Attached files
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended October 31, 2009
[ ] 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: 000-52827
OMNICITY CORP.
(Exact name of registrant as specified in its charter)
Nevada 98-0512569
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
807 S State Rd 3, Rushville, Indiana, U.S.A. 46173
(Address of Principal Executive Offices) (Zip Code)
(317) 903-8178
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of "large accelerated filer," "accelerated filer," and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's classes of
common equity as of the latest practicable date: As of December 17, 2009, there
were 42,795,895 shares of common stock, par value $0.001, outstanding.
EXPLANATORY NOTE
This Form 10-Q/A (Amendment No. 1) is being filed by the Company in response to
certain comments from the U.S. Securities and Exchange Commission (the "SEC") to
the Company regarding the Company's Quarterly Report on Form 10-Q for the period
ended October 31, 2009, as originally filed with the SEC on December 21, 2009.
This Form 10-Q/A (Amendment No. 1) is sometimes referred to herein as "Form
10-Q", and any references herein to "Form 10-Q" or "10-Q" should be read to
refer to this Form 10-Q/A unless otherwise specified or as required based on the
context in which the term "Form 10-Q" or "10-Q" is used.
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Omnicity Corp.
Consolidated Balance Sheets
(Unaudited)
(Restated - Note 14)
October 31, 2009 July 31, 2009
----------------- -------------
$ $
(Audited)
Assets
Current Assets:
Cash 759,948 159,119
Accounts receivable, net 64,780 78,007
Other receivable (Note 10 (c)) 9,100 5,000
Prepaid expenses and deposits 5,290 114,173
---------- ----------
Total Current Assets 839,118 356,299
Property and Equipment (Note 3) 1,112,803 1,022,675
Deposits and Other Assets (Note 4) 133,893 129,886
Customers' Relationships (Note 6) 1,771,972 1,841,247
---------- ----------
Total Assets 3,857,786 3,350,107
========== ==========
Liabilities and Stockholders' Deficit
Current Liabilities:
Accounts payable 874,544 838,336
Accrued liabilities (Note 7) 172,221 213,431
Short-term notes payable (Note 8) 506,348 1,222,716
Current portion of long-term debt (Note 9) 741,960 511,521
Current portion of capital lease obligations (Note 13) 46,743 50,147
Deferred revenue 42,000 42,000
Other liability (Note 12) -- 63,132
---------- ----------
Total Current Liabilities 2,383,816 2,941,283
Capital Lease Obligations (Note 13) 38,105 46,868
Long-term Debt (Note 9) 1,945,966 1,436,053
---------- ----------
Total Liabilities 4,367,887 4,424,204
---------- ----------
Nature of Operations and Continuance of Business (Note 1)
Commitments (Note 13)
Stockholders' Deficit:
Common Stock, par value $.001, 1,540,000,000 shares authorized,
38,517,055 and 38,018,382 issued and outstanding,
respectively (Notes 11 and 15) 38,517 38,018
Common Stock Subscribed and/or Reserved (Notes 11 and 15) 1,497,594 641,594
Additional Paid-in Capital 6,281,113 5,929,479
Deficit (8,327,325) (7,683,188)
---------- ----------
Total Stockholders' Deficit (510,101) (1,074,097)
---------- ----------
Total Liabilities and Stockholders' Deficit 3,857,786 3,350,107
========== ==========
(See accompanying notes to these consolidated financial statements)
3
Omnicity Corp.
Consolidated Statements of Operations
(Unaudited)
(Restated - Note 14)
Three Months Ended Three Months Ended
October 31, 2009 October 31, 2008
---------------- ----------------
$ $
Sales, net 617,000 327,733
--------- --------
Expenses:
Service costs 14,098 5,184
Plant and signal delivery 338,270 196,758
Marketing and sales 2,276 761
General and administration 293,694 131,248
Salaries and benefits 410,835 252,316
Depreciation and amortization 170,258 103,686
--------- --------
Total Expenses 1,229,431) (689,950)
--------- --------
Loss from Operations (612,431) (362,217)
--------- --------
Other Income (Expense):
Other income 46,728 --
Interest expense (78,433) (41,040)
--------- --------
Total Other Income (Expense) (31,705) (41,040)
--------- --------
Net Loss (644,136) (403,257)
========= ========
Net Loss per Share - Basic and Diluted (.01) (.01)
========= ========
(See accompanying notes to these consolidated financial statements)
4
Omnicity Corp.
Consolidated Statements of Cash Flows
(Unaudited)
(Restated - Note 14)
Three Months Ended Three Months Ended
October 31, 2009 October 31, 2008
---------------- ----------------
$ $
Cash flows from (to) operating activities:
Net loss (644,136) (403,257)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 170,258 103,686
(Increase) decrease in:
Accounts and other receivable 13,227 (3,321)
Prepaid expenses 108,883 (3,384)
Increase (decrease) in:
Accounts payable and accrued liabilities 63,675 262,204
--------- --------
Net cash used in operating activities (288,093) (44,072)
--------- --------
Cash flows (to) investing activities:
(Increase) in deposits (4,007) (11,005)
Acquisition of property and equipment (122,405) (110,198)
--------- --------
Net cash used in investing activities (126,412) (121,203)
--------- --------
Cash flows from (to) financing activities:
Proceeds from short-term notes 148,871 168,020
Repayment of short-term notes (63,307) --
Related party advance (4,100) --
Proceeds from long-term debt 37,399 --
Repayment of long-term debt and capital lease obligations (123,529) (8,245)
Proceeds from issuance of common stock -- 5,500
Proceeds from common stock subscriptions 1,020,000 --
--------- --------
Net cash provided by financing activities 1,015,334 165,275
--------- --------
Increase in cash 600,829 --
Cash, beginning of period 159,119 --
--------- --------
Cash, end of period 759,948 --
========= ========
Supplemental cash flow information:
Cash paid for interest 48,433 4,427
Cash paid for income taxes -- --
Supplemental disclosure of non-cash investing and financing activities:
Current liabilities transferred to long-term debt 808,300 --
Current liabilities converted into common stock -- 367,500
Warrants issued pursuant to a Master Lease Agreement 61,132 --
(See accompanying notes to these consolidated financial statements)
5
Omnicity Corp.
Notes to Consolidated Financial Statements
(Unaudited)
1. Nature of Operations and Continuance of Business
The Company was incorporated as Bear River Resources, Inc. in the State of
Nevada on October 12, 2006 and was registered as an extra-provincial company
under the Business Corporations Act of British Columbia on November 6, 2006. On
October 21, 2008 the Company changed its name to Omnicity Corp. and increased
its issued share capital on a 7.7 new for 1 old basis. The Company increased its
authorized share capital to 1,540,000,000 common shares and changed its trading
symbol to "OMCY.OB". All share and per share amounts were retroactively
restated.
