U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the FISCAL YEAR ended, March 31, 1996
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission File Number 0-9459
NUMEX CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 6-1034587
(State or Other Jurisdiction of I.R.S. Employer Identification Number)
Incorporation or Organization)
14115 S. Pontlavoy Ave. Santa Fe Springs, CA 90670
(Address of Principal Executive Offices) (Zip Code)
(310) 404-7176
(Issuer's Telephone Number, Including Area Code)
Check whether the registrant: (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
Check if disclosure of delinquent filers in response to item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of the registrant's knoledge, in definitive proxy or information statements
incorporated by refernece in Part III of this
Form 10-KSB or any amendment to this Form 10-KSB X
Revenues for the fiscal year ended March 31, 1996 were $1,022,878.
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 31, 1996, amounted to approximately $2,564,161.
Registrant had 6,145,600 shares of its common stock, $.10 par value,
outstanding at March 31, 1996.
Traditional Small Business Disclosure Format (check one): Yes X No
<PAGE>
PART I. ITEM 1. DESCRIPTION OF BUSINESS
General Development
Numex Corporation, ("Registrant") was organized and incorporated in
Delaware on August 1, 1980. Registrant, through a wholly owned subsidiary was
engaged in the remanufacturing and servicing of metal cutting machine tools and
the retrofitting of such tools with new electronic controls. Registrant's
operations were substantially eliminated during fiscal year 1988, and from that
time until January 1991, Registrant was not an operating company.
In January 1991, Registrant acquired certain assets of Delux Distributions
International, Inc. ("DDI"). Since that acquisition, Registrant has been
operating as the manufacturer, through subcontractors, and the distributor of
its primary product known as Therapy Plus, a hand-held massage device used for
the relief of muscular pain.
In June 1994, Registrant acquired ViaStar Marketing, Inc., a Florida
corporation organized in December 1993 ("ViaStar Florida"), by means of a merger
of ViaStar Florida into Airmotive Acquisitions, Inc., a Delaware corporation,
and a wholly owned subsidiary of Registrant since April 1994. Upon the merger,
Airmotive Acquisitions, Inc., which had previously not been an operating
company, changed its name to ViaStar Marketing, Inc., a Delaware corporation
("ViaStar"). ViaStar is a wholly owned subsidiary of Registrant. ViaStar was in
the business of outbound telemarketing of celebrity owned or endorsed products.
ViaStar was not profitable, and an assignment for the benefit of creditors was
made of its assets (subject to liabilities) on July 31, 1995.
Acquisition of Therapy Plus
On January 2, 1991, Registrant acquired certain assets of DDI pursuant to
an Asset Purchase Agreement dated December 3, 1990 (the "Agreement"). DDI also
assigned to Registrant all of its rights under certain agreements which DDI
entered into with third parties relating to the advertising, sale and
distribution of a product known as Dermapoints, and Registrant assumed all of
DDI's obligations under such agreements.
The assets purchased included the inventory of two models of a hand-held,
non-electric, mechanical, patterned cutaneous nerve stimulator sold under the
trade name of Dermapoints Model 100 and Dermapoints Model 200 (collectively, the
"Product"). Since acquiring the Product, Registrant has changed the Product name
to "Therapy Plus." Registrant also acquired all of DDI's right, title and
interest in all assets and property used by DDI in the manufacture, sale and
distribution of the Product.
Therapy Plus
The Product is a patented non-electric, cylinder-shaped pain relieving
device comprised of a series of starwheels, mounted on a shaft, with hundreds of
points which do not puncture the surface of the skin. The Product is rolled
briskly over the painful areas of the body for three to eight minutes. The sale
of the Product is permitted under a 510(k) registration with the Food and Drug
Administration (the "FDA") which authorizes the following claims to be made in
connection with the Product: Provides temporary relief of minor muscular pain
associated with arthritis; "Temporarily relieves pain from overexertion and
fatigue. Increases blood circulation. Relaxes tense muscles." The Product
produces the therapeutic effect of a massage.
Following the acquisition of the Product, and through August 1992,
Registrant engaged in a major marketing campaign, selling the Product primarily
through "infomercials" on television. An "infomercial" is a half-hour paid
television program whose primary purpose is to sell one or more products.
Television advertising time was purchased by Registrant through both its own
employees and independent buyers of airtime. Registrant broadcast its
infomercial entitled "Freedom From Pain" (the "Infomercial") daily on television
stations throughout the United States. Viewers could either call the toll-free
800 phone number given in the Infomercial to order the Product or could purchase
the Product by mail from Registrant. Orders generated by the Infomercial were
filled by Registrant within one to five working days from its facility in
Cerritos, California.
Subsequent to August 1992, Registrant discontinued the airing of the Infomercial
as a result of an investigation by the Federal Trade Commission (the "FTC"). The
FTC claimed among other things that Registrant's Infomercial contained certain
advertising claims which Registrant had not substantiated with sufficient
scientific evidence. In response during 1993 Registrant sponsored a well
controlled clinical study at an independent hospital and in November 1993, the
Company submitted a 510 (k) notification to the FDA advisory agency of the
Company's intention to add the word arthritis to its labeling claims. In
February 1996, the Company received an FDA notification that the Product could
be marketed as a "Temporary relief of minor muscular pain associated with
arthritis".
Manufacturing
The Product has been manufactured for Registrant by unaffiliated companies
in conformity with Registrant's instructions and specifications. These companies
have no right, title or interest in or to the Product and serve only as
Registrant's subcontractors to manufacture the Product. To Registrant's best
knowledge, all of the materials used in making the Product are readily
available. Registrant is not dependent on its current manufacturers with respect
to tools, plans and specifications since they are owned by Registrant. If, for
some reason, Registrant's current manufacturers were unable to continue making
the Product, Registrant would take the tools, plans and specifications to other
manufacturing subcontractors.
Product Distribution and Customer Service
All orders of the Product are shipped to customers from Registrant's
facilities in Santa Fe Springs, California. Registrant's employees are available
to respond to customer questions and complaints, and offers a thirty-day
unconditional money back guarantee on retail sales in addition to a one-year
guarantee against defects in the Product.
Trademarks, Licenses, and Patents and Royalty Agreements
The name "Therapy Plus" is a trademark of Registrant. The Product was
formerly marketed, briefly, under the name "Dermapoints." After Registrant's
acquisition of the Product, it made a minimal number of sales of the Product
under the name "Dermapoints", and thereafter changed the Product's name to
"Therapy Plus."
The inventor of the Product obtained a United States patent for the Product
in February 1991. Registrant and the patent owner entered into a license
agreement (the "License Agreement") as of January 1, 1992. The License Agreement
grants to Registrant an exclusive license to market, manufacture and sell the
Product in the United States and its possessions and territories for the
remaining life of the patent, which is currently fourteen years. Thereafter, the
design of the Product will be in the public domain and Registrant as well as
other companies will have the right to market, manufacture and sell the Product.
As a condition for obtaining the License Agreement, Registrant paid the
patent owner a one-time license fee of $120,000. This payment was made in June
1992 and was capitalized as an intangible asset. The license fee is being
amortized over the remaining legal life of the patent. The License Agreement
also provides for royalties at a rate ranging from $.50 per unit to $1.20 per
unit depending on the method of distribution used. However, a minimum royalty of
$125,000 is required to be paid during each calendar year of the term of the
License Agreement whether or not Registrant sells any units of the Product.
At March 31, 1996, Registrant owed the patent owner an aggregate of
$235,810 in accrued royalties, consisting of $15,181 relating to fiscal year
1996 sales, $13,653 relating to fiscal year 1995 sales, $13,895 relating to
fiscal year 1994 sales, $76,962 relating to fiscal year 1993 sales and $116,119
relating to the 1994 minimum calendar year royalty requirement. Per the terms of
the License Agreement, however, Registrant's position is that per the Licensee
Registrant's obligation to pay the minimum and accrued royalties are stayed due
to government intervention into the marketing of the product (see Government
Regulation) as provided for in the license agreement.
