UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
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)
5151 E. Broadway Blvd., Suite 730, Tucson, Arizona 85711
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(Address of principal executive offices) (Zip Code)
(520) 571-0900
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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.
NUPRO(TM) AND NUPRO INNOVATIONS(TM) 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
5151 East Broadway Blvd., Suite 730, Tucson, Arizona, 85711. The Company's
telephone number is (520) 571-0900 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"), 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, 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.
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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.
* 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.
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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.
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.
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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 begin
providing 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
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.
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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 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
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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."
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
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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 first quarter of fiscal year 2000 on product testing and
capital expenditures for research and development equipment. The Company is
currently in the process of constructing new administrative and research and
development offices in Tucson, Arizona, consisting of approximately 12,000
square feet. 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.
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
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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 first 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 is currently in the process of constructing two
manufacturing facilities in Guaymas, Sonora, Mexico, consisting of approximately
186,000 square feet and new administrative and research and development offices
in Tucson, Arizona, consisting of approximately 12,000 square feet. The purpose
of the Company's Tucson offices will be 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 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
anticipates that the construction of the first phase of its manufacturing
facilities, which includes approximately 32,000 square feet, and its
administrative and research and development offices will be completed by the end
of the second quarter of fiscal year 2000 and will cost approximately $1,235,600
and $1,200,000, respectively. 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 and its administrative and research and development offices. 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 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.
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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," "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
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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 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."
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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
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.
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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
"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.
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
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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
On June 18, 1999, 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 effective as of December 1, 1998 (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."
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
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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
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.
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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 offices are located in
approximately 1,272 square feet of space in Tucson, Arizona. The Company
occupies these premises under a lease agreement expiring on March 31, 2000, and
providing for rent at a rate of $2,014 per month. 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 and new administrative and
research and development offices in Tucson, Arizona, consisting of approximately
12,000 square feet. The Company anticipates that the land and construction costs
of (i) the first phase of the manufacturing facilities will be approximately
$1,235,600 and (ii) the administrative and research and development offices will
be approximately $1,200,000. The Company anticipates that the construction of
the first phase of its manufacturing facilities, which includes approximately
32,000 square feet, and its administrative and research and development offices
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.
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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 January 15, 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.
NAME AND ADDRESS AMOUNT & NATURE OF
OF BENEFICIAL OWNER (1) BENEFICIAL OWNER PERCENT OF CLASS (2)
----------------------- ---------------- --------------------
5% STOCKHOLDERS
Bavaria Hotel Holding International
Gmbh 2,325,000(3) 17.36%
DIRECTORS AND EXECUTIVE OFFICERS
Luba Veselinovic 3,240,183(4) 25.68%
Ernesto Zaragoza de Cima 108,948(5) *
Lawrence J. McEvoy Jr. 126,805(6) 1.00%
Elke Veselinovic 3,240,183(7) 25.68%
Charles H. Green(8) 18,000(9) *
Reiner Becker(10) 525,000(11) 4.12%
All Executive Officers and
Directors as a Group (6 Persons) 4,018,936(12) 31.28%
- ----------
* Represents beneficial ownership of less than 1%.
(1) Except as otherwise indicated, each holder may be reached through the
Company at 5151 E. Broadway Blvd., Suite 730, Tucson, Arizona 85711.
(2) The percentages shown are calculated based upon 12,617,217 shares of Common
Stock outstanding on January 15, 2000. The numbers and percentages shown
include the shares of Common Stock actually owned as of January 15, 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 January 15, 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) Includes 775,000 shares of Common Stock subject to warrants exercisable
within 60 days of January 15, 2000.
(4) 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 January 15, 2000. Includes 25,000 shares
of Common Stock subject to options exercisable by Mrs. Veselinovic within
60 days of January 15, 2000.
(5) Includes 25,000 shares of Common Stock subject to options exercisable
within 60 days of January 15, 2000.
(6) 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 January 15, 2000.
(7) 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
January 15, 2000. Includes 15,000 shares of Common Stock subject to options
exercisable by Mr. Veselinovic within 60 days of January 15, 2000.
(8) Mr. Green was appointed a director of the Company on January 20, 2000.
(9) Includes 15,000 shares of Common Stock subject to options exercisable
within 60 days of January 15, 2000.
(10) Mr. Becker was appointed a director of the Company on January 20, 2000.
(11) 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 January 15, 2000.
(12) 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.
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<PAGE>
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
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.
-17-
<PAGE>
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 1998. From 1994 to 1998, Mr. Green served as
Managing Member of Southeast Capital Associates. 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 January
20, 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.
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.
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<PAGE>
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.
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<PAGE>
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
$100,000 (the "Named Executive Officers"), which includes salary and bonus
earned during the fiscal year ended November 30, 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION AWARDS
------------------------- ---------------------------------------------------
OTHER PAYOUTS
ANNUAL SECURITIES ---------------------
NAME AND COMPEN- RESTRICTED UNDERLYING LTIP ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS SATION 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 $150,000 per
year for the services of one or more employees of Krida Overseas, including
Mr. Veselinovic.
(2) The compensation payable to Krida Overseas for the services of Mr.
Veselinovic as President and Chief Executive Officer of the Company during
the fiscal year ended November 30, 1999 has been accrued but not paid by
the Company.
(3) Mr. Fitchett resigned as President and Chief Executive Officer of the
Company effective June 1, 1999.
(4) The compensation payable to Mr. Fitchett for his services as President and
Chief Executive Officer of the Company during the fiscal year ended
November 30, 1999 has been accrued but not paid by the Company.
OPTION GRANTS
The Company did not grant options to the Named Executive Officers
during the fiscal year ended November 30, 1999.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
VALUE OF
NUMBER OF SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS/ OPTIONS/SAR'S
SHARES SARS AT FY-END(#) AT FY-END($)
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
---- ----------- ----------- ------------- -------------
Luba Veselinovic 0 -- 15,000(1)/0 None
Gary A. Fitchett 0 -- 25,000(2)/0 None
- ----------
(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.
(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.
-20-
<PAGE>
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 Director 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, 1999, 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:
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
========
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<PAGE>
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."
On June 18, 1999, 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 effective as of December 1,
1998. 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.
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.
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<PAGE>
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 January 15, 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,
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.
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<PAGE>
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;
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.
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<PAGE>
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.
-26-
<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 has been quoted on the OTC Bulletin Board
under the symbol NUPP since August 21, 1998. 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 January 15, 2000 $3.1563 $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 January 15, 1999, there were approximately 176 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
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 Company cannot assure that
the SEC will come to such a position in regards to this registration statement
prior to the Company's phase-in date of February 24, 2000. According to the
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<PAGE>
eligibility rule, if the Company is not in compliance at its phase-in date the
Company's Common Stock will be removed from the OTC Bulletin Board. In that
event, the Company intends to move its listing to the National Quotation
Bureau's Pink Sheets. This delisting 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 January 15, 1999, 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.
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.
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<PAGE>
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.
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.
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<PAGE>
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 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
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<PAGE>
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 and 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>
S.E.CLARK & COMPANY, P.C.
- --------------------------------------------------------------------------------
Member: S.E.C. Practice Section of the American
Institute of Certified Public Accountants
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,
respectively, and the related consolidated and combined statements of
shareholders' equity, loss and deficit, and cash flows 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,
respectively, and the consolidated and combined results of its operations and
cash flows from inception and for the periods then ended in conformity with
generally accepted accounting principles.
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
- --------------------------------------------------------------------------------
(COMBINED)
DEFICIT
ACCUMULATED
DURING THE
(CONSOLIDATED) (COMBINED) DEVELOPMENT
1999 1998 STAGE
------------ ------------ ------------
(Restated)
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
=========== ===========
- --------------------------------------------------------------------------------
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 and TrucTech are for the eleven months ended November 30, 1998.
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 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 its name changed to NuPro Innovations Inc. from TracTop
Distributing 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 accumulated
depreciation. Depreciation is recorded on a straight-line basis during
commercial production at the following rates:
Building 3%
Production Equipment 10%
Automotive Equipment 20%
Office Equipment 10 and 20%
Management will periodically assess its ability to recover the cost of
its long-lived assets through cash-flows resulting from sales of related
products or the assets. Costs deemed not recoverable will be considered
impaired and the asset cost reduced by the estimated impairment. Since
the company is still in the development stage it is not yet possible for
management to assess whether an impairment, if any, exists.
