UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2
TO
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
UNDER SECTION 12(b) OR 12(g)
OF THE SECURITIES EXCHANGE ACT OF 1934
NUPRO INNOVATIONS INC.
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(Name of Small Business Issuer in its Charter)
Delaware 86-0893269
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(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
3296 East Hemisphere Loop, Tucson, Arizona 85706-5013
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(Address of principal executive offices) (Zip Code)
(520) 547-3510
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(Issuer's Telephone Number)
Securities to be registered under Section 12(b) of the Act:
None
Securities to be registered under Section 12(g) of the Act:
Common Stock, par value $.001 per share
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EXPLANATORY NOTE
The Company is filing this Form 10-SB Registration Statement on a voluntary
basis in order to comply with recently enacted rules of the National Association
of Securities Dealers, Inc., which require, among other things, the Company to
become a reporting company with the Securities and Exchange Commission ("SEC")
under Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), in order for the Company to remain eligible for listing on
the Over-the-Counter Bulletin Board.
NUPROTM AND NUPRO INNOVATIONSTM ARE TRADEMARKS OR TRADE NAMES OF THE
COMPANY.
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
This Form 10-SB Registration Statement contains express or implied
forward-looking statements. Additional written or oral forward-looking
statements may be made by the Company from time to time in filings with the
Securities and Exchange Commission, in its press releases, quarterly conference
calls or otherwise. The words "believes," "expects," "anticipates," "intends,"
"forecasts," "projects," "plans," "estimates," and similar expressions identify
forward-looking statements. Such statements reflect the Company's current views
with respect to future events and financial performance or operations and speak
only as of the date the statements are made. Such forward-looking statements
involve risks and uncertainties and readers are cautioned not to place undue
reliance on forward-looking statements. The Company's actual results may differ
materially from such statements. Factors that cause or contribute to such
differences include, but are not limited to, the Company's limited operating
history, lack of product diversification, lack of sales, the risks of rapid
growth, the Company's dependence on key personnel, uncertainty of acceptance of
the NuPro Material, changes in economic conditions, and an inability to obtain
financing, as well as those discussed elsewhere in this Form 10-SB. Although the
Company believes that the assumptions underlying its forward-looking statements
are reasonable, any of the assumptions could prove inaccurate and, therefore,
there can be no assurance that the results contemplated in such forward-looking
statements will be realized. The inclusion of such forward-looking information
should not be regarded as a representation by the Company or any other person
that the future events, plans, or expectations contemplated by the Company will
be achieved. The Company undertakes no obligation to publicly update, review, or
revise any forward-looking statements to reflect any change in the Company's
expectations with regard thereto or any change in events, conditions, or
circumstances on which any such statements are based.
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
NuPro Innovations Inc. was incorporated in the Canadian Province of Ontario
on November 27, 1996 as TracTop Distributing Inc. On August 7, 1997, TracTop
Distributing Inc. was domesticated in the State of Delaware in the United States
under the name "NuPro Innovations Inc." When used in this registration
statement, unless the context requires otherwise, the term "Company" refers to
NuPro Innovations Inc., a Delaware corporation (formerly known as TracTop
Distributing Inc., an Ontario, Canada corporation), and NuPro Innovation Mexico
S.A. de C.V., which is a majority owned subsidiary of NuPro Innovations Inc.
incorporated under the laws of the United Mexican States. The Company is a
development stage corporation with its principal offices located at 3296 East
Hemisphere Loop, Tucson, Arizona, 85706-5013. The Company's telephone number is
(520) 547-3510 and its web site is www.nuproinnovations.com. Information on the
Company's web site does not constitute part of this registration statement.
Effective December 1, 1998, the Company acquired the use of and the right
to commercialize a composite industrial engineering material (the "NuPro
Material") with the acquisition (the "TrucTech Acquisition") of substantially
all of the assets and liabilities of TrucTech, Inc., a Georgia corporation
("TrucTech"). Under the terms of the TrucTech Acquisition, the Company acquired
TrucTech's assets and assumed TrucTech's liabilities in exchange for $5,500,000
of the Company's common stock, par value $0.001 per share ("Common Stock"),
valued at $0.75 per share, or an aggregate of 7,333,333 shares, which
represented approximately 73% of the Company's outstanding Common Stock
immediately following the TrucTech Acquisition. Certain directors, officers,
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employees, and stockholders of the Company were also directors, officers,
employees, and stockholders of TrucTech. See "Certain Relationships and Related
Transactions." The Company does not currently anticipate any additional
significant corporate acquisitions or dispositions in the next 12 months.
NUPRO MATERIAL
The NuPro Material is a polyester/epoxy hybrid created by the reactions of
several primary chemical compounds facilitated by chemical inhibitors,
accelerators, catalysts, and promoters. The NuPro Material can be made in a
variety of formulations to generate differing properties, which enables it to be
used in a number of different product applications. The Company believes that
the NuPro Material represents an advancement in polyurea technology because the
processing of the hybrid composite material does not require either external
heat or a high-pressure environment.
The NuPro Material, which is composed of certain chemicals that are
structured to be receptive to combining with other chemical compounds to create
stronger and more complete molecular structures with varying properties, is
characterized by certain high performance mechanical properties that allow it to
compete with steel, alloys, wood, plastic, fiberglass, and plastic foam in many
product applications. The Company believes that a significant cost advantage of
the NuPro Material may result from the elimination of a standard plastics
manufacturing step - the interim process of compounding the raw feeds of
petrochemical derivatives into raw plastics, and continuing the process by
reheating, pressing, and reforming the compounds into a finished product. With
the NuPro Material, the finished products are derived directly from the chemical
reaction of certain raw liquid feedstocks. As a result, the Company believes
that the production process for product applications with the NuPro Material is
more simple and inexpensive than the manufacturing process of product
applications with many of the competing industrial materials.
Krida Overseas Investment Trading Limited, an entity incorporated in Cyprus
("Krida Overseas"), which is controlled by Luba Veselinovic, President and Chief
Executive Officer of the Company, owns the technology relating to the NuPro
Material and licenses to the Company the right to use and market the NuPro
Material in its operations pursuant to the Technology License Agreement (the
"Krida License") between the Company and Krida Overseas. See "Certain
Relationships and Related Transactions."
BUSINESS STRATEGY
The focus of the Company will be to provide unique platform technology and
solutions for the challenges faced by manufacturers with respect to the
materials used for various industrial applications. The Company believes that
customers that manufacture products with the NuPro Material may realize certain
competitive advantages with respect to product performance and costs of
production.
The Company's business strategy includes (i) identifying large-scale
manufacturing, industrial, and commercial market segments in which the
substitution of the NuPro Material for existing conventional materials will
provide the user with a higher quality product at a lower price, (ii) furnishing
the Company's customers with turnkey manufacturing packages, including, without
limitation, training with respect to the manufacturing process, for a particular
product application of the NuPro Material, and (iii) supplying its proprietary
materials, which are the chemicals necessary for creating the NuPro Material,
for the manufacturing process. The Company anticipates that the proprietary
materials necessary to create the NuPro Material will initially be manufactured
in Mexico.
In implementing its business strategy, the Company has identified the
following areas of emphasis:
* DEVELOP AND INTRODUCE NEW PRODUCT APPLICATIONS. The Company believes
that it must continue to develop and offer manufacturers new product
applications for the NuPro Material.
* EVALUATE ACQUISITION OR STRATEGIC ALLIANCE OPPORTUNITIES. The Company
evaluates acquisition opportunities and potential strategic alliances
on an on-going basis and at any given time may be engaged in
discussions with respect to possible acquisitions or strategic
alliances. The Company may seek strategic acquisitions or create
strategic alliances that could complement the Company's current or
planned business activities. The Company, however, does not currently
anticipate any additional significant corporate acquisitions in the
next 12 months.
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* INTEGRATE ACQUISITIONS AND STRATEGIC ALLIANCES. The Company must
integrate the entities or assets that it has acquired into its
business and coordinate its operations with other entities as part of
any strategic alliance.
MANUFACTURING PROCESS OF NUPRO MATERIAL
The NuPro Material is a polyurethane/epoxy or polyester/epoxy hybrid
created by the chemical reactions of several primary compounds facilitated by
chemical inhibitors, accelerators, catalysts, and promoters. The NuPro Material
is produced directly from its chemical constituents without the need to create
an intermediate plastic medium as is required for most conventional plastics. By
varying the proportions of the primary compounds, the Company is able to
determine the nature of the composite material produced. By controlling the rate
at which the chemical reactions occur and the points at which they are stopped
with certain chemical facilitators, the Company may define the physical and
performance characteristics of the material, which allows the Company to tailor
the properties of the NuPro Material to the specific product application for
which it will be used.
The NuPro Material is produced by mixing various chemical components in a
multi-step process. The Company anticipates that the production process will be
performed at different facilities. First, the Company will pre-mix the
proprietary component of the NuPro Material at its facilities. During this
pre-mixing process, the chemical combination and inhibitors produce and release
heat. With the manipulation of the free radicals in the chemical components, the
Company can create different formulations of the NuPro Material with differing
properties for different product applications. Second, various generic chemical
components will be mixed at the manufacturing facility where the manufacture of
the final product containing the NuPro Material will occur. Certain chemical
components will serve as catalysts, promoters, and accelerators and will cause a
reaction to produce the NuPro Material. At the manufacturing facility, the
liquid components of the NuPro Material will be stored in separate conventional
storage tanks. Conventional low-pressure liquid pumps will be used to pump the
liquid components through hoses to a mixing head and nozzle at the site of the
molds to be filled.
Products made with NuPro Material may be formed by casting in a closed mold
or by spraying the chemicals into an open mold. The molds may be constructed
with a wide range of materials depending on the product application. The casting
is known as a low-pressure cold molding process because neither high pressure
nor heat is applied to effectuate the chemical reactions that form the NuPro
Material. High clamping forces are not required for the molds because the
injection process of the liquid components of the NuPro Material into the molds
occurs at a low pressure. Even after the initial curing process, the NuPro
Material is still soft and pliable. Final curing occurs after the product is
removed from the mold and placed on a curing buck, which is identical in shape
to the mold. During the final curing, the chemical reaction of the chemical
components locks the molecular structure of the product into final form. Any
required trimming or finishing of the product can be completed during the final
curing. Because of this process, molds for the NuPro Material may be light,
compact, and low in cost relative to molds required for the conventional plastic
injection molding processes.
PRODUCT APPLICATIONS
The Company is in the process of establishing customer relationships for
the development of several product applications for the NuPro Material. Such
development will include feasibility studies, product design and engineering,
prototype model and mold fabrication, prototype manufacture, testing, and
customer approval. To date, prospective customers for pallets, deck boards, golf
drivers, and food processing trays have funded all or a portion of the
development process for their respective product applications. In addition, the
Company is developing applications for the NuPro Material for a truck bed
enclosure ("TracTop") and a pallet top. The Company anticipates that it will
begin manufacturing certain product applications by the end of the fourth
quarter of fiscal 2000.
TRACTOP. TracTop is a permanently installed retractable, self-storing
truck-bed enclosure that enables its users to make fast and easy conversion
between covered and open-bed operation. The Company plans to offer TracTop in
different sizes and designs to allow for the use of TracTop in many different
makes, models, and sizes of trucks. TracTop's key features include accessibility
to truck-bed, security and protection of cargo, ease of operation, and
attractiveness of design.
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The Company's TracTop product application is subject to a perpetual patent
agreement, as amended, dated as of August 10, 1988, that assigns the U.S. patent
and other rights related to the TracTop product application to the Company and
permits the Company to manufacture and sell the TracTop product. In connection
with the patent agreement, the Company must pay a royalty fee of $5.00 per unit
of TracTop product and an amount equal to $150,000 less all royalties paid under
the patent agreement prior to December 30, 1990, to certain independent third
parties. To date, the Company has no sales of its TracTop product and, as a
result, has paid no royalties pursuant to the patent agreement.
The Company intends to develop a distribution network for TracTop, either
directly or through strategic alliances in the United States. In the Mexican
market, the Company anticipates that the TracTop product will be manufactured
pursuant to an oral agreement with TopTrac S.A. de C.V., an entity incorporated
under the laws of the United Mexican States, which is a strategic partner of the
Company located in Mexico and controlled by Ernesto Zaragoza de Cima, a Vice
President and director of the Company.
Through the product development of TracTop, the NuPro Material has been
internally tested over a nine-year period under real world conditions. Although
the Company has internally performed the testing of the NuPro Material and
product applications of the NuPro Material in an effort to safeguard the
Company's proprietary knowledge, the Company's testing procedure was partly
created by an independent consultant from Ontario, Canada. As part of the
testing process, TracTop and its inherent production material have been
evaluated under severe cold, hot, and humid conditions. To date, the NuPro
Material has provided satisfactory results according to the Company, in its
TracTop application in road testing on a variety of different makes, models, and
sizes of trucks. The manufacturing process for the TracTop product application
for the NuPro Material has also been tested on a full production scale and has
achieved satisfactory results to date.
PALLETS. The first pallet prototype made with the NuPro Material (the
"NuPro Pallet") has been completed and internal testing has begun achieving
favorable results to date. Based on the results of testing to date, the Company
believes the established performance, weight, and price standards of the NuPro
Pallet makes it competitive in the industry. As testing continues, certain
engineering and design modifications may be made to enhance the performance of
the NuPro Pallet.
In August 1997, Canada Pallet Corp. of Campbellford, Canada ("Canada
Pallet"), contributed $25,000 towards the cost of designing and prototyping the
NuPro Pallet. Canada Pallet and the Company have agreed to suspend Canada
Pallet's arrangement to purchase a turnkey manufacturing line for the NuPro
Pallet until pallet production with the NuPro Material begins. In addition,
negotiations are currently in progress with several other parties for the
purchase of turnkey manufacturing lines with respect to the pallet product
application for the NuPro Material. The Company anticipates that it will begin
providing turnkey manufacturing lines and the NuPro Material to manufacturers
for the production of pallets with the NuPro Material by the fourth quarter of
fiscal year 2000.
DECK BOARDS. In February 1998, the Company entered into an oral agreement
with Erwin Industries Inc. ("Erwin Industries") of Atlanta, Georgia, for the
design, feasibility study, engineering, and prototyping of an innovative design
for a deck board at a cost of $30,000. The Company is negotiating a contract
with Erwin Industries relating to the manufacture of deck boards with the NuPro
Material, which the Company believes may consist of approximately $2,200,000 for
two turnkey manufacturing lines and up to $15,000,000 annually for the supply of
chemicals to such manufacturing lines operating at full production levels after
start-up phase-in based upon Erwin Industries manufacturing projections and
initial specifications of one 16-foot deck board per minute and a 24-hour per
day manufacturing schedule. Certain production scale manufacturing tests with a
full-size production mold must be completed prior to contract finalization.
Pricing of this production mold design, engineering, and manufacturing is being
completed for submission to Erwin Industries for approval and payment. There is
no assurance that the Company and Erwin Industries will be able to reach a final
agreement with respect to the manufacturing of the deck boards with NuPro
Materials on terms that will be favorable to the Company if at all. The Company
anticipates that it will be ready to provide turnkey manufacturing lines and the
NuPro Material to manufacturers for the production of deck boards with the NuPro
Material by the fourth quarter of fiscal year 2000.
NUPRO GOLF DRIVER. The Company entered into an oral agreement with
Strategic Machinery Solutions of Atlanta, Georgia, in June 1998 (the "Strategic
Machinery Agreement") for the prototyping of a golf club with the head to be
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manufactured with the NuPro Material. The Company has delivered first and second
prototypes to the developer and are currently undergoing field testing and
evaluation. Initial performance of the NuPro Material and the driver technology
appears to be meeting the requirements for this application. The Strategic
Machinery Agreement provides for the golf club to be manufactured by the Company
at its Mexico plant as a joint venture with Strategic Machinery Solutions, on
terms to be determined. In consideration for the Company's manufacture of the
golf club, the golf club which will be initially limited to golf drivers, will
be marketed under the name of the NuPro Driver.
PALLET TOP. The Company is negotiating an agreement with NRPP Inc. of
Atlanta, Georgia, a material handling sales and consulting organization, for the
development of a pallet top product application of the NuPro Material.
Consummation of an agreement with NRPP Inc. will not occur until the Company
provides samples of the Pallet Top produced with the NuPro Material, which the
Company does not expect to occur prior to the third quarter of fiscal 2000. To
date, initial design and market evaluation have been completed.
FOOD PROCESSING TRAYS. A project for the manufacture of food processing
trays has been prototyped and field tested. To date, the Company has been
satisfied with the performance of such food processing trays. Production molds
have been produced and product manufacturing of a small initial order for
Nautico S.A. de C.V. of Guaymas, Mexico, a shrimp and seafood processing plant,
has commenced.
CUSTOMERS; SALES AND MARKETING
The Company anticipates that its customers will be manufacturers of
different products developed with composite industrial materials. The Company
expects that products developed with the NuPro Material will be distributed by
such manufacturers to consumers. The Company plans to market the NuPro Material
and its turnkey manufacturing packages to both existing manufacturers with
established manufacturing operations and new manufacturers in need of a turnkey
approach to the production process.
To date, the Company has not incurred any expenses relating to the direct
marketing and advertising of the NuPro Material and the Company's turnkey
manufacturing packages. Instead, the Company's marketing strategy is to focus on
establishing customer relationships and strategic partnerships with
manufacturers at the outset of the Company's development of a specific product
application of the NuPro Material. In some cases, the Company will seek funding
from its strategic partner for the development process, which includes
feasibility studies, product design and engineering, prototype model and mold
fabrication, prototype manufacture, testing, and customer approval. After the
development process is complete, the Company will provide the turnkey
manufacturing process and proprietary chemicals for the manufacture of the
product application with the NuPro Material. In certain cases in which the
Company has received funding for the development costs of a particular product
application from a strategic partner, the Company may provide exclusive rights
to such partner for the use of the NuPro Material with respect to such
particular product application.
Although the Company has established several strategic relationships to
develop certain product applications with the NuPro Material, the Company has no
sales to date. The Company anticipates that all sales by the Company will be on
a negotiated price basis. The Company does not expect to experience seasonable
fluctuations in operations because sales of industrial materials are not
seasonal in nature.
SUPPLIERS
The production of the NuPro Material requires the supply of several primary
chemical compounds, primarily raw petro-chemical feedstocks, that the Company
believes are available from a number of suppliers in adequate supplies to meet
the Company's expected needs. The Company has identified sources from Mexico,
Venezuela, and Romania that it anticipates will be the primary suppliers for the
Company, however, the Company currently has no supply contracts for the purchase
of such chemical compounds. The Company will require high-grade chemicals with
specific properties for the NuPro Material. Accordingly, the Company expects to
monitor shipments of chemicals closely for compliance with the Company's
standards. Although the Company has had no difficulty in obtaining adequate
supplies of chemicals to date, the Company anticipates that its needs for such
chemicals will increase significantly when it begins to supply manufacturers
with the proprietary chemicals necessary for the Company's turnkey manufacturing
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packages. The Company's inability to obtain high-grade chemicals would have a
material adverse effect on the Company's business, financial condition, and
results of operations.
COMPETITION
The Company competes with other manufacturers of composite industrial
materials such as steel, plastics, fiberglass, and wood. While some of the
Company's competitors compete only on a regional basis due to the significant
relative impact of freight costs, the Company anticipates that it will initially
attempt to market and sell the NuPro Material to manufacturers throughout the
United States and Mexico. While many of the Company's competitors limit their
services to one or more of the following: (i) design and prototype; (ii)
producing machinery and tooling; or (iii) providing raw materials, the Company
expects to provide all such services. The Company believes that it will compete
with companies that serve existing manufacturers with established manufacturing
operations seeking a less expensive manufacturing process or higher quality
product, or new manufacturers in need of a turnkey manufacturing package for
production.
The Company's success requires its continued development of product
applications and its sales and marketing of the NuPro Material to manufacturers.
The Company's competitors in the steel, plastics, fiberglass, and wood
businesses, among others, are more established and have greater name recognition
and marketing resources than the Company. In addition, while the competing
industrial materials have achieved market acceptance, the NuPro Material is
still being commercialized and there is no assurance that it will be able to
achieve and maintain market acceptance. See "Management's Discussion and
Analysis or Plan of Operation - Factors that May Affect Future Operating Results
- - Uncertainty of Acceptance of the NuPro Material." The Company's competitors
also have greater financial resources than those available to the Company and
certain competitors spend substantially greater amounts for advertising and
promotion.
