As filed with the Securities and Exchange Commission on December 2, 2004
Securities Act File No. 333-
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CREATIVE VISTAS, INC.
(Name of small business issuer in its charter)
Arizona | 3669 | 86-0464104 |
2100 Forbes Street |
(Address and telephone number of principal executive offices
and principal place of business)
Copy to:
Andrew J. Beck, Esq.
Torys LLP
237 Park Avenue
New York, New York 10017
(212) 880-6000
Approximate date of commencement of proposed sale to the public: as soon as practicable after the registration statement becomes effective.
If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. o
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CALCULATION OF REGISTRATION FEE | ||||
Title of Securities | Amount to be | Proposed Maximum Offering Price | Proposed Maximum Aggregate Offering | Amount of |
Common Stock, no par value | 3,506,332 shares | $3.00 | $10,518,996 | $1,333 |
(1) Pursuant to Rule 416 under the Securities Act, this Registration Statement also covers such additional number of shares of common stock as may be issuable upon a stock split, stock dividend or similar transaction. (2) Estimated solely for the purpose of calculating the registration fee based upon the average of the bid and asked prices for the registrant's common stock on the NASD OTC Bulletin Board on November 29, 2004. |
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
The information in this prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
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SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED DECEMBER 2, 2004
Creative Vistas, Inc.
3,506,332 Shares of Common Stock
__________________
The selling shareholders named in this prospectus are offering all of the shares of common stock offered through this prospectus. We will not receive any proceeds from the sale of the common stock being sold by the selling shareholders. The shares being offered include 2,981,332 shares reserved for issuance upon exercise of warrants and options and conversion of convertible notes that we have issued to selling shareholders.
The common stock is traded on the NASD OTC Bulletin Board under the symbol “CVSA”. On November 29, 2004, the closing bid price for our common stock was $2.50 per share.
The selling shareholders may offer their shares at any price. We will pay all expenses of registering the shares.
Investing in our common stock involves a high degree of risk. See “Risk Factors” beginning on page 5 of this prospectus.
We have not authorized anyone to provide you with different information from that contained in this prospectus. We are not making an offer of these securities in any state where the offer is not permitted. You should not assume that the information in this prospectus is accurate as of any date other than the date on the front of this prospectus.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.
The date of this prospectus is December 2, 2004.
TABLE OF CONTENTS
Prospectus Summary | 1 | |
Risk Factors | 3 | |
Use of Proceeds | 7 | |
Determination of Offering Price | 7 | |
Dividend Policy | 7 | |
Selling Shareholders | 7 | |
Plan of Distribution | 8 | |
Management's Discussion And Analysis or Plan of Operation | 9 | |
Description of Business | 15 | |
Directors and Executive Officers, Promoters and Control Persons | 24 | |
Executive Compensation | 26 | |
Security Ownership of Certain Beneficial Owners and Management | 27 | |
Description of Securities | 28 | |
Certain Relationships and Related Transactions | 28 | |
Market Price of and Dividends on the Company's Common Equity and Related | ||
Stockholder Matters | 28 | |
Legal Matters | 30 | |
Experts | 30 | |
Changes in and Disagreements with Accountants | 30 | |
Available Information | 31 | |
Financial Statements | F-1 |
The Company intends to furnish to its shareholders annual reports containing audited financial statements.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed information and financial statements and the notes thereto appearing elsewhere in this prospectus. Unless otherwise noted, all dollar amounts herein are in U.S. dollars. The information in this Prospectus has not been adjusted to reflect a three-for-one stock split to be effected in the form of a stock dividend on December 23, 2004. Prospective investors should carefully consider the information set forth under “Risk Factors.” References to the terms “we,” “our,” or “us,” refer to Creative Vistas, Inc. and its subsidiaries.
The Company
We are a single source provider of technology-based security solutions for medium and large commercial and governmental facilities in Canada and the US. We operate through our subsidiary AC Technical Systems Ltd, located in Ontario, Canada, which we acquired as of September 30, 2004. AC Technical Systems is focused on the electronic security segment of the security industry. Prior to the acquisition of AC Technical Systems, we had no business operations.
Through our technology integration team of experienced 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.
Systems integrators design, install and customize several independent systems, such as intrusion and fire protection, access management and video surveillance, create an “integrated” system based on the requirements of the customer. We believe we are one of the leading technology integrators within the security and surveillance market and we have been named one of the Top 100 fastest growing companies in Canada over the past five years by Profit 100. Since the tragedies of Sept 11, 2001, the awareness and the need for security systems have increased tremendously. Many of the institutional budgets have expanded and governments have set stringent requirements for superior security equipment to be installed. The creation of the Homeland Security initiative in the US has had a global effect whereby more funds are being used to improve and install new security solutions. & nbsp;We currently provide technology based security solutions to four key vertical market segments:
Government
Healthcare
Education
Retail
We also provide security solutions to various other segments of the security and surveillance market.
We currently provide a customer with six core competencies:
Consulting, audit, review, and planning
Engineering and design
Customization, software development, interfacing
System integration, installation, project management,
System training, technical support, maintenance
Ongoing maintenance, preventative maintenance and service upgrades
We believe we are one of a small number of companies that are currently capable of performing all six functions efficiently. We are able to provide our customers with such competencies due to our experience, technological sophistication, engineering and design infrastructure, references, service and integration infrastructure, and our proprietary integration technologies.
We have our own engineering and service department with experienced employees.
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We design software for integrated products from different manufacturers. We also design software to record and manage video for large facilities. We also have our own research and development department. We are currently developing software to integrate off-the-shelf Digital Video Recorders (DVR) with Automated Teller Machines (ATMs). This system would increase efficiency for financial institutions to view and manage video of ATM transactions. We plan to expand the software development to integrate various devices including Point of Sale (POS) systems to DVDs and access control equipment. This aspect of the Company is a competitive advantage and allows us to provide entire solutions to customers rather than just one component of a project.
As a security integrator, we engineer, design, customize, integrate, service and maintain closed circuit television (CCTV) and access control systems for customers in the private and public sectors. These systems are used by the customers to detect, prevent, and provide evidence of possible criminal activities. We integrate multiple systems to provide the optimal level of security for our customers. These systems are also used as a management tool to improve efficiency within our customer base.
We have provided services to the following markets:
Government
Hospitals
Retail
Education
Commercial sites
Airports
Office buildings
Nursing homes
Automobile dealerships
We provide our products and services to customers in the public and private sectors through direct sales to end-users and through subcontracting arrangements. Our customers and end-users include:
Percent of our Pro Forma Revenues1 | |||
Year Ended December 31, 2003 | Nine Months Ended September 30, 2004 | ||
Loblaws Companies Ltd. | 31.5% | 23.5% | |
Cloke-Kirby | 5.3% | 3.1% | |
Toronto Catholic District School Board | 4.9% | 4.1% |
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JMR Electric | 3.3% | 1.6% | |
Royal Contracting | 2.6% | –% | |
York District School Board | 2.4% | 1.2% | |
Durham Catholic District School Board | 2.5% | 1.3% | |
Bonfield Construction | 2.3% | 2.0% | |
World Wide Electric | 2.6% | 3.1% | |
Placer Dome | 2.0% | –% | |
Humber College | 1.9% | 0.1% | |
SNC Profac | 1.9% | 2.0% | |
Lakeridge Health Corporation | 1.6% | 1.7% | |
Halton Health College | 1.3% | 0.7% | |
Maple Leaf Sport | 1.3% | 1.3% | |
_______________ 1 Pro forma for the acquisition of AC Technical Systems as though it had occurred as of the beginning of the respective period. |
Our headquarters are located at 2100 Forbes Street, Units 8-10, Whitby, Ontario, Canada L1N 9T3. Our telephone number is (905) 666-8676. We were incorporated under the laws of the State of Arizona on July 18, 1983. The Offering Securities being offered Up to 3,506,332 shares of common stock Common Stock outstanding after Offering 13,006,332 shares of common stock (assuming 2,981,332 shares are issued upon the exercise of warrants and options and the conversion of convertible notes held by the selling shareholders) Use of proceeds We will not receive any proceeds from the sale of the shares of common stock by the selling shareholders OTCBB trading symbol CVSA |
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Summary Financial Information | ||||||||||||||||
Nine Month Period Ended | ||||||||||||||||
Year Ended December 31 | September 30 | |||||||||||||||
2002 | 2003 | 2003 | 2004 | |||||||||||||
Operating Results: | ||||||||||||||||
Sales | $ | 7,845,839 | $ | 9,251,344 | $ | 6,525,419 | $ | 6,353,130 | ||||||||
Cost of sales | 5,037,615 | 5,801,708 | 4,072,889 | 3,732,076 | ||||||||||||
Gross profit | 2,808,224 | 3,449,636 | 2,452,530 | 2,621,054 | ||||||||||||
Expenses | 2,605,910 | 3,221,106 | 2,347,410 | 3,459,562 | ||||||||||||
Income (loss) before income | ||||||||||||||||
taxes | 202,314 | 228,530 | 105,120 | (838,508) | ||||||||||||
Income taxes (recovery) | 89,048 | 65,773 | 27,983 | (193,504) | ||||||||||||
Net income (loss) | $ | 113,266 | $ | 162,757 | $ | 77,137 | $ | (645,004) | ||||||||
December 31, | December 31, | September 30, | September 30, | |||||||||||||
2002 | 2003 | 2003 | 2004 | |||||||||||||
Balance Sheet Data: | ||||||||||||||||
Current assets | $ | 1,938,503 | $ | 2,874,661 | $ | 2,545,520 | $ | 6,537,234 | ||||||||
Total assets | 2,638,106 | 3,699,207 | 3,354,377 | 7,461,522 | ||||||||||||
Current liabilities | 2,324,628 | 3,087,318 | 2,849,012 | 4,717,017 | ||||||||||||
Mortgage loan | 210,920 | 236,953 | 231,902 | - | ||||||||||||
Note payable | - | - | - | 2,061,087 | ||||||||||||
Due to related parties | 72,784 | 247,325 | 254,100 | 3,699 | ||||||||||||
Shareholders' equity | 252,049 | 482,321 | 361,797 | 656,396 |
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RISK FACTORS
Described below are certain 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.
Competition
The security industry is highly competitive. The Company competes with a number of large international firms which have more extensive resources than the Company does. 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:
The Company is dependent on large institutional and commercial customers and their budgets. If there are cut backs in budgets by its customers it will adversely impact the revenues of the Company.
Risks associated with construction schedules:
The Company has contracted to provide security systems to a number of new buildings and delays in construction of these buildings could potentially delay revenues being realized.
Supplier Product Failures:
The Company does not currently manufacture its own products and it must purchase products from others. It could adversely impact the Company's relationships with its customers if there are delays in receiving products from suppliers or if there are defects in these products.
Contracts with Government Agencies:
Contracts with government agencies account 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. A single customer accounted for more than ten percent of total sales for the years ended December 31, 2002 and 2003. 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.
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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 Risks:
Our intellectual property might not be protectable. Despite our precautions, it may be possible for unauthorized third parties to copy our products or obtain and use information that we regard as proprietary to create products that compete against ours. If we fail to protect and preserve our intellectual property, we may lose an important competitive advantage. In addition, we may from time to time be served with claims from third parties asserting that our products or technologies infringe their intellectual property rights. If, as a result of any claims, we were precluded from using technologies or intellectual property rights, licenses to the disputed third-party technology or intellectual property rights might not be available on reasonable commercial terms, or at all. We may initiate claims or litigation against third parties for infringement of our proprietary right s or to establish the validity of our proprietary rights. Litigation, either as plaintiff or defendant, could result in significant expense and 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.
Product Liability Claims
Any product liability claim brought against us, even if unsuccessful, would likely be time-consuming and costly, and potential liabilities could exceed our available insurance coverage.
We may not be able to increase our 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 the length of time it takes to record a sale can take a prolonged period of time.
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We may not be able to successfully make acquisitions or form partnerships as a means of fostering our growth:
Our growth strategy involves successfully acquiring companies that will add value to our firm and also build partnerships with companies who can complement our core competencies. We may not be successful in identifying or consummating transactions with such companies.
Continued need for additional financing:
To implement our growth plan, we may need additional financing. We will need additional financing upon 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.
We have issued a substantial number of warrants, options and other convertible securities, which may cause the trading price of our securities to decline and may limit our ability to raise capital from other sources:
As of November 15, 2004, there were 996,500 shares of common stock issuable upon the exercise of warrants. As of that date, there also were 1,500,000 shares of common stock issuable upon conversion of a certain $4.5 million convertible term note, 333,000 shares of common stock issuable upon conversion of the currently outstanding principal amount of a certain revolving note and 499,999 shares issuable upon the exercise of options. While these securities are outstanding, the holders will have the opportunity to profit from a rise in the price of our securities with a resulting dilution (upon exercise or conversion) in the value of the interests of our other security holders. Our ability to obtain additional financing during the period these convertible securities are outstanding may be adversely affected and their existence may have a negative effect on the price of our securities. &n bsp;The holders of these securities are likely to exercise them at a time when we would, in all likelihood, be able to obtain any needed capital by a new offering of securities on terms more favorable to us than those of the outstanding warrants, options and convertible promissory notes.
Because our directors own 93% of our outstanding common shares, they could make and control corporate decisions that may be disadvantageous to minority shareholders:
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Our directors own approximately 93% of the outstanding common shares (34.4% on a fully diluted basis, assuming no sales of shares by our directors). Accordingly, they will have a significant influence in determining the outcome of all corporate transactions or other matters, including mergers, consolidations and the sale of all or substantially all of our assets, and also the power to prevent or cause a change in control. The interests of our directors may differ from the interests of the other shareholders and thus result in corporate decisions that are disadvantageous to other shareholders.
