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 May 1998
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
(Name of Registrant)
251 Saulteaux Crescent, Winnipeg, Manitoba Canada R3J 3C7
(Address of principal executive offices)
1. Quarterly Report: For Period Ending March 31, 1998
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: May 28, 1998 By:/s/M.Seyed Torabian
_________________________________
M. Seyed Torabian, Vice President/Director
FORM 61
QUARTERLY REPORT
Incorporated as part of: X Schedule A
_____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 March 31, 1998
DATE OF REPORT May 28, 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"
1998/05/28
NAME OF DIRECTOR DATE SIGNED (YY/MM/DD)
"Seyed Morteza Torabian"
1998/05/28
NAME OF DIRECTOR DATE SIGNED (YY/MM/DD)
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 1998
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
(with comparative balances as at March 31,1997)
1998 1997
ASSETS
CURRENT ASSETS
Cash and short-term investments $6,007,439 $6,635,539
Accounts receivable 2,624,934 1,601,811
Inventories ( Notes 4) 6,184,474 1,924,771
Prepaid expenses 762,637 33,336
15,579,484 10,195,457
INVESTMENTS 4,081,487 300,000
PROPERTY, PLANT AND EQUIPMENT
USED IN OPERATIONS (Notes 5) 8,765,983 7,611,908
ASSETS UNDER DEVELOPMENT (Notes 6) 10,650,346 9,195,351
$39,077,299 $27,302,716
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Cheques issued in excess of amounts on deposits $674,794 $ 257,898
Accounts payable and accrued liabilities 1,707,447 1,138,497
Current portion of long-term debt (Note 664,134 280,000
Current portion of obligations
under capitol leases (Note 8) 1,914,745 1,615,444
4,961,120 3,291,839
LONG-TERM DEBT (Note 7) 14,084,826 2,836,196
OBLIGATIONS UNDER CAPITOL LEASES (Note 8) 4,190,873 5,917,976
DEFERRED FOREIGN EXCHANGE GAIN - 59,911
LOANS PAYABLE TO SHAREHOLDERS
AND RELATED COMPANIES (Note 9) 555,497 812,522
23,792,316 12,918,444
SHAREHOLDERS' EQUITY
Share capitol (Note 11) 15,764,952 9,302,638
Warrants (Note 12) 12,093,206 12,093,206
Deficit (12,573,177) (7,011,572)
15,284,982 14,384,272
$39,077,299 $27,302,716
The accompanying notes are an integral part of these consolidated balance
sheets.
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED MARCH 31,1998
(with comparative balances for the nine months ended March 31,1997)
1998 1997
REVENUES
Sales (Note 14) $6,749,773 $2,931,182
Other 76,488 223,649
6,826,261 3,136,831
COSTS AND EXPENSES
Cost of sales 3,691,838 1,431,595
depreciation and amortization
Of property, plant and equipment 1,085,739 1,181,542
Interest on long-term debt 381,923 316,679
Other 69,774 98,000
Selling, distribution and administrative 5,285,299 3,040,047
10,514,572 6,067,863
LOSS FROM OPERATIONS (3,688,311) (2,931,032)
LOSS FROM INVESTEE (649,396) -
NET LOSS $(4,337,707) $(2,931,032)
BASIC LOSS PER SHARE $0.33 $0.27
WEIGHTED AVERAGE
COMMON SHARES OUTSTANDING 13,259,472 10,877,339
The accompanying notes are an integral part of these consolidated
statements.
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR NINE MONTHS ENDED MARCH 31, 1998
(WITH COMPARATIVE BALANCES FOR THE NINE MONTHS ENDED MARCH 31, 1997)
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 - - 6,399,864
ISSUE OF SHARES FOR PROPERTY 350 350,000 - - 350,000
SHARE SPLIT 7,884,468 - - - -
ISSUE OF SHARES FOR CASH 1,680,000 136,000 - - 136,000
NET LOSS - - - (868,794 (868,794)
BALANCES AT JUNE 30,1995 9,578,290 6,826,664 - (868,764)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 3,385,072 5,636,330 - - 5,636,330
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
SHARE ISSUE COSTS - (1,213,288) - - (1,213,288)
NET LOSS - - - (4,244,594)(4,244,594)
BALANCES AT
MARCH 31, 1998 15,821,903 $15,764,952 $ 12,093,206 $(12,573,177) $15,284,982
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
STATEMENTS.