On February 17, 2009, the Company acquired, by way of an Agreement and Plan of
Merger with Omnicity, Incorporated, an Indiana company, all of the issued and
outstanding shares of Omnicity, Incorporated. Omnicity, Incorporated
(incorporated on August 13, 2003) provides broadband access, including advanced
services of voice, video and data, in un-served and underserved small and rural
markets and is planning to be a consolidator of rural market broadband
nationwide. The total purchase price was 23,000,000 restricted common shares of
the Company.
These financial statements have been prepared on a going concern basis, which
implies the Company will continue to realize its assets and discharge its
liabilities in the normal course of business. The Company has generated
substantial revenues but has sustained losses since inception and has never paid
any dividends and is unlikely to pay dividends in the immediate or foreseeable
future. The continuation of the Company as a going concern is dependent upon the
continued cooperation from its creditors and the ability of the Company to
obtain necessary debt and/or equity financing to repay overdue obligations, to
fund its growth strategy and to continue operations, and the attainment of
profitability. As at October 31, 2009, the Company had a working capital deficit
of $1,544,698 and stockholders' deficit of $510,101. All of these factors
combined raises substantial doubt regarding the Company's ability to continue as
a going concern. These financial statements do not include any adjustments to
the recoverability and classification of recorded asset amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
The Company has been addressing its liquidity and working capital issues and
continues to raise additional capital through the issuance of vendor and
short-term notes, a senior subordinated debenture offering and issuance of
equity securities to private investors.
2. Significant Accounting Policies
Basis of Presentation
These financial statements and related notes are presented in accordance with
accounting principles generally accepted in the United States, and are expressed
in US dollars. The Company's fiscal year-end is July 31.
Use of Estimates
The preparation of financial statements in accordance with United States
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenue and
expenses in the reporting period. The Company regularly evaluates estimates and
assumptions related to the useful life and recoverability of long-lived assets,
stock-based compensation and deferred income tax asset valuation allowances. The
Company bases its estimates and assumptions on current facts, historical
experience and various other factors that it believes to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities and the accrual of costs and
expenses that are not readily apparent from other sources. The actual results
experienced by the Company may differ materially and adversely from the
Company's estimates. To the extent there are material differences between the
estimates and the actual results, future results of operations will be affected.
6
Omnicity Corp.
Notes to Consolidated Financial Statements
(Unaudited)
2. Significant Accounting Policies (cont.)
Cash and Cash Equivalents
The Company considers all highly liquid instruments with maturities of three
months or less at the time of issuance to be cash equivalents.
Concentration of Business and Credit Risk
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of accounts receivable. The Company reviews a
customer's credit history before extending credit. There were no individual
customers with balances in excess of 10% of the accounts receivable or net sales
balances at October 31, 2009 and July 31, 2009.
Allowance for Doubtful Accounts
The Company records an allowance for doubtful accounts based on specifically
identified amounts that are believed to be uncollectible. An additional
allowance is recorded based on certain percentages of aged receivables, which
are determined based on historical experience and assessment of the general
financial conditions affecting the Company's customer base. If actual
collections experience changes, revisions to the allowance may be required.
After all attempts to collect a receivable have failed, the receivable is
written-off against the allowance. The allowance for doubtful accounts was
$10,000 at October 31, 2009 and July 31, 2009.
Property and Equipment
Property and equipment is stated at cost, less accumulated depreciation based on
estimated useful lives utilizing the straight-line method. The Company
capitalizes costs associated with the construction of new transmission
facilities. Capitalized construction costs include materials, labour, and
interest. The Company's methodology for capitalization of internal construction
labour and internal and contracted third party installation costs (including
materials) utilizes actual costs. Materials and external labour costs associated
with construction activities are capitalized based on amounts invoiced to the
Company by third parties.
Computers and wireless equipment also consists of spare equipment and supplies
not put in use such as radios, antennas, cable and wire and is stated at the
lower of cost (first-in, first-out basis) or market. Spare equipment is
maintained to provide replacement parts when and if needed in a short time
period to provide minimal service disruption to customers in the event of a
parts failure and to install new customers' premises equipment quickly when
ordered. Spare equipment and supplies are not depreciated until put into use.
Improvements that extend asset lives are capitalized. Other repairs and
maintenance costs are charged to operations as incurred. Estimated useful lives
for property and equipment are as follows:
Description Life
----------- ----
Computer and wireless equipment 3 years
Tower build-outs 5 years
Furniture and fixtures 7 years
Vehicles 5 years
Software 3 years
Customers' Relationships
Customers' relationships represent the value attributed to customers'
relationships acquired in asset acquisitions and are amortized over a 7-year
period which matches its estimated useful life.
7
Omnicity Corp.
Notes to Consolidated Financial Statements
(Unaudited)
2. Significant Accounting Policies (cont.)
Long-lived Assets
The Company evaluates property and equipment and amortizable intangible assets
for impairment whenever current events and circumstances indicate the carrying
amounts may not be recoverable. The evaluation of long-lived assets for
impairment requires a high degree of judgment and involves the use of
significant estimates and assumptions. If the carrying amount is greater than
the expected future undiscounted cash flows to be generated, the Company
recognizes an impairment loss equal to the excess, if any, of the carrying value
over the fair value of the asset. The Company generally measures fair value
based upon the present value of estimated future net cash flows of an asset
group over its remaining useful life.
Financial Instruments
The fair value of financial instruments, which include cash and accounts
payable, were estimated to approximate their carrying values due to the
immediate or short-term maturity of these financial instruments. The financial
risk is the risk to the Company's operations that arise from fluctuations in
foreign exchange rates and the degree of volatility of these rates. Currently,
the Company does not use derivative instruments to reduce its exposure to
foreign currency risk.
Foreign Currency Transactions
The Company's functional and reporting currency is the United States dollar.
Monetary assets and liabilities denominated in foreign currencies are translated
using the exchange rate prevailing at the balance sheet date. Gains and losses
arising on settlement of foreign currency denominated transactions or balances
are included in the determination of income. Foreign currency transactions are
minimal but primarily undertaken in Canadian dollars. The Company has not, to
the date of these financials statements, entered into derivative instruments to
offset the impact of foreign currency fluctuations.
Deferred Revenue
Deferred revenue represents services billed but unearned.
Revenue Recognition
The Company charges a recurring subscription fee for providing wireless
broadband services to its subscribers. Revenue from service is recognized as
monthly services are rendered in accordance with individual customer
arrangements. Credit risk is managed by disconnecting services to customers
whose accounts are delinquent for a specified number of days. Installation
revenue obtained from the connection of subscribers to the system is recognized
in the period installation services are provided to the extent of related direct
selling costs. Any remaining amount is deferred and recognized over the
estimated average period that customers are expected to remain connected to the
system. From time to time, the Company enters into barter arrangements whereby
it provides certain customers with wireless broadband services in exchange for
use of towers and equipment owned by customers.
