UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 13, 1999
Novex Systems International, Inc. (Formerly Stratford Acquisition Corp.)
(Exact name of registrant as specified in its charter)
New York 0-26112 41-1759882
(State of Jurisdiction) (Commission (IRS Employer I.D. No.)
File No.)
16 Cherry Street, Clifton, New Jersey 07014
(Address of Principal Executive Offices)
Registrant's telephone number (including area code): 973-777-2307
<PAGE>
Item 1. Changes in Control of Registrant. None.
Item 2. Acquisition or Disposition of Assets.
On August 13, 1999, the Company acquired from The Sherwin Williams
Company ("Sherwin") certain assets representing their Allied/Por-Rok
business. Por-Rok manufactures a well-known line of grouting and
concrete patching products that are distributed throughout the United
States, and are currently available in over 300 outlets that stock
Por-Rok's products.
The Registrant manufactures and markets a line of specialty building
materials and synthetic concrete reinforcement fibers. With this
acquisition, the Registrant will be expanding its current product line
to include well-known product brand names like Por-Rok, Dash Patch and
Lev-L-Astic. Novex will continue to manufacture its concrete
reinforcing fibers in its Mississauga, Ontario facility and will
continue to operate the Por-Rok plant located in Clifton, New Jersey.
Pursuant to the purchase agreement Novex (I) paid $800,000 to Sherwin,
(ii) issued 1,000,000 shares of restricted common stock to Sherwin
with the requirement to register the common stock with the Securities
and Exchange Commission and (iii) issued a note payable for
$1,294,973, as adjusted from $1,300,000, which bears interest at 10%
per annum and is payable over a one year period. In order, to induce
Sherwin to accept the note payable, the Company had to convert all the
previously issued debt to equity, except for the $250,000 debenture
which will be paid as a condition of the Allied/Por-Rok acquisition.
Further, Sherwin has a subordinated security interest in substantially
all the assets of the company.
Novex has entered into a $890,000 installment term note with Dime
Commercial Corp. of which $800,000 was used for the purchase of Allied
/ Por Rok and the remaining $90,000 was used for working capital needs
in fiscal 2000. This financing arrangement also provides for a
$750,000 revolving note payable to fund future working capital
requirements. The bank has a senior secured interest in substantially
all the assets of Novex. In addition, the Company granted a class B
warrant with a Aput@ right to purchase 233,365 shares of restricted
common stock at an exercise price of $.25. Dime Commercial Corp. has
the right to demand the purchase of the warrant if Novex completes a
refinancing of all or a portion of the Dime term loan and/or revolving
line of credit from funds provided by someone other than Dime.
Therefore, Dime has the option of requesting payment in cash or
waiving its right to sell the warrant to Novex. If Dime requests
payment the amount they will receive is either (I) if the closing
stock price is less than or equal to the exercise price, then Novex
pays $58,341, which is the exercise price times the 233,365 shares
underlying the warrant or (ii) if the closing price exceeds the
exercise price, then Novex pays the closing price up to a
<PAGE>
maximum of $.51 per share underlying the warrant or $119,016.
Alternatively, if Dime decided to exercise the warrant, they can issue
a 60-day non-interest bearing note for the entire amount due to Novex
for the 233,365 shares of common stock underlying the warrant.
A total of $20,400 has been allocated to the put warrant, resulting in
a liability. The fair value of the put warrant was estimated on the
date of grant using the Black-Scholes option pricing model with the
following assumptions: stock price of $.26 per share; annual dividend
of $0; expected volatility of 50%; risk free interest rate of 6%; and
an expected life of two years.
Goodwill of $584,867 resulted from this acquisition and is determined
as follows:
Assets acquired:
Accounts receivable $ 311,983
Inventory 225,661
Furniture and equipment 566,360
Building 415,000
Land 400,000
----------
Total $1,919,004
Purchase price 2,354,973
----------
435,969
Acquisition costs 148,898
----------
Goodwill $ 584,867
==========
Item 3. Bankruptcy or Receivership. None.
Item 4. Changes in Registrant's Certifying Accountant. None.
Item 5. Other Events. None.
Item 6. Resignation of Registrant's Directors. None.
Item 7. Financial Statements and Exhibits.
Attached hereto are the special-purpose financial statements of
Allied/Por-Rok as well as the unaudited pro forma consolidated
statement of operations for the year ended May 31, 1999 reflecting the
combined results of the Company and the acquisition on August 13, 1999
of the Allied/Por-Rok division of the Sherwin Williams Company
(ASherwin@) as if the acquisition had occurred on June 1, 1998, and
for the nine months ended February 29, 2000 to reflect the combined
results of the Company and the Allied/Por-Rok division of Sherwin as
if the acquisition had occurred on June 1, 1998.
