SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ________ to ________
Commission File Number: 2-99080-NY
NATIONAL DIVERSIFIED SERVICES, INC.
(Exact name of Registrant as specified in its charter)
Delaware 11-2820379
- ------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization (Identification No.)
c/o Lester Morse P.C.
111 Great Neck Road
Great Neck, New York 11021
- --------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code: (516) 487-1419
------------------
Securities registered pursuant to Section 12(b) of the Act:
- --------------------------------------------------------------------------------
None
- --------------------------------------------------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
None
- --------------------------------------------------------------------------------
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 .
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and
will not be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in part III of this
Form 10-K or any amendment to this Form 10-K [x].
As of March 1, 1998, the aggregate number of shares of the voting stock
held by non-affiliates was 1,762,870 shares of Common Stock, $.001 par value.
See "Item 5" regarding a sporadic market for the Company's Common Stock.
The number of shares outstanding of the Issuer's Common Stock, as of March
16, 1998 was 6,548,870.
<PAGE>
PART I
Item 1. Business
- -------
General
National Diversified Services, Inc. ("National" or the "Company") was
incorporated under the laws of the State of Delaware on May 30, 1985.
National's business purpose is to seek and review acquisition
possibilities, and to make one or more acquisitions or enter into business
endeavors and provide opportunities for strong organic growth.
Business Strategy
The Company is seeking one or more potential business opportunities
through the acquisition of existing businesses, assets to establish subsidiary
businesses for the Company, a statutory merger or consolidation or the
establishment of a new business or industry. However, due to the limited working
capital of the Company, it is likely that the Company will enter into only one
business transaction.
The Company may also seek to acquire one or more majority and/or wholly
owned equity positions in other companies through the direct purchase of stock.
Such equity positions will be limited by Section 3(a)(3) of the Investment
Company Act of 1940 (the "1940 Act"), in that the Company will not be permitted
to own or propose to acquire investment securities having a value exceeding 40%
of the Company's total assets (exclusive of government securities and cash
items) on an unconsolidated basis.
The Company may provide debt financing to companies in which it has
taken (or intends to take) an equity position. Such financing would generally be
made on an unsecured basis. In no event will the Company provide financing for
or take equity positions in companies where the aggregate of such investments
would cause the Company to be required to register under the 1940 Act.
Present Management of the Company may or may not become involved as
management in the aforementioned business or subsidiary or may hire qualified
but as yet unidentified management personnel. There can, however, be no
assurance whatsoever that the Company will be able to acquire a business.
A potential acquisition of a business may involve the acquisition of,
or merger with, a company which does not need additional capital but which
desires to establish a public trading market for its shares. A company that
seeks the Company's participation in attempting to consolidate its operations
through a merger, reorganization, asset acquisition, or some other form of
combination may desire to do so to avoid what it may deem to be adverse
consequences of itself undertaking a public offering including the inability or
unwillingness to comply with various federal and state laws enacted for the
protection of investors. Factors considered may include time delays, significant
expense,
2
<PAGE>
loss of voting control. In connection with such acquisition, it is possible that
an amount of stock constituting control of the Company would be purchased from
the Company or its current officers, directors and stockholders resulting in
substantial profits to such persons without similar profits being realized by
other stockholder. Moreover, no assurance can be given with respect to the
experience or qualifications of as yet unknown persons who may, in the future,
engage in the operations of the Company or any business or subsidiary acquired
by the Company. In the event of a change in control of the Company and its Board
of Directors, the payment of dividends would be wholly dependent upon such
persons. Furthermore, it is impossible as yet to determine what, if any,
consequences applicable state law may provide to the Company's shareholders in
any merger or reorganization.
General Policy
The Company may establish or acquire a business and/or invest in one or
more new and developing corporations, whether directly or by way of statutory
merger, which the Management of the Company determines will offer significant
long-term growth potential. In the case of an equity position, the Company will
seek to acquire primarily a majority owned and wholly owned capital stock
position in such corporation. The Company is not restricted to any particular
industry and may engage in any line of business. Accordingly, Management's
discretion as to the type of businesses and equity investments is unlimited.
Management assumes that any business to be acquired and/or equity
investment made by the Company, whether directly or by way of statutory merger,
will involve a business that is new and unseasoned, or a business that has been
operating for a limited period of time and has a limited or unsuccessful record
of revenues or earnings. Investments in start-up enterprises result in a higher
risk of total loss of investment by the Company. Except in cases of a merger or
other instances where stockholders' approval may be required by applicable law,
the Company's stockholders will not have the opportunity to review the relative
merits or weaknesses of any proposed business to be acquired or equity
investment to be made and, accordingly, will have to rely upon the discretion of
Management in selecting a business or investment.
The Company has identified certain general policies which will be
considered by the Company in evaluating business acquisition candidates and
investment possibilities. These policies are listed below. In no event will the
Company provide financing or take equity positions in companies where the
aggregate of such investments would cause the Company to be required to register
under the 1940 Act.
