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U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended February 29, 2000
Commission file number: 000-28433
NUPRO INNOVATIONS INC.
(Name of small business issuer in its Charter)
Delaware 86-0893269
(State or other jurisdiction (IRS Employer
of incorporation) Identification Number)
3296 East Hemisphere Loop
Tucson, Arizona 85706-5013
(Address of Principal Executive Offices)
(520) 547-3510
(Registrant's Telephone Number, Including Area Code)
Securities registered under Section 12(g) of the Act:
Common Stock, par value $.001 per share
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
As of February 29, 2000, there were 12,617,218 shares of the Common Stock,
$.001 par value, of the Company outstanding.
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TABLE OF CONTENTS
PART I: FINANCIAL INFORMATION
PAGE
----
Item 1. Financial Statements
* Balance Sheets
February 29, 2000 and November 30, 1999............................ 3
* Statements of Loss and Deficit
Three months ended February 29, 2000 and February 28, 1999.......... 4
* Statements of Shareholders' Equity
Three months ended February 29, 2000 and February 28, 1999.......... 5
* Statements of Cash Flow
Three months ended February 29, 2000 and February 28, 1999.......... 6
* Notes to Financial Statements........................................ 7
Item 2. Management's Discussion and Analysis or Plan of Operation........... 8
PART II: OTHER INFORMATION
Item 1. Legal Proceedings ................................................. 18
Item 2. Changes in Securities and Use of Proceeds.......................... 18
Item 3. Defaults Upon Senior Securities.................................... 18
Item 4. Submission of Matters to a Vote of Security Holders................ 18
Item 5. Other Information.................................................. 18
Item 6. Exhibits and Reports on Form 8-K................................... 18
SIGNATURES................................................................. 19
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NUPRO INNOVATIONS INC.
(A Development Stage Company)
BALANCE SHEETS
AS AT FEBRUARY 29, 2000 AND NOVEMBER 30, 1999
- --------------------------------------------------------------------------------
FEBRUARY 29, NOVEMBER 30,
2000 1999
------------ ------------
Assets (UNAUDITED)
CURRENT
Cash $2,945,684 $4,387,983
Accounts Receivable -- --
Inventory 2,246 2,246
Prepaid Expense 8,774 11,589
---------- ----------
Total Current Assets 2,956,704 4,401,818
PROPERTY AND EQUIPMENT 2,979,979 2,023,386
OTHER
Accounts Receivable - TopTrac, S.A. de C.V 90,189 90,189
Deposits 10,242 6,815
---------- ----------
100,432 97,004
---------- ----------
$6,037,115 $6,522,208
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT
Notes payable $ 61,158 $ 119,390
Accounts Payable 300,985 542,224
Accrued Liabilities 59,249 41,130
Accrued Management Fees and Salaries 374,713 327,214
Current portion of long-term liabilities 52,123 59,346
---------- ----------
Total Current Liabilities 848,229 1,089,304
LONG-TERM LIABILITIES 195,697 200,724
CONVERTIBLE DEBENTURES 1,050,000 1,050,000
OTHER LIABILITIES
Accrued Management Fees 320,000 320,000
COMMITMENTS AND CONTINGENCIES -- --
SHAREHOLDERS' EQUITY 3,623,189 3,862,180
---------- ----------
$6,037,115 $6,522,208
========== ==========
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NUPRO INNOVATIONS INC. (UNAUDITED)
(A Development Stage Company)
STATEMENTS OF LOSS AND DEFICIT
THREE MONTHS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
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<TABLE>
<CAPTION>
(COMBINED)
DEFICIT ACCUMULATED
FEBRUARY 29, FEBRUARY 28, DURING THE
2000 1999 DEVELOPMENT STAGE
------------ ------------ -----------------
<S> <C> <C> <C>
Revenue - Interest Earned $ 48,329 $ 454 $ 163,220
------------ ------------ ------------
Costs and expenses:
Development, pre-production, and administration 259,778 142,118 3,291,330
Stock issued for protection of investment 3,252,600
Loss on impairment and disposition of properties 321,794
Financial, primarily interest 23,977 18,539 715,612
Depreciation and amortization 3,565 4,716 142,329
------------ ------------ ------------
287,320 165,373 7,723,665
------------ ------------ ------------
Loss before income tax benefits (238,991) (164,919) (7,560,445)
Income tax benefits -- -- --
------------ ------------ ------------
Net loss $ (238,991) $ (164,919) $ (7,560,445)
============ ============ ============
Net loss per common share (basic and diluted) $ (0.02) $ (0.02)
============ ============
Weighted average shares outstanding 12,617,218 10,142,218
============ ============
</TABLE>
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NUPRO INNOVATIONS INC.
