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, 1999
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
--- ---
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.
Issuer's revenues for its most recent fiscal year: $2,454,287.
(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 June 26, 2000: $3,008,838.
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of June 29, 2000, there were
13,386,411 shares of the Company's common stock issued and outstanding.
Documents Incorporated by Reference: None
This Form 10-KSB consists of Forty Six Pages.
Exhibit Index is located at Page Forty Five.
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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..................... 9
Item 3. Legal Proceedings........................... 10
Item 4. Submission of Matters to a Vote of
Security Holders........................ 10
PART II
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters......... 10
Item 6. Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 11
Item 7 Financial Statements........................ 16
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. Polcorp also has a third wholly owned subsidiary,
NPS Polska, L.L.C., which was incorporated in December 1999 and which has been
inactive since its formation. It was formed as a special purpose entity to
participate in the planned acquisitions of Metrix S.A. and Pafal S.A. described
below.
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
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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 were due beginning 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. While the Company is technically in default in its
obligations under the notes because it did not make the required payments, the
Company has not received any notice of default. Furthermore, there is a verbal
understanding between the parties that no action will be taken while purchase
negotiations with Metrix S.A. continue. The current balance due on these notes
as of December 31, 1999, was $228,990.
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.
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 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
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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 exclusive supply agreements with Metrix, which
agreements expire in June 2001. The agreements provide that such parts are to be
sold to Metrix S.A. at specified pricing formulas. Under the agreement, Metrix
S.A. has also agreed to make repair and maintenance services available to the
MTL and MML at specified prices. Metrix S.A. is also obligated to provide access
to utilities and the telecommunications network. Pursuant to the terms of the
agreements, MML will continue to provide metal fabrication of parts and
components for both the gas meter and white goods divisions of Metrix S.A. MTL
will provide tooling and tool regeneration services. In addition to its existing
relationship with Metrix S.A., MML expanded marketing activities of its services
to other entities during the fiscal year ended December 31, 1999.
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.
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. It is estimated that the purchase price of the
proposed acquisition would be approximately $11 million (US) (PLN 45,000,000).
Subsequent to March 1999, the Company signed several extensions of the letter of
intent, the last of which expired in February 2000. While management has
continuing interest in acquiring Pafal, it has discontinued negotiations until
it can meet certain financial conditions precedent to sign a definitive
acquisition agreement. Such agreement will be subject to satisfaction of due
diligence to be performed. There can be no assurances that this acquisition will
be consummated in the future.
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.
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 S.A. by Polcorp, representing approximate 33% interest. As of
the date of this report, the proposed purchase price is still being negotiated,
but it is estimated to be approximately $5 million (US) (20,000,000 Polish
zlotys. While the letter of intent expired in February
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2000, the Company has agreed to proceed with the acquisition and has negotiated
a schedule which provides for the signing of a definitive agreement on July 15,
2000. Such agreement will contain provisions that the Company's obligations
thereunder are subject to satisfactory completion of due diligence. There can be
no assurances that the proposed transaction will close or that any unforeseen
delay will occur.
Relevant to the proposed acquisitions of Pafal and Metrix described above,
during July 1999, the Company entered into a financial advisory agreement with
CAIB Financial Advisors, S.A. ("CAIB"), located in Warsaw, Poland. Under the
terms of the agreement, CAIB was engaged as the Company's exclusive financial
advisor to assist in the raising of approximately $25 million in debt or equity
required for the planned acquisitions of Pafal and Metrix. Fees payable to CAIB
include $25,000 for preparation of a financial model and financing strategy,
$25,000 for preparation of an information memorandum and a monthly retainer of
$7,500 payable for the months of October 1999 through March 2000. In addition,
CAIB is entitled to a success fee of 1.25% of total debt financing raised or
$150,000, whichever is greater, and a fee of 2% to 3% of total equity investment
raised.
In addition, in October 1999, the Company entered into an agreement with an
individual to provide financial advisory services in connection with the
proposed financings of the planned acquisitions of Pafal and Metrix. Under the
terms of the agreement, the individual is to be paid a $3,000 monthly retainer
for three months and reasonable expenses, plus 30,000 "restricted" shares of the
Company's common stock. Additionally, the individual is entitled to a success
fee equal to 3% of equity capital raised as a result of the individual's
introduction of funding sources, if such funding is successfully consummated.
Management has recognized the Company's need to generate additional working
capital. In response to this need, in July 1999, the Company issued a total of
$175,000 of unsecured, convertible notes to two individuals. These notes were
discounted at the rate of 10% and are payable within one year from issuance. The
holders of the notes have the right to convert all or a portion of the notes
into an aggregate of 454,545 "restricted" shares of the Company's common stock
during the term of the notes. If so converted, the Company has provided the note
holders with "piggyback" registration rights for the shares subject to
conversion. As of the date of this report, the two note holders have not elected
to convert any portion to equity.
