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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
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[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file number 0-26599
SIMEX TECHNOLOGIES, INC.
(Name of Small Business Issuer in its Charter)
<TABLE>
<CAPTION>
<S> <C>
DELAWARE 58-2465647
(State of Incorporation) (I.R.S. Employer Identification
Number)
</TABLE>
Suite 995, 3475 Lenox Road, NE, Atlanta, GA 30326
(Address of principal executive offices and zip code)
Issuer's telephone number: (404) 812-3130
Securities registered pursuant to Section 12(b) of the Act:
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<CAPTION>
Title of each class Name of each exchange on which registered
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<S> <C>
Common Stock, $.001 par value OTC Bulletin Board
</TABLE>
Securities registered pursuant to Section 12(b) of the Act:
----------------
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10 KSB. [ ]
The Issuer's revenues for the fiscal year ended December 31, 1999 were
$30,515,000.
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The aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked price of such stock, as of March 20, 2000 was approximately
$18,844,000.
As of March 20, 2000, there were 12,814,473 shares of common stock, par
value $.001 per share, outstanding.
The index to exhibits appears on page 28 of this document.
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DOCUMENTS INCORPORATED BY REFERENCE
None
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SIMEX TECHNOLOGIES, INC.
FORM 10-KSB
FOR THE YEAR ENDED DECEMBER 31, 1999
TABLE OF CONTENTS
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PART I
Item 1. Description of Business 1
Item 2. Description of Property 8
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 9
PART II
Item 5. Market for Common Equity and Related Stockholder Matters 10
Item 6. Management's Discussion and Analysis or Plan of Operation 11
Item 7. Financial Statements 18
Item 8. Changes in and Disagreements with Accountants on Accounting
Financial Disclosure 19
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons,
Compliance with Section 16(a) of the Exchange Act 19
Item 10. Executive Compensation 23
Item 11. Security Ownership of Certain Beneficial Owners and Management 24
Item 12. Certain Relationships and Related Transactions 26
Item 13. Exhibits and Reports on Form 8-K 28
Signatures 54
</TABLE>
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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 report 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 Form 10-KSB are expressed in U.S. dollars
unless otherwise indicated.
BUSINESS DEVELOPMENT
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.
In April of 1999, the Company reincorporated as a Delaware corporation and
changed its name to SIMEX Technologies, Inc. In July of 1999, the Company filed
its Registration Statement on Form 10-SB.
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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.
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. 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 ice-cooling system for the marine and off-shore industries.
Norwegian Cooling Industries distributes high capacity ice machines for
off-shore as well as on-shore uses. Norwegian Cooling Industries also
distributes 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.
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's common stock.
Hordaror A/S, a commercial plumbing and mechanical contractor located in
Bergen, Norway and has been relocated with other SIMEX A/S operations in Bergen.
It provides sophisticated support systems for the projects that it undertakes.
Hordaror was purchased for approximately $104,000 plus 13,513 shares of the
Company's common stock. In December 1999, the Company reacquired 9,400 of the
13,513 shares of the Company's common stock as an adjustment to the purchase
price of Hordador. This adjustment to the purchase price was a result of
Hordador not meeting certain performance requirements which were a part of the
purchase agreement.
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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. Vest Norge Doors was purchased
for approximately $135,000 plus 38,000 shares of the Company's common stock.
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. The assets of OIN Sprinkler were purchased for
approximately $60,000 plus 22,400 shares of the Company's common stock.
BUSINESS OF COMPANY
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 onshore, 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 1999, the
Construction Services segment comprised approximately 59% of the
Company's 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 1999, the Maintenance and Service segment comprised
approximately 17% of the Company's 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 1999, the Production Services segment comprised 21% of
the Company's 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
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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, 1999 the Post-Tensioning segment
comprised 8% of the Company's revenues.
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 30 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 manufactures post-tensioning steel
ducts in its manufacturing facility in Stavanger, Norway.
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.
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.
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 & 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
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re-furbished oil production facilities and utilized in all system upgrades
in existing oil production facilities.
The Company manufacturers 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 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 Company markets its post-tensioning services as the "SIMCON
Post-Tensioning system". 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.
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 requirements. 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
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these services, such as spiral duct pipes, cooling plants, integrated ice
plants, specialized industrial doors and others.
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.
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 relation's 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 preferring to acquire companies in exchange for its common stock, the ability
to acquire companies is dependent upon the market and price for its stock.
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Raw Material Availability and Suppliers
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.
Government 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
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construction companies by the Norwegian government, many smaller construction
companies have discontinued business operations because of their inability to
comply with these regulations.
Research and Development Expenditures
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. The Company has incurred research and development
expenses of approximately $250,000 and $450,000 for the two years ended
December 31, 1999 and 1998, respectively.
Cost and Effect of Environmental Regulations
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.
Employees
As of December 31, 1999, the Company had approximately 230 employees,
including 40 engineers, six (6) technicians and 12 office personnel. Twelve of
the employees of SIMEX A/S are members of various labor unions, including the
Lands Organisationen Union, Norway. SIMEX A/S is a also a member of an
employer's labor union, the National Employers Organization. The Lands
Organisationen 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.
ITEM 2. Description of Property.
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 2001. During December 1999, SIMEX A/S, located in Stavanger, Norway, sold its
principal operating building which it owned. SIMEX A/S entered into a lease for
a newly constructed production and office facility in Stavanger to accommodate
the local operations employees of SIMEX A/S as well as the local operations
employees of its recent acquisitions. The new leased facility contains
approximately 99,000 square feet and has a lease term of 20 years with a right
of first refusal to purchase the facility at any time during the term of the
lease or at its termination.
