UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark one)
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURIT
IES EXCHANGE ACT OF 1934
For the fiscal year ended December 31,
2011
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT
OF 1934
For the transition period from _____ to _____
Commission
File Number: 0 - 16819
CREATIVE
VISTAS, INC.
(Exact
name of registrant as specified in its charter)
____________________________
Arizona
(State or Other Jurisdiction of
Incorporation or Organization)
2100 Forbes Street
Unit 8-10
Whitby, Ontario, Canada
(Address of Principal Executive Offices)
|
|
86-0464104
(I.R.S. Employer
Identification No.)
L1N 9T3
(Zip Code)
|
Registrant’s Telephone Number,
Including Area Code: 905-666-8676
Securities registered pursuant to Section
12(b) of the Exchange Act:
None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, No Par Value
(Title of Class)
Indicate by check mark if the registrant
is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
¨
No
x
Indicate by check mark if the registrant
is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.
Yes
¨
No
x
Indicate by check
mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
x
No
¨
Indicate by check mark
whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes
x
No
¨
Indicate by check mark
if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant’s knowledge, in the definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to the Form 10-K.
x
Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company”
in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer
¨
|
Accelerated Filer
¨
|
|
|
Non-Accelerated Filer
¨
|
Smaller Reporting Company
x
|
(Do not check if a smaller reporting company)
|
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act).
¨
Yes
x
No
The aggregate market
value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common
equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s
most recently completed second fiscal quarter was approximately $
179,822
(
8,991,121
Shares at $
0.02
).
APPLICABLE ONLY TO REGISTRANTS
INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
Indicate by check mark
whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange
Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
Yes
¨
No
¨
At March 30, 2012, the
number of shares outstanding of the registrant’s common stock, no par value (the only class of common stock), was
37,488,714
.
|
|
PART I
|
|
|
|
|
|
|
|
Item 1.
|
|
Business
|
|
1
|
|
|
|
|
|
Item 1A.
|
|
Risk Factors
|
|
7
|
|
|
|
|
|
Item 1B.
|
|
Unresolved Staff Comments
|
|
11
|
|
|
|
|
|
Item 2.
|
|
Properties
|
|
11
|
|
|
|
|
|
Item 3.
|
|
Legal Proceedings
|
|
11
|
|
|
|
|
|
Item 4.
|
|
Mine Safety Disclosures
|
|
11
|
|
|
|
|
|
|
|
PART II
|
|
12
|
|
|
|
|
|
Item 5.
|
|
Market for the Registrant's Common Equity Related Stockholder Matters and Issuer Purchases of Equity Securities
|
|
12
|
|
|
|
|
|
Item 6.
|
|
Selected Financial Data
|
|
12
|
|
|
|
|
|
Item 7.
|
|
Management's Discussion and Analysis of Financial Condition and Results of Operations
|
|
12
|
|
|
|
|
|
Item 7a.
|
|
Quantitative and Qualitative Disclosures about Market Risk
|
|
17
|
|
|
|
|
|
Item 8.
|
|
Financial Statements and Supplementary Data
|
|
18
|
|
|
|
|
|
Item 9.
|
|
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
|
|
19
|
|
|
|
|
|
Item 9a.
|
|
Controls and Procedures
|
|
19
|
|
|
|
|
|
Item 9b.
|
|
Other Information
|
|
20
|
|
|
|
|
|
|
|
PART III
|
|
|
|
|
|
|
|
Item 10.
|
|
Directors, Executive Officers and Corporate Governance
|
|
20
|
|
|
|
|
|
Item 11.
|
|
Executive Compensation
|
|
22
|
|
|
|
|
|
Item 12.
|
|
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|
|
23
|
|
|
|
|
|
Item 13.
|
|
Certain Relationships and Related Transactions, and Director Independence
|
|
26
|
|
|
|
|
|
Item 14.
|
|
Principal Accounting Fees and Services
|
|
26
|
|
|
|
|
|
Item 15.
|
|
Exhibits and Financial Statement Schedules
|
|
27
|
Forward-Looking Statements
Certain statements
within this Form 10-K constitute “forward-looking statements” within the meaning of the Private Securities Litigation
Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause
the actual results, performance or achievements of Creative Vistas, Inc. to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements. These forward-looking statements are based on our current
expectations and are subject to a number of risks, uncertainties and assumptions relating to our operations, financial condition
and results of operations, including, among others, rapid technological and other changes in the markets we serve, our numerous
competitors and the few barriers to entry for potential competitors, the seasonality and quarterly variations we experience in
our revenue, our customer concentration, our uncertain revenue growth, our ability to attract and retain qualified personnel, our
ability to expand our infrastructure and manage our growth, and our ability to identify, finance and integrate acquisitions, among
others. If any of these risks or uncertainties materializes, or if any of the underlying assumptions prove incorrect, actual results
may differ significantly from results expressed or implied in any forward-looking statements made by us. These and other risks
are detailed in this Annual Report on Form 10-K and in other documents filed by us with the Securities and Exchange Commission.
Creative Vistas, Inc. undertakes no obligation to update publicly any forward-looking statements for any reason, even if new information
becomes available or other events occur in the future.
PART I
Corporate Background and Overview
Creative Vistas, Inc.
(the “Company” or “we”) was incorporated in the state of Arizona on July 18, 1983. We are a leading provider
of security-related technologies and systems. We primarily operate through our subsidiary AC Technical Systems Ltd. (“AC
Technical Systems”) to provide integrated electronic security-related technologies and systems. AC Technical Systems is responsible
for all of our revenues in the security sector for 2011. It provides its systems to various high profile clients including: government,
school boards, retail outlets, banks, and hospitals.
On December
31, 2005, we acquired Cancable Inc. through our wholly owned Delaware subsidiary, Cancable Holding Corp.
(“Cancable Holding”). Cancable is in the business of providing the deployment and servicing of broadband
technologies in both residential and commercial markets. Cancable has offices in Ontario, Canada. All related documents were
disclosed in Form 8-K/A filed on January 6, 2006.
In October 2007, we entered into an agreement,
through our wholly-owned newly formed Ontario subsidiary, Cancable XL Inc. (“Cancable XL”), to acquire all of the
issued and outstanding shares of capital stock and any other equity interests of XL Digital Services Inc. (“XL
Digital”), an Ontario corporation. All related documents were disclosed in Form 8-K filed on October 17, 2007. Cancable
Holding, Cancable Inc., Cancable XL Inc., XL Digital Services Inc. and Cancable, Inc. are together the “Cancable
Group”.
As described below, we disposed of Cancable Group in September 2011. In October 2011, we incorporated
2300657 Ontario Inc. which is responsible for providing BI software. The current version of BI software manages data from
over a million multi-faceted transactions for large field-services customers. Wireless and web enabled, the software provides
automated intelligent decision-making for managing customer transactions, vehicles, technicians, supply chains, HR-related
functions and other activities.
On September 16, 2011,
the Company entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) with Cancable Holding and with
Cancable and Dependable Hometech, LLC (“Purchaser”), pursuant to which the Company sold its equity interest in Cancable
Holding to Purchaser for a consideration of US$1.00 on such date. In connection with such sale, we assigned certain
of our liabilities and obligations to Cancable Holding, including (i) a secured term note of the Company dated February 13, 2006,
for an original principal amount of US$8.25 million, which is currently held by Valens U.S. SPV I, LLC (“VUS”), Valens
Offshore SPV I, Ltd. and PSource Structured Debt Limited (“PSource”), (ii) a secured term note of the Company
dated June 24, 2008, for an original principal amount of US$800,000, which is currently held by VUS, and (iii) a secured term note
of the Company dated June 24, 2008, for an original principal amount of US$1,700,000. which is currently held by Valens Offshore
SPV II, Corp. (such holders of the term notes listed in clauses (i) to (iii), collectively, the “Holders”, and such
term notes, collectively, the “Notes”). The aggregate outstanding amount owed under the Notes (including
accrued and unpaid interest) was approximately US$9,800,000 as of September 16, 2011. The Holders also (a) terminated
and cancelled all guarantees, security interest and other obligations of the Company and certain of its subsidiaries related to
approximately US$1,500,000 of indebtedness owed to the Holders by certain other subsidiaries of the Company, (b) cancelled their
warrants and options to purchase approximately 15,600,000 shares of common stock of the Company, as well as the stock of certain
of the Company’s subsidiaries, and (c) terminated and cancelled all guarantees, security interest and other obligations of
the Company and certain of its subsidiaries related to approximately US$5,100,000 of indebtedness owed to the Holders by Cancable
Inc. and its subsidiaries. In addition, in connection with the sale of Cancable Holding to Purchaser, we assigned our
rights in certain receivables owed to us by certain wholly-owned subsidiaries of Cancable Holding, totaling approximately US$4,800,000
as of September 16, 2011. The Holders are affiliates of Laurus Master Fund, Ltd. (“Laurus”).
Today, we mainly focus
on security and surveillance products and services. Through our technology integration team of engineers, we integrate various
security related products to provide a single source solution to our growing customer base. Our design, engineering and integration
facilities are located in Ontario, Canada.
Our current corporate structure
is as follows:
Security and Surveillance Products and Services
AC Technical Systems
is focused on the electronic security segment of the security industry. Through our technology integration team of engineers, we
integrate various security related products to provide single source solutions to our growing customer base. Our design, engineering
and integration facilities are located in Ontario, Canada.
Industry Overview
We believe that the
security industry is growing at a steady pace. There has been renewed focus on our industry since the events of September 11,
2001. The growth is spurred by the continuous evolution of new technologies and processes. We believe that the industry is
growing for the following reasons:
|
·
|
Increased global awareness due to the increased threats of terrorism;
|
|
·
|
Older security devices such as the VCR have become obsolete and new technologies have provided much more efficient systems
at a better price;
|
|
·
|
Evolving digital technologies have started to replace antiquated analog technologies in the market space;
|
|
·
|
Expansion of budgets due to increased awareness of the need for security;
|
|
·
|
Increase in crime rates and shrinkage in the industry;
|
|
·
|
Integration of multiple devices has expanded the market for technically advanced integrators such as our firm;
|
|
·
|
Growing public concern about crime; and
|
|
·
|
Decreased cost of security technology.
|
The security industry
is highly fragmented with a large number of manufacturers, dealers, distributors, integrators and service groups. All of these
parties provide part of the entire solution to the customer. Customers prefer a one-stop shop that provides them with the entire
solution and also designs and customizes a solution that fits their needs. This solution may include custom design of hardware
and software, along with highly sophisticated integration work. In most cases, the cost to the customer is higher when using a
large number of parties as opposed to one efficient integrator. We believe that when many parties are involved in providing a solution
to the customer, many needs of the customer may not be addressed. The amount of time a customer has to devote to build multiple
relationships as opposed to one relationship is substantial. There are also tendencies for different parties to “pass the
blame” to the other party when it comes to technical and service issues with the project. As a result, the customer prefers
dealing with one source that can handle all issues and be accountable for an entire project. There are a limited number of companies
besides us that are capable of providing this entire integrated solution. Providing such a solution requires years of experience,
infrastructure for performing all six core functions that we provide, access to technologies and a significant commitment to maintaining
a satisfied customer.
A company that is implementing
a new security system or enhancing an old system usually has to go through the following steps:
|
·
|
Retain a consultant to appropriately outline its needs and design a system that satisfies those needs;
|
|
·
|
Once the design is complete, a tender is released whereby a number of invited system integrators bid on the required system;
|
|
·
|
System integrators work with various suppliers of hardware and software to meet the system requirements. They also engage these
suppliers to complete subcomponents of the system;
|
|
·
|
When security systems have to be installed in multiple locations, the company may have to tender the system requirements to
different system integrators from various regions; and
|
|
·
|
The customer, based on price and qualifications of the system integrator, will award the project to one or more system integrators.
|
The process described
above can cause a number of issues for clients including client frustrations with project delays, cost inefficiencies, incompatible
systems and lack of vendor accountability. It also makes it very difficult for the customer to make changes to the system. In addition,
a customer looking to implement security systems in multiple locations may have to hire multiple integrators and suppliers to integrate
systems. This usually results in systems that are not consistent with each other. These systems may also not communicate efficiently
with a central system. In addition, as security systems become more technologically advanced, an experienced engineering team is
required to understand the needs of the customer and satisfy those needs by incorporating the most efficient technologies available
into the security system. This may also include some development of hardware and software to customize and integrate the system.
Most system integrators are not capable of development, as they do not have a research and development department. Also, the manufacturers
of different subsystems are usually not willing to provide custom solutions on a project basis. Customers are realizing the sophistication
required in order to provide a good security system and recognizing that their in-house personnel lack the skills and time necessary
to coordinate their security projects.
Our Strategy
We have identified four
key markets to target with our solution described below. These are 1) government 2) education 3) healthcare and 4) retail. We offer
a one-stop-shop that provides a fully integrated technology based security system to meet the needs of the customer. We work to
understand the needs of the customer and provide a custom solution to meet their needs. We expedite project completion, reduce
costs to the customer, reduce manpower requirements of the customer and improve systems consistency in multiple locations.
We provide the following services:
|
·
|
Consulting, audit, review and planning;
|
|
·
|
Engineering and design;
|
|
·
|
Customization, software development and interfacing;
|
|
·
|
System integration, installation and project management;
|
|
·
|
System training, technical support and maintenance; and
|
|
·
|
Ongoing maintenance, preventative maintenance and service and upgrades.
|
We believe that the following key attributes provide us with
a sustainable competitive advantage including:
|
·
|
Experience and expertise in the security industry;
|
|
·
|
In-house research and development departments;
|
|
·
|
Dedicated service team;
|
|
·
|
Access to and experience in a variety of product mix;
|
|
·
|
Customized software and hardware products;
|
|
·
|
Strong partnerships with suppliers and integrators.
|
Our strategy for growth and expansion is
to:
|
·
|
Expand our network of technology partners;
|
|
·
|
Develop and maintain long-term relationships with clients;
|
|
·
|
Open regional offices in key areas to expand revenue and service;
|
|
·
|
Capitalize on our position as a leading provider of technologically advanced security systems; and
|
|
·
|
Expand our marketing and sales program within our key vertical markets.
|
At the beginning of each
new client relationship, we designate an account manager as the client service contact. This individual is the point person for
communications between the client and us. The account manager usually has a number of years of experience in the industry and a
good understanding of technologies and solutions that we provide. This person is also a trained salesperson who is able to build
a long-term relationship with the customer. The account manager works with our project department, engineering department, marketing
department, finance department and research and development department to provide an effective solution for the customer. Once
the customer has engaged us to provide a solution, the engagement usually goes through one or more of the stages outlined below:
Consulting, audit, review and planning
We identify the client’s
objectives and security system requirements. We then audit and review the client’s existing system. This audit of the existing
system evaluates inventory counts and the existing infrastructure. Then we provide an audit report to outline current deficiencies
and vulnerabilities. At this point, we design a system alternative to meet the needs of the customer. The alternative system is
prioritized based on the needs of the customer. We also include an efficient cost model to ensure that the customer understands
the cost of the system. We provide a Return On Investment (ROI) model where applicable. We also provide a preliminary project implementation
plan that contains a graphical model of the client’s premises with exact outlines of equipment locations. Our comprehensive
planning process helps the customer to properly budget for its needs on a long-term basis.
Engineering and design
The engineering and design
process involves preparation of detailed project specifications and working drawings by a team of our design engineers. These drawings
lay out the entire property and provide a detailed map of all security equipment and the methodologies used to integrate the system.
The specification and drawings also outline any needs for custom software or hardware design services, systems designers and computer-aided
design system operators. These specifications and drawings detail areas of high sensitivity, the layout of the main control room,
and the placement of cameras, card readers, monitors, switches and other equipment.
Once our system design
has been completed, we provide a complete list of components and recommendations. We highly recommend off-the-shelf non-proprietary
components in order to ensure that the customer is not tied into one supplier. When off-the-shelf components are not available
or are not compatible with each other, we design software or hardware to provide compatibility.
Customization, software development, interface
In many cases, the customer’s
needs may not be completely satisfied by the equipment available in the market place. The customer may request features or equipment
that are not readily available. For example, a financial institution may request us to take information from their transaction
records and an Automatic Teller Machine (ATM), and then integrate that information with a Digital Video Recorder (DVR). This would
allow them to review video of an individual who has processed a transaction on an ATM. Normally a financial institution requiring
this information would have to go through tapes of data in order to find it. Such a bank would have to search all the transactions
that occurred during a period of time and then, based on that information, go over tapes of video. Sometimes the video may not
be available if the tapes are only held for a short period of time. Our firm’s integrated system makes this search process
instantaneous. Our system allows a bank to search by a number of criteria including time, date, transaction, number and withdrawal
amount. A bank can also have video associated with such a search instantly.
Many times we provide
an interface to bring multiple technologies together. In one project, we integrated eleven different products into one system,
thus allowing for a completely integrated system. This integrated system also has a very user-friendly interface that avoids having
to deal with multiple monitors and Graphical User Interfaces (GUI).
System integration, installation, project management:
Once we determine that
a project has passed through the consulting/audit, design/engineering and customization/software interfacing stage (if required)
we can start the implementation of the system. During this stage, we provide the following:
|
·
|
Detailed schedule of integration
|
|
·
|
List of components and labor assignments
|
|
·
|
Officially assign the project to one of our project managers
|
|
·
|
Production department starts procurement schedules
|
|
·
|
Construction draw date schedules
|
|
·
|
Progress billings and schedule site visits for quality control
|
|
·
|
Tests of final terminations and technology components in-house in order to avoid product failure on site
|
|
·
|
Hardware/software and network integration
|
|
·
|
Final sign off and pass over to service department
|
During this stage, the
project manager manages the project and the projects are updated weekly to ensure that all components are working efficiently.
During certain projects, the project manager may opt to use subcontractors to provide services that are not highly advanced technically.
These services may include standard wiring and cabling. The customer is updated on the status of the project weekly. These updates
may include Gantt charts. During this stage, many customers see the need for additional enhanced equipment, which increases the
value of the contract to us.
System training, technical support, maintenance
When a project has been
completed through system integration, the customer is provided with a complete training program. We train the customer on how to
use the system and also provide them with manuals from manufacturers as well as training guides put together by us. Once the training
is complete, the system will go on line and there is a transfer process to the service department from the projects department.
Ongoing technical support and maintenance are provided by our dedicated service team.
Ongoing maintenance, preventative maintenance and service,
upgrades:
This is the final stage
of our process and it is an ongoing stage. We provide various types of maintenance contracts, which vary depending on the level
of response required by the customer. We also provide a service plan suitable to the customer. If the customer does not require
a service contract, we provide them with service on an incident by incident basis.
The entire six steps
process continues for each customer. Once a project is complete, there are upgrades that are required. Depending on the value of
the upgrades, they may initiate a new project. During every stage, an account manager is updated on the process. Account managers
have regular meetings with the customers after projects are complete in order to help set budgets for the following years and also
educate customers on new products and technologies that may be available in the market.