The Company anticipates that it will compete principally through product
quality and price. The Company believes that the NuPro Material's principal
competitive strengths are (a) its variety of formulations that allow it to
generate differing properties to address the different needs of varying product
applications, such as durability, strength, and maleability, and (b) its cold
molding production process that allows it to be manufactured in a more
inexpensive manner than the standard plastics manufacturing process.
REGULATION AND ENVIRONMENTAL CONSIDERATIONS
The Company is currently not subject to any environmental proceedings.
During the year ended November 30, 1999, the Company did not make any material
expenditures for environmental control facilities, nor does it currently
anticipate any such future expenditures. Actions by international, federal,
state, and local governments concerning environmental matters could result in
laws or regulations that could increase the cost of producing the NuPro Material
or otherwise adversely affect the demand for the Company's product applications.
At present, during the Company's early stage of development, environmental laws
and regulations do not have a material adverse effect upon the demand for the
products made with the NuPro Material. However, certain of the Company's
operations are subject to international, federal, state, and local environmental
laws and regulations that impose limitations on the discharge of pollutants into
the air and water and establish standards for the treatment, storage, and
disposal of solid and hazardous wastes. While the Company has not had to make
significant capital expenditures for environmental compliance, it cannot predict
with any certainty its future capital expenditure requirements relating to
environmental compliance because of continually changing compliance standards
and technology. The Company does not have insurance coverage for environmental
liabilities and does not anticipate obtaining such coverage in the future. See
"Management's Discussion and Analysis or Plan of Operation - Factors that May
Affect Future Operating Results - Environmental Liabilities."
The Company is also subject to the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA"), and similar state
laws which impose liability without regard to fault or to the legality of the
original action, on certain classes of persons (referred to as potentially
responsible parties or "PRPs") associated with the release or threat of release
of certain hazardous substances into the environment. The Company has not been
classified as a PRP under CERCLA. See "Management's Discussion and Analysis or
Plan of Operation -- Factors that May Affect Future Operating Results --
Environmental Liabilities."
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RESEARCH AND DEVELOPMENT
The Company maintains a continuing development program devoted to the NuPro
Material and its product applications. Development activities include designing
new and improved products and product applications, testing and enhancing
chemical formulations to generate differing properties in the NuPro Material and
prototype model and mold fabrications. The Company's development,
pre-production, and administration expenditures were approximately $649,479 and
$679,980 for fiscal years 1998 and 1999, respectively. The Company anticipates
that it will incur approximately $676,000 in research and development expenses
over the next 12 months, including $500,000 in additional development expenses
by the end of the second quarter of fiscal year 2000 on product testing and
capital expenditures for research and development equipment. The Company
completed its construction of new administrative and research and development
offices in Tucson, Arizona, consisting of approximately 12,000 square feet
during the first quarter of fiscal year 2000. See "Management's Discussion and
Analysis or Plan of Operation - Plan of Operation - Plant and Equipment."
INTELLECTUAL PROPERTY
The Company's success depends, in part, upon its intellectual property
rights relating to its production process and other operations. The Company
anticipates that it will rely on a combination of trade secret, nondisclosure,
and other contractual arrangements, confidentiality procedures, and patent,
copyright, and trademark laws, to protect its proprietary rights. The Company
has filed applications for the federal registration of its NuPro(TM) and NuPro
Innovations(TM) marks.
The Company uses proprietary technology for manufacturing the NuPro
Material. The Company believes that the non-patented proprietary NuPro Material
will be protected under trade secret, contractual, and other intellectual
property rights that do not afford the statutory exclusivity possible for
patented products and processes. To protect its proprietary technology, the
Company mixes the proprietary component of the NuPro Material in a secure
environment at one of its facilities. The production processes to manufacture
products from the NuPro Material are not proprietary; however, there is a
certain amount of "know-how" that the Company has gained which would hinder a
person taking the NuPro Material and introducing it into the conventional
manufacturing environment.
EMPLOYEES
As of November 30, 1999, the Company had nine full-time employees, of whom
four had executive or managerial responsibilities. None of the Company's
employees are represented by a union. The Company considers its relations with
its employees to be good.
The Company anticipates that its potential growth may place significant
demands on its managerial resources. The potential success of the Company's
business is substantially dependent on the services of its senior management
team and the services of Mr. Luba Veselinovic and Mrs. Elke Veselinovic. The
Company does not currently have employment agreements with any of its executive
officers or other key personnel. The loss of the services of its executive
officers or other key personnel could have a material adverse effect on the
Company. To address these risks, the Company must, among other things, continue
to attract, retain and motivate qualified personnel. While the Company has been
successful in attracting qualified personnel to date, there can be no assurance
that the Company will be successful in attracting and retaining qualified
personnel in the future.
INSURANCE
The Company maintains general liability, automobile liability, and umbrella
coverage insurance in amounts that it believes are customary for a company of
its size engaged in a comparable industry. The Company is in the process of
obtaining worker's compensation and directors and officers liability insurance.
There is no assurance that the Company will not be subject to claims in the
future that its insurance may not cover or as to which its coverage limits may
be inadequate.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
EXCEPT FOR HISTORICAL INFORMATION CONTAINED HEREIN, THE FOLLOWING
DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. SUCH FORWARD-LOOKING STATEMENTS INCLUDE, BUT ARE NOT LIMITED TO,
STATEMENTS REGARDING FUTURE EVENTS AND THE COMPANY'S PLANS AND EXPECTATIONS. THE
COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED HEREIN.
READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THE FORWARD-LOOKING
STATEMENTS THAT RELATE TO THE COMPANY'S FUTURE PERFORMANCE. SEE "SPECIAL NOTE ON
FORWARD-LOOKING STATEMENTS."
PLAN OF OPERATION
The Company has not had any revenues from operations since its inception.
The Company believes that it has sufficient funds to satisfy its cash
requirements for the next 12 months as a result of its offering of securities in
units that included shares of Common Stock, unsecured convertible debentures,
and warrants pursuant to Regulation S promulgated under the Securities Act of
1933, as amended, in July 1999 (the "Regulation S Offering"). The Company
received $6,000,000 in proceeds from the Regulations S Offering. See "Recent
Sales Of Unregistered Securities." The Company currently has no other internal
or external sources of liquidity, but anticipates that it may raise additional
funds by way of equity or debt financing in the third or fourth quarter of
fiscal year 2000. There is no assurance that the Company will be able to raise
any additional funds through equity or debt financings on terms that are
favorable to the Company if at all.
RESEARCH AND DEVELOPMENT
The Company anticipates that it will continue research and development to
enhance the technology of the NuPro Material and existing product applications
and create additional product applications for the NuPro Material over the next
12 months. The Company anticipates that such research and development expenses
will be approximately $676,000. The Company expects that the source of funds for
such expenses will be the proceeds of its Regulation S Offering that closed in
July 1999. See "Recent Sales of Unregistered Securities." Of the $676,000 in
anticipated research and development expenses, (i) approximately $500,000 will
be attributable to product testing and capital expenditures for testing
equipment, which the Company expects to incur by the end of the second quarter
of fiscal year 2000, (ii) approximately $42,000 is expected to be spent on
personnel and labor expenses relating to the Company's research and development
activities, and (iii) approximately $134,000 is expected to be spent on supplies
and general overhead expenses relating to the Company's research and development
activities. The Company currently anticipates that it will begin production of
pallets and deck boards with the NuPro Material by the fourth quarter of fiscal
year 2000. See "Factors that May Affect Future Operating Results."
PLANT AND EQUIPMENT
The Company completed the construction of its new administrative and
research and development offices in Tucson, Arizona, consisting of approximately
12,000 square feet in the first quarter of fiscal year 2000 at a cost of
approximately $1,200,000. The purpose of the Company's Tucson offices is to
provide research and development facilities to enhance the NuPro Material and
existing product applications and to create new product applications. The
Company's Tucson office will also serve as the Company's corporate headquarters
and include, without limitation, the warehouse and display of finished products
made with the NuPro Material and the training facilities of the Company's
employees and future customers. The Company is currently in the process of
constructing two manufacturing facilities in Guaymas, Sonora, Mexico, consisting
of approximately 186,000 square feet. The Company anticipates that the
construction of the first phase of its manufacturing facilities, which includes
approximately 32,000 square feet, will be completed by the end of the second
quarter of fiscal year 2000 and will cost approximately $1,235,600 . The Company
believes that it has reserved sufficient funds from the proceeds of its
Regulation S Offering that closed in July 1999 to complete the construction of
the first phase of its manufacturing facilities . The Company considers its
current and planned facilities to be sufficient for its current and anticipated
operations.
The Company expects to purchase and install its production equipment during
the second and third quarters of fiscal year 2000. Such production equipment
will be for initial set up of production and testing of product applications for
the NuPro Material. Such testing will focus primarily on the durability,
elasticity and reliability of the NuPro Material in various product applications
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under varying conditions. The Company anticipates that it will incur costs of
approximately $1,815,000, in connection with such purchase and installation. The
Company believes that it has reserved sufficient funds from the proceeds of its
Regulation S Offering that closed in July 1999 to complete the purchase and
installation of such production equipment.
EMPLOYEES
The Company anticipates that it will retain approximately 25 additional
employees during fiscal year 2000, which the Company believes will result in
approximately $625,000 of additional employee compensation expense. The Company
believes that such additional employees will primarily perform engineering,
management, production, and administrative functions for the Company.
YEAR 2000 COMPLIANCE
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a two
digit calendar year is commonly referred to as the "Year 2000" issue. As a
result of the Year 2000 issue, such systems may be unable to accurately process
some date-based information.
Prior to December 31, 1999, the Company had:
investigated new production equipment to be purchased to determine
which equipment is Year 2000 compliant and would be suitable for the
Company;
assessed the Company's limited number of personal computers and
computer software to determine whether the Company has any Year 2000
compliance issues with respect to its limited internal operating
systems; and
examined the extent to which the Company depends on third parties
whose systems may not be Year 2000 compliant.
However, there may be a number of unforeseen circumstances or unknown factors
that the Company has not yet identified or anticipated regarding the Year 2000
compliance issue, and such circumstances or factors could have a material
adverse effect on the Company's business, financial condition, and results of
operations. Because the Company is currently at a developmental stage, the most
reasonably likely worst case scenario would involve an interruption in the
Company's telephone services, a malfunction of the limited number of personal
computers used by the Company or disruption or cancellation of services being
provided to the Company by third parties that could delay the Company's
commencement of manufacturing operations. For example, if Year 2000 Compliance
issues cause the builders of the Company's manufacturing facilities in Guaymas,
Sonora, Mexico or the Company's new administrative and research and development
offices in Tucson, Arizona to suspend building activities, the Company's plan of
operations may be delayed and thereby allow competitors and other companies
developing similar industrial materials a greater opportunity to gain market
share prior to the Company's entry into the marketplace. Such a delay could have
a material adverse effect on the Company's business, financial condition, and
results of operations. The Company does not have Year 2000 contingency plans in
place and does not intend to develop such plans.
As of January 1, 2000, after the rollover of time, all of the Company's
internal equipment and personal computers and computer software is functioning
properly. In addition, the Company has yet to be notified by the builders of its
new manufacturing facilities or administrative and research and development
offices or any other third parties upon which the Company depends that such
parties have been materially adversely effected by the Year 2000 date change.
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
This Form 10-SB contains "forward-looking statements" relating to, without
limitation, future economic performance, plans, and objectives of the Company
for future operations and projections of revenue and other financial items, that
are based on the beliefs or assumptions made by and information currently
available to the Company. The words "expect," "estimate," "anticipate,"
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"believe," "intend," "plan," and similar expressions and variations thereof are
intended to identify forward-looking statements. The cautionary statements in
this "Factors that May Affect Future Operating Results" section and elsewhere in
this Form 10-SB identify important factors with respect to such forward-looking
statements, including risks and uncertainties, that could cause actual results
to differ materially from those expressed in or implied by such forward-looking
statements.
NO SALES
The Company is attempting to commercialize a new technology, an industrial
composite material called NuPro, and has no invoiced sales to date. Although the
Company has received funding from potential customers towards the development
and prototyping of a deck board product application, a shipping pallet product
application, and a golf driver product application and has completed prototyping
of a food processing tray product application, the Company has not executed any
product orders to date. The Company's results of operations may be unpredictable
from quarter to quarter as a result of numerous factors, including fluctuations
in the development and design of the Company's current and future product
applications for the NuPro Material, market acceptance of the Company's current
or future product applications for the NuPro Material, the timing of orders and
shipments of the NuPro Material, or the introduction or the announcement of
competitive composite materials or products. There can be no assurance that the
Company will be able to achieve significant revenue from sales of products in
the future.
LIMITED OPERATING HISTORY
The Company is a development stage company that was incorporated in the
Canadian Province of Ontario on November 27, 1996, as TracTop Distributing Inc.
and domesticated in the state of Delaware in the United States under the name
"NuPro Innovations, Inc." on August 7, 1997. As a result, the Company has a
short operating history to review in evaluating the Company's business. The
Company has limited financial and operating data upon which the Company's
business and prospects may be evaluated. The Company has not generated operating
revenue to date.
LACK OF PRODUCT DIVERSIFICATION
The Company anticipates that all of its sales will be derived from the
NuPro Material. Although the Company has developed multiple product applications
for the NuPro Material, and intends to continue such development, the Company's
product line will be based exclusively on the composite formula for the NuPro
Material. The Company has obtained the exclusive right to use and develop the
technology relating to the NuPro Material and to market and sell the NuPro
Material pursuant to the Krida License. If the Company should experience any
problems, real or perceived, with product quality or acceptance of the NuPro
Material, or loses all or a portion of its exclusive right to use, develop, and
market the NuPro Material under the Krida License, the Company's lack of product
diversification would have a material adverse effect of the Company's business,
financial condition, and results of operations.
DEPENDENCE ON SINGLE MANUFACTURING FACILITY
The Company anticipates that the key proprietary chemicals that comprise
the NuPro Material will be mixed solely at one of the Company's facilities. Any
interruption in the operations or decrease in the capacity of this facility,
whether because of equipment failure, natural disaster, or otherwise, may limit
the Company's ability to meet future customer demand for the NuPro Material and
would have a material adverse effect on the Company's business, financial
condition, and results of operations.
RELIANCE ON SUPPLY OF RAW MATERIALS
The NuPro Material is a polyester/epoxy hybrid that requires a substantial
amount of certain chemical constituents, primarily raw petro-chemical
feedstocks. Although the Company believes that such chemical components are
available from a number of suppliers, the Company anticipates that it will
purchase such chemical constituents from a relatively small number of suppliers
located in Mexico, Venezuela, and Romania. The Company's ability to obtain
adequate supplies of chemical compounds for the NuPro Material depends on its
success in entering into long-term arrangements with suppliers and managing the
collection of supplies from geographically dispersed suppliers. The termination
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or interruption of the Company's significant supplier relationships could
subject the Company to the risks that it would be unable to purchase sufficient
quantities of raw materials to meet its production requirements or would have to
pay higher prices for replacement supplies. The termination of significant
sources of raw materials or payment of higher prices for raw materials could
have a material adverse effect on the Company's business, financial condition,
and results of operations. See "Description of Business - Suppliers."
MANAGEMENT OF GROWTH
The Company recently has experienced growth in product application
development and prototyping and expects to begin production of pallets and deck
boards with the NuPro Material by the fourth quarter of fiscal year 2000 and to
commence production on a small initial order of its food processing tray product
application in the near future. This growth in the Company's business has
resulted in an increase in the responsibilities of the Company's management and
is expected to place added pressures on the Company's operating and financial
systems. The Company's ability to assimilate new personnel will be critical to
its performance, and there can be no assurance that the management and systems
currently in place will be adequate if its operations continue to expand or that
the Company will be able to implement additional systems successfully and in a
timely manner as required.
RISKS IN DEVELOPING AND COMMERCIALIZING THE NUPRO MATERIAL TECHNOLOGY AND
PRODUCT APPLICATIONS
The Company has developed a number of product applications for the NuPro
Material. The commercialization and sale of these new product applications are
relatively new ventures with high costs, expenses, difficulties, and delays
associated with commercialization of new products. Such new product application
development necessitates the development of new production processes for cost
effective manufacture in commercial quantities. The Company has developed a
distribution plan for each product application, either through an internal sales
and marketing organization or through establishing relationships with companies
with existing distribution networks. This development process typically spans
over a period of years. Although the Company in the last few years has expended
substantial sums on accomplishing development of new product applications which
has taxed the Company's resources, significant additional funds must be expended
for the new product and process development and marketing activities to
continue. There is no assurance that the Company will be able to raise such
funds on terms favorable to the Company, if at all.
Although the Company may develop applications for the NuPro Material that
have been previously created with steel, alloys, wood, plastic, fiberglass,
plastic foam, or other materials, the market for products created with the NuPro
Material is in an early stage of development. Because this market is only
beginning to develop, it is difficult to assess the size of this market and the
product features and prices, the optimal distribution and manufacture strategy,
and the competitive environment that will develop in this market.
UNCERTAINTY OF ACCEPTANCE OF THE NUPRO MATERIAL
The NuPro Material and its applications are still being developed and
commercialized. There can be no assurance that the Company will be able to
continue to develop applications for the NuPro Material or that any product
applications for the NuPro Material will achieve market acceptance. The failure
of the product applications of the NuPro Material to achieve market acceptance,
or maintain such acceptance, if achieved, could have a material adverse effect
on the Company's business, financial condition, and results of operations.
DEPENDENCE ON NON-PATENTED PROPRIETARY RIGHTS AND KNOW-HOW
The Company's success depends, in part, upon its intellectual property
rights relating to its production process and other operations. The Company
anticipates that it will rely on a combination of trade secret, nondisclosure,
and other contractual arrangements, confidentiality procedures, and patent,
copyright, and trademark laws, to protect its proprietary rights. The Company
has filed applications for the federal registration of its NuPro(TM) and NuPro
Innovations(TM) marks.
The Company uses non-patented proprietary technology for manufacturing the
NuPro Material. The Company believes that the non-patented proprietary NuPro
Material will be protected under trade secret, contractual, and other
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intellectual property rights that do not afford the statutory exclusivity
possible for patented products and processes. To protect its proprietary
technology, the Company mixes the proprietary component of the NuPro Material in
a secure environment at one of its facilities. The production processes to
manufacture products from the NuPro Material are not proprietary; however, there
is a certain amount of "know-how" that the Company has gained which would hinder
a person taking the NuPro Material and introducing it into the conventional
manufacturing environment.
There can be no assurance that the steps taken by the Company with respect
to its proprietary technology and technical know-how will be adequate to deter
misappropriation of its proprietary information or that the Company will be able
to detect unauthorized use and take appropriate steps to enforce its
intellectual property rights. The Company's proprietary information may also
become known to or independently developed by, competitors, or the Company's
non-patented proprietary rights may be challenged. Such events could have a
material adverse effect on the Company's business, financial condition, and
results of operations.
COMPETITION
Competition in the markets for industrial materials, which includes, among
other things, steel, plastics, wood, and fiberglass, is largely based upon
quality and price. Many of the Company's competitors have greater financial
resources than those available to the Company and certain competitors spend
substantially greater amounts for advertising and promotion. In addition, many
of the Company's competitors are more established and have greater name
recognition.
INTRODUCTION OF NEW PRODUCT APPLICATIONS
The Company's success will primarily depend upon its ability to introduce
new product applications that achieve market acceptance. To meet these
challenges, the Company invests and expects to continue to invest in the
development of new product applications and production processes. There can be
no assurance that the Company will be able to respond effectively to the needs
of emerging markets or that markets will develop for any product applications
introduced or under development by the Company.
ENVIRONMENTAL LIABILITIES
Actions by Federal, state, and local governments concerning environmental
matters could result in environmental laws or regulations that could increase
the cost of producing the NuPro Material and the product applications developed
by the Company, or otherwise adversely affect the demand for the NuPro Material.
