NHC Communications Inc. Announces Fourth Quarter and Year End Fiscal 2001 Results
Highlights for the fourth quarter:
- Concluded an exclusive distribution agreement with Alcatel's
subsidiary, Nexans, for the sale and support of ControlPoint(TM) in
Europe;
- Concluded interoperability agreements with Consultronics Limited and
Sunrise Telecom Incorporated; and
- Released Curbside(TM), an integrated remote cabinet for deploying voice
and data services.
MONTREAL, Oct. 19 /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 its
results for the fourth quarter and twelve months ended August 3, 2001.
Net sales for the fourth quarter of 2001 were $0.64 million compared with
$5.65 million for the same quarter last year, and reflect the slower product
adoption cycle and longer sales cycles associated with the large carrier
market. Net loss for the fourth quarter was $8.52 million or $0.46 per share,
compared with a net loss of $1.00 million or $0.07 per share for the same
period last year. Net loss for the fourth quarter of fiscal 2001 includes
adjustments totaling $4.75 million, which are comprised of a charge of
$3.54 million for excess inventory and a provision of $1.21 million
representing the estimated maximum potential liability related to tax
reassessments disclosed during the last two years and which were the object of
a notice of objection filed by the Company.
For the twelve months of 2001, net sales decreased 21% to $8.97 million
from $11.39 million in fiscal 2000. Net loss for the year was $15.73 million
or $0.85 per share, compared with a net loss of $5.09 million or $0.36 per
share for the same period last year. Net loss for fiscal 2001 includes a
charge of $4.10 million for excess inventory.
"Over the past 18 months, our strategy has focused on broadening our
markets by penetrating the incumbent local exchange carrier (ILEC) and large
inter exchange carrier (IXC) markets," said Sylvain Abitbol, President and CEO
of NHC Communications. "While 2001 revenues are down, reflecting longer sales
cycles and product adoption times associated with the large carrier market,
NHC's penetration of this market has been very successful to date."
Mr. Abitbol added, "During the past twelve months, we have invested in
our technology and we are confident that we have the best and most complete
cross-connect solution to address this market."
BUSINESS UPDATE
SALE OF TWO SUCCESSFUL FOAS
On October 12, 2001, NHC announced the successful completion of two first
office application (FOAs) field trials using its ControlPoint(TM) solutions at
two separate locations with a second major ILEC. On September 6th, 2001, the
Company also announced the sale of its ControlPoint(TM) solution to France
Telecom, through Nexans, its European distributor. NHC expects that a minimum
of six large carriers worldwide will be in different stages of analysis of
ControlPoint(TM) over the next six months. The six carriers are expected to
carry out a minimum of 14 FOA field trials.
FINANCING ACTIVITIES
On October 12, 2001, NHC announced that, subject to regulatory approvals,
it will raise $3.54 million (CDN) through a private placement of its common
shares. The investors in this private placement are funds managed by
Manchester Management, a US based institution, and certain members of
management of NHC. Upon receipt of the necessary regulatory approvals, NHC
will issue an aggregate of 4,660,000 common shares, at a price of $0.76 per
common share, representing a substantial premium to the trading price of NHC's
common shares at the time the private placement was announced. The closing is
expected to occur prior to the end of October 2001.
On July 16, 2001, NHC filed a preliminary short form prospectus in each
of the provinces of Québec and Ontario to qualify a distribution of rights to
subscribe for common shares of NHC under an equity line instrument. This
equity line instrument would allow NHC, at its option, to raise up to
$18 million (CDN) for working capital and corporate development purposes over
a 30 month period. The rights will be offered pursuant to a subscription
agreement to be entered into between NHC and The Roseworth Group Ltd. The
Roseworth Group Ltd. is a corporation actively engaged in the business of
investing in publicly traded equity securities and has historically made
investments in technology and biotechnology companies for its own account. The
preliminary short form prospectus is currently being reviewed by the Québec
and Ontario securities commissions and NHC expects that certain conditions
will be imposed by such regulatory authorities before a final receipt is
issued for the prospectus. Once regulatory approval is obtained, NHC will need
to wait until six months from the closing of the above-referenced private
placement before raising any funds under the equity line instrument.