Customers
The Product is currently being sold primarily to the general public either
through distributors or through direct response marketing. The target purchaser
is any individual who experiences muscular pain.
Backlog Orders
There is no current backlog of sales orders.
Competition Significant competition exists in the pain relief market as a
whole. Most of Registrant's competition in the general pain relief market is
from pills, creams and ointments. Competition from companies selling medical
devices is more limited. Registrant is aware of several hand-held devices that
are designed for purposes of massage, but is unaware of any other such devices
legally sold in the United States for the relief of pain associated with
arthritis.
Government Regulation
The Product is subject to regulation and registration with the FDA as a
medical device. The Product has an FDA 510(k) registration permitting its sale
for the temporary relief of minor muscular pain associated with arthritis.
Registrant's Infomercial was subject to the regulation of the Federal Trade
Commission (the "FTC"), and in September, 1991, the FTC authorized an
investigation to determine if Registrant or others might be engaged in unfair
and deceptive practices or methods of competition in violation of Sections 5 and
12 of the Federal Trade Commission Act, with respect to the advertising,
distribution, and sale of the Product. The FTC staff completed its investigation
in August 1992 and concluded that Registrant's infomercial contained advertising
claims which were not substantiated by competent and reliable scientific
evidence.
The FTC then proposed and Registrant agreed to a consent order (the
"Consent Agreement") to cease and desist from making advertising claims in the
future unless Registrant possesses scientific evidence, based on well-controlled
clinical testing, to substantiate health and pain-relief claims. The Consent
Agreement did not require payment of consumer redress, damages, fines, or
penalties nor constitute an admission of any violation of the law.
Registrant signed the Consent Agreement on October 21, 1992, Registrant
took this action only after carefully evaluating the costs of extensive
litigation which may have been necessary to defend its position. Following a
public comment period which ended on August 3, 1993, the FTC issued its final
order approving the Consent Agreement in October 1993.
On January 29, 1996 the FDA approved the 510 (k) premarket notification
filed by the Company in November 1993 based on a clinical study by a major
hospital. The submission of this study and its subsequent approval by the FDA
allows the Company to make claims in relieving pain associated with arthritis.
<PAGE>
Employees As of March 31, 1996, Registrant employed 3 full-time and 1 part-time
employees. These employees performed services in administration, marketing,
order processing, shipping, customer service and accounting. Registrant believes
it is on good terms with its employees and does not foresee any labor
difficulties in the future.
ACQUISITION OF VIASTAR MARKETING, INC.
In June 1994 Registrant acquired ViaStar Marketing, Inc., a Florida
corporation ("ViaStar Florida"), by means of a merger of ViaStar Florida with
and into Airmotive Acquisitions, Inc., a Delaware corporation ("Airmotive") and
a wholly-owned subsidiary of Registrant. Concurrent therewith, Airmotive changed
its name to ViaStar Marketing, Inc., a Delaware corporation ("ViaStar"). Prior
to the merger, Airmotive was not an operating company.
ViaStar Florida, which was incorporated in November 1993, was acquired by
Registrant pursuant to the terms of an agreement dated June 3, 1994 by and among
Registrant, ViaStar Florida, Airmotive, Jack Salzberg, William Lovell, George
Simone and Robert Circosta (the "Acquisition Agreement").
Pursuant to the Acquisition Agreement the shareholders of ViaStar Florida,
Messrs. William Lovell, Robert Circosta and George Simone, at the closing, and
in accordance with the plan of merger of ViaStar Florida into ViaStar, received
an aggregate of 1,000,000 shares of the common stock of Registrant in exchange
for all of the issued and outstanding shares of ViaStar Florida. ViaStar
Florida's significant assets consisted of two licensing agreements with two
nationally recognized celebrities to market and distribute these celebrities
owned or endorsed products.
Subject to ViaStar's achieving certain earnings goals, 500,000 of the
shares issued to ViaStar Florida are being held in escrow (the "Escrow Shares").
The Acquisition Agreement provided that if the cumulative net income of ViaStar
did not aggregate $900,000 prior to March 31, 1997, one and eleven one
hundredths (1.11) Escrow Shares would be released for each dollar of cumulative
net income over $450,000 at March 31, 1997. The acquisition of ViaStar was an
arm's length transaction and the consideration was arrived at by good faith
negotiation between the parties.
Mr. Lovell entered into a three year employment agreement with ViaStar to
be its President; Mr. Circosta entered into a three year employment agreement
with ViaStar to be its Executive Vice President, and George Simone entered into
a three year consulting contract with ViaStar to provide certain consulting
services. Pursuant to the terms of the two employment agreements and the
consulting contract, Messrs. Lovell, Circosta and Simone would receive a base
salary of $125,000 per year and bonuses out of a bonus pool established by
ViaStar. Additionally, these agreements entitled Messrs. Lovell, Circosta and
Simone to earn options to acquire up to an aggregate of 1,000,000, 500,000 and
500,000 additional shares of Registrant's common stock, respectively. The
options were to vest in increments based on ViaStar's achieving particular
performance goals by specific dates as set forth in the Acquisition Agreement.
During fiscal year 1995 ViaStar was engaged in outbound telemarketing of
celebrity owned or endorsed products and the initiation of a direct sales
representative program for such products. ViaStar was a party to a licensing and
distribution agreement with a nationally recognized celebrity for the
distribution of existing owned or endorsed products that are already selling on
national television by means of live direct response television.
In February 1995 Mr. George Simone resigned as a director of ViaStar, and
his consulting contract, including stock options, was terminated by mutual
consent. Mr. Simone received no consulting fees for his services under the
contract. ViaStar and Mr. Simone also signed mutual general releases. In June
1995, Messrs. Lovell and Circosta resigned as directors, officers and employees
of ViaStar and the business essentially ceased operations shortly thereafter.
By July 31, 1995 ViaStar had exhausted the capital provided by its parent
(See Item 6 Financial Condition), and an assignment for the benefit of ViaStar's
creditors was made on July 31, 1995 pursuant to Chapter 727 of the Florida State
Statutes.
ITEM 2. PROPERTIES
Registrant operated from two facilities during fiscal year 1996 as follows:
1. 14115 South Pontlavoy Avenue, Santa Fe Springs, California
Numex moved into its current location on February 1, 1995. The new office
space is used for general office space, customer service and shipment of
Product, and until July 1995, was used to provide fulfillment services for
ViaStar.. The facility contains 12,460 square feet, including shipping
facilities. The monthly rental is $5,482 plus taxes, insurance and other
maintenance costs. Registrant occupies this facility under a three-year lease
which expires in January 31, 1998.
2. 3001 Executive Drive, Suite 300,Clearwater, Florida
ViaStar operated from this facility during the fiscal year 1995 through
approximately July 31, 1995, which it used as a telemarketing operation and
general office space. The facility contains approximately 3,784 square feet. The
monthly rental was $3,942 plus taxes, insurance and other maintenance costs.
ViaStar had executed a lease through June 30, 1999, but has since made an
assignment for the benefit of creditors pursuant to chapter 727 of the Florida
State Statutes.
ITEM 3. LEGAL PROCEEDINGS
The Company and officer of the Company (the "Defendants"). have been named
in a lawsuit. The action alleges that the Defendants made certain
representations in connection with the offer of sale by the Company to
plaintiffs pursuant to a private placement offering by the Company in May 1994.
