SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
[ ] Transitional Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 1998
Commission File No. 0-25388
NPS INTERNATIONAL CORPORATION
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(Name of small business issuer in its charter)
Delaware 86-0214815
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(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
812 Proctor Ave.
Ogdensburg, N.Y. 13669
(315) 393-3793
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(Address, including zip code and telephone number, including area
code, of registrant's executive offices)
Securities registered under Section 12(b) of the Exchange Act:
none
Securities registered under Section 12(g) of the Exchange Act:
Common Stock
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(Title of class)
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 preceding 12
months (or for such shorter period that the Company was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
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Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. x
---
Issuer's revenues for its most recent fiscal year: $2,829,188.
(Continued on Following Page)
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State the aggregate market value of the voting stock held by non-affiliates,
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days: As of September 1, 1999: $1,965,174.
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of September 1, 1999, there were
10,566,403 shares of the Company's common stock issued and outstanding.
Documents Incorporated by Reference: Form 8-K dated November 23, 1998, which is
incorporated into Part II and Part III of this report.
This Form 10-KSB consists of Forty Nine Pages.
Exhibit Index is located at Page Forty Four.
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TABLE OF CONTENTS
FORM 10-KSB ANNUAL REPORT
NPS INTERNATIONAL CORPORATION
PAGE
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Facing Page
Index
PART I
Item 1. Description of Business..................... 4
Item 2. Description of Property..................... 13
Item 3. Legal Proceedings........................... 14
Item 4. Submission of Matters to a Vote of
Security Holders........................ 14
PART II
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters......... 14
Item 6. Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 15
Item 7 Financial Statements........................ 19
Item 8. Changes in and Disagreements on Accounting
and Financial Disclosure................ 37
PART III
Item 9. Directors, Executive Officers, Promoters
and Control Persons, Compliance with
Section 16(a) of the Exchange Act....... 37
Item 10. Executive Compensation...................... 39
Item 11. Security Ownership of Certain Beneficial
Owners and Management................... 41
Item 12. Certain Relationships and Related
Transactions............................ 42
PART IV
Item 13. Exhibits and Reports on Form 8-K........... 43
SIGNATURES............................................. 44
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
History
NPS International Corporation, f/k/a National Industrial Security
Corporation, (the "Company") was incorporated under the laws of the State of
Delaware in 1967. Until November 1998, the Company's principal business
consisted of providing security guard services to industrial, commercial,
governmental, healthcare and other institutional clients in the city of St.
Louis, Missouri, and surrounding areas. However, effective November 6, 1998,
pursuant to a definitive agreement (the "Naidger Agreement"), the Company
acquired all of the issued and outstanding securities of Naidger Power Systems,
Inc., ("Naidger"), a Delaware corporation. The terms of the transaction provided
that the Company undertook a reverse split of its issued and outstanding common
stock, whereby one (1) share of common stock was issued in exchange for each
three (3) shares of common stock then issued and outstanding, in order to
establish the number of issued and outstanding common shares at closing to be
2,331,367 shares. Thereafter, the Company and Naidger entered into a share
exchange agreement wherein the Company issued an aggregate of 8,000,000
"restricted" shares of the Company's Common Stock to Naidger in exchange for all
of the issued and outstanding shares of Naidger. Naidger became a wholly owned
subsidiary of the Company. As part of this transaction, the Company also changed
its name to "NPS International Corporation."
Naidger was incorporated in the State of Delaware on January 15, 1997.
Naidger is 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.
Naidger acquired Polcorp in August 1998 in exchange for issuance of
1,500,000 of its common voting stock. Prior to this transaction, Naidger and
Polcorp had common control and ownership interest. As a result of the
transactions described hereinabove, some of the principals of those entities are
control persons of the Company as of the date of this report. See "Part III,
Item 9, Directors, Executive Officers, Promoters and Control Persons" below.
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Business
On June 26, 1998, Polcorp acquired all of the issued and outstanding shares
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 were or 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, as the Company is
engaged in negotiations with Metrix, S.A., the former parent company of MTL and
MML, which negotiations are described in greater detail hereinbelow under
"Subsequent Events." While the Company is technically in default in its
obligations under the notes because it did not make the required payment, the
Company has not received any notice of default. The balance due on these notes
as of December 31, 1998, was $304,182.
Polcorp was formed in 1997 for the purposes of developing a broad base of
synergistic acquisitions in central and eastern European countries. The company
initially formed a strategic relationship with US based Equimeter, Inc., a
wholly owned subsidiary of BTR, Plc., a world leader in the design, development,
production and marketing of gas meter devices for both residential and
industrial applications. As a result of this close business relationship, the
company targeted its early strategies in emerging growth companies where
Equimeter's proprietary technology had not been exploited and where the
opportunities for achieving a dominant market position were significant.
During its working alliance with Equimeter, Polcorp entered into
acquisition discussions with Metrix, S.A. ("Metrix"), the leading domestic and
industrial manufacturer and supplier of gas meters in Poland. However, as a
result of a sudden shift in management objectives within the BTR organization,
Polcorp withdrew its bid and decided to pursue an alternative strategy with
Metrix. That strategy, which included the purchase of certain Metrix core assets
(such as MML and MTL), redefined and fortified the working relationship which
Polcorp's management had with Metrix officials. See "Subsequent Events" below.
The Company's operations are currently conducted through two of its wholly
owned subsidiaries, MTL and MML, both of which are located in Tczew, Poland. MML
is a subcontractor supplying members and subassemblies for gas meters and white
goods. It also offers
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a range of services including pressing, punching steel sheets and machining for
customers for different trades, including the automobile industry,
telecommunications industry and others. It has provided metal fabrication
services to Metrix for over 30 years. MTL has been the principal supplier to
Metrix for new production tools, tool regeneration and maintenance services for
a similar period. In January 1999, both MTL and MML executed three year
exclusive supply agreements with Metrix. Pursuant to the terms of the contracts,
MML will continue to provide metal fabrication of parts and components for both
the gas meter and white goods divisions of Metrix. MTL will provide tooling and
tool regeneration services. In addition to its existing relationship with
Metrix, MML commenced marketing expansion of its services to other entities
during the fiscal year ended December 31, 1998.
MML obtains raw materials from Dziedzice, S.A. (rolling mills), Florian,
S.A. and Stalowa, S.A. (steel mill), Kety S.A. (aluminum works) and Polast S.A.
(cast iron foundry). MTL's principal suppliers include PCPK BYTOW Sp. z.o.o. and
VADIM PLAST Sp. z.o.o, each of which supply MTL with semi-finished goods.
During the fiscal year ended December 31, 1998, the Company also provided
security guard services to industrial, commercial, governmental, healthcare and
other institutional clients in the St. Louis metropolitan area. The Company also
provided monitored alarm system services. During its previous three fiscal years
prior to the fiscal year ended December 31, 1998, the Company derived
approximately 99% of its total revenues from the services provided by its
uniformed security guards. This segment of the Company's business was sold in
March 1999. See "Part III, Item 12, Certain Relationships and Related
Transactions" and "Item 7, Notes to Financial Statements" below.
On June 26, 1997, the Company entered into a license agreement with Naidger
Nor Ltd. ("NNL"), an Israeli company which is engaged in the business of design,
development and manufacturing of specialized power electronic equipment. Under
the terms of the agreement, the Company was granted the exclusive worldwide
rights to operate a distributorship for NNL and to purchase its products for
resale to dealers, distributors, agents, commercial and industrial concerns and
other customers. The license agreement was granted in consideration of a
$450,000 convertible promissory note issued in favor of NNL, which note accrued
interest at the rate of 7.5%, payable annually. In January 1998, both the
agreement and note were cancelled.
In August 1997, the Company undertook a private offering of its common
stock pursuant to Rule 504 of Regulation D under the Securities Act of 1933, as
amended. As part of this offering, the Company sold an aggregate of 183,400
common shares at a purchase price of $1.00 per share.
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Subsequent Events
In March 1999, Polcorp executed a letter of intent with First National
Investment Fund, Warsaw, Poland, whereby Polcorp has agreed to purchase an
approximate 85% interest in PAFAL S.A. ("PAFAL"), Poland's largest manufacturer
of electric metering equipment. The proposed purchase price of this acquisition
is approximately $10 million (US) (PLN 38,000,000).
In April 1999, a letter of intent was executed between Polcorp and the
National Investment Fund II (the "Fund"), for the purchase of all of the Fund's
holdings in Metrix by Polcorp. The Fund is the single largest shareholder of
Metrix, owning an approximate 33% interest. It is anticipated that additional
offers will be submitted to the remaining shareholders of Metrix S.A. by
Polcorp. As of the date of this report, the total proposed purchase price is to
be negotiated. Relevant to both the former and latter letters of intent, in July
1999, the parties thereto did execute an amendment to both letters, extending
the negotiation time through October 31, 1999.
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 acquisitions are subject to satisfaction of certain
conditions, including completion of due diligence activities and the negotiation
of a definitive purchase agreement. There can be no assurances that the proposed
transactions will close or that any unforeseen delay will occur.
In June 1999, a majority of the Company's shareholders adopted amendments
to the Company's Articles of Incorporation wherein they changed the Company's
capital structure from 12,000,000 authorized common shares, par value $.1667 per
share, to 50,000,000 authorized common shares, par value $0.0001 per share and
10,000,000 authorized preferred shares, par value $.001 per share. The balance
sheets and statements of stockholders' equity included in this report have been
restated for all periods presented to reflect this change in capital structure.
