The accompanying unaudited condensed consolidated balance sheet as at March 31,June 30, 2011, and the consolidated condensed statements of operations and cash flows for the periods ended March 31,June 30, 2010 and 2011, include the accounts of Creative Vistas, Inc. (“CVAS”), Creative Vistas Acquisition Corp. (“AC Acquisition”), AC Technical Systems Ltd. (“AC Technical”), Cancable Holding Corp. (“Cancable Holding”), Cancable Inc., Cancable Inc., Cancable XL Inc., XL Digital Services Inc. (“XL Digital”), 2141306 Ontario Inc., Iview Holding Corp. (“Iview Holding”), Iview Digital Video Solutions Inc. (“Iview DSI”) and OSSIM View Inc.Inc (collectively the “Company”). All material inter-company accounts, transactions and profits have been eliminated. In the opinion of management, these condensed consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) that are necessary for a fair presentation of the results for and as of the periods shown. The accompanying condensed consolidated financial statements have been prepared in conformity with United States generally accepted accounting principles. However, certain information or footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. The results of operations for such periods are not necessarily indicative of the results expected for 2011 or for any future period. These financial statements should be read in conjunction with the financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010, filed with the Securities and Exchange Commission.

Our consolidated condensed financial statements were prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplate the realization of assets and liquidation of liabilities in the normal course of business. We have an accumulated deficit of $33,569,111,$33,645,258, a stockholders’ deficit of $14,672,013$14,740,797 and a working capital deficit of $14,198,524$ 14,200,086 at March 31,June 30, 2011, and at such date we have current maturities of term loans aggregating $14,026,128.to $14,001,128. We do not currently have the ability to repay the notes in the event of a demand by the holder. Furthermore, we granted a security interest to Laurus 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. As of March 31,June 30, 2011, there were 15,536,98315,644,983 shares of common stock issuable upon the exercise of warrants and 1,704,155 shares issuable upon the exercise of options (1,575,000 shares related to the Employee Stock Options (see Note 8 in the Financial Statements)). Also, included in the balance, 15,336,98315,860,983 shares of common stock issuable upon the exercise of warrants and 129,155 shares issuable upon the exercise of options issued to Laurus Master Fund, Ltd and its related entities, Erato Corporation, Valens Offshore Fund and Valens U.S. Fund, LLC and PSource Structured Debt Limited (“Laurus”). Additionally, there were 49 shares of common stock of Cancable Holding issuable upon the exercise of options and 20 shares of common stock of Iview Holding issuable upon the exercise of options to Laurus and its related entities.

Management believes that its existing capital will be sufficient to sustain its operations if the Company can refinance our and/or restructure its debt due in 2011. Management plans to seek additional capital in the future to fund operations, growth and expansion through additional equity, debt financing or credit facilities. The Company has had early stage discussions with investors about potential investment in the Company at a future date. No assurance can be made that such financing would be available, and if available it may take either the form of debt or equity. In either case, the financing could have a negative impact on our financial condition and our shareholders. The Company has also introduced cost cutting initiatives within the Administration, Projectreduced general and Selling departmentsadministrative expenses to improve efficiency and cash flow and has also increased its rates for services provided by AC Technical to improve gross margins. This is in line with our competitors. The Company also expects to see the benefits of its research and development efforts within the next 12 months as it starts to introduce its own line of customized products to the industry. These products and technologies are expected to improve gross margins. The Company believes that it will be eligible for research and development tax credits at year end for its research and development efforts during the year and these are additional sources of cash flow for the Company. Finally, the Company is also negotiating longer credit terms with its suppliers from 45 days to 60 to 75 days. For all the reasons mentioned above, we believe that we have adequate capital and short term borrowing capability and that we will be able to sustain our operations and continue as a going concern for a reasonable period of time, although there can be no assurance of this. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.

Inventory consists principally of parts, materials and supplies and is stated at the lower of cost or market. Cost is generally determined on the first in, first out basis. The inventory is net of estimated obsolescence ($100,000 at March 31,June 30, 2011 and December 31, 2010), and excess inventory based upon assumptions about future demand and market conditions.

