U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report: February 3, 1999
NPS INTERNATIONAL CORPORATION
-----------------------------
(Exact name of registrant as specified in its charter)
Delaware
--------
(State or other jurisdiction of incorporation)
000-13858 86-0214815
--------- ----------
(Commission File No.) (IRS Employer
Identification No.)
812 Proctor Ave.
Ogdensburg, N.Y. 13669
- --------------------------------------- ----------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code:
(315) 393-3793
Item 4. Changes in Registrant's Certifying Accountant.
On January 27, 1999, Kerber, Eck & Braeckel LLP, the
Registrant's independent accountant for the Registrant's two most
recent fiscal years, resigned. The Registrant's financial
statements for the last two years prepared by said firm contained
no adverse opinion or disclaimer of opinion, or was qualified as to
uncertainty, audit scope, or accounting principles.
Also on December 2, 1998, the Registrant engaged the
accounting firm of Horton & Company, L.L.C., independent public
accountants, to audit the Registrant's fiscal year ended December
31, 1998, as well as future financial statements, to replace the
firm of Kerber, Eck & Braeckel LLP, which was the principal
independent public accountant as reported in the Registrant's Form
10-KSB for the fiscal year ended December 31, 1997, as filed with
the Securities & Exchange Commission. This change in independent
accountants was approved by the Board of Directors of the
Registrant.
There were no disagreements within the last two fiscal years
and subsequent periods with Kerber, Eck & Braeckel LLP on any
matter of accounting principles or practices, financial statement
disclosure, or auditing scope of procedure, which disagreement(s),
if not resolved to the satisfaction of said firm would have caused
that firm to make reference in connection with its reports to the
subject matter of the disagreement(s) or any reportable events.
The Registrant has requested that Kerber, Eck & Braeckel LLP
furnish it with a letter addressed to the Commission stating
whether it agrees with the above statements. A copy of such
letter, dated January 27, 1999, is filed as Exhibit 16 to this Form
8-K\A 1.
Item 7(a) and 7(b). Financial Statements and Pro Forma Financial
Statements
(a) Financial Statements of Business Acquired
The audited financial statements of Naidger Power Systems,
Inc. and subsidiaries including consolidated balance sheets as of
December 31, 1997, and the related consolidated statements of
operations, stockholders' equity and cash flows for the period
January 5, 1997 (date of incorporation) through December 31, 1997
and Independent Auditors' Report are attached hereto.
The unaudited interim financial statements of Naidger Power
Systems, Inc. and subsidiaries consolidated balance sheet as of
September 30, 1998 and the related consolidated statements of
operations, stockholders' equity and cash flows for the nine-month
periods ended September 30, 1998 and 1997 are attached hereto.
2
(b) Pro Forma Financial Information
NPS International Corporation's pro forma consolidated balance
sheet as of September 30, 1998 and pro forma statement of
operations for the nine-month period ended September 30, 1998
(unaudited) and Notes to the pro forma consolidated financial
statements (unaudited) are attached hereto.
NPS International Corporation pro forma consolidated statement
of operations for the year ended December 31, 1997 (unaudited) is
attached hereto.
Item 7(c). Exhibits.
Number Exhibit
------ -------
16.0 Letter of Resignation of Registrant's
independent certified accountant, Kerber, Eck
& Braeckel, LLP
27.0 Financial Data Schedule
3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934 the Registrant has duly caused this amendment to its report to
be signed on its behalf by the undersigned hereunto duly
authorized.
NPS INTERNATIONAL CORPORATION
By:/s/ Michael Wexler
---------------------------
Michael Wexler, President
Dated: February 3, 1999
4
NAIDGER POWER SYSTEMS, INC.
AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report F-2
Consolidated balance sheets as of
December 31, 1997 and September 30, 1998 F-3
Consolidated statements of operations for the period
January 15, 1997 (date of incorporation) through
December 31, 1997 and for the nine-month
periods ended September 30, 1998 and 1997 F-4
Consolidated statements of stockholders' equity for
the period January 15, 1997 (date of incorporation)
through December 31, 1997 and for the nine-month
period ended September 30, 1998 F-5
Consolidated statements of cash flows for the period
January 15, 1997 (date of incorporation) through
December 31, 1997 and for the nine-month
periods ended September 30, 1998 and 1997 F-6
Notes to consolidated financial statements F-7 - F-14
F-1
INDEPENDENT AUDITORS' REPORT
The Stockholders
Naidger Power Systems, Inc. and subsidiaries
Ogdensburg, New York
We have audited the accompanying consolidated balance sheet of Naidger
Power Systems, Inc. and subsidiaries as of December 31, 1997, and the
related consolidated statements of operations, stockholders' equity, and
cash flows for the period January 15, 1997 (date of incorporation) through
December 31, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit. We did not audit the financial statements of Metrix Metal, L.L.C.
and Metrix Tools, L.L.C., two wholly-owned subsidiaries, which statements
reflect total assets of $587,375 as of December 31, 1997, and total revenue
of $1,369,495 for the period then ended. Those statements were audited by
other auditors whose report has been furnished to us, and our opinion, in
so far as it relates to the amounts included for Metrix Metal, L.L.C. and
Metrix Tools, L.L.C., is based solely on the report of the other auditors.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
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 audit
and the report of other auditors provide a reasonable basis for our
opinion.
