AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 31, 1997
REGISTRATION NO. 0-27998
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM F-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
(Exact name of registrant as specified in its charter)
_________
(3841)
CLASSIFICATION CODE NUMBER
MANITOBA NOT APPLICABLE
(STATE OR OTHER (I.R.S.) EMPLOYER
JURISDICTION OF IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION
251 SAULTEAUX CRESCENT
WINNIPEG, MANITOBA R3J 3C7
(204) 885-5555
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
Donald J. Stoecklein, Esq.
Sperry Young & Stoecklein
1850 E. Flamingo Rd. Suite 111
Las Vegas, Nevada 89119
(702) 794-2590
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
THE COMMISSION IS REQUESTED TO SEND COPIES OF
ALL COMMUNICATIONS TO:
Donald J. Stoecklein, Esq.
Sperry Young & Stoecklein
1850 E. Flamingo Rd. Suite 111
Las Vegas, Nevada 89119
(702) 794-2590
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this Registration
Statement.
If the only securities being registered on this Form are to be offered pursuant
to dividend or interest reinvestment plans, please check the following box. [
]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [x]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462 (c )
under the Securities Act, check the following box and list the Securities Act
Registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
Title of each Amount to Proposed Proposed Amount of
class of be maximum maximum registration fee
securities to Registered aggregate aggregate
be registered price per unit offering price
<S> <C> <C> <C> <C>
Convertible
Notes w/ US$5,000,000 US$5,000,000 US $5,000,000 US $1,515.15
Warrants
Common Shares
<FN>
</TABLE>
<PAGE>
SUBJECT TO COMPLETION DATED OCTOBER 31, 1997
Prospectus
US$5,000,000 Convertible Notes
(UNLESS OTHERWISE DESIGNATED ALL DOLLARS IN CANADIAN)
National Healthcare Manufacturing Corporation
This Prospectus relates to US$5,000,000 aggregate principal amount of 6%
Convertible Notes due 1998 (the "Registrable Notes") or (the "Convertible
Notes") of National Healthcare Manufacturing Corporation ("Issuer" or the
"Company") which were originally sold by the Company in October 1997 and
250,000 Convertible note warrants (the "CN Warrants"), (the "Original
Offering") or ("CN Private Placement") in transactions exempt from the
registration requirements of the Securities Act, to persons reasonably believed
to be "accredited investors" (as defined in Rule 501(a)(1), (2), (3) or (7)
under Regulation D of the Securities Act) and the shares of the Company's
common stock, no par value ("Common Stock"), issuable upon conversion of the
Registrable Notes. The Registrable Notes and the Common Stock issuable upon
conversion thereof may be offered and sold from time to time by the holders
named from time to time in one or more supplements hereto or by their
transferees, pledgees, donees or their successors (collectively, the "Selling
Holders") pursuant to this Prospectus. The Registration Statement of which this
Prospectus is a part has been filed with the Securities and Exchange Commission
pursuant to a registration rights agreement dated as of October 31, 1997 (the
"Registration Rights Agreement") between the Company and the Initial Purchaser,
entered into in connection with the Original Offering.
The Registrable Notes are convertible into 6% Convertible Debentures, which are
convertible into shares of Common Stock at any time commencing the earlier of
(a) December 30, 1997, or (b) the Effective Date of the Registration Statement
filed pursuant to the Registration Rights Agreement between the Company and the
Holder prior to the close of business on the maturity date, unless previously
redeemed or repurchased, at a conversion price for each share of common stock
("Conversion Rate") equal to the lesser of (i) $4.33, or (ii) 85% of the
closing price of the Issuer's shares on NASDAQ on the converson date. Unless
exercised earlier by the holder, the Convertible Note will be deemed to be
converted to common stock without further action on the part of the holder
immediately prior to 4:00pm (Vancouver time) on the Debenture Maturity Date.
The Selling Holders will receive all of the net proceeds from the sale of the
Registrable Notes and the Common Stock issuable upon conversion of the
Registrable Notes and will pay all underwriting discounts and selling
commissions, if any, applicable to the sale of the Registrable Notes and the
Common Stock issuable upon conversion of the Registrable Notes.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY INVESTORS IN
EVALUATING AN INVESTMENT IN THE SECURITIES OFFERED HEREBY, SEE "RISK FACTORS"
ON PAGE 43.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<TABLE>
Price to Selling Proceeds to
Investor Commissions Company(2)
(1)
<S> <C> <C> <C>
Total Convertible Note & US$5,000,000 US $250,000 US $4,750,000
Warrants
</TABLE>
(1) In connection with the original offering, the Issuer paid the Finder a
commission of 5% of the total proceeds received from the sale of the
Convertible Notes. (See "Details of the Offering - CN Private
Placement").
(2) Before deducting the balance of the expenses of the CN Private Placement
and this Prospectus, estimated at $43,000, which expenses shall be borne
by the Issuer.
<PAGE>
ENFORCEABILITY OF CIVIL LIABILITIES
The Company was incorporated on August 23, 1993 under The Corporations Act
(Manitoba) by registration of its Articles of Incorporation, and a substantial
portion of the Company's assets are located outside the United States. In
addition, members of the Management and Supervisory Boards of the Company and
certain experts named herein are residents of countries other than the United
States. As a result, it may not be possible for investors to effect service of
process within the United States upon such persons or to enforce against such
persons or the Company judgments of courts of the United States predicated upon
civil liabilities under the United States federal securities laws. A final
judgment for the payment of money obtained in a U.S. court and not rendered by
default, which is not subject to appeal or any other means of contestation and
is enforceable in the United States, would in principle be upheld and be
regarded by a Manitoba court of competent jurisdiction as conclusive evidence
when asked to render a judgment in accordance with such final judgment by a
U.S. court, without substantive re-examination or re-litigation on the merits
of the subject matter thereof, provided that the competent Manitoba court finds
that the jurisdiction of the U.S. court has been based on grounds which are
internationally acceptable, that such judgment has been rendered in accordance
with rules of proper procedure, that it has not been rendered in proceedings of
a penal or revenue nature and that its content and possible enforcement are not
contrary to public policy or public order of Manitoba. Notwithstanding the
foregoing, there can be no assurance that United States investors will be able
to enforce against the Company, or members of the Management or Supervisory
Boards or certain experts named herein who are residents of Manitoba or
countries other than the United States, any judgments in civil and commercial
matters, including judgments under the federal securities laws. In addition,
there is doubt as to whether a Manitoba court would impose civil liability on
the Company or on the members of the Management or Supervisory Boards of the
Company and certain experts named herein in an original action predicated
solely upon the federal securities laws of the United States brought in a court
of competent jurisdiction in Manitoba against the Company or such members.
AVAILABLE INFORMATION
The Company is subject to the reporting requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), as applicable to foreign private
issuers, and in accordance therewith files reports and other information with
the Securities and Exchange Commission (the "Commission"). Such reports and
other information can be inspected and copied at the offices of the Commission
at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
as well as the following regional offices of the Commission: Northwestern
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661;
and 7 World Trade Center, Suite 1300, New York, New York 10048. Copies of such
material can be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. Such
reports, proxy statements and other information concerning the Company may be
inspected at the office of the National Association of Securities Dealers,
Inc., 1735 K Street, N.W., Washington, D.C. 20006. The Commission maintains a
World Wide Web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. The address of the site is http://www.sec.gov. In addition,
certain of the Company's securities are listed on the Nasdaq National Market
and the Vancouver Stock Exchange, and the aforementioned material may also be
inspected at the offices of such exchanges.
The Company has filed with the Securities Exchange Commission a registration
statement on Form F-3 (herein, together with all amendments and exhibits,
referred to as the "Registration Statement") under the Securities Act of 1933,
as amended (the "Securities Act") with respect to the offering of the
Registrable Notes and the Common Stock issuable upon conversion thereof made
hereby. This Prospectus does not contain all of the information set forth in
the Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the Commission. For further information with
respect to the Company and the Securities, reference is hereby made to the
Registration Statement.
In addition, the most recently filed annual report and audited statutory annual
accounts and a copy of the current Articles of Incorporation of the Company are
available upon request, free of charge, during normal business hours at the
offices of the Company.
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been filed with the Commission and are
incorporated herein by reference:
1. The Company's Annual Report on Form 20-F for the year ended June 30, 1996;
2. The Company's Report on Form 6-K dated October 9, 1997 relating to the
Company's public announcement of the Original Offering; and
3. The Company's Report on Form 6-K dated September 24, 1997
4. The Company's Report on Form 6-K dated August 30, 1997
5. The Company's Report on Form 6-K dated July 7, 1997
6. The Company's Report on Form 6-K dated June 14, 1997
7. The Company's Report on Form 6-K dated May 31, 1997
8. The Company's Report on Form 6-K dated May 3, 1997
9. The Company's Report on Form 6-K dated April 10, 1997
10. The Company's Report on Form 6-K dated March 1, 1997
11. The Company's Report on Form 6-K dated February 8, 1997
12. The Company's Report on Form 20-F dated February 4, 1997
13. The Company's Report on Form 6-K dated January 18, 1997
14. The Company's Report on Form 6-K dated January 15, 1997
15. The Company's Report on Form 6-K dated January 11, 1997
16. The Company's Report on Form 6-K dated December 6, 1996
17. The Company's Report on Form 6-K dated November 13, 1996
18. The Company's Report on Form 6-K dated October 23, 1996
19. The Company's Report on Form 6-K dated September 5, 1996
20. The Company's Report on Form 6-K dated September 5, 1996
21. The Company's Report on Form 6-K dated July 30, 1996
All documents filed by the Company pursuant to Section 13(a), 13(c) or 15(d) of
the Exchange Act after the date of this Prospectus and prior to the termination
of the offering of the Notes shall be deemed to be incorporated by reference in
this Prospectus and to be a part hereof from the date of filing such documents.
Any statement contained in a document incorporated or deemed to be incorporated
by reference herein shall be deemed to be modified or superseded for purposes
of this Prospectus to the extent that a statement contained herein or in any
other subsequently filed document which also is or is deemed to be incorporated
by reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this Prospectus
is delivered, upon the request of such person, a copy of any or all of the
foregoing documents incorporated herein by reference, other than exhibits to
such documents (unless such exhibits are specifically incorporated by reference
into such documents). Requests for such documents should be directed to the
Company's headquarters at, 251 Saulteaux Crescent, Winnipeg, Manitoba R3J 3C7.,
Attention: Investor Relations Manager.
Except as otherwise defined, all capitalised terms herein shall have the same
meanings set out in the Glossary of Terms.
<PAGE>
This Prospectus is filed for the purpose of qualifying for distribution the
common shares converted from the convertible notes, ("CD Shares") and the CN
Warrants (the "Offering"). The PP Shares and the PP Warrants are issuable upon
the exercise or deemed exercise of the previously issued Special Warrants and
Agent's Warrants, conversion or deemed conversion of the Convertible Notes, and
subsequent conversion of the Convertible Debentures and exercise of the CN
Warrants. Details of the CN Private Placement is as follows:
CN Private Placement
On October 1, 1997, Convertible Notes in the amount of US$5,000,000 were issued
on a private placement basis pursuant to the Securities Purchase Agreements.
The Convertible Notes bear cumulative dividends at the rate of 6% per annum,
payable in cash or in Class A shares. The Convertible Notes entitle the
holders to acquire, without additional payment, Convertible Debentures in the
aggregate principal amount of US$5,000,000 and an aggregate of 250,000 CN
Warrants. The Convertible Debentures are convertible into Class A shares at a
conversion price equal to the lower of (a) US$4.33 or (b) 85% of the closing
price of the Issuer's Shares on NASDAQ on the conversion date.
A holder of a Convertible Debenture has the right to convert same at any time
during the Debenture Conversion Period, commencing the earlier of: (a)
December 30, 1997 or (b) the later of the effective date of the Registration
Statement and the date on which the last of the Receipts for this Prospectus is
issued by the British Columbia Securities Commission, and maturing on the
Debenture Maturity Date.
Unless earlier converted by the holder, the Convertible Notes will be deemed to
be converted without further action on the part of the holder immediately prior
to 4:00 p.m. (Vancouver time) on the date (the "Debenture Maturity Date") which
is the earlier of October 2, 1998 and the fifth business day following the date
on which the last of the Receipts for this Prospectus is issued by the British
Columbia Securities Commission. If the Debenture Certificate is issued prior
to the Debenture Maturity Date, the securities represented thereby will be
subject to a hold period and may not be traded in British Columbia until
midnight on October 1, 1998, except as permitted by the Securities Act (B.C.)
or the Regulations or Rules made thereunder.
Each CN Warrant is exercisable for a period of two years from the date of
issuance, and entitles the holder to purchase one Share at a price of US$4.76
per Share during the first year, and at a price of US$5.20 per Share during the
second year. (See "Details of the Offering - CN Private Placement").
No additional commission or fee will be paid to the Finder and no additional
proceeds will be received by the Issuer in connection with the conversion or
deemed conversion of the Convertible Notes or the conversion of the Convertible
Debentures.
INVESTMENTS IN SMALL BUSINESSES INVOLVE A HIGH DEGREE OF RISK AND INVESTORS
SHOULD NOT INVEST ANY FUNDS IN THIS OFFERING UNLESS THEY CAN AFFORD TO LOSE
THEIR ENTIRE INVESTMENT. (SEE "RISK FACTORS".)
The aggregate number and percentage of outstanding voting securities held by
promoters, insiders, holders of performance or escrow securities and the Agent
as a group and by the public upon completion of the Offering is as follows:
<TABLE>
Aggregate Number of Percentage of Total Issued
Voting Securities and
Outstanding Voting
Securities
<S> <C> <C>
Public Shareholders 7,852,633 55.65%
Insiders and Agent 6,258,698 44.35%
<FN>
</TABLE>
<PAGE>
Previous Special Warrant Private Placement ("SE Private Placement")
On January 8, 1997, 1,600,000 Special Warrants were issued on a private
placement basis pursuant to the Agency Agreement, at a price of $6.00 each.
Each Special Warrant entitles the holder to acquire, without additional
payment, one SW Unit. Each SW Unit consists of one SW Share and one SW
Warrant. Each SW Warrant entitles the holder to purchase one additional Share
at a price of $7.00 on or before the SW Warrant Expiry Date.
The Special Warrants are exercisable on or before 4:00 p.m. (Vancouver time) on
the Special Warrant Expiry Date, being the earlier of: (a) January 9, 1998 and
(b) the third business day after the last of the Receipts for this Prospectus
is issued by the Commissions. Any Special Warrants not exercised by 4:00 p.m.
(Vancouver time) on the Special Warrant Expiry Date will be deemed to have been
exercised immediately prior thereto. As at the date of this Prospectus, 91,000
Special Warrants have been exercised.
The Special Warrants and the SW Warrants are governed by the terms and
conditions contained in the Special Warrant Indenture and the SW Warrant
Indenture, respectively. (See "Details of the Offering - SW Private
Placement".)
In connection with the SW Private Placement, 128,000 Agent's Special Warrants
were issued by the Issuer to the Agent. Each Agent's Special Warrant entitles
the holder to acquire, without additional consideration, one Agent's Unit.
Each Agent's Unit consists of one Agent's Share and one Agent's Warrant. Each
Agent's Warrant entitles the holder to purchase one additional Share at a price
of $7.00 on or before the SW Warrant Expiry Date. As of the date of this
Prospectus, none of the Agent's Special Warrants have been exercised.
The Shares are listed and posted for trading on the Exchange and are quoted on
the NASDAQ "small-cap" market. As at November 25, 1996, the date on which the
SW Private Placement was announced, the closing price of the Shares on the
Exchange was $7.40. As at October 1, 1997, the date on which the CN Private
Placement was announced, the closing price of the Shares on the Exchange was
$6.05. As at the date of this Prospectus, the closing price of the Shares on
the Exchange was $5.50 per Share. The purchase price of $6.00 per Special
Warrant was established by negotiation between the Issuer and the Agent. The
Special Warrants and Agent's Special Warrant were issued pursuant to exemptions
from the prospectus requirements of applicable securities legislation.
Certain legal matters relating to the distribution of the Distributed
Securities will be passed upon on behalf of the Issuer by Sperry Young &
Stoecklein of Las Vegas, Nevada.
PROSPECTUS SUMMARY
The following is a summary of the principal features of the Offering and is
qualified by the detailed information contained in the body of this Exchange
Offering Prospectus (the "Prospectus"). Certain capitalized terms used but not
defined in this Summary or the Glossary of Terms are defined elsewhere in this
Prospectus.
ISSUER:
National Healthcare Manufacturing Corporation (the "Issuer").
<PAGE>
BUSINESS:
The Issuer is an automated medical products manufacturer, whose principal
business is the assembly and packaging of disposable kits and trays for medical
and surgical procedures, such as patient care trays, custom procedure kits,
diagnostic trays and homecare kits. Through two of its subsidiaries, National
Care Products Ltd. ("NCP") and National Healthcare Manufacturing Corporation,
U.S. ("NHMC US"), the Issuer is also involved in manufacturing liquid products
for use in the Issuer's kits and trays, and for distribution to healthcare
institutions throughout North America. (See "Business of the Issuer -
Description of Business and General Development - Products".)
THE OFFERING:
This Prospectus qualifies the distribution by the Issuer of:
(a) Convertible Debentures in the amount of US$5,000,000 and 250,000 CN
Warrants to be issued upon the conversion or deemed conversion of the
Convertible Notes;
(b) the CD Shares to be issued upon the conversion of the Convertible
Debentures; and
(c) the CN Warrant Shares to be issued upon the exercise or deemed exercise of
the CN Warrants.
PRIOR ISSUE OF SECURITIES:
SW Private Placement - On January 8, 1997, 1,600,000 Special Warrants were
issued by the Issuer for a subscription price of $6.00 each pursuant to a
private placement raising gross proceeds of $9,600,000. Each Special Warrant
is exercisable, without additional payment, into one SW Unit. Each SW Unit
consists of one SW Share and one SW Warrant. Each SW Warrant entitles the
holder to purchase one SW Warrant Share at a price of $7.00 per SW Warrant
Share on or before the SW Warrant Expiry Date. Any Special Warrants
unexercised at 4:00 p.m. (Vancouver time) on the Special Warrant Expiry Date
shall be deemed to have been exercised by the holder thereof without any
further action on the holder's part, immediately prior thereto. As of the date
of this Prospectus, 91,000 of the Special Warrants have been exercised.
In connection with the SW Private Placement, 128,000 Agent's Special Warrants
were issued by the Issuer to the Agent. Each Agent's Special Warrant entitles
the holder to acquire, without additional consideration, one Agent's Unit.
Each Agent's Unit consists of one Agent's Share and one Agent's Warrant. Each
Agent's Warrant entitles the holder to purchase one additional Share at a price
of $7.00 on or before the SW Warrant Expiry Date. As of the date of this
Prospectus, none of the Agent's Special Warrants have been exercised.
CN Private Placement - On October 1, 1997, Convertible Notes in the aggregate
of US$5,000,000 were issued by the Issuer pursuant to a private placement. The
Convertible Notes entitle the holders to acquire, without additional payment,
Convertible Debentures in the aggregate principal amount of $5,000,000 and an
aggregate of 250,000 CN Warrants. No part of the Convertible Notes have been
converted. The Convertible Debentures are convertible into Shares at a
conversion price equal to the lower of: (a) US$4.33 or (b) 85% of the closing
price of the Issuer's Shares on the Exchange on the conversion date.
A holder of a Convertible Debenture has the right to convert same at any time
during the Debenture Conversion Period, commencing the earlier of: (a) December
30, 1997 or (b) the effective date of the Registration Statement, and maturing
on the Debenture Maturity Date.
Unless earlier converted by the holder, the Convertible Notes will be deemed to
be converted without further action on the part of the holder immediately prior
to 4:00 p.m. (Vancouver time) on the date (the "Debenture Maturity Date") which
is the earlier of: (a) October 2, 1998 and (b) the fifth business day
following the date on which the last of the Receipts for this Prospectus is
issued by the British Columbia Securities Commission. If the Debenture
Certificate is issued prior to October 2, 1998 and the issuance of a receipt
for the Qualifying Prospectus, the securities represented thereby will be
subject to a hold period and may not be traded in British Columbia until
midnight on October 1, 1998, except as permitted by the Securities Act (B.C.)
or the Regulations or Rules made thereunder.
<PAGE>
Each CN Warrant is exercisable for a period of two years from the date of
issuance, and entitles the holder to purchase one Share at a price of US$4.76
per Share during the first twelve month period, and at a price of US$5.20 per
Share during the second twelve month period.
If the Special Warrants and Agent's Special Warrants are exercised, or the
Convertible Notes converted prior to the issuance of the Receipts, the Shares,
the PP Warrants, and the PP Warrant Shares will be subject to a hold period and
other restrictions upon transfer under applicable securities legislation and
the policies of the Exchange. (See "Details of the Offering - General".)
USE OF PROCEEDS AND BUSINESS OBJECTIVES:
The Issuer will not receive any cash proceeds from, and no commission is
payable by the Issuer in respect of, the issuance of the Units upon the
exercise or deemed exercise of the Special Warrants, or the conversion or
deemed conversion of the Convertible Notes or conversion of the Convertible
Debentures.
In January of this year the Issuer received net proceeds of $9,600,000 (the "SW
Net Proceeds") from the issue and sale of the Special Warrants. After
deduction of the Finder's commission of $344,400 (US$250,000) in respect of the
CN Private Placement, the Issuer received net proceeds of $6,543,600
(US$4,750,000) (the "CN Net Proceeds") from the issue and sale of the
Convertible Notes. The CN Net Proceeds were received on October 1, 1997, and
none of these funds has been expended to date. The total net proceeds from the
SW Private Placement and the CN Private Placement is $16,143,600 (the "Total
Net Proceeds").
As at September 30, 1997, the Issuer has expended $6,606,383 of the SW Net
Proceeds, as follows: $34,691 towards the expenses of the SW Private
Placement, $962,942 towards the upgrade and installation of two additional
automated feeders(1), $896,447 towards acquisition of the Liquid Division of
Arjo Canada Inc.(2) ("Arjo"), $116,498 towards assimilation of Arjo's
facilities with those of the Issuer, $100,000 towards severance paid to certain
Arjo employees, $2,105,640 towards acquisition of the business and certain
assets of, and advances to, Huntington Laboratories Gam-Med Division, Inc.(3),
$300,000 in advances to Mercana Industries Ltd. against a registered general
security agreement(4), $1,041,914 towards contributed share capital in NHLC(5)
, $87,600 towards general office computer equipment, $151,300 towards general
fixed assets, and $809,351 in equipment lease payments(1) .
(1) see "Business of the Issuer - Operations - Equipment"
(2) see "Business of the Issuer - Acquisitions and Dispositions - Liquid
Division of Arjo Canada Inc."
(3) see "Business of the Issuer - Acquisitions and Dispositions -
Huntington Laboratories Gam-Med Division"
(4) see "Business of the Issuer - Acquisitions and Dispositions - Textile
Rights"
(5) see "Business of the Issuer - "Description of Business and General
Development".
After deduction of the foregoing expenses, the Issuer has approximately
$2,993,617 remaining from the SW Net Proceeds.
<PAGE>
The remaining SW Net Proceeds, together with the CN Total Proceeds, make
available a total of $9,537,217 (the "Funds Available"), which are intended to
be utilized by the Issuer as follows:
<TABLE>
Amount
<S> <C>
(a) To pay the balance of estimated costs of the SW
Private Placement and this Prospectus: $ 43,000
(b) To quarterly instalments of the loan repayment under
the WEDD Agreement(1): 460,000
(c) To upgrade and install additional automated
robotic units(2): 250,000
(d) To equipment lease payments(2): 1,677,206
(e) Reserved for acquisition of textile rights under the
Importex Assignment:(3) 100,000
(f) To further NHLC contributed share capital(4) 1,028,086
(f) Reserved for due diligence and potential acquisition
expenses: 4,800,000
(g) Reserved for working capital to fund ongoing
operations: 1,178,925
----------
TOTAL: $9,537,217
==========
<FN>
</TABLE>
(1) See "Business of the Issuer - Summary and Analysis of Financial
Operations - Financial Assistance - Federal Government".
(2) See "Business of the Issuer - Operations - Equipment".
(3) See "Business of the Issuer - Acquisitions and Dispositions - Textile
Rights".
(4) See "Business of the Issuer - Description of Business and General
Delopment".
Also see "Business of the Issuer - Stated Business Objectives" and "Use of
Proceeds".
Any funds received upon exercise of the PP Warrants, the July/96 Warrants, the
Importex Warrant or the incentive stock options will be applied towards general
working capital.
SUMMARY OF FINANCIAL OPERATIONS:
During the year ended June 30, 1997 the Issuer had costs of sales of $2,637,315
on sales of $4,905,401 for a gross profit before depreciation of $2,268,086.
In the fiscal year ended June 30, 1996 the Issuer had costs of sales of
$291,319 on sales of $556,105 for a gross profit before depreciation of
$264,786. The Issuer had no sales during the year ended June 30, 1995. As at
September 30, 1997 the Issuer had working capital of $4,843,574, which sum
excludes the net proceeds of $6,543,600 received on closing of the CN Private
Placement. (See "Business of the Issuer - Summary and Analysis of Financial
Operations".)
<PAGE>
MANAGEMENT:
Unless otherwise noted below, the positions held by the following members of
management are positions with the Issuer:
Mahmood (Mac) Jamshidi Shahsavar President, Chief Executive Officer,
Director and Promoter
Jack Tapper Vice-President and Chief Financial Officer
Reginald Adrian Ebbeling Chairman of the Board and Director
Morteza Seyed Torabian Executive Vice-President, Director and
Promoter
Alice Elaine Affleck Secretary-Treasurer and Director
Robert Alexander Jackson Executive Vice-President and Director
Janice Marie Shahsavar Vice-President, Human Resources
Gordon John Farrimond Vice-President, Sales and Marketing and
Director
John Ryrie Stone Vice-President, Mertex and Mertex Plus
Surgical Division
Darrell Wayne Van Dyke Vice-President of NHMC US
Richard J. Johnson Vice President of NCP
(See "Business of the Issuer - Management".)
RISK FACTORS:
Investment in the securities offered under this Prospectus must be considered
highly speculative due to the nature of the Issuer's business and its present
stage of development. Specific risk factors to be considered include, but are
not limited to, the following:
(1) The market for the Issuer's products is highly competitive and subject to
increasing competition based on price. The Issuer has a limited operating
history and existing competitors may have greater financial and managerial
resources, operating histories and name recognition. There is no
assurance that the Issuer will be able to adapt to evolving markets and
technologies, develop new products, achieve and maintain technological
advances or maintain a unit selling price competitive with other products.
(See "Business of the Issuer - Market and Competition".)
(2) The Issuer's operations currently rely upon the two computerized form-fill
seal units and two robotic units for the assembly and packaging of its
product.
