NOVEKO INTERNATIONAL INC. Announces Results for Fiscal Year and Fourth
Quarter 2010
32.4% Revenue Growth
EKO / TSX
MONTREAL, Sept. 28 /CNW Telbec/ - Noveko International Inc. ("the Company") today announces the financial results for its fourth quarter and fiscal year ended June 30, 2010.
"We achieved a 32% revenue growth and reduced our loss by more than $7 million for the fiscal year. As for our filtration solutions, which are set to become our primary growth driver over the medium and long term, we are delighted with the outstanding advances accomplished and the great interest they are attracting. We proved that our washable and recyclable filters represent an effective, cost-efficient and eco-friendly solution, ideal as part of a sustainable development strategy, in both the building and transportation industry. Everything indicates that we will strengthen the positioning of our filtration solutions in these markets in 2011," said Mr. André Leroux, Chairman of the Board and Chief Executive Officer of the Company.
Financial Highlights
For fiscal 2010 and the fourth quarter, and in comparison with the corresponding periods of the previous year:
- Consolidated revenues from continuing operations up by 32% to
$15.1 million, and down by 11% to $2.9 million, respectively;
- Stock-based compensation down by $7.1 million and by $1.3 million,
respectively;
- Loss before amortization, financial expenses, income taxes, other items
and discontinued operations down by $6.2 million and $0.6 million,
respectively;
- Loss from continuing operations down by $7.4 million to approximately
$20.4 million, and down by $2.3 million to $7.7 million, respectively;
- Net loss down by $7.7 million to $24.2 million, and down by
$3.2 million to $9.4 million, respectively;
- Total indebtedness down by $2.6 million since June 30, 2009.
"In the masks and sanitizers segments, we benefited from increased visibility and our sales more than tripled to $4 million for the fiscal year. The grant of a European certification for our new model of antimicrobial respirators and the recent distribution agreements for our sanitizers are major milestones that enable us to look forward to progress in marketing such products. However, as we have already mentioned, our annual results were below expectations in light of the execution challenges we encountered. We therefore returned to our initial business strategy focused on licence agreements or partnerships for the production and distribution of our products. We are currently in talks with a number of parties to that end. We are confident that this represents a sustainable commercialization strategy which is better aligned with our corporate mission and likely to allow more efficient use of our resources."
"Our medical equipment segment posted appreciable growth, as revenues grew to some $9 million for the fiscal year, thanks notably to ECM's new-generation ultrasound scanners which are enjoying great success in both human and veterinary medicine. This segment will bring a significant contribution to our growth in 2011."
"Finally, we continue to set up an operational structure better aligned with our objectives of growth and improved profitability. We are ensuring we have the human and financial resources to implement our business plan and remain convinced that we will achieve further milestones in marketing our technologies in 2011," concluded Mr. Leroux.
Selected Consolidated Information
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Fiscal Years Ended June 30 2010(1) 2009 2008
(in thousands of $, except per-share
amounts)
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Revenues from continuing operations 15,111 11,412 7,368
Gross margin 5,703 4,730 3,590
Loss before amortization, financial
expenses, income taxes, other items
and discontinued operations(2) (14,436) (20,594) (13,937)
Goodwill impairment charge (2,305) (3,600) -
Loss from continuing operations (20,363) (27,802) (14,023)
Loss from discontinued operations(3) (3,856) (4,073) (2,591)
Net loss (24,219) (31,876) (16,614)
Loss per Class A share (basic and diluted)
Continuing operations $ (0.28) $ (0.42) $ (0.25)
Discontinued operations(3) $ (0.05) $ (0.06) $ (0.05)
Net loss $ (0.33) $ (0.48) $ (0.30)
Weighted average number of outstanding
Class A shares, basic and diluted
(in thousands) 73,488 66,611 54,767
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Balance Sheet Data as at June 30 2010 2009 2008
(in thousands of $)
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Total assets 42,675 50,897 62,858
Shareholders' equity 33,063 38,487 49,773
Total interest-bearing debt(4) 1,446 4,043 4,547
Non-current liabilities held for sale(5) 1,753 1,924 2,621
Non-current liabilities related to
discontinued operations(6) - 200 -
Cash, cash equivalents, short-term
investments and deposit in trust 2,873 4,711 4,711
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1) The consolidated financial statements include the accounts of the
Company and its subsidiaries, all wholly-owned as at June 30, 2010.
2) Including stock-based compensation of $3,413,576, $10,556,660 and
$7,188,252 respectively for fiscal 2010, 2009 and 2008, which has no
impact on the cash balance.
3) Related to BLI's and Magnum's results.
4) Including long-term debt and its current portion, bank loans, and
short and long-term convertible debentures; excluding BLI and Magnum.
5) Related to BLI.
6) Related to Magnum.
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In this press release, unless otherwise indicated or required by the
context, "Noveko International", "the Company", "we", "us", "our", "our
Company", "Group" and "our Group" designate, as the case may be, Noveko
International Inc. or Noveko International Inc. and its subsidiaries, and
"Noveko" designates Noveko Inc., a subsidiary of the Company. The
Company's other subsidiaries are designated as follows: "ECM" for S.A.S.
