**SECURITIES
        AND EXCHANGE COMMISSION**
  **WASHINGTON,
        D.C. 20549**
  **FORM
        10-QSB**
  (Mark
        one)
  **x
        QUARTERLY REPORT
        PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURIT** **IES**
 **EXCHANGE
        ACT OF 1934.**
 For
        the
        quarterly period ended September 30, 2005
 OR
 **o
        TRANSITION REPORT
        PURSUANT TO SECTION 13 OR 15(D) OF THE** **SECURITIES**
 **EXCHANGE
        ACT OF 1934**
 For
        the
        transition period from _____ to _____
  *Commission
        file number 0-16819*
 **CREATIVE
        VISTAS, INC.**
  **(Exact
        name of registrant as specified in its charter)**
  Arizona
                (State
                  or other jurisdiction ofincorporation
                  or organization
              6770
                (Primary
                  Standard IndustrialClassification
                  Code Number)
              86-0464104
                (I.R.S.
                  EmployerIdentification
                  No.)
 2100
        Forbes Street
  Unit
        8-10
  Whitby,
        Ontario, Canada L1N 9T3
  (905)
        666-8676
  (Address,
        including zip code, and telephone number,
  including
        area code, of registrant’s principal executive offices)
  Indicate
        by check mark whether the registrant (1) has filed all reports required to
        be
        filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
        the
        preceding 12 months (or for such shorter period that the registrant was required
        to file such reports), and (2) has been subject to such filing requirements
        for
        the past 90 days. Yes x No
o
  Indicate
        the number of shares outstanding of each of the issuer's classes of common
        stock, as of the latest practicable date.
  As
        of
        December 21, 2005, there were 31,921,716 shares of common stock, no par value
        per share, outstanding.
  
 
 
 **TABLE
          OF CONTENTS**
 **Page**PART
                    I.
                  FINANCIAL
                    INFORMATIONItem
                    1.
                Financial
                    Statements
                1Item
                    2.
                Management's
                    Discussion And Analysis or Plan of Operation
                22Item
                    3.
                Controls
                    and Procedures
                20PART
                    II.
                  OTHER
                    INFORMATIONItem
                    1.
                Legal
                    Proceedings
                30Item
                    2.
                Unregistered
                    Sales of Equity Securities and Use of Proceeds
                30Item
                    3.
                Defaults
                    upon Senior Securities
                30Item
                    4.
                Submission
                    of Matters to a Vote of Security Holders.
                30Item
                    5.
                Other
                    Information
                30Item
                    6.
                Exhibits
                    and Reports on Form 8-K
                30
 
 **EXPLANATORY
          NOTE**
 
 The
          Company has not been able to secure the review of this periodic report
          on Form
          10-QSB by its independent registered auditors. In order to meet its obligations
          to its shareholders, the Company has elected to file this report without
          its
          independent registered auditors' involvement, but intends to obtain such
          review
          by its independent registered auditors and file an amendment to this Form
          10-QSB, as soon as possible.
  **PART
          I.** **Financial
          Information**
  **Item
          1.** **Financial
          Statements**
 **Creative
                          Vistas, Inc.**
                        **Condensed
                          Consolidated Balance Sheets**
                        **(Unaudited)**
                      
                      **September
                          30, 2005****Assets****Current
                          Assets**Cash
                          and bank balances
                      
                      $
                      **857,458**Accounts
                          receivable, net of allowance for doubtful accounts $34,400
                      
                      
                      **3,005,193**Income
                          tax recoverable
                      
                      
                      **338,252**Inventory,
                          net of reserve of $nil
                      
                      
                      **405,325**Prepaid
                          expenses
                      
                      
                      **347,570**Note
                          receivable (Note 4)
                      
                      
                      **62,496**Due
                          from related parties
                      
                      
                      **2,203****5,018,497****Property
                          and equipment, net of depreciation**
                      
                      
                      **820,042****Note
                          receivable (Note 4)**
                      
                      
                      **62,504****Deferred
                          financing costs, net (Note 5)**
                      
                      
                      **699,202****Deferred
                          income taxes**
                      
                      
                      **35,834****Customer
                          list (Note 6)**
                      
                      
                      **5,388****Goodwill**
                      
                      
                      **503,898**$
                      **7,145,365****Liabilities
                          and Shareholders' Deficiency****Current
                          Liabilities**Bank
                          indebtedness (Note 7)
                      
                      $
                      **1,721,713**Accounts
                          payable
                      
                      
                      **1,920,063**Accrued
                          liabilities
                      
                      
                      **419,304**Deferred
                          income
                      
                      
                      **79,566**Deferred
                          income taxes
                      
                      
                      **25,858**Current
                          portion of convertible notes (Note 8)
                      
                      
                      **1,091,383**Current
                          portion of other notes payable (Note 10)
                      
                      
                      **100,574**Due
                          to related parties
                      
                      
                      **7,690****5,366,151****Notes
                          payable to related parties (Note 9)**
                      
                      
                      **1,500,000****Other
                          notes payable (Note 10)**
                      
                      
                      **71,840****Due
                          to related parties**
                      
                      
                      **199,025****Derivative
                          Financial Instruments**
                      
                      
                      **3,337,284****10,474,300****Shareholders'
                          deficiency**Share
                          capitalAuthorized100,000,000
                          no par value common shares50,000,000
                          shares of preferred stockIssued31,816,716
                          Common shares
                      
                      
                      **—**Additional
                          paid-in capital
                      
                      
                      (264,605
                      )Accumulated
                          other comprehensive loss
                      
                      
                      (74,211
                      )Deficit
                      
                      
                      (2,990,119
                      )(3,328,935
                      )$
                      **7,145,365**
  The
          accompanying notes are an integral part of these financial
          statements
  1
 **Creative
                              Vistas, Inc.**
                            **Condensed
                              Consolidated Statement of Operations**
                            **(Unaudited)****Three
                              months ended**
                          
                          
                          **Nine
                              months ended****Successor**
                          
                          
                          **Predecessor**
                          
                          
                          **Successor**
                          
                          
                          **Predecessor****Contract**
                          
                          
                          **September**
                            **30
                              2005**
                          
                          
                          **September
                              29 to**
                            **September
                              30 2004**
                          
                          
                          **July
                              1 to**
                            **September
                              29 2004**
                          
                          
                          **September
                              30 2005**
                          
                          
                          **September
                              29 to**
                            **September
                              30 2004**
                          
                          
                          **January
                              1 to**
                            **September
                              29 2004**Contract
                          
                          $
                          **1,555,020**
                          
                          $
                          —
                          
                          $
                          1,982,482
                          
                          $
                          6,149,086
                          
                          $
                          —
                          
                          $
                          5,268,773Service
                          
                          
                          **299,318**
                          
                          
                          **—**
                          
                          
                          281,794
                          
                          
                          838,872
                          
                          
                          —
                          
                          
                          783,184Other
                          
                          
                          **11,335**
                          
                          
                          **—**
                          
                          
                          —
                          
                          
                          15,502
                          
                          
                          —
                          
                          
                          —**1,865,673**
                          
                          
                          **—**
                          
                          
                          2,264,276
                          
                          
                          7,003,460
                          
                          
                          —
                          
                          
                          6,051,957**Cost
                              of sales**Contract
                          
                          
                          **1,034,881**
                          
                          
                          **—**
                          
                          
                          1,683,121
                          
                          
                          4,707,807
                          
                          
                          —
                          
                          
                          3,689,980Service
                          
                          
                          **152,652**
                          
                          
                          **—**
                          
                          
                          201,543
                          
                          
                          213,798
                          
                          
                          —
                          
                          
                          418,563**1,187,533**
                          
                          
                          **—**
                          
                          
                          1,884,664
                          
                          
                          4,921,605
                          
                          
                          —
                          
                          
                          4,108,543**Gross
                              margin**
                          
                          
                          **678,140**
                          
                          
                          **—**
                          
                          
                          379,612
                          
                          
                          2,081,856
                          
                          
                          —
                          
                          
                          1,943,414**Operating
                              expense**Project
                          
                          
                          **329,684**
                          
                          
                          **—**
                          
                          
                          358,680
                          
                          
                          1,015,806
                          
                          
                          —
                          
                          
                          1,087,741Selling
                          
                          
                          **206,308**
                          
                          
                          **—**
                          
                          
                          237,632
                          
                          
                          627,551
                          
                          
                          —
                          
                          
                          733,138General
                              and administrative
                          
                          
                          **441,742**
                          
                          
                          **256,474**
                          
                          
                          382,231
                          
                          
                          1,497,786
                          
                          
                          256,474
                          
                          
                          1,058,142**977,734**
                          
                          
                          **256,474**
                          
                          
                          978,543
                          
                          
                          3,141,143
                          
                          
                          256,474
                          
                          
                          2,879,021**Loss
                              from operations**
                          
                          
                          **(299,594**
                          **)**
                          
                          **(256,474**
                          **)**
                          
                          (598,931
                          )
                          
                          (1,059,287
                          )
                          
                          (256,474
                          )
                          
                          (935,607
                          )**Interest
                              and other expenses (income)**Interest
                          
                          
                          **100,884**
                          
                          
                          **—**
                          
                          
                          8,069
                          
                          
                          318,567
                          
                          
                          —
                          
                          
                          23,550Amortization
                              of deferred charges
                          
                          
                          **111,000**
                          
                          
                          **—**
                          
                          
                          **—**
                          
                          
                          351,782
                          
                          
                          —
                          
                          
                          —Liquidated
                              damages
                          
                          
                          **—**
                          
                          
                          **—**
                          
                          
                          
                          
                          
                          137,703
                          
                          
                          —
                          
                          
                          —Derivative
                              instruments
                          
                          
                          **80,476**
                          
                          
                          **—**
                          
                          
                          **—**
                          
                          
                          (2,482,598
                          )
                          
                          —
                          
                          
                          —**292,360**
                          
                          
                          —
                          
                          
                          8,069
                          
                          
                          (1,674,546
                          )
                          
                          —
                          
                          
                          23,550**Income
                              (loss) before income taxes**
                          
                          
                          **(591,954**
                          **)**
                          
                          (256,474
                          )
                          
                          (607,000
                          )
                          
                          615,259
                          
                          
                          (256,474
                          )
                          
                          (959,157
                          )Income
                              taxes
                          
                          
                          **—**
                          
                          
                          —
                          
                          
                          (155,105
                          )
                          
                          —
                          
                          
                          —
                          
                          
                          (193,504
                          )**Net
                              income (loss)**
                          
                          
                          **(591,954**
                          **)**
                          
                          (256,474
                          )
                          
                          (451,895
                          )
                          
                          615,259
                          
                          
                          (256,474
                          )
                          
                          (765,653
                          )**Other
                              comprehensive income (loss):**
 Foreign
                              currency translation adjustment
                          
                          
                          **(69,731**
                          **)**
                          
                          (6,442
                          )
                          
                          41,943
                          
                          
                          (60,502
                          )
                          
                          (6,442
                          )
                          
                          (27,038
                          )Comprehensive
                              income (loss)
                          
                          
                          **(661,685**
                          **)**
                          
                          (262,916
                          )
                          
                          (409,952
                          )
                          
                          554,756
                          
                          
                          (262,916
                          )
                          
                          (792,691
                          )Basic
                              weighted—average shares
                          
                          
                          **31,337,558**
                          
                          
                          30,000,000
                          
                          
                          30,000,000
                          
                          
                          30,557,317
                          
                          
                          30,000,000
                          
                          
                          30,000,000Diluted
                              weighted-average shares
                          
                          
                          **31,337,558**
                          
                          
                          30,000,000
                          
                          
                          30,000,000
                          
                          
                          30,557,317
                          
                          
                          30,000,000
                          
                          
                          30,000,000Basic
                              earnings per share
                          
                          
                          **(0.02**
                          **)**
                          
                          (0.01
                          )
                          
                          (0.02
                          )
                          
                          0.02
                          
                          
                          (0.01
                          )
                          
                          (0.03
                          )Diluted
                              earnings per share
                          
                          
                          **(0.02**
                          **)**
                          
                          (0.01
                          )
                          
                          (0.02
                          )
                          
                          0.02
                          
                          
                          (0.01
                          )
                          
                          (0.03
                          )
  The
                accompanying notes are an integral part of these financial
                statements
  2
  **Creative
                            Vistas, Inc.**
                          **Condensed
                            Consolidated Statement of Cash Flows**
                          **(Unaudited)****Successor**
                        
                        
                        
                        
                        
                        **Predecessor****Nine
                            months ended****September
                            30, 2005**
                        
                        
                        **Period
                            from September 29 to September 30, 2004**
                        
                        
                        **Period
                            from Janaury 1 to September 29, 2004****Cash
                          provided by (used in)****Operating
                          activities****Net
                            income (loss)**
                        
                        
                        615,259
                        
                        
                        (256,474
                        )
                        
                        (765,653
                        )Depreciation
                            of capital assets
                        
                        
                        34,548
                        
                        
                        —
                        
                        
                        37,589Amortization
                            of customer lists
                        
                        
                        3,076
                        
                        
                        —
                        
                        
                        2,823Amortization
                            of deferred charges
                        
                        
                        351,782
                        
                        
                        —
                        
                        
                        —Remeasurement
                            of derivative instruments
                        
                        
                        (2,482,598
                        )
                        
                        —
                        
                        
                        —Bad
                            debts
                        
                        
                        3,845
                        
                        
                        —
                        
                        
                        1,055Non-cash
                            loan costs
                        
                        
                        137,703
                        
                        
                        —
                        
                        
                        (125,740
                        )Stock-based
                            compensation expenses
                        
                        
                        222,228
                        
                        
                        —
                        
                        
                        —**Changes
                            in non-cash working capital balances**Accounts
                            receivable
                        
                        
                        (256,231
                        )
                        
                        —
                        
                        
                        (60,518
                        )Inventory
                        
                        
                        163,874
                        
                        
                        —
                        
                        
                        178,160Prepaid
                            expenses
                        
                        
                        2,214
                        
                        
                        —
                        
                        
                        (
                            2,891
                        )Accounts
                            payable and other accrued liabilities
                        
                        
                        388,982
                        
                        
                        166,342
                        
                        
                        52,095Deferred
                            revenue
                        
                        
                        (113,330
                        )
                        
                        —
                        
                        
                        227,503Deferred
                            income taxes
                        
                        
                        —
                        
                        
                        —
                        
                        
                        —Income
                            taxes payable
                        
                        
                        (139
                        )
                        
                        —
                        
                        
                        (105,043
                        )(928,787
                        )
                        
                        (90,132
                        )
                        
                        (560,620
                        )**Investing
                            activities**Due
                            from related parties
                        
                        
                        —
                        
                        
                        —
                        
                        
                        —Purchase
                            of property and equipment
                        
                        
                        (5,089
                        )
                        
                        —
                        
                        
                        (967
                        )Note
                            receivable
                        
                        
                        (125,000
                        )
                        
