Item 1. Business
General
National Diversified Services, Inc. ("National" or the "Company") was incorporated under the laws of the State of Delaware on May 30, 1985.
National's business purpose is to seek and review acquisition possibilities, and to make one or more acquisitions or enter into business endeavors and provide opportunities for strong organic growth.
Business Strategy
The Company is seeking one or more potential business opportunities through the acquisition of existing businesses, assets to establish subsidiary businesses for the Company, a statutory merger or consolidation or the establishment of a new business or industry. However, due to the limited working capital of the Company, it is likely that the Company will enter into only one business transaction.
The Company may also seek to acquire one or more majority and/or wholly owned equity positions in other companies through the direct purchase of stock. Such equity positions will be limited by Section 3(a)(3) of the Investment Company Act of 1940 (the "1940 Act"), in that the Company will not be permitted to own or propose to acquire investment securities having a value exceeding 40% of the Company's total assets (exclusive of government securities and cash items) on an unconsolidated basis.
The Company may provide debt financing to companies in which it has taken (or intends to take) an equity position. Such financing would generally be made on an unsecured basis. In no event will the Company provide financing for or take equity positions in companies where the aggregate of such investments would cause the Company to be required to register under the 1940 Act.
Present Management of the Company may or may not become involved as management in the aforementioned business or subsidiary or may hire qualified but as yet unidentified management personnel. There can, however, be no assurance whatsoever that the Company will be able to acquire a business.
A potential acquisition of a business may involve the acquisition of, or merger with, a company which does not need additional capital but which desires to establish a public trading market for its shares. A company that seeks the Company's participation in attempting to consolidate its operations through a merger, reorganization, asset acquisition, or some other form of combination may desire to do so to avoid what it may deem to be adverse consequences of itself undertaking a public offering including the inability or unwillingness to comply with various federal and state laws enacted for the protection of investors. Factors considered may include time delays, significant
expense, loss of voting control. In connection with such acquisition, it is possible that an amount of stock constituting control of the Company would be purchased from the Company or its current officers, directors and stockholders resulting in substantial profits to such persons without similar profits being realized by other stockholder. Moreover, no assurance can be given with respect to the experience or qualifications of as yet unknown persons who may, in the future, engage in the operations of the Company or any business or subsidiary acquired by the Company. In the event of a change in control of the Company and its Board of Directors, the payment of dividends would be wholly dependent upon such persons. Furthermore, it is impossible as yet to determine what, if any, consequences applicable state law may provide to the Company's shareholders in any merger or reorganization.
General Policy
The Company may establish or acquire a business and/or invest in one or more new and developing corporations, whether directly or by way of statutory merger, which the Management of the Company determines will offer significant long-term growth potential. In the case of an equity position, the Company will seek to acquire primarily a majority owned and wholly owned capital stock position in such corporation. The Company is not restricted to any particular industry and may engage in any line of business. Accordingly, Management's discretion as to the type of businesses and equity investments is unlimited.
Management assumes that any business to be acquired and/or equity investment made by the Company, whether directly or by way of statutory merger, will involve a business that is new and unseasoned, or a business that has been operating for a limited period of time and has a limited or unsuccessful record of revenues or earnings. Investments in start-up enterprises result in a higher risk of total loss of investment by the Company. Except in cases of a merger or other instances where stockholders' approval may be required by applicable law, the Company's stockholders will not have the opportunity to review the relative merits or weaknesses of any proposed business to be acquired or equity investment to be made and, accordingly, will have to rely upon the discretion of Management in selecting a business or investment.
The Company has identified certain general policies which will be considered by the Company in evaluating business acquisition candidates and investment possibilities. These policies are listed below. In no event will the Company provide financing or take equity positions in companies where the aggregate of such investments would cause the Company to be required to register under the 1940 Act.
1. The Company will examine the products or services of a business being considered to determine whether a market exists for the products or services and whether the business can manufacture and/or market the products or produce the services at a competitive cost.
