<PAGE> 1
As filed with the Securities and Exchange Commission on October 2, 1998
REGISTRATION NO. 333-________
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
NUMEX CORPORATION
(Name of Small Business Issuer in its Charter)
<TABLE>
<CAPTION>
DELAWARE 3541 06-1034587
<S> <C> <C>
(State or Jurisdiction (Primary Standard (I.R.S. Employer
of Incorporation or Organization) Industrial Classification Code Number) Identification Number)
</TABLE>
14115 S. PONTLAVOY AVENUE
SANTA FE SPRINGS, CA 90670
(562) 404-7176
(Address and Telephone Number of
Principal Executive Offices)
COPY TO:
JACK I. SALZBERG ALLAN B. DUBOFF, ESQ.
CHAIRMAN OF THE BOARD, PRESIDENT LANCE JON KIMMEL, ESQ.
14115 S. PONTLAVOY AVENUE RICHMAN, LAWRENCE, MANN,
SANTA FE SPRINGS, CA 90670 CHIZEVER & PHILLIPS
(562) 404-7176 9601 WILSHIRE BOULEVARD
(Name, Address and Telephone Number PENTHOUSE
of Agent for Service) BEVERLY HILLS, CALIFORNIA 90210
(310) 274-8300
(310) 274-2831(FAX)
Approximate date of commencement of proposed sale to the public: As soon as
practicable from time to time after the effective date of this Registration
Statement.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
<PAGE> 2
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of a prospectus is expected to be made pursuant to Rule 434, please
check the following box. [ ]
<TABLE>
<CAPTION>
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CALCULATION OF REGISTRATION FEE
Proposed Proposed
Amount Maximum Maximum Amount of
Title of Each Class of Being Offering Price Aggregate Registration
Securities to be Registered Registered Per Unit(1) Offering Price Fee
<S> <C> <C> <C> <C>
Common Stock, par value
$.10 per share 5,210,506 $ 0.625 $ 3,256,566.20 $ 960.69
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</TABLE>
(1) Estimated in accordance with Rule 457 solely for the purpose of
determining the registration fee and based on the average of the bid and
asked prices as reported by the National Association of Securities
Dealers Inc. on September 28, 1998.
-----------------------------
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
ii
<PAGE> 3
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
SUBJECT TO COMPLETION, DATED OCTOBER 2, 1998
NUMEX CORPORATION
5,210,506 SHARES OF COMMON STOCK
This Prospectus has been prepared for use in connection with the
proposed resale by the selling stockholders described herein (the "Selling
Stockholders"), of an aggregate of up to 5,210,506 shares of the Company's
common stock, $.10 par value per share (the "Common Stock"). The Common Stock
being registered hereunder (the "Shares" or the "Securities") may be offered and
sold by the Selling Stockholders from time to time directly or through agents or
to or through broker-dealers. See "Plan of Distribution." Unless the context
indicates or otherwise requires, references in this Prospectus to the "Company"
are to Numex Corporation and its consolidated subsidiaries.
The Company's Common Stock is traded on the Nasdaq Bulletin Board (the
"Nasdaq Bulletin Board") under the trading symbol NUMX. On September 28, 1998,
the closing price for the Common Stock as reported on the Nasdaq Bulletin Board
was $0.5625 per share.
The Company will receive no portion of the proceeds of the sale of the
Securities by the Selling Stockholders, but will receive proceeds from the
exercise of options held by certain Selling Stockholders. The Company will bear
the expenses in connection with the registration of the Securities. See "Plan of
Distribution," "Use of Proceeds" and "Selling Stockholders."
SEE "RISK FACTORS," COMMENCING ON PAGE 7 OF THIS PROSPECTUS, FOR A DISCUSSION OF
CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
SECURITIES OFFERED HEREBY.
THE SECURITIES HAVE NOT BEEN REGISTERED FOR SALE UNDER THE SECURITIES
LAWS OF ANY STATE OR JURISDICTION AS OF THE DATE OF THIS PROSPECTUS. BROKERS OR
DEALERS EFFECTING TRANSACTIONS IN THE SECURITIES SHOULD CONFIRM THE EXISTENCE OF
AN EXEMPTION FROM REGISTRATION OR THE REGISTRATION THEREOF UNDER THE SECURITIES
LAWS OF THE STATES IN WHICH SUCH TRANSACTIONS OCCUR.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Title of each Class of Total Number Proceeds to Issuer or
Security being registered of Shares Price to Public(1) Other Persons(2)(3)
- ------------------------- --------- ------------------ -------------------
<S> <C> <C> <C>
Common Stock 5,210,506 $ 0.5625 $ 2,930,909.60
Totals 5,210,506 $ 2,930,909.60
</TABLE>
(1) Based on the Closing Price of the Common Stock on the Nasdaq Bulletin
Board on September 28, 1998.
<PAGE> 4
(2) All expenses of this Offering are being borne by the Company. The
Company estimates that it will incur approximately $33,000 in
registration, legal, accounting, and other fees in connection with this
Offering.
(3) The Company will not receive any of the proceeds from the sale of the
shares being offered by the Selling Stockholders.
THE DATE OF THIS PROSPECTUS IS OCTOBER , 1998.
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
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Page
<S> <C>
Available Information...................................................................... 1
Documents Incorporated By Reference........................................................ 2
Prospectus Summary......................................................................... 3
Risk Factors............................................................................... 5
Use Of Proceeds............................................................................ 9
Market For Common Equity And Related Stockholder Matters................................... 9
Selling Stockholders....................................................................... 11
Plan Of Distribution....................................................................... 12
Management's Discussion And Analysis Of Financial Condition And Results Of Operation....... 12
Business................................................................................... 16
Management................................................................................. 18
Executive Compensation..................................................................... 19
Certain Relationships And Related Transactions............................................. 20
Security Ownership Of Certain Beneficial Owners And Management............................. 21
Recent Sales Of Unregistered Securities.................................................... 21
Legal Proceedings.......................................................................... 22
Changes In And Disagreements With Accountants On Accounting And Financial Disclosure....... 23
Disclosure Of Commission Position On Indemnification Of Securities Act Liabilities......... 23
Legal Matters.............................................................................. 24
Experts ................................................................................... 24
</TABLE>
<PAGE> 6
AVAILABLE INFORMATION
The Company is subject to the information requirements of the Securities
Exchange Act of 1934 (the "Exchange Act"), and in accordance therewith files
reports, proxy materials and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy materials and other
information can be inspected and copied at the public reference facilities
maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following Regional Offices of the Commission:
Seven World Trade Center, 13th Floor, New York, N.Y. 10048 and 500 West Madison
Street, Chicago, Illinois 60661. Copies of such material can also be obtained
from the Public Reference Section of the Commission at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition,
such material can be inspected at the offices of the National Association of
Securities Dealers, Inc., at 1735 K Street, N.W., Washington, D.C. 20006. The
Commission maintains a website that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission. The address of such site is: http:\\www.sec.gov. The Common
Stock is listed on the Nasdaq Bulletin Board and the reports, proxy statements
and certain other information filed by the Company may be obtained by calling
the Nasdaq Public Reference Room Disclosure Information Group at (800) 638-8241
or (202) 728-8298.
This Prospectus constitutes a part of the Registration Statement on Form
SB-2 (together with all exhibits and amendments thereto, the "Registration
Statement") filed by the Company under the Securities Act of 1933, as amended
(the "Securities Act"). This Prospectus, which constitutes a part of the
Registration Statement, does not contain all the information set forth in the
Registration Statement, certain items of which are contained in schedules and
exhibits to the Registration Statement as permitted by the rules and regulations
of the Commission. Statements contained in this Prospectus as to the contents of
any agreement, instrument or other document referred to are not necessarily
complete. With respect to each such agreement, instrument or other document
filed as an exhibit to the Registration Statement, reference is made to the
exhibit for a more complete description of the matter involved, and each such
statement shall be deemed qualified in its entirety by such reference.
No dealer, sales representative or any other person has been authorized
to give any information or to make any representations in connection with this
Offering other than those contained in this prospectus, and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Company, any Selling Shareholder or any Underwriter. This
prospectus does not constitute an offer to sell, or a solicitation of an offer
to buy, any securities other than the registered offer and sale of the
securities to which it relates or an offer to, or a solicitation of, any person
in any jurisdiction where such an offer or solicitation would be unlawful.
Neither the delivery of this prospectus nor any sale made hereunder shall, under
any circumstances, create any implication that there has been no change in the
affairs of the Company since the date hereof or that the information contained
herein is correct as of any time subsequent to the date hereof.
Until , 1998 (25 days from the date of this Prospectus),
all dealers effecting transactions in the Common Stock, whether or not
participating in this distribution, may be required to deliver a prospectus.
This delivery requirement is in addition to the obligation of dealers to deliver
a prospectus when acting as Underwriters and with respect to their unsold
allotments or subscriptions.
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<PAGE> 7
DOCUMENTS INCORPORATED BY REFERENCE
The following documents have been filed with the Commission and are
incorporated herein by reference:
(a) The Company's Annual Report on Form 10-KSB for the fiscal
year ended March 31, 1998, filed pursuant to Section 13(a) of the Securities
Exchange Act of 1934, containing audited financial statements for the fiscal
year ended March 31, 1998.
(b) The Company's quarterly reports on Form 10-QSB for the fiscal
quarters ended June 30, 1998 and all other reports, if any, filed by the Company
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 since
the quarter ended December 31, 1997.
(c) The description of the Company's Common Stock contained in
its Registration Statement on Form S-18 (Commission File No. 2-6881813), as
filed with the Commission on August 14, 1980, including any amendment or report
filed for the purpose of updating such description.
All documents filed by the Registrant pursuant to Section 13(a), 13(c),
14 and 15(d) of the Exchange Act after the date hereof and prior to the filing
of a post-effective amendment to this registration statement which indicates
that all securities offered hereunder have been sold, or which deregisters all
securities then remaining unsold under this registration statement, shall be
deemed to be incorporated by reference in this registration statement and to be
a part hereof from the date of filing of such documents. Any statement contained
in a report or document shall be deemed to be modified or superseded for
purposes of this Prospectus to the extent that a statement contained herein or
in a subsequently filed document which also is or is deemed to be incorporated
by reference in this Prospectus modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company undertakes to provide without charge to each person to whom
a copy of this Prospectus is delivered, upon the written or oral request of such
person, a copy of any or all of the documents referred to above which have been
or may be incorporated by reference herein (other than exhibits to such
documents unless such exhibits are specifically incorporated by reference in
such documents). Requests for such copies should be directed to the Company at
14115 S. Pontlavoy Avenue, Santa Fe Springs, CA 90670, Attn:
Corporate Secretary (telephone (562) 404-7176).
2
<PAGE> 8
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and should
be read in conjunction with, the more detailed information and financial
statements, including the notes thereto, appearing elsewhere or incorporated by
reference in this Prospectus. In this Prospectus, the words "expects,"
"anticipates," "believes," "intends," "will" and similar expressions identify
forward-looking statements, which speak only as of the date hereof, and are
subject to certain risks and uncertainties. The Company's actual results may
differ materially from the results discussed in such forward-looking statements.
Factors that may cause such a difference include, but are not limited to, those
discussed in "Risk Factors."
THE COMPANY
The Company was incorporated under the laws of the State of Delaware on
August 1, 1980. Since January 1991, the primary business of the Company had been
the manufacture under license (through subcontractors) and distribution of the
Company's only product, Therapy Plus, a patented, non-electric, cylinder-shaped,
hand-held device used for the relief of arthritis pain (the "Product").
For some time, sales of the Product have been declining significantly,
to the point that there are no new sales of the Product. No significant
additional sales of the Product are expected. The only activities at present are
the shipping of warehoused units of the Product for which payment has already
been received. There are no other products under development and there are no
plans to develop any additional products at this time.
The Company's current plans are to continue to seek out acquisitions of
profitable businesses. In anticipation of possible acquisitions, the Company has
established a relationship with a medium size investment banking house which
specializes in private placements of securities and notes with institutional
investors. The Company has a federal tax loss carryforward of approximately $6.9
million and a California tax loss carryforward of approximately $1.6 million
which would be available to be utilized by any profitable acquisition. The loss
carryforwards would be subject to annual limits if such acquisition results in a
significant change of ownership.
The Company's executive offices are located at, and its mailing address
is, 14115 S. Pontlavoy Avenue, Santa Fe Springs, CA 90670. Its telephone number
is (562) 404-7176.
