FORM 10-QSB
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 AUGUST 31, 2000
or
[c] 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 23,173,983 shares of its $.001 par value common stock and
1,390,388 shares of its $.001 par value preferred stock issued and outstanding
on August 31, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
Location in Form 10-Q Incorporated Document
--------------------- ---------------------
Part II, Item 6 None
<PAGE>
NOVEX SYSTEMS INTERNATIONAL, INC.
Index
Page No.
--------
Part I Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheet as of
August 31, 2000 and May 31, 2000....................................F-1
Consolidated Statements of Operations for the
three months ended August 31, 2000 and
August 31, 1999.....................................................F-2
Consolidated Statements of Cash Flows for the
three months ended August 31, 2000 and
August 31, 1999.....................................................F-3
Notes to Financial Statements ......................................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.....................................................4
Item 2. Changes in Securities.................................................4
Item 3. Defaults Upon Senior Securities.......................................5
Item 4. Submission of Matters to a Vote of Security Holders...................5
Item 5. Other Information.....................................................5
Item 6. Exhibits and Reports on Form 8-K......................................5
ii
<PAGE>
PART I
Page No.
--------
Item 1. Financial Information (Unaudited)
Consolidated Balance Sheet as of
August 31, 2000 and May 31, 2000 ...................................F-1
Consolidated Statements of Operations for the
three months ended August 31, 2000 and
August 31, 1999.....................................................F-2
Consolidated Statements of Cash Flows for the
three months ended August 31, 2000 and
August 31, 1999.....................................................F-3
Notes to Financial Statements ......................................F-4
iii
<PAGE>
NOVEX SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
August 31, May 31,
2000 2000
----------- -----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 5,295 $ 285
Accounts receivable, net 507,143 553,270
Inventories 426,753 389,578
Prepaid expenses and other current assets 47,662 8,040
----------- -----------
Total Current Assets 986,853 951,173
PROPERTY AND EQUIPMENT, net of
accumulated depreciation and amortization 1,433,878 1,399,341
GOODWILL, net of accumulated amortization 978,931 826,465
OTHER ASSETS 11,168 11,445
----------- -----------
$ 3,410,830 $ 3,188,424
=========== ===========
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Cash overdraft $ 30,184 $ 40,297
Current portion of long term debt 960,034 989,223
Due to factor 39,424 68,184
Note payable -- 1,281,351
Bank line of credit 724,044 701,310
Accounts payable 764,843 615,965
Loans payable - shareholders 144,425 71,488
Accrued interest 25,580 105,155
Accrued expenses and other current liabilities 108,036 50,778
----------- -----------
Total Current Liabilities 2,796,570 3,923,751
----------- -----------
COMMITMENTS AND CONTINGENCIES
LONG TERM DEBT, net of current portion
SHAREHOLDERS' DEFICIENCY:
Cumulative preferred stock - $.001 par value
10,000,000 shares authorized,
1,390,388 shares issued and outstanding 1,390,388 --
Common stock - $0.001 par value
50,000,000 shares authorized,
23,173,988 and 15,250,771 shares
issued and outstanding, respectively 23,174 22,144
Preferred stock - series A
Additional paid-in capital 5,947,445 5,807,575
Accumulated deficit (6,746,747) (6,565,046)
----------- -----------
Total shareholders' deficiency 614,260 (735,327)
----------- -----------
$ 3,410,830 $ 3,188,424
=========== ===========
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE>
NOVEX SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended
August 31,
----------------------------
2000 1999
------------ ------------
(Unaudited) (Unaudited)
NET SALES $ 566,138 $ 281,287
COST OF GOOD SOLD 353,204 173,230
------------ ------------
GROSS PROFIT 212,934 108,057
SELLING, GENERAL AND ADMINISTRATIVE 304,590 355,758
------------ ------------
LOSS FROM OPERATIONS (91,656) (247,701)
------------ ------------
OTHER INCOME (EXPENSES):
Interest expense (81,921) (49,201)
Amortization of debt discount (2,638) (28,870)
Foreign currency gain (loss) (5,486) (6,361)
------------ ------------
OTHER EXPENSES, net (90,045) (84,432)
------------ ------------
NET LOSS $ (181,701) $ (332,133)
============ ============
NET LOSS PER COMMON SHARE, basic and diluted $ (0.01) $ (0.03)
