UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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 January 1998
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
(Name of Registrant)
251 Saulteaux Crescent, Winnipeg, Manitoba Canada R3J 3C7
(Address of principal executive offices)
1. Financial Statements for the six months ended December 31, 1997
Indicate by check mark whether the Registrant files of will file annual
reports under cover of Form 20-F of 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 to the
Commission pursuant to 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 cause 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: January 31, 1998 By:/s/M. Seyed Torabian
M. Seyed Torabian,
Vice President/Director
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE Six months ENDED DECEMBER 31, 1997
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
(with comparative balances as at December 31, 1996)
ASSETS
1997 1996,
CURRENT ASSETS
Cash and short-term investments $4,129,498 $1,147,112
Accounts receivable 2,826,939 939,134
Inventories (Notes 4) 5,271,859 1,231,703
Prepaid expenses 680,412 38,063
12,908,708 3,356,012
INVESTMENT, NATIONAL HEALTHCARE
LOGISTICS LLC, MEDI GUARD, INC. 2,486,032 445,518
PROPERTY, PLANT AND EQUIPMENT
USED IN OPERATIONS (Notes 5) 9,965.373 6,750,665
ASSETS UNDER DEVELOPMENT (Notes 6) 10,084,860 9,203,036
------------ -----------
$35,444,972 $19,755,230
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Cheques issued in excess of amounts on $944,897 $184,775
deposit
Accounts payable and accrued liabilities 2,649,383 1,485,154
Current portion of long-term debt (Note 7) 874,134 -
Current portion of obligations
under capital leases (Note 8) 1,879,429 2,272,783
---------- ----------
6,347,843 3,942,712
LONG-TERM DEBT (Note 7) 11,257,822 3,116,196
OBLIGATIONS UNDER CAPITAL LEASES (Note 8) 4,730,610 6,277,899
DEFERRED FOREIGN EXCHANGE GAIN 60,803 165,018
LOANS PAYABLE TO SHAREHOLDERS
AND RELATED COMPANIES (Note 9) 422,572 746,632
--------- ---------
22,819,650 14,248,457
---------- ----------
SHAREHOLDERS' EQUITY
Share capital (Note 11) 11,433,351 11,657,098
Warrants (Note 12) 12,093,206 -
Deficit (10,901,236) (6,150,324)
----------- ----------
12,625,322 5,506,774
----------- ----------
$35,444,972 $19,755,230
=========== ===========
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1997
(with comparative balances for the six months ended December 31, 1996)
1997 1996
REVENUES
Sales (Note 14) $4,214,756 $1,555,845
Other 101,686 105,740
---------- ----------
4,316,442 1,661,585
---------- ----------
COSTS AND EXPENSES
Cost of sales 2,212,307 1,068,580
Depreciation and amortization
of property, plant and equipment 653,246 780,646
Interest on long-term debt 207,471 230,308
Other 14,326 46,600
Selling, distribution and administrative 3,349,984 1,605,235
---------- ----------
6,437,335 3,731,369
---------- ----------
LOSS FROM OPERATIONS (2,120,893) (2,069,784)
LOSS FROM INVESTEE (320,806) -
---------- ----------
NET LOSS (2,441,699) (2,069,784)
========== ===========
BASIC LOSS PER SHARE $0.20 $0.19
========== ===========
WEIGHTED AVERAGE
COMMON SHARES OUTSTANDING 12,300,808 10,987,790
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
FOR THE THREE MONTH ENDED DECEMBER 31, 1997
(with comparative balances for the six months ended December 31, 1996)
Class A Common Shares
Shares Amount Paid in Deficit Total
Capital
Balances at June 30, 1994 - $- $- $- $-
Issue of shares for cash 13,472 6,339,864 - - 6,339,864
Issue of shares for property 350 350,000 - - 350,000
Share split 7,884,468 - - - -
Issue of shares for
cash 1,680,000 136,800 - - 136,800
Net loss - - - (868,794) (868,794)
---------- --------- -------- --------- ---------
Balances at
June 30, 1995 9,578,290 6,826,664 - (868,794) 5,957,870
Issue of shares for
cash 1,175,000 2,306,250 - - 2,306,250
---------- --------- -------- --------- ---------
Share issue costs - (455,563) - - (455,563)
Net loss - - - (3,211,746)(3,211,746
---------- --------- -------- ---------- ----------
Balances at
June 30, 1996 10,753,290 8,677,351 - (4,080,540) 4,596,811
Issue of shares for
cash 67,125 140,812 - - 140,812
Issue of special
warrants (Note 12) - - 12,315,000 - 12,315,000
Warrant issue costs - - (221,794) - (221,794)
Exercise of warrants
(Note 12) 250,000 500,000 - - 500,000
Net loss - - - (4,248,043)(4,248,043
---------- -------- --------- ---------- ----------
Balances at
June 30, 1997 11,070,415 $9,318,163 $12,093,206 $(8,328,583)$13,082,786