Also during 1999, the Company issued a total of 295,017 shares of its
common stock in satisfaction of $159,000 in outstanding liabilities. The stock
issued by the Company was valued at the market price of the Company's common
stock at the date of issuance. These prices were $.60 per share applicable to
235,000 shares
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issued in the first quarter of fiscal 1999 and $.30 per share applicable to
60,017 shares of common stock issued during the forth quarter of fiscal 1999.
In August 1999, the Company entered into an investor relations agreement
with JC Connections Limited ("JC"). Under the terms of the agreement, JC is to
be paid a monthly fee of $3,000 plus expenses, during the six month term of the
agreement. JC also received 30,000 "restricted" shares of the Company's common
stock. Further, JC is to be paid a commission on any funds raised as a direct or
indirect result of introduction of investors or other financing sources to the
Company as follows: 10% for up to $1 million; 4% from $2-3 million; 3% from 3-4
million; 2% from 4-5 million and 1% over $5 million of the funds raised. As of
the date of this report, no funds have been raised on the Company's behalf by
JC.
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 approximately one hundred
sixty (160) employees, including its current President, Stephen Rosenburgh. 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 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.
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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, which have historically been
approximately $100 per month, pursuant to a verbal agreement. 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 agreement specifies a monthly lease payment of
$12,674 (US) (including 22% VAT). 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
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book value at January 1, 2000, 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, 2000. 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 material 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 material proceedings is known by
management of the Company to be contemplated.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were presented to the Company's shareholders during the last
three months ended December 31, 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
(a) Market Information. The Company's Common Stock is approved for
quotation on the National Association of Securities Dealers OTC Bulletin Board.
The table below sets forth the reported high and low bid prices for the periods
indicated. The bid prices shown reflect quotations between dealers, without
adjustment for markups, markdowns or commissions, and may not represent actual
transactions in the Company's securities. 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:
Bid Price
Quarter Ended High Low
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March 31, 1998 - -
June 30, 1998 - -
September 30, 1998 - -
December 31, 1998 $0.27 $1.00
March 31, 1999 $0.87 $0.375
June 30, 1999 $0.625 $0.45
September 30, 1999 $0.53125 $0.375
December 31, 1999 $0.375 $0.1875
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(b) Holders. There are five hundred twenty (520) 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, 2001.
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 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
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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,
1999 and 1998.
In the fiscal year ended December 31, 1999, the Company's revenues were
$2,454,287, compared to revenues of $2,708,982 generated during the fiscal year
1998, a decrease of $254,694 (9%). This was attributable to a 6% increase in
revenues as reported in zlotys (Polish local currency) and a 15% decrease as a
result of the change in the exchange rate.
During the year ended December 31, 1999, the Company's direct costs were
$2,067,241, compared to direct costs of $2,487,751 generated during the fiscal
year 1998, a decrease of $420,510 (17%). The decrease was attributable to a 3%
decrease in costs as reported in zlotys and a 14% decrease as a result of the
change in the exchange rate.
Operating expenses during the period ended December 31, 1999, were
$1,075,109, compared to $325,519 for the similar period in 1998, an increase of
$749,590 (230%). 218% ($708,699) of the increase was in selling and
administrative costs. Such increase was principally attributable to professional
and consulting expenses, primarily related to planned acquisitions and to
investor relations expenses. An increase in interest expense of approximately
$20,000, which resulted from the debt incurred to acquire the Metrix entities in
1998, as well as additional debt assumed by the Company for working capital
purposes, accounted for 6% of the increase. Amortization expense of goodwill
attributable to the Metrix acquisitions accounted for an additional 6% of the
increase. As a result, the Company generated a net loss of $(654,927) for the
year ended December 31, 1999, compared to a net loss of $(101,014) for the year
ended December 31, 1998, an increase of $(553,913).
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, the Company had $134,330 in cash and cash
equivalents. Accounts receivable at December 31, 1999, decreased from December
31, 1998, to $144,180 from $246,063, a decrease of $101,883 (41%). Cash and
receivables decreased as a result of increase in inventories ($200,855 from
$155,281), and operating losses. Funds were also provided proceeds from issuance
of convertible debt ($175,000), other loans ($135,000) and proceeds from the
sale of a divested segment ($68,600). These increases were offset by capital
expenditures ($130,441) and principal payments on loan obligations ($50,000).
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In regard to the convertible debentures issued by the Company, management
has recognized the Company's need to generate additional working capital. In
response to this need, in July 1999, the Company issued a total of $175,000 of
unsecured, convertible notes to two individuals. These notes were discounted at
the rate of 10% and are payable within one year from issuance. The holders of
the notes have the right to convert all or a portion of the notes into an
aggregate of 454,545 "restricted" shares of the Company's common stock during
the term of the notes. If so converted, the Company has provided the note
holders with "piggyback" registration rights for the shares subject to
conversion. As of the date of this report, the two note holders have not elected
to convert any portion to equity.