In our opinion, based on our audit and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Naidger Power Systems,
Inc. and subsidiaries as of December 31, 1997, and the
consolidated results of their operations and cash flows for the period January
15, 1997 (date of incorporation) through December 31, 1997, in conformity with
generally accepted accounting principles.
The consolidated balance sheet as of September 30, 1998, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the nine-month periods ended September 30, 1998 and 1997, were not audited by
us. Accordingly, we do not express an opinion or any other form of assurance on
them.
Wayne, New Jersey
January 22, 1999
HORTON & COMPANY, L.L.C.
F-2
NAIDGER POWER SYSTEMS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31, September 30,
------------ -------------
1997 1998
------------ -------------
(unaudited)
Current assets:
Cash $ 116,908 $ 157,245
Short-term investments 110,640 56,146
Accounts receivable 81,942 174,130
Inventories 212,414 191,162
Due from affiliate 25,623 17,979
------------ -------------
Total current assets 547,527 596,662
------------ -------------
Property and equipment, net 93,216 171,077
------------ -------------
Other assets:
Goodwill 87,422 422,984
Deferred charges and other 55,217 85,549
------------ -------------
142,639 508,533
------------ -------------
$ 783,382 $ 1,276,272
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt
from business combination $ - $ 200,000
Accounts payable 158,993 193,574
Accrued expenses 14,975 37,176
Accrued taxes 44,104 67,117
Payable under service agreement 114,403 -
------------ -------------
Total current liabilities 332,475 497,867
Long-term debt from business combination,
net of current portion 400,000 200,000
Long-term liabilities 24,110 11,408
------------ -------------
756,585 709,275
------------ -------------
Stockholders' equity:
Common stock, $.001 par value,
20,000,000 shares authorized;
5,171,410 shares outstanding in 1997 5,171 -
7,372,540 shares outstanding in 1998 - 7,373
Additional paid-in capital 23,215 603,864
Accumulated deficit (1,589) (44,240)
------------ -------------
26,797 566,997
------------ -------------
$ 783,382 $ 1,276,272
============ =============
<FN>
See notes to consolidated financial statements
F-3
NAIDGER POWER SYSTEMS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the period
January 15, 1997
date of
incorporation) Nine-month Nine-month
through period ended period ended
December September September
31, 1997 30, 1998 30, 1997
---------- ---------- ----------
(unaudited) (unaudited)
Revenues $1,369,495 $1,958,598 $ 758,864
Direct costs 1,140,612 1,672,922 623,579
---------- ---------- -----------
Gross profit 228,883 285,676 135,285
---------- ---------- -----------
Operating expenses (income):
Selling and administrative 220,827 323,033 139,559
Interest income (16,851) (14,668) (8,760)
Gain on sale of assets (4,652) (5,513) (3,117)
Foreign taxes 31,148 25,475 17,303
---------- ---------- -----------
230,472 328,327 144,985
---------- ---------- -----------
Net loss $ (1,589) $ (42,651) $ (9,700)
========== ========== ===========
Loss per share $ (.000) $ (.009) $ (.003)
========== ========== ===========
Weighted average
shares outstanding 4,558,606 4,852,444 3,199,264
========== ========== ===========
<FN>
See notes to consolidated financial statements
F-4
NAIDGER POWER SYSTEMS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the period January 15, 1997 (date of incorporation)
through December 31, 1997
and for the nine-month period ended September 30, 1998
(Information for the nine-month period ended September 30, 1998 is unaudited)
Common stock
-------------------
Additional
Shares Par Paid-in Accumulated
Issued Value Capital Deficit
---------- ------ -------- ---------
Shares issued at inception 100 $ - $ - $ -
Shares issued in satisfaction
of costs paid by
parent company 3,600,000 3,600 - -
Shares issued under Reg. D,
Rule 504 offering 71,310 71 71,239 -
Shares issued in Polcorp
business combination 1,500,000 1,500 - -
Costs incurred in connection
with offering - - (48,024) -
Net loss - - - (1,589)
---------- ------ -------- ---------
Balances at December 31, 1997 5,171,410 5,171 23,215 (1,589)
---------- ------ -------- ---------
Shares issued under Reg. D,
Rule 504 offering (unaudited) 112,090 113 111,977 -
Shares issued in satisfaction
of various liabilities
(unaudited) 2,089,040 2,089 520,171 -
Costs incurred in connection
with offering (unaudited) - - (51,499) -
Net loss (unaudited) - - - (42,651)
---------- ------ -------- ---------
Balances at September 30, 1998
(unaudited) 7,372,540 $7,373 $603,864 $ (44,240)
========== ====== ======== =========
<FN>
