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 October
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
(Name of Registrant)
251 Saulteaux Crescent, Winnipeg, Manitoba Canada, R3J 3C7
(Address of Principle Executive Officer)
1. AGM/Proxy Material incl. Year End Audited Financial Statement Nov.6/98
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 Securities 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: November 9, 1998 By: /s/ Mac Shahsavar
---------------------------
M.J. Shahsavar,
President/CEO and Director
<PAGE>
Dear Shareholder,
National Healthcare Manufacturing Corporation (NHMC) has had a challenging
yet successful year. The development of our product lines, introduction of
our first Hub & Spoke Distribution System through National Healthcare
Logistics (NHCL) and key sales/marketing contracts have highlighted the
year. With our initial development activities behind us, we are poised to
reap the benefits of the investments we have made in our technologies,
strategic acquisitions, our logistics/distribution division and
sales/marketing. We are now entering our third year as a publicly traded
company, and our focus is to increase both the top and bottom line as this
will position us favorably within the investment community.
Our technological advancements in manufacturing and distribution have begun
to impact the medical industry in North America. The wide acceptance of our
products and services through our key industry affiliations with SYSCO,
Starr Surgical, and Pharmacia & Upjohn, demonstrates that we are well on
our way to become the supplier of choice in the healthcare industry.
As the health care industry continues to undergo constant change in the
areas of spending and government policies, consumers in North America have
felt the impact directly. Medical service providers are continually in
search of low cost and efficient alternatives to conventional procedures
and methods. These changes are creating tremendous opportunities for
companies that can provide quality, low cost products and/or services to
this market on a timely basis. Our state-of-the-art operations at NHMC will
continue to produce cost effective medical devices and delivery services
that meet and exceed the expectations of the healthcare industry, while
cutting their overall costs and saving hospitals and practitioners millions
of dollars per year.
We continue to apply our technology in three of the four core aspects of
the multi-billion dollar health care industry. Through these technologies,
our focus remains on cost cutting and reaching the sales capacity of our
systems.
By utilizing the world's first and only automated robotic production
facility, we are able to manufacture kits & trays efficiently, accurately,
cost effectively and quickly while reducing 90% of the manual labor
associated in the assembly process.
Our reusable surgical textiles, Mertex & Mertex Plus, enable us to produce
state-of-the art protective surgical gowns and drapes for hospitals. Along
with offering the highest quality of protection against bodily fluids and
infectious diseases, the reusability feature could save hospitals as much
as 50% over disposable products. With this in mind, it is our goal to
become a major supplier in this $3 billion market.
NHCL's Hub & Spoke logistics & distribution system provides a central
supply system for integrated hospital systems. By centralizing the
purchasing, storage and delivery of medical products and services, NHCL has
streamlined hospital administration, to save millions of dollars for
hospitals and increase availability and reliability of products for patient
care. The Hub & Spoke system reduces distribution costs by as much as 20%
for integrated hospital systems. NHCL receives management fees for the
products that flow through the system which also provides a conduit to
through which NHMC can market its own product lines directly to hospitals.
<PAGE>
In 1998, we signed our first distribution contract for $300 million in Fort
Myers, Florida. Also, a letter of intent for a $900 million contract has
been signed which is anticipated to be finalized soon. These two systems
would be the foundation for several systems to be signed in the near future
by NHCL..
We would like to thank all of our shareholders, staff and supporters who
continue to help us achieve our goals. The enthusiasm, dedication and
effort of all those involved has allowed us to continue our progress
through the final growth stages. We look forward to 1999 as a year of
unprecedented sales, growth, revenues and profits.
Sincerely,
/s/Mac Shahsavar
- --------------------------
Mac J. Shahsavar, P.Eng.
President & CEO
<PAGE>
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
PROXY
FOR USE AT THE
ANNUAL GENERAL AND SPECIAL MEETING OF SHAREHOLDERS
December 1, 1998
The undersigned shareholder of National Healthcare Manufacturing
Corporation (the "Corporation") hereby appoints Mahmood (Mac) Shahsavar,
the President of the Corporation, or failing him, Reginald Ebbeling, the
Chairman and director of the Corporation, OR INSTEAD OF EITHER OF THE
FOREGOING, , as the nominee of
the undersigned to attend and act for and on behalf of the undersigned at
the annual general and special meeting of the shareholders of the
Corporation to be held on the 1st day of December, 1998, and at any
adjournment or adjournments thereof, to the same extent and with the same
power as if the undersigned were personally present at the said meeting or
such adjournment or adjournments thereof and, without limiting the
generality of the power hereby conferred, the nominees designated above are
specifically directed:
A. To vote or withhold from voting the shares registered in the name of
the undersigned, as specified below:
1. VOTE OR WITHHOLD FROM VOTING in the election of the
following directors: (Instructions: To withhold authority to vote
for any individual nominee, strike a line through the nominee's
name listed below.)
Mahmood (Mac) Shahsavar
Reginald Adrian Ebbeling
Alice Elaine Affleck
Gordon John Farrimond
Robert Jackson
Aristotle (Telly) John Mercury
Jack Tapper
Duane Jorgensen
Joe W. Smith
Bryan R. Allison
Nancy P. Clark
2. VOTE FOR _____ OR WITHHOLD FROM VOTING ____ in the appointment of
auditors and the authorization of the directors to fix the
auditor's remuneration.
<PAGE>
3. VOTE FOR _____, AGAINST _____, OR WITHHOLD FROM VOTING ____ the
special resolution that the Articles of the Corporation be
amended to consolidate all issued Class A common shares of the
Corporation into such number of Class A common shares as is
necessary to ensure that the listing of the Class A common shares
on the NASDAQ stock exchange is maintained.
If any amendments or variations to the matters referred to above or to any
other matters identified in the notice of meeting are proposed at the
meeting or any adjournment or adjournments thereof, or if any other matters
which are not now known to management should properly come before the
meeting or any adjournment or adjournments thereof, this proxy confers
discretionary authority on the person voting the proxy to vote on such
amendments or variations or such other matters in accordance with the best
judgement of such person.
THIS PROXY IS SOLICITED ON BEHALF OF THE MANAGEMENT OF THE CORPORATION. A
SHAREHOLDER HAS THE RIGHT TO APPOINT A PERSON TO REPRESENT HIM AND TO
ATTEND AND ACT FOR HIM ON HIS BEHALF AT THE MEETING OTHER THAN THE NOMINEES
DESIGNATED ABOVE AND MAY EXERCISE SUCH RIGHT BY INSERTING THE NAME OF HIS
NOMINEE IN THE SPACE PROVIDED ABOVE FOR THAT PURPOSE.
DATED the day of , 1998.
________________________ ____________________________
Name of Shareholder Signature of Shareholder
NOTES:
1. In the event that no specification has been made with respect to
voting or withholding from voting in the election of directors, the
appointment of auditors or the consolidation of Class A common shares, the
proxy nominees are instructed to vote the shares represented by this proxy
for such matters.
2. This proxy form must be signed and dated by the shareholder or his
attorney authorized in writing, or, if the shareholder is a corporation, by
any officer or attorney thereof duly authorized. If the proxy form is not
dated in the space provided it is deemed to bear the date on which it is
mailed to management of the Corporation.
3. Properly executed forms of proxy must be deposited no later than forty-
eight hours, excluding Saturdays, Sundays and holidays, preceding the
meeting or any adjournment thereof, with National Healthcare Manufacturing
Corporation, 251 Saulteaux Crescent, Winnipeg, Manitoba R3J 3C7.