Exchange rate fluctuations may have adverse effects on our revenues:
A portion of our revenue 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:
As of September 30, 2004, we had debt of approximately $8,811,000. Our substantial indebtedness could have important consequences to you. Our annual debt service requirements are approximately $100,000 from April 2005 related to the convertible notes of $4,500,000 plus interest payable from November 1, 2004. In addition, all customer deposits received must be applied to repay our revolving loans. In addition, we have a series of other promissory notes totaling $159,000 with interest payable on monthly basis and principal payable on monthly basis of $13,250 from March 2006 and convertible notes totaling approximately $100,000 are matured in 2005. Such debt is secured by a lien on all of our assets and properties. The Company has an option of paying interest on these borrowings in cash or by issuing common stock. However, in the event we are unable to gener ate 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 addition, our outstanding indebtedness could limit our ability to obtain any additional financing.
Market:
Although the Company's common stock is quoted on the NASD OTC Bulletin Board, there is no active trading in the stock. A trading market may not develop and stockholders may not be able to liquidate their investment without considerable delay. If a market should develop, the price of the Company's stock may be highly volatile.
Penny Stock:
The Company's securities are subject to the “penny” stock regulation of Rule 15g-9 of the Securities Exchange Act of 1934 (the “Exchange Act”). 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
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quotation in the National Association of Securities Dealers' Automated Quotation System; issued by a registered investment company; issued with a price of five dollars or more; or issued by an issuer with net tangible assets in excess of $2,000,000. This rule may affect the ability of broker-dealers to sell the Company's securities.
For transactions covered by Rule 15g-9, a broker-dealer must furnish to all investors in penny stocks a risk disclosure document, make a special suitability determination of the purchaser, and receive the purchaser's written agreement to the transaction prior to the sale. In order to approve a person's account for transactions in penny stocks, the broker-dealer must (i) obtain information concerning the person's financial situation, investment experience, and investment objectives; (ii) reasonably determine, based on that information that transactions in penny stocks are suitable for the person and that the person has sufficient knowledge and experience in financial matters to reasonably be expected to evaluate the transactions in penny stocks; and (iii) deliver to the person a written statement setting forth the basis on which the broker-dealer made the determination of suitability stating that it is unlawful to effect a transaction in a designated security subject to the provisions of Rule 15g-9(a)(2) unless the broker-dealer has received a written agreement from the person prior to the transaction. Such written statement from the broker-dealer must also set forth, in highlighted format immediately preceding the customer signature line, that the broker-dealer is required to provide the person with the written statement and the person should sign and return the written statement to the broker-dealer only if it accurately reflects the person's financial situation, investment experience and investment objectives.
Forward-looking statements in this document may prove inaccurate
This document contains forward-looking statements about our company that are not historical facts but, rather, are statements about future expectations. When used in this document, the words “anticipates,” “believes,” “expects,” “intends,” “should” and similar expressions as they relate to us, or to our management, are intended to identify forward-looking statements. However, forward-looking statements in this document are based on management's current views and assumptions and may be influenced by factors that could cause actual results, performance or events to be materially different from those projected. These forward-looking statements are subject to numerous risks and uncertainties. Important factors, some of which are beyond our control, could cause actual results, performance or events to differ materially from those in the forward-looking statements. These factors include those described above under “Risk Factors” and:
Impact of general economic conditions in North America;
Changes in laws and regulations;
Fluctuation in interest rates; and
Access to capital markets.
Our actual results or performance could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, we cannot predict whether any of the events
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anticipated by the forward-looking statements will transpire or occur, or if any of them do, what impact they will have on our results of operations and financial condition. You should not place undue reliance on these forward-looking statements.
USE OF PROCEEDS
We will not receive any proceeds from the sale of common stock offered by this prospectus by the selling shareholders.
DETERMINATION OF OFFERING PRICE
The selling shareholders will sell their shares at prevailing market prices or privately negotiated prices.
DIVIDEND POLICY
The Company has never paid a cash dividend on its Common Stock. The payment of cash dividends in the future will depend on the Company's earnings, financial condition and capital needs and on other factors deemed pertinent by the Company's Board of Directors. It is the current policy of the Company's Board of Directors to retain earnings to finance the operations and expansion of the Company's business.
SELLING SHAREHOLDERS
We have listed below:
the name of each selling shareholder
the relationship of each selling shareholder to our company, as applicable
the number of shares of common stock beneficially owned by the selling shareholder as of the date of this prospectus
the number of shares being offered by each of them.
After the offering, Sayan Navaratnam will beneficially own 5,378,653 shares of common stock of our company and Dominic Burns will beneficially own 3,444,034 shares of common stock of our company.
On September 30, 2004, we entered into a series of agreements with Laurus Master Fund, Ltd., a Cayman Islands company, pursuant to which we issued a convertible term note in the principal amount of $4.5 million due September 30, 2007, a revolving credit facility with an initial borrowing amount of $1 million, a common stock purchase warrant and a stock purchase option. We also entered into related security documents and a registration rights agreement whereby, among other things, we agreed to file a registration statement, of which this prospectus is a part, with the SEC, to register the resale of the shares of common stock that we will issue upon exercise of the Warrant and the Option and upon conversion of the Notes. We agreed to keep the registration statement effective until the date when all of the shares registered hereunder are sold
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or the date on which the shares registered hereunder can be sold without registration and without restriction as to the number of shares that may be sold. The Notes are convertible into shares of our common stock at a fixed conversion rate of $3.00 per share, the Warrant provides for the purchase of up to 750,000 shares of common stock at a price of $3.45 each, subject to customary adjustments, until September 30, 2011, and the Option provides for the purchase of up to 499,999 shares of common stock at a price of $0.02 each, subject to customary adjustments, until September 30, 2014.
The shares being offered hereby are being registered to permit public secondary trading, and the selling shareholders are under no obligation to sell all or any portion of their shares.
Name and Address of | Relationship to Company | Shares Beneficially Owned Prior to Offering | Percentage of Shares Beneficially Owned Prior to Offering | Shares Offered(3) |
Sayan Navaratnam | Director, Chairman and Chief Executive Officer | 5,628,653 | 56.1% | 250,000 |
Dominic Burns | Director and President | 3,694,034 | 36.9% | 250,000 |
Laurus Master Fund, Ltd (1)(2) | N/A | 499,999 | 4.8% | 2,981,332 |
Torys LLP | N/A | 25,000 | * | 25,000 |
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* Less than 1%
(1) Includes 1,731,333 shares (to be acquired during the effectiveness of this registration statement) issuable upon conversion of its Notes, 750,000 shares issuable upon exercise of its Warrant and 499,999 shares issuable upon exercise of its options.
(2) Laurus Master Fund, Ltd. exercises dispositive and voting control with respect to the securities to be offered for resale. Laurus Capital Management, L.L.C. controls Laurus Master Fund, Ltd. Eugene Grin and David Grin are the sole members of Laurus Capital Management, L.L.C.
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(3) Assumes that all shares are sold pursuant to this offering and that no other shares of common stock are acquired or disposed of by the selling shareholders prior to the termination of this offering. Because the selling shareholders may sell all, some or none of their shares or may acquire or dispose of other shares of common stock, we cannot estimate the aggregate number of shares which will be sold in this offering or the number or percentage of shares of common stock that each selling security holder will own upon completion of this offering.
PLAN OF DISTRIBUTION
The shares offered hereby by the selling shareholders may be sold from time to time by the selling shareholders, or by pledgees, donees, transferees or other successors in interest. The distribution of the securities by the selling shareholders may be effected in one or more transactions that may take place on the over-the-counter market, including ordinary broker's transactions, at market prices prevailing at the time of sale, at prices related to the prevailing market prices or at negotiated prices. Usual and customary or specifically negotiated brokerage fees or commissions may be paid by the selling shareholders in connection with the sales of securities. The shares offered by the selling shareholders may be sold by one or more of the following methods, including without limitation: (a) a block trade in which a broker or dealer so engaged will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction; (b) ordinary brokerage transactions and transactions in which the broker may solicit purchases, and (c) face-to-face transactions between sellers and purchasers without a broker-dealer. In effecting sales, brokers or dealers engaged by the selling shareholders and intermediaries through whom the securities are sold may be deemed “underwriters” within the meaning of the Securities Act of 1933 (the “Securities Act”) with respect to the shares offered, and any profits realized or commission received may be deemed underwriting compensation.
At the time a particular offer of the common stock is made by or on behalf of a selling shareholder, to the extent required, a prospectus will be distributed which will set forth the number of shares being offered and the terms of the offering, including the name or names of any underwriters, dealers or agents, if any, the purchase price paid by any underwriter for the shares purchased from the selling shareholders and any discounts, commissions or concessions allowed or reallowed or paid to dealers, and the proposed selling price to the public.
Whenever we are notified by the selling shareholders that any material arrangement has been entered into with a broker-dealer, agent or underwriter for the sale of shares through a block trade, special offering, exchange distribution or a purchase by a broker-dealer, agent or underwriter, we will file a supplemented prospectus, if required, pursuant to Rule 424(c) under the Act. The supplemented prospectus will disclose (a) the name of each broker-dealer, agent or underwriter, (b) the commissions paid or discounts or concessions allowed to broker-dealer(s), agent(s) or underwriter(s) or other items constituting compensation or indemnification arrangements with respect to particular offerings, where applicable, (c) that the broker-dealer(s), agent(s) or underwriter(s) did not conduct any investigation to verify the information set out or incorporated by reference in this prospectus, as supplement ed, and (d) other facts material to the transaction. In addition, we will file a supplemental prospectus if any successors to the named selling shareholders wish to sell under this prospectus.
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We have informed the selling shareholders that the anti-manipulative rules under the Exchange Act, including Regulation M thereunder, may apply to their sales in the market and have furnished each of the selling shareholders with a copy of these rules. We have also informed the selling shareholders of the need for delivery of copies of this prospectus in connection with any sale of securities registered hereunder.
Sales of shares by the selling shareholders or even the potential of such sales would likely have an adverse effect on the market price of the shares offered hereby.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion of the financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes thereto. The following discussion contains certain forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed therein. Factors that could cause or contribute to such differences include, but are not limited to, risks and uncertainties related to the need for additional funds, the rapid growth of the operations and our ability to operate profitably a number of new projects. Except as required by law, we do not intend to publicly release the results of any revisions to those forward-looking statements that may be made to reflect any future events or circumstances.
Overview
On September 30, 2004, pursuant to a Stock Purchase Agreement with The Burns Trust, The Navaratnam Trust and AC Technical Systems Ltd., AC Technical Acquisition Corp., a subsidiary of the Company, 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. Management believes that no goodwill was recognized for this transaction.
Our largest customer, Loblaws Companies Ltd. accounted for 14%, 31%, and 23% of our revenues in each of the fiscal years ended December 31, 2002 and 2003 and nine-month period ended September 30, 2004, respectively. We anticipate that Loblaws Companies Ltd. will account for a significant portion of our future revenues. Five other customers each accounted for from 3% to 13% of our revenues during the same periods.
Results of Operations
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 2004 TO NINE MONTHS ENDED SEPTEMBER 30, 2003
Since our business tends to be seasonal, most of the jobs are usually processed by us in the first or the last quarter of the latter half of the calendar year.
Sales: Sales for the nine months ended September 30, 2004 totaled $6,353,130 representing a decrease of 2.6% from the nine months ended September 30, 2003. The decrease in revenues was primarily due to project delays and construction delays. A number of large projects within the health care market were delayed due to the SARS epidemic in Toronto. Canada also had its
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election this year and many government sector projects were put on hold until the results were finalized. We have experienced a significant increase in the number of inquiries for systems from the government and retail sector. This increased interest in security products and services may result in our achieving increased revenues in future periods if we are successful in attracting new customers or obtaining additional projects from existing customers.
Cost of Goods Sold: Cost of goods sold for the nine months ended September 30, 2004 decreased to $3,732,000 or 59% of revenues from $4,073,000 or 62% of revenues, for the nine months ended September 30, 2003. This reduction was attributable to our efficient integration/engineering capabilities, different product mix, more efficient labor utilization, and favorable exchange rates.
Selling, General and Administrative Expenses: Selling, general and administrative expenses for the nine months ended September 30, 2004 increased to $2,838,000 or 45% of revenues from $2,239,900 or 36% of revenues, for the nine months ended September 30, 2003. Most of the increase resulted from increase in staffing and related costs to reposition us for potential growth and our reverse merger.
–
increase in R&D expenses to $128,000 from $18,000 (e.g. new staff and more equipment)
–
increase in salaries and benefits to $895,000 from $863,000 (e.g. new staff such as sales representatives, CFO)
–
increase in travel expenses to $82,000 from $66,600 (e.g. more travel related to reverse merger)
–
increase in insurance expenses to $117,000 from $93,000 (e.g., mainly due to industry-wide increase in premiums)
–
increase in pager, radio expenses to $67,000 from $29,000 (e.g. new system being implemented to better service the customer)
–
increase in truck and auto expenses to $276,000 from $230,000 (e.g., increased staffing required increase in vehicles)
Operating Income/Loss: Our losses were mainly due to expenses incurred due to the reverse merger transaction and also building infrastructure to become a public company and to expand in the future. We have also invested in research and development to improve and expand our technology base, which may result in increased margins and increased revenues in the future.
Interest Expense: Interest expenses other than interest payable on the mortgage and to shareholders for the nine months ended September 30, 2004 increased to $65,000 or 1% of revenues from $54,000 or 1% of revenues for the nine months ended September 30, 2003. The increase was primarily due to a higher level of borrowing to fund the additional operating costs associated with hiring more personnel in anticipation of future growth and the reverse merger.
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Nonrecurring IPO Costs: Nonrecurring IPO costs for the nine months ended September 30, 2004 were $608,000 or 10% of revenues. The expenses were mainly related to the reverse merger and Laurus transaction.
Net Income/Loss: Net loss for the nine months ended September 30, 2004 was $645,000 compared to net income of $77,000 for the nine months ended September 30, 2003. The net loss for the nine months ended September 30, 2004 was caused by the nonrecurring reverse merger and financing costs of $608,000 that were charged to operations. These results are not necessarily indicative of our year-end results for 2004.
