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: September 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)
(315) 393-3793
--------------
(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 30, 1999 was 10,566,403 common shares.
1
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PART I
ITEM 1. FINANCIAL STATEMENTS.
The unaudited financial statements for the nine-month period ended
September 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. Naidger previously 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") (MML and MTL hereinafter jointly referred to as the "Metrix Companies"),
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
2
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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 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 nine-month periods
ended September 30, 1999 and 1998.
RESULTS OF OPERATIONS
Comparison of Results of Operations for the Nine-Month Periods Ended
September 30, 1999 and 1998
During the nine month period ended September 30, 1999, the Company's
revenues decreased slightly, as it generated revenues of $1,882,124, compared to
revenues of $1,958,598 for the similar period in 1998, a decrease of $76,474
(4%). This decrease in revenues was attributable to a 10% increase in revenues
as reported in zlotys (the local currency in Poland), and a decrease of 14%
resulting from a change in the exchange rate from 3.6 zlotys per dollar at
September 30, 1998, to 4.1 zlotys per dollar at September 30, 1999.
In the nine month period ended September 30, 1999, cost of sales decreased
8% to $1,545,774, compared to $1,672,040 for the similar period in 1998, a
decrease of $126,266. This was due to a 6% increase in cost of sales as reported
in zlotys, and a decrease of 14% resulting from the change in the exchange rate.
Operating expenses were $833,261 for the nine month period ended September
30, 1999, compared to $328,327 for the similar period in 1998, an increase of
$504,934 (154%). This increase came about due primarily to increases in selling
and administrative expenses and increases in interest expense. Significant
increases include public relations ($80,447), management fees ($127,221), and
professional fees ($165,455). 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
$47,507 for the nine month period ended September 30, 1999 from $3,706 for the
comparable period in 1998, an increase of $43,801. The increase in interest
expense was principally due to the debt incurred in connection with the
acquisition of the Metrix companies. Since the acquisition took place on June
26, 1998, operations for the nine month period ended September 30, 1998,
reflects only three months of interest expense on such debt, whereas 1999
reflects nine months of interest expense on such debt.
3
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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 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. Further, the Company did
tender a partial principal payment of $25,000 during the three month period
ended September 30, 1999. This payment, coupled with the change in the exchange
rate, has resulted in a principal balance due on these notes as of September 30,
1999 of $210,827.
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 (8.25% at September 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.
4
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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.
In July 1999, an investor entered into a loan agreement with the Company in
which the investor invested $135,000 in exchange for a convertible note with a
principal amount of $150,000. The principal amount was discounted by ten percent
(10%) in lieu of any interest accrual. The note is due on July 16, 2000, unless
the investor elects to convert this note to equity in the Company. The investor
has the exclusive right to convert this note at any time, in whole or in part on
a pro rata basis from time to time, into an aggregate of four hundred thousand
(400,000) restricted common shares of the Company (approximately $.34 per
share).
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, other than the one mentioned
in the preceding paragraph, has been reached between the Company and any funding
source.
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 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 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
5
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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 nine-month period ended September 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 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
6
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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 - NONE
7
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<TABLE>
NPS INTERNATIONAL CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
(Unaudited) (Audited)
September 30, December 31,
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 183,384 $ 217,535
Accounts receivable 203,428 246,063
Prepaid expenses 20,385 15,110
Inventories 186,355 155,281
Due from affiliate 27,000 -
---------- ----------
Total current assets 620,552 633,989
---------- ----------
Property and equipment, net 142,067 164,337
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Other assets:
Goodwill, net 365,205 429,398
Deferred charges and other 147,026 55,068
---------- ----------
512,231 484,466
---------- ----------
$1,274,850 $1,282,792
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt
from business combination $ 210,827 $ 207,150
Accounts payable and accrued expenses 512,321 279,414
Accrued taxes 52,374 92,780
Customer deposits - 72,888
Due to affiliate 166,627 21,627
Notes payable 240,606 80,606
Payable under service agreement 7,522 7,522
