UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 3
TO
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
UNDER SECTION 12(B) OR 12(G)
OF THE SECURITIES EXCHANGE ACT OF 1934
NUPRO INNOVATIONS INC.
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(Name of Small Business Issuer in its Charter)
Delaware 86-0893269
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(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
3296 East Hemisphere Loop, Tucson, Arizona 85706-5013
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(Address of principal executive offices) (Zip Code)
(520) 547-3510
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(Issuer's Telephone Number)
Securities to be registered under Section 12(b) of the Act:
None
Securities to be registered under Section 12(g) of the Act:
Common Stock, par value $.001 per share
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EXPLANATORY NOTE
The Company is filing this Form 10-SB Registration Statement on a voluntary
basis in order to comply with recently enacted rules of the National Association
of Securities Dealers, Inc., which require, among other things, the Company to
become a reporting company with the Securities and Exchange Commission ("SEC")
under Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), in order for the Company to remain eligible for listing on
the Over-the-Counter Bulletin Board.
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
of America under the name "NuPro Innovations Inc." When used in this
registration statement, unless the context requires otherwise, the term
"Company" or "NuPro" 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 , incorporated under the laws of the United Mexican States ("Mexico").
The Company is a development stage corporation with its principal offices
located at 3296 East Hemisphere Loop, Tucson, Arizona 85706-5013. The Company's
telephone number is (520) 547-3510 and its web site is www.nuproinnovations.com.
Information on the Company's web site does not constitute part of this
registration statement.
Pursuant to an asset purchase agreement, effective December 1, 1998 (the
"Purchase Agreement"), the Company acquired (the "TrucTech Acquisition")
substantially all of the assets and liabilities of TrucTech, Inc., a Georgia
corporation ("TrucTech"). Pursuant to generally accepted accounting principles
in the United States of America ("U.S. GAAP"), the TrucTech Acquisition is
accounted for as a "reverse acquisition" whereby NuPro is considered the
acquired corporation, and TrucTech is considered the surviving corporation. The
net effect of the TrucTech Acquisition is that, as of the acquisition date,
NuPro acquired all of the outstanding stock of TrucTech. Under the terms of the
TrucTech Acquisition, the Company acquired TrucTech's assets and assumed
TrucTech's liabilities in exchange for 7,333,333 shares of the Company's common
stock, par value $0.001 per share ("Common Stock"), which represented
approximately 73% of the Company's outstanding Common Stock immediately
following the TrucTech Acquisition. Pursuant to the TrucTech Acquisition, the
Company acquired the use of and the right to commercialize a composite plastic
industrial engineering material (the "NuPro Material"). 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
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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.
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 has developed applications for the NuPro Material for a truck bed
enclosure ("TracTop") and is in the process of developing a pallet top. The
Company anticipates that it will begin manufacturing certain product
applications by the first quarter of fiscal 2001.
TRACTOP. TracTop is a permanently installed retractable, self-storing
truck-bed enclosure that enables its users to make fast and easy conversion
between covered and open-bed operation. The Company plans to offer TracTop in
different sizes and designs to allow for the use of TracTop in many different
makes, models, and sizes of trucks. TracTop's key features include accessibility
to truck-bed, security and protection of cargo, ease of operation, and
attractiveness of design.
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The Company's TracTop product application is subject to a perpetual patent
agreement, as amended, dated as of August 10, 1988, that assigns the U.S. patent
and other rights related to the TracTop product application to the Company and
permits the Company to manufacture and sell the TracTop product. In connection
with the patent agreement, the Company must pay a royalty fee of $5.00 per unit
of TracTop product and an amount equal to $150,000 from profits of TracTop
products sold to certain independent third parties. To date, the Company has no
sales of its TracTop product and, as a result, has paid no royalties pursuant to
the patent agreement.
The Company intends to develop a distribution network for TracTop, either
directly or through strategic alliances in the United States. In the Mexican
market, the Company anticipates that the TracTop product will be manufactured
pursuant to an oral agreement with TopTrac S.A. de C.V., an entity incorporated
under the laws of Mexico, 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 achieved 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.
Negotiations are currently in progress with other parties for the purchase
of turnkey manufacturing lines with respect to the pallet product and other
applications 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 first quarter of
fiscal year 2001.
DECK BOARDS. In February 1998, the Company entered into an oral agreement
with Erwin Industries Inc. ("Erwin Industries") of Atlanta, Georgia, for the
design, feasibility study, engineering, and prototyping of an innovative design
for a deck board at a cost of $30,000. The Company is negotiating a contract
with Erwin Industries relating to the manufacture of deck boards with the NuPro
Material, which the Company believes may consist of approximately $2,200,000 for
two turnkey manufacturing lines and up to $15,000,000 annually for the supply of
chemicals to such manufacturing lines operating at full production levels after
start-up phase-in based upon Erwin Industries manufacturing projections and
initial specifications of one 16-foot deck board per minute and a 24-hour per
day manufacturing schedule. Certain production scale manufacturing tests with a
full-size production mold must be completed prior to contract finalization.
Pricing of this production mold design, engineering, and manufacturing is being
completed for submission to Erwin Industries for approval and payment. There is
no assurance that the Company and Erwin Industries will be able to reach a final
agreement with respect to the manufacturing of the deck boards with NuPro
Materials on terms that will be favorable to the Company if at all. The Company
anticipates that it will be ready to provide turnkey manufacturing lines and the
NuPro Material to manufacturers for the production of deck boards with the NuPro
Material by the first quarter of fiscal year 2001.
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
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prototypes to the developer and are currently undergoing field testing and
evaluation. Initial performance of the NuPro Material and the driver technology
appears to be meeting the requirements for this application. The Strategic
Machinery Agreement provides for the golf club to be manufactured by the Company
at its Mexico plant as a joint venture with Strategic Machinery Solutions, on
terms to be determined. In consideration for the Company's manufacture of the
golf club, the golf club which will be initially limited to golf drivers, will
be marketed under the name of the NuPro Driver.
PALLET TOP. The Company is negotiating an agreement with NRPP Inc. of
Atlanta, Georgia, a material handling sales and consulting organization, for the
development of a pallet top product application of the NuPro Material.
Consummation of an agreement with NRPP Inc. will not occur until the Company
provides samples of the Pallet Top produced with the NuPro Material, which the
Company does not expect to occur prior to the first quarter of fiscal year 2001.
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 been scheduled to commence in the first quarter of fiscal year 2001.
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 and
Venezuela that it anticipates will be the primary suppliers for the Company,
however, the Company currently has no supply contracts for the purchase of such
chemical compounds. The Company will require high-grade chemicals with specific
properties for the NuPro Material. Accordingly, the Company expects to monitor
shipments of chemicals closely for compliance with the Company's standards.
Although the Company has had no difficulty in obtaining adequate supplies of
chemicals to date, the Company anticipates that its needs for such chemicals
will increase significantly when it begins to supply manufacturers with the
proprietary chemicals necessary for the Company's turnkey manufacturing
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packages. The Company's inability to obtain high-grade chemicals would have a
material adverse effect on the Company's business, financial condition, and
results of operations.
COMPETITION
The Company competes with other manufacturers of composite industrial
materials such as steel, plastics, fiberglass, and wood. While some of the
Company's competitors compete only on a regional basis due to the significant
relative impact of freight costs, the Company anticipates that it will initially
attempt to market and sell the NuPro Material to manufacturers throughout the
United States and Mexico. While many of the Company's competitors limit their
services to one or more of the following: (i) design and prototype; (ii)
producing machinery and tooling; or (iii) providing raw materials, the Company
expects to provide all such services. The Company believes that it will compete
with companies that serve existing manufacturers with established manufacturing
operations seeking a less expensive manufacturing process or higher quality
product, or new manufacturers in need of a turnkey manufacturing package for
production.
The Company's success requires its continued development of product
applications and its sales and marketing of the NuPro Material to manufacturers.
The Company's competitors in the steel, plastics, fiberglass, and wood
businesses, among others, are more established and have greater name recognition
and marketing resources than the Company. In addition, while the competing
industrial materials have achieved market acceptance, the NuPro Material is
still being commercialized and there is no assurance that it will be able to
achieve and maintain market acceptance. See "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 malleability, 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
expenditure 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
"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 "Plan of Operation - Factors that May
Affect Future Operating Results - Environmental Liabilities."
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RESEARCH AND DEVELOPMENT
The Company maintains a continuing development program devoted to the NuPro
Material and its product applications. Development activities include designing
new and improved products and product applications, testing and enhancing
chemical formulations to generate differing properties in the NuPro Material and
prototype model and mold fabrications. The Company's development,
pre-production, and administration expenditures were approximately $649,479
(precombination $644,958 by NuPro and $4,521 by TrucTech) and $679,980 for
fiscal years 1998 and 1999, respectively. The Company anticipates that it will
incur approximately $676,000 in research and development expenses during fiscal
year 2000, including product testing and capital expenditures for research and
development equipment. The Company completed its construction of new
administrative and research and development offices in Tucson, Arizona,
consisting of approximately 13,400 square feet during the first quarter of
fiscal year 2000. See "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)(TM) and
NuPro Innovations(TM)(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 also maintains worker's
compensation and directors and officer's liability insurance coverage. There is
no assurance that the Company will not be subject to claims in the future that
its insurance may not cover or as to which its coverage limits may be
inadequate.
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ITEM 2. 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."
OPERATIONS
The Company has not had any revenues from operations since its inception.