========== ========== =========== =========== ==========
Issue of shares for
cash 37,500 91,440 - - 91,440
Issue of shares for
property 225,000 1,552,500 - - 1,552,500
Exercise of warrants
(Note 12) 1,141,416 471,248 - - 471,248
Net loss - - - (1,229,749) (1,229,749
----------- ---------- -------- ----------- ----------
Balances at
DECEMBER 31, 1997 12,474,331 $11,433,351 $12,093,206 $(9,558,332) $13,968,225
=========== =========== =========== ============ ==========
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION
FOR THE SIX MONTHS ENDED DECEMBER 31, 1997
(with comparative balances for the six months ended december 31, 1996)
1997 1996
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Net loss $(2,441,699) $(2,069,784)
Items not affecting cash
Amortization of deferred
foreign exchange gain (2,733) -
Depreciation and amortization 653,246 780,646
Loss from investee 320,806 -
----------- -----------
(1,470,380) (1,289,138)
Net change in non-cash
operating assets and liabilities
Accounts receivable (999,730) (785,812)
Inventories (2,421,846) (90,732)
Prepaid expenses (315,414) 35,745
Accounts payable and accrued liabilities 1,377,763 361,167
----------- ----------
(3,829,607) (1,768,770)
----------- -----------
INVESTING ACTIVITIES
Acquisition of property, plant and equipment (3,124,291) (630,599)
Acquisition of National Care Products Ltd. - (896,447)
Acquisition of shares in National Healthcare (2,465,482) (445,518)
----------- ----------
Logistics LLC
(5,589,773) (1,972,564)
----------- -----------
FINANCING ACTIVITIES
Proceeds from (repayment of)
obligations under capital leases (613,498) (100,059)
Proceeds from long-term debt 8,864,630 947,112
Deferred foreign exchange gain 9,408 (39,055)
Advances from shareholders
and related companies (1,636,684) 25,806
Net proceeds from issuance of
Class A common shares 2,116,208 469,905
Net proceeds from issuance of warrants - 2,509,841
8,740,064 3,813,550
--------- -----------
INCREASE (DECREASE) IN CASH (679,317) 72,217
CASH, beginning of period 3,863,918 890,120
----------- -----------
CASH, end of period $3,184,601 $962,337
=========== ===========
Represented by:
Cash and short-term investments - $360,052
Cheques issued in excess of funds on deposit 4,129,498 787,060
Bank Indebtedness (944,898) (184,775)
----------- ----------
$3,184,601 $962,337
============ ==========
Supplemental disclosure of cashflow information
Cash paid for: Interest (net of amountcapitalized) $167,505 $138,809
============ =========
Income Taxes
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(with comparative balances as at December 31, 1996)
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. Its shares are traded on the Vancouver Stock
Exchange. As of August 14, 1996, the shares of the Company were listed
on the Small Cap board of NASDAQ Stock Market.
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 19. 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 devices 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.
Management's plans for fiscal 1998 are to obtain ISO 9001
certification, develop electronic data interchange, undertake research
and development to streamline operations and expand product lines, and
evaluate the acquisition of business with existing distribution
networks in order to consolidate sales and marketing activities. The
Company anticipates manufacturing products for national and regional
distributing companies and intends to sell directly to homecare
providers across Canada and the United States. The long-term growth
plan of the Company includes the targeting of additional markets. The
Company expects that private/original equipment manufacturers branding
of products for other manufacturers and/or distributors will be handled
directly by the Company. No formal agreements are in place at this
time.
The Company has incurred significant operating losses and business
development costs to date and had a consolidated deficit from
operations of $11,052,230 as at December 31, 1997. As at December 31,
1997, the Company had positive working capital, primarily due to
additional funds raised through two private placements (see Note 12).
The Company's ability to continue as a going concern is dependent upon
developing profitable operations and obtaining additional funds needed
to finance these development activities.
These consolidated financial statements have been prepared on the going
concern basis, which assumes that the Company will realize its assets
and discharge its liabilities in the normal course of operations.