At present, during the Company's early stage of development, environmental laws
and regulations do not have a material adverse effect upon the demand for the
NuPro Material. In addition, certain of the Company's operations are subject to
Federal, state, and local environmental laws and regulations that impose
limitations on the discharge of pollutants into the air and water and establish
standards for the treatment, storage, and disposal of solid and hazardous
wastes. While the Company has not had to make significant capital expenditures
for environmental compliance, the Company cannot predict with any certainty its
future capital expenditure requirements relating to environmental compliance
because of continually changing compliance standards and technology. The Company
does not have insurance coverage for environmental liabilities and does not
anticipate obtaining such coverage in the future. See "Business Regulation and
Environmental Considerations."
The Company is also subject to the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA"), and similar state
laws which impose liability without regard to fault or to the legality of the
original action, on certain classes of persons (referred to as potentially
responsible parties or "PRPs") associated with the release or threat of release
of certain hazardous substances into the environment. Generally, liability of
PRPs to the government under CERCLA is joint and several. Financial
responsibility for the remediation of contaminated property or for natural
resources damage can extend to properties owned by third parties. The Company
believes that it is in substantial compliance with all environmental laws
applicable to its business. There can be no assurance that the Company will
respond effectively to changes in CERCLA and similar state laws, if necessary,
relating to the release or threat of release of certain hazardous substances
into the environment.
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PRODUCT LIABILITY CLAIMS
The manufacture of the NuPro Material could expose the Company to the risk
of product liability claims. While the Company has had no material liability
with respect to product liability claims to date, the Company is still in its
development stages. After the Company begins production and achieves sales,
product liability claims could have a material adverse effect on the Company's
business, financial condition, and results of operations. While the Company
maintains product liability insurance against the possibility of defective
product claims there can be no assurance that such insurance would be sufficient
to protect the Company against liability from such claims.
DEPENDENCE ON KEY PERSONNEL
The activities of the Company, including exploitation and development of
innovative polymer composite formulations, and, as a result, the Company's
future success, will depend to a significant extent on its senior management and
other key employees. Certain officers of the Company have engaged in related
activities in Germany, Canada, and the United States for approximately 35 years.
The Company's Chief Executive Officer and President, Luba Veselinovic, is not an
employee of the Company but is serving in such capacities pursuant to a
Secondment Agreement between the Company and Krida Overseas, which is controlled
by Mr. Veselinovic and employs Mr. Veselinovic. The terms of the Secondment
Agreement provide for a consulting relationship in which the Company pays Krida
Overseas to receive the services of certain employees of Krida Overseas. The
Secondment Agreement does not create an employment relationship between the
Company and the Krida Overseas employees, including Mr. Veselinovic, but
establishes terms under which such employees of Krida Overseas provide services
for the Company. As the Company's President and Chief Executive Officer, Mr.
Veselinovic will be primarily responsible for the day-to-day operations of the
Company and serve the Company in a policy-making capacity. Any interruption of
or default by the Company under the Secondment Agreement may result in the
Company losing the services of Mr. Veselinovic, which could have a material
adverse effect on the Company's business, financial condition, and results of
operations. See "Certain Relationships and Related Transactions."
The Company also believes that its future success will depend in a large
part on its ability to attract and retain key employees. Competition for such
personnel is intense, and there can be no assurance that the Company will be
successful in attracting and retaining such personnel. The Company's inability
to attract and retain additional key employees or the loss of one or more of its
current key employees could have a material adverse effect on the Company's
business, financial condition, and results of operations.
CONFLICTS RELATING TO THE MANAGEMENT OF THE COMPANY
Effective December 1, 1998, the Company acquired (the "TrucTech Asset
Acquisition") substantially all of the assets and liabilities of TrucTech, Inc.,
a Georgia corporation ("TrucTech"), pursuant to an Asset Purchase Agreement
between the Company and TrucTech (the "TrucTech Asset Purchase Agreement"). The
TrucTech Asset Acquisition was approved by the Board of Directors and
stockholders of TrucTech and by the Board of Directors of the Company. The total
consideration for the TrucTech Asset Acquisition was US $5,500,000, which was
satisfied by the issuance of 7,333,333 shares of Common Stock (the "Shares"),
valued at US $0.75 per share. Certain directors, officers, employees, and
stockholders of the Company were also directors, officers, employees, and
stockholders of TrucTech. As a result, certain conflicts of interest existed
with respect to the TrucTech Asset Acquisition, and the subsequent distribution
of the Shares to the TrucTech Stockholders pursuant to a proposed Plan of
Voluntary Dissolution of TrucTech. See "Certain Relationships and Related
Transactions."
Krida Overseas which is controlled by Luba Veselinovic, President and Chief
Executive Officer of the Company, owns the technology relating to the NuPro
Material and licenses to the Company the right to use and market the NuPro
Material in its operations pursuant to the Krida License. Any interruption of or
default by the Company under the license agreement may result in the Company
losing all or a portion of its exclusive right to use, develop, and market the
NuPro Material, which would have a material adverse effect on the Company's
business, financial condition, and results of operations. As an officer of the
Company, Mr. Veselinovic has fiduciary obligations to the Company's
stockholders, which may conflict with his own interests as an affiliate of the
owner of the NuPro Material. See "Certain Relationships and Related
Transactions."
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POLITICAL FACTORS
Certain critical functions and operations of the Company are carried out in
Mexico in accordance with the North American Free Trade Agreement ("NAFTA"). Any
political unrest in Mexico could have a material adverse effect on the Company
and its business activities. Direct foreign investment is often subject to
specific local political risks, including but not limited to, change of laws,
lack of enforcement or discriminatory enforcement of laws, acts of violence, or
other unforeseen events. Occurrence of any one or more of these events could
have a material adverse effect on the Company's business, financial condition,
and results of operations.
ECONOMIC FACTORS
Direct foreign investment in other countries involves potential economic
factors such as currency devaluation, inflation, interest rate fluctuations,
exchange controls, restrictions on currency repatriation, unidentified adverse
changes in internal or international policies, and changes in world economic
conditions. Occurrence of any one or more of these or similar factors may have a
material adverse effect on the Company's business, financial condition, and
results of operations.
CURRENCY FLUCTUATION
The Company has significant operations located in Mexico. Currently, the
Mexican pesos may be readily exchanged for U.S. currency in Mexican banks, and
the exchange rate relating to Mexican pesos has been generally stable for the
past five years in comparison to the exchange rate fluctuations relating to the
currencies of certain other countries. The current exchange rate for Mexican
pesos could change at any time by the direction of the government or economic
developments and such changes could have a material adverse effect on the
Company's business, financial condition, and results of operations.
The Company anticipates that it will acquire a substantial portion of its
chemical supplies from sources in Mexico, Venezuela, and Romania. To the extent
the exchange rate for currencies in any of such countries fluctuates
significantly, such fluctuations could make the Company's chemical supplies more
expensive to acquire and, as a result, could have a material adverse effect on
the Company's business, financial condition, and results of operations.
LABOR MATTERS
The operating activities that the Company is establishing in Mexico require
the engagement and expertise of local labor. Various issues with employees could
be raised, such as wages, working conditions, security, housing, hours of work,
advancement, and medical plans. Any difficulties in relationships with the
employees of the Company could have a material adverse effect on the Company's
business, financial condition, and results of operations.
PROJECTIONS
The Company has prepared internal projections to be used solely by the
Company's management to prepare the Company's business plan and budget. Such
projections are speculative for the following reasons, among others: comparative
historical results do not exist; the Company is at an early stage of development
of its operations and business plans; and the Company has not confirmed the
feasibility of product and technology applications. Projections are only
examples of what could occur if the underlying assumptions actually occur.
Because of the various risks involved in the proposed activities, the Company's
projections could prove to be inaccurate in material respects for any operating
activities, which could have a material adverse effect on the Company's
business, financial condition, and results of operations.
POSSIBLE ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS.
The Company's Certificate of Incorporation authorizes the Board of
Directors to issue, without stockholder approval, one or more series of
preferred stock having such preferences, powers and relative, participating,
optional and other rights (including preferences over the Common Stock
respecting dividends and distributions and voting rights) as the Board of
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Directors may determine. The issuance of this "blank-check" preferred stock
could render more difficult or discourage an attempt to obtain control of the
Company by means of a tender offer, merger, proxy contest, or otherwise.
ISSUANCE OF ADDITIONAL SECURITIES; DILUTIVE EFFECT
The Company will have authority to offer shares of preferred stock,
additional shares of Common Stock or other equity or debt securities for cash,
in exchange for property or otherwise. Stockholders will have no preemptive
right to acquire any such securities, and any such issuance of equity securities
could result in dilution of an existing stockholder's investment in the Company.
In addition, the Board of Directors has the authority to issue shares of
preferred stock having preferences and other rights superior to Common Stock.
LIMITED MARKET FOR COMMON STOCK
The Company's Common Stock is covered by Securities and Exchange Commission
rules that impose additional sales practice requirements on broker-dealers who
sell securities priced at under $5.00 (so-called "penny stocks") to persons
other than established customers and accredited investors (generally
institutions with assets in excess of $5 million or individuals with net worth
in excess of $1 million or annual income exceeding $200,000 or $300,000 jointly
with their spouse). For transactions covered by such rules, the broker-dealer
must make a special suitability determination for the purchaser and receive the
purchaser's written agreement to the transaction prior to the sale. Moreover,
such rules also require that brokers engaged in secondary sales of penny stocks
provide customers written disclosure documents, monthly statements of the market
value of penny stocks, disclosure of the bid and ask prices, disclosure of the
compensation to the broker-dealer, and disclosure of the salesperson working for
the broker-dealer. Consequently, the rules may affect the ability of
broker-dealers to sell the Company's Common Stock and also may affect the
ability of persons receiving such Common Stock to sell their Common Stock in the
secondary market. These trading limitations tend to reduce broker-dealer and
investor interest in "penny stocks" and could operate to inhibit the ability of
the Company's Common Stock to reach a $3 per share trading price that would make
it eligible for quotation on NASDAQ, even if the Company otherwise qualifies for
quotation on NASDAQ.
ITEM 3. DESCRIPTION OF PROPERTY.
The Company's principal administrative and research and development offices
are located in approximately 12,000 square feet of space in Tucson, Arizona. The
construction of the Company's principal administrative and research and
development offices was completed during the first quarter of fiscal year 2000
at an approximate cost of $1,200,000. The Company also leases prototyping, tool
modeling, and administrative facilities in Guaymas, Sonora, Mexico consisting of
2,482 square feet from Ernesto Zaragoza de Cima, a director and Vice-President
of the Company, at a rate of $1,015.50 per month. See "Certain Relationships and
Related Transactions." The Company is in the process of constructing two
manufacturing facilities in Guaymas, Sonora, Mexico, consisting of approximately
186,000 square feet . The Company anticipates that the land and construction
costs of the first phase of the manufacturing facilities will be approximately
$1,235,600 . The Company anticipates that the construction of the first phase of
its manufacturing facilities, which includes approximately 32,000 square feet,
will be completed by the end of the second quarter of fiscal year 2000. The
Company considers its current and planned facilities to be sufficient for its
current and anticipated operations.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth the numbers of shares and percentage of all
shares of the Company's Common Stock outstanding as of February 7, 2000 held by
(i) any person known to the Company to be the beneficial owner of 5% or more of
the Company's outstanding Common Stock, (ii) each director and executive officer
of the Company, and (iii) all directors and executive officers as a group.
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NAME AND ADDRESS AMOUNT & NATURE OF
OF BENEFICIAL OWNER (1) BENEFICIAL OWNER PERCENT OF CLASS (2)
- ----------------------- ---------------- --------------------
5% STOCKHOLDERS
Bavaria Hotel Holding International 2,325,000(4) 17.36%
GmbH(3)
DIRECTORS AND EXECUTIVE OFFICERS
Luba Veselinovic 3,240,183(5) 25.68%
Ernesto Zaragoza de Cima 108,948(6) *
Lawrence J. McEvoy Jr. 126,805(7) 1.00%
Elke Veselinovic 3,240,183(8) 25.68%
Charles H. Green(9) 18,000(10) *
Reiner Becker(11) 525,000(12) 4.12%
All Executive Officers and Directors
as a Group (6 Persons) 4,018,936(13) 31.28%
- ----------
* Represents beneficial ownership of less than 1%.
(1) Except as otherwise indicated, each holder may be reached through the
Company at 3296 East Hemisphere Loop, Tucson, Arizona 85706-5013.
(2) The percentages shown are calculated based upon 12,617,217 shares of Common
Stock outstanding on February 7, 2000. The numbers and percentages shown
include the shares of Common Stock actually owned as of February 7, 2000,
and the shares of Common Stock that the identified person or group had the
right to acquire within 60 days of such date. In calculating the percentage
of ownership, all shares of Common Stock that the identified person or
group had the right to acquire within 60 days of February 7, 2000, upon the
exercise of options or warrants are deemed to be outstanding for the
purpose of computing the percentage of the shares of Common Stock owned by
such person or group, but are not deemed to be outstanding for the purpose
of computing the percentage of the shares of Common Stock owned by any
other person.
(3) Bavaria Hotel Holding International GmbH is a wholly owned subsidiary of
Blue Lion GmbH & Co. Holding KG, which is wholly owned by Stefan
Schoenghuber, a German resident. Mr. Schoenghuber has sole investment power
with respect to the shares held in the name of Bavaria Hotel Holding
International GmbH.
(4) Includes 775,000 shares of Common Stock subject to warrants exercisable
within 60 days of February 7, 2000.
(5) Consists of 2,784,213 shares owned by Krida Overseas, which is controlled
by Mr. Veselinovic, and 415,970 shares owned by the Veselinovic Children's
Trust, which is controlled by Mr. Veselinovic's spouse, Elke Veselinovic.
Includes 15,000 shares of Common Stock subject to options exercisable by
Mr. Veselinovic within 60 days of February 7, 2000. Includes 25,000 shares
of Common Stock subject to options exercisable by Mrs. Veselinovic within
60 days of February 7, 2000.
(6) Includes 25,000 shares of Common Stock subject to options exercisable
within 60 days of February 7, 2000.
(7) Consists of 4,286 shares owned by the McEvoy Family Trust and 97,519 shares
owned directly by Mr. McEvoy. Includes 25,000 shares of Common Stock
subject to options exercisable within 60 days of February 7, 2000.
(8) Consists of 415,970 shares owned by the Veselinovic Children's Trust, and
2,784,213 shares owned by Krida Overseas, which is controlled by Mrs.
Veselinovic's spouse, Luba Veselinovic. Includes 25,000 shares of Common
Stock subject to options exercisable by Mrs. Veselinovic within 60 days of
February 7, 2000. Includes 15,000 shares of Common Stock subject to options
exercisable by Mr. Veselinovic within 60 days of February 7, 2000.
(9) Mr. Green was appointed a director of the Company on January 20, 2000.
(10) Includes 15,000 shares of Common Stock subject to options exercisable
within 60 days of February 7, 2000.
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(11) Mr. Becker was appointed a director of the Company on January 20, 2000.
(12) Consists of 25,000 shares owned by Mr. Becker's spouse, Diane Becker.
Includes 125,000 shares of Common Stock subject to warrants exercisable
within 60 days of February 7, 2000.
(13) For purposes of determining the total number of shares of Common Stock
beneficially owned by all executive officers and Directors as a group, the
shares reported as beneficially owned by Luba Veselinovic and Elke
Veselinovic have been included once.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
The following table sets forth information concerning the Company's
executive officers and directors. Except as otherwise noted, none of the
executive officers are directors or officers of any publicly owned corporation
or entity.
NAME AGE POSITION
- ---- --- --------
Luba Veselinovic 61 President and Chief Executive Officer
Ernesto Zaragoza de Cima 45 Vice President, Director
Lawrence J. McEvoy Jr., JD 67 Secretary, Director
Elke Veselinovic 58 Treasurer, Director
Charles H. Green 42 Director
Reiner Becker 38 Director
The term of office of each director of the Company is for one year and
until his or her successor is elected at the annual stockholders' meeting and is
qualified, subject to removal by the stockholders. All officers serve at the
discretion of the Company's Board of Directors and until his or her successor is
elected at the annual meeting of the Board of Directors and is qualified.
LUBA VESELINOVIC was elected President and Chief Executive Officer of the
Company effective June 1, 1999. Mr. Veselinovic has served as a member of the
Advisory Council since June 1998 and serves as President and Chief Executive
Officer of the Company pursuant to a Secondment Agreement between the Company
and Krida Overseas. Mr. Veselinovic devotes 100% of his professional time to the
business affairs of the Company. Mr. Veselinovic has been employed by Krida
Overseas, which is primarily a stock holding company, as a consultant since 1989
and has provided consultant services to both the Company and the Company's
predecessor, TracTop Distributing, Inc. Mr. Veselinovic has been engaged by the
Company since June 1998 as Chairman of the Advisory Council and, through NAFTA
Technology, Trading and Consulting, was retained in the position of Director of
Technology and Manufacturing for the Company from June 1998 to June 1999. He was
previously retained in a similar position by TrucTech. NAFTA Technology, Trading
and Consulting is owned by Mr. Veselinovic's spouse, Elke Veselinovic, who is
the Treasurer and a director of the Company.
From 1972 to 1988, Mr. Veselinovic founded and was the President of
Plastics Group Technologies Inc., which was an OEM integrated manufacturer
specializing in the automotive and computer industries with approximately 750
employees. Mr. Veselinovic has developed several technologies including the
NuPro Material. Mr. Veselinovic received his Bachelor's Degree in
Electro-Chemistry from the College for Electro-Chemistry in Belgrade, Yugoslavia
in 1959.
ERNESTO ZARAGOZA DE CIMA has served as a director of the Company since June
1998 and was elected Vice President of the Company effective June 1, 1999. Mr.
Zaragoza devotes approximately 10% of his professional time to the business
affairs of the Company. Mr. Zaragoza de Cima has also served as the President of
NuPro Innovation de Mexico, S.A. de C.V., a majority owned subsidiary of the
Company, since 1998. From 1983 to present, Mr. Zaragoza de Cima has also served
as the president of a number of family-owned businesses in the State of Sonora,
Mexico. Such businesses include real estate entities such as Inversiones de
Guaymas, S.A. de C.V., Arrendadora Comercial de Sonora, Zarci, S.A. de C.V., and
Kori, S.A. de C.V., a construction entity named Hulzar, S.A. de C.V., a bakery
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<PAGE>
store entity named Pan Rico, S.A. de C.V., a ranching operation named Rancho La
Noria, a hunting corporation called Club Solimar, and TopTrac, S.A. de C.V. Mr.
Zaragoza received a Bachelor's Degree of Business Administration from Instituto
Tecnologico de Estudios Superiores de Monterrey in Mexico in 1977.
LAWRENCE MCEVOY JR. has served as Secretary and a director of the Company
since June 1998. Mr. McEvoy devotes approximately 10% of his professional time
to the business affairs of the Company. Mr. McEvoy has practiced law in private
practice as a member of the Georgia bar with the law firm of Bynum, Lewis &
McEvoy from 1997 to present and the law firm of McEvoy & Broadbear from 1987 to
1997. Mr. McEvoy received his Juris Doctorate degree from the University of
Virginia in 1965.
ELKE VESELINOVIC has served as Treasurer and a director of the Company
since June 1998. Mrs. Veselinovic devotes 100% of her professional time to the
business affairs of the Company. From 1989 to 1998, Mrs. Veselinovic served as
President of TrucTech, Inc., a Georgia corporation that was a research and
development company for the NuPro Material. Mrs. Veselinovic is Luba
Veselinovic's wife. Mrs. Veselinovic received a Degree from the Business College
in Bad Segeberg, Germany in 1959.
CHARLES H. GREEN has served as a director of the Company since January
2000. Prior to becoming a director, Mr. Green served on the Company's Advisory
Council since June 1998. Mr. Green has served as Vice President of the SBA
Division of U.S. Bank since the dissolution of Mr. Green's prior employer,
Southeast Capital Associates LLC, in 1998. From 1992 to 1998, Mr. Green served
as Managing Member of Southeast Capital Associates LLC, an Atlanta-based
commercial banking firm that assisted in financing small business, which
dissolved in 1998. Mr. Green received his Bachelor's of Science in Finance from
the University of Alabama in 1979.
REINER BECKER has served as a director of the Company since January 2000.
Mr. Becker has been a self-employed management consultant since 1993. Mr. Becker
received his Bachelor's Degree in Business Economics from the University of
Saarland in Saarbrueken, Germany.
