NHC Communications announces restated financial statements
MONTREAL, March 15 /CNW/ - NHC Communications Inc. (TSE: NHC), a leading
provider of carrier class test access and deployment solutions for the copper-
based telecommunications and Internet access markets, today announced that in
accordance with its prior announcement of March 12, 2001, the Company will
later today file the restated audited financial statements for fiscal 2000 and
restated unaudited interim financial statements for the first and second
quarters of fiscal 2001. As mentioned in the March 12, 2001 press release,
such financial statements have been restated following the Company's decision
to refine its accounting policy on revenue recognition, based on applicable
accounting guidance. This decision results from consultation with the
Company's auditors and is supported by a thorough study. The effect of the
accounting changes on the first and second quarterly results of fiscal 2001
were disclosed in the March 12, 2001 press release.
See restated financial statements below.
<<
NHC COMMUNICATIONS INC
CONSOLIDATED STATEMENTS OF INCOME AND DEFICIT
COMPARISON BETWEEN FISCAL 2000 AND 2001
FOR THE THREE-MONTH AND SIX-MONTH PERIODS ENDED FEBRUARY 2, 2001
(Unaudited. In thousands of Canadian dollars, except per share amounts)
-------------------------------------------------------------------------
2001 2001 2001 2000 2000
Q1 Q2 6M Q2 6M
(Restated) (Restated) (Restated) (Restated) (Restated)
-------------------------------------------------------------------------
Revenue
Sales 2,879.9 2,005.5 4,885.4 1,054.7 2,604.1
Cost of sales 2,188.7 743.1 2,931.8 784.3 1,734.6
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Gross profit 691.1 1,262.4 1,953.5 270.4 869.5
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Operating
expenses
General and
administrative 1,015.7 1,106.5 2,122.2 529.7 930.6
Sales and
marketing 1,421.0 2,975.2 4,396.2 784.2 1,670.6
Research and
development,
net 408.2 359.2 767.4 404.9 807.4
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Total operating
expenses 2,844.9 4,440.9 7,258.8 1,718.8 3,408.6
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Operating (loss)
income from
continuing
operations (2,153.8) (3,178.5) (5,332.3) (1,448.4) (2,539.1)
-------------------------------------------------------------------------
Other
Financial
income
(expense) 108.3 23.9 132.2 (85.0) (115.1)
Gain (loss) on
foreign exchange 99.5 134.6 234.1 (88.3) (106.4)
Restructuring
costs 18.4 (273.8) (255.4) (912.4) (912.4)
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226.2 (115.3) 110.9 (1,085.7) (1,133.9)
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(Loss) income
before taxes
and dis-
continued
operations (1,927.6) (3,293.8) (5,221.4) (2,534.1) (3,673.0)
Benefit
(provision)
for income
taxes 0.0 (9.4) (9.4) 16.6 16.6
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(Loss) Income
from
continuing
operations (1,927.6) (3,303.2) (5,230.8) (2,517.5) (3,656.4)
Discontinued
operations 0.0 0.0 0.0 (11.7) (8.9)
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(Loss) net
Income (1,927.6) (3,303.2) (5,230.8) (2,529.2) (3,665.3)
Deficit,
beginning of
the period (8,074.5) (10,009.4) (8,074.5) (3,344.7) (2,208.6)
Share capital
issue costs (7.3) 0.0 (7.3) (37.1) (37.1)
Reduction in
stated capital
transferred to
deficit 0.0 0.0 0.0 0.0 0.0
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Deficit, end
of the period (10,009.4) (13,312.6) (13,312.6) (5,911.0) (5,911.0)
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-------------------------------------------------------------------------
(Loss) net
income from
