 4.23 | - | |||||||||||
| Exercised | - | - | - | - | ||||||||||||
| Forfeited or expired | (1,434,000 | ) | $ | 2.07 | 2.69 | - | ||||||||||
| Outstanding at December 31, 2009 | 2,005,000 | $ | 0.65 | 4.75 | - | |||||||||||
| Granted | - | - | - | - | ||||||||||||
| Exercised | - | - | - | - | ||||||||||||
| Forfeited or expired | (405,000 | ) | $ | 0.63 | 0.96 | - | ||||||||||
| Outstanding at December 31, 2010 | 1,600,000 | $ | 0.65 | 1.04 | - | |||||||||||
| Exercisable at December 31, 2010 | 1,382,500 | $ | 0.65 | 0.68 | - | |||||||||||
| Shares | Weighted-Average Exercise Price | Weighted-Average Remaining Contractual Term | Intrinsic Value | |||||||||||||
| Options | ||||||||||||||||
| Outstanding at December 31, 2009 | 2,005,000 | $ | 0.65 | 4.75 | - | |||||||||||
| Granted | - | - | - | - | ||||||||||||
| Exercised | - | - | - | - | ||||||||||||
| Forfeited or expired | (405,000 | ) | $ | 0.63 | 0.96 | - | ||||||||||
| Outstanding at December 31, 2010 | 1,600,000 | $ | 0.65 | 1.04 | - | |||||||||||
| Granted | - | - | - | - | ||||||||||||
| Exercised | - | - | - | - | ||||||||||||
| Forfeited or expired | (1,240,000 | ) | $ | 0.63 | - | - | ||||||||||
| Outstanding at December 31, 2011 | 360,000 | $ | 0.72 | 1.93 | - | |||||||||||
| Exercisable at December 31, 2011 | 232,500 | $ | 0.76 | 1.55 | - | |||||||||||
As of December 31, 2010,2011, the aggregate intrinsic value of all stock options outstanding and expected to vest was approximately $0.00$0 and the aggregate intrinsic value of currently exercisable stock options was approximately $0.00.$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 $0.03$0.011 closing stock price of the common stock on December 31, 2010, the last trading day o f the second quarter of fiscal 2010.2011. There were no in-the-money options outstanding and exercisable as of December 31, 2010.
Because there were no options exercised during the yearyears ended December 31, 20092011 or 2010, there was no intrinsic value of options exercised.
The total fair value of options granted during the yearyears ended December 31, 2011 and 2010 and 2009 was approximately $0, (noneas no options were granted in 2010)2011 and $120,153, respectively.
The following table summarizes information about fixed price stock options outstanding at December 31, 2010:
Exercise Price | Weighted Average Number Outstanding | Weighted Average Contractual Lives | Weighted Average Exercise Prices | Number Exercisable | Exercise Prices | |||||||||||||||||
| $ | 0.63 | 1,490,000 | 1.03 | $ | 0.63 | 1,302,500 | $ | 0.63 | ||||||||||||||
| $ | 0.90 | 100,000 | 1.17 | $ | 0.90 | 75,000 | $ | 0.90 | ||||||||||||||
| $ | 1.12 | 10,000 | 2.48 | $ | 1.12 | 5,000 | $ | 1.12 | ||||||||||||||
| 1,600,000 | 1,382,500 | |||||||||||||||||||||
| Exercise Price | Number Outstanding | Weighted Average Contractual Life | Weighted Average Exercise Price | Number Exercisable | Exercise Price | |||||||||||||||||
| $ | 0.63 | 250,000 | 2.66 | $ | 0.63 | 125,000 | $ | 0.63 | ||||||||||||||
| $ | 0.90 | 100,000 | 0.17 | $ | 0.90 | 100,000 | $ | 0.90 | ||||||||||||||
| $ | 1.12 | 10,000 | 1.48 | $ | 1.12 | 7,500 | $ | 1.12 | ||||||||||||||
| 360,000 | 232,500 | |||||||||||||||||||||
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 the yearDecember 31, 2011 and granted, vested or canceled during the year ended December 31, 20102011 was as follows:
| Number of Options | Weighted-Average Grant Date Fair Values | |||||||
| Non-vested at January 1, 2010 | 717,750 | $ | 0.21 | |||||
| Granted | - | - | ||||||
| Vested | (399,000 | ) | $ | 0.22 | ||||
| Canceled | (101,250 | ) | $ | 0.23 | ||||
| Non-vested at December 31, 2010 | 217,500 | $ | 0.17 | |||||
| Number of Options | Weighted-Average Grant Date Fair Values | |||||||
| Non-vested at January 1, 2011 | 217,500 | $ | 0.17 | |||||
| Granted | - | - | ||||||
| Vested | (90,000 | ) | $ | 0.22 | ||||
| Canceled | - | - | ||||||
| Non-vested at December 31, 2011 | 127,500 | $ | 0.14 | |||||
Warrants
The Company uses the Black-Scholesa binomial 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 twelve monthsyear ended December 31, 2010,2011, in connection with financing, the Company issued warrants to purchase 1,496,000648,000 shares of common stock. The warrants are fixed and contain standard antidilution provision with no ratchet provisions. The fair value of the warrants of $99,642$13,506 was measured using the Black-Scholesa binomial option pricing model using the following assumptions: risk free interest raterates of 0.84%1.17% to 2.20%1.78%, expected dividend yield of 0%, volatility of 140% to 150%, exercise prices of $0.03$0.02 to $0.28$0.03 and the life of the warrants of 4 years.