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
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December 31, 1999. 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.
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LOCATION CITY GENERAL CHARACTER SQUARE FEET ANNUAL RENT LEASE EXPIRATION
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<S> <C> <C> <C> <C> <C>
Suite 995 Atlanta, Principal Executive 1,643 $29,830 January 31, 2001
3475 Lenox Road, Georgia Office
NE
Lagerveien 30 Forus Production Facility and 99,000 $750,000 December 31, 2019
(Stavanger), European Administrative
Norway Office
Minde Alle Bergen, Production Facility and 14,000 $80,000 May 31, 2004
Norway Satellite Administrative
N 32 Office
Gregorious Skien Telefrost Kjoleindustri 5,365 $47,000 April, 2003
Dagssons GT 207 (Oslo), A/S
Norway
</TABLE>
ITEM 3. Legal Proceedings
As of the date of this report, the Company and its subsidiaries are not
subject to any material legal proceedings. From time to time the Company becomes
involved in routine legal proceedings incidental to its business.
ITEM 4. Submission of Matters to a Vote of Securities Holders
During the quarter ended December 31, 1999, there were no matters submitted
to a vote of security holders.
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PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's common stock is listed for trading on the OTC Bulletin Board
stock exchange under the symbol SMXT.
The following is the range of high and low SALES PRICES for each quarter
for the two (2) years ended December 31, 1998 and 1999:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1999
----------------- -----------------
QUARTER HIGH LOW HIGH LOW
- ------- ---- --- ---- ---
<S> <C> <C> <C> <C>
First .26 .26 3.50 2.00
Second 4.50 .26 6.13 2.00
Third 4.50 3.25 4.00 1.50
Fourth 6.25 3.00 3.25 1.81
</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.
The approximate number of holders of the common stock of Company is 200 as
of December 31, 1999.
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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.
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 6. Management's Discussion and Analysis or Plan of Operation
FORWARD LOOKING-STATEMENTS AND ASSOCIATED RISKS
This Annual Report on Form 10-KSB contains certain forward-looking
statements. These forward-looking statements are based largely on the Company's
current expectations and are subject to a number of risks and uncertainties.
Actual results could differ materially from these forward-looking statements. In
view of these risks and uncertainties, there can be no assurance that the
forward-looking statements contained in this annual report on Form 10-KSB will
in fact transpire.
The following discussion of the financial condition and results of
operations of the Company should be read with the Company's Consolidated
Financial Statements, including the Notes, provided elsewhere in this Annual
Report.
11
<PAGE> 15
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
year ending December 31, 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, fees related to the filing of its registration statement and write-down
of its investment in a Venezuelan coal and mineral mining operation.
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 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 350 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
12
<PAGE> 16
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
consulting 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 $60,000 per month in
2000 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.
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 in December 1999 sold two
existing owned facilities and entered into a long-term lease on 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 20 years and
13
<PAGE> 17
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.
In November 1999, the Company's Board of Directors approved a stock option
plan, which reserves for issuance 1,923,600 shares of the Company's common stock
for its employees, directors and consultants. Management of SIMEX AS, the
Company's wholly-owned Norwegian subsidiary, has proposed a form of stock option
plan for its employees which, if implemented, would require the Company to
allocate approximately 1,030,000 of the 1,923,600 options issuable under the
stock option plan to the employees of SIMEX AS. This proposal by the management
of SIMEX AS is under consideration by the Board, but has not been approved. The
Company did not grant any options under this plan in 1999. In connection with
the issuance of option grants, the Company may incur non-cash stock compensation
expenses. The amount of these compensation expenses is unknown.
14
<PAGE> 18
RESULTS OF OPERATIONS (IN THOUSANDS)
FISCAL 1999 COMPARED TO FISCAL 1998
CONSOLIDATED STATEMENT OF OPERATIONS DATA (IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED PERCENTAGE
DECEMBER 31, OF REVENUES
--------------------- ------------------
1999 1998 1999 1998
------- ------- ----- -----
<S> <C> <C> <C> <C>
Revenues $30,515 $24,403 100.0% 100.0
Cost of revenues 24,016 20,757 78.7 85.1
------- ------- ----- -----
Gross profit 6,499 3,646 21.3 14.9
Selling, general and administrative
expenses 6,810 2,245 22.3 9.2
Write-down of investment 1,175 -- 3.9 --
------- ------- ----- -----
Operating income (loss) (1,486) 1,401 (4.9) 5.7
------- ------- ----- -----
Other income (expense):
Interest income 202 105 .7 .5
Interest expense (756) (385) (2.5) (1.6)
Other 18 7 -- --
------- ------- ----- -----
Total other expense (536) (273) (1.8) (1.1)
------- ------- ----- -----
Income (loss) before income taxes (2,022) 1,128 (6.6) 4.6
Income taxes 202 377 .7 1.5
------- ------- ----- -----
Net income (loss) $(2,224) $ 751 (7.3)% 3.1%
======= ======= ====== ======
</TABLE>
The following discussion relates to the Company's actual operating results
for the periods noted. The 1998 operating results include the operations of the
companies acquired by the Company during the periods referenced from the date of
acquisition, while 1999 includes twelve (12) months operating results for all
acquired companies. As a result, the Company believes the operating results for
the year ending December 31, 1999 are not comparable to the year ended
December 31, 1998.
15
<PAGE> 19
Revenues
Revenues increased $6,112 or 25% to $30,515 for the year ended December 31,
1999 from $24,403 for the year ended December 31, 1998. The primary component of
this increase was due to acquisitions made in the year ended December 31, 1998,
which are included for a full year in 1999. The remainder of the increase for
the year ended December 31, 1999 was attributable to, among other things, the
increase in client engagements.
