NOVEKO INTERNATIONAL INC. Announces Results for the Second Quarter Ended December 31, 2010

Record quarterly revenues of more than $5 million and major reduction in loss

EKO / TSX

MONTREAL, Feb. 10 /CNW Telbec/ - Noveko International Inc. (the "Company") today discloses the results for its second quarter ended December 31, 2010.

"We are pleased to announce record quarterly revenues of more than $5 million and a major reduction in the loss from the corresponding quarter of the previous year, in line with our growth and enhanced profitability objectives. We intend to keep up this momentum notably by taking advantage of the remarkable progress in our medical equipment segment and the advances achieved by our various filtration activities. In this regard, our filtration teams are working jointly with our partners, including Distinction Group Inc., the Canadian leader in integrated facility services, to secure new bids within the near term. To increase our working capital and continue commercializing our technologies in our four business segments, we have taken initiatives to complete the financing arranged last autumn. We are confident we can count on our investors' support in the process of implementing our business plan," indicated Mr. André Leroux, Chairman of the Board and Chief Executive Officer of the Company.

Financial Highlights

For the second quarter and first six months of the current fiscal year, and in comparison with the corresponding periods of the previous year:

  • Consolidated revenues from continuing operations up by 3% to a quarterly record of more than $5.0 million, and down by 16% to $7.8 million, respectively;
  • Stock-based compensation down by $1.1 million and by $2.0 million, respectively;
  • Loss before amortization, financial expenses, income taxes, other items and discontinued operations down by $1.9 million (50%) to $1.9 million, and down by $2.2 million (34%) to $4.3 million, respectively;
  • Loss from continuing operations down by $1.7 million (38%) to $2.8 million, and down by $2.4 million (30%) to $5.7 million, respectively;
  • Net loss down by $2.1 million (42%) to $2.9 million, and down by $3.3 million (36%) to $5.9 million, respectively;
  • Total indebtedness reduced by $0.2 million since June 30, 2010 to $1.3 million.

Selected consolidated information
Periods Ended December 31 Three Months Six Months
(in thousands of $, except per-share amounts) (unaudited)   2010(1)   2009   2010(1)   2009
Revenues from continuing operations   5,026   4,899   7,772   9,287
Gross margin   1,946   1,847   3,168   3,942
Loss before amortization, financial expenses,
income taxes, other items and
discontinued operations(2)
  (1,861)   (3,746)   (4,296)   (6,510)
Loss from continuing operations   (2,828)   (4,562)   (5,667)   (8,066)
Loss from discontinued operations(3)   (101)   (446)   (188)   (1,082)
Net loss   (2,929)   (5,009)   (5,855)   (9,148)
                 
Loss per Class A share (basic and diluted)                
  Continuing operations    $ (0.03)    $ (0.06)    $ (0.07)    $ (0.11)
  Discontinued operations(3) $ (0.00) $ (0.01) $ (0.00) $ (0.02)
  Net loss $ (0.03) $ (0.07) $ (0.07) $ (0.13)
                   
Weighted average number of
outstanding Class A shares,
basic and diluted (in thousands)
  84,369   74,912   80,188   71,094

     
Balance Sheet Data    December 31
2010
   June 30
2010
Total assets 43,447 42,675
Shareholders' equity 33,074 33,063
Total interest-bearing debt(4) 1,273 1,446
Non-current liabilities for sale(5) 1,644 1,753
Cash, cash equivalents, short-term investments   
and deposit in trust
2,388 2,873

1)   The consolidated financial statements include the accounts of the Company and of its subsidiaries, all wholly-owned as at December 31, 2010.
2)  Including stock-based compensation of $196,061, $1,271,264, $437,751 and $2,450,788 for the respective periods of fiscal 2011 and fiscal 2010, which has no impact on the cash balance.
3)  Related to BLI's and Magnum's operations for the second quarter of 2010, but solely to BLI's operations for the second quarter of 2011.
4)  Including long-term debt and its current portion, as well as bank loans, excluding BLI.
5)  Related to BLI.