As a result of the sale of Cancable Holding, total issued warrants to purchase 15,444,983 shares of common stock (including the 648,000 warrants mentioned above) were cancelled. Total outstanding warrants as of December 31, 2010, we had the following common stocks warrants outstanding:
| Issue Date | Expiry Date | Number of warrants | Exercise Price Per share | Value-issue date | Issued for | |||||||||||
| 09-30-2004 | 09-30-2016 | 2,250,000 | $ | 1.15 | $ | 1,370,000 | Financing | |||||||||
| 03-31-2005 | 03-31-2012 | 100,000 | $ | 1.20 | $ | 60,291 | Financing | |||||||||
| 04-30-2005 | 04-30-2017 | 100,000 | $ | 1.01 | $ | 44,309 | Financing | |||||||||
| 05-31-2005 | 05-31-2012 | 100,000 | $ | 1.01 | $ | 56,614 | Financing | |||||||||
| 06-22-2005 | 06-22-2017 | 313,000 | $ | 1.00 | $ | 137,703 | Financing | |||||||||
| 06-30-2005 | 06-30-2017 | 100,000 | $ | 0.90 | $ | 50,431 | Financing | |||||||||
| 07-31-2005 | 07-31-2012 | 100,000 | $ | 1.05 | $ | 56,244 | Financing | |||||||||
| 08-31-2005 | 08-31-2012 | 100,000 | $ | 1.05 | $ | 22,979 | Financing | |||||||||
| 09-30-2005 | 09-30-2012 | 100,000 | $ | 0.80 | $ | 36,599 | Financing | |||||||||
| 10-31-2005 | 10-31-2012 | 100,000 | $ | 0.80 | $ | 27,367 | Financing | |||||||||
| 11-30-2005 | 11-30-2012 | 100,000 | $ | 0.80 | $ | 16,392 | Financing | |||||||||
| 12-31-2005 | 12-31-2012 | 100,000 | $ | 0.80 | $ | 10,270 | Financing | |||||||||
| 02-13-2006 | 02-13-2016 | 1,927,096 | $ | 0.01 | $ | 1,529,502 | Financing | |||||||||
| 03-01-2007 | 03-01-2016 | 108,000 | $ | 0.90 | $ | 39,519 | Financing | |||||||||
| 04-01-2007 | 04-01-2016 | 108,000 | $ | 1.15 | $ | 50,529 | Financing | |||||||||
| 05-01-2007 | 05-01-2011 | 108,000 | $ | 1.25 | $ | 54,941 | Financing | |||||||||
| 06-01-2007 | 06-01-2011 | 108,000 | $ | 2.28 | $ | 101,470 | Financing | |||||||||
| 07-01-2007 | 07-01-2011 | 108,000 | $ | 2.10 | $ | 93,307 | Financing | |||||||||
| 08-01-2007 | 08-01-2011 | 108,000 | $ | 2.55 | $ | 112,117 | Financing | |||||||||
| 09-01-2007 | 09-01-2011 | 108,000 | $ | 2.73 | $ | 118,647 | Financing | |||||||||
| 10-01-2007 | 10-01-2011 | 108,000 | $ | 2.43 | $ | 105,362 | Financing | |||||||||
| 11-01-2007 | 11-01-2011 | 108,000 | $ | 2.60 | $ | 111,868 | Financing | |||||||||
| 12-01-2007 | 12-01-2011 | 108,000 | $ | 2.55 | $ | 107,284 | Financing | |||||||||
| 01-01-2008 | 01-01-2012 | 108,000 | $ | 2.84 | $ | 108,331 | Financing | |||||||||
| 01-22-2008 | 01-22-2058 | 812,988 | $ | 0.01 | $ | 1,470,687 | Acquisition | |||||||||
| 01-22-2008 | 01-22-2058 | 1,738,365 | $ | 0.01 | $ | 3,144,685 | Financing | |||||||||
| 01-30-2008 | 01-30-2058 | 506,250 | $ | 0.01 | $ | 1,001,909 | Financing | |||||||||
| 01-30-2008 | 01-30-2058 | 292,500 | $ | 0.01 | $ | 578,880 | Financing | |||||||||
| 02-01-2008 | 02-01-2012 | 108,000 | $ | 2.09 | $ | 85,612 | Financing | |||||||||
| 03-01-2008 | 03-01-2012 | 108,000 | $ | 2.04 | $ | 80,253 | Financing | |||||||||
