================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
Pursuant to Rule 13a-16 or 15d-16 of the Securities Exchange Act of 1934
For January 30, 2002
Commission File Number 0-31943
ImagicTV Inc.
(Translation of Registrant name into English)
One Brunswick Square
14/th/ Floor, P.O. Box 303
Saint John, New Brunswick, Canada E2L 3Y2
(Address of Principal Executive Offices) (Zip Code)
(506) 631-3000
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant files or will file annual reports
under cover Form 20-F or 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
-----
================================================================================
This Form 6-K is filed under the Securities Exchange Act of 1934,
as amended, and is incorporated by reference into the
Registration Statement on Form S-8 (Reg. No. 333-53910) of
ImagicTV Inc. and the related prospectus.
Information furnished on this form:
Third quarter report (for the quarter ended November 30, 2001)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
ImagicTV Inc.
-----------------------------------------------
(Registrant)
By: /s/ Marjean Henderson
-------------------------------------------
Vice President, Finance and Chief Financial
Officer
Date: January 30, 2002
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion and analysis should be read together with our annual
audited consolidated financial statements and the accompanying notes included in
our annual report and the condensed unaudited consolidated financial statements
as of and for three and nine months ended November 30, 2001 and November 30,
2000, and accompanying notes appearing elsewhere in this report. All financial
information is presented in U.S. dollars unless otherwise noted.
Some of the statements set forth in this report are forward-looking statements
relating to our future results of operations. Our actual results may vary
materially from the results anticipated by these statements. Please see
"Information Regarding Forward-Looking Statements".
OVERVIEW
We are a provider of infrastructure software products and services that enable
telephone companies and other service providers to deliver multi-channel digital
television and interactive media services to their subscribers' televisions and
personal computers over broadband networks. We were incorporated in December
1997 and began operations in January 1998. We delivered our initial DTV Manager
software product to NBTel, our first customer, in December 1998.
Current Developments
With the continued slowdown in capital spending in the telecommunications
industry and the uncertainty of the general economic conditions, our customers
have displayed a more cautious approach to the introduction of new services into
their operations, which has extended market trials and delayed commercial
deployments of our software. As a result, we have experienced significant
declines in actual and anticipated licensing revenues in the nine months ended
November 30, 2001.
Prior to the slowdown in the industry, we had been aggressively expanding our
operations, which we felt was necessary to increase our sales and marketing
efforts and to support our customers in anticipation of their commercial
deployment of multi-channel digital television. In response to the slowdown,
over the last nine months, we have been managing our operating expenses and
number of employees in an effort to effectively manage our cash resources. As we
anticipate the slowdown to continue longer than we originally had expected, we
adopted a restructuring plan in November 2001 to help us attain our goal to
achieve profitability within our existing cash resources. Accordingly, in the
three months ended November 30, 2001, we recorded a restructuring charge of
approximately $1.2 million related to employee severance costs and write-down of
surplus capital assets. We reduced the number of global employees from 209 to
133 as part of the restructuring. In addition to the reduction in staff levels
we have; (1) reduced discretionary marketing expenses; (2) introduced new
processes and tools to increase development productivity; and (3) introduced
processes to improve efficiencies in our software demonstration and installation
activities. We have made these changes with the intent of reducing costs while
continuing to deliver the same quality customer service and product development
to our customers.
We expect that the overall impact of this restructuring will be a reduction in
annual operating expenses of approximately $10.0 million compared with the
previous four fiscal quarters. The approximate annual savings are expected to be
derived from; (1) staff and related costs savings of $8.2 million; (2) marketing
savings of $1.1 million; and (3) other savings of $700,000.
[LOGO] IMAGICTV 2002 THIRD QUARTER REPORT - 3
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Revenues
Our total revenues decreased to $337,000 for the three months ended November 30,
2001 from $2.2 million for the three months ended November 30, 2000, and
decreased to $2.8 million for the nine months ended November 30, 2001 from $5.7
million for the nine months ended November 30, 2000. These decreases primarily
relate to non-recurring revenues of $1.1 million for the sale of set-top boxes
to NBTel in the nine months ended November 30, 2000 and the absence of license
fee revenues in the three month periods ended November 30, 2001 and August 31,
2001.
