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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON
OCTOBER 27, 1999
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2
FORM 10-SB
REGISTRATION STATEMENT UNDER THE SECURITIES EXCHANGE ACT OF 1934
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SIMEX TECHNOLOGIES, INC.
(Name of Small Business Issuer as Specified in its Charter)
DELAWARE 58-2465647
(State or Other Jurisdiction of (I.R.S. Employer Identification
Incorporation or Organization) Number)
Suite 995, 3475 Lenox Road, NE, Atlanta, GA 30326
- --------------------------------------------------
(Address of principal executive offices and zip code)
Issuer's telephone number, including area code: (404) 812-3130.
SECURITIES TO BE REGISTERED UNDER SECTION 12(B) OF THE ACT
NONE
SECURITIES TO BE REGISTERED UNDER SECTION 12(G) OF THE ACT
COMMON STOCK, $.001 PAR VALUE
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(TITLE OF CLASS)
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PART I
ITEM 1. DESCRIPTION OF BUSINESS. SIMEX Technologies, Inc., a Delaware
corporation together with its subsidiaries, is referred to herein as the
"Company." The principal operating subsidiary is SIMEX A/S and is referred to
herein as "SIMEX A/S," a Norwegian corporation.
Some of the information in this Registration Statement may contain
forward-looking statements. These statements can be identified by the use of
forward-looking terminology such as "may," "will," "expect," "anticipate,"
"estimate," "continue" or similar words. These statements discuss future
expectations, contain projections of results of operations or of financial
condition or state other "forward-looking" information. Important factors that
could cause actual results to differ materially from those discussed in such
forward-looking statements ("Cautionary Statements") include: the general
strength or weakness of the Company's products, the industry, and the pricing
policies of competitors. All subsequent written and oral forward-looking
statements attributable to the Company or persons acting on behalf of the
Company are expressly qualified in their entirety by such Cautionary Statements.
All amounts throughout this Registration Statement are expressed in
U.S. dollars unless otherwise indicated.
OVERVIEW
The Company is a diversified construction, engineering and service
company which offers a full range of services to its customers. The Company
derives its revenues primarily from customers in Norway and the North Sea, and
to a lesser extent, from international customers. The Company holds all of the
certifications available for a civil engineering company in the country of
Norway. The Company's services are divided equally between off-shore oil and
gas projects and on-shore commercial, industrial and government projects. In
order to improve operating efficiencies and to provide more meaningful
financial reporting, the Company has divided its business operations into four
business segments:
- Construction Services - This segment includes all operations, both
off-shore and on-shore, involved in the design, engineering and installation of
technical systems, including (a) heating, ventilation, air conditioning, and
cooling ("HVAC"), (b) plumbing, (c) refrigeration/cooling and (d) electrical.
For the first half of 1999, the Construction Services segment comprised
approximately 53% of the Company's gross revenues.
- Maintenance and Service - This segment includes all operations
related to service and maintenance contracts. Management's goal is to establish
and market its service capabilities as a separate operating unit. For the first
half of 1999, the Maintenance and Service segment comprised approximately 13% of
the Company's gross revenues.
- Production - This segment includes all operations involved with the
design and manufacture of the Company's products. The Company produces several
products in its manufacturing facilities such as customized machinery,
industrial doors, ice, refrigeration and cooling equipment, oil well caps and
ventilation systems. The Company has designed an innovative ventilation system
known as the "SIMDUCT" spiral duct product. For the first half of 1999, the
Production Services segment comprised 19% of the Company's gross revenues.
- Post-Tensioning - This segment includes the Company's international
post-tensioning operations which represent a technical skill provided by a
relatively few companies in the world. The Company is engaged in concrete
post-tensioning construction for off-shore oil and gas production platforms as
well as buildings, bridges, tunnels, piers and other concrete construction
projects. The Company has created a unique post-tensioning system known as the
"SIMCON Post-Tensioning" system which distinguishes the Company from its
competitors. For the first half of 1999, the Post-Tensioning segment comprised
11% of the Company's gross revenues.
The Company's predecessor corporation was originally organized in 1983
with limited operations until its reorganization with SIMEX A/S on April 28,
1998. Under the terms of the reorganization, the principal shareholders of SIMEX
A/S became the majority shareholders of the Company, and SIMEX A/S became a
wholly-owned subsidiary of the Company. Substantially all of the Company's
revenues are derived from the operations of SIMEX A/S.
SIMEX A/S began operations in 1980 as an engineering and service
company based in Stavanger, Norway. In May of 1998, SIMEX A/S acquired Norsk
Kjoleindustri A/S ("Norwegian Cooling Industries"), which is an HVAC equipment
design, manufacturer and maintenance organization that, among its products,
manufactures and installs ice machines and other cooling equipment for a variety
of applications. In late 1998, SIMEX A/S also acquired four (4) other companies
engaged in welding, manufacturing and service businesses, which compliment and
diversify the materials and services that SIMEX A/S offers to its existing
customers as a full-house service organization. This expansion of the number of
products and services positions the Company to compete with other engineering
and construction companies and to expand its services to other markets. SEE
"RECENT ACQUISITIONS."
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In April of 1999, the Company reincorporated as a Delaware corporation
and changed its name to SIMEX Technologies, Inc.
INDUSTRY BACKGROUND
The Company engages in the construction, engineering, installation and
maintenance of large-scale projects with a significant presence in the
off-shore oil production service industry. SIMEX A/S has participated in the
construction and maintenance of a majority of the large-scale off-shore oil
production platforms that were built during the 1980s and early 1990s. The
Company offers not only post-tensioning services but also HVAC, electrical,
plumbing and maintenance services for the off-shore industry. Oil production in
the North Sea area of Norway is second in the world, with Saudi Arabia ranking
first. There are approximately thirty off-shore oil production platforms
operating in the North Sea. These platforms are owned by the major oil
companies of the world including Shell Oil, Exxon, Statoil (the Norwegian State
oil company), Conoco, Phillips Petroleum, Amarada Hess and others. SIMEX A/S
recently completed (May 1999) its contract with Taylor Woodrow Civil
Engineering (UK) for post-tensioning and engineering for the construction of an
oil and gas platform located in the Danish oil field known as South Arne. SIMEX
A/S manufactured all of the post-tensioning steel ducts in its manufacturing
facility in Stavanger, Norway which were shipped to the job site. The Company
has other projects for the provision of construction services in the off-shore
industry. See "New Construction".
In the on-shore market, the Company participates in a variety of
projects such as the manufacture and installation of ice machines, the
construction of cooling plants and the provision of HVAC, electrical and
plumbing services for customers. The Company is one of the few companies in
Norway who offers a full range of services for its customers which results in
time and cost savings.
The Company operates in an industry with a relatively high barrier of
entry. In the off-shore, oil and gas industry, most companies only engage
contractors who operate under the ISO 9000 specification to perform construction
activities. In Norway, companies which engage in construction projects, in the
off-shore as well as on-shore market, must also comply with stringent government
regulations and reporting requirements. These regulations and reporting
requirements have forced many smaller companies to discontinue operations. These
regulations and reporting requirements have also caused a consolidation of
companies in the industry. See "Regulation".
PRODUCTS AND SERVICES
The Company is one of a limited number of companies that manufacture
galvanized and stainless steel duct tubing in the region. The Company has
designed a spiral duct product "SIMDUCT" in galvanized, aluminum and stainless
steel for HVAC systems which it manufactures at its facility in Stavanger,
Norway. Contractors who use this product for oil production projects include
ABB, Aker Marine, Kvaerner Oil and Gas, Hyundai, Elf Oil and other international
contractors. These contractors, as well as others, continue to utilize the
Company's products and services. For example, these contractors have installed
the SIMDUCT product in several off-shore oil platforms in the North Sea
including Ekofisk 2, Heidrun TLP and Oseberg, and the SIMDUCT products have also
been installed in onshore commercial oil and gas facilities. Several of the
aforementioned contractors require that the SIMDUCT product be installed in all
new and refurbished oil production facilities and utilized in all system
upgrades in existing oil production facilities.
The Company manufactures and installs through its subsidiary, Norwegian
Cooling Industries, a variety of ice and refrigeration products for various
uses, including the fishing industry and the oil and gas industry, for which
there is a growing worldwide demand. Norwegian Cooling Industries manufactures
and distributes the "Kuldvakten" HVAC monitoring and control system which is
used in a variety of applications, including supermarkets, food production and
distribution, marine vessels and hospitals. The Company has also acquired in the
acquisition of Weld Tech A/S a sophisticated, computer-operated water plasma jet
steel-cutting machine which is leased out to third party contractors for a daily
rate. The backlog for its use is over ninety days.
The Company markets its post-tensioning services as the SIMCON
Post-Tensioning system through its subsidiary, SIMCON UK Ltd. Concrete oil and
gas production platforms, buildings, bridges, piers and tunnels require a
construction reinforcing technique known as "post-tensioning." To solve the
requirement, SIMEX A/S secured a license to produce spiral duct products with
galvanized or stainless steel and redeveloped this system for post-tensioning
concrete construction, including the oil and gas production platforms. Prior to
pouring concrete into forms, cables are inserted through the ducts inside the
concrete forms. After pouring, the cables are mechanically tightened
considerably strengthening the concrete as it cures. The Company markets its
post-tensioning system as the "SIMCON Post-Tensioning" system.
The demand for large-scale construction projects such as off-shore oil
and gas platforms, bridges, shopping centers, water towers and tunnels is
cyclical and dependent upon numerous economic and political factors including
the worldwide demand for oil and gas production, hydro-electric power from dams
and infrastructure requirements of political subdivisions.
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In addition to participating in the design and construction phases of
new projects, there is a continuing need for maintenance of HVAC systems,
plumbing, electrical and other mechanical systems for both on-shore and
off-shore commercial projects. Other products and services remain in continuous
demand for existing customers, and the Company constantly seeks strategic
partners and joint ventures to meet the demands of its customers that include
general contractors, oil companies, government and private owners of public
facilities such as schools, hospitals and municipalities.
The development and implementation of solutions as well as new products
and services requires the successful integration of strategic consultation,
creative design and systems engineering abilities. Historically, expertise in
these areas has been fragmented and, accordingly, many businesses outsource or
subcontract with numerous companies to meet their overall requisites. The
subcontracting and outsourcing create opportunities for companies that can offer
a complete line of services to an end user. While there are a number of
companies in the Scandinavian market that may provide a single service, such as
HVAC, there is a limited number of companies that have assimilated the technical
expertise to offer multiple disciplines such as engineering, design,
construction, installation and monitoring in the fields of HVAC, plumbing,
electrical, welding and mechanical while simultaneously providing products that
complement these services, such as spiral duct pipes, cooling plants, integrated
ice plants, specialized industrial doors and others.
The Company believes that a market for the products and service that it
offers will continue and that it will be able to compete in the world market
because of the experience and technical skills it possess which are required for
new infrastructure construction.
STRATEGY
The Company's goals are:
- To expand its operations by acquiring businesses whose products
and services compliment the Company's existing products and
services and allow the Company to expand its presence in
additional markets;
- To develop new business opportunities in Norway and the North Sea
through increased marketing efforts;
- To maximize profits by achieving greater efficiencies in
operations through the control of costs and expenses and the
reorganization and consolidation of operations; and
- To build a strong management team.
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ISO 9000. The Company has adopted and operates under the ISO 9000
specifications and other specialty quality norms for the industry. This
accreditation allows the Company to participate with other civil and mechanical
engineering firms in joint ventures or acting alone as a subcontractor to large
multinational general contracting firms and distinguishes the Company from its
competitors. Health, safety and environmental concerns are integrated parts of
the system.
To obtain the designated quality certification, the Company was
required to develop a quality management system which is necessary to ensure
that the products and services offered meet the expectations of the customer and
that the expectation is continuously maintained to the prescribed standard,
specification, contract or order agreement. The quality assurance standard must
be met in accordance with a quality assurance manual developed and monitored by
the Company and subject to peer review and testing.
With the ISO 9000 accreditation, the Company intends to expand its
business by entering into additional joint ventures with contractors requiring
the designation as well as to acquire certain other companies that complement
its civil and mechanical engineering services who are not presently accredited
as an ISO 9000 or other quality service provider.
BUSINESS OPERATIONS
The Company is involved in new construction projects, and it supplies
products and materials and performs maintenance for numerous customers. A
description of these operations is as follows:
NEW CONSTRUCTION. The Company has entered into an agreement to provide
HVAC, electrical and plumbing services for a general contractor for the
construction of a commercial shopping center with 150,000 square feet in Narvik,
Norway. Through the provision of post-tensioning services and materials,
supervision, engineering services and technical advice, the Company has become
involved in the construction of a service pier in Dabhol, India. The Company is
also working on the manufacture and installation of an ice machine in Nort
Salmon, Norway and the construction of four cooling plants for off-shore oil and
gas operations. In addition, the Company is currently installing plumbing and
sprinkler systems for an on-shore construction project in Bergen, Norway and an
off-shore oil platform in the North Sea. The Company has recently submitted bids
for the construction of aluminum silos utilizing the Company's post-tensioning
system in the state of Bahrain and Egypt.
MAINTENANCE AND SERVICE CONTRACTS. The Company has entered into over
250 HVAC, electrical, refrigeration, and plumbing system, service and
maintenance contracts with various customers which include the City of
Stavanger, Norway (for its local hospitals, schools and governmental
facilities), Conoco Oil, Phillips Petroleum, Statoil Norway, Elf Oil Company and
other large scale oil and gas production customers. Since the Company has
completed the project for Taylor Woodrow on the oil platform in the South Arne,
the Company will continue to provide maintenance services for this platform
through its operator, Amarada Hess. The Company also provides through its
subsidiary, Norwegian Cooling Industries, maintenance services for the
refrigeration and ice machines that it manufactures and installs.
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ACQUISITIONS. The Company embarked on an acquisition plan in 1998
designed to develop additional technical capabilities and products to supplement
its traditional areas of expertise. Through acquisitions in the steel
fabrication, HVAC design and installation and cooling products industries in
Norway, the Company was able to assemble additional production and service
capabilities, merge them into its operating structure and facilities to insure
quality and efficiency, and will begin developing markets for these products and
services. The Company's near-term objective is to continue and expand this
strategy to provide more regional recognition and opportunities for its niche
capabilities and products.
RECENT ACQUISITIONS. Principal acquisitions during 1998 were based on
the Company's objective of augmenting its product and service capabilities in
the Norwegian/North Sea region with a plan to expand its existing markets for
these products and services in Norway and the North Sea. With the Norwegian
Cooling Industries and the Weld Tech acquisitions, the Company's pro forma 1998
revenues were approximately $30,700,000. Principal among the 1998 acquisitions
were the following:
Norwegian Cooling Industries is an HVAC equipment design, manufacturer,
and maintenance company located in Stavanger, Norway. Norwegian Cooling
Industries' refrigeration products and services compliment the Company's
existing HVAC business. Norwegian Cooling Industries' production, service and
engineering are directly connected with SIMEX A/S's business with the additional
benefits of a proprietary
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ice-cooling system for the marine and off-shore industries. Norwegian Cooling
Industries additionally manufactures and distributes high capacity ice machines
for off-shore as well as on-shore uses. Norwegian Cooling Industries also
produces the "Kuldevakten" monitoring and control systems for a variety of
applications, including supermarkets, food production and distribution, marine
vessels and hospitals. All of the outstanding stock of Norwegian Cooling
Industries was purchased in May, 1998, and its administrative offices have been
moved to the offices of SIMEX A/S. The ownership interest was purchased for
approximately $2.7 million in cash.
Weld Tech A/S is a metal fabrication company in Stavanger, Norway. Weld
Tech was purchased in November, 1998. It is a specialized fabrication and
welding contractor in the oil and gas service industry. Weld Tech A/S owns
certain welding and cutting equipment including a new "water plasma cutter" that
it leases to general contractors on a fee basis. Engineering, production and
administration have been relocated within SIMEX A/S operations in Stavanger.
Since the date of its acquisition in September, 1998, Weld Tech's 1998 revenues
were approximately $117,000. Weld Tech was acquired for approximately $1.3
million in cash, plus 450,000 shares of the Company's common stock and an option
to acquire an additional 200,000 shares of the Company.
Hordaror A/S, a commercial plumbing and mechanical contractor located
in Bergen, Norway has been relocated with other SIMEX A/S operations in Bergen.
It provides sophisticated support systems for the projects that it undertakes.
Since acquisition, Hordaror A/S had revenues of approximately $51,000 in 1998.
Hordaror was purchased for approximately $104,000 plus 13,513 of the Company's
shares.
Vest Norge Doors A/S is a specialty manufacturer of over-sized door
systems in Stavanger, Norway. Vest Norge Doors A/S has recently developed a
proprietary horizontal folding door used for combustible containment and
protection in extreme weather conditions and emergency use in accordance with
international standards. These doors have been used on several oil and gas
platforms, helicopter hangars and other related facilitates. Since the date of
acquisition, Vest Norge Doors A/S had 1998 revenues of approximately $71,000.
Vest Norge Doors was purchased for approximately $135,000 plus 38,000 of the
Company's shares.
In September of 1998, SIMEX A/S purchased the assets of OIN Sprinkler
A/S, including its inventory and accounts receivable. This company designs and
installs sprinkler systems for fire prevention both for off-shore and on-shore
construction projects. As a division of SIMEX A/S, the business had revenues of
approximately $200,000 since its acquisition date in September 1998. The assets
of OIN Sprinkler were purchased for approximately $60,000 plus 22,400 shares of
the Company's common stock.
MARKETING. The Company markets its product lines directly through its
own sales force to major general contractors and other users of its services.
The Company's products and services are primarily marketed in Norway and the
North Sea.
PRODUCT DEVELOPMENT. The Company maintains an engineering and
development department to conduct research activities relating to the
improvement of existing products and the development of new products.
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RAW MATERIALS. The Company expects to have multiple sources of supply
for substantially all of its material requirements. The raw materials and
various purchased components required for its products have generally been
available in sufficient quantities.
COMPETITION. Although there is a relatively high barrier to entry in
this industry, the market for construction services of the type that are offered
by the Company is highly competitive. Many of the companies with which the
Company competes are larger in terms of capital and employees. As a result, the
Company's competitors may be better positioned to provide the types of services
that the Company also provides. There are a limited number of large-scale
projects offered in Norway and the North Sea, the two (2) principal markets in
which the Company operates today. The Company competes on the basis of a number
of factors including its pricing, creative design, engineering expertise,
technological innovation and others. Many of these factors are beyond the
Company's control. Existing or future competitors may offer products or services
that provide significant technological, performance, price or other advantages
over the products and services currently offered by the Company.
The Company may also compete directly with the general contractors who
offer the same types of services that it offers in-house. Many of the Company's
current and potential competitors have longer operating histories, longer
relationships with general contractors and significantly greater financial,
marketing and public relations resources than the Company. The list of the
Company's competitors consists primarily of smaller subcontracting companies.
The list also varies depending on the specific product or service offering. For
example, the primary competitors for the Company in the HVAC sector are ABB and
HVAC Marine. For post-tensioning products and services, the primary competitors
are VSL International, a Swiss subsidiary of Bouygues which is a large,
diversified company based in France, Freyssinet, a French company, and DSI, a
large German construction company.
Products similar to that which the Company manufactures and sells are
available through other suppliers. Accordingly, profitability depends upon the
prices offered by competitive companies that offer similar products at lower
prices.
Additionally, in pursuing acquisition opportunities, the Company may
compete with other companies with similar growth strategies and certain
competitors of the Company may be larger and have greater financial and other
resources. Competition for these acquisition targets could also result in
increased prices for acquisition targets in a diminished pool of companies
available for acquisition. Further, because the Company has adopted a strategy
of acquiring companies in exchange for its common stock, the ability to acquire
companies is dependent upon the market and price for its stock.
RESEARCH AND DEVELOPMENT. The Company has incurred research and
development expenses of approximately $450,000 for the two years ended December
31, 1998 and 1997, respectively.
REGULATION. The Company is subject to laws and regulations concerning
the environment, occupational safety and health and consumer products safety in
each of countries and local government areas in which it operates. Since the
Company conducts the majority of its business operations in the country of
Norway, Norwegian law dictates the business operations of the Company.