See notes to consolidated financial statements
F-5
NAIDGER POWER SYSTEMS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the period
January 15, 1997
date of
incorporation) Nine-month Nine-month
through period ended Period ended
December September September
31, 1997 30, 1998 30, 1997
----------- ----------- -----------
(unaudited) (unaudited)
Cash flows from operating activities:
Net loss $ (1,589) $ (42,651) $ (9,700)
----------- ----------- -----------
Adjustments to reconcile net loss
to net cash provided
by operating activities:
Operating expense paid
by parent company 3,600 - 2,700
Depreciation 52,894 50,646 31,052
Gain on sale of assets (4,957) (5,515) (3,306)
Stock issued in satis-
faction of liabilities - 208,172 -
Changes in assets and
liabilities:
(Increase) decrease in
accounts receivable 206,773 45,702 117,852
(Increase) decrease in
inventories (212,414) 17,631 (118,700)
Increase (decrease) in
accounts payable (65,679) (89,996) (36,691)
Increase (decrease) in
accrued expenses 2,804 7,482 1,870
Increase (decrease)
in accrued taxes (3,994) 374 (1,102)
Increase (decrease) in
payable under
service agreement 114,403 (114,503) 85,802
----------- ---------- -----------
Total adjustments 93,430 119,993 79,477
----------- ---------- -----------
Net cash provided by
operating activities 91,841 77,342 69,777
----------- ---------- -----------
Cash flows from investing activities:
Purchases of short-term investments (110,640) (105,756) (55,320)
Capital expenditures (76,749) 44,458 (46,452)
Deferred acquisition costs (55,217) (39,042) (41,413)
----------- ---------- -----------
Net cash used in
investing activities (242,606) (100,340) (143,185)
----------- ---------- -----------
Cash flows from financing activities:
Loans to affiliate (25,623) 2,744 (19,217)
Proceeds from bank loan 19,898 - 13,272
Proceeds from issuance of
common stock 72,710 112,090 54,533
Costs incurred in connection
with offering (48,024) (51,499) (36,018)
----------- ---------- -----------
Net cash provided by
financing activities 18,961 63,335 12,570
----------- ---------- -----------
Net (decrease)
increase in cash (131,804) 40,337 (60,838)
Cash balance at
beginning of period 248,712 116,908 248,712
----------- ---------- -----------
Cash balance at end
of period $ 116,908 $ 157,245 $ 187,874
=========== ========== ===========
<FN>
See notes to consolidated financial statements
F-6
NAIDGER POWER SYSTEMS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and September 30, 1998 and 1997
(Information for the nine-month periods
ended September 30, 1998 and 1997 is unaudited)
Summary of significant accounting policies
1. This summary of significant accounting policies of Naidger Power Systems,
Inc. (a subsidiary of Suncrest Management Services, S.A.) (hereinafter
"Naidger" or the "Company") is presented to assist in understanding the
consolidated financial statements. The consolidated financial statements
and notes are representations of the management of NPS International
Corporation and subsidiaries which is responsible for their integrity and
objectivity. These accounting policies conform to generally accepted
accounting principles and have been consistently applied in the
preparation of the consolidated financial statements.
Principles of consolidation
The accompanying consolidated financial statements include the accounts
of Naidger Power Systems, Inc. for the period January 15, 1997 (date of
incorporation) through December 31, 1997, and of its wholly-owned
subsidiary, Polcorp Industries, Inc. ("Polcorp") (Note 2), together with
its wholly-owned subsidiaries Metrix Metal, L.L.C. and Metrix Tools,
L.L.C. Under the accounting rules for a reverse acquisition which were
applied to the business combination described in Note 2, the accompanying
financial statements include accounts of Metrix Metal, L.L.C. and Metrix
Tools, L.L.C. for the period from their dates of inception (July 1, 1997
and April 1, 1997, respectively) through December 31, 1997. Intercompany
transactions and balances have been eliminated in consolidation.
Use of estimates
The preparation of consolidated 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 period. Actual results could differ from those
estimates.
History and business activity
Naidger Power Systems, Inc. was incorporated in the State of Delaware on
January 15, 1997. Naidger is an inactive holding company which has
acquired Polcorp Industries, Inc. and two operating subsidiaries in
business combination described in Note 2. Naidger was originally
incorporated to hold exclusive worldwide rights for specialized power
electronics equipment. However, the license agreement was terminated
prior to any activity taking place (Note 5).
