Form 10QSB/A

CREATIVE VISTAS INC - CVAS

Filed: April 17, 2006 (period: September 30, 2004)

An amendment to a previously filed 10QSB

Table of Contents

PART I. 

Financial Information
Item 1. 	Financial Statements 1

PART I. 

FINANCIAL INFORMATION
Item 1. 	Financial Statements
Item 2. 	Management's Discussion And Analysis or Plan of Operation
Item 3. 	Controls and Procedures

PART II. 

OTHER INFORMATION
Item 1. 	Legal Proceedings
Item 2. 	Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. 	Defaults upon Senior Securities
Item 4. 	Submission of Matters to a Vote of Security Holders
Item 5. 	Other Information
Item 6. 	Exhibits
SIGNATURES

EX-31.1 (Certifications required under Section 302 of the Sarbanes-Oxley Act of 2002)

EX-31.2 (Certifications required under Section 302 of the Sarbanes-Oxley Act of 2002)

EX-32.1 (Certifications required under Section 906 of the Sarbanes-Oxley Act of 2002)

EX-32.2 (Certifications required under Section 906 of the Sarbanes-Oxley Act of 2002)

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-QSB/A
 
Amendment No. 3
 
(Mark one)
 
⌧ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 2004
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

6770
(Primary Standard Industrial
Classification Code Number)

86-0464104
(I.R.S. Employer
Identification No.)

2100 Forbes Street
Unit 8-10
Whitby, Ontario, Canada L1N 9T3
(905) 666-8676
 
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
 
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  ⌧   No  ☐
 
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. As of April 17, 2006, there were 32,201,716 shares of common stock, no par value per share, outstanding.

 
TABLE OF CONTENTS

PART I.
Financial Information

Item 1.  Financial Statements | 1
Item 2.  Management's Discussion And Analysis or Plan of Operation | 24
Item 3.  Controls and Procedures | 32

PART II.
OTHER INFORMATION

Item 1.  Legal Proceedings | 33
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds | 33
Item 3.  Defaults upon Senior Securities | 33
Item 4.  Submission of Matters to a Vote of Security Holders. | 33
Item 5.  Other Information | 33
Item 6.  Exhibits and Reports on Form 8-K | 33

EXPLANATORY NOTE

The sole purpose of this Form 10-QSB Amendment is to include restated financial statements relating to our accounting for the convertible term note, warrants and options and related registration rights in connection with our financing transaction entered into with Laurus Master Funds, Ltd. We are currently responding to comments provided by the Staff of the Securities and Exchange Commission in connection with our registration statement on Form SB-2. These comments affect our past filings and may affect this filing. The most recent comments relate to our accounting for certain convertible debt that have warrants, options, and related registration rights. We intend to   file a formal response to the SEC's accounting comments related to the Company's registration statement on Form SB-2, and in this filing, we have treated the warrants and options that have registration rights associated with them as derivative liabilities. In addition, we have amended the financial statements contained in our annual report on Form 10KSB for the year ended December 31, 2004 and our quarterly reports on Form 10-QSB for quarters ended March 31, 2005 and June 30, 2005 to reflect this accounting. We have also received comments from the Securities and Exchange Commission regarding whether our convertible debt is a "conventional convertible" instrument. We have responded to the Staff's comments, explaining why, at the time they were issued, we believed that these instruments were "conventional". However, this topic has recently been addressed and clarified by the Financial Accounting Standards Board's Emerging Issues Task Force in Issue 05-2 (EITF 05-2). We issued these instruments prior to EITF 05-2 and interpreted the term "conventional" differently as it relates to certain special anti-dilution provisions. As a result, we have bifurcated the conversion features of some or all of these convertible instruments and record them as derivative liabilities and then mark the liabilities to their fair value at each reporting date.

 
 PART I. FINANCIAL INFORMATION

 Item 1. Financial Statements
 
Creative Vistas, Inc. Condensed Consolidated Balance Sheets (Unaudited) | | September 30, 2004 |
Assets | | |
Current Assets | | |
Cash and bank balances | | $ | 1,562,039 |
Accounts receivable, net of allowance for doubtful accounts $106,385 | | | 2,209,000 |
Income tax recoverable | | | 69,458 |
Inventory, net of reserve of $nil | | | 546,975 |
Deferred income taxes | | | 35,000 |
Prepaid expenses | | | 26,523 |
Due from related parties | | | 3,611 |
| | | 4,452,606 |
Property and equipment, net of depreciation | | | 795,682 |
Restricted Cash | | | 1,250,000 |
Deferred financing costs, net (Note 4) | | | 1,176,365 |
Deferred income taxes | | | 119,689 |
Customer list (Note 5) | | | 8,917 |
Goodwill | | | 503,900 |
| | $ | 8,307,159 |
Liabilities and Shareholders' Deficiency | | | |
Current Liabilities | | | |
Bank indebtedness (Note 6) | | $ | 1,262,333 |
Accounts payable and accrued liabilities | | | 2,080,332 |
Deferred income | | | 343,356 |
Current portion of convertible notes (Note 7) | | | 600,000 |
Current portion of other notes payable (Note 9) | | | 102,558 |
Due to related parties | | | 54,969 |
| | | 4, 443,548 |
Convertible notes | | | 1,924,667 |
Notes payable to related parties (Note 8) | | | 1,500,000 |
Other notes payable (Note 9) | | | 158,529 |
Due to related parties | | | 127,487 |
Derivative Financial Instruments (Note 7) | | | 2,963,000 |
| | | 11,117,231 |
Shareholders' deficiency | | | |
Share capital | | | |
Authorized | | | |
100,000,000 no par value common shares | | | |
50,000,000 shares of preferred stock | | | |
Issued | | | |
30,000,000 Common shares | | | - |
Accumulated paid-in capital | | | (2,236,784 | )
Accumulated other comprehensive income | | | 39,459 |
Deficit | | | (612,747 | )
| | | (2,810,072 | )
| | $ | 8,307,159 |
 
The accompanying notes are an integral part of these financial statements
-1-

Creative Vistas, Inc.
Consolidated Statement of Stockholders' Equity (Deficiency) and Other Comprehensive Income
 
| | Shares | | Amount | | Additional paid-in capital | | Accumulated retained earnings (deficit) | | Accumulated other comprehensive income (loss) | | Total Stockholders' Equity (deficiency) |
Predecessor | | | | | | | | | | | | |
Balance, December 31, 2002 | | | 30,000,000 | | $ | 71 | | $ | - | | $ | 246,623 | | $ | 5,363 | | $ | 252,057 |
Redemption during the year | | | | | | (71 | ) | | - | | | - | | | - | | | (71 | )
Issuance of common shares | | | | | | 2 | | | - | | | - | | | - | | | 2 |
Net Income | | | - | | | - | | | - | | | 162,757 | | | - | | | 162,757 |
Translation adjustment | | | - | | | - | | | - | | | - | | | 67,576 | | | 67,576 |
Balance, December 31, 2003 | | | 30,000,000 | | | 2 | | | - | | | 409,380 | | | 72,939 | | | 482,321 |
Net loss | | | - | | | - | | | - | | | (765,653 | ) | | - | | | (765,653 | )
Translation adjustment | | | - | | | - | | | - | | | - | | | (27,038 | ) | | (27,038 | )
Balance, September 29, 2004 | | | 30,000,000 | | | 2 | | | - | | | (356,273 | ) | | 45,901 | | | (310,370 | )
Successor | | | | | | | | | | | | | | | | | | |
Continuing shareholders basis adjustment | | | - | | | (2 | ) | | (2,796,100 | ) | | - | | | - | | | (2,796,102 | )
Warrants related to financing | | | | | | | | | 559,316 | | | | | | | | | 559,316 |
Net loss | | | - | | | - | | | - | | | (256,474 | ) | | - | | | (256,474 | )
Translation adjustment | | | | | | | | | | | | | | | (6,442 | ) | | (6,442 | )
Balance, September 30, 2004 | | | 30,000,000 | | $ | - | | $ | (2,236,784 | ) | $ | (612,747 | ) | $ | 39,459 | | | (2,810,072 | )

The accompanying notes are an integral part of these financial statements
-2-

Creative Vistas, Inc.
Condensed Consolidated Statement of Operations
(Unaudited)

| | Successor Period from September 29, 2004 to September 30, 2004 | | Predecessor Period from July 1, 2004 September 29, 2004 | | Predecessor Period from July 1, 2003 September 30, 2003 | | Successor Period from September 29, 2004 to September 30, 2004 | | Predecessor Period from January 1, 2004 to September 29, 2004 | | Predecessor Period from January 1, 2003 to September 30, 2003 |
Contract | | | | | | | | | | | | |
Contract | | $ | - | | $ | 1,982,482 | | $ | 2,154,594 | | $ | - | | $ | 5,268,773 | | $ | 5,896,198 |
Service | | | - | | | 281,794 | | | 217,984 | | | - | | | 783,184 | | | 629,221 |
| | | - | | | 2,264,276 | | | 2,372,578 | | | - | | | 6,051,957 | | | 6,525,419 |
Cost of sales | | | | | | | | | | | | | | | | | | |
Contract | | | - | | | 1,573,376 | | | 1,471,250 | | | - | | | 3,689,980 | | | 3,726,546 |
Service | | | - | | | 311,288 | | | 111,022 | | | - | | | 418,563 | | | 346,343 |
| | | - | | | 1,884,664 | | | 1,582,272 | | | - | | | 4,108,543 | | | 4,072,889 |
Gross margin | | | - | | | 379,612 | | | 790,306 | | | - | | | 1,943,414 | | | 2,452,530 |
Operating expense | | | | | | | | | | | | | | | | | | |
Project | | | - | | | 358,680 | | | 316,858 | | | - | | | 1,087,741 | | | 953,293 |
Selling | | | - | | | 237,632 | | | 186,208 | | | - | | | 733,138 | | | 705,179 |
General and administrative | | | 256,474 | | | 382,231 | | | 262,970 | | | 256,474 | | | 1,058,142 | | | 671,484 |
| | | 256,474 | | | 978,543 | | | 766,036 | | | 256,474 | | | 2,879,021 | | | 2,329,956 |
Income (loss) from operations | | | (256,474 | ) | | (598,931 | ) | | 24,270 | | | (256,474 | ) | | (935,607 | ) | | 122,574 |
Interest | | | | | | | | | | | | | | | | | | |
Interest | | | - | | | 8,069 | | | 7,342 | | | - | | | 23,550 | | | 17,454 |
| | | - | | | 8,069 | | | 7,342 | | | - | | | 23,550 | | | 17,454 |
Income (loss) before income taxes | | | (256,474 | ) | | (607,000 | ) | | 16,928 | | | (256,474 | ) | | (959,157 | ) | | 105,120 |
Income taxes | | | - | | | (155,105 | ) | | 13,991 | | | - | | | (193,504 | ) | | 27,983 |
Net income | | | (256,474 | ) | | (451,895 | ) | | 2,937 | | | (256,474 | ) | | (765,653 | ) | | 77,137 |
Basic weighted average shares | | | 30,000,000 | | | 30,000,000 | | | 30,000,000 | | | 30,000,000 | | | 30,000,000 | | | 30,000,000 |
Basic earnings per share | | | (0.01 | ) | | (0.02 | ) | | 0.01 | | | (0.01 | ) | | (0.03 | ) | | 0.01 |
Diluted earnings per share | | | (0.01 | ) | | (0.02 | ) | | 0.01 | | | (0.01 | ) | | (0.03 | ) | | 0.01 |
 
The accompanying notes are an integral part of these financial statements

-3-

 