EMPLOYEES
The Company and its subsidiaries presently have one hundred sixty-one (161)
employees, including its President, Michael Wexler. See "Part III, Item 9,
Directors, Executive Officers, Promoters and Control Persons," below. Most of
these employees are based at the Company's subsidiary locations in Tczew,
Poland. Of these employees, ninety-six are employed by MML and sixty-four are
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employed by MTL. MML employs 9 persons in administration, 4 in technical and
marketing, 10 managers and 73 production workers. MTL has 7 persons in
administration, 7 in the technical department, 3 managers and 47 production
managers. Management believes that its relationship with its employees is
satisfactory. The Company's production workers are all members of the Solidarity
Union.
COMPETITION
The Company's principal competition is provided from numerous small metal
shops located throughout Poland. Management is unaware of any principal entities
who are engaged in business similar to that of the Company in the geographic
locations presently serviced by the Company.
TRADEMARKS
The Company has registered the tradename "Metrix." The Company does not
utilize any other trademarks or patent rights in its business.
GOVERNMENT REGULATIONS
The Company is subject to certain governmental regulations relating to ISO
manufacturing standards, which are generally worldwide in nature. In addition,
the Company's subsidiaries are also subject to various environmental regulations
promulgated by the Polish government. The Company's cost of compliance with
these regulations is nominal. To date, management believes that the Company is
in full compliance with all applicable regulations. The Company is not subject
to any other extraordinary governmental regulations.
ITEM 2. DESCRIPTION OF PROPERTY
Facilities. The Company's principal place of business is an executive
office which consists of approximately 200 square feet of executive office space
at 812 Proctor Ave., Ogdensburg, New York 13669, for which it pays rent of $100
per month, plus actual expenses incurred. The Company also utilizes an office in
Ottawa, Canada, for which it pays a monthly rate of $300, including expenses.
Through March 31, 1999, the Company leased approximately 1,500 square feet
of executive office space at 225 East Kirkham Road, St. Louis, Missouri 63119,
at a rental fee of $1,000 per month. The Company disposed of such office space
in conjunction with the sale of the security services business in March 1999.
Further, the Company, through its wholly owned subsidiary companies, leases
its facilities in Poland and certain machinery and equipment under an operating
lease with Metrix, S.A. The
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agreement specifies a monthly lease payment of $12,674 (US). The lease is on a
month-to-month basis and may be terminated by either party upon six months
notice. This property consists of 105,800 square feet of executive office space
and manufacturing facilities.
It is anticipated that the Company's present premises will be adequate to
meet the Company's needs for the foreseeable future. The Company's telephone
number is (315) 393-3793 and facsimile number is (315) 393-9017.
Other Property. The Company has 173 pieces of equipment which are leased.
Most of this equipment has nominal or no book value. The most valuable items
include a punching machine, which had a net book value at January 1, 1999, of
PLZ 744,758 ($212,788 US); a bending machine, with a net book value of PLZ
427,820 ($122,234 US); and a press, which had a net book value of PLZ 39,845
($11,384 US) on January 1, 1999. The Company has no other properties and at this
time has no other agreements to acquire any properties, other than as disclosed
hereinabove.
ITEM 3. LEGAL PROCEEDINGS
There are no legal proceedings to which the Company (or any of its officers
and directors in their capacities as such) is a party or to which the property
of the Company is subject and no such proceedings is known by management of the
Company to be contemplated.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
In November 1998, a majority of the Company's shareholders authorized the
"reverse merger" between the Company and Naidger. In addition, subsequent to the
Company's fiscal year ended December 31, 1998, a majority of the Company's
shareholders authorized an amendment to the Company's Articles of Incorporation,
changing the Company's authorized capital to 50,000,000 shares of common stock,
par value $.0001 per share and 10,000,000 shares of preferred stock, par value
$.001 per share.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
(a) Market Information. The Company's common stock trades on the OTC
Bulletin Board operated by the National Association of Securities Dealers. As of
September 1, 1999, the Company's common stock was trading at $.375 bid, $.563
asked. The Company's common stock presently trades under the symbol "NPSZ."
The following table sets forth the range of high and low bid prices as
reported on the OTC Bulletin Board operated by the NASD
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for each calendar quarter during the previous two fiscal years. However, during
the initial three calendar quarters of 1998, the Company has been advised that
there was not enough quote activity to calculate the inside quote for these
periods. Therefore, there was no high, low or closing bid and asked price until
the fourth quarter of 1998. The information provided for 1998 has been stated to
include the reverse stock split undertaken by the Company in November 1998:
Quarter Ended Bid Price
Low High
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March 31, 1997 $0.09 $0.18
June 30, 1997 $0.17 $0.24
September 30, 1997 $0.17 $0.18
December 31, 1997 $0.17 $0.21
March 31, 1998 - -
June 30, 1998 - -
September 30, 1998 - -
December 31, 1998 $0.27 $1.00
(b) Holders. There are five hundred twenty four (524) holders of the
Company's Common Stock, not including those holders who hold their shares in
"street name."
(c) Dividends. The Company has not paid any dividends on its Common Stock
since its inception. The Company does not foresee that the Company will have the
ability to pay a dividend on its Common Stock in the fiscal year ending December
31, 1999.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the Company's
audited 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
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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., 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. 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 operations for the fiscal years ended December 31, 1998 and 1997.
RESULTS OF OPERATIONS
Comparison of Results of Operations for the fiscal years ended December 31,
1998 and 1997.
In the fiscal year ended December 31, 1998, the Company's revenues were
$2,829,188, compared to revenues of $1,369,495 generated during the fiscal year
1997, an increase of $1,459,693 (106.6%). This increase was attributable to
three factors, including (i) the acquisition of the security services business
through the business combination with National Industrial Security Corporation,
which accounted for 8.8% of the increase; (ii) although the manufacturing
operations of Metrix Metal and Metrix Tools were in existence for only six
months and nine months of 1997, respectively, the increase in revenues
attributable to the full year of activities in 1998 accounted for 79.4% of the
increase; and (iii) an increase in manufacturing activities of the Metrix
operating subsidiaries accounted for the remaining 18.8% of the increase in
revenues.
During the year ended December 31, 1998, the Company's direct costs were
$2,580,570, compared to direct costs of $1,140,612 generated during the fiscal
year 1997, an increase of $1,439,958 (126.2%). The acquisition of the security
services business accounted for 8.1% of the increase. Since the manufacturing
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operations of Metrix Metal and Tools were in existence for only six months and
nine months of 1997, respectively, the increase in direct costs attributable to
the full year of activities in 1998 accounted for 82.5% of the increase.
Increase in manufacturing activities of the Metrix operations subsidiaries
accounted for the remaining 35.6% of the increase in direct costs.
Operating expenses during the period ended December 31, 1998, were
$349,632, compared to $230,472 for the similar period in 1997, an increase of
$119,160 (51.7%). 25.2% of the increase was in selling and administrative costs.
Such increase was principally attributable to a full year of operations for the
Company's operating subsidiaries in 1998, as well as the acquisition of the
security services business, effective November 1998. An increase in interest
expense of $49,057, which resulted from the debt incurred to acquire the Metrix
entities in 1998, accounted for 21.3% of the increase. Amortization expense of
goodwill attributable to the Metrix acquisitions accounted for an additional
9.2% of the increase. As a result, the Company generated a net loss of
$(101,014) for the year ended December 31, 1998, compared to a net loss of
$(1,589) for the year ended December 31, 1997, an increase of $(99,425).
LIQUIDITY AND CAPITAL RESOURCES
In the fiscal year ended December 31, 1998, the Company had $217,535 in
cash and cash equivalents. It also increased its accounts receivable to $246,063
from $81,942 for the similar period in 1997, an increase of $164,121 (200%).
Cash and receivables increased through liquidation of short-term investments
(110,640), decreases in inventories (57,133), and increases in current
liabilities. Funds were also provided by loans from an affiliate ($201,127) and
net proceeds from issuance of common stock ($40,771). These increases were
offset by capital expenditures ($146,314) and principal payments on loan
obligations.
On June 26, 1998, Polcorp acquired all of the issued and outstanding shares
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 were and 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 Part I, Item I,
Description of Business,
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above. While the Company is technically in default in its obligations under the
notes because it did not make the required payment, the Company has not received
any notice of default. The balance due on these notes as of December 31, 1998,
was $304,182.
The Company has $80,606 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 December 31, 1998) 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. Interest expense for 1998 includes $2,222 of interest related to notes
payable - director.
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 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.
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The Company's entry into the proprietary gas and electricity metering
business is scheduled for the fourth quarter of fiscal 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 domestic meters and a 100% share of the industrial market.
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 affect on
the results of operations during the fiscal year ended December 31, 1998.
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
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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).