| 04-01-2008 | 04-01-2012 | 108,000 | $ | 1.09 | $ | 162,748 | Financing | |||||||||
| 05-01-2008 | 05-01-2012 | 108,000 | $ | 1.19 | $ | 103,180 | Financing | |||||||||
| 06-01-2008 | 06-01-2012 | 108,000 | $ | 1.02 | $ | 88,114 | Financing | |||||||||
| 06-23-2008 | 06-23-2018 | 627,451 | $ | 0.01 | $ | 560,736 | Financing | |||||||||
| 06-23-2008 | 06-23-2018 | 1,333,333 | $ | 0.01 | $ | 1,211,168 | Financing | |||||||||
| 02-01-2009 | 02-01-2013 | 108,000 | $ | 0.25 | $ | 22,728 | Financing | |||||||||
| 03-01-2009 | 03-01-2013 | 108,000 | $ | 0.19 | $ | 17,277 | Financing | |||||||||
| 04-01-2009 | 04-01-2013 | 108,000 | $ | 0.18 | $ | 15,868 | Financing | |||||||||
| 05-01-2009 | 05-01-2013 | 108,000 | $ | 0.16 | $ | 14,557 | Financing | |||||||||
| 06-01-2009 | 06-01-2013 | 108,000 | $ | 0.27 | $ | 24,105 | Financing | |||||||||
| 07-01-2009 | 07-01-2013 | 108,000 | $ | 0.27 | $ | 24,105 | Financing | |||||||||
| 08-01-2009 | 08-01-2013 | 108,000 | $ | 0.25 | $ | 22,786 | Financing | |||||||||
| 09-01-2009 | 09-01-2013 | 108,000 | $ | 0.16 | $ | 14,567 | Financing | |||||||||
| 10-01-2009 | 10-01-2013 | 108,000 | $ | 0.12 | $ | 10,921 | Financing | |||||||||
| 11-01-2009 | 11-01-2013 | 108,000 | $ | 0.15 | $ | 13,656 | Financing | |||||||||
| 12-01-2009 | 12-01-2013 | 108,000 | $ | 0.08 | $ | 7,275 | Financing | |||||||||
| 01-01-2010 | 01-01-2014 | 108,000 | $ | 0.08 | $ | 7,292 | Financing | |||||||||
| 02-01-2010 | 02-01-2014 | 108,000 | $ | 0.12 | $ | 10,925 | Financing | |||||||||
| 03-01-2010 | 03-01-2014 | 108,000 | $ | 0.08 | $ | 25,484 | Financing | |||||||||
| 04-01-2010 | 04-01-2014 | 108,000 | $ | 0.09 | $ | 8,461 | Financing | |||||||||
| 05-01-2010 | 05-01-2014 | 108,000 | $ | 0.07 | $ | 8,457 | Financing | |||||||||
| 06-01-2010 | 06-01-2014 | 108,000 | $ | 0.07 | $ | 6,572 | Financing | |||||||||
| 07-01-2010 | 07-01-2014 | 108,000 | $ | 0.07 | $ | 6,566 | Financing | |||||||||
| 08-01-2010 | 08-01-2014 | 108,000 | $ | 0.07 | $ | 6,562 | Financing | |||||||||
| 09-01-2010 | 09-01-2014 | 108,000 | $ | 0.05 | $ | 4,615 | Financing | |||||||||
| 10-01-2010 | 10-01-2014 | 108,000 | $ | 0.05 | $ | 4,613 | Financing | |||||||||
| 11-01-2010 | 11-01-2014 | 108,000 | $ | 0.04 | $ | 1,844 | Financing | |||||||||
| 12-01-2010 | 12-01-2014 | 108,000 | $ | 0.04 | $ | 3,200 | Financing | |||||||||
| 12-31-2010 | 12-31-2014 | 200,000 | $ | 0.03 | $ | 5,051 | Consulting | |||||||||
| 15,212,983 | ||||||||||||||||
| 10. | Segment Information |
We determine and disclose our segments in accordance with The “ASC 280”Segment Reporting” topic of the Financial Accounting Standards Board Standards CodificationInformation”, 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”) and its wholly owned subsidiary OSSIM View Inc. are corporations incorporated under the laws of the Province of Ontario and provide video surveillance products and technologies to the market.