2. The Company will invest in a corporation that it believes has a strong potential for growth. The Company will evaluate the corporation's business and determine the quality and experience of its management.
3. The Company may invest in an operating corporation that has experienced increases in gross revenues which exceed industry averages. The market for the corporation's products will be evaluated by determining the relationship of size, growth potential and competitive factors in that corporation's industry. This may include the purchase of businesses which offer opportunities for consolidation.
4. The Company will also consider the following factors: (1) special risks associated with the business and the industry, (2) equity available to the business, (3) capital requirements of the business, (4) potential for profitability and (5) the effect of market and economic conditions and governmental policies on the business and its products.
It is unlikely that any one prospective corporation with which the Company may seek to enter a relationship will conform in all respects to the policies described above. Accordingly, this description is intended to serve only as a general guide for the Company's projected investment activities. These policies are not fundamental policies of the Company and may be changed at any time by the Company's Board of Directors.
The Company intends to actively participate (through present Management or presently unidentified individuals who may be hired by the Company) in the management of the operations of any business or subsidiary in which it acquires an interest. In order to accomplish this objective in the case of a subsidiary, the Company will be represented on the board of directors of such target corporation through a nominee of its choice. In addition, where the Company deems it beneficial, the Company may also have a nominee of its choice elected as an officer. Such nominee is expected to be an officer or director of the Company. The objective of such acquisition(s) will be to enhance that corporation's capabilities through active management as well as financial support.
The Company anticipates that it will be brought into contact with a prospective business acquisition or equity investment primarily through the efforts of its officers, directors and principal stockholders who in the course of their professional activities frequently come into contact with corporations whose products, services or concepts may be subject to successful development and marketing. In such connection, the Company may pay a finder's fee to such officers, directors, principal stockholders or their affiliates. Any such payment would not be higher than that which would ordinarily be paid to a non-affiliated person. The Company proposes to make a business acquisition or equity investment and to provide interim financing which will assist such organization in the development of these products, services and concepts. To date, the Company does not have any contracts or commitments with anyone or any firm with regard to these business activities. The Company also does not have any arrangements or understandings with respect to the acquisition of any business entity or the acquisition of any interest therein.
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 20, 2003.
At this time, Management believes the Company's equity investments will be made in private transactions with privately owned corporations. Securities acquired in this manner are restricted from public sale unless they are registered under the Securities Act of 1933, or unless an exemption from registration is available.
Government Regulation
The Company may be subject to government regulations promulgated by various local, state and Federal government agencies with regard to its proposed business. Additionally, the Company, in the purchase of equity positions, will be subject to various rules and regulations promulgated by the Securities and Exchange Commission and the various state securities commissions. Company does not intend to engage in the business of investing, reinvesting, owning, holding or trading in securities or otherwise engaging in activities which would render the Company an "investment company" as defined in the Investment Company Act of 1940, as amended.
The Company's financing activities will be limited by Section 3(a)(3) of the Investment Company Act of 1940 in that the Company will not be permitted to own or propose to acquire investment securities having a total value exceeding 40% of the value of the Company's total assets (excluding government securities and cash items) on an unconsolidated basis. The Company is permitted under Section 3(a)(3) of the 1940 Act to own or propose to own securities of a majority owned subsidiary which is defined under Section 2(a)(24) of the 1940 Act to mean 50% or more of the outstanding securities of which are owned by the Company or a majority owned subsidiary of the Company. Notwithstanding Section 3(a)(3) of the 1940 Act, the Company would not be considered an investment company where it is engaged directly or indirectly through a wholly-owned subsidiary (which is defined to mean at least 95% ownership of the outstanding voting stock), in a business or businesses, other than that of investing, owning, holding or trading in securities.
In addition to the limitations by the Investment Company Act of 1940 as mentioned above, there are a number of other provisions of the Federal securities laws which will affect the Company's proposed investments.