ITEM 7. FINANCIAL STATEMENTS
15
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NPS INTERNATIONAL CORPORATION
AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report F-2
Consolidated balance sheets as of December 31, 1998 and 1997 F-3
Consolidated statements of operations for the year ended
December 31, 1998 and for the period January 15, 1997
(date of incorporation) through December 31, 1997 F-4
Consolidated statements of stockholders' equity for the year
ended December 31, 1998 and for the period January 15, 1997
(date of incorporation) through December 31, 1997 F-5
Consolidated statements of cash flows for the year ended
December 31, 1998 and For the period January 15, 1997
(date of incorporation) through December 31, 1997 F-6
Notes to consolidated financial statements F-7
F-1
16
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders
NPS International Corporation and subsidiaries
Ogdensburg, New York
We have audited the accompanying consolidated balance sheets of NPS
International Corporation and subsidiaries as of December 31, 1998 and 1997, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for the year ended December 31, 1998 and for the period January 15,
1997 (date of incorporation) through December 31, 1997. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of NPS
International Corporation and subsidiaries as of December 31, 1998 and 1997, and
the consolidated results of their operations and cash flows for the year ended
December 31, 1998, and for the period January 15, 1997 (date of incorporation)
through December 31, 1997, in conformity with generally accepted accounting
principles.
HORTON & COMPANY, L.L.C.
Wayne, New Jersey
July 15, 1999
F-2
17
<PAGE>
<TABLE>
NPS INTERNATIONAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<CAPTION>
December 31,
--------------------------------
1998 1997
------------ ----------
<S> <C> <C>
Current assets:
Cash $ 217,535 $ 116,908
Short-term investments - 110,640
Accounts receivable 246,063 81,942
Prepaid expenses 15,110 -
Inventories 155,281 212,414
Due from affiliate - 25,623
------------ ----------
Total current assets 633,989 547,527
------------ ----------
Property and equipment, net 164,337 93,216
------------ ----------
Other assets:
Goodwill, net 429,398 87,422
Deferred charges and other 55,068 55,217
------------ ----------
484,466 142,639
------------ ----------
$ 1,282,792 $ 783,382
============ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt from $ 207,150 -
business combination
Accounts payable and accrued expenses 279,414 173,968
Accrued taxes 92,780 44,104
Customer deposits 72,888 -
Due to affiliate 21,627 -
Notes payable - director 80,606 -
Payable under service agreement 7,522 114,403
------------ ----------
Total current liabilities 761,987 332,475
Long-term debt from business combination, 97,032 400,000
net of current portion
Long-term liabilities - 24,110
------------ ----------
859,019 756,585
------------ ----------
Stockholders' equity:
Common stock, $.0001 par value,
50,000,000 shares authorized;
5,171,410 shares outstanding in 1997 - 517
10,331,394 shares outstanding in 1998 1,033 -
Additional paid-in capital 521,558 27,869
Accumulated deficit (102,603) (1,589)
Accumulated other comprehensive income 3,785 -
------------ ----------
423,773 26,797
------------ ----------
$ 1,282,792 $ 783,382
============= ==========
See notes to consolidated financial statements
</TABLE>
F-3
18
<PAGE>
<TABLE>
NPS INTERNATIONAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
For the period
January 15, 1997
(date of incorporation)
Year ended through
December 31, 1998 December 31, 1997
----------------- -----------------
<S> <C> <C>
Revenues:
Product sales $ 2,708,982 $ 1,369,495
Security services 120,206 -
-------------- --------------
2,829,188 1,369,495
-------------- --------------
Direct costs:
Product costs 2,487,751 1,140,612
Security services 92,819 -
-------------- --------------
2,580,570 1,140,612
-------------- --------------
Gross profit 248,618 228,883
-------------- --------------
Operating expenses (income):
Selling and administrative 278,991 220,827
Amortization 21,171 -
Interest expense 49,057 -
Interest income (23,956) (16,851)
Gain on sale of assets (6,889) (4,652)
Foreign taxes 31,258 31,148
-------------- --------------
349,632 230,472
-------------- --------------
Net loss $ (101,014) $ (1,589)
============== ==============
Loss per share $ (.02) $ (.00)
============== ==============
Historical weighted average shares outstanding 6,049,208 4,558,606
============== ==============
See notes to consolidated financial statements
</TABLE>
F-4
19
<PAGE>
<TABLE>
NPS INTERNATIONAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the year ended December 31, 1998, and for the period January 15, 1997
(date of incorporation) through December 31, 1997
<CAPTION>
Common stock
---------------------- Additional Other
Shares Par paid-in Accumulated Comprehensive Comprehensive
Issued value capital Deficit Income Income
---------- ------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Shares issued at inception 100 $ - $ - $ - $ - $ -
Shares issued in satisfaction
of costs paid by parent company 3,600,000 360 3,240 - - -
Shares issued under Reg. D,
Rule 504 offering 71,310 7 71,303 - - -
Shares issued in business combination 1,500,000 150 1,350 - - -
Costs incurred in connection with offering - - (48,024) - - -
Net loss - - - (1,589) - -
---------- ------- --------- --------- --------- --------
Balances at December 31, 1997 5,171.410 517 27,869 (1,589) - -
---------- ------- --------- --------- --------- --------
Shares issued under Reg. D,
Rule 504 offering 112,090 11 112,079 - - -
Costs incurred in connection with offering - - (221,198) - - -
Shares issued in business combination 2,331,367 233 (76,045) - - -
Shares issued in satisfaction
of various liabilities 2,716,527 272 678,853 - - -
Other comprehensive income, net of tax:
Foreign currency translation - - - - 3,785 3,785
--------
Comprehensive income $ 3,785
=======
Net loss - - - (101,014) -
---------- ------- --------- --------- ---------
Balances at December 31, 1998 10,331,394 $ 1,033 $ 521,558 $(102,603) $ 3,785
========== ======= ========= ========= =========
See notes to consolidated financial statements
</TABLE>
F-5
20
<PAGE>
<TABLE>
NPS INTERNATIONAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
For the period
January 15, 1997
(date of incorporation)
Year ended Through
December 31, 1998 December 31, 1997
----------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (101,014) $ (1,589)
----------- ---------
Adjustments to reconcile net loss to net cash
Provided by operating activities:
Operating expense paid by parent company - 3,600
Depreciation and amortization 100,149 52,894
Gain on sale of assets (6,889) (4,957)
Changes in assets and liabilities, net of effect
of business combination:
(Increase) decrease in accounts receivable (108,136) 206,773
(Increase) decrease in prepaid expenses (3,677) -
(Increase) decrease in inventory 57,133 (212,414)
Increase (decrease) in accounts payable and 70,760 (62,875)
accrued expenses
Increase (decrease) in accrued taxes 48,676 (3,994)
Increase (decrease) in customer deposits 72,888 -
Increase (decrease) in payable under service
agreement (106,881) 114,403
----------- ---------
Total adjustments 124,023 93,430
----------- ---------
Net cash provided by operating activities 23,009 91,841
----------- ---------
Cash flows from investing activities:
Sale (purchase) of short-term investment 110,640 (110,640)
Capital expenditures (146,314) (76,749)
Proceeds from sale of assets 6,889 -
Cash acquired in business combination 5,623 -
Goodwill and deferred charges (20,513) (55,217)
Loans repaid by (made to) affiliate 25,623 (25,623)
----------- ---------
Net cash used in investing activities (18,052) (268,229)
----------- ---------
Cash flows from financing activities:
Proceeds from loan - 19,898
Loans from affiliate 201,127 -
Principal payments on loan obligations (119,928) -
Repayment of note payable - director (16,300) -
Proceeds from issuance of common stock 112,090 72,710
Costs incurred in connection with offering (81,319) (48,024)
----------- ---------
Net cash provided by financing activities 95,670 44,584
----------- ---------
Net (decrease) increase in cash 100,627 (131,804)
Cash balance at beginning of period 116,908 248,712
----------- ---------
Cash balance at end of period $ 217,535 $ 116,908
=========== =========
See notes to consolidated financial statements
</TABLE>
F-6
21
<PAGE>
NPS INTERNATIONAL CORPORTION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
1. Summary of significant accounting policies
This summary of significant accounting policies of NPS International
Corporation (hereinafter "NPS" or the "Company") is presented to assist
in understanding the consolidated financial statements. The
consolidated financial statements and notes are representations of the
management of NPS International Corporation and subsidiaries which is
responsible for their integrity and objectivity. These accounting
policies conform to generally accepted accounting principles and have
been consistently applied in the preparation of the consolidated
financial statements.
Use of estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the period. Actual results could differ
from those estimates.
Basis of presentation
Effective November 6, 1998, pursuant to the terms of a plan of merger,
National Industrial Security Corporation ("NISCO") acquired all of the
outstanding common stock of Naidger Power Systems, Inc. ("Naidger") in
exchange for 8,000,000 unregistered shares of NISCO's common stock.
Immediately prior to the transaction, NISCO completed a one-for-three
reverse stock split, resulting in 2,331,367 shares outstanding prior to
the business combination. As a result of the transaction, the former
shareholders of Naidger received shares representing approximately 77%
of NISCO's outstanding common stock, resulting in a change in control
of NISCO. Naidger thereby became the wholly-owned subsidiary of NISCO.
Simultaneously therewith, NISCO amended its articles of incorporation
to reflect a change in name to NPS International Corporation ("NPS"), a
Delaware corporation. References to the "Company" refer to NPS together
with its predecessor company Naidger and subsidiaries.
The acquisition of Naidger by NISCO has been accounted for as a reverse
acquisition. Under the accounting rules for a reverse acquisition,
Naidger is considered the acquiring entity and NISCO the acquired
entity. As a result, historical financial statements presented for
periods prior to the date of the transaction are those of Naidger.
