SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB/A
Amendment to Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarterly Period Ended April 30, 1998
Commission File Number 1-13851
SONUS CORP.
(Exact name of small business issuer as specified in its charter)
Alberta, Canada Not Applicable
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
111 S.W. Fifth Avenue, Suite 2390, Portland, Oregon 97204-3699
(Address of principal executive offices)
Issuer's telephone number, including area code: 503-225-9152
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X . No .
--- ---
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 5,859,917 Common Shares, without par
or nominal value, outstanding as of June 1, 1998.
Transitional Small Business Disclosure Format. Yes . No X .
--- ---
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FORWARD-LOOKING STATEMENTS
- - --------------------------
Statements in this report, to the extent they are not based on
historical events, constitute forward-looking statements. Forward-looking
statements include, without limitation, statements containing the words
"believes," "anticipates," "intends," "expects," and words of similar import.
Investors are cautioned that forward-looking statements involve known and
unknown risks, uncertainties and other factors that may cause the actual
results, performance, or achievements of Sonus Corp. (the "Company") to be
materially different from those described herein. Factors that may result in
such variance, in addition to those accompanying the forward-looking statements,
include economic trends in the Company's market areas, the ability of the
Company to manage its growth and integrate new acquisitions into its network of
hearing care clinics, development of new or improved medical or surgical
treatments for hearing loss or of technological advances in hearing instruments,
changes in the application or interpretation of applicable government laws and
regulations, the ability of the Company to complete additional acquisitions of
hearing care clinics on terms favorable to the Company, the degree of
consolidation in the hearing care industry, the Company's success in attracting
and retaining qualified audiologists and staff to operate its hearing care
clinics, product and professional liability claims brought against the Company
that exceed its insurance coverage, and the availability of and costs associated
with potential sources of financing. The Company disclaims any obligation to
update any such factors or to publicly announce the result of any revisions to
any of the forward-looking statements contained herein to reflect future events
or developments.
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
The purpose of this amendment is to file amended financial statements
to correct certain erors in the Consolidated Statement of Cash Flows filed on
June 15, 1998, with the Form 10-QSB for the quarterly period ended April 30,
1998.
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SONUS CORP.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
April 30, July 31,
1998 1997
--------------------- ---------------------
(Unaudited)
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 1,275 $ 1,099
Short-term investments 10,946 ---
Accounts receivable, net of allowance for doubtful
accounts of $112 and $44, respectively 3,381 2,514
Other receivables 338 314
Inventory 1,006 425
Prepaid expenses 1,116 260
--------------------- ---------------------
Total current assets 18,062 4,612
Property and equipment, net 3,316 2,277
Other assets 275 136
Goodwill and covenants not to compete, net 12,785 9,519
--------------------- ---------------------
$ 34,438 $ 16,544
===================== ====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank loans and short-term notes payable $ 162 $ 59
Accounts payable and accrued liabilities 3,974 3,395
Convertible notes payable 2,600 2,600
Capital lease obligation, current portion 126 101
Long term debt, current portion 1,051 357
-------------------- --------------------
Total current liabilities 7,913 6,512
Capital lease obligation, non-current portion 275 305
Long term debt, non-current 1,516 765
portion
Convertible notes payable --- 127
-------------------- --------------------
Total liabilities 9,704 7,709
Shareholders' equity:
Series A convertible preferred stock, no par
value per share, 13,333,333 and 0 shares,
respectively, authorized, issued, and outstanding 15,701 ---
Common stock, no par value per share, unlimited
number of shares authorized, 5,836,981 and 5,427,658
shares, respectively, issued and outstanding 13,243 11,131
Notes receivable from shareholders (192) (124)
Accumulated deficit (3,879) (2,117)
Treasury stock, 6,960 and 3,960 shares, respectively, at cost (58) (33)
Cumulative translation adjustment (81) (22)
-------------------- --------------------