E.C.M., "Epurair" for Epurair Inc., "Magnum" for Magnum Pharmaceutics
Inc., "Noveko Algérie" for SARL Noveko Algérie, "Noveko Beijing" for
Noveko (Beijing) Hi-Tech Development Limited, "Noveko Taiwan" for Noveko
Taiwan Co., Ltd., "Noveko Trading" for Noveko Trading 2008 LLC, "Purer
Life" for Purer Life Technology Co., Ltd. and "BLI" for Bolduc Leroux
Inc.
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Analysis of Operating Results
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Fiscal Year Ended June 30, 2010 Compared with the Fiscal Year Ended June 30, 2009
Our segmented information is reported based on the following business segments: medical equipment ("medical equipment"), sanitizers ("sanitizers"), antimicrobial surgical masks and respirators ("masks"), filtration products ("filtration") and other activities consisting primarily of the activities of the parent company, Noveko International, and of Noveko Trading ("other"). Furthermore, the results of operations and the assets and liabilities of BLI and Magnum have been withdrawn from continuing operations to be treated as discontinued operations in the Company's financial statements. Accordingly, the assets and liabilities related to BLI have been reclassified as assets and liabilities held for sale, the assets and liabilities related to Magnum have been reclassified as assets and liabilities related to discontinued operations, and their results of operations are presented as losses from discontinued operations for fiscal 2010, as well as for fiscal 2009 for comparative purposes.
Consolidated and Segmented Revenues from Continuing Operations
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Fiscal Years Ended June 30,
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2010 2009
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Medical equipment $ 8,834,220 $ 7,558,144
Sanitizers 2,551,461 540,779
Masks 1,390,295 602,947
Filtration 2,331,974 2,692,726
Other 2,704 16,909
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Total $ 15,110,654 $ 11,411,505
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Consolidated revenues for fiscal 2010 grew by $3.7 million or 32.4% to $15.1 million. This growth is due primarily to:
- a major increase of $2.0 million or 371.8% in sales of sanitizers and
of $0.8 million or 130.6% in sales of masks, reflecting the accelerated
demand during the first two quarters of the year in the context of the
pandemic threat then prevailing. Although these two segments posted
significant growth, it was not as strong as expected, due notably to
the rapid end to the A (H1N1) influenza epidemic at the outset of the
third quarter which led to the deferral and cancellation of a number of
orders, the financial problems encountered by some of our distributors
and the delays related to the process of obtaining the required
authorizations and certifications in order to market our products, all
combined with the other factors set forth in further detail in the
Corporation's Management's Report under Description of the Company -
Operational Overview - Antimicrobial Masks and Respirators Markets and
Sanitizers;
- the $1.3 million or 16.9% increase in sales of medical equipment
resulting from Noveko Algérie's and ECM's marketing efforts. In fact,
whereas Noveko Algérie achieved a 31% growth, ECM increased its sales
by 10% during the year. In ECM's case, this increase would have been
higher - at 20% in Euros - were it not for the impact of the conversion
into Canadian dollars of ECM's revenues in Euros in the context of the
major depreciation of the Euro. ECM's sales growth reflects both its
breakthroughs in human medicine and its ongoing penetration of the
veterinary medicine market; and
- conversely, sales of filtration products posted a $0.4 million or 13.4%
decrease caused mainly to the slowdown in the swine market from the
previous year that could not be offset by the $0.2 million increase in
sales of filtration products recorded by the subsidiary Epurair, mostly
in the residential market but also in the institutional and commercial
markets.
The operating profit margin for the fiscal year was 37.7%, compared with 41.5% for the previous year. This decline was caused by an increase in logistics services and transportation expenses in various overseas markets, the lower profit margins - primarily in the case of sanitizers - and the higher raw material supply costs that could not be reflected in selling prices due to exchange rate fluctuations. In addition to the previously mentioned factors, this decrease is also due to downward price adjustments at the beginning of the year in the segments of filtration products for livestock farms and medical equipment for use in veterinary medicine.
Selling and administrative expenses increased by $1.4 million or 9.8% to $15.4 million. This increase reflects the costs related to product marketing and sales initiatives in our various business segments and the reinforcement of the sales team during the year. In addition, the Company had to recognize an allowance for doubtful accounts of $0.8 million for the year, most of which related to the financial problems encountered by some of our distributors.
Stock-based compensation charge for the year, which has no impact on the Company's cash balance, decreased by $7.1 million from the previous year to $3.4 million. This reduction is notably explained by the lower number of options granted during fiscal 2010 and the gradual recognition of the compensation charge. Remember that at the beginning of the previous year, and primarily in connection with acquisitions, stock options vesting over a period of 12 to 30 months had been granted.
Research and development expenses increased by $0.6 million over the previous year to $1.8 million, due primarily to the development costs and cost of tests related to the various certification processes in the masks segment. Research and development tax credits remained relatively stable.