Creative Vistas, Inc.
Condensed Consolidated Statement of Cash Flows
(Unaudited)

| | Successor | | Predecessor | | Predecessor |
| | Period from September 29, 2004 to September 30, 2004 | | Period from January 1, 2004 to September 29, 2004 | | Period from January 1, 2003 to September 29, 2003 |

Cash provided by (used in)
Operating activities

Net loss | | $ | (256,474 | ) | $ | (765,653 | ) | $ | 77,137 |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities | | | | | | | | | |
Depreciation of capital assets | | | - | | | 37,589 | | | 35,767 |
Amortization of customer lists | | | - | | | 2,823 | | | 2,623 |
Bad debt expenses (recovery) | | | - | | | 1,055 | | | (1,119 | )
Deferred income taxes | | | - | | | (125,740 | ) | | - |
Changes in non-cash working capital balances | | | | | | | | | |
Accounts receivable | | | - | | | (60,518 | ) | | (298,468 | )
Inventory | | | - | | | 178,160 | | | 29,154 |
Prepaid expenses | | | - | | | (2,891 | ) | | - |
Accounts payable and other accrued liabilities | | | 166,342 | | | 52,095 | | | (104,543 | )
Bonus payable | | | - | | | - | | | (52,952 | )
Deferred revenue | | | - | | | 227,503 | | | 51,965 |
Income taxes payable | | | - | | | (105,043 | ) | | 28,049 |
| | | (90,132 | ) | | (560,620 | ) | | (232,388 | )
Investing activities | | | | | | | | | |
Purchase of property and equipment | | | - | | | (967 | ) | | 743 |
Investment in subsidiary | | | (1,800,079 | ) | | - | | | (27,099 | )
Financing activities | | | (1,800,079 | ) | | (967 | ) | | (26,356 | )
Increase in bank indebtedness | | | 1,183,172 | | | 394,729 | | | 112,725 |
Deferred financing costs | | | (751,289 | ) | | - | | | - |
Due to related parties | | | - | | | (67,968 | ) | | 159,695 |
Notes payable | | | - | | | 248,006 | | | - |
Convertible notes | | | 3,250,000 | | | - | | | - |
Repayment of mortgage principal | | | (229,633 | ) | | (13,180 | ) | | (13,607 | )
Redemption of common shares | | | - | | | - | | | (71 | )
Issuance of common shares | | | - | | | - | | | 2 |
| | | 3,452,250 | | | 561,587 | | | 258,744 |
Net change in cash and cash equivalents | | | 1,562,039 | | | - | | | - |
Cash and cash equivalents, beginning of period | | | - | | | - | | | - |
Cash and cash equivalents, end of period | | | 1,562,039 | | | - | | | - |
Supplemental Cash Flow Information | | | | | | | | | |
Cash paid for interest | | $ | - | | $ | 236,082 | | $ | 51,450 |
Cash paid for income taxes | | $ | - | | $ | 37,278 | | $ | - |
Non cash expenses relating to business acquisition and leveraged buyout | | $ | 134,239 | | $ | - | | $ | - |

The accompanying notes are an integral part of these financial statements

-4-

Creative Vistas, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
 
1. | Nature of Business
 
On September 30, 2004 the ultimate stockholders of AC Technical Systems Ltd. (“AC Technical”) entered into a series of transactions to acquire a controlling stock interest in Creative Vistas, Inc. (“CVAS”). On September 30, 2004, the CVAS stockholders entered into a Common Stock Purchase Agreement (the “Agreement”) with Sayan Navaratnam, Dominic Burns, Randy Stern and Malar Trust, Inc. (a corporation controlled by Sayan Navaratnam). Pursuant to the Agreement, Miller Capital Corporation and Tudor Investments LTD agreed to sell 28,500,000 shares of CVAS to Sayan Navaratnam, Dominic Burns, Randy Stern and Malar Trust, Inc. for cash consideration of $300,000.
 
Prior to the consummation of the Agreement, CVAS completed a series of transactions resulting in AC Technical becoming a subsidiary of CVAS. On September 22, 2004, CVAS incorporated a new Ontario company, AC Technical Acquisition Corp. (“AC Acquisition”) controlled by CVAS through a voting agreement with Brent Swanick. CVAS owns 50 VFV shares (voting fixed shares) and 100 NVE shares (non-voting equity). Brent Swanick owns the remaining 50 VFV shares. The total issued share capital was $100 ($1 for each VFV share). There was no par value for the NVE shares; AC Acquisition is a subsidiary of Creative Vistas, Inc. Subsequently, on September 29, 2004, pursuant to a Stock Purchase Agreement with The Burns Trust, The Navaratnam Trust and AC Technical, 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 a subsidiary of CVAS.
 
On September 30, 2004, concurrent with the consummation of the Agreement, the Registrant entered into a number of agreements with Laurus Master Fund, Ltd. (“Laurus”) for (i) a secured convertible term note (the “Note”) in the amount of $4.5 million and (ii) secured revolving notes (together with the Term Note, the “Notes”) in the aggregate maximum amount of $3 million, (iii) a related options to purchase up to 1,499,997 shares of our common stock at a price of two-thirds of a cent per share (the “Option”), and (iv) a seven year warrant to purchase up to 2,250,000 shares of our common stock at a price of $1.15 per share (the “Warrant”). The Notes are secured by all of the assets of CVAS and its subsidiaries.
 
CVAS loaned the proceeds of the Notes to AC Acquisition. AC Acquisition used the funds received to repay an aggregate of $1.8 million of the principal amount of the promissory notes and to pay transaction costs. The inter-company balance is subject to interest at a negotiated interest rate.
 
After the completion of the business acquisition and leveraged buyout transactions AC Technical's previous ultimate stockholders Sayan Navaratnam and Dominic Burns controlled 56% and 37% respectively of the common shares of CVAS. Prior to the completion of the business acquisition and leverage buyout transactions, the Burns Trust and the Navaratnam Trust each held 50% of the common shares of AC Technical. Consequently, the acquisition of the controlling stock interest in the non-operating public shell corporation, CVAS (the legal acquirer), by the shareholders of AC Technical, has been accounted for as a business acquisition and leveraged buyout under Emerging Issues Task Force (“EITF”) Issue No. 88-16.
 
On September 30, 2004 the previous management and Directors of CVAS resigned and in addition to being appointed to the Board of Directors Sayan Navaratnam and Dominic Burns were appointed Chief Executive Officer and President respectively. Additionally, AC Technical's Chief Financial Officer, Heung Hung Lee, was appointed Chief Financial Officer of CVAS.
 
The Predecessor, A.C. Technical Systems Ltd. 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. The Company operates under the trade name of AC Technical Systems.

-5-

 The current corporate structure is as follows:

2. | Stock Splits
 
On December 23, 2004, the Company's board of directors declared a three-for-one stock split on the shares of the Company's common stock. Each shareholder of record on December 17, 2004, received two additional shares of common stock for each share of common stock then held. The Company retained the current par value of $Nil per share for all shares of common stock. All references in the financial statements to the number of shares outstanding, per share amounts, and stock option data of the Company's common stock have been restated to reflect the effect of the stock split for all periods presented.
 
3. | Summary of Accounting Policies
 
Basis of presentation
 
The accompanying unaudited condensed consolidated balance sheet as at September 30, 2004 and statement of operations and statement of cash flows for the period of the day of September 30, 2004 include the accounts of CVAS, AC Acquisition and AC Technical. Intercompany balances and transactions have been eliminated in consolidation. The accompanying unaudited condensed statement of operations and statement of cash flows for the period ended September 29, 2004 and September 30, 2003 include the account of AC Technical. No separate financial statements are presented for the company, Creative Vistas, Inc., prior to the business acquisition and leveraged buyout transactions because, prior to September 30, 2004, it had no material assets or results. The balance sheet at September 30, 2004 and the statements of operations for the nine months ended September 30, 2003 and 2004 and the statements of cash flows for the nine months ended September 30, 2003 and 2004 are unaudited. In the opinion of management, these condensed consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) that are necessary for a fair presentation of the results for and as of the periods shown. The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States. However, certain information or footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. The results of operations for such periods are not necessarily indicative of the results expected for 2004 or for any future period. These financial statements should be read in conjunction with the financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2003 and December 31, 2004 filed with the Securities and Exchange Commission.

-6-

Restatement

We have amended the annual reports for the year ended December 31, 2004 and quarterly reports of the quarters ended September 30, 2004, March 31, 2005 and June 30, 2005 to reflect the accounting for the convertible term note, warrants and options and related registration rights in connection with our financing transaction entered into with Laurus Master Funds, Ltd. on September 30, 2004. We are currently responding to comments provided by the Staff of the Securities and Exchange Commission in connection with our registration statement on Form SB-2. These comments affect our past filings and may affect this filing. The most recent comments relate to our accounting for certain convertible debt that have warrants, options, and related registration rights. We intend to   file a formal response to the SEC's accounting comments related to the Company's registration statement on Form SB-2, and in this filing, we have treated the warrants and options that have registration rights associated with them as derivative liabilities. In addition, we have also received comments from the Securities and Exchange Commission regarding whether our convertible debt is a "conventional convertible" instrument. We have responded to the Staff's comments, explaining why, at the time they were issued, we believed that this instrument was "conventional". Upon further consideration of the definition of conventional convertible debt under EITF 00-19 “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in a Company's own stock” [Missing Graphic Reference] , we concluded that our convertible debt was not a “conventional convertible” instrument. As a result, we were required to bifurcate the conversion features of some or all of these convertible instruments and record them as derivative liabilities and then mark the liabilities to their fair value at each reporting date.

As a result of the restatement, warrants and options have been reclassified as liabilities. The warrants and options had previously been measured based on a relative fair method and are now measured at their full fair value and will be marked to market on each balance sheet date.

Embedded derivatives contained in the convertible debenture and the secured line of credit are now bifurcated from the host debt and measured at fair value and classified as liabilities. These embedded derivatives will also be marked to market on each balance sheet date.

The resulting debt discount will be amortized over the period of the convertible debt and the secured line of credit as interest and other expenses in our accompanying consolidated statements of operations.

Accordingly, the effect on our accompanying consolidated balance sheet as of September 30, 2004 was an increase in liabilities by $3,573,352 and corresponding increase in stockholders' deficiency of $3,573,352. The effect on our consolidated statements of operations for the quarter ended September 30, 2004 was $nil.

Cash and Cash Equivalents
 
The Company considers all cash and highly liquid investments purchased with an initial maturity of three months or less to be cash and cash equivalents.
 
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.
 
The Company's cash and cash equivalents were $1,562,039 as at September 30, 2004.
 
Accounts Receivable
 
The Company extends credit to its customers based upon a written credit policy. Accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company's best estimate for the amount of probable credit losses in the Company's existing accounts receivable. The Company establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends, and other information. Receivable balances are reviewed on an aged basis and account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

-7-

Investment Tax Credits
 
Investment tax credits are accrued when qualifying expenditures are made and there is reasonable assurance that the credits will be realized. Investment tax credits earned with respect to current expenditures for qualified research and development activities are included in the statement of operations as a reduction of expenses. Tax credits earned with respect to capital expenditures are applied to reduce the cost of the related capital assets.
 
Research and Development Expenditures
 
Research and development costs (other than capital expenditures) are expensed as incurred. Expenditures are reduced by any related investment tax credits.
 
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, and excess inventory based upon assumptions about future demand and market conditions.
 
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
Furniture and fixtures | 20% declining balance basis
Computer equipment | 30% declining balance basis
Equipment | 20% declining balance basis
 
Customer List
 
Customer list represents the acquisition cost of an acquired customer list and is recorded at cost less accumulated amortization. Amortization is provided on a straight-line basis over the period of expected benefit of 5 years. The Company reviews the revenues from the customer list at each balance sheet date to determine whether circumstances indicate that the carrying amount of the asset should be assessed.
 
