U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE REGISTRATION STATEMENT
ON
FORM 10-SB-A3
Registration Statement on Form 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL
BUSINESS ISSUERS
NORTHPORT INDUSTRIES, INC.
--------------------------
(Name of Small Business Issuer as specified in its charter)
NEVADA 93-0947269
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(State or other jurisdiction of (I.R.S. incorporation or
organization) Employer I.D. No.)
Spur 239 & Alderete Road
Del Rio, Texas 78840
P. O. Box 1428
Del Rio, Texas 78841
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(Address of Principal Executive Office)
Issuer's Telephone Number, including Area Code: (830) 775-0734
Securities registered pursuant to Section 12(b) of the Exchange Act:
None
Securities registered pursuant to Section 12(g) of the Exchange Act:
$0.001 par value common stock
-------------------------------
Title of Class
DOCUMENTS INCORPORATED BY REFERENCE: None.
<PAGE>
PART I
Item 1. Description of Business.
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Business Development.
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Organization and Charter Amendments
-----------------------------------
Northport Industries, Inc. (the "Company" or "Northport")) was
organized under the laws of the State of Nevada on April 20, 1987, under the
name "Environmental Pyrogenics, Inc." The Company was formed to engage in any
lawful activity.
The Company has spent its life trying to acquire an operating
business. The Company had no success until early 1998, and hence had no
operations until beginning of 1998. Then, the Company effected a
reorganization with Versatech Manufacturing, Inc., a Texas corporation
("VMI"), on December 24, 1997, in a transaction accounted for as a "reverse
merger" using the purchase method of accounting. See the heading
"Reorganizations" below under this Item, for a more detailed description of
this reorganization. The stockholders of VMI controlled the Company following
the completion of the reorganization, and VMI was treated as acquiring entity
for accounting purposes. There was no adjustment to the carrying value of the
assets or liabilities of VMI in the reorganization; the Company is the
acquiring entity for legal purposes; and VMI is the surviving entity for
accounting purposes. The Company changed its name to "Northport Industries,
Inc." following the completion of the reorganization, on January 8, 1998, as
outlined below.
VMI was incorporated under the laws of the State of Texas on
December 27, 1997, under the name "Hawk Systems, Inc.; it changed its name to
"Versatech Manufacturing, Inc." in June, 1997. The discussion of all business
operations of the Company in this Registration Statement are comprised of the
current and prior operations of VMI and its subsidiaries only. See the
caption "Business" below.
The Company's authorized capital consists of 25,000,000 shares of
$0.001 par value common voting stock and 12,500,000 shares of $0.25 preferred
stock.
The following amendments to the Company's Articles of
Incorporation were duly adopted and filed with the Secretary of State of
Nevada in accordance with the Nevada Revised Statutes from inception to the
date hereof, to wit:
* Changed name to "Northport Industries, Inc." and a
reverse split of both the common and preferred shares
on a basis of one for 157.7668, while retaining the
authorized capital and par value, and with appropriate
adjustments in the stated capital and capital surplus
accounts of the Company(1/8/98).
* Authorized Series A Non-Voting Preferred Stock
(12/1/98). See the heading "Series A Non-Voting
Preferred Stock" of the caption "Description of
Securities," Part II, Item 8.
All computations in this Registration Statement take into account
this reverse split.
Copies of the Initial Articles of Incorporation of the Company and
these amendments were attached to the initial 10-SB Registration Statement and
are incorporated herein by reference. See Part III, Item 1.
This Registration Statement is being filed on a voluntary basis to
maintain the Company's quotation on the OTC Bulletin Board of the National
Association of Securities Dealers, Inc. (the "NASD"). See the heading
"Effects of Existing or Probable Governmental Regulations," Part I, Item I.
Limited Public Offerings
------------------------
(1) Conducted an initial limited offering pursuant to Rule 504
of Regulation D of the Securities and Exchange Commission
(1987).
(2) Also sold 280,000 shares of its common stock as a limited
offering pursuant to Rule 504 (8/98).
Reorganizations
---------------
The Company has been party to the following reorganizations since
its inception:
(1) On December 24, 1997, the Company acquired 100% of VMI (the "VMI
Plan") in exchange for 3,000,000 shares of the Company's common stock,
designated as "restricted securities."
The VMI Plan was adopted, ratified and approved by the Boards of
Directors of the Company and VMI, and by all of the stockholders of VMI.
The source of the consideration used by the VMI stockholders to
acquire their respective interest in the Company was the exchange of the
outstanding securities of VMI.
The basis of the "control" by the VMI stockholders was stock
ownership.
The former controlling stockholders of the Company prior to the
completion of the VMI Plan were Michael Silvey, William A. Silvey, Jr. and W.
Scott Thompson, directors and executive officers. William A. Silvey, Jr. was
a beneficial owner of approximately 1,900 pre-VMI Plan outstanding voting
securities of the Company, and received 135,000 shares of the Company's common
stock for services related to the VMI Plan, which were designated as
"restricted securities." W. Scott Thompson was a beneficial owner of 6 pre-
VMI Plan outstanding voting securities of the Company, and received 135,000
shares of the Company's common stock for services related to the VMI Plan,
which were designated as "restricted securities."
No director or executive officer of the Company had any interest in
VMI prior to the completion of the VMI Plan.
A copy of the VMI Plan, together with all material exhibits, was
attached to the initially filed 10-SB Registration Statement and is
incorporated herein by reference. See Part III, Item 1. Also, see the
caption "Recent Sales of Unregistered Securities," Part II, Item 4; and Note 3
of the financial statements, Part F/S.
(2) On July 8, 1998, the Company acquired 100% of the outstanding
securities of JOH Rubber, Inc., an Ontario corporation ("JOH" and the "JOH
Purchase"), in exchange for 193,767 shares of the Company's common stock,
designated as "restricted securities."
400,000 shares of Series A Non-voting Preferred Stock were also
issued to the JOH stockholders on January 8, 1999.
No director or executive officer of the Company had any interest in
the JOH Purchase prior to the completion of the JOH Purchase, except Matt
Baumgartner, an executive officer and director of the Company, who owned
approximately 40% of JOH at the time of the JOH Purchase.
The sole asset of JOH consists of 193,767 shares of Gecamex
Technologies, Inc.("GTI"), which by agreement with VMI are to be transferred
to VMI in exchange for their remaining 367,500 shares of Northport. Because
this share exchange agreement is an integral part of the transaction, there is
no intrinsic value remaining in the JOH corporate entity, and it is shown on
the Company's statements as having no value.
A copy of the JOH Purchase, together with all material exhibits,
was attached to the initially filed 10-SB Registration Statement and is
incorporated herein by reference. See Part III, Item 1. Also, see the
caption "Recent Sales of Unregistered Securities," Part II, Item 4; and Note 2
of the financial statements, Part F/S.
Changes of Control During the Past Three Years
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Pursuant to the Bylaws and the Nevada Revised Statues, the
following changes of control have occurred during the past three years:
* Michael Silvey, William A. Silvey, Jr. and W. Scott Thompson
were elected to serve as directors; and William A. Silvey, Jr.
was elected President; and W. Scott Thompson was elected
Secretary/Treasurer (10/2/92).
* Messrs. Silvey, Silvey and Thompson resigned, in seratim, and
designated Robert L. Michelini, Len Baker, Bradley D. Osgood
and Matt Baumgartner, to serve as directors, and Robert L.
Michelini was elected President, Len Baker was elected Vice
President and Treasurer and Bradley D. Osgood was elected
Secretary (12/24/97).
* Bradley D. Osgood resigned as Secretary and Matt Baumgartner
was elected Secretary. (2/15/98).
See the caption "Security Ownership of Certain Beneficial Owners
and Management," Part I, Item 4.
Sales of "unregistered" and "restricted" securities over the past three
years
-----
See the caption "Recent Sales of Unregistered Securities," Part
II, Item 4.
Business.
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The Company is an original equipment manufacturer ("OEM") of sports
and golf bags and a supplier to U.S. corporate clients with three divisions:
automotive, cut and sew and golf equipment. The "cut and sew" services
provided by the Company overlap in each of these divisions. See the
discussion below. It also operates three Maquiladoras in Mexico (and "in-
bond" plant in Mexico), which allows the Company to export from the United
States to Mexico, raw materials in-bond, thereby avoiding the payment of any
Mexican duty. When assembly (or repair) is finished, the product is returned
to the United States where a duty is levied only on the cost of the labor and
overhead in Mexico, as well as those raw materials of a non-United States
origin.
Automotive Division
-------------------
The automotive division's principal business is to design, engineer
and manufacture hand and machine sewed products and electrical harnesses.
Once a design is completed, the designer prepares a pattern for the particular
product; prototypes of each product are then manufactured; then each prototype
product is tested and inspected. On acceptance by the Company's Quality
Assurance Department, the product is sent to the customer for approval. Once
approved, the Company's purchasing department secures materials to manufacture
the product from approved sources selected by the automotive industry, by
purchase order, usually on a yearly basis, with weekly deliveries of the
materials, as needed. Parallel to securing the materials for production, the
patterns are placed in production. Each employee is cross-trained for work on
all products. The products are sewn on industrial sewing machines owned by
the Company, except that with respect to the gear shift handles, no equipment
is necessary as each is hand sewn, with fixtures being required only to hold
the product. The "boots" (vinyl or leather material under the gear shift
handles) are machine sewn. The products of this division include hand-sewn
vinyl and leather wrapped steering wheels, door handles, gear shifts and
boots. The Company provides "full gear shift wraps," meaning the Company
wraps the plastic gear shift part in foam and then sews on the leather or
vinyl cover. Principal customers are Regal Plastics and May and Scofield;
payment terms are net, 30 days, FOB the Company's plant, meaning the customer
is responsible for freight and shipping to final destination; the Company's
customers supply the automotive industry with these products.
The Company also intends to produce wire harnesses utilized in the
manufacture of seat heaters for automobile seats for W.E.T. Automotive
Systems, Inc. ("W.E.T."). Under the parties Agreement, the Company must
maintain agreeable and acceptable quality, price and delivery rating for all
parts produced, or the Agreement between the parties is terminable by W.E.T.