(A Development Stage Company)
STATEMENTS OF SHAREHOLDERS' EQUITY
PERIODS ENDED FEBRUARY 29, 2000
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<TABLE>
<CAPTION>
ADDITIONAL DEFICIT ACCUMULATED
COMMON SHARE CAPITAL PAID IN DURING THE
SHARES AMOUNT CAPITAL DEVELOPMENT STAGE TOTAL
---------- --------- ----------- ----------------- -----------
<S> <C> <C> <C> <C> <C>
ISSUED DURING FISCAL 1996
Issued for cash 750,002 $ 5,571 -- $ 5,571
ISSUED DURING FISCAL 1997
Issued for cash 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 1,904,140 504,162 -- 504,162
Adjustment to par value -- (502,258) 502,258 --
Issued for cash 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
Issued for acquisition of
net assets of TrucTech, Inc. 7,333,333 7,333 5,492,667 5,500,000
Accumulated losses of
NuPro Innovations Inc. -- -- -- $ (322,050) (322,050)
Adjustment to combine net assets
of TrucTech, Inc. (476,585) (2,284,243) (2,760,828)
---------- --------- ----------- ----------- -----------
COMBINED, DECEMBER 1, 1997 9,476,679 9,476 5,660,656 (2,606,293) 3,063,839
Issued for cash 545,389 546 419,770 -- 420,316
Issued for services 5,150 5 5,145 -- 5,150
Issued for settlement of debts
of TrucTech, Inc. 100,000 100 99,900 -- 100,000
Issued for short-term rent 15,000 15 14,985 -- 15,000
Combined net losses (4,064,644) (4,064,644)
---------- --------- ----------- ----------- -----------
BALANCE, NOVEMBER 30, 1998 10,142,218 10,142 6,200,456 (6,670,937) (460,339)
Regulation-S issued 2,475,000 2,475 4,947,525 -- 4,950,000
Costs of raising capital -- -- (53,698) -- (53,698)
Escrowed shares issued
in conversion of debt -- -- 76,734 -- 76,734
Net loss -- -- -- (650,517) (650,517)
---------- --------- ----------- ----------- -----------
BALANCE, NOVEMBER 30, 1999 12,617,218 12,617 11,171,017 (7,321,454) 3,862,180
Net loss (Unaudited) (238,991) (238,991)
---------- --------- ----------- ----------- -----------
BALANCE, FEBRUARY 29, 2000 12,617,218 $ 12,617 $11,171,017 $(7,560,445) $ 3,623,189
========== ========= =========== =========== ===========
</TABLE>
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NUPRO INNOVATIONS INC. (UNAUDITED)
(A Development Stage Company)
STATEMENTS OF CASH FLOW
THREE MONTHS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
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<TABLE>
<CAPTION>
(COMBINED)
ACCUMULATED
DURING THE
FEBRUARY 29, FEBRUARY 28, DEVELOPMENT
2000 1999 STAGE
----------- ----------- -----------
CASH PROVIDED BY (USED IN)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss for the period $ (238,991) $ (164,919) $(7,560,445)
Adjustments to reconcile net loss
to net cash
Depreciation 3,565 4,716 142,329
Loss on Disposal of obsolete equipment 130,141
Stock issued for protection of investment 3,252,600
Stock issued for rent and services 70,108
Impairment Loss on unutilized
pre-production plant 71,841
Accounts receivable (90,189)
Inventories (2,246)
Prepaid Expense 2,815 5,739 (8,774)
Accounts payable and accrued liabilities (223,120) 26,814 432,383
Payables and accruals paid with NuPro stock 370,348
Accrued management fees and salaries 47,499 79,980 694,713
----------- ----------- -----------
(408,232) (47,670) (2,497,191)
----------- ----------- -----------
INVESTING ACTIVITIES
Purchase of capital assets (960,158) (3,467,904)
Deposits (3,427) (13,754) (10,242)
----------- ----------- -----------
(963,585) (13,754) (3,478,146)
----------- ----------- -----------
FINANCING ACTIVITIES
Notes payable (58,232) 140,542 61,158
Increase in (repayment of) long-term liabilities (12,250) (24,896) 380,192
Advances from (repayments to) shareholders 98,327
Increase in convertible debentures 1,050,000
Common stock subscribed and paid 7,331,344
----------- ----------- -----------
(70,482) 115,646 8,921,021
----------- ----------- -----------
INCREASE (DECREASE) IN CASH FOR THE PERIOD (1,442,299) 54,222 2,945,684
CASH, BEGINNING OF PERIOD 4,387,983 2,458 --
----------- ----------- -----------
CASH, END OF PERIOD $ 2,945,684 $ 56,680 $ 2,945,684
=========== =========== ===========
</TABLE>
6
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NUPRO INNOVATIONS INC. (UNAUDITED)
(A Development Stage Company)
NOTES TO INTERIM FINANCIAL STATEMENTS
THREE MONTHS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
- --------------------------------------------------------------------------------
1. The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles, pursuant to the rules and
regulations of the Securities and Exchange Commission. In the opinion of
management, all adjustments, consisting of normal recurring accruals, have
been made which are necessary for a fair presentation of the financial
position of the Company as of February 29, 2000 and February 28, 1999 and
the results of operations and cash flows for the three month periods then
ended. Certain information and footnote disclosures normally included in
financial statements have been condensed or omitted pursuant to such rules
and regulations. Interim results are not necessarily indicative of the
results to be expected for the entire fiscal year. These interim financial
statements should be read in conjunction with the disclosures in the
audited financial statements and the notes thereto included in the
Company's Annual Report on Form 10-KSB for the year ended November 30,
1999.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The following Plan of Operation provides information that management
believes is relevant to an assessment and understanding of the Company's
business and should be read in conjunction with the attached Condensed
Consolidated Financial Statements and Notes thereto and with the Company's
audited Consolidated Financial Statements, the Notes thereto, and Management's
Discussion and Analysis or Plan of Operation relating thereto included in the
Company's Annual Report on Form 10-KSB for the year ended November 30, 1999.
