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 March 1999
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
(Name of Registrant)
251 Saulteaux Crescent, Winnipeg, Manitoba Canada, R3J 3C7
(Address of Principle Executive Officer)
1. News Releases - February 2, 1999
- March 26, 1999
2. Consolidated Financial Statement for Quarter ended January 31, 1999
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, thereunto duly authorized.
National Healthcare Manufacturing Corporation - SEC No. 0-27998
(Registrant)
Date: March 31, 1999 By:/s/ Mac Shahsavar
----------------------
M.J. Shahsavar
President/CEO and Director
<PAGE>
NEWS RELEASE
FOR IMMEDIATE RELEASE National Healthcare
Manufacturing Corporation
Investor Relations
(800) 883-8841
www.nationalhealthcare.com
NATIONAL HEALTHCARE TO DROP "F" FROM NASDAQ TICKER SYMBOL
WINNIPEG, MANITOBA (February 10, 1999) . . . . National Healthcare
Manufacturing Corporation (Nasdaq: NHMCF) is pleased to announce that as a
result of recent changes to NASDAQ listing requirements, it is no longer
required to add the letter "F" to the end of it's NASDAQ ticker symbol.
Effective today, National Healthcare's shares will be quoted on NASDAQ
under the symbol NHMC.
National Healthcare is being recognized as a market leader committed to
reducing healthcare costs by providing efficient and cost effective
alternatives to conventional products and services to healthcare providers.
National Healthcare owns and operates the world's first and only automated
robotic production facility capable of assembling and packaging various
kits and trays for medical and surgical procedures. Through its wholly
owned subsidiaries, National Healthcare manufactures and distributes
personal care, anti-microbial and cellulose based paper products such as
examination gowns to healthcare and homecare institutions throughout North
America and Europe. Also National Healthcare Logistics (a 50% subsidiary),
is revolutionizing conventional medical distribution with its state of the
art Hub & Spoke logistics system.
On Behalf of the Board,
/s/Mac Shahsavar
- ----------------------------
Mac J. Shahsavar, P.Eng.
President & CEO
NASDAQ has neither approved or disapproved the information in this news
release
<PAGE>
NEWS RELEASE
FOR RELEASE MARCH 26, 1999
AT 7:30 AM EDT National Healthcare
Manufacturing Corporation
Investor Relations (800) 883-8841
http://www.nationalhealthcare.com
e-mail: [email protected]
NATIONAL HEALTHCARE SIGNS SECOND LONG-TERM
LOGISTICS CONTRACT
WINNIPEG, MANITOBA (March 26, 1999) . . . National Healthcare Manufacturing
Corporation (NASDAQ: NHMC) announced today that, further to its
announcement of May 21, 1998, its National Healthcare Logistics (NHCL)
subsidiary has signed a long-term contract to establish and manage its
second "Hub & Spoke" distribution system, with Jewish Hospital HealthCare
Services, headquartered in Louisville, Kentucky. The system will begin with
eight member hospitals in and around the greater Louisville area. The "Hub"
is estimated to purchase between $350 and $500 million worth of products
and services over the life of the contract.
The Louisville Hub will begin to deliver products to the hospital system by
July 1999, and additional hospitals will be added as the system develops.
NHCL will receive a base management fee for managing the "Hub" and
developing the "Spokes". In addition, it will also receive a share of the
savings generated from the "Hub & Spoke" system. National Healthcare will
directly benefit from both management fees on products purchased and the
opportunity to market its diverse product lines directly through this
distribution system.
National Healthcare President & CEO Mac Shahsavar stated, "The signing of
our second facility is a clear indication that NHCL is truly on the leading
edge of medical cost containment with its revolutionary `Hub & Spoke'
distribution system, bringing millions of dollars in savings per year for
any participating hospital group. The `Hub & Spoke' program will replace
existing distribution systems as it is being recognized and implemented by
the member hospitals."
As previously announced, NHCL signed its first long-term "Hub & Spoke"
distribution agreement with two FL-based hospital systems -- Sarasota
Memorial and Lee Memorial Healthcare System. The Fort Myers, FL-based
LeeSar Regional Service Center, began operations to its member hospitals in
September 1998 and to date has consistently met its revenue targets.
NHCL, an established leader in the Medical Supply "Hub & Spoke" concept,
conducts feasibility studies prior to establishing a hospital-owned
distribution company (a "Hub"). This "Hub" gives the participating
hospitals a "one-stop shopping point " which removes substantial costs from
the entire supply chain. "Spokes" are created to provide additional savings
by re-engineering ancillary services such as waste disposal, laundry,
biomedical engineering, Kits & Trays, etc.
MORE- MORE-MORE
<PAGE>
NATIONAL HEALTHCARE SIGNS SECOND LONG-TERM LOGISTICS CONTRACT
PAGE 2-2-2
NHCL is spearheaded by President Duane Jorgensen who is regarded in the
industry as the "Father of Stockless Distribution" and by CEO Joe W. Smith,
former President of Abco Distributors, a $1 billion/year medical
distribution cooperative.
National Healthcare is being recognized as a market leader committed to
reducing healthcare costs by providing efficient and cost effective
alternatives to conventional products and services to healthcare providers.