STOCK OPTION EXCHANGE PROGRAM
As previously announced, NHC's Board of Directors has approved a
voluntary stock option exchange and repricing program to provide incentives
and rewards to non-management employees. 1,402,616 options are expected to be
eligible for the program.
FINANCIAL RESULTS
NET SALES for the fourth quarter ended August 3, 2001 decreased 89% to
$0.64 million from $5.65 million in the same period in 2000. Net sales for
this quarter remained low, due primarily to the Company's strategy of
targeting the ILEC market. Due to the size of the carriers in this market,
sales cycles are long and product adoption is slow. Net sales were also
adversely affected by the continuing weakness of small to mid-sized
participants in the competitive local exchange carrier (CLEC) market.
On a geographic basis, sales for the fourth quarter of fiscal 2001 were
all realized in the North American market. Sales for the fourth quarter of
fiscal 2000 were $5.04 million for the North American market and $0.61 million
for the European market.
GROSS MARGIN for the fourth quarter was negative at $3.39 million. The
inventories related to three models of the ControlPoint(TM) solutions, which
are currently more adapted to the building local exchange carrier market
(BLEC), have become in excess to estimated future demands for the foreseeable
future and, accordingly, the Company recognized a $3.54 million charge for
excess inventory. Excluding this charge, gross margin was 23%, compared with
21% in the same period of fiscal 2000.
RESEARCH AND DEVELOPMENT expenses in the fourth quarter of fiscal 2001
increased 324% to $1.69 million compared with $0.40 million in the same period
of fiscal 2000. The increase is mainly explained by an increase in personnel
and personnel-related costs, by sub-contractors fees and by a charge of
$0.83 million from a total provision of $1.21 million representing the
estimated maximum potential liability related to tax reassessments disclosed
during the last two years and which were the object of a notice of objection
filed by the Company. Major research and development efforts in the fourth
quarter of fiscal 2001 were focused 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.
SALES AND MARKETING expenses for the fourth quarter of fiscal 2001
increased 75% to $2.23 million compared with $1.27 million in the fourth
quarter of fiscal 2000. This increase is mainly 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.
GENERAL AND ADMINISTRATIVE expenses for the fourth quarter of fiscal 2001
increased to $0.90 million compared with $0.41 million for the fourth quarter
of fiscal 2000. The increase is mainly explained by an increase in personnel
and personnel-related costs, in professional fees and in the bad debt expenses
with regards to trade receivables related to discontinued product lines.
A full Management's Discussion Analysis for fiscal 2001 and 2000 will be
available in the Company's fiscal 2001 annual report, to be released in
December 2001.
<<
NHC COMMUNICATIONS INC.
_________________________________________________________________________
CONSOLIDATED BALANCE SHEETS
_________________________________________________________________________
(Unaudited. In thousands of Canadian dollars)
August 3, August 4,
2001 2000
___________________________
(Restated)
ASSETS
Current assets
Cash and cash equivalents 2,966.5 9,566.2
Short-term investments (market value: $116.3) 42.1 -
Trade accounts receivable 461.7 4,296.5
Government assistance receivable - 448.0
Other accounts receivable 195.8 897.7
Inventories 3,030.0 4,237.6
Prepaid expenses 250.2 404.5
___________________________
Total current assets 6,946.3 19,850.5
Capital assets 2,066.3 623.5
Other assets 138.7 6.0
___________________________
TOTAL ASSETS 9,151.3 20,480.0
___________________________
___________________________
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities 2,436.0 4,958.5
Income taxes payable 229.1 -
Current portion of deferred revenues 606.8 3,948.8
Current portion of obligations under capital
leases 154.9 140.9
Current portion of long-term debt 100.1 68.8
___________________________
Total current liabilities 3,526.9 9,117.0
Deferred revenues - 201.0
Obligations under capital leases 246.6 186.5
Long-term debt 125.0 -
___________________________
Total liabilities 3,898.5 9,504.5
___________________________
SHAREHOLDERS' EQUITY
Share capital 28,262.2 19,012.9
Other capital 2,301.2 -
Contributed surplus 42.5 42.5
Deficit (25,347.7) (8,074.5)
Cumulative translation adjustments (5.4) (5.4)
___________________________
Total shareholders' equity 5,252.8 10,975.5
___________________________
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 9,151.3 20,480.0
___________________________
___________________________
See accompanying notes, including note 2 on the going concern
NHC COMMUNICATIONS INC.