NUPRO(TM) AND NUPRO INNOVATIONS(TM) ARE TRADEMARKS OR TRADE NAMES OF
THE COMPANY
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-QSB contains express or implied
forward-looking statements. Additional written or oral forward-looking
statements may be made by the Company from time to time in filings with the
Securities and Exchange Commission, in its press releases, quarterly conference
calls or otherwise. The words "believes," "expects," "anticipates," "intends,"
"forecasts," "projects," "plans," "estimates" and similar expressions identify
forward-looking statements. Such statements reflect the Company's current views
with respect to future events and financial performance or operations and speak
only as of the date the statements are made. Such forward-looking statements
involve risks and uncertainties and readers are cautioned not to place undue
reliance on forward-looking statements. The Company's actual results may differ
materially from such statements. Factors that cause or contribute to such
differences include, but are not limited to, the Company's limited operating
history, unpredictability of operating results, intense competition in various
aspects of its business, the risks of rapid growth, the Company's dependence on
key personnel, uncertainty of product acceptance, changes in laws and
regulations, changes in economic conditions and an inability to obtain
financing, as well as those discussed elsewhere in this Form 10-QSB. Although
the Company believes that the assumptions underlying its forward-looking
statements are reasonable, any of the assumptions could prove inaccurate and,
therefore, there can be no assurance that the results contemplated in such
forward-looking statements will be realized. The inclusion of such
forward-looking information should not be regarded as a representation by the
Company or any other person that the future events, plans or expectations
contemplated by the Company will be achieved. The Company undertakes no
obligation to publicly update, review or revise any forward-looking statements
to reflect any change in the Company's expectations with regard thereto or any
change in events, conditions or circumstances on which any such statements is
based.
OVERVIEW
GENERAL
NuPro Innovations Inc. was incorporated in the Canadian Province of
Ontario on November 27, 1996, as TracTop Distributing Inc. On August 7, 1997,
TracTop Distributing Inc. was domesticated in the State of Delaware in the
United States under the name "NuPro Innovations Inc." When used in this
Quarterly Report on Form 10-QSB, unless the context requires otherwise, the term
"Company" refers to NuPro Innovations Inc., a Delaware corporation (formerly
known as TracTop Distributing Inc., an Ontario, Canada corporation), and NuPro
Innovation Mexico S.A. de C.V., which is a majority owned subsidiary of NuPro
Innovations Inc. incorporated under the laws of the United Mexican States. The
Company is a development stage corporation with its principal offices located at
3296 East Hemisphere Loop, Tucson, Arizona, 85706. The Company's telephone
number is (520) 547-3510 and its web site is www.nuproinnovations.com.
Information on the Company's web site does not constitute part of this
registration statement.
On December 1, 1998, the Company acquired the use of and the right to
commercialize a composite industrial engineering material (the "NuPro Material")
with the acquisition (the "TrucTech Acquisition") of substantially all of the
assets and liabilities of TrucTech, Inc., a Georgia corporation ("TrucTech").
Under the terms of the TrucTech Acquisition, the Company acquired TrucTech's
assets and assumed TrucTech's liabilities in exchange for $5,500,000 of the
Company's common stock, par value $0.001 per share ("Common Stock"), valued at
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$0.75 per share, or an aggregate of 7,333,333 shares, which represented
approximately 73% of the Company's outstanding Common Stock immediately
following the TrucTech Acquisition. Certain directors, officers, employees, and
stockholders of the Company were also directors, officers, employees, and
stockholders of TrucTech. The Company does not currently anticipate any
additional significant corporate acquisitions or dispositions in the next 12
months.
NUPRO MATERIAL
The NuPro Material is a polyester/epoxy hybrid created by the reactions
of several primary chemical compounds facilitated by chemical inhibitors,
accelerators, catalysts, and promoters. The NuPro Material can be made in a
variety of formulations to generate differing properties, which enables it to be
used in a number of different product applications. The Company believes that
the NuPro Material represents an advancement in polyurea technology because the
processing of the hybrid composite material does not require either external
heat or a high-pressure environment.