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. Also, the second quarter and the six-month period ended December 31, 2010 and the corresponding periods ended December 31, 2009 are sometimes respectively designated by the terms "second quarter of 2011" and "first six months of fiscal 2011", and "second quarter of 2010" and "first six months of fiscal 2010", while the fiscal year ending June 30, 2011 and those ended June 30 of prior years are sometimes designated by the terms "fiscal 2011", "fiscal 2010" and so on.

Analysis of Operating Results

Second Quarter of 2011 Compared with the Second Quarter of 2010
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 of BLI have been withdrawn from continuing operations to be treated as discontinued operations in the Company's financial statements The assets and liabilities related to BLI have been reclassified as assets and liabilities held for sale. As Magnum proceeded with a voluntary assignment of its assets effective June 2, 2010, its results of operations are also treated as discontinued operations in the Company's financial statements for the periods ended prior to that date. As for the assets and liabilities related to Magnum, they no longer appear in the Company's financial statements subsequent to the voluntary assignment of its assets.

Consolidated and Segmented Revenues from Continuing Operations (unaudited)
  Three Months
Ended December 31
Six Months
Ended December 31
    2010   2009   2010   2009
                 
Medical equipment       $ 3,658,272    $ 2,496,617    $ 5,933,252    $ 4,792,562
Sanitizers   716,743   1,517,033   588,820   2,309,791
Masks   74   290,181   14,677   1,084,458
Filtration   650,462   595,263   1,235,730   1,100,592
Total $ 5,025,551 $ 4,899,094 $ 7,772,479 $ 9,287,403

Consolidated revenues for the second quarter of 2011 reached a record high of more than $5 million, an increase of $0.1 million or 3% over the second quarter of 2010, when sales in the sanitizers and masks segments had increased significantly in the context of the A (H1N1) influenza pandemic. The growth in the second quarter of 2011 stemmed primarily from the significant increase of $1.2 million in sales of medical equipment resulting from the commercialization efforts of Noveko Algérie and ECM. Whereas Noveko Algérie posted a $0.3 million or 34% sales growth, ECM increased its sales by $0.8 million or 52%. In ECM's case, the increase in revenues would have been much higher - at 73% in Euros - were it not for the major depreciation of the Euro against the Canadian dollar, which had a negative impact of approximately $0.3 million on our revenues. ECM's sales growth reflects both the advances achieved in the human medicine market and those in progress in the veterinary medicine market. The devaluation of the Algerian dinar against the Canadian dollar also adversely affected our revenues in the medical equipment segment, although to a lesser extent. Revenues from filtration products for the second quarter of 2011 grew by $0.1 million or 9% over the second quarter of 2010 due primarily to the sales growth in the institutional and commercial markets. Sales in the sanitizers and masks segments declined by $0.8 million or 53% and by $0.3 million or 100%, respectively, from the second quarter of 2010. We are still suffering from the negative effects of the rapid end to the A (H1N1) influenza pandemic, which subsequently had an adverse impact on demand, whereas sales in these segments had increased significantly during the second quarter of 2010 as a result of the pandemic context prevailing at the time. Conversely, signs of a recovery of our commercialization activities have been observed in the sanitizers segment, as attested to by the recent agreements and orders, including the revenues of more than $640,000 recorded during the second quarter of 2011 as a result of an order targeted to the IGA grocery stores in the Province of Québec. The winter period is also contributing to drive demand. This recovery could nevertheless take longer than expected to materialize due notably to the significant inventories accumulated at all levels of the supply chain industry-wide. In the masks segment, we believe we can stimulate the commercialization of our technologies thanks notably to the award of the European certification for our antimicrobial respirators and the continued talks with a number of parties. However, it is difficult to foresee how long it will take for new commercialization agreements to materialize and for our sales to pick up in this segment.

For the first six months, revenues declined by $1.5 million or 16%, reflecting the sales decrease in the sanitizers and masks segments of $1.7 million or 75% and $1.1 million or 99%, respectively, as a result of the aforementioned factors. Credits for the return of merchandise of approximately $0.2 million granted as part of the termination of a distribution agreement also adversely affected revenues from the sanitizers segment for the first quarter of 2011 and could not be offset by the sales nonetheless achieved in hospital settings and the retail market thanks to our recent agreements and orders. Sales of medical equipment grew by $1.1 million or 24%, the $1.2 million or 38% growth in ECM's sales having offset the slight decline in Noveko Algérie's sales during the period. In ECM's case, the increase would have been higher - at more than 59% in Euros - were it not for the depreciation of the Euro against the Canadian dollar, which represented a negative impact of $0.7 million on our revenues. Finally, revenues from filtration products increased by $0.1 million or 12%.