(3) Receipt of the balance of the government financial assistance, and
repayment of the total amounts received, as disclosed under the heading
"Business of the Issuer - Summary and Analysis of Operations", are subject
to certain conditions.
(4) The Issuer is subject to government regulations in the jurisdictions in
which it distributes its products. Future changes in such regulations may
have an adverse impact on the operations of the Issuer.
(5) Purchasers of the Special Warrants will suffer material dilution. (See
"Share and Loan Capital -Fully Diluted Share Capital".)
(6) Neither the Issuer nor Excelco has filed an application for patent
protection relating to the Robotic Technology.
(7) The Issuer is dependent upon the personal efforts and commitment of its
management team. The loss of senior management personnel may adversely
affect the Issuer.
<PAGE>
(8) The Issuer's business may be affected by other factors beyond its control,
such as economic recessions and adverse fluctuations in foreign exchange
rates.
(9) The Issuer has not paid dividends in the past and does not anticipate
paying dividends in the near future. The MG Agreement and the WEDD
Agreement place certain restrictions on the payment of dividends by the
Issuer. (See "Business of the Issuer - Summary and Analysis of Financial
Operations".)
(10)Certain of the Issuer's directors and officers may serve as directors or
officers of, or have shareholdings in, other companies and, to the extent
that such other companies may compete with the Issuer, conflicts of
interests may arise which may be harmful to the interests of the Issuer.
(See "Directors, Officers and Promoters - Related Party Transactions".)
(11)The Issuer's business utilizes a new technology that is being developed
for the purpose of the Issuer's business. Accordingly, the Issuer is
subject to risks associated with start-up companies, including start-up
losses, uncertainty of revenues, markets and profitability and the
necessity of additional funding. In addition, the technology acquired by
the Issuer and being developed by the Issuer has not yet been proven in a
production environment on an ongoing basis.
(12)The evolving nature of the healthcare industry in North America in terms
of cost containment is leading to changing purchasing practices amongst
purchasers at various institutions. This change in purchasing environment
(i.e. towards a more centralized buying approach) may put additional
pressure on the Issuer to compete on a price basis in order to achieve
adequate market penetration and maintain customer loyalty. There can be
no assurances that the Issuer will be able to implement its business
strategy with its current pricing structure.
<PAGE>
GLOSSARY OF TERMSTERMS
Except as otherwise defined, the following terms, when used herein, shall have
the following meanings:
"Agent" Yorkton Securities Inc.
"Agent's Shares" 128,000 Shares to be issued upon
exercise of the Agent's Special
Warrants.
"Agent's Special Warrants" 128,000 special warrants of the Issuer
previously issued to the Agent in
connection with the SW Private
Placement, exercisable upon the same
terms and conditions as the Special
Warrants.
"Agent's Units" 128,000 units of the Issuer, each unit
consisting of one Agent's Share and one
Agent's Warrant to be issued without
additional payment upon the exercise of
the Agent's Special Warrants.
"Agent's Warrants" 128,000 warrants of the Issuer to be
issued to the Agent on exercise of the
Agent's Special Warrants, each Agent's
Warrant entitling the holder to
purchase one SW Warrant Share at a
price of $7.00 per SW Warrant Share on
or before the SW Warrant Expiry Date.
"Agent's Warrant Shares" 128,000 Shares to be issued upon the
exercise of the Agent's Warrants.
"AH Sales" Associated Healthcare Sales Ltd., a non-
operating private Manitoba company, of
which the Issuer owns 100% of the
issued and outstanding shares.
"B.C. Act" the Securities Act (British Columbia).
"CD Shares" the Shares to be issued upon conversion
or deemed conversion of the Convertible
Debentures.
"CN Private Placement" the private placement of the
Convertible Notes issued October 1,
1997 pursuant to the Securities
Purchase Agreements.
"CN Warrants" the share purchase warrants to be
issued, pursuant to the terms and
provisions of the Debenture
Certificate, upon conversion or deemed
conversion of the Convertible Notes.
"CN Warrant Shares" 250,000 Shares to be issued upon the
exercise of the CN Warrants.
"Commissions" jointly, the British Columbia
Securities Commission and the Manitoba
Securities Commission, the Securities
and Exchange Commission.
<PAGE>
"Convertible Debentures" the convertible debentures issuable,
pursuant to the terms and conditions of
the Securities Purchase Agreements,
upon conversion or deemed conversion of
the Convertible Notes.
"Convertible Notes" the US$5,000,000 convertible note
previously issued under the CN Private
Placement, which notes are convertible,
for no additional consideration, into
Convertible Debentures and CN Warrants.
"Debenture Certificates" the certificates, issued upon
conversion or deemed conversion of the
Convertible Notes, which represents the
Convertible Debentures and provide for
the terms and conditions of the
issuance of the CD Shares upon
conversion of the Convertible
Debentures.
"Debenture Conversion Period" commences the earlier of: (a) December
30, 1997 or (b) the later of the
effective date of the Registration
Statement and the date on which the
last of the Receipts for this
Prospectus is issued by the British
Columbia Securities Commission.
"Debenture Maturity Date" the earlier of: (a) October 2, 1998 and
(b) the fifth business day following
the date on which the last of the
Receipts is issued.
"Distributed Securities" collectively, the securities being
qualified for distribution under this
Prospectus, namely, the CD Shares, and
the CN Warrants.
"Exchange" the Vancouver Stock Exchange.
"Finder" Corporate Capital Management, LLC.
"Importex Warrant" the warrant issued to Importex
Corporation pursuant to the Importex
Assignment entitling the holder to
purchase 150,000 Shares at a price of
$6.90 per Share in the first year and
at a price of $7.94 per Share in the
second year, expiring on February 3,
1999. (See "Business of the Issuer -
Acquisitions and Dispositions - Textile
Rights - Importex Corporation".)
"Importex Warrant Shares" 150,000 Shares issuable upon exercise
of the Importex Warrant.
"July/96 Warrants" warrants previously issued upon
exercise or deemed exercise of the
July/96 Special Warrants.
"July/96 Warrant Shares" 835,000 shares issuable upon exercise
of the July/96 Warrants.
<PAGE>
"NASDAQ" National Association of Securities
Dealers Automated Quotation system.
"NCP" National Care Products Ltd., a
private Manitoba company of which the
Issuer owns 100% of the issued and
outstanding shares.
"NHLC" National Healthcare Logistics, LLC, a
Limited Liability Company, being a
private Nevada company of which the
Issuer owns 50% of the issued and
outstanding voting shares.
"NHMC US" National Healthcare Manufacturing
Corporation, U.S., a private Delaware
company, of which the Issuer owns 100%
of the issued and outstanding shares.
"PP Shares" collectively, the SW Shares, the SW
Warrant Shares, the Agent's Shares,
the Agent's Warrant Shares, the CD
Shares and the CN Warrant Shares.
"PP Warrants" collectively, the SW Warrants, the
Agent's Warrants, and the CN Warrants
(but excluding the July/96 Warrants and
the Importex Warrant).
"PP Warrant Shares" the Shares which may be acquired upon
the exercise of the SW Warrants, the
Agent's Warrants, and the CN Warrants
(but excluding the shares which may be
acquired upon the exercise of the
July/96 Warrants and the Importex
Warrant).
"Receipts" means receipts for the (final)
Prospectus issued by the Commissions.
"Registration Statement" the registration statement to be filed
under the Securities Act of 1933
(United States) in connection with the
conversion or deemed conversion of the
convertible notes.
"SW Agency Agreement" the agency agreement dated for
reference December 5, 1996, between the
Issuer and the Agent in respect of the
SW Private Placement.
"SW Private Placement" the private placement of the Special
Warrants issued January 8, 1997
pursuant to the Agency Agreement.
"SW Qualification Deadline" May 8, 1997.
"SW Shares" 1,509,000 Shares to be issued upon
exercise of the Special Warrants.
<PAGE>
"SW Units" 1,509,000 units of the Issuer, each
consisting of one SW Share and one SW
Warrant to be issued without additional
payment upon the exercise of the
Special Warrants.
"SW Warrants" 1,509,000 non-transferable share
purchase warrants of the Issuer to be
issued upon exercise of the Special
Warrants, each entitling the holder to
purchase one SW Warrant Share at a
price of $7.00 per SW Warrant Share on
or before the SW Warrant Expiry Date.
"SW Warrant Expiry Date" July 8, 1998.
"SW Warrant Indenture" the agreement among the Issuer and the
Trustee, dated January 8, 1997, which
provides for the terms and conditions
of the creation, issuance and exercise
of the SW Warrants.
"SW Warrant Share" the 1,600,000 Shares which may be
acquired upon exercise of the SW
Warrants.
"Securities Purchase Agreement" the securities purchase agreements
dated October 1, 1997, between the
Issuer and the investors in respect of
the CN Private Placement.
"Shares" the Class A shares without par value in
the capital stock of the Issuer.
"Special Warrants" 1,600,000 special warrants of the
Issuer previously issued under the SW
Private Placement, each entitling the
holder to acquire, for no additional
consideration, one SW Unit.
"Special Warrant Expiry Date" the earlier of: (a) January 9, 1998
and (b) the third business day after
the day on which the last of the
Receipts for this Prospectus is issued
by the Commissions.
"Special Warrant Indenture" the agreement among the Issuer and the
Trustee which provides for the terms
and conditions of the creation,
issuance and exercise of the Special
Warrants.
"Trustee" Pacific Corporate Trust Company, of
Vancouver, British Columbia.
"Units" jointly, the SW Units and the Agent's
Units.
<PAGE>
THE ISSUER
The Issuer was incorporated on August 23, 1993 under The Corporations Act
(Manitoba) by registration of its Articles of Incorporation. The address of
the head office of the Issuer is 251 Saulteaux Crescent, Winnipeg, Manitoba,
R3J 3C7, and the address of the registered office of the Issuer is 30th Floor
Commodity Exchange Tower, 360 Main Street, Winnipeg, Manitoba, R3C 4G1. The
Issuer was extra-provincially registered in the Province of British Columbia on
December 9, 1994.
The Issuer is a reporting issuer in the Provinces of British Columbia and
Manitoba and with the Securities and Exchange Commission. The Issuer's Shares
have been listed for trading on the senior board of the Exchange since January
15, 1996 under the trading symbol "NHM". The Shares have also been quoted on
the Small Capital Market of the National Association of Securities Dealers
Automated Quotation system ("NASDAQ") since August 14, 1996 under the symbol
"NHMCF".
The Issuer owns 100% of the issued and outstanding shares of National
Healthcare Manufacturing Corporation, U.S. ("NHMC US"), a private company
incorporated on October 25, 1994 under the Business Corporations Act
(Delaware). NHMC US was established for the purpose of entering into certain
lease arrangements (see "Business of the Issuer - Operations - Equipment") and
to carry on the medical products packaging operations of the Issuer in the U.S.
(see "Business of the Issuer - Operations - General").
The Issuer owns 100% of the issued and outstanding shares of Associated
Healthcare Sales Ltd. ("AH Sales"), a private company incorporated on October
4, 1994 under The Corporations Act (Manitoba). AH Sales is a non-operating
subsidiary of the Issuer.
The Issuer owns 100% of the issued and outstanding shares of National Care
Products Ltd. ("NCP"), a private company incorporated on May 6, 1996 under The
Corporations Act (Manitoba). NCP operates the business previously operated by
Arjo Canada Inc. as its Liquid Division (see "Business of the Issuer -
Acquisitions and Dispositions - Liquid Division of Arjo Canada Inc.")
The Issuer owns 50% of the issued and outstanding voting shares of National
Healthcare Logistics, LLC, a Limited Liability Company ("NHLC"), a private
company incorporated on March 26, 1997 under the Nevada Limited Liability
Company Act. The remaining 50% of NHLC's voting shares is owned by Joe Smith
and Duane Jorgenson, each as to 25%. NHLC was established to offer material
management and alternative distribution channels to integrated hospital groups
in the U.S.
BUSINESS OF THE ISSUER
Description of Business and General Development
The Issuer is an automated medical products manufacturer, whose principal
business is the assembly and packaging of disposable kits and trays for medical
and surgical procedures, such as patient care trays, custom procedure kits,
diagnostic trays and homecare kits (see the subheading "Products"). The market
for the Issuer's products is comprised of users of medical and surgical device
products such as hospitals, outpatient surgery centres, dental and medical
clinics, retirement homes, homecare providers and multi-level care facilities.
The Issuer has marketed its kit and tray products to various healthcare
facilities throughout North America, through an independent sales team and
independent distributors. (See the subheading "Market and Competition".)
<PAGE>
Prior to the use of custom procedure kits, a healthcare facility would order
from a number of sources and maintain a substantial inventory of each
individual sterile product used in the procedures performed at that facility.
Each surgical procedure would require a lengthy set-up time in which all
products required for the surgical procedure would be manually selected and
organized by hospital staff. In addition to placing demands on hospital
personnel, this procedure had a greater risk of product contamination and
waste. Custom procedure kits increase efficiency and productivity by
consolidating the products used in a given surgical procedure into a single
package. Pre-assembled kits eliminate the opening of many different packages
of sterile materials and reduce the risk of contamination. They also reduce
the demand on hospital personnel and facilities associated with the ordering
and maintaining of inventory. Custom procedure kits are particularly
beneficial to facilities that have limited storage space and limited investment
in infrastructure and personnel. In addition, the use of custom procedure kits
allow for easier identification of costs associated with specific procedures.
The Issuer has acquired the Liquid Division of Arjo Canada Inc. ("Arjo") which
manufactures liquid medical products, such as disinfectants, shampoos and skin
creams, to the Issuer's range of products (see "Business of the Issuer -
Acquisitions and Dispositions - Liquid Division of Arjo Canada Inc.") The
Issuer has also acquired the on-going business and certain assets of Huntington
Laboratories Gam-Med Division, Inc. which packages antimicrobial products in
patented disposable plastic dispensers. (See "Business of the Issuer -
Acquisitions and Dispositions - Huntington Laboratories Gam-Med Division,
Inc.")
National Healthcare Logistics, LLC, a Limited Liability Company ("NHLC") was
created in April 1997 by the Issuer as an equal partner with two well-respected
U.S. authorities in materials management and medical distribution systems. The
Issuer owns 150 Class A voting shares of NHLC purchased at a price of US$1.00
each and 750 Class C preferred non-voting shares of NHLC purchased at a price
of US$1,500 each. The Issuer intends to contribute additional share capital to
purchase a further 750 Class C preferred shares of NHLC. NHLC is in the
service business managing the purchasing and distribution activities for
multiple numbers of hospitals utilizing a "hub and spoke" distribution system.
The hub and spoke distribution system is the state of the art in supply chain
management for integrating hospital systems. This concept has been developed
by Duane Jorgenson, one of the principals of NHLC, who is a highly regarded
authority in material management logistics. Mr. Jorgenson has also developed
and implemented a number of stockless inventory systems for hospitals
throughout the U.S. The formation of NHLC provides the Issuer with an entry
to "alternative" distribution channels, the fastest growing segment of the
medical products distribution market. This directly benefits the Issuer and
its subsidiaries by providing them with an excellent opportunity to market
their products directly to end user hospitals through hub and spoke
distribution systems managed by NHLC. In August 1997, NHLC entered into a 10-
year agreement with Sysco Corporation, through which NHLC will bring in supply
management contracts for various integrated hospital systems, based on hub and
spoke distribution, while Sysco Corporation will provide the capital for
setting up the hubs and provide inventory and distribution.
The Issuer markets all its products to hospitals, long term care facilities and
homecare providers in Canada through independent distributors. The Issuer uses
an independent sales team and its interest in NHLC to market its products in
the U.S. Through its 50% interest in the recently founded NHLC, a medical
products purchasing and distribution company, the Issuer is further
establishing its U.S. market presence. Also, as part of its marketing
strategy, the Issuer intends to introduce the "NCP" (standing for "National
Care Products") brand name.
<PAGE>
The Issuer was inactive from incorporation until June 1994 when it began
raising capital for the acquisition and modification of its Winnipeg facility
for the packaging of medical supplies for the healthcare industry. To date,
the Issuer has accomplished the following:
* in October 1994, secured in excess of $10 million in lease financing for
three robotic multi-component packaging assembly lines (see "Business of
the Issuer - Operations - Equipment");
* in November and December 1994 entered into agreements with both the
Government of Manitoba and Government of Canada for financial assistance
of up to $4,611,852 (certain conditions apply, see "Business of the Issuer
- Summary and Analysis of Financial Operations");
* in December 1994, acquired a 71,000 square foot manufacturing plant sited
on approximately 3.396 acres of land (the "Property") located in Winnipeg,
Manitoba (see "Business of the Issuer - Acquisitions and Dispositions -
Property");
* modified the Winnipeg manufacturing plant and upgraded its utility systems
to meet production requirements;
* purchased the necessary machinery and warehousing equipment to meet
operation requirements (see "Business of the Issuer - Operations -
Production Line Assembly Equipment");
* in May 1995, acquired the exclusive North American and European licenses
to use certain robotic technology to assemble, package and market trays,
packs and custom procedure kits in the Continental U.S.A. and Canada (see
"Business of the Issuer - Acquisitions and Dispositions - Robotic
Technology License Agreement");
* in July 1995 officially opened its Winnipeg manufacturing facility and in
September 1995 shipped its first order of kits and trays for
sterilization.
* obtained a listing as a 'senior board company' on the Vancouver Stock
Exchange on January 15, 1996;
* obtained U.S. Food and Drug Administration ("FDA") designation of the
Issuer's Winnipeg manufacturing facility as a 'Class 10,000 clean room',
(see "Business of the Issuer - Operations - Regulatory Process");
* obtained registration of its Shares in the U.S. with the Securities and
Exchange Commission;
* in August 1996, commenced trading on the NASDAQ Small Cap Market, under
symbol NHMCF;
* in September 1996, completed an upgrade to its robotic packaging
technology and developed new feeder assemblies for the placement of
various medical tray and kit components;
* in September 1996, acquired the Liquid Division of Arjo Canada Inc. (see
"Business of the Issuer - Acquisitions and Dispositions - Liquid Division
of Arjo Canada Inc.");
* in January 1997, completed the SW Private Placement;
* in February 1997, acquired the on-going business and certain assets of
Huntington Laboratories Gam-Med Division, Inc., including a 15,253 square
foot manufacturing facility located in Antioch, Illinois, U.S.A. (see
"Business of the Issuer - Acquisitions and Dispositions - Huntington
Laboratories Gam-Med Division, Inc.");
<PAGE>
* in March 1997, co-founded NHLC, a private Nevada company established to
manage the purchasing and distribution of medical products, including
those of the Issuer, to hospital groups in the U.S.;
* in August 1997, through its 50% interest in NHLC, entered into a 10-year
agreement with Sysco Corporation to provide material distribution to
integrated hospital systems (see "Business of the Issuer - Acquisitions
and Dispositions - National Healthcare Logistics, LLC";
* in September 1997, completed the acquisition of certain textile rights
from Importex (see "Business of the Issuer - Acquisitions and Dispositions
- Textile Rights - Importex Corporation"); and
* in October 1997, completed the CN Private Placement.
Summary and Analysis of Financial Operations
<TABLE>
The following is a summary of the Issuer's financial operations during the last
two financial years. (For particulars, see the Financial Statements attached
to this Prospectus.)
<CAPTION>
Year Ended Year Ended
June 30, 1997 June 30, 1996
<S> <C> <C>
Sales $ 4,905,401 $ 556,105
Other Revenue 166,196 51,339
Gross Profit Before Depreciation 2,268,086 264,786
Cost of Sales 2,637,315 291,319
Research and Development Expenses Nil Nil
Sales and Marketing Expenses 2,205,375 185,082
General and Administrative Expenses 2,219,207 1,703,270
Depreciation 1,576,975 1,188,053
Interest on Long-Term Debt 415,035 409,258
Other 56,026 42,208
Net Loss 4,248,043 3,211,746
Working Capital (Deficiency) 5,456,000 (926,575)
Investment in National Healthcare
Logistics, LLC 490,772 Nil
Property, Plant and Equipment Used
in Operations 7,698,374 6,916,680
Assets under Development 9,868,849 8,924,389
Deferred Foreign Exchange Gain 54,128 204,073
Other Intangibles Nil Nil
Long Term Liabilities (excluding 10,377,081 10,113,610
deferred foreign exchange gain)
Shareholders' Equity
Dollar Amount of Share Capital 9,318,163 8,677,351
Number of Shares 11,070,415 10,753,290
Dollar Amount of Warrants 12,093,206 Nil
Deficit (8,328,583) (4,080,540)
<FN>
</TABLE>
There are 12,474,331 Shares issued and outstanding as of the date of this
Prospectus, of which 1,180,000 are performance shares releasable from escrow at
the rate of one share for each $0.09 of cumulative cash flow generated from
operations. Upon the successful completion of this Offering, a total of
14,111,331 Shares will be issued and outstanding.
<PAGE>
<TABLE>
Year Ended June Year Ended
30, 1997 June 30, 1996
<S> <C> <C>
Sales to customers outside Canada 2,482,035 2,482,035
Sales to customers inside Canada 2,423,366 2,423,366
Gross Profit Before Depreciation on
Total Sales 2,268,086 2,268,086
<FN>
</TABLE>
While sales volumes increased from 1996 to 1997, gross profit before
depreciation percentages of 47.6% for 1996 and 46.2% for 1997 remained
relatively the same.
Year Ended June 30, 1997
For the year ended June 30, 1997, the Issuer had cost of sales of $2,637,315 on
sales of $4,905,401. Gross profit before depreciation for the year ended June
30, 1997 was $2,268,086. The Issuer recorded depreciation and amortization of
property, plant and equipment of $1,576,975 and interest on long term debt of
$415,035. These amounts were expensed, as the Issuer was past the start-up
stage and capable of production. The Issuer also experienced a significant
increase in selling, distribution and administrative expenses which totalled
$4,424,582. The increase was due to increased activity in sales and marketing,
the expenses associated with investigating potential acquisitions, and the
expenses associated with the acquisition of the liquid division of Arjo Canada
Inc. Sales increased from $556,105 for 1996 to $4,905,401 for 1997, due to
increased sales and marketing activity and the addition of liquid and
antimicrobial products to the Issuer's product line.
On July 31, 1996, 905,000 special warrants were issued by the Issuer for a
subscription price of $3.00 each for gross proceeds of $2,715,000. After
deduction of the Agent's commission of $190,050 in respect of this private
placement, the Issuer received net proceeds of $2,524,950.
On January 8, 1997, 1,600,000 Special Warrants were issued by the Issuer for a
subscription price of $6.00 each for proceeds of $9,600,000. There was no cash
commission payable on the SW Private Placement, however, as commission the
Agent was issued Agent's Special Warrants (see "Details of the Offering - SW
Private Placement").
The long term liabilities of the Issuer as at June 30, 1997 included
obligations under capital leases of $5,504,985.
(For additional information on leased equipment, see "Business of the Issuer -
Operations - Equipment" and the Financial Statements appended hereto.) As at
June 30, 1997, inventories were valued at $2,850,012. The Issuer's working
capital was $5,456,000 and its asset base exceeded $27 million. The net loss
for the year ended June 30, 1997 was $4,248,043.
<PAGE>
Year Ended June 30, 1996
For the year ended June 30, 1996, the Issuer had cost of sales of $291,319 on
sales of $556,105. Gross profit before depreciation for the year ended June
30, 1996 was $264,786. The Issuer recorded depreciation and amortization of
property, plant and equipment of $1,188,053 and interest on long term debt of
$409,258. These amounts were expensed as the Issuer was past the start-up
stage and capable of production. The Issuer also experienced a significant
increase in selling, distribution and administrative expenses which totalled
$1,888,352, including advertising expenses of $185,082. The increase was due
to increased activity in sales and marketing, the expenses associated with
investigating potential acquisitions, and the expenses associated with the
acquisition of the liquid division of Arjo Canada Inc. which closed subsequent
to this period.
General and administrative expenses included $328,019 in consulting fees,
$149,384 in business and property taxes, and $540,927 in wages and employee
benefits.
The long term liabilities of the Issuer as at June 30, 1996 included
obligations under capital leases of $7,223,699. As at June 30, 1996, inventory
was valued at $507,203. The Issuer's working capital deficiency was $926,575
and its asset base exceeded $17,500,000. The net loss for the year ended June
30, 1996 was $3,211,746.
Liquidity
Historically, the Issuer has relied on debt and equity financing to develop and
operate its business. On a prospective basis, the Issuer has not yet achieved
profitable operations and must continue to rely upon funding through further
private and public equity financings and by drawing upon funds available under
the MG Agreement and the WEDD Agreement (as hereinafter defined). (For further
information relating to the MG Agreement and the WEDD Agreement, see subheading
"Financial Assistance" following.)
Prior to the initial public offering of the Issuer's Shares under its
prospectus bearing an effective date of November 30, 1995 (the "IPO
Prospectus"), liquidity was dependent upon cash invested by principals of the
Issuer and private investors. Additional funds were provided by shareholder
loans and funds advanced from the Manitoba and Federal Governments pursuant to
the MG Agreement and WEDD Agreement. In December 1995, the Issuer received net
proceeds of approximately $1,800,000 from the IPO Prospectus offering. As at
June 30, 1997, the Issuer had received a total of $1,613,146 under the MG
Agreement and $1,654,180 under the WEDD Agreement. Although these sources of
funding were adequate for its initial start-up expenses, the Issuer required
additional funding from further private equity financings in order to pursue
its acquisition plans and implement a sales and marketing program in Canada and
the United States. To that end, during its year ended June 30, 1997, the
Issuer completed the SW Private Placement, raising proceeds of $9,600,000 and,
on October 1, 1997, closed the CN Private Placement, raising net proceeds of
$6,543,600. The Issuer will continue to require additional funds, through
private or public equity financings, in order to maintain its objective of
rapid growth.
<PAGE>
Financial Assistance
Manitoba Government
By agreement dated November 24, 1994, as amended September 21, 1995 and
November 14, 1995 (the "MG Agreement"), the Department of Industry Trade and
Tourism of the Manitoba Government, through its Crown Corporation and agent,
Manitoba Development Corporation ("MDC") agreed to provide the Issuer with
financial assistance equal to the lesser of $2,674,000 or 33% of the costs
excluding G.S.T. incurred and paid for the land and buildings purchased,
building improvements made, and equipment purchased at arms length, all
respecting the Issuer's production of automated packaged medical and surgical
devices, kits and procedural trays for the medical and healthcare market (the
"Eligible Project Costs"). The Issuer met conditions sufficient for it to
obtain a maximum of $2,174,000 of financial assistance (the "MG Loan") from
MDC.
The MG Agreement requires the creation and maintenance of a certain number of
jobs over a four-year period, starting in 1995, as follows:
Calendar Year Number of New Jobs Number of Jobs Required
Required to be Created to be Maintained
1995 5 5
1996 23 28
1997 18 46
1998 3 49
During calendar 1999 and until the MG Loan is repaid in full, the Issuer is
required to maintain the number of jobs required to be maintained for calendar
1998. The Issuer has created and maintained the requisite number of jobs and
currently employs 84 full-time employees.