Research and Development
We have our own in-house
research and development programs which are supported by the National Research Council of Canada. We may receive grants and tax
credits for projects and product development if they qualify for the program. Our product development department develops new products
and also enhances existing products. We have the capability to build various forms of hardware and software modules. Once a product
is designed, the underlying technologies are used on an ongoing basis to enhance future projects and develop new products. This
is one of the differentiating factors between our competitors and us. Our research and development expenses were approximately
$670,000 in fiscal year 2011 and $860,000 in fiscal year 2010. Expenses include engineering salaries, costs of development tools
and equipment. None of the expenses were borne directly by customers.
Warranties and Maintenance
We offer maintenance
and service on all our products, including parts and labor, which range from one year to six years depending upon the type of product
concerned and the type of contract signed by the customers. In addition, we provide a one-year warranty on equipment and 90 day
warranty on all installation projects completed by us. We receive the same warranty on equipment from our other external suppliers.
On non-warranty items,
we perform repair services for our products sold at our main office in Ontario, Canada or at customer locations. For the years
ended December 31, 2011 and December 31, 2010, our revenue from such service and maintenance activities was $1,393,800 and $1,409,400
respectively, and is included in service revenue in the accompanying consolidated statements of operations and comprehensive (loss).
Marketing
Our marketing activities
are conducted on both national and regional levels. We obtain engagements through direct negotiation with clients, competitive
bid processes, referrals and direct sales calls. Our marketing plan is developed with input from all our account managers and senior
management. Our plan is to grow vertically within targeted markets where we have a superior level of expertise. Our marketing is
very target specific. We market within our four key markets. We also find niche markets where our technologies can provide effective
solutions to the customer. Some of our marketing activities include:
|
·
|
Collaborations with manufacturers
|
|
·
|
Collaborations with consultants and architects
|
We also collaborate with
providers of complementary technologies and products who are not competitive with us. For example, there is a convergence of IT
services and the security industry. We are evaluating the possibility of partnering with an IT services provider in order to provide
our existing and potential customers with an expanded scope of services. We are also doing the same within the building automation
industry as we see a convergence of building automation technologies and services with the security industry.
We are evaluating several
opportunities to expand our operations via joint ventures and partnerships with regional and international companies that can provide
us with additional expertise and an expanded presence. In addition, we are evaluating the possibility of acquiring similar businesses
and expanding our operations.
Customers
We provide our products and services to
customers in four markets:
We also provide our products
and services to various other sectors including corporate facilities, mining, entertainment and the automobile industry through
direct sales to end-users and through subcontracting agreements.
Backlog
Our backlog consists
of written purchase orders and contracts that we have received for product deliveries and engineering services that we expect to
deliver or complete within 12 months. All of these orders and contracts are subject to cancellation at any time. As of December 31,
2011, our backlog was approximately $1,500,000.
Competition
The security industry
is highly fragmented and competitive. We compete with a number of different companies regionally and nationally. We have various
different types of competitors including consultants, integrators, and engineering and design firms. Our main competitors include
Siemens, ADT, Simplex, Intercon and Diebold. Our competitors also include equipment manufacturers and vendors that provide security
services. Some of our competitors have greater name recognition and financial resources than we do. However, we believe that we
have a well-respected name and are known for our quality work and technical expertise. We may face future competition from potential
new entrants into the security industry and increased competition from existing competitors that may attempt to develop the ability
to offer the full range of services offered by us. We cannot assure that we will be able to compete successfully in the future
against existing or potential competitors.
Employees
As of December 31, 2011,
we have
47 full time employees in our office.
The design and implementation
of our equipment and the installation of our systems require substantial technical capabilities in many different disciplines from
computer science to electronics with advanced hardware and software development. As a company, we encourage and provide training
for new and existing technical personnel. In addition, we conduct training courses and also send our technical persons to various
technical courses offered by manufacturers of various products. We have various incentive programs for our employees to improve
their skills within all departments. These include reimbursements for training fees and salary increases based on skill sets.
Described below are the material risks
that we face. Our business, operating results or financial condition could be materially adversely affected by, and the trading
price of our common stock could decline due to, any of these risks.
Competitive pressure from larger firms
The security industry
is highly competitive. We compete with a number of large international firms, which have more extensive resources than we do. In
addition, these competitors may have greater brand recognition, proprietary technologies and superior purchasing power as well
as other competitive advantages.
Risks associated with budget constraints and cut back
of customer spending:
We are dependent on large
institutional and commercial customers and their budgets. If there are cut backs in budgets by our customers, it will adversely
impact our revenues.
Risks associated with possible delays in construction
schedules
We have contracted to
provide security systems to a number of new buildings. Delays in construction of these buildings could potentially delay revenues
being realized.
Supplier product failures
We do not currently manufacture
our own products and must purchase products from others. It could adversely impact our relationships with our customers if there
are delays in receiving products from suppliers or if there are defects in these products.
Contracts with government agencies may not be renewed
or funded
Contracts with government
agencies 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. Our experience has been that some of these substantial customers
will be a source of significant sales in the succeeding year and some will not. Consequently, we are often required to replace
one customer with one or more other customers in order to generate the same amount of sales. There can be no assurance that we
will continue to be able to do so.
Key personnel losses
Competition for highly
qualified technical personnel is intense and we may not be successful in attracting and retaining the necessary personnel, which
would limit the rate at which we can develop products and generate sales. In particular, the departure of any of our senior management
members or other key personnel could harm our business.
Intellectual property protection risks
Our intellectual property
might not be protected. No new intellectual property has been acquired within the last three years. Despite our precautions, it
may be possible for unauthorized third parties to copy our products or obtain and use information that we regard as proprietary
to create products that compete against ours. If we fail to protect and preserve our intellectual property, we may lose an important
competitive advantage. In addition, we may from time to time be served with claims from third parties asserting that our products
or technologies infringe their intellectual property rights. If, as a result of any claims, we were precluded from using technologies
or intellectual property rights, licenses to the disputed third-party technology or intellectual property rights might not be available
on reasonable commercial terms, or at all. We may initiate claims or litigation against third parties for infringement of our proprietary
rights or to establish the validity of our proprietary rights. Litigation, either as plaintiff or defendant, could result in significant
expenses or divert the efforts of our technical and management personnel from productive tasks, whether or not the litigation is
resolved in our favor. A successful claim against us, coupled with our failure to develop or license a substitute technology, could
cause our business, financial condition and results of operations to be adversely affected.
We may not be able to increase our bonding
Many of our government
contracts require that we obtain bonding. We may not be able to increase our bonding and, therefore, we may not be able to pursue
larger projects as a primary contractor.
Fluctuation in quarterly results
Our quarterly results
have varied over the past few years and will likely continue to do so. The results will vary based on the timing of the projects,
construction schedules and customer budgets. Such fluctuations may contribute to volatility in the market price for our stock.
Lengthy sales cycle
The sale of our products
and services frequently involves a significant commitment of resources to evaluate and propose a project. The approval process
for our proposals usually involves multiple departments within our clients and may take several months. Accordingly, depending
on the length of recording and processing time, a sale can take a prolonged period of time.
We may not be able to successfully make acquisitions
or form partnerships as a means of fostering our growth
Our growth strategy involves
successfully acquiring companies that will add value to our firm and also building partnerships with companies who can complement
our core competencies. We may not be successful in identifying or consummating transactions with such companies.
Continued need for additional financing
To implement our growth
plan, we may need additional financing. We will need additional financing upon, but not limited to, any of the following events:
|
·
|
Changes in operating plans
|
|
·
|
Lower than anticipated sales
|
|
·
|
Increased costs of expansion
|
|
·
|
Increase in competition relating to decrease in price
|
|
·
|
Increased operating costs
|
Additional financing may not be available
on commercially reasonable terms or may not be available at all.
Because our directors own approximately 76% of our outstanding
common shares, they could make and control corporate decisions that may be disadvantageous to minority shareholders
Our directors own approximately
76% of the outstanding common shares. Accordingly, they will have a significant influence in determining the outcome of all corporate
transactions or other matters, including mergers, consolidations and the sale of all or substantially all of our assets, and also
the power to prevent or cause a change in control. The interests of our directors may differ from the interests of the other shareholders
and thus result in corporate decisions that are disadvantageous to other shareholders.
Exchange rate fluctuations may have adverse effects on
our revenues
A significant portion
of our revenues and expenses are denominated in Canadian dollars. As a result, we will be exposed to currency exchange rate risk.
Our reported earnings could fluctuate materially as a result of foreign exchange rate fluctuations.
Our substantial debt could adversely affect our financial
position
Our substantial indebtedness could have
important consequences. Our annual debt service requirements related to payments of principal on the net balance of our term note
is $1,548,207 in 2012. In addition, interest on the note is payable on a monthly basis. We also have a series of other notes payable
totaling $1,500,000 as of December 31, 2011, which were issued by Creative Vistas Acquisition to The Burns Trust and The Navaratnam
Trust in connection with the acquisition of AC Technical, and which have no fixed term of repayment. The note payable was transferred
to Malar Trust during Fiscal Year 2006 with the same payment term. Interest on the term note is settled in cash. We do not currently have the ability to repay the note in the event of a demand by
the holder; accordingly, in the event we are unable to generate sufficient cash flow from our operations, we may face difficulties
in servicing our substantial debt load. In such event, we could be forced to seek protection from our creditors, which could cause
the liquidation of the Company in order to repay the secured debt. In any liquidation of us, the holders of our debt (including
The Malar Trust) and, in all likelihood, our unsecured creditors would be required to be paid in full before any payments could
be made to the holders of our common stock. In addition, our outstanding indebtedness could limit our ability to obtain any additional
financing.
There is no active trading market in our securities
Effective February 23,
2011, our common stock became ineligible for quotation on the OTC Bulletin Board due to quoting inactivity pursuant to Rule 15c2-11
under the Securities Exchange Act of 1934, as amended. The Company’s common stock has been moved to OTC Link, which is operated
by OTC Markets Group Inc. (formerly known as Pink OTC Markets Inc. or “Pink Sheets”). OTC Link is an electronic quotation
system that displays quotes from broker-dealers for many over-the-counter securities. Although, our common stock is quoted on OTC
Link, there is no active trading in the stock. A trading market may not develop and stockholders may not be able to liquidate their
investment without considerable delay. If a market should develop, the price of our stock may be highly volatile.
Penny Stock regulations apply to our securities:
Our securities are subject
to the “penny” stock regulation of Rule 15g-9 of the Securities Exchange Act of 1934. Rule 15g-9 of the Exchange Act
is commonly referred to as the “penny stock” rule and imposes special sales practice requirements upon broker-dealers
who sell such securities to persons other than established customers or accredited investors. A penny stock is any equity security
with a market price less than $5.00 per share, subject to certain exceptions. Rule 3a51-1 of the Exchange Act provides that any
equity security is considered a penny stock unless that security is: registered and traded on a national securities exchange and
meets specified criteria set forth by the SEC; authorized for quotation in the National Association of Securities Dealers’
Automated Quotation System; issued by a registered investment company; issued with a price of five dollars or more; or issued by
an issuer with net tangible assets in excess of $2,000,000. This rule may affect the ability of broker-dealers to sell our securities.
For transactions covered
by Rule 15g-9, a broker-dealer must furnish to all investors in penny stocks a risk disclosure document, make a special suitability
determination of the purchaser, and receive the purchaser’s written agreement to the transaction prior to the sale. In order
to approve a person’s account for transactions in penny stocks, the broker-dealer must (i) obtain information concerning
the person’s financial situation, investment experience, and investment objectives; (ii) reasonably determine, based on that
information, that transactions in penny stocks are suitable for the person and that the person has sufficient knowledge and experience
in financial matters to reasonably be expected to evaluate the transactions in penny stocks; and (iii) deliver to the person a
written statement setting forth the basis on which the broker-dealer made the determination of suitability stating that it is unlawful
to effect a transaction in a designated security subject to the provisions of Rule 15g-9(a)(2) unless the broker-dealer has received
a written agreement from the person prior to the transaction. Such written statement from the broker-dealer must also set forth,
in highlighted format immediately preceding the customer signature line, that the broker-dealer is required to provide the person
with the written statement and the person should sign and return the written statement to the broker-dealer only if it accurately
reflects the person’s financial situation, investment experience and investment objectives.
Losing our status as a Canadian Controlled Private
Corporation
could adversely affect our financial position
:
A Canadian Controlled
Private Corporation (“CCPC”) is a corporation that is not controlled by a non-Canadian entity. If, in the future, more
than 50% of the voting shares of AC Technical are owned by a non-Canadian entity, we would lose our status as a CCPC. Unless a
company is a CCPC, it is not eligible for certain Canadian research and development tax credits. As a non-CCPC, the maximum Canadian
research and development tax credits are 20% (for both Federal and Provincial Canadian taxes) of total eligible research and development
expenditures. AC Technical is presently entitled to claim the maximum credits available to CCPCs of 41.5% (for both Federal and
Provincial Canadian taxes) of the total eligible expenditures. During Fiscal Year 2011, this extra 21.5% totaled approximately
$200,000.
Available Information
We file annual, quarterly
and current reports, proxy statements and other information with the U.S. Securities and Exchange Commission ("SEC").
Copies of this Annual Report on Form 10-K and each of our other periodic and current reports, and amendments to all such reports,
that we file or furnish pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available free of charge
on our website (http://www.creativevistasinc.com/) as soon as reasonably practicable after the material is electronically filed
with, or furnished to, the SEC. The information contained on our website is not incorporated by reference into this Annual Report
on Form 10-K and should not be considered part of this Annual Report on Form 10-K.
In addition, you may
read and copy any document we file with the SEC at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549.
Please call the SEC at 1-800-SEC-0330 for further information on the operation of the Public Reference Room. Our SEC filings are
also available to the public at the SEC's web site at http://www.sec.gov, which contains reports, proxy and information statements,
and other information regarding issuers that file electronically with the SEC.
|
ITEM 1B.
|
UNRESOLVED
STAFF COMMENTS
|
Not
applicable – None.
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. We believe that the office is adequate for our
present purposes and planned expansion. Furthermore, we believe this office is in good condition and adequately covered by insurance.
|
ITEM 3.
|
LEGAL
PROCEEDINGS
|
None.
|
ITEM 4.
|
MINE SAFETY DISCLOSURES
|
Not applicable
PART
II
ITEM
5.
MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our
common stock is quoted at the present time on the Pink Sheets website (www.pinksheets.com) under the symbol
“CVAS” (prior to February 23, 2011, our common stock was quoted on the OTC Bulletin Board). The security is
subject to Section 15(g) and Rule 15g-9 of the Securities Exchange Act of 1934, commonly referred to as the penny stock rule.
See “Risk Factors—Penny Stock regulations apply to our securities.” The following table shows the range of
bid prices per share of common stock on the OTC Bulletin Board or OTC Link, as appropriate, for the periods indicated. These
quotations represent prices between dealers, do not include retail mark-ups, mark-downs or commissions, and do not
necessarily represent actual transactions.
Quarter ended:
|
|
Low Bid Price
|
|
|
High Bid Price
|
|
March 31, 2010
|
|
$
|
0.07
|
|
|
$
|
0.11
|
|
June 30, 2010
|
|
$
|
0.07
|
|
|
$
|
0.09
|
|
September 30, 2010
|
|
$
|
0.07
|
|
|
$
|
0.01
|
|
December 31, 2010
|
|
$
|
0.01
|
|
|
$
|
0.05
|
|
March 31, 2011
|
|
$
|
0.03
|
|
|
$
|
0.04
|
|
June 30, 2011
|
|
$
|
0.02
|
|
|
$
|
0.04
|
|
September 30, 2011
|
|
$
|
0.02
|
|
|
$
|
0.08
|
|
December 31, 2011
|
|
$
|
0.01
|
|
|
$
|
0.10
|
|
Our securities may not
qualify for listing on NASDAQ or any other national exchange. Even if our securities do qualify for listing, we may not be able
to maintain the criteria necessary to ensure continued listing. Our failure to qualify our securities or to meet the relevant maintenance
criteria after such qualification may result in the discontinuance of the inclusion of our securities on a national exchange. In
such event, trading, if any, in our securities may then continue in the non-NASDAQ, over-the-counter market so long as we continue
to file periodic reports with the SEC and there remain sufficient qualified market makers in our securities. As a result, a stockholder
may find it more difficult to dispose of, or to obtain accurate quotations as to the market value of, our securities.
As of March 14, 2012
there were 264 holders of our Common Stock. We have 37,488,714 outstanding shares of Common Stock.
For information regarding
securities authorized for issuance under equity compensation plans (pursuant to Item 201(d) of Regulation S-K), please see the
information provided under Item 12 of this Form 10-K, Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
ITEM 6.
SELECTED FINANCIAL DATA
Not required.
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion
of the financial condition and results of operations should be read in conjunction with the consolidated financial statements and
related notes thereto. The following discussion contains certain forward-looking statements that involve risks and uncertainties.
Our actual results could differ materially from those discussed herein. Factors that could cause or contribute to such differences
include, but are not limited to, risks and uncertainties related to the need for additional funds, the rapid growth of the operations
and our ability to operate profitably a number of new projects. Except as required by law, we do not intend to publicly release
the results of any revisions to those forward-looking statements that may be made to reflect any future events or circumstances.
Overview and Recent Developments
Creative Vistas, Inc. (“Creative
Vistas”, the “Company”, “we”, “us”, or “our”) is a leading provider of security-related
technologies and systems. We primarily operate through our subsidiary AC Technical Systems Ltd. (“AC Technical Systems”)
to provide integrated electronic security-related technologies and systems. AC Technical Systems is responsible for all of our
revenues in the security sector for 2011. It provides its systems to various high profile clients including: government, school
boards, retail outlets, banks, and hospitals.
On September 16,
2011, the Company entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) with Cancable Holding
Corp. (“Cancable Holding”) and with Cancable and Dependable Hometech, LLC (“Purchaser”), pursuant to
which we sold our equity interest in Cancable Holding to Purchaser for a consideration of US$1.00 on such date. In
connection with such sale, we assigned certain of our liabilities and obligations to Cancable Holding, including (i) a
secured term note of the Company dated February 13, 2006, for an original principal amount of US$8.25 million, which is
currently held by Valens U.S. SPV I, LLC (“VUS”), Valens Offshore SPV I, Ltd. and PSource Structured Debt Limited
(“PSource”), (ii) a secured term note of the Company dated June 24, 2008, for an original principal
amount of US$800,000, which is currently held by VUS, and (iii) a secured term note of the Company dated June 24, 2008, for
an original principal amount of US$1,700,000. which is currently held by Valens Offshore SPV II, Corp. (such holders of the
term notes listed in clauses (i) to (iii), collectively, the “Holders”, and such term notes, collectively, the
“Notes”). The aggregate outstanding amount owed under the Notes (including accrued and unpaid
interest) was approximately US$9,800,000 as of September 16, 2011. The Holders also (a) terminated and cancelled
all guarantees, security interest and other obligations of the Company and certain of its subsidiaries related
to approximately US$1,500,000 of indebtedness owed to the Holders by certain other subsidiaries of the Company, (b) cancelled
their warrants and options to purchase approximately 15,600,000 shares of common stock of the Company, as well as the stock
of certain of the Company’s subsidiaries, and (c) terminated and cancelled all guarantees, security interest and other
obligations of the Company and certain of its subsidiaries related to approximately US$5,100,000 of indebtedness owed to the
Holders by Cancable Inc. and its subsidiaries. In addition, in connection with the sale of Cancable Holding to
Purchaser, we assigned our rights in certain receivables owed to us by certain wholly-owned subsidiaries of Cancable Holding,
totaling approximately US$4,800,000 as of September 16, 2011. The Holders are affiliates of Laurus Master Fund, Ltd.