The Company believes that it has sufficient funds to satisfy its cash
requirements for the next 12 months as a result of its offering of securities in
units that included shares of Common Stock, unsecured convertible debentures,
and warrants pursuant to Regulation S promulgated under the Securities Act of
1933, as amended, in July 1999 (the "Regulation S Offering"). The Company
received $6,000,000 in proceeds from the Regulations S Offering. Under the
Regulation S Offering, the Company issued warrants ("Regulation S Warrants") to
acquire 1,500,000 shares of Common Stock. Each Regulation S Warrant provides the
holder the right to purchase, subject to certain conditions, one share of the
Company's Common Stock at $2.50 per share, for a total exercise price of
$3,750,000. The Regulation S Warrants expire on December 31, 2000. See "Recent
Sales Of Unregistered Securities." The Company currently has no other internal
or external sources of liquidity, but anticipates that a substantial portion of
the Regulaton S Warrants will be exercised before their expiration date. In
addition, the Company anticipates that it may raise additional funds by way of
equity or debt financing in the second or third quarter of fiscal year 2001.
There is no assurance that the Company will be able to raise any additional
funds through exercise of the Regulaion S Warrants or through equity or debt
financings on terms that are favorable to the Company if at all.
RESEARCH AND DEVELOPMENT
During the second and third quarters of 2000, the Company acquired testing
equipment for approximately $250,000. 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 for the fiscal year 2000. 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 for the fiscal year 2000, (i)
approximately $250,000 will be attributable to additional product testing and
capital expenditures for testing equipment that the Company ordered during the
second and third quarters 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 first quarter of fiscal year 2001. See "Factors that May Affect Future
Operating Results."
PLANT AND EQUIPMENT
During the first quarter of fiscal year 2000, the Company completed the
construction of its new administrative and research and development offices in
Tucson, Arizona, consisting of approximately 13,400 square feet at a cost of
approximately $1,300,000. The purpose of the Company's Tucson offices is to
provide research and development facilities to enhance the NuPro Material and
existing product applications and to create new product applications. The
Company's Tucson office will also serve as the Company's corporate headquarters
and include, without limitation, the warehouse and display of finished products
made with the NuPro Material and the training facilities of the Company's
employees and future customers. The Company is currently in the process of
constructing two manufacturing facilities in Guaymas, Sonora, Mexico, consisting
of approximately 186,000 square feet. The Company completed the construction of
the first phase of its manufacturing facilities, which includes approximately
32,000 square feet, during the second quarter of fiscal year 2000 at a cost of
approximately $1,300,000. The Company considers its current facilities to be
sufficient for its current and anticipated operations for the next 12 months.
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The Company purchased and installed the substantial majority of its
production equipment and furniture and fixtures during the second and third
quarters of fiscal year 2000 at an approximate cost of $850,000. 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 $150,000 in connection with the purchase,
installation and testing of additional production equipment during the fourth
quarter of fiscal year 2001. The Company believes that it has reserved
sufficient funds from the proceeds of its Regulation S Offering that closed in
July 1999 to complete the purchase and installation of such production
equipment.
EMPLOYEES
The Company anticipates that it will retain approximately 25 additional
employees during fiscal year 2000, which the Company believes will result in
approximately $625,000 of additional employee compensation expense. The Company
believes that such additional employees will primarily perform engineering,
management, production, and administrative functions for the Company.
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
In addition to the other information in this Registration Statement on Form
10-SB, the following important factors should be carefully considered in
evaluating the Company and its business because such factors currently have a
significant impact or may have a significant impact on the Company's business,
prospects, financial condition and results of operation.
NO SALES
The Company is attempting to commercialize a new technology, an industrial
composite material called NuPro, and has no invoiced sales to date. Although the
Company has received funding from potential customers towards the development
and prototyping of a deck board product application, a shipping pallet product
application, and a golf driver product application and has completed prototyping
of a food processing tray product application, the Company has not executed any
product orders to date. The Company's results of operations may be unpredictable
from quarter to quarter as a result of numerous factors, including fluctuations
in the development and design of the Company's current and future product
applications for the NuPro Material, market acceptance of the Company's current
or future product applications for the NuPro Material, the timing of orders and
shipments of the NuPro Material, or the introduction or the announcement of
competitive composite materials or products. There can be no assurance that the
Company will be able to achieve significant revenue from sales of products in
the future.
LIMITED OPERATING HISTORY
The Company is a development stage company that was incorporated in the
Canadian Province of Ontario on November 27, 1996, as TracTop Distributing Inc.
and domesticated in the state of Delaware in the United States under the name
"NuPro Innovations, Inc." on August 7, 1997. As a result, the Company has a
short operating history to review in evaluating the Company's business. The
Company has limited financial and operating data upon which the Company's
business and prospects may be evaluated. The Company has not generated operating
revenue to date.
LACK OF PRODUCT DIVERSIFICATION
The Company anticipates that all of its sales will be derived from the
nupro material. Although the Company has developed multiple product applications
for the NuPro Material, and intends to continue such development, the company's
product line will be based exclusively on the composite formula for the nupro
material. The Company has obtained the exclusive right to use and develop the
technology relating to the NuPro Material and to market and sell the NuPro
Material pursuant to the Krida License. If the Company should experience any
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<PAGE>
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 and Venezuela. 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."
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 first quarter of fiscal year 2001. 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.
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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.
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
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Federal, state, and local environmental laws and regulations that impose
limitations on the discharge of pollutants into the air and water and establish
standards for the treatment, storage, and disposal of solid and hazardous
wastes. While the Company has not had to make significant capital expenditures
for environmental compliance, the Company cannot predict with any certainty its
future capital expenditure requirements relating to environmental compliance
because of continually changing compliance standards and technology. The Company
does not have insurance coverage for environmental liabilities and does not
anticipate obtaining such coverage in the future. See "Business Regulation and
Environmental Considerations."
The Company is also subject to the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA"), and similar state
laws which impose liability without regard to fault or to the legality of the
original action, on certain classes of persons (referred to as potentially
responsible parties or "PRPs") associated with the release or threat of release
of certain hazardous substances into the environment. Generally, liability of
PRPs to the government under CERCLA is joint and several. Financial
responsibility for the remediation of contaminated property or for natural
resources damage can extend to properties owned by third parties. The Company
believes that it is in substantial compliance with all environmental laws
applicable to its business. There can be no assurance that the Company will
respond effectively to changes in CERCLA and similar state laws, if necessary,
relating to the release or threat of release of certain hazardous substances
into the environment.
PRODUCT LIABILITY CLAIMS
The manufacture of the NuPro Material could expose the Company to the risk
of product liability claims. While the Company has had no material liability
with respect to product liability claims to date, the Company is still in its
development stages. After the Company begins production and achieves sales,
product liability claims could have a material adverse effect on the Company's
business, financial condition, and results of operations. While the Company
maintains product liability insurance against the possibility of defective
product claims there can be no assurance that such insurance would be sufficient
to protect the Company against liability from such claims.
DEPENDENCE ON KEY PERSONNEL
The activities of the Company, including exploitation and development of
innovative polymer composite formulations, and, as a result, the Company's
future success, will depend to a significant extent on its senior management and
other key employees. Certain officers of the Company have engaged in related
activities in Germany, Canada, and the United States for approximately 35 years.
The Company's Chief Executive Officer and President, Luba Veselinovic, is not an
employee of the Company but is serving in such capacities pursuant to a
Secondment Agreement between the Company and Krida Overseas, which is controlled
by Mr. Veselinovic and employs Mr. Veselinovic. The terms of the Secondment
Agreement provide for a consulting relationship in which the Company pays Krida
Overseas to receive the services of certain employees of Krida Overseas. The
Secondment Agreement does not create an employment relationship between the
Company and the Krida Overseas employees, including Mr. Veselinovic, but
establishes terms under which such employees of Krida Overseas provide services
for the Company. As the Company's President and Chief Executive Officer, Mr.
Veselinovic will be primarily responsible for the day-to-day operations of the
Company and serve the Company in a policy-making capacity. Any interruption of
or default by the Company under the Secondment Agreement may result in the
Company losing the services of Mr. Veselinovic, which could have a material
adverse effect on the Company's business, financial condition, and results of
operations. See "Certain Relationships and Related Transactions."
The Company also believes that its future success will depend in a large
part on its ability to attract and retain key employees. Competition for such
personnel is intense, and there can be no assurance that the Company will be
successful in attracting and retaining such personnel. The Company's inability
to attract and retain additional key employees or the loss of one or more of its
current key employees could have a material adverse effect on the Company's
business, financial condition, and results of operations.
CONFLICTS RELATING TO THE MANAGEMENT OF THE COMPANY
Pursuant to the Purchase Agreement, the Company acquired substantially all
of the assets and liabilities of TrucTech. The total consideration for the
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TrucTech Acquisition was 7,333,333 shares of Common Stock. Pursuant to U.S.
GAAP, the TrucTech Acquisition is accounted for as a "reverse acquisition"
whereby NuPro is considered the acquired corporation and TrucTech is considered
the surviving corporation. The net effect of the TrucTech Acquisition is that,
as of the acquisition date, NuPro acquired all of the outstanding stock of
TrucTech. Certain directors, officers, employees and stockholders of the Company
were also directors, officers, employees and stockholders of TrucTech. As a
result, certain conflicts of interest existed with respect to the TrucTech
Acquisition and the subsequent distribution of the 7,333,333 shares of Common
Stock 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 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
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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.
ISSUANCE OF ADDITIONAL SECURITIES; DILUTIVE EFFECT
The Company will have authority to offer shares of preferred stock,
additional shares of Common Stock or other equity or debt securities for cash,
in exchange for property or otherwise. Stockholders will have no preemptive
right to acquire any such securities, and any such issuance of equity securities
could result in dilution of an existing stockholder's investment in the Company.
In addition, the Board of Directors has the authority to issue shares of
preferred stock having preferences and other rights superior to Common Stock.
