Form 10-QSB
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 June 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 0-27973
NOSTRAD TELECOMMUNICATIONS INC.
(Exact name of registrant as specified in its charter)
Nevada 88-0306460
State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization
420 - 171 West Esplanade
North Vancouver, British Columbia, Canada V7M 3J9
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (604) 983-8778
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 August 14, 2000
Common Stock, no par value 12,200,000
Class Number of shares
NOSTRAD TELECOMMUNICATIONS INC.
INDEX
PART I Financial Information Page No.
--------------------- --------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
June 30, 2000 & 1999 and December 31, 1999 3
Condensed Consolidated Statements of Operations
Three and Six Months ended June 30, 2000 & 1999 4
Condensed Consolidated Statement of Shareholders Equity
For the Six months ended June 30, 2000 5
Condensed Consolidated Statement of Cash Flows
Three and Six Months ended June 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
Condensed Consolidated Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
- --------------------------------------------------------------------------------
Assets June 30, December 31, June 30,
2000 1999 1999
(unaudited) (audited) (unaudited)
--------------------------------------------------
Current Assets
Cash $ 869 $ 8,251 $ 50,317
Trade receivables 286,462 139,023 86,672
Inventory 69,277 63,948 107,427
Deposits & prepaid expenses 29,008 38,888 37,828
- -----------------------------------------------------------------------------------
385,616 250,110 282,244
Licenses and Development Costs (note 2)
Licenses, net 1,959,283 2,230,337 1,189,044
Deferred development costs 49,642 25,057 401,006
- ------------------------------------------------------------------------------------
2,008,925 2,255,394 1,590,050
Fixed Assets
Fixed Assets 528,464 564,175 515,405
less Accumulated Depreciation (360,795) (274,021) (196,067)
- ------------------------------------------------------------------------------------
167,669 290,154 319,338
- ------------------------------------------------------------------------------------
$ 2,562,210 $ 2,795,658 $ 2,191,632
====================================================================================
Liabilities
Current Liabilities
Accounts payable $ 1,175,211 $ 1,019,836 $ 775,065
Shareholder loans 357,752 600,800 694,593
Due to related parties 368,730 405,503 147,563
- ------------------------------------------------------------------------------------
1,901,693 2,026,139 1,617,221
- ------------------------------------------------------------------------------------
Commitments
Shareholders' Equity
Share Capital
Authorized
25,000,000 common shares,
par value $0.001
Issued & outstanding -
11,200,000 common
shares (9,900,000 common
shares at
June 30, 1999) 12,200 11,200 9,900
Additional Paid-in Capital 4,713,295 3,723,395 2,424,695
Subscriptions received 59,500 250,000
Accumulated Deficit (4,124,478) (3,215,076) (1,860,184)
- ----------------------------------------------------------------------------------
660,517 769,519 574,411
- ----------------------------------------------------------------------------------
$ 2,562,210 $ 2,795,658 $ 2,191,632
====================================================================================
The notes to unaudited condensed consolidated financial statements are an
integral part thereof
3
Condensed Consolidated Financial Statements
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
- --------------------------------------------------------------------------------
Six Months Six Months Quarter Quarter
ended ended ended ended
June 30 June 30 June 30 June 30
2000 1999 2000 1999
------------ ------------ ------------ ------------
Revenues
Sales Revenues $ 5,737 $ 19,617 $ 173 $ 9,900
Service Revenues 182,237 31,951 43,484 20,535
- -----------------------------------------------------------------------------------------------------
187,974 51,568 43,657 30,535
- -----------------------------------------------------------------------------------------------------
Cost of Sales
Cost of Sales 2,028 9,582 -- (41,515)
Cost of Services 58,611 2,900 12,089 --
Direct Marketing 343 10,114 99 41
- -----------------------------------------------------------------------------------------------------
60,982 22,596 12,188 (41,474)
- -----------------------------------------------------------------------------------------------------
Gross Profit 126,992 28,972 31,469 72,009
Expenses
Professional costs 256,972 203,868 137,246 112,798
Office and administration 494,436 185,089 322,201 115,848
Travel 41,794 51,105 23,394 6,327
Depreciation & amortization 98,318 66,086 (84,892) 16,763
Salary and benefits 61,615 110,179 24,349 64,777
Communication costs 24,970 20,400 11,789 7,460
Investor relations 20,701 6,538 14,174 6,177
Foreign exchange less (gain) 37,588 (50,533) (2,640) 5,853
- -----------------------------------------------------------------------------------------------------
1,036,394 592,732 445,621 336,002
- -----------------------------------------------------------------------------------------------------