National Healthcare owns and operates the world?s first and only automated
robotic production facility capable of assembling and packaging various
kits and trays for medical and surgical procedures. Through its wholly
owned subsidiaries, National Healthcare manufactures and distributes
personal care, anti-microbial and cellulose based paper products such as
examination gowns to healthcare and homecare institutions throughout North
America and Europe. Also National Healthcare Logistics (a 50%subsidiary),
is revolutionizing conventional medical distribution with its state of the
art Hub & Spoke logistics system.
On Behalf of the Board,
/s/Mac Shahsavar
- ----------------------------
Mac J. Shahsavar, P. Eng.
President & CEO
NASDAQ has neither approved or disapproved the information in this news
release
<PAGE>
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTH PERIOD ENDED JANUARY 31, 1999
<PAGE>
<TABLE>
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
CONSOLIDATED BALANCE SHEETS
JANUARY 31, 1999 AND MARCH 31, 1998
(In Canadian Dollars)
ASSETS
Jan 31, Mar 31,
1999 1998
<S> <C> <C>
CURRENT ASSETS
Cash and short-term investments $36,104 $ 6,007,439
Accounts receivable (Note 10) 2,862,874 2,624,934
Inventories (Notes 4 and 10) 4,877,474 6,184,474
Prepaid expenses 545,524 762,637
----------- ------------
8,321,976 15,579,484
RECEIVABLES FROM SHAREHOLDERS AND
DIRECTOR-RELATED COMPANIES (Notes 5 and 19) 1,375,300 1,517,283
INVESTMENT IN NATIONAL
HEALTHCARE LOGISTICS LLC (Notes 6 and 19) 1,383,481 911,673
PROPERTY, PLANT AND EQUIPMENT
USED IN OPERATIONS (Notes 7, 10 and 11) 15,820,913 8,765,983
ASSETS UNDER DEVELOPMENT (Notes 8 and 10) 627,505 10,650,346
OTHER ASSETS (Notes 9 and 19) 1,800,663 1,652,530
------------ ------------
$29,329,838 $ 39,077,299
============ ============
</TABLE>
<TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Cheques issued in excess of amounts on deposit $133,702 $ 674,794
Accounts payable and accrued liabilities 4,175,220 1,707,447
Current portion of long-term debt (Note 10) 1,613,082 664,134
Current portion of obligations under capital
leases (Note 11) 5,861,128 1,914,745
----------- ------------
11,783,132 4,961,120
LONG-TERM DEBT (Note 10) 12,464,328 14,084,826
OBLIGATIONS UNDER CAPITAL LEASES (Note 11) - 4,190,873
DEFERRED FOREIGN EXCHANGE GAIN (LOSS) (355,658) -
PAYABLES TO SHAREHOLDERS
AND DIRECTOR-RELATED COMPANIES (Notes 12 and
19) 654,824 555,499
----------- ------------
24,546,626 23,792,318
----------- ------------
SHAREHOLDERS' EQUITY
Capital stock (Note 13) 17,179,856 15,764,952
Warrants (Note 14) 12,093,206 12,093,206
Deficit (24,489,850) (12,573,177)
------------ ------------
4,783,212 15,284,981
------------ ------------
$29,329,838 $ 39,077,299
============ ============
</TABLE>
<PAGE>
<TABLE>
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTH PERIOD ENDED JANUARY 31, 1999
AND THE NINE MONTH PERIOD ENDED MARCH 31, 1998
(In Canadian Dollars)
Jan 31, Mar 31,
1999 1998
<S> <C> <C>
SALES REVENUE (Note 16) $8,580,072 $6,749,773
COST OF SALES 4,885,523 3,691,838
----------- ------------
3,694,549 3,057,935
----------- ------------
EXPENSES
Selling, distribution and administrative 4,197,116 5,285,298
Other (revenue) / expenses (Note 19) (312,732) (6,714)
----------- ------------
3,884,384 5,278,584
LOSS BEFORE INTEREST, DEPRECIATION,
AMORTIZATION, AND INVESTMENT 189,835 2,220,649
----------- ------------
Interest on long-term debt (Notes 10 and 11)
1,387,770 381,923
Depreciation and amortization 1,362,147 1,085,739
----------- ------------
2,749,917 1,467,662
----------- ------------
LOSS FROM OPERATIONS 2,939,752 3,688,311
LOSS FROM INVESTMENT IN
NATIONAL HEALTHCARE LOGISTICS LLC (Note 6) 407,414 649,396
----------- ------------
NET LOSS $3,347,166 $4,337,707
=========== ============
BASIC LOSS PER SHARE $0.21 $0.33
=========== ============
WEIGHTED AVERAGE
COMMON SHARES OUTSTANDING 16,117,088 13,259,472
=========== ============
</TABLE>
<PAGE>
<TABLE>
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE NINE MONTH PERIOD ENDED JANUARY 31, 1999
AND THE YEARS ENDED APRIL 30, 1998 AND JUNE 30, 1997
(In Canadian Dollars)
Class A Common Shares
Shares Amount Paid in Deficit Total
capital
<S> <C> <C> <C> <C> <C>
Bala
nces
at
June
30,
1996 10,753,290 8,677,351 - (4,080,540) 4,596,811
Issu
e of
shar
es
for
cash 67,125 140,812 - - 140,812
Issu
e of
spec
ial
warr
ants
(Not
e
14) - - 12,315,000 - 12,315,000