ADVISORY COUNCIL
The Company formed an advisory council (the "Advisory Council") on March 1,
1998, which serves as a group that provides advisory services to the Company and
the Company's Board of Directors. The Company believes that members of the
Advisory Council represent a diverse range of professional, management,
technical, and geographic perspectives. The Advisory Council meets twice a year
and at various other times as necessary. Each member of the Advisory Council is
paid a fixed fee of $500 per quarter and receives $1000 plus out-of-pocket
travel expenses for each Advisory Council meeting attended. In addition, during
fiscal year 1998, each member of the Advisory Council received an option to
purchase 15,000 shares of Common Stock at an exercise price of $4.00 per share.
Members of the Advisory Council did not receive compensation for service on the
Advisory Council during fiscal year 1999. Each member of the Advisory Council
has also entered into an indemnification agreement with the Company which
provides for the Company to indemnify each member of the Advisory Council
against expenses, including attorneys' fees, reasonably incurred in connection
with actions against or threatened against such member by reason of the fact
that such member was a member of the Advisory Council or by reason of any action
or inaction taken by such member while acting in the capacity of a member of the
Advisory Council. The members of the Company's Advisory Council as of February
7, 2000 were:
LUBA VESELINOVIC, age 61, has served as President and Chief Executive
Officer of the Company since June 1999 and as a member of the Advisory Council
since June 1998. See "Directors, Executive Officers, Promoters and Control
Persons."
M. GERRY MALLOY, age 56, has served as a member of the Company's Advisory
Council since June 1998. Mr. Malloy has served as President and Principal
Engineer of Kaptest Engineering Limited since he founded Kaptest Engineering
Limited in 1976. Mr. Malloy received his Bachelor's Degree in Mechanical
Engineering from the General Motors Institute in 1967 and his Master's Degree in
Engineering from McMaster University in 1968.
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<PAGE>
ALEXANDER T. MARINACCIO, age 84, has served as a member of the Advisory
Council since June 1998. Dr. Marinaccio is the founder and is currently the
active Chairman of the Inventors Clubs of America, a non-profit organization.
PATRICK W. OLIVE, age 55, has served as a member of the Advisory Counsel
since June 1998. Mr. Olive has served as Commissioner of Economic Development
for Durham Region, which is a part of the Toronto metropolitan area, since 1985.
Mr. Olive received his undergraduate degree in Economics and Geography from
Brock University, a Master's Degree in Urban Regional Planning from the
University of Waterloo and a Master's Degree in Business Administration from
York University.
CHARLES PETTIS, age 72, has served as a member of the Advisory Council
since June 1998. Mr. Pettis has been an independent realtor since 1994 and a
real estate consultant to the UA Foundation since 1988. Mr. Pettis received a
Bachelor's of Arts Degree in Psychology from San Jose State University in 1950.
WILFRIED BOELKE, age 63, has served as a member of the Advisory Council
since January 2000. Mr. Boelke has practiced as a German certified public
accountant and tax consultant in Berlin and Essen, Germany for more than 30
years. Mr. Boelke received his Bachelor's Degree in Business Economics from the
University of Cologne in 1963 and his Master's Degree in Business Economics and
Political Science from the University of Mainz in 1969.
INVOLVEMENT IN LEGAL PROCEEDINGS
To the best of management's knowledge, during the past five years, none of
the following occurred with respect to a present or former director or executive
officer of the Company:
(1) Any bankruptcy petition filed by or against any business of which such
person was a general partner or executive officer either at the time of the
bankruptcy or within two years prior to that time;
(2) Any conviction in a criminal proceeding or being subject to a pending
criminal proceeding (excluding traffic violations and other minor offenses);
(3) Being subject to any order, judgment or decree, not subsequently
reversed, suspended or vacated, of any court of any competent jurisdiction,
permanently or temporarily enjoining, barring, suspending or otherwise limiting
his involvement in any type of business, securities or banking activities; and
(4) Being found by a court of competent jurisdiction (in a civil action),
the commission or the Commodity Futures Trading Commission to have violated a
federal or state securities or commodities law, and the judgment has not been
reversed, suspended, or vacated.
ITEM 6. EXECUTIVE COMPENSATION.
The following table sets forth the compensation received for services
rendered to the Company or its subsidiaries in all capacities during the fiscal
year ended November 30, 1999 by the Company's Chief Executive Officer and each
of the Company's other executive officers who received compensation in excess of
$100,000 (the "Named Executive Officers"), which includes salary and bonus
earned during the fiscal year ended November 30, 1999.
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<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION AWARDS
-------------------------------- -----------------------------------------------------
PAYOUTS
OTHER SECURITIES ----------------------
NAME AND PRINCIPAL ANNUAL RESTRICTED UNDERLYING LTIP ALL OTHER
POSITION YEAR SALARY ($) BONUS COMPENSATION STOCK AWARD OPTIONS/SARS(#) PAYOUTS COMPENSATION
-------- ---- ---------- ----- ------------ ----------- ---------------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Luba Veselinovic (1) 1999 120,000(2) 0 0 0 0 0 0
President and
Chief Executive
Officer
Gary A. Fitchett (3) 1999 60,000(4) 0 0 0 0 0 0
</TABLE>
- ----------
(1) Mr. Veselinovic was elected President and Chief Executive Officer of the
Company effective June 1, 1999. Mr. Veselinovic serves as President and
Chief Executive Officer pursuant to a Secondment Agreement between the
Company and Krida Overseas, which is Mr. Veselinovic's employer. Pursuant
to the Secondment Agreement, the Company pays Krida Overseas $150,000 per
year for the services of one or more employees of Krida Overseas, including
Mr. Veselinovic.
(2) The compensation payable to Krida Overseas for the services of Mr.
Veselinovic as President and Chief Executive Officer of the Company during
the fiscal year ended November 30, 1999 has been accrued but not paid by
the Company.
(3) Mr. Fitchett resigned as President and Chief Executive Officer of the
Company effective June 1, 1999.
(4) The compensation payable to Mr. Fitchett for his services as President and
Chief Executive Officer of the Company during the fiscal year ended
November 30, 1999 has been accrued but not paid by the Company.
OPTION GRANTS
The Company did not grant options to the Named Executive Officers during
the fiscal year ended November 30, 1999.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF SECURITIES UNEXERCISED IN-
UNDERLYING THE-MONEY
UNEXERCISED OPTIONS/ OPTIONS/SAR'S AT
SARS AT FY-END (#) FY-END ($)
SHARES ------------------ ----------------
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
---- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Luba Veselinovic 0 -- 15,000(1)/0 None
Gary A. Fitchett 0 -- 25,000(2)/0 None
</TABLE>
- ----------
(1) Mr. Veselinovic was granted options to purchase 15,000 shares of Common
Stock for $4.00 per share as compensation for his service on the Company's
Advisory Council in fiscal year 1998. These options will expire on December
31, 2000.
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<PAGE>
(2) Mr. Fitchett was granted options to purchase 25,000 shares of Common Stock
for $4.00 per share as compensation for his service on the Company's Board
of Directors in fiscal year 1998. These options will expire on December 31,
2000.
COMPENSATION OF DIRECTORS
Directors of the Company may be paid such compensation for their services
and such reimbursements for expenses of attendance at board meetings as the
Board of Directors may from time to time determine. During fiscal year 1998,
each member of the Company's Board of Directors received options to acquire
25,000 shares of the Company's Common Stock at $4.00 per share as director
compensation. In addition, each member of the Advisory Council received options
during fiscal year 1998 to acquire 15,000 shares of the Company's Common Stock
at $4.00 per share as advisory council compensation. Neither directors nor
members of the Advisory Council received options as compensation for service on
the Board of Directors or Advisory Council during fiscal year 1999.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
The Company is not a party to any employment contracts, however, the
Company is a party to a Secondment Agreement with Krida Overseas under which the
Company has retained the services of Luba Veselinovic as President and Chief
Executive Officer. Pursuant to the Secondment Agreement, the Company pays Krida
Overseas $150,000 per year for the services of one or more employees of Krida
Overseas, including Mr. Veselinovic. The initial term of the Secondment
Agreement is five years, which is automatically renewable for additional
five-year periods.
Additionally, the Company has entered into a perpetual license agreement
with Krida Overseas for the exclusive right to use, develop, and market the
NuPro Material world-wide. The license agreement contains a limitation on the
exclusiveness of the license after December 31, 2002, if Mr. Veselinovic is not
an executive officer of the Company and the Company does not meet certain sales
expectations to be negotiated between Krida Overseas and the Company. As a
result, after December 31, 2002, the Company's exclusive right to use, develop,
and market the NuPro Material may terminate if Mr. Veselinovic is no longer
serving as an executive officer of the Company and the Company does not meet
certain sales performance levels.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company's Board of Directors has a policy that any transactions between
the Company and any of its executive officers and directors will be on terms
believed to be no less favorable to the Company than could be obtained from
unaffiliated third parties and will be in connection with bona fide business
purposes of the Company.
Effective November 1, 1997, the Company entered into a lease with Ernesto
Zaragoza de Cima, a director and Vice President of the Company, for certain
prototyping, tool modeling, and administrative facilities in Guaymas, Sonora,
Mexico consisting of 2,482 square feet. Rent under the lease is payable in an
amount equal to $1,015.50 per month. The initial term of the lease is for a
period of five years. After the initial term, the lease may be extended at the
option of the Company for an additional five-year period.
During fiscal year 1998, each member of the Company's Board of Directors
received options to purchase 25,000 shares of Common Stock at an exercise price
of $4.00 per share. In addition, each of the members of the Company's Advisory
Council received options to purchase 15,000 shares of Common Stock at an
exercise price of $4.00 per share.
In May 1999, Luba Veselinovic entered into an agreement (on behalf of Krida
and the Veselinovic Children's Trust) with Gary Fitchett, personally and on
behalf of the Fitchett Family Trust, Pinecrest Consultants, Inc., and Management
Synergistics to purchase 1,000,000 shares of the Company's Common Stock
controlled by Mr. Fitchett for the aggregate price of $500,000. Upon closing of
the transaction, which has not occurred to date, $250,000 of the purchase price
is payable with the remaining $250,000 balance payable by a promissory note to
be co-signed by Luba Veselinovic and the Company. The parties anticipate that
the promissory note will be payable according to the following schedule:
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MONTHLY ANNUAL
------- --------
Year one $ 2,500 $ 30,000
Year two 5,000 60,000
Year three 7,500 90,000
Year four 10,000 70,000
--------
$250,000
========
In the event that the note is not fully paid by August 31, 2004, the
500,000 shares shall be returned to Mr. Fitchett. While the Company is not the
principal signer of the promissory note, it is expected that the cash flows will
come from the Company as payment of compensation or accrued management fees owed
to Luba Veselinovic or one of his affiliated entities. Management fees due to
Luba Veselinovic or his affiliated entities in the amount of $175,000 shall also
be withheld and payable under the above mentioned terms. Management fees in
excess of $175,000 accruing to Luba Veselinovic or his affiliates shall be
payable out of available funds. The withheld fees may otherwise be paid to make
the note payments or personal obligations of Mr. Veselinovic to Mr. Fitchett.
On August 24, 1999, NuPro Innovation Mexico S.A. de C.V., a majority-owned
subsidiary of the Company ("NuPro Mexico"), entered into a Buy-Sell Agreement
with Ernesto Zaragoza de Cima, a Vice President and director of the Company, to
acquire approximately 6,176 square meters of land in Guaymas, Sonora, Mexico.
The land was acquired for approximately $100,000 and is currently being used for
the construction of the Company's new manufacturing facilities in Mexico. See
"Description of Property" and "Management's Discussion and Analysis or Plan of
Operation - Plan of Operation - Plant and Equipment."
Effective December 1, 1998, the Company acquired substantially all of the
assets and liabilities of TrucTech, Inc., a Georgia corporation, pursuant to an
Asset Purchase Agreement between the Company and TrucTech . The TrucTech Asset
Acquisition was approved by the Board of Directors and stockholders of TrucTech
and by the Board of Directors of the Company. The total consideration for the
TrucTech Asset Acquisition was US $5,500,000, which was satisfied by the
issuance of 7,333,333 shares of Common Stock (the "Shares"), valued at US $0.75
per share. The amount of consideration payable by the Company in the TrucTech
Asset Acquisition and the US $0.75 per share valuation was reached through
negotiations between the Company and TrucTech and reference to the approximate
market value of Common Stock during the period in which the TrucTech Asset
Acquisition occurred. Certain officers, directors, and stockholders of the
Company, such as Gary Fitchett and Elke Veselinovic, were also officers,
directors, and stockholders of TrucTech. As a result, certain conflicts of
interest existed with respect to the TrucTech Asset Acquisition, and the
subsequent distribution of the Shares to the TrucTech Stockholders pursuant to a
proposed Plan of Voluntary Dissolution of TrucTech.
Krida Overseas, which is controlled by Luba Veselinovic, President and
Chief Executive Officer of the Company, owns the technology relating to the
NuPro Material. The Company has entered into a Technology License Agreement, as
amended, with Krida Overseas, dated as of June 1, 1999 (the "Krida License"),
which provides the Company with the perpetual, exclusive right to use, develop,
and market the NuPro Material worldwide. The Krida License provides for a
license fee of 1.5% of the gross revenues of the Company up to $5,000,000 and
2.0% thereafter. In the event Mr. Veselinovic no longer is an executive officer
of the Company and the Company's sales are not meeting certain pre-established
sales expectations to be negotiated between Krida Overseas and the Company, the
rights granted under the Krida License will become non-exclusive 60 days
following December 31, 2002. As an officer of the Company, Mr. Veselinovic will
have fiduciary obligations to the Company's stockholders that may conflict with
his own interests as an affiliate of the owner of the NuPro Material.
Mr. Veselinovic serves as President and Chief Executive Officer of the
Company pursuant to a Secondment Agreement by and between the Company and Krida
Overseas, effective as of December 1, 1998 (the "Secondment Agreement"). The
Secondment Agreement provides for employees of Krida Overseas to perform
services for the Company while remaining employees of Krida Overseas. The
Secondment Agreement currently provides for a $150,000 fee payable by the
Company to Krida Overseas in exchange for the services of Mr. Veselinovic and
other persons from time to time. The Company currently does not anticipate other
persons who are or will become employees of Krida Overseas will perform services
for the Company under the Secondment Agreement in the next 12 months. The
initial term of the Secondment Agreement is five years, which is automatically
renewable for additional five-year periods.
-22-
<PAGE>
NuPro Innovation Mexico S.A. de C.V. is constructing two production
facilities in Guaymas, Sonora, Mexico, totaling approximately 32,000 square feet
for a total estimated cost of $1,235,600. See "Description of Property" and
"Management's Discussion and Analysis or Plan of Operation - Plan of Operation -
Plant and Equipment." An affiliate of Ernesto Zaragoza, a director and executive
officer of the Company, is acting as the general contractor and is engaging
various subcontractors to construct the project. Payables to these contractors
total approximately $223,838 as of November 30, 1999. As of November 30, 1999,
the Company estimated that the project was approximately 75% complete, having
incurred costs to date of approximately $895,000 and further estimate that
approximately $300,000 of additional costs will be incurred through the
completion of the project.
ITEM 8. DESCRIPTION OF SECURITIES.
The Company is a Delaware corporation and its affairs are governed by its
Certificate of Incorporation and By-laws and Delaware General Corporation Law.
The following description of the Company's capital stock, which is complete in
all material respects, is qualified in its entirety by reference to the
provisions of the Company's Certificate of Incorporation and Bylaws, copies of
which have been filed as exhibits to this Form 10-SB.
The Company's authorized capital stock consists of 20,000,000 shares of
Common Stock, par value $.001 per share, and 1,000,000 shares of preferred
stock, par value $.001 per share ("Preferred Stock"). As of February 7, 2000,
12,617,217 shares of Common Stock and no shares of Preferred Stock were issued
and outstanding and an additional 1,525,000 and 275,000 shares of Common Stock
may be issued upon exercise of outstanding warrants and options, respectively.
COMMON STOCK
Holders of shares of Common Stock are entitled to one vote for each share
held of record on all matters submitted to a vote of stockholders and do not
have cumulative voting rights. The holders of Common Stock will be entitled to
receive such dividends, if any, as may be declared by the Board of Directors
from time to time out of legally available funds. In the event of liquidation,
dissolution, or winding up of the Company, the holders of Common Stock will be
entitled to share ratably in all assets of the Company that are legally
available for distribution, after payment of all debts and other liabilities and
after provision has been made for each class of stock, if any, having preference
over the Common Stock. The holders of Common Stock have no preemptive,
subscription, redemption, or conversion rights.
PREFERRED STOCK
The Board of Directors is authorized to issue Preferred Stock in one or
more series and denominations and to fix the rights, preferences, privileges,
and restrictions, including dividend, conversion, voting, redemption,
liquidation rights or preferences, and the number of shares constituting any
series or the designation of such series, without any further vote or action by
the stockholders. The issuance of Preferred Stock may have the effect of
delaying, deferring, or preventing a change of control of the Company without
further action by the stockholders. The issuance of Preferred Stock with voting
and conversion rights may adversely affect the voting power of the holders of
Common Stock.
DEBENTURES
GENERAL
As part of its offering pursuant to Regulation S promulgated under the
Securities Act in July 1999 (the "Regulation S Offering"), the Company issued
$50,000 Unsecured Convertible Debentures ("Debentures") for an aggregate total
of $3,000,000 in Debentures, of which $1,050,000 is currently outstanding after
several investors converted their Debentures into shares of Common Stock
immediately following the Regulation S Offering. The Debentures bear interest at
the rate of ten (10) percent per annum payable semi-annually on June 30 and
December 31, beginning June 30, 2000, and will mature on December 31, 2004.
Interest on the Debentures began to accrue on January 1, 2000. The Debentures
are unsecured obligations of the Company.
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<PAGE>
CONVERSION PRIVILEGE:
The Debentures are convertible at the holder's option into fully paid
shares of Common Stock at any time prior to the close of business in each
calendar year listed below at the following conversion prices:
YEAR CONVERSION PRICE
---- ----------------
2000 $2.00
2001 3.00
2002 4.00
2003 5.00
2004 6.00
If the Company shall obtain a commitment for a planned public offering of
shares of at least $5,000,000, within 60 days prior to the contemplated closing
thereof, the Company shall provide written notice to each holder of a Debenture
(a "Debentureholder") and within 30 days the Debentureholder shall have the
option to: (i) elect to convert the Debentures into shares of Common Stock held
at the applicable conversion price as set forth above; (ii) continue to hold the
Debenture to its maturity date; or (iii) have the Company prepay the Debentures
at 100% of the principal amount of the Debenture plus accrued interest from the
proceeds of the public offering of shares, without further notice or bonus.
No adjustment will be made for dividends on shares of Common Stock issuable
upon conversion of a Debenture. Interest accrued on the Debentures surrendered
for conversion will be paid to the date of conversion.
ADJUSTMENT OF CONVERSION PRICE
Subject to the provisions hereof, the Debentures provide for the adjustment
of the conversion price in certain events including:
1. the subdivision or consolidation of the outstanding shares of the
Common Stock;
2. the distribution of shares of the Common Stock to stockholders by way
of a stock dividend or otherwise other than an issue of shares of the
Common Stock to stockholders who have elected to receive dividends in
stock in lieu of receiving cash dividends paid in the ordinary course;
3. the issuance of options, rights, or warrants to holders of shares of
Common Stock entitling them to acquire shares of Common Stock or other
securities convertible into shares of Common Stock at less than 95% of
the then current market price (as defined in the Debentures) of the
shares of Common Stock; and
4. the distribution to all holders of shares of Common Stock of any
securities or assets, other than cash dividends and equivalent
dividends in stock paid in lieu of cash dividends in the ordinary
course.
There will be no adjustment of the conversion price in respect of any event
described in 2, 3, or 4 above if the holders of Debentures are allowed to
participate as though they had converted their Debentures prior to the
applicable record date or effective date. In the case of any reclassification or
change (other than a change resulting only from consolidation or subdivision) of
the shares of Common Stock or in case of any amalgamation, consolidation or
merger of the Company with or into any other corporation, or in the case of any
sale, transfer or other disposition of the properties and assets of the Company
as or substantially as an entirety to any other corporation, the conversion
price shall be adjusted so that each Debenture shall, after such
reclassification, change, amalgamation, consolidation, merger or sale, be
exercisable for the kind and amount of shares and other securities or property
of the Company, or such continuing, successor, or purchaser corporation, as the
case may be, which the holder thereof would have been entitled to receive as a
result of such reclassification, change, amalgamation, consolidation, merger or
sale if on the effective date thereof he had been the holder of the number of
shares of Common Stock into which the Debentures were convertible prior to the
effective date of such reclassification, change, amalgamation, consolidation,
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<PAGE>
merger or sale. Notwithstanding the foregoing, a holder of Debentures shall be
entitled to receive only shares that constitute prescribed securities in the
event any reclassification, change, amalgamation, consolidation, merger or sale
occurs on or prior to the date which is five years from the issue of the
Debentures and the Debentures become convertible on or prior to that date. No
adjustment will be made in the conversion price on account of the exercise of
options under the Company's stock option plans from time to time.