The MG Loan is secured with a first-fixed charge against land, buildings and
certain equipment and certain second fixed charges, and will be subject to
interest (both before and after maturity) at a rate, compounded monthly,
equivalent to that being charged by the Province of Manitoba to its Crown
corporations for borrowings amortized over a ten year period. The MG Loan is
to be repaid as follows:
(a) six consecutive monthly payments of $30,000 from May 5, 1999 through
October 5, 1999; and
(b) the remaining principal payments must be made by way of 48 equal
consecutive monthly payments of $51,958.33 from November 5, 1999 up to and
including October 5, 2003.
In addition, a maximum 42 months' relief on interest has been granted to the
Issuer, subject to the Issuer providing a certain number of jobs per year, as
stated in the above table, until the MG Loan has been repaid. However, the MG
Agreement also provides for the acceleration of interest and principal in the
event the Issuer fails to provide the above stated number of jobs per year.
The accelerated payments shall be calculated proportionally to the shortfall in
jobs for a specific year. The MG Loan is also repayable on demand in the event
of default by the Issuer under any of the security agreements.
<PAGE>
The Issuer received a total draw down pursuant to the MG Agreement in the
amount of $2,174,000 (of the $2,674,000 originally available to the Issuer).
Prior to advance of the final $500,000 of the possible maximum of $2,674,000
from MDC, the Issuer was to achieve sales of $2,093,000 during the 12 months
ended June 30, 1996 and $16,884,000 during the 12 months ended June 30, 1997.
As such sales targets were not achieved, the Issuer did not receive the final
$500,000 from MDC.
The MG Agreement also places certain limitations on the payment of dividends by
the Issuer, including that the Issuer not pay any dividends until October 5,
1998.
Pursuant to the MG Agreement, the following supporting documentation, all dated
September 5, 1995, was delivered by the Issuer to MDC:
(a) Real Property Mortgage and Security Agreement
The Issuer has granted to MDC a mortgage (the "Real Property Mortgage") on
the Property. Pursuant to an agreement (the "Security Agreement"), the
Issuer also granted to MDC a first security interest in certain lands,
buildings and equipment, and a second security interest in receivables and
inventory of the Issuer.
(b) Assignment/Postponement of Shareholder Loans Agreement
Pursuant to an agreement (the "Assignment/Postponement of Shareholder
Loans Agreement") among the Issuer, Excelco Systems Inc. ("Excelco"),
Mahmood (Mac) Shahsavar, Janice Shahsavar and MDC, it was agreed that
during the term of the MG Loan:
(i) neither Mahmood (Mac) Shahsavar nor Janice Shahsavar would sell,
transfer, assign or otherwise dispose of their respective incentive
stock options (see "Options and Other Rights to Purchase
Securities"),
(ii) neither Mahmood (Mac) Shahsavar nor Janice Shahsavar would sell,
transfer, assign or otherwise dispose of any Shares acquired pursuant
to an exercise of their respective incentive stock options or
acquired upon the release of shares from escrow (as disclosed under
the heading "Performance Shares"), and
(iii) the Issuer would not make any payments to Excelco or to any
other shareholders of the Issuer on account of any loans advanced by
them to the Issuer,
without the prior written consent of MDC.
(c) Equity Undertaking Agreement
Pursuant to an agreement (the "Equity Undertaking Agreement") with
Excelco, Mahmood (Mac) Shahsavar, Janice Shahsavar and MDC, as amended
October 8, 1996, the Issuer agreed that during the term of the MG Loan it
would:
(i) not repay any debts or liabilities owing to persons other than MDC,
except for debts and liabilities owing to Her Majesty The Queen in
Right of Canada under the WEDD Agreement and accounts payable
incurred by the Issuer in the ordinary course of business; and
<PAGE>
(ii) not issue any new shares or create any new class of shares, and will
not merge with any other entity, without first notifying MDC.
(d) Lease and Credit Undertaking Agreement
An agreement (the "Lease and Credit Undertaking Agreement") among the
Issuer, Excelco and MDC, whereby Excelco has agreed and undertaken that,
in the event the Issuer is unable or unwilling to meet any or all of its
obligations to the lessors under the Lease Agreements (as disclosed under
the heading "Business of the Issuer - Operations"), Excelco shall advance
such funds to the Issuer or the lessors directly as are required to fulfil
such obligations. Should the Issuer be in default or fail to comply with
any term of the Lease Agreements, MDC has the right, but not the
obligation, to assume the obligations of the Issuer under the Lease
Agreements.
(e) Excelco Guarantee
An agreement (the "Excelco Guarantee") among the Issuer, Excelco and MDC,
whereby Excelco has agreed to guarantee the repayment of the loan by the
Issuer to MDC.
Federal Government
By agreement dated December 5, 1994 (the "WEDD Agreement"), entered into with
the Government of Canada's Western Economic Diversification Program ("WEDP"),
the Issuer received approval for non-interest bearing, subordinated financial
assistance in the aggregate amount of $1,937,852. To date, $1,804,835 has been
received under the WEDD Agreement, leaving a balance of $133,017 available to
be paid and expected to be drawn down prior to March 1998.
Repayment of the loan, assuming the full amount of $1,937,852 is drawn down,
will be made by quarterly payments commencing December 1, 1997 and ending
December 1, 1999, as follows:
December 1, 1997 $100,000
March 1, 1998 $180,000
June 1, 1998 $180,000
September 1, 1998 $210,000
December 1, 1998 $210,000
March 1, 1999 $290,000
June 1, 1999 $290,000
September 1, 1999 $290,000
December 1, 1999 $187,852
The WEDD Agreement prohibits the Issuer from paying dividends without the prior
written approval of the WEDP until the WEDD loan is repaid in full. The loan
is also repayable on demand upon default by the Issuer of a term or condition
of the WEDD Agreement, including bankruptcy, insolvency or winding-up of the
Issuer or failure to operate in Western Canada until the WEDD loan has been
repaid in full.
Copies of the MG Agreement, WEDD Agreement, Real Property Mortgage and Security
Agreement, Assignment/Postponement of Shareholder Loans Agreement, Equity
Undertaking Agreement, Lease and Credit Undertaking Agreement, and Guarantee
Agreement are available for inspection as specified under the heading "Material
Contracts".
<PAGE>
Stated Business Objectives
The primary objectives of the Issuer are:
* to obtain ISO (International Standards Organization) 9000 Series
certification;
* to develop and exploit the markets of Europe, Asia and South America;
* to acquire additional automated robotic units; and
* to distribute its surgical gowns, on a lease basis, through joint venture
arrangements with distributors.
Milestones
The significant events that must occur for the business objectives of the
Issuer to be accomplished, and the specific time periods in which each event is
expected to occur and the estimated costs related to each event are as follows:
<TABLE>
Significant Event Time Period Related Cost
<S> <C> <C>
Satisfy ISO (International Standards 1 year nominal
Organization) that ISO 9000 Series
certification standards are met by Issuer
Hire key individual to develop and exploit 1 year $45,000
markets in Asia, South America and Europe per annum
Structure additional equity financing to 12-18 months $6,000,000
acquire additional robotic packaging units
Enter into joint venture arrangements with 12-18 months $1,500,000 to
distributors to distribute the Issuer's $2,000,000 for
surgical gowns on a lease basis initial inventory
<FN>
</TABLE>
Acquisitions and Dispositions
Property
Pursuant to an arms'-length agreement dated December 15, 1994, as amended April
20, 1995 (the "Property Agreement"), the Issuer acquired from Otto Bock
Orthopaedic Industry of Canada ("Otto Bock") its Winnipeg manufacturing plant,
together with equipment located thereon, located at 251 Saulteaux Crescent,
Winnipeg, Manitoba (the "Property"). The Property consists of a one storey
manufacturing building together with a two storey office portion, altogether
comprising a total building area in excess of 71,000 square feet sited on a
land area of approximately 147,930 square feet (3.396 acres).
The consideration paid by the Issuer to Otto Bock was $1,400,000 cash together
with 200,000 Shares issued at a deemed price of $1.75 per share, for a total
purchase price of $1,750,000. The Issuer also incurred additional costs in the
approximate amount of $40,000 in transfer taxes and legal fees associated with
this transaction.
<PAGE>
Robotic Technology License
By agreement dated May 30, 1995 (the "Robotic Technology License Agreement"),
as amended, Excelco Systems Inc. ("Excelco") granted to the Issuer the
exclusive right and license (the "Licensed Rights") to use the robotic
technology (the "Robotic Technology") to manufacture and package surgical
custom procedure trays and kits, and to sell products to healthcare
institutions in Canada, Mexico and the U.S. The Robotic Technology License
Agreement is for an initial term of ten years, with an automatic renewal for
consecutive ten-year terms thereafter.
Janice Shahsavar, the Vice-President Human Resources of the Issuer, owns 100%
of the issued shares of Excelco. In addition, Mac Shahsavar, the President,
Chief Executive Officer, Promoter and a Director of the Issuer, is also the
President and Chief Executive Officer of Excelco. At the time of entering into
the Robotic Technology License Agreement, Seyed Torabian, the Executive Vice-
President and a Director of the Issuer, owned 5.78% of the issued shares of
Excelco.
The Issuer agreed to purchase all automated machinery from Excelco, subject to
the terms and conditions of an agreement dated October 21, 1994 (the
"Selectronics Agreement") entered into between Excelco and Selectronics
Robotics & Automation Inc. and Selectronics Brokerage, Inc. (jointly,
"Selectronics"), the manufacturer of the equipment and machinery. Pursuant to
the Selectronics Agreement, which is for a term of 20 years, Excelco has
granted to Selectronics the exclusive right to manufacture all machinery and
equipment which incorporate the Robotic Technology (the "Products"), and
Excelco has agreed to purchase Products only from Selectronics. The
Selectronics Agreement provides that the price to be paid for the Products to
be supplied by Selectronics to Excelco, or its designate, shall not exceed 25%
of the competitive market retail price for the Products. Selectronics and
Excelco have agreed to meet annually to negotiate the price of the Products to
be supplied. Excelco has agreed to sell the Products under the Selectronics
Agreement to the Issuer at cost. (For information relating to the purchase of
equipment by the Issuer from Selectronics, see "Business of the Issuer -
Operations - Equipment".)
The Robotic Technology License Agreement prohibits the Issuer from sub-
licensing the License Rights without first obtaining the consent of Excelco,
and then only under certain other conditions which Excelco may impose as to
equity ownership of the sub-licensee.
Liquid Division of Arjo Canada Inc.
Pursuant to an agreement dated May 14, 1996 (the "Arjo Agreement") between the
Issuer and Arjo Canada Inc. ("Arjo"), Arjo USA Inc. ("Arjo U.S.") and 3485367
Manitoba Ltd. (now known as National Care Products Ltd.) ("NCP"), the Issuer
acquired Arjo's Liquid Division by purchasing all the shares of NCP. At the
time of purchase, NCP was a wholly owned subsidiary of Arjo. In consideration
therefor, the Issuer paid to Arjo the sum of $10 and assumed an unsecured
promissory note payable to Arjo in the amount of $896,447, representing payment
for certain assets as set forth in the Arjo Agreement. This promissory note
was paid in full. The parties negotiated the allocation of the purchase price
to be as follows: $262,679.52 in fixed assets; $633,768 in inventory; and $10
in goodwill, contract assignments, licenses, records and intangibles. Ross
Scavuzzo, a director of the Issuer, was the President of Arjo as well as being
a director of the Issuer at the date of the Arjo Agreement.
The Arjo Agreement was accepted for filing by the Exchange on August 9, 1996.
Arjo, a wholly owned subsidiary of Getinge Industrict A.B. of Sweden, began
operations in 1975. From a manufacturing facility in Winnipeg, Arjo's liquid
division produced liquid disinfectant, shampoos, skin care ointments and creams
for sale in Canada as well as in the United States and in Europe.
<PAGE>
NCP has agreed that, subject only to certain limited circumstances, it shall
sell and distribute all of the products it manufactures under its own label,
distinct from the Arjo label.
Pursuant to the Arjo Agreement, Arjo and Arjo US have jointly and severally
agreed, until August 31, 1999 (the "Purchase Expiry Date"), to purchase
disinfectants used for bathtubs and whirlpools, shampoo and body wash liquid
soaps, bath oils and ArjosoundJ water conditioners (the "Selected NCP
Products") only from NCP, totalling in the aggregate not less than $2,180,000
annually (the "Minimum Purchase"), failing which Arjo agrees to pay annually to
NCP an amount equal to the amount by which the Minimum Purchase exceeds the
amount of such liquid products actually purchased in a particular year
multiplied by the following:
(a) 33.75% in the first year;
(b) 20.00% in the second year; and
(c) 15.00% in the third year;
provided that the Minimum Purchase shall be reduced by an amount, if any, of
sales by NCP (directly or through its distributors and/or agents) of the
Selected NCP Products not bearing the Arjo label to Arjo's customers in North
America. Upon the Purchase Expiry Date, NCP has the right of first refusal to
continue to supply the Selected NCP Products to Arjo and Arjo US for an
additional two years. No Minimum Purchase shall apply to the extended term.
NCP has agreed to use its best efforts to cause delivery of at least 90% of the
Selected NCP Products sold to Arjo and Arjo US within three working days of
receipt of an order from Arjo, directly to customers located in the greater
Vancouver urban area, Calgary, Edmonton, Saskatoon, Regina, Winnipeg, Hamilton,
Toronto, Ottawa, Moncton, and Halifax, and within five working days to any
other location in Canada, Aurora, Nebraska, and Chicago, Illinois (the
"Delivery Deadlines"). If in any quarter less than 90% of the Selected NCP
Products sold to Arjo and Arjo US are delivered within the Delivery Deadlines,
then the Minimum Purchase obligations of Arjo and Arjo US shall be reduced
during that and the following year by 2% for each 1% drop in delivery
performance level below 90% and if, during any two consecutive quarters or
during any two of four consecutive quarters, such delivery service levels drop
below 80%, then Arjo and Arjo US shall be released from all further purchase
obligations. Deficiencies in delivery which are directly attributable to
causes which are beyond the control or direct influence of NCP and which are
generally applicable to other suppliers of comparable products in North America
shall not be counted.
Pursuant to the provisions of the Arjo Agreement, the Issuer and NCP have
agreed that they shall not, without the prior written consent of Arjo, until
the Purchase Expiry Date, actively solicit sales of shampoos and body wash
liquids and bath oils from the specific locations of stated hospitals, nursing
homes or healthcare facilities located in North America and serviced by Arjo,
in competition with Arjo, or sell to or solicit to the same facilities any
water conditioners or disinfectants used only for the purposes of bathtubs or
whirlpools. Arjo and Arjo US have agreed that, except as permitted pursuant to
the Arjo Agreement, they shall not, or cause anyone to, until the Purchase
Expiry Date, sell or solicit sales for skin cream products to anyone, and
thereafter, until August 31, 2001, sell or solicit sales for skin cream
products to hospitals, anywhere in North America, in competition with the
Issuer and NCP, except for skin cream products purchased from NCP.
The principal assets and operations of the Liquid Division are located at the
Issuer's manufacturing facility in Winnipeg.
<PAGE>
Huntington Laboratories Gam-Med Division, Inc.
By an arms'-length asset purchase agreement dated January 22, 1997 (the "Gam-
Med Agreement") among NHMC US, Huntington Laboratories Gam-Med Division, Inc.
("Gam-Med") and Ecolab Inc. ("Ecolab"), the Issuer acquired certain properties,
assets, contracts and business of Gam-Med, including land, building, machinery
and equipment, accounts receivable, inventory, proprietary patents and on-going
business, in consideration of the payment to Gam-Med of US $1,310,165 (the
"Purchase Price"), and the assumption by the Issuer of certain contractual
obligations of Gam-Med. Gam-Med, a wholly-owned subsidiary of Ecolab (listed
on the New York Stock Exchange), is a medical products packager and owns the
proprietary right to a fusion moulding process (the "Gam-Med Technology") which
has been used to manufacture various patented plastic disposable liquid-
dispensing products since 1989. On February 17, 1997, the Exchange approved
the Gam-Med Agreement and the acquisition closed on February 20, 1997.
Pursuant to and as part of the Gam-Med Agreement, the Issuer entered into a
supply agreement (the "Ecolab Supply Agreement") dated February 20, 1997
between NHMC US and Ecolab whereby NHMC US has committed to purchase a minimum
of 500 gallons of Ecolab iodine products every 6 months, at a price of actual
cost plus 15% (subject to certain allowances) over a term of two years or
unless earlier terminated by mutual consent, by NHMC US upon 90 days' written
notice, by either party on written notice upon any material breach of default
and failure to cure such breach or default within 30 days of such notice, or by
Ecolab by written notice to NHMC US upon any failure to meet its minimum
purchase commitments for any six month period and failure to cure such breach
within 30 days of such notice.
Textile Rights
Mercana Industries Ltd.
By an arm's length letter of intent (the "Mercana LOI") dated October 18, 1996
with Mercana Industries Ltd. ("Mercana"), the Issuer agreed to acquire all the
issued and outstanding share capital of Mercana. The primary asset of Mercana
at the date of the Mercana LOI was the exclusive marketing rights (the
"Exclusive Rights") for two protective textiles "Mertex" and "Mertex-Plus" used
to manufacture reusable surgical gowns and drapes. The Issuer had proposed to
include surgical gowns and drapes in its custom procedure kits. Pursuant to
the Mercana LOI, the Issuer advanced a total of $300,000 to Mercana. By a
general security agreement (the "Mercana GSA") dated October 16, 1996, Mercana
granted to the Issuer, by way of a subordinate fixed and specific mortgage and
charge, a security interest in the present and future undertaking, property and
assets of Mercana, to secure the funds advanced to Mercana.
The Mercana LOI expired without a binding agreement having been entered into.
Subsequently, Mercana ceased to hold the Exclusive Rights. The $300,000
advanced by the Issuer to Mercana has been written off.
Importex Corporation
By an arms'-length agreement dated February 4, 1997 (the "Importex Assignment")
among the Issuer, Importex Corporation ("Importex") and Mertexas Partnership
("Mertexas"), the Issuer was assigned: (a) Importex' interest in an agreement
between Importex and Nosawa & Co., Ltd. ("Nosawa") dated January 31, 1997 (the
"Nosawa Agreement"); and (b) a $225,000 debenture securing the assets of
Mercana in favour of Mertexas (a shareholder of Importex).
<PAGE>
Nosawa, with its manufacturing and administrative operations located in Osaka,
Japan, is the manufacturer of certain protective textiles, including "Mertex"
and "Mertex-Plus" (collectively, the "Textiles"). By virtue of the Importex
Agreement, the Issuer has the exclusive right under the Nosawa agreement to
distribute and sell the Textiles in North America, Mexico and Europe (including
the European Community).
Pursuant to the Importex Assignment, the Issuer paid and issued to Importex:
(a) $100,000 cash; (b) 225,000 Shares at a deemed price of $6.90 per Share; and
(c) a warrant (the "Importex Warrant") entitling Importex to purchase 150,000
Shares at a price of $6.90 per Share in the first year and at a price of $7.94
per Share in the second year, expiring on February 3, 1999. Closing of the
Importex Assignment occurred on September 8, 1997.
Pursuant to the Nosawa Agreement, the Issuer will be required to make minimum
purchases of the Textiles from Nosawa, as follows:
(a) 25,000 meters on or before January 31, 1998;
(b) 60,000 meters on or before January 31, 1999;
(c) 75,000 meters on or before January 31, 2000;
(d) 100,000 meters on or before January 31, 2001; and
(e) 125,000 meters on or before January 31, 2002;
and if the foregoing minimum purchases are not made, Nosawa may terminate the
agreement on 90 days' written notice.
The term of the Nosawa Agreement is five years, renewable for additional one-
year periods. The minimum textile purchase for each additional one-year
renewal period is negotiable.
Machinery and Equipment
As at September 30, 1997, the Issuer has expended in excess of $3,277,518
towards machinery and equipment purchases, office supplies and other set-up
costs related to production, and has expended in excess of $250,000 towards
modifying the utilities systems of its Winnipeg facility to establish air
quality to meet operational requirements. A further $387,958 has been expended
on machinery and equipment, furniture, furnishings and accessories, and
computer hardware in connection with the acquisition of the liquid division.
(See "Business of the Issuer - Acquisitions and Dispositions - Liquid Division
of Arjo Canada Inc.") A further $224,493 has been expended on machinery,
equipment, furniture, furnishings and accessories, and computer hardware in
connection with the acquisition of the antimicrobial packaging division. (See
"Business of the Issuer - Acquisitions and Dispositions - Huntington
Laboratories Gam-Med Division, Inc.") Also, the Issuer has arranged for a
lease financing in excess of $10,000,000 for its robotic assembly and packaging
equipment. All production machinery purchased and leased by the Issuer is from
arms'-length parties. (See "Business of the Issuer - Operations - Equipment".)
<PAGE>
Management
Unless otherwise noted below, the positions held by management are all
positions with the Issuer.
MAHMOOD (MAC) JAMSHIDI SHAHSAVAR, B.Sc. Engineering, P.Eng.
President, Chief Executive Officer, Director and PromoterAge: 41
Mac Shahsavar is involved in the Issuer's business on a full-time basis. Since
April 1991, Mr. Shahsavar has been the President and Chief Executive Officer of
Excelco Systems Inc. ("Excelco"). Excelco's main activity has been the
development of the robotic technology acquired by the Issuer under the Robotic
Technology License Agreement (see "Business of the Issuer - Acquisitions and
Dispositions"). In addition, Mr. Shahsavar has been the President and Chief
Executive Officer of Canex International Consultants Inc. ("Canex"), a private
international trade and trade financing company, since July 1991. Prior
thereto, Mr. Shahsavar's experience includes contract work, through Precision
Services and Engineering Ltd., for companies such as Weldwood of Canada (Slave
Lake Plant, Alberta) and Cameco Uranium Plant (Key Lake, Saskatchewan). These
projects consisted of new construction and/or technology upgrades. In
addition, Mr. Shahsavar was the President and Chief Executive Officer of Ansco
Management Group, construction related manufacturing and service companies.
REGINALD ADRIAN EBBELING, M.B.A.
Chairman of the Board and Director Age: 67
Reginald Ebbeling is involved in the day-to-day operations of the Issuer on a
full-time basis. From 1973 to January 1995, Mr. Ebbeling was the Managing
Partner of Health Industry Development Initiative for the Province of Manitoba,
Department of Trade and Tourism. Mr. Ebbeling obtained his Bachelor of Science
in Pharmacy in 1953, from the University of Manitoba, was the General Manager
of Noco Drugs Manufacturing from 1970 to 1973, and the President of Ebbeling
Pharmacies Ltd. from 1953 to 1970.
JACK TAPPER, B.A., B.Comm (Hons.), Chartered Accountant
Vice-President and Chief Financial Officer Age: 44
Mr. Tapper joined the Issuer in July 1997. Prior to this, Mr. Tapper was an
associate of a public accounting firm headquartered in Winnipeg, Manitoba. He
brings to the Issuer over fifteen years of experience in public accounting
practice.
MORTEZA SEYED TORABIAN, B.Sc. Engineering, P.Eng.
Executive Vice-President, Director and Promoter Age: 41
Mr. Torabian is involved in the Issuer's business on a full-time basis. From
1990 to 1993, Mr. Torabian was the Audit Team Leader for Westcoast Energy Inc.
("Westcoast"), responsible for the company's environmental audit program. From
1982 to 1990, Mr. Torabian was a process and field engineer for Westcoast,
responsible for project management, process optimization, environmental control
and maintenance management systems. In addition, he has been the Regional
Manager of Canex International Consultants Inc., a private international trade
and trade financing company, since 1990.
<PAGE>
ALICE ELAINE AFFLECK
Secretary-Treasurer and Director Age: 66
Ms. Affleck is involved in the Issuer's business on a full-time basis. Since
August 1993, Ms. Affleck has been the Controller and Manager of Administration
for the Issuer. In addition, Ms. Affleck has been the Executive Assistant to
Mr. Shahsavar, the President of the Issuer, since 1986. Ms. Affleck's
additional controllership experience, other than with the Issuer and Excelco,
includes four years (1987 through 1991) with EA Computer Accounting & Tax
Services, three years (1984 through 1987) with Anesco Group (including
administration and accounting for a group of companies employing in excess of
175 personnel), and eight years (1971 through 1979) with Alpine Blasting Co.
Ltd. (including responsibility for expenditures and accounting for this
corporation with a $10,000,000 budget).
ROBERT ALEXANDER JACKSON
Executive Vice-President and Director Age: 54
Mr. Jackson assists the Issuer with the sales, marketing and promotion aspects
of its business on a full-time basis. From 1979 to 1994, Mr. Jackson was the
Vice-President of Sales, marketing and Manufactured Products with Ingram and
Bell Inc., the second largest hospital supply distributor in Canada.
Previously, Mr. Jackson has held various managerial positions with American
Hospital Supply Canada Inc. (now Baxter Corporation).
GORDON JOHN FARRIMOND, B.A.
Vice-President Sales and Marketing and Director Age: 47
Mr. Farrimond assists the Issuer with all aspects of sales and marketing, both
in Canada and the U.S., on a full-time basis. From June 1992 through June
1996, Mr. Farrimond was the Director of Marketing, Medical Division, for
Johnson & Johnson Medical Products. Mr. Farrimond has previously held other
positions with Johnson & Johnson, including Director of New Business
Development (from November 1991 to June 1992) and Regional Sales Manager (from
September 1988 to November 1991).
JANICE SHAHSAVAR, M.E.S.
Vice-President Human Resources Age: 43
Ms. Shahsavar is employed by the Issuer on a full-time basis. She obtained her
Master of Environmental Studies from York University in 1981, specializing in
human resources, labour relations and negotiations and arbitrations. From 1990
to 1992, Ms. Shahsavar held the position of Manager of Employee Relations with
the Saskatchewan Institute of Applied Science and Technology (SIAST), which
employs 1,800 personnel. At SIAST, Ms. Shahsavar was responsible for
organizing and providing leadership to the Human Resources Division, providing
training to management, and advising the Board of Directors on union/management
relations. From 1976 to 1990, Ms. Shahsavar was the Manager of Human Resources
with Saskatchewan Resource Council, Saskatoon Co-Operative and Federated
Cooperative, and Saskatoon Personnel Consultants. Ms. Shahavar and Mr. Mac
Shahsavar are married.
<PAGE>
JOHN RYRIE STONE, B.A.
Vice-President, Mertex and Mertex Plus Surgical Division Age: 50
Mr. Stone assists the Issuer with all aspects of sales and marketing for its
surgical textile division, in both Canada and the U.S., on a full-time basis.