Although Norway is not a member of the European Union, Norway is a
member of the European Economic Association and, as such, has implemented
legislation relating to the "Four Freedoms" on which the European Union is
founded (i.e., free movement of goods, people, services and capital). In the
event of a conflict between Norwegian law and the laws of the European Union
which have been implemented by Norway, the laws of the European Union shall
control. Although Norway has decided not to adopt the Euro as its currency at
this time, the Company's results from operations may be impacted because of the
conversion to the Euro by the other European countries. Moreover, the Company's
business operations may be impacted if Norway decides in the future to adopt the
Euro as its sovereign currency.
In addition, Norway has enacted specific laws regarding the termination
of employees and holiday leave. Under the Work Environment Act (1977), all
employers must provide at least one calendar month's notice to an employee prior
to termination. This notice period will increase based upon the duration of the
employee's employment with the employer and the age of the employee. The Work
Environment Act also protects against the termination and dismissal of employees
without a valid reason such as altered conditions within the company or
circumstances related directly to the employee's work performance. If an
employee is terminated without a valid reason, the Norwegian courts may overturn
the termination of such employee. Each employee in Norway is also entitled to
four weeks and one day of vacation each year and is entitled to ten legal
holidays each year. Each employee receives 10.2% of his/her gross wage in the
preceding year during his/her vacation. Most employees take their vacations
during the summer months. These laws may impact the Company's results from
operations because these laws restrict the Company's ability to terminate
employees without cause and reduce the Company's productivity during the summer
months.
The Company must comply with various Norwegian laws concerning the
environment, construction and competition which may impact the Company's
results from operations. In Norway, construction companies must obtain certain
permits, licenses and approvals from municipalities prior to commencing any
construction activities. In addition, all construction companies must comply
with stringent regulations which govern the administration of construction
companies, require certain qualifications for construction companies and
mandate reporting requirements for construction companies. As a result of the
increased regulation of construction companies by the Norwegian government,
many smaller construction companies have discontinued business operations
because of their inability to comply with these regulations.
The Company believes that it is in substantial compliance with all
applicable Norwegian regulations. However, future changes in these laws or
regulations could have a significant impact on the Company's business
operations.
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EMPLOYEES. As of June 30, 1999, the Company had approximately 240
employees, including 40 engineers, 15 technicians and 10 office personnel.
Twenty-three of the employees of SIMEX A/S are members of various labor unions,
including the Lands Organisationen Union, Norway. SIMEX A/S is also a member of
an employer's labor union, the National Employers Organization. The Lands
Organisation Union and the National Employers Organization enter into a labor
agreement every two years. The current labor agreement expires April 30, 2000.
The Company has experienced no work stoppages and rates its relationship with
its employees as good. SEE RISK FACTORS - RISK RELATED TO OUR DEPENDENCE ON KEY
PERSONNEL AND THE ABILITY TO ATTRACT EMPLOYEES.
PROPERTY AND FACILITIES. The Company's executive offices are located in
Atlanta, Georgia consisting of approximately 1,600 square feet of leased space,
the lease for which expires in 2000. SIMEX A/S, located in Stavanger, Norway,
currently owns a building which it expects to sell in exchange for the purchaser
constructing a new production and office facility in Stavanger that will
accommodate the local operations employees of SIMEX A/S as well as the local
operations employees of its recent acquisitions. The new facility will contain
approximately 99,155 square feet and will have a lease term of twenty years with
a right of first refusal to purchase the facility at any time during the term of
the lease or at its termination.
RISK FACTORS
The risks and uncertainties described below are not the only ones which
may impact the operations of the Company. The occurrence of any of the following
risks could materially and adversely affect the Company's business, financial
condition and the results of operations. In such case, the trading price of the
Company's common stock could decline, and shareholders may lose all or a part of
their investment in the Company.
RESTRICTIONS UPON PAYMENT OF DIVIDENDS BY SUBSIDIARIES MAY REDUCE THE
FUNDS AVAILABLE FOR DISTRIBUTION TO SHAREHOLDERS.
The Company is a holding company with limited assets of its own. The
Company conducts substantially all its business through SIMEX A/S, a
wholly-owned subsidiary whose principal place of business is located in
Stavanger, Norway. The amount of dividends which SIMEX A/S may pay to the
Company is restricted under Norwegian law. Under Norwegian law, the dividends
which are available for distribution by SIMEX A/S are limited to the annual
results of operations for the preceding year less unrecovered business losses
for previous years, the balance value of goodwill, capitalized research and
development expenses and net deferred taxes. If this amount is less than ten
percent (10%) of the equity set forth on SIMEX A/S's financial statements,
SIMEX A/S is restricted under Norwegian law from distributing any dividends to
the Company. Since the Company receives a majority of its income in the form of
dividends from SIMEX A/S, these restrictions upon the payment of dividends may
decrease the amount of funds available for distribution to the shareholders of
the Company.
In addition, any dividends which SIMEX A/S pays to the Company are
subject to Norwegian income taxes and United States income taxes. However,
under the tax treaty entered into between the United States and Norway, the
Company may reduce the amount of United States income taxes payable by the
Company by the amount of Norwegian income taxes paid by SIMEX A/S upon such
dividends. Thus, the amount of taxes payable upon such dividends will reduce
the amount of funds that will flow from SIMEX A/S to the Company. Although the
Company does not plan to pay dividends to shareholders, each shareholder who
receives a dividend distribution must pay personal income taxes upon such
amounts.
LIMITED CAPITAL/NEED FOR ADDITIONAL CAPITAL
As of June 30, 1999, the Company had a working capital deficit of
$679,000 (i.e., current assets minus current liabilities) with which to engage
in its business endeavors. Upon the sale of the Company's existing headquarters
facility in Stavanger, Norway to Tjelta Eiendom, the Company anticipates that a
substantial portion of its short-term liabilities will be paid in full thereby
increasing the amount of the Company's operating capital. Currently, the Company
believes that the cash flow generated from its operations will be adequate to
fund its capital needs for a period of at least twelve months and that it will
be capable thereafter of continuing as a going concern. From time to time, the
Company may conduct fundraising activities in order to raise additional funds to
conduct its business operations. At this time, there are no commitments for
additional cash funding. There are currently outstanding bank loans in the
amount of approximately $9,348,000. These loans are secured by real estate,
furniture, fixtures and equipment and accounts receivable. The lender has
required that the Company seek additional equity investors as a condition for
future operations financing. The Company cannot make any assurances that it will
be successful in raising capital through private placements or other means. In
the event that the Company enters into private placements with investors, there
can be no assurances that such private placements will be on terms and
conditions which are favorable to the Company and its current shareholders. If
the Company elects to seek new equity investors to raise additional capital, the
additional equity investors will dilute shareholder ownership interests.
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RISKS ASSOCIATED WITH POSSIBLE MERGERS OR CONSOLIDATIONS
In a short period of time, the Company has experienced rapid growth and
development through a series of acquisitions. In 1998, the Company acquired five
(5) companies: (a) Norwegian Cooling Industries, (b) OIN Sprinklers A/S, (c)
Weld Tech A/S, (d) Hordaror A/S and (e) Vest Norge Doors A/S. The Company
intends to continue its strategy of making acquisitions in the future in order
to remain competitive. Mergers and consolidations of business involve numerous
risks and uncertainties, including:
- Adverse effects on reported results of operations from merger-related
charges and amortization of goodwill and purchased technology.
- Inability to maintain customers or goodwill of a consolidated
business;
- Difficulties in the integration of operations, personnel,
technologies, products and the information systems of the consolidated
companies;
- Diversion of management's attention from other business concerns;
- Risks of entering geographic and business markets in which the
Company has no or limited prior experience; and
- Potential loss of key employees of consolidated organizations.
The Company's future performance will depend in part upon the ability
to integrate with other companies and businesses. If the Company is unable to
integrate successfully with other companies and businesses, such failures would
have a material adverse effect on the Company's business, results of operations
and financial condition. During the first half of 1999, the Company's management
diverted a substantial amount of its time and resources reorganizing the Company
into different operating segments and integrating the administrative,
management, technology and accounting systems of newly acquired businesses into
the corporate culture of the Company. The Company has experienced a net loss in
the first and second quarter of 1999 because, among other factors, the costs
associated with integrating its recently acquired businesses.
If the Company elects to consummate one or more significant mergers or
consolidations in the future in which the consideration consists of stock or
other securities, shareholders' equity could be significantly diluted. In the
alternative, if the Company elects to proceed with one or more significant
mergers or consolidations in which the consideration includes cash, it may
utilize a substantial portion of available cash to consummate the merger or
consolidation. In addition, if the Company does not have available cash to
consummate a merger or consolidation, there can be no assurances that financing
will be available on favorable terms, if at all, to finance such mergers or
consolidations. The Company may also have to compete for merger or consolidation
targets with other companies with similar growth strategies which could result
in increased prices of such targets and a diminished pool of companies available
for merger or consolidation.
THE COMPANY RELIES ON STRATEGIC MARKETING ALLIANCES
The Company is generally dependent on relationships with third parties.
The Company is employing alliances with third parties as a core strategy to
accomplish its objectives. There can be no assurance that such third parties
will regard their relationship with the Company as important to their own
business and operations, that they will not reassess their commitment to the
business at any time in the future, or that they will not develop their own
competitive services or products, either during their relationship with the
Company or after their relations expire. In addition, there can be no assurance
that any party to a strategic alliance agreement will perform its obligations as
agreed or that any strategic agreement will be enforceable. The Company's
arrangements with its strategic partners generally do not establish minimum
performance
9
<PAGE> 11
requirements and most agreements with strategic partners may be terminated by
either party with little notice. Accordingly, there can be no assurance that the
Company's existing relationships or future relationships will result in
sustained business partnerships, successful service offerings, or significant
revenues.
RISK OF OPERATIONS AND INSURANCE
Because the Company engages in construction in the oil and gas industry
as well as other large-scale projects, it encounters inherent risks in
operations including accidents, environmental mishaps, risks of off-shore marine
activity, and risks related to electrical installations. Any of these
occurrences could result in the following:
- significant personal injury or loss of life;
- severe damage to or destruction of property and equipment;
- pollution or environmental damage; and
- suspension of operations.
Claims arising from problems associated with products and systems sold
by the Company may also result in product liability lawsuits. Litigation could
result in the expenditure of significant financial and managerial resources. The
Company maintains insurance coverage against most, but not all, potential
losses. Insurance coverage is not always economically feasible and cannot always
be obtained, without significant exclusions, in amounts sufficient to cover all
types of operational risks and product liability claims. The occurrence of a
significant event that is not fully insured could have a material adverse effect
on the Company's financial condition, results of operations, or liquidity.
OTHER RISKS ASSOCIATED WITH OPERATIONS
- DEPENDENCE UPON OIL PRICES. The demand for the Company's
engineering services and the construction of new off-shore oil
and gas platforms depends upon the world demand for oil and
gas and the corresponding prices for oil and gas. If the price
of oil drops below the level at which oil or gas can be
economically extracted, the demand for off-shore oil and gas
platforms will decline. If the demand for new off-shore oil
and gas platforms declines, the materials and services that
the Company supplies may also decline.
- GOVERNMENTAL REGULATION. The Company's operations may be
subject to numerous international, federal, state, provincial
and local laws. The costs associated with compliance of these
laws and regulations may prevent the Company from selling some
or all of its products and services.
- EFFECT OF THE WEATHER. The weather may adversely affect the
construction activities of the Company and may cause periodic
interruptions in operations. In addition, the climate impacts
the demand for the HVAC services offered by the Company.
EMERGENCE OF THE EURO AS THE NEW CURRENCY FOR ELEVEN EUROPEAN COUNTRIES
On January 1, 1999, eleven of the fifteen member countries of the
European Union established fixed conversion rates between their existing
sovereign currencies and a common currency, the Euro. The participating
European Union countries include: Austria, Belgium, Finland, France, Germany,
Italy, Luxembourg, the Netherlands, Portugal and Spain. Although the initial
participating member countries do not include Norway, the Company's principal
place of operation, the introduction of the Euro is expected to reshape
financial markets, banking systems and monetary policies in Norway and other
parts of the world. For example, the process of implementing the Euro may
result in changes in the relative strength and value of the Norwegian krone as
compared to other major currencies, and the transition to the Euro is likely to
have a significant impact on fiscal and monetary policy in Norway and may
produce unpredictable effects on trade and commerce generally.
In addition, as more European companies offer products and services
priced in the Euro rather than priced in their sovereign currencies, customers
will be able to compare prices and commercial terms offered by companies in
different European countries. This ability to compare prices and commercial
terms will increase competition in the industry and may result in a decrease in
prices across Europe. Because of increased price competition in Europe, the
Company may be forced to reduce its prices and offer more favorable commercial
terms in order to compete. Because Norway has elected not to convert its
currency to Euro at this time, customers will be unable to compare prices and
commercial terms offered by the Company with other European competitors, and the
Company may consequently lose customers. If the Company is unsuccessful in
competing with other European companies, there may be a material adverse effect
on the Company's business, its sales or its earning capacity. In the event
Norway elects in the future to adopt the Euro as its currency, the Company will
need to upgrade its information technology systems and accounting systems to
accommodate the new currency which will result in increased expenses to the
Company.
FOREIGN CURRENCY FLUCTUATIONS
The Company derives a substantial portion of its revenues primarily
from contracts entered into with customers in Norway. In addition, the majority
of the Company's assets and liabilities are dominated in the Norwegian krone.
Therefore, a fluctuation of the exchange rates for the Norwegian krone in
relation to the United States dollar may have an adverse effect on the
Company's earnings or assets when translating the Norwegian krone into the
United States dollar on the Company's financial statements. For example, a
weakening in value of the Norwegian krone against the United States dollar
could result in lower revenues and earnings for the Company when translated
into United States dollars and could have a material adverse effect on the
Company's results of operations and its financial condition. However, since
the expenses of the Company are generally incurred in the Norwegian krone, the
same currency in which a majority of the Company's revenues are generated, a
fluctuation in exchanges rates between the Norwegian krone and the United
States dollar will impact the Company's results of operations on its financial
statements to a lesser degree.
Since the Company cannot predict the effect of fluctuations in the
Norwegian krone against the United States dollar, the Company cannot quantify
the effect of exchange rate fluctuations on our future financial condition or
results of operations. While the Company may consider entering into transactions
to hedge the risk of exchange rate fluctuations, there can be no assurances that
the Company will engage in such transactions, or, if the Company decides to
engage in such transactions, that they will be successful and that shifts in the
currency rates will not have a material adverse effect on the Company.
10
<PAGE> 12
DEPENDENCE ON NEW CONSTRUCTION
The Company generates a large portion of its revenues from a limited
number of construction contracts for large-scale projects. For example, in first
quarter of 1999, the Company had at least one contract that accounted for 4% or
more of the total revenues in such quarter. The Company expects to continue to
depend upon new construction for a significant percentage of its revenues in the
future. The failure to secure contracts for large-scale projects in the future
may adversely affect the Company's results of operations or financial condition.
DEPENDENCE ON KEY PERSONNEL AND ABILITY TO ATTRACT EMPLOYEES
Growth and development of the Company depends on the continued service
of its executive officers and managers (i.e., key personnel). The Company has
not entered into employment contracts with its key personnel. It does, however,
carry key person life insurance. The loss of key personnel for any reason could
harm the Company's business.
Future success of the Company also depends upon the ability to attract
persons with technical expertise and experience to enable it to provide
technical services to customers. There is a substantial demand for persons who
have engineering degrees in the disciplines that the Company requires,
especially in the Scandinavian countries. In addition, there exists a limited
number of qualified personnel which demonstrate the ability to perform these
services. If the Company is not able to attract and retain qualified personnel,
its business may suffer.
DEPENDENCE UPON WORLD ECONOMIC FACTORS
The Company is dependent upon forming strategic alliances and
relationships with joint venture partners and securing subcontracts with large
multi-national companies in order to generate revenues. In turn, the ability of
the large multi-national contractors to secure contracts for infrastructure
construction such as bridges, dams and tunnels depends upon the economic factors
affecting the particular country in which the project is located. These
international economic factors include the following:
- The impact of recessions in economies outside of the United
States;
- Currency exchange rate fluctuations;
- Uncertain intellectual property rights protection;
- Political and economic instability;
- Policy, legal, regulatory or other changes affecting the oil
and gas industry, the HVAC, plumbing, mechanical contracting,
refrigeration, and engineering industries;
- Potential adverse tax consequences;
- Tariffs, export controls and other trade barriers;
11
<PAGE> 13
- Difficulties of administering foreign operations; and
- Seasonality.
RISKS ASSOCIATED WITH TECHNOLOGICAL ADVANCES IN THE CONSTRUCTION
INDUSTRY
Continued growth of the Company depends upon the ability to meet
technological changes in the construction industry and to develop and utilize
technologically advanced engineering practices for HVAC, plumbing, mechanical,
and refrigeration systems, as well as engineering and post-tensioning concrete
work. To remain competitive with other full-service engineering firms, the
Company must continue to develop and employ new techniques for its engineering
services, and the Company must continue to develop products and services
demanded by customers at prices that generate a profit.
FAILURE TO PROTECT PROPRIETARY TECHNOLOGY MAY IMPAIR COMPETITIVE
POSITION
Although the Company seeks to protect its intellectual property rights
through patents, copyrights, trade secrets and other measures, the Company
cannot be certain that:
- it will be able to protect its proprietary technology
adequately;
- its patents and any other issued patents will not be
successfully challenged by one or more third parties, which
could result in the loss of the right to prevent others from
exploiting the Company's technology;
- competitors will not be able to develop similar or superior
technology independently;
- intellectual property laws will protect the Company's
intellectual property rights; and
- third parties will not assert that the Company's products
infringe upon their patents, copyrights or trade secrets.
If the Company is not successful in protecting its proprietary
technology and intellectual property, there could be a material adverse effect
on the Company's business, financial condition or results of operations.
COMPETITION
The Company competes with many companies that offer similar products
and services. Many of these companies possess greater assets and greater
financial and personnel resources than the Company's. Some of these competitors
also carry product lines which the Company does not carry and offer services
which the Company does not provide. The competitive pressures of these companies
may have a material adverse effect on the Company's business and upon its
financial condition. In the event that more companies begin to compete with the
Company by carrying similar products and services, the price competition with
competitors will increase. These competitive pressures could cause the Company
to reduce the prices of its
12
<PAGE> 14
products and services which will, in turn, decrease the amount of profits it
generates. Prolonged price competition with competitors could produce a material
adverse effect on the Company's operating results and financial condition. In
addition, if the Company's competitors develop new or enhanced products or
services, the Company may also suffer adverse effects on business operations.
Because of the intense competition in the engineering industry, the Company
cannot assure shareholders that it will compete successfully with other
competitors in the future.
INVESTMENT RISKS
The Company invests a portion of its capital in higher risk instruments
such as government-secured obligations or money market accounts. While this
investment strategy allows the Company to obtain a higher yield on its capital,
the Company also assumes the risk that it may lose all or part of its investment
capital in addition to the loss of interest.
THE COMPANY'S CERTIFICATE OF INCORPORATION HINDERS A CHANGE OF CONTROL
The Articles of Incorporation of the Company contain certain provisions
which could impede a change of control of the Company. The Board of Directors of
the Company may issue up to 5,000,000 shares of preferred stock with rights
preferences determined by the Board of Directors without the approval of the
shareholders. These provisions may prevent stockholders from obtaining a premium
for their common stock. See "Description of Securities."
13
<PAGE> 15
NO DIVIDENDS
The Company does not currently intend to pay cash dividends on its
common stock and does not anticipate paying such dividends at any time in the
foreseeable future. At present, the Company will follow a policy of retaining
all of its earnings, if any, to finance the development and expansion of its
business.
LIMITED LIABILITY OF MANAGEMENT
The Company has adopted provisions in its Articles of Incorporation
which limit the liability of its officers and directors. In addition, the Bylaws
of the Company provide for indemnification by the Company of officers and
directors to the full extent permitted by Delaware corporate law. The Articles
of Incorporation generally provide that directors shall have no personal
liability to the Company or shareholders for monetary damages for breaches of
their fiduciary duties as directors, except for:
- breaches of their duties of loyalty;
- acts or omissions not in good faith or which involve
intentional misconduct or knowing violation of law;
- acts involving unlawful payment of dividends or unlawful stock
purchase or redemptions; or
- transactions from which a director derives an improper
personal benefit.
