<PAGE>
<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For fiscal year ended December 31, 1995
Commission file number 0-22096
NOVATEK INTERNATIONAL, INC.
---------------------------------------------
(Name of small business issuer in its charter)
COLORADO 84-1074891
------------------------ -----------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
1340 Neptune Drive
Boynton Beach, Florida 33426
(407) 736-6659
---------------------------------------------------------------------------
(Address of principal executive offices, zip code,issuer's telephone number)
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
None
Check whether the issuer (1) filed all reports required to be filed by
by section 13 or 15(d)of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes X No
------ ------
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-KSB or any amendment to this Form 10-KSB [ ].
Issuer's revenues for its most recent fiscal year: $2,509,323.
State the aggregate market value of the voting stock held by
nonaffiliates of the registrant. The aggregate market value shall be
computed by reference to the price at which the stock was sold, or the
average bid and asked prices of such stock, as of a specified date
within the past 60 days: Approximate as of February 16, 1996 based on
the average bid and asked price of $7.06 on that date - $18,460,544.
(Cover page continued on next page)
<PAGE>
<PAGE>
State the number shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: As of February 16,
1996 - 2,674,498
Documents Incorporated By Reference:
1. Current Report on Form 8-K dated December 28, 1990; and Agreement
and Plan of Merger and Articles of Merger filed as Exhibits thereto.
2. Agreement and Plan of Merger, Articles of Merger and Articles of
Amendment to the Articles of Incorporation of the Registrant con-
tained as exhibits to the Current Report on Form 8-K dated March
3, 1989 and amended on Form 8 dated August 11, 1989.
3. Form 8-K dated January 3, 1996 and Agreement and Plan of Merger
filed as exhibits thereto.
4. Articles of Incorporation and Bylaws.
Transitional Small Business Disclosure Format: Yes No X
---- ----
PLEASE ADDRESS ALL CORRESPONDENCE TO:
Mark Gasarch, Esq.
1285 Avenue of the Americas
3rd Floor
New York, New York 10019
<PAGE>
<PAGE>
PART I
Item 1. Description of Business.
------------------------
The Company is in the business of developing and marketing a
proprietary building construction process involving the use of steel
trusses. In the past, the Company's business included fabricating,
installing, and finishing structures. Current and future business
efforts are directed toward primarily providing manufactured items,
without being as involved in the actual process of construction. The
principal market for the Company's products is residential and
commercial buildings. The Company's products compete directly with
concrete block and wood frame systems, the primary construction
techniques for residential building in South Florida and other high
humidity climates where termite infestation is common. Likewise,
management believes that these systems should be competitive on the
international market because of their light weight, transportability and
ease of assembly. The Company is actively pursuing manufacturing and
installation contracts as well as international licensing of its
technology. The Company determined in 1995 to discontinue engineering
and design through Trusteel, its subsidiary. All engineering is
currently subcontracted to independent Florida licensed engineers. The
Company believes that this action will better control costs in this
area.
The Company has received two patents on its componentized building
system. While protection of trade secrets is a priority, management
believes that its success will depend significantly more upon its
marketing efforts and the development of consistent manufacturing
capacity than on technology protection in maintaining the competitive
position of the Company for the near future.
Management expects the business of the Company to change with the
acquisition of Medical Products, Inc. After the merger, the Company
will be selling medical test kits for Cholera, Syphilis, Glucose,
Hepatitis, HIV I and HIV II, Diphtheria, Pregnancy and others.
Management believes that significant revenue will be received from these
sales during 1996.
Additionally, the Company will be receiving a five (5) percent
royalty in excess of royalties paid for all Rapid Medical Test Kits sold
to the Bahamian licensee.
HISTORY
The Company was incorporated in Colorado on January 8, 1988 under
the name of Venture Investments Plus Corporation for the purpose of
seeking and participating in or acquiring a business opportunity. In
September of 1988, it completed a public offering of shares of common
stock and warrants (subsequently expired) for gross proceeds to the
Company of $300,000.
Effective on or about September 1, 1989, the Company acquired,
through a reverse triangular merger, Triumph Timber Corporation, a
Wyoming corporation which was merged into a wholly owned subsidiary of
the Company named Triumph Resources Corporation, a Wyoming corporation.
The Company, through a name change effected via the Merger Agreement,
became Triumph Group, Inc., a Colorado corporation. On October 31,
1990, Triumph Resources Corporation filed a petition in bankruptcy under
Chapter 7 of the Bankruptcy Code.
On December 28, 1990, the Company's shareholders approved the Plan
of Merger and the Articles of Merger between the Company and Novatek
International, Inc., a Florida corporation, with the surviving entity
(the Company) remaining a Colorado corporation and becoming known
through a name change as Novatek International, Inc.
Novatek International, Inc., the Florida corporation, had been
incorporated in August 1989 to compete in the commercial and residential
construction industry. As a result of the Merger, Novatek
3
<PAGE>
<PAGE>
International, Inc., the Florida corporation, was dissolved, and the
Company remained in the residential and commercial construction
business.
PRODUCTS
The Company's principal products are described as follows:
1. Modular concrete panel building component system
2. Full-height concrete panel building component
system ("Composite Walls")
3. Light steel building component system
4. Residential light steel truss systems
5. Commercial light steel truss systems
6. Light steel roof retro-fit assemblies
7. Light steel architectural facade framing system
1. Modular Concrete Panel Building Component System
The system consists of concrete panels, used as an exterior
cladding, that attaches to pre-engineered light steel wall framing,
using a patented integral steel insert that is cast directly into the
concrete panel during the fabrication stage. This system can be a stand-
alone structural system that creates the load bearing shell of the
structure, or it can act as an exterior cladding system in unison with a
structural steel pre-engineered system for larger structures. The
Company's concrete panel also is used in multi-story applications, where
the balance of the structure may be composed (in whole or in part) of
steel floor joists or trusses, steel roof trusses, and a metal roof.
The Corporation also sells all of these components to go along with
their concrete panels.
The Company's modular concrete panel and steel framing assembly is
a pre-engineered system that lends itself well to offshore and remote
locations, in which transportation and available heavy equipment become
a problem. It combines the structural advantages of masonry
construction with the ease of construction of panelized framed
construction. The competition in the Southeast United States in the
residential arena consists primarily of standard masonry construction
with wood trusses, wood-framed construction, and other proprietary
manufactured systems. The Company believes that the most favorable
market for this product exists in offshore applications.
The Company believes that it is presently in a position to be
competitive in the offshore market, where the speed of construction and
ability to deliver quality at a fixed price may make it the system of
choice over local construction. This is especially true in the Bahamas,
Cayman Islands, and Virgin Islands, where the costs of local
construction are very high and the quality of construction may be more
marginal.
2. Full Height Concrete Panel Building Component System ("Composite
Walls")
This system consists of panelized light steel walls, with the full-
height concrete exterior cladding cast directly to the steel wall
supports, using the same patented steel insert as the modular concrete
wall panel. This construction system has the advantages of the small
modular panels, with the added benefit of minimizing field construction
labor requirements. However, since the large panel system is more
expensive to handle and ship, its most viable market has proven to be
local areas such as the Bahamas and South Florida. This building system
also may be used in foreign locations, using local labor.
4
<PAGE>
<PAGE>
The Company has undertaken research into the use of lightweight
concrete in this application. Past production has proven too expensive
and is not competitive using conventional concrete. As reported last
year, the Company had received a non-binding letter of intent from the
Ministry of Building in Nicaragua to use this product. During the
Spring of 1995, a former employee of the Company interrupted
negotiations on this matter with the representative from Nicaragua.
Notwithstanding litigation undertaken by the Company to protect its
interest in this matter, Management of the Company does not feel that
this contract will become a reality.
While Management believes that this new process will ultimately
provide a profitable product line, there can be no assurance that the
Company will be able to market this system successfully.
3. Light Steel Building Component System
This component system consists of light steel framing components
for the walls, floors, and trusses of residential and commercial
buildings. This system may be delivered as a panelized, pre-fabricated
system or sold as a "knocked-down" framing system, whereby the purchaser
will be provided with a full set of engineered plans with all layouts,
pre-cut and labeled steel members, and all pertinent construction
details. The system consists of exterior and interior wall framing
material, the floor joists and headers, roof trusses and rafters, and
all sub-fascia and blocking material. At the present time, the Company
knows of only five significant companies in this market in the United
States, each of whom, the Company understands, requires a prospective
"buyer" of their system to first become a "dealer" and pay a dealer's
fee. The Company believes that its willingness to sell directly to the
end user, without requiring the customer to first become a dealer, will
give it a competitive advantage over these other companies. The
Company's integration of engineering and technical expertise, its
marketing exposure, and its commitment to providing a quality product at
a competitive price will help determine the extent of the Company's
share of this rapidly-expanding market. This system is one that can be
sold nationwide, as well as in other countries. The key to this
expansion will be the establishment of a distribution network and the
development of the in-house capability of producing the steel framing
members. However, there can be no assurance that the Company will be
able to market this system successfully.