Earnings (Loss) before Amortization, Financial Expenses, Income Taxes,
Other Items and Discontinued Operations
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Fiscal Years Ended June 30,
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2010 2009
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Medical equipment $ 251,250 $ (238,542)
Sanitizers (2,740,748) (1,686,310)
Masks (2,266,232) (2,286,884)
Filtration (1,685,215) (3,722,963)
Other (7,995,480) (12,659,795)
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Total $(14,436,425) $(20,594,494)
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The loss before amortization, financial expenses, income taxes, other items and discontinued operations was lowered to $14.4 million for fiscal 2010, down by $6.2 million or 29.9% from the previous year. This substantial reduction stemmed primarily from the following factors:
- a significant decline in stock-based compensation charge of the parent
company Noveko International (in the "other" segment), for the
previously mentioned reasons;
- a $2.0 million reduction in the filtration products segment's loss
thanks to a decrease in operating costs, development expenses and
stock-based compensation charge;
- the earnings before amortization, financial expenses and income taxes
of $0.3 million achieved by the medical equipment segment, as opposed
to a loss of $0.2 million for fiscal 2009, thanks mainly to ECM's
contribution and the improvement in its profitability during fiscal
2010;
- the masks segment's rather stable loss, reflecting the decrease in
stock-based compensation charge and the increase in sales during the
year, all offset by an increase in marketing and development expenses,
including the required tests for various certification processes;
- finally, the sanitizers segment increased its loss by $1.1 million, due
mainly to a decrease in the profit margin and increase in selling and
administrative expenses allocated thereto since the integration of
Laboratoire SyMa Inc.'s operations with Noveko and the merger of these
two entities in July 2009.
Amortization expenses increased by $0.5 million or 24.1% during the fiscal year. This increase is primarily attributable to the amortization of the expenses related to the Exago(TM) (veterinary medicine) subsequent to its market launch at the beginning of the second half of the current fiscal year, along with the expenses related to our new integrated management system, the implementation of which was completed during the third quarter of the year.
Financial expenses less investment revenues decreased by $0.6 million to $1.6 million during the year. This decline is due to the reduction in interest on long-term debt and the conversion of debentures, but mostly due to the fact that a loss on currency contracts of approximately $2.2 million had been recognized during the previous year. Furthermore, the year's investment revenues decreased by $0.9 million and the year's exchange loss increased by $0.9 million on account of less favourable exchange rates. It is to be noted that a major portion of the year's exchange loss is unrealized.
The goodwill impairment charge amounted to $2.3 million for fiscal 2010, compared with $3.6 million for fiscal 2009, which impairment is without impact on the Company's cash balance and can be explained as follows. At the time of the step-one analysis as at June 30, 2010 (preliminary assessment), it was determined that a comprehensive step-two analysis (comprehensive assessment) of the goodwill for a business unit related to the sanitizers segment exceeded its estimated fair value. Based on the preliminary assessment, it was estimated that as at June 30, 2010, the fair value of goodwill in the sanitizers segment amounted to $2,821,559. Accordingly, a $2,375,000 goodwill impairment charge was recognized as at June 30, 2010. This impairment reflects the market conditions affecting this segment, primarily the slowdown of the marketing of the sanitizers following the rapid end of the A (H1N1) influenza epidemic at the outset of the third quarter of the year and the termination of a significant distribution agreement. With the assistance of an independent valuator, the Company is currently carrying out this comprehensive assessment including a detailed calculation of the estimated fair values of recorded and unrecorded intangible assets. The final impairment calculation is expected to be completed during fiscal 2011 and the resulting final adjustments, if any, would result in a non-cash adjustment to the consolidated statement of operations. The reader is reminded that for fiscal 2009, a $3.6 million goodwill impairment charge related to the medical equipment (ECM) had been recognized following a preliminary assessment. This impairment reflected the market conditions affecting ECM, primarily the economic slowdown and the restructuring periods the swine and bovine industries were undergoing. The subsequent comprehensive assessment allowed the Company to complete the final calculation of the goodwill impairment charge and the resulting non-cash adjustment and yielded a $69,700 gain in the consolidated statement of earnings for the second quarter of the year.
Net Earnings (Loss) from Continuing Operations
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Fiscal Years Ended June 30,
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2010 2009
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Medical equipment $ (555,879) $ (4,284,262)
Sanitizers (4,441,996) (1,765,542)
Masks (2,510,416) (2,294,519)
Filtration (1,980,110) (3,963,997)
Other (10,874,190) (15,493,954)
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Total $(20,362,591) $(27,802,274)
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Considering mainly the aforementioned factors, the net loss from continuing operations for fiscal 2010 stood at approximately $20.4 million, a significant reduction of $7.4 million.
A $3.9 million loss from discontinued operations (BLI and Magnum) was recognized, compared with a $4.1 million loss for the previous year. Consequently, the current fiscal year's net loss totalled $24.2 million, down from $31.9 million for the previous year.