The NuPro Material, which is composed of certain chemicals that are
structured to be receptive to combining with other chemical compounds to create
stronger and more complete molecular structures with varying properties, is
characterized by certain high performance mechanical properties that allow it to
compete with steel, alloys, wood, plastic, fiberglass, and plastic foam in many
product applications. The Company believes that a significant cost advantage of
the NuPro Material may result from the elimination of a standard plastics
manufacturing step - the interim process of compounding the raw feeds of
petrochemical derivatives into raw plastics, and continuing the process by
reheating, pressing, and reforming the compounds into a finished product. With
the NuPro Material, the finished products are derived directly from the chemical
reaction of certain raw liquid feedstocks. As a result, the Company believes
that the production process for product applications with the NuPro Material is
more simple and inexpensive than the manufacturing process of product
applications with many of the competing industrial materials.
Krida Overseas Investment Trading Limited, an entity incorporated in
Cyprus ("Krida Overseas"), which is controlled by Luba Veselinovic, President
and Chief Executive Officer of the Company, owns the technology relating to the
NuPro Material and licenses to the Company the right to use and market the NuPro
Material in its operations pursuant to a Technology License Agreement (the
"Krida License") between the Company and Krida Overseas.
INTELLECTUAL PROPERTY
The Company relies on a combination of trade secret, nondisclosure, and
other contractual arrangements, confidentiality procedures, patent, copyright,
and trademark laws, to protect its proprietary rights. The Company has filed
applications for the federal registration of its NuPro(TM) and NuPro
Innovations(TM) marks.
The Company uses non-patented proprietary technology for manufacturing
the NuPro Material. The Company believes that the non-patented proprietary NuPro
Material will be protected under trade secret, contractual, and other
intellectual property rights that do not afford the statutory exclusivity
possible for patented products and processes. To protect its proprietary
technology, the Company mixes the proprietary component of the NuPro Material in
a secure environment at 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.
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
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development process for their respective product applications. In addition, the
Company is developing applications for the NuPro Material for a truck bed
enclosure and a pallet top. The Company anticipates that it will begin
manufacturing certain product applications by the end of the fourth quarter of
fiscal 2000.
PLAN OF OPERATION
The Company has not had any revenues from operations since its
inception. The Company believes that it has sufficient funds to satisfy its cash
requirements for the next 12 months as a result of its offering in July 1999 of
securities in units that included shares of Common Stock, unsecured convertible
debentures, and warrants pursuant to Regulation S promulgated under the
Securities Act (the "Regulation S Offering"). The Company received $6,000,000 in
proceeds from the Regulations S Offering. The Company currently has no other
internal or external sources of liquidity, but anticipates that it may raise
additional funds by way of equity or debt financing in the third or fourth
quarter of fiscal year 2000. There is no assurance that the Company will be able
to raise any additional funds through equity or debt financings on terms that
are favorable to the Company if at all.
BUSINESS STRATEGY
The focus of the Company will remain on provision of unique platform
technology and solutions for the challenges faced by manufacturers with respect
to the materials used for various industrial applications. The Company believes
that customers that manufacture products with the NuPro Material may realize
certain competitive advantages with respect to product performance and costs of
production.
The Company's business strategy includes (i) identifying large-scale
manufacturing, industrial, and commercial market segments in which the
substitution of the NuPro Material for existing conventional materials will
provide the user with a higher quality product at a lower price, (ii) furnishing
the Company's customers with turnkey manufacturing packages, including, without
limitation, training with respect to the manufacturing process, for a particular
product application of the NuPro Material, and (iii) supplying its proprietary
materials, which are the chemicals necessary for creating the NuPro Material,
for the manufacturing process. The Company anticipates that the proprietary
materials necessary to create the NuPro Material will initially be manufactured
in Mexico.
In implementing its business strategy, the Company has identified the
following areas of emphasis:
* DEVELOP AND INTRODUCE NEW PRODUCT APPLICATIONS. The Company
believes that it must continue to develop and offer manufacturers
new product applications for the NuPro Material.
* EVALUATE ACQUISITION OR STRATEGIC ALLIANCE OPPORTUNITIES. The
Company evaluates acquisition opportunities and potential
strategic alliances on an on-going basis and at any given time
may be engaged in discussions with respect to possible
acquisitions or strategic alliances. The Company may seek
strategic acquisitions or create strategic alliances that could
complement the Company's current or planned business activities.
The Company, however, does not currently anticipate any
additional significant corporate acquisitions in the next 12
months.
* INTEGRATE ACQUISITIONS AND STRATEGIC ALLIANCES. The Company must
integrate the entities or assets that it has acquired into its
business and coordinate its operations with other entities as
part of any strategic alliance.