No fractional shares of Common Stock will be issued on any conversion of a
Debenture, but in lieu thereof the Company shall satisfy such fractional
interest by a cash payment equal to the market price of such fractional
interest.
CANCELLATION
All Debentures converted or paid on maturity will be cancelled forthwith
and may not be reissued or resold.
WARRANTS
GENERAL WARRANTS
GENERAL
On May 31, 1999, the Company issued warrants to acquire 25,000 shares of
Common Stock at an exercise price of $1.00 per share to its legal counsel,
Squire, Sanders & Dempsey L.L.P., in exchange for services rendered ("SSD
Warrants"). The SSD Warrants may be exercised at any time from the date of
issuance through December 31, 2002.
The shares of Common Stock underlying the SSD Warrants have certain
piggyback registration rights in the event the Company makes a public offering
of its Common Stock, subject to certain limitations.
ADJUSTMENT OF EXERCISE PRICE
In the event of a merger, consolidation, or sale of substantially all of
the assets of the Company, the SSD Warrants shall apply to the securities of the
successor entity such that the holder shall receive an equivalent amount of
stock of the successor entity as it would have immediately preceding such
transaction.
In the event of any stock split, reverse stock split, stock dividend,
combination, or reclassification of shares of Common Stock, or any other
increase or decrease in the number of issued shares of Common Stock, the number
or shares of Common Stock and the exercise price per share will be
proportionately and appropriately adjusted without any change in the aggregate
price to be paid upon the exercise of all of the SSD Warrants.
REGULATION S WARRANTS
GENERAL
As part of its Regulation S Offering in July 1999, the Company issued
warrants ("Regulation S Warrants") to acquire 1,500,000 shares of Common Stock.
Each Regulation S Warrant comprises the right to purchase, at the holder's
option, one fully paid share of the Company's Common Stock at $2.50 per share.
Although certain holders of Regulation S Warrants exercisable into 200,000
shares have indicated their desire to exercise, no Regulation S Warrants have
been exercised to date. Regulation S Warrants must be exercised prior to
December 31, 2000 and only if the holder has converted all of such holder's
Debentures also acquired in the Regulation S Offering.
ADJUSTMENT OF EXERCISE PRICE
Subject to the provisions hereof, the Regulation S Warrants provide for the
adjustment of the exercise price in certain events including:
1. the subdivision or consolidation of the outstanding shares of Common
Stock of the Company;
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<PAGE>
2. the distribution of shares of Common Stock to stockholders by way of a
stock dividend or otherwise, other than an issue of shares of Common
Stock to stockholders who have elected to receive dividends in stock
in lieu of receiving cash dividends paid in the ordinary course;
3. the issuance of options, rights, or warrants to holders of shares of
Common Stock entitling them to acquire shares of Common Stock or other
securities convertible into shares of Common Stock at less than 95% of
the then current market price (as defined in the Warrants) of the
shares of Common Stock; and
4. the distribution to all holders of shares of Common Stock of any
securities or assets, other than cash dividends and equivalent
dividends in stock paid in lieu of cash dividends in the ordinary
course.
There will be no adjustment of the conversion price in respect of any event
described in 2, 3, or 4 above if the holders of Regulation S Warrants are
allowed to participate as though they had exercised their Regulation S Warrants
prior to the applicable record date or effective date. In the case of any
reclassification or change (other than a change resulting only from
consolidation or subdivision) of the shares of Common Stock or in case of any
amalgamation, consolidation or merger of the Company with or into any other
corporation, or in the case of any sale, transfer or other disposition of the
properties and assets of the Company as or substantially as an entirety to any
other corporation, the conversion price shall be adjusted so that each
Regulation S Warrant shall, after such reclassification, change, amalgamation,
consolidation, merger or sale, be exercisable for the kind and amount of shares
and other securities or property of the Company, or such continuing, successor,
or purchaser corporation, as the case may be, which the holder thereof would
have been entitled to receive as a result of such reclassification, change,
amalgamation, consolidation, merger or sale if on the effective date thereof he
had been the holder of the number of shares of Common Stock into which the
Regulation S Warrants were exercisable prior to the effective date of such
reclassification, change, amalgamation, consolidation, merger or sale.
Notwithstanding the foregoing, a holder of Regulation S Warrants shall be
entitled to receive only shares that constitute prescribed securities in the
event any reclassification, change, amalgamation, consolidation, merger or sale
occurs on or prior to the date which is five years from the issue of the
Regulation S Warrants and the Regulation S Warrants become exercisable on or
prior to that date. No adjustment will be made in the exercise price on account
of the exercise of options under the Company's stock option plans from time to
time.
No fractional shares of Common Stock will be issued on any exercise of
Regulation S Warrants, but in lieu thereof the Company shall satisfy such
fractional interest by a cash payment equal to the market price of such
fractional interest.
DIVIDENDS
The Company has never paid any cash dividends on its capital stock. For the
foreseeable future, the Company intends to retain all of its future earnings to
finance its operations and does not anticipate paying cash dividends.
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<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS.
The Company's Common Stock had been quoted on the OTC Bulletin Board under
the symbol NUPP from August 21, 1998 to February 24, 2000. On February 24, 2000,
the Company's Common Stock was removed from quotation on the OTC Bulletin Board
pursuant to the NASD OTC Bulletin Board Eligibility Rules and commenced
quotation in the National Quotation Bureau's Pink Sheets immediately thereafter.
The following sets forth the range of high and low bid quotations for the
periods indicated as reported by National Quotation Bureau, Inc. Such quotations
reflect prices between dealers, without retail mark-up, markdown or commission
and may not represent actual transactions.
High Bid Low Bid
-------- -------
December 1, 1999 through February 24, 2000 $ 3.1875 $ 2.4375
September 1, 1999 through November 30, 1999 $ 3.0000 $ 1.3125
June 1, 1999 through August 31, 1999 $ 2.1250 $ 0.7500
March 1, 1999 through May 31, 1999 $ 1.0000 $ 0.2500
December 1, 1998 through February 28, 1999 $ 1.1250 $ 0.6250
September 17, 1998 through November 30, 1998 $ 1.1250 $ 0.6250
As of February 7, 1999, there were approximately 174 holders of record of
the Company's Common Stock.
PENNY STOCK
The Company's Common Stock will be subject to the provisions of Section
15(g) and Rule 15g-9 of the Exchange Act, commonly referred to as the "penny
stock rule." Section 15(g) sets forth certain requirements for transactions in
penny stocks and Rule 15g-9 (d) (1) incorporates the definition of penny stock
that is found in Rule 3a51-1 of the Exchange Act.
The SEC generally defines penny stock to be any equity security that has a
market price less than $5.00 per share, subject to certain exceptions. If the
Company's Common Stock is deemed to be a penny stock, trading in the shares will
be subject to additional sales practice requirements on broker-dealers who sell
penny stocks to persons other than established customers and accredited
investors. Accredited investors are persons with assets in excess of $1,000,000
or annual income exceeding $200,000, or $300,000 together with their spouse.
For transactions covered by these rules, broker-dealers must make a special
suitability determination for the purchase of such security and must have the
purchaser's written consent to the transaction prior to the purchase.
Additionally, for any transaction involving a penny stock, unless exempt, the
rules require the delivery, prior to the first transaction, of a risk disclosure
document relating to the penny stock. A broker-dealer also must disclose the
commissions payable to both the broker-dealer and the registered representative,
and current quotations for the securities. Finally, monthly statements must be
sent disclosing recent price information for the penny stocks held in account
and information on the limited market in penny stocks. Consequently, these rules
may restrict the ability of broker-dealers to trade and/or maintain a market in
the Company's Common Stock and may affect the ability of stockholders to sell
their shares.
OTC BULLETIN BOARD ELIGIBILITY RULES
In January of 1999, the SEC granted approval of amendments to the NASD OTC
Bulletin Board Eligibility Rules 6530 and 6540. These amendments now require a
company listed on the OTC Bulletin Board to be a reporting company and current
in its reports filed with the SEC. As a result of this rule change, the Company
has voluntarily filed this registration statement in order to become a fully
reporting company and maintain the listing of the Company's Common Stock on the
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<PAGE>
OTC Bulletin Board. The NASD eligibility rule requires that the SEC come to a
position of no further comment regarding any Form 10 registration statement
before the NASD considers a company compliant. The SEC did not come to such a
position in regards to this registration statement prior to the Company's
phase-in date of February 24, 2000. As a result and according to the eligibility
rule, since the Company was not in compliance at its phase-in date, the
Company's Common Stock was removed from quotation on the OTC Bulletin Board and
commenced quotation on the National Quotation Bureau's Pink Sheets immediately
thereafter. The Company intends to resume its quotation on the OTC Bulletin
Board upon the SEC reaching a position of no further comment regarding this Form
10-SB Registration Statement. The removal of the Company's Common Stock from
quotation on the OTC Bulletin Board may adversely affect the market, if any, in
the Company's Common Stock.
SHARES AVAILABLE FOR FUTURE SALE
Of the 12,617,217 shares of Common Stock outstanding, 959,255 shares of
Common Stock are freely tradable without restriction in the public market unless
the shares are held by "affiliates," as that term is defined in Rule 144(a)
under the Securities Act. For purposes of Rule 144 under Securities Act ("Rule
144"), an "affiliate" of an issuer is a person that, directly or indirectly
through one or more intermediaries, controls, or is controlled by or is under
common control with, the issuer. Such shares are unrestricted as a result of
being issued pursuant to rule 504 of Regulation D promulgated under the
Securities Act ("Rule 504") prior to recent amendments to such rule that now
make shares issued under Rule 504 restricted securities. The remaining shares of
Common Stock outstanding are "restricted securities" under the Securities Act
and may be sold in the public market upon the expiration of the holding periods
under Rule 144, described below, subject to the volume, manner of sale, and
other limitations of Rule 144.
In general, under Rule 144 as currently in effect, a person who has
beneficially owned shares for at least one year, including an "affiliate," is
entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of:
* 1% of the then outstanding shares of the Company's Common Stock
(approximately 126,172 shares); or
* the average weekly trading volume during the four calendar weeks
preceding filing of notice of the sale of shares of Common Stock.
Sales under Rule 144 are also subject to certain manner of sale provisions,
notice requirements and the availability of current public information about the
Company. A stockholder who is deemed not to have been an "affiliate" of the
Company at any time during the 90 days preceding a sale, and who has
beneficially owned restricted shares for at least two years, would be entitled
to sell shares under Rule 144(k) without regard to the volume limitations,
manner of sale provisions, or public information requirements.
In addition, as of February 7, 2000, there were outstanding warrants to
purchase 1,525,000 shares of Common Stock and options to purchase 275,000 shares
of Common Stock, all of which were fully vested. Sales of substantial amounts of
the Company's Common Stock (including shares issued upon the exercise of
outstanding warrants and options) in the public market in the future could
adversely effect the market price of the Company's Common Stock. These sales may
also make it more difficult for the Company to sell equity or equity related
securities in the future at a time and price that the Company believes is
appropriate.
ITEM 2. LEGAL PROCEEDINGS.
All legal proceedings and actions involving the Company are of an ordinary
and routine nature incidental to the operations of the Company. Management
believes that such proceedings should not, individually or in the aggregate,
have a material adverse affect on the Company's business, financial condition,
or results of operations. None of the Company's officers, directors or
beneficial owners of 5% or more of the Company's outstanding securities is a
party adverse to the Company nor do any of the foregoing individuals have a
material interest adverse to the Company.
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<PAGE>
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
The Company changed its independent auditor from BDO Dunwoody LLP to S.E.
Clark & Company, P.C. on February 8, 1999. S.E. Clark & Company, P.C. has
audited the Company's financial statements for the years ended November 30, 1998
and 1999. This change was by mutual consent due to the Company's domestication
in the State of Delaware from the Canadian Province of Ontario on August 7,
1997. The change was approved by the Company's Board of Directors. None of the
former accountant's reports on the Company's financial statements contain an
adverse opinion or disclaimer of the opinion or was modified as to uncertainty,
audit scope or accounting principles. There were no disagreements with the
former accountant on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure or any reportable events.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
The following provides information concerning all sales of securities by
the Company within the last three years that were not registered under the
Securities Act.
From August 7, 1997 to May 31, 1998, the Company issued shares of Common
Stock to 122 investors at a price ranging from $0.366 to $0.533 per share for a
total of $488,984 (the "Original Rule 504 Offering"). Such shares were issued
without registration pursuant to an exemption from registration under Rule 504.
From August 1997 to May 1998, the Company issued an aggregate of 455,028
shares of Common Stock worth a total of $180,890 to certain insiders of the
Company in connection with remuneration for services rendered and the conversion
of certain indebtedness owed to such insiders. Of the total $180,890, (i)
$43,000 in Common Stock was issued as payment for consulting fees and management
services, (ii) $103,600 in Common Stock was issued as payment of certain loans
to the Company from affiliates of Gary Fitchett, former President and Chief
Executive Officer of the Company, the proceeds of which were used for various
capital expenditures of the Company, and (iii) $34,300 in Common Stock resulted
from the exercise of a warrant received as part of the loan described in (ii)
above. All such shares were issued without registration pursuant to an exemption
from registration under Section 4(2) of the Securities Act as private
transactions not involving a public distribution.
During the period from June 1, 1998 to August 6, 1998, the Company issued
shares of Common Stock to 24 investors for a total of $504,162. Such shares were
issued without registration pursuant to an exemption from registration under
Rule 504. The foregoing offering was integrated with the Original Rule 504
Offering.
From June 1, 1998 to August 6, 1998, the Company issued an aggregate of
15,000 shares of Common Stock worth a total of $15,000 to Ernesto Zaragoza de
Cima, a Vice President and director of the Company, in connection with rent owed
by the Company. Such shares were issued without registration pursuant to an
exemption from registration under Section 4(2) of the Securities Act as a
private transaction not involving a public distribution.
On May 31, 1999, the Company issued warrants to purchase an aggregate of
25,000 shares of Common Stock to the Company's legal counsel in consideration of
services rendered. Such shares were issued without registration under Section 4
(2) of the Securities Act as a private transaction not involving a public
distribution.
In July 1999, the Company issued units priced at $100,000 per unit, or a
total of $6,000,000. Each unit consisted of (i) 25,000 shares of Common Stock
valued at $2.00 per share, (ii) a $50,000 unsecured convertible debenture
bearing interest at ten (10) percent per annum and maturing on December 31,
2004, and (iii) warrants to acquire 25,000 shares of Common Stock at a price of
$2.50 per share exercisable at any time prior to December 31, 2000. Several
investors chose to convert their debentures into shares of Common Stock
immediately following the Regulation S Offering. As a result, the Company issued
775,000 shares upon such conversions. In the aggregate, the Company issued
1,500,000 shares of Common Stock at $2.00 per share, $3,000,000 of convertible
debentures of which $1,050,000 of remain outstanding, and warrants to purchase
$1,500,000 additional shares at $2.50 per share. The units were sold to 17
investors in Germany, New Zealand, and Switzerland and were issued without
registration pursuant to an exemption from registration under Regulation S
promulgated under the Securities Act.
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<PAGE>
On July 18, 1999, the Company closed the acquisition of (the "TrucTech
Asset Acquisition") substantially all of the assets and liabilities of TrucTech,
Inc., a Georgia corporation ("TrucTech"), pursuant to an Asset Purchase
Agreement between the Company and TrucTech effective as of December 1, 1998 (the
"TrucTech Asset Purchase Agreement"). The total consideration for the TrucTech
Asset Acquisition was US $5,500,000, which was satisfied by the issuance of
7,333,333 shares of Common Stock, valued at US $0.75 per share. Such shares were
issued without registration under Section 4(2) of the Securities Act and Rule
506 of Regulation D promulgated under the Securities Act.
On July 30, 1999, the Company completed a supplemental offering of Common
Stock for no additional consideration in connection with the Company's issuance
of stock under the Original Rule 504 Offering. After the Company determined that
certain investors paid more than the intended stock price for shares in the Rule
504 offerings, the Company made the supplemental offering with shares, which
were originally issued in the Rule 504 offerings but subsequently transferred to
the Company's treasury, to reflect the Company's original intention to sell
shares of stock at a price ranging from $0.366 to $0.533 per share in its Rule
504 offerings. As a result, the Company issued an aggregate of 460,887
additional shares of Common Stock to approximately 59 investors who participated
in the Company's Rule 504 offerings. Such shares were issued without
registration under Rule 504.
From August 7, 1998 to July 1, 1999, the Company issued an aggregate of
289,113 shares of common stock worth a total of $289,113 to certain insiders of
the Company. Of the $289,113, $85,305 worth of common stock was issued to four
creditors for conversion of loans to the Company, and $203,808 worth of stock
was issued to three persons for services rendered to the Company. Such shares
were issued without registration pursuant to an exemption from registration
under Section 4(2) of the Securities Act as private transactions not involving a
public distribution.
In each of the private transactions above, the Company believes that each
purchaser (i) had access to or was provided information regarding the Company;
(ii) was aware that the securities had not been registered under federal
securities laws; (iii) acquired the securities for his/her/its own account for
investment purposes; (iv) understood that the securities would need to be
indefinitely held unless registered or an exemption from registration applied to
a proposed disposition; and (v) was aware that the certificate representing the
securities would bear a legend restricting its transfer. The Company believes
that, in light of the foregoing, the sale of the Company's securities to the
respective acquirers did not constitute a sale of an unregistered security in
violation of the federal securities laws and regulations by reason of the
exemptions provided under Section 3(b) or 4(2) of the Securities Act, and the
rules and regulations promulgated thereunder.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Certificate of Incorporation provides that the personal
liability of a director to the Company or its stockholders for monetary damages
for breach of a fiduciary duty as a director shall be limited to the fullest
extent permitted by Delaware General Corporation Law ("DGCL"). Under the DGCL,
the directors have a fiduciary duty to the Company which is not eliminated by
this provision of the Certificate of Incorporation and, in appropriate
circumstances, equitable remedies such as injunctive or other forms of
nonmonetary relief will remain available. In addition, each director will
continue to be subject to liability under the DGCL for breach of the director's
duty of loyalty to the Company, for acts or omissions which are found by a court
of competent jurisdiction to be not in good faith or which involve intentional
misconduct, or knowing violations of law, for actions leading to improper
personal benefit to the director, and for payment of dividends or approval of
stock repurchases or redemptions that are prohibited by the DGCL. This provision
also does not affect the directors' responsibilities under any other laws, such
as the federal securities laws or state or federal environmental laws.
Section 145 of the DGCL empowers a corporation to indemnify its directors
and officers and to purchase insurance with respect to liability arising out of
their capacity or status as directors and officers, provided that this provision
shall not eliminate or limit the liability of a director: (i) for any breach of
the director's duty of loyalty to the corporation of its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) arising under Section 174 of the DGCL, or (iv)
for any transaction from which the director derived an improper personal
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<PAGE>
benefit. The DGCL provides further that the indemnification permitted thereunder
shall not be deemed exclusive of any other rights to which the directors and
officers may be entitled under the corporation's bylaws, any agreement, a vote
of stockholders or otherwise. The Certificate of Incorporation provides that the
Company shall, to the fullest extent permitted by the DGCL, indemnify any person
whom it may indemnify pursuant to DGCL. The Company's Bylaws provide that the
Company shall indemnify any person who was or is a party to any threatened,
pending, or completed action, suit or proceeding (whether civil, criminal,
administrative, or investigative) by reason of the fact that such person is or
was a director of the Company, or is or was serving at the request of the
Company as a director or officer of another corporation, partnership, joint
venture, trust, employee benefit plan, or other enterprise, against expenses
(including attorneys' fees), judgments, fines, and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit, or proceeding if such person acted in good faith and in a manner that such
person reasonably believed to be in or not opposed to the best interest of the
Company, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. The Bylaws also
provide for certain indemnification rights for a party to any threatened,
pending, or completed action or suit by or in the right of the Company.
