FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
FEBRUARY 29, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
TO .
NOVEX SYSTEMS INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
NEW YORK 0-26112 41-1759882
- ------------------ ----------------- --------------------
(State of Jurisdiction) (Commission (IRS Employer
File Number) Identification No.)
16 CHERRY STREET CLIFTON, NEW JERSEY 07014
--------------------------------------------------
(Address of Principal Executive offices) (Zip Code)
Registrant's telephone number, including area code 973-777-2307
------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to filing requirements for the
past 90 days. YES _ X_ NO____ .
The Company had 21,987,738 shares of its $.001 par value common stock issued and
outstanding on February 29, 2000. On a fully diluted basis, assuming all
outstanding stock options and warrants to purchase common are exercised, the
Company would have 24,084,527 shares of common stock issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
LOCATION IN FORM 10-Q INCORPORATED DOCUMENT
None.
<PAGE>
NOVEX SYSTEMS INTERNATIONAL, INC.
INDEX
PAGE NO.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheet - dated
February 29, 2000 and May 31, 1999..................................F-1
Statement of Operations - for the three months ended February
29, 2000 and February 28, 1999 and for the nine months ended
February 29, 2000 and February 28, 1999.............................F-2
Statement of Cash Flows - for the nine
months ended February 29, 2000 and
February 28, 1999 ..................................................F-3
Statement of Changes in Shareholders'
Equity, February 29, 2000 ..........................................F-4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................................1
PART II OTHER INFORMATION
Item 1. Legal Proceedings.....................................................3
Item 2. Changes in Securities.................................................4
Item 3. Defaults Upon Senior Securities.......................................4
Item 4. Submission of Matters to a Vote of Security Holders...................4
Item 5. Other Information.....................................................4
Item 6. Exhibits and Reports on Form 8-K......................................4
ii
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS PAGE
Balance Sheet - dated
February 29, 2000 and May 31, 1999..................................F-1
Statement of Operations - for the three months ended February
29, 2000 and February 28, 1999 and for the nine months ended
February 29, 2000 and February 28, 1999.............................F-2
Statement of Cash Flows - for the nine
months ended February 29, 2000 and
February 28, 1999 ..................................................F-3
Statement of Changes in Shareholders'
Equity, February 29, 2000 ..........................................F-4
<PAGE>
NOVEX SYSTEMS INTERNATIONAL INC AND SUBSIDIARY
----------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
ASSETS
<TABLE>
<CAPTION>
February 29, May 31,
2000 1999
(Unaudited)
CURRRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 2,020 $ 1,788
Account receivable, net of allowances 585,929 20,690
Inventory 450,751 221,707
Prepaid expenses and other current assets 59,536 8,600
--------------- --------------
Total Current Assets 1,098,236 252,785
PROPERTY, PLANT, AND EQUIPMENT, net of 1,461,126 80,914
accumulated depreciation and amortization
GOODWILL, net of accumulated amortization 842,758 316,300
OTHER ASSETS - 6,059
--------------- ---------------
$ 3,402,120 $ 656,058
================= ===============
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Bank line of credit $ 601,172 $ -
Current portion of long term debt 1,499,021 393,548
Due to factor 78,118 -
Accounts payable 605,957 241,424
Accrued expenses 248,333 115,190
Officer's loan 31,925 -
--------------- ---------------
Total Current Liabilities 3,064,526 750,162
COMMITMENTS AND CONTINGENCIES
LONG TERM DEBT, net of current portion 816,333 829,282
SHAREHOLDERS' DEFICIT:
Common stock - $0.001 par value
50,000,000 shares authorized
21,987,738 and 15,250,771 shares
issued and outstanding, respectively 21,987 15,251
Additional paid-in capital 5,710,516 4,408,753
Accumulated deficit (6,211,242) (5,347,390)
--------------- ---------------
Shareholders' Deficit (478,739) (923,386)
--------------- ---------------
$ 3,402,120 $ 656,058
=============== ===============
</TABLE>
F-1
<PAGE>
NOVEX SYSTEMS INTERNATIONAL INC AND SUBSIDIARY
----------------------------------------------
CONSOLIDATED STATEMENT OF OPERATIONS
------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
February 29, February 29,
___________________________ ____________________________
2000 1999 2000 1999
--------- -------- ----------- ----------
<S> <C> <C> <C> <C>
Net Sales $ 538,938 $ 92,566 $ 1,390,412 $ 220,842
Cost of goods sold 403,226 50,356 959,353 80,929
--------- -------- --------- ---------
Gross profit 135,712 42,210 431,059 139,913