Long-Lived Assets
 
The Company reviews its long-lived assets for impairment at each balance sheet date and whenever events or changes in circumstances indicate that the carrying amount of an asset should be assessed. To determine if an impairment exists, the Company estimates the future undiscounted cash flows expected to result from the use of the asset being reviewed for impairment. If the sum of these expected future cash flows is less than the carrying amount of the asset, the Company recognizes an impairment loss in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. The amount of the impairment recognized is determined by estimating the fair value of the assets and recording a loss for the excess of the carrying value over the fair value.
 
Goodwill
 
Goodwill is evaluated for potential impairment on an annual basis or whenever events or circumstances indicate that an impairment may have occurred. Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets”, (“SFAS No. 142”) requires that goodwill be tested for impairment using a two-step process. The first step of the goodwill impairment test, used to identify potential impairment, compares the estimated fair value of the reporting unit containing goodwill with the related carrying amount. If the estimated fair value of the reporting unit exceeds its carrying amount, the reporting unit's goodwill is not considered to be impaired and the second step of the impairment test is unnecessary. If the reporting unit's carrying amount exceeds its estimated fair value, the second step test must be performed to measure the amount of the goodwill impairment loss, if any. The second step test compares the implied fair value of the reporting unit's goodwill, determined in the same manner as the amount of goodwill recognized in a business combination, with the carrying amount of such goodwill. If the carrying amount of the reporting unit's goodwill exceeds the implied fair value of the goodwill so calculated, an impairment loss is recognized in an amount equal to the excess.
 
-8-

Deferred Financing Costs
 
Deferred financing costs represent costs directly related to obtaining of financing. Deferred financing costs are amortized over the term of the related indebtedness using the effective interest method.
 
Continuing Shareholders' Basis Adjustment
 
AC Technical was acquired by AC Acquisition on September 30, 2004 as described in Note 1. This transaction was accounted for as a purchase in accordance with Statement of Financial Accounting Standards No. 141 “Business Combinations”. As a result of a 87% continuing ownership interest in the Company by certain shareholders (“Continuing Shareholders”), 13% of the purchase price was allocated to the assets and liabilities acquired at their respective fair values with the remaining 87% ownership interest recorded at the Continuing Shareholders' historical book values as of the date of acquisition in accordance with Issue No. 88-16 of the Emerging Issues Task Force of the Financial Accounting Standards Board “Basis in Leveraged Buyout Transactions” (“EITF 88-16”). As a result of the carryover of the Continuing Shareholders' historical basis, shareholders' equity of the Company has been reduced by $2,796,102 with a corresponding reduction in the amount assigned to goodwill. The balance of continuing shareholders basis adjustments was equal to 87% of the total consideration and net of carrying value and any required transaction costs of AC Technical. It represents the lower of the residual interest in the old company and the new company.
 
Issuance of Equity Instruments for Services
 
Stock-based awards to non-employees are accounted for based on the fair value of the goods and services or the fair value of the equity instrument at the time of issuance, whichever is more reliably measurable in accordance with the provisions of Statement of Financial Accounting Statements No. 123, Accounting for Stock-Based Compensation, and EITF Issue No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods and Services.
 
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 Statement of Position (SOP) 81-1, “Accounting for Certain Construction Type and Certain Production Type Contracts, 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 SOP 81-1, SEC Staff Accounting Bulletin 104, “Update of Codification of Staff Accounting Bulletins” and EITF 00-21, “Revenue Arrangements with Multiple Deliverables”. The recognition of revenue reflects the degree of completeness based upon project drawings, project schedules, progress of actual installation and are 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 with SOP81-1 and SEC Staff Accounting Bulletin 104, which are the delivery of the equipment and completion of installation process. The fair value of each element was based on the price charged when it is sold on a standalone basis.

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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. Collections are monitored over the term of each project, and if a customer becomes delinquent, the revenue may be deferred.
 
Service Revenue
 
Service revenue consists of fees generated by providing monitoring services, preventive maintenance and technical support, product maintenance and upgrades. 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 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 these 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 direct to cost of sales.
 
Loss per share
 
The Company applies Statement of Financial Accounting Standards No. 128, Earnings Per Share (FAS 128). Basic loss per share (“LPS”) is computed using the weighted average number of common shares outstanding during the period. Diluted LPS is computed using the weighted average number of common and dilutive potential common shares outstanding during the period. Dilutive potential common shares consist of common stock issuable upon exercise of stock options and warrants and conversion of debt using the treasury stock method. The Company has reported a net loss for the period ended September 30, 2004. As a result, 1,499,997, 2,989,500 and 6,750,000 shares of common stock, which may be issued upon exercise of options and warrants and convertible debts respectively, have been excluded from the calculation of diluted loss per share, for the nine months ended September 30, 2004, because their inclusion would be anti-dilutive. There were no options or warrants granted in 2003.
 
Financial Instruments
 
The carrying value of the Company's financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate 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 convertible notes and notes payable also approximates fair value except notes payable due to The Burns Trust and the Navaratnam Trust and related party balances for which the fair value is not determinable.

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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. When the risks and rewards of any embedded derivative instrument are not "clearly and closely" related to the risks and rewards of the host instrument, the embedded derivative instrument is generally required to be bifurcated and accounted for separately. If the convertible instrument is debt, or has debt-like characteristics, the risks and rewards associated with the embedded conversion option are not "clearly and closely" related to that debt host instrument. The conversion option has the risks and rewards associated with an equity instrument, not a debt instrument, because its value is related to the value of our common stock. Nonetheless, if the host instrument is considered to be "conventional convertible debt", bifurcation of the embedded conversion option is generally not required. However, if the instrument is not considered to be conventional convertible debt, bifurcation of the embedded conversion option may be required in certain circumstances. 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 to 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 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.

In circumstances where the embedded conversion option in a convertible instrument is required to be bifurcated and there are also other embedded derivative instruments in the convertible instrument that are required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument.

When the embedded derivative instrument is to be bifurcated and accounted for as a liability, the total proceeds received are first allocated to the fair value of the bifurcated derivative instrument. If freestanding options or warrants were also issued and will be accounted for as derivative instrument liabilities (rather than as equity), the proceeds are next allocated to the fair value of those instruments. The remaining proceeds, if any, are then allocated to the convertible instrument itself, usually resulting in that instrument being recorded at a discount from its face amount. In circumstances where a freestanding derivative instrument is to be accounted for as an equity instrument, the proceeds are allocated between the convertible instrument and the derivative equity instrument, based on their relative fair values.

The discount from the face value of the convertible debt instrument is amortized over the life of the instrument through periodic charges to income, using the effective interest method.
 
The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be expected within 12 months of the balance sheet date.
 
Credit Risk
 
The Company's financial assets that are exposed to credit risk consist primarily of cash and equivalents and accounts receivable. Concentrations of credit risk with respect to accounts receivable are limited due to the large number of customers serviced by the Company and their generally short payment terms.

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Foreign Currency Translation
 
The Company maintains its accounts in United States dollars and in Canadian dollars for Canadian-based subsidiaries. The financial statements have been translated into United States dollars in accordance with SFAS No. 52, Foreign Currency Translation.
 
All balance sheet accounts have been translated using the exchange rates in effect at the balance sheet date. Statement of operations amounts have been translated using the average exchange rate for the year. The gains and losses resulting from the changes in exchange rates from year to year have been reported separately as a component of comprehensive income. The gain and losses resulting from any inter-company balances with different functional currencies would be recognized in statement of operations.
 
Income Taxes
 
The Company accounts for income taxes using the asset and liability approach in accordance with SFAS No. 109, Accounting for Income Taxes. The asset and liability approach requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities. A valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets will not be realized.
 
The provision for income taxes consists of an amount for the taxes currently payable and a provision for the tax consequences deferred to future periods.
 
Comprehensive Income
 
Comprehensive income equals net income plus other comprehensive income. Other comprehensive income refers to foreign currency translation adjustments.
 
Accounting Estimates
 
The Company prepares its financial statements in accordance with accounting principles generally accepted in the United States of America, which require management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities. The estimates and assumptions used in the accompanying financial statements are based upon management's evaluation of the relevant facts and circumstances as of the date of the financial statements. Actual results may differ from the estimates and assumptions used in preparing the accompanying financial statements.
 
Recent Accounting Pronouncements
 
In January 2003, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. (“FIN”) 46, “Consolidation of Variable Interest Entities.” This interpretation of Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” addresses consolidation by business enterprises of variable interest entities. FIN 46 explains the concept of a variable interest entity and requires consolidation by the primary beneficiary where there is a controlling financial interest in a variable interest entity or where the variable interest entity does not have sufficient equity at risk to finance its activities without additional subordinated financial support from other parties. The primary beneficiary is the party that is exposed to the majority of the risk or stands to benefit the most from the entity's activities. In December 2003, the FASB released a revised version of FIN 46 (hereafter referred to as FIN 46R) clarifying certain aspects of FIN 46 and providing certain entities with exemptions from the requirements of FIN 46. Based upon management's evaluation of FIN 46R, the adoption did not have a material effect on the consolidated financial statements.

In April 2004, the Financial Accounting Standards Board (FASB) issued FASB Staff Position (“FSP”) FSP 129-1, “Disclosure of Information about Capital Structure, Relating to Contingently Convertible Securities”. The purpose of this FASB Staff Position is to interpret how the disclosure provisions of Statement 129   apply to contingently convertible securities and to their potentially dilutive effects on EPS. FSP explains that Statement 129 applies to all contingently convertible securities, including those containing contingent conversion requirements that have not been met and are not otherwise required to be included in the computation of diluted EPS in accordance with FASB Statement No. 128, Earnings per share. To comply with paragraph 4 of Statement 129, the significant terms of the conversion features of the contingently convertible security should be disclosed to enable users of financial statements to understand the circumstances of the contingency and the potential impact of conversion. Quantitative and qualitative terms of the contingently convertible security, disclosure of which would be helpful in understanding both the nature of the contingency and the potential impact of conversion. The guidance in this FSP is effective immediately. The Company adopted the disclosure provision required by FAS 129.

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In November 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 151, “Inventory Costs-an Amendment of ARB No. 43, Chapter 4”. The standard adopts the view related to inventories that abnormal amounts of idle capacity and spoilage costs should be excluded from the cost of inventory and expensed when incurred. Additionally, the meaning of the term “normal capacity” was clarified. It should be effective for fiscal years beginning after June 15, 2005. Based on the management's evaluation of SFAS No. 151, the adoption is not expected to have a material effect on the consolidated financial statements.
 
In December 2004, the FASB issued FASB Statement No. 123R (Revised), “Share-Based Payment which is a revision of FASB Statement No. 123, Accounting for Stock-Based Compensation”. Statement No. 123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends FASB Statement No. 95, Statement of Cash Flows. Statement No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values and, for small business issuers, is effective at the beginning of the first interim and annual reporting period of the registrant's first fiscal year that begins after December 15, 2005. Based on the management's evaluation of SFAS No. 123R, the adoption is not expected to have a material effect on the consolidated financial statements.
 
In September 2004, the FASB issued EITF 04-8, “The Effect of Contingently Convertible Instruments on Diluted Earnings per Share”. This Issue addresses when contingently convertible instruments should be included in diluted earnings per share. The Task Force reached a consensus that contingently convertible instruments should be included in diluted earnings per share (if dilutive) regardless of whether the market price trigger has been met. The Task Force also agreed that the consensus should be applied to instruments that have multiple contingencies if one of the contingencies is a market price trigger and the instrument is convertible or settleable in shares based on meeting a market condition. Based on management's evaluation of EITF 04-8, the adoption did not have a significant effect on the consolidated financial statements.