The complaint contains claims for relief under Rule 10b-5, common law
misrepresentation, breach of contract, rescission and restitution under
California Corporations Code Section 25501. The Company is unable to determine,
if any, the ultimate outcome of the lawsuit, but management of the Company
believes the claims are without merit and intend to defend the claims
vigorously. The amount of the original investment by the plaintiff was $375,000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Registrant's stock is traded in the over the counter market. The following table
sets forth the range of high and low bid and ask quotations for each of the
fiscal quarters for the years ending March 31, 1995 and March 31, 1996, as
reported by the National Quotation Bureau, Inc.
<PAGE>
Fiscal Year Ended Range of Bid/Ask Quotes
High Low
March 31, 1995 Bid Ask Bid Ask
First Quarter 1 1 3/4 3/8 1
Second Quarter 1 1 5/8 1/4 3/4
Third Quarter 1 1 1/4 1/4 3/4
Fourth Quarter 1 1 1/4 1/4 3/4
March 31, 1996
First Quarter 1/2 1 1/8 1/8 5/8
Second Quarter 7/16 15/16 1/4 9/16
Third Quarter 7/16 15/16 1/4 9/16
Fourth Quarter 1/2 1 1/4 5/8
The above quotations represent prices between dealers and do not include
retail markup, markdown or commission, and do not represent actual transactions.
As of March 31, 1996 there were approximately 439 shareholders of record of
Registrant's Common Stock. This number does not reflect individual participants
in security position listings held in "street name" accounts.
Registrant has not paid any cash or stock dividends on its common stock
since its incorporation and anticipates that, for the foreseeable future, any
earnings will be retained for use in Registrant's business.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Net sales during fiscal year 1996 were $ 1,023,000 as compared to
$2,248,000 during fiscal year 1995.
Of the current year's net sales $601,000 is the result of ViaStar's four
months operation, $422,000 is Numex wholesale sales. For fiscal year 1995
ViaStar was $1,720,000 and Numex wholesale sales were $528,000. The decrease in
ViaStar sales from fiscal 1996 to 1995 a reduction of $1,119,999 was due to the
discontinuance (assignment) of that subsidiary. The decrease in Numex sales 1996
to 1995 was $106,000 and was due the decrease in product sales.
Selling, general and administrative expenses during fiscal year 1996 were
$864,000, as compared to $1,461,000 during the prior year. In fiscal 1996
ViaStar's portion was $422,000 and Numex was $442,000. In 1995 ViaStar was
$988,000 and Numex was $473,000.
The decrease in ViaStar's selling general and administrative expenses
fiscal 1996 to fiscal 1995 of $566,000 was due to the discontinuance
(assignment) of that subsidiary. The decrease in Numex selling general and
administrative expenses 1996 to fiscal 1995 was $31,000. The reduction was
primarily the result of decreased accounting and audit fees of $40,000,
depreciation of $30,000, increase in facilities lease of $27,000 primarily due
to the inability to allocate (due to discontinued subsidiary) rent to ViaStar
for its fulfillment and other related activities, etc.
Net loss from operations during the fiscal year 1996 was $399,000 as
compared to $755,000 in fiscal year 1995. For fiscal 1996 ViaStar's loss was
$186,000 and Numex loss was $213,000, for fiscal 1995 the ViaStar loss was
$569,000 and Numex loss was $186,000.
The decrease in ViaStar's loss of $383,000 fiscal 1996 to fiscal 1995 was
discontinuance of its operation. The Increase loss of $27,000, 1996 as compared
to fiscal 1995 for Numex was primarily due to its reduction in wholesale sales.
Net interest expense during fiscal 1996 was $183,000 and $142,000 during
fiscal 1995. Fiscal 1996 $2,000 was ViaStar and $181,000 was Numex. For fiscal
1995 $3,000 was for ViaStar and $139,000 was Numex.
The increase in interest expense for 1996 as compared to 1995 was $41,000.
This was due to increased borrowings by Numex to continue ongoing operations
while awaiting approval from the FDA to add the word arthritis to its labeling
claims. The approval was received in February 1996.
Other income during fiscal 1996 was $219,000 compared to none in 1995
Other income in Numex for fiscal 1996 was $219,000 compared to none for
1995. In general it was comprised of settlements and adjustments of prior period
legal fees of $109,000 audit and tax services of $23,000, sales taxes due to
computer system error $13,000, waiver of officers accrued compensation of
$57,000.
Other expense during fiscal 1996 was as a result of the assignment of
assets of the subsidiary Numex (parent company) wrote off those assets in the
amount of $400,000. In addition as a result of the above, Numex also charged to
earnings the amount of goodwill $533,000 of the subsidiary carried on the books.
There were no other expenses for fiscal year 1995.
Financial Condition, Liquidity and Capital Resources
Net cash used in operations during fiscal year 1996 was $459,000.
Registrant funded this usage from notes payable proceeds which resulted in net
cash flows from financing activities of $359,000. Cash used for operating
activities exceeded cash generated by operating revenues as a result of low
sales volumes which were not adequate to cover minimum overhead costs.
Registrant's liquidity is negatively affected by Registrant's current low
sales volumes and its debt maturities. However, Registrant believes that, if
necessary, it would be successful in either extending the maturity dates on its
debt obligations ($663,000) as they mature or obtaining new debt financing to
retire existing debt as it matures.
There is no change on the Registrant's capital accounts which is $
7,804,139. Registrant has a net stockholders' deficit of $2,489,000 and
$1,192,000 as of March 31, 1996 and 1995, respectively.
Registrant's liquid assets are currently insufficient to meet cash
requirements of its ongoing operations as shown on the balance sheet. However,
there is approximately $603,000 of subsidiary (assignment of assets) debt that
will not effect the cash flow of the parent Company.
Accrued expenses of $376,000 are mainly royalties of $235,000 of which
$116,000 will not be required to pay as a result of the FTC (Federal Trade
Commission) order to cease sale of the Product in 1992. Accrued interest of
$105,000, audit fees $27,000, etc. The non-cash items are as above $603,000 and
$116,000 a total of $719,000 that will not require a payout.
The above along with the probability that at least $557,000 of the $633,000
current notes payable could be extended to future dates, brings the total to
$1,276,000 ($719,000 + $557,000).
In the past, Registrant's Chairman of the Board and principal stockholder
has provided Registrant, either directly or indirectly through guarantees, with
the necessary working capital needed to continue operating. However, Registrant
has received no assurances that its Chairman of the Board will continue to
provide such funding.
<PAGE>
Private Placement In conjunction with a private placement of Registrant's
common stock, Registrant obtained $500,000 which was used as working capital for
ViaStar, pursuant to a confidential private placement memorandum dated as of
April 11, 1994, which was supplemented by letters dated May 26, 1994 and June
13, 1994 to Registrant's subscribers (the "Private Placement"). Registrant was
seeking to obtain up to a maximum of $1,250,000 through an offering of its
securities. The closing on the offering occurred on or about June 13 1994, and
an aggregate of 400,000 shares of Registrant's common stock was issued for
aggregate proceeds to the Company of $500,000
Subsequent to the period covered by this report the Company commenced a
private placement of 350,000 shares of convertible preferred stock and warrants
of the Company which has not been completed. Gross proceeds of the offering
would be $350,000 if all units are sold. As of June 20, 1996 the Company had
sold 165 units for proceeds of $166,000. The net proceeds of this placement are
being used to finance the reintroduction of the Product.
Current Plans of Registrant
Numex
Given the February 1996 permission by the FDA to sell the Product with the
claims of efficacy in relieving pain associated with arthritis Registrant plans
to resume the direct response infomercial marketing of the Product, in addition
to marketing the Product through other complementary distribution channels,
including wholesale distribution through distributors selling in foreign
markets.
A new infomercial is being produced and at year end 1996 and $37,000 had
been paid. As of this writing the infomercial had been completed at a cost of
$131,000 which the Company has paid. The infomercial is now in the process of
being tested and re-edited.