Also during 1999, the Company issued a total of 295,017 shares of its
common stock in satisfaction of $159,000 in outstanding liabilities. The stock
issued by the Company was valued at the market price of the Company's common
stock at the date of issuance. These prices were $.60 per share applicable to
235,000 shares issued in the first quarter of fiscal 1999 and $.30 per share
applicable to 60,017 shares of common stock issued during the forth quarter of
fiscal 1999.
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, 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 $70,092 of notes payable to a shareholder. The notes arose
from advances made by the shareholder to the Company. The notes bear interest at
prime (9.5% at December 31, 1999) plus 5.25% to 6.0% and are due May 1999
through January 2000. The notes are collateralized by the Company's accounts
receivable and property and equipment, but are subordinated to other secured
debt. Interest expense for 1999 and 1998 included $11,934 and $2,222,
respectively.
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In addition, during 1999, a former affiliate made loans of $135,000 to the
Company. This loan is unsecured, non-interest bearing and is due on demand.
Subsequently, and effective March 31, 2000, certain indebtedness owing to
Suncrest Medical Services, SA ($300,000), Phoenix Management International Ltd.
($100,000), and Naidger Capital Corporation ($152,000) were converted to equity
by the issuance of 1,500,000 shares of Common Stock, 500,000 shares of Common
Stock and 756,000 shares of Common Stock, respectively, at the market price of
the Company's Common Stock at the date of conversion, or $.02 per share.
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, 2000. 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, in particular,
from customers outside its traditional gas meter business. This is, in large
measure, predicated upon the availability of additional capital resources to
expand inventory of tool making and metal fabrication machinery and equipment at
MTL and MML. As well, the demand for infrastructure manufacturing services
continues to grow 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 continues to negotiate for the purchase of Metrix S.A. and
Pafal S.A., both major manufacturing firms servicing the gas and electricity
meter sector in Poland. PAFAL is a manufacturer of electricity meters with an
annual turnover of
14
<PAGE>
$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. While
management remains optimistic about the future growth and development of the gas
meter industry in Poland, and more importantly, that Metrix S.A. would be a
strategic acquisition for the Company, provided that it can be purchased at a
fair price, recently developments concerning the privatization of the Polish oil
and gas industry has had a slightly negative impact on Metrix business in fiscal
2000. As a result, the order book from Metrix S.A. within MML and MTL is also
reduced, forcing management to seek additional business from external customers.
This trend will most likely continue throughout the balance of fiscal 2000 and
as such, management is also looking at other business opportunities which hold
out the possibility of yielding higher revenue and profitability prospects for
the Company in the future.
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, 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 recent change in the century. If not corrected, many computer
applications were expected to fail or create erroneous results by or at the Year
2000. As a result, many companies were required to undertake major projects to
address the Year 2000 issue. The Company did not incur any material negative
impact as a result of this problem and no problems in this regard are
anticipated in the future.
15
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
16
<PAGE>
NPS INTERNATIONAL CORPORATION
AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report F-2
Consolidated balance sheets as of December 31, 1999 and 1998 F-3
Consolidated statements of operations for the years ended
December 31, 1999 and 1998 F-4
Consolidated statements of stockholders' equity (deficit) for
the years ended December 31, 1999 and 1998 F-5
Consolidated statements of cash flows for the years ended
December 31, 1999 and 1998 F-6
Notes to consolidated financial statements F-7
F-1
17
<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, 1999 and 1998, and
the related consolidated statements of operations, stockholders' equity
(deficit), and cash flows for the years then ended. 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, 1999 and 1998, and
the consolidated results of their operations and cash flows for the years then
ended, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that NPS
International Corporation will continue as a going concern. As more fully
described in Note 1, while the Company's foreign subsidiaries have continued to
operate profitably, on a consolidated basis, the Company has incurred recurring
operating losses and has a working capital deficiency. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1. The
financial statements do not include any adjustment to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classification of liabilities that may result from the outcome of this
uncertainty.
HORTON & COMPANY, L.L.C.