Recently Adopted Accounting Pronouncements
On July 1, 2009, the FASB officially launched the FASB ASC 105 -- GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES, which established the FASB Accounting Standards
Codification ("the Codification"), as the single official source of
authoritative, nongovernmental, U.S. GAAP, in addition to guidance issued by the
Securities and Exchange Commission. The Codification is designed to simplify
U.S. GAAP into a single, topically ordered structure. All guidance contained in
the Codification carries an equal level of authority. The Codification is
effective for interim and annual periods ending after September 15, 2009.
Accordingly, the Company refers to the Codification in respect of the
appropriate accounting standards throughout this document as "FASB ASC".
Implementation of the Codification did not have any impact on the Company's
consolidated financial statements.
8
Omnicity Corp.
Notes to Consolidated Financial Statements
(Unaudited)
2. Significant Accounting Policies (cont.)
The following pronouncements have been issued by the Financial Accounting
Standards Board ("FASB"):
In April 2009, the FASB issued an update to FASB ASC 805, "Business
Combinations", that clarifies and amends FASB ASC 805, as it applies to all
assets acquired and liabilities assumed in a business combination that arise
from contingencies. This update addresses initial recognition and measurement
issues, subsequent measurement and accounting, and disclosures regarding these
assets and liabilities arising from contingencies in a business combination. The
Company adopted this Statement on August 1, 2009. Implementation of this update
to FASB ASC 805 did not have any impact on the Company's consolidated financial
statements.
In April 2009, the FASB issued FSP FAS 157-4, "Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly" ("FSP FAS 157-4;"),
to address challenges in estimating fair value when the volume and level of
activity for an asset or liability have significantly decreased. This FSP
emphasizes that even if there has been a significant decrease in the volume and
level of activity for the asset or liability and regardless of the valuation
technique(s) used, the objective of a fair value measurement remains the same.
Fair value is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction (that is, not a forced
liquidation or distressed sale) between market participants at the measurement
date under current market conditions. This FSP is effective for interim and
annual reporting periods ending after June 15, 2009. The Company adopted this
Statement on August 1, 2009. Implementation of this Standard did not have any
impact on the Company's consolidated financial statements.
In May 2009, the FASB issued FASB ASC 855, "Subsequent Events". This Statement
addresses accounting for and disclosure of events that occur after the balance
sheet date but before financial statements are issued or available to be issued.
FASB ASC 855 requires disclosure of the date through which an entity has
evaluated subsequent events and the basis for that date, the date issued or date
available to be issued. The Company adopted this Statement in the fourth quarter
of 2009.
In June 2009, the FASB issued SFAS No. 166, "Accounting for Transfers of
Financial Assets - an amendment of FASB Statement No. 140". SFAS No. 166 amends
SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" by eliminating the concept of special-purpose
entity, requiring the reporting entity to provide more information about sales
of securitized financial assets and similar transactions, particularly if the
seller retains some risk to the assets, changes the requirements for the
de-recognition of financial assets, and provides for the sellers of the assets
to make additional disclosures. This Statement shall be effective as of the
Company's first interim reporting period that begins after November 15, 2009.
Earlier application is prohibited. The Company does not anticipate any
significant financial impact from adoption of SFAS No. 166. As of October 31,
2009, SFAS No. 166 has not been added to the Codification.
In June 2009, the FASB issued SFAS No. 167, "Amendments to FASB Interpretation
No. 46(R)". SFAS No. 167 addresses the effect on FASB Interpretation 46(R),
"Consolidation of Variable Interest Entities" of the elimination of the
qualifying special-purpose entity concept of SFAS No. 166, "Accounting for
Transfers of Financial Assets". SFAS No. 167 also amends the accounting and
disclosure requirements of FASB Interpretation 46(R) to enhance the timeliness
and usefulness of information about an enterprise's involvement in a variable
interest entity. This Statement shall be effective as of the Company's first
interim reporting period that begins after November 15, 2009. Earlier
application is prohibited. The Company does not anticipate any significant
financial impact from adoption of SFAS No. 167. As of October 31, 2009, SFAS No.
167 has not been added to the Codification.
On June 30, 2009, the FASB issued Accounting Standard Update (ASU) No. 2009-01
(Topic 105) - Generally Accepted Accounting Principles - amendments based on -
Statement of Financial Accounting Standards No. 168 - The FASB Accounting and
Standards Codification and the Hierarchy of Generally Accepted Accounting
Principles. Beginning with this Statement the FASB will no longer issue new
standards in the form of Statements, FASB Staff Positions, or Emerging Issues
Task Force Abstracts. Instead, it will issue Accounting Standard Updates. This
ASU includes FASB Statement No. 168 in its entirety. While ASU's will not be
considered authoritative in their own right, they will serve to update the
Codification, provide the bases for conclusions and changes in the Codification,
and provide background information about the guidance. The Codification modifies
the GAAP hierarchy to include only two levels of GAAP: authoritative and
non-authoritative. ASU No. 2009-01 is effective for financial statements issued
for the interim and annual periods ending after September 15, 2009, and the
Company does not expect any significant financial impact upon adoption. Omnicity
Corp. Notes to Consolidated Financial Statements (Unaudited)
9
Omnicity Corp.
Notes to Consolidated Financial Statements
(Unaudited)
2. Significant Accounting Policies (cont.)
In August 2009, the FASB issued ASU No. 2009-05 - Fair Value Measurements and
Disclosures (Topic 820) - Measuring Liabilities at Fair Value. This ASU
clarifies the fair market value measurement of liabilities. In circumstances
where a quoted price in an active market for the identical liability is not
available, a reporting entity is required to measure fair value using one or
more of the following techniques: a technique that uses quoted price of the
identical or a similar liability or liabilities when traded as an asset or
assets, or another valuation technique that is consistent with the principles of
Topic 820 such as an income or market approach. ASU No. 2009-05 was effective
upon issuance and it did not result in any significant financial impact on the
Company upon adoption.
In September 2009, the FASB issued ASU No. 2009-12 - Fair Value Measurements and
Disclosures (Topic 820) - Investments in Certain Entities That Calculate Net
Asset Value per Share (or its equivalent). This ASU permits use of a practical
expedient, with appropriate disclosures, when measuring the fair value of an
alternative investment that does not have a readily determinable fair value. ASU
No. 2009-12 is effective for interim and annual periods ending after December
15, 2009, with early application permitted. Since the Company does not currently
have any such investments, it does not anticipate any impact on its financial
statements upon adoption.
3. Property and Equipment
Property and equipment consists of the following:
October 31, 2009 July 31, 2009
---------------- -------------
$ $
Computer and wireless equipment 682,860 1,555,645
Towers and infrastructures 808,329 785,970
Furniture and fixtures 50,889 44,959
Vehicles 74,529 74,529
Software 59,728 57,719
---------- ----------
1,676,335 2,518,822
Less: accumulated depreciation (563,532) (1,496,147)
---------- ----------
Property and equipment, net 1,112,803 1,022,675
========== ==========
4. Deposits and Other Assets
Deposits and other assets consist of the following:
October 31, 2009 July 31, 2009
---------------- -------------
$ $
Asset Purchase Agreement deposits 10,000 10,000
Operating lease deposits 86,682 86,682
Other long-term deposits 37,212 33,204
------- -------
133,894 129,886
======= =======
10
Omnicity Corp.