Comparison of Year Ended December 31, 2003
To Year Ended December 31, 2002
Sales: Sales for the 2003 fiscal year totaled $9,251,000 representing an increase of 18% for the 2002 fiscal year. The increase in revenues was primarily due to increased marketing and sales activities resulting in new customers. This increased interest in security products and services may result in our achieving increased revenues in future periods if we are successful in attracting new customers or obtaining additional projects from existing customers.
Cost of Goods Sold: Cost of goods sold as a percentage of revenue for the twelve months ended December 31, 2003 decreased to $5,802,000 or 63% of revenues from $5,038,000 or 64% of revenues, for the twelve months ended December 31, 2002. This reduction was attributable to our efficient integration/engineering capabilities, different product mix, more efficient labor utilization, and favorable exchange rates.
Selling, General and Administrative Expenses: Selling, general and administrative expenses for the twelve months ended December 31, 2003 increased to $3,196,000 or 35% of revenues from $2,588,000 or 33% of revenues, for the twelve months ended December 31, 2002. Most of the increase resulted from increase the increase in staffing and related costs to reposition up for potential growth and our reverse merger. In particular, the following items increased:
–
Management fees to Encapsulated Intersoft Systems increased to $68,700 and Nationwide Solutions Inc. to $48,900 No such expenses in 2002.
–
Commission expenses increased to $347,000 from $281,000 which was in line with the increase in sales.
–
Travel expenses increased to $70,100 from $39,600 which was due to the increase in the number of trade shows attended to obtain new business outside Canada.
–
Salaries and benefits increased to $1,178,600 from $1,003,600
–
Professional fees increased to $46,500 from $29,300
–
Car allowance to project managers and technicians increased to $47,870 from $24,500
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–
Truck and automobile expenses for both the project development and sales departments increased to $461,000 from $315,700 which were due to the increase in sales and gas usage and price
Operating Income: The increase in operating income was mainly due to the increase in gross profit to 37% in 2003 from 36% in 2002. As mentioned above, the increase was mainly due to our efficient integration/engineering capabilities, different product mix, more efficient labor utilization, and favorable exchange rates. We have also invested in research and development to improve and expand our technology base, which may result in increased margins and increased revenues in the future.
Interest Expense: Interest expenses other than interest payable on the mortgage and to shareholders for the twelve months ended December 31, 2003 increased to $49,000 or 1% of revenues from $78,000 or 1% of revenues for the twelve months ended December 31, 2002. The decrease was primarily due to additional borrowing from the Chief Executive Officer amounting to CAD$250,000 to fund hiring of more personnel in anticipation of future growth and the reverse merger. The related interest to CEO was included after operating income.
Net Income: Net income for the twelve months ended December 31, 2003 increased to $163,000 from $113,000 for the twelve months ended December 31, 2002. This was attributable to efficient integration/engineering capabilities, different product mix, more efficient labor utilization, favorable exchange rates, and better cost controls.
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. As of September 30, 2004, we had $2,812,000 in cash.
Net Cash Used in Operating Activities. Net cash used in operating activities amounted to $1,414,000 for the nine months ended September 30, 2004 compared to $232,300 for the nine months ended September 30, 2003. The changes in operating assets and liabilities resulted in a use of cash of $673,000, which included a $336,700 increase in accounts receivable, a $198,300 increase in inventory, a $2,900 increase in prepaid expenses, a $183,000 increase in accounts payable, a $105,000 decrease in income taxes and a $227,000 increase in deferred revenue. Our operations for the year ended December 31, 2003 used $446,000 of net cash compared to $286,000 net cash provided in the year ended December 31, 2002. The principal components of the increase in cash used by operations in the year ended December 31, 2003 were the changes in operating assets and liabil ities resulting in a use of cash of $685,000, which included a $357,000 increase in accounts receivable, a $113,000 increase in material and supplies, a $16,200 increase in prepaid expenses, a $89,700 decrease in accounts payable and accrued liabilities and bonus payable and a $102,000 decrease in deferred revenue.
Net Cash Used in Investing Activities. Net cash used in investing activities was $1,496,000 for the nine months ended September 30, 2004 compared to $26,000 for the nine months ended September 30, 2003. Net cash used in investing activities decreased to $38,000 for the year ended December 31, 2003 from $646,400 for the year ended December 31, 2002. The net cash
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used in investing activities in 2002 was exceptionally high as the Company purchased its new industrial condominium for $660,000.
Net Cash Provided From Financing Activities. Net cash provided from financing activities increased to $5,716,000 for the nine months ended September 30, 2004 compared to $258,700 for the nine months ended September 30, 2003. The increase was principally caused by additional borrowings. Net cash provided by financing activities was $483,700 for the year ended December 31, 2003 compared to $360,300 for the year ended December 31, 2002.
We plan to adopt an incentive stock option plan during the first quarter of 2005.
On September 30, 2004, we entered into a series of agreements with Laurus Master Fund, Ltd. (“Laurus”) whereby we issued to Laurus (i) a secured convertible term note (the “Term Note”) in the amount of $4.5 million, (ii) a secured revolving note (together with the Term Note, the “Notes”), (iii) a related option to purchase up to 499,999 shares of our common stock at a price of $0.02 per share (the “Option”), and (iv) a seven year warrant to purchase up to 750,000 shares of our common stock at a price of $3.45 per share (the “Warrant”). The loan is secured by all of our assets and the assets of our subsidiaries.
Our capital requirements have grown since our inception with the growth of our operations and staffing. We expect our capital requirements to continue to increase in the future as we seek to expand our operations.
Recent Accounting Pronouncements - In June 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 143,Accounting for Asset Retirement Obligations (“SFAS 143”). SFAS 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The Company has evaluated the effects of SFAS 143 and has determined that for operating facilities for which the Company owns the underlying real property, the Company has no contractual or legal obligation to remediate such real property if the Company were to abandon, sell or otherwise dispose of these facilities.
In April 2002, the FASB issued SFAS No. 145,Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections (“SFAS 145”). Among other provisions, SFAS 145 rescinds SFAS 4,Reporting Gains and Losses from Extinguishment of Debt, which required all gains and losses from extinguishment of debt to be aggregated and, if material, classified as an extraordinary item, net of the related income tax effect. As a result, the criteria in APB Opinion 30,Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, which requires gains and losses on extinguishments of debt to be classified as income or loss from continuing operations, will now be applied. The Company adopted this standard effective Ja nuary 1, 2003, the earliest effective date applicable.
In December 2002, the FASB issued SFAS No. 148,Accounting for Stock Based Compensation— Transition and Disclosure, an Amendment to FASB Statement 123 (“SFAS 148”). This Statement amends SFAS No. 123, Accounting for Stock Based Compensation (‘‘SFAS 123''), to provide alternative methods of transition for a voluntary change to the fair
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value method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of SFAS 123 to require prominent disclosure in both annual and interim financial statements. The Company has adopted the disclosure provision required by SFAS 148; it does not expect to voluntarily adopt the fair value based method of accounting for its employee option-based compensation plan.
FASB Interpretation (“FIN”) No. 45,Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (“FIN 45”), was issued in November 2002 and clarifies disclosure and recognition/measurement requirements related to certain guarantees. The disclosure requirements are effective for financial statements issued after December 15, 2002 and the recognition/measurement requirements are effective on a prospective basis for guarantees issued or modified after December 31, 2002. The application of the requirements of FIN 45 did not have any impact on the Company's financial position or results of operations.
In January 2003, the FASB issued FASB Interpretation No. 46,Consolidation of Variable Interest Entities, an interpretation of ARB No. 51. In December 2003, the FASB revised Interpretation No. 46, which clarifies the application of Accounting Research Bulletin (“ARB”) No. 51,Consolidated Financial Statements(“ARB 51”). As per ARB 51, a general rule for preparation of consolidated financial statements of a parent and its subsidiary is ownership by the parent, either directly or indirectly, of over fifty percent of the outstanding voting shares of a subsidiary. However, application of the majority voting interest requirement of ARB 51 to certain types of entities may not identify the party with a controlling financial interest because the controlling financial interest may be achieved through arrangements that do not involve a voting interest. FIN 46 clarifies applicability of ARB 51 to entities in which the equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. FIN 46 requires an entity to consolidate a variable interest entity even though the entity does not, either directly or indirectly, own over fifty percent of the outstanding voting shares. FIN 46 is applicable for financial statements issued for reporting periods that end after March 15, 2004. The Company does not have any relationship with variable interest entities that would require consolidation under FIN 46.
In May 2003, the FASB issued SFAS No. 150,Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity(“SFAS 150”). SFAS 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS 150 applies specifically to a number of financial instruments that companies have historically presented within their financial statements either as equity or between the liabilities section and the equity section, rather than as liabilities. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003, except for mandatory redeemable financial instruments of a non-public entity, in which case this statement shall be effective for fiscal periods beginning after December 15, 2003.
For purposes of SFAS 150, the Company meets the definition of a non-public entity. The adoption of SFAS 150 did not have any impact on the Company's financial statements.
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Commitments
The Company has entered into contracts for certain consulting services providing for monthly payments and is required to repay the principal of its convertible notes due to Laurus during the following years. The minimum annual payments for the next five years are as follows:
Year
Amount
2005
$
897,000
2006
940,000
2007
986,000
2008
1,034,000
2009
1,086,000
Thereafter
1,432,000
$
6,375,000
DESCRIPTION OF BUSINESS
General
We are a single source provider of technology-based security solutions for medium and large commercial and governmental facilities in Canada and the US. We operate through our subsidiary, AC Technical Systems Ltd, located in Ontario, Canada. 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 a single source solution to our growing customer base. Our design, engineering and integration facilities are located in Ontario, Canada.
Industry Overview
We believe that the security industry is growing at a steady pace. The industry awareness has increased globally due to the tragic events of 9/11. 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
Evolution of digital technologies has started to replace antiquated analog technologies in the market space
Expansion of budgets due to increased awareness of the need for security
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Increase in crime rates and shrinkage in the industry
Trend for integration of multiple devices has expanded the market for technically advanced integrators such as our firm
Growing public concern about crime
The security industry is highly fragmented with a large number of manufacturers, dealers, distributors, integrators and service groups. All of these parties are important to provide an entire solution to the customer, however each one only provides a portion of what is required by the customer. The customer, in most cases, would like to see a one-stop shop that can provide the entire solution and also be able to design and customize a solution that fits its needs. This may include custom design of hardware, software, and highly sophisticated integration work. The customer usually has to deal with all the different parties mentioned above. 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 o f the customer may not be addressed. Also, the amount of time a customer has to devote to build multiple relationships as opposed one relationship is substantial. There are also tendencies for different parties to “pass the blame” to the other party when it comes to technical and service issues with the project. As a result the customer prefers dealing with one source which can handle all issues and can be accountable for the entire project. There is a limited number of companies besides the Company that are capable of providing an entire integrated solution. This requires years of experience, infrastructure for performing all six core functions that AC Technical Systems provides, access to technologies, and a significant commitment to maintain a happy 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 the needs and design a system that would satisfy/meet their 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
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 usually causes a number of issues. It usually causes 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
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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, we believe that as security systems are becoming more technologically advanced an experienced engineering team is required to understand the needs of the customer and satisfy these needs by incorporating the most efficient technologies that are available. 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 by project basis. The 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.
AC Technical Systems' Solution:
AC Technical Systems can offer a one-stop-shop that provides a fully integrated technology based security system to meet the needs of the customer. We understand the needs of the customer and provide a custom solution to meet their needs. We usually expedite project completion, reduce costs to the customer, reduce man power requirements of the customer, improve on consistency of systems in multiple locations, and provide a one-stop solution for the entire security system.
AC Technical Systems provides 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
Ongoing maintenance, preventative maintenance and service, and upgrades
We believe that the following key attributes provide us with a sustainable competitive advantage:
Experience and expertise in the security industry
In-house research and development department
Dedicated service team
Access to and experience in a variety of product mix
Customized software and hardware products
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Strong list of references
Strong partnerships with suppliers and integrators
AC Technical Systems' 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
Expand our marketing and sales program within our key vertical markets
AC Technical Systems' approach to a new customer:
At the beginning of each new client relationship, we designate our account manager as the client service contact. This individual is the point person for communications between us and the client. This person usually has a number of years of experience in the industry and has a good understanding of technologies and solutions that are available from the Company. This person is also a trained sales person 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 the 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 and audit and review the existing system. We provide a complete audit of the existing system including inventory counts and evaluate 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 model (ROI) where applicable. We provide a preliminary project implementation plan that contains a graphical model of their premises with exact outlines of equipment locations. Our comprehensive planning process helps the customer to properly budget for thei r 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 drawing will lay out the entire property and provide a detailed lay out of all security equipment and also provide the methodologies used to integrate the system. It will also outline any needs for custom software or hardware design service, systems designers and computer-aided design system operators. These
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specifications and drawings detail areas of high sensitivity, layout of the main control room, placement of cameras, card readers, monitors, switches and other equipment including electrical and mechanical requirements.
Once we have completed the design of our system, we also provide a complete list of components including various recommendations. We highly recommend off-the-shelf non-proprietary components in order to ensure that the customer is not tied in to one supplier. When off-the-shelf components are not available or they are not compatible with each other we may choose to design software/hardware to provide compatibility.
Customization, software development, interfacing:
In many cases the customer's needs may not be completely satisfied by the equipment that is available in the market place. In many cases the customer may request features that are not ready available or even request interfacing between equipment that may not be available. For example, a financial institution may request us to take information from their transaction records, from an Automatic Teller Machine (ATM), and integrate it along with a Digital Video Recorder (DVR). This function would allow them to review video of an individual who has processed a transaction on an ATM. Normally they would have to go through tapes of data in order find an incident. The bank would have to search for 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 as the tapes are only held for a short period of time. The integrated system from our firm would make the search process instantaneous. The bank can search by a number of criteria including time, date, transaction, number, withdrawal amount, etc and have the video associated with it instantly.