                        —
                        
                        
                        —Investment
                            in subsidiary
                        
                        
                        —
                        
                        
                        (1,800,079
                        )
                        
                        —(130,089
                        )
                        
                        (1,800,079
                        )
                        
                        (967
                        )**Financing
                            activities**Increase
                            in bank indebtedness
                        
                        
                        402,625
                        
                        
                        1,183,172
                        
                        
                        394,729Deferred
                            financing costs
                        
                        
                        —
                        
                        
                        (751,289
                        )
                        
                        —Repayment
                            of mortgage principal
                        
                        
                        —
                        
                        
                        (229,633
                        )
                        
                        (13,180
                        )Convertible
                            notes
                        
                        
                        1,250,000
                        
                        
                        3,250,000
                        
                        
                        —Notes
                            payable
                        
                        
                        —
                        
                        
                        —
                        
                        
                        248,006Issuance
                            of common shares
                        
                        
                        8,040
                        
                        
                        —
                        
                        
                        —Due
                            to related parties
                        
                        
                        2,570
                        
                        
                        —
                        
                        
                        (67,968
                        )1,663,235
                        
                        
                        3,452,250
                        
                        
                        561,587Effect
                            of foreign exchange rate changes on cash
                        
                        
                        (124,578
                        )
                        
                        —
                        
                        
                        —Net
                            change in cash and cash equivalents
                        
                        
                        479,781
                        
                        
                        1,562,039
                        
                        
                        —**Cash
                            and cash equivalents,**beginning of period
                        
                        
                        377,677
                        
                        
                        —
                        
                        
                        —**Cash
                            and cash equivalents,**end of period
                        
                        
                        857,458
                        
                        
                        1,562,039
                        
                        
                        —**Supplemental
                            Cash Flow Information**Cash
                            paid for interest
                        
                        
                        419,523
                        
                        
                        —
                        
                        
                        236,082Cash
                            paid for income taxes
                        
                        
                        —
                        
                        
                        —
                        
                        
                        37,278Loan
                            costs paid with warrants
                        
                        
                        137,703
                        
                        
                        —
                        
                        
                        —Common
                            shares issued for consulting fees
                        
                        
                        449,945
                        
                        
                        134,239
                        
                        
                        —Other
                            note payable converted to equity
                        
                        
                        105,193
                        
                        
                        —
                        
                        
                        —
  The
                accompanying notes are an integral part of these financial
                statements
 3
 **Creative
          Vistas, Inc.**
 **Notes
          to Consolidated Condensed Financial Statements**
 **(Unaudited)**
  **1.**  **Nature
          of Business**
  On
          September 30, 2004 the ultimate stockholders of AC Technical Systems Ltd.
          (“AC
          Technical”) entered into a series of transactions to acquire a controlling stock
          interest in Creative Vistas, Inc. (“CVAS”). On September 30, 2004, the CVAS
          stockholders entered into a Common Stock Purchase Agreement (the “Agreement”)
          with Sayan Navaratnam, Dominic Burns, Randy Stern and Malar Trust, Inc.
          (a
          corporation controlled by Sayan Navaratnam). Pursuant to the Agreement,
          Miller
          Capital Corporation and Tudor Investments LTD agreed to sell 28,500,000
          shares
          of CVAS to Sayan Navaratnam, Dominic Burns, Randy Stern and Malar Trust,
          Inc.
          for cash consideration of $300,000.
  Prior
          to
          the consummation of the Agreement, CVAS completed a series of transactions
          resulting in AC Technical becoming a subsidiary of CVAS. On September 22,
          2004,
          CVAS incorporated a new Ontario company, AC Technical Acquisition Corp.(“AC
          Acquisition”) controlled by CVAS through a voting agreement with Brent Swanick.
          CVAS owns 50 VFV shares (voting fixed shares) and 100 NVE shares (non-voting
          equity). Brent Swanick owns the remaining 50 VFV shares. The total issued
          share
          capital was $100 ($1 for each VFV share). There was no par value for the
          NVE
          shares; AC Acquisition is a subsidiary of Creative Vistas, Inc. Subsequently,
          on
          September 29, 2004, pursuant to a Stock Purchase Agreement with The Burns
          Trust,
          The Navaratnam Trust and AC Technical, AC Acquisition acquired all of the
          issued
          and outstanding shares of AC Technical from The Burns Trust and The Navaratnam
          Trust for consideration consisting of promissory notes in the aggregate
          amount
          of $3,300,000. AC Technical became a subsidiary of CVAS.
  On
          September 30, 2004, concurrent with the consummation of the Agreement,
          the
          Registrant entered into a number of agreements with Laurus Master Fund,
          Ltd.
          (“Laurus”) for (i) a secured convertible term note (the “Note”) in the
          amount of $4.5 million and (ii) secured revolving notes (together
          with the
          Term Note, the “Notes”) in the aggregate maximum amount of $3 million,
          (iii) a related options to purchase up to 1,499,997 shares of our
          common
          stock at a price of two-thirds of a cent per share (the “Option”), and
          (iv) a seven year warrant to purchase up to 2,250,000 shares of
          our common
          stock at a price of $1.15 per share (the “Warrant”). The Notes are secured by
          all of the assets of CVAS and its subsidiaries.
  CVAS
          loaned the proceeds of the Notes to AC Acquisition. AC Acquisition used
          the
          funds received to repay an aggregate of $1.8 million of the principal amount
          of
          the promissory notes and to pay transaction costs. The inter-company balance
          is
          subject to interest at a negotiated interest rate.
  After
          the
          completion of the business acquisition and leveraged buyout transactions
          AC
          Technical’s previous ultimate stockholders Sayan Navaratnam and Dominic Burns
          controlled 56% and 37% respectively of the common shares of CVAS. Consequently,
          the acquisition of the controlling stock interest in the non-operating
          public
          shell corporation, CVAS (the legal acquirer), by the shareholders of AC
          Technical, has been accounted for as a business acquisition and leveraged
          buyout
          under Emerging Issues Task Force (“EITF”) Issue No. 88-16.
  On
          September 30, 2004 the previous management and Directors of CVAS resigned
          and in
          addition to being appointed to the Board of Directors Sayan Navaratnam
          and
          Dominic Burns were appointed Chief Executive Officer and President respectively.
          Additionally, AC Technical’s Chief Financial Officer, Heung Hung Lee, was
          appointed Chief Financial Officer of CVAS.
  A.C.
          Technical Systems Ltd., a corporation incorporated under the laws of the
          Province of Ontario, is engaged in the engineering, design, installation,
          integration and servicing of various types of security systems. The Company
          operates under the trade name of AC Technical Systems.
  4
  The
          current corporate structure is as follows:
  
  **2.**  **Stock
          Splits**
  On
          December 23, 2004, the Company’s board of directors declared a three-for-one
          stock split on the shares of the Company’s common stock. Each shareholder of
          record on December 17, 2004, received two additional shares of common stock
          for
          each share of common stock then held. The Company retained the current
          par value
          of $Nil per share for all shares of common stock. All references in the
          financial statements to the number of shares outstanding, per share amounts,
          and
          stock option data of the Company’s common stock have been restated to reflect
          the effect of the stock split for all periods presented.
  **3.**  **Summary
          of Accounting Policies**
  **Basis
          of presentation**
  The
          accompanying unaudited condensed consolidated balance sheet as at September
          30,
          2005 and statement of operations and statement of cash flows for the period
          ended September 30, 2005 and the day of September 30, 2004 include the
          accounts
          of CVAS, AC Acquisition and AC Technical. Intercompany balances and transactions
          have been eliminated in consolidation. The accompanying unaudited condensed
          statement of operations and statement of cash flows for the period ended
          September 29, 2004 include the account of AC Technical. No separate financial
          statements are presented for the company, Creative Vistas, Inc., prior
          to the
          business acquisition and leveraged buyout transactions because, prior to
          September 30, 2004, it had no material assets or results. The balance
          sheet
          at September 30, 2005 and the statements of operations for the three and
          nine
          months ended September 30, 2004 and 2005 and the statements of cash flows
          for
          the nine months ended September 30, 2004 and 2005 are unaudited. In the
          opinion
          of management, these condensed consolidated financial statements reflect
          all
          adjustments (consisting of normal recurring adjustments) that are necessary
          for
          a fair presentation of the results for and as of the periods shown. The
          accompanying condensed consolidated financial statements have been prepared
          in
          conformity with accounting principles generally accepted in the United
          States.
          However, certain information or footnote disclosures normally included
          in
          financial statements prepared in accordance with generally accepted accounting
          principles have been condensed or omitted pursuant to the rules and regulations
          of the Securities and Exchange Commission. The results of operations for
          such
          periods are not necessarily indicative of the results expected for 2005
          or for
          any future period. These financial statements should be read in conjunction
          with
          the financial statements and related notes included in our Annual Report
          on Form
          10-K for the fiscal year ended December 31, 2004 filed with the Securities
          and
          Exchange Commission.
  **Accounting
            Policy**
  The
            Company has suffered recurring losses, has negative cash flows from operations
            of $928,787 and has an accumulated deficit of $2,990,119 at September
            30, 2005.
            These factors raise substantial doubt about the Company's ability to
            continue as
            a going concern. The Company's continued existence is dependent upon
            its ability
            to resolve its business and liquidity problems, principally through raising
            additional capital and increasing its sales. Management's plans with
            regard to
            this matter are to seek additional capital for operations through either
            debt or
            equity and increase sales. These financial statements do not include
            any
            adjustments that might result from this uncertainty.
 5
 **Cash
          and Cash Equivalents**
  The
          Company considers all cash and highly liquid investments purchased with
          an
          initial maturity of three months or less to be cash and cash
          equivalents.
  The
          Company maintains its cash in bank deposit accounts that, at times, may
          exceed
          federally insured limits. The Company has not experienced any losses in
          such
          accounts and believes it is not exposed to any significant credit risks
          on cash
          and cash equivalents.
  The
          Company’s cash and cash equivalents were $857,458 as at Septebmer 30,
          2005.
  **Accounts
          Receivable**
  The
          Company extends credit to its customers based upon a written credit policy.
          Accounts receivable are recorded at the invoiced amount and do not bear
          interest. The allowance for doubtful accounts is the Company’s best estimate for
          the amount of probable credit losses in the Company’s existing accounts
          receivable. The Company establishes an allowance for doubtful accounts
          based
          upon factors surrounding the credit risk of specific customers, historical
          trends, and other information. Receivable balances are reviewed on an aged
          basis
          and account balances are charged off against the allowance after all means
          of
          collection have been exhausted and the potential for
          recovery is considered remote.
  **Investment
          Tax Credits**
  Investment
          tax credits are accrued when qualifying expenditures are made and there
          is
          reasonable assurance that the credits will be realized. Investment tax
          credits
          earned with respect to current expenditures for qualified research and
          development activities are included in the statement of operations as a
          reduction of expenses. Tax credits earned with respect to capital expenditures
          are applied to reduce the cost of the related capital assets.
  **Research
          and Development Expenditures**
  Research
          and development costs (other than capital expenditures) are expensed as
          incurred. Expenditures are reduced by any related investment tax
          credits.
  **Inventory**
  Inventory
          consists of materials and supplies and is stated at the lower of cost and
          market
          value. Cost is generally determined on the first in, first out basis. The
          inventory is net of estimated obsolescence, and excess inventory based
          upon
          assumptions about future demand and market conditions.
  **Property
          and Equipment**
  Property
          and equi pment
          is
          stated at original cost. Expenditures for improvements that significantly
          add to
          productive capacity or
          extend the useful life of an asset are capitalized. Expenditures for maintenance
          and repairs are expensed when incurred. Depreciation per annum is computed
          over
          the estimated useful life as follows:
  Industrial
                    condominium
                4% declining balance basisFurniture
                    and fixtures
                20%
                    declining balance basisComputer
                    equipment
                30%
                    declining balance basisEquipment
                20%
                    declining balance basis
  **Customer
          List**
  Customer
          list represents the acquisition cost of an acquired customer list and is
          recorded at cost less accumulated amortization. Amortization is provided
          on a
          straight-line basis over the period of expected benefit of 5 years. The
          Company
          reviews the revenues from the customer list at each balance sheet date
          to
          determine whether circumstances indicate that the carrying amount of the
          asset
          should be assessed.
  6
 **Long-Lived
          Assets**
  The
          Company reviews its long-lived assets for impairment at each balance sheet
          date
          and whenever events or changes in circumstances indicate that the carrying
          amount of an asset should be assessed. To determine if an impairment exists,
          the
          Company estimates the future undiscounted cash flows expected to result
          from the
          use of the asset being reviewed for impairment. If the sum of these expected
          future cash flows is less than the carrying amount of the asset, the Company
          recognizes an impairment loss in accordance with SFAS No. 144, Accounting
          for
          the Impairment or Disposal of Long-Lived Assets. The amount of the impairment
          recognized is determined by estimating the fair value of the assets and
          recording a loss for the excess of the carrying value over the fair
          value.
  **Goodwill**
  Goodwill
          is evaluated for potential impairment on an annual basis or whenever events
          or
          circumstances indicate that an impairment may have occurred. Statement
          of
          Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets”,
          (“SFAS No. 142”) requires that goodwill be tested for impairment using a
          two-step process. The first step of the goodwill impairment test, used
          to
          identify potential impairment, compares the estimated fair value of the
          reporting unit containing goodwill with the related carrying amount. If
          the
          estimated fair value of the reporting unit exceeds its carrying amount,
          the
          reporting unit’s goodwill is not considered to be impaired and the second step
          of the impairment test is unnecessary. If the reporting unit’s carrying amount
          exceeds its estimated fair value, the second step test must be performed
          to
          measure the amount of the goodwill impairment loss, if any. The second
          step test
          compares the implied fair value of the reporting unit’s goodwill, determined in
          the same manner as the amount of goodwill recognized in a business combination,
          with the carrying amount of such goodwill. If the carrying amount of the
          reporting unit’s goodwill exceeds the implied fair value of the goodwill so
          calculated, an impairment loss is recognized in an amount equal to the
          excess.
  **Deferred
          Financing Costs**
  Deferred
          financing costs represent costs directly related to obtaining of financing.
          Deferred financing costs are amortized over the term of the related indebtedness
          using the effective interest method.
  **Continuing
          Shareholders’ Basis Adjustment**
  AC
          Technical was acquired by AC Acquisition on September 30, 2004 as described
          in
          Note 1. This transaction was accounted for as a purchase in accordance
          with
          Statement of Financial Accounting Standards No. 141 “Business Combinations”. As
          a result of a 87% continuing ownership interest in the Company by certain
          shareholders (“Continuing Shareholders”), 13% of the purchase price was
          allocated to the assets and liabilities acquired at their respective fair
          values
          with the remaining 87% ownership interest recorded at the Continuing
          Shareholders’ historical book values as of the date of acquisition in accordance
          with Issue No. 88−16 of the Emerging Issues Task Force of the Financial
          Accounting Standards Board “Basis in Leveraged Buyout Transactions”(“EITF
          88−16”). As a result of the carryover of the Continuing Shareholders’ historical
          basis, shareholders’ equity of the Company has been reduced by $2,796,102 with a
          corresponding reduction in the amount assigned to goodwill. The balance
          of
          Continuing Shareholders basis adjustments were equal to 87% of total
          consideration and net of carrying value and transaction costs of AC
          Technical.
  **Issuance
          of Equity Instruments for Services**
  Stock-based
          awards to non-employees are accounted for based on the fair value of the
          goods
          and services or the fair value of the equity instrument at the time of
          issuance,
          whichever is more reliably measurable in accordance with the provisions
          of
          Statement of Financial Accounting Statements No. 123, Accounting for Stock-Based
          Compensation, and EITF Issue No. 96-18, Accounting for Equity Instruments
          That
          Are Issued to Other Than Employees for Acquiring, or in Conjunction with
          Selling, Goods and Services.
  7
 **Revenue
          Recognition**
  Contract
          Revenue
  Software
          Related Services - Software related services include services to customize
          or
          enhance the software so that the software performs in accordance with specific
          customer requirements. As these services are essential to provide the required
          functionality, revenue from these arrangements is recognized in accordance
          with
          Statement of Position (SOP) 81-1, “Accounting for Certain Construction Type and
          Certain Production Type Contracts, using either the percentage-of-completion
          method or the completed contract method. The percentage-of-completion method
          is
          used when the required services are quantifiable, based on the estimated
          number
          of labor hours necessary to complete the project, and under that method
          revenues
          are recognized using labor hours incurred as the measure of progress towards
          completion but is limited to revenue that has been earned by the attainment
          of
          any milestones included in the contract. The completed contract method
          is used
          when the required services are not quantifiable, and under that method
          revenues
          are recognized only when we have satisfied all of our product and/or service
          delivery obligations to the customer.
  Security
          Systems - Security systems revenue consists of fees generated from consulting,
          audit, review, planning, engineering and design, system installation and
          project
          management. Revenue from contracts where performance extends beyond one
          or more
          accounting periods is recognized in accordance with SOP 81-1, SEC Staff
          Accounting Bulletin 104, “Update of Codification of Staff Accounting Bulletins”
          and EITF 00-21, “Revenue Arrangements with Multiple Deliverables”. The
          recognition of revenue reflects the degree of completeness based upon project
          drawings, project schedules, progress of actual installation and are further
          validated by visual observations by product managers, quality inspectors
          and
          construction advisors, if applicable. When the current estimated costs
          to
          complete indicate a loss, such losses are immediately recognized for accounting
          purposes. Some projects have the equipment and installation as separate
          elements
          specified in the contracts. The revenue is recognized when each element
          has been
          satisfied in accordance with SOP81-1 and SEC Staff Accounting Bulletin
          104 which
          are the delivery of the equipments and completion of installation process.
          The
          fair value of each element was based on the price charged when it is sold
          on a
          standalone basis.
  For
          contracts of shorter duration, revenue is generally recognized when services
          are
          performed. Contractual terms may include the following payment arrangements:
          fixed fee, full-time equivalent, milestone, and time and material. In order
          to
          recognize revenue, the following criteria must be met:
 