Warr
ant
issu
e
costs - - (221,794) - (221,794)
Exer
cise
of
warr
ants
(Not
e 14) 250,000 500,000 - - 500,000
Net
loss
- - - (4,248,043) (4,248,043)
--------- ----------- ----------- ----------- -----------
Bala
nces
at
June
30,
1997 11,070,415 9,318,163 12,093,206 (8,328,583) 13,082,786
Issu
e of
shar
es
for
cash
(Not
e 13) 37,500 91,440 - - 91,440
Issu
e
for
Mert
ex
dist
ribu
tion
righ
t
(Not
e 9) 225,000 1,552,500 - - 1,552,500
Shar
e
issu
e
cost
s - (1,174,275) - - (1,174,275)
Conv
ersi
on
of
conv
erti
ble
debt
(Not
e 10) 1,475,572 4,935,924 - - 4,935,924
Exer
cise
of
warr
ants
(Not
e 14) 3,013,416 1,293,748 - - 1,293,748
Equi
ty
port
ion
of
conv
erti
ble
debt
(Not
e 10) - 1,162,356 - - 1,162,356
Net
loss - - - (12,814,101) (12,814,101)
---------- --------- ------------ ------------- ------------
Bala
nces
at
Apri
l
30,
1998 15,821,903 $17,179,856 $12,093,206 $(21,142,684) $8,130,378
Issu
e of
shar
es
for
no
cons
ider
ation 850,000 - - - -
Net
loss - - - (3,347,166) (3,347,166)
-------- ----------- ------------ -------------- ------------
Bala
nces
at
Janu
ary
31,
1999 16,671,903 $17,179,856 $12,093,206 $(24,489,850) $4,783,212
=========== =========== ============ ============== ==========
</TABLE>
<PAGE>
<TABLE>
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTH PERIOD ENDED JANUARY 31, 1999
AND THE NINE MONTH PERIOD ENDED MARCH 31, 1998
(In Canadian Dollars)
Jan 31, Mar 31,
1999 1998
<S> <C> <C>
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Net loss $ (3,347,166) $(4,337,707)
Items not affecting cash
Amortization of deferred
foreign exchange loss 239,660 -
Accrued interest 1,132,028 -
Unrealized foreign exchange loss 167,456 -
Depreciation and amortization 1,362,147 1,085,739
Loss from investee 407,414 649,396
-------------- ------------
(38,461) (2,602,572)
Net change in non-cash
operating assets and liabilities
Accounts receivable (596,597) (797,725)
Inventories (88,773) (3,334,462)
Prepaid expenses (294,777) (397,639)
Accounts payable and accrued liabilities
241,674 435,827
------------- ------------
(776,934) (6,696,571)
------------- ------------
INVESTING ACTIVITIES
Investment in National Healthcare Logistics
LLC,
(1998 includes Mertex distribution rights)
(437,499) (4,240,080)
Acquisition of property, plant and equipment
268,783 (2,934,844)
------------- ------------
(168,716) (7,174,924)
------------- ------------
FINANCING ACTIVITIES
(Repayment of) obligations under capital
leases (317,473) (1,117,919)
Proceeds from long-term debt 133,018 11,481,634
Deferred foreign exchange gain (loss) - (54,128)
Advances from (repayment to) shareholders
and director-related companies
(688,136) (1,416,155)
Net proceeds from issuance of
Class A common shares - 6,446,789
------------ ------------
(872,591) 15,340,221
------------ ------------
CHANGE IN CASH (1,818,241) 1,468,727
CASH, beginning of year 1,720,643 3,863,918
------------ ------------
CASH, end of period $(97,598) $5,332,645
============ ============
</TABLE>
<PAGE>
<TABLE>
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTH PERIOD ENDED JANUARY 31, 1999
AND THE NINE MONTH PERIOD ENDED MARCH 31, 1998
(In Canadian Dollars)
(continued)
Jan 31, Mar 31,
1999 1998
<S> <C> <C>
Represented by:
Cash and short-term investments $36,104 $6,007,439
Cheques issued in excess of funds on deposit (133,702) (674,794)
---------- -----------
$(97,598) $5,332,645
========== ===========
Supplemental disclosure of cashflow information
Cash paid for: Interest (net of amount $110,834 $381,923
========== ===========
capitalized)
Income taxes $- $-
========== ===========
</TABLE>
<PAGE>
1. DESCRIPTION OF BUSINESS
National Healthcare Manufacturing Corporation (the "Company") was
incorporated on August 23, 1993 under the Manitoba Corporations Act and
registered as an extra provincial company in the Province of British
Columbia on December 9, 1994. The Company is primarily engaged in the
manufacturing, assembly and packaging of medical supplies for the
healthcare industry. As of August 14, 1996, the shares of the Company
were listed on the Small Cap board of NASDAQ Stock Market (symbol
NHMCF). On February 10, 1999, the symbol became NHMC. Effective June
30, 1998, the Company de-listed itself from the Vancouver Stock
Exchange. In fiscal 1998, the Company changed its year end from June
30 to April 30 for administrative reasons which resulted in the
differing second quarter ending dates contained herein.
These consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in Canada and
conform in all material respects with accounting principles generally
accepted in the United States, except as described in Note 21. All
amounts are stated in Canadian dollars.
2. BUSINESS CONSIDERATIONS
The Company has incurred significant upfront costs to establish an
automated plant for the assembly and packaging of medical supplies
which management believes is necessary to establish a strong market
presence as a new entrant to the healthcare industry. The Company's
objective is to produce and distribute custom products to users of
medical and surgical supplies throughout North America.
During fiscal 1997, the Company successfully obtained certification for
distribution of products in the United States from the Food and Drug
Administration, and in fiscal 1998 it obtained ISO 9001 certification.
Management plans for fiscal 1999 include:
* implementing the next generation of automation;
* expanding the breadth of the product lines;
* developing broader sales distribution channels;
* maintaining focus on the core business; and
* continuing to focus on cost efficiencies.
Thus far in fiscal 1999, the Company is in the process of implementing
the following:
* In June 1998, along with Paradigm Medical Industries, the Company
announced that it signed a co-distribution agreement with Pharmacia &
Upjohn covering a range of ophthalmic products. The three companies offer
a comprehensive package of products to cataract surgeons.
<PAGE>
2. BUSINESS CONSIDERATIONS (continued)
* The Company's equity investee, National Healthcare Logistics LLC
(NHLC) (see Notes 6 and 20) 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 $24,489,850 as at January 31, 1999. Also, as
at January 31, 1999, 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., and National Care
Products Ltd. (see Note 18). Custom Pack Reliability has not been
consolidated into the accounts of the Company as the formal purchase
and sale agreement has not yet been finalized. All significant
intercompany transactions and balances have been eliminated upon
consolidation. The Company accounts for its investment in National
Healthcare Logistics LLC using the equity method.
<PAGE>
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.
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:
<TABLE>
<S> <C> <C>
Building, improvements and paving 4 - 8% declining balance
Furniture and fixtures 20% declining balance
Automotive 30% declining balance
Computer equipment 20 - 30% declining balance
Machinery and equipment 20 - 30% declining balance
Equipment under capital leases 30% declining balance
and
7 years units of production
</TABLE>
Assets under Development
Assets under development are recorded at cost. Cost includes all
expenditures incurred in acquiring the asset and preparing it for use.
Interest costs on related debt obligations are capitalized until the
asset is substantially completed and ready for its intended and
productive use.
Other Assets
Included in other assets are the following:
* Exclusive right to distribute and sell certain protective textiles,
including the "Mertex" and "Mertex-Plus" fabrics. The distribution right
is being amortized over the estimated useful life of the asset, which
management estimates to be seven years, using a method based on forecasted
future sales.
* Costs related to the issuance of the March 31, 1998 Convertible
Debentures. The issue costs are being amortized on a straight-line basis
over a two year period.
<PAGE>
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
Leases
Leases entered into are classified as either capital or operating
leases. Leases that transfer substantially all of the benefits and
risks of ownership to the Company are accounted for as capital leases.
At the time a capital lease is entered into, an asset is recorded
together with a related long-term obligation. Equipment acquired under
capital leases is being depreciated on the same basis as other fixed
assets. Rental payments under operating leases are charged to expense
as incurred.
Revenue Recognition
Sales are recognized at the time the product is shipped to distributors
or customers.
Foreign Currency Translation
Foreign currency transactions are translated to Canadian dollars at the
rate of exchange in effect on the dates they occur. Monetary assets
and liabilities denominated in a foreign currency are adjusted to
reflect the rate of exchange in effect at the balance sheet date.
Exchange gains and losses arising on the translation of monetary assets
and liabilities are included in income, except for unrealized exchange
gains and losses on long-term debt. The foreign exchange loss relating
to the March 31, 1998 Convertible Debentures are being deferred and
amortized over the remaining term of the debentures.
Use of Estimates
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets,
liabilities, and disclosure of contingencies at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Loss Per Share
Loss per share data has been computed by dividing net loss by the
weighted average number of common shares outstanding during the period.
Income Taxes
The Company follows the deferral method of income tax allocation.
<PAGE>
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
Fair Value of Other Financial Instruments and Other Disclosures
The carrying amount of the following instruments approximate fair value
because of the short maturity of these instruments - cash, accounts
receivable, accounts payable and accrued liabilities, and current
portion of obligations under capital leases.
4. INVENTORIES
<TABLE>
1999 1998
<S> <C> <C>
Raw materials $3,106,353 $1,597,808
Finished goods 1,771,121 4,586,666
---------- ----------
$4,877,474 $6,184,474
========== ==========
</TABLE>
5. RECEIVABLES FROM SHAREHOLDERS AND DIRECTOR-RELATED COMPANIES
<TABLE>
1999 1998
<S> <C> <C>
Receivable from shareholders $ - $ -
Receivable from director-related companies 1,375,300 1,517,283
---------- ----------
$1,375,300 $1,517,283
========== ==========
</TABLE>
The receivables from shareholders and director-related companies are
unsecured, non-interest bearing, with no specified terms of repayment,
except for the receivable from a director-related company in the amount
of $393,257 which is secured by the related company's fixed assets.