License Fees. We had no license fee revenues for the three months ended November
30, 2001 compared to $1.7 million for the three months ended November 30, 2000,
and our license fee revenues decreased to $522,000 for the nine months ended
November 30, 2001 from $3.7 million for the nine months ended November 30, 2000.
We did not execute any commercial license agreements in the three months ended
November 30, 2001, compared with two commercial license agreements executed in
the three months ended November 30, 2000. These decreases in license fees
revenue reflect the impact of the longer sales cycle we are experiencing as our
customers delay their move from a market trial to commercial deployment.
Royalty Fees. Our royalty fee revenues decreased to $39,000 for the three months
ended November 30, 2001 from $142,000 for the three months November 30, 2000,
and decreased to $157,000 for the nine months ended November 30, 2001 from
$212,000 for the nine months ended November 30, 2000. The royalty fee revenues
for the three and nine months ended November 30, 2001 were generated primarily
from Kingston Vision based on their monthly royalty fee payable to us for each
active subscriber. As NBTel had pre-purchased a block of subscriber fees in
January 2001, we did not anticipate any royalty revenues from them in the three
or nine month periods ended November 30, 2001. We anticipate our royalty fee
revenues will continue to be primarily generated from Kingston at the current
rates, until such time as our other licensed customers proceed to a commercial
deployment and begin to pay us a monthly royalty fee for each of their activate
subscribers.
Services. Our services revenues decreased to $298,000 for the three months ended
November 30, 2001 from $357,000 for the three months ended November 30, 2000,
and increased to $2.1 million for the nine months ended November 30, 2001 from
$693,000 for the nine months ended November 30, 2000. We experienced a reduction
in our services revenue in the quarter due to a slowdown in the programs of our
customers as they move from market trials to commercial deployments. The
increase in the nine month period ended November 30, 2001, reflects our
increased levels of service provided to our customers in market trials in our
first two quarters of fiscal 2002. We expect services revenues to be a
significant portion of our revenues as customers continue their migrations from
market trials to commercial deployment.
Equipment. Consistent with our expectations, we had no equipment revenues for
the three and nine months ended November 30, 2001 versus $4,000 for the three
months ended November 30, 2000, and $1.1 million for the nine months ended
November 30, 2000. The equipment revenues for the three and nine months ended
November 30, 2000, were generated from sales of set-top boxes to NBTel under a
set-top box supply agreement from us.
As our customers now purchase the set top boxes directly from the suppliers, we
expect our equipment revenues to continue to be zero or at very nominal amounts.
Cost of revenues
Excluding cost of equipment revenues, our cost of revenues decreased to $557,000
for the three months ended November 30, 2001 from $624,000 for the three months
ended November 30, 2000, and increased to $2.2 million for the nine months ended
November 30, 2001 from $1.3 million for the nine months ended November 30, 2000.
The decrease in the three months ended November 30, 2001 was due to our
decreased level of consulting services compared to the level of services
provided in the three months ended November 30, 2000. The increase for the nine
months ended November 30, 2001 compared to the nine months ended November 30,
2000 is primarily due to the fact that in fiscal 2002, we had more existing and
potential customers for whom we provided consulting work to support lab and
market trials than we did in fiscal 2001.
IMAGICTV 2002 THIRD QUARTER REPORT - 4 [LOGO]
MANAGEMENT'S DISCUSSION AND ANALYSIS
Operating Expenses
Sales and marketing. Sales and marketing expenses increased to $2.2 million for
the three months ended November 30, 2001 from $2.1 million for the three months
ended November 30, 2000, and increased to $7.7 million for the nine months ended
November 30, 2001 from $4.8 million for the nine months ended November 30, 2000.
We experienced a significant increase in our average staff levels in sales and
marketing during the nine months ended November 2001 compared to the nine months
ended November 30, 2000. As part of our expense and cash management efforts
over the last nine months we had been aggressively managing our operating
expenses in this area and were successful in minimizing the potential increase
even with the increased expenses related to our increased average staffing
levels.
Research and development. Research and development expenses decreased to $1.6
million for the three months ended November 30, 2001 from $2.4 million for the
three months ended November 30, 2000, and increased to $5.7 million for the nine
months ended November 30, 2001 from $5.6 million for the nine months ended
November 30, 2000. In the three months ended November 30, 2000 we incurred
increased expenses for the use of external consultants to assist in our efforts
to accelerate the delivery of DTV Manager 2.0 and pcVu 1.0. We did not incur
expenses for these types of accelerated deliverables in the three months ended
November 30, 2001.