Registrant continues to review new products and ventures which have the
best potential to be marketed through Registrant's direct response system, as
well as through other established marketing channels. Funding necessary to
acquire any new products or the rights to these products would either be
obtained through the issuance of Registrant's stock, by issuing Registrant's
stock as consideration for the acquisition, or by any other means that is
agreeable to Registrant and the parties involved in the transaction.
Inflation and Changing Prices
Registrant does not foresee any adverse effects on it earnings as a result
of inflation or changing prices.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
Index to Financial Statements
Page
Report of Independent Certified Public Accountants 11
Consolidated Balance Sheet As of March 31, 1996 12
Consolidated Statements of Operations for the Years Ended March 31, 1996
and 1995 13
Consolidated Statements of Stockholders' Deficiency for the Years
Ended March 31, 1996 & 1995 14
Consolidated Statements of Cash Flows for the Years Ended March 31, 1996
and 1996 15
Notes to Consolidated Financial Statements 16-24
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors and Stockholders
Numex Corporation and Subsidiary
We have audited the accompanying consolidated balance sheet of Numex
Corporation and Subsidiary as of March 31, 1996 and the related consolidated
statements of operations, stockholders' deficiency, and cash flows for each of
the two years in the period ended March 31, 1996. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Numex
Corporation and Subsidiary as of March 31, 1996, and the consolidated results of
their operations and their consolidated cash flows for each of the two years in
the period ended March 31, 1996, in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As shown in the
financial statements, the Company has incurred net losses from operations, has
negative cash flow from operations and a net capital deficiency. These factors,
among others as discussed in Note 1 to the financial statements, raise
substantial doubt about the Company's ability to continue as a going concern.
Managements' plans in regard to these matters are also described in Note 1. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Singer Lewak Greenbaum & Goldstein LLP
Los Angeles, California
May 10, 1996 (except for Note 14, as to
which the date is June 20, 1996)
<PAGE>
Numex Corporation and Subsidiary
CONSOLIDATED BALANCE SHEET
March 31, 1996 ASSETS
Current assets
Numex Corporation and Subsidiary
CONSOLIDATED BALANCE SHEET
March 31, 1996
ASSETS
Current assets
Cash and cash equivalents $ 11,929
Restricted cash 4,321
Accounts receivable 674
Inventory 49,930
Prepaid expenses and other current assets 36,600
Total current assets 103,454
Fixed assets, net 4,293
Intangible assets, net 392,398
Deposits 12,431
Total assets $ 512,576
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities
Notes payable, current portion $ 663,000
Accounts payable 66,328
Accrued expenses 375,529
Liabilities subject to assignment of assets of subsidiary 603,565
Total current liabilities 1,708,422
Notes payable - related parties 376,834
Notes payable, less current portion 916,000
Commitments and contingencies
Stockholders' deficiency
Preferred stock, $1.00 par value, 10,000,000 shares authorized;
none issued
Common stock, $.10 par value, 20,000,000 shares authorized;
6,270,600 shares issued and 6,145,600 shares outstanding 627,060
Treasury stock, at cost, 125,000 shares (143,324)
Unearned portion of restricted stock issued (562,500)
Additional paid-in capital 7,882,903
Accumulated deficit (10,292,819)
Total stockholders' deficiency
(2,488,680)
Total liabilities and stockholders' deficiency $ 512,576
<PAGE>
Numex Corporation and Subsidiary
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended March 31, 1996 and 1995
1996 1995
Net sales $1,022,878 $2,247,554
Cost of sales 557,409 1,541,310
Gross profit 465,469 706,244
Selling, general and administrative expenses 864,139 1,461,309
Loss from operations (398,670) (755,065)
Other (Expense) income
Interest expense, net (183,224) (142,379)
Other income 218,796
Write-off of cost in excess of fair value of
net assets acquired (533,474)
Loss on assignment of assets for benefit
of creditors of subsidiary (399,572)
Total other (expense) income (897,474) (142,379)
Loss before provision for income taxes (1,296,144) (897,444)
Provision for income taxes 800 800
Net loss $(1,296,944) $ (898,244)
Net loss per share $ (.21) $ (.15)
Weighted average common shares outstanding 6,145,600 5,903,408
<PAGE>
Numex Corporation and Subsidiary
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
For the years ended March 31, 1996 and 1995
Unearned Portion of Treasury Stock Restricted
Additional
Common Stock At Cost Stock Paid-In Accumulated Shares Amount Shares
Amount Issued Capital Deficit Total
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, March 31, 1994 4,870,600 487,060 125,000 $(143,324) $ 6,403,883 $(8,097,631) $(1,350,012)
Common stock issued
for acquisition 1,000,000 100,000 $(562,500) 1,019,020 556,520
Common stock
issued for cash 400,000 40,000 460,000 500,000
Net loss (898,244) (898,244)
Balance, March 31, 1995 6,270,600 627,060 125,000 (143,324) (562,500) $7,882,903 $(8,995,875) 1,191,736)
Net loss (1,296,944) (1,296,944)
Balance, March 31, 1996 6,270,600 $ 627,060 125,000 $ (143,324)$ (562,500) $7,882,903 $(10,292,819) $(2,488,680)
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE>
Numex Corporation and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended March 31, 1996 and 1995
1996 1995
Cash flows from operating activities
Net loss $(1,296,944)$ (898,244)
Adjustments required to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 81,895 144,786
Write-off of cost in excess of fair value of
net assets acquired of subsidiary 533,474
Loss on assignment of assets of subsidiary 399,352
(Increase) Decrease in:
Accounts receivable (579) 7,118
Inventory 82,419 (133,130)
Prepaid expenses and other current assets (43,465) (65,669)
Restricted cash 5,851 13,869
Deposits 7,483 (31,727)
(Decrease) Increase in:
Accounts payable (210,628) 246,491
Accrued expenses (17,850) 129,628
Net cash used in operating activities (458,992) (586,878)
Cash flows from investing activities
Purchase of fixed assets (1,364) (277,333)
Purchase of subsidiary, net of cash acquired 2,004
Net cash used in investing activities (1,364) (275,329)
Cash flows from financing activities
Repayment of notes payable (101,730) (76,000)
Proceeds from notes payable 472,000 264,014
Repayment of notes payable - related parties (17,500)
Proceeds from notes payable - related parties 5,000 281,000
Sale of common stock 500,000
Net cash provided by financing activities 358,770 969,014
Net (decrease) increase in cash and cash equivalents (101,586) 106,807
Cash and cash equivalents, beginning of year 113,515 6,708
Cash and cash equivalents, end of year $ 11,929 $ 113,515
See Note 13 for supplemental disclosure of cash flow information.
The accompanying notes are an integral part of these financial statements.
<PAGE>
Numex Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended March 31, 1996 and 1995
NOTE 1 - ORGANIZATION AND MANAGEMENT'S PLANS
Numex Corporation (the "Company") was incorporated in the state of Delaware
in August 1980. The Company is engaged in the business of manufacturing and
distributing a hand-held mechanical patterned cutaneous nerve stimulator (the
"Product"), which the Company markets under the name "Therapy Plus." The Product
was sold primarily through an infomercial (the "Infomercial") on television from
March 1991 through August 1992. An infomercial is a one-half hour paid
commercial program broadcast on television, the primary purpose of which is to
sell one or more products.
In September 1992, the Company voluntarily discontinued the airing of the
Infomercial as a result of an investigation by the United States Federal Trade
Commission (the "FTC"). The FTC concluded that the Infomercial contained certain
advertising claims which were not supported by reliable scientific evidence.
