UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 6K
REPORT OF FOREIGN ISSUER PURSUANT TO RULE 13a-16 AND 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of December
NATIONAL HEALTHCARE MANUFACTURING CORPORTION
(Name of Registrant)
251 Saulteaux Crescent, Winnipeg, Manitaba Canada, R3J 3C7
(Address of Principle Executive Officer)
1. News Releases - December 22, 1998
2. Conslidated Financial Statement for Quarter ended October 31, 1998
Indicate by check Mark whether the Registrant files or will file annual
reports under cover of Form 20-F or Form 40-F.
Form 20-F X Form 40-F _____
Indicate by check mark whether the Registrant by furnishing the information
contained in this form is also thereby furnishing the information tot he
Commission pursuant Rule 12g3-2(b) under the Securities Exchange Act of
1934. Yes ___ No X
SIGNATURE
Pursuant to the requirements of the Sexcurities Exchange Act of 1943, the
Registrant has duly caused this Form 6-K to be signed on its behalf by the
undersigned, therunto duly authorized.
National Healthcare Manufacturing Corporation - SEC No. 0-27998
(Registrant)
Date: December 22, 1998 By: /s/ Mac Shahsavar
------------------------- ------------------------
M.J. Shahsavar,
President/CEO and Director
<PAGE>
NEWS RELEASE
FOR RELEASE DECEMBER 22, 1998
AT 4:00 PM EDT National Healthcare
Manufacturing Corporation
Investor Relations
(800) 883-8841
www.nationalhealthcare.com
NATIONAL HEALTHCARE ANNOUNCES SIX MONTH
FISCAL 1999 FINANCIAL RESULTS
WINNIPEG, MANITOBA (December 22, 1998) . . . . National Healthcare
Manufacturing Corporation (Nasdaq: NHMCF) is pleased to announce results
for the six-month period ended October 31, 1998. Sales for the six-month
period increased 39% to $5,877,667 from $4,214,756 for the comparable
period last year. Gross profit for the second quarter increased to
$3,383,218 from $2,212,307 over the comparable quarter last year. Compared
to the prior year, sales increased by $1,662,000 while selling,
distribution and administrative expenses decreased by $380,000.
During the second quarter National Healthcare's subsidiary National
Healthcare Logistics began operations and commenced distribution to its
first "Hub & Spoke" distribution center at the Fort Meyers, FL-based LeeSar
Regional Service Center. National Healthcare, also announced that subject
to regulatory approval it will expand its Custom Pack Division with the
acquisition of privately-held Niagara Falls, NY-based Custom Pack
Reliability (CPR). CPR had revenues of CDN $5 million in 1997, and has been
assembling and supplying custom packs to hospitals and surgical centers
throughout North America since 1992. In addition to the acquisition,
National Healthcare streamlined the combined managements to eliminate
redundant management positions and minimize executive payroll expense while
continuing its focus on reducing overhead. Management additions during the
quarter included the appointment of Bryan R. Allison as CFO and the
promotion of Kurt Tarter to Vice President of US Sales.
<TABLE>
CONSOLIDATED STATEMENT OF OPERATIONS
Six Month Fiscal 1999 vs
Comparable Six Month Period
1998, 1997 ($CDN)
October 31, December 31, December 31,
1998 1997 1996
<S> <C> <C> <C>
Sales $5,877,667 $4,214,756 $1,555,845
Cost of Sales $3,383,218 $2,212,307 $1,068,580
Gross Profit $2,494,449 $2,002,449 $ 487,265
% Gross Profit 42.4% 47.5% 31.3%
Operating Expenses $4,587,566 $4,123,342 $2,557,049
Loss From Investee $ 376,600 $ 320,806 -------------
Loss for Period $2,469,717 $2,441,699 $2,069,784
Basic Loss Per Share ($0.16) ($0.20) ($0.19)
Depreciation $ 912,129 $ 653,246 $ 780,646
Interest $ 963,363 $ 207,471 $ 230,308
EBITDA ($594,225) ($1,580,982) ($1,058,830)
</TABLE>
<PAGE>
National Healthcare is being recognized as a market leader committed to
reducing healthcare costs by providing efficient and cost effective
alternatives to conventional products and services for healthcare
providers. National Healthcare owns and operates the world's first and only
automated robotic production facility capable of assembling and packaging
various kits and trays for medical and surgical procedures. Through its
wholly owned subsidiaries, the company also manufactures and distributes
personal care, anti-microbial and cellulose based paper products to
healthcare and homecare institutions. National Healthcare Logistics (50%
subsidiary), is revolutionizing conventional medical distribution with its
state-of-the-art Hub & Spoke logistics system.
Additional information about National Healthcare Manufacturing Corporation
is available on the Internet at http://www.nationalhealthcare.com or by
contacting us at 800/883-8841.