RESEARCH AND DEVELOPMENT
The Company anticipates that it will continue research and development
to enhance the technology of the NuPro Material and existing product
applications and create additional product applications for the NuPro Material
during the next 12 months. The Company anticipates that during the next 12
months such research and development expenses will be approximately $676,000.
The Company expects that the source of funds for such expenses will be the
proceeds of its Regulation S Offering. Of the $676,000 in anticipated research
and development expenses, (i) approximately $500,000 will be attributable to
product testing and capital expenditures for testing equipment, which the
Company expects to incur by the end of the second quarter of fiscal year 2000,
(ii) approximately $42,000 is expected to be spent on personnel and labor
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expenses relating to the Company's research and development activities, and
(iii) approximately $134,000 is expected to be spent on supplies and general
overhead expenses relating to the Company's research and development activities.
The Company currently anticipates that it will begin production of pallets and
deck boards with the NuPro Material by the fourth quarter of fiscal year 2000.
See "Factors that May Affect Future Operating Results."
PLANT AND EQUIPMENT
During the first quarter, the Company completed a new administrative
and research and development offices in Tucson, Arizona, consisting of
approximately 12,000 square feet, at a cost of approximately $1,200,000. The
Company's Tucson offices will provide research and development facilities to
enhance the NuPro Material and existing product applications and to create new
product applications. The Company's Tucson offices will also serve as the
Company's corporate headquarters and include, without limitation, the warehouse
and display of finished products made with the NuPro Material and the training
of the Company's employees and future customers. The Company is currently in the
process of constructing two manufacturing facilities in Guaymas, Sonora, Mexico,
consisting of approximately 186,000 square feet. The Company anticipates that
the construction of the first phase of its manufacturing facilities, which
includes approximately 32,000 square feet, will be completed by the end of the
second quarter of fiscal year 2000 and will cost approximately $1,235,600. The
Company believes that it has reserved sufficient funds from the proceeds of its
Regulation S Offering that closed in July 1999 to pay for the construction of
the first phase of its manufacturing facilities and its administrative and
research and development offices. The Company considers its current and planned
facilities to be sufficient for its current and anticipated operations.
The Company expects to purchase and install its production equipment
during the second and third quarters of fiscal year 2000. Such production
equipment will be for initial set up of production and testing of product
applications for the NuPro Material. Such testing will focus primarily on the
durability, elasticity and reliability of the NuPro Material in various product
applications under varying conditions. The Company anticipates that it will
incur costs of approximately $1,815,000, in connection with such purchase and
installation. The Company believes that it has reserved sufficient funds from
the proceeds of its Regulation S Offering that closed in July 1999 to complete
the purchase and installation of such production equipment.
EMPLOYEES
The Company anticipates that it will retain approximately 25 additional
employees during fiscal year 2000, which the Company believes will result in
approximately $625,000 of additional employee compensation expense. The Company
believes that such additional employees will primarily perform engineering,
management, production, and administrative functions for the Company.
YEAR 2000 COMPLIANCE
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a two
digit calendar year is commonly referred to as the "Year 2000" issue. As a
result of the Year 2000 issue, such systems may be unable to accurately process
some date-based information.
Prior to December 31, 1999, the Company had:
* investigated new production equipment to be purchased to
determine which equipment is Year 2000 compliant and would be
suitable for the Company;
* assessed the Company's limited number of personal computers and
computer software to determine whether the Company has any Year
2000 compliance issues with respect to its limited internal
operating systems; and
* examined the extent to which the Company depends on third parties
whose systems may not be Year 2000 compliant.
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However, there may be a number of unforeseen circumstances or unknown factors
that the Company has not yet identified or anticipated regarding the Year 2000
compliance issue, and such circumstances or factors could have a material
adverse effect on the Company's business, financial condition, and results of
operations. Because the Company is currently at a developmental stage, the most
reasonably likely worst case scenario would involve an interruption in the
Company's telephone services, a malfunction of the limited number of personal
computers used by the Company or disruption or cancellation of services being
provided to the Company by third parties that could delay the Company's
commencement of manufacturing operations. For example, if Year 2000 Compliance
issues cause the builders of the Company's manufacturing facilities in Guaymas,
Sonora, Mexico or the Company's new administrative and research and development
offices in Tucson, Arizona to suspend building activities, the Company's plan of
operations may be delayed and thereby allow competitors and other companies
developing similar industrial materials a greater opportunity to gain market
share prior to the Company's entry into the marketplace. Such a delay could have
a material adverse effect on the Company's business, financial condition, and
results of operations. The Company does not have Year 2000 contingency plans in
place and does not intend to develop such plans.
As of January 1, 2000, after the rollover of time, all of the Company's
internal equipment and personal computers and computer software is functioning
properly. In addition, the Company has yet to be notified by the builders of its
new manufacturing facilities or administrative and research and development
offices or any other third parties upon which the Company depends that such
parties have been materially adversely effected by the Year 2000 date change.