Selling, general and administrative expenses 354,636 422,125 1,027,423 1,009,963
--------- -------- --------- ---------
Loss from operations (218,924) (379,915) (596,364) (870,050)
--------- -------- --------- ---------
Other income(expenses)
Interest Income - 3 - 333
Interest Expense (83,625) (30,197) (225,567) (75,374)
Amortization of Debt & Discount - - - (69,529)
Foreign currency gain (loss) (18,935) 51,656 (41,921) 16,151
--------- -------- --------- ---------
Other income (expenses), net (102,560) 21,462 (267,488) (128,419)
--------- -------- --------- ---------
Net Loss $ (321,484) $ (358,453) $ (863,852) $ (998,469)
=========== =========== ========== ===========
Net loss per common share,
BASIC AND DILUTED $ (0.01) $ (0.02) $ (0.04) $ (0.08)
=========== =========== ========== ===========
Weighted-average number of common shares
outstanding, basic and diluted 21,987,738 15,063,607 20,818,206 13,194,542
============ =========== ========== ==========
</TABLE>
F-2
<PAGE>
NOVEX SYSTEMS INTERNATIONAL INC AND SUBSIDIARY
----------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
<TABLE>
<CAPTION>
(UNAUDITED)
Nine Months Ended
February 29,
----------------------
<S> <C> <C>
2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES: ----------- ----------
Net loss $ (863,852) ($998,469)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 84,262 14,833
Common stock and options issued for payment of
services and compensation 15,000 72,450
Common stock issued for interest expense - 15,175
Amortization of debt discount 28,870 69,529
Amortization of goodwill - 12,156
Changes in assets and liabilities, net of
the effect from acquisitions
Accounts receivable (565,239) (12,632)
Inventories (229,044) (141,313)
Other receivables - 3,868
Prepaid expenses and other current assets (50,936) (11,908)
Other assets 6,059 3,300
Accounts payable and accrued expenses 497,676 75,082
---------- ---------
NET CASH USED IN OPERATING ACTIVITIES (1,077,204) (897,929)
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment - 5,678
Acquisition of business, net of cash acquired (1,990,922) (296,318)
---------- ---------
NET CASH USED IN INVESTING ACTIVITIES (1,990,922) (290,640)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (repayment of) loans payable - shareholder 31,925 (32,000)
Proceeds from issuance of notes payable - 85,000
Proceeds from bridge financing - 1,050,000
Proceeds from bank line of credit 601,172 -
Proceeds from debt financing 2,175,261 65,866
Common stock issued in connection with acquisition 260,000 -
Proceeds from the sale of common stock and
exercise of stock options - 98,000
---------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 3,068,358 1,266,866
---------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 232 78,297
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,788 49,108
---------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,020 $127,405
========== ==========
</TABLE>
F-3
<PAGE>
NOVEX SYSTEMS INTERNATIONAL INC AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
(UNAUDITED)
<TABLE>
<CAPTION>
Additional Total
Common Stock Paid-in Accumulated Shareholders'
------------------------
Shares Amount Capital Deficit Equity (Deficit)
----------- -------- ----------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
BALANCE, MAY 31, 1999 15,250,771 $ 15,251 $ 4,408,753 $ (5,347,390) $ (923,386)
Issuance of common stock 1,000,000 1,000 259,000 - 260,000
in connection with acquisition
of Allied/Por Rok Division
Issuance of common stock 30,000 30 7,470 - 7,500
for compensation
Conversion of debt to equity 5,041,569 5,041 852,023 - 857,064
Conversion of debt to equity 575,924 576 165,859 - 166,435
Net loss - - (270,540) (270,540)
---------------- ----------- -------------- --------------- --------------
BALANCE, August 31, 1999 21,898,264 $ 21,898 $ 5,693,105 $ (5,617,930) $ 97,073
Issuance of common stock 39,474 39 7,461 - 7,500
for compensation
Conversion of debt to equity 50,000 50 9,950 - 10,000
Net loss - - - (271,828) (271,828)
BALANCE, November 30, 1999 21,987,738 $ 21,987 $ 5,710,516 $ (5,889,758) $ (157,255)
---------------- ----------- -------------- --------------- --------------
Net loss - - - (321,484) (321,484)
---------------- ----------- -------------- --------------- --------------
BALANCE, February 29, 2000 21,987,738 $ 21,987 $ 5,710,516 $ (6,211,242) $ (478,739)
================ =========== ============== =============== ==============
</TABLE>
F-4
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING FINANCIAL INFORMATION SHOULD BE READ IN CONJUNCTION WITH THE
COMPANY'S FINANCIAL STATEMENTS AND FOOTNOTES, WHICH ARE ANNEXED HERETO. FORWARD
LOOKING STATEMENTS MADE IN THIS SECTION ARE MADE PURSUANT TO THE SAFE HARBOR
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.
The following is management's discussion and analysis of certain significant
factors which have affected the Company's financial position and operating
results during the periods included in the accompanying consolidated financial
statements.