LIMITED MARKET FOR COMMON STOCK
The Company's Common Stock is covered by Securities and Exchange Commission
rules that impose additional sales practice requirements on broker-dealers who
sell securities priced at under $5.00 (so-called "penny stocks") to persons
other than established customers and accredited investors (generally
institutions with assets in excess of $5 million or individuals with net worth
in excess of $1 million or annual income exceeding $200,000 or $300,000 jointly
with their spouse). For transactions covered by such rules, the broker-dealer
must make a special suitability determination for the purchaser and receive the
purchaser's written agreement to the transaction prior to the sale. Moreover,
such rules also require that brokers engaged in secondary sales of penny stocks
provide customers written disclosure documents, monthly statements of the market
value of penny stocks, disclosure of the bid and ask prices, disclosure of the
compensation to the broker-dealer, and disclosure of the salesperson working for
the broker-dealer. Consequently, the rules may affect the ability of
broker-dealers to sell the Company's Common Stock and also may affect the
ability of persons receiving such Common Stock to sell their Common Stock in the
secondary market. These trading limitations tend to reduce broker-dealer and
investor interest in "penny stocks" and could operate to inhibit the ability of
the Company's Common Stock to reach a $3 per share trading price that would make
it eligible for quotation on NASDAQ, even if the Company otherwise qualifies for
quotation on NASDAQ.
ITEM 3. DESCRIPTION OF PROPERTY.
The Company's principal administrative and research and development offices
are located in approximately 13,400 square feet of space in Tucson, Arizona.
During the first quarter of fiscal year 2000, the Company completed the
construction of the Company's principal administrative and research and
development offices at an approximate cost of $1,300,000. The Company also
leases prototyping, tool modeling, and administrative facilities in Guaymas,
Sonora, Mexico consisting of 2,482 square feet from Ernesto Zaragoza de Cima, a
director and Vice-President of the Company, at a rate of $1,015.50 per month.
See "Certain Relationships and Related Transactions." The Company is in the
process of constructing two manufacturing facilities in Guaymas, Sonora, Mexico,
consisting of approximately 186,000 square feet. In the second quarter of fiscal
year 2000, the Company completed the construction of the first phase of its
manufacturing facilities, which includes approximately 32,000 square feet at an
approximate cost of $1,300,000. The Company considers its current facilities to
be sufficient for its current and anticipated operations for the next 12 months.
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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 September 29, 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(3) 2,325,000(4) 17.36%
DIRECTORS AND EXECUTIVE OFFICERS
Luba Veselinovic 3,240,183(5) 25.68%
Ernesto Zaragoza de Cima 108,948(6) *
Lawrence J. McEvoy Jr. 126,805(7) 1.00%
Elke Veselinovic 3,240,183(8) 25.68%
Charles H. Green(9) 18,000(10) *
Reiner Becker(11) 525,000(12) 4.12%
All Executive Officers and Directors
as a Group (6 Persons) 4,018,936(13) 31.28%
----------
* Represents beneficial ownership of less than 1%.
(1) Except as otherwise indicated, each holder may be reached through the
Company at 3296 East Hemisphere Loop, Tucson, Arizona 85706-5013.
(2) The percentages shown are calculated based upon 12,617,217 shares of Common
Stock outstanding on September 29, 2000. The numbers and percentages shown
include the shares of Common Stock actually owned as of September 29, 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 September 29, 2000, upon
the exercise of options or warrants are deemed to be outstanding for the
purpose of computing the percentage of the shares of Common Stock owned by
such person or group, but are not deemed to be outstanding for the purpose
of computing the percentage of the shares of Common Stock owned by any
other person.
(3) Bavaria Hotel Holding International GmbH is a wholly owned subsidiary of
Blue Lion GmbH & Co. Holding KG, which is wholly owned by Stefan
Schoenghuber, a German resident. Mr. Schoenghuber has sole investment power
with respect to the shares held in the name of Bavaria Hotel Holding
International GmbH.
(4) Includes 775,000 shares of Common Stock subject to warrants exercisable
within 60 days of September 29, 2000.
(5) Consists of 2,784,213 shares owned by Krida Overseas, which is controlled
by Mr. Veselinovic, and 415,970 shares owned by the Veselinovic Children's
Trust, which is controlled by Mr. Veselinovic's spouse, Elke Veselinovic.
Includes 15,000 shares of Common Stock subject to options exercisable by
Mr. Veselinovic within 60 days of September 29, 2000. Includes 25,000
shares of Common Stock subject to options exercisable by Mrs. Veselinovic
within 60 days of September 29, 2000.
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(6) Includes 25,000 shares of Common Stock subject to options exercisable
within 60 days of September 29, 2000.
(7) Consists of 4,286 shares owned by the McEvoy Family Trust and 97,519 shares
owned directly by Mr. McEvoy. Includes 25,000 shares of Common Stock
subject to options exercisable within 60 days of September 29, 2000.
(8) Consists of 415,970 shares owned by the Veselinovic Children's Trust, and
2,784,213 shares owned by Krida Overseas, which is controlled by Mrs.
Veselinovic's spouse, Luba Veselinovic. Includes 25,000 shares of Common
Stock subject to options exercisable by Mrs. Veselinovic within 60 days of
September 29, 2000. Includes 15,000 shares of Common Stock subject to
options exercisable by Mr. Veselinovic within 60 days of September 29,
2000.
(9) Mr. Green was appointed a director of the Company on January 20, 2000.
(10) Includes 15,000 shares of Common Stock subject to options exercisable
within 60 days of September 29, 2000.
(11) Mr. Becker was appointed a director of the Company on January 20, 2000.
(12) Consists of 25,000 shares owned by Mr. Becker's spouse, Diane Becker.
Includes 125,000 shares of Common Stock subject to warrants exercisable
within 60 days of September 29, 2000.
(13) For purposes of determining the total number of shares of Common Stock
beneficially owned by all executive officers and Directors as a group, the
shares reported as beneficially owned by Luba Veselinovic and Elke
Veselinovic have been included once.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
The following table sets forth information concerning the Company's
executive officers and directors. Except as otherwise noted, none of the
executive officers are directors or officers of any publicly owned corporation
or entity.
NAME AGE POSITION
---- --- --------
Luba Veselinovic 62 President and Chief Executive Officer
Ernesto Zaragoza de Cima 46 Vice President, Director
Lawrence J. McEvoy Jr., JD 68 Secretary, Director
Elke Veselinovic 59 Treasurer, Director
Charles H. Green 43 Director
Reiner Becker 39 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.
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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.
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 immediately since the dissolution of Mr. Green's prior
employer, Southeast Capital Associates LLC, in 1998. From 1992 to 1998, Mr.
Green served as Managing Member of Southeast Capital Associates LLC, an
Atlanta-based commercial banking firm that assisted in financing small business,
which dissolved in 1998. Mr. Green received his Bachelor's of Science in Finance
from the University of Alabama in 1979.
REINER BECKER has served as a director of the Company since January 2000.
Mr. Becker has been a self-employed management consultant since 1993. Mr. Becker
received his Bachelor's Degree in Business Economics from the University of
Saarland in Saarbrueken, Germany.
ADVISORY COUNCIL
The Company formed an advisory council (the "Advisory Council") on March 1,
1998, which serves as a group that provides advisory services to the Company and
the Company's Board of Directors. The Company believes that members of the
Advisory Council represent a diverse range of professional, management,
technical, and geographic perspectives. The Advisory Council meets twice a year
and at various other times as necessary. Each member of the Advisory Council is
paid a fixed fee of $500 per quarter and receives $1000 plus out-of-pocket
travel expenses for each Advisory Council meeting attended. In addition, during
fiscal year 1998, each member of the Advisory Council received an option to
purchase 15,000 shares of Common Stock at an exercise price of $4.00 per share.
Members of the Advisory Council did not receive compensation for service on the
Advisory Council during fiscal year 1999. Each member of the Advisory Council
has also entered into an indemnification agreement with the Company which
provides for the Company to indemnify each member of the Advisory Council
against expenses, including attorneys' fees, reasonably incurred in connection
with actions against or threatened against such member by reason of the fact
that such member was a member of the Advisory Council or by reason of any action
17
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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 September
29, 2000 were:
LUBA VESELINOVIC, age 62, 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 57, 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.
PATRICK W. OLIVE, age 56, 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 73, 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 64, has served as a member of the Advisory Council
since January 2000. Mr. Boelke has practiced as a German certified public
accountant and tax consultant in Berlin and Essen, Germany for more than 30
years. Mr. Boelke received his Bachelor's Degree in Business Economics from the
University of Cologne in 1963 and his Master's Degree in Business Economics and
Political Science from the University of Mainz in 1969.
INVOLVEMENT IN LEGAL PROCEEDINGS
To the best of management's knowledge, during the past five years, none of
the following occurred with respect to a present or former director or executive
officer of the Company:
(1) Any bankruptcy petition filed by or against any business of which such
person was a general partner or executive officer either at the time of the
bankruptcy or within two years prior to that time;
(2) Any conviction in a criminal proceeding or being subject to a pending
criminal proceeding (excluding traffic violations and other minor offenses);
(3) Being subject to any order, judgment or decree, not subsequently
reversed, suspended or vacated, of any court of any competent jurisdiction,
permanently or temporarily enjoining, barring, suspending or otherwise limiting
his involvement in any type of business, securities or banking activities; and
(4) Being found by a court of competent jurisdiction (in a civil action),
the commission or the Commodity Futures Trading Commission to have violated a
federal or state securities or commodities law, and the judgment has not been
reversed, suspended, or vacated.
ITEM 6. EXECUTIVE COMPENSATION.
The following table sets forth the compensation received for services
rendered to the Company or its subsidiaries in all capacities during the fiscal
year ended November 30, 1999 by the Company's Chief Executive Officer and each
of the Company's other executive officers who received compensation in excess of
$100,000 (the "Named Executive Officers"), which includes salary and bonus
earned during the fiscal year ended November 30, 1999.