(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 required that
the historic cost basis of the control parties be carried over. Thus, the
transaction is required to be 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 398,839 398,640
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)
1999 1998
-------- ---------
INVESTMENT IN UNUTILIZED PRE-PRODUCTION PLANT
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. Since the loss occurred soon
after the fiscal 1998 year end the financial statements have been restated to
recognize the asset impairment as of November 30, 1998.
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
======== ========
F-11
<PAGE>
- --------------------------------------------------------------------------------
NUPRO INNOVATIONS INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1999 AND 1998
- --------------------------------------------------------------------------------
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
Under the 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.
(b) Issued
12,617,218 shares of common stock.
F-12
<PAGE>
- --------------------------------------------------------------------------------
NUPRO INNOVATIONS INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1999 AND 1998
- --------------------------------------------------------------------------------
<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.
F-13
<PAGE>
- --------------------------------------------------------------------------------
NUPRO INNOVATIONS INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1999 AND 1998
- --------------------------------------------------------------------------------
(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
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.
F-14
<PAGE>
- --------------------------------------------------------------------------------
NUPRO INNOVATIONS INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1999 AND 1998
- --------------------------------------------------------------------------------
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.
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 there is no assurance that the losses will 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
there is no assurance that the losses will 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 has 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
covering the period of April 1997 to November 1998 in the amount of $270,000.
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.
F-17
<PAGE>
- --------------------------------------------------------------------------------
NUPRO INNOVATIONS INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1999 AND 1998
- --------------------------------------------------------------------------------
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:
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
6.2 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.
-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: February 15, 2000 By: /s/ Luba Veselinovic
-----------------------------------------
Luba Veselinovic, Chief Executive Officer
-35-
AMENDMENT NO. 1 TO THE
TECHNOLOGY LICENSE AGREEMENT
This AMENDMENT NO. 1 TO THE TECHNOLOGY LICENSE AGREEMENT (the "AGREEMENT")
is entered into as of this 1st day of February, 2000, between Krida Overseas
Investments Trading Limited, a Cyprus company ("KRIDA"), and NuPro Innovations
Inc., a Delaware corporation ("NII").
RECITALS
WHEREAS, Krida and NII entered into the Technology License Agreement as of
June 1, 1999; and
WHEREAS, Krida and NII desire to amend the Technology License Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, Krida and NII do each hereby agree as
follows:
I. Section 1.1 is removed in its entirety and the following be inserted
in lieu thereof:
1.1 "BUSINESS PLAN" shall mean NII's Business Plan, dated
February 1999, as updated from time to time.
II. Section 2.4 is removed in its entirety and the following be inserted
in lieu thereof:
2.4 LIMITATIONS ON EXCLUSIVENESS OF LICENSE. The license granted
under this Agreement will remain EXCLUSIVE until and through December
31, 2002. After December 31, 2002, the license granted under this
Agreement will continue to remain exclusive so long as Luba
Veselinovic is an executive officer of NII.
III. Section 2.5 is removed in its entirety and the following be inserted
in lieu thereof:
2.5 EFFECT OF LUBA VESELINOVIC'S DEPARTURE. If Luba Veselinovic
leaves NII after December 31, 2002 for any reason, including, but not
limited to death, or an illness or legal impairment that lasts for a
consecutive six (6) month period (a "DEPARTURE"), the license granted
under this Agreement will continue to remain exclusive if (i) NII's
aggregate annual sales volume for any complete calendar year following
Mr. Veselinovic's Departure is 50% or more of the sales forecasts for
NII which shall be determined by NII's Board of Directors, and (ii)
NII's aggregate annual increase in sales is equal to or greater than
10% with respect to the previous calendar year for each successive
calendar year following December 31, 2002.
IN WITNESS WHEREOF, the parties hereto, by their respective duly authorized
officers or representatives, have each executed this Agreement on the date and
year first above written.
KRIDA OVERSEAS TRADING LIMITED, NUPRO INNOVATIONS INC.,
a Cyprus corporation a Delaware corporation
By: /s/ Luba Veselinovic By: /s/ Elke Veselinovic
--------------------------------- ---------------------------------
Name: Luba Veselinovic Name: Elke Veselinovic
Its: President Its: Treasurer
I hereby certify that the following document is a fair and accurate English
translation of the Buy-Sell Agreement among Mrs. Claudia Alicia Marcos Touche,
in representation of and with general legal powers and dominion over Desarrollo
Inmobiliario Ernesto Zaragoza, a corporation of variable capital, and Nupro
Innovation de Mexico, a corporation of variable capital, represented by its Sole
Administrator, Ernesto Jesus Zaragoza de Cima.
/s/ Luba Veselinovic
-------------------------------------------
Luba Veselinovic, President and Chief
Executive Officer of NuPro Innovations Inc.
II. BUY - SELL AGREEMENT -
Entered into by the first party, Mrs. Claudia Alicia Marcos Touche, in
representation of, with general legal powers and dominion over "Desarrollo
Inmobiliario Ernesto Zaragoza", a corporation of variable capital as the
"Selling Party"; and a second party, "Nupro Innovation de Mexico", a corporation
of variable capital, represented by its Sole Administrator, Ernesto Jesus
Zaragoza de Cima, as the "Buying Party";
STATEMENTS -
For the purposes of this agreement, Mrs. Claudia Alicia Marcos Touche, in
representation of, with general legal powers and dominion over "Desarrollo
Inmobiliario Ernesto Zaragoza", a corporation of variable capital, makes the
following statement:
I. That the party she represents is the legal owner of a lot of land
located in a place known as "Roca Fuerte" adjacent to the International Highway,
on the north side of Guaymas, Sonora, identified as Section "B", with an area of
6,176.56 (Six Thousand One Hundred Seventy-Six And Fifty-Six Hundreths) square
meters, having the following dimensions and adjacent sections: on the north:
with 54.26 (Fifty-Four And Twenty-Six Hundreths) meters, and 106.68 (One Hundred
Six And Sixty-Eight Hundreths) meters, it is adjecent to Section "A", owned by
"Desarrollo Inmobiliario Ernesto Zaragoza, corporation of variable capital; on
the south: with 160.94 (One Hundred Sixty And Ninety-Four Hundreths) meters, it
is adjacent to Section A, owned by "Desarrollo Inmobiliario Ernesto Zaragoza,
corporation of variable capital; on the east: with 33.24 (Thirty-Three And
Twenty-Four Hundreths) meters, and 15.24 (Fifteen And Twenty-Four Hundreths)
meters, it is adjacent to Section "A", owned by "Desarrollo Inmobiliario Ernesto
Zaragoza, corporation of variable capital; and on the west: with 48.48
(Forty-Eight And Forty-Eight Hundreths) meters it is adjacent to the
International Highway.
<PAGE>
That said land was acquired by the represented party forming a larger area,
in a buy-sell agreement according to public deed 8,398 (Eight Thousand Three
Hundred Ninety-Eight), dated June twenty-eighth of the year nineteen hundred
ninety nine, issued by witness of Mr. Jose Guillermo Yepiz Rosas, Notary Public
Number Thirteen, in practice and residence within the corresponding Notary
District, which is entered in the Public Residential and Comercial Land Registry
of Guaymas, Sonora, number 54,964 (Fifty-Four Thousand Nine Hundred Sixty-Four),
Volume 579 (Five Hundred Seventy-Nine).
II. The "Selling Party" continues the statement under oath, that a request
was granted by the General Directorship of Planning and Development of the City
of Guaymas, Sonora to subdivide a property in two sections, Section "A" and
Section "B". Section "A" with an area of 13,181.70 square meters and Section "B"
with an area of 6,176.56 square meters, respectively, as recorded in document
DGPD/DPCU/381-99 (Three Hundred Eighty One Hyphen Ninety-Nine), dated August
Nineteen, Nineteen Hundred And Ninety-Nine, with Section "B" the one to be the
object of this buy-sell agreement; having been outlined in the first part of
this document.
III. That the property referred to in Statement number one (1) within this
document is free and clear of any liens and liabilities.
