U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Quarterly Report Under
the Securities Exchange Act of 1934
For Quarter Ended: June 30, 2000
Commission File Number: 0-25388
NPS INTERNATIONAL CORPORATION
-----------------------------
(Exact name of small business issuer as specified in its charter)
Delaware
--------
(State or other jurisdiction of incorporation or organization)
86-0214815
----------
(IRS Employer Identification No.)
812 Proctor Ave.
Ogdensburg, N.Y.
----------------
(Address of principal executive offices)
13669
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(Zip Code)
(315) 393-3793
--------------
(Issuer's Telephone Number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days:
Yes X No
---- ----
The number of shares of the registrant's only class of common stock issued and
outstanding, as of August 18, 2000 was 14,086,411 common shares.
<PAGE>
NPS INTERNATIONAL CORPORATION
AND SUBSIDIARIES
CONTENTS
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements Page Number
Condensed Consolidated Balance Sheets as of
June 30, 2000 (unaudited) and December 31, 1999 3
Condensed Consolidated Statements of Operations
for the three-month and six-month periods ended
June 30, 2000 and 1999 (unaudited) 4
Condensed Consolidated Statements of Cash Flows
for the six-month periods ended June 30, 2000 and 1999
(unaudited) 5
Notes to Condensed Consolidated Financial Statements
(unaudited) 6-7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8-11
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
2
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<TABLE>
NPS INTERNATIONAL CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(Unaudited)
June 30, December 31,
2000 1999
-------------- ------------
<S> <C> <C>
Current assets:
Cash $ 87,636 $ 134,330
Accounts receivable 230,438 144,180
Prepaid expenses 12,798 17,461
Inventories 243,416 200,855
Due from affiliate 6,394 6,400
-------------- ------------
Total current assets 580,682 503,226
-------------- ------------
Property and equipment, net 101,982 147,048
-------------- ------------
Other assets:
Goodwill, net 340,978 357,129
Deferred charges and other 428,570 322,282
-------------- ------------
769,548 679,411
-------------- ------------
$ 1,452,212 $ 1,329,685
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt from
business combination $ 228,990 $ 228,990
Note payable 20,302 -
Accounts payable and accrued expenses 708,947 561,357
Accrued taxes 67,549 58,955
Loan payable - 152,000
Notes payable - stockholder 70,000 70,092
Convertible debt 175,000 175,000
Payable under service agreement 76,647 179,393
-------------- -------------
Total current liabilities 1,347,435 1,425,787
-------------- -------------
Stockholders' equity:
Common stock, $.0001 par value,
50,000,000 shares authorized;
13,736,411 shares outstanding in 2000
10,566,403 shares outstanding in 1999 1,374 1,063
Additional paid-in capital 1,319,717 680,528
Accumulated deficit (1,163,425) (757,530)
Accumulated other comprehensive loss (52,889) (20,163)
-------------- -------------
104,777 (96,102)
-------------- -------------
$ 1,452,212 $ 1,329,685
============== =============
</TABLE>
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<TABLE>
NPS INTERNATIONAL CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
(Unaudited) (Unaudited)
Six-month period ended Three-month period ended
June 30, June 30,
---------------------- -----------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $1,194,480 $1,361,036 $ 553,129 $ 732,848
Direct costs 1,061,398 1,116,870 505,983 600,441
---------- ---------- ---------- ----------
Gross profit 133,082 244,166 47,146 132,407
---------- ---------- ---------- ----------
Operating expenses (income):
Selling and administrative 474,210 524,703 294,754 203,429
Amortization 16,151 20,869 8,076 10,434
Interest expense 41,019 34,839 20,791 16,439
Interest income (6,071) (6,908) (1,815) (3,368)
Loss (gain) on sale of assets (139) - 988 -
Foreign taxes 13,807 23,544 6,154 13,429
---------- ---------- ---------- ----------
538,977 597,047 328,948 240,363
---------- ---------- ---------- ----------
Loss from continuing operations (405,895) (352,881) (281,802) (107,956)
---------- ---------- ---------- ----------
Discontinued operations:
Income from divested operations - 6,650 - -
Gain on disposal of divested operations - 26,487 - -
---------- ---------- ---------- ----------
- 33,137 - -
---------- ---------- ---------- ----------
Net loss $ (405,895) $ (319,744) $ (281,802) $ (107,956)
========== ========== ========== ==========
(Loss) income per share:
Continuing operations (0.03) $ (0.03) $ (0.02) $ (0.01)
Discontinued operations - 0.00 - -
---------- ---------- ---------- ----------
(0.03) $ (0.03) $ (0.02) $ (0.01)
========== ========== ========== ==========
Weighted average shares outstanding 12,008,334 10,507,969 13,390,257 10,566,394
========== ========== ========== ==========
</TABLE>
4
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<TABLE>
NPS INTERNATIONAL CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
(Unaudited)
Six-month period ended
June 30,
---------------------
2000 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(405,895) $(319,744)
--------- ---------
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 61,217 67,755
Non-cash expenses of divested operations - 453
Obligations satisfied through issuance of
common stock 518,015 141,000
Gain on sale of divested operations - (26,487)
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (86,258) (58,566)
(Increase) decrease in prepaid expenses 4,663 (6,134)
(Increase) decrease in inventory (42,561) 6,990
Increase (decrease) in accounts payable
and accrued expenses (143,510) 269,147
Increase (decrease) in accrued taxes 8,594 (20,808)
Increase (decrease) in payable under
service agreement (102,746) (72,888)
--------- ---------
Total adjustments 217,414 300,462
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Net cash used in operating activities (188,481) (19,282)
--------- ---------
Cash flows from investing activities:
Capital expenditures - (83,808)
Goodwill and deferred charges - (74,664)
Loans to affiliate - (5,000)
Proceeds from note receivable of divested segment - 53,000
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Net cash used in investing activities - (110,472)
--------- ---------
Cash flows from financing activities:
Loans from affiliate 121,485 93,000
Principal payments on loan obligations - (25,000)
Loans from stockholder 20,302 10,000
--------- ---------
Net cash provided by financing activities 141,787 78,000
--------- ---------
Net decrease in cash (46,694) (51,754)
Cash balance at beginning of period 134,330 217,535
--------- ---------
Cash balance at end of period $ 87,636 $ 165,781
========= =========
</TABLE>
5
<PAGE>
NPS INTERNATIONAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
(unaudited)
1. Unaudited interim financial statements
The accompanying unaudited financial statements have been prepared in
accordance with the instructions for Form 10-QSB and do not include all
of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion
of management, all adjustments, consisting only of normal recurring
adjustments considered necessary for a fair presentation, have been
included. Operating results for any quarter are not necessarily
indicative of the results for any other quarter or for the full year.
These statements should be read in conjunction with the financial
statements of NPS International Corporation formerly (National Industry
Security Corporation) and notes thereto included in the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1999.
2. Divested operations
Effective March 31, 1999, the Company disposed of its security division
which conducted business under the name of National Industrial Security
Corporation ("NISCO"). The results of NISCO have been reported
separately as a divestiture in the consolidated statements of
operations.
Assets and liabilities of NISCO which were divested consisted of the
following:
Accounts receivable $ 78,625
Other current assets 10,955
Intangible assets, net 7,643
Accounts payable and accrued expenses (48,710)
---------
Net assets of divested segment $ 48,513
=========
The operations of NISCO were acquired in a business combination on
November 7, 1998, and were included in the Company's 1998 consolidated
statement of operations for the period from the date of acquisition
through December 31, 1998.
6
<PAGE>
2. Divested operations (continued)
The following table summarizes selected financial data of the Company's
divested operations:
November 7, 1998
(date of acquisition)
Three months ended through
March 31, 1999 December 31, 1998
------------------ -----------------
Revenues $166,104 $120,206
Expenses 159,455 116,932
-------- --------
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.
Under the terms of the agreement, the Company sold the assets of NISCO
for a $75,000 note, thereby realizing a gain on divestiture of $26,487.
The note bears interest at the rate of 8% per annum. The balance of the
note was $6,394 at June 30, 2000.
7
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS.