_________________________________________________________________________
CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND DEFICIT
_________________________________________________________________________
(Unaudited. In thousands of Canadian dollars,
except share and per-share amounts)
Quarters Ended Twelve Months Ended
____________________________________________________
August 3, August 4, August 3, August 4,
2001 2000 2001 2000
____________________________________________________
(Restated) (Restated)
NET SALES 635.5 5,644.8 8,968.5 11,384.5
Cost of sales 488.6 4,468.2 5,373.2 8,384.2
Charge related to
excess inventory
(note 3) 3,535.0 - 4,095.0 -
____________________________________________________
GROSS MARGIN (3,388.1) 1,176.6 (499.7) 3,000.3
Operating expenses:
Research and
development (note 4) 1,687.3 397.9 2,900.6 1,498.2
Sales and marketing 2,230.0 1,272.2 8,198.0 3,630.5
General and
administrative 895.6 407.3 3,645.2 1,649.6
____________________________________________________
Total operating
expenses 4,812.9 2,077.4 14,743.8 6,778.3
____________________________________________________
OPERATING LOSS FROM
CONTINUING OPERATIONS (8,201.0) (900.8) (15,243.5) (3,778.0)
Other:
Financial income
(expense) (note 4) (288.1) 93.8 (57.0) (70.1)
Gain (loss) on
foreign exchange 45.3 0.8 (81.5) (106.0)
Restructuring costs - (260.6) (253.7) (1,231.2)
Credit for losses - - - 16.6
____________________________________________________
(242.8) (166.1) (392.2) (1,390.7)
LOSS BEFORE INCOME
TAXES AND DISCONTINUED
OPERATIONS (8,515.4) (1,066.8) (15,635.7) (5,168.7)
Income taxes (71.6) - (91.4) -
____________________________________________________
LOSS FROM CONTINUING
OPERATIONS (8,515.4) (1,066.8) (15,727.1) (5,168.7)
Discontinued operations - 63.1 - 76.6
____________________________________________________
NET LOSS (8,515.4) (1,003.8) (15,727.1) (5,092.1)
Deficit, beginning
of the period (16,185.7) (7,233.9) (8,074.5) (2,208.6)
Share capital
issue costs (646.6) 163.2 (1,546.1) (773.8)
____________________________________________________
DEFICIT, END OF
THE PERIOD (25,347.7) (8,074.5) (25,347.7) (8,074.5)
____________________________________________________
____________________________________________________
Net income (loss)
from continuing
operations per share
- basic and
fully diluted ($0.46) ($0.08) ($0.85) ($0.37)
____________________________________________________
____________________________________________________
Net income (loss) per
share - basic and
fully diluted ($0.46) ($0.07) ($0.85) ($0.36)
____________________________________________________
____________________________________________________
Shares used in per-
share calculation 18,568.5 14,020.9 18,568.5 14,020.9
____________________________________________________
____________________________________________________
Capital Stock - As at
October 19, 2001
Issued and fully
paid (in 000's) 20,892.5 16,837.1 20,892.5 16,837.1
Stock options
unexercised
(in 000's) 1,863.6 1,945.1 1,863.6 1,945.1
Compensation
warrants (in 000's) 2,260.8 93.0 2,260.8 93.0
Stock options subject
to shareholders'
approval (in 000's) 0.0 465.0 0.0 465.0
Performance
shares (in 000's) 437.5 437.5 437.5 437.5
____________________________________________________
25,454.4 19,777.7 25,454.4 19,777.7
____________________________________________________
____________________________________________________
See accompanying notes
NHC COMMUNICATIONS INC.
