OMT Inc. (TSX VENTURE: OMT) announced today the Company's
consolidated results for the period ended March 31, 2011.
First Quarter Highlights
-- On May 4, 2011, OMT executed a share subscription receipt agreement
providing new investment into the Company and supporting a restructuring
of its debt arrangements, subject to final shareholder and TSX-V
approvals. After undertaking an extensive review, the Board and
management have concluded that, of the many possible alternatives
considered, this would be the best possible alternative for the Company
to enable a much stronger future.
-- Sales in the first quarter of 2011 were 6% lower than the same quarter
of 2010 year, however, 9% higher than the fourth quarter last year.
-- EBITDA in the first quarter of 2011 was ($5000), but was significantly
impacted by the one time costs associated with advisor and related fees
involved in the Company's strategic initiative. Excluding these one time
expenses, EBITDA would have been approximately $48,000.
-- iMediaTouch radio automation sales were achieved in a number of smaller
and larger client groups in both Canada and the United States, including
both software upgrades on current OMT client installations as well as
new client initial installations.
-- OMT released Version 4.2 of our iMediaTouch automation software, which
supports Windows 7 and several feature enhancements. This new release is
in response to client feedback and continues OMT's commitment to ongoing
product development.
-- OMT attended the National Association of Broadcasters trade show again
this year in April, showcasing our new Version 4.2 software release and
several other new product features.
Introduction and Description of Business
OMT Inc. (TSX VENTURE: OMT) is a digital media content and
technology solution provider to radio broadcasters. Through its
wholly-owned operating subsidiary, OMT Technologies Inc. the
Company delivers radio automation systems to radio stations
internationally. OMT's broadcasting, multi-media technology, and
content are heard daily by over 50 million people worldwide through
radio, satellite, television and Internet delivered broadcasts. The
Company is incorporated in the province of Manitoba and its shares
are listed on the Toronto Venture Exchange under the ticker symbol
OMT.
The address of the Company's registered office is 30th floor,
360 Main Street, Winnipeg, MB, R3C 4G1.
To learn more about the Company, its products and services,
visit its website at www.omt.net.
Management's Discussion and Analysis
Certain statements made in the following Management's Discussion
and Analysis contain forward-looking statements including, but not
limited to, statements concerning possible or assumed future
results of operations of the Company. Forward-looking statements
represent the Company's intentions, plans, expectations and
beliefs, and are not guarantees of future performance. Such
forward-looking statements represent our current views based on
information as at the date of this report. They involve risks,
uncertainties and assumptions and the Company's actual results
could differ, which in some cases may be material, from those
anticipated in these forward-looking statements. Unless otherwise
required by applicable securities law, we disclaim any intention or
obligation to publicly update or revise this information, whether
as a result of new information, future events or otherwise. The
Company cautions investors not to place undue reliance upon
forward-looking statements.
Results of Operations
This review contains Management's discussion of the Company's
operational results and financial condition, and should be read in
conjunction with the condensed consolidated interim financial
statements for the three months ended March 31, 2011 and the
associated notes, which were prepared in accordance with
International Financial Reporting Standards (IFRS). These are the
first financial statements issued under IFRS by the Company.
Previously issued financial statements and management's discussion
and analysis reports were prepared in accordance with Canadian
generally accepted accounting principles (CGAAP). All amounts are
in Canadian dollars unless otherwise indicated.
Comparative figures at the transition date (January 1, 2010) as
well as at March 31, 2010 and December 31, 2010, were converted to
IFRS and are presented as such in the condensed consolidated
interim financial statements. Descriptions of the standards as
applied by the Company, together with detailed reconciliation
tables between previously reported CGAAP financial statements and
currently included IFRS comparative figures, can be found in Notes
1(c) and 11 to the condensed, consolidated interim financial
statements.
The unaudited condensed consolidated interim financial
statements provide a comparison of the three months ended March 31,
2011 to the three months ended March 31, 2010.