IV. That the property referred to in Statement number one (1) within this
document does not have any record of present use, provision, reserve, destiny
nor plan or resolution in connection to any rural or urban law of development in
the state of Sonora, nor in connection to any law of human settlement, written
in the Public Residential and Commercial Land Registry of this city.
V. Mrs. Claudia Alicia Marcos Touche continues her statement that the party
she represents has agreed to sell to "Nupro Innovation de Mexico", a corporation
of variable capital duly represented by its Sole Administrator, Mr. Ernesto
Jesus Zaragoza de Cima, who acquires the section of land described in the first
statement of this Buy-Sell Agreement, free of any lien or liability, is up to
date with all tax obligations, with no back payments due for utilities of water
and drainage, and with no limitations of dominion, property, or possession.
VI. Mr. Ernesto Jesus Zaragoza de Cima, declares under oath that the party
he represents, "Nupro Innovation de Mexico", a corporation of variable capital,
is a commercial entity constituted according to the laws of Mexico, having no
legal impediments, nor requiring special permission to acquire property or goods
within the Restricted Zone, according to Article 10 (ten) of the Laws of Foreign
Investments.
The above having been declared and accepted, the parties agree to the
following in good faith:
<PAGE>
CLAUSES
FIRST: Mrs. Claudia Alicia Marcos Touche, in representation of, with
general legal powers and dominion over "Desarrollo Inmobiliario Ernesto
Zaragoza", a corporation of variable capital, sells, cedes and formally
transfers, free of any lien or liability, up to date in the payment of taxes,
and with no back payments due on the services of water and drainage, to "Nupro
Innovation de Mexico", a corporation of variable capital, which acquires by
means of this act through Mr. Ernesto Jesus Zaragoza de Cima, as the Sole
Administrator, the Real Estate whose location, area, measurements and adjacent
sections has been described in this document, being wholly represented in this
clause with the entire description being made acceptable for any legal purpose.
SECOND: The transfer includes the lot of land which is the object of this
document, with its uses, customs, utility, availability and rights that are
within its boundaries, measurements and adjacent lots, forcing the "Selling
Party" to fall within the measures of eviction according to the law.
THIRD: The price settled upon within this transaction is $926,484.00 (Nine
Hundred Twenty-Six Thousand Four Hundred Eighty-Four) pesos (Mexican Currency);
the amount which the "Buying Party" has paid in cash to the "Selling Party"
having satisfied each party prior to the signing of this document, said
signature of the "Selling Party" makes this a legal receipt of the safe transfer
of the funds, without having any reason to file any complaints relative to this
transaction.
FOURTH: The parties agree that the mentioned price in the previous clause
is fair and legal, that both parties acted voluntarily and were not victims of
any fraud, error, hurt, bad faith, violence, ignorance, inexperience, illegal
advantage, and waive their rights to cancellation, annulment, reduction and
terms of exercising, as well as to the stipulations in Articles Eighteen,
Ninety-Four, One Thousand Nine Hundred Fifty-Two, One Thousand Nine Hundred
Fifty-Three and any related Articles of the present Civil Code of the State of
Sonora.
FIFTH: The parties declare that they accept this document on its merits,
the "Selling Party" stating that as of this moment it transfers material and
legal possession of the real estate mentioned in this document to the "Buying
Party", such act no being subject to any taxation since the property is
presently vacant.
SIXTH: The sale of the object of this document is carried out free of any
and all obligations, with no taxes due on the property, and no fees for
utilities due for water and drainage services, nor any other debts.
SEVENTH: Both parties also agree that all costs, taxes, rights and
honoraria generated by the execution of this document will be charged to the
"Buying Party".
PATENT AGREEMENT
This Agreement made as of the 10th day of August, 1988.
BETWEEN: JOHN W. MARTIN and JUDITH TYLER MARTIN, both of Michigan, U.S.A.
("Martins),
OF THE FIRST PART
- and -
TRACTOP INTERNATIONAL INC., a Corporation duly incorporated under the
laws of Barbados ("TTI"),
OF THE SECOND PART
WHEREAS:
1. Martins are the inventors of a new form of collapsible vehicle bed
enclosure (the "Invention"), as claimed in U.S. Patent No. 4,659,136 ("U.S.
Patent"), and are owners of rights in the Invention, including U.S. Patent
No. 4,659,136 and Patent Applications in Canada and Japan;
2. Martins have produced models, a series of engineering drawings, designs,
business plans, technical data, documents and other information in respect
of the Invention, and further improvements, modifications, applications and
embodiments related to the Invention, in respect of some of which patents
may be separately obtained (the "Technology"), and are willing to make the
same available to TTI pursuant to the provisions hereof;
3. The parties hereto enter into this Agreement for the purpose of allowing
practice by TTI (for the benefit of Martins and TTI, as hereinafter set
forth) of the said Invention, by manufacture and/or licensing of
manufacture, and sale, of products covered within the scope of the patented
Invention and/or pursuant to the Technology, as revised from time to time
("Products");
4. The parties acknowledge that TTI proposed to commence practice of the
Invention initially in the automotive market by manufacture and sale of a
collapsible pickup truck bed enclosure (the "Tractop"), and subsequently,
as deemed by it to be advisable, by manufacture of other Products for
different markets ("Subsequent Products");
5. The parties anticipate that, in order to facilitate manufacture and sales,
changes and modifications may from time to time be required in respect of
the Products;
6. The parties have fully complied with the provisions of a Patent and
Technology Transfer Agreement made the 21st day of July, 1988, and Martins
have accordingly assigned to themselves and TTI, jointly, subject to the
provisions herein set forth, the following:
(a) The U.S. Patent, and all rights derived thereunder;
<PAGE>
(b) The Canadian and Japanese patent applications, all rights derived
thereunder, all rights to apply for other patents in respect of the
said Invention, and all rights to registered and unregistered
trademarks in respect of the same;
(c) The exclusive right to exploit the Technology, and all future
developments, changes, modifications, embodiments and applications in
respect of the same, including the right to the full benefit of all
future patents granted in respect of the same.
NOW, THEREFORE, in consideration of the mutual obligations, covenants
and agreements contained herein, the other good and valuable consideration (the
receipt and sufficiency of which is hereby by each party acknowledged), the
parties hereto covenant and agree as follows:
1. PRACTICE OF INVENTION, EXPLOITATION OF TECHNOLOGY
1.1 By assignment of the U.S. Patent, patent applications, Technology and
rights described above, it is the intention of all of the parties that
TTI shall have all rights heretofore vested in Martins in respect of
worldwide manufacturing, application, distribution and sales of
Products.
1.2 Martins acknowledge and agree that during the currency of this
Agreement, they shall forbear in favour of TTI from practice of any of
the Invention or exercise of any rights assigned by Martins to Martins
and TII jointly and that:
(a) TTI shall have sole and exclusive authority and responsibility to
make all decisions in respect of manufacturing, application,
distribution and sales of the Products, including:
(i) Whether the Products should be manufactured directly by TTI,
and if so, the location or locations of manufacturing
plants;
(ii) Whether TTI should manufacture the Products in a joint
venture or similar arrangement with another or other
parties, and if so, the territorial areas in which such
joint venture manufacturing shall be conducted;
(iii)Whether to enter into licensing, franchising or similar
arrangements in respect of manufacture, application,
distribution or sales of the Products, and if so, the
territorial areas in which such arrangements shall be
conducted;
(iv) The full details and terms and provisions of any and all of
the above arrangements;
(v) All matters relating to exploitation of the Technology,
including application of the patents and Technology to
various potential markets, research and development,
advertising, promotion, etc.;
2
<PAGE>
it being the intention of the parties that the role of Martins
shall be restricted to receipt of certain payments for the
forbearance identified above ("Royalty Payments"), and
enforcement of their rights as hereinafter set forth, and that
the role of TTI in respect of exploitation of the Technology
shall be as if it was the sole owner of the U.S. Patent and all
other rights assigned by Martins pursuant to sub-paragraph 1.1
above;
(b) Martins shall execute all documents reasonably required by TTI
for the exercise of its powers outlined above, and for such
purpose they appoint the properly authorized officers of TTI as
their duly appointed attorney in that behalf.
