U. S. Securities and Exchange Commission
Washington, D. C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from_________ to__________
Commission File Number: 33-21085
NEW SYSTEMS, INC.
----------------------------------------------
(Name of small business issuer in its charter)
NEVADA 87-0454377
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5 Clancy Lane South
Rancho Mirage, California 92270
----------------------------------------
(Address of principal executive offices)
(760) 346-5961
---------------------------
(Issuer's telephone number)
Securities registered under Section 12(b) of the Exchange Act: None
Name of each exchange on which registered: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.001 par value
Check whether the issuer [1] filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports], and [21 has been
subject to such filing requirements for the past 90 days: Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of the Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year: $ 0.00
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was sold, or the average bid and asked price of such common equity, as of a
specified date within the past 60 days: $ 0.00
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: March 28, 1999 - 1,200,002 shares of
common stock
Transitional Small Business Disclosure Format: No
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
BUSINESS DEVELOPMENT
INITIAL BUSINESS OPERATIONS
New Systems, Inc. (the "Company") was incorporated under the laws of the State
of Nevada on December 10, 1987, under the name of Municipal Systems, Inc., for
the purpose of acquiring all of the issued and outstanding common stock of CSH
Corporation, a Utah corporation (formerly, Computer Systems House Corporation
and hereinafter referred to as "CSH"), from its stockholder. The Company was
initially capitalized with $50,000 from its organizers. Subsequently, a public
offering was undertaken by the Company for the purpose of raising sufficient
capital to acquire the common stock of CSH and to raise operating capital for
CSH. The Company filed a registration statement on Form S-18 with the Securities
and Exchange Commission ("SEC") which became effective in September, 1988 (the
"IPO" or "Offering"). The Company sold a total of 40,000 units, at a price of
$7.50 per unit, each unit consisting of 300 shares of $0.001 par value, common
stock; 900 Class A Warrants and 600 Class B Warrants. Each warrant of either
class was exercisable for one share of common stock at a predetermined price;
however, no warrants of either class were exercised prior to their expiration
date and currently there are no Warrants issued and outstanding. Before
deducting any underwriting commissions or other costs of the public offering,
gross proceeds from the public offering amounted to $300,000.
Upon completion of the Offering, in 1988, the Company completed its acquisition
of all issued and outstanding stock of CSH for total consideration of $100,000.
After the acquisition of the CSH stock, CSH was operated as a wholly owned
subsidiary. CSH was primarily engaged in the developing, manufacturing and
marketing of four specialized accounting software programs (the "CSH Software")
principally for school district funding and secondary school activity funding.
At the time of the Company's initial investment in CSH, the CSH Software was
being sold in limited quantities while further development and program
refinements were being undertaken. CSH's principal executive offices were
located in Wilmington, Delaware, from where its marketing and sales efforts
originated, with satellite offices in Provo, Utah, from where research,
development and technical support activities were conducted. Several months
after the Company's initial investment in CSH, the Delaware offices were closed
and all of CSH's activities were conducted from the Provo, Utah, offices.
Eventually, when projected revenue from the sale of the CSH Software failed to
materialize, the principal business and technical support offices of CSH were
relocated to the Company's offices in Salt Lake City, Utah.
SUBSIDIARY'S BUSINESS OPERATIONS
The CSH Software was targeted for sales to "secondary schools" within the
numerous school districts across the United States. The Company had utilized
$100,000 of the public offering proceeds to acquire CSH and an additional amount
of approximately $150,000 had been expended through April, 1989, for marketing
and further development of the CSH Software. By April of 1989 it became apparent
that the CSH Software sales had not been profitable and the reality of obtaining
additional funding was not likely unless the organizational structure of CSH was
changed.
In order to provide the possibility of such a change, the Company's stockholders
voted on April 28, 1989, to adopt resolutions which had the following effect on
the Company and its stockholders: 1] Certain stockholders of the Company
contributed a total of 7,800,000 shares of the Company's common stock previously
purchased by them, back to the Company for cancellation. In exchange, these
stockholders received shares of CSH's common stock, which effectively reduced
the Company's 100% ownership interest in CSH; 2] The Company's shares of common
stock, representing its remaining ownership interest in CSH was placed into
escrow with the intent to distribute the CSH common stock to the Company's
stockholders upon a registration statement relative to those shares of common
stock being declared effective by the SEC; 3] The Company's Articles of
Incorporation were amended to increase the authorized number of shares of common
1
<PAGE>
stock to 250,000,000; and 4] The Company's former president during the Company's
IP0, Denny Nestripke, was retained as a consultant to the Company for the
purpose of providing an office location for the Company and to assist the
Company with respect to matters relating to its publicly held ownership.
Before the actual reorganization of CSH could be accomplished, the Chief
Executive Officer of CSH abruptly, and without prior notice, returned to
Wilmington, Delaware, unwilling to continue any association with CSH.
Additionally, the stockholder from whom the Company purchased CSH, and who
subsequently provided the leadership and direction to further develop the CSH
Software, resigned from CSH and relocated to the eastern part of the United
States. The departure of these two individuals resulted in CSH remaining
operational for only a short period of time before its business operations were
discontinued and settlements with CSH's creditors were negotiated. By November
of 1991, the distribution of the shares of CSH's common stock held in escrow for
the Company's stockholders had not occurred and CSH had ceased operations. Even
though CSH had not entered into any form of bankruptcy proceedings, on November
1, 1991, the Utah State Department of Commerce issued a Certificate of
Involuntary Dissolution to CSH.