Mr. Stone has 25 years' experience in Canadian healthcare products marketing.
From June 1991 to February 1997, Mr. Stone was Director of Marketing, Suture
Division with Johnson & Johnson Medical Products, a supplier of medical
products to the Canadian healthcare market. From October 1986 to June 1991,
Mr. Stone was General Manager of SSI Medical Services of Canada Ltd., a
supplier of therapeutic beds, nursing technology and service support to
Canadian hospitals.
NANCY CLARK, M.B.A., R.N.
Manager of Product Development Age: 50
Ms. Clark is responsible, on a full-time basis, for the development of new
product lines, including the wound care kits and the mother/baby kits. Ms.
Clark has 25 years of experience in the healthcare industry, both as a nursing
instructor and in material management/purchasing with various healthcare
organizations. Prior to joining the Issuer, Ms. Clark was the Director of
Material Services at Langley Memorial Hospital (1991 to 1995); Provincial Group
Purchasing Coordinator at B.C. Health Services (1987 to 1991); Product
Evaluation at Shaughnessy, Children's and Grace Hospitals (1984 to 1987);
Assistant Director of Nursing at the Vancouver General Hospital (1980 to 1984);
and Nursing Instructor at George Brown College (1972 to 1980).
DARRELL WAYNE VAN DYKE, B.A.
Vice President of NHMC US Age: 54
Darrell Van Dyke, B.A., is employed by the Issuer's subsidiary, NHMC US, on a
full-time basis, as its Vice President. Mr. Van Dyke has over 32 years of
operational and general management experience, all in the healthcare industry.
He has held operational management positions with Johnson & Johnson, Abbott
Laboratories, Tower Products (DRG International) and Medline Industries. From
February 1994 to February 1997, Mr. Van Dyke was General Manager of Huntington
Laboratories, a medical products packager. From August 1989 to February 1994,
he was Chief Executive Officer of GAM-MED Packaging Corporation, a company
specializing in liquid delivery systems which Mr. Van Dyke founded.
RICHARD J. JOHNSON
Vice President of NCP Age: 40
Mr. Johnson is employed by the Issuer's subsidiary, NCP, on a full-time basis.
From 1992 to February 1997, Mr. Johnson was President and Founder of J.R.
Phoenix Ltd., a manufacturer of skincare products for the Canadian industrial
and healthcare markets. From 1990 to 1992, Mr. Johnson was Corporate Accounts
Manager for Safety Supply Canada, a national distributor of occupational health
and safety related products. From 1984 to 1988, Mr. Johnson was Regional
Manager, Canada for SBS Products Inc., a manufacturer of industrial skincare
products and a subsidiary of Andrew Jergens.
The Issuer has not entered into formal employment contracts, or non-competition
or non-disclosure agreements with any of the foregoing individuals. For
information relating to management compensation, see "Payments to Insiders and
Promoters - Executive Compensation" and "Share and Loan Capital - Options and
Other Rights to Purchase Securities - Incentive Stock Options".
<PAGE>
Organizational Structure
The Issuer currently employs 84 full-time employees, as follows:
National Healthcare Manufacturing Corporation 49
National Care Products Ltd. 17
National Healthcare Manufacturing Corporation, U.S. 18
The Issuer intends to augment its existing employees with additional qualified
personnel as needed. In addition, the Issuer intends to maintain the minimum
number of jobs required pursuant to the MG Agreement (see "Business of the
Issuer - Summary and Analysis of Financial Operations - Financial Assistance -
Manitoba Government").
Products
The Issuer's business consists of the assembly and packaging of sterile and non-
sterile ready-to-use custom procedure trays, packs and kits, containing mostly
disposable medical/surgical products, for hospitals, outpatient surgery
centres, dental and medical clinics, retirement homes, homecare providers and
multi-level care facilities. The Issuer produces medical and surgical products
under its own brand name.
The Issuer's product line is comprised of several hundred items, ranging in
price from $1.00 to $1,900 based on the complexity of each item. The Issuer's
production cost is estimated as follows:
<TABLE>
Patient Care Custom Proced
Trays ure Trays
<S> <C> <C>
Direct Cost (labour and materials) 55% to 68% 40% to 55%
Indirect Cost (indirect labour, 12% to 15% 12% to 15%
manufacturing supervision, etc.)
<FN>
</TABLE>
To date, the Issuer's products include the following:
* patient care trays
* custom procedure kits
* medical, speciality and diagnostic trays
* wound care kits and mother/baby kits
* NCP liquid products
* surgical textiles
* antimicrobial products
Patient Care Trays
Sterile patient care trays include those for dressings, urinary
catheterization, irrigation, and suture removal. Non-sterile patient care
trays include those for mouth care, shave preparation and enema administration.
<PAGE>
Custom Procedure Kits
All of the Issuer's custom procedure kits (which include orthopaedic kits, eye
packs, laparoscopy kits, anthroscopy kits and cardiovascular kits) are sterile.
The main custom procedure products have been developed. A custom procedure kit
is a single tray/package containing a procedure-ready set of customer specified
disposable supplies in a pre-determined configuration. Typically, the product
is aseptically wrapped, sterilized and delivered to the customer as needed.
The custom kits are designed to meet individual customer specifications.
Contents may be as simple as a double-wrapped bowl, pitcher and cup with lid to
a complex tray of items for open heart surgery, including a bulky collection of
towels, gowns and drapes. The majority of the items included in the custom
kits are disposable. As an example, a typical custom kit for a cataract
procedure would include all of the following items:
* Latex Gloves * Mayo Stand Cover * Table Cover
* Med Cup * Suture Bag * Syringe 3cc L/L
* Saline * Wrap 23" x 24" * Tray
* Cotton Tip Applicators * Eye Pad * Sponge 3" x 3"
* Sponge 8" x 4" * Incise Drape * Wrap 54" x 54"
* Eye Spears
Medical, Speciality and Diagnostic Trays
Medical, speciality and diagnostic trays cover such procedures as regional
anaesthesia, lumbar puncture and myelogram. This product line is still under
development.
Wound Care Kits and Mother/Baby Kits
The Issuer has introduced two new product lines, namely the wound care kits and
mother/baby kits, for the homecare market. The Issuer is not aware of any
current competition existing for these products. The mother/baby kits each
contain four days of supplies commonly required by mothers and newborns upon
their discharge from hospital following the infant's birth.
NCP Liquid Products
Pursuant to the Arjo Agreement (see "Business of the Issuer - Acquisitions and
Dispositions - Liquid Division of Arjo Canada Inc."), the following lists the
private label products (the "NCP Products") for which formulae has been
transferred by Arjo to NCP:
Mouthwash / Mouthrinse Shampoo and Body Wash
Hair Conditioner High Powered Cleanaway
Whirlclean Vita Health Vitamin E Cream
Hand and Body Lotion Tub Cleansers
All Purpose Disinfectant Medicated and Non-Medicated Skin Creams
Antiseptic Liquid Hand Soaps Scrubs and Preps
Surgical Textiles
Pursuant to the Importex Assignment (see "Business of the Issuer - Acquisitions
and Dispositions - Importex Corporation"), the Issuer acquired the exclusive
rights to distribute and sell Mertex and Mertex Plus protective textiles.
These state-of-the-art textiles are used to manufacture reusable surgical gowns
and drapes. Mertex and Mertex Plus offer technologically advanced protection
from bodily fluids and bacterial contamination. With a life expectancy of 80
uses, these fabrics are not only economical, but reduce medical waste.
<PAGE>
Antimicrobial Products
Pursuant to the Gam-Med Agreement (see "Business of the Issuer - Acquisitions
and Dispositions - Huntington Laboratories Gam-Med Division, Inc."), the
Issuer's subsidiary has agreed to purchase Ecolab iodine products, which will
be sold by the Issuer both separately and as part of a kit/tray.
Proprietary Protection
Neither the Issuer nor Excelco has made application for patent protection
relating to the Robotic Technology.
The Arjo Agreement transferred any outstanding service marks, trademarks, trade
names and copyrights provided to NCP solely for the purpose of manufacturing
and distributing of products for the authorized person(s) selling those
products.
The Gam-Med Agreement transferred all proprietary patents relating to the
fusion moulding process technology acquired by NHMC US thereunder.
Operations
General
The Issuer owns a 71,000 square foot manufacturing plant, located on a 3.396
acre fully developed site at 251 Saulteaux Crescent, Winnipeg, Manitoba. This
facility is located in the Murray Industrial Park, close to the Winnipeg
International Airport. At the Winnipeg facility, kits and trays are assembled,
and liquid products are formulated and produced.
Where necessary, sterilization of the Issuer's kits and trays occurs following
assembly of the components in the Winnipeg facility. Sterilization of the
Issuer's kits and trays is provided under contract by various companies at
arms'-length to the Issuer. The sterilization process currently utilizes
technology associated with ethylene oxide gas.
The Issuer also owns a 15,253 square foot manufacturing plant, located on a
9.568 acre fully developed site at 712 Anita Street, Antioch, Illinois. Using
a proprietary plastic fusion molding process, NHMC US custom packages a wide
variety of antimicrobial solutions in patented disposable plastic dispensers.
The Issuer has obtained general liability insurance in the amount of
$5,000,000. While the Issuer believes that its insurance provisions are
adequate for its operations, there can be no assurance that the coverage
maintained by the Issuer will be sufficient to cover any future claims or will
continue to be available in adequate amounts or at a reasonable cost.
<PAGE>
Regulatory Process
All phases of the Issuer's manufacturing, sterilization and distribution
process in Canada are governed by the Food and Drug Act, R.S., c.F-27, s.1 (the
"CFDA"). The class of medical devices forming part of the Issuer's products
sold in Canada requires the filing of a medical device notification form with
the Bureau of Radiation and Medical Devices, Device Evaluation Division (the
"Bureau"), within 10 days of the first completed sale of the device. The
purpose of this filing is to inform the Bureau that the Issuer is marketing a
product which conforms with the Bureau's requirements. To date, all requisite
filings have been made by the Issuer under the CFDA.
In addition, the export of certain products of the Issuer from Canada is
subject to further regulation.
Distribution of the Issuer's products in the U.S. is subject to FDA Good
Manufacturing Practices Regulations ("GMPR") CFR 801 and CFR 820. The main
elements of the GMPR cover quality assurance systems, building environment,
equipment and calibration thereof, components and raw materials, labelling,
packaging, distribution, quality control testing, quality control documentation
and product failure complaints. In the U.S., medical device manufacturers and
importers are required to file premarket notifications under s. 510(k) of the
Federal Food, Drug and Cosmetic Act for each type of device with the FDA. As a
general practice, for each new device that the Issuer develops, the Issuer
files a premarket notification with the FDA. Effective May 20, 1997, the FDA
established Interim Regulatory Guidance ("IRG") exempting pre-market
notification for packs and trays. As a result of the IRG, the Issuer is
allowed to market all of its current packs and trays in the U.S.
The Issuer's Winnipeg manufacturing facility has been designated by the FDA as
a 'Class 10,000 clean room'. Clean room classification specifies concentration
limits for airborne particles within the confines of a designated space; the
lower the classification number, the cleaner the environment. Class 100,000 is
the minimum requirement for the Issuer's type of operation. The Issuer's Class
10,000 clean room designation means its Winnipeg facility is 10 times cleaner
than the minimum requirement.
Suppliers
There exist approximately 400 to 500 suppliers from which the Issuer may
purchase the components for its kits and trays. The Issuer purchases such
components from numerous North American suppliers based upon an evaluation with
emphasis on quality and pricing. Major product purchases of the Issuer include
procedural hospital tray components and packaging materials.
Equipment
The Issuer has purchased most of its automated insertion equipment, together
with two fully computerized Tiromat 3000 Form-Fill-Seal packaging units (the
"Tiromats"). The Issuer utilizes this equipment together with two leased
robotic units to assemble and package patient care trays and procedural kits.
The Tiromats form trays, seal packages, and print barcode and product/customer
related information. The robotic units pick and place the tray components.
The first robotic unit has been utilized since commencement of production in
July 1995 and the second robotic unit has been in use since July 1997. The
cost of leasing the robotic units is covered under the existing Lease
Agreements (referred to below).
As at September 30, 1997, the Issuer has spent $962,942 to install and upgrade
its robotic units. The Issuer is in the process of finalizing its fourth
generation robotic packaging units. These additional units will be used to
package operating room packs. The Issuer has allocated $250,000 from the
current Funds Available towards the upgrade and installation of its fourth
generation robotic units.
<PAGE>
The Issuer leases specialized equipment (the "Equipment"), including the
robotic packaging units, under three capital leases (collectively, the "Lease
Agreements") from arms'-length parties, D & T Leasing, Inc. and D & T Leasing
Limited Partnership (jointly, the "Lessors"). The Lease Agreements have been
entered into by NHMC US, which was established for the specific purpose of
entering into the Lease Agreements on behalf of its parent company, the Issuer.
The Lease Agreements provide for the following payments by NHMC US over the
next five fiscal years of the Issuer (converted from U.S. to Canadian dollars
using the exchange rate as at June 30, 1997):
<TABLE>
Lease Lease Lease Total
NHM#1094- NHM#1094- NHM#1194
001 002
<S> <C> <C> <C> <C>
1998 $1,131,226 $ 619,818 $ 675,705 $2,426,749
1999 1,131,226 619,818 619,400 2,370,444
2000 1,131,226 619,818 nil 1,751,044
2001 1,131,226 619,818 nil 1,751,044
2002 377,077 309,909 nil 686,986
Total Minimum 4,901,981 2,789,181 1,295,105 8,986,267
Payments
Less Interest 1,055,670 619,705 87,355 1,762,730
approximating 10.5%
to 11.5%
3,846,311 2,169,476 1,207,750 7,223,537
Less Current Portion 726,397 390,484 601,671 1,718,552
Balance of Obligation $3,119,914 $1,778,992 $ 606,079 $5,504,985
<FN>
</TABLE>
Upon expiration of the initial terms of the Lease Agreements, the Lease
Agreements will automatically renew for successive three-month terms unless
either party gives notice to the contrary. NHMC US has the option to purchase
the equipment leased under Leases NHM#1094-001 and NHM#1094-002 at the expiry
of their respective terms by paying the fair market value of the equipment.
NHMC US also has the option to purchase the equipment leased under Lease
NHM#1194 at the expiry of the term by paying the fair market value of the
equipment, which has been agreed to be nominal.
As the owner of the Robotic Technology incorporated into the Equipment, Excelco
has the right, pursuant to an agreement, dated October 26, 1994 (the "Guarantee
Agreement") with the Lessor, to acquire the leased robotic packaging unit for
$100 if NHMC US does not exercise its option to acquire the same upon
expiration of Lease NHM#1094-001.
Reference is made to "Business of the Issuer - Acquisitions and Dispositions -
Robotic Technology License Agreement" for specific information relating to the
grant by Excelco to the Issuer of the exclusive right to assemble, package and
market custom procedure tray packaging in North America using Excelco's Robotic
Technology.
Copies of the Lease Agreements are available for inspection as specified under
"Material Contracts".
Market and Competition
The statistical information provided throughout this section has been sourced
from reports and public offering disclosure published by competitors believed
by Management of the Issuer to be accurate, from common and general industry
knowledge, and knowledge of the Issuer's executive obtained through experience
in the industry and related activities.
<PAGE>
The Market
Kits and Trays Market
The Issuer has entered the procedure tray segment of the medical device market.
This segment is comprised of patient care trays, custom procedure kits and
diagnostic trays. The Issuer's management estimates that in North America, the
market for patient care trays is approximately $1.3 billion annually and
growing at a minimum rate of 5% per year, while the market for custom procedure
kits and diagnostic trays is approximately $1.8 billion annually and growing at
a minimum of 10% per year. The market for such products in Europe and
elsewhere cannot presently be determined.
The market for the Issuer's procedure tray products is comprised of users of
medical and surgical device products such as hospitals, outpatient surgery
centres, dental and medical clinics, retirement homes, homecare providers and
multi-level care facilities. The Issuer has marketed its procedure tray
products to various healthcare facilities throughout North America, through
independent distributors, and sales to date have been made in Canada and Asia.
Although the Issuer does not intend to provide exclusive distribution rights to
its procedure tray products to any party, the Issuer's marketing efforts to
date have resulted in alliances with the following Canadian distributors to
cover the Provinces noted:
* Medical Mart Supplies Limited - Quebec and Ontario
* Cascade Dismed - Quebec and Ontario
* Stevens and Sons - Western Canada and Ontario
* Associated Healthcare Systems Inc. - British Columbia and Alberta
* Can-Med Surgical Supplies Limited - Nova Scotia and
Newfoundland
No formal written agreements have been entered into between the Issuer and any
of the above distributors, all of which are arms' length to the Issuer.
The United States is the Issuer's other primary target for all its products.
The Issuer is permitted by the FDA to market all its current patient care trays
and custom procedure kits in the U.S. The Issuer's sales and marketing efforts
have resulted in establishing an independent national sales team in the U.S.
The Issuer has also co-founded NHLC which offers and manages alternative
material distribution channels to integrated hospital systems. In August 1997,
NHLC signed a 10-year agreement with Sysco Corporation to provide material
management distribution systems to hospitals throughout the U.S.
Liquid Products Market
NCP products currently compete in the $450 million consumable chemicals segment
of the $2.1 billion healthcare infection control market in North America.
NCP's current product mix is focused on the long term care segment, with
secondary applications in hospitals. NCP products are currently supplied
through Arjo Industries. The Issuer is seeking regional and national
distributors to facilitate access to all segments of the North American market.
<PAGE>
Competition
Kits and Trays Competition
The Canadian market for kits and trays is dominated by two companies, Baxter
Canada Inc. and Ingram & Bell Inc. Baxter International Corporation ("Baxter")
of Deerfield, Illinois, has more than 50% of the tray market in both the U.S.
and Canada in all market sub-segments. Baxter is positioned as the leading
manufacturer and marketer of products and services used in healthcare settings.
Ingram & Bell Inc. ("I & B"), a subsidiary of MDS Health Group Ltd., is the
leading Canadian owned distributor of medical/surgical supplies and equipment.
I & B only participates in the Canadian market. In June 1997, the parent
companies of Baxter and I & B merged to form a new company, whose name has not
yet been announced.
* Patient Care Trays
Baxter supplies 50% of the $50 million market in Canada by importing trays
that are private branded for them by a contract manufacturer. I & B
controls 30% of the market via their own manufacturing facility in Canada.
The balance of the market is very fragmented with five or six small
players. This market has achieved a substantial conversion to single use
product in hospitals but continues to grow at a minimum rate of 5% per
year due to market expansion in other areas.
* Custom Procedure Trays
I & B has a minor position in this segment in Canada. This market is
served by U.S. manufacturers exporting product and serving the market by a
direct sales force or via select distributors. In addition to Baxter
Custom Sterile, a division of Baxter, the major providers are Maxxim and
Deroyal. This market is in its infancy in Canada and growing at a minimum
rate of 20% per year. This market represents an opportunity area for the
Issuer.
* Medical Speciality and Diagnostic Trays
I & B and Preferred Medical Products of Thorald, Ontario, are the two
Canadian manufacturers of these products. I & B supplies their own
requirements for the Canadian market. Preferred Medical Products markets
their product directly in Canada and via speciality distributors in the
U.S. The other entrants are Baxter and Portex (the trademark for Smith
Industries Medical Systems), both of whom have major market shares in
Canada and the U.S. There are manufacturers that supply only the U.S.
market, such as Kendall Healthcare Products Co.
This segment represents an area of innovation and relatively high profit
potential for the Issuer. The complexity of the product and the direct
decision making process by the end user removes this product segment from
the commodity area. While price is important in the buying process,
innovation, product design and personal rapport are the key factors for
success.
Liquid Products Competition
* Skincare Products
The major competitors in this segment are Sween, Calgon and Huntington
Laboratories. Skincare products are Sween's primary market focus, whereas
Calgon and Huntington access this segment as add on sales from their
handwashing customers.
* Bathing Products
Competition consists of Sween and Calgon, as well as companies such as
Chester Labs and Amada.
* Antimicrobial Handwashing Products
Calgon and Huntington Laboratories are the current market leaders.
* Surgical Scrub Products
This is a highly fragmented component of the overall market, with Purdue
Fredrick, Becton-Dickenson, Baxter Healthcare, and Huntington Laboratories
being the key competitors.
Pricing Policy
It is the Issuer's policy to price its products at a slight discount to market.
<PAGE>
Competitive Environment
Consolidation of the kit and tray industry has been occurring for the past few
years as distributors divest of manufacturing subsidiaries in order to return
to their core business and manufacturers acquire small regional competitors to
realize the benefits of increased economics of scale. This is evidenced by the
actions of several competitors in the industry: the merger of the parent
companies of Baxter and I & B; the sale by Owens and Minor of its unprofitable
tray business to Sterile Concepts in 1990; the sale by Johnson & Johnson of
Sterile Design to Maxxim Medical Inc. in 1993; the purchase by Isolyser of
MedSurg; the desire by I & B to divest of its manufacturing facilities in
Canada; and the purchase by Maxxim of Sterile Concepts.
The following table indicates the current North American market share (with
respect to the kit and tray product segments in which the Issuer competes)
estimated by the Issuer to be held by certain competitors:
<TABLE>
Market Share
Name of Competitor
U.S. Canada
<S> <C> <C>
Baxter 44% 50%
Maxxim Medical 23% 4%
Deroyal 10% 10%
Ingram & Bell -- 30%
Others* 23% 6%
Total 100% 100%
<FN>
</TABLE>
* Smaller manufacturing competitors include the Issuer, C.R. Bard, Seamles,
Cypress Medical Products and Trinity Laboratories.
The foregoing estimates are based upon the knowledge and experience within the
kit and tray industry possessed by management of the Issuer.
Key Success Factors
Low Cost Producers
Price competition increases the importance of reducing production costs. The
Issuer intends to become the low cost producer of procedure trays with its
automated assembly line, allowing the Issuer to establish a cost advantage over
its U.S. competitors. In addition, a Canadian manufacturing facility should
reduce transportation and holding costs relative to U.S. competitors.
Access to Distribution Networks
In attempting to achieve efficient distribution of product, existing
competitors have shown their commitment to developing sophisticated material
handling systems for their customers to achieve this goal by introducing Just-
In-Time ("JIT") inventory and practices.
The Issuer intends to access customers, through independent distributors, in a
quick and efficient manner in order to pass the benefits of lower production
costs on to the consumer. (See the foregoing subheading "Acquisitions and
Dispositions", for information relating to the Company's recent acquisitions.)
<PAGE>
Customer Service
A high commitment to service and a fast response to consumer demands are
critical to success in this market. The Issuer's automated production allows
it to achieve product turnaround in 45 days, as opposed to the industry
standard which management believes is 90 days.
Reference should be made to "Business of the Issuer - Products" for additional
information concerning the pricing of the Issuer's products. In addition,
reference should be made to disclosure under "Business of the Issuer -
Description of Business and General Development" with respect to the Issuer's
marketing plan.
Marketing Plans and Strategies
Management believes that the healthcare industry is currently undergoing
significant transformations driven not by legislation, but by major purchasers
of healthcare. One important element of this reform is the continuous effort
on the part of healthcare providers to streamline routines and maximize
efficiencies by eliminating labour intensive processes and reducing procedural
costs without negative impact on the outcome of those procedures.
The Issuer's approach to serving the healthcare industry is to introduce cost
effective systems. New and progressive concepts for healthcare industry supply
and distribution will be continuously explored by the Issuer in order to assist
end users in reducing and having better control over their costs. Although the
Issuer expects to expand its growth in Canada, its primary focus will be to the
U.S. market where it believes that the low Canadian dollar, low production cost
and quick purchase order turnaround will enable it to enter into strategic
business alliances with established North American marketing and distribution
companies such as the distribution agreement entered into August 1997 between
NHLC and Sysco Corporation.
Since the date of the IPO Prospectus, the Issuer has added the following key
individuals to assist with its sales and marketing program:
* Gordon John Farrimond - Vice-President, Sales and Marketing, and a
Director;
* Nancy Clark - Manager of Product Development; and
* John Stone - Vice-President, Mertex and Mertex-Plus Surgical Division.
(See "Business of the Issuer - Management" for details of related experience.)
Recent acquisitions have resulted in synergistic opportunities for sales and
marketing and have provided distribution channels to a broader and more
established market.
<PAGE>
The Issuer advertises in trade magazines and has attended numerous trade and
investment shows throughout North America. Since the date of its IPO
Prospectus, the Issuer has expended $509,060 on administration costs to cover
the Issuer's marketing program. The Issuer anticipates that over the next 12
months, $1,096,674 will be required to meet the costs of its marketing program
which is designed to meet its stated business objectives, the major components
of which are as follows:
Marketing Component Monthly Cost
Advertising $ 10,160
Brochures & Promotional 5,000
Conferences 2,000
Samples 3,000
Salaries & Consultants 69,229
Tradeshows 2,000
--------
Total: $ 91,389
========
USE OF PROCEEDS
Funds Available
The Issuer will not receive any cash proceeds from, and no commission is
payable by the Issuer in respect of, the issuance of the Units upon the
exercise or deemed exercise of the Special Warrants, or the conversion or
deemed conversion of the Convertible Notes or theconversion of the Convertible
Debentures.
In January of this year the Issuer received net proceeds of $9,600,000 (the "SW
Net Proceeds") from the issue and sale of the Special Warrants. After
deduction of the Finder's commission of $344,400 (US$250,000) in respect of the
CN Private Placement, the Issuer received net proceeds of $6,543,600
(US$4,750,000) (the "CN Net Proceeds") from the issue and sale of the
Convertible Notes. The CN Net Proceeds were received on October 1, 1997, and
none of these funds has been expended to date. The total net proceeds from the
SW Private Placement and the CN Private Placement is $16,143,600 (the "Total
Net Proceeds").
<PAGE>
As at September 30, 1997, the Issuer has expended $6,606,383 of the SW Net
Proceeds, as follows: $34,691 towards the expenses of the SW Private
Placement, $962,942 towards the upgrade and installation of two additional
automated feeders(1), $896,447 towards acquisition of the Liquid Division of
Arjo Canada Inc.(2) ("Arjo"), $116,498 towards assimilation of Arjo's
facilities with those of the Issuer, $100,000 towards severance paid to certain
Arjo employees, $2,105,640 towards acquisition of the business and certain
assets of, and advances to, Huntington Laboratories Gam-Med Division, Inc.(3),
$300,000 in advances to Mercana Industries Ltd. against a registered general
security agreement(4), $1,041,914 towards contributed share capital in NHLC(5),
$87,600 towards general office computer equipment, $151,300 towards general
fixed assets, and $809,351 in equipment lease payments(1).
(1) see "Business of the Issuer - Operations - Equipment".
(2) see "Business of the Issuer - Acquisitions and Dispositions -
Liquid Division of Arjo Canada Inc."