 ·
                Signed
                    agreement — The agreement must be signed by the
                    customer.·
                Fixed
                    Fee — The signed agreement must specify the fees to be received for
                    the
                    services.·
                Delivery
                    has occurred — Delivery is substantiated by time cards and where
                    applicable, supplemented by an acceptance from the customer that
                    milestones as agreed in the statement have been met.·
                Collectibility
                    is probable — The Company conducts a credit review for significant
                    transactions at the time of the engagement to determine the
                    credit-worthiness of the customer. Collections are monitored
                    over the term
                    of each project, and if a customer becomes delinquent, the revenue
                    may be
                    deferred.
  Service
          Revenue
  Service
          revenue consists of fees generated by providing monitoring services, preventive
          maintenance and technical support, product maintenance and upgrades. Monitoring
          services and preventive maintenance and technical support are generally
          provided
          under contracts for terms varying from one to six years. A customer typically
          prepays monitoring services and preventive maintenance and technical support
          fees for an initial period, and the related revenue is deferred and generally
          recognized over the term of such initial period. Rates for product maintenance
          and upgrades are generally provided under time and material contracts.
          Revenue
          for these services is recognized in the period in which the services are
          provided.
  **Warranty**
  The
          Company carries a reserve based upon historical warranty claims experience.
          Additionally, warranty accruals are established on the basis of anticipated
          future expenditures as specific warranty obligations are identified and
          they are
          charged against the accrual. Expenditures exceeding such accruals are expensed
          direct to cost of sales.
  8
 **Earning
          (loss) per share**
  The
          Company applies Statement of Financial Accounting Standards No. 128, Earnings
          Per Share (FAS 128). Basic loss per share (“LPS”) is computed using the weighted
          average number of common shares outstanding during the period. Diluted
          LPS is
          computed using the weighted average number of common and dilutive potential
          common shares outstanding during the period. Dilutive potential common
          shares
          consist of common stock issuable upon exercise of stock options and warrants
          using the treasury stock method. Adjustments to earnings per share calculation
          includes reversing interest related to the convertible debts and changes
          in
          derivative instruments The Company has reported an adjusted net loss for
          the
          both three and nine months period ended September 30, 2005. As a result,
          299,997, 4,002,500 and 7,340,554 shares of common stock, which may be issued
          upon exercise of options,warrants and convertible debts respectively, have
          been
          excluded from the calculation of diluted loss per share, for the three
          months
          ended September 30, 2005, because their inclusion would be anti-dilutive.
          For
          the period ended September 30, 2004, 1,499,997, 2,989,500 and 6,750,000
          shares
          of common stock, which may be issued upon exercise of options,warrants
          and
          convertible debts respectively, have been excluded from the calculation
          of
          diluted loss per share, for the three months ended September 30, 2005,
          because
          their inclusion would be anti-dilutive.
  Financial
          Instruments
  The
          carrying value of the Company’s financial instruments, including cash and cash
          equivalents, accounts receivable, accounts payable and accrued liabilities
          approximate fair value because of the short maturities of those instruments.
          Based on borrowing rates currently available to the Company for loans with
          similar terms, the carrying value of convertible notes, notes payable and
          related party balances also approximates fair value.
  We
          review
          the terms of convertible debt and equity instruments we issue to determine
          whether there are embedded derivative instruments, including the embedded
          conversion option, that are required to be bifurcated and accounted for
          separately as a derivative financial instrument. When the economic
          characteristics and risks of any embedded derivative instrument are not
          "clearly
          and closely" related to the risks of the host instrument, the embedded
          derivative instrument is generally required to be bifurcated and accounted
          for
          separately. If the convertible instrument is debt, or has debt-like
          characteristics, the risks associated with the embedded conversion option
          are
          not "clearly and closely" related to that debt host instrument. The conversion
          option has the risks associated with an equity instrument, not a debt
          instrument, because its value is related to the value of our common stock.
          Nonetheless, if the host instrument is considered to be "conventional
          convertible debt", bifurcation of the embedded conversion option is generally
          not required. However, if the instrument is not considered to be conventional
          convertible debt, bifurcation of the embedded conversion option may be
          required
          in certain circumstances. Generally, where the ability to physical or net-share
          settle the conversion option is deemed to be not within the control of
          the
          company, the embedded conversion option is required to be bifurcated and
          accounted for as a derivative financial instrument liability.
 
 In
          connection with the sale of convertible debt and equity instruments, we
          may also
          issue freestanding options or warrants. Additionally, we may issue options
          or
          warrants to non-employees in connection with consulting or other services
          they
          provide. Although the terms of the options and warrants may not provide
          for
          net-cash settlement, in certain circumstances, physical or net-share settlement
          is deemed to not be within the control of the company and, accordingly,
          we are
          required to account for these freestanding options and warrants as derivative
          financial instrument liabilities, rather than as equity.
 
 Derivative
          financial instruments are initially measured at their fair value. For derivative
          financial instruments that are accounted for as liabilities, the derivative
          instrument is initially recorded at its fair value and is then re-valued
          at each
          reporting date, with changes in the fair value reported as charges or credits
          to
          income. For option-based derivative financial instruments, we use the
          Black-Scholes option pricing model to value the derivative
          instruments.
 
 In
          circumstances where the embedded conversion option in a convertible instrument
          is required to be bifurcated and there are also other embedded derivative
          instruments in the convertible instrument that are required to be bifurcated,
          the bifurcated derivative instruments are accounted for as a single, compound
          derivative instrument.
 
 When
          the
          embedded derivative instrument is to be bifurcated and accounted for as
          a
          liability, the total proceeds received are first allocated to the fair
          value of
          the bifurcated derivative instrument. If freestanding options or warrants
          were
          also issued and will be accounted for as derivative instrument liabilities
          (rather than as equity), the proceeds are next allocated to the fair value
          of
          those instruments. The remaining proceeds, if any, are then allocated to
          the
          convertible instrument itself, usually resulting in that instrument being
          recorded at a discount from its face amount. In circumstances where a
          freestanding derivative instrument is to be accounted for as an equity
          instrument, the proceeds are allocated between the convertible instrument
          and
          the derivative equity instrument, based on their relative fair
          values.
 
 9
 The
          discount from the face value of the convertible debt instrument is amortized
          over the life of the instrument through periodic charges to income, using
          the
          effective interest method.
  The
          classification of derivative instruments, including whether such instruments
          should be recorded as liabilities or as equity, is re-assessed at the end
          of
          each reporting period. Derivative instrument liabilities are classified
          in the
          balance sheet as current or non-current based on whether or not net-cash
          settlement of the derivative instrument could be required within 12 months
          of
          the balance sheet date.
 
  **Credit
          Risk**
  The
          Company’s financial assets that are exposed to credit risk consist primarily of
          cash and equivalents and accounts receivable. Concentrations of credit
          risk with
          respect to accounts receivable are limited due to the large number of customers
          serviced by the Company and their generally short payment terms.
  **Foreign
          Currency Translation**
  The
          Company maintains its accounts in United States dollars and in Canadian
          dollars
          for Canadian-based subsidiaries. The financial statements have been translated
          into United States dollars in accordance with SFAS No. 52, Foreign Currency
          Translation.
  All
          balance sheet accounts have been translated using the exchange rates in
          effect
          at the balance sheet date. Statement of operations amounts have been translated
          using the average exchange rate for the year. The gains and losses resulting
          from the changes in exchange rates from year to year have been reported
          separately as a component of comprehensive income. The gains and losses
          resulting from any intercompany balances with different functional currencies
          would be recognized in statement of operations.
  **Inco** **m** **e
          Taxes**
  The
          Company accounts for income taxes using the asset and liability approach
          in
          accordance with SFAS No. 109, Accounting for Income Taxes. The asset and
          liability approach requires the recognition of deferred tax liabilities
          and
          assets for the expected future tax consequences of temporary differences
          between
          the carrying amounts and the tax basis of assets and liabilities. A valuation
          allowance is provided when it is more likely than not that some portion
          or all
          of the deferred tax assets will not be realized.
  The
          provision for income taxes consists of an amount for the taxes currently
          payable
          and a provision for the tax consequences deferred to future
          periods.
  **Comprehensive
          Income**
  Comprehensive
          income equals net income plus other comprehensive income. Other comprehensive
          income refers to foreign currency translation adjustments.
  **Accounting
          Estimates**
  The
          Company prepares its financial statements in accordance with accounting
          principles generally accepted in the United States of America, which require
          management to make estimates and assumptions that affect the reported amounts
          of
          assets, liabilities, revenues and expenses and disclosure of contingent
          assets
          and liabilities. The estimates and assumptions used in the accompanying
          financial statements are based upon management’s evaluation of the relevant
          facts and circumstances as of the date of the financial statements. Actual
          results may differ from the estimates and assumptions used in preparing
          the
          accompanying financial statements.
  **Restatement**
 
 We
          have
          amended the annual reports for the year ended December 31, 2004 and quarterly
          reports of the quarters ended September 30, 2004, March 31, 2005 and
          June
          30, 2005 to reflect the accounting for the convertible term note, warrants
          and
          options and related registration rights in connection with our financing
          transaction entered into with Laurus Master Funds, Ltd. on September 30,
          2004.
          We are currently responding to comments provided by the Staff of the Securities
          and Exchange Commission in connection with our registration statement on
          Form
          SB-2. These comments affect our past filings and may affect this filing.
          The
          most recent comments relate to our accounting for certain convertible debt
          that
          have warrants, options, and related registration rights. We intend
          to **** file
          a
          formal response to the SEC’s accounting comments related to the Company’s
          registration statement on Form SB-2, and in this filing, we
          have
          treated the warrants and options that have registration rights associated
          with
          them as derivative liabilities.  In
          addition, We have also received comments from the Securities and Exchange
          Commission regarding whether our convertible debt is a "conventional
          convertible" instrument. We have responded to the Staff's comments, explaining
          why, at the time they were issued, we believed that this instrument was
          "conventional". However, this topic has recently been addressed and clarified
          by
          the Financial Accounting Standards Board's Emerging Issues Task Force in
          Issue
          05-2 (EITF 05-2). We issued these instruments prior to EITF 05-2 and interpreted
          the term "conventional" differently as it relates to certain special
          anti-dilution provisions. We understand that the SEC Staff has recently
          issued a
          number of comment letters to other registrants related to this topic and
          our
          interpretation may not be appropriate. As a result, we were required to
          bifurcate the conversion features of some or all of these convertible
          instruments and record them as derivative liabilities and then mark the
          liabilities to their fair value at each reporting date.
 
 10
 As
          a
          result of the restatement, we have recorded a discount of convertible debt
          as at
          September 30, 2004. The discount was amortized over the period of the
          convertible debt as interest and other expenses in our accompanying consolidated
          statements of operations. The warrants and options issued related to Laurus
          financing from the period of September 30, 2004 to June 30, 2005 were marked
          to
          market at each balance sheet date. Accordingly, the effect on our accompanying
          consolidated balance sheet as of September 30, 2004 was an increase in
          liabilities by $3,573,352 and corresponding increase in stockholders' deficiency
          of $3,573,352. The effect on our consolidated statements of operations
          for the
          quarter ended September 30, 2004 was $nil.
 
 The
          effect on our accompanying consolidated balance sheet as of December 31,
          2004
          was an increase in liabilities by $5,564,912 and corresponding increase
          in
          stockholders' deficiency of $5,564,912. The effect on our consolidated
          statements of operations for the quarter ended September 30, 2004 was an
          increase in our net loss of $1,991,561. Basic and diluted earning per share
          for
          the year ended December 31, 2004 changed from loss per share $0.04 to earning
          per share of $0.11.
 
 The
          effect on our accompanying consolidated balance sheet as of June 30, 2005
          was an
          increase in liabilities by $2,469,747 and corresponding increase in
          stockholders' deficiency of $2,469,747. The effect on our consolidated
          statements of operations for the quarter ended June 30, 2005 was an increase
          in
          our net income of $3,382,514. Basic and diluted earning per share for the
          quarter ended June 30, 2005 changed from loss per share $0.03 to earning
          per
          share of $0.04.
 