On Behalf of the Board,
/s/ Chief R. Allison
Bryan R. Allison
Chief Financial Officer
<PAGE>
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTH PERIOD ENDED OCTOBER 31, 1998
<PAGE>
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 1998 AND DECEMBER 31, 1997
(In Canadian Dollars)
<TABLE>
ASSETS
Oct 31, Dec 31,
1998 1997
<S> <C> <C>
CURRENT ASSETS
Cash and short-term investments $55,706 $4,129,498
Accounts receivable (Note 10) 1,810,730 2,826,939
Inventories (Notes 4 and 10) 5,904,801 5,271,859
Prepaid expenses 447,943 680,412
----------- -----------
8,219,180 12,908,708
RECEIVABLES FROM SHAREHOLDERS AND
DIRECTOR-RELATED COMPANIES (Notes 5 and 19) 1,257,634 1,446,256
INVESTMENT IN NATIONAL
HEALTHCARE LOGISTICS LLC (Notes 6 and 19) 1,374,565 833,502
PROPERTY, PLANT AND EQUIPMENT
USED IN OPERATIONS (Notes 7, 10 and 11) 17,948,877 9,965,373
ASSETS UNDER DEVELOPMENT (Notes 8 and 10) 627,504 10,084,860
OTHER ASSETS (Notes 9 and 19) 1,885,101 1,652,530
------------ ------------
$31,312,861 $36,891,229
============ ============
</TABLE>
<TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Cheques issued in excess of amounts on $281,169 $ 944,897
deposit
Accounts payable and accrued liabilities 3,656,469 2,649,384
Current portion of long-term debt (Note 10) 1,099,236 874,134
Current portion of obligations under capital 6,148,318 1,879,429
leases (Note 11) ----------- ----------
11,185,192 6,347,844
LONG-TERM DEBT (Note 10) 14,435,753 11,257,822
OBLIGATIONS UNDER CAPITAL LEASES (Note 11) - 4,730,610
DEFERRED FOREIGN EXCHANGE GAIN (LOSS) (656,330) 60,803
PAYABLES TO SHAREHOLDERS
AND DIRECTOR-RELATED COMPANIES (Notes 12
and 19) 687,585 1,868,828
---------- -----------
25,652,200 24,265,907
---------- -----------
SHAREHOLDERS' EQUITY
Capital stock (Note 13) 17,179,856 11,433,351
Warrants (Note 14) 12,093,206 12,093,206
Deficit (23,612,401) (10,901,236)
------------- -------------
5,660,661 12,625,322
------------- -------------
$31,312,861 $ 36,891,229
============ =============
</TABLE>
<PAGE>
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTH PERIOD ENDED OCTOBER 31, 1998
AND THE SIX MONTH PERIOD ENDED DECEMBER 31, 1997
(In Canadian Dollars)
<TABLE>
Oct 31, Dec 31,
1998 1997
<S> <C> <C>
SALES REVENUE (Note 16) $5,877,667 $4,214,756
----------- -----------
COSTS AND EXPENSES
Cost of sales 3,383,218 2,212,307
Selling, distribution and administrative 2,969,893 3,349,985
Depreciation and amortization 912,129 653,246
Interest on long-term debt (Notes 10 and 11) 963,363 207,471
Other (revenue) / expenses (Note 19) (257,819) (87,360)
----------- -----------
7,970,784 6,335,649
----------- -----------
LOSS FROM OPERATIONS 2,093,117 2,120,893
LOSS FROM INVESTMENT IN
NATIONAL HEALTHCARE LOGISTICS LLC (Note 6) 376,600 320,806
----------- -----------
NET LOSS $2,469,717 $2,441,699
=========== ===========
BASIC LOSS PER SHARE $0.16 $0.20
=========== ===========
WEIGHTED AVERAGE
COMMON SHARES OUTSTANDING 15,835,601 12,300,808
=========== ===========
</TABLE>
<PAGE>
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTH PERIOD ENDED OCTOBER 31, 1998
AND THE YEARS ENDED APRIL 30, 1998 AND JUNE 30, 1997
(In Canadian Dollars)
<TABLE>
Class A Common Shares
Shares Amount Paid in Deficit Total
capital
<S> <C> <C> <C> <C> <C>
Bala
nces
at
June
30,
1996 10,753,290 8,677,351 - (4,080,540) 4,596,811
Issu
e of
shar
es
for
cash 67,125 140,812 - - 140,812
Issu
e of
spec
ial
warr
ants
(Not
e
14) - - 12,315,000 - 12,315,000
Warr
ant
issu
e
cost
s - - (221,794) - (221,794)
Exer
cise
of
warr
ants
(Not
e
14) 250,000 500,000 - - 500,000
Net
loss - - - (4,248,043) (4,248,043)
---------- -------- ---------- ------------ ------------
Bala
nces
at
June
30,
1997 11,070,415 9,318,163 12,093,206 (8,328,583) 13,082,786
Issu
e of
shar
es
for
cash
(Not
e
13) 37,500 91,440 - - 91,440
Issu
e
for
Mert
ex
dist
ribu
tion
righ
t
(Not
e 9) 225,000 1,552,500 - - 1,552,500
Shar
e
issu
e
cost
s - (1,174,275) - - (1,174,275)
Conv
ersi
on
of
conv
erti
ble
debt
(Not
e
10) 1,475,572 4,935,924 - - 4,935,924
Exer
cise
of
warr
ants
(Not
e
14) 3,013,416 1,293,748 - - 1,293,748
Equi
ty
port
ion
of
conv
erti
ble
debt
(Not
e
10) - 1,162,356 - - 1,162,356
Net
loss - - - (12,814,101) (12,814,101)
----------- ----------- --------- ------------- -------------
Bala
nces
at
Apri
l
30,
1998
15,821,903 $17,179,856 $12,093,206 $(21,142,684) $8,130,378
Issu
e of
shar
es
for
no
cons
ider
atio
n 500,000 - - - -
Net
loss - - - (2,469,717) (2,469,717)
---------- --------- ----------- ------------- ------------
Bala