Eight Quarter Review (numbers shown in '000s) (unaudited)
----------------------------------------------------------------------------
2011 2010 2009
----------------------------------------------------------------------------
Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2
---------------------------------------------------------------
Sales $548 $502 $297 $449 $584 $446 $709 $558
Gross profit $375 $383 $248 $333 $403 $324 $405 $408
Gross profit
% 68% 76% 83% 74% 69% 73% 57% 73%
Operating
expenses $380 $307 $330 $390 $311 $431 $344 $454
EBITDA ($5) $76 ($82) ($57) $92 ($107) $61 ($46)
Other
expenses $126 $140 $129 $125 $122 $175 $107 ($102)
Net loss ($131) ($64) ($211) ($182) ($30) ($282) ($46) $56
Net loss per
share (basic
& diluted) ($0.005)($0.002)($0.007)($0.006)($0.001)($0.010)($0.002) $0.002
----------------------------------------------------------------------------
Results for the quarters ended in 2011, 2010 and 2009 reflect
the total business of OMT Inc. and its wholly- owned subsidiary,
OMT Technologies Inc. Sales, cost of sales and expenses for the now
divested Intertain Media Inc. division have been removed to allow
proper comparison between the periods and are not shown on this
chart. OMT Technologies includes the iMediaTouch radio automation
and related products.
Sales in Q1 of this year are $36,000 (6%) lower than Q1 last
year and $46,000 (9%) higher than Q4 last year. Hardware sales of
$181,000 in Q1 of this year are down $23,000 (11%) and up $49,000
(37%) over Q1 and Q4 of last year. Software sales at $216,000 in Q1
this year is comparable to quarters Q1 ($217,000) and Q4 ($210,000)
of last year. Maintenance and support sales in Q1 this year at
$132,000 are down $4,000 (3%) from both Q1 and Q4 last year.
Overall, revenues in 2011-Q1 compare reasonably to the various
quarters of 2010 with some variations within the individual product
and service components.
Gross profit in 2011-Q1 decreased by $28,000 (6.9%) from 2010-Q1
and $8,000 (2.1%) from 2010-Q4. The decrease as compared to 2010-Q1
was due to a drop in sales as described above. Gross profit
percentages were similar reflecting a similar mix of software and
hardware sales during these comparable Q1 periods. The decrease of
$8,000 when 2011-Q1 is compared to 2010-Q4 was due to an overall
decrease in the gross margin percentage of 8%, reflecting the
change in the sales mix of higher margin software sales and lower
margin hardware sales. These variances are not considered
significant by management since the margins fluctuate when the mix
of sales between hardware, software and services changes in any
specific period. There have been no significant changes in pricing,
and so the difference is the result of the change in the sales
mix.
Operating expenses in 2011-Q1 were $69,000 (22.2%) higher than
2010-Q1 and $73,000 (23.8%) higher than 2010-Q4. These increases,
when compared to cost levels last year, are largely the result of
increased professional advisory fees associated with the ongoing
strategic initiative activities of the Company that has resulted in
the noted share subscription agreement arrangement. Other operating
costs have been relatively stable.
EBITDA is defined as Earnings before Interest, Tax, Depreciation
and Amortization and is a measure that has no standardized meaning
under Canadian GAAP or IFRS and is considered a non-GAAP/IFRS
earnings measure. Therefore this measure may not be comparable to
similar measures reported by other companies. EBITDA can be used to
compare the Company's operating performance on a consistent basis.
It is presented in this MD&A to provide the reader with
additional information regarding the Company's liquidity and
ability to generate funds to finance its operations. EBITDA at
($5,000) for Q1 is $97,000 less than Q1 last year and $81,000 less
than Q4 last year and is directly attributable to the higher
operating expenses in Q1 this year, largely impacted by the
strategic initiative undertakings. Excluding these one-time
strategic initiative expenses, the EBITDA would have been
approximately $48,000.
Other expenses that reduce EBITDA to arrive at net loss
include: 2011-Q1 2010-Q1
---------------------
Interest, finance and related expense $ 124 $ 120
Amortization 2 $ 2
---------------------
Total $ 126 $ 122
---------------------
The net loss of $131,000 for 2011-Q1 is a decrease of $101,000
over the 2010-Q1 loss of $30,000 and a decrease of $67,000 over the
2010-Q4 net loss of $64,000. The loss per share, in all quarters,
is based on 28,922,090 shares issued and outstanding.