December 31, 2010 | December 31, 2009 | |||||||
| SALES: | ||||||||
| Cancable | $ | 32,715,322 | $ | 32,380,035 | ||||
| AC Technical | 7,090,054 | 7,145,760 | ||||||
| Iview | 58,699 | 140,996 | ||||||
| Creative Vistas, Inc. | 2,410 | 102,006 | ||||||
| Consolidated Total | $ | 39,866,485 | $ | 39,768,797 | ||||
| DEPRECIATION AND AMORTIZATION: | ||||||||
| Cancable | $ | 2,143,166 | $ | 2,569,724 | ||||
| AC Technical | 41,863 | 37,002 | ||||||
| Iview | 40,602 | 36,393 | ||||||
| Consolidated Total | $ | 2,225,631 | $ | 2,643,119 | ||||
| INTEREST EXPENSE: | ||||||||
| Cancable | $ | 1,503,717 | $ | 1,501,388 | ||||
| Iview | 119,122 | 124,378 | ||||||
| AC Acquisition | 53,240 | 51,673 | ||||||
| Creative Vistas, Inc. | 611,800 | 705,372 | ||||||
| Consolidated Total | $ | 2,287,879 | 2,382,811 | |||||
| NET INCOME (LOSS): | ||||||||
| Cancable | $ | (25,745 | ) | $ | (1,473,085 | ) | ||
| AC Technical | 293,583 | 441,443 | ||||||
| Iview | (273,297 | ) | (27,375 | ) | ||||
| AC Acquisition | (53,240 | ) | (51,676 | ) | ||||
| Corporate (1) | (623,108 | ) | (458,499 | ) | ||||
| Consolidated Total | $ | (681,807 | ) | $ | (1,599,192 | ) | ||
| TOTAL ASSETS | ||||||||
| Cancable | $ | 6,836,877 | $ | 10,288,086 | ||||
| AC Technical | 2,927,750 | 2,769,277 | ||||||
| Iview | 511,857 | 918,761 | ||||||
| Creative Vistas, Inc. | 994,376 | 1,807,944 | ||||||
| Consolidated Total | $ | 11,270,860 | $ | 15,784,068 | ||||
| CAPITAL ASSETS | ||||||||
| Cancable | $ | 3,616,864 | $ | 5,841,698 | ||||
| AC Technical | 768,918 | 767,117 | ||||||
| Iview | 21,957 | 60,738 | ||||||
| Consolidated Total | $ | 4,407,739 | $ | 6,669,553 | ||||
| Capital Expenditures | ||||||||
| Cancable | $ | 124,621 | $ | 1,973,482 | ||||
| AC Technical | 6,375 | 19,759 | ||||||
| Iview | - | 4,405 | ||||||
| AC Acquisition | - | - | ||||||
| Consolidated Total | $ | 130,996 | $ | 1,997,646 | ||||
| December 31, 2011 | December 31, 2010 | |||||||
| Sales: | ||||||||
| AC Technical | 7,232,345 | 7,090,044 | ||||||
| Iview | - | 58,699 | ||||||
| Creative Vistas, Inc. | 2,277 | 2,410 | ||||||
| Consolidated Total | $ | 7,234,622 | $ | 7,151,153 | ||||
| Depreciation and amortization: | ||||||||
| AC Technical | 41,375 | 41,863 | ||||||
| Iview | 22,179 | 40,601 | ||||||
| Consolidated Total | $ | 63,554 | $ | 82,464 | ||||
| INTEREST EXPENSE: | ||||||||
| Iview | 105,114 | 119,122 | ||||||
| AC Technical | 54,856 | 53,240 | ||||||
| Creative Vistas, Inc. | 313,913 | 611,800 | ||||||
| Consolidated Total | $ | 473,883 | 784,162 | |||||
| Net Income (Loss): | ||||||||
| AC Technical | (154,441 | ) | (306,587 | ) | ||||
| Iview | (370,804 | ) | (389,800 | ) | ||||
| Corporate (1) | (482,136 | ) | (984,302 | ) | ||||
| Consolidated Total | $ | (1,007,381 | ) | $ | (1,680,689 | ) | ||
| TOTAL ASSETS | ||||||||
| AC Technical | 2,353,051 | 2,927,750 | ||||||
| Iview | 56,388 | 511,856 | ||||||
| Creative Vistas, Inc. | 786,198 | 994,375 | ||||||
| Consolidated Total | $ | 3,195,637 | $ | 4,433,981 | ||||
| CAPITAL ASSETS | ||||||||
| AC Technical | 718,155 | 768,918 | ||||||
| Iview | - | 21,956 | ||||||
| Consolidated Total | $ | 718,155 | $ | 790,874 | ||||
| Capital Expenditures | ||||||||
| AC Technical | 4,472 | 6,375 | ||||||
| Consolidated Total | $ | 4,472 | $ | 6,375 | ||||
| (1) | Corporate expenses primarily include certain stock-based compensation for consulting and advisory services |
Revenues by geographic destination and product group were as follows:
December 31, 2010 | December 31, 2009 | |||||||
| Contract | $ | 5,683,974 | $ | 5,812,671 | ||||
| Service | 34,179,089 | 33,943,128 | ||||||
| Others | 3,422 | 12,998 | ||||||
| Total sales to external customers | $ | 39,866,485 | $ | 39,768,797 | ||||
| December 31, 2011 | December 31, 2010 | |||||||
| Contract | $ | 5,838,607 | $ | 5,683,974 | ||||
| Service | 1,396,015 | 1,467,179 | ||||||
| Total sales to external customers | $ | 7,234,622 | $ | 7,151,153 | ||||
All revenue is generated by the Company in Canada and the United States was $34,035,470 (2009: $32,696,096) and $5,790,500 (2009: $7,072,701), respectively.