18
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION AWARDS
-------------------------------- ------------------------------------------------------
PAYOUTS
OTHER SECURITIES ----------------------
NAME AND ANNUAL RESTRICTED UNDERLYING LTIP ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS COMPENSATION STOCK AWARD OPTIONS/SARS(#) PAYOUTS COMPENSATION
------------------ ---- --------- ----- ------------ ----------- --------------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Luba Veselinovic (1) 1999 120,000(2) 0 0 0 0 0 0
President and Chief
Executive Officer
Gary A. Fitchett (3) 1999 60,000(4) 0 0 0 0 0 0
</TABLE>
----------
(1) Mr. Veselinovic was elected President and Chief Executive Officer of the
Company effective June 1, 1999. Mr. Veselinovic serves as President and
Chief Executive Officer pursuant to a Secondment Agreement between the
Company and Krida Overseas, which is Mr. Veselinovic's employer. Pursuant
to the Secondment Agreement, the Company pays Krida Overseas $150,000 per
year for the services of one or more employees of Krida Overseas, including
Mr. Veselinovic.
(2) During fiscal year 2000, the Company paid $99,500 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, the balance,
$20,500, has been accrued but not paid by the Company.
(3) Mr. Fitchett resigned as President and Chief Executive Officer of the
Company effective June 1, 1999.
(4) The compensation payable to Mr. Fitchett for his services as President and
Chief Executive Officer of the Company during the fiscal year ended
November 30, 1999 has been accrued but not paid by the Company.
OPTION GRANTS
The Company did not grant options to the Named Executive Officers during
the fiscal year ended November 30, 1999, or during the first three quarters of
fiscal year 2000.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
VALUE OF
NUMBER OF SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS/ OPTIONS/SAR'S
SARS AT FY-END(#) AT FY-END($)
SHARES -------------------- -------------
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.
19
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(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,
2002.
COMPENSATION OF DIRECTORS
Directors of the Company may be paid such compensation for their services
and such reimbursements for expenses of attendance at board meetings as the
Board of Directors may from time to time determine. During fiscal year 1998,
each member of the Company's Board of Directors received options to acquire
25,000 shares of the Company's Common Stock at $4.00 per share as director
compensation. In addition, each member of the Advisory Council received options
during fiscal year 1998 to acquire 15,000 shares of the Company's Common Stock
at $4.00 per share as advisory council compensation. Neither directors nor
members of the Advisory Council received or are scheduled to receive options as
compensation for service on the Board of Directors or Advisory Council during
fiscal year 1999 or 2000. Mr. McEvoy was paid $2,000 for each of the third and
fourth quarters of fiscal year 1999 and is paid $3,000 per quarter in fiscal
year 2000 for his services as Secretary of the Board of Directors.
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 the Secondment Agreement with Krida Overseas, effective
December 1, 1998, 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 worldwide. The license agreement contains a limitation on the
exclusiveness of the license after December 31, 2002, if Mr. Veselinovic is not
an executive officer of the Company and the Company does not meet certain sales
expectations to be negotiated between Krida Overseas and the Company. As a
result, after December 31, 2002, the Company's exclusive right to use, develop,
and market the NuPro Material may terminate if Mr. Veselinovic is no longer
serving as an executive officer of the Company and the Company does not meet
certain sales performance levels.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company's Board of Directors has a policy that any transactions between
the Company and any of its executive officers and directors will be on terms
believed to be no less favorable to the Company than could be obtained from
unaffiliated third parties and will be in connection with bona fide business
purposes of the Company.
Effective November 1, 1997, the Company entered into a lease with Ernesto
Zaragoza de Cima, a director and Vice President of the Company, for certain
prototyping, tool modeling, and administrative facilities in Guaymas, Sonora,
Mexico, consisting of 2,482 square feet. Rent under the lease is payable in an
amount equal to $1,015.50 per month. The initial term of the lease is for a
period of five years. After the initial term, the lease may be extended at the
option of the Company for an additional five-year period.
During fiscal year 1998, each member of the Company's Board of Directors
received options to purchase 25,000 shares of Common Stock at an exercise price
of $4.00 per share. In addition, each of the members of the Company's Advisory
Council received options to purchase 15,000 shares of Common Stock at an
exercise price of $4.00 per share.
In May 1999, Luba Veselinovic entered into an agreement (on behalf of Krida
and the Veselinovic Children's Trust) with Gary Fitchett, personally and on
behalf of the Fitchett Family Trust, Pinecrest Consultants, Inc., and Management
Synergistics to purchase 1,000,000 shares of the Company's Common Stock
controlled by Mr. Fitchett for the aggregate price of $500,000. Upon closing of
the transaction, which has not occurred to date, $250,000 of the purchase price
20
<PAGE>
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
=========
In the event that the note is not fully paid by August 31, 2004, 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. An
additional 200,000 shares were provided by Fitchett to Veselinovic to use for
special consideration at no charge.
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 was used for the
construction of the Company's new manufacturing facilities in Mexico. See
"Description of Property" and "Plan of Operation - Plant and Equipment."
Pursuant to the Purchase Agreement, the Company acquired substantially all
of the assets and liabilities of TrucTech. Under the terms of the TrucTech
Acquisition, the Company acquired TrucTech's assets and assumed TrucTech's
liabilities in exchange for 7,333,333 shares of the Company's Common Stock,
which represented approximately 73% of the Company's outstanding Common Stock
immediately following the TrucTech Acquisition. The net effect of the TrucTech
Acquisition is that, as of the acquisition date, NuPro acquired all of the
outstanding stock of TrucTech. Pursuant to U.S. GAAP, the TrucTech Acquisition
is accounted for as a "reverse acquisition" whereby NuPro is considered the
acquired corporation and TrucTech is considered the surviving corporation.
Certain directors, officers, employees and stockholders of the Company were
also directors, officers, employees and stockholders of TrucTech. As a result,
certain conflicts of interest existed with respect to the TrucTech Acquisition
and the subsequent distribution of the 7,333,333 shares of Common Stock to the
TrucTech stockholders pursuant to a proposed Plan of Voluntary Dissolution of
TrucTech. See "Certain Relationships and Related Transactions."
The amount of consideration payable by the Company in the TrucTech
Acquisition 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 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 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
21
<PAGE>
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.
During the second quarter of 2000, NuPro Innovation Mexico S.A. de C.V.
completed construction of the first phase of two production facilities in
Guaymas, Sonora, Mexico, totaling approximately 32,000 square feet for an
approximate cost of $1,300,000. See "Description of Property" and "Plan of
Operation - Plant and Equipment." An affiliate of Ernesto Zaragoza, a director
and executive officer of the Company, acted as the general contractor .
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 September 29, 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.
22
<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 "Debenture Holder") and within 30 days the Debenture Holder 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
23
<PAGE>
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.
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.
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<PAGE>
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.
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.
25
<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS.
The Company's Common Stock had been quoted on the OTC Bulletin Board under
the symbol NUPP from August 21, 1998 to February 24, 2000. On February 24, 2000,
the Company's Common Stock was removed from quotation on the OTC Bulletin Board
pursuant to the NASD OTC Bulletin Board Eligibility Rules and commenced
quotation in the National Quotation Bureau's Pink Sheets immediately thereafter.
The following sets forth the range of high and low bid quotations for the
periods indicated as reported by National Quotation Bureau, Inc. Such quotations
reflect prices between dealers, without retail mark-up, markdown or commission
and may not represent actual transactions.
HIGH BID LOW BID
-------- -------
December 1, 1999 through February 24, 2000 $3.1875 $2.4375
September 1, 1999 through November 30, 1999 $3.0000 $1.3125
June 1, 1999 through August 31, 1999 $2.1250 $0.7500
March 1, 1999 through May 31, 1999 $1.0000 $0.2500
December 1, 1998 through February 28, 1999 $1.1250 $0.6250
September 17, 1998 through November 30, 1998 $1.1250 $0.6250
As of September 29, 2000, there were approximately 168 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
26
<PAGE>
position of no further comment regarding any Form 10 registration statement
before the NASD considers a company compliant. The SEC did not come to such a
position in regards to this Form 10-SB Registration Statement prior to the
Company's phase-in date of February 24, 2000. As a result and according to the
eligibility rule, since the Company was not in compliance at its phase-in date,
the Company's Common Stock was removed from quotation on the OTC Bulletin Board
and commenced quotation on the National Quotation Bureau's Pink Sheets
immediately thereafter. The Company intends to resume its quotation on the OTC
Bulletin Board upon the SEC reaching a position of no further comment regarding
this Form 10-SB Registration Statement. The removal of the Company's Common
Stock from quotation on the OTC Bulletin Board may adversely affect the market,
if any, in the Company's Common Stock.
SHARES AVAILABLE FOR FUTURE SALE
Of the 12,617,217 shares of Common Stock outstanding, 959,255 shares of
Common Stock are freely tradable without restriction in the public market unless
the shares are held by "affiliates," as that term is defined in Rule144(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 September 29, 2000, there were outstanding warrants to
purchase 1,525,000 shares of Common Stock and options to purchase 275,000 shares
of Common Stock, all of which were fully vested. Sales of substantial amounts of
the Company's Common Stock (including shares issued upon the exercise of
outstanding warrants and options) in the public market in the future could
adversely affect 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.
27
<PAGE>
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
The Company changed its independent auditor from BDO Dunwoody LLP to S.E.
Clark & Company, P.C. on February 8, 1999. S.E. Clark & Company, P.C. has
audited the Company's financial statements for the years ended November 30, 1998
and 1999. This change was by mutual consent due to the Company's domestication
in the State of Delaware from the Canadian Province of Ontario on August 7,
1997. The change was approved by the Company's Board of Directors. None of the
former accountant's reports on the Company's financial statements contain an
adverse opinion or disclaimer of the opinion or was modified as to uncertainty,
audit scope or accounting principles. There were no disagreements with the
former accountant on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure or any reportable events.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
The following provides information concerning all sales of securities by
the Company within the last three years that were not registered under the
Securities Act.