nces
at
Octo
ber
31,
1998 16,321,903 $17,179,856 $12,093,206 $(23,612,401) $5,660,661
============ ============ ============ ============== ===========
</TABLE>
<PAGE>
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTH PERIOD ENDED OCTOBER 31, 1998
AND THE SIX MONTH PERIOD ENDED DECEMBER 31, 1997
(In Canadian Dollars)
<TABLE>
Oct 31, Dec 31,
1998 1997
<S> <C> <C>
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Net loss $(2,469,717) $(2,441,699)
Items not affecting cash
Amortization of deferred
foreign exchange loss 128,732 (2,733)
Accrued interest 704,245 -
Unrealized foreign exchange loss 568,465 -
Depreciation and amortization 912,129 653,246
Loss from investee 376,600 320,806
------------- -------------
220,454 (1,470,380)
Net change in non-cash
operating assets and liabilities
Accounts receivable 455,547 (999,730)
Inventories (1,116,100) (2,421,846)
Prepaid expenses (197,196) (315,414)
Accounts payable and accrued liabilities (94,899) 1,377,763
------------- -------------
(732,194) (3,829,607)
------------- -------------
INVESTING ACTIVITIES
Investment in
National Healthcare Logistics LLC (447,714) (2,465,482)
Acquisition of property, plant and equipment (44,035) (3,124,291)
__________ __________
(491,749) (5,589,773)
------------- ------------
FINANCING ACTIVITIES
(Repayment of) obligations under capital (317,473) (613,498)
leases
Proceeds from long-term debt 133,018 8,864,630
Deferred foreign exchange gain (loss) - 9,408
Advances from (repayment to) shareholders
and director-related companies (537,708) (1,636,684)
Net proceeds from issuance of
Class A common shares - 2,116,208
------------- ------------
(722,163) 8,740,064
------------- ------------
CHANGE IN CASH (1,946,106) (679,317)
CASH, beginning of year 1,720,643 3,863,918
------------- ------------
CASH, end of period $(225,463) $3,184,601
============= ============
</TABLE>
<PAGE>
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTH PERIOD ENDED OCTOBER 31, 1998
AND THE SIX MONTH PERIOD ENDED DECEMBER 31, 1997
(In Canadian Dollars)
(continued)
<TABLE>
Oct 31, Dec 31,
1998 1997
<S> <C> <C>
Represented by:
Cash and short-term investments $55,706 $4,129,498
Cheques issued in excess of funds on deposit (281,169) (944,898)
------------ -----------
$(225,463) $3,184,601
============ ===========
Supplemental disclosure of cashflow
information
Cash paid for: Interest (net of amount $110,834 $ 167,505
capitalized) =========== ===========
Income taxes $- $-
=========== ===========
</TABLE>
<PAGE>
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. As of August 14, 1996, the shares of the Company
were listed on the Small Cap board of NASDAQ Stock Market (symbol
NHMCF). Effective June 30, 1998, the Company de-listed itself from the
Vancouver Stock Exchange. In fiscal 1998, the Company changed its year
end from June 30 to April 30 for administrative reasons which resulted
in the differing second quarter ending dates contained herein.
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 21. 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 supplies 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, and in fiscal 1998 it obtained ISO 9001 certification.
Management plans for fiscal 1999 include:
* implementing the next generation of automation;
* expanding the breadth of the product lines;
* developing broader sales distribution channels;
* maintaining focus on the core business; and
* continuing to focus on cost efficiencies.
Thus far in fiscal 1999, the Company is in the process of implementing
the following:
* In June 1998, along with Paradigm Medical Industries, the Company
announced that it signed a co-distribution agreement with Pharmacia &
Upjohn covering a range of ophthalmic products. The three companies offer
a comprehensive package of products to cataract surgeons.
<PAGE>
2. BUSINESS CONSIDERATIONS (continued)
* The Company's equity investee, National Healthcare Logistics LLC
(NHLC) (see Note 6) began operations in September 1998 of its first "Hub &
Spoke" distribution centre, Fort Myers, Florida based LeeSar Regional
Service Centre (LeeSar). The "Hub" is owned jointly by Lee Memorial
Healthcare Systems and Sarasota Memorial. The combination of a management
fee earned by NHLC and cross-selling opportunities with the Company and its
subsidiaries have the potential to increase revenues and earnings. In
addition, NHLC now has a tangible facility in which to showcase the
benefits of the "Hub & Spoke" system to others regional hospital systems in
the United States.
