Form 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURTIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2000
------------------
(_) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to ________________
Commission File Number N/A .
NOSTRAD TELECOMMUNICATIONS INC.
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Nevada 88-0306460
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State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization
420 - 171 West Esplanade
North Vancouver, British Columbia, Canada V7M 3J9
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (604) 983-8778
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 No X
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of November 14, 2000:
Common Stock, no par value 12,730,600
-------------------------- ----------------
Class Number of shares
<PAGE>
NOSTRAD TELECOMMUNICATIONS INC.
INDEX
PART I Financial Information Page No.
--------------------- --------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
September 30, 2000 and December 31, 1999 3
Condensed Consolidated Statements of Operations
Nine Months and Quarters ended September 30, 2000 & 1999 4
Condensed Consolidated Statement of Shareholders Equity
For the Nine months ended September 30, 2000 5
Condensed Consolidated Statement of Cash Flows
Nine Months and Quarters ended September 30, 2000 & 1999 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management Discussion and Analysis of Results of
Operations and Financial Condition 8-11
2
<PAGE>
Condensed Consolidated Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
<TABLE>
<CAPTION>
Assets September 30, December 31,
2000 1999
(unaudited)
-----------------------------------------------
<S> <C> <C>
Current Assets
Cash $ 10,533 $ 8,251
Trade receivables 283,844 139,023
Inventory 69,277 63,948
Deposits & prepaid expenses 28,626 38,888
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392,280 250,110
Licenses and Development Costs (note 2)
Licenses, net 1,823,851 2,230,337
Deferred development costs 49,642 25,057
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1,873,493 2,255,394
Fixed Assets
Fixed Assets 533,402 564,174
less Accumulated Depreciation (372,525) (274,021)
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160,877 290,153
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$ 2,426,650 $ 2,795,657
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Liabilities
Current Liabilities
Accounts payable $ 819,822 $ 1,019,836
Shareholder loans 265,252 600,800
Other 512,536 405,503
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1,597,611 2,026,139
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Commitments
Shareholders' Equity
Share Capital
Authorized
25,000,000 common shares, par value $0.001
Issued & outstanding - 12,200,000 common shares (11,100,000 12,200 11,100
common shares at December 30, 1999)
Additional Paid-in Capital 4,713,295 3,723,395
Subscriptions received 1,048,600 250,000
Accumulated Deficit (4,945,056) (3,215,077)
-----------------------------------------------
829,039 769,518
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$ 2,426,650 $ 2,795,657
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</TABLE>
The notes to unaudited condensed consolidated financial statements are an
integral part thereof
3
<PAGE>
Condensed Consolidated Financial Statements
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Nine months Nine months Quarter Quarter
Ended Ended ended ended
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues
Sales & Service Revenues $ 231,227 $ 39,805 $ 43,341 $ (11,758)
----------------------------------------------------------------------------------------------------------------------------------
Cost of Sales
Materials 72,575 71,403 11,936 58,921
Direct Marketing 339 18,776 - - 8,662
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72,914 90,179 11,936 67,583
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Gross Profit 158,313 (50,374) 31,405 (79,341)
Expenses
Professional costs 724,773 285,746 467,801 81,879
Depreciation & amortization 519,011 120,982 147,642 54,896
Office and administration 301,449 155,039 80,064 (30,050)
Loss of foreign exchange 128,308 - - 90,721 - -
Salary and benefits 87,317 168,760 25,829 58,582
Travel 57,770 74,637 15,976 23,532
Communication costs 33,359 42,715 8,442 22,315
Investor relations 36,458 12,908 15,757 6,370
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1,888,445 860,787 852,232 217,524
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Operating Loss (1,730,132) (911,161) (821,827) (296,865)
Other
Interest income 152 - - 62 - -
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Net loss $(1,729,980) $ (911,161) $ (820,765) $ (296,865)
----------------------------------------------------------------------------------------------------------------------------------
Average Number of outstanding 11,320,668 9,974,725 11,925,275 10,121,739
shares
----------------------------------------------------------------------------------------------------------------------------------
Net (loss) per share $ (0.153) $ (0.091) $ (0.069) $ (0.029)
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The notes to unaudited condensed consolidated financial statements are an
integral part thereof
4
<PAGE>
Condensed Consolidated Financial Statements
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
September 30, 2000