<PAGE>
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
251 Saulteaux Crescent
Winnipeg, Manitoba
R3J 3C7
NOTICE OF ANNUAL GENERAL AND SPECIAL MEETING
NOTICE IS HEREBY GIVEN that an Annual General and Special Meeting of the
shareholders of National Healthcare Manufacturing Corporation (the
"Corporation"), will be held at 251 Saulteaux Crescent, Winnipeg, Manitoba,
on December 1, 1998, at 10:00 a.m. (Winnipeg Time), for the following
purposes:
1. to receive and consider the financial statements of the
Corporation for the year ended April 30, 1998, together with the
report of the auditors thereon;
2. to elect directors;
3. to appoint auditors and to authorise the directors to fix the
auditor's remuneration;
4. to consider and, if thought fit, pass a special resolution that
the Articles of the Corporation be amended to consolidate all of
the issued Class A common shares of the Corporation into such
number of Class A common shares as is necessary to maintain the
listing of the Class A common shares on the NASDAQ stock
exchange.
5. to transact such other business as may properly come before the
meeting or any adjournment thereof.
The Record Date for the Annual
General and Special Meeting is October 14, 1998.
/s/Reg Ebbeling
--------------------------
Reginald A. Ebbeling
Chairman of the Board
Winnipeg, Manitoba
November 2, 1998.
Note: Shareholders who are unable to be present personally at the
meeting are requested to sign and return the accompanying form of
proxy for use at the meeting of National Healthcare Manufacturing
Corporation.
<PAGE>
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
MANAGEMENT PROXY CIRCULAR
The information contained in this management proxy circular is provided as
of October 14, 1998.
This management proxy circular is furnished in connection with the
solicitation of proxies by the management of National Healthcare
Manufacturing Corporation (the "Corporation") for use at the annual general
and special meeting (the "Meeting") of the shareholders of the Corporation
to be held at 251 Saulteaux Crescent, Winnipeg, Manitoba, R3J 3C7, on
December 1, 1998, at the hour of 10:00 a.m. (Winnipeg time) for the
purposes set out in the notice of such meeting. This solicitation is made
by the management of the Corporation. It is expected that the solicitation
will primarily be by mail. Proxies may also be solicited personally or by
telephone by officers and directors of the Corporation.
The form of proxy forwarded to shareholders with the notice of Meeting
confers discretionary authority upon the proxy nominees with respect to
amendments or variations of matters identified in the notice of Meeting or
other matters which may properly come before the Meeting.
The form of proxy affords the shareholder an opportunity to specify that
the shares registered in his name shall be voted or withheld from voting in
respect of the election of directors, the appointment of auditors, and the
consolidation of Class A common shares.
On any ballot that may be called for, the shares represented by proxies in
favour of management nominees will be voted or withheld from voting in
respect of the election of directors, the appointment of auditors and the
consolidation of Class A common shares in accordance with the
specifications made by shareholders in the manner referred to above.
In respect of proxies in which the shareholders have not specified that the
proxy nominees are required to vote or withhold from voting in respect of
the election of directors and the appointment of auditors, the shares
represented by proxies in favour of management nominees will be voted in
favour of the election as directors of the persons listed herein, the
appointment of auditors and the consolidation of Class A common shares.
Management knows of no matters to come before the Meeting other than the
matters referred to in the notice of Meeting. However, if any other
matters which are not now known to management should properly come before
the Meeting, the shares represented by proxies in favour of management
nominees will be voted on such matters in accordance with the best
judgement of the proxy nominee.
<PAGE>
A proxy given by a shareholder for use at the Meeting may be revoked at any
time prior to its use. In addition to revocation in any other manner
permitted by law, a proxy may be revoked by an instrument in writing
executed by the shareholder or by his attorney authorised in writing or, if
the shareholder is a corporation, under its corporate seal or by an officer
or attorney thereof duly authorised, and deposited either at the head
office of the Corporation at any time up to and including the last business
day preceding the day of the Meeting, or any adjournment thereof, at which
the proxy is to be used, or with the chairman of such Meeting on the day of
the Meeting, or any adjournment thereof, and upon either of such deposits
the proxy is revoked. The head office of the Corporation is located at 251
Saulteaux Crescent, Winnipeg, Manitoba R3J 3C7.
AUTHORISED CAPITAL, VOTING SHARES AND
PRINCIPAL HOLDERS THEREOF
The authorised capital of the Corporation consists of an unlimited number
of Class A common shares ("Class A Shares"). The holders of Class A Shares
are entitled to one vote in respect of each Class A Share held at all
annual meetings of the shareholders of the Corporation.
16,321,903 Class A Shares were issued and outstanding on October 14, 1998.
Holders of outstanding Class A Shares of record at the close of business on
October 13, 1998 are entitled to vote at the Meeting, except to the extent
that a person has transferred the ownership of any such shares after that
date and the transferee of such shares establishes proper ownership and has
demanded not later than ten days before the Meeting that the transferee's
name be included in the list of shareholders entitled to receive notice of
the Meeting.
The following table sets forth the only persons who, to the knowledge of
the directors and officers of the Corporation, beneficially own or exercise
control or direction over more than 10% of the Class A Shares, the
approximate number of Class A Shares controlled or directed by each such
person and the percentage of the Class A Shares of the Corporation
represented by the number of Class A Shares so owned, controlled or
directed.
<TABLE>
Number of Percentage
Name of Shareholder Class A Shares of Class
<S> <C> <C>
Excelco Systems Inc.1 4,271,805 26.2%
</TABLE>
*1 Mac Shahsavar, the president, CEO, and director of the Corporation is also
the president and CEO of EXCELCO.
<PAGE>
SUBDIVISION OF COMMON SHARES
The Board of Directors has resolved, subject to the shareholders' approval,
that, in the event that the market value of the Class A Shares of the
Corporation as quoted on the NASDAQ stock exchange is less than or equal to
$1.00 U.S. per Share and, as a result, the Class A Shares may be delisted
from such exchange, the issued Class A Shares of the Corporation shall be
consolidated into such number of Class A Shares as is necessary to
maintain the listing of the Class A Shares. The proposed consolidation
will decrease the number of Shares outstanding and available for purchase
by members of the investing public and will increase the price per share at
which Class A Shares may be acquired, and the Corporation believes that
these results are in the best interests of the Corporation and the
Shareholders, as it is a requirement of the NASDAQ stock exchange that the
share price of securities quoted on such exchange be greater than $1.00
U.S. per Share. A copy of the proposed Special Resolution is attached as
Appendix "A" and forms part of this Management Proxy Circular.
Income Tax Matters
Shares consolidated with the effect of increasing the stated value per
Class A Share will not result in taxable income or in any gain or loss to
the holders of the Class A Shares. In computing any gain on the
disposition of the Class A Shares, holders of the Class A Shares will be
required to proportionately increase the cost of each Class A Share to
reflect the decrease in the number of Class A Shares held.
The Corporation advises shareholders who are resident in the United Stated
of America to seek advice from their tax advisors as to the tax
consequences, if any, of the proposed consolidation of Class A Shares.
Vote Required for the Special Resolution
Adoption of the Special Resolution in the form attached as Exhibit A to
this Management Proxy Circular by the holders of the Class A Shares will
require the affirmative vote of at least 66 2/3% of the votes cast by such
holders at the Meeting. The Special Resolution proposes that the directors
of the Corporation may revoke the Special Resolution before the issuance of
a Certificate of Amendment without further approval of the shareholders.
<PAGE>
ELECTION OF DIRECTORS
Eleven directors are to be elected to succeed the nine directors whose
terms of office expire on the date of the Meeting and to serve until the
next Annual General Meeting of shareholders.
All the proposed nominees named below have consented to serve as directors
if elected. A majority of the proposed nominees named below are ordinarily
resident in Canada.
