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U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended May 31, 2000
Commission File Number: 000-28433
NUPRO INNOVATIONS INC.
(Name of Small Business Issuer in its Charter)
DELAWARE 86-0893269
(State or Other Jurisdiction (IRS Employer
of Incorporation) Identification Number)
3296 East Hemisphere Loop
Tucson, Arizona 85706-5013
(Address of Principal Executive Offices)
(520) 547-3510
(Registrant's Telephone Number, Including Area Code)
Securities Registered Under Section 12(g) of the Act:
Common Stock, par value $.001 per share
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
As of July 14, 2000, there were 12,617,218 shares of the Common Stock,
$.001 par value, of the Company outstanding.
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TABLE OF CONTENTS
PART I: FINANCIAL INFORMATION
PAGE
----
Item 1. Financial Statements.......................................... 3
Item 2. Plan of Operation............................................. 9
PART II: OTHER INFORMATION
Item 1. Legal Proceedings ............................................ 19
Item 2. Changes in Securities and Use of Proceeds..................... 19
Item 3. Defaults Upon Senior Securities............................... 19
Item 4. Submission of Matters to a Vote of Security Holders........... 19
Item 5. Other Information............................................. 20
Item 6. Exhibits and Reports on Form 8-K.............................. 20
SIGNATURES................................................................. 21
2
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PART I
FINANCIAL INFORMATION
NUPRO INNOVATIONS INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
AS OF MAY 31, 2000 AND NOVEMBER 30, 1999
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MAY 31 NOVEMBER 30
2000 1999
---------- ----------
(Unaudited)
ASSETS
CURRENT
Cash $2,371,195 $4,387,983
Accounts Receivable 163,561 --
Inventory 2,246 2,246
Prepaid Expense 31,647 11,589
---------- ----------
Total Current Assets 2,568,648 4,401,818
PROPERTY AND EQUIPMENT 3,080,585 2,023,386
OTHER
Accounts Receivable - TopTrac, S.A. de C.V 90,189 90,189
Deposits 8,339 6,815
---------- ----------
98,528 97,004
---------- ----------
$5,747,751 $6,522,208
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT
Notes payable $ 19,159 $ 119,390
Accounts Payable 307,224 542,224
Accrued Liabilities 93,614 41,130
Accrued Management Fees and Salaries 722,214 647,214
Current position of long-term liabilities 149,795 157,673
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Total Current Liabilities 1,292,006 1,507,631
LONG-TERM LIABILITIES 85,106 102,397
CONVERTIBLE DEBENTURES 1,050,000 1,050,000
COMMITMENTS AND CONTINGENCIES --
SHAREHOLDERS' EQUITY 3,320,649 3,862,180
---------- ----------
$5,747,761 $6,522,208
========== ==========
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NUPRO INNOVATIONS INC. (UNAUDITED)
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF LOSS AND DEFICIT
SIX MONTHS ENDED MAY 31, 2000 AND 1999
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<TABLE>
<CAPTION>
(COMBINED)
DEFICIT
ACCUMULATED
DURING THE
MAY 31 MAY 31 DEVELOPMENT
2000 1999 STAGE
------------ ------------ -----------
<S> <C> <C> <C>
Revenue - Interest Earned $ 88,536 $ 575 $ 203,427
------------ ------------ -----------
Costs and expenses:
Development, pre-production, and administration 533,033 310,463 3,564,585
Stock issued for investor "sweat equity" 3,252,600
Loss on impairment and disposition of properties 321,794
Financial, primarily interest 54,409 34,237 746,044
Depreciation and amortization 9,873 9,432 148,637
------------ ------------ -----------
597,315 354,132 8,033,660
------------ ------------ -----------
Loss before income tax benefits (508,779) (353,557) (7,830,233)
Income tax benefits -- -- --
------------ ------------ -----------
Net loss $ (508,779) $ (353,557) $(7,830,233)
============ ============ ===========
Net loss per common share (basic and diluted) $ (0.04) $ (0.03)
============ ============
Weighted average shares outstanding 12,617,218 10,142,218
============ ============
Other comprehensive income (loss):
Foreign currency translation adjustment $ (32,752) $ -- $ (32,752)
------------ ------------ -----------
Total comprehensive income (loss) $ (541,531) $ (353,557) $(7,862,985)
============ ============ ===========
</TABLE>
4
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NUPRO INNOVATIONS INC. (UNAUDITED)
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF LOSS AND DEFICIT
THREE MONTHS ENDED MAY 31, 2000 AND 1999
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MAY 31 MAY 31
2000 1999
------------ ------------
Revenue - Interest Earned $ 40,207 $ 122
Costs and expenses:
Development, pre-production, and
administration 273,255 171,369
Financial, primarily interest 30,432 15,698
Depreciation and amortization 6,308 4,716
------------ ------------
309,995 191,783
------------ ------------
Loss before income tax benefits (269,788) (191,661)
Income tax benefits -- --
------------ ------------
Net loss $ (269,788) $ (191,661)
============ ============
Net loss per common share (basic and diluted) $ (0.02) $ (0.02)
============ ============
Weighted average shares outstanding 12,617,218 10,142,218
============ ============
Other comprehensive income (loss):
Foreign currency translation adjustment $ (32,752) $ --
------------ ------------
Total comprehensive income (loss) $ (302,540) $ (191,661)
============ ============
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NUPRO INNOVATIONS INC. (FKA TRUCTECH, INC.)