Notes to Consolidated Financial Statements
(Unaudited)
5. Customers' Relationships
The carrying value of customers' relationships acquired consists of:
October 31, 2009 July 31, 2009
---------------- -------------
$ $
Capitalized value 1,939,700 1,939,700
Less: accumulated amortization (167,728) (98,453)
---------- ----------
Customers' relationships, net 1,771,972 1,841,247
========== ==========
6. Acquisition of Assets
The shareholders of Rushville Internet Services, LLC ("RIS") wound-up RIS and
sold RIS's assets to Omnicity for $125,000. The Company received their assets,
being wireless equipment and tower infrastructures, having a fair value of
$68,706, and settled debt of $56,294. On October 13, 2009 the Company issued
268,818 restricted common shares to the shareholders of RIS at a fair value of
$0.465 per common share.
7. Accrued Liabilities
October 31, 2009 July 31, 2009
---------------- -------------
$ $
Accrued interest 90,853 65,822
Due to Rushville Internet Services, LLC
(Note 6) -- 56,294
Payroll and severance liabilities 50,712 55,486
Other current liabilities 30,656 35,829
------- -------
172,221 213,431
======= =======
8. Short-term Notes Payable
October 31, 2009 July 31, 2009
---------------- -------------
$ $
Notes payable, due on demand, unsecured and bearing interest at 9.5% per annum 160,000 150,000
Note payable, senior subordinated security position, interest at 9.5% per annum -- 53,500
Note payable to a director, due December 9, 2009 with interest of $10,000 to be
paid 100,000 --
Note payable due to the Chairman of the Board of the Company, due on demand,
unsecured and bearing interest at 8% per annum 37,110 8,416
Note payable, due on demand, unsecured and bearing interest at 8% per annum 10,000 10,000
Vendor Note - unsecured and bearing interest at 7% This note has been
transferred to long-term debt (Note 9) -- 365,000
Vendor Note - unsecured and bearing interest at 5% This note has been
transferred to long-term debt (Note 9) -- 449,800
Vendor Note - unsecured and bearing interest at 5% This note has been
renegotiated. Repayment terms are $5,000 per month to the end of March, 2010
with a balloon payment of $174,238 due on April 30, 2010 199,238 46,000
Vendor Note - this note has been consolidated with the note above -- 130,000
--------- ----------
506,348 1,222,716
========= ==========
11
Omnicity Corp.
Notes to Consolidated Financial Statements
(Unaudited)
9. Long-term Debt
October 31, 2009 July 31, 2009
---------------- -------------
$ $
Notes payable to Jay County Development Corporation. Non-interest bearing,
repayable monthly based on the number of subscribers in Jay County, Indiana.
Collateralized by certain equipment. 295,411 296,911
Notes payable to Wabash Rural Electric Membership Cooperative ("Wabash").
Interest rates are between 5.7% and 7.45% annually and are collateralized by
certain equipment. Monthly payments of $448 begin on January 31, 2010 on one
note with final payment due December 31, 2015. Quarterly payments of $23,469
begin on December 31, 2009 on three notes with final payments due between
September, 2016 and August, 2017. Quarterly payments of $945 begin on December
31, 2009 on one note with final payment due July 31, 2014 and quarterly payments
of $835 on one note begins on January 31, 2010 with final payment due July 31,
2017. 613,799 629,388
Note payable to Muncie Industrial Revolving Loan Fund Board. Interest of 5% only
was paid to July 13, 2009. Monthly principal and interest of $4,570 payments
started August 13, 2009 and will end December 13, 2011, at which time the loan
will be reviewed by Muncie's Board of Directors. This note is collateralized by
certain equipment. 273,536 283,741
Note payable to Star Financial Bank. Interest is paid monthly at 8.6% per annum.
This note is due February 1, 2010 and is collateralized by certain equipment.
The Company is negotiating an extension of this note and to service it over
time. 193,170 193,170
Notes payable to First Farmers Trust & Bank. These notes were repaid in full. -- 43,076
Notes payable to the son of the Chairman of the Board of the Company and to
companies controlled by the Chairman. Repayable in monthly instalments of
principal and interest at 8%, totalling $5,199, to December, 2010, $4,845 from
January, 2010 to May, 2012 and $3,492 from June, 2012 to April 2014. 206,343 217,663
Senior subordinated redeemable debentures, 8% interest payable quarterly. 30,000 20,000
Vendor notes payable with monthly payments of $30,000 after a principal
reduction of $98,000 on December 9, 2009. Interest ranges from 5% on a $340,000
note to 10% on a $414,800 note. 754,800 --
Notes payable with monthly payments of principal and interest ranging from 5% to
10%, unsecured. Total payments of principal and interest are $15,234 per month
to January, 2010; $10,892 to April, 2011; $5,169 to December, 2011; $3,556 to
April, 2012; $2,102 to May, 2013. 320,867 263,625
--------- ---------
Total long-term debt 2,687,926 1,947,574
Less: current portion 741,960 511,521
--------- ---------
Long-term portion 1,945,966 1,436,053
========= =========
Long-term debt principal payments due over the next five years are as follows:
Year $
---- -------
2010 741,960
2011 663,786
2012 369,274
2013 214,920
2014 174,292
Thereafter 523,693
12
Omnicity Corp.
Notes to Consolidated Financial Statements
(Unaudited)
10. Related Party Transactions and Balances
a) Included in accrued liabilities at July 31, 2009 was $56,294 owing to
Rushville Internet Services, LLC ("RIS") which represented amounts due
to RIS under certain lease agreements. The Company and RIS have
shareholders in common. The shareholders of RIS agreed to wind-up RIS
and sell RIS's assets to Omnicity for $125,000. The Company received
their assets, being wireless equipment and tower infrastructures,
having a fair value of $68,706, and to settle inter-company debt of
$56,294. All shareholders of RIS accepted to receive restricted common
shares of the Company. On October 13, 2009 the Company issued 268,818
restricted common shares to the shareholders of RIS at a fair value of
$0.465 per common share.
b) The Company's capital lease obligations entirely relate to assets
leased from a company beneficially owned by the Chairman of the Board
of the Company, see note 13.
c) The Company advanced $4,100 to its Chief Operating Officer as an
advance for expenses. This advance is non-interest bearing, unsecured
and due on demand.
d) Wabash REMC Chief Executive Officer is a director of the Company. See
Note 9 for notes owing to Wabash REMC.