The operating profit margin for the second quarter of 2011 remained relatively stable at 38.7%, versus 37.7% for the first quarter of 2010, reflecting the weighting of logistics services expenses, primarily warehousing, in a context of lower sales in the masks and sanitizers segments, as well as an increase in the provision for obsolete inventories related to the frames of our previous filters model targeted to the swine industry, and lower profit margins in the sanitizers retailing market. For the first six months, for the same reasons, the operating profit margin was 40.8%, compared with 42.5% for the corresponding period of the previous year.

Selling and administration expenses for the second quarter of 2011 and first six months decreased by $0.6 million or 14% and by some $1 million or 13%, respectively, to $3.4 million and $6.5 million. This reduction partly reflects the cost control measures implemented.

Stock-based compensation charge for the second quarter of 2011 and first six months, which is without impact on the Company's cash balance, decreased by $1.1 million and $2.0 million respectively. These reductions are explained by the lower number of options granted in the past quarters, the reduction in exercise price and the gradual recognition of the compensation charge.

Research and development expenses for the second quarter of 2011 and first six months decreased by $0.2 million and $0.1 million, respectively, to $0.4 million and $0.7 million, due primarily to the tightening of development costs associated with the masks segment.

Earnings (Loss) before Amortization, Financial Expenses, Income Taxes, Other Items and Discontinued
Operations (unaudited)
  Three Months
Ended December 31
Six Months
Ended December 31
    2010   2009   2010   2009
                 
Medical equipment       $ 520,481    $ 385,511    $ 963,590    $ 502,997
Sanitizers   (422,613)   (427,640)   (1,204,177)   (685,316)
Masks   (221,202)   (494,813)   (426,774)   (455,399)
Filtration   (644,710)   (534,552)   (1,240,675)   (1,134,906)
Other   (1,093,435)   (2,674,475)   (2,387,542)   (4,737,330)
Total $ (1,861,479) $ (3,745,969) $ (4,295,578) $ (6,509,954)

Considering mainly the aforementioned factors, the loss before amortization, financial expenses, income taxes, other items and discontinued operations was reduced significantly to $1.9 million for the second quarter of 2011, down by $1.9 million or 50% from the corresponding quarter of the previous year. For the first six months, it amounted to $4.3 million, a decrease of $2.2 million or 34%, despite the lower revenues for the same period. This major improvement is due primarily to the following factors:

  • a significant decline in the stock-based compensation charge of the parent company Noveko International (in the "other" segment) and of the other business segments, for the previously mentioned reasons;
  • the medical equipment segment recorded earnings before amortization, financial expenses and income taxes of $0.5 million during the second quarter of 2011, an improvement of $0.1 million over the second quarter of 2010. For the first six months, such earnings totalled $1.0 million, up by $0.5 million. These increases mostly reflect the improved profitability achieved by ECM and Noveko Algérie;
  • the masks segment posted a $0.3 million decrease in its loss during the second quarter reflecting, despite an increase in fixed expenses, a reduction in development expenses and the stock-based compensation charge. For the first six months, the segment's loss declined only slightly;
  • conversely, the filtration segment recorded a $0.1 million increase in its loss during the second quarter of 2011 and for the first six months, due to an increase in marketing expenses and the provision for obsolete inventories related to the frames of our former filters model for hog farms; and
  • whereas the loss incurred by the sanitizers segment remained relatively stable during the second quarter of 2011, it increased by $0.5 million for the first six months, due primarily to the weighting of certain fixed expenses and weak profit margins in a context of lower sales than in the corresponding period of the previous year.

Amortization expenses increased by $0.3 million and $0.5 million, respectively, for the second quarter of 2011 and the first six months. This increase is primarily attributable to the amortization of the expenses related to the development of the Exago™ since its launch in the veterinary market and the increase in amortization expenses related to intangible assets, including our integrated management system, the implementation of which was completed during the third quarter of fiscal 2010.