Cost of Revenues
Cost of revenues increased $3,259 or 16% to $24,016 for the year ended
December 31, 1999 from $20,757 for the year ended December 31, 1998. As a
percentage of revenues, cost of revenues decreased from 85.1% for the year ended
December 31, 1998 to 78.7% for the year ended December 31, 1999. 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. The decrease in
percentage is primarily due to operating differences between SIMEX AS and the
companies acquired in 1998 which weighed more heavily in 1999, since the
acquired companies were consolidated for a full 12 months in 1999, as opposed to
less than a full year in 1998.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $4,565 or 203%, to
$6,810 for the year ended December 31, 1999 from $2,245 for the year ended
December 31, 1998. As a percentage of revenues, selling, general and
administrative expenses increased from 9.2% for the year ended December 31, 1998
to 22.3% for the year ended December 31, 1999. This increase in dollar and
percentage terms was primarily attributable to the acquisitions, increased
depreciation expense, costs associated with relocating the Norwegian head
quarters and the corresponding increase in the number of employees. In addition,
with the reorganization of the Company, certain expenses for office overhead and
related expenses in the United States (USA) were incurred. These 1999 expenses
associated with USA operations, including legal and accounting expenses related
to filing the Company's registration statement, totaled approximately $1,093, or
3.6% of revenues. The increase in percentage is primarily due to changes in
classifications of labor costs that resulted in reducing cost of revenues and
increasing selling and general and administrative expenses due to changing
expense classifications of the companies acquired in 1998 to conform to the
expense classifications used by SIMEX AS.
Write-Down of Investment
During the year ended December 31, 1999, the Company recorded a write-down
of its investment in a Venezuelan coal and mineral mining company. The amount of
the write-down was $1,175. The write-down was based on an evaluation of the
Company's security interest in the coal and mineral mining company, which
evaluation indicated the investment to have no value.
16
<PAGE> 20
Other Income (Expense)
Other income (expense) increased by $(263) to $(536) for the year ended
December 31, 1999, compared to $(273) for the year ended December 31, 1998. The
increase was primarily attributable an increase in interest expense which
resulted from a significant increase in the borrowing base over the prior year.
Net Income (Loss)
Net income (loss) for 1999 decreased by $2,975 to $(2,224) for the year
ended December 31, 1999 from $751 for the year ended December 31, 1998. This
decrease was attributable to increased selling, general and administrative
expenses of $4,565 and increased net interest expense of $274 which exceeded the
$2,853 increase in gross profit. Additionally, the $4,565 loss included the
$1,175 write-down of the investment in the Venezuelan coal and mineral mining
company.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES (IN THOUSANDS)
Operating Activities
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, 1999 aggregated
$1,867, while cash used in operating activities for the year ended December 31,
1998 aggregated $(691). The impact on cash flows for the year ended December 31,
1999 was primarily due to an increase in accounts payable of $1,470.
Investing Activities
Cash provided by (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, 1999 and 1998 aggregated $695
and $(5,265), respectively. The cash provided for the year ended December 31,
1999 was primarily from the sale of real property, in December 1999, which
represented the Company's principal Norwegian operations.
Financing Activities
Cash flows used in financing activities for the year ended December 31,
1999 were $(2,881); for the year ended December 31, 1998, cash flows provided by
financing activities were $6,686. During the year ended December 31, 1999, cash
used for financing activities was used to pay down debt. For the year ended
December 31, 1998, cash provided from financing activities was from an increase
in debt and the issuance of preferred and common stock which was used primarily
for the 1998 acquisitions.
The effect of exchange rate changes and cash and cash equivalents for the
year ending December 31, 1999 was a $(274) and for the year ending December 31,
1998 was $(38).
17
<PAGE> 21
Capital Expenditures and Revolving Line of Credit
For the year ended December 31, 1999, the Company had outstanding equipment
operating lease commitments of approximately $865 compared to $623 for the year
ended December 31, 1998. For the year ended December 31, 1999, the Company had
real property operating lease commitments of $12,887, primarily related to the
lease on the Company's Norwegian headquarters and as discussed in detail below.
In addition, SIMEX A/S has entered into a 20 year lease commencing on
December 1, 1999 with Tjelta Eiendom ("Tjelta") for the lease of a new
headquarters facility in Stavanger, Norway which represents a significant
commitment by the Company. SIMEX A/S provided construction services to Tjelta in
the construction of the facility and was compensated approximately $1,500 for
these services. Under the terms of the lease, SIMEX AS made a $1,066 lease
deposit which will be held by Tjelta until the end of the lease and repaid to
include increases based on the Norwegian Consumer Price Index ("NCPI"). As
consideration for the lease deposit, the parties have negotiated variable rental
payments under the lease which are based upon the imputed interest for the
lessor on the lease deposit. These rental payments are approximately $750 for
the first year of the lease and $455 for the last year of the lease. The lease
included Tjelta purchasing SIMEX A/S's existing headquarters facility in
Stavanger, Norway. Proceeds from the sale of the real property were sufficient
to retire all of the debt on the real and personal property and leave
approximately $500 to be used for 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 $2,133 as of December 31, 1999. The borrowing limit under the line of
credit is $3,300, making borrowing availability $1,167 as of December 31, 1999.
The revolving line of credit bears interest at NIBOR (Norwegian) plus .90%
(6.83% at December 31, 1999). 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
ITEM 7. Financial Statements
See "Financial Statements and Notes to Financial Statements" set forth on
page 31 through 53 of this Annual Report on Form 10-KSB.