| 11. | Commitments |
We have entered into contracts for certain consulting services providing for monthly payments with the Companiescompanies controlled by the CEOCompany’s Chairman and the president’sPresident’s spouse. In addition, the Company haswe have also entered into an operating lease for its premises, vehicles, computers and office equipment.vehicles. The total minimum annual payments for the next five yearsunder these agreements are as follows:
| Total | 2011 | 2012 | 2013 | |||||||||||||
| Operating leases | $ | 1,247,259 | $ | 590,237 | $ | 459,635 | $ | 197,387 | ||||||||
| Commitments related to consulting agreements | 1,210,000 | 605,000 | 605,000 | - | ||||||||||||
| $ | 2,457,259 | $ | 1,195,237 | $ | 1,064,635 | $ | 197,387 | |||||||||
| 2012 | ||||||
| Operating leases | $ | 15,000 | ||||
| Commitments related to consulting agreements | 458,300 | |||||
| $ | 473,300 | |||||
| ITEM 9. | Changes In and Disagreements With Accountants on Accounting and Financial Disclosure |
None.
| 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,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 effectivenessThis annual report does not include an attestation report of the company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide only management’s report in this annual 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 fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.Inherent Limitations Over Internal ControlsOur internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with GAAP. Our internal control over financial reporting includes those policies and procedures that:
| (i) | pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets; |
| (ii) | provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with GAAP, and that the Company’s receipts and expenditures are being made only in accordance with authorizations of the Company’s management and directors; and |
| (iii) | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the consolidated financial statements. |
Our management, including our principal executive officer and principal financial officer, does not expect that internal controls will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of internal controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Also, any evaluation of the effectiveness of controls in future periods is subject to the risk that those internal controls may become inadequate because of changes in business conditions, or that the degree of compliance with the policies or procedures may deteriorate.
| Item 9B. |
None
| Item 10. |
Directors and Executive Officers
| Name | Age | Position | ||
| Sayan Navaratnam | 36 | Chairman of the Board, and Director | ||
| Dominic Burns | 51 | Chief Executive Officer, President and Director | ||
| Heung Hung Lee | 42 | Chief Financial Officer, Secretary and Director |
Sayan Navaratnam–Director and Chairman of the Board
:Mr. Navaratnam serves as our Chairman of the Board and Director. He has been a Director of our company since 2004. He served as Chief Executive Officer of our company from 2004 until he resigned from the position on May 5, 2008, remaining Chairman and Director. Mr. Navaratnam joined AC Technical Systems in 2003 as Chief Executive Officer. 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. From 1997 to 2000, he was the Chief Executive Officer of Satellite Communications Inc., and its research arm Satellite Advanced Technologies. Mr. Navaratnam was responsible for coordinating and financing research and development projects and played a key role in strategic partnerships, mergers, and licensing technologies. From 2000 to 2003, Mr. Navaratnam was the Chief Operating Officer in ASPRO TechnologiesDominic Burns–Director, President and Chief Executive Officer
:Mr. Burns is our CEO 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.Heung Hung Lee–Director, 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 a qualified CPA in Australia. M s.Ms. Lee has been the Chief Financial Officer of our company since September 30, 2004.Ms. Lee was appointed a directorDirector of our company on November 1, 2008.Ms. Lee is responsible for the review of financialsthe financial statements of our 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.
Board of Directors and Officers
Each director is elected until the next annual meeting of the registrant and until his or her successor is duly elected and qualified. Officers are elected by, and serve at the discretion of, the board of directors. The board of directors may also appoint additional directors up to the maximum number permitted under our by-laws. A director so chosen or appointed will hold office until the next annual meeting of stockholders.