In October 1992, the Company signed an agreement with the FTC consenting to
refrain from making certain advertising claims concerning the Product, the
signing of which did not constitute an admission of a law violation. Since the
discontinuance of the airing of the Infomercial in September 1992, the Company
has sold the Product primarily to distributors, and has not been engaged in any
television marketing campaign to sell the Product.
In October 1993, the Company completed a controlled clinical study to serve
as the basis for FDA authorization to make certain claims relative to the
efficacy of the Product in relieving pain due to arthritis and to comply with
the FTC's requirements.
In November 1993, the Company submitted a 501(k) notification to the FDA
advising the agency of the Company's intention to add the word arthritis to its
labeling claims. In February 1996, the Company received an FDA notification that
the Product could be marketed as a "Temporary relief of minor muscular pain
associated with arthritis".
In June 1994, a subsidiary of the Company acquired ViaStar Marketing, Inc.
ViaStar is a wholly-owned subsidiary of the Company. ViaStar was in the business
of outbound telemarketing of celebrity owned or endorsed products. The purchase
price was 1,000,000 shares of the common stock of the Company in exchange for
all of the issued and outstanding shares of ViaStar. Subject to ViaStar's
achieving certain earnings goals, 500,000 of the shares issued are being held in
escrow (the "Escrow Shares"). The value of those shares, in the amount of
$562,500, is being shown as a reduction of stockholders' equity. Insofar as
ViaStar is no longer in business, the 500,000 shares being held in escrow will
be released back to the Company on March 31, 1997.
The excess of the total acquisition cost over the fair value of the net
assets acquired (goodwill) in the amount of $559,510 was being amortized over 25
years. The acquisition was accounted for using the purchase method of
accounting. The operations of ViaStar are included in the accompanying year
ended March 31, 1995 financial statements from June 1, 1994.
On August 2, 1995, ViaStar filed, and was granted, a petition commencing an
assignment for the benefit of creditors, pursuant to Chapter 727 of the Florida
State Statutes. The book value of the assets in the amount of $355,572 was
assigned to the trustee for the benefit of the creditors and has been charged to
earnings. As a result of the petition, the Company determined that there had
been a permanent impairment in the carrying value of goodwill, and the remaining
unamortized balance of $533,474 has been charged to earnings. The remaining
liabilities of ViaStar in the amount of $603,565 are still outstanding until the
statute of limitations runs. ViaStar sales were $601,000 and $1,720,000 in 1996
and 1995, respectively.
<PAGE>
Numex Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended March 31, 1996 and 1995
NOTE 1 - ORGANIZATION AND MANAGEMENT'S PLANS (continued)
The Company's consolidated financial statements have been presented on the
basis that the Company will continue as a going concern, which contemplates the
realization of assets and the satisfaction of liabilities in the normal course
of business. In the absence of the airing of the Infomercial, the Company
incurred net losses during 1996 and 1995, and has a net capital deficiency. Also
during the fiscal years 1996 and 1995, the Company experienced insufficient cash
flows from operations and funds for operations were obtained through the
issuances of notes payable. These factors raise substantial doubt about the
Company's ability to continue as a going concern.
The Company's continued existence is dependent upon its ability to achieve
a new operating plan, its success of selling Therapy Plus through wholesale
distributors, and/or to market the Product with newly allowed claims of
arthritis pain relief. Management's plans in connection with this uncertainty is
as follows:
To resume selling the Product through direct response marketing,
infomercials and other complementary marketing channels using the new claims of
relief of minor muscular pain associated with arthritis which were recently
allowed by the FDA.
Continue to develop wholesale distributor markets for Therapy Plus.
Seek new products or ventures to utilize the Company's direct marketing,
and order management and fulfillment experience and resources.
Management's ability to fully achieve their plans and restore the Company's
profitability and liquidity is, however, uncertain. The accompanying
consolidated financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its Subsidiary. All intercompany accounts and transactions have been
eliminated.
Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements, as well as the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Cash and Cash Equivalents
The Company considers cash on hand, deposits in banks and all highly liquid
investments purchased with an original maturity of three months or less to be
cash equivalents. The carrying amounts of these assets approximate fair value
due to the short maturity of the instruments.
Inventory
Inventory is stated at the lower of cost or market value. Cost is
determined using the first-in, first-out ("FIFO") method.
<PAGE>
Numex Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended March 31, 1996 and 1995
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Fixed Assets
Fixed assets are stated at cost. Expenditures for maintenance and repairs
are charged to earnings as incurred; additions, renewals and betterments are
capitalized. When fixed assets are retired or otherwise disposed of, the related
cost and accumulated depreciation are removed from the respective accounts, and
any gain or loss is included in operations.
Depreciation is computed using the straight-line method over the estimated
useful lives of the related assets.
The following are the estimated useful lives:
Furniture and fixtures 3 years
Tools and dies 3-5 years
Depreciation expense was $40,493 and $91,576 for fiscal years ended
March 31, 1996 and 1995, respectively.
Intangible Assets
Intangible assets consist of the following: the contingent purchase
consideration paid (the "Purchased Intangibles") and the costs of obtaining a
licensing agreement from the patent holder of the Product (the "Licensing
Agreement").
Intangible assets are being amortized using a straight-line method over
their estimated useful lives in accordance with the related agreements and the
legal life of the patent over 17 years.
The carrying value of the Company's intangible assets are periodically
evaluated to determine if any permanent decline in value exists which would
require a write-down of such assets.
Amortization of intangible assets was $41,403 and $53,210 for the fiscal
years ended March 31, 1996 and 1995, respectively.
Advertising
The Company expenses the cost of advertising the first time the advertising
takes place, except for direct-response advertising. Direct-response advertising
consists primarily of cost to produce a television infomercial. The cost of
direct-response advertising are deferred and amortized over the expected revenue
stream, of approximately six to twelve months.
At March 31, 1996, $36,500 of direct-response advertising costs were
deferred and included in prepaid expenses and other current assets. For the
years ended March 31, 1996 and 1995, the Company had no advertising expenses.
Revenue Recognition
Sales and their related cost of sales are recorded upon shipment of the
Product. The Company has an unconditional money-back guarantee policy under
which the full sale price is returned to the customer if the Product is returned
within 30 days from the date of sale.
<PAGE>
Numex Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended March 31, 1996 and 1995
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Income Taxes
The Company uses the liability method of accounting for income taxes
pursuant to Statement of Financial Accounting Standard, No. 109, Accounting for
Income Taxes.
Deferred income tax assets result from temporary differences when certain
amounts are deducted for financial statements purposes and when they are
deducted for income tax purposes.
Net Loss Per Share
Net loss per common share are computed based on the weighted average number
of common shares outstanding. The shares to be issued upon exercise of
outstanding stock options are not included as common stock equivalents as they
are antidilutive.
Fair Value of Financial Instruments
The fair value of the Company's notes payable is estimated by discounting
the future cash flows using interest rates currently available for notes of
similar terms and maturities. The carrying values of the Company's notes
approximate fair values due to their relatively short-term maturities of
approximately less than two years. Also, the fixed interest rate of the notes
payable approximates the prevailing market interest rates on financing currently
available to the Company with similar terms and maturity dates.
Future Effect of Recently Issued Accounting Pronouncement
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of (SFAS 121). SFAS 121 requires
that long-lived assets and certain identifiable intangibles held and used by an
entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. If the sum
of the expected future cash flows (undiscounted and without interest) is less
than the carrying amount of the asset, an impairment loss is recognized.
Measurement of that loss would be based on the fair value of the asset. SFAS 121
also generally requires long-lived assets and certain identifiable intangibles
to be disposed of to be reported at the lower of the carrying amount or of the
fair value less cost to sell. SFAS 121 is effective for the Company's 1997
fiscal year end. The Company has made no assessment of the potential impact of
adopting SFAS 121 at this time.