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION
FOR THE NINE MONTHS ENDED MARCH 31, 1998
(with comparative balances for the nine months ended March 31,1997)
1998 1997
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Net loss ($4,337,707) $(2,931,032)
Items not affecting cash
Depreciation and Amortization 1,085,739 1,181,542
Loss from INVESTEE 649,396 -
(2,602,572) (1,749,490)
Net change in non-cash
Operating assets and liabilities
Accounts receivable (797,725) (1,190,665
Inventories (3,334,462) (451,875)
Prepaid expenses (397,639) 40,472
Accounts payable and accrued liabilities 435,827 14,511
(6,696,571) (3,337,047)
INVESTING ACTIVITIES
Acquisition of property, plant and equipment (2,934,844) (709,773)
Net assets of businesses acquired - (2,661,476)
Increase in Investments (4,240,080) (300,000)
(7,174,924) (3,671,249)
FINANCING ACTIVITIES
Proceeds from (Repayment of)
Obligations under capitol leases (1,117,919) (1,117,321)
Proceeds from long-term debt 11,481,634 947,112
Deferred foreign exchange gain (54,128) (114,162)
Advances from shareholdersa
and related companies (1,416,155) 91,696
Net proceeds from issuance of
Class a common shares 6,446,789 625,287
Net proceeds issuance of warrants 12,093,206
15,340,221 12,495,817
INCREASE (DECREASE) IN CASH 1,468,726 5,487,521
CASH, beginning of period 3,863,918 890,120
CASH, end of period $5,332,644 $6,377,641
REPRESENTED BY:
Cash and short-term investments $6,007,439 $6,635,539
Bank Indebtedness (674,794) (257,898)
$5,332,644 $6,377,641
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Cash paid for: Interest (net of amount capitalized$381,923 $316,679
Income Taxes - -
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(WITH COMPARATIVE BALANCES AS AT MARCH 31, 1997)
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 in 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 up-front 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 $12,573,177 as at March 31,1998. 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 MARCH 31, 1998
(WITH COMPARATIVE BALANCES AS AT MARCH 31, 1997)
3. ACCOUNTING POLICIES
Basis of consolidation
These consolidated financial statements include the accounts of the
Company and its wholly owed 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
MARCH 31, 1998
(WITH COMPARATIVE BALANCES AS AT MARCH 31, 1997)
1. 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 accounting 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 translation 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, expect 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
thoseestimates.
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(WITH COMPARATIVE BALANCES AS AT MARCH 31, 1997)
2. 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 this year.
3. INVENTORIES
1998 1997
Raw Materials $1,597,808 $ 878,647
Finished goods and samples 4,586,666 1,046,124
$6,184,474 $ 1,924,771
4. PROPERTY, PLANT AND EQUIPMENT USED IN OPERATIONS
1998 1997
Accumulated
Cost Depreciation Net Net
Land $585,395 $- $585,395 $622,888
Building, improvements
And paving 2,361,219 192,045 2,169,174 2,226,059
Furniture and fixtures 268,999 91,517 177,482 201,641
Computer equipment 330,069 78,310 251,759 70,508
Machinery and equipment 5,024,872 1,448,541 3,576,331 2,103,044
Leasehold Improvement 43,218 22,972 20,246 -
Paving 9,400 1,451 7,949 8,613
Equipment under capital
Lease 4,211,479 2,233,832 1,977,647 2,379,156
12,834,650 $4,068,668 $8,765,983 $7,611,908
For the period ending March 31, 1998, no interest was capitalized to the
equipment under capital lease (1996-$nil).
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(WITH COMPARATIVE BALANCES AS AT MARCH 31, 1997)
5. ASSETS UNDER DEVELOPMENT
1998 1997
Machinery and equipment in storage $408,562 $408,562
Equipment under capital lease (1194) 2,313,246 2,441,623
Equipment under capital lease (1194-001) 7,928,538 $6,345,166
$10,650,346 $9,195,351
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 $318,359 (1997-$331,511) has been
capitalized to the equipment under capital lease 1094-001.
6. OPERATING BANK LOAN
Hongkong Bank of Canada authorized $600,000 Operating Loan. This loan
is repayable upon demand and bears interest at the rate of Hongkong
Bank of Canada Prime plus 2%
Collateral for this loan is listed below.