PLAN OF DISTRIBUTION
The Securities being sold by the Selling Stockholders, up to 5,210,506
shares of Common Stock, are being sold for their own accounts. The Company has
not been advised by the Selling Stockholders as to any plan of distribution. The
Company will not receive any proceeds from the sale of the Securities by the
Selling Stockholders. However, if certain Selling Stockholders exercise all of
the options to purchase Securities to be offered hereunder, the Company will
receive the proceeds from such exercise. If all such options and warrants are
fully exercised, the Company would receive $738,750, which would be used by the
Company for general working capital.
3
<PAGE> 9
The Selling Stockholders may sell the Shares from time to time through
dealers or brokers in transactions on the Nasdaq Bulletin Board at prices then
prevailing, or directly to one or more purchasers in negotiated transactions at
negotiated prices, or in a combination thereof. The Selling Stockholders and any
dealers or brokers that participate in such distribution may be deemed
"underwriters" within the meaning of the Securities Act and any commissions or
discounts received by any such dealer or broker may be deemed "underwriting
compensation."
The costs of registering the Shares will be paid by the Company.
There can be no assurances that the Selling Stockholders will sell any
or all of the Shares offered hereunder.
4
<PAGE> 10
RISK FACTORS
An investment in the securities offered hereby is highly speculative and
involves a high degree of risk. Prospective investors should carefully consider
all of the information contained in this Prospectus and, in particular, the
following factors which could materially and adversely affect the operations and
prospects of the Company or an investment therein, before making a decision to
purchase any securities offered hereby.
Operating Losses; Accumulated Deficit; Uncertainty of Future Results.
The Company has experienced net losses from its operations for an extended
period of time. In fiscal 1996, 1997 and 1998, the Company experienced losses of
$398,670, $512,293 and $560,826, respectively. These losses, incurred over a
number of years, have resulted in an accumulated deficit of $11,467,014 at June
30, 1998. During fiscal years 1996, 1997 and 1998, the Company experienced
insufficient cash flows from operations, and funds for operations were obtained
through the issuances of notes payable and preferred stock. The Company can make
no assurances that the future operations of the Company will result in
profitable operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business".
No Current Operations. For some time, sales of the Company's only
product, Therapy Plus (the "Product"), have been declining significantly, to the
point that there have been no sales of the Product since June, 1998. No
significant additional sales of the Product are expected. The only activities at
present are the shipping of warehoused units of the Product for which payment
has already been received. There are no other products under development and
there are no plans to develop any additional products at this time. Accordingly,
the viability of the Company is dependent upon the commencement of new business
activities through outside sources, including acquisitions and other strategic
business combinations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business".
Dependence on Loans for Working Capital. Jack I. Salzberg, Chairman of
the Board, President, and a principal shareholder of the Company, and relatives
of Mr. Salzberg, have provided the Company, either directly or indirectly
through guarantees, with the necessary working capital needed to continue
operating. The Company can make no assurances that Mr. Salzberg or his relatives
will continue to provide such funding. If the Company does not achieve
profitability, the Company may be without working capital with which to operate.
See "Certain Relationships and Related Transactions" and "Recent Sales of
Unregistered Securities".
Dependence on Management. The Company's success at implementing its
growth plans depends largely upon the Company's management, in particular, Jack
I. Salzberg, the Company's Chairman of the Board and President. The loss of the
services of Mr. Salzberg would have a material adverse effect on the Company's
prospects. Although Mr. Salzberg has been rendering services to the Company on a
full-time basis, the Company does not have an employment agreement with Mr.
Salzberg and he may at any time elect to render services on a part-time basis or
not at all. See "Management".
Conflicts of Interest/Potential for Compromise of Management's Fiduciary
Duties. Prior to January 1, 1998, the Company has borrowed funds from Mr.
Salzberg for working capital (such loans were converted into shares of the
Company's common stock prior to January 1,
5
<PAGE> 11
1998). Since January 1, 1998, the Company has borrowed $578,414 from relatives
of Mr. Salzberg and other persons. The terms of the loans made by these persons
to the Company were not arrived at by arms' length negotiations, and therefore
may have been or may be on terms less favorable to the Company than if the
Company had entered into these agreements with unaffiliated third parties. See
"Certain Relationships and Related Transactions" and "Recent Sales of
Unregistered Securities."
Delaware law provides that a contract that a corporation enters into in
which its officers and directors or affiliates of its officers and directors
have a financial interest (a "Related Party Contract") is not void or voidable
if the material facts as to the relationship or interest and as to the contract
are disclosed or are known to the Board of Directors, and the Board in good
faith authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested directors
be less than a quorum. Delaware law further provides that a Related Party
Contract is not void or voidable if the contract or transaction is fair to the
corporation at the time it is authorized, approved or ratified by the Board of
Directors. Management's current policy is to permit the Company to enter into
Related Party Contracts so long as such contracts would not be void or voidable
under Delaware law. Accordingly, with respect to each of the Related Party
Contracts described above, the Company's Board of Directors is fully aware of
the relevant relationships and financial interests involved, and the
disinterested Board members have adopted resolutions, in good faith, approving
each of such Related Party Contracts. Management may enter into additional
Related Party Contracts in the future so long as the Board of Directors is aware
of the relationship and financial interest of an officer and director in the
contract and the contract is approved by the disinterested directors in good
faith. None of the Related Party Contracts described above has been submitted to
the stockholders for their approval and the Company does not intend to submit
such Related Party Contracts to the stockholders for their approval in the
future unless such approval is required by law or by the rules of any regulatory
authority, e.g., Nasdaq.
Possible Change of Control. The Selling Stockholders named herein
include all the directors and executive officers of the Company, Gerald A. Bagg,
Robert Fabregas, Isaac S. Salzberg and Jack I. Salzberg, and a number of
principal stockholders of the Company, many of whom are relatives of Jack I.
Salzberg. Among the shares registered hereunder are (i) all the shares of Common
Stock of the Company currently held by management, (ii) all the shares of Common
Stock into which outstanding and presently exercisable warrants and options held
by such persons are convertible and (iii) a significant number of shares of
Common Stock held by the Company's principal stockholders. The registration of
such shares will not necessarily result in the sale by management of such
shares. However, if all, or a significant percentage, of such shares are
ultimately sold by such persons, there will be a change in control of the
Company. See "Selling Stockholders".
Future Acquisitions. The Company plans to pursue the acquisition of
other profitable businesses. The magnitude, timing and nature of any future
acquisitions will depend on a number of factors, including suitable acquisition
candidates, the negotiation of acceptable terms, the Company's financial
capabilities, and general economic and business conditions. There is no
assurance that the Company will identify acquisition candidates that would
result in successful combinations or that any such acquisitions will be
consummated on acceptable terms. Any future acquisitions by the Company may
result in potentially dilutive issuances of equity securities, the incurrence of
additional debt and amortization of expenses related to goodwill and intangible
assets, all of which could adversely affect the Company's
6
<PAGE> 12
profitability. In addition, acquisitions involve numerous risks, including risks
of entering markets in which the Company has had no or only limited direct
experience and the potential loss of key employees of the acquired company, all
of which in turn, could have a material adverse effect on the Company's
business, results of operations and financial condition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business".
Need for Financing. The Company's ability to acquire any operating
business may depend on obtaining outside financing. If the Company is
unsuccessful in obtaining financing, it will be unable to complete acquisitions
or to carry out other business plans. Even if outside financing is obtained for
an acquisition, if the performance of the acquired business does not meet the
Company's expectations and requirements, the costs of servicing the related debt
could have a materially adverse effect on the Company's business, results of
operations and financial condition. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business".
Control by Management. Jack I. Salzberg, the Chairman of the Board and
President of the Company, beneficially owns approximately 12.4% of the
outstanding shares of Common Stock of the Company and has options to acquire an
additional 850,000 shares of Common Stock (or approximately 7.5% of the then
outstanding shares). Accordingly, Mr. Salzberg will have significant influence
over the outcome of all matters submitted to the stockholders for approval,
including the election of directors of the Company. See "Selling Stockholders".
Volatility of Share Price. The market price for the Common Stock prior
to the date hereof has been highly volatile. Factors such as the Company's
operating results and announcements by the Company or its competitors may have a
significant impact on the market price for the Common Stock. See "Market for
Common Equity and Related Stockholder Matters".
No Dividends on Common Stock. The Company does not presently intend to
pay dividends, and it is not likely that any dividends will be paid in the
foreseeable future. The Company has paid no dividends in the past. See "Market
for Common Equity and Related Stockholder Matters".
Additional Authorized Shares Available for Issuance. The Company is
authorized to issue 20,000,000 shares of Common Stock. A total of 11,268,756
shares of Common Stock are currently issued and outstanding and an additional
1,255,000 shares of Common Stock (all of which underlying shares are being
offered for sale under this prospectus) have been reserved for future issuance
in connection with the exercise of options and warrants that are currently
outstanding. Accordingly, an aggregate of 7,476,244 shares of authorized but
unissued shares of Common Stock are available for issuance without further
stockholder approval. As a result, any issuance of additional shares of Common
Stock may cause current stockholders of the Company to suffer significant
dilution which may adversely affect the value of their stock.
Rule 144 Sales; Future Sales of Common Stock. As of September 23, 1998
the Company had outstanding 11,268,756 shares of Common Stock, of which a total
of approximately 4,025,506 shares are "restricted securities" as that term is
defined under Rule 144 of the Securities Act and may be sold in compliance with
Rule 144 of the
7
<PAGE> 13
Securities Act. Ordinarily, under Rule 144, a person who is an affiliate of the
Company (as that term is defined in Rule 144) and has beneficially owned
restricted securities for a period of one year may, every three months, sell in
brokerage transactions an amount that does not exceed the greater of (i) 1% of
the outstanding class of such securities or (ii) the average weekly trading
volume of trading in such securities on all national exchanges and/or reported
through the automated quotation system of a registered securities association
during the four weeks prior to the filing of a notice of sale by a securities
holder. A person who is not an affiliate of the Company who beneficially owns
restricted securities is also subject to the foregoing volume limitations but
may, after the expiration of two years, sell unlimited amounts of such
securities under certain circumstances. All but 3,185,506 of the "restricted
securities" have been held in excess of two years and the 3,185,506 shares of
Common Stock which have been held less than two years are being registered in
this offering. Possible or actual sales of the Company's outstanding Common
Stock by certain of the present stockholders under Rule 144, as well as the sale
of the shares by the Selling Stockholders in this offering, may have a
depressive effect on the price of the Company's Common Stock and could impair
the Company's ability to raise capital through the sale of its equity
securities.
"Penny Stock" Regulations. The Securities and Exchange Commission (the
"Commission") has adopted regulations which generally define a "penny stock" to
be any equity security that has a market price (as defined) of less than $5.00
per share or an exercise price of less than $5.00 per share, subject to certain
exceptions, including an exception with respect to securities quoted by Nasdaq.
If the Company's Common Stock ceases to be quoted by Nasdaq, the Company's
securities would likely be considered "penny stock" and thereby become subject
to rules that impose additional sales practice requirements on broker-dealers
who sell such securities to persons other than established customers and
accredited investors (generally those with assets in excess of $1,000,000 or
annual income exceeding $200,000, or $300,000 together with their spouse). For
transactions covered by these rules, the broker-dealer must make a special
suitability determination for the purchase of such securities and must have
received the purchaser's written consent to the transaction prior to the
purchase. Additionally, for any transaction involving a penny stock, unless
exempt, the rules require the delivery, prior to the transaction, of a
disclosure schedule prepared by the Commission relating to the penny stock
market. The broker-dealer also must disclose the commission payable to both the
broker-dealer and the registered representative, current quotations for the
securities and, if the broker-dealer is the sole market-maker, the broker-dealer
must disclose this fact and the broker-dealer's presumed control over the
market. Finally, monthly statements must be sent disclosing recent price
information for the penny stock held in the account and information on the
limited market in penny stocks. Consequently, the "penny stock" rules may
restrict the ability of broker-dealers to sell the Company's securities and may
affect the ability of purchasers in this offering to sell their Common Stock.
Possible Adverse Effects of Authorization of Preferred Stock. The
Company's Certificate of Incorporation authorizes the issuance of a maximum of
10,000,000 shares of Preferred Stock on terms that may be fixed by the Company's
Board of Directors without further stockholder action. The terms of any series
of Preferred Stock, which may include priority claims to assets and dividends,
and special voting rights, could adversely affect the rights of holders of the
Common Stock. The Company has no current plans to designate and issue new series
of Preferred Stock. The issuance of additional Preferred Stock could make the
possible takeover of the Company or the removal of management of the Company
8
<PAGE> 14
more difficult, discourage hostile bids for control of the Company in which
stockholders may receive premiums for their shares of Common Stock, or otherwise
dilute the rights of holders of Common Stock and the market price of the Common
Stock.