From August 7, 1997 to May 31, 1998, the Company issued shares of Common
Stock to 122 investors at a price ranging from $0.366 to $0.533 per share for a
total of $488,984 (the "Original Rule 504 Offering"). Such shares were issued
without registration pursuant to an exemption from registration under Rule 504.
From August 1997 to May 1998, the Company issued an aggregate of 455,028
shares of Common Stock worth a total of $180,890 to certain insiders of the
Company in connection with remuneration for services rendered and the conversion
of certain indebtedness owed to such insiders. Of the total $180,890, (i)
$43,000 in Common Stock was issued as payment for consulting fees and management
services, (ii) $103,600 in Common Stock was issued as payment of certain loans
to the Company from affiliates of Gary Fitchett, former President and Chief
Executive Officer of the Company, the proceeds of which were used for various
capital expenditures of the Company, and (iii) $34,300 in Common Stock resulted
from the exercise of a warrant received as part of the loan described in (ii)
above. All such shares were issued without registration pursuant to an exemption
from registration under Section 4(2) of the Securities Act as private
transactions not involving a public distribution.
During the period from June 1, 1998 to August 6, 1998, the Company issued
shares of Common Stock to 24 investors for a total of $504,162. Such shares were
issued without registration pursuant to an exemption from registration under
Rule 504. The foregoing offering was integrated with the Original Rule 504
Offering.
From June 1, 1998 to August 6, 1998, the Company issued an aggregate of
15,000 shares of Common Stock worth a total of $15,000 to Ernesto Zaragoza de
Cima, a Vice President and director of the Company, in connection with rent owed
by the Company. Such shares were issued without registration pursuant to an
exemption from registration under Section 4(2) of the Securities Act as a
private transaction not involving a public distribution.
On May 31, 1999, the Company issued warrants to purchase an aggregate of
25,000 shares of Common Stock to the Company's legal counsel in consideration of
services rendered. Such shares were issued without registration under Section 4
(2) of the Securities Act as a private transaction not involving a public
distribution.
In July 1999, the Company issued units priced at $100,000 per unit, or a
total of $6,000,000. Each unit consisted of (i) 25,000 shares of Common Stock
valued at $2.00 per share, (ii) a $50,000 unsecured convertible debenture
bearing interest at ten (10) percent per annum and maturing on December 31,
2004, and (iii) warrants to acquire 25,000 shares of Common Stock at a price of
$2.50 per share exercisable at any time prior to December 31, 2000. Several
investors chose to convert their debentures into shares of Common Stock
immediately following the Regulation S Offering. As a result, the Company issued
775,000 shares upon such conversions. In the aggregate, the Company issued
1,500,000 shares of Common Stock at $2.00 per share, $3,000,000 of convertible
debentures of which $1,050,000 of remain outstanding, and warrants to purchase
$1,500,000 additional shares at $2.50 per share. The units were sold to 17
investors in Germany, New Zealand, and Switzerland and were issued without
registration pursuant to an exemption from registration under Regulation S
promulgated under the Securities Act.
28
<PAGE>
Pursuant to the Purchase Agreement, the Company acquired substantially all
of the assets and liabilities of TrucTech. The Company issued 7,333,333 shares
of Common Stock in consideration for the TrucTech Acquisition. 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. The net effect of the
TrucTech Acquisition is that, as of the acquisition date, NuPro acquired all of
the outstanding stock of TrucTech. Pursuant to U.S. GAAP, the TrucTech
Acquisition is accounted for as a "reverse acquisition" whereby NuPro is
considered the acquired corporation and TrucTech is considered the surviving
corporation.
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 corporation's bylaws, any agreement, a vote
of stockholders or otherwise. The Certificate of Incorporation provides that the
29
<PAGE>
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.
The Company also maintains directors and officers liability insurance
coverage.
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.
30
<PAGE>
PART F/S
The following financial statements are included herein:
NUPRO INNOVATIONS INC. (FKA TRUCTECH, INC.)
FOR THE YEAR ENDED NOVEMBER 30, 1999 (CONSOLIDATED)
AND FOR THE PERIOD ENDED NOVEMBER 30, 1998
Independent Auditor's Report............................................... F-1
Audited Financial Statements - for the year ended November 30, 1999
(consolidated) and 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
NUPRO INNOVATIONS INC.
THE SEPARATE STATEMENTS FOR THE YEAR ENDED NOVEMBER 30, 1998
Independent Auditor's Report............................................... F-17
Audited Financial Statements - for the year ended November 30, 1998:
Balance Sheet......................................................... F-18
Statements of Loss and Deficit........................................ F-19
Statements of Shareholders' Equity.................................... F-20
Statements of Cash Flows.............................................. F-21
Notes to Financial Statements......................................... F-22
31
<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 balance sheets of NuPro Innovations Inc. (a development
stage company fka TrucTech, Inc.) as of November 30, 1999 (consolidated) and
1998 (as restated), respectively, and the related statements (as restated) of
shareholders' equity, loss and deficit, and cash flows from inception and for
the periods then ended. These financial statements are the responsibility of the
Companies' management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
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 financial position of NuPro
Innovations Inc. (fka TrucTech, Inc.) as of November 30, 1999 (consolidated) and
1998 (as restated) and the restated results of its operations and cash flows
from inception and for the periods then ended in conformity with generally
accepted accounting principles.
S.E.Clark & Company, P.C.
Tucson, Arizona
January 14, 2000
Member: National Association of Certified Valuation Analysts
--------------------------------------------------------------------------------
744 N. Country Club Road, Tucson, AZ 85716 (520) 323-7774, Fax (520) 323-8174
[email protected]
www.seclarkco.com
F-1
<PAGE>
NUPRO INNOVATIONS INC. (FKA TRUCTECH, INC.)
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
AT NOVEMBER 30, 1999 AND 1998
--------------------------------------------------------------------------------
(Consolidated) (TrucTech)
1999 1998
---------- ----------
ASSETS (Restated)
CURRENT
Cash (Note 2) $4,387,983 $ 2,458
Inventory 2,246 2,633
Prepaid Expense 11,589 10,319
---------- ----------
Total Current Assets 4,401,818 15,410
PROPERTY AND EQUIPMENT (Note 5) 2,023,386 369,421
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 $ 711,134
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
CURRENT
Notes Payable (Note 6) $ 119,390 $ 35,999
Accounts Payable (Note 6) 542,224 77,635
Accrued Liabilities 41,130
Accrued Management Fees and Salaries
(Notes 11 and 12) 647,214 156,753
Current portion of long-term liabilities 157,673 395,246
---------- ----------
Total Current Liabilities 1,507,631 665,633
LONG-TERM LIABILITIES (Note 7) 102,397 126,471
CONVERTIBLE DEBENTURES (Note 8) 1,050,000 --
OTHER LIABILITIES
Advances from NuPro Innovations Inc.
prior to reverse acquisition -- 574,856
COMMITMENTS AND CONTINGENCIES (Note 11) -- --
SHAREHOLDERS' EQUITY (DEFICIENCY) (Note 8) 3,862,180 (655,826)
---------- ----------
$6,522,208 $ 711,134
========== ==========
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
NUPRO INNOVATIONS INC. (FKA TRUCTECH, INC.)
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF LOSS AND DEFICIT
PERIODS ENDED NOVEMBER 30,1999 AND 1998
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Deficit
Accumulated
During the
(Consolidated) (Tructech) Development
1999 1998 Stage
------------ ------------ ------------
(Restated)
<S> <C> <C> <C>
Revenue - Interest earned $ 114,891 $ -- $ 114,891
------------ ------------ ------------
Costs and expenses:
Development, pre-production, and administration 679,980 4,521 2,074,486
Stock issued for "sweat equity" -- 3,252,600 3,252,600
Loss on impairment and disposition of properties -- 71,841 321,794
Financial, primarily interest 65,619 57,811 673,592
Depreciation and amortization 19,809 8,225 122,177
------------ ------------ ------------
765,408 3,394,998 6,444,649
------------ ------------ ------------
Loss before income tax benefits (650,517) (3,394,998) (6,329,758)
Income tax benefits -- -- --
------------ ------------ ------------
Net loss $ (650,517) $ (3,394,998) $ (6,329,758)
============ ============ ============
Net loss per common share (basic and diluted) $ (0.06) $ (0.33)
============ ============
Weighted average shares outstanding (Note 13) 11,336,670 10,142,218
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
NUPRO INNOVATIONS INC. (FKA TRUCTECH, INC.)