The Company has also entered into an indemnification agreement with each of
the members of its Board of Directors and Advisory Council. Subject to certain
limitations, such indemnification agreements provide for the Company to
indemnify each member of the Board and Advisory Council against any expenses,
including attorney's fees, reasonably incurred by the director or Advisory
Council Member, as the case may be, in connection with any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (including an action by or in the right of the Company) to
which such director or member is, was or at anytime becomes a party, or is
threatened to be made a party, by reason of the fact that such director or
member is, was or at any time becomes an employee serving as a member of the
Board or Advisory Council, or by reason of any action taken by him or any
inaction on his part while acting in any such capacity.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent as to which indemnification will be
required or permitted.
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<PAGE>
PART F/S
The following financial statements are included herein:
NuPro Innovations Inc. - Financial Statements
Consolidated for the year ended November 30, 1999
Combined for the periods ended November 30, 1998
Independent Auditor's Report................................................ F-1
Audited Financial Statements - Consolidated for the year ended
November 30, 1999 combined for the periods ended November 30, 1998:
Balance Sheets........................................................ F-2
Statements of Loss and Deficit........................................ F-3
Statements of Shareholders' Equity.................................... F-4
Statements of Cash Flows.............................................. F-5
Notes to Financial Statements......................................... F-6
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<PAGE>
[LETTERHEAD OF S.E.CLARK & COMPANY, P.C.]
Report of Independent Auditors
Shareholders and
Board of Directors
NuPro Innovations Inc.
Tucson, Arizona
We have audited the consolidated and combined balance sheets of NuPro
Innovations Inc. (a development stage company) as of November 30, 1999 and 1998
(as restated), respectively, and the related consolidated and combined
statements (as restated) of shareholders' equity, loss and deficit, and cash
flows from inception and for the periods then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
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
misstatements. 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, based on our audits, the financial statements referred to above
present fairly, in all material respects, the consolidated and combined
financial position of NuPro Innovations Inc. as of November 30, 1999 and 1998
(as restated), respectively, and the consolidated and combined (restated)
results of its operations and cash flows from inception and for the periods then
ended in conformity with generally accepted accounting principles.
/s/ S.E.Clark & Company, P.C.
Tucson, Arizona
January 14, 2000
Member: National Association of Certified Valuation Analysts
- --------------------------------------------------------------------------------
744 N. Country Club Road, Tucson, AZ 85716 (520) 323-7774
Fax (520) 323-8174 [email protected] www.seclarkco.com
F-1
<PAGE>
NUPRO INNOVATIONS INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
AT NOVEMBER 30, 1999 AND 1998
- --------------------------------------------------------------------------------
(CONSOLIDATED) (COMBINED)
1999 1998
----------- -----------
ASSETS (Restated)
CURRENT
Cash (Note 2) $ 4,387,983 $ 2,458
Accounts Receivable -- 3,902
Inventory 2,246 2,633
Prepaid Expense 11,589 12,892
----------- -----------
Total Current Assets 4,401,818 21,885
PROPERTY AND EQUIPMENT (Note 5 ) 2,023,386 421,117
OTHER
Accounts Receivable - TopTrac, S.A. de C.V.
(Note 4) 90,189 100,189
Unutilized Pre-production Plant (Note 5) -- 226,114
Deposits 6,815 --
----------- -----------
97,004 326,303
----------- -----------
$ 6,522,208 $ 769,305
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
CURRENT
Notes Payable (Note 6) $ 119,390 $ 81,240
Accounts Payable (Note 6) 542,224 83,551
Accrued Liabilities 41,130 51,785
Accrued Management Fees and Salaries
(Notes 11 and 12) 327,214 107,253
Current portion of long-term liabilities 59,346 46,532
----------- -----------
Total Current Liabilities 1,089,304 370,361
LONG-TERM LIABILITIES (Note 7) 200,724 539,283
CONVERTIBLE DEBENTURES (Note 8) 1,050,000 --
OTHER LIABILITIES
Accrued Management Fees (Note 11) 320,000 320,000
COMMITMENTS AND CONTINGENCIES (Note 11) -- --
SHAREHOLDERS' EQUITY (DEFICIENCY) (Note 8) 3,862,180 (460,339)
----------- -----------
$ 6,522,208 $ 769,305
=========== ===========
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
NUPRO INNOVATIONS INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF LOSS AND DEFICIT
YEARS ENDED NOVEMBER 30,1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(COMBINED)
DEFICIT
ACCUMULATED
DURING THE
(CONSOLIDATED) (COMBINED) DEVELOPMENT
1999 1998 STAGE
------------ ------------ ------------
(Restated)
<S> <C> <C> <C>
Revenue - Interest earned $ 114,891 $ -- $ 114,891
------------ ------------ ------------
Costs and expenses:
Development, pre-production, and administration 679,980 649,479 3,031,552
Stock issued for protection of investment -- 3,252,600 3,252,600
Loss on impairment and disposition of properties -- 71,841 321,794
Financial, primarily interest 65,619 69,046 691,635
Depreciation and amortization 19,809 21,678 138,764
------------ ------------ ------------
765,408 4,064,644 7,436,345
------------ ------------ ------------
Loss before income tax benefits (650,517) (4,064,644) (7,321,454)
Income tax benefits -- -- --
------------ ------------ ------------
Net loss $ (650,517) $ (4,064,644) $ (7,321,454)
============ ============ ============
Net loss per common share (basic and diluted) $ (0.06) $ (0.40)
============ ============
Weighted average shares outstanding (Note 13) 11,336,670 10,142,218
============ ============
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
NUPRO INNOVATIONS INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED NOVEMBER 30, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
ADDITIONAL DURING
COMMON SHARE CAPITAL PAID IN DEVELOPMENT
SHARES AMOUNT CAPITAL STAGE TOTAL
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ISSUED DURING FISCAL 1996
Issued for cash (Note 8) 750,002 $ 5,571 $ -- $ 5,571
ISSUED DURING FISCAL 1997
Issued for cash (Note 8) 542,672 200,975 -- 200,975
Issued for services 75,660 27,268 -- 27,268
Issued for settlement of debts
of TrucTech, Inc. 535,806 270,348 -- 270,348
------------ ------------ ------------ ------------
ISSUED PRIOR TO REDOMESTICATION
AUGUST 7, 1997 (NOTE 2(a)) 1,904,140 504,162 -- 504,162
Adjustment to par value -- (502,258) 502,258 --
Issued for cash (Note 8) 200,933 201 119,664 119,865
Issued for services 38,273 38 22,652 22,690
------------ ------------ ------------ ------------
ISSUED TO NOVEMBER 30, 1997 2,143,346 2,143 644,574 646,717
DEVELOPMENT STAGE LOSS
AS PREVIOUSLY REPORTED -- -- -- $ (177,399) (177,399)
Adjustment to restate expenses
associated with TrucTech, Inc. -- -- -- (144,651) (144,651)
------------ ------------ ------------ ------------ ------------
BALANCES, AS RESTATED 2,143,346 2,143 644,574 (322,050) 324,667
Issued for acquisition of
net assets of TrucTech, Inc. 7,333,333 7,333 5,492,667 5,500,000
Adjustment to combine net
assets of TrucTech, Inc. -- -- (476,585) (2,284,243) (2,760,828)
------------ ------------ ------------ ------------ ------------
COMBINED, DECEMBER 1, 1997 9,476,679 9,476 5,660,656 (2,606,293) 3,063,839
Issued for cash (Note 8) 545,389 546 419,770 -- 420,316
Issued for services 5,150 5 5,145 -- 5,150
Issued for settlement of debts
of TrucTech, Inc. 100,000 100 99,900 -- 100,000
Issued for short-term rent 15,000 15 14,985 -- 15,000
Combined net losses as
previously reported -- -- -- (4,137,454) --
Adjustment to restate expenses
associated with TrucTech, Inc. -- -- -- 144,651 --
Loss on impairment of asset -- -- -- (71,841) --
------------
Net loss, as restated -- -- -- (4,064,644) (4,064,644)
------------ ------------ ------------ ------------ ------------
BALANCE, NOVEMBER 30, 1998 10,142,218 10,142 6,200,456 (6,670,937) (460,339)
------------ ------------ ------------ ------------ ------------
Regulation-S issued 2,475,000 2,475 4,947,525 -- 4,950,000
Costs of raising capital -- -- (53,698) -- (53,698)
Escrowed shares issued
in conversion of debt (Note 8) -- -- 76,734 -- 76,734
Net loss for the period -- -- -- (650,517) (650,517)
------------ ------------ ------------ ------------ ------------
BALANCE, NOVEMBER 30, 1999 12,617,218 $ 12,617 $ 11,171,017 $ (7,321,454) $ 3,862,180
============ ============ ============ ============ ============
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
NUPRO INNOVATIONS INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOW
YEARS ENDED NOVEMBER 30, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(COMBINED)
ACCUMULATED
DURING THE
(CONSOLIDATED) (COMBINED) DEVELOPMENT
1999 1998 STAGE
----------- ----------- -----------
(Restated)
<S> <C> <C> <C>
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Net loss for the period $ (650,517) $(4,064,644) $(7,321,454)
Adjustments to reconcile net loss
to net cash
Depreciation 19,809 21,678 138,764
Loss on disposal of obsolete equipment -- -- 130,141
Stock issued for protection of investment -- 3,252,600 3,252,600
Stock issued for rent and services -- 20,150 70,108
Impairment Loss on unutilized pre-production plant -- 71,841 71,841
Accounts receivable 13,902 12,283 (90,189)
Inventories 387 -- (2,246)
Prepaid expense 1,303 (2,864) (11,589)
Accounts payable and accrued liabilities 520,167 (76,656) 655,503
Payables and accruals paid with NuPro stock -- 100,000 370,348
Accrued management fees and salaries 219,961 325,500 647,214
----------- ----------- -----------
125,012 (340,112) (2,088,959)
----------- ----------- -----------
INVESTING ACTIVITIES
Purchase of capital assets (1,622,078) (3,220) (2,507,746)
Deposits (6,815) -- (6,815)
----------- ----------- -----------
(1,628,893) (3,220) (2,514,561)
----------- ----------- -----------
FINANCING ACTIVITIES
Notes payable 38,150 8,519 119,390
Increase in (repayment of) long-term liabilities (9,429) (143,239) 392,442
Advances from (repayments to) shareholders (85,617) 57,258 98,327
Increase in convertible debentures 1,050,000 -- 1,050,000
Common stock subscribed and paid 4,896,302 420,316 7,331,344
----------- ----------- -----------
5,889,406 342,854 8,991,503
----------- ----------- -----------
INCREASE (DECREASE) IN CASH FOR THE PERIOD 4,385,525 (478) 4,387,983
CASH, BEGINNING OF PERIOD 2,458 2,936 --
----------- ----------- -----------
CASH, END OF PERIOD $ 4,387,983 $ 2,458 $ 4,387,983
=========== =========== ===========
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
NUPRO INNOVATIONS INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1999 AND 1998
- --------------------------------------------------------------------------------
1. BASIS OF FINANCIAL STATEMENT PRESENTATION
NuPro Innovations Inc. ("NuPro") (A Development Stage Company) was formed
to further develop and commercialize an innovative industrial engineering
hybrid composite material technology, which it acquired through exercise of
the option disclosed in Note 3.
TrucTech, Inc. ("TrucTech") (A Development Stage Company) was formed to
develop and manufacture a unique telescoping pickup truck cover and other
prospective products.
The financial statements of NuPro are for the fiscal years ended November
30, 1999 and 1998 . The financial statements of TrucTech for the eleven
months ended November 30, 1998 have been combined with those of NuPro for
its 1998 fiscal year. The combined 1998 financial statements have been
restated to give effect to the adjustments further discussed in Notes 3 and
5.
The 1999 financial statements are consolidated presentations including
those of its majority owned subsidiary NuPro Innovation Mexico S.A. de C.V.
All inter-company assets, liabilities and operating transactions have been
eliminated upon consolidation.
The Combined 1998 Balance Sheets and Statements of Shareholders' Equity
reflect the combined assets, liabilities and shareholders' equity, of NuPro
and TrucTech based on the 1999 completion of the acquisition by NuPro of
the net assets of TrucTech, see Note 3.
NuPro and TrucTech were under common control as defined by U.S. GAAP which
requires that their combination be accounted for at historical cost in a
manner similar to pooling of interest accounting. To reflect the continuity
of interest of the principal shareholders in the business, all assets,
liabilities, and shareholders' equity have been recorded in the Combined
Balance Sheet at the book values of the predecessor companies' accounts.
Research and development expenditures are charged to expenses in the period
incurred. Cumulative expenses through the effective date of the combination
represent the development costs of the TracTop telescoping pickup cover and
other products and materials:
TrucTech $2,426,641
NuPro 991,696
----------
Cash and Accrued expenses 3,418,337
TrucTech stock issued
for protection of investment 3,252,600
----------
Total expense $6,670,937
==========
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Companies follow the generally accepted accounting principles of the
United States ("U.S. GAAP").
(a) Nature of Business
NuPro was incorporated as TracTop Distributing Inc. in Canada on
November 27, 1996, and has been in the development stage since its
formation. As of August 7, 1997, the Company was redomesticated and
continued in the State of Delaware, U.S.A. and changed its name NuPro
Innovations Inc.
F-6
<PAGE>
NUPRO INNOVATIONS INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1999 AND 1998
- --------------------------------------------------------------------------------
A 99% owned foreign subsidiary has been incorporated as of November
12, 1998 as NuPro Innovation Mexico S.A. de C.V. At November 30, 1998
its organization was incomplete and it had no assets, liabilities,
revenues or expenses. As of November 30, 1999 its activities include
construction of a production facility in Guaymas, Sonora, Mexico which
is not yet operational.
TrucTech, incorporated on May 31, 1989 in the State of Georgia,
U.S.A., has been in a development stage since its formation and is in
the process of dissolution.
(b) Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP
requires management to make estimates and assumptions that affect
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
periods. Actual results could differ from those estimates.
(c) Property and Equipment
Property and equipment are recorded at cost less impairments and
accumulated depreciation. Depreciation is recorded using the
straight-line or units-of-production methods at the following rates:
Building 3%
Plant Equipment 10%
Production Tooling $10 per unit
Automotive Equipment 20%
Office Equipment 10 and 20%
Management periodically assesses its ability to recover the cost of
its long-lived assets through projected cash-flows resulting from
sales of related products or the assets. Costs deemed not recoverable
are charged to operations and the asset cost reduced by the estimated
impairment.
(d) Foreign Currency Translation
Assets and liabilities are translated from Canadian or Mexican
currency into U.S. currency by use of the exchange rates in effect at
the balance sheet date. Revenues and expenses are translated using the
exchange rates in effect on the date they are included in income or
using weighted-average exchange rates. Capital accounts are translated
using the exchange rates in effect when the foreign entity's capital
stock was acquired or issued. Gains or losses on translating the
Canadian or Mexican currency into U.S. currency are reported as other
comprehensive income. Foreign currency transaction gains and losses
are included in net income in the period the exchange rate changes.
Translation or transaction gains or losses were not material to the
financial statements as of November 30, 1999.
(e) Cash and Cash Equivalents
The company considers highly liquid investments having a maturity of
three months or less at the date of purchase to be cash equivalents.
As of November 30, 1999 cash included five certificates of deposit
totaling approximately $3,787,000 with maturities ranging from 30 to
90 days, bearing interest at approximately 4 - 5%. One of the CD's, in
the amount of $100,000, is restricted as security for a line of
credit.
F-7
<PAGE>
NUPRO INNOVATIONS INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1999 AND 1998
- --------------------------------------------------------------------------------
Cash balances are insured by the F.D.I.C. up to $100,000 per
institution. Balances in excess of $100,000 per institution are at
risk should the financial institution fail. Substantially all of the
company's cash assets are held by one financial institution and are
accordingly subject to that risk.
3. ACQUISITION OF TRUCTECH, INC.
By agreement dated December 5, 1996, as amended, NuPro had an option to
acquire the net assets of TrucTech, including technology rights, at their
fair value, by exchanging NuPro stock for all of the net assets and
liabilities of TrucTech. Since the TrucTech shareholders would retain
control after the combination, the combination is considered a reverse
acquisition. Accounting rules of the U.S. Securities and Exchange
Commission generally require that the historic cost basis of the control
parties be carried over. Thus, the transaction is recorded at historic
costs which may be substantially less than the current fair value of the
assets exchanged.
The exercise of the option under the agreement was approved by the Board of
Directors of NuPro Innovations Inc. on March 24, 1999.
Both the stockholders and directors of TrucTech have acknowledged that the
technology to the plastic that is a major component of the TracTop product
is an unpatented technology that is owned by Krida Overseas Investments
Trading Limited ("Krida"), controlled by Luba Veselinovic, spouse of the
TrucTech president, Elke Veselinovic.
TrucTech has entered into a licensing and royalty agreement for the patent
rights to certain technologies used in the TracTop product. The agreement
required payment of $150,000 from profits and $5.00 per unit sold.
Additionally, TrucTech has developed other technologies, which are
unpatented, pertaining to the development and production of the TracTop
units.
The technology rights acquired by the NuPro shareholders from TrucTech are
the learned and licensed technologies that apply to the TracTop product and
the license agreement to the plastic technology that is the acknowledged
property of Krida.
In June, 1999 the oral technology license agreement referred to in Note 3
to the audited financial statements for the year ended November 30, 1998
was documented in a written agreement between Krida and NuPro. The
agreement grants NuPro an exclusive world wide license to the NuPro
technology owned by Krida through December 31, 2002. The license fee is
1.5% of the gross revenues up to $5,000,000 and 2% thereafter resulting
from the NuPro technology and products sold by NuPro. The exclusivity after
December 31, 2002 is dependent on the continuing involvement of Luba
Veselinovic or achievement of at least 50% of the forecasted sales in the
business plan and annual sales increase of at least 10%.
As a result of the option agreement to acquire the net assets of TrucTech,
and the anticipated completion thereof, NuPro commenced organizational
activities and prototyping and market development efforts in early 1997.
However, certain related expenses, totaling $144,651, continued to be paid
by TrucTech until November 30, 1997.
F-8
<PAGE>
NUPRO INNOVATIONS INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1999 AND 1998
- --------------------------------------------------------------------------------
In 1998 it was recognized that these 1997 amounts should be born by NuPro.
They were transferred to NuPro by a credit to Advances - TrucTech. The
amount is reflected as a prior period adjustment in the Statement of Loss
and Deficit for NuPro. This restatement increased the net loss per share
computation by approximately $(0.01).
4. ACCOUNTS RECEIVABLE - TOPTRAC , S.A. DE C.V.
This amount represents unsecured advances to TopTrac, S.A. de C.V.
("TopTrac"), a Mexican manufacturing company, owned by a director of NuPro,
which manufactures the TracTop product for direct sales in Mexico and for
sales to NuPro. The amount is comprised as follows:
(CONSOLIDATED) (COMBINED)
1999 1998
-------- --------
Sales of inventory of TracTop Components $ 78,051 $ 78,051
Miscellaneous charges paid on behalf of TopTrac 12,138 12,138
Cash advance -- 10,000
-------- --------
$ 90,189 $100,189
======== ========
The balance is to be repaid, without interest, at the rate of $100 per
TracTop unit sold. Since TrucTech is the sole source of TopTrac's cash
flows and there are no TracTop sales, it is unlikely this account will be
repaid in full within the next year.
5. PROPERTY AND EQUIPMENT
(CONSOLIDATED) (COMBINED)
1999 1998
---------- ----------
Land $ 252,822 $ --
Construction in Progress (Note 11) 1,339,970 --
Plant Equipment 140.427 140,228
Production Tooling 258,412 258,412
Automotive Equipment 105,006 83,277
Office Equipment 29,398 22,040
---------- ----------
2,126,035 503,957
Less: Accumulated Depreciation 102,649 82,840
---------- ----------
NET BOOK VALUE $2,023,386 $ 421,117
========== ==========
All of the TrucTech plant equipment is located at the TopTrac, S.A. de C.V.
plant in Guaymas, Mexico. NuPro has entered into a lease for contiguous
space. Under terms of the lease, equipment and inventory is subject to
possession and sale by the landlord to satisfy lease delinquencies, if any.