6. INVESTMENT IN NATIONAL HEALTHCARE LOGISTICS LLC
During fiscal 1997, the Company acquired 150 Class A common voting
shares, representing a 50% interest, and now holds 1,000 Class C non-
voting 7% preferred shares of National Healthcare Logistics LLC
("NHLC"). This investment is being accounted for under the equity
method. NHLC, a limited liability company, was created in April, 1997.
NHLC is in the business of consolidating and managing the purchasing
and distribution activities for regional hospital alliances, utilizing
a "Hub and Spoke" distribution system.
<PAGE>
<TABLE>
7. PROPERTY, PLANT AND EQUIPMENT USED IN OPERATIONS
1999 1998
Accumulated
Cost Depreciation Net Net
<S> <C> <C> <C> <C>
Land $556,503 $- $556,503 $585,395
Building,
improvements and
paving 2,377,233 262,138 2,115,095 2,177,123
Furniture and
fixtures 323,003 125,432 197,571 177,482
Automotive 78,707 44,050 34,657 -
Computer equipment 373,392 143,776 229,616 251,759
Machinery and
equipment 5,705,537 2,087,326 3,618,211 3,576,331
Leasehold
improvements 18,555 11,206 7,349 20,246
Equipment
under capital
lease 12,122,376 3,060,465 9,061,911 1,977,647
----------- ---------- ----------- ----------
$21,555,306 $5,734,393 $15,820,913 $8,765,983
=========== ========== =========== ==========
</TABLE>
<TABLE>
8. ASSETS UNDER DEVELOPMENT
1999 1998
<S> <C> <C>
Machinery and equipment $627,505 $-
Machinery and equipment in storage - 408,563
Equipment under capital lease 1194 - 2,313,246
Equipment under capital lease 1094 - 001 - 7,928,538
--------- ----------
$627,505 $10,650,346
========= ============
</TABLE>
In fiscal 1998, the machinery and equipment in storage and the
equipment under capital lease 1194 were written down to zero value.
Interest of $318,359 was capitalized to the equipment under capital
lease 1094-001 in the period ended March 31, 1998. Later in fiscal
1998, the equipment was put into production, and accordingly was
transferred into property, plant, and equipment used in operations.
<PAGE>
<TABLE>
9. OTHER ASSETS
1999 1998
<S> <C> <C>
Mertex distribution rights, net of $108,200
in accumulated amortization, 1997 - nil (Note
19) $1,544,330 $1,652,530
March 31, 1998 Convertible Debentures issue
costs, net of $183,097 in accumulated
amortization 256,333 -
----------- -----------
$1,800,663 $ 1,652,530
=========== ===========
</TABLE>
Effective September 8, 1997 the Company entered into an agreement with
Importex Corporation ("Importex") and acquired the rights to distribute
the Mertex and Mertex-Plus fabrics and miscellaneous other assets. As
consideration for the purchase, the Company agreed to pay $100,000
cash, 225,000 Class A common shares of the Company at $6.90 per share
and a warrant entitling Importex to purchase 150,000 Class A common
shares of the Company (see Note 14).
The Company incurred $439,430 of costs related to the issuance of the
March 31, 1998 Convertible Debentures (Note 10). The issue costs are
being amortized on a straight-line basis over a two year period.
10.LONG-TERM DEBT
<TABLE>
1999 1998
<S> <C> <C>
Western Economic Diversification, term loan,
matures September 1, 2000, unsecured, non-
interest bearing, repayable in variable quarterly
payments commencing September 1, 1998
$1,937,852 $1,804,835
Province of Manitoba term loan, matures September
1, 2003, bears interest at the rate charged to
Manitoba Crown Corporations for borrowings
amortized over a ten year period (currently 8%),
secured by a first fixed charge against land,
buildings and equipment, and a second charge over
accounts receivable and inventories, repayable in
six consecutive monthly instalments of $30,000
each commencing May, 1999 and consecutive monthly
instalments of $51,958 each thereafter, until
fully repaid 2,174,126 2,174,126
</TABLE>
<PAGE>
<TABLE>
10.LONG-TERM DEBT (continued)
1999 1998
<S> <C> <C>
Convertible Debentures, issued March 31, 1998
for $6,750,000 U.S., bear cumulative interest
at the rate of 6% per annum, repayable in cash
or Class A common shares, automatic conversion
to Class A common shares on March 31, 2000 (net
of $1,162,356 reclassified to equity in
accordance with Canadian GAAP) 9,965,432 -
Hong Kong Bank term loans due November 1, 2001,
bears interest at the Toronto Dominion Bank
prime plus 2.5% to 3% and were repaid later in
fiscal 1998. - 460,649
Business Development Bank of Canada working
capital loan due December 23, 2002, bears
interest at 3.5% above the Business Development
Bank's operational interest rate and was repaid
later in fiscal 1998. - 247,300
Roynat Inc. Subordinated Debenture with
detachable shares in Medi Guard Inc. issued May
30, 1997. The subordinated debenture bears
interest at 10% per annum payable monthly
together with a $12,500 fee paid quarterly - 500,000
---------- -----------
14,077,410 14,748,960
Less: current portion (1,613,082) (664,134)
------------ ------------
$12,464,328 $14,084,826
============= ============
</TABLE>
Minimum principal repayments required under the terms of the debt
agreements for the years ended April 30 are as follows:
1999 $ 460,000
2000 1,429,250
2001 976,352
2002 498,500
2003 and thereafter 747,750
The Convertible Debentures will be repaid in Class A common shares on
conversion or on maturity. Accordingly, they have been excluded from
the above repayment schedule.