Many times we provide an interface to bring multiple technologies together. For example, in one project we integrated eleven different products into one system, thus allowing for a completely integrated system. This 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 the project has passed through the Consulting/Audit, Design/Engineering, and Customization/Software interfacing stage (if required) we can start implementation of the system. During this stage we provide the following:
Detailed schedule of integration
Component list and assign labor
Officially assign 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
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Test 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 and this may include Gantt charts. Also of importance, during this stage many customers add on extra equipment as they start to see the need for enhanced equipment, which increases the value of the contract to the Company.
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 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 is 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 and depending on the level of response required by the customer we provide a service plan suitable to the customer. If the customer does not require a service contract we provide them service on an incident basis.
The entire six step process continues for each customer. Once a project is complete there are upgrades that are required and depending on the value of the upgrades, this may initiate a new project. During the entire stage the account manager is updated on the process. The account manager has regular meetings with the customer after a project is complete in order to work with the customer to help set budgets for the following years and also educate the customer on new products and technologies that may be available in the market.
Research and Development
We have our own in-house research and development program which is supported by the National Research Council of Canada. We may receive grants and tax credits for projects and product development if it qualifies for the program. The 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
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ongoing basis to enhance future projects and also develop new products. This is one of the differentiating factors between us and our competition.
Warranties and Maintenance
We offer warranties on all our products, including parts and labor, which range from one year to six years depending upon the type of product concerned. For products made by others, we pass along the manufacturer's warranty to the end-user.
On non-warranty items, we perform repair services for our products sold at our head office in Ontario, Canada or at customer locations. For the years ended December 31, 2002 and 2003, our revenue from service and maintenance was $463,000 and $879,000, respectively. For the nine months ended September 30, 2004, revenue from maintenance services was $783,000. For the years ended December 31, 2002 and 2003, the percentage of our revenues attributable to service and maintenance was 5.9% and 9.5%, respectively. For the nine months ended September 30, 2004, the percentage of our revenues attributable to maintenance services was 12%.
Marketing
Our marketing activities are conducted on both national and regional levels. We obtain engagements through direct negotiation with clients, competitive bid processes, referrals and direct sales calls. Our marketing plan is derived with the 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 market i.e. Government, Education, Healthcare, and Retail. We also find niche markets where our technologies can provide effective solutions to the customer. Some of our marketing activities include:
Trade Shows
Mailers
Direct sales calls
Web promotions
Seminars
Joint partnerships with manufacturers
Joint partnerships with consultants and architects
We also form partnerships with providers of complementary technologies and products who are not competitive to 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 customers 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.
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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 acquisition of similar businesses and expansion of our operations.
Customers
We provide our products and services to customers in four key 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.
The table below sets forth the approximate percentage of aggregate revenues from each of our largest customers/end-users for the year ended December 31, 2003, and the nine months ended September 30, 2004.
Percent of our Pro Forma Revenues(1) | |||
Year Ended December 31, 2003 | Nine Months Ended September 30, 2004 | ||
| Loblaws Companies Ltd. | 31.5% | 23.5% |
| Cloke-Kirby | 5.3% | 3.1% |
| Toronto Catholic District School Board | 4.9% | 4.1% |
| JMR Electric | 3.3% | 1.6% |
| Royal Contracting | 2.6% | –% |
| York District School Board | 2.4% | 1.2% |
| Durham Catholic District School Board | 2.5% | 1.3% |
| Bonfield Construction | 2.3% | 2.0% |
| World Wide Electric | 2.6% | 3.1% |
| Placer Dome | 2.0% | –% |
| Humber College | 1.9% | 0.1% |
| SNC Profac | 1.9% | 2.0% |
| Lakeridge Health Corporation | 1.6% | 1.7% |
| Halton Health College | 1.3% | 0.7% |
| Maple Leaf Sport | 1.3% | 1.3% |
_______________ (1) Pro forma for the acquisition of AC Technical Systems as though it had occurred as of the beginning of the respective period. |
As reflected in the above table, from period to period the revenue mix among our customers shifts and changes.
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Backlog
Our backlog consists of written purchase orders and contracts we have received for product deliveries and engineering services. All of these orders and contracts are subject to cancellation at any time. As of September 30, 2004, our backlog was approximately $3,000,000.
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. Many of our competitors have greater name recognition and financial resources than we do, however we believe that we have a well-respected name when it comes to quality and technical expertise. Our competitors also include equipment manufacturers and vendors that also provide security services. We may face future competition from potential new entrants into the security industry and increased competition from existing competitors that may attempt to develop the ability to offer the full range of services offered by us. We cannot assure tha t we will be able to compete successfully in the future against existing or potential competitors.
Employees
As of November 15, 2004 we had 62 full time employees including our officers, of whom 42 were engaged in systems installation and repair services, 13 in administration and financial control, 7 in engineering and 8 in marketing and sales.
None of our employees are covered by a collective bargaining agreement or are represented by a labor union. We consider our relationship with our employees to be satisfactory.
The design and implementation of our equipment and the installation of our systems require substantial technical capabilities in many different disciplines from computer science to electronics and 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 also have various incentive programs for our employees to improve their skills within all departments. These include reimbursements for training fees and raises based on skill sets.
Legal Proceedings
The Company is potentially liable for $21,400 relating to a claim by a former employee. The outcome of the lawsuit is not determinable.
In addition, the Company was assessed by the Ontario Ministry of Finance for uncollected Ontario sales tax on prior years' taxable sales. The Company may recover the sales tax from customers and administratively, the Ministry would assist the Company in recovering these amounts. No accrual has been provided for this assessment. To the extent that there is any shortfall, it would be recorded as an expense in the year of determination. It is management's
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expectation that the full amount of the sales tax will be recovered from customers. As of September 30, 2004, the outstanding assessment was approximately $35,600.
Description of Properties and Facilities
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. The Company believes that these offices are in good condition and are adequate for its present purposes and planned expansion.
DIRECTORS AND EXECUTIVE OFFICERS,
PROMOTERS AND CONTROL PERSONS
Directors and Executive Officers
Name | Age | Position |
Sayan Navaratnam | 30 | Chairman, Chief Executive Officer and Director |
Dominic Burns | 44 | President and Director |
Fairy Lee | 36 | Chief Financial Officer and Officer |
Sayan Navaratnam–Director, Chairman and Chief Executive Officer: Mr. Navaratnam graduated from University of Toronto with a Double Specialist degree in Economics and Political Science. He has seven years of experience in technology development and integration specific to the security industry. He also has three years of experience in telecommunications with Bell Canada. He was the CEO of Satellite Communications Inc., and its research arm Satellite Advanced Technologies, during 1997-2000. Mr. Navaratnam was responsible for coordinating and financing research and development projects and played a key role in strategic partnerships, mergers, and licensing technologies. Mr. Navaratnam was the Chief Operating Officer in ASPRO Technologies Ltd. from 2000-2003. He also proposed and implemented a strategic marketing campaign to license and distribute a ne w line of “wavelet” products from ASPRO. Mr. Navaratnam joined AC Technical as CEO in 2003. He has in-depth knowledge of key vertical markets and technology demands of security integration. He has served as a member of advisory committees for technology related schools and companies and was a key member of the Alliance of Exporters and Manufacturers of Ontario. Mr. Navaratnam was also a member of Innovator's Alliance of Ontario and was recognized as one of the best executives in Canada in 1999-2000. Mr. Navaratnam and AC Technical were also recently recognized with an award for one of the Top 100 fastest growing companies in Canada, over the past five years, by Profit 100. Mr. Navaratnam has also worked with a number of investment banking firms to raise financing and has been involved in advisory roles with private equity funds as well as investment banking firms and public companies. Mr. Navaratnam has been a director of our company since September 30, 200 4.
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Dominic Burns–Director and President: Mr. Burns was the founder of AC Technical in 1991. He completed his Electrical Apprenticeship program at one of the premier firms in Northern Ireland. He graduated from Belfast College of Technology with honors in City and Guilds Electrical Theory and Regulations. Mr. Burns also holds a diploma in radio and navigation systems. He has an extensive understanding of quality controls in the avionics industry and has been a pioneer in transferring some of the high standards and controls set in the avionics industry to the security integration market. He has been the President of AC Technical since its inception. He has been primarily responsible for expanding the firm's presence in Canada. Mr. Burns has also designed a number of internal technical and marketing programs to expand AC Technical's sales and technical c apabilities. Mr. Burns has over 20 years of experience in the security integration industry. Mr. Burns has been a director of our company since September 30, 2004.
Heung Hung Lee–Secretary: Ms. Lee joined AC Technical in 2004 and she has more than 10 years experience in international public accounting primarily with the world's largest 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 employed at international accounting firms from 1999 to 2004. Ms. Lee holds a Bachelor of Business degree from Monash University in Australia. She is a Chartered Accountant in Canada and qualified CPA in Australia.
Significant Employees
Randy Martin–V.P. of Operations. Randy Martin joined AC Technical in 2002 as a senior Project Manager and currently holds the position of V.P. of Operations. Mr. Martin oversees the daily operations of service, installation, integration, and engineering. He had previously been employed by Satellite Communications Inc. from 1986 until 2002, where he held various senior management positions. Mr. Martin has over 25 years of experience in the security integration business.
Hajro Çini–Controller. Hajro Çini is responsible for AC Technical's finances, including the cash flow, accounting and operations functions. Mr. Çini joined AC Technical in 2003 and brings more than 10 years of experience in the financial industry, as well as international financial experience specifically in the manufacturing industry. Mr. Çini holds a Bachelor of Arts from an international university and a Master of Arts in Economics from University of Toronto.
Andrew Berenyi–V.P. of Technology. Andrew Berenyi joined AC Technical in 2004 and currently serves as the V.P. of Technology. He received his BApSc degree from the University of Toronto in Electrical Engineering (Biomedical option) in 1997 and has extensive experience in the security industry. From 1997 to 1999 he was employed at Satellite Communications Inc. His duties ranged from integration of security systems to software testing and development. From 2000 to 2003 he was a software developer and team leader at ASPRO Technologies Ltd., a Toronto area company producing DVR cards and systems for government, financial, and private industry sectors.
Gaetano DiGiorgio–Senior Account Manager. Gaetano DiGiorgio is the Senior Account Manager with AC Technical. He is responsible for a wide range of customers consisting of large
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national retail organizations, government, entertainment facilities and commercial properties. Mr.Gaetano joined AC Technical in 1992 and has been involved in all aspects of the business over this time period. His education consists of numerous electronic and electrical programs and he is a member of the Canadian Sales Professional organization. Mr. Gaetano has over 12 years of experience in the industry.
EXECUTIVE COMPENSATION
The following summary compensation table set forth all compensation paid or accrued by the Company's subsidiary, AC Technical, during the three years ended December 31, 2003 for services rendered in all capacities by the Chief Executive Officer of the Company and the only other executive officer who received total salary and bonus exceeding $100,000 in any of such years. Prior to the reverse merger, the Company did not pay any compensation to any of its directors and officers, including Rudy R. Miller, its former chief executive officer.
|
| Annual Compensation | |
Name and Principal | Year | Salary/Fees/ | Bonus ($) |
Sayan Navaratnam – Chairman | 2003 | 117,560 | – |
and Chief Executive Officer | 2002 | 175,426 | – |
2001 | – | – | |
Dominic Burns – President | 2003 | 125,097 | – |
2002 | 114,200 | – | |
2001 | 52,000 | – |
Employment Agreements
On June 1, 2004, AC Technical entered into a consulting agreement with 1608913 Ontario Inc. (the “Consultant”) and Dominic Burns. Pursuant to this agreement, the Consultant is to provide the exclusive services of Mr. Burns to the Company for the following compensation:
From October 1, 2004 until December 31, 2004 compensation at the rate of CAD$250,000 per annum;
From January 1, 2005 until December 31, 2005 the sum of CAD$275,000;
From January 1, 2006 until December 31, 2006 the sum of CAD$300,000;
From January 1, 2007 until December 31, 2007 the sum of CAD$325,000;
From January 1, 2008 until December 31, 2008 the sum of CAD$350,000; and
From January 1, 2009 until December 31, 2009 the sum of CAD$375,000.
In addition, the Consultant is entitled to a bonus payable upon the Company attaining the annual gross revenue targets specified in the agreement for the calendar years 2004 through 2009. The
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bonus is 0.5% of the annual gross revenue targets for 2004 and 1% of the annual gross revenue target for 2005 through 2009. An additional bonus of 2% will be paid for each additional increment of CAD$500,000 annual gross revenue beyond the revenue target in any given year.
On June 1, 2004, AC Technical entered into a consulting agreement with Nationwide Solutions Inc. (“Nationwide”) and Sayan Navaratnam. Pursuant to this agreement, Nationwide is the provide the exclusive services of Mr. Navaratnam to the Company for the following compensation:
From October 1, 2004 until December 31, 2004 compensation at the rate of CAD$300,000 per annum;
From January 1, 2005 until December 31, 2005 the sum of CAD$330,000;
From January 1, 2006 until December 31, 2006 the sum of CAD$363,000;
From January 1, 2007 until December 31, 2007 the sum of CAD$399,300;
From January 1, 2008 until December 31, 2008 the sum of CAD$439,230; and
From January 1, 2009 until December 31, 2009 the sum of CAD$485,153.
In addition, Nationwide is entitled to a bonus payable upon the Company attaining the annual gross revenue targets specified in the agreement for the calendar years 2004 through 2009. The bonus is 0.5% of the annual gross revenue targets for 2004 and 1% of the annual gross revenue target for 2005 through 2009. An additional bonus of 2% will be paid for each additional increment of CAD$500,000 annual gross revenue beyond the revenue target in any given year.
We have a standard employment contract with our executive staff that is reviewed on an annual basis.
The Company has no stock option plan although it intends to adopt one during the first quarter of 2005.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth information with respect to the beneficial ownership of the Company's common stock as of November 15, 2004 of each executive officer, each director, and each shareholder in addition to the selling shareholders known to be the beneficial owner of 5% or more of the Company's Common Stock and all officers and directors as a group. See also “Selling Shareholders.”