All of these requirements shall be specified to the Company by W.E.T; sample
parts are also supplied by W.E.T. with the purchase order, for determining
quality requirements. The Company must warrant that all parts produced shall
be fit for the intended purpose; and non-conforming parts shall be returned to
the Company at its expense and risk. The Company shall be given a "preferred
supplier" status, and the parties agree to negotiate a long term arrangement
in accordance with commercially reasonable terms usual to the automotive
industry for similar supplier agreement. Purchase orders shall be delivered
by W.E.T. and shall set out the price, delivery, payment and credit terms, and
shall be subject to acceptance by the Company; prices are subject to increases
for W.E.T. approved engineering changes, and deductions for lower costs of
manufacture by the Company, with the Agreement providing for a cost plus 10%
fee. The Agreement shall be reviewed annually. W.E.T. shall supply, on a
consignment basis, all material and component parts required by the Company to
the Company's Texas facilities; the Company shall be responsible for delivery
of these items to its plant in Mexico, and the delivery of the finished
product to W.E.T's facilities in Mexico. W.E.T. shall also provide and retain
ownership of all necessary equipment for these services, by delivery of the
equipment to the facilities of the Company in Mexico. In the event of a
failure to timely supply the Company with the needed materials, W.E.T. shall
pay the Company $4.40US per hour down time for the number of employees of the
Company utilized in these operations.
The Company will also be developing, with Even Flo,, Inc. ("Even
Flo") a booster seat for children weighing between 40 to 80 pounds. This
product will be developed to meet the new automotive safety requirements for
juveniles.
Cut and Sew Division
--------------------
This division is provided with a pattern/drawing for a child or
infant seat pads or a sports bag. The Company's prototype department will
manufacture (sew) the product based upon the pattern or drawing. The material
utilized is polycotten, fire retardant cloth, supplied by the customer; the
customer is the owner of the material at all times; and the materials are sent
to the Company on consignment only. The completed product is then inspected,
and on acceptance by the Company's Quality Assurance Department, will be sent
to the customer for approval. Once approved, the patterns or drawings are
turned over to production. In the case of pads for child or infant seats,
they are sewn on the Company's industrial sewing machines; and the finished
product is sent to customers on common carriers arranged by the customer. The
Company may personally arrange for shipment of samples only, or rush or late
orders, by United Parcel Service. The principal products of this division are
infant car seat pads manufactured for Even Flo, and travel and sports bags
manufactured for Martha Elizabeth and Linda Jones companies.
Golf Bag Division
-----------------
The Company produces eight styles and sizes of golf bags, from
junior to professional, for various Original Equipment Manufacturing ("OEM")
customers. The Company's designer develops a design for a particular golf
bag, and with the assistance of the Engineering Department, prices the cost of
manufacturing the golf bag. If the cost is within the targeted range set by
management, the designer will develop patterns, and the prototype department
will build a prototype of the golf bag from the pattern. The sample bag is
then tested , inspected and reviewed by management for design and public
acceptability. The product is then carried to a select group of customers for
their comments, and if comments are positive, the patterns and products are
again reviewed by the Engineering Department for cost savings and ease of
production. Once this is completed, the patterns are turned over to
production for the manufacture of a limited number, about 50. The products
are then photographed and put into the Company's Golf brochure. The Golf bags
are primarily sold to distributors and large manufacturers who want a private
label (a product manufactured by others with their name on it) product. Golf
bags are also shipped by common carrier. The Company contacts a minimum of
three carriers to obtain the best price for delivery; this is done on a daily
basis, as shipping prices change continuously.
Revenues for 1998 totaled $3,766,930, with the Automotive Division
accounting for $1,550,383 (41%); the Cut and Sew Division accounting for
$2,087,819 (55%); and the Golf Division accounting for $128,728 (.034%) of
this total. Revenues for the first quarter ended March 31, 1999 totaled
$1,279,953, with the Automotive Division accounting for $339,279 (26%); the
Golf Division accounting for $25,722 (.02%); and the Cut and Sew Division
accounting for $914,952 (71%) of this total. Of the total sales for the first
quarter ended March 31, 1999, Even Flo, which is the Company's major customer,
accounted for 71% of all sales.
Also see the heading "Status of any Publicly Announced New Product
or Service," below.
Year 2000
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The Company has been advised by BusinessVision Management Systems,
Inc., who is the supplier of the Company's management systems and accounting
software, that it is Year 2000 compliant in all areas.
BusinessVision Management Systems has not agreed to pay for any
expenses that might be caused if the Company is not compliant. They have
provided the Company with a letter informing the Company that they have
developed an "update" that ensures that all BusinessVision products are Year
2000 compliant in all areas. The Company has installed the "update."
The Company can give no assurance that third parties with whom it
does business (e.g., banks and utilities) will ensure Year 2000 compliance in
a timely manner or that, if they do not, their computer systems will not have
an adverse effect on the Company. However, the Company does not believe that
Year 2000 compliance issues of such third parties will result in a material
adverse effect on its financial condition or results of operations.
The Company has received compliance letter from its bank and all of
its major suppliers respecting Year 2000 compliance. Management does not
believe that Year 2000 compliance issues will have any material adverse effect
on it financial condition or results of operations.
Principal Products and Services.
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The Company is an OEM of sports and golf bags and a supplier to U.S.
corporate clients with three divisions: automotive, cut and sew and golf
bags. The Automotive Division services range from assembly only to total
turnkey, meaning from concept design to completed product. Major products
produced are leather wrapped gear shift handles and gear shift boots (the
leather or vinyl material under the gear shift handle). The major customers
for these products are Regal Plastics and May and Scofield. These customers
in turn sell these products to the automotive industry. The Cut and Sew
Division primarily sews pads for infant car seats for the Even Flo, and sports
bags for Martha Elizabeth and Linda Jones companies. The Golf Bag Division
produces eight styles and sizes of golf bags, from junior to professional, for
various OEM customers. The Company also sells these products under its own
brand, Ever-Green.
For a further description of the Company's products and services,
see the caption "Business" above. Also see the heading "Status of any
Publicly Announced New Product or Service," below.
Distribution Methods of the Products or Services.
- -------------------------------------------------
The Company uses direct trucking contracts, (i.e., delivery direct
to the customer) to distribute their products, primarily common carriers, and
some customers provide their own trucks for products ordered.
The Company is a sub-supplier to other manufacturers; the Company
uses common carriers or customer trucks to deliver their products to its
customers; the principal customers are Even Flo, Regal Plastics or May and
Scofield.
Services are provided on site, and are solicited by direct contact
to potential clients or by reference from other clients.
The Golf bags are primarily sold to distributors and large
manufacturers who want a private label (a product manufactured by others with
their name on it) product. Golf bags are also shipped by common carrier.
All cut and sew services are provided at the Company's plant in
Allende, Coahuila, Mexico, on industrial sewing machines owned by the Company.
The Company repairs its own machines, and its employees are trained by the
machine manufacturers.
For a further description of the distribution methods of the
Company's products and services, see the caption "Business" above. Also see
the heading "Status of any Publicly Announced New Product or Service," below.
Status of any Publicly Announced New Product or Service.
- --------------------------------------------------------
Pursuant to the JOH Purchase, the Company acquired all of the
outstanding securities of JOH and the U.S. Patent for a vulcanized-in-place
sealing system for automotive engines and transmissions. This is a process
for bonding an elastromeric gasket material to a metal cover such as an engine
valve cover, anticipated to provide a superior leak-free engine sealing system
for automobile engines. The state of the current technology involves the
replacement of all metal for the cover through the use of a composite material
having less weight and lower cost, and assisting in noise reduction. Ideally,
the technology would eliminate all oil and similar leaks in engines and
promote longer life in the use of engines and less repairs resulting from
leaks. Management believe the technology is presently complete and available
for marketing.
The Company does not plan on selling any vulcanized-in-place
business during fiscal 1999. In the automotive business, contracts are
usually awarded two to three years in the future. As of March 31, 1999, the
Company had not received any requests for quotations on any of this line of
business.
The Company will, however, commence its first rubber molding
application in a Joint Venture with Elastomeros Technicos Mundiales S.A. de
C.V. ("ETM") in July of 1999; these parts will be used on the Volkswagon
Beetle. The Company will provide ETM with direct labor employees to support
ETM's product requirements, and will invoice ETM for the costs of these
employees at an agreed upon hourly rate, and for a prorated amount of
overhead, depending upon the amount of facilities utilized in providing
services for ETM. ETM will provide five molding machines, three rubber
moldings and two plastic molding machines under this Joint Venture. The
products to be produced are comprised of 40 different rubber and plastic parts
for the Volkswagon Beetle; the molded parts are sound reduction devices for
interior trim parts, as well as clips to hold wire harnesses in place. These
products are presently being manufactured in Germany; however, ETM's equipment
will be relocated to Mexico in August, 1999, and production for Volkswagon
Mexico will commence in mid-September. These products can be utilized by the
entire automotive industry, and depending upon the success of this Joint
Venture, will be marketed to the entire automotive industry. A copy of the
Agreement with ETM is attached hereto and incorporated herein by reference.
See Part III, Item 1.
Competitive Business Conditions.
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Based upon its current business relationship with Even Flo, the
Company believes it has established itself in the infant soft trim (sewing pad
for infant car seats) business carried on by the Company's Cut and Sew
Division. This belief is based upon the present volume of business conducted
with Even Flo, not the awarding of the contract by Even Flo. Even Flo has
committed 80% of its North American soft trim requirements to the Company.
Any cut and sew operation (a company that provides cut and sew services to
this industry) with a minimum of 200 sewers would be considered to be a
competitor of the Company, and the Company estimates there are approximately
10 such companies presently in operation in the area of the Company. Price,
delivery and quality are key factors, and the Company believes it is
competitive in all three areas.
Wrapping gear shift handles is a niche market. The largest
competitor is Custom Trim, which has approximately 80% of the market. The
Company has approximately 5% of this market. The remainder of the wrapped
gear shift handles market are handled in-house by plastic molding companies.
Golf and sports bags are manufactured by almost every sporting goods
company and clothing manufacturing company in the world; every department
store, sporting goods store, catalog, general store or outlet carry various
golf and sports bags of every kind and description. The Company's present
competitive position in this industry is insignificant.
Sources and Availability of Raw Materials and Names of Principal
Suppliers.
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The Company's major raw material/supplies required include thread,
material for golf bags and child infant seat pads, leather and various plastic
components. In all cases, there is a minimum of three sources for supplies. A
list of major suppliers includes, but is not limited to the following
companies: Even Flo, American & Efrid, Brookwood Rolls Goods, Seiler Plastics,
Tape Craft, Seton, Coat's Bell and Creative Foam.
Industrial sewing machines, new and used are readily available, and
have changed little in the past 30 years.