Financial expenses less investment revenues decreased by $0.2 million from the second quarter of 2010 to an amount of $0.2 million for the second quarter of 2011, due primarily to the reduction in the exchange loss. For the first six months, expenses decreased by $0.9 million. This reduction stemmed mainly from the recognition of a $0.2 million exchange gain, whereas a $0.7 million exchange loss had been recognized during the corresponding period of the previous year and, to a lesser extent, the reduction in interest charge on convertible debentures.

The reader is reminded that subsequent to a preliminary assessment, a goodwill impairment charge of $2.4 million related to the sanitizers segment was recognized in the consolidated statement of operations for the fourth quarter of fiscal 2010. This impairment, which is without impact on the Company's cash balance, reflects the market conditions affecting this segment, primarily the slowdown in the marketing of the sanitizers following the rapid end of the A (H1N1) influenza pandemic and the termination of a significant distribution agreement. With the assistance of an independent valuator, we carried out the comprehensive assessment and completed the final calculation of the impairment of goodwill during the second quarter of 2011. The resulting adjustment, also without impact on the cash balance, led to the recognition of a $24,902 increase in the goodwill impairment charge in the consolidated statement of operations for the period.

Net Earnings (Loss) from Continuing Operations (unaudited)
  Three Months
Ended December 31
Six Months
Ended December 31
    2010   2009   2010   2009
                 
Medical equipment       $ 264,715    $ 267,518    $ 440,554    $ 199,025
Sanitizers   (597,796)   (636,795)   (1,510,325)   (919,742)
Masks   (260,283)   (571,575)   (424,006)   (580,511)
Filtration   (629,562)   (611,866)   (1,239,405)   (1,348,062)
Other   (1,605,315)   (3,009,755)   (2,933,364)   (5,416,344)
Total $ (2,828,241) $ (4,562,473) $ (5,666,546) $ (8,065,634)

Considering mainly the aforementioned factors, the net loss from continuing operations for the second quarter of 2011 and first six months decreased significantly from the same periods of the previous year, by $1.7 million or 38% and by $2.4 million or 30%, respectively, to $2.8 million and $5.7 million.

A loss of $0.1 million from discontinued operations (BLI) was recognized, compared with a loss of $0.4 million for the corresponding period of the previous year. In this regard, discontinued operations include the accounts of both BLI and Magnum for the second quarter of 2010, but solely the accounts of BLI for the second quarter of 2011. Consequently, the second-quarter net loss amounted to $2.9 million, down from $5.0 million for the same quarter of the previous year, a major decrease of $2.1 million or 42%. For the first six months, a loss of $0.2 million from discontinued operations (BLI) was recognized, compared with a loss of $1.1 million for the corresponding period of the previous year. Consequently, the net loss for the first six months totalled $5.9 million, down from $9.1 million for the same period of the previous year, a major decrease of $3.3 million or 36%.

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, compared with a net change in realized losses of $0.4 million for the corresponding quarter of the previous year, a net loss of $3.1 million represented the comprehensive loss for the second quarter of 2011, compared with a net loss of $5.4 million for the corresponding quarter of the previous year. For the first six months, a net loss of $5.8 million represented the comprehensive loss, considering a net change in unrealized gains on translation of the financial statements of self-sustaining foreign operations of $0.1 million, compared with a net loss of $9.9 million for the corresponding period of the previous year, considering a net change in unrealized losses on translation of the financial statements of self-sustaining foreign operations of $0.7 million.

The loss from continuing operations and the net loss per Class A share (basic and diluted) for the second quarter of 2011 both amounted to $0.03 on a weighted average of 84,369,390 outstanding shares, compared with a loss from continuing operations and a net loss per share of $0.06 and $0.07, respectively, on a weighted average of 74,911,651 shares for the second quarter of 2010. For the first six months, the loss from continuing operations and the net loss per Class A share (basic and diluted) both amounted to $0.07 on a weighted average of 80,187,869 outstanding shares, compared with a loss from continuing operations and a net loss per share of $0.11 and $0.13, respectively, on a weighted average of 71,094,158 shares for the corresponding period of the previous year. The increased weighted average number of outstanding shares is due mainly to the issue of Class A shares related to the 2010 private placement.

