<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended April 30, 1996
----------------------------------------------------
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
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Commission file number 0-19487
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NSA INTERNATIONAL, INC.
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(Exact name of registrant as specified in its charter)
Tennessee 62-1387102
- ---------------------------------------- -----------------------------
State or other jurisdiction (I.R.S. Employer
incorporation or organization Identification No.)
4260 East Raines Road, Memphis, Tennessee 38118
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (901) 541-1223
--------------
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.05 par value
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(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 (Section 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. [ ]
State the aggregate market value of the voting stock held by
non-affiliates of the registrant: $4,633,758 computed by reference to a price
of $3.50 per share, the last reported sales price of the registrant's Common
Stock on July 24, 1996.
<PAGE> 2
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Class Outstanding at July 24, 1996
----------------------------- ----------------------------
<S> <C>
Common Stock, $.05 par value 4,858,156
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and the
Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is
incorporated: None.
PART I
Item 1. Business.
General
NSA International, Inc. (the "Company") sells proprietary consumer
products domestically and internationally through subsidiaries and third
parties utilizing multi-level and/or direct selling marketing systems. The
Company's products include nutritional products, air and water filtration
systems, security products, and a sparkling water system, all of which are
designed primarily for individual consumption or use. The Company's products
are proprietary and most were developed by or for the Company or its affiliated
entities. In the United States, the Company sells its products to National
Safety Associates, Inc. ("NSA"), an affiliated Tennessee corporation, for
resale to its dealers and distributors. In Canada and Asia, the Company sells
its products to third party licensees for retail distribution through local
representative agents, dealers, and distributors. In the United Kingdom,
Ireland, Germany, Switzerland, The Netherlands, France, Belgium, and Italy, the
Company sells its products through wholly owned subsidiaries to its network of
dealers and distributors in these countries.
Operations
Since organization, the Company's philosophy has been to pursue
increased revenues through product line and market expansion. In order to
reduce the costs associated with product line expansion, during the past three
years the Company shifted the manufacturing of all of its products to
unaffiliated manufacturing organizations. The Company is in the process of
implementing a similar approach with regard to market expansion and support
through its Master Distributor program. The Company first tested the Master
Distributor program in Asia and based on its initial success, the Company
determined during the last year that it would expand the Master Distributor
program to include both existing and new markets. The Master Distributor
program is designed to enhance the Company's ability to expand into additional
markets more quickly and efficiently and to transfer from the Company to a
licensed Master Distributor the costs and other burdens associated with
creating the corporate infrastructure required to open and support new markets.
Rather than forming additional subsidiaries, the Company intends to enter into
distribution agreements with third party licensees ("Master Distributors"),
pursuant to which the Company will grant to the third party the exclusive right
to purchase and resell the Company's products in a specific geographic area.
The Company may, depending on the final terms of the distribution agreements,
provide computer support and management consulting services in addition to
product sales.
On March 29, 1996 the Company entered into a distribution agreement
with an unrelated third party granting the third party the exclusive right to
purchase and sell certain of the Company's products in Israel. The agreement
will become effective upon the Israeli government approving the Company's
products for sale
<PAGE> 3
in Israel. The Company has also entered into a distribution agreement with an
unrelated third party licensing to them to the third party the right to
purchase and resell the Company's products in Peru.
The first conversion of an existing market occurred on April 30, 1996,
when the Company's subsidiary, National Safety Associates, Ltd., an Ontario
corporation ("NSA Canada"), sold substantially all of its assets to a third
party purchaser, the owners of which included members of NSA Canada's senior
management and certain employees and consultants of the Company. As a
condition to the sale, the Company entered into a distribution agreement with
the purchaser, pursuant to which the purchaser became the Company's Canadian
Master Distributor.
Until such time as the Company successfully converts its existing
European operations into third party Distributorships, the Company will
continue to operate and sell its products through its subsidiaries, National
Safety Associates of America (U.K.) Limited, a British corporation ("NSA UK"),
NSA International GmbH, a German corporation ("NSA Germany"), NSA AG, a Swiss
corporation ("NSA Switzerland"), NSA Oko Filter Systeme Vertriebs, GmbH, an
Austrian corporation ("NSA Austria"), NSA B.V., a Dutch corporation ("NSA
Netherlands"), and NSA sarl., a French corporation, ("NSA France"), NSA srl, an
Italian corporation ("NSA Italy") and NSA, S.A., a Belgium corporation ("NSA
Belgium") (collectively the "Direct Selling Subsidiaries") to its network of
dealers and distributors. On June 7, 1996, the Company executed a nonbinding
letter of intent proposing the sale of NSA Germany, NSA Switzerland, and NSA
Austria to another Master Distributor controlled by one of the Company's
European management level employees. On June 25, 1996, a similar letter of
intent was executed by the Company relating to the sale of NSA UK, NSA
Netherlands, and NSA Belgium to another proposed Master Distributor controlled
by three of the Company's independent European distributors. Completion of
these two transactions is subject to the satisfactory negotiation and execution
of definitive purchase and sale agreements and distribution agreements, and
certain other conditions. Accordingly, at present the Company is continuing to
operate in Europe through its existing Direct Selling Subsidiaries.
Principal Products
Nutritional Products.
The Company sells a line of nutritional products called Juice
Plus+(TM) which includes an encapsulated, concentrated nutritional supplement
product, a chewable version of the encapsulated product, and a low calorie
powdered drink mix called Juice Plus+(TM) Lite. The main ingredients of the
Juice Plus+(TM) product line are vegetable and fruit juices, fibers, plant
enzymes, and food actives which are reduced to powder through a proprietary
process and ordered on a purchase order basis from an unrelated supplier. The
concentrates are then shipped to another unrelated manufacturer which has
contracted with the Company to encapsulate the powder into Juice Plus+ capsules
and prepare the chewable form of the capsules. A third unrelated manufacturer
utilizes the powder to produce the Juice Plus+ Lite on a purchase order basis
for the Company. In the event that any of the aforementioned manufacturers
terminates its relationship with the Company for any reason, the Company will
be forced to seek out alternative suppliers which the Company believes will be
available. The Company obtained the rights to manufacture and distribute the
Juice Plus+(TM) product line pursuant to a manufacturing and licensing
agreement with an unrelated third party. This agreement provides the Company
will pay a royalty fee from 1% to 5% of net sales revenues from the Juice
Plus+(TM) products, depending upon the volume of such sales. Sales of the
Juice Plus+(TM) product line constituted approximately 52% of the Company's
revenues for the fiscal year ended April 30, 1996, compared with 40% of the
Company's revenues for the fiscal year ended April 30, 1995 and 9% of the
Company's revenues for the fiscal year ended April 30, 1994.
Air Filtration Systems.
The Company sells six different types of air filtration systems which
systems are designed to remove a variety of airborne contaminants including
smoke, pollen and dust. The Company sells three basic models which are
suitable for home or office use, the portable Models 1200 Personal Filter, the
692 AH Personal
<PAGE> 4
Filter with heat, and the Model 7100 Stationary Air System. The Company's Auto
600 Environmental Air System ("Auto 600") is designed for automobile use. The
1200 CS is designed for use in any area where hospital grade appliances are
required. The Company sells one commercial unit, the Model 9100, to NSA for
resale in the United States. Sales of these air filtration systems constituted
approximately 13% of the Company's revenues for the fiscal year ended April 30,
1996, compared with 17% of the Company's revenues for the fiscal year ended
April 30, 1995 and 27% of the Company's revenues for fiscal year ended April
30, 1994. The Company's air and water filtration systems and the Sparkling
Water System are manufactured for the Company by a third party pursuant to a
five year manufacturing agreement which has approximately four years remaining
in its term. In the event that the aforementioned manufacturer terminates its
relationship with the Company for any reason, the Company will be forced to
seek out alternative suppliers which the Company believes will be available.
Water Filtration Products.
The Company's water filtration product line includes nine water
filtration systems and one water cooler model which are designed to remove
chlorine from, and improve the taste, odor and clarity of, municipally treated
water. Generally, the units utilize silver impregnated granular activated
carbon to remove chlorine. Although most of these models are designed for use
on municipally treated water, each model is designed for a specific application
or water filtration problem. From May 1, 1993 through February 1, 1995, the
Company manufactured a majority of its own water filtration products, however,
certain water filtration products continued to be purchased from NSA. The cost
of water filtration products sold by the Direct Selling Subsidiaries which were
purchased from NSA was approximately $1,163,000 for the fiscal year ended April
30, 1996. See "Certain Relationships and Related Transactions." Sales of the
water filtration products constituted approximately 14% of the Company's
revenues for the fiscal year ended April 30, 1996 compared to 18% of the
Company's revenues for the fiscal year ended April 30, 1995 and 30% of the
Company's revenues for the fiscal year ended April 30, 1994.
Sparkling Water System.
The Company sells an in-home countertop carbonation appliance (the
"Sparkling Water System") which discharges carbon dioxide contained in a
refillable tank into liquids such as water. Sales of the Sparkling Water
System constituted approximately 5% of the Company's revenues for the fiscal
year ended April 30, 1996 compared to 8% of the Company's revenues for the
fiscal year ended April 30, 1995 and 12% of the Company's revenues for the
fiscal year ended April 30, 1994.
Security Products.
During fiscal 1994, the Company began marketing and selling its
security product line in the European market initially through NSA UK. The
Company's security product line includes a personal alarm, a bicycle alarm, a
doorviewer, and the NSA Surestop. The personal security alarm sounds a siren
when activated. The bicycle alarm attaches to the handlebars of a bicycle and
once activated, emits a siren if the bicycle is moved before the alarm is
deactivated. The doorviewer is designed to be inserted in almost any door and
provides 200# field of vision on the other side of the door. The NSA Surestop
is attached to the bottom of any door and is designed to prevent forced entry
through the door. Sales of the Company's security products were expanded into
all of the European Direct Selling Subsidiaries during fiscal 1995 and
constituted approximately 5% of the Company's revenues for the fiscal year
ended April 30, 1996 compared to 8% of the Company's revenues for the fiscal
years ended April 30, 1994 and 1995. The security products are manufactured
exclusively for the Company by unrelated manufacturers located in the Far East
on a purchase order basis.
Direct Selling Marketing Plans.
Pursuant to the Master Distributor program, the Company intends to
transfer the operations of the Direct Selling Subsidiaries to independent
Master Distributors. Prior to completion of the Master Distributor
<PAGE> 5
Program, however, the Company and the Direct Selling Subsidiaries will continue
to sell the Company's products utilizing the Company's existing marketing
plans. The Company's marketing plans vary slightly from country to country in
order to comply with the laws, rules or regulations of individual countries
regarding multi-level marketing systems. Basically, however, pursuant to
multi-level marketing plans, the Direct Selling Subsidiaries distribute the
Company's products to consumers through a network of distributors and dealers
located in each country where the Direct Selling Subsidiaries have operations.
Distributors and dealers are independent contractors, not employees of the
Direct Selling Subsidiaries. Distributors and dealers sell products directly
to consumers primarily through individual in-home demonstrations and trial use.
Generally speaking, an individual becomes a dealer by the execution of an
application and the payment of a small processing fee. As a dealer, the
individual is authorized to retail the products they purchase from the Company
or its distributors. An individual becomes a distributor by attaining a
specific level of sales activity over a specific time period. Distributors may
purchase products, at wholesale, directly from the Direct Selling Subsidiaries
for resale to dealers or directly to consumers. The Direct Selling Subsidiaries
and certain distributors hold training and orientation seminars throughout
their respective countries. The Direct Selling Subsidiaries depend on their
existing distributors and dealers to identify, sponsor and train new dealers.