F-7
1. Summary of significant accounting policies (continued)
History and business activity
Polcorp Industries, Inc. ("Polcorp") was incorporated in the State of
Delaware on January 16, 1998. Concurrent with the business acquisition
described in Note 2, Polcorp became a holding company which conducts
business only through its wholly-owned subsidiaries, Metrix Metal, L.L.C.
and Metrix Tools, L.L.C.
Metrix Metal, L.L.C., located in Tczew, Poland, is engaged in the
production of metal parts and sub-assemblies, primarily the gas meter,
white goods and auto parts sector. The Company's concentration of
business is in central and eastern Europe.
Metrix Tools, L.L.C., located in Tczew, Poland, is engaged in the design
and production of tools, injection molds, dies and assembly jigs for use
in the production of gas meters, white goods, auto parts and
telecommunication equipment. The Company's concentration of business is
in central and eastern Europe.
Property and equipment
Property and equipment is carried at cost. Depreciation is provided on
the straight-line method over the following estimated useful lives:
Years
-----------
Machinery and equipment 10
Office equipment 5
Depreciation expense was $52,894, $50,646 and $31,052 for the period
January 15, 1997 (date of incorporation) through December 31, 1997, and
for the nine-month periods ended September 30, 1998 and 1997,
respectively.
Maintenance, repairs and renewals which neither materially add to the
value of the equipment nor appreciably prolong its life are charged to
expense as incurred. Gains or losses on dispositions of equipment are
included in income.
Concentration of credit risk
Financial instruments, which potentially subject the Company to
concentration of credit risk, consist principally of accounts receivable.
The Company's policies do not require collateral to support accounts
receivable. However, because of the diversity and credit worthiness of
individual accounts which comprise the total balance, management does not
believe that the Company is subject to any significant credit risk.
Approximately, 26.5% and 23.0% of total revenue was derived from Metrix
S.A. (former parent company of Metrix Tools, L.L.C. and Metrix Metal,
L.L.C.), for the period January 15, 1997 (date of incorporation) through
December 31, 1997, and for the nine-month period ended September 30,
1998, respectively. All the Company's revenue was derived from foreign
sales.
F-8
1. Summary of significant accounting policies (continued)
Fair value of financial instruments
The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards ("SFAS") No. 107, "Disclosure about Fair
Value of Financial Instruments".
The Company's receivables and payables are current and on normal terms
and, accordingly, are believed by management to approximate fair value.
Management also believes that notes payable and long-term debt
approximate fair value when current interest rates for similar debt
securities are applied.
Inventories
Inventories stated at the lower of cost (principally standard cost which
approximates actual cost, on a first-in, first-out basis) or market.
Foreign currencies
Assets and liabilities recorded in foreign currencies are translated at
the exchange rate on the balance sheet date. Translation adjustments
resulting from this process are charged or credited to equity. Revenue,
costs, and expenses are translated at average rates of exchange
prevailing during the year. Gains and losses on foreign currency
transactions are included in other expenses.
Goodwill
Goodwill represents the excess of the purchase price over the fair market
value of net assets acquired in the Metrix and Polcorp business
combinations described in Note 2. Goodwill is being amortized on the
straight-line method over a fifteen-year period starting with the date of
acquisition.
Supplemental statements of cash flows information
During the period January 15, 1997 (date of incorporation) through
December 31, 1997, the Company issued 3,600,000 shares of its common
stock in satisfaction of costs it had incurred which were paid by the
parent company.
The Company financed the acquisition of a license agreement (Note 5)
through the issuance of $450,000 of convertible debt. Such debt and
license agreement were subsequently cancelled.
During the nine-month period ended September 30, 1998, the Company
completed a business combination through the issuance of 1,500,000 shares
of its common stock (Note 2).
The September 30, 1998 balance sheet reflects the satisfaction of
$522,260 in liabilities through the issuance of 2,089,040 shares of the
Company's common stock (Note 10).
F-9
1. Summary of significant accounting policies (continued)
Accounting pronouncements for future adoption
The FASB recently issued Statement No. 130, "Comprehensive Income," which
is effective for the Company's financial statements for the year ending
December 31, 1998. In addition to net income, comprehensive income is
comprised of "other comprehensive income" which includes all charges and
credits to equity that are not the result of transactions with owners of
the Company's common stock. This statement is not anticipated to
materially affect the Company's financial statements.
The FASB recently issued Statement No. 131, "Disclosures About Segments
of an Enterprise and Related Information," which is effective for the
Company's financial statements for the year ending December 31, 1998.
This statement requires reporting of summarized financial results for
operating segments as well as established standards for related
disclosures about products and services, geographic areas and major
customers. Primary disclosure requirements include total segment
revenues, total segment profit or loss and total segment assets. The
Company has not yet completed its evaluation of the impact of this
statement on the Company's financial statements.