<PAGE>
During the period, the Company received a further $133,017 advance on
the Western Economic Diversification loan.
10.LONG-TERM DEBT (continued)
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 January 31, 1999
the job creation commitment has been met.
Convertible 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 initial equity and liability portions of
the March Debentures to be as follows:
Liability portion $8,399,694
Equity portion 1,162,356
------------
$9,562,050
============
The equity portion of the Convertible Debenture was calculated
using an effective cost of capital equal to 13%. Interest is accrued at
13% which provides for the 6% accruing to the Debenture holders and the
<PAGE>
10. LONG-TERM DEBT (continued)
remaining 7% increases the future value of the liability portion to its
face value at the date of maturity. The March Debentures balance recorded
in these financial statements consists of the following:
Liability portion of March Debentures $8,399,694
Deferred foreign exchange loss 595,319
Accrued interest 970,419
------------
$9,965,433
============
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 January 31, 1999 as follows:
<TABLE>
Lease Lease Lease
1094-001 1094-002 1194 Total
<S> <C> <C> <C> <C>
Obligation by lease $3,427,860 $1,953,896 $479,372 $ 5,861,128
=========== ========== ========= ===========
</TABLE>
Since fiscal 1995, the Company was in dispute with the original lessor
in respect of capital leases 1094-001, 1094-002 and 1194. The lessor
did not recognize the validity of a settlement agreement signed in
fiscal 1995. The Company believed that it had strong arguments to
support the validity of the settlement agreement. As a result, certain
adjustments were made in 1995 to the various equipment under capital
leases and the lease obligations based on the interpretation of the
settlement terms at that time. During fiscal 1997, the dispute was
finally settled and the leases were assumed by a new lessor. The terms
were similar to the 1995 settlement agreement except for the following:
<PAGE>
i) The refundable deposit on equipment paid by the Company was applied
against the lease liability by the lessor.
ii)The implicit interest rate of the capital lease obligations was
reduced as a result of the settlement.
The capital lease obligations, the respective equipment under capital
leases and the refundable deposit on equipment were adjusted
accordingly.
During the quarter ended July 31, 1998, National Healthcare
Manufacturing Corporation, U.S., suspended payments to the lessor of
the equipment under capital lease. The lessor issued a letter of
default and therefore the full amount of the obligation has been
classified as current (See Note 20).
12.PAYABLE TO SHAREHOLDERS AND DIRECTOR-RELATED COMPANIES
<TABLE>
1999 1998
<S> <C> <C>
Payable to shareholders $654,824 $ 555,499
Payable to director-related companies - -
--------- ---------
$654,824 $ 555,499
========= ==========
</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>
1999 1998
<S> <C> <C>
Common Shares
Authorized
Unlimited Class A common shares, voting
Issued
16,671,903 Class A common shares, net of
issue costs (1998 - 15,821,903) $17,179,856 $ 15,764,952
============ ============
</TABLE>
<PAGE>
<TABLE>
Potential Dilution ( in shares - see Note 19)
1999 1998
<S> <C> <C>
Performance shares 1,180,000 1,180,000
Stock options 1,348,904 1,330,154
July 31, 1996, Special Warrants - -
July 31, 1996, Broker's Special Warrants - -
January 8, 1997, Agent's Special Warrants - -
January 8, 1997, Agent's Warrants - 128,000
January 8, 1997, Special Warrants - -
January 8, 1997, SW Warrants - 1,600,000
Importex Warrant 150,000 150,000
March 31, 1998 Debenture Warrants 337,500 -
---------- ----------
3,016,404 4,388,154
========== ==========
</TABLE>
13. CAPITAL STOCK (continued)
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
1999 1998
<S> <C> <C>
Options outstanding, beginning of period 1,210,904 1,367,654
Options granted 370,000 -
Options exercised - (37,500)
Options cancelled or expired (232,000) -
----------- ----------
Options outstanding, end of period 1,348,904 1,330,154
=========== ===========
Exercise prices of options granted during the
period $3.70 -
Expiry date of options granted during the
period May 21, 2003 -
</TABLE>
<PAGE>
On May 21, 1998, the stock options with an exercise price of $6.13 were
repriced to $3.70. On May 31, 1998, 370,000 stock options were granted
at an exercise price of $3.70. These options expire May 21, 2003. On
October 2, 1998, all outstanding stock options were repriced to $0.96.
As a condition of the government assistance received from the Province
of Manitoba, certain restrictions and obligations have been placed upon
certain management personnel with respect to the exercise of their
stock options and the sale, transfer, assignment or other disposition
of their stock options, or shares issued to them upon exercise of their
stock options.
14.WARRANTS
The Company has issued various types of warrants, as follows:
Agent's Warrants
In connection with its initial public offering the Company issued to an
agent non-transferable share purchase warrants entitling the agent to
purchase up to 250,000 shares at any time up to the close of business
two years from the date the shares are listed, posted and called for
trading on the Vancouver Stock Exchange, at a price of $2.00 per share
in the first year and at a price of $2.30 per share in the second year.