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(with comparative balances as at December 31, 1996)
3. 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., National Care Products Ltd and Medi
Guard Inc. All significant intercompany transactions and balances have
been eliminated upon consolidation. The Company accounts for its
investments in non-controlled investees using the equity method.
Cash and Short-term Investments
Cash and short-term investments consist principally of deposit
instruments which are highly liquid and have original maturities of 90
days or less.
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 declining balance method at the following
annual rates:
Building, improvements and paving 4 - 8%
Furniture and fixtures 20%
Computer equipment 20 - 30%
Machinery and equipment 20 - 30%
Equipment under capital lease 30%
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(with comparative balances as at December 31, 1996)
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
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 expenses as
incurred.
Deferred Foreign Exchange Gain
The deferred foreign exchange gain relates to the obligations under
capital leases and is being amortized over the term of the respective
leases.
Revenue Recognition
Sales revenues are recognized at the time of product shipment 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 are subsequently adjusted to reflect the rate of
exchange in effect at the balance sheet date. Exchange gains and
losses arising on translation of monetary assets and liabilities are
included in income, except for unrealized exchange gains and losses
relating to the translation of the obligations under capital leases
which are deferred and amortized over the remaining term of the leases.
Use of Estimates
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingencies at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(with comparative balances as at December 31, 1996)
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
Loss Per Share
Loss per share data has been computed by dividing net loss by the
weighted average number of common shares outstanding during the year.
4. INVENTORIES
1997 1996
Raw Materials $1,562,680 $ 492,681
Finished goods and samples 3,709,178 739,022
---------- ------------
$5,271,859 $1,231,703
========== ============
5. PROPERTY, PLANT AND EQUIPMENT USED IN OPERATIONS
Accumulated
Cost Depreciation Net Net
Land $589,458 $- $589,458 $125,000
Building, improvements
and paving 2,365,719 170,370 2,195,349 1,814,407
Furniture and fixters 359,675 79,811 279,864 208,018
Computer equipment 389,962 51,485 338,477 77,974
Machinery and equipment 5,444,386 1,023,978 4,420,408 1,949,350
Paving 9,400 1,290 8,110 8,788
Equipment under capital
lease 4,211,479 2,077,772 2,133,707 2,567,129
---------- ---------- ---------- ----------
13,370,079 $3,404,706 $9,965,373 $6,750,665
========== ========== ========== ==========
For the period ending December 31, 1997, no interest was capitalized to the
equipment under capital lease (1996 - $nil).
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(with comparative balances as at December 31, 1996)
6. ASSETS UNDER DEVELOPMENT
1997 1996
Machinery and equipment in storage $408,562 $408,562
Refundable deposit on equipment lease (Note 9) - 753,786
Equipment under capital lease (1194) 2,313,245 2,441,623
Equipment under capital lease (1094 B 001) 7,363,052 5,599,065
---------- ----------
$10,084,860 $9,203,036
=========== ==========
In fiscal 1997, the refundable deposit on equipment lease was applied
against obligations under capital lease, in connection with the settlement
as described in Note 9.
During the period, interest of $109,151 (1996 - $127,234) has been
capitalized to the equipment under capital lease 1094-001.
7. LONG-TERM DEBT
1997 1996
Western Economic Diversification, term loan
matures December 1, 1999, unsecured, non-interest
bearing, repayable in variable quarterly payments
commencing December 1, 1997 $1,804,835 $1,503,050
Province of Manitoba, term loan, 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, 2,174,126 1,613,140
until fully repaid
The Western Economic Diversification loan
represents subordinated financial assistance to a
maximum of $1,937,852, to assist in capital costs,
marketing cost, 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 and to postpone the repayment of
shareholder loans and
The company issued U.S. $5,000.000 in Convertible
Debentures on October 1, 997. The Convertible
Debentures bear interest of 6% annually and are
convertible, upon approval by securities
authorities, into Class A common shares of the
Company at the lessor of the average quoted market
price prior to conversion and $6.01. All 6,894,010
debentures must be converted within one year from
the closing day.