2. Business combination
Metrix acquisition
On June 26, 1998, Polcorp Industries, Inc., a company whose major
shareholders control Naidger, acquired all of the outstanding shares of
Metrix Tools, L.L.C. (4,000 shares) and Metrix Metal, L.L.C. (7,000
shares) in exchange for 430,000 and 930,000 Polish zlotys, respectively.
Consideration was paid in the form of a note, which equates to
approximately $400,000 US dollars. As a result of the transaction,
there was a change in the control of Metrix Tools, L.L.C. and Metrix
Metal, L.L.C.
The acquisition of Metrix Tools and Metrix Metal ("Metrix") has been
accounted for as a reverse acquisition by Polcorp. Under the accounting
rules for a reverse acquisition, Metrix is considered the acquiring
entity. As a result, historical financial information of Polcorp for
periods prior to the date of the transaction are those of Metrix.
However, the capital structure of Metrix has been retroactively restated
to reflect the number of shares received by Metrix in the acquisition and
the Company's par value. Under purchase method accounting, balances and
results of operations of Polcorp have been included in the accompanying
consolidated financial statements from the date of the transaction, June
26, 1998. The Company recorded the assets and liabilities at their
historical cost basis which was deemed to approximate fair market value.
The reverse acquisition is treated as a non-cash transaction since all
consideration given was in the form of stock. Proforma results of
operations (assuming the business combination had been effected in
January 1997) are not presented because Polcorp was inactive for the
period from its date of incorporation in January 1998 through the date of
acquisition. As a result, proforma results of operations for the
nine-month period ended September 30, 1998, would be no different than
the historical statement of operations presented herewith.
F-10
2. Business combination (continued)
Polcorp acquisition
During August 1998, Naidger completed the acquisition of all the
outstanding shares of Polcorp Industries, Inc. ("Polcorp") in exchange
for 1,500,000 of its common voting shares. Due to the common control
exercised by the major stockholders of Naidger and Polcorp, the business
combination has been treated as a recapitalization with transactions
accounted for at historical cost, in a manner similar to the
pooling-of-interests method. As a result of the above business
combinations, the accompanying financial statements have been restated
for periods prior to the business combinations to include the accounts
and operations of Polcorp and its wholly-owned subsidiaries, Metrix Tools
and Metrix Metal.
3. Inventories
The following is a summary of inventories:
December 31, 1997 September 30, 1998
----------------- ------------------
(unaudited)
Raw materials $125,690 $ 68,192
Work in process 86,724 122,970
-------- --------
$212,414 $191,162
======== ========
4. Property and equipment
The following is a summary of property and equipment:
December 31, 1997 September 30, 1998
----------------- ------------------
(unaudited)
Machinery and equipment $146,110 $267,029
Less: accumulated depreciation 52,894 95,952
-------- --------
$ 93,216 $171,077
======== ========
5. License agreement
On June 26, 1997, the Company entered into a license agreement with
Naidger Nor (1997) Ltd. ("NNL"), an Israeli company which is engaged
in the business of design, development and manufacturing of specialized
power electronics equipment. Under the terms of the agreement, the
Company was granted the exclusive worldwide rights to operate a
distributorship for NNL and to purchase its products for resale to
dealers, distributors, agents, commercial and industrial concerns and
other customers. The license agreement that was granted in consideration
of a $450,000 convertible promissory note to NNL. Such note bore
interest at 7.5% payable annually.
During January 1998, the Company decided not to pursue its financial
obligations under the terms of the license agreement. Therefore, both
the agreement and the related debt were cancelled.
F-11
6. Long-term debt from business combination
Note payable from business combination arose from the acquisition of the
stock of Metrix Tools and Metrix Metal (Note 2). The purchase price of
430,000 and 930,000 Polish zlotys for Metrix Tools and Metrix Metal,
respectively, is paid in US dollars based on the exchange rate at ING
Bank S.A. in Warsaw, Poland. The total obligation equates to
approximately $400,000 US dollars. The note is to be paid in four equal
installments, commencing 90 days after the date of signing the agreement.
The next installments are 270, 450 and 630 days following the date of
signing the agreement. The first installment shall include interest at
8% annually increased by the inflation ratio in Poland. Any delay in the
payment schedule will result in an interest charge of 20% annually.
7. Stockholders' equity
Public offering
On August 15, 1997, the Company conducted a public offering of its common
stock pursuant to Rule 504 of Regulation D under the Securities Act of
1933. The Company sold 14,262 and 22,418 shares under the public
offering, for the period January 15, 1997 (date of incorporation) through
December 31, 1997, and for the nine-month period ended September 30,
1998, respectively. All shareholders who acquired stock under this
offering received stock dividends as described below.