Wayne, New Jersey
June 15, 2000
F-2
18
<PAGE>
<TABLE>
NPS INTERNATIONAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<CAPTION>
December 31,
----------------------------
1999 1998
----------- -----------
<S> <C> <C>
Current assets:
Cash $ 134,330 $ 217,535
Accounts receivable 144,180 246,063
Prepaid expenses 17,461 15,110
Inventories 200,855 155,281
Due from affiliates 6,400 -
----------- -----------
Total current assets 503,226 633,989
----------- -----------
Property and equipment, net 147,048 164,337
----------- -----------
Other assets:
Goodwill, net 357,129 429,398
Deferred charges and other 322,282 55,068
----------- -----------
679,411 484,466
----------- -----------
$ 1,329,685 $ 1,282,792
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt from business combination $ 228,990 $ 207,150
Accounts payable and accrued expenses 522,281 284,041
Accrued taxes 58,955 92,780
Customer deposits 39,076 72,888
Loans payable 152,000 17,000
Notes payable - stockholder 70,092 80,606
Convertible debt 175,000 -
Payable under service agreement 179,393 7,522
----------- -----------
Total current liabilities 1,425,787 761,987
Long-term debt from business combination, net of current portion - 97,032
----------- -----------
1,425,787 859,019
----------- -----------
Stockholders' equity (deficit):
Common stock, $.0001 par value,
50,000,000 shares authorized;
10,331,394 shares outstanding in 1998
10,626,411 shares outstanding in 1999 1,063 1,033
Additional paid-in capital 680,528 521,558
Accumulated deficit (757,530) (102,603)
Accumulated other comprehensive income (loss) (20,163) 3,785
----------- -----------
(96,102) 423,773
----------- -----------
$ 1,329,685 $ 1,282,792
=========== ===========
See notes to consolidated financial statements
</TABLE>
F-3
19
<PAGE>
<TABLE>
NPS INTERNATIONAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Year ended December 31,
--------------------------
1999 1998
---------- ----------
<S> <C> <C>
Revenues $2,454,287 $2,708,982
Direct costs 2,067,241 2,487,751
---------- ----------
Gross profit 387,046 221,231
---------- ----------
Operating expenses (income):
Selling and administrative 963,979 255,280
Amortization 39,379 20,869
Interest expense 68,168 48,957
Interest income (12,464) (23,956)
Gain on sale of assets (1,435) (6,889)
Foreign taxes 17,482 31,258
---------- ----------
1,075,109 325,519
---------- ----------
Loss from continuing operations (688,063) (104,288)
---------- ----------
Discontinued operations:
Income from divested operations 6,649 3,274
Gain on disposal of divested operations 26,487 -
---------- ----------
33,136 3,274
---------- ----------
Net loss $ (654,927) $ (101,014)
========== ==========
Per share data:
Continuing operations $ (0.06) $ (0.02)
Discontinued operations 0.00 0.00
---------- ----------
$ (0.06) $ (0.02)
========== ==========
Historical weighted average shares outstanding 10,493,147 6,049,208
========== ==========
See notes to consolidated financial statements
</TABLE>
F-4
20
<PAGE>
<TABLE>
NPS INTERNATIONAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Years ended December 31, 1999 and 1998
<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>
Balance at January 1, 1998 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
Net loss - - - (101,014) - (101,014)
---------- ------ --------- --------- -------- ---------
Comprehensive loss $ (97,229)
=========
Balances at December 31, 1998 10,331,394 1,033 521,558 (102,603) 3,785 $ -
Shares issued in satisfaction of various liabilities 295,017 30 158,970 - - -
Other comprehensive income, net of tax:
Foreign currency translation (23,948) (23,948)
Net loss - - - (654,927) - (654,927)
---------- ------ --------- --------- -------- ---------
Comprehensive loss $(678,875)
=========
Balances at December 31, 1999 10,626,411 $1,063 $ 680,528 $(757,530) $(20,163)
========== ====== ========= ========= ========
See notes to consolidated financial statements
</TABLE>
F-5
21
<PAGE>
<TABLE>
NPS INTERNATIONAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Year ended December 31,
-----------------------
1999 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(654,927) $(101,014)
--------- ---------
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 137,969 100,149
Non-cash expenses of divested operations 453 -
Expenses paid through issuance of common stock 159,000 -
Gain on sale of divested operations (26,487) -
Gain on sale of assets (1,435) (6,889)
Changes in assets and liabilities,
net of effect of business combination:
(Increase) decrease in accounts receivable 23,258 (108,136)
(Increase) decrease in prepaid expenses (13,306) (3,677)
(Increase) decrease in inventory (45,574) 57,133
Increase (decrease) in accounts payable and accrued expenses 37,975 75,387
Increase (decrease) in accrued taxes (27,395) 48,676
Increase (decrease) in customer deposits (33,812) 72,888
Increase (decrease) in payable under service agreement 171,871 (106,881)
--------- ---------
Total adjustments 382,517 128,650
--------- ---------
Net cash provided by (used in) operating activities (272,410) 27,636
--------- ---------
Cash flows from investing activities:
Sale of short-term investment - 110,640
Capital expenditures (130,441) (146,314)
Proceeds from sale of assets 1,560 6,889
Cash acquired in business combination - 5,623
Goodwill and deferred charges - (20,513)
Loans repaid by affiliate - 25,623
Proceeds from sale of divested segment 68,000 -
--------- ---------
Net cash used in investing activities (60,281) (18,052)
--------- ---------
Cash flows from financing activities:
Proceeds from convertible debt 175,000 -
Proceeds from loans 135,000 196,500
Principal payments on loan obligations (50,000) (119,928)
Repayment of note payable - stockholder (10,514) (16,300)
Proceeds from issuance of common stock - 112,090
Costs incurred in connection with offering - (81,319)
--------- ---------
Net cash provided by financing activities 249,486 91,043
--------- ---------
Net (decrease) increase in cash (83,205) 100,627
Cash balance at beginning of year 217,535 116,908
--------- ---------
Cash balance at end of year $ 134,330 $ 217,535
========= =========
See notes to consolidated financial statements
</TABLE>
F-6
22
<PAGE>
NPS INTERNATIONAL CORPORTION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
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
23
<PAGE>
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 year ended December 31, 1998 are as follows:
Revenues $ 3,414,688
===========
Net loss $ (75,923)
==========
Loss per share $ (.007)
==========
Weighted average common shares 10,331,367
==========
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") and NPS Polska,
L.L.C. 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., Metrix
Tools, L.L.C. and NPS Polska, L.L.C. for the period from their dates of
inception (July 1997, April 1997, and December 1999, respectively).