ACTIVITIES SUBSEQUENT TO CSH
The Company did not engage in any business activities other than the operation
of its subsidiary, CSH, from the time it acquired CSH through the end of 1991.
Subsequent thereto several proposed reorganizations involving the Company were
reviewed by then existing management; however, it was determined that none of
the proposals presented would provide a realistic opportunity for the Company to
become a viable operating entity. By the end of 1991 the Company's common stock
had ceased to actively trade on the over-the-counter market and the Company's
board of directors, elected at the aforementioned April, 1989 meeting, didn't
have any clear direction as to what business activities the Company should
pursue. During this two year period, active participation from the elected
directors diminished and they resigned from their positions as directors.
By the end of 1991, Mr. Denny W. Nestripke, who originally organized the Company
and was its president during the period of its IPO, was appointed its new
director and president. As the sole officer and director of the Company, Mr.
Nestripke acted for and on behalf of the Company in effecting the following: 1)
shareholders who had contributed shares of common stock to the Company for
shares of CSH had their shares returned to them to the extent that they acted in
good faith; 2) any shares of CSH common stock issued for services, or for cash,
were allowed to be exchanged for shares of the Company's common stock; 3) rather
than receiving cash consideration for consulting services, as provided in the
April 1989 meeting, Mr. Nestripke was issued shares of the Company's common
stock; and 4) authorization was given to issue shares of the Company's common
stock for the purpose of: a) paying any cost and expenses which the Company may
incur in order to maintain its corporate existence; b) having sufficient capital
for the Company to investigate possible reorganization; and c) to pay such fees
and costs as Mr. Nestripke deemed appropriate.
In December of 1997, due to health reasons, Mr. Nestripke brought another
individual, Mr. Lloyd T. Rochford, into the leadership of the Company, effective
upon Mr. Nestripke's resignation. Mr. Lloyd T. Rochford has now assumed the
position of director of the Company and is the Company's chief executive and
financial officer. In addition, the financial consulting firm of KM Financial,
Inc. was retained, effective concurrent with Mr. Rochford's appointment.
By consent resolution of a majority of the Company's stockholders, approval for
the following action became effective March 2, 1999: a) Mr. Lloyd T. Rochford
was elected as a director of the Company; b) the Company's name was changed to
New Systems, Inc. ("New Systems"); c) a reverse split of the Company's
outstanding common stock on the basis of one share of New Systems to be issued
for each 250 shares of the Company's common stock outstanding prior thereto.
2
<PAGE>
BUSINESS OF ISSUER
The Company is currently not engaged in any business operation other than
seeking to locate an existing business or business assets ("Target Corp.") with
which the Company could enter into a merger or acquisition. There are no set
guidelines on the type of Target Corp. Management will have broad discretion in
seeking a Target Corp. and structuring a reorganization. At the present time the
Company has not entered into any formal discussions with any corporation or
individuals representing a corporation or other entity or assets.
The utilization of an existing public corporation in a reorganization with an
existing business operation or in conjunction with a business plan, is highly
speculative. Furthermore, no assurance can be given that after a reorganization
has taken place that the acquired entity will be able to maintain or achieve any
earnings. There is also no assurance that the Company's securities will achieve
acceptance by the investing public or supported in the marketplace by
broker/dealers, investment advisors or others who can or could influence the
price of the Company's securities in the marketplace.
The Company intends to comply with the reporting requirements of the SEC and
state securities regulators. Such compliance requires that its financial
statements be audited by an independent certified public accounting firm and
will also require that legal counsel review and assist in the compliance process
of a public entity. This will require that the Company seek adequate financing
for such purposes.
The Company has no full time employees. Mr. Lloyd T. Rochford, chief executive
officer, chief financial officer and director of the Company will devote such
time to the Company as he deems necessary. Mr. Rochford received shares of the
Company's common stock from the Company upon accepting an appointment to serve
the Company in the positions mentioned. Subsequent to such appointment Mr.
Rochford has not received any compensation and it is not intended that any
compensation will be paid to Mr. Rochford at any future time.
ITEM 2. DESCRIPTION OF PROPERTY
The Company does not own or lease any business property. The Company maintains a
mailing address and telephone at the office of Mr. Lloyd T. Rochford, the
Company's sole director and officer. The Company is not charged any fee or other
cost by Mr. Rochford for the office space.
ITEM 3. LEGAL PROCEEDINGS
The Company is not subject to any actual or pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matter to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.
3
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION, HOLDERS AND DIVIDENDS
The following information is current as of March 28, 2000. There is not a public
trading market for the Company's common stock, nor has there been a public
trading market during the past two fiscal years ending December 31, 1999. The
Company has 1,200,002 shares of common stock issued and outstanding. There are
no outstanding options or warrants to purchase, or securities convertible into,
the Company's common stock. Of the 1,200,002 shares of common stock issued and
outstanding, 614,000 shares are restricted securities which are available for
resale pursuant to Rule 144 of the Securities Act of 1933. As of March 28, 2000,
the Company had 120 shareholders of record. Since its inception, the Company has
not paid any dividends and it is not anticipated that the Company will pay any
dividends in the foreseeable future.
