U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE REGISTRATION STATEMENT
ON
FORM 10-SB-A2
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") 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.
Although initially organized in 1987, the Company had spent its life
trying to acquire an operating business. The Company had no success until
early 1998, and hence has had no operations until early 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, and Note 3 to the financial statements of the Company,
Part F/S, for a pro forma combined balance sheet, taking into account this
reorganization. As all operating and accounting attributes of VMI are adopted
under this method, all references to operating history will refer to VMI's
history, not that of its legal parent, Environmental Pyrogenics, Inc.
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 with the
following rights, privileges and preferences: (i) non-voting;
(ii) Redemption or Face Value of $1 per share; (iii) 5%
cumulative dividend on the Redemption or Face Value; (iv)
callable at any time by the Company, by payment of the
Redemption or Face Value and any accrued 5% cumulative
dividends; (v) 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; (vi) 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; and (vii) 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 (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 Item 13.
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.
Public Offerings
----------------
(1) Conducted public 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 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, is
attached hereto. See Part III, Item 1. Also, see the caption "Recent Sales
of Unregistered Securities," Part II, Item 4. Also see 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, is
attached hereto. See Part III, Item 1. Also, see the caption "Recent Sales
of Unregistered Securities," Part II, Item 4. Also see Note 2 of the
financial statements, Part F/S.
Changes of Control During the Past Three Years
----------------------------------------------
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, infant products and golf equipment. In the automotive division,
services range from assembly only to design, materials procurement and full
wrap of gearshift handles and gearshift boots for Cadillac, Oldsmobile and
Saturn; infant car seats in the infant products division; and, in the golf
equipment division, twelve styles and sizes of golf bags, from junior to
professional, are produced for various OEMs; the Company also sells these
products under its own brand, "Ever-Green." "Full gearshift wrap" means the
Company receives a plastic gearshift part, which it wraps in foam and then
sews on a leather cover. The Company provides a completed part/knob to be
attached to the gearshift in vehicles by other vendors, like Regal Plastics,
Inc. or May & Scofield.
Revenue for 1998 totaled $3,766,930, with the Automotive division
accounting for $1,550,383; the Juvenile division accounting for $2,087,819;
and the Golf division accounting for $128,728 of this total. Revenues for the
first quarter ended March 31, 1999 total $1,279,953, with the Automotive
division accounting for $339,279; the Golf division accounting for $25,722;
and the Juvenile division accounting for $914,952 of this total. Of the total
sales for the first quarter ended March 31, 1999, Evenflo, which is the
Company's major customer, accounted for 71% of all sales.
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 and
sports 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 gearshift handles and gearshift boots
(the leather or vinyl material under the gearshift 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 infant car seat pads for the Evenflo Corporation.
The golf and sports bag division produces twelve 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. It also produces
sports and travel bags for Martha Elizabeth and Linda Jones.
The following is a summary of the main services provided by
Northport.
All legal aspects of establishment of a maquiladora (manufacturing facility-
see definition below) including:
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* Incorporation permit
* Maquiladora contract
* Infonavit registration
* Water and Sewage permits
* Company charter
* Maquila Program
* Scrap disposal
* Importation licenses (raw material and equipment).
* Mexican tax registration
* Mexican social security registration
* U.S. personnel work visas
* Identify U.S. and Mexican customs brokers
* U.S. Exportation License application for controlled commodities
* Coordinate U.S. Customs Cost Reconciliation
* U.S. and Mexico regulatory compliance
* Building lease or lease/purchase agreements
Finance
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* Provide initial liaison services with external international
auditing services in Mexico.
* Install automated payroll, accounting, ledger finance systems to
be run on clients' computer
* Establish automated import/export systems
Communications
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* Secure all licenses and permits to establish international
telecommunications capability
* Assist in hardware selection to accommodate telecommunications
requirements
Human Resources
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* Develop policies and systems with consideration for cultural
differences
* Personnel procurement at all levels with candidates subject to
clients' approval
* Training and development of personnel and functions to enable
clients to be self-supporting upon departure of the Company's
personnel
* Assistance in development and implementation of employee
involvement programs and participation management concept
Materials
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* Assist in implementation MRP System
* Implement systems to assure timely and expeditious transfer of
materials to and from Mexico
* Develop automated import/export systems.
