U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Quarterly Report Under
the Securities Exchange Act of 1934
For Quarter Ended: June 30, 1999
Commission File Number: 0-25388
NPS INTERNATIONAL CORPORATION
-----------------------------
(Exact name of small business issuer as specified in its charter)
Delaware
--------
(State or other jurisdiction of incorporation or organization)
86-0214815
----------
(IRS Employer Identification No.)
812 Proctor Ave.
Ogdensburg, N.Y.
-----------------
(Address of principal executive offices)
13669
-----
(Zip Code)
1-800-731-8482
--------------
(Issuer's Telephone Number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days: Yes
__X__ No ____.
The number of shares of the registrant's only class of common stock issued and
outstanding, as of September 1, 1999 was 10,566,403 common shares.
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PART I
ITEM 1. FINANCIAL STATEMENTS.
The unaudited financial statements for the six month period ended June
30, 1999 are attached hereto.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
Company's unaudited financial statements and notes thereto included herein. In
connection with, and because it desires to take advantage of, the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995, the Company
cautions readers regarding certain forward looking statements in the following
discussion and elsewhere in this report and in any other statement made by, or
on the behalf of the Company, whether or not in future filings with the
Securities and Exchange Commission. Forward looking statements are statements
not based on historical information and which relate to future operations,
strategies, financial results or other developments. Forward looking statements
are necessarily based upon estimates and assumptions that are inherently subject
to significant business, economic and competitive uncertainties and
contingencies, many of which are beyond the Company's control and many of which,
with respect to future business decisions, are subject to change. These
uncertainties and contingencies can affect actual results and could cause actual
results to differ materially from those expressed in any forward looking
statements made by, or on behalf of, the Company. The Company disclaims any
obligation to update forward looking statements.
OVERVIEW
In November 1998, the Company acquired all of the issued and
outstanding securities of Naidger Power Systems, Inc. ("Naidger"), which
resulted in a significant change in the Company's principal business, from a
security guard business to a holding company whose subsidiaries are engaged in
the production of metal parts and sub-assemblies, primarily the gas meter, white
goods and auto parts sector, as well as the design and production of tools,
injection molds, dies and assembly jigs for use in the production of gas meters,
white goods, auto parts and telecommunication equipment. Naidger was a holding
company which acquired Polcorp Industries, Inc. ("Polcorp"), a New York based
holding company which has two operating subsidiaries, including Metrix Metal,
L.L.C. ("MML") and Metrix Tools, L.L.C. ("MTL"), each located in Tczew, Poland.
MML is engaged in the production of metal parts and sub-assemblies, primarily
the gas meter, white goods and auto parts sector, which products are marketed in
central and eastern Europe. MTL is engaged in the design and production of
tools, injection molds, dies and assembly jigs for use in the production of gas
meters, white goods, auto parts and telecommunication equipment. This company's
business is also based primarily in central and eastern Europe. As a result,
management is presenting the following discussion as if the Company had acquired
and operated the aforesaid businesses for the previous two year periods, in
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order to provide a better analysis of the Company's current and prior
results of operations.
The following information is intended to highlight developments in the
Company's operations, to present the results of operations of the Company, to
identify key trends affecting the Company's businesses, and to identify other
factors affecting the Company's results of operations for the six month periods
ended June 30, 1999 and 1998.
RESULTS OF OPERATIONS
Comparison of Results of Operations for the Six-Month Periods Ended
June 30, 1999 and 1998
During the six-month period ended June 30, 1999, the Company's revenues
increased slightly, as it generated revenues of $1,361,036, compared to revenues
of $1,340,406 for the similar period in 1998, an increase of $20,630 (2%). This
increase in revenues was attributable to a 15% increase in revenues as reported
in zlotys (the local currency in Poland), and a decrease of 13% resulting from a
change in the exchange rate from 3.5 zlotys per dollar at June 30, 1998 to 3.9
zlotys per dollar at June 30, 1999. Cost of sales decreased 2%, to $1,116,870,
compared to $1,139,794 for the similar period in 1998, a decrease of $22,924.
This was due primarily to a 11% increase in cost of sales as reported in zlotys,
and a decrease of 13% resulting from the change in the exchange rate.