 **Recent
          Accounting Pronouncements**
  In
          November 2004, the Financial Accounting Standards Board (FASB) issued SFAS
          No.
          151, “Inventory Costs-an Amendment of ARB No. 43, Chapter 4”. The standard
          adopts the view related to inventories that abnormal amounts of idle capacity
          and spoilage costs should be excluded from the cost of inventory and expensed
          when incurred. Additionally, the meaning of the term “normal capacity” was
          clarified. It should be effective for fiscal years beginning after June
          15,
          2005. Based on the management’s evaluation of SFAS No. 151, the adoption is not
          expected to have a material effect on the consolidated financial statements.
  In
          December 2004, the FASB issued FASB Statement No. 123R (Revised), “Share-Based
          Payment which is a revision of FASB Statement No. 123, Accounting for
          Stock-Based Compensation”. Statement No. 123(R) supersedes APB Opinion No. 25,
          Accounting for Stock Issued to Employees, and amends FASB Statement No.
          95,
          Statement of Cash Flows. Statement No. 123(R) requires all share-based
          payments
          to employees, including grants of employee stock options, to be recognized
          in
          the financial statements based on their fair values and, for small business
          issuers, is effective at the beginning of the first interim and annual
          reporting
          period beginning after December 15, 2005. Based on the management’s evaluation
          of SFAS No. 123R, the adoption is not expected to have a material effect
          on the
          consolidated financial statements.
  In
          September 2004, the FASB issued EITF 04-8, “The Effect of Contingently
          Convertible Instruments on Diluted Earnings per Share”. This Issue addresses
          when contingently convertible instruments should be included in diluted
          earnings
          per share. The Task Force reached a consensus that contingently convertible
          instruments should be included in diluted earnings per share (if dilutive)
          regardless of whether the market price trigger has been met. The Task Force
          also
          agreed that the consensus should be applied to instruments that have multiple
          contingencies if one of the contingencies is a market price trigger and
          the
          instrument is convertible or settleable in shares based on meeting a market
          condition. Based on management’s evaluation of EITF 04-8, the adoption did not
          have a significant effect on the consolidated financial statements.
  11
 **4.**  **Note
          Receivables**
  On
          January 12, 2005, the Company announced that AC Technical entered into
          a letter
          of intent to acquire the privately-held dataBahn, Inc. (“dataBahn”). dataBahn is
          based in Farmers Branch, Texas, and provides solutions to connect consumers
          and
          commercial users by providing satellite-based internet, voice and data
          services
          to the emerging broadband mobile communications markets. The acquisition
          is
          subject, among other things, to due diligence and the negotiation of definitive
          documentation. In furtherance of this acquisition, the Company entered
          into a
          Security Agreement and Secured Promissory Note Purchase Agreement with
          dataBahn,
          Inc. on March 9, 2005. Pursuant to these agreements, the Company is negotiating
          the terms of a transaction with dataBahn to acquire all its outstanding
          capital
          stock or substantially all of its assets. In order to meet certain financial
          obligations of dataBahn, the Company purchased a Secured Promissory Note
          amounting to $125,000 from dataBahn. The secured two-year promissory note
          bears
          interest at 10% and matures on March 9, 2007. dataBahn pays interest on
          a
          monthly basis from April 8, 2005 and the monthly principal amount of $10,416
          will start to be paid from April 8, 2006.
  **5.**  **Deferred
          Financing Costs, Net**
  Deferred
          financing costs, net are associated with the Company’s revolving line of credit
          and term note from Laurus Master Fund, Ltd., a Cayman Islands company.
          For the
          period ended September 30, 2005, the amortization of deferred financing
          cost
          approximately $351,782 (2004 - $Nil).
  
  **2005**Cost
                
                $
                1,176,365Accumulated
                    amortization
                
                
                477,163$
                699,202
 The
          estimated amortization expense for each of the next three fiscal years
          is as
          follows:
  **Year**
                
                **Amount**2005
                
                $
                107,2912006
                
                
                380,8892007
                
                
                211,022$
                699,202
  **6.**  **Customer
          List**
  **2005****Cost**
                
                **Accumulated****Depreciation**Customer
                    list
                
                $
                17,241
                
                
                11,853$
                5,388
  Amortization
          expense for the period ended September 30, 2005 amounted to $3,076
          (2004-$2,823). The estimated amortization expense for each of the next
          three
          fiscal years is as follows:
  **Year**
                
                **Amount**2005
                
                $
                1,0772006
                
                
                4,311$
                5,388
 12
 7.  **Bank
            Indebtedness**
  The
          Company has a $3,000,000 secured revolving line of credit with Laurus which
          is
          renewable in September 30, 2007 which included a secured convertible minimum
          borrowing note amounted to $1,000,000 (see Note 8). The secured convertible
          minimum borrowing note requires the Company to have minimum borrowing of
          $1,000,000 under the secured revolving line of credit. Advances under this
          facility of $2,840,554 at September 30, 2005 are collateralized by the
          assets of
          the Company. Interest on these borrowings is payable monthly at a minimum
          of 6%
          interest rate on the outstanding balance or an agreed upon formula of prime
          plus
          2%. The Company will irrevocably remit all of its present and future Account
          Debtors directly to a bank account and repay the bank indebtedness.
  Laurus
          may require us to convert into common stock all or a portion of the amount
          outstanding under the bank indebtedness, together with interest, at any
          time at
          a conversion price of $1.00 per common share, subject to adjustment in
          certain
          circumstances. Laurus has contractually agreed not to convert any portion
          of the
          credit facility if exercising the conversion option results in Laurus holding
          in
          excess of 4.99% of our outstanding shares of common stock. (also see Note
          8)
 
  Bank
          indebtedness, net of current portions is comprised of:
  **2005**Bank
                    Indebtedness due to Laurus, collateralized by all assets of the
                    Company
                
                $
                2,840,554Less:Discount
                    on notes related to the convertible options, common stock options
                    and
                    warrants
                
                
                (1,119,381
                )$
                1,721,713
 
 **8.** **Convertible
          Notes**
  a) Private
            Placement - Laurus Master Fund, Ltd.
 
 On
          September 30, 2004, the Company entered into a series of agreements with
          Laurus
          Master Fund, Ltd., a Cayman Islands company, pursuant to which the Company
          issued a Secured Convertible Term Note in the principal amount of $4,500,000
          due
          September 30, 2007, secured revolving note and secured convertible minimum
          borrowing note (the “revolving note”) of up to a maximum aggregate amount of
          $2,000,000 and $1,000,000 due September 30, 2007, a common stock purchase
          warrant and a stock purchase option.
  Pursuant
          to the Secured Convertible Term Note, Laurus provided the Company with
          a
          $4,500,000 asset based credit facility in the form of a three-year Convertible
          Note secured by all the assets of the Company and its subsidiaries including
          accounts receivable, inventory and real property. The term note is convertible
          into shares of the Company’s common stock at an initial fixed conversion rate of
          $1.00 per share.
  At
          the
          closing of the transaction, Laurus funded $3,250,000 to the Company under
          the
          Convertible Note. Pursuant to the Securities Purchase Agreement between
          Laurus
          and the Company and a restricted account agreement entered into by the
          Company,
          Laurus and a US bank, the remaining $1,250,000 was deposited into a restricted
          account for the benefit of Laurus as additional security for the obligations
          of
          the Company under the purchase agreement and the related agreements. The
          restricted account is to be maintained at the US bank to be released upon
          the
          effectiveness of the registration statement covering the shares of common
          stock
          acquirable by Laurus, provided that there is no default by the Company
          under the
          Laurus financing and the Company meets certain financial milestones. Subsequent
          to the year ended December 31, 2004, Laurus waived the requirements and
          released
          $125,000 from the restricted account to the Company to fund the Company’s loan
          to dataBahn on March 9, 2005 and the remaining $1,125,000 was released
          on June
          27, 2005.
  Laurus
          has the option to convert the entire principal amount of the term note
          and
          revolving notes, together with interest thereon into shares of the Company’s
          common stock at a conversion price of $1 per common share. The amount
          convertible into the Company’s common stock is subject to a conversion cap that
          Laurus beneficially own no more than 4.99% of the Company’s outstanding common
          stock immediately after conversion. The balance of the secured revolving
          notes
          was $2,840,554 as at September 30, 2005.
  13
 Pursuant
          to the Secured Convertible Term Note, subject to certain volume limitations
          and
          other conditions, all or a portion of the monthly payment due on the Convertible
          Term Note will be converted into the common stock of the Company. The term
          note
          sets forth criteria primarily relating to share price and trading volume
          pursuant to which the Company is 1) required to pay Laurus in cash, 2)
          required
          to pay Laurus in stock or 3) required to pay Laurus in a combination of
          cash and
          stock. If the share price and trading volume criteria are met, the Company
          is
          required to pay principal and interest in stock. If the share price, but
          not the
          trading volume, criteria are met, the Company will be required to pay in
          a
          combination of stock and cash. Otherwise, the Company will be required
          to pay
          Laurus in cash. Neither Laurus nor the Company has the option of choosing
          in
          which form the Company makes its payments if these criteria are met.
  The
          Company must pay Laurus in stock if
  (i)
                the
                    average closing price of its common stock as reported by Bloomberg,
                    L.P.
                    on the principal market for the 5 consecutive trading days immediately
                    preceding the date that Laurus gives the Company a Repayment
                    Notice is
                    greater than or equal to 110% of the fixed conversion price of
                    $1.00 after
                    the 3-for-1 stock split (i.e. if the stock price is greater than
                    $1.10 per
                    share) and
  (ii)
                the
                    amount of such conversion does not exceed 25% of the aggregate
                    dollar
                    trading volume of the common stock for the 22 day trading period
                    immediately preceding delivery of a Repayment Notice.
  Any
          portion of the monthly amount due that is not payable in shares of common
          stock
          because the trading volume conversion criteria described above are not
          met must
          be paid in cash. Accordingly, if the average closing price described above
          is
          over $1.10 per share but the number of shares due would exceed 25% of the
          aggregate dollar trading volume described above, the Company would be required
          to pay Laurus in a combination of cash and stock.
  When
          the
          average closing price of the common stock is less than 110% of the fixed
          conversion price of $1.00, the Company must pay all or a portion of the
          monthly
          amount subject to the following conditions. If the average closing price
          of the
          common stock on the principal market is less than 110% of the fixed conversion
          price (i.e. less than $1.10) for the 5 trading days immediately preceding
          a
          repayment date, then Laurus shall provide CVAS with a Repayment Notice
          requiring
          the conversion of the monthly amount, as of the date of the repayment notice,
          at
          a fixed conversion price equal to the lesser of:
  (i)
                85%
                    of the average of the closing prices of the common stock during
                    the 20
                    trading days immediately prior to the date of the delivery of
                    such
                    respective repayment notice or
  (ii)
                85%
                    of the average of the 3 closing prices of the common stock for
                    the 3
                    trading days immediately prior to the date of the delivery of
                    such
                    respective repayment notice;
  provided
          that such conversion of the monthly amount due on each repayment date does
          not
          exceed 25% of the aggregate dollar trading volume of the common stock for
          the 22
          day trading period immediately preceding delivery of a repayment notice.
          The
          fixed conversion price should not be less than $0.73 in any event.
  The
          Repayment Date is the date that monthly interest is payable, the date that
          the
          cash portion of each monthly Amount is payable, and the date that shares,
          if
          any, are to be issued in lieu of the Monthly Amount. The first Repayment
          Date
          was November 1, 2004 and the first Repayment Dates continue on the first
          day of
          each consecutive calendar month thereafter.
  The
          Repayment Notice is the notice delivered by Laurus to the Company prior
          to the
          Repayment Date that sets out what portion of the Monthly payable will be
          settled
          in shares.
  Laurus
          does not have the option of choosing in which form the Company makes its
          monthly
          principal payments. If the conversion criteria described above are met,
          Laurus
          has voluntarily agreed to provide a Repayment Notice to indicate to the
          Company
          what portion of the Monthly Amount must be made in cash or stock. If Laurus
          does
          not provide the Repayment Notice, it has no legal consequences, but would
          make
          the determination of the requisite payments difficult. The Company is required
          to pay cash for any part of the monthly amount due on a Repayment Date
          which
          Laurus was not able to convert into shares of common stock due to failure
          to
          meet the conversion criteria.
  14
 Subject
          only to the conversion cap of the term note, Laurus is required to convert
          the
          then outstanding principal amount of the note plus all accrued, but unpaid
          interest thereon when all of the following conditions are met: 1) the closing
          price for any 10 consecutive trading days exceeds 135% of the then effective
          Fixed Conversion Price, 2) there is an effective registration statement
          pursuant
          to which Laurus is permitted to utilize the prospectus thereunder to resell
          all
          of the conversion shares issued to Laurus (or such conversion shares are
          eligible for sale under Rule 144 of the Securities Act), 3) there is a
          sufficient number of authorized but unissued and otherwise unreserved shares
          of
          common stock for Laurus to convert all the shares issuable to Laurus under
          the
          term note pursuant to Section 3.6, and 4) the amount of the term note to
          be so
          converted pursuant to Section 3.6 (when combined with the amount of the
          secured
          convertible minimum borrowing note issued by the Company to Laurus to be
          so
          converted pursuant to Section 3.6 of the minimum borrowing note and the
          amount
          of any other promissory note issued by the Company to Laurus required to
          be
          similarly mandatorily converted) does not exceed 10% of the aggregate dollar
          trading volume of the common stock during such 10 consecutive trading days.
          If
          all of these criteria were not met, Laurus would have no obligation to
          convert.
  We
          may
          prepay the Convertible Term Note at any time by paying 125% of the outstanding
          amortizing principal amount, together with accrued but unpaid interest
          on the
          outstanding amortizing principal amount, or by paying 120% of the outstanding
          non-amortizing principal amount, together with accrued but unpaid interest
          on
          outstanding non-amortizing principal amount. Upon an event of default under
          the
          Convertible Term Note, Laurus may demand repayment at a rate of 120% of
          the
          outstanding principal and interest amount of the Convertible Term Note.
          If the
          Convertible Term Note remains outstanding after an event of default that
          is not
          cured, the additional interest rate on the outstanding principal amount
          payable
          on a monthly basis will be equal to 18% per annum. Events of default include:
  ·
                a
                    failure to make payments under the Convertible Term Note when
                    due;
  ·
                a
                    material breach of the transaction documents by
                    us;
  ·
                bankruptcy
                    related events;
  ·
                a
                    change of control transaction without prior approval;
                    and
  ·
                events
                    of default under other indebtedness agreements to which we are
                    a
                    party.
  Pursuant
          to the Secured Convertible Minimum Borrowing Note, subject to certain volume
          limitations and other conditions, if after the date a registration statement
          covering the resale of the conversion shares is declared effective, the
          closing
          price for any 10 consecutive trading days exceeds 135% of the then effective
          Fixed Conversion Price, Laurus will within 10 trading days convert all
          or part
          of the then outstanding amount of the secured convertible minimum borrowing
          note
          plus all accrued but unpaid interest into shares of the Company’s common stock.
          No amount can be converted until (a) either (i) there is an effective
          registration statement covering the shares of the common stock to be issued
          in
          satisfaction of such obligations, or (ii) an exception from registration
          of
          the common stock is available pursuant to Rule 144 of the Securities Act,
          and
          (b) no event of default exists under the transaction documents unless
          cured
          or waived.
 