1. The Company will examine the products or services of a business
being considered to determine whether a market exists for the products or
services and whether the business can manufacture and/or market the products or
produce the services at a competitive cost.
3
<PAGE>
2. The Company will invest in a corporation that it believes has a
strong potential for growth. The Company will evaluate the corporation's
business and determine the quality and experience of its management.
3. The Company may invest in an operating corporation that has
experienced increases in gross revenues which exceed industry averages. The
market for the corporation's products will be evaluated by determining the
relationship of size, growth potential and competitive factors in that
corporation's industry. This may include the purchase of businesses which offer
opportunities for consolidation.
4. The Company will also consider the following factors: (1) special
risks associated with the business and the industry, (2) equity available to the
business, (3) capital requirements of the business, (4) potential for
profitability and (5) the effect of market and economic conditions and
governmental policies on the business and its products.
It is unlikely that any one prospective corporation with which the
Company may seek to enter a relationship will conform in all respects to the
policies described above. Accordingly, this description is intended to serve
only as a general guide for the Company's projected investment activities. These
policies are not fundamental policies of the Company and may be changed at any
time by the Company's Board of Directors.
The Company intends to actively participate (through present Management
or presently unidentified individuals who may be hired by the Company) in the
management of the operations of any business or subsidiary in which it acquires
an interest. In order to accomplish this objective in the case of a subsidiary,
the Company will be represented on the board of directors of such target
corporation through a nominee of its choice. In addition, where the Company
deems it beneficial, the Company may also have a nominee of its choice elected
as an officer. Such nominee is expected to be an officer or director of the
Company. The objective of such acquisition(s) will be to enhance that
corporation's capabilities through active management as well as financial
support.
The Company anticipates that it will be brought into contact with a
prospective business acquisition or equity investment primarily through the
efforts of its officers, directors and principal stockholders who in the course
of their professional activities frequently come into contact with corporations
whose products, services or concepts may be subject to successful development
and marketing. In such connection, the Company may pay a finder's fee to such
officers, directors, principal stockholders or their affiliates. Any such
payment would not be higher than that which would ordinarily be paid to a
non-affiliated person. The Company proposes to make a business acquisition or
equity investment and to provide interim financing which will assist such
organization in the development of these products, services and concepts. To
date, the Company does not have any contracts or commitments with anyone or any
firm with regard to these business activities. The Company also does not have
any arrangements or understandings with respect to the acquisition of any
business entity or the acquisition of any interest therein.
4
<PAGE>
The Company may use independent consultants (who may agree to receive
stock of the Company in payment for their services in lieu of cash) to explore
areas of, and to seek out, acquisition prospects. Such independent consultants
would be expected to have such expertise or knowledge which would be of use to
Management in any investment decision. The Company has not engaged any
independent consultants as of March 16, 1998.
At this time, Management believes the Company's equity investments will
be made in private transactions with privately owned corporations. Securities
acquired in this manner are restricted from public sale unless they are
registered under the Securities Act of 1933, or unless an exemption from
registration is available.
Government Regulation
The Company may be subject to government regulations promulgated by
various local, state and Federal government agencies with regard to its proposed
business. Additionally, the Company, in the purchase of equity positions, will
be subject to various rules and regulations promulgated by the Securities and
Exchange Commission and the various state securities commissions. Company does
not intend to engage in the business of investing, reinvesting, owning, holding
or trading in securities or otherwise engaging in activities which would render
the Company an "investment company" as defined in the Investment Company Act of
1940, as amended.
The Company's financing activities will be limited by Section 3(a)(3)
of the Investment Company Act of 1940 in that the Company will not be permitted
to own or propose to acquire investment securities having a total value
exceeding 40% of the value of the Company's total assets (excluding government
securities and cash items) on an unconsolidated basis. The Company is permitted
under Section 3(a)(3) of the 1940 Act to own or propose to own securities of a
majority owned subsidiary which is defined under Section 2(a)(24) of the 1940
Act to mean 50% or more of the outstanding securities of which are owned by the
Company or a majority owned subsidiary of the Company. Notwithstanding Section
3(a)(3) of the 1940 Act, the Company would not be considered an investment
company where it is engaged directly or indirectly through a wholly-owned
subsidiary (which is defined to mean at least 95% ownership of the outstanding
voting stock), in a business or businesses, other than that of investing,
owning, holding or trading in securities.
In addition to the limitations by the Investment Company Act of 1940 as
mentioned above, there are a number of other provisions of the Federal
securities laws which will affect the Company's proposed investments.
Most, if not all, of the securities which the Company acquires as
equity investments will be "restricted securities" within the meaning of the
Securities Act of 1933 ("Securities Act") and will not be permitted to be resold
without compliance with the Securities Act. The registration of securities owned
by the Company is likely to be a time consuming and expensive process, and the
Company always bears the risk, because of these delays, that
5
<PAGE>
it will be unable to resell such securities, or that it will not be able to
obtain an attractive price for the securities. In the event the Company does not
register securities it acquires for sale, it will seek to rely upon an exemption
from registration. Among other exemptions, Rule 144 of the Securities Act of
1933, as amended, imposes a one year holding period prior to the sale of
restricted securities and established volume limitations on the amount of any
restricted securities that can be sold within certain defined time periods.