* Management plans to reduce administrative costs of the operating
entities and reduce the executive payroll at head office. The Company
continues to streamline processes and to centralize certain functions.
These consolidated financial statements have been prepared on the
assumption that the Company is a going concern, meaning it will be able
to realize its assets and discharge its liabilities in the normal
course of operations for the foreseeable future.
The Company has incurred significant research and development costs,
operating losses, and business development costs to date and had a
consolidated deficit of $23,612,401 as at October 31, 1998. Also, as
at October 31, 1998, the Company had negative working capital, which
was a function of the capital leases being classified as current (see
Note 11). The Company's ability to continue as a going concern is
dependent upon developing profitable operations and obtaining
additional funds needed to finance the growth in sales. These
consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
3. SIGNIFICANT 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., Medi Guard Inc., National Care
Products Ltd., and Budva International LLC ("Budva"). Custom Pack
Reliability has not been consolidated into the accounts of the Company
as the formal purchase and sale agreement has not yet been finalized.
All significant intercompany transactions and balances have been
eliminated upon consolidation. The Company accounts for its investment
in National Healthcare Logistics LLC 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.
<PAGE>
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
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 following rates and methods:
Building, improvements and paving 4 - 8% declining balance
Furniture and fixtures 20% declining balance
Automotive 30% declining balance
Computer equipment 20 - 30% declining balance
Machinery and equipment 20 - 30% declining balance
Equipment under capital leases 30% declining balance
and
7 years units of production
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.
Other Assets
Included in other assets are the following:
* Exclusive right to distribute and sell certain protective textiles,
including the "Mertex" and "Mertex-Plus" fabrics. The distribution right
is being amortized over the estimated useful life of the asset, which
management estimates to be seven years, using a method based on forecasted
future sales.
* Costs related to the issuance of the March 31, 1998 Convertible
Debentures. The issue costs are being amortized on a straight-line basis
over a two year period.
<PAGE>
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
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 expense
as incurred.
Revenue Recognition
Sales are recognized at the time the product is shipped 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 denominated in a foreign currency are adjusted to
reflect the rate of exchange in effect at the balance sheet date.
Exchange gains and losses arising on the translation of monetary assets
and liabilities are included in income, except for unrealized exchange
gains and losses on long-term debt. The foreign exchange loss relating
to the March 31, 1998 Convertible Debentures are being deferred and
amortized over the remaining term of the debentures.
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,
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.
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 period.
Income Taxes
The Company follows the deferral method of income tax allocation.
<PAGE>
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
4. INVENTORIES
<TABLE>
1998 1997
<S> <C> <C>
Raw materials $3,444,513 $ 1,562,681
Finished goods 2,460,288 3,709,178
---------- -----------
$5,904,801 $ 5,271,859
========== ===========
</TABLE>
5. RECEIVABLES FROM SHAREHOLDERS AND DIRECTOR-RELATED COMPANIES
<TABLE>
1998 1997
<S> <C> <C>
Receivable from shareholders $14,175 $27,356
Receivable from director-related companies 1,243,459 1,418,900
---------- ----------
$1,257,634 $ 1,446,256
========== ===========
</TABLE>
The receivables from shareholders and director-related companies are
unsecured, non-interest bearing, with no specified terms of repayment,
except for the receivable from a director-related company in the amount
of $393,257 which is secured by the related company's fixed assets.
6. INVESTMENT IN NATIONAL HEALTHCARE LOGISTICS LLC
During fiscal 1997, the Company acquired 150 Class A common voting
shares, representing a 50% interest, and now holds 1,000 Class C non-
voting 7% preferred shares of National Healthcare Logistics LLC
("NHLC"). This investment is being accounted for under the equity
method. NHLC, a limited liability company, was created in April, 1997.
NHLC is in the business of consolidating and managing the purchasing
and distribution activities for regional hospital alliances, utilizing
a "Hub and Spoke" distribution system.
<PAGE>
7. PROPERTY, PLANT AND EQUIPMENT USED IN OPERATIONS
<TABLE>
1998 1997
Accumulated
Cost Depreciation Net Net
<S> <C> <C> <C> <C>
Land $556,503 $- $556,503 $589,458
Building,
Improvements and
paving 2,375,286 242,361 2,132,925 2,203,459
Furniture and
fixtures 336,357 120,328 216,029 279,864
Automotive 74,009 35,852 38,157 -
Computer equipment 384,166 135,440 248,726 338,477
Machinery and
equipment 7,936,332 2,371,830 5,564,502 4,420,408
Leasehold
improvements 55,803 55,803 - -
Equipment
Under capital lease 12,123,150 2,931,115 9,192,035 2,133,707
------------ ---------- ---------- -----------
$23,841,606 $5,892,729 $17,948,877 $9,965,373
============ ========== =========== ===========
</TABLE>
8. ASSETS UNDER DEVELOPMENT
<TABLE>
1998 1997
<S> <C> <C>
Machinery and equipment $627,504 $-
Machinery and equipment in storage - 408,563
Equipment under capital lease 1194 - 2,313,245
Equipment under capital lease 1094 - 001 - 7,363,052
--------- ----------
$627,504 $10,084,860
========= ===========
</TABLE>
In fiscal 1998, the machinery and equipment in storage and the
equipment under capital lease 1194 were written down to zero value.