However, the capital structure has been retroactively restated to
reflect the number of shares received by Naidger shareholders in the
acquisition and NISCO par value. Under purchase method accounting,
balances and results of operations of NISCO (now NPS) have been
included in the Company's financial statements from the date of the
transaction, November 6, 1998.
F-7
22
<PAGE>
1. Summary of significant accounting policies (continued)
Business presentation (continued)
In the reverse acquisition, the Company recorded assets and liabilities
at their historical cost basis which was deemed to approximate fair
market value. The reverse acquisition transaction is treated as a
non-cash transaction, except to the extent of cash acquired, since all
consideration given was in the form of common stock.
Pro forma results of operations (assuming completion of the business
combination of NISCO and Naidger and subsidiaries as of the beginning
of each period) for the years ended December 31, 1998 and 1997 are as
follows:
Year ended December 31,
------------------------
1998 1997
----------- ----------
Revenues $ 3,414,688 $1,778,895
=========== ==========
Net loss $ (75,923) $ (29,834)
========== ==========
Loss per share $ (.007) $ (.004)
========== ==========
Weighted average common shares 10,331,367 6,889,973
========== ==========
The pro forma financial information presented above does not purport to
be indicative of the results of operations of the Company that might
have occurred, nor are they indicative of future results.
Principles of consolidation
The accompanying consolidated financial statements include the accounts
of NPS International Corporation, and of its wholly-owned subsidiary,
Naidger Power Systems, Inc. ("Naidger"), its wholly-owned subsidiary,
Polcorp Industries, Inc. ("Polcorp"), together with its wholly-owned
subsidiaries Metrix Metal, L.L.C. and Metrix Tools, L.L.C.
(collectively referred to as the "Metrix Companies"). Under the
accounting rules for the business combinations described in Note 2, the
accompanying financial statements include the accounts of NPS from the
date of the business combination with Naidger (November 6, 1998), of
Naidger from date of incorporation, (January 15, 1997), of Polcorp from
the date of the business combination with the Metrix Companies (June
26, 1998), and of Metrix Metal, L.L.C. and Metrix Tools, L.L.C. for the
period from their dates of inception (July 1, 1997 and April 1, 1997,
respectively) through December 31, 1997. Significant intercompany
transactions and balances have been eliminated in consolidation.
History and business activity
NPS International Corporation (formerly National Industrial Security
Corportion) was incorporated in the State of Delaware in 1967. The
Company's security division provides security guard services to
industrial, commercial, governmental and other institutional clients in
the St. Louis, Missouri metropolitan area.
F-8
23
<PAGE>
1. Summary of significant accounting policies (continued)
History and business activity (continued)
Naidger Power Systems, Inc. was incorporated in the State of Delaware
on January 15, 1997. Naidger is an inactive holding company which has
acquired Polcorp Industries, Inc. and two operating subsidiaries in a
business combination described in Note 2. Naidger was originally
incorporated to hold exclusive worldwide rights for specialized power
electronics equipment. However, the license agreement was terminated
prior to any activity taking place (Note 5).
Polcorp Industries, Inc. ("Polcorp") was incorporated in the State of
Delaware on January 16, 1998. Concurrent with the business acquisition
described in Note 2, Polcorp became a holding company which conducts
business only through its wholly-owned subsidiaries, Metrix Metal,
L.L.C. and Metrix Tools, L.L.C.
Metrix Metal, L.L.C., located in Tczew, Poland, is engaged in the
production of metal parts and sub-assemblies, primarily the gas meter,
white goods and auto parts sector. The Company's concentration of
business is in central and eastern Europe.
Metrix Tools, L.L.C., located in Tczew, Poland, 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. The Company's concentration of business is
in central and eastern Europe.
Revenue recognition
Revenue from product sales is recognized when products are shipped. The
Company recognizes revenue from security services as such services are
performed in accordance with contract terms.
Property and equipment
Property and equipment is carried at cost. Depreciation is provided on
the straight-line method over the following estimated useful lives:
Years
-------
Machinery and equipment 10
Office equipment 5
Depreciation expense was $78,978 and $52,894 for the years ended
December 31, 1998 and 1997, respectively.
Maintenance, repairs and renewals which neither materially add to the
value of the equipment nor appreciably prolong its life are charged to
expense as incurred. Gains or losses on dispositions of equipment are
included in income.
Short-term investments
Short-term investments consist of treasury securities available for
sale and, as a result, are stated at market value, which approximates
cost.
F-9
24
<PAGE>
1. Summary of significant accounting policies (continued)
Concentration of credit risk
Financial instruments, which potentially subject the Company
to concentration of credit risk, consist principally of accounts
receivable. The Company's policies do not require collateral to support
accounts receivable. However, because of the diversity and credit
worthiness of individual accounts which comprise the total balance,
management does not believe that the Company is subject to any
significant credit risk. At December 31, 1997, the Company also held
short-term investments in treasury securities. The Company liquidated
its short-term investment holdings early in 1998.
Approximately, 83.1% and 93.4% of total revenue was derived from Metrix
S.A. (former parent company of Metrix Tools, L.L.C. and Metrix Metal,
L.L.C.), for the years ended December 31, 1998 and 1997, respectively.
Approximately 95.8% and 100% of the Company's revenue was derived from
foreign sales during the years ended December 31, 1998 and 1997,
respectively.
Fair value of financial instruments
The Company's receivables and payables are current and on normal terms
and, accordingly, are believed by management to approximate fair
value. Management also believes that notes payable and long-term debt
approximate fair value when current interest rates for similar debt
securities are applied.
Inventories
Inventories stated at the lower of cost (principally standard cost
which approximates actual cost, on a first-in, first-out basis) or
market.
Foreign currency translation
The financial statements of the Company's foreign subsidiaries were
prepared in their local currency and translated into U.S. dollars
based on the current exchange rate at the end of the period for the
balance sheets and a weighted-average rate for the period on the
statements of operations. Translation adjustments, net of deferred
income taxes, are reflected as foreign currency translation adjustments
to determine comprehensive income and are included in accumulated
comprehensive income as presented in the balance sheets and the
statements of stockholders' equity. Foreign currency transaction
adjustments are included in income.
Goodwill
Goodwill represents the excess of the purchase price over the fair
market value of net assets acquired in business combinations. Most of
the goodwill arose from the acquisition of the Metrix companies, as
described in Note 2. Goodwill is carried at cost and is being amortized
on the straight-line method over a ten-year period starting with the
date of acquisition.
F-10
25
<PAGE>
1. Summary of significant accounting policies (continued)
Deferred charges
Deferred charges consist of the following: December 31,
-----------------
1998 1997
------- --------
Deferred acquisition costs $49,862 $ 55,217
Patent costs and license fees,
net of accumulated
amortization of $10,984 5,206 -
------- --------
$55,068 $ 55,217
======= ========
Deferred acquisition costs are capitalized as a component of total
acquisition costs upon successful consummation of a planned
acquisition. Such costs are expensed upon determination that a proposed
acquisition is unlikely to occur.
Patent costs and license fees are being amortized on the straight-
line basis over the expected period of recoverability of such costs,
which is estimated at 15 to 20 years.
Supplemental statements of cash flows information
During the year ended December 31, 1997, the Company issued 3,600,000
shares of its common stock in satisfaction of costs it had incurred
which were paid by the parent company.
During the year ended December 31, 1998, the Company acquired the stock
of its predecessor, Naidger, through the issuance of 8,000,000 shares
of the common stock as described in Note 2. During the year ended
December 31, 1998, the Company's predecessor completed a business
combination through the issuance of 1,500,000 shares of its common
stock as described in Note 2.
During the year ended December 31, 1998, the Company issued 2,716,527
shares of its common stock in satisfaction of $679,125 of liabilities
owed to affiliates and directors, as described in Note 8.
Interest paid during 1998 was $32,969. There was no interest paid
during 1997. Income taxes paid during 1998 and 1997 were $24,190 and
$31,148, respectively.
Accounting pronouncements
The Company has adopted Statement of Financial Accounting Standards
No. 130, "Comprehensive Income," which is effective for the Company's
financial statements for the year ended December 31, 1998. In addition
to net income, comprehensive income is comprised of "other
comprehensive income" which includes all charges and credits to equity
that are not the result of transactions with owners of the Company's
common stock.
The Company has also adopted Statement of Financial Accounting
Standards No. 131, "Disclosures About Segments of an Enterprise and
Related Information," which is effective for the Company's financial
statements for the year ended December 31, 1998. This statement
requires reporting of summarized financial results for operating
segments as well as established standards for related disclosures about
products and services, geographic areas and major customers. Primary
disclosure requirements include total segment revenues, total segment
profit or loss and total segment assets.
F-11
26
<PAGE>
2. Business combinations
Metrix acquisition
On June 26, 1998, Polcorp Industries, acquired all of the outstanding
shares of Metrix Tools, L.L.C. (4,000 shares) and Metrix Metal, L.L.C.
(7,000 shares) in exchange for notes payable in the amounts of 430,000
and 930,000 Polish zlotys, respectively. As a result of the
transaction, there was a change in the control of Metrix Tools, L.L.C.
and Metrix Metal, L.L.C.
The acquisition of Metrix Tools, L.L.C. and Metrix Metal, L.L.C.
(the "Metrix Companies") has been accounted for as a reverse
acquisition. Under the accounting rules for a reverse acquisition, the
Metrix Companies are considered the acquiring entity. As a result,
historical financial information for periods prior to the date of the
transaction are those of the Metrix Companies. However, the capital
structure has been retroactively restated to reflect the number of
shares issued to effect the acquisition and the Company's par value.
