<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM _______ TO _______
COMMISSION FILE NUMBER 0-7722
NUMEX CORPORATION
------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 06-1034587
--------------------------------- ----------------------
(STATE OF OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
2329 SOUTH PURDUE AVE
LOS ANGELES, CALIFORNIA 90064
---------------------------------------- ----------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 914-3007
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, PAR VALUE $.10 PER SHARE
INDICATE BY CHECKMARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORT(S)), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES /X/ NO / /
Registrant had 16,542,627 shares of Common Stock, $.10 par value per share,
outstanding as of August 7, 2000.
Transitional Small Business Disclosure Format: YES / / NO /X/
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Numex Corporation and Subsidiary
Consolidated Condensed Balance Sheets
<TABLE>
<CAPTION>
March 31 June 30
2000 2000
---------- ----------
(unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash .............................................................. $1,252,317 $ --
Accounts receivable, net of allowance for doubtful
accounts of $20,242 and $20,242, respectively ................... 417,071 1,084,945
Capitalized production costs ...................................... 262,148 106,405
---------- ----------
Total current assets .................................................. 1,931,536 1,191,350
Property and equipment, net of accumulated
depreciation and amortization of $225,198 and $259,441,
respectively....................................................... 420,407 651,371
Goodwill, net of amortization of $87,578 and $109,474 ................. 350,315 328,420
Deferred loan cost, net ............................................... 105,000 96,000
Deposits .............................................................. 41,441 90,961
Other assets .......................................................... 32,545 44,427
---------- ----------
Total Assets ...................................................... $2,881,244 $2,402,529
========== ==========
LIABILITIES AND SHAREHOLDER'S DEFICIT
Current liabilities
Bank overdraft .................................................... $ -- $ 51,850
Accounts payable .................................................. 982,386 1,501,474
Accrued expenses .................................................. 23,652 59,704
Deferred revenues ................................................. 541,888 616,623
Current portion of long term debt ................................. 96,869 83,766
Current portion of capital lease obligations ...................... 28,199 39,556
---------- ----------
Total current liabilities ............................................. 1,672,994 2,352,973
---------- ----------
Long-term net of current portion ...................................... 2,439,594 2,439,594
Other liabilities ..................................................... 146,400 0
Capital lease obligations, net of current portion ..................... 108,582 90,416
---------- ----------
Total liabilities ..................................................... 4,367,570 4,882,983
---------- ----------
Minority interest...................................................... 743,894 503,556
---------- ----------
Shareholder's deficit
Cumulative, Convertible, Series B Preferred stock; $1.00 par value
5,000,000 shares authorized, 115,600 shares issued and outstanding
at March 31, 2000; 104,900 shares issued and outstanding at June
30, 2000............................................................ 115,600 104,900
Common stock, $0.10 par value, 30,000,000 shares authorized;
16,336,800 shares issued and 16,259,291 outstanding March 31, 2000;
16,620,136 shares issued and 16,542,627 outstanding June 30, 2000... 1,633,680 1,662,014
Additional paid-in-capital........................................... 8,724,684 8,976,419
Accumulated deficit.................................................. (12,608,934) (13,632,093)
Treasury stock, at cost, 77,509 shares at March 31, 2000 and June
30, 2000............................................................ (7,750) (7,750)
Note Receivable...................................................... (87,500) (87,500)
----------- -----------
Total shareholder's deficit............................................ (2,230,220) (2,984,010)
----------- -----------
$ 2,881,244 $ 2,402,529
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
<PAGE>
Numex Corporation and Subsidiary
Consolidated Condensed Statements of Operations
<TABLE>
<CAPTION>
Three Months Ended June 30,
----------------------------
1999 2000
(unaudited)
----------------------------
<S> <C> <C>
Net Sales .......................................... $ 1,481,797 $ 2,149,464
Cost of sales ...................................... 1,119,971 1,905,882
------------ ------------
Gross profit ....................................... 361,826 243,582
Technology and web-site development ................ 0 198,573
Selling, general and administration expenses ....... 1,434,237 1,275,769
------------ ------------