Principal Quarterly Financial Information
(in thousands of $, except per-share amounts) (unaudited)
  First
   Quarter
Second
   Quarter
Third
   Quarter
Fourth
    Quarter
Fiscal 2011        
Revenues 2,747 5,026    
Loss from continuing operations (2,838) (2,828)    
Comprehensive loss (2,654) (3,096)    
Loss per Class A share from continuing operations
(basic and diluted)
(0.04) (0,03)    
Fiscal 2010        
Revenues 4,388 4,899 2,928 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)
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)
         

Balance Sheet Analysis

As at December 31, 2010, total assets amounted to $43.4 million, up by $0.8 million over June 30, 2010. Working capital stood at $12.9 million for a current ratio of 2.8:1, compared with $12.8 million and a 3.1:1 ratio as at June 30, 2010. Shareholders' equity totalled $33.1 million as at December 31, 2010, remaining stable compared with June 30, 2010. Total interest-bearing debt (bank loans, current portion of long-term debt and long-term debt) amounted to $1.3 million as at December 31, 2010, down by $173,447 from June 30, 2010.

Quarter Highlights and Subsequent Events
  • We are continuing the measures to improve our operational efficiency and to better control the operating costs in each of our business segments. In this regard, the operations of our subsidiary Noveko remain the focus of special attention, which is notably resulting in the restructuring of certain teams.
  • Financing: On October 29, 2010, we proceeded with a second closing of $900,000 in connection with the offering announced on September 23, 2010 ("the 2010 private placement"). On past September 30, we had proceeded with a first closing of $4,440,000 in connection with this offering. Consequently, a total of 8,900,000 Class A shares were issued for a total gross consideration of $5,340,000 in connection with the 2010 private placement that ended on December 10, 2010. No commission was paid in connection with this offering. We are currently in the process of assessing the various options to complete our financing based on market conditions.
  • In December 2010, our head office's and Noveko's activities have been consolidated under one roof and the teams moved into the new downtown Montreal offices. An offer for the sale of the Terrebonne building was recently accepted. The transaction, which is subject to the usual conditions, is scheduled to close on or about April 15, 2011.
  • Epurair's filtration activities will gradually move from its McMasterville, Québec building into larger premises located in Boucherville, Québec. Consequently, the McMasterville building has been sold for a consideration of $650,000.

Air Filtration Products
Air Filters for the Transportation Industry - Adaptability trials are currently underway on several systems, including subways, trains, tunnels and subway stations in various major cities in North America. We are also working together with Bombardier Transportation's teams to ensure that the agreement binding us yields benefits progressively. We do not expect the agreement with Bombardier Transportation to generate significant revenues during fiscal 2011, but we believe the various tests currently underway will gradually yield agreements and revenues that will prove more substantial over the medium term. While trials in a real environment are going well, several teams at the solicited users and our partner Bombardier Transportation are involved in the process. The goal of this partnership is to ensure that our filtration solutions eventually become the standard for all of Bombardier Transportation's clients, both those for which it manufactures rail vehicles and those for which it ensures the maintenance - the latter covering rail vehicles it manufactures as well as those made by other manufacturers. Bombardier Transportation has started to include our filtration solutions in bids for the construction of new rail vehicles. It could take several months for the results of such calls for tenders to become known. Furthermore, we are in talks with various transportation bodies interested in our technologies.

Air Filters for Buildings, Institutional and Commercial Markets - We believe that the agreement entered into in December 2010 with Distinction Group Inc., through its subsidiary Montcalm Technical Services (hereinafter collectively referred to as "GDI"), will leverage the further commercialization of our filtration solutions in the real estate segment. GDI, the Canadian leader in integrated facility services with a portfolio of more than 2,000 clients, opted for our value-added filtration solutions, recognizing them to be efficient, cost-effective and eco-friendly, and hence ideal for any building as part of a sustainable development strategy. For a minimum of three years, GDI will purchase or lease our filtration solutions to gradually equip the buildings for which it ensures the ventilation-related services. Our filtration teams are working jointly with those of GDI and several new bids have already been tendered to major property owners in the Greater Montreal Area. We expect them to yield concrete agreements during the third quarter of 2011.