4. | Deferred Financing Costs, Net
 
Deferred financing costs, net are associated with the Company's revolving line of credit and term note from Laurus Master Fund, Ltd., a Cayman Islands company. (see Note 7 and 10) Balance included $425,076 which was related to the warrants issued pursuant to investment banking fees. For the period ended September 30, 2004, the amortization of deferred financing cost approximately $Nil (2004 - $Nil).
 
The estimated amortization expense for each of the next four fiscal years is as follows:
 
Year | | Amount |
2004 | | $ | 125,379 |
2005 | | | 471,892 |
2006 | | | 379,058 |
2007 | | | 200,036 |
| | $ | 1,176,365 |

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5. | Customer List
 
| | 2004 |
| | Cost | | Accumulated Depreciation |
Customer list | | $ | 15,852 | | | 6,935 |
| | | | | $ | 8,917 |
 
Amortization expense for the period ended September 2004, amounted to $2,823 (2003-$2,623). The estimated amortization expense for each of the next three fiscal years is as follows:
 
Year | | Amount |
2004 | | $ | 991 |
2005 | | | 3,963 |
2006 | | | 3,963 |
| | $ | 8,917 |
 
6. | Bank Indebtedness

The Company has a $3,000,000 secured revolving line of credit with Laurus which is renewable in September 30, 2007 which included a secured convertible minimum borrowing note amounted to $1,000,000 (see Note 7). Advances under this facility of $2,250,000 at September 30, 2004 are collateralized by the assets of the Company. Interest on these borrowings is payable monthly at a minimum of 6% interest rate on the outstanding balance or an agreed upon formula of prime plus 2%. The Company will irrevocably remit all of its present and future Account Debtors directly to bank account and repay the bank indebtedness.

Laurus may require us to convert into common stock all or a portion of the amount outstanding under the bank indebtedness, together with interest, at any time at a conversion price of $1.00 per common share, subject to adjustment in certain circumstances. Laurus has contractually agreed not to convert any portion of the credit facility if exercising the conversion option results in Laurus holding in excess of 4.99% of our outstanding shares of common stock. (also see Note 7)
 
The balance as at December 31, 2003 was related to a revolving credit facility with a Canadian Chartered Bank entered by A.C. Technical Systems Ltd., the wholly owned subsidiary of the Company. The balance was settled during the year.
 
Bank indebtedness, net of current portions is comprised of:
 
| | 2004 |
Bank Indebtedness due to Laurus, collateralized by all assets of the Company | | $ | 2,250,000 |
Add: Conversion options of debts | | | 1,035,000 |
Less: | | | |
Discount on notes, net of accumulated amortization of $Nil (2003 - $Nil) | | | (2,022,667 | )
| | | 1,262,333 |

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7. | Convertible Notes

a) | Private Placement - Laurus Master Fund, Ltd.

On September 30, 2004, the Company entered into a series of agreements with Laurus Master Fund, Ltd., a Cayman Islands company, pursuant to which the Company issued a Secured Convertible Term Note in the principal amount of $4,500,000 due September 30, 2007, secured revolving note and secured convertible minimum borrowing note (the “revolving note”) of up to a maximum aggregate amount of $2,000,000 and $1,000,000 due September 30, 2007, a common stock purchase warrant and a stock purchase option.
 
Pursuant to the Secured Convertible Term Note, Laurus provided the Company with a $4,500,000 asset based credit facility in the form of a three-year Convertible Note secured by all the assets of the Company and its subsidiaries including accounts receivable, inventory and real property. The term note is convertible into shares of the Company's common stock at an initial fixed conversion rate of $1.00 per share.
 
At the closing of the transaction, Laurus funded $3,250,000 to the Company under the Convertible Note. Pursuant to the Securities Purchase Agreement between Laurus and the Company and a restricted account agreement entered into by the Company, Laurus and a US bank, the remaining $1,250,000 was deposited into a restricted account for the benefit of Laurus as additional security for the obligations of the Company under the purchase agreement and the related agreements. The restricted account is to be maintained at the US bank to be released upon the effectiveness of the registration statement covering the shares of common stock acquirable by Laurus, provided that there is no default by the Company under the Laurus financing and the Company meets certain financial milestones. Subsequent to the period ended September 30, 2004, Laurus has waived the requirements and released $125,000 from the restricted account to the Company to fund the Company's loan to dataBahn on March 9, 2005 (also see Note 14) and the remaining $1,125,000 was released on June 27, 2005. The $1,250,000 restricted account amount as of September 30, 2004 is included on the Balance Sheet under the caption "Restricted Cash".
 
Laurus has the option to convert the entire principal amount of the term note and revolving notes, together with interest thereon into shares of the Company's common stock at a conversion price of $1 per common share. The amount convertible into the Company's common stock is subject to a conversion cap that Laurus beneficially own no more than 4.99% of the Company's outstanding common stock immediately after conversion. The balance of the secured revolving notes was $2,250,000 as at September 30, 2004.
 
Pursuant to the Secured Convertible Term Note, subject to certain volume limitations and other conditions, all or a portion of the monthly payment due on the Convertible Term Note will be converted into the common stock of the Company. The term note sets forth criteria primarily relating to share price and trading volume pursuant to which the Company is 1) required to pay Laurus in cash, 2) required to pay Laurus in stock or 3) required to pay Laurus in a combination of cash and stock. If the share price and trading volume criteria are met, the Company is required to pay principal and interest in stock. If the share price, but not the trading volume, criteria are met, the Company will be required to pay in a combination of stock and cash. Otherwise, the Company will be required to pay Laurus in cash. Neither Laurus nor the Company has the option of choosing in which form the Company makes its payments if these criteria are met.
 
The Company must pay Laurus in stock if
 
| (i) | the average closing price of its common stock as reported by Bloomberg, L.P. on the principal market for the 5 consecutive trading days immediately preceding the date that Laurus gives the Company a Repayment Notice is greater than or equal to 110% of the fixed conversion price of $1.00 after the 3-for-1 stock split (i.e. if the stock price is greater than $1.10 per share) and
 
| (ii) | the amount of such conversion does not exceed 25% of the aggregate dollar trading volume of the common stock for the 22 day trading period immediately preceding delivery of a Repayment Notice.
 
Any portion of the monthly amount due that is not payable in shares of common stock because the trading volume conversion criteria described above are not met must be paid in cash. Accordingly, if the average closing price described above is over $1.10 per share but the number of shares due would exceed 25% of the aggregate dollar trading volume described above, the Company would be required to pay Laurus in a combination of cash and stock.

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When the average closing price of the common stock is less than 110% of the fixed conversion price of $1.00, the Company must pay all or a portion of the monthly amount subject to the following conditions. If the average closing price of the common stock on the principal market is less than 110% of the fixed conversion price (i.e. less than $1.10) for the 5 trading days immediately preceding a repayment date, then Laurus shall provide CVAS with a Repayment Notice requiring the conversion of the monthly amount, as of the date of the repayment notice, at a fixed conversion price equal to the lesser of:
 
| (i) | 85% of the average of the closing prices of the common stock during the 20 trading days immediately prior to the date of the delivery of such respective repayment notice or
 
| (ii) | 85% of the average of the 3 closing prices of the common stock for the 3 trading days immediately prior to the date of the delivery of such respective repayment notice;
 
provided that such conversion of the monthly amount due on each repayment date does not exceed 25% of the aggregate dollar trading volume of the common stock for the 22 day trading period immediately preceding delivery of a repayment notice. The fixed conversion price should not be less than $0.73 in any event.
 
The Repayment Date is the date that monthly interest is payable, the date that the cash portion of each Monthly Amount is payable, and the date that shares, if any, are to be issued in lieu of the Monthly Amount. The first Repayment Date was November 1, 2004 and the Repayment Dates continue on the first day of each consecutive calendar month thereafter.
 
The Repayment Notice is the notice delivered by Laurus to the Company prior to the Repayment Date that sets out what portion of the Monthly Amount payable will be settled in shares.
 
Laurus does not have the option of choosing in which form the Company makes its monthly principal payments. If the conversion criteria described above are met, Laurus has voluntarily agreed to provide a Repayment Notice to indicate to the Company what portion of the Monthly Amount must be made in cash or stock. If Laurus does not provide the Repayment Notice, it has no legal consequences, but would make the determination of the requisite payments difficult. The Company is required to pay cash for any part of the monthly amount due on a Repayment Date which Laurus was not able to convert into shares of common stock due to failure to meet the conversion criteria.
 
Subject only to the conversion cap of the term note, Laurus is required to convert the then outstanding principal amount of the note plus all accrued, but unpaid interest thereon when all of the following conditions are met: 1) the closing price for any 10 consecutive trading days exceeds 135% of the then effective Fixed Conversion Price, 2) there is an effective registration statement pursuant to which Laurus is permitted to utilize the prospectus thereunder to resell all of the conversion shares issued to Laurus (or such conversion shares are eligible for sale under Rule 144 of the Securities Act), 3) there is a sufficient number of authorized but unissued and otherwise unreserved shares of common stock for Laurus to convert all the shares issuable to Laurus under the term note pursuant to Section 3.6, and 4) the amount of the term note to be so converted pursuant to Section 3.6 (when combined with the amount of the secured convertible minimum borrowing note issued by the Company to Laurus to be so converted pursuant to Section 3.6 of the minimum borrowing note and the amount of any other promissory note issued by the Company to Laurus required to be similarly mandatorily converted) does not exceed 10% of the aggregate dollar trading volume of the common stock during such 10 consecutive trading days. If all of these criteria were not met, Laurus would have no obligation to convert.
 
We may prepay the amortizing principal portion of the Convertible Term Note at any time by paying 125% of the outstanding amortizing principal amount, together with accrued but unpaid interest on the outstanding amortizing principal amount. We may also prepay the non-amortizing principal portion of the Convertible Term Note at any time by paying 120% of the outstanding non-amortizing principal amount, together with accrued but unpaid interest on the outstanding non-amortizing principal amount. Upon an event of default under the Convertible Term Note, Laurus may demand repayment at a rate of 120% of the outstanding principal and interest amount of the Convertible Term Note. If the Convertible Term Note remains outstanding after an event of default that is not cured, the additional interest rate on the outstanding principal amount payable on a monthly basis will be equal to 18% per annum. Events of default include:
 
| • | a failure to make payments under the Convertible Term Note when due;

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| • | a material breach of the transaction documents by us;
 
| • | bankruptcy related events;
 
| • | a change of control transaction without prior approval;
 
| • | an SEC stop trade order or Principal Market trading suspension of the Common Stock; and
 
| • | events of default under other indebtedness agreements to which we are a party.
 
Pursuant to the Secured Convertible Minimum Borrowing Note, subject to certain volume limitations and other conditions, if after the date a registration statement covering the resale of the conversion shares is declared effective, the closing price for any 10 consecutive trading days exceeds 135% of the then effective Fixed Conversion Price, Laurus will within 10 trading days convert all or part of the then outstanding amount of the secured convertible minimum borrowing note plus all accrued but unpaid interest into shares of the Company's common stock. No amount can be converted until (a) either (i) there is an effective registration statement covering the shares of the common stock to be issued in satisfaction of such obligations, or (ii) an exemption from registration of the common stock is available pursuant to Rule 144 of the Securities Act, and (b) no event of default exists under the transaction documents unless cured or waived.

The Company has granted Laurus a right of first refusal with respect to any debt or equity financings for a period of 120 days after completion of the business acquisition and leveraged buyout transaction.
 