USE OF PROCEEDS
All of the Securities offered hereby are being offered by the Selling
Stockholders for their own accounts. The Company will not receive any proceeds
from the sale of the Securities by the Selling Stockholders. However, if certain
Selling Stockholders exercise all of the options to purchase Securities to be
offered hereunder, the Company will receive the proceeds from such exercise. If
all such options and warrants are fully exercised, the Company would receive
$738,750, which would be used by the Company for general working capital.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's stock is traded in the over the counter market on the
Nasdaq Bulletin Board under the symbol "NUMX". The closing bid price on
September 28, 1998 was $0.5625. The following table sets forth the closing high
and low bid and ask quotations for each of the fiscal quarters for the years
ending March 31, 1997 and March 31, 1998, as reported by the National Quotation
Bureau, Inc.
<TABLE>
<CAPTION>
Fiscal Year Ended Closing Bid/Ask Quotes
High Low
March 31, 1997 Bid Ask Bid Ask
---- ---- ---- ----
<S> <C> <C> <C> <C>
Quarter ended June 30, 1996 .625 .938 .438 .688
Quarter ended September 30, 1996 .625 .938 .375 .562
Quarter ended December 31, 1996 .50 .75 .375 .625
Quarter ended March 31, 1997 .594 .688 .375 .625
March 31, 1998
Quarter ended June 30, 1997 .469 .625 .375 .50
Quarter ended September 30, 1997 .50 .594 .312 .438
Quarter ended December 31, 1997 1.469 1.531 .375 .46
Quarter ended March 31, 1998 3.625 3.875 1.062 1.312
March 31, 1999
Quarter ended June 30, 1998 1.25 .75 1.375 1.00
Quarter ended September 30, 1998 1.00 1.00 .625 .625
</TABLE>
The above quotations represent prices between dealers and do not include
retail markup, markdown or commission, and do not represent actual transactions.
As of September 23, 1998 there were approximately 416 shareholders of
record of Company's Common Stock. This number does not reflect individual
participants in security position listings held in "street name" accounts which
is approximately 1,000 shareholders.
9
<PAGE> 15
The Company 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 the Company's business.
10
<PAGE> 16
SELLING STOCKHOLDERS
The following table sets forth the names of the Selling Stockholders,
the number of shares of the Company's Common Stock beneficially owned by the
Selling Stockholders, the number of shares that may be sold by the Selling
Stockholders in this Offering, and the number of shares of Common Stock to be
owned by the Selling Stockholders, and the percentage of Common Stock to be
owned by the Selling Stockholders, assuming all of the shares of Common Stock
are sold in this Offering.
<TABLE>
<CAPTION>
Shares Beneficially Shares Beneficially
Owned Owned
Prior to Offering Number of Shares After Offering
----------------------------- to be Sold -----------------------
Number(1) Percent in Offering Number Percent
--------- ------- ----------- ------ -------
<S> <C> <C> <C> <C>
Gerald A. Bagg 150,000(2) 1.3% 150,000(2) 0 --
Dafna Breines 324,361 2.9% 324,361 0 --
David Breines 343,888 3.1% 43,888 300,000 2.6%
Costa Oro Realty, Inc.
Defined Benefit Plan 42,015(3) * 42,015(3) 0 --
Bruce Falborn 8,381(5) * 8,381(5) 0 --
Adira Hulkower 193,865 1.7% 193,865 0 --
Judah Hulkower 100,000 * 100,000 0 --
Regina and Benjamin
Hulkower 250,000(4) 2.2% 250,000(4) 0 --
Ira Koplin 8,403(5) * 8,403(5) 0 --
Esther Kozienicki 665,760 5.9% 665,760 0 --
Malka Livne 327,289 2.8% 327,289 0 *
Ron Livne 134,889 1.2% 134,889 0 *
Manatt, Phelps
& Phillips 140,000 1.2% 140,000 0 --
Leonard Marmor 8,381(5) * 8,381(5) 0 --
Frank M. Naft 84,326(6) * 84,326(6) 0 --
Randy Naft 8,381(5) * 8,381(5) 0 --
Bram Roos 42,048(3) * 42,048(3) 0 --
Issac S. Salzberg and
Susan S. Salzberg 246,500(7) 2.2% 246,500(7) 0 --
Jack I. Salzberg and
Anna S. Salzberg 2,247,831(8) 18.5% 2,247,831(8) 0 --
Stonepine Holdings,
Limited 100,000(9) * 100,000(9) 0 --
Tony Tanashian 84,188(6) * 84,188(6) 0 --
All executive officers
and directors as a group
(4 persons) 2,744,331 22.2% 2,744,331 0 --
</TABLE>
- -------------------
* Less than 1%
11
<PAGE> 17
(1) As of August 6, 1998 there were 10,889,219 shares of Common Stock and
170,000 shares of Preferred Stock convertible into 170,000 shares Common
Stock outstanding. Includes shares issuable upon the exercise of options
or warrants that are exercisable within 60 days of the date of this
Registration Statement and 170,000 shares of convertible Preferred
Stock. The shares underlying such options or warrants are deemed to be
outstanding for the purpose of computing the percentage of outstanding
stock owned by such persons individually and by each group of which they
are a member, but are not deemed to be outstanding for the purpose of
computing the percentage ownership of any other person.
(2) Includes options to purchase 150,000 shares of Common Stock at a current
exercise price of $1.00 per share.
(3) Includes warrants to purchase 12,500 shares of common stock at a current
exercise price of $0.75 per share.
(4) Includes 100,000 shares held by Regina Hulkower as custodian for
Shoshana Hulkower under the Uniform Gift to Minors Act. Also includes
150,000 shares held by Benjamin and Regina Hulkower as trustees of the
Jack and Anna Salzberg 1989 Grandchildrens Trust for the benefit of Adam
Salzberg (50,000 shares), Matthew Salzberg (50,000 shares), and Jacob
Salzberg (50,000 shares).
(5) Includes warrants to purchase 2,500 shares of common stock at a current
exercise price of $0.75 per share.
(6) Includes warrants to purchase 25,000 shares of common stock at a current
exercise price of $0.75 per share.
(7) Includes 40,500 shares held as custodian under the Uniform Gift to
Minors Act for the benefit of Jacob Salzberg, 60,500 shares held as
custodian under the Uniform Gift to Minors Act for the benefit of Adam
D. Salzberg, and 60,500 shares held as custodian under the Uniform Gift
to Minors Act for the benefit of Matthew A. Salzberg; and 85,000 shares
held as trustees of the Issac S. Salzberg and Susan S. Salzberg Living
Trust.
(8) Includes options issued to Jack I. Salzberg to purchase 850,000 shares
of Common Stock at an exercise price of $0.50 per share and 1,397,831
shares held as trustees of the Jack I. Salzberg and Anna S. Salzberg
Family Trust.
(9) Includes options to purchase 100,000 shares of Common Stock at a current
exercise price of $1.00 per share. Mr. Fabregas, a director of the
Company, is the director, president and principal shareholder of
Stonepine Holdings, Limited.
PLAN OF DISTRIBUTION
The Securities being sold by the Selling Stockholders are being sold for
their own accounts. The Company has not been advised by the Selling Stockholders
as to any plan of distribution. The Company will not receive any of the proceeds
from such sales. Certain Selling Stockholders are offering shares of Common
Stock underlying 1,185,000 options and warrants. To the extent that any of those
options or warrants are exercised, the Company will receive the proceeds from
such exercise. See "Use of Proceeds."
The Selling Stockholders may sell the Shares from time to time through
dealers or brokers in transactions on the Nasdaq Bulletin Board at prices then
prevailing, or directly to one or more purchasers in negotiated transactions at
negotiated prices, or in a combination thereof. The Selling Stockholders and any
dealers or brokers that participate in such distribution may be deemed
"underwriters" within the meaning of the Securities Act and any commissions or
discounts received by any such dealer or broker may be deemed "underwriting
compensation."
The costs of registering the Shares will be paid by the Company.
There can be no assurances that the Selling Stockholders will sell any
or all of the Shares offered hereunder.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion should be read in conjunction with the
Company's consolidated financial statements and the notes thereto appearing
elsewhere in this Form SB-2. Certain
12
<PAGE> 18
statements contained herein that are not related to historical results,
including, without limitation, statements regarding the Company's business
strategy and objectives, future financial position, expectations about pending
litigation and estimated cost savings, are forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Securities
Exchange Act of 1934, as amended (the "Securities Exchange Act") and involve
risks and uncertainties. Although the Company believes that the assumptions on
which these forward-looking statements are based are reasonable, there can be no
assurance that such assumptions will prove to be accurate and actual results
could differ materially from those discussed in the forward, looking statements.
Factors that could cause or contribute to such differences include, but are not
limited to, regulatory policies, the success the Company has in consummating new
strategic alliances, the ability to obtain financing for continued expenses, and
market and general economic factors. All forward-looking statements contained in
this Form SB-2 are qualified in their entirety by this statement.
Results of Operations
Three Months Ended June 30, 1998 Compared to Three Months Ended June 30, 1997
Net Sales for the three months ended June 30, 1998 and 1997 were $2,000
and $30,000 respectively. There were no larger distributor nor dealer orders for
the current quarter which resulted to a $28,000 decrease in sales compared to
last year's.
Selling, general and administrative expenses during the three months
ended June 30, 1998 and 1997 were $71,000 and $55,000 respectively. The increase
in expenses was largely due to the $6,000 decrease in rent from having a
sublessee, $15,000 increase in legal fees for preparation of registration
statement and other corporate matters, and $5,000 increase in outside services
incurred for matters related in pursuit of acquiring profitable businesses.
Interest expense for this quarter of $5,500 compared to last year's
$44,800 is significantly decreased due to conversions of notes payable into
shares of common stock.
Fiscal Year Ended March 31, 1998 Compared To Fiscal Year Ended March 31, 1997
Net sales for the fiscal year 1998 of approximately $176,000 were 41%
lower than last year's $296,000.
Cost of sales as a percentage of net sales decreased from 52% during the
fiscal year 1997 to 47% in 1998. The 5% decrease in product cost resulted from
the use of the newly completed tooling which was more efficient in the
manufacture of Therapy Plus.
During the year, the Company incurred approximately $362,000 of legal
expense and other services related to the due diligence process associated with
an acquisition target company and the financial institutions. These expenses
were incorporated with company's selling, general and administrative expenses.
Normal operating expenses this year of approximately $291,000, versus last
year's $653,000, reflects a 55% decrease in expenses as a result of continued
cost cutting measures.
Due to Jack I. Salzberg's effort to reduce the Company's indebtedness
and converting them into equity, interest expense decreased by 37%.
13
<PAGE> 19
The Company's other income for the fiscal year 1998 of $356,600 resulted
from the adjustment on prior year's accrual on royalty estimates. Other expense
of $300,000 was accrued as officer/stockholder compensation to the Chairman of
the Board.
Fiscal Year Ended June 30, 1997 Compared to Fiscal Year Ended June 30, 1996
Net sales during fiscal year 1997 were $296,000 as compared to
$1,023,000 during fiscal year 1996. Of the last year's net sales, $601,000 is
the result of ViaStar's four months operation. The 30% net decrease in Numex
sales from last year's $422,000 represents the combination of $24,000 increase
in consumer sales as a result of the Therapy Plus new infomercial and $150,000
decrease in wholesale sales.
Numex cost of sales as a percentage of net sales increased from 45%
during the fiscal year 1996 to 52% during the fiscal year 1997. The net increase
was primarily due to write offs of slow moving inventories. ViaStar's portion
for the year 1996 was $365,000.
Selling, general and administrative expenses during fiscal year 1997
were $653,000, as compared to $864,000 during the prior year of which $422,000
is ViaStar's. Current year's expenses consists of 20% video production costs,
19% royalty requirement and 61% normal operating expenses. The 52% overall
increase was primarily due to the new video production cost and royalty
requirement. Otherwise, 10% decrease compared to prior year's $442,000 in normal
operating costs was due to effective cost cutting measures,.
The Licensing Agreement the Company entered into with the German
inventor, had a provision in it that if the operations of Numex are halted by
any government agency or action, that the minimum license fee of $125,000 per
annum would be stayed.
In February 1992 the Company signed a consent order from the Federal
Trade Commission, which prohibited the Company from making or using certain
claims or endorsements, which had previously proven extremely effective in
marketing the Product. After a 3 year clinical study, the Food and Drug
Administration ("FDA") gave the Company permission to market the Therapy Plus
Product using only a limited number of the original claims and endorsements.