Loss from operations ............................... (1,072,411) (1,230,760)
------------ ------------
Other income (expense)
Other income .................................. 55,000 55,672
Interest expense, net ......................... (22,390) (88,410)
------------ ------------
Total other expense ................................ 32,610 (32,738)
------------ ------------
Loss before minority interest ...................... (1,039,801) (1,263,498)
Minority interest in loss of consolidated subsidiary 0 240,338
------------ ------------
Net loss ........................................... (1,039,801) (1,023,160)
Deemed dividend on cumulative preferred stock ...... 1,728,107 0
------------ ------------
Net loss applicable to common stock ................ $ (2,767,908) $ (1,023,160)
============ ============
Basic and diluted loss per common share ............ $ (0.19) $ (0.06)
============ ============
Weighted average number of common shares
outstanding used to calculate basic and diluted
loss per common share .............................. 14,267,052 16,346,508
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
<PAGE>
Numex Corporation and Subsidiary
Consolidated Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
For the Three months
ended June 30
------------------------------------
1999 2000
(unaudited)
------------------------------------
<S> <C> <C>
Increase (decrease) in cash:
Cash flows from operating activities
Net loss ........................................................ $(1,039,801) $(1,023,160)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization ........................... 33,221 52,000
Minority interest's share of loss in subsidiary ......... 0 (240,338)
Employee compensation paid in common stock .............. 139,338 0
Officer compensation paid in common stock ............... 0 22,969
Finder's fee paid in common stock ....................... 371,094 0
Changes in operating assets and liabilities:
Accounts receivable ..................................... (54,753) (679,756)
Capitalized production costs ............................ 66,677 155,743
Deferred loan cost ...................................... 0 9,000
Accounts payable and accrued expenses ................... (110,084) 555,142
Deferred revenues ....................................... (157,762) 74,735
Deposits ................................................ (4,375) (49,520)
----------- -----------
Net cash provided by (used in) operating activities ................. (756,445) (1,123,185)
----------- -----------
Cash flows from investing activities
Debt issued to employees ........................................ (5,300) 0
Purchase of trade-mark .......................................... (12,000) 0
Purchase of fixed assets ........................................ (35,793) (261,070)
Acquisition of business ......................................... 185,441 0
----------- -----------
Net cash provided by (used in) investing activities ................. 132,348 (261,070)
----------- -----------
Cash flows from financing activities
Increase (decrease) in bank overdraft ........................... 0 51,850
Repayment on bank line of credit ................................ (1,800,000) 0
Proceeds (repayment) on note payable ............................ (94,249) (13,103)
Payments for obligations under capital leases ................... (5,645) (6,809)
Proceeds from issue of common stock in subsidiary ............... 0 100,000
Net proceeds from issue of preferred stock ...................... 3,319,500 0
Net proceeds from exercise of warrants .......................... 1,875 0
----------- -----------
Net cash provided by (used in) financing activities ................. 1,421,481 131,938
----------- -----------
Net increase (decrease) in cash ..................................... 797,384 (1,252,317)
----------- -----------
Cash, at beginning of the period .................................... 85,086 1,252,317
----------- -----------
Cash, at end of period .............................................. $ 882,470 $ --
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
For the three months ended June 30, 2000, 10,700 of the Company's Series B
Preferred Stock were converted into 178,336 shares of the Company's Common
Stock. Also, the Company issued 15,000 shares of the Company's Common Stock
for the services rendered.
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
ORGANIZATION AND BUSINESS
Numex Corporation (the "Company") was incorporated under the laws of the State
of Delaware in August 1980.
The Company provides direct marketing services targeting the US Hispanic
community. The Company's clients include national and regional advertisers who
are focused on the Hispanic market. The Company's programs are built around its
proprietary door-to-door distribution program, La Bolsita, and its publications
Mundo Deportivo and InternetMercado Magazine. La Bolsita (translation: the
little bag) reaches close to three million Hispanic households across the US, as
determined by a sophisticated analysis of census tract data. This distribution
program provides opportunities for marketers to distribute coupons, retail
inserts and product samples on a door-to-door basis.