7. LONG-TERM DEBT
1998 1997
Western Economic Diversification, term loan
matures December 1,1999, unsecured, non-interest
bearing, repayable in variable
quarterly payments commencing September 1, 1998 $1,804,835 $1,503,050
The Western Economic Diversification Term 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 loan.
Province of Manitoba, term loan, bears interest at the rate
charged to Manitoba Crown Corporations for borrowing
amortized over a ten year period (currently 8%), secured by
a first fixed charge against land, buildings and equipment,
and a second charge over accounts receivable and inventories,
repayable in six consecutive monthly instalments of $30,000
each commencing May, 1999 and consecutive monthly instalments
of 51,958 each thereafter, until fully repaid 2,174,126 1,613,146
The Province of Manitoba term 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. 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.
U.S. $6,750.000 Convertible Notes Issued March 31, 1998. The
Convertible Notes bear interest of 6% annually and are convertible,
upon approval by securities authorities, into Class A common shares
of the company at a conversion price of 85% of the average closing
bid price for the five trading days immediately preceding the
conversion notice. The notes carry a maximum price of US $3.50 and
a rolling floor price of US 9,562,050 -
Hongkong Bank term loans, due November 1, 2001, bear interest
at the rate of the Hongkong Bank prime plus 2.0%-3%, repayable
in 21 consecutive monthly payments of $12,727 commencing
April 1, 1997 followed by 15 consecutive monthly payments of
$12,192 followed by 15
consecutive monthly payments of
variable amounts plus interest. 460,649 -
Business Development Bank of Canada term loans, due December
23, 2002, bear interest at the rate of 0.9%-3.5% above the
Business Development Bank of Canada operational interest rate
and are repayable in 2 consecutive monthly principal payments
of $3,250 plus interest commencing January 23, 1997followed
by 58 consecutive monthly principal payments of $4,285 plus
interest followed by 10 consecutive monthly principal payments
of $3,450 plus interest.No dividends are to be paid until
the loan is repaid in full. 247,300 -
Roynat Inc. subordinated debenture with detachable shares in
Medi Guard Inc. issued May 30, 1997. The subordinated debenture
bears interest at 10% per annum payable monthly together with a
$12,500 administrative fee paid quarterly. The detachable shares
convert, on a fully diluted basis, into a 15% common equity interest
in Medi Guard Inc. Subject to certain covenants, the Company has
the option to repurchases 1.5% of the equity for $40,000 for each
of 5 consecutive years commencing March 15, 1998. 500,000 -
The debenture is secured by a fixed and floating charge on all the
assets of Medi Guard Inc., but subordinated to all current and
long term indebtedness of that company 14,748,960 3,116,196
Less: current portion (664,134) -
$14,084,826 $3,116,196
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(WITH COMPARATIVE BALANCES AS AT MARCH 31, 1997)
8. LONG-TERM DEBT,
The minimum aggregate principal repayments required under the terms
of the long term debt agreements are as follows:
1998 $433,000
1999 $1,371,641
2000 $1,549,271
2001 $699,443
2002 $669,405
2003 $519,583
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 March 31, 1998 as follows:
LEASE LEASE LEASE
1094-001 1094-002 1194 Total
1998 $1,160,304 $635,749 $693,077 $2,489,130
1999 1,160,304 635,749 115,513 1,911,566
2000 1,160,304 635,749 - 1,796,053
2001 676,844 476,812 - 1,153,656
Total minimum lease
payments 4,175,755 2,348,060 808,590 7,350,405
Less: amount representing
interest approximating
10.4% to 11.5% 763,309 454,875 26,603 1,244,787
3,394,446 1,929,185 781,988 6,105,618
Less: current
portion 811,850 436,421 666,475 1,914,745
$2,582,596 $1,492,764 $115,513 $4,190,873
Since fiscal 1995, the Company was in dispute with the original lessor in
respect of capital leases 1094-001, 1094-002and 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 capitol leases and the lease obligation
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
MARCH 31, 1998
(WITH COMPARATIVE BALANCES AS AT MARCH 31, 1997)
9. LOANS PAYABLE TO SHAREHOLDERS AND DIRECT-RELATED COMPANIES
1998 1997
Loans payable, shareholders $555,497 $1,095,813
Loans payable (advances to), director-related
companies - (283,291)
$555,497 $812,522
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 and Manitoba Development Corporation 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
1998 1997
Common Shares Authorized
Unlimited Class A common shares, voting
Issued
15,821,903, Class A common shares,
Net of issue costs (1997-11,064,915) $15,764,952 $9,302,638
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
MARCH 31, 1998
(WITH COMPARATIVE BALANCES AS AT MARCH 31, 1997)
12. 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
1998 1997
Options outstanding, beginning of year 1,367,654 987,829
Options - 536,950
Options exercised (37,500) (67,125)
Options canceled 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.