Dependence on One or a Few Major Customers.
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The Company's major customer is Even Flo, for which it cuts and sews
the soft pad inserts of infant car seats, and the loss of this customer would
have a material adverse effect on our financial condition; for the quarter
ended March 31, 1999, Even Flo accounted for approximately 71% of the
Company's revenues. The Company has a new written three year agreement that
will end in 2002, unless renewed, effective May 21, 1999. A copy of this
Agreement is attached hereto and incorporated herein by reference. See Part
III, Item 1. Even Flo is also dependent upon the Company for its products.
The Company's current strategy is to reduce its reliance on Even Flo so that
by the end of 1999, Even Flo will account for approximately 30% of the
Company's total revenues. For the year ended December 31, 1998, Even Flo
accounted for approximately $2,087,819 (55.4%) of total revenues; and Regal
Plastics accounted for approximately $1,527,393 of total revenues (40.5%).
The Company has utilized purchase orders from Even Flo in the past.
Patents, Trademarks, Licenses, Franchises, Concessions, Royalty
Agreements or Labor Contracts.
- ------------------------------
The Company recently acquired JOH and its vulcanized-in-place
sealing system for automotive engines and transmissions. JOH owned Patent
#4,819,953, dated April 11, 1989.
The Company has material contracts with Even Flo, W.E.T. Automotive
Systems, Inc. and Elastomeros Technicos Mundiales S.A. de C.V. ("ETM").
Copies of these Agreements are attached hereto and incorporated herein by
reference. See Part III, Item 1.
Need for any Governmental Approval of Principal Products or
Services.
- ---------
There are no material governmental regulations which affect the
current business operations of the Company.
Effect of Existing or Probable Governmental Regulations on
Business.
- ---------
Effective January 4, 1999, the NASD adopted rules and regulations
requiring that prior to any issuer having its securities quoted on the OTC
Bulletin Board of the NASD that such issuer must be "reporting issuer" which
is required to file reports under Section 13 or 15(d) of the Securities and
Exchange Act of the 1934, as amended (the "1934 Act"). The Company is not
currently a "reporting issuer," and this Registration Statement will bring the
Company into compliance with these listing provision of the OTC Bulletin Board
and prevent the NASD from delisting quotations of the Company's common stock.
Under the "phase-in" schedule of the NASD, the Company has until February,
2000, within which to become a "reporting issuer." See Part II, Item 1.
Research and Development.
- -------------------------
There were no funds expended on research and development during
fiscal 1997 or during the calendar year ended December 31, 1998.
Cost and Effects of Compliance with Environmental Laws.
- -------------------------------------------------------
Since the nature of the Company's business is to cut and sew, the
Company does not have an environmental problem. The foam that the Company
brings into Mexico to cut is either returned as part of the product to the
U.S. or, if scrap material, is returned to the U.S. from Mexico and is
disposed of appropriately.
Number of Employees.
- --------------------
As of April 19, 1999 there were 608 full-time employees.
Item 2. Management's Discussion and Analysis or Plan of Operation.
- --------------------------------------------------------------------
Plan of Operation.
- ------------------
The Company will be adding two new significant customers within the
next 12 months, W.E.T. Automotive Systems, Inc. ("W.E.T.") and Elastomeros
Technicos Mundiales S.A. de C.V. ("ETM"). See the caption "Business," and the
heading "Status of any Publicly Announced New Product or Service," above,
under Item 1, Part I.
The Company in the next 12 months expects to grow from $3,366,892 to
over $6,000,000 in revenues, based upon estimates given to the Company by its
customers, based upon their 1999 needs; no assurance can be given that these
results will occur. The cut and sew division will continue to grow over the
next twelve months from $1,543,280 to $2,500,000 in revenues; this growth will
be primarily additional business from the Even Flo. The Company anticipates
that the automotive division will grow from $1,543,280 to $3,000,000 in
revenues; this growth will be in electric harnesses for heated seats for cars.
W.E.T., a new customer and the largest supplier of heated seats to the
automotive industry, with approximately 80% of the North American market, will
be the entity the Company will be supplying with electric harnesses. Another
new customer is ETM; the Company will be producing both rubber and plastic
parts for use by Volkswagen. In addition, the Company will be wrapping gear
shift handles and sewing gear shift boots for May & Scofield, for end use by
Chrysler and Saturn; and, Regal Plastics for end use by General Motors.
Management expects that the remainder of the growth will be from sewing high
fashion luggage and bags for the Linda Jones Collection and Martha Elizabeth.
During the next 12 months, the Company's foreseeable cash
requirements will be met by internal cash flow from profits and bank
financing. The Company has a loan based on 70% of receivables and 50% of
finished goods inventory and currently has no plans to raise additional funds
over the next 12 months. The Company had a revolving line of credit with the
Del Rio National Bank of Del Rio, Texas, which it signed in May, 1999.
Pursuant to this line of credit, the bank will advance the Company up to 70%
of current accounts receivable, not to exceed $300,000. Customer checks are
applied by the bank to repay advances and any interest charges accrued.
Interest is charged at 2% over New York prime; effective June, 1999, this line
of credit was increased to $500,000.
The Company now has a new secured revolving credit line from the CIT
Group of New York on July 19, 1999. This line bears interest at prime + 1 3/4
%, plus 3/4% for the factoring and allows the Company to factor up to 80% of
all customer account receivable less than 90 days old. The Company is allowed
to borrow 50% on its inventory up to $250,000. This line of credit replaces
the Del Rio National Bank line of credit.
The Company plans on continuing to do research in the "JOH Rubber"
area, primarily in the composite polymoric material in either thermosetting or
thermoplastic. The nature of the research is confidential and can not be
discussed in a public document. The new technology, if successful, will
provide a better sealing, lighter weight, lower noise and less costly product
for automotive power trains.
The Company also plans on upgrading its auto CAD (computer aided
design) system at an approximate cost of $25,000, in addition to improving its
manufacturing plant at a cost of $250,000.
The Company has the option to purchase the facility in Allende (see
Part I, Item 3) within the next 14 months, or until the end of February 2000;
however, there are no plans at this time to purchase this facility. The
purchase price under the option is $850,000, with all lease monies paid being
credited to the purchase price.
The Company is investigating the possibility of purchasing its own
embroidery equipment at an approximate cost of $25,000.
The Company also expects its work force to grow by 10% over the next
12 months.
Results of Operations.
- ----------------------
Northport operates in two industry segments: automotive components
and child transportation and safety products. The automotive segment is
active in the design; engineering and manufacturing of automotive parts while
the child transportation and safety products operations are carried on
exclusively in our cut and sew division. In the 12 months ended December 1998
the Company did not have "segments" under SFAS 131, 17. Nor did it keep
separate profit centers for the different products. Management estimates that
approximately 55% came from the child transportation and safety products, 5%
from golf bags and miscellaneous products and the remaining 40% from
automotive. Golf bags is not an industry segment due to its low volume.
Management feels that golf bag sales will be less than 1% of 1999 revenue.
The sales of automotive parts are derived from the sale of gearshift
handles, boots (the part under the gearshift). Northport typically receives
purchase orders to produce and deliver specific quantities of the product,
which are issued in advance of anticipated delivery dates. The actual volume
of parts produced under the order in any given year is dependent upon the
actual number of vehicles produced in which the part is incorporated.
Contract prices are generally adjusted annually for material price increases
and for stipulated price reductions relating to expected improvements in
productivity. Any increase or decrease, as the case may be, affects the gross
margin percentage because a portion of the cost of sales is represented by
fixed overhead costs.
Northport is engaged as a single source supplier to Regal Plastics
and May & Scofield. These companies in turn are engaged as a single source
supplier under all of the current major programs with General Motors and
Chrysler.
It has been Northport's experience that once it has received a
commercial production order to produce a part, it will usually continue to
produce the part throughout the time such part is utilized by the customer.
All sales of child transportation and safety products were to Even
Flo Corporation. These sales were made pursuant to an agreement entered into
in October of 1998. All sales to Even Flo during the 12 months ended December
1998 were for labor only. Even Flo supplied all material with the exception
of thread. In the future, it is anticipated that Northport will begin to
purchase material from approved suppliers.
Sales.
- ------
Consolidated sales for the 12 month period ended December 31, 1998,
increased $2,026,028 or 188% to $3,766,930 from $1,740,902 for the year ended
December 31, 1997.
Sales of automotive parts amounted to approximately $1,506,772 for
the 12 month period ended December 31, 1998 as compared to approximately
$1,000,000 for the year ended December 31, 1997. Of the increase, $425,000
was a new contract with May & Scofield for the Saturn boot and a Chrysler
gearshift handle. The additional sales were increased demands from Regal
Plastics.
Sales of child transportation and safety products amounted to
approximately $2,260,158 for the 12 month period ended December 31, 1998 as
compared to approximately $250,000 for the period ended December 31, 1997.
This was all the result of new programs awarded to Northport during the 12
months ended December 1998.
Gross Profit.
- -------------
Gross profit for the 12 month period ended December 31, 1998 was
$812,325 or 21% as a percentage of consolidated sales as compared to
($410,477) or (24%) for the year ended December 31, 1997. This increase of
45% of consolidated sales is due to two main factors: (1) production
efficiencies in both automotive and child transportation and safety products;
(2) higher sales as compared to the prior year and fixed overhead costs had
not increased at the same rates as the sales increases.
Selling, General and Administrative Expenses.
- ---------------------------------------------
Selling, general and administrative expenses for the 12 month period
ended December 31, 1998 were $688,490 or 19% as a percentage of consolidated
sales as compared to $425,813 or 24% in the year ended December 31, 1997. The
percentage of cost did not increase at the same rate as the increase sales.
There was a recovery of $11,225 of bad debt that was recovered in addition due
to purchasing a patent and an amortization cost of $20,578 was added.
Interest Expense.
- -----------------
Interest on debt for the 12 month period ended December 31, 1998 was
$17,767 compared to $62,522 in the year ended December 31, 1997. The decrease
of $44,755 was due primarily to less money borrowed.
Income Tax.
- -----------
The Company had an income tax of $4,751 for the 12 month period
ended December 31, 1998 as compared to zero income taxes for the year ended
December 31, 1997. As of December 31, 1998, the Company had accumulated
losses for income tax purposes of approximately ($639,464). These losses were
available to reduce taxable income in future years.
Net Income.