Consequently the new and revised infomercials, using the limited claims
and endorsements, allowed by the FDA tested below expectations and the media
testing was discontinued. The discontinuance of the airing of the infomercial
for all practical purposes, took away the momentum of the sales equal to 98%.
In February 1996, the FDA approval became totally moot for the following
two reasons:
1. Momentum had been lost.
2. The cost of the media airtime during the interim had gone up
several fold, causing the company to abandon the testing of the
new infomercial in November and December 1996.
Accordingly, Management's opinion of the $125,000 minimum license fee is
that it need not be paid because it is an outcome of the same government agency
action causing the Company to abandon its marketing program.
14
<PAGE> 20
Therefore, it is Management's humble opinion that the liabilities
related to actual sales should be the only one recognized in the books for
$115,000.
Net loss from operations during the fiscal year 1997 was $512,000
compared to $399,000 in fiscal year 1996. For fiscal 1996, ViaStar's loss was
$186,000 and Numex loss was $213,000.
Net interest expense during fiscal year 1997 and 1996 were $204,000 and
$183,000. Of the 1996 interest expense $2,000 was ViaStar and $181,000. The
increase in Numex current year's interest expense which was to increased
borrowings to continue ongoing operations.
Other income Numex for fiscal year 1997 and 1996 were $41,000 and
$219,000. For the fiscal year 1997, $30,000 were from product liability
insurance refund and cost recoveries and $11,000 reversal of accrued expenses.
Financial Condition, Liquidity and Capital Resources
Net cash used in operations during fiscal year 1998 was $562,000. The
Company funded this usage from notes payable proceeds which resulted in net cash
flows from financing activities of 556,000.
Cash used in operations during the current three month period was
$91,000, which was offset by a net increase in debt incurred of $137,000
resulting in an increase of $46,000 in the Company's cash position.
During 1997, Jack I. Salzberg converted $143,916 of his notes receivable
and accrued interest into common stock at $0.50 per share. At the same rate,
$1,708,000 of Company indebtedness to Mr. Salzberg's relatives were also
converted into equity.
On May 29, 1998 Jack I. Salzberg converted his accrued compensation of
$300,000 into 240,000 shares of common stock at $1.25 per share. The bid price
at the time of conversion was $.875. Legal fees of $172,000 of the law firm in
the transaction with MSI which was not consummated, and $280,000 outstanding
notes of three relatives of the Mr. Salzberg, elected to convert this obligation
into 385,000 shares of common stock at $1.25 per share.
Subsequent to the fiscal year ended March 1998, the Company reached a
settlement agreement with former employees of ViaStar resulting in an
extraordinary gain in the amount of $337,500.
Due to the current low sales volume, the Company plans to continue to
rely upon external financing sources to meet the cash requirement of its ongoing
operation. In the past, Jack I. Salzberg has provided the Company, either
directly or indirectly through guarantees, with the necessary working capital
needed to continue operating. In the last four years, Mr. Salzberg has provided
operating funds either directly or indirectly over $3,000,000 in loans, majority
of which were converted into common stock. In view of the fact that the
operating expenses are now significantly less than they were, Mr. Salzberg
informed the Board of Directors that he will continue to provide such funds for
the continuance of business until an acquisition is completed or a private
placement of securities has been made.
15
<PAGE> 21
Current Plans
While the Company is continuing to explore the marketing of the Product,
the main emphasis of management is directed to acquiring profitable operating
companies. The Company has $6,900,000 federal tax loss carry forward and
$1,600,000 tax loss for the State of California that can be utilized against
profitable operations.
The Company's management has been pursuing acquisition of profitable
businesses whose revenues range from $10 - $30 million annual sales. The Company
is currently in discussion with several acquisition candidates but no agreement
has been reached with any of them. In anticipation of possible acquisitions, the
Company has established a relationship with a medium size investment banking
house which specializes in private placements of securities and notes with
institutional investors. Although there is no guarantee that any of the proposed
acquisitions will materialize, there is reasonable anticipation that funds can
be obtained to finalize such an acquisition once the target company is
definitely established and meets all the criteria.
Inflation and Changing Prices
The Company does not foresee any adverse effects on its earnings as a
result of inflation or changing prices.
Year 2000 Issues
The Company has not completed its assessment of Year 2000 compliance at
this time.
BUSINESS
The Company was incorporated under the laws of the State of Delaware on
August 1, 1980. Since January 1991, the primary business of the Company had been
the manufacture under license (through subcontractors) and distribution of the
Product, a patented, non-electric, cylinder-shaped, hand-held device used for
the relief of arthritis pain. The Product is a 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, producing the therapeutic effect of a
massage.
As a condition for obtaining the License Agreement to manufacture the
Product, 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.
On March 31, 1997 the remaining value of the license fee and related expenses
were written off. The License Agreement also provides for royalties at a rate
ranging from $.65 per unit to $1.20 per unit depending on the method of
distribution used.
The Company believes that due to government intervention into the
marketing of the product from August 1992 to January 1996, the obligation to pay
minimum royalties is stayed. The Company further claims that it has no liability
of any kind under the License Agreement based on the interpretation of its
language of the License Agreement and because the limitation period for the
bringing of any action thereunder has expired to a substantial extent. Moreover,
the Company believes that the inventor discontinued business in Germany and
supposedly moved to Cyprus. Neither the Licensor nor any legal representative
thereof has
16
<PAGE> 22
communicated with the Company since February, 1998. Accordingly, on March 31,
1998, the management made an adjustment of the prior year's accrual on royalty
estimates accrued to the Licensor. See "Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure."
In January 1991 the Company acquired the right to the Product and from
that time through August 1992, the Company engaged in a major marketing
campaign, selling the Product as a pain relieving device primarily through an
"infomercial" on television. An infomercial is a paid commercial program
broadcast on television, the primary purpose of which is to sell one or more
products. Subsequent to August 1992, the Company discontinued the airing of that
infomercial as a result of an investigation by the Federal Trade Commission (the
"FTC"). The FTC claimed, among other things, that the Infomercial contained
certain advertising claims which the Company had not substantiated with
sufficient scientific evidence. In response to the FTC claims, the Company
sponsored a clinical study of the Product at an independent hospital. The
results of that study enabled the Company to submit a 510(k) notification to the
Food and Drug Administration ("FDA") advisory agency that the Company intended
to add the word "arthritis" to its labeling claims. In February, 1996, the
Company received an FDA notification that the Product could be marketed for
"temporary relief of minor muscular pain associated with arthritis."
During late July through November 1996, the Company produced a new
infomercial and commenced media tests using the newly accepted claims regarding
arthritis pain. However, this marketing strategy proved unsuccessful principally
because of the substantially higher media costs for televising the infomercial.
From October, 1997 through February, 1998, the Company worked with QVC, Inc.
("QVC"), a cable shopping network, to promote the Product. The Product
commercially appeared on a QVC program. Although sales of the Product initially
were substantial enough to qualify the Product to make future appearances on
QVC, a higher than commercially feasible level of Product returns resulted in
QVC and the Company deciding not to continue marketing the Product through QVC.
The Company is also marketing the Product through international and domestic
wholesale and export distributors. The Company's principal source of income from
sales of the Product is from international sales through distributors.
In June 1994 the Company acquired ViaStar Marketing, Inc., by merging
that company into a wholly-owned subsidiary of the Company. After the completion
of the merger, the subsidiary changed its name to ViaStar Marketing, Inc.
("ViaStar"). ViaStar engaged in outbound telemarketing of celebrity owned or
endorsed products and initiated a direct sales representative program for the
products. ViaStar did not prove to be profitable and by July 31, 1995, ViaStar
had exhausted the capital provided by the Company. ViaStar made an assignment
for the benefit of creditors on July 31, 1995 and was dissolved on March 28,
1997.
For some time, sales of the Product have been declining significantly,
to the point that there are no new sales of the Product. No additional sales of
the Product are expected. The only activities at present are the shipping of
warehoused units of the Product for which payment has already been received.
There are no other products under development and there are no plans to develop
any additional products at this time.
The Company's current plans are to continue to seek out acquisitions of
profitable businesses. In anticipation of possible acquisitions, the Company has
established a relationship with a medium size investment banking house which
specializes in private placements of
17
<PAGE> 23
securities and notes with institutional investors. The Company has a federal tax
loss carryforward of approximately $6.9 million and a California tax loss
carryforward of approximately $1.6 million which would be available to be
utilized by any profitable acquisition. The loss carryforwards would be subject
to annual limits if such acquisition results in a significant change of
ownership.
The Company's executive offices are located at, and its mailing address
is, 14115 S. Pontlavoy Avenue, Santa Fe Springs, CA 90670. Its telephone number
is (562) 404-7176.
The Company moved into its current location on February 1, 1995. The
facility contains 12,460 square feet, including shipping facilities. The Company
occupied this facility under a three-year lease which expired on January 31,
1998. The monthly rental was $5,732 plus taxes, insurance and other maintenance
costs. The Company also subleased a certain section of the space for $2,250 per
month from July 1997 through January 1998.
In January, 1998 the Company negotiated with the lessor to amend the
Lease to provide for a further extension of the term of the lease. Under the
First Amendment to Lease, the term of the lease was extended to January 31,
1999. The monthly rental is $6,355, plus taxes, insurance and other maintenance
costs. The Company also extended a sublease for a certain section of the space
for $4,900 per month. Accordingly, the Company's net cost for the space occupied
is $1,455 per month.
MANAGEMENT
The following table sets forth the directors and executive officers of
the Company as of June 30, 1998.
<TABLE>
<CAPTION>
Name Age Current Position with Company
- ---- --- -----------------------------
<S> <C> <C>
Gerald A. Bagg 46 Director
J. Robert Fabregas 53 Director
Isaac S. Salzberg 46 Vice President, Secretary and Director
Jack I. Salzberg 75 Chairman of the Board, President, and Chief Executive Officer
</TABLE>
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 the Company from March 20, 1992 and as Chief Executive Officer from
December 30, 1992. In February 1996, Mr. Bagg resigned as President and CEO but
remains a director. He is Senior Vice President of Account Management and
Marketing with Williams Worldwide, a major television media buying firm. From at
least 1988, Mr. Bagg served as President of Brentwood Marketing, a marketing and
strategic planning firm located in Los Angeles, California. Brentwood Marketing
has launched numerous entrepreneurial consumer products, including Epilady.
18
<PAGE> 24
J. ROBERT FABREGAS has served as a director of the Company since March
11, 1998. From June, 1988 to the present, Mr. Fabregas has been the President of
Stonepine Holdings, Limited, a California corporation, an investment banking
firm. He has 25 years experience in corporate finance and commercial lending
with major domestic and foreign banks, one of the largest U.S. savings and
loans, a Fortune 500 manufacturing company, and privately held investment
banking firms. He has served as a Member of Management in the Los Angeles office
of Credit Suisse, a major Swiss financial institution.
ISAAC S. SALZBERG has served as a director of the Company since March,
1989. He was formerly President and Chief Executive Officer of the Company from
March, 1989 to March, 1992. He has been a director of First Charter Bank since
1988 and an officer since 1989. Mr. Salzberg left the bank and all positions in
October 1996. Mr. Salzberg is an investment broker with Prudential Securities.
Mr. Salzberg is the son of Jack I. Salzberg, the Chairman of the Board, Chief
Executive Officer and President of the Company.
JACK I. SALZBERG has been Chairman of the Board since January, 1985
Chief Executive Officer of the Company since March, 1992 and has been President
since February 1996. He had been Chairman of the Board from 1983 and Chief
Executive Officer from 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 in September 1995. Mr.
Salzberg is the father of Isaac S. Salzberg, a director of the Company.
EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to or earned by
the Chief Executive Officer and all officers of the Company whose compensation
exceeded $100,000 for all services rendered to the Company during the fiscal
years ending March 31, 1998, 1997, and 1996 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation Awards
Restricted Securities Underlying
Name and Principal Position Year Salary Stock Award(s)
- --------------------------- ---- ------ --------------
<S> <C> <C> <C>
Jack I. Salzberg 1998 $300,000 (1) 850,000
Chairman of the Board, 1997 $ 0 0
President, CEO 1996 $ 0 0
</TABLE>
(1) Compensation awarded by the Directors to Mr. Jack I. Salzberg on
December 18, 1997 for his extraordinary efforts and six years of service
to the Company without compensation. On April 30, 1998, the Board
authorized the conversion of this accrued liability into common stock at
$1.25 per share which was then converted on May 1998.
19
<PAGE> 25
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Number of Percent of Total
Securities Options/ SARs
Underlying Granted to Exercise
Options/SARs Employees Price Expiration
Name Granted (#) in Fiscal Year ($/sh) Date
- ---- ------------ ---------------- -------- ----------
<S> <C> <C> <C> <C>
Jack I. Salzberg 850,000(2) 100% $ .50 none
</TABLE>
(2) Option granted by the Board of Directors on November 21, 1997 to
Mr. Jack I. Salzberg.