Subscribed Common Stock Additional Income (loss)/
------------------------- ------------------------ Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit Total
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Common stock
split after
January 1, 1997 - - $ - - 3,000,000 $ 3,000 $ - - $ - - $ 3,000
Share
Subscriptions 461,538 300,000 - - - - - - - - 300,000
Reverse
Acquisition by
Nostrad - - - - 3,700,000 3,700 367,640 - - 371,340
Net loss - 1997 - - - - - - - - - - (326,600) (326,600)
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Balance
December 31,
1997 461,538 300,000 6,700,000 6,700 367,640 (326,600) 347,740
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Private Placement,
net of
Subcriptions (461,538) (300,000) 1,500,000 1,500 973,500 - - 675,000
Finders Fees - - - - - - - - (19,745) - - (19,745)
Shares issued
for Licenses - - - - 1,700,000 1,700 1,103,300 - - 1,105,000
Net loss - 1998 - - - - - - - - - - (1,034,610) (1,034,610)
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Balance
December 31,
1998 - - - - 9,900,000 9,900 2,424,695 (1,361,210) 1,073,385
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Shares issued
for Licenses - - - - 1,300,000 1,300 1,298,700 - - 1,300,000
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Subscription
received - - 250,000 - - - - - - - - 250,000
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Net loss - 1999 - - - - - - - - - - (1,853,866) (1,853,866)
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Balance,
December 31,
1999 250,000 250, 000 11,200,000 11,200 3,723,395 (3,215,076) 769,519
-----------------------------------------------------------------------------------------------------------------------
Shares issued
for cash (250,000) - - 1,000,000 1,000 999,000 - - 1,000,000
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Subscription
received (net) 1,390,600 809,600 - - - - - - - - 809,600
-----------------------------------------------------------------------------------------------------------------------
Finders Fees - - (11,000) - - - - (9,100) - - (20,100)
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Net loss -
September 30,
2000 - - - - - - - - - - (1,729,980) (1,729,980)
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Balance,
September 30,
2000 1,390,600 1,048,600 12,200,000 12,200 4,713,295 (4,945,056) 829,039
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
The notes to the unaudited condensed consolidated financial statements are an
integral part thereof
5
<PAGE>
Condensed Consolidated Financial Statements
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine months Nine months Quarter Quarter
Ended Ended ended ended
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) for period $(1,729,980) $(911,161) $(820,765) $(296,865)
Add expense items not involving cash
Development cost writedown - - - - - - - -
Depreciation 519,011 120,982 147,642 54,896
---------------------------------------------------------------------------------------------------------------------------------
(1,210,969) (790,179) (673,123) (241,969)
Add changes in non-cash working capital
items:
Accounts receivable (144,821) (64,419) 2,618 (11,968)
Inventory (5,329) 2,172 500 1,486
Deposits & prepaids 10,264 (9,086) 383 (3,378)
Accounts Payable (92,981) 814,759 (211,583) 285,535
---------------------------------------------------------------------------------------------------------------------------------
Net funds (used) by operating activities (1,443,836) (46,753) (881,205) 29,706
INVESTING ACTIVITIES
Licenses & deferred development costs - - 2,852 - - (3,687)
Fixed asset purchases (7,834) (63,646) (5,732) 3,227
---------------------------------------------------------------------------------------------------------------------------------
Net funds (used) by investing activities (7,834) (5,731) (5,732) (460)
FINANCING ACTIVITIES
Shares issued for cash, net 990,900 - - - - - -
Share subsciptions 798,600 989,100
Shareholder loans (335,548) 94,744 (92,500) (18,000)
---------------------------------------------------------------------------------------------------------------------------------
Net funds provided by financing activities 1,453,952 94,744 896,600 (18,000)
---------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH 2,282 (12,803) 9,663 11,246
Cash at beginning of period 8,251 74,366 870 51,317
---------------------------------------------------------------------------------------------------------------------------------
CASH AT END OF PERIOD $ 10,533 $ 61,563 $ 10,533 $ 61,563
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The notes to condensed consolidated financial statements are an integral part
thereof
<TABLE>
<CAPTION>
Supplemental information:
<S> <C> <C> <C> <C>
Interest paid $ - - $ - - $ - - $ - -
------------------- ------------------- ------------------- -------------------
Taxes paid $ - - $ - - $ - - $ - -
------------------- ------------------- ------------------- -------------------
Shares issued for licenses $ - - $ 1,300,000 $ - - $ 1,300,000
------------------- ------------------- ------------------- -------------------
</TABLE>
6
<PAGE>
Condensed Consolidated Financial Statements
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2000
1. INTERIM FINANCIAL STATEMENTS
The results of operations for the interim period shown in this report are
not necessarily indicative of results to be expected for the fiscal year.