<TABLE>
NAME AND MUNICIPAL DIRECTOR POSITION WITH APPROXIMATE NUMBER OF
ADDRESS SINCE THE SHARES OF THE
CORPORATION CORPORATION
BENEFICIALLY OWNED
DIRECTLY OR INDIRECTLY
OR CONTROLLED OR
DIRECTED (at October
14, 1998)
<S> <C> <C> <C>
Mahmood (Mac) August 10, Director, 705,600 Class A and
Shahsavar 1993 President and options to acquire
251 Saulteaux CEO 412,500 Class A shares
Crescent and exercises direction
Winnipeg, MB R3J 3C7 over an additional
4,229,305 Class A
shares
Reginald Adrian May 5, 1995 Director and 22,000 Class A and
Ebbeling Chairman of options to acquire
171 Edgewater Drive the Board 27,000 Class A shares
Winnipeg, MB R2J 2V4
Alice Elaine Affleck May 5, 1995 Director and 183,200 Class A and
2547 Pinewood Drive Secretary- options to acquire
Winnipeg, MB R3J 0C4 Treasurer 85,000 Class A shares
Gordon John May 5, 1995 Director, Vice- 57,200 Class A and
Farrimond President options to acquire
2410 Cameron Line (Sales) 57,000 Class A shares
R.R. #3
Indian River, ON K0L
2B0
Robert Jackson May 5, 1995 Director and 52,900 Class A and
35 Ferndell Circle Executive Vice- options to acquire
Unionville, Ontario President 38,500 Class A shares
L3R 3Y7
Aristotle (Telly) J. May 5, 1995 Director 109,248 Class A and
Mercury options to acquire
68 Ash Street 40,000 Class A shares
Winnipeg, MB R3N 0P5
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Jack Tapper Nov. 28, Director Options to acquire
301-160 Tuxedo Drive 1997 10,000 Class A shares
Winnipeg, MB
R3P 1B2
Duane Jorgensen Not Not applicable Nil
15709 Lofty Hts. applicable
San Antonio, TX
78232
Joe W. Smith Not Not applicable Nil
815 Steeple Chase applicable
Drive
Brentwood, TN 37027
Bryan R. Allison Not Chief Nil
46 Lonsdale Drive applicable Financial
Winnipeg, MB R2Y 0N2 Officer
Nancy P. Clark Not Vice-President 17,000 Class A and
21450 83B Ave. Applicable (Operations) options to acquire
Langley, B.C. V1M 30,000 Class A shares
2P1
</TABLE>
Mahmood (Mac) Shahsavar has been the President, Chief Executive Officer and
director of the Corporation since August 23, 1993. In addition, Mr.
Shahsavar is the President and Chief Executive Officer of Excelco Systems
Inc., a robotic technology development company and has been the President and
Chief Executive Officer of Canex International Consultants Inc., a private
international trade financing company.
Reginald Adrian Ebbeling is currently Chairman of the board and director of
the Corporation. 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.
Q Alice Elaine Affleck is currently the Secretary-Treasurer and director of
the Corporation. Since 1986, Mrs. Affleck has been the Executive Assistant to
Mahmood (Mac) Shahsavar.
<PAGE>
Robert Jackson is currently the Executive Vice-President and director of the
Corporation. 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 supplies distributor in Canada.
Q Aristotle (Telly) John Mercury has been a partner at the law firm of Aikins,
MacAulay & Thorvaldson in Winnipeg, Manitoba since 1964.
Gordon John Farrimond is currently the Vice-President, Sales and Marketing of
the Corporation and prior to that position he was director of sales and
marketing with Johnson & Johnson Medical Products.
Duane Jorgensen has been President of National Healthcare Logistics, LLC.
since April 1, 1997. Between 1994 and 1996, Mr. Jorgensen was President of
United Customer Distribution System Inc.
Jack Tapper is currently a Director of the Corporation. He is a partner in
a prominent accounting firm in Winnipeg, Manitoba.
Joe W. Smith has been Chief Executive Officer of National Healthcare
Logistics, LLC. since April 1, 1997. From 1980 to 1990, he was Chief
Operating Officer of Bedsole Medical Supply and between 1990 and 1993, he
was President of Abco Dealers Inc.
Bryan R. Allison was appointed Chief Financial Officer of the Corporation
in October 1998. Recently, he was Financial Controller of JCH
Technologies, a custom cable assembler. From 1991 to 1997 he was a
financial controller at the subsidiary level for publicly traded Quality
Dino Entertainment Ltd. He was posted to Rotterdam, Netherlands and then to
Las Vegas, Nevada. From 1988 to 1991, he articled with Arthur Andersen &
Co. and attained his C.A. designation.
Nancy P. Clark is Vice-President (Operations) of the Corporation.
Previously, she was the Senior Director of Hospital Material Management in
Vancouver, B.C.
Q are members of the Audit Committee.
<PAGE>
STATEMENT OF EXECUTIVE COMPENSATION
Summary Compensation Table
<TABLE>
Name and Principal Position
Annual Awards
Year Compens
ation
Salary Bonus Other Annual Securit
(Cdn.$) (Cdn.$) Compensation ies
Under
Options
/ SARs
Granted
<S> <C> <C> <C> <C> <C>
Mahmood (Mac) Shahsavar, 1998 100,000 nil nil nil
President
and CEO3
1997 120,000 nil nil nil
1996 120,000 nil nil nil
1995 60,000 nil nil 370,000
1994 nil nil nil nil
</TABLE>
During the financial year ended April 30, 1998, the Corporation did not
make any long term incentive plan awards nor did it have a pension plan for
its directors and senior officers.
Options Exercised During the Year Ended April 30, 1998.
<TABLE>
Name Securities % of Total Exercise or Market Expiratio
Under Options Base Price Value of n
Options Granted ($/Security) Securitie Date
Exercised to s
Employees Underlyin
in g
Financial Options
Year on the
Date of
Exercise
($/Securi
ty)
<S> <C> <C> <C> <C> <C>
Robert 2,000 N/A $2.00 Cdn. $6.25 N/A
Jackson Cdn.
Reginald 12,000 N/A $2.00 Cdn. $7.45 N/A
Ebbeling Cdn.
Rick 1,300 N/A $6.13 Cdn. $7.45 N/A
Johnson 1,450 N/A $6.13 Cdn. Cdn. N/A
$7.40
Cdn.
</TABLE>
<PAGE>
REMUNERATION OF DIRECTORS
None of the directors who are not officers of the Corporation received a
fee for services rendered to the Corporation as a director during the last
fiscal year. Each director is reimbursed for any out-of-pocket expenses
incurred in connection with attending directors' meetings.
INDEBTEDNESS OF DIRECTORS AND OFFICERS
There is presently no indebtedness owing by any officers or directors of
the Corporation, by any proposed management nominees for director of the
Corporation, nor by any associates of the foregoing, to the Corporation.
INTEREST OF INSIDERS IN MATERIAL TRANSACTIONS
No director or senior officer, past present or nominated, or any associate
of such persons, or any person on behalf of whom this solicitation is made
has any interest, direct or indirect, in any matter to be acted upon at the
Meeting, except to the extent that such persons may be directly involved in
the normal business of the Meeting, or the general affairs of the
Corporation.
APPOINTMENT OF AUDITORS
Management of the Corporation will nominate Arthur Andersen & Co. as
auditor of the Corporation. Arthur Andersen & Co. was first appointed as
auditor of the Corporation on November 27, 1997.
<PAGE>
CERTIFICATE
The contents and the distribution of this proxy circular have been approved
by the board of directors of the Corporation.
November 2, 1998.
/s/Reg Ebbeling
------------------------------
Reginald A. Ebbeling,
Chairman of the Board
<PAGE>
Appendix AA@
Special Resolution of the Shareholders of
National Healthcare Manufacturing Corporation (the ACorporation@)
WHEREAS it is considered desirable and in the interest of the Corporation
to consolidate all the issued Class A common shares of the Corporation as
hereinafter provided in order to comply with the requirements of the NASDAQ
stock exchange, as same may be amended from time to time:
NOW THEREFORE, BE IT RESOLVED AS A SPECIAL RESOLUTION THAT:
1. All issued Class A common shares of the Corporation outstanding as at
the close of business on a record date to be established by the board
of directors be and the same are hereby consolidated into such number
of Class A common shares as is deemed necessary by the board of
directors, acting reasonably, in order to maintain the listing of the
Class A common shares on the NASDAQ stock exchange;
2. The Corporation be and is hereby authorized to make all filings
necessary for the issuance of a Certificate of Amendment under The
Corporations Act (Manitoba) (the AMCA@) to give effect to this Special
Resolution.