General and administration. General and administration expenses increased to
$974,000 for the three months ended November 30, 2001 from $842,000 for the
three months ended November 30, 2000, and increased to $3.8 million for the nine
months ended November 30, 2001 from $1.8 million for the nine months ended
November 30, 2000. The increase primarily relates to a $1.2 million bad debt
reserve recorded in the nine months ended November 30, 2001, increased
professional services fees related to regulatory compliance and increased
insurance costs since we became a public company in November 2000. We anticipate
our general and administration expenses will remain at their current levels,
excluding the above referenced bad debt reserve.
Restructuring charge. During the three months ended November 30, 2001 we adopted
a restructuring plan and incurred a restructuring charge of $1.2 million related
to severance costs, re-employment consulting costs and write-down of surplus
capital assets. We have paid a substantial portion of these costs as of
November 30, 2001. Included in our Accrued liabilities is approximately $370,000
related to the unpaid portion of these costs. For additional information
regarding our restructuring plan, see " Current Developments" and "Liquidity and
Capital Resources".
Non-cash Operating Expenses
The following non-cash operating expenses have been incorporated in the
operating expense categories to which they relate.
Depreciation. Depreciation expense increased to $500,000 for the three months
ended November 30, 2001 from $310,000 for the three months ended November 30,
2000, and increased to $1.4 million for the nine months ended November 30, 2001
from $793,000 for the nine months ended November 30, 2000. The increase is due
to our accelerated infrastructure and equipment purchases in the last six
months of fiscal 2001 to support our increased staffing and geographic
locations.
Stock-based compensation. Stock-based compensation expense decreased to $203,000
for the three months ended November 30, 2001 from $255,000 for the three months
ended November 30, 2000, and increased to $496,000 for the nine months ended
November 30, 2001 from $347,000 for the nine months ended November 30, 2000. The
expense is largely attributable to amortization of deferred stock-based
compensation related to options granted between May 2000 and August 2000. We did
not record any additional deferred stock-based compensation expense in the three
months ended November 30, 2001. The deferred stock-based compensation represents
the difference between the exercise prices of options granted to acquire our
common shares and the deemed fair value, for financial reporting purposes, of
our common shares on the date of their respective granting. Deferred stock-based
compensation is being amortized on a straight-line basis over the vesting
periods of the options. We expect our stock based compensation expense to
continue at current expense amounts.
[LOGO] IMAGICTV 2002 THIRD QUARTER REPORT - 5
MANAGEMENT'S DISCUSSION AND ANALYSIS
Other income
Interest income increased to $326,000 for the three months ended November 30,
2001 from $184,000 for the three months ended November 30, 2000, and increased
to $1.5 million for the nine months ended November 30, 2001 from $263,000 for
the nine months ended November 30, 2000. The increases in the periods are
primarily due to interest earned on proceeds received from our fiscal 2001
private placements and our November 2000 initial public offering. Given the
continued reductions in prevailing interest rates, we anticipate we will
continue to receive lower rates of interest on our short term investments during
fiscal 2002.
Net loss
We recorded a net loss of $5.9 million for the three months ended November 30,
2001 compared to a net loss of $3.2 million for the three months ended November
30, 2000, and our net loss increased to $16.5 million for the nine months ended
November 30, 2001 from $8.2 million for the nine months ended November 30, 2000.
Our net loss per share, using the weighted average number of shares outstanding,
was $0.24 for the three months ended November 30, 2001 compared with a net loss
per share of $0.16 for the three months ended November 30, 2000, and increased
to $0.67 for the nine months ended November 30, 2001 from $0.45 for the nine
months ended November 30, 2000. This increased loss is primarily a result of
lower than expected revenues for the nine months ended November 30, 2001 coupled
with higher operating costs related to the acceleration of our infrastructure
spending and employee hires, primarily in the third and fourth quarters of
fiscal 2001, in anticipation of increased revenues and expanded customer base
for fiscal 2002. In response to the continued economic slowdown in our industry
we adopted our restructuring plan to reduce future operating costs. (See
"Current Developments")
Liquidity and Capital Resources
Net cash used in our operating activities was $3.1 million for the three months
ended November 30, 2001 compared to $2.8 million for the three months ended
November 30, 2000, and $11.2 million for the nine months ended November 30, 2001
compared to $6.2 million for the nine months ended November 30, 2000. Cash used
in operating activities for the three months ended November 30, 2001 reflects
our net operating loss of $5.9 million, partially offset by depreciation of
$500,000, amortization of stock-based compensation of $161,000, write-off of
capital assets of $253,000 and net increases in working capital of $1.9 million.