Each executive officer serves at the discretion of the board of directors and holds office until his or her successor is elected or until his or her earlier resignation or removal in accordance with our certificate of incorporation and by-laws.
Committees of the Board of Directors
We do not have standing audit, nominating or compensation committees, or committees performing similar functions. Our board of directors believes that it is not necessary to have standing audit, nominating or compensation committees at this time because the functions of such committees are adequately performed by our board of directors.
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 thecode of ethics. The Company has also adopted certain ethical principles and policies for its directors, which are set forth in thecode 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) 666-8676.666-8676
| ITEM 11. | EXECUTIVE COMPENSATION |
The following summary compensation table setsets forth all compensation paid by us during the two years ended December 31, 20102011 for services rendered in all capacities by the Chief Executive Officer and Chief Financial Officers of the Company and the only othernamed 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 | 2010 | 320,388 | 1 | – | – | |||||||||
| 2009 | 289,875 | 1 | – | – | ||||||||||
| Dominic Burns – Chief Executive Officer | 2010 | 266,990 | 2 | – | – | |||||||||
| 2009 | 241,563 | 2 | – | – | ||||||||||
| Heung Hung Lee – Chief Financial Officer | 2010 | 145,631 | – | – | ||||||||||
| 2009 | 126,700 | – | – | |||||||||||
| Name and Principal Position | Year | Salary | Bonus | Stock Awards | Option Awards | All Other Compensation | Total Compensation | |||||||||||||||||||||
| Sayan Navaratnam – Chairman | 2011 | 333,333 | 1 | - | - | - | - | 333,333 | ||||||||||||||||||||
| 2010 | 320,388 | 1 | - | - | - | - | 320,388 | |||||||||||||||||||||
| Dominic Burns – Chief Executive Officer | 2011 | 277,778 | 2 | - | - | - | - | 277,778 | ||||||||||||||||||||
| 2010 | 266,990 | 2 | - | - | - | - | 266,990 | |||||||||||||||||||||
| Heung Hung Lee – Chief Financial Officer | 2011 | 151,515 | - | - | - | - | 151,515 | |||||||||||||||||||||
| 2010 | 145,631 | - | - | - | - | 145,631 | ||||||||||||||||||||||
1
Balance was payable to Nationwide Solutions Inc. for consulting fees.2
Balance was payable to 1608913 Ontario Inc. for consulting fees.Employment Agreements
On July 16, 2008, the Company entered into a Consulting Agreement (the “Consulting Agreement”) with Nationwide Solutions Inc. (“Nationwide”) pursuant to which Nationwide will provide general business consulting services including business development, formalizing reports and negotiating or preparing sales agreements, vendor agreements, business plans, budgets, business presentations, finance agreements and equity agreements. The Consulting Agreement will terminate on July 16, 2012 unless extended or earlier terminated pursuant to the terms of the Consulting Agreement. We will pay to Nationwide an annual consulting fee of CAD$325,000 for each calendar year during the term of the Consulting Agreement. The chairman of the board of Nationwide, Sayan Navaratnam, is also the chairman of the board of the Registrant.
On January 1, 2010, the Company entered into a Consulting Agreement (the “Consulting Agreement”) with 1608913 Ontario Inc. pursuant to which 1608913 Ontario Inc. will provide general business consulting services including business development, formalizing reports and negotiating or preparing sales agreements, vendor agreements, business plans, budgets, business presentations, finance agreements and equity agreements. The Consulting Agreement will terminate on December 31, 2012 unless extended or earlier terminated pursuant to the terms of the Consulting Agreement. We will pay to 1608913 Ontario Inc. an annual consulting fee of CAD$275,000 for each calendar year during the term of the Consulting Agreement. Dominic Burn’s spouse is the only beneficial owner of 1608913 Ontario Inc. and Dominic Burns is also the Chief Exe cutive Officer, President and Director of the Registrant.
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 towith 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 relate 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 employeeemployees 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 andChairman or the President.Chief Executive Officer. 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 20062006; however no options were granted in 2010.