2. ROYALTY PAYMENT STRUCTURE
2.1 For the purposes hereof, "First Sale" shall mean the first occasion on
which a Product is sold by a manufacturer, whether such sale is at
wholesale or retail;
2.2 TTI agrees that:
(a) If it shall directly manufacture Tractops, or manufacture the
same in joint venture or similar arrangement with any other party
("Direct Sale"), it shall pay to Martins, in the manner and on
the dates hereinafter set forth, a Royalty Payment of $U.S. 15.00
multiplied by the number of Direct First Sales of Tractops (less
all Tractops which are returned or for which refunds are
provided) during the applicable period;
(b) If it shall license or franchise any other parties to manufacture
Tractops ("Sub-Sale"), it shall set aside as Royalty Payments the
sum of $U.S. 15.00 multiplied by the number of Sub-Sale First
Sales of Tractops (less all Tractops which are returned or for
which refunds are provided) for which it shall have received
royalties during the applicable period, and shall pay the same to
Martins on the dates and in the manner hereinafter described;
(c) If it has paid to Martins, from the date hereof to December 30,
1990, Royalty Payments totaling less than $U.S. 150,000.00, TTI
shall pay to Martins such deficiency on or prior to December 31,
1990.
2.3 Martins and TTI agree that, if TTI shall in future decide to
manufacture or cause to be manufactured Subsequent Products, they will
negotiate in good faith the Royalty Payments that shall be made to
Martins (in consideration of its forbearance from practice of the
Invention or exercise of any rights referred to above), in respect of
sales of such Subsequent Products. If they shall be unable, prior to
commencement of the manufacture of Subsequent Products, to agree on
such Royalty Payments, TTI shall pay to Martins, on the dates and in
the manner hereinafter described, Royalty Payments based on the
aggregate First Sales (net of all returns and refunds) as set out
below:
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(a) For the first 15,000 First Sales of such Subsequent Product
during the applicable fiscal year of TTI: 4% of aggregate
wholesale prices;
(b) For the next 15,000 First Sales of such Subsequent Product during
the applicable fiscal year of TTI: 3% of aggregate wholesale
prices;
(c) For all First Sales in excess of 30,000 during the applicable
fiscal year of TTI: 2% of aggregate wholesale prices.
3. ROYALTY PAYMENTS AND REPORTS TO MARTINS
3.1 On the 25th day of each month TTI shall deliver to Martins:
(a) The applicable Royalty Payment on all Direct First Sales of
Tractops during the preceding full month, calculated in
accordance with 2.2(a) above;
(b) The applicable Royalty Payment on all Sub-Sale First Sales of
Tractops, during the preceding full month, calculated in
accordance with 2.2(b) above;
(c) The applicable Royalty Payment in respect of First Sales of
Subsequent Products calculated in accordance with 2.3 above.
3.2 TTI shall, every 3 months, on the 25th day of the applicable month,
deliver to Martins written reports of manufacture, distribution,
sales, other applications or developments of the Invention and
Technology, and applications (and progress on the same) for
patent/trademark/copyright/industrial design protection, during the
preceding full quarter:
(a) By TTI, whether directly or through joint venture or similar
arrangements, and
(b) By licensees and franchisees;
3.3 Within 3 months of the end of each fiscal year of TTI,
(a) TTI shall provide to Martins a final report (including an
accounting) on all Direct First Sales and Sub-Sale First Sales
during such fiscal year;
(b) TTI shall provide to Martins a written report (including an
accounting), in respect of activities undertaken and expenses
incurred in accordance with paragraph 4 below.
4. PROTECTION OF INVENTION AND TECHNOLOGY
4.1 TTI shall pay for prosecution of patent applications to allowance and
issuance (and, if TTI considers the same is required, trademark and/or
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copyright and/or industrial design registrations), and maintenance of
patents, trade marks, copyrights, and industrial designs, as
applicable in U.S., Canada and Japan;
4.2 TTI shall not sell any Products, or license or franchise any other
party to manufacture or sell Products, in any other country, without
first obtaining (if the same is available) reasonable
patent/trademark/copyright/industrial design protection.
4.3 If TTI considers that patent/trademark/copyright/industrial design
protection is required and available in any other country, or is
required and available in respect of improvements, modifications, or
other applications of the Invention, or in respect of other portions
of the Technology:
(a) Application for same shall be made by TTI in the joint name of
TTI and Martins, and for their joint benefit;
(b) Patents/trademarks/copyrights/industrial design protection
obtained shall be maintained by TTI for such period of time as it
considers appropriate, and shall be deemed to have always been
part of the Assignments by Martins herein;
(c) The expense of obtaining and maintaining such patent/trademark/
copyright/industrial design protection shall be paid by TTI
alone.
4.4 TTI agrees that, prior to declaration and payment of any dividends to
its shareholders, it shall reimburse Martins, to a maximum of $U.S.
50,000.00, all expenses (including patent attorneys' fees and
disbursements) incurred by them in filing or pursuing and maintaining
the U.S. Patent and the patent applications in Canada and Japan.
4.5 Validity of patents/trademarks/copyrights/industrial design:
(a) If any patents, trademarks, copyrights or industrial design
protection described above are impeached by other parties, TTI
may, in its discretion, defend and settle any such actions in the
joint name and on behalf of TTI and Martins; all expenses,
settlements and awards against TTI and Martins shall be paid by
TTI alone;
(b) If any patents, trademarks, copyright or industrial design
protection of TTI and Martins are infringed by other parties, TTI
may prosecute any such infringements in the joint name of and on
behalf of TTI and Martins, but at TTI's expense, and all funds
received by TTI on account of such infringement shall be owned by
TTI alone.
5. IMPROVEMENTS OR MODIFICATIONS TO INVENTION AND/OR TECHNOLOGY
5.1 If either of Martins or TTI shall identify or develop any improvement
or modification to the Invention and/or Technology:
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(a) It shall forthwith advise the other party, and provide all
technical information and written materials necessary to
implement such change;
(b) TTI shall reasonably consider all such improvements and
modifications, and may (but is not obliged to) implement such
change in manufacture of Products;
(c) Such change shall be deemed to have always been part of the
Technology and assigned pursuant to this Agreement;
5.2 If TTI shall identify or develop any major engineering improvement or
modification:
(a) Such change shall be subject to sub-paragraph 5.1 above; but
(b) TTI shall not implement such change without Martins written
approval, which shall not be unreasonably withheld;
(c) In any event, John W. Martin shall continue to be identified as
the Inventor.
6. ASSISTANCE AND DISCLOSURE BY MARTINS
6.1 Martins shall continue to make available to TTI all technical
information and written materials on its techniques, developments,
etc. in respect of the Invention and Technology.
6.2 Martins shall, as from time to time reasonably requested by TTI,
provide to TTI consulting advice in respect of the Invention and/or
Technology; if such consulting requires attendance by Martins'
personnel at TTI's premises for such purposes, TTI shall reimburse
Martins for all traveling expenses of such personnel, together with
reasonable compensation at U.S. going rate for time spent by such
personnel in consulting.
6.3 Neither Martins, nor any person on their behalf, shall during the term
of this Agreement, deliver, disclose or make available to any other
person any of the Technology; provided, however, that the obligation
contained herein shall not apply in respect of information that is, at
the date hereof, already in the public domain, or that shall be
disclosed on behalf of TTI as a necessary consequence of exploitation
of the Technology.
7. RECORDS
7.1 TTI shall keep, and require all joint venture parties, licensees and
franchisees to keep, complete and accurate books of account and
records of manufacture and sales;
7.2 Martins shall be entitled to inspect above records at all reasonable
times;
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7.3 Martins may conduct an independent audit of above records, at their
own expense unless such audit discloses a variance of more than 5%, in
which case such audit costs shall be borne by TTI or joint venture
party, license or franchisee, as the case may be.
8. TTI'S RESPONSIBILITIES
In addition to other responsibilities contained in this Agreement:
(a) TTI shall maintain, and cause its joint venture parties,
licensees and franchisees to maintain, reasonable standards of
quality in the licensees and franchisees to maintain, reasonable
standards of quality in the manufacture and distribution of the
Products;
(b) TTI shall use its best efforts to manufacture, sell, distribute,
promote and continue the sale of Products;
(c) TTI shall, in respect of all Direct Sales, apply, and shall, in
respect of licensed manufacturing, require its licensees and
franchisees to apply, on all Products, the legend "Patent
Pending" or, at such time as patent protection is obtained, the
applicable patent number as issued.