Such provisions substantially limit the shareholders' ability to hold
directors and officers liable for breaches of fiduciary duty. See
"Indemnification of Directors and Officers."
SALES OF A SUBSTANTIAL NUMBER OF SHARES OF COMMON STOCK IN THE PUBLIC
MARKET COULD IMPACT THE MARKET PRICE
If the Company's shareholders sell in the public market substantial
amounts of their common stock, including shares issued upon the exercise of
outstanding warrants, then the market price of the Company's common stock could
decline. The sale of substantial amounts of common stock in the public market
could also impair the ability to raise additional capital through the sale of
equity securities.
The Company currently has 12,823,873 shares of issued and outstanding
common stock. The Company has granted Reidar Kindervag and John Reider
Kindervag, the principal shareholders of Weld Tech A/S, the option exercisable
on or before June 30, 2000 to purchase 200,000 shares of common stock of the
Company at an exercise price of $2.75 per share. This option expires on
November 17. 2001.
In order to limit the number of shares of common stock available for
sale in the public market, the Company has entered into lock-up agreements with
several of its shareholders. In April 1998, the Company and Mr. Elmer Lunde, Mr.
Knut Rosvold and Mr. Oystein Frafjord entered into a lock-up agreement which
restricts these shareholders from selling in excess of five percent (5%) of the
common stock held by such shareholder in any given twelve (12) month period for
a period of three (3) years. In November 1998, the Company entered into a
lock-up agreement with Weld Tech A/S which allows Weld Tech A/S to sell 90,000
shares of common stock immediately, 180,000 shares of common stock after June
30, 1999 and 180,000 shares of common stock after January 1, 2000.
Of the 12,823,873 shares of the Company's issued and outstanding
common stock, approximately 2,500,000 shares of common stock are freely
transferable without restriction or registration under the Securities Act of
1933 (the "Securities Act"). The remaining 10,323,873 shares of common stock
of the Company are "restricted securities" as defined under the Securities Act
and may only be sold (a) in compliance with Rule 144 under the Securities Act,
(b) pursuant to a registration statement filed under the Securities Act, (c)
pursuant to an exemption from registration under the Securities Act or (d) in
an offshore transaction pursuant to Regulation S of the Securities Act.
Rule 144 generally provides that a person holding restricted
securities for a period of one (1) year may sell every three (3) months in
brokerage transactions or market-maker transactions an amount equal to the
greater of:
o One percent (1%) of the Company's issued and outstanding common
stock, or
o The average weekly trading volume of the common stock during the
four (4) calendar weeks prior to such date.
Rule 144 also permits, under certain circumstances, the sale of shares without
any volume limitation by a person who is not an affiliate of the Company and who
has satisfied a two (2) year holding period.
For example, assuming that the weekly trading volume is less than 1%
of the issued and outstanding common stock of the Company, the maximum amount
of "restricted securities" of the Company which will become available for
resale over the next two (2) years under Rule 144 is as follows:
<TABLE>
<CAPTION>
DATE MAXIMUM NUMBER OF SHARES FREELY TRANSFERABLE
- ---- --------------------------------------------
<S> <C>
December 31, 1999 902,889 shares may be sold immediately
April 29, 2000 2,319,474 shares may be sold immediately
622,137 shares may be sold over the next 12 months
December 31, 2000 515,000 shares may be sold immediately
April 29, 2001 1,538,862 shares may be sold over the next 12 months
</TABLE>
In addition, an unlimited amount of shares of common stock of the
Company may be sold in offshore transactions to non-United States residents
pursuant to Regulation S under the Securities Act. However, the shares of
common stock of the Company purchased in offshore transactions are still
"restricted securities" as defined under the Securities Act and may not be sold
to United States residents unless (a) the requirements of Rule 144 are
satisfied, (b) the Company files a registration statement relating to such
securities or (c) the offering qualifies for an exemption from registration
under the Securities Act.
The sale of substantial numbers of such shares whether pursuant to
Rule 144, a registration statement, an exemption from registration or in an
offshore transaction may have a depressive effect on the market price of the
common stock of the Company.
EXISTING SHAREHOLDERS WILL CONTINUE TO CONTROL THE COMPANY AND EXERT
CONTROL OVER CORPORATE ACTIONS
Principal shareholders beneficially own approximately 54% of the
Company's outstanding common stock. See "Security Ownership of Certain
Beneficial Owners and
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<PAGE> 16
Management." As a result, these shareholders, acting together, will be able to
control the outcome of all matters submitted for shareholder action, including
the following:
- Electing members of the Board of Directors;
- Approving significant change-in-control transactions;
- Determining the amount and timing of dividends paid; and
- Controlling management and operations.
POTENTIAL ISSUANCE OF ADDITIONAL COMMON AND PREFERRED STOCK
The Company has the authority to issue up to 50,000,000 shares of
common stock. The Board of Directors has the ability, without seeking
shareholder approval, to issue additional shares of common stock in the future
(up to 50,000,000 shares) for such consideration as the Board of Directors may
consider sufficient. The issuance of additional common stock in the future
dilutes current existing ownership in the Company as well as voting power. The
Company also has the authority to issue up to 5,000,000 shares of preferred
stock, and the Board of Directors may designate the rights and preferences of
such preferred stock without seeking shareholder approval. If the Company issues
preferred stock in the future, the designation and issuance of such preferred
stock would create additional securities which may have dividend and liquidation
preferences over common stock.
LOW PRICED STOCK/PENNY STOCK RISK DISCLOSURE REQUIREMENTS MAY DECREASE
THE LIQUIDITY OF THE COMPANY'S STOCK AND MAY INCREASE TRANSACTION COSTS
The Company's common stock may be considered a low priced security or
"penny stock" under rules promulgated under the Exchange Act. Under the
Securities Enforcement and Penny Stock Reform Act of 1990, broker-dealers
participating in transactions in low priced securities must first deliver a
risk disclosure document which describes:
- the risks associated with such stocks;
- the broker-dealer's duties;
- the broker-dealer's compensation;
- the customer's rights and remedies; and
- certain market and other information.
Based upon this information, the broker-dealer must make a suitability
determination approving the customer for low priced stock transactions based on
the customer's financial situation, investment experience and objectives.
Broker-dealers must also disclose these restrictions in writing to the
customer, obtain specific written consent of the customer, and provide monthly
account statements to the customer. These restrictions may decrease the
willingness of broker-dealers to make a market for the stock, may decrease the
liquidity of the stock and may increase the transaction cost of sales and
purchases of such stock as compared to other securities.
15
<PAGE> 17
THE COMPANY'S BUSINESS COULD BE AFFECTED BY YEAR 2000 ISSUES
The risks posed by Year 2000 issues could adversely affect the
Company's business in a number of significant ways. The Year 2000 issue is the
result of computer programs being written using two digits rather than four to
define the applicable year. As a result, the Company's computer systems that
have date-sensitive software and software of companies with which the Company's
network is interconnected may recognize a date using "00" as the year 1900,
rather than the Year 2000. This error could result in system failures or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices or engage
in similar normal business activities. The Company has assessed its systems and
it believes the majority of them to be Year 2000 compliant. However, the Company
relies on information technology supplied by third parties. If the systems of
other companies on whose services the Company depends or with whom the Company's
systems interconnect are not Year 2000 compliant, it could have a material
adverse effect on the Company's business operations, financial condition and the
results of operations. Given the pervasive nature of the Year 2000 problem, the
Company cannot guarantee that disruptions in other industries and market
segments will not adversely affect the Company's business. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations-Year
2000 Risk."
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
(Dollars in thousands, except per share data)
The following Summary Historical Consolidated Financial Information
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Company's Audited
Consolidated Financial Statements included elsewhere in this Registration
Statement. The Consolidated Statement of Operations Data set forth below for the
years ended December 31, 1998 and 1997 are derived from and qualified by
reference to the Company's Audited Consolidated Financial Statements, which
appear elsewhere in this Registration Statement. The Consolidated Statement of
Operations Data for the six (6) months ended June 30, 1999 and 1998 and the
Consolidated Balance Sheet Data at June 30, 1999 are derived from and are
qualified by reference to the Company's Unaudited Consolidated Financial
Statements, which appear elsewhere in this Registration Statement and, in the
opinion of Management, include all adjustments, consisting of only normal
recurring adjustments, necessary to present fairly the financial data for such
periods. The results of operations for the six (6) months ended June 30, 1999
are not necessarily indicative of the results to be expected for the full year
or for any future period. All of the Company's acquisitions have been accounted
for using the purchase method and accordingly, the actual Consolidated Statement
of Operations Data reflects the results of operations of these businesses from
their respective acquisition dates.
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<PAGE> 18
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF OPERATIONS DATA
(IN THOUSANDS, EXCEPT SIX MONTHS ENDED
PER SHARE DATA) YEARS ENDED DECEMBER 31, JUNE 30,
1998 1997 1999 1998
-------- ------- ------ ------
==================================================================================================
<S> <C> <C> <C> <C>
Revenues $ 24,403 13,740 16,174 10,293
Cost of revenues 20,757 12,418 13,107 8,199
-------- ------- ------ ------
Gross profit 3,646 1,322 3,067 2,094
Selling, general and administrative expenses 2,245 765 2,928 1,384
-------- ------- ------ ------
Operating income (loss) 1,401 557 139 710
Other income (expense):
Interest income 105 31 156 9
Interest expense (385) (207) (415) (87)
Other 7 -- (130) --
-------- ------- ------ ------
Total other expense (273) (176) (389) (78)
-------- ------- ------ ------
Income (loss) before income taxes 1,128 381 (250) 672
Income taxes 377 168 117 217
-------- ------- ------ ------
Net income (loss) $ 751 213 (367) 415
======== ======= ====== ======
Earnings (loss) per share:
Diluted $ .06 .02 (.03) .04
======== ======= ====== ======
Basic $ .06 .02 (.03) .04
======== ======= ====== ======
</TABLE>
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<PAGE> 19
CONSOLIDATED BALANCE SHEET DATA
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1998 1999
================================================================================
<S> <C> <C>
Cash and cash equivalents $ 877 277
Total assets $20,946 20,580
Total long-term debt, including current portion $ 5,864 5,732
Total shareholders' equity $ 7,071 6,382
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion of the financial condition and results of
operations of the Company should be read with "Selected Consolidated Financial
Data" and the Company's Consolidated Financial Statements, including the Notes
included elsewhere in this Registration Statement.
OVERVIEW. The Company is a diversified engineering, consulting,
mechanical contracting, technical services and maintenance company. It also
manufactures products for commercial projects for the off-shore oil and gas
industry and on-shore commercial, industrial and government projects. In
addition, the Company offers HVAC, electrical, plumbing, refrigeration/cooling
and maintenance services and is engaged in concrete post-tensioning construction
for off-shore oil and gas production platforms, bridges and other related
concrete construction projects.
The Company is the successor by way of reorganization to a predecessor
public shell company. Since the reorganization in April 1998, the Company,
through its wholly-owned subsidiary, SIMEX A/S, has acquired five companies.
All of the Company's acquisitions have been accounted for using the purchase
method. Therefore, the historical financial data includes the results of
operations of companies acquired from their respective acquisition dates. The
Company operated with a profit for the year ending December 31, 1998, but
incurred a loss for the period ending June 30, 1999 as a result of the cost
incurred for administration charges, assimilation of acquisitions, upgrades and
replacements of its computer systems and software in connection with its Year
2000 remedial efforts, as well as the recognition of fees related to the filing
of this Registration Statement.
The Company is involved in new construction projects as well as
long-term maintenance arrangements. On new construction projects, the Company is
generally retained by a project general contractor. Revenue is recognized
primarily using the percentage-of-completion method on a contract-by-contract
basis. The Company's use of the percentage-of-completion method for revenue
recognition requires management to estimate the degree of completion of each
project. To the extent that these estimates prove to be inaccurate, the revenues
and gross profits reported for periods during which work on the project is
ongoing may not accurately reflect the final
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<PAGE> 20
results of the project. Any anticipated losses on projects are charged to
earnings when identified. The Company primarily prices its projects on a time
and materials basis plus a percentage for its profit. Costs include standard
personnel billing rates, project implementation risk and overall technical
complexity of a project. Accordingly, there is no standard pricing for a
particular project.
The Company has also secured in excess of 250 maintenance contracts
which provide ongoing preventive maintenance for HVAC, plumbing,
refrigeration/cooling and electrical systems of commercial facilities and users.
A significant number of the maintenance contracts are for customers located in
Stavanger, Norway, the headquarters of SIMEX A/S. Because of the large number of
customers, no customer accounts for more than 5% of the Company's revenues.
The Company's revenues are comprised of its engineering and technical
services as well as from the products it manufactures and sells. In particular,
SIMEX A/S manufactures spiral ducts for installation of HVAC systems as well as
for the concrete post-tensioning projects. The SIMDUCT system has a large
potential market due to the Company's production technologies and many years of
experience. In addition, through the subsidiaries that have been acquired, other
products are offered to existing customers as well as customers of SIMEX A/S.
Norwegian Cooling Industries designs and manufactures ice machines, cooling
systems and products utilized in commercial refrigeration. Weld Tech provides
welding services to many of the customers of SIMEX A/S as well as its existing
customers. Vest Norge Doors manufactures very large and complex specialty doors
for off-shore oil platforms, helicopter hangers, and other manufacturing
facilities.
Historically, a majority of the Company's revenues have been derived
from the sale of the Company's products, traditional construction and
engineering services as well as maintenance contracts which include private and
public facilities such as hospitals and schools.
The Company's expenses include cost of revenues and selling, general
and administrative expenses. Costs of revenues include salaries, benefits and
related overhead expenses associated with the generation of revenues. Selling
expenses include promotion, new business generation expenses and the salary and
benefits costs of personnel in these functions. General and administrative
expenses include management, accounting, legal and human resources costs. In
accordance with Norwegian law, SIMEX A/S provides a defined benefit pension plan
for all of its employees. Moreover, expenses for salaries include paid vacations
for most of its employees for a period of a minimum of four weeks and one day
per year. Most employees of the Company vacation during the entire month of July
of each year and the last two weeks of December of each year.
In addition, the Company has budgeted approximately $60 per month in
1999 for expenses incurred by the United States holding company. This budgeted
amount includes overhead costs and direct operating costs as well as accrued
accounting costs associated with the audit of the Company's financial
statements and anticipated legal expenses. The Company's future success will
depend largely on its ability to secure contracts with general contractors for
the construction of new projects that require its products and services and its
ability to market its products and its maintenance services to its existing
customer base and to new customers. Future success will also depend on its
ability to attract, train and retain highly-skilled engineers as well as
technical, consulting and sales personnel. Competition for such personnel is
intense, and there is a shortage of personnel having the requisite skills to
meet the qualifications for the job descriptions.
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<PAGE> 21
Historically, the Company has been able to attract and retain qualified
personnel. However, in order to expand its operations and to offer its products
and services to other markets, it will be dependent on its ability to attract
other qualified personnel.
The Company also requires capital expenditures to continue to upgrade
its manufacturing capabilities as well as its maintenance contracts. The Company
leases approximately 90 service vehicles and must maintain its fleet in good
working order and repair. In addition, it must continue to add to and replace
the fleet on a regular basis.
To reduce the overhead associated with the production facilities and office
space of the recently acquired companies, SIMEX A/S has entered into an
agreement to lease, on a long-term basis, a new facility that will accommodate
its production facility and office needs for all of its personnel on a combined
basis. The lease is for a term of twenty years and includes a right of first
refusal to purchase the facility during the lease term and a right to renew the
lease upon commercially reasonable terms at the end of the lease term. The
lease is conditioned upon the purchase by lessor of SIMEX A/S's current
facility in Stavanger, Norway. Other terms will not be finalized until the
Company takes occupancy, which is scheduled for September 1999.
The Company intends to implement a stock option plan in 1999 for its
employees, directors and consultants. In connection with the issuance of option
grants, it may incur non-cash stock compensation expenses. The amount is
unknown.
ACQUISITION PROGRAM
The Company has acquired five (5) businesses since April 1998 and
intends to continue acquiring similar businesses. The Company evaluates
acquisitions based on numerous quantitative and qualitative factors.
Quantitative factors include historical and projected revenues and
profitability, geographic and customer-based coverage and contract backlog.
Qualitative factors include strategic and cultural fit, management skills,
customer base and technical proficiency. The Company intends to continue to
expand the number of technical services that it can offer to its customer base.
If a business is capable of meeting its criteria, the Company intends to acquire
these businesses. With the Norwegian Cooling Industries and the Weld Tech
acquisitions, the Company's pro forma 1998 revenues were approximately $30.7
million.
Most of the consideration paid by the Company for the 1998 acquisitions
has been in the form of cash and common stock. The Company anticipates that
common stock and options or warrants to acquire common stock will continue to
constitute much of the consideration used to make future acquisitions. The
Company's acquisition program will result in additional ownership dilution to
its existing investors.
All of the Company's acquisitions have been accounted for using the
purchase method. The results of operations of the acquired entities are
consolidated with those of the Company from the date of the acquisition. For
each acquisition, a portion of the purchase price is allocated to the tangible
and identifiable intangible assets acquired and liabilities assumed based on
their respective fair market values as of the acquisition date. A portion of
the purchase price in excess of tangible and identifiable intangible assets and
liabilities assumed is allocated to goodwill and amortized on a straight-line
basis over the estimated period of benefit, which is primarily twenty (20)
years. The Company elected to amoritize the goodwill over a 20 year period
because the Company acquired established companies that have been in business
for many years and operate in traditional machining, welding and service
industries. Since these businesses are established and operate in traditional
industries, the Company believes that the future economic benefit period to the
Company is at least 20 years. For the year ended December 31, 1998,
amortization expense was $128,000. The
20
<PAGE> 22
Company expects additional acquisition-related amortization expense as a result
of its acquisition program.
The Company believes that its acquisitions have contributed to its
growth by rapidly expanding its customer base, employee base, geographic
coverage, industry expertise and technical skills. Our acquisitions may be
summarized as follows:
Norwegian Cooling Industries. From the time of acquisition forward,
1998 revenues for Norwegian Cooling Industries were approximately $7,100,000.
The Company paid $2.7 million in cash for the outstanding stock of Norwegian
Cooling Industries.
Weld Tech A/S. From the time of acquisition forward, 1998 revenues for
Weld Tech were approximately $1 million. The Company paid $1.3 million in cash
plus 450,000 shares of the Company's common stock and an option to acquire an
additional 200,000 shares to complete this acquisition.
Hordaror A/S. From the time of acquisition forward, 1998 revenues for
Hordaror were approximately $51,000. The Company paid $ 104,000 in cash
plus 13,513 shares of the Company's common stock to complete this acquisition.
Vest Norge Doors A/S. From the time of acquisition forward, 1998
revenues for Vest Norge Doors were $71,000. The Company paid $135,000 in cash
plus 38,000 shares of the Company's common stock to complete this acquisition.
OIN Sprinkler A/S. From the time of acquisition forward, 1998 revenues
for the sprinkler division were approximately $200,000. The Company paid $60,000
in cash plus 22,400 shares of the Company's common stock to complete the
acquisition of OIN Sprinkler's assets.
In addition, the Company believes that the formation of its wholly
owned subsidiary, SIMEX Energy Services, Inc. ("SIMEX Energy") will contribute
to the Company's growth in the United States. SIMEX Energy provides services and
designs products which reduce demand for electricity and minimize electrical
usage. The principal market for SIMEX Energy is in the southeastern United
States.