Considering a net change in unrealized losses on translation of the financial statements of self-sustaining foreign operations of $1.1 million for the current fiscal year, compared with a net change in unrealized losses of $0.5 million for the previous year, a net loss of $25.3 million represented comprehensive income for fiscal 2010, compared with a net loss of $32.4 million a year earlier.
The loss from continuing operations and the net loss amounted to $0.28 and $0.33 per Class A share (basic and diluted), respectively, on a weighted average of 73,487,740 outstanding shares, compared with a loss from continuing operations and a net loss of $0.42 and $0.48 per share, respectively, on a weighted average of 66,610,725 shares for the previous year. The increased weighted average number of outstanding shares is due to the issue of Class A shares related to the private placement closed in October 2009 and the issue of Class A shares subsequent to the exercise of stock options and of the conversion right of convertible debentures.
Principal Quarterly Financial Information
(in thousands of $, except per-share amounts)(unaudited)
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First Second Third Fourth
Quarter Quarter Quarter Quarter
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Fiscal 2010
Revenues 4,388 4,892 2,935 2,896
Loss from continuing operations (3,503) (4,562) (4,560) (7,737)
Comprehensive loss (4,417) (5,449) (5,859) (9,612)
Loss per Class A share from
continuing operations
(basic and diluted) (0.05) (0.06) (0.07) (0.10)
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Fiscal 2009
Revenues 2,014 3,687 2,454 3,257
Loss from continuing operations (6,057) (6,526) (5,216) (10,003)
Comprehensive loss (6,957) (5,506) (7,062) (12,865)
Loss per Class A share from
continuing operations
(basic and diluted) (0.09) (0.10) (0.08) (0.15)
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Quarter Ended June 30, 2010 Compared with the Fourth Quarter Ended June 30, 2009
Consolidated and Segmented Revenues from Continuing Operations
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Quarters Ended June 30,
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2010 2009
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Medical equipment $ 2,090,023 $ 1,880,108
Sanitizers 66,138 151,702
Masks 51,034 261,822
Filtration 685,901 962,782
Other 2,704 -
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Total $ 2,895,800 $ 3,256,414
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Consolidated revenues for the fourth quarter of fiscal 2010 decreased by $0.4 million or 11.1% to $2.9 million. This reduction primarily reflects:
- a respective sales decrease in the masks and sanitizers segments of
$0.2 million or 80.5% and of $85,564 or 56.4%. This decline is due
notably to the rapid end to the A (H1N1) influenza epidemic in the
second quarter of 2010, whereas the corresponding period of fiscal 2009
had shown a strong increase in these segments following the appearance
of this same pandemic threat at the end of April 2009;
- a decrease in filtration product sales of approximately $0.3 million or
28.8% caused mainly by the slowdown in the swine market from the same
quarter of the previous year;
- whereas sales of medical equipment increased by $0.2 million or 11.2%
thanks to ECM's marketing efforts during the quarter, which offset the
decline in Noveko Algérie's sales. It is to be noted that ECM's sales
grew by 29.8% during the quarter. This increase would have been higher
- at 58.2% in Euros - were it not for the impact of the conversion into
Canadian dollars of the revenues recorded in Euros in the context of a
major depreciation of this currency since the previous year.
The operating profit margin for the fourth quarter was 23.5%, down from 30.2% for the corresponding quarter of the previous year. This decline notably reflects the weighting of certain fixed costs, including logistics services expenses in the context of a sales decrease in the masks and sanitizers segments, as well as an increase in the allowance for inventory obsolescence.
Selling and administrative expenses increased slightly to $4.1 million for the fourth quarter and mainly reflect the fixed cost structure at the level of operating expenses.
Stock-based compensation charge, which has no impact on the Company's cash balance, decreased by $1.3 million from the corresponding quarter of the previous year, to $0.3 million. This variation is due to the smaller number of options granted and gradual recognition of the stock-based compensation charge.
Research and development expenses increased by some $0.3 million over the corresponding quarter of the previous year to $0.6 million, due primarily to development costs and the cost of tests related to the masks segment.
Earnings (Loss) before Amortization, Financial Expenses, Income Taxes,
Other Items and Discontinued Operations
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Quarters Ended June 30,
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2010 2009
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Medical equipment $ (17,223) $ (232,346)
Sanitizers (1,157,740) (60,748)
Masks (981,674) (722,912)
Filtration (393,394) (1,374,845)
Other (1,652,047) (2,366,437)
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Total $ (4,202,078) $ 4,757,288)
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Considering the aforementioned factors, the Company reduced its loss before amortization, financial expenses, income taxes, other items and discontinued operations to $4.2 million for the fourth quarter, down by $0.6 million or 11.7% from the corresponding quarter of the previous year. Segmented changes reflect the following factors:
- a reduction of approximately $1.0 million in the filtration products
segment's loss, thanks to a decrease in operating expenses and stock-
based compensation charge;
- a significant reduction of some $0.7 million in the "other" segment's
loss due to a decrease in the stock-based compensation charge of the
parent company Noveko International;
- a $0.2 million decline in the medical equipment segment's loss thanks
mainly to ECM's improved profitability;
- an increase of some $0.3 million in the masks segment's loss
reflecting, in a context of lower sales than in the same quarter of the
previous year, an increase in marketing and development expenses, and
that, despite the decrease in stock-based compensation charge;
- a $1.1 million increase in the sanitizers segment's loss, primarily in
a context of lower sales, as a result of the increase in selling and
administrative expenses allocated thereto since the integration of
Laboratoire SyMa Inc.'s operations with Noveko and the merger of these
two entities in July 2009, and as a result of a decline in the profit
margin.