(3) see "Business of the Issuer - Acquisitions and Dispositions -
Huntington Laboratories Gam-Med Division".
(4) see "Business of the Issuer - Acquisitions and Dispositions -
Textile Rights".
(5) see "Business of the Issuer - Description of Business and
General Development".
After deduction of the foregoing expenses, the Issuer has approximately
$2,993,617 remaining from the SW Net Proceeds.
Principal Purposes
The remaining SW Net Proceeds, together with the CN Total Proceeds, make
available a total of $9,537,217 (the "Funds Available"), which are intended to
be utilized by the Issuer as follows:
<TABLE>
Amount
<S> <C>
(a) To pay the balance of estimated costs
of the SW Private Placement and this Prospectus: $ 43,000
(b) To quarterly instalments of the loan repayment
under the WEDD Agreement(1): 460,000
(c) To upgrade and install additional automated
robotic units(2): 250,000
(d) To equipment lease payments(2): 1,677,206
(d) Reserved for acquisition of textile rights
under the Importex Assignment:(3) 100,000
(f) To further NHLC contributed share capital(4): 1,028,086
(h) Reserved for due diligence and potential
acquisition expenses: 4,800,000
(i) Reserved for working capital to fund
ongoing operations: 1,178,925
----------
TOTAL: $9,537,217
==========
<FN>
</TABLE>
(1) See "Business of the Issuer - Summary and Analysis of Financial
Operations - Financial Assistance - Federal Government".
(2) See "Business of the Issuer - Operations - Equipment".
(3) See "Business of the Issuer - Acquisitions & Dispositions - Textile
Rights".
(4) See "Business of the Issuer - Description of Business and General
Development".
Also see "Business of the Issuer - Stated Business Objectives".
<PAGE>
In addition to the Funds Available, a further $133,017 is available pursuant to
the WEDD Agreement. (See "Business of the Issuer - Summary and Analysis of
Financial Operations".)
Any funds received upon the exercise of the PP Warrants, other share purchase
warrants, and incentive stock options, or under the WEDD Agreement will be
applied towards the Issuer's general working capital.
The board of directors of the Issuer is of the opinion that the funds available
to the Issuer from the Offering will be sufficient to provide the Issuer with a
reasonable opportunity of achieving its business objectives set out in
"Business of the Issuer - Stated Business Objectives" herein.
The Issuer will spend the funds available to it to further completion of the
Issuer's stated business objectives set out under "Business of the Issuer -
Stated Business Objectives". There may be circumstances where, for sound
business reasons, a reallocation of funds may be necessary in order for the
Issuer to achieve its stated business objectives.
Conflicts of Interest
The proceeds received from the SW Private Placement will not be applied for the
benefit of the Agent or any related party of the Agent apart from the proceeds
utilized to pay the Agent's commission and expenses pursuant to the Agency
Agreement.
RISK FACTORS
Investment in the securities offered under this Prospectus must be considered
speculative. In addition to the other information contained in this
Prospectus, a prospective investor should carefully consider the following
factors:
(1) The market for the Issuer's products is highly competitive and subject to
increasing competition based on price. The Issuer has a limited operating
history and existing competitors may have greater financial and managerial
resources, operating histories and name recognition. These competitors
may be able to institute and sustain price wars, resulting in a reduction
of the Issuer's share of the market and reduced price levels and profit
margins. There can be no assurance that the market will consider the
Issuer's products to be superior or equivalent to existing or future
competitive products or that the Issuer will be able to adapt to evolving
markets and technologies, develop new products, achieve and maintain
technological advances or maintain a unit selling price competitive with
other products. (See "Business of the Issuer - Market and Competition".)
(2) The Issuer's operations currently rely upon the two Tiromats with two
robotic units for the assembly and packaging of the product.
(3) Receipt of the balance of the government financial assistance, and
repayment of the total amounts received, as disclosed under the heading
"Business of the Issuer - Summary and Analysis of Operations - Financial
Assistance", are subject to certain conditions.
(4) The Issuer is subject to government regulations in the jurisdictions in
which it distributes its products. Future changes in governmental
regulations may have an adverse impact on the operations of the Issuer.
<PAGE>
(5) The Issuer currently has 12,474,331 Shares issued and outstanding. After
giving effect to the issue of the Shares issuable upon the exercise of the
Special Warrants, there will be an additional 1,637,000 Shares
outstanding. In addition, there are or will be outstanding options and
warrants to acquire a minimum of 3,980,154 Shares. (See "Share and Loan
Capital - Fully Diluted Share Capital".)
(6) Neither the Issuer nor Excelco has filed an application for patent or
copyright protection relating to the Robotic Technology.
(7) The Issuer is dependent upon the personal efforts and commitment of its
management team. The loss of senior management personnel may adversely
affect the Issuer. Upon such loss, other individuals would be required to
manage and operate the business and there is no assurance that individuals
with suitable qualifications could be found.
(8) The Issuer's business may be affected by other factors beyond its control,
such as economic recessions and adverse fluctuations in foreign exchange
rates.
(9) The Issuer has not paid dividends in the past and does not anticipate
paying dividends in the near future. The MG Agreement and the WEDD
Agreement place certain restrictions on the payment of dividends by the
Issuer. (See additional disclosure under "Business of the Issuer -
Summary and Analysis of Financial Operations".)
(10) The Issuer has a limited operating history. The Issuer's ability to meet
market demand will be a critical factor in the Issuer's success.
(11) Certain of the Issuer's directors and officers may serve as directors or
officers, or have shareholdings in other companies and accordingly,
conflicts of interest may arise. Reference should be made to specific
disclosure under "Payments to Insiders and Promoters - Related Party
Transactions". All such possible conflicts will be disclosed and handled
in accordance with the requirements of the Corporations Act (Manitoba).
(12) The Issuer's business utilizes a new technology that is being developed
for the purpose of the Issuer's business. Accordingly, the Issuer is
subject to risks associated with start-up companies, including start-up
losses, uncertainty of revenues, markets and profitability and the
necessity of additional funding. In addition, the technology acquired by
the Issuer and being developed by the Issuer has not yet been proved in a
production environment on an ongoing basis.
(13) The evolving nature of the healthcare industry in North America in terms
of cost containment is leading to changing purchasing practices amongst
purchasers at various institutions. This change in purchasing environment
(i.e. towards a more centralized buying approach) may put additional
pressure on the Issuer to compete on a price basis in order to achieve
adequate market penetration and maintain customer loyalty. There can be
no assurances that the Issuer will be able to implement its business
strategy with its current pricing structure.
<PAGE>
DIRECTORS, OFFICERS AND PROMOTERS
Name, Address, Occupation and Security Holdings
As at September 30, 1997, the names and municipality of residence of each of
the directors, officers and promoters of the Issuer (including its operating
subsidiaries), their principal occupations, and their respective ownership of
shares of the Issuer are as follows:
<TABLE>
Name and Municipality Principal Shares Percentage
of Residence Occupationn Beneficially of Share
Owned or Over Ownership on
Which Control or Completion of
Direction is Offering(1)
Exercised
<S> <C> <C> <C>
MAHMOOD (MAC) JAMSHIDI President 3,600 4.92%
SHAHSAVAR(3) and Chief trading
Winnipeg, Manitoba Executive 690,000
President, Chief Executive Officer escrow
Officer, Director and Promoter of the
of the Issuer; President, Issuer
ecretary, Treasurer & Director since
of NHMC US; President & August
Director of NCP. 1993;
President
and Chief
Executive
Officer
of
Excelco
Systems
Inc., a
developer
of
robotic
packaging
equipment
, since
April
1991.(4)
JACK TAPPER Vice- Nil Nil
Winnipeg, Manitoba President
Vice-President and Chief and Chief
Financial Officer of the Financial
Issuer. Officer
of the
Issuer
since
July
1997.
Previousl
y, he was
an
associate
in a
public
accountin
g firm
since
1979.
REGINALD ADRIAN EBBELING Chairman 15,000 0.11%
Winnipeg, Manitoba of the trading
Chairman of the Board & Board of
Director of the Issuer the
Issuer
since
January
1995.(4)
MORTEZA SEYED TORABIAN Executive 345,095 3.30%
Surrey, British Columbia Vice- trading
Executive Vice-President, President 120,000
Director and Promoter of the of the escrow
Issuer Issuer
since
February
1997;
previousl
y, Vice-
President
of the
Issuer
(August
1993 to
February
1997).(4)
ALICE ELAINE AFFLECK* Controlle 147,200 1.61%
Winnipeg, Manitoba r and trading
Secretary-Treasurer & Director Manager 80,000
of the Issuer; Secretary of of escrow
NCP. Administr
ation for
the
Issuer
since
August
1993.(4)
ROBERT ALEXANDER JACKSON Principal 2,900 0.37%
Unionville, Ontario of trading
Executive Vice-President and Jackson 50,000
Director of the Issuer Associate escrow
s, which
has
provided
sales and
marketing
consultin
g
services
to the
Issuer
since
June
1995.(4)
<PAGE>
ROSS SCAVUZZO Since Nil Nil
Mississauga, Ontario July
Director of the Issuer 1994, Mr.
Scavuzzo
has been
the
President
of Arjo
Canada
Inc., a
supplier
and
manufactu
rer of
patient
hygiene
and life-
transfer
devices.
Mr.
Scavuzzo
was the
Vice-
President
Sales and
Marketing
of the
Hospital
Supply
Division
of Baxter
Corporati
on from
December
1992 to
June
1994, and
the Vice-
President
Sales,
General
Manager
of the
Canlab
Division
of Baxter
Corporati
on from
November
1987
through
November
1992.
Previous
sales and
marketing
positions
have been
held with
Dow-
Corning
Wright
and
American
Hospital
Supply
Canada
Inc.
GORDON JOHN FARRIMOND* Vice- 10,600 0.08%
Indian River, Ontario President trading
Vice-President Sales and Sales and
Marketing and Director of the Marketing
Issuer of the
Issuer
since May
1996.(4)
ARISTOTLE (TELLY) JOHN MERCURY* Since 145,498 1.03%
Winnipeg, Manitoba July 1, trading
Director of the Issuer 1964, Mr.
Mercury
has been
a partner
of
Aikins,
MacAulay
&
Thorvalds
on,
Barrister
s &
Solicitor
s.
JANICE MARIE JAMSHIDI Vice- 4,271,805 31.12%(2)
SHAHSAVAR(3) President trading(2)
Winnipeg, Manitoba , Human 120,000
Vice-President Human Resources Resources escrow
of the Issuer of the
Issuer
since
August
1993.(4)
JOHN RYRIE STONE Vice- 9,000 0.06%
Warsaw, ON President trading
Vice-President, Mertex and , Mertex
Mertex Plus Surgical Division and
of the Issuer Mertex
Plus
Surgical
Division
of the
Issuer
since
February,
1997.(4)
DARRELL WAYNE VAN DYKE Vice Nil Nil
Libertyville, Illinois, U.S.A. President
Vice President of NHMC US of NHMC
US since
February
1997.(4)
RICHARD J. JOHNSON Vice Nil Nil
Brampton, ON President
Vice President of NCP of NCP
since
February,
1997.(4)
<FN>
</TABLE>
* Member of the audit committee.
(1) Including the PP Shares to be distributed under this Prospectus, but
excluding the Shares which may be issued upon the exercise of the PP
Warrants (see "Details of the Offering"), other share purchase warrants
and incentive stock options (see "Share and Loan Capital - Options and
Other Rights to Purchase Securities").
(2) All of which are registered in the name of Excelco, a company which is
100% owned by Janice Shahsavar, and such shares will represent 30.27% of
the Issuer's issued and outstanding shares on completion of the Offering.
(3) As Mac Shahsavar and Janice Shahsavar are married, they are deemed to be
"associates" as defined in the Securities Act (British Columbia).
(4) For additional occupational history, see "Business of the Issuer -
Management".
<PAGE>
Aggregate Ownership of Securities
As of the date hereof, and assuming exercise or deemed exercise of the Special
Warrants and the Agent's Special Warrants, but excluding the issuance of the PP
Warrant Shares, the Importex Warrant Shares and the CD Shares, the aggregate
number of Shares that are beneficially owned, or directly or indirectly
controlled, by all directors, officers and other members of Management of the
Issuer as a group will be 6,130,698 Shares, representing approximately 43.45%
of the issued and outstanding Shares on completion of the Offering. The
directors, officers and other members of Management did not purchase any
Special Warrants under the SW Private Placement or the Convertible Notes under
the CN Private Placement.
Corporate Cease Trade Orders or Bankruptcies
No director, officer or promoter of the Issuer is or has been, within the
preceding five years, a director, officer or promoter of any other issuer that,
while that person was acting in that capacity:
(a) was the subject of a cease trade order or similar order or an order that
denied the Issuer access to any statutory exemptions for a period of more
than 30 consecutive days, or
(b) was declared bankrupt or made a voluntary assignment in bankruptcy, made a
proposal under any legislation relating to bankruptcy or insolvency or
been subject to or instituted any proceedings, arrangement, or compromise
with creditors or had a receiver, receiver manager or trustee appointed to
hold its assets.
Penalties or Sanctions
No director, officer or promoter of the Issuer is or has, within the past ten
years, been subject to any penalties or sanctions imposed by a court or
securities regulatory authority relating to trading in securities, promotion or
management of a publicly traded issuer, or theft or fraud.
Individual Bankruptcies
No director, officer or promoter of the Issuer is or has, within the preceding
five years, been declared bankrupt or made a voluntary assignment in
bankruptcy, made a proposal under any legislation relating to bankruptcy or
insolvency or been subject to or instituted any proceedings, arrangement, or
compromise with creditors or had a receiver, receiver manager or trustee
appointed to hold the assets of that individual.
Conflicts of Interest
Certain of the directors, officers and shareholders of the Issuer are also
directors, officers and shareholders of other companies, and conflicts of
interest may arise between their duties as directors of the Issuer and
directors of other companies. Reference should be made to specific disclosure
under "Payments to Insiders and Promoters - Related Party Transactions". All
such possible conflicts will be disclosed in accordance with the requirements
of The Corporations Act (Manitoba) and the directors concerned will govern
themselves in respect thereof to the best of their ability in accordance with
the obligations imposed on them by law.
INDEBTEDNESS OF DIRECTORS, OFFICERS, PROMOTERS AND MANAGEMENT
No director, officer, promoter or member of management of the Issuer, or any of
their respective associates or affiliates, is or has been indebted to the
Issuer since the commencement of its 1995 financial year to date.
<PAGE>
PAYMENTS TO INSIDERS AND PROMOTERS
Executive Compensation
For purposes of this section, "executive officer" of the Issuer means an
individual who at any time during the year was the chairman or a vice-chairman
of the board of directors, where such person performed the functions of such
office on a full-time basis, the president, any vice-president in charge of a
principal business unit such as sales, finance or production, or any officer of
the Issuer or of a subsidiary or other person who performed a policy-making
function in respect of the Issuer.
The following table is a summary of the compensation accrued and/or paid by the
Issuer to its six executive officers during each of the years ended June 30,
1995, 1996 and 1997:
<TABLE>
Ann Long Term
ual Compensation
Com
pen
sat
ion
Awar Payouts
ds
Name and Period Sal Bo Other Secu Restrict LTIP( All Other
Principal ary nu Annua riti ed 1) Compensa-
Position ($) s l es Shares tion
($ Compe Unde of Pay
) nsa- r Res out
tion Opti tricted s
($) ons( Share ($)
1) Units
($)
Gran
ted(
#)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MAHMOOD (MAC) Year Ended J $60, Nil Nil 370, Nil Nil Nil
JAMSHIDI une 30, 1995 000 Nil Nil 000 Nil Nil Nil
SHAHSAVAR Year Ended J (2) Nil Nil Nil Nil Nil Nil
Chief Executive une 30, 1996 $120 Nil
Officer and Year Ended J ,00
President une 30, 1997 0(2
)
$120
,00
0(2
)
MORTEZA SEYED Year Ended J $48, Nil Nil 117, Nil Nil Nil
TORABIAN une 30, 1995 000 Nil Nil 829 Nil Nil Nil
Executive Vice- Year Ended J (2) Nil Nil Nil Nil Nil Nil
President une 30, 1996 $72, 102,
Year Ended J 000 950
une 30, 1997 (2)
$72,
000
(2)
REGINALD ADRIAN Year Ended J $18, Nil Nil 30,0 Nil Nil Nil
EBBELING une 30, 1995 195 Nil Nil 00 Nil Nil Nil
Chairman of the Year Ended J $36, Nil Nil Nil Nil Nil Nil
Board une 30, 1996 000 5,00
Year Ended J $36, 0
une 30, 1997 000
GORDON JOHN Year Ended J Nil Nil Nil 30,0 Nil Nil Nil
FARRIMOND une 30, 1995 Nil Nil Nil 00 Nil Nil Nil
Vice-President Year Ended J Nil Nil Nil Nil Nil Nil Nil
Sales and une 30, 1996 17,5
Marketing Year Ended J 00
une 30, 1997
ALICE ELAINE Year Ended J $32, Nil Nil 80,0 Nil Nil Nil
AFFLECK une 30, 1995 683 Nil Nil 00 Nil Nil Nil
Secretary- Year Ended J $30, Nil Nil Nil Nil Nil Nil
Treasurer une 30, 1996 000 15,0
Year Ended J $30, 00
une 30, 1997 000
JANICE Year Ended J $23, Nil Nil 100, Nil Nil Nil
SHAHSAVAR une 30, 1995 500 Nil Nil 000 Nil Nil Nil
Vice-President, Year Ended J $56, Nil Nil Nil Nil Nil Nil
Human Resources une 30, 1996 400 Nil
Year Ended J $56,
une 30, 1997 400
ROBERT JACKSON Year Ended J $16, Nil Nil 30,0 Nil Nil Nil
Executive Vice- une 30, 1995 000 Nil Nil 00 Nil Nil Nil
President Year Ended J $78, Nil Nil Nil Nil Nil Nil
une 30, 1996 000 12,5
Year Ended J $78, 00
une 30, 1997 000
DARRELL VAN Year Ended J Nil Nil Nil Nil Nil Nil Nil
DYKE une 30, 1995 Nil Nil Nil Nil Nil Nil Nil
Vice-President Year Ended J $56, Nil Nil 20,0 Nil Nil Nil
of NHMC US une 30, 1996 700 00
Year Ended J
une 30, 1997
RICHARD JOHNSON Year Ended J Nil Nil Nil Nil Nil Nil Nil
Vice-President une 30, 1995 Nil Nil Nil Nil Nil Nil Nil
of NCP Year Ended J $14, Nil Nil 22,0 Nil Nil Nil
une 30, 1996 875 00
Year Ended J
une 30, 1997
JOHN STONE Year Ended J Nil Nil Nil Nil Nil Nil Nil
Vice-President une 30, 1995 Nil Nil Nil Nil Nil Nil Nil
Mertex and Year Ended J $7,5 Nil Nil 10,0 Nil Nil Nil
Mertex Plus une 30, 1996 00 00
Surgical Year Ended J
Division une 30, 1997
<FN>
</TABLE>
(1) "LTIP" or "long term incentive plan" means any plan which provides
compensation intended to serve as incentive for performance to occur over
a period longer than one financial year, but does not include option or
stock appreciation right plans.
(2) Although Mr. Shahsavar has not been paid any compensation by the Issuer,
salary in the aggregate amount of $300,000 has accrued but not yet been
paid. In addition, Morteza Seyed Torabian has been paid $138,000 by
the Issuer,leaving a balance of $54,000 accrued and owing.
The Issuer does not anticipate a material change in the compensation of its
executive officers during the 12 months following the date of this prospectus.
<PAGE>
The Issuer granted the following incentive stock options to its Executive
Officers during its most recently completed financial year ended June 30, 1997:
<TABLE>
OPTION GRANTS DURING THE YEAR ENDED JUNE 30, 1997
<CAPTION>
Market Va
Securities Exerc lue of
Granted % of Total ise Securitie
Under Options or s Expiration
Name Options Granted to Base Underlyin Date
Granted Employees Price g
in Twelve Options o
Month n
Period Date of G
rant
<S> <C> <C> <C> <C> <C>
Morteza Seyed 94,000 19.0% $3.81 $4.55 August 11, 2001
Torabian 8,950 $6.13 $6.00 June 3, 2002
Reginald Adrian 5,000 0.9% $3.81 $4.55 August 11, 2001
Ebbeling
Gordon John 10,000 3.3% $3.81 $4.55 August 11, 2001
Farrimond 7,500 $6.13 $6.00 June 3, 2002
Robert Jackson 5,000 2.3% $3.81 $4.55 August 11, 2001
7,500 $6.13 $6.00 June 3, 2002
Darrell Van Dyke 20,000 3.7% $6.13 $6.00 June 3, 2002
Richard Johnson 22,000 4.1% $6.13 $6.00 June 3, 2002
John Stone 10,000 1.9% $6.13 $6.00 June 3, 2002
<FN>
</TABLE>
The following table sets out incentive stock options exercised by Executive
Officers during the fiscal year ended June 30, 1997, as well as the value of
stock options held by Executive Officers at June 30, 1997:
<PAGE>
<TABLE>
AGGREGATED OPTION EXERCISES DURING THE
YEAR ENDED JUNE 30, 1997 AND OPTION VALUES
AS AT THE JUNE 30, 1997 YEAR END
<CAPTION>
Name Securities Aggregate Unexercis Value of
Acquired Value ed Unexercised
on Exercise Realized( Options in-the-Money
(#) 1) at Year Options at
End (#) Year End(2)
Exercisab Exercisable
le
<S> <C> <C> <C> <C>
Mahmood (Mac) Jamshidi Nil Nil 370,000 $1,942,500
Shahsavar
Morteza Seyed Torabian Nil Nil 220,779 $1,122,126
Reginald Adrian Ebbeling 6,000 on $12,900 29,000 $ 152,250
07/26/96
Gordon John Farrimond Nil Nil 47,500 $ 218,400
Alice Elaine Affleck 20,000 on $118,000 75,000 $ 323,400
12/02/96
Janice Shahsavar Nil Nil 100,000 $ 525,000
Robert Jackson 2,000 on $ 4,200 30,500 $ 175,150
10/09/96 $30,100
7,000 on $ 2,880
11/21/96
3,000 on
04/14/97
Darrell Van Dyke Nil Nil 20,000 $ 22,400
Richard Johnson Nil Nil 22,000 $ 24,640
John Stone Nil Nil 10,000 $ 11,200
<FN>
</TABLE>
(1) Based on the closing market price for the Shares on the Exchange as
at the respective exercise date.
(2) Based on the closing market price for the Shares on the Exchange of
$7.25.
Other than as disclosed above, there is no pension or other plan pursuant to
which cash or non-cash compensation was paid or distributed to the Executive
Officers during the year ended June 30, 1997.
The Executive Officers have not received any other compensation from the
Issuer.
The Issuer has no compensatory plan or arrangement in respect of compensation
received or that may be received by the Executive Officers in the Issuer's most
recently completed or current financial year to compensate such Executive
Officers in the event of the termination of employment (resignation,
retirement, change of control) or in the event of a change in responsibilities
following a change in control, where in respect of the Executive Officers the
value of such compensation exceeds $100,000.
Compensation of Directors
None of the directors of the Issuer, in their role as directors, have received
any remuneration, other than reimbursement for travel and other out-of-pocket
expenses incurred for the benefit of the Issuer during the most recently
completed financial year ended June 30, 1997. Although the Issuer does not
presently have any non-cash compensation plans for its directors; it is
considering paying non-cash compensation during the current financial year in
addition to the granting of stock options. However, the particulars of such
non-cash compensation have not yet been determind. (See "Share and Loan
Capital - Options and Other Rights to Purchase Securities - Incentive Stock
Options".)
<PAGE>
Related Party Transactions
Ross Scavuzzo, a director of the Issuer, was the President of Arjo and a
director of the Issuer at the time the Issuer entered into an agreement with
Arjo whereby the Issuer has acquired Arjo's Liquid Division. (See "Business of
the Issuer - Acquisitions and Dispositions - Liquid Division of Arjo Canada
Inc.")
Janice Shahsavar, the Vice-President, Human Resources, of the Issuer, owns 100%
of the issued and outstanding shares of Excelco. In addition, Mahmood (Mac)
Shahsavar, the President, Chief Executive Officer, Promoter and a director of
the Issuer, is the President and Chief Executive Officer of Excelco. The
Issuer has entered into an agreement whereby Excelco has granted to the Issuer
the right to use certain Robotic Technology. (See "Business of the Issuer -
Acquisitions and Dispositions - Robotic Technology License Agreement".)
See "Business of the Issuer - Summary and Analysis of Financial Operations -
Financial Assistance - Manitoba Government" for information relating to certain
restrictions and obligations placed upon Mahmood (Mac) Shahsavar and Janice
Shahsavar in order to provide security to MDC pursuant to the MG Agreement.
Darrell Wayne Van Dyke, Vice President of NHMC US, was General Manager of
Huntington Laboratories Gam-Med Division, Inc. ("Gam-Med") at the time that the
Issuer entered into an agreement with Gam-Med whereby the Issuer acquired the
on-going business and certain assets of Gam-Med. (See "Business of the Issuer
- - Acquisitions and Dispositions - Huntington Laboratories Gam-Med Division,
Inc.)
Except as disclosed herein, since the date of incorporation of the Issuer, no
insider of the Issuer or any associate or affiliate of such insider has been
materially interested in any transaction of the Issuer, nor is any such person
interested in any proposed transaction which has materially affected or would
materially affect the Issuer.
SHARE AND LOAN CAPITAL
Existing and Proposed Share Capital
The authorized capital of the Issuer consists of an unlimited number of Shares.
The following table sets out the Issuer's outstanding share capital, including
the Shares to be distributed under this Prospectus, as of the most recent month
end.
<TABLE>
Number of Price Per Total
Issued Security Considerati
Securities on(3)
<S> <C> <C> <C>
Issued as of September 30, 1997 12,474,331 N/A $11,433,351
(2)
Offering(1):
Issuable on Exercise of the Special
Warrants 1,509,000 $6.00 $ 8,890,936
Issuable on Exercise of the Agent's
Special Warrants 128,000 N/A N/A
Total upon completion of the Offering 14,111,331 N/A $20,324,287
(2)
<FN>
</TABLE>
(1) Including the SW Shares issuable on exercise of the unexercised balance of
the Special Warrants and the Agent's Shares, but excluding the PP Warrant
Shares and the CD Shares. (See "Details of the Offering".)
(2) Including the 1,180,000 Shares held in escrow. (See "Share and Loan
Capital - Escrow Shares".)
(3) Net of issue costs. (See Note 12 to the Financial Statements.)