<PAGE>
The unaudited pro forma consolidated statements of operations do not
necessarily represent actual results that would have been achieved had
the companies been together at the beginning of each respective
period, nor are they necessarily indicative of future results. These
unaudited pro forma consolidated financial statements should be read
in conjunction with the companies' respective historical financial
statements and notes thereto.
Item 8. Change in Fiscal Year. None.
Item 9. Sales of Equity Securities Pursuant to Regulation S. None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NOVEX SYSTEMS INTERNATIONAL, INC.
(Registrant)
Dated: July 5, 2000
/s/ Daniel W. Dowe
---------------------------------
Daniel W. Dowe, President
16 Cherry Street
Clifton, New Jersey 07014
973-777-2307
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
----
ALLIED/POR ROK
Independent Auditors' Report F-1
Statement of Assets Acquired as of August 13, 1999 F-2
Statements of Revenues and Cost of Goods Sold
for the years ended December 31, 1998 and 1997
and from January 1, 1999 to August 13, 1999 (Unaudited)
for the nine months ended September 30, 1998 (Unaudited) F-3
Notes to Statement of Assets and Statement of Revenues
and Cost of Goods Sold F-4
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Description of Unaudited Pro Forma Consolidated Financial Statements F-7
Unaudited Pro Forma Consolidated Statement of Operations
For the nine months ended February 29, 2000 F-8
Unaudited Pro Forma Consolidated Statement of Operations
For the year ended May 31, 1999 F-9
Notes to Unaudited Pro Forma Consolidated Financial Statements F-10
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
Novex Systems International, Inc. and Subsidiary
We have audited the accompanying special-purpose statement of assets acquired of
Allied/Por-Rok (formerly a division of The Sherwin Williams Company) as of
August 13, 1999 and the special-purpose statements of revenues and costs of
goods sold for the years ended December 31, 1998 and 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these special-purpose 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 audits 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
The accompanying special-purpose financial statements were prepared for the
purpose of complying with SEC Rule 3-05 of Regulation S-X, in reporting the
Company's acquisition of Allied/Por Rok (formerly a division of The
Sherwin-Williams Company). As discussed in Note 1, these special-purpose
financial statements are not intended to be a presentation of the financial
position, results of operations, and cash flows of Allied/Por-Rok (formerly a
division of The Sherwin Williams Company) in conformity with generally accepted
accounting principles.
In our opinion, the special-purpose financial statements referred to above
present fairly, in all material respects, the assets acquired of Allied/Por Rok
(formerly a division of The Sherwin Williams Company) as of August 13, 1999 and
the results of its revenues and cost of goods sold for the years ended December
31, 1998 and 1997 on the basis of accounting described in Note 1.
/s/ Feldman Sherb Horowitz & Co., P.C.
Feldman Sherb Horowitz & Co., P.C.
Certified Public Accountants
New York, New York
January 26, 2000
F-1
<PAGE>
ALLIED / POR ROK
STATEMENT OF ASSETS ACQUIRED
August 13, 1999
ASSETS
CURRENT ASSETS:
Accounts receivable $ 311,983
Inventories 225,661
----------
Total Current Assets 537,644
FURNITURE AND EQUIPMENT 566,360
BUILDING 415,000
LAND 400,000
----------
$1,919,004
==========
See notes to statements of assets.
F-2
<PAGE>
ALLIED/POR ROK
STATEMENTS OF REVENUES AND COST OF GOODS SOLD
<TABLE>
<CAPTION>
From January 1, Nine Months
1999 to Ended Year ended December 31,
August 13, September 30, ---------------------------------
1999 1998 1998 1997
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET SALES $ 1,010,012 $ 1,345,592 $ 1,725,853 $ 1,262,008
COST OF GOOD SOLD 811,192 938,743 1,400,222 1,283,769
----------- ----------- ----------- -----------
GROSS PROFIT (LOSS) $ 198,820 $ 406,849 $ 325,631 $ (21,761)
=========== =========== =========== ===========
</TABLE>
See notes to statement of revenues and cost of goods sold.
F-3
<PAGE>
ALLIED / POR ROK
NOTES TO STATEMENTS OF ASSETS
AND STATEMENTS OF REVENUE AND COST OF GOODS SOLD
1. BASIS OF PRESENTATION
Allied / Por Rok, formerly a division of Sherwin Williams Inc.
