Item 1. Business
General
National Diversified Services, Inc. ("National" or the "Company") was incorporated under the laws of the State of Delaware on May 30, 1985.
National completed a public offering of 758,570 Units in December 1986 as more fully discussed under "Item 5" and raised net proceeds of approximately $600,000. National was a blind pool offering which at the time did not specifically allocate the proceeds raised thereby to any business or operations.
National's business purpose is to seek and review acquisition possibilities, and to make one or more acquisitions or enter into business endeavors as best as its limited assets will allow.
Business Strategy
The Company is seeking one or more potential business opportunities that in the opinion of Management may provide an ultimate profit to the Company. Such involvement may be by way of the acquisition of existing businesses, the acquisition of assets to establish subsidiary businesses for the Company, a statutory merger or consolidation or the establishment of a new business. However, due to the limited working capital of the Company, it is likely that the Company will enter into only one business transaction.
The Company may also seek to acquire one or more majority and/or wholly owned equity positions in other companies through the direct purchase of stock. Such equity positions will be limited by Section 3(a)(3) of the Investment Company Act of 1940 (the "1940 Act"), in that the Company will not be permitted to own or propose to acquire investment securities having a value exceeding 40% of the Company's total assets (exclusive of government securities and cash items) on an unconsolidated basis.
The Company may provide debt financing to companies in which it has taken (or intends to take) an equity position. Such financing would generally be made on an unsecured basis. In no event will the Company provide financing for or take equity positions in companies where the aggregate of such investments would cause the Company to be required to register under the 1940 Act.
Present Management of the Company may or may not become involved as management in the aforementioned business or subsidiary or may hire qualified but as yet unidentified management personnel. There can, however, be no assurance whatsoever that the Company will be able to acquire a business.
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A potential acquisition of a business may involve the acquisition of, or merger with, a company which does not need additional capital but which desires to establish a public trading market for its shares. A company that seeks the Company's participation in attempting to consolidate its operations through a merger, reorganization, asset acquisition, or some other form of combination may desire to do so to avoid what it may deem to be adverse consequences of itself undertaking a public offering including the inability or unwillingness to comply with various federal and state laws enacted for the protection of investors. Factors considered may include time delays, significant expense, loss of voting control. In connection with such acquisition, it is possible that an amount of stock constituting control of the Company would be purchased from the Company or its current officers, directors and stockholders resulting in substantial profits to such persons without similar profits being realized by other stockholder. Moreover, no assurance can be given with respect to the experience or qualifications of as yet unknown persons who may, in the future, engage in the operations of the Company or any business or subsidiary acquired by the Company. In the event of a change in control of the Company and its Board of Directors, the payment of dividends would be wholly dependent upon such persons. Furthermore, it is impossible as yet to determine what, if any, consequences applicable state law may provide to the Company's shareholders in any merger or reorganization.
General Policy
The Company may establish or acquire a business and/or invest in one or more new and developing corporations, whether directly or by way of statutory merger, which the Management of the Company determines will offer significant long-term growth potential. In the case of an equity position, the Company will seek to acquire primarily a majority owned and wholly owned capital stock position in such corporation. The Company is not restricted to any particular industry and may engage in any line of business. Accordingly, Management's discretion as to the type of businesses and equity investments is unlimited.
Management assumes that any business to be acquired and/or equity investment made by the Company, whether directly or by way of statutory merger, will involve a business that is new and unseasoned, or a business that has been operating for a limited period of time and has a limited or unsuccessful record of revenues or earnings. Investments in start-up enterprises result in a higher risk of total loss of investment by the Company. Except in cases of a merger or other instances where stockholders' approval may be required by applicable law, the Company's stockholders will not have the opportunity to review the relative merits or weaknesses of any proposed business to be acquired or equity investment to be made and, accordingly, will have to rely upon the discretion of Management in selecting a business or investment.