(“Laurus”).
Today, we mainly focus
on security and surveillance products and services. Through our technology integration team of engineers we integrate various security
related products to provide a single source solution to our growing customer base. Our design, engineering and integration facilities
are located in Ontario, Canada.
Results of Operations
Comparison of Year Ended December
31, 2011
with Year Ended December 31, 2010
Discontinued Operations
During 2011, we discontinued certain
operations. In accordance with FASB ASC 360, our consolidated financial information presents the net effect of discontinued
operations separate from the results of our continuing operations. During the year ended December 31, 2011, we recognized a
gain from discontinued operations of approximately $12,624,500.
Revenue
:
Sales remained relatively the same at $7,234,600 for the year ended December 31, 2011, compared with $7,151,200 in 2010, an increase
of 1.2%. All revenue generated from AC Technical Systems was in Canadian dollars. Contract revenue was $5,838,600 for
fiscal year 2011 compared with $5,683,900 for fiscal year 2010. Service revenue was $1,396,000 for the year ended December 31,
2011, compared with $1,467,000 in 2010.
Direct expenses (excluding
depreciation)
: Direct expenses were $3,743,700 or 51.7% of revenues for the year ended December 31, 2011, compared with $3,929,700
or 55.0% of revenues for the same period in 2010. The material cost was $2,365,500 or 32.7% of the revenues for the year ended
December 31, 2011 compared with $2,300,500 or 32.2% of revenues in the same period of fiscal 2010.
Labor
and subcontractor cost increased to $1,313,700 or 18.2% of revenues for fiscal year 2011 compared with $1,484,500 or 20.8% of revenues
for fiscal 2010.
The decrease in direct expenses was mainly due to less labor and material required in connection with our
increased contract revenue.
Project expenses
:
Project expenses were $1,078,900 or 14.9% of revenue for the year ended December 31, 2011, compared with $983,300 or 13.8% for
the same period in 2010. These expenses include the salaries and benefits of indirect staff amounting to $652,100 in fiscal year
2011 compared with $620,800 for fiscal year 2010. The increase was mostly due to the increase in the number of indirect staff.
Automobile and travel expenses increased to $316,100 for fiscal year 2011 compared with $263,000 for fiscal year 2010 due to more
travel by our staff this year.
Selling
expenses
: Selling expenses were $903,500 or 12.5% of revenues for the year ended December 31, 2011 compared with $911,500 or
12.7% of revenues for the same period in 2010. Salaries and commissions to salespersons for fiscal year 2011 were $395,200 compared
with $396,300 for fiscal year 2010.
Advertising and promotion and trade show expenses were
$145,600 in fiscal year 2011 compared with $159,200 for fiscal year 2010.
General and administrative
expenses
: General and administrative expenses were $1,923,900 or 26.6% of revenues for the year ended December 31, 2011 compared
with $1,975,500 or 27.6% for the same period in 2010. Professional fees were $467,000 of professional
fees related to preparation of the quarterly reports and other corporate matters compared with $260,900 for the same period in
2010. The increase was mainly due to the increase in legal costs for corporate matters and the sale of Cancable. In addition, investor
relations expenses amounted to $50,000 for fiscal year 2010 but there was no such expense in fiscal year 2011. Total consulting
fees and salaries and benefits to administrative staff and executives were $711,000 for fiscal year 2011 compared with $686,800
for fiscal year 2010. Total expenses for research and development were $187,400 for fiscal year 2011 compared with $79,500 for
fiscal year 2010. The increase in expenses was mainly due to the Company receiving a higher government credit for the year ended
December 31, 2010 than the government credit received in 2011.
Depreciation
:
Total depreciation of property plant and equipment was $63,600 for the year ended December 31, 2011 compared with $82,500 for the
same period in 2010.
Amortization of intangible
assets
: Amortization of customer relationships and trade name was $200,000 in 2010. There was no such expense for the year
ended December 31, 2011 because the intangible assets were fully amortized in the prior year.
Interest and other
expenses
: Interest and net other expenses for the year ended December 31, 2011 were $528,500 or 7.3% of revenues compared with
net expenses of $749,400 or 10.5% of revenues for the same period in 2010. The balance for the current period is comprised
of the amortization of deferred charges amounting to $2,200 compared with $26,000 for fiscal year 2010. Additionally, net financing
expenses decreased to $473,900 or 6.6% of revenues in 2011 compared with $784,200 or 10.9% of revenues for fiscal year 2010. Interest
expense with respect to the Company’s credit facility was $405,500 for the year ended December 31, 2011 compared with $636,300
for the same period in 2010. The decrease in expense was mainly due to the decrease of term loans in the amount of $7,287,500 after
the sale of Cancable in September 2011. Additionally, the foreign currency transaction loss was $52,400 in 2011, compared with
foreign currency transaction gains of $60,800 for fiscal year 2010. The change was related to the foreign currency translation
of term notes which resulted because the Canadian dollar was trading lower than the U.S. dollar as at December 31, 2011 as compared
with 2010.
Income taxes
:
No income taxes were paid and/or owed during the year ended December 31, 2011 and 2010, which was mainly due to the Company’s
previous losses carried forward to offset all income generated by the Company. Because of this and because we have fully reserved
substantially all our deferred income tax assets, there was no provision and/or benefit for income taxes.
Loss from operations
:
Loss from operations for the year ended December 31, 2011 was $478,900 compared with $931,300 the same period in 2010.
The decrease in loss from operations was attributable to the decrease in general and administrative expenses and amortization
of intangible assets for the year ended ended December 31, 2011.
Net loss from continuing operations
:
Net loss from continuing operations for the year ended December 31, 2011 was $1,007,400 compared with $1,680,700 the same period
in 2010. Net loss from continuing operations for the year ended December 31, 2011 was lower, due primarily to the decrease in financing
expenses and other reasons described above.
Net income/loss
:
Net income for the year ended December 31, 2011 was $11,617,100 compared with a net loss of $618,800 for the same period in 2010.
The net income for the year ended December 31, 2011 includes income from discontinued operations of $451,500 and a gain on disposal
of discontinued operations of $12,173,000. The Company’s operating loss was $478,900 for the year ended December 31, 2011
compared with an operating loss of $931,300 for the year ended December 31, 2010. The year-over-year decrease in operating loss
primarily reflects the decrease in amortization of intangible assets and direct expenses.
Liquidity and Capital Resources
Since
our inception, we have financed our operations through bank debt, loans and equity from our principals, loans from third parties
and funds generated by our business. At December 31, 2011, we had $906,982 in cash. We believe that cash from operations and our
credit facilities with Laurus will continue to be adequate to satisfy our ongoing working capital needs
as
we do not expect Laurus to demand acceleration of the loan extended to the Company
.
We do
not currently have the ability to repay the note in the event of a demand by the holder. During fiscal year 2012, our primary
objectives in managing liquidity and cash flows will be to ensure financial flexibility to support growth and entry into new markets
and improve inventory management and to accelerate the collection of accounts receivable.
In addition, we have
introduced cost cutting initiatives within the Administration, Project and Selling departments to improve efficiency and also to
improve cash flow. We have also increased our rates for services provided by AC Technical to improve gross margins. This is in
line with our competitors. Finally, we expect to realize additional benefits from our research and development efforts within the
next 12 months as we start to introduce our own line of customized products to the industry. These products and technologies are
expected to improve gross margins. We plan to seek additional capital in the future to fund operations, growth and expansion including
through additional equity or debt financing or credit facilities. We have had early stage discussions with investors about potential
investment in our company at a future date; however, no assurance can be made that such financing would be available, and if available
that it would be on terms acceptable to us.
Net Cash Used in
Operating Activities
. Net cash used by operating activities amounted to $1,093,593 for fiscal year 2011. Changes in operating
assets and liabilities provided net cash of $276,900, which included a $206,700 decrease in accounts receivable, a $95,400 decrease
in inventory, a $8,900 decrease in prepaid expenses, a $478,500 decrease in accounts payable, a $60,600 decrease in income taxes
recoverable and a $48,900 decrease in deferred revenue.
Balance sheet at December 31, 2011
compared with December 31, 2010
Accounts Receivable
Our accounts receivable
decreased to $895,200 as of December 31, 2011 from $1,129,900 as of December 31, 2010. The decrease was mostly due to the timing
of payment by our customers and a decrease in revenue during the fourth quarter of fiscal 2011.
Inventory
Inventory on hand on
December 31, 2011 decreased to $375,000 compared with $477,000 as of December 31, 2010. The decrease was mainly due to the
decrease in contract revenue during the fourth quarter of fiscal 2011.
Accounts Payable and Accrued Liabilities
Accounts payable and
accrued liabilities decreased to $1,257,300 as of December 31, 2011 compared with $1,748,600 as of December 31, 2010. The decrease
was mainly due to the decrease in purchases of material in the last three months of the year and the timing of payments to our
suppliers.
Deferred Revenue
Deferred revenue decreased
to $60,800 at December 31, 2011 compared with $110,500 at December 31, 2010. This decrease was mainly due to the timing of payments
by our customers. Deferred revenue primarily relates to payments associated with the contracts where revenue is recognized on a
percentage of completion basis.
Net Cash Used by Investing
Activities
.
Net cash used
in investing activities was $527,900 for the year ended December 31, 2011, compared with $1,018,300 used in investing
activities for the twelve months ended December 31, 2010. Purchases of property and equipment were $4,600 for the twelve
months ended December 31,
2011
and $6,400 for the year ended December 31, 2010.
Additionally, proceeds from discontinued operations was $532,600 for the year ended December 31, 2011 compared with
$1,024,600 for the year ended December 31, 2010.
Net Cash Provided
by (Used in) Financing Activities
. Net cash used for financing activities was $324,600 for fiscal year 2011 compared with net
cash used by financing activities of $323,000 for fiscal year 2010. The change was primarily because we had net outflows
of approximately $223,100 for the year ended December 31, 2010 under our lines of credit compared with $257,900 for the year
ended December 31, 2011.
Recent Accounting Pronouncements
–
From time to time, new accounting pronouncements are issued by the FASB that are adopted by
the Company as of the specified effective date. Unless otherwise discussed, management believes that the impact of recently issued
standards, which are not yet effective, will not have a material impact on the company’s consolidated financial statements
upon adoption. Those that became effective during 2011 and 2010 did not have an effect.
Off Balance Sheet Arrangements
None
DISCUSSION
OF CRITICAL ACCOUNTING ESTIMATES
Critical accounting estimates
are those that management deems to be most important to the portrayal of our financial condition and results of operations, and
that require management’s most difficult, subjective or complex judgments, due to the need to make estimates about the effects
of matters that are inherently uncertain. We have identified our critical accounting estimates which are discussed below.
Accounts receivable allowances
are determined using a combination of historical experience, current information and management judgment. Actual collections may
differ from our estimates.
We derive revenues from
contract revenue and services revenue, which include assistance in implementation, integration, customization, maintenance, training
and consulting. We recognize revenue for contracts and services in accordance with Statement of Position (SOP) 81-1, “Accounting
for Certain Construction Type and Certain Production Type Contracts,” and SEC Staff Accounting Bulletin (SAB) 104, “Revenue
Recognition,” and EITF Issue 00-21 Accounting for Revenue Arrangements with Multiple Deliverables. Contract revenue consists
of fees generated from installation of security systems. Services revenue consists of fees generated by providing monitoring services,
preventive maintenance and technical support, product maintenance and upgrades. Monitoring services and preventive maintenance
and technical support are generally provided under contracts for terms varying from one to six years. A customer typically prepays
monitoring services, preventive maintenance and technical support fees for an initial period. The related revenue is deferred and
generally recognized over the term of such initial period. Rates for product maintenance and upgrades are generally provided under
time and material contracts. Revenue for these services is recognized in the period in which the services are provided.
We record inventory at
the lower of cost and net realizable value. Cost is determined on a first-in, first-out basis. We record a reserve for obsolescence,
and excess inventories based on assumptions about future demand and market conditions. The business environment in which we operate
is subject to customer demand. If actual market conditions are less favorable than those estimated, additional material inventory
write-downs may be required. A 10% increase in inventory reserve would increase expenses by $0.1 million.
For issuance of equity
instruments for services, we record all stock-based compensation as an expense in the financial statements, measured at the grant
date fair value of the award. We record the grant date fair value of stock-based compensation awards as an expense over the vesting
period of the related stock options. In order to determine the fair value of the stock options on the date of grant, we use the
Black-Scholes-Merton option-pricing model. Inherent in this model are assumptions related to expected stock-price volatility, option
life, risk-free interest rate and dividend yield. Although the risk-free interest rates and dividend yield are less subjective
assumptions, typically based on factual data derived from public sources, the expected stock-price volatility, forfeiture rate
and option life assumptions require a greater level of judgment which make them critical accounting estimates. We use an expected
stock-price volatility assumption that is based on historical volatilities of our common stock and we estimate the forfeiture rate
and option life based on historical data related to prior option grants.
Commitments
We have entered into
contracts for certain consulting services providing for monthly payments and are required to repay the principal of our term notes
and promissory notes due to Laurus and other parties. In addition, we have also entered into operating leases for our vehicles.
The total minimum annual payments for the next five years are as follows:
Payment due by period
|
|
|
|
Term
notes
|
|
|
Notes
payable to
related
parties
|
|
|
Commitments
related to
consulting
agreements
|
|
|
Operating
leases for
vehicles
|
|
|
Total
|
|
2012
|
|
$
|
1,548,207
|
|
|
$
|
-
|
|
|
$
|
458,300
|
|
|
$
|
15,000
|
|
|
$
|
2,021,507
|
|
2013
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
2014
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
2015
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
2016
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Thereafter
|
|
|
-
|
|
|
|
1,500,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,500,000
|
|
Total
|
|
$
|
1,548,207
|
|
|
$
|
1,500,000
|
|
|
$
|
458,300
|
|
|
$
|
15,000
|
|
|
$
|
3,521,507
|
|
The figures in the above table do not include
interest costs.
|
ITEM 7A.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
Not applicable.
|
ITEM 8.
|
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|
INDEX TO FINANCIAL
STATEMENTS
Creative Vistas, Inc.
Consolidated Financial Statements
For the years ended December 31, 2011 and 2010
Report of Independent Registered Public Accounting Firm
|
F-1
|
|
|
Balance Sheets
|
F-2
|
|
|
Statements of Operations and Other Comprehensive Income (Loss)
|
F-3
|
|
|
Statement of Stockholders’ (Deficiency)
|
F-4
|
|
|
Statements of Cash Flows
|
F-5
|
|
|
Notes to Financial Statements
|
F-6
|
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To The Stockholders and Board of Directors
Creative Vistas, Inc
.
We have audited the accompanying consolidated
balance sheets of Creative Vistas, Inc. as of December 31, 2011 and 2010, and the related consolidated statements of operations
and comprehensive income (loss), stockholders’ (deficiency) and cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that
we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material
misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing
audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant estimates by management, as well as evaluating
the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements
referred to above present fairly, in all material respects, the financial position of Creative Vistas, Inc. as of December 31,
2011 and 2010, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles
generally accepted in the United States of America.
The accompanying financial statements
have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial
statements, the Company has suffered recurring losses from continuing operations and has working capital and stockholder
deficiencies. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
Management’s plans in regard to this matter are also discussed in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ Kingery & Crouse, P.A.
Certified Public Accountants
Tampa, Florida
March 30, 2012
Creative Vistas, Inc.
|
|
|
|
|
|
|
Consolidated Balance Sheets
|
|
|
|
|
|
|
December 31
|
|
2011
|
|
|
2010
|
|
Assets
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash and bank balances
|
|
$
|
906,982
|
|
|
$
|
1,779,345
|
|
Accounts receivable, net of allowance
|
|
|
|
|
|
|
|
|
for doubtful accounts $117,392 (2010-$143,414)
|
|
|
895,193
|
|
|
|
1,129,942
|
|
Income tax recoverable
|
|
|
235,294
|
|
|
|
180,000
|
|
Inventory, net
|
|
|
374,997
|
|
|
|
476,968
|
|
Prepaid expenses
|
|
|
8,205
|
|
|
|
14,765
|
|
Current assets of discontinued operations
|
|
|
-
|
|
|
|
2,734,814
|
|
Total current assets
|
|
|
2,420,671
|
|
|
|
6,315,834
|
|
Property and equipment, net of depreciation
|
|
|
718,155
|
|
|
|
790,874
|
|
Deposits
|
|
|
19,608
|
|
|
|
22,500
|
|
Deferred financing costs, net
|
|
|
-
|
|
|
|
2,157
|
|
Deferred income taxes
|
|
|
37,203
|
|
|
|
37,430
|
|
Noncurrent assets of discontinued operations
|
|
|
-
|
|
|
|
4,102,065
|
|
|
|
$
|
3,195,637
|
|
|
$
|
11,270,860
|
|
Liabilities and Stockholders’ (Deficiency)
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Bank indebtedness
|
|
$
|
-
|
|
|
$
|
255,312
|
|
Accounts payable
|
|
|
1,056,892
|
|
|
|
1,478,673
|
|
Accrued salaries and benefits
|
|
|
86,756
|
|
|
|
56,984
|
|
Accrued commodity taxes
|
|
|
35,300
|
|
|
|
67,230
|
|
Other accrued liabilities
|
|
|
78,395
|
|
|
|
145,717
|
|
Deferred income
|
|
|
60,810
|
|
|
|
110,485
|
|
Deferred income taxes
|
|
|
25,858
|
|
|
|
25,858
|
|
Term note payable
|
|
|
1,548,207
|
|
|
|
8,902,374
|
|
Current liabilities of discontinued operations
|
|
|
-
|
|
|
|
9,273,917
|
|
Total current liabilities
|
|
|
2,892,218
|
|
|
|
20,316,550
|
|
Notes payable to related parties
|
|
|
1,500,000
|
|
|
|
1,500,000
|
|
Due to related parties
|
|
|
226,343
|
|
|
|
230,870
|
|
Noncurrent liabilities of discontinued operations
|
|
|
-
|
|
|
|
3,601,742
|
|
|
|
|
4,618,561
|
|
|
|
25,649,162
|
|
Stockholders' (Deficiency)
|
|
|
|
|
|
|
|
|
Share capital
|
|
|
|
|
|
|
|
|
Preferred stock no par value, 50,000,000 shares authorized, none issued or outstanding
|
|
|
|
|
|
|
|
|
Common stock, no par value; 100,000,000 shares authorized 37,488,714 shares issued and outstanding at
December 31, 2011 and 2010
|
|
|
6,555,754
|
|
|
|
6,555,754
|
|
Additional paid-in capital
|
|
|
14,338,226
|
|
|
|
14,314,354
|
|
Accumulated (deficit)
|
|
|
(22,021,782
|
)
|
|
|
(33,638,922
|
)
|
Accumulated other comprehensive (loss)
|
|
|
(295,122
|
)
|
|
|
(1,609,488
|
)
|
|
|
|
(1,422,924
|
)
|
|
|
(14,378,302
|
)
|
|
|
$
|
3,195,637
|
|
|
$
|
11,270,860
|
|
The accompanying notes are an integral part
of these financial statements.