("Sherwin") as of August 13, 1999, operates as a manufacturer of
building materials. Because the division was not a separate legal
entity and did not maintain separate financial records, a complete set
of financial statements has not been presented. Instead a statement of
assets using the historical cost of Sherwin as of the date of
acquisition (August 13, 1999) and statements of revenue and cost of
goods sold for the years ended December 31, 1998 and 1997 have been
presented. Accordingly certain expenses incurred by the division while
operating as part of Sherwin have been omitted because they are not
essential to its revenue producing activities.
On August 13, 1999 substantially all the assets of Allied / Por Rok
were acquired by Novex Systems International, Inc. ("Novex") from
Sherwin. The transaction was accounted for as a purchase, whereby
Novex acquired assets in exchange for $800,000 cash, 1,000,000 shares
of Novex's common stock valued at $260,000, and a note payable to
Sherwin in the amount of approximately $1,300,000 which bears interest
at 10% per annum payable over a one year period.
Included in cost of goods sold are all of the costs charged to cost of
goods sold by Sherwin including materials, direct labor and factory
overhead. Factory overhead includes indirect labor, related benefits
for pension, stock compensation, medical, payroll taxes, production
management and supervisor salaries, related benefit costs,
depreciation on fixed assets, real estate taxes, repairs and
maintenance, utilities, shop supplies, waste removal and other
indirect costs.
The expenses omitted from the financial statements represent
professional fees and certain advertising costs of approximately
$60,000 for the year ended December 31, 1998 and $5,000 for the year
ended December 31, 1997. The financial statements do not include any
allocations of corporate overhead or interest from other divisions or
units within The Sherwin William Company.
2. SIGNIFICANT ACCOUNTING POLICIES
(a) Recognition of revenue - revenues are recognized upon completion
of the sale which is when goods are shipped to the customer.
F-4
<PAGE>
ALLIED / POR ROK
NOTES TO STATEMENTS OF ASSETS
AND STATEMENTS OF REVENUE AND COST OF GOODS SOLD
(b) Use of estimates - The preparation of financial statements in
conformity with generally accounting principles requires
management to make estimates and assumptions that effect 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 revenue and expenses
during the reporting period. Actual results could differ from
those estimates.
(c) Depreciation - Fixed assets are depreciated over the estimated
useful life of the related asset using the straight line method.
(d) Unaudited Interim Financial Statements - The statements of
revenues and cost of goods sold from January 1, 1999 to August
13, 1999 and for the nine months ended September 30, 1998 are
unaudited but include all adjustments which in the opinion of
management, are necessary to the fair presentation of the results
of operations for the periods then ended. All such adjustments
are of a normal recurring nature. The results of the operations
for any interim periods are not necessarily indicative of results
for a full fiscal year. The annual financial statements presented
are not indicative of results of operations going forward because
of the difference in cost structure of Novex Systems
International, Inc. ("Novex") from that of The Sherwin Williams
Company from which the Por-Rok business was acquired. Other than
medical benefits, Novex does not currently offer any other
employee benefits. In addition, Novex has omitted approximately
$65,000 in indirect labor that was included in the historical
financial statements of The Sherwin-Williams Company. Novex will
incur other expenses, namely interest, sales commissions and
goodwill amortization and certain administrative expenses that
were not incurred by The Sherwin Williams Company. See the Notes
to Unaudited Pro Forma Consolidated Financial Statements for
further discussion.
3. INVENTORIES
Inventories consist of the following at August 13, 1999.
Raw materials $160,470
Finished goods 65,191
--------
$225,661
========
F-5
<PAGE>
ALLIED / POR ROK
NOTES TO STATEMENTS OF ASSETS
AND STATEMENTS OF REVENUE AND COST OF GOODS SOLD
4. FURNITURE AND EQUIPMENT
Furniture and equipment are comprised of the following at August 13,
1999:
Machinery and equipment $539,860
Furniture and fixtures 5,000
Computers 7,500
Vehicles 14,000
--------
$566,360
========
F-6
<PAGE>
NOVEX SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARY
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated statements of operations for the
year ended May 31, 1999 reflect the combined results of the Company and the
acquisition on August 13, 1999 of the Allied/Por-Rok division of the Sherwin
Williams Company ("Sherwin") as if the acquisitions had occurred on June 1,
1998, and for the nine months ended February 29, 2000 reflect the combined
results of the Company and the Allied/Por-Rok division of Sherwin as if the
acquisition had occurred on June 1, 1998.
The unaudited pro forma consolidated statements of operations do not necessarily
represent actual results that would have been achieved had the companies been
together at the beginning of each respective period, nor are they necessarily
indicative of future results. These unaudited pro forma consolidated financial
statements should be read in conjunction with the companies' respective
historical financial statements and notes thereto.