The principal amounts of the term note and the revolving notes bear interest at the prime rate plus two percent with a minimum rate of six percent. Interest accrued on the term note but was not payable until November 1, 2004. Interest on the revolving note accrues on a monthly basis. Interest is calculated on the basis of a 360 day year. The minimum monthly payment on the term note is $100,000, plus the monthly interest payment, and may be paid in cash, the common stock of the Company or a combination of cash and stock, dependant upon the occurrence of certain criteria.
 
Interest on the term note for the period ended September 30, 2005 was $Nil (2004: $Nil). The minimum fixed monthly principal repayment of $100,000 commences on April 1, 2005, and continues through the September 30, 2007 maturity date.
 
On a month-by-month basis, if we register the shares of common stock issuable upon conversion of the note and upon exercise of the warrant and options on a registration statement declared effective by the SEC, the interest rate on the Note is subject to a 0.25% reduction for every 25% increase in the market price of our common stock above the conversion price of the Note, but in no event shall the interest rate be less than zero percent.
 
Laurus also has the option to convert all or a portion of the Convertible Term Note into shares of our common stock at any time, subject to the limitation described below, at an initial fixed conversion price of $1.00 per share, subject to adjustment as described below. The Convertible Term Note is currently convertible into 4,500,000 shares of our common stock, excluding the conversion of any accrued interest. The conversion price is adjustable on a weighted average basis upon certain future issuances of securities by us at a price less than the conversion price then in effect. The limitation on Laurus' ability to convert the Note and exercise the warrant and options includes:
 
· | Laurus may not convert the Note or exercise the Warrant for a number of shares that would cause all shares then held by Laurus to exceed 4.99% of our outstanding shares of common stock unless there has been an event of default or Laurus provides us with 75 days prior notice.
 
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The principal payments for the next three years are as follows:
 
Year | | Amount |
2005 | | $ | 900,000 |
2006 | | | 1,200,000 |
2007 | | | 2,400,000 |
| | $ | 4,500,000 |
 
We were obligated to file a registration statement registering the resale of shares of our common stock issuable upon conversion of the note and exercise of the warrants and options by November 15, 2004 and to have such registration statement declared effective by the SEC by no later than March 31, 2005. If the registration statement is suspended other than as permitted in the Registration Rights Agreement, or if our common stock is not listed for three consecutive trading days, we are obligated to pay Laurus additional fees. The fees are 2.0% of the original principal amount of the term note and secured minimum borrowing note for each 30 day period in which we fail to take these actions. Under the Registration Rights Agreement between Laurus and the Company, if
 
| (i) | the Registration Statement is not filed on or prior to the applicable filing date;

| (ii) | the respective Registration Statement is not declared effective by the effectiveness date;

| (iii) | after the respective Registration Statement is filed with the SEC and declared effective, such Registration Statement ceases to be effective due to certain conditions;

| (iv) | the Common Stock is not listed or quoted, or is suspended from trading on any Trading Market for a period of five consecutive Trading Days,

The Company shall pay Laurus an amount in cash, as liquidated damages and not as a penalty, equal to 2.0% for each thirty day period (prorated for partial period) on a daily basis of the sum of the original principal amount of the Note (as defined in the Securities Purchase Agreement) plus the original principal amount of each applicable Minimum Borrowing Note (as defined in the Security Agreement).
 
Convertible notes, net of current portions are comprised of:
 
| | 2004 |
7% convertible term note due to Laurus, collateralized by all assets of the Company | | $ | 4,500,000 |
Add: conversion options of debt | | | 2,070,000 |
Less: | | | |
Discount on notes, net of accumulated amortization of $Nil (2003 - $Nil) | | | (4,045,333 | )
| | | 2,524,667 |
Less: current portion | | | 600,000 |
| | $ | 1,924,667 |

b) Derivative Financial Instruments
 
We also issued to Laurus warrants and options to purchase up to 2,250,000 shares and 1,499,997 shares of our common stock at an exercise price of $1.15 and $0.01 per share with a term of seven and ten years. The warrants and options were initially recorded as equity and they have been reclassified for the period ended September 30, 2004 (see Note 3 Restatement). The warrants and options were now recorded at fair value and classified as liability (with a corresponding entry as debt discount of the note). The fair value of the warrants and option at the time of issue was $2,963,000. (computed using a Black-Scholes model with an interest rate of 3.5%, volatility of 55%, expected dividend yield of 0%, share price of $1.07 and expected term of seven and ten years respectively). The discount attributable to the above warrants and options are recorded as a reduction to the carrying value of the Bank Indebtedness (Note 6) and Convertible Note (Note 7) in the accompanying consolidated balance sheet as of September 30, 2004. The debt discount is being amortized over the term of the Convertible Note and Bank Indebtedness using the effective interest method. Amortization of the debt discount and debt issuance costs for the period ended September 30, 2004 was $Nil.

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Additionally, we recorded $1,176,365 for debt issue cost, including investment banking fees and legal and professional fees which included $751,289 payable in cash and $425,076 payable through warrants issued to the investment bankers. (Note 10)The debt issue costs are included in deferred financing costs (Note 4) in the accompanying consolidated balance sheet as of September 30, 2004. The debt issue costs are being amortized over the term of the Convertible Note using the effective interest method. Amortization of the debt issuance costs for the period ended September 30, 2004 was $Nil.
 
EITF Issue No. 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock,”  or EITF 00-19, addresses accounting for equity derivative contracts indexed to, and potentially settled in, a company's own stock, or equity derivatives, by providing guidance for distinguishing between permanent equity, temporary equity and assets and liabilities. EITF 00-19 addresses and clarifies whether specific contract provisions or other circumstances cause a net-share or physical settlement alternative to be within or outside the control of the issuer.
 
Under EITF 00-19, to qualify as permanent equity, all of the following criteria must be met: the equity derivative contract must permit the company to settle in unregistered shares, the company must have sufficient authorized but unissued shares available to settle the contract, the contract must contain an explicit limit on the number of shares to be delivered in a share settlement, there can be no requirement in the contract to post collateral, there can be no “make whole” provisions in the contract, there can be no provisions that could require a net cash settlement to the holder of the contract and there can be no provisions in the contract that indicate the counterparty has rights that rank higher than those of a common stockholder. Equity derivative contracts accounted for as permanent equity are recorded at their initial fair value and subsequent changes in fair value are not recognized unless a change in the contracts' classification occurs. Equity derivative contracts not qualifying for permanent equity accounting are recorded at fair value as an asset or liability with subsequent changes in fair value recognized through the statement of operations.
 
The registration rights are not treated as freestanding derivative instruments and penalties will be recorded as expenses when they are incurred.
 
In connection with the provisions of EITF 00-19 the Company acknowledges that obtaining a declaration of a registration statement's effectiveness and maintaining such effectiveness is beyond its control. Therefore, the potential liquidated damages we may be required to pay pursuant to the registration rights agreements described in Note 7(a) if we fail to keep our registration statements effective are a potential net cash settlement under EITF 00-19. The warrants and options issued in connection with the financing should be classified as liabilities. The fair value of the warrant and option liability is adjusted at each balance sheet date, with the non-cash change in fair value reported in the consolidated statement of operations as other income or expense.
 
At September 30, 2004, the following derivative liabilities related to common stock options and warrants were outstanding:

Issue Date | Expiry Date | | Number of options or warrants | Exercise Price Per Share | Value - issue date | Value - September 30, 2004
09-30-2004 | 09-30-2014 | Option issued Laurus in connection with financing | 1,499,997 | $0.01 | $1,593,000 | $1,593,000
09-30-2004 | 09-30-2011 | Warrants issued Laurus in connection with financing | 2,250,000 | 1.15 | 1,370,000 | 1,370,000
| | | | | $2,963,000 | $2,963,000

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At September 30, 2004, the following derivative liabilities related to embedded conversion options were as follows:

09-30-2004 | | Conversion options related to the convertible term note | 4,500,000 | 1.00 | $2,070,000 | $2,070,000 |
09-30-2004 | | Conversion options related to bank indebtedness | 3,000,000 | 1.00 | 1,035,000 | 1,035,000 |
| | | | | 3,105,000 | $3,105,000 |
| | | | | $6,068,000 | $6,068,000 |
 
The above derivative liabilities were recorded as discount of Convertible notes and Bank Indebtedness as follows:

| | September 30, 2004 |
Discount on Bank Indebtedness (Note 6) | | $ | 2,022,667 |
Discount on Convertible Notes (Note 7a) | | | 4,045,333 |
| | $ | 6,068,000 |
 
8. | Note Payable to Related Parties

In September 2004, the Company issued two promissory notes with an aggregate principal amount of $3,300,000. On September 30, 2004, the Company repaid an aggregate of $1,800,000 of the principal balance. The outstanding principal bears interest at 3% per annum with no fixed terms of repayment. The notes each with an amount of $750,000 are due to The Burns Trust (the Company's president is one of the beneficiaries of the trust) and the Navaratnam Trust (the Company's CEO is one of the beneficiaries of the trust), respectively.
 
Interest expense recognized for the period was $Nil (2003 - $Nil).
 
9. | Other Notes Payable

As at September 30, 2004 balance comprises:
 
| | 2004 |
10.5% promissory notes | | $ | 158,529 |
8% convertible promissory note | | | 102,558 |
| | | 261,087 |
Less: current portion | | | 102,558 |
| | $ | 158,529 |
 
In February 2004, the Company issued four promissory notes each with principal amounts of $39,632 and payable at 100% of the face or principal amount in the denomination of CAD $50,000. The notes mature on February 26, 2007. Interest is payable monthly and accrues at the rate of 10.5% per annum on the outstanding principal amount on the 26 ^th  day of each month. The principal amount of the notes is repayable in twelve consecutive monthly payments commencing on March 26, 2006.

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In September 2004, the Company issued a convertible promissory note payable at 100% of the face or principal amount of $100,000. The note matures on October 15, 2005. Interest on the note accrues at the rate of 8% per annum, payable monthly.
 
Interest expense recognized for the period was $9,000 (2003:$Nil).
 
The principal payments for the next five years and thereafter are as follows:
 
Year | | Amount |
2005 | | $ | 102,558 |
2006 | | | 132,107 |
2007 | | | 26,422 |
| | $ | 261,087 |
 
10. | Stockholders' Equity and Stock Warrants

The Company has total authorized share capital of 100,000,000 shares. On December 23, 2004, the Company declared a three-for-one stock split on the shares of the Company's common stocks. Each shareholder of record on December 17, 2004, received two additional shares of common stock for each share of common stock then held. The Company retained the current par value of $Nil per share for all shares of common stock. All references in the financial statements to the number of shares outstanding, per share amounts, and stock option data of the Company's common stock have been restated to reflect the effect of the stock split for all periods presented.
 
Options
 
For the period ended September 30, 2004, the Company granted 1,499,999 options to purchase a maximum of 1,499,999 shares of common stock. All the options granted are pursuant to issuance of debt. These options allow the holders to buy the Company's common stock at a price of two-third of two cents per share and expire in September 30, 2014. No options were exercised during the year (see also Note 1). The options related to the debt were recorded at fair value by using the Black-Scholes option pricing model as discount on notes of the convertible notes (see Note 7 for the conditions). The fair value of options issued was $1,593,000.
 
Warrants
 
For the period ended September 30, 2004, the Company granted 2,989,500 warrants to purchase a maximum of 2,989,500 shares of common stock. Of the warrants granted, 2,250,000 warrants were issued pursuant to issuance of debt with the balance of 739,500 warrants issued pursuant to consulting and investment banking fees.
 
The warrants related to the debt were recorded at fair value by using the Black-Scholes option pricing model as discounts on notes of the convertible notes (see Note 7 for the conditions). The fair value of the warrants issued pursuant to issuance with the debt was $1,370,000. 
 