3. The directors and proper officers of the Corporation be and they are
hereby authorized and directed to take such action and to execute and
deliver all such documentation as may be necessary or desirable for
the implementation of this Special Resolution.
4. This Special Resolution shall be subject to approval by a majority of
not less than two-thirds of the votes cast by the holders of Class A
common shares present or represented at such meeting.
5. Notwithstanding the provisions hereof, the directors of the
Corporation may revoke this Special Resolution at any time prior to
the issuance of a Certificate of Amendment under the MCA giving effect
hereto without further approval of the shareholders of the
Corporation.
<PAGE>
SUPPLEMENTAL MAILING LIST RETURN CARD
(National Policy No. 41)
NOTICE TO SHAREHOLDERS of
NATIONAL HEALTHCARE MANUFACTURING CORP.
On October 28, 1987, the Canadian Securities Administrators gave approval
to National Policy Statement No. 41 - Shareholder Communication, which
essentially established a new framework for communication between issuers
and their registered and non-registered shareholders.
Companies incorporated in British Columbia have in the past been required
to deliver interim (semi-annual) financial statements only to their
registered shareholders. the new policy now exempts companies from having
to deliver these statements to their registered shareholders if the
companies send 1st, 2nd, and 3rd quarter financial statements to those
shareholders, whether registered or not, who request in writing to receive
them.
If you are a registered or non-registered shareholder, and wished to be
placed on a supplemental mailing list for the receipt of these financial
statements, you must complete and return the Supplemental Return Card
below.
The supplemental mailing list will be updated each year and, therefore, a
Return Card will be required annually in order to receive quarterly
financial statements. All other shareholder mailings will continue to be
mailed to registered shareholders in the normal manner without the
completion of a Return Card.
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
The undersigned certifies that he/she is the owner of securities (other
than debt instruments) of the company, and requests to be placed on the
company's Supplemental Mailing List in respect of its quarterly financial
statements.
___________________________________________________________
Name - Please Print
___________________________________________________________
Address
___________________________________________________________
City/Province/Postal Code
____________________________ _____________________
Signature Dated
Please complete and return this card to:
National Healthcare Manufacturing Corp.
#1455 - 409 Granville Street
Vancouver, B.C., Canada V6C 1T2
<PAGE>
FORM 61
QUARTERLY REPORT
Incorporated as part of: X Schedule A
Schedules B & C
ISSUER DETAILS:
NAME OF ISSUER National Healthcare Manufacturing Corporation
ISSUERS'S ADDRESS 251 Saulteaux Crescent, Winnipeg Manitoba, R3J 3C7
ISSUER TELEPHONE NUMBER 204-885-5555
CONTACT PERSON Mr. Mac Shahsavar
CONTACT'S POSITION President / CEO
CONTACT TELEPHONE NUMBER 204-885-5555
FOR QUARTER ENDED April 30, 1998
DATE OF REPORT November 6, 1998
CERTIFICATE
THE SCHEDULE(S) REQUIRED TO COMPLETE THIS QUARTERLY REPORT ARE ATTACHED AND
THE DISCLOSURE CONTAINED THEREIN HAS BEEN APPROVED BY THE BOARD OF
DIRECTORS. A COPY OF THIS QUARTERLY REPORT WILL BE PROVIDED TO ANY
SHAREHOLDER WHO REQUESTS IT. PLEASE NOTE THIS FORM IS INCORPORATED AS PART
OF BOTH THE REQUIRED FILING OF SCHEDULE A AND SCHEDULES B & C.
/s/Mac Jamshidi Shahsavar 1998/11/06
NAME OF DIRECTOR DATE SIGNED (YY/MM/DD)
/s/Reginald Ebbeling 1998/11/06
NAME OF DIRECTOR DATE SIGNED (YY/MM/DD)
<PAGE>
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE TEN MONTH PERIOD ENDED APRIL 30, 1998
AND THE YEARS ENDED JUNE 30, 1997 AND 1996
TOGETHER WITH AUDITORS' REPORT
<PAGE>
AUDITORS' REPORT
To the Shareholders of
NATIONAL HEALTHCARE MANUFACTURING CORPORATION:
We have audited the consolidated balance sheets of NATIONAL HEALTHCARE
MANUFACTURING CORPORATION (a Manitoba corporation) as at April 30, 1998 and
June 30, 1997 and the consolidated statements of operations, shareholders'
equity and cash flows for the ten month period ended April 30, 1998 and the
year ended June 30, 1997. 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
audits.
We conducted our audits 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 April
30, 1998 and June 30, 1997 and the results of its operations and its cash
flows for the ten month period ended April 30, 1998 and year ended June 30,
1997 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 22 of the notes to
consolidated financial statements.
The 1996 consolidated statements of operations, shareholders' equity and
cash flows were audited by other auditors who expressed an opinion without
reservation on those consolidated statements in their report dated July 22,
1996.
/s/Arthur Andersen LLP
- -----------------------------
Winnipeg, Manitoba, Canada
October 2, 1998
<PAGE>
AUDITORS' REPORT
Comments by Auditors for U.S. Readers on Canada-U.S. Reporting Difference
In the United States, reporting standards for auditors require the addition
of an explanatory paragraph (following the opinion paragraph) when the
financial statements are affected by conditions and events that cast
substantial doubt on the company's ability to continue as a going concern,
such as those described in Note 2 to the financial statements. Our report
to the shareholders dated October 2, 1998 is expressed in accordance with
Canadian reporting standards which do not permit a reference to such events
and conditions in the Auditors' Report when these are adequately disclosed
in the financial statements. The consolidated financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
/s/Arthur Andersen LLP
- ----------------------------------
Winnipeg, Manitoba, Canada
October 2, 1998
<PAGE>
<TABLE>
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
CONSOLIDATED BALANCE SHEETS
APRIL 30, 1998 AND JUNE 30, 1997
(In Canadian Dollars)
ASSETS
April 30, June 30,
1998 1997
<S> <C> <C>
CURRENT ASSETS
Cash and short-term investments $2,684,713 $4,213,255
Accounts receivable (Note 10) 2,266,277 1,827,239
Inventories (Notes 4 and 10) 4,788,701 2,850,012
Prepaid expenses 250,747 364,998
----------- ----------
9,990,438 9,255,504
RECEIVABLES FROM SHAREHOLDERS AND
DIRECTOR-RELATED COMPANIES (Note 5) 586,209 -
INVESTMENT IN NATIONAL
HEALTHCARE LOGISTICS LLC (Note 6) 1,213,745 490,772
PROPERTY, PLANT AND EQUIPMENT
USED IN OPERATIONS (Notes 7, 10 and 11) 18,687,442 7,698,374
ASSETS UNDER DEVELOPMENT (Notes 8, 10 and 17) 627,504 9,868,849
OTHER ASSETS (Note 9) 2,014,630 -
----------- ----------
$33,119,968 $ 27,313,499
=========== ============
<FN>
</TABLE>
<TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Cheques issued in excess of amounts on deposit $964,070 $349,336
Accounts payable and accrued liabilities 3,540,364 1,271,616
Current portion of long-term debt (Note 10) 1,091,488 460,000
Current portion of obligations under capital 6,011,145 1,718,552
leases (Note 11)