Air Filters for Farm Buildings - While the economic health of the swine industry remains fragile, we are witnessing a certain resumption of our commercialization activities in the pork market. We have recently been awarded new orders, including, in December 2010, a contract worth more than $200,000 with Villa Vista Farms for which the deliveries and installations are primarily scheduled for the third quarter of the current fiscal year. We are also pursuing our targeted market development initiatives, especially in North America, and are currently in talks with several hog farmers.

Antimicrobial Masks and Respirators Markets
We are in talks with various parties - membrane producers, mask assemblers and distributors alike - and thereby hope to further stimulate our market development and the commercialization of our technologies in this segment. Despite the delays encountered in implementing our business plan in this regard, the interest shown by various parties confirms that the gains in brand awareness achieved by our products since more than a year ago are due primarily to the differentiation associated with our antimicrobial technologies. However, it is difficult to foresee how long it will take for new commercialization agreements to materialize and for our sales to pick up in this segment. This recovery could also depend on the significant inventories accumulated industry-wide. We therefore do not anticipate any significant revenues in this regard for fiscal 2011. We recently submitted, to the US National Institute for Occupational Safety and Health ("NIOSH"), a new application for certification of a Noveko™ respirator model without any antimicrobial agent. 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. We are also pursuing the tests and obtaining the required performance data to draw up the file to support a future 510(k) submission in order to meet both the FDA's requirements and our marketing imperatives. Our objective is to file such an application by the end of fiscal 2011.

Sanitizers
Although we are witnessing a certain resumption of our marketing activities in this segment - as attested to by the recent agreements and orders, including the revenues of more than $640,000 recorded during the second quarter of 2011 as a result of an order targeted to the IGA grocery stores - the winter period contributing to drive the demand for our products, this resumption could take longer than expected due notably to the significant inventories accumulated at all levels of the supply chain industry-wide.

Medical Equipment
ECM continues to achieve breakthroughs in the equine market, a new niche for this subsidiary, with its Exago™ ultrasound scanner. The Exago™, initially designed for the equine market and, to a lesser extent, for the pets market, is now also intended for use in human medicine, especially for emergency, anaesthesia and army needs. In fact, during the second quarter of 2011, ECM was authorized to affix CE Marking on the Exago™ and started its first deliveries targeted to human medicine. ECM plans to shortly launch the Exagyne™ (as it were the portable version of the Imagyne™). It will thereby offer a complete line of ultrasound scanners responding to various clinical applications, thereby driving further penetration of the human medicine market. Its network of exclusive distributors for the human medicine market has now been set up and extends to more than 30 countries.

Profile

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.

The Management's Report, consolidated financial statements and accompanying notes for the quarter ended December 31, 2010 will be filed on SEDAR (www.sedar.com) and available on the Company's website (www.noveko.com).

         
NOVEKO INTERNATIONAL INC.

Consolidated balance sheets

As at December 31, 2010 and June 30, 2010

    December 31
2010
  June 30
2010
    (unaudited)   (audited)
ASSETS        
Current assets:        
  Cash and cash equivalents    $ 1,197,609    $ 639,543
  Deposit in trust   45,000   87,787
  Short-term investments   1,145,754   2,145,631
  Accounts receivable   4,896,434   3,026,436
  Inventories   11,439,950   11,259,316
  Prepaid expenses   412,473   627,644
  Current portion of assets held for sale   1,018,405   1,231,858
    20,155,625   19,018,215
Fixed assets   1,852,885   1,592,999
Intangible assets   7,193,191   7,782,150
Other assets   849,046   945,653
Future income taxes   19,424   19,424
Goodwill   7,477,172   7,420,012
Non-current portion of assets held for sale   5,899,858   5,896,657
  $ 43,447,201 $ 42,675,110
Liabilities and shareholders' equity        
Current liabilities:        
  Bank loans $ 173,147 $ 167,011
  Accounts payable and accrued liabilities   4,818,112   3,801,984
  Current portion of long-term debt   457,063   475,432
  Current portion of liabilities held for sales      1,809,716   1,780,589
    7,258,038   6,225,016
Long-term debt   642,433   803,647
Future income taxes   828,643   830,291
Non-current portion of liabilities held for sales   1,644,321   1,753,146
         
Shareholders' equity:        
  Capital stock   100,960,532   95,620,532
  Warrants   3,348,000   3,348,000
  Contributed surplus   23,312,423   22,874,810
  Accumulated other comprehensive loss   (1,181,218)   (1,285,522)
  Deficit   (93,365,971)   (87,494,810)
    33,073,766   33,063,010
  $ 43,447,201 $ 42,675,110

                 
NOVEKO INTERNATIONAL INC.

