OMT Inc.

OMT Inc.

May 29, 2009 15:00 ET

OMT Reports Results for Three Months Ended March 31, 2009

WINNIPEG, MANITOBA--(Marketwire - May 29, 2009) -- OMT Inc. (TSX VENTURE:OMT) announced today the Company's consolidated results for the period ended March 31, 2009.

First Quarter Highlights

  • The Company announced agreements with its debt holders to extend the maturity date of its debt facilities from July 15, 2009 to July 15, 2011. In parallel, the existing agreements to defer interest payments on the majority of its debt were also extended to July 15, 2011.  
  •  iMediaTouch radio automation sales were achieved in a number of smaller and larger client groups, in both Canada and the United States in the first quarter, including in well organized ownership groups such as Corus, Fox News and others.  
  • OMT attended the National Association of Broadcasters trade show again this year, and showcased to a very receptive audience both our new advanced user interface and our new WebSecure product features that will be fully introduced in 2009.
  • After the end of the first quarter, OMT Inc. divested its Intertain Media division, allowing the company to focus on its larger and more mature iMediaTouch radio software automation business. Intertain had not yet realized its growth expectations and would have required continued investment to fund its ongoing operations.

Description of Business

OMT Inc. (TSX VENTURE:OMT) is a digital media content and technology solution provider to radio broadcasters and retailers with two business units, OMT Technologies Inc. and Intertain Media Inc. The OMT Technologies division delivers radio automation systems to radio stations internationally and the Intertain Media digital entertainment division, offers commercial music, messaging and digital signage services to major retailers. 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. To learn more about the Company, its products and services, visit its website at

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 consolidated financial statements for the three months ended March 31, 2009 and the associated notes, which were prepared in accordance with Canadian generally accepted accounting principles (GAAP). All amounts are in Canadian dollars unless otherwise indicated.

The unaudited consolidated financial statements provide a comparison of the three months ended March 31, 2009 to the three months ended March 31, 2008.

Eight Quarter Review (numbers shown in '000s) (unaudited)

    2009           2008                 2007        
    Q1     Q4     Q3     Q2     Q1     Q4     Q3     Q2  
Sales $ 623   $ 796   $ 665   $ 871   $ 816   $ 794   $ 637   $ 1,008  
Gross profit $ 422   $ 521   $ 443   $ 532   $ 487   $ 492   $ 446   $ 463  
Gross profit %   68%     65%     67%     61%     60%     62%     70%     46%  
Operating expenses $ 395   $ 452   $ 453   $ 608   $ 501   $ 461   $ 500   $ 605  
EBITDA $ 27   $ 69   $ (10 ) $ (76 ) $ (14 ) $ 31   $ (54 ) $ (142 )
Other expenses $ 151   $ 155   $ 155   $ 148   $ 143   $ 171   $ 187   $ 169  
Net loss $    (124 ) $ (86 ) $ (165 ) $ (224 ) $ (157 ) $ (140 ) $ (241 ) $ (311 )
Net loss per share (basic & diluted) $ (0.004 ) $ (0.003 ) $ (0.006 ) $ (0.008 ) $ (0.006 ) $ (0.005 ) $ (0.008 ) $ (0.011 )

Results for the quarters ended in 2009, 2008 and 2007 reflect the total business of the OMT Technologies and the Intertain Media divisions. Sales and cost of sales for Intertain's discontinued Retail Preview Segment (RPS) in May, 2007 have been removed to allow proper comparison between the periods and are not shown on this chart. Expenses of the discontinued operation have not been segregated and remain in the normal operating expenses. OMT Technologies includes our iMediaTouch radio automation and related products. Intertain Media now includes music, messaging and digital signage services.

The radio automation sales have been very significantly impacted by the slowdown in the North American economy. Compared to Q1 sales last year, hardware sales are down $190,000 (62.1%) and software sales are down $69,000 (28.8%). Sales in Q4 last year were also affected by the economic slowdown, but not as significantly. Compared to Q4 sales last year, hardware sales are down $116,000 (49.8%) and software sales are up $7,000 (3.9%). Intertain Media sales were $15,000 higher than Q4 last year and $74,000 higher than Q1 last year due, in each case, to installation of a client customized sound system installation project.

Gross profit in Q1-2009 decreased by $65,000 (13.3%) over Q1-2008 and $99,000 (19.0%) over Q4-2008. The decreases happened due to the decreases in sales discussed above. The gross profit percentage in this quarter was up 8% over Q1 last year and 3% over Q4 last year. In each case, the improvement in the gross profit percentage is due to the change in the sales mix of high margin software sales and low 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 Q1-2009 were $106,000 (21.2%) lower than Q1-2008 and $57,000 (12.6%) lower than Q4-2008. These decreases when compared to cost levels last year are largely the result of streamlined EBITDA is defined as Earnings before Interest, Tax, Depreciation and Amortization and is a measure that has no standardized meaning under Canadian GAAP and is considered a non-GAAP 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 $27,000 for Q1 is now the second consecutive quarter that EBITDA has been positive.