RECENT SALES OF UNREGISTERED SECURITIES
The following information is being provided with respect to all securities that
the Company sold during the period covered by this report without registering
such securities under the Securities Act. Any references made herein to the
number of shares of the Company's common stock have taken into account a reverse
split of the Company's common stock which took effect on March 2, 1999. This
reverse split resulted in one share of the Company's Common Stock being
exchanged for every 250 shares of currently outstanding shares.
On April 16, 1999, the Issuer sold 200,000 shares of its common stock to KM
Financial, Inc. for $20,000 or $.10 per share. The Company relied on the
exemption from registration provided by Section 4(2) of the Securities Act of
1933.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Company presently does not have any business operation and is looking for a
business to acquire or merge with. As the Company has limited resources, it may
be difficult to locate a business interested in being acquired or merging with
the Company. The Company intends to take advantage of any reasonable business
proposal presented which management believes will provide the Company and its
stockholders with a viable business opportunity. The board of directors will
make the final approval in determining whether to complete any acquisition, and
unless required by applicable law, the articles of incorporation or bylaws or by
contract, stockholders' approval will not be sought.
The investigation of specific business opportunities and the negotiation,
drafting, and execution of relevant agreements, disclosure documents, and other
instruments will require substantial management time and attention and will
require the Company to incur costs for payment of accountants, attorneys, and
others. If a decision is made not to participate in or complete the acquisition
of a specific business opportunity, the costs incurred in a related
investigation will not be recoverable. Further, even if an agreement is reached
for the participation in a specific business opportunity by way of investment or
otherwise, the failure to consummate the particular transaction may result in
the loss to the Company of all related costs incurred.
Currently, management is not able to determine the time or resources that will
be necessary to locate and acquire or merge with a business prospect. There is
no assurance that the Company will be able to acquire an interest in any such
prospects, products or opportunities that may exist or that any activity of the
Company, regardless of the completion of any transaction, will be profitable. If
and when the Company locates a business opportunity, management of the Company
will give consideration to the dollar amount of that entity's profitable
operations and the adequacy of its working capital in determining the terms and
conditions under which the Company would consummate such an acquisition.
Potential business opportunities, no matter which form they may take, will most
likely result in substantial dilution for the Company's shareholders due to the
issuance of stock to acquire such an opportunity.
4
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1999, the Company had $1,047 in assets and liabilities
amounting to $13,991. The Company has only incidental ongoing expenses primarily
associated with evaluating potential merger or acquisition candidates,
maintaining its corporate status and maintaining the Company's reporting
obligations to the Securities and Exchange Commission. For the twelve months
ended December 31, 1999, the Company's principal expenses were related to such
general and administrative expenses and amounted to $34,834. The Company
received no revenue during each of its fiscal years ended December 31, 1998 and
1999.
Since its inception, the Company has not been profitable and has used all of the
monies raised in its initial public offering, and it is unlikely that any
revenue will be generated until the Company locates a business opportunity to
acquire or merge. Management of the Company will be investigating various
business opportunities which may cost the Company not only out of pocket
expenses for its management but also expenses associated with legal and
accounting cost. There can be no guarantee that the Company will receive any
benefits from the efforts of management to locate business opportunities.
The Company has had no employees since its inception and does not intend to
employ anyone in the future, unless its present business operations were to
change. The president of the Company is providing the Company with a location
for its offices on a "rent free basis." The Company is not paying salaries or
other form of compensation to any officers or directors of the Company for their
time and effort. The Company does intend to reimburse its officers and directors
for out of pocket cost.
RESULTS OF OPERATIONS
The Company has not had any operations during the fiscal years ended December
31, 1998 and 1999. The Company's only operations since the closing of CSH have
involved the preliminary investigation of one or more potential business
opportunities, none of which have come to fruition.
The Company has retained the services of KM in order to provide adequate
financing for its continuing operations, as discussed herein. In so doing the
Company believes that it has minimized the risk associated with being
underfinanced or not being able to meet the financial obligations associated
with being a corporation reporting to the SEC. The Company believes that such
financing will be adequate to allow its officer to travel and incur other
expenses in seeking a Target Corp. In addition, KM shall attempt to make
appropriate introductions to management of the Company in its efforts to seek an
appropriate Target Corp.
ITEM 7. FINANCIAL STATEMENTS
The financial statements as of December 31, 1999 and for each of the two years
then ended, including the report of the Company's independent certified public
accountant, follow the signature page hereto.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
5
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
All information given below is current as of March 28, 2000.
DIRECTORS AND EXECUTIVE OFFICERS
Listed below is the name of the Company's sole officer and director who was
elected by a consent of the majority of the Company's stockholders effective as
of March 2, 1999.
Name Age Positions, Offices, Term of Office
---- --- ----------------------------------
Lloyd T. Rochford 52 Director, President, Secretary, Treasurer
For the period of one year or until a
successor is duly qualified and elected.
Accepted such position on December 5, 1997
and has served in such capacities since
January 22, 1999.
Mr. Rochford currently serves as a director of Elligent Consulting Group, Inc.,
a position which he has held since 1997. In addition to the foregoing, from its
inception to June, 1997, Mr. Rochford also served as a director of Magnum Hunter
Resources, Inc., a natural resource corporation listed on the American Stock
Exchange. In addition to serving in the capacities mentioned, Mr. Rochford is an
independent financial consultant and administers his own investment portfolio,
comprised of investments in securities, real estate and natural resource
properties.