Engineering
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* Assistance to determine physical layout of the facility
* Determination of specifications and requirements for utilities
* Negotiation with Federal Electricity Commission
* Supervision of installation of all building facilities such as
electrical, air conditioning, process equipment and water systems
to meet national electric code requirements and Mexico health and
safety regulations
* Determination and supervision of installation of fire protection
equipment
* Provide manufacturing engineering services support and technical
support
* Equipment installation supervision
Spanish translation service for Mexican start-up including
- ----------------------------------------------------------
* Manufacturing processes and procedures
* Assembly Process charts
* Quality assurance materials
* Statistical Process Control Programs
* Engineering prints and specifications
* Personnel policies
* Financial systems/procedures
* Training manuals and materials
Training Services
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* Just-In-Time concepts and Implementation
* Statistical process control
* Kanban (Pull System) of manufacturing
* Management by sight concepts
* Two bin system of material management
* Total quality control concepts
* Component identification
* Proper use of hand tools
* Basic soldering techniques
* Industrial safety
* Automated customs control systems
Miscellaneous
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* Assistance in site selection and facility construction
* Functional administrative services/support
Maquiladora
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A maquiladora, or "in-bond" plant in Mexico, allows a company to
export from the U.S. to Mexico raw material in-bond, thus avoiding the payment
of any Mexican duty. When assembly (or repair) is finished, the product is
returned to the U.S. where duty is levied only on the cost of labor and over-
heads in Mexico, as well as those raw materials of non-U.S. origin. This
special duty treatment was provided in 1964 by U.S. Customs legislation, and
as long as certain requirements are met, duty is charged on this basis and not
on the total value of the finished product. The savings are substantial.
Our previous experience in the industry allows us to anticipate
requests from client companies making it possible to offer complete turnkey
services for a maquiladora start-up in Ciudad Acuna, Mexico. Thus, the
Company is able to respond to the needs of those companies that desire to go
beyond the traditional options available to them--shelter or sub-contract
manufacture--and establish their own independent stand-alone maquiladora from
the outset. Although there are competent organizations which can deal with
one or several of the necessary aspects of incorporating a company in Mexico,
and these companies may go so far as to apply for the various permits to
commence operations, the Company is one of the few organizations with the
means of delivering a package of services with complete control over all
operational aspects of a maquiladora. The Company understands operating in
Mexico not only in terms of the legal requirements demanded by the Mexican and
U.S. governments, but the nuts and bolts of day to day operation of a
manufacturing facility. In addition, the Company is dedicated to the
systematic implementation of world-class, continuous-flow manufacturing and
total quality concepts.
Companies which will benefit most from this program are those that
have planned and made the strategic decision to establish a maquiladora
facility, but lack the experience or personnel to execute the start-up. The
Company is capable of assisting those companies in all aspects from conception
to turnkey operation, providing the support personnel to obtain all licensing,
recruiting, selection, hiring and training of personnel. Within the agreed-
upon time frame (usually 12 to 18 months), the client company has all the
necessary operations areas staffed and trained to function as a successful,
world-class maquiladora.
All of this is possible with the additional advantage of operating
from the beginning backed by a solid foundation of expertise in maquiladora
operations, not after a difficult and expensive learning curve based on trial
and error. The objective of this approach is to educate and train the
personnel involved, with the gradual phasing out of the Company's staff so
that at the conclusion of the program, the client company will have become an
independent maquiladora, fully staffed and operating successfully within the
parameters of the maquiladora program.
Contract Manufacturing
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A client company may elect to have the Company operate as its
subcontractor. This option is most appealing for companies wishing to
minimize involvement in the manufacture of the product. There is no exposure
to the day to day operations of the maquiladora, such as labor relations,
customs or governmental agencies. Under the agreement (which normally defines
a volume commitment by the customer over a guaranteed period of time), a price
is quoted, a level of quality established, raw materials and process equipment
are consigned to the Company and a delivery schedule is set. All of this is
frequently accomplished with minimal U.S. investment. Arrangements can be
made for special or dedicated equipment.