Total shareholders' equity 24,734 8,835
-------------------- --------------------
$ 34,438 $ 16,544
==================== ====================
See accompanying notes to consolidated financial statements
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SONUS CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three months ended Nine months ended
April 30, April 30,
---------------------------------- ----------------------------------
1998 1997 1998 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net revenues $ 5,719 $ 4,355 $ 15,135 $ 8,557
Costs and expenses:
Cost of products sold 1,763 1,613 4,882 3,160
Clinical expenses 2,953 1,883 7,476 3,985
General and administrative expenses 1,432 982 3,820 2,222
Depreciation and amortization 349 193 949 462
-------------- -------------- -------------- --------------
Total costs and expenses 6,497 4,671 17,127 9,829
-------------- -------------- -------------- --------------
Loss from operations (778) (316) (1,992) (1,272)
Other income (expense):
Interest income 236 19 324 54
Interest expense (39) (7) (94) (22)
Other, net --- 14 --- 3
-------------- -------------- -------------- --------------
Net loss $ (581) $ (290) $ (1,762) $ (1,237)
============== ============== ============== ==============
Per share of common stock:
Basic and diluted $ (0.10) $ (0.06) $ (0.36) $ (0.27)
Average shares outstanding:
Basic and diluted 5,722 5,187 4,932 4,531
See accompanying notes to consolidated financial statements
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SONUS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Three months ended Nine months ended
April 30, April 30,
------------------------------------------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C> <C>
Net loss $ (581) $ (290) $ (1.762) $ (1,237)
Adjustments to reconcile net loss to net cash
provided by (used in)operating activities:
Provision for bad debt expense 50 --- 111 ---
Depreciation and amortization 349 193 950 462
Changes in non-cash working capital:
Accounts receivable 80 171 53 230
Other receivables 92 10 10 77
Inventory (276) (152) (500) (132)
Prepaid expenses (464) (73) (846) (130)
Accounts payable and accrued liabilities (852) 447 (231) 148
------------- ------------- ------------- -------------
Net cash provided by (used in) operating activities (1,601) 307 (2,215) (582)
------------- ------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments, net of sales (2,131) --- (10,945) ---
Purchase of property and equipment (260) (431) (846) (674)
Adjustment of goodwill and covenants not to compete (622) (940) (326) (443)
Deferred acquisition costs, net (58) 110 (124) 150
Net cash paid on business acquisitions (1,826) (806) (2,292) (4,874)
------------- ------------- ------------- -------------
Net cash used in investing activities (4,897) (2,067) (14,533) (5,841)
------------- ------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds (repayments) of long-term debt and capital lease obligations (304) 180 (676) (70)
Deferred financing costs, net (21) 2 (21) 42
Advances (repayments) of bank loans and
short-term notes payable 73 106 (28) 2,770
Notes receivable from shareholders (68) (56) (68) ---
Issuance of common stock for cash, net of costs 1,963 487 2,100 5,884
Issuance of preferred stock for cash, net of costs (51) --- 15,701 ---
Acquisition of treasury stock --- (22) (25) (22)
------------- ------------- ------------- -------------
Net cash provided by financing activities 1,592 697 16,983 8,604
------------- ------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents (4,906) (1,063) 235 2,181
Effect on cash and cash equivalents of changes
in foreign translation rate 31 (100) (59) (28)
Cash and cash equivalents, beginning of period 6,150 3,327 1,099 11
------------- ------------- ------------- -------------
Cash and cash equivalents, end of period $ 1,275 $ 2,164 $ 1,275 $ 2,164
============= ============= ============= =============
Supplemental disclosure of non-cash investing and financing activities:
Interest paid during the period $ 39 $ 7 $ 94 $ 22
Non-cash financing activities:
Issuance and assumption of long-term debt in acquisitions $ 1,866 $ 26 $ 2,076 $ 349
Issuance of convertible notes in acquisitions $ --- $ --- $ --- $ 2,960
Issuance of common stock in acquisitions $ --- $ --- $ --- $ 2,494
Conversion of convertible note to common stock $ --- $ --- $ (127) $ ---
Issuance of common stock upon conversion of convertible note $ --- $ --- $ 127 $ ---
See accompanying notes to consolidated financial statements
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SONUS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Interim Financial Statements
The interim financial statements reflect all adjustments, consisting
only of normal recurring adjustments which are, in the opinion of management,
necessary for a fair statement of the results for the interim periods presented.