During the last fiscal year, Mr. Rochford failed to file a report on Form 3 in a
timely manner. Mr. Rochford has not yet made this filing.
SIGNIFICANT EMPLOYEES OR CONSULTANTS
Concurrent with Mr. Rochford's acceptance to the positions stated above, KM
agreed to provide services to the Company on an ongoing basis relative to
seeking a Target Corp. and in arranging for such financing as the Company may
need to continue conducting its operations as heretofore stated. KM is an
Arizona corporation founded in 1992 for the purpose of providing investment
banking services to established and emerging growth entities. The principal of
KM is William Parsons, who, along with associates, have a combined experience in
mergers and acquisitions, private placements, reverse mergers, syndication,
marketing and general securities industry business consulting which totals over
40 years. Though not confined to any specific industry, KM has been engaged in
offering its services in the area of natural resources, legalized gaming, health
care, electronics, hospitality, fiber optics, environmental services, childcare,
timeshare, banking, information technology and manufacturing.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
With respect to Mr. Rochford and KM, including its principals, during the past
five years, no: a) bankruptcy petition has been filed by or against any business
in which they were a general partner or executive officer or within the two
years prior to that time; b) conviction which involved a criminal proceeding or
a pending criminal proceeding; c) order, judgment, or decree having been entered
by any court having competent jurisdiction which involved any type of business,
securities or banking activities; and d)judgement in a civil action has been
entered for violation of a federal or state securities or commodities law.
6
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
The Company has not paid any cash compensation during the three year period
ending December 31, 1999. When Mr. Rochford acknowledged his willingness to
serve the Company as its director and sole officer, he received shares of the
Company's common stock for accepting such positions. No formal agreement or
contract was entered into and even though Mr. Rochford has indicated to serve
the Company on an indefinite basis, Mr. Rochford is under no obligation to do
so. Inasmuch as the Company's common stock was not listed on an exchange or
quoted by a broker/dealer in the over-the-counter market, no value for the
Company's common stock could readily be determined. Consequently, the par value
of the Company's common stock was used to determine the fair market value. The
following Summary Compensation Table reflects the foregoing items.
<TABLE>
<CAPTION>
Long Term Compensation
-------------------------------
Annual Compensation Awards Payouts
--------------------------- --------------------- -------
Non-Cash Restricted Options/ LTIP
Name & Position Year Salary Bonus Other Stock SARs Payouts All Other
- --------------- ---- ------ ----- ----- ----- ---- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Lloyd T. Rochford 1999 $ -0- $ -0- $ -0- $ -0- None $ -0- $ -0-
C E O (present) 1998 $ -0- $ -0- $ -0- $ -0- None $ -0- $ -0-
1997 $ -0- $ -0- $73,848 $ -0- None $ -0- $ -0-
Denny W. Nestripke 1999 $ -0- $ -0- $ -0- $ -0- None $ -0- $ -0-
C E O (past) 1998 $ -0- $ -0- $ -0- $ -0- None $ -0- $ -0-
1997 $ -0- $ -0- $ -0- $ -0- None $ -0- $ -0-
</TABLE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table provides information relative to the Company's common stock
held by any person or any group known to the Company to be the beneficial owner
of more than five percent of the Company's issued and outstanding common stock
as of March --, 2000. This table has taken into account a reverse split of the
Company's common stock which took effect on March 2, 1999. This reverse split
resulted in one share of New Systems, Inc. being issued for 250 shares of
Municipal Systems, Inc.
Name and Address Shares Beneficially Percent of
of Beneficial Owner Owned Class
------------------- ----- -----
Lloyd T. Rochford 295,392 24.6%
5 Clancy Lane South
Rancho Mirage, CA 92270
Stanley McCabe 60,296(1) 5.0%
William Parsons 279,008(2) 23.3%
Directors and Officers as a group (1 person) 295,392 24.6%
------- -----
- ----------
(1) Includes shares owned by Stanton Oil & Gas Ltd. of which Mr. McCabe's wife
is the sole stockholder.
(2) Includes shares registered in the name of K M Financial, Inc.; Mr.
Parsons's wife; and shares held by Mr. Parsons as a custodian.
7
<PAGE>
CHANGES IN CONTROL
No arrangements currently exist which may result in a change of control of the
Company. Furthermore, none of the individuals listed under either of the above
two tables has any arrangement known to the Company which would allow them the
right to acquire any additional shares of common stock within sixty days of
March 28, 2000.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On April 16, 1999, the Company sold 200,000 shares of its Common Stock to KM
Financial, Inc. for $200,000 or $.10 per share. Mr. Parsons, a large shareholder
of the Company, is a principal of KM Financial.
8
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS.
The following financial statements are included in this report:
Report of Hansen Barnett and Maxwell, Certified
Public Accountants F-1
Balance Sheet as of December 31, 1999 F-2
Statements of Operations,
for the fiscal years ended December 31, 1999, and 1998 F-3
Statements of Stockholders' Equity
for the years ended December 31, 1999, and 1998,
and from inception F-4
Statements of Cash Flows
for the fiscal years ended December 31, 1999,
and 1998, and from inception F-6
Notes to Financial Statements F-8
(a)(2) FINANCIAL STATEMENT SCHEDULES.