 The
          Company has granted Laurus a right of first refusal with respect to any
          debt or
          equity financings for a period of 120 days after completion of the business
          acquisition and leveraged buyout transaction.
  The
          principal amounts of the term note and the revolving notes bear interest
          at the
          prime rate plus two percent with a minimum rate of six percent. Interest
          accrued
          on the term note but was not payable until November 1, 2004. Interest on
          the
          revolving note accrues but is payable on monthly basis. Interest is calculated
          on the basis of a 360 day year. The minimum monthly payment on the term
          note is
          $100,000, plus the monthly interest payment, and may be paid in cash, the
          common
          stock of the Company or a combination of cash and stock , dependant upon
          the
          occurrence of certain criteria.
  15
 Interest
          on the term note for the nine months period ended September 30, 2005 was
          $302,906 (2004: $Nil). The minimum fixed monthly principal repayment of
          $100,000
          commences on April 1, 2005, and continues through the September 30, 2007
          maturity date.
  On
          a
          month-by-month basis, if we register the shares of common stock issuable
          upon
          conversion of the note and upon exercise of the warrant and options on
          a
          registration statement declared effective by the SEC, the interest rate
          on the
          Note is subject to a 0.25% reduction for every 25% increase in the market
          price
          of our common stock above the conversion price of the Note, but in no event
          shall the interest rate be less than zero percent.
  Laurus
          also has the option to convert all or a portion of the Convertible Term
          Note
          into shares of our common stock at any time, subject to limitation described
          below, at an initial fixed conversion price of $1.00 per share, subject
          to
          adjustment as described below. The Convertible Term Note is currently
          convertible into 4,500,000 shares of our common stock, excluding the conversion
          of any accrued interest. The conversion price is adjustable on a weighted
          average basis upon certain future issuances of securities by us at a price
          less
          than the conversion price then in effect. The limitation on Laurus’ ability to
          convert the Note and exercise the warrant and options includes:
  •
                
                Laurus
                    may not convert the Note or exercise the Warrant for a number
                    of shares
                    that would cause all shares then held by Laurus to exceed 4.99%
                    of our
                    outstanding shares of common stock unless there has been an event
                    of
                    default or Laurus provides us with 75 days prior notice.
  During
          the period ended September 30, 2005, the Company entered into four Amendments
          (“the Amendment”) with Laurus
          amending the following agreements previously entered into by the Company
          and
          Laurus on September 30, 2004: (a) the Securities Purchase Agreement; (b)
          the
          Secured Convertible Term Note; and (c) the Registration Rights
          Agreement.
  Pursuant
          to each Amendment, Laurus agreed to postpone a scheduled principal payment
          in
          respect of the Term Note and in consideration of the postponement until
          September 30, 2007, the Company agreed to issue additional warrants.. (also
          see
          Note 10)
  Pursuant
          to Amendment No. 1 on March 31, 2005, the Company issued to Laurus a warrant
          to
          purchase 100,000 shares of the common stock of the Company at an exercise
          price
          of $1.20 per share.
  Pursuant
          to Amendment No. 2 on April 30, 2005, the Company issued to Laurus a warrant
          to
          puchase 100,000 shares of the common stock of the Company at an exercise
          price
          of $1.01 per share.
  Pursuant
          to Amendment No. 3 on May 31, 2005, the Company issued to Laurus a warrant
          to
          purchase 100,000 shares of the common stock of the Company at an exercise
          price
          of $1.01 per share.
  Pursuant
          to Amendment No. 4 on June 30, 2005, the Company issued to Laurus a warrant
          to
          purchase 100,000 shares of the common stock of the Company at an exercise
          price
          of $0.90 per share.
  Pursuant
          to Amendment No. 5 on July 31, 2005, the Company issued to Laurus a warrant
          to
          purchase 100,000 shares of the common stock of the Company at an exercise
          price
          of $1.05 per share.
 
 Pursuant
          to Amendment No. 6 on August 31, 2005, the Company issued to Laurus a warrant
          to
          purchase 100,000 shares of the common stock of the Company at an exercise
          price
          of $1.05 per share.
 
 Pursuant
          to Amendment No. 7 on September 30, 2005, the Company issued to Laurus
          a warrant
          to purchase 100,000 shares of the common stock of the Company at an exercise
          price of $.80 per share.
  In
          total,
          700,000 warrants were issued in exchange for the postponement by Laurus
          of
          scheduled principal payments under the Term Note.
  16
 The
          principal payments for the next three fiscal years are as follows:
  **Year**
                
                **Amount**2005
                
                $
                200,0002006
                
                
                1,200,0002007
                
                
                3,100,000$
                4,500,000
  We
          were
          obligated to file a registration statement registering the resale of shares
          of
          our common stock issuable upon conversion of the note and exercise of the
          warrants and options by November 15, 2004 and to have such registration
          statement declared effective by the SEC by no later than March 31, 2005.
          If the
          registration statement is suspended other than as permitted in the Registration
          Rights Agreement, or if our common stock is not listed for three consecutive
          trading days, we are obligated to pay Laurus additional fees. The fees
          are 2.0%
          of the original principal amount of the term note and secured minimum borrowing
          note for each 30 day period in which we fail to take these actions. Under
          the
          Registration Rights Agreement between Laurus and the Company, if
  (i)
                the
                    Registration Statement is not filed on or prior to the applicable
                    filing
                    date;
 (ii)
                the
                    respective Registration Statement is not declared effective by
                    the
                    effectiveness date;
 (iii)
                after
                    the respective Registration Statement is filed with the SEC and
                    declared
                    effective, such Registration Statement ceases to be effective
                    due to
                    certain conditions;
 (iv)
                the
                    Common Stock is not listed or quoted, or is suspended from trading
                    on any
                    Trading Market for a period of five consecutive Trading Days,
  The
          Company shall pay Laurus an amount in cash, as liquidated damages and not
          as a
          penalty, equal to 2.0% for each thirty day period (prorated for partial
          period)
          on a daily basis of the sum of the original principal amount of the Note
          (as
          defined in the Securities Purchase Agreement) plus the original principal
          amount
          of each applicable Minimum Borrowing Note (as defined in the Security
          Agreement).
  In
          addition, on June 22, 2005, the Company entered into an Amendment and Waiver
          with Laurus amending the Securities Purchase Agreement and Registration
          Rights
          Agreement. Pursuant to the Amendment, Laurus waived liquidated damages
          due and
          payable to Laurus by the Company of approximately $138,000 incurred by
          the
          Company for failing to cause its registration statement registering the
          shares
          to be declared effective by the SEC on the required date. The Company issued
          to
          Laurus a warrant to purchase 313,000 shares of the common stock of the
          Company
          at an exercise price of $1.00 per share. The warrants were recorded at
          fair
          value by using the Black-Scholes option pricing model under other expenses.
          The
          fair value of the warrants issued was $137,703. The fair value of the above
          warrants were measured using the Black-Scholes option pricing model with
          the
          following weighted average assumptions: risk free interest rate of 3.8%,
          expected dividend yield of 0%, volatility of 50%, share price of $0.90
          and
          contractual lives of 7 years. (also see Note 11).
 
 The
          Company entered into another Amendment and Waiver with Laurus as of September
          1,
          2005 pursuant to which Laurus waived liquidated damages due and payable
          by the
          Company for failing to cause its registration statement to be declared
          effective
          by the SEC on the extended required date. The effectiveness date has been
          extended to November 30, 2005. The Company has not issued additional warrants
          to
          Laurus in connection with this waiver.
 
 17
 Convertible
          notes, net of current portions is comprised of:
  **2005**7%
                    convertible term note due to Laurus, collateralized by all assets
                    of the
                    Company including accounts receivable and other assets
                
                $
                4,500,000Less:Discount
                    on notes, related to conversion options, common stock options
                    and
                    warrants
                
                
                (3,408,617
                )1,091,3831,091,383$
                —
  b) Derivative
          Financial Instruments
  We
          also
          issued to Laurus warrants and options to purchase up to 2,950,000 shares
          and
          1,499,997 shares of our common stock at an exercise price from the range
          of
          $0.01 and $1.20 per share with a term of seven to ten years. The warrants
          and
          options were initially recorded as equity and they have been reclassified
          for
          the period ended September 30, 2005 (see Note 3 Restatement). The warrants
          and
          options were now recorded at fair value and classified as liability. The
          fair
          value of the warrants and option at the time of issue was $3,296,000. (computed
          using a Black-Scholes model with an interest rate of 3.5% to 4.33%, volatility
          of 50% to 55%, expected dividend yield of 0%, share price of $0.6 to $1.07
          and
          expected term of seven and ten years respectively) We recorded $1,176,365
          for
          debt issue costs, including investment banking fees and legal and professional
          fees. Part of the debt issue costs includes five-year warrants to purchase
          up to
          739,500 shares of our common stock at an exercise price from the range
          of $0.33
          to $1.00. The fair value of the warrants at the time of issues was $559,316
          and
          recorded as equity. The discount attributable to the warrants and options
          are
          recorded as a reduction to the carrying value of the Note, and the debt
          issue
          costs are included in deferred financing costs in the accompanying consolidated
          balance sheet as of September 30, 2004. The debt discount and debt issue
          costs
          are being amortized over the term of the Convertible Note using the effective
          interest method.  Total
          net
          income from the movement of derivative instruments  for the
          nine months period ended September 30, 2005 was $80,476 which is included
          in
          interest expense in the accompanying consolidated statement of operations
          for
          the period ended September 30, 2005.
  EITF
          Issue No. 00-19, *“Accounting
          for Derivative Financial Instruments Indexed to, and Potentially Settled
          in, a
          Company’s Own Stock,”* or EITF
          00-19, addresses accounting for equity derivative contracts indexed to,
          and
          potentially settled in, a company’s own stock, or equity derivatives, by
          providing guidance for distinguishing between permanent equity, temporary
          equity
          and assets and liabilities. EITF 00-19 addresses and clarifies whether
          specific
          contract provisions or other circumstances cause a net-share or physical
          settlement alternative to be within or outside the control of the issuer.
  Under
          EITF 00-19, to qualify as permanent equity, all of the following criteria
          must
          be met: the equity derivative contract must permit the company to settle
          in
          unregistered shares, the company must have sufficient authorized but unissued
          shares available to settle the contract, the contract must contain an explicit
          limit on the number of shares to be delivered in a share settlement, there
          can
          be no requirement in the contract to post collateral, there can be no “make
          whole” provisions in the contract, there can be no provisions that could require
          a net cash settlement to the holder of the contract and there can be no
          provisions in the contract that indicate the counterparty has rights that
          rank
          higher than those of a common stockholder. Equity derivative contracts
          accounted
          for as permanent equity are recorded at their initial fair value and subsequent
          changes in fair value are not recognized unless a change in the contracts’
          classification occurs. Equity derivative contracts not qualifying for permanent
          equity accounting are recorded at fair value as an asset or liability with
          subsequent changes in fair value recognized through the statement of operations.
  18
 The
          registration rights are not treated as freestanding derivative instruments
          and
          penalties will be recorded as expenses when they are incurred.
 In
          connection with the provisions of EITF 00-19 the Company acknowledges that
          obtaining a declaration of a registration statement’s effectiveness and
          maintaining such effectiveness is beyond its control. Therefore, the potential
          liquidated damages we may be required to pay pursuant to the registration
          rights
          agreements described in Note 8(a) if we fail to keep our registration statements
          effective are potential net cash settlement under EITF 00-19. The warrants
          and
          options issued in connection with the financing should be classified as
          liabilities. The fair value of the warrant and option liability is adjusted
          at
          each balance sheet date, with the non-cash change in fair value reported
          in the
          consolidated statement of operations as other income or expense.
  
 At
          September 30, 2005, the following derivative liabilities related to common
          stock
          options and warrants were outstanding:
 
  Issue
                      Date
                  Expiry
                      Date
                  
                  Number
                      of options or warrants
                  Exercise
                      Price Per Share
                  Value
                      - issue date
                  Value
                      - June 30, 2005
                  Value
                      - September 30, 200509-30-2004
                  09-30-2014
                  Option
                      issued Laurus in connection with financing
                  299,997
                  $0.01
                  $318,597
                  $268,679
                  238,666
                      **09-30-2004
                  09-30-2011
                  Warrants
                      issued Laurus in connection with financing
                  2,250,000
                  1.15
                  1,370,000
                  887,307
                  707,10503-31-2005
                  03-31-2012
                  Warrants
                      issued to Laurus in connection with financing
                  100,000
                  1.20
                  60,291
                  40,296
                  33,32404-30-2005
                  04-30-2012
                  Warrants
                      issued to Laurus in connection with financing
                  100,000
                  1.01
                  44,309
                  44,887
                  36,47105-31-2005
                  05-31-2012
                  Warrants
                      issued to Laurus in connection with financing
                  100,000
                  1.01
                  56,614
                  45,172
                  36,74506-22-2005
                  06-22-2012
                  Warrants
                      issued to Laurus in connection with financing
                  313,000
                  1.00
                  137,703
                  142,140
                  115,69506-30-2005
                  06-30-2012
                  Warrants
                      issued to Laurus in connection with financing
                  100,000
                  0.09
                  50,431
                  50,431
                  39,52807-31-2005
                  07-31-2012
                  Warrants
                      issued to Laurus in connection with financing
                  100,000
                  1.05
                  56,244
                  -
                  36,12408-31-2005
                  08-31-2005
                  Warrants
                      issued to Laurus in connection with financing
                  100,000
                  1.05
                  22,979
                  -
                  36,398$1,478,912
                  $1,280,056
 At
          September 30, 2005, the following derivative liabilities related to embedded
          conversion options were as follows:
 
 19
 09-30-2004
                
                Conversion
                    options related to the convertible term note
                1,000,000
                1.00
                2,070,000
                1,626,506
                1,602,74009-30-2004
                
                Conversion
                    options related to bank indebtedness
                3,000,000
                1.00
                1,035,000
                662,661
                454,488$2,289,167
                $2,057,228$3,768,079
                $3,337,284
 ****** Total
          number of options issued was 1,200,000 as at September 30, 2004. **** During
          the quarter ended September 30, 2005, Laurus has exercised 1,200,000 options.
          The remaining number of options was 299,997 as at September 30, 2005.
  **9.**
                **Notes
                    Payable to Related Parties**
  In
          September 2004, the Company issued two promissory notes with an aggregate
          principal amount of $3,300,000. On September 30, 2004, the Company
          repaid
          an aggregate of $1,800,000 of the principal balance. The outstanding principal
          bears interest at 3% per annum with no fixed terms of repayment. The notes
          each
          with an amount of $750,000 are due to The Burns Trust (the Company’s president
          is one of the beneficiaries of the trust) and the Navaratnam Trust (the
          Company’s CEO is one of the beneficiaries of the trust),
          respectively.
  Interest
          expense recognized for the period was $33,750 (2004 - $Nil).
  **10.** **Other
          Notes Payable**
  As
          at
          September 30, 2005, balance comprises four promissory notes issued in February
          2004 each with principal amounts of $40,650 and payable at 100% of the
          face or
          principal amount in the denomination of CAD $50,000. The notes mature on
          February 26, 2007. Interest is payable monthly and accrues at the rate
          of 10.5%
          per annum on the outstanding principal amount on the 26 th day of
          each month. The principal amount of the notes is repayable in twelve consecutive
          monthly payments commencing on March 26, 2006.
  Interest
          expense recognized for the period was $12,866 (2004 - $5,271).
  The
          principal payments for the next three fiscal years and thereafter are as
          follows:
  **Year**
                
                **Amount**2005
                
                $
                —2006
                
                
                143,6782007
                
                
                28,736$
                172,414
 **11.** **Shareholders’
          Equity**
  During
          fiscal year 2004, the Company entered into a consulting agreement by issuing
          60,000 shares of common stock in consideration of investor relations services
          rendered. In addition, the Company entered into an engagement letter and
          issued
          75,000 shares of common stock for legal services rendered, which includes
          certain SEC filings, and routine U.S. corporate and securities law advice.
          Total
          recognized consulting and legal expenses for the period ended September
          30, 2005
          relating to the above shares are $48,000 and $50,182. Total prepaid expenses
          related to the above shares are Nil for the period ended September 30,
          2005.
 