In the opinion of management, the information contained herein reflects all
adjustments necessary to make the results of operations for the interim
period a fair statement of such operations. All such adjustments are of a
normal recurring nature.
2. CONTINUING OPERATIONS
Nostrad Telecommunications Inc. ("Nostrad" or the "Company") was
incorporated in Nevada on September 24, 1993. On September 29, 1997, the
Company's name was changed from Cave Productions, Inc. to Nostrad. The
Company is in the business of providing Pay TV and other services. In order
to provide these services the Company requires special licenses in the
countries it operates.
In order to develop the licenses held by the Company, the Company must
continue to raise funds. The Company has been heavily reliant upon its
major shareholder, Nostrad Singapore to continue to fund the Company's
growth.
These financial statements have been prepared on the going concern basis,
which assumes the realization of assets and liquidation of liabilities in
the normal course of business. The application of the going concern concept
is dependent upon the ability of the Company to raise additional financing
and attain future profitable operations.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These financial statements have been prepared in accordance with United
States generally accepted accounting principles
a) The accompanying consolidated financial statements include the
accounts of the Company and of acquired subsidiary companies: Nostrad
Media Pte. Ltd. (100% owned), Mongolia Home Vision Corporation HH (80%
owned by Nostrad Media Pte. Ltd.), OmniVision Africa Ltd. (100%
owned), OmniVision (U) Ltd. (100% owned by OmniVision Africa Ltd.),
OmniVision (Ghana) Ltd. (80% owned by OmniVision Africa Ltd.),
OmniVision (Tanzania) Ltd. (80% owned by OmniVision Africa Ltd. and
OmniVision (Maroc) Ltd. (65% owned by OmniVision Africa Ltd.). All
significant inter-company accounts and transactions have been
eliminated in consolidation.
b) The Company capitalizes the costs related to obtaining rights to
provide paging, cable television, telephone, and Internet services in
specific countries, and for the rights to broadcast specific channels.
Costs incurred are initially capitalized as Deferred Development
Costs. If after a twelve-month period, rights have not been fully
obtained, the Deferred Development Costs will be expensed. There is no
assurance that revenues exceeding these costs will be realized by the
Company.
7
<PAGE>
NOSTRAD TELECOMMUNICATIONS INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Results of operations
The Company is a development stage telecommunications company. Expenditures
to-date have been primarily focused on purchasing capital equipment, and for
general overhead in the Company's four international offices. Nostrad commenced
paging operations in Mongolia during 1998, and commenced providing DTH
subscription services in Morocco during 1999. The Company's primary focus for
the last three years has been and continues to be MMDS Subscription TV services
and is currently licensed in Kampala, Uganda; and in Dar es Salaam, Tanzania.
The Company is authorized to distribute DTH subscriber Pay-TV in Morocco. The
Company plans to implement the MMDS licenses as soon as possible and is also
endeavoring to obtain additional MMDS licenses in areas with great potential for
Subscription TV.
Nine months ended September 30, 2000 compared to the nine months ended September
30, 1999
During Fiscal -2000 to date, the Company:
1. In July 2000, the Company announced that it had been selected to
manage Arabia Radio and Television ("ART") for Morocco. ART currently
has over 4,000 subscribers in Morocco, offering 10 channels.
2. Continued providing direct to home ("DTH") television service in
Morocco which commenced in October 1999.
3. Delayed launch of MMDS operations in Kampala, Uganda and Dar es
Salaam, Tanzania.
4. Completed a private placement o October 25, 2000 of $530,600 by
issuing 530,600 shares and 530,600 share purchase warrants. Each share
purchase warrant entitles the holder to purchase one share for $1.50
during the first year and $2.00 during the second year.
5. Issued 660,000 under the Company's stock option plan for $429,000.
6. Commenced private placement offering of 2,000,000 cash less warrants
to raise $1,000,000. The warrants expire December 31, 2000.