Cash Flow
Details of the changes to the cash position in the first quarter
this year as compared to last year are shown in the chart
below.
Description 2011 2010
-------------------------------------------------------------------------
Net income (loss) $ (131,000) $ (30,000)
Increase (decrease) in bank
operating loan 90,000 (85,000)
Interest accretion 103,000 99,000
Amortization 2,000 2,000
Accounts receivable (increase)
decrease (30,000) 32,000
Inventory (increase) 4,000 (6,000)
Prepaid Expenses (3,000) (55,000)
Accounts payable increase
(decrease) (63,000) (50,000)
Unearned revenue increase
(decrease) (52,000) 31,000
--------------------------------------
$ (80,000) $ 62,000
--------------------------------------
Liquidity
Going concern:
The consolidated financial statements have been prepared on a
going concern basis in accordance with International Financial
Reporting Standards (IFRS) which contemplates the Company will
continue in operation for the foreseeable future and be able to
realize its assets and discharge its liabilities and commitments in
the normal course of business.
There is significant doubt about the appropriateness of the
going concern assumption because of the material uncertainties
caused by continued losses, current market conditions, and the
maturity of the Company's long-term debt in July, 2011, although
the Company is in the process of executing a planned restructuring
as outlined below and in note 10 to the financial statements. This
maturity date on the long-term debt is less than one year, and
accordingly is being classified as a current liability resulting in
a working capital deficiency of $5,317,706. The ability of the
Company to carry on as a going concern is dependent upon the
Company executing on the restructuring undertaking outlined in note
10 to the financial statements, to address its liquidity issues or
the ability of the Company to obtain an extension or replacement
financing when the existing debt-financing becomes due on July 15,
2011 (note 3 to the financial statements). The Company also must
ensure that the current line of credit ($400,000) (note 2 to the
financial statements) is not exceeded and remains in place until
either new arrangements are established or the restructuring
undertaking is completed.
The outlined restructuring undertaking (note 10 to the financial
statements) includes the raising of funds through a subscription
agreement for subscription receipts, addressing the existing
company line of credit (note 2 to the financial statements ) and
debt re-financing including the associated accrued interest due on
July 15, 2011 (notes 3 and 10 to the financial statements). At this
time a subscription agreement has been executed and the total
proceeds of $750,000 placed in escrow, pending the remaining
conditions of the subscription agreement being satisfied including
new debt arrangements, the required shareholder support and final
TSX-V approvals. The Company's AGM and Special Shareholders Meeting
is scheduled for June 22, 2011. There is no assurance as to the
outcome or success of the restructuring undertaking until such time
that all of the required conditions are fully accomplished. This
uncertainty, as well as the cash flow constraints of the Company,
result in significant uncertainty as to whether the Company will be
able to meet its financial obligations as they become due.
If the outlined restructuring undertaking were not successfully
concluded, there would be significant uncertainty whether the going
concern basis is appropriate for these consolidated financial
statements and adjustments would be necessary in the carrying value
of assets and liabilities, the reported revenues and expenses, and
the consolidated balance sheet classifications employed. These
adjustments may be material.
Other liquidity discussion:
Working capital at March 31, 2011 was negative $5,317,707
compared to negative $350,538 on March 31, last year attributed to
the long-term debt now being classified as a current liability. The
Company made no capital investments in 2011 or 2010 and has not
made any significant commitments for capital expenditures as at
March 31, 2011.
The bank line of credit, which bears interest at a floating rate
of prime plus 1%, is limited to a maximum of $400,000 of which
$280,000 (December 31, 2010 - $190,000) has been drawn at March 31,
2011. The current line of credit expires on June 30, 2011. The
Company has outlined a restructuring undertaking (note 10 to the
financial statements), which if successful, is expected to allow
the Company to repay this line of credit in full.. The Company also
must ensure that the current line of credit ($400,000) is not
exceeded and remains in place until either new arrangements are
established or the restructuring undertaking is complete.