18
<PAGE> 22
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
There have been no disagreements with independent auditors nor any changes
in the Company's independent auditors.
PART III
ITEM 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
Our executive officers, directors and certain key employees, their ages as
of December 31, 1999 and their position(s) with SIMEX are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
MR. ELMER LUNDE 44 Director and Chairman of the Board since April 28, 1998
and Chief Executive Officer 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. ARNOLD JOHNS 57 Director and President since November 19, 1999.
Mr. Johns served as a consultant to the Company from
July to November 19, 1999. Prior to this time, Mr. Johns
was involved in providing corporate finance services to
public and private companies. He began his career as
Manager of Mergers and Acquisitions for a major
southeastern U.S. bank. Mr. Johns later served as
Director of Southeastern Research at Robinson, Humprey
and Co. He has also served as President of two other
publicly-traded companies and worked in senior
management in the real estate, securities and trucking
industries. Mr. Johns graduated from the University of
North Carolina with a degree in Economics.
</TABLE>
19
<PAGE> 23
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
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.
</TABLE>
20
<PAGE> 24
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
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.
</TABLE>
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
At a Board of Directors meeting held on November 11, 1999, the Board
established an Audit Committee and a Compensation Committee. The Audit Committee
reviews, acts on and reports 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 establishes 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.
21
<PAGE> 25
EMPLOYEE CONTRACTS
The Company has not executed any employment agreements with its officers or
key employees. However, the Company agreed in principle, during the Board
meeting held on November 19, 1999, to the terms of an employment agreement with
the Company's President, Mr. Arnold Johns. As of the date of this report, the
employment agreement has not been formalized and executed.
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 80% of the number of
shares owned, leaving 20% of the shares owned on which sales are not restricted,
other than by the restrictions set forth under Rule 144A of the Securities and
Exchange Act of 1933. 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 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. As of
March 20, 2000, none of the shares owned by Weld Tech have been sold. The
holders of these shares must also comply with the restrictions set forth under
Rule 144A of the Securities and Exchange Act of 1933 prior to reselling these
shares.
Indemnification of Officers and Directors
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.
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
22
<PAGE> 26
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) 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.
ITEM 10. Executive Compensation
No executive officer, director or other individual received compensation of
more than $100,000 for the prior fiscal year.
COMPENSATION TABLES
The compensation paid in 1999 and 1998 to the Chief Executive Officer of
the Company and to the President of the Company is set forth in the table below.
No executive officers or any officer of a subsidiary had total compensation that
exceeded $100,000.
<TABLE>
<CAPTION>
1999 SUMMARY COMPENSATION TABLE
THE COMPANY
ANNUAL
COMPENSATION LONG-TERM COMPENSATION
--------------- ------------------------------
AWARDS PAYOUTS
-------------------- ------- ALL
NAME AND OTHER ANNUAL RESTRICTED OPTIONS/ LTIP OTHER
PRINCIPAL SALARY BONUS COMPENSATION STOCK SARs PAYOUT COMPENSATION
POSITION YEAR ($) ($) ($) AWARDS (#) ($) ($)
- ------------- ---- ------ ----- ------------ ---------- -------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Arnold Johns 1999 30,000 0 0 0 0 (2) 0 0
President (1) 1998
Elmer Lunde 1999 95,000 0 0 0 0 0 0
CEO 1998 80,000
</TABLE>
- ------------
(1) Mr. Johns 1999 compensation represents three (3) months. Mr. Johns annual
compensation is $120,000.
23
<PAGE> 27
(2) The Company's Compensation Committee is considering an employment agreement
for Mr. Johns, which, if approved, would include the grant of options to
acquire 500,000 shares of the Company's common stock.
There were no stock option grants during the year ended December 31, 1999.
The Company has no stock appreciation rights ("SARs") outstanding.
ITEM 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of December 31, 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.
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.
24
<PAGE> 28
<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 41.09%
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 14.98%
Suite 2006
375 Park Avenue
New York, New York 10152
ALL DIRECTORS AND EXECUTIVE OFFICERS
AS A GROUP (3 Persons) 6,750,000 52.67%
</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 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 9.18% 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 4.46% of the outstanding shares, (b) Lancer Voyager
Fund which owns 117,500 shares of common stock which represents 0.92% of
the outstanding shares and (c) Michael Lauer who owns 53,474 shares of
common stock which represents 0.42% of the outstanding shares. These
affiliated entities own beneficially 14.98% of the outstanding shares of
the Company.
25
<PAGE> 29
ITEM 12. 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 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.
26
<PAGE> 30
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 Sprinklers
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 the Company's common stock with an option to acquire an
additional 200,000 shares at an exercise price of $2.75 per share. The
option expires in two (2) years.
- 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 the Company's 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 the Company's common stock.
27
<PAGE> 31
Loans to Shareholders
The Company has loaned monies 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
SIMEX A/S engaged Mr. Kjell Jagelid and Mr. Warren L. Traver, in 1994 and
1997 respectively, to assist the Company in securing capital in the United
States. Mr. Traver received $10,000 a month as compensation for his services as
a consultant for the Company, and Mr. Jagelid received $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. In December
1999, the services of Mr. Traver and Mr. Jagelid was terminated. Mr. Traver is
also a beneficial owner of shares of the Company. See "SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT."
ITEM 13. Exhibits and Reports on Form 8-K.