By means of subcontract manufacturing, the Company can provide its
client companies with the resources to reduce the cost of their products and
improve their profit margins. If client companies have a product which is
labor intensive, the Company's policies and expertise can restore these
clients competitive edge. Even products which have been technically advanced
within their manufacturing processes and subjected to a great degree of
automation can be re-engineered to restore the proper balance of capital
versus labor content.
The final benefit that the Company's clients receive when
contracting with the Company to assemble, manufacture or repair their products
is the advantage available through world class manufacturing, total quality
and just-in-time concepts. The Company's manufacturing philosophy is that
simple is better and every product deserves the care and dedication required
to assure the level of quality demanded by the customer.
Distribution Methods of the Products or Services.
- -------------------------------------------------
The Company uses direct trucking contracts, (i.e., delivery direct
to the customer) and customer trucks to distribute their products.
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 Evenflo, 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.
Status of any Publicly Announced New Product or Service.
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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.
The Company does not plan on selling any vulcanized-in-place
business during fiscal 1999. This is automotive business and 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.
Competitive Business Conditions.
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Based upon its current business relationship with Evenflo, the
Company believes it has established itself as a leader in the Juvenile soft
trim business. Evenflo Corporation 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) would be considered a
competitor.
Wrapping gearshift 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
gearshift handles market are handled in-house by plastic molding companies.
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 seats, 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: Evenflo, American & Efrid, Brookwood Rolls Goods, Seiler Plastics,
Tape Craft, Seton, Coat's Bell and Creative Foam.
Dependence on One or a Few Major Customers.
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The Company's major customer is Evenflo, for which it cuts and sew
the soft pad inserts of juvenile 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, Evenflo accounted for approximately 71% of the
Company's revenues. The Company is currently in the final stages of
negotiating a written three year agreement that if completed will end in 2002,
unless renewed; it is anticipated that this agreement will be signed in May,
1999. Evenflo is also dependent upon the Company for its products. The
Company's current strategy is to reduce its reliance on Evenflo so that by the
end of 1999, Evenflo will account for approximately 30% of the Company's total
revenues. For the year ended December 31, 1998, Evenflo 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 Evenflo 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.
Need for any Governmental Approval of Principal Products or
Services.
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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.
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The Company's goal is to spend 5% of sales revenues on Research and
Development. None was expended as of December 31, 1997, since the business
operations of VMI commenced on January 2, 1997, with the creation of VMI as a
joint venture between Fairfax and Versatech of Canada. For more information
on the history of VMI see Footnote 2 to the financial statements in Part F/S.
During the calendar year ended December 31, 1998, the Company expended $86,400
on research and development, with $53,900 being utilized on golf bag
construction design and $33,000 on improving sewing equipment.
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 and Elastomeros Technicos Mundiales
S.A. de C.V. ("ETM").
The Company in the next 12 months expects to grow from $3,366,892 to
over $6,000,000 in revenues. 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 Evenflo. 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. Automotive Systems, 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 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 will also be developing, with Evenflo, 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.
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 in preliminary discussions with Evenflo to acquire
its Jasper, Alabama operation. This operation currently purchases materials
and cuts them according to pattern prior to shipping them to the Company for
sewing. Acquisition of this operation would give the Company control over the
North American soft pad (padding inserts for juvenile car seats) business for
Evenflo. If this acquisition is completed, the Company would move these
functions to its Allende plant. The Company anticipates having to hire
approximately 55 people, five as indirect administrative support personnel and
50 direct production workers. The Company also would need to acquire two die
presses and some additional cutting equipment. However, negotiations have not
progressed to the stage where the Company has specifically identified
equipment needs and costs and, the Company does not expect to complete these
negotiations until early 2000.
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.
- ----------------------
The Consolidated Financial Statements filed with the Form 10-SB-A1
show that revenues improved from $1,740,902 in 1997 to $3,766,930 in 1998.
Earnings improved from a net loss of ($836,290) in 1997 to a net profit of
$102,194 in 1998. Primarily, this was due to improved plant efficiency from
30% to 80%. Efficiency is expected to be at 100% by the end of the year.
Additionally, the Company secured long-term commitments from two new
customers--May & Scofield and Evenflo.
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 on April 25, 1999, and the Company is in discussions
to expand this credit line availability. 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.
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.