Net loss (comprehensive) $ (909,402) $ (563,760) $ (414,152) $ (263,993)
=====================================================================================================
Average Number of outstanding
Shares 11,320,658 9,900,000 11,925,275 9,900,000
- -----------------------------------------------------------------------------------------------------
Net (loss) per share $ (0.08) $ (0.06) $ (0.03) $ (0.03)
=====================================================================================================
The notes to unaudited condensed consolidated financial statements are an
integral part thereof
4
Condensed Consolidated Financial Statements
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
- --------------------------------------------------------------------------------
June 30, 2000
Comprehensive
Subscribed Common Stock Additional Income(loss)/
----------------------- -------------------- Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit Total
- -----------------------------------------------------------------------------------------------------------------------------------
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)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance
December 31, 1997 461,538 300,000 6,700,000 6,700 367,640 (326,600) 347,740
- -----------------------------------------------------------------------------------------------------------------------------------
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 1,123,300 -- 1,105,000
Net loss - 1998 -- -- -- -- -- (1,034,610) (1,034,610)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance
December 31, 1998 -- -- 9,900,000 9,900 2,424,695 (1,361,210) 1,073,385
- -----------------------------------------------------------------------------------------------------------------------------------
Shares issued for
Licenses -- -- 1,300,000 1,300 1,298,700 -- 1,300,000
Subscription
received 250,000 250,000 -- -- -- -- 250,000
Net loss - 1999 -- -- -- -- -- (1,853,866) (1,853,866)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance,
December 31, 1999 250,000 250,000 11,200,000 11,200 3,723,395 (3,215,076) 769,579
- -----------------------------------------------------------------------------------------------------------------------------------
Private Placement,
net of Subcriptions (250,000) (250,000) 1,000,000 1,000 999,000 -- 750,000
Finders Fees -- -- -- -- (9,100) (9,100)
Subscription
received 59,500 59,500 -- -- -- -- 59,500
Finders Fees -- -- -- -- -- -- --
Net loss -
June 30, 2000 -- -- -- -- -- (909,402) (909,402)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance,
June 30, 2000 59,500 59,500 12,200,000 12,200 4,713,295 (4,124,478) 660,517
- -----------------------------------------------------------------------------------------------------------------------------------
The notes to the unaudited condensed consolidated financial statements are an
integral part thereof
5
Condensed Consolidated Financial Statements
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
- --------------------------------------------------------------------------------
Six Months Six Months Quarter Quarter
ended ended ended ended
June 30 June 30 June 30 June 30
2000 1999 2000 1999
--------- --------- --------- ---------
OPERATING ACTIVITIES
Net income (loss) for
period $(909,402) $(563,760) $(414,152) $(263,993)
Add expense items not involving
cash
Depreciation 98,318 66,086 (84,892) 16,763
Add changes in non-cash
working capital items:
Accounts receivable (147,439) (52,449) 82,733 (49,126)
Inventory (5,329) 686 -- 775
Deposits & prepaids 9,880 (5,708) 6,903 10,950
Accounts Payable 118,604 478,687 41,862 275,171
- ------------------------------------------------------------------------------------
Net funds (used) by operating
activities (835,368) (76,458) (367,546) (9,460)
INVESTING ACTIVITIES
Licenses & deferred development
costs 246,468 6,538 272,875 4,056
Fixed asset purchases 24,166 (66,873) (58,342) (11,252)
- ------------------------------------------------------------------------------------
Net funds (used) by investing
activities 270,634 (60,335) 214,533 (7,196)
FINANCING ACTIVITIES
Shares issued for cash 990,900 -- 990,900 --
Share subscriptions (190,500) -- (887,400) --
Shareholder loans (243,048) 112,744 -- 67,763
- ------------------------------------------------------------------------------------
Net funds provided by financing
activities 557,352 112,744 103,500 67,763
- ------------------------------------------------------------------------------------
NET INCREASE IN CASH (7,382) (24,049) (49,513) (790)
- ------------------------------------------------------------------------------------
CASH AT END OF PERIOD $ 869 $ 50,317 $ 869 $ 50,317
====================================================================================
Supplemental information:
Interest paid $ -- $ -- $ -- $ --
Taxes paid $ -- $ -- $ -- $ --
Shares issued for licenses $ -- $ -- $ -- $ --
The notes to condensed consolidated financial statements are an integral part
thereof
6
Condensed Consolidated Financial Statements
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
June 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.