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING, basic and diluted 22,528,227 12,150,849
============ ============
See notes to consolidated financial statements
F-4
<PAGE>
NOVEX SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended
August 31,
--------------------------------
2000 1999
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (181,701) $ (332,133)
Adjustments to reconcile net loss to net cash
used in operating activities:
Provision for bad debts 6,269 --
Depreciation and amortization 43,619 19,400
Common stock and options issued for payment
of services and compensation 3,900 7,500
Amortization of debt discount 2,636 28,870
Changes in assets and liabilities, net of the effect from acquisition:
Accounts receivables 39,858 (133,553)
Inventory (37,175) 32,836
Prepaid and other current assets (39,622) (1,464)
Other assets 277 (32)
Accounts payable 148,878 42,860
Accrued interest 29,462 --
Accrued expenses and other current liabilities 57,258 --
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES 73,659 (335,716)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of business, net of cash acquired (93,621) (948,898)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (93,621) (948,898)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash overdraft (10,113) --
Due to factor (28,760) 16,504
Advance from shareholders 72,000 43,884
Proceeds from bank line of credit 22,734 192,577
Proceeds from debt financing -- 1,045,822
Repayment of debt obligations (30,889) --
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 24,972 1,298,787
----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 5,010 14,173
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 285 1,788
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 5,295 $ 15,961
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 46,375 $ 16,757
=========== ===========
Income taxes $ -- $ --
=========== ===========
Non-cash financing and investing activities:
Conversion of debt and interest to equity $ 1,390,388 $ 1,033,499
=========== ===========
Common stock issued for assets acquired $ 130,000 $ 260,000
=========== ===========
Note payable issued for assets acquired $ -- $ 1,294,973
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
NOVEX SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED AUGUST 31, 2000
(unaudited)
1. BASIS OF PRESENTATION AND RESTATEMENT
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operation results for
the three month period ended August 31, 2000 are not necessarily indicative
of the result that may be expected for the year ended May 31, 2001. The
unaudited condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and footnotes
thereto included in the Company's annual report on Form 10-K for the year
ended May 31, 2000.
At the time of preparing the Form 10-Q for the first quarter ending August
31, 1999, Novex had owned the Por-Rok unit for two weeks and used a cost of
goods sold rate of 40% (or an estimated gross profit of 60%) to estimate
the ending inventory versus an actual amount based on a physical count for
the period. During the second quarter ending November 30, 1999, Novex
conducted a physical inventory in order to implement a perpetual inventory
system. As a result, Novex determined that they had incorrectly estimated
the ending inventory for the first quarter. Therefore, Novex prepared a
roll-forward of the Por-Rok inventory from the acquisition date of the
Por-Rok unit, August 13, 1999 to the end of the quarter and as well
analyzed the mix of product gross profit margins for Arm-Pro and Por-Rok.
Thus, Novex has restated the ending inventory from $476,125 to $414,532 and
a $61,593 increase in net loss from $270,540 to $332,133 for the three
months ended August 31, 1999. The increase in net loss did not have a
material effect on net loss per share.
2. LOSS PER SHARE
Basic net loss per common share is computed by dividing net loss by the
weighted average number of shares of common stock outstanding. For the
three months ended August 31, 2000 and August 31, 1999 diluted loss per
share is the same as basic loss per share since the inclusion of stock
options and warrants would be antidilutive.
F-6
<PAGE>
NOVEX SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED AUGUST 31, 2000
(unaudited)
3. INVENTORIES
Inventories were determined based on the perpetual inventory system and
consisted of the following:
August 31,
2000
---------
(unaudited)
Raw Material $ 156,120
Work in Progress 45,258
Finished Goods 225,375
---------
$ 426,753
=========
4. SHAREHOLDERS' DEFICIT
During the three months ended, August 31, 1999, Novex issued 30,000 shares
as compensation for services rendered.