21
<PAGE> 23
RESULTS OF OPERATIONS. COMPARISON OF SIX MONTHS ENDED JUNE 30, 1999 AND
SIX MONTHS ENDED JUNE 30, 1998.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF OPERATIONS DATA SIX MONTHS ENDED PERCENTAGE
(IN THOUSANDS) JUNE 30, OF REVENUES
1999 1998 1999 1998
=================================================================================================
<S> <C> <C> <C> <C>
Revenues $16,174 10,293 100.0% 100.0
Cost of revenues 13,107 8,199 81.0 79.7
------- ------ ------ ------
Gross profit 3,067 2,094 19.0 20.3
Selling, general and administrative expenses 2,928 1,384 18.1 13.4
------- ------ ------ ------
Operating income 139 710 0.9 6.9
Other income (expense):
Interest income 156 9 1.0 --
Interest expense (415) (87) (2.6) (0.8)
Other (130) -- (0.8) --
------- ------ ------ ------
Total other expense (389) (78) (2.4) (0.8)
------- ------ ------ ------
Income (loss) before income taxes (250) 632 (1.5) 6.1
Income taxes 117 217 0.7 2.1
------- ------ ------ ------
Net income (loss) $ (367) 415 (2.2)% 4.0
======= ====== ====== ======
</TABLE>
REVENUES (IN THOUSANDS). Revenues during the six months ended June 30,
1999 were $16,174, compared to $10,293 during the six months ended June 30,
1998. The increase in net sales in the amount of $5,881, was primarily due to
several business acquisitions which occurred on or after May 1998 and therefore
only partial operating results of the acquired businesses were included in the
six months ended June 30, 1998. The increase in revenues for the six months
ended June 30, 1999 which is attributable to the acquired businesses was $4,379,
and the increase attributable to the existing operations was $1,502.
COST OF REVENUES. In the six months ended June 30, 1999, cost of
revenues was $13,107, which represented 81% of net sales. During the six months
ended June 30, 1998, cost of goods sold was $8,199, which represented 79.7% of
net sales. The increase in cost of revenues for the six (6) months ended June
30, 1999 which is attributable to the acquired businesses is $3,681, and the
increase attributable to the existing operations is $1,227.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses during the six months ended June 30, 1999 were $2,928,
which represented 18% of net sales. During the six months ended June 30, 1998,
general and administrative expenses were $1,384, which represented 13% of net
sales. The increase in general and administrative expenses is the result of
several business acquisitions which occurred on or after May 1998 and the
expenses related to the Company's Atlanta, Georgia executive offices. A
significant portion of the increased expenses related to legal, accounting and
other professional fees, incurred in both the United States and Norway, related
to the filing of the Company's registration statement. The increase in selling,
general and administrative expenses for the six months ended June 30, 1999 which
is attributable to the acquired businesses is $626, the increase attributable to
expenses related to the executive offices in Atlanta, Georgia is $442, and the
increase attributable to the expenses incurred in connection with the filing of
this registration statement is $267.
OTHER INCOME (EXPENSE). Other income (expense) decreased $(311)
during the six months ended June 30, 1999 as compared to the six months ended
June 30, 1998. This decrease primarily results from increased interest costs
related to increased borrowings in 1999 to finance the Company's growth. The
Company intends to repay a portion of its indebtedness during 1999.
NET INCOME (LOSS). During the six months ended June 30, 1999, the
Company had net loss of $(367) or $(0.03) per weighted-average diluted share.
During the six months ended June 30, 1998, the Company reported a net income of
$415 or $0.04 per weighted-average diluted share. The loss for the six months
ended June 30, 1999, was primarily due to increased expenses related to the
Company's United States operations and losses in the Company's service segment
as a result of increased cost of sales.
22
<PAGE> 24
ANNUAL HISTORICAL RESULTS OF OPERATIONS, YEAR ENDED DECEMBER 31, 1998
COMPARED TO YEAR ENDED DECEMBER 31, 1997.
<TABLE>
<CAPTION>
CONSOLIDATED YEARS ENDED PERCENTAGE
STATEMENT OF OPERATIONS DATA DECEMBER 31, OF REVENUES
(IN THOUSANDS)
1998 1997 1998 1997
-------- ------- ------ ------
====================================================================================================
<S> <C> <C> <C> <C>
Revenues $ 24,403 13,740 100.0% 100.0
Cost of revenues 20,757 12,418 85.1 90.4
-------- ------- ------ ------
Gross profit 3,646 1,322 14.9 9.6
Selling, general and administrative expenses 2,245 765 9.2 5.5
-------- ------- ------ ------
Operating income 1,401 557 5.7 4.1
-------- ------- ------ ------
Other income (expense):
Interest income 105 31 .5 .2
Interest expense (385) (207) (1.6) (1.5)
Other 7 -- -- --
-------- ------- ------ ------
Total other expense (273) (176) (1.1) (1.3)
-------- ------- ------ ------
Income before income taxes 1,128 381 4.6 2.8
Income taxes 377 168 1.5 1.2
-------- ------- ------ ------
Net income $ 751 213 3.1% 1.6
======== ======= ====== ======
</TABLE>
The following discussion relates to the Company's actual operating
results for the periods noted. These operating results include the operations of
the companies acquired by the Company during the periods referenced from the
date of acquisition. As a result, the Company believes the operating results for
the year ending December 31, 1998 are not comparable to the year ended December
31, 1997.
23
<PAGE> 25
REVENUES (IN THOUSANDS). Revenues increased $10,663 or 78% to $24,403
for the year ended December 31, 1998, from $13,740 for the year ended December
31, 1997. The Company's acquisition program contributed $6,872 to this increase
for the year ended December 31, 1998, and the development and growth of the
construction segment contributed $1,441 for this increase for the year ended
December 31, 1998. The remainder of the increase for the year ended December
31, 1998 was attributable to, among other things, the increase in client
engagements.
COST OF REVENUES. Cost of revenues increased $8,339 or 67% to $20,757
for the year ended December 31, 1998 from $12,418 for the year ended December
31, 1997. As a percentage of revenues, cost of revenues decreased from 90.4%
for the year ended December 31, 1997 to 85.1% for the year ended December 31,
1998. The increase in dollar amounts was primarily attributable to the
integration of the companies acquired by the Company since May 1998, and, to a
lesser extent, increased costs associated with the increased revenues from
existing operations. An increase of $6,164 in the cost of revenues for the year
ended December 31, 1998 was attributable to the acquisitions consummated by the
Company in 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $1,480 or 193% to $2,245 for the year ended
December 31, 1998 from $765 for the year ended December 31, 1997. As a
percentage of revenues, selling, general and administrative expenses increased
from 5.5% for the year ended December 31, 1997 to 9.2% for the year ended
December 31, 1998. This increase in dollar and percentage terms was primarily
attributable to the acquisitions and increase in the number of employees at the
end of 1998. In addition, with the reorganization of the Company, certain
expenses for office overhead and related expenses in the United States were
incurred. An increase of $877 for the year ended December 31, 1998 was
attributable to the consummation of the acquisitions by the Company in 1998.
The remainder of the increase is primarily attributable to the expenses
associated with the integration costs and the expansion of the management
infrastructure to support the growth in the Company's operations.
OTHER INCOME (EXPENSE). Other income (expense) increased by $97 for
the year ended December 31, 1998. An increase of $73 in other expenses for the
year ended December 31, 1998 was attributable to the consummation of the
acquisitions by the Company in 1998.
Net income for 1998 increased by $538 to $751 for the year ended
December 31, 1998 from $213 for the year ended December 31, 1997. This increase
was attributable to the increase in net income from the acquisitions as well as
the increase in revenues generated by SIMEX A/S.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES (IN THOUSANDS).
Historically, the Company has financed its operations primarily with cash flows
from operations and proceeds from its available credit lines. Cash flows
provided by operating activities for the year ended December 31, 1997
aggregated $836, while cash used in operating activities for the year ended
December 31, 1998 aggregated $(691). For the six
24
<PAGE> 26
months ended June 30, 1998, cash used in operating activities was $(272); for
the six months ended June 30, 1999, cash flows used in operating activities
were $(1,507). The impact on cash flows for the year ended December 31, 1998
and for the six months ended June 30, 1999 were primarily due to the
acquisitions.
With the reorganization, the Company raised additional capital during
the six months ended June 30, 1998 through the sale of common and preferred
stock, the net proceeds of which aggregated $2,506.
Cash used in investing activities which was related to additions to
property and equipment and for acquisitions for business, net of cash acquired,
for the years ended December 31, 1997 and 1998 aggregated $(516) and $(5,265),
respectively. For the six months ended June 30, 1998 and 1999, cash used in
investing activities was $(2,759) and $(673), respectively. The significantly
higher additions to property, plant and equipment for the six months ended June
30, 1999 and the year ended December 31, 1998 resulted from the acquisition of
businesses and integration of these businesses into the Company.
Cash flows used in financing activities for the year ended December 31,
1997 were $(243); for the year ended December 31, 1998, cash flows provided by
financing activities were $6,686. For the six months ended June 30, 1999, cash
flows provided by financing activities were $1,758; for the six months ended
June 30, 1998, cash flows provided by financing activities were $3,323. While
cash flows provided by financing activities for the year ended December 31, 1998
were $6,686, net borrowings by the Company under its line of credit provided
$203 for year ended December 31, 1998 and $159 and $1,890 for the six months
ended June 30, 1998 and 1999, respectively; for the year ended December 31,
1997, net cash repayments under the Company's line of credit aggregated $(273).
During 1997, the Company borrowed $30. During 1998, the Company borrowed $5,247
and repaid $2,598 under the Company's line of credit.
Cash flows provided by the issuance of preferred and common stock for
the year ending December 31, 1998, net of dividends, was $3,834 and $0 for the
year ending December 31, 1997. The effect of exchange rate changes and cash and
cash equivalents for the year ending December 31, 1997 was $(23), and for the
year ending December 31, 1998 was $(38). For the six months ended June 30, 1998,
the effective exchange rate changes and cash and cash equivalents was $(186) and
for six months ended June 30, 1999 was $(178).
CAPITAL EXPENDITURES. For the year ended December 31, 1998, the Company
had outstanding operating lease commitments of approximately $623. For the six
months ended June 30, 1999, the Company had an outstanding note payable in
connection with the Company's revolving line of credit to Spare Bank in the
principal amount of $3,613. For the six months ended June 30, 1999, the Company
had a note payable to Spare Bank of approximately $5,732 secured by real
property, furniture, fixtures and equipment of which $2,611 was due in less than
one year.
In addition, SIMEX A/S has entered into a twenty year lease commencing
on September 1, 1999 with Tjelta Eiendom for the lease of new headquarters
facility in Stavanger, Norway which represents a significant commitment by the
Company for a capital expenditure. Under the terms of the lease, SIMEX A/S shall
construct tenant improvements to the facility of approximately $1,500. At the
end of the lease, SIMEX A/S will receive from the lessor a payment of
approximately $2,300 for such improvements. The parties have negotiated variable
rental payments under the lease which are based upon the interest payable by the
lessor on the loan for the building and the amount invested by SIMEX A/S for the
production facilities and the office facilities. These rental payments are
approximately $687 for the first year of the lease and $455 for the last year of
the lease. The lease between Tjelta Eiendom and SIMEX A/S is conditioned upon
Tjelta Eiendom purchasing SIMEX A/S's existing headquarters facility in
Stavanger, Norway. The parties are negotiating the terms and conditions of this
purchase by Tjelta Eiendom. Proceeds from the sale of the real property will be
sufficient to retire all of the debt on the real and personal property and leave
approximately $500 to be used working capital needs.
Under the Company's revolving line of credit which is secured by real
property, furniture, fixtures and equipment and accounts receivable, the Company
had drawn $3,613 as of June 30, 1999. The revolving line of credit bears
interest at NIBOR (Norwegian) plus .75% (8.97% at December 31, 1998). The
revolving line of credit is payable upon demand and is secured by real property,
furniture, fixtures and equipment and accounts receivable of the Company.
The Company believes that its available cash resources and credit
facilities, combined with its cash flows from operations will be sufficient to
meet its anticipated working capital and capital expenditure requirements for at
least the next twelve months. However, the Company will need to raise
significant additional equity in order to increase its line of credit with its
Bank to support growth, respond to competitive pressures, acquire complimentary
businesses or technologies or to take advantage of unanticipated opportunities.
SEE RISK FACTORS - LIMITED CAPITAL/NEED FOR ADDITIONAL CAPITAL.
SEASONALITY
Revenues of the Company generally reflect the weather-related
construction periods as well as the extended vacation terms in Norway in July
and December of each year.
25
<PAGE> 27
YEAR 2000 RISK
In the summer of 1998, the Company established an internal task
force to assess the impact that potential Year 2000 problems may have on
company-wide operations. The task force determined that much of the computer
systems and software used for order entry, billing, inventory management, job
costing and other accounting functions would either need to be upgraded or
replaced in order to be Year 2000 ready. The Company is in the process of
making the necessary upgrades and replacements to its computer systems and
software to insure Year 2000 readiness. During the past year, the Company has
made substantial capital investments to replace a majority of its computer
systems with computer systems and software which are Year 2000 ready and expects
to replace or upgrade non-compliant critical computer systems and software
before the end of the third quarter of 1999. To date, the Company has incurred
expenses of approximately $510,000 in connection with such upgrades and
replacements of computer systems and software. Although the Company is still in
the process of determining the most cost-effective means of upgrading or
replacing its remaining non-year 2000 ready computer systems and software, the
Company anticipates that these additional expenses will not be excessive. In
addition, the Company has determined that the majority of its critical
equipment, such as electrical systems and production machinery, is not
controlled or regulated by embedded computer chips. Based on the Company's
internal review of its critical equipment and the results of testing to date,
the Company believes that the Company would be able to operate its critical
equipment on a manual basis for some period of time without experiencing a
significant negative impact on its operations.
However, the Company believes that its largest Year 2000 risk is the
Company's dependence upon third parties. The failure of third parties to
achieve Year 2000 readiness could have a material adverse effect on the
Company's results from operations and could damage its relationships with its
customers. The Company has identified significant suppliers whose Year 2000
readiness could affect the Company and has inquired about the status of their
Year 2000 readiness. Despite the positive responses received from these
significant suppliers, the Company is unable to verify independently these
assurances. The Company also cannot provide assurances that all significant
third parties, such as public utility companies, will achieve Year 2000
readiness in a timely manner. For example, a failure outside the Company's
control, such as a prolonged loss of electrical or telephone service, could
materially impact its operations and may prevent the Company from operating its
critical equipment on a manual basis.
In the event potential problems arise from the failure of the
Company's computer systems or critical equipment, the Company has adopted
limited contingency plans. If a problem occurs in the Company's critical
equipment, the Company has arranged for employees to be available on December
31, 1999 and January 1, 2000 in order to operate manually the Company's
critical equipment. Although the Company has adopted limited contingency plans,
the Company cannot make assurances that the Company will not be adversely
affected by the failure of its computer systems and critical equipment to
operate correctly after December 31, 1999.
26
<PAGE> 28
ITEM 3. DESCRIPTION OF PROPERTY. The following table shows the
location, general character, square footage, annual rent and lease expiration
date of the principal operating facilities owned or leased by the Company as of
June 30, 1999. The executive offices are located in Atlanta, Georgia, which is a
leased facility occupying approximately 1,643 square feet. The Company considers
its properties to be in generally good condition and well-maintained, and are
generally suitable and adequate to carry on the Company's business.
<TABLE>
<CAPTION>
SQUARE
LOCATION CITY GENERAL CHARACTER FEET ANNUAL RENT LEASE EXPIRATION
=======================================================================================================================
<S> <C> <C> <C> <C> <C>
Suite 995, 3475 Lenox Atlanta, Principal Executive Office 1,643 $29,830 January 31, 2001
Road, NE Georgia
Godesetdalen 24 Forus Production Facility and 23,606 Owned, subject to
(Stavanger), European Administrative Office mortgage
Norway indebtedness.
Fabrikkveien 28 Forus Production Facility, 12,600 Owned, subject to
(Stavanger), Norwegian Cooling Industries. mortgage
Norway indebtedness.
Fjosangerveien 70A Bergen, Norway Production Facility and 10,730 $55,000 May 31, 2004
Satellite Administrative
Office
Gregorius Dagssons GT Skien (Oslo), Telefrost Kjoleindustri A/S 5,365 $47,000 April 2003
207 Norway
</TABLE>
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of June 30, 1999 certain information
regarding beneficial ownership of common stock by:
- Each person known to the Company who owns beneficially more than five
percent (5%) of the common stock;
- The directors;
- The executive officers; and
- All executive officers and directors as a group.
27
<PAGE> 29
Beneficial ownership is determined in accordance with the rules and
regulations of the Securities and Exchange Commission. In computing the number
of shares beneficially owned by a person and the percentage ownership of that
person, shares of common stock subject to options held by that person that are
currently exercisable or exercisable within sixty (60) days of the date of this
Registration Statement are deemed outstanding. These shares, however are not
deemed outstanding for the purposes of computing the percentage ownership of any
other person. Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, each shareholder named in the table has sole
voting and investment power with respect to the shares set forth opposite such
shareholder's name. Unless otherwise indicated, the address for the following
shareholders is c/o SIMEX Technologies, Inc.
<TABLE>
<CAPTION>
COMMON
STOCK BENEFICIALLY OWNED
NAME AND ADDRESS OF BENEFICIAL OWNER (1) NO. OF SHARES % OF CLASS
==================================================================================================
<S> <C> <C>
MR. ELMER LUNDE 5,265,000 41.06%
Roaldsoyveien 44
N-4085 Hundvag
Norway
MR. KNUT ROSVOLD 742,500 5.79%
Eiganesveien 57
4009 Stavanger
Norway
MR. OYSTEIN FRAFJORD 742,500 5.79%
Slettmyrhagen 14
N-4033 Forus
Norway
LANCER OFFSHORE, INC.(2) 1,919,474 13.85%
Suite 2006
375 Park Avenue
New York, New York 10152
MR. KJELL INGE JAGELID(3) 117,500 .09%
140 South Falcon Bluff
Alpharetta, Georgia 30022
MR. WARREN L. TRAVER(4) 117,500 .09%
21 Middleton Road
Savannah, Georgia 31411
ALL DIRECTORS AND EXECUTIVE OFFICERS AS A 6,985,000 54%
GROUP (3 Persons)
</TABLE>
(1) Unless otherwise noted, the Company believes that all persons named in
the table have sole voting and investment power with respect to all
shares of common stock beneficially owned by them. Under the rules of
the Securities and Exchange Commission, a person is
28
<PAGE> 30
deemed to be a "beneficial" owner of securities if he or she has or
shares the power to vote or direct the voting of such securities or the
power to direct the disposition of such securities. A person is deemed
to be the beneficial owner of any securities of which that person has
the right to acquire beneficial ownership within 60 days. More than one
person may be deemed to be a beneficial owner of the same securities.
(2) Lancer Offshore, Inc. owns 1,177,500 shares of common stock which
represents 9.12% of the outstanding shares. Lancer Offshore, Inc. is an
affiliate of (a) Lancer Partners, L.P. which owns 571,000 shares of
common stock which represents 4.6% of the outstanding shares, (b)
Lancer Voyager Fund which owns 117,500 shares of common stock which
represents .09% of the outstanding shares and (c) Michael Lauer who
owns 53,474 shares of common stock which represents .04% of the
outstanding shares. These affiliated entities own beneficially 13.85%
of the outstanding shares of the Company.
Lancer Offshore Inc. is a corporation organized under the laws of the
British Virgin Islands and has approximately two hundred (200) non-U.S.
resident shareholders. Lancer Voyager Fund is a corporation organized
under the laws of the British Virgin Islands and has approximately
thirty-five (35) shareholders. Lancer Management Group, LLC is the
manager of Lancer Offshore Inc. and Lancer Voyager Fund. Michael Lauer
is the managing member of Lancer Management Group, LLC. Lancer
Partners, L.P. is a domestic limited partnership which has
approximately seventy (70) individuals as limited partners who are U.S.
residents. The general partner is Lancer Management Group II, LLC.
Michael Lauer is the managing member of Lancer Management Group II,
LLC. Michael Lauer has no relationship with the Company other than as a
shareholder.
(3) Mr. Kjell Inge Jagelid owns 25,000 shares of common stock in his own
name and is Trustee of the Jagelid Family Trust of which he may be
deemed to be the "beneficial" owner of 92,500 shares of common stock by
virtue of his family relationships.