The long-term debt will mature on July 15, 2011. The amount
repayable at that time is $4,974,000. The reader should also refer
to the Risks and Uncertainties (Capital requirements) comments
which follow further on in this document.
The outlined restructuring undertaking (note 10 to the financial
statements) includes the raising of $750,000 through a share
subscription agreement, addressing the existing line of credit due
June 30, 2011 and establishing new debt arrangements prior to the
current maturity date of July 15, 2011. At this time a subscription
agreement has been executed and the total proceeds of $750,000
placed in escrow, pending the remaining conditions of the
subscription agreement being satisfied including new debt
arrangements, the required shareholder support and final TSX-V
approvals. The Company's AGM and Special Shareholders Meeting is
scheduled for June 22, 2011. There can be no assurance as to the
outcome or success of the restructuring undertaking until such time
that all of the required conditions are fully accomplished. This
uncertainty, as well as the cash flow constraint, of the Company,
results in significant uncertainty as to whether the Company will
be able to meet its financial obligations as they become due.
Related Party Transactions
(a) Rental premises:
The Company has contracted to rent premises from a company of
which one of the Company's directors is also an officer and
director. The original lease has now been extended until May 31,
2013. Either party is able to terminate this sub-lease agreement
with written notice for any reason and without penalty, subject to
a 120 day notice period. Monthly rent is $3,283 plus $2,750
estimated operating costs. At March 31, amounts paid and owing to
the lessor for these premises in 2011 are $21,000 and Nil (2010
$16,000 and $6,000) respectively.
(b) Bank line guarantee:
In October 2005, a major shareholder provided a guarantee for
$400,000 to the Bank of Nova Scotia in support of the Company's
line of credit. This guarantee is ongoing and requires payments of
a monthly administration fee of $1,000 as well as a monthly standby
fee of $1,000. If the Company actually draws down on the guarantee,
then the interest rate would be 20% of the amount received. The
Company consummated this related party transaction to support the
operating Line of Credit with the Bank. The guarantee will end on
June 30, 2011. Proceeds from the outlined restructuring that
included raising of funds through a share subscription agreement
are expected to be used to repay the existing line of credit now
due June 30, 2011.
(c) Sale of Intertain Media Inc.
The transaction terms associated with the sale of Intertain
Media Inc. on May 31, 2009 included future payments on each of the
following three anniversary dates. These anniversary payments and
contingent continuing cash flows from Intertain are not dependent
on actions or decisions to be taken by the Company's management and
therefore are not considered by management to indicate continuing
operations related to the Intertain division. Accordingly, the
results of operations and future cash flows related to Intertain
are classified as discontinued operations. Management evaluated
this lack of certainty regarding the contingent payments and
decided to defer revenue recognition until the payments are
received. The first of three payments was received on May 31, 2010,
but there is uncertainty regarding future payments.
International Financial Reporting Standards (IFRS)
In February, 2009 the Canadian Accounting Standards Board (AcSB)
announced that as at January 1, 2011, publicly accountable
enterprises were expected to adopt IFRS. Accordingly, the Company
adopted these new standards during its fiscal year beginning on
January 1, 2011. The AcSB also stated that during the transition
period, enterprises would be required to provide comparative IFRS
information for the previous fiscal year. Accordingly, OMT is now
operating under the IFRS framework.
The condensed consolidated interim financial statements of the
Company have been prepared in accordance with IAS 34, "Interim
Financial reporting". The Company adopted IFRS in accordance with
IFRS 1, "First - Time Adoption of International Financial Reporting
standards".
The transition date was January 1, 2010, and in accordance with
IFRS, the Company has:
-- Provided comparative financial information
-- Applied the same accounting policies for all periods presented
-- Retrospectively applied IFRS as of March 31, 2011, as required; and
-- Applied certain optional exemptions and certain mandatory exemptions as
applicable for first- time IFRS adopters
The effects of the transition to IFRS on the condensed
statements of financial position, statements of operations,
comprehensive loss and deficit and statements of cash flows are
presented in detail in note 11 to the financial statements.