Competition
- -----------
There are numerous similar companies which are larger, have more
experience, and are better financed than the Company. The Company may encounter
intense competition from numerous other firms engaged in its field. In view of
the Company's lack of operating history, it may be anticipated that the Company
will encounter competition seeking relatively more desirable equity investments.
Accordingly, the Company's proposed equity investments, if any, will entail a
high degree of business and financial risk that may result in substantial losses
to the Company.
Personnel
- ---------
The Company presently has no full-time employees. The day-to-day
operations of the Company are managed by George Rubin, the Company's Chairman,
and Morry F. Rubin, its President, each of whom devotes such time to the affairs
of the Company which is necessary for the performance of his duties.
Item 2. Properties
- ------- ----------
Currently the Company is utilizing the office space of its counsel,
Lester Morse P.C., at no cost to the Company until an acquisition is consummated
or a business is established. The amount of office space utilized by the Company
is currently insignificant.
Item 3. Legal Proceedings
- ------- -----------------
There are no material legal proceedings pending against the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
- ------- ----------------------------------------------------
Not Applicable.
6
<PAGE>
PART II
Item 5. Market for Registrant's Securities and Related Stockholder Matters.
- ------- -------------------------------------------------------------------
From the completion of the Company's public offering in December 1986
until the present time, the Company's securities have been traded in the
over-the-counter market. The Company believes that there is not an active
trading market for the Company's Common Stock and quotations for, and
transactions in the securities are limited. Price quotations for prior periods
are not being supplied herein because in view of the infrequent trading in the
securities, they would not be meaningful.
Management has been advised by its transfer agent (American Stock
Transfer Company) that the approximate number of holders of the Company's Common
Stock as of March 16, 1998 was 329.
No cash dividends have been paid by the Company on its Common Stock and
no such payment is anticipated in the foreseeable future.
Of the Company's issued and outstanding 6,548,870 shares of Common
Stock as of March 16, 1998, 5,790,300 shares of the Company's restricted Common
Stock may be sold in compliance with Rule 144. Rule 144 provides among other
things and subject to certain limitations that a person holding restricted
securities for a period of one year may sell those securities in brokerage
transactions, in an amount equal to at least 1% of the Company's outstanding
Common Stock every three months. Possible or actual sales of the Company's
Common Stock under Rule 144 may have a depressive effect upon the price of the
Company's Common Stock.
Broker-Dealer Sales of Company's Registered Securities.
- -------------------------------------------------------
Except where the Company's Common Stock has a market price of at least
$5.00 per share, the Company's Registered Securities are covered by a Securities
and Exchange Commission ("SEC") rule that imposes additional sales practice
requirements on broker-dealers who sell such securities to persons other than
established customers and institutional accredited investors. For transactions
covered by the rule, 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. Consequently, the rule affects the ability of
broker-dealers to sell the Company's securities and also may affect the ability
of purchasers in this offering to sell their securities in the secondary market.
The SEC has adopted seven rules ("Rules") under the Securities Exchange
Act of 1934 requiring broker/dealers engaging in certain recommended
transactions with their customers in specified equity securities falling within
the definition of "penny stock" (generally non-NASDAQ securities priced below $5
per share) to provide to those customers certain specified information. Unless
the transaction is exempt under the Rules, broker/dealers effecting customer
transactions in such defined penny stocks are required to provide their
customers with: (1) a risk disclosure document; (2) disclosure of current bid
and ask quotations, if any; (3) disclosure of the compensation of the
broker/dealers
7
<PAGE>
and its salesperson in the transaction; and (4) monthly account statements
showing the market value of each penny stock held in the customer's account.
These SEC Rules were adopted in April, 1992 pursuant to the requirements of the
Securities Enforcement Remedies and Penny Stock Reform Act of 1990 ("Penny Stock
Act").
As a result of the aforesaid rules regulating penny stocks, the market
liquidity for the Company's securities, if any, may be severely adversely
affected by limiting the ability of broker-dealers to sell the Company's
securities and the ability of purchasers of the Company's securities in the
secondary market.
8
<PAGE>
Item 6. Selected Financial Data.
------------------------
Consolidated Statements of Operations Summary:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Net Sales $ -0- $ -0- $ -0- $ -0- $ -0-
Net Income
(Loss) $ 525 $ 2,435 $ 3,204 $ (2,438) $ (12,369)
Net Income
(Loss) Per
Common Share * * * * *
======== ======== ======== ======== ========
</TABLE>
- ---------------------
* Less than $.01 per share.