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The Company has identified certain general policies which will be considered by the Company in evaluating business acquisition candidates and investment possibilities. These policies are listed below. In no event will the Company provide financing or take equity positions in companies where the aggregate of such investments would cause the Company to be required to register under the 1940 Act.
1. The Company will examine the products or services of a business being considered to determine whether a market exists for the products or services and whether the business can manufacture and/or market the products or produce the services at a competitive cost.
2. The Company will invest in a corporation that it believes has a strong potential for growth. The Company will evaluate the corporation's business and determine the quality and experience of its management.
3. The Company may invest in an operating corporation that has experienced increases in gross revenues which exceed industry averages. The market for the corporation's products will be evaluated by determining the relationship of size, growth potential and competitive factors in that corporation's industry.
4. The Company will also consider the following factors: (1) special risks associated with the business and the industry, (2) equity available to the business, (3) capital requirements of the business, (4) potential for profitability and (5) the effect of market and economic conditions and governmental policies on the business and its products.
It is unlikely that any one prospective corporation with which the Company may seek to enter a relationship will conform in all respects to the policies described above. Accordingly, this description is intended to serve only as a general guide for the Company's projected investment activities. These policies are not fundamental policies of the Company and may be changed at any time by the Company's Board of Directors.
The Company intends to actively participate (through present Management or presently unidentified individuals who may be hired by the Company) in the management of the operations of any business or subsidiary in which it acquires an interest. In order to accomplish this objective in the case of a subsidiary, the Company will be represented on the board of directors of such target corporation through a nominee of its choice. In addition, where the Company deems it beneficial, the Company may also have a nominee of its choice elected as an officer. Such nominee is expected to be an officer or director of the Company. The objective of such acquisition(s) will be to enhance that corporation's capabilities through active management as well as financial support. The Company does not plan to enhance the value of such subsidiaries with the primary objective of resale
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of the subsidiary's stock, but rather to further the Company's long-term investment and management objectives.
The Company anticipates that it will be brought into contact with a prospective business acquisition or equity investment primarily through the efforts of its officers, directors and principal stockholders who in the course of their professional activities and employment outside the Company, frequently come into contact with corporations whose products, services or concepts may be subject to successful development and marketing. In such connection, the Company may pay a finder's fee to such officers, directors, principal stockholders or their affiliates. Any such payment would not be higher than that which would ordinarily be paid to a non-affiliated person. The Company proposes to make a business acquisition or equity investment and to provide interim financing which will assist such organization in the development of these products, services and concepts. To date, the Company does not have any contracts or commitments with anyone or any firm with regard to these business activities. The Company also does not have any arrangements or understandings with respect to the acquisition of any business entity or the acquisition of any interest therein.
The Company may use independent consultants (who may agree to receive stock of the Company in payment for their services in lieu of cash) to explore areas of, and to seek out, acquisition prospects. Such independent consultants would be expected to have such expertise or knowledge which would be of use to Management in any investment decision. The Company has not engaged any independent consultants as of March 25, 1997.
At this time, Management believes the Company's equity investments will be made in private transactions with privately owned corporations. Securities acquired in this manner are restricted from public sale unless they are registered under the Securities Act of 1933, or unless an exemption from registration is available.
Government Regulation
The Company may be subject to government regulations promulgated by various local, state and Federal government agencies with regard to its proposed business. Additionally, the Company, in the purchase of equity positions, will be subject to various rules and regulations promulgated by the Securities and Exchange Commission and the various state securities commissions. Company does not intend to engage in the business of investing, reinvesting, owning, holding or trading in securities or otherwise engaging in activities which would render the Company an "investment company" as defined in the Investment Company Act of 1940, as amended.