In addition, the warrants issued pursuant to consulting and investment banking fees were recorded at fair value by using the Black-Scholes option pricing model and part of the costs were recorded as deferred financing costs (also see Note 4). The fair value of the warrants issued was $559,315. The balance related to the financing cost amounted to $425,076 was recorded as Deferred Financing Cost (Note 4 and 7b) and the remaining balance $134,239 related to the business and acquisition cost was expensed as general and administration cost as at September 30, 2004. 
 
These warrants allow the holders to buy the Company's common stock at prices ranging from $0.33 to $1.15 per share and expire at various dates between September 30, 2009 and September 30, 2011. No warrants were exercised during the year (see also Note 1).
 
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11. | Loss Per Share

The following table sets forth the computation of basic and diluted loss per share. The effect of dilutive securities is included only when dilutive.
 
| | Successor | | Predecessor | | Predecessor |
| | Period from September 30, 2004 to September 30, 2004 | | Period from January 1, 2004 to September 29, 2004 | | Period from January 1, 2004 to September 30, 2004 |
Numerator | | | | | | |
Net income (loss) | | $ | (256,474 | ) | $ | (765,653 | ) | $ | 77,137 |
Denominator | | | | | | | | | |
Denominator for basic earnings per share weighted average shares outstanding | | | 30,000,000 | | | 30,000,000 | | | 30,000,000 |
Denominator for diluted earnings per share adjusted weighted average shares assumed conversions | | | 30,000,000 | | | 30,000,000 | | | 30,000,000 |
Basic earnings (loss) per share | | | (0.01 | ) | | (0.03 | ) | | 0.01 |
Diluted earnings (loss) per share | | | (0.01 | ) | | (0.03 | ) | | 0.01 |
 
Total number of shares excluded from the calculation of loss per share for the period ended September 30, 2004 was 11,239,497 because they are anti-dilutive.
 
12. | Acquisition

The Transaction described in under basis of presentation was accounted for as a business combination in accordance with SFAS No. 141 with the step-up in the basis of assets acquired and liabilities assumed limited by the requirements of EITF 88-16. A summary of the Transaction is presented below:
 
Proceeds from borrowings | | $ | 3,300,000 |
Assumption of bank indebtedness | | | 63,746 |
Aggregate purchase price | | | 3,363,746 |
Continuing shareholders' basis adjustment (Note 3) | | | (2,796,100 | )
Purchase price allocated | | $ | 567,646 |
Fair value of net tangible assets acquired | | | |
Accounts receivable | | $ | 287,160 |
Income taxes recoverable | | | 9,030 |
Inventory | | | 71,107 |
Prepaid expenses | | | 3,448 |
Other current assets | | | 3,740 |
Property and equipment | | | 103,439 |
Deferred income taxes | | | 20,109 |
Accounts payable and accrued liabilities | | | (268,683 | )
Deferred income | | | (44,636 | )
Notes payable | | | (33,941 | )
Mortgage payable | | | (29,852 | )
Loans payable | | | (23,740 | )
Net tangible assets acquired | | | 97,181 |
| | | 470,465 |
Capitalized transaction costs | | | 33,435 |
Goodwill | | $ | 503,900 |

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13. | Contingencies

The Company is potentially liable for $21,400 relating to a claim by a former employee in 2004 and the balance was subsequently settled in 2005.
 
In addition, the Company was assessed by the Ontario Ministry of Finance for uncollected Ontario sales tax on prior years' taxable sales. The Company may recover the sales tax from customers and administratively, the Ministry would assist the Company in recovering these amounts. No accrual has been provided for this assessment as at September 30, 2004. Subsequent to period ended September 30, 2004, the outstanding balance of the assessment was subsequently settled in 2005 with approximately $52,000.
 
14. | Subsequent Events

On December 23, 2004 the Company affected a 3-for-1 stock. The stock split has been retroactively reflected in these condensed consolidated financial statements.
 
On January 12, 2005, the Company announced that AC Technical entered into a letter of intent to acquire the privately held dataBahn, Inc. (“dataBahn”). dataBahn is based in Farmers Branch, Texas, and provides solutions to connect consumers and commercial users by providing satellite-based internet, voice and data services to the emerging broadband mobile communications markets. The acquisition is subject, among other things, to due diligence and the negotiation of definitive documentation. In furtherance of this acquisition, the Company entered into a Security Agreement and Secured Promissory Note Purchase Agreement with dataBahn, Inc. on March 9, 2005. Pursuant to these agreements, the Company is negotiating the terms of transaction with dataBahn to acquire all its outstanding capital stock or substantially all of its assets. In order to meet certain financial obligations of dataBahn, the Company purchased a Secured Promissory Note amounting to $125,000 from dataBahn. The secured two-year promissory note bears interest at 10% and matured on March 9, 2007. dataBahn pays interest on monthly basis from April 8, 2005 and the monthly principal amounted to $10,416 will start to be paid from April 8, 2006.
 
Subsequent to period end, the Company entered into ten Amendments (each an “Amendment”) with Laurus amending the following agreements previously entered into by the Company and Laurus on September 30, 2004: (a) the Securities Purchase Agreement; (b) the Secured Convertible Term Note; and (c) the Registration Rights Agreement.

Pursuant to the Amendments, Laurus agreed to postpone scheduled principal payments in respect of the Term Note and in consideration of the postponement until September 30, 2007, the Company agreed to issue additional 1,000,000 warrants.

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In addition, on June 22, 2005, the Company entered into an Amendment and Waiver with Laurus amending the Securities Purchase Agreement and Registration Rights Agreement. Pursuant to the Amendment, Laurus waived liquated damages due and payable to Laurus by the Company of approximately $138,000 incurred by the Company for failing to cause its registration statement registering the shares to be declared effective by the SEC on the required date. The Company issued to Laurus a warrant to purchase 313,000 shares of the common stock of the Company at an exercise price of $1.00 per share. The Company entered into another Amendment and Waiver with Laurus as of September 1, 2005 pursuant to which Laurus waived liquidated damages due and payable by the Company for failing to cause its registration statement to be declared effective by the SEC on the extended required date. The effectiveness date has been extended to November 30, 2005. The Company has not issued additional warrants to Laurus in connection with this waiver.

Subsequent to period end, the Company entered into another consulting agreement by issuing 200,000 shares of stock in consideration for investor relations services rendered. The fair value of shares issued was $367,446. In addition, the Company entered into another consulting agreement by issuing 100,000 shares of stock in consideration for advisory services rendered.

In addition, all the outstanding principal of a convertible promissory note in the amount of $105,193 was converted by Rachel Heller into 174,216 shares of the Company's common stock subsequent to year end.

Also on December 31, 2005, the Company and Laurus entered into an Amendment and Waiver extending the date by which the Company was to have an effective registration statement on file with the Securities and Exchange Commission registering the shares of common stock of the Registrant issuable upon conversion of the Secured Convertible Term Note and the exercise of the Warrant to March 31, 2006.

 Item 2. Management's Discussion And Analysis or Plan of Operation
(Unaudited)
 
The following discussion of the financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes thereto. The following discussion contains certain forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed therein. Factors that could cause or contribute to such differences include, but are not limited to, risks and uncertainties related to the need for additional funds, the rapid growth of the operations and our ability to operate profitably a number of new projects. Except as required by law, we do not intend to publicly release the results of any revisions to those forward-looking statements that may be made to reflect any future events or circumstances.
 
No financial statements are presented for the shell company, Creative Vistas, Inc., prior to the business acquisition and leveraged buyout transactions because, prior to the September 30, 2004 transactions, its assets and results were immaterial. Prior to September 30, 2004, Creative Vistas refers to the shell company. The term “the Company” refers to the post business acquisition and leveraged buyout consolidated entity.
 
Overview and Recent Developments
 
On September 22, 2004, we incorporated a new Ontario company, AC Technical Acquisition Corp., in order to effect the acquisition of AC Technical Systems Ltd. Creative Vistas, Inc. owns 50 VFV shares (voting fixed value shares) and 100 NVE shares (non-voting equity shares) of AC Acquisition. Brent Swanick owns the remaining 50 VFV shares. The total issued share capital was CDN$100 (CDN$1 for each VFV share). Each VFV share is only entitled to a return of CDN$1 upon dissolution of AC Acquisition and has no share in AC Acquisition's profits; AC Acquisition is a direct subsidiary of ours and our 100 NVE shares have the entire interest in the profits of AC Acquisition.
 
On September 29, 2004, pursuant to a Stock Purchase Agreement with The Burns Trust (our president is one of the beneficiaries of the trust), The Navaratnam Trust (our CEO is one of the beneficiaries of the trust) and AC Technical Systems Ltd., 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.

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On September 30, 2004 the shareholders (The Burns Trust and The Navaratnam Trust) of AC Technical Systems Ltd., an Ontario corporation, entered into a series of transactions to acquire a controlling stock interest in Creative Vistas. On September 30, 2004, pursuant to a Common Stock Purchase Agreement with Miller Capital Corporation and Tudor Investments LTD Profit Sharing Plan, Sayan Navaratnam, Dominic Burns, Randy Stern and Malar Trust, Inc. purchased 28,500,000 shares of Creative Vistas, Inc.'s common stock from Miller Capital Corporation and Tudor Investments LTD Profit Sharing Plan for cash consideration of $300,000. Immediately prior to this purchase, there were 1,500,000 shares of Creative Vistas, Inc. common stock outstanding which remained outstanding and were retained by the pre-existing stockholders of Creative Vistas, Inc.
 
On September 30, 2004, we entered into a series of agreements with Laurus Master Fund, Ltd., one of the selling shareholders, whereby we issued to Laurus (i) a secured convertible term note in the amount of $4.5 million, (ii) secured revolving notes in the aggregate maximum amount of $3 million, (iii) a related option to purchase up to 1,499,997 shares of our common stock at a price of two-thirds of a cent per share, and (iv) a seven year warrant to purchase up to 2,250,000 shares of our common stock at a price of $1.15 per share. The loan is secured by all of our assets and the assets of our subsidiaries.
 
The Company loaned the proceeds of the term note and the revolving notes to AC Acquisition. AC Acquisition used the funds received to repay an aggregate of $1.8 million of the principal amount of the promissory notes and to pay transaction costs.
 
After the completion of the business acquisition and leveraged buyout transactions Sayan Navaratnam and Dominic Burns controlled 56% and 37% respectively of the common stock of the Company. Consequently, the acquisition of the controlling stock interest in the non-operating public shell corporation, Creative Vistas (the legal acquirer), by the shareholders of AC Technical, has been accounted for in accordance with EITF 88-16, “Basis in Leveraged Buyout Transactions”.
 
On September 30, 2004 the previous management and Directors of the Company resigned and in addition to being appointed to the Board of Directors, Sayan Navaratnam and Dominic Burns were appointed Chief Executive Officer and President, respectively. Additionally, AC Technical's Chief Financial Officer, Heung Hung Lee, was appointed Chief Financial Officer of the Company.
 
Our largest customer, Loblaws Companies Ltd. accounted for approximately 22% and 32% of our revenues in each of the fiscal years ended December 31, 2004 and 2003, respectively. We anticipate that Loblaws Companies Ltd. will account for a significant portion of our future revenues. Five other customers each accounted for from 1% to 6% of our revenues during the same periods.
 
More than 70% of our revenues are based on purchase orders.
 
On December 3, 2004, the Company announced that AC Technical was awarded approximately $648,000 in orders for new security projects, providing access control and CCTV equipment plus installation and related services in three projects for the Canadian Government.
 
In the private sector, on December 20, 2004, the Company announced that AC Technical had been awarded approximately $607,500 in orders for security-related equipment and services for a Canadian regional healthcare facility.
 
On January 5, 2005, the Company announced that AC Technical was awarded orders for approximately $365,500 in security projects for a Canadian retailer.
 
