NHC Communications Inc. Announces First Quarter Fiscal 2002 Results
MONTREAL, Nov. 29 /CNW/ - NHC COMMUNICATIONS INC. (TSE: NHC - news), a leading provider of automated mainframe and
cross-connect solutions for the copper- based telecommunications and Internet access markets, today announced its results for the first quarter
of fiscal 2002, ended November 2, 2001.
Revenues totaled $1.72 million during the quarter, reflecting NHC's shift to the incumbent local exchange carrier (ILEC) and large inter exchange
carrier (IXC) markets, and the longer sales cycles associated with these markets. While revenues are lower than the $2.88 million of revenues
posted in the first quarter of 2001, they increased 170% on a sequential basis from $635,500 in the fourth quarter of fiscal 2001 as the company
initiated its first sales to the ILEC market and built up its customer base in this market.
"We are now beginning to see the positive results of our focused strategy to penetrate the large carrier market," said Sylvain Abitbol, President
and CEO. "To date, we have initiated several first office application field trials (FOAs) in the central offices of large carriers, representing a major
milestone in our sales cycle for each of these potential customers. With respect to these FOAs, our penetration plan is on track. As of today, five
ILECs have completed or are at various stages of completion of FOAs.
"Our progress to date is very encouraging. We continue to see increased demand for solutions such as ControlPoint(TM) - solutions that reduce
telecommunications carriers operating costs and increase efficiencies," added Mr. Abitbol.
Gross profit as a percentage of sales increased to 40% in the first quarter of fiscal 2002, as compared with 24% in the same period of last year. The
increase is due to higher margins realized on the sale of the ControlPoint(TM) solutions and by the recognition of deferred software revenues
bearing a relatively higher percentage of gross profit. Total operating expenses were virtually unchanged. As a result, operating loss of $2.12
million in the quarter just ended was only slightly below the same quarter last year.
For the first quarter of fiscal 2002, the net loss was $2.12 million or ($0.10) per share, compared with a net loss of $1.93 million or ($0.11) per share
in the first quarter last year.
BUSINESS UPDATE
SALE OF TWO SUCCESSFUL FOAs
On October 10, 2001, NHC announced the successful completion of two first office applications (FOAs) field trials using its ControlPoint(TM)
solutions at two locations with a second major U.S. ILEC. On September 6, 2001, the Company also announced the sale of its ControlPoint(TM)
solution to France Telecom through Nexans, its European distributor. NHC expects a minimum of six large carriers worldwide will be in different
stages of analysis of ControlPoint(TM) over the next five months. The carriers are expected to carry out a minimum of 14 FOA field trials.
FINANCING ACTIVITIES
On October 30, 2001, NHC announced the completion of a $3.54 million private placement of common shares. The investors are funds managed by
Manchester Management, a U.S.-based institution, and certain members of NHC management. Under terms of the financing, NHC issued an
aggregate of 4,660,000 common shares at a price of $0.76 per common share. This represented a substantial premium to the trading price of NHC
common shares as at October 12, when the private placement was announced.
FINANCIAL RESULTS
REVENUES for the first quarter ended November 2, 2001 decreased 40% to $1.72 million from $2.88 million in the same period last year. Revenues
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.
On a geographic basis, sales for the first quarter of fiscal 2002 were $1.21 million for the North American market (Q1 2001 - $2.63 million) and $0.51 million for the rest of the world
(Q1 2001 - $0.25 million).
GROSS PROFIT as a percentage of sales was 40% in the first quarter of fiscal 2002, as compared with 24% in the same period of fiscal 2001. The increase in gross profit during the
first quarter of fiscal 2002 is mainly explained by an increase in the gross profit realized on the sale of the ControlPoint(TM) solutions, and by the recognition of deferred software
revenues bearing a relatively higher percentage of gross profit.
RESEARCH AND DEVELOPMENT expenses in the first quarter of fiscal 2002 increased 21% to $0.49 million compared with $0.41 million in the same period of fiscal 2001. The
increase is mainly explained by an increase in personnel and personnel-related costs. Major research and development efforts in the first quarter of fiscal 2002 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 first quarter of fiscal 2002 increased 25% to $1.78 million, compared with $1.42 million in the first quarter of fiscal 2001. 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 penetration. This
increase was mainly related to expenses for new employees hired by NHC's wholly-owned subsidiary, NHC Communications USA, Inc., for sales, marketing, pre-sales and
post-sales support activities.
