Yak Communications (NASDAQ:YAKC)
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Accounting Treatment for 2003 Software Transaction is Finalized
and Financial Results Restated
Yak Communications Inc. (NASDAQ:YAKC), a provider of
telecommunication services to residential and business customers,
today announced financial results for the fourth quarter and fiscal
year ended June 30, 2005 and also announced that it was restating
certain amounts previously reported.
Operating Highlights and Accomplishments in 2005:
- Increased net revenue by 15% to $92.7 million
- Generated net income of $4.2 million
- Reduced long term debt by $4.2 million to $1.0 million
- Financed operations from internally-generated working capital
- Implemented and began promotional activity for Yak's VoIP
services
- Began marketing of US dial-around services
- Purchased the local resale customer base (Ontario and Quebec)
and Centrex lines of
Navigata Communications Limited thereby acquiring 450 SME customers,
totaling 4,700 Centrex lines
Overview:
"We are pleased with our overall financial performance in fiscal
year 2005," said Charles Zwebner, President and Chief Executive
Officer. "We grew revenues by 15%, entered new markets and generated
cash from operations, despite earnings pressure due to increased
general and administrative expenses.
"Our core Canadian dial-around business remains healthy and
continues to generate significant operating cash. In fiscal 2005, we
capitalized on that cash by initiating marketing campaigns in the
U.S. directed at Hispanic communities and driving increased revenues,
customers and minutes. Also, we entered the emerging VoIP
marketplace, acquired an Ontario and Quebec customer portfolio for
the Yak for Business division and invested in technology to improve
the efficiency of our telecommunication networks.
"We are particularly pleased to have reduced our indebtedness in
fiscal 2005, while still investing in new markets and technology.
During the last year, we fully paid down $5.7 million of our accounts
receivable factoring facility and reduced long-term debt by another
$4.2 million. In addition, we kept our balance sheet strong by
funding our 2005 growth entirely from internally-generated working
capital," continued Mr. Zwebner.
Fourth Quarter Results:
Net earnings for the fourth quarter of fiscal 2005 was $0.1
million or $0.01 per diluted share, compared with net earnings of
$0.9 million, or $0.09 per diluted share for the fourth quarter of
fiscal 2004.
Net revenues increased 15.7% to $23.5 million for the fourth
quarter of fiscal 2005, as compared to net revenues of $20.3 million
for the fourth quarter of fiscal 2004. Consistent with earlier
quarters in fiscal 2005, the majority of the revenue growth was
generated by dial-around telephony, Yak's core business, which
increased approximately 15.7% over the comparable quarter of fiscal
year 2004. During the fourth quarter of fiscal 2005, Yak processed on
its own network 287 million minutes of traffic, with 25.7 million
calls serving approximately 905,000 monthly customers.
Yak's Dial-Around/1+ business continued its strong growth.
Revenues rose 21%, customers grew 12%, the number of minutes used
increased 11% and the number of calls placed rose 13%.
-0-
*T
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For the Quarter Ended June 30, 2005
---------------------------------------------------------------------
(All amounts in
Thousands)
---------------------------------------------------------------------
Products Revenue Customers Minutes Calls
---------------------------------------------------------------------
Dial-Around/1+ $16,712 831 265,604 24,010
---------------------------------------------------------------------
LooneyCall $1,756 68 20,205 1,498
---------------------------------------------------------------------
Yakcell $157 6 1,509 172
---------------------------------------------------------------------
TOTAL $18,625 905 287,318 25,680
---------------------------------------------------------------------
---------------------------------------------------------------------
For the Quarter Ended June 30, 2004
---------------------------------------------------------------------
(All amounts in
Thousands)
---------------------------------------------------------------------
Products Revenue Customers Minutes Calls
---------------------------------------------------------------------
Dial-Around/1+ $13,864 718 232,604 20,677
---------------------------------------------------------------------
LooneyCall $2,199 92 26,470 1,961
---------------------------------------------------------------------
Yakcell $39 1 297 46
---------------------------------------------------------------------
TOTAL $16,102 811 259,371 22,684
---------------------------------------------------------------------
*T
Also consistent with the Company's results for previous fiscal
2005 quarters, the revenue gains in the fourth quarter of fiscal 2005
were offset in part by higher expenses when compared to the fourth
quarter of fiscal 2004. General and administrative expenses increased
on a year-over-year basis primarily as a result of salaries and
professional fees. Sales and marketing expenses were higher due to
introductory expenses for Yak's VoIP services and increased marketing
expenses in the United States.