- -----------
Northport's profit for the 12 month period ended December 31, 1998
was $102,195 or $0.02 per share as compared to a loss of ($836,290) or ($0.28)
per share in the year ended December 31, 1997.
Liquidity.
- ----------
At the year ended December 31, 1998, the Company had $12,038 in
cash, current assets of $573,618, with current liabilities of 486,321. The
Company secured a revolving line of credit from Del Rio National Bank on
October 27, 1998; this line matured in mid 1999. The Company now has a new
secured revolving credit line from the CIT Group of New York on July 19, 1999.
This line bears interest at prime + 1 3/4 %, plus 3/4% for the factoring and
allows the Company to factor up to 80% of all customer account receivable less
than 90 days old. The Company has three notes payable, two to GMAC for two
Chevrolet vans totaling $31,490 with monthly payments of $1,056 until December
2000; and one to Clark Credit for a forklift for $11,807, with monthly
payments of $573 until September 2000. The Company also has related party
debt which consists of $33,528 to Fairfax and $28,471 to Robert L. Michelini,
the Company's President. Based upon present customer demands, management
believes its cash requirements for 1999 can be met with this line of credit
and from present operations.
Mexican law requires, in addition to federal payroll taxes,
termination pay for employees who are laid off. Such payment is based on a
formula including pay rate and years of service. The Company has not set up a
reserve for such payments, contending that they are unlikely to ever be due.
If an employee quits, he or she is not entitled to any such termination pay.
The Company estimates its maximum theoretical exposure to such a liability, as
if all employees had been laid off on December 31, 1998, at $150,000.
During 1998, the Company engaged a consultant to effect a limited
offering of common stock pursuant to 504 of Regulation D of the Securities and
Exchange Commission. A dispute arose regarding performance and compensation
and this contract was canceled; however, the Company had received $61,200 in
consideration for the sale of 235,752 shares of common stock pursuant to this
offering.
The Company also sold an additional 51,750 shares of its common
stock ("restricted securities") during 1998 for $78,500.
Item 3. Description of Property.
- ---------------------------------
The Company leases several properties.
* 20,000 square foot office and warehouse at Spur 277 and 239
Alderete Lane, Del Rio, Texas, which is leased for $2,500
per month with the lease ending January 31, 1999. The space
is being leased on a month to month basis until the Company
determines its long-term needs.
* 40,000 square foot plant at 4 Carretera Presa in Acuna,
Coahuila, Mexico, which is leased for $5,000 per month, with
the lease ending November 1999.
* Building in Coahuila, Mexico, for $3,440 per month, with the
lease being renewable.
* The Company leases a 50,000 square foot facility in Allende,
Mexico for $9,806 per month, with an option to purchase any
time during the first fourteen months of the lease. All
lease monies paid would be applied to the purchase price of
$850,000.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
- ------------------------------------------------------------------------
Security Ownership of Certain Beneficial Owners.
- ------------------------------------------------
The following table sets forth the share holdings of those persons
who own more than five percent of the Company's common stock as of the date
hereof with the number of outstanding shares at 5,309,402:
<TABLE>
<CAPTION>
Number of Shares Percentage
Name and Address Beneficially Owned of Class
- ---------------- ------------------ --------
<S> <C> <C>
Fairfax Industries, Inc.(1) 1,488,000 28.02%
46641 Arboretum
Plymouth, Michigan 48170
Cenote Plastics(2) 900,000(4) 16.95%
P. O. Box 421812
Del Rio, Texas 78842-1812
Robert L. Michelini 10,089(3)(5) 00.19%
P. O. Box 1438
Del Rio, Texas 78841
</TABLE>
(1) Robert L. Michelini and Bradley D. Osgood each own 40% of Fairfax
Industries, Inc. See the heading "Securities Ownership of Management," below.
(2) Matt Baumgartner owns 50% of Cenote Plastics. See the heading
"Securities Ownership of Management," below.
(3) Includes 10,089 shares common indirectly owned by Jeanne Michelini.
Does not include the indirect ownership of 744,000 shares listed above under
Fairfax Industries, Inc. Mr. Michelini controls 28.21% of the outstanding
voting securities of the Company, taking into account the shares owned by
Fairfax.
(4) Mr. Michelini is the beneficial owner of 95,500 shares of Series A
Non-Voting Preferred Stock, and these computations do not take into account
the shares of common stock of the Company into which this series of preferred
stock is convertible; these shares of preferred stock are owned by Mr.
Michelini's wife. If these underlying shares of common stock are included in
Mr. Michelini's stock ownership, Mr. Michelini would control 30.01% of the
Company's outstanding voting securities. For specific information regarding
the conversion rights applicable to the Series A Non-Voting preferred stock,
see the heading "Series A Non-Voting Preferred Stock" under the caption
"Description of Securities," Part I, Item 8.
Security Ownership of Management.
- ---------------------------------
The following table sets forth the share holdings of the Company's
directors and executive officers as of the date hereof:
Number of Shares Percentage of
Name and Address Beneficially Owned of Class
- ---------------- ------------------ -------------
[S] [C] [C]
Robert L. Michelini(1)(3) 1,498,089 28.21%
Bradley D. Osgood (1) 1,488,000 28.02%
Matt Baumgartner(2) 1,081,188 20.36%
Fernando Gonzales Garza -0- -0-
Len Baker -0- -0-
(1) Robert L. Michelini and Bradley D. Osgood each own 40% of Fairfax
Industries, Inc. (Fairfax's holdings are included in each person's ownership).
(2) Matt Baumgartner owns 50% of Cenote Plastics, (Cenote's holdings
are included in his ownership), with an additional 10,240 shares in his name,
166,999 in the name of Gecamco International and 3,949 in the name of Gecamex
Associates, Inc. and is the beneficial owner of 160,000 shares of Series A
Non-Voting Preferred Stock, and these computations do not take into account
the shares of common stock of the Company to which this series of preferred
stock is convertible. If these underlying shares of common stock are included
in Mr. Baumgartner's stock ownership, Mr. Baumgartner would control 23.38% of
the Company's outstanding voting securities. For specific information
regarding the conversion rights applicable to the Series A Non-Voting
Preferred Stock, see the heading "Series A Non-Voting Preferred Stock" under
the caption "Description of Securities," Part I, Item 8.
(3) Mr. Michelini is the beneficial owner of 95,500 shares of Series A
non-voting preferred stock and these computations do not take into account the
shares of common stock of the Company to which this series of preferred stock
is convertible; these shares of preferred stock are owned by Mr. Michelini's
wife. If these underlying shares of common stock are included in Mr.
Michelini's stock ownership, Mr. Michelini would control 30.01% of the
Company's outstanding voting securities. For specific information regarding
the conversion rights applicable to the Series A non-voting preferred stock,
see the heading "Series A non-voting" under Part I, Item 8.
See the caption "Directors, Executive Officers, Promoters and
Control Persons," below, Part I, Item 5, for information concerning the
offices or other capacities in which the foregoing persons serve with the
Company.
Changes in Control.
- -------------------
There are no present arrangements or pledges of the Company's
securities which may result in a change in control of the Company.
Item 5. Directors, Executive Officers, Promoters and Control Persons.
- -------- -------------------------------------------------------------
Identification of Directors and Executive Officers.
- ---------------------------------------------------
The following table sets forth the names of all current directors
and executive officers of the Company. These persons will serve until the
next annual meeting of the stockholders or until their successors are elected
or appointed and qualified, or their prior resignation or termination.
<TABLE>
Date of Date of
Positions Election or Termination
Name Held Designation or Resignation
- ---- ---- ----------- --------------
<S> <C> <C> <C>
Robert L. Michelini President, 12/24/97 *
Chairman, 12/24/97 *
CEO 12/24/97 *
and Director 12/24/97 *
Matt Baumgartner Secretary 2/15/98 *
and Director 12/24/97 *
Bradley D. Osgood Director 12/24/97 *
Secretary 12/24/97 2/15/98
Len Baker Vice President 12/24/97 *
Treasurer 12/24/97 *
Director 12/24/97 *
Assistant Sec 12/24/97 *
General Manager12/24/97 *
Automotive Division
Fernando Gonzalez
Garza Director 10/2/98 *
</TABLE>
* These persons presently serve in the capacities indicated.
Business Experience.
- --------------------
Robert L. Michelini, President, Chairman, CEO and a director. Mr.
Michelini is 61 years of age and graduated with a B.B.A. from Western Michigan
University, with a minor in Math and an MBA from the University of Detroit.
He began his business career as a Systems, Analyst with I.B.M. Corporation
where he set up and designed computer systems (1960-1963) and from there moved
on to Bendix Corporation as the Director of Corporate Computer Systems (1963-
1970). From 1970 to 1979, Mr. Michelini worked for Lear Corporation as the
President of Acts Computing and as Vice President of the corporation. During
this time, he developed, set up and ran the online lotto for the State of
Michigan and managed the facility management contract on the largest computer
in the world. Beginning his career as an entrepreneur, Mr. Michelini opened
the doors on Computer Alliance. As Chairman and 60% owner of the Company, his
leadership was instrumental to it being designated as the fastest growing
company in Michigan and 18th in the United States in 1984 (1979-1985). As
President and 50% owner of Fair Haven Industries (1983-1990), Mr. Michelini's
expertise resulted in automotive sales that increased from $2,000,000 to
$22,000,000, with an eventual buy-out by Lear Corporation. From 1990-1994,
Mr. Michelini acted as President of the Bauerhim division of Gecamex
Industries, Inc. ("Gecamex"), while simultaneously holding the position of
Vice President of Gecamex. As such, he was directly responsible for taking
the company from a $500,000 loss in 1990 to a $1,500,000 dollar profit in
1993.
Matt Baumgartner, Secretary and a director. Mr. Baumgartner is 57
years of age and graduated with a Bachelor of Science in Chemical Engineering
and an MBA from the University of Windsor. He worked as a process engineer
for a supplier of automotive plastics from 1964 to 1967, and taught college
mathematics from 1967 to 1980. Since 1980, through the present, Mr.
Baumgartner has been a leader in the entrepreneurial start-up of companies in
the automotive supply industry, together with German partners. Mr.