The Hong Kong Bank term loans are due by November
1, 2001, bear interest at the rate of Toronto
Dominion Bank prime plus 2.5% - 3% and are
repayable as follows:
From April 1, 1997, 43 monthly payments of $7,824,
followed by 8 payments of $6,886 followed by 1 498,830
payment of $6,886 followed by 7 payments of $2,500
plus interest
The Business Development Bank of Canada term loans
are due October 23, 2002, bears interest at the
rate of 0.9% above the B.D.C. operational interest
rate and is repayable as follows:
From January 23, 1997, 60 monthly principal
payments of $2,750 plus interest
From January 23, 2002, 10 monthly principal
payments of $3,500 plus interest
The Business Development Bank of Canada working
capital loan Is due December 23, 2002, bears
interest at the rate of 3.5% above the Business
Development Bank operational interest rate and is
repayable as follows:
From January 23, 1997, two monthly principal
payments of $500 plus interest
From March 23, 1997, 70 monthly principal payments 760,155
of $700 plus interest
12,131,956 3,116,196
(874,134)
Less: current Portion 11,257,822 3,116,196
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(with comparative balances as at December 31, 1996)
7. LONG-TERM DEBT (continued)
dividends until the loan is repaid in full.
The Company has entered into an agreement with the Province of Manitoba
for a term loan. The loan is subject to certain conditions which
include minimum capital expenditures of $5,000,000, equity
contributions of $4,700,000, achievement of certain sales targets and a
minimum level of new job creation. 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.(See Note 18).
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. Under the terms of the loan agreement, the Company has agreed to
postpone the repayment of shareholder loans and dividends.
Minimum principal repayments required under the terms of the debt
agreements are as follows (including amounts advanced subsequent to
June 30, 1997):
1998 $460,000
1999 $1,060,000
2000 $880,502
2001 $623,500
2002 $623,500
2003 $331,479
8. 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 December 31, 1997 as follows:
Lease Lease Lease
1094-001 1094-002 1194 Total
1998 $1,170,542 $641,359 $699,193 $2,511,094
1999 1,170,542 641,359 291,330 2,103,232
2000 1,170,542 642.359 - 1,811,901
2001 975,452 641,359 - 1,616,811
2002 - - - -
Total minimum lease
payments 4,487,078 2,565,437 990,524 8,043,038
Less: amount representing
interest approximating
10.4% to 11.5% 872,159 516,812 44,028 1,432,999
3,614,919 2,048,625 946,495 6,610,039
Less: Current portion 759,911 427,853 655,665 1,879,429
---------- ---------- --------- ----------
$2,819,008 $1,620,772 $290,830 $4,730,610
========== =========== ========= ==========
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 then interpretation of the settlement terms.
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:
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.
Accordingly, the capital lease obligations, the respective equipment
under capital leases and the refundable deposit on equipment were
adjusted accordingly.
The above lease obligations reflect the new lease terms after
settlement of the dispute with the lessor.
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(with comparative balances as at December 31, 1996)
9. LOANS PAYABLE TO SHAREHOLDERS AND DIRECTOR-RELATED COMPANIES
1997 1996
Loans payable, shareholders $1,582,966 $746,632
Loans payable (advances to), director-related companies (1,160,394) -
----------- --------
($422,572) $746,632
The loans payable to shareholders and director-related companies are
unsecured, non-interest bearing, with no fixed terms of repayment.
The terms of the government assistance agreement with Western Economic
Diversification require that the Company obtain the consent of both the
Minister of Western Economic Diversification and Manitoba Development
Corporation prior to the repayment of shareholders loans. The
shareholders and director-related companies have agreed to not demand
repayment within fiscal 1998; accordingly these loans have been
classified as non-current.
10.OPERATING EXPENSES
The corporation subsidiary, Medi Guard Inc., has the following net
operating lease commitments for space rentals and equipment.
1998 $ 252,687
1999 252,687
2000 252,687
2001 252,687
2002 189,419
$1,200,167
11. SHARE CAPITAL
1997 1996
Common Shares
Authorized
Unlimited Class A common shares, voting
Issued
14,111,331 Class A common shares,
net of issue costs (1996 - 10,987,790) $11,433,352 $9,147,256
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 or, while the shares are listed on the
Vancouver Stock Exchange, the consent of the Exchange. For each $.09
of cumulative cash flow generated by the Company from its operations,
one performance share may be released from escrow.
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(with comparative balances as at December 31, 1996)
11. SHARE CAPITAL (continued)
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:
Date of Issuance
1997 1996
Options outstanding, beginning of year 1,367,654 957,829
Options granted - 536,950
Options exercised (37,500) (67,125)
Options cancelled or expired - (60,000)
Options outstanding, end of year 1,330,154 1,367,654
Exercise prices of options
granted during the year $3.81 - $6.13
Expiry date of options Aug 11,2001 and
granted during the year June 3, 2002
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, as a
condition of the government assistance received from the Province of
Manitoba.