5. SEGMENT INFORMATION
The Company adopted Statement of Financial Accounting Standards No. 131,
Disclosures about Segments of an Enterprise and Related Information" ("SFAS
131") as of June 1, 1997. SFAS 131 establishes standards for reporting
information regarding operating segments in annual financial statements and
requires selected information for those segments to be presented in interim
financial reports issued to stockholders. SFAS 131 also establishes
standards for related disclosures about products and services, and
geographic areas. Operating segments are identified as components of an
enterprise about which separate discrete financial information is available
for evaluation by the chief operation decision maker or decision making
group, in making decisions how to allocate resources and assess
performance. To date, the Company has viewed its operations as principally
two segments, the fiber business and the Allied/Por-Rok business. Key
financial information by operating segment and country are as follows:
F-7
<PAGE>
NOVEX SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED AUGUST 31, 2000
(unaudited)
<TABLE>
<CAPTION>
United Adjustments
State Canada (1) Consolidated
---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Three Months Ended August 31, 2000
(unaudited):
Sales to unaffiliated customers $ 497,833 $ 68,305 $ -- $ 566,138
Interest expense 79,821 2,100 -- 81,921
Deprecation and amortization 30,058 13,561 -- 43,619
Segment loss 133,577 48,124 -- 181,701
Segment assets 2,957,501 453,329 -- 3,410,830
Long lived asset expenditures 60,000 -- -- 60,000
Three Months Ended August 31, 1999
(unaudited):
Sales to unaffiliated customers $ 131,740 $ 149,547 $ -- $ 281,287
Interest expense 35,710 13,491 -- 49,201
Deprecation and amortization 9,442 9,958 -- 19,400
Segment loss 244,015 88,118 -- 332,133
Segment assets 2,639,170 545,470 -- 3,184,640
Long lived asset expenditures 1,433,615 -- -- 1,433,615
</TABLE>
(1) This column represents the amount of non-segment information necessary
to reconcile reportable segment information with consolidated totals.
6. ACQUISITIONS
On August 1, 2000, the Company acquired certain assets from The Sta-Dri
Company of Odenton, Maryland.
The unaudited pro-forma results of operations of the Company and Sta-Dri,
as if the acquisition occurred on June 1, 1999, have not been provided
since they were not considered material.
F-8
<PAGE>
NOVEX SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED AUGUST 31, 2000
(unaudited)
7. COMMITMENTS AND CONTINGENCIES
During fiscal 1997, a shareholder commenced an action against the Company
and its former President to enjoin the Company and the former President
from taking any action that would restrict the sale of common stock that he
allegedly owns. In the opinion of management, this action is without merit
and will not have a material adverse effect on the Companies financial
position or results of operations.
F-9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following discussion and analysis should be read in conjunction with
the information contained in the Financial Statements and the Notes to the
financial statements appearing elsewhere in this Form 10-QSB. The Financial
Statements for the three month period ended August 31, 2000, included in this
Form 10-QSB are unaudited; however, this information reflects all adjustments
(consisting 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
Three months ending August 31, 2000 vs. August 31, 1999
On August 1, 2000, Novex acquired substantially all of the assets of the
The Sta-Dri Company located in Odenton, Maryland ("Sta-Dri"). Sta-Dri
manufactures a well-known line of waterproofing and building material products.