9. HOLD HARMLESS
9.1 TTI shall indemnify and save each of Martins harmless against all
claims, actions, suits and proceedings arising on account of the
faulty or improper manufacture of Products;
9.2 Martins shall indemnify and save TTI harmless against all claims,
actions, suits and proceedings arising on account of the faulty or
improper design of the Invention.
10. WARRANTY BY MARTINS
Martins represent and warrant to TTI that, as of the date hereof:
(a) They are collectively the owners of all rights in the Invention
and the Technology, assigned herein;
(b) The U.S. Patent is valid and in good standing;
(c) At the time of the assignments described in recital 6, they had
the right to make such assignments free from all encumbrances;
(d) No other licenses or other rights in respect of the Invention or
Technology have been granted, or any such licenses or other
rights are no longer in effect.
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11. TERMINATION
11.1 TTI agrees that, on the happening of any of the events set out below,
it shall forthwith release, assign and transfer over to Martins all
its rights and interests in all patents, copyrights, and trademarks
registered in their joint names and all rights hereunder, and
thereafter TTI shall not have any rights in respect of the Invention
or the Technology, and all such rights shall be vested in Martins
alone:
(a) Bankruptcy of TTI (except by action, direct or indirect, of
Martins);
(b) Appointment of a receiver of TTI's property (except by action,
direct or indirect, of Martins);
(c) Failure to pay to Martins the payments due to hereunder within 60
days of notice from Martins to TTI identifying such default.
11.2 TTI agrees that it shall execute all documents reasonably required by
Martins for the above purposes, and for such purposes it appoints the
properly authorized officers of TTI its duly appointed attorney in
that behalf.
12. NOTICES
Any notice or document required or permitted to be given shall be in
writing and may be:
(a) Delivered personally; or
(b) Given by mailing the same by prepaid certified post (in which
case it shall be deemed to have been received on the 3rd business
day following delivery to the Post Office during a period of
uninterrupted mail service); or
(c) Given by telegram (in which case it shall be deemed to have been
received on the next following business day); or
(d) Given by telex or telecopier (in which case it shall be deemed to
have been received on the next following business day)
to the parties hereto at the following addresses:
John and Judith Martin
3026 Bolgos Circle
Michigan 48105
U.S.A.
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Tractop International Inc.
146 Simcoe Street North
Oshawa, Ontario
Canada, L1C 4S7
Telecopier (416) 571-0735
13. GENERAL
13.1 TIME OF THE ESSENCE
Time shall be of the essence in this Agreement and every part thereof.
13.2 ENTIRE AGREEMENT
This Agreement expresses the entire and final agreement between the
parties with respect to all matters herein and shall not be amended,
altered or qualified except by a memorandum in writing signed by the
parties and any amendment, alternation or qualification thereof shall
be null and void and of no effect unless both parties have given their
consent as aforesaid.
13.3 COUNTERPARTS
This Agreement may be simultaneously executed in several counterparts,
each of which when so executed shall be deemed to be an original and
such counterparts together shall constitute but one and the same
instrument.
13.4 FURTHER ASSURANCES
The parties agree to execute all instruments in writing which may be
necessary or proper for carrying out the purpose or intent of this
Agreement.
13.5 SEVERABILITY OF PROVISIONS
The invalidity of any provisions of the Agreement or any covenant
herein contained on the part of either party shall not affect the
validity of any other provision or covenant hereof.
13.6 BINDING EFFECT
This Agreement shall be binding upon and enure to the benefit of the
parties hereto and their respective heirs, executors, administrators,
successors and assigns. This Agreement shall not be assigned by either
party except with the consent in writing of the other party.
13.7 LAWS OF ONTARIO
This Agreement shall be governed by and construed in accordance with
the Laws of the Province of Ontario, Canada.
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IN WITNESS WHEREOF the parties have hereunto duly executed this
Agreement.
SIGNED, SEALED AND DELIVERED
In the Presence of:
/s/ Gary Fitchett /s/ John W. Martin
- ------------------------------------ -----------------------------------
JOHN W. MARTIN
/s/ Gary Fitchett /s/ Judith Tyler Martin
- ------------------------------------ -----------------------------------
JUDITH TYLER MARTIN
TRACTOP INTERNATIONAL, INC.
By: Europe Services Limited for and
on behalf of Europe Services
Limited
/s/
-----------------------------------
[TRACTOP INTERNATIONAL, INC. LETTERHEAD]
August 6, 1992
To: John and Judith Martin
From: Luba Veselinovic
I am pleased to have had our lengthy discussions of yesterday and to have
reached final agreement. I am prepared to act on my own, without involving
lawyers.
We all know that things have not gone as well as desired, but not through lack
of effort on all our parts. I also have felt like giving up at times.
We need to get rid of the threat of deadlines and accept the current reality of
the market. Therefore, we have agreed on the following changes to our previous
agreement:
1. All matters are put into current status, without default.
2. We acknowledge the $150,000.00 owing to you, and it will continue, as a
debt without a fixed maturity date and without interest. It will be paid
when the majority of the Board of Directors decides that the company cash
position permits.
3. Royalties are to be reduced to:
Martins - $ 5.00 per unit
TracTop - $50.00 per unit
All notices of default are cancelled. Therefore, all agreements between us
(Martins/TracTop) are in good standing and will continue in force with changes
above.
I am pleased that we were able to resolve this matter, and establish a basis to
move forward together for the mutual success of all parties.
/s/ John W. Martin 8/6/92 /s/ Kelyndra Lowe 8/6/92
- --------------------------- --------------------------------
John W. Martin - Director Witness
/s/ Judith Tyler Martin /s/ Kelyndra Lowe 8/6/92
- ----------------------- --------------------------------
Judith Tyler/Martin - Director Witness
/s/ Luba Veselinovic /s/ Arthur A. Orofino
- -------------------- --------------------------------
Luba Veselinovic - President Arthur A. Orofino Witness
AGREEMENT, May 24, 1999
Luba Veselinovic, personally, and NuPro Innovations Inc.
("Veselinovic")
and
Gary A. Fitchett, personally and on behalf of Fitchett Family Trust,
Pinecrest Consultants, Inc. and Management Synergistics ("Fitchett")
WHEREAS NuPro Innovations, Inc. ("NuPro") has achieved required financing for
development of the business, and the role of Fitchett therein is substantially
completed, the following is an Agreement reached today between Veselinovic and
Fitchett in respect of future relationships and working arrangements in respect
of NuPro, for good and valuable consideration, the receipt of which is hereby
acknowledged:
The following agreements shall take place effective June 1, 1999, subject to
closing which shall be contemplated to take place on or before June 21, 1999.
All amounts herein are in U.S. dollars, except as set forth in Section 6 below:
1. Fitchett to resign as Chairman of the Board, Director, President and Chief
Executive Officer. Fitchett to be considered for appointment as a member of
the NuPro Advisory Council.
2. Fitchett to sell to designates of Veselinovic, 1,000,000 shares of NuPro
for the aggregate price of $500,000, to be paid as follows:
Cash on closing $250,000
By unsecured promissory note, co-signed by purchaser, Veselinovic, and
NuPro, and payments on account to be made by check as follows
During year one $ 2,500 per month
During year two 5,000 per month
During year three 7,500 per month
During year four 10,000 per month 250,000
If payment is not made in full by
August 31, 2004, 500,000 shares to
be returned immediately to Fitchett
3. Existing Option Agreement for 25,000 shares to be retained in force until
expiry date of December 2002.
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4. Existing office facilities at 110 Ambleside Drive, Port Perry, Ontario to
be suspended as of June 1, 1999 and the employment of Adrienne Fitchett to
be terminated. Adrienne to be paid a severance allowance of $5,000 on May
31, 1999, being approximately equal to three months notice.
5. Repayment to be made in cash of Fitchett's Officer's Expenses of
approximately $25,000 and loans of Pinecrest Consultants Inc. of
approximately $15,000. A minimum of $10,000 to be paid on account by May
31, 1999.
6. Suitable repayment terms to be negotiated (to be received in full no later
than May 31, 2000) in respect of amounts owing in Canadian $ of approximate
amounts to:
Bank of Montreal $15,000
CIBC 45,000
Smith Lyons 27,000
BDO Dunwoody 7,500
and Fitchett personal guarantees of bank loans to be released.