The following financial statement schedules are included as part of this
report:
[SEE EDGAR SUBMISSION]
(a)(3) EXHIBITS.
The following exhibits are included as part of this report:
Number 3: Initial Articles of Incorporation and Bylaws
Incorporated by reference to the Registrant's registration statement
on Form S-18, SEC File No. 33-21085
EXHIBIT DOCUMENT NOTE
------- -------- ----
2.1 Initial Articles of Incorporation (1)
2.2 Articles of Incorporation as amended on April 5, 1989 (2)
2.3 Certificate of Correction of Articles of Incorporation
as filed on March 22, 1999 (2)
2.4 Bylaws (2)
2.5 Amendment to Bylaws (2)
27.1 Financial Data Schedule (3)
- ----------
(1) Incorporated by reference from the Registrant's Registration Statement on
Form S-18, SE No. 33-21085.
(2) Incorporated by reference from the Registrant's Annual Report on Form
10-KSB for the year ended December 31, 1998.
(3) Incorporated by reference from the Registrant's Registration Statement on
Form 10-SB filed on February 9, 2000.
(b) REPORTS ON FORM 8-K.
The Company did not file any reports on Form 8-K in its fourth quarter.
9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated:
NEW SYSTEMS, INC.
/s/ Lloyd T. Rochford
- -----------------------------------------
Lloyd T. Rochford, President and Director
Principal Executive Officer
March 29, 2000
10
<PAGE>
[LETTERHEAD OF HANSEN, BARNETT & MAXWELL]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
New Systems, Inc.
We have audited the accompanying balance sheet of New Systems, Inc.(a
development stage enterprise) as of December 31, 1999 and the related statements
of operations, stockholders' deficit, and cash flows for the years ended
December 31, 1999 and 1998, and for the cumulative period from December 10, 1987
(date of inception) through December 31, 1999. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of New Systems, Inc. as of
December 31, 1999 and the results of its operations and its cash flows for the
years ended December 31, 1999 and 1998, and for the cumulative period from
December 10, 1987 (date of inception) through December 31, 1999 in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company's lack of operations and significant losses
raise substantial doubt about its ability to continue as a going concern.
Management's plans regarding those matters are also described in Note 1. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ HANSEN, BARNETT & MAXWELL
Salt Lake City, Utah
January 13, 2000
F-1
<PAGE>
NEW SYSTEMS, INC.
BALANCE SHEET
DECEMBER 31,1999
ASSETS
CURRENT ASSETS
Cash ........................................................... $ 1,047
---------
TOTAL CURRENT ASSETS ....................................... 1,047
---------
TOTAL ASSETS ..................................................... $ 1,047
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accrued liabilities ............................................ $ 13,991
---------
TOTAL CURRENT LIABILITIES .................................. 13,991
---------
STOCKHOLDERS' EQUITY
Common stock - $0.001 par value; 250,000,000 shares
authorized; 1,200,002 shares issued and outstanding .......... 1,200
Additional paid-in capital ..................................... 422,946
Deficit accumulated during the development stage ............... (437,090)
---------
TOTAL STOCKHOLDERS' EQUITY ................................. (12,944)
---------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT ...................... $ 1,047
=========
F-2
<PAGE>
NEW SYSTEMS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Cumulative From
For the Years Ended December 10, 1987
December 31, (Date of Inception)
---------------------------- Through
1999 1998 December 31, 1999
----------- ----------- -----------
<S> <C> <C> <C>
GENERAL AND ADMINISTRATIVE EXPENSE .............. $ 34,834 $ 8,360 $ 271,530
---------- ---------- ---------
LOSS FROM CONTINUING OPERATIONS ................. (34,834) (8,360) (271,530)
DISCONTINUED OPERATIONS
Loss from operation of discontinued CSH
software business ........................... -- -- (349,672)
Gain from disposal of CSH software business.... -- -- 173,766
---------- ---------- ---------
LOSS BEFORE EXTRAORDINARY GAIN .................. (34,834) (8,360) (412,602)
EXTRAORDINARY GAIN FROM FORGIVENESS OF DEBT...... -- -- 10,346
---------- ---------- ---------
NET LOSS ........................................ $ (34,834) $ (8,360) $(437,090)
========== ========== =========
BASIC AND DILUTED LOSS PER SHARE
Continuing operations ......................... $ (0.03) $ (0.01) $ (0.63)
Discontinued operations ....................... -- -- (0.41)
Extraordinary gain ............................ -- -- 0.02
---------- ---------- ---------
NET LOSS ...................................... $ (0.03) $ (0.01) $ (1.01)
========== ========== =========
WEIGHTED AVERAGE COMMON SHARES USED IN PER
SHARE CALCULATIONS .............................. 1,120,000 1,000,000 433,885
========== ========== =========
</TABLE>
F-3
<PAGE>
NEW SYSTEMS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Additional During the Receivable Total
------------------- Paid-in Development From Stockholders'
Shares Amount Capital Stage Shareholder Equity
------ ------ ------- ----- ----------- ------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 10, 1987 (Date of
Inception) ................................... -- $ -- $ -- $ -- $ -- $ --
Issuance for cash, December 1987,
$3.61 per share .............................. 7,200 7 25,993 -- -- 26,000