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Name and Address of Beneficial Owner | Shares of Common Stock Beneficially Owned | Percentage of Common Stock Beneficially Owned |
Sayan Navaratnam | 5,628,653 | 56.1% |
Dominic Burns | 3,694,034 | 36.9% |
Heung Hung Lee | -0- | -0- |
All officers and directors as a group (3 persons) | 9,322,687 | 93.0% |
DESCRIPTION OF SECURITIES
The Company currently has 100,000,000 authorized shares of common stock, no par value, of which, 10,025,000 shares are issued and outstanding as of the date of this registration statement and 3,082,999 are reserved for issuance upon the exercise of outstanding options and warrants and conversion of outstanding convertible notes. In addition, the Company has 50,000,000 authorized but unissued and unreserved shares of preferred stock. Each share of outstanding common stock is entitled to one vote. Shares of common stock have no preemptive rights.
The rights, preferences, privileges and limitations of the preferred stock have not been established, and no series of preferred stock has been established. The rights, preferences, privileges and limitations of the preferred stock, in one or more series, may be established by the Board without the approval of the holders of the common stock.
Authorized but unissued common stock may be issued for such consideration as the Board determines to be adequate. Issuance of common stock could have a dilutive effect on current shareholders. Shareholders may or may not be given the opportunity to vote on the issuance of common stock, depending upon the nature of any such transactions, applicable law, the rules and policies of the national securities exchange on which the common stock is then trading, if any, and the judgment of the Board. Having a substantial number of authorized and unreserved shares of common stock and preferred stock could have the effect of making it more difficult for a third party to acquire a majority of the Company's outstanding voting stock. Management could use the additional shares to resist a takeover effort even if the terms of the takeover offer are favored by a majority of the independent share holders. This could delay, defer, or prevent a change of control.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On September 30, 2004, pursuant to a Common Stock Purchase Agreement with Miller Capital Corporation and Tudor Investments LTD Profit Sharing Plan, Sayan Navaratnam, Dominic Burns, Randy Stern and Malar Trust, Inc., Sayan Navaratnam, Dominic Burns, Randy Stern and Malar Trust, Inc. purchased 9,500,000 shares of our common stock from Miller Capital Corporation and Tudor Investments LTD Profit Sharing Plan for consideration of $300,000 in cash.
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On September 30, 2004, we entered into a series of agreements with Laurus Master Fund, Ltd. (“Laurus”) whereby we issued to Laurus (i) a secured convertible term note (the “Term Note”) in the amount of $4.5 million, (ii) a secured revolving note (together with the Term Note, the “Notes”), (iii) a related option to purchase up to 499,999 shares of our common stock at a price of $0.02 per share (the “Option”), and (iv) a seven year warrant to purchase up to 750,000 shares of our common stock at a price of $3.45 per share (the “Warrant”). The loan is secured by all of our assets and the assets of our subsidiaries.
MARKET PRICE OF AND DIVIDENDS ON THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is quoted at the present time on the OTC Bulletin Board under the symbol “CVSA”. At November 15, 2004, the bid price was $2.50 per share and the ask price was $3.40 per share. The security is subject to Section 15(g) and Rule 15g-9 of the Exchange Act, commonly referred to as the penny stock rule. See “Risk Factors—Penny Stock.” The following table shows the range of bid prices per share of common stock on the OTC Bulletin Board, as reported by Pink Sheets LLC, for the periods indicated. These quotations represent prices between dealers, do not include retail mark-ups, mark downs or commissions, and do not necessarily represent actual transactions.
Quarter ended: | Low Bid Price | High Bid Price |
March 31, 2002 | $.10 | $.10 |
June 30, 2002 | $.10 | $.10 |
September 30, 2002 | $.10 | $.10 |
December 31, 2002 | $.10 | $.10 |
March 31, 2003 | $.10 | $.10 |
June 30, 2003 | $.10 | $.10 |
September 30, 2003 | $.10 | $.10 |
December 31, 2003 | $.10 | $.10 |
March 31, 2004 | $.15 | $.10 |
June 30, 2004 | $.15 | $.15 |
September 30, 2004 | $.15 | $.15 |
December 31, 2004 (through November 23, 2004) | $.15 | $2.50 |
The Company's securities may not qualify for listing on Nasdaq or any other national exchange. Even if the Company's securities do qualify for listing, the Company may not be able to maintain the criteria necessary to ensure continued listing. The failure of the Company to qualify its securities or to meet the relevant maintenance criteria after such qualification may result in the discontinuance of the inclusion of the Company's securities on a national exchange. In such event, trading, if any, in the Company's securities may then continue in the non-Nasdaq, over-the-counter market so long as the Company continues to file periodic reports with the SEC and there remain sufficient qualified market makers in the Company's 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, the Company's secur ities.
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As of November 1, 2004 there were 252 beneficial holders of the Company's Common Stock. The Company has 10,025,000 issued and outstanding shares of Common Stock.
Shares Eligible for Future Sale
Upon completion of the offering (assuming 2,981,332 shares are issued upon the exercise of warrants and options and the conversion of convertible notes held by the selling shareholders and then sold in the offering), the Company will have 13,006,332 shares of common stock outstanding, of which 9,600,000 shares (approximately 73.8% of the shares to be outstanding) will be held by persons who acquired such shares in transactions in which such shares were not registered under the Securities Act. These shares may not be sold unless registered under the Securities Act or sold pursuant to Rule 144. Rule 144, as currently in effect and subject to its provisions and other applicable federal and state securities laws, permits a person (or persons whose shares are aggregated) who has beneficially owned his or her shares for at least one year to sell within any three-month period a number of shares t hat does not exceed the greater of 1% of the total number of outstanding shares of common stock or the average weekly trading volume during the four calendar weeks preceding the sale. Sales under Rule 144 are also subject to certain manner of sale provisions, notice requirements and the availability of current public information concerning the Company. Rule 144 also permits, under certain circumstances, such sale of shares without any quantity limitation or current public information by a person who is not an affiliate of the Company and who has satisfied a two-year holding period.
500,000 of the shares of common stock outstanding (approximately 3.8% of such shares) will be eligible for sale under Rule 144 beginning 90 days after the date of this prospectus, subject to compliance with Rule 144 volume limitations.
The Company cannot predict the number of shares of common stock which may be sold in the future pursuant to Rule 144 or otherwise since such sales will depend upon the market price of the common stock, the individual circumstances of holders thereof and other factors. Any sales of a substantial number of shares of common stock in the public market could have a significant adverse effect on the market price of the common stock.
LEGAL MATTERS
The validity of the issuance of the securities offered hereby will be passed upon for us by Torys LLP, New York, New York. Torys LLP is a selling shareholder and owns 25,000 shares of Common Stock
EXPERTS
Our financial statements appearing in this prospectus have been audited by BDO Dunwoody, LLP, independent chartered accountants, to the extent and for the periods set forth in their reports appearing herein, which are included herein in reliance upon such reports, given upon the authority of said firm as experts in accounting and auditing.
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CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
In September 2004 our prior auditors, Semple & Cooper, LLP, will be no longer associated with our financial statements as a result of the reverse merger effective as of September 30, 2004. On or about the same time, we engaged BDO Dunwoody, LLP to audit our financial statements for the fiscal years ended December 31, 2002 and 2003. The decision to change accountants was made with the approval of our board of directors.
We believe and we have been advised by Semple & Cooper, LLP that it concurs in such belief that, during its tenure with us, we did not have any disagreement on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreement, if not resolved to the satisfaction of Semple & Cooper, LLP, would have caused it to make reference in connection with its report on our financial statements to the subject matter of this disagreement.
No report of Semple & Cooper, LLP on our financial statements for either of the past three fiscal years contained an adverse opinion, a disclaimer of opinion or a qualification or was modified as to uncertainty, audit, scope or accounting principles. During such fiscal periods, there were no “reportable events” within the meaning of Item 304(a)(1) of Regulation S-B promulgated under the Securities Act.
AVAILABLE INFORMATION
We have filed a registration statement on Form SB-2 under the Securities Act with the Securities and Exchange Commission with respect to our common stock offered through this prospectus. This prospectus is filed as a part of that registration statement, but does not contain all of the information contained in the registration statement and exhibits. Statements made in the registration statement are summaries of the material terms of the referenced contracts, agreements or documents of the Company. We refer you to our registration statement and each exhibit attached to it for a more detailed description of matters involving the Company. You may inspect the registration statement, exhibits and schedules filed with the Securities and Exchange Commission at the Commission's principal office in Washington, D.C. Copies of all or any part of the registration statement may be obt ained from the Public Reference Section of the Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the Commission at 1-800-SEC-0330 for further information on the operation of the public reference rooms. The Securities and Exchange Commission also maintains a web site at http://www.sec.gov that contains reports, proxy statements and information regarding registrants that file electronically with the Commission. Our registration statement and the referenced exhibits can also be found on this site.
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INDEX TO FINANCIAL STATEMENTS
A.C. Technical Systems Ltd.
Financial Statements
For the year ended December 31, 2003 and 2002
Independent Auditors' Report
F-1
Balance Sheets
F-2
Statements of Shareholders' Equity
F-4
Statements of Operations
F-5
Statements of Cash Flows
F-6
F-1
Summary of Significant Accounting Policies
F-7
Notes to Financial Statements
F-11
Creative Vistas, Inc.
Condensed Financial Statements
For the nine months ended September 30, 2004 and 2003
Balance Sheet
F-23
Statement of Shareholders' Equity…………………………………………………………. F-25
Statement of Operations
F-25
Statement of Cash Flows
F-27
Summary of Significant Accounting Policies
F-29
Notes to Condensed Financial Statements
F-30
F-2
IndependentAuditors' Report
To the Directors of
A.C. Technical Systems Ltd.
We have audited the balance sheets of A.C. Technical Systems Ltd. as at December 31, 2003 and 2002 and the related statements of shareholders' equity and other comprehensive income, operations and cash flows for each of the two 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 United States generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2003 and 2002, and the results of its operations and its cash flows for each of the years then ended in accordance with United States generally accepted accounting principles.
(signed) BDO Dunwoody LLP
Chartered Accountants
Toronto, Ontario
September 3, 2004 except for Note 13 relating to the change in control, as to which the date is November 22, 2004.
F-1
A.C. Technical Systems Ltd. | ||||||
Balance Sheet | ||||||
December 31 | 2003 | 2002 | ||||
Assets | ||||||
Current | ||||||
Accounts receivable, | $ | 2,113,027 | $ | 1,420,036 | ||
net of allowance for doubtful accounts of $105,671 (2002 – 135,131 ) | ||||||
Material and supplies | 714,758 | 487,234 | ||||
Prepaid expenses | 22,845 | 4,357 | ||||
Due from related parties (Note 1) | 3,514 | 4,075 | ||||
Deferred income taxes (Note 9) | 20,517 | 22,801 | ||||
2,874,661 | 1,938,503 | |||||
Property and equipment(Note 2) | 811,780 | 678,255 | ||||
Customer list(Note 3) | 11,570 | 12,687 | ||||
Deferred income taxes | 1,196 | 8,661 | ||||
$ | 3,699,207 | $ | 2,638,106 | |||
Liabilities and Shareholders' Equity | ||||||
Current | ||||||
Bank indebtedness (Note 4) | $ | 633,749 | $ | 205,662 | ||
Accounts payable and accrued liabilities | 1,957,789 | 1,641,924 | ||||
Bonus payable | - | 48,016 | ||||
Deferred revenue | 101,059 | 173,817 | ||||
Income taxes payable | 40,011 | 32,934 | ||||
Mortgage loan (Note 5) | 236,953 | 210,920 | ||||
Due to related parties (Note 6) | 117,757 | 11,355 | ||||
3,087,318 | 2,324,628 | |||||
Due to related parties(Note 6) | 129,568 | 61,429 | ||||
$ | 3,216,886 | $ | 2,386,057 |
F-2
Shareholders' equity | ||||||
Share capital (Note 7) | ||||||
Authorized | ||||||
Unlimited number of no par value common shares | ||||||
Issued | ||||||
2 Common shares (2002 – 200 Common shares) | 2 | 63 | ||||
Retained earnings | 482,319 | 251,986 | ||||
482,321 | 252,049 | |||||
$ | 3,699,207 | $ | 2,638,106 |
The accompanying notes are n integral part of these financial statements.
F-3
A.C. Technical Systems Ltd.