<TABLE>
<CAPTION>
Consolidated Balance Sheets Summary:
December 31, December 31, December 31, December 31, December 31,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Working
Capital $212,555 $212,030 $268,345 (1) $264,962 (1) $267,208 (1)
Total
Share-
holders'
Equity $212,555 $212,030 $209,595 $206,391 $208,829
Total
Assets $279,368 $278,924 $274,734 $269,281 $271,300
======== ======== ======== ======== ========
</TABLE>
--------------------
(1) If accrued salary which is not included in current liabilities were
paid, working capital would have been reduced by $58,750 to $209,595 at
December 31, 1995, $210,352 at December 31, 1994 and $208,458 at
December 31, 1993.
The foregoing is selected financial information only, and is qualified
by the consolidated Financial Statements and the Notes thereto, in their
entirety, which are set forth elsewhere herein.
9
<PAGE>
Item 7. Managements Discussion and Analysis of Financial Condition and
- ------- --------------------------------------------------------------
Results of Operations.
----------------------
Results of Operations
- ---------------------
During the past three years, except for interest income, no revenues were
received by the Company. The Company is presently exploring various business
opportunities that may be available to it. See "Item 1."
Liquidity and Capital Resources
- -------------------------------
Financing of the Company's activities has been provided from the public
sale of its securities for cash amounting to a net of approximately $600,000. At
December 31, 1997, the Company's working capital amounted to $212,555 with cash
and cash equivalent assets of $275,937. The Company has an arrangement with
George Rubin and Morry Rubin pursuant to which each received Warrants to
purchase 1,000,000 shares of the Company's Common Stock at an exercise price of
$.03 per share at any time until November 21, 1007 in exchange for them making
available to the Company a line of credit of an aggregate up to $500,000. The
Company believes that its presently available cash and cash equivalents combined
with the availability of the above referenced line of credit are sufficient to
fund the Company's search for a business opportunity. If successful in entering
into such a business opportunity, the Company may require additional financing.
No assurances can be given that the Company will be successful in entering into
a business opportunity and if successful in securing additional financing for
the Company on terms satisfactory to it, if at all.
There are no material commitments for capital expenditures or other
long term credit arrangements.
Item 8. Financial Statements and Supplementary Data.
- ------- --------------------------------------------
The information required by Item 8, appears at pages F-1 through F-9
(inclusive) of this Report, which pages follow this page.
Item 9. Changes in and Disagreements with Accountants on Accounting
- ------- --------------------------------------------------------------
and Financial Disclosure.
-------------------------
Not applicable.
10
<PAGE>
NATIONAL DIVERSIFIED SERVICES, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
PAGE
INDEPENDENT AUDITORS' REPORT F-1
CONSOLIDATED BALANCE SHEETS -
DECEMBER 31, 1997 AND 1996 F-2
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
- --------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS F-3
CONSOLIDATED STATEMENTS OF CASH FLOWS F-4
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY F-5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-6 - F-9
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
National Diversified Services, Inc.
New York, New York
We have audited the accompanying consolidated balance sheets of National
Diversified Services, Inc. and Subsidiaries as at December 31, 1997 and 1996,
and the related consolidated statements of operations, cash flows, and changes
in stockholders' equity for the three years ended December 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of National Diversified
Services, Inc. and Subsidiaries as at December 31, 1997, 1996 and 1995, and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
MILLER, ELLIN & COMPANY, LLP
CERTIFIED PUBLIC ACCOUNTANTS
March 9, 1998
New York, New York
F-1
<PAGE>
NATIONAL DIVERSIFIED SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31,
1997 1996
------------- ---------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 275,937 $ 276,977
Interest receivable 1,775 1,947
Other current assets 1,656 -
---------- -------
Total current assets $ 279,368 $ 278,924
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 8,063 $ 8,144
ACCRUED SALARIES - officer (Note B) 58,750 58,750
---------- ----------
Total liabilities 66,813 66,894
---------- ----------
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value
authorized 30,000,000 shares, issued
6,553,870 shares in 1997 and 1996 6,554 6,554
Additional paid-in capital 705,755 705,755
---------- ----------
Total 712,309 712,309
Accumulated deficit (499,749) (500,274)
---------- ----------
212,560 212,035
Less 5,000 shares of treasury stock, at cost 5 5
---------- ----------
Total stockholders' equity 212,555 212,030
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 279,368 $ 278,924
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
F-2
<PAGE>
NATIONAL DIVERSIFIED SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1997 1996 1995
------------- ------------- ---------
<S> <C> <C> <C>
Interest income $ 15,384 $ 14,754 $ 16,513
General and administrative expenses 14,859 12,319 13,309
------------ ------------ ------------
NET INCOME $ 525 $ 2,435 $ 3,204
============ ============ ============
Income per share, based on
the weighted average shares
outstanding $ - * $ - * $ - *
============ ============ ============
Number of shares used to compute
income per share (Note D) 6,548,870 6,548,870 6,548,870
========= ========= =========
</TABLE>
* Less than $.01 per share
See accompanying notes to consolidated financial statements
F-3
<PAGE>
NATIONAL DIVERSIFIED SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1997 1996 1995