Although there are numerous differences between IFRS and CGAAP,
none had significant impact on the Company's financial statements.
The most significant related to property and equipment that had
been fully depreciated under CGAAP. Under IFRS, depreciable assets
are reviewed annually and the depreciation is adjusted
prospectively based on asset value and remaining useful life.
Internal Controls
The management of the Company is responsible for establishing
and maintaining disclosure controls and procedures for the Company
and has designed such disclosure controls and procedures, or caused
them to be designed under management supervision, to provide
reasonable assurance that material information relating to the
Company, including its consolidated subsidiary, is made known to
OMT's management by others within the Company, including its
consolidated subsidiary. The Company's management has evaluated the
effectiveness of the Company's disclosure controls and procedures
for the period covered by this MDA. The Company's management has
determined that in certain instances an effective control
environment had not been maintained. Specifically, key finance
accountabilities are not effectively segregated due to the resource
constraints and the size and structure of the Company. Many
accounting and financial procedures are not segregated and are
maintained by one accountant, including, the maintenance of the
chart of accounts is not always performed independently of
recording transactional data; cheque preparation and mailing are
not segregated; and recording sales and cash receipts and bank
deposits are not segregated. The lack of segregation of duties may
result in accounting errors, concealment of errors or
misappropriation of Company assets, however, the impact is
mitigated by existing monthly and quarterly review procedures
designed to detect material misstatements. Management recognizes
this inherent weakness, which is common in companies of this size,
and in addition to existing monthly and quarterly review
procedures, will periodically review segregation of duties and
compensating controls to ensure risks are minimized.
Risks and Uncertainties
The Board of Directors is responsible for oversight of our
liquidity and funding management framework, which is developed and
implemented by senior management. OMT monitors and manages our
liquidity position on a consolidated basis. This includes our
ability to lend and borrow funds between the Company and its
subsidiary and converting funds between currencies. The Board of
Directors is informed on a regular basis about our current and
prospective liquidity condition.
The risks and uncertainties discussed below must be taken into
account, as they may affect the Company's ability to achieve our
strategic goals. Investors are therefore advised to consider the
following items in assessing the Company's future prospects as an
investment.
Capital requirements
The Company has a line of credit which currently expires on June
30, 2011, and also other debt obligations that mature on July 15,
2011. Please refer to notes 1(a), 2 and 3 to the Financial
Statements. A subscription agreement was approved on May 4, 2011
with a total value of $750,000, for Subscription Receipts at a
price of $0.05 per Subscription Receipt. Each Subscription Receipt
will, for no additional consideration, automatically be exercised
into one unit of the OMT (a "Unit"), as constituted following the
completion by OMT of a consolidation of its common shares on a nine
(9) for one (1) basis. Each Unit will consist of one
post-consolidated common share of OMT and one common share purchase
warrant with each warrant entitling the holder thereof to purchase
one additional post-consolidated common share of OMT at $0.10 per
warrant share for a period of 12 months from the date the warrants
are issued. The total proceeds of $750,000 have been deposited with
an escrow agent pending certain escrow release conditions being
satisfied by the company. The Company will provide notice to the
escrow agent that the release conditions have been satisfied and,
upon receipt of the notice, the escrow agent will release
immediately the escrow funds and the subscription receipts will
automatically be exercised and converted into the associated shares
and warrants. The share subscription pricing has been conditionally
approved by the TSX Venture Exchange, with final TSX Venture
Exchange approval subject to the approval of the shareholders at a
special meeting of shareholders to be held June 22, 2011.
The key conditions of the subscription agreement for
subscription receipts to be satisfied by the Company include:
i. the completion of the Share Consolidation;
ii. the Company reaching new arrangements with the debt and debentures
holders in a manner that is satisfactory to OMT and to the holders of
more than 50% of the Subscription Receipts;
iii. the Company shall not have issued any additional common shares or other
securities; and
iv. receipt of final TSXV approval of the private placement of Subscription
Receipts; and,
v. the approval of holders of not less than 50% of the issued and
outstanding Shares with respect to the change of control resulting from
the issuance of the shares (and warrants) in exchange for the
Subscription Receipts.