<PAGE>
Loan Capital
<TABLE>
Designation of Security Amount Authori Amount Outstan Amount Outstand
zed ding as ing as
or to be Autho of June 30, 19 of September 30
rized 97 , 1997
<S> <C> <C> <C>
Shareholders' and N/A $2,064,770 $6,168,474
Directors Loans(1)
Lease Agreements(2) Nil $7,223,537 $6,811,558
Long-term Debt(3) Nil $3,267,326 $3,828,306
<FN>
</TABLE>
(1) As at September 30, 1997, the Issuer has received non-interest bearing
shareholder loans totalling $1,168,474 (the "Shareholders Loans"),
comprised as to $1,012,978 from Excelco, $155,496 from Inscoca, which
loans have no fixed terms of repayment. The terms of certain loans
received by the Issuer under the MG Agreement and the WEDD Agreement
require that the Issuer obtain the consent of the Ministers of the WEDP
and the MDC prior to the repayment of the Shareholders Loans. The loan
under the MG Agreement is secured. (See "Business of the Issuer - Summary
and Analysis of Financial Operations - Financial Assistance" and "Payments
to Insiders and Promoters - Related Party Transactions".)
(2) The Lease Agreements amounts reflect the total lease obligation and not
just the long-term portion. (See "Business of the Issuer - Operations -
Equipment".)
(3) The long-term debt reflects a $1,654,180 unsecured, non-interest bearing
loan from the WEDD, repayable quarterly commencing December 1, 1997 and
ending December 1, 1999, and the $2,174,000 MG Loan, bearing interest at a
rate charged by the Province of Manitoba to its Crown Corporations for
borrowings amortized over a ten year period (currently 8%), secured by a
first fixed charge against certain lands, buildings and equipment (The
loans are repayable as disclosed under the heading "Business of the Issuer
- Summary and Analysis of Financial Operations - Financial Assistance".)
Options and Other Rights to Purchase Securities
As at September 30, 1997, the Issuer has granted various persons rights to
purchase or acquire an aggregate of 3,980,154 Shares (exclusive of the SW
Shares and the Agent's Shares), comprised as follows and as more particularly
described in this section:
No. Shares
(a) to be issued on exercise of incentive stock options: 1,267,154
(b) to be issued on exercise of the July/96 Warrants: 835,000
(c) to be issued on exercise of the SW Warrants: 1,600,000
(d) to be issued on exercise of the Agent's Warrants: 128,000
(e) to be issued on exercise of the Importex Warrants: 150,000
---------
Total: 3,980,154
=========
In addition, on October 1, 1997 the Issuer granted various persons the right to
purchase to acquire further Shares upon the conversion of the Convertible
Debentures and the CN Warrants, the number of which cannot be calculated until
the deemed price per CD Share and CN Warrant Share has been determined. See
"Details of the Offering - CN Private Placement").
As at September 30, 1997, the closing market price of the Shares on the
Exchange was $6.05 per Share.
Incentive Stock Options
The following table sets forth details, as at September 30, 1997, of the
incentive stock options entitling the holders to purchase an aggregate of
1,267,154 Shares of the Issuer:
<PAGE>
<TABLE>
Name of No. of Date of Exerc Expiry Market Market
Optionees Shares Grant ise Date Value Value
Subject Price of Shares on Sept
to on ember
Option Date of 30, 1997
Grant
<S> <C> <C> <C> <C> <C> <C>
Mahmood (Mac) 370,000 June 29, $2.00 Nov. 30, n/a(2) $6.05
Shahsavar(1) 1995 2000
Seyed 107,829 June 29, $2.00 Nov. 30, n/a(2) $6.05
Torabian(1) 94,000 1995 $3.81 2000 $4.55
8,950 Aug. 12, $6.13 Aug. 11, $6.00
1996 2001
June 3, June 3,
1997 2002
Janice Shahsavar 100,000 June 29, $2.00 Nov. 30, n/a(2) $6.05
1995 2000
Alice Elaine 60,000 June 29, $2.00 Nov. 30, n/a(2) $6.05
Affleck(1) 15,000 1995 $6.13 2000 $6.00
June 3, June 3,
1997 2002
Robert 16,000 June 29, $2.00 Nov. 30, n/a(2) $6.05
Jackson(1) 5,000 1995 $3.81 2000 $4.55
7,500 Aug. 12, $6.13 Aug. 11, $6.00
1996 2001
June 3, June 3,
1997 2002
Reginald 12,000 June 29, $2.00 Nov. 30, n/a(2) $6.05
Ebbeling(1) 5,000 1995 $3.81 2000 $4.55
Aug. 12, Aug. 11,
1996 2001
Gordon 30,000 June 29, $2.00 Nov. 30, n/a(2) $6.05
Farrimond(1) 10,000 1995 $3.81 2000 $4.55
7,500 Aug. 12, $6.13 Aug. 11, $6.00
1996 2001
June 3, June 3,
1997 2002
Aristotle 30,000 June 29, $2.00 Nov. 30, n/a(2) $6.05
(Telly) 1995 2000
Mercury(1)
Alex Tsakumis 29,500 June 29, $2.00 Nov. 30, n/a(2) $6.05
15,000 1995 $3.81 2000 $4.55
15,000 Aug. 12, $6.13 Aug. 11, $6.00
1996 2001
June 3, June 3,
1997 2002
Eve Torabian 30,000 June 29, $2.00 Nov. 30, n/a(2) $6.05
1995 2000
Ross Scavuzzo(1) 20,000 June 29, $2.00 Nov. 30, n/a(2) $6.05
1995 2000
Pat Paterson 5,000 Aug. 12, $3.81 Aug. 11, $4.55 $6.05
22,000 1996 $6.13 2001 $6.00
June 3, June 3,
1997 2002
Bill C.K. Lim 5,000 Aug. 12, $3.81 Aug. 11, $4.55 $6.05
15,000 1996 $6.13 2001 $6.00
June 3, June 3,
1997 2002
Nancy Clark 5,000 Aug. 12, $3.81 Aug. 11, $4.55 $6.05
15,000 1996 $6.13 2001 $6.00
June 3, June 3,
1997 2002
Simona Sordi 3,125 Aug. 12, $3.81 Aug. 11, $4.55 $6.05
1996 2001
Dominic Marrai 5,000 Aug. 12, $3.81 Aug. 11, $4.55 $6.05
7,500 1996 $6.13 2001 $6.00
June 3, June 3,
1997 2002
Darrell Van Dyke 20,000 June 3, $6.13 June 3, $6.00 $6.05
1997 2002
Rick Johnson 19,250 June 3, $6.13 June 3, $6.00 $6.05
1997 2002
Joseph Gillies 15,000 June 3, $6.13 June 3, $6.00 $6.05
1997 2002
Monique 15,000 June 3, $6.13 June 3, $6.00 $6.05
Desrosiers 1997 2002
Carol Scott 15,000 June 3, $6.13 June 3, $6.00 $6.05
1997 2002
Darren Van Dyke 7,500 June 3, $6.13 June 3, $6.00 $6.05
1997 2002
Dexter Talwar 11,000 June 3, $6.13 June 3, $6.00 $6.05
1997 2002
May M. Alibango 15,000 June 3, $6.13 June 3, $6.00 $6.05
1997 2002
Carmelita Smith 11,000 June 3, $6.13 June 3, $6.00 $6.05
1997 2002
John Stone 10,000 June 3, $6.13 June 3, $6.00 $6.05
1997 2002
Ron Gibson 3,500 June 3, $6.13 June 3, $6.00 $6.05
1997 2002
Jeff R. 3,500 June 3, $6.13 June 3, $6.00 $6.05
Broadfoot 1997 2002
Cecilia S. Chong 3,500 June 3, $6.13 June 3, $6.00 $6.05
1997 2002
Claudette C. 3,500 June 3, $6.13 June 3, $6.00 $6.05
Kartinen 1997 2002
James R. 3,500 June 3, $6.13 June 3, $6.00 $6.05
Scrapneck 1997 2002
John Sousa 3,500 June 3, $6.13 June 3, $6.00 $6.05
1997 2002
Larissa A. 3,500 June 3, $6.13 June 3, $6.00 $6.05
McCutcheon 1997 2002
Doug J. Stiff 3,500 June 3, $6.13 June 3, $6.00 $6.05
1997 2002
Daniel D. 2,000 June 3, $6.13 June 3, $6.00 $6.05
Midwinter 1997 2002
Virgil C. 2,000 June 3, $6.13 June 3, $6.00 $6.05
Catacutan 1997 2002
Agustin Bangsal 2,000 June 3, $6.13 June 3, $6.00 $6.05
1997 2002
Ricardito 2,000 June 3, $6.13 June 3, $6.00 $6.05
Bangsal 1997 2002
Cherry Licup 2,000 June 3, $6.13 June 3, $6.00 $6.05
1997 2002
Lucia Pascual 2,000 June 3, $6.13 June 3, $6.00 $6.05
1997 2002
Teresita N. 2,000 June 3, $6.13 June 3, $6.00 $6.05
Ramos 1997 2002
Flordeliza B. 2,000 June 3, $6.13 June 3, $6.00 $6.05
Reyes 1997 2002
Matilde O. 2,000 June 3, $6.13 June 3, $6.00 $6.05
Tahimic 1997 2002
Mary Jane A. 2,000 June 3, $6.13 June 3, $6.00 $6.05
Parango 1997 2002
Lina Sawit 2,000 June 3, $6.13 June 3, $6.00 $6.05
1997 2002
Anna Liza 2,000 June 3, $6.13 June 3, $6.00 $6.05
Encarnacion 1997 2002
Rufina Platon 2,000 June 3, $6.13 June 3, $6.00 $6.05
1997 2002
Caridad E. 2,000 June 3, $6.13 June 3, $6.00 $6.05
Padernal 1997 2002
Carolina P. 2,000 June 3, $6.13 June 3, $6.00 $6.05
Bercasio 1997 2002
Roman A. 2,000 June 3, $6.13 June 3, $6.00 $6.05
Gonzales 1997 2002
Aurora Trinidad 2,000 June 3, $6.13 June 3, $6.00 $6.05
1997 2002
Ma Merlyn 2,000 June 3, $6.13 June 3, $6.00 $6.05
Alibango 1997 2002
Mildred Nario 2,000 June 3, $6.13 June 3, $6.00 $6.05
1997 2002
Troy O. Grantham 2,000 June 3, $6.13 June 3, $6.00 $6.05
1997 2002
<FN>
</TABLE>
(1) Directors of the Issuer.
(2) There was no market for the Shares when the June 29, 1995 stock
options were granted. The exercise price was based on the public
offering price under the Issuer's IPO Prospectus.
<PAGE>
The options have been granted as incentives and not in lieu of any compensation
for services, and are subject to cancellation should the optionee cease to act
in a designated capacity.
See "Business of the Issuer - Summary and Analysis of Financial Operations -
Financial Assistance - Manitoba Government" for information relating to certain
restrictions and obligations placed upon Mahmood (Mac) Shahsavar and Janice
Shahsavar with respect to the exercise of their incentive stock options and the
sale, transfer, assignment or other disposition of their stock options or
shares issued to them upon exercise of their stock options.
July/96 Special Warrants
Upon the deemed exercise of 905,000 special warrants (the "July/96 Special
Warrants") originally issued on a private placement basis (the "July/96 Private
Placement") on July 31, 1996, 905,000 share purchase warrants (the "July/96
Warrants") were issued August 1, 1997. A total of 835,000 of the July/96
Warrants remain outstanding, pursuant to the conditions set out in the
agreement, dated July 31, 1996 (the "July/96 Warrant Indenture") among the
Issuer and the Trustee which provides for the terms and conditions of the
creation, issuance and exercise of the July/96 Warrants:
<TABLE>
Name Number of Exercise Market Expiry Da
Shares Price Value of te
Available Shares
Upon Exercise as at
Date of
Acquisiti
on(1)
<S> <C> <C> <C> <C>
BPI Canadian Small Companies 500,000 $3.50 $4.40 February
Fund 2, 1998
Origin Capital Investment Club 200,000 $3.50 $4.40 February
2, 1998
Xerxes Venture Capital Fund 35,000 $3.50 $4.40 February
Ltd. 2, 1998
Montreal Trust Company of 100,000 $3.50 $4.40 February
Canada for A/C 75410002 2, 1998
<FN>
</TABLE>
(1) As at the date of closing of the July/96 Private Placement. At the time
the July/96 Private Placement was announced the market value was $3.40.
<PAGE>
SW Warrants
In connection withthe SW Private Placement, Special Warrants were issued
exercisable into Units, which Units included SW Warrants. As of the date of
this Prospectus, 91,000 Special Warrants have been exercised, resulting in the
issuance of 91,000 SW Warrants. A total of 1,600,000 Shares are issuable upon
exercise SW Warrants, as follows.
<TABLE>
Name Number of Exercise Market Value of Expiry Dat
Shares Price Shares e
Available as at Date of
Upon Exerc Acquisition(1)
ise
<S> <C> <C> <C> <C>
BPI Canadian Small 1,050,000 $7.00 $7.60 July 8, 19
Companies Fund (A/C #5419- 98
2616001)
BPI Canadian Small 100,000 $7.00 $7.60 July 8, 19
Companies Fund (A/C #5419- 98
2076601)
Donald D. Sharp 40,000 $7.00 $7.60 July 8, 19
98
Gibralt Holdings Ltd. 34,000 $7.00 $7.60 July 8, 19
98
Roberto D. Chu 17,000 $7.00 $7.60 July 8, 19
98
Diana Risling 17,000 $7.00 $7.60 July 8, 19
98
Sherman Yee, Ltd. 17,000 $7.00 $7.60 July 8, 19
98
John Heras 34,000 $7.00 $7.60 July 8, 19
98
T.R. Lankester 17,000 $7.00 $7.60 July 8, 19
98
Hepplewood Design Limited 100,000 $7.00 $7.60 July 8, 19
98
Barry D. McKnight 36,000 $7.00 $7.60 July 8, 19
98
Elizabeth Anne McKnight 17,000 $7.00 $7.60 July 8, 19
98
Barry McMillan 17,000 $7.00 $7.60 July 8, 19
98
Dave McMillan 36,000 $7.00 $7.60 July 8, 19
98
Vito Enterprises Ltd. 17,000 $7.00 $7.60 July 8, 19
98
Frank Mauro 17,000 $7.00 $7.60 July 8, 19
98
Paymon Trading Inc. 17,000 $7.00 $7.60 July 8, 19
98
P. Nancy Clark 17,000 $7.00 $7.60 July 8, 19
98
<FN>
</TABLE>
(1) As at the date of closing of the SW Private Placement. At the time the SW
Private Placement was announced the market value was $7.40.
Agent's Warrants's
Pursuant to the terms of the Agency Agreement, the Issuer has issued to the
Agent 128,000 Agent's Special Warrants. Each Agent's Special Warrant entitles
the holder to acquire, without additional consideration, one Agent's Unit.
Each Agent's Unit consists of one Agent's Share and one Agent's Warrant. Each
Agent's Warrant entitles the holder to purchase one additional Share at a price
of $7.00 on or before the Warrant Expiry Date. (See "Details of the Offering -
SW Private Placement".)
Importex Warrant
Pursuant to the terms of the Importex Assignment, the Issuer has issued to
Importex a warrant (the "Importex Warrant") entitling the holder to purchase
150,000 Shares (the "Importex Warrant Shares") at a price of $6.90 per Share in
the first year and at a price of $7.94 per Share in the second year, expiring
on February 3, 1999. (See "Business of the Issuer - Acquisitions and
Dispositions - Textile Rights - Importex Corporation".)
THERE ARE NO ASSURANCES THAT THE OPTIONS, SHARE PURCHASE WARRANTS OR OTHER
RIGHTS DESCRIBED ABOVE WILLBE EXERCISED IN WHOLE OR IN PART.
<PAGE>
Fully Diluted Share Capital
The following sets forth information in respect of the Issuer's share capital
on a fully diluted basis:
<TABLE>
Number of Percentage of
Shares Total
<S> <C> <C>
Issued as of September 30, 1997 12,474,331 69.0%
Offered under this Prospectus(1) 1,637,000 9.0%
Reserved for Future Issue as at September 30,
1997(2) 3,980,154
22.0%
Total: 18,091,485 100.0%
<FN>
</TABLE>
(1) Including the SW Shares and the Agent's Shares, but excluding
the PP Warrant Shares and the CD Shares. (See "Details of the
Offering".)
(2) Including the Shares issuable on exercise of incentive stock
options, the July/96 Warrants, the SW Warrants, the Agent's
Warrants and the Importex Warrant, but excluding the Shares
issuable upon conversion of the Convertible Debentures and upon
exercise of the CN Warrants, the number of which cannot be
calculated until the deemed price per CD Share and CN Warrant
Share has been determined. (See "Details of the Offering - CN
Private Placement").
Principal Holders of Voting Securities
As of the date hereof, the only persons or companies holding, as of record or
known to the Issuer to beneficially own, directly or indirectly, or to have
control or direction over, more than 10% of the issued shares of the Issuer are
as follows:
<TABLE>
Name and Municipality of Residence Number of % of Class % of Class
Securities Prior to the After the
Offering Offering
<S> <C> <C> <C>
EXCELCO SYSTEMS INC.(1) 4,271,805 34.24% 30.27%
Saskatoon, Saskatchewan
<FN>
</TABLE>
(1) Excelco is a private company of which Janice Shahsavar, the Vice-
President, Human Resources of the Issuer, owns 100% of the issued
shares. Mrs. Shahsavar also directly holds 120,000 escrow shares of
the Issuer.
<PAGE>
Escrow Shares
The Issuer has issued a total of 1,180,000 performance shares (the "Escrow
Shares"), at a price of $0.01 per share, to principals of the Issuer in
accordance with Local Policy Statement 3-07 of the British Columbia Securities
Commission (the "Policy"). The holders of the Escrow Shares (the "Escrow
Holders") are as follows:
Name of Escrow Holders No. Shares
Mahmood (Mac) Shahsavar 690,000
Seyed Torabian 120,000
Janice Shahsavar 120,000
Alice Elaine Affleck 80,000
Robert Jackson 50,000
Eve Torabian 30,000
Frank Klemmer* 30,000
Mahmoud Torabian 20,000
Murray Laird* 20,000
Don Affleck 20,000
* Frank Klemmer and Murray Laird are no longer principals (as that
term is defined in the Policy) of the Issuer and, accordingly,
are obligated to transfer their respective Escrow Shares
pursuant to the terms of the Escrow Agreement.
The Escrow Shares are being held in escrow pursuant to the terms of an
agreement dated June 29, 1995 (the "Escrow Agreement") among the Issuer,
Pacific Corporate Trust Company (the "Escrow Agent"), and the Escrow Holders.
The escrow restrictions contained in the Escrow Agreement provide that the
shares may not be traded in, dealt with in any manner whatsoever, or released,
nor may the Issuer, the Escrow Agent or Escrow Holders make any transfer or
record any trading of the shares without the consent of the Superintendent of
Brokers for British Columbia (the "Superintendent") or, while the shares are
listed on the Exchange, the consent of the Exchange.
The Escrow Shares may be released from escrow, on a pro-rata basis, based upon
the cumulative cash flow of the Issuer, as evidenced by the Issuer's annual
audited financial statements. "Cash Flow" is defined in the Policy to mean net
income or loss before tax, adjusted for certain add-backs. For each $0.09 of
cumulative cash flow generated by the Issuer from its operations, one Escrow
Share may be released from escrow. Any shares not released from escrow before
November 30, 2005, shall be cancelled.
Should an Escrow Holder cease to be a Principal as that term is defined in
Local Policy Statement 3-07, or should he die or become bankrupt while he owns
the Escrow Shares, the Escrow Holder or the representative(s) of his estate
shall sell and transfer the Escrow Shares to such principal or principals of
the Issuer as may be approved by the Board of Directors and the Superintendent
or the Exchange at a price equal to an amount equal to the greater of 7% of the
simple average of the closing price of the Shares for each of the business days
on which there was a closing price falling not more than 10 business days
before the date the Escrow Holder ceases to be a principal, dies or becomes
bankrupt, as the case may be, and $0.01.
Upon completion of the Offering (see "Details of the Offering - Issuance of
Special Warrants"), the Escrow Shares will represent approximately 8.3% of the
issued and outstanding Shares of the Issuer.
The complete text of the Escrow Agreement is available for inspection at the
office of the Issuer's legal counsel, Maitland & Company, at the times
specified under "Material Contracts".
<PAGE>
PRIOR SALES AND TRADING INFORMATION
During the 12 months prior to the date of this Prospectus, the Issuer has sold
for cash a total of 1,703,041 Shares as follows:
<TABLE>
Number of Shares Price per Commission Net Cash
Share Received
<S> <C> <C> <C>
240,000(1) $2.00 Nil $480,000
89,625(2) $2.00 Nil $179,250
4,250(3) $3.81 Nil $16,192.50
2,750(4) $6.13 Nil $16,857.50
980,416(5) $3.00 Nil $226,248
91,000(6) N/A Nil Nil
70,000(7) $3.50 Nil $245,000
225,000(8) N/A Nil Nil
<FN>
</TABLE>
(1) On exercises of the agent's warrants granted under the IPO
Prospectus.
(2) On exercises of incentive stock options at $2.00 per Share.
(3) On exercises of incentive stock options at $3.81 per Share.
(4) On exercises of incentive stock options at $6.13 per Share.
(5) 905,000 Shares were issued on exercise of the July/96 Special
Warrants, at a deemed price of $3.00 per Share. No additional
consideration was required to exercise the July/96 Warrants. The
balance of 75,416 Shares were issued to the Agent upon exercise of a
compensation warrant, at a price of $3.00 per Share, issued in
connection with the July/96 Private Placement.
(6) On partial exercise of the Special Warrants, at a deemed price of
$6.00 per Share. No additional consideration was required to
exercise the Special Warrants.
(7) On exercise of the July/96 Warrants.
(8) Issued at a deemed price of $6.90 per Share as partial consideration
payable by the Issuer under the Importex Assignment. (See "Business
of the Issuer - Acquisitions and Dispositions - Textile Rights -
Importex Corporation".)
The following table sets out the market price, range and trading volume of the
Shares on both the Exchange and on the NASDAQ Small Capital Market for the 12
months (where applicable) and for the six weeks prior to the date of this
Prospectus:
<PAGE>
Exchange
The Issuer's Shares were listed on the Exchange effective January 15, 1996.
<TABLE>
Year Monthly Summary High ($) Low ($) Volume
(shares)
<S> <C> <C> <C> <C>
1997 September 6.60 5.80 137,505
August 7.20 5.75 439,694
July 7.95 6.60 475,979
June 7.75 5.50 260,094
May 7.00 6.00 102,845
April 7.10 6.00 226,833
March 7.25 6.00 134,531
February 7.45 6.50 140,976
January 8.00 7.00 224,892
1996 December 8.00 6.65 223,459
November 8.35 4.10 1,408,678
October 4.35 3.80 173,468
<FN>
</TABLE>
<TABLE>
Year Weekly Summary High ($) Low ($) Volume
(shares)
<S> <C> <C> <C> <C>
1997 October 20 to Oct.24 6.15 5.60 88,165
Oct. 13 to Oct. 17 6.10 5.65 35,000
Oct.6 to Oct.10 6.20 5.65 29,650
Sept. 29 to Oct 3 6.10 5.75 34,444
Sept. 22 to Sept. 26 6.00 5.80 40,575
Sept. 15 to Sept.19 6.25 5.80 30,700
<FN>
</TABLE>
<PAGE>
NASDAQ Small Capital Market
The Issuer was first listed on NASDAQ on August 14, 1996.
<TABLE>
Year Monthly Summary High (US$) Low (US $) Volume
(shares)
<S> <C> <C> <C> <C>
1997 September 4.81 4.13 551,898
August 5.56 4.00 1,876,260
July 6.00 4.88 1,753,500
June 5.94 3.88 852,698
May 5.13 4.25 176,078
April 5.19 4.13 148,925
March 5.25 4.25 321,800
February 5.50 4.62 220,100
January 6.00 5.00 694,100
1996 December 6.00 4.87 534,700
November 6.62 3.00 2,403,900
October 3.25 2.75 34,800
<FN>
</TABLE>
<TABLE>
Year Weekly Summary High (US$) Low (US$) Volume
(shares)
<S> <C> <C> <C> <C>
1997 Oct 20 to Oct 24 4.50 4.00 140,400
Oct 13 to Oct 17 4.44 4.06 100,600
Oct 6 to Oct 10 4.50 4.00 131,000
Sept 29 to Oct 3 4.50 4.12 91,400
Sept 22 to Sept 26 4.50 4.19 141,700
Sprt 15 to Spet 19 4.69 4.25 102,100
<FN>
</TABLE>
DETAILS OF THE OFFERING
Pursuant to the Securities Purchase Agreements, Convertible Notes in the amount
of US$5,000,000 (Cdn$6,888,000; converted to Cdn. funds at the rate of 1.3776)
were issued on a private placement basis. The Convertible Notes bear
cumulative dividends at the rate of 6% per annum, payable in cash or in Shares.
The Convertible Notes entitle the holder to acquire, without additional
payment, Convertible Debentures in the aggregate principal amount of
US$5,000,000 and an aggregate of 250,000 CN Warrants. The Convertible
Debentures are convertible into Shares at a conversion price equal to the lower
of: (a) US$4.33 or (b) 85% of the closing price of the Issuer's Shares on
NASDAQ on the conversion date.
A holder of a Convertible Debenture has the right to convert same at any time
during the Debenture Conversion Period, commencing the earlier of: (a) December
30, 1997 or (b)the later of the effective date of the Registration Statement
and the date on which the last of the Receipts for this Prospectus is issued by
the British Columbia Securities Commission, and maturing on the Debenture
Maturity Date, being the earlier of: (a) October 2, 1998 and (b) the fifth
business day following the date on which the last of the Receipts is issued.
<PAGE>
Unless converted earlier by the holder, the Convertible Notes will be deemed to
be converted without further action on the part of the holder immediately prior
to 4:00 p.m. (Vancouver time) on the Debenture Maturity Date. If the Debenture
Certificate is issued prior to the Debenture Maturity Date, the securities
represented thereby will be subject to a hold period and may not be traded in
British Columbia or the United States until midnight on October 1, 1998, except
as permitted by the Securities Act (B.C.) or the Regulations or Rules made
thereunder, or pursuant to the Securities Act of 1933.
The Issuer has the right to require, by at least 10 days' written notice to the
holder of a Convertible Debenture, that the holder of a Convertible Debenture
exercise its right of conversion with respect to all or that portion of the
principal amount and interest outstanding on the Debenture Maturity Date.
Each CN Warrant is exercisable for a period of two years from the date of
issuance, and entitles the holder to purchase one Share at a price of US$4.76
during the first year, and at a price of US$5.20 per Share during the second
year.
The Finder arranged for purchasers of the Convertible Notes and, in
consideration therefor, the Issuer paid to the Finder a cash commission of
US$250,000, equal to 5% of the aggregate gross proceeds raised from the CN
Private Placement, which was paid on closing of the CN Private Placement.