Baumgartner was the co-founding manager, looking after all aspects of managing
the start-up of the Canadian manufacturing facility in the following
companies: Kautex (now part of Textron), which produced blow-molded plastic
fuel tanks; Kuester (now part of Magna), which produced cable-drive window
lifters; Rasmussen (still independent), which produces quick-connect hose
mechanisms and hose clamps; JOH (now part of the VMI group of Companies),
which produces power-train composite cover/sealing systems; Bauerhin (now part
of the VMI group of Companies), which produces interior trim assemblies and
electric seat heaters; Knapp Plastics (now part of LDM Technologies), which
produces interior and exterior molded plastic automotive parts; Gecamex (now
part of the VMI group of Companies), which was a merger of the JOH and
Bauerhin companies taken public on the Toronto Stock Exchange in 1993.
Bradley D. Osgood, director. Mr. Osgood is 59 years of age and
graduated from Hillsdale College with a degree in Business Administration and
received a M.B.A. in Finance from the University of Michigan at Ann Arbor.
In 1983, he co-founded Fair Haven Industries, Inc. and served as Chairman of
Fair Haven Industries, which was eventually bought out by Lear Corporation
1990. He also co-founded Fairfax Industries, Inc. in 1986 and serves as
Chairman of the Board. In 1994, he became President of Red River Company, a
manufacturer's representative business out of Austin, Texas, primarily working
on behalf of Mexican maquiladoras, selling services to automotive suppliers,
sporting good manufacturers and other businesses utilizing expertise in cut
and sew manufacturing; he still serves as its President.
Len Baker, Vice President, Treasurer, Assistant Secretary and
director. Mr. Baker is 37 years of age and graduated from the Manufacturing
engineering program at St. Clair College in Windsor, Ontario, Canada, and has
continued his education by completing one year in the St. Clair College
Architectural Engineering Technology program; received certification from
completion from the Ontario Management Development Program; received a Human
Resources Certificate through part-time studies; and, completed two years of
study toward a Business of Commerce degree at the University of Windsor. From
August 1983 through March 1993, Mr. Baker held positions as Quality Control
Inspector, Quality Control Supervisor/Statistical Process Control Coordinator,
Plant Manufacturing Engineer, and Quality Control Manager at various
automotive manufacturing companies in Canada. He was personally responsible
for ensuring the quality conformance of stamped automotive parts, training in
the use of S.P.C. and various inspection methods and for the preparation of
Initial Sample Inspection Reports. From March 1993 through December 1997, Mr.
Baker has held positions as General Manager for an Ontario facility that
manufactured seating for Chrysler and was accountable for the profitability of
the operations; Vice President of Manufacturing for manufacturing facilities
for two locations in Canada, one operation in Michigan and the Del Rio,
Texas/Ciudad Acuna operations. Mr. Baker accepted the position of General
Manager of Gecamex in October of 1994, a position he held through the recent
reorganization and continues to hold for VMI.
Fernando Gonzales Garza, Director. Mr. Gonzales is 43 years of age and
graduated with a degree in Business Administration from Universidad
Regiomontana in Monterrey, Nuevo Leon, Mexico and continued his education at
Texas A & M International University, Laredo, Texas, receiving a Master of
Business Administration on International Trade. He founded AFRASA
International in 1977. Mr. Gonzalez in President and CEO of AFRASA, a company
engaged in retailing and distributing auto parts. The company employs 44
people and maintains six retail stores and two warehouses. Mr. Gonzalez is
and has been actively involved in politics in Acuna, and is a member of the
Chamber of Commerce on both sides of the border.
Significant Employees.
- ----------------------
The Company has no significant employees who are not executive
officers.
Family Relationships.
- ---------------------
None.
Involvement in Certain Legal Proceedings.
- -----------------------------------------
During the past five years, no present or former director,
executive officer or person nominated to become a director or an executive
officer of the Company:
(1) was a general partner or executive officer of any business
against which any bankruptcy petition was filed, either at the time of the
bankruptcy or two years prior to that time;
(2) was convicted in a criminal proceeding or named subject to a
pending criminal proceeding (excluding traffic violations and other minor
offenses);
(3) was subject to any order, judgment or decree, not subsequently
reversed, suspended or vacated, of any court of competent jurisdiction,
permanently or temporarily enjoining, barring, suspending or otherwise
limiting his involvement in any type of business, securities or banking
activities; or
(4) was found by a court of competent jurisdiction (in a civil
action), the Securities and Exchange Commission or the Commodity Futures
Trading Commission to have violated a federal or state securities or
commodities law, and the judgment has not been reversed, suspended or vacated.
Item 6. Executive Compensation.
- --------------------------------
The following table sets forth the aggregate compensation paid
by the Company for services rendered during the periods indicated:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Secur-
ities All
Name and Year or Other Rest- Under- LTIP Other
Principal Period Salary Bonus Annual rictedlying Pay- Comp-
Position Ended ($) ($) Compen-Stock Optionsouts ensat'n
- -----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert L.
Michelini,
President, 12/31/97 0 0 0 0 0 0 0
Chairman, 12/31/98 $80000 0 0 0 0 0 0
CEO and
Director
Matt
Baumgartner,
Secretary 12/31/97 0 0 0 0 0 0 0
and Director12/31/98 0 0 0 0 0 0 0
Bradley D.
Osgood,
Director 12/31/97 0 0 0 0 0 0 0
12/31/98 0 0 0 0 0 0 0
Len Baker,
Director, 12/31/97 $85000 0 0 0 0 0 0
General
Manager 12/31/98 $45000 0 0 0 0 0 0
</TABLE>
Other than the salary listed above, no cash compensation, deferred
compensation or long-term incentive plan awards were issued or granted to the
Company's management during the fiscal years ended December 31, 1998 or 1997.
Further, no member of the Company's management has been granted any option or
stock appreciation rights; accordingly, no tables relating to such items have
been included within this Item.
The two executive officers who are currently salaried, Messrs.
Michelini and Baker, are not paid for specifically serving as directors or
executive officers; Mr. Baker is paid as the General Manager of the Automotive
Division, and Mr Michelini is paid as the CEO. There are no plans to pay any
of the other persons serving as directors or executive officers in these
capacities or any other capacity.
Compensation of Directors.
- --------------------------
There are no standard arrangements pursuant to which the Company's
directors are compensated for any services provided as director. No
additional amounts are payable to the Company's directors for committee
participation or special assignments.
Employment Contracts and Termination of Employment and Change-in-Control
Arrangements.
- -------------
There are no employment contracts, compensatory plans or
arrangements, including payments to be received from the Company, with respect
to any director or executive officer of the Company which would in any way
result in payments to any such person because of his or her resignation,
retirement or other termination of employment with the Company or its
subsidiaries, any change in control of the Company, or a change in the
person's responsibilities following a change in control of the Company.
Item 7. Certain Relationships and Related Transactions.
- --------------------------------------------------------
The following is the material transaction between the Company and any
director, executive officer, five percent stockholder or promoter or founder
of the Company:
* See the heading "Reorganizations," Part I, Item 1, paragraph
(2) and also see Part III, Item 1, Exhibit 10.2, "Offer to
Purchase dated August 14, 1998 of JOH Rubber Inc."
Parents of the Issuer.
- ----------------------
The Company has no parents. See the caption "Business
Development," Part I, Item 1.
Item 8. Description of Securities.
- -----------------------------------
The Company has two classes of securities authorized, consisting of
25,000,000 shares of $0.001 par value common voting stock and 12,500,000
shares of $0.25 par value non-convertible preferred voting stock.
Common Stock
------------
The holders of the Company's common stock are entitled to one vote
per share on each matter submitted to a vote at a meeting of stockholders.
The shares of common stock do not carry cumulative voting rights in the
election of directors.
Stockholders of the Company have no pre-emptive rights to acquire
additional shares of common stock or other securities. The common stock is
not subject to redemption rights and carries no subscription or conversion
rights. In the event of liquidation of the Company, the shares of common
stock are entitled to share equally in corporate assets after satisfaction of
all liabilities. All shares of the common stock now outstanding are fully
paid and non-assessable.
There are no outstanding options, warrants or calls respecting any
of the authorized but unissued common stock of the Company.
There is no provision in the Company's Articles of Incorporation, as
amended, or Bylaws, as amended, that would delay, defer, or prevent a change
in control of the Company.
Preferred Stock
---------------
The are two classes of preferred stock authorized to be issued by
the Board of Directors (i) preferred stock, and (ii) Series A Non-Voting
Preferred Stock.
Preferred Stock
---------------
* Non-voting.
* $233,541 liquidation preference.
* Convertible to common on a basis of one for one.
* 5,921 shares outstanding.
Series A non-voting
--------------------
* Non-voting.
* Redemption or Face Value of $1 per share.
* 5% cumulative cash dividend on the Redemption or Face Value.
* callable at any time by the Company, by payment of the
Redemption or Face Value and any accrued 5% cumulative
dividends.
* convertible at the option of the holder into "restricted
securities" in common stock of the Company at the Redemption
or Face Value, on the closing bid of the common stock of the
Company on the OTC Bulletin Board of the NASD or any other
recognized market where these securities publicly trade on
the day prior to the conversion.
* that the holder can "put" the unconverted preferred stock to
the Company at the Redemption or Face Value three years
after the issuance date of the preferred stock.
* in the event for any reason the preferred stock is still
outstanding after three years from its issuance, the
Company, at its option, may convert the Redemption or Face
Value into "restricted securities" in common stock of the
Company on the closing price of the common stock of the
Company on the OTC Bulletin Board of the NASD or any other
recognized market where these securities publicly trade on
the day prior to conversion.
* Share equally in assets on distribution, pro rata, with the
common stockholders.
* 400,000 were issued to the JOH stockholders; see the heading
"Reorganizations," Part I, Item 1, paragraph (2).
There are no outstanding options, warrants or calls respecting any
of the authorized but unissued preferred stock of the Company.
PART II
Item 1. Market Price of and Dividends on the Company's Common Equity and
Other Stockholder Matters.
- --------------------------
Market Information.
- -------------------
The Company's common stock is quoted on the OTC Bulletin Board of
the NASD under the symbol "PESO." Quotations commenced on July 1, 1997, as
"unpriced."
The following quotations were provided by the National Quotation
Bureau, LLC, and do not represent actual transactions; these quotations do not
reflect dealer markups, markdowns or commissions.