Stock dividends
On June 15, 1998, the Company declared a one-for-one stock dividend to
all shareholders who acquired shares pursuant to Rule 504 of Regulation D
dated August 15, 1997, on record as of the close of business on July 17,
1998. The Company issued 36,680 shares of common stock in conjunction
with this dividend. During October 1998, the Company declared a
five-for-two stock dividend to all shareholders who acquired shares
pursuant to Rule 504 of Regulation D. The Company issued 110,040 shares
of common stock in conjunction with this dividend. Accordingly, the
consolidated statement of stockholders' equity, income (loss) per share
and weighted average shares outstanding have been restated to reflect the
effect of the stock dividends.
Earnings (loss) per common share
Earnings (loss) per common share is computed by dividing the net income
(loss) applicable to common stock shareholders by the weighted average
number of shares of common stock outstanding during the period. There is
no significant difference between basic and diluted earnings per share
for the periods presented. Diluted loss per common share amounts are not
presented because the effect of including potential common shares would
be to reduce loss per common share.
F-12
8. Related party transactions
Service agreement
Effective May 1, 1997, the Company entered into a service agreement with
Suncrest Management Services, S.A. ("Suncrest"), a company incorporated
in Nevis, West Indies, and which is also the parent company of Naidger
Power Systems, Inc. Michael Wexler, president and director of the
company, is deemed to be a controlling shareholder of Suncrest.
Under the terms of the agreement, Suncrest provides a variety of
management and consulting services for a five-year period ending April
30, 2002. In return, Suncrest shall receive a service fee of $8,500 per
month, payable in advance on the first day of each month during the first
12 months of the agreement. During each subsequent 12-month period, the
monthly service fee shall be increased by 10% over the previous 12-month
period. Minimum future fees payable under the agreement are as follows:
Year ending
December 31, Amount
------------ --------
1998 $113,900
1999 129,540
2000 142,394
2001 156,742
2002 54,304
--------
$596,880
========
In addition, Suncrest is entitled to reasonable costs and expenses and an
annual bonus equal to the greater of 5% of profits or 3% of sales
provided that an approved annual budget is met or exceeded. Otherwise, a
bonus may be paid at the discretion of the Company.
Service fees under this agreement were $83,000 and $80,750 plus expenses
of $22,869 and $36,444 for the period January 15, 1997 (date of
incorporation) through December 31, 1997, and for the nine-month period
ended September 30, 1998, respectively.
The agreement may be terminated by six-month notice. In the event that
the agreement is terminated by the Company for any reason, Suncrest shall
be entitled to receive a lump-sum termination payment equal to all
service fees for the unexpired term of the agreement plus all bonuses as
a result of past services and all outstanding out-of-pocket expenses.
F-13
9. Income taxes
Deferred income taxes arise from temporary differences in reporting
assets and liabilities for income tax and financial accounting purposes
primarily resulting from net operating losses. There were no significant
deferred tax assets or liabilities as of December 31, 1997 or September
30, 1998.
Taxes paid to foreign countries amounted to $31,148 and $25,475 for the
period January 15, 1997 (date of incorporation) through December 31, 1997
and for the nine-month period September 30, 1998, respectively.
10. Subsequent events
Business combination
Effective November 6, 1998, Naidger effected a business combination with
National Industrial Security Corporation, ("NISCO") a publicly-traded
corporation. Under the terms of the agreement, NISCO acquired all of the
issued and outstanding shares of Naidger in exchange for 8,000,000
unregistered shares of NISCO common stock. Immediately prior to the
transaction, NISCO completed a one-for-three reverse stock split,
resulting in 2,331,367 shares outstanding prior to the business
combination. As a result of the transaction, the former Naidger
shareholders received shares representing an aggregate of 77% of NISCO's
outstanding common stock, resulting in a change in control of NISCO.
Contemporaneously with the transaction, the combined company's name was
officially changed to NPS International Corporation ("NPS").
The acquisition of Naidger by NISCO has been accounted for as a reverse
acquisition. Under accounting rules for a reverse acquisition, Naidger
is considered the acquiring entity and NISCO the acquired entity. As a
result, historical financial statements presented for periods prior to
the date of the transaction will be those of Naidger. Under purchase
method accounting, balances and results of operations of NISCO will be
included in the financial statements from the date of the transaction,
November 6, 1998.
In addition to the exchange of common stock, the Company agreed to repay
a $100,000 loan payable by NISCO to an officer and director. At the
closing of the transaction, $25,000 of the loan was paid, with the
balance payable in three equal installments of $25,000. The first
payment is due 45 days after the closing. The second payment is due 90
days after the closing. The final installment is to be paid 12 months
from the date of the closing. Until the entire loan is repaid, 800,000
shares of NPS (formerly NISCO) stock has been placed in an escrow
account.