The Company's financing activities will be limited by Section 3(a)(3) of the Investment Company Act of 1940 in that the Company will not be permitted to own or propose to acquire
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investment securities having a total value exceeding 40% of the value of the Company's total assets (excluding government securities and cash items) on an unconsolidated basis. The Company is permitted under Section 3(a)(3) of the 1940 Act to own or propose to own securities of a majority owned subsidiary which is defined under Section 2(a)(24) of the 1940 Act to mean 50% or more of the outstanding securities of which are owned by the Company or a majority owned subsidiary of the Company. Notwithstanding Section 3(a)(3) of the 1940 Act, the Company would not be considered an investment company where it is engaged directly or indirectly through a wholly-owned subsidiary (which is defined to mean at least 95% ownership of the outstanding voting stock), in a business or businesses, other than that of investing, owning, holding or trading in securities.
In addition to the limitations by the Investment Company Act of 1940 as mentioned above, there are a number of other provisions of the Federal securities laws which will affect the Company's proposed investments.
Most, if not all, of the securities which the Company acquires as equity investments will be "restricted securities" within the meaning of the Securities Act of 1933 ("Securities Act") and will not be permitted to be resold without compliance with the Securities Act. The registration of securities owned by the Company is likely to be a time consuming and expensive process, and the Company always bears the risk, because of these delays, that it will be unable to resell such securities, or that it will not be able to obtain an attractive price for the securities. In the event the Company does not register securities it acquires for sale, it will seek to rely upon an exemption from registration. Among other exemptions, Rule 144 of the Securities Act of 1933, as amended, imposes a two year holding period prior to the sale of restricted securities and established volume limitations on the amount of any restricted securities that can be sold within certain defined time periods.
Competition
There are numerous similar companies which are larger, have more experience, and are better financed than the Company. The Company will thus assuredly encounter intense competition from numerous other firms engaged in its field. In view of the Company's lack of operating history, it may be anticipated that the Company will encounter intense competition seeking relatively more desirable equity investments. Accordingly, the Company's proposed equity investments, if any, will entail an unusually high degree of business and financial risk that may result in substantial losses to the Company.
Personnel
The Company presently has no full-time employees. The day-to-day operations of the Company are managed by George Rubin, the
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Company's President, who devotes such time to the affairs of the Company which is necessary for the performance of his duties.
Item 2.
Item 2. Properties
Currently the Company is utilizing the office space of Mr. George Rubin at no cost to the Company until an acquisition is consummated or a business is established. The amount of office space utilized by the Company is currently insignificant.
Item 3.
Item 3. Legal Proceedings
There are no material legal proceedings pending against the Company.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders.
Not Applicable.
PART II
Item 5.
Item 5. Market for Registrant's Securities and Related Stockholder Matters.
The Company completed its public offering of 758,570 Units in December 1986, each Unit consisting of one share of Common Stock and six Redeemable Common Stock Purchase Warrants. The Redeemable Warrants expired in July 1990. The Company received net proceeds of approximately $600,000 from the offering. From the completion of the Company's public offering until the present time, the Company's securities have been available to be traded in the over-the-counter market. The Company believes that there is not an active trading market for the Company's Common Stock and quotations for, and transactions in the securities are sporadic. Price quotations for prior periods are not being supplied herein because in view of the infrequent trading in the securities, they would not be meaningful.
Management has been advised by its transfer agent (American Stock Transfer Company) that the approximate number of holders of the Company's Common Stock as of March 25, 1997 was 334.
No cash dividends have been paid by the Company on its Common Stock and no such payment is anticipated in the foreseeable future.
Of the Company's issued and outstanding 6,548,870 shares of Common Stock as of March 25, 1997, 5,790,300 shares of the Company's restricted Common Stock may be sold in compliance with Rule 144. Rule 144 provides among other things and subject to certain limitations that a person holding restricted securities for a period of two years may sell those securities in brokerage transactions, in an amount equal to at least 1% of the Company's outstanding Common Stock every three months. Possible or actual sales of the Company's Common Stock under Rule 144 may have a depressive effect upon the price of the Company's Common Stock.