The unaudited financial statements for the six-month period ended June 30, 2000,
are attached hereto.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the Company's
unaudited financial statements and notes thereto included herein. In connection
with, and because it desires to take advantage of, the "safe harbor" provisions
of the Private Securities Litigation Reform Act of 1995, the Company cautions
readers regarding certain forward-looking statements in the following discussion
and elsewhere in this report and in any other statement made by, or on the
behalf of the Company, whether or not in future filings with the Securities and
Exchange Commission. Forward-looking statements are statements not based on
historical information and which relate to future operations, strategies,
financial results or other developments. Forward-looking statements are
necessarily based upon estimates and assumptions that are inherently subject to
significant business, economic and competitive uncertainties and contingencies,
many of which are beyond the Company's control and many of which, with respect
to future business decisions, are subject to change. These uncertainties and
contingencies can affect actual results and could cause actual results to differ
materially from those expressed in any forward-looking statements made by, or on
behalf of, the Company. The Company disclaims any obligation to update
forward-looking statements.
OVERVIEW
In November 1998, the Company acquired all of the issued and outstanding
securities of Naidger Power Systems, Inc., 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.
Subsequent to June 30, 2000, management did review the existing business plan of
the Company and has decided to explore the possibility of revising the same. In
this regard, subsequent to June 30, 2000, the Company added various new members
of management. It is anticipated that the Company will change its business plan
by disposing of its current assets by either selling or spinning off Polcorp. In
addition, the Company currently plans to acquire certain Internet related
assets. While current management has had discussions with various third parties
relating to these prospective acquisitions, as of the date of this report no
definitive arrangements to acquire such assets has been reached. The discussion
below has been presented as if the Company will continue with its current course
of business and does not contain any plan of operation of the new business
direction due to the fact that such plan is still in the development stage and
has not yet been finalized.
The following information is intended to highlight developments in the Company's
operations to present the results of operations of the Company, to identify key
trends affecting the Company's businesses and to identify other factors
affecting the Company's results of operations for the six-month periods ended
June 30, 2000 and 1999.
8
<PAGE>
RESULTS OF OPERATIONS
Comparison of Results of Operations for the Six-Month Periods Ended June 30,
2000 and 1999
During the six-month period ended June 30, 2000, the Company's revenues
decreased, as it generated revenues of $1,194,480, compared to revenues of
$1,361,036 for the similar period in 1999, a decrease of $166,556 (12%). This
decrease in revenues was attributable to a 2% decrease in revenues as reported
in zlotys (the local currency in Poland), and a decrease of 10% resulting from a
change in the exchange rate from 4.1 zlotys per dollar at June 30, 1999 to 4.3
zlotys per dollar at June 30, 2000. In the six-month period ended June 30, 2000,
costs of sales decreased 5%, to $1,061,398, compared to $1,116,870 for the
similar period in 1999, a decrease of $55,472. This was due primarily to a 6%
increase in costs of sales as reported in zlotys, and a decrease of 11%
resulting from the change in the exchange rate. Operating expenses were $538,977
for the six months ended June 30, 2000, compared to $597,048 for the similar
period in 1999, a decrease of $58,071 (10%). This decrease came about due
primarily to decreases in selling and administrative expenses. Such decrease was
principally due to decreases in professional fees in comparison to the same
period for the previous year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal business, production of metal parts and tools, is a
capital intensive operation which requires periodic capital expenditures to
replace or upgrade manufacturing equipment as well as expenditures to maintain
existing equipment. To date, such expenditures have been principally financed by
cash flows from operations of the Company's operating subsidiaries. Significant
expenditures of the parent company include the servicing of debt related to the
acquisition of the Metrix Companies and ongoing general and administrative costs
incurred in connection with public reporting requirements and in investigating
new potential acquisition candidates in accordance with the Company's continuing
expansion plans. To date, such expenditures have been financed by equity capital
contributions and related party loans. These capital contributions and loans
have been adequate to permit the Company to carry on operations to date.
However, it will be necessary to finance operations over the coming year with
additional funds raised through the issuance of debt or equity securities.
On June 26, 1998, Polcorp acquired all of the issued and outstanding shares of
Metrix Tools, LLC ("MTL") and Metrix Metal, LLC ("MML") in exchange for notes
payable in the amounts of 430,000 Polish zlotys ($122,717 US dollars) and
930,000 Polish zlotys ($265,411 US dollars), respectively. These notes provide
for repayment in US Dollars based on the exchange rate at ING Bank S.A., Warsaw,
Poland. The notes are payable in four (4) equal installments commencing 90 days
after the date of the agreement. The balance of the installments were due 270,
450 and 630 days following the date of the agreement. Each installment includes
interest at the rate of 8% annually increased by the inflation ratio in Poland.
Failure to tender timely payment results in an interest charge of 20% annually.