Fiscal Year 2005 Results:
For the fiscal year ended June 30, 2005, the Company reported net
earnings of $4.2 million, or $0.32 per diluted share, compared with
net earnings of $5.0 million, or $0.44 per diluted share in fiscal
2004. Net revenues increased 14.7% to $92.7 million for the fiscal
year ended June 30, 2005 as compared to net revenues of $80.8 million
for fiscal 2004. As a result of a private offering of approximately
1.5 million shares in March 2004, the weighted average number of
diluted shares outstanding in fiscal 2005 was approximately 13%
higher than that in fiscal 2004.
Yak's Dial-Around/1+ business grew throughout the fiscal 2005.
Revenues rose 23%, customers grew 16%, the number of minutes used
increased 24% and the number of calls placed rose 26%.
-0-
*T
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For the Year Ended June 30, 2005
---------------------------------------------------------------------
(All amounts in
Thousands)
---------------------------------------------------------------------
Products Revenue Customers Minutes Calls
---------------------------------------------------------------------
Dial-Around/1+ $66,484 831 1,060,514 94,689
---------------------------------------------------------------------
LooneyCall $8,226 68 94,538 6,954
---------------------------------------------------------------------
Yakcell $406 6 4,590 542
---------------------------------------------------------------------
TOTAL $75,116 905 1,159,642 102,185
---------------------------------------------------------------------
---------------------------------------------------------------------
For the Year Ended June 30, 2004
---------------------------------------------------------------------
(All amounts in
Thousands)
---------------------------------------------------------------------
Products Revenue Customers Minutes Calls
---------------------------------------------------------------------
Dial-Around/1+ $54,203 718 856,542 75,150
---------------------------------------------------------------------
LooneyCall $8,953 92 108,255 7,723
---------------------------------------------------------------------
Yakcell $87 1 819 127
---------------------------------------------------------------------
TOTAL $63,243 811 965,616 83,000
---------------------------------------------------------------------
*T
Included in the results for the fiscal year ended June 30, 2005
was approximately $2.3 million of (i) consulting and professional
fees associated with tax compliance and other regulatory matters
related to the introduction of our products into the U.S. market;
(ii) costs incurred due to the May 2005 restatements of certain
historical financial statements with respect to a 2003 software
transaction; (iii) fees incurred to recruit management personnel; and
(iv) fees associated with exploring acquisition opportunities.
Additionally, $4.5 million of higher advertising expenses in the
United States, $0.2 million of fees incurred for Sarbanes-Oxley
compliance, and $0.6 million of introductory expenses for our VoIP
initiative contributed to the higher year-over-year expense
comparisons. Also included in the results for 2005 was a $0.5 million
impairment charge related to exiting the Company's joint venture in
Peru offset by a $1.2 million gain on the early extinguishment of
debt associated with the 2003 software transaction.
Financial Restatements:
As previously disclosed, the Company has been reviewing the
accounting methodology used with respect to the June 2003 software
acquisition transaction mentioned above and, in this regard, had
sought guidance from the Office of the Chief Accountant ("OCA) of the
SEC. While the OCA's guidance was pending, on May 31, 2005, the
Company filed various amended Annual Reports on Form 10-K/A and
Quarterly Reports on Form 10-Q/A for the applicable annual and
quarterly periods; however as previously disclosed, those amended
filings were subject to final guidance from the OCA, which as a
result could require further restatements. Based on continuing
discussions with the OCA, the Company decided to restate certain of
its historic financial statements, as described below; therefore, the
previously issued financial statements for these periods should not
be relied upon.