Our cash used in investing activities, before the sale and purchase of temporary
investments, was $414,000 for the three months ended November 30, 2001 compared
to $716,000 for the three months ended November 30, 2000, and decreased to $1.1
million for the nine months ended November 30, 2001 from $1.9 million for the
nine months ended November 30, 2000. The decrease in our use of cash for
investing for the nine months ended November 30, 2001 is primarily due to our
reduced purchases of computer equipment and office furniture as we have not
significantly increased our staff levels during this period. We expect our
capital expenditures to remain at current levels for at least the next 12
months.
We did not generate any cash from financing activities for the three months
ended November 30, 2001, compared to $72.0 million for the three months ended
November 30, 2000, and our cash used in financing activities was nil for the
nine months ended November 30, 2001 versus cash from financing activities of
$71.0 million for the nine months ended November 30, 2000. The decreases reflect
the proceeds received from our private financing and initial public offering
completed in the nine months ended November 30, 2000. We have not commenced nor
completed any financing activities in the current fiscal year.
Based on current and planned operations, we expect that our cash and cash
equivalents of $48.4 million as of November 30, 2001, will be sufficient to
cover our cash requirements beyond the next 12 months. In the longer-term, we
may require additional equity financing or borrowing to fund our business.
IMAGICTV 2002 THIRD QUARTER REPORT - 6 [LOGO]
MANAGEMENT'S DISCUSSION AND ANALYSIS
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Industry risk
The telecommunications industry, in the past 12 months, has experienced
significant economic pressure on revenues, earnings and return on investment,
and in response telephone companies have made significant reductions in capital
spending in many areas of their business including new and emerging services. As
a result, we have experienced a longer sales cycle as our customers continue to
delay their move from market trials to commercial deployments. This has impacted
our ability to earn license revenues from market trials or commercial
deployments.
While we expect that telephone companies will increase market trials in the next
twelve months, if the current economic conditions continue, our customers could
continue to delay their move from the market trial stage to commercial
deployment until such time as the industry economics improve. Accordingly, our
license fee and royalty fee revenues may be significantly delayed, may be less
than previously anticipated or may not significantly materialize if customers or
potential customers direct their capital spending in areas other than video
deployment.
Impact of Interest Rate Exposure
As of November 30, 2001, we had approximately $48.4 million in cash, cash
equivalents and short-term investments, of which approximately $47.0 million
were short-term investments. A significant portion of the cash earns interest at
variable rates. Although a portion of our short-term investments consists of
fixed-rate instruments, the average term is shorter than prior period investment
holdings, as short-term yield rates are currently in excess of longer term
rates. As a result, our interest income is sensitive to changes in the level of
prevailing interest rates. Interest rates have continued to decline in fiscal
2002 and as a result we anticipate our average yield earned on surplus funds in
fiscal 2002 to be lower than yields earned in fiscal 2001. We do not anticipate
this situation to have any short-term material adverse impact on our cash
position.
Impact of Foreign Exchange Rate Exposure
We continue to expect the majority of our revenues will be earned in U.S.
dollars, and a significant portion of our operating expenses and capital
expenditures will be incurred in Canadian dollars. Changes in the value of the
Canadian dollar relative to the U.S. dollar may result in currency translation
gains and losses which could affect our operating results. We also deal in other
foreign currencies; however, we anticipate that changes in the exchange rates of
these currencies will not have a material impact on our operating results. While
we do not hedge our foreign exchange rate exposure with financial derivative
instruments, we do maintain a portion of our short term investment portfolio in
Canadian dollar denominated instruments.