continuing
operations per
common and
equivalent
share:
Primary ($0.11) ($0.19) ($0.30) ($0.20) ($0.29)
Fully diluted
(ad: anti-
dilutive) ad ad ad ad ad
(Loss) net
income per
common and
equivalent
share:
Primary ($0.11) ($0.19) ($0.30) ($0.20) ($0.29)
Fully diluted
(ad: anti-
dilutive) ad ad ad ad ad
Common and
equivalent
shares used
in computing
per share
amount:
Primary
(in 000's) 17,235.4 17,414.1 17,414.1 12,642.6 12,642.6
Fully diluted
(in 000's) 18,869.1 19,444.2 19,444.2 16,707.5 16,707.5
Capital Stock
- As at
February 28,
2001
Issued and
fully paid
(in 000's) 17,318.2 17,557.5 17,557.5 13,680.8 13,680.8
Stock options
unexercised
(in 000's) 1,470.9 1,848.1 1,848.1 1,952.4 1,952.4
Compensation
warrants
(in 000's) 93.0 93.0 93.0 0.0 0.0
Stock options
subject to
shareholders'
approval
(in 000's) 616.5 0.0 0.0 0.0 0.0
Performance
shares (000's) 437.5 437.5 437.5 0.0 0.0
Secured
convertible
debentures and
related
warrants 0.0 0.0 0.0 2,437.5 2,437.5
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19,936.1 19,936.1 19,936.1 18,070.7 18,070.7
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See accompanying notes
NHC COMMUNICATIONS INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
COMPARISON BETWEEN FISCAL 2000 AND 2001
FOR THE THREE-MONTH AND SIX-MONTH PERIODS ENDED FEBRUARY 2, 2001
(Unaudited. In thousands of Canadian dollars)
-------------------------------------------------------------------------
2001 2001 2001 2000 2000
Q1 Q2 6M Q2 6M
(Restated) (Restated) (Restated) (Restated) (Restated)
-------------------------------------------------------------------------
CONTINUING
OPERATIONS
Income (loss)
from
continuing
operations (1,927.6) (3,303.2) (5,230.8) (2,517.5) (3,656.4)
Add item not
involving
cash:
Depreciation
and
amortization 77.0 83.1 160.1 79.6 171.0
-------------------------------------------------------------------------
(1,850.6) (3,220.1) (5,070.7) (2,437.9) (3,485.4)
Net change in
non-cash working
capital
balances
related to
operations 904.5 292.0 612.5 1,692.8 1,616.5
-------------------------------------------------------------------------
Cash generated
(used) in
continuing
operations (946.1) (3,512.1) (4,458.2) (745.1) (1,868.9)
-------------------------------------------------------------------------
DISCONTINUED
ACTIVITIES
Cash generated
(used) in
discontinued
activities 0.0 0.0 0.0 (11.7) (8.9)
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INVESTING
ACTIVITIES
Acquisition of
fixed and
other assets (198.0) (445.1) (643.1) (1.1) (12.2)
-------------------------------------------------------------------------
Cash provided
from (used in)
investing
activities (198.0) (445.1) (643.1) (1.1) (12.2)
-------------------------------------------------------------------------
FINANCING
ACTIVITIES
Common shares
and units 621.2 290.7 911.9 29.5 137.5
Secured
convertible
debentures 0.0 0.0 0.0 325.0 325.0
Proceeds from
long-term debt 0.0 156.3 156.3 0.0 0.0
Proceeds from
obligations 55.8 28.7 84.5 0.0 0.0
Repayment of
obligations (37.0) (39.7) (76.7) (30.6) (78.4)
Share capital
issue costs (7.3) 0.0 (7.3) (37.1) (37.1)
-------------------------------------------------------------------------
Cash provided from
(used in)
financing
activities 632.7 436.0 1,068.7 286.8 347.0
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Net increase
(decrease) of
the period (511.4) (3,521.2) (4,032.6) (471.1) (1,543.0)
Net cash,
beginning of
the period 9,566.2 9,054.8 9,566.2 453.2 1,525.1
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Net cash, end
of the period 9,054.8 5,533.6 5,533.6 (17.9) (17.9)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes
NHC COMMUNICATIONS INC.