_________________________________________________________________________
CONSOLIDATED STATEMENTS OF CASH FLOW
_________________________________________________________________________
(Unaudited. In thousands of Canadian dollars)
Quarters Ended Twelve Months Ended
____________________________________________________
August 3, August 4, August 3, August 4,
2001 2000 2001 2000
____________________________________________________
(Restated) (Restated)
Continuing Operations
Loss from continuing
operations (8,515.4) (1,066.8) (15,727.1) (5,168.7)
Add item not
involving cash:
Amortization 166.1 83.9 441.5 324.9
____________________________________________________
(8,349.3) (982.9) (15,285.6) (4,843.8)
Change in
working capital:
Increase in short-
term investments - - (42.1) -
(Increase) decrease
in accounts
receivable 1,342.0 452.6 4,536.7 (2,039.3)
(Increase) decrease
in government assis-
tance receivable 648.9 55.1 448.0 (224.4)
(Increase) decrease
in inventories 4,486.8 (630.0) 1,207.6 (1,512.0)
(Increase) decrease
in prepaid expenses 341.7 (72.3) 154.3 (199.5)
Increase (decrease)
in payables and
accrued liabilities (1,435.8) 955.5 (2,522.5) 2,231.0
Increase in income
taxes payable 209.3 - 229.1 -
Increase (decrease)
in deferred revenues (219.1) - (3,543.0) 4,150.0
Change in working
capital - Discon-
tinued operations - - - 409.0
____________________________________________________
5,373.8 760.9 468.1 2,814.8
____________________________________________________
Cash used in
continuing operations (2,975.5) (222.0) (14,817.5) (2,029.0)
____________________________________________________
Cash used in discon-
tinued operations
Cash used in discon-
tinued operations - 63.1 - (223.0)
____________________________________________________
Investing Activities
Acquisition of
capital assets (950.6) (43.2) (1,605.0) (62.0)
Acquisition of
other assets (20.0) (6.0) (167.0) (11.0)
____________________________________________________
Cash used by
investing activities (970.6) (49.2) (1,772.0) (73.0)
____________________________________________________
Financing Activities
Proceeds from issuance
of shares and
other capital - 57.7 10,916.6 11,003.0
Proceeds (repayment)
Secured Convertible
Debentures - (43.0) - 265.0
Repayment of obligations
under capital leases (47.1) (16.9) (171.1) (128.2)
Proceeds from issuance
of long term debt - - 156.3 -
Share capital
issue costs (12.9) 163.1 (912.0) (773.8)
____________________________________________________
Cash provided by
(used in) financing
activities (60.0) 160.9 9,989.8 10,366.0
____________________________________________________
Net increase
(decrease) in cash
and cash equivalents
during the period (4,006.1) (47.1) (6,599.7) 8,041.1
Cash and cash
equivalents -
Beginning of period 6,972.6 9,613.3 9,566.2 1,525.1
____________________________________________________
Cash and cash
equivalents -
End of period 2,966.5 9,566.2 2,966.5 9,566.2
____________________________________________________
____________________________________________________
Cash 328.4 1,840.2
Cash equivalents 2,638.1 7,726.0
_________________________
2,966.5 9,566.2
_________________________
_________________________
Additional
disclosure Interest 332.7 33.1 46.0 266.0
Capital assets acquired
under capital leases 10.8 - 246.0 183.0
See accompanying notes
>>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
1. BASIS OF PRESENTATION
The financial information as at August 3, 2001, for the three and twelve
months ended August 3, 2001 and for the three and twelve months ended
August 4, 2000 is unaudited. In the opinion of management, all
adjustments necessary to present fairly the results of these periods have
been included. The adjustments made were of a normal-recurring nature.
These interim financial statements should be read in conjunction with the
annual financial statements for the year ended August 4, 2000. These
interim financial statements follow the same accounting policies and
methods of their application as the annual financial statements for the
year ended August 4, 2000.
2. FINANCIAL SITUATION AND GOING CONCERN
The accompanying financial statements have been prepared using Canadian
generally accepted accounting principles applicable to a going concern.
The Company has incurred substantial losses and negative cash flows from
operations over the past several years. The use of such principles may
not be appropriate because, as of August 3, 2001, there was significant
doubt that the Company would be able to continue as a going concern.
Historically, the Company has financed its operations mainly through
stock issuances. During the past nineteen months, and to address its cash
requirements, the Company has been successful at completing two financing
arrangements and has recently filed a preliminary short form prospectus
in each of the provinces of Quebec and Ontario to qualify the
distribution of rights to subscribe for common shares of NHC at
prevailing market prices under an equity line instrument that would allow
NHC, at its option, to raise up to $18 million (CDN) over a period of 30
months. The ability of the Company to issue shares under the equity line
instrument will depend on a number of factors which are outside the
control of the Company's management, such as the subscriber's ability to
finance the subscription price, certain securities regulations limiting
the maximum number of shares of the Company which may be beneficially
owned by the subscriber to not more than 9.9% of the number of shares
issued and outstanding at any point in time, and restrictions on the
subscriber's on going trading activities. In addition, Canadian
securities regulators are currently reviewing the merits of such
financing instruments in Canada, and there can be no assurance that a
final prospectus receipt will be issued by such securities regulatory
authorities. Should regulatory approval be obtained, NHC will need to
wait until six months from the closing of the above-referenced private
placement before raising any funds under the equity line instrument.