Creative Vistas, Inc.
Consolidated Statements of Operations and Comprehensive Income
(Loss)
For the years ended December 31
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
Contract and service revenue
|
|
|
|
|
|
|
|
|
Contract
|
|
$
|
5,838,607
|
|
|
$
|
5,683,974
|
|
Service
|
|
|
1,396,015
|
|
|
|
1,467,179
|
|
|
|
|
7,234,622
|
|
|
|
7,151,153
|
|
Direct expenses (excluding depreciation and amortization)
|
|
|
|
|
|
|
|
|
Contract
|
|
|
3,076,825
|
|
|
|
3,433,858
|
|
Service
|
|
|
666,855
|
|
|
|
495,796
|
|
Project expenses
|
|
|
1,078,865
|
|
|
|
983,294
|
|
Selling expenses
|
|
|
903,471
|
|
|
|
911,514
|
|
General and administrative expenses
|
|
|
1,923,981
|
|
|
|
1,975,549
|
|
Depreciation expense
|
|
|
63,554
|
|
|
|
82,464
|
|
Amortization of intangible assets
|
|
|
-
|
|
|
|
200,000
|
|
|
|
|
7,713,551
|
|
|
|
8,082,475
|
|
Loss from operations
|
|
|
(478,929
|
)
|
|
|
(931,322
|
)
|
Interest and other expenses (income)
|
|
|
|
|
|
|
|
|
Net financing expenses
|
|
|
473,883
|
|
|
|
784,162
|
|
Amortization of deferred charges
|
|
|
2,179
|
|
|
|
25,978
|
|
Foreign currency transaction expenses (gains)
|
|
|
52,390
|
|
|
|
(60,773
|
)
|
|
|
|
528,452
|
|
|
|
749,367
|
|
Loss from continuing operations before income taxes
|
|
|
(1,007,381
|
)
|
|
|
(1,680,689
|
)
|
Income taxes
|
|
|
-
|
|
|
|
-
|
|
Loss from continuing operations
|
|
|
(1,007,381
|
)
|
|
|
(1,680,689
|
)
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
Income from discontinued operations, net of income taxes
|
|
|
451,498
|
|
|
|
998,882
|
|
Gain on disposal of discontinued operations, net of income taxes
|
|
|
12,173,023
|
|
|
|
-
|
|
Income and gain from discontinued operations
|
|
|
12,624,521
|
|
|
|
998,882
|
|
Net income (loss)
|
|
|
11,617,140
|
|
|
|
(681,807
|
)
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
1,314,366
|
|
|
|
(582,203
|
)
|
Comprehensive income (loss)
|
|
$
|
12,931,506
|
|
|
$
|
(1,264,010
|
)
|
Basic and diluted weighted-average shares
|
|
|
37,488,714
|
|
|
|
37,488,714
|
|
Basic and diluted income (loss) per share
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(0.03
|
)
|
|
$
|
(0.04
|
)
|
Discontinued operations
|
|
$
|
0.34
|
|
|
$
|
0.03
|
|
The accompanying notes are an integral part
of these financial statements.
Creative Vistas, Inc.
Consolidated Statement of Stockholders’
(Deficiency)
|
|
Shares
|
|
|
Amount
|
|
|
Additional
paid-in
capital
|
|
|
Accumulated
(deficit)
|
|
|
Accumulated
other
comprehensive
income (losses)
|
|
|
Total
Stockholders’
(deficiency)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
|
37,488,714
|
|
|
$
|
6,555,754
|
|
|
$
|
14,158,942
|
|
|
$
|
(32,957,115
|
)
|
|
$
|
(1,027,285
|
)
|
|
$
|
(13,269,704
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
55,770
|
|
|
|
-
|
|
|
|
-
|
|
|
|
55,770
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock option expense
|
|
|
-
|
|
|
|
-
|
|
|
|
99,642
|
|
|
|
-
|
|
|
|
-
|
|
|
|
99,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,680,689
|
)
|
|
|
-
|
|
|
|
(1,680,689
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
998,882
|
|
|
|
-
|
|
|
|
998,882
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(582,203
|
)
|
|
|
(582,203
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2010
|
|
|
37,488,714
|
|
|
|
6,555,754
|
|
|
|
14,314,354
|
|
|
|
(33,638,922
|
)
|
|
|
(1,609,488
|
)
|
|
|
(14,378,302
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock option expense
|
|
|
-
|
|
|
|
-
|
|
|
|
10,365
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants issued to financial institution for deferred principal
payment and consulting fees
|
|
|
-
|
|
|
|
-
|
|
|
|
13,507
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,007,381
|
)
|
|
|
-
|
|
|
|
(1,007,381
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12,624,521
|
|
|
|
-
|
|
|
|
12,624,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,314,366
|
|
|
|
1,314,366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2011
|
|
|
37,488,714
|
|
|
$
|
6,555,754
|
|
|
$
|
14,338,226
|
|
|
$
|
(22,021,782
|
)
|
|
$
|
(295,122
|
)
|
|
$
|
(1,422,924
|
)
|
The accompanying notes are an integral part
of these financial statements.
Creative Vistas, Inc.
Consolidated Statements of Cash Flows
For the year ended December 31,
|
|
2011
|
|
|
2010
|
|
Operating activities
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
11,617,140
|
|
|
$
|
(681,807
|
)
|
Less income and gain from discontinued operations
|
|
|
(12,624,521
|
)
|
|
|
(998,882
|
)
|
Net income (loss) from continued operations
|
|
|
(1,007,381
|
)
|
|
|
(1,680,689
|
)
|
Adjustments to reconcile net income (loss) to net cash (used in) operating activities
|
|
|
|
|
|
|
|
|
Depreciation of capital assets
|
|
|
63,554
|
|
|
|
82,464
|
|
Amortization of intangible assets
|
|
|
-
|
|
|
|
200,000
|
|
Amortization of deferred financing cost
|
|
|
2,179
|
|
|
|
25,978
|
|
Bad debt expenses
|
|
|
70,452
|
|
|
|
58,439
|
|
Foreign exchange
|
|
|
30,604
|
|
|
|
(80,333
|
)
|
Stock-based compensation and amortization of debts discount
|
|
|
13,507
|
|
|
|
99,642
|
|
Employee stock option expense
|
|
|
10,365
|
|
|
|
55,770
|
|
Changes in non-cash working capital balances:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
206,741
|
|
|
|
(204,188
|
)
|
Inventory
|
|
|
95,427
|
|
|
|
75,007
|
|
Prepaid expenses
|
|
|
8,986
|
|
|
|
(23,850
|
)
|
Accounts payable and other accrued liabilities
|
|
|
(478,473
|
)
|
|
|
134,430
|
|
Deferred revenue
|
|
|
(48,948
|
)
|
|
|
21,124
|
|
Income tax recoverable
|
|
|
(60,606
|
)
|
|
|
87,379
|
|
Net cash (used in) operating activities
|
|
|
(1,093,593
|
)
|
|
|
(1,148,827
|
)
|
Investing activities
|
|
|
|
|
|
|
|
|
Proceeds from discontinued operations
|
|
|
532,563
|
|
|
|
1,024,628
|
|
Purchase of property and equipment
|
|
|
(4,607
|
)
|
|
|
(6,375
|
)
|
Net cash provided by investing activities
|
|
|
527,956
|
|
|
|
1,018,253
|
|
Financing activities
|
|
|
|
|
|
|
|
|
Proceeds from bank indebtedness
|
|
|
(257,891
|
)
|
|
|
(223,033
|
)
|
Repayment of term loans
|
|
|
(66,667
|
)
|
|
|
(100,000
|
)
|
Net cash (used in) financing activities
|
|
|
(324,558
|
)
|
|
|
(323,033
|
)
|
Effect of foreign exchange rate changes on cash
|
|
|
17,832
|
|
|
|
(41,353
|
)
|
Net change in cash and cash equivalents
|
|
|
(872,363
|
)
|
|
|
(494,960
|
)
|
Cash and cash equivalents,
beginning of period
|
|
|
1,779,345
|
|
|
|
2,274,305
|
|
Cash and cash equivalents,
end of period
|
|
$
|
906,982
|
|
|
$
|
1,779,345
|
|
Supplemental Cash Flow Information
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
405,520
|
|
|
$
|
636,331
|
|
Cash paid for income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
Loan interest or penalties paid with warrants
|
|
$
|
13,507
|
|
|
$
|
94,591
|
|
Noncash financing activities
|
|
|
|
|
|
|
|
|
Debt assumed by buyer of Cancable
|
|
$
|
8,705,325
|
|
|
$
|
-
|
|
The accompanying notes are an integral part
of these financial statements.
Creative Vistas, Inc.
|
Notes to Consolidated Financial Statements
|
For the years ended December 31, 2011 and 2010
|
|
1.
|
Summary of Accounting Policies
|
Basis of presentation
The accompanying financial statements as
at and for the years ended December 31, 2011 and 2010, have been prepared by management in accordance with accounting principles
generally accepted in the United States of America (“U.S. GAAP”) applicable to the respective periods.
The consolidated balance sheets as at
December 31, 2011 and 2010, and statements of operations and cash flows for the years ended December 31, 2011 and 2010
include the accounts of Creative Vistas, Inc. (“CVAS”), Creative Vistas Acquisition Corp. (“AC
Acquisition”), AC Technical Systems Ltd. (“AC Technical”), Iview Holding Corp. (“Iview
Holding”), Iview Digital Solutions Inc. (“Iview DSI”), 2221559 Ontario Inc. and 2300657 Ontario Inc. and
Cancable Holding Corp. and its subsidiaries through September 16, 2011 (collectively, the “Company”, or
“we”, “us”, “our”). All material inter-company accounts, transactions and profits
have been eliminated.
Reclassifications
Certain amounts from the December 31, 2010
financial statements have been reclassified to conform to the current year’s presentation.
Discontinued Operations
On September 16, 2011, the Company entered
into a Stock Purchase Agreement (the “Stock Purchase Agreement”) with Cancable Holding Corp., a wholly-owned subsidiary
of the Company (“Cancable Holding”) and with Cancable and Dependable Hometech, LLC (“Purchaser”), pursuant
to which the Company sold its equity interest in Cancable Holding to Purchaser for a consideration of US$1.00 on such date. In
connection with such sale, the Company assigned certain of its liabilities and obligations to Cancable Holding, including (i) a
secured term note of the Company dated February 13, 2006, for an original principal amount of US$8.25 million, which is currently
held by Valens U.S. SPV I, LLC (“VUS”), Valens Offshore SPV I, Ltd. and PSource Structured Debt Limited (“PSource”),
(ii) a secured term note of the Company dated June 24, 2008, for an original principal amount of US$800,000, which is
currently held by VUS, and (iii) a secured term note of the Company dated June 24, 2008, for an original principal amount of US$1,700,000,
which is currently held by Valens Offshore SPV II, Corp. (such holders of the term notes listed in clauses (i) to (iii), collectively,
the “Holders”, and such term notes, collectively, the “Notes”). The aggregate outstanding amount
owed under the Notes (including accrued and unpaid interest) was approximately US$9,800,000 as of September 16, 2011. The
Holders also (a) terminated and cancelled all guarantees, security interest and other obligations of the Company and certain of
its subsidiaries related to approximately US$1,500,000 of indebtedness owed to the Holders by certain other subsidiaries of the
Company, (b) cancelled their warrants and options to purchase approximately 15,600,000 shares of common stock of the Company, as
well as the stock of certain of the Company’s subsidiaries, and (c) terminated and cancelled all guarantees, security interests
and other obligations of the Company and certain of its subsidiaries related to approximately US$5,100,000 of indebtedness owed
to the Holders by Cancable Holding and its subsidiaries. In addition, in connection with the sale of Cancable Holding
to Purchaser, the Company assigned its rights in certain receivables owed to the Company by certain wholly-owned subsidiaries of
Cancable Holding, totaling approximately US$4,800,000 as of September 16, 2011. The Holders are affiliates of Laurus Master Fund,
Ltd. (“Laurus”)
As a result of our sale of Cancable Holding
and its subsidiaries on September 16, 2011, information related to their operations has been reflected in the accompanying consolidated financial statements as discontinued operations, as follows:
Balance Sheets – Cancable Holding’s
consolidated assets and liabilities have been aggregated and re-classified as assets and liabilities of discontinued operations
in our December 31, 2010 balance sheet.
Statements of Operations and Comprehensive
Income (Loss) – Cancable Holding’s consolidated income from operations for all periods presented has been re-classified
to discontinued operations (see further discussion below). Discontinued operations also includes our net gain related to the sale
of Cancable Holding; and
Statements of Cash Flows – Cancable
Holding’s cash flows for all periods presented have been re-classified and removed from our cash flows from continuing operations.
The Company does not expect to have
continuing operational involvement in Cancable Holding after the sale, however, during 2011 and 2010 the Company received
approximately $530,000 and $1,000,000 from Cancable for fees that are not considered to be from operations.
The following table details Cancable Holding’s
revenues and income from operations which have been reported as discontinued operations:
|
|
January 1 to
|
|
|
January 1 to
|
|
|
|
September 16
|
|
|
December 31
|
|
|
|
2011
|
|
|
2010
|
|
Service revenue
|
|
$
|
21,702,141
|
|
|
$
|
32,715,332
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
17,611,414
|
|
|
|
25,501,588
|
|
General and administrative expenses
|
|
|
1,540,620
|
|
|
|
2,770,591
|
|
Depreciation expense
|
|
|
1,178,659
|
|
|
|
2,143,167
|
|
Amortization of intangible assets
|
|
|
23,355
|
|
|
|
31,247
|
|
|
|
|
20,354,048
|
|
|
|
30,446,593
|
|
Income from operations
|
|
|
1,348,093
|
|
|
|
2,268,739
|
|
|
|
|
|
|
|
|
|
|
Net financing expenses
|
|
|
911,388
|
|
|
|
1,503,717
|
|
Amortization of deferred charges
|
|
|
134,137
|
|
|
|
147,460
|
|
Foreign currency transaction (gains)
|
|
|
(148,930
|
)
|
|
|
(381,320
|
)
|
|
|
|
896,595
|
|
|
|
1,269,857
|
|
Income from discontinued operations, net of income tax
|
|
|
451,498
|
|
|
|
998,882
|
|
Gain on disposal of discontinued operations, net of income taxes
|
|
|
12,173,023
|
|
|
|
-
|
|
Net income from discontinued operations
|
|
$
|
12,624,521
|
|
|
$
|
998,882
|
|
The assets and liabilities of Cancable
Holding are classified as assets and liabilities of discontinued operations as of December 31, 2010 as follows:
|
|
December 31, 2010
|
|
Cash and bank balances
|
|
$
|
251,362
|
|
Accounts receivable, net of allowance for doubtful accounts
|
|
|
1,909,797
|
|
Inventory and supplies
|
|
|
215,913
|
|
Prepaid expenses
|
|
|
357,742
|
|
Current assets of discontinued operations
|
|
$
|
2,734,814
|
|
|
|
|
|
|
Property, plant and equipment, net of depreciation and amortization
|
|
$
|
3,616,865
|
|
Deposits
|
|
|
205,934
|
|
Deferred financing costs, net
|
|
|
222,950
|
|
Intangible assets, net
|
|
|
56,316
|
|
Noncurrent assets of discontinued operations
|
|
$
|
4,102,065
|
|
|
|
|
|
|
Bank indebtedness
|
|
$
|
395,432
|
|
Accounts payable and accrued liabilities
|
|
|
2,242,271
|
|
Current portion of obligations under capital leases
|
|
|
1,487,460
|
|
Current portion of term notes
|
|
|
5,148,754
|
|
Current liabilities of discontinued operations
|
|
$
|
9,273,917
|
|
|
|
|
|
|
Term notes
|
|
$
|
1,702,218
|
|
Obligations under capital leases, net of current portion
|
|
|
1,899,524
|
|
Noncurrent liabilities of discontinued operations
|
|
$
|
3,601,742
|
|
At the date of the sale of Cancable Holding
on September 16, 2011, total assets and liabilities were as follows:
|
|
September 16, 2011
|
|
Total Assets
|
|
$
|
5,775,593
|
|
Total Liabilities
|
|
|
19,231,292
|
|
|
|
|
(13,455,699
|
)
|
Reversal of foreign currency translation adjustments in other comprehensive income
|
|
|
1,282,676
|
|
Gain on Disposal
|
|
$
|
12,173,023
|
|
Liquidity and going concern
Our consolidated financial statements
were prepared using U.S. GAAP applicable to a going concern, which contemplate the realization of assets and liquidation of
liabilities in the normal course of business. We have an accumulated deficit of $22,021,782, a stockholders’ deficit of
$1,422,924 and a working capital deficit of $471,547 at December 31, 2011, including current maturities of term loans due to
Laurus of $1,548,207 (the “Iview Note”) which the Company does not currently have the ability to pay. As a result
of the sale of Cancable Holding as discussed above, the Holders of the Iview Note terminated and cancelled all guarantees,
security interests and other obligations of the Company and certain of its subsidiaries related to the Iview Note.
Assuming that Laurus does not demand repayment
of the Iview Note, management believes that its existing capital will be sufficient to sustain its operations. Management plans
to seek additional capital in the future to fund operations, growth and expansion through additional equity, debt financing or
credit facilities. The Company has had early stage discussions with investors about potential investment in the Company at a future
date. No assurance can be made that such financing would be available and, if available, it may take either the form of debt or
equity. In either case, the financing could have a negative impact on our financial condition and our shareholders. The Company
has increased its rates for services provided by AC Technical to improve gross margins. This is in line with our competitors. The
Company also expects to see the benefits of its research and development efforts within the next 12 months as it starts to introduce
its own line of customized products to the industry. These products and technologies are expected to improve gross margins. The
Company believes that it will be eligible for research and development tax credits at year end for its research and development
efforts during the year, providing an additional source of cash flow for the Company. Finally, the Company is also negotiating
longer credit terms with its suppliers from 45 days to 60 to 75 days. For all the reasons mentioned above, we believe that we have
adequate capital and short term borrowing capability and that we will be able to sustain our operations and continue as a going
concern for a reasonable period of time, although there can be no assurance of this. The financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification
of liabilities that may result from the possible inability of the Company to continue as a going concern.
Cash and Cash Equivalents
The Company considers all cash and highly
liquid investments purchased with an original maturity of three months or less to be cash and cash equivalents.
The Company maintains its cash in bank
deposit accounts that, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts
and believes it is not exposed to any significant credit risks on cash and cash equivalents.
Accounts Receivable
The Company extends credit to its customers
based upon a written credit policy. Accounts receivable are recorded at the invoiced amount and do not bear interest. Accounts
receivable are unsecured, as the Company does not require collateral. The allowance for doubtful accounts is the Company’s
best estimate for the amount of probable credit losses in the Company’s existing accounts receivable. The Company establishes
an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends, and
other information. Receivable balances are reviewed on an aged basis and account balances are charged off against the allowance
after all means of collection have been exhausted and the potential for recovery is considered remote.