On January 12, 2005, the Company announced that AC Technical entered into a letter of intent to acquire the privately-held dataBahn, Inc. dataBahn is based in Farmers Branch, Texas, and provides solutions to connect consumers and commercial users by providing satellite-based internet, voice and data services to the emerging broadband mobile communications markets. The acquisition is subject, among other things, to due diligence and the negotiation of definitive documentation. In furtherance of this acquisition, on March 9, 2005, the Company made a two-year secured loan to dataBahn in the amount of $125,000 and agreed to lend dataBahn an additional $125,000.

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On February 1, 2005, the Company announced that AC Technical was awarded additional ordes worth approximately $178,200 in security projects for a Canadian retailer.
 
On February 7, 2005, the Company announced that AC Technical was awarded orders for over $324,000 in security projects for the Canadian Government.
 
On February 11, 2005, the Company announced that AC Technical was selected by BMW to implement a security project to provide the automotive manufacturer with advanced digital video surveillance equipment, plus integration and related services designed to ensure the security of BMW's locations in Canada. The project is expected to be completed during the first half of 2005.
 
On March 11, 2005 the Company announced that AC Technical was awarded approximately $810,000 in orders for security projects by the Canadian Government, and companies in the education, medical and healthcare markets. On March 24, 2005 the Company announced that AC Technical was awarded approximately $1,377,000 in additional orders for security projects by the Canadian Government, and companies in the education, medical and healthcare markets.
 
On April 1, 2005 the Company announced that AC Technical received a grant from Canada's Industrial Research Assistance Program.
 
Results of Operations
Comparison of Period Ended September 30, 2004
to Period Ended September 30, 2003
 
For purposes of this “Management's Discussion and Analysis or Plan of Operation” the numbers in the financial statements covering the successor period of the day September 30, 2004 were combined with the predecessor period from January 1, 2004 to September 29, 2004 to reflect the entire nine months period ended September 30, 2004.
 
Since our business tends to be seasonal, most of the jobs are usually processed by us in the first or the fourth quarter of the calendar year. For example, the Canadian federal government has a March year end, and as a result, we experience an increase in government contracts in the first quarter of the calendar year.
 
Sales: Sales for the nine months ended September 30, 2004 totaled $6,052,000 representing a decrease of 7.2% from the nine months ended September 30, 2003. Our contract revenues have decreased by 10.6% which was mainly due to project delays and construction delays. In addition, contract revenue from one of our major customers decreased from approximately $2,000,000 in 2003 to $1,300,000 in 2004. Fiscal 2003's revenue was higher as this customer had a greater number of stores that required security system. On the other hand, our service revenue, have grown by 24% which was mainly due to more maintenance revenue. The increase in service revenue primarily represents the cumulative effect of the growth in contracts and number of customers over the past few years. We have experienced a significant increase in the number of inquiries for systems from the government and retail sector. This increased interest in security products and services may result in our achieving increased revenues in future periods if we are successful in attracting new customers or obtaining additional projects from existing customers. There is no assurance that the Company will be able to attract new customers.
 
Cost of Goods Sold: Cost of goods sold for the nine months ended September 30, 2004 decreased to $4,109,000 or 68% of revenues from $4,073,000 or 62% of revenues, for the nine months ended September 30, 2003. The increase was mainly due to the increase of the labor and subcontractor cost to $1,331,000 or 22% of revenues for the nine months ended September 30, 2004 from $985,000 or 15% of revenues for the nine months ended September 30, 2003. The increase was mainly due to the increase in salaries. The increase was offset by the decrease of material costs to $2,748,000 or 45% of revenues for the nine months ended September 30, 2004 from $3,044,000 or 47% of revenues for the nine months ended September 30, 2003. The decrease of the cost of materials was mainly due to the decrease in revenue by 7%.

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Project, Selling, General and Administrative Expenses: Projects, selling, general and administrative expenses for the nine months ended September 30, 2004 increased to $3,135,000 or 52% of revenues from $2,329,900 or 36% of revenues, for the nine months ended September 30, 2003. The increase was mainly due to the increase in research and development expenses to $128,000 for the period ended September 30, 2004 from $18,000 for the period ended September 30, 2003. It was mainly due to the hiring of new staff and more equipment was purchased for research and development department. In addition, salaries and benefits increased by $32,000 which was mainly due to the hiring the new Chief Financial Officer. The travel expenses increased to $82,000 for the period ended September 30, 2004 from $66,000 for the period ended September 30, 2003 which was mainly due to more travel by the CEO and President for the business acquisition and leverage buyout transaction. The insurance expenses have increased by $24,000 which is mainly due to the industry-wide increase in premiums. The truck and auto expenses increased by $46,000 which was mainly due to the increase in usage of the gas and more repair and maintenance on automobile. The investment banking fees and legal fees increased to $148,000 and $108,000 for the period ended September 30, 2004.
 
Operating Income/Loss: Our losses were mainly due to some projects with lower gross margins in 2004. The gross margin for the period ended September 30, 2004 decreased by 5.5%. In addition, we hired more administrative staff. There were increases in expenses incurred in the business acquisition and leveraged buyout transactions and also expenditures on infrastructure in preparation of becoming a public company and in preparation for future expansion. We have also invested in research and development to improve and expand our technology base, which may result in increased margins and increased revenues in the future.
 
Interest Expense: Interest expenses for the nine months ended September 30, 2004 slightly increased by $6,000. The increase was primarily due to there being nine months of interest during the nine months ended September 30, 2004 on additional borrowings from the Chief Executive Officer amounting to $192,500 but only seven months of interest during the nine months ended September 30, 2003. The loan was received in 2003 to fund the additional operating costs associated with hiring more personnel in anticipation of future growth and the completion of the business acquisition and leveraged buyout transaction.
 
Net Income/Loss: Net loss for the nine months ended September 30, 2004 was $1,022,000 compared to net income of $77,000 for the nine months ended September 30, 2003. The net loss for the nine months ended September 30, 2004 was caused by the decrease in gross margin by 5.5%. In addition, we hired more administrative staff. There were increases in expenses incurred in the business acquisition and leveraged buyout transactions and also expenditures on infrastructure in preparation of becoming a public company and in preparation for future expansion. We have also invested in research and development to improve and expand our technology base, which may result in increased revenues in the future.
 
Liquidity and Capital Resources
 
Since our inception, we have financed our operations through bank debt, loans and equity from our principals, loans from third parties and funds generated by our business. As of September 30, 2004, we had $1,562,000 in cash. We believe that cash from operations and other existing resources such as our credit facilities with Laurus Master Funds, Ltd. will continue to be adequate to satisfy the ongoing working capital needs of the Company. During the next 12 months, 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.
 
Net Cash Used in Operating Activities. Net cash used in operating activities amounted to $650,000 for the nine months ended September 30, 2004 compared to $232,300 for the nine months ended September 30, 2003. The changes in operating assets and liabilities resulted in a use of cash of $455,000, which included a $60,000 increase in accounts receivable, a $178,100 decrease in inventory, a $2,900 increase in prepaid expenses, a $218,000 increase in accounts payable, a $105,000 decrease in income taxes and a $227,000 increase in deferred revenue.
 
Accounts Receivable

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Our accounts receivable increased by 4.5% to $2,209,000 which more government related jobs during the first 9 months, which have a longer payment cycle than the non-government jobs. 70% of the accounts receivable outstanding at September 30, 2004 was less than 60 days old compared which was consistent with 70% at September 30, 2003.
 
Inventory
 
Inventory on hand at September 30, 2004 decreased to $547,000 from $715,000 at September 30, 2003. The decrease was mainly due to the improvement of inventory control and keeping minimum levels of inventory.
 
Accounts Payable and Accrued Liabilities
 
Accounts payable increased 6.3% to $2,080,000 which was mainly due to the accrued expenses related to the business acquisition and leverage buyout transaction amounted to $166,000.
 
Deferred Financing Costs
 
Deferred financing costs represent costs directly related to obtaining of financing. Deferred financing costs are amortized over the term of the related indebtedness using the effective interest method.
 
Deferred Revenue
 
Deferred revenue increased $343,000 in 2004 from $101,000 in 2003. Deferred revenue primarily relates to payments associated with the contract revenue where revenue is recognized on a percentage of completion basis. (See summary of accounting policy in our consolidated financial statements).
 
Incomes Taxes Recoverable
 
The income taxes recoverable increased to $69,500 as at September 30, 2004 compared to income tax payable of $40,000 as at December 31, 2003. The changes were mainly due to the loss incurred for the period and we expect that we will have loss carry-back for prior years.
 
Net Cash Used in Investing Activities. Net cash used in investing activities was $1,800,000 for the nine months ended September 30, 2004 compared to $26,000 for the nine months ended September 30, 2003. The increase was mainly due to the acquisition of A.C. Technical Systems Ltd. for cash payments of $1,800,000.
 
Net Cash Provided From Financing Activities. Net cash provided from financing activities increased to $4,014,000 for the nine months ended September 30, 2004 compared to $258,700 for the nine months ended September 30, 2003. The increase was principally caused by additional borrowings from Laurus Master Fund, Ltd. including revolving facilities of $2,250,000 and convertible notes of $4,500,000. (see details of arrangement with Laurus Master Fund, Ltd. in the following paragraphs.). In addition, the increase was partially offset by the repayment of a total of $1,000,000 of credit facilities with a Canadian Bank with the proceeds of the Company's new facilities with Laurus and $1,250,000 was deposited in the bank as restricted cash.
 
The cost of capital of this transaction was approximately $900,000 with total borrowings from Laurus amounting to $7,000,000. Some of the expenses incurred have been deferred and are recorded under Deferred Charges (see Note 4 in the financial statements as at September 30, 2004). Even though the Company has obtained a better interest rate from Laurus of prime plus 2% compared to the interest rate the Company obtained from the Canadian Bank which varied for different dollar amounts borrowed but ranged from prime plus 2% to prime plus 5%, the effective rate of the loan from Laurus will be 9.89%. The cost of capital will not decrease. However, instead of requiring the Company to repay principal and interest on the loans in cash, if certain criteria are met, Laurus may convert the principal and interest of the loans due from the Company to shares of the Company stock. This will reduce the cash flow requirement of the Company in the future. The value of the lower interest payments is offset by Laurus' ability to convert the debt owed into shares of the Company's Stock and the stand-alone Warrants and Options the Company has granted to Laurus.

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Increases in deferred financing costs represent costs directly related to obtaining of financing. Deferred financing costs are amortized over the term of the related indebtedness using the effective interest method.
 
Our indebtedness increased to $2,250,000 as at September 30, 2004 mainly due to the additional borrowings from Laurus Master Fund, Ltd.
 
We plan to adopt an incentive stock option plan during the third quarter of 2005.
 
On September 30, 2004, we entered into a series of agreements with Laurus whereby we issued to Laurus (i) a secured convertible term note in the amount of $4.5 million, (ii) secured revolving notes in the aggregate maximum amount of $3 million, (iii) a related option to purchase up to 1,499,997 shares of our common stock at a price of two-thirds of two cent per share, and (iv) a seven year warrant to purchase up to 2,250,000 shares of our common stock at a price of $1.15 per share. The term note and revolving notes are secured by all of our assets and the assets of our subsidiaries. Each of the agreements with Laurus is part of an integrated financing structure which, on the whole, management believes to be beneficial to our capital structure.
 