Cash distribution to shareholder,
January 1988 ................................. -- -- (21,000) -- -- (21,000)
Issuance upon exercise of stock
option for cash, October 1588,
$3.13 per share 4,000 4 12,496 -- -- 12,500
Shares returned in sale of 13% of CSH,
April 1989, $3.75 per share ................. (30,400) (30) (113,970) -- -- (114,000)
Issuance for cash:
December 1987 through February 1988,
$1.39 per share ............................. 28,800 29 39,971 -- -- 40,000
January 1988, $0.42 per share ................ 12,000 12 4,988 -- -- 5,000
October 1988, net of $76,954 offering
costs, $4.65 per share ...................... 48,000 48 222,998 -- -- 223,046
July 31, 1989, $0.25 per share ............... 3,200 3 797 -- -- 800
July @ 1, 1990, $0.25 per share .............. 9,600 10 2,390 -- -- 2,400
November 1, 1990, $0.25 per share ............ 24,000 24 5,976 -- -- 6,000
July.31, 1991, $0.25 ......................... 9,600 10 2,390 -- -- 2,400
July 31, 1992, $0.25 per share ............... 9,600 10 2,390 -- -- 2,400
December 31, 1992, $0.25 per share ........... 4,000 4 996 -- -- 1,000
December 31, 1993, $0.25 per share ........... 9,600 10 2,390 -- -- 2,400
December 31, 1994, $0.25 per share ........... 1,464 1 365 -- -- 366
Issuance for service:
July 31, 1989, $0.25 per share ............... 16,000 16 3,984 -- -- 4,000
July 31, 1990, $0.25 per share ............... 48,000 48 11,952 -- -- 12,000
November 1, 1990, $0.25 per share ............ 40,000 40 9,960 -- -- 10,000
July 31, 1991, $0.25 per share ............... 48,000 48 11,952 -- -- 12,000
July 31, 1992, $0.25 per share ............... 48,000 48 11,952 -- -- 12,000
December 31, 1992, $0.25 per share ........... 20,000 20 4,980 -- -- 5,000
December 31, 1993, $0.25 per share ........... 48,000 48 11,952 -- -- 12,000
December 31, 1994, $0.25 per share ........... 48,000 48 11,952 -- -- 12,000
December 31, 1995, $0.25 per share ........... 48,000 48 11,952 -- -- 12,000
December 31, 1996, $0.25 per share ........... 48,000 48 11,952 -- -- 12,000
December 31, 1997, $0.25 per share ........... 422,400 422 105,178 -- -- 105,600
Issuance for receivable from shareholder:
December 31, 1994, $0.25 per share ........... 8,136 8 2,026 -- (2,034) --
December 31, 1995, $0.25 per share ........... 9,600 9 2,391 -- (2,400) --
December 31, 1996, $0.25 per share ........... 7,200 7 1,793 -- (1,800) --
Net loss for the period from December 10,
1987 through December 31, 1997............... -- -- -- (393,896) -- (393,896)
--------- ------ --------- --------- ------- ---------
BALANCE, DECEMBER 31, 1997 .................... 1,000,000 $1,000 $ 403,146 $(393,896) $(6,234) $ 4,016
========= ====== ========= ========= ======= =========
</TABLE>
(Continued)
F-4
<PAGE>
NEW SYSTEMS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(CONTINUED)
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Additional During the Receivable Total
------------------- Paid-in Development From Stockholders'
Shares Amount Capital Stage Shareholder Equity
------ ------ ------- ----- ----------- ------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1997 ............... 1,000,000 $1,000 $ 403,146 $(393,896) $(6,234) $ 4,016
Net advances to shareholder .............. -- -- -- -- (152) (152)
Compensation for services paid with
receivable from shareholder,
December 31, 1998........................ -- -- -- -- 6,386 6,386
Net loss for the year ended
December 31, 1998 ....................... -- -- -- (8,360) -- (8,360)
--------- ------ --------- --------- ------- --------
BALANCE, DECEMBER 31, 1998 ............... 1,000,000 $1,000 $ 403,146 $(402,256) $ -- $ 1,890
Issuance for cash, April 16, 1999,
$0.10 per share ......................... 200,002 200 19,800 -- -- 20,000
Net loss for the year ended
December 31, 1999 ....................... -- -- -- (34,834) -- (34,834)
--------- ------ --------- --------- ------- --------
BALANCE, DECEMBER 31, 1999 ............... 1,200,002 $1,200 $ 422,946 $(437,090) $ -- $(12,944)
========= ====== ========= ========= ======= ========
</TABLE>
F-5
<PAGE>
NEW SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Cumulative From
For the Years Ended December 10, 1987
December 31, (Date of Inception)
------------------------ Through
1999 1998 December 31, 1999
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net, loss ............................................ $ (34,834) $ (8,360) $(437,090)
Adjustments to reconcile net loss to net cash
used by operating activities:
Compensation paid with common stock .................. -- -- 208,600
Compensation paid with furniture and equipment ....... -- -- 6,471
Compensation paid with stock of subsidiary ........... -- -- 129,000
Compensation paid by reduction of receivable ......... -- 6,240 6,240
Depreciation ......................................... -- -- 15,778
Purchased research and development ................... -- -- 90,000
Amortization of goodwill ............................. -- -- 56,442
Amortization of debt discount ........................ -- -- 5,650
Changes in assets and liabilities, net of effects
from acquisition of CSH Corporation:
Accounts receivable ................................. -- -- 4,941
Inventory ........................................... -- -- 2,941
Accounts payable and accrued liabilities ............ 13,686 305 17,744
Minority interest in loss of subsidiary .............. -- -- (64,441)
Gain from sale of interest in subsidiary ............. -- -- (116,214)