In fiscal 1997, all agents warrants were exercised.
Special Warrants
On June 26, 1996, the Board of Directors passed a resolution
authorizing a private placement of up to 1,200,000 special warrants at
a price of $3.00 per warrant. On July 31, 1996, a total of 905,000
special warrants were issued for gross proceeds of $2,715,000. The
special warrants were issued as a fully paid security and each special
warrant was exercisable into one Class A common share and one
transferable Class A common share purchase warrant. Each Class A
common share purchase warrant entitled the holder to purchase one
additional Class A common share at a price of $3.50 per share. The
warrants were exercisable at the earlier of eighteen months from the
closing date or six months after the date of the last receipt for the
prospectus. During fiscal 1998, all of the special warrants were
exercised, resulting in issuance of 905,000 Class A common shares and
905,000 Class A common shares purchase warrants. In addition, 305,000
of the Class A common shares purchase warrants were exercised for
305,000 Class A common shares. The remaining Class A common share
purchase warrants expired.
<PAGE>
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.
14.WARRANTS (CONTINUED)
On January 8, 1997, the Company closed a second private placement of
1,600,000 special warrants at a price of $6.00 per special warrant.
Each special warrant entitled the holder, upon exercise, to acquire one
unit consisting of one Class A common share and one-half of one non-
transferable SW warrant. Each whole warrant entitled the holder to
purchase one additional Class A common share at a price of $7.00 per
share. Since receipts for the prospectus filed by the Company to
qualify the units were not obtained from all relevant regulatory
authorities within 120 days from the date of closing the private
placement, each unit now consists of one Class A common share and one
(rather than one-half) non-transferable SW warrant. The Company raised
gross proceeds of $9,600,000 from this private placement and incurred a
commission of 8% of gross proceeds which was paid by the issuance of
128,000 special warrants at a deemed price of $6.00 per special
warrant.
During fiscal 1998, both the January 8, 1997 special warrants and the
January 8, 1997 agent's warrants were exercised. This gave rise to the
issuance of 1,600,000 SW warrants and 128,000 agent's warrants which
entitled the holder to purchase one additional share at a price of
$7.00. On July 8, 1998, the SW warrants and the agent's warrants
expired.
Importex Warrant
Concurrent with the acquisition of the right to distribute Mertex and
Mertex-Plus from Importex (see Note 9), Importex received a warrant to
purchase 150,000 Class A common shares at a purchase price of $6.90
until September 7, 1998, after which the purchase price increases to
$7.94 until expiry on September 7, 1999. This one Importex warrant
remained outstanding as at January 31, 1999.
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 January 31, 1999.
<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>
1999 1998
<S> <C> <C>
Sales to customers outside Canada $4,502,937 $4,782,672
Sales to customers within Canada 4,077,135 1,967,101
---------- -----------
$8,580,072 $6,749,773
========== ===========
</TABLE>
17.RELATED PARTY TRANSACTIONS
The President and Chief Executive Officer of the Company also serves as
President and Chief Executive Officer of another company which has
granted the Company rights to certain technology under a licensing
agreement made under similar terms and conditions as transactions with
unrelated entities. The license agreement, dated May 30, 1995, is for
an initial term of ten years with provisions for renewal for
consecutive ten year terms thereafter. The Company has agreed to
purchase all automated machinery from this related company, subject to
the terms of a twenty year agreement between the related company and a
manufacturer. The related company has granted the manufacturer the
exclusive right to manufacture all machinery and equipment which
incorporates the said technology, and the related company has agreed to
purchase products only from the manufacturer. The related party has
agreed to sell machinery and equipment to the Company.
During the period, the Company paid $nil (1997 - nil) for such
machinery and equipment.
The above transactions are measured at the exchange amount, which is
the amount of consideration established and agreed to by the related
parties.
<PAGE>
18. BUSINESS ACQUISITIONS
Acquisition of Budva International, LLC
The Budva accounts have been removed from the consolidated financial
statements of the Company. The assets did not achieve the operating
requirements that were required in the purchase agreement, and
therefore, the acquisition of Budva will not be concluded as previously
reported.
Acquisition of Medi Guard Inc.
Effective November 24, 1997 the Company acquired all of the issued and
outstanding shares of Medi Guard Inc. In consideration therefore, the
Company agreed to pay the greater of $400,001 or 1.5 times annualized
earnings of the business in the first year after acquisition. The
purchase price is to be paid by the Company issuing Class A common
shares at a per share value equal to the average closing price for the
five trading days preceding the anniversary of the closing date. The
acquisition was accounted for using the purchase method and the total
consideration paid was allocated based on the estimated fair value of
the net assets at the date of acquisition, as follows:
<TABLE>
<S> <C>
Current assets $1,104,331
Property, plant and equipment 2,001,213
Other assets 98,922
Goodwill 400,000
Current liabilities (1,635,189)
Obligations under capital leases (500,000)
Long-term debt (1,069,276)
-------------
$400,001
=============
</TABLE>
In fiscal 1998, management re-evaluated the acquisition and
determined that the goodwill in the
amount of $400,000 should be written off. The write-off was
included in amortization expense.
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.