Basic earnings (loss) per share (“EPS”) is computed using the weighted average number of common shares outstanding during the period. Diluted EPS is computed using the weighted average number of common and dilutive potential common shares outstanding during the period. Dilutive potential common shares consist of common stock issuable upon exercise of stock options and warrants and conversion of debt using the treasury stock method. Adjustments to earnings per share calculation include reversing interest related to the convertible debts and changes in derivative instruments. During periods when losses are incurred dilutive common shares are not considered in the EPS computations as their effect would be anti-dilutive.

Deferred financing costs, net are associated with the Company’s term notes. For the threesix months ended March 31,June 30, 2011, the amortization of deferred financing cost was approximately $40,370$79,482 (2010 - $42,932)$86,308).

The estimated amortization expense for each of the next three fiscal years is as follows:

 

In conjunction with the issuance of the Cancable Note and Iview Notes in 2006, the Company had granted Laurus options to purchase up to 49% of Cancable Holding Corp. and 20% of Iview Holding Corp. The financial statements of Cancable Holding Corp. and Iview Holding Corp. have negative equity on a stand alone basis. At such time when these entities have positive equity and generate net income, the Company will account for the options granted to Laurus as non-controlling interests.

The Company’s Stock Option Plan is intended to provide incentives for key employees, directors, consultants and other individuals providing services to the Company by encouraging their ownership of the common stock of the Company and to aid the Company in retaining such key employees, directors, consultants and other individuals upon whose efforts the Company’s success and future growth depends and in attracting other such employees, directors, consultants and individuals.

The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model, using the 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 March 31,June 30, 2011, options to purchase 1,575,000 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 March 31,June 30, 2011, there was $20,769$17,314 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 1.04 years. At March 31,June 30, 2011, 1,385,0001,387,500 options were vested. The cost recognized for the threesix months period ended March 31,June 30, 2011 was $2,714$6,169 (2010: $28,917)$46,200) which was recorded as general and administrative expenses.

As of March 31,June 30, 2011, the aggregate intrinsic value of all stock options outstanding and expected to vest was $0 and the aggregate intrinsic value of currently exercisable stock options was $0.  The intrinsic value of each option is the difference between the fair market value of the common stock and the exercise price of such option to the extent it is “in-the-money”.  Aggregate intrinsic value represents the value that would have been received by the holders of in-the-money options had they exercised their options on the last trading day of the year and sold the underlying shares at the closing stock price on such day.  The intrinsic value calculation is based on the $0.03 closing stock price of the common stock on March 31,June 30, 2011, the last trading day of the second quarter of fiscal 2010.  There were no in-the-money options outstanding and exercisable as of March 31,June 30, 2011.

Since there were no options exercised during the year ended December 31, 2010 or the threesix months ended March 31,June 30, 2011, there was no intrinsic value of options exercised.

The total fair value of options granted during the three month periodsix months ended March 31,June 30, 2011 and the year ended December 31, 2010 was $0 (none were granted in 2011 and 2010). 

The following table summarizes information about fixed price stock options at March 31,June 30, 2011:

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 March 31,June 30, 2011 and granted, vested or canceled during the threesix month period ended March 31,June 30, 2011 was as follows:

The Company uses the Black-Scholes option pricing model to value warrants issued to non-employees, based on the market price of our common stock at the time the warrants are issued. All outstanding warrants may be exercised by the holder at any time. During the threesix months ended March 31, 2010,June 30, 2011, in connection with financing, the Company issued warrants to purchase 324,000648,000 shares of common stock. The fair value of the warrants of $43,701$13,506 was measured using the Black-Scholes option pricing model using the following assumptions: risk free interest rate of 1.81%1.17% to 2.20%1.78%, expected dividend yield of 0%, volatility of 140%, exercise prices of $0.08$0.02 to $0.28$0.03 and the life of the warrants 4 years.

As of March 31,June 30, 2011, we had the following common stock warrants outstanding:

For the threesix months ended March 31,June 30, 2011, revenue generated by the Company in Canada and the United States was $8,081,697$16,997,443 (2010:$7,646,399)16,489,613) and $938,749$1,957,130 (2010: $1,591,215)$3,057,846), respectively.

For purposes of this “Management’s Discussion and Analysis or Plan of Operation”Financial Condition and Results of Operations”, we compared the three month period ended March 31,June 30, 2011 to the comparable period in 2010.