----------- ----------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 525 $ 2,435 $ 3,204
---------- ---------- ----------
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization - - 179
Changes in assets and liabilities:
Interest receivable 172 213 (2,160)
Loan to officer (1,656) - -
Accounts payable and accrued expenses (81) 1,755 2,249
---------- ---------- ----------
Total adjustments (1,565) 1,968 268
---------- ---------- ----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (1,040) 4,403 3,472
---------- ---------- ----------
NET CHANGE IN CASH AND CASH EQUIVALENTS (1,040) 4,403 3,472
CASH AND CASH EQUIVALENTS - beginning 276,977 272,574 269,102
---------- ---------- ----------
CASH AND CASH EQUIVALENTS - end $ 275,937 $ 276,977 $ 272,574
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE>
NATIONAL DIVERSIFIED SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY
$.001 PAR VALUE PAID-IN ACCUMULATED STOCK
---------------------------- ----------------
SHARES AMOUNT CAPITAL DEFICIT SHARES COST
------------ -------- ---------- ----------- ------- ---
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT
January 1, 1995 6,553,870 $ 6,554 $ 705,755 $ (505,913) 5,000 $ 5
Net income for year - - - 3,204 - -
------------ -------- ---------- ----------- ------- ---
BALANCE AT
December 31, 1995 6,553,870 6,554 705,755 (502,709) 5,000 5
Net income for year - - - 2,435 - -
------------ -------- ---------- ----------- ------- ---
BALANCE AT
December 31, 1996 6,553,870 6,554 705,755 (500,274) 5,000 5
Net income for year - - - 525 - -
------------ -------- ---------- ----------- ------- ---
BALANCE AT
December 31, 1997 6,553,870 $ 6,554 $ 705,755 $ (499,749) 5,000 $ 5
============ ======== ========== =========== ======= ====
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE>
NATIONAL DIVERSIFIED SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and History
------------------------
The Company was organized under the laws of the State of Delaware on May
30, 1985 and was in the development stage until 1989. During November 1989,
the Company began setting up operations to import to the United States
products for sale principally to the hardware and construction markets. Two
wholly-owned subsidiaries were formed to conduct these operations. The
Company commenced operations during the first three months of 1990 and
began billing its customers in April 1990. Billings to customers ended in
June 1990 and the Company terminated its import business. Currently, the
Company is exploring various business opportunities that may be available
to it.
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of the Company
and its subsidiaries, which are all wholly-owned and totally inactive. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Concentrations of Credit Risk
------------------------------
The Company places its cash balances with high credit quality financial
institutions. At times, such balances may be in excess of the FDIC
insurance limit.
Property, Plant and Equipment and Depreciation
----------------------------------------------
Property, plant and equipment have been fully depreciated primarily by
accelerated methods over the estimated useful lives of the individual
classes of assets.
Cash Equivalents
----------------
Cash equivalents comprised an investment in short-term commercial paper
with a maturity of less than ninety days.
Income Taxes
------------
Effective January 1, 1993, the Company changed its method of accounting for
income taxes to comply with SFAS No. 109, "Accounting for Income Taxes." A
requirement of SFAS No. 109 is that deferred tax assets and liabilities are
recorded for temporary differences between the financial statement and tax
bases of assets and liabilities using the currently enacted tax rate
expected to be in effect when the taxes are actually paid or recovered.
F-6
<PAGE>
NATIONAL DIVERSIFIED SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recently Issued Accounting Standards
------------------------------------
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share." This
statement establishes new standards for computing and presenting earnings
per share (EPS) and applies to entities with publicly held common stock or
potential common stock. This statement is effective for financial
statements issued for periods ending after December 15, 1997 (earlier
application is not permitted). This statement requires restatement of all
prior- period EPS data presented. The Company is currently evaluating the
impact SFAS No. 128 will have on its financial statements, if any.
Recently Issued Pronouncements
------------------------------
American Institute of Certified Public Accountants Statement of Position
No. 96-1, "Environmental Remediation Liabilities," establishes specific
criteria for the recognition and measurement of environmental remediation
liabilities. The adoption of the statement in 1997 is not expected to have
a significant effect on the company's financial condition or results of
operations.
Effective in 1997, Statement of Financial Accounting Standards No. 125,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," establishes criteria for the
classification of transfers of financial assets, such as accounts
receivable, as either sales or secured borrowings. Based on these criteria,
the company will continue to account for purchases of its accounts
receivable by an independent party as sales. As a result, the new standard
will have no effect on the company's financial condition or results of
operation.
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of" (FAS 121), which requires
impairment losses to be recorded on long-lived assets used in operations
when indicators of impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than the assets'
carrying amount. FAS 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The Company will adopt FAS 121
in the first quarter of fiscal 1997 and, based on current circumstances,
does not believe the effect of adoption will be material.