Specifically, new dealers are brought into the multi-level distribution
networks by existing distributors and dealers. In turn, these new dealers are
encouraged to identify other new dealers. Existing distributors benefit from
the sponsorship of new dealers in that the sponsoring distributor receives a
percentage commission on the products purchased for resale by those individuals
sponsored directly by the distributor, as well as commissions on the products
purchased by those distributors or dealers sponsored by such individuals. The
commissions vary depending upon the level of sales activity attained by a
distributor and the individuals such distributor has sponsored. Upon the
completion of the Master Distributor program, the Company will no longer be
involved directly in multi-level marketing and each Master Distributor will be
responsible for insuring that such Master Distributor's marketing plan complies
with all applicable laws.
Inventory and Backlog.
The Company maintains significant inventory volumes and has no backlog
due to the fact that it attempts to fill dealer, distributor or Master
Distributor orders within two (2) business days of the date on which the order
was placed. The Company's sales return policy varies from country to country
as a result of governmental regulations. Provision for estimated sales returns
is recorded based on historical return rates and current business conditions.
The Company provides a three (3) year warranty on all of its products other
than the Juice Plus+(TM) product line which has more limited warranties,
depending on the product. Costs related to the warranty have been
insignificant.
Management Agreement with NSA.
Pursuant to a written management agreement, NSA provides management,
consulting and advisory services to the Company and its subsidiaries relating
to accounting, data processing, legal and regulatory compliance, general
management, administration of benefits, contract and lease negotiations, and
other such matters for which the Company or its subsidiaries request
assistance. In consideration for these services, the Company and its
subsidiaries reimburse NSA for the costs incurred by NSA in rendering such
services. Such costs include, but are not limited to, travel expenses, long
distance telephone charges, facsimile charges, overnight express charges and a
portion of the compensation of any employee of NSA who renders services to the
Company and/or its subsidiaries. The total amount paid by the Company to NSA
for management fees in 1996 was approximately $1,598,000. See "CONSOLIDATED
FINANCIAL STATEMENTS." The management agreement is renewable annually and may
be terminated by either party thereto by giving written notice to the other
party.
Reliance Upon a Single Customer
Sales to NSA constituted approximately 16% of the Company's revenues
for the fiscal year ended April 30, 1996. The loss of NSA as a customer would
have a material adverse effect on the Company. See "CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS."
<PAGE> 6
Competition.
The products distributed by the Company are sold in highly competitive
markets. Competitive products are sold by both retail sellers and other
multi-level and direct selling organizations. In addition to competition
relating to the products, the Direct Selling Subsidiaries are subject to
intense competition in the identification, sponsorship, and training of
distributors and dealers from other multi-level direct selling organizations,
whose specific product lines may or may not compete with the products
distributed by the Company.
Patents and Trademarks.
The Company owns four domestic patents, which relate to the production
of the Sparkling Water System. The Company has one registered trademark,
"Juice Plus+(TM)," and no trademark applications pending. The Company is also
licensed to use the trademarks "NSA" and "Let's Get Fizzical," relating to the
air and water filtration products and the Sparkling Water System, respectively,
from NSA.
Regulation.
The Direct Selling Subsidiaries and Master Distributors are subject to
the laws and regulations in their respective countries relating to the
marketing, content, labeling and packaging of their products; the operation of
their sales programs; and the sales, advertising, and recruiting practices of
their distributors and dealers. Numerous foreign governmental authorities
regulate the Direct Selling Subsidiaries and Master Distributors' selling
activities in their respective jurisdictions through complex regulatory schemes
which are subject to constant change. Regulatory agencies have occasionally
asked the Direct Selling Subsidiaries to supply information regarding the
products that they distribute or their respective sales plans. Although
management believes that its products, sales materials, and sales plans are in
substantial compliance with applicable laws and regulations, these laws and
regulations are subject to change and interpretation which could adversely
affect the Direct Selling Subsidiaries' operations or affect the Master
Distributors' operations which could adversely affect the Company.
Environmental.
In connection with its manufacturing operations, the Company was
subject to various federal, state, and local regulations regarding the
discharge of materials into the environment. Management believes that the
Company operated in substantial compliance with such provisions, and the
Company's compliance with these provisions did not have a material impact upon
the capital expenditures, earnings or competitive position of the Company.
Employees.
At April 30, 1996, the Company had approximately 260 employees. None
of the Company's employees is represented by a labor union or collective
bargaining unit. The Company considers relations with its employees to be
satisfactory. Distributors and Dealers are independent contractors of the
Direct Selling Subsidiaries and not employees of the Company.
Financial Information About Foreign and Domestic Operations and Export Sales.
For Geographic Segment Financial Information as to the Company's
operations see Note 8 in the Notes to Consolidated Financial Statements
included in Item 8.
Item 2. Properties.
NSA Canada currently leases, in the aggregate, approximately 1,400
square feet of such leased space located in Ville St. Laurent, Quebec. NSA UK
leases approximately 12,800 square feet of office space in
<PAGE> 7
Maidenhead, Berkshire, England. The NSA UK leases are guaranteed by NSA. See
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS." NSA Germany leases
approximately 663 square meters of office space in Didenberg-Hoffheim, Germany.
NSA Belgium leases approximately 378 square meters of office space in Zaventem,
Belgium. NSA Netherlands leases approximately 700 square meters of office
space in the Netherlands. NSA Switzerland leases approximately 160 square
meters of office space in Basel, Switzerland. NSA France leases approximately
504 square meters of office space in Nanterre, France. NSA Italy leases
approximately 530 square meters of office space in Milan, Italy. Neither the
Company nor any of its subsidiaries own any real estate. The Company believes
that its properties are suitable and adequate for the Company's present and
future needs. In the event any of these leases are terminated, the Company
anticipates that it will be able to locate and lease other premises without a
material adverse effect to the operations of the Company.
Item 3. Legal Proceedings.
The Company is party to various claims and matters of litigation that
arise in the normal course of its business. Management of the Company believes
the resolution of these matters will not have a material adverse effect on the
results of operations or the financial condition of the Company.
On February 12, 1993, a complaint for injunctive relief and damages
was filed against the Company's affiliate, NSA, and Messrs. A. Jay Martin, L.F.
Swords and George R. Poteet, individually, in the United States District Court
for the Northern District of California. The Company is not named as a party
to this lawsuit. The named plaintiffs are seeking relief on behalf of
themselves and for an alleged class of persons who participated or attempted to
participate in NSA's multi-level marketing plan from February 13, 1989 to the
present. The complaint alleges that the NSA multi-level marketing plan
constitutes an unlawful pyramid scheme and the sale of unregistered securities
made through the use of allegedly untrue, inaccurate and misleading statements
of material facts. It further alleges that the NSA marketing plan was promoted
utilizing fraudulent activities, unfair business practices and false
advertising. NSA and the individual defendants answered denying the
allegations. During a hearing on October 1, 1993, motions regarding the
certification of the alleged class were argued before the court. On April 5,
1994, the case was moved to the Federal District Court for the Western District
of Tennessee. The magistrate judge assigned to the case has recommended
certification of the class. NSA has filed exceptions to the report. The
District Court has not issued its ruling on the certification issue.
Item 4. Submission of Matters to Vote of Security Holders.
None.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Price Range of Common Stock and Dividend Policy
The Company's Common Stock is quoted and traded on The Nasdaq Stock
Market under the symbol "NSAI." The following table sets out the high and low
sales prices for the Common Stock as reported on The Nasdaq Stock Market for
the periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
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FISCAL 1996
<S> <C> <C>
First Quarter .......................................... 4 5/8 3 5/8
Second Quarter .......................................... 4 1/8 3
Third Quarter .......................................... 3 3/4 1 1/2
</TABLE>
<PAGE> 8
<TABLE>
<S> <C> <C>
Fourth Quarter .......................................... 3 7/8 2 1/8
FISCAL 1995
First Quarter .......................................... 5 3/4 4 1/2
Second Quarter .......................................... 5 1/4 4 1/2
Third Quarter .......................................... 5 1/4 4 1/2
Fourth Quarter .......................................... 3 3/4 3
</TABLE>
On July 24, 1996 the last reported sales price of The Common Stock on
The Nasdaq Stock Market was $3.50 per share. As of July 24, 1996, the Company
had approximately 1,000 shareholders of record.
The Company's dividend policy will depend on its earnings, financial
condition, and other factors deemed relevant by the Board of Directors. The
Board of Directors has never declared dividends on the Common Stock and does
not anticipate declaring cash dividends on the Common Stock in the foreseeable
future. The Board of Directors presently intends to retain future earnings, if
any, to finance the growth of the Company's business.
Item 6. Selected Financial Data.
The selected historical consolidated financial data set forth below
for the fiscal years ended April 30, 1996, 1995, 1994, 1993, and 1992 have been
derived from the consolidated financial statements of the Company for those
years. The selected consolidated financial data should be read in conjunction
with the consolidated financial statements and related notes and other
financial data included elsewhere herein.
Income Statement Data:
(In thousands, except for per share
<TABLE>
<CAPTION>
data) For the Years Ended April
-----------------------------------------------------------------------
1996 1995 1994 1993 1991
(Historical) (Historical) (Historical) (Historical) (Historical)
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net revenues $73,150 $108,689 $112,531 $95,702 $163,615
Costs and expenses 83,963 114,191 115,837 98,635 150,323
------- -------- -------- ------- --------
Income (loss) before taxes and
minority interest and cumulative
effect of change in accounting
principle (10,813) (5,502) (3,306) (2,933) 13,292
Provision (benefit) for income taxes (103) (761) (892) (744) 6,203
-------- --------- -------- -------- --------
Net income (loss) before minority
interest and cumulative effect of
change in accounting principle (10,709) (4,741) (2,414) (2,189) 7,089
Minority interest in (income) loss of
consolidated subsidiaries 21 (1,539)
Cumulative effect of change
in accounting principles 264
-------- ------- ------- --------- ---------
Net income (loss) $(10,709) $(4,741) $(2,150) $ (2,168) $ 5,550
======== ======= ======== ========== =========
Earnings (loss) per common share:
Before cumulative effect of change in
accounting principle $ (2.20) $ (.98) $ (.49) $ (65) $ 2.48
Cumulative effect of change in
accounting principle .05
-------- ------ ------- -------- ---------
Net Income (loss) per common share $ (2.20) $ (.98) (.44) $ (.65) $ 2.48
======== ====== ======= ======== =========
</TABLE>
<PAGE> 9
<TABLE>
<S> <C> <C> <C> <C> <C>
Weighted average number of common
shares outstanding 4,858 4,858 4,858 3,338 2,234
Balance Sheet Data (at period end):
(In thousands)
Total assets $31,274 $44,643 $55,138 $63,688 $50,831
Note payable to bank -0- -0- -0- 2,800 3,800
Current maturities of long term debt -0- -0- 1,006 -0- -0-
Amounts due to NSA, Inc. 7,900 9,310 12,512 14,626 11,642
Long-term debt less current maturities -0- -0- 334 -0- -0-
Total Shareholders' equity (deficit) 10,206 20,917 25,660 27,815 8,857
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operation.
Management's discussion and analysis should be read in conjunction
with the Consolidated Financial Statements and the discussion of the Company's
business and other detailed information appearing elsewhere herein. All
information is based on the Company's fiscal years ended April 30.
Results of Operations
Net Revenues
<TABLE>
<CAPTION>
Fiscal Year
----------------------------------------------
1996 Change 1995 Change 1994
---- ------ ---- ------ ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Net Revenues $ $73,150 (32.70)% $108,689 (3.41)% $112,531
Costs and Expenses 83,963 (26.47)% 114,191 (1.42)% 115,837
Percentage of Net Revenues 114.78% 105.06% 102.94%
Net Loss $ (10,709) $(4,741) $(2,150)
Loss Per Share Before $ (2.20) $ (.98) $ (.49)
Cumulative Effect of Change in
Accounting Principle
Loss Per Share $ (2.20) $ (.98) $ (.44)
</TABLE>
The decline in 1996 net revenues resulted from decreases in the
Company's Direct Selling Subsidiaries' revenues. The Direct Selling
Subsidiaries' revenue declines are attributed to a number of factors including;
(i) adverse publicity in certain of the European markets aimed at multilevel
sales organizations in general and/or in certain instances the Company or its
products and (ii) continued adverse reaction to the Vitacron settlement and to
certain changes made in the German Marketing Plan in connection with the
settlement. The decline in 1995 net revenues reflects decreases in revenues by
NSA Mexico of approximately $4.9 million and by NSA Polymers of approximately
$6 million. This decline was partially offset by additional revenues generated
by the Company's expansion of direct selling operations into France and Italy,
European product introductions, and sales to the Company's distributor for the
Far East.