Arrangements with Directors
J. Robert Fabregas was appointed to the Board of Directors on March 11,
1998. During the fiscal year 1998, he received a total of $34,500 as
compensation through his company, Stonepine Holdings, Limited, for consulting
services rendered to the Company unrelated to his services and duties as a
director.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the July, 1997 and December, 1997 Board resolution to
eliminate most of the existing indebtedness, the following noteholders elected
to convert their receivables into common stock:
Jack I. Salzberg
Jack I. Salzberg, the Company's Chairman of the Board and President,
converted all accrued interests and notes payable due him in the amount of
$143,916 into 287,831 shares of common stock at $.50 per share. Last year, he
converted his 2 1/2 year note for $300,000 into 300,000 shares of common stock
at $1.00 per share. See "Selling Stockholders" and "Recent Sales of Unregistered
Securities".
Esther Kozienicki
Esther Kozienicki is the sister of Jack I. Salzberg. At March 31, 1997,
she had $566,000 outstanding notes receivable from the Company. In addition, the
Company issued new demand notes payable for operating cash received in an
aggregate amount of $227,000 during the fiscal year 1998. She converted $779,880
of outstanding notes and accrued interests through December 1997 into 1,559,760
shares of common stock at $.50 per share. Ms. Kozienicki had continually
provided the Company with operating cash fund since 1993. On May 29, 1998,
subsequent to the fiscal year, Ms. Kozienicki converted $160,000 notes into
128,000 shares of common stock at $1.25 per share. See "Selling Stockholders"
and "Recent Sales of Unregistered Securities".
Malka Livne
The Company issued new demand notes payable to Malka Livne, sister in
law of Jack I. Salzberg, an aggregate amount of $149,000 for operating cash
received during the fiscal year ended March, 1998. At March 31, 1997 she had
$350,000 outstanding notes receivable from the Company. During the year, she
converted outstanding notes and accrued interests through
20
<PAGE> 26
December 1997 amounting to $463,995 into 927,990 shares of common stock at $.50
per share. Ms. Livne had continually provided the Company with operating cash
fund since 1994.
In September 1998, the Company granted to Stonepine Holdings, Limited
options to purchase 100,000 shares of Common Stock at an exercise price of $1.00
per share. Mr. Fabregas, a director of the Company, is the principal
shareholder, director and president of Stonepine Holdings, Limited.
See "Selling Stockholders" and "Recent Sales of Unregistered
Securities".
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information concerning ownership of the
Company's Common Stock as of September 30, 1998 by (a) each director of the
Company; (b) each person known to the Company to be the beneficial owner of more
than five percent (5%) of its Common Stock; and (c) all directors and officers
of the Company as a group.
Amount and Nature
of
Beneficial Ownership
<TABLE>
<CAPTION>
Name of Beneficial Number of Percent of
Owner Title Shares Class
- -------------- -------- ---------- ----
<S> <C> <C> <C>
Gerald A. Bagg Director 150,000(1) 1.3%
J. Robert Fabregas Director 100,000(2) 0.9%
Isaac S. Salzberg Secretary and Director 246,500(3) 2.2%
Jack I. Salzberg Chairman of the Board & President 2,247,831(4) 18.5%
Esther Kozienicki(5) 665,760 5.9%
All Directors and Officers
as a group (four persons) 2,744,331 22.2%
</TABLE>
(1) Includes options to purchase 150,000 shares of Common Stock at a current
exercise price of $1.00 per share.
(2) Consists of options to purchase 100,000 shares of Common Stock at a
current exercise price of $1.00 per share held by Stonepine Holdings,
Limited. Mr. Fabregas is the principal shareholder, director and
president of Stonepine Holdings, Limited.
(3) Includes 40,500 shares held as custodian under the Uniform Gift to
Minors Act for the benefit of Jacob Salzberg, 60,500 shares held as
custodian under the Uniform Gift to Minors Act for the benefit of Adam
D. Salzberg, and 60,500 shares held as custodian under the Uniform Gift
to Minors Act for the benefit of Matthew A. Salzberg; and 85,000 shares
held as trustees of the Issac S. Salzberg and Susan S. Salzberg Living
Trust.
(4) Includes options issued to Jack I. Salzberg to purchase 850,000 shares
of Common Stock at an exercise price of $0.50 per share and 1,397,831
shares held as trustees of the Jack I. Salzberg and Anna S. Salzberg
Family Trust.
(5) Ms. Kozienicki is the sister of Jack I. Salzberg and the aunt of Isaac
S. Salzberg. Messrs. Salzberg disclaim beneficial ownership of any of
the shares owned by Ms. Kozienicki.
21
<PAGE> 27
into 96,000 shares of common stock; Dafna Breines converted $26,250 outstanding
notes into 21,000 shares of common stock.
On May 29, 1998, the law firm in the transaction with MSI converted
$172,000 legal fees into 140,000 shares of common stock.
In September 1998, the Company issued options to purchase 100,000 shares
of Common Stock at an exercise price of $1.00 per share to Stonepine Holdings,
Limited. In September 1998, the Company also issued 201,123 shares of Common
Stock to eight persons in exchange for certain rights these persons had in the
Company. In April 1996, the Company conducted a private offering of units,
consisting of an aggregate of 170,000 shares of convertible Preferred Stock and
stock purchase warrants to purchase 85,000 shares of the Company's Common Stock,
in which the Company received a total of approximately $350,000 from these eight
investors. However, the Company recently determined that a filing with respect
to the Preferred Stock had not been made under Delaware law at the time of that
offering. In lieu of taking corrective action regarding the lack of a filing, in
September 1998 the Company offered these persons the opportunity to exchange
their rights in the Company for shares of Common Stock at a conversion price of
$1.00 per share, including dividends accrued but not paid on the Preferred
Stock. The stock purchase warrants previously issued by the Company to these
persons were not affected and remain outstanding and excercisable at $.75 per
share. As a condition of issuing the shares of Common Stock, the Preferred Stock
was cancelled and the Company received releases from the eight investors with
respect to the April 1996 transactions. None of the eight persons had previously
been a stockholder in the Company and all are non-affiliates of the Company. See
"Selling Stockholders".
Each of the foregoing transactions was exempt from the registration
provisions of the Securities Act of 1933, as amended (the "Securities Act"),
pursuant to section 4(2) thereof for issuance of securities not involving any
public offering. See also "Selling Stockholders".
LEGAL PROCEEDINGS
On February 11, 1998, a Complaint and Motion for Temporary Injunction
and Request was filed by the Company against William Lovell, Robert Circosta,
George Simone, and Ben White (the "defendants"), in the Fifteenth Judicial
Circuit, in and for Palm Beach County, Florida. The action, Numex Corporation, a
Delaware Corporation v. William Lovell, Robert Circosta, George Simone and Ben
White, case no. 98-001276-AD, stems from the acquisition by the Company of
ViaStar Marketing, Inc., a Florida corporation, which became the Company's
wholly owned subsidiary, and certain related Amended and Restated Acquisition
Agreement and Employment Agreements with William Lovell and Robert Circosta, as
well as a Consulting Contract with George Simone, whereby 500,000 shares of the
Company's restricted common stock was to be "paid up front" to the defendants in
connection with the aforementioned agreements and contract.
A settlement agreement has been signed between parties and filed with
the court. Under the contemplated agreement, the defendants will return 300,000
shares to the Company and the remaining 200,000 shares will be reissued to the
defendants in equal amounts without restriction.
22
<PAGE> 28
CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Singer, Lewak, Greenbaum & Goldstein, LLP resigned as independent public
accountants for the Company as of April 30, 1998.
In considering whether to renew its engagement as the Company's
independent auditors for the fiscal year ended March 31, 1998, Singer, Lewak,
Greenbaum & Goldstein, LLP requested that, if the Company sought to eliminate a
liability from the Company's financial statements because the Company had no
legal or contractual obligation to pay such liability, the Company obtain either
a verification from a party as to the Company's potential liability under the
terms of a licensing agreement as part of its auditing procedures or a legal
opinion regarding such potential liability. For business reasons unrelated to an
audit, the Company preferred not to request such a verification and sought to
instead provide a form of legal opinion which would satisfy Singer, Lewak,
Greenbaum & Goldstein LLP's auditing procedures regarding the potential
liability. The Company had engaged its corporate counsel to prepare a form of
opinion to address this issue. Discussions regarding the form of opinion, and
the potential elimination of the liability, were not completed as of April 30,
1998.
The report of the Company's prior accountants, Singer Lewak Greenbaum &
Goldstein LLP, on the financial statements of the Company for the fiscal years
ended March 31, 1995, March 31, 1996, and March 31, 1997, did not contain an
adverse opinion, disclaimer of opinion nor was it qualified or modified as to
audit, scope accounting principles or uncertainty, except that the accountants'
report included an explanatory paragraph relating to going concern
considerations for fiscal years ended March 31, 1995, 1996 and 1997.
There were no disagreements with Singer Lewak Greenbaum & Goldstein LLP
within the two most recent years, nor subsequently, on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements, if not resolved to the satisfaction of Singer
Lewak Greenbaum & Goldstein LLP would have cause it to make reference to the
subject matter of the disagreement in its reports.
Singer Lewak Greenbaum & Goldstein LLP did not, however, audit or review
the Company's financial statements for any period subsequent to the fiscal year
ended March 31, 1997.
On May 18, 1998, the Board of Directors of the Company approved
management's proposal to engage Stonefield Josephson, Inc., as the Company's new
independent public accountants.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
OF SECURITIES ACT LIABILITIES
The Company's Certificate of Incorporation provides for indemnification
of its directors and officers to the fullest extent permitted by Delaware law.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers or persons controlling the Company pursuant
to the foregoing provisions, the
23
<PAGE> 29
Company has been informed that in the opinion of the Commission, such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
LEGAL MATTERS
The validity of the Securities offered hereby will be passed upon for
the Company by Richman, Lawrence, Mann, Chizever & Phillips, Beverly Hills,
California.
EXPERTS
The financial statements incorporated in this Prospectus by reference to
the Annual Report on Form 10-KSB of the Company for the year ended March 31,
1998 have been incorporated in reliance on the report of Stonefield Josephson,
Inc., independent certified public accountants, given upon the authority of said
firm as experts in auditing and accounting.
24
<PAGE> 30
NUMEX CORPORATION AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED MARCH 31, 1998
CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INDEPENDENT AUDITORS' REPORT F-2
FINANCIAL STATEMENTS:
Consolidated Balance Sheet F-3
Consolidated Statement of Operations F-4
Consolidated Statement of Stockholders' Deficiency F-5
Consolidated Statement of Cash Flows F-6
Notes to Consolidated Financial Statements F-7
</TABLE>
F-1
<PAGE> 31
[STONEFIELD JOSEPHSON, INC. LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Numex Corporation
Santa Fe Springs, California
We have audited the accompanying consolidated balance sheet of Numex Corporation
and subsidiary as of March 31, 1998 and the related consolidated statements of
operations, stockholders' deficiency, and cash flows for the year then ended.
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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides 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, 1998, and the consolidated results of their
operations and their consolidated cash flows for the year ended March 31, 1998,
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 flows from operations, and has 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.
Management's 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.
/s/ STONEFIELD JOSEPHSON, INC.
CERTIFIED PUBLIC ACCOUNTANTS
Santa Monica, California
May 29, 1998
F-2
<PAGE> 32
NUMEX CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS June 30, March 31,
1998 1998
------------ ------------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 73,262 $ 27,218
Inventory 7,149 10,230
Prepaid expenses 496 --
------------ ------------
Total current assets 80,907 37,448
PROPERTY AND EQUIPMENT, net of
accumulated depreciation and amortization 15,765 17,046
DEPOSITS 7,158 7,158
------------ ------------
$ 103,830 $ 61,652
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 57,911 $ 77,210
Notes payable 180,789 --
Current maturities of notes payable, others -- 45,039
Current maturities of notes payable, related parties -- 58,750
------------ ------------
Total current liabilities 238,700 180,999
------------ ------------
LOAN PAYABLE, other -- 171,930
------------ ------------
LOAN PAYABLE, officer-stockholder -- 300,000
------------ ------------
NOTES PAYABLE, RELATED PARTIES, less current maturities -- 246,250
------------ ------------
STOCKHOLDERS' DEFICIENCY:
Preferred stock; $1.00 par value, 10,000,000 shares
authorized, 170,000 shares issued and outstanding 170,000 170,000
Common stock; $.10 par value, 20,000,000 shares
authorized, 11,189,219 issued and 10,564,219
shares outstanding 1,118,922 1,118,922
Treasury stock, at cost, 625,000 shares -- (705,824)
Additional paid-in capital 10,043,222 9,970,866
Deficiency (11,467,014) (11,391,491)
------------ ------------
Total stockholders' deficiency (134,870) (837,527)
------------ ------------
$ 103,830 $ 61,652
============ ============
</TABLE>
See accompanying independent auditors' report and notes to consolidated
financial statements.