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. Through
March 31, 1999, the Company's security division provided security guard
services to industrial, commercial, governmental and other
institutional clients in the St. Louis, Missouri metropolitan area.
Effective March 31, 1999, the Company disposed of its security division
(Note 12).
F-8
24
<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
acquired Polcorp Industries, Inc. and two operating subsidiaries in a
business combination described in Note 2.
Polcorp Industries, Inc. 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.
NPS Polska, L.L.C. was incorporated in December 1999, as a
wholly-owned subsidiary of Polcorp and has been inactive since its
inception. NPS Polska was formed as a special purpose entity to
participate in the planned acquisions of Metrix S.A. and Pafal S.A.
(Note 11).
Going concern
Since inception, the Company has incurred losses from administrative
expenses and from costs incurred in connection with acquisitions,
either consummated or planned. While the Company's foreign
subsidiaries, Metrix Metal and Metix Tools, have contributed to operate
profitably, the Company has incurred operating losses on a consolidated
basis, principally due to administrative expenses of the parent
company. At December 31, 1999 and 1998, the Company had working capital
deficiencies of approximately $920,000 and $130,000, respectively. In
addition, the Company has a stockholders' deficit of approximately
$96,000 at December 31, 1999. The Company has been dependent upon
capital raised from the sale of common stock and upon loans from
related and unrelated parties. The Company anticipates that it will
require additional capital and/or financing to continue as a going
concern until it attains an adequate and consistent revenue stream and
profitable operations. There can be no assurance, however, that
sufficient capital and/or financing will be available. These issues
raise substantial doubt about the Company's ability to continue as a
going concern. The financial statements do not include any adjustments
that might result from the outcome of these uncertainties.
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.
F-9
25
<PAGE>
1. Summary of significant accounting policies (continued)
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 $98,590 and $78,978 for the years ended
December 31, 1999 and 1998, 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.
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.
Approximately, 71.6% and 83.1% 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, 1999 and 1998, respectively.
Virtually all of the Company's revenue was derived from sales in Poland
during the years ended December 31, 1999 and 1998.
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.
F-10
26
<PAGE>
1. Summary of significant accounting policies (continued)
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.
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.
Deferred charges
Deferred charges consist of the following:
December 31,
---------------------
1999 1998
Deferred acquisition costs $322,282 $49,862
Patent costs and license fees,
net of accumulated
amortization of $10,984 - 5,206
-------- -------
$322,282 $55,068
======== =======
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, 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, 1999, the Company issued 295,017
shares of its common stock in satisfaction of $159,000 of liabilities,
as described in Note 8. 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 1999 and 1998 was $56,234 and $32,969,
respectively. Income taxes paid during 1999 and 1998 were $24,550 and
$24,190, respectively.
F-11
27
<PAGE>
1. Summary of significant accounting policies (continued)
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.
Reclassifications
Certain reclassifications have been made to the 1998 financial
statements to conform to the 1999 presentation.
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 year ended December 31,
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.
F-12
28
<PAGE>
2. Business combinations (continued)
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.
3. Inventories
The following is a summary of inventories:
December 31,
------------------------
1999 1998
-------- --------
Raw materials $ 63,227 $ 57,417
Work in process 137,628 97,864
-------- -------
$200,855 $155,281
======== ========
4. Property and equipment
The following is a summary of property and equipment:
December 31,
------------------------
1999 1998
-------- --------
Machinery and equipment $344,286 $360,514
Less: accumulated depreciation 197,238 196,177
-------- --------
$147,048 $164,337
======== ========
5. Convertible debt
During July 1999, the Company issued a total of $175,000 of unsecured,
convertible notes to two individuals. Such notes were discounted at the
rate of 10% and are payable within one year. Such notes may be
converted into 454,545 restricted shares of the Company's common stock
during the term of the notes, at the option of the holders. If the
individuals convert such debt to stock, the investors will have
piggyback registration rights in the event that the Company files a
registration statement.
F-13
29
<PAGE>
6. Notes payable - stockholder
Notes payable - stockholder represents advances made to the Company by
one of its stockholders. The notes bear interest at prime (9.5% and
8.25% at December 31, 1999 and 1998, respectively) 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 1999 and 1998
includes $11,934 and $2,222, respectively of interest related to notes
payable - stockholder.
