GrandeTel Technologies Inc. Enters Into Class Action Settlement Agreement, Releases Financial Results.TORONTO--(BUSINESS WIRE)--June 1, 1998--GrandeTel Technologies Inc. (formerly MTC mtc - A Modula-2 to C translator. ftp://rusmv1.rus.uni-stuttgart.de/soft/Unixtools/compilerbau/mtc.tar.Z. Electronic Technologies Company Ltd.) (NASDAQ NASDAQ in full National Association of Securities Dealers Automated Quotations U.S. market for over-the-counter securities. Established in 1971 by the National Association of Securities Dealers (NASD), NASDAQ is an automated quotation system that reports on :GTTIF) today announces: entering into class action settlement agreement, consolidation of its shares and fiscal 1998 results. 1. GrandeTel Enters Into Class Action Settlement Agreement GrandeTel Technologies Inc. (formerly MTC Electronic Technologies Company Ltd.) (NASDAQ:GTTIF) announced today that it has entered into a Settlement Agreement with respect to the Class Action suits brought against it in the United States District Court United States District Court In the U.S., any of the 94 trial courts of general jurisdiction in the federal judicial system. Each state, as well as the District of Columbia and the Commonwealth of Puerto Rico, has at least one federal district court. , Eastern District of New York New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of . Under the terms of the settlement which is for an aggregate amount of US$70 million, GrandeTel will contribute $5 million in cash and $5 million by way of a new class of common shares of GrandeTel plus interest (in the form of new shares) from January 16, 1998 to date of payment. The new class of common shares to be designed Class A shares will be identical to the Company's existing common shares except that the new Class A shares shall not have a right to vote for the election of directors and will be accompanied by a Put entitling the holders to sell the Class A shares to GrandeTel at the original issuance price at any time for a period not to exceed 120 business days after the second anniversary of the effective date of the settlement. In certain events to be determined but based upon significant trading volumes Trading volume The number of shares transacted every day. As there is a seller for every buyer, one can think of the trading volume as half of the number of shares transacted. That is, if A sells 100 shares to B, the volume is 100 shares. at consistent prices above the Put price, the Put may be terminated. In the event that GrandeTel is unable to honour the Put, the Put will be honoured by The Grande Holdings Limited, the company which owns 28% of the outstanding common shares of GrandeTel. The Class A shares will be issued at the lower of $0.50 per share or the average trading price Trading price The price at which a security is currently selling. for the thirty business days prior to the settlement fairness hearing, adjusted for stock dividends, consolidations or reclassifications. If the issuance price is $0.50 per share, the class plaintiffs will receive 10 million Class A shares representing 35% of the then outstanding shares. All parties have not yet signed the Settlement Agreement and some litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. is on going regarding the basis on which one of the parties may execute this agreement. The creation of the Class A shares will be subject to shareholder approval. The Grande Holdings Limited has agreed to vote in favour of such creation. It is expected that shareholders will be asked to vote on the creation of such shares at the Annual and Special Meeting of Shareholders of the Company scheduled for June 29, 1998. The Class A shares have not been registered under the Securities Act of 1933 and may not be offered or sold in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. absent registration or an applicable registration exemption. GrandeTel notes that the Kayne and Berg Actions are not part of this settlement and that GrandeTel will continue to defend those actions. 2. GrandeTel's Plan to Consolidate Its Shares The shares of GrandeTel Technologies Inc. do not meet the listing requirement of Nasdaq that shares trade above $1.00 per share. The Company intends to address this issue through a share consolidation and will be seeking shareholder approval for a share consolidation of ten shares to one at the forthcoming Annual and Special General Meeting of Shareholders scheduled for June 29, 1998. 3. GrandeTel's Fiscal 1998 Results The Company reported a net loss of $11.9 million for the year ended January 31, 1998, after making a provision for settling U.S. class actions of $14.9 million. Last year the Company reported a net profit of $0.2 million. Sales revenue for the fiscal year ended January 31, 1998 was $15.0 million compared to $13.7 million in the previous year. Operating loss operating loss The excess of operating expenses over revenue. As with operating income, operating losses exclude revenues and expenses from operations that are not considered a regular part of the business. Also called deficit. Compare operating income. for the fiscal year ended January 31, 1998 was $11.9 million as compared to an operation loss of $9.4 million in the previous year. The increase in sales revenue is mainly attributable to the launch of long distance fax and call-back voice service during the year. The overall gross profit margin Gross profit margin Gross profit divided by sales, which is equal to each sales dollar left over after paying for the cost of goods sold. gross