Most, if not all, of the securities which the Company acquires as equity investments will be "restricted securities" within the meaning of the Securities Act of 1933 ("Securities Act") and will not be permitted to be resold without compliance with the Securities Act. The registration of securities owned by the Company is likely to be a time consuming and expensive process, and the Company always bears the risk, because of these delays, that it will be unable to resell such securities, or that it will not be able to obtain an attractive price for the securities. In the event the Company does not register securities it acquires for sale, it will seek to rely upon an exemption from registration. Among other exemptions, Rule 144 of the Securities Act of 1933, as amended, imposes a one year holding period prior to the sale of restricted securities and established volume limitations on the amount of any restricted securities that can be sold within certain defined time periods.
Competition
There are numerous similar companies which are larger, have more experience, and are better financed than the Company. The Company may encounter intense competition from numerous other firms engaged in its field. In view of the Company's lack of operating history, it may be anticipated that the Company will encounter competition seeking relatively more desirable equity investments. Accordingly, the Company's proposed equity investments, if any, will entail a high degree of business and financial risk that may result in substantial losses to the Company.
Personnel
The Company presently has no full-time employees. The day-to-day operations of the Company are managed by George Rubin, the Company's Chairman, and Morry F. Rubin, its President, each of whom devotes such time to the affairs of the Company which is necessary for the performance of his duties.
Item 2.
Item 2. Properties
Currently the Company is utilizing the office space of its counsel, Lester Morse P.C., at no cost to the Company until an acquisition is consummated or a business is established. The amount of office space utilized by the Company is currently insignificant.
Item 3.
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.
From the completion of the Company's public offering in December 1986 until the present time, the Company's securities have been traded in the over-the-counter market. The Company believes that there is not an active trading market for the Company's Common Stock and quotations for, and transactions in the securities are limited. Price quotations for prior periods are not being supplied herein because in view of the infrequent trading in the securities, they would not be meaningful.
Management has been advised by its transfer agent (American Stock Transfer & Trust Company) that the approximate number of holders of the Company's Common Stock as of March 20, 2003 was approximately 325.
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 20, 2003, 5,790,300 shares of the Company's restricted Common Stock may be eligible for sale in compliance with Rule 144. Rule 144 provides among other things and subject to certain limitations that a person holding restricted securities for a period of one year may sell those securities in brokerage transactions, in an amount equal to at least 1% of the Company's outstanding Common Stock every three months. Possible or actual sales of the Company's Common Stock under Rule 144 may have a depressive effect upon the price of the Company's Common Stock if any meaningful market were to develop for the Company's Common Stock. Notwithstanding anything contained herein to the contrary, the Securities and Exchange Commission may take the position that the restricted Common Stock of the Company is not eligible for sale under Rule 144 and must be registered for sale under the Securities Act of 1933, as amended.
Broker-Dealer Sales of Company's Registered Securities.
Except where the Company's Common Stock has a market price of at least $5.00 per share, the Company's Registered Securities are covered by a Securities and Exchange Commission ("SEC") rule that imposes additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers and institutional accredited investors. For transactions covered by the rule, the broker-dealer must make a special suitability determination for the purchaser and receive the purchaser's written agreement to the transaction prior to the sale. Consequently, the rule affects the ability of broker-dealers to sell the Company's securities and also may affect the ability of purchasers in this offering to sell their securities in the secondary market.
The SEC has adopted seven rules ("Rules") under the Securities Exchange Act of 1934 requiring broker/dealers engaging in certain recommended transactions with their customers in specified equity securities falling within the definition of "penny stock" (generally non-NASDAQ securities priced below $5 per share) to provide to those customers certain specified information. Unless the transaction is exempt under the Rules, broker/dealers effecting customer
transactions in such defined penny stocks are required to provide their customers with: (1) a risk disclosure document; (2) disclosure of current bid and ask quotations, if any; (3) disclosure of the compensation of the broker/dealers and its salesperson in the transaction; and (4) monthly account statements showing the market value of each penny stock held in the customer's account. These SEC Rules were adopted in April, 1992 pursuant to the requirements of the Securities Enforcement Remedies and Penny Stock Reform Act of 1990 ("Penny Stock Act").