In addition, subsequent to year-end, the Company announced that, subject
to regulatory approvals, it will raise $3.54 million through a private
placement of its common shares (note 5). The Company might also finance
its activities from future sales and the collection of the related
revenue prior to needing additional financing.
Although there is no assurance that the Company will be successful in
these actions, management is confident that it will be able to secure the
necessary financing and improvement in operating cash flow to enable it
to continue as a going concern. Accordingly, these financial statements
do not reflect adjustments to the carrying value of assets and
liabilities, the reported revenue and expenses and balance sheet
classifications used that would be necessary if the going concern
assumption were not appropriate. Such adjustments could be material.
3. INVENTORIES
The inventories related to three models of the ControlPoint(TM)
solutions, which are currently more adapted to the building local
exchange carrier (BLEC) market, have become in excess to estimated future
demands for the foreseeable future and, accordingly, the Company
recognized a charge of $3.54 million for excess inventory in the fourth
quarter of fiscal 2001.
4. STATEMENT OF INCOME
As disclosed in its financial statements for fiscal years 2000 and 1999,
on June 17, 1999, the Government of Quebec reassessed the Company with
respect to research and development tax credits claimed for fiscal years
1995 through 1997. This reassessment, for which the Company filed a
notice of objection on September 13, 1999, relates mainly to a decrease
in the rate of the government assistance related to research and
development salary expense due to a temporary classification of the
Company's status as a Major Corporation. Management believes the
reassessment is of doubtful merit and that the Company has a serious and
substantial defence against this action. Although it is difficult to
determine with any certainty the final outcome of this reassessment, the
Company has recorded a provision of $1.21 million representing the
estimated maximum potential liability related to this reassessment. This
provision, which includes an amount of $0.31 for potential financial
charges related to the reassessment, has been recorded as a charge in
fiscal 2001 to research and development expense for $0.83 million and to
income taxes expense for $0.07 million.
5. SUBSEQUENT EVENTS
a) On September 24, 2001, the Company's Board of Directors approved a
voluntary stock option exchange program to be offered to employees.
Subject to regulatory approval, the new program will offer eligible
employees the opportunity to exchange their current outstanding stock
options for new options. The new options will be granted under the terms
of the applicable stock option plan with an exercise price of $1.20,
representing a premium of 50% over the closing price of the Company's
common shares on September 21, 2001 of $0.80, and with a new vesting
schedule whereby 25% will vest immediately upon issuance, and the balance
will vest monthly on a prorated basis for twelve months. The vesting
period of the current outstanding stock options bearing vesting periods
based on performance criteria will remain the same. The new options will
expire five years from the date of grant. The grant of new replacement
options provided to insiders of the Company will be subject to
shareholder approval.
b) On September 24, 2001, the Company granted 110,000 new stock options
to employees as an incentive to complete corporate goals in the near
term. These new grants were made under the Company's existing stock
option plan, and will vest based solely on sales performance criteria to
be achieved during the next twelve months and will expire on
September 23, 2002.
c) On October 12, 2001, the Company announced that, subject to
regulatory approvals, it will raise $3,541,600 (CDN) through a private
placement of its common shares. Upon receipt of the necessary regulatory
approvals, the Company will issue an aggregate of 4,660,000 common
shares, at a price of $0.76 per common share. The closing is expected to
occur prior to the end of October 2001.
-------------------------------------------------------------------------
Management will host a conference call and live audio webcast on Monday,
October 22 at 10 am EST to discuss the company's Q4 and year-end results.
The listen to the webcast, please visit www.nhc.com or www.newswire.ca.
To listen to the webcast you will need Real Player.
By telephone: A replay of the call will be available until October 29th.
To access the replay, dial 416-626-4100 (enter reservation number
19891595) or 1-800-558-5253 (enter reservation number 19891720). |