Gain from disposal of discontinued operations ........ -- -- (173,766)
Extraordinary gain from forgiveness of debt .......... -- -- (10,346)
--------- --------- ---------
NET CASH USED BY OPERATING ACTIVITIES ............ (21,148) (1,815) (258,050)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of furniture and equipment .................. -- -- (20,015)
Purchase of CSH Corporation .......................... -- -- (26,000)
--------- --------- ---------
NET CASH USED BY INVESTING ACTIVITIES ............ -- -- (46,015)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock ............... 20,000 -- 403,411
Stock issuance costs paid ............................ -- -- (76,954)
Distribution to shareholder .......................... -- -- (21,000)
Proceeds from subsidiary issuance of common stock .... -- -- 54,800
Proceeds from borrowing .............................. -- -- 15,560
Principal payments on notes payable and obligations .. -- -- (76,060)
Proceeds from borrowing from related parties ......... -- -- 87,016
Principal payments on notes payable to related parties -- -- (81,661)
--------- --------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES ........ 20,000 -- 305,112
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH ........................ (1,148) (1,815) 1,047
CASH AT BEGINNING OF PERIOD ............................ 2,195 4,010 --
--------- --------- ---------
CASH AT END OF PERIOD .................................. $ 1,047 $ 2,195 $ 1,047
========= ========= =========
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash paid for interest ............................... $ -- $ -- $ 3,483
========= ========= =========
</TABLE>
F-6
<PAGE>
NEW SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(CONTINUED)
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
On December 23, 1987, New Systems, Inc. ("Systems") acquired CSH Corporation.
The fair value of the assets acquired was $100,350. Cash in the amount of
$26,000 was paid in the acquisition and liabilities of $74,350 were assumed.
In October 1988, Systems paid the remaining $74,000 due on the purchase of CSH
Corporation and a former shareholder of CSH exercised his option to acquire
4,000 shares of Systems for $12,500 resulting in the net payment of $61,500 to
the former CSH shareholder.
On April 28, 1989, certain officers and directors of Systems were issued 380,000
shares of CSH common stock in exchange for the return and cancellation of 30,400
shares of Systems common stock. The exchange was valued at $114,000 based upon
the fair value of the Systems common stock returned. On July 26, 1989, certain
of the CSH shareholders returned 200,000 of the above described CSH common
shares. The canceled shares were valued at $60,000 using the same value per
share as was used when the shares were issued. The issuance, net of the
cancellation, of the CSH common stock resulted in recognition of $56,214 of
goodwill and a $54,000 increase in minority interest.
In 1998, a receivable from an officer/shareholder in the amount of $6,234 was
settled as compensation for services from the officer/shareholder.
F-7
<PAGE>
NEW SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
ORGANIZATION AND NATURE OF BUSINESS - New Systems, Inc. ("Systems"), formerly
Municipal Systems, Inc., was organized under the laws of the State of Nevada on
December 10, 1987 and changed its name to New Systems, Inc. on March 4, 1999.
Systems was formed for the purpose of acquiring CSH Corporation ("CSH"). To
accomplish that purpose, on December 23, 1987, Mr. Denny W. Nestripke, president
of Systems, acquired a 25% interest in CSH for $25,000 and purchased an option
for $1,000 to acquire the remaining 75% of CSH for $74,000. On December 30,
1987, Mr. Nestripke transferred the interest in and option for CSH to Systems in
exchange for $21,000 and 7,200 shares of common stock. On that same date,
Systems granted an option to the holders of the remaining 75% of CSH to acquire
4,000 shares of Systems for $12,500. On October 31, 1988, Systems exercised its
option and acquired the remaining 75% interest in CSH for $74,000 and the
sellers exercised their stock purchase option at that same time.
The acquisition transactions were accounted for as a purchase business
combination with Systems considered the acquiring entity since the CSH
shareholders received cash and only a minority interest in Systems from the
exercise of the stock option. As explained above, on October 31, 1988, CSH
became a wholly-owned subsidiary of Systems. From December 23, 1987 to October
31, 1988, Systems owned 25% of the outstanding conunon stock of CSH. Since
control of the business was obtained on a step-by-step basis, generally accepted
accounting principles required the transaction be accounted for retroactively as
the acquisition of 100% of CSH on December 23, 1987. To accomplish that
requirement, the October 31, 1988 payment of $74,000 was discounted to $68,350
on December 23, 1987 using a 10% discount rate and resulted in a total purchase
price of $94,350. The purchase price was allocated to the assets acquired and
liabilities assumed based upon their fair values. The main assets acquired were
computer software, with a nominal fair value, and in-process research and
development with a fair value of $90,000, which was charged to operations at the
acquisition date. The excess of the purchase price was $288 which was allocated
to goodwill and was expensed at the acquisition date due to its immateriality.