The results of operations for an interim period are not necessarily indicative
of the results of operations for a full year. Certain amounts in the financial
statements for the three and nine month periods ended April 30, 1997, have been
reclassified in order to conform to the presentation for the three and nine
month periods ended April 30, 1998. Effective February 9, 1998, the Company
effected a one-for-five reverse stock split of the Common Shares of the Company.
All share and per share information appearing in the accompanying financial
statements has been restated to give effect to the reverse stock split.
2. Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share." SFAS No. 128 supersedes APB Opinion No. 15, "Earnings Per Share" and
specifies the computation, presentation, and disclosure requirements for
earnings per share ("EPS") for entities with publicly held common shares or
potential common shares. It replaces the presentation of primary EPS with a
presentation of basic EPS and fully diluted EPS with diluted EPS. Basic EPS,
unlike primary EPS, excludes dilution and is computed by dividing income
available to common shareholders by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common shares were
exercised or converted into common shares or resulted in the issuance of common
shares that would then share in the earnings of the entity. Diluted EPS is
computed similarly to fully diluted EPS under APB Opinion No. 15. All prior
period EPS data have been restated to conform with SFAS No. 128. Common share
equivalents represented by convertible debt and convertible preferred stock have
not been included in the calculation of earnings per share as the effect would
be anti-dilutive.
3. Release of Shares from Escrow
Effective with the listing of the Company's common shares on the
American Stock Exchange on February 10, 1998, 850,000 common shares owned by
certain members of the Company's management were released from escrow by The
Alberta Stock Exchange. The shares, which had previously been excluded from the
calculation of the average shares outstanding during a period, are included in
such calculation for the three and nine month periods ended April 30, 1998.
4. Contingent Shares
In connection with one of the Company's recent acquisitions, the
Company has issued and is holding subject to cancellation, 22,936 common shares.
One third of the shares will be
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delivered each year if certain annual net revenue targets are met. In accordance
with APB 16, such shares have not been included in the number of shares issued
and outstanding at April 30, 1998.
5. Change in Depreciation Method and Estimates of Useful Life
On November 1, 1997, the Company changed the method by which it
calculates depreciation on property and equipment to the straight-line method.
Previously, professional equipment was depreciated using the 20% declining
balance method and office and computer equipment and automobiles were
depreciated using the 30% declining balance method. The Company also adopted a
useful life of seven years for professional equipment and five years for office
equipment and automobiles. The cumulative effect of the changes adopted by the
Company for the six-month period ended April 30, 1998, were immaterial.
6. Acquisitions
During the nine months ended April 30, 1998, the Company acquired 20
clinics in 10 transactions for a total purchase price of $3,918,000. The total
purchase price consisted of cash payments of $2,232,000, promissory notes issued
by the Company of $1,173,000 payable over three years, and $513,000 in assumed
liabilities. In addition, $290,000 will be paid and 22,936 shares of common
stock will be issued over a three-year period if certain annual net revenue
targets are met. As a result of the acquisitions, the Company recorded
$1,031,000 in accounts receivable, $765,000 in inventory, property and
equipment, $13,000 in other assets, $850,000 in current liabilities and
$2,959,000 in goodwill. The Company also recorded $502,000 for covenants not to
compete, of which $157,000 was paid in cash at the time of closing, with the
balance payable over three years.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
Three Months Ended April 30, 1998 Compared to Three Months Ended April 30, 1997
Revenues. Total revenues for the three months ended April 30, 1998,
were $5,719,000, representing a 31% increase over revenues of $4,355,000 for the
comparable period in fiscal 1997. The increase was primarily attributable to the
17 additional clinics that were owned by the Company during the three months
ended April 30, 1998, but not during the comparable period of the prior fiscal
year. Partially offsetting the additional clinics, adverse weather conditions in
California had a noticeable negative effect on revenues during February 1998.