Investment Tax Credits
Investment tax credits are recorded when
qualifying expenditures are made and there is reasonable assurance that the credits will be realized. Investment tax credits earned
with respect to current expenditures for qualified research and development activities are included in the statement of operations
as a reduction of expenses. Tax credits earned with respect to capital expenditures are applied to reduce the cost of the related
capital assets. Certain tax credits earned are cash refundable.
Research and Development Expenditures
Research and development costs (other than
capital expenditures) are expensed as incurred. Expenditures are reduced by any related investment tax credits. Our research and
development expenses were approximately $670,000 in fiscal year 2011 and $860,000 in fiscal year 2010 and are included in general
and administrative expenses in the accompanying consolidated statements of operations and comprehensive (loss).
Advertising Costs
Advertising costs are expensed as incurred.
Total advertising costs were approximately $30,000 and $40,000 for the year ended December 31, 2011 and 2010, respectively.
Inventory
Inventory consists of materials and supplies
and is stated at the lower of cost and market value. Cost is generally determined on the first in, first out basis. The inventory
is net of estimated obsolescence ($150,000 at December 31, 2011 and $100,000 at December 31, 2010), and excess inventory based
upon assumptions about future demand and market conditions. Inventory consists principally of parts, materials and supplies.
Property and Equipment
Property and equipment is stated at original
cost. Expenditures for improvements that significantly add to productive capacity or extend the useful life of an asset are capitalized.
Expenditures for maintenance and repairs are expensed when incurred. Depreciation per annum is computed over the estimated useful
life as follows:
Industrial condominium
|
4% declining balance basis
|
Leasehold improvements
|
Lesser of 5 years or the term of the lease straight-line basis
|
Office equipment
|
20% declining balance basis
|
Furniture and fixtures
|
20% declining balance basis or 3 years straight-line method
|
Computer hardware and software
|
30% declining balance basis
|
Vehicles
|
4 years straight-line basis
|
Tools and equipment
|
3 years straight-line basis
|
Long-Lived Assets
A long-lived asset should be tested for
recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. We follow
the two-step process for determining if an impairment charge should be taken: (1) the expected undiscounted cash flows from a particular
asset or asset group are compared with the carrying value; if the expected undiscounted cash flows are greater than the carrying
value, no impairment is recognized, but if the expected undiscounted cash flows are less than the carrying value, then (2) an impairment
charge is taken for the difference between the carrying value and the assets fair value. Where practicable, we will obtain an independent
valuation of intangible assets and place reliance on such valuation. On an ongoing basis, we use the weighted-average probability
method to estimate the fair value. This method requires significant management judgment to forecast the future operating results
used in the analysis. The assumptions used in developing expected cash flow estimates are similar to those used in developing other
information used by us for budgeting and other forecasting purposes. In instances where a range of potential future cash flows
is possible, we use a probability-weighted approach to weigh the likelihood of those possible outcomes. For purposes of discounting
cash flows, we use a discount rate equal to the yield on a zero-coupon US Treasury instrument with a life equal to the expected
life of the intangible asset or asset group being tested. At December 31, 2011, we believe all of our long-lived assets are recoverable.
Deferred Financing Costs
Deferred financing costs represent costs
directly related to obtaining financing. Deferred financing costs are amortized over the term of the related indebtedness using
the effective interest method.
Issuance of Equity Instruments for Services
Stock-based compensation is recognized
as an expense in the financial statements and such costs are measured at the grant date fair value of the award.
We record the grant date fair value of
stock-based compensation awards as an expense over the vesting period of the related stock options. In order to determine the fair
value of the stock options on the date of grant, we use the Black-Scholes-Merton option-pricing model. Inherent in this model are
assumptions related to expected stock-price volatility, option life, risk-free interest rates and dividend yield. Although the
risk-free interest rates and dividend yield are less subjective assumptions, typically based on factual data derived from public
sources, the expected stock-price volatility, forfeiture rate and option life assumptions require a greater level of judgment which
make them critical accounting estimates. We use an expected stock-price volatility assumption that is based on historical volatilities
of our common stock and we estimate the forfeiture rate and option life based on historical data related to prior option grants,
as we believe those estimates are representative of future employee exercise patterns.
Revenue Recognition
Contract Revenue
Software Related Services – Software
related services include services to customize or enhance the software so that the software performs in accordance with specific
customer requirements. As these services are essential to provide the required functionality, revenue from these arrangements is
recognized in accordance with ASC 605
“Revenue Recognition”
using either the percentage-of-completion method
or the completed contract method. The percentage-of-completion method is used when the required services are quantifiable, based
on the estimated number of labor hours necessary to complete the project, and under that method revenues are recognized using labor
hours incurred as the measure of progress towards completion but is limited to revenue that has been earned by the attainment of
any milestones included in the contract. The completed contract method is used when the required services are not quantifiable,
and under that method revenues are recognized only when we have satisfied all of our product and/or service delivery obligations
to the customer.
Security Systems – Security systems
revenue consists of fees generated from consulting, audit, review, planning, engineering and design, supply of hardware systems
installation and project management. Revenue from contracts where performance extends beyond one or more accounting periods is
recognized in accordance with ASC 605
“Revenue Recognition”
and SEC Staff Accounting Bulletin 104, “Update
of Codification of Staff Accounting Bulletins”. The recognition of revenue reflects the degree of completeness based upon
project drawings, project schedules, the progress of actual installation and is further validated by visual observations by product
managers, quality inspectors and construction advisors, if applicable. When the current estimated costs to complete indicate a
loss, such losses are immediately recognized for accounting purposes. Some projects have the equipment and installation as separate
elements specified in the contracts. The revenue is recognized when each element has been satisfied in accordance ASC 605 and SEC
Staff Accounting Bulletin 104, which are primarily the delivery of the equipment and completion of the installation process. The
fair value of each element is based on the price charged when it is sold on a standalone basis.
For contracts of shorter duration, revenue
is generally recognized when services are performed. Contractual terms may include the following payment arrangements: fixed fee,
full-time equivalent, milestone, and time and material. In order to recognize revenue, the following criteria must be met:
|
·
|
Signed agreement — The agreement must be signed by the customer.
|
|
·
|
Fixed Fee — The signed agreement must specify the fees to be received for the services.
|
|
·
|
Delivery has occurred — Delivery is substantiated by time cards and where applicable, supplemented
by an acceptance from the customer that milestones as agreed in the statement have been met.
|
|
·
|
Collectibility is probable — The Company conducts a credit review for significant transactions
at the time of the engagement to determine the credit-worthiness of the customer. Generally, collaterial is not required. Collections
are monitored over the term of each project, and if a customer becomes delinquent, the revenue may be deferred.
|
Service Revenue
Service revenue consists of fees generated
by providing monitoring services, preventive maintenance and technical support, product maintenance. Monitoring services, preventive
maintenance and technical support are generally provided under contracts for terms varying from one to six years. A customer typically
prepays monitoring services and preventive maintenance and technical support fees for an initial period, and the related revenue
is deferred and generally recognized over the term of such initial period. Rates for product maintenance and upgrades are generally
provided under time and material contracts. Revenue for other services is recognized in the period in which the services are provided
Warranty
The Company carries a reserve based upon
historical warranty claims experience. Additionally, warranty accruals are established on the basis of anticipated future expenditures
as specific warranty obligations are identified and they are charged against the accrual. Expenditures exceeding such accruals
are expensed directly to cost of sales.
Earning (Loss) Per Share
Basic earning (loss) per share (“EPS”)
is computed in accordance with ASC 260,
“Earnings Per Share”,
using the weighted average number of common shares
outstanding during the period. Diluted EPS is computed using the weighted average number of common and dilutive potential common
shares outstanding during the period. Dilutive potential common shares, determined using the treasury stock method, consist of
common stock issuable upon exercise of stock options and warrants. During periods when losses are incurred, potentially dilutive
common shares are not considered in the computation as their effect would be anti-dilutive.
Financial Instruments
The carrying value of the Company’s
financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate
their fair value because of the short maturities of those instruments. Based on borrowing rates currently available to the Company
for loans with similar terms, the carrying value of term notes also approximate their fair value except notes payable due to The
Malar Trust and related party balances for which it was not practicable to determine fair value.
We review the terms of convertible debt
and equity instruments we issue to determine whether there are embedded derivative instruments, including the embedded conversion
option, that are required to be bifurcated and accounted for separately as a derivative financial instrument. Generally, where
the ability to physical or net-share settle the conversion option is deemed to be not within the control of the company, the embedded
conversion option is required to be bifurcated and accounted for as a derivative financial instrument liability.
In connection with the sale of convertible
debt and equity instruments, we may also issue freestanding options or warrants. Additionally, we may issue options or warrants
to non-employees in connection with consulting or other services they provide. Although the terms of the options and warrants may
not provide for net-cash settlement, in certain circumstances, physical or net-share settlement is deemed not be within the control
of the company and, accordingly, we are required to account for these freestanding options and warrants as derivative financial
instrument liabilities, rather than as equity.
Derivative financial instruments, in the
event that we have any, are initially measured at their fair value. For derivative financial instruments that are accounted for
as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date,
with changes in the fair value reported as charges or credits to income. For option-based derivative financial instruments, we
use the Black-Scholes option pricing model to value the derivative instruments.
Any discount from the face value of the
convertible debt instrument resulting from the allocation of part of the proceeds to embedded derivative instruments and/or freestanding
options or warrants is amortized over the life of the instrument through periodic charges to income, using the effective interest
method.
Credit Risk
The Company’s financial assets that
are exposed to credit risk consist primarily of cash and cash equivalents and accounts receivable. Concentrations of credit risk
with respect to accounts receivable are limited due to the generally short payment terms.
Foreign Currency Translation
The U.S. dollar is the functional currency
of our operations, except for our operations located in Canada, which use the Canadian Dollar as their functional currency. Foreign
currency transaction gains and losses are reflected in income. Gains and losses resulting from any inter company balances with
different functional currencies are recognized in the statement of operations.
Comprehensive Income
We report comprehensive income in accordance
with ASC 220,
Comprehensive Income.
This statement requires the disclosure of accumulated other comprehensive income or
loss (excluding net income or loss) as a separate component of shareholders’ equity. Translation gains and losses arising
from translating the financial statements of the Canadian subsidiaries into U.S. dollars for reporting purposes are included in
“Accumulated other comprehensive income (loss).”
Income Taxes
We account for income taxes under the provisions
of ASC 740,
Accounting for Income Taxes,
which requires recognition of deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred
tax liabilities and assets are determined based on the difference between the financial statement and tax basis of assets and liabilities
using enacted tax rates in effect for the year in which the difference is expected to reverse. Deferred tax assets are reduced
by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred
tax assets will not be realized. We have recorded a 100% valuation allowance as of December 31, 2011 and 2010 for substantially
all of our deferred income tax assets.
We
follow the provisions of ASC 740-10-05
Accounting for Uncertainty in Income Taxes.
Under this standard, we are required
to evaluate each of our tax positions to determine whether they are more likely than not to be sustained if the taxing authority
examines the respective position. A tax position includes an entity’s decision not to file a tax return. The Company
has not taken any uncertain tax positions on any of its open income tax returns filed through the year ended December 31, 2011,
that would have materially affected its financial statements. The Company follows the methods of accounting for taxes based on
established income tax principles approved by the taxing authorities in Canada and the United States and believes that such methods
are properly calculated and reflected within its income tax returns. In addition, the Company has filed income tax returns in all
applicable jurisdictions in which it had material nexus warranting an income tax filing. The validity of the Company's conclusions
are re-assessed at least annually to determine if facts or circumstances have arisen that might cause the Company to change its
judgment regarding the likelihood of a tax position's sustainability under audit. The Company has determined that there were no
uncertain tax positions for the years ended December 31, 2011 and 2010. Since inception, we have been subject to tax by both federal,
provincial and state taxing authorities. Until the respective statutes of limitations expire (which maybe as much as 20 years while
we have unused NOL’s), we are subject to income tax audits in the
jurisdictions
in which we operate.
Use of Estimates
The Company
prepares its financial statements in accordance with U.S. GAAP, which require management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities.
The reported amounts of revenues and expenses may be affected by the estimates we are required to make. Estimates and assumptions
used in the accompanying consolidated financial statements are based upon management’s evaluation of the relevant facts and
circumstances as of the date of the financial statements. Estimates that are critical to the accompanying consolidated financial
statements relate principally to the adequacy of inventory reserves, the allowance for uncollectible accounts, the recoverability
of long-lived assets, and our ability to continue as a going concern. In addition, stock-based compensation expense represents
a significant estimate as the determination of such expense is partially dependent on certain assumptions the Company has made
regarding the future value of its common stock. Actual results may differ from the estimates and assumptions used in preparing
the accompanying consolidated financial statements.
Recent Accounting Pronouncements
From time to time, new accounting pronouncements
are issued by the FASB that are adopted by the Company as of the specified effective date. Unless otherwise discussed, management
believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on the Company’s
consolidated financial statements upon adoption.
|
2.
|
Related Party Transactions
|
Balances due to related parties are as follows:
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
Advances from the Chairman of the Company, non-interest bearing with no fixed terms of repayment. The loan is subordinated to the Laurus loan
|
|
$
|
63,594
|
|
|
$
|
64,865
|
|
Advances from the
Chairman secured by a promissory note, a third ranking general security agreement, assignment of insurance policy, a second
mortgage on the industrial condominium up to $269,955, personal guarantee of the president and his spouse up to $539,910 and
a collateral second mortgage on the president's principal residence up to $77,130, bearing interest at 6% per annum,
repayable in blended monthly payments of $10,155. The loan matured on February 14, 2005. However, the loan is subordinated to
Laurus with no fixed terms of repayment and no interest has been charged since September 30, 2004.
|
|
|
66,749
|
|
|
|
68,085
|
|
Advances from
the President of the Company, non-interest bearing with no fixed terms of repayment. The loan is subordinated to the
Laurus loan
|
|
|
96,000
|
|
|
|
97,920
|
|
|
|
$
|
226,343
|
|
|
$
|
230,870
|
|
|
|
|
|
|
|
|
|
|
Note payable to the Malar Trust (our Chairman is one of the beneficiaries of the trust), bearing interest at 3% per annum with no fixed terms of repayment. The loan is subordinated to the Laurus loan. Total interest for the year was $54,856 (2010: $53,240)
|
|
$
|
1,500,000
|
|
|
$
|
1,500,000
|
|
The above related party loans and note payable are not expected
to be repaid within the next twelve months and therefore are not classified as current liabilities at December 31, 2011.
During 2011, $333,333 (2010 - $320,388)
in consulting fees were paid to a company controlled by the Chairman. In addition, $277,778 (2010 - $266,990) in consulting fees
was paid to a Company controlled by the President’s spouse.
|
3.
|
Property and Equipment
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
Accumulated
|
|
|
|
Cost
|
|
|
Depreciation
|
|
|
Cost
|
|
|
Depreciation
|
|
Land
|
|
$
|
97,309
|
|
|
|
-
|
|
|
$
|
99,255
|
|
|
|
-
|
|
Industrial condominium
|
|
|
839,210
|
|
|
|
267,026
|
|
|
|
855,994
|
|
|
|
248,521
|
|
Leasehold improvements
|
|
|
-
|
|
|
|
-
|
|
|
|
23,275
|
|
|
|
20,377
|
|
Office equipment
|
|
|
89,961
|
|
|
|
73,704
|
|
|
|
91,760
|
|
|
|
71,470
|
|
Furniture and fixtures
|
|
|
75,353
|
|
|
|
59,273
|
|
|
|
175,872
|
|
|
|
136,749
|
|
Computer hardware and software
|
|
|
127,684
|
|
|
|
111,359
|
|
|
|
125,677
|
|
|
|
103,842
|
|
|
|
$
|
1,229,517
|
|
|
|
511,362
|
|
|
$
|
1,371,833
|
|
|
|
580,959
|
|
Net book value
|
|
|
|
|
|
$
|
718,155
|
|
|
|
|
|
|
$
|
790,874
|
|
|
4.
|
Bank Indebtedness and
Letter of Credit
|
In 2008, the Company established
credit facilities with a Canadian chartered bank to provide for borrowings by its subsidiaries, AC Technical and Cancable
Inc. As a result of the sale of Cancable Holding as discussed in Note 1, the credit facility for Cancable was removed. The
credit facility for AC Technical is $500,000 and bears interest at the bank’s domestic prime rate plus 1.5% for
Canadian dollar amounts. Interest is payable monthly. The facility is secured by a first security interest in bank debts,
inventory, certain other assets and keyman life insurance. As at December 31, 2011, the interest rate of the Canadian dollar
amount was 4.0%. At December 31, 2011, there were no borrowings outstanding under the facility and the average borrowing
outstanding during the year ended December 31, 2011 was $127,600. The agreements contain financial covenants pertaining to
maintenance of tangible net worth and debt service coverage ratio. In the event of default, the bank could at its discretion
cancel the facilities and demand immediate repayment of all outstanding amounts.
At December 31, 2011, the Company was contingently
liable under an irrevocable letter of credit issued by our bank in October 2010 in the amount of $750,000 which will expire in
October 2012. The letter of credit was issued to an insurance company as security for the bonding facility in the amount
of $750,000 to AC Technical.
In January 2006, concurrently with the
closing of the acquisition of Cancable Inc., the Company entered into a series of agreements with Laurus whereby Cancable, Inc.
issued to Laurus a secured term note (the “Cancable Note”) in the amount of $6,865,000 and Cancable Holding issued
to Laurus a related option to purchase up to 49 shares of common stock of Cancable Holding (up to 49% of the outstanding shares
of Cancable Holding) at a price of $0.01 per share (the “Option”). The loan was secured by all of the assets of the
Company, subject to the bank’s security interest. As described in Note 1, the Cancable Note was assigned to Cancable Holding
as a result of the sale of Cancable Holding on September 16, 2011 and is no longer an obligation of the Company. The option held
by Laurus to acquire 49% of Cancable Holding was also cancelled as a result of the sale of Cancable Holding on September 16, 2011.
In February 2006, the Company and its subsidiaries,
Iview Holding and Iview DSI entered into a series of agreements with Laurus pursuant to a refinancing transaction whereby the Company
issued to Laurus a secured term note (the “Company Note”) in the amount of $8,250,000 and Iview DSI issued to Laurus
a secured term note (the “Iview Note”) in the amount of $2,000,000. Concurrently, the Company issued to Laurus a related
warrant to purchase up to 2,411,003 shares of common stock of the Company (up to 7.5% of the outstanding shares of the Company)
at a price of $0.01 per share (the “Warrant”) and Iview Holding issued to Laurus a related option to purchase up to
20 shares of common stock of Iview Holding (up to 20% of the outstanding shares of Iview Holding) at a price of $0.01 per share
(the “Option”). As a result of the sale of Cancable Holding on September 16, 2011, the Company Note was assigned to
Cancable Holding and is no longer an obligation of the Company, the related warrant issued to Laurus was cancelled and the option
held by Laurus to acquire 20% of Iview Holding was also cancelled.