Interest of $109,151 was capitalized to the equipment under capital
lease 1094-001 in the period ended December 31, 1997. Later in fiscal
1998, the equipment was put into production, and accordingly was
transferred into property, plant, and equipment used in operations.
<PAGE>
9. OTHER ASSETS
<TABLE>
1998 1997
<S> <C> <C>
Mertex distribution rights, net of $78,692
in accumulated amortization, 1997 - nil (Note $1,573,838 $1,652,530
19)
March 31, 1998 Convertible Debentures issue
Costs, net of $128,167 in accumulated
amortization 311,263 -
----------- -----------
$1,885,101 $1,652,530
=========== ===========
</TABLE>
Effective September 8, 1997 the Company entered into an agreement with
Importex Corporation ("Importex") and acquired 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 Class A common shares of the Company at $6.90 per share
and a warrant entitling Importex to purchase 150,000 Class A common
shares of the Company (see Note 14).
The Company incurred $439,430 of costs related to the issuance of the
March 31, 1998 Convertible Debentures (Note 10). The issue costs are
being amortized on a straight-line basis over a two year period.
10.LONG-TERM DEBT
<TABLE>
1998 1997
<S> <C> <C>
Western Economic Diversification, term loan,
matures September 1, 2000, unsecured, non-
interest bearing, repayable in variable quarterly
payments commencing September 1, 1998
$1,937,852 $1,804,835
Province of Manitoba term loan, matures September
1, 2003, 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 instalments of $30,000
each commencing May, 1999 and consecutive monthly
instalments of $51,958 each thereafter, until
fully repaid 2,174,126 2,174,126
</TABLE>
<PAGE>
<TABLE>
10.LONG-TERM DEBT (continued)
1998 1997
<S> <C> <C>
Convertible Debentures, issued March 31,
1998 for $6,750,000 U.S., bear cumulative
interest at the rate of 6% per annum,
repayable in cash or Class A common shares,
automatic conversion to Class A common
shares on March 31, 2000 (net of $1,162,356
reclassified to equity in accordance with
Canadian GAAP) 9,859,626 -
Convertible Debentures, issued October 1,
1997 for $5,000,000 U.S., bear cumulative
interest at the rate of 6% per annum,
repayable in cash or Class A common shares
within one year from the closing date. - 6,894,010
Hong Kong Bank term loans due November 1,
2001, bears interest at the Toronto Dominion
Bank prime plus 2.5% to 3% and were repaid
later in fiscal 1998. - 498,830
Business Development Bank of Canada working
capital loan due December 23, 2002, bears
interest at 3.5% above the Business
Development Bank's operational interest rate
and was repaid later in fiscal 1998. - 760,155
Banister Bank, term loan, bears interest at
the rate of U.S. prime plus 2.5%, matures
April 17, 2002, secured by inventory and
equipment of Budva, repayable in blended
monthly payments of U.S. $580 36,739 -
Banister Bank, term loan, bears interest at
the rate of U.S. prime plus 2%, matures
September 1, 1998, secured by accounts
receivable of Budva. Management is
currently negotiating terms of renewal of
this loan 307,718 -
Banister Bank, term loan, bears interest at
the rate of U.S. prime plus 2.5%, matures
September 25, 2003, secured by inventory and
equipment of Budva, repayable in blended
monthly payments of $12,191 976,956 -
Mr. Perovich, note payable, non-interest
bearing, matures April 15, 1999, secured by
a second charge over the assets of Budva,
repayable by U.S. $50,000 cash and U.S.
$100,000 worth of Class A common shares of 241,972 -
the Company ------------ -----------
15,534,989 12,131,956
Less: current portion (1,099,236) (874,134)
------------ -----------
$14,435,753 $11,257,822
============ ============
</TABLE>
<PAGE>
10.LONG-TERM DEBT (continued)
Minimum principal repayments required under the terms of the debt
agreements for the years ended April 30 are as follows:
1999 $1,099,236
2000 1,681,296
2001 1,290,897
2002 813,046
2003 and thereafter 615,738
The Convertible Debentures will be repaid in Class A common shares on
maturity. Accordingly, they have been excluded from the above
repayment schedule.
During the period, the Company received a further $133,017 advance on
the Western Economic Diversification loan.
Western Economic Diversification Loan
The Western Economic Diversification loan represents subordinated
financial assistance for capital costs, marketing costs, 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.
Province of Manitoba Loan
The Company has entered into an agreement with the Province of Manitoba
for a term loan. 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. 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. As of October 31, 1998
the job creation commitment has been met.
Convertible Debentures
Effective October 1, 1997, the Company issued U.S. $5,000,000 in
Convertible Debentures (October Debentures). The October Debentures
bore interest at 6% and were convertible into Class A common shares of
the Company at the lesser of either 85% of the average quoted market
price five day prior to conversion and U.S. $4.33. In addition,
attached to the October Debentures were 250,000 warrants to acquire
Class A common shares (October Warrants). During fiscal 1998, a
portion of the October Debentures were converted to 1,475,572 Class A
common shares. The remaining outstanding October Debentures were then
repaid with proceeds from the March Debentures (see below). The
October Warrants were cancelled upon settlement of the October
Debentures.