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED NOVEMBER 30, 1999 AND 1998
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES (NOTE 8) CAPITAL AMOUNT
------------------- -------------------- ADDITIONAL ACCUMULATED
CLASS B CLASS B PAID IN DONATED DEVELOPMENT
COMMON PREFERRED COMMON PREFERRED CAPITAL CAPITAL STAGE LOSS TOTAL
------ --------- ------ --------- ------- ------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CAPITAL ISSUED DURING
DEVELOPMENT STAGE:
Issued for cash 6,626 $ 1,100 $ 98,900 $ 100,000
Issued to TracTop US, Inc. 6,024 1,000 69,000 70,000
---------- ---------- --------- ---------- ----------- ------- -----------
AS OF DEC. 31, 1989 AND 1990 12,650 -- 2,100 -- 167,900 -- 170,000
Return of capital -- (12,000) (12,000)
Issued for cash 4,138 687 104,313 105,000
---------- ---------- --------- ---------- ----------- ------- -----------
AS OF DECEMBER 31, 1991 16,788 -- 2,787 -- 260,213 -- 263,000
Return of capital -- (8,000) (8,000)
Retirement of shares (4,361) (724) 724 --
Issued for note to shareholder 8,873 1,473 (1,473) --
---------- ---------- --------- ---------- ----------- ------- -----------
AS OF DECEMBER 31, 1992 21,300 -- 3,536 -- 251,464 -- 255,000
Retirement of TracTop US shares (6,024) (1,000) (59,000) (60,000)
Shares issued for acquisition
of net assets of TracTop
International 16,595 2,755 65,430 68,185
Issued for cash 3,614 600 78,521 79,121
---------- ---------- --------- ---------- ----------- ------- -----------
AS OF DECEMBER 31, 1993 35,485 -- 5,891 -- 336,415 -- 342,306
Issued for cash 2,608 433 96,992 97,425
Issued for conversion of
Shareholder loans 536 838,512 89 838,501 19,936 858,526
Issued for interest 290,061 290,058 290,058
Issued for SBA loan guarantee 40,000 40,000 40,000
Contributed capital, land 82,500 82,500
---------- ---------- --------- ---------- ----------- ------- -----------
AS OF DECEMBER 31, 1994 38,629 1,168,573 6,413 1,168,559 453,343 82,500 1,710,815
Issued for cash 1,446 240 59,760 60,000
---------- ---------- --------- ---------- ----------- ------- -----------
AS OF DEC. 31, 1995 AND 1996 40,075 1,168,573 6,653 1,168,559 513,103 82,500 1,770,815
ACCUMULATED DEFICIT $(2,284,243) (2,284,243)
---------- ---------- --------- ---------- ----------- ------- ----------- -----------
BALANCE, DECEMBER 31, 1997 40,075 1,168,573 6,653 1,168,559 513,103 82,500 (2,284,243) (513,428)
Issued as stock dividend to
Recapitalize the Company:
On common shares 478,917 79,508 (79,508) --
On class B preferred -- 743,602 455,436 (455,436) --
Issued for investor
"sweat equity" 4,902,166 813,839 2,438,761 3,252,600
Net loss as previously stated -- -- -- -- -- -- (3,323,157)
Loss on asset impairment (71,841)
-----------
Net loss as restated (3,394,998) (3,394,998)
---------- ---------- --------- ---------- ----------- ------- ----------- -----------
BALANCE, NOVEMBER 30 1998 5,421,158 1,912,175 900,000 1,623,995 2,416,920 82,500 (5,679,241) (655,826)
Capital conversion on reverse
acquisition of NuPro net assets 1,912,175 (1,912,175) (892,667) 2,599,162 (82,500) --
---------- ---------- --------- ---------- ----------- ------- ----------- -----------
BALANCES AS RESTATED 7,333,333 -- 7,333 -- 5,016,082 -- (5,679,241) (655,826)
Stock issued to acquire NuPro 2,808,885 2,809 192,678 195,487
Stock issued under Regulation-S 2,475,000 2,475 4,947,525 4,950,000
Costs of raising capital (53,698) (53,698)
Escrowed shares issued in
Conversion of debt (Note 8) 76,734 76,734
Net loss for the period (650,517) (650,517)
---------- ---------- --------- ---------- ----------- ------- ----------- -----------
BALANCE, NOVEMBER 30 1999 12,617,218 -- $ 12,617 $ -- $10,179,321 $ -- $(6,329,758) $ 3,862,180
========== ========== ========= ========== =========== ======= =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
NUPRO INNOVATIONS INC. (FKA TRUCTECH, INC.)
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOW
PERIODS ENDED NOVEMBER 30, 1999 AND 1998
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Accumulated
During the
(Consolidated) (TrucTech) Development
1999 1998 Stage
----------- ----------- -----------
(Restated)
<S> <C> <C> <C>
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Net loss for the period $ (650,517) $(3,394,998) $(6,329,758)
Adjustments to reconcile net loss to net cash
Depreciation 19,809 8,225 122,177
Loss on disposal of obsolete equipment -- -- 130,141
Stock issued for "sweat equity" -- 3,252,600 3,252,600
Impairment Loss on unutilized pre-production plant -- 71,841 71,841
Interest and fees paid with TrucTech stock -- -- 330,058
Accounts receivable 13,902 12,680 (86,287)
Inventories 387 -- (2,246)
Prepaid expense 1,303 (364) (9,016)
Accounts payable and accrued liabilities 520,167 (68,142) 597,802
Payables and accruals paid with NuPro stock -- 100,000 370,348
Accrued management fees and salaries 219,961 55,000 376,714
----------- ----------- -----------
125,012 36,842 (1,175,626)
----------- ----------- -----------
INVESTING ACTIVITIES
Purchase of capital assets (1,622,078) (1,091) (2,439,463)
Deposits (6,815) -- (6,815)
----------- ----------- -----------
(1,628,893) (1,091) (2,446,278)
----------- ----------- -----------
FINANCING ACTIVITIES
Notes payable 38,150 (1,079) 119,390
Increase in (repayment of) long-term liabilities (9,429) (143,239) 347,201
Repayment of advances from NuPro -- 67,038 204,508
Advances from (repayments to) shareholders (85,617) 41,122 34,229
Increase in convertible debentures 1,050,000 -- 1,050,000
Common stock subscribed and paid 4,896,302 -- 6,254,559
----------- ----------- -----------
5,889,406 (36,158) 8,009,887
----------- ----------- -----------
INCREASE (DECREASE) IN CASH FOR THE PERIOD 4,385,525 (407) 4,387,983
CASH, BEGINNING OF PERIOD 2,458 2,865 --
----------- ----------- -----------
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
TrucTech, Inc. ("TrucTech") (A Development Stage Company) was formed to
develop and manufacture a unique telescoping pickup truck cover and other
prospective products.
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.
As discussed in Note 3, NuPro entered into an agreement to acquire all the
net assets of TrucTech as of December 1, 1998 in exchange for shares of
NuPro common stock. However, for accounting purposes, since the TrucTech
shareholders received voting control of NuPro (the legal acquirer) in the
transaction, the acquisition is treated as the acquisition of NuPro by
TrucTech with TrucTech as the accounting acquirer (reverse acquisition).
Accordingly, the pre-combination financial statements are the historic
financial statements of TrucTech. All historical equity disclosures of the
accounting acquirer have been retroactively adjusted for the pro-rata
effect of the NuPro shares issued to its shareholders (7,333,333) in
conjunction with the reverse acquisition.
The financial statements of NuPro are for the fiscal years ended November
30, 1999. The financial statements of TrucTech are for the eleven months
ended November 30, 1998 . The 1998 financial statements of TrucTech have
been restated to give effect to the adjustment further discussed in Note 5.
The 1999 financial statements are consolidated presentations including
those of its majority owned subsidiary NuPro Innovation Mexico S.A. de C.V.
All inter-company assets, liabilities and operating transactions have been
eliminated upon consolidation.
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
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.
NuPro was incorporated as TracTop Distributing Inc. in Canada on
November 27, 1996, and has been in the development stage since its
formation. As of August 7, 1997, the Company was redomesticated and
continued in the State of Delaware, U.S.A. and changed its name NuPro
Innovations Inc.
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.
(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 impairment and
accumulated depreciation. Depreciation is recorded using the
straight-line or units-of-production methods at the following rates:
F-6
<PAGE>
NUPRO INNOVATIONS INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1999 AND 1998
--------------------------------------------------------------------------------
Building 3%
Plant Equipment 10%
Production Tooling $10 per unit
Automotive Equipment 20%
Office Equipment 10 and 20%
Management periodically assesses its ability to recover the cost of
its long-lived assets in accordance with the provisions of SFAS 121.
Costs deemed not recoverable are charged to operations and the asset
cost reduced by the estimated impairment.
(d) Foreign Currency Translation
Assets and liabilities are translated from Canadian or Mexican
currency into U.S. currency by use of the exchange rates in effect at
the balance sheet date. Revenues and expenses are translated using the
exchange rates in effect on the date they are included in income or
using weighted-average exchange rates. Capital accounts are translated
using the exchange rates in effect when the foreign entity's capital
stock was acquired or issued. Gains or losses on translating the
Canadian or Mexican currency into U.S. currency are reported as other
comprehensive income. Foreign currency transaction gains and losses
are included in net income in the period the exchange rate changes.
Translation or transaction gains or losses were not material to the
financial statements as of November 30, 1999.
(e) Cash and Cash Equivalents
The company considers highly liquid investments having a maturity of
three months or less at the date of purchase to be cash equivalents.
As of November 30, 1999 cash included five certificates of deposit
totaling approximately $3,787,000 with maturities ranging from 30 to
90 days, bearing interest at approximately 4 - 5%. One of the CD's, in
the amount of $100,000, is restricted as security for a line of
credit.
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 (fka TrucTech) 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. However, for accounting purposes, since
the TrucTech shareholders received voting control of NuPro (the legal
acquirer) in the transaction, the acquisition is treated as the acquisition
of NuPro by TrucTech with TrucTech as the accounting acquirer (reverse
acquisition). The shares issued by NuPro are recorded at their fair value
which approximates the net book value of its assets. In accordance with the
provisions of APB 16 an effective date of December 1, 1998, was agreed to
by both parties with the asset purchase agreement and bill of sale
transacted as of that date.
Both the stockholders and directors of TrucTech have acknowledged that the
technology to the material 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.
F-7
<PAGE>
NUPRO INNOVATIONS INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1999 AND 1998
--------------------------------------------------------------------------------
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 NuPro 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 worldwide 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%.
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) (Tructech)
1999 1998
---------- ----------
1997 sale of inventory of TracTop Components $ 78,051 $ 8,051
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. Management anticipates the recovery of this asset by the
end of 2002 (once production has been resumed in fiscal 2001).