profit margin A measure calculated by dividing gross profit by net sales. for the year was adversely affected by the drastic fall in price of cellular phones and the Company had to sell its analogue (electronics) analogue - (US: "analog") A description of a continuously variable signal or a circuit or device designed to handle such signals. The opposite is "discrete" or "digital". cellular phone inventory leftover from last year at below cost because of the closing of the analogue network in Shanghai near the end of last year. Another factor reducing the gross margin was the loss of manufacturing profit margin due to the closing down of manufacturing and distribution of telephone products. Around mid-year, the Company disposed its interest in Hangzhou Electronics Limited in PRC and later discontinued dis·con·tin·ue v. dis·con·tin·ued, dis·con·tin·u·ing, dis·con·tin·ues v.tr. 1. To stop doing or providing (something); end or abandon: its distribution of telephone products because the operation continued making losses due to insufficient volume and prolonged pro·long tr.v. pro·longed, pro·long·ing, pro·longs 1. To lengthen in duration; protract. 2. To lengthen in extent. logistical lo·gis·tic also lo·gis·ti·cal adj. 1. Of or relating to symbolic logic. 2. Of or relating to logistics. [Medieval Latin logisticus, of calculation problems. The overall effect of worsening wors·en tr. & intr.v. wors·ened, wors·en·ing, wors·ens To make or become worse. Noun 1. worsening - process of changing to an inferior state decline in quality, deterioration, declension market conditions and the closing down of its manufacturing and distribution operation also affected the carrying value Carrying Value Also know as "book value," it is a company's total assets minus intangible assets and liabilities, such as debt. Notes: This is different than market value, as it can be higher or lower depending on the circumstances. of inventory. During the year, the write-off and write-down of inventory to net realizable value Net realizable value (NRV) is a commonly used method of evaluating an asset's worth in the field of inventory accounting. NRV is part of GAAP rules that apply to valuing inventory, so as to not overstate or understate the value of inventory goods. amounted to $2.0 million. Operating, selling and administrative expenses decreased by $1.3 million from last year's total of $9.6 million to this year's total of $8.3 million. The major changes are: (i) The Company continued to reduce operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. by about $0.9 million in general administrative expenses. Salaries were reduced by about $0.8 million from last year as there was about $1.0 million salaries and wages related to the Store and Forward Discount Fax Service capitalized during the development of the project. (ii) Legal expense charged to the operations decreased from $1.8 million in the last year to $1.0 million this year. Legal expenses incurred during the year were about $2.6 million as compared to $5.2 million last year. In the 1995 fiscal year, the Company provided $6.3 million to cover the costs of defending several class action lawsuits class action lawsuit A lawsuit in which one party or a limited number of parties sue on behalf of a larger group to which the parties belong. For example, investors may bring a class action lawsuit against a brokerage firm that has actively promoted a tax . Of the legal expenses incurred during the year, $1.6 million and $3.4 million were charged to the provision in this year and last year, respectively. The initial provision of $6.3 million for class actions defense cost was fully depleted de·plete tr.v. de·plet·ed, de·plet·ing, de·pletes To decrease the fullness of; use up or empty out. [Latin d at the end of the year. Other income increased from $11.7 million in the last year to $16.3 million in the current year. The major items are: (i) Gain on buy-back of US$4.4 million face value of convertible debentures Convertible Debenture Any type of debenture that can be converted into some other security. Notes: For example, a convertible bond can be converted into stock. in the last quarter resulted in a book gain of $2.8 million. (ii) Near the end of the third quarter, the Company agreed with its Chinese joint venture partners to wind up the Shanghai manufacturing joint venture and eventually close the Shanghai operation. The Company made a general provision of $2.0 million to cover the costs and potential loss in the recovery of its investment in equipment and other assets other assets Assets of relatively small value. For financial reporting purposes, firms frequently combine small assets into a single category rather than listing each item separately. . (iii) Due to closing down of the consumer electronic products division during the year, the Company made a provision to cover closing costs Closing Costs The numerous expenses (over and above the price of the property) that buyers and sellers normally incur to complete a real estate transaction. Costs incurred include loan origination fee, discount points, appraisal fee, title search, title insurance, survey, taxes, and loss in recovery value of assets of about $2.8 million. (iv) During the first quarter, the Company divested its investment in 10% of Lafe International Holdings Ltd ("LIHL"), a manufacturer of computer magnetic heads and storage devices, and exchanged it for about 9.7 million shares of Nakamichi Corporation ("Nakamichi"), a publicly listed company listed company n → compañía cotizable listed company n → société cotée en Bourse listed company list n → engaged in manufacturing and distribution of high level audio and video equipment. The Company valued the investment in Nakamichi at $30.2 million which approximates its underlying net asset value as at the end of 1997. As a result, a gain on the disposal of LIHL of $17.9 million was recorded. Subsequent to the year end, the Company had an oral understanding to settle the U.S. class actions under which the Company was expected to contribute in the order of U.S.