Statement of Shareholders' Equity and Other Comprehensive Income
Accumulated | |||||||
Other | |||||||
Retained | Comprehensive | ||||||
Earnings | Income | Total | |||||
Balance, December 31, 2001 | $ | 133,357 | $ | 4,363 | $ | 137,720 | |
Comprehensive income | |||||||
Net income | 113,266 | 113,266 | |||||
Translation adjustment | 1,000 | 1,000 | |||||
Total comprehensive | 11,266 | ||||||
income | |||||||
Balance, December 31, 2002 | 246,623 | 5,363 | 251,986 | ||||
Comprehensive income | |||||||
Net income | 162,757 | 162,757 | |||||
Translation adjustment | 67,576 | 67,576 | |||||
Total comprehensive | 230,333 | ||||||
income | |||||||
Balance,December 31, 2003 | $ | 409,380 | $ | 72,939 | $ | 482,319 |
F-4
A.C. Technical Systems Ltd. | ||||||||
Statement of Operations | ||||||||
For the year ended December 31 | 2003 | 2002 | ||||||
Sales | ||||||||
Contract | $ | 8,372,470 | $ | 7,383,348 | ||||
Service | 878,874 | 462,491 | ||||||
9,251,344 | 7,845,839 | |||||||
Cost of sales | ||||||||
Contract | 5,328,814 | 4,711,522 | ||||||
Service | 472,894 | 326,093 | ||||||
5,801,708 | 5,037,615 | |||||||
Gross margin | 3,449,636 | 2,808,224 | ||||||
Operating expenses | ||||||||
Project | 1,337,895 | 928,305 | ||||||
Selling | 906,776 | 837,888 | ||||||
General and administrative | 951,567 | 821,312 | ||||||
3,196,238 | 2,587,505 | |||||||
Income from operations | 253,398 | 220,719 | ||||||
Interest on mortgage | 16,591 | 17,665 | ||||||
Interest on shareholder loan | 8,277 | - | ||||||
Loss on disposal of property and equipment | - | 740 | ||||||
Income before income taxes | 228,530 | 202,314 | ||||||
Income taxes | 65,773 | 89,048 | ||||||
Net income | $ | 162,757 | $ | 113,266 |
F-5
A.C. Technical Systems Ltd. | |||||||
Statement of Cash Flows | |||||||
For the year ended December 31 | 2003 | 2002 | |||||
Cash provided by (used in) | |||||||
Operating activities | |||||||
Net income | $ | 162,757 | $ | 113,266 | |||
Adjustments to reconcile net income to net cash | |||||||
provided by (used in) operating activities | |||||||
Amortization | 3,568 | 3,184 | |||||
Depreciation | 51,520 | 29,530 | |||||
Deferred income taxes | 22,120 | 22,161 | |||||
Loss on disposal of property and equipment | - | 740 | |||||
Changes in non-cash working capital balances | |||||||
Accounts receivable | (357,480) | (523,441) | |||||
Materials and supplies | (113,174) | (165,111) | |||||
Prepaid expenses | (16,233) | 2,993 | |||||
Deferred income taxes | (6,817) | (53,743) | |||||
Accounts payable and accrued liabilities | (35,718) | 970,178 | |||||
Bonus payable | (54,009) | 48,200 | |||||
Income taxes payable | (31) | (14,338) | |||||
Deferred revenue | (102,023) | (147,569) | |||||
(445,520) | 286,050 | ||||||
Investing activities | |||||||
Due from related parties | 1,333 | (1,486) | |||||
Purchase of property and equipment | (39,584) | (668,074) | |||||
Proceeds of disposal of property and equipment | - | 39,075 | |||||
Purchase of customer list | - | (15,920) | |||||
(38,251) | (646,405) | ||||||
Financing activities | |||||||
Increase in bank indebtedness | 354,950 | 162,314 | |||||
Due to related parties | 146,932 | (13,691) | |||||
Loan advances | - | 254,719 | |||||
Repayment of mortgage principal | (18,042) | (42,987) | |||||
Redemption of common shares | (71) | - | |||||
Issuance of common shares | 2 | - | |||||
483,771 | 360,355 | ||||||
Net change in cash and cash equivalents | - | - | |||||
Cash and cash equivalents, beginning of year | - | - | |||||
Cash and cash equivalents, end of year | $ | - | $ | - | |||
F-6
Supplemental Cash Flow Information | ||||||
Cash paid for interest | $ | 63,409 | $ | 90,126 | ||
Cash paid for income taxes | $ | 7,135 | $ | 42,772 |
The accompanying notes are an integral part of the statements.
A.C. Technical Systems Ltd.
Summary of Significant Accounting Policies
Nature of Business
A.C. Technical Systems Ltd. (“AC Technical” or the “Company”) is incorporated under the laws of Ontario and is engaged in the engineering, design, installation, integration and servicing of various types of security systems. The Company operates under the trade name of AC Technical Systems.
Cash and Cash Equivalents
The Company considers all cash and highly liquid investments purchased with an initial maturity of three months or less to be cash and cash equivalents.
Accounts Receivable
The Company extends credit to its customers based upon a written credit policy. Accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company's best estimate for the amount of probable credit losses in the Company's existing accounts receivable. The Company establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends, and other information. Receivable balances are reviewed on an aged basis and account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.
Investment Tax Credits
Investment tax credits are accrued when qualifying expenditures are made and there is reasonable assurance that the credits will be realized. Investment tax credits earned with respect to current expenditures for qualified research and development activities are included in the statement of operations as a reduction of expenses. Tax credits earned with respect to capital expenditures are applied to reduce the cost of the related capital assets.
Research and Development Expenditures
F-7
Research and development costs (other than capital expenditures) are expensed as incurred. Expenditures are reduced by any related investment tax credits.
Materials and Supplies
Materials and supplies are stated at the lower of cost and market value. Cost is generally determined on the first-in, first-out basis.
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 is computed over the estimated useful life as follows:
Industrial condominium - 4% declining balance basis
Equipment- 20% declining balance basis
Furniture and fixtures - 20% declining balance basis
Computer equipment - 30% declining balance basis
Customer List
Customer list represents value placed on an acquired customer list and is recorded at cost less accumulated amortization. Amortization is provided on a straight-line basis over 5 years.
Long-Lived Assets
The Company reviews its long-lived assets for impairment at each balance sheet date and whenever events or changes in circumstances indicate that the carrying amount of an asset should be assessed. To determine if an impairment exists, the Company estimates the future undiscounted cash flows expected to result from the use of the asset being reviewed for impairment. If the sum of these expected future cash flows is less than the carrying amount of the asset, the Company recognizes an impairment loss in accordance with SFAS No. 144,Accounting for the Impairment or Disposal of Long-Lived Assets. The amount of the impairment recognized is determined by estimating the fair value of the assets and recording a loss for the excess of the carrying value over the fair value.
Revenue Recognition
The Company derives revenue from long-term contracts which require performance over a time span which may extend beyond one or more accounting periods. For long-term contracts, revenue is recognized on the percentage of completion basis. For contracts of shorter duration, revenue is recorded when products are shipped, services are performed or billings rendered, which approximate actual performance. Deferred revenue arises on installation and maintenance
F-8
contracts whereby installation revenue is recognized based on the percentage of completion basis and maintenance is recognized over the term of the contracts.
Financial Instruments
The Company's financial instruments consist of amounts with short-term maturities and due to related parties.
Credit Risk
The Company's financial assets that are exposed to credit risk consist primarily of cash and equivalents and accounts receivable. Concentrations of credit risk with respect to accounts receivable are limited due to the large number of customers serviced by the Company and their generally short payment terms.
Fair Value
The carrying value of the Company's financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and long-term notes payable approximate their fair value as of December 31, 2002 and 2003.
Foreign Currency Translation
The Company maintains its accounts in Canadian dollars. The financial statements have been translated into United States dollars in accordance with SFAS. No. 52,Foreign Currency Translation. All balance sheet accounts have been translated using the exchange rates in effect at the balance sheet date. Statement of operations amounts have been translated using the average exchange rate for the year. The gains and losses resulting from the changes in exchange rates from year to year have been reported separately as a component of comprehensive income.
Income Taxes
The Company accounts for income taxes using the asset and liability approach in accordance with SFAS No. 109,Accounting for Income Taxes. The asset and liability approach requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities. A valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets will not be realized.
The provision for income taxes consists of an amount for the taxes currently payable and a provision for the tax consequences deferred to future periods.
Comprehensive Income
Comprehensive income equals net income plus other comprehensive income. Other comprehensive income refers to foreign currency translation adjustments which are reflected in the retained earnings but excluded from net income.
F-9
Accounting Estimates
The Company prepares its financial statements in accordance with accounting principles generally accepted in the United States of America, which require management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities. The estimates and assumptions used in the accompanying financial statements are based upon management's evaluation of the relevant facts and circumstances as of the date of the financial statements. Actual results may differ from the estimates and assumptions used in preparing the accompanying financial statements.
Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board (‘‘FASB'') issued SFAS No. 143,Accounting for Asset Retirement Obligations(‘‘SFAS 143''). SFAS 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The Company has evaluated the effects of the SFAS 143 and has determined that for operating facilities for which the Company owns the underlying real property, the Company has no contractual or legal obligation to remediate such real property if the Company were to abandon, sell or otherwise dispose of these facilities.
In April 2002, the FASB issued SFAS No. 145,Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections(‘‘SFAS 145''). Among other provisions, SFAS 145 rescinds SFAS 4,Reporting Gains and Losses from Extinguishment of Debt,which required all gains and losses from extinguishment of debt to be aggregated and, if material, classified as an extraordinary item, net of the related income tax effect. As a result, the criteria in APB Opinion 30,Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions,which requires gains and losses on extinguishments of debt to be classified as income or loss from continuing operations, will now be applied. The Company adopted this stand ard effective January 1, 2003, the earliest effective date applicable.
In December 2002, the FASB issued SFAS No. 148,Accounting for Stock Based Compensation— Transition and Disclosure, an Amendment to FASB Statement 123(‘‘SFAS 148''). This Statement amends SFAS No. 123,Accounting for Stock Based Compensation(‘‘SFAS 123''), to provide alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of SFAS 123 to require prominent disclosure in both annual and interim financial statements. The Company has adopted the disclosure provision required by SFAS 148; it does not expect to voluntarily adopt the fair value based method of accounting for its employee option-based compensation plan.
FASB Interpretation (‘‘FIN'') No. 45,Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others(‘‘FIN 45''), was issued in November 2002 and clarifies disclosure and recognition/measurement requirements related to certain guarantees. The disclosure requirements are effective for financial statements issued
F-10
after December 15, 2002 and the recognition/measurement requirements are effective on a prospective basis for guarantees issued or modified after December 31, 2002. The application of the requirements of FIN 45 did not have any impact on the Company's financial position or results of operations.
In January 2003, the FASB issued FASB Interpretation No. 46,Consolidation of Variable Interest Entities, an interpretation of ARB No. 51. In December 2003, the FASB revised Interpretation No. 46, which clarifies the application of Accounting Research Bulletin (‘‘ARB'') No. 51,Consolidated Financial Statements(‘‘ARB 51''). As per ARB 51, a general rule for preparation of consolidated financial statements of a parent and its subsidiary is ownership by the parent, either directly or indirectly, of over fifty percent of the outstanding voting shares of a subsidiary. However, application of the majority voting interest requirement of ARB 51 to certain types of entities may not identify the party with a controlling financial interest because the controlling financial interest may be achieved through arrangements that do not involve a votin g interest. FIN 46 clarifies applicability of ARB 51 to entities in which the equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. FIN 46 requires an entity to consolidate a variable interest entity even though the entity does not, either directly or indirectly, own over fifty percent of the outstanding voting shares. FIN 46 is applicable for financial statements issued for reporting periods that end after March 15, 2004. The Company does not have any relationship with variable interest entities that would require consolidation under FIN 46.
In May 2003, the FASB issued SFAS No. 150,Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity(‘‘SFAS 150''). SFAS 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS 150 applies specifically to a number of financial instruments that companies have historically presented within their financial statements either as equity or between the liabilities section and the equity section, rather than as liabilities. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003, except for mandatory redeemable financial instruments of a non-public entity, in which case this statement shall be effective for fiscal periods beginning after December 15, 2003.
For purposes of SFAS 150, the Company meets the definition of a non-public entity. The adoption of SFAS 150 did not any impact on the Company's financial statements.
F-11
A.C. Technical Systems Ltd.
Notes to Financial Statements
1.
Due from Related Parties
2003 | 2002 | |||
Balances due from related parties are as follows: | ||||
Balance due from a company controlled by | ||||
the president, non-interest bearing and due on demand. | $ | 1,971 | $ | 1,621 |
Balance due from a company controlled by the | ||||
president's spouse, non-interest bearing and due on demand. | - | 2,454 | ||
Balance due from the president of the company, non-interest | ||||
and due on demand | 1,543 | - | ||
$ | 3,514 | $ | 4,075 |
F-12
2.
Property and Equipment
2003 | 2002 | ||||||||||
Accumulated | Accumulated | ||||||||||
Cost | Depreciation | Cost | Depreciation | ||||||||
Land | $ | 76,556 | $ | - | $ | 62,963 | $ | - | |||
Industrial condominium | 660,234 | 39,083 | 543,006 | 10,858 | |||||||
Equipment | 61,708 | 17,702 | 45,993 | 4,599 | |||||||
Furniture and fixtures | 49,637 | 14,896 | 24,208 | 7,185 | |||||||
Computer equipment | 68,912 | 33,585 | 42,858 | 18,131 | |||||||
$ | 917,047 | $ | 105,266 | $ | 719,028 | $ | 40,773 | ||||
Net book value | $ | 811,780 | $ | 678,255 | |||||||
3.
Customer List
2003 | 2002 | ||||||||||
Accumulated | Accumulated | ||||||||||
Cost | Amortization | Cost | Amortization | ||||||||
Customer list | $ | 19,284 | $ | 7,714 | $ | 15,859 | $ | 3,172 | |||
Net book value | $ | 11,570 | $ | 12,687 |
F-13
4.
Bank Indebtedness
2003 | 2002 | |||||
Bank overdraft | $ | 55,268 | $ | 97,822 | ||
Demand overdraft facility and operating loan | 578,481 | 107,841 | ||||
$ | 633,749 | $ | 205,662 |
The Company has a maximum revolving credit facility of CAD $750,000 with a Canadian Chartered Bank and is comprised of an overdraft facility of CAD $250,000 and an operating loan of CAD $500,000. The bank overdraft is due on demand and bears interest at the Bank's prime rate plus 5%, while the operating loan bears interest at the Bank's prime rate plus 1.52%. The credit facility is secured by a first ranking general security agreement, a first collateral mortgage on the industrial condominium of CAD $465,000, a personal guarantee from the president and his wife of up to CAD $700,000, a collateral second mortgage on the president's principal residence of CAD $100,000, guarantee and postponement of claims from the Chief Executive Officer (CEO) of CAD $250,000 and postponement and assignment of claims by both the president and CEO.
F-14
5.
Mortgage Loan
2003 | 2002 | |||||
Demand mortgage loan, secured by the industrial condominium | ||||||
described in Note 2, bears interest at the bank's prime rate | ||||||
plus 2.55% per annum, repayable in monthly principal | ||||||
payment of $1,945 plus interest. | $ | 236,953 | $ | 210,920 |
The agreement with respect to the demand mortgage loan contains a demand feature whereby the bank can demand repayment at any time. As such, the mortgage loan has been classified as a current liability.
The principal payments for the next five years and thereafter are as follows:
Year | Amount | |||
2004 | $ | 18,002 | ||
2005 | 18,002 | |||
2006 | 18,002 | |||
2007 | 18,002 | |||
2008 | 18,002 | |||
Thereafter | 146,943 | |||
$ | 236,953 |
F-15
6.