As a result of the aforesaid rules regulating penny stocks, the market liquidity for the Company's securities, if any, may be severely adversely affected by limiting the ability of broker-dealers to sell the Company's securities and the ability of purchasers of the Company's securities in the secondary market.
Recent Sales of Unregistered Securities
During 2002, the Company did not issue any unregistered securities.
Item 6.
Item 6. Selected Financial Data.
Consolidated Statements of Operations Summary:
* Less than $.01 per share. ** Represents interest and dividend income.
Consolidated Balance Sheets Summary:
------------ 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.
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." No assurances can be given that the Company will be successful in completing a transaction to acquire an operating business.
During 2002, there were no material changes in the financial condition of the Company other than a net loss of $19,824 as compared to a net loss of $8,808 for 2001 and $13,323 for 2000. Further, due to the Company lacking any current business activities or operations, other than searching for a new business opportunity or merger candidate, there are no trends or uncertainties that have had or reasonably expect to have a material favorable or unfavorable impact on revenues or income (loss) from continuing operations. Further, there are no unusual or infrequent events or transactions or any significant economic changes that materially effected the amount of reported income (loss) from continuing operations.
Liquidity and Capital Resources
Financing of the Company's activities has been provided from the December 1986 initial public offering of its securities for cash amounting to a net of approximately $600,000. At December 31, 2002, the Company's working capital amounted to $151,098 with cash and cash equivalents and securities available for sale aggregating $225,330. Management believes that its cash assets are adequate to meet the Company's short term and long term liquidity and cash requirements until such time, if ever, as the Company completes a transaction to establish an operating business.
The Company has been unable to find a suitable business opportunity or merger candidate considering the limited cash resources available to the Company and that the Company's Common Stock has no active and established trading market. Nevertheless, Management is continuing to explore various business opportunities that may be available to it. As of the filing date of this Form 10-K, there are no known trends or any known demands, commitments, events or uncertainties that will result in or that are reasonably likely to result in the Registrant's liquidity increasing or decreasing in any material way. Further, at the present time, the Company has no commitments for capital expenditures and does not anticipate same until it establishes a business or acquires an operating business, of which there can be no assurances given.
Item 7(a). Quantitative and Qualitative Disclosures about Market Risk.
The Company is not exposed to financial market risks from changes in foreign currency exchange rates or changes in interest rates. The Company does not use derivative financial instruments.
The Company's debt obligations are primarily fixed rate, with the exception of its working capital loans. If the Company were to pursue re-financing of its fixed rate debt or lease obligations, it could potentially be exposed to changes in interest rates.
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.
NATIONAL DIVERSIFIED SERVICES, INC. AND SUBSIDIARIES
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, 2002 and 2001, and the related consolidated statements of operations and comprehensive loss, stockholders' equity and cash flows, for each of the three years ended December 31, 2002. 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 auditing standards generally accepted in the United States of America. 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, 2002 and 2001, and the results of their operations and their cash flows for each of the three years ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America.
MILLER, ELLIN & COMPANY, LLP CERTIFIED PUBLIC ACCOUNTANTS
New York, New York March 20, 2003
NATIONAL DIVERSIFIED SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
See accompanying notes to consolidated financial statements.
NATIONAL DIVERSIFIED SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
See accompanying notes to consolidated financial statements.
NATIONAL DIVERSIFIED SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
See accompanying notes to consolidated financial statements.
NATIONAL DIVERSIFIED SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
See accompanying notes to consolidated financial statements.
NATIONAL DIVERSIFIED SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002, 2001 AND 2000
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Operations
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.
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 these estimates. Significant estimates made by management include the valuation of securities and the deferred tax asset allowance.
Fair Value of Financial Instruments
The amounts at which current assets and current liabilities are presented approximate their fair value due to their short-term nature.
Valuation of Securities
Quoted market prices are used to value securities. Purchases and sales of securities are recorded on a trade date basis. Interest and dividend income is recorded on an accrual basis. Unrealized gains and losses are reported in accumulated other comprehensive income or loss as a separate component of stockholders' equity.