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF SHAREHOLDERS' EQUITY
PERIODS ENDED MAY 31, 2000
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<TABLE>
<CAPTION>
SHARES (NOTE 8) SHARE CAPITAL AMOUNT ADDITIONAL ACCUMULATED
CLASS B CLASS B PAID IN DONATED DEVELOPMENT
COMMON PREFERRED COMMON PREFERRED CAPITAL CAPITAL STAGE LOSS TOTAL
------ --------- ------ --------- ------- ------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CAPITAL ISSUED DURING DEVELOPMENT STAGE:
Issued for cash 1,100 $ 1,100 $ 98,900 $ 100,000
Issued to TracTop US, Inc. 1,000 1,000 69,000 70,000
---------- -------- -------- ----------- ----------- -----------
AS OF DEC. 31, 1989 AND 1990 2,100 -- 2,100 -- 167,900 -- 170,000
Return of capital -- (12,000) (12,000)
Issued for cash 687 687 104,313 105,000
---------- -------- -------- ----------- ----------- -----------
AS OF DECEMBER 31, 1991 2,787 -- 2,787 -- 260,213 -- 263,000
Return of capital -- (8,000) (8,000)
Retirement of shares (724) (724) 724 --
Issued for note to shareholder 1,473 1,473 (1,473) --
---------- -------- -------- ----------- ----------- -----------
AS OF DECEMBER 31, 1992 3,536 -- 3,536 -- 251,464 -- 255,000
Retirement of TracTop US shares (1,000) (1,000) (59,000) (60,000)
Shares issued for acquisition
of net assets of TracTop
International 2,755 2,755 65,430 68,185
Issued for cash 600 600 78,521 79,121
---------- -------- -------- ----------- ----------- -----------
AS OF DECEMBER 31, 1993 5,891 -- 5,891 -- 336,415 -- 342,306
Issued for cash 433 433 96,992 97,425
Issued for conversion of
shareholder loans 89 83,851 89 838,501 19,936 858,526
Issued for interest 29,006 290,058 290,058
Issued for SBA loan guarantee 4,000 40,000 40,000
Contributed capital, land 82,500 82,500
---------- -------- -------- ----------- ----------- ------ -----------
AS OF DECEMBER 31, 1994 6,413 116,857 6,413 1,168,559 453,343 82,500 1,710,815
Issued for cash 240 240 59,760 60,000
---------- -------- -------- ----------- ----------- ------ -----------
AS OF DEC. 31, 1995 AND 1996 6,653 116,857 6,653 1,168,559 513,103 82,500 1,770,815
DEFICIT ACCUMULATED
TO DECEMBER 31, 1997 $(2,284,243) (2,284,243)
---------- -------- -------- ----------- ----------- ------ ----------- -----------
BALANCE, DECEMBER 31, 1997 6,653 116,857 6,653 1,168,559 513,103 82,500 (2,284,243) (513,428)
Issued as stock dividend to
recapitalize company:
On common shares 56,280 56,280 (56,280) --
On class B preferred -- 74,360 455,436 (455,436) --
Issued for "sweat equity"
of investors 837,067 837,067 2,415,533 3,252,600
Net loss as previously stated -- -- -- -- -- -- (3,323,157)
Loss on asset impairment (71,841)
-----------
Net loss as restated (3,394,998) (3,394,998)
----------- -----------
BALANCE, NOVEMBER 30 1998 900,000 191,217 900,000 1,623,995 2,416,920 82,500 (5,679,241) (655,826)
---------- -------- -------- ----------- ----------- ------ ----------- -----------
Capital restructure on
acquisition of the net
assets by NuPro (900,000) (191,217) (900,000) (1,623,995) (2,416,920) (82,500)
Stock issued to acquire NuPro 10,142,218 10,142 6,200,456 (991,696) 195,487
Stock issued under
Regulation-S 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
Total comprehensive loss
(unaudited) (541,531) (541,531)
---------- -------- -------- ----------- ----------- ------ ----------- -----------
BALANCE, MAY 31, 2000 12,617,218 -- $ 12,617 $ -- $11,171,017 -- $(7,862,985) $ 3,320,649
========== ======== ======== =========== =========== ====== =========== ===========
</TABLE>
6
<PAGE>
NUPRO INNOVATIONS INC. (UNAUDITED)
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOW
SIX MONTHS ENDED MAY 31, 2000 AND 1999
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<TABLE>
<CAPTION>
(COMBINED)
ACCUMULATED
DURING THE
MAY 31 MAY 31 DEVELOPMENT
2000 1999 STAGE
----------- ----------- -----------
<S> <C> <C> <C>
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Net loss for the period $ (508,779) $ (353,557) $(7,830,233)
Adjustments to reconcile net loss
to net cash
Depreciation 9,873 9,432 148,637
Loss on Disposal of obsolete equipment 130,141
TrucTech stock issued for "sweat equity" 3,252,600
NuPro Stock issued for rent and services 70,108
Impairment Loss on unutilized pre-production plant 71,841
Interest and fees paid with TrucTech stock 330,058
Accounts receivable (163,561) 1,487 (253,750)
Inventories (2,246)
Prepaid Expense (20,058) 4,192 (31,647)
Accounts payable and accrued liabilities (182,515) 41,627 472,988
Payables and accruals paid with NuPro stock 370,348