The Company Note bears interest at
the prime rate plus 2% with a minimum rate of 7%. Interest was calculated on the basis of a 360-day year. Per the original
terms of this note, the minimum monthly payments on the term note were $137,500 commencing March 1, 2007 to February 1, 2011,
with a balance of $4,950,000 payable on the maturity date. However, as allowed by the debt agreement, since March 2007, the
Company deferred such monthly payments until maturity by issuing warrants to purchase up to 4,860,000 shares of common stock
of the Company at per-share prices from $0.03 to $2.84. As a result of the sale of Cancable Holding, the Company Note was
assigned to Cancable Holding and all warrants issued were cancelled.
The Iview Note, which was retained by the Company, bears
interest at the prime rate plus 2% (7% at December 31, 2011) with a minimum rate of 7%. Interest is calculated on the
basis of a 360-day year. Per the original terms of this note, the minimum monthly payments on the term note were $8,333
through the original maturity date (February 1, 2011), with the balance of $1,600,000 payable on such date. However, the
Iview Note has not been repaid. As a result of the sale of Cancable Holding, the Iview Note is no longer guaranteed and
secured.
In June 2008, the Company and its subsidiary,
Cancable
Inc., entered into a financing transaction whereby the Company issued to Valens Offshore SPV II, Corp. (“Valens Offshore”)
and Valens U.S. SPV I, LLC (“VUS.”) secured term notes in the amount of $1,700,000 and $800,000, respectively (collectively,
the “Company Second Notes”). Valens Offshore and VUS are entities related to Laurus. The Company also issued to Valens
Offshore and VUS warrants to purchase up to 1,333,333 and 627,451 shares, respectively, of common stock of the Company at a price
of $0.01 per share. The loans were secured by substantially all of the assets of the Company, subject to the bank’s security
interest. As a result of the sale of Cancable Holding, the Company Second Notes were assigned to Cancable Holding and are no longer
an obligation of the Company and all warrants issued were cancelled.
Interest on the term notes for the year
ended December 31, 2011 was $405,520 (2010: $636,330).
|
|
December 31, 2011
|
|
Iview Note, with interest at prime plus 2% (minimum of 7%; 7% at December 31, 2011)
|
|
|
1,548,207
|
|
As a result of the sale of Cancable Holding , the carrying value
of the term loans assigned to Cancable Holding, and which are no longer obligations of the Company, were as follows:
|
|
September 16, 2011
|
|
Cancable Note, with interest at prime plus 1.75% (minimum of 7%)
|
|
$
|
5,148,754
|
|
Company Note, with interest at prime plus 2% (minimum of 7%)
|
|
|
7,287,500
|
|
Company Second Notes, with interest at 12%
|
|
|
2,500,000
|
|
Less: unamortized discount
|
|
|
(1,082,175
|
)
|
|
|
$
|
13,854,079
|
|
|
6.
|
Net Financing Expenses
|
|
|
2011
|
|
|
2010
|
|
Interest on credit facility
|
|
$
|
405,520
|
|
|
$
|
636,331
|
|
Cost of deferred principal repayment on term notes –warrants
|
|
|
13,507
|
|
|
|
94,591
|
|
Other
|
|
|
54,856
|
|
|
|
53,240
|
|
|
|
$
|
473,883
|
|
|
$
|
784,162
|
|
The Company's provision for (recovery of) income taxes is comprised
as follows:
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
-
|
|
|
$
|
-
|
|
Canadian
|
|
|
|
|
|
|
|
|
Current
|
|
|
-
|
|
|
|
-
|
|
Deferred
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Reconciliation to statutory rates is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
|
2010
|
|
Income (loss) before income taxes
|
|
|
|
|
|
|
|
|
Income (loss) from U.S. sales
|
|
$
|
11,857,360
|
|
|
$
|
(841,569
|
)
|
Income (loss) from Canadian sales
|
|
|
(240,220
|
)
|
|
|
159,762
|
|
|
|
|
11,617,140
|
|
|
|
(681,807
|
)
|
Statutory tax rates for U.S.
|
|
|
41.0
|
%
|
|
|
41.00
|
%
|
Statutory tax rates for Canadian Federal
|
|
|
30.0
|
%
|
|
|
30.0
|
%
|
The Company has unutilized taxable
losses in the United States of approximately $3,740,000 available for carry forward to reduce taxable income in future years through
2021. In addition, the Company has unutilized taxable losses in Canada of approximately $1,886,000 available for carry forward
to reduce taxable income in future years through 2031.
|
|
2011
|
|
|
2010
|
|
Expected income tax expense (recovery)
|
|
$
|
4,789,930
|
|
|
|
(41.2
|
)%
|
|
$
|
(296,903
|
)
|
|
|
(43.6
|
)%
|
Increase (decrease) in taxes resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation allowances
|
|
|
121,972
|
|
|
|
1.1
|
%
|
|
|
147,249
|
|
|
|
21.6
|
%
|
Permanent differences
|
|
|
(3,921,583
|
)
|
|
|
(33.8
|
)%
|
|
|
106,388
|
|
|
|
15.6
|
%
|
Small business and other tax rate reductions
|
|
|
(990,319
|
)
|
|
|
(8.5
|
)%
|
|
|
43,266
|
|
|
|
6.4
|
%
|
Income tax expenses (recovery)
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
The tax effects of temporary differences
that give rise to significant portions of the deferred tax assets and deferred tax liabilities as of December 31, 2011 and 2010
are presented below:
|
|
2011
|
|
|
2010
|
|
Assets
|
|
|
|
|
|
|
|
|
Tax benefits on losses carried forward under U.S. tax rate
|
|
$
|
1,532,000
|
|
|
$
|
6,852,000
|
|
Tax benefits on losses carried forward under Canadian tax rate
|
|
|
565,800
|
|
|
|
316,000
|
|
Accounting depreciation in excess of tax depreciation
|
|
|
37,203
|
|
|
|
37,430
|
|
|
|
|
2,135,003
|
|
|
|
7,205,430
|
|
Less: valuation allowance
|
|
|
(2,097,800
|
)
|
|
|
(7,168,000
|
)
|
|
|
|
37,203
|
|
|
|
37,430
|
|
Less: current portion
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
37,203
|
|
|
$
|
37,430
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Other
|
|
|
25,858
|
|
|
|
25,858
|
|
|
|
|
25,858
|
|
|
|
25,858
|
|
Less: current portion
|
|
|
(25,858
|
)
|
|
|
(25,858
|
)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Net deferred income taxes
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
Current
|
|
|
|
|
|
|
|
|
Assets
|
|
$
|
-
|
|
|
$
|
-
|
|
Liabilities
|
|
|
(25,858
|
)
|
|
|
(25,858
|
)
|
|
|
$
|
(25,858
|
)
|
|
$
|
(25,858
|
)
|
Long-term
|
|
|
|
|
|
|
|
|
Assets
|
|
$
|
37,203
|
|
|
$
|
37,430
|
|
Liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
37,203
|
|
|
$
|
37,430
|
|
|
|
$
|
11,345
|
|
|
$
|
11,572
|
|
As part of an installation, the Company
provides its customers with warranties. The warranties generally extend ninety days labor and one year on equipment from the date
of project completion. The provision for warranty liabilities, which is included in accrued expenses, is as follows:
|
|
2011
|
|
|
2010
|
|
Balance, beginning of year
|
|
$
|
40,000
|
|
|
$
|
38,095
|
|
Expenses incurred
|
|
|
(46,000
|
)
|
|
|
(29,000
|
)
|
Provision made
|
|
|
46,000
|
|
|
|
30,905
|
|
Balance, end of year
|
|
$
|
40,000
|
|
|
$
|
40,000
|
|
|
9.
|
Stockholders’ Deficiency
|
Options
The Company’s Stock Option Plan is
intended to provide incentives for key employees, directors, consultants and other individuals providing services to the Company
by encouraging their ownership of the common stock of the Company and to aid the Company in retaining such key employees, directors,
consultants and other individuals upon whose efforts the Company’s success and future growth depends and in attracting other
such employees, directors, consultants and individuals.
The Plan is administered
by the Board of Directors or its Compensation Committee. The Plan provides for the issuance of 4,000,000 options to purchase shares
of common stock. Shares of common stock covered by options which terminated or expired prior to exercise are available for further
options under the Plan. The maximum aggregate number of shares of common stock that may be issued under the Plan as “incentive
stock options” is 3,500,000 shares. No options may be granted under the Plan after June 30, 2011; provided that the Board
of Directors may amend the Plan at any time.
The Committee may, in its discretion, prescribe
the terms and conditions of the options to be granted under the Plan, which terms and conditions need not be the same in each case,
subject to the following:
|
a.
|
Option Price. The price at which each share of common stock covered by an option granted under
the Plan may not be less than the market value per share of the common stock on the date of grant of the option. The date of the
grant of an option shall be the date specified by the Committee in its grant of the option, which date will normally be the date
the Committee determines to make such grant.
|
|
b.
|
Option Period. The period for exercise of an option shall in no event be more than five years from
the date of grant. Options may, in the discretion of the Committee, be made exercisable in installments during the option period.
|
|
c.
|
Exercise of Options. For the purpose of assisting an Optionee to exercise an option, the Company
may make loans to the Optionee or guarantee loans made by third parties to the Optionee, on such terms and conditions as the Board
of Directors may authorize.
|
|
d.
|
Lock-Up Period. Without the consent of the Company, an Optionee may not sell more than fifty percent
of the shares issued under the Plan for a period of two years from the date that the Optionee exercises the option. The Committee
may also impose other terms and conditions, not inconsistent with the terms of the Plan, on the grant or exercise of options, as
it deems advisable.
|
The fair value of each option award is
estimated on the date of grant using the Black-Scholes option valuation model, using the assumptions noted in the following table.
Expected volatility is based on the historical volatility of the Company’s stock, and other factors. The Company uses historical
data to estimate employee termination within the valuation model. The Company has assumed that the life of the options will be
equal to one-half of the combined vesting period and contractual life (i.e., that employees will exercise the options at the midpoint
between the vesting and expiry date of the options). The risk-free rates used to value the options are based on the U.S. Treasury
yield curve in effect at the time of grant.
At December 31, 2011, options to purchase
360,000 shares of common stock were outstanding. These options vest ratably in annual installments, over the four year period from
the date of grant. As of December 31, 2011, there was $15,216 of total unrecognized compensation cost related to non-vested share-based
compensation arrangements granted under the Plan. That cost is expected to be recognized over a remaining weighted average period
of 1.93 years. The cost recognized for the year ended December 31, 2011 was $10,400 (2010: $55,800) which was recorded as general
and administrative expenses.
A summary of option activity under the Plan during the years
ended December 31, 2011 and 2010 is presented below:
|
|
Shares
|
|
|
Weighted-Average
Exercise
Price
|
|
|
Weighted-Average
Remaining
Contractual
Term
|
|
|
Intrinsic
Value
|
|
Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2009
|
|
|
2,005,000
|
|
|
$
|
0.65
|
|
|
|
4.75
|
|
|
|
-
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited or expired
|
|
|
(405,000
|
)
|
|
$
|
0.63
|
|
|
|
0.96
|
|
|
|
-
|
|
Outstanding at December 31, 2010
|
|
|
1,600,000
|
|
|
$
|
0.65
|
|
|
|
1.04
|
|
|
|
-
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited or expired
|
|
|
(1,240,000
|
)
|
|
$
|
0.63
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding at December 31, 2011
|
|
|
360,000
|
|
|
$
|
0.72
|
|
|
|
1.93
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2011
|
|
|
232,500
|
|
|
$
|
0.76
|
|
|
|
1.55
|
|
|
|
-
|
|
As of December 31, 2011, the
aggregate intrinsic value of all stock options outstanding and expected to vest was $0 and the aggregate intrinsic value of
currently exercisable stock options was $0. The intrinsic value of each option is the difference between the fair
market value of the common stock and the exercise price of such option to the extent it is
“in-the-money”. Aggregate intrinsic value represents the value that would have been received by the
holders of in-the-money options had they exercised their options on the last trading day of the year and sold the underlying
shares at the closing stock price on such day. The intrinsic value calculation is based on the $0.011 closing
stock price of the common stock on December 31, 2011. There were no in-the-money options outstanding and exercisable as of
December 31, 2011.
Because there were no options exercised
during the years ended December 31, 2011 or 2010, there was no intrinsic value of options exercised.
The total fair value of options granted
during the years ended December 31, 2011 and 2010 was $0, as no options were granted in 2011 and 2010.
The following table summarizes information
about fixed price stock options outstanding at December 31, 2011:
Exercise
Price
|
|
|
Number
Outstanding
|
|
|
Weighted
Average
Contractual Life
|
|
|
Weighted
Average
Exercise Price
|
|
|
Number
Exercisable
|
|
|
Exercise
Price
|
|
$
|
0.63
|
|
|
|
250,000
|
|
|
|
2.66
|
|
|
$
|
0.63
|
|
|
|
125,000
|
|
|
$
|
0.63
|
|
$
|
0.90
|
|
|
|
100,000
|
|
|
|
0.17
|
|
|
$
|
0.90
|
|
|
|
100,000
|
|
|
$
|
0.90
|
|
$
|
1.12
|
|
|
|
10,000
|
|
|
|
1.48
|
|
|
$
|
1.12
|
|
|
|
7,500
|
|
|
$
|
1.12
|
|
|
|
|
|
|
360,000
|
|
|
|
|
|
|
|
|
|
|
|
232,500
|
|
|
|
|
|
The number and weighted average grant-date
fair value of options non-vested at the beginning of the year, non-vested at the end of December 31, 2011 and granted, vested or
canceled during the year ended December 31, 2011 was as follows:
|
|
Number of Options
|
|
|
Weighted-Average
Grant Date Fair Values
|
|
Non-vested at January 1, 2011
|
|
|
217,500
|
|
|
$
|
0.17
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Vested
|
|
|
(90,000
|
)
|
|
$
|
0.22
|
|
Canceled
|
|
|
-
|
|
|
|
-
|
|
Non-vested at December 31, 2011
|
|
|
127,500
|
|
|
$
|
0.14
|
|
Warrants
The Company uses a binomial option pricing
model to value warrants issued to non-employees, based on the market price of our common stock at the time the warrants are issued.
All outstanding warrants may be exercised by the holder at any time. During the year ended December 31, 2011, in connection with
financing, the Company issued warrants to purchase 648,000 shares of common stock. The fair value of the warrants of $13,506 was
measured using a binomial option pricing model using the following assumptions: risk free interest rates of 1.17% to 1.78%, expected
dividend yield of 0%, volatility of 140%, exercise prices of $0.02 to $0.03 and the life of the warrants of 4 years.
As a result of the sale of Cancable Holding,
total issued warrants to purchase 15,444,983 shares of common stock (including the 648,000 warrants mentioned above) were cancelled.
Total outstanding warrants as of December 31, 2011 were 200,000 at an exercise price of $0.03 per share, issued to a non-employee
for consulting service with an expiry date of December 31, 2014.
We determine and disclose
our segments in accordance with ASC 280
”Segment Information”,
which uses a “management” approach
for determining segments. The management approach designates the internal organization that is used by management for making operating
decisions and assessing performance as the source of the reportable segments. Our management reporting structure provides for the
following segments:
AC Technical
A.C. Technical Systems
Ltd. (“AC Technical”), a corporation incorporated under the laws of the Province of Ontario, is engaged in the engineering,
design, installation, integration and servicing of various types of security systems.
Iview DSI
Iview Digital Video Solutions
Inc. (“Iview DSI”) and its wholly owned subsidiary OSSIM View Inc. are corporations incorporated under the laws of
the Province of Ontario and provide video surveillance products and technologies to the market.
|
|
December 31,
2011
|
|
|
December 31,
2010
|
|
Sales:
|
|
|
|
|
|
|
|
|
AC Technical
|
|
|
7,232,345
|
|
|
|
7,090,044
|
|
Iview
|
|
|
-
|
|
|
|
58,699
|
|
Creative Vistas, Inc.
|
|
|
2,277
|
|
|
|
2,410
|
|
Consolidated Total
|
|
$
|
7,234,622
|
|
|
$
|
7,151,153
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
AC Technical
|
|
|
41,375
|
|
|
|
41,863
|
|
Iview
|
|
|
22,179
|
|
|
|
40,601
|
|
Consolidated Total
|
|
$
|
63,554
|
|
|
$
|
82,464
|
|
INTEREST EXPENSE:
|
|
|
|
|
|
|
|
|
Iview
|
|
|
105,114
|
|
|
|
119,122
|
|
AC Technical
|
|
|
54,856
|
|
|
|
53,240
|
|
Creative Vistas, Inc.
|
|
|
313,913
|
|
|
|
611,800
|
|
Consolidated Total
|
|
$
|
473,883
|
|
|
|
784,162
|
|
Net Income (Loss):
|
|
|
|
|
|
|
|
|
AC Technical
|
|
|
(154,441
|
)
|
|
|
(306,587
|
)
|
Iview
|
|
|
(370,804
|
)
|
|
|
(389,800
|
)
|
Corporate (1)
|
|
|
(482,136
|
)
|
|
|
(984,302
|
)
|
Consolidated Total
|
|
$
|
(1,007,381
|
)
|
|
$
|
(1,680,689
|
)
|
TOTAL ASSETS
|
|
|
|
|
|
|
|
|
AC Technical
|
|
|
2,353,051
|
|
|
|
2,927,750
|
|
Iview
|
|
|
56,388
|
|
|
|
511,856
|
|
Creative Vistas, Inc.
|
|
|
786,198
|
|
|
|
994,375
|
|
Consolidated Total
|
|
$
|
3,195,637
|
|
|
$
|
4,433,981
|
|
CAPITAL ASSETS
|
|
|
|
|
|
|
|
|
AC Technical
|
|
|
718,155
|
|
|
|
768,918
|
|
Iview
|
|
|
-
|
|
|
|
21,956
|
|
Consolidated Total
|
|
$
|
718,155
|
|
|
$
|
790,874
|
|
Capital Expenditures
|
|
|
|
|
|
|
|
|
AC Technical
|
|
|
4,472
|
|
|
|
6,375
|
|
Consolidated Total
|
|
$
|
4,472
|
|
|
$
|
6,375
|
|
|
(1)
|
Corporate expenses primarily include certain stock-based compensation for consulting and advisory
services and amortization of intangible assets, which we do not internally allocate to our segments because they are related to
our common stock and are non-cash in nature.
|
Revenues by geographic destination and product group were as
follows:
|
|
December 31,
2011
|
|
|
December 31,
2010
|
|
Contract
|
|
$
|
5,838,607
|
|
|
$
|
5,683,974
|
|
Service
|
|
|
1,396,015
|
|
|
|
1,467,179
|
|
Total sales to external customers
|
|
$
|
7,234,622
|
|
|
$
|
7,151,153
|
|
All revenue is generated in Canada.