In October 1995, the FASB issued Statement No. 123, "Accounting for
Stock-Based Compensation" (FAS 123). This statement establishes a fair
value method of accounting for stock-based compensation plans. Adoption of
the fair value method is encouraged; however, entities may elect to
continue to account for stock-based compensation plans according to the
provisions of Accounting Principles Board Statement No. 25, "Accounting for
Stock Issued to Employees" (APB 25), while providing additional disclosures
required by FAS 123. The Company is required to adopt FAS 123 in the first
quarter of fiscal 1997, and intends to account for stock-based compensation
according to APB 25 and provide FAS 123 disclosures as required.
F-7
<PAGE>
NATIONAL DIVERSIFIED SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
NOTE B - ACCRUED SALARIES - OFFICER
Accrued salaries, officer represents $58,750 for the period December 1986
to November 22, 1989.
NOTE C - INCOME TAXES
At December 31, 1997, the Company had net operating loss carryforwards of
approximately $460,000 which expire from 2001 through 2010. In accordance
with SFAS No. 109 (Note A), these operating loss carryforwards result in
deferred tax assets to the Company. Management is uncertain as to the
utilization of these loss carryforwards and has provided for a 100%
valuation allowance for such deferred tax assets as follows:
Federal net operating loss carryforwards $ 135,000
State net operating loss carryforwards 55,000
----------
Total 190,000
Less valuation allowance 190,000
----------
Net deferred tax assets $ -0-
==========
NOTE D - INCOME PER SHARE
Income per share is based on the weighted average number of shares of
common stock outstanding.
NOTE E - STOCK OPTIONS AND WARRANTS
During 1997, the Company reserved 2,500,000 shares for stock purchase
warrants.
In addition, the Company entered into an arrangement with certain officers
and stockholders pursuant to which each received warrants to purchase
1,000,000 shares of the Company's common stock at an exercise price of $.03
per share at any time until November 21, 2007. In exchange, they will make
available to the Company an aggregate line of credit of up to $500,000. In
November 1997, the Company granted to an officer warrants to purchase
100,000 shares of the Company's common stock identical to those granted to
the officers and stockholders referred to above in consideration of
continuing to serve as an officer and a director of the Company.
F-8
<PAGE>
NATIONAL DIVERSIFIED SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
NOTE E - STOCK OPTIONS AND WARRANTS (CONTINUED)
The Company also granted warrants to purchase an aggregate of 200,000
shares of the Company's common stock at an exercise price of $.03 per share
to certain non-affiliated persons in connection with legal services
rendered to the Company. These warrants expire on November 21, 2007.
<TABLE>
<CAPTION>
Officers & Officer &
Directors Non-Affiliates Director
----------------- ----------------- -----------------
<S> <C> <C> <C>
Date of grant November 21, 1997 November 24, 1997 November 25, 1997
Expiration date November 21, 2007 November 21, 2007 November 21, 2007
Number of shares under option 2,000,000 200,000 100,000
Option price $ .03 $ .03 $ .03
Quoted market price at date of grant $0.00 $0.00 $0.00
</TABLE>
F-9
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
(a) Identification of Directors
---------------------------
The names, ages and principal occupations of the Company's
present directors, and the date on which their term of office commenced and
expires, are as follows:
First
Term of Became Principal
Name Age Office Director Occupation
George Rubin 70 (1) 1989 Private Investor
Morry Rubin 38 (1) 1998 Private Investor
Stacy Goldberg 35 (1) 1995 Private Investor
- ------------------
(1) Directors are elected at the annual meeting of stockholders and hold
office to the following annual meeting.
(b) Identification of Executive Officers.
-------------------------------------
George Rubin is Chairman of the Board of Directors. Morry F. Rubin is
President, Chief Executive Officer, Principal Financial Officer and Treasurer of
the Company. Stacy Goldberg is Secretary of the Company. George Rubin is the
father of Stacy Goldberg and Morry F. Rubin. The Company's By-Laws provide that
the terms of all officers expire at the annual meeting of directors following
the annual stockholders meeting.
(c) Business Experience
-------------------
George Rubin has been Chairman of the Board of Directors of the Company
since December 1989 and served as its and President, Chief Executive Officer and
Chief Financial and Accounting Officer and Treasurer of the Company from August
1995 until February, 1998. George Rubin served as Chairman of the Board of ATC
Group Services Inc. (formerly ATC Environmental Inc.) from June 1988 until
February 1998. Mr. Rubin is currently serving as a consultant to ATC pursuant to
an 18 month consulting agreement expiring in 1999. Mr. Rubin devotes such time
to the Company as is necessary for the performance of his duties.
11
<PAGE>
Morry F. Rubin has served as President, Chief Executive Officer, Treasurer
and Chief Financial Officer of the Company since February 1998. From June 1985
to August 1995, Mr. Rubin served as an executive officer and director of the
Company. Mr. Rubin was President, Chief Executive Officer and Treasurer of ATC
Group Services Inc. (formerly ATC Environmental Inc.) from January 1988 to
February 1998 and a director of ATC from January 1988 to January 1998. Mr. Rubin
is currently serving as a consultant to ATC pursuant to an 18 month consulting
agreement expiring in 1999. Mr. Rubin also served as President, Chief Executive
Officer and Treasurer of Aurora Environmental Inc. ("Aurora") from May 1985
through June 1995, and as a director of Aurora from September 1983 through June
1995. Mr. Rubin devotes such time to the Company as is necessary for the
performance of his duties.