13. 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 the 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 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 the 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.
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(WITH COMPARATIVE BALANCES AS AT MARCH 31, 1997)
14. WARRANTS (CONTINUED)
Special Warrants (continued)
On January 8, 1997, the Company closed a second private placement of
1,600,000 special warrants at a price of $6.00 per special warrant.
Each special warrant entitled the holder, upon exercise , to acquire
one unit consisting of one Class A 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 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 brokers's warrants were
outstanding at March 31, 1998.
15. 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 $ 1,887,000
2003 $ 2,996,000
2004 $ 6,006,000
2012 $ 101,000
$ 10,990,000
the tax credits available to the Company begin to expire in 2002.
16. SEGMENTED INFORMATION
The Company operates primarily in, and derives revenue from, the
automated packaging and sale of surgical and custom procedure
trays and liquid products for the healthcare industry segment.
A significant portion of the Company's sales during the year were to
customers in a foreign country:
1998 1997
Sales to customers outside Canada $4,782,672 $995,781
Sales to customers within Canada 1,967,101 1,917,400
$6,749,773 $2,913,181
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(WITH COMPARATIVE BALANCES AS AT MARCH 31, 1997)
17. RELATED PARTY TRANSACTIONS
The President and Chief Executive Officer of the Company also serves
as President and chief Executive Officer of another company which has
granted National Healthcare Manufacturing Corporation rights to
certain technology under a licensing agreement made under similar
terms and conditions as transactions with related 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 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 (1997-$666,722) 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.
18. 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-formula results of
operations have not been presented for the full year as it would not
be materially different from the 1997 results of operations.
19. COMPARATIVE FIGURES
Certain of the prior years figures have been reclassified to conform
to the current year's presentation.
20. SUBSEQUENT EVENTS
ACQUISITION OF Budva International L.L.C.
Effective April 15, 1998, The Company entered into an agreement to
acquired 100% of Budva International L.L.C., a leading manufacturer of
disposable plastic products for the healthcare industry. The Company
paid three times the net annualized earnings as well as assuming bank
debt and outstanding loans aggregating U.S.$1,085,000. The purchase
price is to be paid by the Company issuing Class A common shares at a
per share value equal to the average closing price for the five
trading days preceding the anniversary of the closing date. The
acquisition is subject to regulatory approval.
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(WITH COMPARATIVE BALANCES AS AT MARCH 31, 1997)
21. 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-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.
1998 1997
Net loss as reported $(4,337,707) (2,931,032)
Deferred foreign exchange gain (loss) - (144,162)
Net loss-U.S. GAAP $(4,337,707) $(3,075,194)
weighted average shares outstanding-U.S. GAAP 12,079,472 9,697,339
loss per share-U.S.GAAP $(0.36) $(0.32)
shareholders' equity as reported $15,284,982 $14,384,272
deferred foreign exchange gain - 59,911
shareholders' equity-U.S. GAAP $15,284,982 $14,444,183
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 March 31, 1998
DATE OF REPORT May 28, 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" 1998/05/28
NAME OF DIRECTOR DATE SIGNED (YY/MM/DD)
"Seyed Morteza Torabian" 1998/05/28
NAME OF DIRECTOR DATE SIGNED (YY/MM/DD)
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 $312,300 in management salaries to March 31, 1998.
2. Quarter in Review
(a) Summary of securities issued during the quarter ended March 31,
1998.