4. Residential Light Steel Roof Truss System
The residential light steel truss system consists of pre-fabricated
trusses (manufactured in the Company's plant), the engineering, plans
and details for the installation of the trusses, and the ancillary
bracing and bridging material. The scope of this market is nationwide,
and is applicable to almost all residential construction. The Company
believes that the decline on a national basis in the quantity and
quality of available structural timber and the increased awareness of
environmental concerns have de-stabilized the lumber market, leading to
higher costs and temporary material shortages. This has led builders
and designers to look further into the implementation of alternative
materials (principally steel) for their trusses and other building
components. The biggest obstacles to a more widespread acceptance of
light steel trusses have been the lack of uniformly accepted design
criteria and an economical method of design. The Company has developed
a computer generated design system which it believes will resolve these
problems. During 1995, the Company extensively tested various software
seeking to integrate its truss design system with little success. To
date, no other design system is available. The Company has been
discussing the need for a complete layout and truss design program with
its major steel provider and has determined that it will use software
generated by the supplier when such becomes available.
5. Commercial Light Steel Roof Truss System
The roof truss system used in heavy commercial applications is an
expanded version of the residential truss system. The primary differences
are the wider spacing of trusses, the use of much heavier gage steel
5
<PAGE>
<PAGE>
members, and the special configurations for equipment, catwalks, etc.
that are usually required for these installations. While the Company's
residential trusses compete withwood trusses, the commercial truss system
competes with timber trusses, steel bar joists, and other light steel roof
truss manufacturers. The installation of light steel roof trusses have
become mandatory in Florida, Georgia, and other southeastern states for
schools, nursing homes, adult life care facilities, clubhouses, performing
arts auditoriums and other public buildings under the Southern Standard
Building Code requirements for non-combustible construction. Since
light steel trusses are approximately 35% less expensive than structural
steel and bar joists for pitched roof applications, they have become the
preferential roof framing system in all of these applications. During
1995, the Company completed numerous roof truss jobs but was unable to
penetrate the Georgia market as anticipated in last year's report.
Increased competition by new entrants into the market depressed prices
to a point that management elected not to bid a number of contracts in
both Georgia and Florida that appeared to be unprofitable. However, there
can be no assurance that the Company will be successful in obtaining any
of this business. It is the Company's intention to be primarily a
manufacturer only for each project, and leave the truss erection to
experienced local crews.
6. Light Steel Roof Retro-Fit Assemblies
This product line is the Company's over-framing system for the
application of new pitched roofs over existing flat roofs. There
appears to be a nationwide trend by building and facility managers of
addressing leaking flat roofs by over-building with more architecturally
appealing pitched metal roofs. The new metal pitched roofs are
virtually maintenance free, and eliminate the need to repair or replace
a built-up asphalt and gravel roof. The market is nationwide, with the
value of the framing systems only for these applications conservatively
estimated by the Company at $40 millon. The Company's share of the
market should be significantly enhanced by its capability to produce its
own framing sections. This market is driven by total cost of the system
and the turnaround time in production. The Company lost the services of
one of its engineers. As a result, the Company determined to delay
purchasing its own roll forming equipment and entering the light steel
roof retro assembly market. The Company does not anticipate entering
this market in the near future since engineering requirements are
currently being subcontracted.
7. Light Steel Architectural Facade Framing System
This system refers to the light steel mansard (facade) framing
systems common around the perimeters of retail strip centers, small
government buildings, service stations and vehicle depots, and
commercial and industrial buildings. This system is also used for
equipment screens and decorative rooftop detailing on various types of
buildings. The Company believes that the market for this system is
fairly regional; with the Florida market for the supply of only the
framing system and the engineering for the system being approximately $4
million per year. The Company hopes to obtain a 25% share of this
market once in-house roll forming capability is achieved, but there can
be no assurance that the Company will, in fact, be able to achieve some
or any of this market share.
DEVELOPMENT OF FUTURE BUSINESS
During the fourth quarter of 1994, the Company increased the price
for its goods and services to result in an estimated profit margin of
approximately 20 to 25%. Contrary to its expectation during 1995,
Management found great price resistance to the pricing structure
implemented in the fourth quarter of 1994. New participants entered the
light gage steel component market and wood prices remained low.
6
<PAGE>
<PAGE>
On December 29, 1995, the Company signed an Agreement and Plan of
Merger with Medical Products, Inc. Medical Products, Inc. owns the
marketing rights for 12 various Rapid Medical Test Devices for South
America and the Bahamas. Closing on this agreement is scheduled to
occur not later than February 29, 1996.
Additionally, on December 28, 1995, the Company sold a license for
the Bahamas to an unrelated party for $3,000,000 for the distribution of
the Rapid Medical Test Devices described above.
MARKETING AND DISTRIBUTION
The Company is actively pursuing commercial contracts on a daily
basis through submission of bids as solicited from the Dodge Reports,
visiting regional architects and engineers to explain the Company's
concept for the purpose of having its products specified on design/build
contracts, and conducting monthly mailings to non-local architects,
engineers, and builders. The basis of management's beliefs regarding
the proposed markets for its various systems include its experience in
this industry, involvement in various trade and professional
associations and information gained from trade periodicals and surveys.
The Company currently markets domestic sales on a direct basis
utilizing one employee based at its manufacturing facility in Florida.
International sales are negotiated by the President. Negotiations
concerning licensing technology continue with an Irish company for
distribution rights in Belgium and Germany. Additionally, licenses for
Venezuela and Brazil have been issued. All shipments of products are
currently distributed from the Company's two facilities in Boynton
Beach, Florida.
SALES BY PRODUCT AND REGION
Sales for the years ended 1995 and 1994 were 2,509,323 and
2,027,737 respectively. During 1995 and 1994, residential sales of the
Company's componentized buildings declined to approximately 20% and 36%
respectively of total sales with the remaining approximately 80% and 64%
consisting of commercial type component sales of trusses, walls, and
roofs. During 1995, international sales were approximately 38% of total
sales, reflecting projects in Grand Cayman and in the Bahamas.
REGULATION
Delays in the issuance of building permits no longer significantly
impacts the Company's business, since the Company has moved away from
the general contracting business and is now a provider of materials
to general contractors. No manufacturing occurs by the Company until
the general contractor advises the Company that it has received a
building permit. Additionally, the Company is focusing its marketing
towards delivery only jobs and offshore construction.
The Company does not anticipate that it will encounter any adverse
governmental regulations related to the use of light gage steel since
municipal and state building codes, as well as design parameters used by
architects and engineers, have been changed to incorporate the use of
steel as an alternative to wood for fire resistance and wind loads.
Manufacturing and assembly of the Company's systems and other
products, currently and those anticipated to be developed, involve no
handling nor disposal of hazardous materials, and there are no
significant effects upon operations imposed by requirements of
environmental regulations.
7
<PAGE>
<PAGE>
EMPLOYEES
At the present time, there are 25 full-time employees of the
Company, including two officers, one controller, one estimator, one
sales representative, one draftsman, three clerical, and 15 laborers,
which number varies with the flow of business.
In addition, the Company employs the services of two draftsmen, an
architect and an engineer who are self-employed. None of the Company's
employees are represented by unions.
Item 2. Description of Properties.
--------------------------
The Company's manufacturing and principal executive offices are
located at 1340 Neptune Drive, Boynton Beach, Florida 33426 in a
facility containing 3,100 and 18,000 square feet of office and
production space, respectively, leased for an initial term of 60 months
through May 1997 at an annual rental of approximately $83,472 with an
option to purchase.
The Company has retained its concrete casting operation at 1401
Neptune Drive, in a building owned by the Company which previously
housed all of the Company's operations. The Company occupies
approximately one-half of this 14,000 square foot facility, and leases
out 2,000 square feet to an affiliate, with the remaining 5,000 square
feet vacant. Rental income to the Company was $18,000 in 1994 and
$12,000 in 1995.
Item 3. Legal Proceedings.
------------------
There are no material pending or threatened litigation or
administrative proceedings out of the ordinary course of business.
Item 4. Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
None
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
---------------------------------------------------------
The Company's shares of Common Stock presently are being traded on
the NASDAQ Small Cap Market under the symbol "NVTK". The following
table shows, for the calendar periods indicated, the range of reported
high and low bid quotations for these shares. Such prices necessarily
reflect inter-dealer prices, without retail mark up, mark down or
commission and may not necessarily represent actual transactions.
Upon the effective date of the public offering, the Company's
Units, Common Stock, and Warrants were listed for trading on NASDAQ
Small Cap Stock Market under the symbols NVTKU, NVTK and NVTKW
respectively. NVTKU is no longer traded as units. The units were
separated into stock and warrants.
On December 31, 1994, the Company's Shareholders approved a
resolution calling for a 1 for 10 reverse split of the shares of the
Company's common stock, which was effected January 9, 1995. The high
and low bid quotations set forth below have been adjusted to give effect
to this 1 for 10 reverse split by taking the reported prices and
multiplying them by 10.