<PAGE>
Effective March 31, 1998 the Company issued U.S. $6,750,000 in
Convertible Debentures (March Debentures). The March Debentures bear
interest of 6% annually and are convertible, upon approval by
securities authorities, into Class A common shares of the Company at
the lesser of either 85% of the average quoted market price prior to
conversion and U.S. $3.50. All debentures must be converted
<PAGE>
10. LONG-TERM DEBT (continued)
within two years from the closing day. In addition, attached to the
debentures were 337,500 two year Convertible Debentures warrants (March
Warrants). Each March Warrant entitled the holder to purchase one
Class A common share at U.S. $2.83 during the first year or U.S. $3.09
during the second year.
Management has determined the initial equity and liability portions of
the March Debentures to be as follows:
Convertible Debentures (continued)
Liability portion $8,399,694
Equity portion 1,162,356
-----------
$9,562,050
===========
The equity portion of the Convertible Debenture was calculated using an
effective cost of capital equal to 13%. Interest is accrued at 13% which
provides for the 6% accruing to the Debenture holders and the remaining 7%
increases the future value of the liability portion to its face value at
the date of maturity. The March Debentures balance recorded in these
financial statements consists of the following:
Liability portion of March Debentures $8,399,694
Deferred foreign exchange loss 785,062
Accrued interest 674,870
-----------
$9,859,626
===========
<PAGE>
11. 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 October 31, 1998 as follows:
<TABLE>
Lease Lease Lease
1094-001 1094-002 1194 Total
<S> <C> <C> <C> <C>
Obligation by
lease $3,484,518 $1,986,888 $676,912 $6,148,318
========== ========== ======== ===========
</TABLE>
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 interpretation of the
settlement terms at that time. 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.
The capital lease obligations, the respective equipment under capital
leases and the refundable deposit on equipment were adjusted
accordingly.
During the quarter ended July 31, 1998, National Healthcare
Manufacturing Corporation, U.S., suspended payments to the lessor of
the equipment under capital lease. The lessor issued a letter of
default and therefore the full amount of the obligation has been
classified as current. Management believes that the matter relating to
the letter of default will be resolved without material effect to the
Company.
12.PAYABLE TO SHAREHOLDERS AND DIRECTOR-RELATED COMPANIES
<TABLE>
1998 1997
<S> <C> <C>
Payable to shareholders $687,585 $1,868,828
Payable to director-related companies - -
--------- -----------
$687,585 $ 1,868,828
========= ===========
</TABLE>
<PAGE>
The payables to shareholders and director-related companies are
unsecured, non-interest bearing, with no fixed terms of repayment. The
shareholders have agreed to not demand repayment within fiscal 1999;
accordingly these payables have been classified as non-current.
13.CAPITAL STOCK
<TABLE>
1998 1997
<S> <C> <C>
Common Shares
Authorized
Unlimited Class A common shares, voting
Issued
16,321,903 Class A common shares,
net of issue costs (1997 - 14,111,331) $17,179,856 $11,433,351
=========== ===========
</TABLE>
13. CAPITAL STOCK (continued)
<TABLE>
Potential Dilution ( in shares - see Note 19)
1998 1997
<S> <C> <C>
Performance shares 1,180,000 1,180,000
Stock options 1,403,404 1,330,154
July 31, 1996, Special Warrants - -
July 31, 1996, Broker's Special Warrants - -
January 8, 1997, Agent's Special Warrants - -
January 8, 1997, Agent's Warrants - 128,000
January 8, 1997, Special Warrants - -
January 8, 1997, SW Warrants - 1,600,000
Importex Warrant 150,000 150,000
March 31, 1998 Debenture Warrants 337,500 -
----------- -----------
3,070,904 4,388,154
=========== ===========
</TABLE>
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. For each $.09 of cumulative cash flow
generated by the Company from its operations, one performance share may
be released from escrow.
<PAGE>
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:
<TABLE>
Date of Issuance
1998 1997
<S> <C> <C>
Options outstanding,Beginning of 1,210,904 1,367,654
period
Options granted 370,000 -
Options exercised - (37,500)
Options cancelled or expired (177,500) -
---------- ----------
Options outstanding, end of period 1,403,404 1,330,154
========== ==========
Exercise prices of options
Granted during the period $3.70 -
Expiry date of options May 21, 2003 -
Granted during the period
</TABLE>
13.CAPITAL STOCK (continued)
Stock Options (continued)
On May 21, 1998, the stock options with an exercise price of $6.13 were
repriced to $3.70. On May 31, 1998, 370,000 stock options were granted
at an exercise price of $3.70. These options expire May 21, 2003. On
October 2, 1998, all outstanding stock options were repriced to $0.96.
As a condition of the government assistance received from the Province
of Manitoba, 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.
14.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.
In fiscal 1997, all agents warrants were exercised.