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 5,612,069:
<TABLE>
<CAPTION>
Number of Shares Percentage
Name and Address Beneficially Owned of Class
- ---------------- ------------------ --------
<S> <C> <C>
Fairfax Industries, Inc.(1) 1,488,000 26.51%
46641 Arboretum
Plymouth, Michigan 48170
Cenote Plastics(2) 900,000(4) 16.03%
P. O. Box 421812
Del Rio, Texas 78842-1812
Robert L. Michelini 10,089(3)(5) 00.18%
P. O. Box 1438
Del Rio, Texas 78841
</TABLE>
(1) Robert L. Michelini and Bradley D. Osgood each own 40% of Fairfax
Industries, Inc.
(2) Matt Baumgartner owns 50% of Cenote Plastics.
(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.
(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. 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) 754,089 13.44%
Bradley D. Osgood(1) 744,000 13.26%
Matt Baumgartner(2) 1,081,188 19.26%
Fernando Gonzales Garza -0- -0-
Len Baker -0- -0-
(1) Robert L. Michelini and Bradley D. Osgood each own 40% of Fairfax
Industries, Inc. (40% of Fairfax's holdings are included in each person's
ownership).
(2) Matt Baumgartner owns 50% of Cenote Plastics, (50% of 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. 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. 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 *
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
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.
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.
* 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 5,612,069 outstanding voting securities of the
Company, 5,310,758 of which are designated as "restricted securities." Of
these 5,310,758 "restricted securities," 4,608,191 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
<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 7,527
Total Current Assets 573,618
Property and Equipment, net of $106,730
and $41,427 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
Accounts payable 339,778
Accrued expenses 57,642
Income taxes payable 4,751
Total Current Liabilities 486,321
Long-Term Debt
Due to related parties 61,999
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 1,539,199
Retained <deficit> ( 734,096)
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 2,954,604 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 34,656 62,522
Bad debts (recovery) ( 11,225) 50,130
705,379 425,813
Net income before income taxes 106,946 106,946
Income taxes ( 4,752)
Net income (loss) $ 102,194 $( 836,290)
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) $ 102,194 $( 836,290)
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 65,303 41,427
Patent amortization 20,578
Redeemable shares accretion 16,889
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 119,074 220,705
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
Year Ended December 31, 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
EPI:
Existing EPI stock 5,921$1,542 50,000 50 (1,592)
Additional capital
contributions by
EPI shareholders
- Cash 350,000 350 49,650 50,000
- Services 1,600,000 1,600 158,400 160,000
Exchange of $1
par Company
stock for $.001
par EPI 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 deficit $(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
Net income $ 106,946 256,946
Balances, December
31, 1998 405,921 $1,542 5,194,169 $5,194$1,489,198$(679,344)$816,590
</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
Nature of Business. Northport Industries, Inc. (the Company ) originally
incorporated itself in Texas as Hawk Systems, Inc. on December 27, 1996. The
Company renamed itself Versatech Manufacturing, Inc. ( VMI ) in June, 1997.
On December 24, 1997, the Company entered into a reorganization with an
inactive 1933 Act public shell, Environmental Pyrogenics, Inc. ( EPI ), a
Nevada corporation, in a transaction accounted for as a reverse merger using
the purchase method of accounting. This transaction was accomplished by
exchanging all 100 outstanding shares (100%) of VMI for 3,000,000 shares (60%)
of EPI. As part of the merger Agreement, the Company renamed itself Northport
Industries, Inc. See Note 3.
The Company is 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, Versatech Manufacturing, Inc.,
a (which was renamed VMI, Inc. in June 1998) 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.
Earnings per share are computed on the basis of the weighted average number of
common shares outstanding, in accordance with FASB Statement 128. 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
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.
NOTE 2 - GECAMEX RELATIONSHIP
The Company is the result of the evolution of a joint venture between Gecamex
and its Mexican nominee Gecamex S.A. de C.V. ( Gecamex ) and Fairfax
Industries, Inc. ( Fairfax ). Gecamex is a subsidiary of Versatech Marketing,
Inc. of Canada. Gecamex was formed in 1991 to set up a maquiladora plant in
Piedras Negras, Mexico in a joint venture with Century Products, Inc., who
bought out Gecamex s share in 1996. This plant joint venture was managed by
Robert Michelini, a founder and one of two principal shareholders of Fairfax.