12. 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. As at June 30,
1997, all agents warrants had been 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
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(with comparative balances as at December 31, 1996)
12.WARRANTS (continued)
Special Warrants (continued)
were issued as a fully paid security and each special warrant is
exercisable into one Class A common share and one transferable Class A
share purchase warrant. Each Class A share purchase warrant entitles
the holder to purchase one additional Class A share at a price of $3.50
per share. The warrants are exercisable at the earlier of eighteen
months from the closing date or six months after the date of the last
receipt for the prospectus.
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 is exercisable into one compensation warrant. Each
compensation warrant entitles the broker to purchase one Class A share
at a price of $3.00 per share.
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 share and one-half of one non-
transferable share purchase warrant. Each whole warrant entitled the
holder to purchase one additional Class A share at a price of $7.00 per
share. Because 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 share and one (rather
than one-half) non-transferable share purchase 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.
All of the above special warrants and broker's warrants were
outstanding at September 30, 1997.
13.INCOME TAXES
The Company has non-capital losses carried forward of approximately
$10,990,000 (1996 - $4,883,000) which can be utilized to reduce the
taxable income of future years. The Company is also entitled to tax
credits of approximately $244,000 (1996 - $227,000) which are
creditable against provincial income taxes.
The benefits relating to the losses and the tax credits have not been
recognized in the financial statements and the losses expire as
follows:
2002 $ 101,000
2003 6,006,000
2004 1,887,000
2012 2,996,000
$ 10,990,000
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(with comparative balances as at December 31, 1996)
13.INCOME TAXES (continued)
The tax credits available to the Company begin to expire in 2002.
14.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 segment.
A significant portion of the Company's sales during the year were to
customers in a foreign country:
1997 1996
Sales to customers outside Canada $2,318,115 $656,808
Sales to customers within Canada 1,896,641 899,038
---------- ---------
$4,214,756 $1,555,845
========== ==========
15.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 National Healthcare Manufacturing Corporation 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.
National Healthcare Manufacturing Corporation 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 National Healthcare
Manufacturing Corporation at its cost. During the quarter, the Company
paid $nil (1996 - $45,000) 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.
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(with comparative balances as at December 31, 1996)
16.BUSINESS ACQUISITIONS
Acquisition of Medi Guard Inc.
Effective November 1, 1997, the Company acquired all of the issued and
outstanding shares of Medi Guard Inc.
The results of operations have been included in the accounts of the
Company from the effective date of acquisition. Pro-forma results of
operations have not been presented for the full year as it would not be
materially different from the 1997 results of operations.
17.COMPARATIVE FIGURES
Certain of the prior years figures have been reclassified to conform to
the current year's presentation.
18.SUBSEQUENT EVENTS
Additional Investment in National Healthcare Logistics LLC
Subsequent to December 31, 1997, the Company acquired an additional 166
2/3 Class C preferred shares of National Healthcare Logistics LLC, for
cash consideration of $346,211.
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(with comparative balances as at December 31, 1996)
19. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (U.S.
GAAP)
The Company has applied for registration under the 1934 Act
with the United States Securities and Exchange Commission.
Effective July 31, 1996, the Company obtained formal approval
for quotation of its securities on NASDAQ in the United
States.
A description of the Company's accounting principles which
differ significantly from U.S. GAAP follows:
Foreign Currency Translation
Unrealized exchange gains and losses relating to the
translation of the obligation under capital leases are
deferred and amortized over the remaining term of the leases.
Under U.S. GAAP, these 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 13 would be disclosed.
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
B cash, accounts receivable, accounts payable and accrued
liabilities, and current portion of obligations under capital
leases.
The application of U.S. GAAP, as described above, would have
had the following effects on net loss, loss per share and
shareholders equity.
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(with comparative balances as at December 31, 1996)
19.UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (U.S. GAAP)
(continued)
Fair Value of Other Financial Instruments and Other Disclosures
(continued)
1997 1996
Net loss as reported $(2,346,898) $(2,069,784)
Deferred foreign exchange gain (loss) (2,733) (39,055)
Net loss B U.S. GAAP $(2,349,631) $(2,108,839)
Weighted average shares outstanding - U.S. 11,120,808 9,612,478
GAAP
Loss per share B U.S. GAAP $(0.21) $(0.22)
Shareholders equity as reported $13,968,225 $5,506,773
Deferred foreign exchange gain 60,803 165,018
Shareholders equity B U.S. GAAP $14,029,028 $5,671,791
Newly issued, but not yet adopted, U.S. accounting principles are not
expected to have a material impact on these consolidated financial
statements.
