10-Q 1 form10-q_24153.txt QUARTERLY REPORT Form 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 (Mark One) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURTIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000 ------------------ (_) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to ________________ Commission File Number N/A . NOSTRAD TELECOMMUNICATIONS INC. -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Nevada 88-0306460 ---------------------------------------- ----------------------------------- State or other jurisdiction (IRS Employer Identification No.) of incorporation or organization 420 - 171 West Esplanade North Vancouver, British Columbia, Canada V7M 3J9 ----------------------------------------------- ----------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (604) 983-8778 -------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No X --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock as of November 14, 2000: Common Stock, no par value 12,730,600 -------------------------- ---------------- Class Number of shares NOSTRAD TELECOMMUNICATIONS INC. INDEX PART I Financial Information Page No. --------------------- -------- Item 1. Financial Statements Condensed Consolidated Balance Sheets September 30, 2000 and December 31, 1999 3 Condensed Consolidated Statements of Operations Nine Months and Quarters ended September 30, 2000 & 1999 4 Condensed Consolidated Statement of Shareholders Equity For the Nine months ended September 30, 2000 5 Condensed Consolidated Statement of Cash Flows Nine Months and Quarters ended September 30, 2000 & 1999 6 Notes to Condensed Consolidated Financial Statements 7 Item 2. Management Discussion and Analysis of Results of Operations and Financial Condition 8-11 2 Condensed Consolidated Financial Statements CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)

The notes to unaudited condensed consolidated financial statements are an integral part thereof 3 Condensed Consolidated Financial Statements CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)

The notes to unaudited condensed consolidated financial statements are an integral part thereof 4 Condensed Consolidated Financial Statements CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)

The notes to the unaudited condensed consolidated financial statements are an integral part thereof 5 Condensed Consolidated Financial Statements CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)

The notes to condensed consolidated financial statements are an integral part thereof

6 Condensed Consolidated Financial Statements NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) September 30, 2000 1. INTERIM FINANCIAL STATEMENTS The results of operations for the interim period shown in this report are not necessarily indicative of results to be expected for the fiscal year. In the opinion of management, the information contained herein reflects all adjustments necessary to make the results of operations for the interim period a fair statement of such operations. All such adjustments are of a normal recurring nature. 2. CONTINUING OPERATIONS Nostrad Telecommunications Inc. ("Nostrad" or the "Company") was incorporated in Nevada on September 24, 1993. On September 29, 1997, the Company's name was changed from Cave Productions, Inc. to Nostrad. The Company is in the business of providing Pay TV and other services. In order to provide these services the Company requires special licenses in the countries it operates. In order to develop the licenses held by the Company, the Company must continue to raise funds. The Company has been heavily reliant upon its major shareholder, Nostrad Singapore to continue to fund the Company's growth. These financial statements have been prepared on the going concern basis, which assumes the realization of assets and liquidation of liabilities in the normal course of business. The application of the going concern concept is dependent upon the ability of the Company to raise additional financing and attain future profitable operations. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES These financial statements have been prepared in accordance with United States generally accepted accounting principles a) The accompanying consolidated financial statements include the accounts of the Company and of acquired subsidiary companies: Nostrad Media Pte. Ltd. (100% owned), Mongolia Home Vision Corporation HH (80% owned by Nostrad Media Pte. Ltd.), OmniVision Africa Ltd. (100% owned), OmniVision (U) Ltd. (100% owned by OmniVision Africa Ltd.), OmniVision (Ghana) Ltd. (80% owned by OmniVision Africa Ltd.), OmniVision (Tanzania) Ltd. (80% owned by OmniVision Africa Ltd. and OmniVision (Maroc) Ltd. (65% owned by OmniVision Africa Ltd.). All significant inter-company accounts and transactions have been eliminated in consolidation. b) The Company capitalizes the costs related to obtaining rights to provide paging, cable television, telephone, and Internet services in specific countries, and for the rights to broadcast specific channels. Costs incurred are initially capitalized as Deferred Development Costs. If after a twelve-month period, rights have not been fully obtained, the Deferred Development Costs will be expensed. There is no assurance that revenues exceeding these costs will be realized by the Company. 7 NOSTRAD TELECOMMUNICATIONS INC. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of operations The Company is a development stage telecommunications company. Expenditures to-date have been primarily focused on purchasing capital equipment, and for general overhead in the Company's four international offices. Nostrad commenced paging operations in Mongolia during 1998, and commenced providing DTH subscription services in Morocco during 1999. The Company's primary focus for the last three years has been and continues to be MMDS Subscription TV services and is currently licensed in Kampala, Uganda; and in Dar es Salaam, Tanzania. The Company is authorized to distribute DTH subscriber Pay-TV in Morocco. The Company plans to implement the MMDS licenses as soon as possible and is also endeavoring to obtain additional MMDS licenses in areas with great potential for Subscription TV. Nine months ended September 30, 2000 compared to the nine months ended September 30, 1999 During Fiscal -2000 to date, the Company: 1. In July 2000, the Company announced that it had been selected to manage Arabia Radio and Television ("ART") for Morocco. ART currently has over 4,000 subscribers in Morocco, offering 10 channels. 2. Continued providing direct to home ("DTH") television service in Morocco which commenced in October 1999. 3. Delayed launch of MMDS operations in Kampala, Uganda and Dar es Salaam, Tanzania. 4. Completed a private placement o October 25, 2000 of $530,600 by issuing 530,600 shares and 530,600 share purchase warrants. Each share purchase warrant entitles the holder to purchase one share for $1.50 during the first year and $2.00 during the second year. 5. Issued 660,000 under the Company's stock option plan for $429,000. 6. Commenced private placement offering of 2,000,000 cash less warrants to raise $1,000,000. The warrants expire December 31, 2000. The Company continues to distribute "Showtime" programming package, a DTH service. Showtime is a Viacom Inc. company headquartered in Dubai, UAE and uplinks 14 specialty Pay-TV channels and 25 free to air channels. The Company is attempting to secure exclusive licenses for MMDS in Morocco, Egypt, Indonesia, Croatia, and the Ivory Coast. The Company is currently in negotiations in Pakistan to provide Subscriber Management, Programming, Operation and Technical Management for the country's exclusive MMDS operator. During Fiscal 2000 to date there was a material change in the Company's sales and gross profit as outlined as follows:

8 Since starting up in late 1998, paging operations in Mongolia competed against inexpensive mobile telephone "receive only" services. Consequently, the Company upon experiencing low pager sales, is in the process of shutting down its Mongolia paging operations. DTH sales on the other hand has gown to over 350 plus 3 hotels. Consequently service fees rose to over to over $37,000 during Q3 - 2000. DTH fees rose to over $219,000 during YTD 2000. During YE 2000 to date, general and administration expenses, net of depreciation, were -------------------------------------------- ------------------ ---------------- 2000 1999 -------------------------------------------- ------------------ ---------------- Mongolia General and administration $ 18,000 $ 38,000 Amortization 28,000 52,000 North American Head Office General and administration 929,000 561,000 Amortization 410,000 - - Singapore Office General and administration 57,000 62,000 Amortization 1,000 21,000 Kampala Office General and administration 116,000 170,000 Amortization 76,000 45,000 Morocco Office General and administration 253,000 30,000 Amortization 4,000 3,000 Total General and administration $ 1,373,000 $ 861,000 Total Amortization $ 519,000 $ 121,000 -------------------------------------------- ------------------ ---------------- During YE 2000 to date, general and administration costs, net of depreciation were $1,779,000 as compared to $861,000 during YE 1999. The main cause was increased consulting fees in the North American head office to $626,000 paid to assist in the provision of investor relations for the Company as compared to $216,000 during YE 1999. Furthermore, due to start up costs in Morocco, cost there increased by $223,000 over YE 1999. Nine months ended September 30, 1999 compared to the nine months ended September 30, 1998 During Fiscal-99 the Company: 1. Commenced providing direct to home ("DTH") television service in Morocco. 2. Completed the main antenna atop the largest building in Dar es Salaam. Commenced leasehold improvements required 3. Completed engineering and systems design for Tanzania and Ghana and plans to launch Pay TV services there in 1st Quarter 2000. 4. Due to the slowdown of the Asian markets and unresolved programming copyright issues, facilitation of the Subscription TV roll out in Mongolia has been indefinitely delayed. The Company entered into an agreement to distribute "Showtime" programming package, a Direct to Home (DTH) service. Showtime is a Viacom Company headquartered in Dubai, UAE and uplinks 12 specialty Pay-TV channels and 25 Free to Air channels. The Company is also in the process of securing exclusive licenses for MMDS frequencies in the Ivory Coast, Morocco, Tunisia, Bangladesh and Indonesia. In Pakistan NOSTRAD is in the final stages of negotiations to acquire equity and to provide Subscriber Management, Programming, Operational and Technical Management for the country's exclusive MMDS operator. It is planned to utilize and expand on the transmission equipment, the current viewing base (estimated to be around 600,000 households), and the frequency spectrum of the current operation. NOSTRAD intends to upgrade the current head-end to receive digitally encrypted signals and to re-encrypt the signal for the terrestrial re-broadcast of the Subscription TV service. In addition, NOSTRAD will implement a 9 complete operational plan, including installation of a subscriber management system and marketing strategy, as well as acquisition of programming for the network. During Fiscal-99, General and administration expenses, net of depreciation and foreign exchange were $740,000 as compared to $330,000 during Fiscal - 98. The cause of this increase is due to the opening of the Kampala and Casablanca offices and increased administration activities. Liquidity and Capital Resources As at September 30, 2000, the Company's working capital was a $1,290000 deficiency, as compared to working capital deficiency of $1,275,000 as at September 30, 1999. The Company has no other long-term liabilities. Additional working