The purchase price for the Sta-Dri acquisition was 1,000,000 shares of Novex'
common stock that was valued at $137,000 based on the average trading price
three days before and after the date the acquisition was agreed to and
announced, which was August 1, 2000. In addition Novex' President issued a check
in the amount of $72,000 to the Sta-Dri shareholders that is collateralized by
350,000 shares of common stock owned by the President that is to be payable in
October. Novex's president and Novex have entered into an agreement whereby
Novex will pay the president the full amount of the $72,000 paid to the Sta-Dri
shareholders on behalf of the company. As part of the terms to the acquisition,
Novex has provided the Sta-Dri shareholders with certain piggyback registration
rights. Therefore, in the event that Novex shall register any shares of its
common stock within one year from August 1, 2000, the Company will register any
of the unregistered and non-freely tradeable shares of common stock issued to
the Sta-Dri shareholders. Additionally, Novex has provided the Sta-Dri
shareholders with the preemptive right to purchase any shares of Novex common
stock or securities convertible into its common stock which may be offered for
sale from August 1, 2000 until August 12, 2002 to enable the Sta-Dri
shareholders to maintain the same percentage ownership of the company's common
stock prior to the offering of any new shares. As of August 1, 2001 and until
August 1, 2002, Novex will have to pay an additional $6,000 each month in the
aggregate to the Sta-Dri shareholders in the event that its common stock has not
traded above $1.00 per share for twenty consecutive trading days prior to August
1, 2001. If and when Novex common stock shall trade in excess of $1.00 per share
for twenty consecutive trading days the $6,000 monthly obligation shall
terminate. Regardless of the stock price, Novex's obligation to pay $6,000 to
the Sta-Dri shareholders shall cease on August 1, 2002.
On August 7, 2000, Novex and The Sherwin-Williams Company entered into an
agreement whereby Sherwin-Williams agreed to convert the entire principal amount
of its outstanding note having a face value of $1,281,351, plus all accrued and
outstanding interest of $109,037 into 1,390,388 shares of Series A Redeemable
Convertible Preferred Stock ("Preferred Stock"). The Series A Redeemable
Preferred Stock pays an annual dividend of 139,038 shares of Preferred Stock for
two consecutive years and if the Preferred Stock is not redeemed prior to August
7, 2002, an additional 208,558 shares of Preferred Stock shall be issued to
Sherwin-Williams. On August 7, 2002, any of the Preferred Stock that has not
been redeemed shall be converted into common stock at a rate equal to 85% of the
average closing trading price for Novex' $.001 par value common stock for twenty
consecutive trading days prior to
1
<PAGE>
August 7, 2002.
In the three month period ended August 31, 2000, Novex had net sales of
$566,138 versus $281,287 in the corresponding three month period in 1999. Cost
of goods sold in this period was $353,204 which was approximately 62% of gross
revenues, versus 75% in 1999. Novex incurred general and administrative costs of
$304,590 which resulted in a loss from operations of $91,656 in this period. In
this period, Novex generated $81,921 in interest expense.
Included in the general and administrative costs of $304,590 were
approximately $???? of non-recurring expenses for professional fees and
miscellaneous costs. The increase in sales, cost of goods sold and general
operating expenses during this period was attributable primarily to the Por-Rok
acquisition and the integration of the Sta-Dri line of products.
On August 31, 2000, Novex had $986,853 in current assets which consisted
primarily of inventory of $426,753 and accounts receivable of $507,143. The
company's property plant and equipment increased to $1,710,197 net of
depreciation of 276,319 and goodwill increased by $1,088,961 net of amortization
to $110,030. These increases were directly attributable to the Sta-Dri
transaction.
Liquidity and Financial Resources at August 31, 2000
As of August 31, 2000, Novex had $2,796,570 in current liabilities. The
Company also had $724,044 outstanding on its secured revolving line of credit
with Dime Commercial Corp. which is used to fund the Company's operations. It
had accounts payable of $764,843 and accrued expenses of $108,036 and a cash
overdraft of $30,184. The officer's loan of $31,925 was made to Novex by its
current President, Daniel W. Dowe, in June and July, 1999 to assist Novex with
its operating cash flow needs before acquiring the Por-Rok Unit, and opening the
line of credit with Dime Commercial Corp. Mr. Dowe has entered into an agreement
with Novex's board of directors to have the loan repaid without interest. There
is no agreement between Novex's board of directors and Mr. Dowe to repay the
loan on a specified date. However, if Novex has adequate cash on hand after it
finances another acquisition, or if it becomes profitable, Novex and Mr. Dowe
will agree to a mutually acceptable payment plan. At the present time, Mr. Dowe
has agreed to allow Novex time to repay the loan with no set conditions for
repayment.