(4) Mr. Warren L. Traver is the Trustee of the Traver Family Trust of which
he may be deemed to be the "beneficial" owner of 75,000 shares of
common stock and is the Trustee of the Stewart Wigton Traver Trust of
which he may be deemed to be the beneficial owner of 42,500 shares of
common stock by virtue of his family relationships.
29
<PAGE> 31
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
Our executive officers, directors and certain key employees, their ages as of
June 30, 1999 and their position(s) with SIMEX are as follows:
NAME AGE POSITION
MR. ELMER LUNDE 43 Director and Chairman of the Board since
April 28, 1998 and President and Treasurer
of the Company since July 1, 1999. Mr. Lunde
is also the founder of SIMEX A/S, the
principal subsidiary of the Company. Since
1980 and prior to his appointment as
Director, Mr. Lunde served as director of
SIMEX A/S and has been involved in the
development and implementation of all
aspects of that business. Mr. Lunde serves
as Chief Financial Officer of Simex, A/S.
Mr. Lunde has an extensive background in
HVAC, having performed an extensive
apprenticeship in these disciplines. Mr.
Lunde is a resident of Stavanger, Norway.
MR. WARREN L. TRAVER 53 Director since April 28, 1998. Mr. Traver
also serves as Executive Vice-President and
General Counsel of the Company. Mr. Traver
has been instrumental in structuring the
Company and has become part of the
management team with responsibilities
including mergers, acquisitions and legal
matters. In addition to serving as a
director of the Company, Mr. Traver has been
engaged in the private practice of law with
emphasis in corporate finance and securities
regulation since 1970. Mr. Traver received a
B.A. degree from the University of the South
and a J.D. from Mercer University. Mr.
Traver is a member of the State Bar of
Georgia and the Florida Bar.
MR. KJELL JAGELID 55 Director from April 28, 1998 until June 30,
1999. Mr. Jagelid has also served as
President and Treasurer of the Company from
April 28, 1998 until June 30, 1999. Mr.
Jagelid currently serves as President of
SIMEX Energy and serves as a consultant to
the Company. Prior to being elected as
director and officer of the Company, Mr.
Jagelid worked as Manager of Special
Projects for SIMEX A/S and as an independent
business consultant. He was actively
involved in these posts since 1991. From
1991 to 1993, Mr. Jagelid also owned and
operated Watkins Industries, Inc., a
precision parts manufacturer for the
aerospace and automotive industries. Mr.
Jagelid is also responsible for the
invention of the J.M. Matic spiral duct
machine for HVAC and post-tensioning ducts
used in heavy construction currently
utilized by SIMEX A/S. Mr. Jagelid has been
associated with several large engineering
and construction firms involving concrete
construction for bridges, oil and gas
drilling platforms and other civil
engineering projects. Mr. Jagelid holds
approximately fifteen patents in the
manufacturing and construction industries.
He received a Bachelor's Degree in Finance,
PHF, Goteborg, Sweden and a Masters Degree
in Civil and Mechanical Engineering, GTI,
Sweden. Mr. Jagelid is fluent in English and
the Scandinavian languages.
30
<PAGE> 32
MR. C. MICKLE MOYE 63 Director since May 1999. Mr. Moye has served
as the President and Chief Executive Officer
of three bank and trust companies over the
past 15 years. In December 1998, Mr. Moye
retired as President and CEO of Security
State Bank, Canton, Georgia after 10 years
of employment. Mr. Moye holds a B.S. degree
in Industrial Management from the Georgia
Institute of Technology and has pursued
post-graduate studies at the Harvard
Business School.
MR. JOHN P. O'BRIEN 32 Secretary. Mr. O'Brien acts as Corporate
Secretary and consultant to the Company. He
began working with the Company in February
1999. Prior to his engagement at the
Company, Mr. O'Brien worked as a consultant
to numerous businesses and business
organizations on matters related to
technology, internet communications
strategy, and Latin American public policy
issues. Mr. O'Brien holds a B.A. degree from
Baylor University, a J.D. degree from South
Texas College of Law in Houston, Texas, and
a M.A. in Latin American Studies from the
University of Texas at Austin. He is a
member of the Georgia and Texas state bar
associations. Mr. O'Brien also speaks
Spanish and French.
MR. KNUT T. ROSVOLD 55 President and Director of SIMEX A/S. Mr.
Rosvold is an HVAC and plumbing engineer.
Prior to beginning his employment at SIMEX
A/S in 1988, Mr. Rosvold worked as the
manager of the HVAC Division in Stavanger,
Norway for ABB. Mr. Rosvold has been General
Manager of SIMEX A/S since 1988.
MR. BJORN HILLEROY OKLAND 36 Secretary and Director of Finance of SIMEX
A/S. Mr. Okland has been the Director of
Finance at SIMEX A/S since the acquisition
of Norwegian Cooling Industries in 1998.
Prior to the acquisition, he was employed
for three years as the Director of Finance
for that company. From 1993 to 1996, Mr.
Okland served as the dean of the IHM
Business School in Bergen, Norway. Mr.
Okland holds the equivalent of a Bachelor of
Business Administration and a Masters degree
in Science. He received the latter from the
University of Surrey in England.
MR. FRODE LASTAD 42 General Manger, Norwegian Cooling
Industries. Mr. Lastad has served as General
Manager since June of 1988. He graduated
from the Norwegian Technical University with
a civil engineering degree in refrigeration
in 1982. Mr. Lastad has been employed by
Norwegian Cooling Industries since 1984.
MR. OYSTEIN FRAFJORD 34 Manager, Ventilation Division, and Director
of SIMEX A/S. Mr. Frafjord began his
employment at SIMEX A/S in 1981 as a
blacksmith apprentice. In 1988, Mr. Frafjord
was promoted to manager for the Ventilation
Division. In this capacity, he is
responsible for sales, planning, and project
management. Mr. Frafjord has five years of
technical training in metal technology.
31
<PAGE> 33
BOARD COMPOSITION
Each member of the Board of Directors is elected on an annual basis by
the shareholders. At each annual meeting of shareholders, directors are elected
for the next year. Each director serves for a one (1) year term.
Each officer is elected by, and serves at the discretion of, the Board
of Directors. There are no family relationships among any of the directors or
executive officers.
COMMITTEES OF THE BOARD
The Board of Directors has not created any committees. However, prior
to filing an application for listing of the common stock with any stock
exchange, the Board of Directors will establish an Audit committee and a
Compensation committee. The Audit Committee will review, act on and report to
the Board of Directors with respect to various auditing and accounting matters,
including the selection of our independent auditors, the scope of the annual
audits, fees to be paid to the independent auditors, the performance of our
independent auditors and our accounting practices.
The Compensation Committee will establish salaries, incentives and
other forms of compensation for our officers and other employees and administers
our incentive compensation and benefit plans.
DIRECTOR COMPENSATION
Outside Directors receive $1,000 per meeting. Other Directors receive
no cash remuneration for serving on the Board of Directors but are reimbursed
for reasonable expenses incurred by them in attending Board and Committee
meetings.
EMPLOYEE CONTRACTS
The Company has not entered into any employment agreements with its
officers or key employees.
LOCK-UP AGREEMENTS
As of April 20, 1998, the Company and the Chairman of the Board of
Directors, Mr. Elmer Lunde, the President of SIMEX A/S, Mr. Knut Rosvold, and
Mr. Oystein Frafjord, Director of SIMEX A/S agreed to enter into lock-up
agreements expiring April 20, 2001 in order to limit the number of shares that
may be sold during any twelve (12) month period to 5% of the number of shares
owned. No shares have been disposed of by any shareholder/officer since the date
of the reorganization. In addition, the Company entered into a lock-up agreement
with Weld Tech A/S in November 1998 which allows Weld Tech A/S to sell 90,000
shares of common stock immediately, 180,000 shares of common stock after June
30, 1999 and 180,000 shares of common stock after January 1, 2000. The holders
of these shares must also comply with the restrictions set forth under Rule 144
of the Securities Act of 1933 prior to reselling these shares.
32
<PAGE> 34
ITEM 6. EXECUTIVE COMPENSATION.
COMPENSATION TABLES
The compensation paid in 1998 to the Chief Executive Officer of the
Company and to SIMEX A/S and to other executive officers and directors who
received compensation in excess of $100,000 for the prior fiscal year is set
forth in the table below. No other executive officers or any officer of a
subsidiary had total compensation that exceeded $100,000.
<TABLE>
<CAPTION>
1998 SUMMARY COMPENSATION TABLE
THE COMPANY
ANNUAL
COMPENSATION LONG-TERM COMPENSATION
AWARDS PAYOUTS
OTHER ANNUAL RESTRICTED OPTIONS LTIP ALL OTHER
NAME AND SALARY BONUS COMPENSATION STOCK SARS PAYOUT COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($) AWARDS (#) ($) ($)
======================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Kjell I. Jagelid(1) 1998 120,000 0 0 0 0 0 0
Elmer Lunde(2) 1998 80,000 0 0 0 0 0 0
Warren L. Traver(3) 1998 120,000 0 0 0 0 0 0
</TABLE>
There were no options granted to the Executive Officers of the Company
and its subsidiaries during the year ending December 31, 1998. The Company has
no stock appreciation rights ("SARs") outstanding.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
THE REORGANIZATION. The Company was originally organized under the laws
of the State of Utah on January 27, 1983 under the name Medical Technologies,
Inc. The Company subsequently changed its name several times and in January
1996, changed the state of incorporation to Nevada and the name to Maile
International, Inc. ("Maile"). On April 28, 1998, the shareholders of SIMEX A/S,
the Company's principal operating subsidiary in Norway, exchanged all of its
shares of stock for 6,000,000 shares representing approximately sixty percent
(60%) of all of the outstanding stock of Maile prior to the receipt of 1,500,000
shares placed in escrow. At the closing of the exchange of shares, Maile changed
its name to SIMEX/NK Technologies, Inc. Simultaneously with the exchange of the
shares, 357,142 common stock and 1,130,000 shares of its 8% Series A Convertible
Preferred Stock were sold in a private offering. The price paid for the common
stock was $1.40 per share for the common stock and $1.90 per share for the
Preferred Stock. The preferred stock was convertible into shares of common stock
on a one-for-one basis after 90 days. The preferred stock accrued dividends of
$47,000 which were
- -----------
(1) Mr. Jagelid is presently compensated as a consultant to the Company. See
Certain Relationships and Related Transactions.
(2) Mr. Lunde is a participant in the Defined Benefit Pension Plan of the
Company's subsidiary, SIMEX A/S.
(3) Mr. Traver is presently compensated as a consultant to the Company. See
Certain Relationships and Related Transactions.
33
<PAGE> 35
paid in connection with the conversion of all of the outstanding preferred stock
into common stock in August 1998.
The common stock issued in the private placement and the common stock
converted from the preferred stock are subject to registration rights of the
holders.
At the time of the exchange, the persons serving as the management of
SIMEX A/S became the management of the Company. The remaining 2,512,857 shares
of common stock are owned by approximately 200 shareholders.
In April 1999, the Company reincorporated in the State of Delaware and
changed its name to SIMEX Technologies, Inc.
THE ESCROW SHARES. In addition to the 6,000,000 shares issued to the
original SIMEX A/S shareholders, 1,500,000 shares of stock were deposited into
escrow pending release at the earlier of (i) the Company achieving earnings
before interest, income taxes, depreciation and amortization ("EBITDA") of at
least $1,800,000 after certain unusual items such as currency exchange
fluctuations, excess depreciation and unusual losses during the year ended
December 31, 1998 or 1999 or (ii) five (5) years from the date of the depositing
of the shares into escrow. The shares were released in May 1999 to the original
SIMEX A/S shareholders.
THE PRIVATE PLACEMENT. In July 1998, the Company authorized the
issuance of an additional 1,200,000 shares. The Company sold 789,474 shares to a
group of four (4) investors designated by the Company as the Lauer Group for a
purchase price of $1.90 per share. The Lauer Group has certain registration
rights with respect to the shares of the common stock. In September and December
1998, the Company issued 10,000 shares at $3.25 per share and 4,600 shares at
$3.25 per share, respectively. Proceeds to the Company were $47,000. The
purchases were not related to the Lauer Group.
THE ACQUISITIONS. The Company acquired five (5) companies in 1998 and
in connection therewith paid for the acquisitions in cash or a combination of
cash and issuance of common stock. A description of the acquisitions are as
follows:
- In May 1998, the Company's subsidiary, SIMEX A/S, acquired the
outstanding shares of Norwegian Cooling Industries. In
connection with that transaction, the Company paid the
shareholders of Norwegian Cooling Industries $2.7 million in
cash.
- In September 1998, SIMEX A/S purchased the assets of OIN
Srinklers A/S, including its inventory and accounts. In
connection with that transaction, the Company paid
approximately $60,000 plus 22,400 shares of the Company's
common stock in exchange for these assets.
- In November 1998, SIMEX A/S acquired all of the outstanding
shares of Weld Tech A/S. In connection with that transaction,
the Company paid the shareholders approximately $1.3 million
cash and issued 450,000 shares of common stock with an option
to acquire an additional 200,000 shares at a par of $2.75 per
share. The option expires in two (2) years.
34
<PAGE> 36
- In November 1998, SIMEX A/S acquired all of the outstanding
share of Hordaror A/S. In connection with that transaction,
the Company paid the shareholders approximately $104,000 cash
and issued 13,513 shares of common stock.
- In November 1998, SIMEX A/S acquired all of the outstanding
share of Vest Norge Doors. In connection with that
transaction, the Company paid the shareholders approximately
$135,000 cash and issued 38,000 shares of common stock.
LOANS TO SHAREHOLDERS. The Company has loaned money to Elmer Lunde,
Kjell Jagelid, Knut Rosvold and Oystein Frafjord. The loans are payable upon
the earlier to occur of (a) a demand for payment by the Company or (b) August
1, 2003. The loans carry interest at the United States prime rate published
from time to time by the Wall Street Journal and require quarterly payments
of interest. The purpose of these loans was to pay personal income tax
(Norwegian) on the value of the stock received in the reorganization.
FUTURE TRANSACTIONS. All future transactions, including loans between
the Company and its officers, directors, principal shareholders and their
affiliates, are required to be approved by a majority of the Board of Directors,
including a majority of the independent and disinterested outside directors on
the Board and will be on terms no less favorable than could be obtained from
unaffiliated third parties.
CONSULTANTS. In September of 1997, SIMEX A/S engaged Mr. Kjell Inge
Jagelid and Mr. Warren L. Traver to assist the Company in securing capital in
the United States. Mr. Traver receives $10,000 a month as compensation for his
services as a consultant for the Company, and Mr. Jagelid receives $5,000 a
month as compensation for his services as a consultant for the Company. Prior to
June 30, 1999, Mr. Jagelid received $10,000 a month for compensation for his
services as a consultant for the Company. The Board of Directors elected to pay
this amount of compensation to Mr. Jagelid and Mr. Traver because the Company
does not intend to employ Mr. Jagelid and Mr. Traver on a long-term basis.
Messieurs Jagelid and Traver also beneficially own shares of the Company. The
Company anticipates that the length of employment of Mr. Traver & Mr. Jagelid
shall not exceed eighteen (18) months from the date of this registration
statement. See "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT."
INVESTMENTS. In 1998, the Company acquired forty percent of the
outstanding common stock of two information technology companies, Jotronic Data
A/S ("Jotronic") and Unitronic Data A/S ("Unitronic"), which are located in
Stavanger, Norway. The purchase price paid by the Company for this investment
was approximately $253,800. Jotronic and Unitronic develop computer software
which the Company integrates into its systems in order to improve operating
efficiencies. In addition, Jotronic and Unitronic assist the Company in
maintaining and improving its electronic communication capabilities and its
computer network. The Company intends to consolidate Jotronic and Unitronic
into one company known as Unitron at the end of 1999.
35
<PAGE> 37
ITEM 8. DESCRIPTION OF SECURITIES. The authorized capital stock of the
Company consists of 50,000,000 shares of common stock $.001 par value, and
5,000,000 shares of preferred stock, $.001 par value. As of the date of this
Registration Statement, there are outstanding:
- 12,823,873 shares of common stock, held of record by
approximately 200 shareholders;
- Options to purchase an aggregate of 200,000 shares of common
stock at an exercise price of $2.75 per share. The options
must be exercised by June 30, 2000. The options expire on
November 17, 2000.
COMMON STOCK
The holders of common stock are entitled to one (1) vote per share on
all matters to be voted upon by the shareholders. Subject to preferences that
may be applicable to any outstanding preferred stock, the holders of common
stock are entitled to receive ratably such dividends, if any, that may be
declared from time to time by the Board of Directors out of funds legally
available therefor. In the event of our liquidation, dissolution or winding up,
the holders of common stock are entitled to share ratably in all assets
remaining after payment of liabilities, subject to prior distribution rights of
holders of preferred stock, if any. The common stock has no preemptive or
conversion rights or other subscription rights. There are no redemption or
sinking fund provisions applicable to the common stock.
PREFERRED STOCK
The Company's Board of Directors has the authority to issue preferred
stock in one or more series and to fix the rights, preferences, privileges and
restrictions thereof, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series or the designation
of such series, without further vote or action by the shareholders.
36
<PAGE> 38
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY
AND OTHER SHAREHOLDER MATTERS.
(A) MARKET INFORMATION. Prior to the filing of this Form 10-SB
Registration Statement, the shares of stock have been traded in over-the-counter
market transactions.
The following is the range of high and low SALES PRICES for each
quarter for the two (2) years ended December 31, 1997 and 1998 and six months
ended June 30, 1999 is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 YEAR ENDED DECEMBER 31, 1998 1999
QUARTER HIGH LOW HIGH LOW HIGH LOW
- -------------------- ---------------- --------------- ---------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
First N/A N/A .26 .26 3.50 2.00
Second N/A N/A 4.50 .26 6.13 2.00
Third N/A N/A 4.50 3.25
Fourth N/A N/A 6.25 3.00
</TABLE>
The quotation reflects inter-dealer prices without retail mark-up,
mark-down or commissions and may not represent actual transactions.
The shares may also be sold by one or more of the following methods,
without limitation, (a) block trades in which a broker or dealer so engaged will
attempt to sell the shares as agent but may position and resell a portion of the
block as principal to facilitate the transaction; (b) purchases by a broker or
dealer as principal and resale by such broker and dealer for its account
pursuant to this Prospectus; (c) ordinary brokerage transactions (which may
include long or short sales) and transactions in which a broker solicits
purchases; (d) "at the market" to or through market makers and into an existing
market for the shares; (e) in other ways not involving market makers or
established trading markets, including direct sales to purchasers or sales
effected through agents; (f) through transactions in options, swaps or other
derivatives (including transactions with broker-dealers or other financial
institutions that require the delivery by such broker-dealers or institutions of
the shares, which shares may be resold thereafter pursuant to this Prospectus);
or (g) any combination of the foregoing, or by any other legally available
means. In effecting sales, brokers or dealers engaged by a shareholders may
arrange for other brokers or dealers to participate. Such brokers or dealers may
receive commissions or discounts from a shareholder in amounts to be negotiated.
Such brokers and dealers and any other participating brokers or dealers may be
deemed to be "underwriters" within the meaning of the 1933 Act in connection
with such sales.
37
<PAGE> 39
(B) HOLDERS. The approximate number of holders of the common stock of
Company is 200 as of June 30, 1999.
(C) DIVIDENDS. The Company has not paid any dividends on its common
shares in the past, and it is not expected to pay any dividends in the
foreseeable future.
ITEM 2. LEGAL PROCEEDINGS. There are no pending legal proceedings
incidental to the business of the Company.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE. There have been no disagreements with independent auditors
nor any changes in the Company's independent auditors.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
Other than the exchange of stock during the preceding three (3) years,
the Company has issued and sold or otherwise transferred the below listed
unregistered securities. These issuances were deemed exempt from registration
under the Securities Act in reliance on either (a) Section 4(2) of the
Securities Act, as transactions not involving any public offering, or (b) Rule
701 promulgated under the Securities Act. No underwriters were involved in
connection with the sales of securities referred to in this Part II Item 4.
1. On April 28, 1998, the Company issued and sold 1,130,000
shares of convertible preferred stock to four (4) investors in a private
placement for an aggregate of $2,147,000 in reliance on the exemption from
registration provided by Section 4(2) of the Securities Act.