While the Company is in default of these note agreements, management
intends to negotiate terms that are mutually acceptable.
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 an interest
charge of 20% annually. The debt is secured by the stock of Metrix
Tools and Metrix Metal.
The Company has temporarily suspended payments which were due in 1999,
during negotiations to acquire Metrix, S.A., the former parent company
of Metrix Tools and Metrix Metal (Note 11). 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. Furthermore, there is a
verbal understanding between the parties that no action will be taken
while purchase negotiations regarding Metrix S.A. continues.
8. Loans payable
During 1998, Naidger Capital Corporation ("NCC"), a former affiliate,
made loans of $196,500 to the Company. Prior to December 31, 1998, the
Company issued 718,000 shares of its common stock in satisfaction of
$179,500 of such debt (Note 9). During 1999, NCC made additional loans
of $135,000. At December 31, 1999 and 1998, the balance shown is an
unsecured, non-interest bearing advance to the Company, payable on
demand. Effective March 31, 2000, the outstanding balance of such loans
were converted to shares of the Company's common stock (Note 14)
9. Stockholders' equity
Recapitalization
During 1999, 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.
F-14
30
<PAGE>
9. Stockholders' equity (continued)
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 shares under the offering, during the
year ended December 31, 1998.
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.
During 1999, the Company issued a total of 295,017 shares of its common
stock in satisfaction of $159,000 of liabilities. During the first
quarter of 1999, 235,000 shares were issued in satisfaction of $141,000
of liabilities. The stock issued was valued at the estimated fair value
of $0.60 per share at the date of issuance. During the last quarter of
1999, 60,017 shares were issued in satisfaction of $18,000 of
liabilities. The stock was valued at the estimated fair value of $0.30
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, 1999 and 1998, the weighted average number of shares used
in the calculation was 10,493,147 and 6,049,208, respectively. Diluted
loss per share amounts are not presented because they are
anti-dilutive.
Stock option plan
Effective July 1999, the Board of Directors adopted the Company's 1999
Stock Option Plan (the "Plan"). The Plan is intended to provide
incentive to directors, officers, key employees of and consultants to
the Company and members of the Company's Advisory Board by providing
those persons with opportunities to purchase shares of the Company's
common stock. Under the plan, NPS may grant incentive stock options at
not less than 100% of the fair market value on the date of the grant
(not less than 110% of fair market value, if granted to a 10%
shareholder). Non-incentive stock options shall not be less than 50% of
fair market value on the date of the grant. Stock options may be
granted for a period not to exceed 10 years; 11 years in the case of
non-incentive stock options. The Board received 2,000,000 shares of
common stock which underlie options granted pursuant to the Plan.
During 1999, the Company issued 1,830,000 stock options to various of
its directors and consultants. The options may be exercised at $0.30
per share over a five-year period ended December 2004.
F-15
31
<PAGE>
10. Related party transactions
Service agreement
Effective May 1, 1997, Naidger and Polcorp entered into a service
agreement 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.
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
------------ --------
2000 $142,394
2001 156,742
2002 54,304
--------
$353,440
========
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 $119,680 and $251,300 plus
expenses of $78,691 and $127,283 for the years ended December 31, 1999
and 1998, respectively. Effective March 31, 2000, $300,000 of the
outstanding balance payable to Suncrest was converted to shares of the
Company's common stock (Note 14).
During the years 1999 and 1998, $99,186 and $279,460 of these fees and
expenses were capitalized in connection with the business combinations
described in Note 2 and the planned acquisitions described in Note 12.
During 1998, $139,879 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.
F-16
32
<PAGE>
10. Related party transactions (continued)
Consulting agreement
The Company has entered into an agreement with Phoenix Management
International Ltd. ("Phoenix"), a company owned by a shareholder and
officer of NPS. Under the terms of the agreement, Phoenix provides 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-months notice.
Compensation for such services totaled $72,000 and $30,000 for the
years ended December 31, 1999 and 1998, respectively. $36,000 and
$30,000 of such fees were capitalized as deferred acquisition costs
during the years ended December 31, 1999 and 1998, respectively. The
agreement specifies that compensation in the years 2000 and 2001 will
be $88,200 and $46,200, respectively. Effective March 31, 2000,
$100,000 of the outstanding balance payable to Phoenix was converted to
shares of the Company's common stock (Note 14).
In addition, Phoenix 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.
11. Income taxes
As of December 31, 1999, the Company has net operating losses available
for carryforward to offset future years' taxable income. The net
operating losses expire in the years 2017 through 2019.
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 $ 257,000
Valuation allowance (257,000)
---------
$ -
=========
Taxes paid and accrued to foreign countries amounted to $17,482 and
$31,258 for the years ended December 31, 1999 and 1998, respectively.
F-17
33
<PAGE>
12. 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 six-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 8.