Other expenses that reduce EBITDA to arrive at net loss include:   Q1-2009   Q1-2008
Interest, finance and related expense $ 149 $ 140
Amortization $ 2 $ 4
Total $ 151 $ 144

The net loss of $124,000 for Q1-2009 is an improvement of $33,000 over Q1-2008 of $157,000 and $38,000 below the Q4-2008 net loss of $86,000. The loss per share, in all quarters, is based on 28,922,090 shares issued and outstanding.

Cash Flow

Cash flow in the first quarter of 2009 was positive $40,000. This compares to a negative cash flow in the first quarter of 2008 of $7,000. The chart below shows the contributing components of these amounts.

Description   2009       2008    
Net income (loss) $ (123,000   $ (157,000 )  
Purchase of long-term assets  
-       (2,000 )  
Increase (decrease) in bank operating loan   (25,000 )     5,000    
Interest accretion   128,000       119,000    
Amortization   2,000       4,000    
Accounts receivable (increase) decrease   49,000       (77,000 )  
Contracts in progress   (14,000 )     (10,000 )  
Inventory (increase) decrease   16,000       13,000    
Prepaid Expenses   (29,000 )     (41,000 )  
Accounts payable increase   26,000       158,000    
Unearned revenue increase (decrease)   10,000       (19,000 )  
  $ 40,000     $ (7,000 )  

Contractual Obligations

A lease for premises and a lease for office equipment as detailed in the notes to the financial statements at December 31, 2008 remain unchanged. The lease for premises at the current location expires on May 31, 2009. The Company has now entered into a sub-lease agreement for a new premise. Term is for one year with a 2 month notice to vacate at any time. The cost at the new location is estimated at $5,700.00 per month.

Related Party Transactions

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 Company has contracted to supply Radio Automation Software and Services to a company of which one of OMT's directors is also an officer and director. The project which is valued at approximately $544,000 began in 2005 and as at March 31, 2009 the cumulative revenue for the work completed and recognized to date amounted to $468,000.

The project has been delayed due to technical matters and the ongoing customer acceptance process. Revenue has been recorded on this contract under the percentage of completion method based upon management's best estimate of costs still to be incurred. Management estimates that costs still to be incurred to complete the project will be approximately $61,000.

The Company is providing additional services to this same related party customer outside of the scope of the contract. At March 31, 2009 accounts receivable for this work amounted to less than $1,000 and no revenue was earned in this reporting period for these additional services.


Working capital, as defined by the Company's principal lenders, includes all of the current liabilities except deferred revenue. Deferred revenue (customer deposits on projects and service contracts) at March 31, 2009 and December 31, 2008 was $286,000 and $276,000 respectively. Working capital at March 31, 2009 was $20,000 as compared to $3,000 at December 31, 2008, an increase of $17,000.

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 $195,000 (December 31, 2008 - $220,000) has been drawn at March 31, 2009.

The long-term debt was originally recorded on the consolidated balance sheet at its combined discounted values of $2,960,430 and was to be accreted equally over the four year term of the loan for effective interest, and at maturity was to be equal to the face value of the debentures and loans. The long-term debt of $3,995,000 was scheduled to mature on December 20, 2008. In separate agreements signed April 11, 2008 with the debt and the debenture holders, the date of maturity was extended to July 15, 2009. The extension to the date of maturity results in a change to the present value of the debt as well as future interest accretion. A subsequent amending agreement signed on April 28, 2009 with the principal debt holders further extended the date of maturity of all of the debt to July 15, 2011. No principal payments are required until that date. This further extension to the debt will also result in a change to the present value of the debt, which will be recorded in the second quarter of 2009. Present values are used to determine the value of the debt because these instruments are not traded in at arms length in an open market.

In a separate agreement signed April 11, 2008, the principal debt holders, who together hold $3,000,000 of the Company's long-term debt, provided the Company with a signed waiver to defer the monthly interest payments, representing approximately $20,000 per month until such time that the Company's cash reserves grow to $500,000. A subsequent amending agreement signed on April 28, 2009 with the principal debt holders changed the date for interest deferrals to July 15, 2011, or until such time when cash reserves grow to $500,000. Interest continues to be paid monthly on the remaining debt of $995,000 represented by CIBC Mellon Trust Company.