Stacy Goldberg has served as a director and Secretary of the Company
since August 1995. From 1987 to January 1998, she was an Office Manager of ATC
Group Services Inc. Ms. Goldberg devotes such time to the Company as is
necessary for the performance of her duties.
Item 11. Executive Compensation.
-----------------------
During the past three years, no executive officer or director has any
employment contract with the Company or received any cash or other compensation,
except for Warrants described herein. Directors do not presently receive
compensation (other than Warrants described herein) for serving on the board,
although the Company will reimburse its directors for out-of-pocket travel
expenditures. Depending upon the number of meetings and the time required for
the Company's operations, the Company may decide to compensate its directors in
the future. See Item 13.
George Rubin served as Chief Executive Officer of the Company during
1997 before his son, Morry F. Rubin, was elected Chief Executive Officer of the
Company on February 1, 1998. The following is the summary compensation table for
the Company's two Executive Officers for 1997 and 1996. No compensation was paid
to any executive officers in 1995.
12
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual Compensation Award Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Other All
Name Annual Restricted Other
and Compen- Stock Number of LTIP Compen-
Principal sation Award(s) Options/ Payouts sation
Position Year Salary ($) Bonus ($) ($) ($) Warrants ($) ($) 2
George Rubin, 1997 -0- -0- -0- -0- 1,000,000 -0- -0-
former Chief (1)
Executive Officer
and currently
Chairman of the 1996 -0- -0- -0- -0- -0- -0- -0-
Board
Morry F. Rubin, 1997 -0- -0- -0- -0- 1,000,000 -0- -0-
Chief Executive (1)
Officer 1996 -0- -0- -0- -0- -0- -0- -0-
</TABLE>
(1)See "Item 7 and Item 13."
13
<PAGE>
OPTIONS/WARRANTS GRANTS TABLE
The information provided in the table below provides information with
respect to the Company's individual grants of stock options and warrants during
fiscal 1997 of each of the executive officers named in the summary compensation
table above. The Company did not grant any stock appreciation rights during
1997.
<TABLE>
<CAPTION>
Options/Warrants Grants in Last Fiscal Year
Potential
Realizable Value at
Assumed Annual
Individual Grants Rates of Stock Price
Appreciation
for Option/Warrant Term
(2)
(a) (b) (c) (d) (e) (f) (g)
--- --- --- --- --- --- ---
% of
Total
Options/
Warrants
Options/ Granted to Exercise Expira-
Warrants Employees Price tion
Name Granted in Fiscal ($/Sh) Date 5% ($) 10% ($)
---- ------- --------- ------ ---- ------- -------
(#) Year (1)
--- --------
<S> <C> <C> <C> <C> <C> <C>
George Rubin 1,000,000 50.0% .03 11/21/07 18,870 47,800
- ----------------------- --------- -------- --------- ---------- --------- ----------
Morry F. Rubin 1,000,000 50.0% .03 11/21/07 18,870 47,800
======================= ========= ======== ========= ========== ========= ==========
</TABLE>
N/A - Not Applicable.
(1) The percentage of total options/warrants granted to employees in fiscal
year is based upon options/warrants granted to officers, directors and
employees.
(2) The potential realizable value of each grant of options/warrants
assumes that the market price of The Company's Common Stock appreciates
in value from the date of grant to the end of the options/warrants term
at annualized rates of 5% and 10%, respectively, and after subtracting
the exercise price from the potential realizable value.
14
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTIONS/WARRANTS VALUES
The information provided in the table below provides information with
respect to each exercise of the Company's stock options/warrants during fiscal
1997 by each of the executive officers named in the summary compensation table
and the fiscal year end value of unexercised options/warrants.
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Value of
Number of Unexercised
Shares Unexercised In-the-Money
Acquired Options/Warrants
on Value Options/Warrant at Fy-End($)
Exercise Realized s Exercisable/
Name (#) ($)(1) at FY-End (#) Unexercisable(1)
---- --- ------- -------------- ----------------
<S> <C> <C> <C> <C>
Exercisable/
-------------
Unexercisable
--------------
George Rubin -0- -0- 1,000,000 / -0- 1,000,000 / -0-
Morry F. Rubin -0- -0- 1,000,000 / -0- 1,000,000 / -0-
========= ========= =================== =======================
</TABLE>
(1) The aggregate dollar values in column (c) and (e) are required to be
calculated by determining the difference between the fair market value of
the Common Stock underlying the options/warrants and the exercise price of
the options/warrants at exercise or fiscal year end, respectively. In
calculating the dollar value realized upon exercise, the value of any
payment of the exercise price is not included. However, since there is a
limited public market for The Company's Common Stock, no calculation is
included in column (e) and N/A (not applicable) is placed in the table
above.