<PAGE>
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 were issued as a fully paid security and each special
warrant was exercisable into one Class A common share and one
transferable Class A common share purchase warrant. Each Class A
common share purchase warrant entitled the holder to purchase one
additional Class A common share at a price of $3.50 per share. The
warrants were exercisable at the earlier of eighteen months from the
closing date or six months after the date of the last receipt for the
prospectus. During fiscal 1998, all of the special warrants were
exercised, resulting in issuance of 905,000 Class A common shares and
905,000 Class A common shares purchase warrants. In addition, 305,000
of the Class A common shares purchase warrants were exercised for
305,000 Class A common shares. The remaining Class A common share
purchase warrants expired.
<PAGE>
14.WARRANTS (continued)
Special Warrants (continued)
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 was exercisable into one compensation warrant. Each
compensation warrant entitled the broker to purchase one Class A common
share at a price of $3.00 per share. During fiscal 1998, the broker and
compensation warrants were exercised.
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 common share and one-half of one non-
transferable SW warrant. Each whole warrant entitled the holder to
purchase one additional Class A common share at a price of $7.00 per
share. Since 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 common share and one
(rather than one-half) non-transferable SW 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.
During fiscal 1998, both the January 8, 1997 special warrants and the
January 8, 1997 agent's warrants were exercised. This gave rise to the
issuance of 1,600,000 SW warrants and 128,000 agent's warrants which
entitled the holder to purchase one additional share at a price of
$7.00. On July 8, 1998, the SW warrants and the agent's warrants
expired.
Importex Warrant
Concurrent with the acquisition of the right to distribute Mertex and
Mertex-Plus from Importex (see Note 9), Importex received a warrant to
purchase 150,000 Class A common shares at a purchase price of $6.90
until September 7, 1998, after which the purchase price increases to
$7.94 until expiry on September 7, 1999. This one Importex warrant
remained outstanding as at October 31, 1998.
Debenture Warrants
Concurrent with the issuance of U.S. $6,750,000 in Convertible
Debentures on March 31, 1998, the debenture holders received 337,500
warrants. Each warrant is exercisable within two years of issuance and
entitles the holder to purchase one Class A common share at a purchase
price of U.S. $2.83, if converted during the first year or U.S. $3.09,
if converted during the second year. These debenture warrants remained
outstanding as at October 31, 1998.
<PAGE>
15.INCOME TAXES
The Company has non-capital losses carried forward of approximately
$17,000,000 ($1997 - $10,990,000) which can be utilized to reduce the
taxable income of future years. These losses expire between 2002 and
2013. The Company is also entitled to tax credits of approximately
$227,000 (1997 - $244,000) which are creditable against provincial
income taxes. The tax credits expire between 2002 and 2003.
The benefits relating to the losses and the tax credits have not been
recognized in the financial statements.
16.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.
<TABLE>
1998 1997
<S> <C> <C>
Sales to customers outside Canada $3,002,394 $2,318,115
Sales to customers within Canada 2,875,273 1,896,641
----------- -----------
$5,877,667 $ 4,214,756
=========== ===========
</TABLE>
17.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 the Company 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. The Company 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 the Company.
During the period, the Company paid $nil (1997 - nil) 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>
18. BUSINESS ACQUISITIONS
Acquisition of Budva International, LLC
Effective April 29, 1998, the Company acquired all of the issued and
outstanding shares of Budva International LLC, a manufacturer of
disposable plastic products for the healthcare industry. In
consideration therefore, the Company agreed to pay two times the net
annualized earnings of the business for the twelve months following two
months after the effective date. The purchase price is to be paid by
the Company by issuing Class A common shares at a per share value equal
to the average closing price for the five trading days preceding the
anniversary of the closing date. 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:
<TABLE>
<S> <C>
Current assets $181,322
Property, plant and equipment 1,669,035
Current liabilities (400,792)
Long-term debt (1,449,565)
------------
$ -
==============
</TABLE>
Contingent consideration based on future earnings will be recorded when
it is determinable and the allocation of the purchase price will be
adjusted accordingly. The acquisition is subject to reversal should
the molding equipment not be fully operational and the Budva accounts
would be removed at that time.
Acquisition of Medi Guard Inc.
Effective November 24, 1997 the Company acquired all of the issued and
outstanding shares of Medi Guard Inc. In consideration therefore, the
Company agreed to pay the greater of $400,001 or 1.5 times annualized
earnings of the business in the first year after acquisition. The
purchase price is to be paid by the Company issuing Class A common
shares at a per share value equal to the average closing price for the
five trading days preceding the anniversary of the closing date. 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:
<TABLE>
<S> <C>
Current assets $1,104,331
Property, plant and equipment 2,001,213
Other assets 98,922
Goodwill 400,000
Current liabilities (1,635,189)
Obligations under capital leases (500,000)
Long-term debt (1,069,276)
-----------
$400,001
===========
</TABLE>
<PAGE>
In fiscal 1998, management re-evaluated the acquisition and determined
that the goodwill in the amount of $400,000 should be written off. The
write-off was included in amortization expense.