<PAGE> 10
As a result of these declining revenues, the Company is in the process
of changing its sales and distribution operations. These changes have resulted
in the sale of the Canadian Direct Selling operations on April 30, 1996.
Furthermore, the Company has entered into a letter of intent to sell its Direct
Selling operations in the United Kingdom, Ireland, Holland, and Belgium and
another letter of intent to sell its German and Switzerland Direct Selling
operations and the rights to Austria. Thus, the Company is replacing its
current sales and distribution operations with third party licensing
agreements.
The Company will continue to sell products to these Master
Distributors, receive royalties and reimbursement for certain administrative
services. Company's management anticipates that the Master Distributor program
will allow the Company to more effectively expand existing markets and open new
markets more efficiently. The success of this strategy is dependent on the
success of the Company's new Master Distributors and the Company's ability to
attract other Master Distributors for new markets.
Costs and Expenses
<TABLE>
<CAPTION>
Fiscal Year
----------------------------------------------------------
1996 Change 1995 Change 1994
---- ------ ---- ------ ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Dealer/Distributor Commissions $28,082 (38.35)% $45,553 (4.73)% $47,812
and Allowances
Percentage of Net Revenues 38.39% 41.91% 42.49%
Cost of Products Sold $28,385 (24.77)% $37,732 8.15% $34,888
Percentage of Net Revenues 38.80% 34.72% 31.00%
</TABLE>
The 1996 decrease in dealer/distributor commissions and allowances
resulted primarily from the decrease in the Direct Selling Subsidiaries'
revenues. The 1995 decrease resulted from modification of the Company's
marketing plan which reduced certain commissions.
The 1996 and 1995 cost of products sold, as a percentage of net
revenues, increased as a result of the continued change in the Company's sale
mix toward lower margin sales. Additionally, the Company's costs of goods sold
reflect increased reserves for excess and obsolete inventories in 1996 and 1995
of $1 million and $1.8 million, respectively.
<TABLE>
<CAPTION>
Fiscal Year
---------------------------------------------------------
1996 Change 1995 Change 1994
---- ------ ---- ------ ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Operating Expenses $26,664 (11.86)% $30,252 (.78)% $30,491
Percentage of Net Revenues 36.45% 27.83% 27.10%
</TABLE>
The decrease in the 1996 operating expenses resulted from the
institution of cost and expense controls and the 1995 fourth quarter sale of
the Company's manufacturing subsidiary. This decrease was partially offset by
an $1,000,000 charge representing the present value of excess future rent
expense over sublease income of the Company's United Kingdom Direct Selling
Subsidiary.
<PAGE> 11
<TABLE>
<CAPTION>
Fiscal Year
----------------------------------------------------------
1996 Change 1995 Change 1994
---- ------ ---- ------ ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Interest Income $758 61.97% $468 (48.40%) $907
Interest Expense 3 (94.55%) 55 (45.54%) 101
</TABLE>
The 1996 increase in interest income reflects interest earned on notes
receivable from the sale of the manufacturing operation. The fiscal 1995
decrease in interest income reflects lower average balances of cash and cash
equivalents and short term investments.
The decrease in the 1996 and 1995 interest expense resulted from debt
retirement.
<TABLE>
<CAPTION>
Fiscal Year
---------------------------------------------------------
1996 Change 1995 Change 1994
---- ------ ---- ------ ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Licensing and Management Fees $1,598 (35.4)% $2,472 (19.82%) $3,083
to NSA, Inc.
Percentage of Net Revenues 2.18% 2.28% 2.74%
</TABLE>
The 1996 management fee decrease arose due to the sale of the
Company's manufacturing subsidiary and the closing of NSA Mexico, which reduced
the administrative cost paid to NSA. The decrease in the 1995 management fees
resulted from a reduction in administrative costs paid to NSA as a result of
the Company's sale of its domestic direct selling operations.
<TABLE>
<CAPTION>
Fiscal Year
-----------------------------------------------------------
1996 1995 1994
---- ---- ----
(Dollars in thousands)
<S> <C> <C>
Other Income (Expense), Net $11 $2,405 $(369)
Percentage of Net Revenues .02% 2.21% .33%
</TABLE>
The decrease in the other income (expense) for 1996 resulted from
reduced foreign currency translation gain of approximately $170,000 in 1996
versus $1,220,000 in 1995. The remaining amount of the 1996 decrease is
attributed to an approximate $300,000 loss in the Company's hedging program
verses an approximated gain in the 1995 hedging program of $1,090,000.
<PAGE> 12
<TABLE>
<CAPTION>
Restructuring Costs Fiscal Year
-------------------------------------------------------------
1996 1995 1994
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Restructuring Costs $-0- $1,000 $-0-
Percentage of Net Revenues N/A .92% N/A
</TABLE>
In 1995, the Company charged $1,000,000 for expenses to be incurred in
the closing of the Company's Mexican Direct Selling Subsidiary.
<TABLE>
<CAPTION>
Benefit for Income Taxes Fiscal Year
---------------------------------------------------------
1996 1995 1994
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Benefit for Income Taxes $103 $761 $892
Effective Tax Rate .95% 13.83% 26.98%
</TABLE>
The 1996 effective tax rate reflects the inability to utilize
operating losses of certain Direct Selling Subsidiaries to offset income of
other Direct Selling Subsidiaries. The effective tax rate for fiscal 1995 is
lower than fiscal 1994 due principally to initial losses incurred by the
Company's market expansions into France and Italy, for which the Company was
not able to recognize a tax benefit.
As of April 30, 1996, the Company has approximately $16.3 million of
net operating loss carryforwards which can be used to reduce future income tax
expense of certain subsidiaries.
The 1996 management fee decrease from the sale of the Company's
manufacturing subsidiary and the closing of NSA Mexico which reduced the
administrative cost paid to NSA. The decrease in the 1995 management fees
where a reduction in administrative cost paid to NSA as a result of the
Company's sale of its domestic direct selling operations.
<TABLE>
<CAPTION>
Cumulative Effect of Change in Accounting Principle
Fiscal Year
-------------------------------------------------------
1996 1995 1994
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Cumulative Effect of Change in $-0- $-0- $264
Accounting Principle
</TABLE>
On May 1, 1993, the Company adopted Statement of Financial Accounting
Standard (SFAS) No. 109. The cumulative effect of adopting SFAS No. 109
resulted in the above increase in income for 1994.
<TABLE>
<CAPTION>
Net Loss Fiscal Year
--------------------------------------------------------
1996 1995 1994
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Net Loss $(10,709) $(4,741) $(2,150)
Loss Per Share $ (2.20) $ (.98) $ (.44)
</TABLE>
<PAGE> 13
The 1996 net loss primarily reflects the Company's fixed direct
selling operating costs and expenses which exceed its gross margin as a result
of decreased revenues.
The 1995 net loss primarily reflects the $2.4 million loss by NSA
Mexico, which includes the $1 million in restructuring costs, and the $1.3
million loss in the Company's manufacturing subsidiary.
The continued investment in product diversification, European market
expansion and administrative restructure resulted in a net loss for 1994.
Future Outlook
The Company is aggressively changing its operational philosophy as a
result of its continued net losses and revenue declines. These changes
primarily result in the replacement of its current sales and distribution
operations with third party licensees called Master Distributors.
On April 30, 1996, the Company sold its Canadian direct selling
operations. In June 1996, the Company entered into a letter of intent to sell
the Germany and Switzerland direct selling operations and rights to Austria,
and a letter of intent to sell the direct selling operations in the United
Kingdom, Ireland, Belgium, and Holland. All of these transactions have or will
result in Master Distributors. These Master Distributors will purchase
product, pay royalties, and, in certain distributorships, purchase
administrative services from the Company.
Management anticipates that the Master Distributor program will allow
the Company to expand existing markets and expand into new markets more quickly
and economically. Currently, the Company is in negotiations with possible
Master Distributors in several new markets.
The Company's management believes that the transfer of its sales and
distributorship operations to Master Distributors will provide the Company with
long term favorable effects on its operating results. Although the ultimate
effect of these changes cannot be determined, there could be continued adverse
short-term results in operations caused by this change.
<PAGE> 14
<TABLE>
<CAPTION>
Liquidity and Capital Resources Fiscal Year Ended April 30
------------------------------- -----------------------------------------------------------
1996 1995 1994
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Cash and Cash Equivalents $8,755 $15,603 $20,081
Short-term Investments 13 521 475
Working Capital 11,323 13,126 17,100
Cash Provided (Used) by Operating
Activities (6,855) (4,004) (684)
Cash Provided (Used) by Investing
Activities 495 (1,119) 11,041
Cash Provided (Used) by Financing
Activities (489) 645 (5,567)
</TABLE>
The Company has sufficient cash on-hand to finance current operations,
and does not anticipate requiring additional funding in excess of the current
cash balances and cash flow generated from operations. If required, management
believes additional funding will be available from financial institutions or
NSA at satisfactory terms.
Item 8. Financial Statements and Supplementary Data.
NSA International, Inc. and Subsidiaries:
Report of Independent Certified Public Accountants
Consolidated Balance Sheets as of April 30, 1996 and 1995
Consolidated Statements of Operations for the Years ended April 30,
1996, 1995, and 1994
Consolidated Statements of Shareholders' Equity for the Years ended
April 30, 1996, 1995, and 1994
Consolidated Statements of Cash Flows for the Years ended April 30,
1996, 1995, and 1994
Notes to Consolidated Financial Statements
<PAGE> 15
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
of NSA International, Inc.
We have audited the accompanying consolidated balance sheets of NSA
International, Inc. and Subsidiaries (the "Company") as of April 30, 1996 and
1995 and the related consolidated statements of operations, shareholders'
equity, and cash flows for each of the three years in the period ended April
30, 1996. Our audits also included the financial statement schedule listed in
the Index at Item 14. These financial statements and the financial statement
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and the
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material 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.
As discussed in Note 7 to the financial statements, the Company is party to a
significant number of transactions with National Safety Associates, Inc. ("NSA,
Inc."), the shareholders of which own a majority of the Company's common stock.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of NSA International, Inc. and
Subsidiaries as of April 30, 1996 and 1995 and the results of their operations
and their cash flows for each of the three years in the period ended April 30,
1996 in conformity with generally accepted accounting principles. Also, in our
opinion, the financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
As discussed in Note 4 to the financial statements, in fiscal 1994 the Company
changed its method of accounting for income taxes to conform with Statement of
Financial Accounting Standards No. 109.
