YAKC - Yak Communications Reports Restated Earnings and Balance Sheet Adjustments for the Year Ended June 30, 2005 and for the First and Second Quarters Ended September 30 and December 31, 2005
Friday April 21, 8:00 pm ET
TORONTO, ONTARIO and MIAMI, FLORIDA--(MARKET WIRE)--Apr 21, 2006 -- Yak Communications Inc. (NasdaqNM:YAKC - News) today announced that it filed Amendment No. 2 to its Annual Report on Form 10-K for the year ended June 30, 2005 and two Amendments to its Quarterly Reports on Form 10-Q for the first and second quarters ended September 30 and December 31, 2005, respectively, to correct certain accounting errors and disclosure deficiencies in its previously issued public filings.
The Company has restated its amended reported financial statements and accompanying notes to correct for the following errors and deficiencies (unless specifically stated below, there was no effect on the net income, earnings per share, assets, liabilities, and shareholder's equity for the respective periods):
- To correct for the misapplication of SFAS 133, SFAS 150 and EITF 00-19 related to the 2004 issuance of detachable warrants. These instruments have now been classified as a liability in accordance with the application of the provisions of the respective accounting standards. As a result of this error, liabilities at June 30, 2004 were understated by $1.676 million and shareholders' equity was overstated by the same amount. As a result of this error at June 30, 2005, liabilities were understated by $1.093 million and shareholder's equity was overstated by the same amount. As a result of a decrease in the value of the warrants since issuance and a related breach of the warrant and registration rights agreement, the net income of the Company for fiscal 2004 and 2005 were previously understated by $497,000 and $583,000, or $0.05 per share and $0.05 per share, respectively;
- To correct for disclosure deficiencies under SFAS 131 (segment disclosures);
- To correct for disclosure deficiencies under SFAS 109 (income tax statutory rate reconciliation);
- To correct for errors in its Cash Flow Statements for the fiscal years 2003, 2004 and 2005 (foreign currency conversions and error from gain on settlement). For the fiscal year ending June 30, 2005, the cash flows from operating and investing activities were understated by $221,000 and $245,000, respectively, while the cash flows from financing activities and the effect of exchange rate changes on cash and cash equivalents were overstated by $332,000 and $134,000, respectively. For the fiscal year ending June 30, 2004, the cash flows from operating and investing activities were overstated by $31,000 and $617,000, respectively, while the effect of exchange rate changes on cash and cash equivalents was understated by $648,000. For fiscal year ending June 30, 2003, the cash flows from operating and financing activities and the effect of exchange rate changes on cash and cash equivalents were overstated by $289,000, $4,000 and $27,000, respectively, while the cash flow from investing activities and was understated by $320,000. There was no effect on the net income, earnings per share, assets, liabilities, and shareholders' equity; and
- To correct for the misclassification of financing expenses related to assignment of accounts receivable for 2003, 2004 and 2005 and the enhancement of disclosure of factored accounts receivable. The effect of this misclassification was an overstatement of operating expenses and understatement of income from operations for the years ending 2003, 2004 and 2005 in the amount of $499,000, $514,000 and $429,000, respectively. The effect of the enhanced disclosure was a reclassification of a portion of the accounts receivable balance that was factored. The reduction in accounts receivable which has been reclassified for the years ended June 30, 2003 and 2004 was in the amount of $6.177 million and $8.271 million, respectively.
The table below summarizes the corrected errors and the effect such errors had on the results of the Company's operations for the fiscal periods in question (all amounts in thousands except per share amounts):
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For the year-ended For the year-ended
June 30, 2003 June 30, 2004
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Previous Current Previous Current
Filing Filing Filing Filing
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$ $ $ $
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Revenue 40,404 40,404 80,802 80,802
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Income from Operations 5,531 6,030 8,381 8,985
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Net Income 3,489 3,489 4,969 5,466
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Earnings per share 0.37 0.37 0.46 0.51
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Total Assets 26,744 26,744 53,650 53,650
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Total Liabilities 21,016 21,016 26,326 28,002
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Total Shareholders' Equity 5,728 5,728 27,324 25,648
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Cash from (used in) operating
activities 7,004 6,715 12,139 12,108
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Cash from (used in investing
activities) (5,115) (4,795) (10,191) (10,808)
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Cash from (used in) financing
activities 2,561 2,557 15,567 15,567
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Effect of exchange rate
changes on cash and cash
equivalents 410 383 (809) (161)
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For the six months
For the year ended ended December 31,
June 30, 2005 2005
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Previous Current Previous Current
Filing Filing Filing Filing
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$ $ $ $
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Revenue 92,700 92,700 47,537 47,537
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Income from Operations 5,363 5,792 2,650 2,650
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Net Income 4,180 4,763 1,181 1,509
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Earnings per share 0.32 0.37 0.09 0.12
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Total Assets 51,248 51,248 48,818 48,818
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Total Liabilities 18,404 19,497 13,907 14,672
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Total Shareholders' Equity 32,844 31,751 34,911 34,146
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Cash from (used in) operating
activities 1,179 2,564 (2,722) (2,713)
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Cash from (used in investing
activities) (7,076) (6,831) (1,894) (2,071)
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Cash from (used in) financing
activities (1,282) (1,614) (645) (666)
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Effect of exchange rate
changes on cash and cash
equivalents 1,781 483 62 251
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The Company has determined that a control deficiency existed with respect to the Company's internal controls over financial reporting related to the above-referenced accounting matters. Accordingly, the Company concluded that its disclosure controls and procedures as of the fiscal periods in question were not effective and this control deficiency constituted a material weakness in its internal control over financial reporting as of such periods.
In its April 11, 2006 press release, the Company announced the anticipated restatements and cautioned investors and other users of the Company's public filings with the SEC not to rely on the Company's financial statements in question, to the extent such public filings are affected by the accounting issues described above until the Company has restated and reissued its results for the applicable periods.
"These amendments were necessary because we determined that we did not satisfy certain accounting treatment standards as described in our amended filings and this press release. We will continue evaluating our disclosure controls and procedures and seek to implement, on a timely basis, changes to our disclosure controls and procedures that may be necessary to strengthen our finance function to make our control environment stronger," said Charles Zwebner, Chief Executive Officer of the Company.
About Yak Communications Inc.
Yak Communications Inc. (NASDAQ:YAKC - News) 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 broadband voice (VoIP) to residential and small businesses in North America over high speed internet access. Yak currently serves approximately 900,000 customers for its traditional telecom services. For more information, visit www.yak.com.