Product revenues were $4,627,000 for the three months ended April 30, 1998, up
26% from $3,680,000 for the same period in 1997. Audiological service revenues
of $980,000 represented 17% of total revenues for the three months ended April
30, 1998, as compared to $669,000 or 15% of total revenues for the comparable
period in fiscal 1997.
Gross Profit. Gross profit for the three months ended April 30, 1998,
was $3,956,000 or 69% of revenues, compared to $2,742,000 or 63% of revenues for
the comparable period in fiscal 1997. The increase in gross profit percentage
was due to higher volume purchase discounts,
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improved product sales management, and an increase in the percentage of total
revenues derived from the Company's operations in the United States, where gross
profit percentages are higher than those for the Company's operations in Canada.
Clinical Expenses. Clinical expenses include all personnel, marketing,
occupancy and other operating expenses at the clinic level. Clinical expenses
for the three months ended April 30, 1998, were $2,953,000, representing an
increase of 57% over clinical expenses of $1,883,000 for the comparable period
in fiscal 1997. This increase was primarily due to clinical expenses associated
with the 17 additional clinics that were owned by the Company during the three
months ended April 30, 1998, but not during the three-month period ended April
30, 1997, and increased marketing expenses designed to increase brand awareness
of the Company within the hearing health industry.
General and Administrative Expenses. General and administrative
expenses increased 46% from $982,000 for the three months ended April 30, 1997,
to $1,432,000 for the three months ended April 30, 1998, due to planned
increases in corporate staff and other corporate expenses related to the
operation of a larger organization. As a percentage of revenues, general and
administrative expenses rose to 25% for the three-month period ended April 30,
1998, versus 23% for the same period in the prior fiscal year. Management
anticipates that general and administrative expenses will decrease as a
percentage of revenues as the Company establishes a larger revenue base through
its strategic acquisition program and enhanced marketing efforts.
Depreciation and Amortization Expense. Depreciation and amortization
expense for the three months ended April 30, 1998, was $349,000, an increase of
81% over the depreciation and amortization expense of $193,000 for the same
period in the prior fiscal year. The increase resulted from the depreciation of
fixed assets and amortization of goodwill and covenants not to compete
associated with the 17 additional clinics operated by the Company during the
three-month period ended April 30, 1998.
Interest Income and Expense. Interest income for the three months ended
April 30, 1998, increased to $236,000 from $19,000 for the same period in the
prior fiscal year. The increase was due to higher balances of cash and
short-term investments held by the Company as a result of the sale of preferred
stock in December 1997. Interest expense for the three months ended April 30,
1997, was $39,000 compared to $7,000 for the three months ended April 30, 1997.
Nine Months Ended April 30, 1998 Compared to Nine Months Ended April 30, 1997
Revenues. Total revenues for the nine months ended April 30, 1998, were
$15,135,000, representing a 77% increase over revenues of $8,557,000 for the
comparable period in fiscal 1997. The increase was primarily attributable to the
59 clinics acquired by the Company since October 1, 1996. Product revenues were
$12,491,000 for the nine months ended April 30, 1998, up 69% from $7,384,000 for
the same period in 1997. Audiological service revenues of $2,434,000 represented
16% of total revenues for the nine months ended April 30, 1998, as compared to
$1,164,000 or 14% of total revenues for the comparable period in 1997. This
increase is due to the fact that substantially all of the clinics acquired in
the United States separately charge for the performance of audiological services
when a hearing instrument is purchased. A proportion of the revenue base in the
nine-month period ended April 30, 1997, was attributable to the Company's
Canadian clinics where the policy was to waive the fee for audiological services
if a hearing instrument was purchased.