The current portion of long-term debt consists of a three year term loan
and put warrant totalling $890,000 that was made by Dime Commercial Corp. to
enable the Company to acquire the Por-Rok Unit in August 1999. The remaining
portion of the purchase price for the Por-Rok Unit was paid with the
Sherwin-Williams Note totalling $1,281,350 which has been converted into
1,390,388 preferred shares. The $39,424 obligation listed as "Due to Factor" is
the value of an equipment loan made to Novex, Ltd. denominated in United States
dollars.
The Dime Note is secured by all the assets that are located at the Por-Rok
operation at 16 Cherry Street, Clifton, New Jersey. These assets include the
land (1.58 acres), the main manufacturing building and the two warehouses,
including all the equipment in these buildings and all trademarks owned by
Novex. In addition, the revolving line of credit that Novex has with Dime is
secured by the accounts
2
<PAGE>
receivable generated at the Por-Rok unit and all inventory. Since all the assets
at the Por-Rok operation are secured by the Dime Note, there are no other assets
that can be used to secure new financing if it were needed.
On September 1, 2000, Dime Commercial Corp. issued a formal default notice
to the company and demanded full payment of its two notes. No final date of
repayment was set in the letter and the company has continued amicable
discussions with representatives of Dime Commercial about: (i) the prospects of
bringing in new equity capital which would likely result in a retraction of the
default notice; (ii)completing a sale of the assets of Novex's subsidiary (which
the company had been planning prior to its receipt of the notification letter
from Dime), the proceeds of which will be used to pay down a portion of the
notes outstanding; and (iii) arranging to secure new financing from another bank
or other debt sources to pay off part or all of the notes outstanding. If Novex
is successful in completing (i) or (ii) above, Dime has expressed its interest
in withdrawing its demand letter and continuing to finance Novex' operations. If
Novex is successful in completing (iii) above it will payoff the entire balance
of notes owing to Dime Commercial Corp.
For the period ended August 31, 2000, sales volume and selling, general and
administrative expenses have increased when compared to the same period ended
August 31, 1999. The increase in sales has resulted in higher levels of accounts
receivable and inventory as well as accounts payable and accrued expenses. In
addition, the acquisition of Por-Rok has increased the amount of debt, which has
resulted in higher amounts of interest payments that Novex needs to fund from
operations. Therefore, while there has been a decline in negative cash flows
from operations from $(335,716) for the period ended August 31, 1999 to $73,659
for the period ended August 31, 2000. While future operating cash inflows should
continue to increase, unless Novex's sales volume increases, the company will
not have sufficient cash flow to cover its operating, investing and debt payment
requirements. Therefore, Novex has developed plans to improve profitability and
cash flows and to raising capital, if necessary.
3
<PAGE>
To improve Novex's profitability, management has undertaken a number of
initiatives to increase sales and reduce expenses. For example, Novex has issued
a new price list and freight policy that became effective June 1, 2000. The new
price list will improve Novex's margins on sales of its Por-Rok products and the
new freight policy will pass all outgoing freight charges to the customers.
Novex will also begin marketing some of its former Novacrete products under the
Por-Rok brandname to existing Por-Rok customers. In addition, management is
aggressively pursuing sales of the Por-Rok and Sta-Dri products to large home
center stores and major cooperative retailers of building materials.
To improve cash flow, Novex is working to procure more favorable payment
terms from vendors by extending the payment due date for raw materials and
supplies used in manufacturing. These vendors had initially been willing to
extend only limited credit to Novex, soon after its acquisition of the Por-Rok
product line from The Sherwin-Williams Company, due to Novex's small size. At
the time, the limited credit terms increased our use of cash for operations.
Novex also intends to seek additional financing from third-party sources.
Although Novex's assets are fully secured by loans outstanding to Dime
Commercial Corp. and Montcap Financial Corp., Novex would seek to raise
additional capital through the sales of unsecured debt securities, unsecured
debt combined with equity securities or preferred and common stock. It is
likely, however, that any unsecured debt financing would carry a higher interest
rate than secured financing or that any equity financing might be on terms which
are not favorable to Novex and which are dilutive to existing shareholders.