The Company also creates and publishes value-added custom publishing programs
for major marketers. Each program focuses on retention marketing and is designed
to help build customer loyalty. Since 1990, the Company has successfully focused
on the areas of technology, entertainment, healthcare and retail. It has
demonstrated an ability to grow with its clients as well as develop new products
and clients.
INTERNETMERCADO COMMERCE CORPORATION ("IMCC"):
IMCC is a majority owned subsidiary of the Company. The business objective of
IMCC is to sell business-to-business solutions that provide marketers with
scalable customer acquisition solutions in the US Hispanic Market. IMCC will
serve as a US Hispanic market intermediary by planning and implementing
integrated media campaigns and interactive marketing solutions that target
on-line and off-line Hispanic consumers on a turnkey basis.
Its target customers are both offline companies interested in reaching
Hispanics online as well as Internet companies/marketers who want to scale
quickly and use their resources efficiently by building their brands, mining
their databases and maximizing their US Hispanic marketing effectiveness.
Management believes that IMCC has an opportunity to capitalize on the
Company's media presence in the Hispanic market to leverage its marketing
solutions for its clients. The Hispanic market is one of the fastest-growing
internet and e-commerce segments. Forrester Research estimates that by the
end of 2000, approximately 43% of U.S. Hispanic households will own
computers. The Selig Center for Economic Growth estimates US Hispanic
spending was $383 billion in 1999, with growth at an annual rate of 7.5%,
compared to 4.9% for the rest of the U.S. Population. The Nazca Saatchi and
Saatchi Latin American Internet Use Study reported that Hispanic
cybershoppers now spend an average of $547 online per year and purchase at
least six times on the internet.
The business model of IMCC is relatively unproven. Successful implementation of
the business plan for IMCC will depend on a number of factors, including the
Company's ability to obtain financing in the form of debt, equity or a
combination thereof. To the extent that the Company is unable to obtain
sufficient funds, all or part of the Company's strategy in building the new
business will be curtailed or modified. The Company is actively seeking such
financing. To date, however, the Company has not received any binding
commitments for financing, and no assurance can be given that such financing
will be obtained on reasonable terms, or at all. Additionally, as with most
start-up operations, successful implementation will depend on client acceptance
of the IMCC business model and execution of the business plan. The Company's
management will monitor on a continuing basis the IMCC business to determine its
viability in view of the resources available and market acceptance of its
services.
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10QSB and Article 10 of
Regulation S-X. All significant inter-company accounts and transactions have
been eliminated in consolidation.
The unaudited consolidated condensed financial statements do not include all the
information and footnotes required by generally accepted accounting principles
for complete financial statements. All of the financial statements were prepared
on the accrual basis of accounting. In the opinion of the management, all
adjustments (consisting of normal recurring adjustments) considered necessary
for fair presentation have been included. Operating results for the three months
period ended June 30, 2000 are not necessarily indicative of the results that
may be expected for the year ending March 31, 2001. For further information,
refer to the audited financial statements of the Company for the year ended
March 31, 2000.
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion should be read in conjunction with the Company's
condensed consolidated financial statements and the notes thereto appearing
elsewhere in this Form 10-QSB. Certain 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, competition from other similar businesses, and market and general
economic factors. All forward-looking statements contained in this Form 10-QSB
are qualified in their entirety by this statement.
INTRODUCTION:
On April 12, 1999, Numex Corporation (the "Company") acquired all of the
outstanding stock of Jeffrey A. Stern & Associates, Inc. ("JSA"), in exchange
for 3,046,875 shares of common stock in the Company (the "JSA Acquisition"). For
accounting purposes, the JSA Acquisition is treated as a re-capitalization of
JSA with JSA as the acquirer (reverse acquisition). Accordingly, the discussion
below provides information solely with respect to the results of operations of
JSA. In connection with the JSA Acquisition, JSA acquired the minority interest
in JSA Communications, LLC in exchange for 106.09 shares in JSA. JSA
Communications LLC was subsequently merged with JSA. This transaction resulted
in goodwill of $437,893 being recorded in JSA's books.