Amortization expenses increased by $0.4 million in the fourth quarter, reflecting the amortization of the expenses related to the Exago(TM) (veterinary medicine) since its market launch, as well as the expenses related to our new integrated management system.
Net Earnings (Loss) from Continuing Operations
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Quarters Ended June 30,
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2010 2009
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Medical equipment $ (169,060) $ (3,539,670)
Sanitizers (3,660,402) (76,366)
Masks (1,039,261) (715,256)
Filtration (379,690) (1,185,548)
Other (2,488,271) (4,487,037)
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Total $ (7,736,684) $(10,003,877)
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The net loss from continuing operations totalled $7.7 million for the fourth quarter of fiscal 2010, compared with $10.0 million for the corresponding quarter of the previous year, in light mainly of the aforementioned factors, including the goodwill impairment charge of some $2.4 million attributable to the sanitizers segment, compared with $3.6 million attributable to ECM during fiscal 2009.
A $1.7 million loss from continuing operations was recognized in fourth-quarter results, compared with a $2.7 million loss for the corresponding quarter of the previous year. Consequently, the quarter's net loss amounted to $9.4 million, compared with $12.7 million for the corresponding quarter of the previous year.
Considering a net change in unrealized losses on translation of the financial statements of self-sustaining foreign operations of $0.2 million for the quarter, versus a net change in unrealized losses of $0.2 million for the corresponding quarter of the previous year, a net loss of $9.6 million represented comprehensive income for the fourth quarter, compared with $12.9 million for the same quarter of the previous year.
The fourth-quarter loss from continuing operations and net loss stood at $0.10 and $0.12 per Class A share (basic and diluted), respectively, on a weighted average of 75,915,912 outstanding shares, compared with a loss from continuing operations and a net loss of 0.15 and $0.19 per share, respectively, on a weighted average of 67,028,785 shares for the corresponding quarter of the previous year.
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Balance Sheet Analysis as of June 30, 2010
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As at June 30, 2010, total assets amounted to $42.7 million, down by $8.2 million from June 30, 2009. Working capital stood at $12.8 million for a current ratio of 3.1:1, compared with $12.0 million and a 2.8:1 ratio as at June 30, 2009. Shareholders' equity totalled $33.1 million as at June 30, 2010, compared with $38.5 million as at June 30, 2009. Total interest-bearing debt (bank loans, current portion of long-term debt, long-term debt and short and long-term secured convertible debentures) amounted to $1.4 million as at June 30, 2010, down by $2.6 million from June 30, 2009.
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Fiscal Year Highlights and Subsequent Events
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To drive our growth based on our strategic priorities, we conducted an evaluation of our business during fiscal 2010; in this regard, the operations of our subsidiary Noveko were the focus of special attention. We also pursued the measures implemented over the last year to ensure a higher level of vigilance in regard to our operating efficiency and better operating cost control in each of our business segments. In the light of our strategic priorities, some of the highlights with regard to the operations of the Group and its business segments are presented below. Further details are provided in the Corporation's Management Report:
- We continued to further streamline the Group's structure and management
and reassigned some of our managers and consolidated certain work
teams.
- Regrouping of our head office and Noveko.
- Expansion of Epurair.
- Optimization of our logistics services.
- New integrated management system.
- Establishment of our presence in China.
- Financing: Private placement in October 2009 for total gross proceeds
of $15.7 million; in June 2010, credit facilities for a total amount of
$4.5 million; on September 23, 2010, announcement of a private
placement of Class A shares, for a minimum amount of $4 million and a
maximum amount of $10 million, at a price of $0.60 per share, subject
to the Toronto Stock Exchange's acceptance.
Air Filtration Products
Air Filters for Farm Buildings - Several early signs allow us to look forward to a certain improvement in business in the swine market, particularly with our new filtration solutions offering, a more cost-effective option aimed at an expanded client base.
Air Filters for the Transportation Industry - Pursuant to an agreement with Bombardier Transportation, a world leader in rail technology, we will work jointly to develop air filtration solutions that will be offered to all its clients. We believe that this collaboration, which reflects the keen interest in our technologies, will represent a strategic advantage for the marketing of our filters. We expect the first benefits of the agreement with Bombardier Transportation to gradually materialize during fiscal 2011. In the aeronautics segment, we are pursuing the required tests to obtain "STC" certification for our filters from Transport Canada. Despite certain execution delays, we are continuing to implement our business plan for the commercialization of our filtration technologies in this field. Various airlines, including Air Transat, have already shown an interest in equipping their aircraft with such filters. However, we do not expect any significant revenues in this regard for fiscal 2011.