NOTE 3 - RESTRICTED CASH
As of March 31, 1996, the Company had $4,321 of restricted cash to serve as
collateral for credit card reserve. NOTE 4 - INVENTORY Inventory consists of the
following: Raw materials $ 1,199 Finished goods 32,252 Supplies and packaging
16,479 $ 49,930
<PAGE>
Numex Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended March 31, 1996 and 1995
NOTE 5 - FIXED ASSETS
Fixed assets consists of the following:
Furniture and fixtures $191,277
Tools and dies 34,343
225,620
Less accumulated depreciation 221,327
$ 4,293
NOTE 6 - INTANGIBLE ASSETS
Intangible assets consist of the following:
Purchased intangibles $ 313,882
Licensing agreement 207,583
521,465
Less accumulated amortization 129,067
$ 392,398
All purchased intangible assets relate to the Company's exclusive right to
manufacture, market and distribute the Product in the United States. As
discussed in Note 1, the Company expects to resume marketing the Product.
Accordingly, the Company has determined that no permanent decline in the value
of such intangible assets exists as of March 31, 1996.
NOTE 7 - NOTES PAYABLE
Notes payable consist of the following:
Promissory note, bearing interest at 10%, due on demand.
The note is personally guaranteed by the Company's Chairman
of the Board. $ 10,000
Promissory note, bearing interest at 10%, due on
November 24, 1996. This note is collateralized by
cash, accounts receivable, inventories and fixed assets
and is also personally guaranteed by the Company's
Chairman of the Board. 50,000
Promissory note, at 11.5%, payable in monthly
principle payments of $2,000 plus interest, due on
December 17, 1995. This note is collateralized
by cash, accounts receivable, inventories, and fixed
assets. The note is delinquent and is classified as
current. 46,000
<PAGE>
Numex Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended March 31, 1996 and 1995
NOTE 7 - NOTES PAYABLE (continued)
Promissory note, bearing interest at 10%, payable
due on June 30, 1996. This note is convertible
into common stock at a conversion price of $1.00
per share. The note is personally guaranteed by
the Company's Chairman of the Board. $ 200,000
Promissory note, bearing interest at prime plus 2%,
payable at $6,000 per month and was due January 1,
1995. The note is personally guaranteed by the
Company's Chairman of the Board. The note is
delinquent and is classified as current. 151,000
Promissory notes, bearing interest at 10%, due on
September 30, 1997. 316,000
Promissory notes, bearing interest at 10%, due on
September 30, 1997. These notes are convertible
into shares of common stock at a conversion price
of $1.00 per share. 600,000
Promissory notes, bearing interest at 10%, payable on
demand. 156,000
Promissory note, bearing interest at 9.5%, due on
September 25, 1996. 50,000
Total notes payable 1,579,000
Less current portion 663,000
Long-term portion, due in fiscal 1998. $ 916,000
<PAGE>
Numex Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended March 31, 1996 and 1995
NOTE 8 - INCOME TAXES (continued)
Deferred tax asset (liability)
Investment tax credits $ 30,000
Fixed assets 7,000
Net operating losses 3,359,000
Valuation allowance (3,396,000)
Net deferred tax asset (liability) $ 0
The valuation allowance increased by $391,000 in 1996.
NOTE 9 - STOCK OPTION PLANS
On September 30, 1992, the stockholders approved a non-qualified stock
option plan and an incentive stock option plan, pursuant to which a maximum
aggregate of 1,000,000 shares of common stock have been reserved for grant to
officers and key employees. Under both plans, the option price may not be less
than the fair market value of the common stock on the date of grant. Options are
exercisable over a five-year period beginning one year after the date of grant,
and the option exercise period is not to exceed ten years from that date. On
June 30, 1993, 150,000 options were granted under the non-qualified option plan
to an officer of the Company at an exercise price of $1.625 per share. As of
March 31, 1996, 60,000 of these options were vested.
NOTE 10 - RELATED PARTY TRANSACTIONS
As of March 31, 1996, notes payable in the amount of $376,834 were due to
the Company's Chairman of the Board. The notes bear interest at 10% and are due
on September 30, 1997. At the holder's option, $300,000 of the notes are
convertible into shares of common stock at a conversion price of $1.00 per
share. Interest expense to related parties was approximately $38,880 and $93,000
for the years ended March 31, 1996 and 1995, respectively.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
Licensing Agreements
The inventor of the Product obtained a United States patent for the Product
in February 1991. The Company and the patent owner entered into a license
agreement (the "License Agreement") as of January 1, 1992. The License Agreement
grants the Company to an exclusive license to market, manufacture and sell the
Product in the United States and its possessions and territories for the
remaining life of the patent, which is currently fourteen years. Thereafter, the
design of the Product will be in the public domain, and the Company, as well as
other companies, will have the right to market, manufacture and sell the
Product.
As a condition for obtaining the License Agreement, the Company paid the
patent owner a one-time license fee of $120,000. This payment was made in June
1992, and was capitalized as an intangible asset. The license fee is being
amortized over the remaining legal life of the patent. The License Agreement
also provides for royalties at rates ranging from $.50 per unit to $1.20 per
unit depending on the method of distribution used.
<PAGE>
Numex Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended March 31, 1996 and 1995
NOTE 11 - COMMITMENTS AND CONTINGENCIES (continued)
However, a minimum royalty of $125,000 is required to be paid during each
calendar year of the term of the License Agreement whether or not the Company
sells any units of the Product.
At March 31, 1996, the Company owed the patent owner an aggregate of
$235,810 in accrued royalties. Per the terms of the License Agreement, the
Company's position is that, per the License Agreement, obligations to make
payments on the minimum and accrued royalties have been stayed due to the
government intervention into the marketing of the product, and pending the
Company's return to mass marketing of the Product.
Lease Commitments
The Company leases certain facilities for its corporate and operations
offices under long-term lease agreements. Minimum annual rental commitments
under these leases are as follows:
Year Ending
March 31,
1997 $66,000
1998 $57,000
$123,000
Rent expense was $65,776 and $61,985 for 1996 and 1995, respectively.
NOTE 12 - LITIGATION
The Company, and an officer of the Company (the "Defendants"), have been
named Defendants in a lawsuit. The action alleges that the Defendants made
certain representations in connection with the offer and sale by the Company to
plaintiffs pursuant to a private placement offering by the Company in May 1994.
The complaint contains claims for relief under Rule 10b-5, common law
misrepresentation, breach of contract, rescission and restitution under
California Corporations Code Section 25501. The Company is unable to determine,
if any, the ultimate outcome of the lawsuit, but management of the Company
believes the claims are without merit and intend to defend the claims
vigorously. The amount of the original investment by the plaintiff was $375,000.
NOTE 13 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Supplemental cash flow information for the years ended March 31, were as
follows:
1996 1995
Cash paid for interest $ 96,302 $ 135,561
Cash paid for income taxes 800 800
Non cash financing activities for the years ended March 31, were as follows:
1996
1995
ViaStar acquisition; issued 1,000,000 shares of common
stock (500,000 held in escrow for performance clause) $ 556,520
<PAGE>
Numex Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended March 31, 1996 and 1995
NOTE 14 - SUBSEQUENT EVENTS
On April 15, 1996, the Company amended the Articles of Incorporation to
increase the authorized number of preferred stock to 10,000,000 shares and to
change the par value to $1.00 per share. The financial statements give effect to
this transaction for all periods presented.
On April 8, 1996, the Company started a private placement offering for 350
units, each unit consisting of 1,000 shares of the Company's convertible
preferred stock and warrants to purchase 500 shares of the Company's common
stock at prices starting at $.75 per share. As of June 20, 1996, the Company had
sold 165 units for proceeds of $165,825.