This debt is secured by the stock of MTL and MML. As of the date of this report,
the Company has temporarily suspended the payments which were due in 1999 and
2000, during the negotiations to acquire Metrix, S.A., as more fully described
in Part I, Item I, above. While the Company is technically in default of its
obligations under the notes because it did not make the required payment, the
Company has not received any notice of default. The balance due on these notes
as of June 30, 2000 was $228,990.
The Company has $70,000 of notes payable to a stockholder. The notes arose from
advances made by the stockholder to the Company. The notes bear interest at
prime 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. The Company is in the
process of re-negotiating payment terms for the notes.
9
<PAGE>
Assuming that the Company's current operations continue as existing, Management
intends to undertake a plan of expansion and in order to effectuate the same,
has recognized the Company's need for additional operating capital. In response
thereto, it is expected that the Company will continue to seek out additional
equity or debt capital from individuals, venture capitalists and institutions
during the fiscal year ending December 31, 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
As of the date of this report, the Company is primarily focused on the
development and expansion of (i) infrastructure manufacturing and (ii) the
acquisition and growth of proprietary flow measurement and control devices in
the gas and electricity meter sectors (utility metering). With particular
reference to (i), and with the understanding that no assurances can be provided,
the Company is forecasting double-digit growth in both its tool making and metal
fabrication operations as an increasing number of domestic concerns outsource
their infrastructure manufacturing requirements to reduce internal costs. In
addition, management believes that multinationals recognize that Poland offers
large pools of skilled labor and lower production costs relative to their
domestic marketplace. The outsourcing by western firms of the Company's
infrastructure manufacturing units continues to show strength, with planned
revenue growth from internal operations exceeding 10-15% commencing in fiscal
2000.
The Company's entry into the proprietary gas and electricity metering business
is scheduled for the fiscal 2000, presuming that the proposed acquisitions of
PAFAL SA and METRIX SA, both major suppliers of metering devices to the utility
sector in POLAND, are successfully consummated, of which there can be no
assurance. PAFAL is a manufacturer of electricity meters with an annual turnover
of $35,000,000 and a 83% market share, while METRIX is a producer of gas meters
with an annual turnover of $15,000,000 and a 40% share of domestic meters and a
100% share of the industrial market.
It is anticipated that the domestic market in Poland for electricity meters will
exceed a 10% growth rate over the next 12 months as a result of both new
technological enhancements to existing products and new and/or refurbished
installations. Coupled with its strong domestic position, PAFAL anticipates that
strong potential gains in sales and profitability lie in burgeoning
international markets for its metering technologies.
While domestic gas meter sales in POLAND have remained stable over the past
year, METRIX SA has recently completed the development cycle for a new
generation of plastic injection molded meters which will eventually replace its
G4 series of domestic meters. The new meters are smaller in size and less costly
than existing metal-framed meters and are well-suited for growth in the domestic
market, not only in Poland, but in numerous international markets. Management
also sees growth in the gas meter business as a result of (1) recent substantial
price increases in Poland in alternate energy sources; (2) a reduction in the
mandatory inspection period from 30 to 15 years; (3) a trend to individual
metered premises; (4) the growth in residential construction; (5) substantial
refurbishment and/or new construction of industrial sites; and (6) export
markets encouraged by a growing requirement in international markets to monitor
costs and increase gas revenues.
10
<PAGE>
INFLATION
Although the operations of the Company are influenced by general economic
conditions, the Company does not believe that inflation had a material effect on
the results of operations during the six-month period ended June 30, 2000.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS - NONE
ITEM 2. CHANGES IN SECURITIES - NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS- NONE
ITEM 5. OTHER INFORMATION - None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K -
(a) Exhibits
EX-27 Financial Data Schedule
(b) Reports on Form 8-K
None.
11
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SIGNATURES
Pursuant to the requirements of Section 12 of the Securities and Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
NPS INTERNATIONAL CORPORATION
(Registrant)
Dated: August 21, 2000
By: s/Henry Val
---------------------------------
Henry Val, President
12
<PAGE>
NPS INTERNATIONAL CORPORATION
EXHIBIT INDEX TO QUARTERLY REPORT ON FORM 10-QSB
FOR THE QUARTER ENDED JUNE 30, 2000
EXHIBITS Page No.
EX-27 Financial Data Schedule....................................14
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