U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Quarterly Report Under
the Securities Exchange Act of 1934
For Quarter Ended: March 31, 1999
Commission File Number: 0-25388
NPS INTERNATIONAL CORPORATION
-----------------------------
(Exact name of small business issuer as specified in its charter)
Delaware
--------
(State or other jurisdiction of incorporation or organization)
86-0214815
----------
(IRS Employer Identification No.)
812 Proctor Ave.
Ogdensburg, N.Y.
----------------
(Address of principal executive offices)
13669
-----
(Zip Code)
(315) 393-3793
--------------
(Issuer's Telephone Number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days: Yes
X No .
- ----- -----
The number of shares of the registrant's only class of common stock issued and
outstanding, as of October 7, 1999 was 10,566,403 common shares.
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS.
The unaudited financial statements for the three month period ended
March 31, 1999, are attached hereto.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Company's unaudited financial statements and notes thereto included herein. In
connection with, and because it desires to take advantage of, the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995, the Company
cautions readers regarding certain forward looking statements in the following
discussion and elsewhere in this report and in any other statement made by, or
on the behalf of the Company, whether or not in future filings with the
Securities and Exchange Commission. Forward looking statements are statements
not based on historical information and which relate to future operations,
strategies, financial results or other developments. Forward looking statements
are necessarily based upon estimates and assumptions that are inherently subject
to significant business, economic and competitive uncertainties and
contingencies, many of which are beyond the Company's control and many of which,
with respect to future business decisions, are subject to change. These
uncertainties and contingencies can affect actual results and could cause actual
results to differ materially from those expressed in any forward looking
statements made by, or on behalf of, the Company. The Company disclaims any
obligation to update forward looking statements.
OVERVIEW
In November 1998, the Company acquired all of the issued and
outstanding securities of Naidger Power Systems, Inc. ("Naidger"), which
resulted in a significant change in the Company's principal business, from a
security guard business to a holding company whose subsidiaries are engaged in
the production of metal parts and sub-assemblies, primarily the gas meter, white
goods and auto parts sector, as well as the design and production of tools,
injection molds, dies and assembly jigs for use in the production of gas meters,
white goods, auto parts and telecommunication equipment. Naidger was a holding
company which acquired Polcorp Industries, Inc. ("Polcorp"), a New York based
holding company which has two operating subsidiaries, including Metrix Metal,
L.L.C. ("MML") and Metrix Tools, L.L.C. ("MTL"), each located in Tczew, Poland.
MML is engaged in the production of metal parts and sub-assemblies, primarily
the gas meter, white goods and auto parts sector, which products are marketed in
central and eastern Europe. MTL is engaged in the design and production of
tools, injection molds,
2
<PAGE>
dies and assembly jigs for use in the production of gas meters, white goods,
auto parts and telecommunication equipment. This company's business is also
based primarily in central and eastern Europe. As a result, management is
presenting the following discussion as if the Company had acquired and operated
the aforesaid businesses for the previous two year periods, in order to provide
a better analysis of the Company's current and prior results of operations.
The following information is intended to highlight developments in the
Company's operations to present the results of operations of the Company, to
identify key trends affecting the Company's businesses and to identify other
factors affecting the Company's results of operations for the three month
periods ended March 31, 1999 and 1998.
RESULTS OF OPERATIONS
Comparison of Results of Operations for the Three Month Periods Ended
March 31, 1999 and 1998
During the three month period ended March 31, 1999, the Company's
revenues decreased slightly, as it generated revenues of $628,188, compared to
revenues of $652,724 for the similar period in 1998, a decrease of $24,536 (4%).