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Broker-Dealer Sales of Company's Registered Securities.
Except where the Company's Common Stock has a market price of at least $5.00 per share, the Company's Registered Securities are covered by a Securities and Exchange Commission ("SEC") rule that imposes additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers and institutional accredited investors. For transactions covered by the rule, the broker-dealer must make a special suitability determination for the purchaser and receive the purchaser's written agreement to the transaction prior to the sale. Consequently, the rule affects the ability of broker-dealers to sell the Company's securities and also may affect the ability of purchasers in this offering to sell their securities in the secondary market.
The SEC recently adopted seven rules ("Rules") under the Securities Exchange Act of 1934 requiring broker/dealers engaging in certain recommended transactions with their customers in specified equity securities falling within the definition of "penny stock" (generally non-NASDAQ securities priced below $5 per share) to provide to those customers certain specified information. Unless the transaction is exempt under the Rules, broker/dealers effecting customer transactions in such defined penny stocks are required to provide their customers with: (1) a risk disclosure document; (2) disclosure of current bid and ask quotations, if any; (3) disclosure of the compensation of the broker/dealers and its salesperson in the transaction; and (4) monthly account statements showing the market value of each penny stock held in the customer's account. These SEC Rules were adopted in April, 1992 pursuant to the requirements of the Securities Enforcement Remedies and Penny Stock Reform Act of 1990 ("Penny Stock Act").
As a result of the aforesaid rules regulating penny stocks, the market liquidity for the Company's securities may be severely adversely affected by limiting the ability of broker-dealers to sell the Company's securities and the ability of purchasers of the Company's securities in the secondary market.
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Item 6.
Item 6. Selected Financial Data.
-------------------- (1) If accrued salary which is not included in current liabilities were paid, working capital would have been reduced by $58,750 to $212,120 at December 31, 1996, $209,595 at December 31, 1995, $210,352 at December 31, 1994 and $208,458 at December 31, 1993.
The foregoing is selected financial information only, and is qualified by the consolidated Financial Statements and the Notes thereto, in their entirety, which are set forth elsewhere herein.
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Item 7.
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
Results of Operations
During the past three years, except for interest income, no revenues were received by the Company. The Company is presently exploring various business opportunities that may be available to it. See "Item 1."
Liquidity and Capital Resources
Financing of the Company's activities has been provided from the public sale of its securities for cash amounting to a net of approximately $600,000. At December 31, 1996, the Company's working capital amounted to $270,780 with cash and cash equivalent assets of $276,977. The Company believes that its presently available cash and cash equivalents are sufficient to fund the Company's search for a business opportunity. If successful in entering into such a business opportunity, the Company may require additional financing. No assurances can be given that the Company will be successful in entering into a business opportunity and if successful in securing additional financing for the Company on terms satisfactory to it, if at all.
There are no material commitments for capital expenditures or other long term credit arrangements.
Item 8.
Item 8. Financial Statements and Supplementary Data.
The information required by Item 8, appears at pages through (inclusive) of this Report, which pages follow this page.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Not applicable.
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INDEPENDENT AUDITORS REPORT
CONSOLIDATED BALANCES SHEETS
CONSOLIDATED STATEMENTS OF OPERATIONS
CONSOLIDATED STATEMENTS OF CASH FLOWS
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
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INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders National Diversified Services, Inc. New York, New York
We have audited the accompanying consolidated balance sheets of National Diversified Services, Inc. and Subsidiaries as at December 31, 1996 and 1995, and the related consolidated statements of operations, cash flows, and changes in stockholders' equity for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of National Diversified Services, Inc. and Subsidiaries as at December 31, 1996 and 1995, and the results of their operations and their cash flows for the years then ended, in conformity with generally accepted accounting principles.