FORM 61
QUARTERLY REPORT
Incorporated as part of: _____Schedule A
X Schedules B & C
ISSUER DETAILS:
NAME OF ISSUER National Healthcare Manufacturing Corporation
ISSUERS'S ADDRESS 251 Saulteaux Crescent, Winnipeg Manitoba, R3J 3C7
ISSUER TELEPHONE NUMBER 204-885-5555
CONTACT PERSON Mr. Mac Shahsavar
CONTACT'S POSITION President / CEO
CONTACT TELEPHONE NUMBER 204-885-5555
FOR QUARTER ENDED December 31, 1997
DATE OF REPORT February 27, 1998
CERTIFICATE
THE SCHEDULE(S) REQUIRED TO COMPLETE THIS QUARTERLY REPORT ARE ATTACHED AND
THE DISCLOSURE CONTAINED THEREIN HAS BEEN APPROVED BY THE BOARD OF
DIRECTORS. A COPY OF THIS QUARTERLY REPORT WILL BE PROVIDED TO ANY
SHAREHOLDER WHO REQUESTS IT. PLEASE NOTE THIS FORM IS INCORPORATED AS PART
OF BOTH THE REQUIRED FILING OF SCHEDULE A AND SCHEDULES B & C.
"Mac Jamshidi Shahsavar" 1998/02/27
NAME OF DIRECTOR DATE SIGNED
(YY/MM/DD)
"Seyed Morteza Torabian" 1998/02/27
SCHEDULE "B"
SUPPLEMENTARY INFORMATION
SCHEDULE "B"
SUPPLEMENTARY INFORMATION
1. For the current fiscal year-to-date:
Aggregate amount of expenditures made to parties not at arms length
from Issuer is $312,300 in management salaries to December 31, 1997.
2. Quarter in Review
(a) Summary of securities issued during the quarter ended December 31,
1997.
No. of shares Amount (CDN$)
------------- -------------
Authorized (common): Unlimited # Class A
Common shares
Issued & Outstanding: 12,474,331 $13,681,833.30
Beginning of Period
Please note that the following warrants which were exercised originate from
the Private Placement of 1,600,000 special warrants completed on January 8,
1997 and which became free trading as of December 19, 1997.
Dec. 31, 1997 - Exercise of 17,000 warrants
(by brokered 17,000 $102,000.00
Private placement at $6.00Cdn/share)
Dec. 31, 1997 - Exercise of 17,000 warrants
(by brokered 17,000 $102,000.00
Private placement at $6.00Cdn/share)
Dec. 31, 1997 - Exercise of 17,000 warrants
(by brokered 17,000 $102,000.00
Private placement at $6.00Cdn/share)
Dec. 31, 1997 - Exercise of 1,150,000 warrants
(by brokered 1,150,000 $6,900,000.00
Private placement at $6.00Cdn/share)
Dec. 31, 1997 - Exercise of 17,000 warrants
(by brokered 17,000 $102,000.00
Private placement at $6.00Cdn/share)
Dec. 31, 1997 - Exercise of 36,000 warrants
(by brokered 36,000 $216,000.00
Private placement at $6.00Cdn/share)
Dec. 31, 1997 - Exercise of 17,000 warrants
(by brokered 17,000 $102,000.00
Private placement at $6.00Cdn/share)
Dec. 31, 1997 - Exercise of 36,000 warrants
(by brokered 36,000 $216,000.00
Private placement at $6.00Cdn/share)
Dec. 31, 1997 - Exercise of 17,000 warrants
(by brokered 17,000 $102,000.00
Private placement at $6.00Cdn/share)
Dec. 31, 1997 - Exercise of 17,000 warrants
(by brokered 17,000 $102,000.00
Private placement at $6.00Cdn/share)
Dec. 31, 1997 - Exercise of 100,000 warrants
(by brokered 100,000 $600,000.00
Private placement at $6.00Cdn/share)
Dec. 31, 1997 - Exercise of 34,000 warrants
(by brokered 34,000 $204,000.00
Private placement at $6.00Cdn/share)
Dec. 31, 1997 - Exercise of 17,000 warrants
(by brokered 17,000 $102,000.00
Private placement at $6.00Cdn/share)
Dec. 31, 1997 - Exercise of 17,000 warrants
(by brokered 17,000 $102,000.00
Private placement at $6.00Cdn/share)
Dec. 31, 1997 - Exercise of 128,000 warrants
(by brokered 128,000 *see below
Private placement at $6.00Cdn/share)
--------- ------------
End of Period 14,111,331 $22,735,833.30
========== ==============
* In accordance with the provisions of the Agency Agreement entered into
between the Issuer and Yorkton Securities Inc. A commission in the amount
of 128,000 special warrants was issued to Yorkton securities.