F-9
<PAGE>
NUPRO INNOVATIONS INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1999 AND 1998
- --------------------------------------------------------------------------------
(CONSOLIDATED) (COMBINED)
INVESTMENT IN UNUTILIZED PRE-PRODUCTION PLANT 1999 1998
-------- --------
Land $ -- $ 82,500
Building -- 225,795
Less Accumulated Depreciation (10,340)
Less Impairment Reserve (71,841)
-------- --------
Net book value $ -- $226,114
======== ========
In January 1999, the Company sold the land and building which has a book
value of $297,955 for net proceeds after adjustments and selling expenses
of $225,254. The mortgage payable thereon was discharged from the proceeds.
A loss of $71,841 was realized on the transaction. The fiscal 1998
financial statements have been restated to recognize the asset impairment
as of November 30, 1998, which increased the 1998 net loss per share by
approximately $.01.
6. NOTES PAYABLE
Included in NuPro bank indebtedness is a bank line of credit in the amount
of $31,185 (Cdn $45,000) with an outstanding balance at November 30, 1999
of $20,969 (Cdn $30,265). The bank line of credit is due on demand and
bears interest at prime plus 4% and is secured by a general security
agreement over all assets of the Company and the guarantee of a former
director. TrucTech also has a bank note outstanding in the amount of
$31,866, due January 22, 2000 including 10% interest. Also included in
notes payable are loans from affiliates totaling $66,555 further discussed
in Note 12. Prime at November 30, 1999 was 8.25%.
On June 1, 1999 NuPro opened a line of credit with Bank One in the amount
of $100,000. The line was secured by a certificate of deposit in an equal
amount. Interest is payable monthly and accrues at prime which at November
30, 1999 was 8.25%. The maximum amount was borrowed on the line and repaid
during the year. The line will be reviewed for renewal annually.
ACCOUNTS PAYABLE
Included in accounts payable are $125,519 trade accounts payable and
$416,705 construction accounts payable. Included in construction accounts
payable are $26,955 due to DIEZ (E. Zaragoza affiliate) for the balance of
the Guaymas land and $196,883 to Inversiones de Guaymas for construction,
further discussed in Notes 11 and 12.
F-10
<PAGE>
NUPRO INNOVATIONS INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1999 AND 1998
- --------------------------------------------------------------------------------
7. LONG-TERM LIABILITIES (CONSOLIDATED) (COMBINED)
1999 1998
-------- --------
Mortgage Payable
Montgomery County Bank - 9% payable in monthly
installments of $2,575, including principal
and interest, due May 1999, secured by Company
real estate $ -- $230,699
Notes Payable
Montgomery County Bank - prime plus 2.5%,
payable in monthly installments of $4,224,
including principal and interest, due
February 2002. Secured by a general security
agreement over all assets, and insured by
the Small Business Administration 120,196 149,355
Chrysler Corporation
12.5%, payable in monthly installments of
$630, including principal and interest, due
July 2000. Secured by a vehicle and the
guarantee of a director 6,498 12,764
Other Contracts Payable
1999 amount is a capitalized lease payable to
the Veselinovic Children's Trust for lease of
a 1999 Suburban, 60 monthly payments of $739,
including imputed interest at 8.5% 35,049 9,053
Related Party
Loans Loans from various shareholders of the
Companies, interest at 10 - 12%, with no
specific terms of repayment or maturity dates
Unsecured 98,327 183,944
-------- --------
260,070 585,815
Less: Current portion of principal 59,346 46,532
-------- --------
$200,724 $539,283
======== ========
Future minimum principal payments due on long-term liabilities for the
years ended November 30 are as follows:
2000 $ 59,346
2001 51,032
2002 51,365
Unscheduled shareholder loans 98,327
---------
$ 260,070
=========
8. SHARE CAPITAL
Underthe State of Delaware Certificate of Incorporation, NuPro's capital
stock is as follows:
(a) Authorized
20,000,000 shares of common stock, par value of $0.001
1,000,000 shares of preference stock, par value of $0.001, issuable
in series, with powers, preferences and relative, participating,
optional or other special rights, and qualifications, limitations,
or restrictions as fixed by the Board of Directors.
F-11
<PAGE>
NUPRO INNOVATIONS INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1999 AND 1998
- --------------------------------------------------------------------------------
(b) Issued
12,617,218 shares of common stock.
<TABLE>
<CAPTION>
Average Range Shares Amount Valuation
------- ----- ------ ------ ---------
<S> <C> <C> <C> <C> <C>
ISSUED DURING FISCAL 1996:
"Escrow" shares issued for cash $0.007 $0.007 750,000 $ 5,569 fair market value
Initial shares issued for cash $1.000 $1.000 2 2 fair market value
---------- ----------
750,002 5,571
---------- ----------
ISSUED DURING FISCAL 1997:
Issued for cash $0.366 $0.365-$0.366 535,855 195,857 fair market value
Issued for cash $0.524 $0.520-$0.540 169,933 89,000 fair market value
Issued for cash $0.731 $0.731 6,817 4,983 fair market value
Issued for cash $1.000 $1.000 31,000 31,000 fair market value
---------- ----------
743,605 320,840
---------- ----------
Issued for services $0.361 $0.360-$0.361 75,660 27,268 fair market value
Issued to pay services and debt $0.506 $0.505-$0.533 569,139 288,098 fair market value
Issued for services $1.000 $1.000 4,940 4,940 fair market value
---------- ----------
649,739 320,306
---------- ----------
ISSUED DURING FISCAL 1998:
Issued for cash $0.533 $0.514-$0.560 215,816 114,954 fair market value
Issued for cash $0.650 $0.650 9,886 6,425 fair market value
Issued for cash $0.750 $0.750 83,000 62,250 fair market value
Issued for cash $1.000 $1.000 236,687 236,687 fair market value
---------- ----------
545,389 420,316
---------- ----------
Issued to pay services, rent
and debt $1.000 $1.000 120,150 120,150 fair market value
---------- ----------
ISSUED DURING FISCAL 1999:
Issued for net assets of TrucTech -
exchange price set during 1998 $0.750 $0.750 7,333,333 5,500,000 fair market value
---------- ----------
Regulation S shares issued
for cash $2.000 $2.000 2,475,000 4,950,000 fair market value
---------- ----------
TOTAL SHARES ISSUED 12,617,218
==========
</TABLE>
In July, 1999 the escrow shares referred to above were returned to treasury
and redistributed to certain shareholders in accordance with the plan
previously authorized by the board of directors. 460,887 shares were
distributed to approximately 60 shareholders to equalize the initial issue
price paid and 289,113 were distributed to 7 shareholders to settle various
NuPro commitments.
(c) Share Purchase Options
Options to purchase 275,000 common shares are outstanding, and may be
exercised on the following basis:
NUMBER OF EXERCISE
SHARES PRICE EXPIRATION DATE
------ ----- ---------------
Directors 125,000 $4.00 December 31, 2002
Advisory Council 90,000 $4.00 December 31, 2000
Consultants 60,000 $1.00 December 31, 2002
F-12
<PAGE>
NUPRO INNOVATIONS INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1999 AND 1998
- --------------------------------------------------------------------------------
During fiscal 1998, each member of the Company's Board of Directors
received options to acquire 25,000 shares of the Company's common stock at
$4.00 per share as director compensation. In addition, each member of the
Advisory Council received options during fiscal 1998 to acquire 15,000
shares of the Company's common stock at $4.00 per share as advisory council
compensation. Since the exercise price substantially exceeds the current
market price of the stock, grant-date fair value has been assigned to the
options granted. No options have been exercised during fiscal 1998 or 1999.
Stock issued to acquire goods or services, other than employee services, is
valued at grant-date fair value.
REGULATION S
In an offering that closed July 7, 1999, the Company raised capital and
issued securities under Regulation S of the Securities Act. The issue,
totaling $6,000,000, consists of 1,500,000 shares of common stock at $2.00
per share, $3,000,000 in debentures convertible into shares of common stock
at a minimum of $2.00 per share, and warrants to purchase 1,500,000
additional shares of common stock at $2.50 per share, exercisable only
after the debentures have been converted. As of November 30, 1999,
$3,500,000 of the units subscribed had been paid with shareholders opting
to receive common shares directly in lieu of convertible debentures. The
remaining $2,500,000 has also been collected which resulted in the issuance
of an additional 725,000 common shares and convertible debentures totaling
$1,050,000. Interest will begin accruing on the debentures at 10% per annum
commencing January 1, 2000 with maturity on December 31, 2004. Warrants for
200,000 shares are subscribed but unpaid at $2.50 per share leaving
remaining unsubscribed or exercised warrants for 1,300,000 shares.
The debenture certificates have not yet been distributed in anticipation of
further conversions to common stock.
Interest has not been accrued on the subscribed and paid but undistributed
certificates. Management sold the debentures with the intent that interest
would not begin accruing until one year after their issue date. The
undistributed debentures, which prescribed interest payment beginning
approximately one year after the issue date of July 7, 1999, have been
revised for an accrual date of January 1, 2000. Accrual of interest through
November 30, 1999 would approximate $50,000 which would have been
capitalized as construction period interest. The debenture subscribers have
subsequently agreed to set the interest accrual date as January 1, 2000.
9. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
In the year ended November 30, 1998, 5,150 shares of NuPro, valued at
$5,150, were issued for services, 15,000 shares of NuPro, valued at
$15,000, were issued for rent, and 100,000 shares of NuPro, valued at
$100,000, were issued to settle debts of TrucTech.
The value of the shares issued in settlement of debt and services rendered
was at the fair value of the shares at the date of issuance. No income
taxes were paid and interest paid approximates the amounts disclosed as
expense.
F-13
<PAGE>
NUPRO INNOVATIONS INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1999 AND 1998
- --------------------------------------------------------------------------------
10. INCOME TAXES
NuPro potentially has losses for income tax purposes available to reduce
future taxable income of approximately $1,637,000. The potential benefit
($655,000) of these losses has not been reflected in the financial
statements since it is more likely than not that the losses will not be
utilized. These losses will begin expiring as of November 30, 2012.
Additionally, the limitations on these losses resulting from the business
combination has not been determined but could be substantial. Accordingly,
the valuation allowance equals the deferred tax asset.
TrucTech potentially has losses for income tax purposes available to reduce
taxable income of approximately $2,074,000. The potential benefit
($830,000) of these losses has not been reflected in the financial
statements since it is more likely than not that the losses will not be
utilized. The benefit of these losses may only be applied to future income
from the TracTop product. These losses will begin expiring as of December
31, 2004. Additionally, the limitations on these losses resulting from the
business combination have not been determined but could be substantial.
Accordingly, the valuation allowance equals the deferred tax asset. The
deductibility and carryover benefit of the amount paid to TrucTech
shareholders through issuance of TrucTech stock as "stock issued for
protection of investment" has not been determined and is excluded from the
above.
11. COMMITMENTS AND CONTINGENCIES
NuPro has lease commitments outstanding as follows:
MONTHLY ANNUAL MATURITY
------- ------ --------
Office - Tucson, Arizona $1,961 $25,332 March 31, 2000
Factory - Guaymas, Mexico 1,015 12,180 October 31, 2002
Future minimum lease payments due on leases for years ended November 30 are
as follows:
2000 $20,024
2001 12,180
2002 11,165
-------
$43,369
=======
See the above discussion regarding lessors contingent rights to inventory
and equipment of NuPro.
F-14
<PAGE>
NUPRO INNOVATIONS INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1999 AND 1998
- --------------------------------------------------------------------------------
On February 15, 1998 TrucTech and NuPro entered into an agreement with
Tooling Technology, canceling their option to acquire 3% of the issued and
outstanding TrucTech shares and settling in full the approximate $100,000
liability for production tooling in exchange for 100,000 shares of NuPro
stock and warrants to acquire an additional 100,000 shares at $1.25 per
share. Those warrants expired on June 30, 1998 without exercise.
CONTINGENCIES
TrucTech issued common shares to certain stockholders, officers and
directors to protect their investment. The calculated amount was based in
part on the value of services performed by these individuals during the
development stage of TrucTech and other pro-rata amounts. It has not been
determined for tax purposes if these shares will be considered capital
distributions or compensation to the recipients. The tax consequences of
this determination to the recipients could be substantial. The tax
consequences to TrucTech have not been determined, but are believed to be
immaterial. See further comments in Note 10.
YEAR 2000 COMPLIANCE
The year 2000 issue relates to misstatements that may result in computer
systems that use only two digits to record a year. The misstatements, which
may occur before, on, or after January 1, 2000, result when dates are used
in computations and comparisons. Company management believes it is
compliant with the SEC's requirement to evaluate and disclose the cost of
compliance. NuPro utilizes only popular retail software which asserts that
it is Y2K compliant. Additionally, management believes it is not currently
dependent on vendors or suppliers whose systems, if not compliant would
cause any material financial misstatements to NuPro.
MANAGEMENT TRANSITION
In May 1999, Luba Veselinovic entered into an agreement (on behalf of Krida
and the Veselinovic Children's Trust) with Gary Fitchett, personally and on
behalf of the Fitchett Family Trust, Pinecrest Consultants, Inc. and
Management Synergistics to purchase 1,000,000 shares of Fitchett's NuPro
shares for the aggregate price of $500,000. $250,000 of the purchase price
is payable on closing. Closing has not yet occurred because certain
conditions precedent to closing have not yet been satisfied. The remaining
$250,000 balance is payable by a note co-signed by Luba Veselinovic and
NuPro Innovation Inc. and is payable according to the following schedule:
MONTHLY ANNUAL
------- ---------
Year one $ 2,500 $ 30,000
Year two 5,000 60,000
Year three 7,500 90,000
Year four 10,000 70,000
---------
$ 250,000
=========
F-15
<PAGE>
NUPRO INNOVATIONS INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1999 AND 1998
- --------------------------------------------------------------------------------
The written agreement specifies a partial return of shares to Mr. Fitchett
if the note is not paid by August 31, 2004.
While NuPro is not the principal signer of the note, it is expected that
the cash flows will come from NuPro as payment of compensation or accrued
management fees to Luba Veselinovic or one of his affiliated entities.
Existing accrued management fees due to Fitchett of approximately $175,000
will be paid upon the earlier of (1) completion of a public offering of
NuPro shares or (2) annual profits earned in excess of required annual
capital expenditures and dividends. $175,000 of the management fees due to
Luba Veselinovic are also "frozen" and payable under the above mentioned
terms. Management fees in excess of $175,000 accruing to Luba Veselinovic
or his affiliates are payable out of available funds. The "frozen" fees may
otherwise be paid to make the note payments or personal obligations of
Veselinovic to Fitchett. An additional 200,000 shares were provided by
Fitchett to Veselinovic to use for special consideration at no charge.
$30,000 of the "frozen" fees are classified as current to allow payment of
the above purchase obligation of Mr. Veselinovic according to the above
schedule. Certain issues related to the written agreement are being
clarified by the parties. Management believes these issues will be resolved
in a manner that is not materially adverse to the Company.
CONSTRUCTION IN PROGRESS
NuPro and its Mexican Subsidiary are both involved with construction
projects as of November 30, 1999. NuPro is constructing an office, research
and storage facility in Tucson of approximately 12,500 square feet for a
total estimated cost of $1,200,000. The company is acting as its own
general contractor and is engaging various subcontractors to construct the
project. Payables to these contractors, included in accounts payable, total
approximately $193,000 as of November 30, 1999. As of November 30,
management estimates that the project is 37% complete, having incurred
costs to date of approximately $445,000 and estimate that $755,000 of
additional costs will be incurred through the completion of the project.
NuPro Innovation Mexico S.A. de C.V. is constructing two production
facilities in Guaymas, Sonora, Mexico, totaling approximately 32,000 square
feet for a total estimated cost of $1,235,600. An affiliate of NuPro
director, Ernesto Zaragoza, is acting as the general contractor and is
engaging various subcontractors to construct the project. Payables to these
contractors, included in accounts payable, total approximately $223,838 as
of November 30, 1999. As of November 30, management estimates that the
project is 75% complete, having incurred costs to date of approximately
$895,000 and further estimate that approximately $341,000 of additional
costs will be incurred through the completion of the project.
In addition to the direct costs of construction, management estimates that
an additional $699,000 will be expended during fiscal 2000 to furnish and
equip the Tucson facility and $1,116,000 will be expended during fiscal
2000 to furnish and equip the Guaymas facilities.
F-16
<PAGE>
NUPRO INNOVATIONS INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1999 AND 1998
- --------------------------------------------------------------------------------
12. RELATED PARTY TRANSACTIONS
During the periods, the following financial transactions were completed
with shareholders, directors, managers or employees who are deemed to be
related parties to each Company:
NUPRO
In June 1998, options to purchase 25,000 common shares at $4.00 per share
until December 31, 2002 were issued to each of five directors.
In June 1998, options to purchase 15,000 common shares at $4.00 per share
until December 31, 2000 were issued to each of six members of the advisory
council.
During 1998 rent was paid to a director for factory space in Guaymas,
Mexico of $12,180.
During 1998, management fees were accrued to two members of management for
fiscal 1998 in the amount of $180,000.
During 1998, management salaries were accrued to one member of management
covering the period of January 1997 to November 1998 in the amount of
$75,125.
During 1998, various unsecured loans bearing interest at 12% per annum were
made to the Company by shareholders. The balance outstanding at November
30, 1998 totaled $64,098.
During 1998, wages were paid to children of one director in the amount of
$16,436.
During 1998, common shares were issued as follows:
<TABLE>
<CAPTION>
RELATION NUMBER CONSIDERATION VALUATION
-------- ------ ------------- ---------
<S> <C> <C> <C>
Director and officer 60,000 45,000 cash Exercise of warrants
Director and officer 64,000 33,600 cash Exercise of warrants
Director and officer 23,000 17,250 cash Exercise of warrants
Children of a director 5,600 2,938 cash Fair market value
Members of advisory council 3,375 3,375 services Fair market value
Director 15,000 15,000 rent Fair market value
TrucTech creditor 100,000 100,000 debt settlement Fair market value
</TABLE>
TRUCTECH
During 1998 an unsecured loan bearing interest at 10% was made to the
Company by a director. The balance outstanding at November 30, 1998 was
$119,846.
On July 27, 1998, the TrucTech shareholders approved the issuance of the
shares, including shares to related parties to protect their investment.
This issuance resulted in the control group shares prior to merger as
disclosed below:
F-17
<PAGE>
NUPRO INNOVATIONS INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1999 AND 1998
- --------------------------------------------------------------------------------
ESTIMATED
TOTAL NUPRO SHARES
SHARES ON MERGER
--------- ---------
TrucTech shares held prior to merger:
Affiliated with Luba and Elke Veselinovic:
Krida Overseas Trading and Investments 320,867 2,027,253
Edda Schaecke 20,737 207,375
Veselinovic Children's Trust 161,642 1,104,412
NAFTA Technology, Trading and Consulting 80,327 473,960
Affiliated with Gary Fitchett:
Pinecrest Consultants, Inc. and
Fitchett Family Trust (See note 11) 171,771 1,261,918
Richard Fitchett 2,981 21,815
--------- ---------
758,325 5,096,733
--------- ---------
Percent of TrucTech shares 69.49%
=========
NuPro shares held prior to merger:
Affiliated with Luba and Elke Veselinovic:
Veselinovic Children's Trust 210,000 210,000
Affiliated with Gary Fitchett:
Fitchett family group 500,690 500,690
Gary Fitchett as trustee for
escrow shares (Note 8) 750,000 750,000
--------- ---------
1,460,690 1,460,690
--------- ---------
Control group totals:
Affiliated with Luba and Elke Veselinovic: 210,000 4,023,000
Affiliated with Gary Fitchett: 1,250,690 2,534,423
--------- ---------
1,460,690 6,557,423
========= =========
Percent of NuPro shares 50.39% 64.65%
========= =========
NUPRO CONSOLIDATED
During 1999 rent was paid to a director for factory space and demo line in
Guaymas, Mexico of $40,757.
F-18
<PAGE>
NUPRO INNOVATIONS INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1999 AND 1998
- --------------------------------------------------------------------------------
During 1999, management fees were accrued to two members of management in
the amount of $180,000.
During 1999, management salaries were accrued to one member of management
in the amount of $73,290.