(a) Exhibits: The following exhibits are filed as part of this report
(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(a) Acquisition Documents
28
<PAGE> 32
10.1(a) April 28, 1998 Agreement and Plan of Reorganization
between Maile International, Inc. and Simex AS
10.1(b) May 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
10.2(c) December 1, 1999 Lease Agreement between TE and Simex AS
10.3 Other Material Contracts
10.3(a) License Agreements between subsidiaries of the Company
and HRS Systems, Inc.
10.3(b) April 29, 1999 Loan Agreement between Sparebanken
Rogaland and Simex A/S
10.3(c) August 1, 1999 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
10.3(e) November 19, 1999, stock based compensation plan, as
approved by the Company's Board of Directors.
29
<PAGE> 33
(21) 21.1 List of the Company's subsidiaries
(27) 27.1 Financial Data Schedule (for SEC use only)*
(99) Certification of Translated Foreign Language Documents
- ------------
*Filed herewith.
(b) No reports on Form 8-K were filed during the quarter ended
December 31, 1999
30
<PAGE> 34
INDEX TO FINANCIAL STATEMENTS FOR THE COMPANY
SIMEX TECHNOLOGIES, INC.
AND SUBSIDIARIES
<TABLE>
<S> <C>
Independent auditors' report 32
Consolidated balance sheet as of December 31, 1999 33
Consolidated statements of operations for the years ended December 31, 1999 and 1998 35
Consolidated statements of shareholders' equity for the years ended December 31,
1999 and 1998 36
Consolidated statements of cash flows for the years ended December 31, 1999 and 1998 37
Notes to consolidated financial statements 39
</TABLE>
31
<PAGE> 35
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, 1999, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the years in the two-year period ended December 31, 1999. 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, 1999, and the results of
their operations and their cash flows for each of the years in the two-year
period ended December 31, 1999 in conformity with generally accepted accounting
principles.
KPMG LLP
March 24, 2000
Atlanta, Georgia
32
<PAGE> 36
SIMEX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
ASSETS 1999
------ ------------
<S> <C>
Current assets:
Cash and cash equivalents $ 284
Trade accounts receivable, less allowance for
doubtful accounts of $60 5,766
Costs and estimated earnings in excess of
billing on
uncompleted contracts (note 3) 1,514
Inventories 1,199
Prepaid expenses and other current assets 218
-------
Total current assets 8,981
Notes receivable--officers (note 4) 300
Investments (note 5) 21
Investments in affiliated companies (note 6) 273
Property, plant, and equipment, net (note 7) 2,799
Goodwill, less accumulated amortization of $200 3,111
Note receivable (note 15) 1,066
-------
Total assets $16,551
=======
</TABLE>
See accompanying notes to consolidated financial statements.
33
<PAGE> 37
SIMEX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
1999
------------
<S> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable--bank (note 8) $ 2,133
Current portion of long-term debt (note 9) 627
Accounts payable 3,536
Accrued salaries and wages 682
Accrued taxes other than income 1,431
Accrued income taxes 86
Deferred income taxes (note 10) 272
Other current liabilities 193
-------
Total current liabilities 8,960
Long-term debt, less current portion (note 9) 2,797
Deferred income taxes (note 10) 368
Other liabilities 94
-------
Total liabilities 12,219
-------
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;
12,814 shares issued and outstanding (note 12) 13
Additional paid-in capital 6,465
Accumulated deficit (1,332)
Treasury stock, 10 shares at cost (30)
Accumulated other comprehensive loss--foreign currency
translation adjustment (784)
-------
Total shareholders' equity 4,332
-------
Commitments and contingencies (notes 8, 9, and 15)
Total liabilities and shareholders' equity $16,551
=======
</TABLE>
34
<PAGE> 38
SIMEX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
---------------------
1999 1998
------- -------
<S> <C> <C>
Revenues $30,515 $24,403
Cost of sales 24,016 20,757
------- -------
Gross profit 6,499 3,646
Selling, general, and administrative expenses (note 6) 6,810 2,245
Write-off of investment (note 5) 1,175 --
------- -------
Operating income (loss) (1,486) 1,401
------- -------
Other income (expense):
Interest income (note 4) 202 105
Interest expense (756) (385)
Other 18 7
------- -------
Total other expense (536) (273)
------- -------
Income (loss) before income taxes (2,022) 1,128
Income taxes (note 10) 202 377
------- -------
Net income (loss) $(2,224) $ 751
======= =======
Earnings (loss) per share (note 13):
Basic $ (.17) $ .06
======= =======
Diluted $ (.17) $ .06
======= =======
</TABLE>
See accompanying notes to consolidated financial statements
35
<PAGE> 39
SIMEX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
RETAINED
PREFERRED STOCK COMMON STOCK ADDITIONAL EARNINGS
-------------------------------------- PAID-IN (ACCUMULATED TREASURY
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT) STOCK
------ ------ ------ ------ ---------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
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) -- -- 1,161 1 1,824 -- --
Issuance of common stock and
options in connection with
acquisitions note 14) -- -- 520 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 --
Treasury stock transaction -- -- (10) -- -- -- (30)
Comprehensive loss:
Net loss -- -- -- -- -- (2,224) --
Foreign currency translation
adjustments -- -- -- -- -- -- --
Total comprehensive loss
------ --- ------ --- ------ ------- ----
Balances at December 31, 1999 -- $-- 12,814 $13 $6,465 $(1,332) $(30)
====== === ====== === ====== ======= ====
<CAPTION>
ACCUMULATED
OTHER
COMPREHENSIVE
LOSS-FOREIGN
CURRENCY TOTAL
TRANSLATION SHAREHOLDERS'
ADJUSTMENT EQUITY
------------- -------------
<S> <C> <C>
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
Treasury stock transaction -- (30)
Comprehensive loss:
Net loss -- (2,224)
Foreign currency translation
adjustments (485) (485)
Total comprehensive loss (2,709)
----- -------
Balances at December 31, 1999 $(784) $ 4,332
===== =======
</TABLE>
See accompanying notes to consolidated financial statements.