We have entered into contracts for
certain consulting services providing for monthly payments with companies controlled by the Company’s Chairman and President’s spouse. In addition, we have also entered into an operating lease for its vehicles. The total minimum
annual payments under these agreements are as follows:
|
|
|
|
2012
|
|
|
|
|
|
|
|
Operating leases
|
|
|
|
$
|
15,000
|
|
Commitments related to consulting agreements
|
|
|
|
|
458,300
|
|
|
|
|
|
$
|
473,300
|
|
|
ITEM 9.
|
Changes
In and Disagreements With Accountants on Accounting and Financial Disclosure
|
None.
|
ITEM 9A.
|
CONTROLS AND PROCEDURES
|
Evaluation of Disclosure
Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information
required to be disclosed in our filings under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized
and reported within the periods specified in the rules and forms of the SEC. This information is accumulated to allow timely decisions
regarding required disclosure. As of December 31, 2011, the end of the period covered by this annual report on Form 10-K, our management,
including our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our disclosure controls and procedures,
as such terms are defined under rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended.
Based on this assessment, our management concluded that our disclosure controls and procedures were effective as of the end of
the period covered by this annual report.
Management’s
Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate
internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended).
Our management assessed the effectiveness of internal control over financial reporting as of December 31, 2011. In making this
assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission
(“COSO”) in
Internal Control - Integrated Framework
issued in 1992, to evaluate the effectiveness of our internal
control over financial reporting. Based upon that framework, management has determined that our internal control over financial
reporting is effective.
This annual report does
not include an attestation report of the company’s registered public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by the company’s registered public accounting firm pursuant
to rules of the Securities and Exchange Commission that permit the company to provide only management’s report
in this annual report.
Changes in Internal
Control Over Financial Reporting
There has not been any change in our internal control over financial reporting
(as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our fourth fiscal quarter that has
materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations
Over Internal Controls
Our internal control over financial reporting is designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance
with GAAP. Our internal control over financial reporting includes those policies and procedures that:
|
(i)
|
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the Company’s assets;
|
|
(ii)
|
provide reasonable assurance that transactions are recorded as necessary to permit preparation
of consolidated financial statements in accordance with GAAP, and that the Company’s receipts and expenditures are being
made only in accordance with authorizations of the Company’s management and directors; and
|
|
(iii)
|
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,
use, or disposition of the Company’s assets that could have a material effect on the consolidated financial statements.
|
Our management, including our principal
executive officer and principal financial officer, does not expect that internal controls will prevent or detect all errors and
all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that
the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are
resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations
in all control systems, no evaluation of internal controls can provide absolute assurance that all control issues and instances
of fraud, if any, have been detected. Also, any evaluation of the effectiveness of controls in future periods is subject to the
risk that those internal controls may become inadequate because of changes in business conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
|
Item 9B.
|
Other Information
|
None
|
Item 10.
|
Directors, Executive
Officers, Promoters and CORPORATE GOVERNANCE
|
Directors and Executive Officers
Name
|
|
Age
|
|
Position
|
Sayan Navaratnam
|
|
36
|
|
Chairman of the Board, and Director
|
Dominic Burns
|
|
51
|
|
Chief Executive Officer, President and Director
|
Heung Hung Lee
|
|
42
|
|
Chief Financial Officer, Secretary and Director
|
Sayan Navaratnam–Director and
Chairman of the Board
:
Mr. Navaratnam serves as our Chairman of the Board and Director. He has
been a Director of our company since 2004. He served as Chief Executive Officer of our company from 2004 until he resigned from
the position on May 5, 2008, remaining Chairman and Director. Mr. Navaratnam joined AC Technical Systems in 2003 as Chief Executive
Officer. He has eight years of experience in technology development and integration specific to the security industry. He also
has three years of experience in telecommunications with Bell Canada. From 1997 to 2000, he was the Chief Executive Officer of
Satellite Communications Inc., and its research arm Satellite Advanced Technologies. Mr. Navaratnam was responsible for coordinating
and financing research and development projects and played a key role in strategic partnerships, mergers, and licensing technologies.
From 2000 to 2003, Mr. Navaratnam was the Chief Operating Officer in ASPRO Technologies Ltd. Since March 1, 2009, Mr. Navaratnam
has been a Senior Managing Director of Laurus Capital Management, LLC and a Senior Managing Director of Valens Capital Management,
LLC, entities affiliated with our principal lender. Mr. Navaratnam currently serves on the board of a number of privately-held
companies including our subsidiaries, AC Technical Systems and Iview Digital Video Solutions, and Cygnal Technologies, White Radio,
and Thinkpath. Mr. Navaratnam also serves on the board of Petroalgae Inc., a public company. Mr. Navaratnam graduated from the
University of Toronto with an Honors Double Specialist degree in economics and political science.
Dominic Burns–Director, President
and Chief Executive Officer
:
Mr. Burns is our CEO and Director. He founded AC Technical in 1991.
He completed his Electrical Apprenticeship program at one of the premier firms in Northern Ireland. He graduated from Belfast College
of Technology with honors in City and Guilds Electrical Theory and Regulations. Mr. Burns also holds a diploma in radio and navigation
systems. He has an extensive understanding of quality controls in the avionics industry and has been a pioneer in transferring
some of the high standards and controls set in the avionics industry to the security integration market. He has been the President
of AC Technical since its inception. He has been primarily responsible for expanding the firm's presence in Canada. Mr. Burns has
also designed a number of internal technical and marketing programs to expand AC Technical's sales and technical capabilities.
Mr. Burns has over 20 years of experience in the security integration industry. Mr. Burns has been a Director and President of
our company since September 30, 2004. He was appointed Chief Executive Officer on May 5, 2008.
Heung
Hung Lee–Director, Chief Financial Officer and Secretary
:
Ms. Lee
joined AC Technical in July 2004 and she has more than 10 years experience in international public accounting primarily with large
international accounting firms. She has advanced knowledge in financial statements disclosure and audit issues and has extensive
international business experience in countries such as the United States, Hong Kong SAR and the Peoples' Republic of China. She
was a manager at BDO Dunwoody LLP from 1999 to 2004. Ms. Lee holds a Bachelor of Business degree from Monash University in Australia.
She is a Chartered Accountant in Canada and a qualified CPA in Australia. Ms. Lee has been the Chief Financial Officer of our company
since September 30, 2004.
Ms. Lee was appointed
a Director of our company on November 1, 2008.
Ms. Lee is responsible for the review of the financial statements
of our subsidiaries and creating and implementing strong financial systems within the group of companies. Ms. Lee is also an important
member in our growth strategy as she is highly involved in creating a platform for growth within Creative Vistas, Inc.
Board of Directors and
Officers
Each director is elected
until the next annual meeting of the registrant and until his or her successor is duly elected and qualified. Officers are elected
by, and serve at the discretion of, the board of directors. The board of directors may also appoint additional directors up to
the maximum number permitted under our by-laws. A director so chosen or appointed will hold office until the next annual meeting
of stockholders.
Each executive officer
serves at the discretion of the board of directors and holds office until his or her successor is elected or until his or her earlier
resignation or removal in accordance with our certificate of incorporation and by-laws.
Committees of the Board
of Directors
We do not have standing
audit, nominating or compensation committees, or committees performing similar functions. Our board of directors believes that
it is not necessary to have standing audit, nominating or compensation committees at this time because the functions of such committees
are adequately performed by our board of directors.
Code of Ethics
The Company has adopted a code of ethics
for officers and employees, which applies to, among others, the Company’s principal executive officer, principal financial
officer, and controller, and which is known as the
code of ethics
. The Company has also
adopted certain ethical principles and policies for its directors, which are set forth in the
code
of ethics
. The Company will provide copies of the code of ethics without charge upon request made to Creative Vistas,
2100
Forbes Street, Unit 8-10 Whitby, Ontario, Canada L1N 9T3 or by calling (905) 666-8676
.
|
ITEM 11.
|
EXECUTIVE COMPENSATION
|
The following summary
compensation table sets forth all compensation paid by us during the two years ended December 31, 2011 for services rendered in
all capacities named executive officers.
Name and Principal
Position
|
|
Year
|
|
|
Salary
|
|
|
Bonus
|
|
|
Stock
Awards
|
|
|
Option
Awards
|
|
|
All Other
Compensation
|
|
|
Total
Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sayan Navaratnam – Chairman
|
|
|
2011
|
|
|
|
333,333
|
1
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
333,333
|
|
|
|
|
2010
|
|
|
|
320,388
|
1
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
320,388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dominic Burns – Chief Executive Officer
|
|
|
2011
|
|
|
|
277,778
|
2
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
277,778
|
|
|
|
|
2010
|
|
|
|
266,990
|
2
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
266,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Heung Hung Lee – Chief Financial Officer
|
|
|
2011
|
|
|
|
151,515
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
151,515
|
|
|
|
|
2010
|
|
|
|
145,631
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
145,631
|
|
1
Balance was payable to Nationwide Solutions Inc.
for consulting fees.
2
Balance was payable to 1608913 Ontario Inc. for
consulting fees.
Employment Agreements
On July 16, 2008, the Company entered into
a Consulting Agreement (the “Consulting Agreement”) with Nationwide Solutions Inc. (“Nationwide”) pursuant
to which Nationwide will provide general business consulting services including business development, formalizing reports and negotiating
or preparing sales agreements, vendor agreements, business plans, budgets, business presentations, finance agreements and equity
agreements. The Consulting Agreement will terminate on July 16, 2012 unless extended or earlier terminated pursuant to the terms
of the Consulting Agreement. We will pay to Nationwide an annual consulting fee of CAD$325,000 for each calendar year during the
term of the Consulting Agreement. The chairman of the board of Nationwide, Sayan Navaratnam, is also the chairman of the board
of the Registrant.
On January 1, 2010, the Company entered
into a Consulting Agreement (the “Consulting Agreement”) with 1608913 Ontario Inc. pursuant to which 1608913 Ontario
Inc. will provide general business consulting services including business development, formalizing reports and negotiating or preparing
sales agreements, vendor agreements, business plans, budgets, business presentations, finance agreements and equity agreements.
The Consulting Agreement will terminate on December 31, 2012 unless extended or earlier terminated pursuant to the terms of the
Consulting Agreement. We will pay to 1608913 Ontario Inc. an annual consulting fee of CAD$275,000 for each calendar year during
the term of the Consulting Agreement. Dominic Burn’s spouse is the only beneficial owner of 1608913 Ontario Inc. and Dominic
Burns is also the President of the Registrant.
1608913 Ontario Inc. and Nationwide Solutions
Inc. were structured for the personal tax benefit of Mr. Burns and Mr. Navaratnam, respectively. Under Canadian tax law, there
are potential income tax benefits to Mr. Burns and Mr. Navaratnam from structuring their relationship with us as Consulting Agreements
between us and each of 1608913 Ontario Inc. and Nationwide Solutions Inc. instead of them being employed directly by us. This structure
does not have any effect on Creative Vistas.
The consulting services provided to us
by Mr. Navaratnam and Mr. Burns relate to the management of the Company including sales and marketing, project management, technology
development, finance, operations, mergers and acquisitions, engineering design and other management services required by us.
We have a standard employment contract
with our employees that is reviewed on an annual basis. Of the persons who currently are parties to this employment agreement,
only Ms. Lee currently falls under the category of executive staff. There are no employment contracts with the Chairman or the
Chief Executive Officer. In each standard employment contract, we have included the terms of employment, remuneration, fringe benefits,
vacation, confidentiality, non-solicitation and termination of employment.
We have a stock option plan which was adopted
during the second quarter of 2006; however no options were granted in 2011.
|
ITEM 12.
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
|
The following table sets
forth information with respect to the beneficial ownership of our common stock as of December 31, 2011 of each executive officer,
each director, and each shareholder in addition to any shareholders known to be the beneficial owner of 5% or more of our Common
Stock and all officers and directors as a group.
Name and Address of Beneficial Owner
|
|
Shares of Common
Stock Beneficially
Owned
|
|
|
Percentage of Common
Stock Beneficially
Owned
|
|
Sayan Navaratnam
Toronto, Ontario
|
|
|
21,410,986
|
|
|
|
57.3
|
%
|
|
|
|
|
|
|
|
|
|
Dominic Burns
Hampton, Ontario
|
|
|
7,036,607
|
|
|
|
18.8
|
%
|
|
|
|
|
|
|
|
|
|
Heung Hung Lee
Markham, Ontario
|
|
|
50,000
|
|
|
|
0.1
|
%
|
|
|
|
|
|
|
|
|
|
All officers and directors as a group (3 persons)
|
|
|
28,497,593
|
|
|
|
76.2
|
%
|
The address of the above listed persons is c/o Creative
Vistas, 2100 Forbes Street, Unit 8-10 Whitby, Ontario, Canada L1N 9T3.
Securities Authorized For Issuance
Under Equity Compensation Plans
The following table sets forth certain
information relating to our option plans as of December 31, 2011:
Plan Category
|
|
Name of Plan
|
|
Number of
Common
Shares to be
Issued upon
Exercise of
Outstanding
Options
|
|
Range of
Exercise Prices
of Outstanding
Options
|
|
Number of Securities Remaining
Available for Future Issuance
under Stock Option Plan
|
|
Option Plans approved by our Shareholders
|
|
Stock Option Plan
|
|
360,000
|
|
$0.63 to $1.12
|
|
3,640,000
|
|
Total
|
|
|
|
360,000
|
|
$0.63 to $1.12
|
|
3,640,000
|
|
Share Option and Other Compensation
Plans
Stock Option Plan
Our
Stock Option Plan was adopted by our Board and approved by our shareholders on June 30, 2006. Our Stock Option Plan provides for
the grant of options to
key employees of the Company, including officers or directors of the Company, and to consultants
and other individuals providing services to the Company
.
Share
Reserve.
A total of 4,000,000 shares of
common stock, no par value, of the Company (the “Stock”)
are authorized for issuance under the Stock Option Plan as of December 31, 2011.
Shares of Stock
used for purposes of the Stock Option Plan may be either authorized and unissued shares, or previously issued shares held in the
treasury of the Company, or both. Shares of Stock covered by options which have terminated or expired prior to exercise are available
for further options under the Stock Option Plan. The maximum aggregate number of shares of Stock that may be issued under the Stock
Option Plan as “incentive stock options” is 3,500,000 shares. No options may be granted under the Plan after June 30,
2011; provided that the Board of Directors may amend the Plan at any time.
Administration
of Awards.
The Plan is administered by the Board of Directors, or Compensation Committee of the Board of Directors or
a subcommittee of the Compensation Committee appointed by the Compensation Committee, or by any other committee designated by the
Board of Directors to administer the Plan (the committee or subcommittee administering the Plan is hereinafter referred to as the
“Committee”). For purposes of administration, the Board of Directors, subject to the terms of the Plan, has authority
to establish such rules and regulations, to make such determinations and interpretations, and to take such other administrative
actions as it deems necessary or advisable. All determinations and interpretations made by the Board of Directors shall be final,
conclusive and binding on all persons, including all Optionees, any other holders of options and their legal representatives and
beneficiaries.
Options may be
granted to eligible individuals whether or not they hold or have held options previously granted under the Plan or otherwise granted
or assumed by the Company. In selecting individuals for options, the Board may take into consideration any factors it may deem
relevant, including its estimate of the individual’s present and potential contributions to the success of the Company. Service
as an employee, director, officer or consultant of or to the Company is considered employment for purposes of the Plan (and the
period of such service shall be considered the period of employment for purposes of Section 5(d) of the Plan); provided, however,
that incentive stock options may be granted under the Plan only to an individual who is an “employee” (as such term
is used in Section 422 of the Code) of the Company.
Stock
options.
The Board shall, in its discretion, prescribe the terms and conditions of the options to be granted, which
terms and conditions need not be the same in each case, subject to the following:
(a)
Option Price
. The price at which each share of Stock covered by an option granted under the Plan may be purchased shall
not be less than the Market Value (as defined in Section (c) below) per share of Stock on the date of grant of the option.
The date of the grant of an option shall be the date specified by the Board in its grant of the option.
(b)
Option Period.
The period for exercise of an option shall in no event be more than five years from the date of grant.
Options may, in the discretion of the Board, be made exercisable in installments during the option period. Any shares not
purchased on any applicable installment date may be purchased thereafter at any time before the expiration of the option
period.
(c)
Exercise of Options.
In order to exercise an option, the Optionee shall deliver to the Company written notice specifying
the number of shares of Stock to be purchased, together with cash or a certified or bank cashier’s check payable to the
order of the Company in the full amount of the purchase price therefore; provided that, for the purpose of assisting an
Optionee to exercise an option, the Company may make loans to the Optionee or guarantee loans made by third parties to the
Optionee, on such terms and conditions as the Board of Directors may authorize. For purposes of the Plan, the Market Value
per share of Stock shall be the last sale price on the date of reference, or, if no sale takes place on such date, the
average of the closing high bid and low asked prices, in either case on the principal national securities exchange on which
the Stock is listed or admitted to trading, or if the Stock is not listed or admitted to trading on any national securities
exchange, the last sale price reported on the National Market System of the National Association of Securities Dealers
Automated Quotation System (“NASDAQ”) on such date, or the last sale price reported on the NASDAQ SmallCap Market
on such date, or the average of the closing high bid and low asked prices in the over-the-counter market on such date,
whichever is applicable, or if there are no such prices reported on NASDAQ or in the over-the-counter market on such date, as
furnished to the Board by any New York Stock Exchange member selected from time to time by the Board for such purpose. If
there is no bid or asked price reported on any such date, the Market Value shall be determined by the Board in accordance
with the regulations promulgated under Section 2031 of the Code, or by any other appropriate method selected by the Board. If
the Optionee so requests, shares of Stock purchased upon exercise of an option may be issued in the name of the Optionee or
another person. An Optionee shall have none of the rights of a stockholder until the shares of Stock are issued to him.
(d) Effect
of Termination of Employment.
An option may not be exercised after the Optionee has ceased to be in
the employ of the Company, except in the following circumstances:
(i) If the Optionee’s employment
is terminated by action of the Company, or by reason of disability or retirement under any retirement plan maintained by the Company,
the option may be exercised by the Optionee within three months after such termination, but only as to any shares exercisable on
the date the Optionee’s employment so terminates;
(ii) In the event of the death of the Optionee
during the three month period after termination of employment covered by (i) above, the person or persons to whom his rights are
transferred by will or the laws of descent and distribution shall have a period of one year from the date of his death to exercise
any options which were exercisable by the Optionee at the time of his death; and
(iii) In the event of the death of the
Optionee while employed, the option shall thereupon become exercisable in full, and the person or persons to whom the Optionee’s
rights are transferred by will or the laws of descent and distribution shall have a period of one year from the date of the Optionee’s
death to exercise such option. In no event shall any option be exercisable more than five years from the date of grant thereof.
Nothing in the Plan or in any option granted pursuant to the Plan (in the absence of an express provision to the contrary) shall
confer on any individual any right to continue in the employ of the Company or continue as a consultant or interfere in any way
with the right of the Company to terminate his employment or consulting arrangement at any time.
(e) Limitation on Transferability of
Options
. Except as provided in this Section (e), during the lifetime of an Optionee, options held by such Optionee shall be
exercisable only by him and no option shall be transferable other than by will or the laws of descent and distribution. The Board
may, in its discretion, provide that options held by an Optionee, other than incentive stock options, may be transferred to or
for the benefit of a member of his immediate family. For purposes hereof, the term “immediate family” shall mean an
Optionee’s spouse and children (both natural and adoptive), and the direct lineal descendants of his children.