Under purchase method accounting, balances and results of operations of
Polcorp have been included in the accompanying consolidated financial
statements from the date of the transaction, June 26, 1998. The Company
recorded the assets and liabilities at their historical cost basis
which was deemed to approximate fair market value. The reverse
acquisition is treated as a non-cash transaction since all
consideration given was in the form of stock. Pro forma results of
operations (assuming the business combination had been effected on
January 15, 1997) are not presented because Polcorp was inactive prior
to the acquisition. As a result, pro forma results of operations for
the years ended December 31, 1997 and 1998, would be no different than
the historical statements of operations presented herewith.
Polcorp business combination
During August 1998, Naidger Power Systems, Inc. completed the
acquisition of all the outstanding shares of Polcorp Industries, Inc.
("Polcorp") in exchange for 1,500,000 of its common voting shares.
Polcorp is located in New York and has two wholly-owned subsidiaries,
Metrix Metal, L.L.C. and Metrix Tools, L.L.C. located in Tczew, Poland.
In conjunction with this business combination, the balances and results
of operations of Polcorp and Naidger are included in the accompanying
consolidated financial statements. Prior to the business combination,
Naidger and Polcorp had common control and ownership interest.
NISCO business combination
On November 6, 1998, Naidger effected a business combination with
National Industrial Security Corporation, ("NISCO") a publicly-traded
corporation. Under the terms of the reorganization agreement, the
shareholders of Naidger Power Systems, Inc. gained control over the
public company. Prior to the merger, NISCO completed a one-for-three
reverse split of its shares which resulted in 2,331,367 shares
outstanding prior to the business combination. At the closing of the
transaction, NISCO exchanged 8,000,000 shares of common stock for all
the issued and outstanding shares of common stock of Naidger thereby
effecting a change in control.
F-12
27
<PAGE>
3. Inventories
The following is a summary of inventories:
December 31,
-------------------------
1998 1997
--------- --------
Raw materials $ 57,417 $125,690
Work in process 97,864 86,724
--------- --------
$ 155,281 $212,414
========= ========
4. Property and equipment
The following is a summary of property and equipment:
December 31,
-------------------------
1998 1997
-------- --------
Machinery and equipment $360,514 $146,110
Less: accumulated depreciation 196,177 52,894
$164,337 $ 93,216
======== ========
5. License agreement
On June 26, 1997, the Company entered into a license agreement with
Naidger Nor (1997) Ltd. ("NNL"), an Israeli company which is engaged in
the business of design, development and manufacturing of specialized
power electronics equipment. Under the terms of the agreement, the
Company was granted the exclusive worldwide rights to operate a
distributorship for NNL and to purchase its products for resale to
dealers, distributors, agents, commercial and industrial concerns and
other customers. The license agreement was granted in consideration of
a $450,000 convertible promissory note to NNL. Such note bore interest
at 7.5% payable annually.
During January 1998, the Company decided not to pursue its financial
obligations under the terms of the license agreement. Therefore, both
the agreement and the related debt were cancelled.
6. Notes payable - director
Notes payable - director represents advances made to the Company
by one of its directors. The notes bear interest at prime (8.25% at
December 31, 1998) 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 is subordinated to other
secured debt. Interest expense for 1998 includes $2,222 of interest
related to notes payable - director.
F-13
28
<PAGE>
7. Long-term debt from business combination
Long-term debt from business combination arose from the acquisition of
the stock of Metrix Tools and Metrix Metal (Note 2). The purchase
price of 430,000 and 930,000 Polish zlotys for Metrix Tools and Metrix
Metal, respectively, is paid in US dollars based on the exchange rate
at ING Bank S.A. in Warsaw, Poland. The notes are payable in four equal
principal installments, commencing 90 days after the date of signing
the agreement. The next installments are due 270, 450 and 630 days
following the date of signing the agreement. Each installment shall
include interest at 8% annually increased by the inflation ratio in
Poland. Any delay in the payment schedule will result in a interest
charge of 20% annually. The debt is secured by the stock of Metrix
Tools and Metrix Metal.
Maturities of long-term debt from business combination are as follows:
Year ending December 31, 1999 $207,150
Year ending December 31, 2000 97,032
--------
$304,182
========
The Company has temporarily suspended the payment which was due in
March 1999, during negotiations to acquire Metrix, S.A., the former
parent company of Metrix Tools and Metrix Metal. While the Company
is in default of the agreement because it did not make such payment,
the Company has not received any notice of default.
8. Stockholders' equity
Recapitalization
Subsequent to year end, a majority of the Company's shareholders
adopted amendments to the articles of incorporation to change the
Company's capital structure from 12,000,000 authorized shares of
$.1667 par value common stock to 50,000,000 authorized shares of $.0001
par value common stock and 10,000,000 authorized shares of $0.001 par
value preferred stock. No preferred stock has been issued. The balance
sheets and statements of stockholders' equity have been restated for
all periods presented to reflect the change in capital structure.
Private offering
On August 15, 1997, the Company commenced an offering of its common
stock pursuant to Rule 504 of Regulation D under the Securities Act of
1933. The Company sold 112,090 and 71,310 shares under the offering,
during the years ended December 31, 1998 and 1997, respectively.
F-14
29
<PAGE>
8. Stockholders' equity (continued)
Stock issuance
During 1998, Naidger issued 1,798,500 shares of its common stock to
Suncrest Management Services, S.A., in payment for $449,625 of costs
Suncrest had paid on behalf of the Company and for their services (Note
9) which were principally rendered in connection with obtaining equity
financing and effecting the business combinations described in Note 2.
Naidger issued 718,000 shares of its common stock to an affiliate
in satisfaction of $179,500 of loans that had been advanced (Note 9).
Naidger also issued 200,000 shares of its common stock to directors
of the Company in satisfaction of $50,000 in fees and expenses
incurred in connection with the acquisition of the Metrix Companies.
The stock issued was valued at the estimated fair value of $.25 per
share at the date of issuance.
Loss per common share
Loss per common share is computed by dividing the net loss applicable
to common stock shareholders by the weighted average number of shares
of common stock outstanding during the period. For the years ended
December 31, 1998 and 1997, the weighted average number of shares used
in the calculation was 6,049,208 and 4,558,606, respectively. Diluted
loss per share amounts are not presented because they are anti-
dilutive.
9. Related party transactions
Related party loans
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 (Note 8). At December 31, 1998,
the balance shown as due to affiliate is an unsecured, non-interest
bearing advance to the Company, payable on demand. At December 31,
1997, due from affiliate represents an unsecured, non-interest bearing
advance to the same affiliate. Such advance was repaid during 1998.
Service agreement
Effective May 1, 1997, Naidger and Polcorp entered into a service
agreements with Suncrest Management Services, S.A. ("Suncrest"),
a company incorporated in Nevis, West Indies, and which is also a
significant stockholder of NPS International Corporation. The agreement
with Naidger was re-affirmed by NPS as a consequence of the business
combination described in Note 2. The service agreement with Polcorp
was terminated by mutual consent effective October 31, 1998.
F-15
30
<PAGE>
9. Related party transactions (continued)
Service agreement (continued)
Under the terms of the agreement, Suncrest provides a variety of
management and consulting services for a five-year period ending
April 30, 2002. In return, Suncrest shall receive a service fee of
$8,500 per month, payable in advance on the first day of each month
during the first 12 months of the agreement. During each subsequent
12-month period, the monthly service fee shall be increased by 10% over
the previous 12-month period. Minimum future fees payable under the
agreement are as follows:
Year ending
December 31, Amount
------------ ------
1999 $129,540
2000 142,394
2001 156,742
2002 54,304
--------
$482,980
========
In addition, Suncrest is entitled to reasonable costs and expenses
and an annual bonus equal to the greater of 5% of profits or 3% of
sales provided that an approved annual budget is met or exceeded.
Otherwise, a bonus may be paid at the discretion of the Company.
Service fees under these agreements were $251,300 and $83,000 plus
expenses of $127,283 and $22,869 for the years ended December 31, 1998
and 1997, respectively.
During the years 1998 and 1997, $279,460 and $55,217 of these fees and
expenses were capitalized in connection with the business combinations
described in Note 2. During the years 1998 and 1997, $139,879 and
$48,024 of these fees and expenses incurred in connection with
obtaining equity financing were recorded as a charge to additional
paid-in capital.
The agreement may be terminated by six-month notice. In the event that
the agreement is terminated by the Company for any reason, Suncrest
shall be entitled to receive a lump-sum termination payment equal to
all service fees for the unexpired term of the agreement plus all
bonuses as a result of past services and all outstanding out-of-pocket
expenses.
Consulting agreement
The Company has entered into an agreement with a shareholder and
officer whereby he would provide the Company with consulting services
in connection with planned acquisitions. The agreement is effective
through June 30, 2001, thereafter remaining in force for a rolling
period of twelve months. Such agreement may be terminated by NPS upon
six-month notice. Compensation for such services totalled $30,000 for
the year ended December 31, 1998. Such fees were capitalized as
deferred acquisition costs. The agreement specifies that compensation
in the years 1999, 2000 and 2001 will be $72,000, $88,200 and $46,200,
respectively.
In addition, the consultant is entitled to an annual bonus equal to
5% of audited net profits, provided that certain performance criteria
are met. Otherwise, a bonus may be paid at the discretion of the Board.