18. BUSINESS ACQUISITIONS (continued)
Contingent consideration based on future earnings will be recorded when
it is determinable and the allocation of the purchase price will be
adjusted accordingly.
The results of operations have been included in the accounts of the
Company from the effective date of acquisition.
Acquisition of Custom Pack Reliability
Effective September 5, 1998, the Company acquired 100% of the issued
and outstanding shares of Conseluf Management Services Inc., a
privately held company based in Niagara Falls, New York doing business
as Custom Pack Reliability. Custom Pack Reliability (CPR) has been
assembling and supplying custom packs to hospitals and surgical centres
throughout North America since 1992. The Company is to pay $500,000
for all the shares and shareholder loans of Conseluf Management
Services Inc. and for certain assets. The purchase price is to be
paid, over a period of 300 days, following the signing of a formal
agreement of purchase and sale, by the Company electing to either pay
cash or issue Class A common shares at a per share value equal to the
average closing price for the five trading days preceding the closing
date. The acquisition is subject to regulatory approval. The results
of CPR have not been included in the accounts of the Company as the
formal agreement of purchase and sale has not yet been completed.
19. COMPARATIVE FIGURES
Certain of the prior year's figures have been reclassified to conform
to the current year's presentation.
20.SUBSEQUENT EVENTS
The following event occurred subsequent to October 31, 1998, in
addition to those events disclosed elsewhere in these financial
statements.
<PAGE>
Palm Beach Gardens Medical Center Contract
On November 16, 1998, the Company announced the signing of a Custom
Sterile Procedure Tray contract with Palm Beach Gardens Medical Center
(PBMC) of Palm Beach, Florida. PBMC, part of the Tenet Healthcare
Corporation, is a 450-bed acute care facility performing 8,000 multi-
specialty surgical procedures annually.
HealthPro Procurement Services Contract
On November 19, 1998, the Company announced that it was selected by
HealthPro Procurement Services Inc. (HealthPro) of Etobicoke, Ontario
to provide a wide range of Medical Procedure Trays in Ontario for the
next three years. HealthPro, currently representing 210 member
institutions, was created through the consolidation of the two major
group-purchasing organizations in Ontario.
21.UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (U.S. GAAP)
Effective July 31, 1996, the Company obtained formal approval for
quotation of its securities on the Small Cap board of NASDAQ in the
United States (symbol NHMCF).
A description of the Company's accounting principles which differ
significantly from U.S. GAAP are as follows:
Foreign Currency Translation
Unrealized exchange gains and losses relating to the translation of the
March 31, 1998 Convertible Debentures are deferred and amortized over
the remaining term of the debenture. Under U.S. GAAP, the 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.
<PAGE>
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
15 would be disclosed.
Convertible Debentures
The March 31, 1998 Convertible Debentures have been apportioned between
debt and equity in accordance with the substance of the contractual
arrangement. In addition, the difference between the economic interest
on a comparable debt instrument with no convertible feature, and the
coupon interest rate, has also been accrued.
Under U.S. GAAP, there would be no separation of the Convertible
Debenture between its debt and equity components. In addition, the
difference between the economic interest rate and the coupon rate would
not be accounted for. Also, under U.S. GAAP value would be allocated
to the warrants which were attached to the Convertible Debentures.
<PAGE>
21.UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (U.S. GAAP)
(continued)
The application of U.S. GAAP, as described above, would have had the
following effects on net loss, loss per share and shareholders' equity.
<TABLE>
1998 1997
<S> <C> <C>
Net loss as reported $(2,469,717) $(2,441,699)
Additions to deferred foreign exchange gain (564,530) (2,733)
(loss)
Incremental interest expense resulting from
difference between the economic interest and
coupon rate on the March 31, 1998 Convertible
Debentures 283,337 -
------------ ------------
Net loss - U.S. GAAP $(2,750,910) $(2,444,432)
============ ============
Weighted average shares outstanding - U.S. 14,655,601 11,120,808
============ ============
GAAP
Loss per share - U.S. GAAP $(.19) $(0.21)
============ ============
Shareholders' equity as reported $5,660,661 $12,625,322
Incremental interest expense resulting from
difference between the economic interest and
coupon rate on the March 31, 1998 Convertible
Debentures 283,337 -
Deferred foreign exchange gain (loss) (564,530) 60,803
Portion of March 31, 1998 Convertible
Debentures allocated to equity (1,162,356) -
Portion of March 31, 1998 Convertible
Debentures allocated to warrants 300,000 -
------------ ------------
Shareholders' equity - U.S. GAAP $4,517,112 $12,686,125
============ ============
</TABLE>
Newly issued, but not yet adopted, U.S. accounting principles are not
expected to have a material impact on these consolidated financial
statements.
22.UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
Most entities depend on computerized systems and therefore are exposed
to the Year 2000 conversion risk, which, if not properly addressed,
could affect an entity's ability to conduct normal business operations.
Management is addressing this issue, however, given the nature of this
risk, it is not possible to be certain that all aspects of the Year
2000 Issue affecting the Company and those with whom it deals such as
customers, suppliers or other third parties, will be fully resolved
without adverse impact on the Company's operations.