8
<PAGE>
<PAGE>
Quarterly Common Stock Price Range
----------------------------------
<TABLE>
<CAPTION>
High Bid Low Bid
-------- --------
<S> <C> <C>
1994:
Quarter ended 03/31 $20.00 $ 2.50
Quarter ended 06/30 $ 8.75 $ 3.13
Quarter ended 09/30 $ 9.38 $ 1.88
Quarter ended 12/31 $ 6.88 $ .62
1995:
Quarter ended 03/31 $ 6.38 $ 2.50
Quarter ended 06/30 $ 8.75 $ 2.75
Quarter ended 09/30 $ 5.00 $ 2.50
Quarter ended 12/31 $ 6.00 $ 4.38
</TABLE>
As of February 16, 1996, there were approximately 1,174 holders of
record of the shares of the Company's Common Stock.
COMMON STOCK
The holders of Common Stock elect all directors and are entitled to
one vote for each share held of record. All shares of Common Stock
participate equally in dividends, when, as and if declared by the Board
of Directors and in net assets on liquidation. All shares of Common
Stock presently outstanding are, and the shares of Common Stock offered
hereby and purchasable upon the exercise of the Warrants, when issued,
will be duly authorized, validly issued, fully paid and nonassessable by
the Company. The shares of Common Stock have no preference, conversion,
exchange, preemptive or cumulative voting rights.
PREFERRED STOCK
The Company is authorized to issue shares of preferred stock with
such designation, rights and preferences as may be determined from time
to time by the Board of Directors. Accordingly, the Board of Directors
is empowered, without shareholder approval, to issue shares of preferred
stock with dividend, liquidation, conversion, voting or other rights
which could adversely affect the voting power or other rights of the
holders of the Company's Common Stock. In the event of issuance, the
shares of preferred stock could be utilized, under certain
circumstances, as a method of discouraging, delaying or preventing a
change in control of the Company. The Company has no present intention
to issue any additional shares of its preferred stock, and has agreed
with the Representative not to issue any additional shares of its
preferred stock for a period of three years from April 17, 1995 without
the prior written consent of the Representative.
The Company has designated 5,000 shares of its Preferred Stock as
Series A 10% Cumulative, Convertible Preferred Stock ("Preferred Series
A"). The Preferred Series A carries a liquidation preference, and a
stated redemption value and face value of $1,000 per share. Each share
of Preferred Series A is convertible into 333 shares of the Company's
common stock. As of February 16, 1996, 1,887 shares of Preferred Series
A are issued and outstanding.
DIVIDENDS
The convertible Redeemable Preferred Stock described above
currently entitles its holders to receive out of the net profits of the
Company, as and when declared by the Board of Directors, cumulative
dividends at the rate of $100 per share per annum. No dividends on the
Common Stock may be paid until any and all
9
<PAGE>
<PAGE>
accumulated dividends on the Redeemable Preferred Stock has been paid.
As at December 31, 1995, holders
of 1,887 of these Preferred Shares had waived all present dividends, in
exchange the Company waiving interest on certain outstanding loans. To
date, the Company has not paid any cash or other dividends on its Common
Stock and does not anticipate paying dividends in the foreseeable
future. Moreover, the Company's ability to pay dividends on its Common
Stock in the future may be limited by future preferred stock issuances.
Item 6. Management's Discussion and Analysis of Financial Condition and
----------------------------------------------------------------
Results of Operations.
----------------------
General
- -------
Since inception, the Company has not been able to generate cash
flow from operations to cover expenses without advances from affiliates
and private placements of its securities. This casts significant doubt
upon the Company's ability to continue as a going concern with its
current business methodology. As a result of this, on December 29,
1995, the Company executed an agreement and plan of merger with Medical
Products, Inc. (MedPro), a Florida company, which has the marketing
rights to South America and the Bahamas for certain rapid medical test
devices (see Note 18 to the Consolidated Financial Statements). These
devices include test kits for HIV, cholera, diabetes as well as nine
other viruses. The test kits are manufactured by Universal Health Watch,
Inc. (UHW) in Columbia, Maryland. Currently, MedPro is in negotiations
with Brazil for a ten year contract that is expected to generate $100
million in revenue and approximately $12 million in profit each year.
MedPro also has additional products in development which will allow
access to the animal health market for cattle in Argentina (Also see
Note 1 to the Consolidated Financial Statements regarding entities con-
tinued existence).
On December 1, 1995, Management acquired from MedPro the license
for the Commonwealth of the Bahamas for the medical testing devices
referred to above. Consideration for this license was the Company's
license for the use of its patents and technology in Brazil. The
Company, on December 28, 1995, entered into an agreement to sell its
newly acquired license to a Bahamian individual through a license
agreement for $3,000,000 (see Note 18 to the Consolidated Financial
Statements). This transaction was finalized during January 1996 at
which time the Company recognized $3,000,000 of revenue.
Management has determined that competition in local and regional
market has intensified to the extent that management will downsize the
Company's facilities by subletting 1340 Neptune Drive and moving its
corporate offices to 1401 Neptune Drive during 1996. Additionally,
production requirements have been diminished, since the focus of sales
for 1996 will be offshore contracts which can be supported with less
factory prefabrication. Management will review its plant needs for a
final determination once the expected merger with Medical Products, Inc.
has been consummated.
Results of Operations
- ---------------------
During 1995, the Company completed residential and commercial
buildings for a total of $2,509,000 in revenue and received $1,794,000
in orders, all of which were for commercial projects. During 1994, the
Company completed residential and commercial buildings for a total of
$2,028,000 in revenue and received $3,000,000 in orders, of which 13%
were residential and 87% were for commercial projects.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
- ----------------------------------------------------------------------
Revenues from contracts for the year ended December 31, 1995 were
$2,509,000, an increase of $482,000 or 24% over revenues from contracts
of $2,028,000 for the year ended December 31, 1994. This increase in
revenue was a result of the Company focusing on the commercial steel
truss market in South Florida and the Caribbean and targeting its
marketing efforts at schools, private development club houses and
Adult Congregate Living Facilities ("ACLF"). Prior to 1994, the Company
was primarily a provider of residential structures.
10
<PAGE>
<PAGE>
The gross loss has remained somewhat consistent. The Company's
gross loss in 1995 was $530,000, compared to $533,000 for 1994. The
percentage of gross loss to contract revenues earned was 21% during 1995
compared to 26% during 1994.
Operating expenses during 1995 were $1,096,000 or 44% of contract
revenues, an increase from $881,000 and 43% of contract revenues during
1994. This dollar increase is primarily due to increases in salaries and
professional and consulting fees. Management believes that the percentage
of operating expenses to contract revenues should remain relatively con-
sistent during 1996.
The Company incurred (net) nonoperating expense of $37,000 during
1995 compared to (net) nonoperating expenses of $684,000 in 1994. This
decline was due primarily to a gain of $88,000 on the sale of equity
securities of an affiliate in 1995 compared to a $500,000 write-down of
an investment in equity securities of an affiliate during 1994, as well
as a decrease in interest expense resulting from the Company's reduction
of debt during 1995.
The Company's backlog as of December 31, 1995 was approximately
$377,000 compared to a backlog of approximately $379,000 as of December
31, 1994.
Liquidity and Capital Resources
- -------------------------------
The Company's net cash used in operating activities was $2,458,000
for the year ended December 31, 1995 compared to net cash used in
operating activities of $1,415,000 during 1994. The primary reason for
this increase in net cash used in operating activities was a decrease in
accounts payable of $620,000 during 1995 compared to an increase in
accounts payable of $370,000 during 1994.
Net cash provided by investing activities during 1995 was $825,000
compared to net cash provided by investing activities of $95,000 during
1994. During 1995, the Company received $500,000 from the redemption of
a certificate of deposit and $363,000 from the proceeds of the sale of
investment in equity securities of an affiliate. During 1994, the
majority of the net cash provided by investing activities was through a
reduction in amounts due from affiliates of $136,000. The Company's
purchases of property and equipment were approximately $22,000 and
$54,000 during 1995 and 1994, respectively.
The net cash provided by financing activities during 1995 was
$1,680,000 compared to net cash providing by financing activities during
1994 of $1,332,000. During 1995, the Company received $595,000 of
proceeds from long term debt while making principal payments on long
term debt of $2,021,000 and received net proceeds from the issuance of
common stock of $3,161,000. During 1994, the Company received proceeds
from long term debt of $1,222,000 while making principal payments of
$57,000 and received net proceeds from the issuance of common stock of
$138,000.
Without positive cash flow from operations, the Company experiences
the typical problems of obtaining debt and equity capital funding.
During April 1995, the Company completed a secondary offering which
generated the net proceeds from the issuance of common stock noted above
of $3,161,000. These net proceeds were used as outlined in the
prospectus to retire debt and provide working capital for the Company.
The Company has 862,500 warrants outstanding with an exercise price of
$6.75 issued in connection with the public offering that the Company has
the option to redeem under certain circumstances. Currently, the
Company's common stock is trading at a level that may encourage exercise
of these warrants, however, no assurance exist that these warrants will
be exercised.