Consolidated statements of operations

Six and three month periods ended December 31, 2010 and 2009
(unaudited)

  Three months Six months
    2010   2009   2010   2009
Revenues    $ 5,025,551    $ 4,899,094    $ 7,772,479    $ 9,287,403
Cost of sales   3,080,037   3,051,981   4,604,155   5,345,191
    1,945,514   1,847,113   3,168,324   3,942,212
                 
Operating expenses:                
  Administrative and selling expenses   3,390,202   3,959,299   6,547,472   7,504,366
  Stock-based compensation   196,061   1,271,264   437,751   2,450,788
  Research and development   365,116   552,355   701,058   795,425
  Research and development tax
credits
  (144,386)   (189,836)   (222,379)   (298,413)
    3,806,993   5,593,082   7,463,902   10,452,166
                 
Loss before amortization, financial fees,
income taxes, other element and
discontinued operations
  (1,861,479)   (3,745,969)   (4,295,578)   (6,509,954)
                 
Amortization   689,722   425,692   1,393,968   846,384
                 
Financial expenses less investment
revenues
  248,366   484,900   (98,490)   825,418
                 
Goodwill impairment charge adjustment   24,902   (69,700)   24,902   (69,700)
    962,990   840,892   1,320,380   1,602,102
                 
Loss before income taxes   (2,824,469)   (4,586,861)   (5,615,958)   (8,112,056)
                 
Income taxes:                
  Current (recovered)   28,188   47,031   71,218   99,961
  Future   (24,416)   (71,419)   (20,630)   (146,383)
    3,772   (24,388)   50,588   (46,422)
                 
Net loss from continuing operations   (2,828,241)   (4,562,473)   (5,666,546)   (8,065,634)
                 
Net loss from discontinued operations     (100,773)   (446,194)   (188,357)   (1,082,365)
                 
Net loss $ (2,929,014) $ (5,008,667) $ 5,854,903 $ (9,147,999)
                 
Basic and diluted loss per share:                
                 
  From continuing operations $ (0.03) $ (0.06) $ (0.07) $ (0.11)
  From discontinued operations $ (0.00) $ (0.01) $ (0.00) $ (0.02)
  Net loss $ (0.03) $ (0.07) $ (0.07) $ (0.13)
Weighted average number of outstanding
shares, basic and diluted
  84,369,390   74,911,651   80,187,869   71,094,158

                 
NOVEKO INTERNATIONAL INC.

Consolidated statements of comprehensive loss

Six and three month periods ended December 31, 2010 and 2009
(unaudited)

  Three months Six months
    2010   2009   2010   2009
Net loss    $ (2,929,014)    $ (5,008,667)    $ (5,854,903)    $ (9,147,999)
                 
Other comprehensive income, net of
income taxes:
               
                 
Change in unrealized gains (losses) on
translation of financial statements of
self-sustaining foreign operations
  (167,282)   (440,065)   104,304   (717,306)
                 
Comprehensive loss $ (3,096,296) $ (5,448,732) $ (5,750,599) $ (9,865,305)

         
NOVEKO INTERNATIONAL INC.

Consolidated statements of deficit and contributed surplus

Six-month periods ended December 31, 2010 and 2009
(unaudited)

       
    December 31
2010
  December 31
2009
         
DEFICIT        
         
Deficit, beginning of period    $ (87,494,810)    $ (61,205,942)
Net loss   (5,854,903)   (9,147,999)
Share issuance fees   (16,258)   (2,232,725)
Deficit, end of period $ (93,365,971) $ (72,586,666)
         
CONTRIBUTED SURPLUS        
         
Contributed surplus, beginning of period $ 22,874,810 $ 18,718,376
Fair value of stock options granted   437,613   2,566,362
Fair value of options granted to the agents   -   891,737
Fair value of stock options exercised   -   (83,332)
Contributed surplus, end of period $ 23,312,423 $ 22,093,143

                 
NOVEKO INTERNATIONAL INC.