<TABLE>
<CAPTION>
STOCK QUOTATIONS*
CLOSING BID
Quarter ended: High Low
- -------------- ---- ---
<S> <C> <C>
September 30, 1997 unpriced
December 31, 1997 unpriced
March 31, 1998 unpriced
June 30, 1998 5.00 5.00
September 30, 1998 5.75 .1875
December 31, 1998 1.5625 .16
</TABLE>
Restricted Securities
- ---------------------
There are currently 5,309,402 outstanding voting securities of the
Company, 5,008,091 of which are designated as "restricted securities." Of
these 5,008,091 "restricted securities," all have satisfied the one year
holding period of Rule 144, and may be publically sold in accordance with this
Rule; the effectiveness of this Registration Statement will enable the Company
to have "current public information" available for resale of "restricted
securities" 90 days after the effective date, which was May 9, 1999, so long
as all required reports have been filed. Any sales of these "restricted
securities" could have an adverse affect on the current or any future public
market for the Company's common stock.
Holders.
- --------
The number of record holders of the Company's common stock as of the
date of this Registration Statement is approximately 178.
Dividends.
- ----------
The Company has not declared any cash dividends with respect to
its common stock or its preferred stock, and does not intend to declare
dividends in the foreseeable future. The future dividend policy of the
Company cannot be ascertained with any certainty, no such policy will be
formulated. There are no material restrictions limiting, or that are likely
to limit, the Company's ability to pay dividends on its securities.
Item 2. Legal Proceedings.
- ---------------------------
The Company is not a party to any pending legal proceeding. No
federal, state or local governmental agency is presently contemplating any
proceeding against the Company. No director, executive officer or affiliate
of the Company or owner of record or beneficially of more than five percent of
the Company's common stock is a party adverse to the Company or has a
material interest adverse to the Company in any proceeding.
Item 3. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
- ---------------------
There have been no changes in the Company's principal independent
accountant in the past two fiscal years or as of the date of this Registration
Statement.
Item 4. Recent Sales of Unregistered Securities.
- -------------------------------------------------
Date Number of Aggregate
Name or Group Acquired Shares Consideration
------------- -------- --------- -------------
Common Stock
VMI Plan
VMI stockholders 12/24/97 3,000,000 (1)
Consultants and
attorneys 12/24/97 450,000 (2)
Finders and their
donees 12/24/97 1,150,000 (3)
Private Placement 12/24/97 350,000 (4)
JOH Purchase
JOH stockholders 8/14/98 193,767 (5)
Leonard W. Burningham,
Esq. 1/21/99 7,500 (6)
Preferred Stock
JOH Purchase
JOH Stockholders 8/14/98 400,000 (7)
(1) These shares were issued in exchange for shares owned in VMI.
See Part III, Item 1, Exhibit A of Exhibit 10.1; also see Section 1.1(i)
of Exhibit 10.1.
(2) 450,000 shares of "unregistered" and "restricted" common stock for non-
capital raising services rendered by Consultants and Attorneys, all
issued pursuant to Rule 701 of the Securities and Exchange Commission.
See Part III, Item 1, Schedule A of Exhibit 10.1; see also Section
1.1(ii) of Exhibit 10.1, and Exhibit 10.3.
(3) "Unregistered" and "restricted" common stock issued under an exemption
from registration provided for under Section 4(2) of the Securities Act
of 1933, as amended, (the "1933 Act"), as finders and their donees. See
Part III, Item 1, Schedule B, C, D and E of Exhibit 10.1; see also
Section 1.1(iii) and (iv) of Exhibit 10.1.
(4) "Unregistered" and "restricted" common stock issued pursuant to a
Private Placement made in reliance on Section 4(2) of the 1933 Act. See
Part III, Item 1, Exhibit B of Exhibit 10.1; see also Section 1.1(v) of
Exhibit 10.1.
(5) 193,767 "restricted" shares issued pursuant to the JOH Purchase. See
Part III, Item 1, Exhibit 10.2.
(6) Issued pursuant to an Engagement Letter under Rule 701 of the Securities
and Exchange Commission. See Part III, Item 1, Exhibit 10.4.
(7) Issued to the JOH Stockholders; see the heading "Reorganization," part
I, Item 1, paragraph (2).
Management believes each of the foregoing persons or entities was
either an "accredited investor," or "sophisticated investor" as defined in
Regulation D, Rule 506. Each had access to all material information regarding
the Company prior to the offer, sale or issuance of these "restricted
securities." The Company believes these shares were exempt from the
registration requirements of the Securities Act of 1933, as amended (the "1933
Act"), pursuant to Section 4(2) thereof.
Item 5. Indemnification of Directors and Officers.
- ---------------------------------------------------
Section 78.751(1) of the Nevada Revised Statutes ("NRS")
authorizes a Nevada corporation to indemnify any director, officer, employee,
or corporate agent "who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, except an action by or
in the right of the corporation" due to his or her corporate role. Section
78.751(1) extends this protection "against expenses, including attorneys'
fees, judgments, fines and amounts paid in settlement actually and reasonably
incurred by him or her in connection with the action, suit or proceeding if he
or she acted in good faith and in a manner which he or she reasonably believed
to be in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe his or her conduct was unlawful."
Section 78.751(2) of the NRS also authorizes indemnification of
the reasonable defense or settlement expenses of a corporate director,
officer, employee or agent who is sued, or is threatened with a suit, by or in
the right of the corporation. The party must have been acting in good faith
and with the reasonable belief that his or her actions were not opposed to the
corporation's best interests. Unless the court rules that the party is
reasonably entitled to indemnification, the party seeking indemnification must
not have been found liable to the corporation.
To the extent that a corporate director, officer, employee, or
agent is successful on the merits or otherwise in defending any action or
proceeding referred to in Section 78.751(1) or 78.751(2), Section 78.751(3) of
the NRS requires that he be indemnified "against expenses, including
attorneys' fees, actually and reasonably incurred by him or her in connection
with the defense."
Section 78.751 (4) of the NRS limits indemnification under
Sections 78.751 (1) and 78.751(2) to situations in which either (1) the
stockholders, (2)the majority of a disinterested quorum of directors, or (3)
independent legal counsel determine that indemnification is proper under the
circumstances.
Pursuant to Section 78.751(5) of the NRS, the corporation may
advance an officer's or director's expenses incurred in defending any action
or proceeding upon receipt of an undertaking by or on behalf of the director
or officer to repay the amount if it is ultimately determined by a court of
competent jurisdiction that he is not entitled to be indemnified by the
corporation. Section 78.751(6)(a) provides that the rights to indemnification
and advancement of expenses shall not be deemed exclusive of any other rights
under any bylaw, agreement, stockholder vote or vote of disinterested
directors. Section 78.751(6)(b) extends the rights to indemnification and
advancement of expenses to former directors, officers, employees and agents,
as well as their heirs, executors, and administrators.
Regardless of whether a director, officer, employee or agent has
the right to indemnity, Section 78.752 allows the corporation to purchase and
maintain insurance on his behalf against liability resulting from his or her
corporate role.
PART F/S
Index to Financial Statements
Report of Certified Public Accountants
Financial Statements
- --------------------
Audited Financial Statements for the year ended December 31, 1998 and
1997*
----
Independent Auditors' Report
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
* Filed with the 10-SB-A1, and also filed with this report with minor
changes.
<PAGE>
INDEPENDENT AUDITORS REPORT
To the Board of Directors
Northport Industries, Inc.
(formerly Versatech Manufacturing, Inc.,
Hawk Systems, Inc., and Environmental Pyrogenics, Inc.)
Del Rio, Texas
We have audited the accompanying consolidated balance sheet of Northport
Industries, Inc. and subsidiary as of December 31, 1998, and the related
consolidated statements of income, stockholders' equity and cash flows for the
two 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 audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated 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 financial position of Northport
Industries, Inc. and subsidiaries as of December 31, 1998, and the results of
their operations and their cash flows for the periods then ended in conformity
with generally accepted accounting principles.
Malone & Bailey, PLLC
Houston, Texas
March 19, 1999
<PAGE>
<TABLE>
NORTHPORT INDUSTRIES, INC.
(Formerly Versatech Manufacturing, Inc.,
Hawk Systems, Inc., and Environmental Pyrogenics, Inc.)
CONSOLIDATED BALANCE SHEET
December 31, 1998
<CAPTION>
ASSETS
<S> <C>
Current Assets
Cash $ 12,038
Accounts receivable 216,254
Inventory 337,799
Prepaid expenses 7,526
Total Current Assets 573,617
Property and Equipment, net of $106,730 accumulated depreciation 637,965
Patent, net of $20,578 accumulated amortization 308,669
Deposits 48,664
TOTAL ASSETS $1,568,915
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of installment debt $ 16,054
Bank credit line payable 68,096
Due to related parties 61,999
Accounts payable 339,778
Accrued expenses 57,642
Income taxes payable 4,751
Total Current Liabilities 548,320
Long-Term Debt
Installment debt 27,243
Total Liabilities 575,563
Redeemable common stock 181,513
Stockholders' Equity
Redeemable preferred stock, $.25 par value, 12,500,000 shares
authorized, 405,921 shares issued and outstanding 1,542
Common stock, $.001 par value, 25,000,000 shares authorized,
5,194,169 and 5,000,000 shares issued and outstanding,
respectively 5,194
Paid in capital 1,522,310
Retained <deficit> ( 717,207)
Total Stockholders' Equity 811,839
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $1,568,915
</TABLE>
See accompanying summary of accounting policies
and notes to financial statements.
<TABLE>
NORTHPORT INDUSTRIES, INC.
(Formerly Versatech Manufacturing, Inc.,
Hawk Systems, Inc., and Environmental Pyrogenics, Inc.)
CONSOLIDATED INCOME STATEMENTS
Years Ended December 31, 1998 and 1997
<CAPTION>
1998 1997
<S> <C> <C>
Revenues, net of returns and allowances
of $0 and $120,000, respectively $3,766,930 $1,740,902
Cost of sales 2,954,605 2,151,379
Gross Margin (Deficit) 812,325 ( 410,477)
Operating Expenses
Selling 80,387 32,030
General and administrative 580,983 281,131
Patent amortization 20,578
Interest 17,767 62,522
Bad debts (recovery) ( 11,225) 50,130
688,490 425,813
Net income before income taxes 123,835 ( 836,290)
Income taxes ( 4,751)
Net income (loss) $ 119,084 $( 836,290)
Per share calculations:
Income applicable to common shareholders:
Net income (loss) per the above $ 119,084 $( 836,290)
Less: redeemable preferred stock accretion ( 16,889)
Net income applicable to common shareholders$ 102,195
Net income (loss) per common share $ .02 $ (0.28)
Weighted average common shares outstanding 5,078,347 3,038,356
</TABLE>
See accompanying summary of accounting policies
and notes to financial statements.