----------- ----------
11,607,067 3,799,504
LONG-TERM DEBT (Note 10) 12,920,454 2,807,326
OBLIGATIONS UNDER CAPITAL LEASES (Note 11) - 5,504,985
DEFERRED FOREIGN EXCHANGE GAIN (LOSS) (91,800) 54,128
PAYABLES TO SHAREHOLDERS
AND DIRECTOR-RELATED COMPANIES (Note 12) 553,869 2,064,770
----------- ----------
24,989,590 14,230,713
----------- ----------
SHAREHOLDERS' EQUITY
Capital stock (Note 13) 17,179,856 9,318,163
Warrants (Note 14) 12,093,206 12,093,206
Deficit (21,142,684) (8,328,583)
------------ -----------
8,130,378 13,082,786
------------- -----------
$33,119,968 $ 27,313,499
============= ============
<FN>
</TABLE>
Approved on behalf of the Board:
/s/Mac Shahsavar Director /s/Jack Tapper Director
<PAGE>
<TABLE>
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE TEN MONTH PERIOD ENDED APRIL 30, 1998
AND THE YEARS ENDED JUNE 30, 1997 AND 1996
(In Canadian Dollars)
April 30, June 30, June 30,
1998 1997 1996
<S> <C> <C> <C>
REVENUES
Sales (Note 16) $7,521,239 $4,905,401 $556,105
Other revenue 221,628 166,196 -
---------- ---------- ---------
7,742,867 5,071,597 556,105
---------- ---------- ---------
COSTS AND EXPENSES
Cost of sales 5,475,027 2,637,315 291,319
Selling, distribution and 6,647,953 4,424,582 1,888,352
administrative
Depreciation and amortization (Note 1,922,534 1,576,975 1,188,053
19)
Interest on long-term debt 1,014,519 415,035 409,258
Other expenses 127,126 56,026 (9,131)
---------- ---------- ---------
15,187,159 9,109,933 3,767,851
---------- ---------- ----------
LOSS FROM OPERATIONS 7,444,292 4,038,336 3,211,746
LOSS FROM INVESTMENT IN
NATIONAL HEALTHCARE LOGISTICS LLC 777,728 209,707 -
---------- ---------- -----------
(Note 6)
LOSS BEFORE THE UNDERNOTED 8,222,020 4,248,043 3,211,746
UNUSUAL ITEMS (Note 17) 4,592,081 - -
----------- ---------- -----------
NET LOSS $12,814,101 $4,248,043 $3,211,746
=========== ========== ===========
BASIC LOSS PER SHARE BEFORE UNUSUAL $0.61 $0.39 $0.32
ITEMS =========== ========== ===========
BASIC LOSS PER SHARE $0.95 $0.39 $0.32
=========== ========== ===========
WEIGHTED AVERAGE
COMMON SHARES OUTSTANDING 13,512,344 10,925,842 10,088,419
=========== ========== ===========
<FN>
</TABLE>
<PAGE>
<TABLE>
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE TEN MONTH PERIOD ENDED APRIL 30, 1998
AND THE YEARS ENDED JUNE 30, 1997 AND 1996
(In Canadian Dollars)
Class A Common Shares
Shares Amount Paid in Deficit Total
capital
<S> <C> <C> <C> <C> <C>
Balanc 9,578,290 $6,826,664 $ - $(868,794) $5,957,870
es at
June
30,
1995
Issue 1,175,000 2,306,250 - - 2,306,250
of
shares
for
cash
Share - (455,563) - - (455,563)
issue
costs
Net - - - (3,211,746) (3,211,746)
loss --------- ---------- -------- ------------- ------------
Balanc 10,753,290 8,677,351 - (4,080,540) 4,596,811
es at
June
30,
1996
Issue 67,125 140,812 - - 140,812
of
shares
for
cash
Issue - - 12,315,000 - 12,315,000
of
specia
l
warran
ts
(Note
14)
Warran - - (221,794) - (221,794)
t
issue
costs
Exerci 250,000 500,000 - - 500,000
se of
warran
ts
(Note
14)
Net - - - (4,248,043) (4,248,043)
loss --------- -------- ---------- ------------ ------------
Balanc 11,070,415 9,318,163 12,093,206 (8,328,583) 13,082,786
es at
June
30,
1997
Issue 37,500 91,440 - - 91,440
of
shares
for
cash
(Note
13)
Issue 225,000 1,552,500 - - 1,552,500
for
Mertex
distri
bution
right
(Note
9)
Share - (1,174,275) - - (1,174,275)
issue
costs
Conver 1,475,572 4,935,924 - - 4,935,924
sion
of
conver
tible
debt
(Note
10)
Exerci 3,013,416 1,293,748 - - 1,293,748
se of
warran
ts
(Note
14)
Equity - 1,162,356 - - 1,162,356
portio
n of
conver
tible
debt
(Note
10)
Net - - - (12,814,101) (12,814,101)
loss --------- ----------- -------- ------------ -------------
Balanc 15,821,903 $17,179,856 $12,093,206 $(21,142,684) $8,130,378
es at ========== =========== =========== ============== =============
April
30,
1998
<FN>
</TABLE>
<PAGE>
<TABLE>
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE TEN MONTH PERIOD ENDED APRIL 30, 1998
AND THE YEARS ENDED JUNE 30, 1997 AND 1996
(In Canadian Dollars)
April 30, June 30, June 30,
1998 1997 1996
<S> <C> <C> <C>
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Net loss $(12,814,101) $(4,248,043) $(3,211,746)
Items not affecting cash
Amortization of deferred
foreign exchange gain (54,128) (15,950) -
Amortization of deferred 98,922 - -
financing costs
Depreciation and 1,922,534 1,576,975 1,188,053
amortization
Loss from investee 777,728 209,707 -
Unusual items 4,592,081 - -
------------- ------------ ------------
(5,476,964) (2,477,311) (2,023,693)
Net change in non-cash
operating assets and
liabilities
Accounts receivable 284,321 (1,416,063) (104,443)
Inventories (1,421,672) (1,377,116) (507,203)
Prepaid expenses 154,053 (291,190) 7,904
Accounts payable and accrued 1,157,737 147,630 393,833
liabilities
------------ ------------ ------------
(5,302,525) (5,414,050) (2,233,602)
------------ ------------ ------------
INVESTING ACTIVITIES
Acquisition of shares in
National Healthcare (1,500,672) (700,479) -
Logistics LLC
Acquisition of property, (2,063,751) (1,476,066) (1,583,214)
plant and equipment
Interest capitalized on (180,770) (475,404) -
equipment
Acquisition of National Care - (896,447) -
Products Ltd.
Acquisition of Gam-Med - (1,678,728) -
Division
Acquisition of Medi Guard (400,001) - -
Inc.
Acquisition of Budva
International LLC (136,132) - -
(net of bank indebtedness
of $136,132)
Acquisition of Mertex (100,000) - -
distribution rights
------------ ------------ ------------
(4,381,326) (5,227,124) (1,583,214)
------------ ------------ ------------
FINANCING ACTIVITIES
Repayment of obligations (1,212,392) (1,427,204) (186,189)
under capital leases
Proceeds from (repayment of) 12,601,232 1,098,241 2,169,085
long-term debt
Deferred foreign exchange (91,800) (134,026) 9,772
gain (loss)
Advances from (repayment to)
shareholders (3,967,378) 1,343,944 517,717
and director-related
companies
Net proceeds from issuance
of 210,913 640,812 1,850,687
Class A common shares
Net proceeds from issuance - 12,093,206 -
of warrants
------------ ----------- ----------
7,540,575 13,614,973 4,361,072
------------ ----------- ----------
CHANGE IN CASH (2,143,276) 2,973,799 544,256
CASH, beginning of year 3,863,919 890,120 345,864
------------ ----------- ----------
CASH, end of year $1,720,643 $3,863,919 $890,120
============ =========== ==========
<FN>
</TABLE>
<PAGE>
<TABLE>
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE TEN MONTH PERIOD ENDED APRIL 30, 1998
AND THE YEARS ENDED JUNE 30, 1997 AND 1996
(In Canadian Dollars)
(continued)
April 30, June 30, June 30,
1998 1997 1996
<S> <C> <C> <C>
Represented by:
Cash and short-term investments $2,684,713 $4,213,255 $958,568
Cheques issued in excess of funds on (964,070) (349,336) (68,448)
deposit ---------- ----------- ---------
$1,720,643 $3,863,919 $890,120
========= ========== =========
Supplemental disclosure of cashflow
information
Cash paid for: Interest (net of amount $1,014,519 $ 515,035 $184,241
capitalized) ========== ========== ========
Income taxes $- $- $-
========== ========== ========
<FN>
</TABLE>
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. 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.