Management believes that the pending merger with Medical Products,
Inc., through the profits derived form the sale of the medical testing
devices, will provide sufficient cash flow to meet the Company's
operating needs during 1996. Additionally, the Company has an under-
standing with a Bahamian developer, to produce townhomes. This developer
who will advance funds necessary to complete this project for the next
three years.
11
<PAGE>
<PAGE>
Item 7. Financial Statements
--------------------
The Consolidated Financial Statements are filed as part of
this Annual Report on form 10-KSB.
Item 8. Changes In and Disagreements With Accountants on Accounting
-----------------------------------------------------------
and Financial Disclosure.
-------------------------
Not applicable.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons,
-------------------------------------------------------------
Compliance with Section 16(a) of the Exchange Act.
--------------------------------------------------
Directors and Executive Officers
- --------------------------------
The following persons were directors and executive officers of the
Company as of February 16, 1996.
Director Age Positions with Company
-------- --- ----------------------
Frank J. Cooney 54 President, Director
Brigitte U. Cooney 54 Secretary, Director
Theodore B. Thomas 44 Treasurer, Director
Howard Korer 63 Director
Richard Ernest 55 Director
Dr. Jaime Puccio 60 Director
The by-laws provide that the Directors of the Company serve until
the next annual meeting of shareholders and until their successors are
duly appointed and qualified. All officers serve at the pleasure of the
Board of Directors.
BUSINESS EXPERIENCE
Frank J. Cooney has been the President and a Director of the
Company from 1989 to the present. He is a graduate of Syracuse
University with a Bachelor of Science in accounting, law, and finance.
Mr. Cooney was formerly the President of the Buffalo Braves, Inc., an
NBA franchise, as well as former President of Freezer Queen Foods Canada
Ltd., former Senior Vice President of Freezer Queen Foods, Inc., a
Nabisco subsidiary, a former President of Silda Enterprises Inc., a
holding company operating supermarkets and department stores in New York
State, and worked independently as a Financial Consultant in West Palm
Beach, Florida from 1985 to 1989.
Brigitte U. Cooney has been the Secretary and a Director of the
Company from 1989 to present. Mrs. Cooney serves as President of Nova
Specialty Risks, Inc., a managing general insurance agency. Mrs. Cooney
served as an Administrative Assistant to Donco Food Services, Ltd.,
Toronto, Canada and as general manager of Down Under Shoppes, Inc. in
New York State. She was an Administrative Assistant to Lawrence
Goldman, Ph.D., and a research consultant to Luitpolde Pharmaceuticals
Company from 1986 to 1989. Mrs. Cooney is the wife of Frank Cooney.
Theodore B. Thomas has been the Treasurer and a Director of the
Company since December 1993. Mr. Thomas formerly had been employed for
17 years in commercial banking at Sun Bank N.A., last serving as
Senior Vice President.
Howard Korer has been a Director since May 26, 1995. Mr. Korer is
Chief Executive Officer of Scientific Movers, Inc. located in Franklin
Park, Illinois. Mr. Korer founded Scientific Movers, Inc. in 1955.
12
<PAGE>
<PAGE>
Richard Ernest has been a Director since May 26, 1995. Mr. Ernest,
a graduate Engineer, is President of Whitehall Machinery Inc. which was
incorporated in 1980 and specializes in metal forming equipment.
Dr. Jaime Puccio has been a Director since January 16, 1996. Dr.
Puccio has extensive involvement as a staff member and consultant to the
World Health Organization (WHO), Pan American Health Organization
(PANO), and the Organization of American States (OAS).
Item 10. Executive Compensation.
----------------------
No officer of the Company received compensation of $100,000 or more
in any of the Company's last three years. Frank J. Cooney, the
Company's Chief Executive Officer, received compensation of $73,100 in
1995 and $38,000 in 1994.
There were no pension, profit sharing or long term incentive plans
nor stock options or stock appreciation rights plans nor any non-cash
compensation in effect during any of the past three years. None of the
Company's employees are party to any employment agreement. Directors
are not paid any compensation for the undertaking of their duties as
such other than any out of pocket expenses incurred in attending
meetings.
Item 11. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
PRINCIPAL SHAREHOLDERS
The following table sets forth as of February 16, 1996 all persons
known by the Company to be a beneficial owner of more than five percent
of any class of the Company's voting securities and the security
ownership in the Company, directly or indirectly, by all directors and
executive officers and by all directors and officers of the Company as a
group. All of the persons and entities listed below have agreed not to
sell any of their shares for a period of one year after the effective
date of the secondary offering (04/17/95).
<TABLE>
<CAPTION>
Name and Address Amount and Nature of
Beneficial Owners (1) Benefits of Ownership Percent of Class (2)
- --------------------- --------------------- --------------------
<S> <C> <C>
Brigitte U. Cooney 30,427 1.3% (3)
4616 Suburban Pines Drive
Lake Worth, FL 33463
Frank J. Cooney 58,680 2.6% (4)
4616 Suburban Pines Drive
Lake Worth, FL 33463
Polydex Pharmaceuticals, Ltd. 160,000 5.9%
421 Comstock Road
Scarborough, Ontario
Canada M1L 2H5
Theodore B. Thomas 1,010 .2% (5)
734 Rider Road
Boynton Beach, FL 33435
All Officers and 59,690 2.8% (6)
Directors as a Group
(3 Persons)
</TABLE>
* Less than 1%
13
<PAGE>
<PAGE>
(1) Unless otherwise indicated, each person named in the table
exercises sole voting and investment power with respect to all
shares beneficially owned.
(2) Assumes no exercise of any of the warrants issued.
(3) Includes 29,000 shares owned directly and 1,427 indirectly through
a corporation. Does not include shares owned by her husband, Frank
J. Cooney. Includes 5,000 options available at $5.00 per share.
(4) Includes 1,306 shares owned directly, 26,947 owned indirectly
through a corporation and 30,427 owned by his wife, Brigitte
Cooney, as well as 10,000 options available at $5.00 per share
(5,000 available directly and 5,000 to his wife)
(5) Includes 5,000 options at $5.00 per share available directly
(6) Exclusive of Mr. Larry Schone who acts as Assistant Secretary
through his relationship as corporate counsel to the Company
Item 12. Certain Relationships and Related Transactions.
-----------------------------------------------
During 1995, the Company paid $15,636 of interest to officers.
During 1995 approximately $50,000 of insurance premiums were paid
to Tribune Agency, Inc., a company controlled by the corporate secretary
of the Company.
On December 31, 1994, the Company' shareholders ratified
resolutions (1) authorizing the Company's Board of Directors to fix the
terms of a reverse split of the Company's Common Stock and (2) revising
the terms of the Company's Preferred Series A so as to make each
Preferred Series A share convertible into 333 shares of Common Stock. A
1 for 10 reverse stock split was effected January 9, 1995.
Item 13. Exhibits and Reports on Form 8-K and 8-K/A.
-------------------------------------------
(a) Exhibits
Exhibit No. Description Comment
----------- ----------- -------
3 Article of Incorporation Incorp. by Ref. to S-18 and
By-Laws, as amended
Registration Statement Filed
April 12, 1988; Current
Report on Form 8-K filed
Aug. 11, 1989; and Current
Report on Form 8-K dated
December 28, 1990.
4 Instruments Defining Rights Same Certificate of Designation
of Security Holders Preferred to be filed by
Amendment
9 Voting Trust Agreement None
10 Material Contracts Agreement and Plan of Merger with
Articles of Merger were filed as
exhibits to Form 8-K dated
December 28, 1990 and
14
<PAGE>
<PAGE>
Exhibit No. Description Comment
----------- ----------- -------
Agreement and Plan of Merger were
filed as exhibits to Form 8-K
dated January 31, 1996 and are
incorp. by reference
11 Statement on Computation See Notes to Financial Statements
of Per Share Earnings
12 Annual Report of Security To be filed by amendment
holders
16 Letter on Change in Previously Filed on Form 8-K/A
Certifying Accountant
18 Letter on Change in Previously Filed
Accounting Principles
21 Subsidiaries of the Trusteel Engineering Co.,
Registrant Inc., Florida
22 Published Report Regarding Filed Supplementally
Matters Submitted to Vote
of Security Holders
23 Consent of Experts and Counsel Not Applicable
24 Power of Attorney Not Applicable
27 Financial Data Schedule Included
28 Information from Reports None
Furnished to State Insurance
Regulatory Authorities
99 Additional Exhibits None
(b) Reports on Form 8-K and 8-K/A
-----------------------------
(1) Reports on Form 8-K dated September 30, 1994 regarding Change
of Accountants was filed on October 3,1994 and amended on Form 8-K/A
filed October 12, 1994.
(2) Reports on Form 8-K dated January 3, 1996 regarding an
Agreement and Plan of Merger
15
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned hereunto duly authorized.
Dated: February 23, 1996
Novatek International, Inc.