MILLER, ELLIN & COMPANY CERTIFIED PUBLIC ACCOUNTANTS
New York, New York March 19, 1997
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See accompanying notes to consolidated financial statements
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See accompanying notes to consolidated financial statements
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See accompanying notes to consolidated financial statements
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See accompanying notes to consolidated financial statements
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NATIONAL DIVERSIFIED SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and History
The Company was organized under the laws of the State of Delaware on May 30, 1985 and was in the development stage until 1989. During November 1989, the Company began setting up operations to import to the United States products for sale principally to the hardware and construction markets. Two wholly-owned subsidiaries were formed to conduct these operations. The Company commenced operations during the first three months of 1990 and began billing its customers in April 1990. Billings to customers ended in June 1990 and the Company terminated its import business. Currently, the Company is exploring various business opportunities that may be available to it.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its subsidiaries, which are all wholly-owned and totally inactive. All significant intercompany accounts and transactions have been eliminated in consolidation.
Concentrations of Credit Risk
The Company places its cash balances with high credit quality financial institutions. At times, such balances may be in excess of the FDIC insurance limit.
Property, Plant and Equipment and Depreciation
Property, plant and equipment have been fully depreciated primarily by accelerated methods over the estimated useful lives of the individual classes of assets.
Cash Equivalents
Cash equivalents comprised an investment in short-term commercial paper with a maturity of less than ninety days.
Income Taxes
Effective January 1, 1993, the Company changed its method of accounting for income taxes to comply with SFAS No. 109, "Accounting for Income Taxes." A requirement of SFAS No. 109 is that deferred tax assets and liabilities are recorded for temporary differences between the financial statement and tax bases of assets and liabilities using the currently enacted tax rate expected to be in effect when the taxes are actually paid or recovered.
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NATIONAL DIVERSIFIED SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE B - ACCRUED SALARIES - OFFICER
Accrued salaries, officer represents $58,750 for the period December 1986 to November, 22, 1989.
NOTE C - INCOME TAXES At December 31, 1996, the Company had net operating loss carryforwards of approximately $455,000 which expire from 2001 through 2010. In accordance with SFAS No. 109 (Note A), these operating loss carryforwards result in deferred tax assets to the Company. Management is uncertain as to the utilization of these loss carryforwards and has provided for a 100% valuation allowance for such deferred tax assets as follows:
Federal net operating loss carryforwards $ 135,000 State net operating loss carryforwards 55,000 ---------- Total 190,000 Less valuation allowance 190,000 ---------- Net deferred tax assets $ -0- ==========
NOTE D - INCOME (LOSS) PER SHARE
Income (loss) per share is based on the weighted average number of shares of common stock outstanding.
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PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant.
(a) Identification of Directors
The names, ages and principal occupations of the Company's present directors, and the date on which their term of office commenced and expires, are as follows:
First Term of Became Principal Name Age Office Director Occupation - -------------- --- ------ -------- --------------- George Rubin 69 (1) 1989 Chairman of the Board of ATC Environmental Inc.
Stacy Goldberg 34 (1) 1995 Office Manager of ATC Environ- mental Inc. - ------------------ (1) Directors are elected at the annual meeting of stockholders and hold office to the following annual meeting.
(b) Identification of Executive Officers.
George Rubin is Chairman of the Board of Directors, President, Chief Executive Officer, Principal Financial Officer and Treasurer of the Company. Stacy Goldberg is Secretary of the Company. George Rubin is the father of Stacy Goldberg and Morry F. Rubin, a principal stockholder. The Company's By-Laws provide that the terms of all officers expire at the annual meeting of directors following the annual stockholders meeting.
(c) Business Experience
George Rubin has been Chairman of the Board of Directors of the Company since December 1989 and President, Chief Executive Officer and Chief Financial and Accounting Officer and Treasurer of the Company since August 1995. George Rubin is Chairman of the Board of ATC Group Services Inc. (formerly ATC Environmental Inc.) since June 1988. Mr. Rubin is responsible for assisting in long and short term financial planning including reviewing budgets, liaison with financial institutions and in charge of merger and acquisition activities. Mr. Rubin devotes such time to the Company as is necessary for the performance of his duties.