| 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, 20102011 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, 2010, Laurus Master Fund, Ltd. beneficially owned 1,298,449 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, La urus and its related companies would beneficially own an additional 15,142,138 shares of our common stock, which is comprised of 129,155 shares under the option and 15,012,983 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 | 57.3 | % | |||||
| Dominic Burns Hampton, Ontario | 7,036,607 | 18.8 | % | |||||
| Heung Hung Lee Markham, Ontario | 50,000 | 0.1 | % | |||||
| All officers and directors as a group (3 persons) | 28,497,593 | 76.2 | % | |||||
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, 2010:
| Plan Category | Nam of Plan | Number of Common Shares to be Issued upon Exercise of Outstanding Options | Range of Exercise Price of Outstanding Options | Number of Securities Remaining Available for Future Issuance under Stock Option Plan | ||||||||||
| Option Plans approved by our Shareholders | Stock Option Plan | 1,600,000 | $ | 0.63 to 1.12 | 2,400,000 | |||||||||
| Total | 1,600,000 | $ | 0.63 to 1.12 | 2,400,000 | ||||||||||
| Plan Category | Name of Plan | Number of Common Shares to be Issued upon Exercise of Outstanding Options | Range of Exercise Prices of Outstanding Options | Number of Securities Remaining Available for Future Issuance under Stock Option Plan | |||||
| Option Plans approved by our Shareholders | Stock Option Plan | 360,000 | $0.63 to $1.12 | 3,640,000 | |||||
| Total | 360,000 | $0.63 to $1.12 | 3,640,000 |
Share Option and Other Compensation Plans
Stock Option Plan
Our Stock Option plan (“the Plan”)Plan was adopted by our Board and approved by our shareholders on June 30, 2006. Our Stock Option Plan provides for the grant of options tokey 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 ofcommon stock, no par value, of the Company (the “Stock”)are authorized for issuance under the Stock Option planPlan as of December 31, 2007. 2011.Shares of Stock used for purposes of the Stock Option 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 beare available for further options hereunder.under the Stock Option Plan. The maximum aggregate number of shares of Stock that may be issued under the Stock Option Plan underas “incentive stock options” is 3,500,000 shares. No options may be granted under the Plan after June 30, 2011; provided that the Board of Directors may amend the Plan at any time.
Administration of Awards.The Plan shall beis 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,Board of Directors, subject to the terms of the Plan, shall have plenaryhas 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 CommitteeBoard of Directors shall be final, conclu siveconclusive 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 CommitteeBoard 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 beis 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 thisthe 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 th ethe Company.
Stock options.The CommitteeBoard 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)(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(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 on the date of reference, or, if no sale takes place on such date, the average of the closing high bid and low asked prices,(d) Effect of Termination of Employment.
An option may not be exercised after the Optionee has ceased to be(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(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(g) Treatment of Options Upon Occurrence of Certain Events
. The(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| 25 |
(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 theAdditional Provisions Applicable to Stock Option Plan
. TheAmendment and Termination
. No option shall be granted| ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
On September 29, 2004, pursuant to a Stock Purchase Agreement with The Burns Trust (our presidentPresident is one of the beneficiaries of the trust) and The Navaratnam Trust (our CEOChairman 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 previously received from Laurus. At December 31, 2010,2011, we have two 3% notes payable to Malar Trust Inc. (an entity of which our Chairman is a beneficially of)beneficiary), totaling $1,500,000 which isare due on demand.
Director Independence: None of our directors are independent.
| ITEM 14. | PRINCIPAL |
The following table sets forth the aggregate fees for professional services rendered to us for the years ended December 31, 20102011 and 2009.2010. Our principal accounting firm for the yearsyear ended December 31, 20092011 and 2010 is Kingery and Crouse P.A.:
| 2010 | 2009 | |||||||
| Audit Fees (a) | $ | 150,000 | $ | 140,000 | ||||
| Audit Related Fees (b) | - | - | ||||||
| Tax Fees (c) | - | - | ||||||
| All Other Fees (d) | - | - | ||||||
| Total | $ | 150,000 | $ | 140,000 | ||||
| 2011 | 2010 | |||||||
| Audit Fees (a) | $ | 150,000 | $ | 150,000 | ||||
| Audit Related Fees (b) | - | - | ||||||
| Tax Fees (c) | - | - | ||||||
| All Other Fees (d) | - | - | ||||||
| Total | $ | 150,000 | $ | 150,000 | ||||
| (a) | Audit Fees.Fees for audit services billed in |
| (b) | Audit-Related Fees.There are no 2010. |
| (c) |
| fees in 2011 and 2010. (d) | All Other Fees.No 2010. |