The Financial Statements for the period ended February 29, 2000, included in
this Form 10-Q are unaudited; however, such information reflects all adjustments
(consists solely of normal recurring adjustments), which are, in the opinion of
management, necessary to present a fair statement of the results for the interim
period.
RESULTS OF OPERATIONS
Nine months ending February 29, 2000 vs. February 28, 1999
- ----------------------------------------------------------
Net sales for the nine month periods ending February 29, 2000 and February 28,
1999, were $1,390,412 and 220,842 respectively. The increase in sales was
attributable principally to the Company's acquisition of the Allied
Composition/Por-Rok business unit from The Sherwin-Williams Company ("Por-Rok
Unit") on August 13, 1999.
In the three month periods ending February 29, 2000 and February 28, 1999 net
sales were $538,938 and $92,566, respectively. The increase in revenues in the
third quarter ending February 29, 2000, versus the first quarter ending August
31, 1999 resulted from the second quarter reflecting a full quarter of revenues
derived from the Por-Rok Unit. The Company only achieved a gross margin of 25%
in the three months ending February 29, 2000, which resulted principally from
the historically low sales in this period from it Canadian-subsidiary, Novex
Systems International, Ltd. ("Novex, Ltd."). Novex, Ltd, manufactures and
markets the Company's Fiberforce line of concrete-reinforcing synthetic fibers
and this unit experiences a significant slowdown during the main winter months
of December through February due to the decline in the construction business in
Eastern Canada and the northeastern region of the United States.
In the three month period ending February 29, 2000, the Company generated a loss
from operation of $321,484. The Company also incurred approximately $75,000 in
freight expenses which the Company will pass on to its customers through a new
pricing and shipping policy for the Por-Rok Unit that was originally to become
effective March 1, 2000, which will finally become effective on June 1, 2000.
The new pricing and shipping policy was mailed to all Por-Rok customers in March
and was delayed due to major customers wanting 90 days to implement the new
policy within their own organizations. Also, in this period, the Company had
incurred non-cash charges for depreciation and amortization of
1
<PAGE>
$42,000, and incurred non-recurring charges of approximately $20,000 relating to
the service agreement it entered into with Sherwin-Williams which terminated on
February 29, 2000. The net effect of the non-cash accounting charges,
non-recurring costs and the freight expenses, would have resulted in the Company
posting a net operating loss of $81,924, before expenses for interest which in
the quarter totaled $83,625 and foreign currency loss of $18,935 which reflects
the difference in currency exchanges between the United States and Canada for
funds transferred by the Company to Novex, Ltd. for operating expenses.
For the three month period ending February 29, 2000, the Company's overall
operating results do not reflect a normalized operation on a consolidated basis
due to the seasonal slowdown at Novex, Ltd. in this period. In addition, for the
nine month period ending February 29, 2000, the Company did not have nine full
months of operating results for its Por-Rok Unit which was acquired on August
12, 1999. The Company encourages investors to understand these changes do better
understand the company's overall operating performance on a normalized basis.
In February 29, 2000, the Company had $1,098,236 in current assets, which
consisted principally of accounts receivable of $585,929 and inventory of
$450,751. The Company's property, plant and equipment totaled $1,461,126 and
goodwill of $842,758 which is attributable to the two acquisitions that the
Company completed in 1998 and 1999. All of the Company's asset categories
increased substantially when compared to its year ending balance sheet dated May
31, 1999 on account of the integration of the assets it acquired as part of the
Por-Rok transaction.
LIQUIDITY AND FINANCIAL RESOURCES AT FEBRUARY 29, 2000
In the three month period ending February 29, 2000, the Company had $3,064,526
in current liabilities, which includes a seller's note for $1,300,000 that was
issued to The Sherwin-Williams Company upon the acquisition of the Por-Rok Unit
("Sherwin-Williams Note"). The Company also has $601,172 outstanding on its
secured revolving line of credit with Dime Commercial Corp. which is used to
fund the Company's operations and it had accounts payable of $605,957 and
accrued expenses of $248,333. The officer's loan of $31,925 was made to the
Company by its current President, Daniel W. Dowe, in June and July, 1999 to
assist the Company with its operating cash flow needs prior to the Company's
acquisition of the Por-Rok Unit and the opening of the line of credit with Dime
Commercial Corp. Mr. Dowe has entered into an agreement with the Company's board
of directors to have the loan repaid without interest as the Company's cash flow
increases.
Long-term debt of $816,333 consists of the long-term portion of a three year
$890,000 term loan that was made by Dime Commercial Corp. to enable the Company
to acquire the Por-Rok Unit. The remaining portion of the purchase price for the
Por-Rok Unit was paid with the Sherwin-Williams Note. The $78,118 obligation
listed as "Due to Factor" is the value of an equipment loan made to Novex, Ltd.
denominated in United States dollars.