 In
          June
          2005, the Company entered into another consulting agreement by issuing
          200,000
          shares stock in consideration for investor relations services rendered
          with the
          fair value of $367,445. Total recognized consulting expenses for the period
          ended September 30, 2005 relating to the above shares are $107,170. The
          remaining balance was recorded under prepaid expenses of $260,275.
 
 In
          August
          2005, the Company entered into another consulting agreement by issuing
          100,000
          shares stock in consideration for investor relations services rendered
          with the
          fair value of $75,000. Total recognized consulting expenses for the period
          ended
          September 30, 2005 relating to the above shares are $9,375. The remaining
          balance was recorded under prepaid expenses of $65,625. Additionally, the
          Company issued to Torys LLP an additional 7,500 shares in consideration
          for
          legal fees rendered with the fair value of $7,500. The expense was recorded
          under general and administration expenses.
 
 20
 On
          June
          30, 2005, all the outstanding principal of a convertible promissory note
          in the
          amount of $105,193 was converted into 174,216 shares of the Company’s common
          stock.
 
 In
          July
          2005, Laurus converted 1,200,000 options into 1,200,000 common stock of
          the
          Company.
  As
          a
          result of the above transactions, the number of common shares increased
          to
          31,816,716.
  **Options**
  During
          the fiscal year 2004, the Company granted 1,499,997 options to purchase
          a
          maximum of 1,499,997 shares of common stock. All the options granted are
          pursuant to issuance of debt. These options allow the holders to buy the
          Company’s common stock at a price of two-thirds of a cent per share and expire
          on September 30, 2014. The options related to the debt were recorded at
          fair
          value by using the Black-Scholes option pricing model as discount on notes
          of
          the convertible notes (see Note 8 for the conditions). The fair value of
          options
          issued was $1,593,400. 1,200,000 options were exercised during the period
          ended
          September 30, 2005.
  **Warrants**
  During
          the fiscal year 2004, the Company granted 2,989,500 warrants to purchase
          a
          maximum of 2,989,500 shares of common stock. Of the warrants granted, 2,250,000
          warrants were issued pursuant to issuance of debt with the balance of 739,500
          warrants issued pursuant to consulting and investment banking fees. The
          warrants
          related to the debt were recorded at fair value by using the Black-Scholes
          option pricing model as discounts on notes of the convertible debt(see Note 7
          and8 for the conditions). The fair value of the warrants issued was
          $1,370,000. In addition, the warrants issued pursuant to consulting and
          investment banking fees were recorded at fair value by using the Black-Scholes
          option pricing model and part of the costs were recorded as deferred financing
          costs (also see Note 5). The fair value of the warrants issued was $425,000.
          The
          fair value of the above warrants were measured using the Black-Scholes
          option
          pricing model with the following weighted average assumptions: risk free
          interest rate of 3.5%, expected dividend yield of 0%, volatility of 55%,
          share
          price of $1.07 and contractual lives of 5 to 7 years.
  During
          the period ended September 30, 2005, the Company additionally granted 1,013,000
          warrants to purchase a maximum 1,013,000 shares of common stock. Of the
          warrants
          granted, 700,000 warrants were issued to postpone scheduled principal payments
          in respect of Term Note with the balance of 313,000 warrants issued pursuant
          to
          Laurus waiving the payment of penalties for failure to have an effective
          registration statement (also see Note 8). The warrants related to the debt
          were
          recorded at fair value by using the Black-Scholes option pricing model
          as
          discounts on notes of the convertible debt
          (see
          Note 7 and 8 for the conditions). The fair value of warrants issued
          was $326,800. In addition, the warrants issued pursuant to waiver of the
          payment
          of the penalties were recorded at fair value by using the Black-Scholes
          option
          pricing model under the general and administration expenses. The fair value
          of
          the warrants issued was $137,703. The fair value of the above warrants
          were
          measured using the Black-Scholes option pricing model with the following
          weighted average assumptions: risk free interest rate of 3.8% to 4.33%,
          expected
          dividend yield of 0%, volatility of 45% to 50%, share price of $0.80 to
          $1.10
          and contractual lives of 7 years.
  These
          warrants allow the holders to buy the Company’s common stock at prices ranging
          from $0.33 to $1.20 per share and expire at various dates between September
          30,
          2009 and September 30, 2012. No warrants were exercised during the
          period.
  **12.****Basic
          and Diluted Loss Per Share**
  Total
          number of shares excluded from the calculation of basic and diluted loss
          per
          share for the three months period ended September 30, 2005 and 2004 were
          11,643,051 and 11,239,497 because they are anti-dilutive.
  **13.** **Subsequent
            events**
  Subsequent
            to period ended, the Company entered into Amendments (each an “Amendment”) with
            Laurus amending
            the following agreements previously entered into by the Company and Laurus
            on
            September 30, 2004: (a) the Securities Purchase Agreement; (b) the Secured
            Convertible Term Note; and (c) the Registration Rights Agreement.
  Pursuant
            to the Amendments, Laurus agreed to postpone scheduled principal payments
            in
            respect of the Term Note and in consideration of the postponement until
            September 30, 2007, the Company agreed to issue additional 200,000 warrants.
  **14.** **Contingency**
  The
            Company has a potential liability for a possible violation of Section
            5 of the
            Securities Act arising from the potential integration of the Laurus financing
            with this offering. On December 3, 2004, we initially filed the registration
            statement of which this prospectus is a part, primarily to register the
            shares
            of common stock acquirable by Laurus in connection with its financing.
            At that
            time, a portion of the proceeds of the Laurus financing was held in a
            restricted
            account, which the Company could not access until certain criteria were
            met.
            Accordingly, the offering of securities to Laurus may be deemed not to
            have been
            completed prior to the filing of the registration statement, which means
            that
            the Laurus financing may have been in violation of the registration requirements
            of Section 5 of the Securities Act of 1933. If it were determined that
            the
            Laurus financing violated Section 5, Laurus may have the right to rescind
            the
            transaction and we may be liable for penalties and/or damages. Any such
            rescission, penalties and/or damages could materially adversely affect
            our
            financial condition. In addition, the Company is potentially liable for
            $40,000
            relating to a claim by a former employee and $260,000 relating to a claim
            by a
            supplier.
 