This Prospectus qualifies the distribution of the CD Shares and the CN Warrant
Shares.
The CN Warrants may be exercised by surrendering to the Issuer the certificate
or certificates representing the CN Warrants together with a duly completed and
executed exercise notice in the form attached to such certificate(s) and the
applicable purchase price.
On any exercise of the CN Warrants by a holder, the person to whom the CN
Warrant Shares issuable upon such exercise are to be issued shall be deemed to
have become the holder of record as of the close of business on the day upon
which the holder delivers the CN Warrants for exercise, together with full
payment of the exercise price, in accordance with the provisions of the
certificate representing the CN Warrants.
Other than as disclosed in this Prospectus, there are no payments in cash,
securities or other consideration being made, or to be made, to a promoter,
finder or any other person or company in connection with the CN Private
Placement.
General
The PP Shares and the Warrants are also subject to adjustment upon the
occurrence of certain stated events including the subdivision or consolidation
of the Shares, certain distributions of Shares, or of securities convertible
into or exchangeable for Shares, or of other securities or assets of the
Issuer, certain offerings of rights, warrants or options and certain capital
reorganizations.
The Special Warrants and Convertible Notes have been issued pursuant to
exemptions from the prospectus requirements of applicable securities
legislation. The Prospectus qualifies the distribution of the PP Shares and
the Warrants. If the Special Warrants or Convertible Notes are exercised prior
to the date of the Receipts, the securities derived therefrom will be subject
to hold periods and other resale restrictions under applicable securities
legislation.
<PAGE>
DESCRIPTION OF SECURITIES OFFERED
The authorized capital of the Issuer consists of an unlimited number of Shares
without par value. Currently, 12,474,331 Shares are issued and outstanding.
All of the authorized shares of the Issuer are of the same class and, once
issued, rank equally as to dividends, voting powers and participation in
assets. No Shares have been issued subject to call or assessment. There are
no pre-emptive or conversion rights and no provisions for redemption or
purchase for cancellation, surrender, or sinking or purchase funds. The
modification, amendment or variation of any such rights or provisions are
subject to The Corporations Act (Manitoba) and the Issuer's by-laws.
Once issued, the PP Shares will not be subject to any further call or
assessments and will not have any preemptive rights, conversion rights or
redemption rights.
The SW Warrants will be issued to the respective holders of the SW Special
Warrants upon the exercise thereof and will be governed by the terms of the SW
Warrant Indenture. The Issuer has appointed the Trustee, as warrant agent.
Reference is made to the SW Warrant Indenture for the full text of the
attributes of the SW Warrants.
The SW Warrant Indenture contains provisions designed to protect the holders
thereof against dilution on the occurrence of certain stated events. The
holding of a Warrant will not constitute the holder a shareholder of the
Issuer, nor entitle the holder to any right or interest as a shareholder,
except upon exercise of the Warrant in accordance with the provisions contained
therein and in the SW Warrant Indenture.
INVESTOR RELATIONS ARRANGEMENTS
Certain of the Issuer's employees are responsible for the preparation of any
investor relations materials containing the Issuer's corporate profile,
management and director profiles, corporate information and product sheet.
These individuals also coordinate communications with shareholders on a
continuing basis to keep them advised of the Issuer's plans and activities by
providing them with news releases, financial information and annual reports.
Other than services provided by its employees, the Issuer has not entered into
any written or oral agreement or understanding with any person to provide any
promotional or investor relations services for the Issuer or its securities, or
to engage in activities for the purposes of stabilizing the market, either now
or in the future.
RELATIONSHIP BETWEEN ISSUER OR SELLING SECURITY HOLDER AND AGENT
The Issuer is not a related party or connected party, as defined in the
Securities Rules (British Columbia) (the "Rules"), of the Agent, nor are the
securities to be offered out of the holdings of a selling security holder who
is a related party or connected party of the Agent.
<PAGE>
RELATIONSHIP BETWEEN THE ISSUER AND PROFESSIONAL PERSONS
Aikins MacAulay & Thorvaldson is a Manitoba law firm of which Aristotle (Telly)
Mercury, a director of the Issuer, is a partner. During the year ended June
30, 1997, Aikins MacAulay & Thorvaldson received $48,331 for legal services
rendered to the Issuer. (See "Share and Loan Capital - Options and Other
Rights to Purchase Securities - Incentive Stock Options" for information
relating to an incentive stock option granted to Mr. Mercury. In addition, see
"Directors, Officers and Promoters - Name, Address, Occupation and Security
Holdings" for disclosure of Shares owned by Mr. Mercury.)
Other than as disclosed herein, there is no beneficial interest, direct or
indirect, in any securities or property, of the Issuer or of an associate or
affiliate of the Issuer, held by a professional person as referred to in
section 106(2) of the Rules, a responsible solicitor or any partner of a
responsible solicitor's firm.
LEGAL PROCEEDINGS
The Issuer is not a party to any outstanding legal proceedings and the
directors of the Issuer do not have any knowledge of any contemplated legal
proceedings that are material to the business and affairs of the Issuer.
LEGAL MATTERS
Certain matters with respect to the legality of the issuance of the Convertible
Notes and the common stock offered hereby are being passed upon by its counsel,
Sperry, Young & Stoecklein, Las Vegas, Nevada.
EXPERTS
The Consolidated Financial Statements included in this prospectus and elsewhere
in the registration statement, to the extent and for the periods indicated in
their reports have been audited by Arthur Andersen & Co. and Deloitte & Touche,
Independent Chartered Accountants, and are included herein in reliance upon the
authority of said firm as experts as giving said reports.
REGISTRAR AND TRANSFER AGENT
The Issuer's registrar and transfer agent is Pacific Corporate Trust Company,
of Suite 830, 625 Howe Street, Vancouver, British Columbia, V6C 3B8.
MATERIAL CONTRACTS
The material contracts to which the Issuer is a party are as follows:
(a) MG Agreement between the Issuer and the Department of Industry, Trade and
Tourism, through its Crown corporation and agent, Manitoba Development
Corporation, of the Manitoba Government, as referred to under "Business of
the Issuer - Summary and Analysis of Financial Operations - Financial
Assistance - Manitoba Government";
(b) Real Property Mortgage and Security Agreement between the Issuer and MDC,
as referred to under "Business of the Issuer - Summary and Analysis of
Financial Operations - Financial Assistance - Manitoba Government";
<PAGE>
(c) Assignment/Postponement of Shareholder Loan Agreement among the Issuer,
Excelco, Mahmood (Mac) Shahsavar, Janice Shahsavar and MDC, as referred to
under "Business of the Issuer - Summary and Analysis of Financial
Operations - Financial Assistance - Manitoba Government";
(d) Equity Undertaking Agreement among the Issuer, Excelco, Mahmood (Mac)
Shahsavar, Janice Shahsavar and MDC, as referred to under "Business of the
Issuer - Summary and Analysis of Financial Operations - Financial
Assistance - Manitoba Government".
(e) Lease and Credit Undertaking Agreement among the Issuer, Excelco and MDC,
as referred to under "Business of the Issuer - Summary and Analysis of
Financial Operations - Financial Assistance - Manitoba Government".
(f) Guarantee Agreement among the Issuer, Excelco and MDC, as referred to
under "Business of the Issuer - Summary and Analysis of Financial
Operations - Financial Assistance - Manitoba Government".
(g) WEDD Agreement between the Issuer and the Federal Government's Western
Economic Diversification Department, as referred to under "Business of the
Issuer - Summary and Analysis of Financial Operations - Financial
Assistance - Federal Government";
(h) Robotic Technology License Agreement between the Issuer and Excelco
Systems Inc., as referred to under "Business of the Issuer - Acquisitions
and Dispositions - Robotic Technology License Agreement";
(i) Arjo Agreement among the Issuer, Arjo Canada Inc., Arjo USA Inc. and
3485367 Manitoba Ltd. (now, NCP) as referred to under "Business of the
Issuer - Acquisitions and Dispositions - Liquid Division of Arjo Canada
Inc.";
(j) Gam-Med Agreement among NHMC US, Huntington Laboratories Gam-Med Division,
Inc. and Ecolab Inc. referred to under "Business of the Issuer -
Acquisitions
and Dispositions - Huntington Laboratories Gam-Med Division, Inc.";
(k) Ecolab Supply Agreement between NHMC US and Ecolab referred to under
"Business of the Issuer - Acquisitions and Dispositions - Huntington
Laboratories Gam-Med Division, Inc."
(l) Mercana General Security Agreement between the Issuer and Mercana
Industries Ltd. referred to under "Business of the Issuer - Acquisition
and Dispositions - Textile Rights";
(m) Importex Assignment among the Issuer, Importex Corporation and Mertexas
Partnership referred to under "Business of the Issuer - Acquisition and
Dispositions - Textile Rights";
(n) Lease Agreements among NHMC US, D & T Leasing, Inc. and D & T Leasing
Limited Partnership, as referred to under "Business of the Issuer -
Operations - Equipment";
(o) Settlement Agreement among NHMC US, D & T Leasing, Inc., D & T Leasing
Limited Partnership, Excelco and Selectronics, as referred to under
"Business of the Issuer - Operations -Equipment";
<PAGE>
(p) Stock Option Agreements between the Issuer and certain of its directors
and employees, as referred to under "Share and Loan Capital - Options and
Other Rights to Purchase Securities - Incentive Stock Options";
(q) Escrow Agreement among the Issuer, Pacific Corporate Trust Company and the
Escrow Holders, as referred to under "Share and Loan Capital - Escrow
Shares";
(r) Agency Agreement between the Issuer and the Agent, as referred to under
"Details of the Offering - SW Private Placement";
(s) Special Warrant Indenture between the Issuer and Pacific Corporate Trust
Company, as referred to under "Details of the Offering - SW Private
Placement";
(t) Securities Purchase Agreements between the Issuer and certain investors,
as referred to under "Details of the Offering - CN Private Placement"; and
(u) Distribution Agreement between NHLC and Sysco Corporation, as referred to
under "Business of the Issuer - Description of Business and General
Development".
The above agreements may be inspected at the office of counsel for the Issuer,
Maitland & Company, at Suite 700, 625 Howe Street, Vancouver, B.C., during
normal business hours while the distribution of the securities hereunder is in
progress and for a period of 30 days thereafter.
OTHER MATERIAL FACTS
There are no other material facts not disclosed elsewhere herein.
<PAGE>
EXHIBITS
F-1 Report of Independent Chartered Accountants
F-2 Balance Sheet as June 30, 1997
F-3 Statement of Operations for the year ended June 30, 1997
F-4 Statement of Shareholders' Equity for the year ending June 30, 1997
F-5 Statement of Changes in Financial Position for the year ending June 30,
1997
F-6 Notes to Financial Statements
<PAGE>
REPORT OF INDEPENDENT CHARTERED ACCOUNTANTS
To: NATIONAL HEALTHCARE MANUFACTURING CORPORATION:
We have audited the consolidated balance sheet of NATIONAL HEALTHCARE
MANUFACTURING CORPORATION (a Manitoba corporation) as at June 30, 1997 and the
consolidated statement of operations, shareholders' equity and changes in
financial position for the year then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards
in Canada, which are in substantial agreement with those in the United States
of America. Those standards require that we plan and perform an audit to
obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at June 30, 1997
and the results of its operations and the changes in its financial position for
the year then ended in accordance with generally accepted accounting principles
in Canada.
Accounting practices of the Company used in preparing the accompanying
consolidated financial statements conform with generally accepted accounting
principles applicable to consolidated financial statements in Canada ("Canadian
GAAP"), but do not conform with accounting principles generally accepted in the
United States of America ("U.S. GAAP"). A description of the significant
differences between Canadian GAAP and U.S. GAAP and the approximate effect of
those differences on consolidated net loss and shareholders' equity are set
forth in Note 19 of the Notes to consolidated financial statements.
/s/Arthur Andersen & Co.
- -------------------------
Arthur Andersen & Co.
Winnipeg, Manitoba
October 6, 1997
<PAGE>
<TABLE>
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
(with comparative balances as at June 30, 1996)
ASSETS
1997 1996
<S> <C> <C>
CURRENT ASSETS
Cash and short-term investments $4,213,255 $958,568
Accounts receivable (Note 8) 1,827,239 153,322
Inventories (Notes 4 and 8) 2,850,012 507,203
Prepaid expenses 364,998 73,808
---------- --------
9,255,504 1,692,901
INVESTMENT IN NATIONAL
HEALTHCARE LOGISTICS LLC (Note 5) 490,772 -
PROPERTY, PLANT AND EQUIPMENT
USED IN OPERATIONS (Notes 6, 8 and 9) 7,698,374 6,916,680
ASSETS UNDER DEVELOPMENT (Notes 7, 8 and 9) 9,868,849 8,924,389
--------- ---------
$27,313,99 $17,533,970
========== ===========
<FN>
</TABLE>
<TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<CAPTION>
<S> <C> <C>
CURRENT LIABILITIES
Cheques issued in excess of amounts on $349,336 $68,448
deposit
Accounts payable and accrued liabilities 1,271,616 1,123,986
Current portion of long-term debt (Note 8) 460,000 -
Current portion of obligations
under capital leases (Note 9) 1,718,552 1,427,042
--------- ---------
3,799,504 2,619,476
LONG-TERM DEBT (Note 8) 2,807,326 2,169,085
OBLIGATIONS UNDER CAPITAL LEASES (Note 9) 5,504,985 7,223,699
DEFERRED FOREIGN EXCHANGE GAIN 54,128 204,073
LOANS PAYABLE TO SHAREHOLDERS
AND DIRECTOR-RELATED COMPANIES (Note 10) 2,064,770 720,826
---------- ---------
14,230,713 12,937,159
SHAREHOLDERS' EQUITY
Share capital (Note 11) 9,318,163 8,677,351
Warrants (Note 12) 12,093,206 -
Deficit (8,328,583) (4,080,540)
---------- ----------
13,082,786 4,596,811
---------- ---------
$27,313,499 $17,533,970
=========== ===========
<FN>
</TABLE>
<PAGE>
<TABLE>
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1997
(with comparative balances for the years ended June 30, 1996 and 1995)
1997 1996 1995
<S> <C> <C> <C>
REVENUES
Sales (Note 14) $4,905,401 $556,105 $-
Other 166,196 51,339 25,659
---------- -------- ------
5,071,597 607,444 25,659
---------- -------- ------
COSTS AND EXPENSES
Cost of sales 2,637,315 291,319 -
Depreciation and amortization
of property, plant and equipment 1,576,975 1,188,053 -
Interest on long-term debt 415,035 409,258 -
Other 56,026 42,208 -
Selling, distribution and
Administrative 4,424,582 1,888,352 894,453
--------- --------- -------
9,109,933 3,819,190 894,453
--------- --------- -------
LOSS FROM OPERATIONS 4,038,336 3,211,746 868,794
LOSS FROM INVESTEE 209,707 - -
--------- --------- -------
NET LOSS $4,248,043 $3,211,74 $868,79
========== ========= =======
BASIC LOSS PER SHARE $0.39 $0.32 $0.15
===== ===== =====
WEIGHTED AVERAGE
COMMON SHARES OUTSTANDING 10,925,842 10,088,419 5,767,530
<FN>
</TABLE>
<PAGE>
<TABLE>
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED JUNE 30, 1997
(with comparative balances for the years ended June 30, 1996 and 1995)
Class A Common
Shares
Shares Amount Paid in Deficit Total
Capital
<S> <C> <C> <C> <C> <C>
Balances at June 30, 1994 - $ - $ - $ - $ -
Issue of shares for cash 13,472 6,339,864 - - 6,339,864
Issue of shares for
property 350 350,000 - - 350,000
Share split 7,884,468 - - - -
Issue of shares for cash 1,680,000 136,600 - - 136,800
Net loss - - - (868,794) (868,794)
-------- --------- ------- --------- ---------
Balances at June 30, 1995 9,578,290 6,826,664 - (868,794) (868,794)
Issue of shares for cash 1,175,00 2,306,250 - - 2,306,250
Share issue costs - (455,563) - - (455,563)
Net loss - - - (3,211,746) (3,211,746)
--------- --------- ------- ---------- -----------
Balances at June 30,
1996 10,753,290 8,677,351 - (4,080,540) 4,596,811
Issue of shares for cash 67,125 8,677,351 - (4,080,540 4,596,81
Issue of special warrants
(Note 12) - - 12,315,000 - 12,315,000
Warrant issue costs - - (221,794) - (221,794)
Exercise of warrants
(Note 12) 250,000 500,000 - - 500,000
Net loss (4,248,043)(4,248,043)
---------- --------- --------- --------- ----------
Balances at June 30,
1997 11,070,415 $9,318,163 $12,093,206 $(8,328,583) $13,082,786
========== ========== =========== ============ ===========
<FN>
</TABLE>
<TABLE>
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION
FOR THE YEAR ENDED JUNE 30, 1997
(with comparative balances for the years ended June 30, 1996 and 1995)
1997 1996 1995
<S> <C> <C> <C>
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Net loss $(4,248,043) $(3,211,746) $(868,794)
Items not affecting cash
Amortization of deferred
foreign exchange gain (15,950) - -
Depreciation and amortization 1,576,975 1,188,053 -
Loss from investee 209,707 - -
----------- ----------- ----------
(2,477,311) (2,023,693) (868,794)
Net change in non-cash
operating assets and liabilities
Accounts receivable (1,416,063) (104,443) (48,879)
Inventories (1,377,116) (507,203) -
Prepaid expenses (291,190 7,904 (81,712)
Accounts payable and accrued
liabilities 147,630 393,833 730,153
----------- ----------- ----------
(5,414,050) (2,233,602) (269,232)
----------- ---------- ----------
INVESTING ACTIVITIES
Acquisition of shares in
National Healthcare Logistics
LLC (700,479) - -
Acquisition of property, plant
and equipment (1,476,066 (1,583,214) (14,692,122)
Deposit on specialized equipment - - (753,786)
Interest capitalized on equipment (475,404) - -
Acquisition of National Care
Products (896,447) - -
Acquisition of Gam-Med Division (1,678,728) - -
------------ ----------- -----------
(5,227,124) (1,583,214) (15,445,908)
------------ ----------- -----------
FINANCING ACTIVITIES
Proceeds from (repayment of)
obligations under
capital leases (1,427,204) (186,189) 8,836,930
Proceeds from long-term debt 1,098,242 2,169,085 -
Deferred foreign exchange gain (134,026) 9,772 194,301
Advances from shareholders
and director-related companies 1,343,944 517,717 203,109
Net proceeds from issuance of
Class A common shares 640,812 1,850,687 6,826,664
Net proceeds from issuance of
warrants 12,093,206 - -
---------- --------- ---------
13,614,973 4,361,072 16,061,004
---------- --------- ----------
INCREASE IN CASH 2,973,799 544,256 345,864
CASH, beginning of year 890,120 345,864 -
---------- --------- ----------
CASH, end of year $3,863,919 $890,120 $345,864
========== ========= ==========
Represented by:
Cash and short-term investments $4,213,255 $958,568 $345,864
Cheques issued in excess of funds
on deposit (349,336) (68,448) -
---------- --------- ---------
$3,863,919 $890,120 $345,864
========== ========= =========
Supplemental disclosure of
cashflow information
Cash paid for: Interest (net of
amont capitalized) $415,035 $184,241 $-
========= ========= ========
Income taxes $- $- $-
========= ========= ========
<FN>
</TABLE>
<PAGE>
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(with comparative balances as at June 30, 1996 and for the years ended June 30,
1996 and 1995)
1. DESCRIPTION OF BUSINESS
National Healthcare Manufacturing Corporation (the "Company") was
incorporated on August 23, 1993 under the Manitoba Corporations Act and
registered as an extra provincial company in the Province of British
Columbia on December 9, 1994. The Company is primarily engaged in the
manufacturing, assembly and packaging of medical supplies for the
healthcare industry. Its shares are traded on the Vancouver Stock
Exchange. As of August 14, 1996, the shares of the Company were listed on
the Small Cap board of NASDAQ Stock Market.
These consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in Canada and conform in all
material respects with accounting principles generally accepted in the
United States, except as described in Note 19. All amounts are stated in
Canadian dollars.
2. BUSINESS CONSIDERATIONS
The Company has incurred significant upfront costs to establish an
automated plant for the assembly and packaging of medical supplies which
management believes is necessary to establish a strong market presence as
a new entrant to the healthcare industry. The Company's objective is to
produce and distribute custom products to users of medical and surgical
devices throughout North America. During fiscal 1997, the Company
successfully obtained certification for distribution of products in the
United States from the Food and Drug Administration. Management's plans
for fiscal 1998 are to obtain ISO 9001 certification, develop electronic
data interchange, undertake research and development to streamline
operations and expand product lines, and evaluate the acquisition of
business with existing distribution networks in order to consolidate sales
and marketing activities. The Company anticipates manufacturing products
for national and regional distributing companies and intends to sell
directly to homecare providers across Canada and the United States. The
long-term growth plan of the Company includes the targeting of additional
markets. The Company expects that private/original equipment
manufacturers' branding of products for other manufacturers and/or
distributors will be handled directly by the Company. No formal
agreements are in place at this time.
The Company has incurred significant operating losses and business
development costs to date and had a consolidated deficit from operations
of $8,328,583 as at June 30, 1997. As at June 30, 1997, the Company had
positive working capital, primarily due to additional funds raised through
two private placements (see Note 12). The Company's ability to continue
as a going concern is dependent upon developing profitable operations and
obtaining additional funds needed to finance these development activities.
These consolidated financial statements have been prepared on the going
concern basis, which assumes that the Company will realize its assets and
discharge its liabilities in the normal course of operations.
<PAGE>
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(with comparative balances as at June 30, 1996 and for the years ended June 30,
1996 and 1995)
3. ACCOUNTING POLICIES
Basis of Consolidation
These consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries National Healthcare
Manufacturing Corporation, U.S. and National Care Products Ltd. All
significant intercompany transactions and balances have been eliminated
upon consolidation. The Company accounts for its investments in non-
controlled investees using the equity method.
Cash and Short-term Investments
Cash and short-term investments consist principally of deposit instruments
which are highly liquid and have original maturities of 90 days or less.
Inventories
Raw materials are valued at the lower of cost and replacement cost.
Finished goods are valued at the lower of cost and net realizable value.
Cost is determined on the first in, first out basis.
Property, Plant and Equipment Used in Operations
Property, plant and equipment used in operations is recorded at cost less
accumulated depreciation. Costs of additions, betterments, renewals and
interest during development are capitalized. Depreciation is being
provided for by the declining balance method at the following annual
rates:
Building, improvements and paving 4 - 8%
Furniture and fixtures 20%
Computer equipment 20 - 30%
Machinery and equipment 20 - 30%
Equipment under capital lease 30%
<PAGE>
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(with comparative balances as at June 30, 1996 and for the years ended June 30,
1996 and 1995)
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
Assets under Development
Assets under development are recorded at cost. Cost includes all
expenditures incurred in acquiring the asset and preparing it for use.
Interest costs on related debt obligations are capitalized until the asset
is substantially completed and ready for its intended and productive use.
Leases
Leases entered into are classified as either capital or operating leases.
Leases that transfer substantially all of the benefits and risks of
ownership to the Company are accounted for as capital leases. At the time
a capital lease is entered into, an asset is recorded together with a
related long-term obligation. Equipment acquired under capital leases is
being depreciated on the same basis as other fixed assets.
Rental payments under operating leases are charged to expenses as
incurred.
Deferred Foreign Exchange Gain
The deferred foreign exchange gain relates to the obligations under
capital leases and is being amortized over the term of the respective
leases.
Revenue Recognition
Sales revenues are recognized at the time of product shipment to
distributors or customers.
Foreign Currency Translation
Foreign currency transactions are translated to Canadian dollars at the
rate of exchange in effect on the dates they occur. Monetary assets and
liabilities are subsequently adjusted to reflect the rate of exchange in
effect at the balance sheet date. Exchange gains and losses arising on
translation of monetary assets and liabilities are included in income,
except for unrealized exchange gains and losses relating to the
translation of the obligations under capital leases which are deferred and
amortized over the remaining term of the leases.
Use of Estimates
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingencies at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
<PAGE>
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(with comparative balances as at June 30, 1996 and for the years ended June 30,
1996 and 1995)
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
Loss Per Share
Loss per share data has been computed by dividing net loss by the weighted
average number of common shares outstanding during the year.
4. INVENTORIES
<TABLE>
1997 1996
<S> <C> <C>
Raw Materials $ 912,681 $280,542
Finished goods and samples 1,937,331 226,661
---------- --------
$2,850,012 $507,203
========== ========
<FN>
</TABLE>
5. INVESTMENT IN NATIONAL HEALTHCARE LOGISTICS LLC
During fiscal 1997, the Company acquired 150 Class A common voting shares,
representing a 50% interest, and 333 1/3 Class C non-voting preferred
shares of National Healthcare Logistics LLC. This investment is being
accounted for under the equity method.
6. PROPERTY, PLANT AND EQUIPMENT USED IN OPERATIONS
<TABLE>
1997 1996
Accumulated
Cost Depreciation Net Net
<S> <C> <C> <C> <C>
Land $565,461 $- $565,461 $125,000
Building,
improvements 2,331,828 126,618 2,205,210 1,742,117
and paving
Furniture and 254,897 61,286 193,611 139,872
fixtures
Computer equipment 216,783 27,989 188,794 36,198
Machinery and 2,882,646 821,094 2,061,552 1,889,932
equipment
Equipment under
capital lease 4,211,479 1,727,733 2,483,746 2,983,561
---------- ---------- ---------- ----------
$10,463,094 $2,764,720 $7,698,374 $6,916,680
=========== ========== ========== ==========
<FN>
</TABLE>
In fiscal 1997, no interest was capitalized to the equipment under capital lease
(1996 - $89,034).
<PAGE>
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(with comparative balances as at June 30, 1996 and for the years ended June 30,
1996 and 1995)
7. ASSETS UNDER DEVELOPMENT
1997 1996
Machinery and equipment in storage $408,56 $408,56
2 2
Refundable deposit on equipment lease - 753,786
(Note 9)
Equipment under capital lease (1194) 2,313,2 2,432,2
45 99
Equipment under capital lease (1094 - 001) 7,147,0 5,329,7
42 42
$9,868, $8,924,
849 389
In fiscal 1997, the refundable deposit on equipment lease was applied against
obligations under capital lease, in connection with the settlement as described
in Note 9.
Interest of $475,404 (1996 - $505,668) has been capitalized to the equipment
under capital lease 1094-001.