Concentrations of Credit Risk
The Company maintains its securities and a money market account with a high credit quality financial institution. These balances are not insured.
NATIONAL DIVERSIFIED SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002, 2001 AND 2000
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property and Equipment
The carrying amount of the Company's property and equipment is zero. Property and equipment have been fully depreciated over the estimated useful lives of the individual classes of assets. No depreciation expense has been recorded during the years ended December 31, 2002, 2001 and 2000.
Cash Equivalents
Cash equivalents represents an investment in short-term commercial paper with a maturity of less than ninety days and/or a money market fund.
Revenue Recognition
The Company's only revenue is investment income, which is recognized as earned.
Comprehensive Income
The Company accounts for comprehensive income in accordance with Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive Income," which requires comprehensive income and its components to be reported when a company has items of other comprehensive income. Comprehensive income includes net income plus other comprehensive income (i.e., certain revenues, expenses, gains and losses reported as separate components of stockholders' equity rather than in net income). The Company's other comprehensive losses represent unrealized holding losses on securities available-for-sale.
Income Taxes
The Company utilized SFAS No. 109, "Accounting for Income Taxes," which requires the use of the liability method of accounting for income taxes. The liability method measures deferred income taxes by applying enacted statutory rates in effect at the balance sheet date to the differences between the tax basis of assets and liabilities and their reported amounts of the financial statements. The resulting deferred tax assets or liabilities are adjusted to reflect changes in tax laws as they occur.
Loss Per Share
Basic loss per share is calculated by dividing net loss by the weighted average number of shares of common stock outstanding. Stock warrants have not been included in the calculation of diluted loss per share, as the exercise price of the stock warrants was greater than market price of the common stock and, therefore, the effect would have been antidilutive. Accordingly, basic and dilutive loss per share are the same for the Company.
NATIONAL DIVERSIFIED SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002, 2001 AND 2000
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
New Accounting Pronouncements
In December 2002, the Financial Accounting Standards Board issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure." This statement amends SFAS No. 123 "Accounting for Stock-Based Compensation," by providing alternative methods of transition for an entity that voluntarily changes to the fair value based method of accounting for stock-based employee compensation. Effective January 1, 2003, the Company adopted the fair value recognition provisions, prospectively to all employee awards granted, modified, or settled after January 1, 2003. The effect of adopting the prospective method of accounting for stock-based compensation cannot yet be determined, but the Company does not expect its impact to be material.
NOTE B - SECURITIES AVAILABLE-FOR-SALE
The following table presents the fair values of securities available-for-sale at December 31, 2002 and 2001:
NOTE C - INCOME TAXES
Deferred tax assets at December 31, is summarized below.
At December 31, 2002 and 2001, a valuation allowance of 100% is provided as it is uncertain if the deferred tax asset will be utilized in the future. The Company's valuation allowance increased by $8,329, $3,523 and $5,329 during 2002, 2001 and 2000, respectively.
NATIONAL DIVERSIFIED SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002, 2001 AND 2000
NOTE C - INCOME TAXES (CONTINUED)
Reconciliation of the statutory rate to the effective income tax rate is as follows:
At December 31, 2002, the Company had unused net operating loss carryforwards of approximately $470,000 expiring at various dates through 2017.
NOTE D - CAPITAL TRANSACTIONS
Effective December 31, 2002, the Company passed a resolution to retire its 5,000 shares of treasury stock.
NOTE E - STOCK AWARDS
During 1997, the Company entered into an arrangement with certain officers and stockholders pursuant to which they received warrants to purchase 2,000,000 shares of the Company's common stock at an exercise price of $0.03 per share at any time until November 21, 2007. In exchange, they will make available to the Company an aggregate line of credit of up to $500,000. In November 1997, the Company granted to an officer warrants to purchase 100,000 shares of the Company's common stock identical to those granted to the officers and stockholders referred to above in consideration of continuing to serve as an officer and a director of the Company.