F-3
<PAGE> 33
NUMEX CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Three months Three months
ended ended Year ended
June 30, 1998 June 30, 1997 March 31, 1998
------------- ------------- --------------
(unaudited) (unaudited)
<S> <C> <C> <C>
NET SALES $ 2,084 $ 30,414 $ 176,513
COST OF SALES 626 12,450 83,605
------------ ------------ ------------
GROSS PROFIT 1,458 17,964 92,908
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 71,505 55,269 653,734
------------ ------------ ------------
LOSS FROM OPERATIONS (70,047) (37,305) (560,826)
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Officer-stockholder compensation -- -- (300,000)
Interest expense, net (5,476) (44,760) (128,572)
Other income -- -- --
Adjustment of the prior years accruals on
royalty estimates -- -- 356,600
Loss on intangible assets in excess of net
present value -- -- --
------------ ------------ ------------
Total other expense (5,476) (44,760) (71,972)
------------ ------------ ------------
LOSS BEFORE PROVISION FOR INCOME TAXES (75,523) (82,065) (632,798)
PROVISION FOR INCOME TAXES -- -- 800
------------ ------------ ------------
NET LOSS $ (75,523) $ (82,065) $ (633,598)
============ ============ ============
NET LOSS PER SHARE (.01) (.01) (.08)
============ ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING USED TO CALCULATE LOSS PER SHARE 10,783,999 5,967,750 7,601,295
============ ============ ============
</TABLE>
See accompanying independent auditors' report and notes to consolidated
financial statements.
F-4
<PAGE> 34
NUMEX CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
FOR THE YEAR ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
Preferred stock Common stock Treasury stock at cost
------------------- ---------------------- ----------------------
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1997 170,000 $170,000 6,592,750 $659,275 625,000 ($705,824)
Common stock issued
for conversion of debt 4,596,469 459,647
Net loss
------- -------- ---------- ---------- -------- ----------
Balance at March 31, 1998 170,000 170,000 11,189,219 1,118,922 625,000 (705,824)
Treasury stock issued for
conversion of debt and
services rendered (625,000) 705,824
Net loss for the three months
ended June 30, 1998 (unaudited)
------- -------- ---------- ---------- -------- ----------
170,000 $170,000 11,189,219 $1,118,922 -- --
======= ======== ========== ========== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
Unearned portion
of restricted Additional paid in Accumulated
stock issued capital deficit Total
------------ ------- ------- -----
<S> <C> <C> <C> <C>
Balance at March 31, 1997 -- $8,132,280 ($10,757,893) ($2,502,162)
Common stock issued
for conversion of debt 1,838,586 2,298,233
Net loss (633,598) (633,598)
--------- --------------- ------------- -----------
Balance at March 31, 1998 -- 9,970,866 (11,391,491) (837,527)
Treasury stock issued for
conversion of debt and
services rendered 72,356 778,180
Net loss for the three months (75,523) (75,523)
ended June 30, 1998 (unaudited)
--------- --------------- ------------- -----------
-- $10,043,222 ($11,467,014) ($134,870)
========= =============== ============= ===========
</TABLE>
See accompanying independent auditors' report and notes to consolidated
financial statements.
F-5
<PAGE> 35
NUMEX CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
Three months Year ended
ended June 30, March 31, 1998
-------------- --------------
1998 1997
---- ----
(unaudited) (unaudited)
<S> <C> <C> <C>
CASH FLOWS PROVIDED BY (USED FOR) OPERATING ACTIVITIES:
Net loss $ (75,523) $ (82,065) $(633,598)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
PROVIDED BY (USED FOR) OPERATING
ACTIVITIES:
Depreciation and amortization 1,281 1,316 5,916
Adjustment of the prior years accruals on royalty estimates -- -- (356,600)
Legal fees and interest expense accrued as loan payable, other -- -- 171,930
Officer-stockholder compensation accrued as loan payable,
officer-stockholder -- -- 300,000
CHANGES IN ASSETS AND LIABILITIES:
(INCREASE) DECREASE IN ASSETS:
Accounts receivable (139) 7,964 9,058
Inventory 3,081 (1,935) (1,406)
Prepaid expenses and other current assets (496) (2,427) --
Restricted cash -- 4,756 --
Deposits -- -- 5,233
INCREASE (DECREASE) IN LIABILITIES:
Accounts payable and accrued expenses (19,160) 3,421 (62,583)
Customer deposits -- (28,000) --
--------- --------- ---------
Total adjustments (15,433) (14,905) 71,548
--------- --------- ---------
Net cash used for operating activities (90,956) (96,970) (562,050)
--------- --------- ---------
CASH FLOWS USED FOR INVESTING ACTIVITIES -
payments to acquire property and equipment -- -- (4,051)
CASH FLOWS PROVIDED BY (USED FOR) FINANCING ACTIVITIES:
Cash restricted -- -- 5,775
Proceeds from loans and notes payable, net 137,000 83,500 572,563
Proceeds from issuance of preferred stock -- -- --
Offering costs -- -- --
--------- --------- ---------
Net cash provided by financing activities 137,000 83,500 578,338
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH 46,044 (13,470) 12,237
CASH AND CASH EQUIVALENTS, beginning of year 27,218 14,981 14,981
--------- --------- ---------
CASH AND CASH EQUIVALENTS, end of year $ 73,262 $ 1,511 $ 27,218
========= ========= =========
</TABLE>
See Note (16) for supplemental disclosures of non-cash investing and financing
activities.
See accompanying independent auditors' report and notes to consolidated
financial statements.
F-6
<PAGE> 36
NUMEX CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED MARCH 31, 1998
(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
coetaneous 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 though
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 the Food and Drug Administration ("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 a 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"). 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 were
held in escrow (the "Escrow Shares"). The value of those shares, in the
amount of $562,500, was shown as a reduction of the stockholders'
equity as of March 31, 1996. Insofar as ViaStar is no longer in
business, the 500,000 shares held in escrow were released back to the
Company, and the Company placed the shares, at cost, in Treasury stock
as of March 31, 1997.
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 $399,352 was assigned to the trustee for the benefit
of the creditors and was 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 was charged to earnings for the year
ended March 31, 1996. On March 28, 1997, the shareholders of ViaStar
dissolved the corporation under Delaware State law.
See accompanying independent auditors' report.
F-7
<PAGE> 37
NUMEX CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED MARCH 31, 1998
(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. The Company incurred net
losses during 1997 after airing a new infomercial, and has a net
capital deficiency as presented on the balance sheet. Also, during the
fiscal years 1998 and 1997, the Company experienced insufficient cash
flows from operations, and funds for operations were obtained through
the issuances of notes payable and preferred stock. 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 and its success of selling Therapy Plus
through wholesale distributors. Management's plans in connection with
this uncertainty are as follow:
The Company plans to continue marketing Therapy Plus through wholesale
distributors and exporters.
Management has been aggressively pursuing several profitable businesses
as acquisition candidates. In anticipation of possible acquisitions,
the Company has established a relationship with a medium-size
investment banking house which specializes in private placements of
securities and notes with institutional investors. Included in selling,
general and administrative expenses for the year ended March 31, 1998,
are approximately $362,000 related to accounting, legal and financing
costs associated with an acquisition target.
(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.
CASH AND CASH EQUIVALENTS:
Equivalents
For purposes of the statement of cash flows, cash equivalents
include all highly liquid debt instruments with original
maturities of three months or less which are not securing any
corporate obligations.
The carrying amounts of these assets approximate fair value
due to the short maturity of the instruments.
See accompanying independent auditors' report.
F-8
<PAGE> 38
NUMEX CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED MARCH 31, 1998
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
CASH AND CASH EQUIVALENTS, CONTINUED:
Concentration
The Company maintains its cash in bank deposit accounts which,
at times, may exceed federally insured limits. The Company has
not experienced any such losses in such accounts.
INVENTORIES:
Inventories are stated at the lower of cost or market value.
Cost is determined using the first-in, first-out ("FIFO")
method.
PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost. Expenditures for
maintenance and repairs are charged to earnings as incurred,
whereas, additions, renewals, and betterments are capitalized.
When property and equipment 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
IMPAIRMENT OF LONG-LIVED ASSETS:
In 1997, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of."
SFAS No. 121 requires that long-lived assets be reviewed for
impairment whenever events or changes in circumstances
indicate that the carrying amounts of such assets may not be
recoverable. Impairment losses would be recognized if the
carrying amounts of the assets exceed the fair value of the
asset. The impact of such adoption resulted in the write-off
of $392,398 for the purchased intangibles and the costs of
obtaining a licensing agreement from the patent holder of the
Product during the year ended March 31, 1997 (see Note 1).
See accompanying independent auditors' report.
F-9
<PAGE> 39
NUMEX CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED MARCH 31, 1998
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
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
the cost to produce a television infomercial. The cost of
direct-response advertising is deferred and amortized over the
expected revenue stream of approximately six to twelve months.
REVENUE RECOGNITION:
Sales and 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 retail customers if the Product is returned within 30 days
from the date of sale. The Company has estimated a provision
for future returns for sales to retail customers.
STOCK OPTION PLANS:
The Company has elected to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees"
(APB 25), and related interpretations in accounting for the
employee stock options, rather than adopt the alternative fair
value accounting provided under The Financial Accounting
Standards Board issued Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation."
INCOME TAXES:
The Company uses the liability method of accounting for income
taxes pursuant to SFAS No. 109, "Accounting for Income Taxes."
Deferred income tax assets result from temporary differences
when certain amounts are deducted for financial statement
purposes and when they are deducted for income tax purposes.
NET LOSS PER SHARE:
The Company has adopted Statement of Financial Accounting
Standard No. 128, Earnings per Share ("SFAS No. 128"), which
is effective for annual and interim financial statements
issued for periods ending after December 15, 1997. SFAS No.
128 was issued to simplify the standards for calculating
earnings per share ("EPS") previously in APB No. 15, Earnings
Per Share. SFAS No. 128 replaces the presentation of primary
EPS with a presentation of basic EPS. The new rules also
require dual presentation of basic and diluted EPS on the face
of the statement of operations. Common equivalent shares,
consisting of outstanding stock options, are not included,
since they are anti-dilutive. Net loss per common share is
computed based on the weighted average number of common shares
outstanding.
See accompanying independent auditors' report.
F-10
<PAGE> 40
NUMEX CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED MARCH 31, 1998
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
FAIR VALUE OF FINANCIAL INSTRUMENTS:
The Company measures its financial assets and liabilities in
accordance with generally accepted accounting principles.
Certain of the Company's financial instruments, including
cash, accounts receivable, accounts payable, and accrued
expenses, the carrying amounts approximate fair value due to
their short maturities. The amounts shown for debt also
approximate fair value because current interest rates offered
to the Company for debt of similar maturities are
substantially the same.
USE OF 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.
INTERIM FINANCIAL STATEMENTS (UNAUDITED):
The accompanying unaudited condensed financial statements for
the interim periods ended June 30, 1998 and 1997 have been
prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Regulation SB. Accordingly, they do not
include all of the information and footnotes required by
generally accepted accounting principles for complete
financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been
included. Operating results for the three months ended June
30, 1998 are not necessarily indicative of the results that
may be expected for the year ending March 31, 1999.
(3) CASH:
The Company had $56 of restricted cash to serve as collateral for a
credit card reserve, as of March 31, 1998.
(4) MAJOR CUSTOMERS:
During the year ended March 31, 1998, the Company did business with two
customers whose sales comprised approximately 22% and 65% of net sales,
respectively.
See accompanying independent auditors' report.
F-11
<PAGE> 41
NUMEX CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED MARCH 31, 1998
<TABLE>
<S> <C>
(5) INVENTORY:
A summary is as follows:
Finished goods $ 7,731
Supplies and packaging 2,499
--------------
$ 10,230
==============
(6) PROPERTY AND EQUIPMENT:
A summary is as follows:
Furniture and fixtures $ 37,620
Office and computer equipment 144,937
Tools and dies 38,259
--------------
220,816
Less accumulated depreciation 203,770
--------------
$ 17,046
==============
(7) ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
A summary is as follows:
Accounts payable $ 36,354
Accrued interest 3,441
Other 37,415
--------------
$ 77,210
==============
</TABLE>
During the year ended March 31, 1998, approximately $76,176 of the
Company's purchases were made from two vendors. No amounts were due to
these vendors as of March 31, 1998.