Item 12. Security Ownership of Certain Beneficial Owners and
- -------- ---------------------------------------------------
Management.
-----------
As of March 16, 1998, the only persons of record who held or were known
to own (or believed by the Company to own) beneficially more than 5% of the
outstanding 6,548,870 shares of Common Stock of the Company (the only voting
security) were as indicated in the table below. Such table also sets forth the
beneficial ownership of executive officers, directors, both individually and as
a group.
15
<PAGE>
Approximate
Number of Percent
Name Shares of Class
Morry F. Rubin
(1)(2)(3)(4) 3,403,000 45.1
George Rubin (1)(2)(3)(4) 3,383,000 44.8
Stacy Goldberg (3)(5) 100,000 *
All officers and
directors as a
group (two persons)(4) 4,383,000 51.3
*Represents less than one percent of the Company's outstanding shares of Common
Stock.
(1) May be deemed to be a founder, control person or affiliate of the
Company under the Securities Act of 1933, as amended.
(2) George Rubin is the father of Morry F. Rubin and Stacy Goldberg. Shares
owned by George Rubin do not include shares owned by Morry F. Rubin and
shares owned by Morry F. Rubin do not include shares owned by George
Rubin.
(3) All addresses are c/o Lester Morse P.C., 111 Great Neck Road, Great
Neck, New York 11021.
(4) Includes Warrants to purchase 1,000,000 shares at an exercise price of
$.03 per share and exercisable at any time until November 21, 2007.
(5) Includes Warrants to purchase 100,000 shares at an exercise price of
$.03 per share and exercisable at any time until November 21, 2007.
The Company does not know of any arrangement or pledge of its
securities by persons now considered in control of the Company that might result
in a change of control of the Company.
Item 13. Certain Relationships and Related Transactions.
- -------- -----------------------------------------------
The Company has an arrangement with George Rubin and Morry
Rubin pursuant to which each received Warrants to purchase 1,000,000 shares of
the Company's Common Stock at an exercise price of $.03 per share at any time
until November 21, 1007 in exchange for them making available to the Company an
aggregate line of credit of up to $500,000. In November 1997, the Company
granted Stacy Goldberg Warrants to purchase 100,000 shares of the Company's
Common Stock identical to those granted to
16
<PAGE>
George Rubin and Morry Rubin in consideration of her continuing to serve as a
director of the Company.
In November 1997, the Company also granted Warrants to
purchase an aggregate of 200,000 shares of the Company's Common Stock at an
exercise price of $.03 per share to certain non-affiliates persons in connection
with legal services rendered to the Company. These Warrants expire on November
21, 2007.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
-----------------------------------------------------------------
(a)(1)(2) Financial Statements and Financial Statement
--------------------------------------------
Schedules.
----------
A list of the Financial Statements and Financial Statement
Schedules filed
as a part of this Report is set forth in Item 8, and appears at Page F-1 of this
Report; which list is incorporated herein by reference.
(a)(3) Exhibits
--------
3 Certificate of Incorporation and Amendments thereto (1)
3(A) By-Laws (1)
21 Subsidiaries of Registrant (2)
27 Financial Data Schedule (3)
99 Form of Warrants granted to Morry Rubin and George Rubin
99.1 Form of Warrant granted to Stacy Goldberg
99.2 Form of Warrant granted to Lester Morse and Steven Morse
- ----------------
(1) Exhibits 3 and 3(A) are incorporated by reference from Registration No.
99080 which were filed in a Registration Statement on Form S-18.
(2) The Company had no active subsidiaries during the year ended December
31, 1997.
(3) Filed herewith.
(b) Reports on Form 8-K.
--------------------
No Form 8-K was filed or required to be filed during the
fourth quarter of 1997.
17
<PAGE>
SIGNATURES
Pursuant to the requirements Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
NATIONAL DIVERSIFIED SERVICES, INC.
BY: /s/ George Rubin
-------------------------------------
George Rubin, Chairman of the Board,
Dated: March 31, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Signature Title Date
- --------- ----- ----
President, Chief
Executive Officer,
Treasurer, Principal
Financial and
/s/ Morry Rubin Accounting Officer March 31, 1998
- ------------------------- and Director
MORRY RUBIN
/s/ Stacy Goldberg Director and Secretary March 31, 1998
- --------------------------
STACY GOLDBERG
/s/ George Rubin Chairman of the Board March 31, 1998
- ---------------------------
GEORGE RUBIN
18
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 275,937
<SECURITIES> 0
<RECEIVABLES> 1,775
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 279,368
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 279,368
<CURRENT-LIABILITIES> 8,063
<BONDS> 0
<COMMON> 6,554
0
0
<OTHER-SE> 705,755
<TOTAL-LIABILITY-AND-EQUITY> 279,368
<SALES> 0
<TOTAL-REVENUES> 15,384
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 14,859
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 525
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 525
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