During 1997, the Company also granted warrants to purchase an aggregate of 200,000 shares of the Company's common stock at an exercise price of $0.03 per share to certain non-affiliated persons in connection with legal services rendered to the Company. These warrants expire on November 21, 2007.
NATIONAL DIVERSIFIED SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002, 2001 AND 2000
NOTE E - STOCK AWARDS (CONTINUED)
F-[PG NUMBER]
The Company applies Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for its stock-based compensation plans. Accordingly, no compensation expense has been recorded for stock warrants granted. There were no stock awards granted during 2002, 2001 and 2000.
NOTE F - RELATED PARTY TRANSACTIONS
The Company has available to it a line of credit totaling $500,000 from two of its stockholders and officers, as further discussed in Note E. The Company has not drawn down on this line of credit as of the date of this report.
Accrued salaries payable to an officer and stockholder of the Company aggregated $58,750 at December 31, 2002 and 2001, and are included in accounts payable and accrued expenses.
During 2002, 2001 and 2000, the Company utilized the office space of its general counsel at no cost to the Company. The amount of office space utilized by the Company is considered insignificant.
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:
- ------------------ (1) Directors are elected at the annual meeting of stockholders and hold office to the following annual meeting.
(b) Identification of Executive Officers.
George Rubin is Chairman of the Board of Directors. Morry F. Rubin is President, Chief Executive Officer, Principal Financial Officer and Treasurer of the Company. Stacy Goldberg is Secretary of the Company. George Rubin is the father of Stacy Goldberg and Morry F. Rubin. The Company's By-Laws provide that the terms of all officers expire at the annual meeting of directors following the annual stockholders meeting.
(c) Business Experience
George Rubin has been Chairman of the Board of Directors of the Company since December 1989 and served as its and President, Chief Executive Officer and Chief Financial and Accounting Officer and Treasurer of the Company from August 1995 until February, 1998. George Rubin has been Executive Vice President of Preferred People Staffing LLC since September 1998 and is a Member-Manager of Venturesforth LLC. Preferred People Staffing is a provider of temporary workers for light industrial and unskilled manual labor jobs. Venturesforth is a holding company and is currently the owner of the governance units of Preferred People Staffing. George Rubin served as Chairman of the Board of ATC Group Services Inc. (formerly ATC Environmental Inc.) from June 1988 until February 1998. Mr. Rubin devotes such time to the Company as is necessary for the performance of his duties.
Morry F. Rubin has served as President, Chief Executive Officer, Treasurer and Chief Financial Officer of the Company since February 1998. From June 1985 to August 1995, Mr. Rubin served as an executive officer and director of the Company. Morry Rubin has been Chairman of Preferred People Staffing LLC since September 1998 and a Member-Manager of Venturesforth LLC. Preferred People Staffing is a provider of temporary workers for light industrial and unskilled manual labor jobs. Venturesforth is a holding company and is currently the owner of the governance units of Preferred People Staffing. Mr. Rubin was President, Chief Executive Officer and Treasurer of ATC Group Services Inc. (formerly ATC Environmental Inc.) from January 1988 to February 1998 and a director of ATC from January 1988 to January 1998. Mr. Rubin devotes such time to the Company as is necessary for the performance of his duties.
Stacy Goldberg has served as a director and Secretary of the Company since August 1995. From 1987 to January 1998, she was an Office Manager of ATC Group Services Inc. Ms. Goldberg devotes such time to the Company as is necessary for the performance of her duties.