The Company continues to distribute "Showtime" programming package, a DTH
service. Showtime is a Viacom Inc. company headquartered in Dubai, UAE and
uplinks 14 specialty Pay-TV channels and 25 free to air channels. The Company is
attempting to secure exclusive licenses for MMDS in Morocco, Egypt, Indonesia,
Croatia, and the Ivory Coast. The Company is currently in negotiations in
Pakistan to provide Subscriber Management, Programming, Operation and Technical
Management for the country's exclusive MMDS operator. During Fiscal 2000 to date
there was a material change in the Company's sales and gross profit as outlined
as follows:
<TABLE>
<CAPTION>
------------------------------------- -------------------- ------------------ ------------------- -------------------
YTD 2000 Q3-2000 YTD 1999 Q3-2000
------------------------------------- -------------------- ------------------ ------------------- -------------------
<S> <C> <C> <C> <C>
Pager sales revenues $ 1,000 $ - - $ 4,000 $ - -
Pager service revenue 1,000 1,000 22,000 5,000
DTH sales 10,000 5,000 7,000 - -
DTH Services 219,000 37,000 7,000 (17,000)
-------------------- ----------------- ------------------- --------------------
231,000 43,000 40,000 (12,000)
-------------------- ----------------- ------------------- --------------------
Cost of Pager Sales 1,000 - - 3,000 1,000
Cost of Pager Services - - - - 1,000 - -
Cost of DTH Sales 2,000 1,000 6,000 3,000
Cost of DTH Services 70,000 11,000 80,000 63,000
-------------------- ----------------- ------------------- --------------------
73,000 12,000 90,000 67,000
-------------------- ----------------- ------------------- --------------------
Gross Profit $ 158,000 $ 31,000 $ (50,000) $ (79,000)
------------------------------------- -------------------- ----------------- ------------------- --------------------
</TABLE>
8
<PAGE>
Since starting up in late 1998, paging operations in Mongolia competed against
inexpensive mobile telephone "receive only" services. Consequently, the Company
upon experiencing low pager sales, is in the process of shutting down its
Mongolia paging operations.
DTH sales on the other hand has gown to over 350 plus 3 hotels. Consequently
service fees rose to over to over $37,000 during Q3 - 2000. DTH fees rose to
over $219,000 during YTD 2000.
During YE 2000 to date, general and administration expenses, net of
depreciation, were
-------------------------------------------- ------------------ ----------------
2000 1999
-------------------------------------------- ------------------ ----------------
Mongolia
General and administration $ 18,000 $ 38,000
Amortization 28,000 52,000
North American Head Office
General and administration 929,000 561,000
Amortization 410,000 - -
Singapore Office
General and administration 57,000 62,000
Amortization 1,000 21,000
Kampala Office
General and administration 116,000 170,000
Amortization 76,000 45,000
Morocco Office
General and administration 253,000 30,000
Amortization 4,000 3,000
Total General and administration $ 1,373,000 $ 861,000
Total Amortization $ 519,000 $ 121,000
-------------------------------------------- ------------------ ----------------
During YE 2000 to date, general and administration costs, net of depreciation
were $1,779,000 as compared to $861,000 during YE 1999. The main cause was
increased consulting fees in the North American head office to $626,000 paid to
assist in the provision of investor relations for the Company as compared to
$216,000 during YE 1999. Furthermore, due to start up costs in Morocco, cost
there increased by $223,000 over YE 1999.
Nine months ended September 30, 1999 compared to the nine months ended September
30, 1998
During Fiscal-99 the Company:
1. Commenced providing direct to home ("DTH") television service in Morocco.
2. Completed the main antenna atop the largest building in Dar es Salaam.
Commenced leasehold improvements required
3. Completed engineering and systems design for Tanzania and Ghana and plans
to launch Pay TV services there in 1st Quarter 2000.
4. Due to the slowdown of the Asian markets and unresolved programming
copyright issues, facilitation of the Subscription TV roll out in Mongolia
has been indefinitely delayed.