2. On April 28, 1998, the Company issued and sold 357,142 shares
of common stock to 15 investors in a private placement for an aggregate of
$500,000 in reliance on the exemption from registration provided by Section 4(2)
of the Securities Act and Rule 506 of Regulation D promulgated thereunder.
3. In August 1998, the Company issued and sold 789,474 shares of
common stock to four (4) investors in a private placement for an aggregate of
$1,500,000 in reliance on the exemption from registration provided by Section
4(2) of the Securities Act.
4. In September 1998 and December 1998, the Company issued and
sold 10,000 and 4,600 shares, respectively, of common stock to two (2) investors
in a private placement for an aggregate of $47,450 in reliance on the exemption
from registration provided by Section 4(2) of the Securities Act.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company has authority under Section 145 of the General Business Act
of Delaware (the "DBCA") to indemnify its directors and officers to the extent
provided for in such statute. The Company's Certificate of Incorporation permit
indemnification of directors and officers to the fullest extent permitted by
law.
38
<PAGE> 40
The DBCA provides in part that a corporation may indemnify a director
or officer or other person who was, is, or is threatened to be made a named
defendant or respondent in a proceeding because the person is or was a director,
officer, employee or agent of the corporation, if it is determined that such
person (a) conducted himself in good faith; (b) reasonably believed, in the case
of conduct in his official capacity as a director or officer of the corporation,
that his conduct was in the corporation's best interests, and, in all other
cases, that his conduct was at least not opposed to the corporation's best
interests; and (c) in the case of any criminal proceeding, had no reasonable
cause to believe that his conduct was unlawful.
A corporation may indemnify a person under the DBCA against judgments,
penalties, (including excise and similar taxes), fines, settlements, and
reasonable expenses actually incurred by the person in connection with the
proceeding. If the person is found liable to the corporation or is found liable
on the basis that personal benefit was improperly received by the person, the
indemnification is limited to reasonable expenses actually incurred by the
person in connection with the proceeding, and shall not be made in respect of
any proceeding in which the person shall have been found liable for willful or
intentional misconduct in the performance of his duty to the corporation.
A corporation may also pay or reimburse expenses incurred by a person
in connection with his appearance as a witness or other participation in a
proceeding at a time when he is not a named defendant or respondent in the
proceeding.
The effect of these provisions is to eliminate the rights of the
Company and its shareholders (through shareholders' derivative suits on behalf
of the Company
39
<PAGE> 41
to recover monetary damages against an officer or director for breach of
fiduciary duty as an officer or director (including breaches resulting from
grossly negligent behavior), except in the situations described above. These
provisions will not limit the liability of directors or officers under the
federal securities laws of the United States. The foregoing summary of the
Company's Certificate of Incorporation, as amended, is qualified in its entirety
by reference to the relevant provisions thereof (filed as Exhibit 3.1).
40
<PAGE> 42
INDEX TO FINANCIAL STATEMENTS FOR THE COMPANY AND ITS SUBSIDIARIES
SIMEX TECHNOLOGIES, INC.
HISTORICAL:
Independent auditors' report
Consolidated balance sheets as of December 31, 1998 and June 30, 1999
(unaudited)
Consolidated statements of operations for the years ended December 31, 1998 and
1997 and the (unaudited) six months ended June 30, 1999 and 1998
Consolidated statements of shareholders' equity for the years ended December 31,
1998 and 1997 and the six months ended June 30, 1999 (unaudited)
Consolidated statements of cash flows for the years ended December 31, 1998 and
1997 and the (unaudited) six months ended June 30, 1999 and 1998
Notes to consolidated financial statements
PRO FORMA:
Unaudited pro forma consolidated financial information
Unaudited pro forma consolidated statement of operations for the year ended
December 31, 1998
Notes to unaudited pro forma consolidated statement of operations
NORSK KJOELEINDUSTRI A/S
Independent auditors' report
Consolidated statements of operations for the years ended December 31, 1997 and
1996 and the (unaudited) three months ended March 31, 1998 and 1997
Consolidated Statements of cash flows for the years ended December 31, 1997 and
1996 and the (unaudited) three months ended March 31, 1998 and 1997
Notes to consolidated financial statements
WELD TECH A/S
Independent auditors' report
Statement of profit and loss for the years ended December 31, 1997 and 1996 and
the (unaudited) nine months ended September 30, 1998 and 1997
Reconciliations between NGAAP and US GAAP for the years ended December 31, 1997
and 1996 and the (unaudited) nine months ended September 30, 1998 and 1997
Statement of cash flows for the year ended December 31, 1997 and 1996 and the
(unaudited) nine months ended September 30, 1998 and 1997
General accounting policies
41
<PAGE> 43
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
SIMEX Technologies, Inc.:
We have audited the accompanying consolidated balance sheet of SIMEX
Technologies, Inc. and subsidiaries as of December 31, 1998, and the related
consolidated statements of operations, shareholders' equity and comprehensive
income, and cash flows for each of the years in the two-year period ended
December 31, 1998. 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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of SIMEX Technologies,
Inc. and subsidiaries as of December 31, 1998, and the results of their
operations and their cash flows for each of the years in the two-year period
ended December 31, 1998 in conformity with generally accepted accounting
principles.
KPMG LLP
March 26, 1999
Atlanta, Georgia
42
<PAGE> 44
SIMEX TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except per share data)
<TABLE>
<CAPTION>
DECEMBER 31, June 30,
ASSETS 1998 1999
------------ -----------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 877 277
Trade accounts receivable, less allowance for
doubtful accounts of $70 in 1998 and $66 in 1999 6,037 6,302
Costs and estimated earnings in excess of billings on
uncompleted contracts (note 3) 1,528 1,846
Inventories 1,515 1,206
Prepaid expenses and other current assets 14 56
------- ------
Total current assets 9,971 9,687
Notes receivable - officers (note 4) 245 230
Investments (note 5) 1,271 1,447
Investments in affiliated companies (note 6) 281 281
Property, plant, and equipment, net (note 7) 5,589 5,546
Goodwill, less accumulated amortization of $128 in 1998
and $172 in 1999 3,589 3,389
------- ------
Total assets $20,946 20,580
======= ======
</TABLE>
See accompanying notes to consolidated financial statements.
43
<PAGE> 45
SIMEX TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except per share data)
<TABLE>
<CAPTION>
DECEMBER 31, June 30,
LIABILITIES AND SHAREHOLDERS' EQUITY 1998 1999
------------- ------------
(UNAUDITED)
<S> <C> <C>
Current liabilities:
Note payable - bank (note 8) $ 1,723 3,613
Current portion of long-term debt (note 9) 2,430 2,611
Accounts payable 2,066 2,104
Accrued salaries and wages 551 335
Accrued taxes other than income 1,251 1,153
Accrued income taxes 397 408
Deferred income taxes (note 10) 127 --
Other current liabilities 867 142
------------- ------------
Total current liabilities 9,412 10,366
Long-term debt, less current portion (note 9) 3,434 3,121
Deferred income taxes (note 10) 437 646
Other liabilities 592 65
------------- ------------
Total liabilities 13,875 14,198
------------- ------------
Shareholders' equity:
Preferred stock, $.001 par value. Authorized 5,000 shares;
none issued or outstanding (note 11) -- --
Common stock, $.001 par value. Authorized 50,000 shares;
12,824 shares issued and outstanding in 1998
and 1999 (note 12) 13 13
Additional paid-in capital 6,465 6,465
Retained earnings 892 525
Accumulated other comprehensive loss - foreign currency
translation adjustment (299) (621)
------------- ------------
Total shareholders' equity 7,071 6,382
------------- ------------
Commitments and contingencies (notes 4, 5, and 9)
Total liabilities and shareholders' equity $ 20,946 20,580
============= ============
</TABLE>
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<PAGE> 46
SIMEX TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except per share data)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------ --------------------
1998 1997 1999 1998
-------- ------ ----- ------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues $ 24,403 13,740 16,174 10,293
Cost of revenues 20,757 12,418 13,107 8,199
-------- ------ ------ ------
Gross profit 3,646 1,322 3,067 2,094
Selling, general, and administrative expenses (note 6) 2,245 765 2,928 1,384
-------- ------ ------ ------
Operating income 1,401 557 139 710
-------- ------ ------ ------
Other income (expense):
Interest income (note 4) 105 31 156 9
Interest expense (385) (207) (415) (87)
Other 7 -- (130) --
-------- ------ ------ ------
Total other expense (273) (176) (389) (78)
-------- ------ ------ ------
Income (loss) before income taxes 1,128 381 (250) 632
Income taxes (note 10) 377 168 117 217
-------- ------ ------- ------
Net income (loss) $ 751 213 (367) 415
======== ====== ====== ======
Earnings (loss) per share (note 13):
Basic $ .06 .02 (.03) .04
======== ====== ====== ======
Diluted $ .06 .02 (.03) .04
======== ====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
45
<PAGE> 47
SIMEX TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
Years ended December 31, 1998 and 1997 and
Six Months ended June 30, 1999 (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
RETAINED
PREFERRED STOCK COMMON STOCK ADDITIONAL EARNINGS
------------------- ---------------- PAID-IN (ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT)
-------- ------ ------ ------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1996,
effected for the reorganization (note 2) -- $-- 10,013 $10 425 (25)
Comprehensive income:
Net income -- -- -- -- -- 213
Foreign currency translation adjustments -- -- -- -- -- --
Total comprehensive income
------- --- ------ --- ----- ---
Balances at December 31, 1997 -- -- 10,013 10 425 188
Issuance of preferred stock (note 11) 1,130 1 -- -- 2,055 --
Preferred stock dividends (note 11) -- -- -- -- -- (47)
Conversion of preferred stock to
common stock (note 11) (1,130) (1) 1,130 1 -- --
Issuance of common stock (note 12) -- -- 1,157 1 1,824 --
Issuance of common stock and options in
connection with acquisitions (note 14) -- -- 524 1 2,161 --
Comprehensive income:
Net income -- -- -- -- -- 751
Foreign currency translation adjustments -- -- -- -- -- --
Total comprehensive income
------- --- ------ --- ----- ---
Balances at December 31, 1998 -- -- 12,824 13 6,465 892
Comprehensive loss:
Net loss -- -- -- -- -- (367)
Foreign currency translation adjustments -- -- -- -- -- --
Total comprehensive loss
------- --- ------ --- ----- ---
Balances at June 30, 1999 (unaudited) -- $-- 12,824 $13 6,465 325
======= === ====== === ===== ===
<CAPTION>
ACCUMULATED
OTHER
COMPREHENSIVE
LOSS - FOREIGN
CURRENCY TOTAL
TRANSLATION SHAREHOLDERS'
ADJUSTMENT EQUITY
-------------- -------------
<S> <C> <C>
Balances at December 31, 1996,
effected for the reorganization (note 2) -- 410
Comprehensive income:
Net income -- 213
Foreign currency translation adjustments (24) (24)
-----
Total comprehensive income 189
---- -----
Balances at December 31, 1997 (24) 599
Issuance of preferred stock (note 11) -- 2,056
Preferred stock dividends (note 11) -- (47)
Conversion of preferred stock to
common stock (note 11) -- --
Issuance of common stock (note 12) -- 1,825
Issuance of common stock and options in
connection with acquisitions (note 14) -- 2,162
Comprehensive income:
Net income -- 751
Foreign currency translation adjustments (275) (275)
Total comprehensive income 476
---- -----
Balances at December 31, 1998 (299) 7,071
Comprehensive loss:
Net loss -- (367)
Foreign currency translation adjustments (322) (322)
-----
Total comprehensive loss (689)
---- -----
Balances at June 30, 1999 (unaudited) (621) 6,382
==== =====
</TABLE>
See accompanying notes to consolidated financial statements.
46
<PAGE> 48
SIMEX TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------- --------------------
1998 1997 1999 1998
-------- -------- -------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 751 213 (367) 415
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 538 386 611 231
Earnings from affiliated companies (15) -- -- --
Deferred income taxes 85 96 82 217
Other 75 -- -- --
Changes in operating assets and liabilities, net of
effects of acquisitions:
Accounts receivable (1,594) (747) (265) (3,038)
Inventories and uncompleted contracts 428 (61) (9) 182
Prepaid expenses and other current assets (1,346) 309 (42) (441)
Other assets -- -- -- (12)
Accounts payable (714) 406 38 412
Accrued salaries and wages 477 -- (216) 402
Accrued taxes other than income 651 (27) (98) --
Accrued income taxes 247 72 11 --
Other current liabilities (274) 189 (1,252) 1,360
------- ---- ----- -----
Net cash provided by (used in) operating activities (691) 836 (1,507) (272)
------- ---- ----- -----
Cash flows from investing activities:
Acquisitions of property, plant, and equipment (907) (516) (512) (210)
Proceeds from sale of property, plant, and equipment 180 -- -- --
Acquisitions of businesses, net of cash acquired of $406 (3,925) -- -- (2,549)
Acquisition of investments (117) -- (176) --
Acquisition of investments in affiliated companies (266) -- -- --
Proceeds from investments -- -- -- --
Increase in notes receivable - employees (230) -- 15 --
------- ---- ----- -----
Net cash used in investing activities (5,265) (516) (673) (2,759)
------- ---- ----- -----
Cash flows from financing activities:
Proceeds from (repayments of) note payable - bank, net 203 (273) 1,890 159
Proceeds from long-term debt 5,247 30 -- 658
Payments on long-term debt (2,598) -- (132) --
Issuance of preferred stock 2,056 -- -- 2,056
Issuance of common stock 1,825 -- -- 450
Preferred stock dividends paid (47) -- -- --
------- ---- ----- -----
Net cash provided by (used in) financing activities 6,686 (243) 1,758 3,323
------- ---- ----- -----
Effect of exchange rate changes in cash and cash equivalents (38) (23) (178) (186)
------- ---- ----- -----
Net change in cash and cash equivalents 692 54 (600) 106
Cash and cash equivalents at beginning of period 185 131 877 387
------- ---- ----- -----
Cash and cash equivalents at end of period $ 877 185 277 493
======= ==== ===== =====
</TABLE>
(Continued)
47
<PAGE> 49
SIMEX TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
December 31, June 30,
------------------ -------------------
1998 1997 1999 1998
------- ---- ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C>
Supplemental disclosure of cash flows information:
Cash paid during the years for:
Interest $ 361 207 285 87
======= ==== ====== ======
Income taxes $ 56 -- -- --
======= ==== ====== ======
Supplemental disclosure of noncash investing and financing
activities:
Acquisition of investment in exchange for receivable $ 1,154 -- -- --
======= ==== ====== ======
Conversion of preferred stock to common stock $ 1 -- -- --
======= ==== ====== ======
In May 1998, the Company acquired the capital stock of
Norsk Kjoleindustry AS (Norwegian Cooling Industry) (note 14):
Fair value of net assets acquired, net of cash received $11,730 -- -- 6,722
Liabilities assumed (5,643) -- -- 4,173
Common stock and options issued (2,162) -- -- --
------- ---- ------ ------
$ 3,925 -- -- 2,549
======= ==== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
48
<PAGE> 50
SIMEX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997 and (Unaudited) June 30, 1999 and 1998
(In thousands, except per share data)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
(A) DESCRIPTION OF BUSINESS
SIMEX Technologies, Inc. and subsidiaries (collectively, the
"Company") principally operates through its wholly owned
subsidiary, Simex AS, located in Norway. The Company is engaged in
construction and services, including design, engineering,
fabrication, production, installation, and maintenance for both
off-shore for the oil and gas industry, and on-shore in
commercial, industrial, and government projects. In addition, the
Company is engaged in concrete post tensioning construction for
off-shore oil and gas drilling platforms. The Company has derived
its revenues primarily from customers in Norway and the United
Kingdom (see note 18).
(B) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial
statements of SIMEX Technologies, Inc. and its subsidiaries. All
significant intercompany balances and transactions have been
eliminated in consolidation.
(C) CASH EQUIVALENTS
Cash equivalents of $249 at December 31, 1998 consist of money
market accounts. For purposes of the consolidated statements of
cash flows, the Company considers all highly liquid debt
instruments with original maturities of three months or less to be
cash equivalents.
(D) INVENTORIES
Inventories are stated at the lower of cost or market and consist
principally of raw materials. Cost is determined using the
last-in, first-out method for all inventories other than supplies,
for which the first-in, first-out method is used to determine
cost.
(E) INVESTMENT
Investment in nonmarketable equity security in which the ownership
amount and circumstances do not justify use of the consolidation
or equity methods of accounting is carried at cost.
(F) INVESTMENTS IN AFFILIATED COMPANIES
Investments in the common stock of two affiliated companies are
accounted for by the equity method. The excess of cost of the
stock of those affiliates over the Company's share of their net
assets at the acquisition date is being amortized straight-line
over 20 years.
49 (Continued)
<PAGE> 51
SIMEX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997 and (Unaudited) June 30, 1999 and 1998
(In thousands, except per share data)
(G) PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are stated at cost. Depreciation on
plant and equipment is calculated on the straight-line method over
the estimated useful lives of the assets ranging from five to 39
years. Leasehold improvements are amortized straight-line over the
shorter of the lease term or estimated useful life of the asset.
(H) GOODWILL
Goodwill, which represents the excess of purchase price over fair
value of net assets acquired, is amortized on a straight-line
basis over the expected periods to be benefited, generally 20
years. The Company assesses the recoverability of this intangible
asset by determining whether the amortization of the goodwill
balance over its remaining life can be recovered through
undiscounted future operating cash flows of the acquired
operation. The amount of goodwill impairment, if any, is measured
based on projected discounted future operating cash flows using a
discount rate reflecting the Company's average cost of funds. The
assessment of the recoverability of goodwill will be impacted if
estimated future operating cash flows are not achieved.
(I) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE
DISPOSED OF
The Company accounts for long-lived assets in accordance with the
provisions of SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.
This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the
carrying amount of an asset to future net cash flows expected to
be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds the fair
value of the assets. Assets to be disposed of are reported at the
lower of the carrying amount or fair value less costs to sell.
(J) REVENUE AND COST RECOGNITION
Revenues from fixed-price and modified fixed-price contracts are
recognized on the percentage-of-completion method, measured by
the cost-to-cost method. This method is used because management
considers the cost-to-cost method to be the best available
measure of progress on these contracts. Revenues from
cost-plus-fee contracts are recognized on the basis of costs
incurred during the period plus the fee earned, measured by the
cost-to-cost method.
50 (Continued)
<PAGE> 52
SIMEX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997 and (Unaudited) June 30, 1999 and 1998
(In thousands, except per share data)
Contracts to manage, supervise, or coordinate the construction
activity of others are recognized only to the extent of the fee
revenue. The revenue earned in a period is based on the ratio of
hours incurred to the total estimated hours required by the
contract.
Contract costs include all direct material and labor costs and
those indirect costs related to contract performance, such as
indirect labor, supplies, tools, repairs, and depreciation costs.
Selling, general, and administrative costs are charged to expense
as incurred. Provisions for estimated losses on uncompleted
contracts are made in the period in which such losses are
determined. Changes in job performance, job conditions, and
estimated profitability, including those arising from contact
penalty provisions, and final contract settlements may result in
revisions to costs and income and are recognized in the period in
which the revisions are determined. Profit incentives are included
in revenues when their realization is reasonably assured. An
amount equal to contract costs attributable to claims is included
in revenues when realization is probable and the amount can be
reliably estimated.
The asset, if any, "Costs and estimated earnings in excess of
billings on uncompleted contracts," represents revenues recognized
in excess of amounts billed. The liability, if any, "Billings in
excess of costs and estimated earnings on uncompleted contracts,"
represents billings in excess of revenues recognized.
(K) INCOME TAXES
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and
tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
(L) RESEARCH AND DEVELOPMENT, AND ADVERTISING
Research and development, and advertising costs are expensed as
incurred. Research and development costs amounted to $450 in 1998
and 1997. Advertising costs amounted to $65 and $49 in 1998 and
1997, respectively.
51 (Continued)
<PAGE> 53
SIMEX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997 and (Unaudited) June 30, 1999 and 1998
(In thousands, except per share data)
(M) PENSION PLAN
On January 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 132, Employers' Disclosures
About Pension and Other Postretirement Benefits. SFAS No. 132
revises employers' disclosures about pension and other
postretirement benefit plans. SFAS No. 132 does not change the
method of accounting for such plans.