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, 1999 and 1998 totalled
approximately $112,000 and $154,100, 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.
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
45,000,000 Polish zlotys (approximately $11,000,000 U.S. dollars).
During 1999, the Company signed several extensions of the letter of
intent, the last of which expired on February 15, 2000. While the
Company has continuing interest in acquiring Pafal, it has discontinued
negotiations until it can meet certain financial conditions precedent
to signing a definitive acquisition agreement. Such agreement is also
subject to satisfactory completion of due diligence.
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. While the purchase
price is being negotiated, it is estimated to be approximately
20,000,000 Polish zlotys (approximately $5,000,000 U.S. dollars). While
the letter of intent expired on February 15, 2000, the Company had
agreed to proceed with the acquisition and has negotiated a schedule
which calls for the signing of a definitive agreement on July 15, 2000.
Such agreement is subject to satisfactory completion of due diligence.
F-18
34
<PAGE>
12. Commitments and contingencies (continued)
Financial advisory agreements
During July 1999, the Company entered into a financial advisory
agreement with CAIB Financial Advisers, S.A. ("CAIB"). Under the terms
of the agreement, CAIB was engaged as the Company's exclusive financial
adviser to assist in the raising of approximately $25 million in debt
or equity required for the planned acquisitions of Pafal S.A. and
Metrix S.A. (Note 10). Fees payable to CAIB include $25,000 for
preparation of a financial model and financing strategy, $25,000 for
preparation of an information memorandum and a monthly retainer of
$7,500 payable for the months of October 1999 through March 2000. In
addition, CAIB is entitled to a success fee of 1.25% of total debt
financing raised or $150,000, which ever is greater and a fee of 2% to
3% of total equity investment raised.
During October 1999, the Company entered into an agreement with an
individual to provide financial advisory services in connection with
the proposed financings of the planned acquisitions of Pafal S.A. and
Metrix S.A. Under the terms of the agreement, the individual is to be
paid a $3,000 monthly retainer for three months and reasonable expenses
plus 30,000 restricted shares of the Company's common stock. In
addition, the individual is entitled to a success fee equal to 3% of
equity capital raised as a result of the individual's introduction.
Investor relations agreement
Effective August 1999, the Company entered into an investor relations
agreement with JC Connections Limited ("JC"). Under the terms of the
agreement, JC is to be paid a monthly fee of $3,000 plus expenses,
during the six-month term of the agreement. JC also received 30,000
restricted shares of the Company's common stock. In addition, JC is to
be paid a commission on any funds raised as a direct or indirect result
of introduction of investors or financing sources to the Company
calculated as follows: 10% for up to $1 million; 5% from $1-2 million;
4% from $2-3 million, 3% from $3-4million; 2% from 4-5 million and 1%
over $5 million of the funds raised.
Consultancy agreement
During December 1999, the Company entered into an agreement with a
corporation to provide various corporate consulting services to the
Company. Under the terms of the agreement, the consultant is to receive
an annual fee of $12,000, payable quarterly in advance plus other fees
and expenses as may be required. The consultant also received warrants
to purchase 250,000 shares of the Company's common stock at $0.50 per
share and 500,000 shares of the Company's common stock at $1.50 per
share. Such warrants may be exercised over a five-year period ending
December 2004. In addition, in the event that the consultant raises
equity or debt funding for the Company, the consultant is entitled to a
finder's fee of 3.8% of the sum raised.
F-19
35
<PAGE>
13. Divested operations
Effective March 31, 1999, the Company disposed of its security division
which conducted business under the name of National Industrial Security
Corporation. The operating results of the security division have been
reported separately as a divestiture in the consolidated statements of
operations. 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. The
outstanding balance receivable at December 31, 1999 is $6,400.
Assets and liabilities of the divested segment 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 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 159,455 116,932
--------- --------
Income from divested operations $ 6,649 $ 3,274
========= ========
Such amounts have not been included in operating revenues or expenses
in the accompanying consolidated statements of operations.
14. Subsequent events
Effective March 31, 2000, three entities elected to convert
indebtedness due from NPS to equity in the Company as follows:
Debt Shares
Converted Issued
--------- ---------
Suncrest (Note 10) $300,000 1,500,000
Phoenix (Note 10) 100,000 500,000
NCC (Note 8) 152,000 756,000
-------- ---------
$552,000 2,756,000
======== =========
All conversions were made at the market price of the Company's common
stock at the date of conversion ($.020 per share).
F-20
36
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
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
--------------------- --- -------------------------
Stephen A. Rosenburgh 49 President & Director
Dr. Mark Scibor-Rylski 52 Vice President & 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:
Stephen A. Rosenburgh was appointed as a director of the Company in May
1999 and President in April 2000. 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
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
37
<PAGE>
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 50% 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.