CONSOLIDATED BALANCE SHEETS
AS AT FEBRUARY 2, 2001
(Unaudited. In thousands of Canadian dollars)
-------------------------------------------------------------------------
2000 2000 2000 2001
Jan July Oct Jan
(Restated) (Restated) (Restated)
-------------------------------------------------------------------------
ASSETS
Current
Cash and cash equivalents 36.5 9,566.2 9,054.8 5,533.6
Trade receivable 920.2 4,296.5 4,847.0 5,185.1
Government receivable 422.5 448.0 504.5 569.4
Other receivable 412.6 897.7 763.5 713.4
Inventories 2,258.1 4,237.6 5,526.6 6,919.0
Prepaid expenses 229.9 404.5 763.6 712.7
-------------------------------------------------------------------------
Total current assets 4,272.8 19,850.5 21,459.9 19,633.2
-------------------------------------------------------------------------
Fixed and other assets 645.8 629.5 750.5 1,112.5
-------------------------------------------------------------------------
4,918.5 20,479.9 22,210.4 20,745.7
-------------------------------------------------------------------------
-------------------------------------------------------------------------
LIABILITIES
Current
Bank loan 54.4 0.0 0.0 0.0
Accounts payable and accrued
liabilities 2,128.5 4,958.6 6,718.6 8,663.8
Secured Convertible
Debentures 325.0 0.0 0.0 0.0
Income taxes payable 0.0 0.0 0.0 9.4
Current portion of deferred
revenues 0.0 3,948.8 5,283.1 4,863.1
Current portion of
long-term debt 68.8 68.8 68.8 100.1
Current portion of
obligations 134.9 140.9 150.6 171.5
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Total current liabilities 2,711.7 9,117.0 12,221.1 13,807.8
-------------------------------------------------------------------------
Deferred revenues 0.0 201.0 132.0 0.0
-------------------------------------------------------------------------
Long-term debt 0.0 0.0 0.0 125.0
-------------------------------------------------------------------------
Obligations under capital
leases 163.0 186.5 195.6 163.7
-------------------------------------------------------------------------
Total liabilities 2,874.7 9,504.5 12,548.7 14,096.5
-------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Common shares and special
warrants 7,774.7 19,012.9 19,634.0 19,924.7
Contributed surplus 42.5 42.5 42.5 42.5
Retained earnings (deficit) (5,768.0) (8,074.5) (10,009.4) (13,312.6)
Cumulative translation
adjustments (5.4) (5.4) (5.4) (5.4)
-------------------------------------------------------------------------
Total shareholders' equity 2,043.8 10,975.4 9,661.7 6,649.2
-------------------------------------------------------------------------
4,918.5 20,479.9 22,210.4 20,745.7
-------------------------------------------------------------------------
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See accompanying notes
Notes to the consolidated financial statements
----------------------------------------------
1. Financial situation and going concern
The Company has experienced substantial losses for the first and second
quarters of fiscal 2001 resulting in an outflow of cash and a
deterioration in its working capital. To address its cash requirements,
on March 13, 2001 the Company entered into a bought deal financing
arrangement in the net amount of $9.4 million, subject to usual
conditions for withdrawal, including the absence of any material adverse
change in the Company's financial condition (note 4). This financing is
intended to close on March 30, 2001.
Accordingly, the Company has prepared the accompanying financial
statements using Canadian generally accepted accounting principles
applicable to a going concern. However, if the financing referred to
above does not close for any reason, the use of such principles may not
be appropriate because there would then be substantial doubt that the
Company would be able to continue as a going concern. If the going
concern assumption were not appropriate, adjustments would be necessary
to the carrying value of assets and liabilities, the reported revenues
and expenses and balance sheet classifications used, and such adjustments
could be material.
2. Accounting principles and practices
The unaudited consolidated interim financial statements are based upon
accounting principles consistent with those used and described in the
revised annual financial statements.
3. Accounting change
Effective the second quarter of fiscal 2001, and in accordance with the
Ontario Security Commission (OSC) views on applicability of US GAAP for
Canadian companies, the Company changed its accounting policy for revenue
recognition to be consistent with US GAAP as clarified by Staff
Accounting Bulletin 101 (SAB 101), "Revenue Recognition". This bulletin
was released by the US Securities and Exchange Commission (SEC) on
December 3, 1999 and was the object of a Frequently Asked Questions
document issued in October 2000. Accordingly, the Company now records the
deliveries of the ControlPoint(TM) Solutions as deferred revenue and
recognizes them as revenue only upon their collection. Prior to this
accounting change, the Company accounted for revenue at the time of the
transfer of the risks of possession, upon shipment and customer
acceptance if collection or resulting receivables was reasonably assured
and product returns were reasonably estimable. This change has been
applied retroactively with the following effect:
<<
As originally reported
(in thousands of Canadian dollars, except per share information)
Fiscal 2001 Fiscal 2000
----------- -----------
Q1 12 Months Q4 Q3 Q2
-- --------- -- -- --
(Unau- (Unau- (Unau- (Unau-
dited) (Audited) dited) dited) dited)
Total revenue 4,165 15,646 8,583 4,087 1,427
Income (loss) from
continuing operations (611) (2,868) 741 (93) (2,375)
Net income (loss) (611) (2,791) 805 (75) (2,386)
Income (loss) from
continuing operations
per share (primary) (0.04) (0.21) 0.05 (0.01) (0.19)
Income (loss) from
continuing operations
per share (fully diluted) -(1) -(1) 0.04 -(1) -(1)
Net income (loss) per
share (primary) (0.04) (0.20) 0.06 (0.01) (0.19)
Net income (loss) per
share (fully diluted) -(1) -(1) 0.05 -(1) -(1)
As restated
(in thousands of Canadian dollars, except per share information)
Fiscal 2001 Fiscal 2000
----------- -----------
Q1 12 Months Q4 Q3 Q2
-- --------- -- -- --
(Unau- (Unau- (Unau- (Unau-
dited) (Audited) dited) dited) dited)
Total revenue 2,880 11,385 5,645 3,136 1,055
Income (loss) from
continuing operations (1,928) (5,169) (1,067) (441) (2,518)
Net income (loss) (1,928) (5,092) (1,003) (423) (2,529)
Income (loss) from
continuing operations
per share (primary) (0.11) (0.37) (0.08) (0.03) (0.20)
Income (loss) from
continuing operations
per share (fully diluted) -(1) -(1) -(1) -(1) -(1)
Net income (loss) per
share (primary) (0.11) (0.36) (0.07) (0.03) (0.20)
Net income (loss) per
share (fully diluted) -(1) -(1) -(1) -(1) -(1)
>>
Note:
(1) The calculation of the net loss per share would be anti-dilutive and
is therefore not provided.