 21
 **Item
          2.** **Management's
          Discussion And Analysis or Plan of Operation**
 ( Unaudited)
  The
          following discussion of the financial condition and results of operations
          should
          be read in conjunction with the consolidated financial statements and related
          notes thereto. The following discussion contains certain forward-looking
          statements that involve risks and uncertainties. Our actual results could
          differ
          materially from those discussed therein. Factors that could cause or contribute
          to such differences include, but are not limited to, risks and uncertainties
          related to the need for additional funds, the rapid growth of the operations
          and
          our ability to operate profitably a number of new projects. Except as required
          by law, we do not intend to publicly release the results of any revisions
          to
          those forward-looking statements that may be made to reflect any future
          events
          or circumstances.
  No
          financial statements are presented for the shell company, Creative Vistas,
          Inc.,
          prior to the business acquisition and leveraged buyout transactions because,
          prior to the September 30, 2004 transactions, its assets and results were
          immaterial. Prior to September 30, 2004, Creative Vistas refers to the
          shell
          company. The term “the Company” refers to the post business acquisition and
          leveraged buyout consolidated entity.
  **Overview
          and Recent Developments**
  On
          December 3, 2004, the Company announced that AC Technical was awarded
          approximately $648,000 in orders for new security projects, providing access
          control and CCTV equipment plus installation and related services in three
          projects for the Canadian Government.
  In
          the
          private sector, on December 20, 2004, the Company announced that AC Technical
          had been awarded approximately $607,500 in orders for security-related
          equipment
          and services for a Canadian regional healthcare facility.
  On
          January 5, 2005, the Company announced that AC Technical was awarded orders
          for
          approximately $365,500 in security projects for a Canadian
          retailer.
  On
          January 12, 2005, the Company announced that AC Technical entered into
          a letter
          of intent to acquire the privately-held dataBahn, Inc. dataBahn is based
          in
          Farmers Branch, Texas, and provides solutions to connect consumers and
          commercial users by providing satellite-based internet, voice and data
          services
          to the emerging broadband mobile communications markets. The acquisition
          is
          subject, among other things, to due diligence and the negotiation of definitive
          documentation. In furtherance of this acquisition, on March 9, 2005, the
          Company
          made a two-year secured loan to dataBahn in the amount of $125,000 and
          agreed to
          lend dataBahn an additional $125,000.
  On
          February 1, 2005, the Company announced that AC Technical was awarded additional
          orders worth approximately $178,200 in security projects for a Canadian
          retailer.
  On
          February 7, 2005, the Company announced that AC Technical was awarded orders
          for
          over $324,000 in security projects for the Canadian Government.
  On
          February 11, 2005, the Company announced that AC Technical was selected
          by BMW
          to implement a security project to provide the automotive manufacturer
          with
          advanced digital video surveillance equipment, plus integration and related
          services designed to ensure the security of BMW’s locations in Canada. The
          project is expected to be completed during the first half of 2005.
  On
          March 11, 2005 the Company announced that AC Technical was awarded
          approximately $810,000 in orders for security projects by the Canadian
          Government, and companies in the education, medical and healthcare markets.
          On
          March 24, 2005 the Company announced that AC Technical was awarded
          approximately $1,377,000 in additional orders for security projects by
          the
          Canadian Government, and companies in the education, medical and healthcare
          markets.
  On
          April 1, 2005 the Company announced that AC Technical received a
          grant from
          Canada’s Industrial Research Assistance Program.
  On
          June
          2, 2005 the Company announced that A.C. Technical Systems, Ltd. was awarded
          approximately $803,900 million in orders for security and surveillance
          projects
          by the Canadian Government, and companies in the commercial property management
          and education markets.
  22
 **Results
          of Operations**
 **Comparison
          of Three Months Period Ended September 30, 2005**
 **to
          Period Ended September 30, 2004**
  Since
          our
          business tends to be seasonal, most of the jobs are usually processed by
          us in
          the first or the fourth quarter of the calendar year. For example, the
          Canadian
          federal government has a March year end, and as a result, we experience
          an
          increase in government contracts in the first quarter of the calendar year.
  For
          purposes of this “Management’s Discussion and Analysis or Plan of Operation”, we
          compared the third quarter ended September 30, 2005 to the comparable period
          in
          2004, which relates to the successor period of the day September 30, 2004
          together with the predecessor period from July 1, 2004 to September 29,
          2004 to
          reflect the entire three months period ended September 30, 2004. The business
          of
          AC Technical was acquired in a leveraged buyout on September 30, 2004.
          Prior to
          the September 30, 2004 Creative Vistas, Inc. had no material assets or
          results.
  Sales :
          Sales
          for the quarter ended September 30, 2005 decreased 18% to $1,866,000 from
          $2,264,276 for the quarter ended September 30, 2004. Contract revenue decreased
          $427,000, or 22% compared to the third quarter of 2004. The decrease was
          directly related to the delay of some construction sites. Service revenue
          increased 6% to $299,000 for the third quarter of fiscal 2005 from $282,000
          for
          the same period of fiscal 2004. Service revenue primarily represents the
          cumulative effect of the growth in contracts and number of customers over
          the
          past few years. We have experienced a significant increase in the number
          of
          inquiries for systems from the government and retail sector. This increased
          interest in security products and services may result in our achieving
          increased
          revenues in future periods if we are successful in attracting new customers
          or
          obtaining additional projects from existing customers. There is no assurance
          that the Company will be able to attract new customers.
  Cost
          of Goods Sold :
          Cost of
          goods sold as a percentage of revenue for the three months ended September
          30,
          2005 was 1,187,500 or 64% of revenues compared to 1,884,700 or 83% of revenues
          for the three month period ended September 30, 2004. The material cost
          was
          $811,000 or 43.5% of the revenue for the three months ended September 30,
          2005
          compared to $1,391,700 or 61.5% of revenues in the same period of fiscal
          2004.
          Last year percentage in material cost was higher mainly due to our charging
          lower rates to compete in an increasely competitive market. However, the
          Company
          intended to sell the contract with higher gross margin in third quarter
          of 2005.
          Additionally, there was written off of inventory approximately $100,000
          in 2004.
          As a result, the gross margin was lower for the period ended of September
          30,
          2004. On
          the
          other hand, the labor and subcontractor cost decreased to $366,000 or 19.6%
          of
          revenues for the three months ended September 30, 2005 from $467,000 or
          20.6% of
          revenues for fiscal 2004. The decrease in balance was mainly due to the
          decrease
          in contract revenue.
  Project,
          Selling, General and Administrative Expenses :
          Projects, selling, general and administrative expenses for the quarter
          ended
          September 30, 2005 was $977,700 or 52.4% of revenues for the quarter ended
          September 30, 2005 compared to $1,235,000 or 54.5% of revenues for the
          same
          period of fiscal 2004. The balance is mainly comprised of the
          following:
  Project
          cost was $329,700 or 17.7% of revenue for the quarter ended September 30,
          2005
          compared to $358,700 or 15.8% for the same period of fiscal year 2004.
          Balance
          mainly includes the salaries and benefits of indirect staff amounting to
          $163,000 in the third quarter of fiscal 2005 compared to $143,000 for the
          same
          period of fiscal 2004. The decrease was mainly due to the decrease in number
          of
          headcount. Leasing cost of the automobile was approximately $42,000 for
          the
          quarter ended September 30, 2005 compared to $62,000 for the same period
          of
          fiscal 2004. The decrease was mainly due to the decrease in number of vehicles
          used by the Company. Travel and gas expenses were $44,000 for the quarter
          ended
          September 30, 2005 compared to $26,000 for the same period of fiscal 2004.
          The
          increase was mainly due to the increase in travel by the staff. The consulting
          fees decreased to $11,000 for the quarter ended September 30, 2005 from
          $66,000
          for the same quarter ended September 30, 2004. There were consulting fees
          for
          the services provided by a Company related to the chief executive officer
          of
          A.C. Technical Systems Ltd in 2004. The consulting services were
          on a
          monthly basis and were not pursuant to a written agreement. There was no
          such
          expense after the business acquisition and leveraged buyout transactions.
  Selling
          expenses were $206,300 or 11.1% of revenues for the quarter ended September
          30,
          2005 compared to $237,600 or 10.5% of revenues for the third quarter of
          fiscal
          2004. Balance for the three months period ended September 30, 2005 is mainly
          comprised of salaries, commission and consulting fees to salespersons and
          the
          president of $162,700 compared to $195,700 for the same period of fiscal
          2004.
          Decrease in the balance was mainly due to the decrease in number of salespersons
          from 8 as at September 30, 2004 to 5 as at September 30, 2005. The advertising
          and promotion expenses were 16,500 for the quarter ended September 30,
          2005
          compared to $24,000 for the third quarter of fiscal 2004. There was no
          material
          fluctuation for both quarters ended September 30, 2004 and 2005.
  23
 General
          and administrative cost was $441,700 or 23.6% of revenues for the quarter
          ended
          September 30, 2005 compared to $638,700 or 28.2% for fiscal 2004. The balance
          for the three month period ended September 30, 2005 is comprised mainly
          of
          salaries and benefits to administrative staff of $127,500 compared to $143,000
          for the quarter ended September 30, 2004. The increase in balance was mainly
          due
          to the decrease in headcount. The professional fees, investor relations
          and
          investment banking fees were $103,000 for the quarter ended September 30,
          2005
          compared to $256,000 for the same period of fiscal 2004. The balance for
          the
          third quarter of fiscal 2004 was mainly due to the business acquisition
          and
          leverage buyout transaction happened on September 30, 2004
  Operating
          Income/Loss :
          The
          Company has a higher gross margin of 36% for the quarter ended September
          30,
          2005 compared to 17% for the same quarter of fiscal year 2004. The increase
          in
          gross margin was mainly due to the fact that the Company sold contracts
          with
          higher gross margin in the last few months. Our losses were mainly due
          to the
          large professional fees for the registration statements and the quarterly
          report
          and investor relations expenses in the amount of $103,000 for the quarter
          ended
          September 30, 2005 and $256,000 for the quarter ended September 30,
          2004.
  Interest
          and Other Expenses or income :
          Net
          loss from Interest and other expenses for the quarter ended September 30,
          2005
          were $292,400 or 15% of revenues compared to $8,000 or 1% of the revenues
          for
          the same quarter of fiscal 2004. The balance for the current period is
          primarily
          comprised of the amortization of deferred charges amounting to $110,000.
          In
          addition, total interest on the convertible term notes and other notes
          payable
          was $100,000 for the three month period ended September 30, 2005 and there
          was
          no such interest for the same period of fiscal year 2004.
  Income
          taxes :
          No
          income tax provision for the period ended September 30, 2005 which was
          mainly
          due to the Company’s losses for the period. All prior taxes have already been
          accounted for in the income tax recoverable and therefore, there is no
          additional provision for income taxes recoverable and deferred tax
          asset.
  Net
          Income/Loss :
          Net
          loss for the quarter ended September 30, 2005 was $592,000 compared to
          net loss
          of $863,000 for the three month period ended September 30, 2004. The net
          loss
          for the three months ended September 30, 2005 was attributed to the amortization
          of deferred charges amounting $111,000. In addition, net loss increased
          because
          of the professional and investor relations expenses incurred due to public
          company expenses and the additional interest and penalty expenses on long
          term
          debts.
  **Results
          of Operations**
 **Comparison
          of nine month Period Ended September 30, 2005**
 **to
          Period Ended September 30, 2004**
  For
          purposes of this “Management’s Discussion and Analysis or Plan of Operation”, we
          compared the nine month period ended September 30, 2005 to the comparable
          period
          in 2004, which relates to the successor period of the day September 30,
          2004
          together with the predecessor period from July 1, 2004 to September 29,
          2004 to
          reflect the entire nine months period ended September 30, 2004. The business
          of
          AC Technical was acquired in a leveraged buyout on September 30, 2004.
          Prior to
          the September 30, 2004 Creative Vistas, Inc. had no material assets or
          results.
  Sales :
          Sales
          for the nine month period ended September 30, 2005 increased 16% to $7,003,000
          from $6,052,000 for the nine month period ended September 30, 2004. Contract
          revenue increased $880,000, or 17% compared to the nine month period ended
          September 30, 2004. The increase was mainly due to an increase in the number
          of
          contract in the first nine months of 2005. The increase resulted from the
          Company winning a greater percentage of contract bids. Service revenue
          increased
          7.1% to $839,000 for the nine month period ended 2005 from $783,000 for
          the same
          period of fiscal 2004. Service revenue primarily represents the cumulative
          effect of the growth in contracts and number of customers over the past
          few
          years. We have experienced a significant increase in the number of inquiries
          for
          systems from the government and retail sector. This increased interest
          in
          security products and services may result in our achieving increased revenues
          in
          future periods if we are successful in attracting new customers or obtaining
          additional projects from existing customers. There is no assurance that
          the
          Company will be able to attract new customers.
  24
 Cost
          of Goods Sold :
          Cost of
          goods sold as a percentage of revenue for the nine month period ended September
          30, 2005 was 4,921,600 or 70.3% of revenues compared to 4,108,500 or 67.9%
          of
          revenues for the nine month period ended September 30, 2004. The material
          cost
          was $3,372,500 or 48.1% of the revenue for the nine month ended September
          30,
          2005 compared to $2,708,500 or 44.7% of revenues in the same period of
          fiscal
          2004. The percentage increase in material cost was mainly due to our charging
          lower rates to compete in an increasingly competitive market. However,
          the
          Company intended to sell the contracts with higher gross margin. As a result,
          our gross margin decreased. On
          the
          other hand, the labor and subcontractor cost increased to $1,453,000 or
          20.7% of
          revenues for the nine month ended September 30, 2005 and $1,331,200 or
          21.9% of
          revenues for fiscal 2004. The increase in balance was mainly due to the
          increase
          in contract revenue.
  Project,
          Selling, General and Administrative Expenses :
          Projects, selling, general and administrative expenses for the nine month
          ended
          September 30, 2005 was $3,141,100 or 44.8% of revenues for the nine month
          period
          ended September 30, 2005 compared to $3,135,400 or 51.8% of revenues for
          the
          same period of fiscal 2004. The balance is mainly comprised of the
          following:
  Project
          cost was $1,015,800 or 14.5% of revenue for the quarter ended September
          30, 2005
          compared to $1,087,700 or 17.9% for the same period of fiscal year 2004.
          Balance
          mainly includes the salaries and benefits of indirect staff amounted to
          $510,800
          in the nine month period ended 2005 compared to $623,000 for the same period
          of
          fiscal 2004. The decrease was mainly due to the decrease in number of headcount.
          The automobile insurance expenses were approximately $50,000 for the nine
          month
          period ended September 30, 2005 compared to $51,000 for the same period
          of
          fiscal 2004. The leasing costs for Company automobiles of approximately
          $134,000
          for the quarter ended September 30, 2005 compared to $167,000 for the same
          period of fiscal 2004. The decrease was mainly due to the decrease in number
          of
          vehicles used by the Company. Travel and gas expenses were $165,000 for
          the nine
          month period ended September 30, 2005 compared to $129,000 for the same
          period
          of fiscal 2004. The increase was mainly due to more travel by the
          staff.
  Selling
          expenses were $627,600 or 8.9% of revenues for the nine month period ended
          September 30, 2005 compared to $733,000 or 12% of revenues for the nine
          month
          period of fiscal 2004. Balance for the nine month period ended September
          30,
          2005 is mainly comprised of salaries, commission and consulting fees to
          salespersons and the president of $488,000 compared to $518,000 for the
          same
          period of fiscal 2004. Decrease in balance was mainly due to the decrease
          in
          salespersons from 8 as at September 30, 2004 to 5 as at September 30, 2005.
          The
          advertising and promotion expenses were decreased by $50,000 which was
          mainly
          due to the better control on the expenses by the Company.
  General
          and administrative cost was $1,497,800 or 21.4% of revenues for the nine
          month
          ended September 30, 2005 compared to $1,314600 or 21.7% for fiscal 2004.
          The
          balance for the nine month period ended September 30, 2005 mainly is comprised
          of salaries and benefits to administrative staff of $353,800 compared to
          $391,900 for the nine month period ended September 30, 2004. The professional
          fees and investor relations expenses were $534,000 for the nine month period
          ended September 30, 2005 compared to $236,000 for the same period of fiscal
          2004. The increase was mainly due to investor relations expenses for the
          fiscal
          2005 and additional professional fees incurred for the registration statements
          and other corporate matters. There were no investor relations expenses
          in fiscal
          2004. For the fiscal 2004, there were $256,000 professional fees and investment
          banking fees incurred related to the business acquisition and leverage
          buyout.
  Operating
          Income/Loss :
          The
          Company has a lower gross margin of 30% for the nine month period ended
          September 30, 2005 compared to 32% for the same period ended September
          30, 2004.
          Our losses were mainly due to the lower gross margin, large professional
          fees
          for the registration statements and the quarter report and investor relations
          expenses.
  Interest
          and Other Expenses or income :
          Net
          interest and other income for the nine month period ended September 30,
          2005 was
          $1,674,500 or 23.9% of revenues compared to $23,600 or 1% of the revenues
          for
          the same period of fiscal 2004. The balance for the current period is primarily
          comprised of the amortization of deferred charges amounting to $351,800.
          In
          addition, total interest on convertible term notes and other notes payable
          was
          $318,000 for the nine month period ended September 30, 2005 and there was
          no
          such interest for the same period of fiscal year 2004. In
          addition, there were penalties in the amount of $137,000 to Laurus related
          to
          the Company for failure of the Company to cause its registration statement
          registering the shares to be declared effective by the SEC on the required
          date.
          Laurus waived any liquated damages due and payable to Laurus and the Company
          issued 313,000 warrants to Laurus. The warrants were recorded at fair value
          by
          using the Black-Scholes option pricing model. (see Note 8 and Note 11).The above expenses were offset by the income from the movement of
          derivative financial instruments of $2,483,000.
  25
 Income
          taxes :
          No
          income tax provision for the period ended September 30, 2005 which was
          mainly
          due to the Company’s losses for the period. All prior taxes have already been
          accounted for in the income tax recoverable and therefore, there is no
          additional provision for income taxes recoverable and deferred tax
          asset.
  Net
          Income/Loss :
          Net
          income for the nine month period ended September 30, 2005 was $615,300
          compared
          to net loss of $1,022,000 for the nine month period ended September 30,
          2004.
          The income was mainly due to remeasurement of derivative instruments of
          $2,483,00 for the nine month ended September 30, 2005 and there is no such
          income for the same period of fiscal 2004 The increase in income was offset
          by
          the amortization of deferred charges amounted to $351,700 and there is
          no such
          expenses for the same period of fiscal year 2004. In addition, there was
          professional and investor relations expenses incurred due to public company
          expenses and also the additional interest expenses on long term debts.
          Also, the
          gross margin decreased by 2% in 2005 compared to the same period ended
          of fiscal
          2004.
  **Liquidity
          and Capital Resources**
  Since
          our
          inception, we have financed our operations through bank debt, loans and
          equity
          from our principals, loans from third parties and funds generated by our
          business. At September 30, 2005, we had $857,500 in cash. We believe that
          cash
          from operations and our credit facilities with Laurus Master Funds, Ltd.
          will
          continue to be adequate to satisfy the ongoing working capital needs of
          the
          Company. The balance available under credit facilities was $159,400 as
          at
          September 30, 2005. During fiscal year 2005, our primary objectives in
          managing
          liquidity and cash flows will be to ensure financial flexibility to support
          growth and entry into new markets and improve inventory management and
          to
          accelerate the collection of accounts receivable.
  Net
          Cash Used in Operating Activities .
          Net
          cash used in operating activities amounted to $928,000 for the nine month
          ended
          September 30, 2005. The changes in operating assets and liabilities resulted
          in
          net cash provided of $185,000, which included a $256,200 increase in accounts
          receivable, a $163,800 decrease in inventory, a $2,000 decrease in prepaid
          expenses, a $388,900 increase in accounts payable, a $1,000 decrease in
          income
          taxes recoverable and a $113,000 decrease in deferred revenue.
  Compared
          the balance sheet as at September 30, 2005 to December 31, 2004
  Accounts
          Receivable
  Our
          accounts receivable increased by approximately $256,000 compared to the
          balance
          as at December 31, 2004 which was mainly d ue
          to the
          increase in revenue in the nine month period ended September 30, 2005 and
          more
          government related jobs in the first and third quarters, which have a longer
          payment cycle than the non-government jobs.
          Approximately 52% of the accounts receivable outstanding at September 30,
          2005
          were less than 90 days old.
  Inventory
  Inventory
          on hand at
          September 30, 2005 decreased $164,000 compared to the balance as at
          December 31, 2004. The level of inventory remains consistent with
          the
          balance as December 31, 2004 which was mainly due to the improvement of
          inventory control and keeping minimum levels of inventory.
  Accounts
          Payable and Accrued Liabilities
  Accounts
          payable increased approximately by $389,000 compared to the balance as
          at
          December 31, 2004 which was mainly due to the increase in purchases of
          material,
          in the last nine month and the timing of payments to our suppliers. Total
          trade
          payable as at September 30, 2005 increased by approximately $400,000 compared
          to
          the balance as at December 31, 2004 and the increase was offset by the
          decrease
          in accrued liabilities by approximately $50,000.
  Deferred
          Revenue
  Deferred
          revenue decreased by $113,000 at September 30, 2005 compared to the balance
          as
          at December 31, 2004. This increase was mainly due to the timing of payments
          by
          our customers. Deferred revenue primarily relates to payments associated
          with
          the contracts where revenue is recognized on a percentage of completion
          basis.
          (See summary of accounting policy in our condensed consolidated financial
          statements).
  26
 Incomes
          Taxes Recoverable
  The
          income taxes recoverable were mainly due to the expected refund from losses
          carried back to prior years.
  Net
          Cash Used in Investing Activities .
          Net
          cash used in investing activities was $130,000 for the nine month ended
          September 30, 2005 compared to $1,800,000 for the nine month ended September
          30,
          2004. The balance for the period ended September 30, 2004 was mainly due
          to the
          note receivable to dataBahn of $125,000 for the current period. Last year
          balance was mainly due to the acquisition of A.C. Technical Systems Ltd.
          for
          cash payment of $1,800,000.
  Net
          Cash Provided From Financing Activities .
          Net
          cash provided from financing activities was $1,663,000 for the nine month
          ended
          September 30, 200 compared to net cash provided of $4,013,000 for the nine
          month
          period ended September 30, 2004. The balance for the nine months period
          ended
          September 30, 2004 was mainly due to net cash received from the convertible
          term
          note financed from Laurus.
  We
          plan
          to adopt an incentive stock option plan after our registration statement
          registering the shares issued to Laurus is declared effective by the SEC.
          The
          terms of the inventive stock option plan are not yet known.
  Our
          capital req uirements
          have grown since our inception with the growth of our operations and staffing.
          We expect our capital requirements to continue to increase in the future as we seek to expand
          our
          operations. On September 30, 2004, we obtained additional funding through
          a
          series of agreements entered with Laurus (see details on Note 1 and 8 in
          the
          condensed consolidated financial statements). If Laurus converts the term
          note
          and/or the revolving notes into shares of the Company’s common stock, the
          Company may avoid or reduce any cash payment required for principal and
          interest
          payable. As a result, it will improve our cash flow. However, such conversion
          by
          Laurus will dilute the existing shareholders.
  ***Recent
          Accounting Pronouncements*** -
  In
          November 2004, the Financial Accounting Standards Board issued SFAS No.
          151,
“Inventory Costs-an Amendment of ARB No. 43, Chapter 4”. The standard adopts the
          view related to inventories that abnormal amounts of idle capacity and
          spoilage
          costs should be excluded from the cost of inventory and expensed when incurred.
          Additionally, the meaning of the term “normal capacity” was clarified. It should
          be effective for fiscal years beginning after June 15, 2005. Based on
          management’s evaluation, the adoption is not expected to have a material effect
          on the consolidated financial statements.
  In
          December 2004, the Financial Accounting Standards Board issued FASB Statement
          No. 123R (Revised), “Share-Based Payment which is a revision of FASB Statement
          No. 123, Accounting for Stock-Based Compensation”. Statement No. 123(R )
          supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees,
          and
          amends FASB Statement No. 95, Statement of Cash Flows. Statement No. 123(R
          )
          requires all share-based payments to employees, including grants of employee
          stock options, to be recognized in the financial statements based on their
          fair
          values and, for small business issuers, is effective at the beginning of
          the
          first interim or annual reporting period beginning after December 15, 2005.
          Based on the management’s evaluation of SFAS No. 123R, the adoption is not
          expected to have a material effect on the consolidated financial statements.
  In
          September 2004, the Financial Accounting Standards Board issued EITF 04-8,
“The
          Effect of Contingently Convertible Instruments on Diluted Earnings per
          Share”.
          This Issue addresses when contingently convertible instruments should be
          included in diluted earnings per share. The Task Force reached a consensus
          that
          contingently convertible instruments should be included in diluted earnings
          per
          share (if dilutive) regardless of whether the market price trigger has
          been met.
          The Task Force also agreed that the consensus should be applied to instruments
          that have multiple contingencies if one of the contingencies is a market
          price
          trigger and the instrument is convertible or settleable in shares based
          on
          meeting a market condition. Based on management’s evaluation of EITF 04-8, the
          adoption did not have a significant effect on the consolidated financial
          statements.
  27
 **DISCUSSION
          OF CRITICAL ACCOUNTING ESTIMATES**
  Critical
          accounting estimates are those that management deems to be most important
          to the
          portrayal of our financial condition and results of operations, and that
          require
          management’s most difficult, subjective or complex judgments, due to the need to
          make estimates about the effects of matters that are inherently uncertain.
          We
          have identified six critical accounting estimates: accounts receivable
          allowances, goodwill, revenue, inventory, accounting for income taxes and
          financial instrument.
  Accounts
          receivable allowances are determined using a combination of historical
          experience, current information and management judgment. Actual collections
          may
          differ from our estimates. A 10% increase in the accounts receivable allowance
          would increase bad debt expense by $10,000.
  Goodwill
          represents the excess of cost over the net tangible and identifiable assets
          acquired in business combinations and is stated at cost. Goodwill and
          intangibles with indefinite lives are not amortized but tested for impairment
          no
          less frequently than annually. Impairment is measured by comparing the
          carrying
          value to fair value using quoted market prices, a discounted cash flow
          model, or
          a combination of both.
  We
          derive
          revenues from contract revenue and services revenue, which include assistance
          in
          implementation, integration, customization, maintenance, training and
          consulting. We recognize revenue for contract and services in accordance
          with
          Statement of Position (SOP) 81-1, “Accounting for Certain Construction Type and
          Certain Production Type Contracts,” and SEC Staff Accounting Bulletin (SAB) 104,
“Revenue Recognition,” and EITF 00-21 Accounting for Revenue Arrangements with
          Multiple Deliverables. Contract revenue consists of fees generated from
          installation of security systems. Services revenue consists of fees generated
          by
          providing monitoring services, preventive maintenance and technical support,
          product maintenance and upgrades. Monitoring services and preventive maintenance
          and technical support are generally provided under contracts for terms
          varying
          from one to six years. A customer typically prepays monitoring services
          and
          preventive maintenance and technical support fees for an initial period,
          and the
          related revenue is deferred and generally recognized over the term of such
          initial period. Rates for product maintenance and upgrades are generally
          provided under time and material contracts. Revenue for these services
          is
          recognized in the period in which the services are provided.
  We
          record
          inventory at the lower of cost and net realizable value. Cost is determined
          on a
          first-in, first-out basis. We write down our inventory for obsolescence,
          and
          excess inventories based on assumptions about future demand and market
          conditions. The business environment in which we operate is subject to
          customer
          demand. If actual market conditions are less favorable than those estimated,
          additional material inventory write-down may be required. A 10% increase
          in
          inventory reserve would increase expenses by $0.1 million.
  Income
          taxes are calculated based on the expected treatment of transactions recorded
          in
          the consolidated financial statements. In determining current and deferred
          components of income taxes, we interpret tax legislation and make assumptions
          about the timing of the reversal of deferred tax assets and liabilities.
          If our
          interpretations differ from those of tax authorities or if the timing of
          reversals is not as anticipated, the provision for income taxes could increase
          or decrease in future periods.
  The
          Company reviews the terms of convertible debt and equity instruments we
          issue to
          determine whether there are embedded derivative instruments, including
          the
          embedded conversion option, that are required to be bifurcated and accounted
          for
          separately as a derivative financial instrument. When the economic characterics
          and risks of any embedded derivative instrument are not "clearly and closely"
          related to the risks of the host instrument, the embedded derivative instrument
          is generally required to be bifurcated and accounted for separately. If
          the
          convertible instrument is debt, or has debt-like characteristics, the risks
          associated with the embedded conversion option are not "clearly and closely"
          related to that debt host instrument. The conversion option has the risks
          associated with an equity instrument, not a debt instrument, because its
          value
          is related to the value of our common stock. Nonetheless, if the host instrument
          is considered to be "conventional convertible debt", bifurcation of the
          embedded
          conversion option is generally not required. However, if the instrument
          is not
          considered to be conventional convertible debt, bifurcation of the embedded
          conversion option may be required in certain circumstances. Generally,
          where the
          ability to physical or net-share settle the conversion option is deemed
          to be
          not within the control of the company, the embedded conversion option is
          required to be bifurcated and accounted for as a derivative financial instrument
          liability.
  28
 In
          connection with the sale of convertible debt and equity instruments, we
          may also
          issue freestanding options or warrants. Additionally, we may issue options
          or
          warrants to non-employees in connection with consulting or other services
          they
          provide. Although the terms of the options and warrants may not provide
          for
          net-cash settlement, in certain circumstances, physical or net-share settlement
          is deemed to not be within the control of the company and, accordingly,
          we are
          required to account for these freestanding options and warrants as derivative
          financial instrument liabilities, rather than as equity.
 