11. Common Stock
a) On June 1, 2009 the Company entered into an agreement with Onyx
Consulting Group, LLC ("Onyx") to manage all aspects of the Company's
investor and media relations program. The Company paid a fee to Onyx
in the amount of $40,000 for the period June 1, 2009 to November 30,
2009 and issued 350,000 restricted common shares of the Company having
a fair value of $0.355 per common share or $124,250 in total. The
Company is seeking an injunction on these shares issued due to non
performance of their contract. A total of $109,000, previously
included in prepaid expense, was charged to operations.
b) On August 18, 2009, pursuant to two completed Asset Purchase
Agreements, the Company issued 229,855 restricted common shares of the
Company at an average fair value of $0.71 per common share, totalling
$164,000, to acquire tower infrastructures, wireless equipment and
customer relationships. This amount was recorded as common stock
reserved as at July 31, 2009.
c) On October 13, 2009 the Company issued 268,818 restricted common
shares at $0.465 per common share having a total fair market value of
$125,000 to acquire tower infrastructures and tower and customer
premises equipment and to settle an inter-company liability.
d) The Company received $97,594 pursuant to Unit Private Placement
Subscription Agreements with certain private investors. The Company
issued 278,840 units at $0.35 per unit on November 13, 2009. Each unit
contained one common share and one half of one common share purchase
warrant. Each whole warrant is exercisable into one common share at
$0.50 per share expiring November 13, 2011.
e) The Company received $1,000,000 from a major shareholder on October
20, 2009. These funds plus $400,000 received on July 3, 2009 were
combined and a subscription agreement for 4,000,000 units at $0.35 per
unit was executed on October 20, 2009. These units were issued on
November 11, 2009. Each unit contained one common share and one half
of one common share purchase warrant. Each whole warrant is
exercisable into one common share at an exercise price of $0.50 per
common share expiring November 11, 2011.
13
Omnicity Corp.
Notes to Consolidated Financial Statements
(Unaudited)
11. Warrants
On July 9 and July 14, 2009 the Company received $260,381 pursuant to two sale
leaseback schedules completed and was obligated to provide the lessor 30%
warrant coverage. The Company was committed to issuing 139,490 share purchase
warrants to acquire 139,490 common shares at an exercise price of $0.56 per
common share expiring July 14, 2019. These warrants were issued on October 13,
2009. The Company recorded $63,132 as a financing expense in fiscal 2009. This
amount was calculated using Black Scholes Option Pricing Model using the
following assumptions: 5 year expected life, 0% expected dividends, 90%
volatility and an average risk-free interest rate of 2.36%.
As at October 31, 2009 the Company has common share purchase warrants issued and
outstanding to purchase up to 1,861,224 common shares at an average exercise
price of $0.51 per common share having an average remaining life of 3.31 years
as follows:
a) 1,199,408 warrants exercisable at $0.50 expiring May 8, 2011;
b) 100,000 warrants exercisable at $0.50 expiring June 24, 2011;
c) 4,287 warrants exercisable at $0.50 expiring September 17, 2011;
d) 2,000,000 warrants exercisable at $0.50 expiring November 11, 2011.
e) 155,556 warrants exercisable at $0.46 expiring December 1, 2011;
f) 77,569 warrants exercisable at $0.51 expiring February 17, 2019;
g) 184,914 warrants exercisable at $0.58 expiring March 27, 2019;
h) 139,490 warrants exercisable at $0.56 expiring October 13, 2019;
12. Lease Obligations
Future minimum lease payments for equipment acquired under non-cancellable
capital leases from a related party (See Note 10) and operating leases with
initial terms of more than one year are as follows:
Capital Operating
Twelve months ending October 31, Leases Leases
-------------------------------- ------ ------
$ $
2010 53,369 413,483
2011 24,259 386,953
2012 12,812 170,647
2013 4,134 19,200
2014 -- 19,200
------- -------
Total minimum lease payments 94,574
Less: amounts representing interest (9,725)
-------
Present value of net minimum lease payments 84,848
Less: current portion 46,743
-------
Long-term capital lease obligations 38,105
=======
Capital lease obligations are to be repaid over the next three twelve month
periods as follows:
Twelve Months
Ended
October 31, $
----------- ------
2010 46,743
2011 22,108
2012 12,164
2013 3,823
2014 --
14
Omnicity Corp.
Notes to Consolidated Financial Statements
(Unaudited)
14. Restatement of Prior Periods due to Correction
The Company has restated previously issued financial statements pursuant to two
error corrections. Pursuant to SFAS No. 154, "Accounting Changes and Error
Corrections", previously issued financial statements and comparative financial
statements issued currently are to be restated for correction of errors.
Cumulative effects of errors are reflected in beginning balances of assets and
liabilities with the offsetting adjustment reflected in the beginning deficit
balance.
An error in the recording of a stock subscription in April, 2009 resulted in a
net increase to stock subscriptions of $4,594 and an increase to deficit of
$4,594 for that period. There is no effect of this error on previously issued
statements of operations. The effect of this error on the balance sheet for as
at July 31, 2009 is as follows:
Previously Error
Reported Correction Restated
-------- ---------- --------
$ $ $
Balance Sheet:
Common Stock Subscribed 637,000 4,594 641,594
Deficit 7,678,594 4,594 7,683,188
During the quarter ended October 31, 2009, the Company, due to an injunction on
permanently issued capital due to non-performance of a contract, had recorded a
reduction of additional paid in capital of $124,250 with a gain on reversal of
an expense of $15,250 and a reduction of prepaid expense of $109,000. It was
determined that a company can not reduce permanent equity and thus has reversed
this transaction and instead has charged the entire prepaid amount of $109,000
to operations. The effect of this error in the financial statements for the
quarter ended October 31, 2009 is as follows:
Previously Error
Reported Correction Restated
-------- ---------- --------
$ $ $
Balance Sheet:
Additional Paid in Capital 6,156,863 124,250 6,281,113
Deficit 8,203,075 124,250 8,327,325
Statement of Operations:
General and Administration 169,444 124,250 293,694
Net loss 519,886 124,250 644,136
15. Subsequent Events
Subsequent to October 31, 2009 the Company has:
issued to a director a total of 4,000,000 units and issued to private investors
a total of 278,840 units, all at $0.35 per unit pursuant to subscriptions of
$1,497,584 received as at October 31, 2009. Each unit contained one common share
and one-half of one common share purchase warrant. Each whole warrant is
exercisable into one common share at $0.50 per share expiring November 11, 2011
as to 2,000,000 warrants and November 13, 2011 as to 139,420 warrants;
received $150,000 from a company controlled by a director of the Company and
issued a 9% senior subordinated redeemable five year debenture with interest
payable quarterly;
acquired the telecommunication system assets, subject to final due diligence, of
AAA Wireless, Inc. for $455,000. The Company has paid $25,000 as a deposit and
the balance will be paid on closing. The Company is negotiating the sale of
certain assets that will finance at least 70% of the balance of the purchase
price at closing being $430,000.
The Company evaluated subsequent events through the date the accompanying
financial statements were issued, which was December 17, 2009.