(f) Adjustments for Change in Stock
Subject to Plan
. In the event of a reorganization, recapitalization, stock split, stock dividend, combination of shares, merger,
consolidation, rights offering, or any other change in the corporate structure or shares of the Company, the Board shall make such
adjustments, if any, as it deems appropriate in the number and kind of shares subject to the Plan, in the number and kind of shares
covered by outstanding options, or in the option price per share, or both, and, in the case of a merger, consolidation or other
transaction pursuant to which the Company is not the surviving corporation or pursuant to which the holders of outstanding Stock
shall receive in exchange therefore shares of capital stock of the surviving corporation or another corporation, the Board may
require an Optionee to exchange options granted under the Plan for options issued by the surviving corporation or such other corporation.
(g) Treatment of Options Upon
Occurrence of Certain Events
. The Board may, in its discretion, provide in the case of any option granted under the Plan
that, in connection with any merger or consolidation which results in the holders of the outstanding voting securities of the
Company (determined immediately prior to such merger or consolidation) owning, directly or indirectly, less than a majority
of the outstanding voting securities of the surviving corporation (determined immediately following such merger or
consolidation), or any sale or transfer by the Company of all or substantially all its assets or any tender offer or exchange
offer for or the acquisition, directly or indirectly, by any person or group of all or a majority of the then outstanding
voting securities of the Company, such option shall terminate within a specified number of days after notice to the Optionee
thereunder, and each such Optionee shall receive, with respect to each share of Stock subject to such option, an amount equal
to the excess, if any, of the Market Value of such shares immediately prior to such merger, consolidation, sale, transfer or
exchange over the exercise price per share of such option; and that such amount shall be payable in cash, in one or more
kinds of property (including the property, if any, payable in the transaction) or a combination thereof, as the Board shall
determine in its sole discretion.
(h) Registration, Listing and Qualification
of Shares of Stock
. Each option shall be subject to the requirement that if at any time the Board of Directors shall determine
that the registration, listing or qualification of the shares of Stock covered thereby upon any securities exchange or under any
federal or state law, or the consent or approval of any governmental regulatory body is necessary or desirable as a condition of,
or in connection with, the granting of such option or the purchase of shares of Stock thereunder, no such option may be exercised
unless and until such registration, listing, qualification, consent or approval shall have been effected or obtained free of any
conditions not acceptable to the Board of Directors. The Company may require that any person exercising an option shall make such
representations and agreements and furnish such information as it deems appropriate to assure compliance with the foregoing or
any other applicable legal requirement.
(i) Lock-Up Period
- Without the
consent of the Company an Optionee may not sell more than fifty percent of the shares issued under the Plan for a period of two
years from the date that the Optionee exercises the option. The Board may impose such other terms and conditions, not inconsistent
with the terms hereof, on the grant or exercise of options, as it deems advisable.
Additional Provisions Applicable to
Stock Option Plan
. The Board may, in its discretion, grant options under the Plan to eligible employees which constitute “incentive
stock options” within the meaning of Section 422 of the Code; provided, however, that (a) the aggregate Market Value of the
Stock with respect to which incentive stock options are exercisable for the first time by the Optionee during any calendar year
shall not exceed the limitation set forth in Section 422(d) of the Code; and (b) notwithstanding anything to the contrary in Section
5, if the Optionee owns on the date of grant securities possessing more than 10% of the total combined voting power
of all classes of securities of the Company or of any parent or subsidiary of the Company, the price per share shall not be less
than 110% of the Market Value per share on the date of grant and the period of exercise shall not be longer than five years from
the date of grant.
Amendment and
Termination
. No option shall be granted under the Plan after June 30, 2011; provided, however, that the Board of Directors
may at any time prior to that date terminate the Plan. The Board of Directors may at any time amend the Plan or any outstanding
options. No termination or amendment of the Plan may, without the consent of an Optionee, adversely affect the rights of such Optionee
under any option held by such Optionee.
|
ITEM 13.
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
On September 29, 2004, pursuant to a Stock
Purchase Agreement with The Burns Trust (our President is one of the beneficiaries of the trust) and The Navaratnam Trust (our
Chairman is one of the beneficiaries of the trust), as sellers, A.C. Technical Systems Ltd. and A.C. Technical Acquisition Corp.,
as purchasers, AC Acquisition acquired all of the issued and outstanding shares of AC Technical from The Burns Trust and The Navaratnam
Trust for consideration consisting of promissory notes in the aggregate amount of $3,300,000. AC Technical became an indirect subsidiary
of the Company and a wholly owned direct subsidiary of AC Acquisition. $1,800,000 has been paid to The Burns Trust and The Navaratnam
Trust through part of the funding previously received from Laurus. At December 31, 2011, we have two 3% notes payable to Malar
Trust Inc. (an entity of which our Chairman is a beneficiary), totaling $1,500,000 which are due on demand.
Director Independence: None of our directors
are independent.
|
ITEM 14.
|
PRINCIPAL ACCOUNTING FEES AND SERVICES
|
The following table sets
forth the aggregate fees for professional services rendered to us for the years ended December 31, 2011 and 2010. Our principal
accounting firm for the year ended December 31, 2011 and 2010 is Kingery and Crouse P.A.:
|
|
2011
|
|
|
2010
|
|
Audit Fees (a)
|
|
$
|
150,000
|
|
|
$
|
150,000
|
|
Audit Related Fees (b)
|
|
|
-
|
|
|
|
-
|
|
Tax Fees (c)
|
|
|
-
|
|
|
|
-
|
|
All Other Fees (d)
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
150,000
|
|
|
$
|
150,000
|
|
|
(a)
|
Audit Fees.
Fees for audit services billed
in 2011 and 2010 consisted of the audit of our annual consolidated financial statements, reviews of our quarterly consolidated
financial statements, statutory audits, consents and services that are normally provided in connection with statutory and regulatory
filing or engagement. All fees were payable to Kingery and Crouse P.A. for both fiscal years.
|
|
(b)
|
Audit-Related Fees.
There are no audit-related
fees in 2011 and 2010.
|
|
(c)
|
Tax Fees.
There are no tax fees in 2011 and
2010. (d)
All Other Fees.
No other fees were billed in 2011 and 2010.
|
We do not have an audit committee;
however, our board of directors is required to provide advance approval of any non-audit services, other than those of a de minimus
nature, to be performed by our auditors, provided that such services are not otherwise prohibited by law. We do not have a formal
pre-approval policy.
|
|
All the fees for 2011 and 2010 were pre-approved by the board of directors prior to the auditors’
engagement for these services.
|
|
ITEM 15.
|
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
|
3.1*
|
Articles of Incorporation, as amended to date, incorporated by reference to the Registrant’s Form 8-K/A filed February 2, 2005
|
3.2*
|
By-laws of the Registrant incorporated by reference to the Registrant’s Form 10-SB filed May 10, 2000
|
4.1*
|
Securities Purchase Agreement, dated February 13, 2006, by and among Laurus Master Fund, Ltd., Creative Vistas, Inc., Iview Holding Corp. and Iview Digital Video Solutions Inc. incorporated by reference to the Registrant’s Form 8-K filed February 17, 2006.
|
4.2*
|
Secured Term Note, dated February 13, 2006, issued by Creative Vistas, Inc. to Laurus Master Fund, Ltd. incorporated by reference to the Registrant’s Form 8-K filed February 17, 2006.
|
4.3*
|
Secured Term Note, dated February 13, 2006, issued by Iview Digital Video Solutions Inc. to Laurus Master Fund, Ltd. incorporated by reference to the Registrant’s Form 8-K filed February 17, 2006.
|
4.4*
|
Option, dated February 13, 2006, issued by Iview Holding Corp. to Laurus Master Fund, Ltd. incorporated by reference to the Registrant’s Form 8-K filed February 17, 2006.
|
4.5*
|
Warrant, dated February 13, 2006, issued by Creative Vistas, Inc. to Laurus Master Fund, Ltd. incorporated by reference to the Registrant’s Form 8-K filed February 17, 2006.
|
4.6*
|
Amended and Restated Guaranty, dated February 13, 2006 by and among Creative Vistas, Inc., Cancable Inc., Cancable Holding Corp., Cancable, Inc., A.C. Technical Systems Ltd., Creative Vistas Acquisition Corp., Iview Holding Corp. and Iview Digital Video Solutions Inc. incorporated by reference to the Registrant’s Form 8-K filed February 17, 2006.
|
4.7*
|
Amended and Restated Guaranty, dated February 13, 2006 between Brent W. Swanick and Laurus Master Fund, Ltd. incorporated by reference to the Registrant’s Form 8-K filed February 17, 2006.
|
4.8*
|
Side Agreement, dated February 13, 2006 between Iview Digital Video Solutions, Inc., Iview Holding Corp., Creative Vistas Acquisition Corp. and Laurus Master Fund, Ltd incorporated by reference to the Registrant’s Form 8-K filed February 17, 2006.
|
4.9*
|
Joinder and Confirmation of Security Agreement, dated February 13, 2006 among Iview Holding Corp., Cancable Inc., Cancable Holding Corp., Cancable, Inc., A.C. Technical Systems Ltd., Creative Vistas Acquisition Corp., Iview Digital Video Solutions Inc., and Creative Vistas, Inc. delivered to Laurus Master Fund, Ltd. incorporated by reference to the Registrant’s Form 8-K filed February 17, 2006.
|
4.10*
|
First Amendment to Securities Purchase Agreement, dated February 13, 2006, by and among Cancable Inc., Cancable Holding Corp.
and Laurus Master Fund, Ltd. for the purpose of amending the terms of that certain Securities Purchase Agreement by and among Cancable Inc., Cancable Holding Corp. and Laurus, dated as of December 31, 2005 incorporated by reference to the Registrant’s Form 8-K filed February 17, 2006.
|
4.11*
|
Registration Rights Agreement, dated as of February 13, 2006, by and between Creative Vistas, Inc. and Laurus Master Fund, Ltd. incorporated by reference to the Registrant’s Form 8-K filed February 17, 2006.
|
4.12*
|
Securities Purchase Agreement, dated June 24, 2008, by and among LV Administrative Services, Inc., the purchasers from time to time a party thereto, Creative Vistas, Inc., and Cancable Inc. incorporated by reference to the Registrant's Form 8-K filed July 1, 2008
|
4.13*
|
Secured Term Note, dated June 24, 2008, issued by Creative Vistas, Inc. and Cancable Inc. to Valens Offshore SPV II, Corp. incorporated by reference to the Registrant's Form 8-K filed July 1, 2008
|
4.14*
|
Secured Term Note, dated June 24, 2008, issued by Creative Vistas, Inc. and Cancable Inc. to Valens U.S. SPV I, LLC incorporated by reference to the Registrant's Form 8-K filed July 1, 2008
|
4.15*
|
Warrant, dated June 24, 2008, issued by Creative Vistas, Inc. to Valens U.S. SPV I, LLC incorporated by reference to the Registrant's Form 8-K filed July 1, 2008
|
4.16*
|
Warrant, dated June 24, 2008, issued by Creative Vistas, Inc. to Valens Offshore SPV II, Corp. incorporated by reference to the Registrant's Form 8-K filed July 1, 2008
|
4.17*
|
Guaranty, dated June 24, 2008, by and among Creative Vistas, Inc., Cancable Inc., A.C. Technical Systems Ltd., Creative Vistas Acquisition Corp., Cancable Holding Corp., Iview Holding Corp., Iview Digital Video Solutions Inc., Cancable, Inc., 2141306 Ontario Inc., Cancable XL Inc., and XL Digital Services Inc. incorporated by reference to the Registrant's Form 8-K filed July 1, 2008
|
4.18*
|
Master Security Agreement, dated June 24, 2008, by and among Creative Vistas, Inc., Cancable Inc., A.C. Technical Systems Ltd., Creative Vistas Acquisition Corp., Cancable Holding Corp., Iview Holding Corp., Iview Digital Video Solutions Inc., Cancable, Inc., 2141306 Ontario Inc., Cancable XL Inc., and XL Digital Services Inc. incorporated by reference to the Registrant's Form 8-K filed July 1, 2008
|
4.19*
|
Pledge Agreement, dated June 24, 2008, by and among LV Administrative Services, Inc., the purchasers from time to time a party thereto, Cancable Inc., Creative Vistas, Inc., Cancable Holding Corp., Creative Vistas Acquisition Corp., Cancable XL Inc., Iview Holding Corp., and Brent Swanick incorporated by reference to the Registrant's Form 8-K filed July 1, 2008
|
4.20*
|
Guaranty, dated June 24, 2008, of Brent Swanick incorporated by reference to the Registrant's Form 8-K filed July 1, 2008
|
10.1*
|
Stock Option Plan, incorporated by reference to the Registrant’s Form S-8 filed October 6 2006
|
10.2*
^
|
Rogers Cable Communications Inc. and Cancable Inc. for the provision of installation activities and service activities.
|
10.3*
|
Common Stock Purchase Warrant, dated January 22, 2008, issued by Creative Vistas, Inc. to Erato Corporation for the Right to Purchase 812,988 Shares of Common Stock of Creative Vistas, Inc. incorporated by reference to the Registrant’s Form 8-K filed February 28, 2008.
|
10.4*
|
Stock Purchase Agreement, dated January 22, 2008, between Creative Vistas, Inc. and Erato Corporation. incorporated by reference to the Registrant’s Form 8-K filed February 28, 2008.
|
10.5*
|
Common Stock Purchase Warrant, dated January 22, 2008, issued by Creative Vistas, Inc. to Erato Corporation for the Right to Purchase 1,738,365 Shares of Common Stock of Creative Vistas, Inc. incorporated by reference to the Registrant’s Form 8-K filed February 28, 2008.
|
10.6*
|
Letter Agreement dated January 22. 2008 between Creative Vistas, Inc. and Erato Corporation.
|
10.7*
|
Warrant Purchase Agreement, dated January 30, 2008 between Creative Vistas, Inc., Laurus Master Fund, Ltd., Erato Corporation, Valens U.S. Fund, LLC and Valens Offshore SPV I, Ltd. incorporated by reference to the Schedule 13 D filed by the Registrant with respect to 180 Connect Inc. dated February 1, 2008.
|
10.8*
|
Amended and Restated Common Stock Purchase Warrant dated July 2, 2007 issued to Laurus Master Fund, Ltd. by 180 Connect Inc. incorporated by reference to the Schedule 13 D filed by the Registrant with respect to 180 Connect Inc. dated February 1, 2008.
|
10.9*
|
Common Stock Purchase Warrant, dated January 30, 2008, issued by Creative Vistas, Inc. to Erato Corporation for the Right to Purchase 2,350 Shares of Common Stock of Creative Vistas, Inc. incorporated by reference to the Schedule 13 D filed by the Registrant with respect to 180 Connect Inc. dated February 1, 2008.
|
10.10*
|
Common Stock Purchase Warrant, dated January 30, 2008, issued by Creative Vistas, Inc. to Valens U.S. SPV I, LLC for the Right to Purchase 214,033 Shares of Common Stock of Creative Vistas, Inc. incorporated by reference to the Schedule 13 D filed by the Registrant with respect to 180 Connect Inc. dated February 1, 2008.
|
10.11*
|
Common Stock Purchase Warrant, dated January 30, 2008, issued by Creative Vistas, Inc. to Valens Offshore SPV I, Ltd. for the Right to Purchase 582,367 Shares of Common Stock of Creative Vistas, Inc. incorporated by reference to the Schedule 13 D filed by the Registrant with respect to 180 Connect Inc. dated February 1, 2008.
|
10.12*
|
Non-binding Letter of Intent between Creative Vistas, Inc. and Valens U.S. Fund, LLC
|
10.13*
|
Letter of Intent dated February 13, 2008 incorporated by reference to the Schedule 13D Amendment filed by the Registrant with respect to 180 Connect Inc. dated February 19, 2008
|
10.14*
|
Consulting Agreement, dated July 16, 2008, between Creative Vistas, Inc. and Nationwide Solutions Inc. incorporated by reference to the Registrant's Form 8-K filed July 18, 2008
|
10.15*
|
Termination and Release Agreement, dated July 16, 2008, between AC Technical Systems Ltd., Nationwide Solutions Inc. and Sayan Navaratnam
|
10.16*
|
Stock Purchase Agreement among Creative Vistas, Inc., Cancable Holding Corp. and Cancable and Dependable Hometech, LLC, dated September 16, 2011 incorporated by reference to Exhibit 99.2 of the Registrant’s Form 8-K filed September 22, 2011**
|
10.17*
|
Assignment and Assumption Agreement (Valens Debt Assignment and Assumption), dated September 16, 2011, between Creative Vistas, Inc. and Cancable Holding Corp. incorporated by reference to Exhibit 99.3 of the Registrant’s Form 8-K filed September 22, 2011
|
10.18*
|
Assignment and Assumption Agreement (Intercompany Receivables), dated September 16, 2011, between Creative Vistas, Inc. and Cancable Holding Corp. incorporated by reference to Exhibit 99.4 of the Registrant’s Form 8-K filed September 22, 2011
|
10.19*
|
Assignment and Assumption Agreement (Side Agreement), dated September 16, 2011, between Creative Vistas, Inc. and Cancable incorporated by reference to Exhibit 99.5 of the Registrant’s Form 8-K filed September 22, 2011
|
21.1+
|
List of all subsidiaries
|
31.1+
|
Rule 13a-14(a) Certification of the Principal Executive Officer
|
31.2+
|
Rule 13a-14(a) Certification of the Principal Financial Officer
|
32.1+
|
Chief Executive Officer certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
32.2+
|
Chief Financial Officer certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
101
|
Financial Statements from the Annual Report of Creative Vistas, Inc. as of and for the year ended December 31, 2011,
formatted in XBRL.
|
* Previously filed and incorporated by reference
+ Filed herewith
^ Portions of this
exhibit were omitted pursuant to a request for confidential treatment.
** Exhibits and schedules have been omitted pursuant to Item
601(b)(2) of Regulation S-K. The Company agrees to furnish supplementally a copy of any omitted exhibits or schedules
to the SEC upon request.
SIGNATURES
Pursuant to the requirements
of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
|
|
CREATIVE VISTAS, INC.
|
|
|
|
|
|
By:
|
/s/ Dominic Burns
|
|
|
|
Dominic Burns
|
|
|
|
Chief Executive Officer, President and
|
|
|
|
Director
|
|
|
Date:
|
March 30, 2012
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following person on behalf
of the registrant and in the capacities and on the dates indicated.
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/ Dominic Burns
|
|
Chief Executive Officer, President and Director
|
|
March 30, 2012
|
Dominic Burns
|
|
|
|
|
|
|
|
|
|
/s/ Heung Hung Lee
|
|
Chief Financial Officer, Secretary and Director
|
|
March 30, 2012
|
Heung Hung Lee
|
|
|
|
|
Creative Vistas (CE) (USOTC:CVAS)
Gráfica de Acción Histórica
De May 2024 a Jun 2024
Creative Vistas (CE) (USOTC:CVAS)
Gráfica de Acción Histórica
De Jun 2023 a Jun 2024