No. of shares Amount (CDN$)
Authorized (common): Unlimited # Class A
Common shares
Issued & Outstanding: 14,111,331 $22,742,213.30
Beginning of Period
Jan. 9, 1998 - Conversion of
convertible debenture into 639,955
Class "A" Common shares by (European Fund
- - 207,314 at US$2.4118/share
- - 418,305 at US$2.3906/share
- - 8,163 at US$2.45/share
- - 6,173 at US$2.43/share
639,955 *$2,116,458.00
Jan. 20, 1998 - Conversion of
convertible debenture into 60,615
Class "A" Common shares by (European Fund
- - 3,891 at US$2.57/share
- - 15,625 at US$2.56/share
- - 13,755 at US$2.54/share
- - 27,344 at US$2.56/share
60,615 *$213,714.00
Jan. 20, 1998 - Exercise of
200,000 warrants (by brokered 200,000 $700,000.00
Private placement at $3.50Cdn/share)
Jan. 27, 1998 - Conversion of
convertible debenture into 9,158 Class 9,158 *$34,470.00
"A" Common shares by (European Fund -
9,158 at US$2.73/share)
Feb. 2, 1998 - Exercise of 35,000
warrants (by brokered 35,000 $122,500.00
Private placement at $3.50Cdn/share)
Feb. 20, 1998 - Conversion of
convertible debenture into 4,785 Class 4,785 *$13,788.00
"A" Common shares by (European Fund -
4,785 at US$2.09/share)
Feb. 23, 1998 - Conversion of convertible
debenture into 672,269 Class 672,269 * $2,068,200.00
"A" Common shares by (European Fund -
672,269 at US$2.23125/share)
Mar. 20, 1998 - Conversion of
convertible debenture into 88,790 Class 88,790 * $275,760.00
"A" Common shares by (European Fund -
88,790 at US$2.2525/share)
End of Period 15,821,903 $28,011,343.30
========== ==============
*Convertible Notes, issued to two European funds, are convertible into
units consisting of Convertible Debentures and Warrants. 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
see Company's Oct. 2/97 News Release for more information.) Although the
US$5 million was received on the date of the agreement for reasons of
clarity we have posted the amount received in Canadian dollars (exchange
rate 1.3877) for each transaction.
3. As at end of quarter (March 31, 1998):
(a) Authorized Capital: Unlimited # Class "A" Shares
Shares Issued and Outstanding: 15,821,903
(b) Summary of Options Outstanding:
Date of
Agreement Option Type No. of Shares Exercise Price Expiry Date
June 29, 1995 3 employees 159,500 $2.00 November 30, 2000
June 29, 1995 7 directors 625,829 $2.00 November 30, 2000
Sept.14, 1995 1 director 20,000 $2.00 November 30, 2000
Oct. 7, 1996 5 employees 33,125 $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 31 employees 219,500 $6.13 June 3, 2002
_______
TOTAL 1,210,904
SCHEDULE "C"
MANAGEMENT DISCUSSION
MANAGEMENT DISCUSSION
For the three month period ending March 31st, 1998 National Healthcare
Manufacturing Corporation (NHMC), is pleased to report continued
development and progress of the Corporation.
Our active third quarter for fiscal 1998 was highlighted by the following;
- - signing of a long term agreement to establish and manage a "Hub &
Spoke" distribution center for 5 Florida based hospitals
- - regulatory approval receiving for Medi Guard acquisition
- - signing of exclusive supply/purchase agreement with Simplex Medical
Systems
- - announcement of second quarter revenues
Hub & Spoke Distribution Agreement
The Company was pleased to announce its subsidiary National Healthcare
Logistics (NHCL) signed its first long term agreement to establish and
manage a "Hub & Spoke" distribution center for five Florida based hospitals
including Sarasota Memorial and the Lee Memorial Healthcare System of Fort
Myers. The Hub & Spoke logistics system will revolutionize supply chain
management for US and Canadian hospitals. This Hub & Spoke center, the
first of many, will be owned by the participating hospitals, and will
account for over US$300 million (CDN$430 million) in purchases over the
term of the agreement. This system replaces conventional distribution
methods, and will lower the total cost for logistical support by as much
as 15-20%. NHCL's President, Duane Jorgensen stated "as more hospitals are
learning of the tremendous potential cost savings from our Hub & Spoke
Program, they are moving away from the current high cost distribution
systems to Hub & Spoke."
NHCL's Hub & Spoke system is revolutionary because it dedicates the
distribution center to serve only those hospitals participating in the
local alliance. The hospitals will gain additional benefit through the
ability to replace hundreds of supply sources with one distribution entity
and shift many other internal functions to the hub. The "Hub" is the
dedicated distribution center and serves as the platform upon which
"Spokes"may be formed by mutual consent of the participating hospitals.