Air filters for buildings, institutional and commercial markets - We achieved several major breakthroughs in the marketing of our air filters in the real estate sector:
- Agreement with Desjardins Gestion Immobilière Inc. to equip Complexe
Desjardins, the largest multi-purpose building in the Greater Montreal
area, with Noveko(TM) filters incorporating our filtration
technologies.
- Agreement with the Jewish General Hospital to equip one of its
pavilions with filters incorporating our filtration technologies.
Located in Montreal, the Jewish General Hospital is one of the largest
and busiest hospitals in Quebec.
- Agreement under which the entire Bell Centre, a multi-purpose building
recognized as the most outstanding entertainment venue in Montreal, was
to be equipped with Noveko(TM) filters. Having a 21,273-seat capacity,
the Bell Centre is the largest hockey arena in North America and the
home of the legendary Montreal Canadiens Hockey Club. After more than a
year of use at the Bell Centre, our filters' degree of effectiveness
and durability proved to be unmatched and beyond all expectations in a
quite complex technical environment. This new breakthrough sets the
stage for us to equip other sports and cultural arenas and
amphitheatres.
Antimicrobial Masks and Respirators Markets
The A (H1N1) influenza pandemic threat that emerged at the end of April 2009 initially had a significant accelerator effect on the demand for our masks and respirators. The growth in mask and respirator sales during fiscal 2010 reflects the acceleration of this demand during the first half of fiscal 2010. However, the rapid end to the A (H1N1) influenza epidemic at the outset of the third quarter ended March 31, 2010 subsequently had an adverse impact on demand. Furthermore, certain agreements have not yet yielded the hoped-for results. Further efforts are now being focused on the search for partners in order to further stimulate our market development and the commercialization of our technologies in this segment.
Certification Processes - In July 2010, our new model of Noveko(TM) RD2 antimicrobial respirators obtained FFP2 classification. The grant of this regulatory certification allows us to market these respirators in all countries throughout the European Union and will also facilitate their marketing in several other territories that recognize these European standards de facto. In the fourth quarter, we submitted an application for certification to the US National Institute for Occupational Safety and Health ("NIOSH"). We have since held various discussions with NIOSH representatives, subsequent to which we were informed that due to the presence of antimicrobial agents in our respirators and pursuant to an agreement with the FDA, our application could not be considered until FDA certification is obtained for these respirators, even though our application to the NIOSH did not include any antimicrobial claim. In the meantime, we have withdrawn the first application filed with the NIOSH for our antimicrobial respirators in order to replace it with a new application for certification. This new application will cover a respirator model whose design and particle filtration features are identical to those of the antimicrobial respirators covered by the first application, but without any antimicrobial agent. We are currently finalizing the tests on this new respirator model in accordance with NIOSH standards in order to shortly submit the new application for certification to the NIOSH. Through this process, we hope to show buyers seeking NIOSH recognition in their purchasing decision that our respirators - with or without antimicrobial agents - meet the NIOSH's filtration criteria, even though their marketing in the United States remains subject to obtaining FDA certification. Concurrently with this process, we are continuing working on obtaining the required performance data to draw up the file in order to support a future 510(k) submission that would meet both the FDA's requirements and our marketing imperatives.
Sanitizers
The pandemic threat that emerged in late April 2009, combined with general public health concerns, led to a major increase in the demand for our sanitizers, as attested to by the sales growth seen in the first half of fiscal 2010. However, the A (H1N1) influenza epidemic rapidly came to an end at the outset of the third quarter ended March 31, 2010, which had an adverse impact on demand, leading to the deferral and cancellation of a number of sanitizer order deliveries. Furthermore, some agreements have not yielded the expected objectives and reviews are in progress. Despite these execution delays, we remain confident as to our sales trend in this segment in upcoming quarters. The following agreements attest to the interest in our sanitizers:
- Licence agreement with Microban International, Ltd., the global leader
in built-in antimicrobial product protection, granting us the right to
sell our line of hand sanitizers under the Microban(R) brand name until
December 31, 2012.
- Several types of Microban(R) hand sanitizers are sold in most Couche-
Tard stores in Quebec.
- Distribution agreement with AMD-Ritmed Inc., a North American leader in
the development and distribution of specialized high-quality and
disposable medical supplies for the sale and promotion of our hand
sanitizers, in Canada and in the United States, in the healthcare
market, all subject to certain exceptions.
- Distribution agreement with Benjamin News Inc. for the sale and
promotion of our hand sanitizers in Quebec, New Brunswick and Eastern
Ontario.