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD LOOKING STATEMENTS
This report contains forward-looking statements that involve risks and
uncertainties. Any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. In some cases,
you can identify forward-looking statements by terminology such as "may",
"will", "should", "expect", "plan", "intend", "anticipate", "believe",
"estimate", "predict", "potential" or "continue", the negative of such terms or
other comparable terminology. In evaluating these statements, you should
consider various factors, including the assumptions, risks and uncertainties
outlined in this report under "Risk Factors". These factors or any of them may
cause our actual results to differ materially from any forward-looking statement
made in this report. Forward-looking statements in this report include, among
others, statements regarding:
* our capital needs;
* business plans; and
* expectations.
While these forward-looking statements, and any assumptions upon which they are
based, are made in good faith and reflect our current judgment regarding future
events, our actual results will likely vary, sometimes materially, from any
estimates, predictions, projections, assumptions or other future performance
suggested herein. Some of the risks and assumptions include:
* our need for additional financing;
* our limited operating history;
* our history of operating losses;
* the competitive environment in which we operate;
* changes in governmental regulation and administrative practices;
* our dependence on key personnel;
* conflicts of interest of our directors and officers;
* our ability to fully implement our business plan;
* our ability to effectively manage our growth; and
* other regulatory, legislative and judicial developments.
We advise the reader that these cautionary remarks expressly qualify in their
entirety all forward-looking statements attributable to us or persons acting on
our behalf. Important factors that you should also consider, include, but are
not limited to, the factors discussed under "Risk Factors" in this report.
The forward-looking statements in this report are made as of the date of this
report and we do not intend or undertake to update any of the forward-looking
statements to conform these statements to actual results, except as required by
applicable law, including the securities laws of the United States.
REFERENCES
As used in this quarterly report: (i) the terms "we", "us", "our", "Omnicity"
and the "Company" mean Omnicity Corp.; (ii) "SEC" refers to the Securities and
Exchange Commission; (iii) "Securities Act" refers to the United States
SECURITIES ACT OF 1933, as amended; (iv) "Exchange Act" refers to the United
States SECURITIES EXCHANGE ACT OF 1934, as amended; and (v) all dollar amounts
refer to United States dollars unless otherwise indicated.
PLAN OF OPERATIONS
Our business plan is to be a rural wireless internet service provider in the
United States through a consolidation strategy and organic growth of all
acquired business units and to partner with REMCs, Telcos and local governments
for nationwide marketing. We also plan to partner with regional and national
telecommunication companies for the delivery of voice services and complete
negotiations and logistics of DirecTV resell agreements. We further plan to
partner with local governments to provide essential services, including mobile
internet for emergency mobile communications, fire and police and to establish
new utility applications such as automated meter reading. We plan to bring WISP
16
based services to rural America through three distinct market channels: (1) REMC
partnerships, (2) strategic acquisitions, (3) local government and private
enterprise partnerships.
Utilizing our relationship with the REMCs and "value added" institutional
services and facilities we provide for municipalities and local governments, we
plan to organize and consolidate within the rural broadband market initially in
Indiana and then in the Midwestern United States and ultimately nationwide.
Collaborations with both the REMCs and municipalities may act as effective
barriers for competition and provide additional sources of revenue and customer
service for the REMCs and municipalities as well as income and cash flow for our
company. The bundling of broadband services, including internet, voice, and
video, in partnership with rural electric and/or municipal services provides an
opportunity to imbed, cross promote, and extend services in collaboration with
these institutional providers.
FUTURE FINANCING REQUIREMENTS
We estimate that approximately $6 million will be required in fiscal 2010 to
finance the expansion of, and the addition of subscribers through acquisition
to, our existing and to be acquired network infrastructures. A total of
approximately $1.3 million has been raised during the quarter ended October 31,
2009 and through to December 17, 2009. A small portion will be used to finance
our negative operational monthly cash flow to the end of December 31, 2009. Once
targeted acquisitions are complete, by the end of January 2010, we will be
operationally cash flow positive and will require no additional funds to finance
these operational deficits. A portion of these funds will also be used to
finance the acquisition of additional transmission rights, the purchase and
installation of transmission and tower equipment and the cost of customer
premises equipment. A portion of these funds will be used to make principal and
interest payments of our long-term and short term debt as required.
CURRENT FINANCING ARRANGEMENTS
* 8% Senior Subordinated Redeemable Debenture - to raise up to
$2,000,000 by issuing long-term debentures with interest paid
quarterly;
* Equity Unit Private Placement - to raise up to $2 million pursuant to
a unit private placement;
* Private Investment Public Entity ("PIPE") - we have signed an
engagement letter with Bowen Advisors, Inc to assist us in raising up
to $10m in stages over the next fifteen months with the first stage
being $2,500,000. Marketing of this offering did not produce immediate
results and will be reviewed in January, 2010.
* Registered Direct Offering - we have begun discussions with a large
financial institution with a goal to engaging this firm to raise $10m
to $15m through a Registered Direct (S1) Offering beginning March 31,
2010 followed by a $30m Registered Direct offering towards the end of
2010 combined with a listing on a senior exchange.
We will continue to seek traditional cash flow and asset backed financing to
supplement our efforts discussed above and to reduce our overall cost of
capital. Additionally, in order to accelerate our growth rate and to finance
general corporate activities, we may supplement our existing sources of funds
with financing arrangements at the operating system level or through additional
borrowings, joint ventures or other off balance sheet arrangements. As a further
capital resource, we may sell or lease certain wireless rights or assets from
our portfolio as appropriate opportunities become available. However, there can
be no assurance that we will be able to obtain any additional financing, on
acceptable terms or at all.
PLAN OF OPERATIONS FOR THE NEXT TWELVE MONTHS
OUR PLAN OF OPERATIONS FOR THE NEXT TWELVE MONTHS THROUGH OUR FISCAL YEAR ENDING
JULY 31, 2010 IS TO:
1. complete further debt and equity offerings of $4.7 million by July 31,
2010;
2. develop and expand, through organic growth, the subscriber base
through our sales and marketing program;
3. acquire and transition into our operations assets of competing WISP
operators and expand our network into all of Midwest USA;
4. reach operationally cash flow positive and build a liquidity floor
under operations of $100,000 minimum by December 31, 2009;
5. build a current ratio of 1.5:1 by December 31, 2009;
6. continue to partner with Rural Electric Membership Cooperatives
"REMCs", local and State governments, Rural Telcos and Original
Equipment Manufacturers "OEMs" to efficiently and cost effectively
expand our network across rural America;
7. develop and expand our service offerings to become a total broadband
solution including VOIP and IPTV.
17
RESULTS OF OPERATIONS
The following table sets forth certain financial information relating to the
Company for the three months ended October 31, 2009 ("2009") and October 31,
2008 ("2008"). The financial information presented has been rounded to the
nearest thousand $ and is derived from the unaudited interim consolidated
financial statements included under Item 1 in this Form 10-Q.