GENERAL AND ADMINISTRATIVE expenses for the first quarter of fiscal 2002 decreased to $0.53 million compared with $1.02 million for the first quarter of fiscal 2001. The
decrease is mainly explained by an amount of $0.58 million recorded in the first quarter of last year with respect to the Company's liability for social benefits taxes related to the
exercise of options by employees during calendar year 2000.
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Management will host a conference call and live audio Webcast on
Thursday, November 29 at 3:30pm EST to discuss the company's Q1 results.
The listen to the webcast, please visit www.nhc.com or www.newswire.ca.
To listen to the webcast you will need Media Player.
By telephone: A replay of the call will be available until midnight on
December 6th.
To access the replay, dial 416-695-5800 or 1-800-408-3053 and enter
passcode 984770.
_________________________________________________________________________
_________________________________________________________________________
Statements included here, which are not historical in nature, are forward-
looking statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995, including without
limitation, statements as to management's beliefs, strategies, plans,
expectations or opinions in connection with the Company's performance,
which are based on a number of assumptions concerning future conditions
that may ultimately prove to be inaccurate and may differ materially from
actual future events or results. Readers are referred to the documents
filed by NHC with the pertinent Canadian security exchange commissions,
specifically the most recent Quarterly Reports, Prospectus, Annual
Information Form and Annual Report, each as it may be amended from time
to time, which identify important risk factors that could cause actual
results to differ from those contained in the forward-looking statements,
including rapid technological change along with the need to continually
develop new products; the Company's dependence on a dominant product
line; competition; the Company's dependence on key employees;
difficulties in managing the Company's growth; the Company's dependence
upon certain customers and certain suppliers; the Company's dependence
upon proprietary rights; risks of fourth party claims of infringement;
and government regulation. The financial information contained in this
release should be read in conjunction with the consolidated financial
statements and notes thereto included in NHC's most recent Quarterly
Reports and Annual Report filed, each as it may be amended from time to
time. NHC's results of operations for the three months ended November 2,
2001 are not necessarily indicative of NHC's operating results for the
full fiscal year or any future periods.
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NHC COMMUNICATIONS INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited. In thousands of Canadian dollars)
____________________________
November 2, August 3,
2001 2001
____________________________
ASSETS
Current assets
Cash and cash equivalents 5,438.7 2,966.5
Short-term investments - 42.1
Trade accounts receivable 257.1 461.7
Other accounts receivable 428.3 195.8
Inventories 2,439.7 3,030.0
Prepaid expenses 338.1 250.2
____________________________
Total current assets 8,901.9 6,946.3
Capital assets 1,989.2 2,066.3
Other assets 157.3 138.7
____________________________
TOTAL ASSETS 11,048.4 9,151.3
____________________________
____________________________
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities 3,217.4 2,436.0
Income taxes payable 161.4 229.1
Deferred revenues 436.3 606.8
Current portion of obligations under
capital leases 150.9 154.9
Current portion of long-term debt 100.1 100.1
____________________________
Total current liabilities 4,066.1 3,526.9
Obligations under capital leases 233.5 246.6
Long-term debt 125.0 125.0
____________________________
Total liabilities 4,424.6 3,898.5
____________________________
SHAREHOLDERS' EQUITY
Capital stock 31,803.8 28,262.2
Other capital 2,301.2 2,301.2
Contributed surplus 42.5 42.5
Deficit (27,518.3) (25,347.7)
Cumulative translation adjustments (5.4) (5.4)
____________________________
Total shareholders' equity 6,623.8 5,252.8
____________________________
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 11,048.4 9,151.3
____________________________
____________________________
See accompanying notes, including note 2 on the going concern
NHC COMMUNICATIONS INC.
CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT
(Unaudited. In thousands of Canadian dollars, except share
and per-share amounts)
Quarters Ended
____________________________
November 2, November 3,
2001 2000
____________________________
(Restated)
REVENUES 1,719.3 2,879.9
Cost of revenues 1,035.3 2,188.8
____________________________
GROSS PROFIT 684.0 691.1
Operating expenses:
Research and development 492.7 408.2
Sales and marketing 1,777.2 1,421.0
General and administrative 532.7 1,015.7
____________________________
Total operating expenses 2,802.6 2,844.9
____________________________
OPERATING LOSS (2,118.6) (2,153.8)
Other:
Financial income 59.7 108.3
Gain (loss) on foreign exchange (55.0) 99.5
Restructuring costs - 18.4
____________________________
4.7 226.2
____________________________
LOSS BEFORE INCOME TAXES (2,113.9) (1,927.6)
Income taxes (3.5) -
____________________________
NET LOSS (2,117.4) (1,927.6)
Deficit, beginning of the period (25,347.7) (8,074.5)
Share capital issue costs (53.2) (7.3)
____________________________
DEFICIT, END OF THE PERIOD (27,518.3) (10,009.4)
____________________________
____________________________
Net loss per share-basic and diluted ($0.10) ($0.11)
____________________________
____________________________
Shares used in per-share
calculation-basic (in 000's) 21,097.4 17,235.4
____________________________
____________________________
Capital Stock, at the date of
the press release November 29, December 8,
2001 2000
Issued and fully paid (in 000's) 25,552.5 17,318.2
Stock options unexercised (in 000's) 1,863.6 1,470.9
Compensation warrants (in 000's) 2,260.8 93.0
Stock options subject to shareholders'
approval (in 000's) 390.9 616.5
Performance shares (in 000's) 0.0 437.5
____________________________
30,067.8 19,936.1
____________________________
____________________________
See accompanying notes
NHC COMMUNICATIONS INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited. In thousands of Canadian dollars)
Quarters Ended
____________________________
November 2, November 3,
2001 2000
____________________________
(Restated)
Operating activities
Net loss (2,117.4) (1,927.6)
Add item not involving cash:
Amortization 166.1 77.0
____________________________
(1,951.3) (1,850.6)
Changes in non-cash working capital
items related to operations:
Decrease in short-term investments 42.1 -
Increase in trade and other accounts receivable (27.9) (416.3)
Increase in government assistance receivable - (56.5)
Decrease (increase) in inventories 590.3 (1,289.0)
Increase in prepaid expenses (87.9) (359.1)
Increase in accounts payable and accrued
liabilities 781.4 1,760.0
Decrease in income taxes payable (67.7) -
Increase (decrease) in deferred revenues (170.5) 1,265.3
____________________________
1,059.8 904.4
____________________________
Cash used by operating activities (891.5) (946.2)
____________________________
Investing Activities
Acquisition of capital assets (56.8) (142.2)
Acquisition of other assets (36.7) -
____________________________
Cash used by investing activities (93.5) (142.2)
____________________________
Financing Activities
Proceeds from issuance of shares 3,541.6 621.2
Repayment of obligations under capital leases (31.2) (37.0)
Share capital issue costs (53.2) (7.3)
____________________________
Cash provided by financing activities 3,457.2 576.9
____________________________
Net increase (decrease) in cash and cash
equivalents during the period 2,472.2 (511.5)
Cash and cash equivalents - Beginning of period 2,966.5 9,566.2
____________________________
Cash and cash equivalents - End of period 5,438.7 9,054.7
____________________________
____________________________
Cash 1,566.0 708.0
Cash equivalents 3,872.7 8,346.7
____________________________
5,438.7 9,054.7
____________________________
____________________________
Additional disclosure
Interest paid 12.8 8.4
Capital assets acquired under capital leases 14.1 55.8
See accompanying notes
>>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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1. BASIS OF PRESENTATION
The financial information as at November 2, 2001, for the three months
ended November 2, 2001 and for the three months ended November 3, 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 3, 2001. These
interim financial statements follow the same accounting policies and
methods of their application as the annual financial statements for the
year ended August 3, 2001.
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 November 2, 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 two years, and to address its cash
requirements, the Company has been successful at completing two financing
arrangements and filed, on July 26, 2001, 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 private placement noted
below before raising any funds under the equity line instrument.
In addition, on October 30th, 2001, the Company completed a private
placement of its common shares for gross cash proceeds of $3.54 million.
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. SUBSEQUENT EVENTS
On November 13, 2001, the board of directors of the Company approved the
grant of options to acquire 195,474 common shares at an exercise price of
$1.20 per share to each of two senior officers. Such options expire on
November 13, 2006. The grant of such options is subject to shareholder
approval of the increase in the number of NHC's common shares reserved
for issuance under the stock option plan to 4,000,000 common shares.
These options shall only vest if no common shares are issued to the two
senior officers pursuant to their existing arrangements with the Company
under the compensation agreements entered into on May 10, 2000 (and
ratified by shareholders at the annual and special meeting of
shareholders held on January 24, 2001) under which 218,750 common shares
are issuable to each of them upon the achievement by NHC of certain
material corporate objectives by May 10, 2002. The exercise price of such
options represents a 20% premium over the closing price of the common
shares on the TSE on the date of grant.
For further information
Sylvain Abitbol, President and CEO, NHC Communications Inc., e-mail: pr@nhc.com
Sylvain Brossard, CA, VP Finance and Operations, NHC Communications Inc., e-mail: s.brossard@nhc.com, 1-800-361-1965, Fax: 514-735-8057
www.nhc.com |