Operating expenses were $598,966 for the six-month period ended June
30, 1999, compared to $184,316 for the similar period in 1998, an increase of
$414,650 (225%). This increase came about due primarily to increases in selling
and administrative expenses and increases in interest expense. Significant
increases include public relations ($81,622), management fees ($59,636), and
professional fees ($131,506). All of these increases were the result of the
requirements of operating as a public entity and of costs incurred to
investigate and evaluate prospective acquisitions. Interest expense increased to
$34,839 for the six-month period ended June 30, 1999 from $813 for the
comparable period in 1998, an increase of $34,026.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal business, production of metal parts and tools,
is a capital intensive operation which requires periodic capital expenditures to
replace or upgrade manufacturing equipment as well as expenditures to maintain
existing equipment. To date, such expenditures have been principally financed by
cash flows from operations of the Company's operating subsidiaries. Significant
expenditures of the parent company include the servicing of debt related to the
acquisition of the Metrix companies and ongoing general and administrative costs
incurred in connection with public reporting requirements and in investigating
new potential acquisition candidates in accordance with the Company's continuing
expansion plans. To date, such expenditures have been financed by equity capital
contributions and related party loans. These capital contributions and loans
have been adequate to permit the Company to carry on operations to date.
However, it will be necessary to finance
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operations over the coming year with additional funds raised through the
issuance of debt or equity securities.
On June 26, 1998, Polcorp acquired all of the issued and outstanding
stock of MTL and MML, in exchange for notes payable in the amounts of 430,000
Polish zlotys ($122,717 US dollars) and 930,000 Polish zlotys ($265,411 US
dollars), respectively. These notes provide for repayment in US Dollars based on
the exchange rate at ING Bank S.A., Warsaw, Poland. The notes are payable in
four (4) equal installments commencing 90 days after the date of the agreement.
The balance of the installments are due 270, 450 and 630 days following the date
of the agreement. Each installment includes interest at the rate of 8% annually
increased by the inflation ratio in Poland. Failure to tender timely payment
results in an interest charge of 20% annually. This debt is secured by the stock
of MTL and MML. As of the date of this report, the Company has temporarily
suspended the payment which was due in March 1999, during the negotiations to
acquire Metrix, S.A., as more fully described in the Company's Form 10-KSB for
the year ended December 31, 1998. While the Company is technically in default of
its obligations under the notes because it did not make the required payment,
the Company has not received any notice of default. The principal balance due on
these notes as of June 30, 1999 was $245,720.
The Company has $90,606 of notes payable to a director. The notes arose
from advances made by the director to the Company. The notes bear interest at
prime (7.75% at June 30, 1999) plus 5.25% to 6.0% and are due May 1999 through
January 2000. The notes are collateralized by the Company's accounts receivable
and property and equipment, but are subordinated to other secured debt.
In addition, during 1998, an affiliated company made loans of $201,127
to Naidger. Prior to year end, Naidger issued 718,000 shares of its common stock
in satisfaction of $179,500 of such debt.
Management intends to undertake a plan of expansion and, in order to
effectuate the same, has recognized the Company's need for additional operating
capital. In response thereto, it is expected that the Company will continue to
seek out additional equity or debt capital from individuals, venture capitalists
and institutions during the fiscal year ending December 31, 1999. However, as of
the date of this report, no definitive agreement has been reached between the
Company and any funding source, and none is expected in the foreseeable future.
Failure of the Company to obtain additional capital in the future will have a
negative impact on management's ability to continue its efforts to expand the
Company's business and generate profits from existing operations.
TRENDS
The Company is primarily focused on the development and expansion of
(i) infrastructure manufacturing and (ii) the acquisition and growth of
proprietary flow measurement and control devices in the gas and electricity
meter sectors (utility metering). With particular reference to (i), and with the
understanding that no assurances can be provided, the Company is forecasting
double digit growth in both its tool making and metal fabrication operations as
an increasing number of domestic concerns outsource their infrastructure
manufacturing requirements to
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reduce internal costs. In addition, management believes that multinationals
recognize that Poland offers large pools of skilled labor and lower production
costs relative to their domestic marketplace. The outsourcing by western firms
of the Company's infrastructure manufacturing units continues to show strength,
with planned revenue growth from internal operations exceeding 10-15% commencing
in fiscal 2000.