3. As at end of quarter (December 31, 1997):
(a) Authorized Capital: Unlimited # Class "A" Shares
Shares Issued and Outstanding: 14,111,331
(b) Summary of Options Outstanding:
Date of
Agreement Option Type No. of Shares Exercise Price Expiry Date
- --------------- ----------- ------------- -------------- --------------
June 29, 1995 5 employees 166,500 $2.00 November 30, 2000
June 29, 1995 7 directors 625,852 $2.00 November 30, 2000
Sept.14, 1995 1 director 20,000 $2.00 November 30, 2000
Oct. 7, 1996 8 employees 35,875 $3.81 August 11, 2001
Oct. 7, 1996 4 directors 114,000 $3.81 August 11, 2001
June 3, 1997 4 directors 38,950 $6.13 June 3, 2002
June 3, 1997 44 employees 284,250 $6.13 June 3, 2002
_______
TOTAL 1,285,427
(c) Summary of Special Warrants Financing:
A total of 905,000 Special Warrants have been converted into common shares
and equal amount of share purchase warrants at $3.50 as of August 7, 1997.
The following are still outstanding:
Date of Agreement No. of share Price Expiry
Agreement Type Places Purchase Warrants per Share Date
- ---------- --------- ------ ----------------- --------- ------
August 7, 1996 Brokered BPI Cdn Small
Co. Fund 500,000 $3.50 2/1/98
Private Placement
(trustee for Torbay & Co.)
August 7, 1996 Brokered Origin Capital
Inv. Club 200,000 $3.50 2/1/98
Private Placement
(Trustees for Investor Co.)
August 7, 1996 Brokered Xerxes Venture
Capital 35,000 $3.50 2/1/98
Private Placement Fund Ltd.
August 7, 1996 Brokered Montreal Trust
of Canada 100,000 $3.50 2/1/98
Private Placement
(trustee for Montowr & Co.)
_______
TOTAL 835,000
Effective to date, only Origin Capital and Xerxes Venture Capital have
exercised their warrants, with the remaining Placees allowing them to
expire.
(d) Summary of Special Warrants Outstanding:
Date of Agreement No. of Class Price Expiry
Agreement Type Places Warrants per Share Date
- --------- --------- ------ ------------ --------- ---------
Sept. 12,1997 Share Purchase Importex Inc. 150,000 $ 6.90 2/3/98
Options $ 7.94 2/3/99
Date of Agreement No. of Price Expiry
Agreement Type Places Common Shares per Share Date
- --------- --------- ------ -------------- --------- --------
Oct. 2/97 6% Convertible -Shaar Fund (*) (*) 10/1/98(**)
Note -Lansdowne Prop.
Holding Corp.
(f) Total no. of shares in escrow: 1,180,000
(g) List of Directors: Mahmood (Mac) Shahsavar Seyed Torabian
Robert Jackson Gordon Farrimond
Elaine Affleck Ross Scavuzzo
Reg Ebbeling Aristotle Mercury
Jack Tapper
(*) The Convertible Debentures are convertible into shares of the
Company's Common Stock at a conversion price equal to the lower of the
average closing bid price of a share of Common Stock over the five
consecutive trading days prior to (a) the October 1st closing date or (b)
85% of average closing price on conversion date.
(**) Unless earlier converted, the Convertible Debentures will be
automatically converted into Common Stock on October 1, 1998. Please
Management Discussion (here attached) for more details.
SCHEDULE "C"
MANAGEMENT DISCUSSION
MANAGEMENT DISCUSSION
For the three month period ending December 31st, 1997 National Healthcare
Manufacturing Corporation (NHMC), is pleased to report continued
development and progress of the Corporation.
Our active second quarter for fiscal 1998 was highlighted by the following;
- completion of US$ 5 million financing
- the signing of agreement to purchase Medi Guard Inc.
- appointment of senior management as new officers in the
corporation
- introduction of third and fourth generation robotic technology
- announcement of first quarter revenues
US$ 5 Million Private Placement
NHMC announced the completion of a US $ 5 million private placement
through the issuance of Convertible Notes and intends to utilize the net
proceeds from the private placement to facilitate its expanded growth and
finance future acquisitions.