See accompanying independent auditors' report.
F-12
<PAGE> 42
NUMEX CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED MARCH 31, 1998
(8) LOAN PAYABLE, OTHER:
During the year ended March 31, 1998, the Company received legal
services related to an acquisition target. Subsequent to the year ended
March 31, 1998 the board of directors of the Company approved and
issued 140,000 shares of its treasury stock, at approximately $1.23, to
this vendor for legal services rendered in the amount of $ 171,930 (see
Note 17).
(9) LOAN PAYABLE, OFFICER-STOCKHOLDER:
During the year ended March 31, 1998, the board of directors of the
Company approved a bonus in the amount of $300,000 to an
officer-stockholder, payable at such time as funds became available and
would not be detrimental to the financial position of the Company.
Subsequent to the year ended March 31, 1998, the board of directors of
the Company approved and issued 240,000 shares of its treasury stock,
at $1.25, to convert the accrued officer-stockholder compensation
obligation of $300,000 (see Note 17).
(10) NOTES PAYABLE, OTHERS:
A summary is as follows:
<TABLE>
<CAPTION>
1998
----
<S> <C>
Promissory note, at prime plus 2% (10.5% at March 31, 1998), payable in
monthly principal payments of $2,000 plus interest,
due on December 18, 1995. $ 23,000
Promissory note, non-interest bearing, due on January 11, 1999.
This note may be converted at the holder's option into shares of
$0.10 par value common stock on or before due date at the rate
of $0.50 per share. 22,039
--------------
45,039
Less current maturities 45,039
--------------
$ --
==============
</TABLE>
See accompanying independent auditors' report.
F-13
<PAGE> 43
NUMEX CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED MARCH 31, 1998
(11) NOTES PAYABLE, RELATED PARTIES:
A summary is as follows:
<TABLE>
<CAPTION>
1998
----
<S> <C>
Promissory note, bearing interest at 8%, unsecured and due
on demand. $ 25,000
Promissory note, bearing interest at 8%,
unsecured and due on demand (see Note 17). 60,000
Promissory notes, bearing interest at 8%,
unsecured and due on demand (see Note 17). 105,000
Promissory note, bearing interest at 8%,
unsecured and due on demand (see Note 17). 115,000
--------------
305,000
Less current maturities 58,750
--------------
$ 246,250
==============
</TABLE>
Subsequent to March 31, 1998, the board of directors of the Company
approved and issued 197,000 shares of its treasury stock, at $1.25 per
share, to convert certain notes payable, related parties in the amount
of $246,250 into equity (see Note 17).
(12) INCOME TAXES:
The current provision for income taxes in fiscal year 1998 is related
to the minimum corporate state income taxes. As of March 31, 1998, the
Company had net federal operating loss carryforwards and net state
operating loss carryforwards totaling approximately $6,900,000 and
$1,600,000, respectively. The net federal operating loss carryforwards
expire in various years through 2013 and net state operating loss
carryforwards expire in various years through 2003.
The primary components of temporary differences which give rise to the
Company's net deferred tax asset at March 31, approximate as follows:
<TABLE>
<S> <C>
Deferred tax asset (liability):
Net operating losses $ 2,500,000
Valuation allowance (2,500,000)
--------------
Net deferred tax asset (liability) $ --
==============
</TABLE>
The valuation allowance increased by approximately $250,000 in 1998.
See accompanying independent auditors' report.
F-14
<PAGE> 44
NUMEX CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED MARCH 31, 1998
(13) 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.
As of March 31, 1998, the Company had 1,000,000 options granted under
the non-qualified option plan to the Company's Chairman of the Board
and a former officer, of which 970,000 options were fully vested and
unexercised. These options may be exercised at prices ranging from
$0.50 to $1.00 per share.
Proforma information regarding net income and earnings per share under
the fair value method has not been presented, as the amounts are
immaterial.
(14) RELATED PARTY TRANSACTIONS:
During the year ended March 31, 1998, certain notes payable, related
parties, in the amount of $1,672,290, were converted to 3,344,581
shares of restricted and unrestricted common stock. Interest expense to
related parties was approximately $83,954 for the year ended March 31,
1998.
(15) COMMITMENTS AND CONTINGENCIES:
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 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 twelve 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.
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. 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.
See accompanying independent auditors' report.
F-15
<PAGE> 45
NUMEX CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED MARCH 31, 1998
(15) COMMITMENTS AND CONTINGENCIES, CONTINUED:
At March 31, 1998, the Company owed the patent owner an aggregate of
$356,600 in accrued royalties. Pursuant to the agreement, the
obligations of the Company to pay royalty shall be stayed pending such
period of governmental prohibition and as such, management made an
adjustment of the prior year accruals on royalty estimates and
recognized a gain as of March 31, 1998 in the amount of $356,600.
The Company has obtained legal advice in support of the defenses
available to them regarding the royalty estimate adjustment.
(16) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Supplemental cash flow information for the year ended March 31 are as
follows:
<TABLE>
<CAPTION>
Three months Year ended
ended June 30, March 31, 1998
-------------- --------------
1998 1997
---- ----
(unaudited) (unaudited)
<S> <C> <C> <C>
Cash paid for interest $ 590 $ 10,025 $ 43,610
Cash paid for income taxes -- -- 800
</TABLE>
Non-cash financing activities for the year ended March 31 were as
follows:
<TABLE>
<CAPTION>
Three months Year ended
ended June 30, March 31, 1998
-------------- --------------
1998 1997
---- ----
(unaudited) (unaudited)
<S> <C> <C> <C>
Conversion of promissory notes payable,
related party, to 3,344,581 and 300,000
shares of common stock, respectively. $ -- $ -- $ 1,672,290
Conversion of promissory notes payable,
others, to 1,251,888 shares of common
stock. -- -- 625,943
Conversion of accounts payable to 22,150
shares of common stock -- -- --
Issuance of common stock in payment of
legal services at $1.23 per share 171,930 -- --
Conversion of accrued compensation of a
related party into common stock at $1.25
per share 300,000 -- --
Conversion of notes payable into shares of
common stock at $1.25 per share 306,250 -- --
</TABLE>
See accompanying independent auditors' report.
F-16
<PAGE> 46
NUMEX CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED MARCH 31, 1998
(17) SUBSEQUENT EVENTS:
The Company has entered into an agreement with the original owners and
an independent consultant (prior to acquisition by Numex Corporation)
of ViaStar Marketing, Inc., to reacquire 300,000 shares, at cost, of
the Company's common stock outstanding as of March 31, 1998. The
Company had originally presented the issuance of restricted common
stock as Goodwill purchased in excess of fair market value from the
acquisition of ViaStar Marketing, Inc. The unamortized carrying value
of purchased goodwill (see Note 1) was charged against earnings for the
year ended March 31, 1996.
The board of directors of the Company approved and issued 140,000
shares of its treasury stock, at approximately $1.23, to a vendor for
legal services rendered related to an acquisition target in the amount
of $171,930 (see Note 8).
The board of directors of the Company approved and issued 240,000
shares of its treasury stock, at $1.25, to convert the accrued
officer-stockholder compensation obligation of $300,000 (see Note 9).
The board of directors of the Company approved and issued 197,000
shares of its treasury stock, at $1.25 per share, to convert $246,250
of notes payable, related parties, as presented in the balance sheet,
into equity (see Note 11).
The Company also issued 48,000 shares of treasury stock, at $1.25 per
share, to convert $60,000 of additional notes payable, related parties
issued after March 31, 1998.
See accompanying independent auditors' report.
F-17
<PAGE> 47
No dealer, salesman or other person is authorized to give any information or
make any representations not contained in this Prospectus with respect to the
offering made hereby. This Prospectus does not constitute an offer to sell any
of the securities offered hereby in any jurisdiction where, or to any person to
whom, it is unlawful to make such an offer. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
an implication that there has been no change in the information set forth
herein or in the business of the Company since the date hereof.
-------------------
TABLE OF CONTENTS
Page
----
Available Information................... 1
Documents Incorporated By Reference..... 2
Prospectus Summary...................... 3
Risk Factors............................ 5
Use Of Proceeds......................... 9
Market For Common Equity And Related
Stockholder Matters................ 9
Selling Stockholders.................... 11
Plan Of Distribution.................... 12
Management's Discussion And Analysis Of
Financial Condition And Results
Of Operation....................... 12
Business................................ 16
Management.............................. 18
Executive Compensation.................. 19
Certain Relationships And Related
Transactions....................... 20
Security Ownership Of Certain Beneficial
Owners And Management.............. 21
Recent Sales Of Unregistered Securities. 21
Legal Proceedings....................... 22
Changes In And Disagreements With
Accountants On Accounting And
Financial Disclosure............... 23
Disclosure Of Commission Position On
Indemnification Of Securities Act
Liabilities........................ 23
Legal Matters........................... 24
Experts................................. 24
5,210,506 Shares of Common Stock
NUMEX CORPORATION
- -------------------------------------------
PROSPECTUS
- -------------------------------------------
October , 1998
<PAGE> 48
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware
grants corporations the right to indemnify their directors, officers, employees
and agents in accordance with the provisions therein set forth. The Company's
Certificate of Incorporation provides for indemnification of such persons to the
fullest extent allowable under applicable law. In addition, the Company has
entered into indemnity agreements with each of its Directors, which generally
provide contractual indemnity protection which is coextensive with the indemnity
provisions of the General Corporation Law of the State of Delaware and the
Company's Certificate of Incorporation.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is a schedule of the estimated expenses (all of which will
be borne by the Company) incurred in connection with the offering of the
securities registered hereby, other than underwriting discounts and commissions,
if any. All of the amounts shown are estimates, except the SEC Registration Fee.
<TABLE>
<S> <C>
SEC registration fee ......................... $ 960.69
Blue Sky fees and expenses ................... 5,000.00*
Accounting fees and expenses ................. 5,000.00*
Legal fees and expenses ...................... 20,000.00*
Miscellaneous ................................ 2,039.31*
----------
Total ........................................ $33,000.00*
==========
</TABLE>
------------------
* estimated
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
In April and May 1996, the Company issued 22,150 shares of common stock
to Friedman and Phillips, the Company's corporate counsel at that time, in lieu
of $11,344 legal fees incurred.
On March 31, 1997, Jack I. Salzberg converted his $300,000 convertible
note into 300,000 shares of common stock. He also converted the remaining
outstanding note and accrued interest in the amount of $143,916 into 287,831
shares of common stock on September 10, 1997. Mr. Salzberg is the Chairman of
the Board, President and CEO of the Company.
On August 11, 1997, Esther Kozienicki converted her long term
convertible note of $300,000 into 600,000 shares of common stock. She also
converted some of her demand notes and accrued interest in the amount of
$479,880 into 959,760 shares of common stock on December 31, 1997. Ms.
Kozienicki is the sister of Jack Salzberg.
On August 11, 1997, Malka Livne converted her long term convertible note
of $300,000 into 600,000 shares of common stock. She also converted some of her
demand notes and accrued interest in the amount of $163,995 into 327,990 shares
of common stock on December 31, 1997. Ms. Livne is the sister-in-law of Jack
Salzberg.
On December 31, 1997, Dafna Breines converted outstanding notes in an
aggregate amount of $161,000 into 322,000 shares of common stock; Adira Hulkower
converted outstanding notes for $80,000 into 160,000 shares of common stock; Ron
Livne converted his notes in an aggregate amount of $42,500 into 85,000 shares
of common stock; Frank Naft converted outstanding notes for $50,000 into 100,000
shares of common stock; Miriam Salzberg converted outstanding notes for $50,000
into 100,000 shares of common stock; 1989 Jack and Anna Salzberg Grandchildren
Trust for the Benefit of Adam Salzberg converted outstanding note of $40,500
into 81,000 shares of common stock; and, 1989 Jack and Anna Salzberg
Grandchildren Trust for the Benefit of Matthew Salzberg converted outstanding
note of $40,500 into 81,000 shares.
On December 31, 1997, the Company issued 443,888 shares of common stock,
of which 43,888 shares were restricted, to David Breines who purchased a 1992
convertible promissory note from an unaffiliated party in the amount of
$221,994.