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
In addition to the other information in this Quarterly Report on Form
10-QSB, the following important factors should be carefully considered in
evaluating the Company and its business because such factors currently have a
significant impact or may have a significant impact on the Company's business,
prospects, financial condition and results of operations.
NO SALES
The Company is attempting to commercialize a new technology, an
industrial composite material called NuPro, and has no invoiced sales to date.
Although the Company has received funding from potential customers towards the
development and prototyping of a deck board product application, a shipping
pallet product application, and a golf driver product application and has
completed prototyping 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
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Material. The Company has obtained the exclusive right to use and develop the
technology relating to the NuPro Material and to market and sell the NuPro
Material pursuant to the Krida License. If the Company should experience any
problems, real or perceived, with product quality or acceptance of the NuPro
Material, or loses all or a portion of its exclusive right to use, develop, and
market the NuPro Material under the Krida License, the Company's lack of product
diversification would have a material adverse effect of the Company's business,
financial condition, and results of operations.
DEPENDENCE ON SINGLE MANUFACTURING FACILITY
The Company anticipates that the key proprietary chemicals that
comprise the NuPro Material will be mixed solely at one of the Company's
facilities. Any interruption in the operations or decrease in the capacity of
this facility, whether because of equipment failure, natural disaster, or
otherwise, may limit the Company's ability to meet future customer demand for
the NuPro Material and would have a material adverse effect on the Company's
business, financial condition, and results of operations.
RELIANCE ON SUPPLY OF RAW MATERIALS
The NuPro Material is a polyester/epoxy hybrid that requires a
substantial amount of certain chemical constituents, primarily raw
petro-chemical feedstocks. Although the Company believes that such chemical
components are available from a number of suppliers, the Company anticipates
that it will purchase such chemical constituents from a relatively small number
of suppliers located in Mexico, Venezuela, and Romania. The Company's ability to
obtain adequate supplies of chemical compounds for the NuPro Material depends on
its success in entering into long-term arrangements with suppliers and managing
the collection of supplies from geographically dispersed suppliers. The
termination or interruption of the Company's significant supplier relationships
could subject the Company to the risks that it would be unable to purchase
sufficient quantities of raw materials to meet its production requirements or
would have to pay higher prices for replacement supplies. The termination of
significant sources of raw materials or payment of higher prices for raw
materials could have a material adverse effect on the Company's business,
financial condition, and results of operations.
MANAGEMENT OF GROWTH
The Company recently has experienced growth in product application
development and prototyping and expects to begin production of pallets and deck
boards with the NuPro Material by the fourth quarter of fiscal year 2000 and to
commence production on a small initial order of its food processing tray product
application in the near future. This growth in the Company's business has
resulted in an increase in the responsibilities of the Company's management and
is expected to place added pressures on the Company's operating and financial
systems. The Company's ability to assimilate new personnel will be critical to
its performance, and there can be no assurance that the management and systems
currently in place will be adequate if its operations continue to expand or that
the Company will be able to implement additional systems successfully and in a
timely manner as required.
RISKS IN DEVELOPING AND COMMERCIALIZING THE NUPRO MATERIAL TECHNOLOGY
AND PRODUCT APPLICATIONS
The Company has developed a number of product applications for the
NuPro Material. The commercialization and sale of these new product applications
are relatively new ventures with high costs, expenses, difficulties, and delays
associated with commercialization of new products. Such new product application
development necessitates the development of new production processes for cost
effective manufacture in commercial quantities. The Company has developed a
distribution plan for each product application, either through an internal sales
and marketing organization or through establishing relationships with companies
with existing distribution networks. This development process typically spans
over a period of years. Although the Company in the last few years has expended
substantial sums on accomplishing development of new product applications which
has taxed the Company's resources, significant additional funds must be expended
for the new product and process development and marketing activities to
continue. There is no assurance that the Company will be able to raise such
funds on terms favorable to the Company, if at all.
13
<PAGE>
Although the Company may develop applications for the NuPro Material
that have been previously created with steel, alloys, wood, plastic, fiberglass,
plastic foam, or other materials, the market for products created with the NuPro
Material is in an early stage of development. Because this market is only
beginning to develop, it is difficult to assess the size of this market and the
product features and prices, the optimal distribution and manufacture strategy,
and the competitive environment that will develop in this market.
UNCERTAINTY OF ACCEPTANCE OF THE NUPRO MATERIAL
The NuPro Material and its applications are still being developed and
commercialized. There can be no assurance that the Company will be able to
continue to develop applications for the NuPro Material or that any product
applications for the NuPro Material will achieve market acceptance. The failure
of the product applications of the NuPro Material to achieve market acceptance,
or maintain such acceptance, if achieved, could have a material adverse effect
on the Company's business, financial condition, and results of operations.