 Derivative
          financial instruments are initially measured at their fair value. For derivative
          financial instruments that are accounted for as liabilities, the derivative
          instrument is initially recorded at its fair value and is then re-valued
          at each
          reporting date, with changes in the fair value reported as charges or credits
          to
          income. For option-based derivative financial instruments, we use the
          Black-Scholes option pricing model to value the derivative
          instruments.
 
 In
          circumstances where the embedded conversion option in a convertible instrument
          is required to be bifurcated and there are also other embedded derivative
          instruments in the convertible instrument that are required to be bifurcated,
          the bifurcated derivative instruments are accounted for as a single, compound
          derivative instrument.
 
 When
          the
          embedded derivative instrument is to be bifurcated and accounted for as
          a
          liability, the total proceeds received are first allocated to the fair
          value of
          the bifurcated derivative instrument. If freestanding options or warrants
          were
          also issued and will be accounted for as derivative instrument liabilities
          (rather than as equity), the proceeds are next allocated to the fair value
          of
          those instruments. The remaining proceeds, if any, are then allocated to
          the
          convertible instrument itself, usually resulting in that instrument being
          recorded at a discount from its face amount. In circumstances where a
          freestanding derivative instrument is to be accounted for as an equity
          instrument, the proceeds are allocated between the convertible instrument
          and
          the derivative equity instrument, based on their relative fair
          values.
 
 The
          discount from the face value of the convertible debt instrument is amortized
          over the life of the instrument through periodic charges to income, using
          the
          effective interest method.
  The
          classification of derivative instruments, including whether such instruments
          should be recorded as liabilities or as equity, is re-assessed at the end
          of
          each reporting period. Derivative instrument liabilities are classified
          in the
          balance sheet as current or non-current based on whether or not net-cash
          settlement of the derivative instrument could be required within 12 months
          of
          the balance sheet date.
 
  **CAUTIONARY
          NOTE REGARDING FORWARD-LOOKING STATEMENTS**
  This
          quarterly report contains forward-looking statements about our company
          that are
          not historical facts but, rather, are statements about future expectations.
          When
          used in this document, the words
“anticipates,”“believes,”“expects,”“intends,”“should” and similar expressions as
          they relate to us, or to our management, are intended to identify
          forward-looking statements. However, forward-looking statements in this
          document
          are based on management’s current views and assumptions and may be influenced by
          factors that could cause actual results, performance or events to be materially
          different from those projected. These forward-looking statements are subject
          to
          numerous risks and uncertainties. Important factors, some of which are
          beyond
          our control, could cause actual results, performance or events to differ
          materially from those in the forward-looking statements. These factors
          include
          impact of general economic conditions in North America, changes in laws
          and
          regulations, fluctuation in interest rates and access to capital
          markets.
  Our
          actual results or performance could differ materially from those expressed
          in,
          or implied by, these forward-looking statements and, accordingly, we cannot
          predict whether any of the events anticipated by the forward-looking statements
          will transpire or occur, or if any of them do, what impact they will have
          on our
          results of operations and financial condition.
  For
          further information about these and other risks, uncertainties and factors,
          please review the disclosure included in our December 31, 2004 Annual Report
          on
          Form 10-KSB under the caption “Risk Factors.”
  You
          should not place undue reliance on any forward-looking statements. Except
          as
          otherwise required by federal securities laws, we undertake no obligation
          to
          publicly update or revise any forward-looking statements or risk factors,
          whether as a result of new information, future events, changed circumstances
          or
          any other reason after the date of this quarterly report.
  **Item
            3.** **Controls
            and Procedures**
  We
          maintain a system of disclosure controls and procedures, as such term is
          defined
          in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, that are designed
          to
          provide reasonable assurance that information required to be disclosed
          by us in
          the reports that we file under the Exchange Act is recorded, processed,
          summarized and reported within the time periods specified in the SEC’s rules and
          forms, and that such information is accumulated and communicated to our
          management, including our Chief Executive Officer and Chief Financial Officer,
          as appropriate, to allow timely decisions regarding required
          disclosures.
  We
          have
          carried out an evaluation under the supervision and with the participation
          of
          the Company’s management, including the Company’s Chief Executive Officer and
          Chief Financial Officer, of the effectiveness of the des ign
          and
          operation of our disclosure controls and procedures. Based upon their evaluation
          and subject to the foregoing ,
          the
          Chief Executive Officer and Chief Financial Officer concluded that such
          controls
          and procedures were effective as of the end of the period covered by this
          report.
  In
          designing and evaluating the disclosure controls and procedures, our management
          recognized that any controls and procedures, no matter how well designed
          and
          operated, can provide only reasonable assurance of achieving the desired
          control
          objectives, and our management necessarily was required to apply their
          judgment
          in evaluating the cost-benefit relationship of possible controls and procedures.
          We believe that our disclosure controls and procedures provide reasonable
          assurance.
  There
          were no changes in our internal control over financial reporting that occurred
          during the quarter ended September 30, 2005, that have materially affected,
          or
          are reasonably likely to materially affect our internal control over financial
          reporting.
 29
 **PART
          II.**  **OTHER
          INFORMATION**
  **Item
            1.** **Legal
            Proceedings**
  On
          August
          10, 2005, a former employee of A.C. Technical Systems Ltd., a subsidiary
          of
          the Company, filed an action seeking to recover approximately $40,000 in
          commissions for security services and projects sold before he left
          the
          Company in 2004.
  On
            December 8, 2005, a supplier of A.C. Technical Systems Ltd., a subsidiary
            of the
            Company, filed an action seeking to recover approximately $260,000 for
            the goods
            purchase during the year.
 There
          are
          no other legal proceedings other than the above case.
 
 
 **Item
            2.** **Unregistered
            Sales of Equity Securities and Use of Proceeds**
  Not
          applicable.
  **Item
            3.** **Defaults
            upon Senior Securities**
  Not
          applicable.
  **Item
            4.** **Submission
            of Matters to a Vote of Security Holders**
  Not
          applicable.
  **Item
            5.** **Other
            Information**
  Not
          applicable.
  **Item
            6.** **Exhibits**
  (a)  Exhibits
  31.1
                
                Certification
                    of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
                    Act of 200231.2
                
                Certification
                    of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
                    Act of 200232.1
                
                Chief
                    Executive Officer certification pursuant to 18 U.S.C. Section
                    1350, as
                    adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
                    200232.2
                
                Chief
                    Financial Officer certification pursuant to 18 U.S.C. Section
                    1350, as
                    adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
                    2002
  30
 SIGNATURES
  In
          accordance with the requirements of the Exchange Act, the registrant caused
          this
          report to be signed on its behalf by the undersigned, thereunto duly
          authorized.
  CREATIVE
                  VISTAS, INC.By:
                /s/ 
                  Sayan NavaratnamSayan
                  Navaratnam, CEODated: December 21,
                  2005
  31