On February 24, 1998, a note in the amount of $224,000 which had been
assumed by a family member of Jack Salzberg, was converted into 448,000 shares
of Common Stock and issued as follows: Regina Hulkower as custodian for Shoshana
Hulkower under the Uniform Gift to Minors Act 100,000 shares, Judah Hulkower
100,000 shares, Ron Livne 98,000 shares, 1989 Jack and Anna Salzberg
Grandchildren Trust FBO Adam Salzberg 50,000 shares, 1989 Jack and Anna Salzberg
Grandchildren Trust FBO Jacob Salzberg 50,000 shares and 1989 Jack and Anna
Salzberg Grandchildren Trust FBO Matthew Salzberg 50,000 shares.
On May 29, 1998, Jack Salzberg converted his $300,000 accrued
compensation into 240,000 shares of common stock; Esther Kozienicki converted
$160,000 outstanding notes into 128,000 shares of common stock; Malka Livne
converted $120,000 outstanding notes
ITEM 27. EXHIBITS.
<TABLE>
<CAPTION>
Exhibit No.
<S> <C>
3.1 Certificate of Incorporation. Incorporated by reference to exhibit
2.1 to Company's Registration Statement on Form S-18, filed on August
14, 1980.
3.2 Certificate of Amendment to the Certificate of Incorporation filed
August 30, 1985. Incorporated by reference to exhibit 3.3 to
Company's Form 10-K for fiscal year ending March 31, 1988.
3.3 Certificate of Amendment to the Certificate of Incorporation filed
March 31, 1986. Incorporated by reference to exhibit 10.4 to
Company's Form 10-K for fiscal year ending March 31, 1986.
3.4 Certificate of Amendment to the Certificate of Incorporation filed
October 14, 1992. Incorporated by reference to exhibit 3.4 to
Company's Form 10-KSB for fiscal year ending March 31, 1993.
3.5 Certificate of Amendment to the Certificate of Incorporation filed
April 16, 1996.*
3.6 Bylaws. Incorporated by reference to exhibit 2.2 to Company's
Registration Statement on Form S-18, filed on August 14, 1980.
3.7 Amendment to Bylaws dated March 19, 1992. Incorporated by reference
to exhibit 3.6 to Company's Form 10-KSB for fiscal year ending March
31, 1993.
3.8 Amendment to Bylaws dated March 30, 1992. Incorporated by reference
to exhibit 3.7 to Company's Form 10-KSB for fiscal year ending March
31, 1993.
3.9 Amendment to Bylaws dated July 15, 1992. Incorporated by reference to
exhibit 3.8 to Company's Form 10-KSB for fiscal year ending March 31,
1993.
3.10 Amendment to Bylaws dated December 30, 1992. Incorporated by
reference to exhibit 3.9 to Company's Form 10-KSB for fiscal year
ending March 31, 1993.
4 Specimen Common Stock Certificate. Incorporated by reference to
exhibit 3.0 to Company's Registration Statement on Form S-18, filed
on August 14, 1980 (by amendment).
5 Opinion of Richman, Lawrence, Mann, Chizever & Phillips.**
10.1 License agreement dated as of January 1, 1992 between the Company and
Gunter Schweisfurth concerning Therapy Plus. Incorporated by
reference to exhibit 10.1 to Company's Form 10-KSB for fiscal year
ending March 31, 1993.
10.8 1992 Stock Option Plan. Incorporated by reference to exhibit 10.8 to
Company's Form 10-KSB for fiscal year ending March 31, 1993.
10.9 Stock Option Agreement with Gerald A. Bagg. Incorporated by reference
to exhibit 10.9 to Company's Form 10-KSB for fiscal year ending March
31, 1993.
10.16 Settlement Agreement and Release of All Claims dated December 29,
1997 between the Company and Jacob M.M. Graff. Incorporated by
reference to exhibit 10.16 to Company's Form 10-KSB for fiscal year
ending March 31, 1998.
10.17 Settlement Agreement and Release of All Claims dated January 29, 1998
between the Company and Belin Rawlings and Badal LLP. Incorporated by
reference to exhibit 10.17 to Company's Form 10-KSB for fiscal year
ending March 31, 1998.
10.18 Settlement Agreement and Release of All Claims dated February 5, 1998
between the Company and Barnes Morris Wolf P.C., Incorporated by
reference to exhibit 10.18 to Company's Form 10-KSB for fiscal year
ending March 31, 1998.
11 Statement regarding computation of per share earnings. Set forth on
Consolidated Statements of Operations, above, as the Company has a
simple capital structure.
21 Subsidiaries of Registrant. Incorporated by reference to exhibit 21
to Company's Form 10-KSB for the fiscal year ended March 31, 1998.
23.1 Consent of Richman, Lawrence, Mann, Chizever & Phillips (included
in Exhibit 5).**
23.2 Consent of Stonefield Josephson, Inc., Independent Public
Accountants.*
24 Powers of Attorney (included on the signature page in Part II of this
Registration Statement).*
</TABLE>
- ----------------------
* filed herewith
** to be filed by amendment
ITEM 28. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement;
(i) To include any Prospectus required by Section
10(a)(3) of the Securities Act of 1933, as amended (the
"Securities Act");
(ii) To reflect in the Prospectus any facts or events
which, individually or together, represent a fundamental change
in the information set forth in the Registration Statement;
however, notwithstanding the foregoing, any increase or decrease
in volume of securities offered (if the
II-1
<PAGE> 49
total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end
of the estimated maximum offering range may be reflected in the
form of prospectus filed with the Commission pursuant to Rule
424(b) of the Securities Act if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any additional or changed material
information on the plan of distribution not previously disclosed
in the Registration Statement or any material change to such
information in the Registration Statement.
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Registrant pursuant to
section 13 or 15(d) of the Exchange Act that are incorporated by reference in
this registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each post-effective amendment shall be deemed to be a
new Registration Statement relating to the securities offered therein,
and the offering of such securities at the time shall be deemed to be
the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the Exchange
Act) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the Registrant's Certificate of Incorporation, By-Laws or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection which the Securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-2
<PAGE> 50
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Santa Fe Springs, State of California, on
October 2, 1998.
NUMEX CORPORATION
By /s/ Jack I. Salzberg
-----------------------------
Jack I. Salzberg
Chairman of the Board and
President
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Jack I. Salzberg his attorney-in-fact with power
of substitution for him in any and all capacities, to sign any amendments,
supplements, subsequent registration statements relating to the offering to
which this Registration Statement relates, or other instructions he deems
necessary or appropriate, and to file the same, with exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that said attorney-in-fact or his substitute
may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on October 2, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Jack I. Salzberg Chairman of the Board,
- ------------------------------------- President and Director
Jack I. Salzberg
/s/ Gerald A. Bagg Director
- -------------------------------------
Gerald A. Bagg
/s/ J. Robert Fabregas Director
- -------------------------------------
J. Robert Fabregas
/s/ Issac S. Salzberg Director
- -------------------------------------
Issac S. Salzberg
</TABLE>
II-3
<PAGE> 51
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No.
<S> <C>
3.1 Certificate of Incorporation. Incorporated by reference to exhibit
2.1 to Company's Registration Statement on Form S-18, filed on August
14, 1980.
3.2 Certificate of Amendment to the Certificate of Incorporation filed
August 30, 1985. Incorporated by reference to exhibit 3.3 to
Company's Form 10-K for fiscal year ending March 31, 1988.
3.3 Certificate of Amendment to the Certificate of Incorporation filed
March 31, 1986. Incorporated by reference to exhibit 10.4 to
Company's Form 10-K for fiscal year ending March 31, 1986.
3.4 Certificate of Amendment to the Certificate of Incorporation filed
October 14, 1992. Incorporated by reference to exhibit 3.4 to
Company's Form 10-KSB for fiscal year ending March 31, 1993.
3.5 Certificate of Amendment to the Certificate of Incorporation filed
April 16, 1996.*
3.6 Bylaws. Incorporated by reference to exhibit 2.2 to Company's
Registration Statement on Form S-18, filed on August 14, 1980.
3.7 Amendment to Bylaws dated March 19, 1992. Incorporated by reference
to exhibit 3.6 to Company's Form 10-KSB for fiscal year ending March
31, 1993.
3.8 Amendment to Bylaws dated March 30, 1992. Incorporated by reference
to exhibit 3.7 to Company's Form 10-KSB for fiscal year ending March
31, 1993.
3.9 Amendment to Bylaws dated July 15, 1992. Incorporated by reference to
exhibit 3.8 to Company's Form 10-KSB for fiscal year ending March 31,
1993.
3.10 Amendment to Bylaws dated December 30, 1992. Incorporated by
reference to exhibit 3.9 to Company's Form 10-KSB for fiscal year
ending March 31, 1993.
4 Specimen Common Stock Certificate. Incorporated by reference to
exhibit 3.0 to Company's Registration Statement on Form S-18, filed
on August 14, 1980 (by amendment).
5 Opinion of Richman, Lawrence, Mann, Chizever & Phillips.**
10.1 License agreement dated as of January 1, 1992 between the Company and
Gunter Schweisfurth concerning Therapy Plus. Incorporated by
reference to exhibit 10.1 to Company's Form 10-KSB for fiscal year
ending March 31, 1993.
10.8 1992 Stock Option Plan. Incorporated by reference to exhibit 10.8 to
Company's Form 10-KSB for fiscal year ending March 31, 1993.
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10.9 Stock Option Agreement with Gerald A. Bagg. Incorporated by reference
to exhibit 10.9 to Company's Form 10-KSB for fiscal year ending March
31, 1993.
10.16 Settlement Agreement and Release of All Claims dated December 29,
1997 between the Company and Jacob M.M. Graff. Incorporated by
reference to exhibit 10.16 to Company's Form 10-KSB for fiscal year
ending March 31, 1998.
10.17 Settlement Agreement and Release of All Claims dated January 29, 1998
between the Company and Belin Rawlings and Badal LLP. Incorporated by
reference to exhibit 10.17 to Company's Form 10-KSB for fiscal year
ending March 31, 1998.
10.18 Settlement Agreement and Release of All Claims dated February 5, 1998
between the Company and Barnes Morris Wolf P.C., Incorporated by
reference to exhibit 10.18 to Company's Form 10-KSB for fiscal year
ending March 31, 1998.
11 Statement regarding computation of per share earnings. Set forth on
Consolidated Statements of Operations, above, as the Company has a
simple capital structure.
21 Subsidiaries of Registrant. Incorporated by reference to exhibit 21
to Company's Form 10-KSB for the fiscal year ended March 31, 1998.
23.1 Consent of Richman, Lawrence, Mann, Chizever & Phillips (included
in Exhibit 5).**
23.2 Consent of Stonefield Josephson, Inc., Independent Public
Accountants.*
24 Powers of Attorney (included on the signature page in Part II of this
Registration Statement).*
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* filed herewith
** to be filed by amendment
<PAGE> 1
Exhibit 3.5
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF NUMEX CORPORATION
(PURSUANT TO SECTION 228 OF THE
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE)
The undersigned, Carmen Bastyr, Assistant Secretary, of Numex Corporation, a
Delaware Corporation (hereafter called the "Corporation"), do hereby certify
that the following amendment has been duly adopted by consent in writing of the
holders of a majority of the issued and outstanding stock of this Corporation:
RESOLVED, that Article IV of this Corporation's Certificate of Incorporation be
amended and rested in its entirety to read as follows:
ARTICLE IV
The total number of shares of capital stock which the Corporation has
authority to issue is thirty million (30,000,000) shares, of which (i) twenty
million (20,000,000) shares shall be designated Common Stock, having a par value
of $0.10 per share, and (ii) ten million (10,000,000) shares shall be designated
Preferred Stock having a par value of $1.00 per share. The Board of Directors
shall have authority to fix by resolutions the designations and powers, voting
rights, preferences, conversion and other rights and the qualifications,
limitations or restrictions of such preferred stock, including the number of
shares of any series, to the full extent permitted by the Delaware Corporations
Law.
IN WITNESS WHEREOF, said Numex Corporation has caused this certificate to be
signed by Carmen Bastyr, its Assistant Secretary, this 15th day of April 1996.
By: /s/ Carmen Bastyr
-----------------------------
Carmen Bastyr
Assistant Secretary
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Exhibit 23.2
CONSENT OF STONEFIELD JOSEPHSON, INC.
CERTIFIED PUBLIC ACCOUNTANTS
The undersigned independent certified public accounting firm hereby
consents to the inclusion of its report on the financial statement of Numex
Corporation for the year ended March 31, 1998, and to the reference to it as
experts in accounting and auditing relating to said financial statement, in the
SB-2 Registration Statement for Numex Corporation.
/s/STONEFIELD JOSEPHSON, INC.
STONEFIELD JOSEPHSON, INC.
Certified Public Accountants
Santa Monica, California
Dated: 9/28/98