DEPENDENCE ON NON-PATENTED PROPRIETARY RIGHTS AND KNOW-HOW
The Company's success depends, in part, upon its intellectual property
rights relating to its production process and other operations. The Company
anticipates that it will rely on a combination of trade secret, nondisclosure,
and other contractual arrangements, confidentiality procedures, and patent,
copyright, and trademark laws, to protect its proprietary rights. The Company
has filed applications for the federal registration of its NuPro(TM) and NuPro
Innovations(TM) marks.
The Company uses non-patented proprietary technology for manufacturing
the NuPro Material. The Company believes that the non-patented proprietary NuPro
Material will be protected under trade secret, contractual, and other
intellectual property rights that do not afford the statutory exclusivity
possible for patented products and processes. To protect its proprietary
technology, the Company mixes the proprietary component of the NuPro Material in
a secure environment at one of its facilities. The production processes to
manufacture products from the NuPro Material are not proprietary; however, there
is a certain amount of "know-how" that the Company has gained which would hinder
a person taking the NuPro Material and introducing it into the conventional
manufacturing environment.
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.
14
<PAGE>
ENVIRONMENTAL LIABILITIES
Actions by Federal, state, and local governments concerning
environmental matters could result in environmental laws or regulations that
could increase the cost of producing the NuPro Material and the product
applications developed by the Company, or otherwise adversely affect the demand
for the NuPro Material. At present, during the Company's early stage of
development, environmental laws and regulations do not have a material adverse
effect upon the demand for the NuPro Material. In addition, certain of the
Company's operations are subject to Federal, state, and local environmental laws
and regulations that impose limitations on the discharge of pollutants into the
air and water and establish standards for the treatment, storage, and disposal
of solid and hazardous wastes. While the Company has not had to make significant
capital expenditures for environmental compliance, the Company cannot predict
with any certainty its future capital expenditure requirements relating to
environmental compliance because of continually changing compliance standards
and technology. The Company does not have insurance coverage for environmental
liabilities and does not anticipate obtaining such coverage in the future.
The Company is also subject to the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), and
similar state laws which impose liability without regard to fault or to the
legality of the original action, on certain classes of persons (referred to as
potentially responsible parties or "PRPs") associated with the release or threat
of release of certain hazardous substances into the environment. Generally,
liability of PRPs to the government under CERCLA is joint and several. Financial
responsibility for the remediation of contaminated property or for natural
resources damage can extend to properties owned by third parties. The Company
believes that it is in substantial compliance with all environmental laws
applicable to its business. There can be no assurance that the Company will
respond effectively to changes in CERCLA and similar state laws, if necessary,
relating to the release or threat of release of certain hazardous substances
into the environment.
PRODUCT LIABILITY CLAIMS
The manufacture of the NuPro Material could expose the Company to the
risk of product liability claims. While the Company has had no material
liability with respect to product liability claims to date, the Company is still
in its development stages. After the Company begins production and achieves
sales, product liability claims could have a material adverse effect on the
Company's business, financial condition, and results of operations. While the
Company maintains product liability insurance against the possibility of
defective product claims there can be no assurance that such insurance would be
sufficient to protect the Company against liability from such claims.
DEPENDENCE ON KEY PERSONNEL
The activities of the Company, including exploitation and development
of innovative polymer composite formulations, and, as a result, the Company's
future success, will depend to a significant extent on its senior management and
other key employees. Certain officers of the Company have engaged in related
activities in Germany, Canada, and the United States for approximately 35 years.
The Company's Chief Executive Officer and President, Luba Veselinovic, is not an
employee of the Company but is serving in such capacities pursuant to a
Secondment Agreement between the Company and Krida Overseas, which is controlled
by Mr. Veselinovic and employs Mr. Veselinovic. The terms of the Secondment
Agreement provide for a consulting relationship in which the Company pays Krida
Overseas to receive the services of certain employees of Krida Overseas. The
Secondment Agreement does not create an employment relationship between the
Company and the Krida Overseas employees, including Mr. Veselinovic, but
establishes terms under which such employees of Krida Overseas provide services
for the Company. As the Company's President and Chief Executive Officer, Mr.
Veselinovic will be primarily responsible for the day-to-day operations of the
Company and serve the Company in a policy-making capacity. Any interruption of
or default by the Company under the Secondment Agreement may result in the
Company losing the services of Mr. Veselinovic, which could have a material
adverse effect on the Company's business, financial condition, and results of
operations.
The Company also believes that its future success will depend in a
large part on its ability to attract and retain key employees. Competition for
such personnel is intense, and there can be no assurance that the Company will
be successful in attracting and retaining such personnel. The Company's
inability to attract and retain additional key employees or the loss of one or
15
<PAGE>
more of its current key employees could have a material adverse effect on the
Company's business, financial condition, and results of operations.