INFORMATION REGARDING FORWARD LOOKING STATEMENTS
This report contains forward-looking statements. These statements include
statements regarding: conditions in the telecom industry, our strategy and
plans, our efforts to develop and enhance our products, our expected sources of
revenues, our future expected costs and losses, our capital requirements and the
outlook for our business. When used in this document, the words "will," "plan,"
"anticipate," "expect," "intend," "believe" and similar expressions referring to
events to occur in the future are intended to identify forward-looking
statements. Such statements reflect our current views with respect to future
events, are based on information currently available to us and are subject to
risks and uncertainties, including: unanticipated trends and conditions in our
industry, delays and difficulties that we encounter in developing enhanced
products, the risk that we will not have sufficient capital to maintain or
expand our operations, delays and difficulties in obtaining customers or in
their commercial deployment of services based on our products, and other risks
described in our filings with the U.S. Securities and Exchange Commission and
Canadian Securities Administrators, including the prospectus for our initial
public offering dated November 20, 2000, our Form 20-F and Annual Information
Form for the fiscal year ended February 28, 2001. These and other factors could
cause our actual results, performance or achievements to differ materially from
any future results, performance or achievements that may be expressed or implied
by such forward-looking statements. These factors should be considered
carefully, and readers should not place undue reliance on the forward-looking
statements. We do not undertake any obligation to update this forward-looking
information.
[LOGO] IMAGICTV 2002 THIRD QUARTER REPORT - 7
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands of U.S. dollars)
November 30, February 28,
2001 2001
- ------------------------------------------------------------------------------------------
[unaudited]
Assets
Current assets:
Cash and cash equivalents $ 7,947 $ 1,332
Short-term investments 40,404 59,428
Accounts receivable, trade, net of allowance of $650 1,206 5,680
(February 28, 2001 - nil)
Instalment receivables - 705
Inventory 214 295
Prepaid expenses, deposits and other receivables 825 1,436
- ------------------------------------------------------------------------------------------
Total current assets 50,596 68,876
- ------------------------------------------------------------------------------------------
Capital assets 2,482 2,970
- -------------------------------------------------------------------------------------------
Total assets $53,078 $71,846
===========================================================================================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 688 $ 1,055
Accrued liabilities 1,947 3,823
Deferred revenue and customer deposits 675 1,119
Current portion of long-term debt 70 72
- ------------------------------------------------------------------------------------------
Total current liabilities 3,380 6,069
- ------------------------------------------------------------------------------------------
Long-term debt 1,537 1,577
- ------------------------------------------------------------------------------------------
Shareholders' equity:
Authorized:
Unlimited common shares, no par value
Unlimited preferred shares, no par value
Issues and outstanding:
24,598,442 Common Shares
(February 28, 2001 - 24,592,624) 87,102 87,678
Deferred stock-based compensation (1,668) (2,670)
Accumulated deficit (36,747) (20,282)
Reporting currency translation adjustments (526) (526)
- ------------------------------------------------------------------------------------------
Total shareholders' equity 48,161 64,200
- ------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $53,078 $71,846
==========================================================================================
See accompanying notes to condensed consolidated financial statements
IMAGICTV 2002 THIRD QUARTER REPORT - 8 [LOGO]
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
(In thousands of U.S. dollars, except per share amounts)
Three months ended Nine months ended
November 30, November 30,
2001 2000 2001 2000
- -------------------------------------------------------------------------------------------------------------
Revenues:
License fees $ - $ 1,662 $ 522 $ 3,715
Royalty fees 39 142 157 212
Services 298 357 2,111 693
Equipment - 4 - 1,110
- -------------------------------------------------------------------------------------------------------------
Total revenues 337 2,165 2,790 5,730
- -------------------------------------------------------------------------------------------------------------
Cost of revenues:
Services 557 624 2,169 1,302
Equipment - 4 - 1,033
- -------------------------------------------------------------------------------------------------------------
Total cost of revenues 557 628 2,169 2,335
- -------------------------------------------------------------------------------------------------------------
Gross profit (loss) (220) 1,537 621 3,395
- -------------------------------------------------------------------------------------------------------------
Operating expenses:
Sales and marketing 2,157 2,066 7,681 4,818
Research and development 1,622 2,444 5,726 5,634
General and administrative 974 842 3,838 1,794
Restructuring expense (note 6) 1,162 - 1,162 -
- -------------------------------------------------------------------------------------------------------------
Total operating expenses 5,915 5,352 18,407 12,246
- -------------------------------------------------------------------------------------------------------------