Each NHCL "Hub" is customized to meet specific local requirements.
Feasibility studies conducted by NHCL will allow each hospitals to
determine the benefits to be gained from developing any particular "Spoke".
The Spokes are common services that can be cost shared by the local
alliance or integrated Delivery Network. Spokes can take cost savings
beyond the 15-20% range mentioned above, and be a source of new revenue for
the hospitals. According to Jorgensen, "many hospitals will prefer to
outsource completely and will, therefore, contract with NHCL to assume the
ownership, and accept the financial risk for the Hub."
Mac Shahsavar, President and CEO of National Healthcare said, " We are very
excited about the potential of the Hub & Spoke Program. In addition to
NHCL's fees for managing these centers, National Healthcare will benefit
by establishing an immediate conduit to market its products and services
directly to healthcare providers.
Regulatory Approval for Medi Guard Acquisition
NHMC received approval from the Vancouver Stock Exchange for the
acquisition of Medi Guard Inc. of Oakville, Ontario, 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 and which increased to $2.8 million in 1996, with similar growth
projected for 1997.
In consideration, the Company shall pay the greater of $400,000 or 1.5
times the annualized earnings of Medi-Guard (based on results of operations
for the 11 months following the agreement). The consideration shall be
paid in shares of the Company issued at the average closing price of the
shares for the five trading days preceding November 24, 1998 and not to
exceed 20% of the Company's shares outstanding. This is subject to
Exchange acceptance at that time.
This acquisition of Medi Guard and the inclusion of their products in
NHMC's custom procedure kits and trays 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.
.
Supply/Purchase Agreement with Simplex Medical Systems
NHMC and Simplex Medical Systems Inc. (SMS) announced signing a long term
supply/purchase agreement. NHMC's manufacturing facility in Antioch,
Illinois, will exclusively package, in one of its patented delivery
systems, all of the buffer solution manufactured and used in SMS's unique
HIV Diagnostic Test Kit. Production of the test kits using the new buffer
will start April 1st, 1998. SMS will introduce the new test kits into its
manufacturing, sales and marketing program immediately thereafter. In
addition, NHMC and SMS have begun negotiations on developing and
manufacturing the next generation test kit which will incorporate the
advanced packaging concepts of NHMC into a fully integrated, user friendly
line of rapid, saliva-based point-of-use testing systems which SMS will
distribute throughout its distribution network.
SMS is engaged in the development, manufacturing, acquisition and marketing
of a variety of products in the medical and dental industry. All of SMS's
products are manufactured in the United States in FDA registered
facilities. Some of the Company's products are currently approved for sale
in Venezuela, Spain, Costa Rica and other countries around the world.
Ongoing registrations are in progress in China, Europe and India.
Darrell Van Dyke, Vice President of NHMC stated, "We are very pleased to
have this relationship with the most innovative company in the HIV
Diagnostic Test Kit marketplace. This agreement lends significant
credibility to the use of our unique patented liquid/powder delivery
systems in various venues of the medical industry."
Tom Glickman, Vice President of Marketing for SMS commented that, "This
association with a proven innovator and leader in the medical packaging
field will enable SMS to rapidly move forward to advance its R&D efforts to
bring new and valuable diagnostic tools to the medical community."This
agreement provides NHMC with an immediate presence in the ever growing $1
billion diagnostic kit industry.
Second Quarter Fiscal 1998 Results
NHMC announced results for the quarter ended December 31, 1997. Revenues
for the six month period increased 160% to $4,316,442 from $1,661,585
reported for the comparable period last year. Revenues for the last three
months were $2,470,739 an increase of 34% over the previous quarter.
Highlighting the quarter was the completion and implementation of the
Company's state-of-the-art 3rd generation robotic technology used to
produce various kits and trays for medical and surgical procedures.
Gross Profit for the six month period increased to $2,104,135, an increase
of 254% over same period last year. The Company's gross profit rate also
increased to 49% over the comparable period last year of 36%. This
increase is attributed in large part to the introduction of automation, one
which identifies with healthcare providers on-going concerns for cost
effective supply alternatives. NHMC's unprecedented ability to package
these medical devices quicker, more efficiently, accurately and cost
effectively is providing the Company with a definitive edge in the
industry. The Company anticipates reducing the manual labour component
attributed to this production process by 80-90%.
To facilitate its internal growth, NHMC 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.
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