(Registrant)
By: /s/ Frank J. Cooney
-------------------
Frank J. Cooney, President
Chief Executive Officer
16
<PAGE>
<PAGE>
NOVATEK INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL REPORT
DECEMBER 31, 1995
INDEX TO FINANCIAL STATEMENTS
INDEPENDENT AUDITOR'S REPORT F-2
- ------------------------------------------------------------------------------
FINANCIAL STATEMENTS
Consolidated balance sheets as of December 31, 1995 and 1994 F-3
Consolidated statements of operations for the years
ended December 31, 1995 and 1994 F-5
Consolidated statements of shareholders' equity (deficit) for the years
ended December 31, 1995 and 1994 F-6
Consolidated statements of cash flows for the years
ended December 31, 1995 and 1994 F-8
Notes to consolidated financial statements F-10
- ------------------------------------------------------------------------------
<PAGE>
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders
Novatek International, Inc.
Boynton Beach, Florida
We have audited the accompanying consolidated balance sheets of Novatek
International, Inc. and subsidiary as of December 31, 1995 and 1994, and the
related consolidated statements of operations, shareholders' equity (deficit),
and cash flows for the years 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Novatek
International, Inc. and subsidiary as of December 31, 1995 and 1994, and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from
operations. This raises substantial doubt about the Company's ability to
continue as a going concern. Management's plan in regard to these matters
are described in Note 1. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
McGLADREY & PULLEN, LLP
/s/ McGLADREY & PULLEN, LLP
- ---------------------------
West Palm Beach, Florida
February 6, 1996
F-2
<PAGE>
<PAGE>
NOVATEK INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS
Cash and cash equivalents $ 58,234 $ 11,946
Certificate of deposit - 500,000
Contract receivables, less allowance for doubtful accounts
1995 $105,845; 1994 $61,072 (Note 2) 164,705 339,948
Current maturities of notes receivable (Notes 3 and 10) 64,450 -
Costs in excess of billings on uncompleted contracts (Note 4) 285,103 384,541
Inventories (Note 5) 119,115 161,663
Prepaid expenses (Note 6) 111,329 7,657
Investments in equity securities at fair value (Note 7) 24,651 -
---------- ----------
Total current assets 827,587 1,405,755
---------- ----------
PROPERTY AND EQUIPMENT, AT COST (Note 9)
Land and improvements 345,000 345,000
Buildings and improvements 724,801 724,801
Leasehold improvements 25,077 25,077
Equipment 148,679 138,728
Office furniture and equipment 93,583 86,738
Delivery equipment 61,980 59,709
---------- ----------
1,399,120 1,380,053
Less accumulated depreciation 343,200 273,026
---------- ----------
1,055,920 1,107,027
INVESTMENTS AND OTHER ASSETS ---------- ----------
Notes receivable, less current maturities (Notes 3 and 10) 225,579 -
Investment in equity securities of affiliates at fair value (Note 7) - 300,000
Deferred public offering costs - 112,187
Due from affiliates - 9,473
Intangibles and other (Note 8) 66,201 73,602
---------- ----------
291,780 495,262
---------- ----------
$2,175,287 $3,008,044
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
- ----------------------------------------------
CURRENT LIABILITIES
Outstanding checks in excess of bank balances $ - $ 55,196
Current maturities of long-term debt (Note 9) 7,472 2,150,567
Accounts payable 79,691 699,203
Accrued expenses 84,936 118,320
Billings and estimated losses in excess of costs on
uncompleted contracts (Note 4) 78,742 480,512
Due to affiliates - 16,489
---------- ----------
Total current liabilities 250,841 3,520,287
---------- ----------
LONG-TERM DEBT, LESS CURRENT MATURITIES (Note 9) 322,777 306,115
---------- ----------
COMMITMENTS AND CONTINGENCIES (Notes 11 and 16)
SHAREHOLDERS' EQUITY (DEFICIT)
Preferred stock, 10,000,000 shares authorized; 5,000 shares
designated series A 10% cumulative and convertible;
$1,000 stated value 1,887,000 1,887,000
Common stock, no par value; 250,000,000 shares authorized 6,228,185 2,456,289
Additional paid-in capital 1,076 1,076
Accumulated (deficit) (6,514,592) (4,851,402)
Due from affiliate (Notes 3 and 10) - (311,321)
---------- ----------
1,601,669 (818,358)
---------- ----------
$2,175,287 $3,008,044
========== ==========
</TABLE>
F-4
<PAGE>
<PAGE>
NOVATEK INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Contract revenues earned $ 2,509,323 $ 2,027,737
Cost of contracts 3,038,911 2,560,970
----------- -----------
Gross (loss) (529,588) (533,233)
Operating expenses 1,096,201 880,700
----------- -----------
Operating (loss) (1,625,789) (1,413,933)
----------- -----------
Nonoperating income (expense):
Interest income 35,710 23,882
Rental income 12,000 20,400
Interest expense (156,681) (170,037)
Gain (loss) on sale and write-down of investment in equity
securities of affiliate (Note 7) 87,655 (500,000)
Other, net (16,085) (58,384)
----------- -----------
(37,401) (684,139)
----------- -----------
Net (loss) $(1,663,190) $(2,098,072)
=========== ===========
(Loss) per common share $ (0.65) $ (1.57)
=========== ===========
Common shares outstanding 2,558,257 1,225,567
=========== ===========
See Notes to Consolidated Financial Statements.
</TABLE>
F-5
<PAGE>
<PAGE>
NOVATEK INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
Years Ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
Preferred Series A Common
----------------------------------
Shares Amount Shares
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, December 31, 1993 1,887 $ 1,887,000 1,268,008
Common stock issued as
payment for services - - 18,982
Common stock issued for cash - - 100,000
Transfer of amount due from affiliate (Note 9) - - -
Net (loss) - - -
----------------------------------
Balance, December 31, 1994 1,887 1,887,000 1,386,990
Common stock issued through
public offering (Note 12) - - 862,500
Subscription agreements converted into
common stock (Notes 8 and 12) - - 425,000
Transfer of amount due from affiliate to notes
receivable (Notes 3 and 10) - - -
Net (loss) - - -
----------------------------------
Balance, December 31, 1995 1,887 $ 1,887,000 2,674,490
==================================
See Notes to Consolidated Financial Statements.
</TABLE>
F-6
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Additional
Stock Paid-In Accumulated Due From
- ------------
Amount Capital (Deficit) Affiliate Total
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(Notes 3 and 10)
$ 2,158,834 $ 1,076 $ (2,753,330) $ - $ 1,293,580
47,455 - - - 47,455
250,000 - - - 250,000
- - - (311,321) (311,321)
- - (2,098,072) - (2,098,072)
- -----------------------------------------------------------------------------------
2,456,289 1,076 (4,851,402) (311,321) (818,358)
3,049,138 - - - 3,049,138
722,758 - - - 722,758
- - - 311,321 311,321
- - (1,663,190) - (1,663,190)
- -----------------------------------------------------------------------------------
$ 6,228,185 $ 1,076 $ (6,514,592) $ - $ 1,601,669
===================================================================================
</TABLE>
F-7
<PAGE>
<PAGE>
NOVATEK INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $ (1,663,190) $ (2,098,072)
Adjustments to reconcile net (loss) to net cash (used in)
operating activities:
Depreciation 72,438 75,682
Amortization 5,112 12,398
Interest expense on subscription agreements which were
converted into common stock 22,758 -
Loss on write-down of investment in equity securities
of affiliate to fair value 6,474 500,000
Gain on sale of investment in equity securities of affiliate (94,129) -
Loss on sale and abandonment of equipment and other assets - 21,865
Issuance of common stock for services - 32,455
Changes in assets and liabilities:
(Increase) decrease in:
Contract receivables 175,243 (264,317)
Costs in excess of billings on uncompleted contracts 99,438 (384,541)
Inventories 42,548 11,372
Prepaid expenses (53,672) 37,896
Increase (decrease) in:
Accounts payable (619,512) 369,863
Customer deposits - (58,168)
Billings and estimated losses in excess of costs
on uncompleted contracts (401,770) 316,442
Due to affiliates (16,489) (8,368)
Accrued expenses (33,384) 20,617
------------ ------------
Net cash (used in) operating activities (2,458,135) (1,414,876)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (22,247) (53,747)
Proceeds from sale of equipment 916 6,300
Redemption of certificate of deposit 500,000 -
Proceeds from sale of investment in equity securities of affiliate 363,004 -
Collections on notes receivable 21,292 -
Costs incurred in connection with proposed merger (50,000) -
Decrease in due from affiliates 8,865 136,176
Decrease in other assets 2,897 6,580
------------ ------------
Net cash provided by investing activities 824,727 95,309
------------ ------------
(Continued)
</TABLE>
F-8
<PAGE>
<PAGE>
NOVATEK INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Years Ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in outstanding checks in excess
of bank balances $ (55,196) $ 28,039
Proceeds from long-term debt 595,000 1,222,310
Principal payments on long-term debt (2,021,433) (56,649)
Proceeds from issuance of common stock 3,395,499 250,000
Public offering costs (234,174) (112,187)
------------ ------------
Net cash provided by financing activities 1,679,696 1,331,513
------------ ------------
Net increase in cash 46,288 11,946
Cash:
Beginning 11,946 -
------------ ------------
Ending $ 58,234 $ 11,946
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for interest $ 165,289 $ 147,556
============ ============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES
Common stock issued as payment for services pertaining to
development of patent $ - $ 15,000
============ ============
Offsetting of balances due to and from affiliates as agreed
upon by the related parties (Note 10) $ - $ 230,711
============ ============
Reclassification of due from affiliate (Note 10) $ - $ 311,321
============ ============
Subscription agreements converted into common stock (Note 9) $ 700,000 $ -
============ ============
Due from affiliate transferred to notes receivable
(Notes 3 and 10) $ 311,321 $ -
============ ============
See Notes to Consolidated Financial Statements.