Memphis, Tennessee
July 19, 1996
1
<PAGE> 16
NSA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
APRIL 30, 1996 AND 1995
<TABLE>
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
1996 1995
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 8,754,770 $15,603,316
Short-term investments 13,047 521,345
Receivables, net 1,839,493 2,024,956
Refundable income taxes 729,545 3,054,484
Inventories, net 10,233,158 12,830,628
Defed income taxes 322,000 148,000
Notes receivable - short-term 125,000 500,000
Other current assets 1,093,442 1,766,798
----------- -----------
Total current assets 23,110,455 36,449,527
PROPERTY AND EQUIPMENT, At cost:
Leasehold improvements 579,618 372,662
Manufacturing equipment 678,800 714,755
Office furniture and equipment 2,693,847 3,131,918
Transportation equipment 124,765 215,761
Data processing equipment 2,148,027 2,244,194
----------- -----------
Total 6,225,057 6,679,290
Less accumulated depreciation and amortization (3,347,843) (3,089,044)
----------- -----------
Property and equipment, net 2,877,214 3,590,246
NOTES RECEIVABLE - LONG-TERM 4,615,495 4,000,000
OTHER ASSETS 670,827 603,999
----------- -----------
TOTAL ASSETS $31,273,991 $44,643,772
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Amounts due to NSA, Inc. $ 923,150 $ 9,310,467
Accounts payable, trade 2,556,531 2,365,016
Accrued sales commissions and allowances 771,868 1,448,432
Accrued compensation and expenses 4,724,392 6,416,241
Accrued sales returns 1,196,142 1,785,608
Advance payments by dealers/distributors 105,079 379,396
Income taxes payable 1,068,596 1,256,135
Other current liabilities 441,300 361,873
----------- -----------
Total current liabilities 11,787,058 23,323,168
AMOUNTS DUE TO NSA, INC. 7,900,000
DEFED INCOME TAXES 322,000 345,000
OTHER LIABILITIES 1,058,662 58,662
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, .05 par value, 100,000,000 shares authorized, 4,858,156
shares issued and outstanding 242,908 242,908
Additional paid-in capital 21,196,430 21,197,616
Deficit (11,233,067) (523,582)
----------- -----------
Total shareholders' equity 10,206,271 20,916,942
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $31,273,991 $44,643,772
=========== ===========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 17
NSA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED APRIL 30, 1996, 1995, AND 1994
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
NET REVENUES:
Net sales $ 70,831,868 $105,977,808 $108,642,556
Dealer fee income 2,268,178 2,635,405 3,739,917
Revolving credit fee income 50,286 75,449 148,559
------------ ------------ ------------
Total 73,150,332 108,688,662 112,531,032
COSTS AND EXPENSES:
Dealer/distributor commissions and allowances (28,082,083) (45,553,564) (47,812,268)
Cost of products sold (28,385,494) (37,732,481) (34,888,399)
Operating expenses (26,663,852) (30,251,635) (30,491,152)
Licensing and management fees to NSA, Inc. (1,597,737) (2,471,986) (3,082,888)
Restructuring costs (1,000,000)
Interest income 758,216 468,270 906,957
Interest expense (3,381) (55,197) (100,401)
Other income (expense), net 11,514 2,405,466 (369,088)
------------ ------------ ------------
Total (83,962,817) (114,191,127) (115,837,239)
------------ ------------ ------------
LOSS BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (10,812,485) (5,502,465) (3,306,207)
INCOME TAX BENEFIT 103,000 761,000 892,000
------------ ------------ ------------
LOSS BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE (10,709,485) (4,741,465) (2,414,207)
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE 264,000
------------ ------------ ------------
NET LOSS $(10,709,485) $(4,741,465) $(2,150,207)
============ =========== ===========
LOSS PER COMMON SHARE:
Before cumulative effect of change in accounting principle $ (2.20) $ (0.98) $ (0.49)
Cumulative effect of change in accounting principle 0.05
------------ ------------ ------------
Net loss $ (2.20) $ (0.98) $ (0.44)
============ =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 4,858,156 4,858,270 4,858,523
============ =========== ===========
TRANSACTIONS WITH NSA, INC. INCLUDED
IN THE ABOVE:
Net sales to NSA, Inc. $ 11,588,030 $ 9,301,000 $ 7,152,000
Cost of products sold (purchased from NSA, Inc.) 1,162,501 3,180,102 4,713,000
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 18
NSA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED APRIL 30, 1996, 1995, AND 1994
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
Common Stock
---------------------- Additional Retained
Number of Paid-in Earnings
Shares Amount Capital (Deficit) Total
<S> <C> <C> <C> <C> <C>
BALANCES AT APRIL 30, 1993 4,858,556 $242,928 $21,203,908 $ 6,368,090 $27,814,926
Repurchase of common stock warrants (3,762) (3,762)
Repurchase and retirement of common stock (100) (5) (395) (400)
Net loss (2,150,207) (2,150,207)
--------- -------- ----------- ------------ -----------
BALANCES AT APRIL 30, 1994 4,858,456 242,923 21,199,751 4,217,883 25,660,557
Repurchase of common stock warrants (1,750) (1,750)
Repurchase and retirement of common stock (300) (15) (385) (400)
Net loss (4,741,465) (4,741,465)
--------- -------- ----------- ------------ -----------
BALANCES AT APRIL 30, 1995 4,858,156 242,908 21,197,616 (523,582) 20,916,942
Repurchase of common stock warrants (1,186) (1,186)
Net loss (10,709,485) (10,709,485)
--------- -------- ----------- ------------ -----------
BALANCES AT APRIL 30, 1996 4,858,156 $242,908 $21,196,430 $(11,233,067) $10,206,271
========= ======== =========== ============ ===========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 19
NSA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED APRIL 30, 1996, 1995, AND 1994
<TABLE>
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(10,709,485) $(4,741,465) $(2,150,207)
Adjustments to reconcile net loss to net cash used by operations:
Restructuring costs 1,000,000
Depreciation and amortization 977,014 1,582,632 1,746,500
Loss on sales of educational products and property and equipment 132,401 134,813 6,423
(Gain) loss on sale of short-term investments (6,902) 16,215 49,526
Cumulative effect of change in accounting principle (264,000)
Change in defed income taxes (197,000) 903,000 6,000
Changes in assets and liabilities, net of the effects of the sale of
substantially all assets of National Safety Associates, Ltd.
(NSA Canada) and NSA Polymers, Inc.:
Receivables, net 187,528 (638,816) 2,981,983
Inventories 2,005,948 1,203,176 (889,282)
Other assets 579,316 (794,919) 940,067
Accounts payable, trade 191,515 (48,218) (1,624,975)
Accrued sales returns (589,466) (1,792,864) (496,772)
Advance payments by dealers/distributors (274,317) (177,875) 557,271
Accrued expenses, other (2,368,413) 254,451 1,500,049
Income taxes payable and refundable 2,137,400 (878,349) (247,000)
Other current liabilities 79,427 (25,656) (2,800,255)
Other liabilities 1,000,000
------------ ----------- -----------
Net cash used by operating activities (6,855,034) (4,003,875) (684,672)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments (3,050,545) (8,910,315)
Proceeds from sale of short-term investments 515,200 3,004,200 21,808,988
Purchase of property and equipment (532,941) (1,611,935) (1,912,021)
Proceeds from sale of property and equipment 12,732 39,600 54,532
Proceeds from principal payments on notes receivable 500,000
Proceeds from the sale of substantially all assets of NSA Polymers, Inc. 500,000
------------ ----------- -----------
Net cash provided (used) by investing activities 494,991 (1,118,680) 11,041,184
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on note payable to bank (2,800,000)
Repurchase of common stock and warrants (1,186) (2,150) (4,162)
Advances from (to) NSA, Inc. (487,317) 894,522 (2,113,603)
Principal payments on long-term debt (247,864) (648,999)
------------ ----------- -----------
Net cash provided (used) by financing activities (488,503) 644,508 (5,566,764)
------------ ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (6,848,546) (4,478,047) 4,789,748
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 15,603,316 20,081,363 15,291,615
------------ ----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 8,754,770 $15,603,316 $20,081,363
============ =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 3,381 $ 55,000 $ 100,401
Income taxes refunded, net 2,045,400 340,000 651,000
SUPPLEMENTAL SCHEDULE OF NON CASH INVESTING AND FINANCING ACTIVITIES:
See discussion of 1996, 1995, and 1994 non cash financing activities at Note 3.
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 20
NSA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 1996, 1995, AND 1994
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS - The Company markets products which include air and water
filtration products, an in-home carbonation appliance, and a line of
nutritional supplement products. The products are distributed through
the Company's direct multi-level marketing network outside the United
States and through NSA, Inc.'s United States direct multi-level
marketing network.
BASIS OF CONSOLIDATION - The accompanying consolidated financial
statements include the accounts of the Company and all subsidiaries.
All significant intercompany accounts and transactions have been
eliminated.
CASH AND CASH EQUIVALENTS - Certificates of deposit and other debt
instruments with a maturity of three months or less from the date of
purchase are considered to be cash equivalents.
SHORT-TERM INVESTMENTS - Short-term investments consist of
certificates of deposit, municipal bonds, and corporate bonds which
are classified as trading securities. The investments are stated at
market.
CONCENTRATION OF CREDIT RISK - Financial instruments which potentially
subject the Company to concentrations of credit risk consist of cash
equivalents, short-term investments, foreign exchange forward
contracts, and receivables. Substantially all of cash and cash
equivalents were deposited with major banks covered with only a
nominal amount of government provided insurance. Short-term
investments are limited to investment grade bonds or to certificates
of deposit with major banks. The counterparties to foreign exchange
forward contracts are limited to major commodity exchanges. The
Company continually evaluates the financial viability and reputation
of each financial institution and exchange. Regarding receivables,
management believes credit risk beyond that already provided for is
limited due to a large customer base and geographic dispersion.
INVENTORIES - Inventories are stated at the lower of cost (first-in,
first-out basis) or market and consisted of the following at April 30,
1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Raw materials $ 5,850,158 $ 6,122,208
Finished goods 6,733,874 8,218,954
Accessories 1,933,995 2,814,019
----------- -----------
Total at cost 14,518,027 17,155,181
Reserve for excess and obsolete inventories (4,284,869) (4,324,553)
----------- -----------
Inventories, net $10,233,158 $12,830,628
=========== ===========
</TABLE>
6
<PAGE> 21
PROPERTY AND EQUIPMENT - Property and equipment are recorded at cost.
Depreciation of property and equipment is principally computed by the
straight-line method over the estimated useful lives of the assets, which
range as follows:
Office furniture and equipment 2 to 7 years
Leasehold improvements 3 to 30 years
Manufacturing equipment 3 to 7 years
Transportation equipment 3 to 5 years
Data processing equipment 5 years
Maintenance and repairs are charged to expense as incurred; major
renewals are capitalized. Gains or losses on retirement or disposition
are charged to income and respective costs and accumulated depreciation
are eliminated.
FOREIGN CURRENCY TRANSLATION AND FOREIGN EXCHANGE FORWARD CONTRACTS - The
Company's functional currency is the U.S. dollar; therefore, the foreign
subsidiaries remeasure monetary assets and liabilities at year-end
exchange rates and inventory, property, equipment, and non-monetary
assets and liabilities at historical rates. Income and expense accounts
are translated at the exchange rates in effect on the day of the
transaction, except for depreciation, which is translated at historical
rates. Gains and losses resulting from foreign currency transactions
(transactions denominated in a currency other than the U.S. dollar) are
included in net income in the period incurred.
In fiscal 1994, the Company adopted a policy to reduce the effects of
fluctuations in foreign currency exchange rates associated with certain
aspects of these investments, principally the monetary assets and
liabilities of the Company's foreign subsidiaries, by buying or selling
foreign exchange forward contracts in manners which will generally
replicate the effects which would occur if related options had been
purchased. The size of positions held vary based principally on the
Company's net position of monetary assets and liabilities and on the
duration and magnitude of the current foreign exchange trend in effect.
Management believes this practice will partially hedge the effects of
foreign currency fluctuations on the Company's financial statements, but
of course cannot assure that this objective will be met. Fair values of
the foreign exchange forward contracts are estimated using quoted market
prices of these or comparable instruments; related gains and losses on
these contracts, as well as the foreign exchange gains and losses
resulting from translation of the financial statements of the Company's
foreign subsidiaries, are recognized in other income or expense. Within
the definitions contained in Statement of Financial Accounting Standards
No. 119, management considers these contracts to be held for purposes
other than trading.