capital is expected to be raised by way private placement and further borrowings from its majority shareholder. Plan of Operation Projects o The Morocco DTH project. The Company has commenced providing and marketing ShowTime's DTH services in October 1999. As of September 30, 2000 the Company has 350 individual subscriber, and 3 Hotel's (with combined total of 780 rooms). o The Uganda Pay TV project. Although it was anticipated that the Company would be able to roll out the Pay TV project in the last half of the year 2000. In order to accomplish this the Company will require an additional $800,000 to cover inventory, marketing, additional equipment and other startup costs. Subject to receiving financing, the Company anticipates that the equipment will arrive in Kampala by Q4 2000. The Company has completed the construction of the head-end and entered into a long term lease of tower space on Kololo Hill. o The Tanzania Pay TV project. The Company has decided to commence roll out of Pay TV in Dar es Salaam at approximately the same time as Uganda. In order to accomplish this the Company will require an additional $1,000,000. The Company plans to co-locate its transmission facilities with its local partner, Central Television Network (CTN), which operates one of the local free to air Television stations. Risks The Company, to date, has obtained licenses to provide PAY-TV in areas where over 3,400,000 TV households will be passed by the Company's signals. The Company must now commence a marketing program and sell its receivers and subscription to the TV households. If all or parts of the target markets are to be rolled out, the Company must raise approximately $5.0 million. In other words, the Company is at the development stage of its operations and, as such, is uncertain of the risks, which may impact on its financial operations in the future. If the Company is unable to raise the required funds, the Company may be in default of the frequency licensing agreement(s) and be at risk of losing the said license(s). The risks, which will have to be addressed by the Company, may include the intensely competitive nature of the telecommunications industry, fluctuating currency markets, laws relating to repatriation of profits, taxation, political stability, and expropriation and insurrection. Management of the Company tries to minimize the above risks through careful due diligence at the investment decision stage, both with respect to the technical merits and economic prospects of ventures in which the Company is considering participation, and with respect to the incipient political risks associated with investment within a particular country or region. Statements in this report that may not be historical facts and that may be forward-looking statements are subject to a variety of risks and uncertainties. There are a number of important factors that could cause actual results to differ materially from those expressed in any forward- 10 looking statements made by the Company. These factors include, but are not limited to: (i) the nature of the Pay TV markets, specifically obtaining suitable programming at a reasonable cost, (ii) the ability of the Company to raise capital for projects within the context of overall telecommunication capital market dynamics, (iii) the establishment of a sustainable subscriber base to the point of economic viability, (iv) the viability of Pay TV projects based on imperfect demographic analysis, (v) regulatory changes impacting on the nature, scope and content of projects and operations, throughout the Company's areas of operations, (vi) other factors detailed from time to time in the Company's filings with the United States Securities and Exchange Commission, and (vii) or any other factors. Political Risk In order to mitigate the political risk in the Company's target markets, the company has arranged for political risk insurance provided through Lloyd's of London, based on a variable valuation of the operating companies in the nations concerned. 11

NOSTRAD TELECOMMUNICATIONS INC 10-Q