F-16
31
<PAGE>
10. Income taxes
As of December 31, 1998, the Company has net operating losses available
for carryforward to offset future years' taxable income. The net
operating losses expire in the years 2017 and 2018.
Deferred income taxes arise from temporary differences in reporting
assets and liabilities for income tax and financial accounting purposes
primarily resulting from net operating losses. The components of the
deferred tax asset and the related tax effects of the temporary
differences are as follows:
Non-current deferred income tax asset arising from
net operating loss carryforward $ 65,000
Valuation allowance (65,000)
--------
$ -
========
Taxes paid and accrued to foreign countries amounted to $31,148
and $31,258 for the period January 15, 1997 (date of incorporation)
through December 31, 1997 and for the year ended December 31, 1998,
respectively.
11. Commitments and contingencies
Lease agreements
The Company leases its facilities in Poland and certain machinery and
equipment under operating leases with Metrix, S.A. The agreement
specifies a monthly lease payment of $12,674 (including 22% VAT). The
leases are on a month-to-month basis and may be terminated by either
party upon 6- months notice.
The Company maintains corporate offices in Ogdensburg, New York and
Ottawa, Canada. The Company is not obligated under any lease agreements
for such offices, but incurs a monthly cost of approximately $500
through the service agreement described in Note 9.
The Company also leased office space in St. Louis, Missouri under an
operating lease at a monthly lease payment of $1,000. The Company
disposed of such office space in conjunction with the sale of the
security division as described in Note 13.
Rent expense for the years ended December 31, 1998 and 1997 totalled
approximately $154,100 and $79,800, respectively.
Operating agreements
The Metrix Companies and Metrix S.A. have entered into an agreement
whereby the Metrix Companies have the exclusive right to produce parts
for Metrix S.A. through June 2001. Such parts are to be sold to Metrix
S.A. at specified pricing formulas. Metrix S.A. has also agreed to
make repair and maintenance services available to the Metrix Companies
at specified prices. Metrix S.A. is also obligated to provide access
to utilities and the telecommunications network.
F-17
32
<PAGE>
12. Segment information
NPS International corporation has three reportable segments:
manufacturing, security services and corporate activities. The
manufacturing segment is engaged in the production of tools, molds,
parts and sub-assemblies to serve the gas meter, white goods and auto
parts sectors. The security services segment provides guard services to
business. Corporate activities include administrative expenses to
manage the corporate entity. It also includes costs incurred in
connection with the Company's ongoing acquisition activities and
continuing costs, including financing and amortization costs, incurred
as a result of past acquisitions.
The accounting policies of the segments are the same as described
in the summary of significant accounting policies. During 1998 and
1997, there were no inter- segment sales or transfers.
The Company's reportable segments are strategic business units that
offer different products and services. They are managed separately
because each business requires different technology and marketing
strategies. The businesses have been acquired as a unit, and the
management at the time of the acquisition has been retained.
The following is a summary of segment revenues, expenses, profit or
loss and assets:
Security
1998 Manufacturing Services Corporate Total
- --------------------- ------------- -------- --------- ----------
Revenue $2,708,982 $120,206 $ - $2,829,188
Interest income $ 23,956 $ - $ - $ 23,956
Interest expense $ 5,755 $ 100 $ 43,202 $ 49,057
Depreciation and
amortization $ 78,978 $ 302 $ 20,869 $ 100,149
Segment profit (loss) $ 50,597 $ 3,274 $ (154,885) $ (101,014)
Segment assets $ 706,663 $121,554 $ 454,575 $1,282,792
Expenditures for
segment assets $ 145,857 $ 30,632 $ 354,606 $ 531,095
Security
1998 Manufacturing Services Corporate Total
- --------------------- ------------- -------- --------- ----------
Revenues $1,369,495 $ - $ - $1,369,495
Interest income $ 16,851 $ - $ - $ 16,851
Interest expense $ - $ - $ - $ -
Depreciation and
amortization $ 52,894 $ - $ - $ 52,894
Segment profit (loss) $ 38,455 $ - $ (40,044) $ (1,589)
Segment assets $ 587,375 $ - $ 196,007 $ 783,382
Expenditures for
segment assets $ 289,163 $ - $ 103,241 $ 392,404
F-18
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<PAGE>
12. Segment information (continued)
The following is a summary of revenue and asset information by
geographic location:
Long-lived
1998 Revenue Assets
--------------------------------- ---------- --------
Eastern Europe (primarily Poland) $2,708,982 $610,707
United States 120,206 38,096
---------- --------
$2,829,188 $648,803
========== ========
Long-lived
1997 Revenue Assets
--------------------------------- ---------- --------
Eastern Europe (primarily Poland) $1,369,495 $235,855
United States - -
---------- --------
$1,369,495 $235,855
========== ========
13. Subsequent events
Planned acquisitions
During March 1999, the Company entered into a letter of intent to
acquire approximately 85% of the voting common stock of Pafal, S.A., a
manufacturing company located in Warsaw, Poland. It is estimated that
the purchase price of the proposed acquisition would be approximately
38,000,000 Polish Zlotys (approximately $10,000,000 U.S. dollars).
During April 1999, the Company entered into a letter of intent to
acquire approximately 33% of the voting common stock of Metrix S.A., a
manufacturing company located in Warsaw, Poland. The purchase price is
to be negotiated.
The letters of intent are to remain in effect until October 31, 1999
but are not binding on either of the parties. The agreements are
subject to the satisfactory completion of due diligence and the
negotiation of definitive purchase agreements.
Sale of security division
Effective March 31, 1999, the Company sold its security division
to Suncrest Health and Safety Corp., a wholly-owned subsidiary of
Suncrest-Medical.com, Inc. ("Sun Med"). The controlling stockholders
of Sun Med also have a controlling interest in Suncrest Management
Services, S.A. (Note 9) which is a significant shareholder of the
Company. The security division was sold for $75,000, of which $30,000
was paid at the time of the closing. The balance of the obligation is
receivable within one year, including interest on the outstanding
principal balance at 8%. The note is secured by the assets of the
security division.
F-19
34
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
In January 1999, the Company filed a Form 8-K, advising of the change in
independent certified accountants, changing from Kerber, Eck & Braeckel LLP. to
Horton & Company, L.L.C., who have audited the Company's financial statements
appearing elsewhere in this report. There were no disagreements with Kerber, Eck
& Braeckel LLP on accounting and/or financial disclosure.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT.
Directors are elected for one-year terms or until the next annual meeting
of shareholders and until their successors are duly elected and qualified.
Officers continue in office at the pleasure of the Board of Directors.
The Directors and Officers of the Company as of the date of this report are
as follows:
Name Age Position
- ---------------------- --- -------------------------
Michael Wexler 52 Chairman, President and
Chief Executive Officer
Dr. Mark Scibor-Rylski 51 Vice President and Director
Max T. Jackson 65 Director
Stephen A. Rosenburgh 48 Director
All Directors of the Company will hold office until the next annual meeting
of the shareholders and until successors have been elected and qualified.
Officers of the Company are elected by the Board of Directors and hold office
until their death or until they resign or are removed from office.
There are no family relationships among the officers and directors. There
is no arrangement or understanding between the Company (or any of its directors
or officers) and any other person pursuant to which such person was or is to be
selected as a director or officer.
(b) Resumes:
Michael Wexler assumed the positions of Chairman of the Board, President
and CEO upon closing of the acquisition of NPS in November 1998. Prior, since
January 1997, he has served as
35
<PAGE>
President and Chief Executive Officer and a director of Naidger Power Systems,
Inc., as well as its wholly owned subsidiary company, Polcorp Industries, Inc.
In addition, since 1993 Mr. Wexler as been President and a director of VMS Rehab
Systems, Inc., (f/k/a Viva Medical Sciences, Inc.) a privately held corporation
which supplies durable medical products. Further, since 1991 he has been
President and a director of Suncrest Management Services, Inc., a family owned
holding company which provides a range of corporate finance activities and
engages in direct investments in strategic and/or synergistic situations. Mr.
Wexler devotes approximately 75% of his time to the business of the Company.
Mark Scibor-Rylski assumed the positions of Vice President and a director
of the Company upon closing of the acquisition of NPS in November 1998. In
addition to his positions with the Company, from September 1995 through January
1998, Mr. Scibor-Rylski has been a director of Hevelius Management Spzoo, the
fund management subsidiary of UNP Holdings, which manages a net asset value in
excess of $200 million. Prior, from September 1992 through March 1998, Mr.
Scibor-Rylski was senior vice president and CFO of International UNP Holdings
Ltd., a Canadian industrial holding company based in London and Warsaw which
invested $45 million in emerging markets and which is listed on the Toronto
Stock Exchange. Further, in 1989, Mr. Scibor-Rylski founded and since that date
has been a director of Due Diligence Services, Ltd., a London based private
company which provides investment investigation services to professional
investors and corporate clients. In 1969, Mr. Scibor- Rylski received a Bachelor
of Science degree from Imperial College of Science and Technology. Thereafter,
in 1973, he received a PhD from City University, London and in 1985, he received
a masters degree from the London Business School. Mr. Scibor-Rylski devotes
approximately 40% of his time to the business of the Company.