This decrease in revenues was attributable to a 12% increase in revenues as
reported in zlotys (the local currency in Poland), and a decrease of 16%
resulting from a change in the exchange rate from 3.4 zlotys per dollar at March
31, 1998 to 4.0 zlotys per dollar at March 31, 1999. In the three month period
ended March 31, 1999, costs of sales decreased 8%, to $516,429, compared to
$563,190 for the similar period in 1998, a decrease of $46,761. This was due
primarily to a 7% increase in costs of sales as reported in zlotys, and the
aforesaid decrease in the exchange rate. Operating expenses were $356,684 for
the three months ended March 31, 1999, compared to $84,090 for the similar
period in 1998, an increase of $272,594 (324%). This increase came about due
primarily to increases in selling and administrative expenses and increases in
interest expense. Significant increases include public relations ($94,241),
management fees ($32,025), and professional fees ($82,061). All of these
increases were the result of the requirements of operating as a public entity
and of costs incurred to investigate and evaluate prospective acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal business, production of metal parts and tools,
is a capital intensive operation which requires periodic capital expenditures to
replace or upgrade manufacturing equipment as well as expenditures to maintain
existing equipment. To date, such expenditures have been principally financed by
cash flows from operations of the Company's operating subsidiaries. Significant
3
<PAGE>
expenditures of the parent company include the servicing of debt related to the
acquisition of the Metrix Companies and ongoing general and administrative costs
incurred in connection with public reporting requirements and in investigating
new potential acquisition candidates in accordance with the Company's continuing
expansion plans. To date, such expenditures have been financed by equity capital
contributions and related party loans. These capital contributions and loans
have been adequate to permit the Company to carry on operations to date.
However, it will be necessary to finance operations over the coming year with
additional funds raised through the issuance of debt or equity securities. This
issue is addressed below.
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 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, and subsequent
thereto during the negotiations to acquire Metrix, S.A. as more fully described
in the Company's Form 10-KSB for the fiscal year ended December 31, 1998,
previously filed with the Securities and Exchange Commission. While the Company
is technically in default of its obligations under the notes because it did not
make the required payment, the Company has not received any notice of default.
The principal balance due on these notes as of March 31, 1999 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.
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
4
<PAGE>
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.
The Company's entry into the proprietary gas and electricity metering
business is scheduled for the fourth quarter of calendar year 1999, presuming
that the proposed acquisitions of PAFAL SA and Metrix, SA, both major suppliers
of metering devices to the utility sector in Poland, are successfully
consummated, of which there can be no assurance. PAFAL is a manufacturer of
electricity meters with an annual turnover of $35,000,000 and a 83% market
share, while Metrix is a producer of gas meters with an annual turnover of
$15,000,000 and a 40% share of residential meters and a large majority share of
the industrial market in Poland.
While no assurances can be provided, it is anticipated that the
domestic market in Poland for electricity meters will exceed a 10% growth rate
over the next 12 months as a result of both new technological enhancements to
existing products and new and/or refurbished installations. Coupled with its
strong domestic position, PAFAL anticipates that strong potential gains in sales
and profitability lie in burgeoning international markets for its metering
technologies.
While domestic gas meter sales in Poland have remained stable over the
past year, Metrix, SA has recently completed the development cycle for a new
generation of plastic injection molded meters which will eventually replace its
G4 series of domestic
5
<PAGE>
meters. The new meters are smaller in size and less costly than existing metal
framed meters and are well suited for growth in the domestic market, not only in
Poland, but in numerous international markets. Management also sees growth in
the gas meter business as a result of (1) recent substantial price increases in
Poland in alternate energy sources; (2) a reduction in the mandatory inspection
period from 30 to 15 years; (3) a trend to individual metered premises; (4) the
growth in residential construction; (5) substantial refurbishment and/or new
construction of industrial sites; and (6) export markets encouraged by a growing
requirement in international markets to monitor costs and increase gas revenues.
INFLATION
Although the operations of the Company are influenced by general
economic conditions, the Company does not believe that inflation had a material
effect on the results of operations during the three month period ended March
31, 1999.
YEAR 2000 DISCLOSURE
Many existing computer programs use only two digits to identify a year
in the date field. These programs were designed and developed without
considering the impact of the upcoming change in the century. If not corrected,
many computer applications could fail or create erroneous results by or at the
Year 2000. As a result, many companies will be required to undertake major
projects to address the Year 2000 issue. Relevant to the Company's computers,
management has retained outside consultants to review potential Y2K problems. As
a result, the Company will need to replace the server, net software, streamer
and adjustment of current software. Management does not believe that the costs
of undertaking these actions will be material to the financial condition of the
Company, as it is anticipated that the total cost of causing the Company to
become Y2K compliant will be PLZ 15,000 ($4,000 US).