CONFLICTS RELATING TO THE MANAGEMENT OF THE COMPANY
On June 18, 1999, the Company closed the acquisition (the "TrucTech
Asset Acquisition") of substantially all of the assets and liabilities of
TrucTech, Inc., a Georgia corporation ("TrucTech"), pursuant to an Asset
Purchase Agreement between the Company and TrucTech effective as of December 1,
1998 (the "TrucTech Asset Purchase Agreement"). The TrucTech Asset Acquisition
was approved by the Board of Directors and stockholders of TrucTech and by the
Board of Directors of the Company. The total consideration for the TrucTech
Asset Acquisition was US $5,500,000, which was satisfied by the issuance of
7,333,333 shares of Common Stock (the "Shares"), valued at US $0.75 per share.
Certain directors, officers, employees, and stockholders of the Company were
also directors, officers, employees, and stockholders of TrucTech. As a result,
certain conflicts of interest existed with respect to the TrucTech Asset
Acquisition, and the subsequent distribution of the Shares to the TrucTech
Stockholders pursuant to a proposed Plan of Voluntary Dissolution of TrucTech.
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.
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.
16
<PAGE>
LABOR MATTERS
The operating activities that the Company is establishing in Mexico
require the engagement and expertise of local labor. Various issues with
employees could be raised, such as wages, working conditions, security, housing,
hours of work, advancement, and medical plans. Any difficulties in relationships
with the employees of the Company could have a material adverse effect on the
Company's business, financial condition, and results of operations.
PROJECTIONS
The Company has prepared internal projections to be used solely by the
Company's management to prepare the Company's business plan and budget. Such
projections are speculative for the following reasons, among others: comparative
historical results do not exist; the Company is at an early stage of development
of its operations and business plans; and the Company has not confirmed the
feasibility of product and technology applications. Projections are only
examples of what could occur if the underlying assumptions actually occur.
Because of the various risks involved in the proposed activities, the Company's
projections could prove to be inaccurate in material respects for any operating
activities, which could have a material adverse effect on the Company's
business, financial condition, and results of operations.
POSSIBLE ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS.
The Company's Certificate of Incorporation authorizes the Board of
Directors to issue, without stockholder approval, one or more series of
preferred stock having such preferences, powers and relative, participating,
optional and other rights (including preferences over the Common Stock
respecting dividends and distributions and voting rights) as the Board of
Directors may determine. The issuance of this "blank-check" preferred stock
could render more difficult or discourage an attempt to obtain control of the
Company by means of a tender offer, merger, proxy contest, or otherwise.
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.
17
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. 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 effect on the Company's business or financial
condition or results of operations. None of the Company's officers, directors,
or beneficial owners of 5% or more of the Company's outstanding securities is a
party adverse to the Company nor do any of the foregoing individuals have a
material interest adverse to the Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
The following exhibit is included herein:
Exhibit No. Description
----------- -----------
27 Financial Data Schedule
(b) Reports on Form 8-K:
On March 28, 2000, the Company filed a Report on Form 8-K to announce
the relocation of its administrative and research and development offices
to its new facilities.
18
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NUPRO INNOVATIONS INC.
By: /s/ Luba Veselinovic
-----------------------------------------
Name: Luba Veselinovic
Title: Chief Executive Officer and President
Date: April 14, 2000 (Principal Executive Officer)
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
Dated: April 14, 2000 By: /s/ Elke Veselinovic
---------------------------------
Elke Veselinovic
Treasurer, Director
(Principal Financial Officer)
Dated: April 14, 2000 By: /s/ Ernesto Zaragoza de Cima
---------------------------------
Ernesto Zaragoza de Cima
Vice President, Director
Dated: April 14, 2000 By: /s/ Lawrence J. McEvoy Jr.
---------------------------------
Lawrence J. McEvoy Jr.
Secretary, Director
Dated: April 14, 2000 By: /s/ Charles H. Green
---------------------------------
Charles H. Green
Director
Dated: April 14, 2000 By: /s/ Reiner Becker
---------------------------------
Reiner Becker
Director
19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the
unaudited Balance Sheet at February 29, 2000 and the unaudited Statement of
Loss and Deficit for the three months ended February 29, 2000 and is
qualified in its entirety by reference to such financial statements included
in this Form 10-QSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-2000
<PERIOD-START> DEC-01-1999
<PERIOD-END> FEB-29-2000
<CASH> 2,945,684
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 2,246
<CURRENT-ASSETS> 2,956,704
<PP&E> 3,086,193
<DEPRECIATION> (106,214)
<TOTAL-ASSETS> 6,037,115
<CURRENT-LIABILITIES> 848,229
<BONDS> 1,245,697
0
0
<COMMON> 12,617
<OTHER-SE> 3,610,572
<TOTAL-LIABILITY-AND-EQUITY> 6,037,115
<SALES> 0
<TOTAL-REVENUES> 48,329
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 263,343
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,977
<INCOME-PRETAX> (238,991)
<INCOME-TAX> 0
<INCOME-CONTINUING> (238,991)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (238,991)
<EPS-BASIC> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