The Company has a defined benefit pension plan covering
substantially all of its employees. The benefits are based on
years of service and the employee's compensation before
retirement. The cost of this program is being funded currently.
(N) COMPREHENSIVE INCOME
On January 1, 1998, the Company adopted SFAS No. 130, Reporting
Comprehensive Income. SFAS No. 130 establishes standards for
reporting and presentation of comprehensive income and its
components in a full set of financial statements. Comprehensive
income consists of net income and foreign currency translation
adjustment and is presented in the consolidated statements of
shareholders' equity and comprehensive income. The Statement
requires only additional disclosures in the consolidated financial
statements; it does not affect the Company's financial position or
results of operations. Prior year financial statements have been
reclassified to conform to the requirements of SFAS No. 130.
(O) FOREIGN CURRENCY TRANSLATION ADJUSTMENT
The Company applies Financial Accounting Standards Board Statement
No. 52, Foreign Currency Translation (FAS 52) for its subsidiaries
outside the United States. Assets and liabilities denominated in
foreign functional currencies are translated at the exchange rate
as of the balance sheet date. Translation adjustments are recorded
as a separate component of shareholders' equity. Revenues, costs,
and expenses are translated at the weighted average exchange rate
for the period.
(P) EARNINGS PER SHARE
The Company applies the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 128, Earnings Per Share. Basic
earnings per share is computed by dividing net earnings by the
weighted average number of shares of common stock outstanding
during the year. Diluted earnings per share is computed by
dividing net earnings by the sum of (1) the weighted average
number of shares of common stock outstanding during the period,
(2) the dilutive effect, if any, of convertible preferred stock,
(3) the dilutive effect, if any, of stock options using the
treasury stock method, and (4) dilutive effect, if any, of other
potentially dilutive securities.
52 (Continued)
<PAGE> 54
SIMEX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997 and (Unaudited) June 30, 1999 and 1998
(In thousands, except per share data)
(Q) USE OF ESTIMATES
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities
and the disclosure of contingent assets and liabilities to prepare
these financial statements in conformity with generally accepted
accounting principles. Actual results could differ from those
estimates.
(R) INTERIM FINANCIAL INFORMATION
The accompanying unaudited consolidated financial information as
of March 31, 1999 and for the three-month periods ended March 31,
1999 and 1998 have been prepared in accordance with instructions
to interim financial information and do not include all of the
information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of the Company's management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair
presentation have been included. Results for interim periods may
not be indicative for the full year.
(2) REORGANIZATION
On April 28, 1998, Simex AS, the Norwegian principal operating subsidiary
of the Company, acquired Maile International, Inc. ("Maile"), a U.S.
public shell company, in a transaction accounted for as a reverse
acquisition. For accounting purposes, Simex AS was deemed to be the
acquiring company and Maile, the acquiree. Accordingly, the transaction
was accounted for as a reorganization using historical costs and the
consolidated historical financial statements represent those of Simex AS
after giving retroactive effect to the issuance of common stock and a
reverse stock split in connection with the reverse acquisition. In
addition, Maile's name was ultimately changed to SIMEX Technologies, Inc.
and became the U.S. holding company for Simex AS.
53 (Continued)
<PAGE> 55
SIMEX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997 and (Unaudited) June 30, 1999 and 1998
(In thousands, except per share data)
(3) COST AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS ON UNCOMPLETED
CONTRACTS
Cost and estimated earnings in excess of billings on uncompleted
contracts consists of the following at December 31, 1998:
<TABLE>
<S> <C>
Cost incurred on uncompleted contracts $ 7,912
Estimated earnings 2,139
-------
10,051
Less billings to date 8,523
-------
$ 1,528
=======
Costs and estimated earnings in excess of billings on
uncompleted contracts $ 1,528
Billings in excess of costs and estimated earnings
on uncompleted contracts --
-------
$ 1,528
=======
</TABLE>
(4) NOTES RECEIVABLE
At December 31, 1998, the notes receivable for $270 is due from certain
officers of Simex AS. The annual interest rate is the prime rate
announced from time to time by the Wall Street Journal and the notes are
due the earlier of (a) demand for payment by the Company or (b) August 1,
2003. Interest income for 1998 and 1997 was $5 and $-0-, respectively.
(5) INVESTMENT
At December 31, 1998, the Company has a 16.0% ownership in Geoambiente
Mining Group International, AVV, a coal and mineral mining operation
located in Venezuela. The carrying amount of the investment is $1,175 and
is stated at cost. The fair value of this investment has not been
disclosed since it is impractical to obtain such fair value. The
investment represents a privately held company, and there has not been
any recent sales or appraisals of the investment company's stock.
(6) INVESTMENTS IN AFFILIATED COMPANIES
Investments in affiliated companies consist of 40% of the common stock of
Jotronic Data AS and Unitron Management AS. The shares were acquired in
1998, and the Company has included its share of net income from the date
of acquisition. Such equity in earnings is not significant.
54 (Continued)
<PAGE> 56
SIMEX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997 and (Unaudited) June 30, 1999 and 1998
(In thousands, except per share data)
The unamortized portion of the excess of the cost over the Company's
share of net assets of affiliated companies is $241 at December 31, 1998.
Jotronic Data provides its services for the Company under the terms of a
management services agreement. The cost of these services aggregates $227
in 1998. Fees charged to the Company for these services are set at the
level of fees that Jotronic Data charges to unrelated parties.
(7) PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consists of the following at December 31,
1998:
<TABLE>
<S> <C>
Land $ 445
Buildings and leasehold improvements 3,194
Machinery and equipment 4,108
------
7,747
Less accumulated depreciation and amortization 2,158
------
Net property, plant, and equipment $5,589
======
</TABLE>
The estimated depreciable lives for building and leasehold improvements
are approximately 20-39 years. The estimated depreciable lives for the
machinery and equipment is five years.
(8) NOTE PAYABLE - BANK
Note payable - bank amounted to $1,723 at December 31, 1998. The Company
had amounts outstanding under the note payable - bank which has two
components, a $2,447 overdraft facility which bears interest at NIBOR
(Norwegian) plus .75% (8.97% at December 31, 1998) and a $1,000 overdraft
facility which bears interest at LIBOR plus 1.0% (6.125% at December 31,
1998). Both note payable - bank overdraft facilities are due on demand
and are secured by certain accounts receivable and property, plant and
equipment of the Company.
55 (Continued)
<PAGE> 57
SIMEX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997 and (Unaudited) June 30, 1999 and 1998
(In thousands, except per share data)
(9) LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1998:
<TABLE>
<S> <C>
Mortgage payable, NIBOR (Norwegian) plus .9% (9.12% at December
31, 1998), payable in 1999 contingent upon sale of certain
buildings with interest due quarterly. Mortgage payable is
secured with accounts receivable and property, plant and
equipment $ 1,187
Mortgage payable, NIBOR (Norwegian) plus 1.0% (9.22% at December
31, 1998), payable in quarterly principal payments of $33
through 2008 with interest due quarterly. Mortgage payable is
secured with accounts receivable and property, plant and
equipment 1,250
Mortgage payable, NIBOR (Norwegian) plus .9% (9.12% at December
31, 1998), payable in monthly principal payments of $33
through 2004 with interest due monthly. Mortgage payable is
secured with accounts receivable and property, plant and
equipment 1,974
Mortgage payable, NIBOR (Norwegian) plus .9% (9.12% at December
31, 1998), payable in 1999 with interest due quarterly.
Mortgage payable is secured with accounts receivable and
property, plant and equipment 1,041
Mortgage payable, NIBOR (Norwegian) plus .9% (9.12% at December
31, 1998), payable in quarterly principal payments of $9
through 2007 with interest due quarterly. Mortgage payable
secured by accounts receivable, inventories, and property,
plant and equipment 278
Mortgage payable, NIBOR (Norwegian) plus .9% (9.12% at December
31, 1998), payable in quarterly principal payments of $2
through 2002 with interest due quarterly. Mortgage payable
secured by accounts receivable, inventories, and property,
plant and equipment 33
11% notes payable, payable in monthly installments of $3 through
2007 with interest due monthly. Note payable secured by
inventories and equipment 101
-------
5,864
Less current portion of long-term debt 2,430
-------
Long-term debt, less current portion $ 3,434
=======
</TABLE>
The aggregate maturities of long-term debt for each of the five years
subsequent to December 31, 1998 are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31,
----------------
<S> <C>
1999 $ 2,430
2000 599
2001 597
2002 578
2003 568
</TABLE>
56 (Continued)
<PAGE> 58
SIMEX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997 and (Unaudited) June 30, 1999 and 1998
(In thousands, except per share data)
(10) INCOME TAXES
Income tax expense attributable to income from continuing operations
consists of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- -----
<S> <C> <C> <C>
Year ended December 31, 1998:
U.S. Federal $ -- -- --
State -- -- --
Foreign 397 (20) 377
---- --- ---
Total $397 (20) 377
==== === ===
Year ended December 31, 1997:
U.S. Federal $ -- -- --
State -- -- --
Foreign 72 96 168
---- --- ---
Total $ 72 96 168
==== === ===
</TABLE>
Income tax expense attributable to income from continuing operations was
$377 and $168 for the years ended December 31, 1998 and 1997,
respectively, and differed from the amounts computed by applying the U.S.
Federal income tax rate of 34% to income before income taxes as a result
of the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Computed "expected" tax expense $384 130
Increase (reduction) in income taxes resulting from:
Difference in U.S. and foreign tax rates (79) (23)
Increase in valuation allowance for deferred
tax assets 75 --
Other (3) 61
---- ----
$377 168
==== ====
</TABLE>
57 (Continued)
<PAGE> 59
SIMEX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997 and (Unaudited) June 30, 1999 and 1998
(In thousands, except per share data)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1998
are as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Accounts receivable $ 22
Pension 10
Net operating loss carryforward 75
----
Gross deferred tax assets 107
Less valuation allowance 75
----
Net deferred tax assets 32
----
Deferred tax liabilities:
Property, plant, and equipment 447
Cost and estimated earnings in
excess of billings on uncompleted
contracts 149
----
Total deferred tax liabilities 596
----
Net deferred tax liability $564
====
</TABLE>
The valuation allowance for deferred tax assets as of January 1, 1998 and
1997 was $-0-. The net change in the total valuation allowance for the
years ended December 31, 1998 and 1997 was an increase of $75. In
assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized.
At December 31, 1998, the Company has net operating loss carryforwards
for U.S. Federal income tax purposes of $188 which are available to
offset future Federal taxable income, if any, through 2008.
(11) PREFERRED STOCK
The Company issued 1,130 shares of 8% Series A cumulative preferred stock
in April 1998 for $1.90 per share in a private placement. Proceeds to the
Company were $2,056, net of offering expenses of $91. The preferred stock
was convertible into shares of common stock of the Company on a
one-for-one basis after 90 days. The preferred stock accrued dividends of
$47 which were paid in connection with the conversion of all of the
outstanding preferred stock into the Company's common stock in August
1998.
58 (Continued)
<PAGE> 60
SIMEX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997 and (Unaudited) June 30, 1999 and 1998
(In thousands, except per share data)
(12) COMMON STOCK AND OPTIONS
In April 1998, the Company issued 357 shares at $1.40 per share pursuant
to a private placement. Proceeds to the Company amounted to $450, net of
offering expenses of $50.
In July 1998, the Company issued 789 shares at $1.90 per share pursuant
to a private placement. Proceeds to the Company amounted to $1,328, net
of offering expenses of $172.
In September and December 1998, the Company issued 10 shares and 5
shares, respectively, at $3.25 per share. Proceeds to the Company
amounted to $47.
In connection with the acquisition of Weld Tech AS, the Company issued
the former owner of Weld Tech AS an option to acquire 200,000 shares of
common stock of the Company at $2.75 per share (see note 14).
(13) EARNINGS PER SHARE
The Company has adopted the provisions of Statements of Financial
Accounting Standards ("SFAS") No. 128, "Earnings per Share", which is effective
for fiscal years ending after December 15, 1997. Basic earnings per common share
is based on the weighted average number of common shares outstanding during the
period. Diluted earnings per share includes the dilutive effect of common stock
equivalents. For the six months ended June 30, 1999, diluted earnings per share
have not been presented because stock options and warrants comprised common
stock equivalents would have been anti-dilutive.
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31, SIX MONTHS ENDED JUNE 30
------------------------ ------------------------
1998 1997 1999 1998
---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C>
Numerator:
Net income (loss) $ 751 213 $ (367) 415
Preferred stock dividends (47) -- -- (32)
------- ------ ------- ------
Numerator for basic and diluted earnings per share $ 704 213 $ (367) 383
======= ====== ======= ======
Denominator:
Denominator for basic earnings per share weighted average
shares outstanding 11,138 10,013 12,824 10,137
Effect of dilutive securities - stock options 11 -- -- --
------- ------ ------- ------
Denominator for diluted earnings per share 11,149 10,013 12,824 10,137
======= ====== ======= ======
</TABLE>
The effect of the "as if" conversion for the preferred stock on the diluted
earnings per share is anti-dilutive and therefore has been excluded.
59 (Continued)
<PAGE> 61
SIMEX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997 and (Unaudited) June 30, 1999 and 1998
(In thousands, except per share data)
(14) ACQUISITIONS
In May 1998, the Company acquired all of the outstanding capital stock of
Norsk Kjoleindustri AS ("Norwegian Cooling") located in Norway for $2,683
in cash. The acquisition was accounted for under the purchase method of
accounting and accordingly, the results of operations are included from
the date of acquisition. The acquisition resulted in goodwill of $494
which is being amortized over 20 years using the straight-line method.
In September 1998, the Company acquired certain assets of OIN Sprinklers
AS ("OIN") located in Norway for $144 consisting of $60 in cash and 22
shares of common stock of the Company. The acquisition was accounted for
using the purchase method of accounting and, accordingly, the results of
operations are included from the date of acquisition. The acquisition
resulted in goodwill of $118 which is being amortized over 20 years using
the straight-line method.
In November 1998, the Company acquired all the outstanding stock of Weld
Tech AS ("Weld Tech") located in Norway for $3,237 consisting of $1,349
in cash, 450 shares of common stock of the Company valued at $1,688
and an option to acquire 200 shares of the Company at $2.75 per share
valued at $200. The acquisition was accounted for using the purchase
method of accounting and accordingly, the results of operations are
included from the date of acquisition. The acquisition resulted in
goodwill of $2,545 which is being amortized over 20 years using the
straight-line method.
In November 1998, the Company acquired all the outstanding capital stock
of Vest Norge Doors AS ("Vest Norge") located in Norway for $277
consisting of cash of $135 and 38 shares of common stock of the Company.
The acquisition was accounted for under the purchase method of accounting
and accordingly, the results of operations are included from the date of
acquisition. The acquisition resulted in goodwill of $296 which is being
amortized over 20 years using the straight-line method.
In December 1998, the Company acquired all the outstanding capital stock
of Hordaror AS ("Hordaror") located in Norway for $152 consisting of $104
in cash and 14 shares of common stock of the Company. The acquisition was
accounted for using the purchase method of accounting and accordingly,
the results of operations are included from the date of acquisition. The
acquisition resulted in goodwill of $154 which is being amortized over 20
years using the straight-line method.
60 (Continued)
<PAGE> 62
SIMEX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997 and (Unaudited) June 30, 1999 and 1998
(In thousands, except per share data)
The following represents the summary (unaudited) pro forma results of
operations, for the more significant acquisitions, as if the Norwegian
Cooling and Weld Tech acquisitions had occurred at the beginning of 1997:
<TABLE>
<CAPTION>
1998 1997
-------- ------
<S> <C> <C>
Revenues $ 30,719 28,198
Net income 844 325
Earnings per share:
Basic .07 .03
Diluted .07 .03
</TABLE>
Such pro forma information is not necessarily indicative of the results
of operations which would have occurred or will occur in the future.
(15) LEASES
The Company has noncancelable leases, primarily for transportation
equipment, that expire over the next three years. Rent expense for
operating leases during 1998 and 1997 was $379 and $314, respectively.
Future minimum lease payments under noncancelable operating leases as of
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31,
------------
<S> <C>
1999 $ 318
2000 214
2001 91
-----
$ 623
=====
</TABLE>
(16) PENSION PLAN
The Company has a defined benefit plan covering substantially all its
employees. The benefits are based upon years of service and the
employees' compensation during the years before retirement. Net pension
costs for the years ended December 31, 1998 and 1997 were $14 and $-0-,
respectively. The plan is unfunded and pension liabilities at December
31, 1998 were $38. The assumptions used to calculate such pension
information were: discount rate of 7% and expected increase in
compensation of 3%.
61 (Continued)
<PAGE> 63
SIMEX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997 and (Unaudited) June 30, 1999 and 1998
(In thousands, except per share data)
(17) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts for cash and cash equivalents, trade accounts
receivable, cost and estimated earnings in excess of billings on
uncompleted contracts, note payable - bank, accounts payable, accrued
salaries and wages, accrued taxes other than income, accrued income
taxes, and other current liabilities approximate fair value because of
the short maturity of these instruments.
The carrying amount for notes receivable - employees approximate fair
value based upon a discounted cash flow analysis. The carrying amount for
long-term debt which bears a variable rate approximates fair value based
upon current borrowing rates for similar instruments.
(18) OPERATING SEGMENTS
The Company adopted SFAS 131, Disclosures about Segments of an Enterprise
and Related Information. SFAS 131 establishes standards for the way that
public business enterprises report information about operating segments
in their financial statements. The standard defines operating segments as
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision
makers in deciding how to allocate resources and in assessing the
performance. Based on the quantitative thresholds specified in SFAS 131,
the Company has determined that it has four reportable segments. The four
reportable segments are construction, service, production and post
tensioning.
Construction consists of all of the Company's operations involved in the
design, engineering, installation and maintenance of HVAC, plumbing, and
electrical products and services, both onshore and offshore.
Maintenance and Service consists of operations related to service and
maintenance contracts worldwide.
Production consists of design, engineering and production of various
technical and nontechnical products, such as SIMDUCTS.
Post tensioning consists of construction reinforcing techniques for
concrete oil and gas production platforms, bridges, tunnels and other
post and bolt tensioning operations.
62 (Continued)
<PAGE> 64
SIMEX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997 and (Unaudited) June 30, 1999 and 1998
(In thousands, except per share data)
The accounting policies of the four operating segments are the same as
those described in note 1. The Company evaluates the performance of its
operating segments based upon revenues and gross profit. Intersegment
revenues are not significant.
<TABLE>
<CAPTION>
MAINTENANCE
AND POST OTHER AND
CONSTRUCTION SERVICE PRODUCTION TENSIONING ELIMINATIONS TOTAL
------------ ----------- ---------- ---------- ------------ ------
<S> <C> <C> <C> <C> <C> <C>
1998:
Revenues $ 12,302 4,824 3,565 3,850 (138) 24,403
Gross profit 992 381 574 1,282 417 3,646
Total assets 3,723 2,129 5,712 999 8,383 20,946
Long-lived asset expenditures 465 660 4,043 56 3,322 8,546
Depreciation and amortization 192 18 139 13 82 444
1997:
Revenues $ 8,415 1,405 2,779 -- 1,141 13,740
Gross profit 524 162 166 -- 470 1,322
Total assets 1,907 377 1,380 -- 2,004 5,668
Long-lived asset expenditures 73 32 6,730 -- 1,606 1,119
Depreciation and amortization 169 11 130 -- 79 389
Six months ended June 30,
1999 (unaudited):
Revenues $ 8,629 2,130 3,016 1,773 626 16,174
Gross profit 1,394 325 344 670 334 3,067
Six months ended June 30,
1998 (unaudited):
Revenues $ 5,670 1,254 1,077 1,464 828 10,293
Gross profit 1,221 382 189 558 (256) 2,094
</TABLE>
The following table represents revenues by country based upon the
location of domicile:
<TABLE>
<CAPTION>
1998 1997
------- ------
<S> <C> <C>
Norway $20,261 13,626
United Kingdom 3,850 --
United States 292 114
------- ------
$24,403 13,740
======= ======
</TABLE>
63 (Continued)
<PAGE> 65
SIMEX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997 and (Unaudited) June 30, 1999 and 1998
(In thousands, except per share data)
The following table presents long-lived assets by country based on the
location of domicile:
<TABLE>
<CAPTION>
1998 1997
------ -----
<S> <C> <C>
Norway $9,091 2,398
United Kingdom 43 --
United States 44 --
------ -----
$9,178 2,398
====== =====
</TABLE>
64
<PAGE> 66
SIMEX Technologies, Inc.