Due to Related Parties
2003 | 2002 | |||
Advance from the Chief Executive Officer (CEO) of the | ||||
Company, non-interest bearing with no fixed terms of | ||||
repayment, subordinated to the bank (see Note 4). | $ | 34,709 | $ | - |
Subordinated loan - the amount is due to the CEO and | ||||
is secured by a promissory note, a third ranking general | ||||
security agreement, assignment of insurance policy, a | ||||
second mortgage on the industrial condominium up to | ||||
CAD $350,000, personal guarantee of the president and | ||||
his spouse up to CAD $700,000, and a collateral second | ||||
mortgage on the president's principal residence up to | ||||
CAD $100,000, bearing interest at 6% per annum, | ||||
repayable in blended monthly payments of $10,155. | ||||
The loan is subordinated to the bank (see Note 4) | 136,987 | - | ||
Loan payable to a company controlled by the | ||||
president's spouse, non-interest bearing and due | ||||
on demand. | 938 | - | ||
Loan payable to the president of the Company, | ||||
non-interest bearing with no fixed terms of repayment. | 74,691 | 72,784 | ||
247,325 | 72,784 | |||
Less current portion | 117,757 | 11,355 | ||
$ | 129,568 | $ | 61,429 |
F-16
7.
Share Capital
During the year the Company repurchased 200 common shares for cancellation for cash consideration of $71 and issued two common shares from treasury for cash consideration of $2. Also see Note 13.
8.
Major Customers
Sales to one (2002 - two) major customer(s) for the year comprises 31% (2002 - 27%) of total sales.
Accounts receivable from the top three customers (2002 - three) comprises 37% (2002 - 49%) of the total trade receivable balance as at December 31, 2003.
9.
Income Taxes
The Company's provision for income taxes is comprised as follows:
2003 | 2002 | |||||
Current | $ | 43,653 | $ | 66,888 | ||
Deferred | 22,120 | 22,161 | ||||
$ | 65,773 | $ | 89,048 |
F-17
Reconciliation to statutory rates is as follows: | ||||||
2003 | 2002 | |||||
Income before income taxes | $ | 228,530 | $ | 202,315 | ||
Statutory tax rates | 41.6% | 41.6% | ||||
Expected income tax expense | 95,114 | 84,204 | ||||
Increase (decrease) in taxes resulting from: | ||||||
Permanent differences | 20,878 | 56,593 | ||||
Small business and other tax rate reductions | (48,458) | (35,675) | ||||
Other | (1,761) | (16,074) | ||||
Income tax expense | $ | 65,773 | $ | 89,048 |
F-18
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, 2003 and 2002 are presented below:
2003 | 2002 | |||||
Assets | ||||||
Investment tax credits | $ | 72,465 | 53,537 | |||
Accounting depreciation in excess of tax depreciation | 926 | 444 | ||||
Other | 3,162 | 1,079 | ||||
76,553 | 55,060 | |||||
Less: current portion | (42,654) | (38,089) | ||||
$ | 33,899 | $ | 16,971 | |||
Liabilities | ||||||
Income tax depreciation in excess of accounting depreciation | $ 3,085 | $ | 3,489 | |||
Investment tax credits taxable in the future | 26,147 | 15,225 | ||||
Other | 25,608 | 4,884 | ||||
54,840 | 23,598 | |||||
Less: current portion | (22,137) | (15,288) | ||||
32,703 | 8,310 | |||||
Net deferred income taxes – non-current | $ | 20,517 | $ | 22,801 | ||
– non-current | $ | 1,196 | $ | 8,661 |
F-19
10.
Related Party Transactions
During the year, $nil (2002 - $9,584) in rent was paid to a company controlled by the president's spouse, $16,493 (2002 - $nil) in consulting fees and $8,277 (2002 - $nil) in interest were paid to the CEO.
The transactions are in the normal course of operations and are measured at the exchange value (the amount of consideration established and agreed to by the related parties), which approximates the arm's length equivalent value.
11.
Commitments
The Company has entered into a contract for certain consulting services with a monthly cost of $9,513 until September 2004.
The Company has also entered into an operating lease for its vehicles, computer and office equipment. The minimum annual lease payments for the next four years are as follows:
Year | Amount | ||
2004 | $ | 149,981 | |
2005 | 98,103 | ||
2006 | 40,483 | ||
2007 | 2,007 | ||
$ | 290,574 |
F-20
12.
Contingencies
The Company is potentially liable for $21,400 relating to a claim by a former employee. The outcome of the lawsuit is not determinable.
In addition, the Company was assessed by the Ontario Ministry of Finance for uncollected Ontario sales tax on prior years' taxable sales. The Company may recover the sales tax from customers and administratively, the Ministry would assist the Company in recovering these amounts. No accrual has been provided for this assessment. To the extent that there is any shortfall, it would be recorded as an expense in the year of determination. It is management's expectation that the full amount of the sales tax will be recovered from customers. As of the report date, the outstanding assessment was approximately $35,600.
13.
Subsequent Events
Subsequent to the year end, the Company split its issued and outstanding common shares from 2 shares to 10,000,000 shares and obtained an additional CAD $200,000 in financing.
Subsequent to the close of business on September 30, 2004, the Company entered into a series of agreements with Laurus Master Fund, Ltd. ("Laurus") whereby the Company issued to Laurus
(i)
a secured convertible term note (the "Note") in the amount of $4.5 million,
(ii)
a secured revolving note (together with the Term Note, (the “Notes”)
(iii)
related options to purchase up to 499,999 shares of common stock of the Company at a price of $0.02 per share (the "Option"), and
(iv)
a seven year warrant to purchase up to $750,000 shares of common stock of the Company at a price of $3.45 per share (the "Warrant").
F-21
The loan is secured by all of the assets of the Company. The principal amount of the Term Note bears interest at the prime rate plus two percent with a minimum rate of six percent. The minimum monthly payment on the Term Note is $100,000, plus the monthly interest payment, and may be paid in cash, the common stock of the Company or a combination thereof, dependant upon the occurrence of certain criteria. Laurus has the option to convert the entire principal amount of the Notes, together with interest thereon into shares of the Company's common stock at a conversion price of $3, provided that such conversion does not result in Laurus beneficially owning more than 4.99% of our outstanding shares of common.
We have granted Laurus a right of first refusal with respect to any debt or equity financings for a period of 120 days after completion of the reverse merger transaction.
F-22
Creative Vistas, Inc. | |||||||
Condensed Consolidated Balance Sheet | |||||||
(Unaudited) | |||||||
September 30 | December 31 | ||||||
As at | 2004 | 2003 | |||||
Assets | |||||||
Current | |||||||
Cash | $ | 2,812,039 | $ | - | |||
Accounts receivable, | 2,526,060 | 2,113,027 | |||||
net of allowance for doubtful accounts of | |||||||
$ | 106,385 (2003 – $105,671) | ||||||
Material and supplies | 943,300 | 714,758 | |||||
Prepaid expenses | 26,523 | 22,845 | |||||
Due from related parties | 124,854 | 3,514 | |||||
Deferred income taxes | 35,000 | 20,517 | |||||
Income tax recoverable | 69,458 | - | |||||
6,537,234 | 2,874,661 | ||||||
Property and equipment | 795,682 | 811,780 | |||||
Customer list | 8,917 | 11,570 | |||||
Deferred income taxes | 119,689 | 1,196 | |||||
$ | 7,461,522 | $ | 3,699,207 |
F-23
Liabilities and Shareholders' Equity (Deficiency)
Current | ||||||
Bank indebtedness | $ | 2,250,000 | $ | 633,749 | ||
Accounts payable and accrued liabilities | 2,119,962 | 1,957,789 | ||||
Deferred revenue | 343,356 | 101,059 | ||||
Income taxes payable | - | 40,011 | ||||
Mortgage loan | - | 236,953 | ||||
Due to related parties | 3,699 | 117,757 | ||||
4,717,017 | 3,087,318 | |||||
Due to related parties | - | 129,568 | ||||
Convertible notes | 27,022 | - | ||||
Other notes payable | 2,061,087 | - | ||||
6,805,126 | 3,216,886 | |||||
Shareholders' equity (Deficiency) | ||||||
Share capital | ||||||
Authorized | ||||||
100,000,000 number of no par value common shares | ||||||
Issued | ||||||
10,000,000 Common shares (2003:2 Common shares) | 2 | 2 | ||||
Other paid-up capital | 4,132,668 | - | ||||
Retained earnings (Deficits) | (3,476,274) | 482,319 | ||||
656,396 | 482,321 | |||||
$ | 7,461,522 | $ | 3,699,207 |
The accompanying notes are an integral part of these financial statements
F-24
Creative Vistas, Inc. | |||||||||
Statement of Shareholders' Equity | |||||||||
For the nine month period ended September 30, 2004 | |||||||||
Accumulated | Total | ||||||||
retained | Stockholders' | ||||||||
earnings | Equity | ||||||||
Shares | Amount | (deficit) | (Deficit) | ||||||
Balance as at December | |||||||||
31, 2002 | 10,000,000 | $ | 2 | $482,319 | $ | 482,321 | |||
Other paid-up capital | 4,132,668 | - | 4,132,668 | ||||||
Distributions to | |||||||||
shareholders | - | (3,300,000) | (3,300,000) | ||||||
Net loss for the nine | |||||||||
months period ended | - | (645,004) | (645,004) | ||||||
Other comprehensive | |||||||||
income | |||||||||
Foreign currency translation | |||||||||
adjustment | - | (13,589) | (13,589) | ||||||
10,000,000 | 4,132,670 | (3,476,274) | 656,396 | ||||||
The accompanying notes are an integral part of these financial statements
F-25
Creative Vistas, Inc.
Condensed consolidated Statement of Operations
(Unaudited)
For the three months and nine months ended September 30, 2004 and 2003
Nine months ended | ||||||||
September | September | |||||||
30, 2004 | 30, 2003 | |||||||
Contract and service revenue | ||||||||
Contract | $ | 5,569,946 | $ | 5,896,198 | ||||
Service | 783,184 | 629,221 | ||||||
6,353,130 | 6,525,419 | |||||||
Cost of sales | ||||||||
Contract | 3,313,513 | 3,726,546 | ||||||
Service | 418,563 | 346,343 | ||||||
3,732,076 | 4,072,889 | |||||||
Gross margin | 2,621,054 | 2,452,530 | ||||||
Operating expense | ||||||||
Project | 1,087,741 | 953,293 | ||||||
Selling | 733,138 | 705,179 | ||||||
General and administrative | 1,007,395 | 671,484 | ||||||
2,828,274 | 2,329,956 | |||||||
Income (loss)from operations | (207,220) | 122,574 | ||||||
Interest on mortgage | 10,615 | 12,332 | ||||||
Interest on shareholder loan | 12,935 | 5,122 | ||||||
Reverse merger and financing | 607,738 | - | ||||||
cost | ||||||||
Income (loss) before income | (838,508) | 105,120 | ||||||
taxes | ||||||||
Income taxes (recovery) | (193,504) | 27,983 | ||||||
Net income (loss) | (645,004) | 77,137 |
F-26
Creative Vistas, Inc. | |||||||
Condensed consolidated Statement of Cash Flows | |||||||
(Unaudited) | |||||||
For the nine months ended September 30, 2004 and 2003 | |||||||
Nine months ended | |||||||
September | September | ||||||
30, 2004 | 30, 2003 | ||||||
Cash provided by (used in) | |||||||
Operating activities | |||||||
Net income (loss) | $ | (645,004) | $ 77,137 | ||||
Adjustments to reconcile net | |||||||
income to net cash provided by | |||||||
(used in) operating activities | |||||||
Amortization | 2,823 | 2,623 | |||||
Depreciation | 37,589 | 35,767 | |||||
Deferred income taxes | (125,740) | - | |||||
Changes in non-cash working | |||||||
capital balances | |||||||
Accounts receivable | (336,740) | (299,588) | |||||
Materials and supplies | (198,311) | 29,154 | |||||
Prepaid expenses | (2,891) | - | |||||
Deferred charges | (450,775) | - | |||||
Deferred income taxes | - | - | |||||
Accounts payable and accrued | 182,921 | (104,543) | |||||
liabilities | |||||||
Bonus payable | - | (52,952) | |||||
Income taxes payable | (105,038) | 28,049 | |||||
Deferred revenue | 227,500 | 51,965 | |||||
(1,413,666) | (232,388) | ||||||
Investing activities | |||||||
Due from related parties | 5,000 | 743 | |||||
Acquisition of subsidiary | (1,500,000) | ||||||
Purchase of property and | |||||||
equipment | (964) | (27,099) | |||||
(1,495,964) | (26,356) | ||||||
Financing activities | |||||||
F-27
Increase in bank indebtedness | 1,577,901 | 112,725 | ||||
Due to related parties | (366,866) | 159,695 | ||||
Notes payables | 248,006 | - | ||||
Convertible notes | 4,500,000 | - | ||||
Repayment of mortgage | (242,813) | (13,067) | ||||
principal | ||||||
Redemption of common shares | - | (71) | ||||
Issuance of common shares | - | 2 | ||||
5,716,228 | 258,744 | |||||
Net change in cash and cash | 2,806,598 | - | ||||
equivalents | ||||||
Cash and cash equivalents, | 5,441 | - | ||||
beginning of period | ||||||
Cash and cash equivalents, end | ||||||
of period | 2,812,039 | - | ||||
Cash paid for interest | $ | 23,550 | $ | 51,450 | ||
Cash paid for income taxes | $ | 37,278 | $ | - |
The accompanying notes are an integral part of these financial statements
F-28
Creative Vistas, Inc.
Summary of Significant Accounting Policies
(Unaudited)
Nature of Business
On September 30, 2004, pursuant to a Stock Purchase Agreement with The Burns Trust, The Navaratnam Trust and AC Technical Systems Ltd.(“ACT”), AC Technical Acquisition Corp., a subsidiary of the Company, acquired all of the issued and outstanding shares of AC Technical from The Burns Trust and The Navaratnam Trust.