The Company's entry into the proprietary gas and electricity metering
business is scheduled for the fourth quarter of the calendar year 1999,
presuming that the proposed acquisitions of PAFAL SA and METRIX SA, both major
suppliers of metering devices to the utility sector in Poland, are successfully
consummated, of which there can be no assurance. PAFAL is a manufacturer of
electricity meters with an annual turnover of $35,000,000 and a 83% market
share, while METRIX is a producer of gas meters with an annual turnover of
$15,000,000 and a 40% share of residential meters and a large majority of the
industrial market in Poland.
While no assurances can be provided, it is anticipated that the
domestic market in Poland for electricity meters will exceed a 10% growth rate
over the next 12 months as a result of both new technological enhancements to
existing products and new and/or refurbished installations. Coupled with its
strong domestic position, PAFAL anticipates that strong potential gains in sales
and profitability lie in burgeoning international markets for its metering
technologies.
While domestic gas meter sales in Poland have remained stable over the
past year, METRIX SA has recently completed the development cycle for a new
generation of plastic injection molded meters which will eventually replace its
G4 series of domestic meters. The new meters are smaller in size and less costly
than existing metal framed meters and are well suited for growth in the domestic
market, not only in Poland, but in numerous international markets. Management
also sees growth in the gas meter business as a result of (1) recent substantial
price increases in Poland in alternate energy sources; (2) a reduction in the
mandatory inspection period from 30 to 15 years; (3) a trend to individual
metered premises; (4) the growth in residential construction; (5) substantial
refurbishment and/or new construction of industrial sites; and (6) export
markets encouraged by a growing requirement in international markets to monitor
costs and increase gas revenues.
INFLATION
Although the operations of the Company are influenced by general
economic conditions, the Company does not believe that inflation had a material
effect on the results of operations during the six-month period ended June 30,
1999.
YEAR 2000 DISCLOSURE
Many existing computer programs use only two digits to identify a year
in the date field. These programs were designed and developed without
considering the impact of the upcoming change in the century. If not corrected,
many computer applications could fail or create erroneous results by or at the
Year 2000. As a result, many companies
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will be required to undertake major projects to address the Year 2000 issue.
Relevant to the Company's computers, management has retained outside consultants
to review potential Y2K problems. As a result, the Company will need to replace
the server, net software, streamer and adjustment of current software.
Management does not believe that the costs of undertaking these actions will be
material to the financial condition of the Company, as it is anticipated that
the total cost of causing the Company to become Y2K compliant will be PLZ 15,000
($4,000 US).
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS - NONE
ITEM 2. CHANGES IN SECURITIES - NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - NONE
ITEM 5. OTHER INFORMATION - NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K -
(a) Exhibits
EX-27 Financial Data Schedule
(b) Reports on Form 8-K
On April 7, 1999, the Company filed a report on Form 8-K advising tht
Polcorp Industries, Inc. ("Polcorp"), a wholly owned subsidiary of NPS
International Corporation (the "Company"), executed a letter of intent with
First National Investment Fund, Warsaw, Poland, whereby Polcorp has agreed to
purchase approximately 85% interest in PAFAL S.A. ("PAFAL"), Poland's largest
manufacturer of electric metering equipment. The proposed purchase price of this
acquisition is approximately $11.5 million (US) (PLN 45,000,000).
PAFAL is headquartered in Swidnica, Poland and employs approximately
2,000 persons. It generated revenues of approximately $32 million (US) (PLN
125,000,000) during its fiscal 1998. It produces approximately 85% of all of the
electric meters in Poland, as well as a broad range of measuring and control
apparatus for cars, trucks, delivery vans and tractors.
The proposed acquisition is subject to satisfaction of certain
conditions, including completion of due diligence activities. As of the date of
this report, it is anticipated that, if this transaction closes, it will close
prior to the end of the calendar year 1999. There can be no assurance that the
proposed transaction will close within the aforesaid time parameter, or at all.