(a)           Cancable Segment – This segment includes Cancable Inc., Cancable, Inc., XL Digital and 2141306 Ontario Inc. (collectively, the “Cancable Group”). The principal activity is provisioning the deployment and servicing of broadband technologies in both residential and commercial markets. The Cancable Group’s service offering, network deployment, IT integration, and support services enable the cable television and telecommunications industries to deliver a high quality broadband experience to their customers. The total revenue from the Cancable segment was $6,744,100$7,763,900 for the three months ended March 31,June 30, 2011, compared to $7,677,100$8,256,000 for same period in 2010, representing a decrease of $492,100 or 5.9%. The decrease in revenue was primarily due to the decrease in revenue generated from our customer Rogers Cable Inc. Rogers Cable Inc. is Cancable Group’s largest customer and the revenue from this customer for the three months ended June 30, 2011 was $5,395,400 or 69.5% of total Cancable revenue compared to $5,614,300 or 68.0% for same period in 2010. Total revenue generated in the United States for the three months ended June 30, 2011 was $1,017,500 compared to $1,466,600 for same period in 2010. The decline in revenue was primarily due to Cancable’s exit from two markets located in Louisiana. Revenue generated from the two exited markets was $913,300 for the three months ended June 30, 2010. The company has plans to expand to other stronger markets in the United States. (b) AC Technical segment - Total revenue of the AC Technical segment was $2,154,800 for the three months ended June 30, 2011 compared to $2,029,400 for the corresponding period in 2010. The increase in revenue primarily resulted from the increase in contract revenue to $1,817,500 for the three months ended June 30, 2011 compared to $1,638,900 for same period in 2010. The service revenue was $337,300 for the three months ended June 30, 2011, compared to $390,400 for same period in 2010.

(a)           Cancable Segment – This segment includes, but is not limited to, Cancable Inc., XL Digital Services, Inc. and 2141306 Ontario Inc. (collectively, the “Cancable Group”). The principal activity is provisioning the deployment and servicing of broadband technologies in both residential and commercial markets. The Cancable Group’s service offering, network deployment, IT integration, and support services, enable the cable television and telecommunications industries to deliver a high quality broadband experience to their customers. The total revenue from the Cancable segment was $14,508,100 for the six months ended June 30, 2011, compared to $15,933,100 for same period in 2010. The decrease in revenue was primarily due to the decrease in revenue generated from our customer Rogers Cable Inc. Rogers Cable Inc. is Cancable Group’s largest customer and the revenue from this customer for the threesix months ended March 31,June 30, 2011 was $4,481,500$9,890,800 or 66.4%52.2% of total Cancable Group’s revenue compared to $4,717,900$10,332,300 or 61.4%64.8% of total Cancable Group’s revenue for same period in 2010. Total revenue generated in the United States for the threesix months ended March 31,June 30, 2011 was $938,700$1,957,100 compared to $1,591,200$3,057,800 for the three months ended March 31,same period in 2010. The decline in revenue was primarily due to the exit from two markets located in Louisiana and the revenue generated from those two markets was $760,600 for the three months ended March 31, 2010.  The company has plans to expand to other stronger markets in the United States.

(b)           AC Technical segment - Total revenue of the AC Technical segment was $2,238,200$4,393,100 for the threesix months ended March 31,June 30, 2011 compared to $1,547,300 in 2010.  Contract revenue was $1,852,000$3,576,600 for the three months ended March 31, 2011 compared to $1,114,700 in the corresponding period ofin 2010. The year-over-year increase in revenue was mainly due to anthe increase in the number of subcontractscontract revenue which was $3,721,600 for the provision of servicessix months ended June 30, 2011 compared to government and commercial contracts.$2,776,800 for same period in 2010. The service revenue was $386,200$727,700 for the threesix months ended March 31,June 30, 2011, compared to $432,600$823,000 for the same period in 2010.

(a)           Cancable segment – Direct expensesCost of sales of this segment were $5,412,000was $11,792,300 or 81.3% of Cancable Group’s revenue for the threesix months ended March 31,June 30, 2011 whichcompared to $12,616,200 or 79.2% for the six months ended June 30, 2010. Cost of sales is comprised principally of labor expenses of $4,218,700,$9,119,400, vehicle expenses of $508,300$1,105,400 and material cost of $271,000. The direct expenses for$666,800. For the threesix months ended March 31,June 30, 2010, cost of sales was comprised principally of labor expenses of $4,779,100,$9,754,200, vehicle expenses of $529,800$1,057,900 and material cost of $384,700.  The decrease in direct expenses was primarily due to the decrease in revenue.$840,300.