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 22. 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.
<PAGE>
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.
Subsequent to April 30, 1998, 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 $21,142,684 as at April 30, 1998. Also, as at
April 30, 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"). 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 4 - 8% declining balance
paving
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 30% declining balance
leases
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 is 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. In fiscal 1998, the foreign
exchange loss relating to the March 31, 1998 Convertible Debentures,
was deferred and amortized over the remaining term of the debentures.
In fiscal 1997 and 1996, the unrealized exchange gains and losses
relating to the capital lease obligations were deferred and amortized
over the terms 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.
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.
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 $3,891,327 $ 912,681
Finished goods 897,374 1,937,331
---------- -----------
$4,788,701 $ 2,850,012
========== ===========
</TABLE>
5. RECEIVABLES FROM SHAREHOLDERS AND DIRECTOR-RELATED COMPANIES
<TABLE>
1998 1997
<S> <C> <C>
Receivable from shareholders $190,151 $-
Receivable from director-related companies 396,058 -
--------- ---------
$586,209 $-
========= =========
</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 333 1/3 Class C non-voting
preferred shares of National Healthcare Logistics LLC ("NHLC"). During
fiscal 1998, the Company acquired an additional 666 2/3 Class C non-
voting, preferred shares. This investment is being accounted for under
the equity method. NHLC, a limited liability company, was created in
April, 1997. NHLC is in the service business managing the purchasing
and distribution activities for hospitals, 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 $565,461
Building,
improvements 2,350,206 199,237 2,150,969 2,205,210
and paving
Furniture and 329,925 100,356 229,569 193,611
fixtures
Automotive 74,009 30,481 43,528 -
Computer 353,855 94,032 259,823 188,794
equipment
Machinery and 7,763,091 1,931,883 5,831,208 2,061,552
equipment
Leasehold 53,809 53,809 - -
improvements
Equipment
under capital 12,122,376 2,506,534 9,615,842 2,483,746
lease ------------ ----------- ------------ -----------
$23,603,774 $4,916,332 $18,687,442 $7,698,374
============ =========== ============ ===========
</TABLE>
8. ASSETS UNDER DEVELOPMENT
<TABLE>
1998 1997
<S> <C> <C>
Machinery and equipment $627,504 $
Machinery and equipment in storage - 408,562
Equipment under capital lease 1194 - 2,313,245
Equipment under capital lease 1094 - 001 - 7,147,042
-------- ----------
$627,504 $ 9,868,849
======== ===========
</TABLE>
In fiscal 1998, the machinery and equipment in storage and the
equipment under capital lease 1194 were written down to zero value (see
Note 17).
Interest of $180,770 was capitalized to the equipment under capital
lease 1094-001 in fiscal 1998 (1997 - $475,404). 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 $59,020
in accumulated amortization $1,593,510 $-
March 31, 1998 Convertible Debentures issue
costs, net of $18,310 in accumulated amortization 421,120 -
----------- --------
$2,014,630 $-
=========== ========
</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.
<PAGE>
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 $1,804,835 $1,654,180
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 2,174,126 1,613,146
thereafter, until fully repaid
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 8,583,416 -
$1,162,356 reclassified to equity in
accordance with Canadian GAAP)
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 34,065 -
monthly payments of U.S. $580
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 285,315 -
currently negotiating terms of renewal of
this loan
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 905,830 -
blended monthly payments of $12,191
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 224,355 -
shares of the Company ------------- ----------
14,011,942 3,267,326
Less: current portion (1,091,488) (460,000)
------------- ----------
$12,920,454 $2,807,326
============= ==========
</TABLE>
Minimum principal repayments required under the terms of the debt
agreements for the years ended April 30 are as follows:
1999 $1,091,488
2000 1,627,662
2001 1,119,973
2002 795,723
2003 and thereafter 793,680
The Convertible Debentures will be repaid in Class A common shares on
maturity. Accordingly, they have been excluded from the above
repayment schedule.
<PAGE>
10.LONG-TERM DEBT (continued)
Subsequent to year end 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 April 30, 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 extinguishment of the October
Debentures.
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 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 equity and liability portions of the
March Debentures to be as follows:
<PAGE>
10.LONG-TERM DEBT (continued)
Convertible Debentures (continued)
Liability portion $8,399,694
Equity portion 1,162,356
-----------
$9,562,050
===========
The March Debentures balance recorded in these financial statements
consists of the following:
Liability portion of March $8,399,694
Debentures
Deferred foreign exchange loss 91,800
Accrued interest 91,922
----------
$8,583,416
==========
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 April 30, 1998 as follows:
<TABLE>
Lease Lease Lease
1094-001 1094-002 1194 Total
<S> <C> <C> <C> <C>
1999 $1,171,443 $641,853 $699,731 $2,513,027
2000 1,171,443 641,853 58,311 1,871,607
2001 1,171,443 641,853 - 1,813,296
2002 585,722 427,902 - 1,013,624
---------- -------- --------- ----------
Total minimum
lease payments 4,100,051 2,353,461 758,042 7,211,554
Less: amount
representing interest
approximating 12% 737,795 440,577 22,037 1,200,409
---------- ---------- -------- ----------
$3,362,256 $1,912,884 $736,005 $6,011,145
========== ========== ======== ==========
</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
<PAGE>
11.OBLIGATIONS UNDER CAPITAL LEASES (continued)
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.
Subsequent to year end 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 $553,869 $1,187,551
Payable to director-related companies - 877,219
-------- ----------
$553,869 $2,064,770
======== ==========
</TABLE>
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
15,821,903 Class A common shares,
net of issue costs (1997 - 11,070,415) $17,179,856 $ 9,318,163
=========== ===========
</TABLE>
<PAGE>
13.CAPITAL STOCK (continued)
<TABLE>
Potential Dilution
1998 1997
<S> <C> <C>
Performance shares 1,180,000 1,180,000
Stock options 1,210,904 1,367,654
July 31, 1996, Special Warrants - 905,000
July 31, 1996, Broker's Special Warrants - 75,416
January 8, 1997, Agent's Special Warrants - 128,000
January 8, 1997, Agent's Warrants 128,000 -
January 8, 1997, Special Warrants - 1,600,000
January 8, 1997, SW Warrants 1,600,000 -
Importex Warrant 150,000 150,000
March 31, 1998 Debenture Warrants 337,500 -
---------- -----------
4,606,404 5,406,070
========== ===========
</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.
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 1996
<S> <C> <C> <C>
Options outstanding, 1,367,654 957,829 987,829
beginning of year
Options granted - 536,950 -
Options exercised (37,500) (67,125) -
Options cancelled or expired (119,250) (60,000) (30,000)
----------- ----------- ---------
Options outstanding, end of year 1,210,904 1,367,654 957,829
=========== =========== =========
Exercise prices of options
granted during the year NIL $3.81 -
$6.13
Expiry date of options Aug 11, 2001
granted during the year and
June 3, 2002
</TABLE>
<PAGE>
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, 2000. 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.
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 had 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 prior to the expiry date of July 8, 1998.
Importex Warrant
Concurrent with the acquisition of the right to distribute Mertex and
Mertex-Plus from Importex (see Note 8), 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 April 30, 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 April 30, 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 $2,858,349 $2,482,035
Sales to customers within Canada 4,662,890 2,423,366
---------- ----------
$7,521,239 $4,905,401
========== ==========
</TABLE>
The 1998 increase in sales to customers within Canada was partially due
to the acquisition of Medi Guard Inc. (see Note 19).