Accrued management fees and salaries 75,000 159,960 722,214
----------- ----------- -----------
(790,040) (136,859) (2,548,941)
----------- ----------- -----------
INVESTING ACTIVITIES
Purchase of capital assets (1,067,072) (2,212) (3,574,818)
Deposits (1,524) (17,254) (8,339)
----------- ----------- -----------
(1,068,596) (19,466) (3,583,157)
----------- ----------- -----------
FINANCING ACTIVITIES
Notes payable (100,231) (3,184) 19,159
Increase in (repayment of) long-term liabilities (25,169) 12,832 367,273
Advances from (repayments to) shareholders 98,327
Increase in convertible debentures 1,050,000
Increase (decrease) in other comprehensive income (32,752) (32,752)
Common stock subscribed and paid 3,584,061 7,001,286
----------- ----------- -----------
(158,152) 3,593,709 8,503,293
----------- ----------- -----------
INCREASE (DECREASE) IN CASH FOR THE PERIOD (2,016,788) 3,437,384 2,371,195
CASH, BEGINNING OF PERIOD 4,387,983 2,458 --
----------- ----------- -----------
CASH, END OF PERIOD $ 2,371,195 $ 3,439,842 $ 2,371,195
=========== =========== ===========
</TABLE>
7
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NUPRO INNOVATIONS INC. (UNAUDITED)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO INTERIM FINANCIAL STATEMENTS
SIX MONTHS ENDED MAY 31, 2000 AND MAY 31, 1999
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1. The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles, pursuant to the rules and
regulations of the Securities and Exchange Commission. In the opinion of
management, all adjustments, consisting of normal recurring accruals, have
been made which are necessary for a fair presentation of the financial
position of the Company as of May 31, 2000 and May 31, 1999 and the result
of operations and cash flows for the three month periods then ended.
Certain information and footnote disclosures normally included in financial
statements have been condensed or omitted pursuant to such rules and
regulations. Interim results are not necessarily indicative of the results
to be expected for the entire fiscal year. The disclosures in the audited
financial statements and the notes thereto included in the Company's Annual
Report on Form 10-KSB for the year ended November 30, 1999 should be read
in conjunction with these interim financial statements.
2. Certain liabilities, including a shareholder loan and accrued management
fees which total approximately $418,000, and which management believes will
not be paid within the current fiscal year, have been reclassified from
long-term to current on the November 30, 1999 balance sheet because the
agreements did not contain specific repayment dates.
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ITEM 1. PLAN OF OPERATION.
The following Plan of Operation provides information that management of
NuPro Innovations, Inc. (the "Company"), believes is relevant to an assessment
and understanding of the Company's business and should be read in conjunction
with the attached Condensed Consolidated Financial Statements and Notes thereto,
with the Company's audited Consolidated Financial Statements and the Notes
thereto, and the Plan of Operation Item in the Company's Annual Report on Form
10-KSB for the year ended November 30, 1999.
NUPRO(TM) AND NUPRO INNOVATIONSTM ARE TRADEMARKS OR TRADE NAMES OF THE
COMPANY.
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-QSB 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, unpredictability of operating results, intense competition in various
aspects of its business, the risks of rapid growth, the Company's dependence on
key personnel, uncertainty of product acceptance, changes in laws and
regulations, changes in economic conditions and an inability to obtain
financing, as well as those discussed elsewhere in this Form 10-QSB. 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 is
based.
OVERVIEW
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 Quarterly Report on
Form 10-QSB, 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. 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.
On 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"), for an
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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, employees, and stockholders of the
Company were also directors, officers, employees, and stockholders of TrucTech.
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 a Technology License Agreement (the
"Krida License") between the Company and Krida Overseas.