Loss from operations (6,135) (3,815) (17,786) (8,851)
- -------------------------------------------------------------------------------------------------------------
Interest income, net 326 184 1,483 263
Foreign exchange gain (loss), net (52) 421 18 458
- -------------------------------------------------------------------------------------------------------------
Loss before provision for income taxes (5,861) (3,210) (16,285) (8,130)
- -------------------------------------------------------------------------------------------------------------
Provision for income taxes (32) (7) (180) (37)
- -------------------------------------------------------------------------------------------------------------
Net loss for the period $ (5,893) $(3,217) $(16,465) $(8,167)
=============================================================================================================
Basic and diluted net loss per share $ (0.24) $ (0.16) $ (0.67) $ (0.45)
Weighted average number of shares outstanding 24,599 19,586 24,599 18,228
See accompanying notes to condensed consolidated financial statements
[LOGO] IMAGICTV 2002 THIRD QUARTER REPORT 2002 - 9
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
(In thousands of U.S. dollars)
Deferred
Stock-Based Reporting
Common Shares Compensation Currency Total
------------------- on Stock Accumulated Translation Shareholders'
Number Amount Options Deficit Adjustments Equity
- ----------------------------------------------------------------------------------------------------------------------
Balances, February 29, 2000 17,549 $ 14,489 $ - $ (8,824) $ 41 $ 5,706
Net loss - - - (8,167) - (8,167)
Amortization of deferred
stock-based compensation - - 354 - - 354
Deferred stock-based compensation - 3,220 (3,220) - - -
Reporting currency
translation adjustments - - - - (567) (567)
Issuance of shares for cash 6,712 71,158 - - - 71,158
- ----------------------------------------------------------------------------------------------------------------------
Balances, November 30, 2000 4,261 $ 88,867 $ (2,866) $ (16,991) $ (526) $ 68,484
======================================================================================================================
- ----------------------------------------------------------------------------------------------------------------------
Balances, February 28, 2001 24,593 $ 87,678 $ (2,670) $ (20,282) $ (526) $ 64,200
Net loss - - - (16,465) - (16,465)
Amortization of deferred
stock-based compensation - - 496 - - 496
Deferred stock-based compensation - (506) 506 - - -
Issuance of shares for cash 5 (70) - - - (70)
- ----------------------------------------------------------------------------------------------------------------------
Balances, November 30, 2001 24,598 $ 87,102 $ (1,668) $ (36,747) $ (526) $ 48,161
======================================================================================================================
See accompanying notes to condensed consolidated financial statements
IMAGIC 2002 THIRD QUARTER REPORT . 10 [LOGO]
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(In thousands of U.S. dollars, except per share amounts)
Three months ended Nine months ended
August 31, August 31,
2001 2000 2001 2000
- --------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net loss $ (5,893) $ (3,217) $(16,465) $ (8,167)
Items not involving cash:
Depreciation and amortization 500 310 1,394 793
Stock-based compensation 203 255 496 347
Write-down of capital assets 211 - 211 -
Change in operating assets and liabilities:
Accounts receivable, trade 1,088 (1,835) 4,474 (616)
Instalment receivables - - 705 (1,069)
Inventory 18 42 81 (357)
Prepaid expenses, deposits,
and other receivables 255 (110) 611 (271)
Accounts payable 415 (77) (367) 57
Accrued liabilities 164 1,154 (1,876) 3,302
Deferred revenue and customer deposits (56) 645 (444) (177)
- --------------------------------------------------------------------------------------------------------------------
Cash used in operating activities (3,095) (2,833) (11,180) (6,158)
- --------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of capital assets (414) (716) (1,117) (1,934)
Sale (purchase) of short-term 11,380 (65,825) 19,024 (65,825)
- --------------------------------------------------------------------------------------------------------------------
Cash from (used in) investing activities 10,966 (66,541) 17,907 (67,759)
- --------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Issuance of common shares,
net of share issue costs - 71,149 (76) 71,158
Deferred charges related to share issuances - 861 - -
- --------------------------------------------------------------------------------------------------------------------
Cash from (used in) financing activities - 72,010 (70) 71,158
- --------------------------------------------------------------------------------------------------------------------
Effect of foreign currency
exchange adjustments (25) (456) (42) (838)
- --------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash
and cash equivalents 7,846 2,180 6,615 (3,597)
Cash and cash equivalents, beginning of period 101 619 1,332 6,396
- --------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 7,947 $ 2,799 $ 7,947 $ 2,799
====================================================================================================================
Supplemental cash flow information:
Cash paid for taxes $ 13 $ 6 $ 90 $ 37
Cash received for interest $ 419 $ 68 $ 1,771 $ 68
See accompanying notes to condensed consolidated financial statements
[LOGO] IMAGIC 2002 THIRD QUARTER REPORT . 11
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Basis of presentation
The accompanying financial statements include the accounts of ImagicTV Inc. and
its wholly owned subsidiaries. All intercompany transactions and balances are
eliminated on consolidation.