THREE MONTHS ENDED OCTOBER 31, 2009 AND 2008
Three Months Ended Three Months Ended
October 31, 2009 October 31, 2008
---------------- ----------------
$ $
Sales, net 617,000 328,000
----------- ----------
Expenses:
Service costs 14,000 5,000
Plant and signal delivery 338,000 197,000
Marketing and sales 2,000 1,000
General and administration 294,000 131,000
Salaries and benefits 411,000 252,000
Depreciation and amortization 170,000 104,000
----------- ----------
Total Expenses (1,229,000) (690,000)
----------- ----------
Loss from Operations (612,000) (362,000)
----------- ----------
Other Income (Expense):
Other income 45,000 --
Interest expense (78,000) (41,000)
----------- ----------
Total Other Income (Expense) (33,000) (41,000)
----------- ----------
Net Loss (645,000) (403,000)
=========== ==========
Net Loss per Share - Basic and Diluted (.01) (.01)
=========== ==========
The following discussion should be read in conjunction with the unaudited
interim consolidated financial statements (including the notes thereto) included
under Item 1 in this 10-Q.
REVENUES
The Company's revenues for 2009 increased by $289,000 to $617,000 (2008 -
$328,000), an increase of 89%. This significant increase reflects an increase in
recurring service revenue from our four acquisitions. Revenues from our first
acquisition in 2009 began in February, 2009. The number of subscribers increased
from 5,200 to 5,600 during the quarter. This subscriber count does not
differentiate a subscriber, for example, one school, hospital or business
subscriber is counted as one subscriber. On an equivalent subscriber unit basis
we increased our equivalent subscribers from 5,586 at July 31, 2009 to 6,053 at
October 31, 2009. This is important to note because going forward we will be
adding schools, hospitals and business accounts at an accelerated rate. In 2008
the Company had 1,800 subscribers. The Company receives revenue mainly from
monthly service and modem rental fees collected from its subscribers. The
Company also receives web hosting fees, installation fees, fiber construction
projects fees and late fees, this is less than 8% of total revenue. The Company
expects revenues to increase over the next nine months as a result of organic
growth, planned acquisitions and increase in average revenue per unit ("ARPU").
OPERATIONAL EXPENSES
Operational expenses include service costs, plant and signal delivery, marketing
and sales, general and administration and salaries and benefits.
18
Service costs include the cost of billing and collection. Service costs for 2009
increased by $9,000 to $14,000 (2008 - $5,000). This increase was due mainly to
the increase in the number of customers accounts offset by a decrease in the
cost of collection. Service costs are not expected to increase significantly
during the remainder of 2010.
Plant and signal delivery expenses include the rental of tower infrastructures,
the purchase of internet transmission (backhaul) the cost of installations at
customers' premises and the customer premises equipment operating lease costs.
Plant and signal delivery expenses for 2009 increased by $142,000 to $338,000
(2008 - $196,000), an increase of 72%. The increase in revenues was 89% during
this period because, as subscribers are added to infrastructure the incremental
cost of that subscriber is lower. This increase was due mainly to the increase
in the number of towers under rental arrangements, the amount of backhaul needed
to service the increase in subscribers, the increase in customer premises
equipment being leased pursuant to operating lease arrangements and the increase
in customer installations. Plant and signal delivery costs per customer will
significantly decrease once the Company populates its towers with customers. The
Company, on average, has a penetration of approximately 4% of homes passed
whereas the minimum target penetration is greater than 20% which is the
penetration rate in the Wabash REMC coverage area.
Marketing and sales expenses include REMC fees, advertising, preparation of
marketing materials, commissions paid to our VP of corporate sales and royalties
paid to Service Concepts, a company responsible for marketing through the REMCs.
Marketing and sales for 2009 was negligible as materials were on hand for the
quarter. Marketing and sales expenses are expected to significantly increase
during 2010 as the Company increases its marketing plan to significantly
increase organic growth. The Company now has three full-time sales people, which
costs are included in salaries and benefits.
General and administration expenses include professional fees (legal, accounting
and outside professional consulting), investor relations fees and expenses,
office expenses (including rent, telephone and insurance), software fees and
fees associated with late payments and bank charges. General and administration
expenses for 2009 increased by $163,000 to $294,000 (2008 - $131,000). This
increase is mainly due to becoming a public company on February 17, 2009 and the
additional costs associated with this transaction and investor relations
expenses, transfer agent expenses and regulatory fees. General and
administration expenses are not expected to increase significantly in 2010 in
relation to increased revenue.
Salaries and benefits for 2009 have increased by $158,000 to $411,000 (2008 -
$252,000). This increase is mainly due to becoming a public company on February
17, 2009 and the additional costs associated with hiring senior management such
as a Chief Financial Officers, VP of Corporate Development, VP of Sales and
Marketing, VP of Acquisitions, VP of Field Services, VP of Customer Support and
a corporate sales person. These hiring activities began during the quarter ended
October 31, 2008 and are reflected in the comparative numbers. The Company went
from 25 employees during the three months ended October 31, 2008 to 38 employees
during the three months ended October 31, 2009. The Company added two
salespeople in November, 2009. The Company does not expect to increase its
number of employees significantly during 2010 as it has now contracted out its
installations to an independent contractor and the Company's current number of
employees is expected to be able to maintain a customer base at least double its
current customer base.
Depreciation and amortization for 2009 increased by $67,000 to $170,000 (2008 -
$104,000). $69,000 of the increase was attributed to the amortization, over a
period of seven years, the customers' relationships acquired in conjunction with
asset acquisitions.
OTHER INCOME AND EXPENSE
Interest expense for 2009 increased by $37,000 to $78,000 (2008 - $41,000). The
increase was a result of increased short-term and long-term debt. As at October
31, 2009 the Company's cost of short-term and long-term debt is 7.3%. Interest
expense is not expected to increase substantially in 2010 as the Company plans
to pay down short-term and long-term debt and to finance growth through the
issuance of equity instruments.
Other income for 2009 increased by $45,000 (2008 - $nil) as result of accounts
payable written-off.
NET LOSS
The net loss for 2009 increased by $241,000 to $645,000 (2008 - $403,000). This
increase in loss was due to increases in operational expenses of $543,000 offset
by an increase in revenue of $289,000 for a net increase in loss from operations
of $254,000. This net increase is mainly associated with building internal
infrastructure, including personnel and the costs of being a public company.
Interest expense increased by $37,000 and other income increased by $45,000.
19
LIQUIDITY AND CAPITAL RESOURCES
October 31, 2009 July 31, 2009
---------------- -------------
$ $
CASH 760,000 159,000
WORKING CAPITAL (DEFICIENCY) (1,545,000) (2,585,000)
TOTAL ASSETS 3,858,000 3,350,000
TOTAL LIABILITIES 4,368,000 4,424,000
STOCKHOLDERS' DEFICIT (510,000) (1,074,000)
We completed our going public transaction on February 17, 2009. Since then, the
Company's acquisition and transition teams have acquired and folded in five
WISP's increasing our subscriber base from 1,800 to over 5,600 as at October 31,
2009. See discussion under "Revenues" above for our increase in cash flow from
adding customers and a discussion on equivalent subscriber units.