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SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
NPS INTERNATIONAL CORPORATION
(Registrant)
Dated: October 12, 1999
By:/s/ Michael Wexler
---------------------------------
Michael Wexler, President
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<TABLE>
NPS INTERNATIONAL CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<CAPTION>
Unaudited Audited
June 30, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Current assets:
Cash $ 165,781 $ 217,535
Accounts receivable 226,004 246,063
Prepaid expenses 10,290 15,110
Inventories 148,291 155,281
Due from affiliate 27,000 -
------------ ------------
Total current assets 577,366 633,989
------------ ------------
Property and equipment, net 158,867 164,337
------------ ------------
Other assets:
Goodwill, net 375,639 429,398
Deferred charges and other 154,526 55,068
------------ ------------
530,165 484,466
------------ ------------
$ 1,266,398 $ 1,282,792
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt from
business combination $ 245,720 $ 207,150
Accounts payable and accrued expenses 506,282 279,414
Accrued taxes 65,542 92,780
Customer deposits - 72,888
Due to affiliate 114,627 21,627
Notes payable - director 90,606 80,606
Payable under service agreement 7,522 7,522
------------ ------------
Total current liabilities 1,030,299 761,987
Long-term debt from business combination,
net of current portion - 97,032
------------ ------------
1,030,299 859,019
------------ ------------
Stockholders' equity:
Common stock, $.0001 par value,
50,000,000 shares authorized;
10,566,403 shares outstanding in 1999 1,057
10,331,394 shares outstanding in 1998 1,033
Additional paid-in capital 662,534 521,558
Accumulated deficit (422,347) (102,603)
Accumulated other comprehensive (loss) income (5,145) 3,785
------------ ------------
236,099 423,773
------------ ------------
$ 1,266,398 $ 1,282,792
============ ============
</TABLE>
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<TABLE>
NPS INTERNATIONAL CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
(Unaudited) (Unaudited)
Six-month periods ended Three-month periods ended
June 30, June 30,
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $1,361,036 $1,340,406 $ 732,848 $ 687,682
Direct costs 1,116,870 1,139,794 600,441 576,604
---------- ---------- ---------- ----------
Gross profit 244,166 200,612 132,407 111,078
---------- ---------- ---------- ----------
Operating expenses (income):
Selling and administrative 524,703 176,780 203,429 92,707
Amortization 20,869 - 10,434 -
Interest expense 34,839 813 16,439 813
Interest income (6,908) (12,734) (3,368) (6,908)
Gain on sale of assets - (4,467) - (305)
Foreign taxes 23,544 23,924 13,429 13,919
---------- ----------- ---------- ----------
597,047 184,316 240,363 100,226
---------- ----------- ---------- ----------
(Loss) income from
continuing operations (352,881) 16,296 (107,956) 10,852
---------- ----------- ---------- ----------
Discontinued operations:
Income from
divested operations 6,650 - - -
Gain on disposal of
divested operations 26,487 - - -
---------- ----------- ---------- ---------
33,137 - - -
---------- ----------- ---------- ---------
Net (loss) income $ (319,744) $ 16,296 $ (107,956) $ 10,852
========== =========== ========== =========
(Loss) income per share $ (0.03) $ 0.00 $ (0.01) $ 0.00
========== =========== ========== =========
Weighted average
shares outstanding 10,507,969 5,194,436 10,566,394 5,209,500
========== =========== ========== =========
</TABLE>
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<TABLE>
NPS INTERNATIONAL CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
(Unaudited)
Six-month periods ended
June 30,
1999 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $(319,744) $ 16,296
--------- ---------
Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities:
Depreciation and amortization 67,755 27,467
Non-cash expenses of divested operations 453 -
Expenses paid through issuance of common stock 141,000 -
Gain on sale of assets - (3,514)
Gain on sale of divested operations (26,487) -
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (58,566) 3,212
(Increase) decrease in prepaid expenses (6,134) -
(Increase) decrease in inventory 6,990 26,439
Increase (decrease) in accounts payable
and accrued expenses 269,147 (108,463)
Increase (decrease) in accrued taxes (20,808) 1,743
Increase (decrease) in customer deposits (72,888) 12,239
Increase (decrease) in payable under
service agreement - 73,117
--------- ---------
Total adjustments 300,462 32,240
--------- ---------
Net cash (used in) provided by
operating activities (19,282) 48,536
--------- ---------