Moreover, the Company has restated its first quarterly results of
operations of fiscal 2001 to record an amount of $0.58 million ($0.04 per
share) with respect to the Company's liability for social benefits taxes
related to the exercise of options by employees during calendar year
2000.
4. Subsequent event
On March 13, 2001, a bought deal agreement was entered into with an
Underwriter pursuant to which the Underwriter will purchase 3,335,000
units consisting of one common share and one half common share purchase
warrant at $3.00 per unit for gross proceeds of $10,005,000. Each whole
share purchase warrant will entitle the purchaser to acquire one common
share of NHC at $4.00 for two years from the closing date.
The completion of the transaction is subject to the receipt of necessary
regulatory approval and may be terminated by the Underwriter prior to the
closing in certain circumstances.
5. Commitments
The Company is committed under a blanket purchase agreement to buy
$21 million from its major vendor of the component representing its main
source of revenues. The delivery dates related to this blanket purchase
order are established at the sole discretion of the Company and should be
scheduled on or before June 30, 2001.
Management's Discussion and Analysis of Financial Condition and
Results of Operations - Second Quarter ended February 2, 2001
The following discussion and analysis should be read in conjunction with
financial statements for the second quarter of fiscal 2001 and 2000; with the
MD&A in the fiscal 2000 annual report, including the section on risks and
uncertainties; and with the notes to the financial statements contained in the
fiscal 2000 annual report. (All dollar amounts are in Canadian dollars unless
otherwise indicated.)
Revenue
-------
Sales for the second quarter ended February 2, 2001 were $2.01 million,
an increase of 90% from $1.06 million for the same quarter of fiscal 2000. The
increase was primarily due to higher sales of video connectivity products. On
a geographic basis, sales of the second quarter of fiscal 2001 were
$1.64 million for the North American segment (Q2 2000 - $0.83 million),
$0.23 million for the European segment (Q2 2000 - $0.23 million), and
$0.14 million (Q2 2000 - $9,700) for the rest of the world.
NHC's ControlPoint(TM) solutions sales for the second quarter of fiscal
2001 included initial sales to Delhum Technology & Service Corp (DTSC), a new
distributor of telecom products based in Taipei, Taiwan. NHC signed a landmark
contract with BellSouth Telecommunications, Inc. on January 24, 2001 and
anticipates purchase orders from BellSouth to start in the third quarter of
fiscal 2001.
NHC initially expected to finance the development of its business from
sales to smaller CLECs, and to ship its ControlPoint(TM) solutions to a CLEC
with which NHC entered into a supply agreement in January 2000. This CLEC, due
to internal constraints, has decided to put a hold on its deployment strategy
using NHC's ControlPoint(TM) solutions. No further orders under this agreement
are expected. The amount currently owed for the ControlPoint(TM) units
previously shipped under the January 2000 agreement is $3.9 million, of which
$2.7 million is covered by insurance. Any potential write-down of any portion
of this balance receivable would be offset against deferred revenue and would
not have an adverse impact on future results. (Refer to "Change in accounting
policy" below). During the second quarter, NHC did not realize revenue from
its previously announced contract with Last Mile Media Corporation, concluded
November 9, 2000. Last Mile Media has adopted a new deployment strategy and is
currently reviewing its deployment schedule of NHC's ControlPoint(TM)
solutions.