7. Existing accrued management fees of approximately $175,000 to be deferred
and arrangements made for payment thereof on the earlier of:
* settlement of accrued management fees owing to Luba Veselinovic/NAFTA,
except that Veselinovic may draw these funds for payment of personal
obligations to Fitchett
* completion of a public offering of shares by NuPro Innovations Inc.
* profits earned during the year in excess of the required capital
expenditures of the year and dividends
8. Fitchett/Management Synergistics to be retained for consulting assignments
to assist NuPro from time to time as arranged with NuPro at the rate of
$500 per day plus expenses.
9. Escrow Shares held in the name of Gary A. Fitchett, in trust to be signed
off for disposition as previously agreed.
10. All corporate documents in the possession of Fitchett to be forwarded to
Tucson on or before closing.
11. 200,000 shares to be provided to Veselinovic to use for special
considerations at no change.
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This Agreement signed in Tucson, Arizona and is subject to the laws of
Arizona.
/s/ Luba Veselinovic /s/ Gary A. Fitchett
- ------------------------------- -------------------------------
Luba Veselinovic Gary A. Fitchett
NuPro Innovations Inc. Pinecrest Consultants Inc.
Management Synerigistics
/s/ Elke Veselinovic Fitchett Family Trust
- -------------------------------
Per: Treasurer Per:
/s/ Gary A. Fitchett
-------------------------------
Witness:
/s/ Lawrence J. McEvoy, Jr.
- -------------------------------
LEASE
DATE:
Landlord: Ernesto Zaragoza de Cima
Address: Kilometro 129.5
Salida Norte
Guaymas, Sonora, CP 85400
Tenant: NuPro Innovations Inc.
Address: 5151 East Broadway Boulevard, Suite 730
Tucson, Arizona 85711
RECITALS:
A. Landlord is the true and lawful owner of the Premises, as described
below, and has the right to lease the same in the manner set forth in this
Lease.
B. Tenant desires to lease the Premises from Landlord and Landlord is
willing to lease the Premises to Tenant on the terms and conditions set forth
herein.
FOR VALUABLE CONSIDERATION, it is agreed as follows:
1. DESCRIPTION OF LEASED PREMISES. Landlord hereby leases to Tenant, and
Tenant hereby leases from Landlord, the real property described on Exhibit "A"
attached hereto, situated in the City of Guaymas, State of Sonora, Republic of
Mexico, together with all improvements presently located thereon and all
easements, appurtenances and rights related thereto (the "Premises" or the
"Leased Premises"); SUBJECT, HOWEVER, to current taxes and assessments,
reservations in patents and all rights-of-way, easements, covenants, conditions,
restrictions, obligations, liens, encumbrances, and liabilities of record as of
the date hereof, and to all zoning and building code requirements and other
governmental laws, rules, and regulations.
2. TERM. The initial term of this Lease (the "Initial Term") shall be for a
period of five (5) years, commencing on the 1st day of November, 1997, at 12:01
a.m., and continuing to 11:59 p.m. on the 31st day of October, 2002, subject to
the terms and conditions set forth in this Lease which may permit or provide for
an earlier termination. After the expiration of the Initial Term, this Lease may
be extended, at the option of the Tenant, for an additional five year period,
subject to the same terms and conditions as set forth herein.
3. RENTAL. Tenant shall pay to Landlord as rent during the term hereof, the
amount of $1,015.50 month, payable in advance on the first day of each month
during the term of this Lease without any deduction or offset.
<PAGE>
4. BUILDINGS AND IMPROVEMENTS; REPAIRS.
(a) Tenant agrees not to commit or permit any waste of the Leased Premises.
Tenant agrees to comply with all laws, ordinances, regulations, building
permits, governmental stipulations and conditions, covenants, conditions and
restrictions, public or private, affecting the Leased Premises and not to suffer
or permit any act to be done in or about the Leased Premises in violation
thereof.
(b) Tenant hereby accepts the Premises in their "as is" condition including
any and all defects, latent or otherwise, existing as of the Lease commencement
date or the date that Tenant takes possession of the Premises, whichever is
earlier, subject to all applicable zoning, municipal, county and state laws,
ordinances and regulations governing and regulating the use of the Premises, and
any covenants or restrictions of record, and accepts this Lease subject thereto
and to all matters disclosed thereby. Tenant acknowledges that neither Landlord
nor Landlord's agent has made any representation or warranty as to the present
or future suitability of the Premises for the conduct of Tenant's business.
(c) Tenant shall not remove, demolish or impair the structural character of
any existing improvement to the Leased Premises without Landlord's prior written
consent, which consent may be given or withheld in Landlord's sole and absolute
discretion. Tenant may, at its sole cost and expense, improve, construct,
remodel, reconstruct or alter improvements, structures, and buildings on the
Leased Premises; provided, however, all such work shall be done in compliance
with and pursuant to plans, drawings and specifications first approved in
writing by Landlord, which approval may be given or withheld in Landlord's sole
and absolute discretion. Any material modifications to any such plans, drawings
and specifications shall also require the prior written approval of Landlord,
which approval may be given or withheld in Landlord's sole and absolute
discretion. Tenant covenants that any such improvements, structures or buildings
shall conform to all applicable building codes, zoning and other governmental
regulations and restrictions and shall be constructed diligently, in a good and
workmanlike manner, using only high quality materials, and in full compliance
with all governmental laws, rules and regulations then relating hereto. Tenant
agrees to indemnify and hold Landlord harmless for, from and against any and all
claims for damages on the part of the owners, tenants, or occupants of adjacent
lands or buildings arising from the uses of the Leased Premises by or activities
of Tenant pursuant to this Paragraph, and Tenant agrees to take all necessary,
prudent and proper measures to protect the land and improvements of such
adjacent owners, tenants and occupants from injury of any nature arising from
any such use or activity.
(d) The parties agree, and notice is hereby given, that Tenant is not the
agent of Landlord for the construction, alteration or repair of any improvements
on the Leased Premises, the same being done at the sole direction and expense of
Tenant. All contractors, materialmen, mechanics, and laborers are hereby charged
with notice that they must look only to Tenant for the payment of any charge for
work done or material furnished on the Leased Premises during the term of this
Lease. Tenant shall have no right, authority or power to bind Landlord or any
interest of Landlord for the payment of any claim for labor or material, or for
any charge or expense, incurred by Tenant as to improvements, alterations or
repairs on or to the Leased Premises, and Tenant shall post notices on the
Leased Premises during all construction work of any nature whatsoever that
Landlord is not responsible for any material and labor used on the Leased
Premises.
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(e) Upon the termination of this Lease for any cause whatsoever, Tenant
shall immediately surrender peaceable possession of the Leased Premises, and all
buildings, improvements and fixtures then located thereon, all of which shall
thereupon be and become the property of Landlord (ordinary depreciation and
reasonable wear and tear excepted), subject, however, to the rights of removal
as provided in Paragraph 16. If the Leased Premises are not surrendered at the
end of the Lease term, Tenant shall indemnify Landlord for, from and against any
loss or liability resulting from delay by Tenant in so surrendering the
Premises, including without limitation, any claims made by any succeeding tenant
based on such delay. If Tenant or any successor in interest of Tenant should
remain in possession of the Leased Premises after the expiration of the Lease
term without executing a new lease, then such holding over shall be construed as
a tenancy from month to month, subject to all the covenants, terms, provisions
and obligations of this Lease. Nothing contained herein shall be construed as
Landlord's permission for Tenant to hold over or as limiting Landlord's remedies
against a holdover lessee. All keys shall be returned to the Landlord upon
surrender; failure of Tenant to return all keys shall obligate Tenant to pay all
necessary costs in changing the locks pertaining to the Leased Premises.
5. ENCUMBERING THE LEASED PREMISES. During the term of this Lease, Tenant
shall not cause or permit any lien, claim, charge or encumbrance of any nature
or description whatsoever to attach to or encumber the Leased Premises or any
part thereof.