Committees
The Company has no standing audit, nominating and compensation committees of the Board of Directors or committees performing similar functions. Under the Sarbanes-Oxley Act of 2002, each public company is required to have an audit committee consisting solely of independent directors. In the event the public company does not have an audit committee, the Board of Directors becomes charges with the duties of the audit committee. Since the enactment of the Sarbanes-Oxley Act of 2002 which was signed into law by President Bush in July 2002, the Company's directors have, without success, attempted to obtain independent directors to serve on the Board of Directors and on a newly formed audit committee. In the event the Company is successful in the future in obtaining independent directors to serve on the Board of Directors and on a newly formed audit committee, of which there can be no assurances given, the Board of Directors would first adopt a written charter. Such charter would be expected to include, among other things:
. annually reviewing and reassessing the adequacy of the committee's formal charter;
. reviewing the annual audited financial statements with the Company's management and its independent auditors and the adequacy of its internal accounting controls;
. reviewing analyses prepared by the Company's management and independent auditors concerning significant financial reporting issues and judgments made in connection with the preparation of its financial statements;
. being directly responsible for the appointment, compensation and oversight of the independent auditor, which shall report directly to the Audit Committee, including resolution of disagreements between management and the auditors regarding financial reporting for the purpose of preparing or issuing an audit report or related work;
. reviewing the independence of the independent auditors;
. reviewing the Company's auditing and accounting principles and practices with the independent auditors and reviewing major changes to its auditing and accounting principles and practices as suggested by the independent auditor or its management;
. reviewing all related party transactions on an ongoing basis for potential conflict of interest situations; and
. all responsibilities given to the Audit Committee by virtue of the Sarbanes-Oxley Act of 2002, which was signed into law by President George W. Bush on July 30, 2002.
Code of Ethics
Effective March 3, 2003, the Securities & Exchange Commission requires registrants like the Company to either adopt a code of ethics that applies to the Company's Chief Executive Officer and Principal Financial Officer or explain why the Company has not adopted such a code of ethics. For purposes of item 406 of Regulation S-K, the term "code of ethics" means written standards that are reasonably designed to deter wrong doing and to promote:
o Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; o Full, fair, accurate, timely and understandable disclosure in reports and documents that the Company files with, or submits to, the Securities & Exchange Commission and in other public communications made by the Company; o Compliance with applicable governmental law, rules and regulations; o The prompt internal reporting of violations of the code to an appropriate person or persons identified in the code; and o Accountability for adherence to the code.
While the Company has not adopted a code of ethics because of the short time period that has followed between the effective date of March 3, 2003 and the filing date of this Form 10-K, it intends to do so in the second quarter of 2003.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our officers and directors, and persons who own more than ten percent of a registered class of our equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission (the "Commission"). The Company is not subject to the reporting requirements of Section 16(a) of the Securities Exchange Act of 1934.
Item 11.
Item 11. Executive Compensation.
During the past three years, no executive officer or director has any employment contract with the Company or received any cash or other compensation, except for Warrants described herein. Directors do not presently receive compensation (other than Warrants described herein) for serving on the board, although the Company will reimburse its directors for out-of-pocket travel expenditures. Depending upon the number of meetings and the time required for the Company's operations, the Company may decide to compensate its directors in the future. See Item 13.
George Rubin served as Chief Executive Officer of the Company during 1997 before his son, Morry F. Rubin, was elected Chief Executive Officer of the Company on February 1, 1998. The following is the summary compensation table for the Company's two Executive Officers for 2002, 2001 and 2000.
SUMMARY COMPENSATION TABLE
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTIONS/WARRANTS VALUES
The information provided in the table below provides information with respect to each exercise of the Company's stock options/warrants during fiscal 2002 by each of the executive officers named in the summary compensation table and the fiscal year end value of unexercised options/warrants.
(1) The aggregate dollar values in column (c) and (e) are required to be calculated by determining the difference between the fair market value of the Common Stock underlying the options/warrants and the exercise price of the options/warrants at exercise or fiscal year end, respectively. In calculating the dollar value realized upon exercise, the value of any payment of the exercise price is not included. However, since there is a limited public market for The Company's Common Stock, no calculation is included in column (e) and N/A (not applicable) is placed in the table above.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
As of March 20, 2003, 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.
- --------------- * Represents less than one percent of the Company's outstanding shares of Common Stock.
(1) May be deemed to be a founder, control person or affiliate of the Company under the Securities Act of 1933, as amended.