The principal amount of the term note and revolving notes bear interest at the prime rate plus two percent with a minimum rate of six percent. The minimum monthly payment on the term note and revolving notes are $100,000, plus the monthly interest payment, and may be paid in cash, our common stock or a combination thereof, dependant upon the occurrence of certain criteria. Laurus has the option to convert the entire principal amount of the term note and revolving notes, together with interest thereon into shares of our common stock at a conversion price of $1 ($3 before the 3 for 1 stock split), provided that such conversion does not result in Laurus beneficially owning more than 4.99% of our outstanding shares of common stock. We have agreed to register all of the shares that are issuable upon conversion of the notes or exercise of the option or warrant. For more information regarding the Laurus Financing, see Note 7 in the financial statements as of September 30, 2004.
 
Our capital requirements have grown since our inception with the growth of our operations and staffing. We expect our capital requirements to continue to increase in the future as we seek to expand our operations. On September 30, 2004, we obtained additional funding through the series of agreements entered into with Laurus, described above. If Laurus converts the term note and/or the revolving notes into shares of the Company's common stock, the Company may avoid or reduce any cash payment required for principal and interest payable. As a result, it will improve our cash flow. However, such conversion by Laurus will dilute the existing shareholders.
 
Recent Accounting Pronouncements - In January 2003, the Financial Accounting Standards Board issued FASB Interpretation No. 46, “Consolidation of Variable Interest Entities.” This interpretation of Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” addresses consolidation by business enterprises of variable interest entities. FIN 46 explains the concept of a variable interest entity and requires consolidation by the primary beneficiary where there is a controlling financial interest in a variable interest entity or where the variable interest entity does not have sufficient equity at risk to finance its activities without additional subordinated financial support from other parties. The primary beneficiary is the party that is exposed to the majority of the risk or stands to benefit the most from the entity's activities. In December 2003, the FASB released a revised version of FIN 46 (hereafter referred to as FIN 46R) clarifying certain aspects of FIN 46 and providing certain entities with exemptions from the requirements of FIN 46. Based upon management's evaluation of FIN 46R, the adoption did not have a material effect on the consolidated financial statements.
 
In April 2004, the Financial Accounting Standards Board issued FASB Staff Position, FSP 129-1, “Disclosure of Information about Capital Structure, Relating to Contingently Convertible Securities”. The purpose of this FASB Staff Position is to interpret how the disclosure provisions of Statement 129   apply to contingently convertible securities and to their potentially dilutive effects on EPS. FSP explains that Statement 129 applies to all contingently convertible securities, including those containing contingent conversion requirements that have not been met and are not otherwise required to be included in the computation of diluted EPS in accordance with FASB Statement No. 128, Earnings per share. To comply with paragraph 4 of Statement 129, the significant terms of the conversion features of the contingently convertible security should be disclosed to enable users of financial statements to understand the circumstances of the contingency and the potential impact of conversion. Quantitative and qualitative terms of the contingently convertible security, disclosure of which would be helpful in understanding both the nature of the contingency and the potential impact of conversion. The guidance in this FSP is effective immediately. The Company adopted the disclosure provision required by FAS 129.

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In November 2004, the Financial Accounting Standards Board issued SFAS No. 151, “Inventory Costs-an Amendment of ARB No. 43, Chapter 4”. The standard adopts the view related to inventories that abnormal amounts of idle capacity and spoilage costs should be excluded from the cost of inventory and expensed when incurred. Additionally, the meaning of the term `normal capacity' was clarified. Based on management's evaluation, the adoption is not expected to have a material effect on the consolidated financial statements.
 
In December 2004, the Financial Accounting Standard Board issued FASB Statement No. 123R (Revised), “Share-Based Payment which is a revision of FASB Statement No. 123, Accounting for Stock-Based Compensation”. Statement No. 123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends FASB Statement No. 95, Statement of Cash Flows. Statement No. 123(R ) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values and, for small business issuers, is effective at the beginning of the first annual period of the registrant's first fiscal year that begins after December 15, 2005. During the year, the Company has not issued any stock-based awards to employees.
 
In September 2004, the Financial Accounting Standard Board issued EITF 04-8, “The Effect of Contingently Convertible Instruments on Diluted Earnings per Share”. This Issue addresses when contingently convertible instruments should be included in diluted earnings per share. The Task Force reached a consensus that contingently convertible instruments should be included in diluted earnings per share (if dilutive) regardless of whether the market price trigger has been met. The Task Force also agreed that the consensus should be applied to instruments that have multiple contingencies if one of the contingencies is a market price trigger and the instrument is convertible or settleable in shares based on meeting a market condition. Based on management's evaluation of EITF 04-8, the adoption did not have a significant effect on the consolidated financial statements.
 
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 six critical accounting estimates: accounts receivable allowances, goodwill, revenue, inventory and accounting for income taxes.
 
Accounts receivable allowances are determined using a combination of historical experience, current information and management judgment. Actual collections may differ from our estimates. A 10% increase in the accounts receivable allowance would increase bad debt expense by $10,000.
 
Goodwill represents the excess of cost over the net tangible and identifiable assets acquired in business combinations and are stated at cost. Goodwill and intangibles with indefinite lives are not amortized but tested for impairment no less frequently than annually. Impairment is measured by comparing the carrying value to fair value using quoted market prices, a discounted cash flow model, or a combination of both.
 
We derive revenues from contract revenue and services revenue, which include assistance in implementation, integration, customization, maintenance, training and consulting. We recognize revenue for contract 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 00-21 Accounting for Revenue Arrangements with Multiple Deliverables. Contract revenue consists of fees generated from installation of security systems. Services revenue is primarily derived from maintenance fees for the security systems and other services provided to the customers such as labor and materials. Revenue is generally recognized when services are performed or over the term of the maintenance contract.
 
We record inventory at the lower of cost and net realizable value. Cost is determined on a first-in, first-out basis. We write down our inventory 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-down may be required. A 10% in inventory reserve would increase expenses by $0.1 million.

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Income taxes are calculated based on the expected treatment of transactions recorded in the consolidated financial statements. In determining current and deferred components of income taxes, we interpret tax legislation and make assumptions about the timing of the reversal of deferred tax assets and liabilities. If our interpretations differ from those of tax authorities or if the timing of reversals is not as anticipated, the provision for income taxes could increase or decrease in future periods.
 
The Company reviews 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. When the economic characteristic and risks of any embedded derivative instrument are not "clearly and closely" related to the risks of the host instrument, the embedded derivative instrument is generally required to be bifurcated and accounted for separately. If the convertible instrument is debt, or has debt-like characteristics, the risks associated with the embedded conversion option are not "clearly and closely" related to that debt host instrument. The conversion option has the risks associated with an equity instrument, not a debt instrument, because its value is related to the value of our common stock. Nonetheless, if the host instrument is considered to be "conventional convertible debt", bifurcation of the embedded conversion option is generally not required. However, if the instrument is not considered to be conventional convertible debt, bifurcation of the embedded conversion option may be required in certain circumstances. 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 to 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 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.

In circumstances where the embedded conversion option in a convertible instrument is required to be bifurcated and there are also other embedded derivative instruments in the convertible instrument that are required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument.

When the embedded derivative instrument is to be bifurcated and accounted for as a liability, the total proceeds received are first allocated to the fair value of the bifurcated derivative instrument. If freestanding options or warrants were also issued and will be accounted for as derivative instrument liabilities (rather than as equity), the proceeds are next allocated to the fair value of those instruments. The remaining proceeds, if any, are then allocated to the convertible instrument itself, usually resulting in that instrument being recorded at a discount from its face amount. In circumstances where a freestanding derivative instrument is to be accounted for as an equity instrument, the proceeds are allocated between the convertible instrument and the derivative equity instrument, based on their relative fair values.

The discount from the face value of the convertible debt instrument is amortized over the life of the instrument through periodic charges to income, using the effective interest method.
 
The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
This quarterly report contains forward-looking statements about our company that are not historical facts but, rather, are statements about future expectations. When used in this document, the words “anticipates,” “believes,” “expects,” “intends,” “should” and similar expressions as they relate to us, or to our management, are intended to identify forward-looking statements. However, forward-looking statements in this document are based on management's current views and assumptions and may be influenced by factors that could cause actual results, performance or events to be materially different from those projected. These forward-looking statements are subject to numerous risks and uncertainties. Important factors, some of which are beyond our control, could cause actual results, performance or events to differ materially from those in the forward-looking statements. These factors include impact of general economic conditions in North America, changes in laws and regulations, fluctuation in interest rates and access to capital markets.
 
Our actual results or performance could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, we cannot predict whether any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do, what impact they will have on our results of operations and financial condition.
 
For further information about these and other risks, uncertainties and factors, please review the disclosure included in our December 31, 2004 Annual Report on Form 10-KSB under the caption “Risk Factors.”
 
You should not place undue reliance on any forward-looking statements. Except as otherwise required by federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements or risk factors, whether as a result of new information, future events, changed circumstances or any other reason after the date of this quarterly report.
 
 Item 3. Controls and Procedures
 
We maintain a system of disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, that are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
 
We have carried out an evaluation under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon their evaluation and subject to the foregoing, the Chief Executive Officer and Chief Financial Officer concluded that such controls and procedures were effective as of the end of the period covered by this report, in all material respects, to ensure that required information will be disclosed on a timely basis in our reports filed under the Exchange Act.
 
In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily was required to apply their judgment in evaluating the cost-benefit relationship of possible controls and procedures. The restatement of financial statements relating to our accounting for the convertible term note, warrants and options and related registration rights in connection with our financing transaction entered into with Laurus Master Funds, Ltd. on September 30, 2004 may indicate that our disclosure controls and procedures are not be adequate.There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2004, that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

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PART II. | OTHER INFORMATION
 
Item 1. | Legal Proceedings
 
None

Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds
 
Not applicable.
 
Item 3. | Defaults upon Senior Securities
 
Not applicable.
 
Item 4. | Submission of Matters to a Vote of Security Holders
 
Not applicable.
 
Item 5. | Other Information
 
Not applicable.
 
Item 6. | Exhibits
 
(a) | Exhibits
 
31.1 | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2 | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

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
 
-33-

 SIGNATURES
 
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
| CREATIVE VISTAS, INC.
Dated: April 17, 2006 | By: | /s/ Sayan Navaratnam
| Sayan Navaratnam, CEO

 

 

 
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Exhibit 31.1

CERTIFICATION PURSUANT TO RULE 13A-14 OR 15D-14 OF THE SECURITIES EXCHANGE
ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002

I, Sayan Navaratnam, certify that:

1. I have reviewed this quarterly report on Form 10-QSB of Creative Vistas, Inc.;

2. based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. the registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under one supervisor, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. the registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Dated: April 17, 2006

/s/Sayan Navaratnam

Sayan Navaratnam
Chairman and Chief Executive Officer

 

Exhibit 31.2

CERTIFICATION PURSUANT TO RULE 13A-14 OR 15D-14 OF THE SECURITIES EXCHANGE
ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002

I, Heung Hung Lee, certify that:

1. I have reviewed this quarterly report on Form 10-QSB of Creative Vistas, Inc.;

2. based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. the registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under one supervisor, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. the registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Dated: April 17, 2006

/s/Heung Hung Lee

Heung Hung Lee
Chief Financial Officer

 

 

Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Creative Vistas, Inc. (the "Company") on Form 10-QSB for the period ended September 30, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Sayan Navaratnam, Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
 
1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
 
| By: | /s/ Sayan Navaratnam
| Sayan Navaratnam
| Chairman and Chief Executive Officer

April 17, 2006

 

Exhibit 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Creative Vistas, Inc. (the "Company") on Form 10-QSB for the period ended September 30, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Heung Hung Lee, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
 
1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
 
| By: | /s/ Heung Hung Lee
| Heung Hung Lee
| Chief Financial Officer

April 17, 2006

 

 

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 Created by 10KWizard     www.10KWizard.comSource: CREATIVE VISTAS INC, 10QSB/A, April 17, 2006