Effective September 30, 1997, Nostrad Telecommunications Pte. Ltd., a
private Singapore company ("Nostrad Singapore") sold its wholly owned
subsidiary companies Nostrad Media Pte. Ltd., a Singapore company which
holds the Company's interests in Asian licenses; and OmniVision Africa
Ltd., a British Virgin Island company, which holds the Company's interests
in African licenses; (collectively as "Nostrad Subsidiaries") to the
Company for 3,700,000 common shares and $300,000 cash or kind. 1,300,000
common shares have been reserved for issuance to Nostrad Singapore for
obtaining Pay TV licenses in Morocco.
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. During the current fiscal year the Company's common shares
commenced trading on the NASD Bulletin Board. The Company is currently
applying to get the Company's shares listed on a major stock exchange. If
the Company is unable to list its shares, the ability to raise additional
funds through the issuance of shares may be hampered.
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
Item 2. Management's Discussion and Analysis
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 potential for
Subscription TV. By areas of potential, the Company is referring to areas where
there are at least 100,000 television households, which are not currently being
serviced by cable or wireless pay TV.
Period ended June 30, 2000 compared to the period ended June 30, 1999
During Fiscal-2000 to date, the Company:
1. Continued providing direct to home ("DTH") television service in
Morocco which commenced during October 1999.
2. Continued ordering the balance of the equipment required to launch its
Paging and MMDS operations in Kampala, Uganda. To date, the Company
has completed its construction of its head-end site for the Paging and
MMDS systems.
3. The Company has completed a private placement for $1,000,000 as of
April 26, 2000. The Company has made no commitments for capital
expenditures.
4. The Company is currently offering a private placement for $2,000,000.
The purpose of the funds is provide adequate working capital and to
launch MMDS services in Uganda and Tanzania.
The Company continues to distribute "Showtime" programming package, a Direct to
Home (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 frequencies in the
Ivory Coast, Morocco, Tunisia, Bangladesh and Indonesia. In July of 2000, the
Company announced that it has been selected to manage Arabia Radio and
Television ("ART") for Morocco. ART currently has over 4,000 subscribers in
Morocco, offering 10 channels. Pakistan, the Company continues to be in
negotiations to provide Subscriber Management, Programming, Operational 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 outlined as follows:
- -------------------------------------------------------------------------------
YTD 2000 Q2 2000 YTD 1999 Q2 1999
- -------------------------------------------------------------------------------
Pager sales revenues $ 1,000 $ -- $ 4,000 $ 1,000
Pager service revenues -- -- 15,000 7,000
DTH Sales 5,000 -- 7,000 9,000
DTH Services 182,000 43,000 25,000 13,000
-------- -------- -------- --------
188,000 43,000 51,000 30,000
-------- -------- -------- --------
Cost of Sales
Cost of Pager Sales 1,000 -- 2,000 --
Cost of Pager Services -- -- 1,000 --
Cost of DTH Sales 1,000 -- 3,000 2,000
Cost of DTH Services 47,000 12,000 6,000 (44,000)
----------------------------------------------
49,000 12,000 12,000 (42,000)
----------------------------------------------
Gross Profit $139,000 $ 31,000 $ 39,000 $ 72,000
- -------------------------------------------------------------------------------
Since starting up in late 1998, paging operations in Mongolia competed against
inexpensive mobile telephone "receive only" services. Consequently, the Company
experienced less than expected pager sales. With respect to DTH sales, the
number of subscribers has grown to over 300 plus 3 hotels. Consequently service
fees rose to over $43,000 during Q2-2000 (three months ended June 30, 2000) from
$13,000 during Q2-1999 (three months ended June 30, 1999) DTH fees rose to over
$182,000 during YTD 2000 as compared to 25,000 during YTD-1999.
