Electrohome announces third quarter results

• Published in: Canada NewsWire p. 1
• Format: Newsletter
• Language: English
• Published: Ottawa PR Newswire Association LLC 08.08.2007
• Subjects: Accounting; Administrative expenses; Annual reports; Consolidated financial statements; Dilution; Earnings per share; Employment; Estimates; Licensing; Pension plans; Retirees; Retirement; Royalties; Ontario

The Corporation's present cash inflows consist of royalties and investment income from marketable securities which together currently generate approximately $450,000 annually. The Corporation has entered into an agreement to sell its trademarks effective January 1, 2008 for $1.5 million; after that date the Corporation will no longer receive any royalty income. Cash inflows may be periodically increased as the Corporation monetizes some of its remaining assets, however, due to the nature of these assets, this may take several years. The Corporation's present cash outflows consist of corporate administration and retiree benefit costs, which are approximately $1,200,000 annually. These are anticipated to reduce each year as certain liabilities are satisfied. Below is a chart which sets out the Corporation's long-term obligations. Both the Corporation's cash inflows and outflows are subject to fluctuation. Since the Corporation has determined it does not meet the "more likely than not" test required by CICA Handbook Section 3465, Income Taxes, potential future income tax assets of $10,331,000, at September 30, 2006, as set out in Note 5 to the Consolidated Financial Statements in the Corporation's 2006 Annual Report, have not been recorded. This determination is based on the Corporation's historical results from operations. The Corporation may change its estimate if it establishes a strong earnings history or other evidence to support a "more likely than not" conclusion, that the benefit of the potential income tax assets will be realized in the future. A change in estimate of the future income tax asset valuation allowance will be reflected as a recovery of income taxes in the period for which the estimate changes. These financial statements have been prepared on a going concern basis in accordance with Canadian generally accepted accounting principles ("GAAP"). The going concern basis of presentation assumes that the Corporation will continue in operation for the foreseeable future and be able to realize its assets and discharge its liabilities and commitments in the normal course of business. There is doubt about the appropriateness of the use of the going concern assumption because the Corporation has limited liquid assets and its current annual cash inflow of approximately $450,000 is short of its current cash outflow of approximately $1,200,000. Consequently, given the status quo, it is estimated that the Corporation would run out of funds in the fourth quarter of fiscal 2007. However, the Corporation entered into an advanced payment agreement associated with the sale of its trademarks, which permits the company to receive cash advances from the purchaser of the trademarks. This allows the company to fund its operations in lieu of a bank loan, which it would otherwise require, until the proceeds from the sale of the trademarks are received. Any funds advanced up to the closing date of January 1, 2008, will be deducted from the proceeds of the $1,500,000 sale price. It is anticipated that the company will require an advance of at least $100,000 per month for six months which will carry an interest rate of 7.0%. The remaining funds (estimated at approximately $875,000 after interest and fees) will extend the Corporation's cash resources until approximately the end of fiscal 2008. The Corporation also continues to explore the monetization of its remaining assets at which time the Corporation expects to fulfill its obligations.