$5 million cash plus U.S.$5 million cash in shares. Finalization Writing the table of contents (TOC) on a recordable CD or DVD disc. The finalization process ensures that the disc can be played back on most CD and DVD players. See disc-at-once. of the documentation is underway although not assured. The total compensation including accrued interest Accrued Interest The interest that has accumulated on a bond since the last interest payment up to but not including the settlement date. There are two methods for calculating accrued interest: 1) 360-day year method, used for corporate and municipal bonds. is about $14,912,000. Accordingly, the Company made provision to reflect the anticipated settlement. The California action by shareholders and former shareholders of the Company are not part of the class action settlement and the Company intends to continue to vigorously defend the California action. "We hope, by settling these class action lawsuits, the Company can finally emerge from the heavy financial burden which drained the Company's resources and hindered its business development," said Christopher Ho, Chairman and Chief Executive Officer. "In the coming year, management is focusing on completing its restructuring and settling the class action suits. If the class action suits are settled, the financial position of the Company will be established permitting management to focus on business development to increase shareholder value". The Company's annual general meeting will be held on June 29, 1998 at 8:30 a.m. at the Sutton Place Hotel Sutton Place Hotel is a collection of luxury hotels located in Canada and United States, owned and managed by The Sutton Place Grande Hotels Group with office in Vancouver, BC. Properties currently located in: Vancouver, BC; Toronto, ONT; Edmonton, AB; and Chicago, IL. , in Vancouver, British Columbia British Columbia, province (2001 pop. 3,907,738), 366,255 sq mi (948,600 sq km), including 6,976 sq mi (18,068 sq km) of water surface, W Canada. Geography . GrandeTel is a Canadian company with its North America North America, third largest continent (1990 est. pop. 365,000,000), c.9,400,000 sq mi (24,346,000 sq km), the northern of the two continents of the Western Hemisphere. office in Vancouver and its headquarters in Hong Kong Hong Kong (hŏng kŏng), Mandarin Xianggang, special administrative region of China, formerly a British crown colony (2005 est. pop. 6,899,000), land area 422 sq mi (1,092 sq km), adjacent to Guangdong prov. . The Company holds interests in joint ventures that sell cellular phones and offer long distance discount fax service in China and long distance call back voice and discount fax services in Hong Kong. -0-
GrandeTel Technologies Inc. Consolidated Balance Sheets
(Stated in Canadian Dollars)
January 31 1998 1997
------------------------------------------------------------------
(Thousands of Dollars)
ASSETS
Current
Cash $ 5,936 $ 2,293
Term deposits 1,053 1,424
Accounts receivable 11,384 11,475
Inventories 1,797 10,039
Prepaid and deposits 516 1,463
-------------------------
20,686 26,694
Long-term receivable 1,288 1,288
Investments 30,227 19,673
Investments held for disposal 632 4,248
Capital assets 2,030 4,372
Pre-Operating costs 2,519 2,127
Deferred charges and other 861 139
-------------------------
$ 58,243 $ 58,541
=========================
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current
Accounts payable and accruals $ 15,963 $ 10,615
Long Term
Long term debt 20,243 21,571
Deferred foreign exchange gain 517 557
-------------------------
20,760 22,128
-------------------------
36,723 32,743
-------------------------
Commitments and contingencies
Shareholders' equity
Share capital
Authorized
50,000,000 Common shares without
par value
Issued
18,329,376 Common shares without
par value 141,393 141,393
Provision for shares to be issued 7,634 --
Contributed surplus 12,996 12,996
Deficit (140,503) (128,591)
-------------------------
21,520 25,798
-------------------------
$ 58,243 $ 58,541
=========================
GrandeTel Technologies Inc. Consolidated Statements of Operations
(Stated in Canadian Dollars)
January 31 1998 1997
-------------------------------------------------------------------
(Thousands of Dollars)
Sales $ 14,967 $ 13,715
Cost of sales 16,364 12,725
--------------------------
Gross (loss) profit (1,397) 990
Write down of inventory 2,096 782
Operating, selling and
administrative expenses 8,393 9,626
-------------------------
Operating loss (11,886) (9,418)
Interest expense on long-term
debt 1,345 2,045
Other income 16,231 11,683
Provision for settlement of U.S.
class actions 14,912 --
-------------------------
(Loss) income before income taxes (11,912) 220
Income taxes -- --
-------------------------
Net (loss) income for the year $ (11,912) $ 220
Net (loss) income per share $ (0.65) $ 0.01
Weighted average common shares
outstanding 18,329,376 19,656,912
CONTACT: GrandeTel Technologies Inc.
Kin Yuen, 604/323-2129
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