(2) George Rubin is the father of Morry F. Rubin and Stacy Goldberg. Shares owned by George Rubin do not include shares owned by Morry F. Rubin and shares owned by Morry F. Rubin do not include shares owned by George Rubin.
(3) All addresses are c/o Lester Morse P.C., 111 Great Neck Road, Great Neck, New York 11021.
(4) Includes Warrants to purchase 1,000,000 shares at an exercise price of $.03 per share and exercisable at any time until November 21, 2007.
(5) Includes Warrants to purchase 100,000 shares at an exercise price of $.03 per share and exercisable at any time until November 21, 2007.
The Company does not know of any arrangement or pledge of its securities by persons now considered in control of the Company that might result in a change of control of the Company.
Item 13.
Item 13. Certain Relationships and Related Transactions.
Between December 1986 to November 22, 1989, accrued salaries payable to Morry Rubin amounted to $58,750. These monies are payable on demand and are reflected in accounts payable and accrued expenses.
The Company has an arrangement with George Rubin and Morry Rubin pursuant to which each received Warrants to purchase 1,000,000 shares of the Company's Common Stock at an exercise price of $.03 per share at any time until November 21, 2007 in exchange for them making available to the Company an aggregate line of credit of up to $500,000. As of the filing date of this Form 10-K, the Company has not drawn down on its line of credit. In November 1997, the Company granted Stacy Goldberg Warrants to purchase 100,000 shares of the Company's Common Stock identical to those granted to George Rubin and Morry Rubin in consideration of her continuing to serve as a director of the Company.
In November 1997, the Company also granted Warrants to purchase an aggregate of 200,000 shares of the Company's Common Stock at an exercise price of $.03 per share to certain non-affiliates persons in connection with legal services rendered to the Company. These Warrants expire on November 21, 2007.
On December 31, 2002, the Company's Board of Directors adopted a resolution to retire its 5,000 shares of treasury stock to the status of authorized but unissued shares of Common Stock.
Item 14.
Item 14. Controls and Procedures.
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company's Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure based closely on the definition of "disclosure controls and procedures" in Rule 13a-14(c). In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Within 90 days prior to the date of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and the Company's Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on the foregoing, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect the internal controls subsequent to the date the Company completed its evaluation. Therefore, no corrective actions were taken.
Item 15.
Item 15. 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)
11. Statement Re: Computation of Earnings per share (see "Financial Statements").
21 Subsidiaries of Registrant (2)
27 Financial Data Schedule (3)
99 Form of Warrants granted to Morry Rubin and George Rubin (4)
99.1 Form of Warrant granted to Stacy Goldberg (3)
99.2 Form of Warrant granted to Lester Morse and Steven Morse (4)
- ----------------
(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, 2002.
(3) Incorporated by reference to the Company's Form 10-K for its fiscal year ended December 31, 1998.
(b) Reports on Form 8-K. No Form 8-K was filed or required to be filed during the fourth quarter of 2002.
SIGNATURES
Pursuant to the requirements Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
NATIONAL DIVERSIFIED SERVICES, INC.
BY: /s/ George Rubin ----------------------------------- George Rubin, Chairman of the Board
Dated: March 26, 2003
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:
CERTIFICATION
I, Morry F. Rubin, Chief Executive Officer and Principal Financial Officer of the Registrant, certify that:
1. I have reviewed this annual report on Form 10-K of National Diversified Services, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure control and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entitles, particularly during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: March 26, 2003 /s/ Morry F. Rubin --------------------------- Morry F. Rubin, Chief Executive Officer and Principal Financial Officer
CORRESPONDENCE LETTER TO BE FILED WITH FORM 10-K
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of NATIONAL DIVERSIFIED SERVICES, INC. (the "Company") on Form 10-K for the period ending DECEMBER 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, MORRY F. RUBIN, Chief Executive Officer and Principal Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
Date: March 26, 2003 /s/Morry F. Rubin --------------------------- Morry F. Rubin, Chief Executive Officer and Principal Financial Officer