Stock issuance
During October 1998, the Company issued 2,089,040 shares of its common
stock in satisfaction of $522,260 of liabilities incurred through
September 30, 1998. The balance sheet of September 30, 1998, reflects
the effect of stock issued during October to satisfy obligations
outstanding as of the balance sheet date. As a result, certain liability
accounts have been reduced with a corresponding increase in equity
accounts.
F-14
NPS INTERNATIONAL CORPORATION
AND SUBSIDIARIES
PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The following pro forma summary financial information has been prepared giving
effect to the acquisition of Naidger Power Systems, Inc. by NPS International
Corporation (formerly NISCO) in a transaction accounted for as a reverse
acquisition, as if the transaction had taken place at December 31, 1997 for
the pro forma consolidated balance sheet, and January 1, 1997 for the pro
forma consolidated income statements for the year ended December 31, 1997 and
the nine-month period ended September 30, 1998.
Additionally, Naidger Power Systems, Inc., during August 1998, acquired
Polcorp Industries, Inc. and its two wholly-owned subsidiaries in a
transaction accounted for at historical cost due to the majority shareholders
having common ownership interests and control over both companies.
Accordingly, the historical balance sheet for Naidger Power Systems, Inc.
as of December 31, 1997 includes the effect of the acquisition. The pro forma
consolidated income statements for the year ended December 31, 1997 have been
prepared giving effect to the Polcorp acquisition as if the transaction had
taken place on January 1, 1997.
The carrying values of assets and liabilities have been estimated to
approximate fair market value. Accordingly, no pro forma adjustments to
these amounts were made to reflect the allocation and amount of the ultimate
purchase prices. Final allocations will be made on the basis of appraisals
and valuations giving effect to various economic and market factors. Any
purchase price adjustments will be made within one year from the acquisition
date and are not expected to be material to the pro forma financial
information taken as a whole.
The pro forma financial information is not necessarily indicative of the
results of operations or the financial position which would have been
attained had the acquisitions been consummated at either of the foregoing
dates or which may be attained in the future. The pro forma financial
information should be read in conjunction with the historical consolidated
financial statements of Naidger Power Systems, Inc. and the historical
financial statements of National Industrial Security Corporation.
NPS INTERNATIONAL CORPORATION
AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET (UNAUDITED)
September 30, 1998
ASSETS
Pro Forma
Financial
Historical Financial Statements Pro Forma Statements
Naidger NISCO Adjustments NPS
---------- ---------- ----------- ----------
Current assets:
Cash $ 157,245 $ 3,850 $ 161,095
Short-term investments 56,146 - 56,146
Accounts receivable 174,130 54,016 228,146
Prepaid expenses - 17,296 17,296
Inventories 191,162 - 191,162
Due from affiliate 17,979 - 17,979
---------- ---------- ----------
Total current assets 596,662 75,162 671,824
---------- ---------- ----------
Property and equipment, net 171,077 - 171,077
---------- ---------- ----------
Other assets:
Goodwill 422,984 - (21,150) 401,834
Deferred charges and other 85,549 8,549 (c) 94,098
---------- ---------- ----------
508,533 8,549 495,932
---------- ---------- ----------
$1,276,272 $ 83,711 $1,338,833
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term
debt from business combination $ 200,000 $ - $ 200,000
Accounts payable 193,574 20,393 213,967
Accrued expenses 37,176 36,626 73,802
Accrued taxes 67,117 - 67,117
Payable under service agreement - - -
---------- ---------- ----------
Total current liabilities 497,867 57,019 554,886
Long-term debt from business
combination, net of current
portion 200,000 - 200,000
Long-term liabilities 11,408 - 11,408
Payable to officer - 93,906 93,906
---------- ---------- ----------
709,275 150,925 860,200
---------- ---------- ----------
Stockholders' equity:
Common stock, (6,994,100 actual
shares and 10,331,367 pro
forma shares) 7,373 1,165,680 549,107 1,722,160
(a)(b)
Additional paid-in capital
(discount on issuance of
common stock) 603,864 38,785 (1,820,786) (1,178,137)
(a)(b)
Accumulated deficit (44,240) (1,271,679) 1,250,529 (65,390)
(a)(b)
---------- ---------- ----------
566,997 (67,214) 478,633
---------- ---------- ----------
$1,276,272 $ 83,711 $1,338,833
========== ========== ==========
<FN>
See notes to pro forma consolidated financial statements
NPS INTERNATIONAL CORPORATION
AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the nine-month period ended September 30, 1998
Pro Forma
Financial
Historical Financial Statements Pro Forma Statements
Naidger NISCO Adjustments NPS
---------- ---------- ----------- ----------
Revenues $1,958,598 $ 500,570 $2,459,168
Direct costs 1,672,922 384,483 2,057,405
---------- ---------- ----------
Gross profit 285,676 116,087 401,763
---------- ---------- ----------
Operating expenses (income):
Selling and administrative 323,033 89,642 21,150(c) 433,825
Interest expense 3,706 6,311 10,017
Interest income (18,374) - (18,374)
Gain on sale of assets (5,513) - (5,513)
Foreign taxes 25,475 - 25,475
---------- ---------- ----------
328,327 95,953 445,430
---------- ---------- ----------
Net income (loss) $ (42,651) $ 20,134 $ (43,667)
========== ========== ==========
Income (loss) per share $ (.009) $ .009 $ (.004)
========== ========== ==========
Pro forma weighted average
shares outstanding 8,000,000 2,331,367 10,331,367
========== ========== ==========
<FN>
See notes to pro forma consolidated financial statements
NPS INTERNATIONAL CORPORATION
AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the year ended December 31, 1997
Pro Forma
Financial
Historical Financial Statements Pro Forma Statements
Naidger NISCO Adjustments NPS
---------- ---------- ----------- ----------
Revenues $1,369,495 $ 709,400 $2,078,875
Direct costs 1,140,612 545,586 1,686,198
---------- ---------- ----------
Gross profit 228,883 163,814 392,697
---------- ---------- ----------
Operating expenses (income):
Selling and administrative 220,827 179,700 28,200(c) 428,727
Interest expense - 12,359 12,359
Interest income (16,851) - (16,851)
Gain on sale of assets (4,652) - (4,652)
Foreign taxes 31,148 - 31,148
---------- ---------- ----------
230,472 192,059 450,731
---------- ---------- ----------
Net loss $ (1,589) $ (28,245) $ (58,034)
========== ========== ==========
Loss per share $ (.000) $ (.012) $ (.006)
========== ========== ==========
Pro forma weighted average
shares outstanding 8,000,000 2,331,367 10,331,367
========== ========== ==========
<FN>
See notes to pro forma consolidated financial statements
NPS INTERNATIONAL CORPORATION
AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(a) Reflects the one for three (1:3) reverse stock split of National Industrial
Security Corporation which was completed prior to the business combination.
(b) All the issued and outstanding shares of common stock of Naidger Power
Systems, Inc. was exchanged for 8,000,000 shares of $0.16 2/3 par value
common stock of NISCO.
(c) Reflects the effect of amortization of goodwill recorded in connection with
the Polcorp and Metrix business combinations.
The net effect of the above pro forma transactions is as follows:
Pro Forma
Financial
Historical Financial Statements Pro Forma Statements
Naidger NISCO Adjustments NPS
---------- ---------- ----------- ----------
Stockholders' equity:
Common stock: (a)$ (777,120)
NISCO/NPS $ - $1,165,680 (b) 1,333,600 $1,722,160
Naidger 7,373 - (b) (5,284) -
Additional paid-in capital
(discount on issuance
of common stock): (b)(2,516,302)
NISCO/NPS - 38,785 (a) 777,120 (1,178,137)
Naidger 603,864 - (b) (83,693) -
Accumulated deficit:
NISCO/NPS - (1,271,679) (b) 1,271,679 -
Naidger (44,240) - (c) (21,150) (65,390)
---------- ---------- ----------
$ 566,997 $ (67,214) $ 478,633
========== ========== ==========
NPS INTERNATIONAL CORPORATION
_____________________________
EXHIBIT 16.0 TO FORM 8-K/A 1
_____________________________
LETTER OF RESIGNATION
OF REGISTRANT'S INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
_____________________________
Kerber, Eck & Braeckel LLP
Certified Public Accountants
200 North Broadway
St. Louis, Missouri 63102-2747
314-231-6232 Fax 314-231-0079
- --------------
St. Louis, Missouri
Belleview, Illinois
Cape Girardeau, Missouri
Carbondale, Illinois
Milwaukee, Wisconsin
Springfield, Illinois
January 27, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: NPS International Corporation
File Ref. No. 000-13858
We were previously the principal accountant for NPS
International Corporation (formerly National Industrial Security
Corporation) and, under the date of January 30, 1998, we reported
on the consolidated financial statements of National Industrial
Security Corporation and subsidiaries as of and for the years ended
December 31, 1997 and 1996. On January 27, 1999, our appointment
as principal accountant was terminated. We have read NPS
International Corporation's statements included under Item 4 of its
Form 8-K/A 1 dated January 28, 1999 and we agree with such
statements.
Very truly yours,
s/Kerber, Eck & Braeckel LLP
CSE/chf
NPS INTERNATIONAL CORPORATION
_____________________________
EXHIBIT 27.0 TO FORM 8-K/A 1
_____________________________
FINANCIAL DATA SCHEDULE
_____________________________