INTELLECTUAL PROPERTY
The Company relies on a combination of trade secret, nondisclosure, and
other contractual arrangements, confidentiality procedures, 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
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 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.
PRODUCT APPLICATIONS
The Company continues to work in 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
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Company is developing applications for the NuPro Material for a truck bed
enclosure 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 or the beginning of the first quarter of 2001.
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 in July 1999 of
securities in units that included shares of Common Stock, unsecured convertible
debentures, and warrants pursuant to Regulation S promulgated under the
Securities Act (the "Regulation S Offering"). The Company received $6,000,000 in
proceeds from the Regulations S Offering. 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.
BUSINESS STRATEGY
The focus of the Company will remain on provision of 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.
* 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.
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 during the
next 12 months. The Company anticipates that during the next 12 months such
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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. 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 third 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
During the first quarter, the Company completed a new administrative and
research and development offices in Tucson, Arizona, consisting of approximately
12,000 square feet, at a cost of approximately $1,200,000. The Company's Tucson
offices will provide research and development facilities to enhance the NuPro
Material and existing product applications and to create new product
applications. The Company's Tucson offices 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 of
the Company's employees and future customers. The Company plans to build two
manufacturing facilities in Guaymas, Sonora, Mexico, consisting of approximately
186,000 square feet. The Company completed the construction of the first phase
of its manufacturing facilities, which includes approximately 32,000 square
feet, during the second quarter of fiscal year 2000 at a cost of approximately
$1,235,600. The Company considers its current facilities to be sufficient for
its current and anticipated operations for the next 12 months.
During the second quarter of fiscal year 2000, the Company ordered
approximately $1,000,000 of production equipment. The Company expects to
purchase additional production equipment for approximately $200,000 during the
third quarter of fiscal year 2000. The Company plans to install and test all of
its production equipment during the third and fourth 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 under varying conditions. The Company anticipates
that it will incur total costs of approximately $1,815,000, in connection with
the purchase, installation and testing of the production equipment. 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.
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
In addition to the other information in this Quarterly Report on Form
10-QSB, the following important factors should be carefully considered in
evaluating the Company and its business because such factors currently have a
significant impact or may have a significant impact on the Company's business,
prospects, financial condition and results of operations.
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
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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
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.
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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
intellectual property rights that do not afford the statutory exclusivity
possible for patented products and processes. To protect its proprietary
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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.
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.
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
On June 18, 1999, the Company closed the TrucTech Acquisition of
substantially all of the assets and liabilities of 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 Acquisition was US $5,500,000, which was satisfied by the issuance of
7,333,333 shares of Common Stock (the "Shares"). 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 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 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.
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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.
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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
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.
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
All legal proceedings and actions involving the Company or its property,
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 effect on the Company's business or
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.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On March 30, 2000, the Company held its 2000 Annual Meeting of Shareholders
(the "Annual Meeting"). Stockholders representing 8,782,757 shares or 69.6% of
the shares entitled to vote at the Annual Meeting (12,617,218 shares) were
present in person or by proxy. All of the directors standing for re-election
were elected at the Annual Meeting and all the proposals were passed. The
following sets forth the voting results on the election of directors and the
proposals submitted to shareholders at the Annual Meeting:
1. Election of Directors.
Director Votes for Votes withheld
-------- --------- --------------
Ernesto Zaragoza de Cima 8,782,757 -0-
Lawrence J. McEvoy Jr. 8,782,757 -0-
Elke Veselinovic 8,782,757 -0-
Charles H. Green 8,782,757 -0-
Reiner Becker 8,782,757
2. Approval of S.E. Clark & Company P.C. as independent auditor:
Votes for Votes Against Abstentions
--------- ------------- -----------
8,782,757 -0- -0-
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ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
The following exhibit is included herein:
No. Description
--- -----------
27 Financial Data Schedule
(b) Reports on Form 8-K:
None.
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
NUPRO INNOVATIONS INC.
Date: July 20, 2000 By: /s/ Luba Veselinovic
------------------------------------
Name: Luba Veselinovic
Title: Chief Executive Officer and
President (Principal Executive
Officer)
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
Dated: July 20, 2000 By: /s/ Elke Veselinovic
------------------------------------
Elke Veselinovic
Treasurer, Director
(Principal Financial Officer)
Dated: July 20, 2000 By: /s/ Ernesto Zaragoza de Cima
------------------------------------
Ernesto Zaragoza de Cima
Vice President, Director
Dated: July 20, 2000 By: /s/ Lawrence J. McEvoy Jr.
------------------------------------
Lawrence J. McEvoy Jr.
Secretary, Director
Dated: July 20, 2000 By: /s/ Charles H. Green
------------------------------------
Charles H. Green
Director
Dated: July 20, 2000 By: /s/ Reiner Becker
------------------------------------
Reiner Becker
Director
21
