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 SECURITIES 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

 

Item 1.

Business

 

Corporate Background and Overview

 

Creative Vistas, Inc. (the “Company” or “we”) was incorporated in the state of Arizona on July 18, 1983. We are a leading provider of security-related technologies and systems. We 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 references; and

·

Strong partnerships with suppliers and integrators.

 

Our strategy for growth and expansion is to:

 

·

Expand our network of technology partners;

·

Develop and maintain long-term relationships with clients;

·

Open regional offices in key areas to expand revenue and service;

·

Capitalize on our position as a leading provider of technologically advanced security systems; and

·

Expand our marketing and sales program within our key vertical markets.

 

At the beginning of each new client relationship, we designate an account manager as the client service contact. This individual is the point person for communications between the client and us. The account manager usually has a number of years of experience in the industry and a good understanding of technologies and solutions that we provide. This person is also a trained salesperson who is able to build a long-term relationship with the customer. The account manager works with our project department, engineering department, marketing department, finance department and research and development department to provide an effective solution for the customer. Once the customer has engaged us to provide a solution, the engagement usually goes through one or more of the stages outlined below:

 

Consulting, audit, review and planning

 

We identify the client’s objectives and security system requirements. We then audit and review the client’s existing system. This audit of the existing system evaluates inventory counts and the existing infrastructure. Then we provide an audit report to outline current deficiencies and vulnerabilities. At this point, we design a system alternative to meet the needs of the customer. The alternative system is prioritized based on the needs of the customer. We also include an efficient cost model to ensure that the customer understands the cost of the system. We provide a Return On Investment (ROI) model where applicable. We also provide a preliminary project implementation plan that contains a graphical model of the client’s premises with exact outlines of equipment locations. Our comprehensive planning process helps the customer to properly budget for its needs on a long-term basis.

 

 

Engineering and design

 

The engineering and design process involves preparation of detailed project specifications and working drawings by a team of our design engineers. These drawings lay out the entire property and provide a detailed map of all security equipment and the methodologies used to integrate the system. The specification and drawings also outline any needs for custom software or hardware design services, systems designers and computer-aided design system operators. These specifications and drawings detail areas of high sensitivity, the layout of the main control room, and the placement of cameras, card readers, monitors, switches and other equipment.

 

Once our system design has been completed, we provide a complete list of components and recommendations. We highly recommend off-the-shelf non-proprietary components in order to ensure that the customer is not tied into one supplier. When off-the-shelf components are not available or are not compatible with each other, we design software or hardware to provide compatibility.

 

Customization, software development, interface

 

In many cases, the customer’s needs may not be completely satisfied by the equipment available in the market place. The customer may request features or equipment that are not readily available. For example, a financial institution may request us to take information from their transaction records and an Automatic Teller Machine (ATM), and then integrate that information with a Digital Video Recorder (DVR). This would allow them to review video of an individual who has processed a transaction on an ATM. Normally a financial institution requiring this information would have to go through tapes of data in order to find it. Such a bank would have to search all the transactions that occurred during a period of time and then, based on that information, go over tapes of video. Sometimes the video may not be available if the tapes are only held for a short period of time. Our firm’s integrated system makes this search process instantaneous. Our system allows a bank to search by a number of criteria including time, date, transaction, number and withdrawal amount. A bank can also have video associated with such a search instantly.

 

Many times we provide an interface to bring multiple technologies together. In one project, we integrated eleven different products into one system, thus allowing for a completely integrated system. This integrated system also has a very user-friendly interface that avoids having to deal with multiple monitors and Graphical User Interfaces (GUI).

 

System integration, installation, project management:

 

Once we determine that a project has passed through the consulting/audit, design/engineering and customization/software interfacing stage (if required) we can start the implementation of the system. During this stage, we provide the following:

 

·

Detailed schedule of integration

·

List of components and labor assignments

·

Officially assign the project to one of our project managers

·

Production department starts procurement schedules

·

Construction draw date schedules

·

Progress billings and schedule site visits for quality control

·

Tests of final terminations and technology components in-house in order to avoid product failure on site

·

Hardware/software and network integration

·

Validation and testing

·

Final sign off and pass over to service department

 

During this stage, the project manager manages the project and the projects are updated weekly to ensure that all components are working efficiently. During certain projects, the project manager may opt to use subcontractors to provide services that are not highly advanced technically. These services may include standard wiring and cabling. The customer is updated on the status of the project weekly. These updates may include Gantt charts. During this stage, many customers see the need for additional enhanced equipment, which increases the value of the contract to us.