6. INDEMNITY INSURANCE. Tenant covenants and agrees to indemnify and save
Landlord entirely harmless for, from and against each and every claim, demand,
liability, loss, cost, damage and expense, including, without limitation,
reasonable attorneys' fees and court costs, arising out of any accident or other
occurrence causing injury to or death of persons or damage to property by reason
of construction or maintenance of any improvements on the Leased Premises, of
any additions, alterations or renovations thereto, or due to the condition of
the Leased Premises, or the use or neglect thereof by Tenant or any agent,
employee, invitee, contractor, or customer of Tenant, or any other person, or
otherwise occurring upon the Leased Premises. Tenant further agrees to indemnify
and save Landlord and its interests in the Leased Premises entirely harmless
for, from and against all claims, demands, liabilities, damages and penalties
arising out of any failure of Tenant to comply with any of Tenant's obligations
under this Lease, including without limitation reasonable attorneys' fees and
court costs. This indemnity shall survive the expiration of this Lease or the
earlier termination thereof.
Tenant, at the sole cost and expense of Tenant, shall at all times during
the term of this Lease maintain in force an insurance policy or policies which
will name Landlord and Tenant as insureds insuring against all liability
resulting from injury or death occurring to persons in or about the Premises.
The original of such policy or policies shall remain in possession of Tenant;
provided, however, that Landlord shall have the right to receive from Tenant,
upon written demand, a duplicate policy or policies of any such insurance.
7. DAMAGE. If any buildings, structures or other improvements upon the
Leased Premises shall be destroyed or damaged in whole or in part by fire, or as
a result directly or indirectly of war, or by act of God, or occurring by reason
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of any other cause whatsoever, so as to render the Premises untenantable, this
Lease may be terminated at the election of either Tenant or Landlord, by sending
written notice thereof to the other party. In no event whatsoever shall Landlord
be required to repair, replace or restore any structure, building or other
improvement on the Premises as a result of any such damage or destruction, and
Landlord shall be entitled to retain any insurance proceeds received relating
thereto. Upon any termination of this lease pursuant to this Paragraph, Tenant's
rental obligations shall immediately cease, and except as otherwise expressly
provided herein, all of the obligations of Landlord and Tenant shall terminate.
8. TAXES AND ASSESSMENTS. Tenant shall pay to Landlord, at the same time as
any other rental payment is made to or for Landlord, an amount equal to the
amount of all personal property taxes, transaction privilege taxes, sales taxes,
or like taxes now or hereafter levied or assessed by the Republic of Mexico, the
State of Sonora or any municipal corporation or political subdivision upon such
rental, or the payment or receipt thereof, or which Landlord will be caused to
pay as a result of the receipt thereof, except that Tenant shall not be
obligated to pay to Landlord any amount on account of any income tax of
Landlord.
9. LANDLORD'S ACCESS TO PREMISES. Landlord and its agents, at all
reasonable times, shall have free and full access to the Premises for the
purpose of examining or inspecting the condition thereof, for the purpose of
determining if Tenant is performing the covenants and agreements of this Lease,
and for the purpose of posting such reasonable notices as Landlord may desire to
protect the rights of Landlord.
10. NO ABATEMENT. No abatement, diminution or reduction of the rent or
other charges payable by Tenant under this Lease shall be claimed by or allowed
to Tenant for any reason.
11. Sale by Landlord. Landlord may sell, transfer, assign or otherwise
dispose of the Premises, or this Lease, or any part thereof or interest therein,
without the consent of Tenant. Upon any such sale, transfer, assignment or
disposal of all of its interest in the Premises or this Lease, Landlord shall be
automatically relieved of all obligations hereunder. This Lease shall not be
affected by any such sale, transfer, assignment or disposal of Landlord's
interest, and Tenant agrees to attorn to Landlord's purchaser or assignee.
Tenant agrees to cooperate with Landlord in the marketing of the Premises to
prospective purchasers, including without limitation, by allowing access to the
Premises to any such prospective purchasers and Landlord's marketing agents or
consultants. Tenant further agrees that Landlord shall be entitled to place a
"For Sale" sign or signs on the Premises in such place or places as Landlord
shall reasonably determine.
12. SUBORDINATION.
(a) This Lease, at Landlord's option, shall be subordinate to any ground
lease, mortgage, bank trust, or any other hypothecation or security now or
hereafter placed upon the Premises and to any and all advances made on the
security thereof and to all renewals, modifications, consolidations,
replacements and extensions thereof. If any mortgagee, trustee or ground lessor
shall elect to have this Lease prior to the lien of its mortgage, deed of trust
or ground lease, and shall give written notice thereof to Tenant, this Lease
shall be deemed prior to such mortgage, deed of trust, or ground lease, whether
this Lease is dated prior or subsequent to the date of said mortgage, deed of
trust or ground lease or the date of recording thereof.
4
<PAGE>
(b) Tenant agrees to execute any documents required to effectuate an
attornment, a subordination or to make this Lease prior to the lien of any
mortgage, bank trust or ground lease, as the case may be. Tenant's failure to
execute such documents within ten (10) days after written demand shall
constitute a material default by Tenant hereunder, or, at Landlord's option,
Landlord shall execute such documents on behalf of Tenant as Tenant's
attorney-in-fact. Tenant does hereby make, constitute and irrevocably appoint
Landlord as Tenant's attorney-in-fact and in Tenant's name, place and stead, to
execute such documents in accordance with this Paragraph 14(b).
13. TENANT'S RIGHT TO MORTGAGE. Provided Tenant is not in default under
this Lease, and subject to the terms and conditions set forth in this Lease,
Tenant shall have the right to encumber its leasehold interest by one or more
mortgages, deeds of trust, security agreements or otherwise (a "Leasehold
Mortgage"); subject, however, to the limitations set forth in this Section 13.
Any such Leasehold Mortgage shall be subject and subordinate to the rights of
Landlord under this Lease.
(a) No holder of a Leasehold Mortgage on this Lease shall have the rights
or benefits set forth in this Section 13, nor shall the provisions of this
Section 13 be binding upon Landlord, unless and until Landlord has received
written notice of such Leasehold Mortgage.
(b) If Tenant shall enter into a Leasehold Mortgage pursuant to this
Section 13, then so long as any such Leasehold Mortgage shall remain unsatisfied
of record, the following provisions shall apply:
(i) NOTICE OF DEFAULT. Landlord, upon serving upon Tenant any notice
of default under this Lease, shall also serve a copy of such notice upon the
holder of such Leasehold Mortgage, at the address provided for in Section
13(b)(v).
(ii) RIGHT TO CURE. Any holder of such Leasehold Mortgage shall, in
case Tenant shall be in default under this Lease, shall, within the time period
and otherwise as herein provided, have the right to remedy such default, or
cause the same to be remedied, and Landlord shall accept such performance by or
at the instance of such holder as if the same had been made by Tenant.
(iii) NO DEFAULT. For purposes of this Section 13, no event of default
shall be deemed to exist if the default is with respect to the performance of
work, or of acts to be performed, or of conditions to be remedied, if steps
shall, in good faith, have been commenced within the time permitted therefor to
rectify the same and shall be prosecuted to completion with diligence and
continuity.
(iv) LANDLORD FORBEARANCE. Notwithstanding anything to the contrary
contained herein, upon the occurrence of an event of default, Landlord shall
take no action to terminate the Lease without first giving the holder of such
Leasehold Mortgage written notice thereof and a reasonable time thereafter
within which to either obtain possession of the Premises (including possession
by a receiver) or institute, prosecute and complete foreclosure proceedings or
otherwise acquire Tenant's interest under this Lease; so long as such holder
cures all defaults then reasonably susceptible of being cured by such holder.
5
<PAGE>
(v) DELIVERY OF NOTICE. Any notice or other communication which
Landlord shall desire or is required to give to or serve upon the holder of such
Leasehold Mortgage on this Lease shall be in writing and shall be served by
registered mail, addressed to such holder at its address as set forth in such
Leasehold Mortgage, or in the notice delivered to Landlord pursuant to Section
13(a) hereof, or at such other place as such holder may designate in writing to
Landlord.
14. REMOVAL OF PERSONAL PROPERTY AND TENANT'S FIXTURES AND TRADE FIXTURES.
Upon any termination of this Lease, ownership and possession of all buildings
and other permanent structures, if any, located upon the Premises as of such
date shall pass to Landlord; provided, however, Tenant may, if not in default
under any of the terms of this Lease and within a reasonable time after such
termination, remove any and all personal property, including, but not limited
to, furniture, equipment, and fixtures belonging to Tenant; provided, however,
Tenant shall repair any damage to any improvements on the Premises caused by
such removal. Upon any termination of this Lease, Tenant shall deliver to
Landlord, for Landlord's use at no cost to Landlord, copies of all engineering,
architectural and landscaping plans, all site plans, inspection reports,
marketing reports, tests, feasibility reports, and other documents relating to
the Premises.