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 |
| ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
| 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. |
| 4.12* | Securities Purchase Agreement, dated June 24, 2008, by and among LV Administrative Services, Inc., the purchasers from time to time a party thereto, Creative Vistas, Inc., and Cancable Inc. incorporated by reference to the Registrant's Form 8-K filed July 1, 2008 | |
| 4.13* | Secured Term Note, dated June 24, 2008, issued by Creative Vistas, Inc. and Cancable Inc. to Valens Offshore SPV II, Corp. incorporated by reference to the Registrant's Form 8-K filed July 1, 2008 | |
| 4.14* | Secured Term Note, dated June 24, 2008, issued by Creative Vistas, Inc. and Cancable Inc. to Valens U.S. SPV I, LLC incorporated by reference to the Registrant's Form 8-K filed July 1, 2008 | |
| 4.15* | Warrant, dated June 24, 2008, issued by Creative Vistas, Inc. to Valens U.S. SPV I, LLC incorporated by reference to the Registrant's Form 8-K filed July 1, 2008 | |
| 4.16* | Warrant, dated June 24, 2008, issued by Creative Vistas, Inc. to Valens Offshore SPV II, Corp. incorporated by reference to the Registrant's Form 8-K filed July 1, 2008 | |
| 4.17* | Guaranty, dated June 24, 2008, by and among Creative Vistas, Inc., Cancable Inc., A.C. Technical Systems Ltd., Creative Vistas Acquisition Corp., Cancable Holding Corp., Iview Holding Corp., Iview Digital Video Solutions Inc., Cancable, Inc., 2141306 Ontario Inc., Cancable XL Inc., and XL Digital Services Inc. incorporated by reference to the Registrant's Form 8-K filed July 1, 2008 | |
| 4.18* | Master Security Agreement, dated June 24, 2008, by and among Creative Vistas, Inc., Cancable Inc., A.C. Technical Systems Ltd., Creative Vistas Acquisition Corp., Cancable Holding Corp., Iview Holding Corp., Iview Digital Video Solutions Inc., Cancable, Inc., 2141306 Ontario Inc., Cancable XL Inc., and XL Digital Services Inc. incorporated by reference to the Registrant's Form 8-K filed July 1, 2008 | |
| 4.19* | Pledge Agreement, dated June 24, 2008, by and among LV Administrative Services, Inc., the purchasers from time to time a party thereto, Cancable Inc., Creative Vistas, Inc., Cancable Holding Corp., Creative Vistas Acquisition Corp., Cancable XL Inc., Iview Holding Corp., and Brent Swanick incorporated by reference to the Registrant's Form 8-K filed July 1, 2008 | |
| 4.20* | Guaranty, dated June 24, 2008, of Brent Swanick incorporated by reference to the Registrant's Form 8-K filed July 1, 2008 | |
| 10.1* | Stock Option Plan, incorporated by reference to the Registrant’s Form S-8 filed October 6 2006 | |
| 10.2*^ | Rogers Cable Communications Inc. and Cancable 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 | |
| 10.13* | Letter of Intent dated February 13, 2008 incorporated by reference to the Schedule 13D Amendment filed by the Registrant with respect to 180 Connect Inc. dated February 19, 2008 | |
| 10.14* | Consulting Agreement, dated July 16, 2008, between Creative Vistas, Inc. and Nationwide Solutions Inc. incorporated by reference to the Registrant's Form 8-K filed July 18, 2008 | |
| 10.15* | Termination and Release Agreement, dated July 16, 2008, between AC Technical Systems Ltd., Nationwide Solutions Inc. and Sayan Navaratnam | |
| Stock Purchase Agreement among Creative Vistas, Inc., Cancable Holding Corp. and Cancable and Dependable Hometech, LLC, dated September 16, 2011 incorporated by reference to Exhibit 99.2 of the Registrant’s Form 8-K filed September 22, 2011** | ||
| 10.17* | ||
| 10.18* | Assignment and Assumption Agreement (Intercompany Receivables), dated September 16, 2011, between Creative Vistas, Inc. and Cancable Holding Corp. incorporated by reference to Exhibit 99.4 of the Registrant’s Form 8-K filed September 22, 2011 | |
| 10.19* | Assignment and Assumption Agreement (Side Agreement), dated September 16, 2011, between Creative Vistas, Inc. and Cancable incorporated by reference to Exhibit 99.5 of the Registrant’s Form 8-K filed September 22, 2011 | |
| 21.1+ | List of all subsidiaries | |
| 31.1+ | Rule 13a-14(a) Certification of the Principal Executive Officer | |
| 31.2+ | Rule 13a-14(a) Certification of the Principal Financial Officer | |
| 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 | |
| 101 | Financial Statements from the Annual Report of Creative Vistas, Inc. as of and for the year ended December 31, 2011, formatted in XBRL. |
* Previously filed and incorporated by reference
+ Filed herewith
^ Portions of this exhibit have beenwere omitted pursuant to a request for confidential treatment.
** Exhibits and schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company agrees to furnish supplementally a copy of any omitted exhibits or schedules to the SEC upon request.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| CREATIVE VISTAS, INC. | |||
| By: | /s/ Dominic Burns | ||
| Dominic Burns | |||
| Chief Executive Officer, President and | |||
| Director | |||
| Date: | March | ||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following person on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | Title | Date | ||
| /s/ Dominic Burns | Chief Executive Officer, President and Director | March | ||
| Dominic Burns | ||||
| /s/ Heung Hung Lee | Chief Financial Officer, Secretary and Director | March | ||
| Heung Hung Lee |
| 30 |