<PAGE>
ITEM 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following table sets forth the directors and executive officers of
Registrant as of March 31, 1996
Name Age Current Position With Company
Jack I. Salzberg 73 Chairman of the Board and President
Valerio L. Giannini 58 Secretary and Director
William R. Fryrear 58 Chief Financial Officer
Gerald A. Bagg 44 Director
Martin Lautman 49 Director
Isaac S. Salzberg 44 Director
Listed below are descriptions of the business experience for at least the
past five years for each director and executive officer listed in the preceding
table. Unless otherwise described below, none of these individuals is related in
any way, or has been involved in certain legal proceedings in the past five
years, except as described in the legal proceedings section of this report.
GERALD A. BAGG served as President, Chief Operating Officer, and a director
of Registrant since March 20, 1992 and as Chief Executive Officer since December
30, 1992. As of February 1996, Mr. Bagg resigned as President and CEO but
remains a director and employee. From at least 1988, Mr. Bagg served as
President of Brentwood Marketing, a marketing and strategic planning firm
located in Los Angeles, California.
WILLIAM R. FRYREAR has served as Chief Financial Officer of Registrant
since January, 1994. He previously served in this capacity from March, 1989
until December, 1991. Mr. Fryrear has been Owner of BAR Professional Services,
an accounting firm located in Beverly Hills, California since 1976.
VALERIO L. GIANNINI served as President of Registrant from January, 1985 to
February, 1987 has served as a director since 1985 and was elected Secretary in
February 1995. Since 1990, Mr. Giannini has been a self employed investment
banker and financial consultant. He served as President of Geneva Business
Network, Inc., located in Irvine, California from 1987 to 1990.
MARTIN R. LAUTMAN has been a director of Registrant since January 1985. He
formerly served as President from February, 1987 to March, 1989 and as Secretary
from 1985 to February, 1987. Mr. Lautman has been Executive Vice President of
Arbor, Inc., located in Media, Pennsylvania, since 1977 and President of Arbor's
Market Research and Consulting Division since 1986.
ISAAC S. SALZBERG has served as a director of Registrant since March, 1989.
He was formerly President and Chief Executive Officer of Registrant from March,
1989 to March, 1992. He has been a director of First Charter Bank since 1988 and
an officer since 1989. Mr. Salzberg is the son of the Chairman of the Board of
Registrant, Jack I. Salzberg.
JACK I. SALZBERG has been Chairman of the Board since January, 1985 and has
served as Chief Executive Officer of Registrant from March, 1992 until December,
1992. He assumed the additional office of President in February 1996. He had
been Chairman of the Board since 1983 and Chief Executive Officer since June,
1989 of First Charter Bank, N.A., a national bank which operates two branch
offices in the Los Angeles area, and of which he was also a major stockholder.
Mr. Salzberg retired from all positions with First Charter Bank and divested
himself all stock ownership on September 30, 1995. Mr. Salzberg is the father of
Isaac S. Salzberg, a director of Registrant.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth all plan and non-plan compensation awarded
to, earned by, or paid to Registrant's Chief Executive Officer for services
rendered to Registrant during the fiscal years ending March 31, 1994, 1995 and
1996.
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
Awards
Name and Principal Restricted Securities
Position at Fiscal Other Annual Stock Underlying
March 31, 1996 Year Salary Bonus Compensation Awards Options
Gerald A. Bagg 1996 $24,000
1995 36,000 $3,500
1994 63,000 6,000
OPTION/SAR GRANTS IN FISCAL YEAR 1994
(Individual Grants)
Number of Securities Percent of Total Option/ Exercise or
Underlying Options/SARs SARs Granted to Base Price
Employees in Fiscal Year ($/share)
Name Granted (#)
Gerald A. Bagg 150,000 (1) 100% 1.625
Expiration date of options: 6/30/2003
___________
(Footnotes)
(1) On June 30, 1993, Mr. Bagg was granted nonqualified stock options to
purchase 150,000 shares of Registrant's common stock under Registrant's 1992
Stock Option Plan. These options vest in equal annual installments of 30,000,
over a period of five years, beginning on June 1, 1994. All of such options are
exercisable for a period of ten years from the date of grant. The exercise price
of this option is not less than the fair market value as calculated by the
average of the bid and ask prices of Registrant's common stock on the grant
date. As of the date of this report, 60,000 options are exercisable and Mr. Bagg
has not exercised his option to purchase any of these shares.
Arrangements with Directors
During the fiscal year 1996, Valerio L. Giannini, a director and Secretary
of Registrant, received a total of $ 40,000 as compensation for professional
services rendered to Registrant unrelated to his services and duties as a
director.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information concerning ownership of the
Registrant's Common Stock as of March 31, 1996 by (a) each director of the
Registrant; (b) each person known to Registrant to be the beneficial owner of
more than five percent (5%) of its Common Stock; and (c) all directors and
officers of Registrant as a group.
<PAGE>
Amount and Nature
of
Beneficial Ownership
Name of Beneficial
Percent of
Owner Title Number of Shares Class
Gerald A. Bagg Director 60,000 (1) .98%
Valerio L. Giannini Corporate Secretary and Director 193,590 3.15%
Martin R. Lautman Director 140,430 2.29%
Isaac S. Salzberg Director 378,500 (2) 6.16%
Jack I. Salzberg Chairman of the Board & President 1,270,423 20.67%
All Directors and Officers as a Group (5 persons) 2,042,943 33.25%
(Footnotes)
(1) Includes 60,000 shares which Mr. Bagg has the right to acquire through
common stock options which became exercisable on June 1, 1994.
(2) Includes 25,000 shares are held by Isaac S. Salzberg and Susan S.
Salzberg as trustees for the Isaac S. Salzberg and Susan S. Salzberg Living
Trust. The balance of these shares is held by Mr. Salzberg as custodian for his
minor children. Mr. Salzberg has the power to both vote and direct the
disposition of his children's shares.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Loans from Related Parties
Jack I. Salzberg
Registrant had issued $376,834 in demand notes payable to Jack I. Salzberg,
Registrant's Chairman of the Board, to fiscal year ended March 31, 1996. As of
fiscal 1995 total was $371,834. Mr. Salzberg's notes mature on September 30,
1997 and carry interest at 10% at March 31, 1996. Registrant's board of
directors approved and Mr. Salzberg has the option to convert $300,000 of his
notes payable into Registrant's common stock at conversion rate of $1.00 per
share.
Esther Kozienicki
Registrant issued $566,000 in notes payable to Esther Kozienicki, the
sister of Jack I. Salzberg, Registrant's Chairman of the Board, to fiscal year
ended March 31, 1996. Notes payable to Esther Kozienicki at March 31, 1995 were
$340,000. Registrant's board of directors approved and Esther Kozienicki has the
option to convert $300,000 of her notes payable into common stock at $1.00 per
share. The notes bear interest at 10% and mature September 30, 1997.
Chaim Livne
Registrant issued $350,000 in notes payable to Chaim Livne, the
brother-in-law of the wife of Registrant's Chairman of the Board to fiscal year
ended March 31, 1996. Notes payable to Chaim Livne at March 31, 1995 were
$325,000. The notes bear interest at 10% and mature June 30, 1997. Registrant's
board of directors approved and Chaim Livne has the option to convert $300,000
of his notes payable into common stock at $1.00 per share.
<PAGE>
DDI Promissory Note
As previously reported in Registrant's 10-QSB for the quarter ended
December 31, 1993, and in connection with the settlement of the litigation
between Registrant and Delux Distributions International, Inc. ("DDI"),
Registrant agreed to pay DDI a total of $70,000, without interest. The note was
payable in twenty equal monthly installments of $3,500 each, commencing on
January 1, 1994 and continuing until August 1, 1995. The note was personally
guaranteed by Registrant's Chairman of the Board. During fiscal year 1996,
Registrant paid the final $17,500 of this obligation.