The Board and Management of the Company believe that the
conditions required by the subscription agreement for subscription
receipts will be met, resulting in the release of the funds in
escrow, there cannot be certainty until the shareholder approvals
are obtained at the upcoming meeting, to be held in June, new debt
arrangements are concluded and final TSX-V approval is
confirmed.
Readers should refer to note 10 to the consolidated financial
statements.
Credit risk
The project nature of the business also leads to a concentration
of credit risk. As at March 31, 2011 four customers accounted for
60% (March 31, 2010 four customers - 68%) of the total accounts
receivable. However, the risk of loss is partially mitigated due to
the Company's policy of collecting a deposit before any project is
commenced. The Company also bills in advance for service and
support contracts. At March 31, 2011 the overdue accounts
receivable from customers totaled $33,000 (March 31, 2010 -
$29,000). Detail concerning the overdue accounts receivable at
March 31, 2011 are:
Overdue 31- 60 days $ 21,000
Overdue 61- 90 days $ 7,000
Overdue 91 and over days $ 5,000
The allowance for doubtful accounts on trade receivables was set
at $600 (March 31 2010 - $7,600). The allowance for losses on
uncollectible accounts is based on specific customer history and
write-offs are solely based on specific customer defaults. In 2011,
there were no write offs related to any specific customers (2010 -
Nil). Amounts previously allowed for and collected have been taken
into income (2011 - $700, 2010 - $8,400). Accounts receivable as
well as accounts payable are kept relatively current, and there is
minimal risk of delayed collections affecting the Company's ability
to pay its creditors.
Foreign exchange risk
A significant portion of the Company's revenues are denominated
in U.S. dollars, and as a result fluctuations in the rate of
exchange between U.S. and Canadian dollars can have a significant
effect on its cash flows and reported results. The Company's sales
denominated in U.S. dollars for the three months ended March 31,
2011 were $417,000 (71%) expressed in Canadian currency. Sales
prices do not vary based on exchange rates. A 10% increase in the
value of the Canadian dollar has the effect of a 10% decrease in
revenues from U.S. sales. The same increase in the value of the
Canadian dollar has a mitigating effect of a 10% decrease in the
cost of hardware sales because computers and related equipment for
installation in the U.S. are generally purchased there. Most
expenses incurred by our technical staff for on-site services are
billed to the customer and incur no foreign exchange risk.
Current external economic and financial crisis
The global economic and financial crisis has had a negative
impact on the revenues of the Company in 2010, which may continue
throughout the current year. Generally, prices are under pressure
and client capital investment decisions and new maintenance
contracts may be postponed. In this environment, it may be
difficult to achieve revenue projections for balance of 2011. As
the revenues of our customers are negatively impacted, we see
additional focus on their part to reduce or postpone costs. The
Company procurement approach does not expose it to any risk from
any specific vendor.
Competition and technological obsolescence
Our products' markets experience ongoing technological changes
and apart from the fact that OMT Inc. must compete with existing
technology and service providers, new companies and advancing
technologies remain a competitive fact. In order to remain fully
competitive in our target markets, OMT must continue to innovate
and respond with advanced generations of software, products and
services. The inability to react in a timely fashion to
technological and competitive changes could have an impact on the
value of the Company's intangible assets and our ability to attract
and retain our customers. Moreover, the highly competitive market
in which we operate could cause the Company to reduce its prices
and offer other favorable terms in order to compete successfully
with its rivals. These practices could, over time, limit the prices
that OMT can charge for its products. If OMT was unable to offset
such potential price reductions by a corresponding increase in
sales or to lower expenses, such a decline in revenues from
software sales and related products could negatively impact our
profit margins and operating results.
Additional Information
Additional information related to the Company, including all
public filings, is available on SEDAR (www.sedar.com).
To view the OMT 2011 First Quarter Financial Statements, please
visit the link below:
http://media3.marketwire.com/docs/omt-fs2011.pdf
Contacts: OMT Inc. Bill Baines Executive Chairman (204) 786-3994
(204) 783-5805 (FAX) bbaines@omt.net www.omt.net
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