Stacy Goldberg, a director and Secretary of the Company since August 1995, has been an Office Manager of ATC Group Services Inc. (formerly ATC Environmental Inc.) for more than the past five years.
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Principal Stockholder and Founder
Morry F. Rubin has been President, Chief Executive Officer, Treasurer and a director of ATC Group Services Inc. (formerly ATC Environmental Inc.) since January 1988. Mr. Rubin also served as President, Chief Executive Officer and Treasurer of Aurora from May 1985 through June 1995, and as a director of Aurora from September 1983 through June 1995. From June 1985 to August 1995, Mr. Rubin served as an executive officer and director of the Company.
Item 11.
Item 11. Executive Compensation.
During the past three years, no executive officer has any employment contract with the Company or received any cash or other compensation. Directors do not presently receive compensation for serving on the board, although the Company will reimburse its directors for out-of-pocket travel expenditures. Depending upon the number of meetings and the time required for the Company's operations, the Company may decide to compensate its directors in the future.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
As of March 25, 1997, the only persons of record who held or were known to own (or believed by the Company to own) beneficially more than 5% of the outstanding 6,548,870 shares of Common Stock of the Company (the only voting security) were as indicated in the table below. Such table also sets forth the beneficial ownership of executive officers, directors, both individually and as a group. Approximately Number of Percent Name Shares of Class ---------------------- --------- ---------- Morry F. Rubin (1)(2)(3) 2,403,000 36.7
George Rubin (1)(2)(3) 2,383,000 36.4
Stacy Goldberg (3) -0- -0-
All officers and directors as a group (two persons) 2,383,000 36.4
(1) May be deemed to be a founder, control person or affiliate of the Company under the Securities Act of 1933, as amended.
(2) George Rubin is the father of Morry F. Rubin and Stacy Goldberg. Shares owned by George Rubin do not include shares owned by Morry F. Rubin and shares owned by Morry F. Rubin do not include shares owned by George Rubin.
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(3) All addresses are 104 East 25th Street, Tenth Floor, New York, New York 10010.
The Company does not know of any arrangement or pledge of its securities by persons now considered in control of the Company that might result in a change of control of the Company.
Item 13.
Item 13. Certain Relationships and Related Transactions.
None.
Item 14.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a)(1)(2) Financial Statements and Financial Statement Schedules.
A list of the Financial Statements and Financial Statement Schedules filed as a part of this Report is set forth in Item 8, and appears at Page of this Report; which list is incorporated herein by reference.
(a)(3) Exhibits
3 Certificate of Incorporation and Amendments thereto (1)
3(A) By-Laws (1)
21 Subsidiaries of Registrant (2)
27 Financial Data Schedule (3) - ------------------------ (1) Exhibits 3 and 3(A) are incorporated by reference from Registration No. 99080 which were filed in a Registration Statement on Form S-18.
(2) The Company had no active subsidiaries during the year ended December 31, 1996.
(3) Filed herewith.
(b) Reports on Form 8-K.
No Form 8-K was filed or required to be filed during the fourth quarter of 1996.
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SIGNATURES
Pursuant to the requirements Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
NATIONAL DIVERSIFIED SERVICES, INC.
BY: /s/ George Rubin ------------------------------------ George Rubin, Chairman of the Board, President, Chief Executive Officer, Chief Financial and Accounting Officer
Dated: March 26, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
Signature Title Date - --------- ----- ---- Chairman of the Board President, Chief Executive Officer, Treasurer, Principal Financial and Accounting Officer March 26 1997 /s/ George Rubin - --------------------------- GEORGE RUBIN
/s/ Stacy Goldberg Director and Secretary March 26 1997 - --------------------------- STACY GOLDBERG
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