<TABLE>
NORTHPORT INDUSTRIES, INC.
(Formerly Versatech Manufacturing, Inc.,
Hawk Systems, Inc., and Environmental Pyrogenics, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1998 and 1997
<CAPTION>
1998 1997
<S> <C> <C>
Cash Flows Used By Operating Activities
Net income (loss) $ 119,084 $( 836,290)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 65,303 41,427
Patent amortization 20,578
Expenses offset by contribution to equity
Stockholder salary 74,400
Stockholder loan interest 62,070
Stockholder services 15,583
Changes in net assets and liabilities
Accounts receivable (421,629) ( 248,929)
Inventory ( 58,333) ( 249,466)
Prepaid expenses 4,818 ( 12,345)
Accounts payable 119,073 220,705
Accrued expenses 31,003 38,639
Income taxes payable 4,752
Net Cash Used By Operating Activities (115,351) ( 894,205)
Cash Flows Used By Investing Activities
Purchases of property and equipment ( 76,745) ( 115,474)
Deposits made ( 48,664)
Net Cash Used By Investing Activities (125,409) ( 115,474)
Cash Flows From Financing Activities
Sale of common stock 139,700 1,000
Collections of stock subscriptions 20,000
Advances (net) on bank credit line 68,096
Proceeds from advances by stockholders 6,239 984,144
Proceeds from new installment debt 59,597
Payments of installment debt ( 15,033) ( 1,266)
Net Cash From Financing Activities 219,002 1,043,475
Net increase (decrease) in cash ( 21,758) 33,796
Cash Balance
- at beginning of year 33,796 0
- at end of year $ 12,038 $ 33,796
</TABLE>
See accompanying summary of accounting policies
and notes to financial statements.
<TABLE>
NORTHPORT INDUSTRIES, INC.
(Formerly Versatech Manufacturing, Inc.,
Hawk Systems, Inc., and Environmental Pyrogenics, Inc.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1998 and 1997
<CAPTION>
Preferred Stock Common Stock Paid In Accumulated
Shares Amount Shares Amount Capital (Deficit) Totals
<S> <C> <C> <C> <C> <C> <C> <C>
- - No activity prior to January 1, 1997 - -
Stock issued
for Initial
Contributions
- Cash 100 $ 100 $ 900 $ 1,000
Conversion to equity
of additional
amounts payable to
original
stockholders
- Cash 407,137 407,137
- Equipment 370,699 370,699
- Accrued loan
interest 56,606 56,606
Reverse merger with
VMI:
Existing EPI stock 5,921$1,542 50,000 50 (1,592)
Additional capital
contributions
- Cash 350,000 350 49,650 50,000
- Services 1,600,000 1,600 158,400 160,000
Exchange of $1
par VMI
stock for $.001
par Company stock
- reversal of
$1 par (100) (100) 100
- issuance
of $.001 par 3,000,000 3,000 (3,000)
Less: costs of
issuance (160,000) (160,000)
Contribution of
services by officer 74,400 74,400
Imputed interest
on stockholder
cash advances 5,464 5,464
Net (loss) $(836,290)(836,290)
Balances,
December 31, 1997 5,921 $1,542 5,000,000 $5,000 $958,764 $(836,290)$129,016
Stock contributed
by Fairfax (900,000) ( 900) 900
Conversion of
note payable to
stock 900,000 900 89,100 90,000
Patent purchase 80,400 80 164,543 164,623
Acquisition of
GTI shares 400,000 - 193,767 194 402,839 403,033
Sale of GTI
shares for Company
stock (367,500) ( 368)(402,665) (403,033)
Acquisition of
Gecamex assets 186,305 186,305
Stock sold for
cash 51,750 52 78,448 78,500
J. B. Marc
settlement 235,752 236 60,964 61,200
Accretion of
preferred stock (16,889) (16,889)
Net income $ 119,084 119,084
Balances, December
31, 1998 405,921 $1,542 5,194,169 $5,194$1,522,310$(717,207)$811,839
</TABLE>
See accompanying summary of accounting policies
and notes to financial statements.
NORTHPORT INDUSTRIES, INC.
(Formerly Versatech Manufacturing, Inc.,
Hawk Systems, Inc., and Environmental Pyrogenics, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization. The Company was incorporated as a Nevada corporation on
December 8, 1986, under the name Environmental Pyrogenics, Inc. On December
24, 1997, the Company changed its name to Northport Industries, Inc. in
connection with the merger with VMI, Inc. ("VMI"), a Texas corporation.
On December 24, 1997, the Company and VMI completed an Agreement and Plan of
Reorganization whereby the Company (a) reduced its total outstanding shares
from 7,888,334 to 50,000 shares by a reverse split of 157.76668 for 1, and (b)
issued 3,000,000 shares of common stock in exchange for all of the outstanding
shares of VMI. The Company then issued 1,600,000 shares to promoters,
advisers and attorneys and sold 350,000 shares to raise $350,000 cash. Of
this amount, $300,000 was kept by the EPI promoters, $30,000 was transferred
to the VMI bank account in December 1997 and $20,000 was collected and
transferred in January 1998. EPI thus contributed cash of $30,000 and stock
subscriptions receivable of $20,000 in the reorganization. The shares were
valued at about $.105 per share, and the net value of the services performed
was recorded at $160,000, as a reduction of stockholders' equity. VMI remains
a wholly-owned subsidiary.
The acquisition was accounted for as a recapitalization of VMI because the
shareholders of VMI controlled the Company after the acquisition. Therefore,
VMI is treated as the acquiring entity. There was no adjustment to the
carrying value of the assets or liabilities of VMI in the exchange. The
Company is the acquiring entity for legal purposes and VMI is the surviving
entity for accounting purposes.
VMI originally incorporated itself in Texas as Hawk Systems, Inc. on December
27, 1996. The Company renamed itself Versatech Manufacturing, Inc. in June,
1997.
Nature of Business. VMI was the result of the evolution of a joint venture
between a wholly-owned subsidiary [Gecamex Industries, Inc. ("Gecamex")] of
the Canadian public company Versatech Industries, Inc. ("Versatech - Canada"),
and Fairfax Industries, Inc. ("Fairfax"), a Michigan corporation. The Company
currently operates a 20,000 square foot warehouse in Del Rio, Texas and a
40,000 square foot maquiladora production plant in Acuna, Mexico, across the
border from Del Rio. The Company machine-sews golf bags, leather auto
replacement parts and child safety seats.
Beginning January 1999, the Company leased a 50,000 square foot plant in
Allende, Mexico - about 50 miles south of Acuna.
Principles of consolidation. The financial statements include the accounts of
the Company and its wholly-owned subsidiaries, VMI and Gecamex S.A. de C.V., a
Mexican corporation. Significant intercompany transactions and balances have
been eliminated. The Company subcontracts all Mexican plant operations to a
nominee owner, Industrias Loving S.A. de C.V., in Mexico, through which the
Company substantially directs all such operations. All such costs are paid
weekly and included as manufacturing costs of the Company.
Estimates and assumptions. Preparing financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenue and expenses at the balance sheet date and for the period then ended.
Actual results could differ from these estimates.
Foreign currencies. All Mexican costs and expenses are paid as incurred in U.
S. dollars translated at the then-prevailing exchange rate. No assets or
liabilities exist at balance sheet date that are denominated in any foreign
currency. No funds are held in foreign currencies and no currency trading
gains or losses are recorded during the year.
Revenue recognition. Revenue is recognized when products are shipped. Bad
debts are written off as identified.
Cash and equivalents represent cash and short-term, highly liquid investments
with original maturities three months or less.
Inventory is stated at the lower of cost or market. Cost is determined using
the first-in, first-out (FIFO) method. A summary of inventory is as follows:
Finished goods - golf bags $ 78,251
Raw materials
- golf bags 131,662
- baby seats 22,004
- stitched leather auto parts 105,862 259,528
$337,779
Property and equipment are recorded at cost. Assets acquired from either of
the two original shareholders are recorded at their original cost.
Depreciation for financial reporting purposes is determined on a straight-line
basis with the following estimated useful lives, by class:
Production / warehouse equipment 10 years $642,252
Vehicles 5 " 60,940
Office furniture / equipment 3 - 10 " 41,503
$744,695
Income taxes. Mexican income taxes are reported by the nominee Mexican entity
on nominal earnings and are reimbursed by the Company. Such amounts are
considered immaterial and are included as a cost of goods sold. U. S. Income
taxes are filed on a consolidated basis, and there are no significant
deferrals. See Note 7 for a discussion of the Section 382 limitation.
Preferred stock has two classes. "Regular" preferred stock has a liquidation
preference of $39.44 per share, a cumulative dividend of 5%, and is
convertible by its holders at a rate of $1 per preferred share into common
stock at current market price. "Series A" preferred has a liquidation
preference of $1 per share, and all other features of the "regular" preferred
stock. Either preferred stock may be callable by the Company by payment of
Redemption Value ($151.45 per share) for "regular" preferred stock, or $1 per
share for the "Series A" preferred stock.
No dividends have ever been declared or paid by the Company. $10,077 in total
cumulative arrearage dividends ($.05 per share) are due if the Company ever
declares dividends.
Earnings per share are computed on the basis of the weighted average number of
common shares outstanding, in accordance with FASB Statement 128. Included in
the calculation is $10,077 cumulative, preferred dividends which have not yet
been earned. One outstanding stock option existed at year-end, and was
immaterial with respect to this calculation. There were no stock-based
compensation arrangements.
Reclassifications have been made to the 1997 financial statements to conform
to the categories used for 1998.
Cash flow statement disclosures include interest actually paid during 1998 and
1997 of $32957 and $452, respectively. Other non cash transactions include:
1998: Purchase of Joh license and patent for 80,400 shares of common stock,
80,400 shares of redeemable common stock, and 400,000 shares of
preferred stock convertible to common after three years, valued
collectively at $329,247. This license and patent are valued at cost,
which approximates management's estimate of fair market value on the
acquisition date.
Receipt of $180,777 in manufacturing equipment and 100% of the
outstanding stock of the Mexican, Gecamex Industries S.A. de C.V. as a
contribution of capital by the former shareholder Gecamex Industries,
Inc. ("Gecamex") (a Texas corporation), coupled with the collection of
$454,305 in trade receivables from Gecamex in exchange for $458,833 in
various debts owed, with the $4,528 balance included as a contribution
of capital (Note 2).