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS - NONE
ITEM 2. CHANGES IN SECURITIES - NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
ITEM 5. OTHER INFORMATION - None
6
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K -
(a) Exhibits
EX-27 Financial Data Schedule
(b) Reports on Form 8-K
In March 1999, the Company filed two amendments to previously
filed Form 8-K Reports, which amendments were intended to reflect changes in the
letter of resignation submitted by the Company's former independent accountants,
as well as inclusion of audited financial statements of Naidger Power Systems,
Inc. pursuant to the reverse merger between the Company and Naidger which
occurred in the last calendar quarter of 1998.
7
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
NPS INTERNATIONAL CORPORATION
(Registrant)
Dated: October 7, 1999
By: s/Michael Wexler
------------------------------------
Michael Wexler, President
8
<PAGE>
<TABLE>
NPS INTERNATIONAL CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<CAPTION>
(Unaudited)
March 31, December 31,
1999 1998
------------- ------------
<S> <C> <C>
Current assets:
Cash $ 179,035 $ 217,535
Accounts receivable 201,267 246,063
Prepaid expenses 16,971 15,110
Inventories 168,345 155,281
Due from affiliate 50,000 -
------------- ------------
Total current assets 615,618 633,989
Property and equipment, net 136,704 164,337
------------- ------------
Other assets:
Goodwill, net 386,073 429,398
Deferred charges and other 108,387 55,068
------------- ------------
494,460 484,466
------------- ------------
$ 1,246,782 $ 1,282,792
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt
from business combination $ 265,799 $ 207,150
Accounts payable and accrued expenses 401,684 279,414
Accrued taxes 53,544 92,780
Customer deposits - 72,888
Due to affiliate 87,127 21,627
Notes payable - director 90,606 80,606
Payable under service agreement 7,522 7,522
------------- ------------
Total current liabilities 906,282 761,987
Long-term debt from business combination,
net of current portion - 97,032
------------- ------------
906,282 859,019
Stockholders' equity:
Common stock, $.0001 par value,
50,000,000 shares authorized;
10,566,403 shares outstanding in 1999 1,057
10,331,394 shares outstanding in 1998 1,033
Additional paid-in capital 662,534 521,558
Accumulated deficit (314,391) (102,603)
Accumulated other comprehensive (loss) income (8,700) 3,785
------------- ------------
340,500 423,773
------------- ------------
$ 1,246,782 $ 1,282,792
============= ============
</TABLE>
9
<PAGE>
<TABLE>
NPS INTERNATIONAL CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
(Unaudited)
Three-month periods ended
March 31,
1999 1998
----------- -----------
<S> <C> <C>
Revenues $ 628,188 $ 652,724
Direct costs 516,429 563,190
Gross profit 111,759 89,534
----------- -----------
Operating expenses (income):
Selling and administrative 321,274 84,073
Amortization 10,435 -
Interest expense 18,400 -
Interest income (3,540) (5,826)
Gain on sale of assets - (4,162)
Foreign taxes 10,115 10,005
----------- -----------
356,684 84,090
----------- -----------
(Loss) income from continuing operations (244,925) 5,444
----------- -----------
Discontinued operations:
Income from divested operations 6,650 -
Gain on disposal of divested operations 26,487 -
----------- -----------
33,137 -
----------- -----------
Net (loss) income $ (211,788) $ 5,444
=========== ===========
Loss per share $ (0.02) $ 0.00
=========== ===========
Weighted average shares outstanding 10,448,894 5,179,205
=========== ===========
</TABLE>
10
<PAGE>
<TABLE>
NPS INTERNATIONAL CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
(Unaudited)
Three-month periods ended
March 31,
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (211,788) $ 5,444
----------- -----------
Adjustments to reconcile net (loss) income
to net cash used in operating
activities:
Depreciation and amortization 33,224 11,163
Non-cash expenses of divested operations 453 -
Expenses paid through issuance
of common stock 141,000 -
Gain on sale of assets - (4,162)
Gain on sale of divested operations (26,487) -
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (33,829) (98,566)
(Increase) decrease in prepaid expenses (12,815) (16,048)
(Increase) decrease in inventory (13,064) (38,415)
Increase (decrease) in accounts payable
and accrued expenses 164,549 87,192
Increase (decrease) in accrued taxes (32,806) 3,935
Increase (decrease) in customer deposits (72,888) -
Increase (decrease) in payable under
service agreement - 36,343
----------- -----------