36
<PAGE> 40
SIMEX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
---------------------
1999 1998
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(2,224) $ 751
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 883 538
Earnings from affiliated companies (23) (15)
Deferred income taxes 76 85
Write-off investment in GMGI 1,175 --
Other 31 75
Changes in operating assets and liabilities, net of
effects of acquisitions:
Accounts receivable 271 (1,594)
Inventories and uncompleted contracts 315 428
Prepaid expenses and other current assets 13 (1,346)
Other assets (202) --
Accounts payable 1,470 (714)
Accrued salaries and wages 131 477
Accrued taxes other than income 180 651
Accrued income taxes (311) 247
Other current liabilities 82 (274)
------- -------
Net cash provided by (used in) operating activities 1,867 (691)
------- -------
Cash flows from investing activities:
Acquisitions of property, plant, and equipment (1,095) (907)
Proceeds from sale of property, plant, and equipment 2,923 180
Acquisitions of businesses, net of cash acquired of $406 -- (3,925)
Acquisition of investments (21) (117)
Acquisition of investments in affiliated companies 8 (266)
Increase in notes receivable (1,065) --
Increase in notes receivable--employees (55) (230)
------- -------
Net cash provided by (used in) investing activities 695 (5,265)
------- -------
Cash flows from financing activities:
Proceeds from note payable--bank, net 410 203
Proceeds from long-term debt 343 5,247
Payments on long-term debt (3,634) (2,598)
Issuance of preferred stock -- 2,056
Issuance of common stock -- 1,825
Preferred stock dividends paid -- (47)
------- -------
Net cash provided by (used in) financing activities (2,881) 6,686
------- -------
Effect of exchange rate changes in cash and cash equivalents (274) (38)
------- -------
Net change in cash and cash equivalents (593) 692
Cash and cash equivalents at beginning of year 877 185
------- -------
Cash and cash equivalents at end of year $ 284 $ 877
======= =======
</TABLE>
37
<PAGE> 41
SIMEX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------
1999 1998
------ -------
<S> <C> <C>
Supplemental disclosure of cash flows information:
Cash paid during the years for:
Interest $ 617 $ 361
====== ======
Income taxes $ 391 $ 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
====== ======
Treasury stock transaction $ (30) $ --
====== ======
In May 1998, the Company acquired the capital stock
of Norsk Kjoleindustry AS (note 14):
Fair value of net assets acquired, net of cash received $ -- $11,730
Liabilities assumed -- (5,643)
Common stock and options issued -- (2,162)
------ -------
$ -- $3,925
</TABLE> ====== ======
See accompanying notes to consolidated financial statements.
38
<PAGE> 42
SIMEX TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 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 $284 at December 31, 1999 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.
39
<PAGE> 43
(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.
(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.
40
<PAGE> 44
(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.
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.
41
<PAGE> 45
(L) RESEARCH AND DEVELOPMENT, AND ADVERTISING
Research and development, and advertising costs are expensed as
incurred. Research and development costs amounted to $250 and $450 in
1999 and 1998. Advertising costs amounted to $119 and $65 in 1999 and
1998, respectively.
(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 post-retirement 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. Members of the Board of Directors
of Simex AS, who are also employees of Simex AS, receive a pension
contribution equal to one months pay per year of service to Simex AS,
in accordance with Norwegian law.
(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 (loss). 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.
42
<PAGE> 46
(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.
(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.
(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.
(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, 1999:
<TABLE>
<S> <C>
Cost incurred on uncompleted contracts $16,192
Estimated earnings 4,987
-------
21,179
Less billings to date 19,665
-------
$ 1,514
=======
Costs and estimated earnings in excess
of billings on uncompleted contracts $ 1,514
Billings in excess of costs and
estimated earnings on uncompleted
contracts --
-------
$ 1,514
=======
</TABLE>
43
<PAGE> 47
(4) NOTES RECEIVABLE
At December 31, 1999, the notes receivable for $300 is due from certain
officers of Simex AS and a consultant to the Company. 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 1999 and 1998 was $24
and $-5-, respectively.
(5) INVESTMENT
During the year ended December 31, 1999, the Company recorded a write-down
of its investment in a Venezuelan coal and mineral mining company. The
amount of the write-down was $1,175. The write-down was based on an
evaluation of the Company's security interest in the coal and mineral
mining company, which evaluation indicated the investment to have no value.
(6) INVESTMENTS IN AFFILIATED COMPANIES
Investments in affiliated companies consist of 40% of the common stock of
Jotronic Data AS and Unitron Management AS. During the year ended December
31, 1999, these companies were consolidated into one company and renamed
Unitron AS ("Unitron"). 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.
The unamortized portion of the excess of the cost over the Company's share
of net assets of affiliated companies is $216 at December 31, 1999.
Unitron provides its services for the Company under the terms of a
management services agreement. The cost of these services aggregates $532
in 1999. Fees charged to the Company for these services are set at the
level of fees that Unitron charges to unrelated parties.
(7) PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consists of the following at December 31,
1999:
<TABLE>
<S> <C>
Machinery and equipment 4,984
Less accumulated depreciation and amortization 2,185
------
Net property, plant, and equipment $2,799
======
</TABLE>
During the year ended December 31, 1999, the Company sold the land and
buildings which had comprised its Norwegian headquarters. The land and
buildings carried a net book value of $2,948 at the date of sale and sold
for $2,923, resulting in a loss on sale of $25. Proceeds from the sale were
used to pay down both short and long term debt. The
44
<PAGE> 48
estimated depreciable lives for the machinery and equipment is five years.