Max T. Jackson retained his position as a director of the Company upon the
NPS acquisition in November 1998. Prior, he was the President and Director of
the Company since its inception in 1974. For thirteen years prior to that, he
was a stockbroker, partner and officer of a large national investment banking
and brokerage firm. Mr. Jackson graduated from the University of Missouri in
1955 with a B.S. degree in Business Administration. Since 1979, he has held the
status of a Certified Protection Professional (C.P.P.) as awarded by the
American Society for Industrial Security. Mr. Jackson devotes approximately 25%
of his time to the business of the Company.
Stephen A. Rosenburgh was appointed as a director of the Company in May
1999. In addition to his position with the Company, since June 1998, Mr.
Rosenburgh has been President of Asset Corporation of the South, LLC, a North
Carolina limited liability company based in Charlotte, North Carolina and
engaged in real estate and development stage company investments. Prior, from
February 1996 through June 1998, Mr. Rosenburgh was Chairman of
36
<PAGE>
Enterprise Development International, Inc., a non-profit District of Columbia
corporation located in Fairfax, Virginia, and which was engaged in assisting the
poor in start up business opportunities. In January 1996, Mr. Rosenburgh
retired. From August 1993 through December 1995, Mr. Rosenburgh was President of
Jordan Homes, Inc., a privately held North Carolina corporation located in
Charlotte, North Carolina, which was engaged in real estate development. Mr.
Rosenburgh received a Bachelor of Arts degree in 1973 from Laurentian
University, a Masters degree in 1975 from Carleton University and a post
graduate degree in public administration in 1974, also from Carleton University.
Mr. Rosenburgh devotes approximately 10-20% of his time to the business of the
Company.
During 1998, the Company was a party to a service agreement with Suncrest
Management Services S.A. ("Suncrest"), a company incorporated in Nevis, West
Indies. Suncrest is also a significant shareholder of the Company. The service
agreement between Polcorp and Suncrest was terminated by mutual consent
effective October 31, 1998. A second agreement was then executed between the
Company and Suncrest, whereby Suncrest provides a variety of management and
consulting services for a five year period ending April 30, 2002. The Company
pays a service fee of approximately $8,500 per month, payable in advance on the
first day of each month during the initial 12 month period of the agreement.
During each subsequent year, the monthly service fee is increased by 10% over
the previous year. In addition, Suncrest is also reimbursed for reasonable costs
and expenses incurred in conjunction with its Company related activities.
Suncrest also is entitled to receive an annual bonus equal to the greater of 5%
of net profits or 3% of gross sales, provided that an approved annual budget is
met or exceeded. Otherwise, a bonus is only paid at the discretion of the
Company. Service fees under these agreement were $251,300 and $83,000, plus
expenses of $127,283 and $22,869 for the fiscal years ended December 31, 1998
and 1997, respectively. The agreement may be terminated by six months notice. In
the event the agreement is terminated by the Company for any reason, Suncrest
shall be entitled to receive a lump sum termination payment equal to all service
fees for the unexpired term of the agreement, plus all bonuses as a result of
past services and all outstanding out-of-pocket expenses. Mr. Wexler, an
officer, director and principal shareholder of the Company, also holds similar
positions with Suncrest. See "Part III, Item 9, Directors, Executive Officer,
Promoters and Control Persons - Resumes" above.
The accounts of the Company include $50,000 of fees and expenses incurred
to directors of the Company in connection with the acquisition of MML and MTL.
Such fees and expenses were satisfied through the issuance of 200,000 shares of
Naidger to these persons prior to the transaction described under Part I, Item
I, Description of Business, above.
37
<PAGE>
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers, directors and persons who own more than 10% of the Company's Common
Stock to file reports of ownership and changes in ownership with the Securities
and Exchange Commission. All of the aforesaid persons are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms they
file.
There were no changes in the securities holdings of any officer, director
or principal shareholder.
ITEM 10. EXECUTIVE COMPENSATION.
Remuneration
The following table reflects all forms of compensation for services to the
Company for the years ended December 31, 1998 and 1997 of the then chief
executive officer of the Company.
SUMMARY COMPENSATION TABLE
Long Term Compensation
----------------------------
Annual Compensation Awards Payouts
--------------------- -------------------- -------
Securities
Other Under- All
Name Annual Restricted lying Other
and Compen- Stock Options/ LTIP Compen-
Principal Salary Bonus sation Award(s) SARs Payouts sation
Position Year ($) ($) ($) ($) (#) ($) ($)
- ---------- ---- ------- ----- ------ -------- ------- ------- ------
Michael Wexler
President & 1998 $251,300 0 0 0 0 0 0
Director(1)(2)
Max Jackson(1)
1997 $ 24,726 0 0 0 0 0 0
- -------------------------
(1) Mr. Jackson resigned his position as President of the Company in
November 1998. On that date, Mr. Wexler assumed the position as
President.
(2) Mr. Wexler is not paid a salary by the Company. However, Mr. Wexler is
the principal shareholder, officer and director of Suncrest Management
Services, S.A., which has an agreement with the Company to provide
management services. See "Part III, Item 9, Directors, Executive
Officers, Promoters and
38
<PAGE>
Control Persons" above, and "Part III, Item 12, Certain Relationships
and Related Transactions" below, for a detailed description of the
obligations of the Company to Suncrest pursuant to the aforesaid
management agreement. There are no other employment or management
agreements between the Company and any other person or entity.
The Company has established a policy whereby the officers and directors of
the Company may be compensated for out of pocket expenses incurred by each of
them in the performance of their relevant duties. This policy was adopted
subsequent to the Naidger transaction described above and other than as
disclosed above herein, there was no reimbursement of expenses to management
during the fiscal year ended December 31, 1998.
STOCK PLANS
In July, 1999, the Company's Board of Directors adopted a stock option
plan, reserving up to 2,000,000 shares of common stock for issuance thereunder.
As of the date of this report, the shareholders of the Company have not approved
the plan, nor have any options been granted thereunder. There are no other bonus
or incentive plans in effect, nor are there any understandings in place
concerning additional compensation to the Company's officers.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
(a) and (b) Security Ownership of Certain Beneficial Owners and Management.
The table below lists the beneficial ownership of the Company's voting
securities by each person known by the Company to be the beneficial owner of
more than 5% of such securities, as well as by all directors and officers of the
Company, as of the date of this report. Unless otherwise indicated, the
shareholders listed possess sole voting and investment power with respect to the
shares shown.
Name and Amount and
Address of Nature of
Title of Beneficial Beneficial Percent of
Class Owner(1) Ownership Class
- -----------------------------------------------------------------
Common Michael Wexler(2) 4,863,095 46.1%
23 Wilton Crescent
Ottawa, Ontario
Canada K1S 4P2
39
<PAGE>
Name and Amount and
Address of Nature of
Title of Beneficial Beneficial Percent of
Class Owner(1) Ownership Class
- -----------------------------------------------------------------
Common Dr. Mark Scibor-Rylski(2) 344,029 3.3%
12 Barklay Road
Fulham, London
England SW6 1EH
Common Max T. Jackson(2) 1,166,908 11.1%
225 E. Kirkham Road
St. Louis, MO 63119
Common Harold Paumgarten 825,670 7.8%
3700 Lexington Ave.
Suite 405
New York, NY 10174
Common All Officers and
Directors as a Group
(3 persons) 6,374,032 60.4%
(1) The information relating to beneficial ownership of the Company's
Common Stock by its nominees and other directors is based on
information furnished by them using the definition of "beneficial
ownership" set forth in rules promulgated by the Securities and
Exchange Commission under Section 13(d) of the Securities Exchange Act
of 1934. Except where there may be special relationships with other
persons, including shares voting or investment power (as indicated in
other footnotes to this table), the directors and nominees possess sole
voting and investment power with respect to the shares set forth beside
their names.
(2) Officer and/or director of the Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company is party to a service agreement with Suncrest Management
Services S.A. ("Suncrest"), a company incorporated in Nevis, West Indies.
Pursuant to the agreement, Suncrest provides a variety of management and
consulting services. In consideration therefor and during the fiscal year ended
December 31, 1998, the Company paid a service fee of approximately $8,500 per
month, payable in advance on the first day of each month. During each subsequent
year, the monthly service fee is increased by 10% over the previous year. In
addition, Suncrest is also reimbursed for reasonable costs and expenses incurred
in conjunction with its
40
<PAGE>
Company related activities. Suncrest also is entitled to receive an annual bonus
equal to the greater of 5% of net profits or 3% of gross sales, provided that an
approved annual budget is met or exceeded. Otherwise, a bonus is only paid at
the discretion of the Company. Service fees under these agreements were $251,300
and $83,000, plus expenses of $127,283 and $22,869 for the fiscal years ended
December 31, 1998 and 1997, respectively. Mr. Wexler, an officer, director and
principal shareholder of the Company, also holds similar positions with
Suncrest. See "Part III, Item 9, Directors, Executive Officers, Promoters and
Control Persons" above.
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 1998, the Company entered into an agreement with Dr. Scibor-Rylski, an
officer, director and shareholder, whereby he is to provide the Company with
consulting services in connection with planned acquisitions. The agreement is
effective through June 30, 2001, and will remain in force on a month-to-month
basis thereafter for a period of 12 months. Such agreement may be terminated by
the Company upon six months notice. Compensation for such services totalled
$30,000 for the year ended December 31, 1998. The agreement provides that
compensation of $114,000 and $84,000 is to be paid in 1999 and 2000,
respectively.