All applicable amounts relating to these restatements have been
reflected in the consolidated financial statements and disclosed in
the notes to the consolidated financial statements contained in the
Company's Annual Report on Form 10-K for the fiscal year ended June
30, 2005, filed yesterday. The following table highlights the effect
of the restatements on net income, fully diluted earnings per share,
total assets and total liabilities for each of the periods affected
by the restated financial statements:
-0-
*T
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Periodic Report Increase/ Increase/ Increase/
(Amounts in $ - (Decrease) (Decrease) (Decrease)
Thousands) in Net in Fully in Total
Income Diluted Assets
Reported Earnings per Reported
Share
Reported(i)
---------------------------------------------------------------------
Fiscal Year 2003
(ended 6/30/03) $0 $0.00 $(1,947)
---------------------------------------------------------------------
First Fiscal Quarter 2004
(ended 9/30/03) 23 0.01 (1,883)
---------------------------------------------------------------------
Second Fiscal Quarter 2004
(ended 12/31/03) 23 0.00 (1,818)
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Third Fiscal Quarter 2004
(ended 3/31/04) 22 0.00 (1,752)
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Fiscal Year 2004
(ended 6/30/04) (90) (0.01) (1,398)
---------------------------------------------------------------------
First Fiscal Quarter 2005
(ended 9/30/04) 32 0.01 (1,350)
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Second Fiscal Quarter 2005
(ended 12/31/04) 32 0.00 (1,302)
---------------------------------------------------------------------
Third Fiscal Quarter 2005
(ended 3/31/05) (113) (0.01) (156)
---------------------------------------------------------------------
(i) Earnings per share numbers are adjusted for January 29, 2004
stock split.
*T
Conclusion of Accounting Issues:
"We believe that the accounting issues surrounding the Convenxia
software acquisition are now finalized" Mr. Zwebner added. "The
restatements made were non-cash related and primarily impacted the
balance sheets for the periods affected. Additionally, there was no
material impact on revenues or income from operations for these
periods and the restatements should have no effect upon the Company's
current operations or future performance. Reported earnings per share
was increased by $0.01 per diluted share in the first fiscal quarter
of 2004; reduced by $0.01 per diluted share in the fourth fiscal
quarter of 2004; increased by $0.01 per share in the first quarter of
2005 and reduced by $0.01 per diluted share in the third fiscal
quarter of 2005."
"Once again, I am very grateful to the Yak staff, Audit Committee
and Board of Directors, all of whom spent a great deal of time
addressing these accounting issues. Now that this matter is behind
us, we all look forward to focusing on Yak's growth potential and
executing on our business plans for the future," concluded Mr.
Zwebner.
About Yak Communications Inc.
Yak Communications Inc. (the "Company") (NASDAQ: YAKC) is an
Integrated Communications Provider (ICP) offering a full array of
long distance (1+, toll free and dial-around), local lines, travel
cards, cellular long distance, data services, and voice services
(VoIP) to residential and small businesses in North America over high
speed internet access. Yak currently serves approximately 905,000
customers for its traditional telecom services. For more information,
visit http://www.yak.com
Forward Looking Statements:
Statements contained in this news release, which are not strictly
historical are forward looking within the meaning of the safe harbor
clause of the Private Securities Litigation Reform Act of 1995. The
Company makes these statements based on information available to it
as of the date of this news release and assumes no responsibility to
update or revise such forward-looking statements.
Editors and investors are cautioned that forward-looking
statements invoke risk and uncertainties that may cause the Company's
actual results to differ materially from such forward-looking
statements.
Words such as "projects", "believe", "anticipates", "estimate",
"plans", "expect", "intends", and similar words and expressions are
intended to identify forward-looking statements and are based on our
current expectations, assumptions, and estimates about us and our
industry. In addition, any statements that refer to expectations,
projections or other characterizations of future events or
circumstances are forward-looking statements. Although the Company
believes that such forward-looking statements are reasonable, we
cannot assure you that such expectations will prove to be correct.
Our actual results could differ materially from those anticipated in
such forward-looking statements as a result of several factors, risks
and uncertainties. These factors, risks and uncertainties include,
without limitation, the results of the audit and review processes
performed by the Company's independent auditors with respect to any
restatement of the Company's historic financial statements, the
results of any guidance received from the Office of the Chief
Accountant of the SEC may require further restatement of the
Company's historical financial statements, the Company's success in
integrating the operations of any newly-acquired businesses, and
associated reduction in costs, the successful implementation of its
business plans including growth of existing product offerings,
strategic acquisitions and development of broadband telephony
products, the successful integration of new management team members,
continued and increased demand for its services, the successful
deployment of new equipment and realization of material savings there
from, competition from larger and/or more experienced
telecommunications providers, its ability to continue to develop its
markets, general economic conditions, changes in governmental
regulation, and other factors that may be more fully described in the
Company's literature and periodic filings with the Securities and
Exchange Commission. You are urged to carefully review and consider
these disclosures, which describe certain factors that affect our
business.