The Company entered into an agreement to distribute "Showtime" programming
package, a Direct to Home (DTH) service. Showtime is a Viacom Company
headquartered in Dubai, UAE and uplinks 12 specialty Pay-TV channels and 25 Free
to Air channels. The Company is also in the process of securing exclusive
licenses for MMDS frequencies in the Ivory Coast, Morocco, Tunisia, Bangladesh
and Indonesia. In Pakistan NOSTRAD is in the final stages of negotiations to
acquire equity and to provide Subscriber Management, Programming, Operational
and Technical Management for the country's exclusive MMDS operator. It is
planned to utilize and expand on the transmission equipment, the current viewing
base (estimated to be around 600,000 households), and the frequency spectrum of
the current operation. NOSTRAD intends to upgrade the current head-end to
receive digitally encrypted signals and to re-encrypt the signal for the
terrestrial re-broadcast of the Subscription TV service. In addition, NOSTRAD
will implement a
9
<PAGE>
complete operational plan, including installation of a subscriber management
system and marketing strategy, as well as acquisition of programming for the
network.
During Fiscal-99, General and administration expenses, net of depreciation and
foreign exchange were $740,000 as compared to $330,000 during Fiscal - 98. The
cause of this increase is due to the opening of the Kampala and Casablanca
offices and increased administration activities.
Liquidity and Capital Resources
As at September 30, 2000, the Company's working capital was a $1,290000
deficiency, as compared to working capital deficiency of $1,275,000 as at
September 30, 1999. The Company has no other long-term liabilities. Additional
working capital is expected to be raised by way private placement and further
borrowings from its majority shareholder.
Plan of Operation
Projects
o The Morocco DTH project. The Company has commenced providing and
marketing ShowTime's DTH services in October 1999. As of September 30,
2000 the Company has 350 individual subscriber, and 3 Hotel's (with
combined total of 780 rooms).
o The Uganda Pay TV project. Although it was anticipated that the
Company would be able to roll out the Pay TV project in the last half
of the year 2000. In order to accomplish this the Company will require
an additional $800,000 to cover inventory, marketing, additional
equipment and other startup costs. Subject to receiving financing, the
Company anticipates that the equipment will arrive in Kampala by Q4
2000. The Company has completed the construction of the head-end and
entered into a long term lease of tower space on Kololo Hill.
o The Tanzania Pay TV project. The Company has decided to commence roll
out of Pay TV in Dar es Salaam at approximately the same time as
Uganda. In order to accomplish this the Company will require an
additional $1,000,000. The Company plans to co-locate its transmission
facilities with its local partner, Central Television Network (CTN),
which operates one of the local free to air Television stations.
Risks
The Company, to date, has obtained licenses to provide PAY-TV in areas where
over 3,400,000 TV households will be passed by the Company's signals. The
Company must now commence a marketing program and sell its receivers and
subscription to the TV households. If all or parts of the target markets are to
be rolled out, the Company must raise approximately $5.0 million. In other
words, the Company is at the development stage of its operations and, as such,
is uncertain of the risks, which may impact on its financial operations in the
future. If the Company is unable to raise the required funds, the Company may be
in default of the frequency licensing agreement(s) and be at risk of losing the
said license(s). The risks, which will have to be addressed by the Company, may
include the intensely competitive nature of the telecommunications industry,
fluctuating currency markets, laws relating to repatriation of profits,
taxation, political stability, and expropriation and insurrection. Management of
the Company tries to minimize the above risks through careful due diligence at
the investment decision stage, both with respect to the technical merits and
economic prospects of ventures in which the Company is considering
participation, and with respect to the incipient political risks associated with
investment within a particular country or region.
Statements in this report that may not be historical facts and that may be
forward-looking statements are subject to a variety of risks and uncertainties.
There are a number of important factors that could cause actual results to
differ materially from those expressed in any forward-
10
<PAGE>
looking statements made by the Company. These factors include, but are not
limited to: (i) the nature of the Pay TV markets, specifically obtaining
suitable programming at a reasonable cost, (ii) the ability of the Company to
raise capital for projects within the context of overall telecommunication
capital market dynamics, (iii) the establishment of a sustainable subscriber
base to the point of economic viability, (iv) the viability of Pay TV projects
based on imperfect demographic analysis, (v) regulatory changes impacting on the
nature, scope and content of projects and operations, throughout the Company's
areas of operations, (vi) other factors detailed from time to time in the
Company's filings with the United States Securities and Exchange Commission, and
(vii) or any other factors.
Political Risk
In order to mitigate the political risk in the Company's target markets, the
company has arranged for political risk insurance provided through Lloyd's of
London, based on a variable valuation of the operating companies in the nations
concerned.
11