JSA, which provides distributing and publishing services to various commercial
customers throughout the United States, is the remaining operating entity after
the merger. JSA is also engaged in publishing, circulating and selling
advertisements in its own print publications. Following the JSA Acquisition, the
company also started the development of an e-commerce web-site, with the
intention of leveraging its existing expertise in the Hispanic print market on
to the Internet. In the process of developing the e-commerce web-site, the
Company realized that its principal strength is as an intermediary, helping
other Internet companies reach the Hispanic market. In view of this, the Company
is now attempting to provide business to business solutions that provide
marketers with scalable customer acquisition solutions in the US Hispanic
Market. The Company acts as an intermediary by planning and implementing
integrated media campaigns and interactive marketing solutions that target
on-line and off-line Hispanic consumers on a turnkey basis. So as to facilitate
the management of and the raising of capital for the interactive marketing
venture using the new media, a new subsidiary, InternetMercado Commerce
Corporation ("IMCC") was formed on November 3, 1999.
RESULTS OF OPERATIONS FOR THE THREE MONTHS JUNE 30, 2000 AND 1999:
Net sales for the three months ended June 30, 2000 and June 30, 1999 were
$2,149,000 and $1,482,000, respectively. The increase of $667,000 for the
current period was attributed mainly to higher revenues from the Company's
publishing business.
Cost of sales were $1,906,000 and $1,120,000 for the three months ended June 30,
2000 and June 30, 1999, respectively. As a percentage of revenues, cost of sales
for the three months ended June 30, 2000 and June 30, 1999 accounted for 88.7%
and 75.6% of net sales, respectively. The higher cost of sales percentage for
the current period resulted in the gross profit of $244,000 for the current
period to be $118,000 lower than the gross profit of $362,000 for the same
period last year. As a percentage of net sales, the gross profit for the current
period was 11.3% compared to 24.4% the same period in the last year. The main
expenditures that caused the high cost of sales which resulted in lower gross
profit percentage for the three months ended June 30, 2000, were the expenses
incurred in the development of the InternetMercado Magazine and the proprietary
advertising and media programs introduced in the previous year, which have not
yet produced significant margins.
Selling and general and administration expenses decreased 11.0% or $158,000 to
$1,276,000 for the three months ended June 30, 2000, from $1,434,000 for the
same period last year. The decrease was primarily due to employee compensation
incurred during the three months ended June 30, 1999 that were not incurred
during the three months ended June 30, 2000. The employee compensation included
the value of the shares of common stock of JSA that were issued to certain
employees of JSA prior to the JSA Acquisition and the salaries paid to the
Company's Non-executive Chairman who resigned his position in August 1999.
Net interest expense for the three months ended June 30, 2000 was $88,000
compared to $22,000 for same period last year. The higher interest expense for
the current period was principally a result of the $1.5 million 3 year term loan
that the Company borrowed from Bastion Capital Fund LP on November 3, 1999.
$45,500 of the $88,000 interest for the three months ended June 30, 2000
which were payable to Bastion Capital Fund LP were not paid when due and the
Company was in default as of June 30, 2000.
<PAGE>
During the three months ended June 30, 1999, the Company recorded a deemed
dividend of $1,728,107 on the 144,000 shares of Series B Preferred Stock issued
in private placement completed on April 12, 1999. This amount represents the
difference between the issue price of the shares of preferred stock and the
market value of the shares of common stock issuable upon conversion of the
shares of preferred stock, assuming that the shares of preferred stock were
converted into shares of common stock on the date of the private placement.
The minority interest's share of the loss incurred by InternetMercado Commerce
Corporation for the three months ended June 30, 2000 was approximately $240,000.
LIQUIDITY AND CAPITAL RESOURCES:
In February and March, 2000 IMCC received $1,500,000 and $1,000,000,
respectively, in equity financing for approximately 16% (fully diluted)
ownership of IMCC. The investors, Trust Company of the West and certain private
individuals, also received warrants to purchase 1,666,665 shares of common stock
in the Company. In connection with the same arrangement, in April 2000, the
Company received another $100,000 for approximately 0.5% (fully diluted)
ownership of IMCC. The investor also received warrants for 66,667 shares of
common stock in the Company.