8
During October 1999, the Company officially launched its Pay-TV services in
Morocco, under an exclusive distribution agreement with Showtime (a Viacom
company). In July 2000, the Company announced a management agreement with ART
(Arab Radia and Television). ART provides a boquet of 10 Arabian channels and
currently has over 4,000 subscribers in Morocco.
To date, the Company has completed its construction of its head-end site for the
Pay-TV and Paging systems in Uganda. The Paging transmitters, terminal and pager
inventory are on site and the Company plans to launch this operation the last
half of 2000. The Company has also recently completed engineering and systems
design for Tanzania and plans to launch Pay TV services there before the end of
2000. Due to the slowdown of the Asian markets and unresolved programming
copyright issues, facilitation of the Subscription TV roll out in Mongolia has
been delayed indefinitely.
During the 2nd quarter, the Company closed on its private placement of
1,000,000 units (each unit consisting of one common share and one share purchase
warrant entitling the holder to purchase one additional share of the Company for
$1.50 during the first year and $2.00 during the second year) raising a total of
$1,000,000. In April, 2000, the Company commenced Offering to qualified
purchasers, a private placement offering 2,000,000 units (each unit consisting
of one common share and one share purchase warrant entitling the holder to
purchase one additional share of the Company for $1.50 during the first year and
$2.00 during the second year). As at June 30, 2000, $59,500 worth of
subscriptions had been received.
During YE 2000 to date, General and administration expenses, net of
depreciation were $938,000 as compared to $577,000 during the YE 99. The cause
of this $361,000 increase is due to increased activity in its North American
head office, $239,000; and the opening of its Rabat, Morocco office, $157,000.
This was partially offset by reduced expenditures in Mongolia, Singapore and
Uganda.
- --------------------------------------------------------------------------------
2000 1999
- --------------------------------------------------------------------------------
Mongolia
General and administration $ 13,000 $ 31,000
Depreciation 28,000 12,000
North American Head Office
General and administration 599,000 260,000
Depreciation (1,000) --
Singapore Office
General and administration 59,000 72,000
Depreciation and development costs expense 1,000 13,000
Kampala Office
General and administration 80,000 162,000
Depreciation 66,000 36,000
Morocco Office
General and administration 209,000 52,000
Depreciation 4,000 5,000
-----------------------
Total General and administration $938,000 $577,000
Total Depreciation and deferred cost write down- $ 98,000 $ 66,000
================================================================================
During YTD 2000 to date, general and administration expenses, in its North
American head office rose to $339,000, up from $260,000 from YTD 1999. Morocco's
general and administration expenses rose to $209,000 in YTD -2000 from $52,000
during YTD 1999. The cause of this $157,000 increase is due to increased office
expenditures during the year.
Liquidity and Capital Resources
As at June 30, 2000, the Company's working capital was a $1,517,000
deficiency, as compared to working capital deficiency of $1,335,000 as at June
30, 1999. The Company owes $726,000 to certain shareholders and related
companies. This amount is included in the working capital deficiency.
Approximately 40% of the amounts owed to insiders will be converted to equity of
the Company. The Company has no other long-term liabilities. Additional working
capital is intended 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 June 30, 2000
OmniVision has 350 individual subscriber, and 3 Hotel's (with combined
total of 780 rooms). The Company commenced managing ART's 4,000
subscriber base in August, 2000.
o The Uganda Pay TV project. It is anticipated that the Company will be
able to roll out the Pay TV project in the second 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 the
end of September 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.
10
Funding
To date, the Company has obtained licenses to provide PAY-TV in areas where
over 5,400,000 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 $8.0 million over the next
24 months. The Company plans to raise the funds by way of equity, debt, or other
similar financial instruments. The Company plans to seek assistance from various
investment advisors to advise the Company on the most appropriate method of
raising these funds on a best effort basis.
Statements in this registration statement that may not be historical facts
and that may be forwardlooking 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-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. 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