8. LONG-TERM DEBT
1997 1996
Western Economic Diversification, term
loan, matures December 1, 1999, unsecured, non-
interest bearing, repayable in variable
quarterly payments commencing December 1, 1997 $1,654, $918,34
180 7
Province of Manitoba, term loan, bears
interest at the rate charged to Manitoba Crown
Corporations for borrowings amortized over a
ten year period (currently 8%), secured by a
first fixed charge against land, buildings and
equipment, and a second charge over accounts
receivable and inventories, repayable in six
consecutive monthly installments of $30,000
each commencing May, 1999 and consecutive 1,613,1 1,250,7
monthly installments of $51,958 each 46 38
thereafter, until fully repaid
3,267,3 2,169,0
26 85
Less: current portion (460,00 -
0)
$2,807, $2,169,
326 085
The Western Economic Diversification loan represents subordinated financial
assistance to a maximum of $1,937,852, to assist in capital costs, marketing
cost, and working capital requirements. Under the terms of the loan agreement,
the Company has agreed to maintain equity of not less than $2,200,000 and to
postpone the repayment of shareholder loans and
<PAGE>
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(with comparative balances as at June 30, 1996 and for the years ended June 30,
1996 and 1995)
8. LONG-TERM DEBT (continued)
dividends until the loan is repaid in full. Subsequent to June 30, 1997,
a further advance of $150,655 was received by the Company (See Note 18).
The Company has entered into an agreement with the Province of Manitoba
for a term loan. The loan is subject to certain conditions which include
minimum capital expenditures of $5,000,000, equity contributions of
$4,700,000, achievement of certain sales targets and a minimum level of
new job creation. A maximum of 42 months relief on interest has been
granted to the Company, subject to the Company providing a certain number
of new jobs per year. A final advance of $561,000 was received by the
Company subsequent to June 30, 1997 (See Note 18).
The agreement provides for the acceleration of interest and principal in
the event the Company fails to provide a certain number of jobs per year.
Under the terms of the loan agreement, the Company has agreed to postpone
the repayment of shareholder loans and dividends.
Minimum principal repayments required under the terms of the debt
agreements are as follows (including amounts advanced subsequent to June
30, 1997):
1998 $460,00
0
1999 $1,060,
000
2000 $880,50
2
2001 $623,50
0
2002 $623,50
0
2003 $331,47
9
9. OBLIGATIONS UNDER CAPITAL LEASES
The Company leases specialized equipment under three capital leases. The
leases are held in U.S. dollars in the name of National Healthcare
Manufacturing Corporation, U.S. and are converted to Canadian dollars
using the exchange rate as at June 30, 1997 as follows:
<PAGE>
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(with comparative balances as at June 30, 1996 and for the years ended June
30, 1996 and 1995)
9. OBLIGATIONS UNDER CAPITAL LEASES (continued)
Lease Lease Lease
1094- 1094- 1194 Total
001 002
1998 $1,131, $619,81 $675,70 $2,426,
226 8 5 749
1999 1,131,2 619,818 619,400 2,370,4
26 44
2000 1,131,2 619,818 - 1,751,0
26 44
2001 1,131,2 619,818 - 1,751,0
26 44
2002 377,077 309,909 - 686,986
Total minimum lease 4,901,9 2,789,1 1,295,1 8,986,2
payments 81 81 05 67
Less: amount representing
interest 1,055,6 619,705 87,355 1,762,7
approximating 10.4% 70 30
to 11.5%
3,846,3 2,169,4 1,207,7 7,223,5
11 76 50 37
Less: current portion 726,397 390,484 601,671 1,718,5
52
$3,119, $1,778, $606,07 $5,504,
914 992 9 985
Since fiscal 1995, the Company was in dispute with the original lessor in
respect of capital leases 1094 001, 1094-002 and 1194. The lessor did not
recognize the validity of a settlement agreement signed in fiscal 1995.
The Company believed that it had strong arguments to support the validity
of the settlement agreement. As a result, certain adjustments were made
in 1995 to the various equipment under capital leases and the lease
obligations based on the then interpretation of the settlement terms.
During fiscal 1997, the dispute was finally settled and the leases were
assumed by a new lessor. The terms were similar to the 1995 settlement
agreement except for the following:
i) The refundable deposit on equipment paid by the Company was applied
against the lease liability by the lessor.
ii) The implicit interest rate of the capital lease obligations was
reduced as a result of the settlement.
Accordingly, the capital lease obligations, the respective equipment under
capital leases and the refundable deposit on equipment were adjusted
accordingly.
The above lease obligations reflect the new lease terms after settlement
of the dispute with the lessor.
<PAGE>
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(with comparative balances as at June 30, 1996 and for the years ended June
30, 1996 and 1995)
10.LOANS PAYABLE TO SHAREHOLDERS AND DIRECTOR-RELATED COMPANIES
1997 1996
Loans payable, shareholders $1,187, $720,82
551 6
Loans payable, director-related companies 877,219 -
$2,064, $720,82
770 6
The loans payable to shareholders and director-related companies are
unsecured, non-interest bearing, with no fixed terms of repayment.
The terms of the government assistance agreement with Western Economic
Diversification require that the Company obtain the consent of both the
Minister of Western Economic Diversification and Manitoba Development
Corporation prior to the repayment of shareholders' loans. The
shareholders and director-related companies have agreed to not demand
repayment within fiscal 1998; accordingly these loans have been classified
as non-current.
11. SHARE CAPITAL
1997 1996
Common Shares
Authorized
Unlimited Class A common shares, voting
Issued
11,070,415 Class A common shares,
net of issue costs (1996 - $9,318, $8,677,
10,753,290) 163 351
Performance Shares
The Company has issued 1,180,000 performance shares at a price of $.01 per
share which are currently held in escrow pursuant to an Escrow Agreement
dated June 29, 1995. The escrow restrictions contained in the Escrow
Agreement provide that the shares may not be traded in, dealt with in any
manner whatsoever, or released, nor may the Company, its transfer agent or
escrow holder make any transfer or record any trading of the shares
without the consent of the Superintendent of Brokers for British Columbia
or, while the shares are listed on the Vancouver Stock Exchange, the
consent of the Exchange. For each $.09 of cumulative cash flow generated
by the Company from its operations, one performance share may be released
from escrow.
<PAGE>
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(with comparative balances as at June 30, 1996 and for the years ended June
30, 1996 and 1995)
11.SHARE CAPITAL (continued)
Stock Options
The Company has issued options to certain directors and employees of the
Company and its subsidiaries to purchase common shares of the Company, as
follows:
Date of Issuance
1997 1996 1995
Options outstanding, 957,829 987,829 -
beginning of year
Options granted 536,950 - 987,829
Options exercised (67,125) - -
Options cancelled or (60,000) (30,000) -
expired
Options outstanding, end 1,367,654 957,829 987,829
of year
Exercise prices of
options $3.81 - $2.00
granted during the year $6.13
Expiry date of options Aug 11, November
granted during the year 2001 and 30, 2000
June 3,
2002
Certain restrictions and obligations have been placed upon certain
management personnel with respect to the exercise of their stock options
and the sale, transfer, assignment or other disposition of their stock
options or shares issued to them upon exercise of their stock options, as
a condition of the government assistance received from the Province of
Manitoba.
12.WARRANTS
The Company has issued various types of warrants, as follows:
Agent's Warrants
In connection with its initial public offering the Company issued to an
agent non-transferable share purchase warrants entitling the agent to
purchase up to 250,000 shares at any time up to the close of business two
years from the date the shares are listed, posted and called for trading
on the Vancouver Stock Exchange, at a price of $2.00 per share in the
first year and at a price of $2.30 per share in the second year. As at
June 30, 1997, all agents' warrants had been exercised.
Special Warrants
On June 26, 1996, the Board of Directors passed a resolution authorizing a
private placement of up to 1,200,000 special warrants at a price of $3.00
per warrant. On July 31, 1996, a total of 905,000 special warrants were
issued for gross proceeds of $2,715,000. The special warrants
<PAGE>
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(with comparative balances as at June 30, 1996 and for the years ended June 30,
1996 and 1995)
12.WARRANTS (continued)
Special Warrants (continued)
were issued as a fully paid security and each special warrant is
exercisable into one Class A common share and one transferable Class A
share purchase warrant. Each Class A share purchase warrant entitles the
holder to purchase one additional Class A share at a price of $3.50 per
share. The warrants are exercisable at the earlier of eighteen months
from the closing date or six months after the date of the last receipt for
the prospectus.
The Company paid the agent commission equal to 7% of the aggregate
proceeds and issued 75,416 broker's warrants which represent 8.3333% of
the special warrants sold pursuant to the offering. Each broker's warrant
is exercisable into one compensation warrant. Each compensation warrant
entitles the broker to purchase one Class A share at a price of $3.00 per
share.
On January 8, 1997, the Company closed a second private placement of
1,600,000 special warrants at a price of $6.00 per special warrant. Each
special warrant entitled the holder, upon exercise, to acquire one unit
consisting of one Class A share and one-half of one non-transferable share
purchase warrant. Each whole warrant entitled the holder to purchase one
additional Class A share at a price of $7.00 per share. Because receipts
for the prospectus filed by the Company to qualify the units were not
obtained from all relevant regulatory authorities within 120 days from the
date of closing the private placement, each unit now consists of one Class
A share and one (rather than one-half) non-transferable share purchase
warrant. The Company raised gross proceeds of $9,600,000 from this
private placement and incurred a commission of 8% of gross proceeds which
was paid by the issuance of 128,000 special warrants at a deemed price of
$6.00 per special warrant.
All of the above special warrants and broker's warrants were outstanding
at June 30, 1997.
13.INCOME TAXES
The Company has non-capital losses carried forward of approximately
$10,990,000 (1996 - $4,883,000) which can be utilized to reduce the
taxable income of future years. The Company is also entitled to tax
credits of approximately $244,000 (1996 - $227,000) which are creditable
against provincial income taxes.
The benefits relating to the losses and the tax credits have not been
recognized in the financial statements and the losses expire as follows:
2002 $
1,887,000
2003
2,996,000
2004
6,006,000
2012 101,000
$10,990,000
<PAGE>
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(with comparative balances as at June 30, 1996 and for the years ended June 30,
1996 and 1995)
13. INCOME TAXES (continued)
The tax credits available to the Company begin to expire in 2002.
14. SEGMENTED INFORMATION
The Company operates primarily in, and derives revenue from, the automated
packaging and sale of surgical and custom procedure trays and liquid
products for the healthcare industry segment.
A significant portion of the Company's sales during the year were to
customers in a foreign country:
1997 1996 1995
Sales to customers outside $2,482, $384,88 $-
Canada 035 8
Sales to customers within Canada 2,423,3 171,217 -
66
$4,905, $556,10 $-
401 5
15. RELATED PARTY TRANSACTIONS
The President and Chief Executive Officer of the Company also serves as
President and Chief Executive Officer of another company which has granted
National Healthcare Manufacturing Corporation rights to certain technology
under a licensing agreement made under similar terms and conditions as
transactions with unrelated entities. The license agreement, dated May
30, 1995, is for an initial term of ten years with provisions for renewal
for consecutive ten-year terms thereafter. National Healthcare
Manufacturing Corporation has agreed to purchase all automated machinery
from this related company, subject to the terms of a twenty-year agreement
between the related company and a manufacturer. The related company has
granted the manufacturer the exclusive right to manufacture all machinery
and equipment which incorporates the said technology, and the related
company has agreed to purchase products only from the manufacturer. The
related party has agreed to sell machinery and equipment to National
Healthcare Manufacturing Corporation at its cost. During the year, the
Company paid $804,832 (1996 - $314,228 and 1995 - $345,890) for such
machinery and equipment.
The above transactions are measured at the exchange amount, which is the
amount of consideration established and agreed to by the related parties.
<PAGE>
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(with comparative balances as at June 30, 1996 and for the years ended June 30,
1996 and 1995)
13. BUSINESS ACQUISITIONS
Acquisition of National Care Products Ltd.
Effective September 1, 1996, the Company acquired all of the issued and
outstanding shares of National Care Products Ltd., the wholly owned liquid
products subsidiary of Arjo Canada Inc. The acquisition was accounted for
using the purchase method and the total consideration paid was allocated,
based on the estimated fair value of the net assets at the date of
acquisition, as follows:
Inventory $633,76
8
Property, plant and equipment 262,679
Total cash consideration $896,44
7
The results of operations have been included in the accounts of the
Company from the effective date of acquisition. Pro-forma results of
operations have not been presented for the full year as it would not be
materially different from the 1997 results of operations.
Under the terms of the purchase agreement, Arjo Canada Inc. has given a
three year commitment to certain minimum levels of purchases of liquid
products at agreed-upon prices.
Acquisition of Gam-Med Division
Effective February 21, 1997, the Company (through its wholly-owned
subsidiary National Healthcare Manufacturing Corporation, U.S.) acquired
certain properties, assets, contracts and business of Gam-Med, a division
of Huntington Laboratories Inc., including land, building, machinery and
equipment, accounts receivable, inventory, proprietary patents and on-
going business. The total consideration paid was allocated, based on the
estimated fair value of the net assets acquired at the date of
acquisition, as follows:
Accounts receivable $257,82
4
Inventory 331,925
Property, plant and equipment 1,088,9
79
Total cash consideration $1,678,
728
The results of operations have been included in the accounts of the
Company from the effective date of acquisition. Pro-forma results of
operations have not been presented for the full year as it would not be
materially different from the 1997 results of operations.
<PAGE>
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(with comparative balances as at June 30, 1996 and for the years ended June 30,
1996 and 1995)
17. COMPARATIVE FIGURES
Certain of the prior years figures have been reclassified to conform to
the current year's presentation.
18. SUBSEQUENT EVENTS
Additional Investment in National Healthcare Logistics LLC
Subsequent to June 30, 1997, the Company acquired an additional 166 2/3
Class C preferred shares of National Healthcare Logistics LLC, for cash
consideration of $347,875.
Exercise of Warrants and Stock Options
Subsequent to June 30, 1997, 306,416 warrants and 37,500 stock options
were exercised in exchange for the issuance of common shares.
Agreement with Importex Corp.
Effective September 8, 1997 the Company entered into an agreement with
Importex Corp. to acquire the rights to distribute the Mertex and Mertex-
Plus fabrics and miscellaneous other assets. As consideration for the
purchase, the Company agreed to pay $100,000 cash, 225,000 shares of the
Company and a warrant entitling Importex to purchase 150,000 Class A
common shares of the Company at $6.90. The agreement requires the Company
to make certain minimum purchases of the fabrics from the manufacturer.
Issuance of Convertible Debentures
Subsequent to June 30, 1997, the Company issued U.S. $5,000,000 in
Convertible Debentures. The Convertible Debentures bear interest of 6%
annually and are convertible, upon approval by securities authorities,
into Class A common shares of the Company at the lessor of the average
quoted market price prior to conversion and $6.01. All debentures must be
converted within one year from the closing day. In addition, the
debenture holder received a two-year warrant to purchase 50,000 Class A
common shares at $6.61 for the first year and $7.21 for the second year.
The Company is in the process of filing a registration statement with
respect to this issuance with the appropriate securities authorities.
Government Loans
Subsequent to June 30, 1997, the Company received additional advances of
$150,655 and $561,000 from Western Economic Diversification and the
Province of Manitoba respectively, under the respective agreements (See
Note 8).
<PAGE>
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(with comparative balances as at June 30, 1996 and for the years ended June 30,
1996 and 1995)
19.UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (U.S. GAAP)
The Company has applied for registration under the 1934 Act with the
United States Securities and Exchange Commission. Effective July 31,
1996, the Company obtained formal approval for quotation of its securities
on NASDAQ in the United States.
A description of the Company's accounting principles which differ
significantly from U.S. GAAP follows:
Foreign Currency Translation
Unrealized exchange gains and losses relating to the translation of the
obligation under capital leases are deferred and amortized over the
remaining term of the leases. Under U.S. GAAP, these exchange gains and
losses would be recognized in income currently.
Earnings Per Share
Under U.S. GAAP, the Company would not include the 1,180,000 performance
shares held in escrow in the calculation of the weighted average number of
shares used to determine earnings per share. The release of these
performance shares will result in recognition of compensation expense
under U.S. GAAP based on market value of the shares when released from
escrow.
Deferred Taxes
Under U.S. GAAP, deferred taxes are provided on all temporary differences.
Temporary differences encompass timing differences and other events that
create differences between the tax basis of an asset or liability and its
reported amount in the financial statements. A deferred tax asset is
recorded in a loss period and is reduced by a valuation allowance to the
extent it is more likely than not that the deferred tax asset will not be
realized. For U.S. GAAP purposes, a valuation allowance equal to the tax
loss benefits referred to in Note 13 would be disclosed.
Fair Value of Other Financial Instruments and Other Disclosures
The carrying amount of the following instruments approximate fair value
because of the short maturity of these instruments - cash, accounts
receivable, accounts payable and accrued liabilities, and current portion
of obligations under capital leases.
The application of U.S. GAAP, as described above, would have had the
following effects on net loss, loss per share and shareholders' equity.
<PAGE>
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(with comparative balances as at June 30, 1996 and for the years ended June 30,
1996 and 1995)
19. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (U.S. GAAP)
(continued)
Fair Value of Other Financial Instruments and Other Disclosures
(continued)
1997 1996 1995
Net loss as reported $(4,248, $(3,211, $(868,7
043) 746) 94)
Deferred foreign exchange gain (134,026 9,772 194,301
(loss) )
Net loss - U.S. GAAP $(4,382, $(3,201, $(674,4
069) 974) 93)
Weighted average shares outstanding 9,745,84 8,908,41 5,751,3
- - U.S. GAAP 2 9 66
Loss per share - U.S. GAAP $(0.45) $(0.36) $(0.12)
Shareholders' equity as reported $13,082, $4,596,8 $5,957,
786 11 870
Deferred foreign exchange gain 54,128 9,772 194,301
Shareholders' equity - U.S. GAAP $13,136, $4,606,5 $6,152,
914 83 171
Newly issued, but not yet adopted, U.S. accounting principles are not
expected to have a material impact on these consolidated financial
statements.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF REGISTRATION AND DISTRIBUTION.
The following table sets forth the estimated expenses of the Registrant in
connection with the offering described in this Registration Statement.
Securities and Exchange Commission $
registration fee............. 1,515.15
Legal fees and expenses............................. 43,000.00
Total $44,515.15
==========
The balance of any expenses are being paid by the Issuer.
ITEM 15. EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------------ ---------------------------------------------------------------
4 Articles of Incorporation and Bylaws of National Healthcare
Manufacturing Corporation
incorporated by reference to the Company's Form 20-F dated March 11,
1996
5 Legal Opinion of Sperry Young & Stoecklein
23 Consent of Sperry Young & Stoecklein
23.1 Consent of Arthur Andersen & Co.
ITEM 16. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of the Securities
Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price, set forth in the "Calculation of Registration Fee" table in
the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement.
provided, however, that paragraphs (a) (1) (i) and (a) (1) (ii) do not apply
if the registration statement is on Form S-3, Form S-8 or Form F-3, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference into the Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
BONA FIDE offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act
of 1934) that is incorporated by reference in the Registration Statement shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that such a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in Act and
will be governed by the final adjudication of such issue.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT HAS
DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, ON THE 30TH DAY OF OCTOBER, 1997.
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
By:/s/ Mahmood Jamshidi Shahsavar
Mahmood Jamshidi Shahsavar
President and Chief Executive Officer
<PAGE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
SIGNATURE TITLE
DATE
/s/ Mahmood Jamshidi Shahsavar President/Chief Executive Officer
MAHMOOD JAMSHIDI SHAHSAVAR Director
/s/ Reginald Adrian Ebbeling Chairman of the Board October 30, 1997
REGINALD ADRIAN EBBELING Director
/s/ Morteza Seyed Torabian Executive Vice President October 30, 1997
MORTEZA SEYED TORABIAN Director
/s/ Alice Elaine Affleck Secretary/Treasurer October 30, 1997
ALICE ELAINE AFFLECK Director
/s/ Jack Tapper Vice President/Chief Financial
JACK TAPPER Officer October 30, 1997
/s/ Robert Alexander Jackson Executive Vice President October 30, 1997
ROBERT ALEXANDER JACKSON Director
/s/ Ross Scavuzzo Director October 30, 1997
ROSS SCAVUZZO
/s/ Gordon John Farrimond Vice President Sales & Marketing October 30, 1997
GORDON JOHN FARRIMOND Director
/s/ Aristotle John Mercury Director October 30, 1997
ARISTOTLE JOHN MERCURY
/s/ Darrell Wayne Van Dyke Vice President NHMC US October 30, 1997
DARRELL WAYNE VAN DYKE
<PAGE>
EXHIBIT 5
SPERRY YOUNG & STOECKLEIN
DONALD J. STOECKLEIN Telephone (702) 794-2590
Facsimile (702) 794-0744
ATTORNEY AT LAW
Practice Limited to Federal Securities
_____________________________________________________________
1850 E. Flamingo Rd., Suite 111, Las Vegas, Nevada 89119
September 30, 1997
The Shaar Fund Ltd.
Lansdowne Property Holdings Corp.
c/o Krieger & Prager
319 Fifth Avenue
New York, NY 10016
Re: National Healthcare Manufacturing Corporation
Ladies and Gentlemen:
We have acted as counsel to National Healthcare Manufacturing Corporation, a
corporation incorporated under the Manitoba Corporations Act (the "Company"),
in connection with the proposed issuance and sale of Convertible Notes (the
"Securities") pursuant to the Securities Purchase Agreement (including all
Exhibits and Appendices thereto) (collectively the "Agreements") with The Shaar
Fund Ltd. and Lansdowne Property Holdings Corp. ("Purchasers"), dated September
30th, 1997 between the Company and the Purchasers.
In connection with rendering the opinions set forth herein, we have examined
drafts of the Agreements, the Company's Certificate of Incorporation, and its
Bylaws, as amended to date, the Annual Report 95'/96', the Quarterly Report of
nine months ended March 31, 1997, the proceedings of the Company's Board of
Directors taken in connection with entering into the Agreements, and such other
documents, agreements and records as we deemed necessary to render the opinions
set forth below.
In conducting our examination, we have assumed the following: (i) that each of
the Agreements has been executed by each of the parties thereto in the same
form as the forms which we have examined, (ii) the genuineness of all
signatures, the legal capacity of natural persons, the authenticity and
accuracy of all documents submitted to us as originals, and the conformity to
originals of all documents submitted to us as copies, (iii) that each of the
Agreements has been duly and validly authorized, executed, and delivered by the
party or parties thereto other than the Company, and (iv) that each of the
Agreements constitutes the valid and binding agreement of the party or parties
thereto other than the Company, enforceable against such party or parties in
accordance with the Agreements' terms.
<PAGE>
Based upon and subject to the foregoing, we are of the opinion that:
1. The Common Stock is registered pursuant to Section 12(b) or Section
12(g) of the Securities Exchange Act of 1934, as amended and the Company has
timely filed all the material required to be filed pursuant to Sections 13(a)
or 15(d) of such Act for a period of at least twelve months preceding the date
hereof;
2. When duly countersigned by the Company's transfer agent and
registrar, and delivered to you or upon your order against payment of the
agreed consideration therefor in accordance with the provisions of the
Agreements, the Securities (and any Common Stock to be issued upon the
conversion of the Securities) as described in the Agreements represented
thereby will be duly authorized and validly issued, fully paid and
nonassessable;
3. To the best of our knowledge, after due inquiry, the execution,
delivery and performance of the Agreements by the Company and the performance
of its obligations thereunder do not and will not constitute a breach or
violation of any of the terms and provisions of, or constitute a default under
or conflict with or violate any provision of (i) the Company's Certificate of
Incorporation or By-Laws, (ii) any indenture, mortgage, deed of trust,
agreement or other instrument to which the Company is a party or by which it or
any of its property is bound, (iii) any applicable statute or regulation, (iv)
or any judgment, decree or order of any court or governmental body having
jurisdiction over the Company or any of its property.
4. The issuance of Common Stock upon conversion of the Securities in
accordance with the terms and conditions of the Agreements, will not violate
the applicable listing agreement between the Company and the Nasdaq market on
which the Company's securities are listed.
5. The Company has the requisite corporate power and authority to enter
into the Agreements and to sell and deliver the Securities and the Common Stock
to be issued upon the conversion of the Securities as described in the
Agreements; each of the Agreements has been duly and validly authorized by all
necessary corporate action by the Company to our knowledge, no approval of any
governmental or other body is required for the execution and delivery of each
of the Agreements by the Company or the consummation of the transactions
contemplated thereby; each of the Agreements has been duly and validly executed
and delivered by and on behalf of the Company, and is a valid and binding
agreement of the Company, enforceable in accordance with its terms, except as
enforceability may be limited by general equitable principles, bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium or other laws
affecting creditors rights generally, and except as to compliance with federal,
state and foreign securities laws, as to which no opinion is expressed.
6. The Company complies with the eligibility requirements for the use of
Form F-3 (S-3), under the Securities Act of 1933, as amended.
<PAGE>
This opinion is rendered only with regard to the matters set out in the
numbered paragraphs above. No other opinions are intended nor should they be
inferred. This opinion is based solely upon the laws of the United States, as
currently in effect, and does not include an interpretation or statement
concerning the laws of any state or jurisdiction. Insofar as the
enforceability of the Agreements may be governed by the laws of other states,
we have assumed that such laws are identical in all respects to the laws of the
State of California.
The opinions expressed herein are given to you solely for your use in
connection with the transaction contemplated by the Agreements and may not be
relied upon by any other person or entity or for any other purpose without
prior consent.
s/Donald J. Stoecklein
Sperry Young & Stoecklein
<PAGE>
EXHIBIT 23
SPERRY YOUNG & STOECKLEIN
DONALD J. STOECKLEIN Telephone (702) 794-2590
Facsimile (702) 794-0744
ATTORNEY AT LAW
Practice Limited to Federal Securities
_____________________________________________________________
1850 E. Flamingo Rd., Suite 111, Las Vegas, Nevada 89119
October 30, 1997
National Healthcare Manufacturing Corporation
409 Granville Street, Suite 1455
Vancouver, B.C. V6C 1T2
Re: National Healthcare Manufacturing Corporation
Ladies and Gentlemen:
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form F-3) and related Prospectus of National Healthcare
Manufacturing Corporation for the registration of 6% Convertible Notes due
October 1998 and shares of common stock issuable on conversion thereof and to
the utilization in the Registration Statement being filed with the Securities
Exchange Commission, of our legal opinion.
s/Donald J. Stoecklein
Sperry Young & Stoecklein
<PAGE>
EXHIBIT 23.1
ARTHUR
ANDERSEN
------------------------------------------------
Arthur Andersen & Co.
Chartered Accountants
------------------------------------------------
500-330 St. Mary Avenue
Winnipeg Manitoba R3C375
204 942-6541
204 956-0830
Consent of Independent Chartered Accountants
As independent chartered accountants, we hereby consent to the use of our
report and to all references to our firm included in, or made a part of, this
registration statement.
/s/ Arthur Andersen & Co.
Arthur Andersen & Co.
Winnipeg, Manitoba, Canada
November 4, 1997