The Company's total cash and cash equivalents on June 30, 2000 were $0 compared
to $882,000 on June 30, 1999.
Net cash used in operating activities during the three months ended June 30,
2000 was $1,123,000, compared to net cash used by operating activities of
$756,000 for the same period last year, an increase of $367,000. The higher net
cash used in operating activities during the current period was to a great
extent due to the higher net loss before minority interest of $1,263,000
compared to $1,040,000 for the same period last year. Operating activities
outflows for the three months ended June 30, 2000 included the increase in
accounts receivable by $679,000 and the increase in deposits by $50,000.
Operating activities inflows for the three months ended June 30, 2000 included
an increase in accounts payable and deferred revenues by $555,000 and $75,000,
respectively, and a decrease in capitalized production cost by $156,000.
Investing activities used $261,000 during the three months ended June 30, 2000.
During the three months ended June 30, 1999, investing activities provided
$132,000. The investment expenditures for the current period were primarily in
respect of renovation expenditure for the Company's office. For accounting
purposes, the JSA Acquisition discussed above was treated as a re-capitalization
of JSA with JSA as the acquirer (reverse acquisition). As a result, a
"re-capitalization" inflow of $185,000 was recognized during the three months
ended June 30, 1999.
Financing activities provided approximately $133,000 during the three months
ended June 30, 2000. The inflows were primarily the $100,000 received for the
sale of shares in IMCC and the bank overdraft of $52,000. Financing activities
provided $1,421,000 during the three months ended June 30, 1999, which was
primarily the balance of the net proceeds of $3,320,000 from the April 1999
private placement mentioned above, after repaying $1,800,000 of the $2,739,594
bank line of credit. The Company also repaid approximately $13,000 and $94,000
towards a note held by one of its vendors during the three months ended June 30,
2000 and June 30, 1999, respectively.
The present operations and new capital of the Company and its subsidiaries are
not expected to generate sufficient cash inflow for its current activities and
new interactive marketing, business to business venture and it will have to rely
upon additional external financing sources to meet its cash requirements.
Management will continue to seek additional funding in the form of equity or
debt, or a combination thereof to meet its cash requirements. However, there is
no guarantee that it will raise sufficient capital to execute its business plan.
In the event that the Company is unable to raise sufficient capital, its
business plan will have to be substantially modified and its operations
curtailed or suspended. In view of the limited capital resources available,
management is assessing on a continuing basis its business plan and is actively
pursuing strategic alliances and/or a sale of parts of the Company's business.
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None
ITEM 2. EQUITY SECURITIES ISSUED DURING THE THREE MONTHS ENDED JUNE 30, 2000:
In April 2000, the Company issued warrants to purchase 66,667 shares of common
stock exercisable at $1.00 per share to as part of the consideration for the
$100,000 for 10 shares in IMMC
In June 2000, the Company issued 90,000 shares of common stock in the Company to
a director for consulting services provided in the 2000 fiscal year. This
expense was recorded in the 2000 fiscal year.
In June 2000, the Company issued 15,000 shares of common stock in the Company to
a director as compensation.
All such issuances were made to accredited investors pursuant to Section 4(2) of
the Securities Act 1933, as amended.
ITEM 3. DEFAULT UPON SENIOR SECURITIES
As of June 30, 2000, the Company was in default of interest payments totaling
$45,500 on the $1.5 million 3-year term loan from Bastion Capital Fund LP.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
None
(B) FINANCIAL DATA SCHEDULE
Exhibit 27
(C) REPORTS ON FORM 8-K
No reports were filed during the quarter ended June 30, 2000.
<PAGE>
SIGNATURE
Pursuant to the requirements of Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NUMEX CORPORATION
By /s/ JEFFREY A STERN
-------------------------------------
President & Chief Executive Officer
/s/ FELIX TELADO
-------------------------------------
Chief Financial Officer
Dated: August 14, 2000