During 1998, Naidger issued 1,798,500 shares of its common stock to
Suncrest in payment for its services, as well as $449,625 of costs which
Suncrest had paid on behalf of Naidger. In addition, Naidger issued 718,000
shares of its common stock to Mr. Wexler in satisfaction of $179,500 of loans
which he had advanced, and 200,000 shares of its common stock to a director in
satisfaction of $50,000 in fees and expenses incurred with the acquisition of
the Metrix companies. In each instance, the stock was valued at the estimated
fair value of $.25 per share at the date of issuance. Each of the Naidger
shareholders subsequently became shareholders of the Company in accordance with
the "reverse merger" between the Company and Naidger discussed in Part I, Item
1, Description of Business, above.
Naidger acquired Polcorp in August 1998 in exchange for issuance of
1,500,000 of its common voting stock. Prior to this transaction, Naidger and
Polcorp had common control and ownership interest. As a result of the
transactions described hereinabove, some of the principals of those entities are
control persons of the Company as of the date of this report. See "Part III,
Item 9, Directors, Executive Officers, Promoters and Control Persons" above.
41
<PAGE>
There have been no other related party transactions, or any other
transactions or relationships required to be disclosed pursuant to Item 404 of
Regulation S-B.
PART IV
Item 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
2.0 Agreement between the Company and Naidger Power Systems, Inc.**
3.1 Certificate and Articles of Incorporation*
3.2 Amendment to Articles of Incorporation
3.3 Amendment to Articles of Incorporation
3.3 Bylaws*
27 Financial Data Schedule
* Filed with the Securities and Exchange Commission in the Exhibits to Form
10-SB, filed in January 1995 and are incorporated by reference herein.
** Filed with the Securities and Exchange Commission in the Exhibits to Form 8-K
dated November 23, 1998, and incorporated herein by reference.
(b) Reports on Form 8-K
In the last fiscal quarter of the fiscal year ended December 31, 1998, the
Company filed one report on Form 8-K dated November 23, 1998, advising of the
closing of the Naidger acquisition and applicable change in the Company's name
and change in control. The contents of this Form 8-K are incorporated into this
report as if set forth.
42
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Company caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on September 1, 1999.
NPS INTERNATIONAL CORPORATION
(Registrant)
By:/s/ Michael Wexler
-----------------------------------
Michael Wexler, President
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities
indicated on September 1, 1999.
/s/ Michael Wexler
-----------------------------------
Michael Wexler, Director
/s/ Dr. Mark Scibor-Rylski
-----------------------------------
Dr. Mark Scibor-Rylski, Director
/s/ Max T. Jackson
-----------------------------------
Max T. Jackson, Director
-----------------------------------
Stephen A. Rosenburgh
43
<PAGE>
NPS INTERNATIONAL CORPORATION
EXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-KSB
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
EXHIBITS Page No.
2.0 Plan of Reorganization between the Company
and Naidger Power Systems, Inc. **
3.1 Certificate and Articles of Incorporation *
3.2 Bylaws *
3.3 Amendment to Articles of Incorporation 45
3.4 Amendment to Articles of Incorporation 46
27 Financial Data Schedule 49
* Filed with the Securities and Exchange Commission in the Exhibits to Form
10-SB, filed in January 1995 and are incorporated by reference herein.
** Filed with the Securities and Exchange Commission in the Exhibits to Form 8-K
dated November 23, 1998 and incorporated herein by reference.
44
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 12:00 PM 12/03/1998
981465876 - 0667207
STATE of DELAWARE
CERTIFICATE of AMENDMENT of
CERTIFICATE of INCORPORATION
First: That at a meeting of the Board of Directors of NATIONAL INDUSTRIAL
SECURITY CORPORATION resolutions were duly adopted setting forth a proposed
amendment of the Certificate of Incorporation of said corporation,
declaring said amendment to be advisable and calling a meeting of the
stockholders of said corporation for consideration thereof. The resolution
setting forth the proposed amendment as follows: Resolved, that the
Certificate of Incorporation of this corporation be amended by changing the
Article thereof numbered "FIRST" so that, as amended, said Article shall be
and read as follows:
FIRST: The name of the Corporation (which is hereinafter
referred to as Corporation) is NPS INTERNATIONAL CORPORATION.
Second: That thereafter, pursuant to resolution of its Board of Directors, a
special meeting of the stockholders of said corporation was duly called and
held, upon notice in accordance with Section 222 of the General Corporation
Law of the State of Delaware at which meeting the necessary number of
shares as required by statute were voted in favor of the amendment.
Third: That said amendment was duly adopted in accordance with the provisions of
Section 242 of the General Corporation Law of the State of Delaware.
Fourth: That the capital of said corporation shall not be reduced under or by
reason of said amendment.
In Witness Whereof, said National Industrial Security Corporation has caused
this certificate to be signed by Michael Wexler , an Authorized Officer,
this 6th day of November , A.D. 19 98 .
--- -------- -----
By: s/Michael Wexler
-------------------------
(Authorized Officer)
Name: Michael Wexler
-----------------------
(Typed or Printed)
45
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
NPS INTERNATIONAL CORPORATION
FIRST: That at a meeting of the Board of Directors of NPS International
Corporation resolutions were duly adopted setting forth a proposed amendment to
the Certificate of Incorporation of said corporation, declaring said amendment
to be advisable and calling for the presentation of said amendment to the
shareholders of said corporation for consideration thereof. The resolution
setting forth the proposed amendment is as follows:
RESOLVED, that the Certificate of Incorporation of this corporation be
amended by changing the Article thereof numbered "FOURTH" so that, as
amended, said Article shall be read as follows:
The amount of the total authorized capital stock of the
corporation shall be sixty million (60,000,000) shares divided
into fifty million (50,000,000) shares of Common Stock,
$0.0001 par value each, and ten million (10,000,000) shares of
Preferred Stock, $0.001 par value each, and the designations,
preferences, limitations and relative rights of the shares of
each such class are as follows:
A. Preferred Shares
The corporation may divide and issue the Preferred
Shares into series. Preferred Shares of each series, when
issued, shall be designated to distinguish it from the shares
of all other series of the class of Preferred Shares. The
Board of Directors is hereby expressly vested with authority
to fix and determine the relative rights and preferences of
the shares of any such series so established to the fullest
extent permitted by these Articles of Incorporation and
General Corporation Law of the State of Delaware in respect to
the following:
(a) The number of shares to constitute such
series, and the distinctive designations thereof;
(b) The rate and preference of dividend, if any, the
time of payment of dividend, whether dividends are cumulative
and the date from which any dividend shall accrue;
(c) Whether the shares may be redeemed and,
if so, the redemption price and the terms and
conditions of redemption;
46
<PAGE>
(d) The amount payable upon shares in the
event of involuntarily liquidation;
(e) The amount payable upon shares in the
event of voluntary liquidation;
(f) Sinking fund or other provisions, if
any, for the redemption or purchase of shares;
(g) The terms and conditions on which
shares may be converted, if the shares of any
series are issued with the privilege of conversion;
(h) Voting powers, if any; and
(i) Any other relative rights and preferences of
shares of such series, including, without limitation, any
restriction on an increase in the number of shares of any
series theretofore authorized and any limitation or
restriction of rights or powers to which shares of any further
series shall be subject.
B. Common Shares
(a) The rights of holders of the Common Shares to
receive dividends or share in the distribution of assets in
the event of liquidation, dissolution or winding up of the
affairs of the Corporation shall be subject to the
preferences, limitations and relative rights of the Preferred
Shares fixed in the resolution or resolutions which may be
adopted from time to time by the Board of Directors of the
corporation providing for the issuance of one or more series
of the Preferred Shares.
(b) The holders of the Common Shares shall be
entitled to one vote for each share of Common Shares held by
them of record at the time for determining the holders thereof
entitled to vote.
SECOND: That thereafter, pursuant to resolution of its Board of
Directors, and by written consent of a majority of the shareholders in
accordance with Section 228 of the General Corporation Law of the State of
Delaware, the necessary number of shares as required by statute approved the
amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
FOURTH: That the capital of said corporation shall not be reduced
under or by reason of said amendments.
47
<PAGE>
IN WITNESS WHEREOF, said NPS International Corporation has caused this
Certificate to be signed by Michael Wexler, an Authorized Officer, this 24th day
of June , 1999.
NPS INTERNATIONAL CORPORATION
By s/Michael Wexler
---------------------------
Michael Wexler, President
48
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 217,535
<SECURITIES> 0
<RECEIVABLES> 246,063
<ALLOWANCES> 0
<INVENTORY> 155,281
<CURRENT-ASSETS> 633,989
<PP&E> 360,514
<DEPRECIATION> (196,177)
<TOTAL-ASSETS> 1,282,792
<CURRENT-LIABILITIES> 761,987
<BONDS> 304,182
0
0
<COMMON> 1,033
<OTHER-SE> 422,740
<TOTAL-LIABILITY-AND-EQUITY> 1,282,792
<SALES> 2,708,982
<TOTAL-REVENUES> 2,829,188
<CGS> 2,487,751
<TOTAL-COSTS> 2,580,570
<OTHER-EXPENSES> 349,632
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 49,057
<INCOME-PRETAX> (101,014)
<INCOME-TAX> 0
<INCOME-CONTINUING> (101,014)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (101,014)
<EPS-BASIC> (.02)
<EPS-DILUTED> (.02)
</TABLE>