Mr. Michelini left in 1994 to pursue his Fairfax business exclusively.
Gecamex then set up a second facility by buying Twin Plant International, Inc.
( Twin Plant ) in Acuna in 1994.
In 1992, Greg Hykes formed TTM, Inc. ( TTM ), a maquiladora plant in Acuna,
which made toys and performed contract machine sewing.
Fairfax was formed in 1986 by Robert Michelini and Brad Osgood for the purpose
of machine sewing auto parts and sporting goods, plastic injection molding,
and making aerospace tools. Fairfax purchased Trim & Design, Inc. ( Trim &
Design ), a Michigan corporation which was formerly a wholly-owned subsidiary
of Versatech, in 1994. Trim & Design machine sewed marine seats and auto
parts. Fairfax then purchased the assets and customer base of
TTM in 1995 by assuming certain debts and issuing 20% of its outstanding stock
to Mr. Hykes. Fairfax shut down both Trim & Design and TTM in late 1996.
On January 2, 1997, Fairfax entered into an agreement with Gecamex to form the
Company, 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. Fairfax received 1,470,000 shares for a
49% ownership interest and Gecamex received 1,530,000 shares, for a 51%
ownership. During 1997, Gecamex decided to reduce its ownership of its
maquiladora operations. On December 15, 1997, Gecamex and Fairfax entered
into a Stock Purchase and Settlement Agreement, whereby Gecamex (i) returned
1,162,500 shares to the Company, and (ii) contributed all monies advanced over
the original $300,000 agreed-upon note balance, including $373,512 in cash,
$26,392 in equipment, and $56,606 in accrued interest, to contributed capital.
As consideration, Gecamex received debt totaling $400,000 and a 5% royalty on
certain revenues. Gecamex and the Company each had the option to require the
sale of
Gecamex s remaining 367,500 shares) to the Company anytime before December 31,
2002, based on a formula purchase price.
In early 1998, Gecamex shut its Twin Plant operation, and entered into
negotiations with the Company to assume all of its sewing and plastic
injection-molding operations.
On June 5, 1998 the Company entered into an agreement with an individual,
Guenter Joh ( Joh ) whereby (i) the Company 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) the Company 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 the Company liquidated its remaining relationship with
Gecamex 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) Gecamex's parent Versatech - Canada returning its 367,500
shares of Company stock, (iii) Gecamex canceling $458,825 in debt owed by the
Company, (iv) the Company canceling $454,305 in debt owed it by Versatech, (v)
the Company turning over its 289,203 shares of GTI to Gecamex, and (vi) the
Company transferring non-exclusive rights to the Joh power train sealing
process to Gecamex. The transaction is valued at a net $186,305.
The Company inherited Gecamex s principal customer, Regal Plastics, Inc. in
this transaction. 1998 sales to Regal both directly and through Versatech and
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 - REORGANIZATION
On December 24, 1997, the Company entered into a reorganization with an
inactive 1933 Act public shell, Environmental Pyrogenics, Inc. ( EPI ), in a
transaction accounted for as a reverse merger using the purchase method of
accounting. EPI reduced its total outstanding shares from 7,888,334 to 50,000
shares by a reverse split of 157.76668 for 1. The Company next exchanged all
of its outstanding shares for 3,000,000 shares of EPI. EPI then issued
1,600,000 shares to promoters, advisers and attorneys. EPI then 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. In connection with this reorganization, EPI renamed
itself Northport Industries, Inc. Versatech Manufacturing, Inc. remains a
wholly-owned subsidiary, although it also renamed itself as VMI, Inc. in
connection with the formal withdrawal from Mexico of its former parent,
Gecamex (see Note 2).
A summary consolidating balance sheet (as restated per Note 4) as of December
31, 1997 follows:
<TABLE>
Northport
VMI EPI Adjust. Consol.