-0-
*T
YAK COMMUNICATIONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE YEAR ENDED, JUNE 30
(AUDITED)
2004 2003
(in $thousands, except per share amounts) 2005 (Restated) (Restated)
---------------------------------------------------------------------
$ $ $
NET REVENUE 92,700 80,802 40,404
COST OF REVENUE 57,636 53,149 25,403
-----------------------------
GROSS MARGIN 35,064 27,653 15,001
-----------------------------
OPERATING EXPENSES
General and administration 18,524 11,220 3,497
Sales and marketing 7,293 3,894 4,207
Accounts receivable financing 429 514 499
Depreciation and amortization 2,943 2,980 803
Common stock issued to obtain
note payable - 90 -
Organizational and start-up costs 512 261 345
Writedown of property and equipment
and licence fee - 313 119
-----------------------------
TOTAL OPERATING EXPENSES 29,701 19,272 9,470
-----------------------------
INCOME FROM OPERATIONS 5,363 8,381 5,531
-----------------------------
OTHER EXPENSES (INCOME)
Share of net (gain)/loss of affiliate - (39) 29
Interest expense 464 455 14
Interest earned (406) (159) -
Income from joint marketing agreement (421) (539) -
Long-term debt discount amortization 391 535 -
Loss on Impairment of joint
venture receivable - 277 -
Gain on settlement (1,242) - -
-----------------------------
(1,214) 530 43
-----------------------------
EARNINGS BEFORE INCOME TAX 6,577 7,851 5,488
PROVISION FOR INCOME TAXES 2,397 2,882 1,999
-----------------------------
NET EARNINGS 4,180 4,969 3,489
OTHER COMPREHENSIVE INCOME
Foreign currency translation adjustment 1,230 (364) 410
-----------------------------
COMPREHENSIVE INCOME 5,410 4,605 3,899
-----------------------------
-----------------------------
BASIC EARNINGS PER SHARE 0.32 0.46 0.37
-----------------------------
-----------------------------
DILUTED EARNINGS PER SHARE 0.32 0.44 0.29
-----------------------------
-----------------------------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 12,895 10,706 9,328
-----------------------------
-----------------------------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES - ASSUMING DILUTION 12,901 11,405 11,896
-----------------------------
-----------------------------
YAK COMMUNICATIONS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS AT JUNE 30,
(AUDITED) 2004
(in $thousands) 2005 (Restated)
---------------------------------------------------------------------
$ $
ASSETS
CURRENT
Cash and cash equivalents 16,751 22,149
Accounts receivable, net 16,220 15,649
Prepaid expenses and other current assets 1,413 725
-------------------
TOTAL CURRENT ASSETS 34,384 38,523
JOINT VENTURE RECEIVABLE - 2,805
PROPERTY AND EQUIPMENT, NET 13,559 9,596
LOAN RECEIVABLE - 445
INTANGIBLES, NET 2,005 1,585
GOODWILL 503 458
DEFERRED INCOME TAXES 797 238
-------------------
51,248 53,650
-------------------
-------------------
LIABILITIES
CURRENT
Accounts payable and accrued liabilities 11,891 11,509
Due to Factor - 5,658
Income taxes payable 3,547 1,185
Current portion of advances from
TELUS Communications Inc. 382 1,239
Current portion of obligations under capital leases 511 393
Current portion of note payable - 195
Unearned Revenue 1,096 951
-------------------
17,427 21,130
-------------------
LONG-TERM DEBT
Advances from TELUS Communications Inc. - 349
Obligations under capital leases 977 1,073
Note payable - 3,774
-------------------
977 5,196
-------------------
18,404 26,326
-------------------
STOCKHOLDERS' EQUITY
COMMON STOCK 225 225
ADDITIONAL PAID-IN CAPITAL 16,692 16,582
COMMON STOCK PURCHASE WARRANTS 2,433 2,433
ACCUMULATED OTHER COMPREHENSIVE INCOME -
TRANSLATION ADJUSTMENT 1,343 113
RETAINED EARNINGS 12,151 7,971
-------------------
32,844 27,324
-------------------
51,248 53,650
-------------------
-------------------
YAK COMMUNICATIONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED, JUNE 30
(AUDITED)
2004 2003
(in $thousands) 2005 (Restated) (Restated)