The Notes, issued to two European funds, are convertible into units
consisting of Convertible Debentures and Warrants entitling the holders to
purchase up to 250,000 shares of Common Stock of the Company upon
registration with the US Securities and Exchange Commission and a receipt
being issued for the company's prospectus by the B.C. Securities
Commission. The Convertible Debentures are convertible into shares of the
Company's Common Stock at a conversion price equal to the lower of the
average closing bid price of a share of Common Stock over the five
consecutive trading days prior to (a) the October 1st closing date or (b)
85% of average closing price on conversion date. Unless earlier converted,
the Convertible Debentures will be automatically converted into Common
Stock on October 1, 1998. The Convertible Notes bear cumulative dividends
at the rate of 6% per annum, payable in cash or in Common Stock. The
Warrants have a term of two years and are exercisable at 110% and 120% of
the average closing price if exercised within the first year or the second
year from the Closing Date, respectively. The company has paid 5%
commission in connection with this private placement to Corporate Capital
Management.
Signing of Agreement to Purchase Medi Guard
The Company announced that it has signed a definitive agreement to purchase
100% of privately held Medi Guard Inc. of Oakville, Ontario. Medi Guard
Inc. is Canada's leading manufacturer of cellulose based disposable
protective products for medical use. These products include examination
gowns, drapes, table paper, bibs, towels, and aprons. The company also
produces a line of single use products for airline in flight services. In
1995 Medi Guard revenues were $770,000, which increased to $2.8 million in
1996, with similar growth projected for 1997. Completion of this
acquisition was subject to VSE approval which was granted on January 29,
1998.
The acquisition of Medi Guard and the inclusion of their products in our
procedure trays and custom kits is consistent with enhances NHMC's vertical
integration strategy. Also, NHMC's existing distribution channels in
Canada, Europe & the United States will further assist in rapid growth of
Medi Guard product sales.
Appointment of Officers and Directors
Pursuant to November 28, 1997 annual general meeting held in Winnipeg,
Manitoba, NHMC included the following senior management as new officers in
the corporation:
Mr. Jack Tapper, B.A., B.Comm. (Hons), C.A., Vice President, Chief
Financial Officer and Director
Ms. Nancy Clark, RN, MBA, Vice President of Operations. Ms. Clark has
25 years experience in the healthcare industry, both as a nursing
instructor and in material management / purchasing with various
healthcare institutions.
Mr. Patrick Patterson, to General Manager of the NHMC Winnipeg
manufacturing facility.
Third Generation Technology Revealed
The Company held an open house and ribbon cutting ceremony to introduce
National Healthcare's recently installed third generation robotic
technology. Amongst the attending shareholders, brokers and media
reporters were various MP's present to view the technology and meet
management. The presentation was held on Thursday, December 4, 1997 at
10:00 am at our head office and manufacturing facility in Winnipeg,
Manitoba.
To facilitate its internal growth, NHMC has intensified its sales and
marketing efforts in the United States. An experienced group of dedicated
US sales representatives specializing in the health care industry have
generated tremendous exposure resulting in a significant increase in
revenues. Significant effects of this sales team will be experienced over
the next few quarters. NHMC will continue to grow both internally and
through joint ventures and/or a strategic acquisition strategy.
National Healthcare is rapidly emerging as a market leader capable of
providing the healthcare industry with a comprehensive array of products
and services that incorporate custom packaging, sterile re-packing and
laundry services, along with the state of the art supply management
distribution technology. In the past two years NHMC has broadened its
multi-faceted mandate to include:
1. Logistics and distribution centers (Hub & Spoke) where NHMC in
partnership with hospitals and/or SYSCO Corp.(NYSE: SYY) designs and
implements centralized logistic services for regional authorities. NHMC
Hub & Spokes centers will also be enhanced by construction of facilities
where reusable products such as Mertex and other protective wear will be
packed, sterilized and delivered daily to hospitals.
2. Packaging services where NHMC (utilizing its state-of-the-art robotic
technology) will provide procedure based disposable kits and trays to meet
most procedural supply needs in hospitals.
By centralizing these services within the Hub & Spoke Centers, NHMC expects
to deliver significant cost savings to healthcare systems while providing
high levels of customer focused service. We will continue our pursuit for
innovative products and services to further minimize healthcare costs to
end users.
NHMC's management and employees are genuinely committed to the Company's
growth and success. This dedication combined with our shareholders loyalty
and confidence has enhanced our ability to prosper. Thank you for your
support. Please feel free to contact either Dexter or Alex in our Vancouver
office with any comments you may have. We will continue to inform you of
our progress.
Sincerely,
/S/ M. Seyed Torabian
M. Seyed Torabian, P.Eng.
Executive Vice-President/Director