<S> <C> <C> <C> <C>
Cash $ 3,796 $30,000 (2) $ 33,796
Stock subscriptions receivable 20,000 (2) 20,000
Other assets 985,486 985,486
TOTAL ASSETS $ 989,282 $ 0 $1,039,282
Liabilities $1,010,266 - $1,010,266
Stockholders equity
Common stock, $1 par,
1,000,000 shares authorized,
100 issued and outstanding 100 ( 100)(1)
Preferred stock, $.25 par
value, 12,500,000 shares
authorized, 5,921 shares
issued and outstanding 233,542 (232,000)(1) 1,542
Common stock, $.001 par value,
25,000 shares authorized,
7,888,334 shares issued and
outstanding 7,888 ( 7,888)(1)
Common stock, $.001 par value,
25,000,000 shares authorized,
5,000,000 shares issued and
outstanding 4,650 (1)
350 (2) 5,000
Paid in capital 915,206 (131,144) 125,052 (1)
49,650 (2) 958,764
Retained (deficit) ( 936,290) (110,286) 109,936 (1) (936,290)
Total Stockholders Equity ( 20,984) 0 27,474
TOTAL LIABILITIES & EQUITY $ 989,282 $ 0 $1,039,282
</TABLE>
(1) Reorganization achieved by exchanging all the outstanding stock of
VMI for 3,000,000 shares of EPI, after EPI reduced its total outstanding
shares to 2,000,000. A summary of EPI shares issued and outstanding
after the 157.71:1 reverse split and immediately prior to issuing
shares to VMI shareholders is as follows:
Original EPI shareholders 50,000
Issued for services in conjunction
with the reorganization 1,600,000
Issued for cash at $1 per share 350,000
2,000,000
(2) $30,000 cash and $20,000 subscriptions receivable contributed by EPI
in the reorganization.
NOTE 4 - 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 5 - 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 6 - RELATED PARTY DEBT
Related party debt consists of advances of $33,528 to Fairfax and $28,471 to
Robert Michelini.
NOTE 7 - 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 8 - 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.
NOTE 9 - J. B. MARC & ASSOCIATES, INC.
In 1998, the Company hired an investment banker, J. B. Marc & Associates, Inc.
( J. B. Marc ), to promote 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 10 - 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 11 - 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 12 - 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.
Unaudited Balance Sheet for JOH Rubber, Inc. for the years December 31,
1997 and 1996
-------------
<TABLE>
JOH Rubber, Inc.
BALANCE SHEET
(unaudited)
<CAPTION>
December 31,
1997 1996
<S> <C> <C>
Assets
Cash $ 1,826 $ 2,264
Advances to Gecamco International, Inc. 53,100 53,100
Investment in shares of Gecamex
Technologies Inc., at cost 2,458,226 2,458,226
2,513,152 2,513,590
Liabilities
Accounts payable and accrued liabilities 27,062 27,500
Shareholders' Equity
Share capital
Authorized
Unlimited number of non-voting
non-cumulative $.10 dividend
redeemable special shares
Issued
199,000 special shares 199,000 199,000
1,000 common shares 1,000 1,000
Retained Earnings 2,286,090 2,286,090
2,486,090 2,486,090
2,513,152 2,513,590
</TABLE>
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*
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.
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: 5/14/99 By:/s/Robert L. Michelini
------------------------
Robert L. Michelini, Director
and President
Date: 5/14/99 By:/s/Matt Baumgartner
------------------------
Matt Baumgartner, Director
Secretary
Date: 5/14/99 By:/s/Len Baker
---------------------------
Len Baker, Treasurer, Assistant
Secretary
Date: 5/14/99 By:/s/Fernando Gonzales Garza
---------------------------
Fernando Gonzales Garza
Director
Date: 5/14/99 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.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 12038
<SECURITIES> 0
<RECEIVABLES> 216254
<ALLOWANCES> 0
<INVENTORY> 337799
<CURRENT-ASSETS> 573618
<PP&E> 744695
<DEPRECIATION> 106730
<TOTAL-ASSETS> 1568915
<CURRENT-LIABILITIES> 486321
<BONDS> 0
0
1542
<COMMON> 5194
<OTHER-SE> 805103
<TOTAL-LIABILITY-AND-EQUITY> 1568915
<SALES> 3766930
<TOTAL-REVENUES> 3766930
<CGS> 2954604
<TOTAL-COSTS> 2954604
<OTHER-EXPENSES> 670723
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34656
<INCOME-PRETAX> 106946
<INCOME-TAX> 4752
<INCOME-CONTINUING> 102194
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 102194
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