 

 

System training, technical support, maintenance

 

When a project has been completed through system integration, the customer is provided with a complete training program. We train the customer on how to use the system and also provide them with manuals from manufacturers as well as training guides put together by us. Once the training is complete, the system will go on line and there is a transfer process to the service department from the projects department. Ongoing technical support and maintenance are provided by our dedicated service team.

 

Ongoing maintenance, preventative maintenance and service, upgrades:

 

This is the final stage of our process and it is an ongoing stage. We provide various types of maintenance contracts, which vary depending on the level of response required by the customer. We also provide a service plan suitable to the customer. If the customer does not require a service contract, we provide them with service on an incident by incident basis.

 

The entire six steps process continues for each customer. Once a project is complete, there are upgrades that are required. Depending on the value of the upgrades, they may initiate a new project. During every stage, an account manager is updated on the process. Account managers have regular meetings with the customers after projects are complete in order to help set budgets for the following years and also educate customers on new products and technologies that may be available in the market.

 

Research and Development

 

We have our own in-house research and development programs which are supported by the National Research Council of Canada. We may receive grants and tax credits for projects and product development if they qualify for the program. Our product development department develops new products and also enhances existing products. We have the capability to build various forms of hardware and software modules. Once a product is designed, the underlying technologies are used on an ongoing basis to enhance future projects and develop new products. This is one of the differentiating factors between our competitors and us. Our research and development expenses were approximately $670,000 in fiscal year 2011 and $860,000 in fiscal year 2010. 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:

 

·

Trade shows

·

Mailers

·

Direct sales calls

·

Web promotions

·

Seminars

·

Collaborations with manufacturers

·

Collaborations with consultants and architects

 

  

We also collaborate with providers of complementary technologies and products who are not competitive with us. For example, there is a convergence of IT services and the security industry. We are evaluating the possibility of partnering with an IT services provider in order to provide our existing and potential customers with an expanded scope of services. We are also doing the same within the building automation industry as we see a convergence of building automation technologies and services with the security industry.

 

We are evaluating several opportunities to expand our operations via joint ventures and partnerships with regional and international companies that can provide us with additional expertise and an expanded presence. In addition, we are evaluating the possibility of acquiring similar businesses and expanding our operations.

 

Customers

 

We provide our products and services to customers in four markets:

 

·

Government

·

Healthcare

·

Education

·

Retail

 

We also provide our products and services to various other sectors including corporate facilities, mining, entertainment and the automobile industry through direct sales to end-users and through subcontracting agreements.

 

Backlog

 

Our backlog consists of written purchase orders and 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.

 

ITEM 1A.

RISK FACTORS

 

Described below are the material risks that we face. Our business, operating results or financial condition could be materially adversely affected by, and the trading price of our common stock could decline due to, any of these risks.

 

 

Competitive pressure from larger firms

 

The security industry is highly competitive. We compete with a number of large international firms, which have more extensive resources than we do. In addition, these competitors may have greater brand recognition, proprietary technologies and superior purchasing power as well as other competitive advantages.

 

Risks associated with budget constraints and cut back of customer spending:

 

We are dependent on large institutional and commercial customers and their budgets. If there are cut backs in budgets by 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

·

Potential acquisitions

 

Additional financing may not be available on commercially reasonable terms or may not be available at all.

 

Because our directors own approximately 76% of our outstanding common shares, they could make and control corporate decisions that may be disadvantageous to minority shareholders

 

Our directors own approximately 76% 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.

 

ITEM 2.

PROPERTIES

 

Our office is located at 2100 Forbes Street, Units 8-10, Whitby, Ontario, Canada L1N 9T3. The premises, which were purchased in 2002, consist of approximately 5,900 square feet on the ground floor and 2,200 square feet on the second floor. 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.

 

5.

Term Notes

 

In January 2006, concurrently with the closing of the acquisition of Cancable Inc., the Company entered into a series of agreements with Laurus whereby Cancable, Inc. issued to Laurus a secured term note (the “Cancable Note”) in the amount of $6,865,000 and Cancable Holding issued to Laurus a related option to purchase up to 49 shares of common stock of Cancable Holding (up to 49% of the outstanding shares of Cancable Holding) at a price of $0.01 per share (the “Option”). The loan 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

 

7.

Taxes

 

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

  

 

8.

Warranty

 

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.

 

10.

Segment Information

 

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.

 

 

11.

Commitments

 

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.

 

²Balance 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