Medical Equipment
Although the swine and bovine industries remained fragile during fiscal 2010, ECM strengthened its leadership worldwide in ultrasound scanners for use in veterinary medicine. Although initially slowed down by the additional delays encountered in obtaining the product approvals in each of the countries where it was launched, the marketing of the Imagyne(TM) ultrasound scanner for use in human medicine is going well, whereas a major breakthrough in China considerably reinforced ECM's market positioning in ultrasound scanning for use in human medicine: agreement with Ningbo Xingaoyi Magnetism Co. Ltd for the purchase of Imagyne(TM) scanners for use in human medicine in China, for a minimum value of 5.7 million Euros, of which 900,000 Euros the first year. ECM also achieved major breakthroughs in commercializing its Exago(TM) ultrasound scanner in the equine market, having concluded contracts representing more than $4 million over a three-year period by key players in the North American veterinary medicine field. As for Noveko Algérie, it continues to reap the benefits of supplying various medical devices in Algeria.
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Profile
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Noveko International Inc. offers innovative solutions in the environmental and medical fields worldwide. Through its subsidiaries, the Company specializes primarily in the following business segments: the development, manufacturing and marketing of derivative products from its patented antimicrobial filtration technologies, mainly air filters, surgical masks and respirators, as well as other products with antibacterial properties such as hand sanitizers - and the development, manufacturing and marketing of medical equipment, primarily portable real-time ultrasound scanners for use in human and veterinary medicine.
Certain statements set forth in this press release constitute forward-looking statements. In some cases, these statements are identified by the use of terms such as "may", "could", "might", "intend", "should", "expect", "project", "plan", "believe", "estimate" or other comparable variants. These statements are based on the information available at the time they are written, on assumptions made by management and on the expectations of management, acting in good faith, regarding future events, including those relating to economic conditions, fluctuations in exchange rates and operating expenses, and the absence of unusual events entailing supplementary expenditures. Although management considers these assumptions and expectations reasonable based on the information available at the time they are written, they could prove inaccurate. Forward-looking statements are also subject, by their very nature, to known and unknown risks and uncertainties such as those related to the industry, acquisitions, labor relations, credit, key officers, supply and product liability. The actual results of Noveko International Inc. could differ materially from those indicated or underlying these forward-looking statements. The reader is therefore recommended not to unduly rely on these forward-looking statements. Forward-looking statements do not reflect the potential impact of special items, any business combination or any other transaction that may be announced or occur subsequent to the date hereof. Unless otherwise required under securities laws, the Company does not intend and undertakes no obligation to update or revise the forward-looking statements to account for new information, new events or new circumstances.
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The Management's Report, consolidated financial statements and
accompanying notes for the fiscal year ended June 30, 2010 as well as the
Annual Information Form will be filed on SEDAR (www.sedar.com) and
available on the Company's website (www.noveko.com).
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Noveko International Inc.
Consolidated balance sheets
June 30, 2010 and 2009
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2010 2009
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ASSETS
Current assets:
Cash and cash equivalents $ 639,543 $ 937,319
Deposit in trust 87,787 70,900
Short-term investments 2,145,631 3,702,958
Accounts receivable 3,026,436 3,692,625
Inventories 11,259,316 7,288,071
Prepaid expenses 627,644 719,573
Current portion of assets held for sale 1,231,858 1,998,371
Current portion of assets related to
discontinued operations - 168,106
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19,018,215 18,577,923
Fixed assets 1,592,999 4,116,120
Intangible assets 7,782,150 9,697,520
Other assets 945,653 1,198,345
Future income taxes 19,424 82,691
Goodwill 7,420,012 10,286,317
Non-current portion of assets held for sale 5,896,657 3,836,738
Non-current portion of assets related to
discontinued operations - 3,100,884
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$ 42,675,110 $ 50,896,538
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Liabilities and shareholders' equity
Current liabilities:
Bank advances $ - $ -
Bank loans 167,011 162,970
Accounts payable and accrued liabilities 3,801,984 2,439,099
Current portion of secured convertible
debentures - 964,710
Current portion of long-term debt 475,432 724,584
Current portion of liabilities held
for sale 1,780,589 2,126,397
Current portion of liabilities related
to discontinued operations - 143,180
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6,225,016 6,560,940
Long-term debt 803,647 1,365,182
Secured convertible debentures - 825,117
Future income taxes 830,291 1,534,405
Non-current portion of liabilities held
for sale 1,753,146 1,924,217
Non-current portion of liabilities related
to discontinued operations - 200,069
Shareholders' equity:
Capital stock 95,620,532 80,768,629
Portion of secured convertible debentures
included in equity - 372,473
Warrants 3,348,000 -
Contributed surplus 22,874,810 18,718,376
Accumulated other comprehensive loss (1,285,522) (166,928)
Deficit (87,494,810) (61,205,942)
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33,063,010 38,486,608
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$ 42,675,110 $ 50,896,538
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Noveko International Inc.