5. PROPERTY AND EQUIPMENT
(Consolidated) (Tructech)
1999 1998
---------- ----------
Land $ 252,822 $ --
Construction in Progress (Note 11) 1,339,970 --
Plant Equipment 140,427 140,228
Production Tooling 258,412 258,412
Automotive Equipment 105,006 31,581
Office Equipment 29,398 22,040
---------- ----------
2,126,035 452,261
Less: Accumulated Depreciation 102,649 82,840
---------- ----------
Net book value $2,023,386 $ 369,421
========== ==========
All of the TrucTech plant equipment is located at the TopTrac, S.A. de C.V.
plant in Guaymas, Mexico. NuPro (fka TrucTech) 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-8
<PAGE>
NUPRO INNOVATIONS INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1999 AND 1998
--------------------------------------------------------------------------------
(Consolidated) (Tructech)
Investment in Unutilized Pre-production Plant 1999 1998
---------- ----------
Land $ -- $ 82,500
Building -- 225,795
Less Accumulated Depreciation (10,340)
Less Impairment Reserve (71,841)
---------- ----------
Net book value $ -- $ 226,114
========== ==========
In January 1999, the Company sold the land and building which has a book
value of $297,995 for net proceeds after adjustments and selling expenses
of $225,254. The mortgage payable thereon was discharged by the proceeds. A
loss of $71,841 was realized on the transaction. The fiscal 1998 financial
statements have been restated to recognize the asset impairment as of
November 30, 1998, which increased the 1998 TrucTech net loss per share by
approximately $(.01).
6. NOTES PAYABLE
Included in NuPro (fka TrucTech) 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 (fka TrucTech) 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 at November 30, 1999 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-9
<PAGE>
NUPRO INNOVATIONS INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1999 AND 1998
--------------------------------------------------------------------------------
7. LONG-TERM LIABILITIES (CONSOLIDATED) (TRUCTECH)
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. 98,327 119,846
--------- ---------
260,070 521,717
Less: Current portion of principal 157,673 395,246
--------- ---------
$ 102,397 $ 126,471
========= =========
Future minimum principal payments due for the years ended November 30 are
as follows:
2000 $ 157,673
2001 51,032
2002 51,365
---------
$ 260,070
=========
F-10
<PAGE>
NUPRO INNOVATIONS INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1999 AND 1998
--------------------------------------------------------------------------------
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.
In July, 1999 750,000 escrow shares 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 (fka TrucTech) commitments.
(c) Share Purchase Options
Options to purchase 275,000 common shares are outstanding, and may be
exercised on the following basis:
Number of Exercise
Shares Price Expiration Date
------ ----- ---------------
Directors 125,000 $4.00 December 31, 2002
Advisory Council 90,000 $4.00 December 31, 2000
Consultants 60,000 $1.00 December 31, 2002
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 debentures 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-11
<PAGE>
NUPRO INNOVATIONS INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1999 AND 1998
--------------------------------------------------------------------------------
9. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
No income taxes were paid and interest paid approximates the amounts
disclosed as expense.
10. INCOME TAXES
TrucTech potentially has losses for income tax purposes available to reduce
taxable income of approximately $2,074,000. The potential benefit
($830,000) of these losses has not been reflected in the financial
statements since it is more likely than not that the losses will not be
utilized. The benefit of these losses may only be applied to future income
from the TracTop product. These losses will begin expiring as of December
31, 2004. Additionally, the limitations on these losses resulting from the
business combination 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 "recognition of sweat
equity" has not been determined and is excluded from the above.
NuPro (fka TrucTech) potentially has losses for income tax purposes
available to reduce future taxable income of approximately $1,637,000. The
potential benefit ($655,000) of these losses has not been reflected in the
financial statements since it is more likely than not that the losses will
not be utilized. These losses will begin expiring as of November 30, 2012.
Additionally, the limitations on these losses resulting from the business
combination has not been determined but could be substantial. Accordingly,
the valuation allowance equals the deferred tax asset.
11. COMMITMENTS AND CONTINGENCIES
NuPro (fka TrucTech) 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
2000 $20,024
2001 12,180
2002 11,165
-------
$43,369
=======
See the above discussion regarding lessor's contingent rights to inventory
and equipment of NuPro (fka TrucTech).
On February 15, 1998, TrucTech and NuPro (fka TrucTech) 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.
F-12
<PAGE>
NUPRO INNOVATIONS INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1999 AND 1998
--------------------------------------------------------------------------------
CONTINGENCIES
SHARES ISSUED FOR "SWEAT EQUITY"
TrucTech issued common shares at their fair value to certain stockholders,
officers and directors in recognition of their services and other valuable
contribution to TrucTech ("sweat equity"). The shares issued were based in
part on the value of services performed by these individuals during the
development stage of TrucTech and other pro-rata amounts. Services
performed included, but were not limited to, capital acquisition, product
and systems design and testing, marketing, legal, accounting and
administration. 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 (fka TrucTech) 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 (fka
TrucTech).
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
(fka TrucTech) 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
=========
The written agreement specifies a partial return of shares to Mr. Fitchett
if the note is not paid by August 31, 2004.
F-13
<PAGE>
NUPRO INNOVATIONS INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1999 AND 1998
--------------------------------------------------------------------------------
While NuPro (fka TrucTech) is not the principal signer of the note, it is
expected that the cash flows will come from NuPro (fka TrucTech) 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 (fka TrucTech) 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. 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 (fka TrucTech) and its Mexican Subsidiary are both involved with
construction projects as of November 30, 1999. NuPro (fka TrucTech) is
constructing an office, research and storage facility in Tucson of
approximately 13,400 square feet for a total estimated cost of $1,300,000.
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 $855,000 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 $1,300,000. An affiliate of NuPro (fka
TrucTech) 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.
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:
F-14
<PAGE>
NUPRO INNOVATIONS INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1999 AND 1998
--------------------------------------------------------------------------------
NUPRO (FKA TRUCTECH)
CONSOLIDATED
During 1999 rent was paid to a director for factory space and demo line in
Guaymas, Mexico, of $40,757.
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 (fka TrucTech), for progress payments for facility construction. See
Note 11.
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.
As discussed on Note 11, on July 27, 1998, the TrucTech shareholders
approved the issuance of 967,706 shares (6,124,685 pro-rata NuPro shares)
as stock dividends and recognition of "sweat equity" which resulted in
approximately 457,000 shares (approximately 2,892,000 pro-rata NuPro
shares) being issued to related parties (primarily Veselinovic and Fitchett
affiliates).
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 (fka TrucTech) 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 (fka TrucTech) 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-15
<PAGE>
NUPRO INNOVATIONS INC.
THE SEPARATE STATEMENTS FOR THE YEAR ENDED NOVEMBER 30, 1998
Independent Auditor's Report.............................................. F-17
Audited Financial Statements for the year ended November 30, 1998:
Balance Sheet.................................................... F-18
Statements of Loss and Deficit................................... F-19
Statements of Shareholders' Equity............................... F-20
Statements of Cash Flows......................................... F-21
Notes to Financial Statements.................................... F-22
F-16
<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 balance sheet of NuPro Innovations Inc. (a development stage
company) as of November 30, 1998 and the related statements (as restated) of
shareholders' equity, loss and deficit, and cash flows from inception and for
the periods then ended. These financial statements are the responsibility of the
Companies' management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, based on our audit, the financial statements referred to above
present fairly, in all material respects, the financial position of NuPro
Innovations Inc. as of November 30, 1998 and the restated results of its
operations and cash flows from inception and for the periods then ended in
conformity with generally accepted accounting principles.
S.E.Clark & Company, P.C.
Tucson, Arizona
January 14, 2000
Member: National Association of Certified Valuation Analysts
--------------------------------------------------------------------------------
744 N. Country Club Road, Tucson, AZ 85716 (520) 323-7774 Fax (520) 323-8174
[email protected]
www.seclarkco.com
F-17
<PAGE>
NUPRO INNOVATIONS INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
AT NOVEMBER 30, 1998
--------------------------------------------------------------------------------
ASSETS
CURRENT
Accounts Receivable $ 3,902
Prepaid 2,573
--------
Total Current Assets 6,475
PROPERTY AND EQUIPMENT 51,696
OTHER
Advances to TrucTech, Inc. 574,856
--------
574,856
--------
$633,027
========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT
Notes Payable $ 29,335
Accounts Payable and Accrued Liabilities 73,607
Accrued Management Fees and Salaries 270,500
Current Portion of Long-term Liabilities 64,098
--------
Total Current Liabilities 437,540
SHAREHOLDERS' EQUITY 195,487
--------
$633,027
========
The accompanying notes are an integral part of these financial statements.
F-18
<PAGE>
NUPRO INNOVATIONS INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF LOSS AND DEFICIT
PERIODS ENDED NOVEMBER 30, 1998
--------------------------------------------------------------------------------
ACCUMULATED
YEAR ENDED DURING THE
NOVEMBER 30, DEVELOPMENT
1998 STAGE
----------- ---------
Revenues $ -- $ --
----------- ---------
Costs and expenses:
Development, Pre-production and Administration 644,958 957,066
Financial, primarily interest 11,235 18,043
Depreciation and amortization 13,453 16,587
----------- ---------
Total expenses 669,646 991,696
----------- ---------
Net loss $ (669,646) $(991,696)
=========== =========
Net loss per common share (basic and diluted) $ (0.26)
===========
Weighted average shares outstanding (Note 13) 2,562,051
===========
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE>
NUPRO INNOVATIONS INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF SHAREHOLDERS' EQUITY
YEAR ENDED NOVEMBER 30, 1998
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
SHARE ADDITIONAL DURING
COMMON 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 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
Net loss as previously reported -- -- -- (814,297) --
Adjustment to restate expenses
Associated with TrucTech, Inc. -- -- -- 144,651 --
---------
Net loss, as restated -- -- -- (669,646) (4,064,644)
--------- --------- ---------- --------- -----------
BALANCE, NOVEMBER 30, 1998 2,808,885 $ 2,809 $1,184,374 $(991,696) $ 195,487
========= ========= ========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE>
NUPRO INNOVATIONS INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOW
PERIODS ENDED NOVEMBER 30, 1998
--------------------------------------------------------------------------------
ACCUMULATED
YEAR ENDED DURING THE
NOVEMBER 30, DEVELOPMENT
1998 STAGE
--------- ---------
CASH PROVIDED BY (USED IN) (Restated)
OPERATING ACTIVITIES
Net loss for the period $(669,646) $(991,696)
Adjustments to reconcile net loss to net cash
Depreciation 13,453 16,587
Rent and Services paid for by issuance of
shares (Note 9) 20,150 70,108
Accounts receivable (397) (3,902)
Prepaid (2,500) (2,573)
Accounts payable and accrued liabilities 32,392 73,607
Customer deposits (25,000) --
Accrued management fees 270,500 270,500
--------- ---------
(361,048) (567,369)
--------- ---------
INVESTING ACTIVITIES
Purchase of capital assets (2,129) (68,283)
Advances to TrucTech, Inc. (Note 9) (67,038) (204,508)
--------- ---------
(69,167) (272,791)
--------- ---------
FINANCING ACTIVITIES
Notes payable (6,308) 29,335
Issuance of shares 420,316 746,727
Advances from shareholders 16,136 64,098
--------- ---------
430,144 840,160
--------- ---------
INCREASE (DECREASE) IN CASH FOR THE PERIOD (71) --
CASH, BEGINNING OF PERIOD 71
--------- ---------
CASH, END OF PERIOD $ -- $ --
========= =========
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE>
NUPRO INNOVATIONS INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 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.