Total adjustments 147,337 (18,558)
----------- -----------
Net cash used in operating activities (64,451) (13,114)
----------- -----------
Cash flows from investing activities:
Sale of short-term investment - 11,640
Capital expenditures (46,024) (9,491)
Proceeds from sale of assets - 4,162
Goodwill and deferred charges (28,525) (19,092)
Loans to affiliate (5,000) (22,715)
Proceeds from note receivable of divested segment 30,000 -
----------- -----------
Net cash used in investing activities (49,549) (35,496)
----------- -----------
Cash flows from financing activities:
Loans from affiliate 65,500 -
Principal payments on loan obligations - 3,579
Repayment of note payable - director 10,000 -
Proceeds from issuance of common stock - 15,590
Costs incurred in connection with
issuance of common stock - (18,259)
----------- -----------
Net cash provided by financing activities 75,500 910
----------- -----------
Net increase (decrease) in cash (38,500) (47,700)
Cash balance at beginning of period 217,535 116,908
----------- -----------
Cash balance at end of period $ 179,035 $ 69,208
=========== ===========
</TABLE>
11
<PAGE>
NPS INTERNATIONAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999
(unaudited)
1. Unaudited interim financial statements
The accompanying unaudited financial statements have been prepared in
accordance with the instructions for Form 10-QSB and do not include all
of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion
of management, all adjustments, consisting only of normal recurring
adjustments considered necessary for a fair presentation, have been
included. Operating results for any quarter are not necessarily
indicative of the results for any other quarter or for the full year.
These statements should be read in conjunction with the financial
statements of NPS International Corporation formerly (National Industry
Security Corporation) and notes thereto included in the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1998.
2. Divested operations
Effective March 31, 1999, the Company disposed of its security division
which conducted business under the name of National Industrial Security
Corporation ("NISCO"). The results of NISCO have been reported
separately as a divestiture in the consolidated statements of
operations.
Assets and liabilities of NISCO which were divested consisted of the
following:
Accounts receivable $78,625
Other current assets 10,955
Intangible assets, net 7,643
Accounts payable and accrued expenses (48,710)
-------
Net assets of divested segment $48,513
=======
The operations of NISCO were acquired in a business combination on
November 7, 1998, and were included in the Company's 1998 consolidated
statement of operations for the period from the date of acquisition
through December 31, 1998.
12
<PAGE>
2. Divested operations (continued)
The following table summarizes selected financial data of the Company's
divested operations:
November 7, 1998
(date of acquisition)
Three-months ended through
March 31, 1999 December 31, 1998
-------------- -----------------
Revenues $ 166,104 $ 120,206
Expenses 159,454 119,871
-------------- -----------------
Income from divested operations $ 6,650 $ 335
============== =================
Such amounts have not been included in operating revenues or expenses
in the accompanying consolidated statements of operations.
Under the terms of the agreement, the Company sold the assets of NISCO
for a $75,000 note, thereby realizing a gain on divestiture of $26,487.
The note bears interest at the rate of 8% per annum. The balance of the
note was $45,000 at March 31, 1999.
13
<PAGE>
NPS INTERNATIONAL CORPORATION
EXHIBIT INDEX TO QUARTERLY REPORT ON FORM 10-QSB
FOR THE QUARTER ENDED MARCH 31, 1999
EXHIBITS Page No.
EX-27 Financial Data Schedule . . . . . . . . . . . . . . . . . 15
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1999,
AND IS QUALIFIED IN IT ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 179,035
<SECURITIES> 0
<RECEIVABLES> 201,267
<ALLOWANCES> 0
<INVENTORY> 163,345
<CURRENT-ASSETS> 615,618
<PP&E> 275,480
<DEPRECIATION> (138,776)
<TOTAL-ASSETS> 1,246,782
<CURRENT-LIABILITIES> 906,282
<BONDS> 265,799
0
0
<COMMON> 1,057
<OTHER-SE> 339,443
<TOTAL-LIABILITY-AND-EQUITY> 1,246,782
<SALES> 628,188
<TOTAL-REVENUES> 628,188
<CGS> 516,429
<TOTAL-COSTS> 516,429
<OTHER-EXPENSES> 356,682
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,400
<INCOME-PRETAX> (244,923)
<INCOME-TAX> 0
<INCOME-CONTINUING> (244,923)
<DISCONTINUED> 33,137
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (211,786)
<EPS-BASIC> (.02)
<EPS-DILUTED> (.02)
</TABLE>