Consolidated statements of operations
Years ended June 30, 2010 and 2009
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2010 2009
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Revenues $ 15,110,654 $ 11,411,505
Cost of sales 9,407,387 6,681,206
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5,703,267 4,730,299
Operating expenses:
Administrative and selling 15,444,132 14,064,971
Stock-based compensation 3,413,576 10,556,660
Research and development 1,853,396 1,247,938
Research and development tax credits (571,412) (544,776)
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20,139,692 25,324,793
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Loss before amortization, financial expenses,
income taxes, other element and discontinued
operations (14,436,425) (20,594,494)
Amortization 2,418,274 1,949,382
Financial expenses less investment revenues 1,633,401 2,243,658
Goodwill impairment charge 2,305,300 3,600,000
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6,356,975 7,793,040
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Loss before income taxes (20,793,400) (28,387,534)
Income taxes :
Current (recovered) 52,829 (347,146)
Future (483,638) (238,114)
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(430,809) (585,260)
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Net loss from continuing operations (20,362,591) (27,802,274)
Net loss from discontinued operations (3,855,960) (4,073,340)
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Net loss $(24,218,551) $(31,875,614)
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Basic and diluted loss per share:
From continuing operations $ (0.28) $ (0.42)
From discontinued operations $ (0.05) $ (0.06)
Net loss $ (0.33) $ (0.48)
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Weighted average number of outstanding
shares, basic and diluted 73,487,740 66,610,725
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Noveko International Inc.
Consolidated statements of comprehensive loss
Years ended June 30, 2010 and 2009
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2010 2009
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Net loss $(24,218,551) $(31,875,614)
Other comprehensive loss, net of income
taxes:
Change in unrealized losses on translation
of financial statements of self-sustaining
foreign operations (1,118,594) (514,287)
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Comprehensive loss $(25,337,145) $(32,389,901)
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Noveko International Inc.
Consolidated statements of deficit and contributed surplus
Years ended June 30, 2010 and 2009
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2010 2009
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DEFICIT
Deficit, beginning of year $(61,205,942) $(29,323,571)
Restatement related to the adoption of new
accounting policies - 49,243
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Restated balance (61,205,942) (29,274,328)
Net loss (24,218,551) (31,875,614)
Share issuance fees (2,070,317) (56,000)
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Deficit, end of year $(87,494,810) $(61,205,942)
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CONTRIBUTED SURPLUS
Contributed surplus, beginning of year $ 18,718,376 $ 7,967,778
Fair value of stock options granted 3,514,375 11,050,909
Fair value of options granted to the agents 732,000 -
Stock options exercised (89,941) (300,311)
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Contributed surplus, end of year $ 22,874,810 $ 18,718,376
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Noveko International Inc.
Consolidated statements of cash flows
Years ended June 30, 2010 and 2009
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2010 2009
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Cash flows from operating activities:
Net loss $(24,218,551) $(31,875,614)
Adjustments for:
Loss from discontinued operations 3,855,960 4,073,340
Future income taxes (483,638) (238,114)
Accreted interest on secured convertible
debentures 59,644 267,531
Stock-based compensation 3,413,576 10,556,660
Professional fees paid by warrants 159,000 -
Loss (gain) on disposal of fixed assets 7,438 (7,231)
Amortization 2,418,274 1,949,382
Goodwill impairment charge 2,305,300 3,600,000
Loss (gain) on fair value of short-term
investments 11,512 (838)
Foreign exchange gain on disposal of
short-term investments - (579,292)
Unrealized gain on foreign exchange gain
currency contracts - (76,885)
Foreign exchange loss 935 6,175
Adjustments related to discontinued
operations 563,956 (1,043,694)
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(11,906,594) (13,368,580)
Net change in non-cash working capital (2,148,838) (1,490,546)
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(14,055,432) (14,859,126)
Cash flows from financing activities:
Net changes in bank advances - (132,108)
Net changes in bank loans 36,661 (407,425)
Increase in long-term debt - 61,766
Repayment of long-term debt (598,252) (459,236)
Repayment of secured convertible debentures (100,000) -
Interest paid on secured convertible
debentures (21,142) (165,660)
Proceeds from Class A shares and warrants
issued 15,874,066 4,019,157
Class A shares issue expenses (1,338,317) (12,800)
Cash flows related to discontinued
operations (334,672) 297,740
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13,518,344 3,201,434
Cash flows from investing activities:
Business acquisitions (86,261) (5,936,483)
Acquisition of short-term investments (15,090,000) (61,566,736)
Proceeds from disposal of short-term
investments 16,634,425 70,033,630
Acquisition of fixed assets (279,721) (684,848)
Proceeds from disposal of fixed assets 26,214 8,859
Acquisition of intangible assets (295,713) (429,536)
Acquisition of other assets (755) (58,150)
Deposit in trust (44,540) 1,685
Deferred development costs, net of related
research tax credits received (353,766) (342,183)
Cash flows related to discontinued operations (76,700) (12,051)
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433,183 (1,014,187)
Foreign exchange gain on cash in foreign
currencies (193,871) (13,511)
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Decrease in cash and cash equivalents (297,776) (10 657 016)
Cash and cash equivalents, beginning of year 937,319 11,594,335
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Cash and cash equivalents, end of year $ 639,543 $ 937,319
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Cash flows related to continuing operating activities include interest
paid of $76,990 ($110,581 in 2009) and income taxes received for $230,473
($257,647 in 2009).
For further information: Chantal Vennat, Director, Investor Relations and Corporate Communications, Noveko International Inc., Tel: (514) 875-0606, http://www.noveko.com
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