At April 30, 1996, the Company had foreign currency contracts to sell
forward the dollar equivalent of $800,000 of pound sterling, Swiss franc,
and deutsche mark, and to buy forward the dollar equivalent of $150,000
Canadian dollars. At April 30, 1995, the Company had foreign currency
contracts to buy forward the dollar equivalent of $4,200,000 of pound
sterling, Canadian dollar, Swiss franc, and deutsche mark. These
contracts generally mature within one year and have aggregate unrealized
gains of approximately $18,000 and $29,000 in 1996 and 1995,
respectively, which were included in net income. Margin deposits made
for these contracts total approximately $618,000 and $419,000 at April
30, 1996 and 1995, respectively, and are included in other current
assets.
The foreign currency translation gains (losses), net of the effects of
foreign exchange forward transactions, for the years ended April 30,
1996, 1995, and 1994 totalled approximately $460,000, $2,310,000, and
$(644,000), respectively.
REVENUE RECOGNITION - Revenue and related dealer distributor commissions
expenses are recognized from sales when a product is shipped. Provision
for estimated sales returns is recorded based on historical returns rates
and current business conditions.
7
<PAGE> 22
INCOME TAXES - Deferred income taxes are recorded to reflect the tax
consequences on future years of differences between the tax bases of
assets and liabilities and their financial reporting amounts.
LOSS PER SHARE - Loss per share has been computed by dividing net loss by
the weighted average number of common shares outstanding. No effect has
been given to common stock equivalents as they have no dilutive effects.
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 and disclosure of contingent 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.
RECLASSIFICATIONS - Certain amounts in the 1995 and 1994 financial
statements have been reclassified to be consistent with the presentation
of the 1996 financial statements.
2. RECEIVABLES
A majority of the Company's sales to its dealer/distributor network are
made on a cash basis. The Company provides, as a convenience to its
dealer/distributor network, revolving credit arrangements under which the
retail customer or the dealer/distributor may finance the purchase of the
Company's products. The Company's net receivable is comprised of the
amount due from the retail customer or the dealer/distributor less any
related amounts due to the dealer/distributor for commissions and
allowances.
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Amounts due under revolving credit agreements $ 467,214 $2,009,828
Less amounts due to dealer/distributors (164,608) (353,806)
Accounts receivable, trade 1,292,726 1,030,002
Other accounts receivable 340,041 84,077
---------- ----------
Total 1,935,373 2,770,101
Less allowance for doubtful accounts (95,880) (745,145)
---------- ----------
Receivables, net $1,839,493 $2,024,956
========== ==========
</TABLE>
Accounts receivable, trade represents amounts due from customers of the
Company's domestic subsidiaries. In 1996, the Company's U.K subsidiary
changed its practice to directly write off certain returned receivables,
rather than reserving for doubtful amounts. This change resulted in a
$610,000 decrease in the allowance account.
3. ACQUISITIONS, DISPOSALS, AND PRO FORMA INFORMATION
As of the close of business on April 30, 1996, the Company sold certain
inventories, fixed assets, and prepaid expenses of National Safety
Associates, Ltd. (NSA Canada or the "Seller") to a group of investors
(the "Buyer"), which included certain members of the Seller's management.
In conjunction with the acquisition, the Buyer has assumed responsibility
for future multi-level direct selling operations in Canada, with the
Company continuing to sell certain goods at market prices and provide
certain administrative and marketing support for a monthly fee.
Consideration was received in the form of a note receivable totalling
$740,495, which approximated the net book value of the assets sold. The
note receivable bears interest at 8.25% per annum, is secured by liens on
substantially all fixed assets, inventories, and accounts receivable of
the Buyer, and is scheduled to be repaid as follows: 1998 - $100,000;
1999 - $100,000; 2000 - $150,000; 2001 - $200,000; and thereafter -
$190,495.
8
<PAGE> 23
During June 1996, the Company obtained letters of intent to sell certain
inventories, fixed assets, and prepaid expenses of its operations in
Germany, Switzerland, Belgium, Holland, Austria, and the United Kingdom.
Similar to the sale of certain Canadian assets, these expected
dispositions, which management believes will be completed within the
first six months of fiscal 1997, will obligate the buyers to assume
responsibility for future multi- level direct selling operations in these
countries.
SUPPLEMENTAL PRO FORMA FINANCIAL INFORMATION (UNAUDITED) - As a result of
the aforementioned disposals, the Company believes that the following pro
forma financial information is important to enable the reader to obtain a
meaningful understanding of the Company's results of operations. The pro
forma financial statements are for informational purposes only to
illustrate the estimated effects of the disposal of certain assets and
operating responsibilities of Canadian operations and the expected
disposals of the same for Germany, Switzerland, Belgium, Holland,
Austria, and the United Kingdom on NSA International had they occurred as
of May 1, 1995. Such pro forma financial statements may not necessarily
reflect the future results of operations of NSA International or what the
losses or results of operations of NSA International would have been had
it disposed of these assets and operating responsibilities as of May 1,
1995.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED APRIL 30, 1996 (UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Historical Adjustments Pro Forma
<S> <C> <C> <C>
Net revenues $ 73,150,332 $ 37,766,199 (a) $ 35,384,133
============= ============ ============
Loss before income taxes $(10,812,485) $ 5,888,404 (a) $ (4,924,081)
Income tax benefit (expense) 103,000 (2,237,593)(b) (2,134,593)
------------ ------------ ------------
Net loss $(10,709,485) $ 3,650,811 $ (7,058,674)
============= ============ ============
Loss per common share (c) $ (2.20) $ (1.45)
============= ============
</TABLE>
The historical balance sheet presented below reflects the disposal of
certain assets related to Canadian operations, as these were disposed of as
of April 30, 1996. The following pro forma balance sheet is presented to
show the financial condition of the Company at April 30, 1996 as if the
disposals of certain assets of Germany, Switzerland, Belgium, Holland,
Austria, and the United Kingdom had also occurred as of this date and as if
the capital contribution made by NSA, Inc. on July 9, 1996 had occurred as
of April 30, 1996 (see Note 7).
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
APRIL 30, 1996 (UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Historical Adjustments Pro Forma
<S> <C> <C> <C>
Current assets $23,110,455 $ (191,217)(d) $22,919,238
Long-term assets 8,163,536 191,217 (d) 8,354,753
=========== =========== ===========
Total assets $31,273,991 $ 0 31,273,991
=========== =========== ===========
Current liabilities $19,687,058 $(7,900,000)(e) 11,787,058
Non-current liabilities 1,380,662 1,380,662
Shareholders' equity 10,206,271 7,900,000 (e) 18,106,271
----------- ----------- -----------
Total liabilities and
shareholders' equity $31,273,991 $ 0 31,273,991
=========== =========== ===========
</TABLE>
9
<PAGE> 24
INTRODUCTION TO NOTES TO SUPPLEMENTAL PRO FORMA FINANCIAL INFORMATION -
The following is a summary of adjustments reflected in the pro forma
condensed consolidated balance sheet and statement of operations.
NOTES TO SUPPLEMENTAL PRO FORMA FINANCIAL INFORMATION -
(a) To eliminate the gross sales, cost of revenues, and commissions
expense related to these disposals and to reinstate the sales and
cost of sales from NSA International to these units, and to
eliminate costs and expenses directly attributable to these
disposals which management does not believe would have been incurred
by NSA International had the disposals taken place prior to the 1996
fiscal year. Sales are estimated based on projected contractual
prices and the actual quantities sold in 1996.
(b) To record the estimated income tax effect for the pro forma
adjustments described in note (a) above.
(c) Historical and pro forma loss per common share are computed based on
net loss divided by the weighted average number of common shares
outstanding.
(d) To eliminate certain assets of Germany, Switzerland, Belgium,
Holland, Austria, and the United Kingdom, which are expected to be
disposed of within the first six months if fiscal 1997, as if they
had been disposed of at April 30, 1996.
(e) To record the capital contribution by NSA, Inc. (see Note 7).
In June 1996, the Company announced its decision to close the European
Headquarters. A restructuring charge of $3 million to $3.5 million will
be recognized in the first quarter of fiscal 1997 related to the shutdown
of this operation. The above pro forma information does not reflect the
cost of this charge or any cost reduction that will result from the
shutdown.
On August 30, 1993, the Company acquired the permanent exclusive rights
to market "Wings," a children's educational product sold by the Company
since April 1991 for $1.6 million and agreed to the settlement of a $2.4
million recorded obligation for "Wings" royalty payments in exchange for
$2 million in cash and a $2 million 4% note payable. The cost of the
rights was included in Other Assets on the balance sheet and was
amortized over six years. Amortization expense totaled $200,000 in 1994.
Royalty expense under prior agreements totaled $101,247 in 1994. As
discussed in Note 7, in July 1994 these rights and related inventory were
sold to NSA, Inc. at net book value, including the assumption of the note
payable.
On February 1, 1995, the Company sold substantially all assets of its
manufacturing subsidiary, NSA Polymers, Inc. The assets were purchased
by a group of investors (the "Buyer"), including certain members of NSA
Polymers, Inc.'s management, for $5,000,000. This consideration was
composed of $500,000 cash paid at closing and notes receivable totalling
$4,500,000. The first note, totalling $500,000, was collected during
fiscal 1996. The remaining note, totalling $4,000,000, bears interest at
8.5% per annum, is secured by liens on all assets except certain accounts
receivable of the Buyer, and is scheduled to be repaid during the
following fiscal years: 1997 - $125,000; 1998 - $200,000; 1999 -
$500,000; 2000 - $500,000; 2001 - $572,500; and thereafter - $2,102,500.
Based on the rate of interest, security, and other characteristics,
management believes the recorded value of the remaining note receivable
approximates its fair value. The net book value of the assets related to
the transaction approximated consideration received, therefore no
significant gain or loss resulted therefrom.
In conjunction with the sale, the Company agreed to minimum purchases
at prevailing market prices from the Buyer totalling $7,000,000 in the
first twelve months following the date of the sale, $6,000,000 in the
next twelve month period, and $5,500,000 in the following twelve months.
Actual purchases through January 31, 1996 totalled approximately
$5,050,000, resulting in the Company paying penalties of approximately
$722,000 to the Buyer. In the event future purchase levels are not met,
the Company must pay additional penalties of up to 36% of the difference
between them and the actual purchases made.
10
<PAGE> 25
4. INCOME TAXES
The Company and its domestic subsidiaries file a consolidated federal
income tax return. The Company's foreign subsidiaries file separate
returns in the respective countries of domicile.
The Company adopted Statement of Financial Accounting Standards (SFAS)
No. 109, "Accounting for Income Taxes," effective May 1, 1993. This
statement supersedes SFAS No. 96, "Accounting for Income Taxes." The
cumulative effect of adopting SFAS No. 109 on the Company's financial
statements was to decrease the loss by $264,000 ($.05 per share) for
fiscal 1994. Other than the cumulative effect adjustment, application of
this statement did not have a significant effect on 1994 operating
results.