F-7
<PAGE>
NOVEX SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARY
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Ended February 29, 2000
<TABLE>
<CAPTION>
Historical Adjustments Pro - Forma
------------------------------- ------------------------------ ------------
Novex Systems Allied/ Debit Credit
International, Inc. Por Rok Amount Amount Total
<S> <C> <C> <C> <C> <C>
NET SALES $ 1,390,412 $ 265,978 $ -- $ -- $ 1,656,390
COST OF GOOD SOLD 959,353 241,992 -- -- 1,201,345
------------ ------------ ------------ ------------ ------------
GROSS PROFIT 431,059 23,986 455,045
SELLING, GENERAL AND ADMINISTRATIVE 1,027,423 -- 4,873(2) 1,092,296
60,000(4)
------------ ------------ ------------ ------------ ------------
LOSS FROM OPERATIONS (596,364) 23,986 64,873 -- (637,251)
INTEREST EXPENSE (192,803) -- 36,859(1) -- (229,662)
OTHER EXPENSE (70,791) -- -- -- (70,791)
------------ ------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (859,958) $ 23,986 $ 101,732 $ -- $ (937,704)
============ ============ ============ ============ ============
LOSS PER SHARE $ (0.04) $ (0.04)
============ ============
WEIGHTED AVERAGE SHARES 20,818,206 20,818,206
============ ============
</TABLE>
See notes to unaudited pro forma consolidated financial statements.
F-8
<PAGE>
NOVEX SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARY
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended May 31, 1999
<TABLE>
<CAPTION>
Historical Adjustments Pro - Forma
------------------------------- ------------------------------ -------------
Novex Systems Allied/ Debit Credit
International, Inc. Por Rok Amount Amount Total
------------------- --------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
NET SALES $ 321,311 1,639,077 $ -- $ -- $ 1,960,388
COST OF GOOD SOLD 113,305 1,386,333 -- -- 1,499,638
------------ --------- ------------ ------------ ------------
GROSS PROFIT 208,006 252,744 460,750
SELLING, GENERAL AND ADMINISTRATIVE 1,389,259 -- 35,243(2) -- 1,669,302
244,800(4) --
------------ --------- ------------ ------------ ------------
LOSS FROM OPERATIONS (1,181,253) 252,744 280,043 -- (1,208,552)
INTEREST EXPENSE (97,905) -- 241,148(1) -- (339,053)
OTHER INCOME (EXPENSE), net (113,182) -- -- -- (113,182)
------------ --------- ------------ ------------ ------------
NET INCOME (LOSS) BEFORE INCOME TAXES (1,392,340) 252,744 521,191 -- (1,660,787)
INCOME TAXES -- -- -- -- --
------------ --------- ------------ ------------ ------------
NET INCOME (LOSS) $ (1,392,340) 252,744 $ 521,191 $ $ (1,660,787)
============ ========= ============ ============ ============
LOSS PER SHARE $ (0.10) $ (0.11)
============ ============
WEIGHTED AVERAGE SHARES 13,720,171 1,000,000(3) 14,720,171
============ ============ ============
</TABLE>
See notes to unaudited pro forma consolidated financial statements.
F-9
<PAGE>
NOVEX SYSTEMS INTERNATIONAL, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Acquisition of Allied/Por-Rok
On August 13, 1999, Novex Systems International, Inc. ("Novex") acquired from
The Sherwin Williams Company ("Sherwin") certain assets representing their
Allied / Por Rok business. The transaction was accounted for as a purchase,
whereby Novex acquired assets in exchange for $800,000 in cash, 1,000,000 shares
of its common stock valued at $260,000, and a note payable to Sherwin in the
amount of $1,294,973, which bears interest at 10% per annum payable over a one
year period. Goodwill of $584,867 resulted from this acquisition and is
determined as follows:
Assets acquired:
Accounts receivable $ 311,983
Inventory 225,661
Furniture and equipment 566,360
Building 415,000
Land 400,000
----------
Total 1,919,004
Purchase price 2,354,973
----------
435,969
Acquisition costs 148,898
----------
Goodwill $ 584,867
==========
Pro Forma Adjustments
(1) - To record interest expense on the debt incurred to finance the acquisition
of the Allied/Por Rok business of Sherwin.
(2) - To record amortization on the goodwill arising from the acquisition of the
Allied/Por Rok business of Sherwin.
(3) - To record issuance of 1,000,000 shares of Novex common stock in the
acquisition of the Allied/Por Rok business of Sherwin.
(4) - To record additional expenses expected for sales commissions, bad debts,
office expenses and salaries.