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Gross Profit. Gross profit for the nine months ended April 30, 1998,
was $10,253,000 or 68% of revenues, compared to $5,397,000 or 63% of revenues
for the comparable period in fiscal 1997. The increase in gross profit
percentage was primarily due to higher volume discounts, improved product sales
management, and a decrease in the percentage of total revenues derived from the
Company's operations in Canada, where gross profit percentages are lower than
those for the Company's United States operations.
Clinical Expenses. Clinical expenses for the nine months ended April
30, 1998, were $7,476,000 representing an increase of 88% over clinical expenses
of $3,985,000 for the comparable period in fiscal 1997. This increase was
attributable to the 59 additional clinics acquired by the Company since October
1, 1996.
General and Administrative Expenses. General and administrative
expenses increased 72% from $2,222,000 for the nine months ended April 30, 1997,
to $3,820,000 for the nine months ended April 30, 1998, due to planned increases
in corporate staff and other corporate expenses related to the operation of a
larger organization. As a percentage of revenues, general and administrative
expenses decreased to 25% for the nine-month period ended April 30, 1998, from
26% for the same period in the prior fiscal year. Management anticipates that
general and administrative expenses will continue to decrease as a percentage of
revenues as the Company establishes a larger revenue base through its strategic
acquisition program and enhanced marketing efforts.
Depreciation and Amortization Expense. Depreciation and amortization
expense for the nine months ended April 30, 1998, was $949,000, an increase of
105% over the depreciation and amortization expense of $462,000 for the same
period in the prior fiscal year. The increase resulted from the depreciation of
fixed assets and amortization of goodwill and covenants not to compete
associated with 57 additional clinics operated by the Company during the
nine-month period ended April 30, 1998.
Interest Income and Expense. Interest income for the nine months ended
April 30, 1998, increased to $324,000 from $54,000 for the same period in the
prior fiscal year. The increase was due to higher balances of cash and
short-term investments held by the Company as a result of the sale of preferred
stock in December 1997. Interest expense for the nine months ended April 30,
1998, was $94,000 compared to $22,000 for the nine months ended April 30, 1997.
LIQUIDITY AND CASH RESERVES
Sonus-Canada Ltd., the Company's Canadian operating subsidiary, has a
revolving demand loan with a commercial bank. As of April 30, 1998, $58,000 was
outstanding against this line. Advances under the line of credit bear interest
at 1% above the bank's prime rate and are secured by all the assets of
Sonus-Canada Ltd. The Company recently negotiated an increase in the amount of
borrowings allowed under the line of credit from $175,000 to $210,000.
The Company's operating subsidiary in the United States, Sonus-USA,
Inc. (`Sonus-USA"), has a $500,000 line of credit from a hearing instrument
manufacturer, none of which was outstanding at April 30, 1998. The line of
credit is secured by a portion of Sonus-USA's accounts receivable, is guaranteed
by the Company and bears interest at the prime rate on a fully floating
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basis. Debt service is interest only payable monthly until July 16, 1998, when
all amounts outstanding under the line of credit will be due.
At April 30, 1998, the Company had working capital of $10,149,000,
including cash and short-term investments totaling $12,221,000. The Company
believes that its cash and short-term investments, along with cash generated
from operations, will provide it with sufficient capital to fund its operations
and planned acquisitions over the next 12 months.
For the nine months ended April 30, 1998, net cash used in operating
activities was $2,215,000 compared to $582,000 for the same period of fiscal
1997. The Company invested cash of $2,292,000 in acquisitions of hearing care
clinics for the nine months ended April 30, 1998, compared to $4,874,000 for the
nine months ended April 30, 1997. For the nine months ended April 30, 1998, the
company invested cash in the acquisition of property and equipment of $846,000,
compared to $674,000 for the nine months ended April 30, 1997. The Company
received cash, net of costs, of $2,100,000 for the issuance of common stock and
$15,701,000 for the issuance of preferred stock during the nine months ended
April 30, 1998.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SONUS CORP.
By: /s/ Brian S. Thompson
---------------------
Brian S. Thompson
Secretary
DATED: June 16, 1998