A.C. Technical Systems Ltd. (“ACT”) is incorporated under the laws of Ontario and is engaged in the engineering, design, installation, integration and servicing of various types of security systems. The Company operates under the trade name of AC Technical Systems.
Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Inter-company accounts and transactions have been eliminated in consolidation.
Interim Financial Information
The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments and reclassifications considered necessary for a fair and comparable presentation have been included and are of a normal recurring nature. Operating results for the nine-month period ended September 30, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004. The accompanying financial statement s should be read in conjunction with the Company's most recent audited financial statements.
Accounting Estimates
The Company prepares its financial statements in accordance with accounting principles generally accepted in the United States of America, which require management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities. The estimates and assumptions used in the accompanying financial statements are based upon management's evaluation of the relevant facts and circumstances as of the date of the financial statements. Actual results may differ from the estimates and assumptions used in preparing the accompanying financial statements.
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Creative Vistas, Inc. | ||||||||
Notes to Condensed Financial Statements | ||||||||
(Unaudited) | ||||||||
1. | Notes payable | |||||||
2004 | 2003 | |||||||
Promissory notes | $ | 1,958,529 | $ | - | ||||
8% convertible promissory notes | 102,558 | - | ||||||
2,061,087 | - |
In February 2004, the Company issued a series of promissory notes payable at 100% of the face or principal amount in the denomination of CAD $50,000. The notes mature on February 26, 2007. Interest is payable monthly and accrues at the rate of 10.5% per annum on the outstanding principal amount on the 26th day of each month. The principal amount of the notes is repayable in twelve consecutive monthly payments commencing on the March 26, 2006.
In September 2004, the Company issued a convertible promissory note payable at 100% of the face or principal amount of U.S. $100,000. The note matures on October 15, 2005. Interest on the note accrues at the rate of 8% per annum, payable monthly.
In September 2004, A.C. Acquisition Corporation issued two promissory notes at 100% of the face or principal amount of $1,800,000. The notes are non-interest bearing with no fixed term of repayment.
Interest expense recognized for the nine months ended September, 30, 2004 was approximately $9,000 (2003: nil).
2.
Stockholders' Equity and Stock Warrants
In 2004 the Company issued warrants enabling the holder to purchase 180,000 common shares of the Company's common stock at $1 per common stock and 66,500 common shares of the Company's common stock at $3 per common stock. The warrants expire five years from the date of issuance.
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The warrants were issued in connection with services relating to the financing and reverse acquisition. The fair market value of the warrants was measured using the Black-Scholes option pricing model with the following weighted average assumptions: risk free interest rate of 3.5%, expected dividend yield of 0%, volatility of 55%, and expected lives of 5 years. The fair market value of the warrants of approximately $560,000. $400,000 has been included in deferred financing costs at September 30, 2004 and will be amortized over the terms of the related loan agreements.
3.
Subsequent Events
On September 30, 2004, the Company entered into a series of agreements with Laurus Master Fund, Ltd. ("Laurus") whereby the Company issued to Laurus
(i)
a secured convertible term note (the "Term Note") in the amount of $4.5 million,
(ii)
a secured revolving note (together with the Term Note, the “Notes”),
(iii)
related options to purchase up to 499,999 shares of common stock of the Company at a price of $0.02 per share (the "Option"), and
(iv)
a seven year warrant to purchase up to $750,000 shares of common stock of the Company at a price of $3.45 per share (the "Warrant").
The loan is secured by all of the assets of the Company. The principal amount of the Term Note bears interest at the prime rate plus two percent with a minimum rate of six percent. The minimum monthly payment on the Note is $100,000, plus the monthly interest payment, and may be paid in cash, the common stock of the Company or a combination thereof, dependant upon the occurrence of certain criteria. Laurus has the option to convert the entire principal amount of the Notes, together with interest thereon into shares of the Company's common stock at a conversion price of $3, provided that such conversion does not result in Laurus beneficially owning more than 4.99% of our outstanding shares of common.
We have granted Laurus a right of first refusal with respect to any debt or equity financings for a period of 120 days after completion of the reverse merger transaction
Balance comprises of: | ||||
Long term debts | $ | 4,500,000 | ||
Less: | ||||
Deferred financing costs | (899,626) | |||
Discount on note | (1,786,676) | |||
Beneficial convertible features | (1,786,676) | |||
$ | 27,022 |
.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article XIII of the Articles of Incorporation and Article IX of the Bylaws of the Company, as amended, set forth certain indemnification rights. The Company's Articles of Incorporation provide for the indemnification of directors and officers to the full extent permitted by Arizona law.
Arizona law provides that a company may indemnify its directors under prescribed circumstances, subject to certain limitations, against certain costs and expenses, including attorneys' fees actually and reasonably incurred in connection with any action, suit or proceeding, whether civil, criminal, administrative or investigative, to which such person is a party by reason of being a director of the Company, provided that such director or officer acted in accordance with the applicable standard of conduct set forth in such statutory provisions.
Item 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
SEC registration fee | $ 1,333 |
Transfer agent fees | 1,000 |
Accounting fees and expenses | 60,000 |
Legal fees and expenses | 40,000 |
Printing and engraving costs | 5,000 |
Total
| $107,333 |
All amounts other than the SEC registration fee are estimates. We will pay all of the expenses of the offering, except that the selling shareholders will pay all brokerage or other commissions or other costs of sale.
Item 26. RECENT SALES OF UNREGISTERED SECURITIES
Pursuant a series of agreements with Laurus, dated September 30, 2004, the Company issued to Laurus (i) a secured convertible term note (the “Note”) in the amount of $4.5 million, (ii) a secured revolving note (together with the Term Note, the “Notes”), (iii) a related option to purchase up to 499,999 shares of common stock of the Registrant at a price of $0.02 per share (the “Option”), and (iv) a seven year warrant to purchase up to 750,000 shares of common stock of the Registrant at a price of $3.45 per share (the “Warrant”). In connection with this transaction the Company relied upon the exemptions from registration provided by Section 4(2) of the Securities Act and Rule 506 of Regulation D as Laurus is an “accredited investor” as defined in Rule 501(a) of Regulation D.
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Pursuant to a Consulting Agreement dated November 11, 2004 with CEOcast, Inc., the Company issued to CEOcast 20,000 shares of common stock in consideration of services rendered. In connection with this transaction, the Company relied upon the exemptions from registration provided by Section 4(2) of the Securities Act and Rule 506 of Regulation D as CEOcast is an “accredited investor” as defined in Rule 501(a) of Regulation D.
Pursuant to an engagement letter dated October 4, 2004, Torys LLP has received 25,000 shares of common stock for legal services to be rendered. In connection with this transaction the Company relied upon the exemptions from registration provided by Section 4(2) of the Securities Act and Rule 506 of Regulation D as Torys LLP is an “accredited investor” as defined in Rule 501(a) of Regulation D.
Pursuant to a letter agreement dated June 1, 2004, Burnham Securities Inc. has received a warrant to purchase 246,500 shares of common stock in consideration of services rendered. In connection with this transaction, the Company relied upon the exemptions from registration provided by Section 4(2) of the Securities Act and Rule 506 of Regulation D as Burnham Securities Inc. is an “accredited investor” as defined in Rule 501(a) of Regulation D.
Item 27. EXHIBITS
3.1 | Articles of Incorporation, as amended to date(1) |
3.2 | By-laws(1) |
5.1 | Opinion of Torys LLP(2) |
10.1 | Security Agreement, dated September 30, 2004, by and among Laurus Master Fund, Ltd., Creative Vistas, Inc., A.C. Technical Acquisition Corp., and A.C. Technical Systems Ltd.(3) |
10.2 | Securities Purchase Agreement, dated September 30, 2004 by and between Creative Vistas, Inc. and Laurus Master Fund, Ltd.(3) |
10.3 | Secured Convertible Term Note, dated September 30, 2004, issued by Creative Vistas, Inc. to Laurus Master Fund, Ltd.(3) |
10.4 | Secured Convertible Minimum Borrowing Note, dated September 30, 2004 issued by Creative Vistas, Inc. to Laurus Master Fund, Ltd.(3) |
10.5 | Secured Revolving Note, dated September 30, 2004, issued by Creative Vistas, Inc. to Laurus Master Fund, Ltd.(3) |
10.6 | Common Stock Purchase Warrant, dated September 30, 2004, issued by Creative Vistas, Inc. to Laurus Master Fund, Ltd.(3) |
10.7 | Common Stock Option, dated September 30, 2004, issued by Creative Vistas, Inc. to Laurus Master Fund, Ltd.(3) |
10.8 | Registration Rights Agreement, dated September 30, 2004 by and between Creative Vistas, Inc. and Laurus Master Fund, Ltd.(3) |
10.9 | Master Security Agreement, dated September 30, 2004, by and among Creative |
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Vistas, Inc., certain of its subsidiaries and Laurus Master Fund, Ltd.(3) | |
10.10 | Stock Pledge Agreement, dated September 30, 2004, by and among Laurus |
Master Fund, ltd., Creative Vistas, Inc., and each of the undersigned Pledgors(3) | |
10.11 | Funds Escrow Agreement, dated September 30, 2004, by and among Creative |
Vistas, Inc., Laurus Master Fund, Ltd., and Loeb & Loeb LLP(3) | |
16.1 | Letter from Semple & Cooper, LLP pursuant to Item 304 of Registration S-B(2) |
23.1 | Consent of Torys LLP (contained in Exhibit 5.1)(2) |
23.2 | Consent of BDO Dunwoody, LLP |
_______________
(1)
Incorporated by reference to the Form 10-SB of the Company dated May 10, 2000.
(2)
To be filed by Amendment.
(3)
Incorporated by reference to the Form 8-K of the Company dated October 6, 2004.
Item 28. UNDERTAKINGS
The undersigned registrant hereby undertakes:
1.
To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(a)
To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
(b)
To reflect in the prospectus any facts or events arising after the effective date of this registration statement, or most recent post-effective amendment, which, individually or in the aggregate, represent a fundamental change in the information set forth in this registration statement; and
(c)
To include any material information with respect to the plan of distribution not previously disclosed in this registration statement or any material change to such information in the registration statement.
2.
That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered herein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
3.
To remove from registration by means of a post-effective amendment any of the securities being registered hereby which remain unsold at the termination of the offering.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to our directors, officers and controlling persons pursuant to the provisions above, or
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otherwise, we have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933, and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities, other than the payment by us of expenses incurred or paid by one of our directors, officers, or controlling persons in the successful defense of any action, suit or proceeding, is asserted by one of our directors, officers, or controlling persons in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification is against public policy as expressed in the Securities Act of 1933, and we will be governed by the final adjudication of such issue.
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SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all the requirements of filing on Form SB-2 and authorizes this Registration Statement to be signed on its behalf by the undersigned, in the City of Whitby, Province of Ontario, Canada on the ____ day of November, 2004.
CREATIVE VISTAS, INC.
By
/s/ SAYAN NAVARATNAM
Sayan Navaratnam, Chairman
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
Signature | Title | Date |
/s/ SAYAN NAVARATNAM (Sayan Navaratnam)
| Chairman, Chief Executive Officer and Director (principal executive officer) | December 2, 2004 |
/s/ Heung Hung Lee (Heung Hung Lee )
| Chief Financial Officer (principal financial and accounting officer) | December 2, 2004 |
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CONSENT OF COUNSEL
The consent of Torys LLP will be contained in its opinion to be filed as Exhibit 5.1 to the Registration Statement.
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EXHIBIT INDEX
EXHIBITS
3.1 | Articles of Incorporation, as amended to date(1) |
3.2 | By-laws(1) |
5.1 | Opinion of Torys LLP(2) |
10.1 | Security Agreement, dated September 30, 2004, by and among Laurus Master Fund, Ltd., Creative Vistas, Inc., A.C. Technical Acquisition Corp., and A.C. Technical Systems Ltd.(3) |
10.2 | Securities Purchase Agreement, dated September 30, 2004 by and between Creative Vistas, Inc. and Laurus Master Fund, Ltd.(3) |
10.3 | Secured Convertible Term Note, dated September 30, 2004, issued by Creative Vistas, Inc. to Laurus Master Fund, Ltd.(3) |
10.4 | Secured Convertible Minimum Borrowing Note, dated September 30, 2004 issued by Creative Vistas, Inc. to Laurus Master Fund, Ltd.(3) |
10.5 | Secured Revolving Note, dated September 30, 2004, issued by Creative Vistas, Inc. to Laurus Master Fund, Ltd.(3) |
10.6 | Common Stock Purchase Warrant, dated September 30, 2004, issued by Creative Vistas, Inc. to Laurus Master Fund, Ltd.(3) |
10.7 | Common Stock Option, dated September 30, 2004, issued by Creative Vistas, Inc. to Laurus Master Fund, Ltd.(3) |
10.8 | Registration Rights Agreement, dated September 30, 2004 by and between Creative Vistas, Inc. and Laurus Master Fund, Ltd.(3) |
10.9 | Master Security Agreement, dated September 30, 2004, by and among Creative Vistas, Inc., certain of its subsidiaries and Laurus Master Fund, Ltd.(3) |
10.10 | Stock Pledge Agreement, dated September 30, 2004, by and among Laurus Master Fund, ltd., Creative Vistas, Inc., and each of the undersigned Pledgors(3) |
10.11 | Funds Escrow Agreement, dated September 30, 2004, by and among Creative Vistas, Inc., Laurus Master Fund, Ltd., and Loeb & Loeb LLP(3) |
16.1 | Letter from Semple & Cooper, LLP pursuant to Item 304 of Registration S-B(2) |
23.1 | Consent of Torys LLP (contained in Exhibit 5.1)(2) |
23.2 |
1 Incorporated by reference to the Form 10-SB of the Company dated May 10, 2000.
2 To be filed by Amendment.
3 Incorporated by reference to the Form 8-K of the Company dated October 6, 2001.