17.UNUSUAL ITEMS
During the fourth quarter of 1998, the Company undertook an asset
impairment analysis which indicated that the net carrying values of
certain laboratory equipment of $2,721,807, acquired under capital
lease 1194 in fiscal 1995, were impaired. An insurance claim was filed
in fiscal 1995 when the Company noted that a portion of the equipment
was missing. The Company opted to leave the equipment in storage until
the insurance claim was settled. As the claim is still unsettled, the
result indeterminable and in conjunction with the asset impairment
analysis, the Company has reduced the carrying value of the equipment
to zero.
During fiscal 1998, the Company made advances of $1,870,274 to a
related company and its subsidiary. Collectibility of this amount is
not determinable and accordingly, management has reserved for the full
amount of the advances receivable.
Recovery, if any, from the above items will be recorded as a gain in
the year realized.
<PAGE>
18.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 year, the Company paid $nil (1997 - $804,832) 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.
19.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:
Current assets $181,322
Property, plant and equipment 1,669,035
Current liabilities (400,792)
Long-term debt (1,449,565)
-----------
$-
===========
Contingent consideration based on future earnings will be recorded when
it is determinable and the allocation of the purchase price will be
adjusted accordingly.
<PAGE>
19.BUSINESS ACQUISITIONS (continued)
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:
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
===========
Subsequent to the acquisition date, management has evaluated the
acquisition and has determined that the goodwill in the amount of
$400,000 should be written off. This write-off is included in
amortization expense.
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. Pro-forma results of
operations have not been presented for the full year as it would not be
materially different from the fiscal 1998 results of operations.
20.COMPARATIVE FIGURES
Certain of the prior year's figures have been reclassified to conform
to the current year's presentation.
21.SUBSEQUENT EVENTS
The following event occurred subsequent to year end, in addition to
those events disclosed elsewhere in these financial statements.
<PAGE>
21.SUBSEQUENT EVENTS (continued)
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 has been
assembling and supplying custom packs to hospitals and surgical centres
throughout North America since 1992. The Company paid $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.
22.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.
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.
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
<PAGE>
22.UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (U.S. GAAP)
(continued)
Deferred Taxes (continued)
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 been accrued.
Under U.S. GAAP, there would be no bifurcation 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.
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 $(12,814,101) $(4,248,043)
Additions to deferred foreign exchange gain (91,800) (134,026)
(loss)
Incremental interest expense resulting from
difference between the economic interest
and 92,000 -
coupon rate on the March 31, 1998 ------------- -------------
Convertible Debentures
Net loss - U.S. GAAP $(12,813,901) $(4,382,069)
============= ============
Weighted average shares outstanding - U.S. 12,332,344 9,745,842
GAAP ============= ============
Loss per share - U.S. GAAP $(1.03) $(0.45)
============= ============
Shareholders' equity as reported $8,130,378 $13,082,786
Incremental interest expense resulting from
difference between the economic interest
and 92,000 -
coupon rate on the March 31, 1998
Convertible Debentures
Deferred foreign exchange gain (loss) (91,800) 54,128
Portion of March 31, 1998
Convertible Debentures allocated to (1,162,356) -
equity
Portion of March 31, 1998
Convertible Debentures allocated to 300,000 -
warrants ----------- -------------
Shareholders' equity - U.S. GAAP $7,268,222 $13,136,914
=========== ============
</TABLE>
<PAGE>
22.UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (U.S. GAAP)
(continued)
Convertible Debentures (continued)
Newly issued, but not yet adopted, U.S. accounting principles are not
expected to have a material impact on these consolidated financial
statements.
23.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.
<PAGE>
FORM 61
QUARTERLY REPORT
Incorporated as part of: _____Schedule A
X Schedules B & C
ISSUER DETAILS:
NAME OF ISSUER National Healthcare Manufacturing Corporation
ISSUERS'S ADDRESS 251 Saulteaux Crescent, Winnipeg Manitoba, R3J 3C7
ISSUER TELEPHONE NUMBER 204-885-5555
CONTACT PERSON Mr. Mac Shahsavar
CONTACT'S POSITION President / CEO
CONTACT TELEPHONE NUMBER 204-885-5555
FOR QUARTER ENDED April 30, 1998
DATE OF REPORT October 29, 1998
CERTIFICATE
THE SCHEDULE(S) REQUIRED TO COMPLETE THIS QUARTERLY REPORT ARE ATTACHED AND
THE DISCLOSURE CONTAINED THEREIN HAS BEEN APPROVED BY THE BOARD OF
DIRECTORS. A COPY OF THIS QUARTERLY REPORT WILL BE PROVIDED TO ANY
SHAREHOLDER WHO REQUESTS IT. PLEASE NOTE THIS FORM IS INCORPORATED AS PART
OF BOTH THE REQUIRED FILING OF SCHEDULE A AND SCHEDULES B & C.
/s/Mac J. Shahsavar 1998/11/06
NAME OF DIRECTOR DATE SIGNED (YY/MM/DD)
/s/Reginald Ebbeling 1998/11/06
NAME OF DIRECTOR DATE SIGNED (YY/MM/DD)
<PAGE>
SCHEDULE "B"
SUPPLEMENTARY INFORMATION
<PAGE>
SCHEDULE "B"
SUPPLEMENTARY INFORMATION
1. For the current fiscal year-to-date:
Aggregate amount of expenditures made to parties not at arms length
from Issuer is $104,100 in management salaries to April 30, 1998.
2. Quarter in Review
(a) Summary of securities issued during the quarter ended April 30,
1998.
<TABLE>
No. of shares Amount (CDN$)
Authorized (common): Unlimited # Class A
Common shares
<S> <C> <C>
Issued & Outstanding: 15,821,903 $28,011,343
Beginning of Period
* $1,261,719
----------------------------------------
End of Period 15,821,903 $29,273,062
========== ==============
</TABLE>
*Balance of original monies received from CN Private Placement of October
1997. As at March 31, 1998 the remaining Convertible Notes outstanding,
with accrued interest thereon, was repaid from the Net Proceeds of the
Convertible Debenture Private Placement (details of which can be found
herein) and the CN Warrants were canceled by mutual agreement.
3. As at end of quarter (April 30, 1998):
(a) Authorized Capital: Unlimited # Class AA@ Shares
Shares Issued and Outstanding: 15,821,903
(b) Summary of Options Outstanding:
<TABLE>
Date of
Agreement Option Type No. of Shares Exercise Price Expiry Date
<S> <C> <C> <C> <C>
June 29, 1995 3 employees 159,500 $2.00 November 30,
2000
June 29, 1995 7 directors 625,829 $2.00 November 30,
2000
Sept.14, 1995 1 director 20,000 $2.00 November 30,
2000
Oct. 7, 1996 5 employees 33,125 $3.81 August 11,
2001
Oct. 7, 1996 4 directors 114,000 $3.81 August 11,
2001
June 3, 1997 4 directors 38,950 $6.13 June 3, 2002
June 3, 1997 31 employees 219,500 $6.13 June 3, 2002
- ---------------------------------------------------------------------------
TOTAL 1,210,904
</TABLE>
<PAGE>
c) Summary of Special Warrants Financing:
A total of 1,509,000 SW Warrants have been converted into common shares at
$7.00 as of December 7, 1997. The following are still outstanding:
<TABLE>
Date of Agreement No. of share Price Expiry
Agreement Type Placees SW Warrants per Share Date
<S> <C> <C> <C> <C> <C>
January 7/97 Brokered BPI Small 1,050,000 $7.00 July 8,1998
Private Placement
January 7/97 Brokered BPI Canadia 100,000 $7.00 July 8,1998
Priv. Placement
Opportunities Fund
January 7/97 Brokered Roberto Chu 17,000 $7.00 July 8,1998
Private Placement
January 7/97 Brokered John Heras 34,000 $7.00 July 8,1998
Private Placement
January 7/97 Brokered T.R. Lankester 17,000 $7.00 July 8,1998
Private Placement
January 7/7 Brokered Diana Risling 17,000 $7.00 July 8,1998
Private Placement
January 7/97 Brokered Sherman
Yee Ltd. 17,000 $7.00 July 8,1998
Private Placement
January 7/97 Brokered Happlewood
Design Ltd. 100,000 $7.00 July 8,1998
Private Placement
January 7/97 Brokered Barry McKnight 36,000 $7.00 July 8,1998
Private Placement
January 7/97 Brokered Elizabeth
McKnight 17,000 $7.00 July 8,1998
Private Placement
January 7/97 Brokered Barry McMillan 17,000 $7.00 July 8,1998
Private Placement
January 7/97 Brokered Dave McMillan 36,000 $7.00 July 8,1998
Private Placement
January 7/97 Brokered Vito
Enterprises 17,000 $7.00 July 8,1998
Private Placement
January 7/97 Brokered Paymon
Trading 17,000 $7.00 July 8,1998
Private Placement
January 7/97 Brokered
Nancy Clark 17,000 $7.00 July 8,1998
----------
TOTALS 1,509,000
</TABLE>
(d) Summary of Special Warrants Outstanding:
<TABLE>
No. of
Date of Class Price Expiry
Agreement Agreement Type Placees Warrants Per Share Date
<S> <C> <C> <C> <C> <C>
9/12/97 Share Purchase Imorttex Inc. 150,000 $7.94 2/3/99
Options
</TABLE>
<TABLE>
No. of
Date of Common Price Expiry
Agreement Agreement Type Placees Shares Per Share Date
<S> <C> <C> <C> <C> <C>
3/31/98 6% Convertible -Diversified (*) (*) 3/31/00
Debenture Strategies
Fund Ltd.