The components by region of loss before income taxes and cumulative
effect of change in accounting principle are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
U.S. $ (208,892) $(3,574,205) $(1,224,355)
Foreign (10,603,593) (1,928,260) (2,081,852)
------------ ----------- -----------
Total $(10,812,485) $(5,502,465) $(3,306,207)
============ =========== ===========
</TABLE>
The components of the income tax benefit are as follows:
<TABLE>
1996 1,995 1,994
<S> <C> <C> <C>
Current:
Federal $ (62,000) $1,580,000 $ 466,000
Foreign (32,000) 84,000 432,000
------------ ---------- ----------
Total (94,000) 1,664,000 898,000
Deferred:
State 28,000
Federal (584,000) 134,000
Foreign 197,000 (319,000) (168,000)
------------ ---------- ----------
Total 197,000 (903,000) (6,000)
------------ ---------- ----------
Total $ 103,000 $ 761,000 $ 892,000
============ ========== ==========
</TABLE>
A reconciliation of the Company's actual income taxes for the years ended
April 30, 1996, 1995, and 1994 to that obtained by applying the U.S.
federal statutory income tax rate against pre-tax income is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Federal income tax benefit, at U.S.
federal statutory rate $ 3,784,000 $1,870,000 $1,124,000
State income taxes, net of federal tax
benefit 28,000
Effect of different rates applied to the
operations of the foreign subsidiaries 50,000 157,000
Effect of unused net operating loss of
foreign subsidiaries (3,687,000) (986,000) (468,000)
Foreign sales corporation (63,000)
Other differences 6,000 (110,000) 51,000
----------- ---------- ----------
Income tax benefit $ 103,000 $ 761,000 $ 892,000
=========== ========== ==========
</TABLE>
11
<PAGE> 26
Deferred income taxes reflect the net tax effects of (a) temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and (b) operating loss and tax credit
carryforwards. The tax effects of significant items comprising the
Company's deferred taxes as of April 30, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Deferred tax assets:
Reserves not currently deductible $ 502,000 $ 155,000
Intercompany profit-in-inventory elimination 24,000 146,000
Uniform capitalization of inventory 93,000 77,000
Operating loss carryforwards 6,729,000 2,390,000
Other 17,000
----------- -----------
Total 7,348,000 2,785,000
Valuation allowance (7,026,000) (2,637,000)
----------- -----------
Total deferred tax asset 322,000 148,000
Deferred tax liabilities:
Differences between book and tax leases of property 47,000 46,000
Net foreign currency translation gain 275,000 299,000
----------- -----------
Total deferred tax liability 322,000 345,000
----------- -----------
Net deferred tax asset (liability) $ Nil $ (197,000)
=========== ===========
</TABLE>
The valuation allowance of $7,026,000 and $2,637,000 in 1996 and 1995,
respectively, has been provided because it is more likely than not that a
substantial portion of the deferred tax assets will not be realized. The
valuation allowance increased by $4,389,000 in 1996 and decreased by
$134,000 in 1995. These changes relate primarily to the creation and
utilization of operating loss carryforwards of certain foreign
subsidiaries.
The Company has net operating loss carryforwards totalling approximately
$163,300,000 available for future reductions of income taxes in various
countries. The net operating loss carryforwards of Germany and the United
Kingdom total $10,400,000 and have no expiration. The net operating loss
carryforwards of the United States total $280,000 and expire in 2111.
The Company does not expect to be able to utilize the remaining operating
loss carryforwards.
5. LEASES
The Company leases warehouse space in the U.K. under an noncancellable
operating lease expiring in 2016. In October 1995, the Company abandoned
the location and signed a sublease agreement with an unrelated pary. A
loss of $1,000,000, representing the excess of future rent expense over
sublease income discounted at 8%, was recognized in the second quarter of
fiscal 1996.
The Company is currently leasing warehouse and office space under
numerous other non-cancelable operating leases. Lease terms generally
range from one to twenty-five years with options to renew at varying
terms. Rent expense totaled approximately $1,684,153, $2,015,000, and
$2,105,000 for the years ended April 30, 1996, 1995, and 1994,
respectively. In 1996 and 1995, the Company received sublease rentals of
$40,000 and $134,000, respectively.
12
<PAGE> 27
The future minimum lease payments and related sublease payments
receivable under these agreements are as follows:
<TABLE>
<CAPTION>
Minimum Sublease
Lease Payments
Payments Receivable
<S> <C> <C>
Year Ending April 30
1997 $ 1,868,000 $ 67,000
1998 1,256,000 181,000
1999 1,174,000 181,000
2000 957,000 181,000
2001 585,000 181,000
Thereafter 7,717,000 4,314,000
----------- ----------
Total $13,557,000 $5,105,000
=========== ==========
</TABLE>
6. EMPLOYEE BENEFITS PLAN
The Company's domestic subsidiaries participate in NSA, Inc.'s defined
contribution plan to provide full-time employees, with a minimum of
1,000 hours of service and who are employed at year-end, with
additional income upon retirement or termination. The Company may
elect to make annual contributions to the plan equal to a
discretionary percentage of the participant's annual salary, to the
extent the participant's salary does not exceed $150,000, as defined.
The Company made no contributions to the plan during 1996, 1995, and
1994.
7. TRANSACTIONS WITH NSA, INC. AND SUBSEQUENT EVENT
NSA, Inc. held a majority ownership of the Company until October 1990
at which time NSA, Inc. sold its investment in the Company to NSA,
Inc.'s individual shareholders. Four of the shareholders of NSA, Inc.
also serve as directors of the Company. In addition, at April 30,
1996 NSA, Inc. owns 436,180 shares of the Company.
The Company sells nutritional supplement products, air treatment
systems, in-home beverage appliances, and certain water filtration
product components to NSA, Inc. The Company purchases certain water
filtration products and certain related accessory products from NSA,
Inc. Certain of the Company's subsidiaries are parties to licensing
and management agreements with NSA, Inc. that provide for fees payable
to NSA, Inc. equal to a percentage of sales and allocation of certain
costs incurred by NSA, Inc. in providing management and administrative
services. Costs incurred by NSA, Inc. in providing management and
administrative services include general management, financial
reporting, benefits administration, insurance, information-systems,
and other miscellaneous services. These allocations are based
primarily on the percentage of sales of each company to total sales of
both. Management believes that these allocations were made on a
reasonable basis. However, the allocations are not necessarily
indicative of the level of expenses that might have been incurred had
the Company operated on a stand-alone basis. Management has not made a
study or any attempt to obtain quotes from third parties to determine
what the cost of obtaining such services from third parties would have
been.
NSA, Inc. has also provided funding on a payable upon demand and
non-interest bearing basis for equipment purchases and working
capital.
13
<PAGE> 28
NSA, Inc. also guarantees the terms and obligations of NSA U.K.'s two
twenty-five year operating lease agreements, one location of which has
been subleased to an unrelated party, through November 28, 2013 and
June 23, 2016, respectively, for office and warehouse space. The
annual rental payments total approximately $500,000, excluding the
sublease rentals. Also see Note 5.
On July 21, 1994, the Company completed the sale of its exclusive
rights and inventory in Wings, an educational product, and The
Knowledge Network, an educational catalog product, to NSA, Inc. The
total purchase price of $5,500,000 approximated the book value of the
related assets and was determined based upon an independent valuation.
NSA, Inc. assumed a $1.1 million note payable and the remainder of the
purchase price was settled as a reduction of the amounts due to NSA,
Inc.
On July 9, 1996, the Board of Directors of NSA, Inc. voted to make a
$7,900,000 capital contribution to the Company in the form of
forgiveness of amounts due from direct selling subsidiaries of NSA
International.
8. GEOGRAPHIC SEGMENT DATA
Financial information, summarized by geographic area, is as follows:
<TABLE>
<CAPTION>
United States Canada/Mexico Europe Eliminations Consolidated
<S> <C> <C> <C> <C> <C>
Year Ended April 30, 1996
Total revenues:
Unaffiliated customers $ 3,459,376 $4,805,151 $ 53,297,775 $ 61,562,302
Sales to NSA, Inc. 11,588,030 11,588,030
Interarea sales 3,455,008 $(3,455,008)
----------- ---------- ------------ ----------- ------------
Total $18,502,414 $4,805,151 $ 53,297,775 $(3,455,008) $ 73,150,332
=========== ========== ============ =========== ============
Loss before income taxes $ 112,569 $ 14,902 $(10,939,956) $(10,812,485)
=========== ========== ============ ============
Identifiable assets $21,238,400 $2,174,434 $ 17,442,971 $(9,807,542) $ 31,048,263
=========== ========== ============ ===========
Corporate assets 225,728
------------
Total assets $ 31,273,991
============
Depreciation and amortization expense $ 134,714 $ 56,981 $ 785,319 $ 977,014
=========== ========== ============ ============
Capital expenditures $ 0 $ 27,815 $ 505,126 $ 532,941
=========== ========== ============ ============
<CAPTION>
United States Canada/Mexico Europe Eliminations Consolidated
<S> <C> <C> <C> <C> <C>
Year Ended April 30, 1995
Total revenues:
Unaffiliated customers $ 4,504,565 $5,360,501 $ 89,522,596 $ 99,387,662
Sales to NSA, Inc. 9,301,000 9,301,000
Interarea sales 4,990,675 $(4,990,675)
----------- ---------- ------------ ----------- ------------
Total $18,796,240 $5,360,501 $ 89,522,596 $(4,909,675) $108,688,662
=========== ========== ============ =========== ============
Loss before income taxes $(3,574,205) $ (218,750) $ (1,709,510) $ (5,502,465)
=========== ========== ============ ============
Identifiable assets $24,590,248 $2,992,989 $ 25,589,851 $(8,696,861) $ 44,476,227
=========== ========== ============ ===========
Corporate assets 167,545
------------
Total assets $ 44,643,772
============
Depreciation and amortization expense $ 553,747 $ 324,412 $ 704,473 $ 1,582,632
=========== ========== ============ ============
Capital expenditures $ 118,506 $ 45,264 $ 1,448,165 $ 1,611,935
=========== ========== ============ ============
</TABLE>
14
<PAGE> 29
<TABLE>
<CAPTION>
United States Canada/Mexico Europe Eliminations Consolidated
<S> <C> <C> <C> <C> <C>
Year Ended April 30, 1994
Total revenues:
Unaffiliated customers $ 8,333,455 $13,167,739 $83,877,838 $105,379,032
Sales to NSA, Inc. 7,152,000 7,152,000
Interarea sales 13,856,588 $(13,856,588)
------------ ----------- ----------- ------------ ------------
Total $ 29,342,043 $13,167,739 83,877,838 $(13,856,588) $112,531,032
============ =========== =========== ============ ============
Loss before income taxes and cumulative
effect of change in accounting principle $ (1,224,355) $(1,369,850) $ (712,002) $ (3,306,207)
============ =========== =========== ============
Identifiable assets $ 39,490,154 $ 6,261,606 26,257,306 $(17,191,325) $ 54,817,741
============ =========== =========== ============ ------------
Corporate assets 320,437
------------
Total assets $ 55,138,178
============
Depreciation and amortization expense $ 1,110,218 $ 159,260 477,022 $ 1,746,500
============ =========== =========== ============
Capital expenditures $ 575,982 $ 259,037 1,077,002 $ 1,912,021
============ =========== =========== ============
</TABLE>
9. LITIGATION, COMMITMENTS, AND OTHER CONTINGENCIES
The Company is party to various claims and matters of litigation that
arise in the normal course of business. Management believes the
resolution of these matters will not have a material adverse effect on
the results of operation or the financial condition of the Company.
The Company has an employment contract with certain officers. Minimum
annual salary and bonuses under the agreements total $1,310,000.
10. RESTRUCTURING
In the third and fourth quarters of 1995, the Company recorded a
restructuring charge totalling $1,000,000 to reflect the closing of
its Mexican operation. The charge included estimates to write-down
inventory and fixed assets to net realizable value and to recognize
employee termination costs.
11. QUARTERLY RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter (1)
<S> <C> <C> <C> <C>
Year Ended April 30, 1996:
Total revenues $21,632,028 $18,421,847 $18,347,914 $14,748,543
Gross margin 13,618,413 11,666,489 11,758,154 7,721,782
Net loss (2,428,233) (3,019,606) (2,734,673) (2,526,973)
Net loss per common share (0.50) (0.62) (0.56) (0.52)
Year ended April 30, 1995:
Total revenues 28,772,537 22,790,818 24,475,667 32,649,640
Gross margin 20,975,617 14,652,545 16,271,119 19,056,900
Net income (loss) 217,291 (870,489) (2,659,508) (1,428,759)
Net income (loss) per
common share 0.04 (0.18) (0.55) (0.29)
</TABLE>
(1) Fourth quarter results for 1995 include the effects of a 984,000 charge
for potential excess and obsolete inventory and a 300,000 charge related
to closing the Mexican operations.