</TABLE>
F-9
<PAGE>
<PAGE>
NOVATEK INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS, ENTITY'S CONTINUED EXISTENCE AND SIGNIFICANT
ACCOUNTING POLICIES
Nature of business: Novatek International, Inc. is in the business of
developing and marketing a proprietary building construction process involving
the use of steel trusses. The Company's componetized building system consists
of concrete panels, steel wall supports, floor joists and roof trusses.
During 1995 and in prior years, the Company's business included fabricating,
installing and finishing structures. The Company operates within the
construction industry primarily in Florida and the Caribbean.
Trusteel Engineering Co., Inc., a wholly-owned subsidiary of Novatek
International, Inc., designs and engineers the concrete panels, steel wall
supports, floor joists and roof trusses manufactured by Novatek International,
Inc.
Entity's continued existence: The Company incurred a loss from operations
of $1,625,789 and a net loss of $1,663,190 during the year ended December 31,
1995. This raises substantial doubt about the Company's ability to continue
as a going concern.
The financial statements do not include any adjustments relating to the
recoverability and classification of liabilities that might be necessary
should the Company be unable to continue in existence.
Management believes despite the losses incurred during 1995, the Company will
continue to operate as a going concern for the following reasons:
1. During the last quarter of 1995, management has imposed strict
compliance in bidding only jobs that will deliver a gross profit.
2. The Company is currently under contract to complete three buildings on
the Bimini Sands project. While a small loss was incurred on the first
buildings, economies of scale will be realized on future identical
buildings and the original design has been modified to provide cost
reduction.
3. Management has downsized overhead and will continue to do so by:
a. Eliminating and consolidating positions.
b. Subletting its facilities at 1340 Neptune Drive.
4. Royalties accruing to the Company from the sale of medical screening
tests to its Bahamian distributor should provide additional income (see
Note 18).
5. The merger of the Company with Med Pro (see Note 18) will provide an
opportunity for Novatek to call outstanding warrants which may produce
additional capital.
A summary of the Company's significant accounting policies follows:
Principles of consolidation: All significant intercompany balances and
transactions are eliminated in consolidation.
F-10
<PAGE>
<PAGE>
Note 1. Nature of Business, Entity's Continued Existence and Significant
Accounting Policies (Continued)
Revenue and cost recognition: Revenues from fixed-price construction
contracts are recognized on the completed-contract method. This method is
used because historically there have been inherent hazards in estimating
contract conditions and other external factors which have affected the
reliability of the initial contract estimates. A contract is considered
complete when all costs except insignificant items have been incurred and the
installation complies with specifications or has been accepted by the
customer.
Contract costs include all direct material and labor costs and those indirect
costs related to contract performance, such as indirect labor, supplies,
tools, repairs and depreciation. Selling, general and administrative costs
are charged to expense as incurred. Provisions for estimated losses on
uncompleted contracts are made in the period in which such losses are
determined. Claims are included in revenue when received.
Costs in excess of amounts billed are classified as current assets under the
caption "Costs in excess of billings on uncompleted contracts." Billings and
estimated losses in excess of costs are classified under current liabilities
under the caption "Billings and estimated losses in excess of costs on
uncompleted contracts." Contract retentions are included in accounts
receivable.
Inventories: Inventories are stated at the lower of cost (first-in, first-out
method) or market.
Investment in Trusteel Design Services, Inc.: Investment in Trusteel Design
Services, Inc. is accounted for using the equity method of accounting and
carried at its acquisition cost of $7,500. This investment is included in
intangibles and other assets. Trusteel Design Services, Inc. has been dormant
since its acquisition.
Property and equipment: Property and equipment is stated at cost.
Depreciation is computed principally by the straight-line method over the
following estimated useful lives of the assets.
Years
---------
Buildings and improvements 31 - 39
Leasehold improvements 5
Equipment 5 - 15
Office furniture and equipment 5
Delivery equipment 5
F-11
<PAGE>
<PAGE>
NOTE 1. NATURE OF BUSINESS, ENTITY'S CONTINUED EXISTENCE AND SIGNIFICANT
ACCOUNTING POLICIES Continued)
Investment in marketable securities of affiliate: The Company accounts for its
investments in marketable securities under FASB Statement No. 115 which
requires the Company to carry its investment in marketable securities of
affiliate, classified in its available for sale portfolio during 1994 and
transferred into its actively traded portfolio during 1995, at fair value.
Differences between original cost and fair value, other than declines
considered to be other than temporary in the available for sale portfolio, are
recorded in a valuation allowance in the Statement of Shareholders' Equity
(Deficit). Declines in fair value considered other than temporary are charged
to expense in the period the decline is considered to be other than temporary.
Differences between original cost and fair value in the actively traded
portfolio are credited to income or charged to expense.
Intangibles: Intangibles, consisting of patent costs, are being amortized
over their expected useful life of 17 years.
Income taxes: Deferred taxes are provided on a liability method whereby
deferred tax assets are recognized for deductible temporary differences and
operating loss and tax credit carryforwards and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their
tax bases. Deferred tax assets are reduced by a valuation allowance when, in
the opinion of management, it is more likely than not that some portion or all
of the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on
the date of enactment.
Common stock and net (loss) per share: On January 9, 1995, the Company
effected a 1-for-10 reverse stock split. The net (loss) per common share
amounts are computed using the weighted average number of common shares
outstanding during the period after giving retroactive effect to the reverse
stock split. The Company's net (loss) is adjusted for any cumulative
dividends on preferred stock.
Preferred stock: The Company has designated 5,000 shares of its Preferred
Stock as Series A 10% Cumulative, Convertible Preferred Stock ("Preferred
Series A"). The Preferred Series A carries a liquidation preference, and a
stated redemption value and face value of $1,000 per share. Each share of
Preferred Series A is convertible into 333 shares of the Company's common
stock. At present, 1,887 shares of Preferred Series A are issued and
outstanding (see Note 3).
Risks and uncertainties: The preparation of financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
F-12
<PAGE>
<PAGE>
NOTE 2. CONTRACT RECEIVABLES
Contract receivables consisted of the following as of December 31, 1995
and 1994:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Contract receivables:
Completed contracts $ 118,494 $ 145,770
Contracts in progress 47,244 150,228
Retentions 104,812 105,022
---------- ----------
270,550 401,020
Less allowance for doubtful accounts 105,845 61,072
---------- ----------
$ 164,705 $ 339,948
=========== ==========
</TABLE>
NOTE 3. NOTES RECEIVABLE
On April 28, 1995, the outstanding preferred stock of the Company was acquired
by third parties in accordance with a purchase agreement. This agreement was
contingent upon the success of the public offering and provided for the
acquisition of the preferred stock in exchange for the assumption of
liabilities of a former affiliate (Lincoln) to the Company and other
consideration. The amount due from the former affiliate was transferred to
shareholders' equity in 1994, as collection was contingent upon the
successful completion of the sale of the preferred stock to the aforementioned
parties. During 1995, the amount due from the former affiliate was
transferred to notes receivable. The Company waived interest in exchange for
the preferred shareholders' waiver of the cumulative preferred stock
dividends. Semiannual principal payments of 10% (20% per annum) are due on
these notes until paid in full.
NOTE 4. UNCOMPLETED CONTRACTS
Information regarding uncompleted contracts as of December 31, 1995 and 1994 is
as follows:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Total amount of contracts in process $ 517,310 $1,747,125
========== ==========
Costs incurred on uncompleted contracts $ 418,907 $1,663,732
Estimated (losses) (71,866) (452,474)
---------- ----------
347,041 1,211,258
Less billings to date 140,680 1,307,229
---------- ----------
$ 206,361 $ (95,971)
========== ==========
</TABLE>
F-13
<PAGE>
<PAGE>
NOTE 4. UNCOMPLETED CONTRACTS (Continued)
Included in the accompanying balance sheets under the following captions:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Costs in excess of billings on uncompleted contracts $ 285,103 $ 384,541
Billings and estimated losses in excess of costs
on uncompleted contracts (78,742) (480,512)
---------- ----------
$ 206,361 $ (95,971)
========== ==========
</TABLE>
As a result of the inherent hazards in estimating contract conditions and
other external factors which have affected the reliability of initial contract
estimates total estimated contract completion costs have been revised upward
by approximately $43,000.