The financial statements are stated in U.S. dollars, except as otherwise noted.
They have been prepared in accordance with Canadian generally accepted
accounting principles, which, in all material respects, conform with U.S.
generally accepted accounting principles. The interim financial statements
follow the same accounting policies and methods of application as the most
recent annual financial statements. For further information, reference should
be made to the audited annual consolidated financial statements for the year
ended February 28, 2001.
The information furnished as at November 30, 2001 and for the three and nine
month periods ended November 30, 2001 and November 30, 2000 reflects, in the
opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the results of the interim
periods presented. Interim results are not necessarily indicative of results for
future periods.
2. Segmented information
The Company operates in a single reportable operating segment, that is, to
provide software solutions to telecommunications companies and other service
providers that enable the delivery of digital broadcast television services to
residential subscribers over high-speed Internet Protocol networks. The single
reportable operating segment derives its revenue from the sale of software and
related services. As at November 30, 2001, substantially all assets related to
the Company's operations were located in Canada. Revenues are attributable to
geographic location based on the location of the customer, as follows: (in
thousands of U.S. dollars)
===========================================================================
Three months ended Nine months ended
November 30, November 30,
2001 2000 2001 2000
- ---------------------------------------------------------------------------
Revenues by geographic location:
United States $ 26 $1,054 $1,255 $1,627
Canada 101 492 911 2,833
Europe 150 619 461 1,270
Asia 60 - 163 -
- ---------------------------------------------------------------------------
$ 337 $2,165 $2,790 $5,730
===========================================================================
IMAGICTV 2002 THIRD QUARTER REPORT - 12 [LOGO]
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
3. Related Party Transactions
The following table summarizes the related party transactions and balances (in
thousands of U.S. dollars):
==========================================================================================
Three months ended Nine months ended
November 30, November 30,
2001 2000 2001 2000
- ------------------------------------------------------------------------------------------
Revenues:
License fees $ - $ - $ 100 $ -
Royalty fees - 132 - 198
Services 98 27 201 137
Equipment - - - 1,056
Operating expenses 249 213 867 517
==========================================================================================
November 30, November 30,
As of 2001 2001
- ------------------------------------------------------------------------------------------
Related party balances:
Accounts receivable, trade $ - $1,440
Accrued liabilities 92 850
Deferred revenue 301 27
4. Common shares
As of November 30, 2001 and February 28, 2001, there were 2,844,096 and
3,565,339 options outstanding to acquire common shares of the Company.
5. Restructuring charge
In response to the continued slowdown in capital spending in the
telecommunications industry and the resulting decrease in the Company's expected
revenues, the company has undertaken measures to adjust the organization to
reflect the economic conditions. On November 14, 2001, the Company adopted a
restructuring plan, which realigned its resources reduced discretionary
marketing expenses and introduced tools and processes to increase operational
efficiency. As a result of these efforts, the Company recorded a restructuring
charge of $1.2 million in the three months ended November 30, 2001, which
included severance related costs for 76 employees and the write-down of excess
capital assets to their net recoverable amounts.
The following table summarizes the charges:
November 30, 2001 Cumulative drawdown
- ------------------------------------------------------------------------------------------------------
Provision
Three Nine Balance at
Months Months Cash Non-Cash November 30,
Ended Ended Payments Charges 2001
- ------------------------------------------------------------------------------------------------------
Restructuring charge:
Severance $ 909 $ 909 $ 539 $ - $ 370
Stock-based compensation charges 42 42 - 42 -
Write-down of capital assets 211 211 - 211 -
- ------------------------------------------------------------------------------------------------------
Total charge $1,162 $1,162 $ 539 $ 253 $ 370
======================================================================================================
[LOGO] IMAGICTV 2002 THIRD QUARTER REPORT - 13