During 1999, various unsecured loans bearing interest at 12% per annum were
made to the Company by shareholders. The balance outstanding at November
30, 1999 totaled $66,555.
During 1999, wages were paid to children of one director in the amount of
$12,033.
During 1999, NuPro Mexico advanced funds totaling $768,000, to Inversiones
de Guaymas, and other affiliates of Ernesto Zaragoza who is a director of
NuPro, for progress payments for facility construction. See Note 11.
13. NET LOSS PER SHARE
Restricted shares and warrants are not included in the computation of the
weighted average number of shares outstanding during the period as the
effect would be antidilutive. The 1999 net loss per common share is
calculated by dividing the consolidated loss by the 11,336,670 weighted
average number of shares outstanding during the year. The 1998 net loss per
common share is calculated by dividing the combined losses by the
10,142,218 shares outstanding after the business combination.
14. SECONDMENT AGREEMENT
NuPro entered into a "secondment" agreement effective December 1, 1998 with
Krida Overseas Investments Trading Limited, a Cyprus entity affiliated with
Luba Veselinovic, whereby Luba is employed by Krida to provide services to
NuPro at the rate of $12,500 per month. The initial term of the agreement
is five years but may be extended for additional five year periods. The
agreement may not be terminated during the initial term.
F-19
<PAGE>
PART III
ITEM 1. INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
2.1 Certificate of Domestication of the Company, dated August 7,
1997*
2.2 Certificate of Incorporation of the Company*
2.3 Bylaws of the Company*
3.1 Warrant to Purchase Shares of Common Stock of the Company*
3.2 Form of 10.00% Unsecured Convertible Debenture*
6.1(a) Technology License Agreement by and between Krida Overseas
Investments Trading Limited and the Company effective as of June
1, 1999*
6.1(b) Amendment No. 1 to Technology License Agreement by and between
Krida Overseas Investments Trading Limited and the Company dated
as of February 1, 2000**
6.1(c) Non-Disclosure and Confidentiality Agreement
6.2 Asset Purchase Agreement by and between TrucTech, Inc., and the
Company effective as of December 1, 1998*
6.3 Form of Indemnification Agreement for Members of the Board of
Directors*
6.4 Form of Indemnification Agreement for Members of the Advisory
Council*
6.5 Secondment Agreement by and between the Company and Krida
Overseas Investments Trading Limited dated as of December 1,
1998*
6.6 Form of Stock Option Agreement for Members of the Company's Board
of Directors*
6.7 Form of Stock Option Agreement for Members of the Company's
Advisory Council*
6.8 Office Building Lease between East Broadway 5151 Limited
Partnership and Luba Veselinovic and Elke Veselinovic, H & W, DBA
NuPro Innovations Inc. dated as of the 17th day of December,
1996*
6.9 First Amendment to Lease made the 17th day of April, 1998, by and
between East Broadway 5151 Limited Partnership and NuPro
Innovations Inc., formerly Luba Veselinovic and Elke Veselinovic,
Husband & Wife, dba, NuPro Innovations Inc.*
6.10 Second Amendment to Lease made the 22nd day of March, 1999, by
and between East Broadway 5151 Limited Partnership and NuPro
Innovations Inc., formerly Luba Veselinovic and Elke Veselinovic,
Husband & Wife, dba, NuPro Innovations Inc*.
6.11 Buy-Sell Agreement dated August 24, 1999 between Ernesto Zaragoza
de Cima and NuPro Innovation Mexico S.A. de C.V.**
-33-
<PAGE>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
6.12(a) Patent Agreement between John W. Martin and Judith Tyler Martin
and TracTop International, Inc. dated as of August 10, 1998**
6.12(b) Letter Agreement between John W. Martin and Judith Tyler Martin
and TracTop International, Inc. dated August 6, 1992**
6.13 Agreement between Luba Veselinovic, the Company and Gary A.
Fitchett dated May 24, 1999**
6.14 Lease between Ernesto Zaragoza de Cima and the Company effective
November 1, 1997**
12.1 Subsidiaries of the Company*
12.2 Letter on Change in Certifying Accountant**
12.3 Consent of S.E. Clark & Company, P.C. Independent Auditors
27 Financial Data Schedule**
- ----------
* Incorporated by reference from the Company's Form 10-SB Registration
Statement filed with the Commission on December 9, 1999.
** Incorporated by reference from Amendment No. 1 to the Company's Form 10-SB
Registration Statement filed with the Commission on February 16, 2000.
-34-
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
NUPRO INNOVATIONS INC.
Dated: April 21, 2000 By: /s/ Luba Veselinovic
------------------------------------
Luba Veselinovic, Chief Executive
Officer
-35-
EXHIBIT B
NON-DISCLOSURE AND CONFIDENTIALITY AGREEMENT
This Non-Disclosure and Confidentiality Agreement (the "Agreement") is
entered into and effective as of the _____ day of __________, 2000 by and
between ____________________ ____________________, a __________ corporation
("__________"), with offices at ____________________, and ____________________,
a ____________________ corporation ("__________") whose principal place of
business is ____________________. ____________________ and ____________________
may each be referred to as a "Party" and both as "Parties."
WITNESSETH
WHEREAS, Krida Overseas Investments Trading Limited, a Cyprus company
("Krida"), and NuPro Innovations Inc., a Delaware corporation ("NuPro"), entered
into that certain Technology License Agreement as of June 1, 1999 (the "License
Agreement"), pursuant to which Krida granted to NuPro certain rights to
manufacture, market, sell and distribute NuPro Material (as defined in the
License Agreement);
WHEREAS, Krida and NuPro agreed not to disclose any Confidential
Information (as defined in the License Agreement) in the License Agreement
unless the party receiving such Confidential Information agreed to the terms of
this Agreement;
WHEREAS, the Parties desire to engage in discussions concerning
______________________________ with each other for their mutual benefit in
connection with __________________________;
WHEREAS, it may be necessary for a Party to disclose Confidential
Information;
WHEREAS, the Parties desire to protect the confidentiality of any
Confidential Information disclosed or exchanged pursuant hereto.
NOW, THEREFORE, for and in consideration of the mutual promises and
obligations contained herein and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the Parties hereto
agree as follows:
AGREEMENT
1. DEFINITIONS
1.1 DISCLOSURE PARTY/RECEIVING PARTY. The party from whom any Confidential
Information originates is the "Disclosing Party." The Party to whom
any Confidential Information is disclosed is the "Receiving Party."
<PAGE>
1.2 CONFIDENTIAL INFORMATION. The term "Confidential Information" shall
have the meaning set forth in the License Agreement.
2. CONFIDENTIAL TREATMENT
The parties hereto agree that a Receiving Party and its Representatives
shall use the Confidential Information of the Disclosing Party solely for the
purpose of evaluating a negotiated transaction between __________ and
__________, that the Confidential Information of the Disclosing Party will be
kept confidential and that it and its Representatives will not disclose any of
the Confidential Information in any manner whatsoever. Each Party shall be
responsible for any breach of this Agreement by any of its Representatives and
each Party agrees, at its sole expense, to take all reasonable measures
(including, but not limited to, court proceedings) to restrain its
Representatives from prohibited or unauthorized disclosure or use of the
Confidential Information of the other party.
In addition, the parties hereto agree that, without the prior written
consent of the Disclosing Party, a Receiving Party and its Representatives will
not disclose to any other person the fact that the Disclosing Party's
Confidential Information has been made available to it, that discussions or
negotiations are taking place concerning a possible transaction between the
____________________ and _______________ or any of the terms, conditions or
other facts with respect thereto (including the status thereof) PROVIDED, that
either party hereto may make such disclosure if in the opinion of its outside
counsel such disclosure must be made in order that it not commit a violation of
law. The term "person" as used in this Agreement shall be broadly interpreted to
include the media and any corporation, partnership, group, individual or other
entity.
3. TERM
This Agreement is for an indefinite period of time unless earlier
terminated by an agreement in writing of the Parties.
4. APPROVED INDIVIDUALS
The Parties agree that access to Confidential Information will be
restricted only to those who have a material need for such Confidential
Information relating to the purpose for which it was disclosed and that access
to Confidential Information will be restricted only to employees and associates,
including, without limitation, any consultants or agents used or employed by the
receiving Party (the "Representatives"), who are bound by the terms of this
Agreement or other non-disclosure and confidentiality agreements that provide
the disclosing Party with all the protections against the disclosure included
herein. Upon the execution of this Agreement, the Parties shall become third
party beneficiaries of all such agreements. The Parties shall be responsible for
any breach of this Agreement by any of their Representatives.
2
<PAGE>
5. NOTICE OF REQUIRED DISCLOSURE
The parties hereto agree that in the event that a Receiving Party or any of
its Representatives are requested or required to disclose any of the
Confidential Information of the Disclosing Party, such Receiving Party shall
provide the Disclosing Party with prompt written notice of any such request or
requirement so that the Disclosing Party may seek a protective order or other
appropriate remedy and/or waive compliance with the provisions of this
Agreement. If, in the absence of a protective order or other remedy or the
receipt of a waiver by a Receiving Party, such Receiving Party or any of its
Representatives are nonetheless, in the written opinion of counsel, legally
compelled to disclose Confidential Information of the Disclosing Party to any
tribunal or else stand liable for contempt or suffer other censure or penalty,
the Receiving Party or its Representatives may, without liability hereunder,
disclose to such tribunal only that portion of the Disclosing Party's
Confidential Information which such counsel advises Receiving Party it is
legally required to disclose, provided that such Receiving Party exercises its
best efforts to preserve the confidentiality of the Disclosing Party's
Confidential Information, including, without limitation, by cooperating with the
Disclosing Party to obtain an appropriate protective order or other reliable
assurance that confidential treatment will be accorded such Confidential
Information by such tribunal.
6. DISPOSITION OF CONFIDENTIAL INFORMATION
All Confidential Information (and all copies thereof) furnished to the
Receiving Party or its Representatives, shall be promptly destroyed or returned
to the Disclosing Party within ten (10) days of a written request by the
Disclosing Party and no copy thereof (or notes, analyses, compilations,
interpretations or other documents prepared by the Receiving Party and its
Representatives in connection therewith) shall be retained. This Agreement shall
cover all disclosures made between the Parties during its Term and shall survive
the termination of the Parties' association. Notwithstanding the return or
destruction of Confidential Information, each party and its Representatives will
continue to be bound by the obligations of confidentiality and other obligations
hereunder.
7. PUBLICITY
Neither Party will publicly announce or disclose any term or condition
contained in this Agreement or in the Confidential Information, advertise or
release any publicity regarding this Agreement or the Confidential Information,
or disclose that the aforesaid discussions are taking place or the nature of
such discussions, without the prior written consent of the other Party,
provided, however, that each Party shall be entitled to make such disclosures as
may be required by law or court order, or necessary to enforce this Agreement,
and then only with prior written notice given as soon as reasonably possible to
the other Party.
8. SPECIAL PROCEDURES OR CONDITIONS
The transfer of Confidential Information hereunder may require special
procedures or conditions. In such cases, the specific procedures or conditions
shall be defined in an Addendum hereto and agreed to in writing by the Parties
prior to disclosure. Such Addendum may be modified from time to time by written
agreement of the Parties.
3
<PAGE>
9. NO WARRANTIES
Each party hereto understands and acknowledges that the other party and its
Representatives make no representations or warranties, express or implied, as to
the accuracy or completeness of such other party's Confidential Information.
Each party understands and agrees that no contract or agreement providing for
any transaction between ___________________ and ____________________ shall be
deemed to exist between the parties by reason of this Agreement, and each party
hereto hereby waives, in advance, any claims (including, without limitation,
breach of contract) in connection with any transaction between
__________________ and ___________________ unless and until _________________
and _________________ shall have entered into an agreement providing for the
same.
10. INJUNCTIVE RELIEF AND OTHER REMEDIES
The recipient of Confidential Information disclosed pursuant hereto agrees
that any breach or violation by any Party, its Representatives, or its or their
assignees or heirs, of its or their obligations under this Agreement would cause
irreparable injury to the disclosing Party. In any proceeding seeking injunctive
relief to prevent any breaches or violations of this Agreement, the disclosing
Party shall be entitled to appropriate injunctive relief without the posting of
any bond or other security upon a showing of likelihood of success on the
merits, and without a showing of irreparable harm, balancing of harms,
consideration of the public interest, or the inadequacy of monetary damages as a
remedy. In no event shall the injunctive relief described in this Section 10 be
considered the disclosing Party's exclusive remedy for any breach or violation
by the receiving Party or its Representatives of their obligations under this
Agreement.
11. INDEMNIFICATION
Any Party breaching any term or condition of this Agreement shall
indemnify, defend, and hold harmless the other Party from any claim, expense, or
liability arising from such breach, in addition to the remedies set forth in
Section 10 herein.
12. DISPUTE RESOLUTION
All claims, disputes and other matters in controversy (herein called
"dispute(s)") arising directly or indirectly out of or related to this
Agreement, or the breach thereof, whether contractual or noncontractual, and
whether during the term or after the termination of this Agreement, shall be
resolved exclusively according to the procedures set forth in this Section 12.
12.1 MEDIATION. Neither Party shall commence an arbitration proceeding pursuant
to the provisions of Section 12.2 below unless such Party shall first give
a written notice (a "Dispute Notice") to the other Party setting forth the
nature of the dispute. The Parties shall attempt in good faith to resolve
the dispute by mediation under the Commercial Mediation Rules of the
American Arbitration Association (AAA) in effect on the date of the Dispute
Notice. If the Parties cannot agree on the selection of a mediator within
twenty (20) days after delivery of the Dispute Notice, the mediator will be
selected by the AAA. If the Dispute has not been resolved by mediation as
4
<PAGE>
provided above within forty (40) days after delivery of the Dispute Notice,
then the Dispute shall be determined by arbitration in accordance with the
provisions of Section 12.2 hereof,
12.2 ARBITRATION.
12.2.1 Any dispute that is not settled through mediation as provided in
Section 12.1 above shall be resolved by arbitration in the City of
____________, _________, United States of America, governed by the Federal
Arbitration Act, 9 U.S.C. 1 et seq., and administered by the AAA under its
Commercial Arbitration Rules in effect on the date of the Dispute Notice,
as modified by the provisions of this Section 12.2, by a single arbitrator.
Each Party shall be entitled to strike on a peremptory basis, for any
reason or no reason, any or all of the names of potential arbitrators on
the list submitted to the Parties by the AAA. In the event the Parties
cannot agree on a mutually acceptable single arbitrator from the one or
more lists submitted by the AAA, the AAA shall designate three persons
which designees may, at the option of the Parties, include persons named on
any list previously submitted by the AAA. Each Party shall be entitled to
strike one of such three designees on a peremptory basis, indicating its
order of preference with respect to the remaining designees, and the
selection of the arbitrator shall be made from among such designee(s) which
have not been so stricken by either Party in accordance with their
indicated order of mutual preference to the extent possible. The arbitrator
shall base the award on applicable law and judicial precedent and, unless
both Parties agree otherwise, shall include in such award the findings of
fact and conclusions of law upon which the award is based. Judgment on the
award rendered by the arbitrator(s) may be entered in any court having
jurisdiction thereof. The arbitrator(s) shall award the prevailing Party in
the arbitration proceeding its reasonable attorneys' fees and costs
incurred in connection with such arbitration proceedings. In addition, the
arbitrator(s) shall have the authority to allocate at its/their discretion
the costs of administration of the arbitration proceedings.
12.2.2 Upon the application by either Party to a court for an order
confirming, modifying, or vacating the arbitration award, the court shall
have the power to review whether, as a matter of law based on the findings
of fact determined by the arbitrator(s), the award should be confirmed,
modified, or vacated in order to correct any errors of law made by the
arbitrator(s). In order to effectuate such judicial review limited to
issues of law, the Parties agree (and shall stipulate to the court) that
the findings of fact made by the arbitrator(s) shall be final and binding
on the Parties and shall serve as the facts to be submitted to and relied
on by the court in determining the extent to which the award should be
confirmed, modified, or vacated.
12.3 COSTS AND ATTORNEYS' FEES. If either Party fails to proceed with mediation
or arbitration as provided herein or unsuccessfully seeks to stay such
mediation or arbitration, or fails to comply with any arbitration award, or
is unsuccessful in vacating or modifying the award pursuant to a petition
5
<PAGE>
or application for judicial review, the other Party shall be entitled to be
awarded costs, including reasonable attorneys' fees, paid or incurred by
such other Party in successfully compelling such arbitration or defending
against the attempt to stay, vacate, or modify such arbitration award
and/or successfully defending or enforcing the award.
12.4 TOLLING STATUTE OF LIMITATIONS. All applicable statutes of limitations and
defenses based upon the passage of time shall be tolled while the
procedures specified in this Section 12 are pending. The Parties will take
such action, if any, required to effectuate such tolling.
13. MISCELLANEOUS
13.1 NO WAIVER. No failure or delay by either Party in exercising any
right, power or privilege shall operate as a waiver thereof, nor shall
any single or partial exercise thereof, preclude any other or further
exercise thereof, or the exercise of any other right, power or
privilege hereunder.
13.2 RELATIONSHIP OF THE PARTIES. Nothing contained in this Agreement shall
be construed as creating any obligation or an expectation by either
Party to enter into a business relationship with the other Party, or
an obligation to refrain from entering into a business relationship
with any third Party.
13.3 CHOICE OF LAW, CHOICE OF FORUM. The validity, interpretation,
performance and enforcement of this Agreement shall be governed by the
laws of the State of Arizona without regard to the conflict of laws
principles thereof. The Company hereby irrevocably and unconditionally
consents to the jurisdiction of the federal and state courts of the
State of Arizona (including the United States Bankruptcy Court for the
District of Arizona) for any action, suit or proceeding arising out of
or relating to this Agreement, and agrees not to commence any action,
suit or proceeding related thereto except in such courts. The Company
further hereby irrevocably and unconditionally waives any objection to
the laying of venue of any action, suit or proceeding arising out of
or relating to this Agreement in the federal and state courts of the
State of Arizona (including the United States Bankruptcy Court for the
District of Arizona), and hereby further irrevocably and
unconditionally waives and agrees not to plead or claim in any such
court that any such action, suit or proceeding brought in any such
court has been brought in an inconvenient forum. The parties further
agree that service of any process, summons, notice or document by U.S.
registered mail to the parties' addresses set forth above shall be
effective service of process for any action, suit or proceeding
brought against the parties in any such court.
13.4 SEVERABILITY. In the event of the invalidity of any portions of this
Agreement under any applicable law, the Parties agree that such
invalidity shall not affect the validity of the remaining portions of
this Agreement.
6
<PAGE>
13.5 AMENDMENTS. This Agreement may not be altered or amended except by
written agreement of the Parties hereto.
13.6 NOTICES. Any notices required or permitted hereunder shall be sent by
telegram or by Federal Express or similar overnight delivery service
(return receipt requested) or delivered by hand, to the Parties at
their respective addresses as set forth above. Any such notices shall
be effective on the earlier of (a) the date of its receipt or (b) the
date that is three (3) days after its mailing as provided herein. Each
Party shall provide notice to the other Party of any change in its
address in accordance with the provisions of this Section.
13.7 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original and all of
which together shall constitute one and the same Agreement.
13.8 SUCCESSORS AND ASSIGNS. This Agreement is binding on each Party's
successors and assigns including, without limitation, any affiliates,
subsidiaries or related Parties.
13.9 ENTIRE AGREEMENT. This Agreement and any Addendum thereto contain the
entire agreement between the Parties as to the subject matter hereof
and supersedes all prior oral or written agreements and understandings
between the Parties. No other representations have been made relating
to the subject mater hereof.
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
first date written above.
By: By:
--------------------------------- ---------------------------------
Name: Name:
------------------------------- -------------------------------
Title: Title:
------------------------------ ------------------------------
Telephone: Telephone:
-------------------------- --------------------------
Fax: Fax:
-------------------------------- --------------------------------
7
EXHIBIT 12.3
[LETTERHEAD OF S.E.CLARK & COMPANY, P.C.]
Consent of Independent Auditors
As independent auditors, we hereby consent to the inclusion of our report dated
January 14, 2000, in the Amendment No. 2 to Form 10-SB for NuPro Innovations
Inc. which includes the consolidated and combined financial statements of NuPro
Innovations Inc. for the periods ended November 30, 1999 and 1998.
/s/ S.E.Clark & Company, P.C.
Tucson, Arizona
April 18, 2000