The financial statements of NuPro are for the fiscal year ended November
30, 1998. The 1998 financial statements of NuPro have been restated to give
effect to the adjustment further discussed in Note 3.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Companies follow the generally accepted accounting principles of the
United States ("U.S. GAAP").
(a) Nature of Business
NuPro was incorporated as TracTop Distributing Inc. in Canada on
November 27, 1996, and has been in the development stage since its
formation. As of August 7, 1997, the Company was redomesticated and
continued in the State of Delaware, U.S.A. and changed its name NuPro
Innovations Inc. 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.
(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 impairment and
accumulated depreciation. Depreciation is recorded using the
straight-line method at the following rates:
Production Equipment 10%
Automotive Equipment 20%
Office Equipment 10 and 20%
Management periodically assesses its ability to recover the cost of
its long-lived assets in accordance with the provisions of SFAS 121.
Costs deemed not recoverable are charged to operations and the asset
cost reduced by the estimated impairment.
F-22
<PAGE>
NUPRO INNOVATIONS INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1998
--------------------------------------------------------------------------------
(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, 1998.
(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.
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 would
be subject to that risk.
3. ACQUISITION OF NET ASSETS OF TRUCTECH, INC.
By agreement dated December 5, 1996, as amended, NuPro received 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. However, for accounting purposes, since the
TrucTech shareholders received voting control of NuPro (the legal acquirer)
in the transaction, the acquisition is treated as the acquisition of NuPro
by TrucTech with TrucTech as the accounting acquirer (reverse acquisition).
The shares issued by NuPro are recorded at their fair value which
approximates the net book value of its assets. In accordance with the
provisions of APB 16 an effective date of December 1, 1998 was agreed to by
both parties with the asset purchase agreement and bill of sale transacted
as of that date.
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.
In 1998 management recognized that these 1997 amounts should have been born
by NuPro and were subsequently transferred to NuPro. The amount, which had
been included in the 1998 expenses of NuPro is accordingly reflected as a
prior period adjustment to 1997. The restatement decreased the 1998 net
loss by approximately $(.01) per share.
F-23
<PAGE>
NUPRO INNOVATIONS INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1998
--------------------------------------------------------------------------------
4. ADVANCES TO TRUCTECH, INC.
The amount represents unsecured advances during 1997 and 1998 to support
the TrucTech operations in contemplation of the business combination
transacted as of December 1, 1998. $370,348 of the amount represents
TrucTech obligations paid by the issuance of NuPro stock valued at its fair
market value as of the date of issuance. The balance represents cash
advanced.
5. PROPERTY AND EQUIPMENT
Production Equipment $ 31,952
Automotive Equipment 14,291
Office Equipment 22,040
--------
68,283
Less: Accumulated Depreciation 16,587
--------
NET BOOK VALUE $ 51,696
========
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, 1998
of $29,335 (Cdn $45,000). 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.
7. LONG-TERM LIABILITIES
Related Party Loans
Loans from various shareholders of the Companies, interest
at 10-12%, with no specific terms of repayment or maturity
dates. Unsecured. (U.S. GAAP requires that such loans with
no specific repayment terms be classified as current.) $64,098
Less: Current portion of principal 64,098
-------
Net long-term debt $ --
=======
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
2,808,885 shares of common stock.
F-24
<PAGE>
NUPRO INNOVATIONS INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 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
--------- --------
TOTAL SHARES ISSUED 2,808,885
=========
</TABLE>
* See Note 14.
(c) Share Purchase Options
Options to purchase 275,000 common shares are outstanding, and may be
exercised on the following basis:
Number of Exercise
Shares Price Expiration Date
------ ----- ---------------
Directors 125,000 $4.00 December 31, 2002
Advisory Council 90,000 $4.00 December 31, 2000
Consultants 60,000 $1.00 December 31, 2002
F-25
<PAGE>
NUPRO INNOVATIONS INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1998
--------------------------------------------------------------------------------
During fiscal 1998, each member of the Company's Board of Directors
received options to acquire 25,000 shares of the Company's common stock at
$4.00 per share as director compensation. In addition, each member of the
Advisory Council received options during fiscal 1998 to acquire 15,000
shares of the Company's common stock at $4.00 per share as advisory council
compensation. Since the exercise price substantially exceeds the current
market price of the stock, grant-date fair value has been assigned to the
options granted. No options have been exercised during fiscal 1998. Stock
issued to acquire goods or services, other than employee services, is
valued at grant-date fair value.
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 $986,000. The potential benefit
($394,000) of these losses has not been reflected in the financial
statements since it is more likely than not that the losses will not be
utilized. These losses will begin expiring as of November 30, 2012.
Additionally, the limitations on these losses resulting from the business
combination has not been determined but could be substantial. Accordingly,
the valuation allowance equals the deferred tax asset.
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:
1999 $37,512
2000 20,024
2001 12,180
2002 11,165
-------
$80,881
=======
F-26
<PAGE>
NUPRO INNOVATIONS INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 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
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.
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 the Company:
In June 1998, options to purchase 25,000 common shares at $4.00 per share
until December 31, 2002 were issued to each of five directors.
In June 1998, options to purchase 15,000 common shares at $4.00 per share
until December 31, 2000 were issued to each of six members of the advisory
council.
During 1998 rent was paid to a director for factory space in Guaymas,
Mexico of $12,180.
During 1998, management fees were accrued to two members of management for
fiscal 1998 in the amount of $180,000.
During 1998, management salaries were accrued to one member of management
covering the period of January 1997 to November 1998 in the amount of
$75,125.
During 1998, various unsecured loans bearing interest at 12% per annum were
made to the Company by shareholders. The balance outstanding at November
30, 1998 totaled $64,098.
During 1998, wages were paid to children of one director in the amount of
$16,436.
F-27
<PAGE>
NUPRO INNOVATIONS INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1998
--------------------------------------------------------------------------------
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>
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 1998 net loss per common share is
calculated by dividing the loss by the 2,562,051 weighted average shares
outstanding during the period.
14. SUBSEQUENT EVENTS
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. However, for accounting purposes, since the
TrucTech shareholders received voting control of NuPro (the legal acquirer)
in the transaction, the acquisition is treated as the acquisition of NuPro
by TrucTech with TrucTech as the accounting acquirer (reverse acquisition).
The 7,333,333 shares issued by NuPro will be recorded at their fair value
which approximates the net book value of its assets. In accordance with the
provisions of APB 16 an effective date of December 1, 1998 was agreed to by
both parties with the asset purchase agreement and bill of sale transacted
as of that date.
F-28
<PAGE>
PART III
ITEM 1. INDEX TO EXHIBITS
Exhibit No. Description
----------- -----------
2.1 Certificate of Domestication of the Company, dated August 7, 1997*
2.2 Certificate of Incorporation of the Company*
2.3 Bylaws of the Company*
3.1 Warrant to Purchase Shares of Common Stock of the Company*
3.2 Form of 10.00% Unsecured Convertible Debenture*
6.1(a) Technology License Agreement by and between Krida Overseas
Investments Trading Limited and the Company effective as of
June 1, 1999*
6.1(b) Amendment No. 1 to Technology License Agreement by and between
Krida Overseas Investments Trading Limited and the Company dated
as of February 1, 2000**
6.1(c) Non-Disclosure and Confidentiality Agreement [Item 3]
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.**
32
<PAGE>
6.12(a) Patent Agreement between John W. Martin and Judith Tyler Martin and
TracTop International, Inc. dated as of August 10, 1998**
6.12(b) Letter Agreement between John W. Martin and Judith Tyler Martin and
TracTop International, Inc. dated August 6, 1992**
6.13 Agreement between Luba Veselinovic, the Company and Gary A.
Fitchett dated May 24, 1999**
6.14 Lease between Ernesto Zaragoza de Cima and the Company effective
November 1, 1997**
12.1 Subsidiaries of the Company*
12.2 Letter on Change in Certifying Accountant**
12.3 Consent of S.E. Clark & Company, P.C. Independent Auditors
27 Financial Data Schedule
----------
* Incorporated by reference from the Company's Form 10-SB Registration
Statement filed with the Commission on December 9, 1999.
** Incorporated by reference from Amendment No. 1 to the Company's Form 10-SB
Registration Statement filed with the Commission on February 16, 2000.
33
<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: October 10, 2000 By: /s/ Luba Veselinovic
-----------------------------------------
Luba Veselinovic, Chief Executive Officer
34