The ability of the Company to carry on as a going concern is dependant upon achieving profitable operations which cannot be predicted at this time and the ability of the Company to operate within its line of credit and to obtain additional financing when its existing financing becomes due. The consolidated financial statements do not reflect adjustments that would be necessary if the going concern assumptions were not appropriate. If the going concern basis was not appropriate for these consolidated financial statements, then adjustments would be necessary in the carrying value of assets and liabilities, the reported revenues and expenses, and the balance sheet classifications used.

Subsequent Event – Sale of Intertain Media Inc.

On May 12, 2009 the Company entered into a Letter of Intent to sell all of the issued and outstanding common shares of Intertain Media Inc., a wholly-owned subsidiary of the Company for aggregate consideration estimated to be $172,500. The financial effect of selling Intertain can be seen by referring to note 4, segment information, retail of OMT's financial statements. The final price is subject to conditions which may affect the final cash settlement and any gain on the transaction. Intertain Media Inc. is currently a division of the Company that deploys background music, in-store messaging, on-hold features and digital signage services to retail and commercial clients across Canada.

Following a ten month process, the Board of Directors considered all proposals received for the sale of Intertain Media Inc. and determined that the proposal from Mr. Bill Baines, Chief Executive Officer of the Corporation, was superior and unanimously approved the transaction.

The closing of the transaction is subject to certain conditions, none of which are expected to delay the final completion and execution of a definitive purchase and sale agreement with an effective date of May 31, 2009 and closing shortly thereafter.

The Company decided on this divestiture for several reasons. Revenue growth with the Intertain product suite has been slower than expected and as a result, Intertain has needed ongoing cash injection. In order to realize its potential, Intertain will require additional funds in the future for capital investment as well as operations. Management can now focus on its core business, radio broadcasting solutions, which currently enjoys a strong market position with continued growth prospects, and target its limited funds in the most effective manner. Bill Baines will also continue in his role as CEO of OMT Inc.

Changes in Accounting Policies

Recent accounting pronouncements adopted on January 1, 2009

Section 3064 - Goodwill and Intangible Assets

This section, which replaces sections 3062 and 3450, establishes guidance for the recognition, measurement, presentation and disclosure of goodwill and intangible assets. Adoption has had no significant impact on the earnings or financial position of the Company.

International Financial Reporting Standards (IFRS)

In February, 2008 the Canadian Accounting Standards Board (AcSB) announced that as at January 1, 2011, publicly accountable enterprises are expected to adopt IFRS. Accordingly, the Company expects to adopt these new standards during its fiscal year beginning on January 1, 2011. The AcSB also stated that during the transition period, enterprises will be required to provide comparative IRFS information for the previous fiscal year. The IFRS issued by the International Accounting Standards Board (IASB) require additional financial statement disclosures and, while the conceptual framework is similar to Canadian GAAP, enterprises will have to take account of differences in accounting principles. We are currently assessing the impact of these new standards on the consolidated financial statements, but are unable to determine the final impact on future financial statements at this time. However, an initial assessment has not identified any substantial changes to the financial statements.

Internal Controls

OMT has implemented a system of internal controls. New legislation does not require certification over internal controls; rather the President and Chief Financial Officer will be signing the bare certificate. There may be additional risks to quality, reliability and transparency of interim and annual filings and other reports provided under this new securities legislation.

Risks and Uncertainties

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

OMT Inc. has now renegotiated the terms of repayment on the subordinated debt which will now mature on July 15, 2011. It is uncertain if future cash flow from operations will be sufficient to repay the subordinated debt at maturity. As such, the ability of the Company to continue operating as a going concern will be dependent on continued cash management within the Company's line of credit facility and obtaining new financing and/or renegotiating the repayment terms of the subordinated debt prior to the newly extended July 15, 2011 maturity date. Readers should refer to notes 1(a) and 7 in the consolidated financial statements.

Current External Economic and Financial Crisis

The global economic and financial crisis is having a negative impact on the revenues of the Company in 2009, which may continue throughout the 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 2009. 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.

Custom Contract in progress

Payments received on a project contracted with a company of which one of the Company's directors is also an officer and director are guaranteed up to a maximum amount of US $263,000. Progress payments received to date on the project total US $263,021 (Cdn.$320,000). The contracting company has the right to demand repayment of these funds based on a "Performance Security Guarantee". The Company has purchased "Performance Security Insurance" (PSI) for up to 95% of the money advanced to date, from the Export Development Corporation to protect itself against this possibility. The PSI is valid until December 31, 2009 or completion of the project, whichever comes sooner, but the Company expects to request an extension should the project be incomplete at that time. At March 31, 2009 there is a contingent liability for the 5% PSI deductible or US $13,151. It is unlikely that repayment will be required and therefore this amount has not been recorded in the consolidated financial statements.

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
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