-Jnc
Opportunity
Fund Ltd.
3/31/98 CD Warrants -Diversified 337,500 US $2.83 3/31/00
Strategies (1st
Fund Ltd. year)
-Jnc US $3.09
Opportunity (2nd
Fund Ltd. year)
</TABLE>
<PAGE>
<TABLE>
No. of
Date of Class Price Expiry
Agreement Agreement Type Placees Payment Per Share Date
Shares
<S> <C> <C> <C> <C> <C>
4/11/98 Purchase Mr. D.P. (**) (**) 6/29/99
Agreement Johnson and
Mrs. S.F.
Johnson
</TABLE>
*The Debentures are convertible into Class A shares at a conversion price
of 85% of the average closing bid price for the five trading days
immediately preceding the conversion notice. The notes carry a maximum
price of US $3.50 and a rolling floor price of US $2.50.
**The number of shares shall be calculated as follows: The Purchase Price
(Annualized Earnings) divided by the five day average of the Closing price
of the Payment Shares. The five days used to calculate the five day average
closing price are to be the five trading days immediately prior to the date
on which the payment Shares are to be issued.
(f) Total no. of shares in escrow: 1,180,000
(g) List of Directors: Mahmood (Mac) Shahsavar Seyed Torabian
Robert Jackson Gordon Farrimond
Elaine Affleck Ross Scavuzzo
Reg Ebbeling Aristotle Mercury
Jack Tapper
<PAGE>
SCHEDULE "C"
MANAGEMENT DISCUSSION
MANAGEMENT DISCUSSION
<PAGE>
National Healthcare Manufacturing Corporation formally requested and
obtained permission to change its fiscal year end to April 30, thus, the
last quarter is only 30 days long. Although this is a short period of time
it was marked by the following developments and points of progress.
- completion of a US$6,750,000 financing,
- acquisition of Budva International L.L.C.,
- certification received for ISO 9001,
- change of fiscal year-end,
US$6,750,000 Financing
In April the Company completed a US$6,750,000 private placement through the
issuance of 6% Convertible Notes. The Debentures are convertible into Class
A shares at a conversion price of 85% of the average closing bid price for
the five trading days immediately preceding the conversion notice. The
notes carry a maximum price of US $3.50 and a rolling floor price of US
$2.50.
The Notes are convertible upon registration with the SEC and 120 days as
required by the B.C. Securities Commission. A commission of 5% has been
paid in connection with this financing. The Company is also issuing
337,500 Warrants which are exercisable at 110% and 120% of the average
closing price exercised within the first year or the second year from the
Closing Date.
Mac Shahsavar, President & CEO stated, "This arrangement will enable us to
close the chapter on previous financing by redeeming the October
convertible note holder, and to refocus our attention on growth both
internally and through acquisitions and joint ventures."
Acquisition of Budva International L.L.C.
Also in April, the Company acquired 100% of privately held Budva
International L.L.C. (Budva) of Lenexa, Kansas. The Company paid US$1.085
million by the assumption of bank debt and outstanding loans, plus three
times the net annualized earnings which are to be paid in NHMC's Class A
common shares issued at the average closing price for the five trading days
preceding the 12 months from the closing date. Completion of this
acquisition is subject to regulatory approvals.
For the past six years Budva has been a leading manufacturer and provider
of disposable plastic products to the healthcare industry. Along with the
existing product offering of specimen collection containers, medicine and
denture cups and specialty products including sterile or specimen
collections and sterile mid-stream collection kits, NHMC will expand the
existing 26 product lines to offer other plastic products for all three
major areas of healthcare. The Company intends to move all 13 injection
molding presses of this operation to its Antioch facility, located outside
of Chicago, to complement its existing plastic fusion molding operations.
<PAGE>
Mr. Shahsavar, President & CEO stated, "This vertical acquisition enables
NHMC to fully manufacture the majority of the products it uses within its
primary business of kits & trays manufacturing. The addition of the plastic
manufacturing combined with our existing capabilities to manufacture
solution and cellulose based paper products places NHMC in a very unique
position to control its overall costs and profitability." In addition,
"Budva's existing sales and marketing network within the acute care,
physician offices and alternate healthcare including home healthcare and
nursing homes will create an opportunity for exposure of NHMC's entire
product line."
ISO 9001
National Healthcare received registration for the coveted British Standards
EN ISO 9001, the world authority in quality and management systems. This
certification now enables the Company to market its products
internationally, including the European community.
Mr. Shahsavar stated, AWith this major achievement, NHMC is in a unique
position in the healthcare marketplace. We are one of Canada's only fully
certified facilities with regulatory approvals including the US Food & Drug
Administration (FDA), Canadian Health Protection Branch (HPB) and now ISO
9001 certification. ISO 9001 places NHMC's products alongside those of
world leaders and presents the Corporation with immense opportunities
globally.@
Fiscal Year-End Change
Also in April the Company reported the change in the ending date of its
financial year from June 30 to April 30, subject to approval from Revenue
Canada. The Company is changing the ending date of the financial year,
which until now has coincided with the start of the summer vacation period,
in order to ensure the availability of staff to compile year end data in a
more timely manner.
Year 2000 Compliance
As the year 2000 approaches the issues associated with programming codes
have begun to figure prominently in business world. The Company has
addressed these issues regarding the programming codes in existing computer
systems and robotic technology and believes that the year 2000 problem will
not be material to the Company.
National Healthcare is committed to reducing healthcare costs by providing
efficient and cost effective alternatives to conventional products and
services to healthcare providers through the use of the world's first and
only automated robotic production facility capable of assembling and
packaging kits and trays for medical and surgical procedures. Through its
wholly-owned subsidiaries, National Healthcare manufactures and distributes
personal care, anti-microbial and cellulose based paper products to
healthcare and homecare institutions throughout North America and Europe.
National Healthcare Logistics (a subsidiary) is revolutionizing
conventional medical distribution with its state-of-the-art Hub & Spoke
logistics system.
<PAGE>
NHMC's management and employees are committed to the Company's growth and
success. This dedication combined with our shareholders loyalty and
confidence has enhanced our ability to prosper. Thank you for your support.
Please feel free to contact our Investor Relations office in Vancouver at 1-
800-883-8841 with any comments you may have. We will continue to inform you
of our progress.
Sincerely,
/s/Mac J. Shahsavar
- ------------------------------
Mac J. Shahsavar, P.Eng.
President & CEO