Inflation and Changing Prices
Novex 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 Novex in the manufacturing of its materials are available locally through
many sources and are for the most part commodity products. For these reasons,
while Novex 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 Novex and its former
president, Mr. A. Roy Macmillan, to enjoin Novex from taking any action that
would restrict the sale of up to 300,000 shares 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 Novex expect him to ask for, damages. The Plaintiff has
since named Novex's current president, Mr. Dowe, in the lawsuit. The Plaintiff
has no other affiliation with Novex other than for being a shareholder. The
plaintiff submitted a motion for summary judgment which the court denied. Novex
has raised several defenses to this action and believes that plaintiff's claims
are without merit. Novex has also asserted multiple counterclaims against the
plaintiff alleging that he caused the company to issue to himself and others
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. Plaintiff claims that he received
stock as compensation for services rendered. When Novex investigated the matter
it found virtually no records of any tangible service. These actions and
omissions caused the U.S. Securities and Exchange Commission in or about 1997 to
commence an investigation of the
4
<PAGE>
company, then known as Stratford Acquisition Corp. 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.
Item 2. Changes in Securities
In the three month period ended August 31, 2000, the Company issued
1,000,000 shares of its $.001 common stock to the Sta-Dri shareholders as part
of the Sta-Dri transaction. The stock was valued at $137,000 based on the
average trading price three days before and after the date the acquisition was
agreed to and announced, which was August 1, 2000. The common stock carries
piggyback registration rights. Therefore, in the event that Novex shall register
any shares of its common stock within one year from August 1, 2000, the Company
will register any of the unregistered and non- freely tradeable shares of common
stock issued to the Sta-Dri shareholders. Additionally, Novex has provided the
Sta-Dri shareholders with the right to purchase any shares of Novex common stock
or securities convertible into its common stock which may be offered for sale
from August 1, 2000 until August 12, 2002.
Also during this period, Novex issued 1,390,388 shares of its Series A
Redeemable Convertible Preferred Stock ("Preferred Stock") to The
Sherwin-Williams Company as part of Sherwin-Williams' agreement to convert the
entire principal amount of the outstanding Sherwin- Williams Note plus all
accrued and outstanding interest into Preferred Stock. The Series A Redeemable
Preferred Stock pays an annual dividend of 139,038 shares of Preferred Stock for
two consecutive years and if the Preferred Stock is not redeemed prior to August
7, 2002, an additional 208,558 shares of Preferred Stock shall be issued to
Sherwin-Williams. If on August 7, 2002, any of the Preferred Stock that has not
been redeemed shall be converted into common stock at a rate equal to 85% of the
Novex' average closing trading price for Novex' $.001 par value common stock for
twenty consecutive trading days prior to August 7, 2002.
As part of its policy regarding directors' compensation, the Company issued
a total of 30,000 shares of common stock to its three non-management directors
as compensation for the second quarter board meeting.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
Effective October 19, 2000, Novex sold certain assets used in the
manufacturing of concrete reinforcing fibers to Interstar Materials Inc. of
Quebec, Canada. Part of the proceeds will be used to pay off the outstanding
balance on the equipment loan from Montcap Financial Corporation. The remaining
cash proceeds will be used to pay down debts. The company plans to sell the
remaining manufacturing equipment and close the Mississauga, Ontario plant.
Novex will retain ownership of its proprietary concrete enhancing admixture, all
accounts receivable and the Fiberforce trade name. Novex will continue to use
the Fiberforce trade name to promote sales of one particular type of
concrete-reinforcing fiber that Novex will continue to market to The Home Depot
and other home improvement centers and retail outlets.
Item 6. Exhibits and Reports on Form 8-K
10.7 Certificate of Designation between The Sherwin-Williams Company
And Registrant re Conversion of Note to Preferred Stock
5
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, Novex Systems International Incorporated 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 and Chief Executive Officer
Date: October 23, 2000
6