NOTE 5. INVENTORIES
Inventories as of December 31, 1995 and 1994 consisted of the following:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Raw materials $ 96,159 $ 116,779
Finished goods 22,956 44,884
---------- ----------
$ 119,115 $ 161,663
========== ==========
</TABLE>
NOTE 6. PREPAID EXPENSES
Prepaid expenses as of December 31, 1995 and 1994 consisted of the following:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Cost incurred in connection with proposed merger
(Note 18) $ 50,000 $ -
Insurance 39,766 -
Other 21,563 7,657
---------- ---------
$ 111,329 $ 7,657
========== =========
</TABLE>
F-14
<PAGE>
<PAGE>
NOTE 7. INVESTMENT IN EQUITY SECURITIES OF AFFILIATE
The marketable equity securities held as of December 31, 1995 and 1994,
consisted of 41,500 and 400,000 shares, respectively, of Polydex
Pharmaceuticals Limited (an affiliated company through April 1995, see Note
10). During the year ended December 31, 1994, the Company wrote down this
investment to $300,000, the fair value as of December 31, 1994, because the
decline in market value was considered to be other than temporary. During the
year ended December 31, 1995 the Company realized a gain of $94,129 from the
sale of 358,500 shares.
On January 26, 1996, the Company sold the remaining portion of its investment
for $27,234 .
NOTE 8. INTANGIBLES AND OTHER ASSETS
Intangibles and other assets as of December 31, 1995 and 1994 consisted of the
following:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Patent costs, net of accumulated amortization $ 47,784 $ 50,293
Other 18,417 23,309
---------- ----------
$ 66,201 $ 73,602
========== ==========
</TABLE>
NOTE 9. LONG TERM DEBT
Long term debt as of December 31, 1995 and 1994 consisted of the following:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Purchase money mortgage, interest paid monthly at 11%, was
renegotiated on January 22, 1996, which required an immediate
$30,000 principal payment, the remaining principal is due in
full on February 15,1998, mortgage is collateralized by real
property and is subordinated to the new mortgage note
(see below) $ 185,000 $ 185,000
Mortgage note payable to bank, interest was payable at 2-1/2
percent over prime, the mortgage was paid in full on January
22, 1996 as a result of refinancing with a new lender
(see below) 137,777 297,501
Bridge notes, automatically converted into units at $1.33
per unit upon public offering (see Note 12), the Company also
obtained additional bridge notes of $450,000 during 1995, of
which $50,000 converted at $1.33 per unit and $400,000 converted
at $2.00 per unit, interest that accrued at 10% was forgiven and
was credited to shareholders' equity at the time of conversion - 250,000
</TABLE>
F-15
<PAGE>
<PAGE>
NOTE 9. LONG TERM DEBT (Continued)
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Notes payable, convertible into restricted common stock at $2.50
per share, convertible in units of $5,000 or greater, interest
at 10% ($120,000 of such notes were purchased by the Directors
of the Company ) $ - $ 299,500
Promissory notes, interest at 10% - 450,000
Note payable to bank, interest at prime - 500,000
Unsecured promissory note, interest at 12% - 61,013
Unsecured demand promissory notes, interest at 10% to
12% ($30,000 of such notes were purchased by an affiliate) - 290,000
Demand loans from officers, interest at 10% to 12% - 104,340
Other 7,472 19,328
---------- ----------
330,249 2,456,682
Less current maturities 7,472 2,150,567
---------- ----------
$ 322,777 $ 306,115
========== ==========
</TABLE>
As of December 31, 1995, minimum payments required on long-term debt
are as follows:
<TABLE>
<CAPTION>
Year Ending
December 31, Amount
- ------------ ------------
<S> <C>
1996 $ 7,472
1997 -
1998 322,777
-----------
$ 330,249
============
</TABLE>
On January 22, 1996 the Company refinanced its mortgage note with a new
lender. The amount borrowed under the new mortgage note was $240,000. The new
note requires monthly interest only payments at sixteen percent (16%) through
January 1998, at which time the note matures. The Company may extend the terms
of the note for an additional two years by paying a $2,400 fee prior to the
maturity date. In addition to providing working capital, proceeds from the
note were used to pay off the original mortgage note ($137,777) and paydown
the purchase money mortgage note by $30,000. The purchase money mortgage note
is subordinated to this note.
F-16
<PAGE>
<PAGE>
NOTE 10. RELATED PARTY TRANSACTIONS
The Company's former chairman of the Board of Directors was affiliated with
entities with whom the Company entered into various transactions during 1994.
The entities and nature of the chairman's affiliation are as follows:
<TABLE>
<CAPTION>
<S> <C>
Entity Nature of Affiliation of Company's Chairman
- ------------------------------- -------------------------------------------
Polydex Pharmaceuticals, Limited Chairman of the Board of Directors
and Subsidiaries (Polydex)
Lincoln Underwriting Management Inc. (Lincoln) Chairman of the Board of Directors and
majority shareholder
Novadex Corporation (Novadex) Chairman of the Board of Directors and
majority shareholder
Shure Insurance Company (Shure) Chairman of the Board of Directors and
majority shareholder
Usher Insurance Company, Ltd. (Usher) Chairman of the Board of Directors and
majority shareholder
TDF Premium Finance Company, Inc. (TDF) Chairman of the Board of Directors and
majority shareholder
</TABLE>
Nova Specialty Risks, Inc. is controlled by the corporate secretary of the
Company.
Tribune Agency, Inc. (Tribune) is controlled by the corporate secretary of
the Company.
During 1994, the Company and Lincoln formally agreed to offset balances due by
the Company to TDF, Shure and Usher resulting in a reduction to the balance
due from Lincoln of $292,597. The balance of $311,321 has been reclassified
as a component of shareholders' equity (deficit) in 1994 as its payment was
based on assumption by third parties, whom acquired the preferred stock of the
Company (see Note 12), upon the successful completion of the public offering
described in Note 12.
During 1995 and 1994 the Company received $12,000 and $18,000, respectively,
of rental income from Novadex.
During 1995 and 1994 the Company incurred interest expense of $12,296 and
$15,636, respectively, to affiliates and officers.
The Company purchased approximately $50,000 of insurance during 1995 through
Tribune.
The remaining changes in affiliate balances resulted primarily from repayment
of advances.
F-17
<PAGE>
<PAGE>
NOTE 11. OPERATING LEASES
The Company leases its office, warehouse and vacant land adjacent to the
office and warehouse under noncancelable leases through 1997. The leases
provide for an initial free rent period of six months, with annual rent
increases of the lesser of the cost of living index or 6% beginning January 1,
1994. One lease also provides for an option to purchase the office and
warehouse at a specified price through December 31, 1995, with annual
increases to the purchase price of the lesser of the cost of living index or
5% after December 31, 1995. The Company is also required to maintain the
property as well as pay all applicable taxes. Rent expense for all operating
leases was approximately $85,000 for each of the years ended December 31, 1995
and 1994.
As of December 31, 1994, the Company's minimum annual lease commitments under
all noncancelable operating leases are as follows:
<TABLE>
<CAPTION>
Year Ending
December 31, Amount
- ------------ ------------
<S> <C>
1996 $ 83,472
1997 27,822
------------
$ 111,294
============
</TABLE>
NOTE 12. PUBLIC OFFERING
On April 17, 1995 the Company's public offering was effective. The Company
sold 862,500 units, including the exercise of the over-allotment option, each
consisting of one share of common stock and one common stock purchase warrant
(exercise price $6.75 per share through April 14, 1999 with the Company
having the option to redeem the warrants under certain circumstances), for a
unit price of $4.50. The net proceeds after deducting the underwriting
commission and offering expenses amounted to $ 3,049,138.
Also connected with the public offering was the conversion of subscription
agreements into 425,000 units, each unit consisting of one share of common
stock and one common stock purchase warrant, for $722,758, which included
$22,758 of accrued interest payable on the subscription agreements prior to
conversion. The warrants issued are convertible into common stock at $6.50 per
share.
In conjunction with the public offering, the Company issued to the
underwriters, for nominal consideration, warrants to purchase an aggregate of
75,000 units exercisable at $5.40 per share, a price equal to 120% of the
price to the public.
F-18
<PAGE>
<PAGE>
NOTE 13. INCOME TAXES
There is no current provision for income taxes due to operating losses. The
net operating losses from 1989 through 1995 expire as follows:
<TABLE>
<CAPTION>
Year Incurred Year Expires Amount
- ------------- ------------ ----------
<S> <C> <C>
1989 2004 $ 14,409
1990 2005 298,752
1991 2006 672,044
1992 2007 154,081
1995 2008 1,268,513
1994 2009 1,632,792
1995 2010 1,648,007
----------
Net operating loss carryforward $5,688,598
==========
</TABLE>
The amount and availability of the net operating loss carryforwards may be
subject to limitations set forth by the Internal Revenue Code. Factors such
as the number of shares ultimately issued within a three-year look-back
period; whether there is a deemed more than 50 percent change in control; the
applicable long-term tax exempt bond rate; continuity of historical business;
and subsequent income of the Company all enter into the annual computation of
allowable annual utilization of the carryforwards.