During 1998 and 1999, 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 $119,680 and $251,300, plus
expenses of $78,691 and $127,283 for the fiscal years ended December 31, 1999
and 1998, respectively. The balance of $179,393 has not been paid but has been
accrued by the Company for this obligation. The agreement may be terminated
38
<PAGE>
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, a former officer and director and a principal shareholder
of the Company, also holds similar positions with Suncrest.
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers, directors and person 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. During the fiscal year ended December 31, 1999, the Company experienced
changes in management. From a review of its available information, it appears
that Mr. Michael Wexler, the former President of the Company but an affiliate as
of the date of this report, has transferred various blocks of stock to creditors
of Suncrest Management Services, SA, a principal shareholder of the Company, for
which applicable reports were not timely filed with the SEC. In addition, Mr.
Rosenburgh and Dr. Scibor-Rylski have not filed reports pursuant to Section
16(a) of the Securities Exchange Act of 1934. However, the Company does not
believe that Messrs. Rosenburgh's and Scibor-Rylski's stock positions have
changed.
ITEM 10. EXECUTIVE COMPENSATION.
Remuneration
The following table reflects all forms of compensation for services to the
Company for the years ended December 31, 1999 and 1998 of the then chief
executive officer of the Company.
39
<PAGE>
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) 1999 $119,680 0 0 0 0 0 0
-------------------------
(1) Mr. Wexler was not paid a salary by the Company during the fiscal years
ended December 31, 1998 and 1999. 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 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. Mr. Wexler
resigned his positions as President, Chief Executive Officer and a director of
the Company in April 2000.
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, 1999.
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.
The Company's Board of Directors has granted options to the following persons
and/or entities, at exercise prices as indicated:
40
<PAGE>
# of Shares Exercise
Name Subject to Option Price per Share
---- ----------------- ---------------
Michael Wexler 850,000 $0.30
Mark Scibor-Rylski 850,000 0.30
Zbigniew Sieszychi 100,000 0.30
Slawonir Kaski 15,000 0.30
Skwomir Lukasinski 15,000 0.30
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 Stephen A. Rosenburgh(2) 200,000 *
917 Blowing Rock Rd.
Boone, NC 28607
Common Suncrest Management 1,323,865(3) 8.8%
Services SA
101-2481 Kaladar Ave.
Ottawa, Ontario
Canada K1V 8B9
Common Dr. Mark Scibor-Rylski(2) 1,140,021(3) 7.6%
12 Barklay Road
Fulham, London
England SW6 1EH
Common Optimum Capital 1,125,000 7.5%
Overseas Ltd.
42 Liphook Road
Shottermill, Haslemere,
Surrey G727 1PA
41
<PAGE>
Name and Amount and
Address of Nature of
Title of Beneficial Beneficial Percent of
Class Owner(1) Ownership Class
----- -------- --------- -----
Common Trafalgar Investments Ltd. 1,125,000 7.5%
89 Craig Henry Drive
Nepean, Ontario K2G 3S8
Common All Officers and
Directors as a Group
(2 persons) 1,340,021(3) 8.9%
-----------------
* Less than 1%.
(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.
(3) Includes 850,000 shares of the Company's common stock underlying options
granted to Messrs. Scibor-Rylski and Wexler. Mr. Wexler is the principal
shareholder and an officer and director of Suncrest Management.
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 for a five year period ending April 30, 2002. In
consideration therefor and during the fiscal year ended December 31, 1999, the
Company paid service fees of $119,680 and $251,300, plus expenses of $78,691 and
$127,283 for the years ended December 31, 1999 and 1998, respectively. These
fees are 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. 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
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<PAGE>
discretion of the Company. Mr. Wexler, a former officer and director, also
currently holds similar positions with Suncrest.
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
$72,000 and $30,000 for the years ended December 31, 1999 and 1998,
respectively. The agreement provides that compensation of $88,200 is to be paid
during the fiscal year ending December 31, 2000.
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*
3.3 Amendment to Articles of Incorporation***
3.4 Amendment to Articles of Incorporation***
3.2 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.
*** Filed with the Securities and Exchange Commission in the Exhibits to Form
10-KSB for the fiscal year ended December 31, 1998 and are incorporated herein
by reference.
(b) Reports on Form 8-K - None
-------------------
43
<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 June 29, 2000.
NPS INTERNATIONAL CORPORATION
(Registrant)
By:s/ Stephen A. Rosenburgh
--------------------------------
Stephen A. Rosenburgh, 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 June 29, 2000.
s\ Stephen A. Rosenburgh
-----------------------------------
Stephen A. Rosenburgh, Director
s\ Dr. Mark Scibor-Rylski
-----------------------------------
Dr. Mark Scibor-Rylski, Director
44
<PAGE>
NPS INTERNATIONAL CORPORATION
EXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-KSB
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
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 ***
3.4 Amendment to Articles of Incorporation ***
27 Financial Data Schedule 46
---------------
* 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.
*** Filed with the Securities and Exchange Commission in the Exhibits to Form
10-KSB for the fiscal year ended December 31, 1998 and incorporated herein by
reference.
45