---------------------------------------------------------------------
$ $ $
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings 4,180 4,969 3,489
Adjustments for
Amortization of discount 391 535 -
Depreciation and amortization 2,943 2,980 803
Deferred income taxes (559) 2,130 346
Writedown of property and equipment
and licence fee - 313 119
Impairment of loan receivable 499 - -
Settlement of JV/Note payable agreement 5 (2,406) -
-
Stock compensation expense 81 26 -
Loss on impairment of joint venture
receivable - 277 -
Loss on sale of property, equipment and
software 49 - 2
Common stock issued through business
operations 29 141 116
Share of net (gain)/loss of affiliate - (39) 29
Changes in assets and liabilities (4,028) 807 2,100
-----------------------------
Net cash from operating activities 1,179 12,139 7,004
-----------------------------
CASH FLOWS FROM (USED IN) INVESTING
ACTIVITIES
Purchase of property and equipment (6,322) (4,995) (2,795)
Purchase of intangibles (713) - -
Proceeds from sale of property,
equipment, and software 13 - -
Purchase of shares of Contour Telecom - (5,473) -
Investment in Odyssey Management Group, Inc. - 510 (500)
Foreign exchange difference on purchase
of shares of Contour Telecom - 52 -
Loan receivable (54) (285) (161)
Increase in deferred acquisition cost - - (1,659)
-----------------------------
Net cash used in investing activities (7,076) (10,191) (5,115)
-----------------------------
CASH FLOWS FROM (USED IN) FINANCING
ACTIVITIES
Issuance of common shares - 16,823 1,000
Repayments on obligations under
capital leases (291) (35) (111)
Repayments on advances from TELUS
Communications Inc. (1,206) (1,028) 2,472
Repayments on notes payable - (567) -
Repurchase of capital stock - - (800)
Receipt of principal portion of Joint
Venture receivable 215 374 -
-----------------------------
Net cash from (used in) financing
activities (1,282) 15,567 2,561
-----------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS 1,781 (809) 410
-----------------------------
(DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (5,398) 16,706 4,860
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 22,149 5,443 583
-----------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD 16,751 22,149 5,443
-----------------------------
-----------------------------
Supplemental disclosure of cash flow
information:
Interest paid 464 1,132 14
Taxes paid 736 1,361 -
Supplemental disclosure of non-cash
investing and financing activities:
Capital leases for acquisition of
furniture and equipment 312 1,473 -
Notes payable on purchase of software
(Note 5) - - 3,718
Joint Venture receivable on purchase of
software (Note 5) - - 3,195
Issuance of common stock for services
rendered 29 - 116
Acquisition of Software - - 1,561
YAK COMMUNICATIONS INC. AND SUBSIDIARIES
Key Financial Metrics
Qtr ended Fiscal Yr ended
June 30, June 30,
(in $thousands) 2005 2004 2005 2004
---------------------------------------------------------------------
$ $ $ $
GAAP Net Revenue 23,500 20,306 92,700 80,802
Yak for Business 3,500 2,790 11,745 11,773
Contour 1,310 1,381 5,558 5,646
Other 65 33 281 140
Non-GAAP Core Revenue 18,625 16,102 75,116 63,243
*T
In addition to disclosing financial results prepared in
accordance with U.S. generally accepted accounting principles, the
Company discloses information regarding core revenue. Core revenue is
a non-GAAP financial measure defined as revenue generated by Dial
around, 1+, LooneyCall and YakCell. The Company provides the above
reconciliation to net revenues which is the most directly comparable
GAAP measure. As core revenue is a non-GAAP financial measure, it
should not be considered in isolation or as a substitute for net
revenues or any other GAAP measure. Because core revenues are not
calculated in the same manner by all companies, the Company's
definition of core revenue may not be consistent with that of other
companies.
Yak Communications Inc. (NASDAQ:YAKC)