---------- ----------
Total current liabilities 1,190,277 761,987
Long-term debt from business combination,
net of current portion - 97,032
---------- ----------
1,190,277 859,019
---------- ----------
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 (566,377) (102,603)
Accumulated other comprehensive (loss) income (12,641) 3,785
---------- ----------
84,573 423,773
---------- ----------
$1,274,850 $1,282,792
========== ==========
</TABLE>
8
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<TABLE>
NPS INTERNATIONAL CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
(Unaudited) (Unaudited)
Nine-month periods Three-month periods
ended ended
September 30, September 30,
------------------------ ------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 1,882,124 $ 1,958,598 $ 521,088 $ 618,192
Direct costs 1,545,774 1,672,922 428,904 533,128
----------- ----------- ----------- -----------
Gross profit 336,350 285,676 92,184 85,064
----------- ----------- ----------- -----------
Operating expenses (income):
Selling and
administrative 738,815 323,033 214,112 146,253
Amortization 31,303 - 10,434 -
Interest expense 47,507 3,706 12,668 2,893
Interest income (9,524) (18,374) (2,616) (5,640)
Gain on sale of assets (1,587) (5,513) (1,587) (1,046)
Foreign taxes 26,747 25,475 3,203 1,551
----------- ----------- ----------- -----------
833,261 328,327 236,214 144,011
----------- ----------- ----------- -----------
Loss from continuing
operations (496,911) (42,651) (144,030) (58,947)
----------- ----------- ----------- -----------
Discontinued operations:
Income from divested
operations 6,650 - - -
Gain on disposal of
divested operations 26,487 - - -
----------- ----------- ----------- -----------
33,137 - - -
----------- ----------- ----------- -----------
Net loss $ (463,774) $ (42,651) $ (144,030) $ (58,947)
=========== =========== =========== ===========
Loss per share $ (0.04) $ (0.01) $ (0.01) $ (0.01)
=========== =========== =========== ===========
Weighted average
shares outstanding 10,527,658 5,567,772 10,566,394 5,606,499
=========== =========== =========== ===========
</TABLE>
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<TABLE>
NPS INTERNATIONAL CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
(Unaudited)
Nine-month periods ended
September 30,
------------------------
1999 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(463,774) $ (42,651)
--------- ---------
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization 102,013 50,646
Non-cash expenses of divested operations 453 -
Expenses paid through issuance of common stock 141,000 208,172
Gain on sale of assets (1,587) (5,515)
Gain on sale of divested operations (26,487) -
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (35,990) 45,702
(Increase) decrease in prepaid expenses (1,229) -
(Increase) decrease in inventory (31,074) 17,631
Increase (decrease) in accounts payable and accrued expenses 208,022 (82,514)
Increase (decrease) in accrued taxes (33,976) 374
Increase (decrease) in customer deposits (72,888) -
Increase (decrease) in payable under service agreement - (114,503)
--------- ---------
Total adjustments 248,257 119,993
--------- ---------
Net cash (used in) provided by operating activities (215,517) 77,342
--------- ---------
Cash flows from investing activities:
Purchase of short-term investment - (105,756)
Capital expenditures (108,221) -
Proceeds from sale of assets 1,587 44,458
Goodwill and deferred charges - (39,042)
Loans to affiliate (5,000) -
Proceeds from note receivable of divested segment 53,000 -
--------- ---------
Net cash used in investing activities (58,634) (100,340)
--------- ---------
Cash flows from financing activities:
Loans from affiliate 145,000 2,744
Principal payments on loan obligations (50,000) -
Proceeds from loans 145,000 -
Proceeds from issuance of common stock - 112,090
Costs incurred in connection with issuance of common stock - (51,499)
--------- ---------
Net cash provided by financing activities 240,000 63,335
--------- ---------
Net (decrease) increase in cash (34,151) 40,337
Cash balance at beginning of period 217,535 116,908
--------- ---------
Cash balance at end of period $ 183,384 $ 157,245
========= =========
</TABLE>
10
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NPS INTERNATIONAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
September 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
Nine-month (date of acquisition)
period ended through
September 30, 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 September 30, 1999.
12
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SIGNATURES
Pursuant to the requirements of Section 12 of the Securities and 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: November 11, 1999
By: s/Michael Wexler
---------------------
Michael Wexler, President
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NPS INTERNATIONAL CORPORATION
EXHIBIT INDEX TO QUARTERLY REPORT ON FORM 10-QSB
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1999
EXHIBITS Page No.
EX-27 Financial Data Schedule . . . . . . . . . . . . . . . . . . . . .15
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30,
1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 183,384
<SECURITIES> 0
<RECEIVABLES> 203,428
<ALLOWANCES> 0
<INVENTORY> 186,355
<CURRENT-ASSETS> 620,552
<PP&E> 319,903
<DEPRECIATION> (177,836)
<TOTAL-ASSETS> 1,274,850
<CURRENT-LIABILITIES> 1,190,277
<BONDS> 0
0
0
<COMMON> 1,057
<OTHER-SE> 83,516
<TOTAL-LIABILITY-AND-EQUITY> 1,274,875
<SALES> 1,882,124
<TOTAL-REVENUES> 1,882,124
<CGS> 1,545,774
<TOTAL-COSTS> 1,545,774
<OTHER-EXPENSES> 785,754
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 47,507
<INCOME-PRETAX> (496,911)
<INCOME-TAX> 0
<INCOME-CONTINUING> (496,911)
<DISCONTINUED> 33,137
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (463,774)
<EPS-BASIC> (.04)
<EPS-DILUTED> (.04)
</TABLE>