The Company leased its new facility under an operating lease (see note 15).
(8) NOTE PAYABLE--BANK
The Company's note payable--bank has two components, a $2,300 overdraft
facility which bears interest at NIBOR (Norwegian) plus .90% (6.78% at
December 31, 1999) and a $1,000 overdraft facility which bears interest at
LIBOR plus 1.00% (7.00% at December 31, 1999). As of December 31, 1999, the
Company had drawn $2,133 under this facility, leaving an availability of
$1,167. Both note payable--bank overdraft facilities are due on demand and
are secured by certain accounts receivable and equipment of the Company.
(9) LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1999:
<TABLE>
<S> <C>
Mortgage payable, NIBOR (Norwegian) plus 1.0% (6.90% at
December 31, 1999), payable in quarterly principal payments
of $31 through 2008 with interest due quarterly. Mortgage
payable is secured with accounts receivable and property,
plant and equipment $1,057
Mortgage payable, NIBOR (Norwegian) plus .9% (6.78%
at December 31, 1999), payable in monthly principal payments of $31
through 2004 with interest due monthly. Mortgage payable is
secured with accounts receivable and property, plant and equipment 1,866
7% notes payable in monthly installments of $6 through 2007
note payable secured by equipment 333
Mortgage payable, NIBOR (Norwegian) plus .9% (6.78% at December 31,
1999), payable in monthly principal payments of $31 through 2002 with
interest due monthly. Mortgage payable secured by accounts receivable,
inventories, and property, plant and equipment 97
11% notes payable, payable in monthly installments of $3 through 2007
with interest due monthly. Note payable secured by inventories
and equipment 71
------
3,424
Less current portion of long-term debt 627
------
Long-term debt, less current portion $2,797
======
</TABLE>
The aggregate maturities of long-term debt for each of the five years
subsequent to December 31, 1999 are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31,
------------
<S> <C>
2000 $627
2001 607
2002 556
2003 553
2004 549
</TABLE>
45
<PAGE> 49
(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, 1999:
U.S. Federal $ -- -- --
State -- -- --
Foreign 125 77 202
---- --- ---
Total $125 77 202
==== === ===
Year ended December 31, 1998:
U.S. Federal $ -- -- --
State -- -- --
Foreign 397 (20) 377
---- --- ---
Total $397 (20) 377
==== === ===
</TABLE>
Income tax expense attributable to income from continuing operations was
$202 and $377 for the years ended December 31, 1999 and 1998, 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>
1999 1998
----- ----
<S> <C> <C>
Computed "expected" tax expense (benefit)
Increase (reduction) in income taxes resulting from: $(687) $384
Difference in U.S. and foreign tax rates 12 (79)
Increase in valuation allowance for deferred tax assets 887 75
Other (10) (3)
----- ----
$ 202 $377
===== ====
</TABLE>
46
<PAGE> 50
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1999
are as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Tax loss regarding liquidation $ 860
Other 30
Pension 16
Net operating loss carryforward 1,235
-------
Gross deferred tax assets 2,141
Less valuation allowance (962)
-------
Net deferred tax assets 1,179
-------
Deferred tax liabilities:
Equipment $ 395
Cost and estimated earnings in excess
of billings on uncompleted contracts 1,424
-------
Total deferred tax liabilities 1,819
-------
Net deferred tax liability $ 640
=======
</TABLE>
The valuation allowance for deferred tax assets as of January 1, 1999 was
$75. The net change in the total valuation allowance for the years ended
December 31, 1999 and 1998 was $887 and an increase of $75, respectively.
In assessing the reliability 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, 1999, the Company has net operating loss carry-forwards for
U.S. Federal income tax purposes of approximately $2,700 which are
available to offset future Federal taxable income, if any, through 2009.
(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.
(12) COMMON STOCK, OPTIONS AND WARRANTS
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.
47
<PAGE> 51
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).
On November 4, 1999, the Company entered into a consulting agreement with a
financial services firm. As compensation for their services the firm
receives a monthly retainer of $7,000 and 20,000 warrants to purchase
shares of the Company's common stock. The exercise price of the warrants is
$3.00 per share. The compensation continues for the term during which
services are rendered by the firm, with a minimum period of five (5)
months. The exercise period for the warrants expires five (5) years from
their date of grant. There were 40,000 warrants issued under this agreement
during the year ended December 31, 1999. The fair value of these warrants
was not significant.
In November 1999 the Company's board of directors approved a stock based
compensation plan ("Plan") under which shares or options can be granted to
employees, directors and consultants. The Company will measure compensation
cost using the intrinsic value method of accounting prescribed by APB
Opinion No. 25 "Accounting for Stock Issued to Employees".
The Plan reserves for issuance 1,923,600 shares of the Company's
common stock for its employees, directors and consultants. Management of
SIMEX AS, the Company's wholly-owned Norwegian subsidiary, has proposed a
form of stock option plan for its employees which, if implemented, would
require the Company to allocate approximately 1,030,000 of the 1,923,600
options issuable under the stock option plan to the employees of SIMEX
AS. This proposal by the management of SIMEX AS is under consideration by
the Board, but has not been approved. The Company did not grant any
options under this plan in 1999. In connection with the issuance of
option grants, the Company may incur non-cash stock compensation
expenses. The amount of these compensation expenses is unknown. The
options under the Plan are exercisable immediately up to ten (10) years
after the grant date in accordance with the vesting provisions of the
individual agreements set forth at the time of the award. All options
expire no later than ten (10) years from the date of grant.