If the Company were to convert its accounts receivable and its finished goods
inventory into cash it be able to pay all its current obligation in full, except
for the Sherwin-Williams Note. The Company has already begun the early stage
process of refinancing the Sherwin-Williams Note which matures on
2
<PAGE>
August 12, 2000, with an equity or a partial equity and debt security offering
which may be completed as part of another acquisition. The net effect of this
refinancing, assuming a portion, if not all, of the refinancing is completed
through an equity offering would enable the Company to increase its shareholders
equity which was a negative $478,739 on February 29, 2000. Although management's
plans to refinance the Sherwin-Williams Note are being undertaken, the Company
has not reached a final agreement with any party.
Inflation and Changing Prices
The Company does not foresee any risks associated with inflation or substantial
price increase in the near future. In addition, the raw materials that are used
by the Company in the manufacturing of its materials are available locally
through many sources and are, for the most part, commodity products. The one raw
material that the Company uses in all its products that cannot be classified as
a pure commodity is currently in sufficient supply although the Company
presently owns approximately 600,000 lbs. of this product. As such, while the
Company will always have exposure to inflationary risks, it does not believe
that inflation will have any materially significant impact on its operations in
the near future.
PART II Other Information
ITEM 1. Legal Proceedings
On August 12, 1997, a shareholder who was once a director and officer
of Novex ("the Plaintiff") commenced an action against the Company and its
former president, Mr. A. Roy Macmillan, to enjoin the Company from taking any
action that would restrict the sale of common stock that he allegedly owns and
for the costs he will incur to conduct the lawsuit. He has not asked for, nor
does the Company expect him to ask for, damages. The Plaintiff has since named
the Company's current president, Mr. Dowe, in the lawsuit. The Plaintiff has no
other affiliation with the Company other than for being a shareholder. The
plaintiff submitted a motion for summary judgment which the court denied. The
Company has raised several defenses to this action and believes that plaintiff's
claims are without merit. It has also asserted multiple counterclaims against
the plaintiff and, in December, 1999, it asserted multiple claims against two
third-party defendants that the Company alleges were associated with the
plaintiff. The Company's position is that the plaintiff and the two third-party
defendants which the Company has named in the lawsuit (none of whom are
presently affiliated with it) had caused the company to issue them stock for
work that was never done and at a time when current management believes that
fraudulent activities were being undertaken which caused the company's stock
price to be overinflated based upon news that was not factually correct. All
three individuals are claiming that they received stock as compensation for
services rendered. When the Company investigated the matter it found virtually
no records of any tangible service and press releases that could be interpreted
as a disservice to Novex. These actions were the very actions and omissions that
have caused the U.S. Securities and Exchange Commission to commence an
investigation of Novex. It is Novex's understanding that the investigation is
still pending and the Company has no information as to what action, if any, the
sec may take pursuant to the investigation. MEL GREENSPOON VS. STRATFORD
ACQUISITION CORPORATION, ET. AL., ONTARIO COURT (GENERAL DIVISION), INDEX NO.
97-CV-126814.
3
<PAGE>
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
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
EXHIBITS
None.
REPORTS ON FORM 8-K
None.
4
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, Novex Systems International, Inc. has duly caused this
report to be signed on its behalf by the undersigned person who is duly
authorized to sign on behalf of the Registrant and as chief accounting officer.
NOVEX SYSTEMS INTERNATIONAL, INC.
BY: /S/ Daniel W. Dowe
Daniel W. Dowe, President
Date: April 19, 2000
5
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000945634
<NAME> NOVEX SYSTEMS INTERNATIONAL, INC.
<MULTIPLIER> 1
<CURRENCY> U.S.DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-2000
<PERIOD-START> Jun-01-1999
<PERIOD-END> FEB-29-2000
<EXCHANGE-RATE> 1
<CASH> 2,020
<SECURITIES> 0
<RECEIVABLES> 585,929
<ALLOWANCES> 0
<INVENTORY> 450,751
<CURRENT-ASSETS> 1,098,236
<PP&E> 1,461,126
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,402,120
<CURRENT-LIABILITIES> 3,064,526
<BONDS> 0
0
0
<COMMON> 21,987
<OTHER-SE> (500,726)
<TOTAL-LIABILITY-AND-EQUITY> 3,402,120
<SALES> 538,938
<TOTAL-REVENUES> 538,938
<CGS> 403,226
<TOTAL-COSTS> 354,636
<OTHER-EXPENSES> (102,560)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (83,625)
<INCOME-PRETAX> (321,484)
<INCOME-TAX> 0
<INCOME-CONTINUING> (321,484)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (321,484)
<EPS-BASIC> (.01)
<EPS-DILUTED> (.01)
</TABLE>