*******
15
<PAGE> 30
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The following table sets forth certain information regarding the
directors and executive officers of the Company and its subsidiaries. Pursuant
to the Company's Charter and Bylaws, members of the Board of Directors are
elected for staggered two-year terms. Except for those executive officers with
employment agreements, the executive officers of the Company and its
subsidiaries serve at the discretion of the Company's Boards of Directors. See
"Employment Agreements."
<TABLE>
<CAPTION>
Director Term
Name Age Position(s) Since Expires
- ---- --- ----------- -------- -------
<S> <C> <C> <C> <C>
DIRECTORS:
- ---------
A. Jay Martin(1) 54 President and Director 1989 1996
Charles R. Evans, Jr. 52 Chief Operating Officer 1992 1996
and Executive Vice-
President and Director
J. Neil Rood 63 Director 1989 1996
George R. Poteet 48 Director 1989 1997
L.F. Swords 55 Director 1989 1997
William W. Deupree, Jr. 55 Director 1992 1997
William T. Williams 49 Director 1993 1997
EXECUTIVE OFFICERS:
- ------------------
Officer
Since
-------
Stan C. Turk 44 Chief Financial Officer 1989
and Secretary-Treasurer
</TABLE>
____________
(1) Mr. Martin is also a director and executive officer of NSA. Mr.
Martin devotes approximately 60% of his management time to the
operations of the Company.
<PAGE> 31
A. Jay Martin has served as President and as a director of the Company
since its inception in March 1989. Mr. Martin founded National Safety
Associates, Inc., a Tennessee corporation ("NSA"), in 1969 and has served NSA
in various capacities since its inception. Presently, Mr. Martin is a
shareholder and serves as President and a director of NSA.
Charles R. Evans, Jr. has served as the Executive Vice-President and
the Chief Operating Officer of the Company since August 1992. Mr. Evans joined
NSA Polymers in March 1989 and served as Vice President, Assistant Secretary
and a director of NSA Polymers until August 1992. From 1984 until March 1989,
he was Treasurer of Florida Polymers, Inc., a Florida corporation, the assets
of which were acquired by the Company in March 1989 and which was primarily
engaged in the business of plastics injection molding and tool and die
manufacturing.
J. Neil Rood has been a director of the Company since its inception.
In April 1992, Mr. Rood was elected President of NSA Holdings, and, in December
1992, Mr. Rood was elected Vice President-International Operations for the
Company. In December 1993, Mr. Rood completed his tenure as Vice
President-International Operations. Mr. Rood is a shareholder of NSA. In
April 1982, Mr. Rood organized and became President of Jonfor Systems, Inc. In
June 1975, Mr. Rood organized and became President of Jonfor, Inc. Both
entities are privately-held Florida corporations which act as holding and
operating companies, respectively, for various retail businesses and real
estate properties. Mr. Rood is also active in various real estate ventures as
a developer and an owner.
L.F. Swords has been a director of the Company since its inception.
Mr. Swords has been employed by NSA since 1971 in a variety of management
positions. From 1989 until March 1, 1994, Mr. Swords served as
Secretary-Treasurer and Chief Financial Officer of the Company and all of its
subsidiaries. Presently, Mr. Swords is a shareholder, and serves as Vice
President, Chief Financial Officer, Secretary-Treasurer, and a director of NSA.
George R. Poteet has served as a director of the Company since its
inception. Since 1971, Mr. Poteet has been employed by NSA and he presently is
a shareholder and serves as Vice President-Manufacturing and a director of NSA.
From 1989 until February 1994, Mr. Poteet served as the Vice President -
Manufacturing of the Company.
William W. Deupree, Jr. recently retired as President of Morgan Keegan
& Company, Inc. and its parent company, Morgan Keegan, Inc., a New York Stock
Exchange listed company, after 10 years in such positions. Mr. Deupree joined
Morgan Keegan & Company, Inc. in 1972. He is a past member of the Regional
Firms Advisory Committee of the New York Stock Exchange as well as a past
member of the Board of Directors for the Securities Industry Association. Mr.
Deupree is a director of Morgan Keegan & Company, Inc. and Morgan Keegan, Inc.
Mr. Deupree is a graduate of the University of the South.
William T. Williams is the Executive Vice President and Senior
Commercial Loan Officer of the Commercial Banking Group of National Bank of
Commerce, a financial institution, positions he has held since May 1993. From
January 1987 until May 1993, Mr. Williams was the Senior Vice President of the
Metropolitan Banking Division of National Bank of Commerce. See "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS."
Stan C. Turk was appointed Chief Financial Officer of the Company on
July 1, 1996. Mr. Turk was elected Assistant Treasurer of the Company in May
1991. Since August 1989, Mr. Turk has been employed as Assistant Treasurer of
NSA. Prior to joining NSA in 1989, Mr. Turk served as the Chief Financial
Officer of Barton Equipment Company and Barton Truck Center in Memphis,
Tennessee and spent approximately 9 years employed as a certified public
accountant.
Board of Directors Committees.
<PAGE> 32
The Board of Directors has appointed two committees: the Compensation
Committee and the Audit Committee. The members of the Compensation and Audit
Committees are Messrs. Swords, Deupree and Williams.
Compliance with Beneficial Ownership Reporting Rules.
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors and persons who own more than 10% of a
registered class of the Company's equity securities to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
("SEC"). Such officers, directors and shareholders are required by SEC
regulations to furnish the Company with copies of all such reports that they
file.
Based solely on a review of copies of reports furnished to the
Company, the Company believes that, during the fiscal year ended April 30,
1996, all persons subject to the reporting requirements of Section 16(a) filed
the required reports on a timely basis.
Item 11. Executive Compensation.
The following table sets forth the aggregate compensation paid by the
Company and its subsidiaries to the President of the Company and the four most
highly compensated executive officers of the Company or its subsidiaries, for
services rendered in all capacities during the fiscal years ended April 30,
1996, 1995 and 1994.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation
--------------------------------------
Other Annual All Other
Name and Principal Position Year Salary ($) Bonus ($) Compensation ($) Compensation
- --------------------------- ---- ---------- --------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
A. Jay Martin 1996 150,000 6,058 -0- -0-
President of the Company 1995 150,000 -0- -0- -0-
1994 150,000 8,654 -0- -0-
Charles R. Evans, Jr. 1996 225,000 7,001 -0- -0-
Chief Operating Officer 1995(1) 135,000 56,250 -0- -0-
of the Company 1994 90,000 -0- -0- -0-
William R. Hagel 1996 123,000 6,366 -0- 3.600(2)
Chief Financial Officer 1995 123,000 7,586 -0- 3,600(2)
1994 39,231 -0- -0- 1,200
John Greenham 1996 139,844 26,128 -0- 49,757(3)
Vice President - Europe 1995 90,268 20,000 -0- 69,663(3)
1994 70,072 -0- -0- 16,917(3)
</TABLE>
___________________________
(1) Mr. Evans executed an Employment Agreement with the Company on August
1, 1994 which provides for annual compensation of $225,000. During
the first quarter of 1995. The Company paid Mr. Evans $22,500
pursuant to an oral employment agreement between the parties.
(2) Represents a monthly company car allowance.
(3) Represents housing, school fees, expenses and/or car allowance.
The non-employee directors of the Company currently receive $1,000 for
each Board of Directors meeting. The directors of the Company's subsidiaries
do not receive any compensation for serving in such capacities.
<PAGE> 33
Employment Agreements.
The Company has an employment agreement with A. Jay Martin. The
employment agreement is renewable annually and provides for an annual salary of
$150,000. The Company has entered into an employment agreement with Mr. Evans
which provides for annual compensation equal to $225,000.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth the number of shares beneficially owned
as of July 24, 1996, by (a) each person known by the Company to beneficially
own more than 5% of the outstanding shares of Common Stock, (b) each director
or executive officer of the Company, and (c) all directors and executive
officers of the Company as a group.
<TABLE>
<CAPTION>
Amount and Name
Name and Address of of Beneficial Percent
Beneficial Owner Ownership(1) of Class(2)
------------------ ---------------- ------------
<S> <C> <C> <C>
(a) National Safety Associates, Inc. 2,336,180(3) 48.1
4260 East Raines Road
Memphis, Tennessee 38118
A. Jay Martin 2,739,175(4) 56.4
4260 East Raines Road
Memphis, Tennessee 38118
L.F. Swords 2,474,266(5) 50.9
(b) A. Jay Martin 2,739,175(4) 56.4
L.F. Swords 2,474,266(5) 60
4260 East Raines Road
Memphis, TN 38118
George R. Poteet 164,041 3.4
4180 Pilot
Memphis, TN 38118
J. Neil Rood 40,733 *
12192 Mandarin Road
Jacksonville, FL 32223
William W. Deupree, Jr. 15,000 *
50 North Front Street, 21st Floor
Memphis, TN 38103
Charles R. Evans, Jr. 8,800 *
4260 East Raines Road
Memphis, TN 38118
William T. Williams -0- -0-
One Commerce Square
Memphis, TN 38103
</TABLE>
<PAGE> 34
<TABLE>
<CAPTION>
Amount and Name
Name and Address of of Beneficial Percent
Beneficial Owner Ownership(1) of Class(2)
------------------ ---------------- -----------
<S> <C> <C> <C>
Stan C. Turk 1,250 *
4260 East Raines Road
Memphis, TN 38118
(c) Officers and directors 3,104,085(4) 63.9
as a group (8 persons)
- -------------------------
</TABLE>
(1) Includes shares of Common Stock as to which such person, directly or
indirectly, through any contract, arrangement, understanding,
relationship, or otherwise has or shares voting power and/or
investment power. Unless otherwise indicated, each listed shareholder
possesses sole voting and investment power with respect to all of the
shares shown opposite his name.
(2) Based upon 4,858,156 shares issued and outstanding.
(3) Messrs. Martin and/or Swords, as the President and Secretary-Treasurer
of NSA, respectively, acting separately or jointly, have the power to
vote or to direct the vote, and to dispose of or to direct the
disposition of, the shares owned by NSA, unless otherwise instructed
by the Board of Directors of NSA.
(4) Includes the 2,336,180 shares held by NSA for which Messrs. Martin
and/or Swords have the power to vote or to direct the vote, and to
dispose of or to direct the disposition of. Also includes the
indirect beneficial ownership of 9,000 shares held by Mr. Martin's
child for which Mr. Martin disclaims beneficial ownership.
(5) Includes the 2,336,180 shares held by NSA for which Messrs. Martin
and/or Swords have the power to vote or to direct the vote, and to
dispose of or to direct the disposition of.
(6) Does not include officers of the Company's subsidiaries.
* Indicates less than 1%.
Item 13. Certain Relationships and Related Transactions.
Sales of Juice Plus+(TM) to NSA totaled approximately $11,532,000 or
16% of the Company's revenues for the fiscal year ended April 30, 1996.
At April 30, 1996, the Company owed approximately $8,823,000 to NSA
for product purchases, management and licensing fees, and cash advances for
equipment purchases and working capital. Such borrowings are payable upon
demand and are non-interest bearing. On July 9, 1996, NSA made an approximate
$7.9 million capital contribution to the Company by forgiving $7.9 million of
the outstanding indebtedness owed to NSA by the Direct Selling Subsidiaries.
Prior to May 1, 1993, the Company purchased from NSA the majority of
the water filtration and related accessory products which it sold in Canada,
the United Kingdom, Ireland, Germany, Mexico, Switzerland, the Netherlands and
Belgium. The company still purchases certain water filtration and related
accessory products from NSA. The cost of such purchases was approximately
$536,895 for the fiscal year ended April 30, 1996.