Consolidated statements of cash flows

Six and three months periods ended December 31, 2010 and 2009
(unaudited)

  Three months Six months
    2010   2009   2010   2009
Cash flows from operating activities:                
  Net loss    $ (2,929,014)    $ (5,008,667)    $ (5,854,903)    $ (9,147,999)
  Adjustments for:                
    Loss from discontinued operations   100,773   446,194   188,357   1,082,365
    Future income taxes   (24,416)   (71,419)   (20,630)   (146,383)
    Accreted interest on secured convertible debentures   -   9,279   -   64,700
    Stock-based compensation   196,061   1,271,264   437,751   2,450,788
    Loss (gain) on disposal of fixed assets   90,552   (1,346)   91,275   5,937
    Amortization   689,722   425,692   1,393,968   846,384
    Goodwill impairment charge adjustment   24,902   (69,700)   24,902   (69,700)
    Loss on fair value of short-term investments   -   -   -   11,676
    Foreign exchange loss (gain)   (300)   17,983   (635)   17,129
    Adjustment from discontinued operations   192,506   224,412   145,443   474,771
    (1,659,214)   (2,756,308)   (3,594,472)   (4,410,332)
  Net change in non-cash working capital   (2,080,599)   (2,119,539)   (948,845)   (2,521,866)
    (3,739,813)   (4,875,847)   (4,543,317)   (6,932,198)
Cash flows from financing activities:                
  Net changes in bank loan   (129)   144,802   2,497   144,802
  Repayment of long-term debt   (93,584)   (180,509)   (191,179)   (359,155)
  Interest paid on secured convertible debentures   -   (7,763)   -   (40,886)
  Proceeds from Class A shares and warrants issued   900,000   15,792,868   5,340,000   15,865,366
  Class A shares issue expenses   (11,008)   (1,340,988)   (16,258)   (1,340,988)
  Cash flows from discontinued operations   (177,878)   (116,172)   (110,418)   (199,274)
    617,401   14,292,238   5,024,642   14,069,865
Cash flows from investing activities:                
  Acquisition of short-term investments   -   (12,000,000)   (1,590,000)   (12,000,000)
  Proceeds from disposal of short-term investments   1,500,000   4,001,836   2,590,000   6,636,261
  Acquisition of fixed assets   (464,060)   (83,183)   (599,930)   (133,424)
  Proceeds from disposal of fixed assets   22,642   16,020   22,642   28,186
  Acquisition of intangible assets   (16,798)   (165,992)   (158,557)   (203,770)
  Acquisition of other assets   -   (49,015)   -   (44,400)
  Deposit in trust   (287)   1,480   -   5,460
  Deferred development costs, net of
related research tax credits received
  (84,219)   (95,263)   (171,384)   (179,129)
  Cash flows from discontinued operations   -   (11,773)   (3,200)   (101,773)
    957,278   (8,385,890)   89,571   (5,992,589)
Foreign exchange loss on cash in foreign currencies   (19,350)   (71,629)   (12,830)   (122,024)
Increase (decrease) in cash and cash equivalents   (2,184,484)   958,872   558,066   1,023,054
Cash and cash equivalents, beginning of period   3,382,093   1,001,501   639,543   937,319
Cash and cash equivalents, end of period $ 1,197,609 $ 1,960,373 $ 1,197,609 $ 1,960,373

Cash flows related to operating activities include interest paid for an amount of $82,148 ($60,086 in 2009) and income taxes paid for $15,103 (received for $260,230 in 2009).

SOURCE NOVEKO INTERNATIONAL INC.

For further information:

Chantal Vennat, Director,
Investor Relations and Corporate Communications
Noveko International Inc. 
Tel: (514) 875-0606
http://www.noveko.com

Profil de l'entreprise

NOVEKO INTERNATIONAL INC.

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