1997: Contributions of $30,000 in inventory and $370,699 in fixed assets by
Gecamex
Exchange of services for stock by EPI consultants valued at
$160,000
Imputed officer salary of $74,400 and related party imputed loan
interest of $5,464 contributed to capital
Gecamex accrued interest contributed to capital of $56,606
Accrued stockholder consulting services of $15,583.
The above 1997 non-cash transactions were expensed in 1997.
FAS 131 disclosures: All company products are aggregated as one business
segment for financial reporting purposes, since the production methods for
assembling the various products are similar and assembly equipment is similar.
Substantially all Company fixed assets are located at the Company's facilities
in Mexico.
NOTE 2 - GECAMEX RELATIONSHIP
Gecamex had been operating maquiladora plants in Mexico since 1991. On
January 2, 1997, Fairfax entered into an agreement with Gecamex to form VMI,
with $300,000 in fair value of sewing machines and related equipment sold by
Fairfax to the Company in exchange for a note payable to Fairfax, and $300,000
in cash loaned by Gecamex. In December 1997, Gecamex converted its entire
equity investment in VMI in exchange for debt totaling $400,000 and a 5%
royalty on certain revenues.
On June 5, 1998, VMI entered into an agreement with an individual, Guenter Joh
("Joh") whereby (i) VMI issued 80,800 shares of common stock, and another
80,800 common shares which are redeemable at $3 in June, 2000, in exchange for
all North American rights to a U. S. patent for a proprietary automotive power
train sealing process using a plastic and rubber compound, and (ii) VMI
purchased Joh Rubber, Inc., whose sole asset was 289,203 shares of Gecamex
Technologies, Inc., ("GTI") for 193,767 shares of Company common stock.
GTI is a subsidiary of Versatech and a portion of GTI's shares are publicly
traded on a Canadian stock exchange. The power train sealing process rights
are exclusive globally excepting Europe. The transaction was valued at
$329,247.
On June 22, 1998, Gecamex liquidated its remaining relationship with VMI by
trading assets and obligations which resulted in (i) Gecamex selling the
remainder of its Mexican operation equipment to the Company for $180,777, (ii)
Versatech - Canada returning its 367,500 shares of VMI stock, (iii) Gecamex
canceling $458,825 in debt owed by VMI, (iv) VMI canceling $453,297 in debt
owed it by Versatech - Canada, (v) VMI turning over its 289,203 shares of GTI
to Gecamex, and (vi) VMI transferring non-exclusive rights to the Joh power
train sealing process to Gecamex. The transaction is valued at a net
$186,305.
A summary of this transaction is as follows:
DR CR
Receipt of Gecamex fixed assets $180,777
Cancellation of Gecamex debt 458,825
Collection of accounts receivable
from Versatech $453,297
Additional paid in capital 186,305
VMI inherited Gecamex's principal customer, Regal Plastics, Inc. in this
transaction. 1998 sales to Regal from Gecamex were $1,527,000, or 40.5% of
total 1998 sales.
Stockholders' equity was increased $350,929 and redeemable common stock by
$164,623 by the above two transactions.
NOTE 3 - BANK CREDIT LINE
The Company secured a revolving credit line from Del Rio National Bank on
October 27, 1998. This line bears interest at prime + 3%, matures April 25,
1999, and allows the Company to borrow up to 100% of major customer accounts
receivable less than 60 days old. The Company is in discussions to expand
this credit line availability.
NOTE 4 - INSTALLMENT DEBT
A summary as of December 31, 1998 is as follows:
Two notes payable to GMAC, payable in 24 remaining equal monthly
installments of $1,056, including interest at 9.6% APR,
collateralized by two 1997 Chevrolet vans $ 31,490
Note payable to Clark Credit, payable in 21 remaining equal monthly
installments of $573, including interest at 10.4% APR,
collateralized by a forklift 11,807
Less: amounts due in 1999 (16,054)
Net long-term portion due $ 27,243
All long-term debt is due in 2000.
NOTE 5 - RELATED PARTY DEBT
Related party debt consists of advances of $33,528 to Fairfax and $28,471 to
Robert Michelini. These notes are payable on demand.
NOTE 6 - FEDERAL INCOME TAXES
Under Internal Revenue Code Section 382, losses are limited whenever Company
ownership changes more than 50% within any 36-month period. The Company
experienced a 63% ownership change as of February 1998 and therefore 1997
losses of $836,290 offset by 1998 profits through February of $55,804 allow
prior operating losses to offset 1998 income by $80,270 and $29,183 per year
for 1999 - 2018. The maximum Net Operating Loss available in these future
years is $639,464.
NOTE 7 - REDEEMABLE COMMON SHARES
In connection with its purchase of the Joh patent in June 1998, the Company
issued 80,800 shares of common stock, redeemable at $3 per share in June 2000.
The Company has applied a risk-adjusted discount factor of 20.5% to record
these shares in June 1998 for $164,623. This component was recorded as a
liability since redemption is beyond Company control. 1998 interest of
$16,889 was recorded as accretion of this obligation.
The 20.5% discount factor was determined by management to be the most accurate
assessment of true interest cost for this obligation, taking into account the
Company's financial position and the financial marketplace.
NOTE 8 - J. B. MARC & ASSOCIATES, INC.
In 1998, the Company hired an investment banker, J. B. Marc & Associates, Inc.
("J. B. Marc"), to sell its common stock. Through a stock offering exempt
from registration under Rule 504, J. B. Marc sold shares for $61,200. A
dispute arose regarding performance and compensation and the contract was
canceled. Total consideration paid to J. B. Marc, including stock distributed
to the buyers for this effort was 235,752 shares.
Additional common stock sold directly by the Company was 51,750 shares for
$78,500.
NOTE 9 - OPERATING LEASES
The Company currently leases its Del Rio warehouse under a month-to-month
arrangement for $1,650 per month. Its three Mexican facilities are leased
through its Mexican nominee company for $12,540 per month, expiring in 1999.
The new Allende facility was leased beginning January 1999 for a 14-month term
at $11,277 per month which includes a 15% VAT. Minimum lease payments due are
$265,064 in 1999 and $22,554 in 2000.
NOTE 10 - CONTINGENCIES
In addition to Mexican federal payroll taxes, Mexican law requires termination
pay for employees who are laid off. Such payment is based on a formula
including pay rate and years of service. Consistent with the practice of
other maquiladora plants, the Company has not set up a reserve for such
payments, contending they are unlikely to ever be due. If an employee quits,
he or she is not entitled to any such termination pay. The Company
estimates its maximum theoretical exposure to such a liability, as if all
employees had been laid off on December 31, 1998, of $150,000.
Many debts of TTM (see Note 2), incurred before its assets were purchased by a
predecessor of the Company on February 3, 1995, remain unpaid due to the
insolvency of TTM. While the Company claims priority creditor status due to
its filing of a lien in Texas for unpaid debts due by TTM to the Company, some
of these debts are from Mexico where Texas law regarding priority status of
secured creditors may not apply. In 1998, the Company wrote off its $30,000
reserve for claims set up in 1997, because no significant claims ever
occurred.
NOTE 11 - MAJOR CUSTOMERS AND VENDORS
Major customers during 1998 were:
Evenflo / Gerry Baby Products $2,087,819 or 55.4% of sales
Regal / Versatech 1,527,393 " 40.5 " "
The Company transferred $1,737,840 to the Mexican corporation during 1998 to
pay for Mexican plant rent, salaries and other overhead. There were no other
vendors that accounted for 10% or more separately of the Company's cost of
goods sold.
PART III
Item 1. Index to Exhibits.
- ---------------------------
The following exhibits are filed as a part of this Registration
Statement:
<TABLE>
<CAPTION>
Exhibit
Number Description*
- ------ ------------
<S> <C>
3.1 Initial Articles of Incorporation**
3.2 Certificate of Amendment to
Articles of Incorporation dated January 8, 1998
respecting name change and 157.7668 for 1 reverse split**
3.3 Certificate of Amendment to the Articles of Incorporation
dated December 1, 1998, regarding the Series A Non-Voting
Preferred Stock**
3.4 By-Laws**
10.1 Agreement and Plan of Reorganization dated December 24, 1997**
Exhibit A-Versatech Manufacturing Inc. stockholders
Schedule A-701 securities
Schedule B-Section 4(2) securities
Schedule C-Section 4(2) securities
Schedule D-Section 4(2) securities
Schedule E-Section 4(2) securities
Exhibit B-Private Placement Stockholders
Exhibit C-Environmental Pyrogenics, Inc. financial statements for
the years ended December 31, 1996 and 1995 and for the
period ended March 31, 1997
Exhibit D-Exceptions
Exhibit E-Versatech Manufacturing, Inc. financial statements
Exhibit F-Exceptions
Exhibit G-Investment Letter
Exhibit H-Certificate of Officer for Environmental Pyrogenics,
Inc.
Exhibit I-Certificate of Officer for Versatech Manufacturing, Inc.
10.2 Offer to Purchase dated August 14, 1998 of JOH Rubber Inc.*
Schedule B-Release
10.3 Written Compensation Agreement dated December 22, 1997**
10.4 Engagement Letter**
10.5 Agreement with Even Flo, Inc.
10.6 Agreement with W.E.T. Automotive Systems, Inc.
10.7 Agreement with Elastomeros Technicos Mundiales S.A. de C.V.
22 Subsidiaries**
27 Financial Data Schedule**
</TABLE>
* Summaries of all exhibits contained within this
Registration Statement are modified in their
entirety by reference to these Exhibits.
* Incorporated by reference from initial filing.
SIGNATURES
In accordance with Section 12 of the Securities
Exchange Act of 1934, the Registrant has caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto
duly authorized.
NORTHPORT INDUSTRIES, INC.
Date: 12/8/99 By:/s/Robert L. Michelini
------------------------
Robert L. Michelini, Director
and President
Date: 12/8/99 By:/s/Matt Baumgartner
------------------------
Matt Baumgartner, Director
Secretary
Date: 12/8/99 By:/s/Len Baker
---------------------------
Len Baker, Treasurer, Assistant
Secretary
Date: 12/8/99 By:/s/Fernando Gonzales Garza
---------------------------
Fernando Gonzales Garza
Director
Date: 12/8/99 By:/s/Bradley D. Osgood
---------------------------
Bradley D. Osgood, Director
SUBSIDIARIES
Parent-Northport Industries, Inc.
Subsidiaries-VMI, Inc., a Texas corporation, formerly Versatech Manufacturing,
Inc. and JOH Rubber, Inc.
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