Cash flows from investing activities:
Sale of short-term investment - 108,416
Capital expenditures (83,808) (57,822)
Proceeds from sale of assets - 3,514
Goodwill and deferred charges (74,664) (39,042)
Loans to affiliate (5,000) -
Proceeds from note receivable of divested segment 53,000 -
--------- ---------
Net cash (used in) provided by
investing activities (110,472) 15,066
--------- ---------
Cash flows from financing activities:
Loans from affiliate 93,000 -
Principal payments on loan obligations (25,000) (40,856)
Loan from director 10,000 -
Proceeds from issuance of common stock - 60,590
Costs incurred in connection with
issuance of common stock - (38,599)
--------- ---------
Net cash provided by (used in)
financing activities 78,000 (18,865)
--------- ---------
Net (decrease) increase in cash (51,754) 44,737
--------- ---------
Cash balance at beginning of period 217,535 116,908
--------- ---------
Cash balance at end of period $ 165,781 $ 161,645
========= =========
</TABLE>
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NPS INTERNATIONAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
June 30, 1999
1. Unaudited interim financial statements
The accompanying unaudited financial statements have been prepared in
accordance with the instructions for Form 10-QSB and do not include all
of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion
of management, all adjustments, consisting only of normal recurring
adjustments considered necessary for a fair presentation, have been
included. Operating results for any quarter are not necessarily
indicative of the results for any other quarter or for the full year.
These statements should be read in conjunction with the financial
statements of NPS International Corporation, formerly National Industry
Security Corporation, and notes thereto included in the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1998.
2. Divested operations
Effective March 31, 1999, the Company disposed of its security division
which conducted business under the name of National Industrial Security
Corporation ("NISCO"). The results of NISCO have been reported
separately as a divestiture in the consolidated statements of
operations.
Assets and liabilities of NISCO which were divested consisted of the
following:
Accounts receivable $78,625
Other current assets 10,955
Intangible assets, net 7,643
Accounts payable and accrued expenses (48,710)
-------
Net assets of divested segment $48,513
=======
The operations of NISCO were acquired in a business combination on
November 7, 1998, and were included in the Company's 1998 consolidated
statement of operations for the period from the date of acquisition
through December 31, 1998.
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2. Divested operations (continued)
The following table summarizes selected financial data of the Company's
divested operations:
November 7, 1998
Three-month (date of acquisition)
period ended through
March 31, 1999 December 31, 1998
---------- ----------
Revenues $ 166,104 $ 120,206
Expenses 159,454 119,871
---------- ----------
Income from divested operations $ 6,650 $ 335
========== ==========
Such amounts have not been included in operating revenues or expenses
in the accompanying consolidated statements of operations.
Under the terms of the agreement, the Company sold the assets of NISCO
for a $75,000 note, thereby realizing a gain on divestiture of $26,487.
The note bears interest at the rate of 8% per annum. The balance of the
note was $22,000 at June 30, 1999.
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NPS INTERNATIONAL CORPORATION
EXHIBIT INDEX TO QUARTERLY REPORT ON FORM 10-QSB
FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 1999
EXHIBITS Page No.
EX-27 Financial Data Schedule.....................................14
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE UNAUDITE
FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1999, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 165,781
<SECURITIES> 0
<RECEIVABLES> 226,004
<ALLOWANCES> 0
<INVENTORY> 148,291
<CURRENT-ASSETS> 577,366
<PP&E> 317,906
<DEPRECIATION> (159,039)
<TOTAL-ASSETS> 1,266,398
<CURRENT-LIABILITIES> 1,030,299
<BONDS> 245,720
0
0
<COMMON> 1,057
<OTHER-SE> 235,042
<TOTAL-LIABILITY-AND-EQUITY> 1,266,398
<SALES> 1,361,036
<TOTAL-REVENUES> 1,361,036
<CGS> 1,116,870
<TOTAL-COSTS> 1,116,870
<OTHER-EXPENSES> 562,208
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34,839
<INCOME-PRETAX> (352,881)
<INCOME-TAX> 0
<INCOME-CONTINUING> (352,881)
<DISCONTINUED> 33,137
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (319,744)
<EPS-BASIC> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