Bank Accounts Held at First Charter Bank
Registrant maintains several bank accounts with First Charter Bank, located
in Beverly Hills, California. Registrant's Chairman of the Board was a major
stockholder and Chairman of the Board through September 30, 1995 of First
Charter Bank. Isaac Salzberg a director is also a director and officer of First
Charter Bank.
PART IV.
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a)(1) Exhibits
See Index to Exhibits. The exhibits therein listed and
attached hereto, and the Exhibits therein incorporated by reference, are filed
as a part of this report.
(a)(2) List
See exhibits.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the period
covered by this report.
A report on Form 8- K was filed with the Securities and Exchange Commission
on April 4, 1995 and a related Form 8-K/A on April 11, 1995, relating to
Registrant's change of accountants.
A report on Form 8-K was filed with SEC on August 2, 1995 regarding
subsidiary's assignment for the benefit of creditors.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NUMEX CORPORATION
By /s/ JACK I. SALZBERG
Jack I. Salzberg
Chairman of the Board & President
By /s/ WILLIAM R. FRYREAR
William R. Fryrear
Chief Financial Officer
Dated: June 28, 1996
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.
/s/ JACK I.SALZBERG
Jack I. Salzberg
Chairman of the Board & President
/s/ GERALD A. BAGG
Gerald A. Bagg
Director
/s/ VALERIO L. GIANNINI
Valerio L. Giannini
Secretary and Director
/s/ MARTIN R. LAUTMAN
Martin R. Lautman
Director
/s/ ISAAC S. SALZBERG
Isaac S. Salzberg
Director
Dated: June 28, 1996
<PAGE>
INDEX TO EXHIBITS
Exhibit No.
2.1 Asset Purchase Agreement by and between Registrant and DDI dated
December 3, 1990. Incorporated by reference to exhibit 2(a) to Form 8-K dated
December 9, 1990.
2.2 Amendment to Asset Purchase Agreement by and between Registrant and
DDI, dated January 2, 1991. Incorporated by reference to exhibit 2(b) to Form
8-K dated December 9, 1990.
3.1 Registrant's Certificate of Incorporation. Incorporated by reference to
exhibit 2.1 to Registrant's Registration Statement on Form S-18, filed on August
14, 1980.
3.2 Registrant's Certificate of Amendment to the Certificate of
Incorporation filed August 30, 1985. Incorporated by reference to exhibit 3.3 to
Registrant's Form 10-K for fiscal year ending March 31, 1988.
3.3 Registrant's Certificate of Amendment to the Certificate of
Incorporation filed March 31, 1986. Incorporated by reference to exhibit 10.4 to
Registrant's Form 10-K for fiscal year ending March 31, 1986.
3.4 Registrant's Certificate of Amendment to the Certificate of
Incorporation filed October 14, 1992. Incorporated by reference to exhibit 3.4
to Registrant's Form 10-KSB for fiscal year ending March 31, 1993.
3.5 Bylaws of Registrant. Incorporated by reference to exhibit 2.2 to
Registrant's Registration Statement on Form S-18, filed on August 14, 1980.
3.6 Amendment to Bylaws dated March 19, 1992. Incorporated by reference to
exhibit 3.6 to Registrant's Form 10-KSB for fiscal year ending March 31, 1993.
3.7 Amendment to Bylaws dated March 30, 1992. Incorporated by reference to
exhibit 3.7 to Registrant's Form 10-KSB for fiscal year ending March 31, 1993.
3.8 Amendment to Bylaws dated July 15, 1992. Incorporated by reference to
exhibit 3.8 to Registrant's Form 10-KSB for fiscal year ending March 31, 1993.
3.9 Amendment to Bylaws dated December 30, 1992. Incorporated by reference
to exhibit 3.9 to Registrant's Form 10-KSB for fiscal year ending March 31,
1993.
4 Specimen Common Stock Certificate. Incorporated by reference to exhibit
3.0 to Registrant's Registration Statement on Form S-18, filed on August 14,
1980 (by amendment).
10.1 License agreement dated as of January 1, 1992 between Registrant and
Gunter Schweisfurth concerning the Product. Incorporated by reference to exhibit
10.1 to Registrant's Form 10-KSB for fiscal year ending March 31, 1993.
10.2 Mutual Release and Settlement Agreement dated December 17, 1993
between Registrant and Delux Distributions International, Incorporated. Filed
herewith.
10.8 Registrant's 1992 Stock Option Plan. Incorporated by reference to
exhibit 10.8 to Registrant's Form 10-KSB for fiscal year ending March 31, 1993.
<PAGE>
INDEX TO EXHIBITS, cont.
Exhibit No
10.9 Stock Option Agreement with Gerald A. Bagg. Incorporated by reference
to exhibit 10.9 to Registrant's Form 10-KSB for fiscal year ending March 31,
1993.
10.10 Consent Agreement Containing Order to Cease and Desist between
Registrant and the United States Federal Trade Commission dated October 21, 1992
and related Complaint. Incorporated by reference to exhibit 10.10 to
Registrant's Form 10-KSB for fiscal year ending March 31, 1993.
10.11 Exchange Agreement dated as of April 7, 1994 by and among Registrant,
Jack I. Salzberg, William Lovell and ViaStar Marketing, Inc. Incorporated by
reference to exhibit 10.11 to Form 8-K filed on April 22, 1994.
10.12 Amended and Restated Acquisition Agreement dated as of June 3, 1994
by and among Registrant, Airmotive Acquisitions, Inc., ViaStar Marketing, Inc.,
Jack I. Salzberg, William Lovell, Robert Circosta and George Simone.
Incorporated by reference to exhibit 10.12 to Form 8-K filed on June 17, 1994.
10.13 Employment Agreement dated June 6, 1994 by and among ViaStar
Marketing, Inc. (f/k/a Airmotive Acquisitions, Inc.), Registrant and William
Lovell. Incorporated by reference to exhibit 10.13 to Form 8-K filed on June 17,
1994.
10.14 Employment Agreement dated June 6, 1994 by and among ViaStar
Marketing, Inc. (f/k/a Airmotive Acquisitions, Inc.), Registrant and Robert
Circosta. Incorporated by reference to exhibit 10.14 to Form 8-K filed on June
17, 1994.
10.15 Employment Agreement dated June 6, 1994 by and among ViaStar
Marketing, Inc. (f/k/a Airmotive Acquisitions, Inc.), Registrant and George
Simone. Incorporated by reference to exhibit 10.15 to Form 8-K filed on June 17,
1994.
11 Statement regarding computation of per share earnings. Set forth on
Consolidated Statements of Operations, above, as Registrant has a simple capital
structure.
21 Subsidiaries of Registrant.
INDEX TO ANNUAL REPORT ON FORM 10-K
10-K Contents
PAGE
PART I
Item 1. Business 2
Item 2. Properties 6
Item 3. Legal Proceedings 6
Item 4. Submission of Matters to Vote of Security Holders 6
PART II.
Item 5. Market for the Registrant's Common Stock Equity and
Related Security Holder Matters 6-7
Item 6. Management's Discussion and Analysis of Financial
Conditions and Results of Operations 7-9
Item 7. Financia1 Statements and Supplementary Data 11-24
Item 8. Changes in and disagreements with Accountants
on Accounting and Financial Disclosure 25
Item 9. Directors and Executive Officers of the Registrant 25
Item 10. Executive Compensation 26
Item 11. Security Ownership of Certain Beneficial
Owners and Management . 26-27
Item 12. Certain relationships and Related Transactions 27-28
PART IV
Item 13. Exhibits List and Reports on Form 8-K 30-31
SIGNATURES 32
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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