CSH's operations consisted of developing, marketing and selling computer
software. Although financing was provided by Systems and other minority
interests, CSH was unable to obtain profitable operations due to its software
not being accepted in commercial quantities. Pursuant to a vote by Systems'
shareholders on April 28, 1989, CSH filed a registration statement with the
Securities and Exchange Commission to allow Systems to distribute its CSH shares
to the Systems shareholders. However, the distribution never occurred because,
prior to the registration statement becoming effective, CSH was dissolved as a
corporate entity on November 1, 1990.
The accompanying financial statements include the accounts of Systems and the
operations of CSH during the period from its acquisition in 1987 until it was
dissolved in 1990. The terminated computer software operations have been
presented as discontinued operations in the accompanying statements of
operations. The computer software operations had sales of $139,133 from
inception through November 1, 1990.
Upon CSH being dissolved on November 1, 1990, Systems recognized a gain in the
amount of $173,766 due to previous recognition of losses from the discontinued
computer software operations in excess of the investment in CSH. The gain was
recognized as a gain from disposal of discontinued operations. At that same
time, debt in the amount of $10,346 was assumed by Systems and was forgiven. The
forgiveness of debt has been accounted for as an extraordinary gain.
Systems is considered a development stage enterprise. Since 1990, Systems has
been inactive except for its recent efforts to become current in filing its
reports with the Securities and Exchange Commission and seeking to enter into a
potential merger or acquisition transaction.
F-8
<PAGE>
NEW SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
BASIS OF PRESENTATION - The Company has no operations and has accumulated losses
since inception of $437,090. This situation raises substantial doubt about its
ability to continue as a going concern. The accompanying financial statements do
not include any adjustments relative to the amount and classification of
liabilities that might result from the outcome of this uncertainty. Management
is currently seeking one or more potential business ventures through acquiring
or merging with a company with viable operations.
BASIC AND DILUTED LOSS PER COMMON SHARE - In 1998, the Company adopted Statement
of Financial Accounting Standards (SFAS) No. 128, EARNINGS PER SHARE. Under SFAS
128, loss per common share is computed by dividing net loss available to common
stockholders by the weighted-average number of common shares outstanding during
the period.
NOTE 2 - MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY
On April 28, 1989, Systems entered into an escrow agreement to distribute all of
the common stock of CSH to the Systems shareholders; however, that agreement was
not fulfilled and the distribution never occurred. In connection with this
agreement, however, certain officers and directors of Systems were issued
380,000 CSH common shares, representing 13% of CSH, in exchange for the return
and cancellation of 30,400 shares of Systems common stock. The exchange was
valued at $114,000 based upon the fair value of the Systems common stock
returned. Due to a negative carrying value of the CSH interest sold, Systems
recognized a $116,214 gain from this sale. On July 26, 1989, certain of the CSH
shareholders returned 200,000 of the above described CSH common shares. The
canceled shares were valued at $60,000 using the same value per share as was
used when the shares were issued. The net issuance and cancellation of the CSH
common stock resulted in recognition of $56,214 of goodwill which was amortized
in full by November 1, 1990 when CSH was liquidated.
During the years ended July 31, 1989 and 1990, CSH issued 40,000 and 430,000
shares of common stock for services valued at $12,000 and $129,000,
respectively. In addition, CSH issued 1,000,000 shares of common stock in
January 1990 for cash in the amount of $42,800. These transactions were
accounted for as increases to minority interest in the accompanying financial
statements.
NOTE 3 - STOCKHOLDERS'EQUITY
On March 2, 1999, the stockholders approved a 1-for-250 reverse stock split of
the outstanding common stock. The accompanying financial statements have been
restated for all periods presented for the effects of the reverse stock split.
As shown in the accompanying statements of stockholders' equity, Systems has
issued common stock for services pursuant to an agreement approved by its
stockholders with its founding president in April 1989. Subsequently, 48,000
shares of common stock were issued annually for his services through 1996, which
were valued at $12,000 per year, or $0.25 per share. During 1997, additional
shares of Systems' common stock were issued to its current president and another
entity. The value of the services rendered and the fair value of the stock
issued was determined to be equal to the par value of the stock.
In April 1999, the Company issued 200,002 shares of stock for proceeds of
$20,000 or $0.10 per share.
F-9
<PAGE>
NEW SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 4 - INCOME TAXES
The Company has paid no federal or state income taxes for any period. The tax
effect of the temporary difference that gave rise to the deferred tax asset at
December 31, 1999, is as follows:
Operating loss carry forward $ 437,090
Valuation allowance (437,090)
---------
TOTAL DEFERRED TAX ASSETS $ --
=========
In 1999 and 1998, the valuation allowance increased by $12,994 and $3,117,
respectively. As of December 31, 1999, the Company had net operating loss carry
forwards for federal income tax reporting purposes of $437,090 which, if unused,
will expire from 2002 through 2015.
The following is a reconciliation of the income tax computed using the federal
statutory rate to the provision for income taxes:
1999 1998
--------- ---------
Tax at federal statutory rate (34%) $ (11,844) $ (2,842)
State benefit, net of federal benefit (1,150) (275)
Change in valuation allowance 12,994 3,117
--------- ---------
PROVISION FOR INCOME TAXES $ -- $ --
========= =========
F-10