NSA provides certain management, consulting and advisory services to
the Company and its subsidiaries. In consideration for these services, the
Company and its subsidiaries reimburse NSA for the costs incurred by NSA in
rendering such services. Such costs include, but are not limited to, travel
expenses, long distance telephone charges, facsimile charges, overnight express
charges and a portion of the compensation of any employee of NSA who renders
services to the Company and/or its subsidiaries. The costs reimbursed by the
Company and its subsidiaries to NSA were approximately $1,598,000 for the
fiscal year ended April 30, 1996.
<PAGE> 35
In April 1991, the Company obtained an uncollateralized line of credit
for $5,000,000 from National Bank of Commerce. Mr. Williams, a director of the
Company, is the Executive Vice President and Senior Commercial Loan Officer of
the Commercial Banking Group of National Bank of Commerce. All amounts
advanced to the Company by National Bank of Commerce pursuant to this line of
credit bear interest at the Bank's prime rate. As of April 30, 1996, no
amounts were outstanding under the line of credit.
NSA has guaranteed the obligations of National Safety Associates of
America (U.K.) Limited ("NSA UK") under the lease agreements pursuant to which
NSA UK leases approximately 12,800 square feet in Maidenhead, Berkshire,
England.
Effective February 1, 1995, the Company sold substantially all of the
assets of NSA Polymers to its management for $5 million. In order to determine
an appropriate purchase price, the Company had an evaluation and fairness
opinion prepared by an unrelated third party which is in the business of
rendering such opinions. The fairness opinion provides that a purchase price
of $5 million is fair to the Company and its shareholders. The purchase price
for the NSA Polymers assets consisted of a $500,000 cash payment at the closing
from the Buyer to NSA Polymers, delivery of the buyer's promissory note in the
principal amount of $500,000 which is due and payable six months from the
closing date, and delivery of the buyer's promissory note in the principal
amount of $4 million which is due and payable over an eight year period. The
$500,000 and $4 million notes are secured by the fixed assets of the buyer. As
additional consideration for the purchase of the NSA Polymer's assets, the
Company entered into a 5 year manufacturing contract with the buyer which
requires that certain minimum purchase levels be maintained by the Company.
During fiscal 1996, the Company failed to meet these minimum purchase
requirements and, accordingly paid the buyer approximately $722,000 in
penalties.
On April 30, 1996, the Registrant sold substantially all of the assets
of its wholly owned subsidiary, National Safety Associates Ltd., an Ontario
corporation ("NSA Canada"), to National Safety Associates of Canada Inc.
("Buyer"), an Ontario corporation owned by Roger Pearsall, a vice-president of
the Registrant, Jacques Blondeau, a consultant to the Registrant, G. Paul
Stewart, President of NSA Canada, and Douglas Arscott, an employee of a
subsidiary of the Registrant. Messrs. Pearsall, Blondeau and Arscott will be
passive investors in the Buyer and will continue to perform services for the
Registrant of its subsidiaries to the same extent performed prior to the
transaction. The purchase price for substantially all of the assets of NSA
Canada was $674,732 (U.S.), subject to adjustment based upon a physical
inventory. The assets of NSA Canada were sold at the approximate book value of
the assets. Due to the Company's existing relationship with the Purchasers,
the Board of Directors retained an unrelated third party expert to evaluate the
fairness of the transaction to the Company. The fairness opinion provides that
the purchase price is fair to the Registrant and its shareholders. The
purchase price for the NSA Canada assets consists of the delivery and payment
in accordance with the terms of the Buyer's promissory note in the principal
amount of $740,495.42 which is due and payable over a five and a half year
period. The note is secured by the fixed assets of the Buyer. Additionally,
as a condition of the sale, the Registrant entered into a distribution contract
with the Buyer which provides that the Buyer will continue to purchase products
from the Registrant for resale in Canada.
On June 7, 1996, the Company executed a nonbinding letter of intent
proposing the sale of NSA Germany, NSA Switzerland, and NSA Austria to another
Master Distributor controlled by one of the Company's European management level
employees. On June 25, 1996, a similar letter of intent was executed by the
Company relating to the sale of NSA UK, NSA Netherlands, and NSA Belgium to
another proposed Master Distributor controlled by three of the Company's
independent European distributors. Completion of these two transactions is
subject to the satisfactory negotiation and execution of definitive purchase
and sale agreements and distribution agreements, and certain other conditions.
Accordingly, at present the Company is continuing to operate in Europe through
its existing Direct Selling Subsidiaries.
There have not been, and it is the Company's current intention that
there will not be, loans or other financial transactions between the Company
and its officers, directors or significant employees. However, to the extent
such loans or financial transactions do occur in the future, they will be
approved by the Company's disinterested and independent directors and will be
on terms no less favorable to the Company than could be obtained from
unaffiliated parties.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
<TABLE>
<S> <C>
(a) (1) Financial Statement Schedule
Schedule VIII - Valuation and Qualifying Accounts for the Years ended April 30, 1996, 1995 and 1994
(2) Exhibits
* 3.1 Amended and Restated Charter of the Company
** 3.2 Bylaws of the Company
</TABLE>
<PAGE> 36
<TABLE>
<S> <C> <C>
* 4.1 Form of Stock Certificate
+ 10.3 Amended and Restated Manufacturing License and Distribution Agreement between Smokey Santillo and the
Company dated March 31, 1994.
*** 10.4 Manufacturing Agreement between the Company and Polymers, Inc. dated February 28, 1995.
+ 10.5 Lease Agreement between the Company and Adobe Systems Europe, B.V. dated July 1, 1993.
+ 10.6 Lease Agreement between NSA Netherlands and Smart Business Park B.V. dated July 15, 1993.
+ 10.7 Lease Agreement between NSA Belgium and Arion Immobiliene dated September 1, 1993.
+ 10.8 Lease Agreement between NSA Germany and GbR Hofheim-Diedenbergen dated September 1, 1993.
+ 10.9 Lease Agreement between NSA Switzerland and Planzer Transport Ag dated October 1, 1993.
+ 10.10 Lease Agreement between NSA France and SNC Du Navitile dated March 1, 1994.
+ 10.11 Lease Agreement between NSA Italy and Redilco dated June 1, 1994.
* 10.12 Lease Agreement between NSA U.K. and Crown Life Pensions Limited dated November 28, 1988.
+ 10.13 Lease Agreement between NSA Polymers and Hodges Four Way Trust dated January 1990.
+ 10.15 Management Agreement between NSA and the Company dated May 1, 1994
+ 10.16 Distribution and License Agreement between NSA and the Company dated May 1, 1994.
+ 10.17 Exclusive Manufacturing License Agreement between NSA and the Company dated May 1, 1993.
+ 10.18 Sales Agreement between NSA and the Company dated May 1, 1994.
+ 10.19 Sales Agreement between NSA and NSA Polymers dated May 1, 1994.
+ 10.20 Warehousing Agreement between the NSA Netherlands and Expeditiebedrijf Frans Maas B.V. dated April 21,
1994.
+ 10.21 Manufacturing Agreement between the Company and Natural Alternatives International, Inc. dated April 1,
1993.
+ 10.22 First Amendment to the Exclusive Manufacturing License Agreement between the Company and NSA dated May
1, 1993.
**** 10.23 Asset Purchase Agreement between National Safety Associates, Ltd. and National Safety Associates of
Canada, Inc.
EMPLOYMENT AGREEMENTS
+ 10.24 Employment Agreement between A. Jay Martin and the Company dated May 1, 1994.
</TABLE>
<PAGE> 37
<TABLE>
<S> <C>
+ 10.25 Employment Agreement between Charles R. Evans and the Company dated August 1, 1994.
+ 22.1 List of Subsidiaries of the Company.
27 Financial Data Schedule (for SEC purposes only).
* Incorporated by reference to exhibits filed with the Company's Registration Statement on Form 10,
Commission File No. 0-19487
** Incorporated by reference to exhibits filed with the Company's Registration Statement of Form S-18.
Registration No. 33-42158-A
+ Incorporated by reference to exhibits filed with the Company's Form 10-K for the year ended April 30,
1995.
*** Incorporated by reference to exhibits filed with the Company's 8-K on March 7, 1995.
**** Incorporated by reference to exhibits filed with the Company's 8-K on May 15, 1996.
(b) Reports on Form 8-K
None.
</TABLE>
<PAGE> 38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
NSA INTERNATIONAL, INC.
By: /s/ A. Jay Martin
-------------------------
A. Jay Martin, President
Date: July 27, 1996
-----------------------
Pursuant to the requirements of the Securities and 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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ A. Jay Martin President and Director July 27, 1996
- ----------------------------------
A. Jay Martin
/s/ Stan C. Turk Secretary-Treasurer and Chief July 27, 1996
- ---------------------------------- Financial Officer
Stan C. Turk
/s/ George R. Poteet Director July 27, 1996
- ----------------------------------
George R. Poteet
/s/ J. Neil Rood Director July 27, 1996
- ----------------------------------
J. Neil Rood
/s/ Charles R. Evans, Jr. Executive Vice-President, Chief July 27, 1996
- ---------------------------------- Operating Officer and Director
Charles R. Evans, Jr.
/s/ William W. Deupree, Jr. Director July 27, 1996
- ----------------------------------
William W. Deupree, Jr.
/s/ William T. Williams Director July 27, 1996
- ----------------------------------
William T. Williams
/s/ L. F. Swords Director July 27, 1996
- ----------------------------------
L. F. Swords
</TABLE>
<PAGE> 39
SCHEDULE VIII
NSA INTERNATIONAL, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED APRIL 30, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
CHARGED TO CHARGED
BALANCE AT SALES OR TO OTHER BALANCE
BEGINNING EXPENSES ACCOUNTS DEDUCTIONS AT END
<S> <C> <C> <C> <C> <C>
1996
Allowance for doubtful accounts $ 745,145 $ (113,928) $ (553,337) $ 95,880
Accrued sales returns 1,785,608 32,447 (621,913) 1,196,142
1995
Allowance for doubtful accounts 797,296 245,601 (297,752) 745,145
Accrued sales returns 3,578,472 (188,193) (1,604,671) 1,785,608
1994
Allowance for doubtful accounts 1,656,995 152,815 (1,012,514) 797,296
Accrued sales returns 4,075,244 1,446,737 (1,943,509) 3,578,472
(1) Accounts written off during the
period.
(2) Actual sales returns during the
period consisted of.
SALES INVENTORY COMMISSIONS NET SALES
RETURNS RETURNED CHARGED BACK RETURNS
1996 $(2,188,681) $ 450,541 $1,116,227 $ (621,913)
1995 (4,829,540) 761,294 2,463,575 (1,604,671)
1994 (6,716,543) 1,347,597 3,425,437 (1,943,509)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF NSA INTERNATIONAL, INC. FOR THE YEAR ENDED APRIL 30,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-START> MAY-01-1995
<PERIOD-END> APR-30-1996
<CASH> 8,754,770
<SECURITIES> 13,047
<RECEIVABLES> 1,839,493
<ALLOWANCES> 0
<INVENTORY> 10,233,158
<CURRENT-ASSETS> 23,110,455
<PP&E> 6,225,057
<DEPRECIATION> 3,347,843
<TOTAL-ASSETS> 31,273,991
<CURRENT-LIABILITIES> 11,787,058
<BONDS> 0
0
0
<COMMON> 242,906
<OTHER-SE> 21,196,430
<TOTAL-LIABILITY-AND-EQUITY> 31,273,991
<SALES> 70,931,868
<TOTAL-REVENUES> 73,150,332
<CGS> 28,385,494
<TOTAL-COSTS> 83,962,817
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,381
<INCOME-PRETAX> (10,812,485)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,709,485)
<EPS-PRIMARY> (2.20)
<EPS-DILUTED> (2.20)
</TABLE>