At October 31, 2009 we had cash of $760,000. Subsequent to October 31, 2009 we
deposited $150,000 relating to the issuance of a senior subordinated redeemable
debenture. Our payroll is currently $160,000 per month and we now have 40
employees.
CASH TO OPERATING ACTIVITIES
During 2009, operating activities used cash of $288,000 (2008 - $44,000). Our
loss for 2009 was $645,000 (2008 - $403,000) which included a non-cash outlay
for depreciation and amortization of $170,000 (2008 - $104,000) for a net cash
outflow of $475,000 (2008 - $299,000) before changes in working capital items.
Our accounts receivable have increased by $13,000 (2008 - decrease of $3,000)
due to our increase in customer base. Prepaid expenses decreased by $109,000
(2008 - increase of $3,000). Our expenses were financed by our vendors as to
$64,000 (2008 - $262,000).
CASH TO INVESTING ACTIVITIES
The WISP business is a capital intensive business. Since inception, the Company
has expended funds to lease or otherwise acquire transmission site rights in
various locations and markets, to construct the existing systems and to finance
initial operating losses. The Company intends to expand the existing systems and
launch additional wireless systems and will require additional funds. The
Company estimates that a launch by it of a wireless internet provider system in
a typical new tower location will involve the expenditures for wireless internet
system transmission equipment and incremental installation costs per subscriber
for customer premise equipment. As a result of these costs, operating losses are
likely to be incurred by a system during the roll-out period.
During 2009, investing activities used net cash of $126,000 (2008 - $121,000).
We acquired tower and customers' premises equipment totalling $191,000 during
2009 of which $68,000 was financed through issuing common stock for a net cash
investment of $122,000.
CASH FROM FINANCING ACTIVITIES
During 2009, financing activities provided cash of $1,015,000 (2008 - $165,000).
Proceeds of $1,020,000 was received from common stock subscriptions (2008 -
$5,500). During 2009, proceeds of $149,000 (2008 - $168,000) were received from
short-term loans and $38,000 (2008 - $nil) from long-term debt. A total of
$873,000 of short-term debt became long-term debt due to renegotiations with
note holders. We repaid $63,000 (2008 - $nil) of short-term and long-term debt.
The Company advanced $4,100 to our Chief Operating Officer as a loan against
expenses. Subsequent to October 31, 2009 we received an additional $150,000 from
a company controlled by a director of the Company and issued an 8% senior
subordinated redeemable debenture.
ITEM 4. CONTROLS AND PROCEDURES
DISCLOSURE CONTROLS AND PROCEDURES
As required by Rule 13a-15 under the Securities Exchange Act of 1934, we have
carried out an evaluation of the effectiveness of the design and operation of
our disclosure controls and procedures as of the end of the period covered by
this quarterly report, being October 31, 2009. This evaluation was carried out
under the supervision and with the participation of our management, including
20
our chief executive officer and our chief financial officer. Based upon that
evaluation, our chief executive officer and our chief financial officer
concluded that our disclosure controls and procedures are effective as at the
end of the period covered by this quarterly report.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There have been no changes in our internal controls over financial reporting
that occurred during the period covered by this quarterly report that have
materially affected, or are reasonably likely to materially affect our internal
controls over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We know of no material, active or pending legal proceedings against our company,
nor are we involved as a plaintiff in any material proceeding or pending
litigation. There are no proceedings in which our director and officer or
affiliates, or any registered or beneficial shareholder is an adverse party or
has a material interest adverse to our interest.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES
Effective on August 18, 2009, we issued a total of 229,855 common shares from
treasury to four individuals to complete the common share portion to complete
two Asset Purchase Agreements at an agreed price of $0.71 per common share. We
relied on exemptions from registration under the Securities Act provided by Rule
506 for U.S. accredited investors based on representations and warranties
provided by the individuals.
Effective on October 13, 2009, we issued a total of 268,818 common shares from
treasury to eleven individuals to complete the common share portion to complete
two Asset Purchase Agreements at an agreed price of $0.465 per common share. We
relied on exemptions from registration under the Securities Act provided by Rule
506 based on representations and warranties provided by the individuals.
Effective on September 17, 2009, we issued a total of 8,571 units of the Company
to one subscriber at $0.35 per unit. Each unit consists of one share of our
common stock and one share purchase warrant. Each unit consists of one share of
common stock and one-half of one share purchase warrant, with each whole warrant
entitling the holder to acquire an additional share of common stock at an
exercise price of $0.50 per share until September 17, 2011. We relied on
exemptions from registration under the Securities Act provided by Rule 506.
Effective on November 10, 2009, we completed a non-brokered private placement
pursuant to which we issued from treasury to one subscriber a total of 4,000,000
Units at a subscription price of $0.35 per unit for proceeds of $1,400,000. Each
unit consisted of one share of common stock and one-half of one share purchase
warrant. Each whole warrant entitles the holder to acquire an additional share
of common stock at an exercise price of $0.50 per share until October 20, 2011.
We relied on exemptions from registration under the Securities Act provided by
Rule 506 for U.S. accredited investors based on representations and warranties
provided by the subscriber in his subscription agreement entered into between
the subscriber and the Company.
Effective on November 13, 2009, we completed a non-brokered private placement
pursuant to which we issued from treasury to five subscribers a total of 278,840
Units at a subscription price of $0.35 per unit for proceeds of $97,594. Each
unit consisted of one share of common stock and one-half of one share purchase
warrant. Each whole warrant entitles the holder to acquire an additional share
of common stock at an exercise price of $0.50 per share until November 13, 2011.
We relied on exemptions from registration under the Securities Act provided by
Rule 506 for U.S. accredited investors based on representations and warranties
provided by the subscriber in his subscription agreement entered into between
the subscriber and the Company.
21
ITEM 6. EXHIBITS
The following exhibits are included with this Quarterly Report on Form 10-Q:
Exhibit Number Description of Exhibit
-------------- ----------------------
31.1 Rule 13a-14(a)/15(d)-14(a) Certification of Principal
Executive Officer
31.2 Rule 13a-14(a)/15(d)-14(a) Certification of Principal
Financial Officer
32.1 18 U.S.C. Section 1350 Certification of Principal Executive
Officer and Principal Financial Officer
22
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OMNICITY CORP.
By: /s/ Greg Jarman
--------------------------------------------------------------
Greg Jarman
Chief Executive Officer and a Director
(Principal Executive Officer)
Date: September 28, 2010
/s/ Don Prest
--------------------------------------------------------------
Don Prest
Chief Financial Officer and a Director
(Principal Financial Officer and Principal Accounting Officer)
Date: September 28, 2010
2