(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 year ended December
31, 1999, the dilutive effect of stock options and warrants, which
48
<PAGE> 52
comprise common stock equivalents, have not been presented because their
effect would have been anti-dilutive.
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
---------------------
1999 1998
---------- -------
<S> <C> <C>
Numerator:
Net income (loss) $( 2,224) $ 751
Preferred stock dividends -- (47)
-------- -------
Numerator for basic and diluted
earnings per share $ (2,224) $ 704
======== =======
Denominator:
Denominator for basic earnings per
share--weighted-average shares
outstanding 12,824 11,138
Effect of dilutive securities--stock
options -- 11
-------- -------
Denominator for diluted earnings per share 12,824 11,149
======== =======
</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.
(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 $158 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.
49
<PAGE> 53
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.
In December 1999, the Company reacquired 9 of the 14 shares of common stock
of the Company as an adjustment to the purchase price of Hordador. This
adjustment to the purchase price was a result of Hordador not meeting
certain performance requirements which were a part of the purchase
agreement. The value of the shares, $30 was recorded as a reduction of
goodwill from $154 to $124 and accordingly reduced the annual amortization
of goodwill.
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 1998:
<TABLE>
<CAPTION>
1998
-------
<S> <C>
Revenues $30,719
Net income 844
Earnings per share:
Basic .07
Diluted .07
</TABLE>
Such pro forma information is not necessarily indicative of the results of
operations which would have occurred or will occur in the future.
50
<PAGE> 54
(15) LEASES
The Company has noncancelable leases, primarily for real property and
transportation equipment, that expire over the next 20 years. The lease for
the SIMEX AS headquarters required a deposit of $1,066. Rent payments for
the Norwegian headquarters of SIMEX AS have been reduced as a result of the
$1,066 deposit paid to the lessor of the property. The deposit will be
repaid at the end of the lease term and will include increases compounded
at the rate of the Norwegian Consumer Price Index. Rent expense for
operating leases during 1999 and 1998 was $424 and $379, respectively.
Future minimum lease payments under noncancelable operating leases as of
December 31, 1999 are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31,
------------
<S> <C>
2000 $1,115
2001 1,044
2002 880
2003 820
2004 776
2005 & beyond 9,156
-------
Total $13,791
=======
</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, 1999 and 1998 were $22 and $14 respectively. The
plan is unfunded and pension liabilities at December 31, 1999 were $57. The
assumptions used to calculate such pension information were: discount rate
of 7% and expected increase in compensation of 3%.
(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.
51
<PAGE> 55
(18) OPERATING SEGMENTS
The Company adopted SFAS No. 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.
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. Inter-segment revenues
are significant and are represented in the "Other and Eliminations" column.
<TABLE>
<CAPTION>
MAINTENANCE
AND POST OTHER AND
CONSTRUCTION SERVICE PRODUCTION TENSIONING ELIMINATIONS TOTAL
------------ ----------- ---------- ---------- ------------ ------
<S> <C> <C> <C> <C> <C> <C>
1999:
Revenues $18,060 5,221 6,304 2,359 (1,429) 30,515
Gross profit 3,864 1,053 894 759 (71) 6,499
Total assets 6,591 788 2,587 729 5,856 16,551
Long-lived asset 103 -- 499 68 425 1,095
expenditures
Depreciation and -- -- 664 -- 719 883
amortization
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 465 660 4,043 56 3,322 8,546
expenditures
Depreciation and 192 18 139 13 82 444
amortization
</TABLE>
52
<PAGE> 56
The following table represents revenues by country based upon the location of
domicile:
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Norway $28,605 $20,261
United Kingdom 1,681 3,850
United States 229 292
------- -------
$30,515 $24,403
======= =======
</TABLE>
The following table presents long-lived assets by country based on the location
of domicile:
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Norway $5,835 $9,091
United Kingdom 43 43
United States 32 44
------ ------
$5,910 $9,178
====== ======
</TABLE>
53
<PAGE> 57
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SIMEX TECHNOLOGIES, INC.
Dated March 30, 2000
By /s/ ELMER LUNDE
-------------------------------------
Chairman of the Board of Directors
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Dated March 30, 2000
By /s/ ELMER LUNDE
-------------------------------------
Chief Executive Officer and Treasurer
Dated March 30, 2000
By /s/ ARNOLD JOHNS
-------------------------------------
President
54
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER
31, 1999, AUDITED FINANCIAL STATEMENTS OF SIMEX TECHNOLOGIES, INC., AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS IN FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1999. (IN THOUSANDS)
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 284
<SECURITIES> 0
<RECEIVABLES> 5,826
<ALLOWANCES> 60
<INVENTORY> 1,199
<CURRENT-ASSETS> 8,981
<PP&E> 4,984
<DEPRECIATION> 2,185
<TOTAL-ASSETS> 16,551
<CURRENT-LIABILITIES> 8,960
<BONDS> 2,797
0
0
<COMMON> 13
<OTHER-SE> 4,319
<TOTAL-LIABILITY-AND-EQUITY> 16,551
<SALES> 30,515
<TOTAL-REVENUES> 30,515
<CGS> 24,016
<TOTAL-COSTS> 24,016
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 756
<INCOME-PRETAX> (2,022)
<INCOME-TAX> 202
<INCOME-CONTINUING> (2,224)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,224)
<EPS-BASIC> (0.17)
<EPS-DILUTED> (0.17)
</TABLE>