General and Administrative
--------------------------
General and administrative expenses for the second quarter of fiscal 2001
increased to $1.11 million compared to $0.53 million for the second quarter of
fiscal 2000. The increase is mainly explained by an increase in personnel and
personnel-related costs, consulting fees and corporate costs.
Sales and marketing
-------------------
Sales and marketing expenses for the second quarter of fiscal 2001
increased 279% to $2.98 million compared to $0.78 million in the second
quarter of fiscal 2000. This increase is attributable to the Company's efforts
to expand its sales and marketing operations both domestically and
internationally, in order to increase market awareness. In particular, this
increase is mainly explained by an increase in expenses for new employees
hired by NHC's wholly-owned subsidiary, NHC Communications USA, Inc. for
sales, marketing, pre-sales and post-sales supports activities.
Research and development
------------------------
Research and development expenses in the second quarter of fiscal 2001
were reduced to $0.36 million from $0.41 million in the same period of fiscal
2000. Major research and development efforts were focused in the second
quarter of fiscal 2001 on the development of the hardware and software aspects
of NHC's ControlPoint(TM) solutions, as well as the development of new
applications for these products. These efforts will enable the Company to
penetrate new markets and help maintain a leadership position in niche,
remotely controlled, physical layer cross-connect solutions.
Operating profit (loss) from continuing operations
--------------------------------------------------
The operating loss from continuing operations in the second quarter of
fiscal 2001 was $3.18 million compared with $1.45 in the second quarter of
fiscal 2000. This higher loss is mainly due to a an increase in total
operating expenses of $2.72 million, reflecting an increase in personnel-
related expenses to support NHC's future growth. These expenses include the
support offered to its new ILEC customer, BellSouth Telecommunications, Inc.
In North America, the operating loss from continuing operations was
$3.05 million for the second quarter of fiscal 2001 compared to $1.34 million
in the second quarter of fiscal 2000. This increased loss reflected the
operating loss from continuing operations of $0.13 million from the French
subsidiary, compared to a loss of $0.11 million in the second quarter of the
previous year.
Interest income (expenses)
--------------------------
The Company recorded interest income of $0.16 million in the second
quarter of fiscal 2001, compared to interest expenses of $0.17 million in the
second quarter of fiscal 2000. This decrease is explained by an increase of
$0.07 in interest income earned on the net cash proceeds of approximately
$9 million received in connection with the Company's March 2000 Special
Warrant Offering, and by an increase of $0.22 million in the gain on foreign
exchange.
Restructuring costs
-------------------
The Company recorded restructuring costs of $0.27 million in the second
quarter of fiscal 2001 compared to $0.91 million in the second quarter of
fiscal 2000. Included in restructuring costs are charges associated with the
Company's re-engineering process initiated in January 2000. These costs
include a write-down of inventory related to the Connectivity line of business
to net realizable value of $0.19 million.
Liquidity and capital resources
-------------------------------
As at February 2, 2001, the Company's cash and cash equivalents consisted
of $0.44 million in cash and $5.09 million in highly liquid short-term
investments. The Company had $0.34 million in obligations under capital leases
to be repaid over a period of three years from lease inception and
$0.23 million of long-term debt. Historically, NHC has financed its operations
through stock issuances and, to a lesser extent, equipment lease financing.
For the second quarter ended February 2, 2001, cash and cash equivalents
decreased by $3.52 million, mainly attributable to the $3.51 million loss from
continuing operating activities.
Cash used by continuing operations in the second quarter of fiscal 2001
was $3.51 million. This reflects the cash used by the loss from continuing
operations of $3.22 million and the cash provided by the non-cash working
capital balances related to continuing operations of $0.29 million. For the
second quarter of fiscal 2000, cash used by continuing operations was $0.75
million. This reflects the cash used by the loss from continuing operations of
$2.44 million and the cash provided by the non-cash working capital balances
related to continuing operations of $1.69 million.
Cash used in investing activities was $0.45 million in the second quarter
of fiscal 2001. These funds were used to acquire capital and other assets
attributable to NHC's US sales office in Manassas, Virginia. For the second
quarter of fiscal 2000, cash used in investing activities was $1,100. The
Company expects capital expenditure to continue to increase in future periods.
Cash provided by financing activities was $0.44 million for the second
quarter of fiscal 2001. During this period, the Company received a total
consideration of $0.29 million upon the exercise of stock options by certain
employees and $0.19 million from new long-term debt and obligations. Moreover
$0.04 million was used for the repayment of the |