<PAGE>
Acquisition of Custom Pack Reliability
Effective September 5, 1998, the Company acquired 100% of the issued
and outstanding shares of Conseluf Management Services Inc., a
privately held company based in Niagara Falls, New York doing business
as Custom Pack Reliability. Custom Pack Reliability (CPR) has been
assembling and
18. BUSINESS ACQUISITIONS (continued)
supplying custom packs to hospitals and surgical centres throughout
North America since 1992. The Company is to pay $500,000 for all the
shares and shareholder loans of Conseluf Management Services Inc. and
for certain assets. The purchase price is to be paid, over a period of
300 days, following the signing of a formal agreement of purchase and
sale, by the Company electing to either pay cash or issue Class A
common shares at a per share value equal to the average closing price
for the five trading days preceding the closing date. The acquisition
is subject to financing and regulatory approval. The results of CPR
have not been included in the accounts of the Company as the formal
agreement of purchase and sale has not yet been completed.
19. COMPARATIVE FIGURES
Certain of the prior year's figures have been reclassified to conform
to the current year's presentation.
20.SUBSEQUENT EVENTS
The following event occurred subsequent to January 31, 1999, in
addition to those events disclosed elsewhere in these financial
statements.
Jewish Hospital Group "Hub & Spoke" Contract
On March 26, 1999, the Company announced that National Healthcare
Logistics LLC (NHCL) has signed a long-term contract to establish and
manage a "Hub & Spoke" distribution system with Jewish Hospital
HealthCare Services, headquartered in Louisville Kentucky. The system
will begin with eight member hospitals in and around the greater
Louisville area. The "Hub" is estimated to purchase between $350 and
$500 million worth of products and services over the life of the
contract and should be operational by July of 1999. NHCL will receive
a base management fee and will also receive a share of the savings
generated by the system. The first "Hub", LeeSar Regional Service
Center, began operations to its member hospitals in September of 1998.
<PAGE>
Acquisition of Budva International, LLC
The Budva accounts have been removed from the consolidated financial
statements of the Company. The assets did not achieve the operating
requirements that were required in the purchase agreement, and
therefore, the acquisition of Budva will not be concluded as previously
reported.
Capital Lease Dispute (see Note 11)
The past several months were taken in an attempt to resolve the matter
without resolution, therefore, the Company expects the matter to
proceed to litigation.
21.UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (U.S. GAAP)
Effective July 31, 1996, the Company obtained formal approval for
quotation of its securities on the Small Cap board of NASDAQ in the
United States (symbol NHMCF).
A description of the Company's accounting principles which differ
significantly from U.S. GAAP are as follows:
Foreign Currency Translation
<PAGE>
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 extent it is more likely than not that the
deferred tax asset will not be realized. For U.S. GAAP purposes, a
valuation allowance equal to the tax loss benefits referred to in Note
15 would be disclosed.
Convertible Debentures
The March 31, 1998 Convertible Debentures have been apportioned between
debt and equity in accordance with the substance of the contractual
arrangement. In addition, the difference between the economic interest
on a comparable debt instrument with no convertible feature, and the
coupon interest rate, has also been accrued.
Under U.S. GAAP, there would be no separation of the Convertible
Debenture between its debt and equity components. In addition, the
difference between the economic interest rate and the coupon rate would
not be accounted for. Also, under U.S. GAAP value would be allocated
to the warrants which were attached to the Convertible Debentures.
<PAGE>
21.UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (U.S. GAAP)
(continued)
The application of U.S. GAAP, as described above, would have had the
following effects on net loss, loss per share and shareholders' equity.
<TABLE>
1999 1998
<S> <C> <C>
Net loss as reported $(3,347,166) $(4,337,707)
Additions to deferred foreign exchange gain
(loss) (263,858) -
Incremental interest expense resulting from
difference between the economic interest
and coupon rate on the March 31, 1998
Convertible Debentures 462,472 -
------------- -------------
Net loss - U.S. GAAP $(3,148,552) $(4,337,707)
============= =============
Weighted average shares outstanding - U.S. 14,937,088 12,079,472
============= =============
GAAP
Loss per share - U.S. GAAP $(.21) $(0.36)
============= =============
Shareholders' equity as reported $4,783,212 $15,284,982
Incremental interest expense resulting from
difference between the economic interest
and coupon rate on the March 31, 1998
Convertible Debentures 462,472 -
Deferred foreign exchange gain (loss) (263,858) -
Portion of March 31, 1998 Convertible
Debentures allocated to equity (1,162,356) -
Portion of March 31, 1998 Convertible
Debentures allocated to warrants 300,000 -
------------- -------------
Shareholders' equity - U.S. GAAP $4,119,470 $ 15,284,982
============= =============
</TABLE>
Newly issued, but not yet adopted, U.S. accounting principles are not
expected to have a material impact on these consolidated financial
statements.
22.UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
Most entities depend on computerized systems and therefore are exposed
to the Year 2000 conversion risk, which, if not properly addressed,
could affect an entity's ability to conduct normal business operations.
Management is addressing this issue, however, given the nature of this
risk, it is not possible to be certain that all aspects of the Year
2000 Issue affecting the Company and those with whom it deals such as
customers, suppliers or other third parties, will be fully resolved
without adverse impact on the Company's operations.