15. DEFAULT. Upon the non-payment of the whole or any portion of the
rentals hereby reserved, or any other sum or sums of money due to Landlord under
the provisions hereof; or upon the non-performance by Tenant of any other
covenant or condition herein set forth on the part of said Tenant to be kept and
performed, Tenant shall be in default hereunder; provided, however, Landlord
shall not be entitled to exercise its remedies for default unless Landlord shall
have given Tenant written notice of the default and Tenant shall have failed to
cure such default on or before five (5) days after Tenant receives such notice,
if such default relates to the non-payment of money, or on or before thirty (30)
days after Tenant receives such notice, for any default other than non-payment
of money. Upon such default and the expiration of the respective
above-referenced grace period, it shall be lawful for Landlord, at its option,
to re-enter upon the Leased Premises and to again repossess and enjoy the same
and all the improvements thereon free of any claims or interest of Tenant
whatsoever, with or without terminating this Lease, at Landlord's sole election.
In addition, upon such default, Landlord shall be entitled to avail itself of
whatever remedies it may have at law or in equity for the collection of any
unpaid rentals hereunder, past and future, or for any damages that it may have
sustained by reason of the breach by Tenant of the terms and conditions hereof.
No termination of this Lease by forfeiture nor taking or recovering possession
of the Leased Premises shall deprive Landlord of any other action, right, or
remedy against Tenant. Any sum of money not paid within five (5) days after such
sum shall become due shall bear interest from the due date until paid at the
rate of twelve percent (12%) per annum.
16. WAIVER OF BREACH. No waiver by Landlord or Tenant of the breach of any
provision of this Lease shall be construed as a waiver of any preceding or
succeeding breach of the same or any other provision of this Lease, nor shall
the acceptance of rent by Landlord during any period of time in which Tenant is
in default in any respect other than payment of rent be deemed to be a waiver of
such default.
6
<PAGE>
17. ATTORNEYS' FEES. If any action is brought by any party to this Lease in
respect of its rights under this Lease, the prevailing party shall be entitled
to reasonable attorneys' fees and court costs as determined by the court. In the
event that any person who shall not be a party to this Lease shall institute an
action against Tenant in which Landlord shall be involuntarily and without cause
joined as a party, Tenant shall reimburse Landlord for all attorneys' fees
incurred by Landlord in connection therewith.
18. SEVERABILITY. The invalidity of any provision of this Lease, as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
19. RECORDING. Neither this Lease nor any memorandum of this Lease shall be
recorded or filed without Landlord's prior written consent, which may be given
or withheld by Landlord in its sole and absolute discretion.
20. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies
hereunder or at law or in equity.
21. QUIET ENJOYMENT. Conditioned upon Tenant paying the rent herein
provided and performing and fulfilling all the covenants, agreements,
conditions, and provisions herein to be kept, observed or performed by Tenant,
Tenant may at all times during the term hereby granted, peaceably, quietly, and
exclusively have, hold, and enjoy the Leased Premises.
22. ENTIRE AGREEMENT. This Lease sets forth all the promises, inducements,
agreements, conditions, and understandings between Landlord and Tenant relative
to the Leased Premises, and there are no promises, agreements, conditions, or
understandings, either oral or written, express or implied, between them other
than are set forth herein. No subsequent alteration, amendment, change, or
addition to this Lease shall be binding upon Landlord or Tenant unless in
writing and signed by each of them. Parole evidence shall never be admissible in
any court, tribunal, arbitration or governmental agency to modify, amend or vary
the terms of this Lease.
23. CONSTRUCTION. The titles which are used following the number of each
paragraph are so used only for convenience in locating various provisions of
this Lease and shall not be deemed to affect the interpretation or construction
of such provisions. The parties acknowledge that each party and its counsel have
reviewed and revised this Lease. This Lease shall not be construed for or
against Landlord or Tenant.
24. SUCCESSORS. Subject to the restrictions contained herein, this Lease
and all of provisions hereof shall be binding upon and inure to the benefit of
the successors and assigns of Landlord and Tenant.
25. GOVERNING LAW. The terms, conditions, covenants, and agreements herein
contained shall be governed, construed, and controlled according to the laws of
the State of Sonora, Republic of Mexico and the parties hereby submit to the
jurisdiction of the Courts of Guaymas, Sonora, Mexico.
7
<PAGE>
26. TIME IS OF THE ESSENCE. Time is of the essence of this Lease and in the
performance of all of the covenants and conditions hereof.
Landlord:
/s/ Ernesto Zaragoza de Cima
----------------------------------------
ERNESTO ZARAGOZA DE CIMA
Tenant:
NUPRO INNOVATIONS INC.
By: /s/ Luba Veselinovic
----------------------------------------
Its: Luba Veselinovic
8
<PAGE>
EXHIBIT A
Leased Premises
Two hundred twenty seven (227) square feet of office space, one thousand one
hundred fifty five (1,155) square feet of space for prototype tool fabrication,
and one thousand one hundred (1,100) square feet of space for model fabrication,
for a total of two thousand four hundred eighty two (2,482) square feet located
at Kilometro 129.5 Salida Norte, Guaymas, Sonora Mexico and more particularly
described as ____________________________.
February 7, 2000
U.S. Securities and Exchange Commission
450 Fifth Street N.W.
Washington, D.C.
20549
Gentlemen:
RE: AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT
ON FORM 10-SB OF NUPRO INNOVATIONS INC.
We have read the section titled "Changes in and Disagreements With Accountants"
included in Amendment No. 1 to the Registration Statement on Form 10-SB of NuPro
Innovations Inc. originally filed with the Securities and Exchange Commission on
December 9, 1999, and are in agreement with the statements contained therein.
Yours very truly,
/s/ BDO Dunwoody LLP
CHARTERED ACCOUNTANTS
Per: Robert W. Babensee, C.A.
Partner
S.E.CLARK & COMPANY, P.C.
- --------------------------------------------------------------------------------
Member: S.E.C. Practice Section of the American Institute
of Certified Public Accountants
CONSENT OF INDEPENDENT AUDITORS
As independent auditors, we hereby consent to the inclusion of our report dated
January 14, 2000, in the Amendment No. 1 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
February 11, 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
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMBINED
FINANCIAL STATEMENTS OF NUPRO INNOVATIONS INC. FOR THE PERIODS ENDED NOVEMBER
30, 1998 AND 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> NOV-30-1998 NOV-30-1999
<PERIOD-START> DEC-01-1997 DEC-01-1998
<PERIOD-END> NOV-30-1998<F1> NOV-30-1999
<CASH> 2,458 4,387,983
<SECURITIES> 0 0
<RECEIVABLES> 3,902 0
<ALLOWANCES> 0 0
<INVENTORY> 2,633 2,246
<CURRENT-ASSETS> 21,885 4,401,818
<PP&E> 503,957 2,126,035
<DEPRECIATION> (82,840) (102,649)
<TOTAL-ASSETS> 769,305 6,522,208
<CURRENT-LIABILITIES> 370,361 1,089,304
<BONDS> 539,283 1,250,724
0 0
0 0
<COMMON> 10,142 12,617
<OTHER-SE> (470,481) 3,849,563
<TOTAL-LIABILITY-AND-EQUITY> 769,305 6,522,208
<SALES> 0 0
<TOTAL-REVENUES> 0 114,891
<CGS> 0 0
<TOTAL-COSTS> 3,995,598 699,789
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 69,046 65,619
<INCOME-PRETAX> (4,064,644) (650,517)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (4,064,644) (650,517)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (4,064,644) (650,517)
<EPS-BASIC> (.40) (.06)
<EPS-DILUTED> (.40) (.06)
<FN>
THE FINANCIAL STATEMENTS FOR THE PERIODS ENDED NOVEMBER 30, 1998 REFLECT THE
SUBSEQUENT BUSINESS COMBINATION OF NUPRO INNOVATIONS, INC. AND TRUCTECH, INC.
</FN>
</TABLE>