Net deferred tax asset consists of the future tax benefit of the net operating
loss carryforwards, taking into account the differential between the regular
and alternative minimum tax basis, at an expected tax rate of 35% as follows:
Deferred tax asset $ 1,991,009
Less valuation allowance (1,991,009)
-----------
Net deferred tax asset $ -
===========
The Company has allowed fully for its deferred tax asset because under present
conditions as described in Note 1, "entities continued existence", and for the
effect on the net operating loss which may occur as a result of a successful
merger, as described in Note 18, management believes it more likely than not
that substantially all of the deferred tax asset will not be realizable.
F-19
<PAGE>
<PAGE>
NOTE 14. GEOGRAPHIC INFORMATION
Contract revenues and operating loss for the years ended December 31, 1995 and
1994, and identifiable assets as of the end of each year classified by
geographic area, were as follows:
<TABLE>
<CAPTION>
United States Caribbean Total
---------------- ------------- --------------
<S> <C> <C> <C>
December 31, 1994:
Contract revenues $ 2,027,737 $ - $ 2,027,737
=============== ============= ===============
Operating (loss) $ (1,347,342) $ (66,591) $ (1,413,933)
=============== ============= ===============
Identifiable assets $ 3,008,044 $ - $ 3,008,044
=============== ============= ===============
December 31, 1995:
Contract revenues $ 1,550,450 $ 958,873 $ 2,509,323
=============== ============= ===============
Operating (loss) $ (1,415,781) $ (237,008) $ (1,625,789)
=============== ============= ===============
Identifiable assets $ 1,856,687 $ 318,600 $ 2,175,287
=============== ============= ===============
</TABLE>
NOTE 15. MAJOR CUSTOMERS
Net sales for the year ended December 31, 1995 include sales to the following
major customers, together with the receivables due from those customers:
<TABLE>
<CAPTION>
Accounts
Receivable,
Net of
Major Customer Sales Allowance
- -------------- ------------ ------------
<S> <C> <C>
A $ 594,780 $ 69,673
B 270,620 -
C 256,093 2,000
</TABLE>
There were no major customers in 1994.
Because of the nature of the Company's business, the major customers will vary
between years.
NOTE 16. LITIGATION
The Company is a defendant in various lawsuits wherein substantial amounts are
claimed. In the opinion of management, these suits are without substantial
merit and should not result in judgments which in the aggregate would have a
material adverse effect on the Company's financial statements.
F-20
<PAGE>
<PAGE>
NOTE 17. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments as of
December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
--------------------- ----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 58,234 $ 58,234 $ 11,946 $ 11,946
========== ========== =========== ===========
Certificate of deposit $ - $ - $ 500,000 $ 500,000
========== ========== =========== ===========
Investment in equity securities of affiliate $ 24,651 $ 24,651 $ 300,000 $ 300,000
========== ========== =========== ===========
Notes receivable $ 290,029 $ 290,029 $ - $ -
========== ========== =========== ===========
Long-term debt $ 330,249 $ 321,792 $ 2,456,682 $ 2,456,682
========== ========== =========== ===========
</TABLE>
Cash and cash equivalents: The carrying amount approximates fair value
because of the short maturity of those instruments.
Certificates of deposit: The carrying amount approximates fair value because
of the short maturity of the instrument.
Notes receivable: The fair value of the Company's notes receivable are based
on the market rates currently available for similar instruments.
Investment in equity securities of affiliate: The fair value as of
December 31, 1995 and 1994 are based on the investments listed trading price
as of December 31, 1995 and 1994.
Long-term debt: The fair value of the Company's long-term debt is based on
the borrowing rates currently available to the Company for loans with similar
terms and average maturities. The fair value balance does not represent a
pay-off amount available to the Company.
NOTE 18. SUBSEQUENT EVENTS
Plan of merger: On January 7, 1996, the Company entered into an Agreement and
plan of merger (the "agreement") with Medical Products, Inc. ("Med Pro") and
the shareholders of Medical Products, Inc. with the intent of forming a
Florida corporation (to be called "Novatek International Holdings, Inc."
hereafter referred to as "Novatek Holdings") which will be a wholly-owned
subsidiary of the Company. The subsidiary to be formed, Novatek Holdings,
will be merged with Med Pro resulting in Novatek Holdings being the surviving
corporation. The plan is contemplated to qualify as a reorganization under
Section 368(a)(1)(A) of the Internal Revenue Code of 1986. The agreement
specifies that closing will take place no later than February 29, 1996. The
total purchase price for the shares of Med Pro shall be $72,000,000 consisting
of :
* Upon the execution of the agreement (January 7, 1996), a nonrefundable
deposit of a $3,000,000 convertible note, convertible into 1.2 million
shares of the Company's common stock was issued.
F-21
<PAGE>
<PAGE>
NOTE 18. SUBSEQUENT EVENTS (Continued)
* At closing, $3,000,000 in immediately available funds shall be paid to
the shareholders of Med Pro. These funds are anticipated to be supplied
by bridge loans placed by the underwriter. The bridge loans are to be
converted into common stock at an effective exercise price of $2.50 per
share.
* At closing, the Company will transfer to the shareholders of Med Pro
and/or their assigns, six million shares of the Company's unregistered
common stock, valued at $5 per share, representing $30,000,000 of the
consideration to be paid under the agreement.
* At closing, the Company will deliver and execute noncancelable
convertible debenture in the aggregate principal of $36,000,000, interest
payable at 9%, due on January 1, 2001 (date of payment subject to other
provisions of the agreement). In the event the Company has not, by the
closing date, entered into a final agreement (the "Brazil Agreement")
pursuant to which the Company (or its successor) would provide
$100,000,000 of medical diagnostic devices to the Government of Brazil,
the $36 million dollar debenture, which otherwise would have been
included in the total purchase price may be retained by Novatek in
escrow, and will be delivered upon the execution and delivery of the
Brazil Agreement.
As part of the agreement the Company is prohibited from issuing any additional
shares of common stock, options, warrants, units or other instruments or
rights convertible into the Company's common stock, except for:
* At closing, 1,000,000 shares of the Company's unregistered common stock
may be issued to the underwriter.
* An option to purchase up to 450,000 shares of the Company's unregistered
common stock at $7.00 per share granted the Bahamian individual connected
with the sale of the license agreement described below.
Exchange of technologies agreement and sale of license agreement: On December
1, 1995 the Company acquired a license to distribute medical screening tests,
"Universal Health Watch, Inc.'s Rapid Medical Diagnostic Kits", to the
Commonwealth of the Bahamas from Medical Products, Inc. through an exchange of
technology licensing agreements with Medical Products, Inc. ("Med Pro"). The
Company, on December 28, 1995, entered in an agreement to sell its newly
acquired license to a Bahamian individual through a license agreement for
$3,000,000. The individual assigned an 8% promissory note due him from a real
estate corporation wholly-owned by him to the Company with the following
terms:
* Cash payment of $250,000 within 45 days of the execution of the agreement
(paid on January 31, 1996).
* Minimum quarterly principal payments of $250,000 per quarter, or the net
proceeds from the sale of real estate, owned by a corporation wholly owned
by the individual, up to $750,000 during the initial year.
* Principal payments of $250,000 per quarter during years two and three.
* The individual has personally guaranteed the note.
The above transaction was finalized during January 1996 at which time the
Company recognized $3,000,000 of revenue. As of February 6, 1996, the Company
has a note receivable of $2,750,000 ($3,000,000 sales price less $250,000 cash
payment).
F-22
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF NOVATEK INTERNATIONAL INC. FOR THE TWELVE MONTHS
ENDED DECEMBER 3, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 58,234
<SECURITIES> 24,651
<RECEIVABLES> 560,579
<ALLOWANCES> 105,845
<INVENTORY> 119,115
<CURRENT-ASSETS> 827,587
<PP&E> 1,399,120
<DEPRECIATION> 343,200
<TOTAL-ASSETS> 2,175,287
<CURRENT-LIABILITIES> 250,841
<BONDS> 0
<COMMON> 6,228,185
0
1,887,000
<OTHER-SE> (6,513,516)
<TOTAL-LIABILITY-AND-EQUITY> 2,175,287
<SALES> 2,509,323
<TOTAL-REVENUES> 2,509,323
<CGS> 3,038,911
<TOTAL-COSTS> 3,038,911
<OTHER-EXPENSES> 172,766
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 156,681
<INCOME-PRETAX> (1,663,190)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,663,190)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,663,190)
<EPS-PRIMARY> (.65)
<EPS-DILUTED> (.65)
</TABLE>