Unaudited Pro Forma Consolidated Financial Information
(In thousands, except per share data)
In May 1998, SIMEX Technologies, Inc. and subsidiaries (the "Company") acquired
100% of Norsk Kjoleindustri AS ("Norwegian Cooling"), a Norwegian Company
providing refrigeration services in Norway. The transaction was accounted for as
a purchase with consideration of $2,683 in cash.
In November 1998, the Company acquired 100% of WeldTech AS ("Weld Tech"), a
Norwegian Company providing welding services in Norway. The transaction was
accounted for as a purchase with consideration of $1,349 in cash and 450 shares
of the Company's common stock and an option to acquire 200 shares of the Company
at $2.75 per share.
The following unaudited pro forma consolidated statement of operations for the
year ended December 31, 1998 present the consolidated historical accounts of the
Company, adjusted to give effect to the acquisitions of Norwegian Cooling and
Weld Tech as of the beginning of the period presented.
The unaudited pro forma financial data and accompanying notes should be read in
conjunction with the consolidated financial statements of the Company and
related notes, as well as the consolidated financial statements and related
notes of Norwegian Cooling and Weld Tech, all of which are included elsewhere in
this registration statement. The Company believes that the pro forma adjustments
set forth in the related notes provide a reasonable basis on which to present
the pro forma financial data, which is provided for informational purposes only
and should not be construed to be indicative of the Company's result of
operations had the transactions and events described above been consummated on
the dates assumed. The unaudited pro forma financial data is not intended to
project the Company's results of operations for any future period.
65
<PAGE> 67
SIMEX Technologies, Inc.
Unaudited Pro Forma Consolidated Statement of Operations
Year ended December 31, 1998
(In thousands, except per share data)
<TABLE>
<CAPTION>
SIMEX Norwegian Weld Pro forma
Technologies, Inc. Cooling Tech adjustments Pro forma
------------------ --------- ------ ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenues $ 24,403 5,638 823 (145)(1) 30,719
(145)(1)
Cost of revenues 20,757 1,929 621 49 (2) 26,211
-------- ------ ------- ----- -------
Gross profit 3,646 709 202 (49) 4,508
Selling, general, and
administrative expenses 2,245 447 65 130(2) 2,887
-------- ------ ------- ----- -------
Operating income 1,401 262 137 (179) 1,621
Other expense (273) (38) (10) -- (321)
-------- ------ ------- ----- -------
Income before income taxes 1,128 224 127 (179) 1,300
Income taxes 377 45 34 -- 456
-------- ------ ------- ----- -------
Net income $ 751 179 93 (179) 844
======== ====== ======= ===== =======
Earnings per share:
Basic $ .06 .07
======== =======
Diluted $ .06 .07
======== =======
Weighted average common and
dilutive shares outstanding:
Basic 11,138 396 11,534
======== ===== =======
Diluted 11,149 475 11,624
======== ===== =======
</TABLE>
See accompanying notes to unaudited pro forma consolidated statement of
operations.
66
<PAGE> 68
Simex Technologies, Inc.
Notes to Unaudited Pro Forma Consolidated Statement of Operations
Year ended December 31, 1998
The following explanations describe the unaudited pro forma adjustments
necessary to present the historical results of operations, giving effect to the
acquisitions of Norwegian Cooling and Weld Tech.
(1) Elimination of intercompany sales.
(2) Adjustment relates to depreciation of fair value adjustment for
property, plant and equipment and amortization of the goodwill over 20
years.
67
<PAGE> 69
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and shareholders of Norsk Kjoeleindustri AS:
We have audited the accompanying consolidated statements of operations and of
cash flows of Norsk Kjoeleindustri AS (the Company) for each of the years in the
two-year period ended December 31, 1997. 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 standards generally accepted in
Norway, the Company's local standards, that are substantially equivalent to
auditing standards generally accepted in the United States. Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects the results of operations and cash flows of
Norsk Kjoeleindustri AS for each of the years in the two-year period ended
December 31, 1997, in conformity with generally accepted accounting principles
in Norway.
Accounting principles generally accepted in Norway vary in certain significant
respects from accounting principles generally accepted in the United States.
Application of accounting principles generally accepted in the United States
would have affected results of operations for each of the years in the two-year
period ended December 31, 1997 to the extent summarized in Note 6 to the
financial statements.
DELOITTE and TOUCHE AS
Stavanger, Norway
May 17, 1998
68
<PAGE> 70
NORSK KJOELEINDUSTRI AS
Consolidated Statements of Operations
(In thousands)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
- ------------------------------------------------------------------------------------- --------------------------
NOTE 1997 1997 1996 1998 1998 1997
- ------------------------------------------------------------------------------------- --------------------------
USD NOK NOK USD NOK NOK
<S> <C> <C> <C> <C> <C> <C> <C>
Sales 12 118 93 649 87 003 3 252 25 131 15 732
Operating expenses
Materials 7 425 57 378 53 476 1 859 14 370 9 869
Personnel costs 2 774 21 439 20 874 752 5 811 6 264
Other operating expenses 1 424 11 005 9 841 424 3 280 1 977
Depreciation and Amortization 3 191 1 478 1 256 31 239 370
Bad debts 2 49 377 129 7 52 0
--------------------------------------------------------------------
Total operating expenses 11 863 91 677 85 576 3 073 23 752 18 480
Operating income (loss) 255 1 972 1 427 179 1 379 -2 748
Financial items
Financial income 12 94 290 0 0 0
Financial expenses -137 -1 063 -1 043 -21 -161 -183
--------------------------------------------------------------------
Net financial items -125 -969 -753 -21 -161 -183
Income (loss) before income taxes 130 1 003 674 157 1 218 -2 931
--------------------------------------------------------------------
Income taxes 4 44 340 317 47 361 -128
Minority interests 15 118 -28 20 156 -2
- ----------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) 71 545 385 91 701 -2 801
======================================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Translation of amounts from Norwegian Kroner (NOK) into U.S. Dollar (USD) for
the convenience of the reader has been made at the noon buying rate by the
Federal Reserve Bank of New York on March 31, 1999 of USD 1 = 7.728.
69
<PAGE> 71
NORSK KJOELEINDUSTRI AS
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
- -------------------------------------------------------------------------------------- -------------------------
NOTE 1997 1997 1996 1998 1998 1997
- -------------------------------------------------------------------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
USD NOK NOK USD NOK NOK
CASH FLOW FROM OPERATING ACTIVITIES
Net income (loss) 71 545 385 71 701 -2 801
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 191 1 478 1 256 31 239 370
Gain (loss) on disposal -13 -98 33 0 0 0
Deferred income taxes 35 270 9 0 0 0
Changes in operating assets and
liabilities, net of effects of
acquisitions:
Accounts receivable -104 -807 -1 095 -604 -4 668 -9
Inventories -139 -1 074 -977 -235 -1 819 -3 311
Accounts payable 37 289 -776 897 6 778 6 014
Other current liabilities 208 1 608 1 027 -572 -4 415 1 338
------------------------------------ ------------------------------
Net cash provided by (used in) operating 286 2 211 -138 -412 -3 184 1 601
activities
------------------------------------ ------------------------------
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of investment 1 10 0 0 0 10
Proceeds from sale of fixed assets 44 340 84 28 219 0
Purchase of fixed assets -108 -834 -1 031 0 0 -458
------------------------------------ ------------------------------
Net cash flow provided by (used in) -63 -484 -947 28 219 -448
investing activities
------------------------------------ ------------------------------
CASH FLOW FROM FINANCING ACTIVITIES
Repayment of indebtedness -141 -1 090 -140 -77 -590 -578
Proceeds from long-term debt 1 693 162 1 250
Change in temporary bank overdraft 95 734 -121
------------------------------------ ------------------------------
Net cash flow provided by (used in) -141 -1 090 1 553 180 1 394 -699
financing activities
------------------------------------ ------------------------------
Net change in cash and cash equivalents 82 637 468 -204 -1 571 454
Cash and cash equivalents at the beginning 326 2 521 2 053 409 3 158 2 521
of period
------------------------------------ ------------------------------
CASH AND CASH EQUIVALENTS AT THE END OF 408 3 158 2 521 205 1 587 2 975
PERIOD
====================================================================================== ==============================
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS
INFORMATION:
Cash paid during the period for:
Interest 137 1 063 1 043 21 161 183
Income taxes 39 304 788 14 104 0
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Translation of amounts from Norwegian Kroner (NOK) into U.S. Dollar (USD) for
the convenience of the reader has been made at the noon buying rate by the
Federal Reserve Bank of New York on March 31, 1999 of USD 1 = 7.728.
70
<PAGE> 72
NORSK KJOELEINDUSTRI AS
Notes to Consolidated Financial Statements
December 31, 1997 and 1996 and March 31, 1998 and 1997
(In NOK thousands)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statement of Norsk Kjoeleindustri AS (the Company)
and its subsidiaries have been prepared in accordance with accounting principles
generally accepted in Norway.
Consolidation
The consolidated financial statements included Norsk Kjoeleindustri ASA and
subsidiaries owned more than 50 percent. All material intercompany transactions
have been eliminated.
REVENUE RECOGNITION
Revenue is recognized as goods are delivered or services are rendered. Revenue
under fixed price contract is accounted for by the percentage-of-completion
method, whereby income is recognized based on the estimated stage of completion
of the individual contracts. Losses on contract are provided for in the period
in which loss become determinable.
INCOME TAXES
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets are recognized only to the extent of recognized deferred tax liabilities.
Income tax expense includes both current income tax expense and deferred income
tax expense.
ACCOUNTS RECEIVABLE
Accounts receivable are recorded at its nominal value after deductions of bad
debts.
INVENTORIES
Inventories are valued at the lower of purchased cost and net realizable value.
FIXED ASSETS
Depreciation expense is based on the estimated useful life of the asset.
FOREIGN CURRENCY TRANSACTIONS
Realized and unrealized gains and losses on monetary assets and liabilities are
included in net income.
71
<PAGE> 73
(2) ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Accounts receivable at face value 15 006 14 108
Provision for bad debts -354 -263
------ ------
Accounts receivable - net 14 652 13 845
------ ------
Realized losses 286 49
Change in provision for bed debt 91 80
------ ------
Bad debt expense 377 129
------ ------
</TABLE>
(3) GOODWILL
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Goodwill 2 879 2 879
Accumulated amortization -2 139 -1 851
------ ------
Goodwill - net 740 1 028
------ ------
Amortization expense at 10% 288 288
------ ------
</TABLE>
(4) INCOME TAXES
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Current income tax expense 67 305
Deferred income tax expense 271 9
Other 2 3
--- ---
Income tax expense 340 317
--- ---
</TABLE>
The tax effects of temporary differences and tax loss carryforwards giving rise
to deferred tax assets and liabilities were as follows for December 31, 1997 and
1996.
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Operating loss carryforwards -126 0
Shares in investments -94 -94
Guarantees -750 -700
Inventory -143 -244
Work in progress 1 360 247
Receivables 79 -111
Fixed assets 1 099 1 359
----- -----
Basis for calculation of deferred taxes 1 425 457
Tax rate 28% 28%
----- -----
Deferred taxes 399 128
----- -----
</TABLE>
(5) SUBSEQUENT EVENT
On May 15, 1998, an agreement was reached whereby the Simex AS, a Norwegian
company, acquired all of the outstanding shares of the Company for approximately
NOK 19,999.
72
<PAGE> 74
(6) SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES IN NORWAY (NGAAP) AND THE UNITED STATES (USGAAP)
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
1997 1996 1998 1997
<S> <C> <C> <C> <C>
Net earnings (loss) according to NGAAP 545 385 700 -2 801
None 0 0 0 0
------------ -----------------
Net earnings (loss) according to USGAAP 545 385 700 -2 801
------------ -----------------
</TABLE>
73
<PAGE> 75
To the Annual Shareholders' Meeting of Weld Tech AS
AUDITORS REPORT FOR 1997 AND 1996
We have audited the accompanying statements of profit and loss account and cash
flows of Weld Tech AS for each of the years in the two-year period ended
December 31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with standards generally accepted in
Norway, the Company's local standards, that are substantially equivalent to
auditing standards generally accepted in the United States. Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Weld Tech AS
for each of the years in the two-year period ended December 31, 1997, in
conformity with generally accepted accounting principles in Norway.
Accounting principles generally accepted in Norway vary in certain significant
respects from accounting principles generally accepted in the United States.
Application of accounting principles generally accepted in the United States
would have affected results of operations for each of the years in the two-year
period ended December 31, 1997 to the extent summarized in the reconciliation
from NGAAP to USGAAP.
Stavanger, Norway, February 25, 1999
ERNST and YOUNG
Bjorn Fossan
State Authorised Public Accountant
74
<PAGE> 76
WELD TECH AS
PROFIT AND LOSS ACCOUNT
<TABLE>
<CAPTION>
(USD 1000) Note 1997 1996 30.09.98 30.09.97
- ---------- ---- ---- ---- -------- --------
<S> <C> <C> <C> <C> <C>
Sales 1,217 821 755 941
Operating expenses
Materials 405 258 233 293
Personnel costs 405 426 284 316
Other operating expenses 121 93 70 71
Depreciation 29 40 15 16
Bad debts 5 0 0 0
----- ---- ---- ----
Total operating expenses 965 817 602 696
Operating income 252 4 153 245
Financial items
Financial income 3 5 8 0
Financial expenses 23 27 15 17
----- ---- ---- ----
Net financial items -20 -22 -7 -17
Income (loss) before income taxes 232 -18 146 228
Income taxes 2 67 0 41 64
----- ---- ---- ----
NET INCOME (LOSS) 165 -18 105 164
===== ==== ==== ====
Transferred to dividends 81 0
Transferred to/from legal reserve 84 -11
Transferred from general reserve 0 -7
----- ----
Total transferred 165 -18
----- ----
</TABLE>
75
<PAGE> 77
WELD TECH AS
CASH FLOWS STATEMENT
<TABLE>
<CAPTION>
(USD 1 000) 1997 1996 30.09.98 30.09.97
---- ---- -------- --------
<S> <C> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income (loss) 165 -18 105 164
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 29 40 15 16
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable -61 11 14 -345
Inventories -1 -3 -14 0
Prepaid expenses and other current assets 12 -10 -17 0
Accounts payable 10 2 -4 32
Accrued taxes other than income 65 -16 53 62
Other current liabilities 12 4 -9 20
---- --- ---- ----
Net cash flow provided by (used in) operating activities 231 10 143 -51
CASH FLOW FROM INVESTING ACTIVITIES
Proceeds from sale of tangible fixed assets
Investment in tangible fixed assets -31 -3 -18 -32
---- --- ---- ----
Net cash flow used in investing activities -31 -3 -18 -32
---- --- ---- ----
CASH FLOW FROM FINANCING ACTIVITIES
Payment long term loans -14 -16 -10 -11
Dividends paid 0 -16 -76 0
---- --- ---- ----
Net cash flow used in financing activities -14 -32 -86 -11
---- --- ---- ----
Effect of changes in exchange rates on cash and cash equivalents -32 1 -26 -31
---- --- ---- ----
Net change in cash and cash equivalents 154 -24 13 -125
Cash and cash equivalents at the beginning of period 208 232 362 208
---- --- ---- ----
CASH AND CASH EQUIVALENTS AT THE END OF PERIOD 362 208 375 83
---- --- ---- ----
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid during the period for:
Interest 23 27 16 17
Income taxes 0 16 0 0
</TABLE>
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<PAGE> 78
WELD TECH AS
RECONCILIATION FROM NGAAP TO USGAAP
<TABLE>
<CAPTION>
(USD 1 000) 1997 1996 30.09.98 30.09.97
- ----------- ---- ---- -------- --------
<S> <C> <C> <C> <C>
Net earnings according to NGAAP 165 -18 105 164
Change in deferred tax asset not recognized 2 5 2 4
Work in progress -3 4
---- ---- -------- --------
Net earnings according to USGAAP 164 -9 107 168
---- ---- -------- --------
</TABLE>
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NOTES TO THE FINANCIAL STATEMENTS FOR 1997 AND 1996
NOTE 1 - INVENTORIES/WORK IN PROGRESS
The inventories are valued at the lower of cost and real value. Work in progress
is valued according to percentage completion without profits. The calculated
earned profits at year end is not recognized as revenue.
NOTE 2 - TAX (USD)
Tax expense, deferred tax
Income before income taxes 232.423
Permanent differences 636
Change in temporary differences 8.934
Loss carry forward - 199
---------
Taxable income 241.794
---------
The tax expense for 1997 consist solely of taxes payable.
241.794 x 28% = 67.702
Temporary differences as of 31.12.97
Provision for losses on accounts receivable - 9.568
Fixed assets - 20.386
---------
Net negative temporary differences - 29.954
---------
Deferred tax is calculated on the basis of temporary differences. The company
has net negative temporary differences which leads to a deferred tax asset.
According to the Norwegian company act, it is not allowed to recognize this
deferred tax asset in the balance sheet.
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PART III
ITEM 1. INDEX TO EXHIBITS.
A. EXHIBITS
(2) **2.1 Certificate of Merger
**2.2 Plan of Merger
(3) **3.1 Certificate of Incorporation
**3.2 Bylaws
(4)***Form of Common Stock Certificate
(10) 10.1 Acquisition Documents
***10.1(a) April 28, 1998 Agreement and Plan of Reorganization between
Maile International, Inc. and Simex AS
***10.1(b) May 15, 1998 Stock Purchase Agreement between shareholders
of Norsk Kjoleindustri AS and Simex AS
***10.1(c) November 17, 1998 Stock Purchase Agreement between
shareholders of Weld Tech AS and Simex AS
***10.1(d) December 18, 1998 Stock Purchase Agreement between
shareholders of Hordaror AS and Simex AS
***10.1(e) November 17, 1998 Stock Purchase Agreement between
shareholders of Vest Norge Doors AS and Simex AS
***10.1(f) September 22, 1998 Stock Purchase Agreement between
shareholders of OIN Sprinkler and Simex AS
10.2 Material Leases
***10.2(a) March 26, 1999 Fleet Agreement between Brodrene Kverneland
Bryne AS and Simex AS
***10.2(b) November 27, 1998 Lease Agreement between Tjelta Eiendom I
AS (TE) and Simex AS
10.3 Other Material Contracts
***10.3(a) License Agreements between subsidiaries of the Company and
HRS Systems, Inc.
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<PAGE> 81
***10.3(b) April 29, 1999 Loan Agreement between Sparebanken
Rogaland and Simex A/S
***10.3(c) August 1, 1998 Promissory Notes between Simex/NK
Technologies, Inc. and shareholders, Elmer Lunde,
Oystein Frajord, and Knut T. Rosvold
***10.3(d) July 13, 1999 Resignation Agreement between Kjell I.
Jagelid and the Company
(21)**21.1 List of the Company's Subsidiaries
(27)***27.1 Financial Data Schedules (for SEC use only)
***27.2 Restated Financial Data Schedules (for SEC use only)
***27.3 Restated Financial Data Schedules (for SEC use only)
***27.4 Restated Financial Data Schedules (for SEC use only)
(99)***Certification of Translated Foreign Language Documents
** Filed with the initial filing of the Registration Statement on July 2, 1999.
***Filed with the filing of Amendment No. 1 to the Registration Statement on
September 14, 1999.
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<PAGE> 82
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the Registrant caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
SIMEX TECHNOLOGIES, INC.
Date October 27, 1999
---------------------------------------
By /s/ Elmer Lunde
---------------------------------------
Chairman of the Board of Directors
President and Treasurer
By /s/ Warren L. Traver
---------------------------------------
Director and Executive Vice-President
81
