Shift gets protection from creditors

Shift Networks Inc. is operating under bankruptcy protection of the Companies' Creditors Arrangement Act (CCAA), the firm announced last week. The Calgary-based VoIP provider to small and medium-sized businesses said it was a necessary move so that it could "maintain regular business operations and to continue uninterrupted delivery of services." As part of the arrangement, Shift gets $1.5 million in debtor-in-possession (DIP) financing for ongoing working capital requirements. Under terms of the plan, the company will be able to make multiple drawdowns while under CCAA protection, which will be for an initial period of 30 days. The company also announced that three independent directors - Donald Page, Donald Hathaway and Neil McPherson - have resigned from the board of directors. Trent Johnsen will remain as president and CEO as well as a director on the board. Prior to last week's announcement, Shift noted that its continued lack of positive cash flow would have a negative impact on future operations. Despite a significant increase in contracted revenue from $900,000 in 2005 to about $6.6 million in 2006, net losses have increased from more than $2.3 million to nearly $8.9 million. "The company has no history of generating positive cash flow from operations and at December 31, 2006, has a working capital deficiency of $3,438,595. Until the company attains profitability, it is dependent on the proceeds of new equity and debt financings," reads the undated filing that was posted on the SEDAR website on May 1. "In the absence of additional financing, the ability of the company to continue operations will be adversely affected. The company continues to actively seek and pursue various initiatives including the continued development and commercial exploitation of the company's products and the sourcing of new financing."Despite the precarious financial position in which Shift has found itself, the company claims to be well-placed to capitalize on the growing VoIP communications trend within the small business community. In the regulatory filing, the Calgary-based firm noted that last year it expanded to four additional markets, increasing the size of population covered from two million to 10 million. Based on Shift's research, it believes to have an addressable market of more than two million lines. Although the financial situation doesn't look good for the company, the business VoIP provider still believes better days are ahead. "Shift management is of the opinion that there is an ‘early-to-market' opportunity to create a new generation of national business telephone company focused exclusively on the large, lucrative small/medium business segments," the company writes in the regulatory filing. "The continued development of broadband data networks and evolution of IP communications services is creating significant new opportunities as the telecommunications industry evolves into the new IP-based world. With the deployment of ‘Network 2.0', Shift is positioned to offer this new generation of IP communications services in the six largest English speaking markets in Canada."

Shift gets protection from creditors

News | May 14, 2007

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